Nader, Ralph, prepared statement... National Association of Federal Credit Unions, statement presented by National Association of State Savings and Loan Supervisors, statement National Credit Union Administration, statement presented by Gen. Page 926 1413 1288 785 839 1181 National People's Action on Housing, Chicago, Ill., statement presented on behalf by Gale Cincotta, chairperson... 2478 National Savings & Loan League, prepared statement presented on behalf by Harold W. Greenwood, Jr.. 1673 National Task Force on Credit Policy, Los Angeles, Calif., statement presented by James Lowery, director.. 967 Needham, James J., chairman, New York Stock Exchange: 2088 2056 Statement... 2045 New York Stock Exchange, updated statement submitted by James J. 2056 Nickerson, General Herman, Jr.: Prepared statement- 1185 Responses to questions of Chairman Fernand J. St Germain___ Patman, Hon. Wright: 1196, 1197 "Fed's Problem List," article from the New York Times, January 22, Letter dated January 20, 1976, to Hon. Roderick Hills, Chairman, 2329 2242 Burns, Hon. Arthur, Chairman, Board of Governors, Federal 2380 Smith, Hon. James, Comptroller of the Currency, Department of 2380 Staats, Hon. Elmer, Comptroller General of the United States__ 2379 2381 "Little-Noticed Law Gives SEC Authority Over Banks, Thrifts on Securities Matters," article from the American Banker, dated November 15, 1974 2329 News Release dated January 25, 1976, requesting GAO to conduct an immediate full-scale audit of the Federal Deposit Insurance Corporation_... 2379 "12 Big Bank Companies on 'Problem' List of 35 at the Federal Reserve a Year Ago,” article from the New York Times of January 22, 1976_ 2237 Pierce, Dr. James L., prepared statement.. 9 Richardson, Prof. Lee, prepared statement presented on behalf of the Schechter, Dr. Henry, information supplied at request of Congressman 2384 Schotland, Roy A.: "Chase Buys $85.5 Million of No-Income Property," article from 496 496 Scott, Tom, Jr., legislative chairman, prepared statement presented on Securities Industry Association, statement presented on behalf by I. W. Schotland, Roy A.-Continued "Composite Bank Operating Ratio Study of Franklin National Bank and 2 Peer Deposit Size Banks in New York," and "Composite Bank Operating Ratio Study of American Bank and Trust Company and 4 Peer Deposit Size Banks in South Carolina," publications submitted for record... Prepared statements. Page 358 318, 500 1626 2265 2010 Silber, Dr. William L., prepared statement entitled, "Thrift Institutions, 130 Simons, Lawrence B.: Prepared statements on behalf of the National Association of Home 1294, 1306 Table re housing expenses and income required to buy a new onefamily home... 1341 Smith, Hon. James E., prepared statement. 2420 Swan, Dr. Craig, prepared statement.. 143 Treasury Department, statement presented by Hon. Stephen S. Gardner, 591 U.S. League of Savings Associations, prepared statement submitted on behalf by Tom Scott, Jr. 1626 Von Klemperer, Alfred H., prepared statement on titles VI and VII of "Discussion Principles". 439 Weicher, Hon. John C.: Prepared statement with attached table denoting mortgage savings available to low-moderate income mortgagors under the lowmoderate income mortgage tax credit.. Response to question of Hon. Jerry M. Patterson: What are the advantages of retaining the concept of membership in the Fed versus uniform reserve and equal access concept?. 587 Wolfe, Alexander McW., president, prepared statement presented on behalf of the Bankers Association for Foreign Trade.. 1794 FINANCIAL INSTITUTIONS AND THE NATION'S ECONOMY (FINE) "DISCUSSION PRINCIPLES" THURSDAY, DECEMBER 18, 1975 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE COMMITTEE ON BANKING, CURRENCY AND HOUSING, Washington, D.C. The subcommittee met at 10:05 a.m. in room 2128, Rayburn House Office Building, Hon. Fernand J. St Germain [chairman of the subcommittee] presiding. Present: Representatives St Germain, Moorhead, and Derrick. Also present: Representative Grassley. Mr. ST GERMAIN. The subcommittee will come to order. The Chair would like to welcome to the continuation of the hearings on the FINE "Discussion Principles"-this morning's two panels representing the U.S. League and the National Savings & Loan League. We have Tom Scott, Jr., of the U.S. League, Norman Strunk, and Dr. Kenneth Thygerson. For the National League, we have Harold Greenwood, Arthur Tomsmeier, Henry Carrington, and William Hallahan. As the panel is aware, I am sure, there is a busy morning on the floor. In order to keep up with our schedule, we are going to ask Mr. Scott, representing the U.S. League, to begin delivering the statement for the U.S. League. The Chair will answer some quorum calls and votes in the interim, but at least we can hear the testimony in an orderly fashion. At this time, without objection, we will put Mr. Scott's entire statement in the record, as presented, and you may proceed, Mr. Scott. STATEMENT OF TOM SCOTT, JR., LEGISLATIVE CHAIRMAN, U.S. LEAGUE OF SAVINGS ASSOCIATIONS, ACCOMPANIED BY NORMAN STRUNK, EXECUTIVE VICE PRESIDENT, AND DR. KENNETH THYGERSON, CHIEF ECONOMIST Mr. SCOTT. Thank you, Mr. Chairman. I am Tom Scott, Jr., and I am president of Unifirst Federal Savings & Loan of Jackson, Miss. I appear today as chairman of the Legislative Committee of the U.S. League of Savings Associations. At the table with me are Norman Strunk, executive vice president of the League, and Dr. Kenneth Thygerson, our chief economist. Before proceeding, I would like to express to the members of this subcommittee our deep appreciation for your work on H.R. 10024 and the excellent compromise on rate control and the differential achieved in conference with the Senate. The 14-month extension gives our business and the 94th Congress some breathing room to look at the broader questions of the FINE Study without the overhanging possibility that rate control might be interrupted. We appreciate your invitation to discuss the FINE "Discussion Principles." While we may differ with the authors on our reading of the home finance situation in recent years and the contributions of specialized institutions, we consider the FINE undertaking to be very constructive. It challenges us to justify our existence and to think ahead in terms of the ideal type of financial structure for this country. I am going to summarize the material in the first 32 pages of our prepared statement, and then ask Mr. Strunk to discuss how the U.S. League visualizes a strengthening for our financial system. The "Discussion Principles" suggest that a reordering of the financial institution structure and regulation will achieve new stability for the financial system and, in particular, the housing sector of our economy. To begin with, 1975 has been a strong year for the savings and loan business, with an expected $46 billion in net savings growth and an even greater amount, $57 billion, in mortgage loans. Our associations today make 88 percent of the increase in residential mortgage loans by depository institutions. Most of this lending is on used or existing housing, which, I would point out, is basically a moderate-income housing market. While our lending is at record levels, no one denies that the homebuilding industry is in tough shape today, nor that it has been buffeted about for the past decade. You have heard that the performance of lending institutions is to blame. But I submit there are other reasons, as well. The average price of a new home is currently $44,000; as recently as 1970, it was $22,300. In 1970 more than one-third were priced less than $20,000, while only 13 percent were priced at $40,000 and more. By last year the situation was reversed, with only 6 percent of new homes priced $20,000 and less and 40 percent above $40,000. The cost of materials, labor, energy, land, zoning, water and sewer moratoriums, and other factors have contributed to this spiral. Not only have homebuilding costs rocketed upward, but the real take-home income of buyers has been seriously eroded by increased costs of food, transportation, medical care, utilities, and other family necessities. These rising costs reduce a family's potential for homeownership. There is a common element in the factors I have just recited. That is inflation. I submit that neither homebuilders nor home lenders are responsible for inflation. On page 25 of our prepared statement there is a table which demonstrates what inflation has done to credit costs. The first column shows the effective conventional loan rate on new homes, and the second the yield on high grade corporate bonds. An inflation-prone economy casts doubt on any credit extension 10, 20, or 30 years hence. While we are no happier than the homebuilders or the public about the escalation in the cost of long-term housing credit, we do note that since 1963 the mortgage rate relative to bond rates has actually fallen by over 2 percent. The ups and downs of housing over the past decade owe far more to the economic imbalances created by inflation than they do to the powers and restrictions of financial intermediaries. We have supported the congressional resolve to improve the budget process. We also commend the efforts of the "Discussion Principles" to focus further attention on the conduct of monetary policy. It is our view that a more stable monetary and fiscal policy in the future holds promise of keeping inflation under better control. If that happens, we believe that our diversified financial system could work extremely well. Even with the succession of money crunches since 1965, our specialized institutions have responded remarkably well. In our view, the Congress should inspect carefully the performance of our specialized home finance institutions before risking an untried system of homogenized, general purpose financial institutions. If you look at the tables appearing on page 23 of our testimony, you will see that mortgage credit from our specialized savings associations more than doubled during the inflationary late 1960's and early 1970's, and that housing starts and mobile home shipments picked up as well, compared to the preceding decade. In brief, our population was able to build more homes and obtain more credit than at any other time in American history. The reason that the mortgage market has performed as well as it has in competition with other long-term credit users, of course, is the existence of the savings and loan business. We are specialized institutions developed carefully by acts of Congress, strengthened by insurance of deposits, the Federal Home Loan Bank System, and controls on savings interest rates. It is hard to conceive any new financial system which would function as adequately and remain viable under double digit inflation. An important ingredient in this stability has been the savings rate control system which has successfully accomplished its mission; namely, preventing ruinous rate wars between depository institutions. That the controls work is obvious. We need only go back to mid 1973 to recall the wild card experiment and corrective action taken by members of this subcommittee. Critics of the rate control system complain that it has not prevented "disintermediation"-the loss of funds from banks and S. & L.'s to the money market. But we must point out that regulation Q was never intended to prevent disintermediation. While occasional periods of disintermediation are surely not welcome, they have not been so disruptive as to justify the dismantling of specialized institutions, After all, we do have the Federal Home Loan banks which provide ample credit to the thrift business during periods of monetary stress and the various mortgage credit agencies, including the Federal Home Loan Mortgage Corporation. The table appearing on page 17 also shows that as painful as disintermediation has been, the Home Loan Bank System advances are available to take up the slack and keep mortgage credit flowing. The "Discussion Principles" contend that savings rate controls discriminate against small savers. To say this is to say that savers have no |