tion I know of for the reason that the banker who has $25,000 capital and pays $15 a year for membership has exactly the same voice in the management and direction of this association as the biggest bank in the United States.

So, we come, presenting this morning, with your permission, the viewpoint of the bankers toward this legislation and we come for this reason, that this legislation is not only a piece of legislation directed in the direction of relief for agriculture, but it is more than that. It is legislation that affects seriously and fundamentally the credit structure of this Nation. It not only is a matter involving the reorganization of the Federal land bank system, but the impact of the theories and the philosophies underlying this legislation will be far reaching on the whole credit structure of the country.

It will be far reaching on the credit of private institutions and chartered institutions, and we come to you, very frankly, saying that we have a selfish interest in this proposition, if representing our institutions is construed to be a selfish interest; if representing the depositors in banks is a selfish position, why, we come here very frankly in a selfish position, because this legislation will affect every depositor and every bank in the United States and every other investor in any security in the United States.

Now, we operate, gentlemen, and this is the first opportunity we have had to come before this committee to talk with you about legislation affecting the country and we come to you in a spirit of trying to help analyze this thing and to help bring out all of the points that we can develop that will be of help, any help to you whatever in arriving at your decisions.

We hope that we may have the time to present a number of witnesses who will develop different phases of this legislation. It is far reaching. It is not a simple proposition, as you men well appreciate. As a matter of fact, most of the folks back home do not even know about this bill. It was introduced about a month ago and you have had a few hearings, and the people back home do not know much about it. They are beginning to find out. It is so important and so far reaching that we only ask you gentlemen to give plenty of time and opportunity to the people who are really interested and really affected and will be affected, and I believe that includes everybody in the United States, eventually or ultimately. So, we would like to have an opportunity to develop all of the ideas and suggestions on the subject.

Now, gentlemen, I would like to have you hear first from a man who is a member of our committee on Federal legislation, and let me say here that we are just amateurs in this matter of presenting our case to committees of Congress. We do not operate through professional pleaders. We are just country bankers that come here to talk about these matters that are of interest to you and to us, and we have brought in, and are bringing in, bankers from throughout the country, from the West and the South and the East to present various phases of this legislation.

The first man, Mr. Chairman, that I would like to ask you to hear is a member of our committee on Federal legislation. He has been a director of a land bank for some years. He is thoroughly familiar with the operations of the system, Mr. Charles H. Mylander, of Columbus, Ohio.

STATEMENT OF CHARLES H. MYLANDER, VICE PRESIDENT OF THE HUNTINGTON NATIONAL BANK, COLUMBUS, OHIO, AND MEMBER OF THE COMMITTEE ON FEDERAL LEGISLATION OF THE AMERICAN BANKERS' ASSOCIATION

Mr. CHAIRMAN. Mr. Mylander, we will be glad to hear you. Mr. MYLANDER. Mr. Chairman, and gentlemen of the committee; my name is Charles H. Mylander. I am vice president of the Huntington National Bank of Columbus, Ohio. For several years I have been a member of the committee on Federal legislation of the American Bankers' Association and it is in that capacity, as Mr. Wiggins has just told you, that I come before you this morning to oppose the enactment of H. R. 8748 which, in my opinion, would completely destroy the Federal land-bank system, as we now know it.

I am now an officer of a city commercial bank. I was born and reared in a small town in northern Ohio. After going to college, I went into newspaper work for a time and then became executive secretary of the Ohio Bankers' Association. That organization at that time had a membership of about 900 banks in the State of Ohio and represented about 95 percent of all the banks in that State. Eight years ago I became associated as a vice president with the Huntington National Bank.

I apologize for the autobiography, but I feel that I ought to tell you my background so that you could know something of the studies which I have made in the last 25 years of the Federal land-bank system and of the effect which that system has had upon farm credit, upon country banks, and also upon banks in the Reserve cities, such as I now represent, and our own bank, which has some 300 country banks as its customers.

I am very proud to be able to say that from the inception of the Federal land-bank system itself, I do not believe it has had any stronger supporter than the Huntington National Bank of Columbus. During the entire 23 years that the Federal land-bank system has been in existence our bank has been a consistent and continuous investor in Federal land-bank bonds. We have also urged our country-bank customers to buy these bonds for investment, and we have urged individual depositors in our institution who had money which they were seeking to invest to buy Federal land-bank bonds. We did this because we believed that the Federal land-bank bonds were a sound method of financing long-term first mortgage credit at reasonable rates to farmers. We believed also that country banks themselves should not invest their funds in long term first mortgages on farms, but should assist the farmer in getting his long term first mortgage credit through the purchase of land-bank bonds for which there always has been a ready market.

For a long time our institution was one of the heaviest purchasers of Federal land-bank bonds in the Middle West. I suppose it was because of that and because of our known friendship toward the Federal land-bank system and because of a personal acquaintance that I had with the former Governor, Hon. W. I. Myers, that I was appointed as a director at large of the Louisville Farm Credit District on January 1, 1935. So for the last five and a quarter years I have had an opportunity to observe the operation of the Federal

land-bank system from the inside, as a director, of what I claim to be, gentlemen, the best Federal land bank out of the 12.

The establishment of the Federal land-bank system in 1916 came as a result of a demand by farmers that they

Mr. ZIMMERMAN. Would you mind an interruption at that point? Mr. MYLANDER. No, Mr. Zimmerman.

Mr. ZIMMERMAN. You made the statement that your institution is opposed to the taking of long-time mortgages on farms by local banks, but you urged the bankers to take the bonds, buy these bonds. Mr. MYLANDER. Yes, sir.

Mr. ZIMMERMAN. Of course, the bonds are backed up by farm mortgages, and I would like to know why you represented that they should not take these farm mortgages as security for loans. That seems to me a very important question.

Mr. MYLANDER. It seems to you what?

Mr. ZIMMERMAN. It seems to me to be a very important question. Mr. MYLANDER. Yes, sir. Our theory on that was this: The country bank is engaged in making loans in its own community. Most country banks make their loans right at home. They are community organizations. They serve their own communities. They receive deposits from the people in their communities, and they invest those funds in loans in their own communities. Those deposits, sir, are repayable on demand and we have felt that the country bank was taking an undue risk when it invested demand deposits in mortgages repayable over a term of 20 or 30 years, because when the time came that the depositor wanted his money from the country bank, he, in many cases, was the same individual who had borrowed money from that bank and who thought he had 20 or 30 years to pay it back. Consequently we have said to the country banker-our theory has been-invest your deposits in short-term loans, production loans, if you will, and if you then have a surplus, help out in the long-term mortgage market through the purchase of Federal land-bank bonds, because if the depositor wants his money, you can sell those Federal land-bank bonds to someone else and get the money with which to pay your depositors, whereas if you have a mortgage on a farm, there is no ready market for that.

The CHAIRMAN. I think, Mr. Mylander, it would be better for you to go through and make your statement and then let us get a full picture of your statement, and then have questions. That question was very good at that point, but we do not want to do it that way. It would not make a consecutive statement, and I think we would rather have that.

Mr. MYLANDER. I will be very happy to do whichever you desire, Mr. Chairman.

The CHAIRMAN. We would prefer for you to finish your main statement, and then we will have questions.

Mr. MYLANDER. Thank you, sir.

Well, now, the establishment of the Federal land-bank system in 1916, as I was saying, came about because the farmers of the country had demanded access to the long-term capital market on a basis comparable to that of industry.

I do not need to repeat the testimony which you have already heard and with which you are already familiar about how the system was set up.

The original capital was furnished by the Government, but within a very few years practically all of that capital had been repaid and the farmer who had been paying 6 to 10 percent for his long-term mortgage credit, plus a commission for the making of the loan, began to get 33-year loans at rates ranging down from 6 percent, and he owned the bank which was making the loans, because most of the Government capital had been paid back.

There was very little criticism by the farmers about the policies, interest rates, or organization, or procedure of the Federal farm land bank system, until 1929. The system had had a slow, but steady growth. It had begun to absorb the long-term farm mortgage credit and everybody was happy. Then came the crash, and the structure which had thus been built slowly, was faced with an emergency.

Under the direction of the Congress the Federal Farm Mortgage Corporation was organized to take care of the distressed farmer for the purpose of helping him as the Congress also helped the distressed home owner in the city through the Home Owners' Loan Corporation and helped out business and industry and banks through the organization of the Reconstruction Finance Corporation. We had a definite emergency program in the Federal land bank system. Our bank at Louisville, for instance, had slightly over $100,000,000 worth of loans on the books in 1933. Within a little over a year we had doubled the volume of Federal land-bank loans and in addition, as the agent for the Federal Farm Mortgage Corporation we had made between 80 and 90 million dollars' worth of so-called Commissioner loans.

Now, if you take any institution, particularly an institution dealing in mortgage credit where questions of title come up and double or triple the size of that institution in 18 months, it puts a tremendous strain upon the operations of that bank.

Our personnel at Louisville, for instance, went up from 123 to 1,365 within 18 months. We had just completed a new building for the Federal Land Bank in Louisville in 1930. By 1935 when I became a director, we were occupying space in seven different buildings in the city of Louisville and were forced to sell our bank and buy the present structure.

Now, some mistakes were made during that period in the rush; some cases were not as carefully considered as they might have been; but it seems rather strange to me that a lending agency which had been built up over a 16 or 17-year period; had served the farmers well during that period; and then was able to absorb all of the strain and stress that was put on it during the emergency should now be kicked into the discard and abolished.

Now, coming to the bill which is under consideration by your committee:

Section 2 (a) provides that the rate of interest on all Federal land bank and Land Bank Commissioner loans shall be reduced from their present rate of 32 and 4 percent to 3 percent and shall remain fixed at that rate until their maturity. In other words, that the present $2,000,000,000 roughly of Federal land bank loans shall bear no more than 3 percent interest until they mature, some of them 33 years hence; that on loans to be made after July 1, 1946, the interest rate shall be fixed quarterly by the Governor of the Farm Credit System.

Now, the only difference between this section and the present law which, as I understand, extends the 32 percent interest rate to 1942-I do not think that the further extension has passed both Houses. Am I correct in that, Mr. Chairman?

The CHAIRMAN. That is correct.

Mr. MYLANDER. The only difference between that and the present law is that the rate is cut from 32 to 3 percent.

If you want to do that, gentlemen, I think that that is strictly up to the Congress. If the Treasury will stand the additional strain of that further interest cut, if you will appropriate the money to the land bank system, and to the Commissioner, so that they can meet the interest on the bonds which they now have outstanding in the hands of the public, and most of which cannot be called until 1945 or 1946-they have 5 or 6 years to run-then this further interest reduction can be given; but I think it ought to be recognized that this interest reduction is an outright giving, a subsidy, a donation to the farmers who are borrowers from these two organizations, and who, by the way, represent only about 12 percent of the farmers in the United States.

Then subsection (b) of section 2 abolishes the present land bank and corporation law and regulations which provide penalties for the borrower who is delinquent in his payments, who do not meet their payments on time. I do not know, but it seems to me that the fellow who steps up and pays when he should pay ought to have a little advantage over the chap who just carelessly lets his note go past due and does not make his payment on time. Particularly is this true when as in the Federal land bank system today there are plenty of ways by which, if this chap anticipates his failure to make his payment on time, he may obtain extensions and things of that sort which keeps him from getting into this penalty class.

Now, of course, subsection (c) of section 2 simply makes the appropriation in general terms for the donations that I mentioned a minute ago.

Section 3 of the bill provides that the Government shall guarantee all farm loan bonds hereafter issued; provides that the Secretary of the Treasury shall meet both the principal and interest of these bonds if the Federal land banks are unable to do so.

I do not believe any guaranty of the Federal land bank bonds is needed. Up until 1932 they sold at prices which compared favorably to the prices enjoyed by the highest grade industrial and municipal bonds. Though from 1932 to 1934 it was impossible to sell Federal land bank bonds to the general public, you could not sell any other kind of bonds during that period except Government bonds and the farmer, therefore, was no worse off than the industrialist; than the railroads; than others who were in the market.

I understand Mr. Goss, former Land Bank Commissioner, in his testimony furnished you some statistics showing the difference between the interest rates commanded by the Federal land bank and Government bonds and that difference averaged about one-half of 1 percent. That shows the small spread, shows the confidence which investors have had and still have in the Federal land bank system, and I ask you, gentlemen, therefore, why it seems advisable now to increase the contingent liability of the United States Treasury at a