The CHAIRMAN. Mr. Masterton. Mr. MASTERTON. Thank you, Mr. Chairman. My name is Robert R. Masterton, chairman of the National Association of Mutual Savings Banks and president of the main savings bank in Portland, Maine. We represent 455 savings banks, and I would like to summarize our statement, which is on file. We are focusing on three areas: The need for broadened powers of thrift institutions; second, and simultaneously, the need to restrain the Depository Institutions Deregulation Committee; and third, the need to provide the regulators with greater flexibility in dealing with troubled institutions. NAMSB urges immediate action to restrain the policies of the commercial institutions. They are on a precipitous rush to embark on deregulation at a time when the thrift industry is in dire straights, caused by the economic instability in general and interest rate instability specifically. Those policies are underscored by the actions taken and proposed at its meeting on December 22. It is clear that they have failed to act in accordance with the congressional mandate to provide for an orderly phaseout of depository interest rate ceilings with due regard for the safety and soundness of depository institutions. The fact that the scheduled November 1 increase in the passbook ceiling rate has been deferred does not lessen the need for congressional action to restrain DIDC. We urge, as a first step, the prompt adoption of a congressional resolution directing the DIDC to refrain from further depository deregulation and to postpone implementation of all its independent authority actions until the thrift industry is clearly out of serious danger and economic stability is achieved, as measured by stable interest rates. Legislation is needed to restrain and restructure the DIDC, and we have specific recommendations to accomplish this in our complete statement. BROADEN POWERS FOR THRIFT INSTITUTIONS NAMSB strongly supports broadened powers for thrift institutions in order to assure their long-run competitive viability. In view of the DIDC's rush to deposit regulation and the dramatic changes occurring in the financial markets, it is essential that the Congress build upon the first step to broaden powers it took in the 1980 Deregulation Act, by providing federally chartered thrift institutions with the same powers which are available to commercial banks. This is basically the approach taken by the Financial Institutions Restructuring and Services Act of 1981, S. 1720; and by the administration-endorsed Thrift Institutions Restructuring Act of 1981, S. 1703; and the bill introduced by Senators Heinz and Tsongas yesterday, S. 1752. The broadened powers issue is of critical importance for our industry, and it is discussed in detail in our complete statement. Let me emphasize, however, that broadened powers will not solve current thrift industry problems. Let it be clear, we are not making a claim that those powers will solve our current dilemma, but they will strengthen the ability of thrift institutions to compete in future high-interest-rate periods as present low-yield mortgage portfolios are gradually turned over. We recognize the concerns raised by some over the possible adverse effects that asset deregulation for thrift institutions might have on housing and mortgage markets. But the mere availability of commerical-bank-type powers will not transform thrift institutions into so many city banks. It is not, in the case in other States, including my own in Maine, where powers have been available, commercial powers, to savings institutions since the mid-1970's. Our savings banks there have two-thirds of their assets invested in mortgages. Thrift institutions will not likely surrender their mortgage orientation and expertise. Mortgage credit will continue to remain a major community financial need, and thrift institutions will continue to meet that need. As Secretary Regan has noted, broadened for thrift institutions will benefit housing and mortgage markets. By increasing flexibility and earning power, the supplemental powers will strengthen the ability of thrift institutions to pay competitive rates for savings and thereby have the funds to perform better their traditional mortgage lending functions. When interest rates come down, as they will eventually, the benefits of fully flexible mortgage instruments in broadened secondary markets will also become increasingly apparent. Additional sources of mortgage credit will be developed and mortgage in housing markets will no longer be so heavily dependent, solely, on the thrift industry. NAMSB supports more flexibile authority for the Federal regulators to assist troubled thrift institutions. At the same time, the need for more flexible regulatory powers must be balanced carefully against the need to preserve interindustry competition between thrift institutions and commercial banks and to prevent unintended restructuring of the financial system. With respect to financial assistance authority, the present 13(c) authority of the FDIC should be liberalized and made parallel to the FSLIC authority. This would be accomplished by the amended section 13(c) authority for the FDIC, contained in H.R. 4603, as adopted by the House Banking Committee. We urge the Senate Banking Committee to include this provision in any legislation it develops. NAMSB believes that broadened operating powers for thrift institutions and more flexible powers for the Federal regulators should be achieved in a single legislative package. Accordingly, NAMSB supports the thrust of S. 1703, S. 1720, and S. 1413, the Regulatory Flexibility and Extended Powers Act of 1981, which has been introduced by Senator Tsongas. Although there are differences, these bills provide a basis for developing a comprehensive legislative package needed to address immediate and longer run thrift industry problems. NAMSB supports flexible chartering authority for Federal thrift institutions. We support maximum flexibility along the lines of S. 1703 and S. 1720. In order to assure that conversion of a State-chartered savings bank into a thrift institution remains a practical reality, it is necessary to qualify the obligation of the FDIC to indemnify FSLIC on the occasion of such a conversion. In this regard, we urge the committee to include in any legislation that it develops the indemnification provision contained in H.R. 4603, which was recently adopted by the House Banking Committee. Consolidation of the Federal insurance funds, as proposed in S. 1721, would, of course, make the indemnification question a nonis sue. We believe S. 1721 is a proposal which merits further study. NAMSB urges action to address the low-yield mortgage problem of thrift institutions. While broadened powers are essential to the longrun viability of thrift institutions, other actions are needed to address thrift institutions' shortrun problems, which arise fundamentally from the large holdings of low-yield mortgages. As outlined in our complete statement, such action should include preemption estate laws prohibiting lenders from exercising due-on-sale clauses. They should also include a contingency program to be introduced at an appropriate time with the exchange of low-yield mortgages for variable-rate Federal agency obligations or other similar means. In this connection, we support the broad due-on-sale preemption in S. 1720 and the provisions in S. 1720 and S. 1703, which would remove the limitation on the ability of the Federal Home Loan Mortgage Corporation and Fannie Mae to buy loans which are more than 1 year old. We also support the Federal preemption of State usury ceilings on consumer credit, as provided in S. 1720. There are other issues in our complete statement, which time does not permit us to address now. As a concluding comment, we must note our industry's position, that any powers which are provided in banking legislation should be made uniformly available to thrift institutions and to commercial banks. I must respectfully disagree, therefore, with Secretary Regan's position, that expanded securities activities be extended to commercial banks only. Thank you, Mr. Chairman. [The complete statement follows:] Statement National Association of Mutual Savings Banks on Thrift Institution Restructuring and Regulatory Flexibility Before the Committee on Banking, Housing and Urban Affairs October 21, 1981 Mr. Chairman, my name is Robert R. Masterton. I am Chairman of the National Association of Mutual Savings Banks, and President of the Maine Savings Bank in Portland, Maine. The National Association represents the nation's 455 savings banks. Located in 17 states, savings banks are basically community-oriented financial institutions. In the areas where they are most heavily concentrated, savings banks are the largest holders of consumer savings as well as the dominant mortgage lenders among the various types of depository institutions. Our industry's total assets amount to $175 billion. We appreciate the opportunity to present the views of the savings bank industry on issues raised by the legislative proposals under consideration today, including S. 1703, S. 1720, S. 1721 and S. 1686, and by the very serious current problems of the thrift industry. Our statement will focus, in particular, on areas of critical importance to our industry: the need to restrain the Depository Institutions Deregulation Committee; the need to provide substantially broadened and more flexible powers for thrift institutions; and the need to provide the federal regulators with greater flexibility in dealing with troubled institutions. You and your colleagues on the Banking Committee are to be commended, Mr. Chairman, for your initiatives in developing the Financial Institutions Restructuring and Services Act of 1981 (S. 1720), and for setting the legislative process in motion. We hope the result will be early actions by the Congress to strengthen thrift institutions and the regulatory process and to achieve more responsible policies by the DIDC. The savings bank industry stands ready to cooperate in every way in realizing these critically important objectives. The thrift industry is in the throes of its worst period since the Great Depression and the need for actions to meet its problems is of the greatest urgency. Summary of Savings Bank Industry Position At the outset, we would like to summarize the position of the savings bank industry on the interrelated issues of restraining the DIDC, providing broadened powers for thrift institutions and increasing the federal regulators' flexibility to assist troubled thrift institutions. Prompt and simultaneous action in these areas is essential to deal in a comprehensive way with both the immediate and the longer-run problems of savings banks and other thrift institutions. The (1) NAMSB urges immediate action by the Congress to restrain the harmful policies of the Depository Institutions Deregulation Committee. DIDC is embarked on a precipitous rush to deregulate deposit interest rates at a time when the thrift industry is in dire straits. Its actions have seriously aggravated current problems. If unchecked, the DIDC's policies will have grave consequences for thrift institutions, mortgage and housing markets and overall economic and financial stability in this country. Congressional action is urgently needed to avert the increasingly serious situation arising from DIDC actions. The first step should be a resolution of the Congress instructing the DIDC to refrain from further |