Loan Bank System, it should be six. It is just set-up in that manner, and inasmuch as it does not represent control, I cannot see any occasion at this time to make a change.

There has been this crop out of this discussion in our circles, which may or may not be material, but we are engaged-the Federal Home Loan Bank Board and the banks, in some sections in the encouragement of the development of Federal savings and loan associations, which, as you know, are individual institutions. The Government is putting in, in some cases, or has the authority to put in, $3 in capital for every $1 of community funds. If this proposal can be logically sustained on the ground that the Government capital predominates, some of these institutions and proposed institutions are wondering when the proposal will be made that the Government shall have representation upon these local community boards for the same reason. It will establish a rather bad precedent that may retard the development of those institutions. I think one argument is just as logical as the other. As you know, the act ultimately calls for the retirement of Government capital. That may be a long time off, but the plan is there. The bill, you know, provides that as private capital comes in and reaches a certain point, Government capital will go out, so that the situation with regard to the predominance of capital may not remain the same.

The House took that provision out, and substituted for section 3 a section providing for an advisory council, a Federal Savings and Loan Advisory Council, which was a suggestion of the United States Building and Loan League. I am in a rather peculiar position with reference to that advisory council. The Board has created one by resolution, and I happen to be the chairman of the advisory council selected by the group. Therefore, I am in the position of arguing against losing a job. Inasmuch as it does not pay any salary, I presume it is all right. The advisory council, as created by the Board, by resolution, has done effective work. The United States Building and Loan League, however, feels that it could be more effective if it were a statutory body.

Senator BULKLEY. This provides merely statutory recognition for something that exists already.

Mr. FRIEDLANDER. It exists already. The only difference is that the Board, under the present system appoints the membership. Under this proposal the banks themselves elect their membership to the advisory council which advises the Board. This suggestion is taken from the Federal Reserve Bank System, which has its statutory advisory council.

Senator STEIWER. In either case there are as many members as there are Federal Home Loan bank districts.

Mr. FRIEDLANDER. In either case there are 12 members, yes. There is no difference in the set-up at all.

Senator BULKLEY. May I interrupt there to ask Mr. Fahey if the Board is in accord with that suggestion of an advisory council?

Mr. FAHEY. The recommendation or suggestion for the appointment of an advisory council was made something more than a year

so. The council is made up at present of about half of publicterest directors and the other half of those who are directly concted with the building and loan associations, as officials in some pacity. At least, that was the representation at our last meeting. Senator BULKLEY. Is the Board opposed to this provision as it ssed the House?

Mr. FAHEY. The Board feels that it is covered already and covered ry adequately.

Senator BULKLEY. In other words, that it is unnecessary?

Mr. FAHEY. Yes, sir.

Mr. FRIEDLANDER. Of course, our position is that perhaps an adsory council that was not appointed by the body which it seeks advise might be just a little more courageous and independent its action than one that received its authority and appointment om the Board which it seeks to advise. That is about the germ of e difference as between the League views and the Board views with gard to this matter. It is not one of those acrimonious things that ere should be any squabble about.

Section 4 of H. R. 6021 is identical with section 4 of S. 1771, with e exception that the House reduced the term of years in their igible collateral for advances in the Home Loan Bank System from years, under the present act, to 6 years; in other words, permitting 6-year amortized note to get the same advantages as to advances collateral as an 8-year note or more heretofore has been given. side from that, the purpose of the section is to give to the obligaons of the United States, or obligations that are fully guaranteed the United States, the collateral privileges behind long-term oblitions or advances in the bank system. I think that is perhaps the ly change made in the present act.

Senator BULKLEY. You would rather have it 6 years than 8 years? Mr. FRIEDLANDER. We have no objection, and there are some cates where they have quite a lot of collateral of 6-year notes, that ould expand the services of the bank, and we see no objection hatever to that being passed.

Section 5 of the House bill is identical with section 5 of the Senate 11, and again affects the collateral for advances. It permits 20-year ans to be used, instead of loans that have only 15 years to run to aturity. As you know, since the passage of the original Home Loan ank Act, we have got into longer-term loans, and this will permit e advances to be made upon insured mortgages that may run up to years.

It also irons out a conflict in the language between the $20,000 rovision of the Home Loan Bank Act and the Home Owners' Loan orporation and the National Housing Act. This Federal Home oan Bank Act did not permit advances where the property or the ome itself was worth more than $20,000. The other acts have limition based upon the unpaid principal of the note. It might be a 20,000 note on a $30,000 or $40,000 home. This merely makes the ets consistent. We are favorable to the changes as recommended.

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where the advances are secured by insured mortgages. As you know, under the Home Loan Bank Act, in order for any advances to be made, an institution must become a member. Up to this time practically all the institutions that have become members have been building and loan associations, and there has been some criticism of the home-loan bank system because its facilities were not extended beyond that group. We feel that the facilities of the home-loan bank system can be safely increased and a considerable volume of nonmember institutions safely developed where the collateral offered is a mortgage insured under the National Housing Act. We made that recommendation, which was adopted. I do not know that there is any opposition on the part of the Board to it. It certainly will be helpful in getting the National Housing Act under way, because it has been stated that the reason that a greater volume of insured mortgages has not been developed up to this time has been due to the fact that there are no national mortgage associations, no place to discount these insured mortgages. This opens a way for an advance up to 90 percent, if the Board by ruling and regulation so provides, to nonmember institutions on insured mortgages. We feel that it is a very helpful section and should be included in the legislation.

Section 7 of H. R. 6021 is identical with section 6 of the Senate bill and merely corrects, as I understand it, an omission in the last amendment made to the Home Loan Bank Act so as to provide that the consolidated debentures or bonds of the Federal Home Loan Bank System shall be entitled to the tax exemption, the same as the security obligations issued by the individual banks.

Section 8 is a section substituted by the House of Representatives for section 7 of the Senate bill. This section has to do with the appropriation of funds by Congress for the operation of the Federal Home Loan Bank System. The House of Representatives just completely overturned the intent of the Senate bill, which was to take from Congress the appropriation of these moneys which were afterward reimbursed to the Government by assessment upon the banks. In my judgment, it has gone entirely too far. Certainly if the Federal Home Loan Bank Board goes out and makes an examination of an individual institution and charges the cost of examination against the institution, which it is required under the law to do, there does not seem to be any reason for that money having to be appropriated by an act of Congress in an appropriation bill; however, there is a difference as to Federal Home Loan Bank funds. The Board is a board which is appointed by the President, and as its activities are concerned with the supervision of 12 banks in which the Government has a predominant capital invested, there may be some question-and it is largely one of legislative policy, which concerns itself with Congress and with the Board-as to whether there should not be some supervision by the Appropriations Committee over the expenditure of those funds, notwithstanding the fact that they are not Government funds. Certainly there cannot be any question that the funds that are derived from examination of

mean by that, is the charge for examination a fixed one? Is it subect to marked fluctuations and changes in numbers of examinations er year?

Mr. FRIEDLANDER. The rules and regulations provide that the cost f the examination shall be assessed against the bank.

Senator STEIWER. I understand that; but how constant a sum is it? Mr. FRIEDLANDER. It is not constant, because the number of instituons fluctuates, and the time consumed may be changed in each xamination. It would be impossible to fix a total.

Senator STEIWER. What I am trying to lead to is this. How is he Bureau of the Budget or the Appropriations Committee of the Congress going to determine the amount necessary to be approprited in order to provide an adequate fund for the use of the Board? Mr. FRIEDLANDER. I do not see, Senator,. how they can. That is ne reason why I say it should not be subjected to that.

Senator STEIWER. You had not suggested that reason, had you? Mr. FRIEDLANDER. No.

Senator TOWNSEND. Is there a specified number of examinations ach year?

Mr. FRIEDLANDER. My understanding is that there is, but they ave the right to make examinations oftener if circumstances warant. Of course, as I say, there is a difference in the matter of the unds that are used in the operation of the bank system, because here a definite amount can be ascertained, because there will not be uch fluctuation in amount.

Section 9 is a new section which was adopted in the House of Representatives, the purpose of which seems to be to make more lear the type of home mortgage on which the Home Owners' Loan Corporation may lend, and, of course, the United States Building nd Loan League does not concern itself with that, and has no ecommendation to make. It seems to provide definitely that they ay lend on a homestead which is partly made up of a store buildng. I think that has been the rule of the Home Owners' Loan Cororation anyhow, and this merely gives legislative expression to hat they have already done by regulation.

Section 10 is a companion section to section 8. This is the section which provides for increasing bonding capacity for the Home Owners' oan Corporation. Frankly, the United States League, speaking for he institutions that we have heard from around the country, and ur executive committee expression, believes that the amount conained in the Senate bill, which is $4,500,000,000-and, of course, based rimarily upon the statement of the Board itself that that was suffiient to take care of the applications on file-is adequate. We prefer see the lower amount. However, that is not a matter that we feel we can throw any particular light upon by expressing our views. Ve do believe that in opening up the funds of the Home Owners' oan Corporation to applications that were not actually on file, it aises a serious question. I think perhaps the Board ought to state heir own views to you about that; but from the standpoint of man

tal. As long as there is an opportunity for borrowers to file applications with the Home Owners' Loan Corporation and get the benefit of Government credit, just that long they are going to look to the Government for their funds rather than to private institutions.

The House amendment is perhaps about as satisfactory as could have been gotten through the House of Representatives, where there were several different proposals made to increase the amount up to many more billions and to open it wide to new applications. Yet we would prefer that the Senate bill be adopted.

This original Home Owners' Loan Act was passed in June 1933, and the Board ceased taking applications for loans in November of last year. Applicants in distress had a period of nearly 18 months in which to file their applications. Certainly no restraint was upon them in not filing them, and we feel that if the Home Owners' Loan Corporation can clean up its job with the applications on file, private capital will have an opportunity to take from the shoulders of the Board and of Congress the functions which it naturally should assume. There has been a considerable betterment of conditions that justifies the belief that they will be enabled to do that.

Section 11 is a new section, which does not concern the building and loan interests. The question seems to be one of patronage, with which we are not concerned.

Senator TOWNSEND. You would not care to give an expression of opinion on that?

Mr. FRIEDLANDER. As an individual citizen and not speaking for our organization I would not object at all. I think it would very seriously hamper the orderly operation of the Home Owners' Loan Corporation if it should become effective. I think it would disrupt the personnel of the Home Owners' Loan Corporation.

Senator MCADOO. You mean if this section 11 should be enacted? Mr. FRIEDLANDER. Yes.

Senator BULKLEY. Mr. Friedlander, Senator Reynolds is here, and wishes to make a brief comment on sections 10 and 11. Would you mind if he does that at this time?

Mr. FRIEDLANDER. I shall be very glad.

Senator REYNOLDS. Mr. Chairman, the very paragraphs he has been discussing are the ones that are of interest to me.

Section 10, subsection (c), reads as follows:

In order to provide for applications heretofore filed; and for applicants who in good faith prior to the date this amendment takes effect, sought relief by formal application, letter, or otherwise, who file their application within 60 days after this amendment takes effect.

I think that the following wording should be eliminated from that paragraph. As it reads now it says:

In order to provide for applications heretofore filed; and for applicantsI suggest the elimination of the words:

who in good faith prior to the date this amendment takes effect, sought relief by formal application, letter, or otherwise