I have found this in my commercial experience in the last six months or a year-well, say in the last two years, but increasing in the last six months. The applications for home loans are not always based upon a desire to buy a home. It is the application for a loan on a house that is already owned. They have suffered losses in the stock market, they have had business reverses, they have lost positions, and their dividends have been decreased-that is, on investments-although they are not speculators. They are depending on their dividends to live, their incomes have decreased, some bonds are in default, stocks are passing dividends, they haven't anything to live on, and they are borrowing money, or making application_to borrow money on the basis of financing themselves; and they offer their homes on first mortgages.

So I think the point that has been brought up here, that there are so many of these applications that are unsatisfied, is not based upon purely the mortgage-loan feature. It is based upon commercial needs, and they are so interrelated that I think you must take that into consideration.

Now, the banks that I speak of, the mutual banks, operate mostly in the East. We have a few in Ohio. There are some in California, strictly mutual banks; but the commercial banks and the national banks now have authority, and are taking a large amount of savings. State banks have them. Now, where you find mortgage loans in banks you find savings departments. And if the building association can take money on savings and loan it on mortgages, then mutual savings banks can take savings money and loan it on mortgages. What you call an organized bank with a savings department-why can they not loan their money-the savings deposits on mortgages just the same as building associations.

We have $35,000,000 savings, and we run about $12,000,000 or $13,000,000 mortgages. You see the percentage. We do not loan all of our savings in the one thing. It would not be good banking. In other words, we could not afford to put all our money into mortgage loans.

Now, take the big mutual savings banks in New York. The law there permits them to invest 60 per cent of their savings in mortgages. The other part is a backlog with which they buy bonds and different investments, Government bonds, and things of that kind. Senator BULKLEY. Would you say that all banks are as careful and conservative as you have been about that proportion?

Mr. DEPPE. They have to be, Senator, to a degree, unless it is the fault of the bank examiners. Now, there is the law. Here is the part that we do not understand and do not like in Ohio. And I say this in the most friendly spirit. Here is the State Legislature of Ohio that passed a banking act some years back and restricted an organized bank-said what their duties were and what their reserves should be, similar to the national bank act to a degree. The same members of the legislature passed a building association act with no restrictions on them, and tell the public that they can do practically anything they want to, but we are restricted to 60 per cent on appraisals. We think that is a bad law. We think that where you are going to have banking operations that you ought to have the ame restrictions as banks.

Senator TOWNSEND. Are your building and loan associations under the supervision of the State banking department?

Mr. DEPPE. No. They have their own supervision; they are under the supervision of their own department.

Senator TOWNSEND. In some States they are supervised under the same department.

Mr. DEPPE. Yes; but they do not do a banking business, they do not take deposits like in Ohio.

I thought it would be interesting to the committee to show you a clipping from one of our local papers. There has been so much said about banks and bankers that I thought it would be interesting to show you this. The building associations say that they are not bankers. Here is this newspaper clipping, with photographs, and this is the heading: "Bankers Discuss Home Loan Bill With Hoover." And then down below the picture, at the bottom, it says: A group of bankers recently called on President Hoover to urge enactment of legislation he has proposed for a home loan bank system to aid home owners.

And the pictures of four leading members of the building association league are published. Now, I have a fuss with that kind of publication. It is an Associated Press dispatch, and gives the wrong impression.

Now, that is just supplementary to what the gentleman said to you yesterday. This problem in Ohio of doing a banking business withcut banking restrictions is a thing that we think ought to be corrected.

Senator WATSON. Well, we can not correct that.

Mr. DEPPE. No, Senator. I understand that. But wait a minute. That is the reason that we do not want the matter enlarged. Senator WATSON. We admit that it is a foolish law.

Mr. DEPPE. Well, I just bring that in.

Senator WATSON. Yes.

Mr. DEPPE. But the point in this bill here of creating a banking operation, I think, is a situation we ought to touch upon.

Senator WATSON. If we pass this bill, would it interfere with your business, your banking business?

Mr. DEPPE. In the shape it is, yes; it would be very detrimental to the banks.

Senator WATSON. It would?

Mr. DEPPE. Yes; seriously.

Senator WATSON. What effect would it have on building and loan associations?

Mr. DEPPE. This bill?

Senator WATSON. Yes.

Mr. DEPPE. It would give them a self-contained banking system. You might as well put up a banking system for the railroads, and give a banking system for the lumber dealers-practically any class of business. It is entirely different from farm loans.

Senator BULKLEY. I wish you would make more clear how this would operate detrimentally to the banks.

Mr. DEPPE. Well, this bill, as I read it, starts out and creates a Federal bank. Gives it unusual powers, which you have to do, as you said yesterday, to make it legal, make it an instrumentality of the Government-you have given them the right to issue tax-exempt

bonds, which come out in the market and compete with all other securities. The Government borrows the money for a special purpose. Now, on top of that you give them $150,000,000 at the initial organization, without interest. I am speaking now of this bill. That at 4 per cent would be $6,000,000; at 5 per cent it would be seven and one-half million dollars each year.

In addition you give them banking functions. You put them in just exactly the same position as the national banks and the State banks, having correspondent banks sending in their deposits-only you denominate it here that it is a deposit of the member. Now, you gentlemen can not tell me or I can not tell you how many members there will be. There may be thousands of members in this home-loan bank.

Senator BULKLEY. Well, your bank could be a member if it wanted to, could it not?

Mr. DEPPE. Yes; I know, but you put a bank in this position, in this bill, and that is a feature that has not been discussed. Everyone that comes in the home loan bank and borrows money has to publish it in their statements. Now bank statements are called for periodically. Say we have $12,000,000 mortgages. We would not want to say constantly, "$3,000,000 or $4,000,000 owing the Federal home-loan bank," would you?

Senator BULKLEY. Well, you know better than I do about that. What I am asking you is: Is there some reason why the banks will not get any benefit out of this bill?

Mr. DEPPE. Well, I was going to touch on that in my final statement, Senator. I just wanted to run along and make a brief survey just as fast as I could, and then come back and tell you what is in our mind. That is my individual opinion about that.

I have tried to show you that foreclosures are not a factor here. That legislation can not stop foreclosures. The borrowers and the lenders themselves can stop those foreclosures.

I have tried to show you that the mortgage made by a bank, taking savings deposits, is not a bit different than other mortgage loans. And on the three or five year loans that we make, at the end of those periods the party does not pay them. There is not one loan out of a hundred paid at maturity. We continue it. Reappraise it. As long as the fellow pays we go along. I suppose we have some mortgages on the books 10 years old-I do not know— 12 years old. As long as the loan is kept amortized and coming down we do not bother with it.

There were some statements made here yesterday about the inability to get money. On account of the banks discouraging the home loans in 1929. When banks were loaning money on call in New York at 10 per cent. Well, we must go back over two years ago. There has been no 10 per cent rate on call money in New York since then. And at that time there was no scarcity of money for building associations, there was no scarcity of mortgage money, there was no scarcity of money for any operations. The scarcity, if any, and the curtailment has been just recently, as this depression has grown. And I think it is a good thing. You could not keep on going as things were at the previous period.

Now, on behalf of the banks we would like to see, and there ought to be, a reservoir where mortgage loans in some way can be discounted. Now, just the character of that bill, whether it should be in this shape, or whether for immediate emergency purposes it should be an adjunct to the Federal reserve I can not say at the moment, but that would be the quick way for the banks to discount their loans, where currency can be issued against it. In other words, you must create additional credit. We say that there is a large amount of money hoarded, and if that is taken out of circulation and out of the banks you can not put it back any other way. This bill can not put it back.

Now, the final statement I want to make

Senator TOWNSEND. Just a minute. Are you familiar with the so-called Glass bill, the new bill?

Mr. DEPPE. Yes. I think that will help very materially the banking situation, because it puts the power in the Federal reserve to take security that is not eligible paper to-day. And that is the only way you are going to unlock this situation. You have got good values. And personally I can not see where you have, say, first mortgages, and they are good, and they have been paid, why for emergency's sake you can not go in and get some money on those temporarily to ease up this situation. I think it is necessary, and I think the situation demands something to be done. I personally am not averse to a reservoir for that purpose. But I do not want it a new banking system.

As to the permanence of the thing, with a bill properly drawn so it will not create overexpansion, I think that is all right.

Senator TOWNSEND. Well, the arrangement is for one year.

Mr. DEPPE. Yes; that is all right. I am speaking of this bill, Senator.

Now, we get down to the sale of the bonds. All this goes for nothing unless securities can be sold. Probably securities can be sold at this time. Where is the money coming from? You are not going to get the hoarded money, because that hoarded money has been out, if it has existed, while you have had the Government bonds selling at a discount. You have got various forms of Government obligations, and there is no disposition in buying those, apparently, on the part of people having money. Probably, if this law went into immediate effect it might have a tendency to withdraw moneys from the banks again, which condition we do not want to see right now. But there ought to be some emergency legislation. That ought to be done, and ought to be done speedily. I think perhaps if it is decided that a bill of this character is necessary in the economic situation of our country, it ought to be a revised bill. This bill here is objectionable for the various reasons stated. I am not going to take up any more of your time. Senator WATSON. Thank you, Mr. Deppe.

Mr. Kingsley has handed me a memorandum which I can not read readily. I will ask Mr. Kingsley to state what his memorandum is. Mr. KINGSLEY. Just one point with respect to this bill. If the aim of S. 2959 is to help the small-home owner, is it advisable to include 3-family apartment houses, which is alien to home ownership, and the encouragement of such type of property weakens home

occupancy instincts? This bill provides and brings in 3-family apartment houses. The question is as to whether it is advisable to include 3-family apartment houses.

Senator WATSON. I think that is rather a pertinent idea. We will rise to meet again at 10 a. m. to-morrow.

(Thereupon, at 12 o'clock noon, an adjournment was taken until 10 o'clock a. m. the next day, Thursday, February 18, 1932.)