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This statement is filed on behalf of the National Association of Mutual Savings Banks to assist the committee in giving proper consideration to certain features of the bill affecting Federal savings and loan associations.

The members of the National Association of Mutual Savings Banks comprise most of the mutual savings banks of the country. There are now 533 of these mutual savings banks with 170 branch offices located in 17 States. The mutual savings banks have a total of approximately 18 million depositors with deposits of approximately 181⁄2 billion dollars. These mutual savings banks are nonprofit, nonstock corporations, operating independently and playing an important part in the home-mortgage field.

Addressing ourselves to the provisions of the bill, H. R. 2799, but more particularly to the amendments proposed by the two savings and loan leagues and supported by the Home Loan Bank Board and Mr. Foley, Administrator of the Housing and Home Finance Agency, we would like to call particular attention to two sections of these proposed amendments which are of importance from the standpoint of the savings banks. These are:

1. Section 3 of the proposed amendments, which is the so-called pipe line to the Treasury, provides that the Secretary of the Treasury may purchase obligations of the Federal home-loan banks up to a total principal amount of $1,000,000,000 held at any one time. We understand from Chairman Divers of the Federal Home Loan Bank Board and from his testimony before this committee on April 28, 1948, that this relief, if the bill is passed, is to be used only in the event of an emergency and is not intended to be used for the purpose of making loans to members banks for the pyramiding of their mortgage investments. But the proposed amendments contain no such safeguards. If this is the intent of this section, we think it should be clarified in such a manner that there can be no mistake about the proposal at some time in the future. We think it is unsound to make loans for the purpose of pyramiding mortgage loans because in the event of another recession, when property values may decline drastically, these institutions may get into difficulty and that difficulty will spread to other types of institutions. We submit that Section 3 of the proposed amendments should be rewritten to permit these Treasury purchases only in cases of real emergency.

2. Section 8 of the proposed amendments to H. R. 2799, which would make the shares of these associations eligible for investments of fiduciary, trust, and pub ic funds, the investment or deposit of which is under the authority or control of the United States or any of its officers or agencies, is, we think, unsound. It puts these institutions into another type of business-i. e., the banking business-where they do not belong.

With the elimination of this last section and the limitation in the first section discussed, we have no other comments to make.

Senator CAIN. I think no further purpose can be served by continuing this hearing. We will therefore stand in recess until a determination has been made by the committee as to what ought to be done with the legislation.

Any of you gentlemen present please feel perfectly free to call me or any other member of the committee at any time to determine what our continuing thinking on the subject is.

We stand in recess.

(Thereupon, at 9:50 a. m., the subcommittee adjourned, subject to the call of the Chair.)


FRIDAY, MAY 28, 1948


Washington, D. C.

The subcommittee met, pursuant to call, at 10:30 a. m., in Room 301, Senate Office Building, Senator Harry P. Cain (chairman of the subcommittee) presiding.

Present: Senators Cain, Bricker, and Fulbright.

Also present: Senator Sparkman; and Mr. L'Heureux, chief legal counsel of the committee.

Senator CAIN. The hour having reached 10:30, the subcommittee of the Banking and Currency Committee appointed by the Chairman, Mr. Tobey, to consider the proposed amendment of H. R. 2799, will come to order.

The committee is delighted this morning to have as its witness Mr. Wiggins, representing the Treasury.


Senator CAIN. Mr. Wiggins, it is good of you to come, and if I understand correctly, you are going to give us your point of view concerning sections 3 and 8 which appear to be in controversy as between different executive divisions within the Government.

Mr. Wiggins, I would appreciate it very much if you would proceed. as you best see fit.

Mr. WIGGINS. Thank you very much, Mr. Chairman. I appreciate the invitation for the Treasury to comment on the proposed amendments of H. R. 2799. While I will limit my observations primarily to the two items mentioned by the Chairman, I would like to comment somewhat on the other provisions in it.

Senator CAIN. I wish you would.

Mr. WIGGINS. As to the general objective and plan in Item I, whereby the members of the Home Loan Bank System will acquire greater stock from the home loan bank, we are in full accord.

I move on to section 3 which provides that the Secretary of the Treasury is authorized to purchase obligations of the home loan bank as a public debt transaction within the limit of $1,000,000,000 and the bank is to pay the Treasury the current average rate on outstanding marketable obligations of the United States for funds. borrowed.

It is our feeling, Mr. Chairman, that while generally we are opposed to using public debt transactions as a means providing funds for


Government institutions, we feel that it is proper in this case provided the intent of Congress in this authorization is that such loans are temporary loans and for emergency purposes.

If this authority to borrow constituted a continuing and permanent type of financing for the home loan banks we would be opposed to it. It is our understanding, and I think I am correct, that the proposal is designed for emergency purposes for temporary uses, that the home loan bank may come to the Treasury and borrow money up to $1,000,000,000, and that the use of that borrowing authority will be for such events as a maturity of bonds of the Home Loan Bank System at a time when the market is not in the proper position to absorb a refunding and it is under those conditions that we approve in the Treasury the granting of this authority.

Frankly, we would like to see that written into the legislation, not merely authorizing the Secretary of the Treasury to purchase these obligations but specifically stating that in his discretion and also recognizing that the use of these funds is temporary and for emergency


Senator CAIN. You would wish to have the authority to determine an emergency?

Mr. WIGGINS. Leave it in the discretion of the Secretary of the Treasury to determine whether the emergency exists or not.

It is very difficult to write into a statute what the emergency is. It would be far simpler if the Secretary were the one authorized to determine such an emergency when the loan should be made.

Senator CAIN. You think the provision No. 3 is not adequate to achieve that purpose as presently written?

Mr. WIGGINS. It says that the Secretary of the Treasury is authorized to purchase, and each purchase under this section by the Secretary shall be under such terms and conditions as to yield. While it might be implied that he has discretion as to making the loans, I think he should have a yardstick furnished him to indicate that it is the intent of Congress, and as I understand, the desire of the bank to have this facility for temporary periods in case of an emergency. But we would not go along on the proposition that that sort of borrowing should be the ordinary way that the bank system raises its funds. Senator SPARKMAN. Mr. Wiggins, may I ask this question?

Of course I see that you want the intent of Congress clearly shown but as I see it the language of this section now does lodge discretion with the Secretary of the Treasury. Suppose instead of trying to spell it out in the law, in the report we stated that that was what was contemplated? I know we had a somewhat analagous situation last year with reference to it, it seems to me it was the FDIC and it was felt here that if we wrote into the law that these things would only be done in an emergency then we advertised to the world when you' did that that there was an emergency situation.

I wonder if there could not be some general language? In other words, if the section is not clear now, that there is a discretionary power, if within the report we could not state that the purpose of it was to use it only in emergency situations and that it was contemplated that it was only for temporary periods of time?

Mr. WIGGINS. Senator, I think that would be entirely agreeable and I fully appreciate the undesirability of putting emergency in because it excites people. It would seem to me that if we said there

in section 3, "The Secretary of the Treasury is authorized in his discretion to purchase obligations issued pursuant to this section," and then put in your report-not that I want to tell the committee what to do, but it meets this objection you raise "It is contemplated that this resource will be used only for temporary periods.'

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I do not like to use the word emergency. Unless the bond market was in a position for refunding, it would not be a particular emergency but marketwise it would not be a good time for the bank system to go out and sell long-term securities.

Senator CAIN. By way of argument on the other side of the picture though, you want to make certain that these are not continuing permanent loans, that they are for temporary and emergency reasons and if they are utilized I would not see any particular reason why you should not recognize why they are being used

An emergency has arisen and they are being used for that purpose which justified the granting of the credit.

Mr. WIGGINS. Mr. Chairman, I think there will be conditions under which the bank might want to use these funds that might not properly be considered an emergency. As I say, it might be the money market or the bond market.

Senator SPARKMAN. It is more the purpose of stabilizing and might come for a short period of time?

Mr. WIGGINS. That is right.

I think if you would spell out in the discretion of the Secretary and for temporary periods.

Senator CAIN. Use both temporary and emergency?

Mr. WIGGINS. That would cover the emergency factor without actually using the word "emergency."

Senator CAIN. Mr. Wiggins, the committee has very seriously been concerned with this problem because of the different view from various executive agencies. I have just received a statement from the Federal Reserve Advisory Board. They take a view contrary to yours and I want to read into the record a paragraph on section 3 and ask your advice:

Section 3 now adds a subsection to the Federal Home Loan Bank Act. The proposed amendment authorizes the Secretary of the Treasury to buy obligations of the Federal home loan banks up to $1,000,000,000. This can be definitely inflationary. Under the terms of this amendment savings and loan associations can make mortgage loans beyond prudent limits, get the money to do so from a Federal home loan bank and it in turn can get the money from the Secretary of the Treasury. It may be argued that this would not be done, but nevertheless it can be done under the provisions of the amendment.

The Federal home loan banks now issue joint obligations which are sold in the open market. The Federal home loan banks are well and soundly administered; they will have no occasion to have their credit questioned and will continue to get the necessary funds from the public. Only an exceedingly grave emergency could justify such an amendment. It must also be remembered that the savings and loan plan does not contemplate the withdrawal of share accounts or deposits upon demand.


No person who places his savings with them should be led to believe that they

In all seriousness I just bring that paragraph to your attention because of the desire of the committee to understand the problem and to reconcile, if possible, these divergent views from responsible people in government.

Mr. WIGGINS. Now, Mr. Chairman, I see no particular conflict in that viewpoint and the one I have expressed. I think that any

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