won't have sufficient time to give to the other members, and I wonder if you will summarize it a little more briefly.

Mr. STRUNK. I will get right to my specific recommendation, at this point.

There are certain items on which we think action can and should be taken immediately. That is, action which can be taken by the Congress. One is, much more vigorous and effective action must be taken on the inflation problem with the use of the administration's standby credit control authority. The sale of small denomination Treasury and Government agency obligations should be stopped.

The Federal Reserve and the banking agencies should stop the practice of commercial banks buying savings dollars at very high rates through the use of subordinated notes.

The practice of offering expensive premiums or gifts for opening up new accounts, which will be authorized and effective March 1, I think, should be eliminated, either by action of the banking agencies, or the passage of legislation to stop it.

If the Congress agrees with us that there is a real emergency in housing, and I believe it does, then direct Treasury support and/or the use of appropriate Federal funds are in order.

Now, there are programs that might be implemented over the next several months by inclusion in a comprehensive housing bill, and that would be to authorize the Federal Home Loan banks to supplement the existing programs to purchase mortgages from member institutions with a program of buying and selling mortgages. This would give member associations an alternative method of using Federal Home Loan bank credit. Some associations will not borrow from the bank system or will borrow only limited amounts, but they would sell mortgages to the banks.

Legislation should be passed permitting savings and loan associations to compete with the commercial banks for certain types of deposits of State and local governments. Since new rules for Federal Savings and Loan Corporation insurance were put into effect about 212 years ago, we have lost millions of dollars of this type of money. What we need is for Congress to either change the law to permit us to provide 100-percent insurance under the deposits of State and local governments in our institutions, or give our associations the authority to do what the banks are able to do, namely: pledge Government bonds against these deposits.

Federal savings and loan associations should be authorized to act as trustees for retirement funds set aside by self-employed persons under the Keogh Act. Keogh Act savings are today going almost exclusively into securities. The Keogh Act does permit our institutions to accept this money as trustees, but federally chartered associations lack the specific authority to act as a trustee for this type of money. Such authority has been given to State-chartered associations in nine States.

Savings and loan associations should be authorized to provide limited checking account services in order to be more competitive with full-service commerical banks. We propose a very limited checking account arrangement which would be offered primarily to individuals and backed by up 100-percent liquidity reserve.

The artificial restrictions of the lending of our institutions contained in Federal laws should be broadened to permit associations to lend statewide in no States where statewide lending is possible under State savings and loan law.

The requirement and the Federal savings and loan law with respect to the accumulation of lost reserves to 5 percent of savings should be modified to give the newer institution a longer period of time in which to reach the 5-percent benchmark.

Finally, let me suggest a number of more fundamental changes and longer-range objectives that Congress might well consider in helping the mortgage market.

It could provide a tax exemption for interest paid to depositors in institutions that invest substantially in mortgages. This would be a proposal along the line of Congressman Hanna's bill to provide an exemption for Federal taxes of the first $750 of interest paid. This would produce more new savings faster than any other proposal.

In a variety of ways, the mortgage instrument could be made more attractive as an investment. The mortgage instrument today suffers from a lack of competitive nature, and while we do not necessarily recommend some of these things outlined in the statement that was written recently by Prof. Edward E. Edwards, which we will submit to the committee, Congress could encourage or require greater lender participation in home mortgages. This would include the proposal that pension funds invest a minimum part of their assets in mortgages or to provide that mortgage interest would be fully or partially exempt from income tax in the hands of the investor.

Mr. Chairman, these are some specific recommendations which we offer to the committee, and in my full statement I offer a range of options that the Congress, I think, has before it, and I think the record is quite clear that simply when the savings and loan business has a lot of money, to lend in the mortgage market, it will help to make a more healthy market and I believe the homebuilder will have a greater opportunity to build the kind of home this country needs.

Thank you, Mr. Chairman.

Mr. BARRETT. Thank you.

Now, Mr. Barba, but before we hear from you, as I said before, the full formal statement and attachments of Mr. Strunk may be placed in the record at this point.

(The prepared statement of Mr. Strunk, a letter sent to Presi dent Nixon on credit controls, and an accompanying document, entitled "Statutory Amendments Providing Savings and Loan Associations Greater Flexibility in Obtaining Lendable Funds," follow :)

PREPARED STATEMENT OF NORMAN STRUNK, EXECUTIVE VICE PRESIDENT, U.S. SAVINGS & LOAN LEAGUE

The savings and loan business is very appreciative of the interest of the Banking and Currency Committee in the housing question. We think it is most appropriate that you are holding these hearings on the question at this time. As you are well aware, this country is in the middle of a major housing crisis that we think can be cured or corrected only by some major action on the part of the Federal Government. We believe that the housing problem in this country is such that it will persist in crisis form for many years to come unless significant changes are made in a number of Federal laws and changes take place in the attitudes of a number of people in positions of responsibility in the federal government.

Because the housing crisis is sufficently documented, I need not dwell on it this morning nor need I emphasize what has been stated so often about in

flation being a fundamental cause of the shortage of mortgage credit. This you know. I might say merely with respect to the inflation problem that, in our opinion, the present program of some fiscal restraint and a tight monetary policy is not doing the job. Nor do we think that the present program will do the job. We have been among the first to suggest that other weapons in the antiinflation arsenal should be used, and we have been most discouraged by the dogged determination of the Administration to avoid the use of any new antiinflation programs.

We congratulate this committee for initiating the law which gives the Presi dent stand-by authority to institute credit controls. Beginning last fall, we have repeatedly called for the use of credit controls as another anti-inflation device. Shortly before the President on December 23 signed the bill which pro vided this authority, we addressed a letter to him urging him to use it. A copy of our communication to the White House may be found at the end of this statement. As recently as our Legislative Conference earlier this month, we made the same recommendation.

Reliance on market forces alone is obviously not working to restrain price increases. We have been in a recession now for several months. There is a fullblown "bear market" on Wall Street. The Federal budget has been generally in balance for over a year, and yet the demand for credit from business and industry is so great that interest rates are very close to their all-time peaks and consumer price increases have actually been accelerating. The policy of relying solely on tight money to control inflation has not only failed to curb inflation but it has been manifestly unfair to the housing needs of this country. to the credit needs of small business and has been used at the expense of deferring thousands of vitally needed projects by State and local governments.

In connection with the obvious reluctance on the part of Federal agencies to put any real controls on the extension of credit for business expansion, it is notable that the Board of Governors of the Federal Reserve System in this period of shortage of money for home building and other credit weak borrowers has not made a move such as the Board made in 1966. On September 1 of that year, the Board wrote a letter to all Federal Reserve Bank System members urging the banks to reduce their credit extensions and warning that banks failing to do so would face some reduction in their credit line at the Federal Reserve. The Federal Reserve Board told the member banks, ". . . this objec tive (of a slower rate of business loan expansion) will be kept in mind by the Federal Reserve Banks in their extensions of credit to member banks through the discount window." We understand that this action of September, 1966, was a very effective one in slowing down business borrowing and, hence, cooling the economy. Interest rates began to drop and savings flows improved shortly after this action, and we have never known why the Federal Reserve felt disinclined to repeat this kind of action in the past year.

We believe that even if inflation is cured and interest rates come down somewhat, present programs and laws will not produce an adequate flow of funds for housing. Reliance on the market place to determine who gets the money will generally leave housing on the short end of the stick. The housing market is an especially weak bidder in the recurring periods of monetary restraint, and surely no one expects us to be able to avoid such periods in the future. The only time that housing has done well in the past is when the mortgage-oriented thrift institutions, notably savings and loan associations, have had some clear special advantages over other financial institutions in bidding for savings funds. We have not had these advantages for several years.

I would like to call your attention to the first of several charts I have with me this morning. Chart 1 shows the flow of funds into various kinds of credit in two different periods, the four years 1953–1956 and the four years 1966-1969. Chart 1 shows the dollar amounts and chart 2 shows the percentage distribution. I think we all recall that throughout the 1950s there was a great flow of money into housing. In the 1953-1956 period, we were building homes at the average

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