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So long as the savings and loan associations were small and relatively unimportant sources of credit, no such extension of credit through them would have been possible. With their growth over the past ten years, it has become possible. With their prospective growth over the next few years, unless something is done to level off their competitive advantages, they may well be able with the assistance of their supervising agency to completely nullify every endeavor of the Federal Reserve to regulate the availability of mortgage credit.
There is the further likely probability that Federal Reserve may be reluctant to curb the commercial banks under their jurisdiction if the only effect will be to drive borrowers to the competing mutual institutions.
Similar difficulties are encountered with the other responsibility of the Federal Reserve the maintenance of a sound banking and currency structure. With the cooperaation of the Comptroller of the Currency and the state supervisory authorities, it can insure that the commercial banks within its system maintain a high degree of liquidity and are in a position to meet even extraordinary demands on them. That will be of little avail if other banking and quasi-banking institutions over which they have no control are permitted to operate with low liquidity ratios in banking fields that call for high liquidity. It is inherently unsound to invest in 20-year, 25-year and even 30-year mortgages, funds that are virtually certain to be called for in six months to twelve months. Yet the record of withdrawals clearly indicates that the savings and loan associations are operating in that manner, and the mutual savings banks do not seem adverse to pursuing “hot money."
It is the firm opinion of this Association that mutual sayings and thrift institutions (savings banks and savings and loan associations) shonld be strictly required to:
Exactly as in Report
1. Operate in the savings and thrift field only,
to those maintained by commercial banks against
savings deposits, and, 3. Pay the same taxes as the rigidly regulated commer
cial banks with whom they vigorously compete. Unless equalization is effected in the areas above enumerated the splendid commercial banking system is virtually certain to encounter serious difficulties, and the principal sufferers will be the people of the nation.
SUMMARY STATEMENT OF PROBLEM
as in Report
1. There was no problem as between commercial banks,
the mutual savings banks, savings and loan associations and credit unions until after the end of World War II. Each was developing normally with the eco
nomic growth of the country. 2. A serious problem has developed during the past ten.
years, resulting from the abnormal growth of the mutual thrift institutions at the expense of the com
mercial banks. 3. This problem had its origin in the opportunity pre
sented by the rapidly expanding economy of the nation
(i) Substantial freedom from taxation.
(iii) Privilege of borrowing for current needs.
past ten years the mutual savings banks, savings and loan associations, and credit unions have been aggressively using their government bestowed favors to draw huge amounts of deposits out of the commercial banks on an interest rate basis and under the false assumption that they are individual savings, and (ii) the further hard fact that this unfortunate trend is accelerat
tutions over the past ten years has given rise to some
and additions to old accounts.
nature of the banking business and which would be severely criticized if indulged in by a commer
cial bank. (iii) The employment of outside soliciting firms on a
commission basis whose sales technique is definitely high pressure, and verging on misrepre
sentation. (iv) Excessive advertising of interest and dividend
rates. (v) The steady lowering of liquidity ratios to levels
which could be dangerous.
as in Report
6. This development of the past ten years, plus the threat
that it will go much further, gives rise to some most serious questions demanding immediate attention.
Exactly as in Report
NEW YORK REPORT UNANIMOUSLY APPROVED
After the Special Study Committee of the New York State
Bankers Association submitted its report, within which the
foregoing "Analysis of Problem” section appears, the following
statement was added to the report as submitted:
The foregoing report and Proposals, after full consideration and study, have been approved unanimously by the following members of the Council of Administration of the New York State Bankers Association:
as in Report
President-Vernon Alexander, President, The National
Bank of Geneva, Geneva.
First National City Bank of New York; President, City
Bank Farmers Trust Company, New York City.
Franklin National Bank, Mineola.
dent, The National Commercial Bank & Trust Company
Representative-Denton A. Fuller, President, Citizens Na
tional Bank, Wellsville. Member at Large-Anson F. Sherman, President, Citizens
Bank of Arcade, Arcade.