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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,
2. Maintain a liquidity ratio and cash reserves similar

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

Exactly

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
for the mutual thrift institutions to take advantage
of governmental favors bestowed on them for the
avowed purpose of encouraging thrift to draw away
from commercial banks business which has little if
any relation to individual thrift. Among these gov-
ernmental favors were:

(i) Substantial freedom from taxation.
(ii) No reserve requirements.

(iii) Privilege of borrowing for current needs.
(iv) Friendly-often solicitous-regulation and su-

pervision.
4. The problem consists of (i) the hard fact that for the

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

ing.
5. The aggressive competition of the mutual thrift insti-

tutions over the past ten years has given rise to some
highly questionable practices by some of them:
(i) The giving of costly premiums for new accounts

and additions to old accounts.
(ii) Flamboyant advertising not in keeping with the

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.

Exactly

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.

Question One:
What will be the effect on the banking structure of the
nation of draining still further deposits out of com-
mercial banks.

Question Two:
How far can rate competition for bank deposits go be-
fore it becomes unhealthy!

Exactly as in Report

Question Three:
Are the mutual savings banks and savings and loan
associations attracting funds on a rate basis that are
not savings in any proper sense of the term!

Question Four:
What will be the effect of the continued growth of the
mutual thrift institutions on our Federal Reserve
banking system

Question Five:
If the mutual savings banks and savings and loan
associations desire to encroach further on the powers
of commercial banks, ought they not to be required to
surrender their mutual charters and convert to stock-
holder owned commercial banks!

*80X ADDED

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:

Exactly

as in Report

President-Vernon Alexander, President, The National

Bank of Geneva, Geneva.
Vice President-Richard S. Perkins, Vice Chairman, The

First National City Bank of New York; President, City

Bank Farmers Trust Company, New York City.
Past President-William F. Ploch, Vice President, The

Franklin National Bank, Mineola.
Chairman, Trust Division-Herbert A. Jones, Vice Presi-

dent, The National Commercial Bank & Trust Company
of Albany, Albany.

Group 1:
Chairman-Ralph Stoddard, President, Buffalo Industrial

Bank, Buffalo.

Representative-Denton A. Fuller, President, Citizens Na

tional Bank, Wellsville. Member at Large-Anson F. Sherman, President, Citizens

Bank of Arcade, Arcade.

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