and if you fail to so provide, is there not a danger that it will keep institutions out of the bank? Why should the Federal bank retain the subscription of a member to whom it has indicated it will not loan any money. There is language in the act that does exactly that, but I do not think you mean that. Mr. CAMPBELL. If they presented eligible securities Mr. STICKEL (interposing). Then, under the act, the board must determine whether a member is a member and if it can borrow money, and if it does not put that member on the eligible list-and it may refuse to put it on the eligible list under the act-why not return its subscription, because the bank is no good to it then. Mr. CAMPBELL. I think it should be done. Mr. STICKEL. I think that is a matter to look into. It seems to me also that the board should be given the power to be the trustees under the act for the holding of bonds, and that the Federal banks might have similar power. I do not especially emphasize that, but it may be well to think of. Mr. REILLY. You mean a board instead of a registrar? Mr. STICKEL. Yes. In other words, the power ought to exist. I do not say it should be done in every instance, but the board ought to have the power to act. Mr. REILLY. What benefit would that be? Mr. STICKEL. It would simply mean that the board would have a little better control over the situation, and instead of taking an outside agency to control the matter, the board would keep the matter in control itself. Page 21, paragraph J, certainly gives unnecessarily broad power to invest unused funds, under which those in control could do almost anything, even to playing the stock market, if they wished. There is no limitation at all. The same applies to the reserves on page 25. Mr. REILLY. That is, reserves that the bank has on hand! Mr. STICKEL. Yes, and the unused funds. It seems to me that there ought to be some limitation as to what such funds could be put into, instead of leaving it as wide as it is. Mr. LUCE. We have had, in past years, a good deal of discussion in the committee on the principle involved there. Sharp differences of opinion have arisen as to whether we have done well to leave the Federal Reserve Board with so much power, and I suspect they are going to rise again in our discussions on the Federal Reserve Board situation. There have been those who have criticized the board for not acting to the extent of its powers, and others have said that we ought to order the board to do certain things. That is conspicuous at the moment in the matter of Mr. Strong's bill to stabilize the currency, where he desires to direct the Federal Reserve Board to use all the powers it has for stabilization. The board has hitherto been reluctant to accept such directions, and has opposed the bill. Every time you put another restriction upon or give another direction to the dominating board, you are inviting trouble. Much is to be said that the best policy for the Government is, as far as possible, to pick the best administrative officers to be had and then let them use their judgment. Mr. STICKEL. So far as I am concerned, I mention it merely as a matter of policy to be determined by this body, rather one which I o the bill. I do not think it is vital to the bill one , because I feel as you do, that we can trust those that these banks shall select to administer their affairs. I cause I did not know whether that is expressed policy, vas an oversight. If it is expressed policy, I can see 1 also disadvantages. ou went so far in your remarks as to intimate that ight be used by the central board for lending money e stock market. . It would be possible. t would be possible, but is it conceivable? . No, I do not think it is. 'hen why pay regard to it in legislation? . I have always felt that there ought to be wide powers inistrative bodies, with some ultimate limitation. I in trying to make detailed limitation. I think limibe as general as they can possibly be, but there ought ings that they could not do. That is what I had in ir members in our State rather dislike the idea that uld be liable for the debts or management of each other , New Jersey banks would be liable for the debts sota bank, and vice versa. That is probably a matter , so far as I am concerned, if it must be in the bill I pose it, but I would prefer that it be out. At the present moment, the only think that saves the banks is a provision of that kind. L. It is? I do not know that that is so. You were aware that some of the banks have been in -us position that they had to call for relief from the L. Yes, I knew that. It is a matter of public knowledge. That is one of t elements of value in the Federal farm loan bonds. L. Then there are one or two other amendments which to in the brief, and to which I do not think it will be present. They are largely in connection with the effect ge now used in defining what is unpaid. Y. What difficulty can there be about defining unpaid EL. There is no difficulty at all. Y. That arises because of the fact in some cases a man his stock, and there is nothing paid on the principal of e itself? EL. Exactly. Y. I think any court would construe the unpaid principal ence between his stock certificate and his mortgage. EL. But that is not the fact, because until the shares of at a maturity value, there is no payment on account of There is no intermediate point, and the courts could not at variance with the actual contract. Mr. REILLY. I take it that when a man goes to a loan bank in your State with the idea of building a home, he has certain payments that he has made on certificates? Mr. STICKEL. As a matter of fact, when he applies for the loan he becomes a member at the same time, in most cases, that he takes out shares. Mr. REILLY. But when he gets around to the point of building Mr. STICKEL. When he gets to the point of building, he takes out his shares at the same time. He comes to the association and says, "I want to borrow $10,000." They say, "Very well; take out 50 shares of stock," and as a part of the contract of loan he takes out 50 shares of stock and agrees to pay $50 a month on the shares and $50 a month interest on the $10,000 he borrows, and that procedure continues running parallel, $50 on shares and $50 on interest, the stock having been assigned as further collateral security for the debt. When the payments on the shares, plus the profits which he gets on the shares and which he gets equally with every other shareholder attain a maturity value of $10,000, it serves to cancel the debt, but it does not do so at any intermediate point, and because of that it is necessary that the language be clarified so that it will clearly bring associations in the United States that do business that way within the benefits of the act. Mr. REILLY. These loan banks, as a rule, start to build a house for a man before he has paid any money, except to buy some stock in that way? Mr. STICKEL. Oh, yes; he does not pay any money when he subscribes, because the payments are monthly. For instance, I come to an association to-day, and I want to borrow $10,000. I may have no investment at all in that association, but I must become a member. I become a member by taking out, we will say, 50 shares of stock, and then they will look at the property which I offer as security, and, when satisfactory, they may loan me up to 80 per cent of the value of the property. So I must put in 20 per cent of my own money. Mr. REILLY. Where does he get the 20 per cent of the money? Mr. STICKEL. That is his own money. He has to put 20 per cent of his own money into the transaction. Mr. CAMPBELL. That could be a lot, could it not? Mr. STICKEL. Of course, that 20 per cent is frequently saved in the association. In other words, he sometimes saves up to $2,000 in the association. He withdraws that and pays it to buy the land or to make a payment on the house, and then he comes to the association and borrows the remaining 80 per cent. The association wants se curity for that, and so it takes a mortgage on the real estate as security and then, in order to make a loan from this mutual association, he has to become a member. They say, "You will have to take out that number of shares of stock that, at maturity, at $200 a share, will cancel your debt." That is the reason we think our method of saving money and getting a home is an admirable one, and one that the people of the United States should be educated to when getting a home, not to go to a bank and take out a 1-year mortgage or a mortgage for three years and at the end of 3, 6, or 9 years find that they have just as as they ever had, and that money that they were s meanwhile used to buy a car. In our agency they thly, and they share in the profits. n other words, you take the money away from them y can not get enough to buy an automobile? . That is a benefit, is it not? We think it would be better for them to have a house s. I am not entirely clear as to whether the home t with nothing except the land. Of course, he must nich to build. Yes. He may start with nothing except the land. he comes in and says, "I have a piece of land, and ns. I want a construction loan." They look at the land, and the appraisers in the building and loan that how much they want to lend him. They may, er, loan up to 80 per cent, but as a practical matter n between 70 and 80 per cent. ws how much he is going to get he has to supply the s home. ayself clear? s. I do not know that you do. In other words, he caise 20 per cent of the money? Yes. s. And furnish the land? . Not necessarily 20 per cent and furnish the land. ish 20 per cent in value, the difference between what from the association and what his land and building Is. He may start a home on nothing except the land? If the land is worth 20 per cent of the total value. . That is true. Under that plan, where does the second-mortgage He rarely comes in, because we will loan him in New 1 of the value of the property, because of the monthly that the average borrower succeeds in raising enough 20 per cent, and the instances where the second mortssary are rare, but even in those instances the fact that s payments monthly and reduce the building and loan thly makes it an admirable mortgage contract, because aid that down far enough he can frequently go back to nd loan and reinstate his loan, recast his loan, and get 'out of the building and loan to pay for his second Ms. What are the interest rates? .. Six per cent on the amount loaned, and he pays in a premium to get the loan, and it is because of the ays, plus the 6 per cent that he pays on the full amount all times, that the building and loan associations are a profit, in good times, of sometimes as much as 8 or id that profit is, in turn, allocated to his shares. So, Days 6 per cent for his money, sometimes he earns 8 on his shares. Mr. WILLIAMS. What does the loan cost him? Mr. STICKEL. Six per cent. Mr. WILLIAMS. You say he gets some of that back in dividends! Mr. WILLIAMS. And he also pays a commission? Mr. LUCE. No. Mr. WILLIAMS. Does he not pay a commission for the loan? Mr. STICKEL. He pays a premium of 3 per cent which, in turn, goes into the common funds and is divided among all the stockholders. Sometimes he pavs that in a lump sum, and sometimes periodically. Mr. WILLIAMS. In other words, your buildings and loan assciations in your State are operated in behalf of the home builders on a 6 per cent basis, or less, to him? Mr. STICKEL. Yes, sir. Mr. WILLIAMS. His loans, then, cost him over 6 per cent? Mr. WILLIAMS. How much under that? Mr. STICKEL. As much as 4 or 42 per cent, over the period. Mr. WILLIAMS. How does it run in your State? How much does it actually cost the home builder? Mr. STICKEL. About 4 or 42 per cent where they charge a premium, but in many of our associations they do not charge a premium at all. Mr. LUCE. I interrupted Mr. Williams because in my State they do not charge any premium. Mr. STICKEL. Many of our building and loan associations do not charge premiums at all. Sometimes it is only 1 per cent: sometimes it is 2 per cent. Some associations have a rule that they will not make any charge, and sometimes, as I said, there is a premium, that is payable monthly, a few cents each month, in addition to their monthly payments. One is the gross premium plan, and the other is the minimum. Mr. CAMPBELL. He shares in the earnings on that premium that he pays, and at maturity he receives all of it back? Mr. STICKEL. Exactly. Then the profits of the association go into a common fund, and our associations are limited as to the amount of money that they may spend for expenses. In our State it is about one-half of 1 per cent, and we keep the expenses down to a minimum. Our boards of directors, for instance, get $5 or $10 a meeting night, and they meet once a month, and in many instances never, and the only paid men are, as a rule, the secretary and the treasurer. The other payments are very small. Mr. WILLIAMS. I understand that your urgent need is for money to pay off the matured certificates and the withdrawals from your institutions? Mr. STICKEL. That is true. If we could get sufficient money from some governmental source to meet maturities and withdrawals at one fell blow, it would stamp out much of the hysteria, panic, and fear that exists now, because it has been our experience in many instances that when these shareholders know that they can get the money they do not want it. But there is a great number of people that have found it absolutely necessary to get these savings, people who are not in a hysterical state. They are people who are up against it, who |