On the question of your Advisory Council, don't you think it might better give you a much wider diversification of opinion if, instead of having 6 consecutive terms of 1 year, you limited their terms on the Advisory Council to 3 years instead of 6? Wouldn't you get more ratation and more diversity of opinion from the banking fraternity?

Governor ROBERTSON. You would get a greater diversification of opinion and precaution, and what we tried to do in thinking this through was to be as reasonable as possible, and base our decision on actual experience.

Actual experience shows that-from my point of view, and I suppose every member of the Board would have a different point of viewmy point of view is that the first year that an individual service on the Federal Advisory Council, he is apt to be like a freshman Congressman, I suppose: He sits back a little and it takes a little time before he really starts to produce, to dig in and make a major contribution, and we felt that 6 years was a reasonable period, and we wouldn't contend that it is the only period that would be right. It could be shorter or longer.

Mr. MULTER. I am in complete agreement with you as to the length of time it takes a man to get acclimated to what he is called upon to do. What strikes me with reference to this, however, is that you suggest the Advisory Council service for 6 years, and you suggest the members of the boards of the Federal Reserve banks serve for 6 years. I am suggesting diversification there, so that you won't have the same people serving together.

Governor ROBERTSON. I don't quite see what you mean, because, you see, the boards of directors of the Federal Reserve banks are rotated. They don't all serve for the same period and go off at the same time. Mr. MULTER. That would answer the question.

Governor ROBERTSON. Yes, sir.

Mr. MULTER. All I have before me at the moment is the provision, service of directors, and no reference to rotation. You limit them to 2 consecutive terms of 3 years, which is 6 years.

Governor ROBERTSON. Well, the terms don't coincide.

Mr. MULTER. Then that answers my question.

Now, with reference to the business loans, I have enough practical experience to realize how often it is necessary to look for additional security. You may have a marginal loan, and if you had just a little bit additional security, the bank or any lender would feel that this would make it a good loan, and therefore he would say, "Let me have this mortgage on this property and that will give me the additional security I need to make this loan."

That is fine in that kind of an instance, but in every instance the loan committee or the board of directors or lending officer is exercising business judgment, and while, by and large, they are honest, and doing a good honest job for the benefit of the stockholders and depositors and the general public, what is to prevent a man who is leaning a little bit the other way, a lending officer, or a loan committee, to say, "Well now, we can make this business loan. We can't make that mortgage loan. Let's combine them. We will actually exceed our limit of real estate loans by doing it in this way, but this stratagem lets us do it." Don't we, unless we put in some precautionary provisions, give the banks the opportunity to go beyond their limit of real estate loans, under the guise of business loans?

Governor ROBERTSON. I don't think so, Congressman. I think what you do and I may be prejudiced about this, because I look at it from the supervisory point of view rather than the banker's point of view— in the absence of a provision like this, the banker is apt to go ahead and make the loan without the benefit of the additional real estate security. So it is a less sound loan than if they had had the protecting mortgage on real estate. I would be more concerned about that than I would be, that it be categorized as a real estate loan and thus be held within the limit of the real estate loans of the banks.

The CHAIRMAN. The gentleman has concluded his 5 minutes.

I would like to ask a question.

Is it not a debatable question as to whether or not the experience a man has had by long service as a director outweighs the advantage you state, that more people would get knowledge of the workings of the Federal Reserve System if there were more directors?

Governor ROBERTSON. It certainly is debatable.

The CHAIRMAN. It is a debatable question, isn't it?

Governor ROBERTSON. Very debatable. I can think of some people who have served for years and years. You couldn't have found better men any place, and the contribution they made was great. But we have attempted to weigh against that the advantages of having more people develop a good understanding of Federal Reserve functions.

Mr. MARTIN. Mr. Chairman, I might say I have just returned from a meeting of the Kansas City board that was held in Denver over the weekend, on Saturday, and there were differences of opinion on this matter among members of that board. I think the majority think that we are on the right track, but there were some differences of opinion.

The CHAIRMAN. To what extent have the banks made use of the privileges permitting them to make 20-year amortized loans on real estate? Could you give us some statistics on that? If you can, put

them in the record.

Mr. MARTIN. I will be very glad to.

Governor ROBERTSON. I will be glad to give you the figures of the volume of real estate loans, but I might say that there is hardly a national bank in the country which today does not have its real estate loans on an amortized basis rather than the way we had them 25 years ago, on an unamortized basis.

(The data requested above is as follows:)

TWENTY-YEAR AMORTIZED REAL-ESTATE LOANS

In August 1955, an amendment to the United States Code and section 24 of the Federal Reserve Act provided that national banks may now make "loans on real estate in an amount not to exceed 66% percent of the appraised value of the real estate offered as security and for a term not longer than 20 years if the loan is secured by an amortized mortgage, deed of trust, or other such instrument under the terms of which the installment payments are sufficient to amortize the entire principal of the loan within a period of not more than 20 years." (Limitation does not apply to loans insured under provisions of National Housing Act).

As you will note, this provision with respect to loans relates to national banks and upon inquiry at the Office of the Comptroller of the Currency, we have been informed that they have no statistics with respect to the extent banks have made use of the privilege permitting them to make 20-year-amortized loans on real estate.

State banks, including member banks which are examined by the Federal Reserve examiners, are subject to various State laws with respect to limitations on loans on real estate.

The CHAIRMAN. That concludes the questioning under the 5-minute rule.

Mr. PATMAN. Will you call the members again, Mr. Chairman, or shall they ask for recognition?

Mr. KILBURN. I have a short question.

The CHAIRMAN. Mr. Kilburn.

Mr. KILBURN. I just wanted to ask Mr. Martin, as head of the Federal Reserve System, if you were sitting on this committee, with this bill before you, and if there were some minor changes in it, such as you suggest, would you support it or not?

Mr. MARTIN. I would definitely support the bill; yes, sir.

Mr. KILBURN. That is all.

Mr. BETTS. Could I ask one short question, Mr. Chairman?
The CHAIRMAN. Mr. Betts.

Mr. BETTS. Going back to the references I made about section 29, would you be in a position to tell us how many hearings there have been before the Board with respect to removal of officers?

Governor ROBERTSON. Very few, and you can almost count them on your fingers. I would have to look at the record to make sure, but it has been used almost not at all.

Mr. BETTS. When was the last one; do you recall?

Governor ROBERTSON. There is one pending now, and that is all. Most of the time this has been on the basis of a warning, and a warning is usually sufficient. You don't have to go through the hearing. No one wants to be brought up before an organization on a charge of unsafe and unsound banking practice.

The CHAIRMAN. Mr. Patman.

Mr. PATMAN. Mr. Martin, I want to ask you some questions about your statement, first. Now, on the expenditures for Federal Reserve bank buildings, there will be no limit as to Federal Reserve buildings, will there?

Mr. MARTIN. No, sir.

Mr. PATMAN. And this bill would take the limit off the branches, too?

Mr. MARTIN. That is right. It would be capitalized.

Mr. PATMAN. I notice the Senate committee said that the money you will spend is the Federal Reserve's money, anyway. Don't you consider this Government money, Mr. Martin?

Mr. MARTIN. I most certainly do.

Mr. PATMAN. In other words, the money that is used to build buildings is Government money?

Mr. MARTIN. Well, it is money which is capitalized for this purpose. Now, it is very difficult to define. All money is Government

money.

Mr. PATMAN. Well, I will get back to that later, as I have several questions along that line.

Now, as to the provision which would require the Federal Reserve to pay into the Treasury 90 percent of its profits. If you will recall, when the act was up in 1935, I offered an amendment to do that, and the amendment was adopted, but, before the bill got through, the

section to which that amendment was tied got lost, and the provision was not put into the law. It should have been there, and I think you are right in asking that it be put in.

I wonder, however, since you have about three-quarters of a billion dollars in the surplus fund of the Federal Reserve banks, why you want 10 percent more each year. What will you do with it? It doesn't serve any purpose. It is idle, unused. What do you want to put it aside for?

Governor ROBERTSON. May I answer that?

Mr. PATMAN. Certainly.

Governor ROBERTSON. There is no magic in any 90 percent or 10 percent or anything else.

Mr. PATMAN. Why do you want any percent? Why do you want any amount, as long as you have a certain amount in the surplus fund of a bank? Why are you not satisfied with that? Why do you want to keep piling up more money, which is unused and doesn't serve any purpose?

Governor ROBERTSON. The only thing we were trying to do here was to follow out the original concept of the statute. It did provide for a surplus. This contemplates building up the surplus, not because you needed it today but because you might need it some other time.

Mr. PATMAN. What would you need it for?

Governor ROBERTSON. I can't imagine. I hope there is never a situation to need it.

Mr. PATMAN. To keep you from coming back to Congress for an appropriation; that is the only thing.

Governor ROBERTSON. Oh, no; we would never have to come back for appropriations.

Mr. PATMAN. Well, you would if you ran out of funds.
Governor ROBERTSON. We are not going to.

Mr. PATMAN. You almost did at one time.

Governor ROBERTSON. Well, we will never have another such situa

tion.

Mr. PATMAN. You have too much money piled up.

Governor ROBERTSON. Maybe that would be a good purpose to serve, so we wouldn't have to come back.

Mr. PATMAN. Maybe we should make it possible for you to pay a hundred percent into the Treasury, as long as there is a surplus equal to a specified amount in each Federal Reserve bank. Don't you think that would be reasonable?

Governor ROBERTSON. We suggested this in the alternative, as you know. We suggested we be authorized to turn over to the Treasury amounts, or put it in franchise tax, and that was the one selected. We don't care which way it is. We think the money must go to the Treasury.

Mr. PATMAN. Now, as to the merger provisions

Governor ROBERTSON. The alternative suggestions are in the recommendations which the agencies made. You will find it in those.

Mr. PATMAN. As to the merger provisions, these are for the purpose of placing in the Federal supervisory banking agencies the power to determine whether or not there is a merger; isn't that correct? Governor ROBERTSON. Whether a merger can be consummated.

Mr. PATMAN. Does that prohibit the Department of Justice from instituting a suit to prevent a merger, in a case where it feels that the merger is in violation of the law?

Governor ROBERTSON. No; the Department has that right today, under the Clayton Act.

Mr. PATMAN. I am not talking about that. I am talking about if this is enacted, does this bill take the place of the antitrust law?

Governor ROBERTSON. It certainly doesn't take the place of antitrust laws. I did not say that the antitrust laws are not applicable. Mr. PATMAN. Are not applicable?

Governor ROBERTSON. That is right.

Mr. PATMAN. Well, there are some laws that are applicable now. Governor ROBERTSON. In part. The Clayton Act is applicable only to stock acquisitions.

Mr. PATMAN. It is referred to as an antitrust law.

Governor ROBERTSON. That is right.

Mr. PATMAN. Here you provide that the Attorney General may be consulted, but you do not require that he be consulted, nor do you give him power to bring suit.

Governor ROBERTSON. That is right.

Mr. PATMAN. So the effect of it is to take it out of the Department of Justice and place it under the Federal supervisory banking agencies.

Governor ROBERTSON. That is not true. We take nothing out of the Department of Justice.

Mr. PATMAN. Well, the way it is now, the Department of Justice has power with respect to the merging of financial institutions.

Governor ROBERTSON. It would have exactly the same power later. Mr. PATMAN. I know, but you have a setup here in which the Attorney General is only conferred with.

Governor ROBERTSON. Not necessarily.

Mr. PATMAN. But you stated here he will be.
Governor ROBERTSON. He can be.

Mr. PATMAN. Maybe.

Governor ROBERTSON. Maybe; in the discretion of the agency. Mr. PATMAN. Knowing what good fine public-relations people you are, I know you wouldn't overlook that. You would get him right in there and make him a party to it, and he wouldn't bring any suit. But I think the effect of it is to put into the Federal supervisory banking agencies all the power concerning mergers. I think that would be the net effect.

Now as to the auditors, who selects them?

It is a fact that the Federal Reserve System has never been audited by an outside auditor, is it not, Mr. Martin?

Mr. MARTIN. I will ask Governor Robertson to answer this. I have been commenting on this for years.

Mr. PATMAN. I wanted you to answer that, because I have asked you the question before, and I know what your answer will be. Mr. MARTIN. Go right ahead.

Governor ROBERTSON. Never in recent years by an outside auditor. Mr. PATMAN. In fact, you didn't have any audit of the Board until I jumped on you a few years ago.

Governor ROBERTSON. Not until we both came over to the Board. Mr. PATMAN. That is right, about 4 years ago