member banks generally are relatively a small percentage of capital, because bank premises are written down on the books of the banks as the years go on. But there are a substantial number of such situations, and, if you wish, a list can be made up, although there would be a bit of trouble involved in doing so.

Mr. MULTER. I would be interested in seeing a typical list. I don't think there are a great many. Give us the total number and a few typical instances.

Mr. HEXTER. From the past year?

Mr. MULTER. Yes, during the past year.

I think you will all agree that the most expensive real estate in the country is in the financial district of Manhattan, the so-called Wall Street district. Is that a fair statement, the most expensive real estate in the country is located in the tip of Manhattan, the so-called financial district?

Mr. MARTIN. I rather doubt it now, Mr. Multer.

Mr. MULTER. Where is there an area more expensive for real estate for offices and industrial purposes and commercial purposes?

Mr. MARTIN. I don't know, but I expect up to midtown Manhattan costs as much if not more now, Mr. Multer, than Wall Street.

Mr. MULTER. It is coming up, but it isn't quite as expensive yet. Mr. MARTIN. If you take the charges in the projected Park Avenue area for business purposes-now I am not talking about apartmentsI think you will find the new rates will compare pretty favorably.

Mr. MULTER. Suppose we take it as the island of Manhattan, is there any other area in the country where you have commercial property that is more expensive or that has a greater value than in Manhattan? Mr. MARTIN. Well, I would think it would certainly rate pretty high.

Mr. PATMAN. Mr. Multer, will you pardon me? I think we should have inserted in the record the table the gentleman read from about the value of these buildings. He did not tell the whole story. That is, that the cost of these buildings was about $150 million.

Mr. LEONARD. I respond to the question, which was the book value. Mr. PATMAN. I understand. You did not intend to mislead the committee. You just failed to spell out this particular point, which I think is important.

Mr. MARTIN. I would be very glad to have that in the record.

(The data referred to above is as follows:)

TABLE NO. 9.-Bank premises of Federal Reserve banks and branches,

Includes expenditures incident to construction programs carried in unallocated accounts pending completion of programs and subsequent allocation of costs to appropriate accounts.

Mr. MULTER. The point I now make with reference to the bank premises and value of real estate-I don't care whether you take a small bank or the largest bank, whether it is the First National City Bank, which is the largest in the city, I think the second largest in the country, or any of the small banks in the city of New York, where real estate is so terribly high and costs of construction so terribly high.

You don't find one of them that has a cost of both equipment and bank premises that is even equal to their capital.

Now, if that is so, and the same thing is true in California, the same thing is true with reference to the banks in Texas, I can't see why you need this increase for bank premises. They are a piece of property, it is a specialty, it can be used invariably for nothing except bank purposes; now, I don't know why you would want to allow any bank to freeze any of its assets to that extent.

Mr. MUMMA. Mr. Multer, is that a correct statement, that most of the bank building is devoted to banking purposes?

Mr. MULTER. Yes, sir.

Mr. MUMMA. How about those dozens of floors that are above the

banking space.

Mr. MULTER. You will find in most instance the banks in large office buildings are in rented space.

Mr. MUMMA. Rented?

Mr. MULTER. Yes.

Mr. MUMMA. That is what I maintain is not used for banking purposes.

Mr. MULTER. Let Mr. Martin answer the question.

Is it not a fact that banks are prohibited from investing in or owning office buildings, commercial buildings, which they rent to other tenants? They can own them for their own use, but have they a right to build a skyscraper and rent out everything except 2 or 3 floors that they use for banking purposes?

Mr. MARTIN. We have held that they can, Mr. Multer.

Mr. MULTER. You have held that they can?

Mr. MARTIN. The courts have held that they can.

Mr. MULTER. Well, now, have you any recommendation with reference to that? Should banks be permitted to invest their money to that extent in commercial property? There is no other instance that they are permitted to buy and operate commercial property.

Mr. MARTIN. Mr. Hexter will comment on that.

Mr. HEXTER. The reason, Mr. Multer, the courts have given for authorizing banks to erect multistory buildings in which they occupy only a few floors is that banks, the courts have said, must efficiently be located in the heart of a business district where economic use of land requires multistory buildings, and it seems unreasonable to require a bank to buy an expensive piece of land and build a 3-story building when all of the buildings around are 10-story buildings.

The bank would be paying a great deal for its space if it couldn't utilize the airspace above its own floors and rent that area.

It is just a matter of economics and efficiency, apparently, and the courts have recognized that.

Mr. MULTER. Well, the courts may have recognized it, but I think there are very few judges and very few courts that qualify as bankers. Is there any other instance where a member bank or national bank is permitted to invest in real estate? I am not talking about where they have to acquire a piece temporarily to liquidate a loan, but in the first instance to go out and invest their money, their own capital and surplus, or their depositors' money, in commercial properties.

Mr. HEXTER. No; the legal requirement is that the banks own property only for their own operations, reasonably necessary for their

own operations, which has been construed to permit the erection of a multistory building where that is economically appropriate.

Mr. MULTER. Now, do I understand that the Board of Governors goes along with that court reasoning and approves that court reasoning?

Mr. MARTIN. Yes. I think there is no question about that. We have a beautiful new building in Mr. Patman's State in Dallas. Now you can't tell what the future expansion of an area is going to be, and the bank that wants to develop its quarters ought not to be limited in such a way that 10 or 20 years from now the development precludes their doing anything except tearing down what they have and beginning over again.

Mr. MULTER. Do you seriously approve using depositors' money for that kind of purpose where you are thinking about what the expansion requirements will be?

Mr. MARTIN. Now, limitations have been placed on that, Mr. Multer. Mr. MULTER. Limitations by whom, the Board or the courts? Mr. MARTIN. By law. Will you give the law on that, Mr. Hexter? You see, this new law is simply making it possible for some smaller banks that have come in and requested consideration along these lines to do what the larger banks are much more able to do today.

Mr. MULTER. I am more concerned about the small banks not putting in all of their capital or surplus or a substantial part, freezing it into real estate.

Mr. HEXTER. I might say in connection with the smaller banksand it is usually in connection with smaller banks that this occursthe large New York City banks, for example, don't have any problem under the law with respect to the adequacy of their capital for bank premises purposes-the Board has on a number of occasions requested a member bank to modify a building program or to restrict it because of the Board's feeling that the bank's program was excessive in the light of the bank's capital and its responsibilities to depositors, and it was for that purpose, I presume, that Congress gave the Comptroller of the Currency, in the case of national banks, and the Board, in the case of member State banks, the authority to restrict expenditures for bank premises in excess of the bank's capital stock.

Mr. MULTER. Well, shouldn't there be any standards set up as to those matters, either in the law or by regulation?

Mr. MARTIN. There is a standard here in the law, the new law. Mr. HEXTER. There is a quantitative limit.

Mr. MULTER. That is hardly a standard. It simply says you can't go beyond that amount without approval. Under what circumstances would the approval be granted?

Mr. HEXTER. The Board has always taken the position, in passing upon applications for investment in bank premises in excess of the amount mentioned in the statute, that the general public interest, the soundness of the bank, and such factors are the standards, the criteria.

Mr. MULTER. Well, now, whether the bank is in Dallas, Tex.-and I think I know the bank you have in mind-or in New York City or anywhere else, do you think it is proper that the bank should take its capital and surplus and freeze it into a commercial building?

I think in that instance, it may be a 20-story building, am I right? Mr. MARTIN. It is a large building.

Mr. MULTER. It is at least 20 stories or more, the 1 in Dallas, the newest bank building. Mr. Patman says 40. It has been some time since I have been there, but somewhere between twenty and forty stories. I think the bank occupies about 3, or 4, or 5 floors.

Do you think it is proper for any bank to invest its capital and surplus in that kind of a venture? That becomes mainly a real estate venture, does it not?

Mr. MARTIN. At a certain point, it does, but that is a matter of judgment that has to be exercised, and that is why we have the statutory provision here.

Mr. MULTER. And you think it is perfectly safe to increase the limitation in the statute.

Mr. MARTIN. I think this statute is all right, because I think that the number of smaller banks that have had a real need for quartersMr. MULTER. Is this the statute or the proposed change? Mr. MARTIN. The proposed change.

Mr. MUMMA. Up to a certain point it would be a matter of cutting down the bank's expense or overhead; they would be getting some revenue out of it. After that it may be a little commercial, but if you were in business, that is one of your first points, to cut down your overhead, your expenses, legitimately.

Mr. MULTER. Well, I know the trend today is, and if I were going into any kind of business venture, I would seek to rent rather than to build and own, if the space were available, particularly with the tax structure what it is. My entire rent is a deductible expense.

Mr. MARTIN. That is a matter of business judgment, though, is it not, Mr. Multer?

Mr. MULTER. Yes, of course it is. But now let's get back to the precise problem.

Mr. MUMMA. Mr. Multer, one more question.

Mr. MULTER. I don't think any bank has a right to take depositors' money and invest it in real estate.

Mr. MARTIN. We are not talking about depositors' money, it is shareholders' money.

Mr. MULTER. Let's get to that. I think it is particularly important with respect to a small bank. If you have a small bank that has $250,000 in capital and surplus, and you are going to let them put $125,000 in a building, whether all for their own use or part rented away, instead of having $250,000, they then have $125,000 plus a piece of real estate, is that right?

Mr. MARTIN. That is right.

Mr. MULTER. You wouldn't let that bank put $125,000 into a commercial building where its office was not located, would you? Mr. MARTIN. No.

Mr. MULTER. Now the fact of the matter is if the banks were compelled to operate solely on the basis of their capital and surplus, and all of their earnings came only from their capital and surplus, they wouldn't make enough money to pay their expenses.

Mr. MARTIN. That is right.

Mr. MULTER. The fact of the matter is that practically all of their earnings, the bulk of their earnings, is earned on the depositors' money