Building and loan is not here asking a hand-out in any sense of the word. We merely feel that there should be set up a reserve structure-a banking system, if you please, which will serve the home financing institutions of the country; and the comments I am going to make on the amendments proposed are going to be from the point of view of taking care of the immediate situation, the permanent need and keeping this structure conservative and sound enough so that it will not be a "white elephant " on the hands of you gentlemen who create it and so that it will never come back to plague you later. Mr. REILLY. Just a second there.

Mr. BODFISH. Surely.

Mr. REILLY. Do you know how many building and loan associations you have in the country?

Mr. BODFISH. We have 11,767.

Mr. CAMPBELL. How many have you as members of your organization?

Mr. BODFISH. We have as members of our league, through individual associations and affiliated State leagues, something over 6,000, which represent something over 80 per cent of the assets in the country.

Mr. REILLY. How many of those, in your judgment, would take advantage of this law?

Mr. BODFISH. It is my judgment that institutions whose assets total over half and probably three-fourths of the total resources, if, Mr. Chairman, it is drawn in a conservative fashion so that it will be a sound banking system. We do not want to mingle our sound and safe building and loan associations with unsupervised institutions, that is, institutions that are not subject to public inspection, and we do not want to mingle our sound building and loan associations with semisolvent banks or anything of that kind. We want you to make the standards high, and you can not make them too high for us, because we can meet them.

Mr. REILLY. How many individual members have you got in your association?

Mr. BODFISH. In the organization?

Mr. REILLY. Yes.

Mr. BODFISH. There are some 6,000 associations.

Mr. REILLY. I do not mean that. I mean how many mortgages or loans have you?

Mr. BODFISH. I will give you three figures: We have 10,000,000 investing members, members merely saving from week to week and month to month. We have 2,000,000 people who are buying their homes and paying for them today in the building and loan associations on the monthly repayment mortgage installment plan. These mortgages total $7,760,000,000.

Mr. REILLY. Then there are 12,000,000 people affected by this bill? Mr. BODFISH. Absolutely, as far as building and loan associations are concerned.

Mr. REILLY. And 10,000,000 are affected sometimes by their inability to get the money out when they need it?

Mr. BODFISH. That is correct.

Mr. REILLY. And the other 2,000,000 as borrowers from your associations?

Mr. BODFISH. That is correct. Now, speaking of the question of the eligibility of institutions, we consider it a matter of prime importance that no institution be permitted to participate in this system which is not subject to regular inspection and examination on the part of public authorities. I do not believe that any savings thrift institutions should have the savings of the common people of this country unless the officers of that institution are subject to periodic check. We have enough defalcations in our banks and that sort of thing with examinations, and we feel that is an essential principle in erecting this structure.

Now, General MacChesney yesterday-and, by the way, I do not bring to your assistance any of the legal skill or excellence of legal scholarship the General has spoke to the proposals that had been made by Mr. Monks, of Cleveland, Ohio, representing the large Guardian Trust Co. there. Mr. Monks had raised the question in his testimony that there was discrimination between the institutions. He said that the building and loan associations were permitted to come in without being subjected to the "judgment of the board" as to whether they were an institution worthy to participate in the benefits of this system, while, when it come to the banks, the banks were subject to the qualification of passing the review of a board and being subjected to the judgment of the board as to whether they should participate.

Mr. REILEY. Right on that proposition, what difference would it make to this organization when the bank has the right to pass upon the character of the securities presented by a home loan bank for rediscount?

Mr. BODFISH. As participants?

Mr. REILEY. What difference would it make whether those were inspected or not?

Mr. BODFISH. Just this, Mr. Chairman: I am a saver in a number of building and loan associations. The fact is all my modest savings are in building and loan associations and I do not want the associations in which I have my modest savings to be affiliated with a system in which there are institutions of, let us say, questionable management. In other words, if you get two rotten apples in the barrel, I do not know but what the rest of them are rotten; and it seems to me this is the place where you should follow rigorously the parallel of the Federal reserve system. The Federal reserve system permits membership of no institution that is not subject to examination and inspection, both by State banking examiners and officials and by national banking examiners and officials.

When the question of discrimination came up in the Senate hearing, we immediately concurred that we have no desire for any privileges with regard to memberships that are not extended to other institutions. Following the suggestion of Mr. La Roque, who proposed an amendment making all of the institutions who become members subject to review by the board, the United States Building and Loan League adopted Mr. La Roque's amendment to the membership clause which applies examination and judgment of the board to the admission of every eligible institution, and we heartily endorse it. I have several copies of that amendment here, and as it is a fundamental of the bill I would be glad to have you gentlemen look at it just for a moment [submitting same to the committee].

I. Some comment has been made regarding the portions of the bill describing the institutions eligible to become members. It is assumed that sound principles of finance and banking should be observed in this important section (section 4). Real-estate loans to home owners and home buyers should be longterm loans. Further, banking institutions should have a reasonable amount of time deposits to warrant their making loans which can not be called in times of distress or periods of contraction to attain liquidity. Their second line of defense should be the Federal Reserve System. Commercial banks which have no time deposits should use the Federal Reserve System entirely rather than the home loan bank system.

Building and loan associations make nearly all their investments in longtime home mortgage loans. Insurance companies, to be eligible, should similarly be such as make home mortgage loans.

In section 4, page 4, strike out lines 4 through 11 and insert in lieu thereof: "(1) Building and loan associations, savings and loan associations, cooperative banks and homestead associations, which in the judgment of the board make long-term home mortgage loans and whose financial condition is satisfactory to such board.

66 (2) Any of the following whose time deposits and financial condition, in the judgment of the board, warrant their making such home mortgage loans as, in the judgment of the board, are long-term loans-savings banks, trust companies and other banks; and

(3) Insurance companies, which, in the judgment of the board, make longterm home mortgage loans and whose financial condition is satisfactory to such board."

In the bill as originally drafted, in section 4, the item, "which in the judgment of the board make long-term mortgage loans and whose financial condition is satisfactory to the board" applied only to banks. We think it is desirable that that apply also to the building and loan associations, and especially important that it apply to insurance companies. You will notice insurance companies appeared in the old bill just as "insurance companies." I think scrutiny by the board is particularly important in the case of insurance companies, because what is an insurance company? We have fire, life, casualty, fraternal, title, and even some matrimonial insurance companies in Chicago.

We feel that this system should put its stamp of approval only upon highly creditable and well managed enterprises, and we are very willing to subject ourselves to any examination of the board.

I might say that our proposal, Mr. Chairman, follows the principle set up in the Federal Reserve Act, which in section 322 says that the Federal Reserve Board may prescribe the rules and regulations upon which applications are made and members admitted to the system. And the section goes on further to say:

In acting upon such applications, the Federal board shall consider the financial condition of the applying bank, the general character of its management, and whether or not the powers are consistent with the purposes of this chapter.

And we feel that that is a princpile that should be paralleled in the home loan bank system, and we strongly urge that the amendment proposed by Mr. La Roque should be adopted in the bill.

We want this board to have some power. We feel it can have a real influence on the mortgage practices around the country; that to a certain extent it is going to represent the public point of view as to what is sound and proper and reliable in the whole home-financing field and, as such, we want it to be in position to say:

Mr. A, your institution is not serving the best interests of your community and its home owners, and we do not care to extend to you the benefits of this

system any more than we admit a pawn broker into the Federal reserve system merely because he is a money lender.

I think it is the traditional point of view of building and loan associations, Mr. Chairman, that safety is the first consideration, and we will be very glad to match the record of our institutions when it comes to safety with that of any other financial institutions, and we want that principle of absolute safety extended into this measure.

I think, in connection with the participation of banks in this measure, it is particularly important that they have scrutiny by the board, as I know many of our building and loan associations would hesitate to participate if they felt that any appreciable number of the banks that are similar to the 2,200 that went by the way.this past year were going to be placed in the same financial system and made more or less partners in a general enterprise.

Mr. LUCE. Mr. Bodfish, before going on to the next suggestion, will you tell us whether you had any particular reason for repeating three times that restriction, instead of placing it in line 2 on page 4, thus covering all of the powers-I can not really see any difference in the application of the idea-and whether you did that for emphasis, or was there some special reason in your mind?

Mr. BODFISH. Mr. Luce, there was no special reason in mind. It was originally in No. 2, and I suppose the processes of our minds were "if we want to make it apply to all, we will just put it in No. 1 and No. 3 also." There was no particular purpose except that the "time depositor" qualifications apply only to banks.

Mr. Luce. It would be all right, then, to make it read, beginning at the bottom of page 3, line 24, "subject to inspection and regulation under the banking laws, or under similar laws, of the State or of the United States, and which in the judgment of the board make long term home mortgage loans, and whose financial condition is satisfactory to such board.

Mr. BODFISH. Yes. We do not feel that this system should be in any way, Mr. Luce, a dumping ground for weak banking assets or semisolvent institutions and that sort of thing. You are creating a great and important bank structure, and I think your suggestion would be very much better draftsmanship, and we would, of course, be quite willing to approve and follow it.

Mr. LUCE. You did not mean to make quite clear any difference in the application of that class by reason of scattering it?

Mr. BODFISH. Absolutely not. It is practically identical in language all the way through.

I should like to invite your attention to one other addition, which is an incident. You will note in No. 1, which enumerates the different titles under which building and loan associations operate-they are generally known as building and loan associations, but in Mr. Luce's and a couple other States of New England they are known as cooperative banks, in Louisiana they are known as homestead associations. We said "building and loan associations, cooperative banks and homestead associations," and we failed to mention savings and loan associations. In the States of New York and Washington these institutions are known entirely as savings and loan associations, and in this amendment, Mr. Luce, we merely included the term 66 savings and loan associations."

Mr. LUCE. I have received from some title and guaranty companies expressions to the effect that they wished to be included. How about that? They are in some localities essentially banking institutions or part banking institutions.

Mr. BODFISH. I think, Mr. Luce, the test is entirely whether they are in a position to extend long-term mortgage credits to home owners, which, after all is the permanent objective of this bill. They would be included now either as banking or as insurance corporations.

Mr. WILLIAMS. Mr. Bodfish

Mr. BODFISH. I have one additional thought in that connection, if I may finish, Mr. Williams-that in some States the title companies are subject to absolutely no inspection and examination. They are classified as insurance companies and as such they make their annual reports, but they are not subject to inspection and examination in the way in which savings banks or building and loan associations and the cooperative banks are examined. I think within those limitations it would be perfectly proper to include them.

Mr. LUCE. Would it be better to specify it here or could that be saved by an omnibus clause in here" and other institutions"?

Mr. BODFISH. I am afraid of omnibus clauses, Mr. Luce. I think that the participants in this institution, just as in the Federal reserve system, should be named "building and loan associations, etc.," "banks, etc.," and "title companies," if necessary. You might put title companies in the category of banks if they are exercising banking functions, and make them subject to the restrictions applying to banks, in the capacity of making long-term loans.

You asked a question, Mr. Williams?

Mr. WILLIAMS. Yes. I was just wondering what your standard of measurement is in determining whether or not one of these financial institutions is warranted in making long-term home mortgage loans.

Mr. BODFISH. The banking principle involved there, Mr. Williams, I think, is as follows: It is a question of, Does this financial institution which is making application for membership have time deposits? We know in banking that you have what are called commercial or demand deposits and time and savings deposits. We know as a matter of banking experience that savings or time deposits are much less subject to frequent withdrawal. When a man puts money in a savings account he puts it there because he intends it is going to stay there for awhile; and, as a matter of banking management, you can lend that type of funds on longer term collateral than you can the funds that are in the commercial department or subject to check. I think that is the banking principle involved and it is recognized in several places in the Federal reserve act. And, by the way the Comptroller of the Currency in compiling his statistics differentiates in describing the assets of national banks between commercial funds and time and savings funds. Most country banks, for example, Mr. Williams, the small banks, which are the banks that should participate in this rather than the large banks that have access to the Federal reserve system, have a majority of time and savings deposits and in fact only pay interest on time and savings deposits.