Mr. WILLIAMS. I appreciate that, of course. But, after all, in the period over a long term of years the balances do not vary a great deal, do they, as long as it is a good financial institution? It may vary during the different seasons of the year, but covering a long period of time it does not make much difference, does it?

Mr. BODFISH. I think it does, Mr. Williams. I think what we are getting at here is the difference between a savings bank and a commercial bank. We have found out of years of banking experience that a savings bank can invest a larger portion of its funds in what are known as nonliquid securities or in investment securities than can a commercial bank.

Mr. WILLIAMs. What I mean to suggest is, if you are going to try to include a bank just because it has got the major part of its assets in time deposits

Mr. BODFISH. I do not think the purpose is that at all.

Mr. WILLIAMS. If you do, you will exclude most of the country banks, at least in my part of the country.

Mr. BODFISH. I do not think, Mr. Williams, that the purpose is exclusion. The purpose is to include in this measure a sound banking principle. We have found in this past year that where a bank that had primarily commercial money, subject to check completely, it should have its investments or its assets, if you please, in absolutely liquid securities. That is fundamental banking and where banks have taken and balanced checking account funds versus three, four, or five year real estate loans they have gotten into difficulty. Where they have balanced a savings account funds which are put in the bank with the expectation of leaving it. That is my savings, not my week-to-week balance, with which I am going to pay the grocery bill and gas bill-where they have such balanced timedeposit accounts against, say, three, four, or five year mortgage loans, it will function all right. I think that is a problem of bank management; and, in my judgment, the objective here is not exclusion. As I see it, this measure should invite and include the majority of small country banks and should exclude to a large extent the large commercial banks in the cities which, as I say, have no place in this picture, and should rely upon the Federal reserve system, for their reserve credits.

Have I satisfactorily answered your question?

Mr. WILLIAMS. Well, of course, I do not know that I am convinced on that subject, because I can not, as I say, covering a period of years-I recognize the fluctuations at various seasons of the yearI would object, it seems to me, to making that the main test, whether or not a bank could come in, because I think that will exclude a great many banks in my section of the country, if you are going to apply that test simply of time deposits, and I was wondering why that was out in there. It seems to me it would make no difference to the member if the board determined that the bank was in position to make long-term loans, why, of course, that is all right. But, then, to specify long-term deposits may be questionable.

Mr. BODFISH. The objective, as I comprehend it, is entirely one of carrying out the sound principle of bank management. You know for decades the national banks were not permitted at all to make real estate loans, and the reason for that was not a question of the soundness of the loans, but it was a question of their putting commercial

deposits subject to check in relatively non-liquid securities, and the purpose is certainly not, so far as we are concerned, that of exclusion of the small country banks, because we feel a certain partnership or kinship to the small country banks. They make loans in the small towns and cities quite similar to the loans the building and loan associations make in small cities.

Mr. REILLY. Mr. Bodfish, are you satisfied with the bill as written? Mr. BODFISH. Absolutely.

Mr. REILLY. You are satisfied with the limitations?

Mr. BODFISH. Yes, sir.

Mr. REILLY. What particular institutions would this proposed amendment let in?

Mr. BODFISH. The amendment proposed by Mr. Monks?

Mr. REILLY. Yes.

Mr. BODFISH. I think it would let in anything and anybody practically who cared to consider themselves money lenders on mortgage security.

Mr. REILLY. Regardless of the kind of a mortgage they made?

Mr. BODFISH. Regardless of the kind of mortgage. We think the small home owner, of limited means-and we are very emotional about this, if you please should never borrow money on his home on the 1-year mortgage which he may be called upon for payment a year later.

I was amazed by this testimony before the Senate committee, in which one of the leading opponents of this bill, Mr. Clark, of New Haven, made the statement that his mortgage company made demand mortgages; in other words, that home borrower is subject to the judgment of the money lender as to when he will have to make the payment of that mortgage.

Mr. REILLY. If you are in favor of small home owners having the advantage of this bank, why do you favor $15,000 limit for the mortgage in there?

Mr. BODFISH. There is just one reason, Mr. Chairman, and that is this: Out in our part of the country and in other parts of the country, we have quite a lot of home ownership that grows out of the ownership of a 2-family house. A man will buy a "two-flat," as we call it. He will live in one part and rent the other half, and we think that it is just as worthy a type of home ownership to encourage as is the single-family detached house, although the single-family detached house should be the principal objective of this bill. Were it not for taking care of some of those cases probably the $15,000 unpaid principal limitation could in all propriety be lowered. Our mortgages averaged, Mr. Chairman, for the whole country, some $3,700. That is the class of people which we deal with, who buy and build $5,000, $5,500, and $6,000 homes. There are some localities in which land values are considerably higher than in others. You take, for example, Chicago, and a little 5-room brick bungalow will represent $11,000 or $12,000 real estate value, where in Columbus, Ohio, a similar structure would be worth $6,000 or $7,000.

Mr. LUCE. Mr. Chairman, may I put in at this moment the statement that when the bill was under study I suggested the change from 2-apartment to 3-apartment houses, and I take the whole responsibility for it. I did it because in my locality a large number of what we call "three-decker" or "three-flat" apartment houses are built.

Often a man will build such a house, occupy one apartment and rent the other two, and in time pays for his home. I made that change with the expectation that the committee would consider it and, if in its judgment it was thought the limitation should be for 2-apartment houses, I should not demur at all. That was thrown into the basket for consideration.

Objection having been made on that score in the Senate hearings, I thought it would be well to have the situation before you as I have stated it.

Mr. REILLY. My question comes from my thought that the small home owner could not very well put up a $30,000 building.

Mr. LUCE. That, too, is a matter for the committee's judgment. Of course, in any event I have no prejudice in the matter. It occurred to me that the volume of mortgages that would be let in under that provision would not be extensive and would not be a serious factor. Very likely I was wrong in it. You will remember I told you that I had to make many decisions of a snap-shot variety, and undoubtedly erred in some of my own conclusions. I said I would lay it before the committee.

Mr. REILLY. I am just asking for information.

Mr. WILLIAMS. I would like to ask for my information as to the plain meaning of the beginning of section 7. I confess I do not understand what that means. I would like some man to explain

that.

Mr. BODFISH. What page, Mr. Williams?

Mr. WILLIAMS. It is on page 14.

Mr. BODFISH. May I defer the explanation to a little later in my statement?

Mr. WILLIAMS. If that will not be too long. So far as I am concerned you can defer it althogether. I do not care whether you explain it or not.

Mr. BODFISH. I will be very glad to take it up.

Mr. WILLIAMS. Use your own pleasure about taking it up at all. Mr. BODFISH. I am very anxious and willing to discuss it with you as we interpret it.

The second major proposal in regard to the structure of the bill advanced by Mr. Monks was this so-called entrance fee of $2,500 and 1 per cent capital subscription which you discussed yesterday, Mr. Williams. Mr. Monks suggested a half of one per cent capital subscription or participation on the part of the members, instead of the 1 per cent as now written in the bill. General MacChesney, speaking for the National Association of Real Estate Boards, confirmed that suggestion made by Mr. Monks.

Now, in some ways we are perfectly willing, gentlemen, to have the capital to be furnished by members placed as low as $500 or 500 cents. But our suggestion in this matter is to keep vividly in mind that one of the important things was to have members put in capital in order to get the Government out. We are perfectly willing, with our nine billions of assets, to ask our institutions to put in 1 per cent of their home loan mortgages.

I would call to your attention the fact that in building and loan associations we have over 88 per cent of our assets or resourses in residential mortgages. It it not like a bank which may have $10,

000,000 resourses and only a million or two in mortgages. It means we are making a major capital contribution, and we question the wisdom of the policy of reducing the capital subscription. We are perfectly willing to make any concession in point of view which you gentlemen suggest, but if the objective is to get the Government out, let us not get the participation down to where it is too nominal.

There are several other points in that connection. The original bill as introduced carried 112 per cent. It has already been reduced one-half of one per cent. A committee of our United States Building and Loan League, called the committee on reserve credits and banking relations, which has been studying this problem in principle for some two years recommended to our group that the pars ticipation be 12 per cent or more. In the case of the Federal reserve system, as I recall, it is 3 per cent of the capital and surplus, and a required reserve deposit, which must be 7 per cent of commercial deposits and 3 per cent of time deposits-must be maintained. I think the essence of the thing there is we want to cooperate in getting the Government out of this picture after it has started the bank system and we are perfectly willing to put in substantial capital into the whole proposition, if it continues to be built on strong conservative lines so that our best institutions, as well as the ones that are in immediate need of borrowing will feel they want to come in immediately and participate.

I would like to call your attention also to the question which was raised by one of the members of the committee yesterday, as to the repayment of capital to the Government, and I would like especially to direct your attention to the provisions on page 8 lines 20 to 24, which reads as follows:

Stock held by the United States may at any time, in the discretion of the Federal home loan bank, and with the approval of the board, be paid off at par and retired in whole or in part; and the board may at any time require such stock to be paid off at par and retired in whole or in part if in the opinion of the board the Federal home loan bank has resources available therefor.

That is an unqualified power on the part of the Board to retire Government capital from these banks and we urge that it remain in order to facilitate withdrawal of Government funds.

There is another important point in this proposition; it seems to me that what you are starting to create here is this banking system. The President asks for 12 home loan banks; and if they are going to function as banks and steady and stabilize and build public confidence and create standards of eligible collateral and mortgage practice in the home-financing field, they have got to have enough capital to function as banks. It can not be done on just a few dollars from the participants and a lot of dollars from the Government. We do not want this thing to be like some of your national farm associations, if I may speak in slight criticism, merely little borrowers' mutual, in which a bunch of folks who want to borrow and nothing else get together to pull out a lot of money without putting in anything in particular.

Mr. REILLY. Would you be able to estimate the amount of capital put in by your associations, the number that you claim would join and the amount paid.

Mr. BODFISH. In the first place, Mr. Chairman, we want to keep in mind that a building and loan association is a sort of local cooperative enterprise. It does not move with the quickness and rapidity of a large banking institution, and you will not find the building and loan associations with one fell swoop moving into this system. But give us a period of three years-make this system strong and conservative, put the best banking principles into it, and within three years it is my judgment that the building and loan associations will have contributed at least $100,000,000 of capital to these banks, if not more. That is, assuming you do not cut the participation to where it is only one-half of 1 per cent or less. And, of course, the measure must be kept strong and vigorous. Otherwise our best-managed institutions might not care to participate.

Mr. REILLY. What do you consider the participating margin ought to be?

Mr. BODFISH. That is, the percentage of capital that a member should put into the bank?

Mr. REILLY. What will the local building and loan association make by discounting with the bank?

Mr. BODFISH. Of course, Mr. Chairman, in contrast with banks, building and loan associations do not make anything. We are not profit institutions; we are cooperative institutions, distributing all our returns to our participating members, both borrowers and in

vestors.

Mr. REILLY. Well, then, would your organization take advantage of this law if they made nothing by putting up their bonds to get money in order to become more liquid?

Mr. BODFISH. It is my judgment that our institutions would use this system if they could get additional funds to refinance short-term mortgages that are being brought to them, to finance remodeling and to finance home building, if this system can lend us the funds at the rate we get them from our participating members or investors. Mr. REILLY. Without any extra profits?

Mr. BODFISH. I am not interested in profits in our institutions. In practically all of the building and loan associations in this country, the officials-the men active in the management et ceterawill not profit in any way by the fact that their association has one million in assets, a million and a half in assets, or two million in assets. They are on salaries. It is not like a capitalized bank, where it is a question of making dividends for a few shareholders and that sort of thing. We have a form of cooperative enterprise, and a form that in the past has received encouragement at the hands of Congress and legislative bodies, and we hope it will continue to be encouraged. It is not perfect, but we think it is pretty fine so far.

Mr. WILLIAMS. You do not mean to say that you do not hope to make dividends?

Mr. BODFISH. We absolutely hope to make dividends.

Mr. WILLIAMS. What is the difference, after all, between that and a stock concern?

Mr. BODFISH. There is a lot of difference, Mr. Williams, in who gets the dividends; that is a few as compared with all participants. Mr. WILLIAMS. That is all right. You have to make dividends if you are a going concern.