Mr. MYLANDER. Let me read you this: In recent years the practice of accepting deposits on the same basis as those in a savings bank has become more or less common in a few States where this practice is sanctioned by the statutes. Arizona, Montana, and Ohio permit building and loan associations to accept regular savings deposits. The majority of the States are silent as to deposits. California, Michigan, New Jersey, and Rhode Island are among those prohibiting them. I can not vouch for the accuracy of that. I had always understood that Ohio was the only State where deposits as such were accepted by building and loan associations. But a rose by any other name smells just as sweet. Mr. CAMPBELL. They can not receive deposits except the funds of the association. Mr. MYLANDER. I haven't said a word on the point about these 12 regional banks accepting deposits because I covered that so fully in my testimony before the Senate committee and I didn't want to go into it again here. But I think the major objection which the banks of this country have to this bill is the fact that you are setting up here a set of regional banks which will be in competition with the Federal Reserve system in open-market operations and all of those things because of receiving deposits. And it is that which the building and loan associations by their own mouths say that they are most interested in-is that they can take their cash balances and. put them into this system and take them out of the banks. Mr. CAMPBELL. But they can only pay 2 per cent or 3 per cent, and can only receive deposits from members. Mr. MYLANDER. That is what your bill now says-" from members." Mr. CAMPBELL. Well, not subject to check. Mr. MYLANDER. Oh, I know. But, Congressman, why quibble about the words "not subject to check"? How much money to-day of the larger amounts is transferred by check? If you could see the tremendous amount of money that is transferred by wire to-day through the Federal reserve system. You don't need checks. Mr. CAMPBELL. Won't these home loan banks redeposit their funds in the commercial banks? Mr. MYLANDER. No. Mr. CAMPBELL. Where will they invest them? Mr. MYLANDER. They can buy anything they want. Mr. CAMPBELL. But they can not buy anything they want. Mr. MONKS. Sure they can under the law. Mr. MYLANDER. They can buy Government bonds. They can buy commercial paper with their surplus capital funds that have been paid in by the member institutions. Mr. CAMPBELL. They can buy commercial paper? Mr. MYLANDER. They can under your bill. Mr. CAMPBELL. Oh, no. It was not intended for that purpose. Mr. WILLIAMS. There is a provision here that the obligations are not to exceed a year in maturing. Mr. CAMPBELL. And commercial paper is excluded. Mr. MYLANDER. No. They can buy commercial paper. Mr. WILLIAMS. I want to ask you this: You made a statement about the building and loan associations lending considerably or to 113235-32-21 some extent at least on other than dwelling houses. To what extent does that apply? To what extent is that practice engaged in? To what extent do they loan on apartment houses and other houses that are not dwelling houses? Mr. MYLANDER. I can testify, of course, Congressman, only to my own knowledge in my own State. Mr. WILLIAMS. All right. Just give us your experience and observation. Mr. MYLANDER. The building and loan associations in Ohio will loan and have loaned on all kinds of real estate. They have loaned on hotels, apartments, store buildings, homes, farms-on anything which is improved real estate. If I had had time to inquire, I should have had any number of instances. I don't want to say that every building and loan association in Ohio has followed that practice. We have a very large number of them who have for a great many years confined their loans exclusively to single dwellings, and others which have branched out. And those which have gone into the business of taking deposits on a large scale have gotten in so much money that they had to employ it. There were not enough small loans to take care of it, so they went into competition with the mortgage brokers and insurance companies and savings banks and all of the other institutions for these larger loans. For example, I know of one $300,000 loan made on an apartment building by a single building and loan association. Not only did they do that, but we have instances of a large building and loan association-I won't break faith and name it-which went out and bought mortgages in other parts of the State in order to keep its funds employed. That is true not only of that one, but it is true of others. I understand that the same thing has been true in California and Washington and some of the other Western States. Mr. CAMPBELL. That is interesting information, if we can safeguard against that now. They can only loan on 3-family apartments; not to exceed 3-family buildings. Mr. WILLIAMS. I didn't know that that was done. Mr. MYLANDER. On this question of purchasing commercial paper, subsection (j) of section 9 of the bill provides: Such part of the assets of each Federal home loan bank (except reserves and except sums provided for in subsection (i) as such bank may deem available therefor, may be invested otherwise than in advances to members. Such investments shall be made subject to such regulation, restrictions, and limitations as may be prescribed by the board. Mr. CAMPBELL. It does not say "commercial paper. Mr. MYLANDER. No; but it does not put any restriction on what the board may invest in. Mr. LUCE. I granted you that earlier in the hearing. Mr. MYLANDER. Yes, you did. Mr. LUCE. And I said at the same time that the chief safeguard against that is common sense; that it was inconceivable that a central board appointed by the President, administering the system of home loans, would ever allow such a monstrous thing to be done. We can not provide by law that every man shall use ordinary common sense. But we may expect that the high officials of the United States Government will at least has some modicum of it. You can point out in every administrative statute that I know of some possiblities for abuse. It is impossible in any law giving administrative powers to anticipate all possibilities of abuse. We must rely to some degree upon the intelligence and integrity and patriotism of our public servants. Mr. MYLANDER. Granting all that, Mr. Luce-and I quite agree with everything that you have just said-yet, on the other hand, if the deposit feature were taken out of this bill entirely and the provision made that the capital investment, surplus capital investment, of the 12 regional banks, is that not needed or advances to members, be kept invested either in cash on deposit or in Government bonds, all of the possibility of any such abuse would be removed. Mr. LUCE. But several times-obviously it has not come to your attention-but several times it has been put into the record that by reason of a decision of the Supreme Court this bill could not be held constitutional unless the banks created could receive deposits and be an instrumentality of the Government. Mr. MYLANDER. Receive Government deposits; yes. But is it necesary that it be enabled to receive deposits from its members? Mr. LUCE. I can not say about that. But I am quite confident that, adding to my statement, it must be able to receive some deposits and its obligations must be instrumentalities of the Government. Mr. MYLANDER. I quite go along with you on that. My understanding is that the preceding section-I think it is the preceding section or maybe the one a little later on-reads that— This bank shall be deemed to be an instrumentality of the Government, a financial agent of the Government, eligible to receive Government deposits. That is necessary for the constitutionality of the bill. But I do not understand, and it was not so stated in the Senate hearing when that point was discussed at some little length-I do not understand that the provision allowing the bank to accept deposits from members is necessary for its constitutionality. Mr. LUCE. I would not dare to take issue on that point. I would have to look it up. I had generally understood that those provisions were put in there in part to safeguard the constitutionality. Mr. MYLANDER. The first one, I think; yes. The other one I don't know about. Gentlemen, I have taken a lot of time of this committee. Mr. REILLY. Is there anything further that you have to offer? Mr. MYLANDER. No. I thank you very much for your attention and interest. (Whereupon at 4.50 o'clock p. m. an adjournment was taken until the next day, Thursday, March 24, 1932, at 10 o'clock a. m.) CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS THURSDAY, MARCH 24, 1932 HOUSE OF REPRESENTATIVES, ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met, pursuant to adjournment, in the room of the Committee on the District of Columbia, House Office Building, at 10 o'clock, a. m., Hon. Michael K. Reilly (chairman of the subcommittee) presiding. Mr. REILLY. The committee will be in order, and the first statement this morning will be by Mr. William Rindsfoos, president, the Brunson Bank & Trust Co. STATEMENT OF WILLIAM RINDSFOOS, PRESIDENT THE BRUNSON BANK & TRUST CO., AND THE BRUNSON SAVINGS & LOAN CO., COLUMBUS, OHIO Mr. REILLY. Please give your full name, whom you represent, and your address. My name is William Rindsfoos, president of the Brunson Bank & Trust Co. and the Brunson Savings & Loan Co., 145 North High Street, Columbus, Ohio. Mr. CHAIRMAN. If you will pardon me, I have this all outlined. It is a short statement, and after I have made it you can ask me any questions. Mr. REILLY. Did you appear before the Senate committee? Mr. RINDSFOOS. I did not, but I read the testimony and I know just what you want, and I have got it ready for you. Mr. REILLY. All right; go ahead. Mr. RINDSFOOS. I have represented the mortgage department of the Penn Mutual Life Insurance Co. throughout Ohio for many years. I am also a rather substantial owner of investment real estate. I am, as a consequence, able to view this problem from many angles. Í am a free agent, and I am paying my own expenses. Having placed between $75,000,000 and $100,000,000 of first mortgages, and having at this time about $35,000,000 to $40,000,000 in active first mortgages, I am naturally interested in this problem, and especially in the maintenance of real-estate values. The prevailing trouble could have been avoided if conservative mortgage and building policies had been followed by others. I quote our own experience: Up to December 31, 1931, we have paid out but three delinquent interest items and one foreclosure property per pro |