Senator COUZENS. And not in 30 years?

Mr. SCHMIDT. Not completely.

Senator BULKLEY. Have you finished, Mr. Schmidt?

Mr. SCHMIDT. I have finished.

Senator BULKLEY. Thank you very much.

Mr. SCHMIDT. Thank you very much.

Senator BULKLEY. Mr. Hennessy.

STATEMENT OF CHARLES O'CONNOR HENNESSY, PRESIDENT SAVINGS & LOAN BANK OF THE STATE OF NEW YORK, AND PRESIDENT THE FRANKLIN SOCIETY FOR HOME BUILDING AND SAVINGS, NEW YORK, N.Y.

Senator BULKLEY (chairman of the subcommittee). Mr. Hennessy, will you come around to this side of the table? I believe the reporter will be able to hear you better.

Mr. HENNESSY. May I, Mr. Chairman, take the liberty to qualify myself, not at all that I may exalt my importance as a witness here but in order that the committee might have some idea of my competence to discuss the matter that is before you.

I am president of the Savings & Loan Bank of the State of New York. That institution is the central credit organization for the savings and loan associations of the State; that is to say, institutions which elsewhere would be called building and loan associations. We have 180 of such associations affiliated with our central credit institution, representing approximately 80 percent of all the savings and loan association resources of the State.

I am also president, sir, of the Franklin Society for Home Building and Savings, the second largest savings and loan institution in the State, which has some 6,300 small home mortgages on its books.

I have also had, Mr. Chairman, the endurance to read through the Congressional Record very thoroughly in the last session of Congress and also to read the reports of the hearings both before this committee-that is, the committee of the Senate-and the committee of the House with respect to the Federal home loan bank bill. So I know the provisions of that act, and I have endeavored to examine this Senate bill 1317 and have some views to express on that matter.

Senator BULKLEY. We appreciate your coming here, Mr. Hennessy. We will be glad to hear your views.

Mr. HENNESSY. I may differ, I feel that I do differ, with a number of the gentlemen who have been offering observations to you, sir, on this matter, as I believe that the Federal Home Loan Bank Act ought to be entirely repealed. It has not served any of the purposes for which it was created.

Senator BULKLEY. Would it follow that this bill 1317 should not be passed at all?

Mr. HENNESSY. I do not think it should be passed at all. It is entirely unwise, as it seems to me. It is based upon, as it seems to me, a lack of information as to the mortgage structure of the character that it undertakes to deal with. And it will not only not do what is sought to be done by those who propose it, but in my opinion it will involve the Government of the United States in very serious bligations and potential difficulties later on.

At the time when the home-loan bank bill was pending here last year I had the honor, upon request of the chairman of the committee, to submit a brief expressive of my views, and I would venture to read just one paragraph from it now. It is published in the records. I read it now simply because it still expresses the opinion which I hold, which, may I say, is an opinion that was in substance expressed on the floor of Congress in both Houses by some distinguished Members of Congress. I believe it especially reflected the opinion of Senator Couzens, Senator Glass, and I think the chairman of this committee Senator Fletcher. I do not assume to speak for Senator Bulkley. I said at that time [reading]:

For myself, after careful study of the bill and the reading of the testimony taken in the hearings before this committee, I offer the opinion that this proposal if made law would not solve any of the emergent problems that relate to a wise and adequate distribution of sound mortgage credit to home owners or home seekers. Nor would it be likely, because of the proposed structure of this home-loan bank system, to efficiently and economically serve the long-time needs of lending institutions that particularly devote their resources to the encouragement of home building and home ownership.

I wish to say that the result of the operation of this system, so far as that result has been made public, Mr. Chairman, seems to have completely vindicated that point of view. The Federal home-loan bank system has been a failure. It has not effected any of the purposes for which it was created.

And may I say as not irrelevant to the whole subject which you are considering that if it were not for the association of the word "home" with this thing the bill itself, it seems to me, would have had very much less support in Congress last year than it had. The sentimental associations of that word and the very rightful disposition on the part of Congress to conserve so far as it might the interests of poor or moderately circumstanced people who were living in homes in this country was the moving principle, if I may say so, plus, of course, I think it is only fair to state, the great influence of the late administration, which was put behind the enactment of the legislation. This influence was brought to bear primarily, I think, because the late President of the United States was sincerely interested in home ownership and, secondly, because, if I may be permitted to say so, he thought it was very good politics in a presidential year to be associated with a movement of that kind.

But the fact is, nevertheless, that this system has been a failure and I beg to offer some reasons for that statement. When the bill was pending you were told in Washington that there was an abnormal demand for the passage of legislation of this kind in the interest of the home owners and the home seekers of the United States. I could point you to literally tons of propaganda that was sent out to the effect that both the savings banks and the savings and loan or building and loan associations of the country were a unit in demanding this system. I have a quotation here from the distinguished Member of Congress who sponsored the bill in the lower House, a gentleman who has the respect I believe of everybody who knows him but who was, like other Members of Congress, I think, gravely misled by the propaganda that was circulated at the time and by the agents of interests that wanted this bill passed. But at any rate

Senator BULKLEY (interposing). Now, Mr. Hennessy, does that have a bearing on the desirability of S. 1317 that is before us now? Mr. HENNESSY. If you do not wish me to pursue that, I will drop that aspect of it, Mr. Chairman.

Senator BULKLEY. Unfortunately, now, through no fault of yours or mine, we are a little behind on our schedule of the time, and the time is getting away from us.

Mr. HENNESSY. Yes, sir; I appreciate that. Well, as to this bill, I ought to justify my statement that I believe the Federal home-loan bank system had been a failure, because I understand that you have before your committee a bill to repeal the act.

Senator BULKLEY. That is true. But assuming for the sake of argument that that is true, would it follow necessarily that this one would be?

Mr. HENNESSY. Well, Senator, the administration of this bill is placed in the hands of precisely the same organism that has been controlling the operation of the Federal home-loan bank system.

Senator BARKLEY. Do you think the failure, if it has been a failure, is due to the organism or to the law itself?

Mr. HENNESSY. I think it is due to both. I think that the foundations upon which the system was proposed to be built are hopelessly defective. They cannot be made good. You cannot build a sound structure upon unsound foundations. That is to say, the idea of building a Federal organization upon 48 different types or units in which State laws vary in the greatest possible way is bound to be futile. You cannot successfully build a Federal mortgage system upon mortgages assembled under 48 different State systems, because, as has been pointed out in some of the testimony before Congress last year, there is the greatest diversity of character and of practice among the lending institutions of the different States.] This system is to function by the issuance of bonds, tax-exempt bonds. These bonds are to be based upon mortgages assembled from the member institutions, and these member institutions are State institutions; they are not institutions that are controlled by the Federal Government or operating under Federal law.

Senator BARKLEY. Well, you have either got to have it that way or set up an entirely new local organism or have no law at all.

Mr. HENNESSY. That observation of yours, Senator, I venture to say, proceeds from the theory that there must be some system of this character.

Senator BARKLEY. I am assuming that you have got the three prongs: You have either got to base it on present home-loaning organizations in the States or set up an entirely new local organism and abolish those that exist and make it all national, or do nothing. Mr. HENNESSY. It is my opinion, sir, that there is no need for the system.

Senator BARKLEY. You do not believe in any national law on the subject?

Mr. HENNESSY. No, sir; I do not.

Senator BARKLEY. Well, that is plain enough.

Mr. HENNESSY. Yes. Now, the Federal Home Loan Bank Act, Mr. Chairman, provided three types of institutions lending on home mortgages, that were to constitute the membership of the system:

Insurance companies, savings banks, and building and loan associations. The insurance companies and savings banks, for reasons that are best known to themselves, I think for prudential reasons, will have nothing to do with the system. The building and loan associations as a whole have had very little to do with the system. That is to say, if my information is not incorrect, 85 percent of building and loan associations of this country are not in the slightest degree interested in this system, are not affiliated with it.

J

Senator COUZENS. Is it not true, Mr. Hennessy, that some money was obtained from the Federal home-loan system that went to pay out money that the building and loan associations had rather than to sustain mortgages?

Mr. HENNESSY. That is true and I am speaking now with some knowledge of the operations of this bank system in the largest district in the United States. I come from the so-called "second district ", where there are more home-loan mortgages than in all the rest, or at least as many I think as in all the rest of the continental United States. That statement is based, I believe, on estimates made by the late chairman of the Federal Home Loan Bank Board. I heard him make a statement equivalent to that.

At any rate, in that territory the loans that have been made by the Federal home-loan bank at Newark, the largest bank in the system, have been made largely, as I am informed-I hope this committee, with the powers at its command, may get the exact facts to building and loan institutions that were distressed because they needed the money to pay it over to banking institutions from whom they had borrowed funds, or were distressed because they were unable to meet the demands of their withdrawing shareholders. I assert that the great bulk of the funds loaned have not been employed for the purpose designed by you gentlemen when you passed this act; that is to say, for the encouragement of home ownership, or of home building or for the relief of distressed home owners. Generally, the money has been used for the purpose of enabling certain shareholders of these institutions to withdraw their funds and leave the remaining shareholders in the position of having to rely upon depleted resources out of which their claims might be paid.

Senator COUZENS. Have you any information of any other bank outside of the Newark bank? I have heard the statement about the Newark bank. Do you know of any other bank which has used their loans for that purpose?

Mr. HENNESSY. I am not in a position to say of my own knowledge, Senator Couzens, as to that. I am informed, however, that that is true of other banks in the system. I am particularly informed it is true of the bank at Des Moines.

Senator BULKLEY. Were these institutions in position to have refused to permit these withdrawals that you speak of?

Mr. HENNESSY. Absolutely. Under the theory of most State laws, Senator, there is provision that withdrawals may be deferred, and it is to the interest of the men who remain, of those who must remain, that such provision should be resorted to. In other words, I am quite sure this committee will agree it is an evil principle when men seek to withdraw from a mutual membership corporation that

the institution should be permitted to pledge its best resources in such ratio as is required under this act, in order to obtain money to pay out to persons who have no further interest in the maintenance of the institution and who leave only depleted resources for the satisfaction of the people who remain.

Senator BULKLEY. I believe you are right about that. Now, as to the other point, the obligations of these institutions, of lending financial institutions: Were they in position to defer those payments? Mr. HENNESSY. I am not quite sure, Senator, I get the meaning of that question.

Senator BULKLEY. You say the loans that the building and loan associations, the members of the home-loan bank have received from the home-loan bank, were used to pay for the borrowings and to permit their depositors to withdraw. We have just discussed the withdrawas by depositors. Now I am asking about the other purpose, the repayment of advances previously made by other financial institutions. Were the building and loan associations in position to have deferred those payments if they had not had the relief from the home-loan bank?

Mr. HENNESSY. The existence of the home-loan bank, Mr. Chairman, did not modify or change that situation in the slightest degree. As a matter of fact, the testimony that you are receiving as to the pressure upon home owners for the payment of their mortgages and so forth is very greatly exaggerated, in my opinion. I am speaking with some knowledge of what is happening in the savings banks in New York City, what is happening in the insurance companies, what is happening in the title guaranty companies, and what is happening in the savings and loan associations.

Senator BULKLEY. Yes, but let me put this question to you: If the institutions which had loaned money to the building and loan associations had pressed for payment and the building and loan had not had the home-loan bank to go to, would they not have been compelled to put more pressure on the home owners than they did? Mr. HENNESSY. I cannot see that point, Senator, with great respect, for the reason that I cannot see

Senator BULKLEY (interposing). I am only asking a question. I do not make any assertion on it.

Mr. HENNESSY. My answer is that I think that is an erroneous assumption; that is to say, if you are making that assumption, for this reason: If I am a distressed home owner and am unable to pay because I have no job, which is the trouble with 99 out of a hundred of distressed home owners, there is no use for you as the savings and loan association to bring any pressure to bear upon me unless you want my property. In 9 cases out of 10 the money lenders do not want the property, and therefore they extend reasonable consideration to every worthy person. That is going on all over this country. It is not only in New York; it is everywhere, in building and loan associations, in savings banks, and in insurance and title companies.

Senator COUZENS. I think Mr. Hennessy is quite right about that point, about paying off these banks. Every agency the Government sets up, such as the R.F.C. and the home-loan bank, is imposed upon by institutions or persons of power. One bank that I know of took a million and a quarter from the R.F.C. and they took all of their