I am pleased to have this opportunity to make these comments on the subject bill and to make my objections thereto known. I would appreciate an opportunity to submit, at the appropriate time, such further and additional comments with respect to specific sections of H.R. 258, or other similar proposals. Notwithstanding anything stated herein, I do not favor the enactment of the bill in its present form. These views in substantially the form set forth herein have been submitted to the Bureau of the Budget for advice as to their relationship to the program of the administration. The Bureau of the Budget has advised that while there is no objection, from the standpoint of the administration's program, to the enactment of legislation authorizing Federal charters for mutual savings banks, important issues remain to be resolved on major features of such legislation, and substantial amendments may subsequently be proposed when the review now in process has been completed. Sincerely yours, JESSE P. WOLCOTT, Director. RESPONSE BY NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS TO STATEMENT ON H.R. 258 BY JESSE P. WOLCOTT1 Wolcott comment If savings and loan associations or mutual savings banks desire to have national commercial bank powers as included in this bill, it is suggested they be authorized to convert into national banks under the presently existing National Bank Act *** Under the bill the investment and lending powers to be granted federally chartered savings banks and State mutuals or State-chartered savings and loan associations converting to Federal savings banks would be very broad and in some instances would exceed those permitted to be exercised by commercial banks. Response Mutual savings banks do not seek commercial bank powers and would not be granted such powers by enactment of H.R. 258. There is nothing in this bill which would extend to savings banks or savings and loan associations the unique checking account and credit-creation functions which distinguish commercial banks from all other types of institutions. There is, therefore, no basis for the suggestion in the statement by Mr. Wolcott that as an alternative to passage of Federal charters as provided by H.R. 258, savings banks should seek to become national banks. The powers granted to Federal mutual savings banks by this legislation would parallel those already available to State-chartered savings banks. Indeed, each of these powers is currently available to savings banks in some States. Wolcott comment I would interpose no objection to the availability of voluntary Federal charters for national mutual savings banks which are subject to adequate supervisory standards and safeguards as mutual savings banks and which are chartered by the Comptroller of the Currency or a commissioner of national mutual savings banks in the U.S. Treasury Department, and insured by the Federal Deposit Insurance Corporation as banks of deposit. Response Mr. Wolcott fails to note that the Comptroller of the Currency, by the nature of his office, must be expectd to be primarily concerned with the problems of commercial banks, and more particularly national banks. The functions, operations, and organization of commercial banks differ fundamentally from those of mutual savings banks. There is, moreover, no need to establish a new supervisory authority for Federal mutual savings banks, as also suggested by Mr. Wolcott. The Federal Home Loan Bank Board represents an appropriate chartering and supervisory agency for this purpose. Some State-chartered savings banks have for many years been members of the Federal Home Loan Bank System and have been subject to the supervision of the Board. At present, 39 savings banks, including the largest in the Nation, are members of this System. 1 The views of Jesse P. Wolcott, Director, Federal Deposit Insurance Corporation, were contained in a letter dated Oct. 23, 1963, to Congressman Wright Patman, chairman, Committee on Banking and Currency, House of Representatives. With regard to deposit insurance, it may be noted that the Commission on Money and Credit recommended insurance by a single Federal agency of both savings banks and savings and loan associations. Wolcott comment To splinter the authority at the Federal level over banks of deposit with general credit functions between a bank authority and a nonbanking financial authority (charged with a special function) would contribute to confusion and lead to inevitable conflicts in the chartering and supervision of banks. Response It is difficult to comprehend what conflicts or confusion might arise from the fact that, under H.R. 258, Federal mutual savings banks would be supervised by the Federal Home Loan Bank System and insured by the Federal Savings Insurance Corporation. Mr. Wolcott has not given any specific indication of the nature of the problems that he feels would result. It may be recalled that, at present, three Federal agencies-the Office of Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation-exercise supervisory authority over commercial banks. Wolcott comment The proposed Federal savings system which would be created by the bill could very well result, with the broad investment powers given the Federal savings banks, in a reduction in the volume of credit available to the housing industry, the special field of the savings and loan system. Response The effects of Federal charter legislation on the cost and availability of mortgage credit were explored in detail in the testimony of savings bank representatives at recent hearings on H.R. 258 before the Subcommittee on Bank Supervision and Insurance of the House Committee on Banking and Currency. Briefly, there are strong reasons for believing that, as a result of this legislation, the flow of mortgage credit would be broadened, the efficiency of mortgage markets improved and costs to mortgage borrowers reduced. Comprehensive statistical evidence, as well as the supporting views of independent scholars and private research agencies were included in the testimony. There is little reason to fear that conversion of savings and loan associations to Federal mutual savings banks would result in a reduced supply of mortgage funds. The converted institutions would undoubtedly continue to channel the bulk of their investible funds into mortgages, just as State-chartered mutual savings banks have done. Since the end of World War II, savings banks have placed 96 percent of their total asset growth into mortgages, a higher proportion than for any other type of financial institution, including savings and loan associations. The emphasis on mortgages by savings banks in the postwar period is consistent with their fundamental crientation toward mortgage lending. Furthermore, it reflects heavy postwar housing demands and the relatively attractive mortgage yields available during most of the period. Additional factors were the widespread adoption of regular amortization, provision of Federal insurance and guarantees, and legislation permitting savings banks to acquire FHA and VA mortgages on properties located beyond their State boundaries. The long-term forces underlying the postwar upsurge in savings bank mortgage lending are not likely to diminish in the future. Indeed, as long as mortgage demands continue large and mortgage yields relatively attractive, savings banks will continue to invest heavily in mortgages. While channeling the bulk of their funds into mortgages, savings banks have also varied their mortgage and security acquisitions in accordance with the economy's changing credit demands. Peaks in mortgage acquisition have generally coincided with troughs in security purchases. Conversely, troughs in net mortgage investments have been complementary with peaks in security purchases. The flexible responsiveness of savings bank investment activity has contributed to efficiency in the allocation of resources and to growth of the national economy. Acquisition of diversified powers through conversion of savings and loan associations to Federal mutual savings banks would not imply a departure from their basic emphasis on mortgage lending. Under the provisions of the Federal charter bill, the converted institutions would lose none of their present home financing capability, with respect to both volume and terms of lending. Nor would savings institutions be less willing to invest in mortgages, as long as hous ing demands remain strong and mortgage yields attractive. Should demands for housing and mortgage credit slacken, however, savings institutions with diversified powers could channel savings inflows exceeding these demands into other productive investments. This would reduce the temptation to "reach" for unsound loans, preserve the quality of credit and protect the soundness of savings institutions. Wolcott comment It is obvious that the proposed Federal mutual savings banks would be authorized to establish and operate branches under the provisions of this bill in complete disregard of restrictions placed on branch banking by State statutes and would place all other banking institutions at a competitive disadvantage * * *. This is directly contrary to the position which the Congress has taken with respect to the establishment of branches by national banks. Response The branch provisions contained in H.R. 258 are similar, in effect, to the branch provisions now available to Federal savings and loan associations. Thus, they can hardly be said to be contrary to congressional policy. Furthermore, the bill specifically provides that no branch can be opened unless the proponents demonstrate the need for such a branch in the local community and, furthermore, that no undue competitive injury will result to existing financial institutions. Wolcott comment Various mutual savings banks or savings and loan associations from different States that might convert to Federal charters would have varying and diverse powers differing from the powers of federally chartered institutions in other States because the proposed new legislation provides that all powers possessed by an institution converting to a Federal charter will be retained. Response There is nothing novel in the fact that, under H.R. 258, Federal mutual savings banks operating in different States might have somewhat different powers. As Mr. Wolcott pointed out, national banks are permitted to establish branches in accordance with the branching powers of State-chartered commercial banks in their particular States. As a result, branching powers of national banks operating in different States vary widely. Wolcott comment State-chartered institutions, notwithstanding their preference to stay as they are, would be constrained, for competitive reasons, to obtain Federal charters and the duality which the bill ostensibly seeks could be maintained by progressively weakening statutory safeguards. Response The suggestion in Mr. Wolcott's statement that the availability of Federal charters to mutual savings banks would force a significant number of Statechartered savings banks to apply for Federal charters and would weaken the State banking systems is clearly contrary to the experience of other industries. Commercial banks, savings and loan associations, and credit unions have long been both State and federally chartered. In none of these industries did the introduction of Federal charters result in the debilitation of State-chartered systems. On the contrary, State-chartered institutions have thrived and grown rapidly in the climate of progressive supervisory authority engendered by the dual system of chartering and supervision. At present, with assets in all three dual systems about evenly divided between State and federally chartered institutions, the Nation's financial structure represents a healthy balance between State and Federal institutions. Wolcott comment It has always been our view that the chartering and insurance functions should be separate, i.e.. that, the insurer should have a right to inspect its risk and suggest corrective measures independently of the chartering authority. To combine the two functions may lead to harsh and arbitrary supervisory conduct. Section 2(a) of the bill would preclude this, inasmuch as the proposed Federal Savings Insurance Corporation would be under the jurisdiction of the Federal Home Loan Bank Board, the proposed chartering authority for these mutual banks. Response H.R. 258 would make no change in the relationship between the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. In this connection, the only result of this legislation would be to change the name of the Federal Savings and Loan Insurance Corporation to the Federal Savings Insurance Corporation. Wolcott comment Section 201 provides for the renaming of the Federal Savings and Loan Insurance Corporation to "Federal Savings Insurance Corporation." This designation, we believe, will cause more confusion in the public mind and in the public's effort to distinguish it from the Federal Deposit Insurance Corporation, and we suggest the continuation of the existing title which has served savings and loan associations so well since 1934 and which clearly distinguishes the two corporations. Response We do not agree that the redesignation of the Federal Savings and Loan Corporation as the Federal Savings Insurance Corporation would cause confusion with the Federal Deposit Insurance Corporation in the public mind. As noted earlier in another connection, Mr. Wolcott does not provide any indication of the specific problems he foresees. In any event, it seems highly doubtful that injurious consequences could ever result from a confusion between two agencies organized and supervised by the Federal Government to perform similar functions for the public. Wolcott comment Section 202 provides that whenever a State mutual savings bank insured by the Federal Deposit Insurance Corporation qualifies to be insured by the Federal Savings Insurance Corporation, or converts into a Federal mutual, the Federal Deposit Insurance Corporation shall calculate the amount of its capital account attributable to such mutual savings bank and shall be required to transfer such calculated amount to the Federal Savings Insurance Corporation on the date the mutual savings bank qualifies for such insurance * * * The legislative history of the Federal Deposit Insurance Corporation, and the act itself, indicate beyond a doubt that the insurance fund of this Corporation is not owned by the Federal Government or by the insured banks, but is a public trust designed for the protection of the depositing public and constituted by the Congress for a public purpose. The amounts paid by banks which are members of this Corporation have been premiums for term insurance protection, which premiums are not to be repaid upon withdrawal from the fund since no proprietary interest therein was gained by the payment of such premiums. Response Section 202 of the bill provides that when a State mutual savings bank, currently insured by FDIC, converts to a Federal mutual savings bank, an amount of the reserves of FDIC attributable to the premiums paid by such converting bank would be transferred from FDIC to the reserves of the Federal Savings Insurance Corporation. Mr. Wolcott, in opposing this provision, points out that the insurance fund is not owned by the Federal Government or by the insured banks, but is a public trust designed for the protection of the depositing public. No one can quarrel with this statement, and it is submitted that the effect of section 202 does nothing in contravention of such a principle. Contrary to what Mr. Wolcott seems to suggest, the bill does not assert or imply that any individual savings bank insured by FDIC has a "proprietary" interest in the reserves of FDIC. Reserve funds attributable to a converting savings bank are not turned over or paid to the savings bank, but rather are transferred to the Federal Savings Insurance Corporation in recognition of the fact that its deposit insurance responsibilities would be increased by the conversion of an institution to its coverage. A collateral effect of such a conversion, of course, would be a decrease in the deposit insurance responsibilities of the FDIC. The bill prescribes a careful formula designed to insure that reserve amounts attributable to a converting savings bank would be equitably reduced to take into account a pro rata share of FDIC operating expenses, past insurance liabilities, and current insurance liabilities. It is difficult to understand the dangers apprehended in the orderly and equitable transfer of funds from one Federal agency insuring deposits to another agency of the Federal Government insuring savings and loan associations. As noted earlier, the insurance of savings banks under the same Government agency with savings and loan associations was recommended in the report of the Commission on Money and Credit as being a desirable unification of thrift insurance. The committee should also consider the very real possibility that transfer of insured institutions out of FDIC and into FSIC might very well lighten the administrative burden on FDIC and thereby increase the effectiveness and excellence of its performance. STATEMENT OF WILLIS ALEXANDER, JR., PRESIDENT, TRENTON TRUST Co., TRENTON, MO. REPRESENTING THE AMERICAN BANKERS ASSOCIATION; ACCOMPANIED BY CHARLES R. MCNEILL, DIRECTOR, WASHINGTON OFFICE, AMERICAN BANKERS ASSOCIATION Mr. ALEXANDER. Thank you, sir. Mr. Chairman, may I present Mr. Charles R. McNeill, director of the Washington office of the American Bankers Association, who accompanies me to the witness stand? Mr. MULTER. He is well and favorably known to us, and we are glad to have him back here with you, and we welcome you, sir. Mr. ALEXANDER. Thank you, sir. My name is Willis Alexander. I am president of the Trenton Trust Co. of Trenton, Mo. Early this year I served as chairman of a special committee of the American Bankers Association to review our position on Federal chartering of mutual savings banks. I appear here today to testify on behalf of the association on H.R. 258. H.R. 258 would authorize the creation of a Federal mutual savings bank system, with the institutions to be chartered and supervised by the Federal Home Loan Bank Board, and insured by the Federal Savings and Loan Insurance Corporation to be renamed Federal Savings Insurance Corporation. Among its principal features are the following: 1. The new banks would be given a broad range of lending and investing powers and would enjoy the privileged tax status now held by savings and loan association and State-chartered mutual savings banks; 2. The Federal Home Loan Bank Board would be given authority to permit branching in each State in accordance with the most liberal provisions applicable to any financial institution accepting deposits or shares; and 3. Savings and loan associations would be permitted to convert to federally chartered mutual savings banks, subject to approval by the Federal Home Loan Bank Board, while similar privileges would be available to mutual savings banks desiring to convert to savings and loan associations. The American Bankers Association, sir, opposes enactment of H.R. 258. Our position is based on the fact that certain significant provisions of the bill are inconsistent with fundamental principles developed in this country with respect to banking. Since these provisions are basic to the proposed legislation we see no feasible way of suggesting amendments which would make the bill acceptable. Further, we believe that if there is to be a new Federal banking system the case for its establishment must be clear and convincing. We have not yet seen evidence which would support such a case. Let me call your attention to several of the provisions of H.R. 258 to which we take strong exception. Designating the Federal Home Loan Bank Board to serve as the chartering and supervisory agency of a proposed new banking system is inappropriate and represents an unwise allocation of responsibility. While we have a high regard for the ability and integrity of members of the Federal Home Loan Bank Board, we think it is elementary that the creation and supervision of Federal institutions with banking powers should be the responsibility of one of the existing Federal banking agencies. Mutual savings banks often, and quite properly, stress the fact that they are banks of deposit, rather than special-purpose lenders accepting investments in share accounts. Section 2(a) of H.R. 258-the bill's Declaration of Policyemphasizes the term "banks of deposit," declaring it to be the intention to bring such banks to each State. Today two-thirds of the State-chartered mutual sayings banks, holding 87 percent of all mutual savings bank assets, are members of the FDIC and therefore subject to supervision by a Federal banking agency. Thus we cannot understand why it is now proposed to place all chartering and supervisory powers over proposed new banks of deposit in an agency which, however able, exercises, and will continue to exercise, special responsibilities with respect to savings and loan associations. 60-631-6618 |