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institutions examined and get the money back, and it is deposited into an account with the Treasury and reduces the net appropriation to the bank system by that much.

Mr. WOODRUM. Wait a moment; that last comment that it reduces the appropriation, is not clear to me.

Mr. FaHEY. I mean, it reduces the actual cost of operating the bank system.

Mr. 'WOODRUM. But it does not reduce the amount of your appropriation ?

Mr. Fahey. No; the money has to be appropriated.

Mr. WOODRUM. You do not get the money back; it goes into the Treasury?

Mr. F AHEY. Yes, it goes into the Treasury, but we get it back through a transfer of appropriation warrants.

Mr. WOODRUM. Will you put in the record as part of your statement how much, in dollars and cents, it costs you to make these examinations, and how much you recover that goes back into the Treasury?

Mr. FAHEY. Yes, sir. (The statement referred to is as follows:) During the fiscal year 1942, the total expenses applicable to the Examining Division amounted to $912,867.44. During the same period the total funds received as the result of bills rendered the institutions examined aggregated $1,072,269.54. The total amount collected during 1942 represented examining fees earned during the following years, in the respective announts indicated : 1939_,

$688. 68 1940.

3, 650. 53 1911

273, 859. 67 1942

794, 070. 66

Total.

1,072, 269. 54 In addition to the amount of $794,070.66 earned and actually collected during fiscal 1942, outstanding reimbursables applicable to the same year amounted to $213,882.69, thus making a total of $1,007,953.35 in collected and uncollected fees against the total expense of $912,867.44 for the same year.

While the earnings applicable to fiscal 1942 exceed the total expenses for that year, it should be understood that the total expenses are confined to the Examining Division itself and do not include any portion of the Administration's other overhead which may be considered as related to the work of the Examine ing Division. If such other overhead expense were taken into consideration there would be no excess of receipts over expenses.

Mr. WOODRUM. In other words, that is almost a self-sustaining operation ? Mr. Fahey. Completely so.

Mr. WOODRUM. We had quite a discussion in the conference, the last time, when the other body very drastically reduced the amount that you might use for those examinations.

Mr. FITZPATRICK. In fact, not any of that money comes from the taxpayers, does it?

Mr. Fahey. Not a cent.
Mr. DIRKSEN. Is it more than self-sustaining, Mr. Fahey?
Mr. Fahey. The fees collected have to be sufficient to cover all costs.
Mr. DIRKSEN. Your income from examination fees is $1,067,000 ?
Mr. Fahey. I do not recall the exact figure. It is in our estimates.
Mr. DIRKSEN. It is set out here in your justification.
Mr. Fahey. There is travel, besides that.

Mr. DIRKSEN. First of all, I am talking about how you made up the $1,700,490 for the Federal Home Loan Bank System. Your ex

amination fees are $1,067,000 and your assessments $484,990, and then there is reimbursement for services of $148,500. That makes $1,700,490. That is the way that figure is set up.

Mr. FAHEY. That $148,500, I should explain, comes out of the Insurance Corporation.

Mr. DIRKSEN. That comes out of the Insurance Corporation?
Mr. FAHEY. Yes.

AMOUNT TRANSFERRED TO ADMINISTRATOR'S OFFICE FROM THE F. H. L. B.

ADMINISTRATION

Mr. DIRKSEN. What is assessed on your constituent agency for the to benefit of the Administrator's office ?

Mr. FAHEY. $105,000. Mr. DIRKSEN. Then virtually you are taking funds that are derived from examination fees against members of the Home Loan Bank System and turning them over to the Administrator's office, administering an over-all agency, where the large agency, I think, is the Housing, and will be for some time to come. I am just talking about the fairness of that.

Mr. MOORE. May I comment on that? Of the $105,000 that comes from the Federal Home Loan Bank Administration only a very small portion comes from the bank system as such.

Mr. DIRKSEN. How much?
Mr. MOORE. I think it is $15,750.

Mr. DIRKSEN. That is all of the money that comes out of the fees and assessments of the system that goes to the Administrator's office ?

Mr. MOORE. Yes. Mr. DIRKSEN. And what is that $15,000 for? Mr. Moore. That is part of the total that is assessed on the Federal Home Loan Bank Administration.

Mr. DIRKSEN. Is there any service rendered for it? Mr. MOORE. We think the Administrator's office renders service to each of the constituent units of the bank administration.

Mr. DIRKSEN. I just wanted to be clear on that, because I thought that if there is a substantial sum coming out of these assessments, it would occur to me that some restriction ought to be imposed there.

Mr. STARNES. If the gentleman will excuse me for interrupting, I have to leave, and I should like to say that I have no questions; I think Mr. Fahey is doing a very good job, and so are these constituent units.

Mr. FAHEY. Thank you. Mr. Dirksen. Only $15,000 of the funds derived from assessments and fees goes into the Administrator's office for general administrative purposes

? Mr. MOORE. That is correct.

SELF-SUSTAINING STATUS OF FEDERAL HOME LOAN BOARD SYSTEM

Mr. Fahey. Mr. Chairman, we will give you the additional figures you have asked for as to collections and disbursements but, of course, as far as the whole bank system is concerned, it is self-sustaining: There is no appropriation out of the Treasury for it at all.

Mr. WOGDRUM. That is not exactly the right thing to say, because there is an appropriation. What you mean is that the money you

collect goes back into the Treasury and then has to be appropriated to you.

Mr. Fahey. That is right, as I have previously explained.

Mr. WOODRUM. What I think you mean to say is that it does not actually cost the taxpayers anything, because the funds that you collect go into the Treasury and you do not have the use of those funds until Congress appropriates them to you.

Mr. Fahey. That is right. I am glad you brought up that matter with reference to the examiners, because I think there has been some confusion in the past on that subject; I mean, a failure to realize on the part of some Members of Congress that under the law we are bound to examine these institutions at least once a year.

Mr. WOODRUM. That is for the protection of the public?

Mr. Fahey. Surely, and of the Insurance Corporation. It is of great importance that we keep current on those examinations, particularly in times like these. If they get into difficulties, the Insurance Corporation has got to pay the losses.

Mr. FITZPATRICK. Considering the amount of money you have already turned into the Treasury, is there a working fund?

Mr. Fahey. There would be a working fund, because the money is turned over to the Treasury as fast as received.

Mr. FrTZPATRICK. Yes, but if you liquidated at the present time, there would be more money paid into the Treasury than has been paid out, is that not true?

Mr. FaHEY. Yes; that is the fact.
Mr. FITZPATRICK. In the final analysis it will liquidate itself?

Mr. FAHEY. Yes; that is true of the Federal Home Loan Bank System.

Mr. FITZPATRICK. Without laying any tax on the citizens of our country?

Mr. FAHEY. Yes, sir.
Mr. CASE. That is a hope rather than a prediction.

Mr. Fahey. That is a fact so far as the bank system is concerned. When it comes to the Home Owners' Loan Corporation, that is a different matter.

Mr. WOODRUM. I think you have always told this committee that the Home Owners' Loan Corporation would not be a money-making proposition.

Mr. Fahey. Of course, it was never expected to be.

Mr. FITZPATRICK. I was referring to the Federal home loan bank, not to the Home Owners' Loan Corporation.

QUESTION AS TO THE ADVISABILITY OF LIQUIDATING THE F. H. L. B. SYSTEM

Mr. DIRKSEN. The banks have a loan from the Treasury, do they not?

Mr. FAHEY. No.

Mr. DIRKSEN. Or rather the Treasury holds stock in the amount of $124,000,000 ?

Mr. Fahey. No; the R. F. C. holds it. The Government put up $125,000,000 in capital and owns approximately 70 percent of the bank system.

Mr. DIRKSEN. Why should not that stock be liquidated and paid off!
Mr. Faney. I do not know how it is going to be.
Mr. DIRKSEN. The banks can do it?

Mr. Fahey. The institutions have a right to do it, if they want to, but I do not know where they would get $125,000,000. Aside from that I do not think you can safely reduce the stock of the Federal Home Loan Bank System and still command the market that we now have for the debentures of the System.

Mr. DIRKSEN. Let us go back to your first observation for a moment. You say the institutions cannot do it.

Mr. FAHEY. I do not think so.

Mr. DIRKSEN. I am sorry to disagree with you, because I am persuaded that they can, and I think the best minds in the building and loan field are persuaded that they can, and can do it quickly.

Mr. Faney. I think you are mistaken about that, Congressman. What I understand one of the executives of the league is talking about is a reduction of the capital to $50,000,000. Well, I do not think you can reduce the capital to $50,000,000 and have a safe institution or continue to sell the debentures of the system on the market at any such rate it commands today. You understand that the $125,000,000 to found the system was subscribed by the Government.

In addition to the capital of the banks, we have the right to issue consolidated debentures which supply additional funds. This money obtained in the open market is in turn, lent by the banks and used by the member institutions to meet mortgage needs. As a result of establishing confidence in the bank system we are now able to sell successive debenture issues whenever we wish, at very low money rates. It is imperative to preserve confidence in this bank system however, or it will not command the confidence of the market and you cannot sell the debentures.

Mr. DIRKSEN. Assuming the capacity and the willingness of the banks and the member institutions to pay off the $124,741,000 to the R. F. C., why should it not be done? Why should not the Government step out of that operation?

Mr. Fahey. That is a question of policy of course.
Mr. DIRKSEN. Oh, definitely not.
Mr. FaHEY. I mean, that is a matter of judgment, in the last analysis.

If the member institutions of the Federal Home Loan Bank System feel that they have unnecessary surplus cash, it occurs to me that they could well render a service to the Government if they would pay back the balance of $168,000,000 remaining from advances made by the Treasury and the Home Owners' Loan Corporation for the purchase of their shares. This money was placed with them when they were unable to supply money to meet public demands, and is to be returned. All of this is not yet due but if they have too much cash it would be far better for them to pay off these advances than to weaken the bank system by reducing its capital.

Mr. FITZPATRICK. Because of the banking conditions at that time it was absolutely necessary for the Government to step in, was it not?

Mr. FAHEY. Of course.

Mr. FITZPATRICK. And that was the reason why the legislation was passed.

Mr. DIRKSEN. The essential point is, you do not want to keep the hand of government there constantly, if it is not necessary, any more than

you

want the Government to have its hand on an individual when he can walk on his own feet.

Mr. FITZPATRICK. Would you like to see the banks in the condition they were in during 1931 and 1932?

Mr. DIRKSEN. I do not think you should make an observation like that. We are up against a different situation entirely today.

Mr. FITZPATRICK. This placed them on a good, sound basis.

Mr. DIRKSEN. The question is whether or not you want to continue the hand of the Government as a controlling factor in this thing, or whether you believe in free enterprise in this country. That is the thing that is involved.

Mr. FITZPATRICK. Do you want to go back to the inflation that we had from 1927 to 1929, with a manipulation of the funds of the American people that went with it?

Mr. DIRKSEN. If you are going to talk about inflation, this would be definitely anti-inflationary by retiring this and siphoning that money out of the money market of the country. Of course, that is neither here nor there. I just wanted to get from Mr. Fahey an observation as to why it should not be done or it should be done if they have the capacity to do it.

Mr. FAHEY. Well, as I say, I think that is something for Congress to decide.

Mr. WOODRUM. A matter of policy, you mean?

Mr. Fahey. Certainly. It is a matter of public policy. And it is a very important matter of public policy because it touches the savings of millions of people in this country.

Mr. CASE. Within the purpose of the act and the acts amendatory thereto that created the present system, would you say that the purposes have been achieved?

Mr. FaHEY. Mr. Congressman, you see, this is not a temporary organization at all, the Federal Home Loan Bank System.

Mr. Case. That sort of begs the question, because if the agency was created to meet an emergency situation, if those purposes have been met, then a reasonable liquidation based upon the accomplishment would be in order, and it is not purely a matter of political philosophy, either. It is a question of whether or not the mandate of Congress has been accomplished.

Mr. FAHEY. But, Congressman, you may not recall that the Federal Home Loan Bank System was not created as a temporary expedient at all. It was created as a permanent system.

Mr. CASE. But, as to certain of its activities

Mr. FAHEY. The emergency activities of the Federal Home Loan Bank System were temporarily and limited. When the Federal Home Loan Bank Act was passed in 1932, the mortgage crisis was increasing in intensity very rapidly. In an attempt to afford relief the bank system was authorized to make direct loans to home owners, but it never made any, to amount to anything. I think it made only three loans in the entire United States, amounting to less than $10,000, at a cost of nearly $140,000, as I remember it. The bank system did not begin to function as was intended for more than a year after Congress passed the act creating it.

Up to the first of 1933 the system had only a few more than 100 members. It was not until after the bank holiday, and until the institutions began to get on their feet and out of the panic with the help of the Government, that there was any membership of the bank system that amounted to anything.

It was created to serve the urban mortgage field, exactly as the Federal Reserve System was organized to deal with the commercial banks.

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