Mr. CASE. And the Farm Credit System in the rural communities? Mr. FAHEY. Yes; particularly the Federal land banks.

Mr. CASE. May I say at this point that we had a somewhat similar situation in my State and we set up a rural credit board designed to meet this kind of a situation, the rural credit mortgage situation in the rural field. And the director of our rural credit board announced a couple of years ago that he conceived it as his duty now to work himself out of a job; in other words, that the land should be put back upon the private tax rolls as rapidly as possible and having achieved the purpose, it was his duty to try to work himself out of the job. That apparently is not regarded as the function of your agency?

Mr. FAHEY. Oh, it is a different operation, Mr. Congressman.

Mr. CASE. You have just said that there was a parallel situation here, that you were to serve the urban mortgage field, which was similar to the service of the Farm Credit Administration

Mr. FAHEY. Not the Farm Credit Administration; the Federal land banks.

Mr. CASE. Well, the Federal Land Bank System; yes.

Mr. FAHEY. You see, what this bank system does is this: A local savings and loan association, or a savings bank, may turn to its regional bank and put up collateral and borrow against it in order to supply money in its own community to lend to home owners, to build more homes, and to finance their mortgages. Most of the loans of the local institutions are made on a monthly amortized basis, and as their monthly instalments come in, they accumulate funds to pay off the regional bank; and then they borrow again when they need money. The Federal home loan banks also serve as a source for obtaining cash when unusual demands are made upon the member institutions which they are temporarily unable to meet.

As I said, the Federal Reserve System certainly was not organized to deal with any temporary situation. Neither was the Federal Land Bank System. And this third important reserve credit systemurban mortgage credit-was created for the same purpose as the other two. It is well to remember that, after all, the urban mortgage indebtedness of this country in normal times is the biggest single block of private indebtedness that we have. Before the panic it was over $21,000,000,000, and it is again approaching that figure.

Mr. CASE. You are differentiating between the bank system itself and the H. O. L. C.?

Mr. FAHEY. Yes; the bank system is an entirely different thing. The Home Owners' Loan Corporation was created by Congress in 1933, because the Federal Home Loan Bank System had not been able to take hold, and a crisis in the mortgage banking situation had developed which was the worst that any country in the world ever experienced. In 1931 and 1932 there were more than half a million mortgages foreclosed in this country. At the beginning of 1933 foreclosures were running over a thousand a day. Most of the savings and loan associations were on notice and most of the other savings institutions as well. People could not get their money, and there was a real panic. It was quite as serious as the panic of the commercial banks.

Mr. CASE. I am not arguing against the recognition that there was an emergency situation.

Mr. FAHEY. It was that which prompted Congress with, I think. only four dissenting votes in both Houses, to establish the H. O. L. C. Mr. FITZPATRICK. It was a relief measure to the home owners throughout the country. At the same time a relief measure to the building associations, banks, and insurance companies, who would have lost a great deal of their investments if the Government had not taken it over.

Mr. FAHEY. Yes; that was the purpose and the effect.

Mr. HENDRICKS. What would happen if you did pay off this $125,000,000?

Mr. FAHEY. If you paid off the $125,000,000, as it stands today, you would have a bank system with about $50,000,000 of stock, wholly inadequate to serve the purpose.

Mr. HENDRICKS. It would just make it unsafe?

Mr. FAHEY. In my opinion; yes. Not only that, but this bank system has not begun to develop yet to the point where it should to serve the savings institutions and the people of the country. There are a lot of savings institutions which are not providing for the people who entrust money to them, the protection of membership in the bank system. Some cannot qualify for admission.

Mr. DIRKSEN. There is another answer to that, of course, Mr. Fahey. Mr. FAHEY. What is that?

Mr. DIRKSEN. In my judgment they can pay this off and still increase their capital out of their own sources, if they so desire. Mr. FAHEY. Well, maybe.

Mr. DIRKSEN. What I am trying to get at is this

Mr. FAHEY. I have very grave doubts about it, Mr. Congressman. Mr. DIRKSEN. On the basis of your observations, Mr. Fahey, it would appear to me that when the R. F. C. goes in to bail out a railroad, and keep the securities from going to pot, and cause no end of difficulty and maladjustment, after that job is done it seems to me, in the light your philosophy, when that railroad had got on its feet and out of its earnings could retire its debt to the Government, the Government should still stay there and sit on the board of directors.

Mr. FAHEY. I do not say so necessarily. I do not think it is the same case at all. I am merely expressing the opinion that with $50,000,000 of capital this would be a pretty weak bank system and the Federal Government should not have any responsibility for it or lend its name to it.

Mr. CASE. If a local bank becomes a member, or avails itself of these credit resources through your bank system, and subsequently wants to divest itself of that connection, can it retire and go into the private field?

Mr. FAHEY. Certainly, it can. The bank members are all private institutions and they are all perfectly free to withdraw any time they want to, and withdraw their stock, and get out. And it might be explained also that the stock of this bank system is profitable. It pays dividends on the stock. It is a perfectly good asset. So far the bank system has paid $18,412,691 in dividends.

PURCHASE OF PASSENGER AUTOMOBILE, F. H. L. B. ADMINISTRATION Mr. FITZPATRICK. Referring to page 262, will you state why you have a provision for the immediate purchase of one motor-propelled passenger-carrying vehicle?

Mr. FAHEY. I shall be glad to. The administration has one car of the vintage of 1934. They are no longer making that care and it is beginning to break down and it is not economical to run. Of course, located as we are down at this end of the city, with meetings uptown, all the time, and conference and committees and that sort of thing, we are running back and forth all the time.

ATTENDANCE AT MEETINGS, F. H. L. B. ADMINISTRATION

Mr. FITZPATRICK. Mr. Fahey, would you explain the item of $6,000 for the payment of expenses for attendance at meetings, and so forth, which is also on page 262?

Mr. FAHEY. The membership of the bank system is composed not only of those which have Federal charters, but a large number which operate under State charters, and which are under the supervision of the State authorities-the State commissioners. We have been trying for several years to get a general meeting of those State commissioners where we could take up with them a lot of the common problems of examination and supervision, and so forth; and in that connection, of course, what we have been aiming for is to try to standardize these examinations so that we could avoid any duplication of examination. In a number of the States we examine jointly with the State authorities, and thus effect a saving, but much more could be accomplished if we could standardize these examinations throughout the country. That we have not been able to do fully up to the present time.

Not only that, but particularly under present conditions we have many common problems with these State authorities. Many of the States have no funds for this purpose, and in others the appropriation for the State banking commission is very small. So it is very worth while, from the standpoint of the bank system to pay the expenses of those State commissioners to come and meet in a general and common conference.

I ANGUAGE REINCURRING AND PAYING OF ADMINISTRATIVE AND OTHER EXPENSES OF F. H. L. B. ADMINISTRATION

Mr. FITZPATRICK. Mr. Fahey, on page 263 of the bill, in the second to the last paragraph, it states:

Provided further, That except as herein otherwise provided, the administrative expenses and other obligations of the Administration shall be incurred, allowed, and paid in accordance with the provisions of the Federal Home Loan Bank Act of July 1932, as amended (12 U. S. C. 1421-1449), the Home Owners' Loan Act of 1933, as amended (12 U. S. C. 1461-1468), and title IV of the National Housing Act of June 27, 1934, as amended.

Will you insert in the record a statement explaining the necessity for that language?

Mr. FAHEY. Yes, I will be glad to do that.

(The statement requested follows:)

This language provides that except as otherwise provided, the sum made available shall be expended for the purposes provided for in the acts creating and governing the operation of the Federal Home Loan Bank Board, the Home Owners' Loan Corporation and the Federal Savings and Loan Insurance Corporation. As the amount requested for all three agencies are consolidated into one amount, language which provides the payment of expenses of each of the agencies out of the sum approved is necessary. This is a consolidation of language carried in the appropriation language for each of the three agencies in the past.

INCREASE FOR FEDERAL HOME LOAN BANK SYSTEM

Mr. FITZPATRICK. Mr. Fahey, I notice the appropriation for the Federal Home Loan Bank System is increased by $325,490. You might explain that.

Mr. FAHEY. Yes. We have explained in our justification that part of this increase is to pay for the services which are to be rendered to the bank system by the Home Owners' Loan Corporation. Part of it is provided to cover rent to be paid to the Home Owners' Loan Corporation by the bank system for office space in the building owned by the Home Owners' Loan Corporation in Washington and part of it is provided to cover the cost of the increase in per diem from $5.00 to $6.00. Estimates covering these items have not appeared in previous

years.

I think we have a break-down of that.

Mr. FITZPATRICK. Could you do the same thing you did last year, insofar as that item is concerned?

Mr. FAHEY. Only in part. Not until we moved the Home Owners' Loan Corporation to New York and the joint use of employees was more definitely separated were we able to get accurate figures of the service that the Home Owners' Loan Corporation was providing for the bank system and see what it should properly pay for.

INCREASE FOR FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION

Mr. FITZPATRICK. Then under the Federal Savings and Loan Insurance Corporation there is an increase of $131,760 over last year. Mr. FAHEY. The same explanation would apply.

Mr. WIGGLESWORTH. What were those functions, Mr. Fahey, for which they were charged?

Mr. FAHEY. We have an explanation here in which we have explained them, have broken them down into detail. Here is a tabulation of them.

(The statement referred to follows:)

STATEMENT SHOWING BASIS FOR COMPUTING REIMBURSEMENT FOR SERVICES RENDERED TO FEDERAL HOME LOAN BANK SYSTEM AND FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION-ESTIMATE 1944

The personnel of the Commissioner's office, including his two executive assistants and his one assistant and their clerical staffs, the General Counsel and staff, the secretary's office, Division of Operating Statistics, both New York and Washington, Department of Public Relations, and the Personnel Department, both New York and Washington, are all carried in the estimate for personal services for the Home Owners' Loan Corporation and will be paid by the Corporation. Each of these sections or units performs services for the Federal Home Loan Bank System, the Federal Savings and Loan Insurance Corporation, and the Home Owners' Loan Corporation in varying degrees. The table below indicates the estimated percentage of time each of the above sections or units devotes to each agency. The estimated reimbursement to the Home Owners' Loan Corporation by the Federal Savings and Loan Insurance Corporation is shown in sum total above, the detail of which is shown in the following table, and is treated as a deduction from the over-all estimates for the fiscal year' 1944.

CONSOLIDATION OF CERTAIN SERVICES OF CONSTITUENT ORGANIZATIONS

Mr. WIGGLESWORTH. The statement you have furnished covers the services furnished to the Home-loan bank set-up and to the Savings and Loan Insurance Corporation by the Home Owners' Loan Corporation?

Mr. FAHEY. That is right.

You will remember that the bank system was created first by Congress. The Home Owners' Loan Corporation and the Federal Savings and Loan Insurance Corporation came later, and Congress delegated to the bank board the authority for administering to affairs of all three of these agencies.

Not only that, but you will recall that at that time of distress there was, I think, on the part of Congress a tendency to regard the Home Owners' Loan Corporation as a source of general relief to the whole situation to help the bank system develop and to help the Insurance Corporation come into existence.

You will recall, for example, that the capital of the Insurance Corporation was provided by the Home Owners' Loan Corporation, to the extent of $100,000,000. The work of these three organizations was generally intermingled among their employees. As a matter of fact, if we had undertaken to keep these organizations separate, and maintained separate functions and divisions there would have been some people, perhaps who would not have been used full-time. But by operating all three of them together and utilizing the experience and the efforts of these employees, very large economies were accomplished.

The bank system, for example, occupied very small quarters in the Federal Home Loan Bank Board Building for several years; it did not amount to a great deal, and the same thing was true of the Insurance Corporation; it was almost all Home Owners' Loan Corporation work; and then gradually as the Insurance Corporation or the bank system grew it became a different matter. Finally we moved the Home Owners' Loan Corporation to New York and then it was necessary for the Bank System to absorb the cost of its own services, as it should properly do and to pay its share of the rent, as is now provided for.