Frank Wille, Chairman, Federal Deposit Insurance Corporation_. Carl O. Kamp, Acting Chairman, Federal Home Loan Bank Board___ Grover Ensley, executive vice president, National Association of Mutual Gilbert G. Roessner, vice president, National League of Insured Savings Associations, accompanied by William F. McKenna, general counsel__. James R. Sloane, Massachusetts Bankers Association, Inc.--. Edward J. Duffy, Jr., president, Suburban National Bank of Arlington, Mass., and president, Massachusetts Independent Bankers Association, on behalf of the Independent Bankers Association of America, accom- panied by John Linnehan, secretary, Massachusetts Association, and George W. Mitchell, Member, Board of Governors, Federal Reserve Sys- tem, accompanied by Thomas O'Connel, general counsel_. Ronald W. Haselton, president, Consumers Savings Bank, Worcester, Mass., accompanied by Thomas Zocco, senior vice president, Consumers Savings Bank, and Elliott A. Carr, Savings Bank Association of Massa- Tom B. Scott, Jr., United States Savings and Loan League, accompanied by Joseph T. Benedict, chairman of the board and president, First Federal Savings and Loan Association, Worcester, Mass., and past president, Federal Home Loan Bank of Boston, on behalf of the Federal Savings League of New England, the Massachusetts Federal Savings Council, and the New Hampshire Cooperative Federal Savings and Loan League, accompanied by Jack Tracy, General Counsel, and Robert A. Clark, LIST OF WITNESSES-Continued THURSDAY, MARCH 22 James E. Smith, Deputy Under Secretary, Department of the Treasury, Francis B. Nimic, president, National Association of Mutual Savings Page 225 241 257 288 298 303 ADDITIONAL STATEMENTS AND DATA Data received from Elliott Carr, director of research, Savings Bank Charts and tables from the Federal Home Loan Bank Board__. National League of Insured Savings Associations, letter and supplementary statement from William F. McKenna, general counsel-vice president 58 Samples of third-party withdrawal instruments_. Study on impact of NOW on commercial banks from Massachusetts Bankers Association___ 77 78 Exhibits accompanying statement of Massachusetts Bankers Association_ Letter from Thomas C. Brickle, legal counsel, Independent Bankers Association of America_. 80 103 Statistical study submitted by the Savings Banks Association of Massachusetts 104 State reserve requirements for commercial banks, table_- 125 136 Advertising for NOW accounts-- 162 Letter from Everett P. Pope,Massachusetts Cooperative Bank League_ Letter enclosing excerpt from Congressional Record, received from Charles Investors Mortgage Insurance Co., letter from John E. Horne, chairman of Statement of the Massachuetts Consumer Bankers group_ 223 236 268 301 311 313 314 EXTENSION OF REGULATION Q AND NOW ACCOUNTS TUESDAY, MARCH 20, 1973 U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 5302, New Senate Office Building, Senator Thomas J. McIntyre presiding. Present: Senators Sparkman (chairman of the full committee), McIntyre, and Bennett. Senator MCINTYRE. The subcommittee will come to order. Before discussing the hearing we are about to enter into I thought it might be of interest to note that this afternoon I will introduce legislation to roll back the prime interest rate to the March 16, 1973 level. I will do this because in my judgment the President has been manifestly reluctant to exercise the authority granted him under the Economic Stabilization Act of December 1971 to stabilize interest rates "at levels consistent with orderly economic growth." I cite as evidence the absence of protest, restriction of protest or weakness by the administration to the three increases in the prime interest rate that have been made in the last 3 months. In late December some banks raised their prime interest rates to 6 percent. On January 4, those who had not gone to 6 percent in December joined their colleagues in setting their prime rate at that level. On February 26, all went to 64 percent and yesterday eight major banks boosted their prime lending rate to 634 percent. The Economic Stabilization Act provides that the President— Shall require the issuance of regulations or orders providing for the stabilization of interest rates and finance charges unless he issues a determination accompanied by a statement of reasons that such regulations or orders are not necessary to maintain such rates and charges at levels consonant with orderly economic growth. Even if interest regulations or orders were not necessary at the time the act was extended a year and a half ago, they are certainly necessary today. Indeed, the prime rate increases announced this week are irresponsible enough to convince me that we cannot wait for an obviously reluctant President to take the action he should and that rollback legislation is the quickest and most effective response that we can make. Accordingly, the legislation I will introduce today will establish mandatory interest rate levels based on those being charged on March 16, 1973, before the increase in the prime interest rate announced yesterday. (1) I am not saying I believe these levels are completely justified, but I do believe as a practical matter that it is the best the consumer can hope for at this time. It would be tremendously difficult and an administrative nightmare to apply mandatory controls dating back to levels long in the past. Congress needs to make a firm commitment to stabilize this economy and right now that means an end to spiraling interest rates. This morning the subcommittee commences what will be 3 days of hearings with the primary focus on two issues. First, the extension of flexible Regulation Q authority and, second, the recent development of what is referred to as NOW accounts. Several bills have been introduced dealing with both of these subjects and while I do not intend to limit the subcommittee to any one bill, I do request from the witnesses that they concentrate their testimony on S. 1008, a bill that I introduced which would amend several Federal laws to make it clear that all competing financial institutions could offer NOW account services to their customers. It is my understanding that the House Subcommittee on Bank Supervision and Insurance held hearings on a bill last week which is substantially the same as a bill entitled S. 1256 introduced last Thursday by Senators Sparkman and Tower. Of concern to me is the fact that during last week's hearings on the House side the great bulk of the discussion centered on how dangerous competition is for the financial institutions who supposedly are competing with one another and that little, if any, discussion or consideration was given to the consumer who might also have a NOW account. So I would hope that the witnesses testifying before the subcommittee this week would discuss NOW accounts with a focus toward their customers rather than simply concentrating on the profits of individual banking institutions. It has been said that no matter what you call it, NOW accounts are in effect checking accounts upon which interest is paid. I can see why some competing financial institutions would be concerned if only one group, one group such as the mutual savings banks, could offer this service while the others could not. Because of the possible competitive inequities developing, in that NOW accounts are presently limited to mutual saving banks in a few States, I have introduced S. 1008 which would allow commercial banks and savings and loan associations to also offer this new service to their customers. S. 1008 also included credit unions, but in discussing this section of the bill with the administrator of the National Credit Union Administration and spokesman for the credit union industry, it might be better to delay consideration of third party payment systems to credit unions until a later date. The Hunt Commission took this approach by recommending third party payment systems for savings and loan associations and mutual savings banks, but did not suggest at this time extending services to credit unions. This is not to say, however, that I personally am opposed to credit unions having third party payment systems, but the issue here today seems to be more between mutual banks, commercial banks, and savings and loan associations and it is probably necessary and even wise to keep the smaller credit unions out of the fight at this time. In closing, I again want to reiterate that I expect the witnesses in discussing NOW accounts to give some consideration, some thought to their depositors in this matter. [Copies of the bills being considered follow :] 93D CONGRESS 1ST SESSION S. 892 IN THE SENATE OF THE UNITED STATES FEBRUARY 19, 1973 Mr. SPARKMAN (for himself and Mr. TowER) (by request) introduced the fol lowing bill; which was read twice and referred to the Committee on Bank ing, Housing and Urban Affairs 1 A BILL To amend section 404 of the National Housing Act. Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That section 404 of the National Housing Act, as amended, 4 is amended to read as follows: 5 "SEC. 404. (a) (1) The Corporation shall establish a 6 primary reserve which shall be the general reserve of the 7 Corporation and a secondary reserve to which shall be 8 credited the amounts of the prepayments made by insured 9 institutions pursuant to former provisions of subsection (d) 10 and the credits made pursuant to the first sentence of sub11 section (c). |