of financial institutions. If these needs are no longer valid, then it is the responsibility of the Congress to so determine. If they continue to be valid, then alternative methods of achieving these needs may be required.

As we discuss with the regulators today their proposals set forth in the joint press release of April 3, it is imperative that we seek to understand the circumstances which give rise to them-the inherent unfairness of a system that requires the small saver, particularly those living on fixed income, to bear a disproportionate share of inflationary burdens.

The crucial question is: Do the proposed regulations remove or moderate this inequity? It is equally important that we seek to ascertain their impact on existing financial institutions not only in terms of earnings but in terms of their ability to fulfill their historic primary purposes and to consider both the short range and long-range impact on the consumer borrower.

To assist the subcommittee in making the crucial policy decisions that lie ahead, it is imperative that we understand fully the condition of our financial institutions today. For that reason, full and concise responses to the detailed questions raised by my letter of May 1, with emphasis on hard data by region, are imperative. As the regulators evaluate the comments received, the subcommittee will be considering a number of related proposals throughout the remainder of this session of Congress leading to significant decisions that will affect the ability of this Nation's financial institutions to provide funds needed for community credit needs, running the full spectrum.

If we continue to confront our problems openly and honestly, public sector investment questions, including related tax questions, inevitably will have a crucial bearing on the final outcome. Continuous consultation between the subcommittee and the regulators will be imperative as we each seek to discharge our respective responsibilities. Today's fact finding session is essential to this process.

At this point I insert in the record the subcommittee letter to the regulators dated April 25 and the followup letter of May 1 containing a number of detailed questions relating to the issues set forth in the text of my statement.

[The correspondence referred to follows:]

The joint news release of the Federal Financial Institutions Regulators of April 3, 1979 stated that the various agencies had released for public comment, a number of proposals concerning the creation of new types of deposits for financial institutions designed ". to help individuals obtain a higher rate of return on their savings".

A determination of what their effects will be, if offered, in terms of benefits to the savers (especially small savers), their effects on the viability of financial institutions, their effects on home mortgage lending, Federal financing, etc., all are critical questions which must be answered before intelligent decisions can be made as to whether in fact such proposals, modification thereof or combinations provide meaningful relief to the "small saver".

Further, the recent decision taken by the Federal Appeals Court raises questions concerning the competitive balance between types of financial institutions, and whether or not these financial institutions, depending upon what the Congress does concerning the issues raised by the Courts, can continue to serve both borrowers and depositors fairly.

The Subcommittee on Financial Institutions Supervision, Regulation and Insurance will commence hearings on the proposals for these new instruments following the close of the comment period on May 4, 1979. The first of such hearings will be held on May 7 at 2:00 p.m. in Room 2128 of the Rayburn House Office Building. A letter of invitation will follow containing a number of related questions, the responses to which should be included within your prepared statement.

As per the Subcommittee letter of April 25, 1979, we will receive testimony on May 7 at 2:00 p.m. in Room 2128 Rayburn House Office Building from the Federal Financial Institutions' Regulators on the regulators' proposals of April 3, 1979, which, if adopted, would create new types of deposits instruments with the stated objective ". to help individuals obtain a higher rate of return on their savings."

We would appreciate confirmation of your appearance upon receipt
of this letter or the name of your designee so that a final witness list
can be prepared. We would appreciate 100 copies of your written statement
not later than 10:00 a.m. on May 7 to be supplied to the Subcommittee office
(Room B303 Rayburn). Please limit your verbal presentation to ten minutes
to permit adequate time for questioning. Your written statement will be
distributed in advance and placed in its entirety in the record.

Because of the current situation involving transaction accounts and the strong likelihood of recommendations by the Administration as a result of the deliberations by the Task Force on Regulation Q during the current session, it is imperative that we closely examine the proposed new savings deposit instruments. Both money market certificates and transaction account proposals coupled with Regulation Q differential recommendations will have both a short range and long range impact on the borrower, the saver, the housing industry and upon financial institutions as well.

During the FINE study hearings, which I chaired, and during numerous Regulation Q extension hearings during the past ten years, my efforts to obtain detailed responses relating to categories of savings accounts; industry spread statistics by region and size of institution; rationale behind fees and points (so called "up front" money) have, unfortunately, been unsuccessful.

Hon. G. William Miller

May 1, 1979

Since the present proposals appear to be a response to the understandable demands of the Grey Panthers who met with COWPS officials earlier this year, prompting public statements by COWPS Director Bosworth and Chairman Kahn, followed by meetings with financial regulatory officials and culminating in the House Government Operations hearings in which I participated, the obvious question is, has this organization been consulted during the planning period prior to promulgation? Please furnish a summary of written comments, if any, by the Grey Panthers or any other recognized consumer organization.

Before accepting the basic thesis appearing in most statements and previous testimony that if passbook savings rates were to be increased they would have to be offset by increases in mortgage rates, a series of questions regarding industry costs and practices must be addressed in your testimony or as soon as practicable thereafter for inclusion in the record. These questions follow:

• What is the current spread between cost of funds and the
interest rate on home mortgages for the various regions/
districts?

Does such a spread include fees and points, which are paid
to the lender in cash in addition to the actual interest
rate?

What is the minimum spread between cost of funds and the
interest on home mortgages required for an institution to
make a proper return?

Have you made any determination of overhead costs including
salaries, fees, buildings, transportation, lobbying, meetings
and similar items and have you determined whether such costs
are necessary for the institution to carry out its function as
a mortgage lender?

Have you made any determination as to costs imposed on an
institution through related real estate activities such as
settlement attorneys, title companies, surveys, appraisals
and the degree to which these costs are incurred or inflated
through interlocking arrangements with the lending institutions?

• Is the cost to banks of conversion from one account to another
the same as the cost to savings banks and savings and loans
given the different structure of deposits held by commercial
banks?

Would not the rising rate account require sophisticated com-
puter equipment and new technology to maintain the accounts
properly and accurately?

Hon. G. William Miller

May 1, 1979

• There exists a belief that the proposed accounts are
primarily designed to help the elderly, the poor, etc.,
i.e., "the small saver". Do they in fact achieve this
objective given the present composition of savings
accounts held by savings and loans, savings banks and
commercial banks? Naturally, to be able to evaluate
your response we will need a complete breakdown of
present savings account statistics with all available
"small saver" profile information and account activity.

Have economic impact studies been made including cost/
benefit projections for each proposal? It would be help-
ful to furnish projections for size and types of savings
accounts related to readily available family income statistics.
Benefit projections for families with incomes from $5,000 to
$10,000, $10,000 to $15,000, $15,000 to $20,000 by type pro-
posal will be important to the Subcommittee in its evaluation
of the adequacy of the existing proposals as we seek to compare
benefits to obvious cost implications.

• Finally, assuming a Regulation Q free environment, presentations should also be submitted for the same categories that involve utilizing market rates after a suitable transition period.

It should be emphasized that the hearings Monday mark the beginning of an extended process through the balance of the first session. The Subcommittee will be receiving comments from consumer organizations as well as from the affected financial institutions on a number of related issues during May and possibly extending into June.