Lawrence Connell, Jr., Administrator, National Credit Union Administration. Experimental program a success Removal of rate controls Anita Miller, representing Robert H. McKinney, Chairman, Federal Home Prepared statement Victims of economic climate Possible widespread bidding wars J. Charles Partee, Governor, Board of Governors, Federal Reserve Board Irvine H. Sprague, Chairman, Federal Deposit Insurance Corporation. Prepared statement Added authorities Cantwell F. Muckenfuss III, representing John G. Heimann, Comptroller of the 118 119 121 Phaseout Misleading advertising 124 Regulation Q. 125 Preparations for end of rate control. 127 Monetary policy decisions 128 John Perkins, president, Continental Bank, representing the American Bankers Association, accompanied by Robert Renner 128 Prepared statement of John Perkins 134 Robert Masterton, president, Maine Savings Banks, representing National 165 Prepared statement of Robert Masterton.. 170 Eliminate State usury ceilings 165 Asset powers.. Small saver 166 168 Page Norman Strunk, executive vice president, U.S. League of Savings and Loan 177 Ralph W. Pritchard, first vice president, National Association of Realtors, accompanied by Jack Carlson, executive vice president and Al Abrahams, senior vice president........ Prepared statement of Ralph W. Pritchard Savings below rate of inflation Tax relief James J. Heagerty, president, First City Federal Savings and Loan Association. Commercial bank monopoly. SUPPLEMENTAL DATA SUPPLIED FOR THE RECORD National Association of Realtors; recommendations of the ad hoc task force on mortgage credit 209 212 209 210 249 252 249 250 265 266 267 268 271 272 273 275 276 278 278 279 230 National Association of State Savings and Loan Supervisors..... 280 207 TABLES, CHARTS, AND EXHIBITS SUPPLIED FOR THE RECORD Comparative change in passbook accounts at commercial banks and savings associations.... Cost of funds and return on mortgages federally insured savings and loans, Deposits by Institutions, as a percentage of total financial institution liabilities. 206 60 137 138 208 59 147 Income and expense ratios for federally insured savings and loans, second half, 1978 61 Interest rate ceilings compared to rates on alternative money market instruments 151 Percentage change in savings deposits at FSLIC-insured savings associations 205 159 DEPOSITORY INSTITUTIONS DEREGULATION ACT OF 1979 WEDNESDAY, JUNE 27, 1979 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, D.C. The subcommittee met at 9:35 a.m. in room 5302, Dirksen Senate Office Building; Senator Alan Cranston (chairman of the subcommittee) presiding. Present: Senators Cranston, Proxmire, Morgan, and Garn. I would like the members of the first panel to come to the table: Hilda Cloud and Rob Gnaizda, Gray Panthers. STATEMENTS OF HILDA CLOUD AND ROBERT GNAIZDA, ON BEHALF OF THE GRAY PANTHERS; IRVINE H. SPRAGUE, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION; ANITA MILLER, REPRESENTING ROBERT H. MCKINNEY, CHAIRMAN, FEDERAL HOME LOAN BANK BOARD; J. CHARLES PARTEE, MEMBER, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM; LAWRENCE CONNELL, JR., ADMINISTRATOR, NATIONAL CREDIT UNION ADMINISTRATION; AND CANTWELL F. MUCKENFUSS III, REPRESENTING JOHN G. HEIMANN, COMPTROLLER OF THE CURRENCY Senator CRANSTON. I want to welcome Anita Miller, representing Mr. McKinney, and Mr. Muckenfuss, representing Mr. Heimann. If you would proceed in whatever order that you would devise among yourselves. We would appreciate it if you would summarize your opening statement, because we have so many witnesses today, and a second panel. Your full statements, of course, will appear in the record. Senator PROXMIRE. I would like to make a statement either now or later. Senator CRANSTON. Let's do it now. STATEMENT OF SENATOR PROXMIRE Senator PROXMIRE. This morning we continue hearings on S. 1347, Depository Institution Deregulation Act of 1979. Last week Secretary Blumenthal gave a forceful endorsement of this legislation on behalf of the President. SAVINGS FIGHT INFLATION One of the points made last week that I want to stress again this morning is that by removing the artificial restraints on the rate that can be paid on savings, we encourage savings and discourage consumption. This is exactly what is needed now to fight inflation. Perhaps as important is the removal of interest rate ceilings will end blantant discrimination against savers. It is unconscionable to continue the present tax on savers so that all types of borrowers can be subsidized. This is the wrong policy at the wrong time. Many savers are elderly citizens on social security. Secretary Blumenthal cited one estimate that between 1968 and 1979, a 10-year period, savers over the age of 65 lost $19 billion in interest because of regulation Q. That is almost a $2 billion per year tax on older citizens. Should the older citizens be taxed to subsidize borrowers, even if they are home buyers? They should not. This is a well-balanced bill designed to stop discrimination against small savers, to insure the competitive viability of thrifts and their commitment to home mortgage lending. This legislation seeks to take the Government out of the business of setting rates in favor of letting the free market regulate the rate savers are to receive. The Government should not keep savings rates pegged artificially low while allowing lenders to earn market rates on their loans. The Federal Home Loan Board has recently authorized variable rate mortgages nationwide. The potential for huge windfalls needs to be counterbalanced by making lenders pay a market rate of interest on their deposits. I look forward to hearing from the distinguished witnesses this morning. HILDA CLOUD AND R. GNAIZDA, GRAY PANTHERS Ms. CLOUD. May I speak first? Senator Cranston, Senator Proxmire, Senator Morgan: From last October, less than a year ago, when the Gray Panthers and several other organizations, with the capable guidance of Robert Gnaizda of Public Advocates, presented a petition for a fairer rate of interest on passbook savings, until today, we have seen a remarkable turnabout on the part of high public officials and even banks. Perhaps that is what everyone involved in the banking business and its regulations was waiting for. They weren't going to take the initiative in pointing out that small savers, among whom are numbered at least 24 million elders, were being cheated by a mandatory low interest rate. INJUSTICE FOR SMALL DEPOSITORS But when we, the small depositors, cried out against this injustice, they all, including the President, nodded their heads solemnly and agreed. Even that reluctant public servant, the august Secretary of the Treasury, who refused to meet with us a few months ago, is now saying that President Carter's plan to raise interest rates for small savers is a potent anti-inflation weapon that could prevent a recession. We don't really mind having the credit for bringing this up taken away from us. If the President wants the credit, who are we to deny it to him? We'll take the cash that's due us, instead. But, this is what we must tell you gentlemen: we cannot wait 10 years to have those interest rates brought up to what richer people are getting now. I am 75 years old. In 10 years, I and millions my age will be dead. But let's forget that. In 10 years, if in the meantime we do not have a catastrophic depression-and no one can guarantee that we won't, not even the Congress of the United States-then we must anticipate the same galloping inflation we now have continuing. So if we get 9 percent on our money in 10 years, what good will it do us if the inflation rate is by then 18 or 20 percent? I don't claim to know more than Secretary Blumenthal about stemming inflation. I am glad to defer to his judgment that giving us now what we're entitled to would be a potent anti-inflation measure to reverse the serious trend of more and more passbook withdrawals. LESS THAN A PENNY A DAY However, in spite of all the fine talk, we must look at the facts. And the facts are that the regulatory agencies have permitted a rise of a whole quarter of 1 percent. On a $1,000 account, that comes to 21 cents a month, less than a penny a day. Big deal. What kind of anti-inflation measure is that, Mr. Chairman? We don't like talk out of both sides of the mouth. We don't like the implication that we should be grateful for the big statement and the miniscule action. Do they really think the moment we reach the age of 65, our brains dry up? Now, I have a proposal which we hope will meet with your approval. What about issuing through the Treasury "Inflation Fighter Certificates for the Elderly"? They could be indexed to the CPI and pay 2 percent above the inflation rate. People could buy these in $50 denominations up to $3,000 maximum for any one individual. They'd be limited to $3,000, so that those few of us who are in the upper income bracket would not unduly benefit. Don't you agree that it's a great idea? I present it to you as one of the finest gifts you can make to us elders who look to the Congress to make life a bit easier in our last years. Before I stop, I would like to give out some things that would be, I think, of interest to the members of this committee. May I? Senator CRANSTON. Certainly. MS. CLOUD. Thank you. [Distributing documents]. This one, which is an ad which appeared in a number of the newspapers in California, seems to us to be a very dangerous and misleading ad, which our attorney, Robert Gnaizda, is going to speak to. And this has become the slogan of the older people, because we recognize that if we put money in a savings account we are going to lose money. Senator CRANSTON. Thank you very much. |