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York and Florida into Citizens Savings and Loan Association of San

Francisco.

The ABA believes the merger and acquisition authority for all the agencies should be comparable to and patterned after the FDIC proposal. In addition, we believe that all possibilities for intrastate mergers and acquisitions should be exhausted prior to use of any interstate options, and that interstate possibilities should focus on contiguous states or regional states before being considered on a nationwide basis. We believe that this position does not undermine our support for the principles of the McFadden Act and/or the Douglas Amendment to the Bank Holding Company Act. If the acquisition of a failing thrift institution across state lines by a bank holding company is necessary to preserve depositors' funds or public confidence in the financial system, we believe the branching laws applied to banks in the state of the acquired institution should apply to the acquired institution.

The ABA regrets the emergency circumstances which apparently make it necessary to legislate changes in public policy permitting interstate mergers or interstate acquisitions of financial institutions even on a temporary basis.

In legislating these emergency and temporary changes, we urge you to require that all possibilities for intrastate mergers or acquisitions be exhausted before interstate solutions are approved. Section 151 of Part D should be amended accordingly, including preference for contiguous states when an intrastate solution is not possible.

Many banks and most thrift institutions have a large portion of their

assets concentrated in long-term fixed-rate residential mortgages, while their liabilities are concentrated in shorter-term deposits. The rates on many mortgages acquired in past periods are much lower than both short- and long-term interest rates prevailing in the market. As a result, net earnings to these institutions have been held down, and the ability of these institutions to attract or retain funds has been restricted.

Our Association supports all efforts to relieve the drag of low-rate mortgages on earnings so long as the programs: (1) are available on an equitable basis to all institutions that had acquired long-term residential mortgage assets in past periods when future levels of market interest rates were under estimated; and (2) involve no cost to the Treasury or to the public resulting in additional borrowings by the Treasury or by Federally related agencies.

ABA supports Sec. 173(a) authorizing the Federal Home Loan Mortgage Corporation to purchase mortgage loans from the Federal Deposit Insurance Corporation. The amendment would assist the FDIC in the orderly management of its portfolio of acquired mortgage loans, and facilitate the liquidation of the mortgage assets of national banks under FDIC control. The amendment would also equate the Federal Home Loan Mortgage Corporation's purchase authority from the FDIC with that from the FSLIC, and reflect the growing use of the Mortgage Corporation's programs by FDIC-insured institutions. We also support subsections (b) and (c), with a qualification, to remove the limitation on the number of mortgages more than one year old that the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Corporation could purchase. Both of these organizations have announced programs to purchase low-rate mortgages, thus necessitating the removal of the percentage limitation for the purchase of older loans. These programs

should benefit eligible lenders with new earning opportunities by providing a means to convert low-yielding mortgages into securities which can be used as collateral for a variety of purposes.

Our support for subsection (b), regarding the Mortgage Corporation, is contingent on clarifying that all depository institutions will be able to sell mortgages under the SWAP program on an equal fee basis.

A long standing request of commercial banks is that they be charged the same fees for the sale of mortgages to the Corporation as are charged the savings and loan associations that sell mortgages. Under the Mortgage Corporation's present rules, commercial banks and other mortgage sellers are charged a sales fee of one-half of 18, while institutions that are members of the Home Loan Bank system pay nothing. While the Corporation has drafted legislation entitled the "Federal Home Loan Mortgage Corporation Charter Act" to address this long-term situation equitably, which our Association supports, we feel that the Congress should address a part of the problem now by indicating that all institutions afflicted by the problem of low-rate mortgages should enjoy equal access to both FNMA and the Mortgage Corporation on a non-discriminatory user fee basis.

NATIONAL BANK LENDING LIMITS Sec. 201

Section 201 of the bill would increase the single borrower limit of the National Bank Act from its present level of ten percent of a national bank's capital and surplus to fifteen percent. It would authorize a national bank to lend an additional ten percent of its capital and surplus to any individual borrower whose loans were fully secured by readily marketable collateral. And it would consolidate the present fourteen exceptions to the single borrower limit into seven.

Our Association has long believed that the ten percent single borrower limit of the National Bank Act is overdue for revision. This basic limit has been unchanged since the enactment of the National Bank Act in 1864 (in fact, the provision originated in the National Currency Act of 1863). Although modeled on the provisions of the so-called "free banking statutes" then in force in many of the states, it is now below the lending limits of state-chartered banks in the vast majority of states. Most state lending limits also provide, as Section 201 does, both higher single borrower limits for unsecured loans and separate limits for loans fully secured by certain types of real and personal property.

We support Section 201. Nevertheless, although we believe this provision as written will be of considerable assistance to smaller national banks in meeting many of the credit needs of their local communities from their own resources, we believe that a better way of addressing single borrower limits would be an amendment to this provision to authorize the Comptroller of the Currency to establish single borrower limits for national Language similar to that contained in Section 202 below would increase the flexibility of statutory single borrower requirements and permit banking's regulators to respond more quickly and effectively to changing economic conditions.

banks.

Section 82 of the National Bank Act presently limits the ability of a national bank to borrow money by restricting bank indebtedness to 100 percent of its capital accounts and 50 percent of its unimpaired surplus. Written at a time when banks were expected to conduct virtually all of their operations on their equity accounts or their customers' deposits, it has had

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to be amended with twelve exceptions since its enactment. It now remains, particularly in inflationary times such as these, a very significant hindrance to national bank operations.

Section 202 would provide discretion to the Comptroller of the Currency in determining aggregate indebtedness limits of national banks. It would authorize the Comptroller to limit national bank indebtedness both by type of debt and in the aggregate. Because we believe that the flexibility inherent in this provision will allow banks and their regulators to better respond to changing economic circumstances, our Association supports Section

202.

BANK REAL ESTATE LENDING POWERS

Sec. 203

A longstanding priority of the ABA has been to have the Congress review and revise the restrictions imposed on national bank real estate lending, which are contained in 12 U.S.C. 371. The last date of statutory change in this section was 1974. We welcome the consideration of this matter in Sec. 203 of S. 1720. Banks, as major providers of real estate finance, have attempted to respond to their customers' needs for mortgage credit, but frequently we have found that the restraints of 12 U.S.C. 371 precludes us from being as flexible or innovative as our competitors.

The section-by-section analysis of this provision indicates that the purpose of section 203 is to simplify the statutory framework by which national banks are authorized to engage in real estate activities. The revised provision deletes existing rigid statutory standards and authorizes the Comptroller to promulgate regulatory standards affecting such conduct." This purpose is fully in concert with the legislative goal of our