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lending and investment strategy.

Many state chartered savings associations presently have the authority to invest directly in real estate developments. This investment opportunity has been a very important and useful profit opportunity for these institutions. The National League urges this Committee to include in its legislation the same authority for federally chartered associations. We believe that the inclusion of such authority would be consistent with the deregulation theme of the legislation and would, at the same time, provide a positive incentive for federal associations to remain essentially real estate specialists.

S 1686

S 1686, introduced by Senator Lugar would make state and local governments eligible to use NOW accounts at depository institutions. The National League supports this legislation since it clarifies what we understood the intent of Congress to be. We see no public benefit to be served by denying to state and local governments the opportunity to earn interest on their transaction account balances.

The National League must oppose S 1721 at this time, Mr. Chairman. We can find no public benefit to this proposal. Furthermore, the prospect of federally chartered thrifts being regulated by both the FDIC and the FHLBB runs counter to the principle of deregulation. While S 1703 and S 1720 hold out

the prospect of diminishing the degree of specialization of

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depository institutions, this will not happen simply because

one of these bills becomes public law. No one can today

predict the pace or ultimate extent of so called "homogenization." For this reason, Mr. Chairman, we respectfully suggest that

S 1721 is an idea whose time has not yet come.

Insurance of IRA/Keogh Accounts

Section 701 of S 1720 would raise the insurance of accounts limit to $250,000 for retirement savings accounts. The National League strongly supports this provision, but would urge the Committee to make the increase applicable to all insurable accounts. This action would, in our opinion, have a very beneficial effect on public confidence in our regulated depository institutions and contribute in a positive way to our efforts to attract savings.

FHLMC Purchase of Mortgages More Than One Year Old

Section 173 of S 1720 contains an amendment to the

Federal Home Loan Mortgage Charter Act removing the present restrictions which limit the Mortgage Corporation's purchase of mortgages originated more than one year prior to the

purchase date to 20% of its assets.

The National League strongly supports this proposal. The present limitation hampers the ability of the Mortgage Corporation to fully implement its new program in which it will exchange or "swap" its participation certificates for belowmarket rate loans from the portfolios of savings and loan

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associations and other eligible mortgage lenders.

This program will provide savings and loan associations with an effective way to convert their mortgages into assets with a higher degree of liquidity and market acceptance. This increased liquidity coupled with the Federal Home Loan Bank Board's recent approval of more realistic regulatory accounting treatment of losses from the sale of below-market rate mortgages will enable many S&Ls to convert loss-producing assets to profitable ones more quickly than is presently possible.

Revise DIDC Format

In passing PL 96-221, Congress charged the Depository Institutions Deregulation Committee with the task of

conducting a gradual and orderly phase-out of Regulation Q interest rate ceilings over a six-year period. The Congress was clearly concerned about the existing competitive advantage of banks over thrift institutions and recognized that the new asset powers of thrifts could not improve thrift earnings and competitive posture for several years. The DIDC has chosen to ignore this legislative history and the fact that thrift earnings are severely strained while bank profits have faired very well in this chaotic economic environment.

The National League, therefore, urges Congress to amend Title II of PL 96-221 to restrict DIDC voting membership to the chairman of the FDIC, the Fed, and the FHLBB. The Treasury

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Secretary has no direct responsibility for the safety and soundness of regulated depository institutions and the NCUA

chairman is free to ignore DIDC decisions.

We also believe

that because DIDC decisions bear directly on the financial viability of depository institutions that the Committee's decisions should be by unanimous vote.

Conclusion

In summary, Mr. Chairman, the National League urges this Committee and the Congress to view these restructuring issues with a sense of urgency. The financial marketplace is changing at a rapid pace with virtually unregulated entities offering services heretofore reserved to the regulated depository institutions. The deregulation of competition for deposit liabilities is virtually complete. Yet, as of today, the ability of traditional depository institutions to offer financial services demanded by the marketplace is still restrained by old statutes and regulations. Since it is highly unlikely that this Congress will or can return us to a tightly regulated financial market, the only viable course of action is to remove the asset constraints so that we can at least have a chance to meet the competition in the years ahead.

The CHAIRMAN. Mr. Masterton.

Mr. MASTERTON. Thank you, Mr. Chairman.

My name is Robert R. Masterton, chairman of the National Association of Mutual Savings Banks and president of the main savings bank in Portland, Maine.

We represent 455 savings banks, and I would like to summarize our statement, which is on file.

We are focusing on three areas: The need for broadened powers of thrift institutions; second, and simultaneously, the need to restrain the Depository Institutions Deregulation Committee; and third, the need to provide the regulators with greater flexibility in dealing with troubled institutions.

NAMSB urges immediate action to restrain the policies of the commercial institutions. They are on a precipitous rush to embark on deregulation at a time when the thrift industry is in dire straights, caused by the economic instability in general and interest rate instability specifically. Those policies are underscored by the actions taken and proposed at its meeting on December 22. It is clear that they have failed to act in accordance with the congressional mandate to provide for an orderly phaseout of depository interest rate ceilings with due regard for the safety and soundness of depository institutions. The fact that the scheduled November 1 increase in the passbook ceiling rate has been deferred does not lessen the need for congressional action to restrain DIDC. We urge, as a first step, the prompt adoption of a congressional resolution directing the DIDC to refrain from further depository deregulation and to postpone implementation of all its independent authority actions until the thrift industry is clearly out of serious danger and economic stability is achieved, as measured by stable interest rates.

Legislation is needed to restrain and restructure the DIDC, and we have specific recommendations to accomplish this in our complete statement.

BROADEN POWERS FOR THRIFT INSTITUTIONS

NAMSB strongly supports broadened powers for thrift institutions in order to assure their long-run competitive viability. In view of the DIDC's rush to deposit regulation and the dramatic changes occurring in the financial markets, it is essential that the Congress build upon the first step to broaden powers it took in the 1980 Deregulation Act, by providing federally chartered thrift institutions with the same powers which are available to commercial banks. This is basically the approach taken by the Financial Institutions Restructuring and Services Act of 1981, S. 1720; and by the administration-endorsed Thrift Institutions Restructuring Act of 1981, S. 1703; and the bill introduced by Senators Heinz and Tsongas yesterday, S. 1752. The broadened powers issue is of critical importance for our industry, and it is discussed in detail in our complete statement.

Let me emphasize, however, that broadened powers will not solve current thrift industry problems. Let it be clear, we are not making a claim that those powers will solve our current dilemma, but they will strengthen the ability of thrift institutions to compete in