-

of the interests to the public borrowers and savers

and

the economic health of the supervised financial intermediaries, can only be accomplished in such a forum. This system has sustained a

basically healthy variety of financial institution choices

for the public providing convenience, safety and hometown service. When the rates paid to depositors are plotted over entire interest-rate cycles, the return compares very adequately with those available to larger investors in the money markets. This return could be enhanced immediately by tax code incentives for savings and all depository institutions.

In our area of specialty, home finance, we cannot forget that America has become a nation of homeowners to a degree virtually unparalleled throughout the world. Though high today by American standards, our mortgage rates and the availability of long-term financing for ordinary citizens are the envy of the world. Let us not discard this system which has served the American people so well.

Before concluding, I should like to comment briefly on Chairman Proxmire's announced intention to offer an amendment to S. 1347 "which would direct the financial regulatory agencies to reduce and ultimately eliminate mini: um denominations (on the $10,000 Money Market Certificates) completely as soon as possible."

The U.S. League is totally opposed to such a proposal, as explained at length in our testimony to your Subcommittee on April 12, 1979. Fully forty percent of our savings base would be exposed at once to shifting into short-term, six-months savings if the purchase minimum were lowered from $10,000 to $1,000 (Exhibit D ). At today's market levels, massive shifts to 180-day savings plans would create earnings pressures so

great that most of our business would be unable to pay without suffering negative earnings. Such a situation would weaken

the ability of associations to carry out our thrift and home finance mission for many years to come.

-

Fortunately, the regulatory agencies recognized the hazards of such a proposal. Though they modified the Regulation Q structure recently to remove minimum denomination requirements generally they specifically preserved $10,000 purchase amount for the Money Market Certificate category. The MMC minimum, of course, was initially set to correspond with the purchase requirement for U. S. Treasury bills; we were pleased to note that Secretary Blumenthal again affirmed the importance of maintaining that requirement in his testimony last week, and warned of the impact on housing and the general economy if small balance savers were invited to disintermediate into Treasury bills.

This concludes the prepared, written statement of the U. S. League on S. 1347. As always, we have appreciated your courtesy in inviting and listening to our views, and look forward to an opportunity to amplify on these comments in the questionand-answer period.

COMPARATIVE CHANGE IN PASSBOOK ACCOUNTS AT COMMERCIAL BANKS & SAVINGS ASSOCIATIONS

Assets and liabilities; Commercial and Mutual Savings Banks--FDIC, Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency.

(1)

Source:

207

EXHIBIT C

SL SAVINGS & MORTGAGE LENDING

TED STATES LEAGUE of SAVINGS ASSOCIATIONS

111 EAST WACKER DRIVE CHICAGO, ILLINOIS 60601/ TELEPHONE (312) 644-3100

JUNE 1979

Savings gains at the nation's savings and loan associations dropped in May to a seasonally adjusted annual rate of $18.1 billion, with a sharp arrest in the growth of money market certificates contributing to the decline.

Savings deposits at associations increased by an estimated $1.2 billion in May according to reports received by the U. S. League from 1,069 associations holding 52.3% of the assets of the business.

The estimated $1.2 billion gain trailed far behind the $2.4 billion increase attained in May of last year and was off by a wide margin from the $3.6 billion gain for the same month in 1977. Thus, last month's savings growth was the poorest performance for May since 1974.

LOW SEASONALLY ADJUSTED RATE

The seasonally adjusted annual increase of $18.1 billion in May was a sharp decline from the annualized rates attained in the January-to-March period. The increase also contrasted sharply with the actual $51.0 billion and $44.9 billion savings gains for the full years of 1977 and 1978.

SWITCH IN MONEY MARKET CERTIFICATE
EXPERIENCE

The sharp arrest in the growth of the MMCS
appears in the $3.4 billion increase in these
instruments in the month of May. The average
monthly gain in the June 1978 to March 1979
period was double this rate, reaching $6.9 billion.

Since the mid-March change in the MMC
regulations, a complete shift has occurred in the
comparative experience of commercial banks and
savings associations. Prior to the change,
commercial banks' gains were lower than those of
associations, a condition that was reversed
completely in April and May.

There was a distinct shift in the share of the gains
attained by commercial banks. In the June-to-
March period, the commercial banks' share of the
MMC gains was 37.5%, while the share of
associations was 62.5%. In May, commercial
banks' share moved up sharply to 69.1%, while
savings associations'
percentage dropped to
30.9%.

MORTGAGE LENDING

Savings associations closed an estimated $10.5 billion in mortgage loans during May. The dollar volume was slightly ahead of May 1978, but the net

THE AMERICAN HOME: THE SAFEGUARD OF AMERICAN LIBERT ES