Evening star., 1932-10-18

to commercial banks-to provide them
with the funds they need whether 1of
Withdrawals or new loans.
The structure which the President
suggested and Congress authorized 10
accomplish this purpose consisted. as
I have said, of IL regional banks unoer
the general jurisdiction and control OF
the Federal Home Loan Bank BOARD.
The stock in these regional banks may
be bought by any building and loan
association, savings bank or insurance
company! Any institution which puys
the stock may borrow from the Home
Loan Bank an amount equal to II
times the cost Of the stock it buys. II
It borrows. it must give the Home Loan
Bank its note, secured by collateral
consisting of mortgages on homes 1or
three families or less and worth less
than $20,000-in other words, on the
kind of homes the average american
man and woman want to own Tor their
and their children's home. II those
mortgages were originally written 1or
eight years or more, the bank may loan
more against them than it could II
they were for shorter period. The
reason for this is clear from the pur-
pose of the system. If we are to en-
courage Young men and women to BUY
homes out of their savings. We must
render 1t certain that the mortgage
cannot be called too soon. So the
Home Loan Banks offer an inducement
to the lending institution to write long
term mortgages by agreeing TO leno
more against them than against snort
term mortgages. And the Home Loan
Banks themselves will make their loans
to building and loan associations Tor
long periods also SO as to make tneIr
financing simple. Finally. we expect
to loan to these other lending institu-
tions much more cheaply than they
have been able to get money IN the
past. This is partly in the hope OF
bringing down the interest cost to
mortgage borrowers-especially In those
States where it now costs II per cent
and partly in the hope that the chance
for profit which cheap money Will give
them will induce the usual mortgage
lenders to make more loans on homes
throughout the land.
Consequently, in establishing our
banks. we first studied the situation as
to the needs of lending institutions and
the communities they served. We ap-
preached the matter by having pre-
pared a series of maps, on the faces Of
which was written the holding of mort
cages by building and loan associations,
by savings banks and by insurance
companies within each State, wherever
the mortgaged property was located.
These maps instantly showed a tre-
mendous shortage of mortgage lending
capital in vast stretches of the United
States and a corelative concentration
of such capital in very small sections.
Institutions eligible for membership In
the Home Loan Bank System located
in Newark, NJ j.. for instance, own
more mortgages than are owned by like
institutions in the entire country be-
tween the Mississippi and the Pacific.
Eligible institutions in that city own
approximately $4,000 100000 of mort
cages. Eligible institutions in the
States of Washington. Oregon, Utah,
Idaho. Montana and Wyoming own only
5000, 100000. Frequently in other sec
tions, we found States where the mort
gage lending institutions had evidently
been highly developed, while their
neighbor States were absolutely de-
pendent upon outside capital.
Provide Financial "Siphon."
We, therefore adopted as our first
principle that we would, so far as pos
sible, couple in every district States
possessing substantial mortgage-lending
institutions with States where a short
age of such capital existed, in the hope
that through the viaduct afforded by
the Home Loan Bank system capital
might be slowly but surely siphoned
from the financially stronger States to
the weaker This we believe in time
will inevitably result in the creation
and growth in the financially weaker
States or Self-contained mortgage-le lend
ing units, which will bring back home
the ownership of local mortgages and
will retain at home the vast sums of
interest now paid to other and some
times remote sections of the Nation.
There is nothing so likely to en-
phasize the human note in the mind Of
creditor as personal contact-and
nothing so likely to produce real ef-
his obligations. So far as possible, for
both reasons, We want to bring closer
| together the borrower and the lender
of money.
We also found that the Federal Re-
serve district lines had apparently Gre
ated new and sometimes wholly artifi-
cial alignmentS in credit and in busi-
ness. This is nation of 48 States,
and not of II districts. We, therefore,
determwined to create new alignmentS,
crossing the borders of Federal Reserve
districts, to increase the business con-
facts of the citizens of one State with
those of others. We found that. as
necessary corollary of all these things,
there were sections of the Nation whose
business was dominated, because OF
their financial weakness, by their neigh
boring, wealthier States. We felt that
it was sound Americanism and sound
government to break up the dependence
of any State or section upon a single
source of financial help by creating
new relationship which provided Sec
ond point of intimate contact.
Cities Found Unequal
When it came to the selection of
cities we. adopted a similar group of
principles. Generally, we found as to
cities what We had found as to States.
There are approximately 20 cities which
contain either central Federal Reserve
Banks or Federal Land Banks. Those
cities generally are also the cities with
| the largest private banking and other
| financial institutions. Their growth as
| financial centers has undoubtedly been
promoted by the location in them of
the Federal Reserve Bank or the Fed
eral Land Bank.
| We felt that this was not a 20-city
Nation, and that it was not in the ulti-
mate interest of the Nation that 1t
should so become. As means, there
FORE of reversing some of the flow Of