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clusions and two other paragraphs in the body of the report. It was obviously impossible to incorporate these new additions since the report had already been printed.

After receipt from Dean Coffey of the letter and preliminary copy of the bulle tin sent him by Mr. Gaby, on or about March 27 I wrote Mr. Gaby and explained to him that the additions and corrections contained in their copy of the preliminary report had already been inserted in the report as printed and also explained the reason for any omissions.

I never received any answer to this letter. I wrote again, this time to Mr. R. T. Jeffery, on April 15, 1926, as follows:

“I am sending you under separate cover a copy of the revised edition of my report on electrification in Ontario. I hope that this meets with the approval of your engineering department.

"Thanking you for your kindness and the assistance that your department has given us, and hoping also that this report on rural electrification will be of assistance both to us and perhaps also to the farmers in Ontario, I remain,"

On April 24, 1926, I received the following reply:

“We beg to acknowledge receipt of your report on rural electrification in Ontario.

"We would be very pleased indeed to study this report and should occasion arise we will write you further regarding the same.”

This was signed by both Mr. Gaby and Mr. Jeffery.

No further communication was received from them questioning the correctness of the report.

However, it is desired to call attention to the fact that subsequently I received from Mr. Caster of the Hydro Commission of Ontario, a copy of a letter written by the hydro commission of Ontario, to Miss Geraldine Weimar of Highland Park, Mich., in which he not only quoted engineering data from my report to give her information on the operations of the hydro commission on rural electrification up to 1924, but he also advised here to secure a copy of my report, stating that it contained "fairly complete information", and she was advised to draw her own conclusions from my report.

My expenses on these two trips, amounting to $388.07, were paid by the Minnesota Committee on the Relation of Electricity to Agriculture, through checks drawn by Charles F. Stuart, treasurer of said committee, on funds of said committee held in the Metropolitan National Bank, Minneapolis, Minn. Further affiant sayeth not.

E. A. STEWART. Subscribed and sworn to before me, a n'otary public, this 31st day of May 1931,

HELEN D. SMITH, Notary Public, Dubuque, Iowa.

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STATEMENT OF FRED N. OLIVER, COUNSEL, NATIONAL ASSOCIA

TION OF MUTUAL SAVINGS BANKS, WASHINGTON, D. C. Mr. OLIVER. Mr. Chairman, my name is Fred N. Oliver, and I appear for the mutual savings banks in the capacity of counsel for the National Association of Mutual Savings Banks.

For your information, there are 560 such institutions in various States, located within 18 States, the majority, however, being in the New England States, New York, New Jersey, Pennsylvania, Delaware, and Maryland, with a few scattered institutions in some of the Western States. For instance, in Minneapolis we have the Farmers and Mechanics Bank, which is a mutual bank; and in Cleveland we have the Society for Savings, which is a mutual bank, and in Senator Moore's State we have, I think, 23 mutual institutions, such as the Howard at Newark and the Trenton Savings Society at Trenton.

I think it might be well to explain exactly the type of our institutions. They are entirely nonprofit institutions. The entire assets of each mutual bank are owned by the stockholders, and every cent of profit inures to the benefit of the stockholders. They are operated

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as a rule by directors who serve without compensation; and I think those of you who have been in mutual bank States recall that there are numerous decisions interpreting the type of these institutions, saying, in substance, that they are quasipublic in character and are operated for the benefit of the public at large.

The depositors in mutual institutions are essentially the small savers of the country, people who are accumulating money for old age or for some special purpose. As a matter of fact, in most States where mutuals operate, the deposits are limited to $5,000, and the average deposit in mutuals throughout the country as a whole is approximately $700.

Mutual institutions are pretty closely regulated by law as to the type of their investments. In most States we are limited to mortgages, to underlying obligations of railroads, of operating public utilities, of municipalities, States, and governments. Those investments must meet certain tests which are prescribed by statute; and the theory of the investment is that the investment shall be made for safety and stability as distinguished from a speculative or high yield investir ent. I think, as to railroads, it can be safely said, as an illustration, that the mutual banks and the large life companies have furnished the great reservoir of private capital for the low-interest underlying obligations, and the mutuals have been going into the utility field of late years in the same manner.

It may be interesting to know, as illustrating the precautions which have been taken in making these investments, that the mutual banks have enjoyed a very long record for safety and stability. In New York State, for instance, where we have 137 mutuals, there have been only three failures with losses to depositors since 1844. There has been no failure in that State with a loss to depositors since 1911.

In Connecticut, with 75 mutuals, there has been only one slight loss to depositors since 1911, a period of 24 years. A corresponding record is enjoyed by the mutuals in other States.

The mutuals have 14,000,000 depositors. They have deposits of approximately $10,000,000,000, which is almost 25 percent of the total bank deposits of the country. Their assets are approximately $11,000,000,000. Of those assets we have approximately $700,000,000 invested in the bonds of operating public utilities, most of which are electric light and power companies. In other words, we have approx- , imately 6 percent of our assets in utility bonds, and those assets, mind you, are the assets of our depositors in their entirety. Translating it into terms of the effect on the individual depositor, it would mean that about $45, on the average, of the depositors' money is invested in operating public utility bonds.

Senator SHIPSTEAD. Are they junior bonds?
Mr. OLIVER. They are ordinarily underlying obligations, sir.
Senator SHIPSTEAD. Are they investing in holding-company bonds?
Mr. OLIVER. No, sir.
Senator SHIPSTEAD. And no stock?
Mr. OLIVER. No, sir.
Senator SHIJSTEAD. You do not buy stock in any companies?

Mr. OLIVER. There are one or two States where the banks are permitted to buy certain types of stock, under certain investment restrictions; but taking our investments in the whole, utilities as an example, they are substantially all in high-grade underlying bonds of operating companies.

I should like to make it plain that the officials of the mutual banks have no interest in these obligations. They are interested purely in a fiduciary capacity, and when they appear in a proceeding of this character they appear solely to protect the interests of the depositors.

Senator SHIPSTEAD. Are they opposed to this bill?

Mr. OLIVER. There are certain features of the bill which I would like to call to your attention, sir, and I shall do so in a few moments. I have not followed these hearings and am not familiar with the testimony, and perhaps I may say something that has already been said or may fail to interpret correctly certain provisions of the bill. My testimony will be very short and will be directed to four or five sections.

In connection with title II, that is, the part of the bill which purports to regulate operating companies, we feel that the questions of regulation and the direct effect of regulation can be better interpreted by the utilities themselves. However, there are two provisions in this bill which, if we interpret them correctly, may impair the integrity of underlying obligations. I wish to make reference first to section 202, beginning on page 105 and extending to page 106. Apparently subsection (a) is intended to require that any operating utility subject to the jurisdiction of this title shall become a common carrier and shall transmit electrical energy for other companies. If that is the intent of the section, it seems to us that it may eventually impair the integrity of some of our securities. It would enable a competitor, for instance, to require another common carrier to transmit electrical energy and to compete with that competitor in the furnishing of electrical energy to some local distribution company,

The second feature is in reference to section 203, beginning on page 106, subsections (a) and (b). We are not quite clear as to the intent of subsection (a). Apparently it is the thought that eventually the utilities will be divided into regions; and if that carries with it the implication that existing operating utilities are to have their properties dismembered for the purpose of effectively regionizing them, we think that is an extreme provision which would undoubtedly impair the integrity of some of the underlying securities.

There are other provisions of the bill that might be discussed, but those seem to stand out, to us, a having a major importance from the standpoint of effect upon operating companies.

Now, turning to title I, may I call your attention, first, to section 7 (c) on page 24, where there is a direct limitation upon the character of securities to be issued. It may be that that is not intended to affect operating companies; and if it is not so intended, it seems to us that the language should be clarified. You will observe that this section applies to a registered holding company or subsidiary company, which of course would include an operating subsidiary. If that is intended to apply, if this subsection is intended to apply to an operating subsidiary, it would mean that the operating subsidiary might not issue securities other than common stock or first-mortgage bonds. We think that that is improper, as holders of bonds. In the first place, take an existing company where there are already outstanding obligations and where you have closed first mortgages. The only way to obtain additional capital for expansion purposes would be through the issuance of common stock. If it were not feasible to sell further common stock the utility would be limited and its earning capacity eventually impaired because of its inability to expand properly.

Senator ŜHIPSTEAD. You mean in case they cannot sell any more bonds?

Mr. OLIVER. Yes; if you have a closed first mortgage, this provision would limit further issues. That applies to operating subsidiaries and common stock. We think also the provision is unsound in principle as applied to operating companies. We think it will result, if applied, in increasing the ratio of first-mortgage bonds to the total securities, and make the first-mortgage bonds less attractive to institutions investing primarily for safety and stability. Heretofore you have had first-mortgage bonds which bore a fairly low ratio to the value of the property. On top of that, you would have your junior bonds or preferred stock, and then your common stock. The junior bonds or preferred stock, and the common stock, would afford you the necessary cushion there as protection to your underlying obligations, and we think this is unsound.

In subsection (e) on page 25 there is an apparent limitation, but it seems to us that this qualification of this limitation is not sufficiently broad. It says that this provision will not apply, first, where you are issuing obligations for refunding purposes, or where it is for the purpose of financing the business of companies operating in States where the issue is approved by State authority. We think that this provision should be clarified so as to exclude from the effect of it operating subsidiaries, if that is the intent, and we think that should properly be done.

The second provision I should like to call your attention to, if I may, is on page 37, in section 11, subparagraph (3) under (b), where there is the apparent power given in the process of dissolving these companies, to also reorganize subsidiaries. I do not know whether the intent was to provide that the Commission should have power to reorganize the capital structure of an operating subsidiary or not, but if it was not that intent, the language should be clarified. If that was not the intent, we think a limitation should be made. We think it would be disastrous to begin to reorganize the capital structures of operating subsidiaries. It would inevitably affect and disturb the value of the underlying securities in those companies.

Finally, may I call attention to the provisions in Section 11 dealing with the decree of dissolution of holding companies. As I attempted to make plain, we are not interested in holding companies as such. However, we are interested in whatever effect any dissolution of the holding company may have upon the securities of operating companies. Our institutions have considered this matter deliberately, and feel that this question of absolute dissolution of holding companies should be approached cautiously.

Senator MOORE. Did you mention how much of these securities the banks you represent hold?

Mr. OLIVER. Yes; $700,000,000. Those are bonds of operating companies, sir. That is approximately six percent of the total assets of mutual banks. We are interested in any legislation which will impair the financial strength of the operating companies in which we are interested.

Senator SHIPSTEAD. You would be interested also in having legislation that would improve it.

Mr. OLIVER. Yes, sir. We question very much the wisdom of an absolute decree of dissolution. Let me illustrate what I have in mind. As I said before, it is extremely important to the holder of underlying obligations, particularly institutions which purchase them primarily for safety and stability, that there be a sufficient cushion of equity above that underlying obligation. The same is true in the case of a mortgage on property, for instance. You would not want to lend, or a conservative institution would not want to lend, more than 50 percent, or, at the outside, 60 percent of the value of the property, and you would want that cushion above the amount of your mortgage. The same thing holds true in other types of securities, railroads, and utilities.

Our theory is that if you sacrifice the equity by dissolution you will prevent the furnishing of proper equity money in the future. It will impair the confidence of investors in common stocks, preferred stocks, and so forth, which may take many years to overcome. There are other collateral features, but that is our main apprehension with reference to any decree of absolute dissolution.

For instance, you have the question of indebtedness of many of the operating companies to holding companies, which would have to be taken care of in some way or other, and you have the effect upon the credit of operating companies by the sacrifice of the securities of the holding companies.

Senator Brown. If we could prevent the holding companies from milking the operating companies, do you think that would strengthen the operating companies?

Mr. OLIVER. I agree with you, sir. I think any provision which would prevent any abuse of that character should be written into the bill.

Senator Brown. You have never had much experience with regulation. You are talking about regulation. You do not know how much of a job it is to regulate holding companies, do you?

Mr. OLIVER. No, sir. I have no conception of that, sir.

Senator NEELY. You say the banks which you represent own none of the securities of holding companies?

Mr. OLIVER. No, sir; they do not, sir—the bonds of the operating companies.

Senator Brown. Do you not think the underlying securities of operating companies are going to be stronger?

Mr. OLIVER. Senator, the judgment of practical men who have charge of the investment portfolios of our mutual banks is that this question of dissolution should be approached cautiously.

Senator BROWN. Just what do you mean by that statement that it should be approached cautiously? What does that mean, in effect? Do you mean that you do not think they should be eliminated?

Mr. OLIVER. Perhaps in certain instances they should. However, it seems to us that the matter of regulation could very well take care of the holding-company situation.

Senator Brown. It does not very well take care of it?

Mr. Oliver. It could very well take care of it. You could eliminate the abuses in holding-company operations, which would prevent

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