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President's Letter to Congress concerning his proposed financial institution regulations
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7338425
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President's Letter to Congress concerning his proposed financial institution regulations
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White House Press Releases (Ford Administration)
Press Releases
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1975-03-19
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1975
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Digitized from Box 8 of the White House Press Releases at the Gerald R. Ford Presidential Library [3-19-75]
EMBARGOED FOR RELEASE
UNTIL 12:00 p.m. E.D.T.
WEDNESDAY, MARCH 19, 1975
Office of the White House Press Secretary
THE WHITE HOUSE
TO THE CONGRESS OF THE UNITED STATES:
I announced a number of initiatives last October to speed
the Nation's return to economic health. Part of that important
effort is a careful review of Government regulations. Some
of these are outdated and have outlived their usefulness.
They now impose a greater cost on the American consumer than
they provide in benefits. A key element of my program of
reform concerns our financial institutions.
The United States depends on a unique system of private
financial institutions and markets to serve its citizens and
promote sound economic growth. Compared to other Nations, we
have a large number of different financial institutions -- such
as commercial banks, savings and loan associations, mutual
savings banks, and credit unions. Through the years, our
Government has tended through regulation and legislation to
restrict the activities of each class to specialized functions.
However, the regulation of our financial institutions
has not been fully responsive to either the changing needs of
our economy or to the changes in the scope and function of
our financial institutions. During the past nine years,
the cyclical movement of interest rates has imposed major
strains on the institutions that serve savers and finance
housing. Initial attempts to deal with this problem took
the form of interest rate ceilings on the rates that financial
institutions could pay to their depositors. The experience
of the past several years shows that such ceilings penalize
the small saver, and reduce the volume of savings available
to finance homebuilding. Nor have the efforts by Government
to provide subsidies to support more housing construction
succeeded very well. In fact, these programs requiring the
Government to borrow in the capital markets have contributed
to the problem by adding to upward pressure on interest
rates.
At the peak of our financial crisis last summer, home
mortgages were virtually unavailable in many parts of the
country. And small savers were being heavily penalized
because Government rules limited the interest rates they
carried on their savings deposits to far less than the rates
carried by wealthier individuals with deposits of $100,000
or more. At the same time the availability of much higher
rates of interest on their investments outside of the savings
institutions caused individuals to shift their funds out of
mortgage-lending institutions. As a result, savers, mortgage
borrowers, and the housing industry have all been penalized
by these obsolete regulations.
Five years ago, a Presidential commission undertook the
study of the problems experienced by financial institutions.
In 1973, the conclusions of this study led to the introduction
of the Financial Institutions Act. The Act encourages greater
more
2
competition and responsiveness to the changing needs of
depositors and borrowers. Last year, I endorsed that legisla-
tion and urged that the Congress give it priority. Extensive
hearings were held in the Senate. Representatives of finan-
cial institutions and the concerned public have expressed
their views.
Today, I am resubmitting the Financial Institutions Act,
with the assurance that the many months of debate and considera-
tion have brought all of us nearer to basic agreement on
this important reform.
This bill contains certain notable changes from the legis-
lation put before you in 1973. But the overall objectives
remain the same -- providing new opportunities for savers to
earn a competitive return on their investment, and providing
homebuyers with greater assurance that the flow of funds for
home mortgages will not be dramatically disrupted during periods
of high interest rates. To achieve these objectives, the bill
permits institutions engaged in serving small depositors
more flexibility both in obtaining and investing funds. It
will permit the payment of higher interest rates to small
savers, and it will also offer a new tax incentive to most
financial institutions to make residential mortgage loans.
New safeguards will require banks to conform to basic
standards of Truth-in-Savings to insure that competition
between institutions is fairly and accurately advertised.
Nor will there be any decrease in the Government's regulation
of accounting or security measures. Increased competition
between financial institutions will not be allowed to obscure
the need for prudent management necessary to safeguard
depositors.
If the Congress will enact this bill into law, our finan-
cial institutions will benefit from the ability to offer new
services and enter new markets; and their customers, both
depositors and borrowers, will share these benefits.
Savings and loan associations and mutual savings banks
will be permitted to offer checking and negotiable orders of
withdrawal (N.O.W.) accounts to individuals and businesses,
while diversifying a portion of their investments into consumer
loans, unsecured construction loans, commercial paper, and
certain high-grade private debt securities.
Commercial banks will be permitted to offer corporate
savings accounts and N.O.W. accounts. Credit unions will be
permitted to offer mortgage loans to members, make a wider
range of loans at more varied interest rates, and to set up
an emergency loan fund on which to fall back.
To improve the availability of mortgage credit, commer-
cial banks, savings and loan associations, mutual savings banks,
and other taxable financial institutions will be granted a
new tax incentive to enlarge their volume of mortgage loans.
Finally, the act provides for the gradual elimination of
interest rate ceilings on all types of savings over a five-and-
one-half-year period.
more
3
This legislation differs in two principal ways from the
bill previously submitted to the Congress:
First, the abolition of interest rate ceilings on deposits
will still occur five-and-one-half years after the passage
of the act. However, prior to the removal of ceilings,
the Administration will conduct an intensive investigation
to examine the economic and financial picture at that time.
The President and the Congress will then have the oppor-
tunity, if appropriate, to make any final improvements
in the direction of the legislation.
Second, the mortgage tax credit is included in the act as
before, but savings and loan associations and mutual savings
banks will be given a one-time option until 1979 to decide
when to substitute this tax measure for their current bad
debt loss deduction. By 1979, all savings institutions
will be required to shift to the mortgage interest tax
credit.
While the amended bill contains modifications designed to
emphasize the areas of agreement produced during the hearings
and recent discussions between Administration officials and
the public, the basic objectives are to increase the level
and quality of service for the consumer saver, and to maintain
or expand the flow of credit to the housing sector.
I urge the Congress to give these proposals prompt and
favorable consideration.
GERALD R. FORD
THE WHITE HOUSE,
March 19, 1975
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