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Financial Institutions Act - S. 1267
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1075796
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Financial Institutions Act - S. 1267
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The original documents are located in Box 9, folder "Financial Institutions Act - S. 1267" of
the Loen and Leppert Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 9 of the Loen and Leppert Files at the Gerald R. Ford Presidential Library
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of these are outdated and have outlived their usefulness.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
####
EMBARGOED FOR RELEASE
March 19, 1975
UNTIL 12:00 NOON, EDT
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE FINANCIAL INSTITUTIONS ACT OF 1975
The President is transmitting to Congress today the Financial
Institutions Act of 1975 which will expand competition, provide
improved customer services, strengthen the ability of financial
institutions to adjust to changing economic conditions, and
improve the flow of funds for mortgage credit. This is part
of the broad Administration effort to reform government regulation
and make it more responsive to the needs of the American people.
BACKGROUND
The Financial Institutions Act was originally introduced in
the Congress in October 1973. As a result of Congressional
hearings and subsequent conferences between Administration
officials and interested parties, this legislation proposes
major reforms designed to provide important advantages to the
consumer.
IMPORTANT ADVANTAGES TO CONSUMERS
(1) Provides for more convenient, more competitive, and thus
less costly banking services. This Act will significantly
expand the number of services that can be offered by the
various financial institutions. For the first time,
savings banks will be able to offer regular checking
accounts and personal installment loans. Current restrictions
governing credit unions will also be relaxed so that these
organizations can offer mortgages to their members and
more attractive and competitive financial services.
(2) Allows a new service which will, in effect, be an interest-
paying checking account. NOW (for Negotiable Order of
Withdrawal) accounts will provide the services of a checking
account and will pay interest on deposited funds. These
NOW accounts will be permitted for the first time on a
national basis by commercial banks, savings and loan
associations, and mutual savings banks. NOW accounts will
provide increased interest income for millions of depositors.
(3) Allows small savers to earn more interest on savings because
the Federal ceilings on interest paid by banks, savings
and loans and mutual savings banks are eliminated. The
ceiling would be eliminated five-and-a-half years after
enactment.
(4) Assures home buyers a more dependable supply of mortgage
funds. The elimination of interest-rate ceilings will give
lending institutions the ability to retain more savings
deposits during periods of high interest rates.
more
2
(5) Works for less confusion for homebuyers who finance their
new homes through VA or FHA mortgages because of the
elimination of Federal interest rate ceilings on such
mortgages. Mortgage lenders will no longer have to charge
"points" at the time of closing in order to increase the
yield of such mortgages up to the going market rate.
SECTION-BY-SECTION ANALYSIS
(1) Payment of Interest on Deposits - This section calls for the
removal of interest rate ceilings on savings and demand
deposits five years and six months from the enactment of
the FIA. Five years from enactment, the Secretary of the
Treasury, after consultation with other members of the
coordinating committee of Financial Regulators, will transmit
to Congress findings and recommendations concerning limi-
tations on rates of interest or dividends paid by depository
institutions.
The FIA also requires a comprehensive disclosure of the
terms and rates of interest paid on savings deposits, under
a Truth-in-Savings provision.
(2) Expanded Deposit Powers - The second part of the bill pro-
vides federally chartered savings and loan associations and
savings banks with authority to provide checking accounts,
Negotiable Order of Withdrawal (NOW) accounts and to engage
in credit card operations. These new powers will be similar
to those of commercial banks.
Nationally chartered commercial banks will be empowered to
offer savings accounts and NOW accounts to all customers,
individual and corporate.
All members of the Federal Reserve System or the Federal
Home Loan Bank System will be required to maintain reserves
against deposits in demand and NOW accounts in a form and
amount prescribed by the Federal Reserve Board after con-
sultation with the Federal Home Loan Bank Board. State
chartered savings and loan associations insured by the
Federal Savings and Loan Insurance Corporation will not have
to be members of the Federal Home Loan Bank System, just as
State chartered banks are not required to be members of the
Federal Reserve System at present.
(3) Expanded Lending and Investment Powers - The third section
of the FIA provides for broadened lending authority and
increased income and liquidity for Federally chartered
savings and loan associations and savings banks. The
increased lending authority will include consumer loans,
real estate loans, and construction loans. Investments
in community welfare and development projects, commercial
paper, high grade corporate debt, and bankers acceptances
will also be permitted on a limited basis.
The Act also liberalizes the powers of National Banks to
make real estate loans and provides added authority for
community welfare and development investments. In addition,
the Federal Reserve Board will be granted more flexibility
in defining assets eligible for discount. The Federal Home
Loan Bank Board will be given expanded authority to define
the types of assets eligible as collateral for advances.
more
3
(4) Increased Chartering Opportunities - Part four of the FIA
expands chartering opportunities of savings and loan
associations and mutual savings banks. The Federal Home
Loan Bank Board will be empowered to charter stock
institutions which will have powers identical to Federal
mutual savings and loan institutions and which will be
called either Federal Savings and Loan Associations or
Federal Savings Banks. Federally chartered and state
chartered mutual institutions will be allowed to convert
to either Federal mutual or Federal stock institutions and
federally chartered mutual institutions will be allowed to
convert to state mutual or stock institutions, subject to
regulation and approval of the Federal Home Loan Bank Board.
State institutions which convert to Federal charters may
retain their life insurance, equity investments and corporate
bond investments to the extent authorized by the Federal
Home Loan Bank Board.
(5) Expanded Powers for Credit Unions - The fifth title of the
Act authorizes federally chartered credit unions to offer
mortgage loans of up to a thirty-year maturity to their
members, variable share certificates similar to time savings
accounts, personal lines of credit to members, and secured
and unsecured loans over longer terms and in higher amounts
than currently permitted. It will be administered by the
National Credit Union Administration. A Central Discount
Fund will be established to deal with emergency liquidity
problems, such as might be caused by a plant closing. The
Fund will be open to any Federal or state-insured credit
union.
(6) Interest Rate Ceilings on FHA Insured and VA Guaranteed
Loans - Title Six abolishes interest rate ceilings for FHA
insured and VA guaranteed mortgage loans, and prohibits
the charging of "points".
(7) Tax Incentive for Mortgage Investment - The seventh and
last section of the FIA provides an incentive for mortgage
investment by establishing a mortgage interest tax credit.
The mortgage interest tax credit will be available to all
individuals and to all corporate investors maintaining at
least ten percent of their assets in residential mortgages.
Individuals will receive a credit of one and one-half
percent of interest earned. Corporations will receive a
credit varying between one and one-half and three and
one-half percent, depending upon the proportion of their
assets held in qualifying residential mortgages.
In the case of savings and loan associations and mutual
savings banks, the new tax credit will replace the current
special treatment of bad debt reserves. Such institutions
may elect to switch to the new tax credit at any time
between enactment of the Bill and December 31, 1978, at
which time all must have adopted this method. Once they
have made the change, they will not be able to switch back.
The credit does not apply in the case of a taxpayer, such as
the Federal National Mortgage Association (Fannie Mae), which
issues obligations that are supported by an authority to
borrow from the U.S. Treasury. Where a taxpayer has such
close ties to the Federal Treasury, so as to be a quasi-
governmental Agency and holds its assets chiefly in
residential mortgages, it was deemed inappropriate to extend
the benefit of the credit.
#####