priated, out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such notes, debentures, bonds, or other such obligations. The Secretary of the Treasury, in his discretion, is authorized to purchase any notes, debentures, bonds, or other such obligations of the Corporation issued hereunder and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds from the sale of any securities hereafter issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under such Act, as amended, are extended to include any purchases of the Corporation's notes, debentures, bonds, or other such obligations hereunder. The Secretary of the Treasury may, at any time, sell any of the notes, debentures, bonds, or other such obligations of the Corporation acquired by him under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of the notes, debentures, bonds, or other such obligations of the Corporation shall be treated as public-debt transactions of the United States. The Corporation shall have power to purchase at any time and at any price any of the obligations issued by it, and any such obligations so purchased may be sold or resold at any time and at any price.

"(5) The Corporation is also authorized to borrow from any Federal Reserve bank, and any Federal Reserve bank is authorized to make advances to the Corporation, on the latter's promissory notes having maturities of not more than four months which are secured to the satisfaction of such Federal Reserve bank, at rates of discount established in accordance with the provisions of subsection (d) of section 14 of this Act and subject to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe.

"(6) The Corporation is authorized and empowered from time to time to set aside such amount, not exceeding $25,000,000, of its surplus as it may deem advisable as an insurance fund, for the purpose of insuring banks whose deposits are insured under section 12B of the Federal Reserve Act, against losses which they may sustain upon obligations which they may acquire on or after the date on which the Industrial Loan Corporation Act becomes effective from any commercial or industrial business for the purpose of providing funds to such business. Such insurance may be granted to any such bank in such circumstances and upon such terms and conditions as the Corporation may by regulation or otherwise prescribe, including among other things limitations, to the extent deemed necessary, on the rate of interest borne by an insured obligation, on the amount of obligations insured for any one bank, on the types of obligations insured, and on the percentage of the total amount of the obligations of any type acquired by any one bank to which the insurance shall apply, and requirements for the payment of premiums by the insured banks; but no such insurance shall be granted to any one bank with respect to outstanding obligations of one obligor which exceed $25,000, in amount, and each such insured obligation shall provide by its terms and on a basis satisfactory to the Corporation for amortization by payments which will extinguish the debt secured thereby within a period of not exceeding ten years.

"(7) The net earnings of the Corporation, after making adequate provision for losses, shall be transferred to its surplus or undivided profits account. Upon the liquidation or dissolution of the Corporation all assets remaining after the payment of all indebtedness of the Corporation shall be paid to and become the property of the United States.

"(8) The Corporation is authorized to sell, exchange, or otherwise dispose of any obligations or preferred stock which it has acquired, with or without its endorsement or guaranty and upon such terms and conditions as it may deem advisable. The provisions of the Securities Act of 1933 shall not apply to any obligations issued by the Corporation under subsection (4) of this section, nor to transactions by any person in connection with any acquisition by the Corporation of obligations or preferred stock or any commitment to acquire them under subsection (3) of this section, nor, after any such obligations or stock are so acquired by the Corporation, to any subsequent sale, exchange, or other disposition of them by any person.

"(9) Any and all notes, debentures, bonds, or other such obligations issued by the Corporation shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority. The Corporation, its franchise, loans and other assets, its capital stock, its surplus, its reserves, and its income, shall be exempt from all taxation now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or other taxing authority; except that any real

property of the Corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.

"(10) Notwithstanding any other provision of law, all suits of a civil nature at common law or in equity to which the Corporation shall be a party shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and when the Corporation is a defendant in any such suit, it may, at any time before the trial thereof, remove such suit from a State court into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law. No attachment or execution shall be issued against the Corporation or its property before final judgment in any suit, action, or proceeding in any State, county, municipal, or United States court.

"(11) The Corporation is authorized and empowered to take such steps as it may deem appropriate to encourage and assist in the formation of committees of representatives of small businesses and others in local communities to explain to possible or prospective applicants for funds the facilities of the Corporation provided in this section and to advise with and assist prospective applicants in connection with their requests for financial assistance from the Corporation.

"(12) The management of the Corporation shall be vested in a board of directors consisting of the members of the Board of Governors of the Federal Reserve System, and the chairman and vice chairman of the board of directors shall be the chairman and vice chairman, respectively, of the said Board of Governors. At meetings of the board of directors three members shall be necessary for a quorum. The Corporation may utilize, as its officers and employees, any employees of the Board of Governors of the Federal Reserve System, and any officers or employees of any Federal Reserve bank. If the Corporation shall find it advisable, it may employ additional officers or employees, and the employment, compensation, leave, and expenses of such additional officers and employees shall be governed solely by the provisions of this section, specific amendments thereof, and rules and regulations of the Corporation not inconsistent therewith. No director of the Corporation and no officer or employee of the Board of Governors or of any Federal Reserve bank shall receive any compensation from the Corporation by reason of any services which he may perform for it. The Corporation shall determine and prescribe the manner in which its obligations shall be incurred and its disbursements and expenses allowed and paid, and may deposit in any Federal Reserve bank its funds, which shall not be construed to be Government funds or appropriated moneys. The Corporation may invest its funds in direct obligations of, or obligations guaranteed as to principal and interest by, the United States. The Corporation shall reimburse the Board of Governors of the Federal Reserve System and the Federal Reserve banks and its other agents for their expenses in carrying out the provisions of this section on such basis as may be determined by the Board of Governors of the Federal Reserve System.

"(13) The Corporation shall have a capital stock and surplus which shall be paid in in the amounts and out or the funds hereinafter provided. The Secretary of the Treasury is hereby authorized and directed, on the date on which the Industrial Loan Corporation Act becomes effective, to purchase from cach Federal Reserve bank the stock of the Federal Deposit Insurance Corporation heretofore subscribed for by such bank and to pay to such bank therefor an amount equal to the entire sum which the said Secretary was originally given authority to pay to such bank under the provisions of this section less the difference between the aggregate amounts paid to such bank by the Secretary of the Treasury and the aggregate amounts paid to the Secretary of the Treasury by such bank under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective. When the payment of such amount has been made by the Secretary of the Treasury to such bank, the United States shall become and be the owner of all the stock in the Federal Deposit Insurance Corporation heretofore subscribed for or held by the said Federal Reserve bank and all rights of the said Federal Reserve bank with respect to said stock shall be transferred to and vested in the United States. Any and all of the obligations and liabilities to the United States and to the Secretary of the Treasury which have been imposed upon or incurred by any Federal Reserve bank under this section at any time prior to the date on which the Industrial Loan Corporation Act becomes effective shall on said date be completely discharged and terminated, and no Federal Reserve bank shall, after said date, have any obligation or liability to the United States or the Secretary of the Treasury by reason of any provisions of this section. The amount required to be paid to each Federal Reserve bank by the Secretary

239561-40-2

of the Treasury under the provisions of this section shall be paid out of the miscellaneous receipts of the Treasury created by the increment resulting from the reduction of the weight of the gold dollar under the President's proclamation of January 31, 1934, and there is hereby authorized to be appropriated, out of such receipts, such sums as shall be required for this purpose.

"(14) Upon the receipt by each Federal Reserve bank from the Secretary of the Treasury of the amount specified in subsection (13) hereof, such Federal Reserve bank shall forthwith pay the entire amount so received to the Industrial Loan Corporation and also shall forthwith pay to the Corporation an amount equal to the difference between the aggregate amounts paid to such bank by the Secretary of the Treasury and the aggregate amounts paid to the Secretary of the Treasury by such bank under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective; and out of the aggregate amounts paid to the Industrial Loan Corporation in this manner the Corporation shall set aside $100,000,000 as its capital and the remainder as surplus and shall issue to and in the name of the United States, and deliver into the custody of the Secretary of the Treasury, capital stock in the amount of $100,000,000. No stock in the Industrial Loan Corporation shall be transferable, have any voting rights, or be entitled to any dividends. Upon the payment of such funds to the Industrial Loan Corporation by the Federal Reserve banks, the Corporation shall forthwith purchase from each Reserve bank, and each Federal Reserve bank shall sell to the Corporation, all assets held by the Reserve bank which were acquired under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective, and such sale shall, be made at the appraised value of the assets on the effective date of the Industrial Loan Corporation Act, such appraisal being made according to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe. All commitments of each Federal Reserve bank outstanding under this section on the date on which the Industrial Loan Corporation Act becomes effective shall forthwith be taken over and assumed by the Corporation.

"(15) When designated for that purpose by the Secretary of the Treasury, the Corporation shall be a depositary of public moneys under such regulations as may be prescribed by said Secretary; and it may also be employed as a fiscal agent of the Government; and it shall perform all such reasonable duties, as depositary of public money and fiscal agent of the Government, as may be required of it. Obligations of the Corporation shall be lawful investments, and may be accepted as security for all fiduciary, trust, and public funds the investment or deposit of which shall be under the authority or control of the United States or any officer or officers thereof. The Corporation shall be entitled to the free use of the United States mails in the same manner as the executive departments of the Government. "(16) Whenever it shall appear to the Board of Governors of the Federal Reserve System, either by reason of a decrease in the volume of the operations of the Corporation or otherwise, that there is no longer a reasonable need for the continuance of the facilities of the Corporation, the said Board may order the dissolution of the Corporation, and thereupon the Corporation shall be liquidated and its affairs wound up under regulations prescribed by the said Board.

"(17) The Corporation shall annually prepare a full report of its operations, and this report shall be included by the Board of Governors of the Federal Reserve System in the annual report made by it to the Speaker of the House of Representatives in accordance with the provisions of section 10 of this Act."

SEC. 2. Subsections (h), (i), and (k) of section 22 of the Federal Reserve Act are amended by inserting after the words "Federal Reserve bank" wherever they occur in such subsections the words "or the Industrial Loan Corporation"; and subsection (j) of said section 22 is amended by inserting after the words "Federal Reserve bank" the words "and of the Industrial Loan Corporation".

SEC. 3. (1) The third paragraph of section 24 of the Federal Reserve Act is amended by striking out the word "established" where it appears in said paragraph, by substituting the words "the Industrial Loan Corporation" for the words "a Federal Reserve bank" wherever they appear in said paragraph, and by striking out the words “or (d) in which" which appear in said paragraph and substituting therefor the following: "(d) which are insured by the Industrial Loan Corporation, or (e) in which".

(2) The last sentence of paragraph "Seventh" of section 5136 of the Revised Statutes, as amended, is further amended by inserting before the colon after the words "national mortgage associations" a comma and the following: "or obligations of the Industrial Loan Corporation".

SEC. 4. Sections 1, 2, and 3 of this Act shall become effective on the 1st day of the second calendar month following the date of its enactment.

Senator WAGNER (chairman of the subcommittee). Senator Mead, we will be delighted to hear from you.

STATEMENT OF HON. JAMES M. MEAD, A SENATOR FROM NEW YORK

Senator MEAD. Mr. Chairman and members of the subcommittee, first of all I wish to tell you how deeply I appreciate this opportunity to appear here and speak in regard to this matter.

Your consideration of the bills which I have introduced has encouraged me to continue my effort to establish the opportunity for small-business men to enjoy the credit facilities that their bigger competitors have been enjoying right along.

We are all agreed that the industrial resources of the Nation must be coordinated and geared into a great productive machine which can produce quickly and efficiently the necessary weapons of national defense. We read over and over again that the time has arrived when opposing groups of our people must lay down their differences and strive for unity.

We do not know what productive necessities lie ahead, but it is not outside the realm of thoughtful consideration that the industrial agencies of this Nation may be called upon, as never before, to cooperate in supplying vital military equipment.

We hope with all our hearts that the economic resources of this Nation shall not have to be dissipated in the wasteful pursuit of rearmament. Nevertheless, this is no time for miscalculation nor for indifference to the gravity of world conditions.

With these unpleasant but realistic portents in mind, the Congress must assume earnest responsibility in providing for the well-being of certain branches of our industrial system which have been surviving with great difficulty during the past few years.

Senator ADAMS. Senator Mead, would an interruption bother you? Senator MEAD. NO.

Senator ADAMS. Do you mean to lay the foundation for your present effort upon the need for national defense, so that if the emergency should pass you would no longer have an interest in it?

Senator MEAD. No, that is not what I have in mind, but imperative is the great need for a national defense program. Having in mind the great part that the small-business man played in this same program in the World War, and realizing his desire to improve plant facilities so that he may take advantage of the opportunity to serve the Government in this crisis, prompted me to preface my remarks with that statement.

I realize that if the principle is established, if the system whereby small-business men may secure adequate credit facilities is established, then their plants, which will serve the Government in this crisis, will be in fine shape to continue peacetime operations, after the crisis is over. Small business enterprise has been experiencing great difficulty in securing adequate long-term credit and capital at reasonable rates of interest. I am going to go into that subject further a little later in my remarks, but I predicate what I say now on the thought that little business is in extremely severe circumstances.

Now, it occurs to me that this is not a time when we, as a Nation, can afford to sacrifice any essential industries, large or small, that may contribute to our productive ability directly or indirectly in the provision of national defense requirements. In considering our great industrial power, the little business in a little plant in a little obscure community is just as vital and just as important as the great huge corporation with its far-flung branches. Little business is scattered in small villages and hamlets throughout the Nation, but, even so, little business is, collectively, an empire all of its own. It is a strong arm on which the Nation must depend for strength in any national

emergency.

It is an unfortunate circumstance that little business today, through a strangulation of credit and capital is, to a large extent, operating with antiquated machinery, with old processes, and has been reduced to a relatively low level of productive efficiency. The small business man supplies the raw materials which big business needs. Through his hands flow countless important articles with which we shall be more and more in need.

Therefore, what I say to you today about little business is of vast importance in this program of national defense upon which we are about to embark. We must strengthen the utility of little business, increase its productive efficiency, and revitalize its place in the economic sphere. If more adequate credit and capital through local banks is all that little business requires, and that is my conviction, we ought to immediately concern ourselves with the satisfactory disposition of this problem.

I want to read for you a very brief summary of the chief features of S. 2998

Senator ADAMS (interposing). We only have before us on the committee table S. 3839.

Senator MEAD. We also have S. 2998. I can take up S. 3839 first if you wish. These proposed amendments to section 13b of the Federal Reserve Act would eliminate certain limiting provisions. It is important that we have that in mind. Section 13b of the Federal Reserve Act now authorizes Federal Reserve banks to make loans direct to established commercial and industrial enterprises for working capital purposes for periods up to 5 years.

Senator ADAMS. Senator Mead, you speak of that as a limitation, and yet that is an expansion and departure from the original Federal Reserve Act.

Senator MEAD. It was, yes. When it was introduced and passed under the sponsorship of Senator Glass, it was a liberalization, at that time, but it is a severe limitation to restrict small business in the matter of loans for working capital purposes only for a period of 5 years when their bigger competitor can secure loans for unlimited periods and for all other purposes, I mean other than for working capital purposes.

I will take up this explanation of the proposed amendments to section 13b of the Federal Reserve Act as contained in S. 3839:

Section 13b of the Federal Reserve Act now authorizes Federal Reserve banks to make loans direct to established commercial and industrial enterprises for working capital purposes for periods up to 5 years. It also authorizes the Federal Reserve banks to grant commitments to or participate with financing institutions with respect