HMP 19 540 HG2562 LG AS CONTENTS Fage Statement of- Eccles, Marriner S., chairman, Board of Governors of the Federal 14 Jones, Jesse H., Administrator, Federal Loan Agency. 44 7 Wiggins, A. L. M., president, Bank of Hartsville, Hartsville, S. C.; 31 EXHIBITS III BUSINESS LOANS BY FEDERAL RESERVE BANKS WEDNESDAY, JUNE 12, 1940 UNITED STATES SENATE, SUBCOMMITTEE ON RECONSTRUCTION FINANCE CORPORATION MATTERS OF THE COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met at 10:30 a. m., pursuant to call, in room 301, Senate Office Building, Senator Robert F. Wagner presiding. Present: Senators Wagner (chairman of the subcommittee), Adams, Clark of Idaho, Downey, Hughes, and Tobey. Present also: Senators Danaher and Mead. Senator WAGNER. The subcommittee will come to order. This meeting is for the purpose of a hearing on S. 3839, introduced by Senator Mead. And I take it, Senator Mead, that you wish a copy of the bill made a part of the record. Senator MEAD. Yes; Mr. Chairman. I also may speak in regard to S. 2998, introduced by me last October. Senator WAGNER. The bills will be made a part of the hearing. (The bills referred to, S. 3839 and S. 2998, are as follows:) (S. 3839, 76th Cong. 3d Sess.] A BILL To amend section 13b of the Federal Reserve Act, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 13b of the Federal Reserve Act, as amended, is amended to read as follows: "SEC. 13b. (a) In exceptional circumstances, when it appears to the satisfaction of a Federal Reserve bank that a business enterprise located in its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, the Federal Reserve bank, pursuant to authority granted by the Board of Governors of the Federal Reserve System, may make loans to, or purchase obligations of, such business, or may make commitments with respect thereto, on a reasonable and sound basis. "(b) Each Federal Reserve bank shall also have power to discount for, or purchase from, any bank, trust company, mortgage company, credit corporation for industry, or other financing institution operating in its district, obligations of any business enterprise; to make loans or advances direct to any such financing institution on the security of such obligations; and to make commitments with regard to such discount or purchase of obligations or with respect to such loans or advances on the security thereof, including commitments made in advance of the actual undertaking of such obligations. Each such financing institution shall obligate itself to the satisfaction of the Federal Reserve bank for at least 10 per centum of any loss which may be sustained by such bank upon any of the obligations acquired from such financing institution, the existence and amount of any such loss to be determined in accordance with regulations of the Board of Governors of the Federal Reserve System: Provided, That in lieu of such obligation against loss any such financing institution may advance at least 10 per centum of such advance of credit without obligating itself to the Federal Reserve bank against loss on the amount advanced by the Federal Reserve bank: Pro 1 vided, however, That such advances by the financing institution and the Federal Reserve bank shall be considered as one advance, and repayment shall be made pro rata under such regulations as the Board of Governors of the Federal Reserve System may prescribe. "(c) The aggregate amount of loans, advances, and commitments of the Federal Reserve banks outstanding under this section at any one time, plus the amount of purchases and discounts under this section held at the same time, shall not exceed the amounts paid to the Federal Reserve banks by the Secretary of the Treasury under subsection (d) of this section, except that when the amounts so paid by the Secretary of the Treasury are, in the judgment of the Board of Governors of the Federal Reserve System, inadequate for operations under this section, the Federal Reserve banks, with the approval of the said Board, may continue operations under this section through the utilization of their other funds until the amount of such other funds so utilized equals the amounts received by them from the Secretary of the Treasury. All operations of the Federal Reserve banks under this section shall be subject to such regulations as the Board of Governors of the Federal Reserve System may prescribe. "(d) In order to enable the Federal Reserve banks to make the loans, discounts, advances, purchases, and commitments provided for in this section, the Secretary of the Treasury is authorized and directed to pay to each Federal Reserve bank not to exceed such portion of the sum of $139,299,557 as may be represented by the amount paid by each Federal Reserve bank for stock of the Federal Deposit Insurance Corporation, and not already paid to a Federal Reserve bank under the provisions of this section, upon request by the Board of Governors of the Federal Reserve System, in such amounts and at such times as the Board of Governors deems necessary to enable the Federal Reserve banks to make the loans, discounts, advances, commitments, and purchases authorized by this section, and upon execution by each Federal Reserve bank of an agreement (to be endorsed on the certificate of such stock) to hold such stock unencumbered and to pay to the United States all dividends, all payments on liquidation, and all other proceeds of such stock, for which dividends, payments, and proceeds the United States shall be secured by such stock itself, up to the total amount paid to each Federal Reserve bank by the Secretary of the Treasury under this section. Payments heretofore made by the Secretary of the Treasury to any Federal Reserve bank under the provisions of this section shall be subject only to the terms of the section as now amended. The Board of Governors of the Federal Reserve System shall have authority to reallocate among the Federal Reserve banks the funds received from the Secretary of the Treasury as said Board may find necessary in order to meet existing needs. Whenever the Board of Governors of the Federal Reserve System shall conclude, either as a result of a decrease in the volume of operations or otherwise, that the amounts paid to the Federal Reserve banks by the Secretary of the Treasury under this section are no longer needed for operations under this section, the total amount received from the Secretary of the Treasury under this section, after making adequate provision for losses incurred in the use of such amount and after adding any net income derived from the use of such amount, shall be paid to and become the property of the United States, such payments to be made as orderly liquidation of assets acquired through the use of such amount, as in the judgment of the said Board, will permit. All amounts required to be expended by the Secretary of the Treasury in order to carry out 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 appropriated, out of such receipts, such sum as shall be required for such purpose.' [S. 2998, 76th Cong., 2d sess.] A BILL To establish a permanent industrial loan corporation to assist financing institutions in making credit available to commercial and industrial enterprises Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 13b of the Federal Reserve Act is amended to read as follows: "SEC. 13b. (1) This section may be cited as the 'Industrial Loan Corporation Act'. "(2) There is hereby created a body corporate with the name Industrial Loan Corporation (hereinafter called the Corporation). The principal office of the Corporation shall be located in the District of Columbia, but it may designate and utilize as its agents for the performance of its functions any or all of the Federal Reserve banks, which are hereby authorized to act in such capacity, may establish branch offices, or may designate and utilize other persons or other existing institutions as its agents for the performance of its functions. The Corporation shall have power (a) to adopt, alter, and use a corporate seal, which shall be judicially noticed; (b) to have succession until dissolved by Act of Congress or in accordance with subsection (16) of this section; (c) to sue and be sued, complain and defend, in any court of law or equity; (d) to make contracts and to lease or acquire such real estate and equipment as may be necessary for the transaction of its business; (e) to prescribe by its board of directors bylaws and rules, regulations and requirements, not inconsistent with law, as to the manner in which its business and operations may be conducted and the powers granted to it by law may be exercised and enjoyed. The Corporation may exercise all powers specifically granted by this section and such incidental powers as may be reasonably necessary to effectuate the provisions of this section in accordance with its purposes and to prevent evasions of such provisions. All rules and regulations of the Corporation shall be prescribed by the board of directors and all determinations of matters of general policy for the Corporation shall be made by the board of directors; but it is the sense of Congress that in the administration of the Industrial Loan Corporation Act the Corporation shall endeavor to decentralize its activities, and all functions of the Corporation other than the prescribing of rules and regulations and the determination of matters of general policy may be performed through such members of the board of directors, such Federal Reserve banks, or such officers, employees, or representatives as the board of directors may prescribe; and the board of directors shall not be required to authorize, approve, or otherwise pass upon individual transactions. "(3) For the purpose of providing funds to a commercial or industrial business, the Corporation is authorized, subject to such regulations and requirements as it may prescribe, (a) to make loans, to discount obligations for, and purchase obligations from such a business; (b) to purchase preferred stock in a corporation engaged in such a business; (c) to discount for or purchase from a financing institution obligations of, or preferred stock in a corporation engaged in, such a business; (d) to make loans to a financing institution on the security of such obligations or preferred stock; and (e) to make commitments to make any such loans, discounts, or purchases. The Corporation shall not make or acquire any such loan or obligation which has a maturity exceeding ten years, nor shall the Corporation purchase any such preferred stock unless the issuer of the preferred stock is obligated to retire the same within ten years; and all such loaus, obligations, or preferred stock shall provide in a manner satisfactory to the Corporation for installment payments on the loan or obligation, or periodic retirements of the preferred stock, sufficient to amortize at least 40 per centum of the principal amount within a period of ten years. The Corporation may include in its regulations, among other things, provisions regarding the kinds of preferred stock which it may acquire, and regarding the purchase price of obligations and preferred stock and the rates of interest and discount applicable to transactions hereunder, and may define for the purposes of this or other subsections of this section the terms 'commercial or industrial business', 'financing institution', 'obligation', and 'preferred stock'. The Corporation may exercise the authority granted in this subsection either directly or in cooperation with financing institutions; but the amount of funds provided by the Corporation pursuant to this subsection for any one commercial or industrial business and outstanding at any one time shall not exceed $1,000,000. "(4) The Corporation is authorized and empowered to issue its notes, debentures, bonds, or other such obligations, which may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated in such obligations, and shall mature at such times, be so secured, and bear such rate or rates or interest as may be determined by the Corporation. The aggregate of all obligations issued under this section and outstanding at any one time shall not exceed $500,000,000. Such obligations may be issued in payment of any loan, discount, or purchase authorized by this section or may be offered for sale at such price or prices as the Corporation may determine. Such notes, debentures, bonds, or other such obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States and such guaranty shall be expressed on the face thereof. In the event that the Corporation shall be unable to pay upon demand, when due, the principal of, or interest on, such notes, debentures, bonds, or other such obligations, the Secretary of the Treasury shall pay to the holder the amount thereof which is hereby authorized to be appro |