しい TO PROVIDE CREDIT FACILITIES FOR THE AGRICULTURAL Printed for the use of the Committee on Banking and Currency UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, The committee met, pursuant to call, at 10 o'clock a. m. in room 303, Senate Office Building, Senator George P. McLean presiding. Present: Senators McLean (chairman), Shortridge, Norbeck, Couzens, Glass, Pomerene, Hitchcock, Kendrick, and Fletcher. The CHAIRMAN. The committee will come to order. This meeting is called for the purpose of hearing parties who are interested in legislation affecting agricultural credits. At an informal meeting yesterday the committee decided that we would first hear Senators who have introduced bills. I think one of the important measures is the bill introduced by Senator Capper. He is present, and the committee will be glad to hear from him. STATEMENT OF SENATOR ARTHUR CAPPER, FROM THE STATE OF KANSAS. Senator GLASS. May I inquire, Senator, before you begin, what the number of your bill is? Senator CAPPER. It is numbered 4063. Gentlemen of the committee, the bill introduced by me, S. 4063, originated with the War Finance Corporation and the American National Livestock Association, probably the strongest and most representative organization of live-stock producers in the country. Senator Kendrick, a member of this committee, was for some years president of that association; in fact he was president until, I think, a few months ago. membership covers about 17 States west of the Mississippi, including all the great cattle-producing States of the Union. Its This bill is different from all the other agricultural credit measures here in that it is simply permissive in its provisions. It does not undertake to put the Government back of any credit system. It makes no use of the tax-exemption provisions, and it simply undertakes to facilitate and aid producers in the organization of credit corporations through which they themselves can obtain more adequate credit facilities. I will just give you briefly the provisions of the bill. It is divided into three parts. The first part, designated as Title I, provides for Federal incorporation of agricultural credit corporations. The second part, designated as Title II, contains the necessary amendments to the Federal reserve act. Title III contains an amendment to the Federal farm loan act. Title I of the bill authorizes the formation, under Federal law, of agricultural credit corporations having a minimum capital of $250,000. These corporations are placed under the supervision of the Comptroller of the Currency, in much the same way as national banks are now under his supervision. It is provided that national banks may, with the approval of the Comptroller of the Currency, subscribe to the capital stock of one or more of these corporations, the aggregate subscription, however, not to exceed 10 per cent of the paid-in capital and surplus of the bank. Agricultural credit corporations are authorized to make advances, or discount paper, or accept drafts, of three general types: (1) Paper secured by warehouse receipts representing nonperishable agricultural commodities and having a maturity not exceeding nine months; (2) paper secured by chattel mortgage on live stock which is being fattened for market, such paper having a maturity not exceeding nine months; (3) paper secured by chattel mortgage on breeding or dairy herds and having a maturity not exceeding three years 895137 In addition these corporations are given authority to act as custodians, trustees, or agents of banks which are members of the Federal reserve system, and to act, upon request of the Secretary of the Treasury, as fiscal agent of the United States. They are also authorized to deal in bonds or other obligations of the United States. The amount of loans which such a corporation may make to any one customer is limited to 20 per cent of its capital and surplus, except that where the loans are secured by warehouse receipts representing readily marketable agricultural commodities, the amount must not exceed 50 per cent of the paid-in capital and surplus. To finance the operations of these agricultural credit corporations three general methods are provided: (1) The paper of these corporations, complying with the eligibility rules affecting agricultural paper as provided in existing law and as modified by Title II of the bill, will be eligible for rediscount with Federal reserve banks. In addition the bill authorizes Federal reserve banks to purchase in the open market acceptances of these corporations, with a maturity not exceeding nine months. (2) Corporations are authorized to sell paper with or without their indorsement and to issue collateral trust notes or debentures with a maturity not exceeding three years, secured by agricultural paper held by the corporations. (3) Provision is made for incorporation of Federal live stock rediscount corporations, with a minimum capital of $1,000,000, and with authority to rediscount paper for corporations organized under the bill, and to issue collateral trust notes or debentures as above stated. Provision is made for examination by the Comptroller of the Currency of corporations organized under the act in the same manner as examinations are now made of national banks. Section 11 of Title I of the bill provides for the Federal licensing of livestock lean inspectors. Under this section any person competent to inspect live stock as a basis for loans may obtain a license from the Secretary of Agriculture. Provision is made for suspension or revocation of the license in the event of neglect or improper performance of duty. These live-stock inspectors will not be Government employees, nor will their employment by loan companies or banks be compulsory. The selection of inspectors will remain with the banks or live-stock loan companies primarily interested. It is believed, however, that a license by the Secretary of Agriculture will give to competent inspectors a standing which will make it desirable for loan companies to employ them in the inspection of live-stock loans. Title II of the bill contains the following amendments to the Federal reserve act: (1) Drafts issued or drawn for agricultural purposes, secured by warehouse receipts, and accepted by member banks, are made eligible for rediscount with a maturity up to six months, instead of the maturity of three months as provided in the present law. (2) Notes, drafts, or bills of exchange issued or drawn for agricultural purposes, and secured by warehouse receipts representing agricultural commodities, are made eligible for rediscount, upon the indorsement of a member bank, with a maturity not exceeding nine months, provided the paper is drawn or issued as a part of a program of orderly marketing of agricultural commodities. (3) Agricultural paper secured by chattel mortgage on live stock which is being fattened for market is made eligible for rediscount with a maturity not exceeding nine months. (4) It is provided that paper of agricultural cooperative marketing associations, the proceeds of which have been or are to be used by the association in making advances or payments to its members, or for expenses incurred in connection with the marketing or preparation for market of agricultural commodities, shall be deemed to be agricultural paper within the meaning of the act. (5) It is provided that acceptances of corporations organized under Title I of the bill, secured either by warehouse receipts representing agricultural products or by chattel mortgages on cattle being fattened for market, shall be eligible for purchase in the open market by Federal reserve banks, with or without the indorsement of member banks. (6) In order to make the facilities of the Federal reserve system available to the small banks upon which many agricutural communities largely rely, it is provided that State banks may be admitted to membership with a capital of $15,000, instead of the present minimum of $25,000, in towns having less than 3,000 inhabitants; and with a capital of $30,000, instead of the present minimum of $50,000, in towns having more than 3,000 but less than 8,000 inhabitants. in each case with an undertaking that the capital will be increased within three years to the present limit. Title III of the proposed bill amends the Federal farm loan act by increasing to $25,000 the amount which Federal land banks can lend to any one borrower. The limit in the present law is $10,000. As I have stated, this measure originated with the American National Live Stock Association. At their annual meeting, some six or eight months ago, they appointed an agricultural credit committee with Mr. Bixby, president of the association, as its chairman, and I think seven members coming from all sections of that great cattle-raising section, and they put in a great deal of time on this subject. Then they came to Washington about three weeks ago and spent a week or more in perfecting the bill, and were in conference most of that time with Mr. Eugene Meyer, managing director of the War Finance Corporation. Mr. Bixby informed me that Mr. Meyer had been of very great assistance to them in the drafting of this bill. I claim no credit whatever for the authorship of the bill or for the plan, but I do think there is a great deal of merit in the measure, and that such legislation will be of very great help, especially to the live-stock sections of this country. I would not claim, and do not claim, that it meets all the needs of the farmer, especially the small farmers and the small stock-raisers of the country; I doubt very much whether it would take care of their needs, but Senator GLASS. If they could avail themselves of the privilege granted, it would, would it not? Senator CAPPER. Well, it could undoubtedly be of great help to them. It would set up additional channels for securing the needed financial or credit accommodations that they are greatly in need of at this time, and it does undoubtedly broaden the opportunities of the Federal reserve system, and in that respect I think it would be helpful to the general farmer and stockman, but I think anyone reading the bill closely will see that it has in mind primarily the needs of the great cattle-producing interests of the country, the men who have the big herds out in the large western cattle States, and I think it is the best thing that has been proposed for meeting that situation. It has Mr. Meyer's unqualified approval, and to me that is a fine recommendation. I doubt whether there is any man in Washington at this time who is better informed as to the credit needs of the agricultural and live-stock interests of this country than Mr. Meyer because of the very remarkable experience that he has had during the last two years. Senator HITCHCOCK. Will you allow me to interrupt you, Senator? Senator CAPPER. Certainly. Senator HITCHCOCK. To avail themselves of it, the cattlemen who are chiefly specified there must first organize a corporation with a minimum capital stock of $250,000? Senator CAPPER. Yes. Senator HITCHCOCK. Now where are they going to get the money to do that? Senator CAPPER. Mainly through the usual banking channels. I have had communications from a large number of the big banks from the cattle States, and from my own State more especially, approving that idea. I will say now that the bankers who are dealing with the cattle industry are just as strong for some legislation here that will relieve the financial stress out West as are the cattlemen and farmers. In my State it is very generally conceded by the bankers that there must be some legislation here that would broaden the opportunity of the Federal reserve system, and that will aid in the organization of this credit corporation. Under Mr. Meyer's guidance and direction a number of these credit corporations, looking more particularly to relieving the situation as it confronted the live-stock industry, were organized during the last two years and availed themselves of the assistance offered by the War Finance Corporation. I think the provisions or plans, set forth in this bill, probably were the outgrowth of that experience. The bankers had a big part in the organization of the cattle loan companies, which grew up during this stress in the last two years, feel that some plan can be worked out here, with the approval of this Congress, that will be of very great help in widening and enlarging the opportunities they offered our stockmen for securing financial assistance. |