More than half of our loan

commitments have been to new housing or Commercial cooperatives. The Bank and the Development Corporation have provided about $50 million to enable 30 tenant groups--70% of them representing low income people--to become homeowners. It is unlikely that these borrowers would have found affordable financing without the Bank, bur our provisions of loans to these borrowers weakens our portfolio. We still believe that the percentage of loans we have made to new businesses and low income cooperatives is praiseworthy and responsive to Congressional intent.

The consequences of these lending decisions, even after accounting for loans that were affected by credit administration deficiencies, is that the Bank has a disproportionate number of loans classified as "problem" loans, the least serious of FCA's adverse classification. Peat, Marwick & Mitchell, our

external auditor, has written the Bank: "Consumer cooperatives virtually by their purpose for being do not build strong balance sheets and do not generate surplus cash flows." I submit to you that the Bank will maintain for some time a somewhat greater number of problem loans in its portfolio as this classification is most affected by our developmental mission.

DEVELOPMENT AND TECHNICAL ASSISTANCE

When Congress created the Bank, a delivery system for providing developmental assistance to consumer cooperatives did not exist. The Bank built such a system. The Bank established units performing market research and cooperative development within its central office, and set up regional offices to provide geographic access to Bank services.

The original Act contemplated continuing appropriations for technical assistance. Even after appropriations were terminated the Bank has continued to fund these activities, but, inevitably, not at the prior level. The Bank was forced to reduce technical assistance by roughly one-half.

Provision of

technical assistance to develop or assist current or potential borrowers continues, as does Bank-funded access to training of demonstrated quality for cooperative boards, staff, and members. Yet, this adjustment in technical assistance policies has been one of the major causes of dissatisfaction among the cooperative community. While the Bank has been criticized for having narrowed the technical assistance program's focus, in fact, the Bank's actions were taken in order to minimize the adverse impact of these reductions. The Bank:

1.

increased the use of staff as providers of technical assistance at no cost to the cooperative; and

2.

ensured limited

technical assistance funds were replenished by

charging fees wherever possible.

assistance program,

The need to reduce the scope of the technical combined with the overwhelming demand for these services forced the Bank to establish priorities for the provision of technical assistance. The first priority was assistance to protect the portfolio, the Bank and the Development Corporation's overriding concern. The second priority was to assist those co-ops needing financing. The third priority was to co-ops without need of financing. In 1982 Bank staff provided technical assistance to about 210 cooperatives. Outside contractors provided by the Bank gave technical assistance to 60 co-ops in 1982, making technical assistance available to a total of about 270 cooperatives.

In order to ensure co-ops without need for financing were still able to receive some technical assistance benefit, the Bank maintained a general training and information program aimed at a larger number of co-ops. These

programs provide useful information on management, the co-op principles, industry specific guidelines and other topics.

Technical assistance alone cannot build a sound organization, stabilize a shaky loan, or open a new market. We will continue to carefully monitor the cost-effectiveness of our technical assistance expenditures at the same time ensuring that cooperatives which need help receive it, within the limits of

our resources.

To summarize, although the Bank has more than demonstrated its commitment to providing technical assistance to cooperatives and has budgeted roughly the same amount for 1983 as the previous year, the Bank recognizes that the technical assistance program has suffered from the termination of appropriations. This discussion of technical assistance delivery should not obscure the many achievements already described by Chairman Sollars, many of which are the results of our substantial efforts in this area.

IMPACT OF REORGANIZATION ON DEVELOPMENT EFFORT

The Bank has had nearly two years of experience with an extensive regional system unique to a Bank our size and especially tailored to address our development mandate. When the Bank lost access to federal funds we no longer had the resources to continue the operation of a system this size.

The lack of adequate resources combined with the failure of the system to obtain desired results in new loan volume or new cooperatives induced the Bank to scale back its regional office system from eight full service offices to three--in Oakland, California; Minneapolis, Minnesota, and New York City. Full service offices carry out developmental and loan production activities. Additionally, the Bank established branch offices in Dallas and Atlanta with two staff positions each expressly devoted to co-op development. The net decrease in developmental resources in the regional system has been partially offset

by an increase in development resources in our central office through the

creation of the Consumer Cooperative Development Corporation.

CONCLUSION

I would also like to note that the General Accounting Office was asked to examine a number of areas of the Bank's operations where they could not substantiate charges against the Bank. For example, the GAO found no evidence to support allegations made by former Bank employees that the Bank did not consistently apply our personnel policies. The GAO noted that the Bank has improved the flow of information and feedback from member cooperatives and the public. The GAO noted that the Bank has recently adopted a new procurement manual which, if followed, should correct any contracting deficiencies which they identified. The GAO also noted that the reorganization should, in their opinion, improve the delivery of financial assistance to cooperatives, increase administrative effectiveness, and reduce operating costs.

As the Chairman told you, the Co-op Bank is a new institution with a long-term mandate. The National Consumer Cooperative Bank has had its doors open for three short years--years which have been marked by a crippling economic climate. While we have made significant progress in bolstering existing cooperatives, assisting in co-op conversions, and in helping new cooperatives to form, our work has just begun.

Thank you.

Chairman ST GERMAIN. We will now hear from Mr. John Comerford, who is president of the Mercantile Co. of Boston, Mass., and acting president of the bank, the National Consumer Cooperative Bank, during this formative period.

We will insert your statement in the record, and you may proceed.

STATEMENT OF JOHN COMERFORD, PRESIDENT OF THE MERCANTILE CO. OF BOSTON, MASS., AND ACTING PRESIDENT OF THE NATIONAL CONSUMER COOPERATIVE BANK

Mr. COMERFORD. Thank you, Mr. Chairman, members of the committee.

I very much appreciate your kind invitation to participate in the oversight hearings on the National Consumer Cooperative Bank, an institution in which I have both a great deal of interest and con

cern.

I am delighted that since our last abbreviated session the bank has taken decisive action in hiring Tom Condit as its president. I have known Tom for some time, and Tom was the first commercial banker to come to the bank and offer assistance back in 1979.

Tom helped us initially with our loan policy and loan files. I think the work that Tom did, again with no cost to the bank, was significant back in those days. In fact, Tom was recommended to us by Greenbelt, a cooperative with which he had done some banking work.

Before I begin my testimony, Mr. Chairman, I would like to first acknowledge the great and longstanding support of yourself and Congressman Wylie and the staff, particularly Jake Lewis, Peggie Rayhawk, and Dick Still. Without all of you there would be no National Consumer Cooperative Bank, and we would not be here today at all.

During my 22-year involvement, Mr. Chairman, you and your staff have provided much of the needed insight and guidance necessary for getting the bank off the ground. For this I am personally grateful.

My first involvement with the bank came in the summer of 1978, when I was serving on the staff of Assistant Secretary Geno Baroni. My assignment was to monitor final passage of the act.

As you know, Mr. Chairman, this occurred in August 1978, and the legislation was signed into law shortly thereafter by President Carter. In September 1978, Stu Eizenstat, then Assistant to the President for Domestic Affairs, sent a memorandum to various Cabinet secretaries and the White House Staff.

The memorandum, which is appendix A of my testimony in the rear, set up an interagency task force to implement the Bank Act. We held our first meeting on September 15, 1978.

It was determined that the group would be broken down into five subgroups. From September to January, we met almost every day in the subgroups and every few weeks in the task force.

We held public hearings around the country in December 1978, and in early February we worked out all of our policy differencies and came up with a final report.