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these borrowers would have found affordable financing without the Bank, but

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

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When Congress created the Bank, a delivery system for providing develop

mental assistance to consumer cooperatives did not exist.

The Bank built such

a system.

The Bank established units performing market research and coopera

tive 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


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 con programs provide useful information on management, the co-op principles, in

tinues, as does Bank-funded access to training of demonstrated quality for co

operative boards, staff, and members.

Yet, this adjustment in technical as

sistance policies has been one of the major causes of dissatisfaction among

the cooperative community.

While the Bank has been criticized for having nar

rowed the technical assistance program's focus, in fact, the Bank's actions

were taken in order to minimize the adverse impact of these reductions.


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increased the use of staff as providers of technical assistance at

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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

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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

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dustry 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 techni

cal 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 re

sults of our substantial efforts in this area.


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 develop

ment 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.


tionally, 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.


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 sub

stantiate charges against the Bank.

For example, the GAO found no evidence to

support allegations made by former Bank employees that the Bank did not


sistently apply our personnel policies.

The GAO noted that

the Bank has

improved the flow of information and feedback from member cooperatives and the


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

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open for three short years--years which have been marked by a crippling




we have made significant progress

in bolstering

existing cooperatives, assisting in co-op conversions,

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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.



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 concern.

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 242-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.

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