Mr. LUCE. May I ask if Mr. Meyer would like to have questions asked of him as we go along?

Mr. MEYER. I think it was before you came in it was agreed that I might go along without questions, although I love to be questioned by you, Mr. Luce.

The CHAIRMAN. The chairman made that announcement, Mr. Luce, before you came in.

Mr. MEYER. "All loans must be fully and adequately secured in such manner as the corporation shall require, and they will be made as such interest or discount rates as the corporation may approve." It is hard to anticipate what particular situations such a corporation, if authorized by you gentlemen, would have to meet, and I rather think these provisions with reference to security and the reliance on sound administration rather than restrictions in the law are, as a matter of policy, justified by the circumstances in the exceptional conditions which we are confronted with. I think the whole bill is written with a view to attacking the problem in a big way and with very broad powers and large resources. In that respect I can heartily support the bill. The restrictions that you as a committee undertake to work out probably will be helpful in certain respects that could not be earlier anticipated. I am frank to say that the bill as written seems to me to place an extraordinary amount of authority and responsibility on the board of directors, and it therefore relies; and Congress, in passing this bill, of course, knows that the administration of such an act is synchronous, both from the point of view of success in producing the greatest result for the benefit of the people, also for saving the Government from any ultimate loss.

Now, then, the period for which the corporation is authorized is one year, with authority in the President to extend it for any part of a year up to an additional year, making a total of two years. I think that is wise. It is hoped that one year would be enough, and still the bill provides a little leeway in case of need. The loans of the corporation may be made for not exceeding three years, with authority to grant additional time up to five years. I think that loans made on so-called slow or frozen assets or any other kind of assets for a period of three years would be ample; but if they are not, I think the extension ought to cover the requirements.

The railroads are mentioned here specifically, and I think that that has to be considered from this point of view, that to-day the railroad situation-the buying power of the railroads is hampered by their financial condition, and the railroads perhaps, next to the construction industries, are the most important single buying power in the country. If they could be put on a better basis financially and their buying power restored it would be probably very important in restoring business. But, entirely apart from that, we recognize the fact that the railroads to-day are owned by the people of the country in a most extraordinary degree, in the fact that the bonds, which are the investments of trusted institutions all over the country, rather than of individuals, or certainly more than individuals, are a matter of important interest, not to stockholders alone so much as they are to the holders of life-insurance policies, savings in savings banks, and depositors in all banks. That is a matter, gentlemen, for you to consider, and it would seem that the interest of the

people of the country as a whole is very considerable in the soundness of railroad securities, by which I mean bonds.

Now, funds may be had from the Treasury up to $5,000,000. The corporation is authorized to borrow for not exceeding five years and they may sell short-term obligations on a discount basis. These securities would all be tax exempt from all kind of taxation, similar to the farm loan system bonds and intermediate credit banks.

The Treasury is made ultimately liable for the debts of this corporation if they can not be made otherwise. That will, if accepted, be very important in the ability to market the bonds in the first place, and, in the second place, it will add to the assurance that the corporation will be able to command the funds which it is authorized to borrow under the act, if passed in this form.

The Federal reserve banks under this provision are authorized to discount notes, secured by obligations of the corporation and to make advances to member banks on the notes, secured by said obligations and to use all such paper so acquired and to purchase and sell such obligations as they have with respect to bonds of notes of the United States. That is a provision, of course, on the basis that these are ultimately Government obligations and their eligibility in the Federal reserve system is made practically identical with that of Government bonds. That is a matter which will, no doubt, be discussed a great deal on the theory that these are in fact Government. That may be seriously considered.

On the other hand, it is only fair to say that this whole question of eligibility which is up for general discussion is considered by many who are sincerely interested in the welfare of the Federal reserve system and the protection of the system as to make it undesirable to make these securities eligible, but it is to be noted that the rate at which any loans are taken or any advances made under this provision of eligibility is at 1 per cent above the 90-day commercial rate in the bank. So there is a penalty rate there which would, I believe, tend very strongly, if not quite effectively, to prevent their being presented to the Federal reserve banks. However, the tion is a question that I would not want to undertake at this time in this first discussion to explore in all of its ramifications with you gentlemen. It is at this time one that I would rather direct your attention to for your own consideration and for further discussion with myself if you desire.

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Under the next provision, the amendment to section 5202, removes the restrictions from national banks which limits their borrowings and permits them to borrow without regard to the restriction on borrowing in national banks for the purpose of borrowing from this corporation if they so desire.

Then the Federal reserve banks in the next paragraph are authorized and directed to act as depositories, custodians, and fiscal agents for the corporation and the reports of the various departments of the Government are made available for operation of the corporation in ways that are to be determined by the examining agencies, and the examining agencies are also authorized to make examinations of institutions contemplating loans or where the corporation wants the examinations made in connection with advances.

The moneys of the corporation not otherwise employed may be deposited with the Treasury, and the corporation is required to act

as depository, except receipts from customs; and it is also authorized to act as a financial agent of the Government. This is done to remove any doubt as to the constitutionality of the act. "The obligations of the corporation will be lawful investments," and accepted as security for all fiduciary, trust, and public funds to make them more acceptable in the market and more marketable.

The usual penalty and criminal provisions are included apparently and the last provision seems to provide in the bill in the first instance that the methods and means by which liquidation will be accomplished after the activity has terminated.

Now, as I stated heretofore, the resources are very large and the authority is very broad. This act, if passed, will have a tremendous effect, I think, by virtue of the large resources and breadth of its powers, even before actual loans are being made. I think the knowledge that a resource with flexible powers and large amounts at its disposal is in existence at this particular time would do more to reassure people who are in fear as to what might happen than any other one thing. A great many steps, many of them very useful and constructive, have been taken in the last two years and previously, but the conditions at the present time are such as to seem to me to justify that Congress should create for a temporary period and for an exceptional purpose an institution of this strength and power. There must be flexibility in the institutions, because conditions fluctuate violently; and while we may and very properly should carefully examine the mistakes of banking and business over the last five years at the proper time and seek to prevent the recurrences of mistakes that have been made, also review the mistakes that have been made, in our foreign investments which were made in the belief that the borrowers were good, I think the essential thing to do in considering this bill is to say that we have a condition confronting us, and what can we do about it, is the question which will be in the best interest of the people of the country as a whole.

I hope that that will be the attitude of the committee and of the Congress. I think it is the right attitude in approaching a consideration of such a measure. I think there are other bills that also attempt to deal with the situation in a large way, but I have not had opportunity to read all of them. There may be good suggestions in some of them. There may be better provisions in some of them, but I believe this bill is entitled to the most serious consideration and to the support of Congress on that very broad basis in the form of a temporary and an exceptional Government organization to meet what certainly is to be hoped a temporary emergency condition of the financial and economic character all over the world, so far as we can do things here at home under our own control.

I think, gentlemen, that I have given you an outline of my thought about this in connection with my support of this measure which you are considering, which I consider of importance, and I feel a responsibility that compels me to support this measure to the banks of the country that are in the Federal Reserve system and even to those who are not.

I believe their capacity to serve the business interests, both agricultural, industrial and commercial, will be strengthened and enhanced by a measure of this character substantially, and, while I am fully aware as you are the banks exist to serve the business interests,

and while the financial agencies are the agencies through which this corporation will function, the real aim, and I believe the real result, will be the benefits which through those agencies will be made available to the people of the country and in practically all parts of the country. The situation is not, as it was in 1921, concentrated peculiarly in the agricultural districts. It is a general situation. It exists in the town as well as the country, and only a measure on a very broad basis will deal with the situation on an adequate scale. There may be certain details wherein this bill can be improved: there may be things to be changed, left out or added, but a general proposition of this kind I feel I can properly support and commend to your very favorable consideration.

Mr. MEYER. May I ask the privilege of freely amending, amplifying, and correcting this testimony?

The CHAIRMAN. There is no objection to that at all.

Mr. MEYER. All you want is the best picture I can present anyway. The CHAIRMAN. The reporter will submit you a copy of this and you may go over it.

Mr. MEYER. I would like a very broad privilege in that respect. The CHAIRMAN. That is perfectly agreeable.

(Thereupon, at 11.50 a. m., the committee adjourned.)

RECONSTRUCTION FINANCE CORPORATION

TUESDAY, JANUARY 5, 1932

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met at 10.30 o'clock, a. m., in the committee room, Capitol, Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. The committee will please be in order. Mr. Goldsborough, I believe, has a few words he would like to say before we proceed with Governor Meyer.

Mr. GOLDSBOROUGH. Mr. Chairman, beginning here at the bottom of page 16 of the printed report of our proceedings of December 18, 1931, I made a correction of certain questions and answers, but before it came back here the record had been printed. The corrections I have made are entirely typographical, and only for the purpose of making the questions read in a grammatical and correct way I am going to ask that when to-day's hearing is commenced it begin at the point on page 16 where the first question is asked [reading]:

Mr. GOLDSBOROUGH. Are you now ready to answer questions?— that the corrected questions be inserted.

Mr. MEYER. I understand the corrections in the questions do not affect my answers?

Mr. GOLDSBOROUGH. Not in the slightest.

The CHAIRMAN. I am sure there will be no objection to that, and the stenographer will make the corrections accordingly. I will say that the condition of the record to which Mr. Goldsborough refers was brought about through inadvertency. I did not even correct my own statements in those hearings, as I should have done if I had been here when they were printed; but I had gone home for the holidays, and my part in the discussion was not submitted to me for cor

rection.

Mr. GOLDSBOROUGH. I will ask that on the reprint what appears in the print of the last hearing at the bottom of page 16 be omitted and what I have handed the stenographer to-day be included.

The CHAIRMAN. I also want to make one change. In the circumstances it will be ordered, if there be no objection, that the hearing held on December 18 and printed as Part I be reprinted as a star print.

(There being no objection it was so ordered.)

STATEMENT OF HON. EUGENE MEYER, GOVERNOR FEDERAL RESERVE BOARD-Continued

The CHAIRMAN. Governor Meyer, we are ready to hear you further in the discussion of the proposed Reconstruction Finance Cor

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