The Central Bank for Cooperatives was chartered under the act of June 16, 1933, and it set up its own organization, as far as its administrative force was concerned. We have changed the arrangement recently so that the service rendered to the Central Bank for Cooperatives will be rendered by employees of the Farm Credit Administration in the same way, as I just explained, that we are serving the Federal Farm Mortgage Corporation.

The $117,545 is the estimated charge to be made against the bank for service rendered in that way.

Mr. CANNON. How was that service taken care of in the 2 previous years?

Mr. MURPHY. The bank paid for it, directly out of its own funds. Mr. CANNON. That was under your jurisdiction, as at present? Mr MURPHY. Yes.

Mr. CANNON. Merely a bookkeeping device?

Mr. MURPHY. Yes. They obtained their funds from their own income, and the appropriations, outside of the original appropriation making money available for the purchase of its capital stock, do not have to be passed on by Congress each year.

We place this $117,545 item before you by reason of the fact that we are now rendering this service to the Bank for Cooperatives, and instead of asking that you increase the appropriation to be made from the Treasury we are indicating the amount that we estimate the service will cost and that we will be reimbursed by the Corporation, thereby making a reduction, as indicated, in the total amount estimated for the year for the Farm Credit Administration as a whole.

Mr. CANNON. Evidently your estimates have been a little closer in this case than in most of the items. You bring it down to $545. Mr. MURPHY. The Central Bank for Cooperatives is located in the same building with us. They had certain personnel, and that estimate worked out between the bank and our office as the estimated amount to be required.

Mr. CANNON. In connection with the next item, Mr. Murphy, will gou give the committee some information with reference to the Federal Credit Union?

Mr. EMMERICH. The amount of $65,280 is for reimbursement for administrative expenses from fees collected under the Federal Credit Union Act of June 26, 1934.

This act, Mr. Chairman, empowered the Farm Credit Administration to charter organizations, groups of people having a common bond, for the purpose of encouraging thrift and making loans to their members. We have granted about a thousand charters to various organizations, among which there are various types of groups, such as those of industrial and commercial workers, members of fraternal organizations, and employees in various Government departments. Mr. CANNON. Briefly, what is the purpose of these organizations? Mr. EMMERICH. It was to make possible a source of loan funds for the members of the organization on a cooperative basis and lower rates of interest than generally prevail for small loans. They secure all their funds from subscriptions to shares by their members. They use no Federal funds at all. They are permitted to make loans under certain conditions to members at a monthly rate not exceeding 1 percent. They are mutual credit and thrift organizations.

Mr. CANNON. And they are supposed to take the place of the loan shark?

Mr. EMMERICH. Yes.

Governor MYERS. In the Farm Credit Administration we have a credit union which has been organized by the employees. They pay in savings, and they buy shares.

The same members who need funds for any purpose, if their loans are approved, can borrow there at much less cost than through loan sharks, and they are borrowing savings put in by other members of the same organization.

ACCOMPLISHMENTS OF CREDIT UNIONS AMONG INDUSTRIAL EMPLOYEES

Mr. TARVER. Can you give us an example of a credit union organization among industrial employees in some plant that is and has been functioning for a sufficient length of time for you to determine whether or not its operations have been successful, and tell us what it has done, what the volume of loans has been and the volume of receipts, and whether it will be at a profit or loss to the Government, whether an organization of that kind in industry is likely to be successfully carried on.

Mr. EMMERICH. I can cite you numerous examples of credit unions organized under State laws which are very similar to the Federal law, that have had a long period of operation. We only started to charter Federal credit unions about a year and a half ago.

Mr. TARVER. That ought to be sufficient time to enable you to determine whether the experiment is successful.

Mr. EMMERICH. We get quarterly reports from all of them. That is one of our duties.

We have chartered one in Washington among the employees of the Bureau of Internal Revenue.

Mr. TARVER. I do not think that is a fair example of what may be done under the scheme. I think you would have to select one organized among industrial employees. Federal employees are in a different class from the ordinary laborer throughout the country.

I wonder if you have an example of an organization of this kind set up among the employees of some industry somewhere.

Mr. EMMERICH. We have a great many of them. I did not bring any figures with me on specific credit unions. But there are some organized among the employees of the American Telephone & Telegraph Co., which are taking a great interest in this subject, and has assisted in the organization wherever its employees have shown any interest. There are also such organizations in various steel corporations, packing plants, rubber companies, utilities, printing and publishing companies, and other large industrial plants. They have felt that this was a sound proposition which they wanted their employees to go into.

Mr. TARVER. I wanted you to bring to us an example of some industrial organization where such an organization as you have referred to has been operating for a year or more, tell us the name of the organization, what it has been doing, how many schareholders it has, what loans it has made, what collections it has made, and give us an idea of whether it has operated on a sound, business-like basis or not.

Mr. CANNON. The idea is based on the experience of foreign governments which have used this plan very successfully for many years. Mr. EMMERICH. Yes, sir; and it is based on the experience of many States.

Mr. CANNON. For example?

Mr. EMMERICH. I do not have detailed information with me, but I will be glad to give you a number of examples for the record, and also a more complete statement of the organization and operation of the Federal credit unions. This statement follows:

Many States have had credit unions and in European countries there have been credit unions in successful operation long before the Federal Credit Union Act was passed. Many examples could be given of credit unions organized under State laws which have been run as successful cooperative business enterprises throughout the severe depression. The following examples will serve to show the service being rendered to various groups and the extent of growth, in spite of their comparative newness, of a number of Federal credit unions which are operating successfully in various parts of the country and among groups of varying occupations.

The examples selected are 14 Federal credit unions, organized among employees or groups which are listed as follows:

Standard Oil Co. of New Jersey, New York, N. Y.

D. H. Holmes Co., Ltd. (department store), New Orleans, La.
Supreme Forest Woodmen Circle, Omaha, Nebr.

Waterbury public schools, Waterbury, Conn.

Armour & Co., West Fargo, N. Dak.

Adohr Milk Farms, Los Angeles, Calif.

The Pratt & Whitney Aircraft Co., East Hartford, Conn.

Miami Daily News, Miami, Fla.

The Kroger Grocery & Baking Co., Roanoke, Va.

Boards of education in Union County, N. J., Plainfield, N. J.

Board of Instruction of Dade County, Fla., Miami, Fla.

Southern Bell Telephone & Telegraph Co., Inc., Miami, Fla.

Hocking division of the Chesapeake & Ohio Railway Co., Columbus, Ohio,
Joseph Horne Co., Pittsburgh, Pa.

All of these credit unions have, of course, been chartered since October 1934 and by December 31, 1935, had a total membership of 6,565. Preliminary statements received from these 14 credit unions indicate that every one of them is in solvent condition and will be able to set up the necessary reserves. Their paid-in shares on June 30, 1935, totaled $86,107.39 and by December 31, 1935, this amount had increased to $203,092.09. Aggregate loans made to the members of 13 of these credit unions up to December 31, 1935, amounted to $348,231. (One had not reported this item.)

The report of the treasurer of another typical Federal credit union, that of the Texas Co. at Houston, Tex., indicates a growth during the year 1935 from March to December of 302 to 442 members and of average savings at the beginning of $6.19 per member to $22.33 per member at the end of the period. The December figures revealed that this group alone had made 269 loans since organization aggregating $16,652, the average size loan being $61.90.

It is estimated that, at annual meetings now being held by the 906 Federal credit unions that have been chartered, about 85,000 members will be eligible to attend.

The Farm Credit Administration is in receipt of a large number of letters from wage earners, salaried workers, and businessmen requesting additional information about organizing credit unions and also expressing appreciation of service rendered and results achieved by credit unions already organized. Examinations of some of the Federal credit unions have been made and there is every indication that the officers and directors elected by the members do a conscientious piece of work, keep their affairs in good order, and are inclined to be conservative in management. Particular attention is being given to the importance of close supervision and examination in the early stages of the Federal credit unions to avoid loss and mismanagement and study is being given to the development of credit unions in rural and agricultural areas.

PRIMARY FUNCTIONS OF FARM CREDIT ADMINISTRATION

Mr. CANNON. Governor Myers, primarily, what is the function of the Farm Credit Administration?

Governor MYERS. We have had two principal jobs. One was the emergency job of handling various classes of emergency loans to alleviate the depression. The other is the building and supervision of a permanent credit system that will enable farmers to reach the investment market and borrow on a business basis, on terms suited to the farm industry. The United States is divided into 12 Farm Credit Administration districts.

Mr. CANNON. They are coincident with the Federal Reserve districts?

Governor MYERS. No; the Federal Reserve districts have city bank business in mind. The Farm Credit Administration districts were originally established as land-bank districts, primarily for the purpose of handling farmers' mortgage loans in each of the 12 districts. Mr. CANNON. One is agricultural and the other is urban. Governor MYERS. That is right.

Mr. CANNON. Let us take one as an example. For instance, the one in St. Louis.

Governor MEYERS. The Farm Credit Administration district includes Illinois, Missouri, and Arkansas. There are in that city four permanent units, the Federal Land Bank of St. Louis, the Federal Intermediate Credit Bank of St. Louis, the Production Credit Corporation of St. Louis, and the St. Louis Bank for Cooperatives.

Those institutions have their own capital, they make loans under general regulations of the Farm Credit Administration in Washington, but all their employees are paid from the earnings of the institutions.

METHOD OF HANDLING LOANS TO FARMERS BY FEDERAL LAND BANKS BY BOND ISSUE

Now as to the manner in which loans are made. For example, if a farmer in your State of Missouri wants to make a Federal land bank loan, a mortgage loan, he first applies to his local farm loan association in his local community. If his application is approved by the association it goes to the Federal Land Bank of St. Louis, after which the farm is appraised by a Federal appraiser. If the loan is made by the Federal Land Bank of St. Louis, the bank will issue a corresponding amount of Federal land bank bonds, which are sold to investors, and funds thus secured, are loaned to the farmer. At the present time the Federal land bank bonds, which are 3 percent bonds, are being sold

Mr. CANNON. They are selling at par?

Governor MYERS. Approximately so. They are selling at about 99. The Federal land bank charges a margin of 1 percent to cover the cost of operation. The borrower is paying 4 percent for his long-term mortgage loan but it is not Government money which is being loaned; it is money obtained from the sale of bonds.

During a period of approximately 2 years when the Federal land banks were making loans in enormous quantities, farm income and the bond market were uncertain, and during that period the Federal land banks made loans to farmers from funds derived from the sale of their bonds to the Federal Farm Mortgage Corporation and by

direct distribution of Federal Farm Mortgage Corporation bonds to the farmer and to his creditors. The bonds of the Federal Farm Mortgage Corporation are fully guaranteed. The procedure of selling bonds to the Federal Farm Mortgage Corporation was terminated on January 1, 1936. On that date we sold approximately $40,000,000 of land-bank bonds on the open market so that investors are again furnishing the money that the Federal land banks are loaning to the farmers.

Mr. CANNON. How many of those bonds does the Government still hold?

Governor MYERS. The Federal Farm Mortgage Corporation holds approximately $750,000,000.

Mr. TARVER. The Government was authorized to take over through the Federal Farm Mortgage Corporation 2,000,000,000, was it not? Governor MYERS. It was authorized to issue bonds in an amount not to exceed 2,000,000,000; we have outstanding a little less than 1,400,000,000.

Mr. TARVER. Those bonds are guaranteed by the Government, are they not?

Governor MYERS. That is right.

Mr. TARVER. You still have a leeway of about $600,000,000 of bonds that could be issued by the Federal Farm Mortgage Corporation if it was necessary to do so?

Governor MYERS. Yes. In addition to buying Federal land-bank bonds the Mortgage Corporation has sold Government guaranteed bonds to investors to provide funds for the making of commissioner's loans.

Mr. CANNON. What is the routine connection of the Farm Credit Administration with the Federal land banks?

Governor MYERS. In the first place, we interpret the laws, and issue regulations governing all of the 12 Federal land banks. The 12 Federal land banks unite in selling consolidated Federal land-bank bonds to get a better market, and that means that the 12 banks are interoperating, and they are jointly liable for these consolidated bonds to preserve the strength and unity of the system.

Mr. TARVER. Has that been the practice since the institution of the bank?

Governor MYERS. No; they formerly issued individual bonds. That was changed about 2 years ago to consolidated bonds, because 1 bond gave a much better market than 12 different varieties of Federal land-bank bonds.

Mr. TARVER. Prior to that time the bonds of some of these land banks were selling at a very low figure, were they not?

Governor MYERS. The Federal land-bank bonds did not get down below the 70's, even at the worst of the depression. The joint stock land-bank bonds got down to low figures.

Mr. TARVER. But 70 is pretty low.

SUPERVISION OF POLICIES EXAMINATION AND ASSISTING OF FEDERAL LAND BANKS BY FARM CREDIT ADMINISTRATION

Governor MYERS. That is right. We also appoint appraisers and supervise appraisal policies all over the United States in order to give uniform appraisal policies and they are, of course, adapted to local conditions.