The CHAIRMAN. The next witness is Mr. Cocke. You may identify yourself to the reporter, please, sir. STATEMENT OF C. FRANCIS COCKE, PRESIDENT, FIRST NATIONAL EXCHANGE BANK, ROANOKE, VA.; CHAIRMAN, COMMITTEE ON FEDERAL LEGISLATION, AMERICAN BANKERS ASSOCIATION Mr. COCKE. My name is C. Francis Cocke. I am president of the First National Exchange Bank of Roanoke, Va. As chairman of the Committee on Federal Legislation of the American Bankers Association, I desire to make this statement in support of Senate Resolution No. 290 disapproving reorganization plan No. 24 of 1950. At the outset it seems advisable to state certain pertinent policies of the American Bankers Association. Representatives of the association, on a number of occasions, have appeared before various committees of the Congress relative to the RFC. They have stated and restated that the official position of the American Bankers Association is opposed to the Government either lending directly to or guaranteening or insuring loans made by private lending institutions to business concerns. They have reiterated that while the RFC served a valuable and useful purpose during the years of the depression and of World War II, the need for it no longer exists because banks and other private lending agencies are taking care of all worthy credit risks of industry and commerce. The CHAIRMAN. May I interrupt to ask you a question at that point? Mr. COCKE. Certainly, sir. The CHAIRMAN. The testimony reveals that the RFC still operates without loss, not emphasizing its profit because it is primarily a service agency, but that it is able to operate without loss, and if it is adhering to the policy that it will only make a loan where private capital or private sources are not available for such a loan, how can you say, then, that you oppose continuation of it? How does it interfere with the banks in any way? If they are adhering to the policy that they make no loan where private sources are available, that is, where the money can be obtained from the banks, and yet their experience is that in making loans such as they do they operate at a profit, how can you say the need for the agency does not continue to exist? Mr. COCKE. At the time the RFC gets an application for a loan, they require, as I understand, a letter from a bank or other lending institution stating that in their opinion that loan would not be made by that lending institution. The lending institution must make the loans on a little different basis. We are lending money that belongs to our depositors and our stockholders. There must be a certain element of risk, I realize, in any loan that we make, but we are not permitted to take undue risks that a reasonable businessman would not make. I have in mind a very specific RFC loan which, while I was practicing law, I secured from the RFC for one of our clients. That loan was not a bankable loan at the time the application was made to the banks. We endeavored to get the loan from the banks. As economic conditions changed, that loan became a perfectly sound loan and was paid off in full with interest and charges and everything. So the RFC, as I see it, can take a little different risk from the risk that a bank can take. The CHAIRMAN. I think that is true, and that is the point I was making. If they can do that and still operate at a profit, with a very minimum of losses on the original capital, how can you say that there is no need for the continuation of such an agency? It is bound to be of a great deal of service to the public, it seems to me. They can go a little further and take a little greater risk than banks. There is that gap in there that needs to be filled, and this agency is filling that gap. Mr. COCKE. I go back to the other proposition. The RFC is operating fundamentally on money that was furnished by the Government. That is taxpayers' money, you might call it. Under the statute they can take larger credit risks, and maybe it should be essential that they be in there. Nevertheless, I think that banking stands on the position that banking should take care of all legitimate or sound business loans. The CHAIRMAN. I agree with you. I much prefer to see them handled that way. I do point out that there are those which are in a doubtful category in respect of whether a bank should loan or not, and it simply will not incur that risk because, as you say, it is the depositors' money that it is loaning, and you want to keep the banks solvent. If the Government steps in and takes the risk after processing these loans and surveying and appraising and so forth, and manages not to lose money, it seems to me that it is actually performing a service that we might well continue. I may be wrong about it. I have given some thought to the idea of abolishing this agency just for the very reasons that you have suggested, and I have not reached any definite conclusion. I am in a measure trying to satisfy myself whether the agencyshould be continued. Mr. COCKE. They can take a larger risk. If the economic conditions change, then that loan that the bank has turned down, that the RFC has made, will become a sour loan and the money is lost. That is the money that the Government, so to speak, has furnished. If the bank makes that loan, we have lost money belonging to our stockholders and depositors. The CHAIRMAN. I understand that is true, but the RFC, according to the testimony here, is not operating at a loss. It is not losing the taxpayers' money. It is actually making some money for the Government. That is why I cannot quite come to the conclusion that it should be abolished. If it is actually making loans that banks cannot make or do not make, it seems to me it is still performing a good service and that that service should be continued. I did not mean to interrupt you, sir. The CHAIRMAN. That is hardly pertinent to what we have under consideration. You had mentioned here that the Bankers Association felt that the RFC should be discontinued, so that raised those questions. All right, you may proceed. Mr. COCKE. Representatives of the association have repeatedly requested Congress that the RFC be liquidated, which also was recommended by the Task Force on Lending Agencies of the Hoover Commission, or, if Congress in its wisdom deemed that the RFC be continued, they have urged that its activities be drastically curtailed and it be retained only as a stand-by agency to be used in a national emergency or for national defense. Reorganization Plan No. 24 of 1950, transmitted to the Congress by the President on May 9, 1950, would transfer to the Department of Commerce the RFC and all its functions, agencies, assets and liabilities, personnel, and records, except as provided for in Reorganization Plans 22 and 23 of 1950, if either or both become effective, and the RFC would then be administered by its Board of Directors, subject to supervision, coordination, and policy guidance by the Secretary of Commerce. The American Bankers Association opposes Reorganization Plan No. 24 for the following reasons: 1. The subordination of the RFC would result in the RFC's policies being formulated by the Secretary of Commerce. Any future Secretary could use this power to direct the lending activities of the RFC to accomplish some political objective not in keeping with the sound operations of the RFC, or in the best interests generally of business and the national economy. We agree with the observation contained in Senate Report No. 30, January 31, 1945, of the Senate Committee on Commerce in Senate bill 375 providing for the restoration of the Federal Loan Agency, an independent agency, the powers, functions, and duties temporarily transferred from that agency to the Department of Commerce by Executive order of the President under the First War Powers Act of 1941, which reads as follows: This quotation indicates to my mind how important the RFC is in the financial life of the Nation. The activities of this organization (RFC) cover practically the whole of our business, financial, and economic life. Frankly, the consequences of the vast political control that conceivably could be exerted by a Cabinet officer in whose hands was placed the administration of these lending agencies cannot be measured. The man who has charge of these agencies could so administer those powers as to determine the economic direction of the country, and with that, its social and political character. 2. The transfer of the RFC to the Department of Commerce would in effect cause Congress to lose direct control over it. Congress would be seriously hampered in reviewing the activities of the RFC, and in revamping its authority so as to serve better the interests of the country as determined by Congress. Under the reorganization plan, Congress would be dealing with the RFC through the Secretary of Commerce. At the present time a subcommittee of the Senate Banking and Currency Committee is engaged in reviewing and examining the present activities of the RFC. The excellent work of this committee already has revealed seeming weaknesses in the operation of the RFC, which should be remedied if it is to be continued. It seems advisable that this subcommittee should complete its work and make its recommendations as to the future of the RFC before any reorganization plan is considered. 3. We believe that the Department of Commerce is to be praised for the very constructive and useful program it has conducted for aiding business, especially small business. This program includes research, the supplying of technical and trade information and the preparation and distribution of small-business aids. The American Bankers Association, through its small business credit commission, has worked very closely with the Department in these activities. It has promoted the use of the Department's material and has cooperated in the holding of conferences to advise small-business concerns on various managerial problems. However, it is our belief that the Department of Commerce should continue solely as an agency for research, guidance, and technical and managerial assistance to industry and commerce. It would be undesirable and unwise to burden the Secretary of Commerce with the additional responsibilities of supervising and directing the policies of a financing agency, particularly when there might arise essentially conflicting viewpoints. On behalf of the American Bankers Association, I urge that Senate Resolution No. 290 be approved by this committee. The CHAIRMAN. Thank you very much. Mr. COCKE. Thank you, sir. The CHAIRMAN. Mr. Amberg? STATEMENT OF HAROLD V. AMBERG, VICE PRESIDENT AND GENERAL COUNSEL, THE FIRST NATIONAL BANK OF CHICAGO; CHAIRMAN, COMMITTEE ON FEDERAL RELATIONSHIPS, ASSOCIATION OF RESERVE CITY BANKERS Mr. AMBERG. I am Harold V. Amberg, vice president and general counsel of the First National Bank of Chicago. I appear on behalf of the Association of Reserve City Bankers at the direction of its president, being chairman of the association's committee on Federal relationships. As you may recall, the Association of Reserve City Bankers is composed of 450 individuals who are executive officers of some 215 large commercial banks located in the numerous reserve cities across the country, who represent a worthy cross section of informed banking opinion and also banks which in the aggregate hold a very large percentage of all resources of the National- and State-chartered commercial banks of the country. I wish to record our association's support of Senate Resolution No. 290 to reject Reorganization Plan No. 24. Our opposition in this respect, we believe, conforms with congressional policy over the years. The Congress has not to date declared any policy of continuation of Government lending in the commercial banking field in nonemergency times. During the First World War the Congress established the War Finance Corporation as a financial aid to business in the war emergency. The War Finance Corporation was liquidated in 1923. In 1932 the Reconstruction Finance Corporation was created. Its history is well stated in House Report No. 1836, April 29, 1948, to accompany S. 2287 (U. S. Code Congressional Service, 80th Cong., 2d sess., 1948, vol. 2, p. 1577) as follows: Creation and purpose: The Reconstruction Finance Corporation was created by act of Congress, January 22, 1932, for the primary purpose of establishing a source of credit in Government which could be used to assist in coping with the severe depression of that period. The Corporation was organized and began its operations February 2, 1932. Its major activities at that time comprised the extension of credit to agriculture, commerce, and industry through loans to banks and other financial institutions, insurance companies, agricultural agencies, and railroads. Subsequently, the Congress broadened the functions of the Corporation to include authority to purchase the nonassessable preferred stock of banks and insurance companies and the capital stock of agricultural credit corporations and national mortgage associations; to make loans to business enterprises, mining interests, agricultural improvement districts, and public-school authorities; and to assist in financing the construction of public works and self-liquidating projects. In 1940 additional legislation was enacted giving the Corporation new responsibilities, in connection with the national defense program, which were carried on just prior to and throughout the war years. Substantially all the national defense and wartime operations functioned through subsidiary corporations established by RFC pursuant to this and other legislation. Under Public Law 132, Eightieth Congress, approved June 30, 1947, the lending powers of the Corporation were substantially curtailed and its wartime functions were terminated except with respect to the production of tin and synthetic rubber. The Corporation, however, was authorized to carry out all programs, projects, and commitments outstanding as of June 30, 1947. The above mentioned act limited future lending functions of the Corporation to the purchase of obligations of, and the extension of loans to, business enterprises, including railroads and air carriers. financial institutions. public bodies and agencies and instrumentalities of public bodies, and the making of catastrophe loans. Incidentally to supplement the activities of the Reconstruction Finance Corporation, during the Second World War the Congress, under the act of June 11, 1942, created the Small War Plants Corporation but the Congress in 1944 did not act favorably on Senate bill 1913 of the Seventy-eighth Congress which proposed to convert the corporation into the Small Business Corporation carrying the lending powers of the Small War Plants Corporation. Our association, through statements approved by its members at the annual meetings over the past few years, has consistently taken the position that Government lending in the commercial banking field, if it is to be countenanced in nonemergency times, should be confined to a single independent agency and one which is not a part of the commercial banking structure. Inasmuch as the Congress has selected the Reconstruction Finance Corporation as this agency, we go along with congressional policy in this respect. Incidentally, we still envision the present lending powers of the RFC as of an emergency nature. We believe that the Congress has indicated an intention that the Reconstruction Finance Corporation should be an independent agency in the performance of these lending functions. It is so classified in the Congressional Directory. For instance, the management of the Corporation is— vested in a Board of Directors consisting of five persons appointed by the President of the United States by and with the consent of the Senate. Of the five members of the Board, not more than three shall be members of any one political party and not more than one shall be appointed from any one Federal Reserve district. The office of the Directors shall be a full-time position. As late as 1948 the Congress amended the law so that the directors after June 30, 1950, will be appointed for staggered 3-year terms. The 1948 amendment to the act, although it curtails the lending powers of the Corporation, still authorizes loans of a wide variety, viz: to business enterprises, including railroads and air carriers, financial institutions, also insurance companies, public bodies and agencies and instrumentalities of public bodies, and flood and catastrophe loans. We oppose the transfer of the powers of the Reconstruction Finance Corporation to the Secretary of Commerce for the following reasons: (1) By making the Reconstruction Finance Corporation a bureau of any department of the Government it gives a stamp of permanence to the concept that the Federal Government is to stay indefinitely in the commercial lending field. (2) Considering the wide types of allowable loans which the Corporation can make, there is no controlling reasons why the Reconstruc |