Mr. MEYER. The Chase National Bank could borrow on their municipal Mr. MCFADDEN. But their affiliate would not be able to borrow? Mr. MEYER. I do not know. I do not know how they are organized. Mr. STEVENSON. I imagine that any financial institution which has in its vault securities of a good, solvent, going railroad, or any other solvent, going concern, and needed money, and could not get it elsewhere, it would have a right to borrow-in other words, this corporation would have a right to loan to them? Mr. MEYER. Yes. Mr. STEVENSON. On those securities? Mr. MEYER. Of course, the standing of the borrower would have to be a factor in the loan, and their collateral security. Mr. MCFADDEN. Reverting to the question of the loans to the railroads, direct, which is provided for in section 5 of the bill, it seems to me that, in a great many instances, if loans are made to the railroads, that this corporation is going to have to take second liens. AI right? Mr. MEYER. I do not know enough about railroad financing tc tell you. I do not know how you set up second liens, or first liens. Some of these securities in the country are second liens on railroads, and many are first mortgages. Take the Atchison, Topeka & Santa Fe Railroad, they have got a limited close mortgage of about $110,000,000, I think, or maybe $125,000,000. Therefore, taking the value of the properties, which must be five or six hundred million dollars, a second mortgage would be first class, I would say. Mr. BRAND. What was the general average rate of interest in the War Finance Corporation transactions? Mr. MEYER. You mean on loans? Mr. BRAND. Yes. Mr. MEYER. Loans to banks were made at 52 per cent. The loans in the war time to the railroads-I think all the railroad loans were made at 6 per cent, uniformly, except possibly certain special ones, which were a little bit higher-7 per cent, I think, in the war. Mr. BRAND. Well, now, here this Mr. MEYER. I beg your pardon. The agricultural relief loans were made at 512 per cent to banks and the livestock loan companies. Mr. BRAND. Would you mind giving an opinion, under the conditions as they exist now, of the rate of interest this corporation would fix for loans? Mr. MEYER. I am not speaking of the corporations Mr. BRAND. NO. Mr. MEYER. I do not think it is a charitable agency. It is an agency designed to furnish funds for this situation, and I do not imagine it is going to be but 52 per cent. I should not think it would be. Mr. BRAND. I have not heard anybody ask that question and I have not had time to read the bill. I wanted to know, and that is about the only question I wanted to ask, whether or not there is any provision in this bill which would require a borrower, for instance, to become eligible to make a loan by the corporation-would he have to take any stock in the corporation? Mr. MEYER. In this corporation? Mr. BRAND. Yes. Mr. MEYER. No, no, all of the stock of this corporation is to be ced by the United States Government; no stock sold. Mr. BRAND. All that is necessary for a borrower to do, if he wants to make a loan, is to present to it his securities with his promissory note, which is satisfactory to the board? Mr. MEYER. Yes. M. BRAND. And then he can get the money? Mr. MEYER. Yes; or not. Mr. BRAND. I mean, satisfactory to the board. The CHAIRMAN. Mr. Meyer, he has brought up a matter that I ld like to ask you about. Personally, it does not have so much ing on the matter before us. What was the experience of the War Finance Corporation in financing banks and loans to banks? Mr. MEYER. In what respect? The CHAIRMAN. You made loans to quite a number of banks, Fin't you! Mr. MEYER, Yes: 4.317 banks. T CHAIRMAN. I am getting at the question of losses. How ii von come out with your loans? M. MEYER. Well, the losses were different, in the different areas, ferent States, but they were very different on the whole. The CHAIRMAN. That is what I wanted to get at. 1. MEYER. Yes. 7 CHAIRMAN. Were there any substantial losses, or were those MEYER. Well, in proportion to the volume, the losses were very CHAIRMAN. Do you remember how much the total losses were se debts! No- MFYER. No; I could not tell you that, off-hand; but I rememlowa, however, which is supposed to be one of the most areas in the country-in fact, the conditions were so bad at in 1921 the committee said, “Do not lend any money out 4 you want to lose it." We loaned $24,500,000 in that . I think, we had one loss; and I do not think it was ch more than $20,000, and that was due to some forged t was not due to banking at all. CHAIRMAN. In those transactions your loans were comparaall amounts and to a large number of banks? VAYFR. Yes. AHAIRMAN. Of course, under this bill, you would be dealing ller number of banks perhaps, but in larger amounts, in ~~"; would you not! WYER. NO; I think the small country banks will have a of use for the facilities. 1 ARMAN. But these loans would go to the larger banks? g. I am not so sure of that. RMAN. I had thought that would be the case. I think the small country banks will get the useful MAN. I am hoping that that will turn out to be true. For instance, as I explained to you at the first hearperation in the corn belt, the country banks are not inclined to borrow, because their correspondents are not anxious to lend; they know, if they borrow from the Federal reserve bank, it is for a limited period of time; and I am inclined to think, from this kind of an institution, we will have a willingness to borrow which does not exist in other directions. That is what we have found to be the case in the Corn Belt in 1921 and 1922, and there might be some cattle-very useful land and cattle loans. The CHAIRMAN. Mr. Meyer, what do you think Mr. MEYER. I do not think your idea that the small banks will not find a use for this institution is correct.. The CHAIRMAN. I do not mean it will not be used for that. If what I said meant that, I did not so intend it. What I had thought was that, proportionately, there would be a large amount of accommodation through this organization to the large banks, since that was the case with the War Finance Corporation. Mr. MEYER. Of course, we were restricted in that activity to the agricultural purposes, and that meant an area of the country where the banks averaged smaller than the average of the entire country. Of course, the larger banks could have borrowed, but they did not; because up in New England, for instance, there was not any situation for it; in Pennsylvania, there was not that situation, there was not any demand developed. Now, in your State, there was not, nor in Virginia. There was not anything in Maryland. North and South Carolina and George were quite large borrowers; Alabama less so, and Louisiana very little. Quite a little in Kentucky and Tennessee, and a large amount in Oklahoma and Texas. Texas was the largest of all, and Iowa second. Nebraska was considerable, Kansas considerable, Illinois was considerable, Ohio was very little, Indiana was hardly any. It just happened to differ in the different States. The Northwest was very heavy; Minnesota, North Dakota, and South Dakota, and Montana were $60,000,000. The CHAIRMAN. Could not there be written into this bill some regulation limiting the holdings to the different institutions, based entirely upon due regard to their capital and surplus, and so forth, without defeating the purpose of the legislation? Would not it be practical to do that? Mr. GOLDSBOROUGH. This is emergency legislation. Mr. MEYER. You can make any limitation you want, but the great psychological value is the broad power; and the broader your powers, the greater responsibility on the directors to safeguard the public interest. The CHAIRMAN. Of course, I had not Mr. MEYER. And not to use their judgment, but to make safe loans; and the more you undertake to control the lender by legal provisions, to some extent you may hamper the psychological value; and we are in a period that has no precedents, and which we can not exactly appraise even now. We know what has happened, and you are providing an agency here for what may happen, to cover the nditions in the future, that you can not anticipate; because we id not, any of us, picture the conditions financially all over the world, and in this country, such as exist to-day; and it would be Auming a good deal to say, to-day, we can picture the exact condi 95808-32 tion a year from now. However, that is a matter for your committee. The CHAIRMAN. Mr. Tierney, have you any questions that you would want to ask? Mr. TIERNEY. No. The CHAIRMAN. Mr. Strong? Mr. STRONG. No. The CHAIRMAN. Mr. Seiberling? Mr. SEIBERLING. NO. The CHAIRMAN. Mr. Luce? Mr. LUCE. No. The CHAIRMAN. Mr. McFadden? Mr. MCFADDEN. NO. The CHAIRMAN. Mr. Disney? Mr. DISNEY. Nothing at all. The CHAIRMAN. Governor Meyer, we thank you, and I think that. unless some one discovers a further need for your presence, we might be able to excuse you. Gentlemen, we invited Mr. Mills, the Under Secretary of the Treasury, to discuss this bill with us, and I am sure you will be very glad to have the benefit of his suggestions. Mr. Mills. Mr. STEVENSON. I take it we would like Mr. Mills to make his statement, and when he gets through, I thought that any questions that we may ask The CHAIRMAN. Yes, I am sure the committee will be glad to hear Mr. Mills until he has made such statement as he desires to make, without interruption, and then of course. I am sure he will be glad to answer any questions. STATEMENT OF J. OGDEN MILLS, UNDER SECRETARY OF THE TREASURY Mr. MILLs. Mr. Chairman and gentlemen of the committee, I do not know that it is necessary for me to make any elaborate state ment. I assume that, in the hearings held before the holidays, and this morning, Governor Meyer has covered the general purpose of this bill and the reasons which call for its enactment. The Treasury Department is fully in accord with the views of Governor Meyer as to the necessity for this kind of legislation at this time; it is in thorough sympathy with the purposes to be accomplished by this legislation, and we have no suggestion to make as to the amendment, other than the amendments which have been sub mitted by Governor Meyer. I assume and understand that Governor Meyer submitted the Treasury amendment providing for the purchase of these securities by the Treasury Department, and their subsequent sale, if you thought it desirable. There was one amendment which we thought was necessary, in order to protect the Treasury Department in conducting the financial operations of the Government, so that these debentures would not be offered simultaneously, for instance, with Government issues. I do not know it is necessary for me to say very much more, Mr. Chairman, other than to emphasize the fact that this legislation is necessary. It is not only necessary, but it is immediately necessary, and the promptness with which it can be enacted is as important as obtaining the legislation itself. The CHAIRMAN, I will say this to you, Mr. Mills: If you desire to do so, the committee would be glad to hear you in executive session, if you would prefer it. Mr. MILLS. I see no occasion for that, I think, Mr Chall The CHAIRMAN. Then proceed with whatever suggestions you see fit to make. Mr. MILLS. I do not know that I have any more suggestions to make, Mr. Chairman. The Treasury Department unqualifiedly indorses the measure. Mr. BRAND. After this act is passed and approved by the Senate, as we are hoping it will pass soon, how soon can the corporation be organized and be ready to function? Mr. MILLS. That is a very difficult question. I would rather you had asked that of Governor Meyer, because he was acting when the War Finance Corporation was organized. It seems to me that it must, of necessity, to take a little time, because applications for loans are going to come in from all sections of the country, and the machinery has got to be created to pass on the necessity for the loans and the adequacy of the securities, and that can not be done overnight, even with the help of the existing agencies. I have this feeling, that the mere knowledge that this powerful instrumentality has been created by the United States Government, as the support of her whole credit structure, and the knowledge that the resources of this corporation are available to plug any hole that may develop in it-that, of itself, will have such a strong effect that it will tend, of itself, to restore the lack of confidence that exists to-day. We can proceed, of course, with the utmost expediency. Mr. BRAND. I am satisfied of that. Mr. MaLs. But you can not create an organization of this kind overnight. Mr. BRAND. The reason I asked that question is, down in the South, and elsewhere, these banks are continually breaking, and if this corporation was in existence now, it might afford sufficient collateral or security to borrow money on it. Mr. MILLS. Well, I know of some situations there, Judge, and of course there is a great deal of information available, I think, through the National Credit Corporation, which has been functioning now for some weeks; and I have no doubt that that information could be made available to this corporation at once. Mr. BRAND. Well, now, when you do get functioning, will the practical effect of it be that the National Credit Corporation will cease, or will it still be making loans when they want to make them? Mr. MILLS. I do not know. After all, that is an organization created voluntarily that is, a voluntary organization created by the banking institutions for their mutual assistance. I suppose it |