RFC ACT AMENDMENTS OF 1951

TUESDAY, MAY 1, 1951

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to recess, at 10 a. m., in room 301, Senate Office Building, Senator Burnet R. Maybank (chairman), presiding.

Present: Senators Maybank, Fulbright, Robertson, Frear, Benton, Capehart, Bricker, Schoeppel, Dirksen, and Bennett.

The CHAIRMAN. The meeting will come to order.
The first witness is Mr. Horace C. Avery.

Would you identify yourself for the record, Mr. Avery, and you may continue in your own way.

STATEMENT OF HORACE C. AVERY, PRESIDENT AND GENERAL MANAGER, UNION TERMINAL WAREHOUSE CO.

Mr. AVERY. I am Horace C. Avery of Jacksonville, Fla., president and general manager of the Union Terminal Warehouse Co. of Jacksonville, Fla.

The CHAIRMAN. Proceed in your own way, sir.

Mr. AVERY. It has been my pleasure to serve with other Florida businessmen on the Advisory Board of the Reconstruction Finance Corporation with headquarters in Jacksonville, Fla., for possibly 10 years or more. During this period I have passed on many applications for loans from Florida corporations many of which were given approval and others not approved.

It has been my observation that very few of the loans approved by the Florida Advisory Board have failed to be paid out in full or in process of payment. On the other hand, I have noted with interest that some of the loans that were not approved by the Florida Advisory Board but approved in Washington have gone sour causing loss of hundreds of thousands of dollars to the taxpayers.

The CHAIRMAN. Let me ask you, Mr. Avery, do you have a list

of those loans?

Mr. AVERY. Yes, I have a list.

The CHAIRMAN. Would you make it part of the record for us?
Mr. AVERY. Yes, sir.

The CHAIRMAN. As I understood you to say, there were many loans made in Washington that did not have the approval of the Advisory Board of Florida, of which you are a member. Did you disapprove those loans or do nothing about them?

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Mr. AVERY. The applications come in through, of course, the Florida office of the Reconstruction Finance Corporation.

The CHAIRMAN. Yes, but I asked you did you disapprove it or did you do nothing about the loan?

Mr. AVERY. We refused to approve them. We declined them. The CHAIRMAN. In other words, you disapproved them?

Mr. AVERY. That is right.

Senator CAPEHART. Do you have the list there at the moment? Mr. AVERY. Yes.

Senator CAPEHART. May I see them, please?

Mr. AVERY. Yes, sir.

(The list referred to follows:)

Applicant: Rose-Saxon Lumber Co. (and R. S. T. Holding Co.)

Address: Miami, Fla.

Applicant: Harry and Jennie Simberg (Sorrento Hotel)

Address: Miami Beach, Fla.

Senator SCHOEPPEL. Mr. Avery, did you make any written objections at the time you or your group disapproved these loans, setting out your reasons?

Mr. AVERY. NO. They were discussed in a meeting of the advisory board, and we disapproved them at the meeting.

Senator SCHOEPPEL. Did you keep a record of the minutes of the meeting?

Mr. AVERY. Personally I did not, but the record is no doubt kept in the Florida office of the advisory board, in Mr. Fowler's office, the manager of RFC.

Senator BENTON. What is the process by which the man, having been turned down in Jacksonville, then comes up to Washington and starts all over again to get the money?

Mr. AVERY. As far as our board is concerned, we do not know anything about it after we have declined the loan. The manager then handles it with Washington. As far as the advisory board is concerned, why, we do not know anything more about it.

Senator BENTON. Does the manager automatically send these rejections up to Washington where they are reviewed again and often granted?

Mr. AVERY. I think so. You see, this advisory board is made up of businessmen who volunteer on this board without compensation. They are not paid employees of the Government.

The CHAIRMAN. You may proceed, Mr. Avery.

I un

Mr. AVERY. For instance, the loan of $400,000 to the Ribbonwriter Corp., Dania, Fla., and the Saxony Hotel, Miami Beach, Fla. derstand the Saxony Hotel loan of $1,500,000 was suddenly paid out in full very recently although this was a long term loan, and many others.

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I feel that the taxpayers of the Nation are entitled to know what influence was brought to bear on the Reconstruction Finance Corporation in Washington to approve loans that were disapproved by the regional board. My further observation has been that the Florida management of the Reconstruction Finance Corporation is very efficient and I have been particularly impressed by the intelligence and the efficiency of the examiners of Reconstruction Finance Corporation in Florida. Their reports on study and recommendations on applications that they have investigated have been most thorough, making it very easy for the Florida advisory board to come to a ready conclusion as to the advisability of approving or declining the applications.

I believe the Reconstruction Finance Corporation has been a great benefit to small business firms throughout the Nation, particularly in the early days when the banking situation was not as sound as it is today, and it might be possible in the future for the banks to take care of financial requirements of borrowers.

I am strongly of the opinion that political influence should not be permitted in any way to interfere with the judgment of the management of the Reconstruction Finance Corporation in approving or disapproving of any loans.

If the judgment of the management of the Reconstruction Finance Corporation is to be influenced by those in higher authority then it might be to the best interest of the Nation to abolish the board in the interest of the taxpayers.

The CHAIRMAN. Mr. Avery, you say that the RFC has been of great benefit to small business. I presume that you have reference to the advisory board that you know a good deal about, and that would be the board advisory to the RFC loan agency in Florida.

Mr. AVERY. The Florida board is the only one I know anything about.

The CHAIRMAN. They did help small business.

Mr. AVERY. Yes.

The CHAIRMAN. Do you believe the banks in Florida now would be able to take over the situation completely as you suggest might be possible? You do not say it is possible.

Mr. AVERY. I think they are.

The CHAIRMAN. You think so?

Mr. AVERY. Yes, sir.

The CHAIRMAN. What about new businesses, in which there is no way to judge earnings in the past; do you think the banks would handle them, too?

Mr. AVERY. I do not know whether I quite grasp your question. The CHAIRMAN. Suppose a business could not repay a loan for several years; in other words, a loan had to be amortized over a period of years; and suppose it is a small loan. Do you think the banks of Florida would make those loans without any record of earnings of the business?

Mr. AVERY. I do not think they would do it without a record of the earnings.

The CHAIRMAN. New businesses would not have any record of earnings.

Mr. AVERY. I think they would be given on the integrity of the borrower.

Senator CAPEHART. Why should the taxpayers finance a new business? Do you believe that the taxpayers should finance a new business?

Mr. AVERY. I do not think the Reconstruction Finance Corporation ought to. I think that the banks today are better qualified to take care of new business.

Senator CAPEHART. You gave us six examples of loans here that your advisory committee turned down and the Washington office, or the directors of RFC, accepted. Do you feel there was some sort of favoritism and influence in each and every one of these cases?

Mr. AVERY. I would think so. I further think that, where a loan has been turned down and then the Washington office saw fit to grant that loan, the Florida management of RFC should be given some information as to why their judgment was overruled.

Senator CAPEHART. Do you feel, if RFC is to be continued, that there ought to be a limit on the amount of money that it can loan to any individual or corporation?

Mr. AVERY. Yes.

Senator CAPEHART. What would you think that amount might be? Mr. AVERY. I think it ought to be under $100,000.

Senator CAPEHART. Under $100,000?

Mr. AVERY. Yes, sir.

Senator CAPEHART. What do you think of the idea of permitting the Federal Reserve bank to guarantee, say, up to $100,000 more or less? I am thinking of the principal now, not the amounts of loans made by banks to small-business institutions of the United States, that the Government guarantee, let us say, 75, 80, 85, or 90 percent of the loan, the bank taking the balance. Would you like that system better than the RFC system of helping small business?

Mr. AVERY. I do not believe I would care to express an opinion on that at this time.

The CHAIRMAN. Any further questions?

Senator ROBERTSON. Mr. Chairman, I was chatting with the junior Senator from Arkansas and did not fully follow the answer of the witness about 100-percent-guaranteed Federal Reserve bank loans. Senator CAPEHART. I do not think anybody said anything about 100-percent guaranty.

Senator FULBRIGHT. Mr. Hoover did yesterday.

Senator CAPEHART. No, but not this morning.

Senator ROBERTSON. I did not catch the question. What percentage did you mention?

Senator CAPEHART. I said, 75, 80 to 85 percent, and he said he did not care to comment on it.

Senator ROBERTSON. Well, that is the part I wanted to get clear because certainly I think if we tried 100-percent bank loans guaranteed by the Government it would be worse than RFC.

Senator CAPEHART. I agree with the Senator, but no one mentioned 100-percent guaranty this morning.

Senator BENNETT. Mr. Avery, how long were you a member of the advisory group in Florida?

Mr. AVERY. I think I have been with the group at least 10 years. Senator BENNETT. Can you give us any idea of the number of loans that were presented to your group that represented new business