I. DESCRIPTION AND ANALYSIS

The Scope of Government Lending

At June 30, 1947, according to Treasury Department reports, the Government of the United States had an investment of about $14,100,000,000 in the activities of the agencies comprising the field of our study; the corresponding annual reports for the year ended June 30, 1948, are not yet available. Of this total some $9,300,000,000 had been expended by Reconstruction Finance Corporation for wartime subsidy payments, for the purchase of plant facilities, equipment and commodities, and for other wartime costs. The Government's investment in the lending activities of the agencies should be regarded as the difference between these two totals, or approximately $4,800,000,000. The individual items making up the total of $4,800,000,000 are shown in the tabulation which follows, along with other statistics intended to give some idea of the magnitude of the lending and associated activities covered by this survey.

Each of the six major agencies shown in table I, page 2, has an office in Washington, D. C., and some have more than one location.

The Farm Credit Administration has 12 district offices located in as many States. Farmers' Home Administration has an area office in Indianapolis, Montgomery (Ala.), Dallas, and Denver. These are known as finance and examination offices. The Administration also has 40 State offices and a much larger number of county offices.

RFC has 31 offices located in the same principal cities in which the 12 Federal Reserve banks and their major branches are located. The Federal home loan banks are in 11 cities, in 11 States. Some are cities in which RFC also is represented; none correspond with the district headquarters of the Farm Credit Administration.

The Public Housing Administration has 5 regional offices. Federal Housing Administration has 66 insuring offices, 14 small service offices, and 31 valuation stations. Home Owners Loan Corporation has an office in New York and Federal Deposit Insurance Corporation has one in Chicago.

Altogether, there are 171 regional and State offices in locations. outside of Washington, D. C.

Except for the public housing program, the major contingent obligations of the Government lending agencies are those related to the continuance and possible expansion of their activities. Contingent obligations which might arise from discontinued activities (primarily

Administrators' office..

Public Housing Administration_

92,650, 000

292, 986, 000

100, 000

502, 000

8

74, 456, 000

733

the war activities of RFC and its subsidiaries) are excluded from consideration in this discussion. For the most part, the wartime contingencies have been resolved; the amounts of any remaining contingent obligations are believed to be not relatively large. Annual expenses of operation and ordinary operating deficits are also excluded. SUBSIDIES

The Public Housing Administration in HHFA, at June 30, 1947, had authority to pay recurring annual rental subsidies of $28,000,000 to the operators of low-rent housing projects. At June 30, 1947, the full limit had not been expended in any fiscal year; after that date the Congress wes considering legislation which would materially increase the annual limit, but no change had been enacted to the date of this report. PHA activities result in further substantial subsidies which are neither provided for nor accounted for as subsidies. These cannot be measured; they are. discussed later in this report in a separate section of the appendix.

ADDITIONAL LENDING

The agencies were authorized to make loans in addition to those which had been made at June 30, 1947. In a way, the additional obligation of the Government to invest in the activities of these agencies on this account could be considered a contingent obligation. The limit of this obligation was approximately $2,100,000,000, made up as follows:

Uncommitted lending authority:

RFC...

Export-Import Bank of Washington__.

Unused authority to borrow from the Treasury (where the lending

activity itself is not limited by law, directly):

Farm Credit Administration_.

Housing and Home Finance Agency (PHA).

Total_

OBLIGATIONS UNDER INSURANCE PROGRAMS

$300, 000, 000

800, 000, 000

600, 000, 000

400, 000, 000

2, 100, 000, 000

At June 30, 1947, there were three major insurance programs operated by the agencies concerned in the lending study. All of them were regarded at that date as being on a self-sustaining basis, and there was no present prospect that the financial assistance of the Government would be sought.

However, they were all Government-sponsored programs, and participants in them, in general, had not been educated to the idea that the insurance arose from their association in a mutual venture. The general feeling is that Government-sponsored insurance is tantamount to Government guaranty, a condition which might give rise to an obligation for the Government to make good if the insurance programs should prove, in a crisis, to be not self-sustaining.

Deposits in commercial banks, insured by FDIC, totaled $73,053,000,000. The primary protection for these deposits existed in the form of the assets of insured institutions. It has been estimated (Secretary of the Treasury) that 60 percent of the insured deposits. are invested in obligations of the United States Government which already appear in the national dept. One part of the additional protection for the insured deposits exists in the form of assets of Federal Deposit Insurance Corporation, of which $1,000,000,000 at June 30, 1947, consisted of obligations of the United States Government already reflected in the public debt. If allowance were made only for the funds invested in Government obligations the remaining contingent liability to be met by the Federal Government, should the worst come to the worst, would be some $28,200,000,000.

Investors' deposits in institutions insured by Federal Savings and Loan Insurance Corporation amounted to $7,228,000,000 at June 30, 1947. FSLIC owned $178,230,000 in United States Government securities at that date, but we have no information as to how much of the insured deposits was invested directly in Government obligations. It would be safe to assume that the maximum contingent obligation of the Government arising out of FSLIC insurance did not exceed $7,000,000,000 at June 30, 1947, on the basis used in calculating the FDIC obligations in the preceding paragraph.

It has been estimated that unpaid balances totaling about $5,000,000,000 at June 30, 1947, were covered by mortgage-insurance programs administered by FHA. This amount can be taken to be the maximum limit of the Government's contingent obligation under the programs at that date. It does not include the obligations which might arise from loan guaranty activities of the Veterans' Administration. The authority of FHA to grant additional insurance was about $6,000,000,000, and the President of the United States had authority to raise this limit by another $1,000,000,000, but there was no obligation to use these limits. The programs have been curtailed by lapse of statutory authorities since June 30, 1947, but their extension beyond the limits which existed at that date was under consideration in the second session of the Eightieth Congress, and some of the curtailments were modified in the special session held in the month of August.

Commingling of Financial Aid With Other Activities of the Government

GENERAL COMMENTS

In 1947, the Board of Governors reissued an official publication describing the purposes and functions of the Federal Reserve System. In discussing loans made by the Reserve banks, this booklet mentions Reconstruction Finance Corporation, Farm Credit Administration,

Rural Electrification Administration and the Export-Import Bank of Washington, and with respect to them it says:

The loans made by these and other agencies are intended to supplement the lending activities of commercial banks, particularly in fields where the latter are inhibited from making loans by law, custom, or the nature of the risk. Besides making

loans, some of the foregoing Federal agencies and certain others have been authorized by Congress to guarantee and insure loans made by banks and other financial institutions.

This brief description corresponds with the concept of Government lending and associated activities held by the public generally. It oversimplified the matter rather severely.

Lending is one of four major classes of financial aid afforded by the Federal Government. A fifth important class, complete or partial tax exemption, is not under either direct or indirect consideration in this study. The four classes of aid with which we are concerned may be describes as follows:

1. Direct grants and other subsidies given with no prospect of financial recovery;

2. The lending activities, which involve the placing of Government funds in private hands, directly at risk;

3. The loan-guaranty activities, which involve contingent obligations on the part of the Government to place public funds in private hands at risk under certain circumstances; and

4. The Government-sponsored loan-insurance or deposit-insurance activities, which are generally regarded as being on a self-sustaining basis, but which nevertheless involve a contingent obligation on the part of the Government to make large-scale investments of public funds under conditions approximating or actually comprising financial crisis.

Government programs concerned with all four classes of financial aid have been merged and otherwise permitted to overlap in the past, and the nature of the organizations responsible for conducting them has been neither uniform nor clearly defined. In addition to this lack of uniformity and definition, there has been confusion arising from employment of the lending, the loan-guaranty, and the loaninsurance devices as part and parcel of other activities of the Government. These other activities include procurement for National Defense purposes and other large-scale procurement; disposal of Government-owned property no longer required in Government programs; and Federal Government encouragement or direct sponsorship of slum-clearance projects, large-scale, low-rent housing projects, and other large-scale public works construction like the building of dams, reservoirs, irrigation projects, highways, bridges, and electric-power generating and distributing plants.

Thus we find the direct subsidy, the lending, the loan-guaranty