II. Recommendations on Necessity of Lending Functions-Continued Recommendation that the Federal Housing Administration's Recommendation that the Federal Housing Administration be Agricultural lending: Recommendation that Farmers' Home Administration be dis- Recommendation that corporations in the Farm Credit Adminis- them Deposit insurance and loan-guaranty activities: 22 Recommendation that Federal Deposit Insurance Corporation be Miscellaneous lending: Recommendation that Federal Works Agency loans to finance the Recommendation that Federal Works Agency be relieved of its Recommendation that the lending authority of National Capital 54 II. Recommendations on Necessity of Lending Functions-Continued Miscellaneous lending-Continued Recommendation that all Government lending to the District of III. Recommendations as to the Most Advantageous Form of Organization for Such Lending Functions as Are Deemed Necessary General comments on form of organization Recommendation that the various forms for Government financial assistance not be intermingled Recommendation that all Government lending agencies be incorporated and managed by part-time independent boards of directors; and that their supervisory agencies be made independent boards . . Recommendation that lending agencies' corporate charters be made as uniform as possible. Recommendation that Government lending corporations be owned directly by the Treasury, and that the Government discontinue the use of capital stock as the medium of ownership . Recommendation that the concept of mixed-ownership Government corporations be discarded Recommendation that Government corporations not be permitted to invest in obligations of the Government Recommendation that Government lending agencies not be permitted to borrow from the public. 74 Recommendation that Government lending corporations be financed by appropriated revolving funds 75 Recommendation that all Government lending be conducted on a self-sustaining basis. 75 IV. Appendix Uniform charter for Government corporations 76 Memorandum with regard to Public Housing Administration. Recommendations to be considered only if Farmers' Home Administration is continued in existence 82 85 Recommendations to be considered only if Reconstruction Finance 91 Alternative recommendation with regard to the bank examination authorities of Federal Deposit Insurance Corporation . 107 Letter of Submission PRICE, WATERHOUSE & Co. 56 Pine Street, New York 5, August 31, 1948. Commission on Organization of the Washington, D. C. DEAR SIRS: In accordance with the terms of the contract dated January 12, 1948, we have made an investigation of the activities and organization of the lending agencies of the Federal Government. Our report on recommendations is presented in this volume. Our factual reports on the investigation have previously been delivered to you in five volumes, as follows: Farm Credit Administration and its supervised agencies. The investigation was in the nature of a survey, as distinguished from an audit, and we did not independently verify or substantiate the financial data or other information which we used. For the most part this information was obtained from the lending agencies, from hearings before Congressional committees, or from reports of the Corporation Audits Division, a unit in the General Accounting Office of the United States. Government lending and associated activities have been undertaken to accomplish five major purposes. All five are represented in financial aid programs active at the present time: 1. Government financial assistance has been used to build up mutual credit institutions for the purpose of broadening the availability of credit and increasing the stability of credit systems. These systems include the Federal reserve banks, the Federal home loan banks, and the cooperative banks of the Farm Credit Administration. 2. Government financing has been used to build up mutual credit insurance institutions as experiments in the underwriting of institutional stability. As a result we have the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, and the Federal Housing Administration, the latter an underwriter of home-mortgage insurance. 3. Government financing has been used to build up the Nation's industrial potential in response to the requirements of war and national security. The RFC, the facilities of the Federal Reserve System, the Export-Import Bank of Washington, and other agencies were employed in these activities, and some of the programs continue on a curtailed or stand-by basis. 4. Government funds have been lent directly to private individuals and business concerns for purposes not associated with war or national security. The Export-Import Bank of Washington and the RFC are active in this field at the present time and the Farm Credit Administration conducts a curtailed program, having been engaged more extensively in emergency programs in previous years. 5. Government lending has been employed in programs undertaken primarily to subsidize the activities of individuals or business enterprises. The programs of Farmers' Home Administration and Public Housing Administration are examples. Our survey has brought us to the conclusion that direct lending is not normally a proper function of the Federal Government. Financial assistance to individuals and to business concerns should be provided by the Government only when it has become necessary, on a national scale, as an extraordinary measure designed to overcome the temporary inadequacy of credit available from private sources. When such an assistance program is undertaken by the Government, it should be conducted through existing private financial institutions to the greatest extent possible. Direct lending should be undertaken by the Government only if all other means have been found inadequate. In the case of the mutual-credit institutions created under its auspices, the Government has been an indirect lender. It has also been owner or part owner of the institutions, and it has subsidized the gradual transfer of their ownership to private member institutions. We have concluded that Government whole or partial ownership of the mutual-credit institutions is a deterrent to their proper development once they have become capable of functioning under regulated private management. It is our opinion that the equity of the Government in institutions of this type should be withdrawn at this time. The mutual-credit-insurance institutions, on the other hand, have not reached the maturity of development which would permit them to become private institutions. We have concluded, as a further guiding principle, that the use of public funds is justified only when it promotes the public welfare. When public funds are used in a lending activity, either directly or indirectly, the circumstances should be such that the public benefit |