of the dollar) for the purpose of assisting Federal Reserve banks in making industrial loans. The Secretary of the Treasury was authorized to pay this sum to the Reserve banks for this purpose on the security of the approximately $139,000,000 of Federal Deposit Insurance Corporation stock which the Reserve banks were required to purchase when the Federal Deposit Insurance Corporation was organized. Pursuant to this authority, the Secretary has paid approximately $27,000,000 to the Reserve banks and the proposed plan would require him to pay the balance, or about $112,000,000. The Reserve banks would be required to use all of these funds to supply the capital and surplus of the Industrial Loan Corporation which would consist of about $39,000,000 of surplus and $100,000,000 of capital stock, to be issued to the United States and delivered to the Secretary of the Treasury. The Federal Deposit Insurance Corporation stock now owned by the Federal Reserve banks would also be transferred to and be owned by the United States. The outstanding industrial loans and commitments of the Federal Reserve banks would be transferred to the Industrial Loan Corporation. Upon the dissolution or liquidation of the Industrial Loan Corporation all its assets in excess of indebtedness would be paid to the United States.

Borrowing by Corporation.-The Corporation could issue notes, debentures, bonds or similar obligations to the amount of $500,000,000, and such obligations would be guaranteed as to principal and interest by the United States and would have tax exemptions similar to those of other Government guaranteed obligations. The Corporation also could borrow from any Reserve bank on the Corporation's promissory note secured to the satisfaction of the Reserve bank and having a maturity not exceeding four months.

Management of Corporation. The members of the Board of Governors of the Federal Reserve System would be the directors of the Industrial Loan Corporation and the Chairman and Vice Chairman of the Board of Governors would be chairman and vice chairman, respectively, of the Corporation. The Corporation could utilize the Federal Reserve banks as its agents, and could use any employees of the Board of Governors or the Reserve banks as its own officers or employees, reimbursing the Board of Governors or the Reserve banks for such services. No director of the Corporation and no officer or employee of the Board of Governors or of any Reserve bank would receive any extra compensation for his services for the Corporation. The bill provides that the Corporation "shall endeavor to decentralize its activities" and that functions other than the prescribing of regulations or the determination of general policies may be performed through designated representatives.

Dissolution of Corporation When Not Needed.-The Board of Governors of the Federal Reserve System could order the dissolution and liquidation of the Corporation whenever it appears, either by reason of decreased volume or otherwise, that, there is no longer a reasonable need for the facilities of the Corporation. Small-Businessmen's Committees.-The Corporation would be authorized to take appropriate steps to encourage and assist in the formation of committees of representatives of small business and others in local communities to explain the Corporation's facilities and assist prospective borrowers in presenting their applications.

Annual Report.-A full report of its operations would be made by the Corporation annually and included in the annual report submitted to Congress by the Board of Governors of the Federal Reserve System.

77th Congress, 1st session
S. 939

IN THE SENATE OF THE UNITED STATES

FEBRUARY 22 (legislative day, FEBRUARY 13), 1941

Mr. MEAD introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

A BILL To establish a permanent industrial loan corporation to assist financing institutions in making credit available to commercial and industrial enterprises

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 13b of the Federal Reserve Act is amended to read as follows:

"SEC. 13b. (1) This section may be cited as the 'Industrial Loan Corporation Act.'

"(2) There is hereby created a body corporate with the name Industrial Loan Corporation (hereinafter called the Corporation). The principal office of the Corporation shall be located in the District of Columbia, but it may designate and utilize as its agents for the performance of its functions any or all of the Federal Reserve banks, which are hereby authorized to act in such capacity, may establish branch offices, or may designate and utilize other persons or other existing institutions as its agents for the performance of its functions. The Corporation shall have power (a) to adopt, alter, and use a corporate seal, which shall be judicially noticed; (b) to have succession until dissolved by Act of Congress or in accordance with subsection (16) of this section; (c) to sue and be sued, complain and defend, in any court of law or equity; (d) to make contracts and to lease or acquire such real estate and equipment as may be necessary for the transaction of its business; (e) to prescribe by its board of directors bylaws and rules, regulations, and requirements, not inconsistent with law, as to the manner in which its business and operations may be conducted and the powers granted to it by law may be exercised and enjoyed. The Corporation may exercise all powers specifically granted by this section and such incidental powers as may be reasonably necessary to effectuate the provisions of this section in accordance with its purposes and to prevent evasions of such provisions. All rules and regulations of the Corporation shall be prescribed by the board of directors and all determinations of matters of general policy for the Corporation shall be made by the board of directors; but it is the sense of Congress that in the administration of the Industrial Loan Corporation Act the Corporation shall endeavor to decentralize its activities, and all functions of the Corporation other than the prescribing of rules and regulations and the determination of matters of general policy may be performed through such members of the board of directors, such Federal Reserve banks, or such officers, employees, or representatives as the board of directors may prescribe; and the board of directors shall not be required to authorize, approve, or otherwise pass upon individual transactions.

"(3) For the purpose of providing funds to a commercial or industrial business, the Corporation is authorized, subject to such regulations and requirements as it may prescribe, (a) to make loans to, discount obligations for, and purchase obligations from such a business; (b) to purchase preferred stock in a corporation engaged in such a business; (c) to discount for or purchase from a financing institution obligations of, or preferred stock in a corporation engaged in, such a business; (d) to make loans to a financing institution on the security of such obligations or preferred stock; and (e) to make commitments to make any such loans, discounts, or purchases. The Corporation shall not make or acquire any such loan or obligation which has a maturity exceeding ten years, nor shall the Corporation purchase any such preferred stock unles the issuer of the preferred stock is obligated to retire the same within ten years; and all such loans, obligations, or preferred stock shall provide in a manner satisfactory to the Corporation for installment payments on the loan or obligation, or periodic retirements of the preferred stock, sufficient to amortize at least 40 per centum of the principal amount within a period of ten years. The Corporation may include in its regulations, among other things, provisions regarding the kinds of preferred stock which it may acquire, and regarding the purchase price of obligations and preferred stock and the rates of interest and discount applicable to transactions hereunder, and may define for the purposes of this or other subsections of this section the terms 'commercial or industrial business', 'financing institution', 'obligation', and 'preferred stock'. The Corporation may exercise the authority granted in this subsection either directly or in cooperation with financing institutions; but the amount of funds provided by the Corporation pursuant to this subsection for any one commercial or industrial business and outstanding at any one time shall not exceed $1,000,000.

"(4) The Corporation is authorized and empowered to issue its notes, debentures, bonds, or other such obligations, which may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated in such obligations, and shall mature at such times, be so secured, and bear such rate or rates of interest as may be determined by the Corporation. The aggregate of all obligations issued under this section and outstanding at any one time shall not exceed $500,000,000. Such obligations may be issued in payment of any loan, discount, or purchase authorized by this section or may be offered for sale at such price or prices as the Corporation may determine. Such notes, debentures, bonds, or other such obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States and such guaranty shall be expressed on the face thereof. In the event that the Corpora

tion shall be unable to pay upon demand, when due, the principal of, or interest on, such notes, debentures, bonds, or other such obligations, the Secretary of the Treasury shall pay to the holder the amount thereof which is hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such notes, debentures, bonds, or other such obligations. The Secretary of the Treasury, in his discretion, is authorized to purchase any notes, debentures, bonds, or other such obligations of the Corporation issued hereunder and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds from the sale of any securities hereafter issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under such Act, as amended, are extended to include any purchases of the Corporation's notes, debentures, bonds, or other such obligations hereunder. The Secretary of the Treasury may, at any time, sell any of the notes, debentures, bonds, or other such obligations of the Corporation acquired by him under this section. All redemptions, purchases, and sales by the Secretary of the Treasury of the notes, debentures, bonds, or other such obligations of the Corporation shall be treated as public-debt transactions of the United States. The Corporation shall have power to purchase at any time and at any price any of the obligations issued by it, and any such obligations so purchased may be sold or resold at any time and at any price.

"(5) The Corporation is also authorized to borrow from any Federal Reserve bank, and any Federal Reserve bank is authorized to make advances to the Corporation, on the latter's promissory notes having maturities of not more than four months which are secured to the satisfaction of such Federal Reserve bank, at rates of discount established in accordance with the provisions of subsection (d) of section 14 of this Act and subject to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe.

"(6) The Corporation is authorized and empowered from time to time to set aside such amount, not exceeding $25,000,000, of its surplus as it may deem advisable as an insurance fund, for the purpose of insuring banks whose deposits are insured under section 12B of the Federal Reserve Act, against losses which they may sustain upon obligations which they may acquire on or after the date on which the Industrial Loan Corporation Act becomes effective from any commercial or industrial business for the purpose of providing funds to such business. Such insurance may be granted to any such bank in such circumstances and upon such terms and conditions as the Corporation may by regulation or otherwise prescribe, including among other things limitations, to the extend deemed necessary, on the rate of interest borne by an insured obligation, on the amount of obligations insured for any one bank, on the types of obligations insured, and on the percentage of the total amount of the obligations of any type acquired by any one bank to which the insurance shall apply, and requirements for the payment of premiums by the insured banks; but no such insurance shall be granted to any one bank with respect to outstanding obligations of one obligor which exceed $25,000 in amount, and each such insured obligation shall provide by its terms and on a basis satisfactory to the Corporation for amortization by payments which will extinguish the debt secured thereby within a period of not exceeding ten years.

"(7) The net earnings of the Corporation, after making adequate provision for losses, shall be transferred to its surplus or undivided profits account. Upon the liquidation or dissolution of the Corporation all assets remaining after the payment of all indebtedness of the Corporation shall be paid to and become the property of the United States.

"(8) The Corporation is authorized to sell, exchange, or otherwise dispose of any obligations or preferred stock which it has acquired, with or without its endorsement or guaranty and upon such terms and conditions as it may deem advisable. The provisions of the Securities Act of 1933 shall not apply to any obligations issued by the Corporation under subsection (4) of this section, nor to transactions by any person in connection with any acquisition by the Corporation of obligations or preferred stock or any commitment to acquire them under subsection (3) of this section, nor, after any such obligations or stock are so acquired by the Corporation, to any subsequent sale, exchange, or other disposition of them by any person.

"(9) Any and all notes, debentures, bonds, or other such obligations issued by the Corporation shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by

the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority. The Corporation, its franchise, loans and other assets, its capital stock, its surplus, its reserves, and its income, shall be exempt from all taxation now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or other taxing authority, except that any real property of the Corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed. "(10) Notwithstanding any other provision of law, all suits of a civil nature at common law or in equity to which the Corporation shall be a party shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and when the Corporation is a defendant in any such suit, it may, at any time before the trial thereof, remove such suit from a State court into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law. No attachment or execution shall be issued against the Corporation or its property before final judgment in any suit, action, or proceeding in any State, county, municipal, or United States court.

"(11) The Corporation is authorized and empowered to take such steps as it may deem appropriate to encourage and assist in the formation of committee of representatives of small businesses and others in local communities to explain to possible or prospective applicants for funds the facilities of the Corporation provided in this section and to advise with and assist prospective applicants in connection with their requests for financial assistance from the Corporation.

"(12) The management of the Corporation shall be vested in a board of directors consisting of the members of the Board of Governors of the Federal Reserve System, and the chairman and vice chairman of the board of directors shall be the chairman and vice chairman, respectively, of the said Board of Governors. At meetings of the board of directors three members shall be necessary for a quorum. The Corporation may utilize, as its officers and employees, any employees of the Board of Governors of the Federal Reserve System, and any officers or employees of any Federal Reserve bank. If the Corporation should find it advisable, it may employ additional officers or employees, and the employment, compensation, leave, and expenses of such additional officers and employees shall be governed solely by the provisions of this section, specific amendments thereof, and rules and regulations of the Corporation not inconsistent therewith. No director of the Corporation and no officer or employee of the Board of Governors or of any Federal Reserve bank shall receive any compensation from the Corporation by reason of any service which he may perform for it. The Corporation shall determine and prescribe the manner in which its obligations shall be incurred and its disbursements and expenses allowed and paid, and may deposit in any Federal Reserve bank its funds, which shall not be construed to be Government funds or appropriated moneys. The Corporation may invest its funds in direct obligations of, or obligations guaranteed as to principal and interest by, the United States. The Corporation shall reimburse the Board of Governors of the Federal Reserve System and the Federal Reserve banks and its other agents for their expenses in carrying out the provisions of this section on such basis as may be determined by the Board of Governors of the Federal Reserve System.

"(13) The Corporation shall have a capital stock and surplus which shall be paid in the amounts and out of the funds hereinafter provided. The Secretary of the Treasury is hereby authorized and directed, on the date on which the Industrial Loan Corporation Act becomes effective, to purchase from each Federal Reserve bank the stock of the Federal Deposit Insurance Corporation heretofore subscribed for by such bank and to pay to such bank therefor an amount equal to the entire sum which the said Secretary was originally given authority to pay to such bank under the provisions of this section less the difference between the aggregate amounts paid to such bank by the Secretary of the Treasury and the aggregate amounts paid to the Secretary of the Treasury by such bank under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective. When the payment of such amount has been made by the Secretary of the Treasury to such bank, the United States shall become and be the owner of all the stock in the Federal Deposit Insurance Corporation heretofore subscribed for or held by the said Federal Reserve bank and all rights of the said Federal Reserve bank with respect to said stock shall be transferred to and vested in the United States. Any and all of the obligations and liabilities to

the United States and to the Secretary of the Treasury which have been imposed upon or incurred by any Federal Reserve bank under this section at any time prior to the date on which the Industrial Loan Corporation Act becomes effective shall on said date be completely discharged and terminated, and no Federal Reserve bank shall, after said date, have any obligation or liability to the United States or the Secretary of the Treasury by reason of any provisions of this section. The amount required to be paid to each Federal Reserve bank by the Sectary of the Treasury under the provisions of this section shall be paid out of the miscellaneous receipts of the Treasury created by the increment resulting from the reduction of the weight of the gold dollar under the President's proclamation of January 31, 1934, and there is hereby authorized to be appropriated, out of such receipts, such sums as shall be required for this purpose.

"(14) Upon the receipt by each Federal Reserve bank from the Secretary of the Treasury of the amount specified in subsection (13) hereof, such Federal Reserve bank shall forthwith pay the entire amount so received to the Industrial Loan Corporation and also shall forthwith pay to the Corporation an amount equal to the difference between the aggregate amounts paid to such bank by the Secretary of the Treasury and the aggregate amounts paid to the Secretary of the Treasury by such bank under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective; and out of the aggregate amounts paid to the Industrial Loan Corporation in this manner the Corporation shall set aside $100,000,000 as its capital and the remainder as surplus and shall issue to and in the name of the United States, and deliver into the custody of the Secretary of the Treasury, capital stock in the amount of $100,000,000. No stock in the Industrial Loan Corporation shall be transferable, have any voting rights, or be entitled to any dividends. Upon the payment of such funds to the Industrial Loan Corporation by the Federal Reserve banks, the Corporation shall forthwith purchase from each Reserve bank, and each Federal Reserve bank shall sell to the Corporation, all assets held by the Reserve bank which were acquired under the provisions of this section prior to the date on which the Industrial Loan Corporation Act becomes effective, and such sale shall be made at the appraised value of the assets on the effective date of the Industrial Loan Corporation Act, such appraisal being made according to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe. All commitments of each Federal Reserve bank outstanding under this section on the date on which the Industrial Loan Corporation Act becomes effective shall forthwith be taken over and assumed by the Corporation.

"(15) When designated for that purpose by the Secretary of the Treasury, the Corporation shall be a depository of public moneys under such regulations as may be prescribed by said Secretary; and it may also be employed as a fiscal agent of the Government; and it shall perform all such reasonable duties, as depository of public money and fiscal agent of the Government, as may be required of it. Obligations of the Corporation shall be lawful investments, and may be accepted as security, for all fiduciary, trust, and public funds the investment or deposit of which shall be under the authority or control of the United States or any officer or officers thereof. The Corporation shall be entitled to the free use of the United States mails in the same manner as the executive departments of the Government.

"(16) Whenever it shall appear to the Board of Governors of the Federal Reserve System, either by reason of a decrease in the volume of the operations of the Corporation or otherwise, that there is no longer a reasonable need for the continuance of the facilities of the Corporation, the said Board may order the dissolution of the Corporation, and thereupon the Corporation shall be liquidated and its affairs wound up under regulations prescribed by the said Board.

“(17) The Corporation shall annually prepare a full report of its operations, and this report shall be included by the Board of Governors of the Federal Reserve System in the annual report made by it to the Speaker of the House of Representatives in accordance with the provisions of section 10 of this Act."

SEC. 2. Subsections (h), (i), and (k) of section 22 of the Federal Reserve Act are amended by inserting after the words "Federal Reserve bank" wherever they occur in such subsections the words "or the Industrial Loan Corporation"; and subsection (j) of said section 22 is amended by inserting after the words "Federal Reserve bank" the words "and of the Industrial Loan Corporation".