not supervising it properly. Very seldom do we have an open-bank borrower that does not administer the collateral properly.

As to loans to closed banks, if the closed bank is a national bank, the comptrollers' office has a receiver in there and we usually leave the administration of the collateral to the receiver. When he gets down to the bottom of the pile, and says, "It is not worth while continuing the receivership," then we make what we call a receivership termination loan and for all purposes, practically speaking, the receivership is terminated upon completion of the loan and thereafter we take over the liquidation of the collateral ourselves.

Mr. WIGGLESWORTH. How about railroads or newspapers or industrials?

Mr. ALLEY. We do not consider loans to newspapers.
Mr. WIGGLESWORTH. None at all?

Mr. ALLEY. No.

Mr. WIGGLESWORTH. How about railroads?

Mr. ALLEY. In railroads, we supervise the loans ourselves through the Washington office. Our chief examiner for railroads follows them

up.

Most of the railroad loans that are in default are reorganizing under section 77 of the Bankruptcy Act and when a railroad goes into bankruptcy, the courts sometimes issue an injunction forbidding any secured creditor from foreclosing upon collateral pledged with it. In such cases we are prevented from taking any active steps to liquidate it. So that when a borrower road goes into bankruptcy, we have to wait until the court adopts a plan of reorganization before we can do anything.

Mr. FITZPATRICK. Do you have any priority so far as your loan is concerned, over any others?

Mr. ALLEY. Nothing except our collateral.

Mr. WIGGLESWORTH. There are no instances, in any of these types of loans, where you have to put anybody actually into the concern itself with a view to supervision?

Mr. ALLEY. Yes; it has been necessary in a few cases.

Mr. DIRKSEN. A case in point would be the Laclede Gas Light Co. in St. Louis where you acquired control and virtual ownership of that property?

Mr. ALLEY. We acquired control through an item of collateral that came to us through the Dawes bank. But we sold that collateral. Mr. DIRKSEN. And then stepped out of the picture?

Mr. ALLEY. Yes; very shortly. I think it was about 2 or 3 months after we got possession of it that we sold it.

Mr. JOHNSON of Oklahoma. Did you lose or make money on it? Mr. ALLEY. I think we made money.

Mr. DIRKSEN. Following up Mr. Wigglesworth's question, to what extent do you have to go in and administer tangible property?

Mr. ALLEY. That question is very hard to answer.

Mr. DIRKSEN. Are there lots of instances, or just a few?

Mr. ALLEY. Just a few.

Mr. DIRKSEN. How often do you put somebody on the board or in control of the property?

Mr. ALLEY. In bank loans we do not have anything to do with the property. However, when an industrial borrower fails we sometimes have had to come in, and we generally put in some management con

trols. Our field men go right in and protect our interests as well as administering it for the best interests of all concerned.

POLICY RE-RETIRING BY BANKS UNDER REORGANIZATION OF PREFERRED STOCK OR CAPITAL NOTES HELD BY F. R. C.

Mr. DIRKSEN. In connection with your bank loans, you exercise discretionary authority as to whether or not a bank will be permitted to retire the preferred stock or the capital notes that you hold. Where you go in to repair its capital structure, what is your policy?

Mr. ALLEY. The articles of association, in national banks and the capital notes in State banks contain provisions in them that the preferred stock or capital notes cannot be retired by a repurchase unless the bank's capital amounts to a figure which is set by the articles of association or by the notes. That figure is placed sufficiently high s that the bank is sound if it is in a position to retire its stock or notes.

The only exception occurs when the supervisory authorities, the Comptroller of the Currency or the Superintendent of Banks of the State, permit the bank to retire, which they may do regardless of the adequacy of the capital possessed by the bank.

An amendment has been passed however to the Federal Deposit Insurance Corporation Act to the effect that any bank that is insured in the F. D. I. C. cannot retire any capital stock or notes without getting the consent of the Federal Deposit Insurance Corporation So, in the case of an insured bank, we must have approval of both the supervising authority and the F. D. I. C. before retirement under the exception is possible.

Mr. DIRKSEN. I have in mind the testimony that Mr. Jones gave a year or two ago, that banks have actually come and tendered cash for the purpose of retiring the preferred stock, and in his judgmen: the capital structure was not in shape to permit it, and so it was not permitted. I was wondering whether you were exercising that authority.

Mr. ALLEY. Well, I suppose he gave his impression to the Comptroller of the Currency or other supervisory authorities and they were the ones who actually said no.

Mr. DIRKSEN. Do you offer an advisory opinion in the matter? Mr. ALLEY. Yes, we have at times. I think we have indicated that we did not think banks were ready to retire their stock or notes. After one bank in a town retires its preferred stock, the bank whose stock is retired frequently advertises it for the supposed business advantage involved and so other banks in the town sometimes try to do the same thing whether they are sound or not. There are some cases where we have been asked to accept payment for preferred stock where it is obviously not to the interest of the bank or the depositors to have it retired, and we have called the attention of such situations to the F. D. I. C. or the Comptroller's Office or to the State authorities. Mr. DIRKSEN. You still maintain an interest now in about 5,000 banks?

Mr. ALLEY. Yes; 5,377.

Mr. DIRKSEN. That is about one-third of all the banks?
Mr. ALLEY. Yes.

ACTUAL SUPERVISION IN REORGANIZATIONS

Mr. WIGGLESWORTH. Have there been instances, in respect to banks or railroads or industrial corporations, where you have actually put somebody into the organization with a view to supervision?

Mr. ALLEY. The only bank in which that could be said to have been done was the Continental Bank in Chicago in which Mr. Cummings, as everyone knows was put in there by the Government. Now, there have been other cases where a man has gone from the R. F. C. to a bank, but in these cases the directors of the bank have wanted the services of that particular man.

Mr. JOHNSON of West Virginia. Is that temporary or permanent? MI. ALLEY. A man leaving the R. F. C. ceases to be its representative when he goes in a bank through election by the board of directors of the bank.

Mr. JOHNSON of West Virginia. If and when you do put somebody in from the R. F. C. to superintend an industrial organization, it is only temporarily; it is not a permanent thing?

Mr. ALLEY. If he goes into a bank, it is permanent because he leaves us and becomes an employee of the bank.

Mr. JOHNSON of West Virginia. He does not stay with you and at the same time become a part of an industrial or a bank set-up; is that right?

Mr. ALLEY. That is right.

Mr. WIGGLESWORTH. What I am trying to get is this

Mr. DIRKSEN. If I may interrupt you there, Mr. Wigglesworth, in that connection, what do you do about voting your stock?

Mr. ALLEY. We follow a neutral course of voting with the majority of the common stock in practically every case. There have been a few exceptions where, due to a local fight and incompetent management, the Comptroller of the Currency or the Federal Reserve Board has asked us not to vote that way and in such cases we have refrained from voting with the majority. But, for the most part, our proxy follows the majority of the common stock of the bank.

Mr. DIRKSEN. You are in a position, however, by virtue of your ownership, to dictate policies?

Mr. ALLEY. Yes, sir, we could; but banks are essentially local institutions and in my opinion should generally be directed by local men. Mr. DIRKSEN. And you were, in the case of the Continental? Mr. ALLEY. Yes, sir.

Mr. WIGGLESWORTH. Is that true in respect of other loans, to railroads and to industrials?

Mr. ALLEY. The only authority we have in railroad and industrial loans is in determining that the salaries being paid are considered reasonable.

Mr. DIRKSEN. There is no provision in the loan indenture whereby you can step in or put a man in to help supervise and to manage and operate?

Mr. ALLEY. Yes, there usually is a provision in our loan agreements that the management must be satisfactory to us. However, if we have any criticism of the management, we generally require that it be strengthened or corrected before we make our loan.

Mr. DIRKSEN. How did you apply that to the Missouri Pacific loan as to the management of the road? They have not made a very good showing.

Mr. ALLEY. At the time that loan was made, no provisions existed in the act requiring satisfactory salaries. That was one of the first loans made, and the Corporation had not worked out the safeguards that we have worked out since. The Missouri Pacific loan was made in February of 1932, I believe.

Mr. DIRKSEN. Did the Interstate Commerce Commission have to jointly approve that loan?

Mr. ALLEY. Yes, sir.

ESTIMATES, FISCAL YEAR 1938

Mr. HOUSTON. Did I understand you in the beginning to say that your suggested estimate for the fiscal year was $9,500,000, based on the theory that the R. F. C. might liquidate?

Mr. MULLIGAN. Yes, sir.

Mr. HOUSTON. But it is being extended?

Mr. MULLIGAN. The estimate that we submitted to the Budget on that basis was $10,850,000 for 1938.

Mr. FITZPATRICK. Have you gone back to the Budget?
Mr. MULLIGAN. Our act has not yet been extended.

NON-CIVIL-SERVICE STATUS OF RECONSTRUCTION FINANCE CORPORATION EMPLOYEES

Mr. WIGGLESWORTH. To what extent, if any, is the personnel of the R. F. C. subject to civil-service requirements?

Mr. MULLIGAN. None, so far as I know.

Mr. WIGGLESWORTH. What determines the rate of salary paid both the departmental and the field services?

Mr. MULLIGAN. A recommendation is made by the head of the division concerned to the Board. There was a classification committee appointed within the organization to standardize the salaries of all the employees. They are, generally speaking, kept within the established limits. They were as far as possible put on the same basis as civilservice employees, as far as the grading was concerned.

Mr. WIGGLESWORTH. Did you consult in any way with the Classification Board?

Mr. MULLIGAN. No. I had no connection with that committee, but I think they obtained whatever printed matter there was, a classified manual, I believe. The duties of each employee were considered by the committee and graded as nearly as possible in accordance with the manual.

Mr. WIGGLESWORTH. But the matter was determined wholly by the Board itself?

Mr. MULLIGAN. Wholly within the Reconstruction Finance Corporation; yes, sir.

AVERAGE SALARY IN THE RECONSTRUCTION FINANCE CORPORATION

Mr. WIGGLESWORTH. I understand that the average salary for your departmental force is something like $2,740, and for the field it is about $2,430.

Mr. MULLIGAN. Yes.

Mr. WIGGLESWORTH. If that figure is accurate, it is considerably in excess of the average that prevails in the permanent governmental agencies.

Mr. MULLIGAN. Well, I do not know.

Mr. FITZPATRICK. You require a different kind of set-up on account of your work, do you not?

Mr. MULLIGAN. Generally speaking, aside from those in administrative positions the higher paid men as a class, are the credit men in our Examining Division and the attorneys in our Legal Division. Mr. FITZPATRICK. You require experienced professional men? Mr. MULLIGAN. That is right. In the grades where the routine. work is done, I believe the salaries are no higher than any other governmental agency.

EMPLOYMENT OF OUTSIDE COUNSEL

Mr. DIRKSEN. In connection with the designation of outside counsel, you just follow your own judgment in the matter? Mr. ALLEY. More or less.

Mr. DIRKSEN. What I am trying to get at is this-whether you have some formula that you follow in the designation of counsel. Mr. ALLEY. If I can get somebody who is competent, that is all I care about.

STATUS OF MINING LOANS

Mr. DIRKSEN. May I ask one other question there? What has been the R. F. C.'s experience insofar as mining loans are concerned? Those were in the nature of speculative loans, and it seems to me that to make them, if any were made, would require a considerable degree of expert supervision to determine whether or not there was a quartz ledge that would pay to develop. Have you made any of those mining loans?

Mr. MULLIGAN. I can answer the question as to the amount of loans that have been made.

Mr. DIRKSEN. That would be all right.

Mr. MULLIGAN. As of December 31, 1936, we had authorized 106 loans in the amount of $9,987,500, of which $2,361,000 had been canceled, $1,872,500 disbursed, and $5,754,000 remains to be taken by the applicants when conditions are complied with. Of the $1,872,000 that has been disbursed, $495,000 has been repaid and $1,377,500 remains outstanding.

Mr. DIRKSEN. Do you follow up and learn what happens in the case of these developing properties?

Mr. ALLEY. Yes; we keep an engineer for that.

Mr. DIRKSEN. They are virtually all gold properties?

Mr. ALLEY. Gold, and some silver.

Mr. DIRKSEN. Mostly gold?

Mr. ALLEY. Yes, sir.

Mr. DIRKSEN. I am just wondering about the general philosophy of the Federal Government loaning money for the purpose of developing gold deposits, placer deposits, and all that sort of thing, for the purpose of stimulating the production of gold when we have so much of it in the Treasury now and are actually setting up an inactive gold account; I wondered about the advisability of continuing that authority. Mr. ALLEY. I do not know about that, but I must confess that it surprised me that we have been able to set those loans on a workable basis and get our money back. They seem to be able to accurately