transact these deals in the commodity action or commodity loans that could be made in the local communities.

Senator YOUNG. There is also a certain responsibility imposed upon the local lending agency where it has to supervise these loans and possibly take a loss.

As a result of that closer supervision, there would be far less losses. Mr. BLAKEMORE. He cannot take a loss unless there is fraud involved.

The Corporation obligates itself to bail out these lending agencies in the event the borrower defaults. They cannot lose on the loan. Senator THYE. You are familiar with how these commodity loans are made to the farmers.

In the first place their commodity must be properly housed and stored before a loan is available to them. Then it is checked and rechecked to determine that the commodity has not in any manner deteriorated.

Then after the transaction has been completed, the borrower must surrender the commodity in kind and quality under which it went into the loan.

Therefore, it is the borrower who is held responsible and no other agency, except if the value of the commodity dropped below the amount covered when the loan was made. Then you have got the provision of the act itself as to how that loss would be carried.

Mr. BLAKEMORE. We can appreciate your interest, Senator.

Senator THYE. I want to protect the people involved in these transactions, and I do not want to see these national offices cluttered up any more than they are now cluttered up.

Mr. BLAKEMORE. It really would have no effect like that.

Take some of the purchase programs in wool. They have utilized the services of private banks to the number of, say, 105.

The advances made by those private banks are included in the amount of borrowings that the Corporation shows as applicable to this limitation of $4,750,000,000.

Senator YOUNG. I cannot see any objection to that.

I think you are sound in that.

Mr. BLAKEMORE. However, the other type of borrowing is really rather vague. You cannot tell whether it is fish or fowl.

Actually, the $86,000,000 I referred to of this other type is not included in the total amount that the Corporation regards as being applicable to this $4,750,000,000 borrowing limitation established by the Congress.

So our point specifically involved in connection with this section is that we do believe that if that is the way that they want to operate their program, that should be included in the limitation.

Not to do so means the Congress really has not imposed an upper limitation, which presumably it has.

Mr. WEITZEL. I think, Mr. Chairman, that this point could be worked out in a way which would protect the general government without interfering with the local operations which Senator Thye has referred to.

We have no thought of requiring commodity to centralize its operations. The Comptroller General recognized 5 or 6 years ago it was necessary for the Corporation to operate through local banks and to have the loan papers retained in local banks, and to the extent

they needed supervision, they would be supervised, although commodity takes the responsibility for any loss.

Senator YOUNG. I am not quite clear on that point.

Is there somebody here from the Commodity Credit Corporation that could further explain these loans?

I believe there is an element of responsibility that devolves upon the local bank.

STATEMENT OF K. A. BRASFIELD, DIRECTOR, FISCAL BRANCH, PRODUCTION AND MARKETING ADMINISTRATION, AND TREASURER, COMMODITY CREDIT CORPORATION, DEPARTMENT OF AGRICULTURE, WASHINGTON, D. C.

Mr. BRASFIELD. We have two types of relationship with commercial banks:

One type is the borrowing guaranteed by the United States, and at the present time that borrowing is on our wool program and our peanut program.

Those borrowings are guaranteed directly by the Secretary of the Treasury.

The loans made under the price-support program generally on grain and cotton, are not directly guaranteed by the United States. The corporation does have an obligation to purchase those loans in accordance with the terms of the lending agency's contract and, as has been brought out, those loans are approved by the county committee.

For example, in the case of grain, the producer then takes his paper to the country bank, gets his money, and that is reported to the corporation by the bank as a loan they have made.

If their loan is liquidated while it is in the hands of the bank, the only transaction which the corporation becomes concerned with as to detail, is the reporting of the one-half of the interest collection which they make on the loan, and also indicating the liquidation of it. As to the corporation borrowing generally, the act of 1938 and also the Corporation Control Act, requires that we can do no borrowing without the approval of the Secretary of the Treasury, and it has been the practice for a number of years, consistent with the Treasury's policy, to utilize funds from the Treasury where there is no disadvantage to the corporation in conducting local arrangements to do so.

Senator YOUNG. Suppose on this loan made to a farmer by a local bank that the grain would either be stolen or spoiled and the farmer himself was not financially responsible.

Who would take the loss?

Does the local bank not come in for some responsibility there? Mr. BRASFIELD. If they have lived up to the terms of their lending agency contract, the loss would fall on the corporation.

It would first fall on the producer to deliver the quality and quantity of grain he has under mortgage.

Senator THYE. Nothing short of fire. It is protected by fire insurance.

If that grain is stolen, then the borrower is held responsible, because he is responsible for that commodity until such time as the loan has been made or he has surrendered the commodity.

Mr. BRASFIELD. That is right.

Senator THYE. Further protection is covered by insurance.

If it is stolen, or otherwise, the broker will have a judgment placed against him, and that judgment will stand until the mortgage has been settled.

Senator BUSHFIELD. What happens if the grain is spoiled or is attacked by weevils?

Mr. BRASFIELD. It would be the responsibility of the farmer to deliver the quantity and quality of the grain he has under mortgage.

If it were in the public warehouse, the warehouseman would be responsible.

The CHAIRMAN. Mr. Brasfield, you are treasurer of the Commodity Credit Corporation?

Mr. BRASFIELD. Yes, sir.

The CHAIRMAN. You are in accord with the provisions of this program we have before us today?

Mr. BRASFIELD. We are in accord with the provisions of the charter as it is in the bill.

We feel that the Treasury already has control of our financing through both the act of 1938 and the Corporation Control Act.

We can make no move in financing that is not approved by the Secretary of the Treasury.

We feel that that control is adequate.

While under present Treasury policy we make no public offering of securities, they do approve specifically the agreement that we enter into with the banks.

For example, in our borrowing on wool and on peanuts, those agreements are specifically approved by the Treasury.

The CHAIRMAN. You are getting along pretty well with them, are you?

Mr. BRASFIELD. We are getting along fine.

The Treasury recognizes the desirability of our using local lending agencies where we get a combination of advance of funds and service. For example, in the case of wool, the bank acts as our custodian to advance funds to the handler, to hold the warehouse receipts, and as our fiscal agent for the handling of that inventory.

We find it a very useful, agreeable arrangement, both to us and apparently to them.

In any programs where the banks carry on that kind of service, we prefer to use the banks.

We do have other programs where we do not need this type of service but where we need to borrow money, and in such cases we do go to the Treasury.

We do that on a daily basis. We keep our cash belance at a minimum by borrowing and repaying daily to the Treasury, based upon our needs.

Our actual term on the money we get from the Treasury runs 4 to 6 months.

In other words, on the turn-over of the funds we get, we are paying the Treasury 1 percent, which would appear to be adequate for that term of borrowing.

We would like to see any rate we are charged by the Treasury related to the term of the money we borrow from them.

Senator YOUNG. Would you not agree with the General Accounting Office that the over-all loans and obligations should not exceed the authorization?

Mr. BRASFIELD. We watch that very carefully.

It is true the Treasury does not directly guarantee the borrowing from lending agencies, for example, on the grain program and on the cotton program.

We measure all of our programs against the total limit of $4,750,000. As a matter of fact, not only do we check our borrowings against it, but we check our docket commitments as well.

Senator YOUNG. What has been the highest amount of your loans and obligations?

Mr. BRASFIELD. I do not have that figure immediately in mind.

It would be less than the $4,750,000 at particular times, but that, of course, would not give recognition to the obligation that we have under mandatory programs, and also what has been incurred in accordance with other mandates that have been laid down for price support.

In other words, the test of the need of our borrowing authority is not the exact amount that we may have under loan at any one time, but is to have a bank account, so to speak, sufficient to cover the programs that the Corporation is permitted to carry out.

The CHAIRMAN. Well, you are in full accord with the general provisions of the pending bill?

Mr. BRASFIELD. Of the bill. We see no need for additional restrictions.

We do work closely with the Treasury, and we have had no difficulty in complying completely with the Treasury's policy.

Senator AIKEN. What is the approximate amount of the outstanding borrowings right now?

Mr. BRASFIELD. From the Treasury, the borrowings would be approximately something less than $100,000,000 on an interest-bearing basis.

We have another series of borrowings from the Treasury tied into our $500,000,000 reserve for postwar price support, where we are required to carry a cash balance in the Treasury, we have an offsetting obligation that is at the present approximately $420,000,000.

Senator AIKEN. Do you have any obligations other than with the Treasury at this time?

Mr. BRASFIELD. Might I be permitted to get my figures? I can give you them.

We had loans outstanding on commodities of $262,467,000 at December 31.

That is the type of borrowing from country banks that is not guaranteed directly by the Treasury.

The CHAIRMAN. Is that about the volume of business you have been carrying right along?

Mr. BRASFIELD. That is a little higher than it has been at most times in the last 2 or 3 years.

Senator AIKEN. How do the interest rates compare in borrowings from the Treasury and in borrowings from the local banks?

Mr. BRASFIELD. These are loans made to producers on which they pay 3 percent interest.

When the interest is collected, we split it with the lending agency. The lending agency retains 12 percent, and forward to us 12 per

cent.

Senator AIKEN. You are paying the Treasury 1 percent?

Mr. BRASFIELD. Paying the Treasury 1 percent, but the bank is holding this paper and doing the servicing on it.

Senator AIKEN. And you consider that the servicing furnished by the local bank offsets the difference in the interest rate?

Mr. BRASFIELD. More than so, I would say.

In other words, in the absence of that, we would either have to hire the local banks purely as a custodian, or the papers would have to come into a regional or some kind of a centralized office, and of course, then would not be available to the producer to get to rapidly, and would require a lot of traffic back and forth.

Senator AIKEN. Then the local bank gets 11⁄2 for the money and the services.

Mr. BRASFIELD. Yes; including the services.

Senator AIKEN. And Commodity Credit gets 12 percent for what? Is that required by law?

Mr. BRASFIELD. It is not required.

The relationship of the split is not required by law. It is interest on the obligation, and, of course, the Corporation does have responsibility to take that obligation on for the lending agency if they no longer wish to hold it.

Senator AIKEN. Is the 12 percent what you would use to take up losses with, any losses or guaranties which fall upon the Commodity Credit Corporation itself?

Mr. BRASFIELD. We treat it as interest income, and, of course, it does go into the general funds of the Corporation as available for making up losses, and, of course, for any other general purposes of the Corporation.

Senator AIKEN. How much does Commodity Credit have available for the regular work of the Commodity Credit Corporation for supporting prices, exclusive of any amount which you may be using for borrowing for other agencies of Government or for foreign countries? Are you well in the black in that respect at this time?

Mr. BRASFIELD. I am not sure I understand your question, Senator. Senator AIKEN. You have some reserve for losses now, reserves for making up losses.

Mr. BRASFIELD. The law provides that our surplus at the end of a fiscal year be transferred to the Treasury.

If we have losses, upon appraisals, that loss is made up by the Treasury.

Senator AIKEN. That is transferred to the Congress to make up. Mr. BRASFIELD. That is right.

Senator THYE. I have some figures in mind that the interest, the earnings by the Corporation, have been approximately $180,000,000? Is that correct?

Mr. BRASFIELD. The earnings of the Corporation, exclusive of subsidies paid on the wartime consumers subsidies, were $100,000,000 approximately, as of last June 30.

That includes a number of factors: The income on loans, the interest expense paid to the Treasury, administrative expenses, and a great many other factors, such as losses on commodity loans.