In lieu of the present phrase "to aid in the temporary financing", the following language has been inserted in section 4:

To aid in the financing, reorganization, consolidation, maintenance, or construction.

This language in designed to clarify the position of the Corporation in regard to the assistance which it may give to railroads and railways, and to somewhat enlarge the scope of such assistance.

The first proviso requires the Interstate Commerce Commission, in the case of loans to, or the purchase or guarantee of obligations of, railroads not in receivership, to certify that such railroad, on the basis of present and prospective earnings, may reasonably be expected, to meet its fixed charges without the necessity of a reduction thereof through judicial reorganization. This certificate is not required in the case of loans for the maintenance of, or purchase of equipment for, such railroads since such loans might be advisable without such a certificate because they would provide work.

The second proviso at the end of the proposed amendment would require the Corporation to interpret as loans or commitments for loans any guaranties made pursuant to this section, to the extent of the principal amount of the obligations guaranteed.

The reason for including this certification in the Reconstruction Finance Corporation Act is that the requirement for certification of such loans is not included in the Reconstruction Finance Corporation Act, as amended, but is part of the Emergency Railroad Transportation Act of 1933, which provides in part, as follows (sec. 15):

The Commission shall not approve a loan to a carrier under the Reconstruction Finance Corporation Act, as amended, if it is of the opinion that such carrier is in need of financial reorganization in the public interest.

The continuance of such provision seems desirable, but at present it will expire June 16, 1935, unless renewed. The proviso in the draft bill is more specific than the above section 15 in that it deals with fixed charges rather than the vague and uncertain term "in need of financial reorganization." The proviso thus furnishes the Commission with a more definite standard on which to base its approval or disapproval of Reconstruction Finance Corporation assistance to railroads.

SECTION 4 (A)

This section of the draft bill would eliminate the proviso contained in section 5 of the Reconstruction Finance Corporation Act, as amended, which authorizes the Corporation to make loans under section 5 to trustees of railroads under section 77 of the Bankruptcy Act. Such proviso is no longer necessary in view of the use of the word "trustee" in section 4 of the draft bill.

SECTION 5

Section 5 of the bill would add a new section to the Reconstruction Finance Corporation Act, as amended, to be known as "section 5 (c)." The first paragraph would authorize the Corporation to subscribe, upon the request of the Secretary of the Treasury, with the approval of the President, to the nonassessable stock of any class of institution the charter or bylaws of which provide that its principal business shall

be the making of loans or purchase of obligations secured by industrial, business, or residential real estate, not eligible for loans or assistance from the other Federal lending agencies. In such cases it is provided that all the issued and outstanding shares of stock, except directors' qualifying shares, shall be owned by the Reconstruction Finance Corporation.

Loans can be made by such institutions only where the income or reasonable rental value of the property will, in the judgment of the Corporation, be adequate to meet interest charges on the loans and to permit substantial periodical reductions of principal.

There will be no conflict or overlapping of functions with regard to these loans with any other department of the Government.

The second paragraph of section 5 of the bill would give the Corporation the power to further assist in the reestablishment of a Nationwide market for sound real-estate mortgages, as well as aiding in the establishment of credit for industry, by subscribing for or making loans upon, upon the request of the Secretary of the Treasury, with the approval of the President, the preferred stock of any institution, which has as its principal business the making of loans upon mortgages, deeds of trust, or other instruments which constitute a lien upon, or evidence an interest in, real or personal property. It is provided further that the aggregate par value of the preferred stock so purchased in any such institution shall not, at the time of purchase, exceed the aggregate sound value of the stock of such institution subordinate to the preferred stock.

SECTION 6

This section of the draft bill is designed to clear up an ambiguity in the language of section 5e (a) of the Reconstruction Finance Corporation Act, as amended. Such section 5e (a) authorizes the Corporation to "make loans upon or purchase the assets" of closed banks and to make loans upon or purchase assets of closed banks which have been trusteed for the benefit of depositors. Some doubt has arisen in interpreting the language of this section as to whether the term "assets" means necessarily all the assets of a closed bank or whether it would permit the purchase merely of a portion thereof. In order to clear up this ambiguity the words "or any portion thereof" have been added after the word "assets" in the two places in the section where necessary.

SECTION 7

This section of the draft bill would continue the status of the Commodity Credit Corporation as an agency of the United States until April 1, 1937, or such earlier date as may be fixed by the President.

The Commodity Credit Corporation was organized under the laws of Delaware pursuant to an Executive order of the President dated October 16, 1933. The capital stock was subscribed for by the Secretary of Agriculture and the Governor of the Farm Credit Administration, and is held by them in trust for the United States. The Reconstruction Finance Corporation is the principal creditor of the Commodity Credit Corporation, because of the loans it makes to it under section 201 (d) of the Emergency Relief and Construction Act of 1932.

The authority for the creation of the Commodity Credit Corporation is found in section 2 of title 1 of the National Industrial Recovery Act which provides:

To effectuate the policy of this title the President is hereby authorized to establish such agencies, * * * as he may find necessary, * * *. Such section further provides, however, that "This title shall cease to be in effect and any agencies established hereunder shall cease to exist at the expiration of two years after the date of enactment of this Act,

* * *

The effect of this language is that on June 16, 1935, without any new legislation, the Commodity Credit Corporation would probably cease to be an agency of the United States.

It is felt, however, that the Commodity Credit Corporation still has many necessary functions to perform, and that its life should be extended as provided in section 7 of the draft bill.

SECTION 8

The Corporation, as of January 15, 1935, has authorized the investment of $100,000 in purchases of preferred stock of insurance companies and the investment of $35,775,000 in loans on preferred stock and capital notes of such insurance companies, making a total of $35,875,000. Under the existing act there is a limitation of $50,000,000 on the amount of funds of the Corporation which may be invested in such purchases or loans. Applications now pending before the Corporation and others in immediate prospect indicate that the entire balance of the fund will be more than absorbed. It is believed that an additional $25,000,000 is required to take care of pending and future legitimate requests.

SECTION 9

This section of the draft bill would continue the status of the Export-Import Bank of Washington and the Second Export-Import Bank of Washington, D. C., as agencies of the United States until June 16, 1937, or such earlier date as may be fixed by the President.

The Export-Import Bank of Washington was organized under the laws of the District of Columbia pursuant to Executive Order of the President, dated February 2, 1934. The Bank was capitalized at $11,000,000 of which the preferred stock of $10,000,000 was subscribed for by this Corporation and the money for the common stock of $1,000,000 was made available from the funds provided by section 220 of the National Industrial Recovery Act.

The Second Export-Import Bank of Washington, D. C., was organized under the laws of the District of Columbia pursuant to Executive order of the President dated March 9, 1934. The total authorized capital of $2,750,000 is divided into $250,000 common stock, subscribed for out of the funds made available by section 220 of the National Industrial Recovery Act, and $2,500,000 preferred stock, subscribed for by this Corporation.

The authority for the creation of both of these banks is found in section 2 of title I of the National Industrial Recovery Act which provides:

To effectuate the policy of this title the President is hereby authorized to establish such agencies, * * * as he may find necessary.

*

Such section further provides that

This title shall cease to be in effect and any agencies established hereunder shall cease to exist at the expiration of 2 years after the date of enactment of this Act.

* *

The effect of this language is that on June 16, 1935, without any new legislation, the Export-Import Bank of Washington and the Second Export-Import Bank of Washington, D. C., would probably cease to be agencies of the United States.

Section 9 of the draft bill is also designed to correct certain legal inhibitions in the banking laws of the District of Columbia which seriously hamper the operations of the export-import banks.

If a Government-owned bank for financing export and import trade is to become a part of our domestic economy, it should be given a status which would permit it to carry on its business unhampered by constant doubts as to the extent of its authority and without the embarassment of unnecessary legal restrictions.

In the first place, the District of Columbia Code forbids the organization of banks of discount. The power to discount is, however, one of the most important functions of a modern banking institution, and the draft bill would remedy this situation by specifically giving the export-import banks the power to discount or rediscount notes and other obligations. This section also authorizes the banks to borrow money and rediscount obligations with the approval of the Secretary of the Treasury.

The District of Columbia Code applies section 5200 of the National Bank Act to all banks doing business in the District of Columbia, thus limiting loans to any one borrower to 10 percent of the bank's unimpaired capital and surplus. This provision has no proper application, however, to foreign banking where advances of large sums against shipping documents is common practice. Because of the limited capital of the Second Export-Import Bank the limitations of section 5200 have been particularly onerous and the draft bill provides for the making of loans "without limitation as to the total amount of obligations thereto of any borrower."

SECTION 10

This section was inserted at the request of the Secretary of the Treasury. It places in the Director of the Budget determination of the expenditures which shall be made by the corporation notwithstanding the availability of funds authorized by Congress.