Mr. GOODLOE. That last figure is through the calendar year 1947. Three hundred and seventy-two banks made full retirement of their preferred stock totaling $24,000,000. In addition, for the same period, there were 234 banks which made partial retirement, which partial retirements totaled $14,400,000. That makes a total of 606 banks which retired some portion during 1947, in an aggregate amount of $39,300,000.

For 1948, through February 29-which is the last figure I have handy-there were 45 additional banks which retired in full, the amount being $2,000,000 in round figures, and also 35 additional banks which made partial retirements, aggregating $1,500,000. In other words, that adds 80 banks to our retirement list, with an additional retirement of $3,500,000, or a total, for about 14 months, of 686 banks, for an aggregate retirement of $42,000,000.

Mr. SUNDSTROM. Do you also have the figures as to the total number of banks which still have some to liquidate, and the amount to be liquidated?

Mr. GOODLOE. Yes. Among the statements which I included in the record was a statement, as of March 31, 1948, which shows by States the number of banks, national banks, separately from State banks, the number of banks by States and the amount of stock they have unretired. We did not give the name of the bank, however. Mr. SUNDSTROM. That is satisfactory, thank you.

Mr. HULL. Mr. Goodloe, may I ask a question about these British business loans? You have an item here of $390,000,000, with $174,000,000 as outstanding balance. Was the loan at one time not larger than that?

Mr. GOODLOE. Are you talking about the British loan?

Mr. HULL. Yes.

Mr. GOODLOE. That loan, you will recall, was made under special legislative authority to prevent the dumping here of British-owned securities in American companies. The original loan authorized was $425,000,000, of which $390,000,000 was disbursed. The additional $35,000,000 has never been disbursed.

The 390-million-dollar figure has been paid down.

Mr. HULL. You accepted those securities as collateral for the loan, did you not?

Mr. GOODLOE. Yes, sir.

Mr. HULL. You still have $174,000,000 outstanding?

Mr. GOODLOE. That is correct, sir.

Mr. HULL. What became of the collateral that was surrendered by you?

Mr. GOODLOE. We still have all the collateral that was pledged, except such portions of it-minor portions-which the British Government representatives here had an opportunity to sell on a basis which they thought was attractive. They came to us with a request to resell it, and we released some of it for sale. Then we got the proceeds of the sale applied on the loan. So we either have all the collateral that we had or the dollars resulting from the sale of it.

Mr. HULL. Most of these securities are unlisted securities, are they not?

Mr. GOODLOE. A great many of them are. Roughly, the securities, as I recall it, fall in three categories. There are a lot of listed securities; there are some unlisted; and then there is pledged, behind this

loan, the income from, I believe, 41 American branches of British insurance companies.

Of course, it is hard to tell what that type of security is worth. But on an income-producing basis-let me say it this way: The security pledged behind that loan has produced an income of 37 million dollars a year or better, annually, which has proven to be more than adequate to service the loan completely, and which is somewhat in excess of the estimate we made of the potential income at the time we made the original loan.

Mr. HULL. In case those securities were held by an American corporation, there would be a corporation tax levied on the dividends, would there not? Suppose a bank held those securities instead of you, and dividends were declared, and the dividends went to the owners, or stockholders. What I am trying to get at is how much income tax or corporation tax was paid on these dividends, amounting to 37 million dollars a year, and held by you for the British Government. They originally belonged to their nationals, and I understand that they toook them over.

Mr. GOODLOE. I think that is true of a substantial portion of them. Mr. HULL. Was there any such corporation tax levied on the holdings of those British nationals in this transaction?

Mr. GOODLOE. I would assume that the tax incidence would be precisely the same whether those securities were pledged to a commercial bank or, as they are, pledged to the Reconstruction Finance Corporation, except that with respect to the Reconstruction Finance Corporation, to the extent that it has income, it does not have to pay income tax, whereas a private institution would. But other than that, I do not believe there would be any difference in the tax incidence at all.

Mr. HULL. These dividends on those securities would go to the liquidation of the debt, and would be benefiting the people who own the stocks?

Mr. GOODLOE. That is, after taxes, though, I am sure.

Mr. HULL. They pay the taxes?

Mr. GOODLOE. Yes, sir; I am reasonably sure of that.

Mr. SUNDSTROM. Mr. Goodloe, what steps are being taken to liquidate that British loan?

Mr. GOODLOE. I am not sure that I know quite what you mean. Mr. SUNDSTROM. In other words, I assume that your collateral is sufficient to cover the $174,000,000.

Mr. GOODLOE. Yes.

Mr. SUNDSTROM. And I know there are a lot of securities among those which could be readily sold. I am wondering if any steps are being taken, either by the British to take back their securities and pay off the loan, or by the Reconstruction Finance Corporation to dispose of them and pay off the loan.

Mr. GOODLOE. Well, certainly not by the Reconstruction Finance Corporation. That is a long-term loan, and, as I recall it, there is an option to renew the amount of securities which have been sold with our approval and the money applied on the debt has not been a substantial amount. My recollection is that around $35,000,000 of the repayments have come from the sale of securities, which is a very small percentage.

Mr. SUNDSTROM. What I was thinking of is this: I know of certain securities among those which could be readily sold today, and I am

just wondering what would happen if American stockholders came to the Reconstruction Finance Corporation with a suggestion for sale..

Mr. GOODLOE. We would not discuss the matter with them. We would refer them to the gentlemen in New York who handle the British fiscal affairs here. The British Government has the right to pay that off at any time and obtain the release of the securities. The CHAIRMAN. Will you proceed, Mr. Goodloe?

Mr. RILEY. Mr. Chairman, may I ask a question about The RFC Mortgage Company?

What type of securities does it purchase?

Mr. GOODLOE. The RFC Mortgage Company?

Mr. RILEY. Yes. I believe you stated that the Federal National Mortgage Association purchased the Federal Housing Administration paper.

Mr. GOODLOE. Yes. The RFC Mortgage Company activities roughly fall in two categories. First, that subsidiary made loans on urban income-producing property-real-estate loans, so to speak.

In addition to that, that subsidiary of Reconstruction Finance Corporation provided the secondary market for Veterans' Home Mortgages, guaranteed by the Veterans' Administration under the GI bill of rights, during the period when the secondary market was in effect. That secondary market was terminated July 1, last year, and since that time The RFC Mortgage Company has been dissolved and its assets and liabilities all transferred to and consolidated with the Reconstruction Finance Corporation. So that now we have only one active subsidiary of the Reconstruction Finance Corporation. That is the Federal National Mortgage Association, which, under the Senate bill, would be abolished. The U. S. Commercial Company and the War Damage Insurance Corporation are both liquidated and will go out of existence June 30.

Mr. RILEY. This $139,600,000 is made up principally of GI secondary loans?

Mr. GOODLOE. Yes.

Mr. RILEY. Most of that paper has been sold, has it?

Mr. GOODLOE. No; those are not purchases of mortgages. Those are direct mortgage loans on urban income-producing property. The figure you see there in the mortgage company's statement on purchased mortgages is all veterans' home mortgages, guaranteed by the Veterans' Administration. And you will recall, on that secondary market, we bought those mortgages only from the original payee, the originating institution.

Mr. RILEY. Is there any market for those? Is there any demand for them?

Mr. GOODLOE. Very little, I understand, now. They are 4-percent mortgages also, you know. Our purpose originally in limiting it is to the originating institution was to give the small bank or building and loan association or other financial institution, which was in the best position to render the service locally to the veterans in their community, encouragement to go ahead and do that. We gave them the assurance that when they got a small amount of their capital tied up, if the insurance companies or other investment houses did not take those off their hands at par, we would. They then could make that

amount of capital revolve and make additional loans to veterans. That was the purpose of it.

Mr. RILEY. The thing is now that we do not have a market, and the veterans are having difficulty getting financing.

Mr. BUCHANAN. What was the amount of the original authorization, in 1932, of RFC?

Mr. GOODLOE. The original amount when RFC was created?
Mr. BUCHANAN. Yes.

Mr. GOODLOE. It had an authorized paid-in capital of $500,000,000, and its original borrowing power, as I recall, was $1,500,000,000. Of course that borrowing power was increased from time to time—that is, both the general borrowing power and then, later, special borrowing power.

Mr. BUCHANAN. Do you have any particular objection to naming any banking institution included in this outstanding balance of $135,000,000?

Mr. GOODLOE. In mortgages?

Mr. BUCHANAN. Yes. In the preferred stock of banks, the outstanding balance of $135,923,000. Do you object to naming any particular institution?

Mr. GOODLOE. I do not think so.

Mr. BUCHANAN. In the case of the so-called Dawes bank, just what is it that is outstanding there?

Mr. GOODLOE. That loan-I believe there were two loans, the aggregate of which was $90,000,000. That, however, was not a preferred stock deal and was never included within the category of the figure to which you are referring. That was a loan to a newly organized bank to take over the selected assets of the old bank, and the other assets were liquidated. That was a loan of $90,000,000.

As you recall, there was a long and expensive period of liquidation on it. There was much litigation with reference to stockholders' liability. There was repaid, on that loan, in round figures, $105,000,000. There was a certain residual amount of assets which, in order to terminate the expense of the receivership and get it out of court, we bought for an appraised value, so that whatever we get out of those do not count in the $105,000,000 liquidation from the bank itself.

That $105,000,000 is equivalent to getting back all of the principal$90,000,000 all of the expense incident to the liquidation and an amount equivalent to about 21⁄2 percent interest on the amount of the loan.

I want to be perfectly clear on that, however. By that calculation you apply your payments on principal, then on expenses, then on interest. Whereas, if you applied your payments on interest first it would still leave an unpaid portion of the principal.

The point I am trying to make is that neither the RFC nor the Federal Government lost one cent on the Dawes loan.

The CHAIRMAN. You may proceed, Mr. Goodloe.

Mr. GOODLOE. Section 6. This section amends the repealer section of the 1947 act by adding for repeal two sections of the act approved January 31, 1935.

Those were the two sections in the repealer which this committee and the House approved. But when they reached the Senate, the Senate

75015-48- -3

conferees, for some reason, eliminated them. It had a very unfortunate effect because, having rewritten our basic authority so that we brought all of our lending authority together in one section, the failure to repeal these two sections of the 1935 act made those limitations on disbursements and maturities applicable to every loan we made, whereas earlier they had expressly been inapplicable to business loans and public agency loans.

Mr. GAMBLE. Those two were stricken in conference, were they not? Mr. GOODLOE. That is correct.

Mr. GAMBLE. At the insistence of the Senate.

Mr. GOODLOE. And the Senate has agreed, in the present bill, to the repeal of both of those sections, which obviously should be done.

The first section limited disbursements on a commitment to 1 year following the date of commitment. The value of such a provision is doubtful and it does have definite disadvantages. In the case of deferred participation, this provision would require RFC to disburse its share within a year, although it seems preferable that the financing should be continued by the originating bank as long as possible.

Further, in the case of large construction loans, the full amount of the funds are oftentimes not required in the first year of construction. A requirement which results in the funds being disbursed before they are needed is unwise from the standpoint of sound credit practice.

The second of these sections to be repealed provided that RFC maturities should not extend beyond 1955. This limitation is repealed and the maturity limitations previously described would take its place.

Section 7: This section repeals section 208 of the 1947 act, thereby eliminating RFC's authority to purchase, under a Government agency priority, surplus property for small business. The Senate committee felt that this provision should be eliminated partly because this has resulted, in some cases, in giving priority to some small business at the expense of other small business, but principally because the benefits to be achieved by the section have already been attained.

As I indicated earlier, I think it is a part of the over-all program to eliminate all priorities for the disposal of surplus property. I think everyone recognizes that any priority system tends to delay and increase the cost of surplus property disposal, and it is felt that priority assistance has been in effect long enough so that most of the types of goods which lend themselves to priorities have been disposed of and most of the priority claimants have been fairly well satisfied. Under this authority, however, RFC made purchases which amounted to $54,000,000 during 8 months of the fiscal year 1947. The estimate for the current year is $25,000,000, while the estimate for next year is only $3,000,000.

Section 8: This section merely changes the dates in section 209 of the 1947 act to authorize the Corporation to use its general funds to pay administrative expenses in the event that appropriation legislation is not enacted by the end of this fiscal year. A similar provision was contained in last year's act.

Section 9: This section changes a paragraph in section 24 of the Federal Reserve Act by striking out a reference to participation by RFC under provisions "of section 5d" of the RFC Act.