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result in any substantial increase in the volume of private lending, the liberalization of RFC's collateral requirements will greatly increase the number of applications for RFC business loans.

This committee will recall that its Report No. 974, Eightieth Congress (to accompany S. 2287), March 10, 1948, contained the following statement:

OPERATIONS SHOULD BE SELF-SUSTAINING

The third principle which should govern the operations of RFC is that its lending activities under economic conditions such as prevail today should be conducted, insofar as is reasonably possible, on a self-sustaining basis after taking into consideration the operating expenses and reasonable reserves for losses.

The present law requires that RFC's loans be "of such sound value or so secured as reasonably to assure retirement or repayment.” The committee believes that a fair application of this standard will yield the desired result.

The committee will realize that a relaxation of collateral requirements will require the reservation of a greater portion of the Corporation's earnings as a loss reserve than has heretofore been needed. In addition, administrative expenses resulting from additional applications and from inquiries will certainly increase. Both of these considerations will have an effect on the Corporation's ability to continue on a self-sustaining basis. I mention this because of the related factor of interest rates paid by RFC borrowers, now at 4 percent. Obviously, there is a distinct possibility that this interest rate would have to be reconsidered and probably revised upward if section 301 is enacted.

If further study of the language of the bill, particularly title III and related sections, reveals the need for clarification, we would wish to have the opportunity to submit further comments or suggestions of a clarifying nature.

The CHAIRMAN. We want to thank you for this statement. As I asked you when you first came here—I do not think it was quite clear for the record—is that the statement of the directors of the RFC?

Mr. GUNDERSON. Yes, sir.
The CHAIRMAN. It is not your statement !

Mr. GUNDERSON. In answer to certain questions that were asked I expressed my personal opinion. So far as the statement is concerned it represents the RFC's statement.

The CHAIRMAN. Any questions that you answered were expressing your personal opinion, after studying the bill, to the best of your knowledge?

Mr. GUNDERSON. The statement represents the RFC's views.

The CHAIRMAN. This is a statement from the directors of the RFC. I thank you.

I do not have any questions.

Senator CAPEHART. Could not RFC do everything that is called for under this bill, other than the title here that sets up the National Investment Corporation ?

Mr. GUNDERSON. We could not make the 15-year loans.

Senator CAPEHART. If the RFC was made the agency to administer this bill could not they do so on everything other than the National Investment Corporation under title II ?

Mr. GUNDERSON. I think so; yes, sir.

The CHAIRMAN. Well, that is just what we do not want to do. We want to put the private banks in business.

Senator CAPEHART. Yes, but some Government agency has to underwrite the insurance plan for

the private loan. Do you feel that insuring loans for small businesses under $25,000 is a good thing?

Mr. GUNDERSON. Well, I have not studied that very much, Senator Capehart. My personal opinion is that with business loans I would not like to say it could not be done—you need discretion in making them. I think that an insurance plan might well work but a lot would depend on how it was administered, the kind of regulations and the discretion of the people who are experienced with the proposed operation.

We had a program right after the war of blanket participation agreements where we let the banks themselves exercise discretion. The program was quite successful and I suppose in many ways it was not too far rmoved from the insurance plan.

Senator CAPEHART. Do you feel that the banks on all $25,000 loans would simply turn them over to the Government for insurance?

Mr. GUNDERSON. I doubt it myself. I do not think they would make too many loans other than they are already making. But I do not understand it and I have never studied the insurance of loans. I do know that the business of making business loans is considerably different than the business of making a loan for X amount on a house or a bushel of corn, or anything like that.

Senator CAPEHART. I was going to say that you have, of course, the insurance on housing loans.

Mr. GUNDERSON. And that is very successful.

Senator CAPEHART. But there, of course, the Government set the regulations, inspected the property and approved it in advance and the Government, of course, has a first mortgage on the property that is set up over a period of X number of years of payments.

The CHAIRMAN. Under title I of the Housing bill they do not do that. .

Senator CAPEHART. They have a mortgage on the property.
The CHAIRMAN. The bank has the mortgage.

Senator CAPEHART. That property remains intact, it does not move, it is always there. The security under a business loan fluctuates from hour to hour.

The CHAIRMAN. I am not going to differ with you on that. I just meant that the Government did not do that, it left it to the banks under title I.

Senator CAPEHART. Of course there are certain rules and regulations.

The CHAIRMAN. Any further questions?

Senator CAPEHART. I am thoroughly convinced—and I am not going to argue the merits or demerits—that it is the opening wedge to the eventual guaranteeing of all business loans.

The CHAIRMAN. If there are no further questions we will thank you for your testimony.

(Whereupon, at 11:50 a. m., the hearing was recessed.)

SMALL BUSINESS ACT OF 1950

TUESDAY, JUNE 27, 1950

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met, pursuant to recess, at 10 a. m., in room 301, Senate Office Building, Senator Burnet R. Maybank (chairman) presiding

Present: Senators Maybank and Sparkman.
Also present: Senator Benton.
The CHAIRMAN. I will ask the meeting to come to order.
Mr. Kirby, will you come up, sir?

Senator Tobey will be here in a few minutes. He has some people in his office. Senator Sparkman will also be here, but I thought we had better get along because we have Mr. McCabe following you, Mr. Kirby. Mr. Kirby, will you proceed in your own way? STATEMENT OF VANCE N. KIRBY, TREASURY DEPARTMENT

Mr. KIRBY. Yes. At the outset, I would like to give to you, Mr. Chairman, a short report by the Department signed by the Secretary on this bill.

The CHAIRMAN. To have the record clear, I will ask you to read that into the record.

As I understand, you represent the Treasury Department as a tax expert?

Mr. KIRBY. That is right.

The CHAIRMAN. As I understand, the Secretary of the Treasury wrote the letter you are going to read, and as I understand, that letter speaks not only for the Secretary, but also for the Comptroller of the Currency; am I correct?

Mr. KIRBY. You are correct in that. The CHAIRMAN. So it will not be necessary to have the Comptroller of the Currency here?

Mr. KIRBY. That is correct.

The CHAIRMAN. Mr. Snyder said that if we needed him, he would come, but he told me over the telephone that the letter would be sufficient to make absolutely clear for the record the position of the Treasury Department and its various branches; is that right?

Mr. KIRBY. That is right. The Secretary would be very glad to come, if the committee desired his appearance.

The CHAIRMAN. Not only his appearance, but his letter represents those connected with the Treasury, the Comptroller, and everyone else? Mr. KIRBY. That is right.

The CHAIRMAN. All right, then, if you will read that letter, we will be interested in it. I know the substance of it, but I think for the record the letter should be read.

Mr. KIRBY. This letter is dated June 26, 1950:

MY DEAR MR. CHAIRMAN: Further reference is made to the requests of your committee for the views of this Department on S. 2947, S. 2975, S. 3386, and S. 3625, bills to aid small business.

These bills contain various provisions which are similar in their nature or purpose, such as the creation of private corporations to provide credit and equity capital to business enterprises; the insurance of loans made by financial institutions to small businesses; and the broadening of RFC lending authority. S. 3625, however, is more comprehensive than the other bills and has been drafted to implement the recommendations contained in the President's message to the Congress of May 5, 1950.

The Treasury Department suggests that S. 3625 be considered in lieu of the other bills to aid small business which are pending before your committee. The Treasury Department is in favor of the objectives of that bill to provide additional capital for small business where available sources might prove to be inadequate. The Department has no comments or recommendations which it wishes to submit with respect to the provisions of S. 3625 other than the tax provisions. The comments of the Department in connection with the tax provisions will be presented by a representative of the Department in hearings before your committee. Very truly yours,

JOIN W. SNYDER. The CHAIRMAN. As I understand that letter, the Treasury Department's interest in small business is as it has been shown here since we started these hearings, and that is the tax situation of small business.

Have you followed the hearings to the extent where Senator Capehart suggested the greatest relief to small business could only be through tax reduction? He suggested up to $50,000 they might not pay any taxes. He suggested an amortization plan over a period of 5 years.

Have

you followed that?
Mr. KIRBY. We have followed the hearings, Mr. Chairman.
The CHAIRMAN. Are you going to comment on that?
Mr. KIRBY. Yes.
The CHAIRMAN. You go ahead.

Mr. KIRBY. I will give my prepared statement and then, if there are any questions, I would certainly be glad to take them up.

The CHAIRMAN. How long is the statement ?
Mr. KIRBY. It is just about seven pages.

The CHAIRMAN. Would you rather get through before questioning?

Mr. KIRBY. It does not make any difference, Mr. Chairman; however it suits your committee.

The CHAIRMAN. All right. You go ahead.

Mr. KIRBY. I would like to state right at the beginning that the Treasury Department is wholeheartedly in support of the objectives of the small business bill, S. 3625, and urges its enactment. However, inasmuch as the only provisions of the bill which particularly fall within the jurisdiction of our Department are the tax provisions, my statement will be restricted to a discussion of them. The other parts of the bill have been covered fully by the representatives of the agencies which are immediately concerned.

Under the tax provisions found in section 208 of the bill, national investment companies would be granted the tax treatment of regulated investment companies, modified in certain important respects. The

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