RFC. The RFC, while conducting an entirely self-sustaining lending operation under this bill without any cost whatsoever to the taxpayers, will be able to aid sound, efficient business firms which can not meet the lending requirements of either the proposed national investment companies or private lending institutions. I hasten to emphasize that this does not at all mean that the RFC under this program would be offering easier credit in competition with private institutions. It is to be noted that the provisions of this bill open up this source of credit only after the borrower has been turned down by every private lending institution to which he has applied including the national investment companies.

The RFC provisions in this bill will make it possible for a sound, efficient business enterprise to obtain essential financial assistance when it has recourse to no other source of capital. In fact, this is one of the main objectives of this comprehensive bill.

The bill introduced by me on January 30, S. 2947, authorized the RFC to participate up to 90 percent of the amount of an outstanding small-business loan. Section 304 of the bill you are considering places the maximum participation at 80 percent. I believe the committee should give the matter of the percentage of participation serious consideration.

The higher the percentage of participation, the greater will be the incentive for private banks to cooperate with the RFC. With primary emphasis removed from collateral security, private banks may be hesitant in investing under this program unless the percentage of participation is quite liberal. It may therefore be desirable to place the percentage of participation at a high level.

For the reasons that I have briefly outlined, I firmly believe that your committee should approve the features of this bill dealing with the RFC. These provisions are an essential part of the over-all financial assistance program provided for in this bill.

Title V of S. 3625 provides for a comprehensive program of technological and managerial assistance for small-business firms. This, in my opinion, is a very vital part of the bill. I first directed my attention to this problem many months ago. At my request the National Bureau of Standards made a cursory survey of the thousands of patents held by the United States in order to determine their adaptability for the use of small-business firms. A fair proportion of these patents could be used by our small-business firms. The enactment of title V of this bill will permit the Department of Commerce to collect and screen this patent information and encourage its use among our small-business firms.

On March 14 of this year, I made an extended statement on the floor of the Senate on the technological problems of small business. At that time I stated that the technological advances of the last few years have had a more profound impact upon existing methods of producing and marketing than the industrial revolution had in its day. I pointed out at that time that small business to grow and prosper must keep pace in this new technological age.

Large business corporations are able to maintain modern technical laboratories and research staffs which have enabled them to take advantage of the vast amount of technical knowledge which has been accumulated over the last decade by private research laboratories and

by the Government. In this respect the average small business enterprise with no laboratory facilities and with very little technical experience is suffering a real disadvantage.

The disadvantages are mainly competitive. Larger firms through scientific production processes have substantially reduced unit costs. Through scientific methods of specification purchasing and acceptance testing, these large firms have minimized waste in materials. As I view title V of this bill, it will go a long way toward placing smallbusiness firms on an even competitive basis with our larger business organizations.

My discussions of these technological problems with representatives of Government, industry, and research laboratories, have brought me to the conclusion that the efforts to solve these serious problems should be on a cooperative basis with small-business firms, private research laboratories, engineering schools, and the Government, all working together in discovering where the problems lie and what methods should be used to remedy them. Such cooperative programs would assure the greatest results with a minimum of wasted effort. Smallbusiness firms working together would make known their problems which they consider the most serious and steps could be taken promptly to remedy them.

I believe there would be considerable merit in the committee's adding to title V a statement of Congressional policy to the effect that the primary initiative in solving the technological problems of small business should come from small business firms themselves. Such a stateinent of policy might follow this form:

It is the sense of Congress that technological problems of small business should be solved as far as is feasible through privately initiated programs and that business enterprises, educational institutions, and qualified research laboratories should cooperate in the solution of such problems. The Secretary is hereby authorized to utilize to the fullest the authority placed in him under this title in cooperating in such programs.

This statement of policy would demonstrate to our small business firms that the Government under this program is to work with them and not do the work for them. It should result in a higher degree of cooperation on the part of all interested groups in bringing about solutions to the problems of small business. This statement of policy would also enlist for this program the support of those who may now fear that the Department of Commerce may carry out its function without full coordination and consultation with business and research groups.

As I see it, this statement of policy does not limit the authority of the Secretary under this title, but it merely gives a general assurance that small business will be called upon to play an active part in the solution of its own problems. It is my firm opinion that the provisions of this bill treating with the technological problems of small business are just as vital as any other part of this comprehensive program for small business.

In conclusion, I want to emphasize that there is much that the independent businessmen can do themselves to preserve their independence and assure their continuing vitality. Congress should concern itself only with those problems which small business, acting independently or cooperatively, is still unable to solve for itself.

The small-business people of America by virtue of their dignity as self-dependent men and women have never demanded preferred status

from their government; they have chosen to solve their own problems through independent effort and hard work. But in this age of modern technology, intricate finance, and concentration of business control, small business is faced with problems that cannot be solved through independent effort and hard work. These are the problems that Congress must take positive steps toward correcting if we are to create an environment conducive to the continued independence of free, competitive small-business enterprises.

The CHAIRMAN. We very much appreciate the Senator appearing here today, and we want to assure him that if he desires to have witnesses appear, from Illinois or elsewhere when we commence hearings again, we will be happy to have them.

Senator LUCAS. Let me say this to you, Mr. Chairman: If any members of the committee, after reading the manuscript that I have prepared and submitted for the record, desire to have me return to the committee for the purpose of cross examination on any phase of this bill, I shall be more than happy to comply with their request.

Senator BENTON. May I say, Mr. Chairman, that of the many areas that the senior Senator from Illinois takes leadership, this is by far from being the least significant.

Senator LUCAS. I thank you.

Senator BENTON. If the business community feels as I do, it will pay tribute to the leadership you are showing here. Senator LUCAS. Thank you very much.

The CHAIRMAN. Now, gentlemen, Mr. Cosgriff.

We are pleased to have you here, Mr. Cosgriff, and are sorry that there are not more members present, but because of certain other committee hearings that were set some time ago the Senators have been detained.

Will you proceed, sir?

STATEMENT OF WALTER E. COSGRIFF, PRESIDENT, CONTINENTAL NATIONAL BANK & TRUST CO., SALT LAKE CITY, UTAH

Mr. COSGRIFF. My name is Walter E. Cosgriff. I am president of the Continental National Bank & Trust Co. of Salt Lake City, Utah. I have been president of this institution since September 1941 and an officer of the same institution since June 1934. In addition to this, my family and myself have the controlling interest in nine different banks located in the States of Utah, Idaho, Wyoming, and Colorado. Some of these banks have small branches in different towns than that in which the head office is located. The combined assets of these various institutions exceed $100,000,000. I am president, vice president, director or chairman of the board of directors of several of these institutions.

I have also had occasion to do substantial banking business in several western States in addition to the ones previously mentioned. In my various connections I feel I have been and am in a good position to observe the functioning of credit throughout most of the western United States.

At this time I might state that the major portion of my remarks will be directed to title I of S. 3625, although at the close I will make a few limited comments on titles II, III, and V of the bill.

I appreciate very much the opportunity to appear before this committee and to express my personal views toward the proposed Small Business Act of 1950. It is my firm conviction that in a large part of the country it is difficult, it not impossible, for small business to obtain the credit to which it is justly entitled from banks or other financial institutions. This is a hard subject to generalize on because of the very nature of the banking business itself. In one town, for example, a bank or banks therein located may be honestly and conscientiously trying to extend credit to small business and doing a very good job in this respect. In other towns, the bank or banks located therein may be doing little or nothing in this regard.

In the case of towns in this latter category it is difficult or impossible for businessmen to seek credit in other localities because (a) the businessman may be unknown to the bankers there; or (b) the bankers may have all they can do to care for the needs of the people in their own localities and not have additional credit available for outsiders. A statement as to the reasons why banks may not care to extend credit to small business might be advisable at this time. In my opinion, the banking business generally has undergone a great change in the last 10 years; this especially refers to that period shortly after the outbreak of World War II until the present time.

Prior to 1940 the total amount of Government bonds or other evidence of indebtedness on the market was relatively small in terms which we are accustomed to consider today; i. e., the national debt varied between 40 and 50 billions, whereas today it is five times greater. Second, as a result of World War II and activities connected directly therewith, the amounts of money and credit available to banks have enormously increased; in fact, it has been doubled and tripled in many cases; whereas, the actual number of banks in the United States has been gradually declining over a long period of time. In 1939 there were 14,484 banks; in 1949 there were 13,429.

Therefore, the deposits and resources of practically all banks have enormously increased. Third, as a result of greatly expanded FHA and GI insured-mortgage lending which is primarily supervised by agencies of the Federal Government, a great many guaranteed obligations have gone on the market and have become available for investment by banks and other financial institutions. Now, prior to 1940, or thereabouts, banks generally had to make their living, i. e., expenses and a profit to their stockholders, by loaning money to general business and industry and receiving interest therefrom. Čertainly, it is true that the principal, and in many cases practically the only source of profit to banks during this period, was the interest they received on industrial and commercial loans. Therefore, if a bank failed to make these loans in quantity, it saw its profits diminish to the break-even point or lower. In short, if the profit motive is accepted as dominant in the banking business, this would insure that loans to business and industry would be made. However, as a result of the enormous increase in the availability of Government bonds and Government-insured loans of various kinds and the expansion in the amount of deposits a bank had to work with, it is now entirely possible for a bank to make all expenses, plus a considerable profit, by merely taking its depositors' funds and investing them in so-called riskless

assets.

This situation was graphically depicted by my conversation with a fellow banker during the closing stages of World War II. I reminded him that less than 8 percent of his deposits had been loaned to business and individuals in his community. He replied, in effect, "Why should I take the risk and do the work incident to loaning money as you suggest? My investment in Government bonds yields sufficient interest to put me in the excess profits income tax bracket, so why should I worry about loaning money?"

Since the war, of course, with the repeal of the excess profits tax, this situation has been somewhat improved, although it could, I think, be readily agreed that the existence of high taxes, plus the availability of so-called riskless assets has enormously decreased the incentive for a bank to go out and make loans to business and industry; or, in other words, to make loans on risk assets.

If my reasoning so far is correct, it should seem that today from a strict matter of profitable operations, loans to business and industry, comprising risk assets in ordinary banking parlance, are at a great disadvantage as against the ease and security of investing in Government bonds and Government insured loans, which comprise so-called riskless assets. It would seem, therefore, to me that something must be done in order to close this preference gap.

In my opinion, the first title of the proposed act, known as the Bimson plan, would be a step in the right direction towards accomplishing this goal. It would remove a large part of the risk from some of the business loans, thus making them once again at least as attractive to the average banker as other riskless types of investments, which are so prevalent on the market today. Now, I feel sure that it is axiomatic that neither the passage of this bill, nor any other single plan, will at once strike down all the difficulties small business today has in obtaining adequate credit. The whole proposition is at best experimental. It may take a matter of years to interest a sufficiently large number of bankers to allow them to develop the necessary organization and to generally make enough difference in the whole credit structure to be of full scale aid in the matter of supplying credit to small business.

In this connection, I am inclined to dwell for a moment on the title I loans under the Federal Housing Administration Act. It will be recalled, I believe, that when this act was first passed very few banks were ready immediately to take advantage of it. Even the more venturesome bankers did not get around to thoroughly testing out the possibilities of that act for several years.

Even at the present time, some 16 years after the pasasge of the original FHA Act, out of about 14,000 banks in the United States, less than half, i. e., 6,181, have contracts of FHA title I insurance. Of these 6,181 banks, only about two-thirds, or 4,208, are active in the making of FHA title I loans. It is my considered opinion that far less than half of these are actually doing a complete job in this respect.

Nevertheless, I think it would be generally agreed that in the 16 years since the passage of the first FHA Act, an immeasurable amount of good has been done. Hundreds of thousands of persons have been able to improve their homes through the use of credit provided by the insurance features of the FHA Act. While it is certainly true that a great deal more could be done and undoubtedly will be done