of association which shall specify the general terms and objects for which the corporation is formed and which may contain any other provisions not inconsistent with this section that the corporation may see fit to adopt for the regulation of its business and the conduct of its affairs.

"(b) Such articles of association shall be signed by all the persons intending to participate in the organization of the corporation and shall be forwarded to the Board of Governors of the Federal Reserve System which shall file and preserve said articles in its office. Such articles of association shall specifically state

"first, the name assumed by such corporation, which shall be subject to the approval of the Board of Governors of the Federal Reserve System; "second, the place or places where its operations are to be carried on; "third, the place where its principal office is to be located, which shall be within the Reserve district in which it is established;

"fourth, the amount of its capital stock and the number and classes of shares into which the same shall be divided, all of which shares shall have equal voting rights;

"fifth, the names and places of business or residence of the persons executing the articles of association and the number of shares to which each has subscribed; and

"sixth, the fact that the articles of association are made to enable the persons subscribing the same, and all other persons, firms, companies, and corporations, who or which may thereafter subscribe to or purchase shares of the capital stock of such corporation, to avail themselves of the provisions of this section.

"(c) The persons signing the articles of association shall duly acknowledge the execution thereof before a judge of some court of record or a notary public. Such articles shall be subject to approval by the Board of Governors of the Federal Reserve System with the advice of the Secretary of Commerce. If the Board of Governors of the Federal Reserve System approves the articles of association, it shall issue a permit to begin business and the corporation shall thereafter become and be a body corporate, and, as such and in the name designated therein, shall have power to adopt and use a corporate seal; to have succession for a period of thirty years unless sooner dissolved by the act of the shareholders owning two-thirds of the stock or by an Act of Congress or unless its franchise becomes forfeited by some violation of law; to make contracts; to sue and be sued, complain, and defend in any court of law or equity; to elect or appoint directors as provided in this section, all of whom shall be citizens of the United States; and, by its board of directors, to appoint such officers and employees as may be deemed proper, define their authority and duties, require bonds of them, and fix the penalty thereof, dismiss such officers or employees, or any thereof, at pleasure and appoint others to fill their places; to adopt bylaws regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers and employees appointed, its property transferred, and the privileges granted to it by law exercised and enjoyed; and shall have the other powers set forth in this section.

"(d) The board of directors of each corporation organized under this section shall consist of nine (9) members, of which three shall be appointed from the public by the Federal Reserve bank of the district in which the corporation has its principal office, with the approval of the Board of Governors of the Federal Reserve System, and six by the holders of the capital shares of the corporation authorized and issued under the provisions of this section: Provided, That the holders of each class of shares shall have the right to elect directors in proportion to the number of each such class of shares issued and outstanding to the total number of shares of all classes, but not less than one (1) director shall be elected by each class of stock. Not more than one director of a Federal Reserve bank may also be a director of a corporation in which such bank is a shareholder. "3. CAPITAL STOCK PROVISIONS-BORROWING POWER. (a) Shares of stock in the corporation shall be eligible for purchase by member banks of the Federal Reserve System, and in order to facilitate the organization of corporations under this section, the Federal Reserve banks may purchase and hold such shares, as herein provided, until acquired by member banks. Each member bank is hereby authorized, notwithstanding any other provisions of law, to acquire and hold an amount of such shares equal to 1 per centum of the capital and surplus of each member bank. Each Federal Reserve bank is hereby authorized, notwithstanding any other provision of law, to acquire and hold an amount of such shares not exceeding 1 per centum of the aggregate of the capital and surplus of

all its member banks, but such Reserve bank shall, at the request of any member bank, and under regulations prescribed by the Governors of the Federal Reserve System, sell to such member bank the shares which the member bank is eligible to own: Provided, That no member bank shall own shares in more than one such corporation organized under this section.

"(b) Shares of stock in the corporation may be purchased by any nonmember bank, or by any financial institution, corporation, or individual, and the total number of shares which may be so purchased shall be determined by the corporation subject to the approval of the Governors of the Federal Reserve System: Provided, That no nonmember bank, financial institution, corporation, or individual shall, at any time own shares in more than one such corporation organized under this section, nor more than 10 per centum of the total outstanding shares of any such corporation.

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‘(c) Each corporation organized under this section shall have authority to borrow money and to issue its debentures, bonds, promissory notes or other evidences of indebtedness under such general conditions as to security and such limitations as the Board of Governors of the Federal Reserve System may prescribe, but in no event shall such corporation have liabilities outstanding at any one time exceeding the total amount of its paid in capital stock and surplus. Each member bank is hereby authorized, notwithstanding any other provision of law, to hold an amount of any debentures, bonds, promissory notes, or other evidences of indebtedness issued by the corporation under this section equal to 10 percentum of the capital and surplus of such member bank.

(d) No permit to begin business shall be issued by the Board of Governors of the Federal Reserve System to any corporation organized under this section unless the paid in capital and surplus of such corporation shall equal $1,000,000

or more.

"4. INSURANCE AND INVESTMENT AUTHORITY.— (a) Subject to such rules and regulations as the Board of Governors of the Federal Reserve System may prescribe, and as provided in this paragraph—

"(1) the corporation may insure banks against losses which they may sustain as a result of loans to or purchases of obligations representing loans to small or independent business enterprises as defined in paragraph 1 (b) of this section and eligible therefor. In no case shall insurance underwritten by the corporation under this paragraph exceed 10 per centum of the total amount of such loans or purchases of an insured bank, nor shall such insurance exceed 95 per centum of the aggregate amount of loans to or obligations of any one small or independent business enterprise. In addition to such insurance conditions as the Board of Governors of the Federal Reserve System, the corporation, or both, may prescribe

"(A) not more than $10,000 of loans or obligations of one smallbusiness enterprise may be insured;

"(B) no insured loan or obligation shall be for a period longer than five years;

"(C) the rate of insurance premium and the interest rate on insured loans or obligations shall be fixed by the Board of Governors of the Federal Reserve System;

"(D) no audits or appraisals shall be required on insured loans or obligations but banks shall certify to the borrower's good personal and business reputation notwithstanding a lack of commercial assets, collateral, or security;

"(2) the corporation shall have authority to make loans with or without security to both small and independent business enterprises as defined in paragraph 1 (b) of this section, which are eligible therefor, or to purchase obligations of such enterprises, provided that applications for loans or purchases under this section shall be initiated through member banks or other banks or financial institutions cooperating with the corporation. Such loans or purchases may be made either directly or in cooperation with such banks or other lending institutions, through agreements to participate or by the purchase of participations, or otherwise, as the corporation may determine. Obligations acquired by the corporation under the provisions of this paragraph shall be for periods not exceeding twelve years, and no obligations maturing more than twelve years from the date of acquisition by the corporation may be acquired under this paragraph;

"(3) the corporation shall have authority to purchase common or preferred stocks, income bonds, or other capital shares of small and independent

business eligible therefor under this section, provided that the amount invested by the corporation in such securities shall not exceed 20 per centum of the combined capital and surplus and authorized indebtedness of the corporation; and

"(4) the corporation shall have authority to purchase the capital shares of local industrial development corporations formed for the purpose of supplying venture capital for the introduction of new and useful products, services, or techniques, up to 5 per centum of its capital and surplus. "(b) The aggregate amount of obligations or securities acquired or for which commitments may be issued by the corporation under the provisions of this section which exceed the sum of $250,000 for any single enterprise eligible under the provisions of this section shall not exceed 25 per centum of the combined capital and surplus and authorized indebtedness of the corporation.

"(c) The loans of any national banking association which are insured under this paragraph or which are purchased by the corporation or for which a commitment to purchase is issued hereunder shall not be subject to the limitations of section 24 of the Federal Reserve Act as amended, purchases of loans, or commitments to purchase, shall not be subject to the limitations of section 5200 of the Revised Statutes, as amended.

"5. MISCELLANEOUS PROVISIONS.-(a) The provisions of the Securities Act of 1933, as amended, shall not apply to any shares or obligations issued by the corporation nor to the issuance of shares or other capital subscriptions of any small or independent business enterprise which are acquired by the corporation under the provisions of this section, nor to transactions by any person in connection with any acquisition by the corporation of obligations or shares or any commitment to acquire them, nor subsequent to such acquisition, to any further sale, exchange or other disposition by any person.

"(b) The corporation, its franchise, loans, and other assets, its capital stock, its surplus, its reserves, and its income, shall be exempt for a period of fifteen years from the date of its charter from all taxation now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or other taxing authority; except that any real property of the corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.

"(c) Wherever possible the financing operations of the corporation shall be undertaken in cooperation with member banks of the Federal Reserve System or with other banks or financial institutions located where the applicant ordinarily carries on its business, and any initial investigation and servicing required for loans or purchases of securities by the corporation under the provisions of this section shall be handled through banks or other financial institutions on a fee basis.

"(d) The corporation shall make use, wherever possible, of the facilities of the Federal Reserve System, and of the Department of Commerce, which are available for and useful to industrial and commercial businesses, and shall provide consulting and advising services on a fee basis, and shall have on its staff persons competent to provide such services. Subject to the supervision and direction of the Board of Governors of the Federal Reserve System any Federal Reserve bank is authorized to act as a depository or fiscal agent for any corporation organized under this section. Every corporation organized under this section shall make annual reports of its operations to the Board of Governors of the Federal Reserve System in such form as the Board of Governors shall prescribe.

"(e) Every agreement to insure or to make a loan to or purchase the obligation of a small or independent business enterprise eligible therefore under this section, and every agreement to purchase common or preferred stocks, income bonds, or other capital shares of such enterprises shall provide that any such loan or obligation shall become immediately due and payable, and that any such shares shall become immediately redeemable, if such enterprise shall, by reason of the sale of its stock, or assets, or otherwise, fail to qualify as a small or independent business as defined in paragraph 1 hereof; and no financial aid shall be provided under this section which would lessen competition in any trade or industry."

[S. 2975, 81st Cong., 2d sess.]

AMENDMENT (in the nature of a substitute) Intended to be proposed by Mr. O'Mahoney to the bill (S. 2975) to establish corporations to assist financial institutions in making credit available to commercial and industrial enterprises and to provide capital for such enterprises, viz: Strike out all after the enacting clause and insert in lieu thereof the following: That section 13b of the Federal Reserve Act is amended to read as follows: "SEC. 13b. 1. PURPOSE.-The general purpose of this section, as amended, in the light of which its provisions shall be construed and applied, is to provide a means for supplementing the existing financial activities of banks and other financial institutions by the establishment of one or more regional investing corporations, privately owned and managed, their formation to be facilitated by authorizing the purchase of their capital stock by the Federal Reserve banks with a view to the ultimate disposal of such capital stock by the Federal Reserve banks to member banks of the Federal Reserve System and to other private investors. Such corporations shall be authorized to invest in and insure loans to both small and independent business enterprises organized upon sound business principles which supply an economically useful product or service, where the investment in or the insurance of loans to such enterprises will promote their growth and expansion.

"2. SMALL-BUSINESS ADVISORY COUNCIL.-(a) There is hereby established a Small-Business Advisory Council, hereinafter called the 'Council', which shall consist of the Secretary of the Treasury, the Secretary of Commerce, who shall be Chairman of the Council, and the Chairman of the Board of Governors of the Federal Reserve System. The Council, which shall meet on the call of its Chairman, may advise and consult with the Board of Governors of the Federal Reserve System and make recommendations to that Board from time to time with respect to the operations of the corporations organized under this Act and the administration of the provisions of this section.

"3. ELIGIBLE ENTERPRISES.-The Board of Governors of the Federal Reserve System, hereinafter called the 'Board', after consultation with the Secretary of Commerce, shall promulgate standards to determine the eligibility of small or independent business enterprises for the purposes of this section. In promulgating such standards, which may differ according to the types of financing or other relevant factors, there shall be considered the relative size and position of businesses in relation to the trade or industry in which they are engaged, the size and nature of the area of their operations, the size and independence of the group supplying capital or holding ownership or control of the business, and the independence of their management; and no enterprise shall be considered to be a small or an independent business enterprise which is affiliated through stock ownership or otherwise with any other enterprise which is determined to be dominant in the trade or industry or field of business in which it is engaged, unless such other enterprise otherwise qualifies as a small or independent business enterprise under this section.

"4. ORGANIZATION OF CORPORATIONS.-(a) Corporations, not exceeding in number the total number of Federal Reserve banks and branches thereof, organized for the purpose of operating under this section, may be organized by any number of persons not less than five, who shall subscribe to the articles of incorporation; except that any such corporation in whose stock one or more Federal Reserve banks invest shall be formed by a Federal Reserve bank, which alone shall subscribe to the articles of incorporation. The articles of incorporation of such corporation shall specify in general terms the objects for which the corporation is formed and may contain any other provisions not inconsistent with this section that the corporation may see fit to adopt for the regulation of its business and the conduct of its affairs, including provision for cumulative voting in the election of directors. Such articles shall be subject to the approval of the Board of Governors of the Federal Reserve System, and with such approval may be amended from time to time. Articles of incorporation and amendments thereto shall be forwarded to the Board of Governors for consideration and approval or disapproval. Such articles shall specifically state

"first, the name assumed by such corporation;

"second, the area or areas where its operations are to be carried on, which may be anywhere within the United States, its Territories and island possessions, but as long as any of its stock is owned by any Federal Reserve 69197-50-pt. 1—2

bank, the Board may restrict the area of its operations to the Federal Reserve district in which its head office is located;

"third, the place where its principal office is to be located, which shall be within the Federal Reserve district in which it is established; and

"fourth, the amount of its capital stock and the number and classes of shares into which the same shall be divided, with or without par value, and the respective participations of such shares in the profits of the corporation. "(b) In determining whether to approve the establishment of such a corporation and its proposed articles of incorporation, the Board of Governors shall give due regard, among other things, to the need for the financing of small and independent business enterprises in the place or places where the proposed corporation is to commence operations, the general character of the proposed management of such corporation, the number of such corporations previously organized in the United States, and the volume of their operations. After consideration of all revelant factors, the Board of Governors may approve the articles of incorporation and issue a permit to begin business. Upon issuance of such a permit, the corporation shall thereafter become and be a body corporate and, as such, and in the name designated therein, shall have power to adopt and use a corporate seal; to have succession for a period of thirty years, unless extended as provided in this section, or unless sooner dissolved by the act of the shareholders owning two-thirds of the stock or by an Act of Congress or unless its franchise becomes forfeited by some violation of law; to make contracts; to sue and be sued; complain, and defend in any court of law or equity; by its board of directors, to appoint such officers and employees as may be deemed proper, define their authority and duties, require bonds of them as it deems advisable, and fix the penalty thereof, dismiss such officers or employees, or any thereof, at pleasure and appoint others to fill their places; to adopt bylaws regulating the manner in which its stock shall be transferred, its officers and employees appointed, its property transferred, and the privileges grantel to it by law exercised and enjoyed; to establish branch offices or agencies su ject to the approval of the Board; to acquire, hold, operate, and dispose of any property (real, personal, or mixed) whenever necessary or appropriate to the carrying out of its lawful functions; to act as depository or fiscal agent of the United States when so designated by the Secretary of the Treasury; to operate in such Federal Reserve district or districts or Territories or possessions of the United States as may be specified in its articles of incorporation; and shall have the other powers set forth in this section and such incidental powers as may be reasonably necessary to carry on the business for which the corporation is established.

"(c) The board of directors of each corporation organized under this section shall consist of nine members, all of whom shall be elected annually by the holders of the shares of stock of the corporation authorized and issued under the provisions of this section. Subject to the provisions of this section the directors of any corporation organized under this section shall have wide discretion in directing the affairs of such corporation to carry out the purposes of this section. "5. CAPITAL STOCK PROVISIONS.-Each corporation organized under this section shall have a paid-in capital and surplus equal to at least $5,000,000 before it shall commence business. Each Federal Reserve bank which organizes a corporation under this section shall invest in shares of stock of such corporation in an amount equal to at least $5,000,000, or an amount which, when added to the amounts, if any, of shares subscribed by other Federal Reserve banks, member banks, nonmember banks, financial institutions, corporations, partnerships, or other persons, shall equal the sum of $5,000,000; and each Federal Reserve bank is hereby authorized, notwithstanding any other provisions of law, to invest in the shares of stock of one or more corporations organized under this section: Provided, That in no event shall any Federal Reserve bank invest in shares of corporations organized under this Act if as a result thereof it will hold an amount of such shares aggregating more than 2 per centum of the aggregate amount of the combined capital and surplus of all its member banks, or $5,000,000, whichever is greater. The shares of stock in any corporations organized under this Act shall be eligible for purchase by member banks of the Federal Reserve System, and each such member bank is hereby authorized, notwithstanding any other provision of Federal law, to acquire and hold an amount of such shares equal to not more than 2 per centum of the capital and surplus of such member bank. Subject to the provisions of this section, any nonmember bank, financial institution, corporation, partnership, or other person may acquire shares of stock in any corporations organized under this Act. Upon the demand of any member bank, a Federal Reserve bank which holds shares of stock in a corporation or