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April 6, 1939.

A

BILL

To establish an Industrial Loan Corporation and for
other purposes.

De it enacted by the Senate and the house of Representatives of the United States of America in Congress assembled* That
section 13b of the federal Reserve Act is amended to read as follows:
f,

(a) This section

ay be cited as the 'Industrial Loan

Corporation Law1.
"(b) There is hereby created a body cor orate with the
t
na;ae Industrial Loan Corporation (hereinafter called the Corporation). The principal office of the Corporation shall be located
in the District of Columbia, but it may designate and utilize as
its agents any or ail of the Federal reserve banks, which are hereby authorized to act in such capacity, may establish branch offices,
may designate and utilize other persons or other existing institutions as its agents, or, if it deems it desirable, may supply
capital tor and organize corporations under local laws to act as
its agents. The Corporation shall have power (1) to adopt, alter
and use a corporate seal, which shall bo judicially noticed, (2) to
have succession until dissolved by Act of Congress or in accordance
with subsection (n) of this section, (o) to sue and be 3ued, complain ;md defend, in any court of law or equity, (4) to make




-2-

contracts and to lease or acquire such real estate and equipment
as may be necessary for the transaction of its business, (5) to
prescribe by its board of directors by-laws and rules, regulations
end requirements, not inconsistent with law, as to the manner in
v \ c ' its business and operations ioay bo conducted and the pov-ers
iiii
granted to it by law ; a be exercised and enjoyed. The Corporaty
tion may exorcise all powers specifically granted by this section
and such incidental powers as may be reasonably necessary to effectuate the provisions of this section in accordance with its purposes and to prevent evasions of such provisions.
"(e) for the purpose of providing funds to a commercial
or industrial business, the Corporation is authorized, subject to
such regulations and requirements as it may prescribe:

(l) to make

loans to, discount obligations for and purchase obligations from
such a business; (2) to discount for or purchase from a financing
institution obligations of sucn a business or make loans to a
financing institution on the security of such obligations; (3) to
make commitments to make any such loans, discounts or purchases;
and (4) to purchase preferred stock in a corporation engaged in a
commercial or industrial business. The Corporation s»ay include in
its regulations, among other things, provisions regarding the maximum maturity oi any loans made or obligations acquired, regarding
the kinds of preferred stock acquired, and regarding the rates of




-3-

interest and discount and the purchase price of obligations and
preferred stock, and may define for the purposes of this or other
subsections of this section the terras

1

commercial or .industrial

business', financing institution1 , 'obligation1, and preferred
stock'•

The Corporation may exercise the authority granted in

this subsection either directly or in cooperation with financing
institutions; but it shall not provide funds for any commercial or
industrial business which is able to obtain adequate funds on a
reasonable basis from financing institutions, nor shall the amount
of funds provided by the Corporation pursuant to this subsection
for any one commercial or industrial business and outstanding at
any one time exceed $1,000,000. Loans, discounts and purchases
hereunder shall be made upon a reasonably sound basis. All rules,
regulations end requirements made under authority of this or any
other subsection of this section may be reviewed and revised from
time to time by the Board of Governors of the Federal Reserve System.
"(d) The Corporation is authorised and empowered to issue its notes, debentures, bonds, or other such obligations, which
may be redeemable at the option of the Corporation before maturity in such manner as may be stipulated in such obligations, and
shall mature at such times, be so secured, and bear such rate or
rates of interest as may be determined by the Corporation; but
the issuance of such obligations and the terms and conditions thereof




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shall be subject to the approval of the Board of Governors of the
Federal Reserve System. The aggregate of all obligations issued
under this section and outstanding at any one time shall not exceed
an mount equal to five times the capital stock and surplus of the
Corporation, exclusive of the Insurance Fund hereinafter provided
for. Such obligations may be issued in payment of any loan, discount, or purchase authorized by this section or may be offered
for sale at such price or prices as the Corporation may determine.
!f

(e) The Corporation is authorized and empowered from

time to time to set aside such amount of its capital stock or surplus, or both, as it may deem advisable as an Insurance Fund, for
the purpose of insuring financing institutions, which the Corporation finds to be qualified, against losses which they may sustain
upon obligations which they may acquire m or after the date on which
the Industrial Loan Corporation Law becomes effective from any commercial or industrial business for the purpose of providing funds to
such business.

Such insurance may be granted upon such terms and

conditions as the Corporation may by regulation or otherwise prescribe,
including among other things limitations to the extent deemed necessary on the amount of obligations of any one business insured, c n the
>
amount of obligations insured for any one financing institution, on
the portion of any obligation to which the insurance shall apply,
and cn the aggregate amount of insurance granted by the Corporation,
and requirements for the payment of premiums by the insured institutions.




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"(f) The net earnings of the Corporation, after making
adequate provision for losses incurred or contemplated, shall be
transferred to its surplus. Upon the liquidation or dissolution
of the Corporation all assets remaining after the payment of all
indebtedness of the Corporation shall be paid to and become the
property of the United States.
"(g) The Corporation is authorized to sell, exchange, or
otherwise dispose of any obligations or preferred stock which it
has acquired, with or without its endorsement or guaranty and upon
such terms and conditions as it may deem advisable. The provisions

the Securities Act of 1933 shall not apply to any obliga-

tions issued by tho Corp:ration under subsection (d) of this section, nor to transactions by any person in connectien with any acquisition by tho Corporation of obligations or preferred stock or
any commitment to acquire them under subsection (c) of this section,
nor, after any such obligations or stock are so acquired by the
Corporation, to any subsequent sale, exchange or other disposition
of them by any person.
w

(h) Any and all notes, debentures, bonds, or other

such obligations issued by the Corporation shall be exempt both ss
to principal and interest from all taxation (except surtaxes, estate,
inheritance, and gift taxes) now or hereafter imposed by the United
States, by any Territory, dependency, or possession thereof, or




-6by any State, county, municipality, or local taxing authority. The
Corporation, its franchise, loans and other assets, its capital
stock, its surplus, its reserves, and its income, shall be exempt
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 (other than that which
it finds necessary to provide quarters for the transaction of its
business) 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. Notwithstanding any other provision of
law, all suits of a civil nature at common law or in equity to
which the Corporation shall be a party shall bo deemed to arise
under the laws of the United States, and the district courts of
the United States shall have original jurisdiction of all such
suits; and when the Corporation is a defendant in any such suit,
it may, at any time before the trial thereof, remove such suit
from a State court into tho district court of the United States
for the proper district by following the procedure for the removal of causes otherwise provided by law. No attachment or
execution shall be issued against the Corporation or its property




-7-

before filial judgment in any suit, action, or proceeding in any
State, county, municipal, or United States court.
t!

(i) Tho Corporation is authorized and empowered to tako

such stops as it may deem appropriate to encourage and assist in
the formation of committees of representatives of small businesses
and others in local communities to explain to possible or prospective
applicants for funds the facilities of tho Corporation provided in
this section and to advise with and assist prospective applicants
in connection with thoir requests for financial assistance from the
Corporation.
1!

(j) The management of tho Corporation shall be vested

in a board of directors of throe members, who shall be designated
from time to time by the Board of Governors of tho Federal Reserve
System from among its members. One of said directors may be design
nated as chairman of the board of directors by the said Board of
Governors.

Tho said Board of Governors shall also designate from

time to time throe alternate members of the board of directors of
the Corporation from among the remaining members of tho said Board
of Governors or members of its staff. Any such alternate member
may act in lieu of any member of the board of directors at any
time. At meetings of the board of directors throe members shall
be necessary for a quorum. Every director and alternate, and the
chairman of the board in his capacity as such, shall serve during




-8tho pleasure of the Board of Governors of the Federal Reserve
System, The Corporation may utilize, as its officers and employees, any employees of the Board of Governors of the Federal
Reserve System with the consent of the said Board of Governors,
and may utilize as its officers and employees any officers or
employees of any Federal Reserve bank*

If the Corporation should

find it advisable, it may employ additional officers or employees,
and the employment, compensation, retirement benefits, leave, and
expenses of such additional officers and employees shall be governod
solely by the provisions of this section, specific amendments thereof, and rules and regulations of the Corporation not inconsistent
therewith.

No director of the Corporation and no officcr or em-

ployee of the Board of Governors or of any Federal Reservo bank
shall receive any compensation from the Corporation by reason of
any services which he may perform for it. The Corporation shall
determine and prescribe the manner in which its obligations shall
be incurred and its disbursements and expenses allowod and paid,
and may deposit in any Federal Reserve bank its funds, which shall
not be construed to be Government funds or appropriated monies•
The Corporation may invest its funds in direct obligations of, or
obligations guaranteed as to principal and interest by, the United
States and may purchase its own obligations.

The Corporation shall

reimburse the Board of Governors of the Federal Reserve System and




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the Federal Reserve banks and its other agents for their expenses
in carrying out the provisions of this section on such basis as
may be determined by the Board of Governors of the Federal Reserve
System.
r,

(k) The Corporation shall have a capital stock and

surplus which shall be subscribed for and paid in by the twelve
Federal Reserve banks in the amounts and out of the funds hereinafter provided.

The Secretary of the Treasury is hereby authorized

and directed, within thirty days after the Industrial Loan Corporation Law becomes effective, to purchase from each Federal Reserve
bank the stock of the Federal Deposit Insurance Corporation heretofore subscribed for by such bank and to pay to such bank therefor an
amount equal to the entire sum which the said Secretary was originally
given authority to pay to such bank under the provisions of this section less the difference between the aggregate '.mounts paid to such
bank by the Secretary of the Treasury and the aggregate amounts paid
to the Secretary of the Treasury by such bank under the provisions of
this section prior to the date on which the Industrial Loan Corporation Law becomes effective. When the payment of such amount has been
made by the Secretary of the Treasury to such bank, the United States
shall become and be the owner of all the stock in the Federal Deposit
Insurance Corporation heretofore subscribed for or held by the said
Federal Reserve bank and all rights of the said Federal Reserve bank
with respect to said stock shall be transferred to and vested in the




-10-

United States. Any and all of the obligations and liabilities to the
United States and to the Secretary of the Treasury which have been
imposed upon or incurred by any Federal Reserve bank under this
section at any time prior to the date on which the Industrial Loan
Corporation Law becomes effective shall on said date be completely
discharged and terminated, and no Federal Reserve bank shall, after
said date, have any obligation or liability to tho United States or
tho Secretary of the Treasury by reason of any provisions of this
section. The amount required to be paid to each Federal Reserve
bank by the Secretary of the Treasury under the provisions of this
section shall bo paid out of tho miscellaneous receipts of the
Treasury created by the increment resulting from tho reduction of
the weight of the gold dollar under the President's proclamation
of January 31, 1934r and there is hereby authorized toteeappropriated, out of such receipts, such sums as shall be required for
this purpose,
"(l) Upon the receipt by each Foderal Reserve bank from
the Secretary of the Treasury of the amount specified in subsection
(k) hereof, such Federal Reserve bank shall forthwith pay the entire
amount so received to the Industrial Loan Corporation, and cut of
the aggregate amounts paid to tho Industrial Loan Corporation in
this manner the Corporation shall set aside $100,000,000 as its
capital and the remainder as surplus and shall issue to each Federal
Reserve bank capital stock in an amount which bears the same ratio
to |100,000,000 as the amount of stock in the Federal Deposit Insurance




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Corporation heretofore subscribed for by such Federal Reserve bank
bears to the aggregate amount of such stock heretofore subscribed
for by all of the Federal Reserve banks. No stock in the Industrial
Loan Corporation shall be transferable, have any voting rights or be
entitled to any dividends. With respect to funds paid by the Secretary of the Treasury to any Federal Reserve bank under this section
prior to the date on which the industrial Loan Corporation Law becomes effective, such bank shall pay to the Industrial Loan Corporation (1) the amount of such funds which is on said date on hand and
uninvested, except that amounts sufficient to cover any outstanding
commitments may be hold until the expiration of such commitments, and
(2) all amounts realized by the bank from the liquidation from time
to time of assets acquired prior to said date through the use of such
funds and assets thereafter acquired through the use of such funds
pursuant to commitments outstanding on said date; and all the said
amounts so paid shall become a part of the surplus of the said Corporation,
1
1

(m) When designated for that purpose by the Secretary of

the Treasury, the Corporation shall be a depositary of public money
except receipts from customs, under such lobulations as may be prescribed by said Secretary; and it may also be employed as a fiscal
agent of the Government; and it shall perform all such reasonable
duties, as depositary of public money and fiscal agent of the Government, as may be required of it. Obligations of the Corporation shall
be lawful investments, and may bo accepted as security, for all




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fiduciary, trust, and public funds the investment or deposit of which
shall be under the authority or control of the United States or any
officer or officers thereof. The Corporation shall be entitled to
the free use of the United States mails in the same manner as the
executive departments of the Government.
1
1

(n) Whenever it shall appeal' to the Board of Governors

of the Federal Reserve System, either by reason of a decrease in
the volume of the operations of the Corporation or otherwise, that
there is no longer a reasonable need for the continuance of the
facilities of the Corporation, the said Board may order the dissolution of the Corporation, and thereupon the Corporation shall
be liquidated and its affairs wound up under regulations prescribed
by the said Board.
"(o) The Corporation shall annually prepare a full report of its operations, and this report shall be included by the
Board of Governors of the Federal Reserve System in the annual report made by it to the Speaker of the House of Representatives in
accordance with the provisions of section 10 of this Act."
Sec. 2. Subsections (h), (i), and (k) of section 22 of
the Federal Reserve Act are amended by inserting after the words
"federal Reserve bank" wherever they occur in such subsections the
words "or the Industrial Loan Corporation"; and subsection (j) of
said section 22 is amended by inserting after the words"Federal Reserve bank" the words "and of the Industrial Loan Corporation".




-13-

Sec* 3* The third paragraph of section 24 of the Federal
Reserve Act is amended by striking out the word "established" where
it appears in said paragraph and by substituting the words "the
Industrial Loan Corporation" for tho words "a Federal Reserve bank"
wherever they appear in said paragraph.
Sec. 4. Sections 1, £, and 3 of this Act shall become
effective on the first day of tho second calendar month following
the date of its enactment.