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6/20/U7 Mr. Cherry a d v i s e s that Mr» H i l l d e l e t e d the f i r s t sentence of the l a s t paragraph, * I t would be a mistake t o f a i l to enact S . U08 f o r an additional reason," GUARANTEE OF LOANS BY FEDERAL RESERVE BANKS AND EXTENSION OF EECONSTHJCTION FINANCE COBPORATIOH Enactment by Congress of S . I4O8, which would permit the Federal Reserve System t o continue a i d , p a r t i c u l a r l y t o small business, by p a r t i a l guarantee of loans made by p r i v a t e banks, i s necessary i r r e s p e c t i v e of whether Congress as i s now proposed, extends the RFC f o r one y e a r . S . I4O8 i s not a s u b s t i t u t e f o r o r duplication of RFC f u n c t i o n s . I t does provide an important stand-by s e r v i c e e s p e c i a l l y i n the case of term loans up to ten years to p r i v a t e e n t e r p r i s e that cannot a f f o r d to go to the c a p i t a l markets f o r funds and to which p r i v a t e banks may not be i n a p o s i t i o n t o extend needed c r e d i t without guarantee of some p a r t of the loan. S . I4O8 does not provide f o r new powers i n Federal Reserve Banks since f o r a dot en y e a r s they have had authority t o make d i r e c t loans o r p a r t i c i p a t e i n loans t o i n d u s t r y . However, the b i l l does away with the d i r e c t lending a u t h o r i t y and improves the guarantee a u t h o r i t y . Moreover, i t provides f o r returning t o the Treasury the 139 m i l l i o n d o l l a r s s e t a s i d e f o r the d i r e o t l o a n s , the return of t h i s money t o the Treasury c a r r i e s out a recommendation i n the P r e s i d e n t ' s Budget Message. Under S . U08 the Reserve Banks w i l l r e l y on t h e i r reserve funds i n making guarantees. Appropriated money would not be i n v o l v e d . I t would be a mistake t o f a i l t o enact S . 1408 f o r an a d d i t i o n a l reason. I f a y e a r hence Congress, a f t e r studying the matter, decided t o discontinue HFC there would be no stand-by authority l e f t to a s s i s t i n d i r e c t l y i n small business f i n a n c i n g such as i s provided by S . 1408.
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