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March 24, 1943. Dear A. Ps Since receipt o f your l e t t e r of March 5 I have been noting the growing a g i t a t i o n f o r some a d d i t i o n a l c r e d i t f a c i l i t i e s i n behalf of small business. The special Senate committee, headed by Senator Hurray of Montana, has been holding hearings and has now appointed a d r a f t i n g committee t o d r a f t b i l l s along three d i f f e r e n t l i n e s , according t o the press. One of these i s alleged to be the "McKee Plan. 1 * Lest you be misled as to t h i s , I would l i k e t o set doen the f a c t s . Some time back the committee counsel asked Mr. Snead and mys e l f t o attend an executive session f o r an Informal discussion o f the d i r e c t i o n which the proposed l e g i s l a t i o n might take. A f t e r conferring with M a r r ' n e r , we f e l t i t desirable t h a t Mr. Sraead go alone snd t h a t the Federal Reserve r e f r a i n from taking any position or lending any support t o the work o f the co?!sr.i t t e e . A week or so ago Mr. Sme&d and I were strain asked, b u t , since i t was proposed to discuss a c t u a l d r a f t ing problems, Mr. Vest, one o f our coxsisel, was designated to accompany Mr. Smead. I again r e f r a i n e d from going along i n order to reduce the appearance o f i n t e r e s t on the part of the Federal Reserve. i John licKee, however, took the notion t h a t he would go along and l i s t e n . When the opening discussion showed that a l l the conanittee members and i t s s t a f f were i n favor o f the Federal Reserve actaainistering whatever program might be adopted, McKee became very vocal. He gave h i s personal view t h a t no new corporation or agency be put into t h i s f i e l d but t h a t the RFC be used since i t had no trouble i n g e t t i n g plenty of fonda and had plenty o f a u t h o r i t y under the law to make any kind of loan i t wanted. I f , however, any new agency were to be used, he suggested t h a t the Treasury ought t o insure the loans or make them, using the Federal Reserve System as an agency o f the Treasury. I t i s t h i s l a t t e r suggestion t h a t has been dubbed the "HcKee P l a n . " John had no i n t e n t i o n , I am sure, o f t r o t t i n g f o r t h any plan o f h i s ova, but was c h i e f l y i n terested i n swinging the proposal away from the Federal Reserve, except possibly as an agency of the Treasury. This whole movement i s s t i l l very nebulous and confused. Mo member of the committee nor any o f i t s s t a f f has s u f f i c i e n t a b i l i t y t o bring out a workable b i l l , and, so f a r as I know, the movement does not have Administration support. The Senators and Representatives who are Mr. A. P. G i a n n i n i -2- March 24, 1943. a c t i v e i n the movement are using i t ae p o l i t i c a l ammunition but are not r e a l l y p u t t i n g t h e i r ahouldere t o the wheel. I t i s more l i p - s e r v i c e than anything e l s e , I b e l i e v e . N e v e r t h e l e s s , t h e r e i s a r e a l problem ahead f o r the s m a l l business u n i t e o f the c o u n t r y and I am c o n f i d e n t teat t h i s movement w i l l eventually e n l i s t Administration support, also that l e g i s l a t i o n w i l l eventuate. For t h a t reason I am f o l l o w i n g t h e developments w i t h a g r e a t d e a l o f i n t e r e s t and hope t h a t when t h e time i s r i p e f o r a c t i o n , t h e F e d e r a l Reserve w i l l have a l e a d i n g p a r t i n t h e program. I hope t h i a f o r t h e reason t h a t Federal Reserve i s t h e f r i e n d o f t h e p r i v a t e banking system and b e l i e v e s t h a t t h e banks o f t h e c o u n t r y are t h e proper and most e f f i c i e n t means o f s u p p l y i n g funds needed by any segment o f t h e c o u n t r y 1 a business s t r u c t u r e . I f c r e d i t i s r e q u i r e d i n such circumstances t h a t t h e r i s k i s g r e a t e r than a p r i v a t e bank should p r o p e r l y assume, t h e n an agency o f Governnent might assume a p o r t i o n o f t h e r i s k . T h i s , however* i s v a s t l y b e t t e r than having the Government, through so.-ne agency, make t h e l o a n s , w h ' c h , o f n e c e s s i t y , r e q u i r e s the b u i l d i n g up o f a new o r g a n i z a t i o n both i n Washington and i n the f i e l d . To p u t i t more c o n c r e t e l y , I t h i n k t h e F e d e r a l Reserve would see t o i t t h a t t h e r e i?ould not be an RACC i n t h e s ^ a l l business f i e l d . T r u s t i n g t h i s f i n d s you w e l l and w i t h best wishes, I am Sincerely yoursf Lawrence C l a y t o n , Assistant t o the Chairman. Mr. A. P. G i a n n i n i , Chairman of the Board of Directors* Bank of America N. T. & S. A . , San Francisco, C a l i f o r n i a . LCtJf
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