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A p r i l 1 0 , 19-44.

Dear Marriner:
Thank you for writing me so fully and carefully on the lending
question, in which I am greatly interested, and &xi which I have had a
chance to do some v/ork since the March issue of our bulletin was published,
and since I left the chairmanship of the Isr Finance Committee here.
Let me say first that I regret the mistaken impression as to
the experience of the Federal reserve banks with 13b loans, which was
conveyed by quoting the 1933 statement alone. In partial extenuation,
however, let me say that we have not been able to find later published
information as to the 13b experience.
The record of these loans has been improved in recent years by
recoveries attributable to the war boom.

I wonder if the earlier experience

is not more typical of v/hat to expect after the war.
To come to the basic question, I am wondering what evidence there
is of a sound need for new small loan facilities, additional to those which
private enterprise may reasonably be expected to supply. Such surveys of
the small business problem as I have seen have not made a convincing case,
to me, that more credit institutions are the answer. Isn't it axiomatic
that there will always be people whose ideas and aspirations outrun their
ability to obtain credit or equity capital and that they will always be
heard from? ?lhenever the public ear seems to be especially


their voices will be particularly loud. Their success in making themselves
heard, however, does not prove that they have a sound claim for credit.
I am reminded of something which occurred here just the other day. A local
exporter made a statement which got into print to the effect tbat our export

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business is burdened by a lack of trade credit facilities. By coincidence
the statement appeared next to an ad of ours devoted to foreign trade
financing. We invited the man to specify in what areas or .trades these
facilities were lacking.

The result was a blank, he could answer nothing.

I agree that there are difficulties in the way of obtaining
equity capital and capital loans which have not existed in the past. On
the other hand, I wonder whether the difficulties will be as acute in the
future. Most of the good thinking on the tax question favors some relief
from the double taxation of corporation earnings, - as earnings and as
dividends. With the amount of money accumulating in the country and with
the payments to be made to veterans, most discharged soldiers should be
able to raise the money for small enterprises out of their own resources
and those of their families and friends.
We can count on some liberalization of banking attitudes toward
small loans as compared with the late f 30 f s, when there was a carryover
of depression and banks were struggling to make up their capital losses.
The spread of personal loan departments and term lending over the country

been impressive. The advertising which the small loan problem is get-

ting will itself induce attention to it, and I believe we shall find banks
and bankers1 associations not unprogressive in dealing with it up to the
limits of what they can do.

As you know the A. 3. A. is at work on a

program of education of banks in making varied forms of loans, especially
t^rm loans.

It will be one of the main topics at the Executive Council

meeting next week.
With what you say as to the relative undesir'-xbility of other
government proposals as compared with the Federal Reserve Bank proposal,

I quite agree, - assuming that a choice must be made, which I am not yet
willing to concede. I sat in, as you know, on the job which the New lork
Reserve Bank did in this field and have a very high regard for its value.
The directors and the businetss committee were distinctly liberal in their
approach. That window is still open, and I think 95 per cent of the
special cases that come to the Reserve Banks and deserve credit can be
taken care of without any change in the law. The banks will take care
to-day of many cases that had to go to the Reserve Banks in those days.
As compared with other governmental agencies the Reserve banks have, of
course, the advantage of competence and continuity of administration and
independence from party politics. They have the benefit of the judgment
of some very competent business men and bankers.
At any rate I agree our discussion in the bulletin was inadequate,
and I111 see if we can rum another article before long.

best regards,
Sincerely yours,

Hon. Marriner Eccles,
Chairman, Board of Governors
of the Federal Reserve System,
Washington, D. C.