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J O S l A H W I L L I A M BAILEY, M. C . , CHAIRMAN
CHARLES L . MC NARY, O R E O .
MORRIS SHEPPAR9, TEX.
HIRAM W . J O H N S O N , C A L I F .
H A T T I E W . CARAWAY, A R K .
ARTHUR H . V A N D E N B E R G , M I C H .
B E N N E T T C H A M P C L A R K , MO*
WALLACE H . WHITE, J R . , MAINE
JOHN H . OVERTON, LA.
ERNEST W . GIBSON, VT.
T H E O D O R E G . BILBO, M I S S .
W . W A R R E N BARBOUR, N , J*
V I C DONAHEY, OHIO
J O S E P H F . G U F F E Y , PA*
ANCIS T . MALONEY, CONN.
" N G E L . RADCLIFFE, MD.
;DE PEPPER,FLA.
L E E , OKLA.
LISTER HILL, ALA.
J A M E S M* M E A D , N . Y .
A . HAND J A M E S , C L E R K
ROGER WILLIAMSON, ASST. CLERK

*7#trtUeb

Jbenale

COMMITTEE: ON C O M M E R C E

i'&y 29, 1939.

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Uarriner S* Eccles, Chairman,
Federal Reserve Board,
Federal Reserve Building
Y/ashington, D. C *
Dear lir. Eccles:
This is to inform you that hearings m i l b e
conducted on the attached bill by the Senate Banking and
Currency Conrdttee on Ltay 31 and June 1 of this "reek at
10:30 A» K#
In viev; of your interest in small business
loans, I nest cordially invite you to attend the hearings
and to make any comment you desire.
Any arrangements as to tine nay be made ivith the
Committee clerk.
V/ith kindest personal regards, I an
Sincerely yours,

y/V

Jas. 1'. Head

76THCONGRESS

O

1ST SESSION

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I N T H E S E N A T E OF T H E U N I T E D STATES
MAY 8,1939
Mr.

MEAD

introduced the following bill; which was read twice and referred
to the Committee on Banking and Currency

A BILL
To provide for the insurance of loans to business, and for other
purposes.
1

Be it enacted by the Senate and House of Representa-

2

tives of the United States of America in Congress assembled,

3

That this Act may be cited as the "Insured Business Loans

4

Act of 1939."
SEC. 2. When used in this Act, unless the context other-

5
6

wise requires—

7
8

(a) "Corporation" means the Reconstruction Einance
Corporation.

9

(b) "Bank" means any "insured bank" as defined in

10

section 12B

11

amended.




(c)

(8)

of the Federal Reserve Act, as

2

1
2

(c)

Governors of the Federal lleserve System.

3
4

"Federal Reserve Board" means the Board of

(d) "Loan" means any loan, extension of credit, or
renewal thereof.

5

(e) "Person" means an individual, a corporation, a

6

partnership, an association, a joint-stock company, a business

7

trust, or an unincorporated organization.

8

SEC. 3. (a) Subject to the provisions of this Act, the

9

Corporation, upon application, is authorized to insure any

10

bank against the whole or any part of the loss or losses, in

H

respect of principal or interest or both, which such bank may

12

sustain in excess of an amount equal to 10 per centum of the

13 principal amount of any loan which such bank may make to
14

any person for any business purpose, and for the purposes of

15

this Act the Corporation is authorized to determine what

16

constitutes a business purpose.

17

poration shall charge a premium of not less than one-fourth

18

of 1 per centum nor more than 1 per centum per annum of

19

the unpaid balance of such loan: Provided, That the CJor-

20

poration in its discretion may charge a higher premium, or

For such insurance the Cor-

21 may refuse to grant insurance altogether on loans of any
22 bank which in the judgment of the Corporation pursues a
23 policy of insuring only the more doubtful of its loans eligible
24 for insurance.
25

The Corporation shall from time to time fix

the premium rates to be charged for the insurance of loans




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which rates ma)' be adjusted in accordance with appropriate

2

classifications based, among other things, upon the nature of

3

the loans and the character of the risks involved, and the

4

premium rates for which the Corporation undertakes to insure

5

any particular loan shall not be increased during the life

6

of such loan.

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(b) No loan shall be insured by the Corporation (1) if

® the aggregate principal amount of the borrower's insured
9

indebtedness exceeds $1,000,000; (2) if the loan is made
for a period less than one year or more than ten years; (3) if

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the loan bears interest (exclusive of premium charge for
insurance and service charge) at a rate exceeding 4 per
centum of the principal amount of the unpaid balance of the
loan outstanding: Provided, That the Corporation by regulation shall have power to decrease or increase the permissible rate of interest if and to the extent that it finds such

^

decrease or increase is necessary to insure the adequate use,

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or deter the excessive use, of the insurance facilities provided
20

in this Act; (4) if the loan provides for a service charge, fee,
or commission aggregating during the life of the loan more

21
than one-fourth of 1 per centum of the principal amount of
22
no

such loan; (5) if the loan is made to any person, of which
an officer, director, or security holder owning more than 10

2i
per centum of any class of its stock is, or has been within
25

the preceding twelve months, a director of the bank making




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1

such loan; or (6) if the loan is made in contravention of

2

any rule or regulation which the Corporation shall prescribe

3

as necessary or appropriate to carry out the purposes of this

4

Act or to prevent the abuse of the credit facilities herein

5

provided.

6

(c) Nothing in this Act shall prevent the Corporation

7

in appropriate cases insuring loans which are subordinated

8

to short-term indebtedness incurred in the ordinary course

9

of business.

1°

(d) The Corporation shall have power to insert in

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the insurance contract covering any loan insured under this

12

Act such terms and conditions as it may deem necessary or

13

appropriate to carry out the purposes of this Act or to prevent the abuse of the credit facilities herein provided.

15

SEC. 4. (a) It shall be the duty of any bank having

16

a loan insured by the Corporation, and of any assignee of
such loan, to make such reports on the condition of such loan

I® as the Corporation may require.

In the event of any de-

19

fault on any loan insured by the Corporation, the bank or

20

its assignee shall promptly notify the Corporation and take

21

such steps for the protection of such loan as the Corporation

22

may require.

23

been continued for sixty days, such bank or its assignee

24

(upon making a good and sufficient assignment of such loan

25

to the Corporation) shall be entitled to demand from the




At any time after any such default shall have

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1 Corporation, and the Corporation shall pay, the full, amount
2

of insurance due on account of such loan.

Thereupon the

3 Corporation shall be fully subrogated ! to the rights of the
4

bank or its assignee or both in respect of such loan, but

5

shall remit to the bank or its assignee;or the borrower as

6 their interests may appear any moneys collected in excess
7

of the insurance paid and the cost of collection.

8

(b) Subject to the provisions of this Act and the terms

9 of the insurance contract, the insurance on any loan shall
10 inure to the benefit of any assignee to whom such loan
11 shall have been assigned, or of any purchaser to whom the
12 obligation evidencing such loan shall have been transferred.
13

SEC. 5. (a) Upon the endorsement of any bank, which

14

shall be deemed a waiver of demand, notice, and protest

15 by such bank as to its own endorsement exclusively, and
16 subject to such regulations as may be prescribed by the
17 Federal Reserve Board, any loan insured under this Act
18 shall be eligible for rediscount by the Federal Reserve bank
19

for the Federal Reserve district in which such bank is

20 located, and for purposes of rediscount sti.cli loan shall be
21

valued at not less than the full amount of the insurance

22 payable by the Corporation in respect of such loan.

Such

23 loan shall be eligible for rediscount whether or not the bank
24

offering the loan for rediscount is a member bank of the

25 Federal Reserve System and whether or not such bank,




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1

acquired the loan from the borrower or acquired it by trans-

2

fer from another person.

3

(b) Every Federal Reserve bank shall have power to

4

buy and sell, at home or abroad, obligations evidencing

5

loans insured under this Act, such purchases and sales to

6

be made in accordance with such rules and regulations as

7

the Federal Reserve Board shall prescribe.










76TH. CONGRESS
1 S T SESSION

S.

A BILL
To provide for the insurance of loans to business, and for other purposes.
B y M r . MEAD
MAY 8,1930
Read

twice

and referred to the Committee
Banking and Currency

on