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LINDLEY BECKWORTH 3D DISTRICT TEXAS C o n g r e s s of tfie M r n t e b S t a t e s COMMITTEES* CIVIL SERVICE INSULAR AFFAIRS MINES AND MINING EXPENDITURES IN THE EXECUTIVE DEPARTMENTS FLOOD CONTROL IMMIGRATION AND NATURALIZATION House of &epres:entattoes; ffliasijington, 30. C. 11/21/42 Dear Mr. Eccles: I wish to quota A statement I have received from Mr« B. President of the First State Bank of Carthage, Texast Payne, *Lindley, if banking in the faming sections survives, so** curb w i l l hav« to be placed on government lending. They are hard competition since th^ir funds are derived from government sources and they pay no taxes*M Your com«nts in this connection w i l l be appreciated. Hovember 2k, 19^2. Honorable Lindley Beckworth, House of Representatives, Washington, D. C. Sear Mr* Beckworth 2 This is to acknowledge your letter of Hovember 21. I was very glad of the opportunity to meet with the Texas Delegation and appreciate your comments. With regard to the statement you received from Mr* B* F. Payne, President of the First State Bank of Carthage, Texas, I assume that he ia echoing the complaint so widely heard from small independent country bankers in various parts of the United States to the effeot that the Production Credit Associations are competing too successfully against them by using, as Mr* Payne states, funds derived from Government sources* I say that I assume that this is the meaning of Mr. Paynevs comment to you because, curiously, the real competition comes from the AAA, that i s , the Commodity Credit Corporation loans which are derived from Government borrowing and, as you know, are advanced in connection with the crop control programs. Apparently those bankers who com* plain about Government competition hesitate to attack on this line* Instead, they turn their f i r e on the Production Credit System which, as a matter of fact, is primarily financed through the sale of debentures to the investing public* As I understand i t , there are 530 active Production Credit Associations in the United States (including Puerto RLco) and they are the direct lenders* They have over 300,000 farmers and stockmen as member stockholders* Each borrower has to own Class B stock in his lending association equal to #5*00 for eveiy #100*00 loaned and, of course, these Class B stockholders elect the association directors from their own members and the directors in turn appoint the officers and employees of the associations • The loans made are almost a l ways on terms of one year or less, secured by a f i r s t lien on crops, livestock or equipment, and the interest rate charged by the associations is uniformly fixed by regulation at 3 per cent above the current discount rate of title Federal Intermediate Credit Banks* The discount rate in turn is determined by tiie interest rate which the Intermediate .Credit Banks must pay on their debentures which are sold to the public* According to ay information, the current discount rate i s 1-1/2 per oent, hence the rate of interest on PCA loans is U~l/2 per cent per annum* Honorable Lindley Beokworth - (2) Hovember 2l+, 19h2 I noticed in a reoent pamphlet of the Production Credit System the following statement as to the source of the funds that are loaned t "the associations obtain their loan funds for the most part by redisoounting their loan paper with the Federal interaediate credit bank of the district* Ihey also borrow directly from such banks on their secured notes* The Federal intermediate credit banks obtain the funds from the sale of debentures to the investing public, the debentures being secured by discounted loans and notes receivable*11 Accordingly, i t is not correct to say that the funds are obtained from Government sources* They are mainly obtained from the market, that i s , from the public• The easy money conditions which have prevailed have, of course, resulted in low interest rates relative to p re-depression times when oountiy banks were able to get 10 per cent, 12 per oent, or more for their loans to fanners* I think i t is f a i r to say that the countxy banks in a sense have competed against themselves because they have traditionally and habitually carried correspondent balances with city banks* this has tended to concentrate funds in the money centers and to drive down rates through the action of the country banks themselves* Manifestly, i f the country banker were s t i l l able to loan at l*-l/2 or even 5 Per oent, he could compete successfully against the PCA's** So f a r as I am concerned, I think the Production Credit System is here to stay and I hdpe i t is* I t was instituted after extended hearings before Congress and was supported by the agricultural leaders from a l l parts of the country* For a good many years I have f e l t that the economy could not be soundly based on an interest rate structure as high as that which prevailed in times when we had a relative scarcity of capital* I do not want to see the day return when any such high rates as prevailed for the farmer or, for that matter, f o r the real estate purchaser are restored* I t is not in the interest of the lender to have interest the eoonony cannot sustain* We found that out after f29* Lenders only unable to oolleot interest but they lost some or all of their the collapse that was in part due to the attempt to sustain a rate that was no longer in keeping with the economic development of the rates which were not capital in structure country* I am wholly sympathetic with the problems of the small country tanker* I should be because my own banking experience has been largely in the fields most familiar to him, but I would be less than realistic i f I did not recognise that the day has passed, rightly or wrongly, when the economic situation will continue to support literally thousands of Independent small banks with small "He is terest paying 7~g-8f* able to reduce rates today because he pays an average of only inon time deposits or interbank deposits, whereas in the late 201 s he was hr5% interest on tine funds, A lending rate now v/ould equal then* Honorable Lindley Beokworth - November 2U, 19^2 (3) capitalisation* Hor can anyone interested as I am in unification of the banking system ignore the faot that i t is these small independent banks which have been the real stumbling blook to a sounder, better organised banking system in this country. I think they are bucking an inevitable, overwhelming tide today in sniping at the Production Credit System. Insofar as this trend leads to* ward a carefully integrated and supervised system of branch banking such as has been developed in England or Canada, I am f o r the trend* Even i f I were not, i t would make no difference in the outcome because the forces behind i t are irresistible. I had not intended to discuss this subject by letter at such length, but your inquizy invites i t and the matter cannot be disposed of briefly* However, what I am saying I aa writing to you for your own personal inforaation and would prefer that you regard this as a confidential letter between us because this is a highly controversial subject and I do not want at this time when our minds are on the war to return to this old and bitter battle field* Sincerely yours. U» S* Socles, Chai man* LINDLEY COMMITTEES: CIVIL SERVICE BECKWORTH 3D DISTRICT T E X A S INSULAR AFFAIRS M I N E S AND M I N I N G EXPENDITURES IN THE EXECUTIVE C o n g r e s s of tfje U n t t e b S t a t e s DEPARTMENTS FLOOD CONTROL IMMIGRATION AND NATURALIZATION Housie of &epre£entattbesi MasfyirtQttm, 30. C. <7 CLeij^ VsM^ ' v
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