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July 25, 1957 • Dear Mr. Oppers In compliance with the request in your letter of July 12th, I am enclosing a statement prepared by our Division of Research and Statistics regarding industrial loans made hy the Federal Reserve banks and by the Reconstruction Finance Corporation under legislation which resulted from the President*s letter of larch 19, 1954, to Senator Fletcher and Representative Steagall* I trust that this is what is wanted, but if further information is desired, please advise me. Sincerely yours. 11. S. Ecdes, Chairman. Mr* Clarence Opper, Treasury Department, Washington, D. C. enclosure • 4r- INDUSTRIAL ADVANCES BY FEDERAL RESERVE BASKS AND SI THE RECONSTRUCTION FIUAHCE CORPQRATIGII* On Iterch 19, 1954, the President addressed a letter to the Banklag and Currency Comtttees of both houses in Congress stating that la numerous cases the working capital of small industries had been lost or seriously depleted and that the situation called for iaaediate relief. Such enterprises found it difficult to obtain their requireseats of working capital through the capital market, while commercial banks and other flnsseisl institutions, in many cases, were hesitant about undertaking on their single responsibility the risk© involved in making relatively long-tine loans for working-capital purposes* By MI act of Congress approved on June 19, 1934, the Federal Reserve banks aad the Reconstruction Finance Corporation were authorized, within prescribed liaitations, to aoake credit available for the pur~ pose of supplying working capital to established industrial and comaerci&l businesses. Federal Reserve banks were given broad powers to enable them to make advances, or coamiitraents for mtnmuO9A9 for suck working capital, through the iaedius of banks* trust companies, and other financing institutions, provided the financing institution obligated itself for at least BO percent of any loss sustained. In addition, it was provided that direct loans could be made by the Federal *Detailed information may be obtained from Federal Reserve Bulletins and Annual Reports of the Board of Governors for 1954 and subsequent years, especially article on pages 557-543 of the Bulletin for June, 1955; for Reconstruction Finance Corporation, from publications of the Reconstruction Finance Corporation, especially circular Ho, 15 and current operating reports, also House hearings on the offices appropriation bill of 1938. Reserve banks in exceptional circumstances, when credit was not obtainable on a reasonable basis from the usual sources, asd provided the loan was made on a reasonable and sound basis. Advances made by financing institutions under the act have about ©quailed those made by the Reserve banks* Most of the advances by the Reserve banks have bean atade directly to the industrial borrower• The law required that loans should be saade for the purpose or supplying working capital to established industrial or cousaerci&l businesses and thai the loans have a&turities not exseeding 5 years. The law also provided for the appointment of an industrial advisory coaaittee in each of the 12 Federal Reserve districts• iteabers of these advisory coiaaiitteee were selected by the third week in July, 1954, and the consideration of applications by the cosimittees and by the Reserve banks began immediately. On Augu3t l f 1S54, the Federal Reserve Bank of Kirmeapolis aede the fircst industrial advance. The Reserve banks received raany inquiries and infonsal applications for industrial advances immediately following the passage of the act, by the end of 1934 the number of applications was saich diminished* The voluae of advances outstanding reached a peak of approximately #35,000,000 in October, 19SS, but by June 50, 1357, they h&& been reduced to $25,000,000, In addition, the Reserve banks were under eaaoitaent for about $17,000,000 of advances made by other fi- sancing institutions. In the entire period through June, 1937, the Reserve banks acted upon 8,500 applications for advances or coiaaitmente involving $560,000,000, Over 2,550 applications were approved, with or vlthoflt conditions, MBantillf to $145,000,000. Host of the other loans appliea for were either ineligible under the condition* Imposed by the act or were vitbotit a satisfactory credit base. Industrial advances by the Reconstruction Finance Corporation were i&ade directly or in cooperation with the Federal Reserve banks and other banks or laud-Log agencies, subject to much the same conditions as those aacte by ill** Federal xteserve banks, except that no loan could have a maturity extending beyond January 51, 1945, nor be in an amount in excess oi1 ^600,000, Loans approved by the Reconstruction Finance Corporation were about equal in number and in total ajaount to those ^proved by the Federal Reserve bank** During the period June Id, 1£54 to June 50, 1957, the Reconstruction Finance Corporation under this act authorized over 2,400 loans aooudting to about $160,000,000, including a snail amount of conditional agreements to make loans which were in force on the latter date. The nusber oi loans approved was about half the nuaber requested in foraal applications and a considerably smaller proportion of all applications received* The rate at which loans were approved was heaviest in the middle of 1955 when the monthly average was about #8,000,000. By the last quarter of 1956 the average aonthly amount had declined to $5,000,000 and by the second quarter of 1937 to about $1,600,000. About 50 percent of the amount of loaas authorized was either cancelled or withdrawn and actual loans paid out during th© period from June 19, 1954 to June 50, 1957, totalled $88,Q00,QQ0« On Juris 80, 1937, #71,000,OCX) of such loans were outstanding, nearly ell of which ^ r e tn&de directly.
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