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Sioo-t BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence Xo Mr. Schmidt From Miss H a r r i s CWS Date A p r i l 23, 1951 Subject; Statement o f Reconstruction Finance C o r p o r a t i o n D i r e c t o r , Walter E. C o s g r i f f e R e c o n s t r u c t i o n Finance C o r p o r a t i o n D i r e c t o r Walter E . Cosgriffe r e c e n t l y stated, i n a p r i v a t e i n t e r v i e w t o the press, t h a t t h e 19-year o l d RFC must continue ^because t h e n a t i o n ' s p r i v a t e banking system i s e i t h e r unable or u n w i l l i n g t o meet n a t i o n a l c r e d i t needs. 11 I t i s a l l e g e d by Mr. C o s g r i f f e t h a t o f 631*351 business loans made over 19 years t o t a l l i n g 16 b i l l i o n d o l l a r s , o n l y 134 m i l l i o n represented ^bad loans 11 and t h a t a 600 p i l l i o n d o l l a r p r o f i t has accrued t o the Federal Government on these l e n d i n g o p e r a t i o n s . The RFC i s a l s o claimed t o have had a l o s s r e c o r d o f o n l y about 1 per cent on more t h a n 600,000 loans, each o f them made a f t e r t h e a p p l i c a n t produced c e r t i f i c a t i o n s from t h e bank w i t h -which he does business, and one o t h e r , t h a t c r e d i t was u n a v a i l a b l e . That RFCfs *bank r e j e c t * loans pay out 99 per cent i s s a i d t o be s u f f i c i e n t evidence t h a t t h e p r i v a t e banking system i s n o t s e r v i c i n g l e g i t i mate c r e d i t needs and t h a t *American bankers have t u r n e d t h e i r backs on the business loans w i t h -which America was b u i l t . n The Reconstruction Finance C o r p o r a t i o n has n o t i n f a c t s u p p l i e d t h e Federal Treasury, on balance, w i t h p r o f i t s d u r i n g i t s 19-year e x i s t e n c e , as Mr. C o s g r i f f e s t a t e s . The Treasury has s u p p l i e d t h e RFC w i t h c a p i t a l w i t h which t o c a r r y o u t i t s l e n d i n g o p e r a t i o n s , a procedure which has had t h e e f f e c t o f o v e r s t a t i n g RFC's p r o f i t s and o f u n d e r s t a t i n g i t s l o s s e s . The i n t e r e s t costs i n c u r r e d by t h e Treasury o f t h e U n i t e d States i n p r o v i d i n g t h i s i n t e r e s t - f r e e c a p i t a l f o r f i n a n c i n g RFCfs a c t i v i t i e s are n o t assessed a g a i n s t the c o r p o r a t i o n i n f u l l and, a c c o r d i n g l y , are n o t f u l l y r e f l e c t e d i n i t s accounting records or i n i t s f i n a n c i a l s t a t e m e n t . For example, t h e i n t e r e s t p a i d i n t h e f i s c a l year 1949 by { t h e Treasury on funds employed w i t h o u t charge i n t h e l e n d i n g a c t i v i t i e s o f the R e c o n s t r u c t i o n Finance Corporation has been estimated by Theodore Eerz, D i r e c t o f t h e s t a f f o f the Congressional Subcommittee on t h e RFC, t o be about 111,674*000. This c a l c u l a t e d i n t e r e s t c o s t t o the Treasury was computed by the s t a f f by a p p l y i n g \ an average 1 - 7 / 8 per cent r a t e on an average i n t e r e s t - f r e e c a p i t a l \ balance a t RFC's d i s p o s a l o f 622.7 m i l l i o n d o l l a r s d u r i n g t h e 19li9 I f i s c a l y e a r . When t h i s cost i s a p p l i e d a g a i n s t t h e RFC's f i s c a l | 191+9 p r o f i t , estimated a t $5* 2 2 6,0G0, t h e r e p o r t e d p r o f i t i s wiped I out e n t i r e l y and i n i t s place i s an estimated 1949 l o s s o f $6,448,000. j ^ u l . H M S J ^ L ^ u ^ ^ j l o W ^ U . 3 1 , 14SO CUUdU S, dtft? f vuuuJkc S.OOI - 1,497 io,o&o 10,001 — '15,01*0 UAAAJBUssf^r' is.fe H.4 OM d.5 13.4 \0.0 1.0 I.I Z3. S H 0.3 H.2. 34.9 H.O lStUtO" so,ooo UR17 zo.o •74.3 £6,00 i- 1 Ot.CrW »,S77 Ifc.S 1Z4.3 \az>,oo\- icto,(&t> 4S7 4.S 10.Z 7.Z 61.2. 1.0 Z0b,00l- 377 3,1 1X1.1 12.3 105.7 IZ.Z. 115 1.7. 83.H »03 >.l 4S3.S S&O, CrOt) ov,ocn - 1, OwUua. li CrOO, &00 AST8 100,0 15:,3 IS. 1 44.Z w/f 367.2-