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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




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