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B O A R D OF

GOVERNORS

F E D E R A L RESERVE SYSTEM

Olfice

C o r r e s p o n d e n c e

„

Mr a Musgrave

From

Miss Burr and Mrs. Sette

Date February 2 0 , 1 & 7 —
Subject; Analysis of Budget Estimates
for the Reconstruction Finanoe Corporation.

Cash needs of the Treasury to meet requirements of the
Reconstruction Finance Corporation in the fiscal year ending June 30,
I9I4.8, as shown in the Budget, will total about 675 million dollars.
Because of the inclusion of certain non-cash payments, this total is
100 million less than estimated net expenditures from the Corporation's
checking accounts. Estimated net expenditures for
by major
categories, compared with actual expenditures for 1 9 a n d estimates
for 19U6-J+7> are shown in Table 1.
The estimates assume continuation of the RFC during the
fiscal year 19li7~U8« On this the Message states, ftI recommend that
the statutory authority of the Reconstruction Finance Corporation
be extended beyond the present expiration date of June 30, 19^7•
Such extension is assumed in the expenditure estimates in this Budget.
The new charter to be submitted will provide for the repeal of all
powers not required for peacetime activities. It will also provide
for a reduction of 2*5 billion dollars in the Corporation's borrowing
power. With the receipts anticipated from liquidation of war
activities the reduced authority should prove adequate.M
The principal cash needs of the RFC in the fiscal year
19il74i8 will be about 1+90 million dollars for housing aids, 300
million for rural electrification loans, and 90 million for business
loans and guarantees. These requirements will be offset in part by
net receipts of about 75 million dollars from continued liquidation
of loans and investments of the 1930*s and about 200 million from
further liquidation of war activities.
Review of budget plans for the RFC to determine the effect
of termination of its active powers on June 30, 1947* "the expiration
date set by present law, indicates that cash requirements of the Treasury
would be reduced by about 200 million dollars, assuming discontinuance
of its business lending program but continuance of aids to housing
and rural electrification loans under the administration of other
Government agencies. The liquidation of assets acquired through its
emergency operations during the 1930*s and the war would probably be
carried on according to budget plans if the RFC were placed in liquidation.




- 2 Table 1
Net Expenditures of the Reconstruction Finance Corporation
(From checking accounts of U.S. Treasury,
in millions of dollars)
Actual
2s time, ted
1946-1¡7 1947-48
19ij5-l46
Housing and community facilities, total
268
487
- 51
Purchase of mortgages
Veterans1 program
198
385
Other l/
-45
55
58
Premium payments
2
60
Public housing programs
-49
- 7
Provision of community facilities
25
li4

^

Rural electrification
Business loans and guarantees, excluding
national defense j /
Liquidation of loans and investments from depression years J4/

74

200

300

104

79

91

-141

- 96

-74

War activities
Food subsidies
849
Activities supporting defense
Transfer to Treasury military stockpiles 5/
—
Other—sales of critical materials to public,
etc.
- 53
Business loans for national defense
Retirement of SViPC stock
Other
-215
Insurance for war damage
2
International reconstruction, etc.
Philippine aid program
Loan to Ifiiited Kingdom
- 38
Other
-223

115
- 87

-210

-337

-121

-100
1

5/100
--34
5/211

75
- 39
20

-~4o
2/

- 17

62

66

Total expenditures (net)

286

161

776

Total excluding noncash items 5/

286

248

676

m» mm

Otherx

General administrative

Souroe: Budget of the United States for the fiscal year ending June 30, 1948,
p. A 112, text tables in Budget Message, and pp. 10^4.-65 (Schedule C-2 b) .
l/ FEA. insured mortgages and uninsured mortgages#
2/ Less than $500,000.
3 / Totals for loans and guarantees, less retirement of SiSPC stock and net
repayments on loans for national defense#
also
\\f Includes:/loans to drainage, levee, and irrigation districts and loans
"For farm tenancy and rural rehabilitation.
3/ Noncash expenditures: transfers to Treasury military stockpile, retirement of S?iPC stock, transfer of profits from insurance for war damage.



- 3 The principal factors involved in discontinuance of the
RFC on June 30, 19k7> relate to three programs:
(1) Government aid to housing» Estimated expenditures of
the RFC include I . 7 million dollars for aids to housing, largely for
48
the purchase of home mortgages to assure a ready market to private
institutions*
Here two major questions are involved: (1) Are such purchases by a Government agency necessary in the current housing situation and (2) if necessary, can they be financed without using the RFC?
The greater part of the proposed purchases of home mortgages will be
made under the act approved August 7, 19^6, which provide© for the
purchase of veterans1 guaranteed or insured loans » It seems likely
that the RFC plans merely reflect a policy recently established by
Congress» However, it might be possible to use two existing agencies,
namely, the RFC Mortgage Company, which the RFC plans to dissolve this
year, and the Federal National Mortgage Association, which is scheduled
to continue operations in 19U3, to support the home mortgage market«
It might be possible for these agencies to obtain funds directly from
the Treasury, instead of from the Treasury via the RFC«
(2) Rural electrification» A program of Federal loans to
encourage greater use of electric power in rural communities is well
established; in fact, the large increase in such expenditures planned
for 19U8 reflects indirectly the unavoidable delays in making these
loans during the war» Funds for such loans, however, might be secured
directly from the Treasury»
(3) Business loans and guarantees» If the Tobey bill
(S» I4.O8) amending Section 13 of the Federal Reserve Act is approved,
guarantees and participations in loans to business made by the banking
system will be provided through the Federal Reserve System, which
will require no Government expenditures» If RFC loans and guarantees
of loans to business were discontinued on June 30* 19U7* cash budget
requirements for l^T^kS would be reduced by more than 200 million
dollars» Estimated net expenditures reflect disbursements of 150
million and repayments of 65 million on account of such loans, excluding
business loans for national defense, which are already in process of
liquidation»
Except for the three programs outlined above, the RFC will
be engaged in liquidating assets acquired directly or by its subsidiaries in emergency operations first during the 1930*s a**d then during
the war» Liquidation of loans and investments made during the depression emergency is almost completed; available data indicate that there
will be only about 3^0 million of such loans and investments remaining
at the end of 19^8; these are discussed on pages 12 to lU • Continued
liquidation of wartime activities in 191+8 will involve a variety of
detailed activities, as indicated by the following summary of assets
acquired for war purposes:



Suiasiary of Assets Acquired for Tar Purposes
"3une go
Actual
Estimated

I9k5

19ii7

1948

(billion dollars)
Land, structures, and equipment
Commodities, supplies, and inaterials
Accounts, notes receivable, and
advanoe3 to contractors
Loans to foreign governments
Investments in subsidiaries
Total

l/

6.3
Ö.9
0.7
0.3
Q.5
9.2

1.!
0Î

1.3

02
.

0.1
0.3

0

J L

0.1

2«3

1.8

Less than 150,000,000,

Note*-«-Figures include assets of war subsidiaries -which are now merged
with the parent company. See Table 2, footnote 1.

Assets resulting from war activities will have been reduced from more
than 9 billion dollars to less than 2 billion by June 30, 191+8. The
two major items remaining on that date—land, structures, and equipment
and loans to foreign governments—may be reduced slowly in subsequent
years. It is expected that about 500 million dollars of plant facilities will either be retained for further use by military agencies or
be operating on long-term leases. The loan to the tfeited Kingdom
is scheduled for slow repayment from income on the securities that
were put up as collateral against it, and no plans appear to have been
made for repayment of the recent loan to the Philippine Government.
The principal assets of the EFC on June 30, 19k5 (that is,
just before V-J day), and estimated assets on June 30, 1947
19^.8,
are shown in Table 2. Further details concerning the current loan
and investment program and the liquidation of war activities.and of depression financing appear in the following paragraphs#
RFC Programs Scheduled for Expansion
Aids to housing
Net expenditures of nearly 500 million dollars are planned by
the EFC for the fiscal year I9I4.7-I4.8 to aid in the acute housing shortage.
As shown in Table 1, these include 385 million dollars (net) for purchase
of veterans* guaranteed or insured mortgages, 58 million for other
mortgages, and II. million of advances to public bodies for the construc44
tion of community facilities. The proposed purchase of veterans«
mortgages is discussed in a memorandum prepared by Mr. Wood* The




- 5 Tabi© 2
Assets of the Reconstruction Finance Corporation
(June 30 figures, in millions of dollars)
Actual

I9k5 1 /
Total assets

Estimated
1948
11947

11,250

4,251

1,1+20

1,572

2,300

Expanding programs, total
To aid home owners
To business (excluding national defense)
For rural electrification

370
30
50
2Ü0

1,05U
S8S
258

1,385
711
360
814

War programs
To foreign governments
To business for national defense, etc.

272
367

269
51

229
17

k6k

279

260

hp

26

28

Loans receivable, total Z/

All other
Cash
Investments other than in subsidiaries
Land, structures, and equipment 5 /

j/

688

323 ij/267

6,803

1,51*6

1,267

Commodities, supplies, and materials 5/

9k5

i^o

178

Acoounts, notes receivable, and advanoes to
contractors

710

50

22

Investments in subsidiaries

5k2

6/23

6/61

All. other assets

102

124

128

Source: Budget of the Waited St&tes for the fiscal year ending June 30,
19U8, pp. 10U7 a ^d 1063 (Exhibit C and Schedule C-2 a, Reconstruction
Finance Corporation).
l/ Figures differ from those shown in regular Treasury statement for Government
corporations and credit agencies, largely because they include figures on a
consolidated basis for the following agencies, which have been or will be
merged: Defense Plant Corporation, Defense Supplies Corporation, Ketals Reserve
Company, Rubber Reserve Company, and Disaster Loan Corporation, all merged on
July 1, 19h5> War Damage Corporation, Rubber Development Corporation, and the
RFC Mortgage Corporation, to be merged by June 3 0 , 1947«
2/ Net loans, after reserves for revaluation (which are not shown separately)
as follows, in millions of dollars* 19k5, 53; 19U7, 82; 19^8, 92.
3/ National defense loens and purchases and loans acquiï-ed from SWPC •
Includes 100 million dollars of preferred stock, capital notes, and debentures
of banks and trust companies.
5 / Details shown in Table 3 , p. 11#
Capital stock end surplus and bonds or notes of Federal national Mortgage
Association and U # S # Commercial Company.



- 6 purchase of other mortgages, which would include both FHA insured
mortgages and uninsured mortgages, relates to activities formerly
under the RFC Mortgage Company, which is being liquidated.^/
Rural electrification loans
Estimated net expenditures of the RFC on advances for rural
electrification programs, as indicated in the 19i|S Budget, will amount
to about 300 million dollars. The Rural Electrification Administration
was created in May 1935* to carry out the Nation1s program for expanding
the use of electrical energy in rural communities. Its funds were
secured through advances from the RFC; these are supplemented by repayments on loans. The Budget indicates that this method of financing will
be continued. Almost all the loans of the REA have been made to locally
owned and locally operated cooperative groups of farm people organized
for the speoific purpose of obtaining electric service.
The REA continued throughout the war period to make allotments
and loan contracts, although in many instances it was not possible,
because of material shortages, for cooperatives to carry out expansion
plans. Funds advanced, which had averaged about 50 million dollars
annually during the 6-year period ending June 19i+l# dropped to an average of about 30 million during the next three years, thé latest data
available. The increase to 200 and 300 million in this agency's prospective needs for fiscal years I9J4.7 and I9I4.8, respectively, is indicative
of the marked step-up in expansion that was delayed during the war
period«
Precedents for direct Treasury advances
Direct Treasury financing of both the housing program and rural
electrification programs would be in keeping with financing policies
already set up for other Government agencies, for example, the Commodity
Credit Corporation and the Export-Import Bank. The former, originally
financed by the RFC, has been financed by the Treasury since 1938• As
for the Export-Import Bank, the Treasury took over the RFC investment of
17U million dollars in preferred stock of that institution in accordance
with the act approved July 319 19^59 "which provided that a substantial
increase in the capital stock of the Export-Import Bank be subscribed
by the Treasury.
An agency added only recently to the list of those directlyfinanced is the Farmers' Home Corporation. Funds for FHC activities,
according to terms of the Farmers* Home Administration Act, will be
appropriated by Congress; this is reflected in Budget requests for an
appropriation of 154 million dollars for the FHC in 19^8.
l/ Purchases of the Federal national Mortgage Association are also
included•




- 7 Loans to commercial and industrial businesses
Recent lending activities of the RFC have consisted of loans
to industrial and commercial businesses as authorized by Section 5d of
the RFC Act. Lending authority for such loans was granted in 1934* *t
the time that Congress added Section IJb to the Federal Reserve Act
authorizing the Federal Reserve Banks in certain circumstances and
under certain restrictions to make direct loans, and to participate
with banks in loans, to commercial and industrial businesses.
The .outstanding amount of RFC loans under its authority had
grown to 129 million dollars when the defense program was inaugurated
in 1940; as a result of loans for war purposes, as shown below, the
total increased to 419 million on September 30, 1944* By November 30,
1946, the latest data thus classified, the total had declined to 294
million, reflecting a reduction of 235 million in loans for war purposes
and an increase of 110 million in those for other purposes.

RFC Loans to Industrial and Commercial Businesses
(in millions of dollars)
Sept. 30»

19kh

Total
For national defense purposes
Other

Nov. 30,
19^6

Change

ltl9

29k

-125

386

151

-235

33

lb3

+110

A large portion of the business loans made by the RFC in the
past two years have apparently been made under the Blanket Participation
Agreement program. Under this program, which was in effect during the
period April 1945~Ja&uary 1947# the RFC agreed to guarantee, up to 75
per cent, any business loan authorized by a bank which had signed a
Blanket Participation Agreement. Authorizations for credit under this
program increased rather sharply after January 1946, when the RFC took
over the lending functions of the SÏÏPC, and loans authorized under the
program constituted about two-thirds of all loans--both number and
amount—authorized by the Corporation during the interval FebruaryNovember 1946 •
The BPA program was terminated on January 22, 1947* All loans
authorized under the program prior to that date will continue to be
guaranteed under the original Agreement. In announcing the end of the
program, the RFC stated that future demands of small business for longterm credit will be supplied under the Agency1s regular deferred
participation program inaugurated in 1934*




Budget estimates, however, were based on the assumption
that the BPA program would be continued; theyindicate RFC expenditures of about 90 million dollars (net) on loans to business in the
!9ijB fiscal year, reflecting anticipated disbursements of about 150
million dollars and repayments of about 65 million.
Liquidation of business lending for national defense purposes
is represented in RFC estimates for I9I47-I4.8 by net repayments of 3k
million dollars on loans (including repayments on SfiPC loans) and retirement of 100 million of SWPC stock held by the Treasury (a non-cash
expenditure).
Liquidation of Emergency Agencies a Government Policy
The RFC's statutory authority will terminate under present
law on June 30, 1947•
indicated earlier, the president, in his
Budget Message, recommended that the Corporation be extended beyond
that date. Several plans for its extension have been discussed, but
only one has been incorporated in a bill and been introduced in Congress •
This bill would extend the Corporation with its present powers until
June 30, 1952. The RFC is reported to have advanced a preliminary plan
for its extension that is substantially less liberal than the bill now
in Congress; this plan would extend the agency for only one year and
would strip it of some of its outmoded lending authority and would
permit the loan and investment program now provided for in the Budget.
The President's recommendation in the Budget Message appears to be in
line with this preliminary plan of the HFC.
In view of the fact that various phases of the EFC's current
program might %vell be handled by existing agencies, as indicated above,
there is considerable doubt as to the need for maintaining the RFC
solely for such purposes. Moreover, liquidation of the agency would
be in keeping with the mandates of recent legislation. The Reorganization Act of 1945 calls for consolidation of Government agencies having
similar functions and elimination of overlapping functions; consolidation of agencies and functions of the Government according to major
purposes; and finally reduction in expenditures to the fullest extent
consistent with efficient operation of the Government. Steps taken
in recent years to liquidate other emergency lending agencies of the
depression years have been in line with the objectives of such
legislation.
The legislation creating the EOLC in 1933 provided for the
winding up of Its affairs by 1952, and provision was made later for
termination of its lending activities in 1936. In 191*3 a recommendation for liquidation by June 30, 19k5* was made by a Congressional
Investigating Committee• , Officials of the Corporation reporting to
Congress opposed these plans on the grounds that losses incurred in
liquidating assets by the earlier date would not be justified.
Congress took no action, and the Corporation has proceeded according




- 9 to original plans. Disposal of outstanding mortgage loans and
properties has been proceeding ahead of schedule, largely as a result
of the favorable housing market of the war period. The IICLC is
expected to liquidate by 1952 without any loss to the Federal
Government•
Amendments to the Federal Farm Loan Act and the Federal Farm
Mortgage Corporation Act in June 1945 were directed toward liquidation
of the Federal Farm Mortgage Corporation, another depression agency,
by July 1, 1946. These amendments permitted Federal land banks to
acquire Lend Bank Commissioner loans as a step in this direction and
also liberalized the authority of the land banks in making new loans,
by increasing the amount that may be loaned from 50 tc 65 per cent of
the appraised value of farms. In July 1946, however, the Federal
Farm Mortgage Corporation's authority to make Commissioner loans was
extended until July 1, 19475 a t the same time the Farm Credit Administration was directed to make a study and report to Congress on ways of
making available to farmers Federal land bank loans similar to those
now made through the Federal Ferm Mortgage Corporation. In line with
the potential curtailment of this agency's activities, the Budget for
the fiscal year 1948 proposes e reduction in its borrowing authority
from 2 billion dollars. It is estimated on the basis of current conditions that by June 30, 1948* the FF1X will have retired all but a few
thousand dollars of the capital stock ovmed by the Treasury and that
its earned surplus will exceed 100 million dollars. It should be
noted that, according to the Budget, the Federal land banks are also
expected in the fiscal year 1948 to complete retirement of Covermientowned capital stock, thus acquiring for themselves the status of
cooperative institutions.
Other corporations now being liquidated are for the most
part among those that were created during the war period; these
include, in addition to subsidiaries of the HFC, which will be discussed belcfw, the Institute of Inter-American Affairs, Inter-American
Navigation Corporation, Defense Homes Corporation, Prencinradio,
Federal Surplus Commodities Corporation, and the U. S. Spruce
Corporation. The 1948 Budget recommends the liquidation of the
Inter-American Educational Foundation and the Tennessee Valley
Associated Cooperatives; the Inland Waterways is also schedule d to
absorb its subsidiary, the Yfarrior River Terminal Company.
RFC Programs Already Being Liquidated
War activities
Present plans for further liquidation of the war activities
of the RFC are presented in some detail in the Budget, pages 1,029-38.
The initial stages of such liquidation, which were comple ted during the




10 fiscal year 1946, included mainly the merging of major war subsidiaries
with the parent company]/ and the establishment of procedures for disposal of surplus property, largely through an independent agency--the
War Assets Administration. The extent of actual liquidation to be
accomplished by June 30, 1947* is indicated in the summarized statement
of UPC assets shown in Table 2; this is a consolidated statement of the
RFC and the subsidiaries already merged or shortly to be merged with
the parent company. Assets originating in war activities, which totaled
more than 9 billion dollars on June 30, 1945# will be reduced to less
than 2.5 billion by June 30, 1947; further liquidation according to
Budget plans will reduce Oiis total by an additional l/2 billion to 1*8
billion by June 30, 1948. Additional details concerning the liquidation
of physical assets are shown in Table 3 .
War plant facilities,—The greater part of the end-of-war
assets of the RFC consisted of plant facilities totaling 6.8 billion
dollars on June 30, 1945® Reduction of these investments by June 30,
1947, to 1.5 billion will be the result of (l) declarations as surplus
to the War Assets Administration and therefore available for sale,
and (2) creation of substantial reserves to cover losses anticipated
in the ultimate disposition of these assets. By June 3 0 , 1948,
according to present plans, about one billion dollars of wartime plant
facilities that have not been declared surplus will remain on the books
of the RFC; this total will include about 500 million dollars that will
be held merely pending surplus declaration or sale (an interim stage),
about 400 million held by the sponsoring agencies for future use
(presumably by the military), and about 100 million that will still
be operating on long-term lease agreements.
Strategic supplies, metals, and minerals,—Assets of the
RFC in the form of strategic supplies and strategic metals and minerals
totaled over 900 million dollars on June 3 0 , 1945• By the end of the
current fiscal year these holdings will be reduced to about 400 million,
in part by sale and in part by transfer to the pe rmanent national stockpile as provided by law. Further transfers to the permanent national
stockpile or sales are expected to reduce this total to less than 200
million by June 30, 1948, of which only 70 million will be held for
sale or stockpiling.
Other.—As indicated earlier, most of the war-created subsidiaries were merged with the parent company during the fiscal year
1946. During the current fiscal year the War Damage Corporation, the
Rubber Development Corporation, and the RFC Mortgage Corporation will
be dissolved. In connection with the dissolution of the War Damage
Corporation, the RFC budget for 1948 reflects the return to the Treasury
of the 210 million of profits made by the agency on war damage insurance.
During the fiscal year 1948 liquidation.of assets of the Smaller War
Plants Corporation that were transferred to the RFC will be practically
l/ For a list of these subsidiaries see Table 2, footnote 1.




- 11 Table 3
Details Concerning Physical Assets of the Reconstruction Finance Corporation
(June 30 figures, in millions of dollars)
Actual

I9h5

Estimated
191-7
W

6,803

1,5146

1,267

1
6,797

3,067
2,287

3,508
1,018

10

11

11

k

3,819

3,270

9U5

IJo
iU

178

Held for sale or stockpiling

850

368

70

Held for permanent stockpile 2/

mum

k3

70

Land, structures and equipment, net
Wartime facilities
Declared surplus
Eot declared surplus
General land, buildings, and equipment
Less reserve for depreciation and revaluation l/
Commodities, supplies and material, net

Declared surplus to War Assets Administration

3/

22

15

Held for use in operations

95

ia

41

%

19

Less reserve for revaluation

Source: Budget of the United States for the fiscal year ending June 3 0 , 19^3,
p. lOitf (Exhibit C - Reconstruction Finance Corporation).
l/ Reserves established represent full loss anticipated upon ultimate disposition of property (Budget for 1948, P* lOlj.1) .
2f These are held for transfer under the Strategic and Critical Biterials Stockpiling Act1 the Corporation is reimbursed in the amount of the fair market
value# The Corporation is also required tmder Section 22 of the Surplus
Property Act to transfer to the national stockpile, without reimbursement,
certain inventories of strategic and critical materials.
3/ Less than $500,000.




12 completed, and its capital stock of 100 million dollars will be retired»
The only remaining war subsidiary will be the U« S« Commercial Company;
continuation of this Company beyond June 30, I9ltf, its present expiration
date, is recommended because of its temporary use in financing exports
necessary to the economic revival of occupied areas«
The loan of 19i|l to the United Kingdom, secured by investments
in this country and serviced by earnings on these investments, could very
properly be handled by the Treasury Department. The 191*3 Budget indicates that this loan, which had been reduced from its peak of 385 million
dollars in February 19k2 to 220 million at the end of November 19k&$
will be further reduced to 13b million by June 30, 19if.8« The Treasury
might handle also the 75 million dollar loan made to the Philippine
Republic in the fiscal year 1946-1|.7j which was intended to finance the
current budget of the Republic.
Liquidation of the Corporations loans to business for defense
purposes has been covered in an earlier section of this memorandum«
Emergency financing of the 193°
Budget estimates indicate that outstanding loans and investments from the emergency financing of the early 1930*s will be reduced
to about 3 4 O million dollars by June 30, 1914.8« The RFC was the firstI.
emergency agency created by Congress for dealing with financial problems
arising out of the depression« Prior to the bank holiday in early 1933
the Corporation made loans to tide over financial institutions and railroads whose assets were frozen« After the bank holiday funds for such
purposes were made available to banks by investment in preferred stock,
capital notes, and debentures, while loans were made chiefly to closed
banks—largely to receivers and mortgage loan companies—for the purpose
of expediting the payment of dividends to depositors of closed banks«
RFC loans to financial institutions and railroads reached a peak of
about l«lj billion dollars in 1933$ its investments in the capital
structure of banks, made largely in I93h$ resulted in a peak of out«*
standing loans and investments of nearly 2«3 billion at the end of 193lu
Since the end of 1931* these early loans and investments have
been gradually reduced« The total had declined to about 1«4 billion
dollars when the national defense program was started in 191*0 and will
be about 3^0 million dollars by June 30, 19^8« Figures for individual
types of loans are shown in the following table:




- 13 -

Outstanding Loans and Investments from Emergency Financing of the 1930fs

Dec» 31,
1934
Loans to financial institutions
Preferred stock, oapital notes
and debentures
Loans on preferred stook of
banks and trust companies
Loans to railroads
Loans to drainage, levee, and
irrigation distriots
Loans for self-liquidating
projects
Other loans
Securities purchased from the
Public Works Admin.
Total

Dec. 31,
1940

June 30,
1948
(estimated)

81+0

172

23

83k

h52

100

1*7
377

hlb

53

3
1U1

12

83

10

123
20

36
5

3
2

2

116

2,255

1,391

J6
333

Estimates of loans outstanding for June 30, 1947* a**e not
available, but the amounts will probably be only slightly above those
for June 30, 1948, shown in the table. Liquidation on either date
would therefore involve approximately the same amounts. Of the outstanding balance anticipated on June 3 0 , 1948, about 2 3 6 million dollars could perhaps be turned over to private financing institutions
under some systematic arrangement for the sale of these assets and
for the writing off of losses; into this group would fall the remaining
holdings of securities purchased from the Public Works Administration
( 5 6 million dollars), outstanding loans to drainege and irrigation
districts and for self-liquidating projects ( 1 3 million); loans to
railroads (l4l million); and loans to banks and other financial
institutions ( 2 6 million).
One of the problems to consider is the extent to which these
loans and investments are likely to be attractive to private financing
institutions. The unusual amount of funds available during the war
has resulted in extensive repayment of private debts. The remaining
balances of the groups of loans and investments referred to above
were reduced by about 650 million dollars from 1940 to 1946; repayments
appear to have been falling off recently, however, and it is estimated
that the total reduction for the 1 8 months ending June I9J4B will be only
about 60 million. Loans not retired during the war and early postwar
period may represent liabilities of businesses in poor condition, and
it is possible that a large proportion of these loans would have to
be written off as losses.




-14It mi£ht also b© possible to return to private hands a part
of the refining investment of 190 million dollars in preferred stock,
capital notes, and debentures of banks, which the Budget for 19i*8
estimates will be reduced to about 100 million by June 3 0 , 191+8« Funds
raised through sales of common stock might be used to take up part of
this special RFC investment; to the extent that this could not be
accomplished, the investment might be transferred to a Federal bank
supervisory agency for gradual liquidation«
Other investmentst

non-war affiliates and agencies

On September 30# 19U&, the RFC owned stock in two non-war
affiliates, the RFC Mortgage Company and the Federal National Mortgage
Association, whose combined assets totaled 29 million dollars, including 20 million of home mortgage loans • These agencies were organized
in the 1930* s to assist in establishing a market for FK& insured home
mortgage loans« Gradual liquidation of both agencies has been in
process for some time*
Budget plans indicate that liquidation of the RFC Mortgage
Company will be speeded up in an effort to terminate the agency by
June 30, 19!47f
that its operations after that date will be handled
by the RFC itself« In the case of the FWA, however, renewed expansion
is planned« As more new housing becomes available and the volume of
mortgage loans insured by the FEk increases, it is anticipated that the
FWA will be called upon to buy more insured loans, especially mortgages
of nonveterans. Assets of the Association* which will total about 16
million on June 3 0 , 19hl$ R re scheduled to increase to about 65 million
during the next year, largely as a result of investment in insured loans«
In case the RFC is liquidated, however, the administration of this
agency might be handled by the National Housing Agency.
There would remain also the problem of disposing of the RFC* s
loans to and investments in other Government agencies. The largest of
these is its investment in capital stock of the Federal Home Loan Banks
which has remained practically unchanged at 125 million dollars since
February 19Ul« This stock might be taken over by the Treasury or
transferred to the National Housing Agency.
The only other remaining item/outstanding advances of the
RFC to the Secretary of Agrioulb ure for supplying funds to the Farm
Seourity Administration, which, according to Budget estimates, will
amount to about 105 million dollars on Jvine 30, 19U7* Liquidation
of these advances, as Farm Security Administration loans are repaid,
might well be turned over to its successor, the Farmers« Home
Corporation«