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BOARD OF GOVERNORS
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FEDERAL RESERVE

Office Correspondence
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Subject: Hearings before the Small Thislng««
Coinmittee of the House on financ i a l problems of small bnsinft««

Mr. Emil Schram, President of the New York Stock Exchange,
was the only witness. He read from a prepared statement but no
copies were a v a i l a b l e • He began by r e f e r r i n g to the q u a l i f i c a t i o n s
f o r l i s t i n g stocks on the New York Stock Exchange and stated that
because the stock o f many small business enterprises was not l i s t e d
i t should not be taken to mean that he had a f e e l i n g of discrimination
against small business. He said, however, that i t would be a good
thing i f more l o c a l concerns were l i s t e d on the r e g i o n a l exchanges,
stating that probably one of the deterrents was the r e g i s t r a t i o n wiih
the SEC. He f e l t , however, that the new $300,000 exemption may help«
He said that i t was not f e a s i b l e t o make loans t o small
business from Washington or from the f i n a n c i a l centers but that f i nancial a i d should come from l o c a l banks and other p r i v a t e sources.
He endorsed the L o u i s v i l l e I n d u s t r i a l Foundation Plan and a l s o the
Terre Haute Plan in which a fund was raised l o c a l l y f o r loans to
small business. He pointed out that when the Government supplies
equity c a p i t a l i t i s not in a p o s i t i o n t o f u r n i s h management, whereas
i f the borrower 1 s "neighbors" pass upon the f i n a n c i a l needs of the
small business they can a s s i s t in recommending good management. In
t h i s connection, he pointed out that moral r e s p o n s i b i l i t y and the
character of the borrower are o f t e n more important than the c o l l a t e r a l .
He then made two recommendations—first, r e l i e f of small
business from t a x a t i o n ; and, second, the encouragement of l o c a l lending corporations with possibly the aid of the HFC t o insure up t o 75
per cent of a loan. He said he was opposed to Government i n business
but that the Government should cooperate. Reference was made t o the
EHA program o f insurance but he stated that such insurance i s not to
be compared with loans to business because the basic f a c t o r s are d i f f e r e n t . I t i s not d i f f i c u l t to appraise the value of a house but i t
i s another matter to appraise the business a b i l i t y and other i n t a n g i b l e s
of a small business concern.
He pointed out that l o c a l c a p i t a l i s embarrassing t o the
Stock Exchange market» I t comes in on t i p s , e t c . ; i t abuses the market
and i s not used w i s e l y . He f e e l s that i t should stay out of the market
and should be encouraged to be invested l o c a l l y .
Congressman Robinson was c r i t i c a l of the banks f o r not making loans but r e l y i n g upon earnings from s e r v i c e charges and investment
in Government bonds. He also c r i t i c i z e d examiners f o r being too s t r i c t
with small bankers. He said that i t was wrong to require too high a




To: Mr. Thurston

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l i q u i d i t y i n the assets of a bank. Mr. Schram r e p l i e d that he
thought the banks have learned something and w i l l make loans to
business in the postwar p e r i o d .
He f e l t that the excess p r o f i t s tax exemption should be
raised from flO,000 to f50,000, stating that he f e l t strongly that
the present tax program retarded p r i v a t e f i n a n c i n g . He did not agree,
however, that a general tax change should be considered at t h i s time.
He a l s o concurred in a suggestion made by Mr. Eastwood, the c h i e f
i n v e s t i g a t o r of the Committee, that a tax c r e d i t f o r a person who i n v e s t s in small business would not be class l e g i s l a t i o n and would be
a good idea, at l e a s t f o r a few years.
The Committee members present were Messrs. Patman,
Robinson, Keogh and H a l l .