View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.



April 6, 1939

The following is an outline of a proposal for the creation by Congress of an Industrial Loan Corporation to provide
funds for commercial and industrial enterprises which are unable
to obtain needed assistance from existing financing institutions*
Amount of capital and surplus and source thereof* - The
Secretary of the Treasury would be directed to purchase~the stock
of the Federal Deposit Insurance Corporation heretofore subscribed
for by the Federal Reserve banks, paying therefor $139>299*556*99
less the sums which have been paid to the Federal Reserve banks
under the provisions of section 13b of the Federal Reserve Act,
and not returned to the Treasury* The amount so received by the
Federal Reserve banks would be used t y them to supply the capital
and surplus of the Industrial Loan Corporation® (As of December 31*
1938, this amount would be $112,57U,509.Ul*) Of this amount
$100j000,000 would be represented by nonvoting stock held by the
reserve banks and the remainder would be paid-in surplus* The
provisions of section 13b would be repealed, with provision, however,-for the orderly liquidation of outstanding loans and commitments. The amounts realized by the Federal Reserve banks from the
liquidation of outstanding loans and commitments made from funds
received from the Secretary of the Treasury, including assets
acquired in settlement therofor, would, under regulations prescribed
by the Board of Governors of the federal Reserve System, be paid
to and become a part of the surplus of tho Corporation* (As of
December 31* 1938$ the maximum amount of such additions to the
surplus of the Corporation which might be made by the Federal
Reserve banks would be $26,725,OL?•58*)
Board of directors* - The governing body of the Industrial
Loan Corporation would consist of a board of directors of three
members* The Board of Governors of the Federal Reserve System from
time to time would designate three of its own members as directors
and also designate three alternate directors from among the remaining members of the Board of Governors or members of its staff•
Utilisation of Board of Governors and Federal Reserve banks*
The Corporation would utilize, as officers and employees, such officers and employees of the Board of Governors of the Federal Reserve
System as might be necessary and would be authorised to utilise the
Federal Reserve banks, branches and agencies as its agents> to designate other agents or set up its own agents to carry out its functions*




No director of the Corporation and no officer or employee
of the Board of Governors or a Federal Reserve bank, branch or
agency would receive any additional compensation for his services
for the corporation.
The Corporation would reimburse the Board of Governors,
the Federal Reserve banks, or other agencies of the Corporation for
their expenses on a basis to be determined by the Board of Governors.
Extension of credit by Corporation. - The Corporation would
be authorized through the acquisition of notes, debentures, bonds or
similar obligations to supply credit, or to enter into commitments to
supply credit, to commercial, and industrial enterprises or to purchase
preferred stock in such commercial and industrial enterprises and
would designate agents for the purpose of receiving applications for
and extending credit and acquiring obligations in the name of the
Corporation. All such extensions of credit and purchases of preferred
stock, including the maximum maturity of obligations, would be subject to regulations of the Corporation.* The maximum amount of funds
that could be supplied to any one business would be $1,000,000* Transactions entered into by the Corporation could be either direct or in
cooperation with banks or other financing institutions.- No direct
advances of credit to or purchases of obligations or preferred stock
of any business enterprise could be made by the Corporation or its
agents if such business enterprise were able to obtain funds on a
reasonable basis from existing financing institutions.- Discounts,
loans and purchases by the Corporation would have to be on a* reasonably sound basis..
Insurance fund. - The Corporation would be authorized to
set aside a part of its capital funds as an insurance fund . for the
purpose of insuring loans made by financing institutions to cornier*
cial and industrial enterprises. Loans would be insured subject to
such regulations as the Corporation might prescribe, including limitations on amount both on individual loans and in the aggregate and
including requirements for payment of premiums by the insured^
Local committees. • - The Corporation would be authorized to
encourage the selection and assist in the formation of committees of
representatives of small business enterprises in local communities
to explain to prospective borrowers the facilities of the Corporation and to advise with and assist prospective borrowers in connecr*
tion with their applications for financial''assistance from the
Debentures*, - The Corporation would have authority to issue
and have outstanding debentures equal to five times the unimpaired


capital and surplus of the Corporation, exclusive of that
portion of its capital set aside as an insurance fund. Such
debentures could be secured in such manner as the Corporation
might determine. The debentures would not be guaranteed by
the United States but would have the usual tax exemption possessed by obligations of similar Government corporations.
Regulations. - All of the operations of the Corporation, including rates, would be subject to a broad authority
in the Corporation to make rules, regulations and requirements,
with the right in the Board of Governors of the Federal Reserve
System to review and revise such rules, regulations and requirements from time to time.
Disposition of earnings and surplus. - All net earnings of the Corporation would be retained in surplus after making
the necessary provisions for losses. In case of liquidation of
the Corporation all of its capital and surplus would become the
property of the United States.
Annual report* - The Board of Governors of the Federal
Reserve System would transmit to Congress with each of its annual
reports an annual report of the Corporation regarding the latterfs