Full text of Loans to Industry : Report (To Accompany S. 3487)

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73D CONGRESS
2d Session

)
j

HOUSE OF REPRESENTATIVES

J

REPORT

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N o . 1719

LOANS TO I N D U S T R Y

MAT 21, 1934.—Committed to the Committee of the Whole House on the state
of the Union and ordered to be printed

Mr. PRALL, from the Committee on Banking and Currency, submitted
the following

REPORT
[To accompany S. 3487]
The Committee on Banking and Currency, to whom was referred
the bill (S. 3487) relating to direct loans for industrial purposes by
Federal Reserve banks, and for other purposes, having considered the
same, report favorably thereon with an amendment and recommend
that the bill do pass as amended. Said amendment is as follows:
Strike out all after the enacting clai se of £aid bill, Si 3487, and
insert in lieu thereof the following:
That (a) section 882 of the Revised Statutes (U.S.C., title 28, sec. 661) is amended.
to read as follows:
"SEC. 882. (a) Copies of any books, records, papers, or other documents in
any of the executive departments, or of any corporation aU of the stock of which
is beneficially owned by the United States, either directly or indirectly, shall be
admitted in evidence equally with the originals thereof, when duly authenticated
under the seal of such department or corporation, respectively.
"(b) Books or records of account in whatever form, and minutes (or portions
thereof) of proceedings, of any such executive department or corporation, or
copies of such books, records, or minutes authenticated under the seal of such
department or corporation, shall be admissible as evidence of any act, transaction, occurrence, or event as a memorandum of which such books, records, or
minutes were kept or made.
"(c) The seal of any such executive department or corporation shall be judicially noticed."
(b) Section 4 of the Reconstruction Finance Corporation Act, as amended
(U.S.C., Supp. VII, title 15, sec. 604), is amended by inserting immediately before
the semicolon following the words "corporate seal" a comma and the words
" which shall be judicially noticed ".
SEC. 2. Section 1001 of the Revised Statutes, as amended (U.S.C., title 28, sec.
870), is amended by inserting immediately after the word "Government" the
following: " o r any corporation all the stock of which is beneficially owned by the
United States, either directly or indirectly " .
Sec. 3. The Reconstruction Finance Corporation Act, as amended (U.S.C.,
Supp. VII, title 15, ch. 14), is further amended by inserting after section 5a
thereof the following new section:
"SEC. 5b. Notwithstanding any other provision of law—
" (1) The maturity of drafts or bills of exchange which may be accepted by the
Corporation under section 5a of this Act, and thq period for which the Corpora


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LOANS TO INDUSTRY

tion may make loans or advances under sections 201 (c) and 201 (d) of the Emergency Relief and Construction Act of 1932, as amended, and under section 5 of
this Act, may be five years, or any shorter period, from February 1,1935: Provided
That in respect of loans or advances under such section 5 to railroads, railways,
and receivers or trustees thereof, the Corporation may require as a condition of
making any such loan or advance for a period longer than three years that such
arrangements be made for the reduction or amortization of the indebtedness of
the railroad or railway, either in whole or in part, as may be approved by the
Corporation after the prior approval of the Interstate Commerce Commission.
" (2) The Corporation may at any time, or from time to time, extend, or conBent to the extension of, the time of payment of any loan or advance made by it,
through renewal, substitution of new obligations, or otherwise, but the time for
such payment shall not be extended beyond five years from February 1, 1935:
Provided, That the time of payment of loans or advances to railroads, railways,
and receivers or trustees thereof, shall not be so extended except with the prior
approval of the Interstate Commerce Commission, and, in the case of a loan to a
railroad or railway, with the prior certification of the Interstate Commerce Commission that the railroad or railways is not in need of financial reorganization in
the public interest.
" ( 3 ) In connection with the reorganization under section 77 of the Federal
Bankruptcy Act, approved July 1, 1898, as amended, or with receivership proceedings in a court or courts, of any railroad or railway indebted to the Corporation, or of any railroad or railway the receivers or trustees of which are indebted
to the Corporation, the Corporation may; with the prior approval of the Interstate Commerce Commission, adjust or compromise its claim against such railroad
or railway, or any such receiver or trustee, by accepting, in connection with any
such reorganization or receivership proceedings and in exchange for securities or
any part thereof then held, new securities which may have such terms as to
interest, maturity, and otherwise as may be approved by the Corporation, or
part cash and part new securities so approved: Provided, That any such adjustment or compromise shall not be made on less favorable terms than those
provided in the reorganization of the railroad or railway for holders of claims
of the same class and rank as the claim of the Corporation."
SEC/4. Section 301 of the National Industrial Recovery Act (U.S.C., Supp.
VII, title 40, sec. 412) is amended by inserting before the period at the end thereof
a colon and the following: " Provided further, That in connection with any loan
or contract or any commitment to make a loan entered into by the Reconstruction Finance Corporation prior to June 26, 1933, to aid in financing part or all
of the construction cost of projects pursuant to section 201 (a) (1) of the Emergency Relief and Construction Act of 1932, as amended, the Corporation may
make such further loans and contracts for the completion of any such project,
or for improvements, additions, extensions, or equipment which are necessary or
desirable for the proper functioning of any such project, or which will materially
increase the assurance that the borrower will be able to repay the entire investment of the Corporation in such project, including such improvements, additions,
extensions, or equipment; and the Corporation may disburse funds to the borrower thereunder, at any time prior to January 23, 1939, notwithstanding any
provisions to the contrary, contained in this section or in section 201 (h) of the
Emergency Relief and Construction Act of 1932, as amended: Provided further,
That any such further loans shall be made subject to all the terms and conditions
set forth in the Emergency Relief and Construction Act of 1932, as amended,
with respect to the loans authorized by section 201 (a) (1) of said A c t . "
SEC. 5. Notwithstanding any limitations on its power, the Reconstruction
Finance Corporation, upon request of any borrower under section 201 (a) of the
Emergency Relief and Construction Act of 1932, as amended, may adjust the
maturities of any obligations of such borrower now held by it, or hereafter acquired
by it under lawful commitments, to such periods as may in the discretion of the
Reconstruction Finance Corporation be proper, but such adjustment shall not
extend any such maturity to more than twenty years from the advancing of the
sum or sums evidenced thereby.
SEC. 6. Section 36 of the Emergency Farm Mortgage Act of 1933, as amended
(U.S.C., Supp. VII, title 43, sec. 403), is amended as follows: '
*(!) By striking from the first sentence thereof " $50,000,000 to or for the benefit
of drainage districts, levee districts, levee and drainage districts, irrigation districts, and similar districts" and inserting in lieu thereof "$125,000,000 to or for
the-benefit of drainage districts, levee districts, levee and drainage districts,
irrigation districts, and similar districts, mutual nonprofit companies and incorporated water users' associations".




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LOANS TO INDUSTRY

(2) By striking from the second sentence thereof "district or political subdivision" and inserting in lieu thereof "district, political subdivision, company,
or association".
(3) By amending clause (4) thereof to read as follows:
" (4) the borrower shall agree, insofar as it may lawfully do so, that so long as
any part of such loan shall remain, unpaid the borrower will in each year apply
to the repayment of such loan or to the purchase or redemption of the obligations
issued to evidence such loan, an amount equal to the amounts by which the
assessments, taxes, and other charges collected by it exceed (a) the cost of operation and maintenance of the project, (b) the debt charges on its outstanding
obligations, and (c) provision for such reasonable reserves as may be approved
by the Corporation; and".
(4) By adding at the end thereof the following new paragraph:
" When any loan is authorized pursuant to the provisions of this section and it
shall then or thereafter appear that repairs and necessary extensions or improvements to the project of such district, political subdivision, company, or association
are necessary or desirable for the proper functioning of its project or for the further
assurance of its ability to repay such loan, and if it shall also appear that such
repairs and necessary extensions or improvements are not designed to bring new
lands into production, the Corporation, within the limitation as to total amount
provided in this section, may make an additional loan or loans to such district,
political subdivision, company, or association for such purpose or purposes.
When application therefor shall have been made by any such district, political
subdivision, company, or association any loan authorized by this section may be
made either to such district, political subdivision, company, or association or to
the holders or representatives of the holders of their existing indebtedness, and such
loans may be made upon promissory notes collateraled by the obligations of such
district, political subdivision, company, or association or through the purchase of
securities issued or to be issued by such district, political subdivision, company, or
1
association."
SEC. 7. (a) Sections 2 and 3 of the Act Entitled "An Act to authorize the
Reconstruction Finance Corporation to subscribe for preferred stock and purchase the capital notes of insurance companies, and for other purposes", approved June 10, 1933, as amended (U.S.C., Supp. VII, title 15, sees. 605f and
605g), are amended to read as follows:
"SEC. 2. In the event that any such insurance company shall be incorporated
under the laws of any State which does not permit it to issue preferred stock,
exempt from assessment or additional liability, or if such laws permit such issue
of preferred stock only by unanimous consent of stockholders, or upon notice
of more than twenty days, or if the insurance company is a mutual organization
without capital stock, the Reconstruction Finance Corporation is authorized for
the purposes of this Act to purchase the legally-issued capital notes of such
insurance company, or, if the company is a mutual organization without capital
stock, such other form or forms of indebtedness as the laws of the State under
which such company is organized permit, or to make loans secured by such
notes or such other form or forms of indebtedness as collateral, which may be
subordinated in whole or in part or to any degree to claims of other creditors.
"SEC. 3. The Reconstruction Finance Corporation shall not subscribe for or
purchase any preferred stock or capital notes of any applicant insurance company, (1) until the applicant shows to the satisfaction of the Corporation that
it has unimpaired capital, or that it will furnish new capital which will be subordinate to the preferred stock or capital notes to be subscribed for or purchased
by the Corporation, equal to the amount of said preferred stock or capital notes
so subscribed for or purchased by the Corporation: Provided, That the Corporation may make loans upon said preferred stock or capital notes, or other forms
or forms of indebtedness permitted by the laws of the State under which said
applicant is organized, if, in its opinion, such loans will be adequately secured by
said stock or capital notes or other form or forms of indebtedness and/or such
other forms of security as the Corporation may require, (2) if at the time of such
subscription, purchase, or loan any officer, director, or employee of the applicant
is receiving total compensation in a sum in excess of $17,500 per annum from the
applicant and/or any of its affiliates, and (3) unless at such time, the insurance
company agrees to the satisfaction of the Corporation that while any part of the
^preferred stock, notes, bonds, or debentures (or, in the case of a mutual insurance
company, other form or forms of indebtedness permitted by the laws of the
State under which the company is organized) of such insurance company is held
by the Corporation, the insurance company, except with the consent of the
Corporation, will not (a) increase the compensation received by any of its



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LOANS TO INDUSTRY

officers, directors, or employees from the insurance company and/or any of its
affiliates, and in no event increase any such compensation to an amount exceeding $17,500 per annum, or (b) retire any of its stock, notes, bonds, debentures,
or other forms of indebtedness issued for capital purposes. For the purposes
of this section, the term ' compensation' includes any salary, fee, bonus, commission, or other payment, direct or indirect, in money or otherwise for personal
services."
(b) Section 11 of such Act of June 10 1933, as amended (U.S.C., Supp. VII,
title 15, sec. 605i), is amended by adding at the end thereof the following new
sentence: " A s used in this section and in sections 1, 2, and 3 of this Act, the term
'State* means any State, Territory, or possession of the United States, the Canal
Zone, and the District of Columbia."
SEC. 8. The Reconstruction Finance Corporation is authorized and empowered
to make loans upon full and adequate security, based on mineral acreage, to recognized and established incorporated managing agencies of farmers' cooperative
mineral rights pools not engaged in drilling or mining operations, said loans to be
made for the purpose of defraying the cost of organizing such pools.
SEC. 9. The Reconstruction Finance Corporation is authorized and empowered
to make loans upon adequate security, based on mineral acreage to recognized
and established incorporated agencies engaged in the business of mining, milling,
or smelting of ores.
SEC. 10. The Reconstruction Finance Corporation Act, as amended (U.S.C.,
Supp. VII, title 15, ch. 14), is amended by inserting before section 6 thereof the
following new section:
"SEC. 5C. With the approval of the President, the Corporation is authorized
and directed, notwithstanding any other provisions of law, to establish or to utilize
export or import trading and banking corporations in which the United States
shall own, directly or indirectly, the entire beneficial interest, and to subscribe
for and purchase the common and preferred stock and obligations thereof, for
the purpose of aiding in financing and facilitating exports and imports between
the United States and other nations or the agencies or nationals of either of them."
SEC. 11. The Reconstruction Finance Corporation Act, as amended (U.S.C.,
Supp. VII, title 15, ch. 14), is amended by inserting before section 6 thereof the
following new section:
"SEC. 5d. For the purpose of maintaining and increasing the employment of
labor when credit at prevailing bank rates for the character of loans applied for
is not otherwise available at banks or the Federal Reserve bank of the district
in which the applicant is located, the Corporation is authorized and empowered
to make loans to any industrial or commercial business established prior to January 1, 1934. Such loans shall in the opinion of the board of directors of the
Corporation be adequately secured, may be made directly, or in cooperation with
banks or other lending institutions, or by the purchase of participations, shall
have maturities not to exceed five years, shall be made only when deemed to
offer reasonable assurance of continued or increased employment of labor, shall
be made only when, in the opinion of the board of directors of the Corporation,
the borrower is solvent, shall not exceed $300,000,000 in aggregate amount at any
one time outstanding, and shall be subject to such terms, conditions, and restrictions as the board of directors of the Corporation may determine. The aggregate
amount of loans to any one borrower under this section shall not exceed $100,000.
"The power to make loans given herein shall terminate on January 31, 1935, or
on such earlier date as the President shall by proclamation fix; but no provision
of law terminating any of the functions of the Corporation shall be construed to
prohibit disbursement of funds on loans and commitments, or agreements to
make loans, made under this section prior to January 31, 1935, or such earlier
date."
SEC. 12. The Federal Reserve Act, as amended, is amended by adding after
section 13a thereof a new section reading as follows:
"SEC. 13b. When it appears to the satisfaction of a Federal Reserve bank that
an established industrial or commercial business located in its district is unable
to obtain requisite financial assistance on a reasonable basis from the usual sources,
the Federal Reserve bank, pursuant to authority granted by the Federal Reserve
Board, may make loans to, or purchase obligations of, such business, or may make
commitments with respect thereto, on a reasonable and sound basis, for the purpose of providing it with capital, but no obligation shall be acquired or commitment made hereunder with a maturity exceeding five years.
"Each Federal Reserve bank shall also have power to discount for, or purchase
from, any bank, trust company, mortgage company, credit corporation for



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LOANS TO INDUSTRY

industry, or other financing institution operating in its district, obligations having
maturities not exceeding five years, entered into for the purpose of obtaining
capital for any such established industrial or commercial business; to make loans
or advances direct to any such financing institution on the security of such obligations; and to make commitments with regard to such discount or purchase of
obligations or with respect to such loans or advances on the security thereof,
including commitments made in advance of the actual undertaking of such
obligations. Each such financing institution shall obligate itself to the satisfaction of the Federal Reserve bank for at least 20 per centum of any loss which
may be sustained by such bank upon any of the obligations acquired from such
financing institution, the existence and amount of any such loss to be determined
in accordance with regulations of the Federal Reserve Board: Provided, That in
lieu of such obligation against loss any such financing institution may advance
at least 20 per centum of such capital for any established industrial or commercial
business without obligating itself to the Federal Reserve bank against loss on the
amount advanced by the Federal Reserve bank: Provided, however, That such
advances by the financing institution and the Federal Reserve bank shall be
considered as one advance, and repayment shall be made pro rata under such
regulations as the Federal Reserve Board may prescribe.
"The aggregate amount of loans, advances, and commitments of the Federal
Reserve banks outstanding under this section at any one time, plus the amount of
purchases and discounts under this section held at the same time, shall not exceed
the combined surplus of the Federal Reserve banks as of July 1, 1934, and all
operations of the Federal Reserve banks under this section shall be subject to
such regulations as the Federal Reserve Board may prescribe.
"For the purpose of aiding the Federal Reserve banks in carrying out the provisions of this section, there is hereby established in each Federal Reserve district
an industrial advisory committee, to be appointed by the Federal Reserve bank
subject to the approval and regulations of the Federal Reserve Board, and to be
composed of not less than three nor more than five members as determined by
the Federal Reserve Board. Each member of such committee shall be actively
engaged in some industrial pursuit within the Federal Reserve district in which
the committee is established, and each such member shall serve without compensation but shall be entitled to receive from the Federa' Reserve bank of such
district his necessary expenses while engaged in the business of the committee, or
a per diem allowance in lieu thereof to be fixed by the Federal Reserve Board.
Each application for any such loan, advance, purchase, discount, or commitment
shall be submitted to the appropriate committee and, after an examination by it of
the business with respect to which the application is made, the application shall
be transmitted to the Federal Reserve bank, together with the recommendation
of the committee."
SEC. 13. Section 5202 of the Revised Statutes of the United States, as amended,
is hereby amended by adding at the end thereof the following new paragraph:
"Tenth. Liabilities incurred under the provisions of section 13b of the Federal
Reserve Act."
SEC. 14. Section 22 of the Federal Reserve Act is amended by adding at the
end thereof the following new paragraphs:
'' (h) Whoever makes any material statement, knowing it to be false, or whoever
willfully overvalues any security, for the purpose of influencing in any way the
action of a Federal Reserve bank upon any application, commitment, advance,
discount, purchase, or loan, or any extension thereof by renewal, deferment of
action, or otherwise, or the acceptance, release, or substitution of security therefor, shall be punished by a fine of not more than $5,000 or by imprisonment for
not more than two years, or both.
" (i) Whoever, being connected in any capacity with a Federal Reserve bank
(1) embezzles, abstracts, purloins, or willfully misapplies any moneys, funds,
securities, or other things of value, whether belonging to it or pledged or otherwise
entrusted to it, or (2) with intent to defraud any Federal Reserve bank, or any
other body politic or corporate, or any individual, or to deceive any officer,
auditor, or examiner, makes any false entry in any book, report, or statement of
or to a Federal Reserve bank, or, without being duly authorized, draws any
order or issues, puts forth, or assigns any note, debenture, bond, or other obligation, or draft, mortgage, judgment, or decree shall be punished by a fine of not
more than $10,000 or by imprisonment for not more than five years, or both.
" (j) The provisions of sections 112, 113, 114, 115, 116, and 117 of the Criminal
Code of the United States, insofar as applicable, are extended to apply to contracts or agreements of any Federal Reserve bank under this Act, which, for the



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LOANS TO INDUSTRY

purposes hereof, shall be held to include advances, loans, discounts, purchase*
and repurchase agreements; extensions and renewals thereof; and acceptances,
releases, and substitutions of security therefor.
" (k) It shall be unlawful for any person to stipulate for or give or receive, or
consent or agree to give or receive, any fee, commission, bonus, or thing of value
for procuring or endeavoring to procure from any Federal Reserve bank any
advance, loan, or extension of credit or discount or purchase of any obligation
or commitment with respect thereto, either directly from such Federal Reserve
bank or indirectly through any financing institution, unless such fee, commission,
bonus, or thing of value and all material facts with respect to the arrangement
or understanding therefor shall be disclosed in writing in the application or
request for such advance, loan, extension of credit, discount, purchase, or commitment. Any violation of the provisions of this paragraph shall be punishable
by imprisonment for not more than one year or by a fine of not exceeding $5,000,
or both. If a director, officer, employee, or agent of any Federal Reserve bank
shall knowingly violate this paragraph, he shall be held liable in his personal and
individual capacity for any loss or damage sustained by such Federal Reserve
bank in consequence of such violation."
PROVISIONS

OF

THE

HOUSE AMENDMENT—THE
F I N A N C E CORPORATION

RECONSTRUCTION

Section 1 gives the right to corporations wholly owned by the
United States, already possessed by the executive departments, to
introduce their records in evidence when authenticated under their
seals, and amends the Reconstruction Finance Corporation Act to
provide for judicial notice of its seal.
Section 2 relieves the Reconstruction Finance Corporation from
the requirement of executing appeal bonds in Federal courts.
Section 3 permits the Reconstruction Finance Corporation to make
loans or renewals to mature not later than 5 years from January 31,
1935; and provides for acceptance of securities of railroads in reorganization under the Railroad Bankruptcy Act, or in receiverships, of
a class different from the securities which the Reconstruction Finance
Corporation now holds. This will enable the Reconstruction Finance
Corporation to cooperate with other creditors in such reorganization.
Section 4 enables the Reconstruction Finance Corporation to make
additional loans to complete and enlarge self-liquidating projects
upon which it has already made loans.
Section 5 enables the Reconstruction Finance Corporation, upon
request of any borrower under section 201 (a) of the Emergency Relief
ana Construction Act of 1932, as amended, to adjust the maturities of
the obligations of such borrower up to 20 years from the date the
sums evidenced by such obligations were advanced.
Section 6 increases the amount of funds which may be used for
reorganizing drainage and irrigation districts from $50,000,000 to
$125,000,000; provides certain powers for protecting investments in
case of damage to such projects, changes mechanics of loans, and
extends the benefits of section 36 of the Emergency Farm Mortgage
Act of 1933, as amended (relating to loans to agricultural improvement
districts), so as to include "mutual nonprofit companies and incorporated water users' associations", and in addition provides for loans
for repairs or improvements by districts, companies, or associations,
etc.
Section 7 amends the act authorizing the Reconstruction Finance
Corporation to subscribe for preferred stock and purchase capital
notes of insurance companies to enable it more readily to perform the
same service for mutual insurance companies, and amends a provision



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that forbids an insurance company to which the Reconstruction
Finance Corporation makes loans or in which the Reconstruction
Finance Corporation owns stock to increase the salary of any employee
during the term of this indebtedness. The maximum limitation of
$17,500 is retained. At the present time no company can increase the
salary of a clerk so long as the Reconstruction Finance Corporation
owns stock.
Section 8 authorizes the Reconstruction Finance Corporation to
make loans upon full and adequate security to defray the cost of
organizing farmers' cooperative mineral-rights pools not engaged in
drilling or mining operations.
Section 9 authorizes the Reconstruction Finance Corporation to
make loans, upon adequate security, to established incorporated
agencies engaged in mining, smelting, or milling of ores.
Section 10 is designed to permit the Reconstruction Finance Corporation to aid infinancingand to facilitate exports and imports and
the exchange of commodities between this and other nations b}T the
establishment andfinancingof necessary trading agencies or banking
corporations wholly owned by the United States.
LOANS TO INDUSTRY BY THE RECONSTRUCTION FINANCE CORPORATION

Section 11 authorizes the Reconstruction Finance Corporation to
make loans to any industrial or commercial business established prior
to January 1, 1934, when credit at prevailing bank rates for loans of
such type is not available at banks or the Federal Reserve bank of the
district of the applicant. Such loans may be made directly, or in
cooperation with banks or other lending institutions, or by the purchase of participations, shall have maturities not to exceed 5 years,
and shall not exceed $300,000,000 in aggregate amount. The aggregate amount of loans to any one borrower shall not exceed $100,000.
The authority to make such loans ends January 31, 1935, or on such
earlier date as the President shall by proclamation fix.
The Reconstruction Finance Corporation has been endeavoring for
several months to assist small industries through loans to community-mortgage companies, without marked success. Because of
the distress of many industries which are seeking loans, and the
belief that they could be of assistance in the recovery program by
providing and continuing employment, and because there are crippled
industries of the smaller- and .medium-sized type that will need
nursing for several years, some of which are risks that commercial
banks should not take, though ultimately good, many of such industries deserve a chance to reestablish themselves, and society generally
will be better for it. Banks ultimately will meet most credit requirements for business and industry, but the hearings before your committee show that there is need of supplementary and emergency
credit for such business and industry. This section calls for no additional appropriation, the thought being that the Reconstruction
Finance Corporation can allocate funds for these loans that it may
save from other items in its present budget and from repayments over
and above those estimated.
From the evidence presented to your committee it appears that the
$300,000,000 for capital loans authorized by this section, together
with the capital loans authorized to be made by the Federal Reserve



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LOANS TO I N D U S T R Y

banks under the following section, to be limited to the amount of their
combined surpluses, will be sufficient to care for the need for credits
for capital funds supplementary to the usual or normal bank credits.
It is believed that such extension of credit for capital funds to established commercial and industrial firms will maintain and increase employment, and that the temporary loaning powers of the Reconstruction Finance Corporation under this section and the permanent loaning powers of the Federal Reserve banks under the following section
will supplement each other in relieving the distress of industry and
business.
LOANS TO INDUSTRY BY THE FEDERAL RESERVE

BANKS

Section 12 authorizes any Federal Reserve bank, when it appears
that an established industrial or commercial business located in its
district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, to make loans to, or purchase obligations of, such business, or may make commitments with respect
thereto, on a reasonable and sound basis, for the purpose of providing
it with capital, but no obligation shall be acquired or commitment
made hereunder with a maturity exceeding 5 years.
Federal Reserve banks are also empowered to discount, purchase,
or make loans on obligations with maturities not exceeding 5 years
executed by established industrial or commercial businesses, to obtain
capital funds from banks, mortgage companies, credit corporations, or
other financing institutions in its district. The financing institution
must agree to bear not less than 20 percent of any loss which may be
sustained upon any such obligation, or in lieu of such agreement to
bear part of any loss, it may advance not less than 20 percent of the
capital funds advanced on the obligation. The aggregate amount of
credit extended under this section is limited to the combined surpluses
of the Federal Reserve banks as of July 1, 1934. Extensions of credit
are subject to the approval of industrial advisory committees to be
appointed by the Federal Reserve banks in each district.
Section 13 provides that liabilities incurred by any national banking
association in loans made pursuant to the preceding section of this bill
shall not be counted as part of its indebtedness, which under section
5202 of the Revised Statutes is limited to an amount equal to the
amount of its capital stock paid in.
Section 14 amends section 22 of the Federal Reserve Act to extend
the protection of certain provisions of the Criminal Code to operations
of the Federal Reserve banks under section 12 of the bill and includes
penalties for making false statements in connection with applications
for credit under such section, and for taking any fee for procuring any
credit from any Federal Reserve bank through any financing institution, unless the arrangement for a fee is disclosed in the application.
In conformity with 2a of rule XIII of the House Rules, there is
herewith printed in full the several provisions of existing law amended
by the bill with showing the part stricken out enclosed in black
brackets and the proposed new matter in italics, as follows:
Revised statues, section 882; United States Code, title 28, section
661:
[Sec. 882. Copies of any books, records, papers, or documents in any of the
executive departments authenticated under the seals of such departments,
respectively, shall be admitted in evidence equally with the originals thereof.]



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LOANS TO INDUSTRY

SEC. 882. (a) Copies of any books, records, papers, or other documents in any of
the executive departments, or of any corporation all of the stock of which is beneficially
owned by the United States, either directly or indirectly, shall be admitted in evidence equally with the originals thereof, when duly authenticated under the seal of
such department or corporation respectively.
(b) Books or records of account in whatever form, and minutes {or portions
thereof) of proceedings, of any such executive department or corporation, or copies
of such books, records, or minutes authenticated under the seal of such department
or corporation, shall be admissible as evidence of any act, transaction, occurrence,
or event as a memorandum of which such books, records, or minutes were kept or
made.
(c) The seal of any such executive department or corporation shall be judically
noticed.

Section 4, Reconstruction Finance Corporation Act; United StatesCode, Supplement VII, title 15, section 604:
SEC. 4. The Corporation shall have succession for a period of ten years from
the date of the enactment hereof, unless it is sooner dissolved by an Act of"
Congress. It shall have power to adopt, alter, and use a corporate seal which
shall be judicially noticed; to make contracts; to lease such real estate as may be
necessary for the transaction of its business; to sue and be sued, to complain and
to defend, in any court of competent jurisdiction, State or Federal; to select,,
employ, and fix the compensation of such officers, employees, attorneys, and
agents as shall be necessary for the transaction of the business of the Corporation,,
without regard to the provisions of other laws applicable to the employment and.
compensation of officers or employees of the United States; to define their authority and duties, require bonds of them and fix the penalties thereof, and to dismiss;
at pleasure such officers, employees, attorneys, and agents; and to prescribe,,
amend, and repeal, by its board of directors, bylaws, rules, and regulations'
governing the manner in which its general business may be conducted and the
powers granted to it by law may be exercised and enjoyed, including the selection
of its chairman and vice chairman, together with provision for such committees
and the functions thereof as the board of directors may deem necessary for facilitating its business under this Act. The board of directors of the Corporation
shall determine and prescribe the manner in which its obligations shall be incurred
and its expenses allowed and paid. The Corporation shall be entitled to the free
use of the United States mails in the same manner as the executive departments
of the Government. The Corporation, with the consent of any board, commission, independent establishment, or executive department of the Government,
including any field service thereof, may avail itself of the use of information,
services, facilities, officers, and employees thereof in carrying out the provisions
of this Act.

Section 1001, Revised Statutes; United States Code, title 28, section
870:
SEC. 1001. Whenever a writ of error, appeal, or other process in law, admiralty
or equity, issues from or is brought up to the Supreme Court, or a circuit court
of appeals, either by the United States or by direction of any Department of the
Government or any corporation all the stock of which is beneficially owned by the
United States, either directly or indirectly, no bond, obligation, or security shall be
required from the United States, or from any party acting under the direction
aforesaid, either to prosecute said suit, or to answer in damages or costs. In case
of an adverse decision, such costs as by law are taxable against the United States,
or against the party acting by direction as aforesaid, shall be paid out of the
contingent fund of the Department under whose directions the proceedings were
instituted.

Section 5a, Reconstruction Finance Corporation Act; United States
Code, Supplement VII, title 15, chapter 14:
SEC. 5a. The corporation is authorized and empowered to accept drafts and
bills of exchange drawn upon it which grow out of transactions involving the*
exportation of agricultural or other products actually sold or transported for sale
subsequent to the enactment hereof and in process of shipment to buyers inforeign countries: Provided, That the corporation shall not make any
acceptances growing out of transactions involving the sale or shipment of
H.Rept. 1719, 72-2




2

10

LOANS TO INDUSTRY

armaments, munitions, or other war materials, or the sale or shipment into
countries which are at war of any merchandise or commodities except food and
supplies for the actual use of noncombatants. No bill of exchange or draft shall
be eligible for acceptance if such bill shall have at time of acceptance a maturity
of more than twelve months. All drafts and bills of exchange accepted under this
section shall be in terms payable in the United States, in currency of the United
States, and in addition to the draft or bill of exchange shall at all times be fully
secured by American securities deposited as collateral or shall be guaranteed by
a bank or trust company of undoubted solvency organized under the laws of the
United States or any State, Territory, or insular possession thereof: Provided,
That such securities "shall not include goods stored or in process of shipment in
foreign countries or the obligation of any foreign government, corporation, firm,
or person.
SEC. 5b. Notwithstanding any other provision of law—
(1) The maturity of drafts or bills of exchange which may be accepted by the Corporation under section 5a of this Act, and the period for which the Corporation may
makes loans or advances under sections 201 (c) and 201 (d) of the Emergency Relief
and Construction Act of 1982, as amended, and under section 5 of this Act, may be five
years, or any shorter period, from February 1,1935: Provided, That in respect of loans
or advances under such section 5 to railroads, railways, and receivers or trustees thereof,
the Corporation may require as a condition of making any such loan or advance
for a period longer than three years that such arrangements be made for the reduction
or amortization of the indebtedness of the railroad or railway, either in whole or in
party as may be approved by the Corporation after the prior approval of the Interstate
Commerce Commission.
(2) The Corporation may at any time, or from time to time, extend, or consent to
the extension of, the time of payment of any loan or advance made by it, through
renewal, substitution of new obligations, or otherwise, but the time for such payment
shall not be extended beyond five years from February 1, 1935: Provided, That the
time of payment of loans or advances to railroads, railways, and receivers or trustees
thereof, shall not be so extended except with the prior approval of the Interstate Commerce Commission, and, in the case of a loan to a railroad or railway, with the prior
certification of the Interstate Commerce Commission that the railroad or railway
is not in need of financial reorganization in the public interest.
(3) In connection with the reorganization under section 77 of the Federal Bankruptcy Act, approved July 1, 1898, as amended, or with receivership proceedings in a
court or courts, of any railroad or railway indebted to the Corporation, or of any railroad or railway the receivers or trustees of which are indebted to the Corporation,
ihe Corporation may, vnth the prior approval of the Interstate Commerce Commission,
adjust or compromise its claim against such railroad or railway, or any such receiver
trustee, by accepting, in connection with any such reorganization or receivership
proceedings and in exchange for securities or any part thereof then held, new securities
which may have such terms as to interest, maturity, and otherwise as may be approved
by the Corporation, or part cask and part new securities so approved: Provided, That
any such adjustment or compromise shall not be made on less favorable terms than
those provided in the reorganization of the railroad or railway for holders of claims
qf the same class and rank as the claim of the Corporation.
Sec. 5c. With the approval of the President, the Corporation is authorized and
directed, notwithstanding any other provisions of law, to establish or to utilize export
or import trading and banking corporations in which the United States shall own,
directly or indirectly, the entire beneficial interest, and to subscribe for and purchase
the common and preferred stock and obligations thereof, for the purpose of aiding in
financing and facilitating exports and imports between the United States and other
jiations or the agencies or nationals of either of them.
Sec. 3d. For the purpose of maintaining and increasing the employment of labor *
when credit is not otherwise available, the Corporation is authorized and empowered
to make loans to any industrial or commercial business established prior to January
1, 1934. Such loans shall in the opinion of the board of directors of the Corporation
be adequately secured, may be made directly, or in cooperation with banks or other
lending institutions, or by the purchase of participations, shall have maturities not to
exceed five years, shall be made only when deemed to offer reasonable assurance of
continued or increased employment of labor, shall be made only when, in the opinion
oj the board of directors of the Corporation, the borrower is solvent, shall not exceed
$300,000,000 in aggregate amount at any one time outstanding, and shaU be subject
to such terms, conditions, and restrictions as the board of directors of the Corporation




11

LOANS TO INDUSTRY

may determine. The aggregate amount of loans to any one borrower under this section
shall not exceed $100t000.
The power to make loans given herein shall terminate on January 31, 1985, or on
such earlier date as the President shall by 'proclamationfix;but no provision of law
terminating any of the functions of the Corporation shall be construed to prohibit
disbursement of funds on loans and commitments, or agreements to make loans, made
under this section prior to January 31,1935, or such earlier date.

Section 301, National Industrial Recovery Act, United States Code,
Supplement VII, title 40, section 412:
SEC. 301. After the expiration of ten days after the date upon which the
Administrator has qualified and taken office, (1) no application shall be approved
by the Reconstruction Finance Corporation under the provisions of subsection
(a) of section 201 of the Emergency Relief and Construction Act of 1932, as
amended, and (2) the Administrator shall have access to all applications, files,
and records of the Reconstruction Finance Corporation relating to loans and
contracts and the administration of funds under such subsection: Provided,
That the Reconstruction Finance Corporation may issue funds to a borrower
under such subsection (a) prior to January 23, 1939, under the terms of any
agreement or any commitment to bid upon or purchase bonds entered into with
such borrower pursuant to an application approved prior to the date of termination, under this section, of the power of the Reconstruction Finance Corporation to approve applicationst.]: Provided further, That in connection with
any loan or contract or any commitment to make a loan entered into by the Reconstruction Finance Corporation prior to June 26, 1933, to aid in financing part or
all of the construction cost of projects pursuant to section 201 (a) (1) of the Emergency Relief and Construction Act of 1932, as amended, the Corporation may make
such further loans and contracts for the completion of any such project, or for improvements} additions, extensions, or equipment which are necessary or desirable for
the proper functioning of any such project, or which will materially increase the
assurance that the borrower will be able to repay the entire investment of the Corporation in such project, including such improvements, additions, extensions, or
equipment; and the Corporation may disburse funds to the borrower thereunder, at
any time prior to January 23, 1939, notwithstanding any provisions to the contrary
contained in this section or in section 201 (h) of the Emergency Relief and Construction Act of 1932, as amended: Provided further, That any such further loans
shall be made subject to all the terms and conditions set forth in the Emergency
Relief and Construction Act of 1932, as amended, with respect to the loans authorized
by section 201 (a) (1) of said Act.

Section 36, Emergency Farm Mortgage Act of 1933, United States
Code, Supplement VII, title 43, section 403:
SEC. 36. The Reconstruction Finance Corporation is authorized and empowered to make loans as hereinafter provided, in an aggregate amount not
exceeding £$50,000,000 to or for the benefit of drainage districts, levee districts,
levee and drainage districts, irrigation districts, and similar districts] $125,000,000 to or for the benefit of drainage districts, levee districts, levee and drainage
districts, irrigation districts, and similar districts, mutual nonprofit companies and
incorporated water users' associations duly organized under the laws of any
State, and to or for the benefit of political subdivisions of States, which prior
to the date of enactment of this Act have completed projects devoted chiefly
to the improvement of lands for agricultural purposes. Such loans shall be
made for the purpose of enabling any such [district or political subdivision]
district, political subdivision, company, or association (hereafter referred to as the
"borrower") to reduce and refinance its outstanding indebtedness incurred in
connection with any such projects, and shall be subject to the same terms and
conditions as loans made under section 5 of the Reconstruction Finance Corporation Act, as amended; except that (1) the term of any such loan shaU not
exceed forty years; (2) each such loan shall be secured by bonds, notes, or other
obligations which are a lien on the real property within the project or on the
assessments, taxes, or other charges imposed by the borrower pursuant to State
law, or by such other collateral as may be acceptable to the Corporation; (3)
the borrower shaU agree not to issue during the term of the loan any other bonds
so secured except with the consent of the Corporation; [(4) the borrower shall
agree, insofar as it lawfully may, to pay to the Corporation, until all bonds or other
obligations of the borrower acquired by the Corporation are retired, an amount



12

LOANS TO INDUSTRY

equal to the amount by which the assessments, taxes, and other charges collected by the borrower exceed the cost of operation and maintenance of the
project and maturities of interest and principal on its outstanding obligations,
and] (4) the borrower shall agree, insofar as it may lawfully do so, that so long
as any part of such loan shall remain unpaid the borrower will in each year apply
to the repayment of such loan or to the purchase or redemption of the obligations
issued to evidence such loan, an amount equal to the amounts by which the assessments, taxes, and other charges collected by it exceed (a) the cost of operation and
maintenance of the project, (6) the debt charges on its outstanding obligations, and
(c) provision for such reasonable reserves sa may be approved by the Corporation;
and (5) the borrower shall agree, to the satisfaction of the Corporation, to
reduce, insofar as it lawfully may, the annual taxes, assessments, and other
charges imposed by it for or on account of the project by an amount proportional
to the reduction in the corresponding annual requirements for principal and
interest of its outstanding indebtedness by reason of the operation of this section.
No loan shall be made under this section until the Reconstruction Finance Corporation (a) has caused an appraisal to be made of the property securing and/or
underlying the outstanding bonds of the applicant, (b) has determined that the
project of the applicant is economically sound, and (c) has been satisfied that
an agreement has been entered into between the applicant and holders of its
outstanding bonds or other obligations under which the applicant will be able
to purchase or refund all or a major portion of such bonds or other obligations
at a price determined by the Corporation to be reasonable after taking into consideration the average market price of such bonds over the six months' period
ending March 1, 1933, and under which a substantial reduction will be brought
about in the amount of the outstanding indebtedness of the applicant.
When any loan is authorized pursuant to the provisions of this section and it shall
then or thereafter appear that repairs and necessary extensions or improvements to
the project of such district, political subdivision, company, or association are necessary or desirable for the proper functioning of its project or for the further assurance
of its ability to repay such loan, and if it shall also appear that such repairs and
necessary extensions or improvements are not designed to bring new lands into production, the Corporation, within the limitation as to total amount provided in this
section, may make an additional loan or loans to such district, political subdivision,
company, or association for such purpose or purposes. When application therefor
shall have been made by any such district, political subdivision, company or association any loan authorized by this section may be made either to such district, political
subdivision, compay, or association or to the holders or representatives of the holders
of their existing indebtedness, and such loans may be made upon promissory notes
collateraled by the obligations of such district, political subdivision, company, or
association or through the purchase of securities issued or to be issued by such district,
political subdivision, company, or association.

Sections 2 and 3, Act of June 10, 1933; United States Code, Supplement VII, title 15, sections 605f and 605g:
[SEC. 2. In the event that any such insurance company shall be incorporated
under the laws of any State which does not permit it to issue preferred stock,
exempt from assessment or additional liability, or if such laws permit such issue
of preferred stock only by unanimous consent of stockholders, or upon notice of
more than twenty days, the Reconstruction Finance Corporation is authorized
for the purposes of this Act to purchase the legally issued capital notes of such insurance company or to make loans secured by such notes as collateral, which may
be subordinated in whole or in part or to any degree to claims of other creditors.
SEC, 3. The Reconstruction Finance Corporation shall not subscribe for or
purchase any preferred stock or capital notes of any applicant insurance company,
(1) until the applicant shows to the satisfaction of the Corporation that it has
unimpaired capital stock, or that it will furnish new capital which will be subordinate to the preferred stock or capital notes to be subscribed for or purchased by
the Corporation, equal to the amount of said preferred stock or capital notes so
subscribed for or purchased by the Corporation: Provided: That the Corporation
may make loans upon said preferred stock or capital notes, if, in its opinion, such
loans will be adequately secured by said stock or capital notes, and/or such other
forms of security as the Corporation may require; (2) if at the time of such
subscription, purchase, or loan any officer, director, or employee of the applicant
is receiving total compensation in a sum in excess of $17,500 per annum from the
applicant and/or any of its affiliates; and (3) unless at such time the applicant




13

LOANS TO INDUSTRY

agrees to the satisfaction of the Corporation not to increase the compensation of
any of its officers, directors, or employees, and not to retire any of its stock,
notes, bonds, or debentures issued for capital purposes, while any part of the
preferred stock, notes, bonds, or debentures of such company is held by the
Corporation. For the purposes of this section, the term " compensation " includes
any salary, fee, bonus, commission, or other payment, direct or indirect, in money
or otherwise, for personal services.]
Sec* 2. In the event that any such insurance company shall be incorporated under
the laws of any State which does not permit it to issue preferred stock, exempt from
assessment of additional liability, or if such laws permit such issue of preferred stock
only by unanimous consent of stockholders, or upon notice of more than twenty days,
or if the insurance company is a mutual organization without capital stock, the
Reconstruction Finance Corporation is authorized for the purposes of this Act to
purchase the legally issued capital notes of such insurance company, or, if the company is a mutual organization without capital stock, such other form or forms of
indebtedness as the laws of the State under ivhich such company is organized permit,
or to make loans secured by such notes or such other form or forms of indebtedness as
collateral, which may be subordinated in whole or in part or to any degree to claims
of other creditors.
SEC. 3. The Reconstruction Finance Corporation shall not subscribe for or purchase
any preferred stock or capital notes of any applicant insurance company (1) until the
applicant shows to the satisfaction of the Corporation that it has unimpaired capital,
or that it will furnish new capital which will be subordinate to the preferred stock or
capital notes to be subscribed for or purchased by the Corporation, equal to the amount
of said preferred stock or capital notes so subscribed for or purchased by the Corporation: Provided, That the Corporation may make loans upon said preferred stock or
capital notes, or other form or forms of indebtedness permitted by the laws of the State
under which said applicant is organized, if, in its opinion, such loans will be adequately secured by said stock or capital notes or other form or forms of indebtedness
and/or such other forms of security as the Corporation may require, (2) if at the time
of such subscription, purchase, or loan any officer, director, or employee of the applicant is receiving total compensation in a sum in excess of $17,500 per annum from
the applicant and/or any of its affiliates, and (3) unless at such time, the insurance
company agrees to the satisfaction of the Corporation that while any part of the preff erred stock, notes, bonds or debentures (or, in the case of a mutual insurance company,
other form or forms of indebtedness permitted by the laws of the State under which
the company is organized) of such insurance company is held by the Corporation,
the insurance company, except with the consent of the Corporation, will not (a) increase the compensation received by any of its officers, directors, or employees from the
insurance company and/or any of its affiliates, and in no event increase any such
compensation to an amount exceeding $17,500 per annum, or (6) retire any of its
stock, notes, bonds, debentures, or other forms of indebtedness issued for capital purposes. For the purposes of this section, the term " compensation " includes any salary,
fee, bonus, commission, or other payment, direct or indirect, in money or otherwise,
for personal services.

Section 11, act of June 10, 1933; United States Code, Supplement
VII, title 15, section 605i.
SEC. 11. As used in this Act the term "insurance company" shall include any
corporation engaged in the business of insurance or in the writing of annuity
contracts, irrespective of the nature thereof, and operating under the supervision
of a State superintendent or department of insurance in any of the States of the
United States. As used in this section and in sections 1, 2, and 3 of this Act,
the term "State" means any State, Territory, or possession of the United States,
the Canal Zone, and the District of Columbia.

Section 13a, Federal Reserve Act, as amended:
SEC. 13a. Upon the endorsement of any of its member banks, which shall be
deemed a waiver of demand, notice, and protest by such bank as to its own endorsement exclusively, any Federal Reserve bank may, subject to regulations
and limitations to be prescribed by the Federal Reserve Board, discount notes,
drafts, and bills of exchange issued or drawn for an agricultural purpose, or based
upon livestock, and having a maturity, at the time of discount, exclusive of days
of grace, not exceeding nine months, and such notes, drafts, and bills of exchange
may be offered as collateral security for the issuance of Federal Reserye notes
under the provisions of section 16 of this Act: Provided, That notes, drafts, and



14

LOANS TO INDUSTRY

bills of exchange with maturities in excess of six months shall not be eligible as a
basis for the issuance of Federal Reserve notes unless secured by warehouse
receipts or other such negotiable documents conveying or securing title to readily
marketable staple agricultural products or by chattel mortgage upon livestock
which is being fattened for market.
That any Federal Reserve bank may, subject to regulations and limitations
to be prescribed by the Federal Reserve Board, rediscount such notes, drafts,
and bills for any Federal Intermediate Credit Bank, except that no Federal
Reserve bank shall rediscount for a Federal Intermediate Credit Bank any such
note or obligation which bears the endorsement of a nonmember State bank or
trust company which is eligible for membership in the Federal Reserve System,
in accordance with section 9 of this Act. *
Any Federal Reserve bank may also, subject to regulations and limitations to
be prescribed by the Federal Reserve Board, discount notes payable to and
bearing the endorsement of any Federal Intermediate Credit Bank, covering
loans or advances made by such bank pursuant to the provisions of section 202 (a)
of Title II of the Federal Farm Loan Act, as amended (U.S.C., title 12, ch. 8,
sec. 1031), which have maturities at the time of discount of not more than nine
months, exclusive of days of grace, and which are secured by notes, drafts, or
bills of exchange eligible for rediscount by Federal Reserve banks.
Any Federal Reserve bank may also buy and sell debentures and other such
obligations issued by a Federal Intermediate Credit Bank or by a National Agricultural Credit Corporation, but only to the same extent as and subject to the
same limitations as those upon which it may buy and sell bonds issued under
Title I of the Federal Farm Loan Act.
Notes, drafts, bills of exchange or acceptances issued or drawn by cooperative
marketing associations composed of producers of agricultural products shall be
deemed to have been issued or drawn for an agricultural purpose, within the
meaning of this section, if the proceeds thereof have been or are to be advanced
by such association to any members thereof for an agricultural purpose, or have
been or are to be used by such association in making payments to any members
thereof on account of agricultural products delivered by such members to the
association, or if such proceeds have been or are to be used by such association
to meet expenditures incurred or to be incurred by the association in connection
with the grading, processing, packing, preparation for market, or marketing of
any agricultural product handled by such association for any of its members:
Provided, That the express enumeration in this paragraph of certain classes of
paper of cooperative marketing associations as eligible for rediscount shall not
be construed as rendering ineligible any other class of paper of such associations
whi zh is now eligible for rediscount.
The Federal Reserve Board may, by regulation, limit to a percentage of the
assets of a Federal Reserve bank the amount of notes, drafts, acceptances, or bills
having a maturity in excess of three months, but not exceeding six months, exclusive of days of grace, which may be discounted by such bank, and the amount of
notes, drafts, bills, or acceptances having a maturity in excess of six months, but
not exceeding nine months, which may be rediscounted by such bank.
SEC. 13b. When it appears to the satisfaction of a Federal Reserve bank that an
established industrial or commercial business located in its district is unable to
obtain requisite financial assistance on a reasonable basis from the usual sources,
the Federal Reserve bank, pursuant to authority granted by the Federal Reserve
Board, may make loans to, or purchase obligations of, such business, or may make
commitments with respect thereto, on a reasonable and sound basis, for the purpose
of providing it with capital, but no obligation shall be acquired or commitment made
hereunder with a maturity exceeding five years.
Each Federal Reserve bank shall also have power to discount for, or purchase
from, any bank, trust company, mortgage company, credit corporation for industry,
or other financing institution operating in its district, obligations having maturities
not exceeding five years, entered into for the purpose of obtaining capital for any
such established industrial or commercial business; to make loans or advances direct
to any such financing institution on the security of such obligations; and to make
commitments with regard to such discount or purchase of obligations or with respect
to such loans or advances on the security thereof, including commitments made in
advance of the actual undertaking of such obligations. Each such financing institution shall obligate itself to the satisfaction of the Federal Reserve bank for at last
20 per centum of any loss which may be sustained by such bank upon any of the
obligations acquired from such financing institution, the existence and amount of
any such loss to be determined in accordance with regulations of the Federal Reserve



LOANS TO INDUSTKY

15

Board; Provided, That in lieu of such obligation against loss any such financing
institution may advance at least 20 per centum of such capital for any established
industrial or commercial business without obligating itself to the Federal Reserve
bank against loss on the amount advanced by the Federal Reserve bank: Provided,
however, That such advances by the financing institution and the Federal Reserve
bank shall be considered as one advance, and repayment shall be made pro rata under
such regulations as the Federal Reserve Board may prescribe.
The aggregate amount of loans, advances, and commitments of the Federal Reserve
banks outstanding under this section at any one time, plus the amount of purchases
and discounts under this section held at the same time, shall not exceed the combined
surplus of the Federal Reserve banks as of July 1, 1934» and all operations of the
Federal Reserve banks under this section shall be subject to such regulations as the
Federal Reserve Board may prescribe.
For the purpose of aiding the Federal Reserve banks in carrying out the provisions
of this section, there is hereby established in each Federal Reserve district an industrial
advisory committee, to be appointed by the Federal Reserve bank subject to the approval
and regulations of the Federal Reserve Board, and to be composed of not less than
three nor more than five members as determined by the Federal Reserve Board. Each
member of such committee shall be actively engaged in some industrial pursuit within
the Federal Reserve district in which the committee is established, and each such
member shall serve without compensation but shall be entitled to receive from the
Federal Reserve bank of such district his necessary expenses while engaged in the
business of the committee, or a per diem allowance in lieu thereof to be fixed by the
Federal Reserve Board. Each application for any such loan, advance, purchase,
discount, or commitment shall be submitted to the appropriate committee and, after
an examination by it of the business with respect to which the application is made,
the application shall be transmitted to the Federal Reserve bank, together with the
recommendation of the committee.
SECTION

5202. Revised Statutes:

SEC. 5202. No national banking association shall at any time be indebted, or
in any way liable, to an amount exceeding the amount of its capital stock at such
time actually paid in and remaining undiminished by losses or otherwise, except
on account of demands of the nature following:
First. Notes of circulation.
*

*

*

*

*

*

*

Ninth. Liabilities incurred on account of loans made with the express approval
of the Comptroller of the Currency under paragraph (9) of section 5200 of the
Revised Statutes, as amended.
Tenth. Liabilities incurred under the provisions of section 13b of the Federal
Reserve Act.
SECTION

22. Federal Reserve Act, as amended.

SEC. 22. (a) No member bank and no officer, director, or employee thereof
shall hereafter make any loan or grant any gratuity to any bank examiner. Any
bank officer, director, or employee violating this provision shall be deemed guilty
of a misdemeanor and shall be imprisoned not exceeding one year, or fined not
more than $5,000, or both, and may be fined a further sum equal to the money so
loaned or gratuity given.
Any examiner or assistant examiner who shall accept a loan or gratuity from
any bank examined by him, or from an officer, director, or employee thereof, or
who shall steal, or unlawfully take, or unlawfully conceal any money, note, draft,
bond, or security or any other property of value in the possession of any member
bank or from any safe deposit box in or adjacent to the premises of such bank,
shall be deemed guilty of a misdemeanor and shall, upon conviction thereof in
any district court of the United States, be imprisoned for not exceeding one year,
or fined not more than $5,000, or both, and may be fined a further sum equal to
the money so loaned, gratuity given, or property stolen, and shall forever thereafter be disqualified from holding office as a national bank examiner.
(b) No national bank examiner shall perform any other service for compensation while holding such office for any bank or officer, director, or employee thereof.
No examiner, public or private, shall disclose the names of borrowers or the
collateral for loans of a member bank to other than the proper officers of such
bank without first having obtained the express permission in writing from the
Comptroller of the Currency, or from the board of directors of such bank, except
when ordered to do so by a court of competent jurisdiction, or by direction of the



16

LOANS TO INDUSTRY

Congress of the United States, or of either House thereof, or any committee of
Congress, or of either House duly authorized. Any bank examiner violating the
provisions of this subsection shall be imprisoned not more than one year or fined
not more than $5,000, or both.
(c) Except as herein provided, any officer, director, employee, or attorney of
a member bank who stipulates for or receives or consents or agrees to receive any
fee, commission, gift, or thing of value from any person, firm, or corporation, for
procuring or endeavoring to procure for such person, firm, or corporation, or for
any other person, firm, or corporation, any loan from or the purchase or discount
of any paper, note, draft, check, or bill of exchange by such member bank shall
be deemed guilty of a misdemeanor and shall be imprisoned not more than one year
or fined not more than $5,000, or both.
(d) Any member bank may contract for, or purchase from, any of its directors
or from any firm of which any of its directors is a member, any securities or other
property when (and not otherwise) such purchase is made in the regular course of
business upon terms not less favorable to the bank than those offered to others,
or when such purchase is authorized by a majority of the board of directors not
interested in the sale of such securities or property, such authority to be evidenced
by the affirmative vote or written assent of such directors: Provided, however,
That when any director, or firm of which any director is a member, acting for or
on behalf of others, sells securities or other property to a member bank, the
Federal Reserve Board by regulation may, in any or all cases, require a full disclosure to be made, on forms to be prescribed by it, of all commissions or other
considerations received, and whenever such director or firm, acting in his or its
own behalf, sells securities or other property to the bank the Federal Reserve
Board by regulation, may require a full disclosure of all profit realized from such
sale.
Any member bank may sell securities or other property to any of its directors,
or to a firm of which any of its directors is a member, in the regular course of
business on terms not more favorable to such director or firm than those offered
to others, or when such sale is authorized by a majority of the board of directors
of a member bank to be evidenced by their affirmative vote or written assent:
Provided, however, That nothing in this subsection contained shall be construed as
authorizing member banks to purchase or sell securities or other property which
such banks are not otherwise authorized by law to purchase or sell.
(e) No member bank shall pay to any director, officer, attorney, or employee a
greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member
bank.
(f) If the directors or officers of any member bank shall knowingly violate or
permit any of the agents, officers, or directors of any member bank to violate any
of the provisions of this section or regulations of the board made under authority
thereof, every director and officer participating in or assenting to such violation
shall be held liable in his personal and individual capacity for all damages which
the member bank, its shareholders, or any other persons shall have sustained in
consequence of such violation.
(g) No executive officer of any member bank shall borrow from or otherwise
become indebted to any member bank of which he is an executive officer, and no
member bank shall make any loan or extend credit in any other manner to any
of its own executive officers: Provided, That loans heretofore made to any such
officer may be renewed or extended not more than two years from the date this
paragraph takes effect, if in accord with sound banking practice. If any executive officer of any member bank borrow from or if he be or become indebted to
any bank other than a member bank of which he is an executive officer, he shall
make a written report to the chairman of the board of directors of the member
bank of which he is an executive officer, stating the date and amount of such loan
or indebtedness, the security therefor, and the purpose for which the proceeds
have been or are to be used. Any executive officer of any member bank violating
the provisions of this paragraph shall be deemed guilty of a misdemeanor and shall
be imprisoned not exceeding one year, or fined not more than $5,000, or both;
and any member bank violating the provisions of this paragraph shall be fined not
more than $10,000, and may be fined a further sum equal to the amount so loaned
or credit so extended.
(h) Whoever makes any material statement, knowing it to be false, or whoever
willfully overvalues any security, for the purpose of influencing in any way the action
of a Federal Reserve bank upon any application, commitment, advance, discount,
purchase, or loan, or any extension thereof by renewal, deferment of action, or other


17

LOANS TO INDUSTRY

wise, or the acceptance, release, or substitution of security therefor, shall be punished
by a fine of not more than $5,000 or by imprisonment for not more than two years, or
both.
(i) Whoever, being connected in any capacity with a Federal Reserve bank (1)
embezzles, abstracts, purloins, or willfully misapplies any moneys, funds, securities,
or other things of value, whether belonging to it or pledged or otherwise entrusted to it,
or (2) with intent to defraud any Federal Reserve bank, or any other body politic or
corporate, or any individual,' or to deceive any officer, auditor, or examiner, makes
any false entry in any book, report, or statement of or to a Federal Reserve bank, or,
without being duly authorized, draws any order or issues, puts forth, or assigns any
note, debenture, bond, or other obligation, or draft, mortgage, judgment, or decree shall
be punished by a fine of not more than $10,000 or by imprisonment for not more than
five years, or both.
(j) The provisions of sections 112, 113, 114» 115, 116, and 117 of the Criminal
Code of the United States, insofar as applicable, are extended to' apply to contracts or
agreements of any Federal Reserve bank under this Act, which, for the purposes
hereof, shall be held to include advances, loans, discounts, purchase, and repurchase
agreements; extensions and renewals thereof; and acceptances, releases, and substitutions of security therefor.
(k) It shall be unlawful for any person to stipulate for or give or receive, or consen t
or agree to give or receive, any fee, commission, bonus, or thing of value for procuring
or endeavoring to procure from any Federal Reserve bank any advance, loan, or
extension of credit or discount or purchase of any obligation or commitment with
respect thereto, either directly from such Federal Reserve bank or indirectly through
any financing institution, unless such fee, commission, bonus, or thing of value and
all material facts with respect to the arrangement or understanding therefor shall be
disclosed in writing in the application or request for such advance, loan, extension of
credit, discount, purchase, or commitment. Any violation of the provisions of this
paragraph shall be punishable by imprisonment for not more ihan one year or by a
fine of not exceeding $5,000, or both. If a director, officer, employee, or agent of
any Federal Reserve bank shall knowingly violate this paragraph, he shall be held
liable in his personal and individual capacity for any loss or damage sustained by
such Federal Reserve bank in consequence of such violation.