by the bonds of the corporation and to the Federal reserve notes issued against the security of such obligations or paper.

SEC. 14. That the corporation shall not exercise any of the powers granted by this title or perform any business except such as is incidental and necessarily preliminary to its organization until it has been authorized by the President of the United States to commence business under the provisions of this. title.

SEC. 15. That all net earnings of the corporation not required for its operations shall be accumulated as a reserve fund until such time as the corporation liquidates under the terms of this title. Such reserve fund shall, upon the direction of the board of directors, with the approval of the Secretary of the Treasury, be invested in bonds and obligations of the United States, issued or converted after September 24, 1917, or upon like direction and approval may be deposited in member banks of the Federal reserve system, or in any of the Federal reserve banks, or be used from time to time, as well as any other funds of the corporation, in the purchase or redemption of any bonds issued by the corporation. The Federal reserve banks are hereby authorized to act as depositaries for and as fiscal agents of the corporation in the general performance of the powers conferred by this title. Beginning six months following a proclamation of the President of the United States, that there is no further need or use for the National Relief Finance Corporation, the directors of the corporation shall proceed to liquidate its assets and to wind up its affairs, but the directors of the corporation, in their discretion, may, from time to time, prior to such date, sell and dispose of any securities or other property acquired by the corporation. Any balance remaining after the payment of all its debts shall be paid into the Treasury of the United States as miscellaneous receipts, and thereupon the corporation shall be dissolved.

SEC. 16. That any and all bonds issued by the corporation shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, corporations, or associations. The interest on an amount of such bonds the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, corporation, or association, shall be exempt from the taxes referred to in class (b). The corporation, including its franchise and the capital and reserve or surplus thereof and the income derived therefrom, shall be exempt from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except that any real property of the corporation shall be subject to State, county, or municipal taxes to the same extent, according to its value, as other real property is taxed.

SEC. 17. That the United States shall not be liable for the payment of any bond or other obligation or the interest thereon issued or incurred by the corporation, nor shall it incur any liability in respect of any act or omission of the corporation.

SEC. 18. That whoever (1) makes any statement, knowing it to be false, for the purpose of obtaining for himself or for any other person, firm, corporation, or association any advance under this title, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than five years, or both Whoever willfully overvalues any security by which any such advance is secured, shall be punished by a fine of not more than $5,000 or by imprisonment for not more than two years, or both.

Whoever (1) falsely makes, forges, or counterfeits any bond, coupon, or paper in imitation of or purporting to be in imitation of a bond or coupon issued by the corporation; or (2) passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged, or counterfeited bond, coupon, or paper purporting to be issued by the corporation, knowing the same to be falsely made, forged, or counterfeited; or (3) falsely alters any such bond, coupon, or paper; or (4) passes, utters, or publishes as true any falsely altered or spurious bond, coupon, or paper issued or purporting to have been issued by the corporation, knowing the same to be falsely altered or spurious, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than five years, or both.

Whoever, being connected in any capacity with the corporation, (1) embezzles, abstracts, or willfully misapplies any moneys, funds, or credits thereof, or (2) with intent to defraud the corporation or any other company, body politic

or corporate, or any individual, or to deceive any officer of the corporation, (a) make any false entry in any book, report, or statement of the corporation, or (b) without authority from the directors draws any order or assigns any note, bond, draft, mortgage, judgment, or decree thereof, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than five years, or both.

The Secretary of the Treasury is hereby authorized to direct and use the Secret Service Division of the Treasury Department to detect, arrest, and deliver into the custody of the United States marshal having jurisdiction any person committing any of the offenses punishable under this section.

SEC. 19. That the corporation shall file quarterly reports with the Secretary of the Senate and with the Clerk of the House of Representatives, stating as of the first day of each month of the quarter just ended (1) the total amount of the capital paid in, (2) the total amount of bonds issued, (3) the total amount of bonds outstanding, (4) the total amount of advances made under each of the sections 7, 8, and 9, (5) a list of the classes and amount of securities taken under each of such sections, (6) the total amount of advances outstanding under each of sections 7, 8, and 9, and (7) such other information as may be hereafter required by either House of Congress.

The corporation shall make a report to Congress on the first day of each regular session, including a detailed statement of receipts and expenditures. SEC. 20. Section 5202 of the Revised Statutes of the United States is hereby amended so as to read as follows:

"SEC. 5202. No national banking association shall at no 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.

"Second. Moneys deposited with or collected by the association.

“Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association or due thereto.

"Fourth. Liabilities to the stockholders of the association or dividends and reserve profits.

"Fifth. Liabilities incurred under the provisions of the Federal reserve act." Mr. STRONG. With the kindness of the committee, H. R. 5060 is to be taken up this morning. I have laid before the chairman and each member a statement that was issued when the bill was introduced, giving the general provisions of the bill. I thought perhaps you might want to read or take this with you when you gave further consideration to the bill. Therefore, with the consent of the chairman, I have invited Governor Meyer of the Federal Reserve Board to be here this morning to present an argument in favor of the bill and to discuss it generally.

The CHAIRMAN. I am sure every member will be glad to have that material before him.

Mr. STRONG. I call attention of the committee to the fact that by the understanding we had yesterday in our committee meeting, Mr. Meyer is to present his views on the bill without interruption until he has completed his statement.

STATEMENT OF HON. EUGENE MEYER, GOVERNOR FEDERAL

RESERVE BOARD

The CHAIRMAN. We will hear Gov. Eugene Meyer, governor of the Federal Reserve Board. Governor Meyer, we have called you this morning for the purpose of giving you the time until the hour of meeting of the House to make such statement to the committee as you may see fit in your own way. We thought we would be able to let you do that without interruption. Your statement will have to do with H. R. 5060 and H. R. 5116, to provide emergency financial facilities and so forth.

Mr. GOODWIN. Governor Meyer, we have in our State of Minnesota a rural credit bureau organized and operated by the State and under authority of the State. Would this bill cover an institution of that character?

Mr. MEYER. I do not know. Is it a financial institution?

Mr. GOODWIN. It is, entirely.

Mr. MEYER. It could. It would be under "other financial institutions " I presume. I am only giving you my own personal opinion as I read the bill and as I understand it. I am not a legal authority, but I would say that any financial institution is eligible under the bill as drawn, as I read it."

The CHAIRMAN. Now, Mr. Meyer, unless some gentleman has something else, we are going to permit you to proceed without interruption. Mr. MEYER. I am glad of the opportunity to appear before the committee in connection with your consideration of this bill. In approaching a measure of this importance, it is necessary to have some fundamental and philosophical background, in my opinion, and I will refer to a meeting which I attended here in this committee room some 10 years ago, where we had a critical situation which particularly involved the country banks at that time and the agricultural interests. I then advocated some temporary emergency work to be done by the Government to meet an extraordinary and emergency situation. I said then and I feel now it is a sound principle of government in exceptional conditions involving national interest to depart from the ordinary rules of government activity and the ordinary principles of the Government's participation in the financial operations of the country related, of course, to the business of the country, to provide exceptional and temporary institutions and measures for dealing with temporary and unusual conditions.

I feel, Mr. Chairman and gentlemen, that the present situation is one of those occasions of such exceptional character and characteristics that I would be failing in my duty and in my present position as governor of the Federal Reserve Board, or even if it were only that I was a private citizen with a private interest, I would feel it my duty, as I once did as a private citizen, to recommend and support a measure of this character. I will not say that every detail is before you, but in your deliberations you will consider the bill in detail. I have some minor suggestions on some unimportant matters perhaps in the bill to make as to details later on myself. But on the broad principle of the Government entering into this situation on a temporary basis, as is provided in the bill, and with powers that are unusual but that, I think, are justified by the unusual character of the situation that the mass of the people of this country are interested in, I believe the bill sound.

If I may review a little for the benefit of the committee the experi ence of the War Finance Corporation, not so much under the war powers but under what we may call with, I hope, no offense to our friends of the South, the reconstruction work of the War Finance Corporation during that time for the benefit of the light it throws on the possibilities of this kind of an institution under present conditions. As you remember, the War Finance Corporation was organized during the war and had as its primary purpose the financial support of financial institutions and industries necessary and contributory to the prosecution of the war, and I think it was extremely

valuable throughout the war period, during which period Governor Harding, of the Federal Reserve Board, was managing director.

In the war period the amount of money loaned was not very large, but the amount of support given to financial institutions was very important; it was a confidence-inspiring institution, and the records contain no figures to show adequately or accurately its value effectively. There were occasions where industries needed financing, and the support of the War Finance Corporation back of the bankers. and that industry enabled the bankers to finance through the investment market. I remember that one of the activities at that time was to finance railroads where funds were not obtainable in the market. The railroads at that time being under Government control and operation, in many cases the railroads and their bankers thought that issues maturing or requirements could not be met in the investment market, found that when the corporation agreed to take care of the situation in case the investment market and the bankers did not there was no difficulty, and there was no call made for the funds of the corporation. Those figures, of course, are not in the record, because no money was loaned, but effectively it was better than if it had been loaned.

I mention the effectiveness of the work in support of the situation entirely apart from those cases where funds were actually used, because I anticipate, or should anticipate, with proper administration the main value of an institution organized substantially along these lines, if properly administered, would lie in the availability of funds. There would be lending, but the main value in an institution of this kind is the availability of funds if needed.

We have a situation, gentlemen, where it is a fact, as is commonly stated, that fear is a dominant factor. We had a similar situation in 1921 after the war when the agricultural relief act expanded and extended the powers of the War Finance Corporation for a period of a year, which was extended finally until December 31, 1924. It is important to analyze what that fear is. It is now, as it was then I think, and as I remember those years-I am sure I am right as to 1921 and 1922, and I believe it is true at this time-that it is not the fear of a borrower coming to a bank, a borrower of good standing and character; it is not a fear of the borrower or a fear of his security so much as it is a fear of a general situation and in many cases it is a fear of the strong. It is a fear in the minds of the strong or the weak. It is not the weak fearing the strong; it is the strong fearing the weak. We will take as a concrete example in that agricultural relief work in 1921 one particular case, and those are always most convincing when they are concrete and specific, a situation in Iowa. There was a town in the State of Iowa with three good, strong banks and one perhaps small and weak. As long as that small, weak bank was in danger the three big strong banks would not lend any money; they would not renew if they could help it; they would extend no new credit, and they kept, perhaps justly under the circumstances, a contraction policy in effect in their operations. So you hear, and you hear truthfully as a matter of fact, of strong banks afraid to function actively and normally. It is the fear of some neighbor or some neighboring town or something else, or maybe fears generated by events such as the Bank of England going

off the gold basis and the conditions in Europe and South America, but that fear has become a dominating factor in the financing of the regular business of the country.

In 1921 the creation of the War Finance Corporation removed in that small town in Iowa the fear of that one small bank, so that while the amount of money required in that particular case I have in mind was not important, the relief to the strong banks in that particular town serving agricultural interests was that a small amount of money directed to the weak spot released through the removal of fear a very large amount of money which does not appear on the books of the War Finance Corporation as ever having been loaned.

Now with the strength and resources of this great nation, I believe that there is the possibility of important remedial work of the greatest benefit to agricultural, commercial, and industrial interests through a measure with broad powers, the lines outlined in this bill. There is a great deal of talk about frozen assets. Some of these assets they call frozen are the best in the country. The most fundamental businesses are financed by securities, notes of farmers, and mortgages, all kinds of indebtednesses which are at the moment called frozen; in fact, they are, perhaps, in a sense. It is my experience in that relief work-not relief in the sense of personal subsidies to individuals but in connection with relief to banking institutions and business structures, particularly in the agricultural district that the so-called frozen assets of our business people all over the United States thaw out with essential speed if they are properly handled.

I took the occasion to look up this morning out of one of the old reports of the War Finance Corporation and the peak of loans to country banks and the total number of country banks went to something over 4,300 was reached in May, 1922. The act of lending began in the beginning of November. The peak reached was one hundred and thirty-four million in loans to country banks or for the most part country banks. The aggregate amount was nearer two hundred million, but the peak at any one time was one hundred and thirty-four million. One year later, in spite of the fact that a great many new loans were made in the year, the aggregate amount outstanding had been reduced to sixty million and a year later the aggregate amount outstanding, in spite of more new loans, was down to thirty-seven million. In addition to the loans to country banks at that time, one of the biggest situations that confronted the operations was the livestock situation. There it was a problem of finding ways to get money loaned out on livestock to carry cattle and sheep, particularly independent of the banks, and while some banks were willing to carry livestock and carry on livestock operations, it was necessary to use loaning companies and a good many were organized, particularly one with a million dollars capital in Texas, another one in Cheyenne, Wyo, with a capital of a million dollars, another one of $400,000 capital in Portland, Oreg., $250,000 in Montana, $250,000 in Omaha, and all over the country. The aggregate amount of livestock loans, the maximum amount, the total amount was somewhere between eighty-five and ninety million dollars on cattle and sheep as security. The peak of those loans in May, 1922, was sixty million. In spite of the fact large additional loans were made in the following