CREDIT NEEDS OF SMALL BUSINESS MONDAY, JUNE 3, 1957 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met, pursuant to call, at 10:05 a. m., Senator Joseph S. Clark, chairman of the subcommittee, presiding. Present: Senators Clark, Sparkman, and Capehart. Senator CLARK. The committee will come to order. The Small Business Subcommittee of the Committee on Banking and Currency begins hearings this morning on bills which have been referred to the subcommittee to date. Most of these bills propose amendments to the Small Business Act of 1953. Bills in this category are as follows: S. 55, by Senator Allott; S. 244 and S. 246, by Senator Payne and others; S. 300 and S. 545, by Senator Thye; S. 720, by Senator Sparkman and others; S. 1762, by Senator Sparkman; S. 1789, by Senator Thye and others; S. 1992, which I introduced by request; and S. 2184 and S. 2185, by Senator Humphrey. In addition, the subcommittee will hear testimony on S. 719, by Senator Sparkman and others, and S. 2160, also by Senator Sparkman and other Senators. These last two bills would authorize the formation of national investment companies designed to supply long-term credit and equity capital to small business. Also any other bills that be received while the hearings continue may be inserted. may The text of these bills and reports on the bills made by Federal agencies will be inserted in the record at this point. (The bills and reports referred to follow :) [S. 55, 85th Cong., 1st sess.] A BILL To repeal section 221 and amend certain other sections of the Small Business Act of 1953 as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, (a) That section 221 of the Small Business Act of 1953, as amended, is hereby repealed. (b) That sections 222, 223, 224, and 225 of such Act are redesignated as sections 221, 222, 223, and 224 respectively. 1 [S. 244, 85th Cong., 1st sess.] A BILL To authorize loans by the Small Business Administration to alleviate unemployment in areas of substantial labor surplus Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (b) (1) of section 207 of the Small Business Act of 1953 is amended to read as follows: "(1) to make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred basis) as the Administration may determine to be necessary or appropriate (A) because of floods or other catastrophes, including necessary or appropriate loans to any small-business concern located in an area where a drought is occurring, if the Administration determines that the smallbusiness concern has suffered a substantial economic injury as a result of such drought and the President has determined under the Act entitled 'An Act to authorize Federal assistance to States and local governments in major disasters, and for other purposes', approved September 30, 1950, as amended (42 U. S. C., secs. 1855-1855g), that such drought is a major disaster, or the Secretary of Agriculture has found under the Act entitled 'An Act to abolish the Regional Agricultural Credit Corporation of Washington, District of Columbia, and transfer its functions to the Secretary of Agriculture, to authorize the Secretary of Agriculture, to authorize the Secretary of AS.U.C., Agriculture to make disaster loans, and for other purposes', approved April 6, 1949, as amended (12 U. S. C., secs. 1148-1-1148a-3), that such drought constitutes a production or economic disaster in such area, and (B) to any business concern located in an area determined by the Secretary of Labor to be an area of substantial labor surplus, if the Administration determines that the granting of such financial assistance will tend to alleviate unemployment in such area: Provided, That no loan under clause (A) of this paragraph, including renewals and extensions thereof, may be made for a period or periods exceeding twenty years, and no loan under clause (B) of this paragraph, including renewals or extensions thereof, may be made for a period or periods exceeding ten years, except that any such loan made for the purpose of constructing industrial facilities may have a maturity of ten years plus such additional period as is estimated may be required to complete such construction: And provided further, That the interest rate on the Administration's share of loans made under this paragraph shall not exceed 3 per centum per annum ;". SEC. 2. Section 204 (b) of the Small Business Act of 1953 is amended (1) by striking out "$375,000,000" and inserting in lieu thereof "$-", and (2) by striking out "$125,000,000" and inserting in lieu thereof "$. [S. 246, 85th Cong., 1st sess.] A BILL To give the Small Business Administration permanent status Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 221 of the Small Business Act of 1953 is hereby repealed. SEC. 2. Sections 222, 223, 224, and 225 of the Small Business Act of 1953 are redesignated as sections 221, 222, 223, and 224, respectively. [S. 300, 85th Cong., 1st sess.] A BILL To give the Small Business Administration permanent status Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 221 of the Small Business Act of 1953 (67 Stat. 240), as amended, is hereby repealed. (b) Sections 222, 223, 224, and 225 of such Act are redesignated as sections 221, 222, 223, and 224, respectively. [S. 545, 85th Cong., 1st sess.] A BILL To repeal section 204 (d) of the Small Business Act of 1953 relating to the Loan Policy Board of the Small Business Administration Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 204 (d) of the Small Business Act of 1953, as amended (15 U. S. C. 633 (d)), is hereby repealed. SEC. 2. Subsections (e) and (f) of section 204 of the Small Business Act of 1953, as amended, are hereby redesignated as subsections (d) and (e), respectively. [S. 719, 85th Cong., 1st sess.] A BILL To make capital more readily available for financing small business and thus to promote, foster, and develop the domestic and foreign commerce of the United States, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE SECTION 1. This Act may be cited as the "National Investment Company Act of 1957." DECLARATION OF POLICY SEC. 2. It is the policy of the Congress (a) to foster the development and growth of independent small-business enterprises with the objective of enabling them to make their maximum contribution to productive investment and employment and to the economic stability and growth of the Nation; (b) to make capital for such enterprises more readily available in adequate amounts and on reasonable terms; (c) to facilitate maximum participation of private financial institutions and investors in financing these enterprises; and (d) to supplement the existing facilities of banks and other private financial institutions by providing for the establishment of privately owned national investment companies. TITLE I-NATIONAL INVESTMENT COMPANIES ORGANIZATION OF NATIONAL INVESTMENT COMPANIES SEC. 101. (a) National investment companies may be formed for the purpose of operating under this title by any number of persons not less than five, who shall subscribe to the articles of incorporation of any such company; except that any company in whose stock one or more Federal Reserve banks invest shall be formed by a Federal Reserve bank, which alone shall subscribe to the articles of incorporation. The total number of national investment companies formed by Federal Reserve banks pursuant thereto shall not exceed the number of Federal Reserve banks and branches thereof. (b) The articles of incorporation of any national investment company shall specify in general terms the objects for which the company is formed, the name assumed by such company, the area or areas where its operations are to be carried on, the place where its principal office is to be located, and the amount and classes of its shares of capital stock; and the articles may contain any other provisions not inconsistent with this title that the company may see fit to adopt for the regulation of its business and the conduct of its affairs, including provision for cumulative voting in election of directors. Such articles and any amendments thereto adopted from time to time shall be subject to the approval of the Board of Governors of the Federal Reserve System (hereinafter called the "Board"). (c) The articles of incorporation and amendments thereto shall be forwarded to the Board for consideration and approval or disapproval. In determining whether to approve the establishment of such a company and its proposed articles of incorporation, the Board shall give due regard, among other things, to the need for the financing of independent small-business enterprises in the area in which the proposed company is to commence business, the general character of the proposed management of the company, the number of such com panies previously organized in the United States, and the volume of their operations. After consideration of all relevant factors, the Board may in its discretion approve the articles of incorporation and issue a permit to begin business. (d) Upon issuance of such permit, the company shall become and be a body corporate, and as such, and in the name designated in its articles, shall have power (1) to adopt and use a corporate seal; (2) to have succession for a period of thirty years, unless extended as provided in this section, or unless sooner dissolved by the act of the shareholders owning two-thirds of the stock or by an Act of Congress, or unless its franchise becomes forfeited by some violation of law or regulation issued hereunder; (3) to make contracts; (4) to sue and be sued, complain, and defend in any court of law or equity; (5) by its board of directors, to appoint such officers and employees as may be deemed proper, define their authority and duties, fix their compensation, require bonds of such om them as it deems advisable and fix the penalty thereof, dismiss such officers or employees, or any thereof, at pleasure and appoint others to fill their places; (6) to adopt bylaws regulating the manner in which its stock shall be transferred, its officers and employees appointed, its property transferred, and the privileges granted to it by law exercised and enjoyed; (7) to establish branch offices or agencies subject to the approval of the Board; (8) to acquire, hold, operate, and dispose of any property (real, personal, or mixed) whenever necessary or appropriate to the carrying out of its lawful functions; (9) to act as depository or fiscal agent of the United States when so designated by the Secretary of the Treasury; (10) to operate in such Federal Reserve district or districts or Territories or possessions of the United States as may be specified in its articles of incorporation and approved by the Board; and (11) to exercise the other powers set forth in this title and such incidental powers as may be reasonably necessary to carry on the business for which the company is established. (e) The board of directors of each national investment company shall consist of nine members all of whom shall be elected annually by the holders of the shares of stock of the company. SEC. 102. (a) Each company organized under this title shall have a paid-in capital and surplus equal to at least $5,000,000 before it shall commence business. In order to facilitate the formation of national investment companies, each Federal Reserve bank is hereby authorized, notwithstanding any other provisions of law, to invest in the shares of stock of one or more such companies formed by any Federal Reserve bank under section 101 hereof, but with a view to the ultimate disposal of such stock to banks and other private investors as herein provided. Each Federal Reserve bank which forms a national investment company shall invest in shares of stock of such company in an amount equal to at least $5,000,000, or an amount which, when added to the amounts, if any, of shares subscribed by other Federal Reserve banks, member banks, nonmember banks, financial institutions, corporations, partnerships, or other persons, shall equal the sum of $5,000,000. In no event shall any Federal Reserve bank invest in shares of national investment companies if as a result thereof it will hold an amount of such shares aggregating more than 2 percent of the aggregate amount of the combined capital and surplus of all its member banks or $5,000,000, whichever is the greater. (b) The shares of stock in any national investment company shall be eligible for purchase by member banks of the Federal Reserve System, nonmember banks, financial institutions, corporations, partnerships, or other persons. Each member bank is hereby authorized, notwithstanding any other provision of Federal law, to acquire and hold an amount of such shares equal to not more than 2 percent of the capital and surplus of member bank. Upon the demand of any such eligible purchaser, a Federal Reserve bank which holds shares of stock in a national investment company shall, with the approval of the Board, including approval as to price, sell to such eligible purchaser all or a portion of such shares. (c) The aggregate amount of shares in any such company or companies which may be owned or controlled by any stockholder, or by any group or class of stockholders, may be limited by the Board; and no one stockholder, other than a Federal Reserve bank, shall at any time, without the approval of the Board, own or control more than 10 percent of the total outstanding shares of any such company. BORROWING POWER SEC. 103. Each national investment company shall have authority to borrow money and to issue its debentures, bonds, promissory notes, or other obligations under such general conditions and subject to such limitations and regulations as the Board may prescribe, but in no event shall any such company issue obligations which would cause the amount outstanding at any one time to exceed the amount of its capital stock and surplus. ELIGIBLE ENTERPRISES SEC. 104. The Board, after consultation with the Secretary of Commerce, shall promulgate standards to determine the eligibility of business enterprises for the purposes of this title. In promulgating such standards, which may differ according to the type of financing or other relevant factors, the Board shall give consideration to (a) the policies set forth in section 2; and (b) the extent to which such enterprises have reasonable access to facilities for credit and equity financing. LOANS AND INVESTMENTS SEC. 105. (a) Each national investment company shall have authority to make or acquire loans with or without security to business enterprises which are eligible under this title, or to purchase obligations of such enterprises. Such loans, purchases, or other acquisitions may be made either directly or in cooperation with banks or other lending institutions, through agreements to participate or by the purchase of participations, commitments to purchase, or otherwise, as the company may determine. (b) Each national investment company shall have authority to acquire, and to resell to the issuer or to others, the income debentures or bonds, common or preferred stocks, or other capital shares of business enterprises eligible under this title. AGGREGATE LIMITATIONS SEC. 106. Without the approval of the Board, the aggregate amount of obligations and securities acquired and for which commitments may be issued by any national investment company under the provisions of this title which exceed the sum of $1,000,000 for any single enterprise shall not exceed 33% percent of the combined capital and surplus and maximum indebtedness of such national investment company authorized by this title. EXEMPTIONS SEC. 107. (a) The loans of any national banking association which are required by any national investment company, in the making of which such company participates, or for any part of which a commitment to purchase is issued hereunder shall not be subject to the limitations on real-estate loans prescribed in section 24 of the Federal Reserve Act, as amended (12 U. S. C. 371). (b) Section 3 of the Securities Act of 1933, as amended (15 U. S. C. 77 C), is hereby amended by inserting at the end thereof the following new subsection (c) : "(c) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a national investment company under the National Investment Company Act of 1957, if it finds, having regard to the purposes of that Act, that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors." (c) Section 304 of the Trust Indenture Act of 1939 (15 U. S. C. 77 ddd) is hereby amended by adding the following subsection (e): |