tively as can a locally owned lending agency which has been set up for business in a given community which it knows and understands. I think this fact is freely admitted by bankers and industrialists, as well as by you Members of Congress.

It is evident from the study of Senate bill 719 that the authors have taken cognizance of the problems of the American economy and the problems of the small-business man. However, it does appear from the contacts and discussions which I have held on the subject that the management of the Federal Reserve System and its Directors are reluctant to assume the responsibility for this new field of financial development. It is evident to me that this reluctance has passed on down to our commercial banker.

I have not seen or studied their viewpoint, and therefore I am not qualified to agree or differ with their judgment. However, if they are not in support of this bill, their position, whether right or wrong, leads me to a recommendation of an alternative course which could be put into effect by simple procedure. We definitely need a starting point. The procedure I suggest, if I found workable and acceptable to the Federal Reserve Board, could later be encompassed in some overall plan, such as provided for in Senate bill 719. My observation leads me to look with skepticism upon "forced marriages."

It is hardly to be expected that the majority of our commercial bankers would offer, from the beginning, their wholehearted support to a new type institution. They have already seen a development of various other mediums of financingthe investment house, the building and loan associations, the life-insurance companies, investment trusts, installment-credit corporations, commodity-credit corporations, automobile finance agencies-and it is only human they should be doubtful that there are other unmet needs, or even that the development of other types of corporations strengthens rather than weakens their activities. These fears are nearly always prevalent in the opening of a new field, but in my opinion it has been the development of these new financial fields, together with the promise and broader vision of commercial banking, that has built a stronger base for our whole economy.

I have seen a tremendous change in the last 5 years in the viewpoint of commercial bankers regarding long-term loans for small business. Many of them will freely admit that many of their customers would make stronger commercial bank accounts if it were possible for a part of their obligations to be in the form of long-term indebtedness rather than for so much of it to be in short-term commercial banking.

I propose, therefore, that you consider an alternative plan which would give recognition to financial institutions which would be established within each State for the purpose of long-term loans to small business.

A number of States, recognizing the dire need for such an institution, have already set up these corporations. I feel that they are sound in economic philosophy and that they have enough characteristics in common to justify recognition and assistance from Federal legislation in which there is proper safeguards.

As an illustration, the last session of our State legislature passed enabling legislation for the establishment of such a corporation and made financial appropriations for State participation. We feel that there is not sufficient personal and corporate wealth in Arkansas to set up an adequate financial institution by voluntary purchase of stock by our citizens or corporations. We set it up, therefore, on a nonprofit basis, to meet the provisions of our State constitution under which the State could become a participant.

The first requirement is that we raise locally $1 million of equity capital. We will then be ready to consider loans of various and sundry kinds, including longterm loans to small business. The corporation is permitted to issue bonds not in excess of 10 times its equity capital. The State, by appropriation, is permitted to take up to $5 million of these bonds and may take some additional amount on a matching basis. By finding secondary sales for some of the assets of this corporation, the corporation should be able to furnish credit substantially in excess of its equity capital and its bonded obligations.

It is my hope that your legislation would permit favorable consideration of the purchase on a matching basis by some agency of the Federal Government of interest-bearing bonds of such corporations in the various States, with safeguards as to equity capital, management, supervision, etc. On this basis, the Government would have no activity whatever in the consideration, approval, or rejection of loan applications. It would need little or no administrative organization for this type of assistance. The corporations would be under the super

vision of the State bank commissioners, just as our present State banks are. The Government would own interest-bearing securities, and I believe there is ample precedence with satisfactory results for this kind of governmental participation.

There is one further step in which I am extremely interested and which I think should be made a part of such an organization.

Big

Our small-business enterprises are in the same position regarding technical assistance, or specialized know-how, as they are regarding long-term loans. business has mastered know-how and can afford specialists in any or all fields. Technical assistance is also readily available to agriculture. In practically every discussion I hear of foreign aid, I hear of the need and desirability of technical assistance. All of this I am in accord with. But surely if our small businesses are in a state of neglect, dispair, and weakness, and if we consider setting up financial assistance on a long-range basis, let us by all means consider making available technical assistance.

I should like to see a program of technical assistance put on as practical a basis as that which I am asking you to consider for financial assistance. I should like to see you consider favorably legislation which would authorize the following procedure:

In whatever States these financial institutions are set up, and wherever the Federal Government participates by buying bonds or by any other means or manner of financial help, an annual appropriation of $50,000 would be made to match a minimum appropriation by the State concerned, or by that State's university, to support the development and maintenance of a technical staff in the fields of finance, production, and marketing, and that this staff be responsible to the university of the State and to the financial institution of the State. If the responsibility and direction of this staff are not placed locally, close to the area which it serves, then, in my opinion, it would evolve into a cumbersome, misdirected staff from which there could come some good, but certainly not in proportion to the benefits which would be possible with its operation under the direction and control of the State university and the financial institution.

Again let me illustrate: If our Arkansas corporation has $1 million in equity capital and if the people of our State have $5 million of its interest-bearing bonds, we would like for some agency of the Federal Government to consider the purchase of $5 million of these interest-bearing bonds to match the $5 million worth owned by our own people, all bonds bearing the same rate of interest. The chances are, that over the years, these bonds would average 4 percent. If that is a reasonable assumption, then 1 percent of the interest on these bonds would approximate $50,000, the amount I am recommending be appropriated for technical assistance. This would leave a net rate of interest to the Government which would compare favorably with the income from other Treasury bonds. So, once the financial corporation was operating, it would create a source of net income to the Government over and above the outlay for technical assistance. Let us note the procedure in a hypothetical case: Suppose a small business should apply to the State's financial institution for a loan. The management of the financial institution would study the setup of the small business, and should it give evidence of weakness in its financial structure, or perhaps its production or marketing, or any other phase of operations, the financial institution would then recommend technical advice and counsel through the university's technicalassistance staff. The technical-assistance staff would then be obligated to service this small business with reports of factual matter, counsel, and advice. Reports on the technical aid given could be furnished to the proper Government agency through both the financial institution and the university.

I think the Government would be justified in withholding technical aid in any State in which evidence of a satisfactory solution was not furnished by the financial institution. The principle of technical aid on a cooperative basis, with both the Federal Government and State government participating, is not an untried one. For more than 40 years the farmers of America have received technical assistance through the agricultural extension services, which constitute a part of our land-grant college system.

In the development of legislation creating a financial institution in Arkansas. we had the wholehearted cooperation of the Governor of the State, members of the legislature, the industrial development commission, the State bankers association, and the State chamber of commerce. I report this widespread support to you so that you may know of the recognition which my State gives to the problems of small business. A few other States, including Massachusetts, Maine.

Connecticut, New Hampshire, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Wisconsin, Kansas, and Georgia, have likewise formed corporations for the same purpose. From correspondence which we are receiving from other States, I have the feeling that this is a nationwide problem, a nationwide need, and is deserving of national recognition and support, but it seems that our people are virtually unanimous in the opinion that there should be as little Government in business as possible. If that be true, then certainly this approach puts the Government in the position of being merely a partner in the creation of opportunities and not in subsidies.

Now, I should like to mention again the problems of disaster areas. I have previously acknowledged that there are such areas and that they are deserving of political and social consideration, which should be kept separate from sound financial business legislation. I believe that financial institutions located in each State, such as I have described, with technical advice and counsel being a part of the services offered, would help alleviate the causes of disaster areas. If a flood, an earthquake, or a drought creates a disaster area, there is little that planning and preparation could have done to prevent such a circumstance, but I believe the effects of a gradual economic decline, or the departure of a sizable industry from an area, would be substantially minimized in those States in which there were strong financial institutions with capable programs of technical assistance ready to provide both long-term capital and know-how to smallbusiness undertakings.

Certainly, the factual information, advice, and counsel from such a financial institution could and should be of tremendous value to the Members of Congress in the matter of disaster areas.

I greatly appreciate the opportunity of appearing before your committee. I greatly appreciate the interest this Congress has evidenced in the field of small business, and I shall look forward with great interest to your ultimate decisions and actions.

Senator FULBRIGHT. I guess that concludes the hearing this morning. The subcommittee will recess until 10 o'clock tomorrow mornig, when they will hear additional witnesses. Thank you very much. (Whereupon, at 12:40 p. m., the subcommittee recessed until 10 a. m. the following day, Thursday, June 6, 1957.)

CREDIT NEEDS OF SMALL BUSINESS

THURSDAY, JUNE 6, 1957

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,
SUBCOMMITTEE ON SMALL BUSINESS,

Washington, D. C.

The subcommittee met, pursuant to recess, at 10 a. m., Senator Joseph S. Clark, chairman of the subcommittee, presiding.

Present: Senator Clark.

Senator CLARK. The committee will be in session.

Our first witness today is the Honorable Frank M. Coffin, distinguished Congressman from Maine.

Mr. Coffin, we are very happy to welcome you here, and are looking forward to your testimony. Will you just proceed in your own way? Do you have a formal statement?

STATEMENT OF FRANK M. COFFIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE

Mr. COFFIN. Yes; I do, Mr. Chairman. I think the clerk has copies of it.

Senator CLARK. Would you like to file it for the record, or read it? Mr. COFFIN. I would like to read it and perhaps add to it as I go along.

Senator CLARK. Fine. Would you just proceed in your own way? Do you mind interruptions?

Mr. COFFIN. Not a bit. I would welcome them.

Mr. Chairman, I want to thank you for the privilege and opportunity to testify before your committee today. I know you have had busy and lengthy sessions and so I shall endeavor to be as brief as possible.

This is not a new experience to me. I have been interested in legislation in the small-business field during this session, and this is the third opportunity I have had to present these ideas to a committee. You have before you a number of legislative proposals relating to problems of small business. Some are concerned with the future and functions of the Small Business Administration; others involve proposals for entirely new approaches to credit problems of small business. I should like to make some general comments on small business and its peculiar situation today, and then I should like to comment briefly on two bills introduced by Senator Humphrey, S. 2184 and S.

2185.

There are some spokesmen who refuse to admit the existence of any substantial problem facing small business which cannot be cured