EXHIBIT A-2

Applications for industrial loans and commitments approved by Federal Reserve banks, by years, for period 1934-56

NOTE. In case of a revolving line of credit the "number" includes only the original application, but the "amount" includes all disbursements made under the loan.

EXHIBIT B

Federal Reserve Bank of Kansas City—13b activity, 1946-56

United States Senate, Washington, D. C. DEAR SENATOR CLARK: First, I wish to thank you for according a most unprofessional witness extreme consideration and for your helpful questioning. This week I will mail a questionnaire to the 600 member banks of the 10th Federal Reserve District. Their views will be asked in respect to:

(a) Continuance and extension of SBA lending authority and appropriations. Each will be provided with unit and dollar volume of SBA loan figures broken down by States and by congressional districts, which I obtained from House hearing testimony. The record certainly impresses me, and suggests a job well done.

(b) Continuance and extension of Federal Reserve section 13 (b) lending powers which neither supplant nor duplicate SBA authorities.

(c) The use of :

Federal Reserve section 13 (b) surplus or a portion of future Federal Re serve earnings as a source of capital for national investment companies and State development corporations.

The attached summary of replies to my original questionnaire, a copy of which is enclosed, confirms the overwhelming desire of the banks in the 10th Federal Reserve District:

(a) Not to pay Federal Reserve earnings to the Treasury as a 90 percent franchise tax.

(b) To accumulate future Federal Reserve earnings into sinking fund to remove the FDIC's $3 billion call on the Treasury.

It would seem to me that a strong case could be made for use of Federal Reserve earnings for expanded research into the problems of small business and of area economic development. John Horn, administrative assistant to Senator Sparkman, assured me yesterday that he would invite to the Senator's attention the possibility of achieving his national investment company objectives without killing section 13 (b).

It was with knowledge of their remarkable shyness and lack of desire for publicity that I did not extoll the virtues and outstanding position of my close friends, the senior Solomon Smith and his two sons, Solomon B. and Ed, of Northern Trust, a unique bank and one of the finest in the country. I was tempted, and it would have been apropos in light of Dr. Kaplan's testimony, to mention that Northern is perhaps the sole remaining large bank in this country still owned by and with actual control vested in one family, the direct heirs of a founder. It was a pleasant surprise to know that we had mutual friends. Again, thank you for your courtesy.

Sincerely yours,

JOHN A. ADAIR,
President.

QUESTIONNAIRE IN RESPECT TO FINANCIAL INSTITUTIONS ACT OF 1957, S. 1451 AND H. R. 7026

A. I am.. I am not----in favor of the Federal Reserve banks continuing to pay to the United States Treasury 90 percent of their earnings.

B. I am----I am not-_-_in favor of requiring that the earnings of Federal Reserve banks be accumulated for 10 years to fund the United States Treasury's obligation to lend $3 billion to the FDIC.

C. Please check only one :

I am in favor of continuing the exemption from Federal income taxes of Federal Reserve banks if their earnings are to be accumulated rather than paid to the United States Treasury as a franchise tax or by any other

means.

..I am in favor of continuing the exemption from Federal income taxes of the Federal Reserve banks whether or not their earnings are accumulated in a sinking fund to support the FDIC.

I am not in favor of continuing the exemption from Federal income taxes of the Federal Reserve banks under any circumstances.

D. I am____I am not__-_in favor of continuing the exemption from Federal income taxes of the Federal Deposit Insurance Corporation.

E. I am____I am not----in favor of continuing the exemption from Federal income taxes of the Federal Savings and Loan Insurance Corporation.

F. I am----I am not-_-_in favor of continuing the exemption from Federal income taxes of the Federal home loan banks.

G. Please check only one:

I am in favor of the general purposes of S. 1451 and H. R. 7026, but feel that more extensive hearings will prove the need for amendments. I am in favor of passage of S. 1451 and H. R. 7026 as drafted and without amendment.

H. I have____I have not____read a copy of Financial Institutions Act of 1957, bill S. 1451, or its companion, H. R. 7026.

I.

---I am not sufficiently well informed concerning this legislation to express an opinion.

J. Please check only one :

I recommend that all proposed major legislation affecting banks should be preceded by extensive regional hearings.

I believe that the views of the banks themselves can satisfactorily be obtained by committee hearings conducted in Washington, which receive testimony from representatives of bankers associations, the chamber of commerce, and others able to appear.

DEAR SIR: Your bank is a stockholder, and as such, one of the owners of the Federal Reserve Bank of Kansas City, which institution has total assets of approximately $2.2 billion and net worth reserves totaling $47.8 million. In addition, although it does not possess a stock certificate of the Federal Deposit Insurance Corporation, your bank nevertheless owns an important equity in this corporation. It has a net worth of nearly $1.8 billion.

I hope that as a stockholder of the Federal Reserve Bank of Kansas City and part owner of the Federal Deposit Insurance Corporation, you will give me a little of your time as necessary to read the enclosed. Your cooperation will be in the interest of improving the Financial Institutions Act of 1957, S. 1451 and H. R. 7026, both of which are now in committee of the United States House of Representatives.

There is no Government capital in either the FDIC or any of the Federal Reserve banks.

The net earnings of the FDIC, over $100 million in 1956, are derived exclusively from assessments paid by its owning member banks and from interest received from investments in United States Government securities accumulated from net earnings. The earnings of the Federal Reserve banks are derived primarily from interest on their holdings of $20 billion of United States Government securities provided by reserve accounts of member banks. In 1956, net earnings of the Federal Reserve banks were $454 million after dividends to member banks of $19 million.

Both the FDIC and the Federal Reserve banks are exempt from Federal income taxes. If, however, the Financial Institutions Act of 1957 is passed without amendment, the Federal Reserve banks will be obligated to pay 90 percent of their annual earnings to the United States Treasury as franchise taxes. Currently and since 1947 the Federal Reserve Board has required that the banks pay the bulk of their net earnings to the Treasury in accordance with a formula or an arithmetic device under the guise of interest charges on uncollateralized Federal Reserve notes to the banks for their issue. (See exhibit A.)

S. 1451 also continues the Federal income tax exemption of the following financial agencies, none of which return their profits to the United States Treasury: Federal Home Loan banks

Federal Savings and Loan Insurance Corporation Furthermore, the act does nothing to alter the existing virtual exemption from Federal income taxes of individual Federal savings and loan associations and Federal credit unions which are incorporated under not-for-profit charters.

The attached summary makes a case for accumulating Federal Reserve banks' earnings to remove the FDIC's dependence on the Treasury. In time, the United States Treasury would be removed from the deposit insurance business to the extent of $3 billion. This $3 billion contingent liabiilty of Uncle Sam is the price of FDIC's freedom, and explains why it is directed and operated virtually as a Government bureau under a Board of Directors appointed by the President. It, like most Government bureaus, continues to face serious personnel problems arising from turnover because of its inability to attract and retain qualified people.

The facts set forth in the enclosed also suggest as an alternative that the Federal Reserve banks might appropriately be required to pay Federal income taxes rather than franchise taxes and accumulate remaining earnings as a source of emergency credit for the FDIC. The elimination of exemption from income taxes of the Federal Reserve banks might provide precedent and justification for the elimination of tax exemption of a number of other Federal financial corporations, which include Federal home loan banks, Federal intermediate credit banks, Federal land banks, and banks for cooperatives.

The liability for payment of Federal income taxes may bring with it a tax consciousness on the part of these quasi-governmental, yet privately capitalized, financial institutions, and undoubtedly prove to be a step in the right direction toward the elimination of preferential treatment and indirect subsidies (in the form of rates below the market) enjoyed by borrowers from these agencies, who themselves receive tax-exempt treatment at the expense of other taxpayers. Please check your answers to the questions on the questionnaire provided and return it to me. I will summarize the results of this opinion poll of all member banks in the 10th district and make them available to the chairman of the Committee on Banking and Currency of the House of Representatives through Congressman Breeding (Kansas), a committee member, as well as to the presidents of the American Bankers Association, Kansas Bankers Association, and the Independent Bankers Association and the Association of Reserve City Bankers. I will also give the results to the chairman of the Finance Committee of the United States Senate, Senator Byrd, of Virginia, through Senator Frank Carlson (Kansas), a member of this committee which will conduct hearings germane to these matters, and to the chairman of the Senate Banking and Currency Committee. Other committees of which Senator Byrd is a member, including the Hoover Commission, are interested in the income of the United States Treasury, which is not subject to budgetary control; the Federal Reserve earnings fall in this category, also.

Thank you for your willingness to complete the enclosed opinion poll.

Sincerely,

93527-57- -16

JOHN A. ADAIR, President.