Mr. MEYER. To cover the 'authorization to the Treasury to purchase these obligations, in case of need, the Treasury has suggested this amendment.

The CHAIRMAN (reading). At the end of section 9, page 9, insert the following:

(b) The Secretary of the Treasury, in his discretions, is authorized to purchase any obligations of the corporation issued hereunder, and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds from the sale of any securities hereafter issued under the second Liberty bond act, as amended, and the purposes for which securities may be issued under the second Liberty bond act, as amended, are extended to include any purchases of the corporation's obligations hereunder. The Secretary of the Treasury may, at any time, sell any of the obligations of the corporation acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of the obligations of the corporation shall be treated as public-debt transactions of the United States.

Mr. MEYER. Now, Mr. Chairman, with the amendments suggested, the corporation would have three ways of obtaining funds: The sale of its obligations to the public; the purchase of its obligations by the Federal reserve banks, without, however, the right to accept them as security for loans and discounts, or to use them as security for currency; and the purchase of its obligations by the Treasury. The corporation thus should be able to meet all its needs, and the controversial question concerning eligibility perhaps will be eliminated.

Mr. STEVENSON. In other words, if they purchase these they do not issue currency against them?

Mr. MEYER. No. That would probably be used temporarily, if

at all.

Mr. BEEDY. You said "That would probably be used temporarily, if at all?"

Mr. MEYER. Yes.

Mr. BEEDY. What do you mean by that?

Mr. MEYER. You mean the Federal reserve banks buying them? Mr. BEEDY. I understand you to say these bonds would not be used for the issuance of Federal reserve notes?

Mr. MEYER. Correct.

Mr. BEEDY. Then, you say that would be used temporarily, if at all?

Mr. MEYER. I was referring to the authority of the Federal reserve banks to buy the obligations of the corporation.

Mr. TIERNEY. They would go on the market as other Government bonds?

Mr. MEYER. Yes.

Mr. TIERNEY. And would be affected by a flood of bonds on the market?

Mr. MEYER. They would have to meet the invesment-market conditions. They would be exempt from all taxation (except estate and inheritance taxes), and they would be short-term obligations. They, therefore, ought to find a market.

Mr. TIERNEY. They would probably find a market that might lower the general market value of Government bonds?

Mr. MEYER. If they were sold on a proper basis and distributed and handled properly, they would not. If this corporation's opera

tions are constructive and helpful, as we hope they will be, they should be helpful to the market for Government and all other bonds. Mr. TIERNEY. They may increase the desire on the part of the public to purchase Government bonds at more favorable rates?

Mr. MEYER. An improvement in conditions will help the market for Government bonds like everything else.

Mr. MCFADDEN. May I ask a question?

The CHAIRMAN. Certainly. I was going to recognize you. I had forgotten you wanted to be heard.

Mr. MCFADDEN. On the point under discussion, I understand these securities or debentures to be issued can be purchased by the Federal reserve banks in the market?

Mr. MEYER. What they call the "open market." They might be purchased from the corporation or from holders in the open market. Mr. MCFADDEN. That is to say, each one of the 12 Federal reserve banks can own these debentures and securities?

Mr. MEYER. Yes.

Mr. MCFADDEN. But when they hold them among their securities bought in the open market, can they turn them over to the Federal reserve agency as securities?

Mr. MEYER. No; they can not do that with Government bonds bought in the open market.

Mr. MCFADDEN. I wanted to get that clear.

Mr. MEYER. No, they can not use as security for Federal reserve notes Government bonds bought in the open market.

Mr. MCFADDEN. That is thoroughly understood?

Mr. MEYER. There is not any question about it, legally.

Mr. MCFADDEN. As I understand the amendment suggested, one of the member banks can not use them as matters of rediscount to Federal reserve banks?

Mr. MEYER. No; they would not be eligible.

Mr. MCFADDEN. So the only way they can get into the Federal reserve banks is as investment?

Mr. MEYER. Yes; and that, of course, would be optional with the Federal reserve banks.

Mr. MCFADDEN. And Federal reserve notes can not in any manner whatsoever be issued?

Mr. MEYER. Under the amendment I have suggested, they could not.

Mr. MCFADDEN. To go back to the origin of this: I was not privileged to be present the other day when the governor was before the committee. This organization is largely predicated on the old War Finance Corporation's activities, is it not?

Mr. MEYER. It is somewhat related to it-that is, to the powers of the War Finance Corporation granted under the amendment of August 24, 1921, not the war powers.

Mr. MCFADDEN. Of rehabilitation?

Mr. MEYER. Whatever it was called-it was agricultural relief at that time.

Mr. MCFADDEN. When you came into the management?
Mr. MEYER. No; I was in it before.

Mr. MCFADDEN. I attended the conference at the White House, as you know, when we received the first information about the National Credit Corporation. I understood at that conference it was proposed that they would take care of the situation and that in all

probability it would not be necessary to enact this re-creation of what was then mentioned as the "Old War Finance Corporation." Mr. MEYER. I think, Mr. McFadden, if you will look at the public statement issued at that time by the President and which was read to the meeting, you will find the President stated that, if necessary, he would recommend the organization of such a corporation as this. Mr. MCFADDEN. I recognize that.

Mr. MEYER. While the hope was expressed that it would not be necessary, the President stated that, in case it was found necessary, he would recommend it.

Mr. MCFADDEN. I remember at that meeting it was stated that this matter of the organization of the National Credit Corporation had been talked over with the New York Clearing House banks, principally, and that they were taking the initiative in the organization. I am just curious, in connection with the organization of the National Credit Corporation, to observe the fact that that organization was instituted last October and now, three months later, is just beginning to ask the 10 per cent. The general impression is that the National Credit Corporation has not been very active, and I would like to ask you whether or not it is a fact that, because of the uncertainty in regard to the economic and financial situation, that the corporation does not desire to step in and take the risk, as it would be on the shoulders of individual bankers; but they were figuring on this governmental institution, which is literally the "back door of the Treasury of the United States," so that the whole people would assume the responsibility and risk on the advances which might be made.

Mr. MEYER. That is not my understanding of the situation. Mr. McFadden.

Mr. MCFADDEN. Is not that the practical situation?

Mr. MEYER. The National Credit Corporation was proposed in October. It took several weeks to develop its organization and to get the subscriptions; $500,000,000 is not assembled in subscriptions all over the United States overnight.

Mr. MCFADDEN. I appreciate that.

Mr. MEYER. An undertaking like the National Credit Corporation requires a good deal of effort and machinery. I do not believe the corporation considered itself ready for business until five or six weeks after the President's announcement, pretty close to the middle of November.

Mr. MCFADDEN. It was agreed that a large part of the benefits derived from that organization has been psychological?

Mr. MEYER. Quite a lot; that was a very important result. I am not in close contact with the operations of the National Credit Corporation and I hope the committee understands that I do not consider myself qualified to testify with respect to them. But I happen to remember that it took some time to get it organized. It was desired to have it organized on a nation-wide scale and that, of course, required time. The corporation, however, was lending money long before the first call was made, because it arranged to borrow money in anticipation of the call. The fact that it has just made the first call has nothing to do with the question of having funds to lend, because it was assured by some of the larger banks in the East and West of the necessary funds to meet its loan require

ments. The delay in making the call was not, I think, a factor in the corporation's activity.

However, as I stated, I do not consider myself qualified to testify on the National Credit Corporation.

Mr. MCFADDEN. Section 2 of the bill provides for $500,000,000 capital, all to be subscribed by the United States. What is the total amount of debentures or obligations that this corporation can incur? Mr. MEYER. Three times that amount.

Mr. MCFADDEN. A billion, five hundred thousand?

Mr. MEYER. A billion, five hundred million.

Mr. MCFADDEN. A total of $2,000,000,000 is the outside expansion or financial limit in this corporation?

Mr. MEYER. Yes.

Mr. MCFADDEN. On page 5, section 5, of the bill, it says [reading]: The corporation is authorized and empowered to make loans, upon such terms and conditions not inconsistent with this act as it may determine, to any bank, banker, savings bank, trust company, clearing house, or other association of banking institutions, building and loan association, insurance company, or other financial institution in the United States.

Mr. MEYER. Some amendments to that clause have been suggested. One is to strike out the word "banker." The other is substitute the following:

"Or other bona fide financial institution in the United States having substantial resources whose obligation, indorsement, or guaranty would add materially to the security of loans to it by the corporation" for the phrase "or other financial institution in the United States."

Mr. MCFADDEN. Of course, I recognize that this is the broadest kind of power being given to the corporation to make loans.

In addition to this, I understand that one of the principal functions of this institution will be to grant the necessary credit to the railroads of the United States?

Mr. MEYER. I would not say one of its principal functions, Mr. McFadden, but rather one of its important functions.

Mr. MCFADDEN. Is it in contemplation there, as soon as this institution is organized, to take over the business of the National Credit Corporation?

Mr. MEYER. I can not speak for a corporation that does not exist. Mr. MCFADDEN. You would have the authority to do that?

Mr. MEYER. There would be authority to do so. In the spring and summer of 1921, before the powers of the War Finance Corporation were broadened to cover loans to banking and financing institutions for agricultural and livestock purposes, a livestock-loan pool was organized at the request of the Secretary of the Treasury, very much as the National Credit Corporation was organized. When the amendment of August 24, 1921, was passed some of the loans made by the pool were taken by the corporation, not from the pool itself, but from banks or other financial institutions. Applications for loans were considered on their merits, and that would have to be done by this corporation. There is no understanding that anything will be taken over from the National Credit Corporation, if that is the point of your question.

Mr. MCFADDEN. You have authority to do this?

Mr. MEYER. The board here?

Mr. MCFADDEN. Yes.

Mr. MEYER. They would have authority to make loans in accordance with the terms of the act. I can not speak for the proposed corporation, but I would say that there would be no undertaking to take over any loans from anybody. There is no such undertaking now, so far as I know.

Mr. MCFADDEN. Then, particularly, "The organization is authorized and empowered to make loans upon such terms and conditions not inconsistent with this act as it may determine, to any bank"? Mr. MEYER. Yes.

Mr. MCFADDEN. That would mean that it could make any loans to any bank?

Mr. MEYER. Yes. The War Finance Corporation had authority to make loans to any bank for agricultural purposes.

Mr. MCFADDEN. Or it could purchase assets of any bank?

Mr. MEYER. No; it could not.

Mr. MCFADDEN. Could it take over acceptances?

Mr. MEYER. Only on the obligation of the bank. When you talk about buying assets, I understand you to mean without recourse? Mr. MCFADDEN. No; I did not say without recourse.

Mr. MEYER. That is what buying assets ordinarily means.
Mr. MCFADDEN. Yes, I understand that.

Mr. MEYER. All loans under the bill must be made against the obligation of the borrowing bank; the corporation would not be buying assets, as you suggest.

Mr. MCFADDEN. Would this institution have authority to go into the open market and buy acceptances?

Mr. MEYER. No.

Mr. MCFADDEN. Nor Government bonds?

Mr. MEYER. No, I think not, I think there is no specific authorization to buy Government bonds.

Mr. MCFADDEN. Would this institution have authority under the law that is proposed here to buy acceptances from the Federal reserve banks?

Mr. MEYER. I should think not. Of course, the terms "bank" and "financial institution" would include a Federal reserve bank, but certainly no Federal reserve bank needs to borrow, or will borrow; and there would be no occasion for this corporation to lend to institutions that do not need it.

Mr. MCFADDEN. Of course, the Federal reserve bank could sell their acceptances in the market and buy these debentures to be issued by the Reconstruction Finance Corporation?

Mr. MEYER. Ordinarily the Federal reserve banks do not sell acceptances. They allow them to mature, and run out, and be paid off. When you see a reduction in the bill holdings of Federal reserve banks, it does not result from sales; it results from maturing obligations. Of course, I can not speak for the Federal reserve system prior to September, 1930, but I think I can say that since then, no Federal reserve bank has ever sold any acceptances.

Mr. MCFADDEN. What is the total amount of acceptances held by Federal reserve banks?

Mr. MEYER. At this time?

Mr. MCFADDEN. Yes.