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MAY 12, 1938.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. GOLDSBOROUGH, from the Committee on Banking and Currency, submitted the following

REPORT

[To accompany H. R. 10608]

The Committee on Banking and Currency, to whom was referred the bill (H. R. 10608) to amend so much of the Reconstruction Finance Corporation Act, as amended, as relates to railroads, having considered the same, report favorably thereon and recommend that the bill do pass.

The bill (H. R. 10608) amends section 5 of the Reconstruction Finance Corporation Act, as amended, so far as it relates to financing of railroads through loans and purchases or guaranties of obligations, and adds a new section after section 5e of such act relating to financing the acquisition of rail, and shop appliances, rolling stock, and other equipment, and loans to aid in the financing of track and equipment maintenance and replacements.

The bill requires that in every case the prior approval of the Interstate Commerce Commission must be obtained.

The requirement of the existing law that the Interstate Commerce Commission must certify that, in certain instances, an applicant railroad "on the basis of present and prospective earnings, may reasonably be expected to meet its fixed charges, without a reduction thereof through judicial reorganization", is waived until after June 30, 1939. There is also substituted for the requirement of the present section 5 of full and adequate security for railroad loans made under section 5, substantially the finding formerly required by the Interstate Commerce Commission for loans made under section 210 of the Transportation Act of 1920. The existing restriction on the total amount of funds the Corporation may at any one time have outstanding in railroad loans and commitments, under the existing section 5, is removed. These changes carry out recommendations of the special committee,

made up of the chairman and two other members of the Interstate Commerce Commission, in its recent report to the President.

The new section, 5f, without limiting in any way section 5, as amended, permits the Reconstruction Finance Corporation, with the approval of the Interstate Commerce Commission, on such terms, conditions, and restrictions as the Corporation may determine, to aid in the financing of the acquisition of rail and shop appliances, rolling stock, and other equipment, by making loans for such purposes or by purchasing or guaranteeing obligations incurred in this connection. The new section also permits the Corporation to make "work" loans for the purpose of employing persons who have been furloughed, or separated from employment, or given partial employment. In the case of these "work" loans, the railroad must agree (1) to use the proceeds of the loan for employment of such employees and to pay for materials to be used "for the track and equipment maintenance and replacements in connection with which such employees will be employed", and (2) that the employment provided for shall be at the wage rates and in accordance with working conditions covered by carrier-employee agreements in force at the time the loan is disbursed by the railroad. Loans of this type will put persons to work by encouraging the railroads to reemploy employees who have been furloughed or separated from employment or put on part-time employment.

The bulk of the loans made by the Reconstruction Finance Corporation to roads which, after the disbursement of the loans, filed petitions under section 77 of the Bankruptcy Act, as amended, were made by the Corporation prior to March 3, 1933, the effective date of that law. None of such loans were made after the decision of the Supreme Court on April 1, 1935, in Continental Illinois Bank and Trust Company v. C. R. I. and P. Railway Company (294 U. S. 648), which permitted a temporary injunction. All of such loans benefited the security holders of the roads concerned, since they were used principally to pay interest and maturing obligations, and taxes, rents, and other fixed charges. A substantial part of the proceeds was used to "bail" out, in whole or in part, commercial banks. The committee is of the opinion that in the circumstances, it is fair and equitable that, as respects such loans, as well as other railroad loans heretofore or hereafter made by the Corporation, the Corporation should be exempt from being enjoined by the courts in bankruptcy proceedings from acquiring title to the collateral securing the loans in compliance with the terms of the pledge of such collateral. All railroad loans which have been made by the Corporation have been made to borrowers who could not obtain loans on reasonable terms from any other source. The provisions of the bill are designed, among other things, to effect this purpose.

CHANGES IN EXISTING Law

In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in the Reconstruction Finance Corporation Act made by the bill are shown as follows: Existing law proposed to be omitted is enlosed in black brackets, new matter is printed in italics, existing law in which no change is proposed is shown

in roman.

[PUBLIC NO. 2-72D CONGRESS]

[H. R. 7360]

AN ACT To provide emergency financing facilities for financial institutions, to aid in financing agriculture, commerce, and industry, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That there be, and is hereby, created a body corporate with the name "Reconstruction Finance Corporation" (herein called the corporation). That the principal office of the corporation shall be located in the District of Columbia, but there may be established agencies or branch offices in any city or cities of the United States under rules and regulations prescribed by the board of directors. This Act may be cited as the "Reconstruction Finance Corporation Act.'

SEC. 2. The corporation shall have capital stock of $500,000,000, subscribed by the United States of America, payment for which shall be subject to call in whole or in part by the board of directors of the corporation.

There is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $500,000,000, for the purpose of making payments upon such subscription when called: Provided, That $50,000,000 of the amount so subscribed, and the expansion of same through the notes, debentures, bonds, or other obligations as set out in section 9 (as in force prior to the enactment of the Emergency Relief and Construction Act of 1932) shall be allocated and made available to the Secretary of Agriculture, which sum, or so much thereof as may be necessary, shall be expended by the Secretary of Agriculture for the purpose of making loans or advances to farmers in the several States of the United States in cases where he finds that an emergency exists as a result of which farmers are unable to obtain loans for crop production during the year 1932: Provided further, That the Secretary of Agriculture shall give preference in making such loans or advances to farmers who suffered from crop failures in 1931. Such advances or loans shall be made upon such terms and conditions and subject to such regulations as the Secretary of Agriculture shall prescribe. A first lien on all crops growing, or to be planted and grown, shall, in the discertion of the Secretary of Agriculture, be deemed sufficient security for such loan or advance. All such loans or advances shall be made through such agencies as the Secretary of Agriculture may designate, and in such amounts as such agencies, with the approval of the Secretary of Agriculture, may determine. Any person who shall knowingly make any material false representation for the purpose of obtaining an advance or loan, or in assisting in obtaining such advance or loan under this section shall, upon conviction thereof, be punished by a fine of not exceeding $1,000 or by imprisonment not exceeding six months, or both.

Receipts for payments by the United States of America for or on account of such stock shall be issued by the corporation to the Secretary of the Treasury and shall be evidence of the stock ownership of the United States of America. In order to enable the Secretary of the Treasury to make payments upon stock of Federal Home Loan Banks subscribed for by him in accordance with the Federal Home Loan Bank Act, the sum of $125,000,000, or so much thereof as may be necessary for such purpose, is hereby allocated and made available to the Secretary of the Treasury out of the capital of the corporation and/or the proceeds of notes, debentures, bonds, and other obligations, issued by the corporation. For the purposes of this paragraph, the corporation shall issue such notes, bonds, debentures, and other obligations as may be necessary.

SEC. 3. The management of the corporation shall be vested in a board of directors consisting of the Secretary of the Treasury, or, in his absence, the Under Secretary of the Treasury, who shall be a member ex officio, and six other persons appointed by the President of the United States, by and with the advice and consent of the Senate. Of the seven members of the board of directors not more than four shall be members of any one political party and not more than one shall be appointed from any one Federal reserve district. Each director shall devote his time not otherwise required by the business of the United States principally to the business of the corporation. Before entering upon his duties each of the directors so appointed and each officer of the corporation shall take an oath faithfully to discharge the duties of his office. Nothing contained in this or in any other Act shall be construed to prevent the appointment and compensation as an employee of the corporation of any officer or employee of the United States in any board, commission, independent establishment, or executive department thereof. The terms of the directors appointed by the President of the United States shall be two years and run from the date of the enactment hereof and until

their successors are appointed and qualified. Whenever a vacancy shall occu among the directors so appointed, the person appointed to fill such vacancy shall hold office for the unexpired portion of the term of the director whose place he is selected to fill. The directors of the corporation appointed as hereinbefore provided shall receive salaries at the rate of $10,000 per annum each. No director, officer, attorney, agent, or employee of the corporation shall in any manner, directly or indirectly, participate in the deliberation upon or the determination of any question affecting his personal interests, or the interests of any corporation, partnership, or association in which he is directly or indirectly interested.

SEC. 4. The corporation shall have succession for a period of ten years from the date of the enactment hereof, unless it is sooner dissolved by an Act of Congress. It shall have power to adopt, alter, and use a corporate seal which shall be judicially noticed; to make contracts; to lease such real estate as may be necessary for the transaction of its business; to sue and be sued, to complain and to defend, in any court of competent jurisdiction, State or Federal; to select, employ, and fix the compensation of such officers, employees, attorneys, and agents as shall be necessary for the transaction of the business of the corporation, without regard to the provisions of other laws applicable to the employment and compensation of officers or employees of the United States; to define their authority and duties, require bonds of them and fix the penalties thereof, and to dismiss at pleasure such officers, employees, attorneys, and agents; and to prescribe, amend, and repeal, by its board of directors, by-laws, rules, and regulations governing the manner in which its general business may be conducted and the powers granted to it by law may be exercised and enjoyed, including the selection of its chairman and vice chairman, together with provision for such committees and the functions thereof as the board of directors may deem necessary for facilitating its busines under this Act. The board of directors of the corporation shall determine and prescribe the manner in which its obligations shall be incurred and its expenses allowed and paid. The corporation shall be entitled to the free use of the United States mails in the same manner as the executive departments of the Government. The corporation, with the consent of any board, commission, independent establishment, or executive department of the Government, including any field service thereof, may avail itself of the use of information, services, facilities, officers, and employees thereof in carrying out the provisions of this Act.

"SEC. 5. To aid in financing agriculture, commerce, and industry, including facilitating the exportation of agricultural and other products, 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, savings bank, trust company, building and loan association, insurance company, mortgage-loan company, credit union, Federal land bank, joint-stock land bank, Federal intermediate credit bank, agricultural credit corporation, livestock credit corporation, organized under the laws of any State or of the United States, including loans secured by the assets of any bank, savings bank, or building and loan association that is closed, or in process of liquidation to aid in the reorganization or liquidation of such banks or building and loan associations, upon application of the receiver or liquidating agent of such bank or building and loan association, and any receiver of any national bank is hereby authorized to contract for such loans and to pledge any assets of the bank for securing the same.

All loans made under the foregoing provisions shall be fully and adequately secured. The corporation, under such conditions as it shall prescribe, may take over or provide for the administration and liquidation of any collateral accepted by it as security for such loans. Such loans may be made directly upon promissory notes or by way of discount or rediscount of obligations tendered for the purpose, or otherwise in such form and in such amount and at such interest or discount rates as the corporation may approve: Provided, That no loans or advances shall be made upon foreign securities or foreign acceptances as collateral or for the purpose of assisting in the carrying or liquidation of such foreign securities and foreign acceptances. In no case shall the aggregate amount of advances made under this section to any one corporation and its subsidiary or affiliated organizations exceed at any one time 2% per centum of (1) the authorized capital stock of the Reconstruction Finance Corporation plus (2) the aggregate amount of bonds of the corporation authorized to be outstanding when the capital stock is fully subscribed: Provided, That such limitation shall not apply to advances to receivers or other liquidating agents of closed banks when made for the purpose of liquidation or reorganization.

Each sur h loan may be made for a period not exceeding three years, and the corporation may from time to time extend the time of payment of any such loan,

through renewal, substitution of new obligations, or otherwise, but the time for such payment shall not be extended beyond five years from the date upon which such loan was made originally. The corporation may make loans under this section at any time prior to the expiration of one year from the date of the enactment hereof; and the President may from time to time postpone such date of expiration for such additional period or periods as he may deem necessary, not to exceed two years from the date of the enactment hereof. Within the foregoing limitations of this section, the Corporation, notwithstanding any limitation of law as to maturity, with the approval of the Interstate Commerce Commission, including approval of the price to be paid, may, to aid in the financing, reorganization, consolidation, maintenance, or construction thereof, purchase for itself, or for account of a railroad obligated thereon, the obligations of railroads engaged in interstate commerce, or of receivers or trustees thereof (including equipment trust certificates and obligations guaranteed by any such railroad, receiver, or trustee), or guarantee the payment of the principal_of, and/or interest on, such obligations, [including equipment trust certificates,] or, when, in the opinion of the Corporation, funds are not available on reasonable terms through private channels, make loans [upon full and adequate security,] to such railroads or to receivers or trustees thereof for the purposes aforesaid: Provided, That in the case of any such loan, or purchase or guaranty of obligations, the Interstate Commerce Commission and the Corporation shall, in connection with the approval and/or authorization thereof, find that the prospective earning power of such railroad, together with the character and value of the security offered, furnish, in the opinion of the Interstate Commerce Commission and the Corporation, respectively, reasonable assurance of the retirement or repayment of such loan or obligation, and reasonable protection to the Corporation: Provided, That after June 30, 1939, in the case of loans to or the purchase or guarantee of obligations [, including equipment trust certificates,] of railroads not in receivership or trusteeship, the Interstate Commerce Commission shall, in connection with its approval thereof, also certify that such railroad, on the basis of present and prospective earnings, may reasonably be expected to meet its fixed charges, without a reduction thereof through judicial reorganization, except that [such certificate] no such certification shall [not] be required in case of [such loans made for the maintenance of, or purchase of equipment for, such railroads] any loan, purchase, or guaranty made by the Corporation under section 5f of this Act: [And provided further, That for the purpose of determining the general funds of the Corporation available for further loans or commitments, such guaranties shall, to the extent of the principal amount of the obligations guaranteed, be interpreted as loans or commitments for loans: Provided further, That the total amount of loans and commitments to railroads, receivers, and trustees, and purchases and guaranties of obligations of railroads, under this paragraph, as amended, shall not exceed at any one time $350,000,000, in addition to loans and commitments made prior to the date of enactment of this Act and renewals of loans and commitments so made:] Provided, That no fee or commission shall be paid by any applicant for a loan under the provisions hereof in connection with any such application or any loan made or to be made hereunder, and the agreement to pay or payment of any such fee or commission shall be unlawful. Any such railroad may obligate itself in such form as shall be prescribed and otherwise comply with the requirements of the Interstate Commerce Commission and the corporation with respect to the deposit or assignment of security hereunder, without the authorization or approval of any authority, State or Federal, and without compliance with any requirement, State or Federal, as to notification, other than such as may be imposed by the Interstate Commerce Commission and the corporation under the provisions of this section.

The Reconstruction Finance Corporation is further authorized and empowered to make loans if adequately secured to any State insurance fund established or created by the laws of any State for the purpose of paying or insuring payment of compensation to injured workmen and those disabled as a result of disease contracted in the course of their employment, or to their dependents. As used in this paragraph, the term "State" includes the several States and Alaska, Hawaii, and Puerto Rico.

The Reconstruction Finance Corporation is further authorized and empowered to make loans if adequately secured to any fund created by any State for the purpose of insuring the repayment of deposits of public moneys of such State or any of its political subdivisions in banks or depositories qualified under the law of such State to receive such deposits. Such loans may be made at any time prior to January 23, 1934, and upon such terms and conditions as the Corporation H. Repts., 75-3, vol. 2—— -82

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