Loans to Industry

Last week the House of Representatives passed S. 3487, the Senate bill to make direct Government loans to industry. Agitation for such a measure began under the Hoover Administration during the depths of Depression. At that time it seemed radical enough to be killed off with the warning that a political party with a stranglehold on credit to private enterprise could perpetuate itself in power. But small and tame beside other New Deal measures last week looked S. 3487 as amended by the House, with its authorization for the twelve Federal Reserve Banks to lend up to $140,000,000 and RFC to lend up to $300,000,000 to big and little businesses. Federal loans up to five years were designed to supply new working capital half way between the short-term credits of commercial banks and long-term issues which have to hurdle the Securities Act.

The bill further permits Federal Reserve Banks to stand behind banking institutions making loans to businessmen for working capital, providing the maturity of the obligations is not more than five years. The financing companies must agree to stand 20% of the loss, if any. President Roosevelt first had in mind a chain of twelve intermediate credit banks. Senator Glass advised the President that such banks were not necessary since the Federal Reserve Banks could be pressed into service by an amendment to .the Federal Reserve Act. Final result was a bill passed three weeks ago by the Senate to provide for total RFC and Federal Reserve Bank loans of $530,000,000, no single RFC loan to exceed $1,000,000. As amended by the House last week the bill limited the total to $440,000,000, no RFC loan to exceed $100,000. As the measure went to conference, a compromise at $500,000 maximum per loan seemed likely.

How far the direct loans program will go toward loosening the long-term capital market will depend on how liberally its administrators accept collateral. The bill stipulated that borrowers must be solvent and collateral adequate. All applications are to be submitted first to the Federal Reserve. If rejected there, they may be taken to RFC without prejudice. How liberal Jesse Jones, who has been yammering "Loosen up!" to bankers for months, will be may be guessed from the fact that one of his chief ambitions is to match the record of Eugene Meyer's War Finance Corp., which paid back to the Treasury every dollar of its $500,000,000 capital.

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