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Senator MUNDT. I understand. With that definition in mind, Governor, would that meet the recommendations and the point of view of the Farm Credit Board?

Mr. ToOTELL. Senator Mundt, it definitely was not in the thinking of the Farm Credit Board at the time they recommended this legislation.

Senator MUNDT. They have delimited it now, of course, to just one phase which is farmer-owned and farmer-operated on the cooperative principle.

Mr. ToOTELL. Yes.

Senator MUNDT. So they have got quite a few limitations.

Mr. TOOTELL. I am sure our Board would raise the question as to what restrictions and responsibilities those cooperatives would be willing to assume in return for the privileges that they would be granted under the proposal of the Farm Bureau.

The production credit associations are federally chartered, they are subject to Federal supervision, they are restricted as to territory, and they have certain other limitations on them that we would find very difficult to reconcile with the position of the co-ops that are proposed to come under this.

As a matter of fact, I just do not know how you could give them anything but a preferred status in comparison with the PCA's which make up the great body of the users, and I am sure that the Federal Farm Credit Board would feel that the purchasers of the intermediate credit banks should be restricted to the production credit associations which are federally chartered institutions and are part of this great system that Congress created in 1933. The Board believes that the provisions of the bill and the history of the legislation give ample assurance to the OFI's that they would always have equal access with the PCA's, to the discount facilities of the intermediate credit banks. Senator MUNDT. I think the Governor makes an interesting point there. I would like to hear the comment of the Farm Bureau people. I think he points up the difficulty, it is rather hard to commingle voters who assume different types of responsibilities.

We do not do that here in the legislative business. We have delegates from Hawaii and the Philippines who exercise certain functions, but do not exercise the function of voting because they do not accept certain responsibilities. Now do you recognize the validity of that point of view, and if so, what is your response?

Mr. HALL. Yes, we recognize the validity of the point of view.

However, as Governor Tootell has just commented, it would seem that instead of changing the privileges and the rights of the farmerowned and controlled co-ops which are part of the other financial institution group, that they are actually cementing them more firmly into the privileges that the act confers.

Senator MUNDT. How about the responsibility?

Mr. HALL. Well, what responsibilities are there? The responsibility first here is that these farmer-owned and controlled co-ops put up their money in the same fashion as the production credit associations put up their money.

In so doing, we would suggest that they be afforded this right to one number, one co-op vote. I do not know what responsibilities you can assert other than that the paper that they offer be of the same standard that PCA paper is.

Now that does not seem to be a type of responsibility that is any different from what it has been in the past.

Senator HOLLAND. Is it true that many of the members of the PCA's are themselves cooperatives, cooperative associations?

Mr. HALL. I cannot answer that. I do not believe that members of production credit associations as such are cooperative associations, are they?

Mr. TOOTELL. Not cooperative associations, no.

Many of the farmer members of PCA's are members of other cooperatives.

Senator HOLLAND. But cooperatives as such cannot hold membership in the PCA's!

Mr. TOOTELL. That is right, sir.

Senator HOLLAND. All right; then how do you meet this point, that if you start recognizing other co-ops than the PCA's, you are going to affect the desirability of membership in PCA's?

Here is a co-op that is trying to render a rounded service to its members and it will say to its members who are in PCA: "Well, I will take a membership of my own and I do not have to be restricted by territorial boundaries or anything of the kind. There is no use for you, my members, being also members of PCA, we will come in here and operate as a separate unit, notwithstanding the fact that we cut across the lines of the PCA's that serve this general area."

Don't you think it would be a weakening factor with the PCA's to have a situation under which co-ops could themselves become members on an equal basis with PCA's stockholders?

Mr. HALL. I am not sure I gather your picture.

Let me see if I can state it.

Senator HOLLAND. Let me make it plainer.

You have a PCA here operating in a territory which is assigned to it. There may be 10, 12, or 20 cooperatives, marketing cooperatives, care-tending cooperatives and the like operating in that same territory, but not exactly under the same line.

Senator MUNDT. It should be in the same line.

Senator HOLLAND. Suppose each of them says "Well, here, why should we continue to let our members go over to the PCA when we can get stockholding representation in the Intermediate Credit Bank and take care of them directly and take care of them just as well as the PCA's have been taking care of them and have all of our services to them joined together under one roof and in one organization."

Wouldn't you find each of these co-ops in that area subjected to the temptation of withdrawing its members who were members of PCA and going it alone, going direct to the Intermediate Credit Bank? Mr. HALL. I suppose some of that.

However, there exists now this group, a small number of cooperatives, which are in that position. There has been no difficulty of this kind develop.

Senator HOLLAND. They have not been voting members though. Mr. HALL. No, they have not been voting members.

Senator HOLLAND. And they have not been able to therefore represent their people, their individual members as effectively as they would if they became voting members, holding office let's say, some of them in the Intermediate Credit Bank's official boards.

It seems to me that it would be a weakening maneuver that would be sure to break down to some extent the strength of the PCA's. How do you meet that?

Mr. HALL. Well, in the first place this was viewed in terms of the fact that there are only 24, I believe, of the 94 other financial institutions now discounting paper of the Federal Intermediate Credit Banks which are of the class concerning which we are speaking.

Senator HOLLAND. Would you limit the right to become stockholders to those who had done business in the past?

Mr. HALL. This was the intention.

Senator HOLLAND. You would cut off the principal as of January 1,1957?

Mr. HALL. This I have to say was the intention when this recommendation was phrased.

Mr. LYNN. I think that is exactly right, and we do not want in any way to open up a floodgate here with regard to this, because we have a great deal of confidence in the Federal Farm Credit Board and in the Administrator and we simply bring this up as a problem that does exist.

We have had a lot of questions raised about it, and within the scope of the legislation and without weakening the system in any way, working toward the objective that we all seek, if the Congress or the Administrator can recognize this principle without weakening the system, we would like to see it done.

However, we would not want to open up the thing, Senator Holland, to new cooperatives that might want to come in.

Senator HOLLAND. How would you justify confining this right of stockholding and full participation to a limited number of co-ops who have participated in it up to this time, and deny that same right to co-ops who would participate after January 1, 1957?

Mr. LYNN. These new ones certainly would not have contributed anything to the whole institution, and I think you would be justified in saying those in existence now who are using these facilities would be limited.

Senator MUNDT. Is there another difference?

I am not sure, but Governor Tootell said something about a Federal charter and I think he said Federal audits.

Mr. ToOTELL. Examination.

Senator MUNDT. Do your 22 institutions have Federal audits and examinations or would you have them subject to Federal audit and examination if they became voting members; or do you have in mind giving them sort of a preferred status so they are voting members but do not accept the responsibility of subjecting their books to a Federal audit?

Mr. LYNN. We would not want to put them in any preferred status, Senator Mundt.

If they are going to have the privileges, these 24 that we are speaking of, they ought to be willing to accept the Federal audit.

Senator MUNDT. I think it would be a protection that the PCA's have a right to insist upon, because for whatever it is worth, the Federal audit should have a certain salutary effect on the fiscal management of any financial institution.

Mr. LYNN. That is right.

Senator HOLLAND. Thank you very much, gentlemen.
The committee will recess until 2 this afternoon.

(Whereupon, at 12:05 p. m., the committee was recessed to reconvene at 2 p. m. the same day.)

AFTERNOON SESSION

Senator HOLLAND. The subcommittee will please come to order. We will now hear you, Mr. J. W. Sartwelle.

STATEMENT OF J. W. SARTWELLE, VICE PRESIDENT, HOUSTON AGRICULTURAL CREDIT CORP., HOUSTON, TEX.

Mr. SARTWELLE. My name is J. W. Sartwelle, from Houston, Tex. Senator HOLLAND. Glad to have you testify. Go right ahead, sir. Mr. SARTWELLE. I appreciate the opportunity to appear before this committee. I have a prepared statement, but I forgot a few remarks that I would like to interlineate in it.

My name is J. W. Sartwelle, of Houston, Tex., and I am the president of the Port City Stockyards Co., in Houston, Tex. In such capacity I have close contact with the producers of livestock along the gulf coast and eastern section of Texas as well as the southwestern portion of Louisiana.

I am a director and vice president of the Houston Agricultural Credit Corp., a longtime director of the Texas & Southwestern Cattle Raisers Association, founder and past president of the American Brahman Breeders Association, and founder and past president of the Houston Fat Stock Show and Livestock Exposition.

I mention those not in any glorification but to prove my interest, and longtime interest, in the welfare of agriculture, and particularly livestock.

I am also a ranchman, having a ranch in Calhoun, Jackson, and Matagorda Counties, Tex., have an additional small ranch in Lavaca County, Tex., and have been engaged in this business since 1911, although the lands have been in the family for about a century and a quarter.

During the early days, I have paid interest as high as 13 percent per annum and have had national banks tell me they would as soon lend money on a school of redfish in the Gulf of Mexico as on a herd of Texas cattle, and in times of tight money and distress the cattleloan business was confusion confounded.

Right here let me say that a cattle or other agricultural loan company, whether OFI or PCA, or wearing any other brand, is only an organization to perform the mechanics of the loan, to receive the application, investigate the borrower and his collateral, and to keep in contact with both until the loan is repaid.

They do not have the money or treasury to carry the loans they make, and accordingly require some bank of discount that has a knowledge of the several lines of agriculture to be served.

Before the passage of the Federal intermediate credit bank law, our only source was the national banks or other moneylenders. And these loan companies would switch that paper all around the country. A national bank has its duty to the Federal Reserve System and to

its depositors to keep itself liquid, and it is just no place for what we call short-time agricultural paper.

The passage in the early 1920's, by you gentlemen of the Congress, of the law setting up the Federal intermediate credit banks was the most constructive action in the economic history of this country affecting the livestock industry-ending the exorbitant interest rates and the utter confusion in financing which had prevailed before, and putting the livestock-loan business on an entirely different basis, method, and foundation.

This will go down as one of the great acts of Congress, easily comparable to the law establishing the Federal land-bank system.

The record of the several intermediate credit banks, especially the one of Texas, speak for the constructive validity of the system, and their debentures have met a favorable response from investors and now enjoy an acceptance and confidence of which you gentlemen of the Congress, the FICB's, the Farm Credit Administration, the livestock producers, and all of the lending agencies which rediscount with the Federal intermediate credit banks, can be justly proud and thankful. While the original act setting up the Federal intermediate credit banks was wisely drawn broad enough to encompass all agricultural products, the first efforts of, at least, the Texas bank were largely that of rediscounting for cattle-loan companies and selling debentures based on livestock collateral.

And, indeed, under and through doubts and uncertainties and adverse criticism from some of the former livestock lending agencies, these Federal intermediate credit banks established and gained the confidence of investors in their debentures to such an amazing extent that, although less than 10 years old, they weathered the terrible depression of the early 1930's.

They were so well established in the confidence of the investing public that the Government had a paved road in them on which to launch the production credit corporations and their children-the production credit associations, as well as the bank of cooperatives.

This record of the Federal intermediate credit banks has been so constructive and magnificiently solid that you gentlemen of the Congress, burdened with the welfare of agriculture, should give long pause before making any change whatsoever in the present financial structure or management of the Federal intermediate credit banks, espe cially in these critical days for agriculture generally, but specifically the livestock industry.

Governor Tootell stated yesterday that the total of all agricultural credit extended through the several agencies of the FCA amounts to only 812 percent of the total agricultural credit used in this country. I was particularly interested in that. It was news to me. But what a pitifully small portion. What a magnificent opportunity for expanded service. It calls for all to work together. And this is no time for strife among ourselves; the enemy are outside forces who would stop us all.

And I would like to add right in there that I have always regarded the PCA's most highly. I have encouraged the establishment of several of them. They have done a magnificent job. And I have been just a little amazed and astounded at some of the things that I have learned up here.