from their expressions that they are looking forward to returning the Government capital from the other units as proposed in this legislation. The fact that our business has increased $2 million since the Government capital was retired in 1952 is evidence to me that it means a lot to our members to own their own credit association. We filed testimony with this committee a year ago on the farm credit bill of 1955. At that time our members favored a bill embodying the principles now contained in this bill, S. 3564, but were willing to support the bill presented last year rather than not have any plan for retiring the Government capital from the production credit corporation or the Federal intermediate credit bank. Now, gentlemen, we urge passage of this bill, because through my personal contacts with members of the Peru association and other members throughout the fourth district I am convinced that the great majority favor the legislation as set out in this bill. It also carries out the intent of the Farm Credit Act of 1933 and the declared policy of the Farm Credit Act of 1953. According to evidence submitted before the House committee, considerably more than 400 of the 498 production credit associations favor this bill. Since it is the purpose of this bill to facilitate complete farm ownership of the farm credit system and such a large percent of the members of the PCA's are in support of S. 3564, we respectfully urge your support and its final passage. We do think, however, that when the members become the owners of all B stock in the credit bank, the law should provide that all such B stock cannot be retired so that the credit bank cannot become a public trust. It is a privilege to be here. I cannot say it is altogether a pleasure, but I will say it is a privilege. Senator HOLLAND. When I saw a gentleman down here from Peru, I thought it meant something contributed from our sister Republic down south, Peru. Mr. JUSTICE. No. Senator HOLLAND. You are just from the Corn Belt of Indiana, than which I understand there is nothing better. Mr. JUSTICE. North central Indiana, north of Indianapolis. Senator HOLLAND. If there are no questions, thank you very much. Mr. JUSTICE. Thank you. Senator HOLLAND. Next is Mr. King Banks, National Advisory Committee of PCA's. You may proceed. STATEMENT OF KING L. BANKS, REPRESENTING THE PRODUCTION CREDIT ASSOCIATIONS OF THE NINTH FARM CREDIT DISTRICT, DELTA, COLO. Mr. BANKS. My name is King L. Banks, of Delta, Colo. I represent the Ninth District of the Farm Credit Administration which is composed of the States of Kansas, Oklahoma, New Mexico, and Colorado. We have 41 production credit associations. My information from the State chairmen of Kansas and Oklahoma is that their production credit associations are unanimous in support of the bills presented by the National Board, H. R. 10285 and S. 3564. They are against the provisions of the bill as presented by the Bureau of the Budget with the possible exception of the reduction suggested in the revolving fund. Some associations in New Mexico favor the new bill; some are against it. I know that 1 is for it and 1 against it. The other three, I have no information definitely from them. Senator HOLLAND. You mean in New Mexico? Mr. BANKS. In New Mexico. In Colorado, at a recent meeting of our State Advisory committee, 4 associations favored the bill and 4 were against it. The reason for the unfavorable votes in Colorado was principally the possibility of a raise in interest rate to our members to cover the additional cost. The others felt that the new bill presented by the National Board was such a long step forward that we should accept it and then if there was any appreciable increase in cost we could take the necessary steps, political or otherwise, to remedy the situation. I might say that this increase in cost and the initial investment as suggested amount to 2.07 percent of the average month, and volume of loans is of great concern to all associations in our district. The Ninth district has consistently battled any change in the 1933 act other than amendments. But the 1953 act was passed and is now law. We realize the pressure on the new Board to propose legislation to retire, as soon as possible, the Government capital in the system. The National Board has worked hard and conscientiously to this end and the bill they have presented, with the exception of the 2.07 percent initial investment, as we mentioned before, is a long step in this direction. We feel that, if possible, we should get the National Board's bill with the elimination or reduction in the initial investment. For the record, I want to state that our district, while not unanimous, is overwhelmingly favorable to this legislation as proposed by the National Board. Senator HOLLAND. You recognize, I see, that the National Board is under a mandate because of the 1953 legislation? Mr. BANKS. That is right. Senator HOLLAND. To move toward elimination of the capital investment of the Federal Government in these units of the Farm Credit Administration. Mr. BANKS. We fully realize that; yes, sir. Senator HOLLAND. All right; thank you, sir. Mr. BANKS. Thank you. Senator HOLLAND. Mr. Kenneth L. Scott, Director, Agricultural Credit Services. STATEMENT OF KENNETH L. SCOTT, DIRECTOR, AGRICULTURAL CREDIT SERVICES, UNITED STATES DEPARTMENT OF AGRICULTURE Mr. SCOTT. The Department believes that this proposed merger of the Federal intermediate credit banks and the production credit corporations is an opportunity to further improve the facilities of the farm credit system to the benefit of farmers and ranchers throughout the country. I appreciate this opportunity to discuss with you briefly some of the more important phases of this legislative proposal, as we see them. Credit, of course, is an essential farm tool. Credit that is carefully geared to the particular requirements of agriculture, and especially to the sound needs of individual farmers, is especially helpful to the successful conduct of individual farm businesses. Farm people need credit in good times as well as during the less favorable years. The lack of such dependable credit brought into being the production credit system as the members of this committee well know. Here we have a system that was carefully designed to meet a real need; a system that is devoted solely to the extension of sound, helpful agricultural credit services. The record of the production credit system has been outstanding in several respects. In the early days there were skeptics who thought farmers could not safely be entrusted with the responsibility of making loans. Billions of dollars have been loaned with insignificant. losses. Of much greater significance is the pace-setting example which the Congress had in mind when the system was established. Notwithstanding the importance of the large volume of loans that have been made, I believe it is true that this pace-setting function has been of greatest benefit to our agricultural people generally. The principles of lending which this system put into widespread use have now been accepted by other agricultural lenders and adapted to their lending policies. Loan terms suits to the needs of farmers with particular emphasis on the repayment capacity of the business are now the common practice as a result of this fine example. The agricultural commission of the American Bankers Association has been actively sponsoring for several years the use of agriculturally trained men in country banks and the establishment of special agricultural loan departments. I think it is fair to say that the Production Credit gave this movement great impetus. The outlook for future agricultural developments is such that there will be further opportunities for the production credit system to perform additional pace-setting functions. It is important to remember why this special credit system has worked out so well. It didn't just happen, of course. The Federal intermediate credit banks were in existence long before the production credit days. Their basic authority and functions haven't changed much during the years. They are wholesalers of agricultural credit. They have developed a reputation for their debentures which cause them to be looked upon by the most prudent investors as blue-chip investments. It is essential that this fine reputation be carefully maintained to insure a continued supply of loanable funds. The Department believes that this bill would add further strength to this phase of the system. Private discount companies, the original outlets for the services of the credit banks, have continued to use the banks' facilities. Although production credit associations have for many years provided most of the volume of service, the Farm Credit Administration has very properly carefully safeguarded the rights of these private companies. The bills under discussion contain specific assurance that this equal treatment will continue. This PCA record of sound helpful loans is the result of— (1) A tailor-made system to meet a specialized need; (2) A system of lending that attracted and retained the active interest and support of leading farmers and ranchers; (3) A special type of supervision and guidance that has built strength and leadership where it is most important; namely, in the local lending offices. There is no substitute for sound, practical loan decisions out in the country where lender and borrower can sit down and work out the type of credit needed; and (4) Progressive decentralization of responsibility. Our rural people have an important stake in the continuation of this type of supervision and guidance. From their standpoint this helpful guidance in sound lending and the continued emphasis on service-mindedness is very important. The dependability of this type of credit needs to be carefully safeguarded and further strengthened at every opportunity. The Congress has on several occasions under the leadership of this committee and the House Agricultural Committee, taken just such actions as experience and progress of the system showed to be needed. The Department has great confidence in the actions that the National Farm Credit Board and Governor Tootell are taking to further strengthen this cooperative system. From our frequent discussions with them we know they are sincerely anxious to help the system be of maximum service to farm and ranch people. The accomplishments during the past 20 years with this special type of supervision by the Production Credit Corporations, are so evident that I would like to respectfully suggest, Mr. Chairman, that it might be helpful to the National Board and Governor Tootell for this committee to emphasize the importance of there being strong provisions in this merged institution for keeping the system service minded. In addition to the benefits to our farm people there is a public interest in this. The lending policies of private and cooperative lenders have, as you know, an immediate influence on the demands that are made on the Farmers Home Administration for supplemental credit service. The shifting of farm people from one lender to another is certainly very disturbing and costly to them, to say the least. This can be minimized by good dependable service through the production credit system. In the Farmers Home Administration we have a very outstanding group of devoted and capable people who are always anxious to help those who cannot get credit on reasonable terms elsewhere but we need to the extent possible to keep the Farmers Home Administration in their traditional field of helping young farm families become established and providing supervised credit with sound management help. The extent to which they have to get into emergency or temporary lending, of course, detracts from what they can do in carrying out their basic lending responsibility. President Eisenhower in his agricultural message last January referred to the traditional importance of commercial and cooperative lenders in supplying the bulk of agricultural credit. The Administration, of course, is anxious that these sources of agricultural credit continue to provide a maximum of help to farm people. There is a need at this time for some additional supplemental credit through the facilities of the Farmers Home Administration. Mr. Chairman, at an early date I hope to have the opportunity to discuss with this committee the Administration's proposals for broadening and extending the authority of FHA. The 20 years that I spent on the staff here of the Farm Credit Administration and the prior experience of managing a private loan company that discounted with the Federal intermediate credit banks causes me to believe very strongly that the specialized type of credit service that is being furnished by the production credit system is very beneficial to farmers and ranchers generally. A large volume of helpful service is being provided by other agricultural lenders which often have other important functions that must be safeguarded. I refer, of course, to the responsibilities banks have to their depositors and the marketing or processing services which other agricultural lenders often carry out with their credit services largely an adjunct thereto. In Farm Credit we have a permanent system. The production credit associations are designed to continue year after year with no interruption in ownership or basic functions. Farmers and ranchers need this type of permanent service, a pacesetting service, an institution owned and managed by people devoted to the single job of providing sound credit needs of the farmers and ranchers. In closing may I again say that the Department believes that the merger of the intermediate credit banks and the production credit corporations would be advantageous to our farm families. The details of the proposal have been worked out with great care and as a result of many discussions throughout the country. In addition to the advantages I have mentioned, this merger will provide an opportunity to reduce somewhat the cost of getting loanable funds and providing needed supervision. Thank you, Mr. Chairman, for this opportunity to appear before you. Senator HOLLAND. Do I understand that you speak for the Department of Agriculture in this statement? Mr. SCOTT. Yes, sir. Senator HOLLAND. And that the Department gives its unconditional approval to the pending legislation? Mr. SCOTT. To the merger. Senator HOLLAND. To the merger? Mr. SCOTT. Mr. Chairman, we have not taken a position on these bills, the details of the bills, because of the points which, as you know, the Bureau of the Budget has raised, but we do strongly favor the merger. Senator HOLLAND. In other words, you think that the 2 sets of institutions should be combined into 1? Mr. SCOTT. Yes, sir. Senator HOLLAND. According to the general plan outlined in all of these various acts? Mr. SCOTT. That is right, sir. |