Evening star., 1939-05-20


Of credit than David Lawrence.
any preceding proposal.
Inc businesses which would get
the credit are those which can use
any sum up to $1,0OO,OOO in credit
SO that a goodly number would
naro!y come within the category of
small businesses" as the term has
been popularity used, though manv
really small businesses would Of
course wish to take advantage of
the plan.
The proposal, in brief, contem-
plates an insurance of bank loans
Only those banks which are them
selves insured under the Federal
Deposit Insurance Corp. are to be
eHslole, which means banks which
now nave some form of Federal
supervision.
Eligible for Rediscount.
The new legislation, if adopted by
Congress. would permit a bank to
insure any loan up to 80 per cent of
Its possible loss. The loans are to
be made eligible for rediscount at
the Federal Reserve banks. so thev
could hardly become frozen assets
or impair the standing of a bank
because they could quickly be turned
into cash.
Periodic reports would be de-
manded Of banks and corporations
participating in the loans, and regu-
latlons would be made by the Re-
construction Finance Corp, which
Is to be the principal lending agency
behind the loans. Interest rates are
to be fixed at 4 per cent and an
additional per cent is to be
I charged as the insurance premium,
but the R. F. c. would have the
right to permit the banks under GER
tam circumstances to increase or
decrease interest rates. The legis-
lation would, however, establish 4
per cent as the base The text of
the important provision of the Mead
bill, which doubtless will be incor-
porated with similar measure in
troduced in the House by Repre-
sentative Robert Allen of Pennsvl-
vania, follows:
Subject to the provisions of this
act, the corporation (meaning the
r. F. CO, upon application, is au-
thorlzed to insure any bank against
the whole or any part of the loss
or losses, In respect of principal
or interest, or both, which such
bank may sustain in excess of an
amount equal to 10 per centum of
the principal amount of any loan
which such bank may make to any
person for any business purpose,
and for the purpose of this act
the corporation Is authorized to
determine what constitutes a busi-
ness purpose. For such insurance
the corporation is authorized to
determine what constitutes a busi-
ness purpose.
Provision for Premium.
For such insurance the corpora
ton shall charge premium of
not less than one-fourth of l per
centum nor more than per centum
per annum of the unpaid balance
OF such loans; provided, that the
corporation in its discretion may
charge higher premium, or may
refuse to grant insurance altogether
on any loans of any bank which,
In the Judgment of the corporation,
pursues a policy of insuring only
the more doubtful of it's loans eligi-
BILE for insurance.
THE corporation shall from time
to time Ak the premium rates to
be charged for the insurance of
loans, which rates may be adjusted
IN accordance with appropriate
classifications based, among other
things, upon the nature of the loans
and the character of the risks in
volved, and the premium rates for
which the corporation undertakes
to insure any particular loan shall
not be increased during the life of
such loan"
Companies with an insured in
debtedness exceeding $1,000,OOO
could not have any more loans of
this type under the proposed law,
though they could have bond issues
or any other kind of credit they
can get. The loans are to be made
Tor a period not less than one year
and not to exceed 10 years. If there
Is any service charge, fee or COM
mission connected with the loan,
as sometimes happens In mortgage
transactions, the fee cannot amount
to more than one-fourth of l per
cent for the life TO the loan.
r. F. C. Given Broad Powers.
Loans can be insured even If they
are "subordinated to short-term in
debtedness incurred in the ordinary
course of business" There is also
the following provision, which gives
the r. F. c. broad powers:
The corporation shall have power
TO insert in the insurance contract
covering any loan insured under
this act such terms and conditions
as 1t may deem necessary or appro-
pirate TO carry out the purposes of
this act or to prevent the abuse of
the credit facilities herein provided"
The theory back of the bill is
that the insurance premiums on the
vast number of good loans which
are paid at maturity will more than
offset the possible losses from those
loans which go "sour" in the course
Of few years. Even so, the loans
will probably be based on assets,
30 that total losses might be the
exception rather than the rule. Pro-
vision also is expected to be made for
regular installment payments, so
that company whose current posi-
ton indicates it might not be able
to meet some kind of amortization
plan over a period of years would
probably not find itself eligible for
the granting of these credits.
In connection with the first pro-
vision quoted the bill sets forth that
"any person" eligible for a loan
means IAN individual, a corpora