We have had a chance to observe these, because we used them.

We were users of the banks' discount privileges when the discount rates were as high as 52 percent. As the investing public gained confidence in the system and with the increased volume which was brought into the system through the organization of the production credit associations in 1933, we have been favorably impressed with the improvement in discount rates, which reached a low of 12 percent. They are back now to 314.

The discount rates which our credit corporations pay are of vital importance to our farmer and rancher borrowers. The fact of the matter, Senator, is that is the one key to this whole discussion, interest rates.

Volume of loans, plus sound operating policies observed by the banks have played a very definite part in determining the cost of money which was secured from the investing public through the sale of debentures by the banks.

As the banks have proven their soundness, and volume of loans for discount have increased, there has been a trend toward more satisfactory discount rates for our farm and ranch users.

Recently the upturn in money markets has offset some of the gains that we had experienced before.

This bill, S. 3549, is presented by the Federal Farm Credit Board to meet a directive from Congress which, we understand, is supposed to tie into the Government's economy move.

It is our understanding that Congress wishes to take the Government out of the farm credit business and dispose of the stockholdings which the Federal Government now has in the farm credit system.

This is to be accomplished through sale of the stock in the various banks in the farm credit system to their users. This was the procedure followed in the case of the Federal land banks, where the stock which was owned in the Federal land banks was sold to the users of the banks; namely, the farm loan associations.

Last year the same principle was followed in amending the Farm Credit Act when legislation was approved providing for the sale of the stock owned by the Federal Government in the cooperative banks to the users of these banks.

In the same bill was a provision under item 2, for the sale of the PCC, the production credit corporations, to the PCA's, but that was withdrawn.

In both of these cases-the Federal land banks and the cooperative banks no change was made in the service nor in the organizations to be served. The law provided for the sale, over a long period of time, of the stock belonging to the Government to the users of each of these two banks.

So far as we have been able to determine the users of these banks were treated equally. Each was given the right to buy stock on the basis set forth. The users of both the Federal land banks and the cooperative banks have helped to build such reserves and surpluses as were in the two banks and these were permitted to be retained in the banks even though the ownership was being transferred from the Government to the users.

This bill S. 3549-does not follow the pattern set by Congress in handling either the Federal land banks or the cooperative banks. Bill

S. 3549 provides a plan for merging a bank (Federal Intermediate Credit Bank) with a corporation (Production Credit Corporation), each of which has a different service to perform and this service is rendered to different types of organizations.

In the case of the production credit corporations, their service is limited to the production credit associations; while the Federal intermediate credit banks discount paper for the production credit associations, and also serve other discounting agencies and banks.

This bill attempts to merge the two into one corporation and at the same time provide for the continuation of a portion of its services to the production credit associations while denying these services to the other financing institutions.

Senator HOLLAND. What service would be denied to the other financing associations?

Mr. WILSON. The associations come under the supervision of the corporations and would come under the supervision of the merged banks. The financing arrangements which they furnish, additional capital and organization assistance, which is furnished them, under the plan originally set out for the PCC.

This bill goes further and provides for ways of charging to other financing institutions part of the cost of the service which the consolidated bank will make available only to the production credit associations.

This bill completely ignores the fact that the OFI's, from the period of 1923 to 1933, provided the business needed to start the Federal Intermediate Credit Bank System; and that for the period of 1923 to and including the year ending June 30, 1954, the other financing institutions supplied a little more than 20 percent of the total business handled by the combined Federal intermediate credit banks.

During this period of the OFI's contributed to the building of the reserves and surpluses which are now shown in the financial statements of the FICB's. This bill stipulates a specific program to be followed in the case of liquidation of any merged Federal intermediate credit bank in which the savings and reserves of the FICB which have been accumulated over the period 1923 to and including the date this bill becomes law, shall go to the holders of class A stock (Government) and class B stock (Production Credit Associations).

In this the bill discriminates against the OFI's. We strongly urge that fair and equitable treatment demands that this discrimination be eliminated and that the OFI's be credited with their share of reserves and surplus since date of origin in 1923. Otherwise, this bill will give the production credit associations title to equities for which they have neither paid nor helped to create.

This bill limits the sale of stock and the voting rights to one group of users-namely, the production credit associations. It discriminates against all other users (that was not true in the cooperative bank bill, nor was it true in the Federal land bank bill) regardless of their past experience with the Federal intermediate credit banks, their financial responsibility, their financial contribution to the building of reserves of the Federal intermediate credit banks or their obligation to farmers and ranchers whom they serve.

We respectfully urge that this committee consider seriously the purpose for which the Congress provided these two separate organiza

tions. The Federal intermediate credit banks were established to provide a discounting service for loan companies and for banks, handling agricultural paper.

The production credit corporations were organized for the purpose of organizing, financing and supervising production credit associations. The Federal intermediate credit banks are discount banks which, through sale of debentures to the investing public, can and have obtained large amounts of money to handle the agricultural paper which they discount for users that qualify for their services. The production credit corporations are not banks in the true sense of the word, but are corporations set up to promote, finance, and supervise the production credit associations. All of their funds are obtained from the Federal Government and cost of operation has been paid by the Federal Government either directly or indirectly.

If this bill becomes law one group of users of the Federal intermediate credit banks will be permitted to purchase the merged banks after there has been merged or transferred to the banks the responsibility of servicing and supervising the operations of the production credit associations.

The result of this merger and sale will be that the production credit associations will own and operate the Federal intermediate credit banks, and the Federal intermediate credit banks will be responsible for serving and supervising the production credit associations, an unsound policy and principal.

There is an added factor that should not be overlooked. This bill, while supposedly intended to take the Government out of the farm credit business, provides for a revolving fund of some $160 million. This is over and above the investment. This is to be available at all times to assist in financing either the Federal intermediate credit banks or the production credit associations.

Stated in another way with a bit more detail, the Government now owns the Federal intermediate credit banks with an investment of some $60 million. The Government owns the production credit corporations with an investment of some $31 million, or a total investment of around $91 million in the two systems.

Total reserves and surpluses in the two are approximately $61 million-approximately $47 million in the Federal intermediate credit banks and $14 million in the production credit corporations. These figures are taken out of the annual report ending June 30, 1954, if you want to check them.

To take the Government out of this division of the farm credit field this bill, if approved, will offer for sale to the production credit associations $91 million par value of stock at par, the $61 million surplus and reserves to be retained in the consolidated bank. This bill will also place in the revolving fund an additional $160 million of Government funds to be use when found needed by the Governor.

There is nothing here that would prevent the making of this first purchase which requires 15 percent to be purchased within 2 years, of having the Governor advance to purchase the additional stock in each of the 490 some credit corporations, an amount of stock equal to the amount of payment which the PCA will need to make its first 2-year investment.

I say this to you here to let you know that in our opinion the $160 million revolving fund stil keeps the Government in the business and could keep them in as long as the Governor chose to keep them there.

Our association is primarily interested in maintaining a sound credit structure for agriculture. The rates which our farmers and ranchers pay for money is a very definite item in their cost of operation. The ownership of the Federal intermediate credit banks is important only as it may affect the ability of the banks to obtain funds at reasonable rates through the sale of the banks' debentures to the investing public.

These rates are influenced by the public confidence in the banks as well as the ability of the banks to maintain sound policies and sufficient volume for economical operation.

The record since 1923 has been good, especially has this been true since their volume was increased through the organization of the production credit associations in 1933. The $60 million invested in the 12 Federal intermediate credit banks last year-I am referring to the year ending June 30, 1954-provided a structure through which the investing public made available over $1 billion for use in agricultural credit through the system.

The Federal intermediate credit banks have proven their ability to serve and the public has accepted this system of agricultural credit by their purchase of debentures.

The National Live Stock Producers Association recommends that the Federal intermediate credit banks be left in their present form until a plan which is sound in theory and fair to all users of the system can be developed.

The National Live Stock Producers Association recommends that legislation concerning the production credit corporations be handled separately, that these corporations not be merged with the Federal intermediate credit banks but that they be continued in their limited field of servicing the production credit associations until such time as the production credit associations reach a point where they no longer require this service.

In summary, the National Live Stock Producers Association opposes this bill on the ground that:

1. It merges two institutions which were developed by the Government to serve two separate and distinct fields of activity;

2. It proposed to place the control and ownership of the discount agency in the hands of one group of users, discriminating against all other users;

3. It places on the consolidated bank the responsibility of supervising and servicing the production credit associations, which will be the owners of the bank.

I think you catch my point on that subject, the owner of the banking system being supervised by the bank. It is kind of "You scratch my back and I will scratch yours theory" which does not work too well.

4. The bill provides ways and means of paying the cost of this supervision of the production credit associations out of funds. derived from other financing institutions. The OFI's should not be required to pay any part of the cost of a service which is not available to them:

5. In case of dissolution the bill provides for distribution to the production credit associations-the stockholder-of the earning represented in the present surplus and reserves. This is definite discrimination against the other financing institutions.

I would like to add to this statement that I have presented 1 or 2 questions and then make a further recommendation.

We are trying to economize, at least, that is the theory that we are going on and we are trying to get the Government out of this this business of farm credit.

If this sale goes through, which is provided for in this bill, the borrowers, regardless of what association or what credit unit they are using, must expect to transfer to carry with it the cost of operation of the production credit corporations as they stand today.

I have seen or heard of no testimony that would indicate that they were going to reduce any of that cost. I believe the Governor did mention last week one place where as some of the older employees retired they would not be replaced.

I would like to call to your attention and the other members of this committee the last year that I have the final records on, the operations of the production credit corporations cost $1,702,000. Those costs must be transferred over to the combined bank. The loss in that last year was half a million dollars and the year previous it was three-quarters of a million dollars in the production credit corporation operation.

That loss was all taken out of the reserves which were built up when the Government had $90 million invested in the production credit corporation. They are down now to about $31 million in this last report that I have.

So the revenue from Government money invested in the system has dropped to a point where they are rapidly using up the surplus, at the rate of half to three-quarters of a million a year.

This proposed consolidation carries all of that cost into the consolidated bank, and our revenue will come from the intermediate credit banks to pay for it.

Up to this time the Government has paid for it. The Government has had the surplus in there but up from their funds and they have stood the loss of half to three-quarters of a million dollars annually.

Our borrowers across this country are in no position now, members of this committee, to face additional costs in their operating money. Lower prices for agricultural products, droughts, flood, and the other troubles that we have had puts us in a very bad position now to shoulder this load.

I ask the committee to definitely consider, if you unite the two, and take the Government out, if you do not place that $1,700,000 over on our interest payers to pick up the bills.

I have said to you that we would like to see the Federal intermediate credit banks left as they are until a plan can be worked out that will be fair to all users. I have not taken this bill. I took the House bill, H. R. 10285, and made the changes necessary, most of the changes necessary, to effect a change in this system which I think gives some chance of working and being fair to all.

I would like the privilege, Mr. Chairman, to take this bill, S. 3564, and make similar changes and submit it at a later date to your secretary. I haven't got those changes written into it today.

Here is what I do in the bill: Remember that I would like to see the two kept what they are. That is, our association would. But if you are going to change it, let us be fair to all users.