1. Will take too long. The time required to retire Government capital will be entirely dependent on earnings under changing competitive conditions.

2. Comes at a time when agriculture is in a distressed state and any adverse effects resulting from the merger would accentuate this condition.

3. Although we do not pretend to speak for the PCA's, we believe the purchase plan will impose an unnecessary burden on them.

4. Does not remove Government control from the FICB system when and if Government is finally repaid.

5. Is inequitable to the OFI's:

(a) Gives ownership of the surplus to PCA's despite contributions OFI's have made to the surplus.

(b) Our competition-and they are competitors will own the banks. They will elect two directors, OFI's will elect none, and the policy instructs those who are to administer this law to promote and encourage development of the PCA's.

We have no argument with them. In fact, we work fairly closely with them in many of the areas we serve.

(c) OFI's will be expected to share the cost of supervision. (d) If FICB's are to exercise supervision, what assurances have we that they will not attempt to supervise all discounting agencies? (e) We believe the OFI's will ultimately be driven out of the system. The alleged mortality rate of OFI's (1,200 down to 94) may be in some measure due to the rise of PCA's (0 to 498) and the growth and competitiveness of the commercial banks rather than our ineptitude or unwillingness to provide credit to agriculture.

The OFI's interest is to provide money to farmers and ranchers at competitive rates through a self-supporting system.

Naturally, we are more interested in the rates our borrowers must pay for capital than we are in who owns the banks.

The OFI's for whom I speak would prefer, over the present bill, a long-term retirement program, based on FICB earnings, and providing for no purchase of stock (credit bank plan II).

This I believe was the plan submitted by the Federal intermediate credit banks' presidents to the Board, and this was submitted with six others at these first hearings, but not given much consideration.

The rate of retirement of Government money would depend, as it must under any plan based on earnings, on the spread available in the rediscount rate.

When the Federal Government was finally paid out there would be no stockholders but rather an independent trust, held in perpetuity for agriculture and available to all qualifying lending agencies. Senator HOLLAND. You think that the new organization would not be freed from Federal interference and regulation?

Mr. READ. No, sir.

Senator HOLLAND. You heard the Bureau of the Budget this morning take exactly the opposite position. They think that it is too much freed and that there should be provisions put in there to restore budgetary control and other controls that they think are necessary over these local institutions.

Do you have any comment to make on their position?

In other words, they were taking the opposite extreme of the position that you are taking?

Mr. READ. Yes, sir. I believe that as long as we have Government money in the system, that I can understand the Government's reluctance to release it.

In fact I do not know that turning the surplus over to the users is necessarily right. We say that the users earned it and they contributed to it and the farmers contributed to it, but that is a matter of policy.

Senator HOLLAND. Well, it would follow a policy or course that has been established in the case of Federal land banks and the banks for cooperatives already.

Mr. READ. Yes, sir; I brought that out in here, if that policy was followed.

I would not say that it is perhaps necessarily correct.
Senator HOLLAND. Thank you very much, Mr. Read.

Mr. Watkins Johnston.

Mr. Johnston, we would like to hear you, sir.

STATEMENT OF WATKINS JOHNSTON, REPRESENTING THE PRODUCTION CREDIT ASSOCIATIONS OF THE FIFTH FARM CREDIT DISTRICT, MONTGOMERY, ALA.

Mr. JOHNSTON. Senator, there has been so much said and so much that duplicates that the thinking of our group and others that I will try to eliminate that which is a duplication and get to the point.

I represent the PCA's of the fifth district. I was given a letter which I understood had been pretty thoroughly passed among the interested parties stating their original position. It was adopted in answer to the first call in the summer of 1955, readopted in answer to the second call in the fall of 1955, and was transcribed and readopted at a meeting of April 9, 1956.

It purports to speak for 22 of the 26 associations of the fifth district. I understand, though I cannot vouch for the correctness of it, that it now speaks for all but one, the association represented here yesterday by Mr. Thomson of the Jennings Credit Association.

To brief the resolution which I will ask be placed in the record, the resolution first opposes the proposed change.

Second, it suggests that if there is to be the adoption of the proposed change, that the effective date of the adoption or the effective date of the change be deferred for a period of 5 years.

It approves Senate bill 3564 if there must be a bill.

May I offer that in evidence?

Senator HOLLAND. Yes, it will be admitted.

(The document is as follows:)

RESOLUTION UNANIMOUSLY APPROVED BY 22 OF THE 26 ASSOCIATIONS OF THE FIFTH FARM CREDIT DISTRICT REPRESENTED AT A MEETING HELD IN JACKSON, MISS., AT THE HEIDELBERG HOTEL ON APRIL 9, 1956

Be it resolved, That the Production Credit Associations of the Fifth Farm Credit District recommends to the Federal Farm Credit Board that no legislation be enacted to change, in any way; the present Production Credit System or the Federal Intermediate Credit Bank; be it further

Resolved, That, if the Congress of the United States demands such legislation for the merger of the PCC's and FICB's and the purchase of the merged

institutions, by the users, it is recommended that the effective date of such legislation be deferred 5 years; be it further

Resolved, That if there must be legislation, as above indicated, effective either 5 years from now or sooner, it is recommended that the bill offered by the Farm Credit Board of Washington and introduced as S. 3564 or any identical bill, be enacted into law; be it further

Resolved, That a copy of this resolution be sent to each Production Credit Association in the United States, to directors and secretary-treasurer of each Production Credit Association in the New Orleans Farm Credit District and to Mr. P. F. Williams, National Advisory Committeeman and to each Senator and Representative in the States of Alabama, Louisiana and Mississippi and particularly to Senator Allen J. Ellender, Chairman of the Agricultural Committee of the Senate and any agricultural organization which might be deemed advisable by the District Advisory Committee and to each member of the Farm Credit Board of New Orleans.

Certified to be a true copy.

A. T. SHIELDS,

Chairman, District Advisory Committee, Production Credit Associations,
Fifth Farm Credit District.

Mr. JOHNSTON. Today I received copies of two identical telegrams, one sent to the Honorable Allen J. Ellender from the Shreveport, La., Association, which I would like to also offer if I may, and a second directed to the Honorable Russell B. Long, from the same association. Senator HOLLAND. A copy will be inserted in the record. (The telegram referred to above is as follows:)

SHREVEPORT, LA.,

April 23, 1956.

Hon. ALLEN J. ELLENDER,
Hon. RUSSELL B. LONG,

United States Senate,

Washington, D. C.

We the undersigned directors of the Shreveport Production Credit Association in an official meeting held on this date urgently request your opposition to any change in the present Production Credit Corporation system or the intermediate credit bank. We express the opinion of our membership totaling 642. We would appreciate your reception of Mr. Watkins C. Johnston, who is representing us as well as other associations in this district in opposition to said change.

C. C. WHITTINGTON,

President.

L. S. FRIERSON, Jr.,

Vice-President.

S. W. CAVETT,
CLARENCE H. SMITH,
E. R. PRINCE.

Mr. JOHNSTON. Because, Senator, I am so convinced in my mind. that our associations, though they feel that this possibly is not the correct move at this time, that they are sold on production credit and short-term credit and the good work that has been done and the necessity for the continuance of it.

I ask if I might review the proceedings here and possibly offer some alternative to their opposition so that we might go along with the

group.

I have here 2 or 3 suggestions which I gathered from this meeting and about which I have talked with Governor Tootell.

I offer them by way of conciliation, hoping that if the position assumed by them of opposition is not followed, that we then may go along with these suggestions which might eliminate the fears that they have of the changes.

The first one is based upon the fact that a great many of the associations in the fifth district are so lowly capitalized, so inadequately capitalized that they are afraid that if they are called upon to pay the 15 percent, or their proportionate part of the 5 percent within the period stated, that it will deplete their capital and jeopardize their capital position, and therefore we suggest that that 15 percent be reduced to 10 percent.

We suggest, second, that the payment of that 10 percent be extended over a period of 5 years rather than 2 years, and we suggest that the Governor give to these associations whose interest we primarily seek to protect, an assurance that if they find their capital impaired, that he will come to their rescue from his revolving fund.

And then finally, the matter of representation.

Throughout all of the meetings, the thought has persisted that they were being called upon against their desire to purchase a situation, and that sufficient control was not given them of the new situation, and therefore to remedy that, we suggest that a change be made in the bill to allow separate boards, district boards.

I believe, Senator, as succintly as I can, I have expressed the desire of the fifth district.

Senator HOLLAND. You mean there would be two sets of boards within the one corporate organization?

Mr. JOHNSTON. Yes, sir.

Senator HOLLAND. Do you have any precedent for that kind of a setup?

Mr. JOHNSTON. Of my own knowledge, Senator, I do not know that there is, but from my conversations with the officials of the board, I understand that there are.

They are not officially separate boards, but they become separate boards by a manner of conducting their business.

One I quote:

The two representatives of the PCA acts with the appointed member to become the committee for the consideration of all PCA matters.

It is an accepted fact within the organization that the recommendations of that committee with reference to PCA are accepted by the Board.

I understand that that arrangement has worked satisfactorily and is carried out in other PCA's.

Based upon the desire of our group and our assurance that that is good, then we would like to make it official.

Senator HOLLAND. You mean really one board of directors divided into two subcommittees, subboards to handle the two types of business? Mr. JOHNSTON. That would be all right; yes, sir.

Senator HOLLAND. All right, sir.

Mr. JOHNSTON. Before leaving, Senator, I was asked by the Governor my opinion with reference to a bill

Senator HOLLAND. Mr. Tootell has come back now.

Mr. JOHNSTON. Yes, sir. He asked me to express my opinion of a bill which would permit secretaries and treasurers to become members of district boards.

Our district would be opposed to that.

Senator HOLLAND. You would oppose having paid full-time executives in any branch of the Farm Credit Administration setup available and qualified for membership in boards of other units?

Mr. JOHNSTON. Yes, sir. We see them as career men, probably better better qualified than others of the associations, but theirs is an administrative capacity and not executive capacity, and I think it would weaken the association if we breached that line.

Snator HOLLAND. Thank you very much, sir.
Mr. JOHNSTON. I thank you, sir, very kindly.

Senator HOLLAND. It has been a helpful statement. Mr. Ray Cowden.

sir.

Mr. COWDEN. I would prefer to let Mr. Armer go on first if I may,

STATEMENT OF FRANK C. ARMER, CHAIRMAN, OTHER FINANCING INSTITUTIONS COMMITTEE OF ARIZONA, PHOENIX, ARIZ.

Mr. ARMER. I have prepared a short statement which I will submit. I am representing all the OFI's we have in Arizona. We have had a number of meetings since the draft of the bill was presented to us by the members of the Farm Credit Board in Berkely on November 28, and we set up a committee and as a member of that committee I am representing those companies.

I do want to mention that out of Arizona there is a total of about $15 million to $18 million that have been discounted in the bank at Berkeley, and these OFI's that I represent here discounted and handled $12 million to $15 million of that. In other words, all of the PCA's in our State handled about $3 million to $32 million of their peaktime of the money that is discounted at Berkeley. I wanted to mention that particular point, and then I will summarize.

Senator HOLLAND. Let me get that again. The PCA's alltold handle how much?

Mr. ARMER. About $3 million to $32 million of the money out of about $18 million.

Senator HOLLAND. And the OFI's handle the rest?

Mr. ARMER. The OFI's handle around 75 percent of it.

Senator HOLLAND. Well, your area is exceptional then, isn't it, in that regard?

Mr. ARMER. Yes, it is. We are a deficit area out there, an area of expanding economy. We are a deficit credit area, and it is an important thing to us to have this discount privilege.

Senator HOLLAND. All right, sir; proceed.

Mr. ARMER. I will read the last paragraph that I have here.

We would much prefer to see the FICB's capital retired by earnings and operated as a public trust, thus leaving the surplus with the Government where it probably belongs.

If I may digress right here, Mr. Chairman, I would like to ask one question that has been discussed a lot about this earned portion of the $47 million surplus that might be credit to the sum of 1,200 OFI's that at one time or another did business but a large portion of which are not now doing business with the credit banks.

In the Berkeley district I think there were originally about 39. There are 10 left, OFI's, now using the discount privilege. However, that difference was not what you would call mortality.