State were very much inadequate, with the result that the operation of the bill would be postponed until the legislatures of the several States could meet again and comply with the requirements of the Comptroller of the Currency.

Mr. WINGO. In order to follow you there: You speak about the Government. I do not exactly follow you. You are speaking now about loans that will be made through one of these local agricultural credit associations?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. You are speaking about the local credit institutions?
Mr. CLAWSON. Yes, sir.

Mr. WINGO. About them making loans on these warehouse receipts for wheat?
Mr. CLAWSON. Yes, sir.

Mr. WINGO. Just what particular part in the bill covering that question do you say is inadequate?

Mr. CLAWSON. I have not in mind any particular bill. I have read something of some of the legislation pending. But I am just suggesting that if there is not a clause in the bill that allows the agent of the Government who is dispersing the money to require additional guaranty of this particular kind of collateral, it ought to be put in there.

The CHAIRMAN. Your theory being that a lot of farmers will not be served unless provided with security; that is what you suggest by a surety bond? Mr. CLAWSON. That is the idea.

Mr. WINGO. I still do not understand, if you will permit me, Mr. Chairman. What is the agent for the Government? What agent of the Government are you talking about?

Mr. CLAWSON. That will depend upon what agency is created by the bill that is eventually passed. Let us assume that your Federal land banks will have established in connection with them a department of rural credits, or that you provide for the establishment of a separate rural credit bank as representative of the Government, or that you provide for handling it some way through Federal reserve banks.

Mr. WINGO. Is there anything in the present existing national bank law or within the Federal reserve act that covers the point you are making with reference to member banks?

Mr. CLAWSON. I do not think so.

Mr. WINGO. I am not in controversy with you. I am trying to get at your theory. Here is what is back in my brain. Has not every credit institution in the last analyses got the right, under the general authority of passing upon the adequacy of the security as well as the eligibility of any paper? Mr. CLAWSON. I think so.

Mr. WINGO. The right to require in the way of security, either original or additional, unless expressly refrained from doing so by the statute, and do you know of any provision in the statute that restrains them from requiring additional security?

Mr. CLAWSON. I do not profess to be an encyclopedia, you understand. But I am glad to tell you what I think about that.

Your agency created here for the purpose of distributing the benefits will be authorized to do only what it is authorized to do. Now, if it is simply authorized to accept in its judgment storage tickets, the authority to accept or decline anything that is presented is, I think, inherently presumed in the position of a credit man; when you put a man out as a credit man. But he must either accept it or decline it as presented, unless he is authorized to patch it up in some way. I do not believe, unless there is a specific authority given him, that he would have a right to accept a thing with a collateral guaranty that he would not have a right to accept otherwise; and if your statute says to him, "Accept storage tickets as collateral," he must accept them or decline them. Mr. WINGO. Are you a lawyer?

Mr. CLAWSON. I heard the judge in New York one time say a very nice thing on that subject. The gentleman was before him as a witness and he asked him, "What is your business? "I am a lawyer." The judge said, "Young man, do you know what Daniel Webster said when asked that question?" He replied, "No." He said, "Daniel Webster was asked that question, and he said, 'I hold a license to practice law. I do not know whether I am a lawyer or not.'"

Mr. WINGO. Have you ever studied this point in view of the doctrine of implied powers?

Mr. CLAWSON. To some extent; yes, sir.

Mr. WINGO. I am interested in what you say. I am not trying to get into a controversy wtih you-get that idea out of your head-but Congress has got to invade the field of the banker, whether you call the little local cooperative agency, in the last analyses, any man that gives credit is a banker in the broad sense, a credit merchant. We generally define the eligibility of paper in our Federal reserve act. We generally put limitations as to the volume of credits and limitations as to the privileges for any particular man with reference to assets of the particular institution. But I have never heard it urged since I have been here that we also go further and undertake to define what shall constitute the elements of acceptability. You have got the two things: One is, is the paper eligible? The next thing is, is it acceptable? And the question of security is the one that enters into acceptability. Do you think it is possible by statutory declarations to define all of the different concrete elements of security?

Mr. CLAWSON. No, sir; and I think that in answer to that question I might say this: That this is a novel situation; it is something new; it is an innovation for the Government to go into the rural-credits proposition. I think that if carefully worked out it is going to be a wonderful thing, but it is a new thing. So it brings up new situations that have to be passed upon.

In order that Congress may not have to define each particular piece of paper and say that that is good and this is not good, it must vest in its agent out yonder who handles it some authority to say it is or is not good.

Now it vests in him the authority to accept or decline a storage ticket when presented to him.

Mr. WINGO. That is classification of collateral, is it not? Is it not implied power in every credit merchant?

Mr. WINGO. And not only implied power, is it not considered his basic duty to always require adequate security, however eligible the class of paper that is presented; it must have back of it security?

Mr. CLAWSON. Yes, sir. But with your law silent otherwise, his discretion ends when he says yes or no to the particular piece of paper that is presented. I do not care whether it is a storage ticket or warehouse receipt, bill of lading or what he says yes or no.

I believe that the possibilities of good from the bill will be augmented and the Government better safeguarded at the same time by saying to him, "If it is not eligible and can be made so by accepting an indemnifying bond, you are authorized, in your discretion, to add that to make it eligible."

Mr. WINGO. If this thought has not occurred to you, it has occurred to me, that if we go into that the next man who comes along will say, "You ought to undertake to define the character and the security of the indemnity company"; and so we go on adding endlessly to our legislative regulations.

You used the expression just now "with your law silent otherwise." Can you conceive of any limitation upon the powers of a credit merchant, whether he be acting as the agent of a governmental agency or the agency of a private banking corporation, where the statute is silent upon the security required, that he may accept in order to protect the institution; and will you not run up against a further rule of interpretation with which you as a lawyer are familiar if you undertake to put in one limitation; if we define one requirement, what is the rule of law excluding others? You are likely to get a Pandora's box that will destroy your system if you undertake to go into little details of describing the elements of security. Is it not better to require adequate security; is not that word always used, and when it is not used is there not implied duty as well as power upon the part of the agent to require adequate security?

Mr. STEVENSON. If you will permit me to supplement your question?
Mr. WINGO. Certainly.

Mr. STEVENSON. That is the very question that has bothered me since you began to talk. Here is a farmer who has discounted paper at a bank. You provide here that when this is presented to this rediscount corporation that it may require additional security and require a specific kind of security, to wit, security company guarantee.

Whenever you do that, that farmer will come back and say, "I do not want to put up security company guaranty; I will put up a mortgage upon my land." But the law says it must be "security company guaranty," and he can not put it up. You have excluded any other kind of security, and you have thereby

limited the power of the discount agency, have you not, to deal with the subject-limited it right down to the security company proposition? That is the thing that has bothered me. Is there any answer to that?

Mr. CLAWSON. Yes; I believe I can answer that. As I have said before, I do not profess to be an encyclopedia, but I will do the best I can. When he wants to put a mortgage on his farm, there are already facilities for doing that with your Federal land banks.

Mr. STEVENSON. Yes. But he has here a $5,000 ticket on a warehouse, and he wants to get that discounted, and he knows it is absolutely good, and that it is going to solve itself at the end of time. Then, when it goes to rediscount to say, You have got to have security company guaranty," and put him to that additional expense, when he says, "This is only for a few months "

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Mr. MACGREGOR (interposing). He does not ask the farmer; he asks the warehouse man.

Mr. WINGO. I do not want Mr. Clawson to be an encyclopedia; I want him to use logic instead of accumulated statistics and statements.

Suppose, Mr. Clawson, you were an attorney for one of these banks that is going to take up this note secured by a warehouse receipt and rediscount it, and the statute should contain what we are writing in here, the provision that the rediscounting bank might require adequate security by requiring an indemnifying bond by a bonding company. All right. The rediscounting corporation says "We are going to have adequate security, and it must be in an indemnifying bond." The agent that is bringing it up-the local agricultural association, farmer, or whoever it is, says "I do not want to go to the expense of making an indemnifying bond. My association has Government bonds here, which it will put up."

Suppose you should be the attorney for the rediscount corporation, and it should ask you the question whether or not you could take that Government bond as additional security, instead of taking that other additional security, and the only kind that is described by the statute, would you not tell them that where Congress approved and undertook to define additional security and included only one class that the familiar rule would apply? Would you not tell him that, as a lawyer?

Mr. CLAWSON. Yes, sir.

Mr. STEAGALL. If you provide than an indemnity bond may be required for security, would not every man engaged in the rediscounting of those papers then take that as a suggestion at least-even though he might not be instructed or required to do it-that the Congress has specifically pointed out the kind of security he may take, and has mentioned this particular sort of security, and say, therefore, "I am going to do the prudent and safe thing; I am going to shield myself against any charge that I have been careless, and I am going to require the particular kind of security which Congress said I might require, and then if there turns out anything wrong about this loan the blame will not rest on me," and would not that sort of a provision result in the general requirement of such bonds in all cases?

Mr. WINGO. Should you require one kind of credit merchant, as set up under this bill, to take any more precautions upon the question of security than you would require any other kind of credit merchant who gets his charter from the Government?

Mr. CLAWSON. I do not know. I do not understand that question, because I do not know what other kind of credit merchant you refer to.

Mr. WINGO. What organization that gets its charter from the Federal Government, whose sole business it is to handle credits-would you require one of them to take any different security or put any more requirements on the security that it takes than you would upon any other corporation to which you give a Federal charter, with powers only to deal in credits?

Mr. CLAWSON. I do not know whether I get the import of your question. I assume you mean, require a different rule as to safety for the agency of the farm credits than would be obtained in the new banking act?

Mr. WINGO. Is there any more danger in failure of security by reason of the situation that you have described, if the paper was presented by a farmer from one of these agricultural associations than if it were presented by a merchant through a national member bank and was brought up for rediscount to the Federal reserve bank? The element of risk is the same, is it not?

Mr. CLAWSON. Yes.

Mr. WINGO. The duty of the credit merchant to require adequate security, whether his stockholder be the Government or a private stockholder, is the same, is it not?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. Why require an agricultural credit association that you are going to put up, which is nothing but a bank in the last analysis, to attach in demnifying bonds its paper when rediscounted, and yet you do not require an indemnifying bond by a national bank when it would bring up the identical class of paper to the Federal reserve bank for rediscount? What is the distinction?

Mr. CLAWSON. The fact that that is true is the reason that there is legislation pending for facilitating farm credits.

Mr. WINGO. I arrived at a different conclusion. I am afraid that instead of facilitating that that would absolutely prohibit it.

Mr. CLAWSON. If your present system were adequate and faultless, there would be no occasion for legislation of this character. There would be no demand for it by the people over the country; they would be satisfied. The situation is not adequately taken care of, and Congress realizes that fact and is endeavoring to meet the needs of the people by new legislation and in a new way. The money that is going to be loaned is not the money of a private individual who must look out for himself, but it is the money of the Government.

Mr. WINGO. Is that your idea of the Capper bill?

Mr. CLAWSON. I have not read your Capper bill, but, as I understand it, this is where the Government can extend aid to the farmers by passing out good, hard money, being secured by certain collateral.

Mr. MACGREGOR. Not if we know it.

Mr. WINGO. I will state to you, my friend, I am not aware of any bill before this committee that will do that.

Mr. CLAWSON. Where will the money come from that the farmers are going to get?

The CHAIRMAN. I think you have in mind probably the provisions pending in the Lenroot-Anderson bill, which provides $60,000,000 or $120,000,000 capital to be furnished by the Government.

Mr. CLAWSON. I have understood that that was the purpose that the money must come from somewhere before the farmer gets it.

Mr. WINGO. You are speaking about furnishing funds for rediscount purposes?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. No bill is pending before this committee that contemplates the United States Treasury shall furnish current funds for rediscount purposes. The Lenroot-Anderson bill does contemplate the Government furnishing capital funds for capital-stock purposes, but it provides for the sale of debentures for the purpose of getting current funds for rediscount purposes. Of course, they will use, as every bank does, capital stock along with that. But there is not any scheme here that will require the distinction you are making, that the Government is going to go into it and that you shall require this additional security.

Do you think private individuals are going to take less risk than governmental agencies? That is, would you believe that private bankers are going to take greater risk than governmental agencies?

Mr. CLAWSON. The private bankers may and do take greater risk than the Government should take. If there is any way that the Government can accomplish its purpose without taking them--because the Government is not in the speculative business and in every private business there is the speculative element.

Mr. WINGO. Do you advocate by your proposition a greater precaution and greater security by reason of the fact that the Government is going to furnish these.capital funds; is that the idea?

Mr. CLAWSON. I think that if the Government's money is at stake in every way the Government ought to take every reasonable precaution.

Mr. WINGO. I am not talking about what would be wise or unwise. I want to know if the logic of your contention has this for bottom, upon the theory that you ought to have greater security, because the Government is going to furnish capital than the private banker demands.

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Mr. CLAWSON. I think I answered that question a moment ago, that the private banker is in private business, with a speculative element in it, and may and can and does take longer chances than the Government should take. Mr. WINGO. Do you mean by that answer to say that you do think that it is necessary for greater security or greater precaution ought to be prescribed where the Government is going to furnish funds either for capital requirements or for current rediscount purposes?

Mr. CLAWSON. Yes; I think so.

Mr. WINGO. I am just trying to get your viewpoint.

Mr. CLAWSON. My viewpoint is that the Government ought to take every reasonable precaution to make itself 100 per cent whole. I have no idea of arguing at all. I just wanted to present the idea that possibly might be overlooked by some of you gentlemen who do not come from out in the Northwest, that storage tickets and some of that stuff oftentimes looks good on its face and is not worth a whoop, and in order that that stuff should be 100 per cent to the Government, the men who handle the thing for the Government in the last analysis should have discretion to patch it up. I mentioned security bonds as one way of doing it, because the surety companies are in that business, and that is one way that it can be furnished, if the risk is at all acceptable, but they can put up their collateral. They should have some discretion requiring additional collateral, not being hampered they must take or leave. If that is all the authority that is given in the bill, the man out there who handles it does not have any authority except what is given him. Mr. WINGO. Either express or implied.

Mr. CLAWSON. Yes, sir; and there is not very much implied authority when it says you must accept or decline storage tickets as collateral, for instance. Mr. STEVENSON. Suppose this is attached either to the Federal farm loan system or the Federal reserve system. Do you think the best method of determination of what the agent who makes the discount shall take is that method which is laid down by regulations of the board? Do you not think that the board that controls those two institutions should have the discretion and not be held down and limited to one kind or a specific kind and by implication exclude the others? Do you not think you had better leave it in those general terms, which require them to take good security? Do I understand you to contend that that shuts out from taking additional security, if they want to? Mr. CLAWSON. If it is within the power of the board by regulations to extend or decrease the authority of the man out in the field, it can do that. Mr. STEVENSON. Is not that always the rule that the principal can lay down limitations for the agent and the agent must leave it to them?

Mr. CLAWSON. Yes, sir.

Mr. STEVENSON. The man that you speak of out there would be the agent of the Federal reserve bank or Federal farm loan bank, if it was attached to either one, and the principal could lay down the rules; and if we do not hamper them the principal should lay down liberal rules. If we hamper them, they would have to lay down rules so and so, as Congress says, and could not do anything else. Do you not think the latter would be worse than the first?

Mr. CLAWSON. The authority has to be given to somebody.

Mr. STEVENSON. The authority is given to the management of the Federal Reserve Board and the Federal farm loan banks, both, to pass on securities and make regulations necessary to preserve funds. That is already there.

Mr. WINGO. I do not think the witness has yet got what has been the philosophy of all these bills. We lay down the broad, general classifications that paper should be eligible for rediscount. Whatever limitations we have put on them have heretofore been in the percentage amounts that might be loaned. But beyond certain percentage amounts, we leave to the agent whether it be the Federal reserve bank or the member bank that is dealing directly with the borrower the implied authority as well as the expressed authority in each instance to see that the security is sound and adequate; in other words, leaving them a broad discretion in passing upon the acceptability of the eligible paper. Do I make myself clear there?

Mr. CLAWSON. I understand that. If under that authority, express or implied, they may authorize the agent handling the thing to accept the Government bond or anything else to patch up a thing that is doubtful. The storage tickets, on their face, at par look good; but the agent accepting them has a doubt. He ought to have something to guarantee that they are good. Congress is the