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HEARINGS ON THE EXPORT-IMPORT BANK BILL BEFORE THE HOUSE BANKING AND CURRENCY COMMITTEE July llf.:19U5 -- 10:30'?A'iM. ' :<i Hearings before the Banking and"Currency Committee of the,House of Representatives on H*R* 3U9Q*\St bill ffto 'provide for increasing the lending authority of the Export-Import-Bank" of-Washington and for, other purposes," introduced by Rep* Spence on "Juare ll8; 1945% began with the testimony of Leo T* Crowley who appeared &s "Chairman of "the Boarc| of .Trustees of the Bank* Mr* Crowley pointed out the five important'changes which the bill would make in the legislation governing the operations of the Bank. These changes (l) would raise jbhe limit'oh outstanding'loans and guarantees of tho Bank from $700 million to.$3*5 billion, (2) would*remove the prohibition on loans by the Bank to any.government*in'default upon its obligations to the United States Government,on April 13* 193U* and wov(ld repeal the Johnson Act prohibiting private .lo&ns to governments in default on obligations to the United States Government, (5} would extend the life of the Bank to January 22, 1957* (h) would provide for semi-annual reports by the Bank to Congress,, and (5) would provide for the purchase "by, the Treasury of $1 billion 4of' 'capital stock of-fcho'Bank, for the' xietir,omeht of present stock outstanding* .and for the purchase by the *k*reasury of obligations of the Bank, tp the extent .of two and one^haif ti'mbs the capital stock* Mr. Crowley stressed,the necessity of1 getting action on this legislation before the adjournment of Congress* He said that'the Bank at proseht has only $117 million- of free fiinds, that loans'now under active negotiation would absorb this margin, and that other projects, now in the discussion stage, arc #being hold, iiy-aSbeyance because' of .lack of funds* Ho*'also' said that private and govQrnmental funds must b.e iriade ^ available to finance purchases of much' needed United States .equipment by foreign countries which will easo,th$ problem-of redonversion ,in the United States* Mr* Crowley stressed the-fact that Lend-Lease aid'will be furnished only for war purposes and that the* International Bank Will not come into operation for some time* The • appropriation-r re quest for Lerid-Lcaso v for 19i+6 was* based' on the assumption that Congress would expand the lending authority of the Export-Import B ank to permit 'the financing ofportions 6f the:agreements &ade under Section 3(c) of thS Lend-Lease Acti for the delivery of equipment and supplies to Prance, Belgium $,nd the Netherlands* In Mr. Crowle^y's gpinion, tlio propo&e'd * increase *o*f $2f8 billion in the Bank*s lending authority..would suffice tp fihancq. essential exports for reconstructi.onand other purpose's during the present .fiscal year* At the bnd of\ the year, the Bxport-Import JBa.ftk could-return to* Congress to request additional, lending authority. It is impossible at present to determine what fu?ids will bo needed for a program of rehabilitation' and development^ l/ Section 3(c) o^ the Lend-Lease Act authorizes the President of the United States during the three years immediately following the expiration of tho Act to continue to exercisb sfuch powers of "procurement and transfer of goods, and services as may: be'necessary to carry out contracts' entered into prior; to such expiration* Tho agreements made under this* section, provide for cash payihent in 30 annual installments for goods 'delivered after the President determines they are no longer necessary for use in the defense of the United States* - 2 Mr* Crowley favored* the idea* tji^t .tho'N^tional- Advisory., Council proposed in the Bretton Woods bill should coorclihkio-tfte policies of the United States representatives 'on the. International Bank and Fund with those other agencies making foreign loans,-, inoluding the ;fexpprt-Import B^.nk# As a member of .this. Council the Chairman of /the idaifdhof the Export-Import Bank wpuld keep t'heJ Council informed of /the,Bank•'$' activities* and >wo\ild be kept informed of the Council1s\policy, decisions' affecting the Bank's operations* At the close- of his statement, Mr.. Cirbwley announced that W # Randolph. Burgess, President io£ the Ajne-rican Banker's' Asaociati'cto, and W#> L# Hemingway and Rob'drt V* Fleming, all feiLt, it was' ndecssary to--increase the lending -authctfity^of the Bank. Rep* Sgence . ( D v K y 0 then said, he had hearcl of no opposition 'to'^uch an increase and .Mr; Crowley agreed, that he likewise knew of ho bpposition.. Mr. Crowley" assured Rep. Crawford, (R. Miphv.)< that'.the -Bank would :be, prepared to finance agricultural as wol*L as /industrial "exporjt^Rep. Brown (,D. Ga.) asked Mr. Crowl<?y to. compare the bill undor .cewsideration with the Wolcott bill." Mr. Crowley .replied'that there- was little difference in what the bills were intended to accomplish, only a difference in the.amount of the Bank's lending authority. The Wolcott bill also made, provisions regarding the management of the Bank which he preferred not to discuss at the ^nome-nt, but he said that' the* Bank Angl Rep# Wolcott were not far apart in their thinking on .the-Bank-'1 s "management., Rep. Gamble (R* 'N*Y#) questioned Mr. Crowley on the ExportImport Bank's ope'rations and their relation to those of the International Bank» Mr. Crov^ley said1 the Bank would..continue to guarantee private loans through, its, take-out arrangements (and that tli§re would'be no objection to transferring loans from the,, Export-Imjport Bank to- the Inter-^ national .Bank. The Advisory- Council- would presumably pre-vont a» -borrower turned do.wnby the International-Bank from going to'thc Export-Import Bank* !£ere may be 'aome cowipetitionvbo.tw^Qn the 'two institutions • Mr. Crowley said he.did not want the InternatiQnai" .Bank' to dominate .th Export-import/Bftki p^ Ji/Iorironoy (D. Okla.) asked-a numbed 61!• questions; pibout the; effect of the repeal of the Johnson Act provided' foir in th,i3 bill. He felt it woul'd be bettor-merely to r,epep-l tho lGgris'ltction prohibiting loans by the Exgort-Import Bank to governments ifr default - an -th^ir .-abli-l gations to the Unit od Stages Government. He feared repual of tho, Johijsori Act would result in the flotation of questionable issues on the.United States market* Mr. Crowley pointed out that the Security*and. Exchange Commission law protects the private investor against such issues by rer quiring that full and accurate information be published about all issues •• In Mr. Crowleyfs opinion the repeal of'the-Act- is necessary to encourage private investment * " "•"- Rep. Sumner (R. 111.) asked" for a definition of the phrase "lending authority of the Bank" and wondered if the Bank could use part of its funds as a. guarantee fund with which, to guarantee loans perhaps several times larger in amount than the fund itsolf • Mr.' Crowley stated - 3that the Bank's, total loans a.nd guarantees were included in the limit of $3.5 billion on the Bank's lending authority, Rep. Sumner asked about the gold and dollar exchange reserves of foreign-countries and Mr. Crowley promised to supply data for the record. Mr. Crowley explained to Rep. Tallc (R. 'Iowa) that he doubted there would be any transfer'of loans'from the Export-Import :Bank to the International Bank and said the Export-Import* ;Bank would certainly not sell paper to the International Bank; However,.he felt:a country might pay off the Export-Import" »'Bank and then borrow from the -International Bank. Rep# Thbm, (D. Ohio) pointed^ out that a loan by'the International Bank for the purpose of paying off an obligation to the Export-Import Bank could not be considered a loan for productive purposes1 under the terms of the Bank Agreement. Mr, Crowiey- said that the Export-Import Bank should not become "involved with"' the International Bank- and that' it would not need to be "baled out" by the International Bank* Rep. Thorn inquired if all the proceeds of Export-Import*Bank loans must be spent in the United States and Mr. Crowley explained that loan funds in some cases may be used to finance local expenditures• Rep# Buffett (R\ Nebr,) asked Mr. Crowley to name the United Nations which lack resources with which to make purchases in the United States. Mr. Crowley listed Ppland, Czechoslovakia, Greece, Yugoslavia and Italy, andalsb stated' that 'Belgium* Holland and Norway would need rehabilitation credits. Mr. Crowley assured Rep. Wolcott (R. Mich.) that his statement that Lend-Lease was to be/'used only for war purposes was official. He estimated that'several billion dollars worth pf materials for which there is a residuary use have been made available through Lend-Leaso, He agreed with Rep. Wolcott that the Export-Import Bank should have Increased lending authority to finance exports and should act as'a stop gap between tho end of Lend-Lcaso and cQlhmencement of operations of5 the International Bank. Mr. Crowley stressed the fact 'that there would'bo groat noe'd f6r tho Export-Import Bank eveii aftfcr the1 International B ank was in operation. He felt that it wa$ impossible to expect loans to be "adequately secured" as Rep. Wolcott1s'biil provides. He said the Bank must use its judgment and choose projects Which would directly*or indirectly produce tho moan^ of Repayment. Siftce many European countries are not in a sound financial condition, loans to" these countries must be coiistantly reviewed and judgment must 'be acquired after experience. "Rep. Sumner asked about'interest rates and maturities on Export-Import Bank loans• Mi*. Crowley said that I4. per cent was the usual rate'and' that loans had bten made'for 25 years and might go as high as 30 years. He also said he thought-Ivper cent was* too high an interest charge for rehabilitation loans • - .4 ->HEARINGS ON THE EXPORT-IMPORT BANK BILL BEFORE THE HOUSE BANKING'-AND CnRRMCT'CdlBttTTEE *July 11, : 1945 --2:00 P.ftl At the afternoon session of the hearings Wayne C. Taylor, President of the Export-Import Bank, ana Dean Achesoh* Assistant Secretary of State, testified* In his prepared statement^ Mr* T&flov* reviewed'the <?rganization, history and operations of the J&nk1. He' classified the loans of thetBank according to seven categories:' (1) ^hort-teriti loans' to finanfce the export of agricultural surpluses, (2) loans' to Aihericarj. firms to'finance the export of industrial commodities, (3) revolving ctWit'linfcs to small but experienced United States exporters and Iftiportsrs which aro'hampered by lack of capital, (4) loans to make.possible*continued purchases in-the United, States by countries temporarily short of;dollar*exchange, (5) loans to finance development projects abroad, (6) loans t.p stijnulat.e production and expedite transportation of'' strategic materials required for War production in the United States, and (7) arrangements' to"underwrite* letters of credit opened in this country by United States' comercial''bb.hjcsl in favor of approved foreign banks. Mr. Taylor also put in'the record a Statement of loans and commitments of the Bunk as of June 15, 1945, and a statement of loans by countries as of the s&me date. '•" * ' Mr. Taylor confirmcd^Rep. "Wolcott'1 s <R. Miclu) statement1 that all administrative expenses of the Bank lire paid out of earnings .°nd that the Bank d$eS not belief i f from any Congressional appropriation.1' In reply to questions by Rep. Monrdnoy (p. Okie.) Mr. Taylor'said'that the Bank now pays 2 per cent on its preferred stock and that on loans from the*Treasury provided for in this bill the Bank'would pay a rate to be agroed upbnvdth the Treasury. Mr. Crowley answered a question by Rep. Crawford (R; Mich.) on the subject of whether the-United States-should attach strings to its loans through the Export-Import Bank toirisitfe thnt borrowing countries did not adopt'institutions Contrary to democratic and capitalistic principles'and to provide for a measure of 'nanagenent of these governments by the United States'. This discussion'v/as off'the record.^ In response to an inquiry by Re#. ^umner (R. 111.) on t'hat countrie3 the Bank expbctocj'to lend to in th^ near future.^'Mr*. Taylor ''reported that'the Bank was currently negotiating loans frith Norv;^y, Denmark rincl the Netherlands (for tho East Indies) and v*as considering lodnc to otber countries vrhich are nov/ subject to the Johnson Abt'. lir. Taylor was unable to supply gold statistics for Russia. Rep. Sumner felt that,the United States should attach conditions to EXpoH-Import vBank loans in ordfer that the loans would not act to subsidize the spread of cofarnttnifenu Rep. Spence (D. Ky.) pointed out that the Bank ir;as free to choose its customers and could consider such factors cs the type and\ stability of -V foreign governrnunt before granting a loan. Rep. Hr.ys (D. Ark.)> Rep* Tallo (R. Iowa), r.nd Rep. Thorn (D. Ohio) inquired about specific loans. Mr. Taylor explained that tho loan to Pan American Airv/ays was for th<, purpose of financing hotel construction in various Caribbean countries. To the cost of these projects local capital would contribute 50 per cent. Loan No. 349 was granted to aid in the purchase of certain German firms in Brazil. Mr. Taylor described how the Export-Import Bank supervised the use of its loan funds. —' 5 ~ Rep, Buffett (R. Nebr.) felt that since Latin American countries nov; have gold and dollar holdings as large as they have ever had, they should be able to attract private capital. He could not understand how one could justify dollar loans by the Bank to foreign countries to make -purchases in the United States of equipment which United States, firms are unable to buy. He also felt that all Export-Import Bank loans have political implications and that the fact a loan is granted to a foreign government strengthens that government's position. Dean Acheson, Assistant Secretary of State, then inserted a brief statement in the record which he summarized for the Committee. He stressed the need for expedition in the passage of the bill under consideration and the need for loans supplied by the Export-Import Bank in the interim betwoen the cessation of Lend-Lease aid and the commencement of operations by the International Bank. Mr. Acheson explained in sonie detail why it will be two years or more before the International Bank will be able tq make loans in any volume. According to the Articles of Agreement of the Bank, it will be two years $fter ttie Byank is organized before 20 per cent, of the Bank's capital is paid in. It will probably take more than two years to educate private capital:to enter into loans guaranteed by'the Bank and to buy the obligations of the.Bank. Mr, Acheson agreed with' Chair man Spence (D. Ky.) that he kne\? of no substantial opposition to the present bill. He was in accord with Rep. Wolcott's interpretation that rehabilitation loans of the Bank would be for the purpose of helping other countries get on their feet and provide employment for their peoples. Ho pointed out., that reconstruction and development loans "by the Bank would* be essential in the transition period and also as a supplement to loans by the International Bank.4' Although the Export^Import Bank may make stabilization loans, Mr. Acheson pointed out that none of its credits for that purpose have been so used. Rep. Wclcott wondered if it might not be necessary to reactivate the stabilization fund of the Treasury so that it would not-go out of existence before the Bretton Woods enabling legislation is, passed. Chairman Spence said he hoped Bretton Woods would be passed in the coining week so that,such action would not be .necessary. Rep. Gamble (Ri N.Y.) Was assured by Mr. Acheson that, other countries have•institutions•with functions similar to those of the Export-Import Bank. Rep. Monroney (D. Okla.) went back to his doubt'concerning the wisdom of repeal of the Johnson Act. Mr. Acheson explained that the Johnson Act did not protect United States investors against unsound foreign issues but merely penalized countries in default on their World War I debts. He pointed out that the Johnson Act in any event does-not prevent private foreign companies from floating issues in this market. In his opinion, the SEC regulations are adequate protection for United States investors. At present it is-the purpose to encourage v/ise private investment rather than to discourage it. Any necessary regulation can be legislated after the revival of investment has taken place. Mr. Acheson attempted to interprettfor Rep. Sumner (R. 111.) a quotation dealing with the capacity of countries in certain stages of economic development to absorb capital. He then rehearsed for Rep. Sumner the reasons why it would take two years or more for the International Bank to - 6 get into effective operation. Rep. Stunner then questioned Mr* Acheson regarding the accuracy of certain estimates of the sunount of dollars the Monetary Fund and International Bank could make available to foreign countries. Rep. Sumner thought the strong sentiment in favor of increasing the lending authority of the Export-Import Bank might be based on the assumption that the Fund and Bank could only make $6 billion available to foreign countries. Rep. Folger (D. N.G.) expressed doubts similar to those of Rep. Monroney on the wisdom of repealing the Johnson Act and did not seem too assured after Mr.. Acheson1s explanation of the operations of the SEC since %he Cominission does hot 'approve securities but only certifies that the .information'concerning the issuing firm and the prospectus are complete and correct. For Rep. Talle (R.;Iowa) Mr.: Acheson outlined briefly the loan procedure of the Export-Import Bonk< :.,Rep. Buffett (R. Nebr.) -returned to his references regarding the. .need for loans'to Latin America in view of the large dollar balances of these countries. "He'also reiterated his faith in the need for sound fiscal policies1and the necessity to investigate such policies of prospective borrowers. At the close of Mr. Acheson1s testimony, • Mr. Crowiey, Chairman of ,the. Board of Trustees, presented a proposal to the''Committee regarding changes in the management of the Export-Import Bank. According to his proposal the Export-Itnport Bank would be under the supervision of the Foreign Economic Administrator, with the Administrator having supervision over the Bank similar to that exercised by the Federal Loan Administrator over the Reconstruction Finance Corporation. To manage the operations of the Bank there would be a board of directors of five members \vith the Foreign Economic Administrator and Secretary of State as automatic members, the Administrator acting as chairman. The other three members would be full time directors appointed by the President of the United States and confirmed by the Seno.te. The board of directors would be non-partisan with not more than three directors being members of any one party. To act in an advisory capacity to thp Bank there would be an advisory board of the same membership as the National Advisory Council set up by the Bretton Woods enabling legislation to coordinate the policies of the Fund and Bank and other institutions making foreign loans. The Foreign Economic Administrator would act as chairman of this advisory board. Mr. Crowiey suggested this proposal be worked out in conjunction with the legislative counsel of the Committee. He also said there would be no objection to revising downward the maximum lending authority of the Bank. 7 HEARINGS ON THE EXPORT-IMPORT B A M BILL BEFORE THE HOUSE BANKING AND CURRENCY COMMITTEE July 12, 191+5 ~ 10:30 A.M. At the beginning of the session .the clerk of the Committee read a letter addressed to Chairman Spence by Ronald Ransom, Vice Chairman of the Board of Governors of the Federal Reserve System. This letter stated that since the activities of the Export-Import Bank are closely related to the responsibilities which would be placed upon the National Advisory Council by the Bretton Woods legislatlbn and since it is most important that thD financial, ppl.ioies which govern United States participation in the Monetary Fund and Ini&rnatioml:Bank should also govern the operations of tho Export-Import Bank, the Boarr4 felt, that the''members of the board of trustees of the Export-Import Bank should be the same officials who comprise the National Advisory Council. In the Boardfs opinion the same result would not be accpmplished if the officials on the-National Advisory-' Council acted merely in an advisory capacity to the management '6f tho Bank. ThQ Board accordingly recommended 'that tho legislation- include a provision that tho members of the board of trus.te.es of *the Bank ..be the Secretary of State, the Secretary, of tfie Treasury,.the 'Secretary of Commerce, tho Chairman of the Board of. Governors of.the Federal Reserve Sy^tem^and a fifth member to be. appointed by the- President of the Unit£d States with thSadvice and'consQUt of the Senate who would be chairman ^of.-thie/board bf* trustees of tho Bank* Following the reading of this letter*, which was;incorporated in the' rWord,, W. Randolph' -Burgess;•• President of the American Bankers*" Association, testified t>efor& the- Committee. He rpre&£ntedv a letter from W, "L;\Hemingway, a past "president of..-tho American Bankers Association, in which'Mi*. Hemingway urged^an increase in the capital fimds of the Ba'nk«* In M s prepared statement Mr .'Burgess stated tKat the-Association favors a prompt- increase in the lending- authority of the Export-Import Bank. The'Association in its report- on. "Practical' International...Finanbfai Organizations" published February 1, 191+5» took the -position that the Batik* s capital; funds* be increased to $2 billion* Such an increase would be for the-purpose* of meeting 'credit..needs prior to the setting up of t*tie Internationa^ Bp/nk 'and' -for imking lpans in" which the United States has a 'special interest and which..cpuld be'made mofe effectively through a national ..agency than through an. tinternational body-.. The principles which 'should goyQrii the'brganizatipn ^ri4 operations of the Bank are, in the Association!s .opinion* th4t.?.(l) * the-Bank'should-supplempnt'and enCourage but. not^ replace private capital,* (2) rits'loans should, be"soiincl loans witKipra/ctioal asqUrand'ef'of-re.pajrment, (j) the. amount of the Bahkfs loan^ td any one country should not be oxces's'ivo and in granting loans the iBank should take into"consideration the'amount of gold and dollars held by tho bo^rrowing' c6untfy.:: .-Mr ...Bur^es^'oh'behalf of the American Bankers Association siVggosted.:that the Bili provide ftpr the following: (l) a statement ^as.^t'O the relation ..between the activities of the ExportImport Bank -and private leiiding ago3p.cios such ec-s in .contained in the articles of agreement of the International JBarik, especially a condition that the* borrower ds'unable lto^obtain the.'fundd elsewhere under reasonable conditions; (2) a definition o£ thp ^tanclards which; the management of the Bank should observe as follows, that: lpan,s should generally be for specific purposes, that they must offer•practical assurance-of repayment, that reconstruction and development loans .should be coftfinod to the cost of imported - 8 materials and should not cover the cost of local labor and materials. Mr* Burgess explained that the second standard was offered in place of the requirement in ,the Wolcott bill that loans be "adequately secured." In his opinion, Export-Import Bank loans because of their nature could not be secured by collateral* Mr* Burgess thought the last standard mentioned should be qualified to permit the financing of local expenditures by the Bank in special circumstances• The third suggestion of the Association was with regard to the ma'nagement of the Bank, that there be* a small, full-time boafri.i of directors with adequate salaries to manage the Bankfs operations and; that this board be responsible as to broad policies to the National Advisory Council set up in the enabling legislation for Bretton Woods* The fourth proposal was that the term of life aQd capital of the Bank be kept within the range of ffnearby expectancies" and be reviewed by Congress from time to time* Mr* Burgess assured the Committee that he was speaking for the American Bankers Association* He explained to Rep* Gamble (R. N*Y#) that the purpose oif suggesting as a standard for Export-Import Bank loans that they offer assurances of repayment was to buttress the management of the Bank in refusing a loan* He favored cutting the extension of the life of the Bank as provided in the bill but felt that in order to preserve continuity in the. Bankfs operations it's life should be -extended for at least five years* Mr* Burgess did not agree with Rep* S^mner (R*: ) that the Export-Import Bank would compete for loans with private capital if the mamgemeht of the Bank -contiiiued the past policies of the Bank * He did.not qiijace Rept Suiftnerfs fear that the United States taxpayer wpuld lose /because of tha Bank's operations* He expressed the hope that the Bank wduld not \xa6 all its $3 •? Million lending authority for direct loans 4.but would continue to'use private capital through its take-out arrangements•• There followed a discussion between Rep* Sumner and Mr* Burgess*in whichthe terms "lending authority" and "capital" of. the Bank, were confused*. Mr* Burgess ^filially pointed out that-the Bank's lending authority of $3*5.billion represents the.total loans and guarantees of the Bank which niay be outstanding* at any one time* 'Mr* ^Burgess. fel.t that there would be pressure oh the Bank to make loans at too low rates of interest, wh^ch would make" hhe Bank competitive- with private lending in-* stitutions and tho International B ank* Be believed that the rate, charged by the Export-Import Batik should bo similar to the minimum rate of ij. to k"g per cent which may be charged by the International Bank> Rep* Sumner then asked tho witness if it were not true that the Bank was. free to use its -capital, at it's discretion, that it cbuld charge any .interest rate, that its losses would be made good by the Treasury, and that it would compete with private capital* Mr* Burgess replied that the first two points were a question of management, that he did not agree on the third point and that the danger of the fourth was nebulous and would be nonexistent if the principles suggested by tho -:Association were adopted* Rep# Buffett (R# Nobr*) expressed the fear that the United States Government will soon dominate foreign lending* Mr* Burgess seemed apprehensive of a similar development but pointed out that if. 9there is to be adequate foreign investment, the government must enter the field since the risks of such lending are too great for private institutions to carry• Although private banks now have a large amount of funds which might be used to make foreign loans, their previous experience deters them* During the war, however, private banks have done considerable foreign financing* Mr. Burgess did not agree with Rep. Buffett that the Export-Import Bank should have an interest in or influence over the policies of a foreign governmont borrower similar to those of a commercial bank in the management of a domestic corporate borrower. He pointed out that the Bank has refrained from attempting to influence the policies or politics of borrowing governments. The testimony of Mr. Burgess concluded the hearings on the Export-Import Bank bill. Board of Governors of the Federal Reserve System Division of Research and Statistics July 13,
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