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November 29,

Dear Marriner:
There is attached the replies
received from Mr. Edv/ard E. Brown to a
list of nuestions prepared "by the N.A.C.
staff committee, on the subject of commercial
"bank dealing in the obligations of the
International Bank.

Sincerely yours,

Emilio G-. Collado
U. S. Executive Director

Mr. Marriner S. Eccles,
Chairman, Board of Governors,
Federal Reserve System,
Washington, B.C.


With respect to dealing and distributing by the commercial banks:
(a) What present dealing and distributing f a c i l i t i e s are
available te the International PtnlB among (!) lftTO8isn<e&t
bankers, (2) brokers and dealers, (3) ofch«r»?
<b) Would legislation to permit dealing and distributing
of Bank*l bonds t)y commercial banks generate caay resentment
or antagonism from th® regular brokers and dealers?
(e) Would It be advantageous or disadvantageous from the
;;oint of view 8f the market stability of the Bend's bonds that
there should be additional dealers* te wit the commercial banks!
(d) To what extent do cossaereial banks now deal and
distribute SHmlotpelfeonARrmi. others of the exenpt class?
MMBf banks here dlstfifettttftg top&t&sti&m or
facilities.aaai how are the»e banks Ideated
(f} With vb&% tgrnee of inyestors do eoinaercial banks now
bon6.s of the esreapt clans? Is? i t iintictpated thf,t the
same types of investors weald be customer* f&r the Bank's bonds?
(g) What kinds of selling methods? dc the centereiai banks
ujEi in dealing and dir?tributirig»-f».f. to they erceote orders
en a eocsBission basis; do they execute orders as dealers on
H discount baelsj do they offer bond?, fer sale over the t e l e phone? do they enaploy bond

What kind of selling aethode weald the banks m* in
in and distributing the Bank'e bonds?

( l ) A" proxiaately what comni«fiior. vm.vl.c the
banks charge on orders or at what discount voold they be
interested in taking dovn for fessl* bondr* of the International
(j) to what extent would cosanerGial banks act as dealers
anc distributors in (1) short tern brndr of Ih© Ban^, (2) uedivm
term bonds, and (3) long term bonds?
(k) Would oesaereial banks as dealers carry substantial
inventories of (1) short tern bonds of the ^smfc, {Z) aedltm
term bonds, and (3) long term bonds? Would they take short
positions ir; the B*afc**
(1) Would co^jRerclfel bank! 1» distributing the bonds of the
International Bank aseoise their l i a b i l i t i e s as underwriters
•after the Securities Act of 1933?

(a) There are approximteiy 2200 meaTeers of the Bation&l
Association of Security Dealers, and it seems fait to
assume thai practically all of theei would 1>e interested
in "bonds of fhe International Bask.
(b) While a great aany brokers and dealers are pleased with
the present prohibition a^&inat coEaaercial banks dealing
in corporate securities, "bonds of The International B*nk
would be something new and unf&nili&r to the investing
public, and I believe the dealers would feel that It was
helpful to public coaf iueaco in the bonds to have oowsrcial banks dealing in thea.
(c) Permitting cosaiercial banks to deal in the bonds would
broaden the aarket and would be advantageous from the
point of riew of market stability.
(d) fhere are about 100 commercial banks who are members of
the investment Bankers Association, and at least 75$ of
I M s number are active in the purchase and sale of
municipal bonds, fhese banks distribute several hundred
million dollars of aunicipal bonds annually, and those
trading in Government bonds do a volume running into
billions of dollars,
(e) The coaaaereial banks dealing in aunicipal bonds have
regular d#p&r tnent is t&s this purpose* and they are located
in all of the larger cities in the country.
(f) Gomaereial banks generally place exempt bonds with their
larger commercial custoaers and with institutional investors.
If the bonds are to be exempt from Income faxes, the same
types of investors would be customers t*x the bonds of The
International Bank. It the bonds are not exeopt from Inccoe
faxes, the interest .etam would be higher and the commercial
banks would reach a much larger group of investors by reason
of their customer relationship in other departments of the
(g) Selling methods used by coaaercial banks are substantially
the sane as those used by dealers. 'X'he co«meroial banks
take a position in the securities which they sell, and sell
as principal in the great majority of instances. Occasionally
orders are executed on a discount basis. Bonds are offered
to customers by telephone* circularisation by mail, &M.
personal solicitation by the bond salesmen*
(h) Presumably, the selling methods the commercial banks would
use in distributing bonds of The International Bank would
be similar to those described in (&) above,

At the presemt tiae the aargin of profit in municipal
>ead« varies from 1$ to l|$s fcher^ &r% times vhea the
spread J« leas, fixe attitude of the eo«»ercial banke as
te tht aasdtsat of discount wenld act differ gr^atlj ttm
that of the

Cofoaereial t)g«ik« prol>a>ly wotsld deal ia aa^ aattarity of
latenmtioaal Baak "b^nds to the extent sf

(k) Meet c©?»er<5ial "bank* a» dealer* votdd carry iinrenteries
of any astturlties ©f fhe Int«raaticaal Bank Solids,
sise of tl» iBTeatery depending on the aarket
It is unlikely that a aoaaerclal 'bank vo^ld t^te a short
petition in the "bends.

If i t should he held that there was a legal liability on the
part of "banks for distributing "bond^ of fho Jntarn»tianiil
the Securities Act of 1?33« hanks with hoad departawats
would ba willing to agsitne thi3 liability.

Her. 23,