View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

L-691
May 9, 1940
Board of Governors

Legislation regarding

Mr. Gardner and Mr. Wyatt

Inter-American Bank.

The Convention to provide for the creation of the InterAmerican Bank will be signed on May 10, 1940, after which it will
need to be ratified by a two-thirds vote of the Senate.
It will also be necessary to obtain legislation (requiring action by both Houses of Gongress) to grant a charter to the
Bank, provide how this country1s representative on the board of directors is to be appointed, provide the necessary funds to pay this
Governments subscription to the stock, and to provide for any incidental matters requiring legislation.
If the Administration decides to seek such legislation at
this session of Congress, the Board may be called upon in the near
future for a prompt expression of its views. A hurried consideration of such an important matter might be avoided if the Board could
formulate its views on certain questions in advance.
The following ere some of the questions to be decided:
1. Should the director representing the United States on
the board of the Bank be appointed by the President, by the Secretary of State, the Secretary of the Treasury, the Secretary of Commerce, the Board of Governors of the Federal Reserve System, the
Federal Loan Administrator, or some other official or agency of the
Government, or by a committee consisting of representatives of several departments and agencies?
In view of the fact that the structure and powers of the
Bank will be governed by the by-laws, which will be subject to amendment by the board of directors, this is the most important and probably the most controversial question to be decided.
The Board of Governors, representing the bonking arm of
the Government and in particular charged with supervisory responsi-r
bilities over the foreign relations of the Federal Reserve Banks and
foreign branches of national banks, can make a strong, case, if it so
desires, for its being the appointing agency. There are, however,
effective arguments for the participat±.m of others in this function.
The Inter-American Bank will not confine itself to central or commercial banking. Its long-term locus, similar to those of the Export
Import Bank, may ultimately prove to be its chief field of business.




L-691
To: Board of Governors

-2-

Again, some of its activities will be directed toward exchange stabilization — a field of particular interest to the Treasury; and
Government guarantees (handled by the treasuries of the borrowing
countries) will be required for all loans in excess of two years.
The contribution that the Bank may make toward better understanding
and more stable international conditions in this hemisphere is of
outstanding interest to the State Department. It seems reasonable
that all these interests should be represented in the selection and
guidance of the United States director. If the Board of Governors
is a participant in a group arrangement it is certain to be kept informed of all developments with rospect to the Bank and to have full
opportunity to express its views as to policy. In fact, it may have
greater freedom to maintain a position if the other interested
Government agencies also have a vote and are responsible for the action taken than if the Board alone wore responsible and yet had to
take into consideration other, and perheps conflicting, interests
within the Government. Particularly if the Bank gobs into difficulties (and it will be under constant pressure to lend to borrowers
of doubtful standing) an arrangement involving joint responsibility
might be a protection to the Board.
2. Should the existing ineligibility of the members of
the Board of Governors of the Federal Reserve System, and certain
other Government officials, to serve as a director, officer, or
employee of the Inter-Ameri can Bank be removed?
One possibility woxild be to provide specifically that,
notwithstanding any othor provision of law, any officer or employee
of the United States shall bo eligible to serve as an officer, director, or employee of the Inter-American Bank. Or tho occasion
might be used to obtain a provision broe.d enough to remove the disability of members of the Board and othor officers of the Government to serve any similar institution, which would include the Bank
for International Settlements without naming it specifically.
3. To what extent, if any, should the powers of the Federal Reserve Banks be broadened to permit them to deal with the
Inter-American Bank, purchase its obligations, etc?
It would seem that any such authority of the Federal Reserve Banks should be exercised subject to tha consent of tho Board
of Governors of the Federal Reserve System. With this limitation,
it might be desirable to grant tho Reserve? Bonks very broad powers
to deal with the Inter-American Bank.
4. How should the funds for the United States1 subscription be provided?




L-691
To: Board of Governors

-3-

The source of the funds for the subscription would have
no direct bearing on the appointment of the director for the United
States, except possibly as an additional argument for adopting one
method or another in the legislation. The funds could be provided
by an ordinary appropriation, or by authorizing some agency such as
the Reconstruction Finance Corporation, or possibly the Stabilization Fund, to acquire the stock. One possibility might be to authorize the Board of Governors of the Federal Reserve System to subscribe
for the stock with funds obtained by assessment on the Reserve Banks.
It is respectfully suggested that consideration be given to
these questions of policy as soon as possible and that the staff be
appropriately instructed so that it will be possible to render the
most effective aid in connection with the preparation of any recommendations for legislation relating to the Inter-American Bank.




Respectfully,
(Signed) Walter R. Gardner
Walter R. Gardner
(Signed) Walter Wyatt
Walter Wyatt,
General Counsel.