The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
—— , —- ^ May 16, 1947 Dear Mr. Wolcott: In our conversation last Wednesday you mentioned that the Coaaaittee on tanking and Currency had received tie tedit Reports of the Comptroller General to the Congress of the United States on the operations of the Export-Import Eank for 19h$ and 19U6, and invited our couasents thereon in connection Kith 5, 993* which is ponding before the Cas&ittee. Copies of the reports were delivered to us yesterday. It gave us satisfaction to observe nothing in the reports which in any way runs counter to the testimony furnished If us before the uoraaittee, nor anything which constitute a criticism of the operations or policies of the Bank. Ml were gratified to note the conclusion of the Comptroller General on page 27 in the Wh.6 report that "In general we found the syitass of internal control to be satisfactory* The accounts and records were *ell laaintained and adequate to meet require*MKlte, *We found no financial prograns or transactions carried on without authority of Lssr." As to the recommendations contained on pages h, $ and 6 of the 19U& report, we desire to rsake the following observationss UeccsEadtdation Ho, 1> The recoraaendation regarding interest rates to be charged by the Bank on its loans is in accordance with the present policy of the Bank, The Board of Directors of the Bank has established interest rates which in its judgaent cover the interest cost of the public fxxods which it uses and the operating expenses of the hank, with a reasonable risk margin to perelt the accumulation of reserves against future contingencies. We therefore have no quarrel with the reecemendation of the Comptroller General ss a matter of overall policy. However, we wish to point out the d&nger that such a policy, II written into the Bank's statute, sight be construed to piovera the interest rate on each loan and thus haseper the Bank in fixing or adjusting the interest charge on any particular loan in the light of all of the pertinent circtsaetances. Further, one of the elements involved in the determination of appropriate rates of interest to he charged b\ the Bank is an isgponderable risk factor, which should not be trapesed upon the Board of Directors as a statutory matter. *i^ aecospcndation lie. 2 . S , 992 provide* §m paying i n t e r e s t ill borrowings from £he' yV'o', '^treasury a t the cost of those funds t o VNHttury. I t a l s o provides for paying dividends a f t e r providing r e serves for future cositiat'eaeies i H w l necessary by t h e Board of D i r e c t o r s . The President, i n M M M t t a g on a l l government corporat i o n s i n h i s budget message t o Congress of January 3* 1£M7 abated: " I n t e r e s t paid on borrowing© free the Treasury should be based upon the current average r a t e on out— standing sigrket&ble obligations of t h e United obates—ncm about 1*8 percent, dividends should he paid on c a p i t a l stoefc. i f earned, Shade these changes ! • the amount of intraipovermscntal t r a n s a c t i o n s s i l l not a f f e c t the Budget d e f i c i t or s u r p l u s , they will cause the corporations' records t o r e f l e c t ssore nearly the t r u e costs of t h e i r o p e r a t i o n s . " l e believe t h a t 6 . 993 aects the nn|slj*«a»M ef tMa policy and t h a t ti*e policy i s sound. Shere t h e govermient i s conducting a business operation, i t s records should enable Congress and the public t o appraise the corporat i o n ' s r e s u l t s i n accordance with customary and f i n a n c i a l accounting standar-ls. For t h i s reason i t does not see© proper t o t r e a t dividends on c a p i t a l as cost as i s contemplated i n t h i s reeoatsendation of t h e Keca^cendation Mo. 3 . i : or t h e reasons complained above, we f e c i t h a t l;,<.. --/Lire l;:cuxe of 1$U& should be reserved for future losses and accordingly ao dividend should be paid, the scatter Is s o l e l y one of bookkeeping, as the rJ. S. Treasurer i s our sole stockholder and c r e d i t o r . To pa? a dividend, we laould merely borrow frcss Treasnry t o pay Treasury. Ilecoisr^ndatlon 8a> J u Ow eosaents on the second t i c o above' apply equally' 1 t o t S e reeeosuendation t h a t the d i s t i n c t i o n he* tsreen c a p i t a l and l>errowlngs be elisainat The suggestion of the GoRptrolitr Sonera! t h a t the Bank should obtain I t s operating funds by appropriation r a t h e r than by a public debt trans action appears t o us t o be impracticable! for t » e r e a s o n s . F i r s t , the desanda upon the lank during any period and the loans which i t say authorise during t h i s period within the l i M t s of i t s s t a t u t o r y lending authority are t o a l a r g e extent unpredictable and MV !*'ary within wide l i i a i t s . Second, one of the p r i n c i p a l a c t i v i t i e s of the Bank is the financing of the export of c a p i t a l goods on extended c r e d i t terras. Since tis* l i M required for »aimfacture extends ever periods ranging froK s e v e r a l sanths t o several y e a r s , ccsKniteseats for such c r e d i t s must be aade considerably i n advance of disbursement of funds at the ties© of -Jd e l i v e r y . To be v a l i d , those eosar.il e a t s tamt f a l l within the authorized lending autlicrity ox t h e Bank. They feould not 1x2 p r a c t i c a b l e under a system of annual appropriation of funds t o the Bank, I t raay be pointed out a l s o t h a t the Bank nm suhsdts both i t s administrative budget and i t s operating- budget for eae) f i s c a l year t o t h e Appropriation* Gossmlttee for r e v i s e i n accordance »ith the requirements of the Goveranent i,or, oration Control Act. «e si:bsait t h a t there i s an e s s e n t i a l d i s t i n c t i o n between the appropriation . funds which are t o be ejq>ended Tslth no expectation of repayment c~d the provision of funds under a c a p i t a l budget which are t o be invested i n accordance with las? *<?ith •reasonable assurance of repayment," Aecogsaendetion No. 5« This recaw^ndation ol the r e p o r t I s M i as t o ishat the Comptroller General i s suggesting t h e Congress should do by ^ay of sore expressly defining and l i m i t i n g the operations of the Bank. Generally 6pesklK£, ire believe t*;e FaporWl^port Bank Act of IShSt as i t would In awended. toy S, 99i$ does M4 ! orth standards tthich are both s p e c i f i c and workable. The purposes szid objects of the Lank as well as i t s ;>o<eers are c l e a r l y and unequivocally s t a t e d . As t o the one concrete suggestion i s the recces n i d a t i o n t h a t the Congress nay d e s i r e t o isspose a c e i l i n g on the loans t o any one foreign country, the Lank seriously doubts the d e s i r a b i l i t y and f e a s i b i l i t y of any such limitation. In conclusion, M Believe i t i s correct t o say t h a t the r a a y l n i l l n i General's suggestions in the a a i n resolve f M J M t M J i n t o a recoK&endatien for expressed d e t a i l e d provision l a the i'ar&'s l e g i a l a t i o n d i r e c t i n g the Board of Director© t o exercise prudent ttenageaeat of the Bank's a f f a i r s . 'He believe t h a t t h i s o t l i g a t i o a i s i n p l i c i t i n tiie Bank's present s t a t u t e , as i t would be- araended by S. Bx3> and doubt the need of r e s t r i c t i n g the Board«e d i s c r e t i o n and r e s p o n s i b i l i t y . I f you believe i t i n order vse should l i k e t o ha** t h * «fpOP» turdty t o appear before the CoraElttee t o express star views on any changes i n S. 993 which i t new say give eoneideratiaji t o aa a r e s u l t of t h e Comptroller General's r e p o r t , Tlaeaialj yours, ^•^P •^^^"W' aa^a* "™''**y ChairBsan honorable Jesse ? . a o l c o t t Chairssan, Bouse Coraittee on Ittftking and Currency lawhlwtmi D. C« was #
@FedFRASER