Full text of Federal Reserve Bank of New York Circulars : 4044. Validation of German Dollar Bonds

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FE D E RA L R E SE R V E BANK
OF NEW YORK
TCircular No. 4 0 4 4 *1
L November 13, 1953 J

V A L I D A T IO N O F G E R M A N D O L L A R B O N D S

T o a ll B a n k i n g I n s t i t u t i o n s i n t h e
S econ d F ed era l R eserv e D is tr ic t:

On the reverse side is a copy o f a letter from the Department o f
State to the Chairman of the Board o f Governors o f the Federal Reserve
System. The letter states that German Government, Municipal, and
Corporate dollar bonds cannot be enforced in this country unless they
are validated by a Board, which has been established fo r this purpose.
The text o f the letter is being sent to financial institutions to apprise
them o f the validation program and to caution them against making
loans on German dollar bonds that are not validated.
Additional copies o f this circular will be furnished upon request.




A llan S proul,

P resident.

(O V E li)

DEPARTMENT

OF

STATE

W ASHIN GTON

October 26, 1953

T h e H on orable
W

il l ia m

M

cC h e s n e y

M

a r t in

, J r .,

Chairman, Board of Governors of the
Federal Reserve System.
M

y

D

ear

M

r.

C

h a ir m a n

:

U nder date o f A p ril 1, 1953, this G overnm ent entered into a T reaty w ith the G overnm ent o f the Federal
R epu blic o f Germ any which renders unenforcible in the United States all Germ an G overnm ent, M unicipal and
C orporate dollar bonds w hich are su bject to validation, unless and until such bonds have been duly vali­
dated. T his T reaty was approved by the U nited States Senate on July 13, 1953, and entered into fo rce on
Septem ber 16, 1953.
T h is G overnm ent also entered into an agreem ent w ith the G overnm ent o f the Federal R epu blic o f Germ any
on F ebruary 27, 1953, w hich established procedures fo r the validation o f Germ an dollar bonds in the U nited
States. U n der this A greem en t, a V alidation B oard is established to determine the eligibility of bonds for vali­
dation. T h e B oard has its seat in N e w Y o r k City and com m enced operations o n Septem ber 1, 1953. A
certificate o f validation w ill be attached to each bond validated by the Board.
T he purpose o f the program fo r the validation o f Germ an dollar bonds is to render invalid and worthless
the large volum e o f such bonds, estimated at several hundred m illion dollars, w hich were purchased fo r redem p­
tion by the Germ ans p rior to the war and which fo u n d their way into S oviet hands after the occupation of
Berlin. T h e validation arrangements which have been w orked out will perm it debtors and creditors to p ro ­
ceed to the orderly settlement o f the obligations arising from Germ an dollar bonds with confidence in the
stability o f the procedures regarding validation and w ith assurance that claims prejudicial to such settlement
will not be asserted on the basis o f bonds w hich were unlaw fully acquired.
T he D epartm ent is in form ed that the S oviet G overnm ent has disposed o f som e o f the looted bonds on sev­
eral E uropean m arkets and is attem pting to d o so in the U nited States. It w ould be extrem ely unfortunate if
these looted bonds fou n d their way into our securities markets.
Publicity has been given by the V alidation B oard and otherwise to the validation program and the public
has been cautioned against dealing in non-validated dollar bonds o f Germ an issue. It w ou ld be helpful if the
Federal R eserve B oard w ould take such steps as may be appropriate to bring this inform ation to the attention
o f financial institutions in the U nited States so as to avoid the possibility o f such institutions m aking loans on
non-validated Germ an dollar bonds. Such action w ou ld aid in im plem enting the objectives o f this G overnm ent
as stated in the T rea ty o f A p ril 1, 1953.
T h e V alidation B oard consists o f tw o m em bers, on e appointed by this G overnm ent and one appointed by
the Germ an Federal Governm ent, and a Chairman appointed by the tw o G overnm ents join tly . F urther in for­
m ation regarding the validation procedures may be obtained from the V alidation B oard and any inquiries should
be addressed to the V alidation B oard fo r Germ an D olla r B onds, Suite 3601, 30 B road Street, N e w Y ork ,
N ew Y o rk .




Sincerely yours,
F o r the Secretary o f S tate:
(S ig n e d )

T

iio r s t e n

N. K

a l ij a r v i

Acting Assistant Secretary
For Economic Affairs