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F ederal Reserve

Dallas

bank of

DALLAS, TEXAS

75222

Circular No. 69-309
December 22, 1969

To the Banks, Nonbank Financial Institutions
and Other Firms Addressed in the Eleventh
Federal Reserve District:

There are enclosed copies of a press release and guidelines for the
1970 Voluntary Foreign Credit Restraint Program applicable to com­
mercial banks and nonbank financial institutions.
If you have questions concerning this program or desire addi­
tional copies of the guidelines, please contact Vice President Cowan.
Yours very truly,

P. E. Coldwell
President

Enclosure

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL
press

RESERVE

release

For im m e d ia te r e l e a s e .

December 17,

1969.

The Board of Governors of the Federal Reserve System
announced today a revision in guidelines that U.S. banks and other
financial institutions have been asked to follow in order to limit
increases in loans and investments abroad.
The revised guidelines continue
restraints in effect since 1965.

However,

the program of voluntary
in keeping with the Govern­

ment's efforts to help stimulate U.S. exports, the guidelines are
changed to give greater and more explicit recognition to the estab­
lished priority for export financing.

The Voluntary Foreign Credit

Restraint Program is one of several elements in the Government's over­
all effort, which also includes the Interest Equalization Tax and the
Foreign Direct Investment Control Program, to strengthen the U.S.
balance-of-payments position.
Under the revised program, each bank is to have a ceiling
exclusively for loans of one year or longer that finance U.S. goods
exported on or after December 1.

This Export Term-Loan Ceiling is to

be separate from a General Ceiling that will be available for loans of
any type and of any maturity.
Under the new program, the aggregate General Ceiling of banks
currently reporting to the Federal Reserve

Board will be

$10.1billion,

and the Export Term-Loan Ceiling for these

banks will be

about

billion, for a total ceiling of $11.4 billion.

Aggregate ceilings

under the previous guidelines were $10.1 billion.

As of the end of

$1.3

-2 -

October, the latest date for which data are available, the 165
reporting banks were approximately $1 billion below their ceilings.
The guidelines for nonbank financial institutions, such as
insurance companies and pension funds, continue to provide for a
single ceiling.

However, an institution may exceed its ceiling

moderately if the excess reflects new export credits which could not
be accommodated under its ceiling.

In addition, an institution that

has had either a low ceiling, or none at all, may now hold certain
covered foreign assets up to a total of $500,000.
The effective date for these changes in both the bank and
nonbank provisions is December

1.

Governor Andrew F. Brimmer, the Board member charged with
administering the program, explained that the modifications have two
objectives.

The first aim, in accordance with the Government's

effort to promote exports, is to direct greater attention to the
existing priority for export financing, particularly for long-term
export loans, within the limits of total lending restraints.

The

second aim is to enhance the opportunities among U.S. financial insti­
tutions to compete for foreign lending business.
Under the revised program, a participating bank will have a
General Ceiling equal to its old lending ceiling which can be used for
any type and maturity of foreign loans.

Each participating bank will

also have an Export Term-Loan Ceiling equal to one half of 1 per cent
of its end-of-1968 total assets which can be used for term loans to
finance new U.S. exports.

-3-

The definition for these export term loans is the same
as the definition banks have been using in reports to the Treasury
Department on loans and commitments in connection with the Interest
Equalization Tax.

Essentially these are loans, for one year or

longer and each of $250,000 or more, for U.S. exports of goods and
for services performed abroad by U.S. firms.

Any such loans granted

for goods shipped, or services performed, after November 30, 1969,
will be counted against a bank's Export Term-Loan Ceiling or, if the
bank wishes, against its General Ceiling.
By setting a separate category for long-term export loans
and asking that, even among short-term loans, banks continue to give
priority to export financing, the revised guidelines should ensure
that a greater amount -- and proportion -- of U.S. bank loans to
foreigners will be used to finance the purchase of U.S. goods and
services.

Similarly, by providing that General Ceilings be reduced,

and Export TermrLoan Ceilings increased, by repayment of presently out­
standing export term-loans, the guidelines would preserve the lending
leeway for export financing.
Utilization of total assets of banks as a base for com­
puting the new export credit ceiling will make the foreign credit
restraint program more equitable in its treatment of banks.

Since

1965, the program has tended to freeze the pattern of foreign lending
among banks.

The guidelines for the larger banks have been based

on the amount of foreign loans the banks held at the end of 1964.
The ceilings for smaller banks, however, have been a percentage of

their total assets.

Now total assets, which are not directly related

to the relative standings of banks in the foreign loan field, will be
used for calculating the Export Term-Loan Ceilings of all banks.
Under the new program, banks which had no ceilings under
previous guidelines may qualify for lending ceilings through applica­
tion to the Federal Reserve Bank in their District.

These ceilings

are to be used predominantly for export financing.
Funds of all types advanced to residents of Canada continue
to be exempted from the program.

Canada has been exempted since the

end of February, 1968, when the Canadian Government took steps to
ensure that Canadian financial institutions would not serve as a "pass
through" for U.S. funds.

Banks and other financial institutions are

asked again to give priority to developing countries for loans and
investments under the ceilings.

As in the past, loans that are guaranteed

or participated in by the Export-Import Bank, guaranteed by the Depart­
ment of Defense, or insured by the Foreign Credit Insurance Association
are exempted from the ceilings.

The exemption for long-term investments

in Japan by nonbank financial institutions will not apply to investments
made after this year but will continue for investments already held.
Governor Brimmer reported that, during the first ten months
of 1969, the banks have reduced their foreign assets covered by the pro­
gram by $138 million.

In 1968, there was a net inflow of $612 million,

compared with a suggested reduction of $400 million.

In the third

quarter of this year, a reduction in foreign assets more than offset a
substantial outflow which occurred in the second quarter.

-5At the end of

October,

1969, the banks' covered assets, at

$9.1 billion, were almost $400 million below the amount of such assets
outstanding on the base date, December 31, 1964.
A copy of the revised guidelines is attached.

Copies will

be made available to financial institutions through the Federal Reserve
Banks.
-0 -

Attachment

December 17, 1969.

Revised Guidelines for Banks
and Nonbank Financial Institutions

I.

General Purpose
In order to help to strengthen the U.S. balance of payments,

U.S. financial institutions are asked to continue to restrain their
foreign loans and investments and, within the limits of the restraints,
to give priority to financing U.S. exports of goods and services and to
meeting the credit needs of developing countries.
II. Banks
A.

Ceilings
1.

Banks with ceilings under previous guidelines
A bank that had a foreign lending ceiling under the Federal
Reserve foreign credit restraint guidelines in existence on
November 30, 1969 (hereafter "previous guidelines") will have,
under the present revised guidelines, a General Ceiling and
an Export Term-Loan Ceiling.

The General Ceiling will be

available for foreign claims of any type and maturity, in­
cluding Export Term Loans; subject to the definitions and
other conditions set forth below, the Export Term-Loan
Ceiling will be available solely for foreign export term
loans.

- 2 -

a.

General Ceiling
i) The General Ceiling will be equal to the bank's
adjusted ceiling as of November 30, 1969.
ii) A bank should not at any time hold claims on foreigners
in excess of its General Ceiling, except for the claims
which it reports under its separate Export Term-Loan
Ceiling described in section A-l-b, below,
iii) Within its General Ceiling, a bank should give priority
to credits financing exports of U.S. goods and services
and to credits meeting the needs of developing countries

b.

Export Term-Loan Ceiling
i) The Export Term-Loan Ceiling will be equal to 0.5 per
cent of the bank's total assets as of December 31, 1968.
ii) A bank should not at any time hold claims on foreigners
that are export term loans, as defined in section G-3,
below, to finance goods exported from the United States
after November 30,1969, or to finance services performed
in foreign countries by U.S. individuals or U.S. firms
after November 30, 1969, in excess of the bank's Export
Term-Loan Ceiling, except such export term loans as the
bank

counts against its General Ceiling, described in

section A-l-a, above.

- 3 -

2•

Banks without ceilings under previous guidelines
A bank that has not had a foreign lending ceiling under the
previous guidelines may discuss with the Federal Reserve Bank
in its District the possibility of adopting a General Ceiling
and an Export Term-Loan Ceiling.

In determining whether and,

if so, in what amount, ceilings should be established, there
should be clear reason for expecting that the bank will use
such ceilings predominantly for short- and long-term export
loans.

Any General Ceiling, and any Export Term-Loan Ceiling

should not, in the aggregate, exceed 1 per cent of the bank's
total assets as of December 31, 1968.
3.

Western Europe
a.

Ceiling adjustment for prior term loans.

A bank each

month should reduce its General Ceiling by the dollar
amount of any repayments it receives on nonexport loans
to residents of developed countries of continental
Western Europe outstanding on December 31, 1967.
b.

Restraint on new nonexport term loans.

A bank should not

make new term loans to such residents, except loans that
qualify as Export Term Loans.
c.

Short-term credits.

A bank should hold the amount of

short-term credits (having an original maturity of not
over one year) to such residents to

not more than 75

cent of the amounts of such credits

outstanding on

December 31, 1967.

per

- 4 4.

Adjustment for P r io r Export Term Loans.
A bank each month should reduce its General Ceiling, and should
increase its Export Term-Loan Ceiling, by the dollar amount of
any repayments it receives on Export Term-Loans outstanding on
November 30, 1969,

5.

Sales of Foreign Assets
a.

Sales without recourse.

A bank that sells a foreign claim

that is subject to the guideline ceilings, without recourse,
(a) to a U.S. resident other than a financial institution
participating in the Federal Reserve foreign credit restraint
program or a direct investor subject to the controls admin­
istered by the Department of Commerce or (b) to the ExportImport Bank should reduce its General Ceiling or its Export
Term-Loan Ceiling,whichever is relevant, by an equivalent
amount.
b.

Sales with recourse.

A bank that sells a foreign asset,

with recourse, to a U.S. resident other than a financial
institution participating in the Federal Reserve foreign
credit restraint program or to a direct investor subject
to the Foreign Direct Investment Program administered by
the Department of Commerce should continue to report
those assets under its General Ceiling or its Export
Term-Loan Ceiling, as appropriate.
6.

Total Assets
For the purpose of calculating»the Export Term-Loan Ceiling,
total assets are those shown in the Official Report of Condi­
tion submitted to the relevant supervisory agency as of
December 31, 1968.

- 5 -

B.

Exclusion
1.

Canada
a.

No restraint.

These guidelines are not to restrain the

extension of credit to residents of Canada.
b.

Reporting.

For the purpose of reporting claims under the

General Ceiling,

a bank should count against its General

Ceiling claims on residents of Canada outstanding on
February 29,

1968, deducting any net increase in such claims

granted after that date and adding any net reduction in
such claims granted after that date.
2.

Certain Guaranteed and Insured Loans
Loans to finance U.S.

exports that are guaranteed,

or partici­

pated in, by the Export-Import Bank, or guaranteed by the D e ­
partment of Defense,

or are insured by the Foreign Credit

Insurance Association are exempted from the General Ceiling
and the Export Term-Loan Ceiling.
C.

Temporary Overages
A bank whose claims on foreigners are in excess of either or both
of its ceilings and which does not show improvements will be
invited periodically to discuss with the Federal Reserve Bank in
its District the steps it has taken and that it proposes to take
to bring the amount of its claims under the ceilings.

-

D.

6

-

Applica bi lit y to Financial Institutions

1.

Genera 1
The guidelines are applicable to all U.S. banks (exclusive
of the trust departments of commercial banks, v/hich should
follow the guidelines for nonbank financial institutions in
Part III, below) and to "Edge Act" and "Agreement" Corpora­
tions.

2.

E d g e Act and Agreement Corporations

a.

Policy of limiting aggregate ceilings.

It is intended

that the establishment of new Edge Act Corporations or
new Agreement Corporations not result in the expansion
of aggregate lending ceilings under these guidelines.
b.

One-bank owned Corporations.

An Edge Act or Agreement

Corporation that is owned by one bank and that, under
previous guidelines, had a ceiling separate from that
of its parent bank may continue to be guided by General
and Export Term-Loan Ceilings separate from those of its
parent or may combine its foreign loans and investments
with the respective General and Export Term-Loan Ceilings
of its parent.

The General Ceiling and the Export Term-

Loan Ceiling to which it would be entitled if it did not
combine would be calculated as under section A-l, above,
on the basis of the Corporation's total assets and its
adjusted ceiling under previous guidelines.

An Edge Act

or Agreement Corporation that is owned by one bank and that
was established after March 3, 1965 should share the
General and Export Term-Loan Ceilings of its parent bank.

- 7 -

c.

Multi-bank owned Corporations.
i) Separate Ceilings.

An Edge Act or Agreement Corpor­

ation that is owned by more than one bank or by a
registered bank holding company will have a General

Ceiling and an Export Term-Loan Ceiling separate
from those of its parents.

The Corporation's

General Ceiling and Export Term-Loan Ceilings are
each to be equal; respectively, to 100 per cent and
10 per cent of its adjusted ceiling as of November 30,
1969.
ii) Transfer of Parent's Ceiling.
crease ceilings,

To acquire or to in­

such an Edge Act or Agreement Corpor­

ation may receive from one

or more of its parent banks

a share of the ceilings of

the parent or parents.

transferred to the Corporation,

Once

the ceilings should

not be transferred back to the parent or parents, e x­
cept to meet unforeseen and overriding developments.
If any such exceptional need for retransfer should
arise, the Corporation and

its parent or parents

should consult in advance with the Federal Reserve
in their respective Districts.
3.

Bank Holding Companies
a.

Registered bank holding companies.

A

registered bank

holding company is to be treated as a bank for the pur­
pose of these guidelines.

Bank

- 8 -

b.

One-bank holding companies.

A one-bank holding company

whose bank subsidiary has ceilings under these guidelines
is to be treated as a bank for the purpose of these
guidelines.

Such a holding company,

together with its

bank subsidiary and any nonbank subsidiary,
on a consolidated basis.

However,

the Export Term-Loan Ceiling,

should report

the General Ceiling and

respectively, are to be calcu­

lated on the basis of the celling of the bank subsidiary
under the previous guidelines and on the basis of the bank
subsidiary's total assets.

Furthermore,

to minimize changes

from earlier established procedures, any nonbank subsidiary
that was reporting prior to December 1, 1969, to the D e ­
partment of Commerce under the Foreign Direct Investment
Program or to a Federal Reserve Bank under the nonbank
financial institution guidelines should not report under
these bank guidelines.
c.

Consolidation of subsidiaries' ceilings.
(including a bank, Edge Act Corporation,

A bank subsidiary
or Agreement Cor­

poration) of a registered bank holding company may consoli­
date its General Ceiling and Export Term-Loan Ceiling with
the respective ceilings of one or more of the holding
company's other bank subsidiaries which had ceilings under
previous guidelines.
4.

Foreign Branches of U.S. Banks
a.

The guidelines are not designed to restrict the extension
of foreign credits by foreign branches of U.S. banks if

- 9 -

the funds utilized are derived from foreign sources and
do not add to the outflow of capital from the United States.

b.

Total claims of a bank's domestic offices on its foreign
branches (including permanent capital invested in, as well
as balances due from, such branches) represent bank credit
to foreigners for the purposes of the program.

E.

Conformity with Objectives of Guidelines
1.

Department of Commerce Program and Nonbank Financial Institu­
tion Guidelines
Banks should avoid making loans that would directly or
indirectly enable borrowers to use funds abroad in a
manner inconsistent with the Department of Commerce
program or with the guidelines for nonbank financial
institutions.

2.

Substitute Loans
Banks should not extend to U . S .-resident subsidiaries, or
branches,of foreign companies loans that otherwise might
have been made by the banks to the foreign parent or
other affiliate of the company or that normally yould
have been obtained abroad.

3.

Management of Liquid Assets
A bank should not place its own funds abroad (other
than in Canada) for short-term investment purposes,
whether such investments are payable in foreign cur­
rencies or in U.S. dollars.

Banks need not, however,

reduce necessary working balances held with foreign
correspondents.

-

4.

10 -

Transactions for Customers
While recognizing that it must follow a customer's
instruction, a bank should discourage customers from
placing liquid funds outside the United States, except
in Canada.

A bank should not place with a customer

foreign obligations that, in the absence of the guide­
lines,

it would have acquired or held for its own

account.
5.

U.S. Branches and Agencies of Foreign Banks
Branches and agencies of foreign banks located in the
United States are requested to act in accordance with
the spirit of these guidelines.

F.

Reporting
Each bank that has ceilings under these guidelines and that on
a reporting date had $500,000 or more in foreign claims should
file a Monthly Report on Foreign Claims with the Federal Reserve
Bank in the District in which the bank is located.

(Forms are

available at the Federal Reserve Banks.)
G.

Definitions
1.

"Foreigners" include:

individuals, partnerships, and corpora­

tions domiciled outside the United States,

irrespective of

citizenship, except their agencies or branches located within
the United States; branches, subsidiaries, and affiliates of

- 11 -

U.S. banks and other U.S. corporations that are located in
foreign countries; and any government of a foreign country
or official agency thereof and any official international
or regional institution created by treaty,

irrespective of

location.
2.

"Claims on foreigners" are claims on foreigners held for a
bank's own account.

They include:

foreign long-term securi­

ties; foreign customers’ liability for acceptances executed,
whether or not the acceptances are held by the reporting
banks; deferred payment letters of credit described in the
Treasury Department's Supplementary Reporting Instructions
No.

1, Treasury Foreign Exchange Reports, Banking Forms,

dated Hay 10, 1968; participations purchased in loans to
foreigners;

loans to financial subsidiaries incorporated

in the United States, 50 per cent or more of which is owned
by foreigners; and foreign assets sold, with recourse,

to

U.S. residents other than financial institutions partici­
pating in the Federal Reserve credit restraint program or
direct investors subject to the controls administered by
the Commerce Department.

"Claims on foreigners" exclude:

contingent claims; unutilized credits; claims held for
account of customers; acceptances executed by other U.S.
banks; and, in the manner determined in section B-l-b
above, claims on residents of Canada.

- 12 -

3.

An Export Term Loan is a loan of which a U.S. commercial bank
would have to notify the Treasury Department under that Depart­
m e n t ^ Interest Equalization Tax reporting requirements being
applied on December 1, 1969, concerning loans, or commitments,
to foreign obligors.

In summary, such loans include or ex ­

clude the following.

They include credits of an original

maturity of one year or more and of an amount of $250,000 or
more to a foreign obligor for U.S. goods exported or for U.S.
services performed abroad.

The loans may be made directly

by a bank or may be made indirectly by a bank through its
purchase of documented loan paper.

present guidelines,

For the purpose of the

such loans that are to be counted against

the Export Term-Loan Ceiling are confined to credits fi­
nancing U.S. exports shipped after November 30, 1969, or
services performed abroad by U.S.

individuals or U.S.

firms

after November 30, 1969. The loans exclude debt obligations
acquired by a bank and having less than a year of remaining
term until maturity (regardless of original length of
maturity).

The loans also exclude Export-Import Bank

certificates of participation in a pool of loans.
(Participations with the Export-Import Bank in particular
loans and loan paper purchased from the Export-Import Bank
of foreign obligors are exempted under section II-B-2,
above.)

It should be noted that,

in accordance with IET

- 13 -

usage, Export Term-Loans have a maturity of one year or more,
whereas, as used elsewhere in these guidelines,

term loans

of other types have a maturity of more than one year and,
conversely,

short-term credits have a maturity of one year

or less.

4.

Developing countries are all countries other than:
Australia, Austria,

Abu Dhabi,

the Bahamas, Bahrain, Belgium, Bermuda,

Canada, Denmark, France, Germany (Federal Republic), Hong Kong,
Iran, Iraq, Ireland, Italy, Japan, Kuwait, Kuwait-Saudi Arabia
Neutral Zone, Libya, Liechtenstein, Luxembourg, Monaco, Nether­
lands, New Zealand, Norway, Portugal, Qatar, Republic of South
Africa, San Marino, Saudi Arabia, Spain, Sweden, Switzerland,
and the United Kingdom; and other than:

Albania, Bulgaria,

the People's Republic of China, Cuba, Czechoslovakia,

Estonia,

Hungary, Communist-controlled Korea, Latvia, Lithuania, Outer
Mongolia, Poland (including any area under its provisional
administration), Rumania, Soviet Zone of Germany and the
Soviet sector of Berlin, Tibet, Union of Soviet Socialist
Republics and the Kurile Islands,

Southern Sakhalin, and

areas in East Prussia that are under the provisional admin­
istration of the Union of Soviet Socialist Republics, and
Communist-controlled Vietnam.

- 14 III.

Nonbank Financial Institutions
A.

Types of Institutions Covered
The group of institutions covered by the nonbank guidelines
includes:

trust companies; trust departments of commercial banks;

mutual savings banks; insurance companies; investment companies;
finance companies; employee retirement and pension funds; college
endownment funds; charitable foundations; the U.S. branches of
foreign insurance companies and of other foreign nonbank financial
corporations; and holding companies (other than bank holding
companies) whose domestic assets consist primarily of the stock
of operating nonbank financial institutions.
writing firms,

Investment under­

securities brokers and dealers, and investment

counseling firms also are covered with respect to foreign
financial assets held for their own account and are requested to
inform their customers of the program in those cases where it
appears applicable.

Businesses whose principal activity is the

leasing of property and equipment,

and which are not owned or

controlled by a financial institution, are not defined as financial
institutions.
B.

Ceiling and Priorities
Each institution is requested to limit its aggregate holdings of
foreign assets covered by the program to no more than 100 per cent of
the adjusted amount of such assets held on December 31, 1967, except
for special situations discussed in K below.
Institutions generally are expected to hold no foreign deposits
or money market instruments (other than Canadian).

However, an

institution may maintain such minimum working balances abroad as are
needed for the efficient conduct of its foreign business activities.

-• 15 -

Among other foreign assets that are subject to the guideline
celling, Institutions are asked to give first priority to credits
that represent the bona fide financing of U. S. exports, and second
priority to credits to developing countries.

In addition, Institutions

are requested not to increase the total of their Investments In the
developed countries of continental Western Europe beyond the amount
held on December 31, 1968, except for new credits that are judged to
be essential to the financing of U. S. exports.

This means that

reductions through amortizations, maturities, or sales may be offset
by new acquisitions In these countries.

However, Institutions are

expected to refrain from offsetting proceeds of sales to other
Americans by new acquisitions from foreigners.
Institutions may Invest In noncovered foreign assets generally
as desired.

However, they are requested to refrain from making any

loans and Investments, noncovered as well as covered, which appear
to be Inconsistent with other aspects of the President's balance of
payments program.
1.

Among these are the following:

Noncovered credits under this program that substitute directly
for loans that commercial banks would have made In the absence
of that part of the program applicable to them.

2.

Noncovered credits to developing country subsidiaries of U. S.
corporations that would not have been permitted under the Department
of Commerce program If made by the U. S. parent directly.

3.

Credits to U. S. corporate borrowers that would enable them to
make new foreign loans and Investments Inconsistent with the
Department of Commerce program.

-

4.

16

-

Credits to U. S. subsidiaries and branches of foreign companies
that otherwise would have been made to the foreign parent, or
that would substitute for funds normally obtained from foreign
sources.

C.

Covered Assets
Covered foreign financial assets, subject to the guideline
ceiling, include the following types of investments, except for
"free delivery" items received after December 31, 1967:
1.

Liquid funds in all foreign countries other than Canada.

This

category comprises foreign bank deposits, including deposits in
foreign branches of U. S. banks, and liquid money market claims on
foreign obligors, generally defined to include marketable
negotiable instruments maturing In 1 year or less.
2.

All other claims on non-Canadian foreign obligors written, at
date of acquisition, to mature in 10 years or less.

This category

includes bonds, notes, mortgages, loans, and other credits.
Excluded are bonds and notes of international institutions of which
the United States is a member, regardless of maturity.

Excluded

also are loans guaranteed or participated in by the Export-Import
Bank, guaranteed by the Department of Defense, or insured by the
Foreign Credit Insurance Association.
3.

Net financial investment in foreign branches, subsidiaries
and affiliates,
Canada.— ^

T7

See Note on p . 22.

located in developed countries other than

Such financial investment includes payments into

- 17 equity and other capital accounts of, and net loans and advances
to, any foreign businesses in which the U. S. institution has
an ownership interest of 10 per cent or more.

Excluded are

earnings of a foreign affiliate if they are directly retained in
the capital accounts of the foreign business.
4.

Long-term credits of foreign obligors domiciled in developed
countries other than Canada.— ^
are bonds, notes, mortgages,

Included in this category

loans, and other credits matur­

ing more than 10 years after date of acquisition.

Excluded

are bonds of international institutions of which the United
States is a member.
5.

Equity securities of foreign corporations domiciled in
developed countries other than Canada,— ^ except those acquired
after September 30, 1965, in U.S. markets from American in­
vestors.

The test of whether an equity security is covered

will depend on the institution's obligation to pay the Interest
Equalization Tax on acquisition.

Exclusion from covered assets

under this program normally will be indicated when, in acquiring
an equity security that otherwise would be covered,

the purchas­

ing institution receives a certificate of prior American owner­
ship, or brokerage confirmation thereof.
D.

Base-Date Holdings
Base-date holdings for any reporting date after September 30,
1969, are defined as:
1.

Total holdings of covered foreign assets as of the base date,
which is December 31, 1969
types described in C (3),

for investments in Japan of the
(4), and (5) above, and December 31,

1967 for all other covered assets;

1/

See Note on p. 22.

- 18 -

2.

- '

Minus, equity securities of companies domiciled in developed
countries (except Canada),

that are included in (1) but had

been sold to American investors prior to the current quarter;

3.

Plus, or minus, the difference between sales proceeds and
"carrying1 value of covered equities sold prior to the current
1
quarter to other than American investors or in other than U« S.
markets.

On each reporting date, "carrying" value should

be the value reflected in the institution's report (on
Form FR 392R-68)

for December 31, 1967, in the case of equities

held on that date, and it should be cost in the case of equities
purchased after that date.
"Adjusted" base-date holdings, to which the 100 per cent ceiling
applies, are equal to "base-date" holdings as defined above a d ­
justed for sales during the current quarter of included covered
equities in accordance with the procedures specified in (2) and
(3) of the preceding paragraph.
E.

Noncovered Assets
Foreign financial assets not covered by the guidelines are still
reportable on the quarterly statistical reports to the Federal Reserve
Banks.
1.

Such noncovered foreign investments include the following:

All financial assets in, or claims on residents of, the Dominion
of Canada.

2.

Bonds and notes of international institutions of which the
United States is a member, regardless of maturity.

-

3.

19 -

Long-term investments in all developing countries,

in­

cluding credit instruments with final maturities of more
than 10 years at date of acquisition, direct investment in
subsidiaries and affiliates, and all equity securities issued
by firms domiciled in these countries.
4.

Equity securities of firms in developed countries other than
Canada that have been acquired in U.S. markets from American
investors (see Point 5 above).
Foreign assets of types covered by the program and acquired as
"free delivery” items--that is, as new gifts or, in the case of
trust companies or trust departments of commercial banks, in new
accounts deposited with the institution--are not defined as
covered assets

if they were acquired after December 31, 1967.

Such assets should be reported as a memorandum item, as should
outstanding amounts of loans guaranteed or participated in
by the Export-Import Bank, guaranteed by the Department of
Defense,

or insured by the Foreign Credit Insurance

Association.
F.

Credits to Certain U. S. Corporations
Any loan or investment acquired by a nonbank financial institution
after June 30, 1968, that involves the advance of funds to a domestic
corporation which is simply a financing conduit (commonly known as a
"Delaware sub"), and which in turn will transmit the funds to a
foreign business, should be reported as a foreign asset if one or more
foreigners own a majority of the "Delaware" corporation.

The amounts

of such foreign loans or investments should be classified according to
the country where the funds are actually to be used, not according

- 20 -

to the residence of the owners of the MDelaware"corporation.
In the event that U. S. residents hold a majority ownership
interest in the "Delaware1 corporation, no part of a loan or invest­
1
ment in such a corporation is to be regarded as a foreign asset of the
institution.
G*

Leasing of Physical Goods
The foreign leasing activities of firms which engage

primarily

in the leasing of physical assets (e*g», computers, real property,
ships, aircraft), and which are not owned or controlled by a U. S.
financial institution, are not reportable under the nonbank program.
However, such activities are reportable when they are undertaken by
nonbank financial institutions.

These institutions should report the

book value of any physical assets leased to foreigners on the
appropriate line of the quarterly form they file with their Federal
Reserve Bank.
H.

Investment in Certain Foreign Insurance Ventures
Net investment in foreign insurance ventures should be reported
as such wherever possible.

In the case of any such ventures in which

there is no segregated net investment, the U. S. insurance company may
exclude from its foreign assets investments within the foreign country
involved, in amounts up to 110 per cent of reserves accumulated on
insurance sold to residents of that country, or (if it is larger) the
minimum deposit of cash or securities required as a condition of doing
insurance business within that country.
It

Long-Term Credits to Developing-Countrv Businesses
Institutions are requested to discuss with their Federal
Reserve Bank in advance any future long-term loans or direct security

-

21

-

placements that would involve extensions of credit of $500,000 or
more to private business borrowers located in the developing
countries.
J.

Reporting Requirement
Each nonbank financial institution holding, on any quarterly
reporting date, covered assets of $500,000 or more, or total foreign
financial assets of $5 million or more, is requested to file a
statistical report covering its total holdings on that date with the
Federal Reserve Bank of the Federal Reserve district in which its
principal office is located.

The reports are due within 20 days

following the close of each calendar quarter, and forms may be
obtained by contacting the Federal Reserve Bank.
K.

Covered Assets in Excess of Ceiling
1.

In view of the balance of payments objectives of the program,
it is noted that covered investments of nonbank financial
institutions may be permitted to exceed the guideline ceiling
to the extent that the funds for such investment are borrowed
abroad for investment in the same country or in countries that
are subject to the same or more liberal guideline limitations.
Thus, funds borrowed in the developed countries of continental
Western Europe may be used to finance investments in these
countries and elsewhere, and funds borrowed in other developed
countries (except Canada) may be used to finance investment
in covered foreign assets anywhere but in the developed
countries of continental Western Europe.

Any institution desir­

ing to offset foreign borrowing against foreign investment, how­
ever, should discuss its plans with the Federal Reserve Bank
before entering into such an arrangement.

- 22 m

2.

effort

.

i

While institutions are expected to make every reasonable

w

to reduce outstanding nonexport credits in order to

accommodate new export credits within their guideline ceiling,
such a reduction may not be feasible for some institutions.
An institution that can not avoid exceeding its guideline ceiling
if it makes new loans to finance U.S. exports--excluding loans
that are guaranteed or participated in by the Export-Import Bank,
guaranteed by the Department of Defense, or insured by the
Foreign Credit Insurance Association--should notify its Federal
Reserve Bank of the prospective overage before making such loans.
3.

An institution with a guideline ceiling of less than $500,000 may
hold covered assets up to this amount if ite investments are
consistent with other guideline provisions, e.g., those with
respect to liquid funds and to nonexport credits to the developed
countries of continental Western Europe. The institution is
expected to file an initial statement of its holdings with its
Federal Reserve Bank and thereafter to file a statement with the
Bank within 20 days after the end of any calendar quarter when
its total holdings of covered foreign assets have changed by as
much as $100,000 since its previous report, even though its total
holdings remain below the minimum reporting levels stipulated
in the guidelines.

Note.--Developed countries other than Canada:
continental Western Europe-Austria, Belgium, Denmark, France, Germany (Federal Republic), Italy,
Liechtenstein, Luxembourg, Monaco, Netherlands, Norway, Portugal, San Marino,
Spain, Sweden, and Switzerland; other developed countries are: Abu Dhabi,
Australia, the Bahamas, Bahrain, Bermuda, Hong Kong, Iran, Iraq, Ireland,
Japan, Kuwait-Saudi Arabia Neutral Zone, Libya, New Zealand, Qatar, Republic
of South Africa, Saudi Arabia, and the United Kingdom.
Also to be considered
"developed" are the following countries: Albania, Bulgaria, the People's
Republic of China, Cuba, Czechoslovakia, Estonia, Hungary, Communist-controlled
Korea, Latvia, Lithuania,
Outer Mongolia, Poland (including any area under its
provisional administration), Rumania, Soviet Zone of Germany and the Soviet
sector of Berlin, Tibet, Union of Soviet Socialist Republics and the Kurile
Islands, Southern Sakhalin, and areas in East Prussia which are under the
provisional administration of the Union of Soviet Socialist Republics, and
Communist-controlled Vietman.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102