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F ederal reserve Bank

Dallas, Texas, February 10, 1965

(President’s Balance of Payments Program)

To the Chief Executive Officer of All Banks
in the Eleventh Federal Reserve D istrict:
The President of the United States has today sent to Congress a message setting forth
his program to improve the U. S. balance of payments.
In addition to stressing the vital importance of stability ofdomestic costs and prices,
the President’s program includes:
(1) Legislation to continue the Interest Equalization Tax through December 31, 1967;
(2) Immediate action under the existing statute to impose the Interest Equalization
Tax on bank loans with m aturity of one year or more;
(3) Legislation to apply the Interest Equalization Tax, retroactive to February 10,
1965, to nonbank credits to foreigners if such credits have a m aturity of one year or more;
(4) A call on the Federal Reserve System — in cooperation with the Treasury — to work
with all banks to limit lending to foreigners;
(5) Legislation to provide immunity from anti-trust laws for specified voluntary programs,
if needed, with respect to foreign loans by banks;
(6) A call on the Department of Commerce to work with corporations with business
interests abroad to effectuate a reduction of their capital outflows;
(7) A more vigorous export promotion drive;
(8) Encouragement of foreign investment in the U. S. through appropriate tax legislation;
(9) Legislation to reduce from $100 to $50 the duty-free allowance of tourists returning
from abroad, and a “See The USA F irst” program designed to increase tourism in the U. S .;
(10) An intensified effort to reduce military expenditures abroad;
(11) Continued action to minimize adverse balance of payments effects of the Foreign
Aid Program.
The Federal Reserve System shares the President’s concern about the deterioration in
our balance of payments and his determination to improve our payments position and to
strengthen confidence in the dollar. The System and the banking and financial community have
been assigned m ajor roles in the President’s program.
The central focus of the program is on measures th at will reduce the outflow of United
States capital. Such flows have been heavy in recent years, and were particularly so in recent
months. In the fourth quarter of 1964, for example, bank credit to foreigners expanded by
$1 billion.
To assure the success of the program, the System is requesting all banks to limit credits
to foreigners th at are not clearly and directly for the purpose of financing exports of U. S.
goods and services. Over all, the objective is to hold outstanding credits (including export
credits) to foreigners during 1965 to a level not over five per cent above the December 31, 1964,

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outstandings. In most instances, this should be the minimum goal for individual banks. Within
the overall limits, certain countries may need bo be given preferential treatm ent. You will be
advised later concerning this.
Outstanding credit to foreigners includes loans, acceptance credits, deposits with foreign
banks (including foreign branches and subsidiaries of U. S. banks), and investments and
acquisitions of assets abroad regardless of m aturity, whether or not they are subject to the
Interest Equalization Tax.
The Federal Reserve program will be further explained under the following procedures:
(1) The President is asking representatives of the financial community to meet with him
to discuss the program set forth in his message to the Congress;
(2) The Chairman of the Board of Governors is asking the bank representatives present
at the President’s meeting to confer with him and the other members of the Board of Governors,
and presidents of the Reserve banks following th at meeting;
(3) Each bank th a t has foreign loans and investments outstanding in excess of $5 million
is being requested to meet individually with representatives of the Reserve bank of their
district for further discussion of the program ;
(4) Technical advisory committees may be invited to meet with Federal Reserve officials
concerning problems th a t arise under the System’s program.
Implementation of the program limiting lending to foreigners will result inevitably in
some hardships for individual lenders and borrowers. This is unfortunate, but the overriding
long-run international position of the dollar is dependent upon your whole-hearted cooperation.
I am confident th at the financial community stands prepared to join with the Federal
Reserve System in this urgent national effort to restore balance of payments equilibrium
and to maintain the dollar “As Good As Gold.” In good part, the success of the President’s
program depends on us.
Yours very truly,
Watrous H. Irons

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