View original document

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

F ederal r eserv e Bank of Dallas
DALLAS, TE X A S

75222

Circular No. 6 9 -8 7
April 9? 1969

Revised 1969 Guidelines for Banks and Nonbank Financial Institutions
Under the President’s Balance of Payments Program

To the Banks, Nonbank Financial Institutions and Other Finns
Addressed in the Eleventh Federal Reserve District:
The following statement was made public on April U, 1 9 6 9 ? by the Board of
Governors of the Federal Reserve System:
The Board of Governors of the Federal Reserve System today issued
revised 1969 guidelines, effective immediately, covering foreign credits
and investments by U. S. banks and other financial institutions. The
revisions represent a modification of earlier announced guidelines, and
are designed to permit additional flexibility to finance U. S. exports
and to resolve some serious equity problems.
The Voluntary Foreign Credit Restraint Program (VFCR) is one of
several elements in the government’s over-all program to strengthen the
U. S. balance of payments position.
Under the revised guidelines, a bank will either retain its present
ceiling on foreign lending or adopt a new ceiling equal to ijr per cent of
its total assets as of December 31? 1968. This formula will permit a
modest increase of $U00 million in the foreign lending ceilings for banks,
which stood at $9*7 billion at the end of last year.
For nonbank financial institutions— such as insurance companies,
mutual funds, finance companies and bank trust departments--the ceiling
on foreign assets will be restored to 100 per cent of the end-of-1 9 6 7
base. The ceiling had earlier been continued at 95 per cent of that
base for the current year. This modification--designed primarily to
simplify administration of the program--will increase the ceiling for
nonbank financial institutions by an estimated § k0 million during 1 9 6 9 .
At the end of last year investments by nonbank financial institutions
covered by the guidelines amounted to $1.U billion.
Governor Andrew F. Brimmer, who administers the program in behalf
of the Board of Governors, said the banks had an unused leeway of $^-75
million at the end of 1 9 6 8 . Thus the revision would potentially allow
banks to increase their existing level of credits to foreigners by about
$875 million. It is expected that the full potential will not be used,
and a substantial leeway will continue to be maintained. Furthermore,
the potential increase will be lessened slightly as bank ceilings continue
to be progressively reduced by the amount of repayments of term loans to
residents of developed countries of continental Western Europe.

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

The program has been in force since February 1965 and -was last revised
in December of last year when guidelines for 1969 were
issued.
Incon­
sidering the program at that time, the Board concluded
that the
balance of
payments prospects for 1969 did not permit any basic change in VFCR. Yet,
in view of the need to improve the trade balance, the Board said it planned
to re-examine the program early in 1969 to determine whether additional
flexibility for financing U. S. exports might be provided in the guidelines.
As part of that review, Governor Brimmer has held a series of seven
regional meetings throughout the country at the Federal Reserve Banks of
Boston, New York, Philadelphia, Atlanta, Chicago, Dallas, and San Francisco.
Representatives of other Federal Reserve Banks and of the reporting commer­
cial banks and other financial institutions participated in these meetings.
Governor Brimmer said it became apparent as the regional meetings
progressed that some additional flexibility in the guidelines was needed
to finance U. S. exports and to reduce inequities among banks of different
size inherent in the VFCR program.
The financing of U. S. exports under the VFCR refers to credits
extended by the banks to foreigners to finance purchases from the United
States. The program
does not affect credits to American producers
and
exporters to finance
U. S. exports.
Under the guidelines issued last December 23, the 1969 ceiling on
foreign credit extensions by banks remained at the level specified in the
guidelines, as adjusted, of one year earlier. For about one half of the
approximately 160 reporting banks (accounting for more than 90 per cent
of the aggregate ceiling), this was essentially 103 per cent of the 1964base. For the remainder of the reporting banks, the ceiling was the 1967
ceiling plus one third of the difference between that amount and 2 per
cent of total assets as of December 31? 1 9 6 6 .
The text of the new guidelines is printed on the following pages. If you
have questions concerning this program, please contact Vice President Cowan.
Additional copies of this circular will be furnished upon request.
Yours very truly,
P. E. Coldwell
President

2

REVISED GUIDELINES
Banks and Nonbank Financial Institutions
I.

GENERAL PURPOSE

In order to help to strengthen the IT. S. balance of
payments, U. S. financial institutions are asked to con­
tinue to restrain their foreign loans and investments.

b. Export credits that result in sales taking
place on credit rather than, in the absence of
such credits, on the basis of cash are not to
be considered as priority credits.
5. W estern Europe

II. BANKS
A.

Ceiling restraints
1. Basic restraint

A bank should not hold claims on foreigners
(defined in G-2 below) at any time in excess of its
ceiling, as determined in 2 below, except for tempo­
rary overages as the result of the extension of export
credit.
2. Ceiling
The foreign lending guideline amount (here­
after “ ceiling” ) for a bank that has been reporting
under previous Federal Reserve foreign credit re­
straint guidelines is the larger o f :
a. the ceiling it was expected to observe on D e­
cember 31, 1968 under the guidelines in ex­
istence on that date ; or
b. 1% per cent of its total assets as of December
31, 1968.

a. Term loans. Banks should not make new term
loans (loans with maturities of over one
year) to residents of developed countries of
continental Western Europe, except to finance
IT. S. exports. A bank’s ceiling should be re­
duced each month by the dollar amount of
any repayments it receives on term loans to
such residents outstanding on December 31,
1967.
b. Short-term credits. Banks should hold the
amount of short-term credits (credits with
original maturities of one year or less) to
residents of these countries to not more than
60 per cent of the amounts of such credits
outstanding on December 31, 1967.
6. E q u ity investments
Equity investments, including those in developed
countries of continental Western Europe, may be
made within a bank’s ceiling, subject to requirements
of the Board of Governors.

3. Special ceiling
a. A bank that, on December 31, 1968, had out­
standing claims on foreigners of less than
$500,000 and that has no special ceiling under
previous guidelines may discuss with the
Federal Reserve Bank in its District the pos­
sibility of adopting a special ceiling adequate
to permit the bank to meet reasonable credit
demands of existing customers or other rea­
sonable credit demands originating in its
normal trade area.
b. In discussing the ceiling of such a bank, the
Federal Reserve Bank will take into account
the bank’s previous experience with foreign
transactions, including acceptance of foreign
deposits or handling foreign collections, and
other circumstances concerning prospects for
the bank’s engaging in foreign transactions.
4. Priority credits
a. W ithin its ceiling, and as among all types of
credit to foreigners, a bank should give first
priority to credits to finance exports of IT. S.
goods (hereafter “ export credits” ) and sec­
ond priority to credits to developing coun­
tries.

7. Sale of foreign assets
A n y bank that sells a claim on a foreigner that
is subject to these restraints, without recourse, (a)
to a U. S. resident other than a financial institution
participating in the Federal Reserve credit restraint
program or other than a direct investor subject to
the controls administered by the Department of Com­
merce or (b) to the Export-Import Bank should re­
duce its ceiling by an equivalent amount.
8.

Total assets

For the purpose of calculating a ceiling under
A-2-b above, total assets are those shown in the Offi­
cial Report of Condition, submitted to the relevant
supervisory agency, as of December 31, 1968.

B.

Exclusions
1. Canada

These guidelines are not to restrain the exten­
sion of credit to residents of Canada. For the pur­
pose of determining the aggregate amount of a bank’s
outstanding claims on foreigners, any net increases
in claims on residents of Canada after February 29,
1968 should be deducted from total claims on foreign­

ers, and any net reductions in claims on residents of
Canada after February 29, 1968 should be added to
total claims on foreigners.
2.

(not associated in a bank holding company)
may be assigned a share or shares of the ceil­
ings of its parent banks. A n y contemplated
reallocations of ceilings to the Edge Act or
Agreement Corporation should be discussed
with the Federal Reserve Bank of the District
in which the bank desiring to make the trans­
fer is located.

Certain guaranteed and insured Joans

Loans to finance U. S. exports that either are
guaranteed, or participated in, by the Export-Import
Bank, or guaranteed by the Department of Defense,
or are insured by the Foreign Credit Insurance Asso­
ciation are exempt from these credit restraints.

C.

3. Bank holding companies
a. A registered bank holding company will be
treated as a bank for the purpose of these
guidelines.
b. Banks and Edge Act or Agreement Corpora­
tions which are owned by a registered bank
holding company may consolidate the ceilings
of one or more banks in the group.

T e m p ora r y overapes

1. A bank would not be considered as acting in­
consistently with the purpose of the guidelines if it
temporarily exceeded its ceiling as the result of the
extension of an export credit.

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

2. Such a bank should, however, refrain from
making new extensions of nonpriority credits so as to
reduce its claims on foreigners to an amount within
the ceiling as quickly as possible. It should also take
every opportunity to withdraw or reduce commit­
ments, including credit lines, that are not of a firm
nature and to assure that drawings under credit lines
are kept to normal levels and usage. A t time of
renewal, each credit line should be reviewed for con­
sistency with the program.
3. A bank whose foreign credits are in excess
of the ceiling will be invited periodically to discuss
with the appropriate Federal Reserve Bank the steps
it has taken and proposes to take to reduce its credits
to a level within the ceiling.

E.

C onform ity with objectives of guidelines

1. Department of Commerce program and non­

bank financial institutions guidelines
D.

A p p lic a b ility to financial in stitutions

1.

General

The guidelines are applicable to all U. S. banks
(exclusive of the trust departments of commercial
banks, which should follow the guidelines for non­
bank financial institutions) and to “Edge A c t” and
“Agreement” Corporations.
2.

Edge A ct and Agreement Corporations

a. Edge Act or Agreement Corporations that,
under previous guidelines, adopted a ceiling
separate from those of their parent banks may
continue to be guided by a separate ceiling or
may combine their foreign loans and invest­
ments with those of their parent banks.
b. No special ceilings are provided for Edge Act
or Agreement Corporations established after
March 3, 1965. A n Edge Act or Agreement
Corporation which has been established after
March 3, 1965, as a subsidiary of one bank
should share the ceiling of the respective par­
ent bank. An E dge Act or Agreement Corpo­
ration which has been formed after March 3,
1965, and is a subsidiary of two or more banks

Banks should avoid making loans that would di­
rectly or indirectly enable borrowers to use funds
abroad in a manner inconsistent with tlie Department
of Commerce program or with the guidelines for
nonbank financial institutions.
2. Substitute loans
Banks ahonld not extend to IT. S. subsidiaries and
to branches of foreign companies loans that other­
wise might have been made by the banks to the for­
eign parent or other affiliate of the company or that
normally would 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 currencies or in F. S. dollars. Banks need
not, however, reduce necessary working balances held
with foreign correspondents.
4. Transactions for customers
While recognizing that it must follow a cus­
tom er’s instruction, a bank should discourage cus­

tomers from placing liquid funds outside the United
States, except in Canada. A bank should not place
with a customer foreign obligations that, in the ab­
sence of the guidelines, it would have acquired or
held for its own account.
5. V . S. branches and agencies of foreign banks
Branches and agencies of foreign banks located
in the United States are requested to act in accord­
ance with the spirit of these guidelines.
F.

Reporting

Each bank that is eligible for a ceiling under these
guidelines should file a Monthly Report on Foreign
Claims (Form FR 391/69.1) with the Federal Re­
serve Bank in the District in which the bank is
located. (Forms are available at the Federal Reserve
Banks.)
G.

Definitions

1. “ Foreigners” include: individuals, partner­
ships, and corporations domiciled outside the United
States, irrespective of citizenship, except their agen­
cies or branches located within the United States;
branches, subsidiaries, and affiliates of 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 for­
eigners held for a bank’s own account. They include:
foreign long-term securities; foreign customers’ lia­
bility for acceptances executed, whether or not the
acceptances are held by the reporting banks; deferred
payment letters of credit described in the Treasury
D epartm ent’s Supplementary Reporting Instruction
Xo. 1, Treasury Foreign Exchange Reports, Banking
Forms, dated May 10, 1968; participations purchased
in loans to foreigners (except loans guaranteed or
participated in by the Export-Import Bank or guar­
anteed by the Department of Defense, or insured by
the Foreign Credit Insurance Association) ; 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 par­
ticipating 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; ac­
ceptances executed by other U. S. banks; loans to
finance II. S. exports guaranteed or participated in
by the Export-Import Bank or guaranteed by the
Department of Defense or insured by the Foreign
Credit Insurance Association; and, in the manner

determined in B -l above, claims on residents of Can­
ada.
3. “Credits to finance exports of U. S. goods”
and “export credits” are transactions that are identi­
fiable through documents available to the bank.
4. Developing countries arc all countries other
than: Abu Dhabi, Australia, Austria, the Bahamas,
Bahrain, Belgium, Bermuda, Canada, Denmark,
France, (Germany (Federal Republic), Ilong Kong,
Iran, Iraq, Ireland, Italy, Japan, Kuwait, KuwaitSaudi Arabia Neutral Zone, Libya, Liechtenstein,
Luxembourg, Monaco, Netherlands, New Zealand,
Nonvay, Portugal, Qatar, Republic of South Africa,
San Marino, Saudi Arabia, Spain, Siveden, Switzer­
land, and the United Kingdom; and other than: A l­
bania, Bulgaria, the People’s Republic of China, Cuba,
Czechoslovakia, Estonia, Hungary, Communist-con­
trolled Korea, Latvia, Lithuania, Outer Mongolia,
Poland (including any area under its provisional ad­
ministration), Rumania, Soviet Zone of (Jermany and
the Soviet sector of Berlin, Tibet, Union of Soviet
Socialist Republics and the Kurile Islands, Southern
Sakhalin, and areas in East Prussia that arc under
the provisional administration of the Union of Soviet
Socialist Republics, and Communist-controlled V iet­
nam.
III.
A.

N O N B A N K FINANCIAL INSTITUTIONS
Types of institutions covered

The group of institutions covered by the nonbank
guidelines includes: trust companies; trust depart­
ments of commercial banks; mutual savings banks; in­
surance companies; investment companies; finance
companies; employee retirement and pension funds;
college endowment funds; charitable foundations; and
the U. S. branches of foreign insurance companies and
of other foreign nonbank financial corporations. In ­
vestment underwriting firms, securities brokers and
dealers, and investment counseling firms also are cov­
ered 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 ap­
pears 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.
Institutions generally are expected to hold no
foreign deposits or money market instruments (other
than Canadian). However, an institution may main­
tain such minimum working balances abroad as are
needed for the efficient conduct of its foreign business
activities.

Among other foreign assets that are subject to the
guideline ceiling, institutions are asked to give first
priority to credits that represent the bona fide finan­
cing of U. S. exports, and second priority to credits to
developing countries. In addition, institutions are
requested not to increase the total of their invest­
ments in the developed countries of continental W est­
ern 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, maturi­
ties or sales may be offset by new acquisitions in these
countries. However, institutions are expected to re­
frain 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. Among these are the
fo llo w in g :
1. 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 in­
vestments inconsistent with the Department of Com­
merce program.
4. Credits to II. 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 in­
vestments, 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 market­
able 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, and loans guaranteed

or participated in by the Export-Import Bank or the
Department of Defense or insured by the Foreign
Credit Insurance Association, regardless of maturity.
3. Net financial investment in foreign branches,
subsidiaries and affiliates, located in developed coun­
tries other than Canada and Japan.1 Such financial
investment includes payments into 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 dom­
iciled in developed countries other than Canada and
Japan.1 Included in this category are bonds, notes,
mortgages, loans, and other credits maturing 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
and Japan, except those acquired after September
30, 1965, in I I . S. markets from American investors.1
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 purchasing institu­
tion receives a certificate of prior American owner­
ship, or brokerage confirmation thereof.
D.

Base-date holdings

Base-date holdings for any reporting date in 1969
are defined a s :
1. Total holdings of covered foreign assets as
of December 31, 1967;
2. Minus, equity securities of companies dom­
iciled in developed countries (except Canada and
J a p a n ), that are included in (1) but had been sold
to American investors prior to the current quarter;

1 Developed countries other than Canada and Japan: contin­
ental Western Europe — Austria, Belgium, Denmark, France,
Germany (Federal R epublic), Italy, Liechtenstein, Luxem­
bourg, 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, K uwait, Kuwait-Saudi Arabia
N eutral Zone, Libya, New Zealand, Qatar, Republic of South
A frica, Saudi Arabia, and the United Kingdom. Also to be
considered “ developed” are the follow ing countries: Albania,
Bulgaria, the P eo p le’s Republic of China, Cuba, Czechoslo­
vakia, Estonia, Hungary, Communist-controlled Korea, Latvia,
Lithuania, Outer M ongolia, Poland (including any area under
its provisional adm inistration), 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 Vietnam.

3.
Plus, or minus, the difference between sales
proceeds and “ carrying” value of covered equities
sold prior to the current quarter to other than Amer­
ican investors or in other than U. S. markets. On each
reporting date in 1969, “ carrying” value should be
the value reflected in the institution’s report (on
Form F R 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.
“ A d ju sted ” base-date holdings, to which the 100
per cent ceiling applies, are equal to “ base-date”
holdings as defined above adjusted 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.

N o n co vered assets

Foreign financial assets not covered by the guide­
lines are still reportable on the quarterly statistical
reports to the Federal Reserve Banks. Such non­
covered foreign investments include the following:
1. 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. Long-term investments in all developing
countries and in Japan, including credit instruments
with final maturities of more than 10 years at date of
acquisition, direct investment in subsidiaries and affili­
ates, and all equity securities issued by firms domiciled
in these countries.
4. E quity securities of firms in developed coun­
tries other than Canada and Japan 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 de­
partments of commercial banks, in new accounts de­
posited with the institution — are not defined as
covered assets, if they were acquired after December
31, 1967. Such assets should be reported as a memo­
randum item, as should all loans held that are guar­
anteed or participated in by the Export-Import Bank
or the Department of Defense, or insured by the
Foreign Credit Insurance Association.
F.

Credits to certain U.S. corporations

A n y loan or investment acquired by a nonbank
financial institution after June 30, 1968, that in­
volves 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 to the residence
of the owners of the “Delaware” corporation. In the
event that U. S. residents hold a majority ownership
interest in the “ Delaware” corporation, no part of a
loan or investment in such a corporation is to be re­
garded as a foreign asset of the institution.
G.

L easing o f p h ysica l goods

The foreign leasing activities of firms which engage
primarily in the leasing of physical assets (e.g., com­
puters, real property, ships, aircraft), and which are
not owned or controlled by a U. S. financial institu­
tion, 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 phys­
ical assets leased to foreigners on the appropriate line
of the quarterly form they file with their Federal Re­
serve Bank.
H.

In vestm en t 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 com­
pany may exclude from its foreign assets investments
within the foreign country involved, in amounts up to110 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.
I.

Long-term credits to d eveloping-cou ntry
b usinesses

Institutions are requested to discuss with their
Federal Reserve Bank in advance any future long­
term loans or direct security placements that would
involve extensions of credit of $500,000 or more to
private business borrowers located in the developing
countries.
J.

R ep o rtin g requ irem en t

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 Re­
serve 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.

working out an individually tailored program for
eliminating the excess during 1969.

Institutions with holdings below these levels, al­
though not requested to file formal reports, are also
expected to abide by the provisions of the program.

Tn 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 else­
where, and funds borrowed in other developed coun­
tries (except Canada and Japan) may be used to
finance investment in covered foreign assets any­
where but in the developed countries of continental
Western Europe. A ny institution desiring to offset
foreign borrowing against foreign investment, how­
ever, should discuss its plans with the Federal Re­
serve Bank before entering into such an arrange­
ment.

K.

C overed assets in excess o f ceilin g

Some institutions increased, rather than reduced,
their holdings of covered assets in 1968. In most such
instances, there may have been special circumstances
— such as inability to reduce existing investments
by enough to offset new investments made to honor
long-standing firm commitments or to accommodate
requests for bona fide and essential financing of U. S.
exports. Nevertheless, every institution whose D e­
cember 31, 1068 holdings of covered assets exceeded
its adjusted base-date holdings should review its situ­
ation with its Federal Reserve Bank with a view to

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