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F ederal reserve bank O F DALLAS Dallas, Texas, March 4, 1965 To All Banks in the Eleventh Federal Reserve District: A tta c h e d a re copies of (1) th e B o ard of G o v e rn o rs’ p re ss re le ase co n cern in g th e p ro g ra m f o r v o lu n ta ry r e s tr a in t on len d in g an d in v e s tm e n t a c tiv itie s o f n o n b an k financial i n s titu tio n s ; (2) C h a irm a n M a rtin ’s le tte r to a b o u t 750 su ch o rg a n iz a tio n s th ro u g h o u t th e c o u n try ; a n d (3) som e te n ta tiv e g u id elin es on fo re ig n len d in g an d in v e stin g b y n o n b an k financial in s titu tio n s . I f y o u r b a n k h a s a t r u s t d e p a rtm e n t, please b rin g th e g u id elin es to th e specific a tte n tio n of th e m a n a g in g officer o f t h a t d e p a rtm e n t f o r his g u idance. Y ours v e ry tru ly , W a tro u s H . Iro n s P re s id e n t E n clo su re s (3) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) For im m ed iate r e l e a s e . March 3, 1965. The P r e s id e n t's program to im prove the nation's balance of paym ents p osition , in part through voluntary efforts to r e s tr a in foreign lending and investm ent a c tiv itie s , was im plem ented with r e s p e c t to nonbank financial institutions today by the Board o G overnors of the F e d e ra l R e s e r v e S ystem , In a le tte r to the ch ief executive o ffic e r s of approxim ately 750 nonbank financial o r g a n iz a tions Chairman vVm. McC. Martin, Jr. , set forth tentative gu id e lin es proposed by the Board for the foreign lending a c tiv itie s of th ese institutions during 1965* to be effective im m ed ia tely. Nonbank financial organizations covered by the program include life insurance co m p a n ies, fir e and casu alty in su ran ce com p an ies, mutual savin gs banks, investm ent com panies and mutual funds, s a le s , b u sin e s s and con su m er finance co m p an ies, corporate noninsured pension funds, state and lo ca l retirem ent funds, charitable tr u sts and foundations, c o lle g e endowment funds, as w ell as the trust departm ents of c o m m e r c ia l banks. R ecip ien ts of the letter w ere a ls o advised that within a few days they would r e c e iv e a s ta tistic a l questionnaire from the F e d e r a l R e s e r v e Bank of t h e i r D is tr ic t designed to gather benchm ark inform ation on the extent of their foreign lending and investm ent a c t iv it ie s . As in the program for c o m m e r c ia l banks, the S y s t e m ’s a c tiv itie s with regard to nonbank financial institutions a re being coordinated by G overnor J. L . R obertson. Contacts with individual organizations w ill be made through the individual F ed era l Reserve B an k s. C opies of Chairman Martin's le tte r and of the te n ta tive gu id elin es on fo reig n lending and investing by nonbank financial institutions are attached. G uidelines for c o m m e r c ia l bank foreign lending under the P r e sid e n t's program are expected to be available within the next few days. A ttachm ents. BOARD OF G O V E R N O R S OF T H E FEDERAL RESERVE SYSTEM WASHINOTON OFFICE OF THE CHAIRMAN March 3, 1965. As you know, t h e P r e s i d e n t has launched a program d e s ig n e d t o improve our i n t e r n a t i o n a l b a l a n c e of payments p o s i t i o n . An impor t a n t element of t h e program i s t h e P r e s i d e n t ' s r e q u e s t t h a t ba nks , o t h e r f i n a n c i a l i n s t i t u t i o n s and b u s i n e s s c o r p o r a t i o n s e x e r c i s e a l l p r a c t i c a b l e r e s t r a i n t i n t h e i r f o r e i g n l e n d i n g and in v e s t m e n t a c t i v i ties. The Department o f Commerce has t h e r e s p o n s i b i l i t y f o r a d m i n i s t e r in g t h i s v o l u n t a r y program, so f a r as b u s i n e s s c o r p o r a t i o n s a r e con cerned. And t h e F e d e r a l R ese rv e System, i n c o o p e r a t i o n w i t h t h e T r e a s u r y , has been asked t o c a r r y t h e program t o t h e f i n a n c i a l i n s t i t u t i o n s of t h e country. Governor J. L. R o b e r t s o n i s c o o r d i n a t i n g t h e S y s te m 's a c t i v i t i e s i n t h i s m a t t e r h e r e a t t h e Board. The p u r po s e of my l e t t e r i s t o a c q u a i n t you w i t h t h e t e n t a t i v e g u i d e l i n e s on f o r e i g n l e n d i n g t h a t we a r e p r o p o s i n g f o r 1965. These are d etaile d in the attached c irc u la r. I n a d d i t i o n , w i t h i n a few days you w i l l r e c e i v e a s t a t i s t i c a l q u e s t i o n n a i r e from t h e F e d e r a l Reserve Bank i n your D i s t r i c t d e s ig n e d t o su p p ly some bench-mark i n f o r m a t i o n on t h e e x t e n t o f you r f o r e i g n l e n d i n g and i n v e s t m e n t a c t i v i t i e s , i f any. This i n f o r m a t i o n w i l l h e l p us ju d ge t h e a p p r o p r i a t e n e s s of our guideline objectives. I f you have q u e s t i o n s c o n c e r n i n g th e a c t i o n s t h a t can be t a k e n t o e f f e c t u a t e t h e program, we u rg e you t o c o n t a c t t h e F e d e r a l Reserve Bank. I t s o f f i c e r s w i l l be g la d t o c o u n s e l w i t h you. Your s u p p o r t in a c h i e v i n g t h e P r e s i d e n t ' s g o a l - - o n e which i s e s s e n t i a l t o t h e c o n t in u e d s t r e n g t h of t h e d o l l a r a t home and a b r o a d - - w i l l be d ee pl y a p p r e c i a t e d . S incerely yours, W . McC. M a r t i n , J r . m T e n t a t i v e G u i d e l i n e s on F o r e i g n Lending and I n v e s t i n g Non-Bank F i n a n c i a l I n s t i t u t i o n s ( P u r s u a n t t o t h e P r e s i d e n t ' s b a l a n c e of payments program) 1. D e p o s it s and money-maiket i n s t r u m e n t s . H oldings of l i q u i d funds abroa d sh o u ld be l i m i t e d t o t h e 1964 y e a r - e n d t o t a l , and t h e l o n g e r - t e r m o b j e c t i v e i s t o r e d u c e such i n v e s t m e n t s i n a g r a d u a l and o r d e r l y manner t o th e December 31, 1963 l e v e l . I n c l u d e d i n t h i s c a t e g o r y of l i q u i d i n v e s t m e n t s a r e d o l l a r - d e n o m i n a t e d d e p o s i t s h e l d in f o r e i g n banks and f o r e i g n b r a n c h e s of U. S. b a n k s ; s h o r t - t e r m s e c u r i t i e s of f o r e i g n governments and t h e i r i n s t r u m e n t a l i t i e s ; f o r e i g n commercial p a p e r , f i n a n c e company c r e d i t s and b a n k e r s ' a c c e p t a n c e s ; and a l l o t h e r n e g o t i a b l e i n s t r u m e n t s m a t u r i n g i n 1 y e a r or l e s s . F o r e i g n bank d e p o s i t s denominated i n l o c a l c u r r e n c i e s may be m a i n t a i n e d t o t h e e x t e n t needed t o s u p p o r t o r d i n a r y b u s i n e s s o p e r a t i o n s i n t h a t co u n t r y . 2. F o r e i g n c r e d i t s w i t h o r i g i n a l m a t u r i t i e s of 5 y e a r s or l e s s . H old ing s o f i n v e s t m e n t s o t h e r t h a n t h o s e l i s t e d above, and w r i t t e n t o have f i n a l m a t u r i t i e s i n 5 y e a r s or l e s s , s ho ul d no t be i n c r e a s e d by more th a n 5 p e r c e n t d u r i n g c a l e n d a r 1965. Included in th i s category are s e c u r i t i e s , mo rt gag e and o t h e r l o a n s , and c r e d i t s of a l l o t h e r t y p e s . The 5 p er c e n t growth c e i l i n g i s t o be measured a g a i n s t t h e t o t a l of a l l such h o l d i n g s a t the end of 1964, w i t h o u t r e g a r d t o ty p e of i n s t r u m e n t or c o u n t r y of o r i g i n . P r i o r i t y s ho uld be g iv e n t o c r e d i t s t h a t d i r e c t l y f i n a n c e U.S. e x p o r t s , however, and s p e c i a l c a r e s h o u ld be ta k e n t o avoid t h e e x t e n s i o n of c r e d i t t o b or ro w ers who would have been accommodated by commercial banks i n t h e ab sen ce of th e v o l u n t a r y r e s t r a i n t p r o gram. 3. F o r e ig n c r e d i t s w i t h o r i g i n a l m a t u r i t i e s over 5 y e a r s . I n t h e a r e a of l o n g - t e r m f i n a n c i n g , t h e r e would seem t o be no p r e s e n t need f o r a g u i d e l i n e under t h e v o l u n t a r y r e s t r a i n t program. Developments i n t h e l o n g - t e r m c r e d i t a r e a w i l l be fo ll ow ed c l o s e l y , however, so t h a t we may be a l e r t t o e x c e s s i v e f o r e i g n f i n a n c i n g demands i f t h e y s h ou ld m a t e r i a l i z e . The i s s u e s of i n d u s t r i a l i z e d c o u n t r i e s a r e s u b j e c t t o t h e I n t e r e s t E q u a l i z a t i o n Tax, and have been v e r y s m a l l i n volume s i n c e t h a t t a x became e f f e c t i v e . Borrowing by t h e l e s s d ev el ope d c o u n t r i e s has been r e l a t i v e l y l i g h t a l s o , and i n any even t s ho ul d not be s u b s t a n t i a l l y r e s t r i c t e d i n view of our n a t i o n a l p o l i c y e n c o u r a g i n g p r o d u c t i v e in v e s t m e n t i n t h e s e c o u n t r i e s . I n t h e c a s e of Canada and Ja p a n , s e p a r a t e a g r e e ments w i l l s e r v e t o l i m i t a g g r e g a t e f i n a n c i n g i n U ni te d S t a t e s c a p i t a l m ark et s. 4. D i r e c t in v e s t m e n t i n f o r e i g n b r a n c h e s and s u b s i d i a r i e s . Some ty p e s of f i n a n c i a l i n s t i t u t i o n s may conduct o p e r a t i o n s abroad t h r o u g h f o r e i g n o f f i c e s , b r a n c h e s and s u b s i d i a r i e s . I n such c a s e s , i n s t i t u t i o n s a r e ur g ed t o l i m i t t h e i r a d d i t i o n a l investment in th e se op eration s to the f u l l e s t exten t p r a c t i c a b l e d u r i n g 1965. P a r t i c u l a r c a r e sho uld be t a k e n t o r e s t r i c t any i n c r e a s e in n e t loa n s and advances o u t s t a n d i n g t o f o r e i g n b r a n c h e s and s u b s i d i a r i e s ; o r d i n a r i l y , ex p a n s io n i n such c r e d i t d u r i n g 1965 sh o u ld be h e l d w i t h i n 5 p e r c e n t . I n t h e c a s e of i n s u r a n c e c a r r i e r s do in g b u s i n e s s ab r o a d , t h e s e g u i d e l i n e s a r e n o t a p p l i c a b l e t o h o l d i n g s of f o r e i g n i n v e s t m e n t s i n amounts up to 110 per c e n t of f o r e i g n p o l i c y r e s e r v e s . Board of Governors, Federal Reserve System. March 3, 1965.
@FedFRASER