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FEDERAL RESERVE BANK
OF N EW YORK
{"Circular No. 6 2 6 3 T
u December 23, 1968 J
Revised Guidelines for Banks and Nonbank Financial Institutions
Under the President’s Balance of Payments Program
To All Banks and Other Financial Institutions
in the Second Federal Reserve District:
The following statement was made public today by the Board of Governors of the Federal
Reserve System:
The Board of Governors of the Federal Reserve System today issued revised guidelines, effective
immediately, for restraint of foreign credits by banks and other financial institutions.
The revised guidelines continue the President’s program, announced on January 1, 1968, to
strengthen the U. S. balance of payments. In general, the program for 1969 for financial institutions
is the same as that for 1968.
The ceiling on foreign credit extensions by banks remains at the level specified in the January 1,
1968 guidelines, as adjusted. For about one-half of the reporting banks, accounting for more than 90
per cent of the aggregate ceiling, this is essentially 103 per cent of the 1964 base. For the remainder
of the reporting banks the ceiling will continue to be the 1967 ceiling plus one-third of the difference
between that amount and 2 per cent of total assets as of December 31, 1966.
Banks are requested to continue to refrain from making new term loans, except to finance U. S.
exports, to residents of developed countries of continental Western Europe, and to continue to reduce
their ceiling each month by the amount o f repayment of such loans outstanding on December 31,
1967. However, under the revised guidelines banks would not be precluded from making equity
investments in those countries, subject to their ceilings and to Board requirements.
Banks also are asked to hold short-term credits to residents of developed countries of continental
Western Europe to the level requested in the January 1, 1968 guidelines, that is, 60 per cent of the
amount of such credits outstanding on December 31, 1967.
The definition o f covered assets for nonbank financial institutions is unchanged, and the ceiling
remains at 95 per cent of the adjusted end-of-1967 base. Institutions that have not succeeded in
reducing their holdings of covered assets by at least 5 per cent during 1968 are asked to accomplish
this reduction during 1969.
Governor Andrew F. Brimmer, the Board member charged with the responsibility for the adminis
tration of the program, pointed out that as of October 31, 1968, the banks had reduced their holdings
o f covered foreign assets by $633 million since December 31, 1967, as compared with a suggested
reduction for the entire year of $400 million. As a result of this reduction, the banks on October 31
were more than $500 million below the ceiling effective on that date. Governor Brimmer said that
the ceiling would be reduced by approximately $100 million during the last two months of the year
by deductions related to repayments of credits to developed countries of continental Western Europe.
There is usually a seasonal outflow of bank credit during the fourth quarter, but Governor Brimmer
said he is confident that the banks will exceed the objective requested in the guidelines for January 1,
1968.
In considering the foreign credit restraint program, the Board concluded that the balance of
payments prospects for 1969 do not permit any basic change in the program for restraint on foreign
lending by U. S. financial institutions. However, in view of the importance of increasing receipts on
current account, the Board indicated its intention to review the program early in 1969 to determine
whether additional flexibility for financing U. S. exports might be provided in the guidelines.
Nonbank financial institutions reporting under the program reduced their holdings of foreign assets
subject to the target ceiling by $192 million during the first nine months of the year, but $73 million of
this amount represented sales of covered equities to other American investors. Nevertheless, covered
assets held by these institutions as a group on September 30, 1968, were only 92 per cent of their
adjusted base-date holdings, or less than the 95 per cent ratio targeted for year-end.
Copies of the revised guidelines are attached. They are being made available to financial institutions
through the Federal Reserve Banks. Banks and other financial institutions having questions concerning
the application of the revised guidelines are urged to consult with the Federal Reserve Bank of their
district.
The text of the new guidelines is printed on the following pages.
Our Foreign Department (Telephone Extension 163 or 8051) will be pleased to confer with
you on any questions regarding the guidelines. Questions on the reports to be filed under
the guidelines should be addressed to our Balance of Payments Division (Telephone
Extension 8035 or 8034).
Additional copies of this circular will be furnished upon request.
A
lfred
H
ayes,
President.
2
REVISED GUIDELINES
FOR BANKS AND NONBANK FINANCIAL INSTITUTIONS
ments during the preceding month of term loans to
Western Europe outstanding on December 31, 1967.
On January 1, 1968, a new program to reduce the
deficit in the nation’s balance of payments was an
nounced by the President of the United States. An
integral part of that program was the reduction
during 1968 by at least $500 million of foreign claims
held by financial institutions.
All banks also are asked to hold the amount of short
term credit outstanding (loans with maturities of 1
year or less) to residents of developed countries of
continental Western Europe to an amount not more
than the limit that the banks were requested to observe
under the 1968 program; that is, 60 per cent of the
amount of such credits outstanding on December 31,
1967.
It appears at this time that this objective will be
met. It has been determined, however, that restraint
of capital outflow, both public and private, will con
tinue to be required in 1969. Accordingly, the Board
of Governors has revised the guidelines for banks and
other financial institutions as follow s:
These revisions in the guidelines are intended to
forestall any large outflow of bank capital during
1969 by maintaining banks’ foreign assets at about the
level planned for 1968.
The Revised 1969 Program for Commercial Banks
The basic 1969 ceiling for each bank reporting on
December 31, 1968, will be the bank’s ceiling as of
that date calculated in accordance with the guidelines
issued on January 1, 1968.
The Revised 1969 Program for Nonbank Financial
Institutions
The 1969 program for nonbank financial institutions
is identical in all substantive respects with the pro
gram in effect during 1968. The definition of covered
assets is unchanged, but the treatment of leased prop
erty is clarified. The target ceiling remains at 95 per
cent of the adjusted end-of-1967 base. Institutions
that did not reduce their holdings of covered assets
by at least 5 per cent during 1968 will be expected to
increase their efforts to accomplish such a reduction
during 1969.
All banks are requested to continue to make no
new term loans (loans with original maturities of
more than one year) to residents of developed coun
tries of continental Western Europe except to finance
exports of U.S. goods and services. However, this
provision does not apply to equity investments in those
countries. Each bank will continue to reduce its ceil
ing on each reporting date by the amount of repay-
Guidelines for Banks
1.
(4) “ Nonexport credit” means a foreign credit other
than one that arises directly out of the financing of
exports of U.S. goods or services or that is reasonably
necessary for the financing of such exports.
Ceiling and reporting
A.
Meaning of terms
(1) “ Foreigners” include: individuals, partner
ships, and corporations domiciled outside the United
States, irrespective of citizenship, except their agencies
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.
(5) ‘ ‘ Developed countries” are Abu Dhabi, Aus
tralia, Austria, the Bahamas, Bahrain, Belgium, Ber
muda, 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, Repub
lic of South Africa, San Marino, Saudi Arabia, Spain,
Sweden, Switzerland, and the United Kingdom. Also
to be considered ‘ ‘ developed ’ ’ are the following coun
tries: Albania, Bulgaria, the People’s Republic of
China, Cuba, Czechoslovakia, Estonia, Hungary, Com
munist-controlled Korea, Latvia, Lithuania, Outer
Mongolia, Poland (including any area under its pro
visional 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 administration of the Union of
Soviet Socialist Republics, and Communist-controlled
Vietnam.
(2) “ Foreign long-term securities’ ’ are those issued
without a contractual maturity or with an original
maturity of more than 1 year from the date of issu
ance.
(3) “ Other claims” include all long-term claims
other than securities, real assets, net investment in
and advances to foreign branches and subsidiaries,
and all short-term claims (such as deposits, money
market instruments, customers’ liability on accept
ances, and loans).
3
B.
Specific inclusions and exclusions in calculating
the ceiling
(5)
A bank that had no ceiling in 1068, or that had
foreign assets of $500,000 or less on October 31, 1067,
may discuss with the Federal Reserve Bank of the
Federal Reserve district in which it is located the
possibility of adopting a special ceiling adequate to
permit the bank to meet reasonable priority credit
demands of existing customers or originating in its
normal trade area.
(1) The following items should be included: claims
foreigners without deduction o f any offsetting
liabilities to foreigners; foreign long-term securities
hold for banks’ own account; foreign customers’ lia
bility for acceptances held by the reporting banks;
deferred payment letters of credit described in Treas
ury Foreign Exchange Reports, Banking Forms, Sup
plementary Reporting Instructions No. 1, dated May
10, 1968; participations purchased in loans to for
eigners except loans to finance U.S. exports guaranteed
or participated in by the Export-Import Bank or the
Department o f Defense, or insured by the Foreign
Credit Insurance Association; and foreign assets sold
to U.S. residents, including the Export-Import Bank,
with recourse.
011
In discussing the ceiling of such a bank, the Federal
Reserve Bank will ascertain the bank’s previous
history in foreign transactions, ineluding acceptance
of foreign deposits or handling foreign collections, and
the reasons why the bank considers that it should
engage in foreign transactions.
D.
Reporting
(1) Banks that report on Treasury Foreign E x
change Forms B-2 or B-3, or that have been granted
special ceilings under provisions of these guidelines,
should file a Monthly Report on Foreign Claims
(Form F.R. 301/60) with the Federal Reserve Bank
of the Federal Reserve district in which the bank is
located.
(2) Contingent claims, unutilized credits, claims
held for account o f customers, acceptances executed
by other U.S. banks, loans to finance U.S. exports
guaranteed or participated in by the Export-Import
Bank or the Department of Defense, or insured by the
Foreign Credit Insurance Association, and claims on
residents of Canada, should be excluded.
(2) Copies of Form F.R. 301/60 are available at
the Federal Reserve Banks.
C.
Ceiling
2.
(1) Foreign credits included in the ceiling (“ cov
ered assets” ) are a bank’s total claims on foreigners
held for own account, with the specific inclusions and
exclusions set forth in Section B above. The basic
1060 ceiling for a bank reporting on December 31,
1068, is its ceiling calculated in accordance with the
guidelines issued January 1, 1068.
Exclusions from the ceilings
Loans to finance U.S. exports guaranteed or parti
cipated in by the Export-Import Bank or the Depart
ment of Defense, or insured by the Foreign Credit
Insurance Association, are excluded from the ceiling.
The role of Government lending abroad within the
framework of the President’s program is coordinated
by the National Advisory Council for International
Monetary and Financial Policies.
(2) All banks are requested to continue to refrain
from making new term loans (those with original
maturities o f more than 1 year) to residents of de
veloped countries o f continental Western Europe, or
relending amounts received in repayment o f such
loans, except to make bona fide export credits. The
ceiling o f each bank receiving repayments on term
loans to such residents outstanding on December 31,
1067, will be adjusted monthly by deducting therefrom
the dollar amount o f those repayments. Equity invest
ments in developed countries o f continental Western
Europe may be made within the overall ceiling,
subject to requirements of the Board of Governors.
Also excluded are claims on Canadian residents.
3.
Credits in excess of ceiling
A bank would not be considered as acting in a man
ner inconsistent with the program if it temporarily
exceeded its ceiling as a result of the extension of bona
fide export credits.
(3) All banks are requested further to hold the
amount o f outstanding short-term credits (credits
with original maturities of 1 year or less) to residents
of developed countries of continental Western Europe
to the level requested by the guidelines issued on
January 1, 1068, that is, 60 per cent of the amount of
such credits outstanding on December 31, 1067.
The 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 oppor
tunity to withdraw or reduce commitments, 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. At time of renewal, each credit
line should be reviewed for consistency with the pro
gram.
(4) A ny bank that sells a covered foreign asset to
a U.S. resident other than a bank participating in the
program, including the Export-Import Bank, with
out recourse should reduce its ceiling by an equivalent
amount.
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.
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4.
Loan priorities
parent banks or may combine foreign loans and in
vestments with those of their parent banks for pur
poses of the program. No special ceilings are provided
for Edge Act or Agreement corporations formed
sinee February 1965.
W ithin the ceiling, absolute priority should be given
to bona fide export credits. Credits that substitute
for cash sales or for sales customarily financed out of
nonbank or foreign funds are not entitled to priority.
Edge A ct or Agreement corporations owned by a
bank holding company may combine foreign loans
and investments with any one or all of the banks in
the holding company group for purposes of the pro
gram.
With respect to nonexport credits, banks should give
the highest priority to loans to developing countries
and should avoid restrictive policies that would place
an undue burden on Japan or the United Kingdom.
A bank whose 1969 ceiling is larger than its ceiling
for 1967 will be expected to restrict the use of any
excess over its 1967 ceiling to priority credits (that
is, export credits and credits to developing countries)
originating among the bank’s regular customers or
residents of its trade territory. That is, subject to the
limitations set forth in Guideline 1C (1), holdings of
foreign credits on any reporting date should not
exceed the 1967 ceiling by more than the increase in
holdings of priority credits between December 31,
1967, and the reporting date.
5.
9.
Registered bank holding companies will be treated
as banks for the purposes of these guidelines. Banks
in which controlling interest is held by a corporation
other than a registered bank holding company will
continue to be treated as banks for these purposes.
Registered bank holding companies may combine
the ceilings and foreign loans and investments out
standing of one or more of the banks in the holding
company group.
Trust departments
Any company formed after December 23, 1968, for
the purpose of acquiring controlling interest in a
commercial bank will be treated as a bank for the
purpose of this program, and foreign assets acquired
by the company or any of its subsidiaries, including
the bank, will be counted against the existing ceiling
of the acquired bank.
Trust departments of commercial banks should
follow the guidelines with respect to nonbank financial
institutions.
6.
Transactions for the account of customers
A bank should bear in mind the President’s balance
of payments program when acting for the account of a
customer. Although the bank is obliged to follow a
customer’s instructions, it should to the extent pos
sible 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 voluntary credit restraint
program, it would have acquired or held for its own
account.
7.
10.
11. Loans to U. S. residents and substitution of
domestic credit for credit from foreign sources
Foreign branches
There are a number of situations in which loans to
domestic customers, individual as well as corporate,
may be detrimental to the President’s balance of pay
ments program and hence should be avoided. E x
amples are:
(A ) Loans to U.S. residents — individuals as well
as corporations — that will aid the borrower in mak
ing new foreign loans or investments inconsistent with
the President’s program. Banks should avoid making
new loans that would directly or indirectly enable
borrowers to use funds abroad in a manner incon
sistent with the Department of Commerce program or
with the guidelines for nonbank financial institutions.
Total claims of a bank’s domestic offices on its
foreign branches (including permanent capital in
vested in, as well as balances due from, such branches)
represent bank credit to nonresidents for the pur
poses of the program.
“ Edge Act” corporations
“ Edge A ct” and “ Agreement” corporations are in
cluded in the foreign credit restraint program. Corpo
rations that chose to adopt a separate ceiling under
the provisions of Guideline No. 11 issued in February
1965 may continue to report separately from their
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 the domestic commercial bank
voluntary credit restraint program.
The voluntary credit restraint program is not
designed to restrict the extension of foreign credits
by foreign branches if the funds utilized are derived
from foreign sources and do not add to the outflow of
capital from the United States.
8.
Bank holding companies
(B ) Loans to U.S. subsidiaries and branches o f for
eign companies that otherwise might have been made
by the bank to the foreign parent or other foreign
affiliate of the company or that normally would have
been obtained abroad.
5
12.
Management of a bank’s liquid funds
dollars. This does not, however, apply to investments
in Canada, nor does it call for a reduction in neces
sary working balances held with foreign correspond
ents.
A bank should not place its own funds abroad for
short-term investment purposes, whether such invest
ments are payable in foreign currencies or in U.S.
Guidelines for Nonbank Financial Institutions
Nonbank financial institutions
covered as well as covered, which appear to be incon
sistent with other aspects of the President’s balance
of payments program. Among these are the follow
ing:
The group of institutions covered by the nonbank
guidelines includes: trust companies; trust depart
ments of commercial banks; mutual savings banks;
insurance companies; investment companies; finance
companies; employee retirement and pension fu n ds;
college endowment fu n d s; 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
appears applicable. Businesses whose principal ac
tivity is the leasing of property and equipment, and
which are not owned or controlled by a financial in
stitution, are not defined as financial institutions.
(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 sub
sidiaries 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;
Ceiling and priorities
(4) 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.
Through the end o f calendar 1969, each institution
is requested to limit its aggregate holdings of foreign
assets covered by the program to no more than 95 per
cent of the adjusted amount of such assets held on
December 31, 1967.
Covered assets
Institutions generally are expected to hold no for
eign 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.
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 for
eign obligors, generally defined to include marketable
negotiable instruments maturing in 1 year or less.
In addition, institutions are expected to refrain
from making any new investments, in either debt or
equity form, in the developed countries of continental
Western Europe, except for new credits that are es
sential to the financing of U. S. exports. This means
that reductions through amortizations, maturities or
sales are not to be offset by new acquisitions in these
countries.
2. All other claims on non-Canadian foreign ob
ligors 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 o f Defense or insured by the Foreign
Credit Insurance Association, regardless of maturity.
Among other foreign assets that are subject to the
guideline ceiling, institutions are asked to give ab
solute priority to credits that represent the bona fide
financing of U. S. exports.
Institutions may invest in noncovered foreign assets
generally as desired. However, they are requested to
refrain from making any loans and investments, non
3. Net financial investment in foreign branches,
subsidiaries and affiliates, located in developed coun
6
¥
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.
tries other than Canada and Japan.1 Sneh 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 o f 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.
“ Adjusted” base-date holdings, to which the 95
per cent ceiling applies, are equal to “ base-date” hold
ings as defined above adjusted for sales during the
current quarter of included covered equities in ac
cordance with the procedures specified in points (2)
and (3) of the preceding paragraph.
4. Long-term credits of foreign obligors domiciled
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 in
ternational institutions of which the United States is
a member.
Noncovered assets
Foreign financial assets not covered by the guideline
are still reportable on the quarterly statistical reports
to the Federal Reserve Banks. Such noncovered
foreign investments include the follow ing:
5. Equity securities of foreign corporations domi
ciled in developed countries other than Canada and
Japan, except those acquired after September 30,
1965, in U. S. markets from American investors.1
The test o f whether an equity security is covered will
depend on the institution’s obligation to pay the In
terest 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 in
stitution receives a certificate of prior American
ownership, or brokerage confirmation thereof.
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 coun
tries and in Japan, including 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.
Base-date holdings
4. Equity securities of firms in developed countries
other than Canada and Japan that have been acquired
in U. S. markets from American investors (see Point
5 above).
Base-date holdings for any reporting date in 1969
are defined as: (1) total holdings of covered foreign
assets as of December 31, 1967; (2) minus, equity
securities of companies domiciled in developed coun
tries (except Canada and Japan), that are included
in (1) but had been sold to American investors prior
to the current quarter; (3) plus, or minus, the differ
ence between sales proceeds and “ carrying” value of
covered equities sold prior to the current quarter to
other than American 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
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 are acquired after Decem
ber 31, 1967. Such assets should be reported as a
memorandum item, as should all loans held that are
guaranteed or participated in by the Export-Import
Bank or the Department of Defense, or insured by
the Foreign Credit Insurance Association.
1 Developed countries other than Canada and J a p a n : con
tinental W estern Europe — Austria, Belgium, Denmark, France,
Germany (F ederal R ep u b lic), Italy, Liechtenstein, Luxem
bourg, M onaco, Netherlands, N orw ay, Portugal, San Marino,
Spain, Sweden, and Sw itzerland; other developed countries
are: Abu Dhabi, Australia, the Bahamas, Bahrain, Bermuda,
H ong K on g, Iran, Iraq, Ireland, K uw ait, K uw ait-Saudi Arabia
Neutral Zone, L ibya, New Zealand, Qatar, Republic o f South
A frica , Saudi A rabia, and the United K ingdom . A lso to be
considered “ developed” are the follow in g countries: Albania,
Bulgaria, the P e o p le ’ s Republic o f China, Cuba, Czechoslovakia,
Estonia, H ungary, Communist-controlled K orea, Latvia, Lithu
ania, Outer M ongolia, Poland (including any area under its
provisional adm inistration), Rumania, Soviet Zone o f Germany
and the Soviet sector o f Berlin, Tibet, Union o f Soviet Socialist
Republics and the K urile Islands, Southern Sakhalin, and areas
in East Prussia which are under the provisional administration
o f the Union o f Soviet Socialist Republics, and Communistcontrolled Vietnam.
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 major
ity of the stock 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
7
trict in which its principal office is located. The
reports are due within 20 days following the close
o f each calendar quarter, and forms may be obtained
by contacting the Federal Reserve Bank.
part of a loan or investment in such a corporation
is to be regarded as a foreign asset o f the institution.
Leasing of physical goods
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.
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
physical assets leased to foreigners on the appropriate
line of the quarterly form they file with their
Federal Reserve Bank.
Covered assets in excess of ceiling
For some institutions, repatriation of liquid funds,
cessation o f new investment in the developed coun
tries of continental Western Europe, and restraint
on reinvestment of other covered assets was not suffi
cient to result in achievement during 1968 of the
year-end target ceiling specified under the 1968 pro
gram. In most such instances, there may have been
special circumstances — such as the existence at yearend 1967 o f firm commitments to invest, the need to
accommodate requests for the bona fide financing of
U. S. exports, or the nonmarketable nature of the
institution’s holdings. Nevertheless, every institution
whose December 31, 1968, holdings of covered assets
exceed 95 per cent of its adjusted base-date holdings
should review its situation with its Federal Reserve
Bank with a view to working out an individually
tailored program for achieving a maximum reduction
in the institution’s covered foreign assets consistent
with the guideline ceiling during 1969.
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 segre
gated 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.
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 lim
itations. 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 anywhere
but in the developed countries o f continental West
ern Europe. Any institution desiring to offset foreign
borrowing against foreign investment, however,
should discuss its plans with the Federal Reserve
Bank before entering into such an arrangement.
Long-term credits to developing-country subsidiaries
of U. S. corporations
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.
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 mil
lion 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 dis
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@FedFRASER