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FE D E R A L R ESER VE BANK
OF NEW YORK
r Circular No. 6 8 3 8 "1
L November 12, 1971 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 D istrict;
The following statement was made public November 11 by the Board of Governors of the
Federal Reserve System :
Revisions in the Voluntary Foreign Credit Restraint (V P C R ) guidelines to carry out legislation
exempting export credits from the program were announced today by the Board of Governors of the
Federal Reserve System.
The revisions include a new formula for calculating VFCR ceilings and a number of technical
changes in the guidelines. The revised ceilings also are intended to reduce inequities among banks
attributable to differing historical positions and to the exemption now accorded to export credits.
Members of the Senate-House conference committee who worked out the final language of the exemp
tion legislation, enacted last August 17, said in their report that as many as 90 days might be required
for the Board to work out modifications reflecting the exemption “ as well as any further changes needed
to continue the program in effect for nonexport financing.” Subsequently, the Board on August 18
requested financial institutions participating in the program to continue to comply with the old guide
lines for the time being.
Principal features of the guideline revisions, which are effective immediately, are:
1. Export credit to foreigners by banks and nonbank financial institutions is exempt from
restraint under the guidelines.
2. The ceiling for nonexport financing of each VFCR reporting bank will be the highest of the
follow ing:
— 85 per cent of its General Ceiling as of September 30, 1971.
— Its General Ceiling as of September 30, 1971 minus any export credits subject to this ceiling
as of that date.
— 2 per cent of its total assets as of December 31, 1970.
3. The ceiling for nonexport financing of each nonbank financial institution will be the higher
of the follow ing:
— Its ceiling as of September 30, 1971 minus export credits subject to the ceiling as of that date.
— 85 per cent of its ceiling as of September 30, 1971.
Governor Andrew F. Brimmer, who administers the program on delegated authority from the
Board, said that the General Ceiling available to more than 180 VFCR reporting banks amounted to
$9.9 billion as of September 30. Under the new formula, the reporting banks will have authority to
extend nonexport credits totalling about $9.7 billion. Export credits under the General Ceiling amounted
to approximately $1.2 billion at the end of September and about $405 million was outstanding under a
special Export Term-Loan Ceiling. Thus, roughly $1.6 billion of export credits were eliminated from
the V F ('R restraints.
The Board said that (Ik; formula adopted is designed to minimize existing or potential inequities
among banks cooperating in the program by permitting each bank to adopt the ceiling that it finds most
advantageous in its particular circumstances. If there had been a single ceiling that reduced a bank’s
lending authorization by the amount of its export credits, a participating bank with substantial export
financing would have experienced a sharp reduction in its over-all ceiling while a competitor which did
little export financing to foreigners would have experienced only a slight reduction in ceilings.
The guidelines specify that the export credit exemption is not to be used by banks to repurchase
from their foreign branches export loans that financed goods already shipped when the exemption
came into force.
The Board also announced these technical changes in the program :
1. The sub-ceiling on short-term claims on residents of developed countries o f Continental W est
ern Europe is eliminated.
2. U.S. agencies and branches of foreign banks, already requested to act in accordance with the
spirit of the guidelines, are asked to report monthly on their foreign lending positions.
3. The exemption for long-term credits to developing countries in the nonbank program is
amended to prevent its use for the financing of oil tankers for oil companies established in industrial
countries. Several oil companies through their subsidiaries in developing countries purchase or charter
large oil tankers which have been constructed in foreign shipyards. The Board considered that activity
of this type was not to be specially treated under provisions developed to help satisfy the credit needs of
developing countries.
The text of the revised guidelines is printed below.
Our Foreign Department (Telephone No. 732-5700, Extension 8131 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 directed to our Balance o f Payments Division
(Telephone No. 732-5700, Extension 8035 or 8034).
Additional copies of this circular will be furnished upon request.
A lfr ed H a y e s ,
President.
Federal Reserve Foreign Credit Restraint Guidelines
Credit Restraint Guidelines then in effect (hereinafter,
“ the previous Guidelines” ) ;
I. G E N E R A L PU RPO SE
In order to help to strengthen the U.S. balance of
payments, U.S. financial institutions are asked to
restrain their foreign credit and investments, except
credit that finances U.S. exports. W ithin these re
straints, they are asked to give priority to meeting
the credit needs of developing countries.
b. its General Ceiling, as of September 30, 1971,
minus export credit outstanding on that date (but
see paragraph 3) ; or
c. 2 per cent of its total assets, as of December
31, 1970.
H. BANKS
A.
3.
Ceilings for Nonexport Financing
1.
Basic restraint on nonexpert financing
A bank is requested not to hold claims on foreigners
or other foreign assets in excess of its Ceiling.
2.
Calculation of ceilings
A bank w ill have a Ceiling which w ill be the great
est of the follow ing:
a.
85 per cent o f its General Ceiling, as o f Sep
tember 30, 1971, under the Federal Reserve Foreign
2
Banks previously with ceilings
A bank that had a ceiling under the previous Guide
lines may automatically have a Ceiling under the
present Guidelines in accordance with subparagraph
2a or c. A bank proposing to calculate a Ceiling un
der subparagraph 2b should have verifiable informa
tion to distinguish between its total export credits,
as defined in Section IV-3, that were subject on Sep
tember 30, 1971, to its General Ceiling and its other
foreign assets and should give notice to the Federal
Reserve Bank in the District in which it is located
that it is adopting a Ceiling calculated under that
subparagraph.
4
4.
subsidiary) of an Edge Act Corporation or of an
Agreement Corporation may count the outstanding
amount, of its borrowings from foreigners as offsets
to its claims on foreigners and to its other foreign
assets, provided those borrowings are of an original
maturity of 3 years or more. Such borrowings would
include debentures, promissory notes, or other debt
obligations of the domestic subsidiary to a foreigner.
The amount of the offset at any time would be equal
to the amount o f the outstandings after deducting
(i) any repayments of principal and (ii) in the case
of convertible debt issues, any conversions. This off
setting principle may be used to reduce the value of
foreign assets of the subsidiary in computing the
value of foreign assets to be consolidated for reporting
purposes with those of the parent institution; any
excess of outstanding borrowings of the subsidiary
over foreign assets o f the subsidiary may not be used
to reduce the reportable value of foreign assets of the
parent institution.
Banks previously without ceilings
A bank that did not have a ceiling under the previ
ous Guidelines may adopt a Ceiling equal to 2 per
cent of its total assets, as of December 31, 1970. The
purpose o f making a Ceiling available to a bank that
did not have one is to enable the bank to engage di
rectly in foreign financing. Therefore, the Ceiling
should not be used to purchase from other U.S.
financial institutions loans that the latter have al
ready extended to foreigners.
Before adopting a Ceiling under this subparagraph,
a bank should consult with the Federal Reserve Bank
in the District in which it is located to apprise itself
of the Guidelines and reporting requirements and to
notify the Federal Reserve Bank of the amount of its
Ceiling.
5.
Term loans to Western Europe
Banks are requested not to grant, to residents of the
developed countries o f Continental Western Europe
loans of a maturity of over one year.
6.
8.
For the purpose of calculating the Ceiling, total as
sets are those shown in the Official Report of Con
dition submitted to the relevant supervisory agency
as of December 31, 1970.
Sales of foreign assets
a. Sales without recourse. Banks are requested
not to sell foreign assets that are subject to the Guide
line Ceilings, without recourse, to a U.S. resident
other than a financial institution participating in the
Federal Reserve Foreign Credit Restraint Program
or other than a direct investor subject to the Foreign
Direct Investment Program administered by the De
partment o f Commerce.
B.
Export credits
a. Basic exemption. Export credits, defined in
Part TV-3, are exempted from restraint under these
Guidelines. These include credits o f the type previ
ously subject to General and Export Term-Loan Ceil
ings. Banks should maintain adequate information
and otherwise take all reasonable measures to provide
assurance that credits meet the definition before
treating them as exempted.
b. Acquisition of previous foreign export credits.
The purpose of the exemption for export credits is to
ensure that, as of the date of issuance of these revised
Guidelines, no restraint is applied to the granting of
' credit that will finance U.S. exports. A bank should
report under its Ceiling any outstanding loan that
it purchases or repurchases from a foreigner, includ
ing its own branch, if that loan financed U.S. exports
shipped (or financed U.S. services performed abroad)
prior to November 11, 1971.
Foreign borrowings
Tn principle, the restraints under these Guidelines
are imposed on gross foreign assets, including gross
claims on foreigners. However, certain liabilities to
foreigners may be counted as offsets to foreign assets,
provided that the liabilities arise from borrowings
abroad that substitute for direct investment capital
outflow from the United States. Such offsetting may
be done in the manner described below.
2.
Canada
The extension of credit to residents of Canada or
other acquisition of Canadian assets is exempted from
restraint under these Guidelines.
a. Banks and Edge Act, and Agreement, Corpora
tions. A bank, an “ Edge A c t” Corporation, or an
“ Agreement” Corporation may not count its borrow
ings from, or its other liabilities to, foreigners as off
sets to its claims on foreigners and other foreign
assets.
3.
Securities of certain international institutions
All direct obligations o f international institutions
of which the United States is a member are exempted
from a bank’s Ceiling.
b. Domestic subsidiaries. A domestically chart
ered subsidiary (for example, a so-called Delaware
Exclusions
1.
b. Sales with recourse. A bank that, sells a for
eign asset that is subject to its Ceiling, with recourse,
to a U.S. resident should continue to report that, asset
under its Ceiling, unless the U.S. resident is a finan
cial institution participating in the Federal Reserve
Foreign Credit Restraint Program or is a direct in
vestor subject to the Foreign Direct Investment, Pro
gram administered by the Department of Commerce.
7.
Total assets
3
C.
ii)
Transfer of parent’s Ceiling. To acquire or to
increase a Ceiling, such an Edge Act or Agreement
Corporation may receive from one or more of its par
ent banks (including banks of its parent holding
company) a share of the Ceilings of the parent or par
ents. Once transferred to the corporation, the Ceil
ing should not be transferred in whole or in part
back to the parent or parents, except to meet unfore
seen and overriding developments. If any such ex
ceptional need for retransfer should arise, the corpo
ration and its parent or parents should consult in
advance with the Federal Reserve Banks in their
respective Districts.
Banks over ceilings
Banks are expected to observe their ceilings through
out the monthly reporting periods. Banks are not
expected routinely to sell foreign assets immediately
prior to the reporting date or otherwise engage in
“ window-dressing” activities.
A bank whose foreign assets are in excess of its
Ceiling or otherwise conflicts with these restaints and
which does not show improvement will be expected
periodically to discuss with the Federal Reserve Bank
in its District the steps it has taken and that it pro
poses to take to bring the amount of its foreign assets
into conformity with these Guidelines.
d.
D.
A pplicab ility to banks and bank-related financial
institutions
1.
The foreign assets of domestically chartered sub
sidiaries of Edge Act and Agreement Corporations
(net of foreign borrowings offset under Section A-7b,
above) should be consolidated with the foreign assets
of the parent corporation for the purposes o f the
Guidelines.
General
The Guidelines are applicable to all U.S. banks (ex
clusive of trust departments of commercial banks,
which should follow the Guidelines for nonbank finan
cial institutions in Part I I I ), to their domestically
chartered subsidiaries at any level, and to bank hold
ing companies and their domestically chartered sub
sidiaries at any level, except where those subsidiaries
are covered by other U.S. capital restraint programs
as noted in subparagraph 3b.
2.
3.
b. Holding companies with one bank. A holding
company with one bank which bank subsidiary has
Ceilings under these Guidelines, together with that
bank subsidiary and any nonbank subsidiary, should
report on a consolidated basis. However, the Ceiling is
to be calculated on the basis of the Ceiling of the bank
subsidiary. Furthermore, to minimize changes from
earlier established procedures, any non bank subsidi
ary that was reporting prior to December 1, 1969,
to the Department of Commerce under the Foreign
Direct Investment Program or to a Federal Reserve
Bank under the nonbank financial institution part of
the Guidelines should not report under these bank
Guidelines.
Edge A ct and Agreement Corporations
b. One-bank-ovmed corporations. An Edge Act
or Agreement Corporation that is owned by one bank
and that, under the previous Guidelines, had a ceil
ing separate from that of its parent bank may con
tinue to have a Ceiling separate from that of its
parent or may combine its Ceiling with that of its
parent.
c. Holding companies with more than one bank.
A multibank holding company should share the Ceil
ing of one or more of its banks.
i) The Ceiling to which it would be entitled if it
did not combine would be calculated as under Sec
tion A -2, for the corporation as a separate entity.
ii) An Edge Act or Agreement Corporation that is
owned by one bank and that was established after
March 3, 1965, should share the Ceiling of its parent
bank.
Multibank-owned corporations
i)
Separate Ceilings. An Edge Act or Agreement
Corporation that is owned by more than one bank or
by a multibank holding company will have a Ceiling
separate from that of its parent and from those of
the banks in its parent holding company. The corpo
ration’s Ceiling is to be determined in accordance with
Section A-2 and, as appropriate, A-3 or A-4.
Bank holding companies
a. Holding companies as banks. A bank holding
company is to be treated as a bank for the purpose of
these Guidelines.
a. Policy of limiting aggregate ceilings. It is in
tended that the establishment of new Edge Act Cor
porations or Agreement Corporations not result in the
expansion of aggregate Ceilings under these Guide
lines.
c.
Domestic subsidiaries of Edge A ct and A gree
ment Corporations
4
(1. Consolidation of ceilings of bank subsidiaries of
holding companies. A bank subsidiary (including a
bank, Edge Act Corporation, or Agreement Corpora
tion) of a bank holding company may elect to con
solidate its Ceiling with that of one or more of the
holding company’s other bank subsidiaries that had
ceilings under the previous Guidelines. Notice of such
election should be sent to the respective Federal Re
serve Bank.
4.
Foreign branches and foreign subsidiaries of
U.S. banks and banking institutions
a.
The Guidelines are not intended to restrict the
extension of foreign credit by foreign branches, or
foreign subsidiaries, of (i) U.S. banks, (ii) Edge Act
Corporations, or (iii) Agreement Corporations, ex
cept as the result of the restraints on banks, and on
Edge and Agreement Corporations (and their do
mestic subsidiaries), with respect to foreign credit to,
or foreign investment in, such foreign branches or
foreign subsidiaries.
file a Monthly Report on Foreign Assets (for U.S.
banks or for U.S. agencies and branches of foreign
banks, as appropriate) with the Federal Reserve Bank
in the District in which the* institution is located
within 15 days after the end of the reporting period.
(Forms are available at the Federal Reserve Banks.)
b.
Claims of a bank’s or banking institution’s do
mestic offices on its foreign branches and foreign sub
sidiaries (including permanent capital invested in, as
well as balances due from, such foreign branches and
foreign subsidiaries) represent foreign assets subject
to the Guidelines.
E.
Conformity with objectives of Guidelines
1.
Department of Commerce program and non
bank financial institution Guidelines
Banks should avoid making loans that would di
rectly or indirectly enable borrowers to use funds
abroad in a manner inconsistent with the Department
of Commerce Foreign Direct Investment Program or
with the Guidelines for nonbank financial institutions.
2.
Substitute loans
Banks should not extend to U.S.-resident subsidi
aries, 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 would have been obtained abroad.
3.
Management of liquid assets
Ceiling and priorities
1.
Ceiling
Each institution is requested to limit its aggregate
holdings of foreign assets covered by the Program to
no more than it's Ceiling as described in Section C,
except for special situations discussed in Section J,
below.
Transactions for customers
2.
Liquid, foreign balances
Institutions generally are expected to hold no for
eign deposits or foreign money market instruments,
except such minimum working balances abroad as are
needed for the efficient conduct of its foreign busi
ness activities.
V.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 and, as they may
be requested from time to time, to consult with the
Federal Reserve Bank in the District in which they
are located.
F.
Applicability to financial institutions
This part of the Guidelines applies to all U.S. nonbank financial institutions, including: trust com
panies, trust departments of commercial banks; mu
tual savings banks; insurance companies; investment
companies; finance companies; employee retirement
and pension fu n ds; college endowment funds; charit
able foundations; 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 pri
marily of the stock of operating nonbank financial
institutions. Investment underwriting firms, securi
ties brokers and dealers, and investment counseling
firms also are covered with respect to foreign finan
cial assets held for their own account and are re
quested to inform their customers of the program in
those cases where it appears applicable.
B.
While recognizing that it must follow a customer’s
instruction, a bank should discourage customers from
placing liquid funds outside the United States. A
bank should not place with a customer foreign obli
gations that, in the absence of the Guidelines, it
would have acquired or held for its own account.
5.
A.
NONBANK FINANCIAL INSTITUTIONS
Businesses whose principal activity is the leasing
of property and equipment, and which are not owned
or controlled by a financial institution, are not de
fined as financial institutions. Real estate invest
ment trusts whose assets consist primarily of real
property also are not covered by these Guidelines.
A bank should not hold its own funds abroad in
liquid form for short-term investment purposes,
whether such investments are payable in foreign cur
rencies or in U.S. dollars. This is not intended to
preelude its maintaining necessary working balances
held with its own foreign branches or with foreign
correspondents.
4.
111.
3.
Developing countries
Among the foreign assets that are subject to the
Guideline Ceiling ( “ covered” assets), institutions arc
asked to give priority to credits which directly bene
fit the economies of developing countries.
R e p o rtin g
4.
Each U.S. bank, and each U.S. agency and branch
of a foreign bank, that on a reporting date had
$500,000 or more in foreign assets (whether or not
subject to restraint under the Guidelines) should
Western Europe
Institutions are requested not to increase the total
of their investments in the developed countries of
continental Western Europe beyond the amount held
5
on December 31, 1068. Reductions through amorti
zations, 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.
5.
D.
Foreign financial assets subject to the Ceiling (cov
ered assets) include investments of the following
types (but see exclusions in Section E ) :
1. Liquid funds in all foreign countries. 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 one year or less.
Conformity with objectives of Guidelines
Institutions may invest in noncovered foreign as
sets generally as desired. However, they are requested
to refrain from making any nonexport loans or in
vestments, noncovered as well as covered, that appear
to be inconsistent with other aspects of the U.S. bal
ance of payments program. Among these are the
follow in g:
2. All other claims on foreign obligors written,
at date of acquisition, to mature in 10 years or less.
This category includes bonds, notes, mortgages, loans,
and other credits.
3. Net financial investment in foreign branches,
subsidiaries, and affiliates located in developed coun
tries other than Canada. Such financial investment
includes payments into equity and other capital ac
counts of, and net loans and advances to, any foreign
business in which the U.S. institution has an owner
ship interest of 10 per cent or more. Excluded are
earnings of such a foreign business if they are di
rectly retained in its capital accounts.
a. 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.
b. Noncovered credits to developing country sub
sidiaries of U.S. corporations that would not have
been permitted under the Department of Commerce
Foreign Direct Investment Program if made by the
U.S. parent directly.
4. Long-term credits entered into after November
11, 1971 to finance the construction or operation of
foreign-built vessels unless the financing involves a
corresponding transfer of capital by a Direct Investor
under the Foreign Direct Investment Program. In
cluded in this category are bonds, notes, mortgages,
loans, leases, and other credits. A credit is long
term if at least 10 per cent of the amount to be
repaid to the lender is scheduled, at the time of ac
quisition, to be repaid after 10 years.
c. Credits to U.S. borrowers that would enable
them to make foreign loans and investments incon
sistent with the Foreign Direct Investment Program.
d. 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.
Calculation of ceiling
5. Long-term credits of foreign obligors estab
lished in developed countries other than Canada.
(Long-term credits arc as defined in paragraph 4.)
The Ceiling for each nonbank financial institution
will b e :
1.
The greater o f :
6. Equity securities (including American Deposi
tory Receipts) of foreign corporations established in
developed countries other than Canada, except those
acquired after September 30, 1965, in U.S. markets
from American investors. Exclusion from Ceiling
normally will be indicated if, in acquiring an equity
security that otherwise would be covered, the pur
chasing institution receives a certificate of prior
American ownership or brokerage confirmation there
of. Securities acquired from a broker who purchased
them from a foreigner in anticipation of early resale
are not deemed to be acquisitions from a prior Ameri
can investor.
a. its ceiling ( “ adjusted base date holdings” ) as
of September 30, 1971 under the Guidelines then in
effect ( “ the previous Guidelines” ) minus any export
credits subject to restraint under the Guidelines as
of that date, or
b. 85 per cent o f its ceiling ( “ adjusted base date
holdings” ) as of September 30, 1971;
2. Minus equity securities of companies estab
lished in developed countries (except Canada) that
are included in Section C -l but had been sold to
American investors after September 30, 1971;
E.
3. Plus, or minus, the difference between sales
proceeds and “ carrying” value of covered equities
sold after September 30, 1971, to other than American
investors or in other than U.S. markets. On each re
porting date, “ carrying” value should be the value
reflected in the institution’s report (on Form FR
393R-68) for December 31, 1967, in the case of equi
ties held on that date, and it should be cost in the case
of equities purchased after that date.
Covered assets — subject to ceiling
Noncovered assets — exclusions
The following foreign financial assets are excluded
from the Guideline ceiling:
1.
Export credits, as defined in Part IV -3. In
stitutions should maintain adequate information and
otherwise take all reasonable measures to provide as
surance that credits meet the definition before treat
ing them as exempted.
6
2. All financial assets in, or claims on residents
of, Canada.
deposit of cash or securities required as a condition
of doing insurance business within that country.
3. All direct obligations of international institu
tions of which the United States is a member.
I.
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, should 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 from the Federal Reserve
Bank. (See also Section J-2.)
4. Long-term investments in all developing coun
tries (except as noted in Section D -4 ), including
direct investment in subsidiaries and affiliates, credit
instruments of the types and maturity described in
Section D-4, and all equity securities issued by firms
established in these countries.
5. Equity securities of firms in developed coun
tries other than Canada that have been acquired in
U.S. markets from American investors. (See Section
D -6.)
J.
6. Foreign assets of types subject to Ceiling but
acquired after December 31, 1967 as “ free delivery”
items— that is, acquired as gifts or, in the case of
trust companies or trust departments of commercial
banks, deposited with the institution in new accounts.
F.
Credits to certain U. S. corporations
2. An institution with a Guideline Ceiling of less
than $500,000 may hold covered assets up to this
amount if its'investments are consistent with Guide
line restraints other than its Ceiling, namely, those
with respect to liquid funds, to credits to the de
veloped countries of continental Western Europe,
and concerning possible conflict with program ob
jectives, as noted in Section B-2, 4, and 5. The in
stitution is expected to file an initial statement of its
holdings with its Federal Reserve Bank and there
after to file a statement with the Rank 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.
2. If U.S. residents, other than the lending in
stitution, hold a majority ownership interest in the
domestic corporation, no part of a loan or invest
ment in such a corporation is to be regarded as a
foreign asset of the institution.
Leasing of physical goods
The foreign leasing activities of firms that engage
primarily in the leasing of physical assets (e.g., com
puters, real property, ships, aircraft) and that are
not owned or controlled by a U.S. financial institution
are not subject to these Guidelines. However, such
activities are subject to these Guidelines when they
are undertaken by nonbank financial institutions.
II. Invcslmont in certain foreign insurance ventures
IV.
Net investment in foreign insurance ventures should
be reported wherever possible. If the net investment
cannot, be segregated, the U.S. insurance company
may exclude from its foreign assets ( 1) 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 (2 ) (if it is
larger than 110 per cent of the reserves) the minimum
Covered assets in excess of ceiling
1. In view of the balance of payments objectives
of the program, covered investments of nonbank finan
cial 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 restraint. Thus,
funds borrowed in the developed countries of con
tinental Western Europe may be used to finance in
vestments in these countries and elsewhere, and funds
borrowed in other developed countries ( except Can
ada) may be used to finance investment in covered
foreign assets anywhere but in the developed coun
tries of continental Western Europe. Any institu
tion desiring to offset foreign borrowing against
foreign investment, however, should discuss its plans
with the Federal Reserve Bank before entering into
such an arrangement.
1. Any loan or investment acquired by a non
bank financial institution after June 30, 1968, that
involves the advance of funds to a domestic corpora
tion which is simply a financing conduit (commonly
known as a “ Delaware subsidiary” ) and which in
turn will transmit the funds to a foreign business
is a foreign asset if one or more foreigners own a
majority of the domestic corporation. The amounts
of such foreign loans or investments should be classi
fied according to the' country where the funds are
actually to be used, not according to the residence of
the owners of the domestic corporation.
G.
Reporting requirement
DEFINITIONS
The following definitions apply to both the bank
and nonbank financial institution parts of the Guide
lines.
1.
“ Claims on foreigners” are claims on foreign
ers held for an institution’s own account. P'or banks,
they include: foreign long-term securities; deferred
payment letters of credit described in Treasury De
7
partment Supplemental Reporting Instruction No. 1,
Treasury Foreign Exchange Reports, Banking Forms,
dated May 10, 1968; participations purchased in loans
to foreigners; loans to financial conduits incorporated
in the United States, 50 per cent or more owned by
foreigners; and foreign assets sold, with recourse, to
U.S. residents other than financial institutions par
ticipating in the Federal Reserve Foreign Credit Re
straint Program or other than direct investors subject
to the controls administered by the Department of
Commerce. They also include foreign customers’ lia
bility for acceptances executed, whether or not the
accepted drafts are held by the accepting bank.
“ Claims on foreigners” exclude: contingent claims;
unutilized credits; claims held for account of custo
mers; and acceptances executed by other U.S. banks.
2. “ 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 inter
governmental agreement irrespective of location.
3. “ Export Credit” means any claim on a for
eigner for the demonstrable financing (a) of the ex
port of U.S. goods or (b) of the performance abroad
of U.S. services. (Items (a) and (b) are hereinafter
referred to as “ exports” .) To be demonstrable, the
financing must relate to a specific, individual iden
tifiable export for which shipping documents or other
documents evidencing the export are obtainable.
Export credit may be direct or indirect. Direct
credit is a credit that results in the direct acquisition
of a debt obligation of a foreign obligor. An indirect
credit is a credit extended to a foreign financial insti
tution which, in consequence, itself acquires debt obli
gations of obligors resident outside the United States.
For example, credit extended by a U.S. financial
institution to a foreign buyer of U.S. exports directly
or through a foreign financial institution may be an
export credit. Also, an export credit may be extended
through purchase of documented loan paper.
The cost of freight in connection with exportation,
the cost of transport insurance in connection with
exportation, and the cost of export credit guarantees
and export credit insurance borne by the foreign
buyer or the foreign financial institution may be
included in the cost of export for the purpose of de
termining the amount of credit that is to be con
sidered export credit.
U.S. goods are goods grown, produced, or manu
factured in the United States.
U.S. services performed abroad should be services
performed outside the United States by U.S. domi
ciled or U.S. incorporated companies or by U.S.
nationals temporarily resident abroad.
A particular credit should be regarded as an ex
port credit only if 85 per cent or more of its total
amount finances U.S. exports. However, a single
credit agreement exclusively for services may be
broken down to exclude non-U.S. services. The ex
port credit may thereby be identified as that portion
of credit financing the performance of service by
U.S. firms and U.S. nationals, as well as financing
the purchase (or lease) of U.S. goods incidental to
the performance of those services.
A participation in export credits should be regarded
as export credit of the financial institution purchas
ing the participation. However, a participation in a
pool of loans would not be considered export credit
by the institution purchasing the participation.
A credit that is of substantially longer maturity
than is customary in international export financing
practice for the type of transaction in question should
not be regarded as an export credit.
4. “ Developing countries” are all foreign coun
tries other than: Abu Dhabi, Australia, Austria, the
Bahamas, Bahrain, Belgium, Bermuda, Canada, Den
mark, France, Germany (Federal Republic), Ilong
Kong, Iran, Iraq, Ireland, Italy, Japan, Kuwait, Kuwait-Saudi Arabia Neutral Zone, Libya, Liechten
stein, Luxembourg, Monaco, Netherlands, New Zea
land, 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, East Germany, Hun
gary, Communist-controlled Korea, Latvia, Lithuania,
Outer Mongolia, Poland (including any area under
its provisional administration), Romania, 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 Communistcontrolled Vietnam.
5. “ Developed countries of continental Western
Europe” are: Austria, Belgium, Denmark, Franee,
Federal Republic of Germany, Italy, Liechtenstein,
Luxembourg, Monaco, Netherlands, Norway, Portugal,
San Marino, Spain, Sweden, and Switzerland.
@FedFRASER