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August 17, 1965.

For immediate release.

Remarks of William McChesney Martin, Jr.,
Chairman, Board of Governors of the Federal
Reserve System, at a press conference on
August 17, 1965, with respect to balance of
payments developments in the second quarter.

Let me underline Secretary Fowler's concern about an
overly optimistic assessment of the balance of payments for the
second quarter.

It should be kept in mind that the net reduction

in outstanding bank credits to foreigners, which may be attributed
to voluntary foreign credit restraint, was larger than the payments
surplus in that quarter.
Thus far voluntary foreign credit restraint has clearly
bolstered our international payments position.

It has done so

without harming our domestic economy, our export drive, or less
developed and other countries dependent for their economic welfare
on the inflow of U. S. funds.
At the end of June, total credits to foreigners of
participating banks were nearly $400 million below the suggested
target ceiling for 1965.

Earlier this year, the foreign credits of

quite a few large banks were much in excess of their targets, not
only because of unusually large credit extensions during the first
six weeks of the year but also because of the need to honor previous
loan commitments and to expand priority credits, even where such

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extension entailed a temporary excess over the ceiling.

By the

end of June, most of these banks had managed to come back under,
or at least very close to the ceiling.

In part, this was accom¬

plished by the sale of excess credits to foreign branches.
The performance of financial institutions other than banks
has been equally satisfactory.

Preliminary and as yet incomplete

data would indicate that the rate of increase in foreign credits and
investments of these institutions in the first half of this year was
only a small fraction of last year's figure of $1 billion.
A news release distributed today by the Board of Governors
gives further information on the results of the voluntary foreign
credit restraint efforts.
But just because the figures for the second quarter of this
year were so good, we must expect some deterioration during the
second half.

It can hardly be expected, for instance, that reflows

will continue to reduce outstanding bank credits to foreigners during
the current half year.

Hence, the success of voluntary foreign credit

restraint thus far would not justify any relaxation in our efforts.
On the contrary, it would indicate a need for maintaining our endeavor
to correct the imbalance in our international payments.