ers. And, obviously, the difficulty of policing or enforcing the terms of such a loan are increased by reason of the distance and by reason of the applicability of foreign law.

Moreover, foreign loans carry with them the hazard of exchange fluctuation and of altering exchange regulations. The shorter the term, clearly the greater the ability of the lender to evaluate the probabilities. But when the term becomes not a matter of months, but of years, then possible exchange fluctuations present in themselves a problem of some magnitude, and even more troublesome is the likelihood that they will bring in their train new exchange regulations which, representing as they are likely to do a combination of economic necessity and of political aspiration, are just not possible to predict. In our own case, at least, we have no illusion as to our ability to outguess a managed currency.

Loan or investment paper of this sort is of course not remarketable. We can, if our deposit situation so requires, liquidate promptly a substantial part of the domestic investments which we may hold, even if market conditions at times may make such sales distasteful to us, but the same possibility does not exist for foreign commercial paper.

Now, these hazards do not by any means disappear simply because the lender is not a commercial bank but is instead a governmental agency such as the Export-Import Bank. But there is a marked difference in the ability to assume, and take protective action against, those risks.

The Export-Import Bank's lendable funds do not stem from deposits withdrawable upon demand. On the contrary, they represent money provided by the Treasury Department, and while certainly not to be risked ill-advisedly, neither are they going to be recalled for some other use next week or next month.

Furthermore, such a governmental agency is in a position to impose conditions, and in the event of difficulty to bring pressure, quite outside of the possibilities open to a commercial bank.

The Export-Import Bank can, for example, and I understand habitually does, obtain approval of proposed financing by the central bank of the recipient country and frequently obtains also the undertaking of that central bank to permit and facilitate the conversion of local currency into dollars as maturities come along. Such an approval or undertaking cannot, of course, work miracles. It cannot assure that the dollar exchange assets of the recipient country will at some future time be sufficient for all its dollar needs, but such assurances can go a very long way in making certain that if there is not enough dollar exchange to meet all requirements, at least the Export-Import Bank obligations will be among the last to suffer.

Now, having dwelt on some of the purposes which it seems to me the Export-Import Bank can usefully serve, and has commendably served, I would like to mention certain aspects of its performance which from our point of view might perhaps be improved.

The Export-Import Bank has been at some pains to invite the participation of the commercial banks in its financing and to utilize their services in implementing, loans which it has made. This, it seems to us, is entirely sensible and desirable.

It frees the Export-Import Bank from the necessity of maintaining a large staff, skilled in the techniques and instruments of international

banking, such as letters of credit, documentary examination, collection procedures, and the like, and it preserves for the private enterprise field those activities which would ordinarily be subsidiary to a loan which commercial banks might themselves make. And in thus utilizing the services of commercial banks, the Export-Import Bank has been very careful, and properly so, to avoid itself making the selection of the servicing institution, leaving that choice to the foreign recipient of the credit facilities.

However, since the Export-Import Bank is a governmentally sponsored operation, opportunity to participate in the business which it engenders ought to be equally available to all qualified banks in the United States. As a practical matter, this means, we think, that whenever loans under negotiation by the Export-Import Bank have reached a point where that fact can reasonably be revealed, there should be a public announcement by the Export-Import Bank of what financing is in prospect and who are the parties thereto, so that all of us who are equipped to do so and may desire to participate will have timely opportunity to approach these entities, even though they be in foreign lands, by whom a selection of the servicing institutions is to be made, and to solicit a share in the activity. To avoid attempting with a shotgun what is better adapted to a rifle, this might mean the establishment of a mailing list of those commercial banks who had indicated their desire to be thus informed.

It is my opinion also that there should be a somewhat greater differentiation in rate between the various projects which the ExportImport Bank undertakes to finance. In the field of private enterprise the rate applicable to a particular transaction is determined by a variety of interacting factors, the responsibility of the borrower, the hazards attendant upon the particular venture, the length of time involved, the general level and trend of interest rates. Is has seemed to me that in the case of the Export-Import Bank there has been a tendency (more in evidence in earlier years than in recent ones and perhaps motivated by a regard for the borrower's sensibilities) to consider that each and every loan, if made at all, was just as meritorious as each and every other loan and that the rate has been determined more by the cost of money-and of short-term money-to the United States Treasury Department than by any other factor.

It seems to me that the more difficult loans should bear a commensurate rate and that both the Export-Import Bank itself and the commercial banks, to the extent that they are participants in the loan or the agencies servicing the loan, should be compensated proportionately. It also might be appropriate and it certainly would be consistent with commercial practice to exact a commitment commission in those cases where an agreement is made to lend money well in advance of the actual borrowing of that money and consequently in advance of any interest-bearing thereon.

The CHAIRMAN. How many more pages do you have, Mr. Chadsey? Mr. CHADSEY. I have four.

The CHAIRMAN. There are some questions which we would like to ask you. It is now 10 minutes after 12. Let us recess and come back at 2 o'clock, when you can finish your statement, if you will. If that is agreeable with the committee, we will recess at this time. (Whereupon, at 12:10 p. m., a recess was taken until 2 p. m., of the same day.)

AFTERNOON SESSION

(The committee reconvened at 2:10 o'clock, Senator Homer F. Capehart, chairman, presiding.)

The CHAIRMAN. We will come to order. Mr. Chadsey, you were about finished, but not quite.

STATEMENT OF HORACE M. CHADSEY, VICE PRESIDENT, THE FIRST NATIONAL BANK OF BOSTON, MASS.-Resumed

Mr. CHADSEY. I understand I went a little too rapidly this morning for comfort.

The CHAIRMAN. I do not know, but I think the reporter got it all. Mr. CHADSEY. When we recessed for lunch I was about to say that I thought these factors will all be of consequence if there is to be a continuation of the pattern with which the Export-Import Bank has been recently experimenting, namely, the extension of a guaranty against eventual default and based upon that the provision of the actual advances by commercial lenders in terms of mutually acceptable conditions arranged between those commercial lenders and the borrowers.

This approach seems well-designed, both to economize the use of Federal funds, and hence relieve pressure against the debt limit, and to provide American exporters with governmental support somewhat paralleling that available to the exporters of several other countries. That it may result in a foreign debtor paying an interest rate more nearly comparable with his commercially measured merit, is not, in my opinion, inequitable.

The emphasis, we think, in the activities of the Export-Import Bank has been upon exports, but as the name implies and as the enabling authorizations have stipulated, it was intended to facilitate and to aid in financing imports as well as exports. The import aspect is perhaps not so readily capable of development, but we think that possibly it does need more study than has heretofore been devoted to it.

It is our impression that the import function has so far been largely confined to the development abroad of sources of critical materials for eventual acquisition by the United States. This action is certainly commendable and merits continuance, but in addition thereto it seems to us that it might be possible to develop import financing which would somewhat parallel the export financing.

To be sure, the ordinary flow of imports, consisting in the main of raw materials, appears to be adequately financed by the commercial banks but it is possible that new or introductory ventures might be developed if financing were available for somewhat more than the normal period of marketing. It is conceivable, for example, that the availability in the United States of spot quantities of commoditiesshipped here not to a purchaser already committed, but to a purchaser yet to be found-might work to the advantage of both the American purchaser and the foreign shipper. To the former, by reason of ability to inspect and to obtain prompt delivery; to the latter, by way of better prices in the spot market and expanded sales. The existence of such stocks also might tend to reduce the seasonal variations of some marketing and to even out prices over the year.

It seems not unlikely that a number of foreign shippers would be attracted by such a possibility and would be willing to assume the cost and price risks involved. However, an impediment frequently facing them is the requirement on the part of their own exchange authorities that dollar exchange for commodities shipped to the United States be surrendered to those exchange authorities virtually coincidentally with shipment.

Such exchange authorities, however, might be receptive to a suggestion that only a partial advance be made against the market value of the raw materials, and hence only a partial surrender of dollar exchange be made initially, so long as the commodities here were subject to the security control of the Export-Import Bank (or some commercial bank acting in its behalf) so that an accounting for the ultimate proceeds of sale might be assured. Here again, because of the perhaps more than ordinarily extended marketing period and because of the semiofficial agreements to be concluded, we believe that the possibilities are greater for the Export-Import Bank than they would be for any commercial bank.

It is conceivable, too, that a similar approach might be of interest with respect to the import of manufactured goods. It seems to us that the introduction into the United States of the manufactures of other countries, which may very well represent articles which we have not been accustomed commonly to use and for which a demand must therefore be created, is going to be dependent in part upon ability to display those articles and to make prompt delivery when a sale is concluded.

Foreign government trade promotion organization, we think, are more likely to be designed for rendering technical than financial aid. If financial assistance could be arranged through the Export-Import Bank, perhaps in conjunction with those trade promotional organizations, it might be possible to develop a broader market in the United States for foreign manufactured products which are not uncomfortably competitive with our own and which therefore would simply serve to expand the number of articles available for our use and enjoyment.

In summary, may I say that in our opinion there is a real need in the international trade of the United States for financing facilities such as those provided by the Export-Import Bank; that it has heretofore discharged its function in a manner designed to facilitate our trade without unnecessarily impinging upon the field of private enterprise; that it should be commended for the judgment which it has exercised, as evidenced by its moderate loss experience and its return of dividends to the United States Treasury; and that there should be a reaffirmation of the purposes for which it was created and reassurance that active pursuit of these objectives may be expected in the future. It is also my opinion that the Export-Import Bank is a peculiarly American institution designed to serve American interests, and that we can expect those interests satisfactorily to be served only by an international financing agency which is completely responsive and responsible to our own authority and to no other.

That is all I think I have to contribute, sir.

The CHAIRMAN. We have your letters dated September 28, 1953, and October 9, 1953, in answer to the questionnaire. Without objection, they will be made a part of the record at this point. (The material referred to follows:)

Hon. HOMER E. CAPEHART,

THE FIRST NATIONAL BANK OF BOSTON,
Boston 6, Mass., September 28, 1953.

Chairman, Committee on Banking and Currency,
United States Senate, Washington, D. C.

DEAR SENATOR CAPEHART: We have your letter of September 10, 1953, asking for our opinion on various questions with respect to the operations of the ExportImport Bank. It is a pleasure to respond to your request. As a measure of convenience we are repeating the questions you have posed and our observations on each one immediately follow.

1. "Has the Export-Import Bank been of assistance to clients of your bank?" Yes. Such assistance in years past has, for the most part, been indirect to clients of ours. For example, the cotton credits of recent years to Austria, Japan, Germany, and France provided financing for substantial sales by some of our customers, which otherwise might not have been possible. Certainly the Argentine credit of November 1950, and the Brazilian credit of April 1953, were of material assistance to many of our customers, who had receivables tied up in those countries for extended periods and, indeed, seriously impaired working capital in some instances. More recently, one of our customers a large manufacturer of textile machinery-has had direct assistance from the Export-Import Bank in financing sales of equipment to Latin American countries which are presently hard-pressed for dollar exchange. These latter transactions were not suitable for commercial bank financing.

2. "Has it competed with private capital in your area?"

We do not consider that the bank has competed with private capital in this area. 3. "Has it taken business away from your bank and, if so, how and to what degree?"

We do not feel that the Export-Import Bank has taken business from us. It appears to us that the bank has very carefully confined its operations to transactions that did not fit, in whole or in part, into normal commercial banking channels. We have noted also that insofar as it may be conveniently done, the bank has used commercial banks to disburse funds and otherwise handle necessary operations under the loans. We believe this policy has avoided duplication of existing facilities by the Export-Import Bank and at the same time has had beneficial results for commercial banks.

4. "Can the Export-Import Bank use the services of your bank more than in the past and if so, how?"

Our Foreign Division and Latin-American branches have been very active in international banking operations for many years and we would welcome opportunities in the future to consider participation in Export-Import Bank credits. We realize that the confidential nature of credit negotiations and possible adverse repercussions preclude the possibility of premature announcement of loans that are under discussion. However, we think it would be fair and helpful if, at as early a date as may be compatible with the progress of negotiations, all banks that had previously registered interest in participations under Export-Import Bank credits, were notified simultaneously of each proposed credit, whether or not they will carry the guaranty of the bank, or require implementation by means of letters of credit. We feel that interested commercial banks would thereby be on a somewhat common basis for soliciting a portion of any resulting business that must be obtained through normal channels.

5. "What position has your bank taken with respect to term loans, i. e., where repayment exceeds a term of 6 months?"

We have been active in term financing of United States companies for a number of years. It has been our policy to limit our commitment generally to not more than 5 years, and preferably less.

6. "Are you financing without recourse shipments to foreign countries payable over term periods?"

We have not financed American exporters without recourse, whether on a current or term basis. We are active in financing shipments to foreign countries, but always with full recourse.

7. "In cases where you have acted for the Export-Import Bank in the operation of credits has your compensation been adequate, taking into consideration the risk involved, by the Export-Import Bank as a Federal agency?"

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