are designed to undertake ventures of the sort just outside of the ordinary banking field.

I should think that the reasonable, justifiable requirement is pretty well served.

Senator PAYNE. You would feel domestically, if we can develop through private enterprise, through the banks, through various interested groups, whether it be railroads or anything else, contributions to development corporations, that by their very makeup they can enter into the so-called field of risk and venture capital that is not open to ordinary bank channels at the present time, that we would accomplish the thing that we hope and aim for, hope to see accomplished in the future?

Mr. CHADSEY. Yes; I do.

Senator PAYNE. Without the Government itself getting back into the field on a large scale?

Mr. CHADSEY. Yes.

Senator PAYNE. That answers my question.

The CHAIRMAN. Thank you very much. Our next witness will be Mr. Strelow, vice president of the Guaranty Trust Co. of New York. Mr. Strelow, you may proceed.

STATEMENT OF WILLIAM R. STRELOW, VICE PRESIDENT, GUARANTY TRUST CO. OF NEW YORK, N. Y.

Mr. STRELOW. I am William R. Strelow, vice president in charge of the foreign department of the Guaranty Trust Co. of New York. I have been associated with the foreign department of this bank for more than 35 years, and during that time we have had an opportunity to observe the activities of the Export-Import Bank of Washington since its inception.

We received your questionnaire dated September 10, 1953, and sent a reply dated September 24, which we have authorized you to place in the records of your proceedings. There is very little I can add to the information contained in my reply.

From my observation and to the best of my knowledge, the bank has served a useful purpose to the exporters in this country, covering both agricultural products and manufactured goods. It has adhered to the principle of granting facilities only when they could not be obtained from private banking sources, and I have never heard a complaint from bankers in this regard.

Provided this remains their guiding principle, I believe the ExportImport Bank can serve a useful and necessary purpose to facilitate the exports of our factories and farms. The outlook is that there will be a growing competition for export markets and the ability to extend credit on favorable terms may be an important element in retaining our share of this business.

That is all I have as a prepared statement. I would like to make a comment or two, based on some of the discussion this morning, if I may. The CHAIRMAN. You may proceed. Without objection, we will place in the record your letter of September 24, 1953, in answer to the questionnaire.

(The material referred to follows:)

Hon. HOMER CAPEHART,

GUARANTY TRUST CO. OF NEW YORK,

New York 15, N. Y., September 24, 1953.

Chairman, Committee on Banking and Currency,

United States Senate, Washington, D. C.

DEAR SIR: We have received your letter dated September 10, requesting replies to 10 questions. This letter has received our careful consideration and we are pleased to give our replies below to these questions.

1. Yes. In our opinion the Export-Import Bank has been of direct and indirect assistance to many of our clients.

Direct assistance.-Were it not for the intervention and assistance of the ExportImport Bank on capital goods purchases, a good part of the business would have gone to other countries, where competition on price and terms constantly becomes more severe. Furthermore, an initial order for machinery, rolling stock, etc., results in parts shipments to the manufacturer over the course of succeeding years. Indirect assistance.-Because of the current nature of export operations of manufacturers of consumer products and because bank-loan facilities are readily available to them, the Export-Import Bank has not been of direct assistance to that type of manufacturer. However, many manufacturers of consumer goods appreciate that the aid extended to various countries by the Export-Import Bank for the purchase of capital goods has a direct effect on (a) raising the standard of living in the foreign country and thus increasing the importation of consumer goods, and (b) conserving dollar exchange to pay for imports of consumer goods. Dollar exchange used for the immediate payment of capital goods, which usually runs into substantial figures, would utilize the available supply of dollars, to the detriment of consumer goods.

American exporters of both capital and consumer goods are not unmindful of their release from backed-up commercial obligations in Argentina and Brazil, although in some cases we find that the principle back of these loans is questioned. 2. Not so far as we know. We do not believe that private capital as yet is ready to enter into the type of financing now engaged in by the Export-Import Bank.

3. Not to our knowledge. From our observation, the Export-Import Bank has adhered strictly to the policy of not undertaking business that could be financed on reasonable terms by private banks. On several occasions they have telephoned us to confirm this fact with regard to certain transactions under consideration.

4. We have always been interested in any proposition presented to us by the Export-Import Bank subject to proper rates and other business considerations. 5. Our willingness to make term loans exceeding 6 months to finance sales abroad of capital goods would depend to a great extent on the credit standing of our customer and the importance of the relationship to us. Under no circumstances would we make such loans except with full recourse to our client. 6. We are not financing on a "without recourse" basis.

7. Even with the Export-Import Bank risk factors in mind, we do not feel that compensation to us has been adequate. Some operations are extremely complicated, our operating costs are high, and certain risks are involved for us when we advance our funds. We feel that the rate accorded us by the Export-Import Bank should be brought more into line with the going prime rate existing at the time of our participation.

8. Yes, we have and our experience has been entirely satisfactory.

9. Yes. We believe the facilities are essential to enable manufacturing exporters of capital goods to compete with foreign producers, who in many countries operate under the protection of Government guaranties covering the risk of credit and final payment in the currency of the country of the shipper. In some quarters we find opposition to the extension of Export-Import Bank credit on operations abroad which would eventually result in direct competition with United States manufacturers.

10. In our opinion, the facilities of the Export-Import Bank have resulted in the expansion of international trade in the past. Many of the projects financed by the Export-Import Bank undoubtedly would have gone to other countries had it not been for Export-Import Bank intervention. In answer to the latter part of the question, we believe that the Export-Import bank should continue to screen all projects as submitted, and perhaps the bank could expand its activities by resorting to guaranties to commercial banks instead of using its own

funds. By operating in this manner the bank would have at its disposal a prac tically untapped reservoir of funds.

We trust the foregoing responses may be satisfactory and helpful. Please do not hesitate to write us if you require any further information on this subject. Very truly yours,

The CHAIRMAN. You may proceed.

WM. R. STRELOW, Vice President.

Mr. STRELOW. In the first place, I hope there is not too much emphasis placed on deficiencies of the banking system, because I think by and large we have managed thus far to finance a very substantial part of the exports of this country.

There were some $12 billion of exports last year, and a great part of that was financed by the commercial banks of the country. Most of the exports, you must realize, are what you might call cash products, sold on short-term credit. That covers farm products and some of our manufactured products. The things that are chiefly under discussion, I think, are those things which we might describe as capital goods. I do not know what percentage that is of our exports, but it is by no means a dominant part.

As far as the imports go, which, incidentally, is also a part of this bank, I do not think they have had many applications. I assume that is because the commercial banks have taken care of all the needs. I have not heard of any imports being kept out because of any lack of financing.

I would like to comment on the matter of interest rates, also, which was discussed this morning. I know that you are thinking along the lines of having the Export-Import Bank guarantee obligations and make use of the vast amount of loaning funds that the commercial banks have at their disposal.

In so doing, of course, the Export-Import Bank will have to compete with the requirements of the customers of these commercial banks. The commercial banks feel first an allegiance to their depositors and to their customers.

But when you have a period, such as during the last war, when there was a high demand on the part of depositors for funds, your interest rate must be competitive and must be attractive; otherwise, the bank would naturally give preference to its depositors.

I have one other comment, if I may, with regard to what you said about the interest rates that exist in some of the South American countries vis-a-vis the interest rates here. I think we must not forget in determining the interest rates here that it is not the interest rate in Brazil or Peru which is the competitor. The competitive interest rate is the one in England, Germany, or Japan, who are the competitive exporters.

For our exporters to compete with the other fellows in those countries, the cost of financing is a factor, of course. That is all I wanted to say.

The CHAIRMAN. I am glad you made your points, and we are glad to get them in the record.

I do want to say that I have made the statement on many, many occasions, particularly in my recent trip to Latin America, that our high standard of living and our great volume of business in the United States was due to our ability to finance it. It was primarily due to our big and little banks, our finance companies, our ability to sell on long terms, on the installment basis. If we had to do business on the

cash basis our standard of living today might be entirely different than what it is. Our production would be much less than it is if we tomorrow had to sell automobiles on a cash basis.

I do not know what the number would be that we would sell, but I expect it would be over 50 percent less than we do now. Our rate of prosperity in the United States is due to our great banking institutions and their ability to finance on generous loaning terms.

In my opinion, if they are going to build up the standard of living of these so-called backward countries, they, too, have to find some way to make their dollars or money go further. I think that is their problem. I think that is the problem that we are to try to solve in the United States, both Government and private enterprise and private capital.

They have just so many dollars in each of these countries in the world to spend in the United States. I could name the amount that most of them have, particularly Latin American countries, right now. Maybe they can earn more and maybe they cannot. Maybe reducing tariffs might help them earn more, but I doubt it.

Maybe they do not know how to sell in the United States market. Maybe they do not have what we want in the United States market. There are a lot of reasons why they might not be able to earn more dollars in the United States market. I think tariff is one of the least factors involved in international trade.

So, I think it is the problem of helping, if I may say it, them to make their dollars go further. That is what we do in the United States. If a man has $100,000 worth of capital he can do so much business. If he is on a cash basis, he has to pay c. o. d. for every thing he buys, then he can do a certain amount of business.

If he can get 6 months on a $100,000 amount of capital, he can possibly do 6 times as much business. So I think the problem is one of credit, one of banking, and one of financing this world business that we are talking about; the building up of the standard of living of these people, and getting production for them in their respective countries, which they need and must have if they are to build up their standard of living.

They are not going to do it by importing goods because that will not give anybody a job. If they are going to keep their people working-let us talk about Latin American countries-they have to have jobs for them. They have to build up the trade among themselves, because our prosperity in the United States comes primarily from our domestic business, trading among ourselves.

Our export business is 10 percent or less. It is wonderful. We ought to have it. We ought to have more of it. I am not trying to discount it.

I think the problem is not one of tariffs, not one of anything except money, credit, and financing. Then there should be the building up of the production within those countries, so that they can build these things that they need to give employment to their people so that they have a higher standard of living and so that they will be in a position to buy more of what everybody makes throughout the world. Then you will really get an increase. That is the way we did it in the United States.

Fortunately, in the United States we got our capital 100 years ago. It was private capital. It was invested over here privately. But

today private capital does not have courage, or something. I do not know. It is not flowing. Government is sticking its nose in everything, in every direction. So today, it is Government capital, primarily, that is going in and developing these mines, and so forth, where 100 years ago it was private capital. But, nevertheless, 100 years ago it was capital coming in here until we built up the United States. After we built it up, we bought everybody out who had capital over here. Some of them were forced to dispose of it by a couple of wars. But it was picked up by private people here. It was not expropriated, or anything else. It was purchased at a high price. They were paid a lot of dividends for it in the meantime, and then they were paid a high price for it when some Americans purchased it from them.

The problem is to find some way of making their dollars go further, and to give them more credit. That is the purpose of this study. We are just thinking out loud. We are being just as frank and honest as we can be. We have no preconceived ideas. We are just looking

for the facts.

How can we be helpful and not hurt the United States? How can we help and, at the same time, help ourselves and not do harm to anybody in the United States? I think the answer, as I see it at the moment, is credit, making their money go further. It is not tariffs. It is not a lot of things we think it is. It is just simply to make their money go further.

If we could sell just as freely to Latin America, American automobiles on 24 months, or 3 years, washing machines and all of the other things that we sell in the United States, we would pretty well have the problem solved. They would have enough dollars to buy a lot of automobiles, and turn them over and over. I am not unmindful of the fact that this thing eventually catches up with you. We do business in the United States on the credit and installment setup, long term. And yet we might just as well be frank and honest with ourselves. We, in America, today, are trying to do business throughout the world on a cash basis. About the only fellow who is not giving cash is what little the Export-Import Bank and the international bank is doing. We give 6 months, and a little longer, but generally speaking it is a cash basis.

Isn't there some way or some formula whereby we can extend the terms somehow, make the dollars that these people have go further, and get this job done that we all want done, and at the same time protect the United States, protect the industries of the United States, building up the other fellow rather than tearing down the United States? I am looking for that formula. We certainly need the help of every banker and finance man and credit man in the United States. Mr. STRELOW. I certainly hope you get it.

The CHAIRMAN. I think that is the answer. Maybe I am wrong. I think that is the answer: Credit, longer terms, to make their money go further, I am thoroughly convinced the so-called backward countries, these raw material producing countries, are on the march and are going to move. They are going to become pretty selfsupporting on foodstuffs and manufacturing. If they do not get the machine tools in the United States and the productive type of machinery to go into business, they are going to get it from Europe. They will get it from someplace, because they are going to do it.