organization, should very definitely limit their extent of participation in these Export-Import Bank loans with the Export-Import Bank guaranty. To be more specific, we will say a bank in a small community has only a lending limit of $250,000, and some steel is being shipped out of there at a value of $1 million for some small mill, and the ExportImport Bank is granting the overall amount to the foreign government which is buying the steel. That little bank in that community could well consider going double or three times or even four times their limit for that particular transaction. I think that would be prudent. Senator BENNETT. I have heard testimony that left me the impression that one of the reasons there has not been wider participation in these foreign loans by inland banks may have been their lending limit. That they are not quite big enough to get in on these large loans. On the basis of your suggestion, an extension of the guaranty loan program might encourage these people to a wider participation on a guaranty basis for industry in their own communities or their own neighborhoods, where today they are shut out because the loan is too big for them to carry. Mr. COREA. In many cases where the loan is too big for the individual bank to carry, if it is a domestic transaction, they can handle that through their own correspondents. When it comes to the Export-Import Bank picture, they are probably not in a position, as Mr. Schneider, who just preceded me, said, to know much about the Export-Import Bank activities until such time as it becomes a fait accompli. The loans are committed and made. Even though it affects an industry in the community where that bank is, it is too late to do anything about it. Senator BENNETT. To come back, what you are saying, in effect, is that there is a pattern, maybe a geographic pattern, in which this export-import business is done; that the pattern falls rather naturally to the banks along the seaboard, and in large banks rather than being available as a common source of loans everywhere in the United States? Mr. COREA. I will say that I would think it would be up to the individual inland banks to educate and assist their own clients who are in that particular field, or who wish to ship abroad, to bring their problems directly to their own bank first. If it appears it is going to be in the nature of something that is going to be shipped abroad to a foreign country, and there has to be an Export-Import Bank loan behind it to support it, then there is plenty of opportunity for that inland bank to apply to the ExportImport Bank for their client. Senator BENNETT. I will go back and say it another way. You think the relationship of the inland bank to the Export-Import Bank is more likely to occur when the transaction originates inland than when a transaction originates in the foreign country and comes back into the United States? Mr. COREA. Very definitely. It is most likely to occur when the transaction originates within the State rather than from a Government office here. For example, we have had the case of the Afhganistan Embassy to bring out the point. They had already had preliminary discussions over a period of weeks before they approached any bank on the subject. They felt it was a transaction that came within the cognizance of technical assistance. Senator BENNETT. Thank you very much. I think you have cleared up some of the questions in my mind. I appreciate your coming to testify. At this point, I shall reserve the right to put into the record any replies to Chairman Capehart's letter that have come from banks represented by witnesses here today which I may have failed to insert heretofore. We will adjourn the hearing at this time. We will meet again Monday morning, the 1st of February. We have eight witnesses, most of whom, as shown by their titles, represent foreign industries involved in our foreign trade. The first witness will be Mr. H. Danforth Starr, vice president of the Cerro de Pasco Corp. We will go on, then, with seven other witnesses. Unless there is something else to come before us at this time, we are recessed until Monday at 10 o'clock. (Whereupon, at 3:10 p. m., the committee recessed, to reconvene at 10 a. m., Monday, February 1, 1954.) STUDY OF EXPORT-IMPORT BANK AND WORLD BANK MONDAY, FEBRUARY 1, 1954 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met, pursuant to call, at 10:05 a. m., in room 301, Senate Office Building, Senator Wallace F. Bennett, presiding. Present: Senators Bennett and Payne. Also present: H. K. Cuthbertson, Jr., Raymonde Alexis Clarke, and Donald L. Rogers, assistant counsel. Senator BENNETT. Gentlemen, the time has come to begin. When we recessed on Friday I announced the first witness would be Mr. Starr. When I came in this morning I found that we still have one witness from the list of bankers who was apparently not available last week who is here this morning. If Mr. Starr will permit me, I would like to call Mr. Ernest H. Meili of the J. Henry Schroder Banking Corp., so that we may complete our domestic banking picture before we go into the next session. Mr. Meili, will you identify yourself for the record? Do you have a prepared statement? STATEMENT OF ERNEST H. MEILI, SENIOR VICE PRESIDENT, J. HENRY SCHRODER BANKING CORP., NEW YORK, N. Y. Mr. MEILI. I do not. My name is Ernest H. Meili. I am senior vice president of the J. Henry Schroder Banking Corp. of New York City. I have spent all my active life in export and import financing. I probably can add to what the other banks have said in relation to the Export-Import Bank, that it has cooperated with us all along. It has done a very good job. The progressive industrialization of the world calls for more and more financing volume rather than less. If there is any criticism that I would voice, it would be that we did not have enough money at the disposal of the bank to finance all the worthwhile projects that came up. Perhaps the Export-Import Bank should, as the international bank is doing, go into the market for money. It should rely more on the commercial banks to supply money. It has in the past been too exclusively confined to Government assistance. We strongly feel there is no need for an Export-Import Bank for the day-to-day exports of consumer goods. The commercial banks can amply handle that up to 6 months and maybe as long as a year. When it comes to terms beyond that, which is normal for development projects, there just is not any private money available in our markets. Institutional financing, such as provided by the Export-Import Bank, is necessary and vital. I think that sums up what, from a banking point of view, I have to say. Senator BENNETT. Do I understand you, Mr. Meili, to suggest to the committee that the Export-Import Bank limit its activity to what you might call project loans or loans of nonconsumer goods, or, to turn the question around, do you feel there is no place in the picture for private lending even in this field of project loans? Mr. MEILI. In my experience, there is today no money at all available for project loans in the private market. It is true that corporations will finance foreign developments of their own. There is a fair amount of that going on, where large American companies build subsidiaries abroad. But a wholly independent project which is not owned by a large American company cannot find money in the private markets. It has to go to Washington. Senator BENNETT. Is that primarily because the period the loans run is too long for our private American commercial banking? Mr. MEILI. The risks are too uncertain. The experience in the past. has not been very good. The period is too long. The return is not attractive enough to offset those disadvantages. Senator BENNETT. Has your company, the J. Henry Schroder Banking Corp., participated in the past in these Export-Import Bank loans on which participation has been invited? Mr. MEILI. Yes, indeed. Senator BENNETT. You would be anxious to continue that participation in the future? Mr. MEILI. Yes. We think there should be a bigger and better Export-Import Bank. Senator BENNETT. Do you think this bigger and better bank should be built along the road of participation rather than more direct loans? Mr. MEILI. I believe that, to be as flexible as possible, the ExportImport Bank should have all avenues open. It should have access to the Treasury. It should seek financing in the money market. It should also be permitted and be willing to share its business with commercial banks which might have available money. Senator BENNETT. Do you think there is enough interest in the private commercial field to support a widened participation program of the Export-Import Bank? Mr. MEILI. On the part of commercial banks? Senator BENNETT. Yes. Mr. MEILI. There is up to a point. If it goes to 10 or 12 years, I would say the interest is relatively small; but up to 3 to 5 years it would be quite substantial, I believe. Senator BENNETT. I have no other questions, Mr. Meili. Thank you very much for coming. Without objection, we will insert in the record at this point your letter of October 5, 1953, in reply to the committee questionnaire. (The material referred to follows:) Hon. HOMER E. CAPEHART, J. HENRY SCHRODER BANKING CORP., Chairman of the Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR SENATOR: In reply to your letter of September 10 we are pleased to give you herewith our answer to the 10 questions pertaining to the Export-Import Bank, Washington, D. C. |