Italian lire, and the German mark have all dropped far below par and even the pound sterling has fallen though not to the extent of the others. The result has been to increase greatly the already high cost of American goods to purchasers in Europe, as the merchant or manufacturer buying American dollars to pay for the goods has been forced to pay much more than a dollar, depending on the percentage of decrease in the value of the European money used in the purchase. Accordingly, the cost of American goods has become almost prohibitive and as a natural consequence, if this condition continues, we shall find that the demand for our goods will become less and our export trade will be seriously impaired. Production must be stimulated if we are to compete with other countries and keep our industries going, and a foreign market must be maintained for the disposition of our surplus raw materials and manufactures on a basis which makes it attractive for the foreigner to buy our goods. Otherwise, before long we may find ourselves being outstripped by England and Germany, our greatest rivals before the war.

Foreign Financing under Federal
Control

With the object of remedying the foreign exchange situation, extending quick credits to European purchasers and thus increasing the demand for our goods,

stimulating our foreign trade and further developing our new merchant marine, Congress, during the past year, has enacted two laws, the McLean Act and the Edge Act, supplementing existing legislation. Even as far back as 1913, steps were taken to procure for us a larger participation in foreign trade and commerce when the Federal Reserve Act was enacted providing, among other things, that any national banking association having a capital and surplus of at least $1,000,000 might, upon securing the approval of the Federal Reserve Board, establish branches in foreign countries and dependencies of the United States. Prior to that time, the financing of our foreign trade was done mostly by the great English banking houses and by a few strong private banking establishments of New York which had foreign branches in Europe. The small independent banks of the country could only help to a very limited extent.

The Federal Reserve Act, however, gave our national banks an opportunity to compete on nearly even terms, but few felt disposed to risk their capital in foreign branches, and the need of further legislation was clearly indicated. In 1916 further steps were taken in this direction and a law amending Section 25 of the Federal Reserve Act, enacted on September 7, of that year, permitted national banks having a capital and surplus of at least $1,000,000 to co-operate in the establishment or ownership of American banks or corporations principally engaged in foreign banking, by investing

amounts not to exceed 10 per centum of their capital and surplus in such institutions "chartered or incorporated under the laws of the United States or of any State thereof." Certain banking institutions have organized banking corporations of the kind contemplated by the 1916 amendment, for the purpose of financing American exporters and importers, but from some sources, it is stated, appeals have been made for Federal incorporation.

The arguments urged in favor of the enactment of such a law are that the time will probably come when the conflict of the dual control exercised by the Federal Reserve Board and by the banking departments of the states may be a matter of embarrassment, or may operate to restrict the activities of the banking corporation, and that such a banking corporation being essentially a national enterprise, the ownership of whose stock by national banks was authorized by an Act of Congress, should be entitled to the benefits and protection of a Federal charter which would prove ve of great value in competing for business in foreign countries. A Federal incorporation act substantially similar to the Edge Act, was later proposed by the Federal Reserve Board and passed the Senate, but the bill never passed the House.

On September 17, 1919, the McLean Bill became a law, under the provisions of which national banks, without regard to the amount of their capital and surplus, are permitted to subscribe in amounts not in excess of 5 per centum of their capital and surplus to the capital of corporations of the kind contemplated by the Edge Act, thus enabling national banks to further contribute to the financing of our foreign trade.

Purpose and Effect of Edge Act

The Edge Act, which has been strongly indorsed by the Federal Reserve Board, was introduced in the United States Senate on July 15, 1919, and became a law upon being signed by the President on December 24, 1919. With the enactment of this law, supplementing the amendment of September 7, 1916, and the McLean Act, it is hoped that much of our great foreign trade can be retained to the benefit of American manufacturers and producers. The Act provides for the Federal incorporation and regulation of banking institutions for the purpose of engaging in international or foreign banking, or other foreign financial operations or for engaging in such operations in a dependency or insular possession of the United States, either directly or through the agency, ownership or control of local institutions in such places.

Two distinct classes of corporations are contemplated, although the line of demarcation between them may not always be closely drawn-one class doing principally a banking business, the other an investment business, taking long-time paper, including bonds and mortgages and issuing their own debentures against them. The class of corporations carrying on a banking business may conduct nearly every kind of financial operation, but may not receive deposits in the United States except such as may be incidental to or for the purpose of carrying out transactions abroad. Both classes of corporations are prohibited from carrying on any part of their business activities in the United States except such as in the opinion of the Federal Reserve Board may be incidental to their foreign or international business. They may not become members of the Federal Reserve System and are not authorized to invest in any corporation, other than a banking corporation, an amount in excess of 10 per centum of their own capital and surplus, without the approval of the Federal Reserve Board.

The practicability of financing our export trade through the organization of such corporations as are contemplated by the Edge Act, is clearly expressed by the following statement of Senator Edge:

"The procedure under the prospective law is simplicity itself; it is merely the application to international trade of the accepted method by which John Doe sells his business to penniless Richard Roe and yet obtains actual cash payment in the transaction. The American exporter or manufacturer may sell his goods to an impoverished foreign purchaser-a foreign government or a private concern. One of the proposed corporations then may accept collateral from the purchaser, acceptable to the Federal Reserve Board, and against this issue debentures to sell to investors, and the money so