if the field which the Export-Import Bank covers can be adequately served by private funds. The CHAIRMAN. You think they ought to do both? Mr. CHADSEY. I think it is indispensible if their operation is to do much good. The CHAIRMAN. Senator Payne? Senator PAYNE. Mr. Chadsey, first of all, I want to say that I think you have given a very splendid statement. I am in pretty general agreement with everything that you have said here with regard to the Export-Import Bank. However, some of the testimony intrigues me a little bit particularly when we discuss the area in which the Export-Import Bank operates and the relative position taken by the banking industry with regard to the fact that, "Yes, there is a field." If I understood correctly, there is a field because there are certain elements of risk, there are certain areas in which normal banking circles of this country could not enter because of the long-term loans that many times have to be negotiated in order to carry out the purpose of the loan that is requested. I recognize this is a little beside the point, but it is the first time I have ever had a chance to have some very able people, who know this field frontward and backward, give an opinion on it. We are talking about the desirability of an effort that is certainly commendable, to help other countries through the use of American capital, furnished by American taxpayers, through our own Treasury Department and, again, through the Export-Import Bank, to enable people of other lands to be able to secure the necessary types of credit they need so they can better their lot, as it were, increase their economic well-being. My question is this: If that is desirable, then is it not just as desirable that in those same avenues where present banking practices in this country, either through regulation or other medium, prevent our being able to step in domestically at home, to be able to extend longterm benefits to many worthy activities which just perhaps are outside that little twilight zone that comes under the so-called venture risk capital structure? We also think in terms of the needs of our own people here, industry in this country and people who want to get into industry in this country, to likewise have an avenue where they can go when private capital throughout organized banking facilities are unable to provide that source of help. This is the first time I have ever had a chance to get an opinion from some of you gentlemen who represent some of the biggest interests in this country in the banking field. Mr. CHADSEY. That was a fairly extended question. Senator PAYNE. I know it was. Mr. CHADSEY. I think there is a rather marked difference between the availability of funds for capital which perhaps verges on the venture sort here at home and abroad. You do have a multiplicity of lending agencies, not only banks, which are primarily interested in short-term loans, but you also have the savings banks, which want longer-term mortgage operations, you have the insurance companies, which are constantly seeking employment of their funds with a well-fixed dollar return for a long period, and you have investment trusts which are looking for investments of value with growth possibility. I think there are so many of them that the likelihood is that the American product which is not able to secure financing from one of those sources does not have much commercial merit. It may be that I am wrong. Usually there is a difference of opinion between the lender and the borrower when a loan is not made. It is conceivable that the borrower is right. It is an adage in the banking business that one of the poorest reasons for lending money to a man is because he needs to borrow it, which is simply by way of saying that his own estimate of the probable venture is certainly not an unprejudiced one. Senator PAYNE. Do you not feel-I do not care whether you call it RFC or a similar activity, without definite limitations, there should be an agency that would be able, following the ideas that have been. indicated here that you would like to see the Export-Import Bank, for instance, circularize the various banking institutions, lending agencies, to see whether or not legitimate, so-called commercial banks, would be willing to undertake those loans before the Export-Import Bank finally negotiates them? In the same light, under the procedure that I speak of, for instance, under the RFC in its latter years they did require that there had to be definite turndowns on the part of normal banking channels before any consideration could be given to a loan. Then it was carefully scrutinized. The record shows in at least the overall operation it was a fairly successful operation, as far as the Government was concerned, with a turnback to the Treasury and the ratio of loss was reasonably smaller. I think I am correct in saying that the banks, even now, have cooperated to the point where they are helping to liquidate or take over many of the loans held by the RFC, which must in turn indicate that they must have been reasonably good loans or I do not think the banks would be too interested in taking them over. Again, I am simply asking whether or not you feel that there is not an area in which the Government possibly, on our own domestic scene, should be geared to a point, not encroaching upon the private enterprise system as such, but simply be in a position to supplement where necessary this initiative that is available in the American mind, the American genius, to build and produce here in our country. Mr. CHADSEY. Perhaps I ought to disqualify myself as being a competent witness, because after all my activity has been primarily in the foreign field. But it seems to me that when the RFC's operations were at their height it was during a period of general economic blight in the United States. Lending agencies of the ordinary sort were loath to make any commitments. You do have some governmental establishments now who take care of that sort of loan which is not suitable to the commercial banks. Commodity Credit is an outstanding example. None of us private lenders seem to know at what price it will be sold or how. It does not seem to me there exists presently an area of demand which cannot be reasonably satisfied. Particularly so, because stemming from the experience of having the RFC created, there have been cases in a number of States where they have formed development corporations, to which the banks have made contributions and which 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, 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 practically 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. I 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. 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 |