stitute there. Similarly, there is an exemption in section 3 (a) (10) of the Securities Act for securities which are issued in a reorganization that has been approved by any State or Federal court or agency as being fair and equitable. There again that is hardly the equivalent of the requirements in our act, but it is deemed a practical working substitute.

Now here, even after the United States guaranty point is passed, you still have the required approval of the NAC, which might be analogized to approval of a court or State agency under section 3 (a) (10) or approval of the Interstate Commerce Commission under the railroad exemption. It is not precisely analogous, but you still have the requirement that a United States Government agency, consisting of very responsible officials of this Government, shall approve the issue.

Mr. BENNETT of Michigan. Are the railroad securities exempted under the 1934 act?

Mr. Loss. No; but they are exempted under the 1933 act. An issue does have to be registered under the 1934 act to be a listed security, but that is not the same as registration under the Securities Act.

Mr. BENNETT of Michigan. But there again you have the approval of those securities under a specific statutory regulation; do you not? Mr. Loss. Precisely, section 20a of the Interstate Commerce Act; but the standards are quite different. There is not any waiting period such as you have under the Securities Act. In some respects the protection is broader and in some respects it is narrower. It is an entirely different kind of animal, but yet deemed by Congress to be a practical substitute.

Mr. BENNETT of Michigan. Well, as I understand this World Bank set-up, a loan could be made in a foreign country without the consent of the United States.

Mr. Loss. But not in the American market, as I understand it, and the Commission would not have any jurisdiction abroad anyway.

Mr. BENNETT of Michigan. The securities to support that loan, of course, being sold here would have to have the approval of the NAC. Mr. Loss. As I understand it.

Mr. BENNETT of Michigan. But a security, a loan made and a security sold on the basis of it, of course, would be one that the NAC would not have any control over if sold in a foreign country even though sold to American citizens there.

Mr. Loss. Not apart from the vote of the American director, as I understand it.

Mr. BENNETT of Michigan. Which would not necessarily block the loan.

Mr. Loss. From what I heard yesterday, I would agree, although there is a very large vote there.

Mr. BENNETT of Michigan. Well, when the United States

Mr. Loss (interposing). The American vote is something less than 50 percent, but fairly close to it, as I understand it.

Mr. BENNETT of Michigan. Not quite control of the bank; 37 percent, I believe.

Mr. Loss. I do not recall that exactly.

Several of my colleagues have pointed out, and I thought that we agreed on this a few moments ago, that the bank's guaranty in con

nection with the sale of securities outside of the United States would not be subject to the Securities Act anyway.

Mr. BENNETT of Michigan. And would not be subject to the NAC either?

Mr. Loss. That is right, I suppose.

Mr. BENNETT of Michigan. Would not be subject to any control, except whatever control might be imposed by the foreign government. Mr. Loss. Or, again, the vote of the American director.

The CHAIRMAN. Will you yield for just a moment?

Mr. BENNETT of Michigan. Yes, Mr. Chairman.

The CHAIRMAN. I want to keep this all on one subject, if possible. You have pointed to the case with the Interstate Commerce Commission, where the Interstate Commerce Commission passes upon the security instead of the SEC.

The contention, as I understand it, of the bank is that the NAC would take a somewhat similar, occupy a somewhat similar position as to the Interstate Commerce Commission.

Now, there is where it seeems that some difference of opinion among us exists.

Now, if this legislation left no doubt whatsoever that Congress desired that the NAC had this jurisdiction instead of the SEC, then I could see that it would be on all forms.

We have argued a great deal as to whether it does or does not. The very fact that some minds are not satisfied in that respect would indicate to me that it might be well if we cleared that situation up and that might make an entirely different case before the committee. I would like for Mr. Black and his counsel to give consideration to that.

Mr. LUXFORD. Mr. Chairman, if I understood you correctly, it was that we should consider an amendment which would make it very clear that the NAC was to protect the interests of the investors. The CHAIRMAN. That is right.

Mr. LUXFORD. Mr. Chairman, I believe that that was one of the things that we had in mind in seeking section 4, the new amendment; but if there is any doubt about that, Mr. Chairman, I think we could work out language with Mr. Lynch, of the National Advisory Council. The CHAIRMAN. I have one or two other proposals that I will make before the hearings close, and I will not want you to assume because I made that suggestion that there is a commitment in any sense, but merely one of the channels of thought that might be pursued in an endeavor to get protection which we feel that the public is entitled to have.

I would take it that the SEC would not object probably to that. I can see why the SEC would favor it. In other words, it is not only the duty of the NAC, as we hope to pass on it from the standpoint of the public, but there is a foreign relationship angle that comes into it that the SEC does not have the information available to it that enables them to make the decision that they would be called upon to make and for that reason I could see why probably the SEC would not object to this jurisdiction being taken from them on a similar basis as the Interstate Commerce Commission that has been mentioned or any of these others, assuming that Congress would care to do so.

Mr. LUXFORD. We will be glad to work on that, Mr. Chairman. The CHAIRMAN. Go ahead.

Commissioner MCCONNAUGHEY. I should think we might say that that is strictly in line with our position and we were basing it quite clear in the assumption by the NAC of that responsibility and that is what we have had in mind in making our statement.

Mr. BENNETT of Michigan. I would like to make one more observation in connection with that, if in order.

The National Advisory Council is composed of the Secretaries of State and Commerce, the chairman of the Board of Governors of the Federal Reserve System, the chairman of the Export-Import Bank, and the Administrator of Economic Cooperation.

Now, for the next few years, I believe the Administrator of Economic Cooperation and chairman of the Import-Export Bank, and some of the rest of these other officials making up this International Advisory Board are going to have their hands full with the jobs they already have. Congress just voted yesterday some four or five billion dollars, the House of Representatives did, on this "give away" program that will be administered to a large extent by the very people who are members of this Advisory Council; and their prime interest and their primary attention for the next few years is going to be devoted to that problem. It is a mighty big one, everybody agrees. In all of this my contention gets back to the point that when you tie up this National Advisory Council-and I am not raising any question as to their caliber, integrity, or anything else but when you tie up this National Advisory Council in any way with the administration or control with foreign securities, you are giving them a great big job, in addition to the one they already have. Furthermore those men are concerned with the formulation and carrying out of our foreign policies.

I do not know what anybody else thinks about it, but I do not want to see our foreign policies get tied up with the proper protection of the American investors in securities coming over here from foreign countries. The American taxpayers are paying these relief loads. The American investor who puts his money into these foreign securities, in addition to his tax liability, is putting up his money against a loan that is being made to foreign governments, and I think, Mr. Chairman, that the setting up of this Advisory Council as a substitute for the Securities and Exchange Commission in the handling of these foreign securities in the first place would be misleading to the American public and would give them an assurance that they might very well not be entitled to, because of the other duties and responsibilities of this Council.

That is why I think that careful consideration ought to be given to all the facts behind this proposed legislation. We are taking away from the American investor the kind of protection that Congress has already given him and putting whatever protection he might have in the hands of a Council which certainly does not have the facilities, much less the time, nor the requirements to follow the regulations that Congress laid down as being adequate protection for the investor at present.

Now, you compare that to the Interstate Commerce Commission, Well, the Interstate Commerce Commission is primarily concerned,

day by day, with railroads and public utilities. That is a part of their business. I do not see any similarity to that kind of control as against the National Advisory Council which is a conglomeration of big office holders composing a commission to substitute for an already functioning agency.

That is all I have to say.

The CHAIRMAN. I would not want my colleague to think any suggestion I had made was a commitment of anyone; certainly not the committee.

Mr. BENNETT of Michigan. I merely wish to clarify the situation. The CHAIRMAN. I have got two or three more suggestions to make. All I am trying to do is to find a way to do what I know is in your mind, Mr. Bennett, that is the protection of the American investors, and at the same time endeavor to carry out whatever our foreign commitments may be under these agreements that we have entered into.

Now, in that connection, it would seem to me that these bonds that are issued beyond the $3,175,000,000 figure are in a far different category than those that are to come within the $3,175,000,000.

Now, the thought that I have in mind is this, with respect to that portion beyond the $3,175,000,000 that rests on the credit of foreign nations. In such case, why do you feel that there should be a differentiation between the requirements for disclosure on a foreign issue sold here which is 100 percent guaranteed by the foreign government and no disclosure on one of the International Bank's foreign issues which in effect is perhaps only 50 or 60 percent the obligation of foreign governments, the balance being the United States portion?

Now, that is something that I think we ought to have a pretty definite opinion on with respect to why it should be treated differently from any other foreign obligation.

I am referring to that portion beyond the $3,175,000,000.

Would the SEC propose later to exempt all foreign government issues from registration and relief from this requirement. Do you want to go that far? I take it that that would not be satisfactory. Commissioner HANRAHAN. We definitely would not.

The CHAIRMAN. Definitely would not?

Commissioner HANRAHAN. No.

The CHAIRMAN. That brings us right down to this point. Why should these securities be treated differently from that type of obligation which has a 100-percent foreign government guaranty back of it? I do not want to interrupt you, Mr. Bennett.

Mr. BENNETT of Michigan. I am through, Mr. Chairman.

The CHAIRMAN. Would anyone care to discuss that? We will make this more or less informal-either the SEC or the bank. I am perfectly willing to hear from anyone on that subject.

Mr. BLACK. Could I answer, sir?

The CHAIRMAN. Yes, Mr. Black.

Mr. BLACK. When the time comes for the International Bank to sell bonds in excess of United States participation, in the first place, before we can do that, we have to get the permission of the United States Government through the National Advisory Council. If we do get permission to do that, we then have another problem, which is a practical problem. We have got to be able to sell the bonds. In my opinion, it would be quite difficult for us to sell the bonds if there was any difference of opinion as to whether or not the bonds were

good which were in excess of that amount. That is the practical problem that I cannot prove. Time only will prove that. I am just giving you that.

Mr. BENNETT of Michigan. Will you permit an interruption there? The CHAIRMAN. Mr. Bennett.

Mr. BENNETT of Michigan. Now, you say there is a practical matter of selling the bonds after the United States guaranty is exhausted? Mr. BLACK. Yes.

Mr. BENNETT of Michigan. As a matter of fact, it would not be exhausted entirely. The bonds sold to the new buyers after the guaranty, or the full contribution had been paid in, would only require the new buyers to share pro rata.

Mr. BLACK. That is correct.

Mr. BENNETT of Michigan. In the Government guaranty along with those that had been previously issued?

Mr. BLACK. That is correct.

Mr. BENNETT of Michigan. All right. So now certainly from the market standpoint-I do not claim to be a market or a security expert at all-but from the market standpoint a new buyer, if he got the bonds at a price, would be coming under the same protection as the fellow who had bought bonds either at par or at a premium before, would he not?

Mr. BLACK. That is correct; but here is the way I would like to answer that from a practical standpoint again:

Let us assume that we have sold in this country $3,000,000,000 worth of bonds, and in order to sell $3,000,000,000 worth of bonds-which is an awful lot of money-you have got to sell those bonds to all of the big institutions, and they have got to be willing to buy substantial amounts of those securities.

Now, let us assume that you are in charge of the investment department of a large insurance company and your company owns $50,000,000 worth of International Bank bonds, and you bought them because they are backed up to that point, dollar for dollar, by the United States Government's obligation.

Now, the International Bank comes to you as the head of the investment department of this insurance company and says, "We want to sell you some more bonds. Would you like to buy some more?"

Now, if you say that you would like to buy some more, you would be deliberately, of your own volition, diluting what you got. Is that not correct?

Mr. BENNETT of Michigan. That is entirely correct, but, on the other hand, if I were not a holder of bonds, what would my situation be? Mr. BLACK. If you were not a holder of the bonds, you would not have the same situation, but the practical answer to that is that when you have sold $3,000,000,000 worth of bonds and you want to sell another $250,000,000 or another $500,000,000 worth of bonds you have got to go then to the same people who got the other bonds. There is just not that much money laying in some new place.

Now, I can assure you that from my experience, when you are raising $250,000,000, that that is an awful lot of money, and you have got to go-you cannot possibly raise that amount of money without going to the large institutions and people who have large sums of money-and you have got to go to the people who already have large amounts of your bonds.