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Mr. BENNETT of Michigan. If a foreign country comes over here, selling its own securities, it has to comply with the regulations of the SEC, does it not ?

Mr. BLACK. That is correct.

Mr. BENNETT of Michigan. So that in a case where you have a country that is financially in a position to come over here and sell securities to the public, securities which it has issued, it must comply with these rules and regulations of the SEC, as against the type of loans that your bank makes which would not be bound by this requirement—that does not seem to be good logic, to me.

Mr. BLACK. The protection against that, the thing we are talking about, is the right to call on these countries for their unpaid subscription to the stock. That offsets the other part of the thing.

Mr. BENNETT of Michigan. You go right around the circle there. If you are dealing with a country that can pay its obligations and will pay them, they can come over here and sell their securities without going through your bank. If you are dealing with the other type of country, you handle the loan and then you rely on that country which is not too well off financially to pay up its assessment?

Mr. BLACK. That does not mean necessarily that they are not good loans. Take the history of the Reconstruction Finance Corporation, which was set up to make loans. It took a great many loans that the private market would not take which later turned out to be excellent loans. As a matter of fact, the RFC sold a great many of those loans at a premium.

I think this is the same thing. We are set up as an organization to carry through the transition from war to peace. It does not necessarily mean that they are not good loans. As a matter of fact, we are making loans now to all the countries; that is, none of the countries are coming to the market. I think the RFC is a good example, because at that time the market would not take those loans.

Mr. BENNETT of Michigan. Getting down to the real crux of this problem, what part of the SEC requirements specifically is it that is causing your bank the difficulty?

Mr. Black. There are several things. One of the real objections is that unless the SEC exempts, or an SEC exemption is granted, the banks would not be willing to deal in these securities, because they only deal in exempt securities. That is an important factor, because even if you allow the banks to deal in these securities and they were subject to registration with the SEC, they would not deal in these securities.

There are a number of other technical difficulties. For example, when we sold the first issue of bonds, we were quite anxious to have a very wide distribution and to sell these bonds throughout the country. We wanted to ascertain what dealers would be interested in participating in this financing, so we sent a telegram out to 1,700 investment bankers throughout the country.

The SEC said that we were not supposed to do that under the SEC regulations, because we did not have an effective registration statement at that time. The SEC was very cooperative, but told us that they did not think we ought to do it again. That is just one of the difficulties.

Mr. BENNETT of Michigan. What are some of the others?

Mr. BLACK. Another trouble is that it has been very difficult to explain this bank to the prospective investors in this country. A great many people do not know about it, and we were quite anxious to send out literature, send out pamphlets describing the bank and the security back of the bonds. The SEC said that was contrary to the regulations of the SEC. I could not go all over the country speaking, and explaining this bank to the prospective investors, so we were quite anxious to get out literature.

Mr. BENNETT of Michigan. Would it not be a good thing if the investing public knew what the nature of the bank was and their way of handling these transactions ?

Mr. BLACK. That is why we wanted to send the literature out, but we could not do it at that time.

Mr. BENNETT of Michigan. That is, you wanted to give them more information ?

Mr. BLACK. We wanted to give them more information; that is right.

Mr. BENNETT of Michigan. That is, before the security has been approved ?

Mr. BLACK. That is right; or at any time at all.

Mr. BENNETT of Michigan. There is nothing to stop you from giving out the information after the security is out?

Mr. BLACK. I think there is a real question there. I would like you to ask the SEC that question when they appear. I think there is a real question involved there, as to whether they could allow us to do that. We have no criticism of the cooperation of the SEC. They have gone the limit, but there are certain things that they cannot do under their regulations,

Mr. BENNETT of Michigan. Who has the authority to fix interest rates on these bonds, on the securities that you sell?

Mr. BLACK. The National Advisory Council.
Mr. BENNETT of Michigan. The bank has nothing to say about that?

Mr. BLACK. We have got something to say, but we cannot get an approval until I go to the National Advisory Council and get their permission.

Mr. BENNETT of Michigan. Do you sell these securities in any other countries, outside of the United States?

Mr. BLACK. We have sold a few in countries where there were dollars available for investment; not very much.

Mr. BENNETT of Michigan. They can be sold in other countries?

Mr. Black. They can be sold anywhere, if anybody has the dollars to invest, because we have the bonds in dollar form, payable in dollars.

Mr. BENNETT of Michigan. These amendments you are asking for, as I see it, would simply expedite the sale of your securities without going through the usual red tape, if we may call it that, of the SEC; is that it?

Mr. BLACK. That is correct. And without that I do not think we can do it. I just do not think we can contribute our share in this pro. gram unless we can get that.

Mr. BENNETT of Michigan. But you could carry out this program and still comply with the law as it is, could you not? It might slow you Mr. BLACK. I do not think we can do that. I do not think we can raise large amounts of money. We could sell some bonds, but it would be very difficult to raise large amounts of money. I think it would just cripple the bank, and keep the bank from doing its part. And if we cannot do its part, that means that these countries are going to get financial assistance, if they have to get it, from the United States Government, which will have to put the money up in some other way.

up a little.

Mr. BENNETT of Michigan. There is that argument as against the other argument as to whether it is wise to facilitate the sale of these securities as against the possible adverse effect to potential investors in this country.

Mr. Black. I do not think you will affect them adversely, Mr. Bennett. I feel very strongly that it would not do that.

Mr. BENNETT of Michigan.Of course, there are many people who would argue that you could do away with the Securities and Exchange Commission entirely and still protect the investing public, because the investor would make his own investigation and he would not buy a security unless it was top grade. But past history has shown that that did not always work out.

Mr. BLACK. I do not believe that at all, Mr. Bennett.

Mr. BENNETT of Michigan. I am not saying that you do; but I am saying there are people who do.

Mr. BLACK. I think the Securities and Exchange Commission serves a very important function. But the United States Government has exempted certain securities from SEC registration and has allowed commercial buks to deal in those securities; and in my opinion this is very definitely that type of security. Municipal bonds, Federal Land Bank bonds, Federal Home Loan Bank bonds, Federal Intermediate Credit Bank bonds, are all exempted from registration. And the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank—their bonds have no specific Government backing, as our bonds have.

Mr. BENNETT of Michigan. Of course, nobody has to worry about the investor in this country as long as the Government is back of these bonds.

Mr. BLACK. That is right.

Mr. BENNETT of Michigan. I do not think there is any question about that. But the worry is, If Congress should pass such a law, after these bonds are sold, and are sold on the same basis as any other bond in this country, after they reach a certain point and then you exempt them from the requirements of the SEC, I think you would have a lot of explaining to do to the people in this country to get them to put their money in that type of security.

Mr. BLACK. At that time you come back to the National Advisory Council. We have to get their approval. If it is as you state it, the SEC could not prevent their selling additional bonds, but the National Advisory Council can prevent us from doing it. So far as the SEC is concerned, the only thing involved is the matter of disclosure. They could not stop us from selling bonds in excess of the American participation, but the National Advisory Council could do that.

Mr. BENNETT of Michigan. And they report only once each year or every 2 years, is that right! They do not function as the SEC,

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nor do they have the experience and background and facilities to examine into loans such as the SEC has?

Mr. BLACK. I think in some ways they are better qualified, because they have to pass on the broad economic questions governing foreign lending, which the SEC is not qualified to do. I think it is the natural body to pass on this matter, and not the SEC.

Mr. BENNETT of Michigan. Does the National Advisory Council pass on every loan that you make?

Mr. BLACK. Every loan. As I told you this morning I cannot vote in favor of making any loan until the loan has first been approved by the National Advisory Council. They have to say to me, “You can vote for this loan,” or “You have got to vote against this loan.”

Mr. BENNETT of Michigan. And if you vote against it, the loan cannot be made ?

Mr. BLACK. There are about 94,000 votes and I cast 32,000 votes. Mr. BENNETT of Michigan. So your veto would not necessarily hold

up a loan?

Mr. Black. We do not have an actual majority, but there is not any question about it, in my opinion.

Mr. BENNETT of Michigan. As you are set up, the loan could be made by the bank over your veto?

Mr. Black. Well, if that were done we could not borrow any more money in this market. The minute that the United States Government disapproves a loan, if everybody else were to get together and vote it, that would be the end of my job. There would not be any chance to borrow any more money in this country.

Mr. BENNETT of Michigan. But you would have spent what you already had ?

Mr. Black. The question has never come up. I do not think it ever will come up. As a matter of fact, I have been here for 18 months and we have never taken a vote at all. It is just a matter that is handled around the table. I cannot conceive of that situation happening, because we have people we are very close to in the other countries. I do not think there would be any difficulty any time about our getting a majority.

Mr. BENNETT of Michigan. Of course, your loans are more attractive than the average Government loan, because you are offering more interest. The more attractive you make an obligation from the standpoint of yield, of course, the easier it sells; is not that true?

Mr. Black. Not always.
Mr. BENNETT of Michigan. Not always, but

Mr. BLACK. I wish you had my job of trying to sell these bonds. It is a tough job.

Mr. BENNETT of Michigan. Maybe it should be.

Mr. BLACK. The only reason it is, is because the people are not thoroughly familiar with the bank, and we have a job to try to acquaint the investors with the bank and the protection back of these bonds. But it does not necessarily follow that an attractive rate of interest makes people gobble up securities.

Mr. BENNETT of Michigan. I think that is all for the time being, Mr. Chairman; thank you.

Mr. Miller. I do not know whether this point has already been covered, but do I understand that the disclosure that you would of necessity have to make to the SEC would make the bonds less attractive to the investor; is that it?

Mr. BLACK. Not at all.

Mr. MILLER. I do not quite understand the point involved in the matter of the disclosure to the SEC. I may have missed that point in your statement.

Mr. BLACK. We would have every intention of making just as complete disclosures as we do now. As a matter of fact, we have to make periodic reports to the National Advisory Council on all our activities, on all the loans that we make. We make quarterly statements, public statements, on everything we do. We are operating in a goldfish bowl.

Mr. Miller. I have been puzzled as to why it was difficult to sell these bonds. If I understood you correctly, they are guaranteed as to principal and interest at least until they reach the 212-billion mark?

Nr. BLACK. The only reason it is difficult is that it is a new thing and people do not understand it. That has been true of any new form of organization. It takes time.

Mr. MILLER. In other words, the banks or large institutions understand it and they are buying them, but their difliculty is passing them on to the investor; is that correct?

Mr. BLACK. I do not think all the large institutions understand it. It is quite surprising; because I think these are a remarkable security. But anything new is difficult to do. For example, I can recall when the Federal land bank bonds were first sold in the American market. I was interested in that at that time, and it was difficult to persuade people to buy Federal land-bank bonds.

I can recall when the Home Owners Loan Bank bonds were first offered. It was very difficult to sell them. As a matter of fact, even after the United States Government guaranteed them, it took quite a little while before the investing market were willing to buy them as readily as they did a straight United States Government obligation.

Mr. Miller. Certainly the statements you have made here today would convince me that they were good bonds. I would not hesitate 10 seconds, after the testimony you have given us here today in saying that it was a good 3-percent bond and solid as a rock.

Mr. BLACK. I am glad I have accomplished that.
Mr. MILLER. You have done that much; that is all, Mr. Chairman.

Mr. DOLLIVER. I was not here when you made your statement, Mr. Black, but I should like to make this inquiry. You refer in your statement, which I have since read, to a letter which you wrote to the Secretary of the Treasury, Mr. Snyder.

Mr. BLACK. Yes.

Mr. DOLLIVER. Explaining the technical difficulties you are confronted with.

Mr. BLACK. Yes.

Mr. DOLLIVER. I wonder if that letter could be included in the record of this witness' testimony. Do you have any objection, Mr. Black?

Mr. BLACK. Not at all. I understood that it was going to be included.

Mr. DOLLIVER. I would so request of the chairman. That is all,

thank you.

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