Mr. LUXFORD. As far as I can recall, there have been two cases. I do not know whether either of those countries was in default. I am thinking of the Netherlands and Norway and I am doubtful that either of them was in default to the United States. But those have been the only two cases I can recall offhand where countries have been able to float issues in the United States market. Beyond that, they have not floated issues because at this particular time it has not been possible to float foreign bond issues in the New York market. But should they attempt to, this provision would permit them to do it, under the Johnson Act.

Mr. HINSHAW. When you say that, what you really mean is that they have not been able to float them at a rate commensurate with the rate that they can get through the International Bank.

Mr. LUXFORD. I mean more than that; they have not been able to float them. As Mr. Black said earlier, rate is some inducement, but it is not the complete inducement.

Mr. BLACK. We have to ascertain very carefully from every prospective borrower that they cannot get the money in the private market, because we are prohibited from competing with a private market. Mr. SCOTT. It makes you sort of an international RFC, then.

Mr. BLACK. That is correct. That is the nearest-that is a very good description of just what we are doing.

Mr. HINSHAW. In view of the fact, then, that they could all say they could not pay, it almost makes it an international WPA.

Mr. BLACK. Well, in the original RFC, for quite a while, to make loans they made loans to municipalities or corporations because they could not obtain the money in the private market, and later on those loans turned out, in a great many cases, to be fine loans.

Mr. HINSHAW. Is it contemplated at some future time the bank might sell loans direct, or do they just want to continue to sell the bonds in the domestic market?

Mr. BLACK. We have the right to sell our loans with the bank's guaranty on it. As far as the general raising of money is concerned, we plan to use the International Bank debentures as our vehicle.

Mr. HINSHAW. While I have not been present, Mr. Chairman, I understand that other witnesses have changed their position in respect to the registration of these securities. I just wondered what was the basis for that change in position.

Mr. BLACK. The basis of the change was that we offered to make the amendment which is attached to my statement, in which the bank has every 2 years to make a report to the National Advisory Council as to the operations of this act-whether it caused any hardship on the dealers, or whether it has caused any hardship on the investorsand it has to make this report to the National Advisory Council every 2 years. The result of that is the NASD withdrew their opposition to the bill.

We are quite anxious not to do anything to prejudice the interest of the investor or to prejudice the interest of the security dealers, and we are quite anxious for this legislation. We are therefore quite willing that the legislation be reviewed each 2 years to see if any hardship is inflicted on anyone.

Mr. HINSHAW. I am very much interested in the fact that it is quite possible that you may be in position again of holding the entire sack

on these loans by our own backing of this very interesting position, and it is not a very reassuring one to me.

Mr. BLACK. I think that the set-up of this bank is a very good one. I think that the theory of it is sound, and I believe that it makes more sense than any approach to foreign lending that I have ever seen. I cannot guarantee that all of the loans are going to be good, and I cannot guarantee that the other nations will do their part, but I think this is the Bretton Woods-this institution makes a lot of sense. Mr. SCOTT. Would the gentleman yield?

Mr. HINSHAW. Yes.

Mr. Scort. I would like to comment, what weighs a lot with me is the thought that, having embarked upon the program by which we are determined that certain countries are going to be restored, reconstruct them, we are confronted with the choice of whether we reconstruct them by gift or whether we do it by loans. If we do it by gifts, we are getting nothing back, and if we do it by loans, the standard or test is that the loan shall be good. Maybe some of them will not be. But to the extent that they are good, we are still ahead of the game. Otherwise we would be giving them the money. At least there is that consideration here.

Could I ask historically, is it not true that that $2,000,000,000stabilization fund-that of that fund only $200,000,000 was actually used during its existence?

Mr. BLACK. That is before I got here.

Mr. LUXFORD. I think it was somewhere around 200 or 250 million dollars. It was a very small fraction.

Mr. SCOTT. Most of it was used in China.

Mr. LUXFORD. We made certain stabilization, the Treasury did, to China, but in fact the Chinese loan that I think you are referring to was $500,000,000, which was not part of the stabilization fund.

Mr. SCOTT. I had the impression that the stabilization fund was allowed to lapse, but I understood from what you said that the stabilization fund was simply transferred over into this creation, this new bank, and the further fund was added. Was it transferred or lapsed?

Mr. LUXFORD. They took the $2,000,000,000, and I think they took $1,800,000,000 of the $2,000,000,000, and they applied that to the United States obligation to the International Monetary Fund-a subscription. The remaining $200,000,000, or approximately that figure, was held intact as the stabilization fund of the United States. It is still in existence.

Mr. Scort. Thank you.

Mr. HINSHAW. As of March 31, I note in the statement of the International Bank for Reconstruction and Development that you have made commitments totaling in dollars $497,000,000, of which there has been disbursed $402,813,713, and there are certain other commitments, not very great in amount, that are pending; is that correct?

Mr. BLACK. We have agreed to make loans totaling $497,000,000. We are having discussions with a few countries on some small loans at the present time, but there is no other commitment pending.

Mr. HINSHAW. At what rates of interest are those loans made? Mr. BLACK. The rate of interest on the loans that we make is based on the rate of interest at which we borrow money. The first issue of bonds, 25-year 3-percent bonds, and we charge the borrower 314

percent, and then we charge him 1 percent in addition, which covers the reserve for it. Therefore the borrower pays 414 percent.

We made one loan of $16,000,000 at 412 percent because at that time when the bond market was off generally, and we felt that we should charge a higher rate, because if we had had to borrow at that time, we would have had to pay a somewhat higher rate, so the rate that we lend it at is entirely dependent upon what rate we borrow it at. Furthermore, the payments, the amortization payments that we receive from these countries, we try to fit our borrowing to that. Mr. HINSHAW. That is all, Mr. Chairman.

The CHAIRMAN. Any questions, gentlemen?

Mr. BENNETT of Michigan. Is France a member of this bank?
Mr. BLACK. Yes.

Mr. BENNETT of Michigan. How much have they paid in? What is their share?

Mr. BLACK. Their participation in the bank is $525,000,000.
Mr. BENNETT of Michigan. How much paid in?

Mr. BLACK. They have paid in 2 percent in dollars, or gold, and 18 percent in francs.

Mr. BENNETT of Michigan. How much have they borrowed from the bank?

Mr. BLACK. $250,000,000.

Mr. BENNETT of Michigan. If there is an assessment, they would be money ahead if they would leave it ride.

Mr. BLACK. That is right.

Mr. BENNETT of Michigan. Is that true of Denmark?

Mr. BLACK. Denmark is a member. We have loaned them $40,000,000, and their subscription is $68,000,000.

Mr. BENNETT of Michigan. Are they in the same position?

Mr. BLACK. Yes, sir.

Mr. SCOTT. Would the gentleman yield? I put in the record sometime ago a translation from a Copenhagen paper in which the statement was made that certain surgical instruments were needed in Denmark, and it was intended to make application to purchase them out of this $40,000,000 loan, and the article ended by saying:

It is not anticipated that there will be any difficulty in getting the money, as it has been difficult to use up the loan

by some deadline or other. Do you know anything about that? Mr. BLACK. No; I do not. But we have had a great deal of difficulty in statements in papers around the world which have not been

correct.

Mr. SCOTT. I have had difficulty that way myself.

Mr. BLACK. There has been considerable misunderstanding. We had discussions with the representatives of one country and we told them politely we would consider the loan, and we discovered that in their language "consider" meant everything was all right, the loan was settled, so we have to be very careful what we say.

Mr. BENNETT of Michigan. In the language of the bill, section 12, the inference as I get it is that the basis for this exemption is that the securities issued by your bank are in the same category that United States Government obligations or State or municipal bonds would be. That of courese is not true. The United States, as such, does not guarantee the securities issued by the bank in any respect whatsoever.

Mr. BLACK. No; but they have an obligation to put the money up in case of default.

Mr. BENNETT of Michigan. They have an obligation to put up their share.

Mr. BLACK. Yes; that is right. The Banking Act exempts specifically United States Government, State, county, city, or any municipal obligation, Federal land-bank bonds, Federal home-loan-bank bonds, Federal intermediate credit bank bonds, and our contention and our feeling is that our bonds are just as good as these other bonds that are exempt, and just as high grade, if not more so.

Mr. BENNETT of Michigan. In each of those cases, the United States is either directly or indirectly responsible for the payment of the entire obligation.

Mr. BLACK. In no case except the United States Government. The United States Government has no obligation to pay State, county, and city bonds.

Mr. BENNETT of Michigan. Certainly not, no; but in that case, in the case of the State bond, the State has the entire responsibility. Mr. BLACK. That is right.

Mr. BENNETT of Michigan. In the case of a United States bond, or by one of its agencies, the Federal Government has the responsibility, but in the case of your bank, the United States does not have the entire responsibility.

Mr. BLACK. No; but in case of the home-loan and intermediate-credit banks, the United States has no obligation at all to pay those bonds. The obligations of those particular banks, they are.

Mr. BENNETT of Michigan. That is true. They are creatures of the Federal Government, and are financed and operated by the Government, are they not?

Mr. BLACK. They are instrumentalities of the Government, but the security back of the bonds is the mortgages that those banks make, and there is no obligation if those mortgages are not good, there is no obligation of the United States Government to step in and make it good.

Mr. BENNETT of Michigan. Well, then, by the same token there is no obligation, of course, in this case for the United States Government. Mr. BLACK. Yes; up to the amount of the United States participation.

Mr. BENNETT of Michigan. Pardon?

Mr. BLACK. Up to the amount of the United States participation. Mr. BENNETT of Michigan. Up to the amount, but that is à limited

extent.

Mr. BLACK. That is correct; but there is more than in the others; that is my point.

Mr. BENNETT of Michigan. Do you want to say that the United States, if the United States Government would permit one of its agencies to issue a security, and then default on it, of course, that would be true; that would not be very likely to happen, would it?

Mr. BLACK, I do not know what would be the policy of the Government there because the Government specifically stating that the bonds are not obligations in the case of the Federal land banks and homeloan banks, that they are not obligations of the United States Government; if they default, I do not know what the Government would

then do. Time would have to tell that. There is no specific obligation on their part.

Mr. BENNETT of Michigan. And none in this case.

Mr. BLACK. Yes; there is a specific obligation to put up this amount of money.

Mr. BENNETT of Michigan. Yes; but when you get over that amount of money, then the Government is through, and the bondholder has to look to some foreign government.

Mr. BLACK. That is correct. But before you get to that point, you have to get permission to sell the bonds from the National Advisory Council, which is the governmental agency set up to supervise and regulate the International Bank and its operations.

Mr. BENNETT of Michigan. Do you think this provision, this amendment that you put in here which says the advisory commission shall report once every 2 years, will help the investor very much on any of these loans if they do go haywire?

Mr. BLACK. I think it will very much; yes, sir, because you have here as I have said to you before, it will be a number of years before we could possibly reach the amount of the American Government participation. The report has to be made every 2 years. It has to make a particular report on the effectiveness of this legislation. So you have quite a few years before you get to that part.

Mr. BENNETT of Michigan. The investor is all right so long as the Government has not paid their subscription, of course.

Mr. BLACK. Yes.

Mr. BENNETT of Michigan. But after that you are relying on the advisory commission, and they report once every 2 years. That is, of course, a horse of a different color.

Mr. BLACK. You will have several of those 2-year periods before you reach that figure that you are talking about.

Mr. BENNETT of Michigan. That is true.

Mr. BLACK. And you have a very good chance to take a look and see how the thing is going, and you will have plenty of opportunity. Mr. BENNETT of Michigan. That is why it seems to me that you ought to be satisfied, if you want this law amended, to restrict it to the time when the Government has paid in its entire obligation to the bank, then take a look at the situation, and if there is any necessity for extending it, to see what the circumstances are at that time, because from there on you go into the field of selling bonds to the American investor without the support of the United States Government. It seems to me you have an entirely different situation so far as protecting the American public from then on.

That is all, Mr. Chairman.

Mr. HINSHAW. Being of a curious nature and this being a good opportunity to ask Mr. Black, I note on the statement of income and expenses for the 9 months ending March 31, one item which is almost equal to that of personal services, $1.291,903, for bond registration. and issuance. Does that include legal expense, and so forth?

Mr. BLACK. That includes everything. That includes, I think, a million dollars which represents the agency commissions that we paid to the dealers who sold our bonds. The rest of it is just the registration expense and legal expenses in connection with that bond issue.

78425-48- -5