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the part this country is to play in the world's finances during the period of world reconstruction, and possibly afterwards.

Before undertaking any operations in foreign exchange with persons in the United States other than “ dealers," it is necessary for such “ dealers” to require their customers to sign the following statement :

This transaction is made under representation by the undersigned that there is not involved in connection therewith any trading, directly or indirectly, with, to, from, for, or on account, behalf, or benefit of any enemy or ally of enemy, of the United States, or any transaction violative of the trading-with-the-enemy act of the United States.

All transactions covered in the reports of " dealers” to the statistical department of the Division of Foreign Exchange must have been consummated under the terms of these statements, when the operations have developed in this country, or under nonenemy declarations of foreign correspondents when they have originated outside of the United States. A statement of nonenemy interest, therefore, has had to stand before the creation and at the consummation of every transaction between the United States and every foreign country.

COOPERATION WITH THE TREASURY DEPARTMENT.

The administrative department has constantly cooperated with the Treasury Department in carrying on foreign-exchange operations, and in the supervision or regulation made necessary to protect the interests of the United States. Many such matters have been handled in conjunction with the Federal Reserve Bank of New York, which has acted, when necessary, for account of all of the Federal Reserve Banks.

COMMODITIES.

A careful study of the whole world exchange situation, made possible through the reports filed with the Division of Foreign Exchange, led to the belief that in view of the restricted shipping facilities, adjustments in our export trade could be made, which would be most beneficial.

As ships available to obtain needed imports could also be used on exports to the same countries from which imports were obtained, it was clear that if the average export cargo exceeded in value the average import cargo, the exchange would begin to turn toward the United States, and that an excess of foreign exchanges would be accumulated that could be made to make purchases for allied account.

With the view of developing this situation, an arrangement was made by the director of the Division of Foreign Exchange for meetings to be held with a representative of the War Industries Board, a representative of the War Trade Board and the Exports Control Committee of the National Foregin Trade Council. An intensive study was made of the weight and bulk values of such goods as were desired by foreign countries, those of South America being first considered. As a result, the War Industries Board agreed to consider requisitions which might be made by the Treasury Department for commodities for export, in the same light as requisitions made by the War Department and the Navy Department to cover their needs. The development of the whole plan was based entirely upon war requirements, and not upon the expansion of our foreign trade, as it was recognized that the business of the country at the time was to win the war rather than to develop commerce.

The cooperation of the committee of the National Foreign Trade Council in this connection was most valuable, and if the armistice had not intervened there is good reason to believe that in a short time the trend of exchange might have turned very materially in favor of the United States in the case of a number of countries where imports for war purposes were required. Even though an armistice has been declared, the work accomplished by this committee, together with the vast amount of data compiled by the War Trade Board, should be most valuable to the country, and should be particularly helpful after peace has been proclaimed and present restrictions upon the world's commerce are removed.

FEDERAL RESERVE BANKS.

The Federal Reserve Banks of the 12 districts have acted as local agents for the Division of Foreign Exchange in receiving applications for registration certificates by banks, bankers, and others who wished to do a foreign exchange business in collecting weekly reports of foreign exchange operations, in passing upon applications of “ dealers” for permission to transact business requiring approval, in obtaining reports on institutions and individuals when occasion required, and in carrying out the many special duties growing out of the Executive order and its regulations. This work, which, in the case of many of the Federal Reserve Banks, was very exacting, has been performed most efficiently, and the cooperation of the Federal Reserve Banks has been effective in every particular.

Bankers and other "dealers" have at all times manifested a desire to abide by the regulations made by the Division of Foreign Exchange. While it is possible that some “ dealers ” may have been unwilling to undertake operations for enemy account, because of their knowledge that if they did so, and were discovered, they would be prohibited from continuing their foreign exchange business for the period of the war, and while this fact was one of the important sa feguards provided the country by the Executive order, yet on the whole

the voluntary and patriotic cooperation of " dealers” has been a constant source of satisfaction. The great banking institutions which transact the bulk of our foreign exchange business have cheerfully subordinated profits to the national interest.

BANKS ORGANIZED FOR TRANSACTING FOREIGN BUSINESS AND FOREIGN

BRANCHES OF MEMBER BANKS.

The foreign trade of the United States, already large, is expected to assume far greater proportions upon the reestablishment of peace. Preparations have already been made for the proper financing of our foreign business. Member banks, by means of foreign branches, and American banking corporations, organized to conduct a foreign business, have reached out into other countries, mainly in Central and South America and the Orient, with a view of competing with British and continental banks which have long controlled the larger part of their international trade and banking.

Under section 25 of the Federal Reserve Act, the stock of American banking corporations, principally engaged in international or foreign banking, is made eligible for purchase by national banks having capital and surplus of $1,000,000 or more to an amount not exceeding 10 per cent of their capital and surplus, if such corporations enter into agreements with the Federal Reserve Board by means of which the Board can regulate their operations and keep generally informed as to their condition. Up to the present time five such institutions have filed agreements defining the operations to be engaged in and relating to the amount and character of their investments, deposits, acceptances, and reserves. The corporations with which agreements have been made are:

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The branches and agencies located in foreign countries are subject to the laws of the country in which located, and in order to be able to compete with local banks, are permitted to follow in general the local banking practice.

The American Foreign Banking Corporation, the first to file an agreement with the Board, has acquired or established branches in the Canal Zone, Panama, and Haiti and the establishment of other branches has been authorized. These branches do a general banking business.

The Mercantile Bank of the Americas has expanded through the control of autonomous banks in several of the countries of South and Central America—Brazil, Peru, Venezuela, Nicaragua, and Colombia. Branches have been opened in Paris and Barcelona and agencies in five of the Latin American countries. In addition to receiving local deposits, making discounts, and dealing in foreign exchange, these affiliated institutions promote trade by bringing together buyers and sellers acting merely as intermediaries without assuming any market risks themselves. This bank was organized in 1915 by private banking firms in New York, but now numbers among its stockholders several of the large member banks of the Federal Reserve System.

The entire stock of the First National Corporation of Boston is owned by the First National Bank of that city. At the present time this, corporation has no foreign branches, but intends to establish them as its business develops. An office, doing a purely discount business, is now maintained in New York City. During the past year this corporation has been of considerable assistance in facilitating import and export trade with South America, the Far East, and West Indies, and also with European countries.

The Asia Banking Corporation was organized only recently, but plans to engage in a general international and foreign banking business in China, in the insular dependencies of the United States, and, ultimately, in Siberia. It contemplates opening branches in Shang1:ai, Harbin, Hankow, Tientsin, Peking, and Vladivostok. The stock of this corporation is owned largely by member banks.

The International Banking Corporation is the oldest of the banking corporations which have filed agreements with the Board, having opened its first branch in Shanghai in 1902. Practically all of the capital stock of this corporation is owned by the National City Bank of New York. Its field of operation covers mainly the OrientIndia, China, Japan, the Philippines, and the Malay Archipelago Central America, and the West Indies, with a branch in London. It also has an office in San Francisco. It is engaged principally in financing the export and import trade centering at the places where its branches are located.

At the present time there are only two national banks having foreign branches—the National City Bank of New York and the First National Bank of Boston.

The National City Bank has 21 branches in South America, Cuba, Porto Rico, Russia, and Italy, and has also a representative in Copenhagen. The Board has recently authorized it to establish branches in Belgium, Switzerland, Portugal, and Spain. These banks, while branches of an American bank, perform the functions of local banks under authority of local law of the countries in which they are established, and transact a general banking business in their respective localities.

The First National Bank of Boston has one branch in Buenos Aires, opened in July, 1917. The facilities afforded by this branch have been devoted mainly to financing our trade in wool and hides with the Argentine.

Among the State member banks having foreign branches are the Guaranty Trust Co. of New York, the Equitable Trust Co. of New York, and the Farmers Loan and Trust Co. of New York, all of which have offices in both England and France, and agencies throughout the world.

The Board takes this occasion to renew the recommendation made in its last annual report that section 25 of the Federal Reserve Act be amended so as to provide for the Federal incorporation of banking associations engaged solely in international and foreign banking, stock of which is to be owned by national banks and which will operate under the control of the Federal Reserve Banks.

The language used in section 25 seems to indicate the intention of Congress to permit such banks to be organized under the laws of the United States. Many national banks have become stockholders in banks which have been organized under State laws for the purpose of carrying on a foreign banking business, in accordance with the terms of section 25.

The arguments in favor of Federal incorporation are

(a) The dual control exercised by the Federal Reserve Board and by the State banking departments is liable at any time to cause embarrassment, or may operate to restrict the activities of the banking corporation.

(b) A banking corporation of this description being essentially a national enterprise whose stock is owned by national banks having been authorized by an act of Congress, would seem to be entitled to the benefits and protection of a Federal charter, which would undoubtedly be of great value in competing for business in foreign countries.

Attention is called also to the fact that other countries are now devoting particular attention to meeting their demands after the war, as regards financial facilities for trade, and the financing of large overseas contracts. A committee which was appointed sometime ago at the instance of the British Board of Trade, recently recommended the establishment of an institution having in view primary objects as follows:

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