197. Minutes of Meeting 60–4 of the National Advisory Council on International Monetary and Financial Problems0
[Here follow a list of participants and a table of contents.]
1. Investment by Domestic Savings and Loan Associations in Foreign Savings and Loan Associations (NAC Document 59–296)1
The Council discussed Senate Bill 3282,2 which would authorize Federal savings and loan associations to make investments in foreign savings and loan associations, and an alternative proposal of the Federal Home Loan Bank Board (FHLBB) which would provide for the [Page 377] chartering of a corporation, whose capital would be subscribed by individual domestic savings and loan associations, to make investments in savings and loan associations in underdeveloped countries.
The Chairman reviewed the earlier Council discussion of the general legislative proposal, and recalled that the Council had reached no decision on the matter at that time (see Council Minutes 60–1).3 Since Senate Bill 3282 was scheduled for prompt consideration by the Senate Committee on Banking and Currency, and the Home Loan Bank Board proposal had been advanced as a possible Executive Branch alternative, it was necessary to reach an opinion as to the appropriate Executive Branch position on these proposals.
The Council discussed the risks and problems involved in dollar investments in foreign savings and loan associations to meet essentially local currency costs, in the light of the inflationary and balance-of-payments conditions prevailing in many less-developed countries. In view of the particular difficulties of undertaking such investments by individual savings and loan associations and the absence of restriction of such investments to the less-developed countries, the Council agreed that in its opinion the Executive Branch should not support Senate Bill 3282.
It was noted that the corporation proposed by the Federal Home Loan Bank Board would centralize the investments in foreign savings and loan associations and would have advantages with respect to the availability of information and the appraisal of proposed investments in foreign associations. The major risk in such investments, however, was the transfer risk, and under conditions existing in most of the less-developed countries losses from this source appeared likely. Since such a corporation would be created under U.S. Government sanction and authority, the Government would be reluctant to permit the corporation to become financially unsound, in view of the possible repercussions on Treasury financing operations. Thus in effect the corporation would have a general Government guarantee against losses. In addition, specific legislation affecting Development Loan Fund guarantee of investments in housing ventures abroad was in prospect in the pending Mutual Security legislation, so that investments in foreign savings and loan associations would probably be accompanied by applications for such guarantees. The Council also noted the difficulties that would result for the less-developed countries from undertaking dollar servicing burdens on account of investments that would not earn or save foreign exchange, such as investments in housing. The importance of a history of reasonable price stability for the success of [Page 378] thrift institutions such as savings and loan associations, and the relatively small number of less-developed countries in which such conditions existed, were also noted.
At the conclusion of the discussion the Council agreed that in its opinion the Executive Branch should not at this time support the proposal of the Federal Home Loan Bank Board, and that further study should be undertaken by the Council of the problems that would be raised by dollar loans and investments for local currency purposes by U.S. savings and loan associations acting through a Government-created corporation. The Council took the following action (NAC Action 60–109):
Action:
The National Advisory Council is of the opinion that the Executive Branch should not support legislation which would authorize individual Federal savings and loan associations to make investments in foreign savings and loan associations, or institutions of a similar type.
The National Advisory Council is of the opinion that the Executive Branch should not at this time support legislation which would authorize the establishment of a corporation, whose capital would be subscribed by individual savings and loan associations, to make investments in foreign savings and loan associations, or institutions of a similar type.
This whole problem of dollar loans and investments for local currency purposes by U.S. savings and loan associations acting through a Government-created corporation, raises certain difficult questions which will receive further and prompt study by the National Advisory Council.
- Source: National Archives and Records Administration, RG 56, Records of the Department of the Treasury, NAC Minutes. For National Advisory Council Use Only.↩
- See footnote 1, Document 191.↩
- S. 3282 was referred to the Senate Committee on Banking and Currency on March 24, but was not reported out of the Committee.↩
- Document 191.↩