Date: 1982-03-31
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. today I am introducing legislation designed to increase bank involvement in export financing and the export of goods and services. Everyone supports the proposition thatthe United States must increase its exports of manufactured goods. Our performance over the years in this economic activity is poor. Foreign countries for years have placed a major emphasis on exports and the effects become more visible each year. Imports into this country continue to increase. U.S. manufacturers face serious competition from foreign manufacturers here at home. Government and the private sector realize that growth in our economy now depends on a major shift from reliance on domestic sales to a mix of domestic and foreign sales efforts. Given this realization. comprehensive studies. both in the public and private sectors. were undertaken to determine what Government or economic policy was needed to encourage our domestic manufacturers to move into the export market. Early on it became clear that many of the problems and their solutions were difficult. expensive. and longrange in nature. For example. studies suggest that changes are needed in our tax laws to assist companies in their exporting. However. we are confronted with a shortterm problem if tax incentives are providedsuch tax incentives cost the Government revenues thus making it difficult to bring expenditures in line with revenues. Also. many studies suggest that Government assistanceloans and guarantees through the ExIm Bank. SBA. EDA. and other agencleswould provide substantial assistance. Again. these solutions would cost the Government moneymoney which is not available in the quantities suggested. Since major expenditures either as tax benefits or major spending programs are not realistic solutions in todays environment. efforts must be directed toward changes which will encourage the private sector to become more involved. One device which is suggested is the export trading company. The experience of our European and Japanese neighbors indicates that firms in those countries effectively utilize companies which specialize in importing and exporting goods and services. These trading companies provide manufacturers a means of reduang the risks associated with foreigih business endeavors and offer a wide variety of services to their customersincluding freight handling. financing. and market analysis. Proponents argue that this country needs to provide opportunities for the establishment and more successful operation of such firms in this Nation. Thus. a number of bills provide incentives for the establishment of export trading companies with the Department of Commerce providing the focus for these efforts. Export trading companies can provide assistance to small and medium size businesses in the United States who produce goods and services which can be marketed abroad. To my knowledge. no one has suggested that we should not encourage the development of such firms. Thus. there is support for provisions defining the nature of an export trading company and providing information on the use and operation of such firms through existing trade promotion programs in the Department of Commerce. There is a long tradition in this country of separating banking and commerce. As a result of practices evident in the period leading up to the crash of 1929 and the bank closings in the thirties. legislation was enacted which created a wall between the operations of our depository institutions and other fields of enterprise. This wall was believed necessary to assure that the institutions which held public funds and provided vital credit for all segments of U.S. industry and commerce were operated in a safe and sound manner and that concentrations of power resulting from combinations of banking and commercial firms were minimized. Over the years since passage of that legislation. Congress has allowed some exceptions to this separation. In particular. bank holding companies have been allowed to engage in activities which are "closely related to banking" and savings and loan holding companies have similar latitude. These exceptions reflect the changing nature of the financial services industry and the development of new product lines and needs in the marketplace. In some cases. bank involvement in such areas led to increased risk to those institutions and in some cases led to bank failures. The Nation must. as a result. continue to be cautious about making changes which bridge that traditional separation. Depository institutions continue to play a vital role in our economy and steps which place those institutions at risk must receive careful consideration. and if allowed must provide sufficient protections to avoid undue risk. It was natural then that concern was raised about allowing depository institutions to have equity interests in firms which provide many services not now offered by banks and which engage in high risk endeavors. The Federal Reserve System and the Federal Deposit Insurance Corporation on several occasions expressed their strong reservations. Clearly any legislation in this area must address these concerns. I On the other hand. these concerns must be balanced by the national need to expand its trade possibilities. This is particularly important to my area of New England. Traditionally. this region has been heavily involved in international trade. For example. the New England Congressional Institute provided information on this point: In 1980. the six New England States generated over $10 billion in export sales. An estimated 135.000 Jobs in New England are a direct result of export sales. When asked to predict the effect of passage of ETC legislation on their companies receipts in the New England Congressional Institute survey conducted in April. 57 percent of the export trading company respondents estimated an increase of over 25 percent. All of the respondents indicated increases of at least 5 percent. Applying the lowest of those estimates to current export data suggests that the potential effect of ETC legislation in New England means 500 million dollars earned in export sales. and over 10.000 Jobs. (Emphasis in original.) The Institute goes on to say: New England. which has over 25.000 manufacturing firms. has a growing interest in export trade among its small and mediumsized firms. In the opinion survey conducted by the New England Congressional Institute in April. 52 percent of the manufacturing sector respondents indicated they would be interested in utilizing the services of an ETC. Of these. 24 percent do not currently export. The survey appears to indicate that several thousand Neo England firms are interested in using the services of an export trading company. (Emphasis in original.) Studies such as these point up the need for improving the chances of those small manufacturers to engage in international trade. To do so. these firms need an intermediary to absorb some of the risks that are involved in international activities. Increased activity by export trading companies appears to be one way to generate some benefits in this area. Bank Holding Companies and Edge Act Corporations can provide services which will make an ETC function more effectively. They can supply the capital necessary to allow ETCs to experience large economies of scale. The existing international communications and data processing systems and financial expertise of large BHC and Edge Act Corporations will provide additional benefits to ETCs. Also. liberalized roles for the issuance of bankers acceptancesa form of financing provided by depository institutions to facilitate trade transactionsshould provide increased financing capabilities for these firms. With these advantages. and the concerns about banks involvement in commerce in mind. I explored the possibility of allowing depository institutions to engage in export trading company activities in a manner which assures as much separation as possible between that activity and the deposit taking function of the depository institutions. This can be accomplished by allowing only direct investments (purchases of the securities of export trading companies) by bank holding companies or Edge Act Corporations. Thus. operating export trading company activities within a bank itself would be precluded. The operations would be in separate subsidiaries. Clearly any legislation in this area must address these concerns. The Bank Export Services Act contains two major provisions. The first autorizes bank holding companies and Edge Act Corporations to invest in export trading companies. Export trading companies are defined as organizations that operate under U.S. or State law exclusively to export or facilitate the export of goods or services produced in the United States by providing one or more export trade services. These services would include consulting. international market research. advertising. marketing. product research and design. legal assistance. transportation. including trade documentation and freight forwarding. communications and processing of foreign L.-ders to and for exporters and foreign purchasers. warehousing. foreign exchange. and financing. when provided to facilitate the export of U.S. goods and services. Bank holding companies would be permitted to invest up to 5 percent of their consolidated capital and surplus. and Edge Act Corporations up to 25 percent of their capital and surplus. in export trading companies. All investments in export trading companies would be subject to prior approval by the Board of Governors of the Federal Reserve System. This will insure the proper review and supervision needed to reduce the possible risk to depository institution subsidiaries Export trading companies could be owned wholly or in part by one or more bank holding companies or by one or more Edge Act Corporations. Export trading companies could become involved in underwriting. selling. or distributing securities in the United States only to the extent their Parent bank holding companies or Edge Act Corporations could legally do so. Export trading companies also. could not engage in manufacturing or agricultural production activities. or have a name similar to their parent organizations. Limits on the amount of permissible lending between parent companies and affiliates. contained in section 23A of the Federal Reserve Act. would apply to export trading company affiliates of bank holding companies and Edge Act Corporations. The second section of the Bank Export Services Act amends the Federal Reserve Act provision relating to bankers acceptances. The coverage of the provision would be broadened to include nonmember banks and branches and agencies of foreign banks subject to reserve requirements. The overall limit on a banks acceptances. including its participation share in acceptances originated by others. would be raised from the current level of 50 percent of the banks paid up and unimpaired capital stock and surplus (100 percent with Federal Reserve Board approval) to 150 percent (200 percent with Board approval). The new provision would specify that no more than 50 percent of a banks authorized acceptances could be connected with domestic transactions. and would delete current language limiting domestic acceptances to 50 percent of a banks capital stock and surplus. The current limitation on the issuance of unsecured acceptances for any one customer to 10 percent of the banks capital and surplus would be retained. The new provision also would specify that. when banks enter participation agreements to share the obligations of an acceptance. the portion of the obligation retained or purchased by a bank would count toward that banks acceptance limits. The existing requirement that acceptances involving domestic shipments must include shipping documents that convey or secure title would be deleted. The Federal Reserve Board would be authorized to define any terms in carrying out the provision. This legislation is. I believe. a reasonable approach to resolving the twin concerns of insuring bank safety and soundness by limiting the breach in the separation of banking and commerce. and encouraging the flow of exports from this Nation. It is anticipated that the committee can move expeditiously on this issue. To that end. the Subcommittee on Financial Institutions Supervisiot. Regulation and Insurance will conduct hearings on this bill on April 21 and 22 and will meet in executive session to mark up the legislation on April 27.e