Date: 1982-07-27
Speaker: ST GERMAIN (democrat)
Chamber: H

He has had the vision to see the urgent need for this bill. and to shape the legislation to meet the actual competitive needs of our financial institution. The chairman has worked with all of us on the committee. and the result is a truly nonpartisan package that will significantly enhance our export capability. Export trading companies will be major vehicles for presenting Amercan goods and services to the world markets. Although American companies have always exported. we have not had any real policy to encourage exports. Instead. we have often inadvertently made it more difficult to export. As a result. our overseas sales. while significant. have not been as great as they should be. Many commercial opportunities that would have provided jobs for the unemployed. new industries for blighted areas. and incentives to innovate because there was no vehicle for smaller firms to use to increase foreign sales. Export trading companies will fill this void. They will be able to provide services to the smaller- and medium.ized exporter that are currently available only to huge corporations. Utilizing the expertise and foreign presence of banks. they will be able to package export services ranging from marketing surveys to finding buyers. from arranging shipping to product modification. and from financing payment to arranging barter transactions. In all cases. these are services that presently are available only to those exporters who are able to devote the time and money to search them out. I am proud to say that H.R. 6016 contains a provision that I originally advanced. expanding the limitations on bankers acceptances. Since Congress created the U.S. acceptance market in 1913. they have become an essential part of financing trade. However. the law this body passed almost 70 years ago have not been significantly revised since then. One of the major revisions has been to place all banks. foreign and domestic. on an equal footing and under the same legal requirements. This means that a foreignowned bank doing business in this country will not have an unfair advantage in this market. as they too will be covered by this law. For the first time. they will also be subject to the limitations of this act. which will be based on their worldwide capital and surplus. just as it is for a domestic bank. Under tae language of this bill. acceptances will for the first time be available to smaller and mediumsized exporters. In the past. the restrictions on the amount of acceptances that could be issued limited them to only the largest exporters. but in this legislation. we have increased the amount that can be outstanding. As a result. smaller firms will. for the first time. have access to this lowcost form of export finance. Even more Importantly. for the first time. we are allowing smaller banks to offer their customers access to export financing. They will be able to both purchase shares of any acceptances issued in behalf of their larger customers. and to originate them for their smaller customers through the mechanism of acceptances. This committee has worked long and hard to come up with the best way to give these banks and exporters access to this type of trade financing. and has allowed them to be participated through other banks. We have been very specific about how these acceptances should be written. and have come to the conclusion that only the name of the issuing bank needs to be placed on the acceptance. We do not believe that it is necessary for the names of the particpating banks to be placed on the face of the document because they do not have the responsibility to repay an acceptance presented by a secondary market buyer. However. there Is an unqualified obliga~tion to repay the originating bank. In standard practice in areas of the country where participations in acceptances have been sold for some time. the participation agreeement states that if the acceptance is not liquidated by the banks customer. the account the participating bank holds with the originator may be debited for the amount of the participation without further notice. This practice was instituted after lengthy consultations with two of the major accounting firms in the country. As such. the issuing bank is substituting the risk of the participant for that of the borrower. and in theory. the participant is at risk regardless of the actions of the borrower. In practice. since almost all acceptances are secured by an actual transaction. there is minimal risk to both the participant and the issuing bank. This is similar to the procedure that has been followed for many years in the case of a standby letter of credit that is participated to another bank. The participating bank does not have to issue a separate letter of credit to the originating bank. but it does have the legal obligation to cover the debt up to the extent of its participation if the borrower is unable to pay. This has been standard banking practice for some time. and participations in acceptances will follow a similar pattern. In no case should standard credit judgement not be exercised in the case of an acceptance on the part of either the originating bank or any participating banks. but when such judgment is used. these will be among the highest quality financial instruments available to banks. Acceptances are the safest form of trade finance. since almost all of them are secured by an actual transaction. In virtually all acceptances currently outstanding. title to the goods in the underlying transaction are held by the issuing bank until the credit is liquidated. Financial markets rate acceptances as among the highest quality financial instruments Issued. and they are highly sought after In the secondary market. I am delighted that this lowcost. lowrisk form of trade finance will now be available to all exporters. regardless of size. Mr. Speaker. this legislation is a major beginning not only in expanding foreign trade. but in modernizing our system of financial institutions. However. much else remains to be done In the months ahead. For far too long. banks and thrifts have been unable to give their customers the services they need and desire because of outdated laws of another era. As a result. literally billions of dollars are going into unregulated funds and investments. It is not a matter of our banks not being willing to change. but a matter of laws that limit them. or force them into unregulated forms of services at a greater risk to the customer. I expect that in the coming months and years we will continue to examine these limitations. and will revise them to meet todays needs and tomorrows opportunities. This act. H.R. 6016. is a major step to both increasing foreign trade and to allowing financial institutions to compete. and I urge my colleagues to support it.