Banks expect role that could liven up US overseas trade
What do you do when too few US businesses are engaged in international trade? Answer: You boost the overseas trade by letting the American banking system, for the first time since the '30s, underwrite private trading companies. The result, as banking officials and government planners see it, will be stepped-up commerce abroad.
The commercial banks already have billions of dollars lent to third-world nations.In fact, some critics figure the banks could even now be taking risks with their money which are too great. Nonetheless, the legislators apparently will approve of the banks getting further involved in the developing countries through trade. And the banks see a chance for raising their profits.
In any case, lawmakers -- either later this year during the postelection congressional session starting Nov. 12, or early in 1981 -- are expected to hand the banking community a major victory. For the first time since enactment of the Glass-Steagall Act (passed in the early days of the New Deal in the 1930s), banks will be allowed to engage directly in commerce, in this case international trade.
Barring a last-minute change of heart by lawmakers, bank participation in private trading companies is considered almost a sure thing, according to congressional sources.
The banking community, for its part, is eagerly promoting the change. Douglas R. Stucky, first vice-president of the First Wisconsin National Bank of Milwaukee, and a member of the international bank division of the American Bankers Association, maintains that because the banking system reaches virtually every US business, it could "improve our nation's export performance by the establishment of export trading companies."
Under the restrictive provisions of the Glass-Steagall Act, commercial banks are prevented from directly entering into commerce. They can lend to businesses , or even support business-related functions abroad (such as helping to facilitate trade), but cannot directly engage in trade by participating in trading companies.
In September, the Senate, by a 77-to-0 vote, authorized banks to participate in US trading companies. Four House committees are looking at the issue. Support is believed very strong for eventual enactment of the trading bill on the floor of that chamber.
Under terms of the Senate bill, banks would be allowed to invest up to 5 percent of their capital and surplus in a trading company. The one restriction is that the total investment cannot exceed $10 million without approval from federal bank regulatory agencies.
Trading companies, which are made up of a number of individual firms banding together to engage in overseas trade, are common to Japan and some European nations, US Commerce Department officials point out, moreover, that those nations authorizing such activity tend to do appeciably better in overall foreign trade than does the United States.
Currently, US exports as a percentage of total gross national product (the total output of a nation's goods and services) is running slightly under 7 percent. That compares, for instance, with 26 percent for West Germany.
The Carter administration has been supporting the concept of bank equity participation in trading companies even while cutting back on long-range budgeting for the US Export-Import bank. The Exim Bank currently underwrites a substantial portion of US sales abroad.
The main House opponent of bank trading company participating, Fernand St. Germain (D) of Rhode Island, argues that the Senate bill is a "giant step in the expansion of banking powers" and a breach in legal restraints "separating banking and commerce." Whether the congressman, who is chairman of the House Financial Institutions Subcommittee, will be able to arrest the momentum now clearly building for passage of the legislation is uncertain.
Sen. Adlai E. Stevenson (D) of Illinois, who has been the chief proponent of the trading company concept, argues that because of bank participation, the new trading firms would be able to handle interest rate fluctuations and service export transactions more easily and identify market opportunities more quickly. Most major US banks, he notes, already have extensive offices abroad.
According to banking sources, a number of major US banks are already making plans to enter into trading firms.