Courtesy Reuters

Our Foreign Loan Policy

THE Department of State issued, on March 3, 1922, a public statement in which, after referring to the increasing number of foreign bond issues being floated in the American market, it requested that American bankers contemplating making foreign loans should inform the Department of State with reference thereto, in order that the Department might advise the bankers as to whether there was or was not objection to any particular issue. The Department of State in its statement frankly recognized that it had no legal power to require American bankers to consult it. The statement was, in form, merely a request that the bankers would "coöperate" with the Department of State in view of the bearing of their operations "upon the proper conduct of affairs" and "in view of the possible national interests involved."

While thus nominally a request, the source from which it emanated was such that the request in fact became a command. Selfish considerations alone rendered compliance virtually obligatory as no banker could afford to contract to purchase a bond issue of important size with the possibility that, before distribution could be completed, the Department of State might publicly indicate its disapproval. This would at once destroy the marketability of the issue. Bankers are but a channel for the distribution of securities and when a contract is made for the purchase of a foreign issue, it is with the expectation that the issue can promptly be distributed to investors. If, before distribution, any official expression of disapproval rendered the issue unmarketable, a substantial part of the banker's capital would be engaged in carrying indefinitely bonds acquired for prompt resale to the investing public. Any banking firm thus involved would be largely disenabled from continuing its normal activities and serious financial loss might result. Such practical considerations are, however, in most cases but secondary. There is, generally speaking, a real willingness on the part of American bankers to subordinate their interest in aid of the attainment of important national objectives in

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