V Vk ^^ ^ 1 a^ ft"», *•> >••'' i/.. ^'^^'^ V ' '' V , *-- fc ^ Pikr /■^^JX if '' tt ^ f/t> •f '• ^ 7f i-^ ^r^ 'i V-' ,' '-fey' .-,^'^: j'Vj \^:2J^I^ '->-; ■':,^^ Cornell University Library HG2854.U5 1914a Banking and credit in Argentina, Brazil, 3 1924 013 899 426 8061 'U "ef lud •301 'soja pjoi^^s sjapuig 18|L|duJBcl junoujomn u Congress \ Sd Session J SENATE f Document t No. 659 BANKING AND CREDIT IN ARGENTINA, BRAZIL, / .5~o CHILE, AND PERU s*»w««komc?-^-~Z BULLETIN OF THE DEPARTMENT OF COMMERC^>^ .^^ .j,^^ •) Prepared by the Bureau of Foreign ^ • ' arid Domestic Commerce as Special \.,-Av-"- - .^^-'w T Agents Series — No. 90 WASHINGTON GOVERNMENT PRINTING OPMOE 1914 SUBMITTED BY MR. LEWIS. In the Senate of the United States, December 18, 1914. Ordered, That Bulletin No. 90, Special Agents Series, Department of Commerce, entitled "Banking and Credit in Argentina, Brazil, Chile, and Peru," be printed as a document. Attest: James M. Baker, Secretary. 2 C^ / ^' 15 k y 1 CONTENTS. Letter of submittal . 5 Functions of banks in South America 7 British banks in South America. 12 German banks in South America 16 Other European banks in South America. 23 Banking and credit in Argentina 25 Ban king and credit in Brazil 36 Banking and credit in Chile §2 Banking and credit in Peru -. 58 Methods of establishing American banks 62 Conclusionfl ^ 66 8 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013899426 LETTER OF SUBMITTAL. Department of Commerce, Bureau of Foreign and Domestic Commerce, Washington, August 11, 1914. Sm: There is submitted herewith a report by Edward N. Hurley on banking and credit in Argentina, Brazil, Chile, and Peru, based upon an investigation, from the manufacturer's point of view, of the financial environment of American trade in that field. The banking experiences of other nations in South America are described, and an analysis is given of the factors involved in the establishment of American banks. EespectfuUy, A. H. Baldwin, Chief of Bureau. To Hon. William C. Redfield, Secretary of Commerce. & BANKING AND CREDIT IN ARGENTINA, BRAZIL, CHILE, AND PERU. FUNCTIONS OP BANES IN SOUTH AMEKICA. IMTBODUCnON. This report incorporates observations and conclusions, from a man\ifa«turer's point of view, of the existing banking situation as related to present and future American trade in Argentina, Brazil, Chile, and Peru. Banking and credit are indispensable elements in our trade with South America. Sales and purchases can be financed only on reliable information and terms mutually satisfactory and productive of further business. American industries are extending their sales organizations, but the banking facilitation of the trade is still left in the hands of foreign banks that were primarily organized for the development and the defense of the commerce of our com- petitors. The passage of the Federal reserve act and the necessity of meeting foreign competitors not only at home but in the neutral markets or the world has further concentrated the thought of Ameri- can manufacturers upon the need of more direct banfing relations between the Jmted States and South America. No attempt has been made to provide a technical banking report; that must be left to those bankers who may be disposed to invest in an over-sea project. They alone can determine whether such a ven- ture will pay. This rejport deals merely with the financial environ- ment of American trade in the countries named; its disadvantages; and examples from the experience of other nations that have con- sidered over-sea banking operations essential to their conquest of foreign trade. Banking in South America is diversified. Demands of growing countries for funds, the necessities of foreign trade, the requirements of speculation, have created all varieties of banks, trust companies, and investment, mortgage, loan, and brokerage companies, to say nothing of exchange merchants. For purpose of analysis from the standpoint of the trade of the United States, the subject may be sharply divided, however, between foreign and domestic, or native, banks. Foreign banks include those organized and controlled in Europe. Domestic banks comprise institutions developed in the various countries of South America. The foreign banks, mostly British and German, were called into being by the necessities of foreign trade, and their chief concern is the advancement of the trade of their own nationality. Native banks devote themselves more directly to the accommodation of domestic business. At certain points the business of the two overlaps. Foreign banlcs participate in and richly profit from domestic business, and native banks sometimes project their 8 BANKING AND CKEDIT. operations oversea. Generally speaking, the foreign bank transacts very largely business pertaining to foreign commerce, steadily ex- tending its network of branches and exerting its influence to the advantage of European trade. To this end, European banks not only finance the trade between their own countries and South America, but between the various Latin-American States themselves, as well as between the United States and South America. The foreign bank agencies in New York contribute materially to the maintenance of, European banks as a channel of collections and payments for the commerce of the United States with Latin America. The functions of foreign banks in South America are: Exchange, collections, loans and discounts, credit information, and investment. EXCHANGE. Any consideration of international banking with South America must proceed on the premise that London is the center of the world's money market and that the "bUl on London" is the most general currency of the world's commerce. With all foreign exchanges ulti- mately liquidated at the British capital, British influence predomi- nates in international finance. One fundamental feature of the deter- mined effort of German banks to keep the financing of German over-sea trade in German hands was the estabhshment of branches of German banks in London. The logical ambition of the German commercial pohcy is naturally to enthrone the mark in the estimation of the world untU it need pay no deference to the pound sterhng; but short of this, with their own branches in London, German banks recognize and accommodate themselves to the world's preference for "bills on London" and reap all the profit possible by keeping as much as practicable of that business in German hands. Although in Brazil foreign banks are restricted by law from oper- ation in exchange in sums exceeding £100 and the Government Bank of Brazil as an expedient for the protection of national credit controls the exchange market, the profits on exchange to branches of foreign banks elsewhere in Brazil are very considerable. In Argentina the Banco de la Nacion Argentina exerts its powerful influence to prevent violent fluctuations of the exchange market; but in Chile the insta- bility of the currency (which the Government is now seeking to remedy) has made possible enormous profits on exchange. The stabihty of exchange on London is a great advantage not only to the centrahzation of credits there but to the expansion of British exports to South America. Exchange on New YorK is quoted in the chief banking centers of South America, but bills are not offered ia large number or constant supply. Although the trade between the United States and Brazil in 1912 was valued at approximately $190,000,000, the balance of trade was adverse to the United States by about .$94,000,000. As between Argentina and the United States the balance of trade favors the United States. At present, conditions are not propitious for the creation of a larger direct export trade to the United States. The increasing shipments of meat and grain from the River Plate to the United States are improving the prospect, for these commodities, especially meat, are less seasonal as to ship- ment than the goods that have hitherto made up the trade. Bankers who have closely followed the subject for a period of years find that exchange on New York in the banlring centers of South ARGENTINA, BEAZIL, CHILE, AND PEKTJ. 9 America is usually at a disparity of from 1 to H per cent as compared with exchange on London. That is, a person wishing to sell New York exchange in Buenos Aires will get from 1 to 1 J per cent less for it than for London exchange. If he desires to buy he will, on the average, have to pay more for New York than for London exchange. Aside from the "pulling" qualities of the bill on London in behalf of British trade, the direct profits are enormous and highly prized, as indicated in this comment by a London financial periodical: Bills on Ix)ndon in 1912 were valued at the enormous sum of £1,805,000,000, as apainst a total export trade of £1,231,000,000. * * * On every poimd of all these eighteen hundred millions some profit was made or some commission earned. The large toll that the United States annually pays to London can only be estimated, but the proportion of the charges to the value of the transactions is clearly seen in the case of coffee imports. Amer- ican coflae importers pay one-half of 1 per cent commission on the drafts with which they pay BraziUan merchants for their coffee purchases. At the prevailing price of coffee in March, 1914, this commission amounted to about 6 cents a bag. At the single port of New Orleans in the season of 1912-13 were entered 1,949,851 bags of coffee, the bankers' commission for the payment of which aggre- gated $116,987.06. On all the coffee imported by the United States during the season of 1912-13 the bankers' commissions approximated $350,000, divided about equally between American banks through which the importers arranged their credit and the European banks completing the trans- action. New Orleans bankers largely engaged in foreign business estimate that American banks established in South America might reduce this cost by half; that is, by saving to the importer the one- fourth of 1 per cent now charged by London bankers for acceptances. The New Orleans banks would, of course, continue their charge of one-fourth of 1 per cent. Bankers' commissions, however, are the least vital feature of the handicap to which rehance on foreign banking subjects American trade. Once an American obUgation is converted into a bill on London and shps into foreign financial channels, it passes out of the hands of those who might be interested in obtaining return purchases by the selling country. If the United States pays for large purchases of Brazihan rubber by bills' on London, the obhgation which ought to stimulate a Brazihan demand for products of the United States is really transferred to London, and such influence as is exerted is beneficial to purchases from the United Kingdom. The fundamental factor is to be sought, of course, in any and all other influences that may cause the movement of goods between South America and the Umted States, since exchanges are based on trade. COLLECTIONS. Foreign banks charge from one-eighth of 1 per cent to 1 per cent for collections, accorciing to the remoteness of the debtor. The chains of branch banks, agencies, and correspondents that the great London and Berlin foreign banks maintain in South America offer exceptional facihties for reaching customers. Whether banks are ideal bfll collectors is a question on which much, difference of opinion exists. They do, however, offer the most effective avenue open to-day to the American exporter. 10 BANKING AND CREDIT. Payments for American purchases abroad are made by different methods, but the use of banters' credits in London or other European banking centers is the most familiar expedient in the South American trade. The arrangement of banking credits at London generalhr costs one-haK of 1 per cent for the London bank's acceptance of the draft of the seller. In the absence of complete statistics it is impossible accurately to estimate the cost of payments through London; but assuming a com- mission of one-half of 1 per cent on the $526,468,815 worth of products sold by all Latin America to the United States in 1912, the cost would total $2,632,344. To what extent this was divided between American and European banks together engaged in the transaction it is im- possible to estimate; but on the basis of a New Orleans banker's state- ment, that well-established American banks in Latin America would save half the commission, the saving would be $1,316,173. LOANS AMD DISCOUNTS. Loans and discounts are at once a source of large profit and great risk to banks in the largest South American countries. Under normal conditions, with development on every hand, the rates rule consistently higher than under similar conditions in older lands. Under stress of the depression that recently gripped the whole world, rates advanced in South America; and the swiftly changing conditions of the busi- ness world incident to the curtailment of foreign investment and the collapse of speculation put the judgment of bankers to a severe test. Credit is far more freely given in South America than in the United States. "Overbanking" is a partial explanation given by many bankers for the present crisis in Brazil and ChUe. This arose in sopae cases from bankmg competition; in others from overconfidence in an indefinite continuance of prosperity. Single-name paper is very gen- erally accepted, individual houses often deal with from 6 to 10 banks, and overdrafts on current account, for which the depositor pays 9 per cent, are encouraged. The paper that banks carry in their vaults as collateral for loans is subject to practically no governmental super- vision anywhere in South America. The bankers confess that this practice tends to an inflation of credit, naturally leading to trouble. CREDIT INFORMATION. Since the prosperity of South American countries depends largely upon the advantageous exchange of their natural products for foreign manufactures necessary to maintain industry and further develop the country, the supply of reliable over-sea credit information is important. The European or American exporter must obtain knowledge of his South American customer. On the other hand, South American shippers must know something of the reliability of those firms or individuals to whom they extend credit. Where commodities are sold for cash, credit information may not appear so essential. The fact remains that even when an American manufacturer obtains cash against documents at New York, the transaction involves credit at some point between the American manufacturer and the South American purchaser. An export house in Now York, or an importing house in South America, is hkely to intervene with the arrangement of credit in behalf of the purchaser. AEGENTINA, BKA2;IL, CHILE, AND PERU. 11 Siace the foreign and native banks in South America are called upon to accept drafts representing these credits, they must maintain credit-information services, no less for their own protection than for the accommodation of customers. Domestic banking business re- quires a firm basis of credit information in South America precisely as in the United States. For many years the banks in South America have supplied this need, but mercantile-credit agencies of the general character familiar in the United States have been estabhshed in recent years. A New York company maintains an office at Buenos Aires, with ramifications extending throughout the lower part of South America, excepting Chile. Two years ago this service was extended to Rio de Janeiro. An Argentine credit agency along somewhat similar Unes also operates in Buenos Aires. These organizations do business by the same methods as are known in the United States; they view the credit problem from the mercantile rather than from the banking stand- point. At the same time, they are necessarily dependent for infor- mation on banks. The instinct for natural protection actuates all branches of business, but exchange of information is not developed to the high degree characteristic of older countries. In domestic trade rivalry operates to restrict the freest interchange of such data. Foreign banks supply their home offices in Europe with the ratings and characteristics of South American firms and individuals. Ger- man trade has been extended largely by aid of longer credits than were accorded by British houses; the German banks nave been more minute in their organization of this service. Latin-American business men calling upon banlis at Hamburg have bsen astonished at the familiarity of bank officials with the character of their business. All the South American coiuitries are in the debtor class. The funds for their development necessarily come from European sources, chiefly the United Kingdom. Scarcely a passenger vessel leaves for Europe without carrying some person interested in obtaining a loan or in selling securities of South American enterprises in the European markets. Information as to the character and standing of these per- sons is the first need of those whom they approach abroad. Herein the banks serve a highly useful purpose. Foreim banks, particularly the British institutions, are great channels for European investment in South American railways, tramways, light and power companies, agricultural enterprises, etc. Without the detailed information that the foreign banks possess or can obtain of the prospects for the numer- ous projects placed before European capital, the development of South America would not proceed so rapidly. Around the banks has grown up a vast, body of expert opinion. DfFESTMENT. One need only glance at the advertising pages of the British and Continental financial journals to appreciate the fimction of foreign banks in South American investment of European capital. British investments in Latin America are estimated at more than $5,000,- 000,000, yielding approximately $250,000,000 in annual interest. South American exports to the United Kingdom in 1912 reached a total value of $310,210,806, so that the earnings of British invest- ment went far to pay for these purchases. Except in Mexico, Cuba, and adj acent Republics, the United States has little investment in Latin 12 BANKING AND CREDIT. America. American purchases from South America, accordingly, must be paid for outright. , German, French, Italian, and other Euro- pean investment in South America is more difficult, if not impossible, to estimate, but it is an important element in the trade of those nations. This foreign investment divides sharply between loans to Govern- ments and those for industrial purposes. South American govern- mental bonds are very largely held m Europe and the fiscal policy of these countries is materially affected by the attitude of European bankers. Frequently these governmental issues have an industrial aspect. Government ownership of public utilities is extensive and loans for municipal improvements are numerous. This not only as- sures the European investor his interest but extends the market for imported materials. EXPORT TRADE AND FOREIGN BANKING. In recent years the practice of stipulating the use of materials from the countries loaning money for South American railways, port works, and other enterprises requiring materials not largely manufactured in South America has increased. This operates to restrict the field open to the selling campaigns of American manufacturers. Since American capital does not largely enter the South American field, manufacturers of the United States lack the potent support that national investment supplies. German banks in South America are intimately related to German manufacturing industries, steamship lines, and insurance and cable companies. They are controlled and influenced by the "German Great Banlcs," which dominate and direct German commercial policy. The chief object of this policy is the conquest of new over-sea markets and the extension of existing foreign trade. Therefore, every influ- ence that may be derived from the investment of German capital is intensively exerted for the extension of German commerce and' pres- tige in South America. Other European capital finds exercise in mortgage-loan companies and in the smaller banlts devoted to the savings of the European immigrants. BRITISH BANKS IN SOUTH AMERICA. LARGE BRFTISH BANES. London and River Plate Bank (Ltd.). Authorized capital, £4,000,000 ($19,466,00«V; subscribed capital, £3,000,000 ($14,599,500); paid-up capital, £1,800,000 ($8,759,700); reserve fund, £2,000,000 ($9,733,000); dividend, 20 per cent. Head office, London. Branches: Paris; Antwerp; Buenos Aires, Eosaiio, Bahia Blanca, Mendoza, Concordia, Tucuman, Parana, and Cordoba, in Argentina; Rio de Janeiro, Sao Paulo, Santos, Bahia, Para, Curityba, Pernambuco, Victoria, and Manaos, in Brazil; Valparaiso, in Chile. Agency in New York. London and Brazilian Bank (Ltd.). Capital authorized and subscribed, £2,500,000 ($12,166,250); paid-up capital, £1,250,000 ($6,083,125); reserve fund, £1,300,000 ($6,326,450); dividend, 20 per cent. Head office, London. Branches: Paris, France; Oporto, Lisbon; Rio de Janeiro, Manaos, Para, Ceara, Pernambuco, Bahia, Santos Sao Paulo, Curityba, Rio Grande do Sul, and Porto Alegre, in Brazil; Montevideo, Uruguay; Buenos Aires and Rosario, in Argentina. Agency in New York. Anglo-South American Bank (Ltd.). Authorized capital, £5,000,000 ($24,332,500)- subscribed capital, £4,500,000 ($21,899,250); issued capital paid-up, £2,130,000 ($10,- 365,645), plus £120,000 ($583,980) now in course of payment; reserve fund, £1,500,000 ($7,299,750), plus premium on new shares paid July 1 last, £60,000 ($291,990); divi- dend, 12 per cent. Head office, London. Branches; Hamburg, Germany; Monte- video, Uruguay; Buenos Aires, Mendoza, Bahia Blanca, and SanB^afael, in Argentina; Punta Arenas, Concepcion, Gallegos, Chilian, Santiago, Valparaiso, Coquimbo, Serena, Antotagasta, and Iquique, in ChUe. AKGENTINA, BBAZIL, CHILE, AND PEEU. 13 British Bankot South America (Ltd.). Capital, £2,000,000 ($9,733,000), half paid in; profit for the year ended December 31, 1912, JE243,785 98. 8d. ($1,186,382.05); reserve fund, £1,100,000 ($5,353,150); dividend available, 17 per cent. Head office, London. Branches: Kio de Janeiro, Sao Paulo, and Bahia, in Brazil; Buenos Aires and Bosario, in Argentina; Montevideo, Uruguay. Banco del Peru y Londres. Paid-up capital, £500^000 ($2,433,250); reserve fund, £300,000 ($1,459,950). Head office, Lima; agency in London. Branches: Piura, Chiclayo, Pacasmayo, Trujillo, Huaiaz, Callao, Cerro de Pasco, Chincha Alta, lea, Huancayo, MoUendo, Arequipa, Cuzco, Iquitos, Huacho. STATEMENT OF LONDON AND BRAZILIAN BANK. An idea of the position of a typical British bank in South America may be obtained from the last annual balance sheet of the London and Brazilian Bank, London, January 31, 1914: LLABtUTIES. Capital, 125,000 shares issued, £20 each (£2,500,000), paid up £10 per share $6, 083, 125. 00 Reserve fund 6, 813, 100. 00 Staff pension and benevolent fund 583, 980. 00 Current accounts and deposits in currency at branches $41, 431, 109. 74 Cvurent accounts and deposits at head office 1, 098, 442. 42 42,529,552.16 BiUs payable 23, 308, 184. 22 Agents and sundry accounts 3, 425, 062. 08 Bills for collection on account of customers 23, 212, 527. 60 Profit and loss .52, 993, 654. 13 Less dividend (interim) paid to July 31, 1913 364, 987. 50 2,628,666.63 108, 584, 197. 69 KoTE. — Contingent liabUitiea not included in balance sheet: As drawers of branch drafts accepted by London bankers (against which bUls have been deposited for the equivalent amount), of which £80,000 has run off to date 389, 320. 00 As indorsers of foreign bills negotiated, of which £354,570 4s. has run off to date 2, 292, 594. 23 ASSETS. Specie and cash at head office and branches 18, 689, 817. 17 Bills receivable 17, 100, 422. 15 Bills discounted and loans 44, 240, 135. 80 Cash and remittances in transitu, etc 3, 888, 434. 78 BiUs for collection as per contra 23, 212, .527. 60 Bank premises at head office and branches 1, 362, 242. 35 Furniture at head office and branches 90, 617. 84 108, 584, 197. 69 PKOFIT AND LOSS. To dividend of 12s. per share and bonus of 16s. per share for the half year ending Jan. 31, 1913 851, 637. 50 Bonus to staff 72, 997. 50 Transfer to reserve fund 486, 650. 00 Balance 1,331,44159 2, 742, 726. 59 Charges at head office and branches 1,415,930.70 Taxes at home and abroad (including income tax) 229, 762. 27 Dividend (interim) for the half year ending July 31, 1913 364, 987. 50 Balance carried forward 2,628, 666. 63 4, 639, 347. 10 14 BANKING AND CEEDIT. By balance on Jan. 31, 1913 $2,742,726.69 Balance brought forward 1, 331, 441. 59 Profit to Jan. 31, 1914, after providing for rebate of interest on bills discounted not due, and bad and doubtful debts 3,307,905.51 4, 639, 347. 10 Balance brought forward 2, 628, 666. 63 DEVELOPMENT OF BRITISH BANKS IN SOUTH AMERICA. British, trade witli South America early attained a commanding lead over that of all other nations. The British foreign banking system lends itself to analysis less readily than the German, because it developed along with the trade instead of being organized as a stimulus and an aid for progress in markets held by others. British trading houses in the early days managed to obtain financial accom- modation without banks, but the latter were found to be indispensa- ble at the beginning of the era of British investment in South American railways and industrial enterprises. About the middle of the last century British capital was attracted to the possibiHties of South American investment. This promised not only excellent profits, but it was plain that railways would develop the countries and increase the consumption of British manufactures. It should be remembered that about this time the United States was a potent factor in the world's carrying trade, but the Civil War crippled it to Great Britain's benefit. The construction of railways in Argentina and Brazil created an opportunity for British banks, which entered the field with the valuable resources of funds designed for this investment. The first institution in the field has never lost its predominance. Since its establishment in 1862 the London and Kiver Plate Bank has sur- vived all the perils of Latin-American crises, including the Argentine panic of 1890. Its largest business is in Argentina, where it carries the accounts of practically aU the British-owned railroads. The British Bank of South America (Ltd.) is an outgrowth of the Brazilian and Portugese Bank (Ltd.), which was organized in 1863. Its title was changed in 1866 to the English Bank of Rio de Janeiro (Ltd.), and in 1891 to the present title. Its capital has been in- creased from time to time, and it weathered the violent fluctuations of exchange characteristic of Latin-American finance until compara- tively recent times. The London and Brazihan Bank, which has devoted its energies particularly to Brazil, traces its history back to 1862, and has been exceptionally profitable to its shareholders as well as a potent factor in the development of British trade. The Anglo- South American Bank, founded as the Anglo-Argentine Bank and later converted into the Bank of Tarapaca and Argentina, first devoted its activities chiefly to Chile, subsequently extending to Argentina and other countries. These institutions do not appear to bear such a close relation to British industries as the German banks maintain with German in- dustries. British banks are devoted chiefly to the earning of gen- erous profits for their shareholders. ABGENTINA, BRAZIL, CHILE, AND PEBU. 15 BRITISH INVESTMENTS. To the mfomaation and advice which the British banks in South America have been able to give, as well as to the facilities they afiFord, is largely due the steady flow of capital iato Latin-American countries. This investment, yielding a handsome annual revenue to bond and share holders, is the greatest influence in the maintenance and exten- sion of the British trade. British capital, British banks, and British shipping constitute a favorable iofluence that no competitor has beea able to neutralize. Although this report deals primarily with South America, it is worth while to consider the foUowing estimate (from the South American Journal, London, January 7, 1913) of the amounts of British capital invested in aU Latia- American countries up to the end of 1913: Countries. Amount. Countries. Amount, $1,788,703,305 1,119,476,375 807,621,945 319,691,185 230,726,965 222,223,090 128,291,400 62,226,100 39,750,045 33,300,300 33,270,470 Honduras J15, 716,000 14,978,650 13,904,870 11,123,508 Brazil ........ Mexico . . Ecuador Chile Nicaragua Bolivia Cuba 2,089,000 76,811,160 92,572,686 Peru Total „ Costarica .. . . 6,008,673,135 Colombia . ... It is estimated that the average return from these investments is shghtly in excess of 5 per cent and amounts to more than $250,000,000 a year. PROFITABLE CHARACTER OF BRITISH BANKING. The handsome dividend rates of British banks have been set forth. It will be seen that they earn more for their shareholders than German institutions. This is doubtless due in part to the larger volume of business of the older British banks, but the position of the German banks as an integral part of the system organized to win and extend trade, involving greater extension of credits, doubtless keeps down the German dividends. An analysis of the position of the various Anglo-South American banking institutions, which appears to be accepted as authoritative in British financial circles, is reproduced herewith (South American Journal, London, January 6, 1912): Taken as a group, there can be no doubt that the British-capital invested in banking enterprises in South America has been more successful than any other group of invest- ments, for not only have most of the banks steadily paid improving dividends to their proprietors, but they have also been able to add largely to their reserve aud other funds, besides writing off cost of premises and other assets, reducing the same to prices far below their real values, while they have built up reserve funds which compare very favorably with the total authorized and issued capitals. From the investor's point of view, there is one great drawback to the shares of banks, both British and foreign, and that is the uncalled liability on the same. This is a very necessary asset for banks to keep, as it were, in reserve after the reserve fund , so as to make sure that clients' money is as safe as it is possible to make it. When the business of a bank has been going on for years so that a substantial position has been obtained, the only risk of the liability on the shares being called up is in. the event of a serious and unlooked-for crisis occurijng, and that is now a remote con- tingency, so that where the banks are established in a sound position, with a substan- tial reserve fund, the uncalled-for liability can be almost, although perhaps not totally, disregarded. Its effect, however, on the market is to keep the pricee.of the shares 16 BANKING AND CREDIT. below what thejr would otherwise be, so that, considering their strength, banking shares usually ^ve an exceptionally large return to their holders. There is one advantage of this uncalled liability which should not be overlooked, and that is the tendency of boards of prosperous concerns to divide some portion of their reserve fund amongst their proprietors by paying up a certain amount on the shares, this being a means of giving their proprietors what usually amounts to a very substantial bonus, and is a method which has been adopted more than once by Anglo-South American banks, of which there are only eight whose shares are quoted on the London Stock Exchange. Of these eight, five are companies registered in England and entirely directed from London, while the others are local concerns whose registered offices are in the countries where the bulk of their business is transacted. The sub- scribed capital of these eight banks amounts to a total of $106,440,240, the authorized amount being rather more than this. The paid-up capital is $77,033,175, for only in two instances are the shares fully paid, these companies being the National Bank of Mexico and the Banco del Peru y Londres. The total reserve funds, according to the last published balance sheets, amount to $51,934,660, which is pretty nearly half the subscribed capital, and col- lectively is equivalent to more than the uncalled liability on the total shares, while even this total would be substantially added to if the various amounts carried for- ward were included. As regards dividends, these have, of course, varied, but the last payments were 20 per cent per annum in two instances, 17 per cent in another, and the lowest payment 10 per cent, which is on the shares of the Anglo-South American Bank, while the London and River Plate Bank, by allotting one new $45 paid share at $150 for every two shares then held, recently gave its proprietors a bonus of practically 100 per cent in addition to the dividend. j British capitalists have not at present the field to themselves, for they have to face the competition not only of local and in many cases State-owned banks, but also the competition of several very successful and strong German banking companies, such as the Deutsche Bank, etc.; but, nevertheless, British capitalists have had consider- able experience in the business, an experience dating back for nearly 50 years, the three principal banks having been established in 1862 and 1863. GERMAN BANKS IN SOUTH AMERICA. LIST OF GERMAN BANKS. Banco Alem^n Transatl&ntico (Deutsche Uebereeeische Bank). Paid-up capital, 25,500,000 marks ($6,069,000); authorized capital, 30,000.000 marks ($7,140,000); reserve fund, 8,153,247.34 marks ($1,940,472.86); dividend, 9 per cent. Head office, Berlin (Deutsche Ueberseeische Bank). Branches: Barcelona and Madrid, in Spain; Buenos Aires, Bahia Blanca, Cordoba, Mendoza, Rosario, and Tucuman, in Argen- tina; Valparaiso, Santiago, Iquique, Antofagasta, Valdivia, Osorno, Concepcion, Temuco, and Arica, in Chile; Lima, Callao, Arequipa, and Trujillo, in Peru; La Paz and Oruro, in Bolivia; Montevideo, Uruguay; Rio de Janeiro, Santos, and Sao Paulo, in Brazil. Banco Germinico de la America del Sud. Capital, fully paid up, 20,000,000 marks ($4,760,000); legal reserve, 600,000 marks ($142,800); reserve for tax duty on shares, 60,000 marks ($14,280); capital apportioned for Buenos Aires branch, 7,600,000 marks ($1,666,000); dividend, 5 per cent. Head office, Deutsch-Siidamerikanische Bank, BerUn. Branches: Rio de Janeiro (Deutsch-Siidamerikanische Bank); Mexico City (Deutsch-Sudamerlkanische Bank); Torreon, Mexico (Deutsch-Siidamerikanische Bank); Hamburg (Deutsch-Siidamerikanische Bank); Valparaiso and Santiago, Chile- Buenos Aires, Argentina. London agents, the Dresdner Bank. Brasilianische Bank ftir Deutschland. Pajd-up capital, 15,000,000 marks ($3,570,- 000); dividend, in 1911, 1912, and 1913, 10 per cent on 10,000,000 marks ($2,386,000) and. 5 per cent on 5,000,000 marks ($1,190,000). Head office, Hamburg. liianches: Rio de Janeiro, Sao Paulo, Santos, Porto Alegre, and Bahia, Brazil. AEGENTINA, BEA2!IL, CHILE, AND PEEU. 17 STATEMENT OF BRASILIANISCHE BANK FUB DEUTSCHLAND. Following is a typical German bank balance sheet, that of the Bra- flilianische Bank fur Deutschland: ASSETS. Cash $4,458,228.55 Bills receivable 11,006,611.91 Advances secured by collateral 11, 512, 720. 91 Debtors in current accounts 3, 033, 825. 64 Furniture and fittings 1. 19 Bank premises in Rio de Janeiro, Sao Paulo, Santos, and Porto Alegre... Rs. 1, 525:456 $290 Writtenoff Es. 25:000 $000 Rs. 1, 500:456 $290 481, 278. 43 Value of securities (first-class investments) in Hamburg 1, 512, 639. 94 32, 005, 306. 57 UABILITIES. Capital stock 4,284,000.00 Reserve fund $238, 000. 00 Profit on the issue of new stock 442, 058. 23 Transfer from the yearly profit 33, 941. 77 Special reserve 714, 000. 00 Yearly reserve 47, 600. 00 761, 600. 00 Officers' fund 147,272.08 Checks outstanding 693, 900. 38 Deposits on time 10, 532, 332. 04 Depositors and creditors 15, 127, 083. 75 Bonus to the board of directors 17, 591. 30 Reserve for " talon "tax 7, 140. OQ Dividend, 10 per cent on 15,000,000 marks, i. e., on 10,000,000 marks for one year and on 5,000,000 marks for one-half year 297, 500. 00 Unclaimed dividends 309. 40 Carried forward to profit and loss, 1913-14 136, 577. 62 32, 005, 306. 57 PEOPIT. Balance, per July 1, 1912 125,686.02 Profit of the branches in Rio de Janeiro, Sao Paulo, Santos, Porto Alegre, and Bahia $1, 114, 624. 93 Less: Administration expenses, taxes, and other expenses 771, 785. 35 342, 839. 58 Written oft on bank premises in Porto Alegre 8, 018. 86 334, 820. 72 Profit of the head office in Hamburg 148, 143. 74 608, 650. 48 LOSS. General expenses paid in Hamburg 12, 772. 49 Reserve for talon tax 7, 140. 00 Income tax 31,727.30 51, 639. 79 S. Doc. 659, 63-3 2 18 BANKING AND CKEDIT. Profit $557,010.69 Leas: Amount carried forward to profit and loss 136, 577. 62 420, 433. 07 Balance to be diyided as follows; Reserve fund..-. 33,941.77 Special reserve 47,600.00 Bonus to the board of directors 17, 59L 30 Dividend, 10 per cent on 15,000,000 marks, i. e., on 10,000,000 marks for the entire year and 5,000,000 marks for one-half year 297, 500. 00 Officers' fund 23,800.00 420, 433. 07 Carried forward to profit and loss, 1913-14 136, 577. 62 EVOHmON OF GERMAN BANKS IN SOUTH AMERICA. $557, 010. 69 608, 650. 48 The chain of Grerman branch banks linking the Fatherland to the rich Latin-Ameiican markets is the result of the industrial develop- ment begun about 1870. Since that time Germany has been trans- formed. It became apparent that with the rapidly increasing popu- lation Germany could not produce all the various commodities required for maintenance of national life, and that with the expansion of domestic industries it could not hope to pay for its necessary imports of foodstuffs and raw materials for manufacturing. Over- sea markets were a necessity. In the German banlts in South America is seen one manifestation of the policy of industrial concentration that has made the Empire Great Britain's most formidable competitor in international trade. Manufactures constitute about 65 per cent of Germany's export trade. The over-sea sale of manufactures requires a greater amount of financial accommodation than the sale of unmanufactured foodstuffs or raw materials. Purchasers of articles ready for consumption are far greater in number than purchasers of grains, or coal, or oil. The exporter deals with many merchants in foreign lands and requires information as to their credit reliabiUty, resources, and prospects. GERMAN BANKING TO AID TRADE. In considering the services of banks to foreign trade, one finds the German over-sea banks organized for the purpose of winning the markets; British over-sea banks were created to accommodate exist- ing trade. Of course, the British banks have largely stimulated exports from the United Kingdom; but they grew up, so to speak, with the necessities of British foreign commerce. German banks, on the other hand, were deUberately placed in the field to serve' as handmaidens for commerce yet to be won. The essence of the Ger- man trade policy has been thus summarized: "The marshaling of financial forces must correspond to that of military forces, andjust as mihtary mobilization is made possible by careful plans in time of peace, so, too, the marshaling of financial forces should be facilitated by schemes likewise devised in times of peace." The operation of the Banco Alemdn Transatldntico in Brazil, Ar- gentina, Uruguay, Bohvia, Chile, and Peru shows the working out of AEGEKHNA, BBAZEL, CHILE, AND PEETJ. 19 this policy. This baiik is of exceptional interest because it is an offshoot of the Deutsche Bank of Berlin, which in the early serenties announced this purpose of its organization: "The object of the com- pany is the transaction of all sorts of banking business, particularly the fostering and facilitating of commercial relations between Ger- many, the other European markets, and over-sea markets." German foreign trade then was wholly dependent upon the finan- cial mediation of other countries, chiefly England. German econo- mists saw therein an obstacle to the fullest realization of the Ger- man ambition for assertion of German prestige, political and com- mercial. Germany was in much the position that the United States now occupies as to the foreign banking accoramodations. Of course the German trade was much smaller than that of the United States now is. DEUTSCHE BANK. The Deutsche Bank, in the face of great difliculties and despite early reverses, never lost sight of the importance of developing foreign markets for the industries whose pohcies it has since largely con- trolled and influenced. The first step was the attempted establish- ment in the early seventies of agencies in London, then, as now, the capital of international finance. Its first branches established in Shanghai and Yokohama were unsuccessful. The bank feU back upon its outposts at Bremen and Hamburg, the chief German sea- gorts. In 1874 the Deutsche Bank took over from the Disconto- resellschaft the La Plata Bank operating in South America, but it survived only until 1885. The ranks were promptly closed up by the organization in its stead of the Deutsche Ueberseebank. This Dank had a paid-up capital of 6,000,000 marks ($1,429,200). When, in 1893, greater capital was deemed advisable, the Deutsche Bank caused to be organized in Berlin the Deutsche Ueberseeische Bank with a capital of 20,000,000 marks ($4,760,000), since increased to 30,000,000 ($7,140,000), which does business in South America under the name of the Banco Alemin Transatldntico. From the first the Deutsche Bank persistently adhered to the Erinciple formulated by Herz: "The part of confidential adviser in usiness, both at home and abroad, must be taken by tJie banker." The Banco Alemftn Transatlfintico at first did business in Mexico, but this was taken over in 1906 by the Mexikanische Bank fiir Handel und Industrie, formed by the Deutsche Bank and Speyer & Co., of New York. Since the Deutsche Bank is the dominant influence in the direction of the Banco Aleman Transatlantico, having six or more seats on its supervisory boardj it is pertinent to indicate the industrial enter- prises that participate, or are capable of participating in foreign trade, that also come within the Deutsche Bank's sphere of influence. Dr. J. Riesser's work, "The Great German Banks," shows the Deutsche Bank in 1909 to have had representation on the super- visory boards of these industries: Metal working companies, 3; macUinery construction and instrument making companies, 24; textile industries (textiles form the largest class of German exports), 6; insurance companies, 8; transportation companies, including the North German Lloyd Line, 6; commercial enterprises, including for- eign and domestic banks, 28; foreign companies, 13. 20 BANKING AND CKEDIT. A very large proportion of these enterprises are engaged in foreign trade. Throughout the existence of the Deutsche Bank its influence has been exerted in behalf of banking and industrial concentration. In fact, its report for the year 1913 begins with this sentence: "Con- centration was the characteristic feature of our bank's forty-fourth year." Without the aid of the great German banks, the industrial concentration and coinbination through which Germany has passed would have been impossible; although national ends have been subserved by this banking influence, their responsibility has con- tinued. At home, according to Riesser, "the representatives of the banks on the supervisory boards of the industrial companies have always taken special care to fulfill one very effective part of the 'advisory function' of the supervisory board, viz, to provide for the disposal of the products of the industrial companies in question to suitable industrial enterprises on which the banks were able to exercise some influence." BANCO ALEMAN TKANSATLANTICO. The Banco Alemdn Transatldntico, with its head office in Berlin, conducts in addition to 2 branches located in Madrid and Barcelona, Spain, 25 branches in South America. These offices are distributed 6 in Argentina, 9 in Chile, 4 in Peru, 2 in Bolivia, 1 in Uruguay, and 3 in BrazU., That the operations of this institution are successful is apparent from a study of its report for the year ended December 31, 1913. The income account for that period and the disposition of the profits are set forth in the following .statement: Unappropriated balance of profita of year 1912 $24, 941 Gross profits for year 1913 $2, 934, 172 Less general expenses (including reserve for "talon" tax) 1, 916, 624 1,017,548 Net profits 1,042,489 Payment of dividend of 9 per cent on capital stock of $72,900,000 $656, 100 Added to reserve account (surplus account) 172, 379 Paid to directors for fees 40, 498 Added to pension fund 30, 375 Gratuities or bonuses to staff 117, 855 Unappropriated balance carried forward to year 1914 25, 282 1,042,489 The general balance sheet, or statement of condition, as at Decem- ber 31, 1913, reveals a strong, healthy position. For convenient and ready reference this balance sheet, of which particulars are given below, has been rearranged to conform as closely as possible to American practice: RESOURCES. Cash $17,622,725 Bills receivable 30,227,970 Stock-exchange loans 463, 693 Loans on merchandise 1, 795, 799 Investments 2, 615, 778 Syndicates 29, 680 Debtors on current accounts 20, 016, 799 Bank premises 982, 070 Total 73,754,514 ABGENTINA, BRAZIL, CHILE, AND PEBU. 21 UABILrnES. Capital stock $7,290,000 Reserves, or surplus 2, 147, 284 Profit and loss account (profits of year 1913) 1, 042, 489 — $10, 479, 773 Bills payable 4,370,394 Current and deposit accounts 58, 710, 574 Unclaimed dividends 501 Special reserve for "talon" tax 51, 030 Pension fund ' 142, 242 Total 73, 754, 514 The following quotation is taken from the report of this bank dated Berlm, March 5, 1914: The past year was distin^shed by the difficult circumstances generally prevailing in most of the South American states. The causes -were partly of a local nature, originating from the internal conditions of the countries concerned, and were also partly attributable to the after effects of the political uneasiness and the dearness of money in Europe. A considerable influence on trade in the various spheres of our activity was exercised by these less favorable circumstances. Nimierous suspensions of payment and failures were the natural consequence. Although we also were not exempt from losses (for which, however, we were prepared, and which have been written off), our business generally was satisfactory, and we are, therefore, able to again propose a dividend of 9 per cent. DISCONTO-GESELLSCHAFT. In the Brasihanische Bank fur Deutschland is found the first con- tribution (excepting the La Plata Bank venture) of the Disconto- Gesellschaft to German banking resources in South America. In 1887 the Disconto-Gesellschaft jointly with the Nord-Deutsche Bank organized the Brasihanische Bank fiir Deutschland. The Disconto- Gesellschaft many years before had become identified with the bajik- ing group known now as the Rothschild Syndicate. This interest has financed many of the Brazihan loans. The same banks in 1905 organized the Bank fiir Chile und Deutschland. In this they had the cooperation of several trading houses with business interests in Chile, where German commercial influence rapidly expanded. This shows evidence of a studied purpose to invade commercially the coimtry where British trade influence had been, and still is, predomi- nant, and which is bound to England by the Chilean gratitude for services rendered to the country during its struggle for liberty Brit- ish investment is very large in Chile; German investment is small. The DiscOnto-Gesellschaft had representation in 1909 on supervisory boards of these industries : Mining, smelting, and salt, 13; stones and earths, 2; metal working, 2; machinery construction and instrument making, 8; chemicals, 5; illuminants, soaps, fats, oils, varnishes, etc., 2; commercial enterprises, including foreign and domestic- banks, 24; plantation companies, 2; insurance, 2; transportation (ocean and domestic), 2; foreign companies, 23. The Disconto- Gesellschaft had four seats on the directorate of the Brasihanische Bank fiir Deutschland, and two on that of the BanJ; fiir Chile und Deutschland. DRESDNER BANK. The Dresdner Bank, which was long regarded as the chief financial institution allied with the textile industry, joined in 1905 with the A. Schaaffhausen'scJier Bank-Verein in the foundation of the Banco 22 BANKING AND CEEDIT. Gennanico de la America del Sud (Deutsch-SQdamerikamsche Bank) of Berlin, which now has branches in Brazil, Mexico, Argentina, Chile, and at Hamburg. The Dresdner Bank had two seats and the A. Schaaffhausen'scher Bank-Verein two seats on the directorate of the Germamco Bank. The Dresdner Bank in 1909 was represented on the boards of the following industries : Mining, smelting, and salt, 10; stones and earths, 2; metal working, 3; machinery construction and instrument maldng, 4; chemicals, 1; textiles, 1; paper, 1; j foods and drink, 2; commercial enterprises, including foreign and 'domestic banks, 2; insurance, 3; transportation enterprises (over-sea and domestic and cable companies), 11. The A. Schaaffhausen'scher Bank-Verein also has extensive representation on industrial directo- I rates. This bank was formerly regarded as chief fijiancial rM)resen- tative of the mining industry, but that character is not so decisive as formerly. It is recently reported to have merged with the Disconto- Gesellschaft. The Ban^o Commercial Italo-BrasUiano at Sao Paulo contains German influence effected through the participation in its increase of capital of the Banca Commerciale Itahana of Milan, which was founded for development of trade with Italy by a German banking syndicate consisting of the Deutsche Bank, the Disconto-GeseUschaft, the Dresdner Bank, the Darmstadter Bank, the Berlin Hande^sgesellschaf t, the A. Schaaffenhausen'scher Bank-Verein, and the National Bank fur Deutschland. This syndicate, as a further strengthening of Ger- many's commercial lines, and with the purpose of rendering com- munication with over-sea markets free from foreign control, organ- ized the German South American Telegraph Stock Co. and six other enterprises for the promotion of German cable and telegraph com- munication. GERMAN BRANCH BANKS. Aid in obtaining foreign markets is also provided through the agen- cies of the German branch banks. They are strategically located, not only for the accommodation of existing German trade m various parts of South America, but for the protection, information, and advice of the German financial groups that called them into being. Since, in the policy of banking concentration, the various banking groups have overlapped, there is a certain mutuahty of interest among the branches that they have set up in South America; and actuating all is the single purpose of the steady advancement of Ger- man trade, to which all influences, from the sovereign down, are devoted. Behind Germany's trade with South America stands a more com- Eact organization than is possessed by any other country. The ranch banks are outposts. Behind each is the head office in Ger- many, and back of each head office is aligned one or more of the great bankiiig groups, with their raniifications of influence and control over those industrial enterprises which depend for their prosperity largely upon foreign trade. This interrelationship results in mutual con- cessions in the_ accommodation of the export trade. The import trade is no less important as a source of supply of raw materials that are converted into manufactures, many of which, in form ready for consumption, again cross the seas. ABGENTTNA, BRAZIL, CHILE, AND PEETJ. 23 GERMAN TOLL FROM OTHER NATIONS. The German, over-sea banks not only facilitate the business of their own countrymen, but, hke the British banks, have extended their organization to handle the banking business of other nations less thorough!;^ equipped. In this way the German banks reap a toll from other nations. When their customers prefer to deal in the more convenient and widely used British exchange, the business is handled through the branches of the German banks in London. FuU advan- tage is taken of the facilities of the London discount market ia the handling of bills on London, but no favorable opportunity is lost to strengthen the position of the mark in international currency, or to fortify the German discount market. Having long appreciated that the handling of German commerce in biUs on London involves idti- mate tribute to the United Kingdom, the German banks sought to neutralize this by extension of their business at London. Therefore, they seek to handle as much as possible of the banking business of the United States with South America through their correspondents and agencies among New York banks. Liberal concessions are made to this end. The Germans, Mke all shrewd business men, recognize that foreign traders, while preferring banking acconmiodations in channels of their own nationality, will usually give their business to those who can transact it most efficiently and cheaply. OTHER EUROPEAN BANKS IN SOUTH AMERICA. RECENTLY FORMED EUROPEAN BANKS. Banque Frangaise et Italienne pour TAmerique du Sud. Capital, 25,000,000 franca ($4,825,000), all paid up; reserves, 8,889,678.10 francs ($1,715,707.87); dividend, 6 per cent. Head office, Pans. Branches: Rio de Janeiro, Sao Paulo, Santos, and Curityba in Brazil; Buenos Aires, Argentina. Banco Suizo-Sud Americano. Authorized capital, 20,000,000 francs ($3,860,000); paid up capital, 10,000,000 francs ($1,930,000). Head office, Sweizerische Sudameri- kanische Bank, in Zurich, Switzerland. Branch: Buenos Aires, Argentina. BANQUE FRAN£AISE ET ITALIENNE. That over-sea banking is an enterprise capable of making its own way and by no means depends solely upon an established trade is illustrated by the recent successful establishment of the two above- named institutions. The head office of the Banque Frani?aise et ItaUenne is in Paris, and its name indicates the nationality of its origin. Its declared purpose is to develop trade between France and Italy and South America. Brazil was selected as the zone of its initial operations in 1910. The total trade of France and Italy with Brazil at this time was $56,926,279. The total trade of the United States with Brazil in 1912 was valued at $189,789,604. A com- mercial depression overtook Brazil before the bank had been long estabUsheo, but while proceeding cautiously the administration found it advisable to extend operations to Buenos Aires, where a buanch was estabhshed in 1911. The capital is 25,000,000 francs ($4,825,000). _ Since this institution offers the best example of a foreign bank feeling its way into foreign markets where older institutions are firmly 24 BANKING AND CEEDIT. intenched, and since its object is the promotion of trade largely pro- empted by other European nations, an official description of its organization is of peculiar interest to the United States: In addition to the head office in Paris, branches are maintained at Santos, Rio de Janeiro, Sao Paulo, Curityba; agencies at Ribeirao, Preto, San Carlos, Botucatu, Espirito, Santo do Pinhal, Mococa, Sao Jose do Rio Pardo, Jahu, and Ponta Grossa, in Brazil. The registered capital, as already mentioned, is 25,000,000 francs, divided into 50,000 shares of the nominal value of 500 francs, 50 per cent paid up. The divi- dends are 6 per cent per annum. The bank is a'dministered by a council of 11 mem- bers, and 21 is the maximum number. The council is nominated at a general meeting of shareholders for a term of six years. The shareholders also appoint a council of inspection. Division of profits is made as follows: Five per cent at least for the formation of a reserve fund, until the reserve fund reaches 25 per cent of the capital; 6 per cent dividend upon paid-up capital; 10 per cent of the remaining profits for the adminis- tration. The balance is divided among the shareholders and the bearers of founders' stock in the proportion of 80 per cent to the former and 20 per cent to the latter, sub- ject to the provision that, after the withdrawal of the sums required for the reserve fund, the payment of a dividend, and 10 per cent for administration, the general meet- ing is authorized to further withdraw, before making any other distribution, a sum for the purpose of constituting a special and extraordinary reserve fund, of which the purpose and amount shall be determined by the meeting. Of these amounts which may be applied to the special reserve fund, 80 per cent belongs to the shareholders and 20 per cent to the bearers of founders' stock, while these will bear in the same proportion any loss which may ultimately occur, and which had been covered with the part of the reserve fund belonging to them. At any time the general meeting may, but only by proposal of the administration, resolve to divide the whole or part of the special reserve fund among those who are entitled to it. This division is to be made proportionately to the part of the same belonging to the shareholders, whether the object be to redeem the founders' stock or any other. The amounts represented by the redemption of founders' stock, it is provided, shall be the exclusive property of the shareholders, in accordance with the paragraph preceding the last but one of article No. 49 of the by-laws, and the sums so produced may be dis- tributed amoi^ the shareholders, or may be carried to a special and extraordinary reserve fund, which shall be the sole property of these shareholders. The proposals for the disposal of the funds of the special reserve fund emanating from the council of administration may only be rejected by a majority of at least two-thirds of the shares represented at the meetii^. — Twentieth Century Impressions of Brazil. The Banque Franpaise et Italienne found an ample field of opera- tion despite the firm position of British and Gorman banks. Its success seems to have been attained precisely as most new banks succeed in the United States, by expeditious methods and alertness in pursuit of business. In 1912 it participated with certain London houses in a loan to the municipality of Sao Paulo, and in concert with an English group created the Pernambuco Tramways Power Co. for the purpose of supplying Pernambuco with rapid transit and electric power. The desire of Brazilian cities, profiting from the example of E,io de Janeiro, to improve, beautify, and sanitate has . created a large demand for foreign funds, while, of course, oppor- tunities for railroad investment are unceasing. Although this bank maintains relations with American banks, it has found in the United States no outlet for South American bonds. A favorable environment for the entrance of a French and Italian bank existed in the large ItaUan element in Brazil's population. No less than 1,500,000 persons of Italian birth arc said to hve in the Republic. "The Banco Suizo-Sud Americano drew its president from the direc- torate of the Deutsche Bank, from which he thereupon retired. ABGENTINA, BRAZIL, CHILE, AND PERU. 25 EUROPEAN HOLDINGS IN NATIVE BANES. While the financing of South America's over-sea trade is largely in the hands of European banks, a considerable number of the banlis native to the great Repubhcs have developed foreign business. For- eign capital has been invested in many of them, but the extent of these holdings is difficult to estimate. The bonds of the Banco Espanol de Rio de la Plata, for instance, are quoted on the London Stock Exchange, and this is often referred to as a British institution, although it is organized under Argentine law, with its head office at Buenos Aires. The Banco de Chile is one of the great South American banks maintaining a London agency. Foreign exchange is subject in Brazil to the influence of the Bank of Brazil, and is largely controlled in Argentina by the operations of the Banco de la Nacion Argentina, which has borne such an important function in the recovery of the Republic from the crash of the early nineties and the development of subsequent prosperity. PRIVATE BANKS AND TRUST COMPANIES. Private banking houses, some of which, especially in Argentina, ma,intain the best traditions of this class of finance, play an important part in the business of the great South American countries, but they operate more extensively in domestic industry than in foreign com- merce. Foreign capital also is largely invested in mortgage loan companies and trust companies. These institutions are active agencies for the encouragement and accomplishment of foreign investment. BANKING AND CREDIT IN ARGENTINA. The principal foreign banks in Argentina are: London and River Plate Bank (Ltd.) (British) ; Anglo-South American Bank (Ltd.) (Brit- ish); London and Brazilian Bank (Ltd.) (British); British Bank of South America (Ltd.) (British) ; Banco Aleman Transatlantico (Ger- man); Banco Germanico de la America del Sud (German); Banco Frances e Italiano para la America del Sud (French and Itahan) ; Banco Suizo-Sud Americano (Swiss). The chief Argentine national banks are: Banco de Galicia y Buenos Aires; Banco de Provincia de Buenos Aires (branches in Province of Buenos Aires); Banco Espanol del Rio de la Plata; Banco de Italia y Rio de la Plata; Banco Frances del Rio de la Plata; Castilla y Rio de la Plata; Comercio; Comercial Italiano; Del Rio de la Plata; Espana y America; Frances e Italiano; Hispano-Sud Americano; Naci6n Argentina; Nuevo Itahano; Popular Argentino. ACCOUNTS OF BANKS IN BUENOS AIRES. The following consolidated statement of the business of banks in Buenos Aires, recently issued, gives a fair idea of the distribution of their business. Argentine money has been converted to American currency on the basis of $0,965 to the gold peso and $0.4246 to the paper peso. 26 BANKING AND OBEDIT. Bon^. Deposits In current ac- counts and savings. Gold. Paper. Loans and discounts. Gold. Paper. Alem&n Transatl&ntioo Anslo-Sud Americano Britteico de la America del Sud CastiUa y Rio de la Plata. Comercio , Comercial Italiano Espafia 7 America Espafioldel Rio dels Plata Franc(5s e Italiano a Francfe del Rio de la Plata , Galiciay Buenos Aires Oerm&nico de la America del Sud Hispano-Sud Americano Italia y Rio de la Plata Londresy Brasil Londres y Rio de la Plata :. NaciJliovn Tfftl i>nn Suizo-Sud Americano 1,930,000 135,100 Eight banks with less than 1,000,000 pesos capital - 962,630 Total 69,066,308.67 177,059,611.61 88,911,503 159,136,014 MONETARY SYSTEM. The currency of Argontina is stable on a gold exchange standard basis, protected by the Caja de Coayersion (Government office for the conversion of currency), which is thus authoritatively described: This Government institution, which is under the control of the Ministry of Finance, was instituted for the purpose of dealing with the issue, exchange, and conversion of the paper currency of the country, and to hold a supply of gold as guaranty for the convertible value of the paper currency which it issues. Paper is the chief cur- rency of the country; little or no gold circulates and a very small AKGENTINA, BRAZIL, CHILE, AND PBEU. 27 quantity of nickel and copper coinage. Until the year 1899 there was no cash guaranty for the paper currency, consequently heavy fluctuations in its value were very frequent. Owing to the depre- ciation of the paper currency in November, 1898, and in the latter half of the year 1899 there was a heavy fall in the quantity of gold given as an equivalent for the paper; and as the price of foreign exchange is the price of the paper in gold, the depreciatioi;i of the paper was indicated by the foreign exchanges. Hence it was thought desirable to bring in a law to prevent a further fall in the exchanges, or in the value of the paper, and thus to maintain the value of the national paper currency. Not having a gold fund to redeem the paper at its original par, the plan was adopted of issuing notes at a fixed rate for gold. This is only a step toward an ult'unate redemption in gold; and it involved an acceptance of the depreciation, and a recognition of some point at which the paper would be valued in gold. Thus the Government agreed to receive deposits of gold in the Caja de Conversion, giving for 44 centavos of gold deposited a paper peso. At the same time the Government ceased to issue notes except for gold. For this purpose law No. 3871, known as the conversion law, was passed by Congress on October 31, 1899. The main provisions of the law are: (1) That the total issue of paper money should be convertible at the rate of 44 centavos gold for each 100 centavos paper, thux fixing the minimum official value of $227.27 m/n for each 100 pesos gold. (2) That the executive should determine the time at which such conversion should take effect. (3) That a conversion fund should be formed exclusively for the guaranty of the paper currency. (4) That certain specified resources should be appropriated to the formation of the said fund, these being (a) the proceecis of the addi- tional 5 per cent duty on all imports; (6) the profits made by the Banco de la Naci6n; (c) the product of the Uquidation of the Banco Nacional; (d) the price realized by the sale of the Andine Railway; (e) the sum of $6,967,650 gold in national cedulas, the property of the Government and at that time deposited in London ; and (/) such other assets or resources as may be annually set aside for the purpose. It was also enacted that the Caja de Conversion should be author- ized to issue the necessary number of notes to effect the exchange of $1 paper for each 44 centavos gold deposited; and also to return an equal sum in gold at that rate in exchange for the papsr presented. On December 31, 1912, the total paper circulation was $786,119,171 paper, equivalent to $345,892,435.24 Argentine gold, against which was held by the Government $252,875,530 gold, a proportion of $71,877 gold to each $100 of paper. BANCO DE LA NACION ARGENTINA. The largest and greatest of all the Argentine banks is the Banco de la Naci6n Argentina. Its history is thus given in an official publi- cation: The Bank of the Argentine Nation was created by law No. 2841 of October 15, 1891, SB a shareholders' bank. The rights and privileges which had been conceded to the extinct national bank (national funds, judicial deposits, and exemption from taxes) 28 BANKING AND CREDIT. were accorded to it; and its capital was fixed at $50,000,000 currency (Argentine), divided into 500,000 shares of $100 currency. The bank was founded, like some of its congeners of the Old World, which to-day are in the first rank in the banking world, on the basis of a debt and in times so critical that nothing but the faith, the confidence, and the energy of the then president of the Republic, Dr. Carlos Pellegrini, could have secured the triumph of a law which was bitterly opposed by the press, the banks, and a great part of the trading community. The new institution arose on the ruins of the two great official banks (the Provincial Bank and the National Bank), and it had to commence operations at once, without waiting for the subscription of the shares, with a provisional board of directors, ap- pointed by the Executive,_ and a debt contracted with the Caja de Conversion (Issue Department), which, on its side, had been authorized to issue the fifty millions assigned to the bank as capital. In an atmosphere of hostility, in the midst of a crisis which had shaken to its depths oui economic organization, bereft of public confidence, without any save official ele- ments, but with a board of directors who were men of the first rank in ovi social and commercial order, the Bank of the Argentine Nation opened its doors on the 1st of December, 1891. The law laid down that the bank should return to the Issue Department the funds received in proportion as the shares issued were taken up. The Issue Department on its side was to burn these notes, crediting the sums handed over by the bank to the account for notes so issued in advance, until it should be entirely closed. The issue of shares, having been made at an unpropitious moment, did not meet with the success expected, and the result was that the bank continued to work in a form which, if not irregular, was at least not that contemplated by the terms of the law of its creation, seeing that it had not comphed with the conditions laid down. It was, therefore, lacking in the stability which the importance of its development called for. Law No. 4507 of September 30, 1904, put an end to this ambiguous situation. The bank was definitely recognized as a state bank, the nation assuming responsibility for all its operations. The capital was fixed at the fifty millions originally granted to it, and the Issue Department was ordered to cancel the debt contracted for this issue, as well as the bond for 500,000 shares which the bank had given it. Laws 5129 and 5681 provided for the increase of the capital by $50,000,000 currency (Argentine), so that It was now fixed at $100,000,000 currency. But, as by article 20 of law No. 4507, the profits of the bank are to be applied one-half to the increase of capital and the remainder converted into gold, to reserve fund, the actual capital of the bank amounts to $113,422,656 currency and the reserve fund to $8,151,376 gold. The action of the bank is felt everywhere; in many cases branches have been estab- lished in isolated districts of our territory, .more for patriotic than for commercial reasons, thus contributing by their direct action to the strengthening of our sover- eignty by an economic domination in districts where even our money does not circu- late. The branches now number 142. The profits of the bank from 1891 to 1910 amounted to $50,010,586 paper. By its large deahngs of foreign drafts the- Bank of the Argentine Nation is able, to a considerable extent, to control the exchange market. FOREIGN TRADE OF ARGENTINA. Argentina's foreign trade in recent years has grown raore rapidly proportionately than that ol any other nation. The following table shows the distribution of the trade among the principal countries of the world during 1909, 1910, 1911, and 1912, conversions being made from Argentine currency on the basis of $0,965 to the Argentine gold peso: IMPORTS. Countries. 19H United Kingdom.. Germany United atates France Italy Belgium Spain Brazil British possessions $95,726,330 42,996,318 41,6tSl,420 29,723,092 20,927,722 13, 095, 121 9,000,238 7,891,682 6,826,998 $105,649,185 68,989,377 46,724,231 32,742,868 30,663,951 18,913,018 10,629,028 8,784,968 6,742,628 $104,835,120 63,657,034 60,521,021 36,695,626 28,318,870 18,803,229 10,884,684 8,165,266 4,337,665 $114,515,803 61,703,560 67,067,508 36,301,928 31,350,102 19,667,561 11,510,816 9,213,083 6,879,869 ABGENTIITA, BRAZIL, CHILE, AND PERU. IMPORTS— Continued. 29 countries. 1909 1910 1911 1912 Austria-Hungary.. Netlierlands Uruguay Sweden Canada... Switzerland Paraguay Korway Cuba All other coimtries Total f2, 862, 964 2, 133, 721 2,409,230 820,377 1,825,328 2,478,866 1,602,068 873,791 625,794 4,779,684 $3,344,801 2,429,087 2,183,210 1,159,012 2,487,293 2,433,338 1,500,360 977,274 820,936 3,484,218 $4,153,471 2,873,518 2,962,210 1,608,312 2,782,829 2,766,871 2,857,744 1,004,684 786,250 6,058,008 $3,355,117 3,321,209 2,409,521 2,210,049 2,186,938 2,106,981 2,053,043 1,417,386 1,066,692 4,066,442 292,159,632 339,458,683 353,972,312 371,383,598 EXPORTS. United Kingdom. . Germany Belgium France United States Braiil Italy Netherlands Uruguay Spam Austria-Hungary.. Chile Sweden Norway Paraguay All other countries. Unorders Total $77,918,989 39,905,965 39,861,061 37,631,144 25,154,452 16,046,419 12,193,480 5,840,652 1,316,164 3,088,250 1,210,688 2,578,062 743,762 408,343 145,211 6,689,114 113,713,624 383,443,280 $77,964,748 43,477,898 29,413,917 36,440,052 24,437,236 16,928,055 10,108,242 4,149,990 1,480,271 2,769,824 .1,802,331 2,611,836 717,183 242,453 138,236 6,751,249 100,150,822 359,684,143 $83,626,788 41.565,459 34,378,709 38,303,199 23,449,948 17,248,512 13, 111, 130 6,219,043 2,258,981 2,101,505 2,314,143 2,884,091 969,062 554,559 414,630 3,852,672 35,084,693 313,333,124 $117,125,290 52,105,344 35,954,187 34,790,189 31,257,458 21,853,739 20,407,783 15,468,270 4,549,473 3,457,108 2,795,410 2,370,310 1,443,688 1,741,575 1,177,227 6,200,720 110,881,887 463,577,658 Most of Argentine imports are manufactured products and prac- tically all the exports are natural products — grains, meats, hides, wool, quebracho, etc. Flour is an Argentine manufacture exported in considerable quantities to Brazil. The United States is Areentma's best customer for hides, and an increasing purchaser of wool and meats. The proportion of manufactures in the exports from the United States to Argentina is increasing, although the trade in textiles and other highly finished manufactures is largely held bjftEuropean nations. BUSINESS CONDFTIONS. The same curtailment of foreign investment and withdrawal of loans that brought on commercial depression in Brazil created a monetary stringency in Argentina. Active land speculation had inflated values, and credits were widely extended. "Camp land," or rural property, was sold everywhere, often without inspection. Land values in the cities held stronger, for in Buenos Aires old famihes retain possession of land like old families in New York. Projected railroad construction was suspended and men were thrown out of work. Unsatisfactory crops aggravated the situation. Many wealthy Argentinians living abroad on the income from their estancias and from their successful enterprises and speculations were obliged to return home. Sound economists see in this result of the crisis a considerable good; for the disposition of a generation of wealthy Argentinians to live in Europe on the income from their inherited property was a source of weakness to the nation and of discontent to the working classes. 32 BANKING AND CREDIT. Banks in' Argentina are subject to no Government supervision approximating the examination of national and State banks ra the United States. The head offices maintain a supervision somewhat like that exercised by Canadian banks over their numerous branches. Whether a branch of an American national bank in South America would be. permitted by the Federal Reserve Board or the Comptroller of the Currency to participate in the banking policy general in Buenos Aires is a query that suggests itself. Certainly nothing like the unsecured overdrafts characteristic of banking in Buenos Aires is now permitted in the national banks of the United States. The new United States currency law stipulates that national banks maintaining foreign branches shall render separate reports for each branch. Such Eractice is unknown in the operation of the great European banks with ranches in South America. Until 1900 these institutions did not render statements of their separate branches in Argentina. KINDS OF COMMERCIAL PAPER. Successful banking in Argentina requires a close knowledge of local conditions and the swift changes that sometimes occur in the business world. Promissory notes are extensively used, although with but one name. With the development of the meat packing and exporting industry by American interests, who have thus mvested several million dollars, an effort is being made to obtain legislation necessary to give "cattle paper " the advantageous quality that it occupies in the United States. In Argentina the deficiencies of this kind of paper are apparent. Cattle breeders and farmers in that country operate by opening a current account in two or three banks, depositing from one to another, alternating the preference of balances, and in accordance with their needs requesting the desired loan on a six months' note. If, on the approach of maturity, they need the money for a longer period, they borrow it from another bank and continue this process until their cattle and grain are ready for sale. The negotiable paper accepted in Buenos Aires consists of promis- sory notes, or time drafts, up to 180 days. Purchases by the United States are usually covered with cash or drafts against the purchase through foreign bankers. When the Argentine producer or merchant accepts a draft for payment of exports to the United States, he dis- counts it at an Argentine or a foreign bank. INTEREST ON BANK DEPOSITS — DISCOUNT RATES. The Anglo-South American Bank (Ltd.), on March 12, 1914, was advertising in the press these rates of interest paid on deposits:' Paper. Gold. On deposits in current account up to $200,000 (Argentine) Per cent. Per cem. Na On fixed deposits: One montU Two months Three months Six months In savings funds up to $10,000 paper and after CO days i* ABGENTINA, BRAZIL, CHILE, AND PERU. 33 Discount rates charged on overdraft in current account was 9 per cent. The discoimt rate in Argentina varies from 6 to 12 per cent, according to business conditions. During 1913 and 1914 it averaged 8^ to 9 per cent. Loans, however, were greatly restricted. LIMITED USE OF CHECKS. In marked contrast with the universal use of checks in the United States, where more than 90 per cent of business is thus transacted, checks are but sparingly used in Argentina, except by large houses. The visitor in any business house in Buenos Aires will notice a sign reading something like this: "We pay our bills once a month, on the third Monday, between 2^ and 4." Such a house on the third Monday, between the hours mentioned, is invaded by the collectors of all its creditors, who receive their pay- ment in cash. This necessitates the drawing of a very large sum of money from the banks in cash, and since Argentine currency in com- mon use is of smaller denominations than American Treasury notes, the slow processes of Argentine banks, of which Americans generally complain, may partially be attributed to the necessity of handling- large sums of currency. It was estimated in 1912 that of the $800,000,000 of paper issued by the Government one-half was held by the banks, and the rest was in the pockets of the public. This condition is due to the fact that for many years the issuance of fraudulent checks was not punishable. A law was recently enacted to protect checks. Banks will not accept typewritten checks. CLEARING HOUSE. The clearing house now operating was established January 2, 1913, as a result of an agreement entered into between the Banco de la Nacion Argentina and the other principal banks of Buenos Aires. The clearing house is located in the Banco de la Nacion Argentina and superseded the private clearing house previously maintained by the London and River Plate Bank. The admission of a new bank to the clearing house will be determined by vote of the member banks. EMINENT POSITION OF FOREIGN BANKS. The realization of the eminent position of the great foreign banks in Argentina is forced upon the visitor who halts in Buenos Aires at the corner of Reconquista and Bartolome Mitre. This is the heart of the financial and commercial district. Real-estate values here are enormous. The four corners are occupied, respectively, by the London and River Plate Bank, London and Brazilian Bank, British Bank of South America, and the Banco Alem^n Transatlantico. To'Americans it may appear that the foreign and domestic banks take great risks, and this is unquestionably true; but the dividends of the most responsible institutions during a long period have shown that the businesses are wisely managed. Discount rates in easy times rule down to 6 per cent, rising in a crisis to 12 per cent. In 1913 and 1914, 8^ per cent was about the average. S. Doc. 659, 63-3 3 34 BANKING AND CREDIT. CREDIT INFORMATION. The credit-information service of the Argentine banks, particu- larly foreign banks, is an important part of their business. Not only are they called upon for evidence as to the credit reliability, strength, and character of Argentine business men, but also to reply to the inquiries of European investors. With the business community in the Argentine affected not only by the fate of old members in the ups and downs of the commercial and speculative struggle, but also by the arrival of newcomers with capital or with promotion projects, the maintenance of up-to-the-minute credit information is difficult and complex. A newcomer in the business world of Buenos Aires usually brings a letter of introduction to a British, German, or Argentine bank. Immediately a record is made of the letter and of any information which the bearer discloses regarding himself, his business connections, or his intentions. This is added to from time to time as information comes to hand, and if the newcomer projects any business enterprise, the bank looks him up in the country of his origin. Gradually the banks acquire a large fund of information regarding not only the individual's business standing, but his personal associations, habits, intimate friends, etc. Inside credit information is considered a great asset by the banks, but the system by which it is gathered apparently stops short of free and unrestricted exchange of infor- mation between banks. Banlcs supply credit information, in their own way, to customers "and others whom it suits their convenience to oblige. During strin- fencies credit ratings rapidly vary, and the facihties of banks for eeping informed of the vicissitudes of merchants and others are superior to those of other institutions. A New York company maintains offices in Buenos Aires with the ramifications of its service extending throughout Argentina, Para- guay, and Uruguay. The method of gathering and supplying this information to the business world is much the same as in the United States. Business men in Argentina are now accustomed to be called upon for credit information of their enterprises, which is obtained without great difficulty so far as the willingness of the individual is concerned. An Argentine credit agency also operates, with head- quarters in Buenos Aires. FOREIGN COLONIES IN ARGENTINA. Argentina is one of the most cosmopolitan countries of South Amer- ica. The Italian and Spanish element predominates, more than 2,000,000 Italians and 1,000,000 Spaniards naving come to Argentina up to 1910. The English population exceeds 45,000, of whom 20,000 to 25,000 Hve in and near Buenos Aires. There is a steady inflow of Itahan, Spanish, French, Austro-Hungarian, and German immigra- tion, offset by an emigration of laborers who come only to work in the harvest field and retm-n to their European homes with their earnings. NEW YORK EXCHANGE IN BUENOS AIRES. While the balance of trade is against the United States in Brazil, it is in favor of the United States ui Argentina. The exports from the United States to Argentina ui 1912 were valued at $57,057,908 AEGENTINA, BRAZIL, CHILE, AND PERU. 35 United States currency, and the imports from Argentina at 131,257,458, a trade balance adverse to Argentina by $25,800,050, This is one obstacle to the maintenance of equable exchange. The difference between exports and imports in Great Britain's trade with Argentina is less than $3,000,000. The investment of American capital in Argentine meat packing is tending somewhat to diminish this adverse balance, and smce the meat shipments are regular and not seasonal and the packing interests have at heart the cultivation of closer relations between the two countries, an increase is felt in the demand for bills on New York. The following answers, suppUed by a prominent American mer- cantile house in Buenos Aires, express the prevalent view of this and related subjects: Q. Could a market be created in Buenoa Aires for New York exchange? A. The market already exists, and an American bank ought to be able to sectue s fair share of the business which now goes through London. Q. Would characteristic American banking methods in an American bank in Argentina further facilitate the transaction of trade with the United States? A. The bank would have to mold itself to the conditions prevailing in the country, and the adoption of characteristics purely American would have to be decided by the management of the bank as experience is gained. Q. Would an American hank in Argentina stimulate the development of the export and import trade between Argentina and the United States? A. Yes, beyond any doubt. Q. What sentimental advantage would accrue to American business from the estab-* lishment of American banks in Argentina? A. There is absolutely no sentiment in the business. The bank offering the best conditionB obtains the biisiness. Of course, banks often have more than they care to handle of a certain line, and then the merchants are compelled to apply to other banks or institutions. It is only natural that Americans would favor the bank, but it is customary to ask rates from several banks when remittances are being made, and accept the most favorable. Q. Coiild an American bank develop a profitable exchange business? A. Can not see any reason why an American bank could not develop a profitable exchange business. Q. If an American bank were established in Argentina with full authority to loan on mortgages, participate in financing of Federal, State, and municipal loans as well as industrial and agricultural and railroad issues, and transact a general domestic aS well as foreign and exchange business, would it exercise a favorable effect on the growth of American trade? A. Yes. In our opinion, an American bank Would be a very important factor in the development of American trade and woiild especially assist in giving more confi- dence to the Argentine merchant, w^ho is not at present favorably disposed to deal with Americans in general. DISADVANTAGE OF NEW YORK EXCHANGE. AU banks in Buenos Aires are obUged to meet the competition of the Banco de la Naci6n Argentina in all departments of banking. By the purchase of vast quantities of foreign drafts the bank has pre- vented violent fluctuations of the exchange rate. In 1910 the total value of the foreign drafts purchased reached $127,597,493 gold. Ex- change transactions constitute a profitable part of the foreign banks' business. Although the Banco de la Nacion Argentina is organized entirely for the national welfare, and its discount rates usually rule lower than those of the commercial banks, its earnings up to 1909 totaled $50,010,586. To test the claim that in South American commercial centers the disparity between exchange on London and New York is adverse to the latter, a calculation was made on the basis of the quotations in 34 BANKING AND CREDIT. CREDIT INFORMATION. The credit-information service of the Argentine banks, particu- larly foreign banks, is an important part of their business. Not only are they called upon for evidence as to the credit reliability, strength, and character of Argentine business men, but also to reply to the inquiries of European investors. With the business community in the Argentine affected not only by the fate of old members in the ups and downs of the commercial and speculative struggle, but also by the arrival of newcomers with capital or with promotion projects, the maintenance of up-to-the-minute credit information is difficult and complex. A newcomer in the business world of Buenos Aires usually brings a letter of introduction to a British, German, or Argentine bank. Immediately a record is made of the letter and of any information which the bearer discloses regarding himself, his business connections, or his intentions. This is added to from time to time as information comes to hand, and if the newcomer projects any business enterprise, the bank looks him up in the country of his origin. Gradually the banks acquire a large fund of information regarding not only the individual's business standing, but his personal associations, habits, intimate friends, etc. Inside credit information is considered a great asset by the banks, but the system by which it is gathered apparently stops short of free and unrestricted exchange of infor- mation between banks. Banks supply credit information, in their own way, to customers "and others whom it suits their convenience to oblige. During strin- fencies credit ratings rapidly vary, and the facihties of banks for eeping informed of the vicissitudes of merchants and others are superior to those of other institutions. A New York company maintains offices in Buenos Aires with the ramffications of its service extending throughout Argentina, Para- guay, and Uruguay. The method of gathering and supplying this information to the business world is much the same as in the United States. Business men in Argentina are now accustomed to be called upon for credit information of their enterprises, which is obtained without great difficulty so far as the willingness of the individual is concerned. An Argentine credit agency also operates, with head- quarters in Buenos Aires. FORE3GN COLONIES IN ARGENTINA. Argentina is one of the most cosmopolitan countries of South Amer- ica. The Italian and Spanish element predominates, more than 2,000,000 Italians and 1,000,000 Spaniards naving come to Argentina up to 1910. The English population exceeds 45,000, of whom 20,000 to 25,000 live in and near Buenos Aires. There is a steady inflow of Itahan, Spanish, French, Austro-Himgarian, and German immigra- tion, offset by an emigration of laborers who come only to work in the harvest field and return to their European homes with their earnings. NEW YORK EXCHANGE IN BUENOS AIRES. While the balance of trade is against the United States in Brazil, it is in favor of the United States in Argentina. The exports from the United States to Argentina in 1912 were valued at $57,057,508 ARGENTINA, BEAZIL, CHILE, AND PERU. 35 United States currency, and the imports from Argentina at $31,257,458, a trade balance adverse to Argentina by $25,800,050. This is one obstacle to the maintenance of equable exchange. The difference between exports and imports in Great Britain's trade with Argentina is less than $3,000,000. The investment of American capital in Argentine meat packing is tending somewhat to diminish this adverse balance, and since the meat shipments are regular and not seasonal and the packing interests have at heart the cultivation of closer relations between the two countries, an increase is felt in the demand for bills on New York. The following answers, suppUed by a prominent American mer- cantile house in Buenos Aires, express the prevalent view of this and related subjects: Q. Could a market be created in Buenos Aires for New York exchange? A. The market already exists, and an American bank ought to be able to secure & fair share of the business which now goes through London. Q. Would characteristic American banking methods in an American bank in Argentina further facilitate the transaction of trade with the United States? A. The bank would have to mold itself to the conditions prevailing in the country, and the adoption of characteristics purely American would have to be decided by the management of the bank as experience is gained. Q. Would an American bank in Argentina stimulate the development of the export and import trade between Argentina and the United States? A. Yes, beyond any doubt. Q. What sentimental advantage would accrue to American business from the estab- Ushinent of American banks in Argentina? A. There is absolutely no sentiment in the business. The bank offering the best conditions obtains the business. Of course, banks often have more than they care to handle of a certain line, and then the merchants are compelled to apply to other banks or institutions. It is only natural that Americans would favor the bank, but it is customary to ask rates from several banks when remittances are being made, and accept the most favorable. Q. Could an Ajnerican bank develop a profitable exchange business? A. Can not see any reason why an American bank could not develop a profitable exchange business. Q. If an American bank were established in Argentina with full authority to loan on mortgages, participate in financing of Federal, State, and municipal loans as well as industrial and agricultural and railroad issues, and transact a general domestic as well as foreign and exchange business, would it exercise a favorable effect on the growth of American trade? A. Yes. In our opinion, an American bank would be a very important factor in the development of American trade and would especially assist in giving more confi- dence to the Argentine merchant, who is not at present favorably disposed to deal with Americans in general. DISADVANTAGE OF NEW YORK EXCHANGE. All banks in Buenos Aires are obliged to meet the competition of the Banco de la Nacion Argentina in all departments of banking. By the purchase of vast quantities of foreign drafts the bank has pre- vented violent fluctuations of the exchange rate. In 1910 the total value of the foreign drafts purchased reached $127,597,493 gold. Ex- change transactions constitute a profitable part of the foreign banks' business. Although the Banco de la Naci6n Argentina is organized entirely for the national welfare, and its discount rates usually rule lower than those of the commercial banks, its earnings up to 1909' totaled $50,010,586. To test the claim that in South American commercial centers the disparity between exchange on London and New York is adverse to the latter, a calculation was made on the basis of the quotations in 36 BANKING AND CKEDIT. Buenos Aires on March 10, 1914, which showed that London exchange would yield 97.04 and New York exchange only 96.61. The advant- age in favor of the seller of bills on London is ordinarily much greater; and, generally speaking, an American merchant in Buenos Aires has to pay more for New York than for London exchange when he desires to buy and gets less when he desires to sell. For these reasons it would seem that an American banking institution would have an opportunity to gain a fair margin in providing bills on New York. An influence against a market for drafts on New York in Buenos Aires is the fact that the center of origin of practically all European manufactures sold in Argentina is within a radius of but a few hun- dred miles from London. This includes London, Paris, Hamburg, Antwerp, and the markets of Belgium, Italy, France, and Spain. The London rate, therefore, varies only slightly from the rate on Paris, Hamburg, Antwerp, and other financial centers. As exports from Argentina to New York increase, there will be an increased de- mand for bills on New York. Hitherto New York has been paid by bills on London. The growing demand for drafts on New York has at- tracted the attention of the foreign bank managers. The display of interest in Argentina by American bankers has led them to expect competition from this source and a determined effort to handle bank- ing business with New York more directly. The establishment of an American bank in Buenos Aires that would carry a larger account in New York than the British bank is now willing to c^rry would con- tribute to this end. One of the most prominent financiers in Argen- tina made this statement: 1 do not see why the North Americans should not have a bank in Buenos Aires. Switzerland has one, and other smaller nations like Italy, Spain, and Belgium have successful banks, although the trade between these countries in South America is much smaller than that of the United States. The dividends of the banks in Argen- tina have been exceptionally large. If North Americans should start a bank and manage it well, no question exists but that it would succeed, as they have demon- strated to the world that they are good bankers and able business men. The present time by reason of the bad condition of business is an advantageous moment to inves- tigate the feasibility of the establishment of an American bank. BANKING AND CREDIT IN BRAZIL. The principal foreign banks in Brazil are: London and Brazilian Bank (Ltd.); London and Eiver Plate Bank (Ltd.); British Bank of South America (Ltd.); Banco EspanoldeRiodelaPlata; Banco AlemS,n Transatlantico ; Deutsch-Sijdamerjkanische Bank (Banco Germinico de la America delSud); BrasiJianischeBankfiirDeutschland; Banque Franf.aise et ItaJienne pour I'Amerique du Sud. The leading Brazilian banks are: Bank of Brazil; Banco Com-' mercia] ; Banco de Lavoura e do Commercio ; Banco da Provincia de Rio Grande do Sul; Banco Mercantil do Rio de Janeiro. MONETARY SYSTEM. Although Brazil adopted the gold standard the year that gold was discovered in California, the currency remained for many years Erior to 1897 an inconvertible paper. A conversion fund was estab- sbed December 22, 1906, by means of import duties collected in gold. Excessive issues of paper by the Government caused con- siderable change in the gold value of the paper and, consequently AEGENTINA, BBAZIL, CHILE, AOT) PEEXJ. 37 in the foreign gold exchange. The depreciation of the paper, there- fore, is registered by the quotation of foreign exchange. Lq fact, the situation is usually expressed in terms of the exchange. Sub- sequently, in 1910, the exchange rate of the Caixa de ConversSo ■was raised to 16 pence ($0.3244^) per mUreis. Before that date notes had been issued at an exchange rate of 15 pence ($0.3042) per mikeis; but under the new law the notes formerly issued at 15 pence were to be redeemed at 16 pence per mikeis. Within five years from the date of the decree of the new law, December 31, 1910, the Government shall accumulate in the Caixa de Conversao a sum in gold equal to the difference in the value of the notes resulting from the increase in rate from 15 pence to 16 pence. There are no bank notes. The gold milreis of Brazil has a nominal value in United States money of $0,546; or, expressed in terms of exchange on London, the nominal par of milreis in gold coin is 27 pence. As a result of the intention to convert the paper at 16 pence, the paper milreis is convertible at $0.3244^, or, in Enghsh money, at 16 pence. During 1912 foreign exchange averaged about 16 pence for sight drafts on London. The actual currency of the country is conrposed of convertible and inconvertible notes and silver coin. On December 31, 1912, the amount of Government convertible notes in circulation was 392,956,- 317,500 reis, which was covered by gold amounting to £25,780,402, or $1 25,460,326. At the same date the amount of inconvertible paper outstanding was 607,025,525,000 reis. The Conversion Office is required to cease issuing notes when the total circulation appraised at 16 pence per milreis shall reach 900,000,000 milreis, and the equivalent gold deposit shall amount to £60,000,000 ($291,990,000). Whenever withdrawals of gold take place the office may receive new deposits of gold and issue notes against it. The guaranty and redemption funds instituted under law No. 581 of June 20, 1899, are restored. The values to the credit of the guaranty fund shall continue to be applied as stipulated in said law. The values to the credit of the redemption fund shall, whenever the Government sees fit, be converted into gold and be deposited in the Conversion Office, for which convertible notes shall be substituted and applied to the redemption of paper money. COMMERCE WITH THE UNITED STATES. Commercial relations between the United States and Brazil show an enormous balance of trade against the United States. In 1912 the United States bought from Brazil goods valued at .$141,739,682, while Brazil pui'chased from the United States during the same year articles valued at $48,049,922. Germany was Brazil's next best customer, purchasing .$51,864,086 worth of products, while Brazil bought from Genrany $52,952,625. The United Kingdom came next, furchasing from Brazil $43,012,381, while Brazil bought from the Jnited Kingdom $77,519,726. Of these three countries, Brazil pur- chased the least from the one which bought from her the most and thereby contributed most to her prosperity. Millions of coffee drinkers in the United States have yielded more than any other people to the wealth of Brazil. Of the $141,739,682 of Brazilian exports to 38 BAWKIHTG AND CREDIT. the United States in 1912, the enormous shipments of coffee repre- sented $95,175,982. For nearly a decade Brazil has acknowledged the value or the American coffee market by extending a preferential concession of 20 per cent upon American manufactured paints, varnishes, and certain kinds of ink, pianos, condensed milk, scales, windmills, refrigerators, watches, clocks, manufactures of rubber, typewriters, corsets, cement, school furniture, desks, and dried fruits, and a similar concession of 30 per cent on wheat flour. These preferentials, however, are j^ro- vided only from year to year, and the advantage, it is claimea, is neutralized by reductions of freight rates by the European shipping combination in favor of European products. STEAMSHIP CONNECTIONS. The progress of Brazilian commerce shows that those nations enjoying the preponderance of its trade are the two great maritime and over-sea banking powers. Great Britain and Germany, li'or many years direct and regular steamship communication between the United States and Brazilian ports has depended on European lines. The United States and Brazil Steamship Line (United States Steel ( orporation) has now entered the field with three modem steamers, naving the lowest rates of insurance, which will leave New York once a month, on the 15th, to make Rio de Janeiro in about 20 days, also calling at Santos. The officials of the United States and Brazilian Line stated in Rio de Janeiro that th'e company is offering freights at a 10 per cent reduction from the figures of the opposition, so that real competition appears at last to have been provided, which may be expected to increase as the fleet of the new line grows in size. Brazil has direct and regular steamship connection with Europe through the Royal Mail, Lamport & Holt, Booth, Nelson, and Prince Lines (under the British flag); the Hamburg- Amer-can (German); Austrian Lloyd (Austrian); Rederie Aktiebolaget (Scandinavian); Transports Maritimes (French) ; Compagnie Sud-Atlantique (French) ; La Veloce, Lloyd Itahano, Lloyd babaudo. La Ligure BrasUiana (Italian); whde the Russian Volunteer i^leet plans a service from Odessa to Brazil. The contribution that a national merchant marine makes to a nation's foreign commerce is too self-evident to require argument or demonstration. Steamship service is here mentioned simply to show that the two nations which sell to Brazil more than the United States, although they buy less, have a distinct advantage in steamship con- nections. Moreover, frequent and swift steamship commmiication is a direct aid to over-sea banking. The situation, which is created by the banking as well as the ship- ping facilities between the United States and South America, has led to several unsuccessful efforts to establish independent steamship communication between New Orleans and the east coast of South America. James W. Porch, of New Orleans, several years ago, under a special enactment of the Louisiana Les;islature, organized the Mississippi Vallej^ South American Orient Steamship < o. (Pan-American Mailj. Various interests in the Mississippi Valley promised support, and the AEGENTINA, BEAZIL, CHILE, AND PERU. 39 northern and southern railroads displayed keen interest. Three British ships, the Income, Corona, and Aassama, were chartered and offered more cargo than they could carry for Brazil and Argentina. The directors of the company depended on return cargoes of coffee, believing that coffee importers in the Mississippi Valley would favor their vessels. These cargoes failed to materialize. Shippers seemed reluctant to desert the conference without substantial assurance of the survival of its new competitors. No other return cargo for points readily reached by rail through New Orleans was obtainable by the nev/ line, and after a loss of $50,000 the enterprise was abandoned. New Orleans was again left without any regular service to the east coast of South America. The foreign steamship companies insisted they were ready to provide the ships if the cargoes offered, but there was no stimulation of east coast export trade through New Orleans — no solicitation such as was indispensable to divert from shipment via New York the manufactured products of the Mississippi VaUey. Various foreign lines in 1913 began to discuss the establishment of service to Argentina and Brazil, and the Illinois Central Railroad, being interested, in the development of export trade through New Orleans, exerted its influence and announced that Houston & Co., Houlder, Weir & Boyd, the Prince Line, the Lamport & Holt Line, the Elder-Dempster Line, and Barber & Co., had agreed upon the monthly service from New Orleans to Argentina, each company providing a ship in turn. The sailings have actually taken place about once every two months. Y/'ith the expiration on April 30, 1 914, of many shipping contracts between manufacturers and railroads, returning via New York, it was expected that exports via New Orleans to Brazil would be stimulated. EUROPE REAPS BENEFIT OF UNrFED STATES COFFEE TRADE. Brazil's prosperity now rests upon coffee, the Amazon rubber indus- try having been crippled by oriental competition. The exports of coffee in 1913 were valued at $197,936,306. This coffee was sold by European bills and drafts, negotiable in Europe at their value in gold. The coffee growers, therefore, are paid in gold, but they pay their labor in paper. The $95,000,000 worth of coffee that the United States annually buys from. Brazil is potentially the greatest influence for increase of our sales to that republic. Actually this coffee consumption yields to the United States only a fraction of its natural benefits. By a system of commissions, the European shipping concerns control practically all the shipments of coffee from Rio de Janeiro and Santos to New York and New Orleans. About two-thirds of the coffee des- tined for the United States goes to New York and one-third to New Orleans. The traffic to New Orleans provides a striking example of the handicap imposed by rehance on foreign steamship communication and banking accommodations. An average of three ships a month are required to carry to New Orleans the 2.000,000 bags consigned to coffee roasters all through the southern and western portion of the United States. In a well-balanced trade these ships would be avail- able for return cargoes of such products and manufactures as the United States sells to Brazil. A considerable portion of these com- modities are produced in the Middle West and can often command lower freights to New Orleans than to New York. 40 BANKING AND CEEDIT. However, the ships of this coflfee fleet, all under foreign flags and all belonging to the European shipping concerns, make no effort to attract return cargoes. After discharging coffee, these ships are loaded with cotton and other raw materials required by European manufacturers. They steam away to Europe, where they take on cargoes of finished manufactures made largely from American raw materials. These are expeditiously carried to Brazil. Meanwhile coffee importers in New Orleans have had to pay. Since no American banks exist in South America, the channel of payment is through London banks. The coffee importer buys a letter of credit on London with which to satisfy the 90-day sight draft, which is drawn upon him by the Brazilian coffee exporter. For this the importer pays the charge of one-half of 1 per cent, or about 6 cents a bag (at the price of coffee early in 1914) ; but the vital and fundamen- tal economic error rests not in the commission, but in the fact that this transaction really transfers from New Orleans to London the obligation created by the purchase of the coffee. If this obligation could be Hquidated in American channels direct with Brazil, all its influence would be exerted in behaff of return sales to Brazil. It would operate in the direction of reduction of that adverse balance of trade. But, once a transaction is shifted to London, the influence is more beneficial to the sale of the European than of American products to Brazil. The foreign ships upon which we depend provide a smooth highway for Brazilian coffee mto New Orleans, grease the way for American raw materials to reach European mills, and expeditiously carry the European manufactures to Brazil, where they are paid for with the profits derived from the sale of coffee to the United States. The foreign steamships are so routed that they render their first service to the European exporter, and next to him they serve the Brazilian coffee grower. BUSINESS CONDrriONS IN BRAZIL. The effect of the Balkan war on the great money centers of Europe, causing a curtailment of loans to, and investment in. South American governmental and industrial projects, caused a depression in Brazil. This came at a peculiarly unfortunate moment, for the expenditures of the Federal and State Governments for large and progressive systems of public works required more funds than were available at home. Simultaneously, depression of the coffee and rubber markets in the State of Para contributed to the crisis. The Government has incurred annual deficits and is largely in arrears in its account with govern- mental contractors. Attacks upon the credit of the Federal Government of Brazil because it did not stand behind the Para treasury vouchers are unjustified, for the Federal Government has always declined to guarantee the loans of the States. The chief sources of Federal revenue are the tariff on imports, dues on navigation, and stamp, postal, and telegraph taxes. The resources of export taxation and railroad, industrial, and professional taxes belong solely to the States, and no intervention on the part of the Federal treasury is possible in the affairs of the States unless it is proscribed by previous enactment of the Federal Congress. ABGENTINA, BBAZIL, CHILE, AND PERU. 41 The depression served to turn public attention to the necessity for certain fiscal reforms that are considered indispensable to the health- ful future growth of the Republic. In the negotiations foreign banking interests, before making further loans, it is reported, are insisting upon retrenchment, which is vigorously urged by many prominent citizens. Economists long have pointed out the danger in Brazil's dependence upon its two great products, coflFee and rubber. This has been amply demonstrated in the coUapse of the rubber trade as a result of Far Eastern competition, and the Federal Government is doing eveiy- thing possible to stimulate a diversity of agricultural production. In the Amazon country everything has been sacrificed to rubber, although the region is ideally situated for cattle raising and the dairy industry. Foreign banking houses accustomed to take Brazilian bonds have their own methods of estimating the revenues and resources of the country. That Brazilian credit needs strengthening through reforms of the fiscal system is indicated by the campaign which Dr. Jose Carlos Rodrigues, proprietor of the Jornal do Commercio, is conducting through the colunans of that newspaper for a revision of the tariff. DIFFICULTIES OF IMPORT BUSINESS. The import business, which is largely in the hands of foreign trading houses, is large and profitable, but the transactions are complicated by the customs administration. It is exceedingly difficult to get shipments through the customs rapidly. Importers are indisposed to accept drafts until they have seen the goods and are satisfied that they comply with the orders and have arrived in good condition. Steam- ship communication with United States being less frequent than with Europe, the element of time works against the purchase of American goods. An American merchant at Sao Paulo states that while there is a monthly service from New York to Rio Grande do Sul, and other ports south of Santos, it often requires 70 days or more for shipments from New York to reach Rio Grande do Sul, while the same service from Hamburg requires a maximum of 30 days. Where steamship service is frequent and comparatively speedy, as from Europe, the consigaee gets his draft promptly, but where there are delays interest charges rapidly accumul ite and business is hampered. EFFECT OF CRISIS. At the time of the crisis banks were obliged to extend an unusual line of credit to many firms. A considerable number of failures occurred and more would have been forced but for the character- istic indisposition of Brazilian business men and foreign merchants engaged in business in Brazil to crowd their customers. The ex- perience of the trade is that crowding is unprofitable. American manufacturers, either ignorant or but shghtly informed of the nature of the commercial depression in Brazil, adhere to their rule of cash against documents at New York, or demand payment through 90-day sight drafts. No American bank exists to which the merchant can go for the credit that the American manufacturer is unable or unwilling to extend ; consequently many merchants find themselves helped through the crisis by the foreign banks and the European manufacturers and exporters who keep closely in touch 42 BANKING AND CREDIT. with the market. Interest rates, to be sure, have advanced and the merchant pays for all the accommodation he gets ; but a keen sense of association in hardship and a realization that the helpful credit can again be extended in time of need by the European systeni ot trade and finance influence the merchant to keep the trade in European channels. Up to the present time the American manufacturer and exporter has offered nothing approaching this convenience and security. An official registration office for protested documents is mamtamed in Rio de Janeiro. Documents are filed therein and, if not paid at maturity, are held for three days, protested, and held for another three days, awaiting payment after protest. If the creditor fails, his creditors may force an arrangement of his affairs, a majority of the creditors being able to bind the remainder. At this point the debtor usually goes before a judge to make an offer of settlement. ' For foreigners, litigation is seldom satisfactory and always expensive. A large business is done by certain mercantile houses in Govern- ment supplies, and these have been seriously affected by the Govern- ment's mability to pay since the crisis reached its height. The Government allows no interest on claims against it and will not permit their transfer from one party to another. The banks decune to advance money on Government claims ; but the best houses doing an established and profitable business with the Government receive liberal credit from the banks, the principal one borrowing at 9 per cent when many other merchants are paying 12. The credits that European manufacturers are able to extend to such merchants through the British and German banks assist them to survive the stringency. BRAZILIAN BANKING LAWS. A bank, as a limited company or joint-stock society, to be estab- lished in Brazil as a national bank must comply with the provisions set forth in the law regulating the constitution and admmistration of joint-stock companies. ODecree No. 434 of July 4, 18&1, arts. 65 to 80.) The following essential provisions are necessary: Article 65. No joiat-stock company can be definitely constituted until the whole capital haa been subscribed and a tenth part of the subscribed capital has been actually deposited in cash in a bank of issue or in some other subject to Government inspection or willing to submit to same for the purpose, as the majority of shareholders may decide. Art. 69. The deposit exacted by article 65 of this decree for the constitution of joint-stock companies refers not only to the original capital of the company, but likewise to any additional capital subsequently received; nor can the nominal capital of such companies be considered as havmg been legally augmented unless a 10 per cent deposit in cash of each consecutive increase should have been realized. Art. 70. For the constitution of joint-stock companies the cooperation of at least seven associates is essential. Art. 71. Joint-stock companies are constituted either by public deed executed before a notary, or by a resolution of subscribers at the general meetinc^ Art. 79. Duly constituted joint-stock companies can not commence' operations or legally perform any act until the followmg documents have been lodged in the archives of the Brazilian Board of Trade (Junta Commercial), or, failing that at the Reeistrv of Mortgages of the respective department (comarca): (1) The statutes or articles of association of the company; (2) a list showing the names of the shareholders with indication of the number of shares held and installments paid by each- (3) the cer- tificate of the deposit of the tenth part of the subscribed capital; (4) the minutes of installation of the general meeting and the appointment of the admiaiatration AKGENTINA, BRAZIL, CHILE, AND PERU. 43 AH other formalities are specified in detail in the above-mentioned articles of said decree No. 434 of July 4, 1891, to be found in English in "The Brazilian Year Book" for 1909. National banks or joint-stock companies are not supervised by the Government; the supervision is exercised by the board of supervision elected by the shareholders in accordance with their articles of association and the said decree No. 434. After such banks are established, they must pubUsh in the press, every month, the sum- marized balance sheet showing all business done by them. The Government does not interfere and it can not interfere in the manage- ment of these banks, nor does it exercise any direct supervision over them. These banks shall submit their accounts to their share- holders at the annual meetings, in accordance with the provisions set forth in their articles of association. FOREIGN BANKS, THEIR AGENCIES AND BRANCHES. Any foreign bank wishing to operate in Brazil must present a petition addressed to the Government making such request and join thereto a list of its shareholders, its memorandum and articles of association, charter of incorporation — all these documents to be duly legalized by the Brazilian consular authority in the country where the bank is originally established. If the bank is legally established in its own country and is regu- . larly carrying on business, the Government, as a rule, never refuses such licenses or authority. Article 47, decree No. 434 of July 4, 1891, contains the following provisions: All foreign banks or their branches or agencies require authorization from the Government in order to carry on business in the Republic, and must observe the following regulations: 1. Their articles of association must declare the term, never exceeding two years from the date of their authorization, within which at least two-thirds of the company's capital must be realized and transferred to this country. ■ 2. Such companies are subject to the same dispositions that control banks generally as regards intercourse, rights, and obligations between the company and its creditors, shareholders, and all other interested parties, with domicile m Brazil even if tem- porarily absent. 3. After obtaining said authorization, such companies must, under penalty of their being annulled, lodge with the Associapao Commercial, or, where no such exists, with the Registrar of Mortgages of the respective department (comarca), the statutes of the company, a hst of shareholders with note of the number of shares held and amount paid up by each, and the certificate of deposit of a tenth part of the capital, and, moreover, must publish in the Diario Offical (Official Gazette) and in the news- papers of the district, the notices exacted by_ this decree. 4. Foreign companies already established in this countrj'' must comply with the terms of the preceding paragraph within six months from the date of publication,of decree No. 164, of January 12, 1890, under penalty of forfeiting the right to operate in this RepubUc. No supervising officer is appointed by the Government for such banks. The Government has the right, according to BraziUan law, only to nominate supervising officers for banks of issue, and not for deposit or discount banks. The Brazihan Government obhges branch offices of foreign banks and other foreign joint-stock companies to have a representative in Brazil with the necessary powers to represent the said institutions before the Government and private parties. These banks also are obliged to publish monthly m the press a balance sheet showing operations. 44 BANKING AND OBBDIT. The taxes which they have to pay to operate are as follows : Letters patent (decree of authorization granted by the Govern- ment) . Stamp tax of 1$100 ($0,356 United States currency) per conto of reis ($324 United States currency) on the paid-up capital mtended for their operatioDs in Brazil; such tax to he calculated at the rate of exchange published in the Official Gazette on the same day on which the articles of association are registered. When operating, they pay, besides the tax named "industrias e profissSes " at the rate of 80$000 ($25.95 United States currency) yearly (fixed tax), a proportional tax of 20 per cent on the rent they pay for the building where they are estabhshed; also the tax of 2 J per cent on dividends that may be distributed by them in relation to their capital in Brazil. All these taxes are also paid by the national banks, these being, by law and decisions of the Supreme Federal Court, on the same footing as foreign banks for the purposes of payment of taxes. All foreign business institutions have the same standing as national institutions before the fiscal law. Other taxes are hkewise levied, as follows: By the National Treasury — Manager (annually), 300$000 ($97.33); accountant, 40$000 ($12.98) ; water tax or water meter (annually), in accordance with consumption. By the national prefecture — ^Bahk (annually) 2:528$000 ($820.17); manager (annually) 1:000$000 ($324.33); accountant (annually), 20$000 ($6.49); flag masts (each), 25$000 ($8.11); sanitary tax (dust bin), 120$000 ($38.93). The tax on the building (should it belong to the bank) is 12 per cent, half-yearly, on the rental value of same. The BraziUan law regulating joint-stock societies is very Hberal, and does not require a foreign joint-stock company to become natu- ralized. The Government makes only some slight alterations in the articles of association of a bank when they affect the fundamental provisions of the law regulating joint-stock companies. In their commercial relations and operations m this country the banks are subject to Brazilian law, no exception being permitted them to invoke the laws of their own country. With regard to their internal organization, shareholders' meetings, dividends, etc., they are subject to their own articles of association. The reduction of capital requires the approval of the Government, but such approval is not reqiiired to increase the capital. There are real estate banks issumg mortgage biUs, but none issuing bank notes. Banks of i-sue, by express stipulation of the Federd Constitution, require special authority from the Federal Congress. - CAPITAL, GUARANTEE, AND DEPOSFF BEQUIKED. The capital of the bank is not fixed by law ; it must be established by the founders of the bank so that it may be sufficient for the opera- tions it proposes to carry on. The Brazilian law of joint-stock companies (decree No. 434 of July 4, 1891) stipulates, in article 25, as regards the national joint- stock companies: "The shares of a company not enjoying public fuarantee of interest can not be legally negotiated until the company as been definitely constituted and 40 per cent of the subscribed capital has been paid up." ABGENTINA, BBAZIL, CHILE, AND PEEU. 45 As regards foreign companies, article 52 stipulates that the Gov- ernment, before authorizing a foreign bank to operate iu Brazil, shall examine submitted petitions in order to determine whether the capi- tal specified in the statutes is strfficient for the object of the company and whether its realization is properly seciu'ed and the dates of the installments determined in a manner to permit the company to meet its obligations. The Brazilian law does not require that the articles of association of foreign joint-stock companies be strictly adapted to its law regu- latiog joint-stock companies as is the case with national banks. EXPENSE OF BANKING IN BRAZII.. Foreign banks in Brazil share the bm-den of life in one of the most expensive countries ia the world. Real estate, rents, office equip- ment, and salaries are high in proportion. The foreign banks employ clerks of their own nationality, brmging them out from Europe under contract. The Enghsh banks pay their clerks $125 a month to start with and hold them to a five-year contract. In earlier da37B when housing conditions were poorer in Rio, the banks maintaiued "cha- caras," where the unmarried bank employees were given quarters, medical attendance, etc. ., In return for the absence of restrictions on the operations of banks in Brazil, the Federal and State governments impo 'e heavy taxes. The capital intended for operations in Brazil is taxed about $1 on every $1,000. A proportional tax of 20 per cent is levied on rentals and 2^ per cent on dividends distributed from the Brazihan capital. Other taxes are levied on the manager and certain subordinate officials. The State taxes are even higher. The State of Bahia taxes banks $6,600 annually, the State of Rio $3,333, while the city of Bahia alone imposes taxes of $4,000 a year. BANS ORGANIZATION. All the foreign banks in BrazU do a general banking business, occupy prominent and impressive quarters, and contribute materially to the prestige of the nations which they represent. For many years the bulk of the credit-information business has been in their hands, and merchants and traders of aU nationahties have been accustomed to rely upon banks for their information as to the financial rating and responsibility of customers in remote parts of the Repubhc. xt has been possible for British and German banks to supply this promptly, either through their own branches, estabhshed wherever business war- rants, through agencies which are sometimes trading houses of their own nationality with f acihties for banking business, or through rehable correspondents. Each foreign bank engaged in business in BrazU, therefore, has a network of branches, agencies, correspondents, and clients extending throughout the Republic. The parent bank in Lon- don or Berlin is kept supplied with recent credit information, readily accessible to chents. This credit-information service has been supple- mented within the last two yeais by the opening in Rio de Janeiro of an agency of a New York company, which previously was established in Buenos Aires, with ramifications of its system extending throughout the neighboring republics, excluding the west coast. The purpose of this house is to obtain commercial information much along the same 46 BANKING AND CREDIT. lines as in the United States, the data being sold to business houses at fixed rates. It is claimed for this class of service that shippers fre- quently require information and opinions of credit responsibility from other than a banking standpoint. For instance, this agency on one occasion rendered an adverse report on a certain Brazihan merchant. The merchant's bank heard of it, and the bank manager pointed out to the credit agency that the bank considered the merchant good and had loaned him $150,000, but as this was secured by collateral worth $175,000 the credit agency manager took the ground that the bank was not extending the borrower any credit at all, and that the adverse report was fuUy justified. The importance of foreign banking houses in Brazil is apparent in the comparative statements of the principal Brazilian and foreign banks during 1912. Practically all of Brazil's export and import trade is financed through foreign banlis in Rio" de Janeiro, Santos, Sao Paulo, Bahia, Pernambuco, and other important commercial cen- ters; and the foreign banks act as influential agencies in the invest- ment of fore^n capital. Viscount Goschen, chairman of the London County and Westminster Bank, estimates that during 1911, 1912, and 1913, $240j000,000 of British capital was invested in Brazil. Issues of Federal, State, and municipal bonds, as well as industrial and rail- way bonds, are offerBd through the London offices of the British banks in South America, which are exceptionally situated to give their ch- ents at home information upon Latin-American investments. When the commercial position and pohcy of Great -Britain and Germany are further exanained, evidences of advantage over the United States in their direct and powerful banking connections attract instant attention. Not only is the great bulk of Brazilian foreign commerce financed in bills of exchange on London, but the most powerful, reliable, and resourceful financial institutions in Brazil are British banks. A COMMUNITY OF INTEREST. Foreign banks, especially those which maintain a community of interest with industrial enterprises, naturally are more interested in accommodating a heavy purchaser of their national products than in tiding over a house that is pushing the merchandise of another nation. Other things being equal, the house handling German goods has reason to expect banking preference over a merchant of another nationality. To a Jesser degree this is true of the British banks. As competition is intensified, national lines in banking will probably be more t^htly drawn. CKEDrr INFOEMATION VITAL. It is not to be expected that in the campaign for Brazilian trade foreign banks will give credit information as readily to American concerns as to traders of their own nationahty. Americans can and do obtain credit mformation from foreign banks in South America but as a rule its possession results in no material stimulation of com- petition. If an American lumber or flour company asks a German or British bank for the financial rating of a certain Brazilian client or for specific information regarding the condition of his business the bank readily may comply, for the resulting sales in lumber or flour are noncompetitive. It is doubtful if inquiries preliminary to a AEGENTINA, BRAZIL, CHILE, AND PERU. 47 transaction in competitive manufactures would be so readily an ^vered. Credit information is a prime banking asset in Brazil, acquii'eJ only by timely, painstaking, and long-continued effort. No financial institution may be expected to part with it to occasional clients. Of course, where an American firm is an old and a profitable client of a foreign bank in Brazil, it may have access to credit information on the same terms as customers of the same nationality as the bank, just as it would receive equal credit. But, however convenient such an arrangement may appear, it possesses inherent weakness, just as the carriage of American goods in foreign bottoms is fundamentally dis- advantageous, although as cheap as it would be in American vessels, or cheaper, or as quick, or quicker. Foreign investment in Brazil, as elsewhere, usually stimulates imports from the country that provides the money. The French banking house of Perrier & Co. recently made a loan of $10,000,000 to the State of Minas Geraes, the fund to be loaned out in turn by the State to various municipalities for the perfection of municmal improvements, such as tramways and electric-lighting plants. The contracts executed between the State as lender and the municipahty as borrower stipulated that when other considerations were equal, preference should be accorded by the municipality to French materials and that in such purchases the municipalities should avaU them- selves of the mediation of the house of Perrier & Co. The conditions are set forth in the following extract from the Official Gazette of the State of Minas Geraes, September 12, 1912: The municipal chamber of Caldas, inasmuch as there are no similar materials of national production, is obliged to give preference to French industry in the acquisition of the materials which will be employed in the works with which that contract deals, providing there be uniformity of terms as to price, quality, quantity, time of delivery: time payments, etc. For the purpose of that preference, the chamber will be served through Perrier & Co., or through the company or commercial firm indicated by them. Like preference, also effected through Perrier & Co. under the terms set forth and in uniformity with other conditions, such as those of technical and professional fitness, etc., will be given by the chamber to the enterprises indicated by Perrier & Co. for the carrying out of the works mentioned. In case the preference expressed in this clause should prevail, for the execution of said works it is understood and established that engineers, workmen, experts, and employees of Brazilian nationality shall always be preferred by those enterprises. The foregoing shows not only how a French banking interest ob- tained an investment for its funds and gained interest on the invest- ment, but made a preferential opening for French machinery and for itself as the mediator in further transactions. It is axiomatic that trade follows investment. INCREASE OF GERMAN BANKING. - The newest comer in the foreign banking field in Kio de Janeiro is the Banco Aleman Transatlantico, which opened a branch three years ago, in charge of a German who had previously been a merchant in Rio de Janeiro. This bank energetically sought business, solicited accounts, and extended a greater measure of accommodation to mer- chants of Rio de Janeiro than they had been able to obtain from the British banks. The manager of an important British bank attributed the commercial crisis in part to "overbanking," citing the Trans- atlantico 's active solicitation of business and the fact that this com- petition, for a period, had forced down the interest rate to 5 per cent, since the British banks followed suit in the extension of credits. 48 BANKING AND CREDIT. The extension of long credits, which has been a feature of the Ger- man campaign for export trade, is reflected in the easy accommoda- tion that German banks appear disposed to extend to their customers. BANKS AND ELECTRICAL DEVELOPMENT. Foreign banks bear an important relation to the profitable develop- ment of hydroelectric-power projects in Brazil. The vast undeveloped water power offers wonderful opportunity for such projects. The strategic position of the foreign banks, particularly German banks, is apparent, for capital is indispensable for their development. The expenditures are devoted largely to the purchases of electrical machinery. Herein the European financial interests providing the money are able either to stipulate or to influence the employment of European materials. American electrical companies are removed from the zone of this influence. In fact, the European industrial and financial policy is directed against American competition. In the Deutsche Bank group of iadustries that stands behind the Banco Aleman Transatlantico are several large German majjiufacturers of electrical equipment, and the same is true of the industrial group to which, by the circumstances of its origui and contiol, the Brasilia- nische Bank fiir Deutschland bears a vital relationship. Likewise, the electrical companies within the sphere of influence of the Dresdner Bank, which put the Banco Germanico de la America del Sud into the South American field, have in the latter institution a friendly pioneer. Some of the electrical companies are within the friendly influence of all of the great German bank groups that are represented in South America. The electrical industry of Germany is cited because its concentration has been accomplished primarily through banking influences and with banking aid. Accordingly the banks have a responsibility for the success of the fusions, wmch their control of the terms of German investment in South America enables them to discharge. The same is true of the banking influences in relation to iron, steel, textUe, and other characteristic German industries. An American merchant in Brazil, representing one of the great American manufacturing companies, is authority for the statement that the BrasUianische Bank fur" Deutschland has rendered notable and effective service to companies representing the Allgemeine Elektri- zitats-Gesellschaft, of Berlin. An important German house of ilamburg that maintains branches in Brazil several years ago sent agents throughout southern Brazil seeking municipal contracts or franchises for electrical tramway, power, and light projects. To a company that was working the franchise and was handicapped for lack of new equipment, they would sell what was wanted on five years' time, charging from 8 to 12 per cent interest and taking fiist-mortgage bonds as security. FRENCH SUPPORT OF ELECTRIC ENTERPRISES. A very profitable business has been done by a French banking house in lending money to electrical enterprises to pay for German equipment. The French banking house obtains the money for 3^ or 4 per cent in France and lends it for 8 or 9 per cent in Brazil. It is estimated that this house, which maintains no branch bank in Brazil has thus placed about 150,000,000 francs ($28,950,000") during a period of three years. By such banking aid as is here described, Germany is AEGENTINA, BRAZIL, CHILE, AND PERU. 49 doing 60 per cent of the electrical business in Sao Paulo, one of the most progressive States in the Republic. French capital loaned to various Brazilian railway enterprises is accompanied by the stipula- tion of the use of French material. The extent to which this practice is restricting the field open to American trade will be dealt with in the conclusions of this report. It is sufficient here to say that the induce- ments for such a policy appeal powerfully in the case of Brazil. FOREIGN CAPITAL IN BRAZILIAN MANUFACTURING. Under the Brazilian tariff various industries have grown up, the high customs duties encouraging considerable foreign investment in mills and factories. Some talk has been heard.of American interests establishing factories for the production of articles required for the development of the railroads and other industries. Such a movement would be not .unlike that of American factories in Canada. As in Canada, such enterprises doubtless would prefer to use American machinery. The market which thus might be opened is, luowever, wholly prospective. It will be affected by the results of the present agitation for tariff reform. FOREIGN COLONIES IN BRAZIL. The chief competitors of the United States for the trade of Brazil are supported not only by a network of -trading houses, banks, and steamship lines, but by large colonies. The influence of the eno"mous German population in southern Brazil and the Italians in Sao Paulo is well known. The Italians especially are much given to maintaining savings accounts, and this is a source of considerable business to the banks. So greatly has the savings habit been encouraged by thrifty immigrants, that the Government now reserves the business for the native banks and the French and Itahan banks do a considerable business in transmitting sa\dn^ of immigrants to the Old World. The British colony in Brazil dates back to the foundation of the trade, and, as elsewhere, British merchants occupy a position of great prestige. The American colony is practically negligible in number as com- {)ared to others. The bulk of the trade is in exports to, not imports rom, the United States. The great American industries, however, realize the future of the Brazilian market and in greater numbers a^e stationing their own direct representatives in Rio de Janeiro and at Sao Paulo. The high character and ability of these men has raised the prestige of all things American. Although the tramway, light, and power utilities of Rio and Sao Paulo are English and Canadian owned, their administration is in the hands of respected Americans. The American colony at Rio is steadily gaining in solidarity and has the cordial and intelligent cooperation of the American ambassador and consul general and their respective staffs. FEASIBILITY OF AN AMERICAN BANK. The feasibility of establishing an American bank in Brazil is subject to much difference of opinion, according to the point of view from which it is considered. Managers of certain of the foreign banks in Rio insist that the bulk of the earnings of their parent institutions S. Doc. 659, 63-3 4 50 BANKING AND CEEDIT. comes from the Argentine. Nevertheless, one branch of a foreign bank in Brazil (not in Rio de Janeiro) whose allotment of the parent bank's capital was only $167,000, had an annual turnover of $15,000,000. Generally speaking, the business profits of prosperous foreign banks in Brazil amount to about one-eighth of 1 per cent on collections, one-fourth to one-half of 1 per cent on •xchange, 8 to 9 per cent on loans, and three-fourths of 1 per cent on cash discounts. The manager of a British bank stated that the recent crisis was largely due to overbanking. The banks do not have the profitable market in exchange that exists at Buenos Aires; on the other hand the foreign banks that have recently invaded the Brazihan field despite the commanding position of the later institutions make no complaint. Banks, like all other enterprises, have felt the depression, but since no public accounting is rendered of the separate business of European branch banks it is impossible to state definitely how the branches in Brazil have fared as compared with those elsewhere. American business men feel the lack of prestige which foreign banlcs contribute to their nationals. Brazilians constantly inquire why it is that the United States, reputed to be a wealthy country, is not represented in Brazil by American banks. They see the impressive establishments, brass name plates, and dignified[ managers of British, German,' French, and Italian banks. The participation of these institutions in the finances vital to Brazil, their high standing with the Government, and their influential relations with steamship and cable companies and the great trading houses, keep their re- spective countries always before the Brazilian mind as friends weU worth having. The United States utterly lacks this kind of "front." The purely American business interests in Brazil could bring to no bank a suflBcient amount of business to insure its success. No American interest is large enough to supply anything approaching the accounts which the British handle for railway companies. As a purely banking proposition few Americans in Brazil would predict that the venture would be profitable, at least for some years. The general opinion among Americans is that such a bank, striking a appy medium between the expeditious American bankiug methods and the established customs of the country, would attract consid- erable native patronage. The newer foreign banks have done this. From exchange little or no profits could be obtained. American exporters naturally would give collection business to an American bank, but the commissions would necessarily be di-vided with those foreign or native banks that maintain in Brazil a greater number of branches and agencies than an American bank could establish at first. Without such aid the American bank could not reach the interior points where the debtors live. Relying upon such banking connections for the transaction of collection business, the Ajmerican institution could not afford to be aggressive in competition at Rio de Janeiro or Sao Paulo, for it would be exposed to retaliation. The foreign banks in South America are primarily and whoUy or- ganized for foreign business. The Deutsche Bank instead of opening up its own biianches in South America found it convenient to organize the Banco Alemd,n Transatl&ntico, and the over-sea ambitions of the other German banking groups are served by similar subsidiaries. This points the way to the organization of separate American banks designed exclusively for foreign business. They would not be sub- ARGENTINA, BRAZIL, CHILE, AND PERU. 51 ject to Federal supervision unless organized under a Federal charter, for which no present authority exists. Such an institution would lack the prestige of organization under the supervision by the Federal Reserve Board of the United States. On the other hand, it would probably be able to enter more freely into the speculative field in which South American banks have reaped large profits. The third opportunity lies in the suggested establishment of an American bank that would be prepared to incur losses for the first few years in order to emancipate American commerce from foreign mediation and to lay, through investment, a firm foundation for extension of trade in American manufactures. Without particular regard to Brazil, this appeals as an abstract proposition to many American manufacturers. They have most to gain from such a policy. However, the hum.blest beginnings of American investment m Brazil are not yet apparent. While American manufacturers have good reason to fear their exclusion from certain rich markets by reason of European loans stipulating the use of European mate- rials, they have not yet displayed willingness to provide the capital necessary for a counter movement. A characteristic view along this line is contained in the following statement frorn a Brazilian representative of large American industrial interests: Looking at the matter first from a negative standpoint — that is, considering the dia- advantages under which we labor as Americans by reason of not having a bank here — it is apparent: First, as Americans we have substantially no financial position or connections here either as investors or dealers in money. We are known and recognized as a power at the State Department, the Agricultural Department, and the Department of the Interior. We are also well known and favorably recognized at the War and Navy Departments, but to the Depaitment of Finance we are substantially unknown. This leaves us iu a weak position as compared with Germany, England, France, and Italy, as well as Portugal and Spain. Second, as Americans we have no means of settling our accounts with the Brazilians privately, either payments or collections. We are in a weak position in this respect as compared with other nations, because in all business transactions we are obliged to disclose more or less the nature and terms of our transactions in making the collections or payments, thus giving our competitors an extensive knowledge of our affairs, which is dangerous to our Interests. Third, having no financial position as Americans, we lack the full confidence of Brazilians. In this particular they do not consider us as a "first-rate power." They think of us as "chmbers," but not as "a nation which has arrived completely," and this because we appear to them to be weak financially. Fourth, as Americans we have no means of obtaining knowledg;e through banks or banking connections of (1) schemes and investments under consideration either by the Government or large private interests; (2) the credit standing of the Government or private interests. America must be estabUshed financially in Brazil on a firm footing; this will give us a means of transacting business without exposing our affairs; it will establish ua firmly as a first-class power in the minds of the Brazilians and will increase very materially their confidence in us. It will afford valuable means for obtaining knowledge of business contracts and projects under consideration by the Government and private interests; and also afford a means for determining the credit standing of the Government as well as pri- vate individuals. It will also dignify us with the other world powers here, such as England, Germany, and Fiance; and, in short, it will roimd out and complete the equipment which aa Americans it is necessary for us to have in order to estabUsh in a sound manner the best relations both friendly and commercial with Brazil. I have given no consideration to the banking business as a profitable venture here; I am only stating why, in my opinion, the United States of America requires a bank and banking facilities here in Brazil. 52 BANKING AND CEBDIT. BANKING AND CREDIT IN CHILE. The chief foreign banks in Chile are: Anglo-South American Bank (Ltd.) (British) ; London and River Plate Bank (Ltd.) (British) ; Banco Aleman Transatldntico (German); Bank fiir Chile und Deutschland; Germanico de la America del Sud (German). The leading Chilean banks are: Banco de ChUe, Banco Espanol de Chile, Banco de la Eepublica, Banco Italiano, Banco Santiago, Banco Talca, A. Edwards & Co. (private), Banco Concepcion, Banco de Curico, Banco Punta Arenas, Banco Nuble, Banco Popular, Banco Union Comercial, Banco Tacna, Banco Mercantil de Tacna, Orsono y la Union, Banco Comercial de la Curico, Banco Mulchen, Banco Llanquihue, Banco Constituci6n, Banco Arauco, Banco Mercantil (Bolivia) . ACCOUNTS OF CHILEAN BANKS. The consohdated statement facing this page gives a comprehensive idea of the volume of Chilean banking. The Chilean gold peso has been converted to American money on the basis of $0,365 to the peso; the Chilean paper peso on the basis of $0.20 to the peso. MONETARY SYSTEM. The unit of value in Chile is the gold peso, valued at $0,365 United States currency, but the circulating unit is the paper peso, which has been so depreciated that in February and March, 1914, it was worth between 19 and 20 cents United States currency. The foremost issue before the Chilean people early in 1914 y&s the project for sta- bilizing the currency. The fluctuation in the value of money is the greatest obstacle to the prosperity of Chile. The exports of the country are customarily paid for in gold, but labor is paid in paper. As a result the wage- earning classes feel that the capitalists reap the benefit of the insta- bility. Political unrest prevails because of the currency question, and much business dissatisfaction results. Speculation in exchange is the chief business of the stock exchange, and exchange has varied as much as 10 points in a single day. Because of fluctuations some trading houses state that they pur- chase exchange for future delivery thus: If a customer buys from a trading house a bill of goods worth £5,000, he will probably ask the Erice in Chilean at three months' time. The trading house thereupon uys in the market Chilean exchange for £5,000 for delivery 90 days hence, or the steamer-sailing date closest thereto. When this is fiven, the trading house makes the price to the Chilean customer, aving thus relieved itself of the risk of loss in exchange. CONVEKSION SCHEME. A committee appointed by the Chilean Senate to frame a scheme of conversion reported in favor of a system thus described : An institution is to be founded called the Caja de Conversion, -to issue, circulate, and exchange bank notes, which is to be managed by a council of six persons appointed by the President of the Eepublic, two being approved by the Senate and two by the Chamber of Deputies. A managing director is to be appointed by the President of the Republic on the proposal of the six councilors, who must be Chileans. They will remain in office three years, but only the manager will receive remuneration. The council wiU elect a president and vice president. Missing Page AKGENTINAj BRA2IL, CHILE, AND PEK0. 53 The Caja de Conversion ■will superintend the fiscal gold funds destined for exchange with notes of legal issue; the gold funds deposited by national and foreign banks according to law 2654 of May 11, 1912, destined to be exchanged for the notes issued in accordance with this law; and the gold funds which the department will receive according to the stipulations thereof. These funds can only be used for exchange at a fixed rate; but, with the consent of the President of the Republic, may be deposited in a first-class European or American bank with no more than 90 days' notice of withdrawal. The Caja de Conversion will be in charge of the issue of fiscal notes made in accord- ance with laws 1045 of July 31, 1898; 1509 of December 31, 1901; 1721 of December 29, 1904; 1857 of May 23, 1906; 1992 of August 27, 1907; and of the rest of the fiscal issues made previous to the law of July 31, 1893. The President of the Republic will establish six months in advance and with the consent of the Senate, or the Committee of Conservators, the date on which the laws mentioned will be enforced. From January 1, 1915, until the issue of the decree just mentioned , the Caja de Conversion will exchange the notes of the fiscal issues for gold coins duly minted in Chile or any other nation selected by the Caja and approved of by the President of the Republic, at the rate of 12d. ($0.243325) per peso. The depart- ment can also effect this payment in drafts on London, and can issue notes in exchange for gold deposited in its coffers by such persons as desire it at the rate of 12d., which notes can be used to cancel all obligations payable in currency, and oil presentation will be reconvertible at the same rate. All these issues must be made with the con- currence of the full number of councilors. An annual estimate of income and expenditure will be presented to the President in the first half of May each year for submission to Congress. A statement of the ledger balances will be officially published the first week in each month. Any sur- plus resulting from the exchange of notes and all profits made will constitute the reserve of the conversion fund, after deduction of the expenses for installation, ad- ministration, and printing of notes. The export, import, and warehouse dues established in laws of December, 1897, and Au^at 27, 1909, payable at 18d. ($0,865) for each peso, will be paid in gold coin of legal issue or in notes of the Caja de Conversion with the corresponding premium. The President of the Republic will be empowered to order the payment of these dues in part or in full with drafts of the Caja. All payments of fiscal funds abroad will be made through the Caja de Conversion. The President of the Republic is empowered to transfer to some bank or association of banks, founded for that purpose, the functions and operations of the Caja de Con- version, according to a contract which would have to be drawn up and approved by Congress. From January 1, 1915, article 1 of law 2654 of May 11, 1912, will be annulled. CHILE'S FOREaGN TRADE. The countries enjoying tlie largest trade with Chile are those having the most direct steamsmp communication and direct banking facili- ties — Great Britain and Germany. Chile's foreign trade in 1912 was as follows : Countries. Imports. Exports. United Kingdom... Germany United States All other coimtries. Total 138,599,283 33,189,070 16,806,341 33,481,300 $55,102,649 28,060,698 24,514,56S 29,965,244 122,075,994 I 137,643,153 The trade of the United States with Chile in both exports and imports grew more rapidly from 1909 to 1912 than that of either Ger- many or the United Kingdom. The general expectation is that American trade with the Republic will be greatly stimulated by the opening of the Panama Canal. Opinions differ as to the extent of this benefit. 54 BANKING AND CREDIT. The largest single classification of Cliilean imports is textiles (value, 829,935,942 in 1912). The great bulk of the textiles was bought from the United Kingdom and Germany, with the United States fur- nishing only a small amount of the coarsest grades. The United States was a poor third in the imports of mineral products. In "coal and oils" the United Kingdom led the list, largely by reason of the vast shipments of Welsh coal, while the United States came second by virtue of oil shipments. Under imports of machinery, hardware, etc., the United States was again third, with Germany and the United Kingdom first and second, respectively. In the imports of vegetable products the United States led the list, with Peru a close second. The Guggenheim interests, operating as the Chilean Exploitation Co., have made a heavy investment in the Chuquicamata mines. That such investment does not always assure the use of American equipment is indicated by the fact that the contract for electrical installation was awarded to the Siemens-Schuckert Co. In this case not only was the German bid lower, but the terms of payment were easier as to time. BANKING LAW. As in other South American repubhcs, the banking laws are few, a siu-vival of the years when foreign capital was looked to as practically the only hope for development of the country. This willingness to place Chilean interests in the custody of foreign banks was encoiu:- aged by weU-justified confidence in the probity of British trading houses and banks, which were the first to be established on a large scale. The banks are subject to but slight governmental supervision. The success of the operations of foreign banks has recently inspired a sentiment for a new and more stringent banking law. Advocates of this legislation assert that British, German, and other foreign banks came to Chile with very small capital, achieved gi'eat success, and Said enormous dividends. While the Banco Aleman Transatlantico erives great prestige from its relation to the Deutsche Bank, the latter has only a shareholder's liabihty and does not guarantee its business. It is complained that this pohcy has resulted in the concentration of large sums of Chilean money in foreign, ospociaUy German, hands unresponsive to the natural demands of Chile in lime of strods, and subject to withdrawal by the parent banks in Germany. FOREIGN BANKING CAPITAL. The proposed law most discussed provides that banks must main- tain capital in the proportion of one-third of capital to one of deposits. This is to be effected, if the legislation is enacted, by taxing deposits over this proportion. Thus, if a bank has $3,000,000 of deposits it should inaintain at least $1,000,000 of capital. "\^Tiere the propor- tion of deposits to capital exceeds 3 to 1, a tax of ono-half of 1 per cent will be imposed on the first million in excess and 1 per cent on the second million in excess, etc. Considerable doubt is enter- tained by the well informed as to the hkehhood of the enactment of this proposed law. The foreign banks are influential and resourceful AEGENTINA, BEAZIL, CHILE, AND PERU. BANK CAPrTAL TAX. 55 As a result of complaints that foreign banks, while prospering from large deposits of Chilean money, were contributing proportionately far less to the national treasmy than domestic banks, the <• hilean Congress in 1910 imposed a tax of 3 mills on a doUar on all capital employed in the foreign branch banks. This placed them on a parity with domestic banks. It has been a source of criticism that foreign banks were able to withdraw their capital as their resources were strengthened by increasing capital. This table, in Chilean money, illustrates the point: Years. Capital. Deposits. 1905 $3,910,500 8,949,200 6,639,400 6,469,000 5,303,400 3,614,200 $12,351,200 14, 491, 400 1906 1907 21,064,200 20, 178, 200 1908 1909 21,450,600 25,484,000 1910 BANKING PRACTICE. Banking practice resembles that in other large South American countries. The following is an interesting variation at the Banco de C hile: Where a customer has an account in this bank he may ask for an open account for a certain amount, say, S20,000, no security being required except personal responsibility. The depositor may check against this account at will, pajong 9 per cent on the money he draws. At the end of six months the depositor pays one-half of 1 per cent on the total $20,000, and then the mterest and the capital pass to a new account every six months. Overdrafts when allowed are generally charged a higher rate of interest, sometimes as high as 12 per cent. The overdraft practice is as extensive' in C hile as in Argentma and is a source of concern to con- servative bankers. Business men carry accoimts in several banks at the same time. A tax of 5 centavos (about 1 cent United States currency) is im- posed on each check drawn. Check books are free. Deposit ac- counts are received and entered in pass books as in the United States. Time deposits are received and certificates of deposit give«. Deposits with notice of withdrawal are received and bear 6 per cent interest. Savings accounts are growing. ', hecks are widely used, being adequately protected by the laws against forgery. ( ertifica- tion of checks is unusual. Certificates of deposit are frequently used as a safeguard. Savings accoimts are paid 5 per cent interest, com- puted annually. OTHER BANKING ENTERPRISES. Aside from the commercial banks that accommodate foreign com- merce and general domestic business, a notable institution m Chile is the Banco Hipotecaria de Chile, which was organized to supply the people with a source of cheap mortgage loans. Its activities are widespread and take the form not only of loans on real estate but the facilitation of the purchase of hom.es by laborers; the institution provides standard plans and specifications designed to reduce to a minimum the cost of construction. 56 , BANKING AND CEEDIT. BRITISH INVESTMENT IN CHILE. British investments in Chile are estimated to have increased 20 per cent in 1911, 1912, and 1913. The issues quoted on the London Stock Exchange aggregate $319,691,185. Of this, $173,384,325 is in Government bonds— Federal and municipal. Chile began to bor- row in Europe with a 4^ per cent loan in 1885. In Chilean railways the British mvestment aggregates $102,311,095, half of which is in the Antofogasta Railway. Most of the Chilean railway bonds held in Great Britain average a 5 per cent return to the investcJr. In nitrate properties the British investment is about $44,000,000, returning an average of 11.9 per cent. On aU British investments in Chile, includ- ing Government bonds, the return is estimated at 5.9 per cent. This British investment is a powerful "puller" for British sales of manufactured merchandise. Any American bank establishing itself in Valparaiso or Santiago would necessarily have to establish connections for collections throughout Chile. Under existing circumstances, an American shipper having an account to collect in a remote part of Chile re-- Suests a British or a German bank to make the collection. If the ebtor is one to whom the bank itself has given credit, or has a claim against on behalf of one of its regular customers, the American bill probably has to wait. German banks have 15 branches on the west coast. The Banco de ChUe has 40 branches in different parts of Chile. Any American bank or collection agency would have to build up at least 15 agencies or reliable connections in small places where it is difficult to maintain an organization. W. R. Grace & Co. have between Panama and Puerto Montt, Chile, 25 houses, agencies, or subsidiary company offices. The chief American house, although already doing a banking busi- ness, would welcome the establishment of an American bank, realizing that it would increase the volume of Anaerican trade and make more business for steamships, trading houses, warehouses, harbor launches, etc. EXPENSE OF BANKING. Since the cost of living in Chile is lower than in Argentina or Brazil, the salaries of bank clerks and other employees are lower. Where the manager of a bank receives $12,500 United States currency, the sub- manager will be paid about $7,000, and the head bookkeeper about $5,000. Clerks receive from $700 to $1,500, and are generally of the nationality of the bank. At Santiago and Valparaiso rentals of bank premises are much lower than in Rio de Janeiro or Buenos Aires. The Banco Nacional, with floor space 150 by 40, in an admirable location, pays only $4,000 per annum. The London and River Plate Bank paid $100,000 for a two- story building for its new Santiago branch. GERMAN BANKS. The Banco Alemdn TransatMntico twelve or fifteen years ago established itself in Chile, extending to the west coast its business already on a prosperous basis in Argentina. Its manager went after AKGENTINA, BRAZIL, CHILE, AND PERU. 57 business energetically,, advertised, and got it. It is estimated that this bank probably brought not more than $.500,000 United States currency to Chile. Hamburg clerks were brought out, and the organi- zation rapidly extended. The Banco Germanico de la America del Sud and the Bank fiir Chile und Deutschland, known in Chile as the Banco Chile y Alemania, followed the Transatkntico into the Chilean field. This German banking development coincided with the exten- sion of German steamship service. The Kosmos Line service was increased, and the Roland Line established, operating from German ports and London to the west coast of South America. UntU 1907 Germany was making considerable investments in Chile with capital borrowed from France. The last Chilean loan was taken by German bankers. German banking is conducted on the same basis as elsewhere in South America. No means exist of ascertaining the profits or losses of the branches in Chile. The large, number of commercial failures since the commercial depression set in shows the banks to have extended credits greatly. The German banks are able effectively to promote the business of the German electrical manufacturing companies. One is said to have expended $60,000 in investigation and preliminary work in the direc- tioni-of electrification of a Government railroad. The project has not been determined upon, but if it is consummated, the German electrical interests in association with this bank will have a distinct advantage over American companies. Through their afloliation with banlra, the German electrical groups are in a position not only to supply instal- lation and equipment but even to purchase the bonds necessary for financing large projects. EXCHANGE. How vital the rate of exchange is to Chilean business will be real- ized when it is stated that 90-aay sight bills on London constitute the real financial standard in CJhilean foreign trade. All nitrate shipped to England and the United States, and much of that shipped to other countries, is paid for in drafts on London. The nitrate ex- ports in 1912 were valued at $106,699,663, of which the United States took over $18,000,000 worth. The United Kingdom was the heaviest purchaser of Chilean nitrate in 1912, buying this commodity to the value of about $41,600,000. AH imported merchandise is paid for in London drafts. As protection against the fluctuation of exchange, W. R. Grace & Co. established a banking business, but they do not take deposits. They make collections through their numerous houses along the west coast and through their connections in various ports and inland towns, thus assisting the business of their house and the subordinate limited-liabiUty companies which they have organized. FEASIBILITY OF AN AMERICAN BANK IN CHILE. Consular and diplomatic officers, as well as American business men, have repeatedly expressed the opinion that the commerce of the United States with Chile requires more direct banking facilities. Bills of exchange, banker's credits, etc., necessary for the accommoda- tion of this commerce flow through British and German channels. 58 BANKING AND CEEDIT. The foreign banks in Chile are neither so old nor so firmly intrenched as to make the field impenetrable. On the other hand, it should be remembered that the population, estimated at 3,500,000 persons in 1910, and the foreign trade, aggregating $259,719,147 in 1912, are much smaller than in Brazil or Argentina, and that the American residents are fewer. The products of Chilean's soil and industry are less diversified. Nevertheless, the natural preliminary for American banking enter- prises is found in the increasing investment of United States capital. This is placed chiefly in mines; the Chilean Exploitation Co. plans to put $7,000,000 in the Chuquicamata mines alone, and the Bethlehem steel interests are developing an immense iron-ore project near Co- quimbo as a source of raw material for American steel mills. The latter enterprise is accompanied by the construction of a large fleet of 15,000-ton ore steamers to operate through the Panama Canal. In Chile, as in Brazil, it is the iron and steel industries of the United States that are providing the steamship communication indispensable to the fullest development of trade. But whereas the United States Steel Corporation estabhshed the United States and Brazil Steam- ship Line for the purpose of selUng its product in Brazil, the Bethle- hem steel interests project their fleet for the purpose of obtaining ore cheaply. Ultimately those ore ships, or other American vessels, should become cheap return caniers of iron and steeF manufactures for the Chilean market. AMERICAN PRESTIGE. Chileans generally have great respect for the business acumen and money-making ability of citizens of the United States. An American bank, in the opinion of those thoroughly familiar with Chilean sentiment and character, would enjoy an unusual degree of popular confidence from the start. It would be regarded as pre- destined to success because of the success that has attended the enterprises of American capital, particularly in Chilean mines. An experienced American business man makes this statement: I do not doubt for a moment that a well-established American bank in Chile with authorization to loan on mortgages, take for itself or participate in financing state and municipal loans as well as industrial, agricultural, and railroad issues, and transact general domestic, foreign, and exchange business, would exercise a most favorable effect on the growth of American trade. If it has been relatively small up to now, we attribute it especially to the want of the real link in financial faciUties. North America hs^s tried to increase its business in this country by sending out catalogues and commercial travelers, but this is not sufiicient, as the people are accustomed to do their business through banks established here. A very favorable exchange market always will exist in Chile, but the country is so accustomed to London rates, that the creation of a market with New York will require some time to get on a flourishing basis. An American bank with good connections in London and on the Continent would certainly absorb a greater part of the exchange business. Characteristic bank- ing methods, commanding great A rapidity in transaction of business anef greater facilities for legitimate commerce would help American trade. BANKING AND CEEDIT IN PERU. The principal banks in Peru are: Banco del Peru y Londres, Banco Aleman Transatl^ntico, Banco Italiano, Banco Popular, Banco Internacional del Peru. AKGBNTINA, BRAZIL, CHILE, AND PERU. 59 Of- the foregoing the Banco Alemd,n Transatlantico is the only representative of the great European over-sea banks doing business in Peru. The Banco del Peru y Londres (Bank of London and Peru) has a capital of £2,000,000 (19,733,000), all paid up. It was formed by the amalgamation of a branch of the London and Mexico bank and a local- bank, and large blocks of its stock are held by English and French banks. It is the most important bank in Peru and acts as the Government's fiduciary agent. The Banco AlemS,n Transatmntico was established at Lima in 1905, is efficiently managed, and by the usual German methods has freatly contributed to the development of German trade in the Lepublic. The business of the Banco Italiano, established in 1889, was pri- marily based upon the trade of the Itahan colony, which is the most numerous element in the ioreign population. Its management is very conservative. The Banco Intemacional del Peru and the Banco Popular are smaller institutions. The banks named,, together with the Banco Hipotecaria and the Caja de Ahorros, which do a mortgage and savings business, fairly well fill the somewhat hmited field of Peru- vian finance. STATEMENT OF PERUVIAN BANKS. A statement of the condition of the principal banks in Peru on December 31, 1912 and 1913, follows: Date of foundation. Cash. Bills and debit accounts. 1912 1913 1912 1913 Bank of Peru and London. 1863-1877 1868 1889 1897 1899 1905 1905 $3,139,267.23 730,140.46 711,180.58 486,255.82 776,703.13 224,365.12 3,377,677.24 $2,143,605.65 272, 188. 21 838,181.63 152,861.63 439,367.08 603. 45 2,657,517.78 $23,101,202.50 2,616,746.25 6,890,192.60 1,568,292.89 3,035,474.51 1,643,300.25 8,983,500.60 $26,752,483.93 3,263,667.36 Italian Bank 6,314,882.32 International Bank of Peru 1,437,335.38 Popular Bank of Peru — Bank of Deposits and Cou- 2,921,398.88 1,932,919.26 German Transatlantic Bank Lima 8,300,623.59 Total . . 8,445,489.58 6,604,325.43 46,838,709.60 50,923,210.72 Date of foundation. Movable and immovable property. Simdry assests. 1912 1913 1912 1913 1863-1877 1868 1889 1897 1899 1905 1905 $483,277.51 107,301.46 128,538.86 15,616.59 14,331.84 3,776.40 197,283.04 $490,932.52 106,887.81 142, 116. 40 14,545.97 16,190.85 2,530.58 189,993.03 $4,009.99 $4, 409. 05 Internatloiial .Bank of Popular Bank of Peru Bank of Deposits and Con- German Transatlantic Bank Lima 81,246.22 103,452.05 Total 950,125.70 963,197.16 85,256.21 107,861.10 60 BANKING AND CREDIT. ' Basks. Date of foundation. Capital and reserves. Credit accounts, deposits, and acceptances. 1912 1913 1912 1913 Bank of Peru and London. 1863-1877 1868 1889 1897 1899 1905 1905 $3,893,200.00 170, 892. 01 1,456,981.43 608,312.50 1,006,207.27 606,116.00 973,300.00 $3,893,200.00 181,306.32 1,461,263.95 608,312.60 1,003,472.30 609,035.90 973,300.00 $22,447,315.2? 3,283,683.28 5,257,985.59 1,427,193.59 2,759,639.09 1,325,608.07 10,307,777.45 $25,187,047.67 3,457,083.74 5,653,646.64 International Bant of Peru 963,167.95 Popular Bank of Peru Bank of Deposits and Con- 2,326,036.14 1,404,301.57 German Transatlantic 9,889,555.30 Total 8,615,009.21 8,629,890.97 46,808,902.30 48,880,839.01 Banks. Date of foundation. Sundry liabilities. Total of assets equal to the liabilities. 1912 1913 1912 1913 Bank of Peru and London. 1863-1877 1868 1889 1897 1899 1905 1905 $383,232.01 3,722.87 14,945.02 34,659.21 60,763.12 39,817.70 358,629.63 5306, 774. 43 8,662.37 180,269.76 33,262.53 47,448.37 22,716.82 388,731.15 $26,723,747.24 3,458,198.16 6,729,912.04 2,070,165.30 3,826,509.48 1,871,441.77 11,639,607.10 $29,387,022.10 3,647,052.43 7,296,180.35 International Bank of Peru 1,604,742.98 Popular Bank of Peru Bank of Deposits and Con- signments . . . 3,376,956.81 1,936,054.29 German Transatlantic 11,261,686.45 Total 895,669.58 987,865.43 66,319,581.09 58,498,595.41 MONETARY SYSTEM. The currency of Peru is stable, the Hbra, or PeruTian pound, being equal in value to the pound sterling, $4.8665. No paper money is used, gold and silver circulating exclusively. The silver unit is the sol, or one-tenth of the libra. Exchange is subject to no violent fluctuation. COMMERCE OF PERU. The foreign trade of Peru in 1912 was thus divided: Countries. Imports. Exports. $6,800,708 6,763,423 4,567,698 1,5.52,031 6,353,954 $14, 270, 000 12,900,000 3,500 000 2 400 000 12,801,604 Total 26,027,814 45,871,504 Peru buys more from the United States than from any other foreign country, excepting the United Kingdom, which is also the heav- iest purchaser of Peruvian products, the United States coming second. Business has been handicapped during 1914 by political conditions. ARGENTINA, BRAZIL, CHILE, AND PEETJ. 61 TAXES. The taxes of Peru are collected under a concession at present held by the National Revenue Collecting Co., which has four years to run. The director of the Administration of the Ministry of Finance has stated that an arrangement would be welcome whereby an American company might take over this corporation. Arrangements could probably be effected for the early termination of the present contract for the purpose of such a venture. The willingness of the Government to place this important function in the hands of Americans reflects the traditional friendliness of Peru for the United States. PERUVIAN BANKING LAW. As in a majority of the South American RepubUcs, Peru has no special act regulating banks, except mortgage banks. The foreign and domestic banks are organized under and governed by the laws relating to corporations. A Peruvian corporation differs essentially from an English or American corporation. It is sufficient in Peru if the organizers declare in a pubUc deed that they have formed a cor- poration for a stated object. When the laws as to registration are compHed with, the corporation is legally constituted and ready for business. No application for a charter or Ucense is necessary. Corporations organized under the laws of a foreign State have only to file with the recorder of commercial deeds in Peru a copy of the by- laws and acts of incorporation, and the license granted by the State gives it corporate existence. These must be certified by Peruvian consular officials within the State of incorporation. For registration, a tax of Is. ($0.243325) per £100 ($486.50) of the nominal and authorized capital is imposed. Any subsequent bond issue is simi- larly taxed. BANKING PRACTICE. Savings accounts in Peru are large, both in the Caja de Ahorros and in the commercial banks. Many Peruvians, instead of investing their money in industrial securities, deposit it at interest in the bank in the form of a fixed deposit for six months. The banks ha^^e a notably large number of deposits of from $10,000 to $25,000. Loans and dis- counts command interest ranging from 8 to 10 per cent and, at periods of stringency, as high as 12 per cent. The banlffl of Peru are not public credit agencies, nor is business sufficiently organized to permit the maintenance of systematic credit- information services, although the larger foreign trading houses and banks keep their own records of credit ratings of members of the busi- ness community. The Banco Alem^n TransatMntico is applying to Peru the systematic method of gathering credit information that characterizes its operations elsewhere. A commercial house in the United States apphed to this bank for information regarding a certain business situation in Peru. The bank replied that it had spent many thousands of marks during a period of several years to obtain just such information and did not propose to furnish it to foreigners. This refusal is attributed by Americans in Peru to the semiofficial oversight to which German institutions abroad are subject in the interest of the development of German trade. 62 BANKING AND CREDIT. FEASIBILITY OF ESTABLISHMENT OF AN AMERICAN BANK. An American resident of Peru, who has given close study to the banking situation, makes this statement: The most beneficial effect to American trade tlrrough the establishment of an Ameri- can bank would be (1) Bringing the American exporter and the Peruvian consumer into closer touch; this would take some years of hard work, in view of the present competi- tion in discounts and credits; (2) Rendition of aid to the American legation in ne- gotiations for loans, concessions, and the like. Its establishment would necessitate an adaptation of American banking to Peruvian conditions, and in view of the conservative character of banking in the Republic it is by no means uncertain that thoroughly modern and efficient organization and well- developed advertising would eventually bring excellent r^ults. Peru looks to the United States for capital with which to develop its resources after the opening of the Panama Canal. Vast irrigation projects have been pronounced feasible and would receive the encour- agement of the Government in the hope of stimulating a large agri- cultural immigration. This development wiU require a large capital, which, if forthcoming, would make a nucleus of American business for an American bank. The advantage of the absorption of one or more of the small banks in Peru is a suggestion put forward by well- informed Americans in Lima. METHODS OP ESTABLISHING AMERICAN BANKS. Several avenues are open for the estabHshment of American banks in South America. These may be enumerated as follows: Branches of American national banks; banks organized solely for American business in South America; purchase of an interest in existing native banks ; banks for investment and industrial development. FOREIGN BRANCHES OF NATIONAL BANKS. Since (Congress, in the Federal reserve act, section 25, recognized the necessity of American banks abroad, the method therein provided should first be considered. The act provides that national banks hav- ing a capital and surplus of $1,000,000 or more may establish branches in foreign countries, subject to such regulations as the Federal Re- serve Board may prescribe. These foreign branches are to be subject to examination. Separate reports are to be rendered on the business of each. This is a decree of governmental supervision exercised over no commercial banks in South America, either by the country of their residence or the country where they operate. It would be necessary also for the parent institution to set aside a certain portion of its capital for operation in the foreign country. In this connection 'the fact that the largest American national banks now have little more capital than some of the great foreign banks in South America com- mands attention. An American national bank would probably be unwilling to assign such a large proportion of its capital for foreign operations as the European banks in South America have done. Practically all bankers who have investigated the situation in South America beheve that no institution can well be put in the field with a capital of less than $5,000,000. An American bank must necessarily make its own way, having no resources for deposits and accounts such as are possessed by European banks in the large enterprises of their own nationality. AEGENTINA, BRAZIL, CHILE, AND PEEU. 63 It is significant that London banks construed the Federal reserve act as the logical and inevitable beginning of the policy of American branch banks in London. The German system of over-sea banks was inaugurated with the placing of agencies in London to share the profits of that international banking center. If American banks establish branch banks in London, they would operate to minimize the dependence of our export and import trade upon foreign institutions, even though the bulk of the business continued for many years to be transacted in sterling bills of exchange. BANKS SOLELY FOR AMERICAN TRADE. An interesting suggestion has been advanced for the creation of a bank devoted exclusively to the interests of American and foreign trade operating in South America and elsewhere. It would not inter- fere with domestic banking business. Its function would be to buy drafts against bills of lading, collect drafts and accounts, advance money on shipments, issue drafts and letters of credit, accept drafts, and to render various commercial services to American trade, as well as to provide timely information. This project seeks to bridge the gulf now existing between the American manufacturer and his over- sea customers. The great European banks organized soFely for South American business have very extensive powers and are very little restricted in the kind of business they do. Apparently an institution hke these European banks could not be organized under the provisions of the new Federal reserve act. Consequently, a bank established to do a business similar to that done by the great European over-sea banks would probably have to obtain a charter from some State in the United States. In this way it would be able to do practically any kind of financial business in any country of South America, because there it would have the rating of a corporation. Inasmuch as Euro- pean banks are actively engaged in promoting investments, it would be necessary to allow the American institution to have the same power as one of its functions. PURCHASE OF INTEREST IN EXISTING BANES. The argument for extension of American foreign 'banking facil- ities by the purchase' of interest in existing banks of South America is based partly on the theory that American financial interests do not care to incur all the risk that might attend the devotion of a con- siderable portion of their capital to a foreign enterprise. Financial interests in many countries have assisted their trade by this means. The large foreign holdings in certain native South American banks are evidence of this policy. It is noteworthy, however, that the great financial powers like Great Britain and Germany have preferred the establishment of institutions whoUy controlled in those countries. The above classification sharply divides between banks organized for the purpose of making money out of the banking business, and those in which this feature is subordinated to the greater service that might be rendered to the extension of American trade. The great European banks in South America successfully accomplished both purposes. The German banks, being more especially created for trade promotion purposes, earn less than their British rivals, which pride fiiemselves on having no close affihation with industries. 64 BANKING AND OEEDIT. INVESTMENT BANKING. The sentiment for the establishment of a bank for investment and industrial development is inspired chiefly by the danger of a limita- tion of the South American market to Americans, because European loans stipulate the use of materials from the country providing the money. Eepresentatives of American industries are constantly en- countering these "closed doors." The case for such a bank is clearly set forth in the statement of the foreign manager of the American Locomotive Co.: What is urgently needed in order more effectively to increase the export of iron and steel products and machinery of all kinds is an organization and establishment of an industrial bank through which Anierican capital could participate with that of the English, German, and French in the development of the natural resources and the building of railways in South America, the Far East, and other parts of the world. Such a bank should have in its partnership the industrial corporations which are actively engaged in foreign trade and bankers doing international business. It should send capable representatives to countries in need of capital to be en the lookout for and compete for concessions for the building of railroads and the develop- ment of other natural resources. It is a well-known fact that the purchases of rail- way and other materials for enterprises in South America and the Far East are made in the country whence the capital is furnished for the building of the same. Manu- facturers who have not participated directly or through their bankers in the supply of the capital required are baiTed from competing for the supply of such materials. At the present time it is well-nigh impossible to induce American bankers to under- write foreign government or foreign bonds because they claim, on the one hand, that there is no home market for such*ioreign securities, largely due to the provincialism of the American investor, and on the other hand they are unable to obtain more concise and reliable information as to the guarantees which the boiTowers can offer for the loans. Both of these objections'could be removed by an efficiently oi^nized bank, several of which are in existence in continental Europe. Such a banking institution should receive the government's support and assistance through its diplo- matic' and consular representatives and through its competent and experienced agents, and furnish reliable information to the investors as to the underlying security of the loans made by the industrial bank. BANKING PERSONNEL. The lack of American bankers trained for or experienced in South American banldng is a much discussed disadvantage. The British banks have built up their organizations during a period of 50 years. They draw on the United Kingdom — there are 120 foreign and colo- nial banks in London — and also have certain clerical labor resources in the considerable British colonies in South American cities. The great German banking groups send out men for the German branch banks in South America. Profitable though the business in European banking in South America is, it does not offer rapid advancement to the banking personnel, particularly in Argentina. Many competent banking officials, such a submanagers, accountants, and experienced clerks, frequently resign for more lucrative employment as managers of estancias, trading houses, etc. A considera!ble ni.mber of experi- enced banking men are available in Argentina for service in new insti- tutions offering them better opportunity than the old. While it is considered sound policy for the managing officials and a majority of the employees of a foreign bank to be of the bank's nationality, the cosmopolitan nature of Argentine business might make mixed per- sonnel somewhat desirable so long as the control remains American. Rio de Janeiro, Buenos Aires, Santiago, and Valparaiso possess cer- tain European characteristics and their foreign colonies afford na- ARGENTINA, BRAZIL, CHILE, AND PERU. 65 tional companionship to British, German, French, Spanish, and Italian bank employees, making them satisfied with their new home. The European nationalities have infused South American life with various of their own characteristics, but American influence in this respect has been negligible. The large European trading houses, headed by men who have spent their lives or have resided for many years in South America, estabUshing close personal and family relationships with the native population, have partially solved their own labor problem. American interests have scarcely approached it. Since a companionable environment of their own nationahty has not been extensively created in South American cities, it is not sur- prising that young Americans are indisposed to go to or remain in that part of the world. In the 'Bist place, capable young men can find plenty of employment at home. European youths, on the other hand, go out with the realization that they must make their way in the new world. American manufacturers by extending their own sales organizations to South America, stationing their own representa- tives on the ground, are opening up greater opportunities for American young men in^the foreign trade. The managers of such companies in South America are better able than their superiors in the United States to estimate the needs of their American employees and afford them opportunities for advancement. All this directly bears upon the opportunity for American banking in South America. The manager of an American typewriter com- pany doing a large export business estimates that up to the present time 80 per cent of the Americans who accept employment in South America return at the end of the first year. SUMMABY. In Brazil, Argentina, Chile, and Peru, American trade is well estab- lished and growing in spite of the lack of direct banking facihties, steamship communication, etc. Foreign and native banking houses reasonably weU accommodate American trade but withhold the full measure of interest and solicitous support accorded to enterprises of their own nationahty. Many valuable collateral benefits resulting from the financing of over-sea trade are alienated by American rehance upon London banking mediation. The compulsory use of European materials in many South American enterprises financed by Europe is steadily restricting the potential market for American manufactures. American prestige suffers by comparison with the European nations represented in South America by powerful banks. American salesmen and trading houses lack tho support given by foreign banks to their national trade seekers. American banks are imperatively needed in South America as a dependable resource in the campaign for greater trade. The growing keenness of competition with nations already thus equipped rendeis rehance on their support increasingly perilous. S. Doc. 659, 63-3 5 66 BANKING AND CREDIT. CONCLUSIONS, IMPBIRATrVE NEED OF AMERICAN BANKS. The importance of South American trade to the United States needs no demonstration. It will be more important to-morrow. The problem of holding what we have and gainiag more is vital. As increastag domestic consumption diminishes the exports of foodstuffs and raw materials, American export trade will decrease, proportionately at least, unless' a greater value of manufactures is sold abroad. For their sale it is necessary to look to new and grow- ing countries requiring machinery for development and finished manufactures for popular consumption. The established industrial uations of Europe that have purchased our natxiral products in great abundance do not offer this market; the South American countries do. Already our exports to South America contain a higher propor- tion of manufactures than our exports to any other region except Central America. Under a tariff framed on the principle of "the whetting of American wits by contest with the wits of the rest of the world" the South American market opens a great opportunity for manufaicturers to strive for the large volume of production necessary for success on narrow margins of profit. As export trade expands, its steady maintenance and growth are indispensable to labor as well as to capital at home. A large foreign market should enable industries to bridge over periods of domestic depression. If American industries sur- render potential markets to their competitors, they will contribute to profits that will enable those competitors to incur losses in their effort to invade the United States. The development of foreign trade, theref era, is a necessary defensive as well as offensive operation in international comme' ce. American manufacturers have reached a point where it is necessary for them to go rapidly onward lest they fall behind others. Pausiag, at this juncture, to inspect their resources for the contest, they find themselves dependent upon the aid of opponents. American exports are carried in foreign ships. American sales and purchases are financed by foreign banks. Credit information, indispensable to intelligent promotion of foreign trade, is sought and obtamed largely through foreign banking channels. An enormous toll is annually paid to London, the center of international banldng. The chief competitors of the United States for South American trade are Great Britain and Germany. Their sales to most of the South American countries exceed those of the United States. They have been longer in the field and have provided themselves with an organization of trading houses, salesmen, steamships, banks an investment dictated by the lessons of experience. Without the facilities that foreigners have provided, American trade could not have attained even its present proportions. For this service American trade has paid heavily. No special sacrifice was incurred in charges for the service of carriage and finance to our European competitors in sending finished products, while the bulk of American exports to South America consisted of raw materials and crude manufactures; only in comparatively recent years has the proportion of American finished manufactures increased. ARGENTINA, BBAZIL, CHILE, AND PERU. 67 COMPETITIVE ERA AT HAND. As American interests further invade the truly competitive field in Latin-American markets they must make an effort to sustain themselves at every point. A reconnoissance of the position of our competitors shows Great Britain intrenched behind a vast and wise investment, yielding in interest profits a sirna that goes far toward the payment of its purchases. Germany, a newer rival, is less strongly fortified, but more active. The greatest change in South American commerce in the last 10 years nas been the increase of the German proportion of that trade. This has been at Great Britain's expense and is due primarily to the reenforcement of the ubiquitous activities of the German salesman by the intensive organization of German industries by banlra and by Government encouragement, as already described. Other European nations, although they fall below the United States in volume of trade, have not neglected to strengthen their forces and to follow a logical policy. The United States alone, among the great powers, has pursued a fortuitous course dependent wholly upon the unaided mdividuaJ enterprise of its manufacturers and traders. That, with the efficient assistance of the consular and diplomatic service, they have done so well is gratifying in itself, but inspiring in the compelling suggestion of what can be accomphshed when supplied with ^l-Axaerican facilities. Although many American interests make no specific complaint regarding their accommodation by foreign banks, instances of its disadvantage are plentiful. Almost without exception Americans familiar with the South American field are confident that American banks, properly managed and with large resources, would vastly stimulate and effectively defend American trade. In the competi- tive era now at hand it behooves each aspirant for the rewards of the rich neutral markets to strengthen his position for the inevitable struggle. Germany is doing this. German manufacturers and traders rely for information upon their own banks. Needless to say, no vital credit, or other information, is given by a German to a British bank, or vice versa, unless for protection against a common danger. This does not apply, of course, to routine information. But for a Ger- man bank to bolster up a British trading house with information obtained at great expense and pains would neutralize the purpose for which the German bank was established. British banks realize that the surrender of information to German houses aids the German advance upon the trade preserves created by British priority in the field and extended by the steady inflow of English "gold. Keen com- petition has carried the German trade to its present position, so far as volume of sales is concerned, for the British have refused to follow the Germans to the full extent of their extension of credits. Germany is bending every effort to win further South American trade and has more to fear from the United States than from any other nation except Great Britain. Unless the German system reverses all prec- edents, its faculties wiU not be available for the aid of American competition. 68 BANKING AND CREDIT. AMERICAN DISADVANTAGES. American manufacturers and exporters possess no national facili- ties for financing export trade tliat at all approximate the resources of their rivals. If a manufacturer or exporter asks a bank in New York to discount a draft on a South American customer, the bank extends or denies the accommodation according to the standing of the manufacturer or exporter. The bank has little or no information of its own regarding the customer in South America. It must obtain the information through a European bank in South America, or that institution's agency in New York, or from one of the powerful native banks. A well-known American mercantile agency is steadily extending its business in South* America, but mercantile information and banking information are somewhat different. This explains why American manufacturers have adopted the policy of demanding "cash against documents" at New York; and also why agencies of European banks have prospered at New York. These agencies provide the facilities for financing foreign business that would be possessed by an American bank if it were to maintain and develop South American branches. The "cash against documents" policy has protected American manufacturers ignorant of South Ajnerican conditions, but it has not placed the export trade upon a cash basis. Credit is nearly always interposed between the manufacturer and the consumer. This may be done either by an exporting house at New York or by an importing house or bank in the country of destination. Where American banks have knowledge of the character and business envi- ronment of foreign customers, they extend reasonable credit. Canada and other near-by countries are evidences. But, as already said, no manufacturer, American or European, can afford for a prolonged period to tie up his capital in credits. He must have a quick turn- over. The European manufacturer has been enabled to do this either by recourse to the large European discount market for foreign paper or by leaving the financing of the over-sea sale to the mediation of an exporting house to whom the discount market is similarly available. The new Federal reserve act permits any national bank to accept drafts or bills of exchange drawn upon it and growing out of trans- actions involving the importation or exportation of goods and having not more than six months' sight to run. This will enable American banks to provide acceptances based on international trade, which can be bought and sold in any discount market in the world. Such paper is not dependent upon the credit or reputation of the drawer, but is good wherever the name of the accepting bank is known. Such paper could be negotiated in London, Paris, Hamburg, Buenos Aires, Kio, Habana, or other such cities. Of course, Ajnerican banks, chartered under State laws, would have an equal opportunity to make acceptances. Since domestic acceptances are excluded by the Federal reserve act. State institutions would be able to deal in do- mestic acceptances as well as those based on international trade. HOW AMERICAN FOREIGN TEADIZ IS FINANCED. The methods whereby American foreign trade is financed have been so comprehensively dealt with by IVfr. Archibald J. Wolfe in a report on foreign credits (Special Agents Series No. 62, Bureau of AEGENHSTA, BBAZIL, CHILE, AND PERU. 69 Foreign and Domestic Commerce) that it ia not necessary to review them m detail. Because the great South American countries are all remote from the United States they are, therefore, more subject to the American manufacturer's demand for "cash against documents" than Central American and West Indian countries. This pohcy, however, does not wholly eliminate credit. Trading houses or commission merchants at New York frequently interpose credit by paying cash to the manufacturer and discounting their own 90-day sight drafts on the over-sea purchaser. The various American banks with foreign connections and the agencies in New York of the European oanks doing business in South America offer a market for these drafts. The banks in South America often assist the pur- chaser in meeting the draft at maturity. A quick turnover is im- perative. The bulk of the trade of the world is transacted through trading houses, and the credits for its accommodation are arranged by them. The use of commercial letters of credit is steadily increas- ing, and the transmission of money by cable is sometimes resorted to with great success where competition is keen. SECBKCY OF BILLS OF LADESfG. Whether the important information as to prices, quantities, etc., con- tained in a bill of lading is subject to disclosure to foreign rivals when the bill of lading attached to a draft is sold or given for collection to a foreign bank is a question widely discussed. Many persons insist that this danger is very real and that certain European industrial interests derive constant and iinportant information as to the opera- tions of American business in South America. Repeated inqiiiries fail to elicit direct proof. The greater security of confidential in- formation is an advantage claimed by the advocates of the extension of the American banking system to the new markets. COMMERCIAL METHODS. The foreign salesman is the best register of the needs of credit. The disadvantage under_ which American salesmen labor because of the lack of a purely American machinery for extending credit is clearly set forth in the statement of an experienced American sales- man traveling on the west coast of South America. This shows how his European competitors are reinforced. His statement follows: In my opinion the only eerious obstacle to the extension of American business in South America, at the present time, is the question of prices and terms. It is true that very often a salesman meets with a chilly reception from a customer because of some antagonistic article -which the customer has read in the local press fostered largely by. European influence. Personally I have, on numerous occasions, met with such opposition. But after explaining to such a merchant that I am interviewing him entirely on a business proposition, that I am not a politician and have no interest in politics, and am assumiB^ that he, as a business man, is willing to view my proposition purely from a business man's point of view, he usually sees how ridiculous his position is in letting political opinions influence the conduct of his business. This makes it possible to talk business freely and without prejudice. In no instance do I recollect having lost any business — and this after a great many years of experience in South American countries — owing to racial or political prejudice. Where a man has the right price and is prepared to extend equal terms with European competitors he can invariably get business. American goods are recognized all through Spanish America as being of a high standard of merit. The greatest difficulty in getting orders for American manufactures lies in the ques- tion of terms. It is commonly believed by American manufacturers that European houses give 9 and 12 months' credit. While this is true in theory the European man- ufacturer as a rule receives his cash as soon as he places his goods on board steamer. 70 ' BANKING AND CREDIT. It is the special biuikiiig facilities which Euiopean manufacturers have that enable their customers to receive the benefit of 9 and 12 months' credit on their purchases. The system commonly in vogue is for the manufacturers' salesman to grant cus- tomers 9 months' credit, but it is arranged that so soon as the goods are placed on the steamer the account begins to accumulate interest at the rate of 6 per cent per annum and this interest is paid by the consignee, the manufacturer recei-> ing tne cash as above stated immediately upon surrendering to the bank the bill of lading. It commonly occurs that these merchants do not pay their draft upon maturity, and, as the bankers in Europe consider 6 per cent a good return upon their money, they are willing to have these terms extended to 12 months or even longer. Most of these banks have branches in the country to which the goods are shipped, and are as well posted on the fiuaucial standing of the merchant as the manufacturers themselves. The consignee is willing to pay 6 per cent per annum for the use of this money, for, if he is obliged to borrow from a local bank or private institution, he will have to pay from 12 to 15 per cent per annum. In contrast to this European system it is impossible to induce an American bank to discount a foreign draft for longer than 4 months. Many object to discounting drafts for longer than 90 days. If these drafts are not paid upon maturity, which in most cases they are not, American banks oblige the manufactmer to cover and where a manufacturer is doing business in Spanish America beyond his actual capitalization, he is, at any time, likely to be swamped by the necessity of covering outstanding unpaid drafts. The advantage a European manufacturer enjoys over an American competitor is self-evident, for whereas a small European manufacturer, say, of $100,000 capital, can do a turnover of $1,000,000 or more in the export trade, a small AJnerican manufacturer in the same line of business could not safely finance an export business much beyond his actual capitalization. American salesmen whom I meet are as well equipped, as a rule, as their European competitors. The only mistake many American manufacturers make is in sending to Spanish American countries salesmen who are not conversant with the Spanish language and are not in sympathy with the people and their institutionB, because, they do not understand them. "The question of packing has been discussed until it is threadbare and is something that nobody raises nowadays in the trade except European competitors, who bring it forward against American manufacturers when they have nothing more tangible to present. If our manufacturers would handle their business in Spanish America along the lines they do at home, advertise their wares judiciously and intelligently to the consumer, send out wide-awake salesmen who know the language and people and are prepared to meet then- competitors' prices and terms, these markets are theirs. And all this shallow talk about racial prejudice and antagonism to the Monroe doctrine, bad pacldng, etc., standing in the way of extension of American trade, will go up in smoke as it deserves. These merchants, as a rule, are good, commonsense business men, with keen business instinct and can see a dollar as far as the next man. When our American manufacturers are prepared to offer them something that it is to their interest to take up, they will take it up, and sentiment will play no more part in their decision than it does with a merchant at home. They are accustomed to decide these questions on their merits and do not buy from (Jermany or England because they love these people. If thdi business relations depended materially upon sentiment they would not buy from any foreign country. A SOUTHERN BANK'S VIEW. While New York is the foreign banking center of the United States, other ports bear an important relation to over-sea business. Because of New Orleans' proximity to the southern republics and its natural advantages as an outlet for exports to South America, as well as its large coffee importations from Brazil, a prominent New Orleans bank (Whitney-Central National Bank) was asked for an opinion on certain phases of the foreign banking problem. The questions and answers are herewith reproduced: Q. What is the total amount transferred between New Orleans and foreign markets via London, Hamburg, or Paris, for payment of exports and imports? A. The total amount of foreign bills representing exports, handled by New Orleans, is approximately $160,000,000. The total amount of foreign credits used for the importation of merchandise is approximately $50,000,000. aegbnuna, beazil, chile, and peexj. 71 Q. Do New Orleans bankers carry accounts in London banks to facilitate the pay- ment for purchases made by their customers abroad, or do they depend for this service upon then- New York banks, who in turn draw on London? A. New Orleans bankers carry accounts in London, Paris, Berlin, and Antwerp. Q. Is the present method of paying for foreign purchases by drafts on London satisfactory? A. The present method is satisfactory as far as general convenience is concerned. Q. If American banks were establidied in South America would they provide a more direct and economical channel of payment for New Orleans than the present system via London? A. If American banks were •established in South America they would provide a means of payment which would be more satisfactory for American bankers; but it is doubtful if it would be equally satisfactory to the South American merchants and bankers. It surely would not be until such time as acceptances of American banks were as readily discoim table in South American markets as are acceptances on London. In other words, a coffee credit issued on Brazil by an American bank on itself, or one of its American correspondents, would have to find as ready sale to bankers in Brazil, and they in turn would have to find as ready and as low a discoimt facility on such bUk as they now enjoy when drawn on London. Q. Is it possible to estimate the saving to New Orleans which would result from payment and coUection on American purchases and sales in South America through American banks with American exchange, as compared with the present method of payment with London exchange? A. The saving would be about equal to the amount paid London bankers for accept- ances, or approximately one-fourth per cent on the volume of business handled. Q. Would the establishment of more direct financial relations with South American markets, through the creation of American banks therein, contribute to the increase of the export and import business of New Orleans? A. We think it would. Q. Are New Orleans exporters able to obtain satisfactory credit informatioa from South American banks? Do their European competitors get better credit informa- tion from banks of their own nationality doing business and maintaining branches in South America? A. We have not as yet done sufiicient business with South America to answer this question satisfactorily. This bank has exceptional facilities for obtaining infor- mation in Central America and thus far we have had no difficulty in satisfj-ing our- eelves fully. Q. Can New Orleans exporters expect to command satisfactory credit information from European banks for use in increasiog sales of American competitive manufac- tures in markets now largely held by British and German manufacturers or trading houses? A. Our foreign corresx>ondent8 have never declined to furnish us with satisfactory information . Q. Can you give any instance or instances of particular advantage gained by Euro- Eean manufacturers, exporters, or salesmen in South America through being closely acked by a bank of their own nationality? A. I believe it will be of considerable advantage to American exporters and sales- men in South America it a bank of their own nationality were available to them for its influence and for credit information, as well as convenience. Q. Can you cite loss of trade to New Orleans through lack of such facilities behind American manufacturers, export houses, or salesmen? A. There is some loss of trade arising from inability to furnish credit upon the same terms as foreign houses. EFFECT OF FEDERAL RESERVE ACT ON BANKING IN SOUTH AMERICA. From the evidence presented in the preceding pages certain con- clusions must already nave presented themselves plainly to the busi- ness man. It is obvious that various kinds of banking must be car- ried on by an institution adapted to assist American trade in South America. Its business, like that of European banks in South America, could not be limited to strictly commercial banking. In the Federal reserve act, however, it was intended to restrict the new system to rediscounts on paper arising out of mercan- tile ti ansactions, and paper based on mvestment securities would not 72 BANKING AND CBEDIT. be admitted. It seems evident, therefore, that the framers of the i act in the provisions for branches in foreign countries did not h realize the kind of banking that must necessarily be carried or South America. The new act, as already said, permits the establ; ment of branches of national banks in foreign countries. Piesui; bly, these branches would be restricted to the same Mnd of bus' as that of the parent bank. If this interpretation be correct, i| not seem likely that the new act will much facilitate credits to ." can business men in South America. Moreover, the newact^ a considerable capital to be set aside for each branch; and sl reports for each branch must be made to the Federal Reserve J Examinations must also be submitted to. Such restrictions evidently intended to secure compliance with the act in regard tq' kinds of banking done. AH through the pages of this report, and especially in those deal with German over-sea activities, it has been plain that banking a ices were intimately connected with loans to Governments and ci, with industrial investments, which would not come under the o] tion of the Federal reserve act. The conclusion, therefore, si irresistible that the banking facilities demanded for the South Ai ican trade would have to be provided by some institutions ou|i the Federal reserve system. Consequently, the large State banks ' trust companies receiving their charters from some State of the Uu, States aie the institutions to which South American trade mustw for assistaiice in order that American business men should gQl same facilities as Germans and Englishmen receive from theift ' banks established for the encouragement of foreign trade. In concluding this report, I desire to acknowledge with appreci| and thanks the valuable assistance that I have had from Sfr, E<| H. Patchin. o v.i l.^" :r •.-'■>' )// vv: .4^ ''«v^:fe. --!.'. k .^^-( Mt rr^;i^'-- \ ■%r • fit. sfe^'i ^« v;ir- 'm' I V N.^ f X*--"'-^-''^^^'' S~&«5?.-.-.- 5.1 r •J i'^^ ^^ '"■■ I! aH v^