On June 25, 1946, the International Bank for Reconstruction and Development opened for business. U.S. supervision of the Bank was vested in the National Advisory Council on International Monetary and Financial Problems (NAC) and Walter C. Louchheim, Jr., representing the SEC, served on one of its sub-committees. The Bank's immediate problem was a shortage of funds from which it could make loans to countries. It quickly became clear that the Bank was going to have to rely on the private markets to raise capital. Unfortunately, the memory of sovereign debt defaults in the 1920s and 1930s loomed large in investors' minds.
In order to raise capital, NAC initiated meetings with various financial institutions to explain possible Bank issuances and to gauge investors' interest. Louchheim wrote, "Under my chairmanship, the committee made a two-day trip to New York City and held meetings at the [SEC's] office there. These meeting were attended by representatives of insurance companies, by representatives of savings banks and trustees and by commercial bank officers. The discussions concerned the loans of the Bank, the kinds of bonds to be issued, the possible attitudes of institutional investors with respect to such bonds, and steps which would need to be taken by state authorities to make the bonds eligible for institutional investment."(32)
Similar meeting were held in Boston and Washington. Louchheim also authored an article for the Commercial and Financial Chronicle in which he concluded that the Bank's bonds would be appropriate for multiple types of institutions and that there would be "a healthy appetite" for the Bank's debt.(33)
As Louchheim, an SEC employee, began marketing the bonds, a significant issue arose. Would the Bank's bonds have to be registered with the SEC under the 1933 Act? Registration went to the heart of U.S. securities laws and required issuers making a public offering to file with the SEC, and to provide to potential investors a host of material and disclosures regarding the issuer, its finances, the security being offered, and the risks associated with it.
There were a number of ways that registration of the Bank's bonds might be avoided. The SEC could provide a general exemption or find that the securities constituted U.S. government debt. The SEC General Counsel, however, took the position that bank debt was not issued or directly guaranteed by the United States or an instrumentality thereof and thus did not fall into the exception.(34) From 1946 on, the SEC steadfastly maintained that the Bank's bonds would have to be registered.
In 1947, before the Bank had engaged in a public offering of bonds, the Bank's President, John J. McCloy, informed Louchheim that he expected the relations of the Bank and the SEC to be a "close and cooperative one." In turn, Louchheim assured the Commission that McCloy "at no time . . . suggest[ed] any desire to have the Commission grant special exemptions or privileges to the Bank."(35)
(32) September 16, 1946 Report to the SEC Commission from Walter C. Louchheim, Jr., Adviser on Foreign Investments, on the Commission's participation in international economic and financial affairs (courtesy of the National Archives and Records Administration)
(33) Walter C. Louchheim, Jr., "The Marketing of World Bank Bonds," Commercial and Financial Chronicle (March 28, 1946).
(34) May 16, 1946 Letter from Walter C. Louchheim, Jr., SEC Adviser on Foreign Investments, to SEC Chairman Ganson Purcell, with May 6, 1946 preliminary memorandum on questions arising in connection with securities to be issued or guaranteed by the International Bank for Reconstruction and Development (courtesy of the National Archives and Records Administration)
(35) April 24, 1947 Notes from Walter C. Louchheim, Jr., Adviser on Foreign Investment, on conversation with John J. McCloy, President of the International Bank for Reconstruction and Development (courtesy of the National Archives and Records Administration)
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