Mr. HUNTINGTON. Well, I think, Senator, I know in the light of our own experience, that small banks and small communities are in need of financial assistance. They do not always have available for them the markets which are available to the great institutions like the Chase and the National City and the Bank of America, and many others that I could suggest. I think it is a wholesome thing for them to have some place where in emergency they can get additional funds.

Let me translate that. I have it in this paper. We have had notices lately in two cases from the FDIC, and in one case from the State Department of New York, asking for increases in capital in some of these little majority owned banks of ours. We are perfectly willing to give them the increased money. They could not get that increased capital anywhere else. But their deposits have increased, their loan business has increased over the last year. The banking department and the FDIC say that these little banks are in need of additional funds. They have to get those funds from us. Naturally every stockholder, because they are always minority stockholders has a preemptive right, but we underwrite their entire requirements. They have no such market as that available to them.

I think in that particular that a bank holding company if it is properly and decently operated, can do a fine job. I do not believe they ought to be allowed to grow too big. As I say, if you establish a standard, I think it is within reason to say that blank dollars shall be the criterion of bigness. I do not know what it is. But it could be established if you wanted to do it.

Furthermore, if bank holding companies, I am not saying that this is a good thing, may not want to be under the supervision of the SEC. They may not want to operate under the Investment Company Act of 1940. We do. We do. We are delighted even though it restricts investments and loans, even though special fees and privileges such as are permitted under section 8 of this bill are prohibited under the Investment Company Act of 1940.

We do not mind operating under that act, and that controls unconscionable dealings and relationships and extravagant expansion of all kinds.

Senator FLANDERS. It is getting toward 12 o'clock, and the witness indicated that he had another approach, a simpler approach to the problem represented by the Transamerica outfit or the Bank of America. I wonder if it would not be a good idea to have him tell us what it is.

Mr. HUNTINGTON. Senator Flanders, you could guess at it, because I have already hinted at it. I say that this bill, this particular bill as it is drawn really accomplishes only one thing. There is only one specific prohibition, unless I have completely misread it, and that is the prohibition I have pointed out under section 7, which forbids a bank to invest in the stock of its parent company, which never ought to be permitted in any event. Neither should upstream loans, nor special fees and benefits, things of that kind, be permitted.

I do not believe in those things. I am not here to argue that they are good.

I do say, however, that it is not necessary to give to the Federal Reserve Board a magna carta or absolutism in order to accomplish the few simple things that need to be accomplished to meet the legitimate objectives of the Federal Reserve Board.

Senator CAIN. That is precisely what we want.

Mr. HUNTINGTON. I have not sat down to try to draft amendments that I thought might do those things that I have talked about, but I will guarantee that any capable lawyer can present you with amendments to present existing laws, rigid enforceable laws being capably administered not only by the Federal Reserve Board and the FDIC, and I am not quarreling with the Federal Reserve BoardSenator FLANDERS. Do not draft the bill. ought to do.

Just tell us what we

Mr. HUNTINGTON. But I have said this, and I object to this bill, too, because one of the points I was going to make is that what this bill actually does, and what I conceive to be its concealed purpose, is the elimination of State banks.

Senator FLANDERS. Just get to the constructive side of it. Our time is a little short.

Mr. HUNTINGTON. This bill can be drawn without eliminating State banks. If that is going to be eliminated, and dual system of banking in this country is going to be done away with, I think it ought to be done directly and not by a bill such as this.

I say, Senator Flanders, this, and may I read from this personal statement of mine:

The Federal Reserve Board, in this bill, is straining at the gnat of undue influence in order to swallow the camel of State banking and take unto itself additional arbitrary power far beyond that ever heretofore contemplated by Congress as necessary to the implementation of its concept of our Federal Reserve System. No other interpretation is possible in the face of the demonstrated extent of existing supervisory authority and in the complete absence of any proof of evil as a result of bank stock ownership or owner affiliations. (It must be remembered, too, that Mr. Eccles has testified that the only case of undue influence known to him is that of Trans-America-Bank of America and that all of this could have been controlled.)

If, on the other hand, Congress really believes that bank stock ownershipwhether or not coupled with outside activities-gives rise to tendencies which are not now controllable and must be checked, the necessary results can be accomplished by simple amendments to existing law. There is certainly no need for writing a magna carta of absolutism for the Federal Reserve Board.

In the first place, it should not be forgotten that practically every bank in the country, if it is to stay in business, must maintain its insured status with Federal Deposit Insurance Corporation. Congress can, therefore, easily use the weapon of insurance "conditions" to bring about a segregation of activities and to control expansion. Beyond this, is the possibility of amending the Investment Company Act of 1940. Either or both methods will readily accomplish all that ought to be done in the way of adding regulation on regulation.

There are other changes in the law which, perhaps, should be investigated in any event. At least one of these would benefit bank stock owners rather than add to their troubles. For the reserve fund section of the present law (R. S. 5144) is both unnecessary and unfair. It should be repealed at the earliest possible moment.

If remedial legislation is needed, therefore, it should take the form of amendments to existing authority vested in agencies other than the Federal Reserve Board. This would be the easy, safe, and intelligent method. It would differ, in all these respects, from the unwholesome and undemocratic procedure suggested by the Federal Reserve Board in the measure which has been the subject matter of this discussion.

Senator FLANDERS. In order to accomplish the dissociation of banking, not merely the question of size is involved. There is the question of association of ownership of industries and businesses of all sorts by bank holding companies.

If we want to dissociate, we have it in mind to dissociate those, that business ownership and business control from bank ownership and bank control.

Just how would you do that?

Mr. HUNTINGTON. Senator Flanders, with respect to those unrelated activities of that kind, I think the very simple thing to do is to force those companies to register as registered investment companies, and be supervised by the Securities and Exchange Commission. That is a very simple thing.

Senator FLANDERS. You would have them subject to two jurisdictions.

Mr. HUNTINGTON. I would have them subject to only one. Senator FLANDERS. You would have those banks subject to the SEC?

Mr. HUNTINGTON. No, sir; that is not necessary. That would, from our point of view, be preferable. I think there should be an exemption that any bank holding company which is a registered investment company or an affiliate of an investment company, in either case the SEC has complete supervision, and in either case you operate under the Investment Company Act of 1940. In those cases there should be an exemption. But I think the requirements should be that bank holding companies dissociate their unrelated activities, put them in a company which is registered under the Investment Company Act of 1940, which was designed to control just that sort of thing.

Then, if I may say so, then strictly bank holding companies which are not registered under the Investment Company Act or affiliates of companies so registered, can be controlled by other amendments to existing legislation, such as an extension, if it is necessary and I do not think it is necessary, of Federal Reserve and existing Federal Reserve, and FDIC powers, because perfectly obviously you could control bank purchases, bank expansion through the acquisition of assets of banks and through consolidation and merger, and through the establishment of banking branches, which is controlled, and the entire Bank of America system was bulit up that way, and not by the purchase of bank stocks, but the purchase of baak stocks could be controlled by imposing an insurance condition with respect to insurance by FDIC, because no bank and no system of banks and no chain of banks can live 5 minutes in this country without FDIC insurance.

Senator FLANDERS. You approve of that, of this bill which requires the divestment of bank holding companies of unrelated activities. You approve of that?

Mr. HUNTINGTON. I think, Senator, and I hope that you and Senator Tobey and Senator Cain, and everybody else will get my attitude about this bill. I am not disapproving of the control of anything that ought to be controlled and regulated. I was simply arguing that I so not like the way this is written.

The CHAIRMAN. He asked you a specific question, what your attitude was on that.

Mr. HUNTINGTON. We are already separated, certainly.

Senator CAIN. Have you ever talked to Mr. Eccles or other members of his Board with reference to the suggestions you are making to this committee?

Mr. HUNTINGTON. No, sir, I never have.

Senator CAIN. Your record will be helpful in that instance for it will be examined by them for whatever reflections they may care to make.

Mr. HUNTINGTON. I know that, Senator, that the time is up, and I will not labor the points that I have made.

The CHAIRMAN. I am sure each of us will read this.

Mr. HUNTINGTON. I have enough copies of this. This is not my formal statement. I have enough to give everybody a copy. I do make these points in here and I do think they ought to be examined. The CHAIRMAN. That statement reflects your points?

Mr. HUNTINGTON. It does.

The CHAIRMAN. I will guarantee that it will be read.

Mr. HUNTINGTON. May I also, then, give you these, not as my formal statement which is the other statement, but I would like to have you have these. I think this bill could well be changed.

The CHAIRMAN. We will be glad to do that, sir. (The documents referred to are as follows:)

OUTLINE ARGUMENT IN OPPOSITION ON FEDERAL RESERVE BOARD PROPOSED BANK HOLDING COMPANY LAW (S. 829 AND H. R. 3551), BY ELLERY C. HUNTINGTON, JR., MAY 24, 1947, SUBMITTED TO THE SENATE COMMITTEE ON BANKING AND CURRENCY

STATEMENT OF POSITION

A. NO PREJUDICE AGAINST FEDERAL RESERVE BOARD NOR ANY NECESSARY

"REGULATION"

I. No bank or company in which The Morris Plan Corp. of America (herein sometimes called "The Morris Plan Corporation" or "The Corporation") holds any stock interest is a member of the Federal Reserve System.

II. All Morris Plan banks in which The corporation owns a majority stock interest have (or have applied for) insured status with the Federal Deposit Insurance Corporation.

III. The Corporation and its nonbanking and noninsurance affiliates (by reason of affiliation with "registered" investment companies) as well as all transactions between the corporation and its affiliates or between affiliates (including banking and insurance affiliates), are subject to the authority of the Securities and Exchange Commission under the Investment Company Act of 1940 (exhibit 2-C).

B. BASIS OF OPPOSITION TO BILL

Point I. Its unsupportable legal premises.

Point II. Its Authoritarian character.

Point III. The dangerous assumptions and unwarranted implications.

Point IV. Its illusory accomplishments.

Point V. Its cleverly concealed purposes.

Point VI. Its destructive, unfair and costly consequences.

Point VII. Its legitimate objectives can be met by simple amendments to existing laws.

DISCUSSION OF BILL

POINT I. LEGAL PREMISES OF BILL

A. That the control and supervision of banking in the United States is exclusively a Federal function (secs. 2, 3, 5, 6, 7, 8 and 9).

B. That the power of the States over banking may be destroyed and that Federal Reserve Board authority may be extended to the operations of State banks which are not members of the Federal Reserve System (secs. 3, 6 and 7).

C. That monopoly in the United States is no longer a question of fact but may be arbitrarily determined by a Federal bureau while exercising combined enforcement and juridical authority (secs. 3, 4, 5, 11 and 12).

D. That the antitrust laws of the United States cannot be applied to financial monopoly; although they were so applied in U. S. v. General Motors Acceptance Corporation, 121 F. (2) 376; and section 7 of the Clayton Act is directed at restraint through stock ownership.

NOTE.-The legal premises of the bill will not be considered in detail. Concededly, Congress, if it desires, can legislate against so-called bank-holding companies. Reference is made to this legal doctrine only because it will be shown:

(1) That, in fact, there is no monopoly in banking in the United States today: (2) That the Federal Reserve concept presupposes privilege and restraint of competition; and

(3) That the Federal Reserve Board's position in this bill that it fears monopoly, is a sham and contrary to its historical position.

Article A. The Evils of Multiple-Bank Stock Ownership—Morris Plan Statistics The bill has set up a straw demon-multiple-bank stock ownership. At this make-believe monster it thrusts and lunges without ever-as will be shown laterintending to be too serious about the attack.

As a matter of common sense no member of the Federal Reserve Board, probably, and certainly no one outside, could possibly believe that over-reaching and unfair dealing are any more inherent in the ownership of what could well be under the bill a minority interest in two small banks than they are in the absolute control of one of our billion-dollar institutions.'

Furthermore the historic fact is that, while the case books are replete with instances of owner depredations, reasonable research has not disclosed any, at least since the adoption of the Banking Act amendments of 1933, in which outrages were perpetrated against banks in so-called holding company systems. All of the cases dealt with single banks.

If, in truth, there is the slightest merit to the contention of the Federal Reserve Board, then, the comparative figures, showing the relative position of Morris Plan banks, are completely meaningless (exhibits 3 A, B, and E).

POINT II. THE AUTHORITARIAN CHARACTER OF THE BILL

Article A. The bill would constitute the Federal Reserve Board a dictatorship with unappealable power to administer, legislate, and prosecute and to exercise the prerogatives of judge and jury

Section 1. The bill prescribes no standards.

This measure has been painstakingly drafted and cleverly phrased to accomplish the hidden purposes of its authors. It has been before two successive Congresses in identical form (except for minor changes in sections 7 and 9 and for alterations in the technical-amendments section) and represents a third attempt on the part of the Federal Reserve Board to obtain legislation of this character (Congressional Record, April 30, 1946, p. A-2529). Presumably, therefore, the deceptive and misleading phraseology of the bill is deliberate and calculated.

The bill provides no "standards" pursuant to which its possible victims may shape their business affairs or their conduct.

The standards of status-bank holding-company status and subsidiary statusare, of course, completely meaningless. The real standard, in these instances, is the arbitrary determination of the Board. The effect of this is that the Board, in its unappealable discretion, may “declare” that an entity which qualifies as a holding company or a subsidiary, under the "standard" set by the bill, is really not a holding company or subsidiary at all. In like manner, unfortunately, the Board may "determine" that other entities which clearly do not conform to the prescriptions of the bill have, nonetheless, full status as holding companies or subsidiaries, as the case may be (sec. 3).

One wonders why Congress was able to be specific in its definition under the existing law (Banking Act of 1933, sec. 2); and in other similar cases (such as the "Investment Company Act of 1940"), and yet is now asked to compel corpora1 As a matter of fact, Mr. Eccles, himself, obviously does not believe the distinction is valid. He did not once refer to the matter in his testimony of May 26, 1947, before the Senate Banking and Currency Com mittee.

The only statistics furnished by Mr. Eccles at this hearing, incidently, related to Transamerica Cor poration and to Bank of America. Mr. Eccles made it clear that the real expansion to which he was objecting was that of Bank of America. This was the expansion of a single bank through new branches and bank purchases.

The other banks owned by Transamerica are of little consequence and if Transamerica's only bank interests today were those outside Bank of America, it is safe to say that Mr. Eccles would never have referred to Transamerica at all.