Mr. BOYLES. Yes, sir.

The CHAIRMAN. You want to incorporate those?

Mr. BOYLES. Yes, sir.

The CHAIRMAN. Do you believe that bank holding-company legislation at the moment is urgently needed?

Ms. BOYLES. I would not say it is urgently needed. But I think the time is appropriate. I think the time is just about here.

The CHAIRMAN. Why is it not urgent?

Mr. BOYLES. Outside of the Chicago situation, which has made us feel that it is a little more urgent, I do not think there is anything else in the lineup that would require urgent legislation.

The CHAIRMAN. How do you know there are not many other Chicago situations existing in the United States?

Mr. BOYLES. I do not know that, sir.

The CHAIRMAN. How do you know that many of them will not show their heads within the next 12 months?

Mr. BOYLES. I do not know that, either, sir. I think it would be very desirable to have legislation and have it now. I would say it is most desirable. I think we have gone far enough.

The CHAIRMAN. You mean by that that it is not a matter of life or death?

Mr. BOYLES. That is right; it is not a vital matter.

The CHAIRMAN. You definitely feel we do need legislation on this subject?

Mr. BOYLES. Yes, sir.

The CHAIRMAN. That is the opinion of the American Bankers' Association?

Mr. BOYLES. That is the opinion of the American Bankers' Association that we do need legislation.

The CHAIRMAN. You feel S. 1118 and S. 76 are about the kind of legislation you need?

Mr. BOYLES. They would both be workable with the suggestions we have in our outline; yes, sir.

The CHAIRMAN. Any other questions, gentlemen?

Senator BENNETT. Mr. Chairman, as I understand Mr. Boyles' testimony, the American Bankers' Association does not believe there should be a complete prohibition of any expansion of bank holding companies. You believe, rather, that there should be restrictions upon that expansion, and that these restrictions should be imposed by the State authorities?

Mr. BOYLES. I believe there should be Federal regulations with respect to this, and expansions should be governed by the State law; if the State law prohibits any further expansion, then that would be it. If they would permit it, then the Federal law would regulate such expansion.

Senator BENNETT. But you do not believe that the legislation should be so written that there should be no further expansion under any circumstances?

Mr. BOYLES. No; I do not.

Senator BUSH. Mr. Chairman, could we ask the gentleman to have his association express an opinion on the bill submitted by the Federal Reserve Board to this committee?

Mr. BOYLES. We could do that at a later date.

The CHAIRMAN. Suppose you file a statement, giving us your opinion of the so-called Federal Reserve Board's bill.

Mr. BOYLES. We shall be glad to do that at the appropriate time. (The information requested follows:)

The American Bankers Association has been asked to make a comment on the committee print of a bill relating to bank-holding-company regulation submitted by a member of the Board of Governors of the Federal Reserve System.

DEFINITION

Definition of a bank holding company contained in the committee print follows substantially the definition in S. 76, whereas the ABA has indicated a preference for the definition contained in the Capehart bill, S. 1118, with certain proposed changes.

The committee print contains one important provision which was suggested by the ABA as an improvement to the Capehart bill. The committee print provides that the term "bank holding company" shall not include any company which is determined by the administering agency not to be engaged as a business in holding the stock of or managing or controlling banks in such a manner and to such an extent as to require regulation under the act. The provision also sets up certain factors which should be taken into consideration. The provision could very well be incorporated in the Capehart bill, if that bill is to be used as the basis for building suitable bank-holding-company legislation.

REGISTRATION AND ADMINISTRATION

The committee print contains a section treating with administration of the act and embodies the suggestions which were made by the ABA for improving the Capehart bill. In substance, this section of the committee print appears satisfactory, particularly in that it provides for—

1. Extension of time for registration;

2. Examination of holding companies at its expense, and

3. Report of the administering agency to Congress.

CONTROL OF BANK HOLDING COMPANIES

Section 3 of the committee print deals with the acquisition of bank shares. It provides that control also should be had over any merger or consolidation of a bank holding company with any other bank holding company. This seems to be a desirable provision and could well be incorporated in the Capehart bill.

Section 3 of the committee print also establishes certain factors which should be taken into consideration in connection with any acquisition or merger or consolidation thereunder. These seem to be excellent guideposts and would be a valuable addition to the Capehart bill.

Section 3 (c) provides that the administering agency shall be authorized to prescribe such conditions as it may deem necessary in the light of its consideration of such factors, in order to assure the sound financial condition and satisfactory management of the bank holding companies and of the banks controlled by it. This provision is not contained in the Capehart bill, but it might be a desirable one to incorporate therein.

The committee print provides that the administering agency should be the sole authority to determine whether or not any acquisition or merger or consolidation is to be granted. In the Capehart bill, with the changes suggested by the ABA, the Comptroller of the Currency for national banks and the State supervisory authorities for State banks would have the right to disapprove any application for any acquisition of bank shares; and the administering agency, the Board of Governors of the Federal Reserve System, according to the suggestion of the ABA, would also be given an overall power to veto any such application if it is considered in the public interest despite any approval of a supervisory authority. It is believed that the Capehart bill as to this particular provision, with the changes suggested by the ABA, would be more desirable.

The committee print provides only for the acquisition of shares of stock, whereas the Capehart bill provides also for the acquisition of all or substantially all of the assets of any bank. It is felt that the provision in the Capehart bill in this respect should be retained.

The committee print provides that no acquisition of ownership or control of the shares of any State or National bank in any State shall be approved if, under the same circumstances, the acquisition of such ownership or control of shares of a State bank would be expressly prohibited by the statutes of such State. The ABA was not in favor of the Capehart provision in this respect which froze any interstate expansion and permitted intrastate expansion only in conformity with the laws governing branches of banks in such State. In the interest of preserving the rights of States, the ABA suggested that the Capehart bill be changed so that no application should be approved where a holding company attempts to purchase the voting shares of, interest in, or all or substantially all, of the assets of any bank located outside of the State in which such bank holding company or subsidiary thereof maintains its principal office and place of business, or in which it conducts its principal operations, unless the laws of such outside State expressly permit such acquisition and no bank holding company or subsidiary thereof shall be permitted to acquire such interest in any additional bank within the State in which they have their principal place of business if prohibited by State law.

DIVORCEMENT OF NONBANKING INTERESTS

The committee print on divorcement of nonbanking interests corresponds in some respects to that of the Capehart bill. However, it was suggested by the ABA that the period of time for divorcement of interests be changed from 2 years to 5 years and that a holding company likewise be permitted to divest its interest in banking and enjoy the same tax relief as would be accorded in connection with divorcement of nonbanking interests.

Section 4 (b) of the committee print is a very excellent suggestion which could very well be incorporated in the Capehart bill. It provides that no certificate evidencing shares of any bank holding company should bear any statement purporting to represent shares of any other company except a bank or a bank holding company, nor shall the ownership, sale, or transfer of shares of any bank holding company be conditioned in any manner whatsoever upon the ownership, sale, or transfer of shares of any other company except a bank or a bank holding company. It is suggested, however, that the term 2 years in such section 4 (b), before this provision would become effective, be changed to 5 years.

BORROWING BY BANK HOLDING COMPANIES OR ITS SUBSIDIARIES

The committee print does not contain a section relating to borrowing by bank holding companies or its subsidiaries. This is contained in the Capehart bill and should be a part of any bank holding company legislation.

RESERVATION OF RIGHTS

The committee print does not have any provision similar to that contained in the Capehart bill as to preservation of States rights except as might be indicated in its provision in section 3 relating to acquisition of bank shares which could not be acquired in a State where it is expressly prohibited by the statutes of such State.

HEARINGS AND REVIEW

The committee print does not have a section on hearings and review as does the Capehart bill. It is suggested that such a provision be incorporated in any legislation on bank holding companies.

PENALTIES

The penalty section contained in the committee print is substantially the same as that in the Capehart bill. The ABA has suggested, however, that the penalties against individuals should be deleted.

The CHAIRMAN. Mr. Boyles, do you feel that bank holding companies should not be permitted to participate in any kind of business, other than bank holdings?

Mr. BOYLE. The divorcement of nonbanking assets has been a policy of the association for a long time, with the exception of the servicing organizations, as I suggested.

34937-53--10

The CHAIRMAN. You think they should not be permitted to participate in businesses other than banking?

Mr. BOYLES. That is correct, except the service organizations. The CHAIRMAN. You think we ought to pass a law here requiring them to divest themselves of all holdings, except bank holdings!

Mr. BOYLES. I do, with the little exceptions we have in the service organizations, such as auditing.

The CHAIRMAN. But, with those exceptions, you think the law ought to require that they divest themselves of all holdings other than bank holdings?

Mr. BOYLES. That is correct, sir.

The CHAIRMAN. Do you likewise agree, as in S. 1118, that they should be permitted to continue their present holdings in any and all banks that they now have holdings in?

Mr. BOYLES. In banks, yes, I do, but they would be of course subject to the regulations and reports, and so on of the Federal authorities.

The CHAIRMAN. Do you think we will know any more a year from now on this subject than we do today?

Mr. BOYLES. That is prognostication, sir, and I would not want to make that statement.

The CHAIRMAN. How long has this matter of legislation with respect to holding companies been kicking around here?

Mr. BOYLES. To my knowledge, probably 12 or 15 years, I believe. I do not know how much longer than that. How sincere they were in the beginning, in getting legislation, I do not know, but we have been sincerely working on getting legislation this year. I think almost all of the associations have been working to develop that.

The CHAIRMAN. Do you think anything would be gained by delaying the matter?

Mr. BOYLES. I do not believe so. I do not believe we would be too much smarter in handling these things. We can take care of that from time to time, as the law permits.

The CHAIRMAN. Are there any other questions?

Senator DOUGLAS. Mr. Chairman, could I ask a question?

The CHAIRMAN. Senator Douglas.

Senator DOUGLAS. Mr. Boyles, on page 5 of your memorandum, that paragraph at the head of the page deals with the supervisory activities of the Board of Governors of the Federal Reserve System.

Mr. BOYLES. Yes.

Senator DOUGLAS. Do I understand that what you are advocating is that the applications for expansion should be submitted to the States if it is a State bank, or the Comptroller of the Currency if it is a national bank. These are to give advisory opinions, but the final decision is to be in the hands of the Federal Reserve?

Mr. BOYLES. That is correct, the veto powers, of course by the States. Senator DOUGLAS. A State can veto it, but if the State grants it, it is not obligatory from the Federal Reserve.

Mr. BOYLES. That is correct.

The CHAIRMAN. Thank you very much, Mr. Boyles. We appreciate your testimony.

Mr. BOYLES. Thank you, sir.

The CHAIRMAN. Our next witness will be Mr. Harry J. Harding, president of the Independent Bankers Association of the 12th Federal District.

STATEMENT OF HARRY J. HARDING, PRESIDENT, INDEPENDENT BANKERS ASSOCIATION OF THE 12TH DISTRICT

Mr. HARDING. Mr. Chairman, and gentlemen of the committee, first of all, I would like to submit for the record a statement which Mr. Emmert Brumbaugh intended to propose today, expressing the views of the National Association of State Supervisors, which organization has wholeheartedly and strongly endorsed the Capehart bill.

The supervisors have charge of supervising, as well as granting charters to banks in the States, and under their supervision they have about two-thirds of the banks of the country.

The CHAIRMAN. Have all of the State examiners endorsed this bill? Mr. HARDING. I cannot say that, individually, but the association has, and as far as I understand, all supervisors have concurred in that. The CHAIRMAN. All State supervisors?

Mr. HARDING. Yes, sir; they have all concurred in that.

The CHAIRMAN. And the National Association of State Supervisors has likewise endorsed S. 1118?

Mr. HARDING. That is correct, sir, wholeheartedly and strongly. The CHAIRMAN. You wish to have this statement of Mr. Brumbaugh placed in the record?

Mr. HARDING. Yes, sir.

The CHAIRMAN. Without objection, it will be so placed in the record.

(The statement referred to follows:)

STATEMENT OF D. EMMERT BRUMBAUGH, FORMER SECRETARY OF BANKING OF THE COMMONWEALTH OF PENNSYLVANIA

I, D. Emmert Brumbaugh, former Secretary of Banking of the Commonwealth of Pennsylvania, am introducing the following statement of the chairman of the legislative committee of the National Association of State Supervisors, Mr. L. Merle Campbell, secretary of banking, vice chairman of the executive committee, Harrisburg, Pa.

S. 1118, INTRODUCED BY SENATOR CAPEHART ON FEBRUARY 27, 1951, AND REFERRED TO COMMITTEE ON BANKING AND CURRENCY

"This bill has been introduced by Senator Capehart at the request of the Independent Bankers Association and is similar to the Spence bill (H. R. 12) but it differs on the following:

"A bank holding company is defined as 'any company that holds 25 percent of the voting shares of two or more banks.' In H. R. 12, the figure is 15 percent. The new bill also gives the Federal Reserve Board the same discretionary power as does the Spence bill to designate as a holding company 'any company which the Board determines after notice and hearing exercises a controlling influence over the management or policies of two or more banks.'

"S. 1118 places more emphasis on the rights of State supervisory authorities than does either H. R. 12 or S. 76. Sole authority is given to the appropriate State supervisory authority to approve the acquisition by any bank which is a bank holding company, of the assets of any bank if the acquiring bank is an insured, nonmember State bank. Additionally, the provisions of the new act relating to the acquisition of bank shares or bank assets, do not apply to a nonmember State bank which is a bank holding company if the laws of the State in which such bank is operating, permits the ownership of such shares or investment.

"The new act emphasized states rights by several new provisions which require that State banking authorities be kept fully informed of applications for acquisition permits by holding companies. State supervisory authorities are given authority to disapprove any action which may result in a bank holding company. An individual shareholder, bank, holding company affiliate, company, individual, or interested group is given the right to apply for a decision