approach to this problem than the one you are now endorsing, because I felt that before "firing on Fort Sumter" it would be better to explore the possibility of a peaceful settlement of the disagreement. I can assure you, however, that whatever legislation I support, I intend it to be in full accord with the fundamental principles of States rights. Mr. ARTHUR. I am positive of that. Senator ROBERTSON. And, consistent with private rights. The CHAIRMAN. Let me say that Senator Robertson and I introduced bills here for the purpose of holding hearings and neither one of us have any pride of authorship Mr. ARTHUR. I read your bill, Mr. Chairman, and I read your bill, Senator. Senator ROBERTSON. It is a good bill, is it not? Mr. ARTHUR. Not as good as this one. It does not prevent the very thing we are asking. That is what is wrong with your bill, as I see it. It does not prevent these people from crossing State lines and continuing to buy unless the State passes a State law to prohibit that. Isn't that correct? Senator ROBERTSON. I do not think it is. Mr. ARTHUR. The bill yesterday left out a very fine statement that the Senator had in his bill, the statement of policy, the local independent rights of banks. That was left out of Mr. Robertson's. Senator ROBERTSON. In any event, I have the satisfaction of knowing that after we had had weeks of hearings in 1950, those interested in legislation, including the Independent Bankers Association, finally agreed to endorse my bill. I have made a few minor changes, but on the last bill everybody agreed, except Mr. McCabe on 2 issues, and two members of this committee backed up Mr. McCabe on that, and that is where the thing ended, because the then chairman-you know the then chairman, Mr. Maybank? Mr. ARTHUR. Yes, sir. He is from South Carolina also. I do want to say to Senator Robertson before I leave the stand, that if we cannot get Senator Capehart's bill, we will take your bill at the drop of a hat. We want a bill. And if Senator Maybank puts one in, we will take his too. Senator ROBERTSON. That is a fine attitude. I told somebody yesterday I had no pride of authorship, and if the Federal Reserve thinks it ought to be tighter than mine, I would probably be willing to take their bill. Mr. ARTHUR. Senator, let us not concentrate on more power in the Federal Reserve. They have enough power already, and we do not want to build up any more empires. It seems to me I understood when the present administration took over, they were going to decentralize authority and decentralize power in Washington. I do not believe we want to give them too much authority. In the Capehart bill, there is a paragraph there that distinctly takes care of States rights. If you would put that in your bill, it would help. Senator ROBERTSON. They said they would clean up the mess in Washington. Mr. ARTHUR. They said they would. Give them a little time. anyway. I will say that as a southern Democrat. After all, it is only 5 months. The CHAIRMAN. Well, there is no competition between Senator Robertson and myself on this legislation. We want to get legislation here that is fair to everybody, and in the best interests of the country, also. Mr. ARTHUR. Just give us a bill. There have been efforts since 1943 to get one through. I think there is an extreme urgency. The CHAIRMAN. Maybe we have a new deal now. Mr. ARTHUR. Maybe so. We shall see. The CHAIRMAN. Thank you very much, Mr. Arthur. Senator BRICKER. Mr. Chairman, I have a communication here from Mr. R. Irby Didier, of Louisiana, enclosing a copy of a resolution of the Louisiana Bankers Association in support of a holdingcompany bill of some kind. I will ask that it be placed in the record. (The letter referred to follows:) Hon. JOHN W. BRICKER, LOUISIANA BANKERS ASSOCIATION, Chairman, Subcommittee of the Senate Banking and Currency Committee, Washington, D. C. DEAR SENATOR BRICKER: We understand that there will be a hearing on Capehart bill S. 1118, beginning Wednesday, June 10, and we enclose herewith a certified copy of a resolution adopted by this association at its annual convention in New Orleans on April 14, 1953. This resolution is in connection with the expansion of bank holding companies and sets out the views of our members. We should indeed appreciate if this letter and the resolution be included in the records of your hearing. Thanking you, we are Respectfully yours, Senator BRICKER (reading): R. IRBY DIDIER, Executive Secretary. Resolved, That the Louisiana Bankers Association is opposed to multiple banking operations across State lines through the use of holding companies, and does hereby formally express its opposition in that regard; and Resolved further, That the Louisiana Bankers Association is in favor of restricting multiple banking operations by holding companies within State lines in exactly the same manner that such multiple banking operations are now restricted by State legislation. It is certified by R. Irby Didier, executive secretary: I hereby certify that the above resolution was adopted by the Louisiana Bankers Association at its annual convention held in New Orleans on April 14, 1953. The CHAIRMAN. I have a letter from Mr. Byron R. Bone, of Fort Wayne, Ind., vice president of the American Industrial Bankers Association. (The letter referred to follows:) FORT WAYNE, IND., June 11, 1953. Mr. CHAIRMAN: My name is Myron R. Bone, I am vice president of the American Industrial Bankers Association, which maintains its national headquarters at Fort Wayne, Ind. I have made that city my home for the last 31 years. Due to a bad heart condition, I have been under the care of a physician since March 28, 1953, and so it is not possible for me to appear personally before your committee in support of an amendment to S. 1118. Our understanding is that this bill is not intended to include in its scope industrial banks, Morris Plan banks, and industrial banking companies. We believe, however, that the intention is not fully detailed in the bill as now written, and that misinterpretations might be possible if the bill became law. In various States, such as Colorado, New York, North Carolina, Massachusetts, and Michigan, the statutes provide for the organization and supervision of "banks," "savings banks," and "trust companies" as defined but, in addition, provided, also, for the organization and supervision of “industrial banks" or "banking companies." It would appear that there is generally understood to be a distinction between commercial banks, savings banks, trust companies, and industrial banks or Morris Plan banks. For many reasons, it would seem to be desirable than any Federal Bank Holding Company Act or similar measure should contain a clause clearly and fully defining the types of institutions to be covered and clearly defining the excluding from the provision of such an act industrial banks and Morris Plan banks. We respectfully suggest that an amendment be inserted in section 3, subsection (d) of this bill, as amended, this subsection would then read as follows: ''Bank' means any National bank or any State bank, savings bank, or trust company, but shall not include any industrial bank, Morris Plan bank, Morgan Plan bank, banking company, or similar quasi-banking institution, nor shall it include any organization operating under section 25 or 25 (a) of the Federal Reserve Act, or any organization which does not do business within the United States. 'State member bank' means any State bank which is a member of the Federal Reserve System. "District bank" means any State bank organized or operating under the Code of Law for the District of Columbia." We are not opposed to bank holding company legislation as such, but would like to see protection afforded those institutions which might be erroneously classified as bank holding companies when, in reality, they do not rightfully belong in that category. MYRON R. BONE, Vice President, American Industrial Bankers Association. The CHAIRMAN. Our next witness will be Mr. William L. Gregory, of the Easton Taylor Trust Co., St. Louis, Mo. Mr. Gregory, you have a statement, I believe? Mr. GREGORY. Yes, sir. The CHAIRMAN. You may proceed in your own way. STATEMENT OF WILLIAM L. GREGORY, CHAIRMAN OF THE COMMITTEE ON LEGISLATION, INDEPENDENT BANKERS ASSOCIATION OF AMERICA Mr. GREGORY. Mr. Chairman and gentlemen, before I begin to read my statement, I would like to correct some factual matters in Mr. Steele's testimony. I have been representing the Independent Bankers Association of America as their executive councilman for several years, and I am quite familiar with this holding-company operation. We now have five existing holding companies in the State of Missouri that I know of. The CHAIRMAN. Five holding companies? Mr. GREGORY. Yes, sir; five holding company organizations. Mr. GREGORY. Yes, sir, with headquarters within the State. To of them operate out of Kansas City, Mr. Steele's city. One in Kansas City has 24 banks in the immediate area of Kansas City and has recently bought 10 new banks in Colorado. There is one other holding company in Kansas City that operates nine banks, mostly in the western part of the State, in Missouri. In my town we have 3 holding-company groups, 1 of which I will describe in some detail here. Senator BENNETT. Before you leave that question, are there banks owned in Missouri by holding companies outside of the State? Mr. GREGORY. Not to my knowledge. However, in these holdingcompany groups there are a number of outside banks owned by holding companies. Senator BENNETT. But, you know of none in Colorado or Illinois, or any other holding companies operating in Missouri? Mr. GREGORY. No, sir; I do not. Your question to Mr. Steele, as to whether it would be possible for him to own a branch in Missouri-it would be possible for him to own all or part of the stock in any national bank in the State. A peculiar law was passed some years ago to accomplish and legitimatize something that already happened, and that law was passed to accommodate that bank, which owned one national bank. Senator BENNETT. Mr. Steele's bank is a State bank? Mr. GREGORY. Yes, sir, and he can own all or any part of the stock of any national bank. Senator BENNETT. But, no State bank? Mr. GREGORY. No State bank. Senator SPARKMAN. What is the name of that holding company that you said held those banks in the immediate vicinity of Kansas City? Mr. GREGORY. The Kemper Investment Co. Senator SPARKMAN. The reason I asked is I was just looking at the list of the Federal Reserve Board. Mr. GREGORY. And, also Goppert. Senator SPARKMAN. And, the General Contract Co. of St. Louis. Mr. GREGORY. I shall mention that in my testimony. The CHAIRMAN. You may proceed, Mr. Gregory. Mr. GREGORY. My name is William L. Gregory, and I represent the Independent Bankers Association of America, as chairman of the committee on legislation. This organization is made up of approximately 5,000 independentunit banks throughout some 40 States. I also have the right to speak for the Associate Bankers of St. Louis and St. Louis County, an organization of independent-unit banks, consisting of 47 banks. Both of the organizations that I represent have as their main purpose the protection of the small independent banker against the encroachment of monopoly banking in any form, whether it be branch banking, holding company banking, or any other type of multiple-unit banking. For some 12 years we have appeared before this Congress with the warning that the spread of holding companies, by evasive tactics, is seriously endangering the dual system of banking. At this time we appear in favor of passage of the Capehart bill, S. 1118, which is our judgment is the most effective legislation yet offered to control and regulate the operation of holding companies. Through the holding-company device, many hungry promoters have bought up a great many sound unit banks and brought them into the holding-company system, where many unsafe and unsound banking practices are possibleland where it is also possible to evade the excellent Federal supervisory agencies that would normally maintain control over the banking operations of the country. Three principal restraints that supervision can exercise over banking are: 1. The granting of charters. 34937-53-pt. 1-6 2. The control of the number and location of banks. 3. The continuous examination and supervision of policy and management of the banking units. The holding-company mechanism cannot only avoid supervision but it can at the same time siphon off the earnings of the subsidiary banks so as to weaken the protection to the depositors and greatly endanger them in the event of some future deflation. I should like to elaborate briefly on the methods whereby holding companies avoid the three principal restraints thrown around banks by supervisors. First, I would like to comment on the matter of granting charters. Banking opinion, plus good supervision since 1930, has largely avoided the dangers inherent in the organization of too many banks. The holding company, however, does not have to apply for a charter in a place where a bank now is operating. It can, by various methods, acquire control of the stock of that bank and, although the existing bank may have been well operated, the holding company can quickly change all of its policies and operations, and in effect acquire a new bank at that location, without assuming any responsibility other than the ownership of the stock. The common method used by holding companies is to exchange the holding-company stock for the bank stock, which does not put a single dollar of additional protection behind the deposits and very frequently the exchange is made on a basis that is most unfair to the bank stockholders. Regarding the second restraint point mentioned above, supervisors can control the establishment, the location, and the management of branch banks, but a bank holding company may establish a new unit at any point it chooses, if a bank is now located at that point. The holding company may, with perfect freedom, deny any responsibility for the acts or liabilities of this new unit because it is a separate corporate entity. As dangerous as branch banking may be, it can never be properly compared to the irresponsible bank holding company operation that is possible under present laws. Supervision of multiple-unit banking can never be effective without continuous examination and evaluation of policy and operating standards by a single supervisor. This single supervisor must be empowered to examine all units of a given system simultaneously, but typical holding-company systems avoid this simultaneous examination under existing laws. An active holding company now operating in St. Louis may be used as an excellent example of the structural organization of a bank holding company without reference to quality or ethics of its management. The General Contract Corp. is organized as a bank holding company under the General and Business Corporation Act of Missouri. It apparently owns or controls the following entities: I would like to summarize these as being made up of 16 loan companies, 6 banks operating in 3 different States, 4 insurance companies, and 12 insurance agencies. This list of 38 units operate in 9 States in the Middle West and Middle South: Industrial Loan Co Bank of St. Louis General Contract Loan Co. (Missouri) Springfield Insurance Agency, Inc. Washington Fire & Marine Insurance Co. Commercial & Industrial Bank, Memphis, Tenn. Industrial Finance Co. of Wellston, Mo. |