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75th CONGRESS 3D Session S. 357E IN THE SENATE OF THE UNITED STATES January 5 (calendar day, March 2 ) , 1938 Mr. Glass and Mr. McAdoo introduced the following b i l l ; which Was read twice and referred t o the Committee on Banking and Currency A BILL To provide for the regulation of bank holding companies and a f f i l i a t e s , and for other purposes. 1 Be i t enacted by the Senate and House of Representa- 2 t i v e s of the United States of America in Congress assembled, 3 That t h i s Act may be c i t e d as the "Bank Holding Company 4 Act of 1938". 5 SEC. 2. (1) "Insured bank" means any operating 6 bank, banking association, trust company, savings bank, or 7 other banking institution, the deposits of which are insured 8 in accordance with the provisions of section 12B of the 9 Federal Reserve Act, as amended, 10 (2) "Person" means any individual, partnership, asso- 11 elation of persons, or company. 1 (3) "Company" means any corporation, incorporated 2 bank, banking association, insured bank, joint-stock com- 3 pany, business trust, or trustees of any voting trust. 4 (4) "Director" means any director or trustee of any 5 company, or any individual who performs similar functions 6 in respect of any company, 7 (5) "Securities" include notes, &*•&#*«-,--a«eept*fieee-> 8 bonds, debentures, capital notes, voting trust certificates, 9 capital stock, treasury stock, warrants, and rights to sub- 10 11 12 13 scribe to or certificates of deposit for any of the foregoing. (6) "Capital stock" includes common and preferred stock, capital notes, and debentures. (7) "Control" means the legal or equitable ownership 20 14 Q&feei*iBg of more than 40-per centum of the t o t a l number 15 or par value of the outstanding shares of capital stock or feotai15A t h e h o l d i n g of more t h e n 20 p e r centum of t h e t o t a l 16 number of voting rights for electing directors, or the donrrnsp- control 17 y^-©»T-Ky*«et-iy-©p-i«€l4Feot-ly7 in any manner of the election of 18 a majority of the directors of an insured bank or any other 19 company, and wherever used in t h i s Act the word "control" 20 in any grammatical form shall have t h i s meaning. 21 22 (8) "Holding company" of any insured bank means any company which controls the insured bank or controls any 23 other company which in turn controls the insured bank, and 24 every company in any series or succession of companies in 25 any system of controlling and controlled companies, in which 3 1 any company or combination of companies control the in- 2 sured bank, 3 (9) "Affiliate11 of any insured bank means any com- 4 pany which with respect to the insured bank is a holding 5 company, every company in any series or succession of com- 6 panies constituting any system of controlling and controlled 7 companies, in which any company is controlled by the in- 8 sured bank or by such holding company or by any canpany 9 or combination of companies in such system, and any com- 10 pany having one or more shareholders who ha/e legal or U equitable ownership of more than 50 per centum of the 12 number or par value of the outstanding shares of capital stock 13 or voting rights for electing directors of both the company 14 and the insured bank; 15 foregoing, any company engaged solely in the business of 16 (a) operating a safe-deposit vault; or (b) holding or op- 17 erating the building and premises occupied by any insured Provided, That notwithstanding the (RIDER A) 18 bank,/shall not be an a f f i l i a t e of the insured bank, 19 (10) "Effective date" means the date of enactment of 20 t h i s Act. 21 SEC. 3 . It s h a l l be unlawful for any insured bank, 22 directly or indirectly or by any device whatever (1) to 23 make any loan or extension of credit to any of i t s a f f i l i a t e s 24 or t o invest any of i t s funds or any funds a&si-B^&torod-by24a t h e investment of which i s c o n t r o l l e d by 25 i t , in any securities issued or guaranteed by any of i t s RIDER A and any company organized for the purpose of engaging in, or any company primarily engaged in, interactional or foreign or similar financial operations as described in sections 25 and 25(a) of the Federal Reserve Act, and any company primarily engaged in the "business of dealing in "bills of exchange or acceptances eligible for purchase or rediscount " y Federal Reserve Banks, or bonds, notes, certificates b of indebtedness, and Treasury bills of the United States, obligations fully guaranteed both as to principal and interest by the United States debentures issued by Federal Intermediate Credit banks, bonds issued by Federal Land banks, and general obligations of Territories, de iq r>f thp United S t a t e s . . 4 1 affiliates; or (2) to purchase any securities frcm any of 2 its affiliates; or (3) to make any loan or extension of 3 credit to any person secured by any collateral consisting 4 of any securities issued or guaranteed by any of its affiliates, 5 Notwithstanding the foregoing, any insured bank, which 6 prior to the effective date, shall have made any loans, exten- 7 sions of credit, or investments which by virtue of this section 8 would constitute prohibited loans, extensions of credit, or 9 investments if made after the effective date, shall have three 10 years after the effective date within which to collect, sell, 11 or otherwise dispose thereof. During said three-year period 12 any such loans or extensions of credit may be renewed or 13 extended, but no renewal or extension shall be given beyond 14 said period. Within two years after the effective date, 15 where necessary to save itself from loss, any such insured 16 bank may accept securities issued or guaranteed by its 17 affiliates, as payments to apply on or as collateral security 18 for loans or extensions of credit made prior to the effective 19 date to any person other than one of its affiliates, and in 20 such event the insured bank shall collect, sell, or otherwise 21 dispose of such securities within three years after the 22 effective date. 23 SEC. 4. It shall be unlawful for any company to acquire 24 any capital stock, or voting rights for electing directors, 25 of any insured bank or of any holding company of any 5 1 insured bank, if such company is or upon 3uch acquisition 2 would beccme a holding company of any insured bank^ (Rider B) 3 SEC. 5, Ho insured bank shall establish or operate or 4 be permitted to establish or operate any new or additional 5 branches while such insured bank is controlled by any hold6 ing company. 7 SEC. 6. Every company shall before the expirat ion of 8 sixty days after the effective date cause to bo filed with the 9 cashier or secretary of every inaurod bank as to which it is 10 an affiliate, an affidavit to be signed by one of its executive 11 officers having knowledge of the facts, which shall set forth 12 as of the effective date (1) the total number and par value 13 of the outstanding shares of capital stock and total number 14 of voting rights for electing directors of such insured bank, 15 which such company owns or holds, the names of the per-* 16 sons in whose names such shares or rights are issued and a 17 full description of any instruments evidencing such shares 18 or rights; (2) the amount of any indebtedness of such com- 19 pany to the insured bank, direct and indirect, the maturity 20 dates, and the person in whose name such indebtedness 21 stands, if other than th© company; and (3) an itemized 22 statement of its assets and liabilities as of the last day of the 23 preceding month and of its earnings for the current fiscal 24 year to the last day of the preceding month, if the company 25 bo directly or indirectly indebted to the bank. Within Rider B Provided, Th8t notwithstanding the foregoing, any company may acquire additional capital stock, or voting rights for electing directors, of an insured bank or of a holding company of an insured bank, if such company on the effective date owns more than 50 per centum of the total number or par value of the outstanding shares of capital stock, or holds more than 50 per centum of the total number of voting rights for electing directors, of such insured bank or holding company, or if such acquisition will not increase the proportion owned by such company of the total number or par value of the outstanding shares of capital stock, or the proportion held by such company of the total number of voting rights for electing directors, of such insured bank or holding company, above the proportion thereof owned or held by such com Dany on the effective date. 6 1 twenty days after the close of each calendar month there- 2 after, if there has been any change in any of the matters 3 covered in such affidavit, except item 3 thereof, during such 4 month, the company shall file a like report, so long as it 5 shall continue to stand in the relation of an affiliate to such 6 insured bank. 7 after the last day of June and December of each year with 8 the cashier or secretary of every insured bank as to which 9 it is an affiliate a like sworn itemized statement of its assets Every company shall file within thirty days 10 and liabilities as of the last day of Juno and December of 11 each year and of its earnings for the current fiscal year to 12 the last day of June and December of each year. 13 insured bank shall retain such affidavits and statements on 14 file as a part of its records for at least three years, 15 Every SEC, 7, Every insured bank, holding company, and 16 affiliate shall file with the Federal Deposit Insurance Cor- 17 poration such annual, semiannual, quarterly, and other 18 periodic and special reports, tho answers to such specific 19 questions and tho minutes of such directors', stockholders*, 20 committees*, and other meetings, as the Corporation by 21 order may prescribe as necessary or appropriate for the 22 proper consideration of tho condition of any insured bank 23 or for the proper supervision of the Federal deposit insur- 24 ance system, and the Corporation may make such investiga- 25 tions of any insured bank, holding company or affiliate, and 7 1 the books and records thereof, as shall be necessary or 2 proper to disclose the condition of any insured bank or the 3 effect of the relations between any holding company or 4 affiliate and any insured bank, upon the Federal deposit 5 insurance system or any insured bank. 6 gat ions shall be made at the expense of the Corporation; 7 and it shall be unlawful for any insured bank, holding com- 8 pany, or affiliate knowingly to make any false statement 9 or report to the Corporation or to refuse, authorized repre- 10 sentatives of the Corporation access to any information re- 11 quired in connection with any such investigations. 12 SEG. 8. And such investi~ After the effective date, the Board of Governors 13 of the Federal Reserve System shall not, without the consent 14 of the Board of Directors of the Federal Deposit Insurance 15 Corporation, grant or extend the operative effect of any 16 voting permit to any holding company affiliate under the 17 provisions of section 2 of the Banking Act of 1933, as 18 amended (U. S. C., title 12, sec. 6 1 ) . 19 SEC> 9. TOienever it shall appear to the Board of Direc- 20 tors of the Federal Deposit Insurance Corporation that any 21 person is engaged or about to engage in any acts or practices 22 which constitute or will constitute a violation of the provi- 23 eions of this Act, the Board in its discretion may bring an 24 action in the proper district court of the United States or the 25 Supreme Court of the District of Columbia, to enjoin such 8 1 acts or practices and to enforce compliance with this Act, 2 and upon a proper showing a temporary or permanent inJune- 3 tion, decree, or restraining order shall be granted,without 4 bond. 5 be available concerning such acts or practices to any United 6 States attorney or to the Attorney General, who, in his dis- 7 cretion, may institute appropriate criminal proceedings under 8 this Act. 9 injunction proceeding pursuant to this section shall be any The Corporation may transmit such evidence as may The proper district for the commencement of any 10 district wherein any act or transaction constituting the viola- 11 tion occurred or in which the defendant is an inhabitant or 12 transacts business, and process in such cases may be served 13 in any district in which the defendant is an inhabitant or 14 transacts business or wherever the defendant may be found. 15 Judgments and decrees so rendered shall be subject to review 16 as provided in sections 225 and 347 of title 28 of the United 17 States Code, and section 7, as amended, of the Act entitled 18 ft 19 Columbia", approved February 9, 1893 (D. C. Code, title 20 18, sec. 26). No costs shall be assessed for or against tho 21 Corporation in any proceeding under this Act brought by it 22 in any court• 23 SEP. 10, An Act to establish a court of appeals for the District of It shall be unlawful for any insured bank to 24 pay to any holding company, directly or indirectly, any 25 dividend on any shares of its capital stock so long as such 9 1 holding company shall continue to hold any shares of the 2 capital stock or voting rights for electing directors of such 3 insured bank, or of any company which is a holding company 4 with respect of such insured bank, acquired in violation of 5 any provision of this act* 6 SEC. 11. Whenever the Board of Directors of the Fed- 7 eral Deposit Insurance Corporation shall determine, after 8 reasonable notice to the company affected an opportunity for 9 a hearing, that any insured bank or any company which with 10 respect to any insured bank is a holding company has violated 11 any provision of this Act, and that such action is necessary 12 for the protection of the public or the safety and integrity of 13 the Federal deposit insurance system, it may make a finding 14 of the facts of such violation. Upon making such finding, 15 the Board of Directors of the Federal Deposit Insurance Cbr16 poration may cause the same to be published in the Federal 17 Register and thereafter the insured bank shall be ineligible 18 to receive deposits of public funds of the United States or of 19 any public officer, agent, or instrumentality of the United 20 States. Upon making such finding, the Board of Directors 21 of the Federal Deposit Insurance Corporation may proceed 22 to terminate tho insured status of tho insured bank, in like 23 manner as provided in subsection (i) of section 12B of the 24 Federal Reserve Act, as amended. Upon notification in 25 writing by the Board of Directors of the Federal Deposit In- 10 1 surance Corporation to the Board of Governors of the Fed- 2 exal Reserve System of any such finding of such violation on 3 the part of any holding company and request for such revoca- 4 tion, the Board of Governors of the Federal Reserve System 5 forthwith shall proceed to revoke any voting permit thereto- 6 fore granted to such holding company as a holding company 7 affiliate under the provisions of section 2 of the Banking Act 8 of 1933, as amended (U. S. C», title 12, sec, 61). The 9 Board of Directors of the Federal Deposit Insurance Oor- 10 poration shall have the right, updn such terms and conditions 11 as may be consistent with the public interest, the safety and 12 integrity of the Federal deposit insurance system and the 13 purposes of this Act, to review, suspend, modify, or revoke 14 any order or finding made pursuant to this section. 15 SEC» 12. Any porson or party aggrieved by an order 16 issued by the Board of Directors of the Federal Deposit 17 Insurance Corporation under this Act may obtain a review 18 of such order in the circuit court of appeals of the United 19 States within any circuit wherein such person resides or has 20 his principal place of business, or in the United States Court 21 of Appeals for the District of Columbia, by filing in such 22 court, within sixty days after the entry of such order, a 23 written petition praying that the order of said Board be 24 modified or set aside in whole or in part, A copy of such 25 petition shall be forthwith served upon any member of said 11 1 Board, or upon any officer thereof designated by the said 2 Board for that purpose, and thereupon tho said Board shall 3 certify and file in the court a transcript of the record upon 4 which the order complained of was entered. 5 filing of such transcript such court shall have exclusive 6 jurisdiction to affirm, modify, or set aside such order, in 7 whole or in part. No objection to the order of said Board 8 shall be considered by the court unless such objection shall 9 have been urged before said Board or unless there were Upon the 10 reasonable grounds for failure so to do. 11 the said Board as to the facts, if supported by substantial 12 evidence, shall be conclusive. 13 court for leave to adduce additional evidence, and it is shown 14 to the satisfaction of the court that such additional evidence 15 is material and that there were reasonable grounds for failuro 16 to adduce such evidence in the proceedings before said Board, 17 the court may order such additional evidence to be taken 18 before the said Board and to be adduced upon the hearing 19 in such manner and upon such terms and conditions as to 20 tho court may seem proper. Said Board may modify its 21 findings as to the facts by reason of the additional evidence 22 so taken, and it shall file with the court such modified or 23 new findings, which, if supported by substantial evidence, 24 shall be conclusive, together with its recommendation, if any, 25 for the modification or setting aside of the original order. The findings of If application is made to the 12 1 The judgment and decree of the court, affirming, modifying, 2 or setting aside, in whole or in p a r t , any such order of said 3 Board shall be f i n a l , subject to review by the Supreme Court 4 of the United States upon c e r t i o r a r i or certification as pro- 5 vided in sections 346 and 347 of t i t l e 28 of the United States 6 Code.- The commencement of proceedings under t h i s section 7 shall not, unless specifically ordered by the court, operate 8 as a stay of said Board's order. 10 offr&^rs, or agents of any company to authorize, order, or do 11 any act constituting in whole or in part a violation of the 12 provisions of tnr&Act by such company. 13 SEC. 14. Any perbqn who knowingly violates any pro- 14 vision of t h i s Act shall beVguilty of a misdemeanor; any 15 company which knowingly violatesVgny provision of t h i s 16 Act, upon conviction thereof, shall b>>j>unished by fine of 17 not exceeding $5,000 for each violation, a!*^ any natural 18 person who knowingly violates any provision of'HMs Act, 19 upon conviction thereof, shall be punished for eacHS^iolation 20 by fine of not exceeding $5,000 or by imprisonment for 21 excooding one year, or by both, in the discretion of the 13 23 SEC. i&* No provision in this Act shall apply to, or be 24 deemed to include, the United States, a State, or any politi25 cal subdivision of a State, or any corporation which is 13 1 wholly owned, directly or indirectly, by any one or more of 2 the foregoing, or any corporation which is managed by a 3 person or persons appointed pursuant to law by the Presi- 4 dent of the United States or the Governor of a State or the 5 chief executive of any political subdivision of a State, or any 6 officer, agent, or employee of any of the foregoing acting 7 as such in the course of his official duty or to any company 8 which is determined by the Board of Directors of the Fed- 9 eral Deposit Insurance Corporation, on application for 10 exemption or of its own motion, to be only incidentally a 11 holding company and to be primarily engaged in business 12 other than holding the stock of or managing or controlling 13 banks, banking associations, savings banks, or trust com- 14 panies, or to be only incidentally or temporarily an affiliate 15 of any insured bank* (RIDER C) 14 16 SEC. ls&% If any provision of this Act or the application 17 of such provision to any person or circumstances shall be 18 held invalid, the remainder of the Act and the application 19 of such provision to persons or circumstances other than those 20 as to which it is declared invalid shall not be affected 21 thereby. Rider C or to be a company the affiliate relationship of which exists by reason of the ownership or control, of voting shares or voting rights for electing directors, by the company as executor, administrator, trustee, receiver, agent, depositary or in any other bona fide fiduciary capacity, but not held for the benefit of one or more shareholders of the affiliate who have legal or equitable ownership of more than 50 per centum of the number or par value of the outstanding shares of caoital stock or voting rights for electing directors of the affiliate. 75th CONGRESS) 3d Session ) c „-„S# 3 5 7 5 A BILL To provide for the regulation of bank holding companies and affiliates, and for other purposes. By Mr. Glass and Mr. MoAdo o January 5 (calendar day, March 2), 1938 Read twice and referred to the Committee on Banking and Currency