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CONFIDENTIAL
November ^ 1943
DRAFT FOR DISCUSSION
A BILL
To control and regulate bank holding companies; to control and regulate
relationships between insured banks and their affiliates; and for
other purposes.
Be i t enacted tar the Senate and House of Representatives of the
United States of America in Congress assembled. That section 23A of the
Federal Reserve Act, as amended, is amended to read as follows:
"SECTION 23A.
"Sec. 23A.
B N HOLDING COMPANIES
AK
(a) Declaration of Policy. - The business of banking
is an instrument of, and inseparably connected with, commerce with
foreign nations and among the several States, the District of Columbia,
and the Territories and possessions of the United States.
Adequate and
sound banking facilities are necessary and proper for the efficient exercise of powers conferred upon the Federal Government, particularly the
powers to collect taxes, to borrow money, to pay debts, and to establish
and regulate a national currency.
Bank holding companies and their sub-
sidiary companies are affected with a national public interest in that,
among other things (1) their business is l a t e l y conducted by means of
the mails and other instrumentalities of interstate commerce; (2) their
influence and control over the management or policies of subsidiary
banks materially affect interstate commerce and the exercise of powers
conferred upon the Federal Government.
-2"The expansion of bank holding companies in banking and also in
other enterprises is uncontrolled.
When the corporate device of the
holding company is used to link, under c m o management, the business
o mn
of banking with unrelated businesses and to avoid the restrictions of
banking statutes and established banking principles, the public interest is adversely affected and the exercise of powers conferred upon the
Federal Government is impeded.
The activities of bank holding companies,
extending over different States, are not susceptible to effective control
by any State and make d i f f i c u l t , i f not impossible, effective State regulation of bank holding companies or their subsidiary banks within a
State.
"For these reasons, i t is necessary and appropriate in the national
public interest, and i t is hereby declared to be the policy of the Congress, in accordance with which policy a l l the provisions of this section shall be interpreted, to forbid the creation of bank holding companies hereafter; to prohibit existing bank holding companies from expanding and to make their gradual elimination practicable; to separate
their business of managing and controlling banks from unrelated businesses; to prevent avoidance of existing banking laws by means of the
corporate device; and otherwise to provide adequate control and regulation of bank holding companies to the end that their influence and control shall be directed toward the pursuit of sound policies and the
maintenance of sound financial conditions by their subsidiary banks.
1 (b)
1
w (l)
Definitions. - When used in this section —
fBank
holding company1 means (A) any company of which two or
more banks are subsidiaries; and (B) any group of persons that, individually or collectively, own in the aggregate as much as 20 per cent of
-3the voting shares of each of two banks and that the Board has determined,* after notice $nd opportunity for hearing, exercises a controlling influence over the management ot policies of two or more such banks
by means of joint or concerted action or pursuant to a mutual under**
standing or arrangement.
The Board may, upon its own motion or upon
application, by order declare that any such company is not a bank holding company i f i t finds that the company is not primarily engaged in the
business of managing or controlling banks and i f i t finds that the company does not exercise such a controlling influence over the management
and policies of banks in which i t owns or controls stock as to make i t
necessary or appropriate in the public interest that the company be
subject to the obligations, duties, and l i a b i l i t i e s imposed in this section upon bank holding companies.
"(2) fBankf means any national bank, or any State bank, banking
association, savings bank, or trust company.
1
national bank1, *Board1,
1
The terns * member bank1,
district 1 and •reserve bank1 have the same
meanings as are assigned to them, respectively, in section 1 of this
Act.
The terms finsured bank1, fState member bank1, and •District bank1
have the same meanings as are assigned to them, respectively, in section 12B of this Act, as amended.
"(3)
1 Person1
means any individual or company.
"(4) •Company1 includes the term fbankf and means any corporation,
partnership, joint-stock company, business trust, association, or
organized group of persons, whether incorporated or not; excluding,
however, any such company which is ^tiolly owned by the United States.
-4n (5)
Subsidiary* means, with respect to a specified company —
n (A)
Any company 20 per cent or more of whose outstand-
ing voting shares (excluding shares owned by the United
States or by any company wholly owned by the United States)
is owned by the specified company or by a company that is
a subsidiary of the specified company by virtue of this
clause or clause (B) of this paragraph;
"(B) Any company the management or policies of which
the Board determines, after notice and opportunity for
hearing, are subject to a controlling influence by the
specified company.
"(6)
f Voting
share1 means any share of stock, capital note or de-
benture, or evidence of proprietary interest, the ownership of which
carries with i t the right to vote at elections of directors.
Shares
shall be deemed to be owned i f they are directly or indirectly owned,
controlled, or held with power to vote including shares so owned, controlled, or held by a subsidiary.
w(7)
'Affiliate 1 means, with respect to a specified bank, any
company —
1 (A)
1
Which is a subsidiary of the specified bank;
"(B) Of which the specified bank is a subsidiary but which
is not a bank holding company;
"(C) 50 per cent or more of whose voting shares is owned
by persons who own 50 per cent or more of the voting shares
of the bank (exclusive in both instances of shares owned by
-5the United States or by any company wholly owned by the
United States); or
"(D) Which is a subsidiary of a company which is an aff i l i a t e of the specified bank by virtue of clauses (B) or
(C) of this paragraph.
"(8) director 1 means any director, trustee, or other individual
exercising similar functions*
"(9) 'Effective date1 means the date of the enactment of the Act
containing this amendment, except that with respect to a bank holding
company becoming such as a result of a deteimination of the Board under
clauses (B) or (C) of paragraph (5) of this subsection, 'effective date1
means the date of such determination by the Board.
"(c) Engdfeing in Nonbanking Business. - Except as otherwise expressly provided in this subsection, i t shall be unlawful for any bank
holding company, after one year after the effective date, to engage in
any business other than that of managing or controlling subsidiary banks
of which i t is a bank holding company.
The prohibition in this subsec-
tion shall not apply to the exercise of any rights in connection with
voting shares of nonbanking pompanies lawfully acquired or retained by
a bank holding company as permitted by subsection (f) of this section or
to the management or control of any subsidiary companies so acquired or
retained.
f, (d)
New Bank Holding Companies. - Except as permitted ill subsec^
tion (e) hereof, i t shall be unlawful, after the date of the enactment
of the Act containing this amendment, for any company to become the
owner of voting shares of any bank i f after the acquisition of sucJ>
voting shares such company would be the owner of as much as 20 per cent
of the outstanding voting shares of each of two banks (excluding shares
owned by ths United States or any company wholly omed by the United
States.)
n (e)
Acquisition and Retention of Voting Shares of Banks, - Except
as otherwise expressly provided in this subsection, i t shall be unlawful
for any bank holding company, after the effective date, to become the
owner of voting shares of any bank.
Likewise, i t shall be unlawful for
any bank holding company, after the effective date, directly or indirectly to vote or, after two years after the effective date, to own any
voting shares of any bank of which i t became the owner subsequent to
January 1, 1943* and on or before the effective date.
The Board may,
in individual cases, when in its judgment i t would not be detrimental to
the public interest, from time to time extend for not more than one year
at a time the period during which a company may continue to own such
voting shares so acquired before the effective date.
The prohibition in
this subsection shall not apply to the acquisition or retention of any
additional voting shares of any bank where the bank holding company involved owned 50 per cent or more of the outstanding voting shares (ex->
eluding shares owned by the United States or by any company wholly owned
by the United States and any voting shares acquired directly or indirectly by the bank holding company subsequent to January 1, 1943)* on
the date of the enactment of the Act containing this amendment?:
Pro-
vided, That, when such shares are acquired, the bank holding company
offers to acquire and acquires to the extent such offer is accepted the
voting shares of a l l minority shareholders of the bank on the same terms.
* 1942
or 1943?
" ( f ) Acquisition and Retention of Voting Shares of Nonbanking
Companies. - I t shall be unlawful for any bank holding company, after
the ex"f active date, to become the owner of any voting shares of afcy
company other than a bank or, after two years after the effective date,
to continue to own voting shares of any such company acquired on or
before the effective date, unless in any such case ( l ) the consent of
the Board shall have been f i r s t obtained and the Board shall have determined that the business of such company is so closely related to the
bank holding company1s business of holding the stock of or managing or
controlling banks as to be an incident thereto; or (2) such shares are
acquired by purchase from a subsidiary bank of such bank holding company at the request of any Federal or State authority having statutory
power to examine and supervise such bank; or (3) such shares are acquired in the collection of a lawful debt previously contracted to the
bank holding company or any of its subsidiaries, but such bank holding
company shall not continue to own such shares after two years after
such acquisition except as authorized by the Board pursuant to this subsection; or (4) the Board has extended the period during which a bank
holding company may continue to own stock acquired in a manner not prohibited by this subsection and the Board is authorized to grant such
extension from time to time for not more than one year at a time when
in its judgment i t would not be detrimental to the public interest.
Any
nonbanking company which becomes or continues to be a subsidiary of a
bank holding company as the result of the acquisition or retention of
its voting shares in a manner permitted by the provisions of this subsection shall be deemed also to be a bank holding company.
-8,f (g)
Consolidations with Subsidiary Banks. - Except as otherwise
expressly provided in this section, i t shall be unlawful, after the
effective date, for any bank which is a subsidiary of a bank holding
company to enter into any contract or arrangement with another bank or
its shareholders to acquire in excess of 10 per cent of the assets of
such other bank through the purchase of such assets or by consolidation
or merger with such other bank.
The prohibition in this subsection
shall not apply to acquisitions of assets in the open market for cash.
"(h) Insurance of Deposits of Subsidiary Banks. - After one year
after the effective date, i t shall be unlawful for any bank holding company to have any subsidiary bank which is not an insured bank:
Provided,
That the Board, with respect to a noninsured k&nk which was a subsidiary
bank on the effective date, may from time to time and for good cause
shown by such bank holding company, extend for not more than one year at
a time the period within which such bank shall become an insured bank.
" ( i ) Acquisitions and Consolidations in Exigent Cases. - Notwithstanding any other provision of this section, no acquisition or retention of voting shares of any bank by a bank holding company and no acquisition of assets of another bank by a subsidiary bank through the
purchase of such assets or by consolidation or merger shall be deemed to
be a violation of this section i f such acquisition or retention occurs
after prior approval of the Board to be granted only in exigent cases
to protect the public interest,
"(J) Borrowing by Bank Holding Company. - Except as otherwise expressly provided in this subsection, i t shall be unlawful for any bank
holding company directly or indirectly (I) to receive any loan or
-9extension of credit from any bank which is a subsidiary of such bank
holding company, or (2) to sell any securities to any such subsidiary
bank; but i t shall not be unlawful under this subsection to renew, or
extend the term of, any such loan or credit outstanding on the effective date.
The Board may, by rules, regulations, or orders, penait
such loans, extensions of credit, or sales to the extent that i t may
find the same necessary and appropriate in order ( l ) to facilitate adjustments in the business and assets of bank holding companies to meet
the requirements of this section; (2) to meet the proper financial requirements of any nonbanking subsidiary the retention of whose shares
by the bank holding company has been authorized by the Board pursuant
to subsection (f) of this section; or (3) to meet emergencies as may be
determined by the Board.
"(k) Dividends. - I t shall be unlawful for any bank holding company, except with the approval of the Board, to pay any dividend, or to
make any distribution in the nature of a dividend payment, wholly or
partly from any source other than (1) such company1s accumulated, undistributed net income, or (2) such company1s net income for the current or preceding fiscal year, not including, in either case, profits
realized upon the sale of securities or other properties.
Service Fees. - I f the Board shall have reason to believe,
or i f any Federal or State authority having statutory power to examine
'and supervise any subsidiary bank shall advise the Board that i t has
reason to believe, that exorbitant or unreasonable service, management,
or similar charges or fees are being assessed against or obtained from
any subsidiary bank by the bank holding company of which such bank is a
-10subsidiary, the Board may, after notice and opportunity for hearing,
order that a l l or any part of such charges or fees which i t finds to be
exorbitant or unreasonable shall be discontinued; and i t shall be unlawful for such bank holding company thereafter to assess or obtain any
such charges or fees in contravention of the Board1s order.
"(m) Reserve Fund* - After the effective date, every bank holding
company shall use a l l its net earnings over and above 6 per centum per
annum of the book* value of i t s own shares to accumulate a fund consisting of cash and of readily marketable assets of the kinds eligible for
investment by national banks under the provisions of section 5136 of the
United States Revised Statutes in an amount equal to at least 12 per
centum of the aggregate par value of a l l bank shares owned by i t ,
Assets
comprising such fund shall be identified in an appropriate manner and
shall be kept free and clear of any lien, pledge or hypothecation of any
kind or nature.
Such assets, however, may be used by the bank holding
company to replace capital of i t s subsidiary banks and to eliminate
losses and depreciation from the assets of such banks, but, except as
permitted by the Board, shall not be used by the company for any other
purpose and any deficiency in such assets resulting from such use shall
be replaced at the same rate as above provided.
"(n) Registration. Reports, and Examinations. - (1) Within 90 days
after the effective date, every bank holding company shall register with
the Board on forms prescribed by the Board, which shall include, among
such other information as the Board may require, a statement showing
(A) name and address of each of the bank holding company1s subsidiary
* Book o^ par?
-11banks and address of each branch of each such bank; (S) name and address of each other bank of which the bank holding company owns shares;
(C) number of shares of each class of stock of each bank owned by the
bank holding company; (D) information concerning the manner in which
such shares are owned; (E) name, address, and nature of business of each
of the bank holding company1s subsidiaries, other than banks, and the
manner in which the relationship arises; and (F) information concerning
a l l changes in the foregoing which have occurred since January 1, 1943,
including dates thereof.
The Board may, in its discretion, extend the
time within which a bank holding company shall register and f i l e the
requisite statement*
Any wilful failure to register or to f i l e the
requisite statement within the time permitted by this subsection or as
extended by the Board shall be deemed to be a violation of this subsection and to be a separate offense for each day such failure continues.
w(2)
No bank holding company, which is not registered when re-
quired in accordance with the terms of pai^agraph (1) of this subsection,
shall directly or indirectly use the mails or any means or instrumentality of interstate commerce in communicating with, effecting any transaction with, or exercising any control over, any subsidiary bank of which
i t is a bank holding company.
w(3)
Each bank holding company shall furnish to the Board from time
to time such reports as may be required by the Board and in such form
and detail as the Board may prescribe.
Such reports shall contain such
information concerning the bank holding company and its subsidiaries as
the Board shall deem necessary to disclose fully the relations among such
-12companies, the effect of such relations upon the affairs of the subsidiary banks, and whether the provisions of this section have been complied with.
n (4)
Each bank holding company and each subsidiary thereof shall
be subject tq such examinations by examiners selected or approved by
the Board as shall be necessary to disclose f u l l y the relations between
such bank holding company and i t s subsidiaries, the effect of such relations upon the affairs of the subsidiary banks, and whether the provisions of this section or of the Board1s orders, rules, or regulations
have been complied with; and the examiner making such an examination
shall have power to administer oaths and to examine any of the officers,
directors, employees, and agents of such bank holding company or subsidiary under oath.
The expenses of any such examination may, in the
discretion of the Board, be assessed against the bank holding company
and, when so assessed, shall bo paid by such bank holding company.
w (°)
Regulations. - The Board shall have the authority to make and
issue such rules, regulations, and orders, not inconsistent with the
provisions of this section, as may be necessary to enable i t effectivel y to administer and carry out the purposes of this section and prevent
evasion thereof and to amend, modify or rescind any such rules, regulations, or orders so made or issued.
A l l powers and functions of the
Board prescribed by this section, other than the issuance, amendment,
modification, or rescission of rules, regulations, and orders and the
determination of matters of general policy, may be performed through
such members of the Board or such officers and employees thereof or such
Federal Reserve Banks or officers or employees thereof as the Board may
deem advisable in order to facilitate the administration of this section.
-13,f (p)
Hearings, Investigations, and Court Review of Orders. -
(1) in addition to the hearings authorized in this section, the Board
also shall have the authority to make such investigations as may be
necessary to determine whether any proceeding under this section should
be instituted against a particular person or persons, or with respect
to a particular transaction or transactions; and the Board shall permit
any person to f i l e with i t a statement in writing, under oath or otherwise as the Board may determine, as to any or a l l of the facts and circumstances concerning any such matter under investigation.
The Board
shall keep appropriate records of a l l hearings and investigations.
"(2) For the purpose of any hearing or investigation under this
soction, any member of the Board, or any officer thereof designated by
i t , is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, records, or other papers which are relevant or mater i a l to the inquiry.
Such attendance of witnesses and the production of
any such papers may be required from any place in any State or in any
Territory or other place subject to the jurisdiction of the United
States at any designated place where such a hearing is being held or
investigation is being made.
w(3)
I n case of refusal to obey a subpoena issued to, or contumacy
t*y, any person, the Board may invoke the aid of any court of the United
States within the jurisdiction of which such hearing or investigation
is carried on, or where such person resides or carries on business, in
requiring the attendance and testimony of witnesses and the production
of books, records, or other papers.
And such court may issue an order
-14requiring such person to appear before the Board or member or officer
designated by the Board, there to produce records, i f so ordered, or
to give testimony touching the matter under investigation or in question; and any failure to obey such order of the court may be punished
by such court as a contempt thereof.
A l l process in any such case may
be served in the judicial district whereof such person is an inhabitant
or wherever he may be found.
No person shall be excused from attending
and testifying or from producing books, records, or other papers in
obedience to a subpoena issued under the authority of this section on
the ground that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or subject him to a penalty
or forfeiture; but no individual shall be prosecuted or subject to any
penalty or forfeiture for or on account of any transaction, matter, or
thing concerning which he is compelled to testify or produce evidence,
documentary or otherwise, after having claimed his privilege against
self-incrimination, except that such individual so testifying shall not
be exempt from prosecution and punishment for perjury committed in so
testifying.
Any person who without just cause shall f a i l or refuse to
attend and testify or to answer any lawful inquiry or to produce books,
records, or other papers in obedience to the subpoena of the Board, i f
in his or its power so to do, shall be guilty of a misdemeanor and upon
conviction shall be subject to a fine pf not more than #1,000 or to imprisonment for a term of not more than one year, or both.
1 (4)
1
Any person or party aggrieved by an order issued by the Board
under this section may obtain a review of such order in the circuit court
-15of appeals of the United States within any circuit wherein such person
resides or has his principal place of business, or in the United States
Court of Appeals for the District of Columbia, by f i l i n g in such court,
within sixty days after the entry of such order, a written petition
praying that the order of the Board be modified or set aside in whole
or in part*
A copy of such petition shall be forthwith served upon any
member of the Board or upon the Board1s Secretary, and thereupon the
Board shall certify and f i l e in the court a transcript of the record
upon which the order complained of was entered*
Upon the f i l i n g of such
transcript such court shall have exclusive jurisdiction to affirm, modify, or set aside such order in whole or in part*
No objection to the
order of the Board shall be considered by the court unless such object
tion shall have been urged before the Board or unless there were reasonable grounds for failure so to do.
The findings of the Board as to the
facts, i f supported tjy substantial evidence, shall be conclusive.
If
application is made to the court for leave to adduce additional evidence, and i t is shown to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for
failure to adduce such evidence in the proceeding before the Board, the
court may order such additional evidence to be taken before the Board
and to be adduced upon the hearing in such manner and upon such terms
and conditions as to the court may seem proper*
The Board may modify
i t s findings as to the facts by reason of the additional evidence so
taken, and i t shall f i l e with the court such modified or new findings,
which, i f supported by substantial evidence, shall be conclusive, and
-16i t s recommendation, i f any, for the modification or setting aside of
the original order.
The judgment and decree of the court affirming,
modifying, or setting aside, in whole or in part, any such order of
the Board shall be final, subject to review by the Supreme Court of
the United States upon certiorari or certification as provided in
sections 239 and 240 of the Judicial Code, as amended.
The commence-
ment of proceedings to review an order of the Board issued under this
section shall not operate as a stay of the Board1s order unless the
court otherwise orders.
Penalties.
(1) I f , after notice and opportunity for hear-
ing, the Board finds that a bank holding company has wilfully violated
any of the provisions of this section, or of any rules, regulations,
or orders of the Board issued pursuant thereto, or has knowingly permitted or assented to or participated in any such violation by any subsidiary, the Board may issue an order, to be effective thereafter or
during such period as may be fixed by the order or pending further order
by the Board, and containing any one or more of the following prohibitions:
(A) That such bank holding company shall not pay any dividends
to its shareholders; (B) that no subsidiary bank of such bank holding
company shall pay dividends on shares owned by such bank holding company or pay or become liable to pay to such bank holding company or any
of Its subsidiaries any service, management, or similar charges or fees,
and (C) that such bank holding company shall not directly or indirectly
vote the shares owned by i t or otherwise participate in the management
or control of any subsidiary bankf
-17w(2)
Any person who wilfully violates any provision of this sec-
tion or any rule, regulation, or order issued by the Board pursuant
thereto shall upon conviction be fined not more than $10,000 or imprisoned not more than two years, or both, except that in the case of
a violation of a provision of paragraphs (c), (d), (e), or (f) of this
section by a bank holding company, the fine imposed upon such holding
company shall be a fine not exceeding #100,000.
Every officer, d i -
rector, agent and employee of a bank holding company shall be subject
to the same penalties for false entries in any book, report, or state-*
ment of such bank holding company as are applicable to officers, directors, agents, and employees of member banks for false entries in any
books, reports, or statements of member banks under section 5209 of the
Revised Statutes, as amended.n
SEC. 2,
The Federal Reserve Act, as amended, is hereby fur-
ther amended by inserting after section 23A thereof a new section to
read as follows:
"SECTION 23B.
"Sec. 23B.
AFFILIATES OF INSURED B N S
A K
(a) Definitions. - When used in this section, the
terms which are defined in subsection (b) of section 23A of this Act,
as amended, shall have the same meaning as are therein assigned to them
respectively.
w(b)
Loans to Bank Holding Companies. - (1) I t shall be unlawful,
after the effective date, for any insured bank which is a subsidiary
of a bank holding company directly or indirectly to make any loan or extension of credit to, or to purchase any securities from, such bank
-18holding company i f the transaction would result in violation by such
bank holding company of subsection ( j ) of section 23A of this Act.
"(2) I t shall be unlawful, after the effective date, for any insured bank which is a subsidiary of a bank holding company directly
or indirectly to accept the capital stock, bonds, debentures, or Qther
such obligations of such bank holding company as collateral security
for any loan or extension of credit made by such subsidiary bank.
w(3)
I t shall bo unlawful, after the effective date, for any in-
sured bank which is a subsidiary of a bank holding company directly or
indirectly (A) to make any loan or extension of credit to any other
subsidiary bank of the same bank holding company, or (B) to purchase
any securities from such a subsidiary bank, or (C) to accept the capital stock, debentures, or other such obligations of any such subsidiary
bank as collateral security for any loan or extension of credit.
"(c) Loans to Affiliates. - (1) I t shall be unlawful, after the
effective date, for any insured bank (A) to make any loan or extension
of credit to, cr purchase securities under a repurchase agreement from
any of its affiliates, or (B) to invest any of its funds in the capital
stock, bonds, debentures, or other such obligations of any such a f f i l i ate or any company which would become an a f f i l i a t e by reason of such an
investment (such a company being deemed to be an a f f i l i a t e for the purposes of this subsection), or (C) to accept the capital stock, bonds,
debentures, or other such obligations of any such a f f i l i a t e as collateral security for advances made to any person, partnership, association,
or corporation, i f , in the case of any such a f f i l i a t e , the aggregate
amount of such loans, extensions of credit, repurchase agreements,
-19investments, and advances against such collateral security vail exceed
10 per centum of the carAtal stock and surplus of such insured bank, or
i f , in the case of a l l such affiliates, the aggregate amount of such
loans, extensions of credit, repurchase agreements, investments, and
advances against such collateral security will exceed S per centum of
O
the capital stock and surplus of such insured bank.
M(3)
Within the foregoing limitations, each such loan or exten-
sion of credit of any kind or character shall be secured by collateral
in the form of stocks, bonds, debentures, or other such obligations
having a market value at the time of making the loan or extension of
credit of at least 30 per centum more than the amount of the loan or
extension of credit, or of at least 10 per centum more than the amount
of the loan or extension of credit i f i t is secured by obligations of
any State, or of any political subdivision or agency thereof:
Provided,
That the provisions of this paragraph shall not apply to loans or extensions of credit secured by obligations of the United States or obligations fully guaranteed by the United States as to principal and interest, or by obligations of the Federal Intermediate Credit Banks,
the Federal Land Banks, the Federal Home Loan Banks, or the Home Owners1
Loan Corporation, or by such notes, drafts, b i l l s of exchange, or
bankers1 acceptances as are eligible for rediscount or for purchase by
Federal Reserve Banks.
H {3)
The provisions of this subsection shall not be applicable to
any affiliate (A) engaged on the effective date solely in holding the
bank premises of the insured bank with which i t is affiliated or in maintaining and operating properties acquired for banking purposes prior to
-20such date; (B) engaged solely in conducting a safe-deposit business
or the business of an agricultural credit corporation or livestock
loan company; (C) in the capital stock of which a national banking association is authorized to invest pursuant to section 85 of this Act, a3
amended, or a subsidiary of such a f f i l i a t e , a l l the stock of which
(except qualifying shares of directors in an amount not to exceed 10
per centum) is owned by such affiliate; (D) organized under section
25(a) of this Act, as amended, or a subsidiary of such a f f i l i a t e ,
all
the stock of which (except qualifying shares of directors in an amount
not to exceed 10 per centum) is owned by such a f f i l i a t e ; (£) engaged
solely in holding obligations of the United States or obligations fully
guaranteed by the United States as to principal and interest, or obligations of the Federal Intermediate Credit Banks, the Federal Land
Banks, the Federal H m Loan Banks, or the H m Owners1 Loan Corporao e
o o
tion; (F) where the a f f i l i a t e relationship has arisen out of a bona
fide debt contracted prior to the date of the creation of' such relationship; or (Q) where
the a f f i l i a t e relationship exists by reason of the
ownership or control of any voting shares thereof by an insured bank as
executor, administrator, trustee, receiver, agent, depositary, or in
any other fiduciary capacity, except where such shares are held for the
benefit of stockholders owning 50 per cent or more of the voting shares
of such insured bank; but as to any such a f f i l i a t e , insured banks shall
continue to be subject to other provisions of law applicable to loans
by such banks and investments by such banks in ptocks, bonds, debentures, or other such obligations.
The provisions of this subsection
-21shall likewise not apply to indebtedness of any a f f i l i a t e for unpaid
balances due a bank on assets purchased from such bank or to loans
secured by, or extensions of credit against, obligations of the United
States or obligations fully guaranteed by the United States as to
principal and interest.
,f (d)
Reports. - Each insured bank shall obtain such reports from
its affiliates (other than insured banks) as (1) in the case of a State
member bank, may be required by the Board; or (2) in the case of a
national bank or a District bank, may be required by the Comptroller
of the Currency; or (3) in the case of any other insured bank, may be
required by the board of directors of the Federal Deposit Insurance
Corporation.
Each such report shall be filed with the authority re-
quiring i t within such time as such authority may prescribe.
Such re-
ports may be required and shall be in such four* as in the judgment of
the appropriate authority shall be necessary to disclose fully the relations between the banks and their affiliates, the effect of such relations upon the affairs of the banks, and whether the provisions of
this subsection have been complied with.
The authority requiring any
such report may require that i t be published by the bank under such
conditions as such authority may direct.
Any wilful failure to obtain
or to publish any report as may be required under this paragraph shall
be deemed to be a violation of this section and to be a separate offense
for each day such violation continues.
M (e)
Examinations> - Examiners authorized to examine national
banks are authorised to examine affiliates of national banks; examiners
-22authorized to examine State member banks are authorized to examine
affiliates of State member banks; and examiners authorized to examine
nonmember insured banks which are subsidiary banks are authorized to
examine affiliates of such subsidiary banks.
In connection with the
examination of any insured bank, examiners selected or approved by the
Board, the Comptroller of the Currency, or the board of directors of
the Federal Deposit Insurance Corporation, as the case may be, shall
be authorized to make such examination of a l l affiliates of such bank
as shall be necessary, in the judgment of the appropriate authority
above mentioned, to disclose f u l l y the relations between the affiliates
and the bank, the effect of such relations upon the affairs of the
bank, and whether the provisions of this section have been complied
with; and the examiner making such examination shall have power to administer oaths and to examine any of the officers, directors, employees,
and agents of any such a f f i l i a t e under oath.
The expenses of any such
examination, in the discretion of the appropriate authority above
mentioned, may be treated as expenses.of examination of the bank.
Any
wilful refusal by an a f f i l i a t e of an insured bank to permit any such
examination or to give any information required in the course of any
such examination shall be deemed to be a violation of this section fcy
such affiliate, and any wilful failure by an insured bank to pay the
expenses of cny such examination which may be assessed by the appropriate
authority above mentioned shall be deemed to be a violation of this section l?y such insured bank and to be a separate offense for each day such
violation continues.
-23w (f)
Security Affiliates. - I t shall be unlawful for any member
bank to have after June 16, 1934, and for any other insured bank to
have^ after one year after the effective date, any a f f i l i a t e which is
engaged principally in the issue, flotation, underwriting, public sale,
or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes, or other securities;
Pro-
vided, That nothing in this subsection shall apply to any such organization which shall have been placed in formal liquidation and which
shall transact no business except such as may be incidental to the l i q uidation of its affairs.
A violation of this subsection shall be
deemed to be a separate offense for each day such violation continues.
Penalties. ^ (1) I f any violation of this section shall continue for six calendar months after the bank shall have been warned by
the Board, in the case of a member bank, or try the board of directors
of the Federal Deposit Insurance Corporation, in the case of any other
insured bank, to discontinue the same, ( l ) in the case of a national
bank, a l l the rights, privileges, and franchises granted to i t under
the National Bank Act may be. forfeited in the manner prescribed in section 2 of this Act, as amended, or (2) in the case of a State member
bank, a l l of its rights and privileges of membership in the Federal Reserve System may be forfeited in the manner prescribed in section 9 of
this Act, as amended, or (3) in the case of any other insured bank, the
insurance of i t s deposits may be terminated in the manner prescribed in
subsection ( i ) of section 12B of this Act, as amended.
M(2)
Any person who wilfully violates any provision of this sec-
tion shall upon conviction be fined not more than #1,000.?
-24SEC; 3.
Technical. Amendments. - (a) The paragraph of section 4
of the Federal Reserve Act, as amended, which commences with the words
*The Board of Governors of the Federal Reserve System shall classify"
is amended by striking out a l l of the language therein which follows
the colon and by inserting in lieu thereof the following;
"Provided,
That whenever any member bank or member banks within the same Federal
Reserve district are subsidiaries of the same bank holding company within the meaning of section 23A of this Act, participation in any such
nomination or election by such member banks, including such bank holding
company i f i t is also a member bank, shall be confined to one of such
banks, which may be designated for the purpose by such bank holding company ."
(b) The sixteenth, seventeenth, eighteenth, twenty-first, and
twenty-second paragraphs of section 9 of the Federal Reserve Act, as
amended, are repealed.
(c).(l) The second sentence of the f i r s t paragraph of section 5240
of the Revised Statutes, as amended, is amended by changing the colon
following the words "Comptroller of the Currency* to a period and by
striking out the remainder of the sentence.
(2) The last two sentences of the f i r s t paragraph of section 5240
of the Revised Statutes, as amended, are amended by striking out the
words "or affiliate" in each sentence.
(3) The second paragraph of section 5240 of the Revised Statutes,
as amended, is amended by striking out the f i r s t three sentences, including the proviso at the end of the third sentence, and by striking
out the last two sentences*
-25(4) The fourth sentence of the second paragraph of section 5240
of the Hevised Statutes, as amended, is amended by striking out the
words "and affiliates thereof herein provided for" and *or affiliates
thereof".
(5) The f i f t h sentence of the second paragraph of section 5240
of the Hevised Statutes, as amended, is amended by striking out the
words "and/or affiliates".
(d) The last paragraph of section 21 of the Federal Reserve Act,
as amended, is repealed*
(e) Subsections (b) and (c) of section 2 of the Banking Act of
1933, as amended, are repealed*
(f) Section 20 of the Banking Act of 1933, as amended, is repealed*
(g)(1) The f i r s t sentence of section 5144 of the Revised Statutes,
as amended, is amended by inserting the word "and" immediately before
"(3)", and by changing to a period the c m a preceding the words "and
o m
(4)", and by striking out that which follows in such sentence.
(2) The second paragraph and a l l succeeding paragraphs of section 5144 of the Revised Statutes, as amended, are repealed.
(h) The second paragraph of section 5211 of the Revised Statutes,
as amended, is repealed.
( i ) ( l ) Subsection (d) of section 26 of the Revenue Act of 1936,
as amended, is amended to read as follows:
"(d) Bank Holding Companies. - In the case of a bank holding company (as defined in section 23A of the federal Reserve Act), the amount
of the earnings or profits which the Board of Governors of the Federal
-26Reserve System certifies to the Commissioner has been devoted by such
company during the taxable year to the acquisition of cash or readily
marketable assets of the kinds eligible for investment by national banks
under the provisions of section 5136 of the United States Revised Statutes, in compliance with subsection (m) of section 23A of the Federal
Reserve Act.
The aggregate of the credits allowable under this sub-
section for a l l taxable years shall not exceed the amount required to
be devoted under such subsection (m) to such purposes."
(2) Subdivision (l)(C) of subsection (a) of section 14 of the
Revenue Act of 1936, as amended, is amended to read as follows:
"(C) In the case of a bank holding company (as defined in section 23A of the Federal Reserve Act), the amount allowed as a credit
under section 26(d)."
(3) Subdivision (1)(D) of subsection (c) of section 102 of the
Revenue Act of 1936, as amended, is amended to read as follows:
"(D) In the case of a bank holding company (as defined in section 23A of the Federal Reserve Act), the amount allowed as a credit
under section 26(d)."
( j ) ( l ) The f i r s t sentence of paragraph (4) of subsection (c) of
section 3 of the Investment Company Act of 1940 is amended to read as
follows:
"(4) Any bank holding company which registers with the Board of
Governors of the Federal Reserve System pursuant to section 23A of the
Federal Reserve Act, as amended."
(2) Paragraph (11) of subsection (a) of section 202 of tho Investment Advisers Act of, 1940 is amended by changing the words "or any holding
-27company a f f i l i a t e , as defined in the Banking Act of 1933" to read
"or any bank holding company, as defined in section 23A of the Federal Reserve Act."
SEC. 4.
Separability of Provisions. - I f any provision of this
Act, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of the Act, and the application of such provision to persons or circumstances other than
those to which i t is held invalid, shall not be affected thereby.
