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BDARD DF GDVERNDRS DF THE Z-2521 (On office copies only) FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 8, 19h9. .Dear Sir: Copies of a revised draft of the proposed bank holding company bill were furnished to the members of the Federal Advisory Council a few weeks ago. At the same time copies of the revised bill were sent to the spokesmen for the various interested groups which met with representatives of the Board last fall and winter to discuss the provisions of the bill. For your further information concerning this matter, there is enclosed a copy of a letter which we are today addressing to the spokesmen for these groups regarding a proposed substitute for subsection (e) of section h of the revised draft of the bill. Very t S. R Secretary Enclosure TO ALL MEMBERS OF THE FEDERAL ADVISORY COUNCIL BOARD OF GOVERNORS DFTHE FEDERAL RESERVE SYSTEM Z-2520 (On office copxes only) WASHINGTON 2 5 , D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 8, 19U9 Dear Sir: Under date of June 17, 19i*9, we transmitted to you a copy of a revised draft of the bank holding company bill, and on the same day the Board sent copies of the revised bill to the spokesmen for the various interested groups T/vhich met with Representatives of the Board last fall and winter to discuss the provisions of the bill. There is now enclosed a copy of a letter which the Board is today addressing to the spokesmen for these groups regarding a proposed substitute for subsection (e) of section k of the revised draft of the bill* Very truly yours, S.ft.Carpenter, Secretary. Enclosure TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM July 8, 19k9 Dear Mr. On June 17, 19h9> Chairman McCabe sent to you a revised draft of the bank holding company bill, in order that you and the others in your group who discussed the matter in Washington might be informed concerning the proposed legislation before it was introduced in Congress . Since the revised draft was sent to you, questions have been raised regarding one of the provisions of the bill, subsection (e) of section U, which would exempt investment companies registered with the Securities and Exchange Commission pursuant to the Investment Company Act of 191*0 from the provisions of section h requiring the divorcement of nonbanking interests• It has been brought forcibly to our attention that subsection (e) of section h would make it possible for bank holding companies to continue to control business enterprises unrelated to banking on a much broader basis than was intended when the draft was under discussion, and accordingly that subsection (e) is not compatible with the purposes of section U. It is clear from recent discussions with representatives of the Securities and Exchange Commission that the objectives of the Investment Company Act, which is designed primarily to protect investors in investment company securities, are so different from those of section k of the bank holding company bill that a requirement of registration under the Investment Company Act would have little effect in accomplishing the purposes of the bank holding company legislation. As a result of further consideration of this matter, a proposed amendment has been prepared as a substitute for subsection (e) # We are enclosing copies of the proposed substitute herewith so that you and the others in your group who participated in the informal discussions of the bill in Washington some months ago may be fully informed. If it should be desired to make ary comments concerning the proposed amendment before the bill is submitted to Congress, they should be sent by telegram or air mail to reach us as early as possible before Friday, July 1$, since it is intended to present the bill to Congress very promptly. Very truly yours, (Signed) S. R. Carpenter S. R, Carpenter, Secretary* Enclosure PROPOSED SUBSTITUTE FOR SUBSECTION (e) OF SECTION 4 OF BANK HOLDING COMPANY BILL' (e) Nor shall the prohibitions of this section apply to the ownership by a bank holding company of shares or other securities or obligations of any company which do not include more than 5 per cent of the outstanding voting securities of such company> and do not have a value greater than 5 per cent of the value of the total assets of the bank holding company, as determined under regulations prescribed ty the Board; nor shall they apply to the ownership by a bank holding company, in excess of such limitations, of shares or other securities or obligations of an investment company which is not engaged in any business other than investing in securities if the bank holding company and all such investment companies (in which the bank holding company has investments in excess of such limitations) do not together own shares or other securities or obligations of any one other company which are in excess of the foregoing limitations. If, while such bank holding company owns or controls such shares, securities, or obligations, the Board, after notice and opportunity for hearing, determines that the ownership or control of such shares, securities, or obligations is resulting in the violation or evasion of any of the purposes or provisions of this Act, it may by order require such bank holding company to dispose of all or any part thereof forthwith. 7/8/49
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