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June 1 3 , 1947 Honorable C h a r l e s W. Tobey, Chairman, Senate Banking and Currency Committee, Washington, D. C. Dear Senator Tobey: I t i s c l e a r f r o m t h e i r t e l e g r a m t o y o u o f June 1 1 t h t h a t A . P. and L . M. G i a n n i n i mean t o do a l l i n t h e i r power t o d e f e a t r e g u l a t i o n o f bank h o l d i n g companies j u s t as t h e y have o p e n l y and c o v e r t l y f o u g h t o f f p u b l i c r e g u l a t i o n o f t h e i r g i a n t Transamerica h o l d i n g company f o r many y e a r s . The Transamerica b a n k i n g empire c o n s i s t s o f some 4 1 banks o p e r a t i n g 619 b a n k i n g o f f i c e s w i t h a g g r e g a t e d e p o s i t s exceeding 6 - 1 / 2 b i l l i o n d o l l a r s . T h i s i s t h e v a s t , uncurbed e n t e r p r i s e w h i c h s i n c e 1934 has a c q u i r e d 126 banks and 74 new branches s p r e a d i n g o v e r t h e f i v e - S t a t e a r e a o f C a l i f o r n i a , A r i z o n a , Nevada, Oregon and Washington, i n t o 379 c i t i e s end t o w n s , w h i l e a t t h e same t i m e c o n t r o l l i n g a v a r i e t y o f i n d u s t r i a l and o t h e r businesses w i t h a g g r e g a t e r e s o u r c e s o f more t h a n 275 m i l l i o n d o l l a r s . I t i s not a t a l l s u r p r i s i n g , t h e r e f o r e , t h a t the G i a n n i n i s , unl i k e t h e o t h e r m a j o r bank h o l d i n g companies i n t h e c o u n t r y , s h o u l d now come o u t o p e n l y once more a g a i n s t any l e g i s l a t i o n d e s i g n e d , as i s S. 829, t o c u r b m o n o p o l i s t i c development and p r e v e n t o t h e r abuses by s u b j e c t i n g t h e now i n e f f e c t i v e l y r e g u l a t e d h o l d i n g companies t o t h e same p u b l i c r e g u l a t i o n t h a t a p p l i e s t o a l l S t a t e and n a t i o n a l banks i n t h i s c o u n t r y , . I t i s easy t o u n d e r s t a n d why t h e G i a n n i n i s 1 t e l e g r a m t o you s t a t e s t h a t " t h e E c c l e s program i s n o t i n t h e p u b l i c i n t e r e s t 1 1 and why i t a t t e m p t s t o muddy t h e w a t e r s by a c h a r a c t e r i s t i c G i a n n i n i p e r s o n a l a t t a c k on me, none o f w h i c h i s germane t o t h e r e a l i s s u e b e f o r e t h e Congress, namely, t h e u r g e n t need i n t h e p u b l i c i n t e r e s t t o p r e v e n t t h e h o l d i n g company d e v i c e b e i n g used n o t o n l y t o c r e a t e b a n k i n g monopolies b u t t o r e a c h o u t i n t o w h o l l y u n r e l a t e d f i e l d s , as i n d i v i d u a l banks a r e p r e v e n t e d f r o m d o i n g , t o c o n t r o l a l l s o r t s of business e n t e r p r i s e s . I t i s i r o n i c , b u t i r r e l e v a n t , t h a t A . P. G i a n n i n i a l l u d e s t o me as t f a b u r e a u c r a t i c despot 11 who, a c c o r d i n g t o h i m , i s t r y i n g "to suppress f r e e i n s t i t u t i o n s t h r o u g h t h e e x e r c i s e o f d i c t a t o r i a l powers masquerading as a d m i n i s t r a t i v e d i s c r e t i o n . M These r e s o u n d i n g g e n e r a l i t i e s c o n v e n i e n t l y o v e r l o o k t h e f a c t t h a t t h e proposed l e g i s l a t i o n , f a r f r o m b e i n g an " E c c l e s program 11 , conforms t o recommendations made i n r e p o r t s by t h e F e d e r a l A d v i s o r y C o u n c i l o f t h e F e d e r a l Reserve System, composed o f a l e a d i n g banker f r o m each Honorable Charles W. Tobey -2- June 2, 1947 o f the twelve Federal Reserve d i s t r i c t s , and by the Association of Reserve C i t y Bankers, representative of a l a r g e number o f the leading banks of the country. They ignore the f a c t t h a t the b i l l has the support of the two independent bankers associations, i n c l u d i n g t h a t of the T w e l f t h Federal Reserve D i s t r i c t which embraces the States where t h e Giannini empire continues t o spread. They ignore the f a c t t h a t t h e great m a j o r i t y of the major bank holding companies support t h i s b i l l . I t i s odd t h a t a l l of these responsib l e banking groups consider the l e g i s l a t i o n t o be i n the p u b l i c i n t e r e s t , but t h e Gianninis do n o t . Their telegram would warrant no comment from me but f o r the f a c t t h a t t o ignore i t might seem t o give assent i n i t s attempts t o impugn my good f a i t h and motives i n seeking t h i s r e g u l a t o r y l e g i s l a t i o n . By innuendo t h e i r telegram makes two charges which, i f stated b l u n t l y , would be: 1. That, under the c a p i t a l s t r u c t u r e o f the F i r s t Security Corp o r a t i o n o f Ogden, Utah, a bank holding company i n which the members o f my f a m i l y own i n the aggregate between 15 and 20 per cent i n t e r e s t , v o t i n g r i g h t s are l i m i t e d t o l e s s than one-eleventh o f the t o t a l outstanding shares, w h i l e a t the same time the v o t i n g shares receive over 8 per cent o f a l l o f the dividends p a i d . The Gianninis 1 telegram states t h a t perhaps I ,f can exp l a i n why the b i l l i s s i l e n t " i n not r e q u i r i n g t h a t every stpckholder should have equal v o t i n g r i g h t s . While none of these assertions i s germane t o the problem now before the Committee, they may be s h o r t l y and simply explained. F i r s t as t o the f a c t s . The F i r s t S e c u r i t y Corporation i s a bank holding company. As such i t now holds a v o t i n g permit under the provisions o f the present bank holding company s t a t u t e f o r each of the banks which i t c o n t r o l s . This may be contrasted w i t h the f a c t t h a t , w h i l e Transamerica holds a m a j o r i t y stock i n t e r e s t i n 24 member banks, i t has obtained v o t i n g permits covering only 2 o f such banks. I f S. 829 becomes law, F i r s t Security w i l l be subject t o each and a l l o f i t s r e g u l a t o r y p r o v i s i o n s , the same as any other holding company. The c a p i t a l s t r u c t u r e of F i r s t Security i s d i v i d e d i n t o v o t i n g and non-voting shares. The non-voting shares represent those which have been issued over the years i n exchange or payment f o r the stock of various banks which F i r s t Security has acquired. Contrary t o the statement i n the Gianninis 1 telegram, dividend r i g h t s as t o each class of stock are i d e n t i c a l . I n a d d i t i o n — a subject not mentioned i n the telegram — non-voting shares have a p r e f e r e n t i a l r i g h t i n l i q u i d a t i o n t o receive a stated amount before the v o t i n g shareholders receive anything. So f a r as the s i l e n c e o f S. 829 on the subject of v o t i n g and nonv o t i n g shares of a bank holding company i s concerned, i t should be noted t h a t n e i t h e r the present law nor any previously proposed d r a f t o f new Honorable Charles W. Tobey -2- June 3, 1947 l e g i s l a t i o n contains any such p r o v i s i o n . The reason f o r t h i s i s t o be found i n t h a t p a r t o f Section 2 which defines the purpose of S. 829 t o be 11 t o subject the business and a f f a i r s of bank holding companies t o the same type o f examination and r e g u l a t i o n as the banks which they c o n t r o l . " In the l i g h t of t h i s purpose and inasmuch as there i s no requirement t h a t the c a p i t a l s t r u c t u r e o f a n a t i o n a l bank conform t o any f i x e d l e g i s l a t i v e formula respecting v o t i n g , i t was not f e l t t h a t such a requirement should be provided respecting bank holding companies. Let me add, however, t h a t I have no o b j e c t i o n t o the i n c l u s i o n of such a requirement should the Comm i t t e e and the Congress deem i t appropriate. Furthermore, even i f such a p r o v i s i o n were added, I doubt t h a t the b i l l would gain favor i n the eyes of the Gianninis or t h a t such a p r o v i s i o n would evoke t h e i r support o f the b i l l . I t may be assumed t h a t i f such had been t h e i r a t t i t u d e , i t would have been so stated i n t h e i r telegram. As stated above, t h i s e n t i r e subject was i n j e c t e d merely t o cast an innuendo t o the e f f e c t t h a t there i s something improper so f a r as my f a m i l y i n t e r e s t s are concerned, and t h i s leads me t o a consideration o f t h e i r next charge: 2. This seems t o be t o tho e f f e c t t h a t my f a m i l y and I , e i t h e r d i r e c t l y or through a f a m i l y investment company, c o n t r o l the F i r s t Security Corporation, and t h a t the various i n t e r e s t s which the f a m i l y investment company owns would be a f f e c t e d by the b i l l were i t not f o r c e r t a i n changes which have been made i n t h e d e f i n i t i o n o f a bank h o l d i n g company since the f i r s t holding company b i l l was introduced i n 19U5> or i f the f u l l d e f i n i t i o n cont a i n e d i n the U t i l i t y Act had been followed i n S. 829 • The p l a i n i m p l i c a t i o n o f the Gianninis 1 telegram i s t h a t I caused these changes t o be made i n order t o p r o t e c t the i n t e r e s t s of the Eccles f a m i l y investment company i n i t s holdings of various non-banking i n t e r e s t s . This i s a d e l i b e r a t e and malicious falsehood. I n the f i r s t place, the Eccles f a m i l y does not c o n t r o l F i r s t S e c u r i t y , e i t h e r d i r e c t l y or through any company. There i s a f a m i l y investment company, c a l l e d the Eccles I n v e s t ment Company, which was organized more than 32 years ago upon my f a t h e r ' s death f o r the purpose o f holding and managing c e r t a i n assets o f h i s estate f o r the b e n e f i t of my mother and nine c h i l d r e n , seven of whom were then minors. I was advised a t t h a t time by attorneys and business associates t o form t h i s company, and i t has since continued t o hold r e a l e s t a t e , bonds, notes and stocks of various business corporations. Included i n the assets of the Eccles Investment Company i s the ownership of a l i t t l e over U per cent of the outstanding shares of F i r s t S e c u r i t y , c o n s i s t i n g of one-half o f 1 per cent o f the non-voting and UU per cent of the v o t i n g shares. A s i m i l a r number of i t s v o t i n g shares are owned by another f a m i l y investment company, the J . M. & M. S. Browning Company, a corporation i n which n e i t h e r myself, the members o f my f a m i l y , nor the Eccles Investment Company have any i n t e r e s t what soever. Nor does the Browning Company have any i n t e r e s t i n the Eccles Company. I n recent years the shares of F i r s t Security which are owned by the Eccles Honorable Charles W. Tobey-2-June4,1947 Investment Company, together w i t h those owned by the Browning Company (aggregating i n excess o f 80 per cent of the v o t i n g shares), have been deposited i n an agreement of t r u s t under the management o f f o u r t r u s t e e s , two of whom are my brothers and two o f whom are members of the Browning f a m i l y . I sold my stock i n and severed a l l connections w i t h F i r s t Securit y when I took my present o f f i c e . Such i n t e r e s t as I have i n t h a t company i s only by reason of my one-ninth i n t e r e s t i n the Eccles Investment Company. I t i s obvious from the above t h a t the Eccles Company has n e i t h e r the power t o nor does i t i n f a c t c o n t r o l F i r s t S e c u r i t y . Even i f i t d i d , however, the matter would s t i l l be i r r e l e v a n t because under the p l a i n terms o f S. 829 t h a t company would then also be a bank holding company and as such would be subject t o a l l the r e g u l a t o r y provisions of the b i l l . There i s a d i f f e r e n c e between the d e f i n i t i o n o f a bank holding company contained i n S. 829 and t h a t contained i n the f i r s t d r a f t of the proposed bank holding company l e g i s l a t i o n submitted t o Congress by the Board — as indeed there are other d i f f e r e n c e s of a much more fundamental and important character. The d i f f e r e n c e i n the d e f i n i t i o n i s t h a t under the f i r s t b i l l a group of i n d i v i d u a l s could be declared t o be bank holding companies (under the U t i l i t y Act an i n d i v i d u a l can also be held t o be a holding company) whereas under S. 829 the d e f i n i t i o n i s l i m i t e d s o l e l y t o companies. The reason f o r the change i n d e f i n i t i o n was the a t t a c k upon the b i l l , i n s t a n t l y made by bankers throughout the country upon the ground, among others, t h a t the d e f i n i t i o n was too a l l - i n c l u s i v e and offended against the t r a d i t i o n a l concept of i n d i v i d u a l e n t e r p r i s e i n banking. Consequently, when Congress f a i l e d even t o hold hearings on the o r i g i n a l b i l l , the Board reconsidered the e n t i r e subject i n the l i g h t o f a l l objections t o the f i r s t b i l l and attempted t o devise l e g i s l a t i o n which would accomplish what the Board considered necessary f o r e f f e c t i v e r e g u l a t i o n but without being carr i e d t o the extremes stated i n i t s f i r s t b i l l and which gave promise of s u f f i c i e n t p u b l i c support t o secure i t s u l t i m a t e enactment. As the Comm i t t e e i s aware, there have been a number of suggested refinements and amendments t o S. 829 since i t s i n t r o d u c t i o n a t the present session, a l l of which have been recommended as a r e s u l t of the continuing e f f o r t of the Board t o overcome l e g i t i m a t e objections t o the b i l l w i t h o u t s a c r i f i c i n g any of i t s e s s e n t i a l o b j e c t i v e s . F i n a l l y , I should l i k e t o p o i n t out t h a t a l l of my f a m i l y , b u s i ness, and former banking connections were exhaustively i n v e s t i g a t e d and considered by t h e Senate Banking and Currency Committee a t hearings on A p r i l 15 and 19, 1935, when I was f i r s t nominated t o the Reserve Board. A f t e r t h i s thorough i n q u i r y I was confirmed by the Senate w i t h only one Honorable C h a r l e s W. Tobey -2- June 5, 1947 dissenting vote, and subsequently I have been confirmed on three addit i o n a l occasions w i t h o u t any dissenting votes. I n view of these f a c t s , of which you may be sure the Gianninis are f u l l y advised, t h e i r evident purpose i s t o becloud the r e a l issue by the time-worn, defensive t a c t i c of t r y i n g t o create a d i v e r s i o n . Sincerely yours, (Signed) M. S. Eccles M. S. Eccles, Chairman.
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