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BOARD OF GOVERNORS * IXjJ \~JWj<4 \ V* ^ I ar T H E FEDERAL RESERVE SYSTEM Dffice Correspondence To Members of the Board (individually) From p a t e January is, 1944 Subject: Chester Morrill. Secretary* Mr. Dreibelbis has furnished me for distribution to the of the Board copies of his latest revision of the holding company bill. This is marked "Draft January 10, 1944 - Confidential" The preamble has been somewhat revised and other changes have been made in various places in the bill but Mr. Preibelbis advises me that none of these represent any departure in substance from the previous draft, of which you received a copy. cc - Mr. Clayton ' CONFIDENTIAL DRAFT JANUARY 1 0 , 1914; A' BILL T J control and regulate bank holding companies; to control and regulate relationships between insured banks and their affiliates; and for other purposes. Be it enacted by 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 road as followsi "SECTION 23A. "Sec. 23A» BANK HOLDING COMPANIES (a) Declaration of Policy. - Bank holding companies, by means of their influence and control over the management or policies of their subsidiary banks, materially affect the public interest and the exercise of powers conferred upon the Federal Government. The power of bank holding companies to expand in banking and also in other enterprises is not adequately controlled, When the holding company de- vice is used to link, under common management, the business 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. "For these reasons, it is necessary and appropriate, and it is hereby declared to be the policy of the Congress, in accordance with which policy all the provisions of this section shall be interpreted, to forbid the creation of bank holding companies hereafter; to prohibit -2- 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 bj their subsidiary banks, M (b) Definitions. - When used in this section — "(1) 'Bank holding company' means (A) any company of which two or more banks are subsidiaries; or (D) any group of persons that, individually or collectively, own in the aggregate as much as 10 per cent of the voting shares of each of two banks and that the Board has determined, after notice and opportunity for hearing, exercises a controlling influence over the management or policies of such bonks by means of joint or concerted action or pursuant to a mutual understanding or arrangement. The Boara, after notice and opportunity for hearing, may, upon its own motion or upon application, determine that any such company is not a bank holding company if it finds that the company is not primarily engaged in the business of managing or controlling banks and if it finds that the company does not exercise such a controlling influence over the management and policies of banks in which it owns or controls stock as to make it necessary or appropriate in the public interest that the company be subject to the obligations, duties, and liabilities imposed c in this section upon bank holding companies. -3"(2) 'Bank' means any national bank, or any State bank, banking association, savings bank, or trust company. The terms 'member bank', 'national bank', 'Board', 'district' and 'reserve bank' have the same meanings as are assigned to them, respectively, in section X of this Act, The terms 'insured bank', 'State member bank', and 'District bank' have the same meanings as are assigned to them, respectively, in section 12B of this Act, as amended. "(3) 'Person' means any individual or company. "(U) 'Company' includes the terms 'bank' and 'bank holding company' and means any corporation, partnership, joint-stock company, business trust, voting trust, or association, whether incorporated or not; excluding, however, any such company which is wholly owned by the United States, "(5) 'Subsidiary' means, with respect to a specified company -"(A) Any company 10 per cent or more of whose outstanding voting shares (excluding shares owned by the United States or by any company wholly owned by the United States) VB 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) 'Voting share' means any share of stock, capital note or debenture, or evidence of proprietary interest, the ownership of which carries with it the right to vote in the direction or management of the affairs of a company. Shares not directly owned shall be deemed to be owned within the meaning of this paragraph if, after notice and. opportunity for hearing, the Board determines that they are indirectly owned, controlled, or held with power to vote. "(7) •Affiliate1 means, with respect to a specified bank, any company -"(A) Which is a subsidiary of the specified bank; "(B) Of which the Specified bank is o 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 oa.nk (exclusive in both instances of shares owned by the United States or by any company wholly owned by the United States); or "(u) Which is a subsidiary of a company which is an affiliate of the specified bank by virtue of clauses (B) or (c) of this paragraph. "(8) 'Effective date* means the date oi' the enactment of the Act containing this amendment, except that with respect to a bank holding company becoming such as a result of a determination of the Board under clause (B) of paragraph (5) of this subsection, Teffective date1 means the dote of receipt of notice of such determination by the Bo'.rd. "( c) .Uii^a^inp; in Nonbanking Business. - Except as otherwise expressly provided in this subsection, it shall be unlawful for any bank O holding company, after one yeor after the effective date, to engage in any ousiness other than that of managing or controlling subsidiary banks -5of v;hich it 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 companies lav/fully 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, "(d) New Bank Holding Companies, - Except as permitted in subsection (e) hereof, it 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 if after such acquisition of such voting shares such company would own as much as 5 P e r cent of the outstanding voting shares of each of two banks (excluding shares owned by the United States or any company wholly owned by the United States). n (e) Acquisition and Retention of Voting Shares of Banks. - Except as otherwise expressly provided in this subsection, it shall be unlawful for any bank holding company, after the effective date, to become the owner of voting shares of any bank. Likewise, it 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 it became the owner subsequent to January 1, 19^-3 & nd on or before the effective date. The Board may, in individual cases, when in its judgment it 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 -6additional voting shares of any bank where the bank holding company involved owned 50 P e r cent or more of the outstanding voting shares (excluding 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, 19^+3) o n 't*ie date of the enactment of the Act containing this amendment: Provided, 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 all minority shareholders of the bank on the same terms* "(f) Acquisition and Retention of Voting Shares of Nonbanking Companies. - It shall be unlawful for any bank holding company, after the effective date^ to become the owner of any voting shares of any 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 (1) the consent of the Board shall have been first obtained and the Board shall have determined that the business of such company is so closely related to the bank holding company's business of holding the stock of or managing or controlling banks as to be a proper incident thereto; or (2) such shares are acquired 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 (U) the Board has -7extended 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 if in its judgment such an extension would not be detrimental to the public interest. Any nonbanking com- pany 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. "(g) Consolidations with Subsidiary Banks,- Except as otherwise expressly provided in this section, it 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 and which are not acquired as a part of a plan, agreement, or understanding to bring about the liquidation, consolidation, or merger of the bank from which such assets are being acquired. "(h) Insurance of Deposits of Subsidiary B^nks. - After one year after the effective date, it 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 nonincured bank 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 -8at 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 shall be deemed to be a violation of this section if such acquisition or retention occurs after prior approval of and subject to such terms and conditions as may be imposed by the Board, such approval to be given only in exigent cases to protect the public interest; and no acquisition of assets of another bank by a subsidiary bank shall be deemed to be a violation of this section if such acquisition occurs after prior approval of and subject to such terms and conditions as may be imposed by (1) the Comptroller of the Currency if the subsidiary bank is a national bank or a District bank; or (2) the Board if the subsidiary bank is a State member bank; or (3) the Federal Deposit Insurance Corporation in the case of any other subsidiary bank, such approval in all such cases to be given only im exigent cases to protect the public interest. "(j) Borrowing by Bank Holding Company. - Except as otherwise expressly provided in this subsection, it shall be unlawful for any bank holding company directly or indirectly (1) to receive any loan or extension of credit from any bank which is a subsidiary of such bank holding cor.pc.ny, or (2) to sell any securities or other property to any such subsidiary bank; but it 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, permit such loans, extensions of credit, or sales to the extent that it may find the same necessary and appropriate in order (1) to facilitate adjustments in the business and assets of bank holding companies to meet the -9requirements of this section; (2) to meet the proper financial requirements of any n on bank ing subsidiary t e ; retention of whose shares by hthe bank holding company has been authorized by the Board pursuant to suDsection (f) of this section; or (3) to meet emergencies as may be" determined by the Board. "(k) Dividends. - It shall be unlawful for any bank holding company, except with the prior 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 company's accumulated, undistributed net income, or (2) such company's net income for the current or preceding fiscal year, not including, in either case, profits realized upon the sale of securities or other properties, "(1) Service Fees or Benefits, - If the Board shall have reason to believe, or if any Federal or State authority having statutory power to examine and supervise any subsidiary bank shall advise the Board that it has reason to believe, that exorbitant or unreasonable service, management, or similar charges or fees or benefits are being assessed against or obtained from any subsidiary bank by the bank holding company of which such bank is a subsidiary, the Board may, after notice and opportunity for hearing, order that all or any part of such charges or fees or benefits which it finds to be exorbitant or unreasonable shall be discontinued; and it shall be unlawful for such bank holding company thereafter to assess or obtain any such charges or fees or benefits in contravention of the Board's order. "(in) Reserve Fund. - After the effective date, every bank holding -10company shall use all its net earnings over and above 6 per centum per annum of the book value of its 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 5^36 of the United States Revised Statutes in an amount equal to at least 12 per centum of the aggregate par value of all bank shares owned by it. 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 may be used by the bank holding company to replace capital of its 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 b-y the Board, which shall include, with such other information as the Board may require, a statement showing (A) name and address of each of the bank holding company's subsidiary banks and address of each branch of each suoh bank; (B) 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 company's subsidiaries, other than banks, and the manner in which the relationship arises; and (F) information concerning all changes in -lithe foregoing which have occurred since January 1, 19^3* including dates thereof. The Board may, in its discretion, extend the time within which a banK holding company shall register and file the requisite statement. Any wilful failure to register or to file 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, "(2) 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 o.nd its subsidiaries as the Board shall deem necessary to disclose fully the relations among such companies, the effect of such relations upon the affairs of the subsidiary banks, and whether the provisions of this section have been complied with. "(3) Each bank holding company and each subsidiary thereof shall be subject to such examinations by examiners selected or approved by the Board as shall be necessary to disclose fully the relations between such bank holding company and its subsidiaries, the effect of such relations up«n the affairs of the subsidiary banks, and whether the provisions of this section or of the Board's 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 be paid by such bank holding company. -12"(o) 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 it effectively to administer and carry out the purposes of this section and prevent evasions thereof and to amend, modify or rescind any such rules, regulations, or orders so made or issued. All 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. "(p) Hearings, Investigations, and Court Review of Orders. - (1) In addition to the headings authorized in this section, the Board also shall have 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 keep appropriate records of all hearings and investigations, "(2) For the purpose of any hearing or investigation under this section, any member of the Board, or any officer thereof designated by it, is empowered tc 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 -13material 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. "(3) In oase of refusal to obey a subpoena issued to, or contumacy by, 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 requiring such person to appear before the Board or member or officer designated by the Board, there to produce records, if 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. All 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, c 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 fail 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, if in his or its power so to do, shall be guilty of a misdemeanor and upon conviction shall be subject to a fine of not more than $1,000 or to imprisonment for a term of not more than one year, or both. "(h) 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 of 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 filing 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 oopy of such petition shall be forthwith served upon any member of the Board or upon the Board's Secretary at its offices in the City of Washington, and thereupon the Board shall certify and file in the court a transcript of the record upon which the order complained of was entered* Upon the filing 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 ba considered by the court unless such objection shall have been urged before the Board or unless there were reasonable grounds for failure so to do^ The finding of the Board as to the facts, if supported by substantial evidence, shall be conclusive, If -15application is made to the court for leave to adduce additional evidence, and it 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 its find- ings e s to the facts by reason of the additional evidence so taken, and . it shall file with the court such modified or new findings, v/hich, if supported by substantial evidence, shall be conclusive, and its recommendation, if 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 2?f) and 2I4G of the Judicial Code, as amended. The commencement of proceedings to review an order of the Board issued under this section shall not operate as a stay of the Board's order unless the court otherwise orders. "(q) Penalties. - (1) If, after notice and opportunity for hearing, the Board rinds that a bank holding company has wilfully violated any of the provisions of this section, OK 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, effective for such period as may be fixed by the order and containing any one or more of the following prohibitions* (A) That such bank holding company shall not pay any salary or -16other remuneration to any officer or director of the company found by the Board to have wilfully participated in such violation or violations and who was made a party to such hearing by the Boards (3) 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, or to render any specified benefit and (C) that such bank holding company shall not directly or indirectly vote the shares owned by it or otherwise participate in the management or control of any subsidiary bank. "(2) A^y person who wilfully violates any provision of this section or any rule, regulation, or order issued by the Board pursuant thereto shall upon conviction be fined not more than $10,000 or im- prisoned 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, di- rector, agent and employee of a bank holding company shall be subject to the same penalties for false entries in any book, report, or statement 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 ^2Cf) of the Revised Statutes, as amended," SEC. 2t The Federal Reserve Act, as amended, is hereby further amended by inserting after section 23A thereof a new section to read as follows: -17"SECTION 23B. AFFILIATES OF INSURED BANKS "Sec. 23B. (a) Definitions. - "When used in this section, the terras which are defined in subsection (b) of section 2j5A of this Act, as amended, shall have the same meaning as are therein assigned to them respectively* Provided, however, That, in determining whether a specified company is an affiliate of an insured bank which is not a subsidiary of a bank holding company, the powers conferred by paragraphs (5) and (6) of subsection (b) of section 23A of this Act shall be exercised (1) by the Comptroller of the Currency where the insured bank is a national bank, (2) by the Board where the insured bank is a State member bank and (3) by the Federal Deposit Insurance Corporation where the insured bank is a noranember bank, "(b) Loans to Bank Holding Companies, - (1) It shall be unlawful, after the effective date, for any 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 holding company if the transaction would result in violation by such bank holding company of subsection (j) of section 23A of this Act. "(2) It shall be unlawful, after the effective date, for any bank which is a subsidiary of a bank holding company directly or indirectly to accept the capital stock, bonds, debentures, or other such obligations of such bank holding company as collateral security for any loan or extension of credit made by such subsidiary bank. "(3) It shall be unlawful, after the effective date, for any bank which is a subsidiary of a bank holding company directly or indirectly to accept the capital stock, debentures, or other such obligations of -18- any other subsidiary bank of the same bank holding company as collateral security for any loan or extension of credit. Any loan or exten- sion of credit to or purchase of securities under a repurchase agreement from one subsidiary bank by another subsidiary bank of the same bank holding company shall be deemed to be a loan or extension of credit to or a purchase of securities fron an affiliate subject to subsection (c) of this section. "(c) Loans to Affiliates. - (1) It shall be unlawful, after the effective date, for any insured bank (A) to make any loan or extension of credit to, or 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 affiliate or any company which would become an affiliate by reason of such an investment (such a company being deemed to be an affiliate for the purposes of this subsection), or (c) to accept the capital stock, bonds, debentures, or other such 'obligations of any such affiliate as collateral security for advances made to any person, partnership, association, or corporation, if, in the case of any such affiliate, the aggregate amount of such loans, extensions of credit, repurchase agreements, investments, and advances against such collateral security will exceed 10 per centum of the capital stock and surplus of such insured bank, or if, in the case of all such affiliates, the aggregate amount of such loans, extensions of credit, repurchase agreements, investments, and advances against such collateral security will exceed 20 per centum of the capital stock and surplus of such insured bank* -19"(2) Within the foregoing limitations, each such loan or extension 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 20 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 if it 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 Owners' Loan Corporation, or by such notes, drafts, bills of exchange, or bankers' acceptances as are eligible for rediscount or for purchase by Federal Reserve Banks, "(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 it is affiliated or in maintaining and operating properties acquired for banking purposes prior to such date; (B) engaged solely in conducting a safe-deposit business or the business of an agricultural credit corporation or livestock loan companyj (c) in the capital stock of which a national banking association is authorized to invest pursuant to suction 25 of this Act, as amended, or a subsidiary of such affiliate, all the stock of which -20- (except qualifying shares of directors in an amount not to exceed 10 per centum) is owned by such affiliate; (D) organized under section 2p(a) of this Act, as amended, or a subsidiary of such affiliate, all the stock of which (except qualifying shares of directors in an amount not to exceed 10 per centum) is owned by such affiliate; (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 Home Loan Banks, or the Home Owners' Loan Corporation; (F) where the affiliate relationship has arisen out of a bona fide debt contracted prior to the date of the creation of such relationship; or (G) where the affiliate 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 ^0 per cent or more of the voting shares of such insured bank; but as to any such affiliate, insured banks shall continue to be subject to other provisions of law applicable to loans by such banks and investments by such banks in stocks, bonds, debentures, or other such obligations.. The provisions of this subsection shall like- wise not apply to indebtedness of any affiliate 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, "(d) Re-ports. - Each insured banK shall obtain such reports from -21its affiliates (other than insured banks) as (1) in the case of a State member bank, may be required by the Board or the Federal Reserve Bank of its District; 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 Federal Deposit insurance Corporation. Each such report shall be filed v/ith the authority re- quiring it within such time as such authority iaay prescribe, such re- ports may be required and shall be in such form as in the judgment of the appropriate authority shall be necessary to disclose; fully the relotions 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 it be published by the bank under such conditions as such authority may diroct. 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 suoh violation continues. "(e) Examinations. - Examiners authorized to examine national banks are authorized to examine affiliates of national banks; examiners authorized 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 bapks are authorized to examine affiliates of such subsidiary banks. In connection with the examination of any in- sured bunk, examiners selected or approved by the- Board, the Comptroller of the Currency, or the Fedurul Deposit Insurance Corporation, as the case may be, shall be authorized to make such examination of all rffiliates -22- of such bank as shall be necessary, in the judgment of the appropriate authority above mentioned, to disclose fully 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] a,nd 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 affiliate 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 affiliate 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 by such affiliate, and any wilful failure by an insured bank to pay the expenses of any such examination which may be assessed by the appropriate authority above mentioned shall be deomed to be a violation of this section by such insured bank arid to be a separate offense for each d^y such violation continues. "(T) Security Affiliates. - It shall be unlawful for any member bank to have after June 16, 193l4» anc ^ *'or anv other insured bank to have, after one year after the effective date, any affiliate 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; provided, That nothing in this subsection shall apply to any such organisation which shall have been placed in formal liquidation and which snail transact no business except such as may be incidental to the liquidation of -23its affairs. A violation of this subsection shall be deemed to be a separate offense for each day such violation continues. "(g) Penalties. - (1) If 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 by the board of directors of the Federal Deposit Insurance Corporation, in the case of any other insured bank, to discontinue the same, (1) in the case of a national bank, all the rights, privileges, and franchises granted to it 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, all 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 its deposits may be terminated in the manner prescribed in subsection (i) of section 12B of this Act, as amended. "(2) Any person who wilfully violates any provision of this section shall upon conviction be fined not more than $1,000." SEC. 3« Technical Amendments* - (a) The paragraph of section l\. of the Federal Reserve Act, as amended, which Qoranences with the words "The Board of Governors of the Federal Reserve System shall classify" is amended by striking out all 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, partieipation in any such nomination or election by such member banks, including such bank holding .21*. company if it 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 first paragrapn of section 521+0 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 first paragraph of section ^?1\Q of the Revised Statutes, as amended, are wa«nded by striking out the words "or affiliate" in each sentence. (3) The second paragraph of section ^>2l^0 of the Revised Statutes, as amended, is amended by striking out the first three sentences, including the proviso at the end of the third sentence, and by striking out the last two sentences* (l±) The fourth sentence of the second paragraph of section 5^4.0 of the Revised Statutes, as amended, is amended by striking out the words "and affiliates thereof herein provided for" and "or affiliates thereof". (5) The fifth sentence of the second paragraph of section 52I4O of the Revised Statutes, as amended, is amended by striking out the words "and/or affiliates". -25(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)(l) The first sentence of section 51^4 of "the Revised Statutes, as amended, is amended by inserting the word "and" immediately before n (3)nt and by changing to a period the comma preceding the words "and (li)", and by striking out that which follows in such sentence, (2) The seoond paragraph and all succeeding paragraphs of section 51 hh °f 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 193&* 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 Reserve 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 5^3^ of the United states Revised statutes, in compliance with subsection (m) of section 2^A of the Federal Reserve Act, The aggregate of the credits allowable under this sub- section for all taxable years shall not exceed the amount required to be devoted under such subsection (m) to such purposes." -26(2) Subdivision (l)(c) of subsection (a) of section I4 of the Revenue Act of 193&, <±s 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).f1 (3) Subdivision (1)(D) of subsection (c) of section 102 of the Revenue Act of 193&* as amended, is anended 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) paragraph I4. of subsection (c) of section 3 °f the Investment Company Act of 19/p is amended to read as follows: "(ij.) 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. The Securities & Exchange Commission shall be given appropriate notice of any proceeding instituted by a company under paragraph (1), subsection (b) of section 23A, as amended, and shall be entitled to be hoard. The definition of the term "control" in section 2(a) of tfris^Act shall not apply to this paragraph. (2) paragraph (11) of subsection (a) of section 202 of the Investment Advisers Act of 191)0 is amended by changing the words "or any holding company affiliate, 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." -27- SEC. I- Separability of Provisions, - If any provision of this t. Act, or the application of such provision tc 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 it is held invalid, shall not be affected thereby.
