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BOARD OF GOVERNORS

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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.