View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Kovsnber 17, 19^3*
Mr* brmib*lbl«, General Attorney

Hold1»g Company B i l l .

Mr* r y x t t , General Counsel

I n accordance with your .request, I have reed the confidential
d r a f t of a holding company b i l l dated ^over.bor 9» 19^3* and X m r e t u r n ing the seme herewith w i t h ay d e t a i l e d suggestions noted thereon* !3y
general comments are incorporated i n t h i e msnorsndum*
From a technical standpoint, I think the b i l l i s w e l l drafted}
but I fear that i t i e eo long, complex, end technical that i t w i l l be
d i f f i c u l t to get i t through Congress under the eireiaurtanees existing a t
t h i s time*
Prom a l l .that 1 hear end read, i t appear* that t h * tsmpsr of
Cong r e * * i s «uoh t h a t any elaborate b i l l on a controversial subject d r a f t *
ed and submitted to Congress by the Kxecutlve Branch of the Government
would hare rough sledding and poor chance* of favorable consideration*
This probably would be espeoially t r u e of a long and complicated b i l l
drafted i n the s t y l e of various ready-wade b i l l s presented to ^ngrees i n
the p a * t by t h * tteouritioe axui Kxohange Cossalssion and other sisdlar agencies of the Government*
X believe that the chances of g e t t i n g the kind of l e g i s l a t i o n
which the iioerd d e s i r e * would be greater i f the #oard would addres* formal
l e t t e r * to the Banking and Currency Comaitteee pointing out how unsatisfactory and i n e f f e c t u a l the e x i s t i n g lew on t h i s subject i s , stating t h a t
i t i * impossible f o r t h * Board to do a good job under the pressnt law, end
recommending t h a t the Ccwaittee* conduct hearing* on the subject w i t h a view
of working out improvement* i n the law* The d e f i c i e n c i e s i n the e x i s t i n g
lsw could them be developed and explained i n greater d e t a i l by representat i v e * of t h * Board, t h * Comptroller, and the Federal deposit Insurance Corporation during the course o f the hearings! and recomendat!ons s t a t i n g t h *
*ub*tance of the improvement* t h a t are needed could be submitted near the
close of the hearings, together w i t h a statement t h a t t h e <*oard would be
glad t o kave i t * s t a f f a s s i s t i n d r a f t i n g a b i l l f o r the purpose of putting
these reoosnemdation* i n t o e f f e c t * When you get together with the Legisl a t i v e Counsel to go to work on sueh a b i l l , you could o f f e r him your d r a f t
as a star % r and probably would mesrgo w i t h j u s t about what you want* This
procedure tould racks i t appear t h a t t h e b i l l was t h * outgrowth of t h * heari n g * rather than the cau*e of t h * hearing* and would b* 1 * * * l i k e l y to
antagoniss a Congress which Appears to have become fed up with ready-made
b i l l s presented t o i t by the Executive Branch of the Government*
I f , however, those responsible f o r deelsloo* on the strategy to
be pursued i n presenting t h i s n a t t e r to Corner*** decide that i t i s necessary t o have a b i l l introduced a* a basic f o r Congressional hearings* thm* i
t h i n k t h a t the b i l l should be drafted i n *ueh a amy as to be a* short, * i
and non-technical a * possible, end so as to be r e a d i l y and or stood by the
Congressman rwading i t *



tfr* J* P* Dreibelbis

-2-

I t seams to mo tiiat the p r i n c i p l e * involved arc f a i r l y simple
and that i t ought t o be possible to ctatc the® i n a much chortor and
less oowpliaated b i l l than you have prepared*
1 am i n sympathy with your
deelrc to do a clean-cut Job by concentrating a l l the law on t h l e subject
i n one place and repealing a l l other provisions of law on t h i s subject!
but b e l i e v e the b i l l would have much b e t t e r chances of cnaotnent i f i t
wer* drawn along less ambitious l i n e s .
I am also troubled by the f a c t t h a t the d e f i n i t i o n s are so broad
that ths b i l l would apply t o S t a t e banks which are not members o f the Fede r a l Keeerve -oyster, and whose dsposita are not insured by the f e d e r a l Deposit Insurance Corporation. 1 believe t h a t Congress has ths c o n s t i t u t i o n a l power t o regulate such banks | but than an attempt to do so i n t h l e b i l l
would i n j e c t controversial questions of c o n s t i t u t i o n a l law and S t a t e s '
r i g h t s into t h s p i c t u r e when i t i s not necessary t o do so and t h a t t h i s
would g r e a t l y impair the chances o f the b i l l ' s enactmsmt*
I f the b i l l were confined t o holding companies which own or cont r o l any national bank or any *>tate bank which i s a msmber of the Federal
Reserve System or any bank which has i t s deposits insured by ths Federal
deposit Insurance Corporation, i t would be f a i r l y obvious t h a t Congress has
J u r i s d i c t i o n over the subject; beoauss i t obviously has a r i g h t t o protect
the national Banking ^ystsn, the Federal deserve System end the Federal Deposit Insurance corporation, which arc i t s own instrumentalities*
I bel i e v e , t h e r e f o r e , t h a t i t would be much b e t t e r strategy to confine t h i s
b i l l t o holding ooapanlc* which own or control a n a t i o n a l bank, a State
member bank, or an insured bank, and t o postpone the c o n s t i t u t i o n a l and
S t a t e s ' r i g h t s f i g h t u n t i l ws are ready to reoommend t h a t Congress as sums
control over a l l banks and not merely those included i n group banking
systems*
I f the b i l l applied t o any holding oompeny which owned or cont r o l l e d one or more n a t i o n a l banks. State member banks or insured banks*
such a company could be forbidden to include any uninsured nonmsmbsr State
bank i n i t s group* I f t h i s were done, the only possible weans of evading
the provieione of the b i l l would be to have a group composed exclusively
o f uninsured, nonmcmber banksf and X simply do not b e l i e v e that i t would
be possibls as a p r a c t i c a l matter t o do t h a t on a scale large enough t o
defeat our purposes to any important extent*
X l i k e the seoond and t h i r d paragraphs cf your 'Declaration e f
P o l i c y " , but do not l i k e the l a t t e r part of the f i r s t paragraph* the
f a c t t h a t t h e business o f bonk holding companies i s l a r g e l y conducted by
means of t h e malls and other instrumsmtalities o f i n t e r s t a t e eosmeree
may a f f o r d a means of g e t t i n g a t them, but i t does not seem t o me t o be
a good reason why they should be regulated* X would suggest s t r i k i n g out
the l a s t sentence of t h s f i r s t paragraph and s u b s t i t u t i n g a statement
to the e f f e c t t h a t bank holding companies are used as a devise t o evade



Mr. J. i \

Dreibelbis

the r e s t r i c t i o n * contained I n the National Bank Act, the Fedsral Reserve
Act and other acts o f Congress and t h a t i n t h i s way they defeat the purposes o f Congress and endanger the Satlonal Banking *ystsm, the Federal Reserve System and the Federal peposlt Insurance Corporation. However, Z
wonder i f you cannot get slang without the --solarat ion of Policy, since i t
adds nearly two pages to a b i l l which i s already too long.
With a view of shortening the b i l l , 1 wonder whether the rather
lengthy subsection ( p ) regarding hearings, investigations and court review
ef orders could not be omitted, olnee most borderline actions would be f o r bidden without the Board*s consent and the Board could refuse to grant such
consent unless a l l the information i t requires I s furnished, i t would seen
t h a t t h i s section might be spared. Furtiiernore, X have serious doubts about
the a d v i s a b i l i t y and c o n s t i t u t i o n a l i t y o f paragraph 4 of t h i s subsection,
nfeioh provides f o r oourt reviews of the Board*e orders and might r e s u l t l a
the s u b s t i t u t i o n of the court's d i s c r e t i o n f o r t h a t of the Board i n matters
which are purely administrative and not J u d i c i a l .
I n t h i s connection, X f e e l very strongly t h a t the Board and the
other Federal bank supervisory a u t h o r i t i e s could do a much more e f f e c t i v e
job i f they were authorlssd by s t a t u t s to bring suits t o enjoin any v i o l a *
t i o n o f the Federal banking laws and t h a t such a provision should be i n corporated i n any b i l l o f t h i s kind.
X also believe t h a t t h e b i l l i s made unnecessarily long and
r e p e t i t i o u s by dealing separately w i t h the subject of holding oompaniee
and the subject o f a f f i l i a t e s . Could not these be combined f
Xt might be possible to shorten the b i l l f u r t h e r by grouping
the prohibitions i n one paragraph w i t h a series o f sub-paragraphs and ths
exceptions i n another paragraph w i t h a ssriss of sub-paragraphs. This would
a t l e a s t eliminate the frequent r e p e t i t i o n ef expressions such as "except as
otherwise provided i n t h i s subsection i t s h a l l be unlawful" and "the proh i b i t i o n s i n t h i s subsection s h a l l not apply". I f t h i s were done, i t might
be possible to put these two paragraphs a t ths beginning of the b i l l and
i n s e r t the d e f i n i t i o n s and administrative provisions l a t e r . Then a Congressman could grasp ths main proposals by reading the f i r s t section of the b i l l
and would not nsccssarily have t o made through a l l of the remainder.
X s t i l l t h i n k i t i s a mistake to attsmpt t o deal with the subjsot
of group banking without dealing a t the same time w i t h t h e subjsot of branch
banking, f o r which group banking i e a poor substitute. You indicate i n the
t h i r d paragraph o f the a e c l a r a t i o n o f ftoliey t h a t one purpose of the b i l l i s




M*. J* P. i , r e i b e l b i s

to make t h e gradual e l i m i n a t i o n o f baak holding
but 2 do not f i n d Anything i n t h e b i l l f o r t h a t
do mure to make the gradual e l i m i n a t i o n of bank
t i o a b l e than A reasonable l i b e r a l i s a t i o n of the
ing Along the l i n e s proposed i n t h e Banking Act
Very t r d l y

yours.

Walter " y a t t ,
General Counsel*

Attachment

i sad




companies p r a c t i c a b l e !
purpose. Nothing would
holding companies praolam regarding branch banko f 1935*