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For conference consideration
on May 5, 194-7.
SUGGESTED AMENDMENTS TO
BANK HOLDING COMPANY BILL—S.829
—
Upon review by various interested parties of the
pending bank holding company bill suggested amendments have
been proposed as set forth below.
Since review of the bill
is still in a preliminary stage additional amendments may be
proposed*
Reference to pages and lines are to printed copy
of S.829 introduced in the Senate on March 10, 1947, by
Senator Tobey and referred to the Senate Committee on Banking
and Currency,
Section 2 - Declaration of Policy
Page l,Iine 8 - Strike the following language extending onto page 2, line 6, namely:
",to control the creation and expansion of bank
holding companies; to separate their business
of managing and controlling banks from unrelated
businesses; and generally to maintain competition among banks and to minimize the danger inherent in concentration of economic power through
centralized control of banks; to subject the
business and affairs of bank holding companies
to the same type of examination and regulation
as the banks which they control; and otherwise"
Alternatively, the suggestion has been made that the provisions of Section 2 be amended by substituting for the
language following the semicolon in line 9 at page 1
through the semicolon in line 3 on page 2 the following:
-1-
"to separate their business of managing and controlling banks from the business of managing or
controlling unrelated businesses; and generally
to maintain competition among banks and to control the undue concentration of economic and
banking power against the public interest through
centralized control of banks; "
2, lines 11 to 17, inclusive - it has been
suggested that since the Board of Governors has the
right to make a report to Congress at any time respecting the administration of the Act it appears unnecessary
that the Act should expressly require such report*
Section 3 • Definitions
Page 2, line 20 - In the definition of "bank holding
company" strike the figure "10" and insert a larger
figure, say the figure "25" at this point and at the
various other points in the bill where 10 per cent is
used with respect to the definitions of bank holding
company or subsidiary.
Page 2, line 21 - After the comma insert
"or
or
to
of
any company which is a bank and which directly
indirectly owns, controls or holds with power
vote 10 per centum or more of the voting shares
one or more other banks,"
Page 3, line 5 - Strike the words "investors or".
Page 3, line 15 - Strike the words "investors or".
Page 3, at the end of line 17 - It is suggested
that the following sentence be added:
"No bank which is subject to the supervision of
the Comptroller of the Currency, of the- Board,
or of the Federal Deposit Insurance Corporation
and which does not own any shares of any bank
holding company or of any other bank, shall be
deemed a bank holding company."
It appears that the addition of this sentence would be
redundant since it nowhere appears in the bill that a
bank falls into the classification of a bank holding
company where such bank does not hold shares of any
bank holding company or of any other bank;
and, further-
more, under the bill as now drawn the bank does not
become a holding company because of its ownership of
shares in the latter.
Page 3, line 24 - The definition of "company* does
not include an individual. An earlier suggestion,deemed
withdrawn for the purpose of this memorandum, proposed
that there be inserted on page 4, line 1, following the
comma and before the word "or" the word "person" or
"individual".
Page 4, following subsection (e), add a new subsection
reading:
"(f) For the purposes of this Sec.3, there shall
be excluded from consideration all voting shares of
banks or other companies acquired or held in a fiduciary capacity, except where such voting shares are
acquired or held for the benefit of the stockholders
of any company"
An earlier suggested amendment reads as follows:
"For the purposes of this Sec,3, there shall be
excluded from consideration all voting shares of
banks or other companies acquired or held in a fiduciary capacity, except where such voting shares are
acquired or held for the benefit of all or a majority
of the persons beneficially interested in such
fiduciary and except where the Board, after notice
and the opportunity for hearing, shall find that
such acquisition or holding is being employed as
a device for avoiding the provisions of this Act."
-3-
A former alternative amendment provided for the
insertion at the end of subsection 3(a) on page 3,
following line 17, a definition of the words "own",
"control" or "hold" reading as follows:
"The words T cwn T , 'control* or 'hold' in any
of their various grammatical forms, as used in
this act with reference to voting shares or obligations of any company, shall not include the ownership, control or holding of such shares or obligations by any other company as a fiduciary, except
where such voting shares or obligations are
acquired or held for the benefit of all or a
majority of the persons beneficially interested
in the company so owning, controlling or holding
the shares or obligations, and except where the
Board after notice and opportunity for hearing,
shall find that such acquisition or holding is
being employed as a device for avoiding the
provisions of this act."
Section 4 - Registration, Reports, and Examinations
Page 5 question was raised, although no specific
amendment was proposed, whether at line 9 the words
reading "including therein the amount of its accumulated
net income at such time" might not be restated to read:
"including therein the amount of its net income
for its last preceding ten fiscal years or for
such lesser period of years as it may have
been in existence."
Page 6, line 9, strike subsection (c) and substitute
therefor the following:
"(c) Each bank holding company and each subsidiary thereof other than a bank subsidiary shall
be subject to such examinations by examiners
selected by the Board as shall be necessary to
disclose fully the relations between such bank
holding company and such subsidiaries, and whether
the provisions of this Act or of the Board's
orders, rules or regulations have been complied
with; and each bank subsidiary shall be subject
to such examinations by examiners authorized by
law to examine such banks, and in any such examination each bank holding company of such bank
and each subsidiary shall be subject to such examination by such examiners as is necessary to determine the effect of such relations upon the affairs
of the subsidiary banks. Copies of reports of
examiners, other than of examiners appointed by
the Board, shall be furnished to the Board upon
written request to the agency by which such examiners are commissioned and upon like request
the said examiners shall make such further examination as may be necessary to determine whether
the provisions of this Act or of the Board's
orders, rules or regulations have been complied
with. Each examiner making any such examination
shall have power to make a thorough examination
of the affairs of the bank holding company or
subsidiary, as the case may be, for the purposes
herein stated and in doing so he shall have the
power to administer oaths and to examine under
oath any of the officers and agents of such bank
holding company or subsidiary and sh^Jl make a
full and detailed report of the same to the
agency by which he is commissioned as examiner.
The expenses of any such examination, other than
a regular examination of a subsidiary bank, 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. "
Generally 'with respect to subsection (b) (beginning
at the bottom of page 5) and subsection (c) (on page 6)
it has been suggested that the power of the Board to
call for reports from the holding company should be
limited so that such reports would not be required more
frequently than usual bank reports.
5.
Section 5 - Interests in Nonbanking Organizations
Page 6, line 25» strike subsection 5(a) and insert
in lieu thereof the
following:
"(a) Except as otherwise provided in this
Act, it shall be unlawful for any bank holding
company, after two years after the effective
date hereof, to own any voting shares or other
securities or obligations of any company other
than a bank, acquired subsequent to June 16,
1933? or to own more than 1% in value of the
outstanding voting shares, securities and obligations or voting shares having more than 1% of
the voting power of all outstanding shares of
such company, regardless of when acquired, or
to engage in any business other than that of
banking (if otherwise authorised by lav; to
engage in banking) and managing or controlling
subsidiary banks. The Board is authorized to
extend this period from time to time for not
more than one year at a time if, in its judgment, such extension would not be detrimental
to the public interest."
Page 7, line 14 - Insert after the words "safedeposit business" the following:
"or engaged in the business of furnishing
managerial, auditing, supervisory, purchasing
and other similar services solely to such bank
holding company and its subsidiaries, or in the
business of procuring and servicing, solely for
such bank holding company and its subsidiaries,
investments and paper eligible for bank investment, or in the business of liquidating assets
for or acquired from such bank holding company
or its subsidiaries."
Page 7, line 17 - Change the period to a semicolon
and add the following:
"nor shall such prohibitions apply to readily
marketable assets of the kinds eligible for
investment by national banks under the provisions of section 5136 of the United States
Revised Statutes."
6.
It is suggested that at the end of the language
just quoted the period be changed to a semicolon and
the following be added:
"5 nor shall such prohibitions apply to readily
marketable investments by a bank holding company
in securities listed on a National Securities
Exchange, provided Such bank holding company does
not invest more than 2 l/2$ of its total assets
in the securities of any one company, or own
more than 2 1/2$ of the outstanding securities
of any one company.lf
Page 7, lines 20, 21 and 22 - Strike the following:
"at the request of any Federal or State authority
having statutory power to examine such subsidiaries"
Page 8, following line 6 - Insert new subsection
(d) reading as follows:
"(d) Nor shall the prohibitions of this section apply to voting shares or securities or obligations of any company other than a bank if the Board,
upon application, shall find that the management or
policies of such company are not subject to a controlling influence, directly or indirectly, by such
bank holding company (either alone or pursuant to
any arrangement or understanding with any one or
more persons) and that continued ownership of such
voting shares or securities or obligations is not
otherwise contrary to the public interest."
Section 6 - Acquisition of Bank Shares or Bank Assets
Page 8, line 15 - Add at the end of this line the
following sentence:
"The prohibitions of this section shall not apply
to the acquisition by a bank holding company of
any additional voting shares of a bank in instances
where such bank holding company, prior to such
acquisition, oxvned a majority of the voting shares
thereof."
7.
Page 9, line 8 - Following the first semicolon in
said line strike the balance of subsection (d) and
insert in lieu thereof the following:
"their earnings prospectsj the general character
of their management, and the convenience and needs
of the community served by the bank or banks concerned."
Page 9, following line 13,
it is suggested that two
new subsections designated (e) and (f) be inserted reading as follows!
"(e) Any shareholder or group of shareholders
owning voting shares of a bank affected by the
terms of any plan, undertaking or agreement for
purchase or sale of such shares or assets, the
consummation, effectuation or completion of which,
by terms of this section, is or may be deemed
to be subject to the prior approval of the Board
and/or the approval of any other officer or agency,
or any bank, company or bank holding company so
affected, either as seller or purchaser of assets
or through a sale or purchase of voting shares of
a bank, shall have the right to notify the Board
and/or other agency in writing of the existence
of any such plan, undertaking or agreement and
make formal application for such approval. Thereupon it shall be the duty of such Board or other
agency immediately upon receipt of such notice to
advise the applicant or applicants concerning the
details of the information required in support of
the application to enable said Board or other
agency to act upon the same; and it shall be
the duty of the applicant or applicants to furnish such information in such form and within
such time ar. may be required. Any such application shall be deemed pending after the service
/receipt/of notice hereinabove provided, and
while so pending any other proceeding of any
character authorized by this act affecting the
subject matter of the application shall be suspended.
"If the Board or other agency shall disapprove
such application the grounds of disapproval shall
be stated, together with the facts which in the
8.
judgment of such Board or other agency warrant
an adverse finding on each ground stated and any
action, finding or conclusion of the Board or
other agency based wholly or in part upon its
interpretation of law or national policy or its
judgment as to the welfare of communities or
area concerned shall not be considered agency
action committed to agency discretion within the
provisions of the Administrative Procedure Act
and, specifically, within Section 10 thereof•
"Any shareholder or shareholders, bank, company
or bank holding company authorized to make application under this section shall have the right to
obtain a judicial review under the provisions of
the Administrative Procedure Act of any agency
action of the Board or other agency by which he
or it is adversely affected or aggrieved or
suffers legal wrong*
"The review provided in this section shall take
precedence over and be in addition to any other
review for which provision is made elsewhere.in
this act, and the District courts of the United
States, the United States District Court for the
District of Columbia and the United States courts
of any territory or other place subject to the
jurisdiction of the United States shall have jurisdiction to review the action of the Board or other
officer or agency under this section upon a petition for review or in any applicable form of legal
action (including actions for declaratory judgments
or writs of prohibitory or mandatory injunction or
habeas corpus). The venue of any action or proceeding to obtain a review of a determination under
this section shall be the district in which an
affected bank is located and does business or,
at the option of the complaining party or parties,
the United States District Court for the District
of Columbia. In any such action or proceeding
service may be made upon the secretary or any
agency whose action is sought to be reviewed at
its offices in the city of Washington, D. C , or
if there be no secretary, upon the officer at his
offices in the city of Washington, D. C. Notwithstanding any other provision of law, the court
shall have exclusive jurisdiction of such review
and power to render any judgment or decree within
the scope provided by Section 10 of the Administrative Procedure Act, Findings of fact by such
9.
Board or other agency which are sustained "by
substantial evidence shall be conclusive when
such evidence is duly certified by the Board
or other agency and filed with the clerk as an
exhibit in any proceeding in which review of
such action is sought. Ex parte statements or
declarations, sworn or unsworn, given in circumstances in which there was inadequate opportunity
for cdnftfontation or cross examination by an
applicant shall not be considered as evidence*
Any finding or conclusion by the Board or other
agency which determines or purports to determine
law, national policy, or community or area welfare shall be reviewed de novo and there shall be
no presumption that it is either correct or incorrect and such finding or conclusion shall not be
treated as evidence,
"The judgment or decree of the court in any
such proceeding shall be final but shall be
subject to review as provided in Sections 128,
239 and 240 of the Judicial Code, as amended,
No costs shall be assessed for or against the
Board or other agency.
"(f) Any condition, stipulation or provision
binding any person to waive compliance with any
provision of this act or of any rule or regulation thereunder, shall be voidj and every contract, plan, undertaking or agreement for the
consummation, effectuation or completion of which
approval is required under the terms of this act
shall be void as regards the rights of any person
who shall have become a party thereto or engaged
in the performance thereof without the requisite
approval or approvals, and any money, stock or
other property paid, transferred or exchanged
pursuant to any such non-approved contract, plan,
undertaking or agreement may be recovered unless
the required approval or approvals be given;
Provided, however, that in the event of disapproval
by any agency notice thereof shall be given by
registered mail and if the same shall not be given
within 60 days after the furnishing of the required
information the application shall be deemed
approved by such agency for all the purposes of
this act,fr
Section 7 - Borrowing "by Bank Holding Company or its
Subsidiaries
Page 9t line 23 - Change the period to semicolon
and add:
"; "but any bank may accept such capital stock as
security for debts previously contracted."
Page 10, line 12 - Change the figure "10" to read
"20".
Page 10, line 15 - Following the period insert
"Noninterest-bearing deposits to the credit of a
bank shall not be deemed to be a loan or advance
to the bank of deposit, nor shall the giving of
immediate credit to a bank upon uncollected items
received in the ordinary course of business be
deemed to be a loan or advance to the depositing
bank."
Page 11, line 10 - Change comma to period and strike
the balance of subsection (d) since matter of fiduciary
holdings is covered in proposed amendments to Section 3.
Generally with respect to the limitations of Section
7 it has been suggested that a bank should be permitted
to loan up to 10$ of its capital and surplus to any
borrower even though such borrower be a holding company
with respect to that bank or another subsidiary of that
holding company.
In connection with this suggestion it
might be kept in mind that Revised Statutes Section 5200
now prohibits a national bank from loaning in the aggregate over 10$ of its capital and surplus to a holding
company and its subsidiary banks;
and, accordingly,
Precedent is furnished "by Section 5200 for the limitation of an aggregate not exceeding 10$ of the capital
stock and surplus of the loaning "bank in instances where
the holding company is a "borrower.
Apparent necessity of expressly repealing Section
23A of the Federal Reserve Act - The following comments
have "been submitted on this point?
"As the "bill stands the affiliate relation as
defined by subsection ("b) of Section 2 of the
Banking Act of 1933 will continue. (See page 19,
lines 11 and 12.) The term 'affiliate1 is not used
in the "bill. (S. 829,)
"Section 23A of the Reserve Act is not expressly
repealed. It is not in conflict with any provision
of the bill and therefore is not repealed by implication. It deals with 'Relations With Affiliates1
and contains the credit, loan and investment re- '
strictions applicable to affiliates, including
holding company affiliates »f member banks.
"This section -without being amended has been
rewritten in the bill to cover only transactions
involving subsidiaries. So apparently Section 23A
still exists intact and would permit a member bank
to make loans to its affiliates in the amounts
stated in addition to loans to its holding company and the company's subsidiaries under the
terms of the bill.
"Under the main theory of the t>ill probably
some affiliates which are not subsidiaries should
be made so, but they are not made such under the
definition in subsection (e) on page 4» Then, or
even without the amended definition, Section 23A
of the Federal Reserve Act should be repealed.
"If not an inadvertence, a po&sible reason for
this confused situation might be that it is desired
to maintain bank lending power on a separate basis
to affiliates of member banks that are such only
by reason of the fact that a majority of their
directors are directors of a member bank. Why
not accomplish the same thing by repealing both
the legal affiliate relation and 23A?"
gection 8 - Service Fees or Benefits
Page 11, line 19 - Strike the words "or investors"
Section 9 - Reserve Fund
• Page 12, line 8 - Strike the word "par" and insert
"book"
Page 12, lines 13 and 14 - Strike the words
"identified in an appropriate manner and"
Page 12, line 17 - Strike all of lines 17 and 18
and insert in lieu thereof the following:
"or increase capital or surplus of its subsidiary
banks and to eliminate losses and depreciation
and to remove undesirable assets from the assets
of such banks, but, except as"
Section 10 - Regulations
Pa/^e 13, line 2 - Strike the words "and prevent
evasions thereof"
Section 11 - Hearings, Investigations and Court Review of
Orders
Section 12 - Penalties
It is urged that the provisions of these paragraphs
are wholly unsuitable in that they purport to vest in
the Board broad powers of investigation without properly
13.
defining the scope of investigation, vest in the Board
authority to make findings and orders without prescribing the scope of the record upon which such findings
and orders may be based and without specification of
the reasons therefor and generally create a situation
where procedural methods for review are not adequately
provided.
It was suggested that the bill might be amended
so as to provide that all proceedings under the Act
shall be governed by the provisions of the Administrative Procedure Act in so far as the terms thereof may
be applicable.
This would insure, as provided in Section
7(d) of the Administrative Procedure Act, that decisions
of the Board would have to be based upon a record embodying the evidence considered by the Board; and under
Section 8 of said Act would require that the Board's
decisions include a statement of findings and conclusions as well as the reasons or basis therefor upon all
material issues of fact, law or discretion presented on
the record.
Section 10 of the Administrative Procedure Act
dealing with judicial review provides that the Act
shall be applicable except so far as "agency action
is by law committed to agency discretion".
It should
be clear that the new bill does not commit agencyaction to agency discretion.
The criticism of the bill as recorded in the foregoing discussion under Sections 11 and 12 was thought
to be likewise applicable to Section 6.
As set out
above, it is proposed that new subsections (e) and (f)
be added to Section 6.
Study will be required to deter-
mine whether the provisions of the bill as now appearing particularly in Section 11 should be brought into
harmony with proposed subsections (e) and (f) of Section
6 and to what extent Section 11 and perhaps Section 12
should be amended.
Suggested New Sections Re Qualification of National Bank
Directors
Page 18, Line 17 - Add following this line a new
Section 13 and a new Section 14 (renumbering the later
sections) to read as follows:
"Sec. 13. Section 5146 of the Revised Statutes,
as amended, is amended to read as follows:
'Sec. 5146 (Add at the end of the second
sentence of the present section 5146, which
specifies the amount of national bank stock to
be held by a director, the following) "; provided that the provisions of this sentence shall
not apply to directors of any association so
long as a majority of the capital stock of such
association is owned by a bank holding company
as defined in the Bank Holding Company Act of
1947."'
15.
"Sec. H . Section 5 H 7 of the Revised Statutes,
as amended, is amended to read as follows:
'Sec. 5 H 7 (Insert in the first sentence of
this section, which deals with the oath of a director, the words "if any" so that the pertinent
clause will read)"-* *• * that he is the owner in
good faith, and in his own right, of the number
of shares of stock, if any, required by this
title, * * *"'"
Section 13 - Technical Amendments
°g.ge 21, line 17 - The reference to readily marketable assets of the kinds eligible, etc., should be changed
try striking the words
"of the kinds eligible for investment by national
banks under the provisions of section 5136 of the
United States Revised Statutes"
unless the same language shall have been added in section
9 at page 12, line 13.
Page 21, line 20 and line 23 - The figure "10"
should be changed to '9" to give the correct reference
to th.3 reserve fund proiTision in the bill.
Page 22. following line 13t insert new subsection (h)
reading as follows:
"(h) Section 5220 of the Revised Statutes is
amended by striking out the period at the end of
the first sentence, substituting a colon and
adding the following:
Provided, that in the event the liquidation
contemplates a sale of assets or a merger or
consolidation with another bank, for the consummation of vrhich any approval of the Board
of Governors of the Federal Reserve System or
the Comptroller of the Currency or of both is
16.
required pursuant to the provisions of the
Bank Holding Company Act of 19-47 or of any
provision of the National Bank Act, the vote
of the shareholders shall be ineffective for
any purpose until such approval or approvals
have been had; and provided, further, that
the Comptroller of the Currency may order a
special examination to ascertain if such a
sale, merger or consolidation is in contemplation. •'•
Suggested New Section Re Tax Free Distributions
Under the Interial Revenue Code
Insert imnediately preceding the present Section 1U
on page 22. line 20, a new section to read as follows:
"Sec.
(a) The Internal Revenue '"".ode is
amended by adding pfter section UU?(b)(l9)a new
subsection (11) to rsad as follows:
•(11) Distribution of stock or securities
or obligations by a bank holding company« If
there is distributed, pursuant to an order of
the board of governors of the Federal Reserve
System directing, approving, or permitting such
distribution as tending to effectuate the policy of the Bank Holding Company Act of 19-47, to
a shareholder in a corporation which is a bank
holding company as defined in said Bank Holding Company Act of 194-7 stock or securities or
obligations without the surrender by such
shareholders of stock or securities in such
corporation, no gain to the distributee from
the receipt of the stock or securities, or
obligations so distributed shall be recognized.'
"(b) The internal Revenue Code is further
amended by adding after section 113(a)(22) a new
subsection (23) to read as follows:
'(23) Property acquired in a distribution
pursuant to the Bank Holding Company Act of
194-6. If stock or securities or obligations
were received in a distribution subject to
the provisions of section 112(b)(li), then the
basis in the case of the stock in respect of
which the distribution was made shall be apportioned, under rules and regulations prescribed
by the Commissioner with the approval of the
Secretary, between such stock and the stock or
p-s-*5i\?"Vti3S or obligations distributed.'>;
@FedFRASER