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E1 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Saturday, April 15, 1950. The Board met it the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. McCabe, Chairman Eccles Szymczak Draper Carpenter, Secretary Sherman, Assistant Secretary Morrill, Special Adviser Riefler, Assistant to the Chairman Vest, General Counsel Millard, Director, Division of Examinations Mr. Baumann, Assistant General Counsel Mr. Hostrup, Assistant Director, Division of Examinations Mr. Mr. Mr. Mr. Mr. Mr. Mr. Vardaman requested that it be stated in these minutes thett was a special meeting called after)o'clock Friday and, because of his absence from the city, he was not able to be present. Chairman McCabe stated that in accordance with the under8.14aLildirig at the meeting yesterday he and Mr. Vest attended a meet14€ la Senator Robertson's office at 3 o'clock that afternoon at 1411-ch there was presented a draft of a proposed bank holding company which had been prepared in the office of the Comptroller of the Ott* elleY after consultation with representatives of the American tittrat el's Association and the principal bank holding company groups. Othe 118 in attendance at the meeting, he said, included in addition to s ellator Robertson, Mr. Talman, Staff Assistant to Senator Robe ' l tsot, Deputy Comptroller of the Currency Robertson, (who 4/1D/50 -2- aPParently had written the draft of bill to be considered), Mr. Ilexter of the Comptroller's Office, and Mr. Cook, Director, and three staff representatives of the Federal Deposit Insurance Cor poration. Chairman McCabe stated that, after checking yesterday with the Other members of the Board who were available, he had asked that the Board meet this morning because Senator Robertson had stated the meeting yesterday that he planned to discuss the sub"lite bill with Senator Maybank Monday morning, April 17, and, it satisfactory to him, submit it immediately to the subcommittee °t the Banking and Currency Committee on Federal Reserve matters Illth a view to reporting it promptly to the full Senate Banking and Clill ' encY Committee, and that if Chairman McCabe wished to make any e°141cLents With respect to the bill they should be sent to him (Senator Robertson) before 10 o'clock on Monday the 17th. Chairman 14°Cs.he added that Mr. Evans had been notified by telephone of Ihi8 development and that he and Mr. Townsend, Solicitor, were c°41111€ to Washington to participate in the discussions and were -veoted to arrive at 1:30 this afternoon. At chairman McCabe's request, Mr. Vest then reviewed the Provisions of the proposed bill discussed in Senator Robe ''son's office, stating that it did not repeal, modify, or ehar,„ e in any way the provisions of existing law relating to holdcompany affiliates and that the proposed new bill would be 463 4/15/A -3superimposed upon the existing law. Mr. Vest stated that the draft w°Uld define a bank holding company in much the same way as the term "holding company affiliate" is defined in existing law except that it would apply to the ownership or control of insured banks instead of merely member banks. Thus, a company would be a holding company It it owned or controlled )0 per cent of the shares of a bank or 50 pe r cent of the shares voted in the last election of directors, °r controlled in any manner the election of a majority of directors. 4 °°111PanY which, under this definition, was a holding company on 41 ' 11 15, 19)0, or thereafter would always be a holding company, 444 so long as it owned or controlled more than 5 per cent of the share 8 of any insured bank would be subject to the restrictions of the bill. A bank holding company would be prohibited from acquiring the shares of any bank except with the approval of (a) the Board if the hank to be acquired was a State member bank (b) the Comptroller or the Currency if the bank to be acquired was a national bank or (e) th—e Federal Deposit Insurance Corporation in the case of any °tiler bank. A bank holding company would be prohibited after ) ee'rs from the date of the law from holding stock in any non -banking co ' except those engaged in a safe deposit or a fiduciary and from holding any obligations except investment securities vlai„1„ national banks are permitted to purchase under the National Act; but these provisions would not apply to bank holding 4/15/50 c°mPanies which themselves were banks. No bank holding company could acquire any shares of a State bank if that would be contrary to State law. In passing upon requests for bank holding companies to PlIrchase shares in banks, Mr. Vest said, the bill would provide standards which the appropriate Federal supervisory agency would be required to take into consideration including the financial "atlas of the bank, adequacy of capital, earnings prospect, character "Illanagement, needs of the community, and whether or not the corporate Pavers were consistent with the law relating to insurance of deposits. It would also be required to take into account the policy of Congress 44' &11 favor of local ownership and control of banks and competition in the field of banking and in opposition to excessive concentration "Dower in the field of banking through undue expansion of multiplerrice banking systems". These factors would have to be taken into c°45ideration also by a Federal supervisory agency in considering 4PDlications for branches. The bill would provide no sanction or Dt"ision for enforcement except criminal penalties. Mr. Vest also te'ted that the bill presented by Senator Robertson contained teat tictions upon the acquisition by a bank holding company system or than 2) per cent of the deposits or banking offices in a P,ad eral Reserve district and upon the acquisition of shares in beza, 11i theSe other Federal Reserve districts, but that it was understood Provisions were to be omitted from the bill. 415 4/15/50 ->In commenting on the revised draft of bill, Mr. Vest stated /hat while it was much less satisfactory as a means of accomplishing the objectives which the Board had in mind than the bill, S. 2318, o Which hearings were recently completed, it was his opinion that Ilitli appropriate amendments the proposed bill could be made to lIce°mPlish the major objectives which the Board had sought in h°1dillg company legislation recommended to Congress in recent years. There was a general discussion of the provisions of the bIii Proposed by Senator Robertson and of what if any comments Illight be given to him by 10 o'clock on Monday morning. The meeting then recessed and reconvened at 2:30 p.m. with the same attendance as at the close of the morning session except that Mr. Evans and Mr. Townsend, Solicitor, were also present. Discussion of the proposed revised holding company bill " If resumed. In the course of the discussion, it was pointed out that the proposed bill failed to provide adequate regulation beak holding companies and it was the consensus that while the of the legislation might be changed, any bill to which the . might give its approval should accomplish the objectives 11°4/ " hich the Board had had in mind in its study of the matter over 4 13e l'iod of years. Various alternative procedures were discussed, 04e °f which was a suggestion that a letter be sent to Senator llobe l'''80/1 by 10 o'clock Monday morning commenting upon the proposed 4G6 4A5/5o -6- bill and stating that the Board would be glad to study the matter f)arther with a view to submitting specific suggestions if the 'subcoMmittee of the Banking and Currency Committee desired to ive them. This suggestion was discussed and it was agreed unanimously that the staff would prepare a draft letter to Senator Robertson along the lines suggested which would be considered at a meeting to be held tomorrow afternoon at 2 p.m. Minutes of actions taken by the Board of Governors of the Pederal Reserve System on April 13 1950, were approved unanimously. Minutes of actions taken by the Board of Governors of the Pederal Reserve System on April 14, 1950, were approved and the actio4s recorded therein were ratified unanimously. Secretary.
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