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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
For immediate release

June 11, 1947.

STATEMENT OF CHAIRMAN ECCLES
I N REPLY TO CRITICISM OF S. 829 BY REPRESENTATIVES OF THE MORRIS PLAN
BEFORE THE BANKING. AND CURRENCY COMMITTEE OF THE SENATE

Mr. H i l l , t h e C l e r k o f the Committee, c a l l e d me t h e o t h e r day t o
say t h a t the Committee wanted me t o appear here t h i s morning t o discusss t h e
t e s t i m o n y o f c e r t a i n r e p r e s e n t a t i v e s o f the M o r r i s Plan who appeared on
June 2nd i n o p p o s i t i o n t o S. 829. N a t u r a l l y , I am g l a d t o respond t o t h e
Committee's request although I must confess a sense o f disappointment t h a t ,
a f t e r d i s c u s s i o n s concerning t h i s b i l l which have covered a p e r i o d o f almost
two years w i t h r e p r e s e n t a t i v e s o f o t h e r Government agencies, t h e Federal
A d v i s o r y C o u n c i l , two Independent Bankers A s s o c i a t i o n s , bankers g e n e r a l l y ,
and r e p r e s e n t a t i v e s o f a l l o f the c o u n t r y ' s major bank h o l d i n g companies, I
f i n d t h a t we overlooked someone t o convince about t h e m e r i t s o f t h i s l e g i s lation.
I have n o t had t h e t i m e t o study i n d e t a i l t h e extensive o r a l
t e s t i m o n y and e l a b o r a t e p r i n t e d statements which were i n t r o d u c e d by the
M o r r i s Plan r e p r e s e n t a t i v e s . Such as I have seen, however, are so misleadi n g and u n f a i r , and c o n t a i n so many i n a c c u r a c i e s , as t o convince me t h a t
t h e y were d e l i v e r e d merely i n the hope t h a t one o r more o f t h e 1 random charges
which t h e y c o n t a i n might r e s u l t i n damaging d e l a y t o the progress o f t h i s
l e g i s l a t i o n i n t h i s session o f Congress. I s h a l l p o i n t out two o r t h r e e o f
t h e major i n a c c u r a c i e s contained i n these statements simply t o show t h e
M o r r i s p l a n o p p o s i t i o n f o r what i t r e a l l y i s , namely, an attempt t o prevent
t h e r e g u l a t i o n o f t h a t group o f companies as bank h o l d i n g companies — a r e s u l t which t h e y have so f a r managed t o achieve by t a k i n g advantage o f one o f
t h e loopholes i n t h e present law and causing t h e w i t h d r a w a l from System
membership o f any banks w h i c h t h e y a c q u i r e .
One o f t h e charges which i s r e p e a t e d l y s t r e s s e d i n - t h e i r s t a t e ments i s t h a t S. 829 does n o t c o n t a i n such adequate standards as t o enable
those who would be brought under t h e Act t o know i n advance what w i l l be
t h e r u l e s o f coverage and a d m i n i s t r a t i o n . T h i s charge i s made w i t h respect
t o a number o f t h e s e c t i o n s o f t h e b i l l .
F i r s t i t i s charged t h a t Section 3> which d e f i n e s bank h o l d i n g companies and provides t h e l e g i s l a t i v e machinery f o r o b t a i n i n g exemptions from
t h e A c t , contains what Mr. Huntington, P r e s i d e n t o f M o r r i s P l a n , describes as
"meaningless 11 standards. His statement c h a r a c t e r i z e s t h a t s e c t i o n as p r o v i d i n g o n l y one " r e a l " standard, which he s t a t e s i s t h e " a r b i t r a r y d e t e r m i n a t i o n
o f t h e Board".




-4As p o i n t e d o u t i n my p r e v i o u s , t e s t i m o n y , t h e d e f i n i t i o n s and
exemption p r o v i s i o n s o f S e c t i o n 3 are p a t t e r n e d upon i d e n t i c a l p r o v i s i o n s
i n t h e P u b l i c U t i l i t y H o l d i n g Company A c t o f 1935* I n t h a t A c t , as h e r e ,
t h e s o l e c r i t e r i o n o f coverage i s t h a t o f c o n t r o l . I n b o t h t h e r e i s a
mathematical coverage based upon a percentage o f s t o c k ownership, coupled
w i t h the p o s i t i v e r i g h t o f a company owning t h e c r i t i c a l number o f shares
t o o b t a i n a d e c l a r a t i o n t h a t i t i s n o t a h o l d i n g company i f i t can demons t r a t e t h a t i t does n o t e n j o y t h e power o f c o n t r o l . S i m i l a r l y , both A c t s
p r o v i d e t h a t even i f a company does n o t own t h e c r i t i c a l number o f shares,
the Government agency may d e c l a r e such company t o be a h o l d i n g company upon
a d e t e r m i n a t i o n t h a t c o n t r o l does i n f a c t e x i s t . The standard p r o v i d e d i n
t h i s s e c t i o n i s t h e r e f o r e a p u r e l y f a c t u a l one, one which i s capable o f
concrete p r o o f t h e same as any o t h e r f a c t u a l i s s u e . F u r t h e r m o r e , t h i s
standard i s one which has had j u d i c i a l c o n s t r u c t i o n and i n t e r p r e t a t i o n i n
many cases which have gone t o t h e c o u r t s f r o m t h e d e c i s i o n s o f t h e S e c u r i t i e s and Exchange Commission on t h e d e f i n i t i o n s c o n t a i n e d i n t h a t A c t .
If
t h e Committee — o r M r . H u n t i n g t o n — d e s i r e s a l i s t o f these cases, I s h a l l
be g l a d t o s u p p l y i t .
Next i t i s charged t h a t t h e Board 1 s power under S e c t i o n 5(b) t o
••determine" t h a t a business i s " r e l a t e d " t o b a n k i n g i s a l s o w i t h o u t adequate s t a n d a r d s .
T h i s s e c t i o n a l l o w s an exemption f r o m t h e p o s i t i v e p r o h i b i t i o n
a g a i n s t a h o l d i n g company owning v o t i n g shares i n any company o t h e r t h a n a
bank. I t s purpose i s t o p e r m i t a h o l d i n g company t o keep i t s ownership i n
those companies which are " r e l a t e d " t o t h e banking b u s i n e s s . The standards
f o r d e t e r m i n i n g what i s a " r e l a t e d " business a r e c l e a r . F i r s t , under t h e
p l a i n terms o f t h e s e c t i o n , t h e business must be such as t o be a " p r o p e r
i n c i d e n t " t o t h e banking b u s i n e s s . T h i s i n i t s e l f i s a y a r d s t i c k capable o f
s p e c i f i c a p p l i c a t i o n . Secondly, t h e s e c t i o n l i s t s a number o f s p e c i f i c
k i n d s o f businesses w h i c h a r e l e g i s l a t i v e l y d e c l a r e d t o be p r o p e r l y i n c i d e n t a l t o banking and t h e s e , under a l e g a l d o c t r i n e f a m i l i a r t o most l a w y e r s ,
l i m i t s t h e k i n d s o f o t h e r businesses w h i c h may be d e c l a r e d t o be " r e l a t e d "
t o banking t o those which a r e o f a l i k e n a t u r e . T h i r d l y , these standards
are s u b j e c t t o t h e f u r t h e r l i m i t a t i o n a p p e a r i n g i n t h a t p a r t o f S e c t i o n 2
o f t h e A c t w h i c h reads as f o l l o w s :
" I t i s hereby d e c l a r e d t o be the p o l i c y
o f Congress, i n accordance w i t h which p o l i c y a l l o f t h e p r o v i s i o n s o f t h i s
A c t s h a l l be i n t e r p r e t e d , t o c o n t r o l t h e c r e a t i o n and expansion o f bank h o l d i n g companies; t o separate t h e i r business o f managing and c o n t r o l l i n g banks
from u n r e l a t e d businesses. * * * " '
I t i s a l s o charged t h a t S e c t i o n 6 o f t h e B%11 l a c k s adequate
standards f o r d e t e r m i n i n g t o - w h a t e x t e n t a bank h o l d i n g company may be p e r m i t t e d t o expand. I n h i s o r a l t e s t i m o n y M r . H u n t i n g t o n , i n e f f e c t , urged
t h e Congress t o adopt a d o l l a r f i g u r e d e f i n i n g " b i g n e s s " .




- 3 -

There i s no s e c t i o n o f S» 829 w h i c h provoked a more s e a r c h i n g
i n q u i r y f o r adequate and s p e c i f i c standards than S e c t i o n 6 . N e i t h e r t h e
lf
death sentence 11 nor t h e s o - c a l l e d " f r e e z e " seemed t o be e i t h e r j u s t o r i n
the public i n t e r e s t .
On t h e o t h e r hand, i t was r e c o g n i z e d t h a t t h e r e should
be a p o s i t i v e p r o h i b i t i o n a g a i n s t t h e k i n d o f expansion w h i c h operates t o
the d e t r i m e n t o f the p u b l i c .
I b e l i e v e t h a t t h e standards as now s t a t e d i n
S e c t i o n 6 are capable o f s p e c i f i c a p p l i c a t i o n t o each problem o f expansion
w h i c h may h e r e a f t e r a r i s e . As p o i n t e d o u t i n my p r e v i o u s t e s t i m o n y , t h e banki n g agencies, when c a l l e d upon t o deoide whether t o approve t h e f u r t h e r e x pansion o f a bank h o l d i n g company, must f i r s t c o n s i d e r t h e f i n a n c i a l h i s t o r y
and c o n d i t i o n s o f t h e a p p l i c a n t and t h e banks concerned; t h e i r p r o s p e c t s ;
c h a r a c t e r o f management; and t h e needs o f t h e communities i n v o l v e d .
These
are c o n s i d e r a t i o n s w h i c h t o d a y c o n s t i t u t e t h e l e g i s l a t i v e guide f o r a d m i n i s t r a t i v e a c t i o n i n such m a t t e r s as t h e admission o f S t a t e banks t o membership
i n t h e Federal Reserve System or t h e g r a n t i n g o f f e d e r a l d e p o s i t i n s u r a n c e
coverage. They have been i n t h e banking s t a t u t e s f o r many y e a r s , w i t h o u t
c h a l l e n g e or c o m p l a i n t . Presumably, t h e r e f o r e , t h e y are understood and approved by t h e b a n k i n g f r a t e r n i t y g e n e r a l l y . N e x t , the banking agencies a r e
r e q u i r e d t o t a k e i n t o c o n s i d e r a t i o n and t o g i v e e f f e c t t o t h e n a t i o n a l
p o l i c y a g a i n s t r e s t r a i n t s o f t r a d e and commerce and t h e unduo c o n c e n t r a t i o n
o f economic power. This s t a n d a r d does n o t promulgate a new n a t i o n a l p o l i c y ;
i t m e r e l y g i v e s e f f e c t t o one w h i c h has l o n g been on the s t a t u t e books o f
t h i s c o u n t r y i n t h e Sherman and C l a y t o n A c t s . And j u d i c i a l i n t e r p r e t a t i o n
o f those A c t s has l o n g since f i x e d the boundaries o f t h i s p o l i c y i n u n d e r standable terms o f p r e c i s e a p p l i c a t i o n . F i n a l l y , t h e r e i s the requirement
under S e c t i o n 6 t h a t the proposed expansion s h a l l n o t be i n c o n s i s t e n t w i t h
adequate and sound banking and* the p u b l i c i n t e r e s t , a l l o f w h i c h are f a m i l i a r
expressions t o those whose a c t i v i t e s are s u b j e c t t o s u p e r v i s i o n a t the hands
o f b a n k i n g agencies•
ALLEGED LACK OF ADEQUATE JUDICIAL REVIEW
I n a d d i t i o n t o t h e charge o f l a c k o f standards i t has a l s o been
charged t h a t , w i t h v e r y l i m i t e d exfceptions, no p r o v i s i o n has been made i n
S. 829 f o r j u d i c i a l r e v i e w o f most o f t h e i m p o r t a n t d e c i s i o n s w h i c h the
Board i s r e q u i r e d t o make under t h e b i l l .
T h i s charge i s so o b v i o u s l y w i t h o u t f o u n d a t i o n as s c a r c e l y t o r e q u i r e a r e p l y . S e c t i o n 1 1 ( d ) , w h i c h i s a l s o p a t t e r n e d upon a s i m i l a r s e c t i o n
i n the U t i l i t y A c t , i s i n t e n d e d t o , and does i n f a c t , g r a n t a s p e c i f i c r i g h t
o f j u d i c i a l r e v i e w o f any and a l l o r d e r s o f t h e Board made pursuant t o S. 829
t o a person who i s a g g r i e v e d by such a c t i o n * Tho c o u r t s have l o n g s i n c e det e r m i n e d t h a t t h e scope o f r e v i e w p r o v i d e d by t h e j u d i c i a l r e v i e w s e c t i o n o f
t h e U t i l i t y A c t , as w e l l as many s i m i l a r p r o v i s i o n s i n o t h e r r e g u l a t o r y a c t s ,
i n c l u d e t h e r i g j h t t o r e v i e w any a c t i o n w h i c h i s o f a d e f i n i t i v e c h a r a c t e r
t h a t a d v e r s e l y a f f e c t s t h e l e g a l r i g h t s o f any p e r s o n . . I i r ^ h e U t i l i t y A c t
the c o u r t s have even gone so f a r asTto h o l d t h a t a m i n o r i t y s t o c k h o l d e r n o t




- 4 a pa&jbtf t o the proceedings before t h e Commission i s e n t i t l e d , under c e r t a i n
circumstances t o j u d i c i a l review o f t h e Commissions a c t i o n a f f e c t i n g t h e
c o r p o r a t i o n , even though t h e c o r p o r a t i o n has n o t sought such review i t s e l f *
ALLEGED EFFECT UPON DUAL BANKING SYSTEM
The t h i r d and f i n a l charge t o which I s h a l l r e f e r i s one which
b o t h Mr. Huntington and Mr. M o r r i s made, namely, t h a t S. 829 would tend t o
d e s t r o y the d u a l banking system. This i s a f a m i l i a r r e d h e r r i n g . I t i s
r e p e a t e d l y dragged o u t by the opponents o f t h e Federal Reserve System, and
i t i s u t t e r l y f a l s e . Only yesterday I appeared before the House Banking and
Currency Committee t o answer t h i s charge i n r e l a t i o n t o t h o Board's b i l l t o
a u t h o r i z e the Federal Reserve Banks t o guarantee i n p a r t l o a n s by p r i v a t e
banks, p a r t i c u l a r l y t o small business. Whenever tho Board proposes l e g i s l a t i o n o f any k i n d , s e l f i s h opponents mako uso o f t h i s w h o l l y f a l l a c i o u s
argument because t h e y f e e l t h a t by d o i n g so t h o y can causc e f f e c t i v e alarm
among the senators and r e p r e s e n t a t i v e s i n tho Congress who have committee
r e s p o n s i b i l i t i e s f o r such l e g i s l a t i o n .
I am and have l o n g been i n f a v o r o f wider membership i n the Federal
Resorvo System. I have urged u n i f i c a t i o n i n t h a t sonso and o n l y i n t h a t sonso.
This does n o t moan d o i n g away w i t h S t a t e c h a r t o r i n g o r tho S t a t e banking aut h o r i t i e s , w i t h whom t h e Federal Rosorvo System has l o n g worked v o r y c l o s e l y .
Wo have i n tho Federal Reserve System n e a r l y 2,000 S t a t o member banks having
aggregate d e p o s i t s o f 40 b i l l i o n d o l l a r s , o r approximately t w o - t h i r d s o f t h e
t o t a l d e p o s i t s o f a l l S t a t e commercial banks. I t i s preposterous t o contend
t h a t , by extending h o l d i n g company l e g i s l a t i o n t o roach a l l such companies,
which i n t u r n w i l l s u b j e c t a r o l a t i v o l y few nonmomber banks t o r e g u l a t i o n as
a p a r t o f a h o l d i n g company system, t h i s would a f f o c t i n any way t h e establ i s h e d d u a l banking system i n t h i s c o u n t r y o r t h a t t h e Board has any such
purpose i n mind i n t h i s o r any o t h e r l e g i s l a t i o n .
You w i l l r e c a l l t h a t when the l e g i s l a t i o n was passed by Congress
c r e a t i n g t h e Federal D e p o s i t Insurance C o r p o r a t i o n i t r e q u i r e d t h a t a l l i n sured banks wore t o become members o f tho Federal Rosorvo Systom. Senator
Glass 1 support o f t h i s l e g i s l a t i o n was p r e d i c a t e d on t h a t requirement.
Opponents o f t h o Roservo Systom were s u c c e s s f u l l a t o r on i n g e t t i n g t h i s r e moved f r o m the l a w as a requirement and t h i s , i n my o p i n i o n , was a backward
s t e p . Tho p o i n t i s , howovor, t h a t t h o chargo o f Rosorvo System h o s t i l i t y t o
the d u a l banking system i s baseless and c o n t r a d i c t e d by the f a c t s .