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The Equity Corp., American General Corp., Morris Plan Corp. of America,
Charter Bank of Philadelphia, Philadelphia (NM)..
Workingman's Savings Bank & Trust Co., Pittsburgh (NM)
Subtotal (2 State nonmember insured).
Tennessee: Morris Plan Bank of Knoxville, Knoxville (NM).
Virginia: The Bank of Virginia, Richmond (NM).
Total (18 State nonmember insured, 5 State nonmember uninsured)...
1 As of Nov. 15, 1946, the Equity Corp. owned 75.07 percent of American General Corp., which in turn
The CHAIRMAN. At this point, I am going to have inserted in the
CHART OF VOTING INTERESTS OF EQUITY GROUP
The following chart shows the companies in which Equity and American General had, as of November 15, 1946, direct or indirect stock interests otherwise than through general market securities held in their portfolio. The chart is not a list of subsidiaries or controlled companies. Neither the sequence of listing nor the percentage of voting stock held is any indication of the relative significance of the respective companies. Set forth opposite each name is the percentage of voting stock held by Equity or a subsidiary. All companies of the same degree of remoteness from Equity are indented by the same space from the left margin, each class of more remote companies being further indented.
The Equity Corp.-Continued
American General Corp.-Continued
The Morris Plan Corp. of America-Continued
Worth Engineering Co., Inc..
The Morris Plan Co. of Philadelphia..
P. T. M. Agency.
The Morris Plan Bank of Philadelphia_
The Morris Plan Consumer Discount Co. of York..
Industrial Bank of Central New York, Syracuse_
The Bank of Georgia, Atlanta__
The Citizens Bank of Washington..
Installment Credit Service, Inc..
Industrial Bank of Schenectady.
Morris Plan Bank of Knoxville
Union Trust Co. of the District of Columbia.
Bankers Security Life Insurance Society-
Industrial City Bank & Banking Co., Worcester-
The Morris Plan Bank & Banking Co. of Lynn, Mass. (NB). 61. 77
Workingman's Savings Bank & Trust Co., Pittsburgh...
General Contract Purchase Corp-.
The Bank of Virginia, Richmond___
Wilmington Insurance Brokers, Inc.
61. 21 100
61. 14 58. 21
Lowell Morris Plan Co., Lowell, Mass. (NB).
State-Wide Insurance Agency, Inc..
The Baden Bank of St. Louis
Planning & Service Corp--
The Morris Plan Co. of South Bend, Ind. (NB)
The Morris Plan Co. of St. Joseph, Mo. (NB)
Manchester Morris Plan Bank, Manchester, N. H. (NB).
The Salem Morris Plan Co., Salem, Mass. (NB).
The Topeka Morris Plan Co., Topeka, Kans. (NB)
The Morris Plan Savings & Loan Co., Wheeling, W. Va.
The Bank of Ohio Co., Cleveland, Ohio..
Lawrence Morris Plan Banking Co., Lawrence, Mass. (NB)-
The CHAIRMAN. We, also, have received a letter, dated June 2, 1947, from Mr. Eccles, Chairman of the Board of Governors of the Federal Reserve System, addressed to the chairman of the committee, together with a copy of a resolution of the Federal Advisory Council, which I will have placed in the record at this point. (The letter and resolution referred to are as follows:)
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,
Hon. CHARLES W. TOBEY,
Washington, D. C.
DEAR SENATOR TOBEY: During the course of my testimony the other morning respecting the proposed bank holding company legislation (S. 829), I was asked by one of the members of the committee to amplify my remarks concerning that phase of section 5 (c) of the bill which permits a bank holding company to acquire shares of nonbanking organizations from its subsidiary banks "at the request of any Federal or State authority having statutory power to examine such subsidiaries. I am happy to do so and am sending this letter to you with the request that it be inserted in the record of the hearings on S. 829.
In the first place, it should be noted that section 5 (c) provides an exemption from the positive prohibition contained in section 5 (a) against bank holding companies, after two years after the effective date of the act, owning any securities of nonbanking organizations. The fundamental purpose of section 5 (c) is to permit bank holding companies to do so whenever it may be necessary in order to protect any of the banks which are part of the holding company system. However, the Board did not want the exemption to be so broad as to permit the holding company to take over such shares under all circumstances because it was felt that such a provision might very well offer a loophole for evading the direct prohibition stated above. It was felt, therefore, that a provision which conditions the taking over of such securities upon a previous "request" from the examining authorities would serve to minimize this danger while at the same time offering a ready protection to the banks in the holding company system.
Upon reexamining the language of section 5 (c), however, I find that a literal interpretation of that language would seem to require that the "request" be made by the examining authorities of the bank holding company itself. This explains the question which both you and Senator Buck raised as to the propriety of such a "request," particularly in those cases where the holding company does not own all of the outstanding shares of the bank involved. What we really intended to do was to allow a holding company to take over such securities whenever a bank in the holding company system had been requested by the examining authorities to dispose of such securities. I think that this result, together with that sought by the amendatory language already submitted, can be obtained by amending the first sentence of section 5 (c) down to the semicolon on line 22, page 7, to read as follows:
"Nor shall the prohibitions in this section apply to voting shares, securities or obligations acquired by a bank holding company from any of its subsidiaries which have been requested to dispose of such voting shares, securities, or obligations by any Federal or State authority having statutory power to examine such subsidiaries, or which have been acquired from such subsidiaries with the prior approval of the Board."
I had intended to mention at the conclusion of my remarks the other morning two additional amendments which are in the course of preparation. The first is one which has been jointly recommended by the Association of Reserve City Bankers, the Federal Advisory Council and representatives of the various bank holding companies. It would provide an appropriate tax exemption, patterned upon the exemption of a similar type enacted in connection with the Public Utility Holding Company Act of 1935, to protect against the consequences of the statutory order of divestiture of nonbanking securities by all holding companies subject to S. 829. The language of such an exemption is now under study by the Treasury Department and the Bureau of the Budget. The Board, while favoring this amendment, did not want formally to present it to the committee until it has been considered and approved by those agencies.
The second is one which has been proposed by the Treasury Department, and likewise approved by the Board. It would extend the definition of a bank holding company to include any company which owns 15 percent or more of the voting shares of one bank, provided that bank has one or more branches. Such a provision seems to be entirely consistent with the underlying aim of S. 829, which is to bring all holding companies under regulation which control two or more banking offices.
I likewise forgot to hand to the reporter a copy of the resolution adopted by the Federal Advisory Council, reference to which was made during the course of my testimony. I enclose a copy of the resolution in the hope that it, too, will be made a part of the formal record.
Again thanking you and the members of your committee for the opportunity of presenting the Board's views in support of S. 829, I remain
M. S. ECCLES, Chairman.
FEDERAL ADVISORY COUNCIL RESOLUTION
The Council for the past few years has at almost every meeting discussed the holding company situation, the inadequacies of existing legislation, and proposals for additional legislation in connection with it.
(1) The Council believes that holding company legislation should be enacted at this time. Experience has shown that the present legislation is inadequate and that additional legislation is urgently necessary.
(2) It approves the general approach to the holding company problem embodied in Senate bill 829.
(3) It believes Senate bill 829 should be amended:
(a) By adding to the declaration of policy and the standards for Federal Reserve Board, Comptroller of the Currency, and Federal Deposit Insurance Cor-poration action a more definite statement of objectives and standards. (A memorandum is attached which was the subject of discussion between the Board of Governors and the Federal Advisory Council which indicates the type of amendments in this regard which the Council believes necessary.)
(b) By granting tax exemption to such holding companies as are required to divest themselves of nonbanking assets. Simple justice requires that such tax exemption should be granted, and a precedent exists for it in the utility-holdingcompany legislation.
(c) By requiring a larger percentage than 10 percent of the ownership of stock in two or more banks in order to create an automatic holding company relationship.
(d) By providing that incidental ownership of bank stocks in fiduciary capacities such as executor, trustee under a will, etc., should not create an automatic holding company relationship.
The Council urges the Board to submit amendments in accordance with these suggestions and to press for the enactment of the bill as so amended.
1. To reach and regulate any banking operation which, functioning in an area or with a structure larger than that permitted to independent banks, can or does, through the medium of concentrated control, jeopardize independent competitive banking at local or regional levels or place independent banks under the particular circumstances at a competitive disadvantage;
2. To confine the size and expanse of any such banking operations, regardless of its competitive or other aspects, within limits consistent with adequate and sound banking; and
3. To control the magnitude and expanse of any such banking operation, regardless of all other considerations, to the end that, in the event of adverse general economic conditions, such an operation will not be subjected to an inordinate pressure arising from unwieldiness due solely to mere size and expanse which, in turn, may put an inordinate pressure on the Nation's banking structure.
The CHAIRMAN. All interested parties will be notified through the press.
I will insert in the record at this point a paper presented by Mr. Warfield, and one from the First Kentucky Co.
(The documents referred to are as follows:)
Statement oF ETHELBERT WARFIELD, Esq., BEFORE THe Banking and CurRENCY COMMITTEE, UNITED STATES SENATE, IN OPPOSITION TO Bank Holding COMPANY BILL (S. 829)
My name is Ethelbert Warfield. I am a member of the firm of Satterlee, Warfield & Stephens, counsel for American General Corp., which will be referred to throughout my statement as "American General."
I oppose the enactment of S. 829.
Before setting forth my objections to the proposed bill, I should like briefly to explain the business of American General and its status from the standpoint of governmental control.
American General is a registered investment company under the Investment Company Act of 1940, which is administered by the Securities and Exchange Commission. As such, American General is defined under the Act as a nondiversified-management investment company of the closed-end type. Approximately 74 percent of the voting securities of American General are owned by the Equity Corp., which is also a registered investment company. American General directly, and through subsidiaries, is interested in portfolios of marketable securities, the major portion of which are traded in on the New York Stock Exchange or the New York Curb Exchange, owns 36.22 percent of General Reinsurance Corp., the largest American casualty and fire reinsurance corporation, 60%1⁄2 percent of the voting securities of the Morris Plan Corp. of America (hereinafter called Morris Plan), and various interests in corporations of which American General either controls voting securities or has a special interest by reason of participation in management or othersise. As registered investment companies, the Equity Corp. and American General Corp., together with all its affiliates, including Morris Plan, and all Morris Plan banking and nonbanking subsidiaries, are subject to continual and thorough supervision by the Securities and Exchange Commission.
As counsel for American General, I object to the enactment of the proposed bill on the following grounds:
1. The bill unreasonably compels registered investment companies to elect between disposing of their bank stocks and forfeiting investment company status. 2. Regulation by the Securities and Exchange Commission is adequate to prevent any unfair dealings between investment companies and their banking affiliates.
1. THE BILL UNREASONABLY COMPELS REGISTERED INVESTMENT COMPANIES TO ELECT BETWEEN DISPOSING OF THEIR BANK STOCKS AND FORFEITING INVESTMENT COMPANY STATUS
Section 3 of the bill, as the Federal Reserve Board now proposes to amend it, defines a holding company as any company which directly or indirectly owns, controls, or holds, with power to vote, 15 percent or more of the voting shares of two or more banks, unless the Federal Reserve Board declares such company not to be a bank-holding company.
Since American General owns 60 percent of the voting stock of Morris Plan, and since Morris Plan owns 15 percent of more of the stock of more than one bank, American General and also the Equity Corp. could hardly hope to escape the classification as a bank-holding company under the broad, all-inclusive definition in the bill.
The classification of this corporation as a bank-holding company under the definition set forth in the bill goes beyond the stated purpose of the Federal