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variety of industrial and other businessses with aggregate resources of more than $275,000,000.

It is not at all surprising, therefore, that the Gianninis, unlike the other major bank holding companies in the country, should now come out openly once more against any legislation designed, as in S. 829, to curb monopolistic development and prevent other abuses by subjecting the now ineffectively regulated holding companies to the same public regulation that applies to all State and National banks in this country. It is easy to understand why the Gianninis' telegram to you states that "the Eccles program is not in the public interest" and why it attempts to muddy the waters by a characteristic Giannini personal attack on me, none of which is germane to the real issue before the Congress, namely, the urgent need in the public interest to prevent the holding company device being used not only to create banking monopolies but to reach out into wholly unrelated fields, as individual banks are prevented from doing, to control all sorts of business enterprises.

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It is ironic, but irrelevant, that A. P. Giannini alludes to me as "a beaucratic despot" who, according to him, is trying "to suppress free institutions through the exercise of dictatorial powers masquerading as administrative discretion." These resounding generalities conveniently overlook the fact that the proposed legislation, far from being an "Eccles program,' conforms to recommendations made in reports by the Federal Advisory Council of the Federal Reserve System, composed of a leading banker from each of the 12 Federal Reserve districts, and by the Association of Reserve City Bankers, representative of a large number of the leading banks of the country. They ignore the fact that the bill has the support of the 2 independent bankers associations, including that of the Twelfth Federal Reserve District which embraces the States where the Giannini empire continues to spread. They ignore the fact that the great majority of the major bank holding companies support this bill. It is odd that all of these responsible banking groups consider the legislation to be in the public interest, but the Gianninis do not. Their telegram would warrant no comment from me but for the fact that to ignore it might seem to give assent in its attempts to impugn my good faith and motives in seeking this regulatory legislation.

By innuendo their telegram makes two charges which, if stated bluntly, would be:

1. That, under the capital structure of the First Security Corp. of Ogden, Utah, a bank holding company in which the members of my family own in the aggregate between 15 and 20 percent interest, voting rights are limited to less than one-eleventh of the total outstanding shares, while at the same time the voting shares receive over 8 percent of all of the dividends paid. The Gianninis' telegram states that perhaps I "can explain why the bill is silent" in not requiring that every stockholder should have equal voting rights. While none of these assertions is germane to the problem now before the committee, they may be shortly and simply explained.

First as to the facts. The First Security Corp. is a bank holding company. As such it now holds a voting permit under the provisions of the present bank holding company statute for each of the banks which it controls. This may be contrasted with the fact that, while Transamerica holds a majority stock interest in 24 member banks, it has obtained voting permits covering only 2 of such banks. If S. 829 becomes law, First Security will be subject to each and all of its regulatory provisions, the same as any other holding company.

The capital structure of First Security is divided into voting and nonvoting shares. The nonvoting shares represent those which have been issued over the years in exchange or payment for the stock of various banks which First Security has acquired. Contrary to the statement in the Gianninis' telegram, dividend rights as to each class of stock are identical. In addition-a subject not mentioned in the telegram-nonvoting shares have a preferential right in liquidation to receive a stated amount before the voting shareholders receive anything.

So far as the silence of S. 829 on the subject of voting and nonvoting shares of a bank holding company is concerned, it should be noted that neither the present law nor any previously proposed draft of new legislation contains any such provision. The reason for this is to be found in that part of section 2 which defines the purpose of S. 829 to be "to subject the business and affairs of bank holding companies to the same type of examination and regulation as the banks which they control." In the light of this purpose and inasmuch as there is no requirement that the capital structure of a national bank conform to any fixed legislative formula respecting voting, it was not felt that such a requirement should be provided respecting bank holding companies. Let me add, however, that I have

no objection to the inclusion of such a requirement should the committee and the Congress deem it appropriate. Furthermore, even if such a provision were added, I doubt that the bill would gain favor in the eyes of the Gianninis or that such a provision would evoke their support of the bill. It may be assumed that if such had been their attitude, it would have been so stated in their telegram. As stated above, this entire subject was injected merely to cast an innuendo to the effect that there is something improper so far as my family interests are concerned, and this leads me to a consideration of their next charge:

2. This seems to be to the effect that my family and I, either directly or through a family investment company, control the First Security Corp., and that the various interests which the family investment company owns would be affected by the bill were it not for certain changes which have been made in the definition of a bank holding company since the first holding company bill was introduced in 1945, or if the full definition contained in the Utility Act had been followed in S. 829. The plain implication of the Gianninis' telegram is that I caused these changes to be made in order to protect the interests of the Eccles family investment company in its holdings of various nonbanking interests.

This is a deliberate and malicious falsehood. In the first place, the Eccles family does not control First Security, either directly or through any company. There is a family investment company, called the Eccles Investment Co., which was organized more than 32 years ago upon my father's death for the purpose of holding and managing certain assets of his estate for the benefit of my mother and nine children, seven of whom were then minors. I was advised at that time by attorneys and business associates to form this company, and it has since continued to hold real estate, bonds, notes, and stocks of various business corporations. Included in the assets of the Eccles Investment Co. is the ownership of a little over 4 percent of the outstanding shares of First Security, consisting of one-half of 1 percent of the nonvoting and 44 percent of the voting shares. A similar number of its voting shares are owned by another family investment company, the J. M. & M. S. Browning Co., a corporation in which neither myself, the members of my family, nor the Eccles Investment Co. have any interest whatsoever. Nor does the Browning Co. have any interest in the Eccles Co. In recent years the shares of First Security which are owned by the Eccles Investment Co., together with those owned by the Browning Co. (aggregating in excess of 80 percent of the voting shares), have been deposited in an agreement of trust under the management of four trustees, two of whom are my brothers and two of whom are members of the Browning family. I sold my stock in and severed all connections with First Security when I took my present office. Such interest as I have in that company is only by reason of my one-ninth interest in the Eccles Investment Co.

It is obvious from the above that the Eccles Co. has neither the power to nor does it in fact control First Security. Even if it did, however, the matter would still be irrelevant because under the plain terms of S. 829 that company would then also be a bank holding company and as such would be subject to all the regulatory provisions of the bill.


There is a difference between the definition of a bank holding company contained in S. 829 and that contained in the first draft of the proposed bank holding company legislation submitted to Congress by the Board-as indeed there are other differences of a much more fundamental and important character. difference in the definition is that under the first bill a group of individuals could be declared to be bank holding companies (under the Utility Act an individual can also be held to be a holding company) whereas under S. 829 the definition is limited solely to companies. The reason for the change in definition was the attack upon the bill, instantly made by bankers throughout the country upon the ground, among others, that the definition was too all-inclusive and offended against the traditional concept of individual enterprise in banking. Consequently, when Congress failed even to hold hearings on the original bill, the Board reconsidered the entire subject in the light of all objections to the first bill and attempted to devise legislation which would accomplish what the Board considered necessary for effective regulation but without being carried to the extremes stated in its first bill and which gave promise of sufficient public support to secure its ultimate enactment. As the committee is aware, there have been a number of suggested refinements and amendments to S. 829 since its introduction at the present session, all of which have been recommended as a result of the continuing effort of the Board to overcome legitimate objections to the bill without sacrificing any of its essential objectives.


Finally, I should like to point out that all of my family, business, and former banking connections were exhaustively investigated and considered by the Senate Banking and Currency Committee at hearings on April 15 and 19, 1935, when I was first nominated to the Reserve Board. After this thorough inquiry I was confirmed by the Senate with only one dissenting vote, and subsequently I have been confirmed on three additional occasions without any dissenting votes. In view of these facts, of which you may be sure the Gianninis are fully advised, their evident purpose is to becloud the real issue by the time-worn, defensive tactic of trying to create a diversion.

Sincerely yours,

Re: S. 829.


M. S. ECCLES, Chairman

New York 5, N. Y., June 13, 1947.

Chairman, Committee on Banking and Currency,

United States Senate, Washington, D. C.

MY DEAR SENATOR TOBEY: On June 2, 1947, I submitted on behalf of my firm, as counsel for American General Corp., a statement in opposition to S. 829. In that statement I pointed out that American General Corp., and through it, the Morris Plan Corp. of America, are at this time fully regulated by the Securities and Exchange Commission under the Investment Company Act of 1940.

At the close of Mr. Eccles' testimony before your committee on June 11, 1947, you very courteously suggested that if any of the parties who appeared in opposition to the bill wished to put any statement in answer to Mr. Eccles' testimony, your committee would receive and give full consideration to any such statement, adding, however, that due to the necessity of acting on this matter, any such statement would have to be filed with your committee by Saturday, June 14. Unfortunately, this will not give me an opportunity to examine the testimony presented by Mr. Eccles, and I hesitate to rely on my recollection of that testimony in making statements to your committee.

However, it was rather remarkable to hear Mr. Eccles testify about the holdings of American General Corp. and its parent, the Equity Corp., merely from a list of such holdings incorporated in the testimony before your committee. I also listened with a great deal of interest to Mr. Eccles to see what his point of view would be about the amount of regulation which these companies are now subjected to under the Investment Company Act of 1940. Actually, Mr. Eccles did not even mention that this regulation exists. Mr. Eccles must know of this regulation and of the fact that at the time of the enactment of the Investment Company Act a very careful line was drawn between companies subject to the jurisdiction of the Federal Reserve System and companies coming within the jurisdiction of the Securities and Exchange Commission (Investment Company Act, sec. 3, (c) (4)).

American General Corp., and all of its affiliates, affiliates of affiliates, and the directors of all of them in dealings with any of them, are subject to a regulation that represents almost daily supervision of its acts by the Securities and Exchange Commission. As an example of the extent of this regulation there is attached hereto a copy of section 17 of the act governing transactions of affiliated persons and underwriters. A full examination of this legislation could not help but impress anyone with the extent of the information now being supplied to the SEC and the careful restrictions placed upon all transactions of American General Corp. Acting as American General Corp. does, in compliance with all the terms of this act and consulting informally on many points that arise in its business with the SEC, American General Corp. in good faith acquired a controlling interest in the Morris Plan Corp. of America. Now, without any consideration of the basis on which this investment was obtained, or the effect it may have on the sixty-thousand-odd stockholders of the Equity group, of which forty thousand are holders of American General Corp. securities, it is proposed that the Federal Reserve Board, an organization unfamiliar with the history and background of American General Corp., shall be entitled to regulate the regulations already complied with, and force American General Corp. to dispose of its investment in the Morris Plan Corp. of America, or in its other subsidiaries.

If your committee is interested in an examination of the manner in which American General Corp. operates and the way in which it has complied with the obligations under the Investment Company Act of 1940, we should be very glad

indeed to answer any questions your committee has to ask. It would not seem, however, that our client's operations to date should be condemned by the testimony of a man whose extent of knowledge of our client appeared to be limited solely to his reading from the committee records a list of certain of the subsidiaries of that corporation. The fact of the matter is that S. 829 can have no beneficial effect on any investor interested in American General Corp. or any of its subsidiary or affiliated corporations, but can impose problems which will result in loss to those investors, and this without striking at any known evil, or aiding the banks in which the Morris Plan Corp. of America is interested.

Mr. Eccles pointed out that what he was recommending was merely the policy of the United States Congress as set forth in the Sherman Act and the Clayton Act. Those acts require that charges be made against à corporation and that the corporation have an opportunity to defend. S. 829 would permit the Federal Reserve Board to render judgment and destroy existing interests without any charge of evil-doing, and without any opportunity to defend. This, we believe, is not in accordance with "public policy" or in the "public interest."

In case your committee should for any reason feel it important, I should be very glad indeed to answer any questions you may have in regard to American General Corp., its subsidiaries or affiliates.

Respectfully submitted.



SEC. 17. (a) It shall be unlawful for any affiliated person or promoter of or principal underwriter for a registered investment company (other than a company of the character described in section 12 (d) (3) (A) and (B)), or any affiliated person of such a person, promoter, or principal underwriter, acting as principal—

(1) knowingly to sell any security or other property to such registered company or to any company controlled by such registered company, unless such sale involves solely (A) securities of which the buyer is the issuer, (B) securities of which the seller is the issuer and which are part of a general offering to the holders of a class of its securities, or (C) securities deposited with the trustee of a unit investment trust or periodic payment plan by the depositor thereof;

(2) knowingly to purchase from such registered company, or from any company controlled by such registered company, any security or other property (except securities of which the seller is the issuer); or

(3) to borrow money or other property from such registered company or from any company controlled by such registered company (unless the borrower is controlled by the lender) except as permitted in section 21 (b). (b) Notwithstanding subsection (a), any person may file with the Commission an application for an order exempting a proposed transaction of the applicant from one or more provisions of that subsection. The Commission shall grant such application and issue such order of exemption if evidence establishes that

(1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned;

(2) the proposed transaction is consistent with the policy of each registered investment company concerned, as recited in its registration statement and reports filed under this title; and

(3) the proposed transaction is consistent with the general purposes of this title.

(c) Notwithstanding subsection (a), a person may, in the ordinary course of business, sell to or purchase from any company merchandise or may enter into a lessor-lessee relationship with any person and furnish the services incident thereto. (d) It shall be unlawful for any affiliated person of or principal underwriter for a registered investment company (other than a company of the character described in section 12 (d) (3) (A) and (B)), or any affiliated person of such a person or principal underwriter, acting as principal to effect any transaction in which such registered company, or a company controlled by such registered company, is a joint or a joint and several participant with such person, principal underwriter, or affiliated person, in contravention of such rules and regulations as the Commission may prescribe for the purpose of limiting or preventing participation by such registered or controlled company on a basis different from or less advantageous than that of such other participant. Nothing contained in this subsection shall be deemed to preclude any affiliated person from acting as

manager of any underwriting syndicate or other group in which such registered or controlled company is a participant and receiving compensation therefor. (e) It shall be unlawful for any affiliated person of a registered investment company, or any affiliated person of such person

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(1) acting as agent, to accept from any source any compensation (other than a regular salary or wages from such registered company) for the purchase or sale of any property to or for such registered company or any controlled company thereof, except in the course of such person's business as an underwriter or broker; or

(2) acting as broker, in connection with the sale of securities to or by such registered company or any controlled company thereof, to receive from any source a commission, fee, or other remuneration for effecting such transaction which exceeds (A) the usual and customary broker's commission if the sale is effected on a securities exchange, or (B) 2 per centum of the sales price if the sale is effected in connection with a secondary distribution of such securities, or (C) 1 per centum of the purchase or sale price of such securities if the sale is otherwise effected unless the Commission shall, by rules and regulations or order in the public interest and consistent with the protection of investors, permit a larger commission.

(f) Every registered management company shall place and maintain its securities and similar investments in the custody of (1) a bank having the qualifications prescribed in paragraph (1) of section 26 (a) for the trustees of unit investment trusts; or (2) a company which is a member of a national securities exchange as defined in the Securities Exchange Act of 1934, subject to such rules and regulations as the Commission may from time to time prescribe for the protection of investors; or (3) such registered company, but only in accordance with such rules and regulations or orders as the Commission may from time to time prescribe for the protection of investors. Rules, regulations, and orders of the Commission under this subsection, among other things, may make appropriate provision with respect to such matters as the earmarking, segregation, and hypothecation of such securities and investments, and may provide for or require periodic or other inspections by any or all of the following: Independent public accountants, employees and agents of the Commission, and such other persons as the Commission may designate. No such member which trades in securities for its own account may act as custodian except in accordance with rules and regulations prescribed by the Commission for the protection of investors.

(g) The Commission is authorized to require by rules and regulations or orders for the protection of investors that any officer and employee of a registered management investment company who may singly, or jointly with others, have access to securities or funds of any registered company, either directly or through authority to draw upon such funds or to direct generally the disposition of such securities, be bonded by a reputable fidelity insurance company against larceny and embezzlement in such reasonable minimum amounts as the Commission may prescribe. (h) After one year from the effective date of this title, neither the charter certificate of incorporation, articles of association, indenture of trust, nor the bylaws of any registered investment company, nor any other instrument pursuant to which such a company is organized or administered, shall contain any provision which protects or purports to protect any director or officer of such company against any liability to the company or to its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

In the event that any such instrument does not at the effective date of this Act comply with the requirements of this subsection (h) and is not amended to comply therewith prior to the expiration of said one year, such company may nevertheless continue to be a registered investment company and shall not be deemed to violate this subsection if prior to said expiration date each such director or officer shall have filed with the Commission a waiver in writing of any protective provision of the instrument to the extent that it does not comply with this subsection, and each such person subsequently elected or appointed shall before assuming office file a similar waiver.

(i) After one year from the effective date of this title no contract or agreement under which any person undertakes to act as investment adviser of, or principal underwriter for, a registered investment company shall contain any provision which protects or purports to protect such person against any liability to such company or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of his duties, or by reason of his reckless disregard of his obligations and duties under such contract or agreement.

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