that the nature of freight forwarders is such as to require such investigations only infrequently. The American ocean freight forwarding industry consists of approximately 1,000 forwarders licensed by the FMC. Of these, substantially more than 50 percent are members of the New York Foreign Freight Forwarders Associations of America, Inc. Of that substantial portion, 60 percent have 15 or fewer employees. Of the total of approximately 1,000 licensed forwarders, 753 or 74 percent are corporations; 21 or 2 percent are partnerships; and 243 or 24 percent are individual sole proprietorships. Most of the sole proprietorships and partnerships are relatively small forwarders and a number of corporate forwarders are small family-held corporations. The last general investigation of the entire freight forwarding industry was completed in 1958 by the Federal Maritime Board, predecessor of the Federal Maritime Commission. The comprehensive 3-year investigation completed at that time showed that the 1,273 regulated forwarders handled approximately 2 million shipments during 1957; collected compensation in excess of $11 million; and collected forwarding fees from shippers in excess of $24 million. The study at that time showed a substantial variation in the size and activity of the individual forwarder. More than 500 forwarders handled less than 100 shipments each in 1957, while several processed over 20,000 shipments; 283 or 22 percent handled no shipments at all in 1957, 221 or 17 percent handled between 1 and 99 shipments, and 210 or 17 percent handled between 100 and 499 shipments. As can be seen from this diversity of size, it may well be that our data on forwarder corporate holdings and corporate ownership may prove to be of relatively little benefit or value to your committee. However, these forwarders represent an area in which the FMC does gather corporate data relating to corporate ownership and control so I have mentioned it here today. These reports and applications I have discussed represent the sum of the information regarding corporate control and ownership with which the FMC deals. To date this data has proven adequate for purposes of administration of the legislation under which we act. For that reason, we have seen no need to seek further authority in this regard prior to this time. This concludes my prepared statement. However, I and my staff are, of course, happy to answer any questions you may have or to submit further information for the record. Thank you. Senator METCALF. We will be in recess. The next committee meeting will be at 9:30-if the chairman doesn't have a Migratory Bird Conservation Commission conflict-at 9:30 in 1318, on Thursday, June 27. The first witness will be the Comptroller of the Currency, Hon. James E. Smith; then Mr. Frederic Solomon, Director, Division of Supervision and Regulation, Federal Reserve Board; and Prof. Donald Schwartz and Susan Gross, Center for for Corporate Responsibility. [Whereupon, at 12:15 p.m., the subcommittees recessed, to reconvene at 9:30 a.m., Thursday, June 27, 1974.] CORPORATE DISCLOSURE THURSDAY, JUNE 27, 1974 U.S. SENATE, SUBCOMMITTEE ON BUDGETING, MANAGEMENT, AND EXPENDITURES AND THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The subcommittees met at 9:30 a.m., pursuant to recess, in room 1318, Dirksen Senate Office Building, Hon. Edmund S. Muskie [chairman of the Subcommittee on Intergovernmental Relations] presiding. Present: Senators Muskie and Metcalf. Also present: Alvin From, staff director, and Jane Fenderson, counsel, of the Subcommittee on Intergovernmental Relations; and Vic Reinemer, staff director; E. Winslow Turner, chief counsel; Alan Chvotkin, professional staff member; Jeanne A. McNaughton, chief clerk; and Lyle Ryter, minority counsel, of the Subcommittee on Budgeting, Management, and Expenditures. Senator MUSKIE. The committee will be in order. It is a pleasure to participate in this continuing series of hearings on disclosure of corporate ownership, a project which Senator Metcalf initiated and has pursued I think with effectiveness and vigor. I regret that I haven't been able to make a greater contribution to these hearings but I have followed them with interest, and compliment Senator Metcalf, Mr. Turner, Mr. Reinemer, and the rest of the staff in the work they have done. It is a pleasure this morning to welcome as our first witness someone who once served this committee ably as minority staff, so much so that he labors under the disability that when he needs a character witness he gets it from both sides of the aisle which renders both sets of recommendations worthless. But in any case he has now risen to the high state of Comptroller of the Currency. We are delighted to welcome him and I am particularly pleased that he managed to come on a day when I was able to be present Mr. James E. Smith, Comptroller of the Currency. We welcome your testimony. May I, incidentally, compliment you upon the steps that you are taking to insure greater disclosure of corporate ownership and the attributes of ownership. STATEMENT OF HON. JAMES E: SMITH, COMPTROLLER OF THE CURRENCY; ACCOMPANIED BY DEAN MILLER, DEPUTY COMPTROLLER OF THE CURRENCY FOR TRUSTS Mr. SMITH. Thank you, Senator. Chairman Muskie and Chairman Metcalf, it is a pleasure for the Office of the Comptroller of the Currency to participate in your continuing hearings on disclosure of corporate ownership. I am accompanied this morning by Mr. Dean Miller, who is the Deputy Comptroller of the Currency for Trusts. With your permission, I will ask that my formal statement be printed in full in the record, and I will endeavor to summarize and paraphrase and hope that in so doing I don't take longer than I would if I were reading it. I would like to say that I am especially pleased for this opportunity to appear before these two subcommittees, most especially so because I had the great privilege of serving on the initial organizing staff of the Subcommittee on Intergovernmental Relations and have many happy memories of my days of association with the able chairman of that subcommittee. First let me, if I may, give you just a little background as to the Comptroller's Office and the responsibilities in this area. The Comptroller of the Currency is charged with the regulation, supervision, and examination for the national banking system comprised of some 4,600 national banks throughout the country with total commercial banking assets presently in the range of about $500 billion, a figure that awes and sometimes frightens the occupant of the office. We have of those 4,600 national banks some 1,900 that are authorized to exercise trust powers. There are some 1,600 of that 1,900 that in fact exercise them. I suppose we would say that there are some 225-250 that exercise trust powers over substantial amounts of assets. We would describe substantial as a trust department which manages trust assets in the order of $100 million or more. I think you can say that the modern regulation and supervision of trust department activities by the Comptroller's Office really had its origins in 1962. Previous to that point in time, the Comptroller's Office with respect to trust activities of national banks, supervised and examined them, but the regulatory authority with respect to those trust departments was lodged in the Federal Reserve Board, so that the promulgation of regulations and indeed the authority of a national bank to exercise trust powers was governed by the Board of Governors of the Federal Reserve System. In 1962, the Congress transferred that authority from the Federal Reserve Board to the Comptroller's Office, and at the same time, transferred the authority for regulating all so-called common trust funds of both national banks and State-chartered banks to the Comptroller of the Currency. Common trust funds are pooled, management-type funds maintained by banks for the collective administration of individual personal trusts, executorships, guardianships, and the like. As I view it, therefore, our modern regulation of national bank trust departments dates to 1962, and the gentleman to my left has been in charge of that responsibility since that time. We employ a special force of trust examiners within our total examination complement. By law, national banks are required to be examined twice each calendar year and in any event no less than three times every 24 months. Those are so-called commercial examinations. We, in addition to the commercial examinations once each year, conduct a specialized examination of the trust department in which we endeavor to assure ourselves that the trust department is conducting its responsibilities in accordance with applicable trust law, regulation, and the governing requirements of trust documents. It is sometimes said that bank examination by its nature, because it is normally directed to assuring the safety and soundness of banks, really does not protect trust beneficiaries. I think that is really not correct in the case of trust examination, because the thing we are endeavoring in part through our examination to insure is that a bank would not be subject to a surcharge liability for a breach of trust or abuse of trust in the administration of its fiduciary responsibilities. That surcharge liability, if proven, goes against the capital structure of the bank, and thereby threatens the safety and soundness of the bank, so while that is our higher order of objective, by the natural process of development, we are in effect looking after the interests of trust beneficiaries. I wouldn't want to mislead this committee that through certain reporting devices and by the means of onsite inspection once each year, I can say to you that we operate as a foolproof protection against any bank abusing or breaching its fiduciary responsibility. But I will say that in terms of those people and those institutions that seek fiduciary services, I think the beneficiaries of the trust departments of national banks are as well protected in terms of governmental regulation as any fiduciary beneficiaries are. This office, thanks much again to the gentleman on my left, Mr. Miller, has had a rather consistent record of requiring or taking new steps in the area of disclosure. The office today requires on an annual basis a reporting of trust assets of national banks in the broad terms of the media in which those assets are invested-stocks, bonds, real estate, or other types. of investment. This reporting also indicates the capacity in which the department may hold assets as an administrator of a pension fund; as an administrator, executor, guardian, or trustee for a personal trust; or in the capacity of a managing agent. In most cases, a managing agency relationship--Mr. Miller can correct me, if I am wrong-is one in which the bank is exercising rather full investment discretion. That is a revocable relationship. In that respect I suppose you could liken it to a bank being trustee of a personal, revocable trust, in which the settler may also be the beneficiary and has the right to revoke the trust at any point. We gather that type of data on an annualized basis, but that does not in any case indicate holdings of equity assets by issuer. 87-733 0-74 - pt. 3-5 We more recently have required both for common trust funds, over which I indicated earlier we exercise the regulatory responsibility not only for national banks, but for State banks as well, and with respect to pooled funds for the collective investment of pension and profitsharing trusts of national banks, an annualized reporting, and here we require it, in the case of equities, by issue. To that extent we are now getting some indication of commercial bank trust department involvement in corporate ownership. Just recently-this is, I think, most relevant to the interest of this study-in April of this year, we issued proposed regulations. The comment period has just concluded on those proposed regulations. They would require on an annual basis that all trust departments of national banks which administer trust assets in excess of $100 million-that is, about 225 national banks-report to us on all of their trust assets. With respect to equity securities, they will report them by issuer for all holdings in excess of 10,000 shares. The 10,000-share figure was picked, based at the time we were issuing the proposed regulations, on the judgment that of the top several hundred corporations you probably had an average per share price someplace in the order of $50, and 50 times at 10,000 indicates a holding of a half million of a particular issue. In addition to this annual reporting-and that will also indicate with respect to each issue held the voting power that the trustee institution exercises as to that issue-sole voting power, joint voting power, or no voting power-we are also going to require on a quarterly basis that these same institutions, those holding trust assets in excess of $100 million, report to us all transactions in equity securities occurring during the quarter where the transaction is in an amount of 10,000 shares or $500,000. As I indicate, these regulations are not through the comment period. Mr. Miller may be in a better position than I to give you some feel for the comments that we have received. The proposed regulations were drafted in rather close consultation with 8 or 10 senior trust officers from major national banks around the country, people whom Mr. Miller and I knew well and felt we could ask to put their pro bono publico hats on, if you will, and assist us in this project. We wanted to achieve our public policy objective, but we wanted to achieve it in a way that was least burdensome and least costly to the institutions. So we felt that we had a fairly well finished project when we proposed it. But I think that Dean indicates that there are some minor details where we have had recommendations for change. It is our objective and we think we are on a timetable to be able to achieve it, to have these regulations published in final form so that by year end 1974 we can have the first annual report on trust department holdings and the first quarterly report on transactional activity for the last quarter of this calendar year. Our motivations in doing this, I think, reflect sentiments which you have felt here in this committee. There is no question that we live in a climate today where the public is demanding of all of us in public office that we exercise our responsibilities with a deeper sensitivity to the public's right to know. This certainly is applicable, I think, to major banking and trust |