period as may be fixed by the order and containing any one or more of the following prohibitions: (i) That such bank holding company shall not pay any salary or other remuneration to any officer or director of the company found by the Board to have willfully participated in such violation or violations and who was made a party to such hearing by the Board; (ii) that no subsidiary bank of such bank holding company shall pay dividends on shares owned by such bank holding company or pay or become liable to pay to such bank holding company or any of its subsidiaries any service, management, or similar charges or fees, or render any specified benefit; and (iii) that such bank holding company shall not directly or indirectly vote the shares owned by it or otherwise participate in the management or control of any subsidiary bank.

(b) Any person who willfully violates any provision of this Act or any rule, regulation, or order issued by the Board pursuant thereto shall upon conviction be fined not more than $10,000 or imprisoned not more than two years, or both. Every officer, director, agent, and employee of a bank holding company shall be subject to the same penalties for false entries in any book, report, or statement of such bank holding company as are applicable to officers, directors, agents, and employees of member banks for false entries in any books, reports, or statements of member banks under section 5209 of the Revised Statutes, as amended.

SEC. 13. TECHNICAL AMENDMENTS. (a) The last sentence of the sixteenth paragraph of section 4 of the Federal Reserve Act, as amended, is amended by striking out all of the language therein which follows the colon and by inserting in lieu thereof the following: "Provided, That whenever any member banks within the same Federal Reserve district are subsidiaries of the same bank holding company within the meaning of the Bank Holding Company Act of 1947, participation in any such nomination or election by such member banks, including such bank holding company if it is also a member bank, shall be confined to one of such banks, which may be designated for the purpose by such bank holding company."

(b) (1) The eighteenth paragraph of section 9 of the Federal Reserve Act is amended by striking out the last sentence of such paragraph.

(2) The twenty-first paragraph of section 9 of the Federal Reserve Act is repealed.

(c) Subsection (c) of section 2 of the Banking Act of 1933, as amended, is repealed.

(d) (1) Section 5144 of the Revised Statutes, as amended, is amended to read as follows:

"SEC. 5144. In all elections of directors, each shareholder shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of directors multiplied by the number of his shares shall equal, or to distribute them on the same principle among as many candidates as he shall think fit; and in deciding all other questions at meetings of shareholders, each shareholder shall be entitled to one vote on each share of stock held by him; except that (1) this shall not be construed as limiting the voting rights of holders of preferred stock under the terms and provisions of articles of association, or amendments thereto, adopted pursuant to the provisions of section 302 (a) of the Emergency Banking and Bank Conservation Act, approved March 9, 1933, as amended, (2) in the election of directors, shares of its own stock held by a national bank as sole trustee, whether registered in its own name as such trustee or in the name of its nominee, shall not be voted by the registered owner unless under the terms of the trust the manner in which such shares shall be voted may be determined by a donor or beneficiary of the trust and unless such donor or beneficiary actually directs how such shares shall be voted, and (3) shares of its own stock held by a national bank and one or more persons as trustees may be voted by such other person or persons, as trustees, in the same manner as if he or they were the sole trustee. Shareholders may vote by proxies duly authorized in writing; but no officer, clerk, teller, or bookkeeper of such bank shall act as proxy; and no shareholder whose liability is past due and unpaid shall be allowed to vote. Whenever shares of stock cannot be voted by reason of being held by the bank as sole trustee, such shares shall be excluded in determining whether matters voted upon by the shareholders were adopted by the requisite percentage of shares."

(e) The second paragraph of section 5211 of the Revised Statutes is amended by striking out the second sentence of such paragraph.

(f) (1) Subdivision (1) (C) of subsection (a) of section 14 of the Revenue Act of 1936, as amended, is amended to read as follows:

"(C) In the case of a bank holding company (as defined in the Bank Holding Company Act of 1947), the amount allowed as a credit under section 26 (d).' (2) Subsection (d) of section 26 of the Revenue Act of 1936, as amended, is amended to read as follows:

"(d) BANK HOLDING COMPANIES.-In the case of a bank holding company (as defined in the Bank Holding Company Act of 1947), the amount of the earnings or profits which the Board of Governors of the Federal Reserve System certifies to the Commissioner has been devoted by such company during the taxable year to the acquisition of cash or readily marketable assets of the kinds eligible for investment by national banks under the provisions of section 5136 of the United States Revised Statutes, in compliance with section 10 of the Bank Holding Company Act of 1947. The aggregate of the credits allowable under this subsection for all taxable years shall not exceed the amount required to be devoted under such section 10 to such purposes."

(3) Subdivision (1) (D) of subsection (c) of section 102 of the Revenue Act of 1936, as amended, is amended to read as follows:

"(D) BANK HOLDING COMPANIES.-In the case of a bank holding company (as defined in the Bank Holding Company Act of 1947), the amount allowed as a credit under section 26 (d).

(g) (1) Paragraph 4 of subsection (c) of section 3 of the Investment Company Act of 1940 is amended to read as follows:

"(4) Any bank holding company which is registered with the Board of Governors of the Federal Reserve System pursuant to the Bank Holding Company Act of 1947."

(2) Paragraph (11) of subsection (a) of section 202 of the Investment Advisers Act of 1940 is amended by changing the words "or any holding company affiliate, as defined in the Banking Act of 1933" to read "or any bank holding company, as defined in the Bank Holding Company Act of 1947".

SEC. 14. SEPARABILITY OF PROVISIONS.-If any provision of this Act, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of the Act, and the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby.

The CHAIRMAN. It was introduced by me, but was not original with me. However, I endorsed the bill and the spirit behind it, and personally feel that it is a timely piece of legislation.

The section to bring bank holding companies handling bank stocks within closer supervision of the Federal Reserve System sets up rules and regulations which are expected to dissipate and minimize some of the weaknesses which have developed in the operation of these companies in the past.

I do not think any thoughtful person would fail to agree with me that great combinations of power, whether it is in the utilities field. or in the banking field or in the railroad field or any other part of our economic life cannot be allowed to grow and grow without proper supervision, and some regulatory agency like the Congress once in a while raising in the skies a "Stop, look, and listen" sign, and perhaps legislation which might in its import mean "Thus far shalt thou go, and no farther."

This legislation is peculiar to the extent that apparently this is a piece of legislation that has very few opponents. A group of men interested in the bill came to see me the other day, and they were very happy in commenting on the fact that "We have a bill that everybody is for." I told them that if they did, I did not think it was worth very much. My experience with legislation has been that everyone being for it made me suspicious. I like something that people are both for and against, and thresh it out around this table and in the Halls of Congress in the debating forums.

Be that as it may, here is the bill, and men that know more than I do about it will explain it. There are some who will appear in oppo

sition, and there are some who would like to oppose but will not oppose because they feel that wisdom and tact and diplomacy would indicate that they had better take this bill, or they are afraid they will get something which they would not like quite so well. That is putting it baldly, but that is the naked truth.

So we are here, the Banking and Currency Committee of the Senate, sitting in solemn conclave to hear Mr. Eccles; but prior to that, Í shall read two letters.

The first is from the Secretary of the Treasury, dated May 23, addressed to me. [Reading:]

I am truly sorry that the Department is not in a position to furnish your committee with a definitive statement of our views on the bank holding company bill at this time.

As you know, my time in recent weeks has been preempted by a number of very important matters, particularly the tax bill, which has been the subject of fairly extended hearings within the Senate and House, and the general tax study commenced only this week before the Ways and Means Committee. In addition matters involving international finance have required considerable attention. Under the circumstances, I would much prefer not to take any position on such an important matter now without a more adequate basis for having one than I now have.

A substantial amount of study has been given to the matter in the Department, and I have been furnished with the views of a number of those in the Department to whom I would look for advice in such matters. However, I have not had an opportunity personally to go into the matter thoroughly. As you know, the Comptroller of the Currency, Mr. Delano, who has had the bank holding company legislation under study, has been ill and away from the office for some time. That has contributed in no small measure to my unwillingness to go on record one way or the other now, as I definitely would like to discuss this matter thoroughly with him before taking a position.

I should say that in taking this stand I do not intend to indicate or to imply opposition to the bill either in principle or in detail.

And then I have a letter from the Securities and Exchange Commission, dated May 23, addressed to me. [Reading:]

This is in reply to your letter of May 21, inviting me or some other representative of the Commission to appear before the committee and submit views on S. 829, the bank holding company bill. In view of conflicting engagements, June 2 is the only one of the dates suggested by you at which I could conveniently appear. While I should be delighted to be of any possible assistance to the committee, I believe that everything that I would have to say on the subject can be fully covered by letter. I am stating below the limited effect of the bill upon the statutes administered by the Commission. Please let me know after reading this letter whether you really think there is any need for a personal appearance by myself or by any other representative of the Commission.

The only provision of the bill which affects any of the statutes administered by the Commission are contained in the last paragraph of section 13, the section containing various "technical amendments." The Investment Company Act of 1940 now contains an exemption in section 3 (a) (4) which covers "any holding company affiliate" which is under the supervision of the Federal Reserve Board. The amendment merely substitutes a clause exempting any "bank holding company" registered under the Bank Holding Company Act. A similar "technical amendment" deals with section 202 (a) (11) of the Investment Advisers Act which presently exempts from the definition of investment adviser "a bank, or any holding company affiliate, as defined in the Banking Act of 1933, which is not an investment company." As amended by S. 829 this would simply exempt in addition to banks "any bank holding company." In either case the apparent justification for exemption from the Investment Company Act is to prevent dual regulation of companies which by reason of their close relationship to the commercial banking business are subjected to special regulation administered by the Board of Governors of the Federal Reserve System.

The Commission agrees that there is no need for regulation under the Investment Company Act or the Investment Advisers Act of companies which will be subject to regulation under the Bank Holding Company Act and therefore sees

no objection to either of these technical amendments. The Commission has not made a study of the broader problems presented by the bill nor had the benefit of the kind of discussions with companies affected, which we assume the Federal Reserve Board has had. For this reason and since we regard the broader problems presented by the bill as matters within the special interest and competence of the Federal Reserve Board, we have no views to express as to the merits of the bill generally.

That is signed by James J. Caffrey, Chairman of the Securities Exchange Commission.

Now we will hear from the Chairman of the Federal Reserve Board, Mr. Marriner Eccles, and of him I might say that he has been with this Board a long time, and has had an honorable, efficient career there. He will excuse my being ad libitum here. If I were describing him, I would use the Latin maxim multum in parvo, meaning a great deal in a small package. That applies to ability, character, and understanding.

Mr. Eccles, the floor is yours.

STATEMENT OF MARRINER S. ECCLES, CHAIRMAN, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM, ACCOMPANIED BY J. L. TOWNSEND, ASSISTANT GENERAL COUNSEL, FEDERAL RESERVE SYSTEM, WASHINGTON, D. C.

Mr. ECCLES. Mr. Chairman and members of the committee, after such an introduction, I must say I think I should have a drink of water. It takes me a moment to get my breath here.

The CHAIRMAN. That will not stimulate you very much.

Mr. ECCLES. In 1943, the Board in its annual report to the Congress, as is required by the Federal Reserve Act, made some recommendations with reference to needed legislation dealing with bank holding companies. The Board, as an agent of Congress, from time to time in its reports to the Congress-either its regular annual report or special reports makes recommendations as required by statute. Nothing was done at the time. It was during the war period, and it was indicated that legislation of this sort affecting banking which was controversial might well be deferred until a later date.

It is felt by the Board that action dealing with this problem is possibly long overdue, and it is to be hoped that the Congress will see fit in this session to pass legislation on this subject.

I have a statement that I think covers in general the problems and the recommendations on the subject of bank holding companies, and if you bear with me for a little while, I should like to read that statement. [Reading:]

The purpose of this bill, S. 829, is to regulate bank holding companies so that their operations will be in accordance with established banking principles and public policy.

This bill reflects the Federal Reserve System's experience over a period of approximately 14 years in dealing with bank-holding-company problems. Since its introduction it has been studied and appraised by various interested banking groups. With suggested technical amendments and others, all of which are acceptable to the Reserve Board and none of which would affect its basic purposes, the bill conforms to recommendations made in reports by the Federal Advisory Council of the Federal Reserve System and by the Association of Reserve City Bankers. In addition, it has the support of the Independent Bankers Association of the Twelfth Federal Reserve District and of the great majority of the major bank holding companies.

The chairman made certain comments with reference to the questions that might be raised because of an apparent general unanimity of agreement. This whole subject is rather a technical one and it was only natural that the bill should be studied closely and given a great deal of consideration by the banking fraternity of the country as a whole, not only by the unit and independent bankers, but also by organizations such as the Reserve City Bankers, which consists of 250 bankers located in what is known as the Reserve cities and the Federal Advisory Council, which consists of 12 bankers, 1 selected by each Federal Reserve bank, as well as the bank holding companies themselves which would be more directly affected by this legislation. What I started to say was that it would be only natural that those groups in studying closely this bill would suggest amendments which would be constructive, amendments which would cover matters which the Board might well overlook in connection with the drafting of the bill. It was felt that with a diverse group of banking interests, such as represented by the groups which I have enumerated, agreeing upon a bill it should have a good deal of merit. It represents without question some compromises, but at the same time, without some compromises legislation would be impossible.

I am sure that the independent bankers would prefer to have possibly what would be known as a death sentence, or a freeze, or a formula that would be rigid in its restriction, with reference to the expansion of bank holding companies.

On the other hand, we find that the opposition to any such program would be so formidable that it would be impossible to get anything.

The bank holding companies, or at least the great majority of them, in order to avoid getting legislation that may be much more drastic than this legislation, have gone quite a way toward meeting the requirement of the independent bankers. So that we have here a bill that the Board feels has no substantial or organized opposition. On the other hand the Board is confident that none of the changes which are being proposed affects the basic purposes of the bill as drawn.

A bill that would be extremely controversial among the banking fraternity I feel sure would have great difficulty passing the Congress. Senator FULBRIGHT. You mean one eliminating bank holding companies?

Mr. ECCLES. Or one that undertook to provide a freeze. There are other objections to the freeze. I think the Reserve city bankers object to the principle of the freeze.

Senator FULBRIGHT. About what percentage of the banks are held by the banking companies or are dominated by them?

Mr. ECCLES. I think I have that here. I can look it up. We have all of those figures here.

I will proceed with the statement. In view of what the chairman. said, I wanted to make that explanation or comment at the beginning of my statement.

I should like to say that I really appreciate the consideration that was given by postponing the hearings for a week. I feel that we are better able to present this subject at this time than would have been the case a week ago. [Continues reading:]

The bank holding company problem is not a new one to the Congress. In 1933, after extensive hearings which began in 1930, Congress recognized the need for and undertook to provide effective regulation of bank holding companies. As a