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National Association of Mutual Savings Banks, statement presented by
Morris D. Crawford, chairman, committee on Federal legislation _ - - - -
National Savings and Loan League, statement presented by Jane Sullivan,
vice chairman of the Committee on Legislation_

Patman, Hon. Wright:

Correspondence with various agencies and individuals regarding the proposed issue of floating interest rate notes by Citicorp, the parent holding company of the First National City Bank of New York... Press release dated June 28, 1974, urging President Nixon to utilize existing credit control powers to reduce the current pressure on interest rates with an attached excerpt from Public Law 91-151, "Title II-Authority for Credit Control".

Rogg, Nathaniel H., prepared statement with an attached copy of "Economic News Notes," dated July 1974__ _

Schmults, Hon. Edward C.:

Response to question of Hon. Lawrence G. Williams.
Summary of the Financial Institutions Act of 1973_.

Scott, Tom B., Jr., prepared statement..

Sullivan, Jane, response to questions of:

Hon. Bill Frenzel..

Hon. Edward I. Koch

Hon. John H. Rousselot..

Treasury Department, statement presented by Hon. Edward C. Schmults,
Under Secretary of the Treasury-

U.S. League of Savings Associations, statement presented by Tom B. Scott,
Jr., legislative chairman__

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TO PROVIDE FOR THE REGULATION OF THE ISSUANCE AND SALE OF DEBT OBLIGATIONS BY BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES

MONDAY, JULY 15, 1974

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met, pursuant to notice, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman [chairman] presiding.

Present: Representatives Patman, Barrett, Reuss, Ashley, Stephens, St Germain, Gonzalez, Annunzio, Rees, Hanley, Brasco, Koch, Mitchell, Moakley, Stark, Boggs, Widnall, Johnson, Blackburn, Brown, Williams, Wylie, Heckler, Rousselot, McKinney, Frenzel, Burgener, and Rinaldo.

The CHAIRMAN. The committee will please come to order.

Today the committee begins hearings on H.R. 15869, a bill which if enacted would provide a procedure for the regulation of the issuance and sale of debt obligations by bank holding companies and their subsidiaries. This legislation cannot be considered as a cure-all.

It addresses what is obviously an emergency situation with the homebuilding industry in severe trouble and with millions of Americans priced out of homes by the present economic and monetary policies. The limited flow of funds available to home buyers simply cannot stand additional shock waves at this time. However, this issue points up some of the inherent weaknesses in the monetary system. and the competitive relationship among financial institutions.

These are broader questions which this committee, the Congress, and the regulatory agencies need to address. This bill-like legislation dealing with regulation Q, wild cards, and the N.O.W. accounts-is limited and speaks to only part of the bigger problem of developing a more effective and equitable means of delivering credit to this Nation.

It is regrettable that we must deal with this on an emergency basis. I am disappointed that the Federal Reserve-which was given such vast powers in the Bank Holding Company Act-did not foresee this problem and I regret that it took so much pushing and prodding from the Congress to get the Federal Reserve to move even after the dangers were clearly apparent.

In addition, it is sad-but instructive-that the Federal Reserve did not better foresee the dislocations which would be caused by its confused monetary policies. In a more stable period we might well

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be able to afford experimentations, but the Federal Reserve's policies have removed our options.

Last week I wrote the Federal Reserve Chairman, Arthur Burns, and asked that he urge Citicorp-that is, City Corporation of the First National Bank-to postpone the issue of $850 million of floating interest rate notes until the Congress and the regulatory agencies could properly study the issue. Dr. Burns did ask for a 2-week delay, but at the same time apparently entered into secret negotiations with the chairman of Citicorp, Walter Wriston, and agreed to new terms for the issue.

It would have been much better had Dr. Burns forgone these secret negotiations with the banker and simply insisted on the delay which we had requested. I would prefer that this committee and the Congress have the time to consider this question carefully, and I am sorry that Dr. Burns did not inform us before he, in effect, agreed on new terms for City Corporation, particularly in view of our scheduled hearings. This comes at a very crowded time by our committee. We have pending now in the conference between the House and the Senate the housing bill. We have members of this committee meeting with Members of the Senate, of a comparable committee in the Senate, practically every day, we have for the last few days, and we are going to meet until we get the housing bill finally agreed upon if it is possible.

In addition to that, we have the Ex-Im Bank bill. Tomorrow we are supposed to be before the Rules Committee to try to get a rule on that bill. Then we have the Defense Production Act, a very important bill that we are trying to get a rule on this week, and the Export Control Act is in a similar position, and overhanging all of that is impeachment proceedings that is liable to bring us to a dead stop any time. So it is a very difficult time to consider a matter of such great importance as this that affects over the million families that have deposits in the savings and loans, in mutual savings banks, and all thrift institutions. It is a great problem and I hope it can be solved.

Despite its negotiations with the Federal Reserve and its many public statements, City Corportion has refused to send a witness here today. This refusal is not in the public interest and it does not contribute to Congress' and the public's desire to understand fully what is behind this issue, and why it is necessary at this time, and why the secret negotiations with Dr. Burns were necessary, and just what effect the issue will have on the operations of First National City Bank and City Corporation both in the United States and abroad.

The president of the bank did advise me that his attorney had advised him that it would not be in order for him to appear because of negotiations pending in other directions on this matter, and so we are not insisting on him, in view of that statement, to be here today. But we will negotiate with him for an appearance in the future.

We are, of course, dealing with much more than this single issue. If City Corporation markets this issue successfully other bank holding companies will move in immediately with their own issues. In fact, Chase Manhattan has already done so. In a matter of weeks, it is rumored that there will be $4 to $5 billion of this paper on the market with billions more to come. The drain to available savings for housing will be tremendous.

The legislation before us H.R. 15869-introduced by myself, Mr. Barrett, Mr. Rees, Mr. Moakley, and Mr. McKinney-would not, if enacted, prohibit the issuance of such paper, but would provide a procedure whereby the Governors of the Federal Reserve Bank, the Board of Directors of the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the Secretary of the Treasury would have the authority to pass on such issues by determining whether or not they would be in the public interest. If so determined, the issue could proceed. But if not, the bank holding company would be precluded from going to market.

Among other things, the bill would direct that the Federal Reserve Board, if desired, could hold a hearing on a proposed debenture issue by bank holding companies and the Board could also consider and recommend various changes in the issue to the so-called coordinating committee, made up of the Federal Reserve Board and the other agencies I have mentioned above who would make the final determination as to whether or not the issue could be marketed.

The bill before us, of course, provides a way to solve the specific problem before us. There may be other approaches, and if so, I trust they will come out during the hearings today.

[The text of H.R. 15869 follows:]

93D CONGRESS 2D SESSION

H. R. 15869

IN THE HOUSE OF REPRESENTATIVES

JULY 11, 1974

Mr. PATMAN (for himself, Mr. BARRETT, Mr. REES, Mr. MOAKLEY, and Mr. MCKINNEY) introduced the following bill; which was referred to the Committee on Banking and Currency

A BILL

To amend the Bank Holding Company Act of 1956 to provide for the regulation of the issuance and sale of debt obligations by bank holding companies and their subsidiaries.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That section 3 of the Bank Holding Company Act of 1956,

4

as amended (12 U.S.C. 1842), is further amended by add

5 ing a new subsection at the end thereof to read as follows:

6

"(f) (1) It shall be unlawful, except with prior ap

7 proval given as provided in this subsection, for any action to 8 be taken after July 10, 1974, that causes a bank holding 9 company or any of its subsidiaries or affiliates to (A) issue, 10 distribute, or sell directly or indirectly to the general public

I

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