2 1 any notes, debentures, bonds, or other debt obligations or 2 securities which would mature (or have the effect of matur3 ing), or which could be fully redeemed or repaid at par, in 4 ten years or less, or (B) otherwise arrange to borrow funds 5 from the general public for periods of ten years or less 6 (regardless of whether such obligations or securities, or 7 borrowings, are to be secured or unsecured, subordinated or unsubordinated). 8 9 "(2) (A) In order to obtain an order of approval of 10 any action otherwise prohibited by this subsection, any 11 bank holding company or any of its subsidiaries or affiliates 12 prior to undertaking such action shall file an application 13 with the Board on forms prescribed by the Board request14 ing approval. Such forms shall include such information 15 with respect to the financial condition and operations, 16 management, and intercompany relationships of the bank 17 holding company and its subsidiaries and affiliates, and re18 lated matters, as the Board may deem necessary or appro19 priate to carry out the purposes of this subsection and to 20 consider fully the application. 21 "(B) Upon receiving any application under this sub22 section, the Board after due notice and opportunity for 23 hearing shall, subject to such conditions as it considers 24 necessary to protect the public, determine whether the is25 suance, distribution, and sale of such obligations or secu 3 1 rities, or the arrangements for such borrowings, should be 2 approved. A determination that such issuance, distribution, 3 and sale or such arrangements should be approved may be 4 made only if the Board finds (by order or regulation) that 5 (i) such action by the applicant is necessary to maintain 6 its effective operation and financial soundness, and (ii) the 7 issuance, distribution, and sale of such obligations or secu8 rities, or the arrangements for such borrowings, can rea9 sonably be expected to produce benefits to the public. 10 "(C) In making its determination the Board may con11 sider and recommend regulation of the minimum denomina12 tion of the obligations or securities involved, their maximum 13 interest rate, their maturity, the use to which their proceeds 14 will be put, or any other term, as well as the advertising, 15 promotion, and underwriting techniques to be employed in 16 issuing, distributing, and selling any such obligations or 17 securities, or in arranging such borrowings. 18 "(3) The Board may determine by order or regulation 19 that, under certain circumstances and subject to the condi20 tions set forth in the order or regulation, any class or classes 21 of obligations or securities and borrowing arrangements 22 should be exempt from the prohibition under this subsection 23 where such exemption would not be substantially at variance 24 with the purposes of this subsection and would be in the 25 public interest. 4 1 “(4) (A) After making its determinations under para2 graphs (2) and (3) with respect to any obligations, securi3 ties, or borrowings, the Board shall within thirty days submit 4 such determinations for final action to a committee consisting 5 of the Board, the Board of Directors of the Federal Deposit 6 Insurance Corporation, the Federal Home Loan Bank Board, 7 and the Secretary of the Treasury. 8 66 (B) The committee referred to in subparagraph (A), 9 after considering the determinations of the Board and consult10 ing with the Securities and Exchange Commission, shall by 11 majority vote either approve or disapprove the application; 12 except that if such committee fails to take either action 13 within ten days after the submission to it of the Board's 14 determinations, the application shall be deemed to have been 15 approved.". The CHAIRMAN. Once again, let me say that any approach we take on these holding company notes will solve only part of the problem. We must develop a better financial structure and better financial regulation, and I refer the committee to the document issued by the Domestic Finance Subcommittee of this committee last August entitled "Financial Institutions: Reform and the Public Interest." We must develop a system which allows a steady flow of credit for long-term mortgages while at the same time providing for the maximum equity for savers of all classes. None of this is possible in the kind of monetary climate that the Federal Reserve has provided us. So today we must face the situation as it is, not as we would like it to be. All of the dislocations in the credit markets are with usthanks to our misguided monetary policymakers-and we have to legislate with these realities in mind or else we destroy opportunities for millions to obtain housing for a long time to come. I want to place in the record copies of correspondence with various agencies and individuals on this issue: U.S. HOUSE OF REPRESENTATIVES, COMMITEE ON BANKING AND CURRENCY, Washington, D.C., July 5, 1974. Mr. WALTER B. WRISTON, New York, N.Y. DEAR MR. WRISTON: As you know, your corporation's proposed issuance of $850 million of floating interest rate notes has created a great deal of concern. This concern, I am sure, is heightened by the current unsettled conditions in our economy and by the problems created by prolonged periods of extremely high interest rates. From a monetary standpoint, I cannot think of a worse time for this issue to have been introduced; it almost certainly will cause more disruptions in an already unsettled money market, particularly if similar issues are undertaken by other large holding companies. In your promotion of this new issue you have spoken repeatedly about the need for the smaller saver to receive high returns on his money and it is certainly commendable when a large international bank holding company expresses concern for the consumer. While I am not certain just who the prospective customers might be for this particular issue, I share the concern that the smaller saver have equity and I am convinced that we must develop monetary conditions where this is truly possible. However, I am not convinced that the saver is helped when he is priced out of the housing market and when other credit needs of the community and the nation cannot be met because of ever increasing interest rates. With the entire housing market severely starved for funds and while potential disintermediation and liquidity problems abound in the financial community, I find the proposed notes of Citicorp to be highly disruptive and as the Federal Reserve has noted "not in the public interest." While there is great need to provide a better competitive situation among financial institutions and for savers of all sizes, the proposed Citicorp issue at this time can do nothing but make a bad situation worse. As a banker of long experience, you are aware of just what an adverse impact a large volume of the type notes proposed by Citicorp would have on housing needs and on the financial markets generally. In any event this is a major step and I feel that the Congress and the regulatory agencies should be fully apprised of the ramifications before the issue is sold and before the device spreads throughout the financial community. Consultations are underway at this moment and in a short time I feel we will be able to assemble the facts necessary to place this issue in context and to provide any safeguards which might be needed to protect the broadest public interest. Therefore, I am asking that you voluntarily, as Chairman of the Citicorp, temporarily withhold the issue from the market until the bank regulatory agen cies and the Congress can study the problem and to determine what, if any, steps should be taken. We would carry out this fact-finding and consultation with dispatch and I do not feel that there should be any inordinate delay in a final resolution of the matter. So, I appeal to you as a public citizen and as a leader in the financial community to put the public interest first in this matter and voluntarily agree to a delay. Sincerely, WRIGHT PATMAN, Chairman. Hon. WRIGHT PATMAN, FIRST NATIONAL CITY CORP., Chairman, Committee on Banking and Currency, U.S. House of Representatives, Rayburn House Office Building, Washington, D.C. Dear Mr. CHAIRMAN: Although the mails have not yet delivered your letter of July 5 regarding Citicorp's proposed note issue, it seems appropriate to respond to the public version which is circulating. Those who oppose our note issue attempt to make the assertion that it would somehow injure the housing market, presumably by causing withdrawals of funds from various thrift institutions which are often perceived to be the supplier of mortgage funds. Leaving aside the philosophical issue of whether or not the man who works hard and saves his money at depressed regulated rates should subsidize those who borrow money, which is now the case, the asserted argument rests on three premises: (1) Citicorp's note issue might cause disintermediation from savings institutions; (2) Thrift institutions have in fact been making home mortgage loans in their accustomed way during the early part of this year; (3) Citicorp does not finance the housing market. The first assumption is highly questionable and the second and third are demonstrably untrue. Let us review them in turn. Citicorp's note issue represents less than 1% of one per cent of the consumer savings accounts in the country-hardly a formidable number even if we were to make the unlikely assumption that each one of our notes, when offered, would be purchased from funds withdrawn from a savings account. The Secretary of the Treasury of the United States was reported in the press to have said that even if note issues such as the one we proposed were to reach a magnitude of $5 billion, they would not represent a significant fraction of the savings accounts in the United States. The second assumption is refuted by the official flow of funds figures published by the Federal Reserve Board. The second quarter figures are not yet available, but the first quarter numbers showed that: (a) The net acquisitions of mortgages by thrift institutions were running at only one-half the rates of the comparable period of 1973, while those same institutions were actually increasing their holdings of other assets more rapidly than in the first quarter of 1973. For example, while Mutual Savings Banks added only $225 million of home mortgages in January-March 1974 in contrast to $874 million in January-March 1973, they upped their holdings of corporate bonds by over $1 billion in the first quarter of this year in contrast to only $240 million in the first quarter of last year. (b) Similarly, while the net additions of home mortgages by Savings and Loan Associations amounted to only $3.46 billion in the first quarter of 1974, compared with $6.47 billion in first quarter of 1973, their holdings of U.S. Government securities went up by $2.92 billion in the first quarter of this year, compared with the rise of $2.72 billion in the first quarter of last year. (c) Moreover, their holdings of "miscellaneous assets" rose by over $1 billion in January-March 1974, in contrast to less than $300 million in the comparable period last year. Third, Citicorp has been attempting with some success to increase its support of the housing market. Our subsidiary, Advance Mortgage, which will be a direct beneficiary of the proposed Citicorp note issue, has actually been increasing the percentage of its financing to the housing markets during the period in which the thrift institutions were decreasing their percentage. Specifically, assets directly associated with housing increased by no less than 116% over the year from |