STUDY OF BANKING LAWS Legislative Recommendations of the Federal RECOMMENDATIONS OF THE COMPTROLLER OF THE LETTER OF TRANSMITTAL THE SECRETARY OF THE TREASURY, HON. A. WILLIS ROBERTSON, Washington, October 1, 1956. United States Senate, Washington, D. C. MY DEAR SENATOR: In compliance with the request contained in your letter of July 20, 1956, addressed to the Comptroller of the Currency, there are enclosed herewith recommendations as to the changes which it is believed should be made in the Federal statutes dealing with national banks which are administered by this Department. Your attention is called to the fact that while the quoted statutes are identified by reference to their section numbers in the United States Code, the text has been actually taken from the Statutes at Large. Time has not permitted obtaining the advice of the Bureau of the Budget as to the relationship of the proposals to the program of the President. This advice will be transmitted at a later date. Very truly yours, Existing law W. RANDOLPH BURGESS, Acting Secretary of the Treasury. 1. COMPTROLLER OF THE CURRENCY; SALARY Title 12, U. S. C., sec. 2 (U. S. R. S., sec. 325).-The Comptroller of the Currency shall be appointed by the President, by and with the advice and consent of the Senate, and shall hold his office for a term of five years unless sooner removed by the President, upon reasons to be communicated by him to the Senate; and he shall receive a salary at the rate of $15,000 a year. Recommendation To eliminate by amendment reference to the salary of the Comptroller of the Currency. Reasons The Comptroller's compensation of $20,500 per annum is provided for under the Federal Executive Pay Act of 1956, therefore the obsolete reference in this statute to his salary should be eliminated. 1 2. FOURTH AND FIFTH DEPUTY COMPTROLLERS OF CURRENCY Existing law Title 12, U. S. C., sec. 4 (U. S. R. S. 327).—There shall be in the Bureau of the Comptroller of the Currency a Deputy Comptroller of the Currency, to be appointed by the Secretary who shall possess the power and perform the duties attached by law to the office of Comptroller during a vacancy in the office or during the absence or inability of the Comptroller. The Deputy Comptroller shall also take the oath of office prescribed by the Constitution and laws of the United States, and shall give a like bond in the penalty of fifty thousand dollars. Title 12, U.S. C., sec. 5.-An Assistant Deputy Comptroller shall be appointed by the Secretary of the Treasury, and shall possess the power and perform the duties attached by law to the office of the Comptroller during a vacancy in the office of Comptroller and Deputy Comptroller or during the absence or inability of the Comptroller and the Deputy Comptroller, and said Assistant Deputy Comptroller shall give a like bond in the penalty of fifty thousand dollars. Title 12, U.S. C., sec. 6.-In addition to the two Deputy Comptrollers of the Currency now provided for by law, there shall be in the Bureau of the Comptroller of the Currency a third Deputy Comptroller of the Currency who shall be appointed in the same manner and shall take a like oath of office and give a like bond as the Deputy Comptrollers now provided for by law. Under the direction of the Comptroller of the Currency, such additional Deputy Comptroller shall have charge of the administration of the provisions of this title relating to the organization and operation of National Agricultural Credit Corporations and shall perform such other duties as shall be assigned to him by the Comptroller of the Currency. Recommendation It is recommended that the statutes be amended to provide for fourth and fifth Deputy Comptrollers of the Currency if, in the judgment of the Comptroller, one or both are essential to the adequate discharge of his responsibilities. Reasons The volume of work in the Comptroller's Office has greatly increased over the past several years, creating a need for additional Deputy Comptrollers. There has been a sizable increase in the number of branch applications, in the number of proposed mergers and consolidations which must be approved by the Comptroller, in capital increase programs on the part of the banks, etc. In addition, the pressure of the fierce competition which exists in banking today has caused banks to search for new methods of doing business and new ways of serving their customers to better advantage. All of these matters require the careful attention of a Deputy Comptroller of the Currency, and the burden placed on the present deputies is too great to be continued indefinitely. At the present time two additional Deputy Comptrollers are needed and would permit a greater amount of time and effort to be spent on important problems of banking supervision than is now possible. Since the Comptroller's staff is paid out of assessments on national banks, additional Government appropriations or expenditures would not be necessary. 3. APPOINTMENT AND CLASSIFICATION OF CLERKS Existing law Title 12, U. S. C., sec. 8 (U. S. R. S., sec. 328).—The Comptroller of the Currency shall employ, from time to time, the necessary clerks, to be appointed and classified by the Secretary of the Treasury, to discharge such duties as the Comptroller shall direct. Recommendation To eliminate by amendment reference to appointment and classification by the Secretary of the Treasury of clerks employed by the Comptroller of the Currency. Reasons The appointment and classification of employees of the Comptroller of the Currency are now subject to the Classification Act administered by the Civil Service Commission. In practice the Secretary of the Treasury does not classify employees of the Comptroller's Office. 4. HOME OWNERS' LOAN CORPORATION OBLIGATIONS Existing law Title 12, U. S. C., sec. 24 (U. S. R. S., sec. 5136).—*** Seventh. * * * The business of dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account, and the association shall not underwrite any issue of securities or stock: Provided, That the association may purchase for its own account investment securities under such limitations and restriction as the Comptroller of the Currency may by regulation prescribe. In no event shall the total amount of the investment securities of any one obligor or maker, held by the association for its own account, exceed at any time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund, except that this limitation shall not require any association to dispose of any securities lawfully held by it on the date of enactment of the Banking Act of 1935. As used in this section the term "investment securities" shall mean marketable obligations evidencing indebtedness of any person, copartnership, association, or corporation in the form of bonds, notes and/or debentures commonly known as investment securities under such further definition of the term "investment securities" as may by regulation be prescribed by the Comptroller of the Currency. Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. The limitations and restrictions herein contained as to dealing in, underwriting and purchasing for its own account, investment securities shall not apply to obligations of the United States, or general obligations of any State or of any political subdivision thereof, or obligations issued under authority of the Federal Farm Loan Act, as amended, or issued by the thirteen banks for cooperatives or any of them or the Federal Home Loan Banks or the Home Owners' Loan Corporation, ** *. Title 12, U. S. C., sec. 371c (Fed. Res. Act, sec. 23A, pars. 1-3).No member bank shall (1) make any loan or any extension of credit to, or purchase securities under repurchase agreement from any of its affiliates, or (2) invest any of its funds in the capital stock, bonds, debentures, or other such obligations of any such affiliate, or (3) accept the capital stock, bonds, debentures, or other such obligations of any such affiliate as collateral security for advances made to any person, partnership, association, or corporation, if, in the case of any such affiliate, the aggregate amount of such loans, extensions of credit, repurchase agreements, investments, and advances against such collateral security will exceed 10 per centum of the capital stock and surplus of such member bank, or if, in the case of all such affiliates, the aggregate amount of such loans, extensions of credits, repurchase agreements, investments, and advances against such collateral security will exceed 20 per centum of the capital stock and surplus of such member bank. Within the foregoing limitations, each loan or extension of credit of any kind or character to an affiliate shall be secured by collateral in the form of stocks, bonds, debentures, or other such obligations having a market value at the time of making the loan or extension of credit of at least 20 per centum more than the amount of the loan or extension of credit, or of at least 10 per centum more than the amount of the loan or extension of credit if it is secured by obligations of any State, or of any political subdivision or agency thereof: Provided, That the provisions of this paragraph shall not apply to loans or extensions of credit secured by obligations of the United States Government, the Federal intermediate credit banks, the Federal land banks, Federal Home Loan Banks, or the Home Owners' Loan Corporation, or by such notes, drafts, bills of exchange, or bankers' acceptances as are eligible for rediscount or for purchase by Federal reserve banks. A loan or extension of credit to a director, officer, clerk, or other employee or any representative of any such affiliate shall be deemed a loan to the affiliate to the extent that the proceeds of such loan are used for the benefit of, or transferred to, the affiliate. For the purpose of this section, the term "affiliate" shall include holding-company affiliates as well as other affiliates, and the provisions of this section shall not apply to any affiliate (1) engaged solely in holding the bank premises of the member bank with which it is affiliated; (2) engaged solely in conducting a safe-deposit business or the business of an agricultural credit corporation or livestock loan company; (3) in the capital stock of which a national banking association is authorized to invest pursuant to section 25 of this Act, as amended, or a subsidiary of such affiliate, all the stock of which (except qualifying shares of directors in an amount not to exceed 10 per centum) is owned by such affiliate; (4) organized under section 25(e) of this Act, as amended, or a subsidiary of such affiliate, all the stock of which (except qualifying shares of directors in an amount not to exceed 10 per centum) is owned by such affiliate; (5) engaged solely in holding obligations of the United States or obligations fully guaranteed by the United States as to principal and interest, the Federal intermediate credit banks, the Federal land banks, the Federal Home Loan Banks, or the Home Owners' Loan Corporation; Recommendations * ** It is recommended that section 5136 of the Revised Statutes and section 23A of the Federal Reserve Act be amended by deleting therefrom the words "Home Owners' Loan Corporation." Reasons The act of June 30, 1953 (67 Stat. 126), dissolved and abolished the Home Owners' Loan Corporation. We are informed that all bonds of the Corporation were retired on January 27, 1950. Since there are no longer any obligations of the HOLC outstanding, it would appear that reference to such obligations as eligible investments for national banks and as eligible collateral security for loans, should be eliminated from the statutes quoted above. 5. RESTRICT STATE AUTHORITIES FROM SUBJECTING NATIONAL BANKS TO EXAMINATIONS AND LICENSING Existing law Title 12, U. S. C., sec. 24 (U. S. R. S., sec. 5136).—Paragraph Seventh: Seventh. To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this title. Recommendation It is recommended that section 5136 of the Revised Statutes be amended by adding a proviso at the end of the first sentence in paragraph seventh thereof which would declare that no national bank shall be subjected to examination by, or required to be licensed by, or to pay any license or assessment fee, or penalty to, any State, political subdivision, or other agency or instrumentality of a State as an incident to such bank's right to make loans or to discount and negotiate promissory notes, drafts, bills of exchange, conditional sales contracts, and other evidences of debt or to carry on the business of banking. Reasons Various States have enacted legislation which requires national banks within the State to acquire a license from the State authorities in order to qualify as a licensed lender. These laws are to enable the State to protect the public in the field of small loans and installment purchase contracts. In order to acquire the obligations arising from these transactions national banks have in many cases elected to be licensed under the State law. These State laws customarily require examination of the licensed lenders by the State authorities. In some cases where the national banks have qualified as licensed lenders the State banking authorities have contended that such national banks should be subjected to examination as a licensed lender. Any examining or other visitorial power attempted to be exercised by State officials over national banks in this respect would be in direct conflict with section 5240 of the Revised Statutes (12 U. S. C. 484) and any attempt by the State to levy and collect a license tax appears to be in conflict with section 5219 of the Revised Statutes (12 U. S. C. 548) which defines the limits within which States may tax national banks. |