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NATIONAL BANK AMENDMENTS

TUESDAY, MAY 26, 1959

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE No. 2,

Washington, D.C. The subcommittee met, pursuant to call, at 10 a.m., Hon. Paul Brown presiding.

[H.R. 6092, 86th Cong., 1st sess.)

A BILL To amend the lending and borrowing limitations applicable to national banks, and

to authorize the appointment of two additional Deputy Comptrollers of the Currency

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 327 of the Revised Statutes (12 U.S.C. 4) is amended to read as follows:

“SEC. 327. The Secretary of the Treasury shall appoint no more than five Deputy Comptrollers of the Currency, one of whom shall be designated First Deputy Comptroller of the Currency, and shall fix their salaries. Each Deputy Comptroller shall take the oath of office and give the United States a surety bond in the penalty of $50,000, to be approved by the Secretary of the Treasury, conditioned for the faithful discharge of the duties of his office, and shall perform such duties as the Comptroller shall direct. During a vacancy in the office or during the absence or disability of the Comptroller, each Deputy Comptroller shall possess the power and perform the duties attached by law to the office of the Comptroller under such order of succession following the First Deputy Comptroller as the Comptroller shall direct.”

(b) The first paragraph under the heading "Treasury Department" and subheading “Office of the Comptroller of the Currency" in the first section of the Act of March 4, 1909 (35 Stat. 867 ; 12 U.S.C. 5), is repealed.

(c) Section 209(b) of the Act of March 4, 1923 (42 Stat. 1467; 12 U.S.C. 4, 6), is amended

(1) striking out the first two sentences; and

(2) by striking out “the two Deputy Comptrollers now provided for by law” in the fifth sentence and inserting in lieu thereof “the Deputy Comptrollers”, and by striking out the semicolon and all that follows in such

fifth sentence and inserting in lieu thereof a period. SEC. 2. Section 5202 of the Revised Statutes (12 U.S.C. 82) is amended by inserting after “or otherwise,” the following: "plus the amount of its unimpaired surplus fund,”.

SEC. 3. (a) Paragraph (6) of section 5200 of the Revised Statutes (12 U.S.C. 84) is amended by striking out "secured upon” and inserting in lieu thereof "secured by", and by adding at the end of the paragraph the following new sentence: “Obligations of any person, copartnership, association, or corporation in the form of notes or drafts secured by shipping documents, warehouse receipts, or other such documents transferring or securing title covering refrigerated or frozen readily marketable staples when such property is fully covered by insurance, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus when the market value of such staples securing such obligation is not at any time less than 115 per centum of the face amount of such additional obligation, but this exception shall not apply to obligations of any one person, copartnership, association, or corporation arising from the same transactions and/or secured by the identical staples for more than six months."

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(b) Paragraph (7) of such section 5200 is amended by adding at the end thereof the following new sentence: "Obligations of dealers in dairy cattle arising out of the sale of dairy cattle which bear a full recourse endorsement or unconditional guaranty of the seller, and secured by the cattle being sold, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus."

(c) Paragraph (8) of such section 5200 is amended by striking out "in the form of notes”.

(d) Such section 5200 is further amended by adding at the end thereof the following new paragraph :

“(13) Obligations as endorser or guarantor of negotiable or nonnegotiable installment consumer paper which carries a full recourse endorsement or unconditional guaranty by the person, copartnership, association, or corporation negotiating the same, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus : Provided, however, That if the bank's files or the knowledge of its officers of the financial condition of each maker of such obligations is reasonably adequate, and upon certification by an officer of the association designated for that purpose by the board of directors of the association, that the responsibility of each maker of such obligations has been evaluated and the association is relying primarily upon each such maker for the payment of such obligations, the limitations of subsection (a) of this section as to the obligations of each such maker shall be the sole applicable loan limitation : Provided further, That such certification shall be in writing and shall be retained as part of the records of such association."

SEC. 4. (a) The second sentence of section 24 of the Federal Reserve Act (12 U.S.C. 371) is amended to read as follows: "A loan secured by real estate within the meaning of this section shall be in the form of an obligation or obligations secured by a mortgage, trust deed, or other instrument upon real estate, which shall constitute a first lien on real estate in fee simple or, under such rules and regulations as may be prescribed by the Comptroller of the Currency, on a leasehold under a lease which does not expire, or which under its terms may be renewed or extended at the option of the lessee so that it will not expire, for at least 10 years beyond the maturity date of the loan, and any national banking association may purchase any obligation so secured when the entire amount of such obligation is sold to the association.”

(b) (1) Clause (2) of the third sentence of section 24 of such Act is amended by striking out "6623 per centum” and inserting in lieu thereof "75 per centum".

(2) The third sentence of such section 24 is further amended by inserting before the period at the end of the third sentence a comma and the following: “and shall not apply to real estate loans which are fully guaranteed or insured by a State, or by a State authority for the payment of the obligations of which the faith and credit of the State is pledged, if under the terms of the guaranty or insurance agreement the association will be assured of repayment in accordance with the terms of the mortgage".

(c) The third paragraph of section 24 of such Act is amended to read as follows:

"Loans made to finance the construction of industrial or commercial buildings and having maturities of not to exceed eighteen months where there is a valid and binding agreement entered into by a financially responsible lender to advance the full amount of the bank's loan upon the completion of the buildings, and loans made to finance the construction of residential or farm buildings and having maturities of not to exceed nine months, shall not be considered as loans secured by real estate within the meaning of this section but shall be classed as ordinary commercial loans whether or not secured by a mortgage or similar lien on the real estate upon which the building or buildings are being constructed: Provided, That no national banking association shall invest in, or be liable on, any such loans in an aggregate amount in excess of 100 per centum of its actually paid-in and unimpaired capital plus 100 per centum of its unimpaired surplus fund. Notes representing loans made under this section to finance the construction of residential or farm buildings and having maturities of not to exceed nine months shall be eligible for discount as commercial paper within the terms of the second paragraph of section 13 of this Act if accompanied by a valid and binding agreement to advance the full amount of the loan upon the completion of the building entered into by an individual, partnership, association, or corporation acceptable to the discounting bank."

(d) Section 24 of such Act is further amended by adding at the end thereof the following new paragraph:

"Loans made to manufacturing and industrial businesses where the association looks for repayment out of the operations of the borrower's business, relying primarily on the borrower's general credit standing and forecast of operations, with or without other security, but wishes to take a mortgage on the borrower's real estate as a precaution against contingencies, shall not be considered as real estate loans within the meaning of this section but shall be classed as ordinary commercial loans."

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SECTION-BY-SECTION SUMMARY OF H.R. 6092

Section 1 increases the number of Deputy Comptrollers of the Currency by two, authorizing a total employment of five Deputy Comptrollers.

Section 2 increases the borrowing authority of national banks from 100 percent of capital to 100 percent of capital and surplus. This authority would permit national banks to meet temporary high seasonal demands of their customers by borrowing from correspondent banks.

Section 3 amends the lending limitations of national banks in the following

manner:

(1) It increases from 10 to 25 percent of capital and surplus the amount of obligations which may be acquired from a single borrower if they are secured by insured refrigerated or frozen readily marketable staples.

(2) It increases from 10 to 25 percent of capital and surplus the amount of obligations which may be acquired by a national bank from a single borrower arising out of the sale of dairy cattle when the obligations bear the full recourse endorsement or unconditional guarantee of the seller and are secured by the dairy cattle being sold.

(3) It permits any obligations, whether or not in the form of notes, secured by U.S. Government obligations to be acquired up to 25 percent of the national bank's capital and surplus.

(4) It sets a limit of 25 percent of capital and surplus on the total amount of consumer installment paper, whether negotiable or nonnegotiable, which may be acquired from a single dealer. This limit will not apply to obligations where the bank relies on the credit of the original borrower, if a bank officer executes a written certificate to that effect. In that case, the usual limit of 10 percent of capital and surplus would apply on all loans to that particular borrower. Under present law there is no limitation on the amount of negotiable consumer installment paper which could be acquired from a dealer. Nonnegotiable consumer paper could only be acquired under present law up to 10 percent of capital and surplus.

Section 4 makes a number of changes in the law governing real estate loans made by national banks.

(1) It authorizes loans secured by leaseholds which run or may be extended at the option of the lessee to run for a period of 10 years beyond the maturity of the loan. Under present law a lease to qualify for a real estate loan must be for 99 years and be renewable or must have a period of not less than 50 years to run from the date the loan is made.

(2) It increases the loan-to-appraised-value ratio from 662/3 to 75 percent in the case of 20 years fully amortized loans.

(3) Real estate loans which are fully guaranteed or insured by a State or State authority are exempted from the usual real estate loan limitations.

(4) National banks would be authorized to make 18-month construction loans on industrial and commercial buildings where there is a valid and binding take out agreement, without regard to the usual real estate loan limitations. The total amount of all authorized construction loans, industrial, commercial, residential, or agricultural, would be increased from 50 percent of capital to 100 percent of capital and surplus.

(5) Loans made to manufacturing and industrial businesses where the national bank relies primarily on the borrower's general credit standing and future prospects would be considered as ordinary commercial loans and not subject to the real estate loan limitations even though a mortgage on real estate is taken as an additional precaution.

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[H.R. 6093, 86th Cong., 1st sess.) A BILL To amend the national banking laws to clarify or eliminate ambiguities, to repeal

certain laws which have become obsolete, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) the paragraph designated “Seventh” in section 5136 of the Revised Statutes (12 U.S.C. 24) is amended by striking out “or the Home Owners' Loan Corporation”. (b) Section 23A of the Federal Reserve Act (12 U.S.C. 371c) is amended

(1) by striking out “the Federal Home Loan Banks, or the Home Owners' Loan Corporation" in the second paragraph and inserting in lieu thereof “or the Federal Home Loan Banks”; and

(2) by striking out “, or the Home Owners' Loan Corporation” in the third paragraph. SEC. 2. Section 5168 of the Revised Statutes (12 U.S.C. 26) is amended by striking out “at least fifty per centum" and inserting in lieu thereof "all".

SEC. 3. Section 2 of the Act of May 1, 1886 (ch. 73, 24 Stat. 18; 12 U.S.C. 30) is amended to read as follows:

"SEC. 2. Any national banking association, with the approval of the Comptroller of the Currency, may change its name or change the location of the main office of such association within the limits of the city, town, or village in which it is situated. Any national banking association, with the approval of the Comptroller of the Currency, may change the location of the main office of such association to any other location outside the limits of the city, town, or village in which it is located, but not more than thirty miles distant, by the vote of shareholders owning two-thirds of the stock of such association. A duly authenticated notice of the vote and of the new name or location selected shall be sent to the Comptroller of the Currency; but no change of name or location shall be valid until the Comptroller shall have issued his certificate of approval of the same."

SEC. 4. Section 5140 of the Revised Statutes (12 U.S.C. 53) is amended to read as follows:

“SEC. 5140. All of the capital stock of every national banking association shall be paid in before it shall be authorized to commence business."

SEC. 5. Section 5141 of the Revised Statutes (12 U.S.C. 54) is repealed.
SEC. 6. Section 1 of the Act of May 1, 1886 (ch. 73, 24 Stat. 18), is repealed.

SEC. 7. Section 5151 of the Revised Statutes (12 U.S.C. 63) and section 23 of the Federal Reserve Act (12 U.S.C. 64) are repealed.

SEC. 8. Section 2 of the Act of June 30, 1876 (ch. 156, 19 Stat. 63; 12 U.S.C. 65), is repealed.

Sec. 9. Section 5149 of the Revised Statutes (12 U.S.C. 75) is amended to read as follows:

“Sec. 5149. When the day fixed in the articles of association for the regular annual meeting of the share holders falls on a legal holiday in the State in which the bank is located, the shareholders meeting shall be held, and the directors elected, on the next following banking day. If, from any cause, an election of directors is not made on the day fixed, or in the event of a legal holiday, on the next following banking day, an election may be held on any subsequent day within sixty days of the day fixed, to be designated by the board of directors, or, if the directors fail to fix the day, by shareholders representing two-thirds of the shares, at least ten days' notice thereof in all cases having been given by first-class mail to the shareholders."

SEC. 10. Section 5202 of the Revised Statutes (12 U.S.C. 82) is amended by striking out the paragraph designated “Sixth”.

SEC. 11. Section 5192 of the Revised Statutes (12 U.S.C. 144) is amended by striking out “in Alaska or”.

SEC. 12. The second sentence of section 5211 of the Revised Statutes (12 U.S.C. 161) is amended by striking out “five" and inserting in lieu thereof "ten".

SEC. 13. Section 5213 of the Revised Statutes (12 U.S.C. 164) is amended by striking out “either of the two preceding sections" and inserting in lieu thereof "section 5211 of the Revised Statutes”.

Sec. 14. Except as otherwise specifically provided by law, or by the articles of association of the particular national banking association, the articles of association of a national banking association may be amended with respect to any lawful matter, and any action requiring the approval of the stockholders of such association may be had by the approving vote of the holders of a majority of the volting shares of the stock of the association obtained at a meeting of the stockholders called and held pursuant to notice given by mail at least ten days prior

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to the meeting or pursuant to a waiver of such notice given by all stockholders entitled to receive notice of such meeting. A certified copy of every amendment to the articles of association adopted by the shareholders of a national banking association shall be forwarded to the Comptroller of the Currency, to be filed and preserved in his office.

SEC. 15. The provisions of all Acts of Congress relating to national banks shall apply in the several States, the District of Columbia, the several Territories and possessions of the United States, and the Commonwealth of Puerto Rico.

SEC. 16. Section 5220 of the Revised Statutes (12 U.S.C. 181) is amended by adding after the first sentence the following new sentence: "If the liquidation is to be effected in whole or in part through the sale of its assets to and the assumption of its deposit liabilities by another bank, the purchase and sale agreement must also be approved by its shareholders owning two-thirds of its stock unless an emergency exists and the Comptroller of the Currency specifically waives such requirement for shareholder approval.”

SEC. 17. Section 1 of the Act of June 30, 1876 (ch. 156, 19 Stat. 63; 12 U.S.C. 191), is amended by striking out“, and enforce the personal liability of the shareholders, as provided in section fifty-two hundred thirty-four of said statutes".

SEC. 18. The second sentence of section 5234 of the Revised Statutes (12 U.S.C. 192) is amended by striking out the semicolon after the word “direct” and all that follows and inserting in lieu thereof a period.

SEC. 19. Section 3 of the Act of June 30, 1876 (ch. 156, 19 Stat. 63; 12 U.S.C. 197), is amended to read as follows:

"SEC. 3. (a) Whenever any national banking association shall have been or shall be placed in the hands of a receiver, as provided in section fifty-two hundred and thirty-four and other sections of the Revised Statutes of the United States and section 11 (C) of the Federal Deposit Insurance Act, and when, as provided in section fifty-two hundred and thirty-six of the Revised Statutes of the United States, there has been paid to each and every creditor of such association whose claim or claims as such creditor shall have been proved or allowed as therein prescribed, the full amount of such claims, and all expenses of the receivership, the Comptroller of the Currency or the Federal Deposit Insurance Corporation, where that Corporation has been appointed receiver of the bank, shall call a meeting of the shareholders of the association by giving notice thereof for thirty days in a newspaper published in the town, city, or county where the business of the association was carried on, or if no newspaper is there published, in the newspaper published nearest thereto. At such meeting the shareholders shall determine whether the receiver shall be continued and shall wind up the affairs of the association, or whether an agent shall be elected for that purpose, and in so determining the shareholders shall vote by ballot, in person or by proxy, each share of stock entitling the holder to one vote, and the majority of the stock in number of shares shall be necessary to determine whether the receiver shall be continued, or whether an agent shall be elected. In case such majority shall determine that the receiver shall be continued, the receiver shall thereupon proceed with the execution of the trust, and shall sell, dispose of, or otherwise collect the assets of the association, and shall possess all the powers and authority, and be subject to all the duties and liabilities originally conferred or imposed upon such receiver so far as they remain applicable. In case such meeting shall, by the vote of a majority of the stock in number of shares, determine that an agent shall be elected, the meeting shall thereupon proceed to elect an agent, voting by ballot, in person or by proxy, each share of stock entitling the holder to one vote, and the person who shall receive votes representing at least a majority of stock in number of shares shall be declared the agent for the purposes hereinafter provided; and when such agent shall have executed a bond to the shareholders conditioned for the payment and discharge in full or, to the extent possible from the remaining assets of the association, of each and every claim that may thereafter be proved and allowed by and before a competent court and for the faithful performance of his duties, in the penalty fixed by the shareholders at such meeting, with a surety or sureties to be approved by the district court of the United States for the district where the business of the association was carried on, and shall have filed such bond in the office of the clerk of such court, the Comptroller and the receiver, or the Federal Deposit Insurance Corporation, where that Corporation has been appointed receiver of the bank, shall thereupon transfer and deliver to such agent all the undivided or uncollected or other assets of the association then remaining in the hands or subject to the order and control of the Comptrolier and such receiver, or either of them, or the Federal Deposit Insurance

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