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loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all Federal and State taxes.”
SEC 23. (a) Section 5212 of the Revised Statutes (12 U.S.C. 163) is repealed.
(b) Section 5211 of the Revised Statutes (12 U.S.C. 161) is amended by inserting after the second sentence the following new sentence: "Every national bank shall make to the Comptroller reports of the payments of dividends in such form and at such times as he may require."
SEC. 24. Section 21 (a) (2) (A) of the Act of June 16, 1933 (ch. 89, 48 Stat. 189; 12 U.S.C. 378), is amended by inserting after “District," the following: "and subjected, by the laws of the United States, or of the State, Territory, or District wherein located, to examination and regulation,”.
SEC. 25. Sections 201, 202, 203, 204, 205, 206, 207, 208, 209(a), 209 (c), 209(d), 209(f), 209(g), 209(i), 210, 211, 212, 213, 214, 215, and 217, and the last two sentences of section 209(b), of the Act of March 4, 1923 (ch. 252, 42 Stat. 1467; 12 U.S.C. 1151–1322), are repealed.
SECTION-BY-SECTION SUMMARY OF H.R. 6093
Section 1 repeals obsolete references to Home Owners' Loan Corporation, now out of existence.
Section 2 requires that all the capital stock be paid in before a national bank may begin business. Existing law requires 50 percent, but the practice since 1935 has been to require 100 percent.
Section 3 would require the approval of the Comptroller of the Currency before a national bank may move its main office within its own city limits; approval of the Comptroller is now required only for a move outside the city.
Section 4 conforms with section 2 in requiring that all the capital stock of a national bank be paid in before it may commence business.,
Section 5 repeals an obsolete provision of law relating to installment payments of capital stock; as indicated in the explanation of section 2 all stock must now be paid 100 percent in cash before a national bank may commence business.
Section 6 repeals an obsolete provision relating to increase of capital by vote of the shareholders of a national bank. This provision has been superseded by an amendment to section 5142 of the Revised Statutes (12 U.S.C. 57).
Sections 7 and 8 repeal obsolete provisions relating to the liability of shareholders of a national bank for debts of the bank. These provisions were rendered obsolete by the Banking Act of 1935, which eliminated the individual liability of such shareholders.
Section 9 provides that where the regular annual shareholders' meeting day falls on a legal holiday the meeting shall be held instead on the next following banking day.
Section 10 eliminates an obsolete reference to the Reconstruction Finance Corporation, now out of existence.
Section 11 eliminates a reference to Alaska in conformity with the recent granting of statehood to Alaska.
Section 12 lengthens the period for filing reports of condition of national banks. These reports must now be filed with the Comptrolier within 5 days after he requests them. The bill would lengthen this period to 10 days.
Section 13 is a technical amendment necessitated by section 23 of the bill which relates to dividend reports.
Section 14 sets forth the procedure for amending the articles of association of a national bank to provide for amendment by a majority vote of shareholders at a meeting called with 10 days' notice.
Section 15 sets forth the areas in which the national banking laws apply. In conformity with sections 40 and 41 of title 12 of the United States Code it covers the Virgin Islands and Guam. It also covers all other Territories and possessions of the United States, expressly including the Commonwealth of Puerto Rico, as well as the several States and the District of Columbia.
Section 16 continues the existing requirement that liquidation of a national bank must be approved by vote of the shareholders owning two-thirds of the stock and adds a new requirement that if the liquidation involves the sale of its assets to another bank the purchase-and-sale agreement must also be approved by two-thirds vote, except in emergencies.
Sections 17 and 18 repeal obsolete provisions relating to shareholder liability. See explanation of section 7.
Mr. BROWN. The subcommittee will please come to order. We will take up this morning two bills, H.R. 6092 and H.R. 6093. Mr. Gidney is our first witness. You may proceed, Mr. Gidney.
STATEMENT OF RAY M. GIDNEY, COMPTROLLER OF THE CUR
RENCY; ACCOMPANIED BY L. A. JENNINGS, DEPUTY COMPTROLLER; AND ROY T. ENGLERT, GENERAL COUNSEL
Mr. GIDNEY. Mr. Chairman, I have with me Mr. L. A. Jennings, Deputy Comptroller, and Mr. Roy T. Englert, our General Counsel, to help answer any questions.
I welcome this opportunity to testify in support of H.R. 6092 and H.R. 6093, both of which were introduced by Hon. Paul Brown.
I would like to submit in this statement comments on the detailed provisions of the bills, and to say that we strongly favor enactment of both bills with a few slight technical changes.
I understand that a copy of the statement is before each member of the committee. If it meets the wishes of the committee, I would be pleased to have my statement included in the record and to reply to any questions by members of the committee as to any of the specific provisions of the bills.
Unless the committee wishes, I would therefore omit the reading of this statement, which is of some length, and ask that you give me any questions you might have.
Mr. Brown. Mr. Gidney, I think you have a very fine statement. I think all the members would like to hear it.
Mr. GIDNEY. If you so desire; yes, sir.
H.R. 6092 will provide for the appointment of two additional Deputy Comptrollers of the Currency, and will liberalize the lending limitations imposed on national banks by (1) liberalizing to some extent the present exceptions to the 10 percent lending limitation on loans to a single borrower, and (2) by liberalizing loans which national banks may make secured by real estate.
The two additional Deputy Comptrollers which would be authorized by this bill are in addition to the three Deputy Comptrollers now serving. The volume of work in the Comptroller's office has been increasing for many years with the growth in national bank assets. There has been a very important increase in the number of applications for authorization to establish branches, in capital increase programs, and other transactions requiring the approval of the Comptroller.
In addition, the pressure of the competition which exists in banking today has caused banks to search for new methods of doing business and new ways of better serving their customers. 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.
When one of the present three deputies is away from the office for any reason, it is very difficult for the others to carry the workload.
Even when all are present, a substantial amount of evening and weekend work is necessary. Two additional Deputy Comptrollers are needed to relieve this situation. Since the Comptroller's staff is paid out of assessments on national banks, no Government appropriations will be necessitated.
Section 2 of H.R. 6092 would increase the authority of national banks to borrow from lenders other than the Federal Reserve banks from 100 percent of capital to 100 percent of capital and surplus. We would have no objection to this proposed change and believe that it should be made.
Section 3 of H.R. 6092 would amend section 5200 of the Revised Statutes in several respects. There would be added to exception 6 to Revised Statutes 5200 a new sentence which would permit national banks to acquire obligations secured by documents of title covering refrigerated or frozen readily marketable staples when such property is wholly covered by insurance, to a limitation of 25 percent of the capital and surplus instead of 10 percent as now provided.
Great improvements have been made in methods of processing, freezing, and storing foods which must be kept under refrigeration pending sale to consumers and it is believed that loans secured by frozen foods can safely be made by national banks to the extent permitted in the proposed legislation.
Since certain refrigerated items have been previously regarded as coming within exception 6 as it now exists the proposed new sentence will represent a tightening rather than a liberalization of existing law with respect to these few items.
There would be added to exception 7 a provision which would permit national banks to acquire obligations of dealers in dairy cattle, to a limitation of 25 percent of the capital and surplus of the bank.
Exception 7 does not now cover dairy cattle. As a rule obligations of dealers in dairy cattle are not in such form that they qualify under either exception 2 or exception 4. It is believed that such obligations can safely be taken by national banks in amounts up to 25 percent of capital and surplus.
To clarify the intent of the new provision it is recommended that it be changed to read as follows: Obligations arising out of the discount by dealers in dairy cattle of paper given in payment for dairy cattle, which bear a full recourse endorsement or unconditional guaranty of the seller, and which are secured by the cattle being sold, shall be subject under this section to a limitation of 15 percentum of such capital and surplus in addition to such 10 percentum of such capital and surplus.
Section 3(c) would eliminate from exception 8 the words “in the form of notes." Frequently, the obligations referred to in exception 8 are not in the form of promissory notes but are repurchase agreements or some other form of obligation.
We believe that there is no good reason for requiring the obligations referred to in exception 8 to be in the form of notes.
By section 3(d) there would be added to R.S. 5200 a new exception for installment consumer paper. Under existing law such paper, if negotiable in form, comes within exception 2 to Revised Statūtes 5200 and is subject to no limitation, but if not negotiable in form is not considered to come within any of the exceptions and is subject to the basic 10 percent lending limit.
In view of the growth on the business of financing installment purchases by consumers and the widespread and advantageous use of non-negotiable conditional sales contracts in this type of financing,
we believe that installment consumer paper should no longer come within the scope of exception 2, but should come under an entirely new exception which wiĩl cover all such paper whether negotiable or non-negotiable in form and which will be the only exception applicable to such paper.
The proposed exception will provide that negotiable or non-negotiable installment consumer paper which carries a full recourse endorsement or unconditional guarantee of the person negotiating the paper shall be subject to a limitation of 25 percent of capital and surplus.
It will further provide that in those cases in which the responsibility of each maker of such obligations has been evaluated and the bank is relying primarily upon the maker for payment the paper shall not be included in the line of credit of the dealer for the purposes of the applicability of Revised Statutes 5200. We consider this proposed amendment very desirable.
Section 4 of H.R. 6092 would make several changes in the limitations imposed on real estate loans made by national banks. The first of these would permit national banks to make loans on leaseholds which have at least ten years to run beyond the maturity date of the loan.
The present restrictions on leasehold loans are unrealistic and the present provision of law has been of little benefit either to national banks or to prospective borrowers. The restrictions can be liberalized without danger to the banks and with improvement in the flexibility of their operations in this class of loans.
Section 4(b) of H.R. 6092 would change from 6623 percent to 75 percent the percentage of the appraised value which national banks may lend on real estate. We have no objection to this proposed change, but recommend that the same change should be made in both clauses of the third sentence of section 24.
There would be inserted in section 24 of the Federal Reserve Act a new provision to the effect that the limitations and restrictions contained in that section with respect to appraisal and maturity requirements, shall not apply to loans 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 provided that under the terms of the guarantee the bank will be assured of repayment in accordance with the terms of the loan.
The purpose of this proposal is to permit national banks in the State of Maine to participate in real estate loans guaranteed by the Maine Industrial Building Authority. Similar building authorities may be created in other States. Since in order to qualify for exemption under section 24 the guarantee required will have to be, in effect, the equivalent of general obligations of the State, it seems clear that such loans may be made with safety by national banks.
Section 4(c) of H.R. 6092 would provide that loans made by national banks to finance the construction of commercial or industrial buildings for terms of not more than 18 months and 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 completion of the buildings, would be regarded as commercial loans and not as real estate loans.
The provision would increase the aggregate limit on construction loans made by an individual bank from 50 percent of capital to 100 percent of capital and surplus. This proposed amendment is of importance to the national banking system since the restrictive provisions of existing law prevent national banks from making safe and desirable loans of this type while State-chartered institutions in many States are able to do so.
Section 4(d) of H.R. 6092 would permit national banks to make working capital loans to manufacturing or industrial enterprises secured by liens on the physical properties of the enterprise, including plant real estate, without such loans being regarded as real estate loans.
Manufacturing and industrial companies regularly borrow money for working capital purposes from national banks. Added protection may be given the bank if it can take a mortgage on the plant of the borrower without having to comply with the requirements for a loan based only on the real estate value.
The working capital loans are normally based on the premise that the purpose of the loans will be to cover normal working capital purposes and will be repaid from the earnings from operations in producing and manufacturing goods and the flow of funds from the turnover or liquidation of inventories and receivables.
These are in reality commercial loans and represent ordinary business financing. They should not be treated as real estate loans subject to section 24 of the Federal Reserve Act.
This concludes my comments on H.R. 6092. We heartily favor this bill and we urge that it be enacted. I have included in an appendix to this statement recommendations for certain technical changes which we believe may be helpful.
They are very few in number and strictly technical. (The appendix is as follows:)
APPENDIX-RECOMMENDATION FOR TECHNICAL CHANGES IN H.R. 6092
Page 4, line 10, delete "negotiating" and insert “transferring." Page 4, lines 17, 18, and 20, delete association" and insert "blank." Page 4, line 22, delete “of subsection (a)." Page 6, line 3, delete “mortgage” and insert"loan." Mr. GIDNEY. H.R. 6093 is a bill designed primarily to clarify or eliminate ambiguities in existing law, and to repeal laws which have become obsolete. I do not believe it necessary to comment in detail on those sections designed exclusively to clarify existing law or to repeal obsolete provisions. I shall confine my remarks to those sections of the bill which will make substantive changes in existing law.
The first such section is section 3 which changes existing law to prohibit national banks from changing the locations of their main offices without the approval of the Comptroller of the Currency.
Under existing law while national banks must secure the approval of the Comptroller to move from one city to another there is no limitation on national banks moving their main offices from one location to another within the city in which they are located.
Section 4 would change existing law to require that all of the capital stock of a newly organized national bank must be paid in cash before it may commence business.