Section 16: Section 16 adds to the existing requirement that liquidation of a national bank must be approved by two-thirds of the shares of the bank, a new requirement that if the liquidation involves the sale of the bank's assets to another bank, the purchase and sale agreement must also be approved by two-thirds of the shares of stock. Authority is given to the Comptroller of the Currency to specifically waive this latter requirement for shareholder approval in the case of an emergency. This is a situation in which existing provisions of the law requiring shareholder approval for the liquidation of a bank will be strengthened by a specific provision requiring shareholder approval of purchase and sale transactions in liquidation.

Section 22: Subsection (b) specifically authorizes directors of a national bank to declare dividends quarterly, as well as semiannually or annually.

Subsection (b) also adds additional limitations on the declaration of dividends designed to protect the interests of the public. The approval of the Comptroller of the Currency would be required if the total of all dividends declared by a bank in any calendar year exceeds the total of its net profits of that year combined with its retained net profits of the preceding 2 years. This provision would prevent the paying out of large dividends from surplus and undivided profits which could deplete the bank's capital position. Such a provision will be necessary in only most unusual circumstances, but we believe it is an appropriate safeguard to add to the law.

Section 23: Section 23 repeals the present requirement for a special report to the Comptroller within 10 days after the declaration of any dividend of the amount of such dividend and the amount of net earnings in excess of such dividend. To be certain that the Comptroller has the authority to obtain such information on dividends as he considers necessary, section 23 proposes also to amend the general reporting provision specifically to require reports to the Comptroller on the payment of dividends in such form and at such times as he may require. The present reports made at the time of the declaration of each dividend merely add to the volume of paperwork both for the banks and the Comptroller's Office. The elimination of the requirement for the special dividend report was recommended by the Hoover Commission.

Section 24 Section 24 amends existing law which makes it unlawful for any person or business to engage in the business of receiving deposits subject to check or to repayment upon presentation of a pass book, certificate of deposit, or other evidence of debt or upon request of the depositor unless such person or business is incorporated under and authorized to engage in such business by the laws of the United States or any State. Section 24 amends this provision by adding the further requirement that the person or business must also be subject under the laws of the United States or the State to examination and regulation. We believe that this is a desirable amendment to be certain that any organization conducting a banking business is not only authorized to do so but is subject to examination and supervision by Federal or State authorities. It is in the public interest to have all institutions accepting demand deposits subject to examination and supervision.

In closing I wish to repeat the complete endorsement of the American Bankers Association of both H.R. 6092 and H.R. 6093 with such

of the amendments suggested by the Comptroller of the Currency and the Chairman of the Federal Deposit Insurance Corporation you determine to accept. I also wish to express my appreciation for the opportunity to present these views to your committee.

Mr. BROWN. I want to thank you for your very fine statement, Mr. Harrington.

Mr. Multer, do you care to interrogate the witnesses?
Mr. MULTER. Very briefly.

I know we are working against time today, Mr. Chairman. Mr. Harrington, referring to page 4 of your statement, with specific reference to subsection 3, you recall that when we had the Financial Institutions Act before us there was considerable objection raised to one provision which sought to make the defense of usury unavailable in an action brought by a bank to recover on certain paper, such as is referred to in this section, consumer paper and the like.

This does not accomplish that objective, does it?

Mr. HARRINGTON. No, sir, it does not.

Mr. MULTER. Now, on the question of real estate loans on leaseholds, the statute now provides that the lease against which a loan may be made, or which may be taken as security for a loan, must run for 99 years, or have an unexpired term of 50 years. The amendment before us will permit the lease to run for 10 years, or contain an option that the lessee may renew for another 10 years?

Mr. HARRINGTON. That is right.

Mr. MULTER. Don't you think that is rather too intangible to make good security, if it is just an option to renew the lease? Shouldn't it be a firm lease to run at least 10 years beyond the maturity of the loan?

Mr. HARRINGTON. I heard you ask that question and I thought you made a good point yesterday.

I personally would be reluctant to make such a loan, but we would like to have the authority as flexible as possible. It is difficult to legislate good judgment.

In making loans, I depend especially on the character and integrity of the borrower. I would rather have good character and weak collateral than the reverse. So there are cases where you would like to have the right to make such a loan.

Mr. MULTER. There isn't any doubt, Mr. Harrington, that you are quite right as to all you have said, but bear in mind we are trying to legislate against the man who is going to be careless. We don't have to legislate against the honest or careful banker; it is only against the man who gets careless or dishonest that we must legislate. Am I not right?

Mr. HARRINGTON. That is right.

Mr. MULTER. Now, turning to page 9 of your statement, which then refers to section 14 of 6093, don't you think it might be more logical if the bylaws were to be amended, that a notice of the proposed amendment be sent to the Comptroller's Office in advance of the meeting so that if he had any objection to it he could voice it before the meeting, in which event you would not submit it to your stockholders?

Mr. HARRINGTON. I don't think there would be any objection to such a thing as that. It could be done, yes, sir.

Mr. MULTER. It could be helpful, rather than have the stockholders convene, pass on an adopted amendment and then find that the Comptroller has an objection to it.

Mr. HARRINGTON. That could be helpful.

Mr. MULTER. On page 10, referring to section 22 of 6093, I am quite sure it is intended that that approval for the declaration of dividends that exceed the standard set forth shall be obtained in advance of the declaration of the dividend.

Mr. HARRINGTON. Will you repeat that, Mr. Multer?

Mr. MULTER. Refer, if you will, to page 10 of your statement, section 22 there, subsection (b). It requires the approval of the Comptroller, and so forth. That approval should be obtained in advance of the declaration of dividends, am I not right?

Mr. HARRINGTON. Yes, sir, the approval of the Comptroller of the Currency shall be required if the total of all dividends—yes, sir, it is required to be received in advance.

Mr. MULTER. Don't you think it might be better language if, instead of saying "it shall be required," it would say, "it is hereby required; in other words, "shall be required" is a little indefinite.

Mr. HARRINGTON. You are quite right.

Mr. MULTER. You would have no objection?

Mr. HARRINGTON. We would have no objection. It should be required.

Mr. MULTER. Thank you very much, Mr. Harrington and Mr. Chairman.

Mr. BROWN. Mr. Fino, do you have any questions?

Mr. FINO. No questions.

Mr. BROWN. Mr. Barrett?

Mr. BARRETT. I have no questions.

Mr. BROWN. Mr. Vanik?

Mr. VANIK. I have no questions.

Mr. BROWN. Mr. Barr?

Mr. BARR. Just one short question.

Mr. Harrington represents a bank that happens to pick up a lot of loans from Indiana. It seems to me, Mr. Harrington, that H.R. 6092 and H.R. 6093 are tied together very closely. In other words, in this bill we are letting you gentlemen go out a little bit further on your restrictions, but it won't do much good unless you have the reserves to do it, is that correct?

Mr. HARRINGTON. Yes, sir, that is correct. We have to have the money to lend and to meet the credit demands of the community. Mr. BARR. That is right, but the reserves have to be there before you go out and lend the money?

Mr. HARRINGTON. That is right.

Mr. BARR. That is all.

Mr. BROWN. Mr. Moorhead?

Mr. MOOREHEAD. I have no questions, Mr. Chairman.

Mr. BROWN. Gentlemen

Mr. MULTER. Mr. Chairman, may I ask one more question?

Mr. BROWN. Mr. Multer.

Mr. MULTER. With reference specifically to the various categories of loans where we seek to increase the maximum amount that any national bank may lend, what is the provision, or what are the pro

visions in the State of Missouri with reference to that? Are they higher or lower?

Mr. HARRINGTON. They are higher. In some cases, as I recall, they can go to 15 percent of their capital surplus.

Mr. MULTER. And in each of the other categories, those that would be raised to 25 percent, your State law permits them to go higher? Mr. HARRINGTON. No. In certain classifications they can go higher, but not in all of them.

Mr. MULTER. What about your conventional real estate loans? To what extent do they make those loans in Missouri? Is it 66%? Mr. HARRINGTON. It is about 60 percent.

Mr. MULTER. About 60 percent?

Mr. HARRINGTON. Yes, sir.

I would like to just make one remark on that. We have a lot of fine men come into the St. Louis community, and building costs are kind of high. We are going to take care of those people, and if we can't go past the 663 percent I will make them an unsecured loan for the balance. But it is a much better thing to let those fine young men who are educating their children, wrap it all up in one package and have an orderly liquidation for 20 years, rather than a 20-year loan for part and an unsecured loan for a part of it.

Mr. BROWN. There are some statements to be filed, and without objection they will be included in the record of the hearing at this point.

TESTIMONY SUBMITTED BY U.S. REPRESENTATIVES FRANK M. COFFIN AND JAMES C. OLIVER OF MAINE, TO SUBCOMMITTEE No. 2, HOUSE COMMITTEE ON BANKING AND CURRENCY, IN SUPPORT OF SECTION 4(B) (2) of H.R. 6092, AN AMENDMENT TO SECTION 24 OF THE FEDERAL RESERVE ACT

Mr. Chairman, as Representatives from the First and Second Congressional Districts of the State of Maine, we are giving our complete endorsement to section 4(b) (2) of your bill, H.R. 6092. This section of the legislation would permit national banks to participate in State guaranteed industrial loan programs such as the Maine Industrial Building Authority of the State of Maine. Language which would have accomplished this objective was included in the Financial Institutions Act of 1958, as considered in the 85th Congress, and was regarded as a non-controversial section of that legislation. Congressman Coffin also introduced H.R. 13473 in the 85th Congress which would have provided for the desired change in the Federal Reserve Act. H.R. 86 of this Congress, as introduced by Mr. Coffin, is very similar to the wording of section 4(b) (2) of H.R. 6092.

As you may know, the State of Maine, as well as other States of the Union, has been making a concerted effort to accelerate its economic development. This is a multiple-purpose program, but one of its most important phases is the development of new industrial buildings for existing and new industries. Maine, which had pioneered in the field of State development agencies has also pioneered with the establishment of an industrial building authority, which under a $20 million State guaranteed program, provides 100 percent insurance on industrial mortgages given by or at the instance of local nonprofit development corporations organized under Maine law, or for the expansion of existing industries. Mortgages may be given up to 90 percent of the value of the property, may be for up to $1 million for any one project, and may be for a term of 25 years.

The program has been welcomed in Maine as an important addition to our capital resources for industrial expansion. The program, which started this year, has at least ten projects in the works. Great interest has been shown by lending agencies as well as by local communities.

Unfortunately, present restrictions in section 24 of the Federal Reserve Act make it impossible for national banks to participate at the present time, such banks may not take real estate mortgages for more than 66% percent of the

value of the property or for terms of more than 20 years. The following statement from the legal department of the Canal National Bank of Portland, Portland, Maine, gives some detail on the problems and indicates the interest manifested in our State:

"MAINE INDUSTRIAL BUILDING AUTHORITY ACT

"In view of the increasing activity of business development organizations in various States, considerable interest has been shown in the Maine Industrial Building Authority which was established in Maine last year.

"Following the adoption by the people of an amendment to the constitution of Maine permitting the pledging of the faith and credit of the State for such purposes, the legislature, at a special session in October 1957, passed the Maine Industrial Building Authority Act. The act provides for 100 percent insurance by the authority of first mortgages given by or at the instance of local nonprofit development corporations organized under Maine law, or for the expansion of present industries. Obligations of the authority under the insurance coverage provided by it are in turn backed by the credit of the State of Maine limited only by the restriction of $20 million on the amount of bonds at any one time outstanding which the State may issue for this purpose. Mortgages to be eligible for the insurance must meet the requirements set forth in the statute and the regulations of the authority, including provisions that the amount of the mortgage shall not exceed 90 percent of the value of the property, shall not exceed $1 million for any one project, and shall not have a maturity later than 25 years from the date of the insurance.

"Insurance premiums are to be fixed by and paid to the authority at not less than one-half of 1 percent per year nor more than 2 percent per year of the principal amount of the mortgage outstanding at the beginning of the year. The authority has recently established a rate of 1 percent.

"The authority consists of nine members, eight appointed for various terms by the Governor with the advice and consent of the Council plus the State Commissioner of Economic Development. Carleton G. Lane, investment vice president of the Union Mutual Life Insurance Co., Portland, Maine, is chairman of the authority and Lloyd K. Allen, State House Office Building, Augusta, Maine, is manager.

"As the Federal laws now stand, national banking associations cannot, for all practical purposes, participate in this program because section 24 of the Federal Reserve Act prohibits national banks from taking a real estate mortgage in an amount in excess of 66% percent of the valuation of the property. or with a maturity of over 20 years. It is anticipated that under the Maine Industrial Building Authority Act, the mortgages in most cases will run as high as 90 percent of property value and in some cases for periods as long as 25 years. Steps have been taken in Congress to correct this situation. In 1958 session an amendment (S. 3561) to section 24 of the Federal Reserve Act was under consideration by the Senate Banking and Currency Committee which would provide that the requirements of that section 'shall not apply to real estate loans which are 100 percent 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 guaranty or insurance agreement the association will be assured of repayment in accordance with the terms of the mortgage.' Also, the Banking and Currency Committee of the House added an amendment to the Financial Institutions Act to the same effect. This would be sufficient to take care of the situation but the Financial Institutions Act was not adopted at the 1958 session of Congress. nor was a proposed amendment to section 24 of the Federal Reserve Act. It is hoped that section 24 will be amended by H.R. 6092, or a similar bill, at the 1959 session of Congress, and then national banks as well as banks chartered by the State may participate in this financing of industrial buildings under the Maine Industrial Building Authority program."

This legislation has the complete backing of State of Maine officials and of the banking community in the State of Maine. It will open a new door for available capital for industrial development at less of a risk, even than the existing restriction under section 24 of the Federal Reserve Act. It is our understanding that you have received correspondence in support of this from Hon. Clinton A. Clauson, Governor of the State of Maine, Commissioner Fred A. Clough, Jr., of the Maine Department of Economic Development, and Carleton G. Lane, chairman of the Maine Industrial Building Authority.