Whoever uses as a firm or business name the words "Reconstruction Finance Corporation" or any combination or variation of these words

Shall be punished as follows: a corporation, partnership, business trust, association, or other business entity, by a fine of not more than $1,000; an officer or member thereof participating or knowingly acquiescing in such violation or any individual violating this section, by a fine of not more than $1,000 or imprisonment for not more than one year, or both.

This section shall not make unlawful the use of any name or title which was lawful on the date of enactment of this title.

This section shall not make unlawful the use of the word "national" as part of the name of any business or firm engaged in the insurance or indemnity business, whether such firm was engaged in the insurance or indemnity business prior or subsequent to the date of enactment of this paragraph.

A violation of this section may be enjoined at the suit of the United States attorney, upon complaint by any duly authorized representative of any department or agency of the United States.

Recommendation

It is recommended that this statute be amended to expressly permit the use of the word "national" in the title of all national banks. It is also recommended that the use of the letters "U. S." as part of the business or firm name of persons, corporations, etc. engaged in the banking, loan, building and loan, brokerage, factorage, savings or trust business be prohibited. It is also recommended that no corporation other than a national bank should be permitted to use the words "national bank" in its corporate title.

Reasons

At the time of the codification of the criminal statutes in 1948 there was eliminated the statute which expressly permitted national banks to use the word "national" in their corporate titles. There is now no statute of the United States which expressly permits national banks to thus use the word "national" but the Comptroller of the Currency has continued to require all national banks to do so. Their rights in this respect should be made statutory.

The use of the letters "U. S." should be prohibited to corporations engaged in the types of business specified in order that the public will not be misled into believing that the corporation using these letters is a Government agency or is connected with a Government agency or that its business or that the deposit liabilities, obligations, certificates, or shares thereof, are insured or guaranteed by the United States or any instrumentality thereof. Legislation which would accomplish this purpose was passed by the Senate but not by the House of Representatives during the 84th Congress. See S. 2891 of the 84th Congress. Need for this legislation was highlighted by the bankruptcy of the U. S. Trust & Guaranty Co. of Waco, Tex., a corporation accepting deposits which was not regulated or examined by any supervisory authority.

There is now in existence a corporation which has recently adopted a corporate title including the words "national bank." This corporation is not a bank but is a corporation engaged in holding the stock of

national banks. We do not believe that any corporation other than a national bank should be able to combine the words “national bank” in its corporate title thus implying to the public that it is a national bank supervised and regulated by the Comptroller of the Currency. Legislation which would prohibit this should apply to corporations in existence at the time the legislation is enacted as well as those incorporated later.

44. NATIONAL BANK EXAMINATION REPORTS PRIVILEGED AGAINST DISCLOSURE

Existing law
None.

Recommendation

It is recommended that there be enacted a statute which would provide that reports of examinations of national banks made by national bank examiners and related correspondence and papers should be deemed to be confidential documents privileged against disclosure to unauthorized persons except with the consent of the Comptroller of the Currency.

Reasons

From time to time outside persons, usually persons engaged in litigation with national banks, will attempt to subpena from the Comptroller of the Currency or from the national bank involved copies of reports of examination of a national bank and related correspondence and papers. In these cases it is the practice of the Treasury Department to resist the subpena by claiming that such documents are confidential documents of the Treasury Department privileged against disclosure under well-known doctrines of governmental privilege.

Reports of examination of financial institutions under the jurisdiction of the Comptroller and other information obtained by him in the exercise of his visitatorial powers over such institutions are classified as confidential because such information is obtained by or submitted to him in confidence, its revelation might adversely affect such institutions, the affairs of their customers, or others dealing with them or with the Comptroller of the Currency, and would be inimical to the public interest. The courts have recognized that the National Bank Act, in deference to the delicate and sensitive interests involved, contemplates exclusive supervision of banks by the Comptroller of the Currency and the confidential treatment by him of the matters developed as to their internal affairs.

Consequently, claims of privilege are ordinarily upheld. Recently, however, a United States district court refused to uphold such a claim of privilege by the Secretary of the Treasury and ordered the production in evidence of reports of examination of a national bank. This decision was reversed by the court of appeals which held that the subpena was too broadly drawn.

It is believed that this is a matter of such importance that the confidential and privileged nature of reports of examination and related documents should be made statutory in order that future problems of disclosure may be avoided. In practically all cases in which litigants seek to subpena reports of examination any information which they need and to which they are entitled is available from the books of the

bank, which are, of course, the best evidence of the transactions involved, and which are subject to subpena. Usually, in seeking reports of examination the litigants are desirous of determining whether the bank was criticized by the bank examiners with a view toward using such information in their controversy with the bank.

45. MERGED OR CONSOLIDATED BANK AS BRANCH OFFICE

Existing law
None.

Recommendations

It is recommended that legislation be enacted to provide that any national bank located within the same county may, with the approval of the Comptroller of the Currency, acquire by consolidation, merger, or purchase of assets, and assumption of liabilities another national bank which is found by the Comptroller of the Currency to be in a precarious financial condition and permit the acquiring bank to continue the office or offices of the absorbed bank as branch offices, even though State laws do not permit the establishment of such branches. Reasons

Situations have arisen in the past where communities in States the laws of which either prohibit branch banking or provide for limited branch banking have been deprived of needed banking services through the discontinuance of a national bank because of insolvency. Other nearby banks could and would have provided those communities with all necessary banking services through takeovers of the discontinuing banks and the establishment of branches at the locations of such banks if the branch banking laws had not prohibited their doing so. This would have substantially eased the problem of the bank supervisory authorities and been to the best advantage of all concerned. Similar situations are almost certain to arise in the future. It would appear to be essential that a method of dealing with such problems and permitting the continuance of necessary banking services in such situations be provided through the recommended legislation.

45A. ADMINISTRATION OF PENSION, PROFIT-SHARING, AND EMPLOYEE WELFARE OR BENEFIT FUNDS OF EMPLOYEES OF NATIONAL BANKS Existing law

None dealing with supervision or governing administration. Recommendation

It is recommended that a statute be enacted to govern specifically certain important phases of the administration of pension, profitsharing, and employee welfare or benefit accounts of national banks, as follows:

(1) Such accounts into which profits of the bank are contributed should have the approval of the stockholders who own a majority of the capital stock of the bank.

(2) Borrowing by such accounts should be prohibited, except for temporary needs to meet required disbursements.

(3) Investment of funds of such accounts in any real estate, equipment, enterprise, obligation, interest or stock, the principal purpose of which is to serve the interest of the bank or any director, officer, or employee thereof, should be prohibited.

(4) Ownership of more than 5 percent of the shares of the capital stock of any bank or trust company or the investment of more than 10 percent of the corpus of the pension, profit-sharing, and employee welfare or benefit fund or trust in shares of any bank or trust company, whichever is the lesser based upon cost price at the time of purchase, should be prohibited.

(5) The Comptroller of the Currency should be authorized by law to examine, in the course of the examination of each national bank, the affairs of any pension, profit-sharing, and employee welfare or benefit accounts which it established for its directors, officers, or employees, except when such accounts are administered by an independent corporate trustee.

Reasons

In the investment of trust funds of pension, profit-sharing, and employee welfare or benefit arrangements, abuses have occurred which could have been prevented had suitable statutory restrictions existed governing the administration of such trust funds. The most outstanding abuses which have come to the attention of this office are:

(1) The failure to obtain approval of the shareholders of the employer bank. This could result in litigation. In the case of Heinz v. National Bank of Commerce in St. Louis (237 Fed. 942), the United States Circuit Court of Appeals held that the creation of a pension fund was within the incidental powers of a national bank. In that case the directors had established the plan pursuant to a resolution of the shareholders. Such approval by the shareholders is believed to be wise procedure in order that the shareholders may be fully informed, and their specific approval may remove the possibility of later criticism. Furthremore, the shareholders are entitled to know the extent to which the future earnings of their bank are committed for such a purpose.

(2) There have been cases where pension funds created by banks have borrowed substantial sums of money to purchase the controlling interest in other banks. Control held in such a manner permits the employer-bank to dominate the policies and operations of the bank concerned. We do not believe that such funds should be used for this purpose.

(3) Also, trust funds of employee benefit accounts have been invested in banking houses, equipment, automobile parking facilities, insurance agency, and an automobile dealership on the verge of bankruptcy. Such investments are not suitable to the type of trust funds being invested and are indicative of self interest.

(4) There is divided opinion as to whether stock of an employer bank is a proper investment of trust funds held for its employees. We believe it would be advisable to restrict the ownership of such stock to a reasonable amount with respect to the corpus of the trust as well as to the proportion of the capital stock of the employer bank. Furthermore, the limitations recommended are the same as those provided by section 17 (c) (5) of regulation F of the Board of Governors of the Federal Reserve System which sets forth miscellaneous limitations on investment of common trust funds. Fundamentally, it

is contrary to sound fiduciary practice to engage in self-dealing, particularly where the trustor and trustee are essentially the same. We also regard it to be inappropriate for an employee's pension to be substantially dependent upon the continued success of his employer. In any case where it is necessary for a bank to increase its capital stock by means of a sale of new shares, ownership of a major portion of the existing capital stock by an employees' trust fund, which may not be in a position to purchase more stock, could impede if not prevent an increase in capital which might be necessary for the continued welfare of the bank and the protection of the interests of its depositors. Furthermore, if the bank is sole trustee, it is prohibited by title 12, United States Code, section 61 (U. S. R. S., sec. 5144) from voting such shares held in trust in the election of directors, except under certain circumstances. If these circumstances are met and a substantial portion of the stock of the bank is held in trust, it may become possible for the management of the bank to perpetuate itself in office. This perpetuation of management could also occur through the influence of directors and officers upon employees, if they, instead of the bank, are trustees of the fund.

(5) Statutory authority exists under which the Comptroller of the Currency may examine trust departments of national banks and in any case where such a department is acting as trustees of an employees' pension, profit-sharing, welfare or benefit trust, the administration of such trust funds may be examined. However, when the bank is not trustee and such funds are under a trusteeship composed of directors, officers, employees, or others, statutory authority does not exist which would permit examination into the administration of such trusts. Even though under these circumstances the administration of the trust is not a direct responsibility of the bank, because of the fact that its trustees (other than an independent corporate trustee) are closely connected with the bank and in a position to be influenced by those who formulate and administer its policies, the bank might be held liable for any loss which may occur in such a trust fund by reason of unsound acts of its directors, officers, or employees who also serve as trustees and whose interest is divided between the bank and the trusteeship. The probability or likelihood that under adverse circumstances the trustees may be charged with self-dealing and the bank held liable make it advisable that statutory authority be provided under which the affairs of such trusts may be supervised.