THE SECRETARY OF THE TREASURY, Hon. BRENT SPENCE, Chairman, Committee on Banking and Currency, House of Representatives, Washington, D. C. Washington, May 10, 1949. MY DEAR MR. CHAIRMAN: Further reference is made to your request for the views of this Department on H. R. 4332, a bill to amend the National Bank Act and the Bretton Woods Agreements Act, and for other purposes. H. R. 4332 is identical to a draft of bill which I transmitted, in my capacity as Chairman of the National Advisory Council on International Monetary and Financial Problems, to the Speaker of the House of Representatives on April 13, 1949, and which was referred to your committee. The principal purpose of the bill is to make available to the International Bank broader avenues of distribution for its securities by enabling national banks to participate in such distribution as dealers. It is the view of the International Bank, which view is shared by the National Advisory Council, that such additional marketing facilities will contribute substantially to the success of its financing operations. Under existing law, national banks are not authorized to deal in securities of the International Bank. Moreover, should they be so authorized, their procedures are not adapted to meet the various requirements pertaining to securities subject to the Federal Securities Acts. The proposed legislation would remove the legal disability by amending the National Bank Act to permit national banks to deal in securities issued by the International Bank; and it would simultaneously overcome the practical difficulty by amending the Bretton Woods Agreements Act to make the securities issued or guaranteed by the International Bank exempt securities under the Securities Acts. It should be noted the bill provides that the bank shall file with the Securities and Exchange Commission such annual and other reports with regard to securities as the Commission shall determine to be appropriate. Moreover, the Commission, acting in consultation with the National Advisory Council, would be authorized to suspend the exemption granted to securities of the International Bank at any time it sees fit so to do. In view of the interest which the United States has in the continued effectiveness of the International Bank. I strongly recommend favorable action on H. R. 4332. Prior to the submission of the bill, the Bureau of the Budget advised that the proposed legislation was in accord with the program of the President. Very truly yours, JOHN W. SNYDER, Secretary of the Treasury. BOARD OF GOVERNORS OF THE Hon. BRENT SPENCE, FEDERAL RESERVE SYSTEM, Washington 25, D. C., May 5, 1949. Chairman, Committee on Banking and Currency, MY DEAR MR. CHAIRMAN: This refers to Mr. Hallahan's letter of May 2, 1949, regarding H. R. 4332. Subject to certain conditions, the bill would exempt securities issued by the International Bank for Reconstruction and Development from the provisions of section 5136 of the Revised Statutes (sec. 8 of the National Bank Act, as amended; U. S. C., title 12, sec. 24) which relate to dealings in securities by national banks and State member banks of the Federal Reserve System, and it also would exempt such securities from certain provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The provisions of the bill follow a recommendation made to the President of the Senate and the Speaker of the House by the Secretary of the Treasury, as Chairman of the National Advisory Council on International Monetary and Financial Problems. The Chairman of this Board is, as you know, a member of the Council. The Council expressed the view that, considering the character of the bank as an international institution, the substantial participation of the United States in its activities and direction, and the nature of its securities, it would appear desirable that the bank have available to it avenues of distribution for its securities broader than those permitted for offerings of purely private securities. Accordingly, the Council recommended enactment of the present bill. The Board is in entire accord with the conclusion of the National Advisory Council on the matter. Because of the participation of the United States Government in the International Bank and this Government's special interest in the institution, the Board feels that the proposed exemptions for the bank's securities are logical additions to the existing exemptions and that they do not represent any departure from existing principles. The Board believes that the proposed changes are desirable and it favors the enactment of H. R. 4332 for that purpose Very truly yours, S. R. CARPENTER, Secretary. SECURITIES AND EXCHANGE COMMISSION, Hon. BRENT SPENCE, Chairman, Committee on Banking and Currency, MY DEAR MR. SPENCE: This is in response to your letter of May 2, 1949, requesting our comments on H. R. 4332, Eighty-first Congress, a bill to amend the National Bank Act and the Bretton Woods Agreements Act, and for other purposes. The bill would amend the Bretton Woods Agreements Act to provide that any security issued or fully guaranteed by the International Bank for Reconstruction and Development shall be an "exempted security," as that term is used in the Securities Act of 1933 and the Securities Exchange Act of 1934. It would also amend the National Bank Act to permit institutions subject thereto to deal in and underwrite securities issued by the bank (but not securities guaranteed by the bank) subject to certain limitations. We limit our comment to the provisions of the bill which would create exemptions from the statutes administered by the Securities and Exchange Commission. That The bill presents a broad general question whether, in view of the special character of the International Bank, the method of its organization and operation, the nature of its securities, and the national public interest in facilitating its objectives, it is desirable to retain or to forego some of the present statutory safeguards with respect to securities issued or guaranteed by the bank. question is, of course, one of policy involving considerations beyond the scope of this Commission's immediate jurisdiction as the agency responsible for administering the securitics statutes. The Commission does not purport to speak upon that question of broad policy. We shall limit our comment to facts within the special competence and experience of the Commission. By defining the securities in question as "exempted securities" for purposes of the Securities Act and the Securities Exchange Act, the bill would place them in the same category as securities issued or guaranteed by the United States or by States or municipalities or instrumentalities thereof, with respect to all of which the Congress has deemed it desirable to forego the particular kinds of safeguards for investors that are provided in these statutes. The provisions of these acts prohibiting outright fraud are applicable to "exempted securities," and under the proposed amendment would continue to be applicable to securities issued or guaranteed by the bank. One effect of the bill, if enacted, will be to exempt the securities in question from the provision of the Securities Act of 1933 (sec. 5) requiring that securities offered to the public be registered with the Commission and that the purchasers of such securities be given certain information in the form of a prospectus which has been examined by the Commission. The bill does not contain any substitute for the prospectus provision, or for the registration provision insofar as the latter now requires the filing of information by the issuer of a security guaranteed by the bank (that is, by the foreign country or other foreign issuer). However, the bill does provide that the bank shall file "such annual and other reports with regard to such securities as the Commission shall determine to be appropriate In this connection, it is contemplated by the Commission, and we understand by the bank, that these "annual and other reports" will be quite similar to the registration statements and annual reports now required of the bank under the Securities Act and the Securities Exchange Act; in all probability the Commission will require a special report quite similar to a Securities Act registration statement in connection with any future public offerings of bonds * issued or guaranteed by the bank. There will be no sanctions to compel the bank to file these reports, except for the provisions of the bill with respect to (1) the periodic reports to be sent to the Congress by the Commission and the National Advisory Council on International Monetary and Financial Problems and (2) the authority which the bill gives the Commission, in consultation with the Council, to suspend the exemption from the securities statutes at any time. We are, of course, assuming that the bank will in good faith comply with the Commission's reporting requirements if the bill is enacted. We have discussed with both the bank and the Council the status of the securities in question with respect to the antimanipulative provisions of the statutes if the bill is enacted. Section 9 of the Securities Exchange Act of 1934 contains certain express prohibitions against manipulation and similar practices relating to securities, other than "exempted securities," traded on any national securities exchange, as the bank's bonds are; in addition, section 9 authorizes the Commission to regulate stabilizing. The proposal to define the bank's securities as "exempted securities" for purposes of this statute would make section 9 inapplicable to them. This means that not only brokers and dealers but the International Bank as well would no longer be subject to the specific provisions of section 9 and the rules thereunder relating to manipulation and stabilization of securities issued or guaranteed by the bank. However, it has been the Commission's position that securities which are not now subject to section 9, either because they are not traded on an exchange or because they are "exempted securities," are nevertheless subject to much the same prohibitions under the general antifraud provisions of section 17 (a) of the Securities Act of 1933 and sections 10 (b) and 15 (c) (1) of the Securities Exchange Act of 1934, with respect to which there are no exemptions. We have been advised that the bank understands and agrees that the Commission will take the same position with respect to bonds issued or guaranteed by the bank, and we feel that it is desirable that the Congress, if it adopts the bill, should understand the limited effect that is contemplated and intended for the exemption of the securities insofar as problems of manipulation are concerned. Among other things, the bill would exempt the securities in question from the margin requirements that the Board of Governors of the Federal Reserve System has adopted under section 7 of the Securities Exchange Act. Since the adoption of these regulations is primarily within the jurisdiction of the Board, we express no view regarding them. To the extent that I have indicated, the adoption of the bill would result in a relaxation of the requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 with reference to securities issued by the bank beyond those relaxations that were brought into effect by the Commission itself in 1947 under its rule-making power. There is a further problem regarding securities fully guaranteed by the bank but not issued by it, in that (as I have indicated) the proposal does not provide for the filing of any information, by way of reports or otherwise, by the foreign issuer of such a security. However, the bill does contain several safeguards which were not present in the similar bills introduced in the last Congress (S. 2636 and H. R. 6443); and, in view of the special character of the bank, the Commission, while it does not affirmatively support the bill, does not oppose it. I understand that the proposed legislation has been submitted to the Bureau of the Budget, and is in accord with the program of the President. In order that there may be a record in the legislative history of the construction placed on this bill by the Commission, and we understand by the Council and the bank, we respectfully request that a copy of this letter be appended to any report which your committee may submit on the bill. Sincerely yours, EDMOND M. HANRAHAN, Chairman. CHANGES IN EXISTING LAW In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as introduced, are shown as follows (new matter is printed in italics, existing law in which no change is proposed is shown in roman): H. Repts., 81-1, vol. 4 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 chapter. 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 restrictions 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 August 23, 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 Federal Home Loan Banks or the Home Owners' Loan Corporation, or obligations which are insured by the Federal Housing Administrator pursuant to section 1713 of this title, if the debentures to be issued in payment of such insured obligations are guaranteed as to principal and interest by the United States, or obligations of national mortgage associations: Provided, That in carrying on the business commonly known as the safe-deposit business the association shall not invest in the capital stock of a corporation organized under the law of any State to conduct a safe-deposit business in an amount in excess of 15 per centum of the capital stock of the association actually paid in and unimpaired and 15 per centum of its unimpaired surplus. The limitations and restrictions herein contained as to dealing in and underwriting investment securities shall not apply to obligations issued by the International Bank for Reconstruction and Development which are at the time eligible for purchase by a national bank for its own account: Provided, That no association shall hold obligations issued by said bank as a result of underwriting, dealing, or purchasing for its own account (and for this purpose obligations as to which it is under commitment shall be deemed to be held by it) in a total amount exceeding at any one time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund. SEC. 15. (a) Any securities issued by International Bank for Reconstruction and Development (including any guaranty by the bank, whether or not limited in scope), and any securities guaranteed by the bank as to both principal and interest, shall be deemed to be exempted securities within the meaning of paragraph (a) (2) of section 1 This provision is in sec. 24 of title 12 of the U. S. Code (1946 edition). Sec. 335 of the same title provides that "State member banks (of the Federal Reserve System) shall be subject to the same limitations and conditions with respect to the purchasing, selling, underwriting, and holding of investment securities and stock as are applicable in the case of national banks under par. 'Seventh' of sec. 24 of this title." 13 3 of the Act of May 27, 1933, as amended (U. S. C., title 15, sec. 77c), and paragraph (a) (12) of section 3 of the Act of June 6, 1934, as amended (U. S. C., title 15, sec. 78c). The bank shall file with the Securities and Exchange Commission such annual and other reports with regard to such securities as the Commission shall determine to be appropriate in view of the special character of the bank and its operations and necessary in the public interest or for the protection of investors. (b) The reports of the National Advisory Council provided for in section 4 (a) (6) of the Bretton Woods Agreements Act shall also cover and include the effectiveness of the provisions of section 15 (a) of this Act and the exemption for securities issued by the bank provided by section 8 of the National Bank Act in facilitating the operations of the bank and the extent to which the operations of the bank may assist in financing European recovery and the reconstruction and development of the economic resources of member countries of the bank and the recommendations of the Council as to any modifications it may deem desirable in the provisions of this Act. |