Mr. PATMAN. Is the repurchase rate the going rate of the Government security or is it the discount rate that you have in effect?

Mr. MARTIN. It could be either.

Mr. PATMAN. Which is it?

Mr. MARTIN. At the moment it is the discount rate.

Mr. PATMAN. Do you have the same

Mr. MARTIN. We don't at the moment.

Mr. PATMAN. You have the discount rate.

Mr. MARTIN. That is right.

Mr. PATMAN. You keep the bond and return it to the dealer when he repays the loan?

Mr. MARTIN. That is right.

Mr. PATMAN. On foreign deposits, Mr. Martin, are commercial banks allowed to pay interest on demand deposits of foreign accounts? Mr. MARTIN. Not on demand deposits, but on time deposits.

Mr. PATMAN. Can the rate be greater than the rate you fix for the member banks?

Mr. MARTIN. No; we set the rates on time deposits.

Mr. PATMAN. You set the rates on that?

Mr. MARTIN. Yes, sir.

Mr. MULTER. May I ask at this time for the record the names of the outside auditors that have been making these audits?

Mr. MARTIN. Arthur Anderson & Co.

Mr. MULTER. They have made them for the last 4 years?

Mr. MARTIN. Yes.

Mr. MULTER. I think at one time you did send up to this committee a copy of your letter of instructions to them; did you not?

Mr. MARTIN. I did.

Mr. MULTER. Am I to understand, Mr. Martin, that the Board obects to the General Accounting Office aduiting the books and records of the Board and the Federal Reserve banks?

Mr. MARTIN. The Board doesn't think that under the present law that we have the right to

Mr. MULTER. I put my question incorrectly.

Does the Board take the position that the law should not be amended to permit the General Accounting Office to make such audits?

Mr. MARTIN. That is not the position of the Board.

Mr. MULTER. You are opposed to the law being amended to permit that?

Mr. MARTIN. That is correct.

The CHAIRMAN. Mr. Martin, can you come back tomorrow, sir? Mr. MARTIN. I will be back as long as you want me, Mr. Chairman. The CHAIRMAN. All right. We will want you again. We will now adjourn, to meet again tomorrow morning at 10 o'clock.

(Whereupon, at 12:02 p. m., the committee adjourned, to reconvene at 10 a. m., Thursday, August 1, 1957.)

FINANCIAL INSTITUTIONS ACT OF 1957

THURSDAY, AUGUST 1, 1957

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10 a. m., Hon. Brent Spence (chairman) presiding.

Present: Chairman Spence, presiding; Messrs. Brown, Patman, Multer, Barrett, Mrs. Griffiths, Messrs. Vanik, Healey, Coad, Anderson, Breeding, Talle, Betts, Mumma, McVey, Siler, Henderson, and Chamberlain.

The CHAIRMAN. The committee will be in order.

We will resume the hearings on the Financial Institutions Act and with further testimony of Mr. Martin.

General Anderson has asked for recognition.

FURTHER STATEMENT OF HON. WILLIAM MCC. MARTIN, CHAIRMAN; ACCOMPANIED BY WOODLIEF THOMAS, ECONOMIC ADVISER, AND D. B. HEXTER, ASSISTANT GENERAL COUNSEL, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM

Mr. MULTER. Mr. Chairman, will Mr. Anderson yield so that I can offer an insert for the record at this time?

Mr. ANDERSON. I yield.

Mr. MULTER. Mr. Chairman, I ask unanimous consent to have added to our record at this point a statement by Mr. Harry J. Harding, president of the First National Bank of Pleasanton, Calif., as president of the Independent Bankers Association.

Mr. BETTS. What is the statement?

Mr. MULTER. It is a fairly long statement. It tells about how the independent bankers are being forced out of business by the big banks and indicates how mergers are affecting these small banks, and otherwise relates to various matters pertinent to this bill.

The CHAIRMAN. Without objection, it may be incorporated in the

record.

(The statement follows:)

CONVENTION ADDRESS-STRONG FORCES CONTINUE EFFORTS TO ELIMINATE

INDEPENDENTS

Although the title of my talk appears on your program as "The Single, Dual, and Triple Banking Systems Reexamined," I will approach this by discussing the three "F. T. F.'s" of independent banking.

These F. T. F.'s are: Face the facts of independent banking, first things first in independent banking, and finish the fight for independent banking.

What are some of the facts of independent banking today?
Fact No. 1 is that independent banking is under attack.

We do not hear anyone advocate the destruction of our system of independent banking and the substitution therefor of the Canadian or the European systems of nationwide branch banking-with only half a dozen or so banks-at least not openly and directly. Such an effort quickly would be buried in an avalanche of opposition.

WHITTLING PROCESS

The effort to accomplish the elimination of independent banks is more subtle. It takes form largely in a whittling process, a constant nicking away at diffused control of banking, on the one hand, and a building up of public acceptance of absentee ownership and management.

Among other things, these undermining efforts take the form of the recurrent urging that control over the reserves of all banks be placed in the hands of the Federal Reserve Board-or increasing the powers of the Federal Deposit Insurance Corporation-or to expand the powers in the hands of the other Federal supervisory agencies.

The State comptroller of the State in which we are now meeting, addressing the Florida Bankers Association a few weeks ago, warned that the continued invasion of the rights of the States by the Federal Government and its agencies, in the field of banking, could result in the disappearance of State chartered and State supervised banks.

So, fact No. 1 that we should face is that our system of independent banking is under strong undermining attack.

Fact No. 2 is the threat of holding company expansion within a State.

The Bank Holding Company Act of 1956 falls short of the objectives of your organization. While it prohibits further interstate expansion, it leaves the door wide open in most States for the expansion of bank holding companies within a State, regardless of what the branch banking laws of such State might be. It placed a responsibility upon each of the States to enact its own legislation, if it wishes to regulate the expansion of such companies within its borders.

A rather startling idea, which certainly seemed aimed at furthering the purposes of a proposed New York State bank holding company, was the publication by a well-known and highly respected bank stock analyst, claiming that Congress, by enacting the Bank Holding Company Act, had "given its blessing" to a new "triple banking system."

NEW TERM FOR EVADING

Completely misunderstanding the legislative history and the restraining purposes of the act, he enthusiastically hailed what he believed to be congressional approval of the "pole vaulting" of the State's branch banking laws. (Let me add that "pole vaulting" is a polite way of saying "evading.")

This authority on bank stock says: "The announcement of plans for a new bank holding company, First National Corp., marks the opening of a new era of banking in New York State, and, inevitably, the Nation."

He also stated, "The proposed bank holding company * * * now shows the way to leap across every wall from New York City to Plattsburg and from Albany to Buffalo. Indeed, the proposed first little jump has suddenly revealed greener pastures that have already forced other bankers and their stockholders to look to their own jumping shoes."

PREMATURE EXULTATION

That expert on bank stocks spoke a little too soon. He hadn't dreamed that in addition to Mississippi, Illinois, and Georgia, which States already had laws on their books, other States would be enacting legislation to clip the wings of any holding company movement.

Indiana and Kansas recently enacated laws that ban holding companies. Pennsylvania, New Jersey, Minnesota, and Massachusetts have had bills in the hopper.

Most surprising of all, probably, to the stock expert, was the action of New York State, as follows:

First in the antiholding company position taken by Governor Harriman and George A. Mooney, superintendent of banks.

Second, the enactment of a stopgap law aimed at preventing the proposed First National City Bank holding company from acquiring a bank in a district in which it could not legally operate branches.

Third, extension to this stopgap measure to keep it in effect until May 1, 1958. No, we are far from developing this so-called triple system of banking, thanks to the work that the independent bankers have done over the years and are still doing to fight this threat. But this inadequacy of present bank holding company laws is fact No. 2 that we must keep in sight.

CONCENTRATION BY MERGER

Fact No. 3 is the concentration of banking control through the mergers of banks. This merger trend has been accelerated in recent years.

Last year alone 103 banks absorbed 143 other banks-almost 121⁄2 banks gobbled up by each of the surviving banks.

In the 20-year period from December 31, 1936, to December 31, 1956, according to the FDIC, the number of banks in this country decreased from 15,679 to 14,166-a shrinkage of 1,513 banks, though approximately 1,000 new banks were authorized in this period.

This year-by-year shrinkage in the number of banks, in the opinion of the ABA, is nothing to be alarmed at. The ABA, to which we all belong, bitterly opposed the Celler bank-merger bill in 1955 as not needed. It declared "* * * that the number of individual banks in operation since 1939 has remained relatively stable; that this stable level in the number of operating institutions has adequately supplied the banking needs of the country essential to the enormous economic growth of the country during this period."

A decline of about 10 percent in the number of banks in 20 years, the ABA regards as "relatively stable," notwithstanding an "enormous economic growth."

WHAT LAW SAYS

The Financial Institutions Act of 1957, as approved by the Senate, declares that in addition to other factors, the respective Federal supervisory agencies in considering proposed mergers shall, and I quote:

"In the case of a merger, consolidation, etc., take into consideration whether the effect thereof may be to lessen competition unduly or to tend unduly to create a monopoly, and, in the interests of uniform standards, it shall not take action as to any such transaction without first seeking the views of each of the other two banking agencies referred to herein with respect to such question; and in such case, the appropriate agency may also request the opinion of the Attorney General with respect to such question."

Let me discuss this a little. You will note that there is no outright prohibition of any merger, merely the requirement the appropriate agency shall "take into consideration" competitive and monopolistic aspects and "in the interest of uniform standards" shall first seek the views of the other two banking agencies. The appropriate Federal agency at its discretion may also request the opinion of the Attorney General with respect to such question. What is the question? Whether the effect of a specific merger may be to lessen competition unduly or to tend unduly to create a monopoly? Does that mean monopoly is O. K. as long as it does not tend unduly to create a monopoly?

How would you define "unduly"? In the existing antitrust legislation, such as the Sherman Act and the Clayton Act, the word "unduly" does not appear. The word "substantially" has been passed upon as to meaning by the courts in a number of cases. It is safe to say that it will be years before the meaning of the word "unduly" can be determined. There will have to be a number of court decisions on this point.

You will also note that the provision which we have quoted does not say a word about any approval of any merger by the State supervisor of banks where a State bank is concerned. Here again the termite of Federal control continues to eat away at the vitals of our dual banking system.

FDIC MERGER STAND

The FDIC, in a letter signed by its general counsel, addressed to the Honorable Strom Thurmond, United States Senator from the State of South Carolina, has given assurance that it will not consent to any transaction under the merger section involving a State bank without the prior approval of the State banking authority. If such approval is required by State law.

While this is a recognition the State supervisor should have the authority to disapprove a merger, this is not enough to preserve the prerogatives of the State supervisory authorities and to maintain the autonomy of the States over banking.