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business of all banking, not only the powers of bank holding companies. The socalled "Laundry List" set forth in the bill either eliminates, restricts or raises substantial questions as to any bank engaging in underwriting, in issuing insurance, the travel business, auditing and accounting, data processing services and leasing property.

The Pennsylvania Bankers Association Executive Committee takes the position that reasonable controls for bank holding companies are desirable-but that such legislation should not apply to banking generally. In our view, a sound bill would acknowledge the traditional propriety of banks, including bank holding companies, to engage in activities which are related to banking or finance and which serve the best interest of our customers and our communities.

Will you kindly include the Pennsylvania Bankers Association's position on H.R. 6778 in the hearing record. Chairman Sparkman has advised me that the record will be held open until June 4, 1970.

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DEAR SENATOR: We are writing with respect to H.R. 6778, a bill to amend the existing Federal Bank Holding Company Act (the "Act") and, specifically, with respect to Section 2(h) thereof, which provides that certain foreign transactions will be exempt from the prohibitions of the Act.

If the scope of the Act is expanded to cover "one bank holding companies," many foreign banking operations will fall within its terms and their foreign activities will become subject to regulations by the United States Federal Reserve System. Surely this result cannot be seriously intended since it would invite the exodus of foreign capital from this country and the passage of retaliatory legislation by foreign governments.

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When the Act was adopted in 1956, few foreign banks had branches in the United States. Since 1956, at the request of Federal authorities seeking to enable United States banks to enjoy reciprocal privileges, several states, including New York, have permitted foreign banks to establish branches here. As a result, many foreign banks now have one or more branches in this country. Furthermore, due to the expansion of multi-national commerce, many foreign companies are now party to transactions that represent "doing business" within the United States.

The purpose of Section 2 (h) is to prevent domestic enterprises from avoiding the provisions of the Act by the expedient of incorporating abroad or by consummating transactions abroad. In recognition of the fact that the Section, as drafted, seemed to encompass truly foreign enterprises, and to prevent such an undesirable result, a proviso-the portion of the text with which we are now concerned was added to the law. However, the language of the proviso was narrowly framed, since it was drafted at a time when the Act regulated only multi-bank operations within the United States and at a time when multinational business transactions occurred with a lesser frequency than they do today. On such terms, a narrow proviso was adequate to exclude freign enterprises. In view of the imminent expansion of the scope of the Act and in view of the greater frequency of transactions in the United States involving foreign companies, there is substantial danger that foreign enterprises, sought to be excluded by the proviso, may yet fall within the terms of the Section. In view of these changes, the present wording of the proviso must be recognized as far too narrow. Its relief is available to a foreign holding company only (1) if that company is engaged in "the banking business" and if it proposes to acquire shares of a company that is "[2] organized under the laws of a foreign country... [3] [which] does not do any business within the United States."

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We represent Israel Discount Bank Limited (herein "IDR"), which operates 116 branches in Israel and two branches in the United States. As is customary in Israel and Europe, IDB has subsidiaries and affiliates which provide intermediate and long-term capital for industry, much like our Small Business Investment Companies and Edge Act Corporations.

PEC Israel Economic Corporation, a Maine corporation (herein "PEC"), was former in 1926 to provide capital for companies (or for divisions of companies) which are engaged in business solely in Israel. Since its organization, PEC has acted exclusively as a vehicle by means of which financial resources might be supplied for the economic development of Israel.

IDB has felt for some time that PEC, due to the nature of its activities, would effectively complement its banking operations in Israel and over the past few years IDB has acquired more than 20% of the Common Stock of PEC.

However, despite the fact that IDB is an essentially foreign banking operation, and despite the fact that PEC does substantially all of its business abroad, the current wording of Section 2 (h) of the Act would prevent IDB from holding shares of PEC, simply because PEC was incorporated in the United States. To overcome this obstacle, PEC would be pressed-not to change its activities—but to remove to Montreal, Bermuda or the Bahamas, thus to comply with the requirements of the Section 2(h) proviso, and thus to deny this country the fiscal benefit presently derived from PEC's deposits with United States banks, from its short term investments and from the business it gives brokers, lawyers, accountants, etc.

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In representing IDB we have given extensive thought to the proper role of Section 2(h), both with respect to its valid regulatory function and with respect to its potential effects upon the activities of foreign banking operations in the United States. We earnestly recommend that in any One Bank Holding Company bill, the Section 2(h) proviso (i.e. the "exempting clause") should be amended in the following ways:

1. The requirement that the holding company, itself, be “engaged in the banking business" should be eliminated. It serves no practical purpose and creates unnecessary ambiguity. We do not believe that it was intended to be read literally, i.e. that the acquiring entity, itself, be engaged in the banking business, since it would not be logical to relinquish United States jurisdiction in the event that the acquiring entity is a bank while claiming jurisdiction in the event it is not. (If a distinction is to be made at all, surely it should be to the opposite result.)

Furthermore, we are advised that there is concern that the Section 2(h) proviso as presently worded may be construed to require that "the banking business" conducted overseas conform to United States concepts of banking, thereby overlooking the fact that foreign banks generally engage in activities which are beyond the scope of American banking practices. Surely we should not interfere with overseas banking activities of foreign banks.

If Section 2(h) is to be interpreted so restrictively, the exemptory proviso of Section 2(h) will not be available to a foreign holding company which was not, itself, a bank and furthermore, would not even be available to a bank, unless it was engaged principally in activities which were consistent with United States banking practices. Such an arbitrary distinction and the extra-territorial extension of the United States banking concepts are economically absurd, and only serve to invite retaliatory legislation against United States banks throughout the world.

2. As Section 2(h) is now drafted, the availability of the exemption turns on a company's place of incorporation rather than on the place in which it conducts its business. Surely, it cannot be to the advantage of the United States, on the basis of this economically meaningless test, to drive companies like PEC out of the country. As pointed out above, Section 2(h) was drafted in order to assure that economic realities, rather than artificial formal distinctions, would dictate applicability of the Act.

3. In view of the fact that multi-national transactions become every day more frequent and, in view of the United States' current need to encourage capital flow into this country, the requirement that a potential subsidiary “not do any business within the United States" must be regarded as too rigid. Surely it should be sufficient that the principal activities of the subsidiary are conducted abroad or, if some absolute test is deemed necessary, that 75% of its operating assets are located outside of the United States.

Accordingly, we recommend that Section 2 (h) read as follows:

(h) The application of this Act and of section 23A of the Federal Reserve Act, as amended, shall not be affected by the fact that a transaction takes place wholly or partly outside the United States or that a company is organized or operates outside the United States: Provided, However, That the prohibitions of section 4 of this Act shall not apply to shares of any company [organized under the laws of a foreign country that does not do any business within] engaged in business principally outside the United States, if such shares are held or acquired by a bank holding company [that is principally engaged in the banking business] the principal activities of which are conducted outside the United States.

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The present state of the legislation seemed the appropriate time to put the foregoing considerations before you. We are, of course, available to meet with you or to make a more formal or detailed presentation of these considerations should you think they would be helpful.

Very truly yours,

ROBERT M. KAUFMAN.

PROVIDENT NATIONAL CORPORATION,
Philadelphia, Pa., May 18, 1970.

Hon. JOHN J. SPARKMAN,

Chairman, Committee on Banking and Currency,
Senate Office Building, Washington, D.C.

DEAR SENATOR SPARKMAN: In connection with the hearings of your Committee on the above Bill, we wish to call to your attention the need for differentiating land title insurance from other kinds of insurance for purposes of bank holding company regulations. This is of direct concern to our corporation because, in addition to our ownership of Provident National Bank, we also own Commonwealth Land Title Insurance Company.

Our concern arises from the fact that the present Bill, H.R. 6778. would prohibit holding companies from writing or selling any and all kinds of insurance. apparently including land title insurance, whereas the arguments advanced in support of the prohibition are related only to life and casualty insurance and would not apply to land title insurance. Indeed, the business known as land title insurance is primarily a service business, not really an insurance business in the true sense. More than 95% of the premiums goes to pay for such services as title abstracting (to detect defects in title and outstanding encumbrances), conducting settlements, disbursing funds, and recording deeds, mortgages and other instruments. Less than 5% goes to pay for title losses.

The points supporting this position are set out in the enclosed memorandum. They can be summed up as follows:

The House debate shows that the Representatives who voted to bar holding companies from selling or writing insurance did so for two reasons. First, they were worried that if the holding companies were permitted to sell life and casualty insurance as agents, they could take away the business of independent insurance agents. This the Representatives considered to be unfair competition. Second, the Representatives were worried that if the holding companies were permitted to write insurance as principals, they would acquire insurance companies as well as banks-which the Representatives thought would produce excessive concentration.

Neither of these worries has any relevance to land title insurance.

There can be no unfair competition. The independent insurance agents whose economic well-being was of concern to the House sell life and casualty insurance but they do not sell title insurance: their interests are not threatened by the activity of bank holding companies in the titie insurance field.

The concern about economic concentration does not apply to title insurance, since the assets of title insurance companies are about % of 1% of the assets of life insurance companies and less than 1% of 1% of the assets of commercial banks.

While we recognize the desirability of bank holding company regulation, we urge your Committee not to go beyond the extent necessary to prevent unfair competition or excessive concentration. It is important to allow bank holding companies-particularly those owning smaller banks-to develop a wide range

of financial activities so that they can compete with larger institutions in attract-
ing customers and personnel and achieving economies of scale. As Senator
Brooke has said, the legislation "must strike a sensitive balance between anti-
competitive abuses and legitimate competition."

Our own company is a case in point. Our bank, Provident National, is smaller
than four other banks in Philadelphia and very much smaller than the big
banks in New York, Chicago and California. It cannot match the largest banks
in such matters as the number of their overseas branches or the size of their
lending limits. But for many years it has been one of the leaders in the specialty
field of construction lending. From this base we hope to develop a broad line of
real estate services which will be fully competitive.

In Provident's list of real estate services, title insurance has played an im-
portant part since the late 1920's, when Provident's predecessor, Provident
Trust, acquired a predecessor of Commonwealth. The title abstracts produced
by the land title insurer enable buyers and builders to avoid or cure defective
titles before they invest their money in the property. The title company's settle-
ment services assure purchasers, sellers and mortgagees that funds are properly
disbursed and conveyances are properly recorded.

The real estate services offered through our commercial bank and our title
company will benefit r.ot only our company, but also the community. You your-
self have noted the major part commercial banks have to play in meeting the
nation's housing needs, and Secretary Romney has welcomed the pledge of the
American Bankers Association (to which our bank has contributed its share)
to increase commitments for residential mortgages by an extra $1 billion. We
believe that our title services will enable us to make a more significant contribu-
tion to this effort.

To sum it up, as our bank increases its activity in construction lending and
residential mortgages, we should be permitted to offer ancillary services such
as those included in the business of land title insurance. It would be unfortunate
if title insurance, which is a logical activity for bank holding companies, were
unintentionally barred by the blanket prohibition in H.R. 6778-which is actu-
ally directed at other kinds of insurance.

We are sending copies of this letter and the accompanying memorandum to
each member of the Committee, and also to our Pennsylvania Senators. In view
of the fact that title insurance is a specialized service which will not be of wide-
spread interest to bank holding companies, we do not ask for an opportunity to
supplement these documents with oral testimony. We would, of course, be happy
to provide additional information or to appear before the Committee in person
if desired.

Sincerely yours,

WILLIAM G. FOULKE, Chairman.

MEMORANDUM FROM PROVIDENT NATIONAL CORP.

Provident National Corporation ("PNC") submits this memorandum for the
consideration of the United States Senate Committee on Banking and Currency
in connection with the proposed legislation to regulate one bank holding com-
panies. PNC is a one bank holding company organized in 1969 to acquire the
stock of Provident National Bank of Philadelphia and the stock of Common-
wealth Land Title Insurance Company. The purpose of this memorandum is to
differentiate land title insurance from other kinds of insurance and to show that
the considerations which have been advanced to support prohibition of bank
holding company activity in life and casualty insurance do not apply to land title
insurance. Consequently, bank holding companies should be permitted to oper-
ate in the field of title insurance, subject only to such regulation as may be
generally applicable to all their activities.

H.R. 6778, passed by the House of Representatives, provides in general that
bank holding companies and their subsidiaries may carry on any activities of a
financial or fiduciary nature which the Federal Reserve finds to be functionally
related to banking and in the public interest. PNC does not take issue with this
provision. However, the Bill does not stop at this point. Instead, it proceeds to
list a number of specific activities which, according to the House of Representa-
tives, cannot ever be in the public interest when carried on by bank holding

45-819-70-pt. 247

companies or their subsidiaries. Among these prohibited activities is "providing
insurance either as principal or agent.""

The intention of this memorandum is not to debate the merits of including a
list of prohibited activities in the legislation, but rather to show that if such a
list is to be included, the list should not prohibit title insurance.

In support of its position, PNC makes the following points:

(a) In providing title insurance, bank holding companies are not com-
peting with the independent insurance agents whose economic well-being
was a matter of concern to the House of Representatives.

(b) The combination of commercial banking and title insurance will not
result in a significant concentration of economic resources, which was
another concern of the House.

(c) Banks in Philadelphia and elsewhere have been active in land title
insurance for many years, and there are functional relationships between the
title business and commercial banking.

(d) Title insurance is sufficiently different from life and casualty insur-
ance to justify treating title insurance as a separate category for legislative
purposes.
These points are covered in more detail in the following sections of this
memorandum.

THE LAND TITLE INSURANCE BUSINESS

Title insurance was developed in the latter part of the nineteenth century to
meet the needs of purchasers and mortgagees for protection against title defects
and encumbrances. Before land is purchased or a mortgage is created, the title
company searches the public records and prepares a title abstract or certificate
showing the record ownership, restrictions on use, liens and encumbrances, out-
standing interests of third parties, and any other title objections. The seller or
mortgagor then cures as many of these objections as possible; and, if the buyer
or mortgagee is satisfied, the transaction is settled.

The settlement may be quite simple, as in the case of a purchase of a single
residential property, or extremely complex, as in the case of the assemblage of
multiple parcels for commercial development with the simultaneous payment and
discharge of preexisting liens and creation of new liens to secure the purchase
price. Typically, the title company provides the facilities, supervises the settle-
ment, assists in apportioning current taxes and other charges, disburses the
funds (often holding a portion in escrow pending removal of an objection) and
records the conveyances.

After settlement, the company issues a policy indemnifying the purchaser or
mortgagee against loss from title defects or encumbrances not disclosed by the
company's search. While generally called an insurance policy, this document
could well be described as a title guarantee, since it is really a guarantee of the
accuracy of the company's title search.

Title companies operate in more than one locality, often in more than one
state. For example, Commonwealth and its subsidiaries are licensed to do busi-
ness in 42 states and the District of Columbia, Puerto Rico and the Virgin
Islands. The Commonwealth companies offer their services through 47 offices
and some 600 agents. They also use about 5500 approved attorneys whose services
are limited to examining and preparing abstracts of title.

Financial information with respect to the title insurance industry can be
obtained from a handbook entitled "Title Insurance Companies" published by
Philo Smith, Landstreet & Co., Inc., 460 Summer Street, Stamford, Connecticut
06901, Library of Congress Catalog Card No. 63–20132. This handbook lists 45
title insurance companies with assets ranging from less than $500 thousand to
more than $300 million. Twenty of these title companies are owned by parent
corporations in other fields, the list of parents including bank, insurance and
financial holding companies; insurance companies; realty companies; banks and
conglomerates.

1 The bill sets forth certain exceptions to this prohibition but they are not germane
to the subject matter of this memorandum.

2 These agents are specialists in the title business. They are not to be confused with
the agents selling life and casualty insurance referred to in the following section of
this memorandum.

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