« 이전계속 »
not know, but it is my understanding that they do not plan to act as clearing agencies. Perhaps someone possibly more connected with the plans might give you a better answer on that.
Mr. GOLDWATER. Most of your clearing is done by banks, isn't that correct?
Mr. SOLOMON. I don't know whether one would say that most of it is. Of course, the clearing on exchanges is handled through the exchange and through subsidiaries of exchanges. A great deal of the over-the-counter and the bonds and municipals clearing, a great deal of that, as I understand it, is handled by banks.
Mr. GOLDWATER. So, in essence, you would not go along with H.R. 5050 in its approach to registering these depositories or clearinghouses?
Mr. SOLOMON. I believe that is correct, Mr. Congressman, the Board would have grave reservations about that.
Mr. GOLDWATER. Because they are being recognized as banks and fulfill many of the functions of banks should I assume you are recommending that there be more of a cooperative effort between the SEC
Mr. SOLOMON. And the bank supervisors, yes.
Mr. Solomon, I would like to refer you to the quoted portion of the Board's position which is contained in your statement on page 6, which asks that the Board be given authority to review exchange rules-excuse me, Commission rules applicable to clearing agencies or depositories which are organized as banks and make it mandatory upon the Commission in order to make those rules effective to secure the concurrence of the Board.
Am I correct that this would give the Board a veto authority over any Commission rule applicable to a bank engaged in these functions? Is that what the Board is asking for?
Mr. Solomon. I suppose that one could put it that way, but I think one has to assume that both the SEC and the Board would operate in a responsible fashion and I would not expect any such sharp issue to arise unless it was of extreme significance and importance.
Mr. Curtis. Let me discuss it from this standpoint. You have cited as a precedent for the committee the mechanism used in the Truthin-Lending Act in which case the Board drafts the rules and the SEC is given the authority and responsibility to enforce these rules as they pertain to brokers and dealers. In that instance the SEC is not given nor do I know that they have ever requested the authority that they need concur in any regulations that the Board adopts applicable to brokers, and yet you have cited this to the committee as a workable mechanism. In particular, you refer to that portion of S. 2058 which establishes procedures for the mandatory consultation between the banking regulatory agencies and the SEČ. If the committee were to adopt that approach, why would it be necessary to go further and give to the Fed the right to veto SEC rules after consultation, after the opinion is sought?
Mr. SOLOMON. I can understand the question, Mr. Chairman, and I can see the problem that is being raised by Mr. Curtis. I think the difference—and obviously opinions can differ in an area like this, this is an area of judgment where reasonable people can have different viewpoints—I think the difference in the view of the Board is that the rules issued by the Board with respect to margin requirements deal with a small segment of the brokers' operation and all the rest of his business is untouched by those rules, whereas in the case of the securities depository, its whole operation would be governed by those rules of the SEC and, therefore, it becomes more important that the two be made to mesh much more thoroughly. This I think would be the answer I would give to the question.
Mr. Curtis. Let me ask about a different aspect of it. In the testimony before the subcommittee yesterday, the SEC indicated that it has had some second thoughts about the division of rulemaking responsibility contained in S. 2058 and they suggested it may be appropriate to delegate to the SEC authority to establish rules pertaining to safekeeping and custody but to permit the banking regulatory agency to establish additional and higher requirements as long as they are consistent with the minimal requirements established by the SEC.
That would have the effect, arguably would have the effect of giving the bank regulatory agencies an override so as to take more conservative measures to assure that these entities are operating in a safe manner. What would the Board's reaction be to that proposal, or what would your opinion be?
Maybe we could secure the Board's reaction to that proposal later.
Mr. Solomon. I don't think the Board has had an opportunity formally to consider it. My own reaction to it would be along this line. At first blush it has a great deal of appeal. Why not have the preliminary standards set by one group and, if somebody wants a higher standard, very well, let them just add to those requirements.
I think the difficulty of the thing is, as I say, we are dealing here not with one little segment of the operation of an institution, we are really dealing with the total operation and it isn't that simple, that you just lay on a requirement and you just build it a little higher. These things could come into conflict with each other and you can get problems of whether the income of the institution is to be spent largely in this area or largely in that area, whether it is to press forward in expanding its operations in order to be very quick in moving into an area or whether it should be more cautious in proceeding more systematically and with greater safeguards.
I think it would be fine if you could just treat these as additive one to another. Really, I don't think it is quite susceptible to that.
Mr. Moss. Mr. Solomon, we will ask that you direct this to the attention of the Board and inform the Board that we request their opinion.
Without objection, the record will be held at this point to receive it.
BOARD OF GOVERNORS,
Washington, D.C., October 3, 1973.
Interstate and Foreign Commerce, House of Representatires, Washington,
D.C. DEAR MR. CHAIRMAN: When I appeared before your Subcommittee on September 12, 1973, I was requested to obtain the opinion of the Board of Governors on the following question presented by Mr. Curtis :
20-306 O - 74 · 5 -- pt. 5
"In the testimony before the subcommittee yesterday, the SEC indicated that it has had some second thoughts about the division of rulemaking responsibility contained in S. 2058 and they suggested it may be appropriate to delegate to the SEC authority to establish rules pertaining to safekeeping and custody but to permit the banking regulatory agency to establish additional and higher requirements as long as they are consistent with the minimal requirements established by the SEC.
“That would have the effect, arguably would have the effect of giving the bank regulatory agencies an override so as to take more conservative measures to assure that these entities are operating in a safe manner. What would the Board's reaction be to that proposal, ***?"
The Board has considered this question and is sympathetic to the objective of providing the simplest and most effective methods of coordinating the efforts of the Securities and Exchange Commission and the bank supervisory agencies toward attaining maximum safety, soundness and effectiveness in the operation of those banking institutions that are engaged in some aspects of the processing of securities transactions.
The Board believes, however, that attainment of this desirable objective would not be facilitated by authorizing the SEC to establish rules regarding safekeeping and custody, and merely permitting the bank supervisory agency to establish additional and higher requirements as long as they are consistent with the minimal requirements established by the SEC. A difficulty inherent in this "additive" approach is illustrated by that portion of the proposal which would specify that requirements imposed by the bank supervisory authority must be "consistent” with those established by the SEC. While various safeguards respecting safekeeping or custody may be consistent with each other and merely cumulative, this is not always the case. One system or set of controls may differ from another in such fundamental ways as to present definite questions of consistency or inconsistency; and if one of these was required of a bank by a nonbank agency, it could raise difficult problems of possible conflict with the bank supervisor's responsibility to insist upon safeguards which the supervisory agency deems to be appropriate in institutions under its supervision. Accordingly, the Board would not favor the proposal in question.
At the time of my appearance before your Subcommittee, I was also requested to obtain the comments of the Board on the language of section 17A (q) (2) of the Bill, H.R. 16946, as passed by the House in the last Congress, which sets forth the duty of the SEC to rely on appropriate regulatory agencies for the conduct of routine or periodic inspections or examinations, but also authorizes the Commission to make certain special examinations or require special reports.
Upon considering the provision, the Board has no objection to what it understands to be the purpose of the provision, namely, to have the bank supervisory agency make regular examinations and require regular reports of banks that are subject to the legislation, but to authorize the SEC to make special examinations or require special reports, the expectation being that such special examinations or special reports would be resorted to only rarely and in rather unusual circumstances. The Board feels, however, that the language of the provision could be clarified to accomplish its purpose more clearly and there is attached draft language to that end." Very truly yours,
FREDERIC SOLOMON, Director,
Division of Supervision, and Regulation. Mr. CURTIS. You do mention the difficulty that is to be encountered in the SEC as to the interpretation or application of SEC rules. Would it be on the Board's recommendation that, if the committee were to assign this authority to the SEC, that they, at least in the statute, include some direction as to who is to be the determining and interpretative agency to define the application of the rules? Would this eliminate some of your coordination problem?
You speak on page 8, for example, that the banks engaged in these functions would be in a difficult position if they were caught between the bank regulatory agencies and the SEC. This type of regulation I am suggesting was contained in the report of the bill in the last Congress and resolved that difficulty in perhaps a way the Board would not find acceptable but at least it addressed the question.
1 See p. 1824.
Mr. SOLOMON. I think you have answered your question, Mr. Curtis. I think you would have a very difficult situation there if the Board in its posture of attempting to supervise a bank felt that a certain procedure should be followed or should not be followed, and the SEC in its position of issuing these rules were in a position to say it should be done or it should not be done. I think it would create a very difficult situation, as you have been good enough to suggest.
Mr. CURTIS. One last question. The bank regulatory agencies have overlapping jurisdictions and different functions with respect to entities for which they have the regulatory responsibility. For example, all national banks are required to be members of the Federal Reserve System and it is my understanding that the primary regulatory responsibility is focused in the Comptroller of the Currency in that case. Does the Fed maintain the right to conduct onsite inspections of all national banks and call for reports from these entities?
Mr. SOLOMON. The Board has legal authority to examine any national bank. It does not exercise that authority as a generality, almost never, as a matter of fact. The Board does receive reports of examination of national banks.
Mr. CURTIS. On what basis could the Board exercise that authority, need it make some kind of finding, or may it go in at will ?
Mr. SOLOMON. It may go in at will, but in practice that is not done, due to the close coordination of the agencies.
Mr. Curtis. Should the Board adopt your suggestion in this bill, with authority delegated to those entities organized as banks and should we require mandatory cooperation between the banks and the SEC, would the Board object to the SEC retaining the right to call for inspection and call for reports while requiring it to rely on the banking regulatory agencies for routine bank inspections ?
Mr. Solomon. I don't know what would be the position of the Board on that. I would think, speaking purely as a personal opinion, there probably would be no objection to that kind of thing so long as it was clear what the division of responsibility would be. I think we have to also bear in mind, when we are speaking of relations of different agencies, that a great deal depends on what has built up over the years. Through close cooperation built up over the year among the bank supervisory agencies, each is mindful of the responsibilities of the others.
That is why I say, although the Board has complete authority at will to examine any national bank, it virtually never does so because of this close working relationship, so a great deal depends not on the letter of the statute in many of these cases, but on what has developed over the years.
Mr. CURTIS. In this context, Mr. Chairman, I wonder if it would be possible to refer to the Board specifically the language that was contained in section 17A (9) (2) of the bill H.R. 16956 as reported by the committee in the last Congress and passed by the House which sets forth the duty of the Commission to rely on appropriate regulatory agencies for the conduct of routine and periodic inspections, but clarifies that the Commission shall have authority to make
special or other examinations and to require reports of such entities where the Commission determines that such action would be appropriate.
Mr. Moss. Mr. Solomon, the Chair would ask the staff to supply you with the language and that you submit it to the Board and supply their comments on that language to the committee for inclusion under reservation which will be made in the record at this point.
Mr. SOLOMON. We will be happy to do so.
POSSIBLE DRAFT LANGUAGE TO CLARIFY SECTION 17A (q) (2)
[Deletions shown eaneelled. Additions in italic.] “(2) In the case of a clearing agency, securities depository, or transfer agent for which the Commission is not the appropriate regulatory agency, the Commission shall rely to the fullest practicable extent on the appropriate regulatory agency for the conduct of routine, or periodic, of other inspections or examinations under this section, and for obtaining reports from such institutions; but except that, notwithstanding any provision of this section, the Commission shall have authority to make special or other examinations or inspections and to require special reports of such clearing agencies, securities depositories, or transfer agents in those situations where the Commission determines that such action would nevertheless be appropriate.
Mr. CURTIS. Thank you, Mr. Chairman.
If not, we ask Mr. Solomon, that the material be supplied promptly as the subcommittee wishes this bill to move to mark up as quickly as possible.
Mr. SOLOMON. Thank you, Mr. Chairman.
Mr. Moss. Our next witnesses before the committee, will be Mr. Herman W. Bevis, a member of the Banking and Securities Industry Committee, accompanied by Mr. Hamilton F. Potter, Jr., counsel, and Mr. Samuel B. Stewart and Mr. Joseph P. Coriaci of the National Coordinating Group for Comprehensive Securities Depositories.
Gentlemen, if you will come forward and take your seats.
STATEMENT OF SAMUEL B. STEWART, MEMBER, NATIONAL COOR
DINATING GROUP FOR COMPREHENSIVE SECURITIES DEPOSITORIES; ACCOMPANIED BY JOSEPH P. CORIACI, CHAIRMAN, WORKING COMMITTEE; HERMAN W. BEVIS, MEMBER, BANKING AND SECURITIES INDUSTRY COMMITTEE (BASIC); AND HAMILTON F. POTTER, JR., COUNSEL FOR BASIC
Mr. STEWART. Thank you, Mr. Chairman.
My name is Samuel B. Stewart and, as noted by the chairman, I am a member of the National Coordinating Group.
Mr. Chairman, members of the committee, I appreciate the opportunity to be here today on behalf of the National Coordinating Group in connection with H.R. 5050. As the chairman also noted, I am accompanied by Mr. Joseph P. Coriaci, vice president of the Continental