supervisory action has to be very firmly taken, the directors are very definitely the ones called on the carpet and the ones that are held to

account.

If it is necessary to get correction and correction is not obtained through the executive officers of the bank, the supervisor will go to the board of directors and that is where the action finally will have to occur because ultimately those members of the board of directors, although they sometimes may forget it, are personally liable for the actions of that bank.

When this is called to their attention forcibly, as on rare occasions it has to be, that is the way the final action usually is brought about. Senator METCALF. Thank you very much.

Thank you, Mr. Solomon, for coming to the committee. Thank you for your cooperation with the staff.

We look forward to continued cooperation and working together in this important area.

Mr. SOLOMON. We will be very happy to work with the staff and the committee. Thank you very much.

[The prepared statement of Mr. Solomon follows:]

PREPARED STATEMENT OF FREDERIC SOLOMON, DIRECTOR, DIVISION OF SUPERVISION AND REGULATION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Mr. Chairman, in response to your request of June 10, 1974, I am happy to submit the following summary of the activities of the Board, as a Federal regulator of banks, pertaining to the collection, tabulation, and publication of information from banks and other corporations and private organizations under its jurisdiction. It is our understanding that the request is in connection with a current study of these two subcommittees pertaining to disclosure of corporate ownership. It is also our understanding that you are especially interested in our efforts to obtain data on ownership and control of banks and bank-holding companies, major shareholders and their voting rights, major debtholders, direct and indirect, interlocking directorates, and the operating and ownership structure of such organizations.

At the outset, it might be helpful if I very briefly review the Board's general statutory responsibility with respect to organizations under its jurisdiction.

As you know, the Federal Reserve Act charges the Board with the responsibility for the examination and supervision of all Statechartered banks which are members of the Federal Reserve System. As a matter of policy, each State member bank, including its trust department, is examined at least once each calendar year by examiners for the 12 Federal Reserve banks. As of December 31, 1973, there were 1,076 State member banks with deposits totaling approximately $131 billion or about 19 percent of the total deposits held by the some 14,000 commercial banks in the United States.

Under the Bank Holding Company Act of 1956, as amended, the Board has administrative responsibility and authority for approving or denying (1) formations of bank-holding companies and (2) expan

sion of bank-holding company activity through stock acquisitions of banks and nonbanking organizations and through direct business undertakings. It also has responsibility for determining, within general congressional guidelines, permissible nonbanking activities in which bank-holding companies may engage. As of December 31, 1973, there were 1,677 registered bank-holding companies controlling 3,097 banks with total deposits of some $447 billion or about 65 percent of the total deposits of all commercial banks.

In fulfilling its supervisory role with respect to each bank and bank-holding company under its jurisdiction, the Board periodically collects from each organization various data pertaining to their finances and organizational and operating structure. As I will indicate later, portions of the collected data are treated as confidential material and certain portions are published or are made available to the public upon request.

EXAMINATION OF STATE MEMBER BANKS

Through the bank examination process, a substantial amount of data is collected to assist the examiner in charge in evaluating the operations and condition of each bank, in appraising its management, and in determining compliance with banking laws and regulations. Some of the information collected pertains to ownership and control of the bank, to other outside business and commercial interests of officers and directors, and to holders of debt instruments issued by the bank. The extent to which data is collected by the examiner varies from bank to bank depending on the circumstances and no rigid format is followed in determining the exact data to be compiled in each bank. The nature and extent of the information to be compiled is left to the discretion of the examiner. Much of the data collected is not tabulated in any form and remains in the examiner's workpapers. I have submitted, along with a copy of this statement, a reproduction of the formal, preprinted report of examination used by examiners throughout the Federal Reserve System. For your convenient reference, I direct your attention to pages numbered as follows: Page 5(e)-Extensions of credit to officers, directors and employees and their interests;

Page 10-Information in connection with management;
Page 12-Related organizations;

Page A-Officers and employees;

Page B-Directors;

Page C-General information and management and control;
Page C(a)-Relations with affiliated organizations;

Page E-General remarks.

As indicated, these are the pertinent pages of the report for which any of the relevant data collected during the examination would be compiled.

As you are aware, the Federal supervisory authorities regard the report of examination as confidential and no information in the examination report of a bank is released to the general public.

SECURITIES EXCHANGE ACT DISCLOSURE REQUIREMENTS FOR STATE

MEMBER BANKS

The Board's regulation F which implements the disclosure procedures applicable to securities issued by State member banks pursuant to sections 12(a) or 12(g) of the Securities Exchange Act of 1934, as amended, requires the periodic filing of various financial and other reports by State member banks with 500 or more shareholders. These reports include a registration statement and annual and quarterly reports disclosing various financial statements and other information on the bank's ownership, organizational structure and operations. In addition to the reports filed by the bank, regulation F requires the filing of reports on beneficial ownership of stock of State member banks registered pursuant to section 12 of the act by officers, directors, and other stockholders owning 10 percent or more of the outstanding shares of a State member bank. Such insider reports are filed each month in which changes in beneficial ownership occurs. Insider ownership is also required to be listed in proxy statements for annual and special meetings transmitted to stockholders prior to each such meeting. Further, within 10 days of acquisition by any person of 5 percent or more of any equity security of a State member bank registered pursuant to the act, a statement of information is required to be filed by such person with the bank, with each stock exchange where the security is traded and with the Board. In addition, any person making a tender offer for any class of equity security registered pursuant to the act that would result in 5 percent or more beneficial ownership is required to file with the Board a statement of information and copies of such offer at the time it is published or sent to security holders. A copy of the Board's regulation F and the relevant reporting forms and instructions have been previously submitted to the subcommittee with copies of my statement.

All information filed by State member banks (approximately 80 of the 1,076 State member banks) under regulation F regarding a bank security registered with the Board is made available for inspection by the public.

TRUST DEPARTMENTS OF STATE MEMBER BANKS

For the past 5 years, the Board has participated with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation in the collection and publication of summary data on trust assets administered by insured commercial banks. These data are reported annually in a joint publication entitled Trust Assets of Insured Commercial Banks. A copy of the latest publication of this release was also submitted earlier with my statement.

In this connection, and as you are well aware, there has been a growing interest during the past year or so on the part of Congress and others on the advisability of requiring large institutional investors including bank trust departments to disclose certain equity holdings. and transactions. We are aware of two bills presently under con

sideration by Congress including one recommended by the Securities and Exchange Commission. If enacted, either of the two would require at least quarterly reports of equity holdings and transactions.

A proposal by the Comptroller of the Currency to amend that Office's Regulation 9 in order to require similar disclosure by national banks was recently issued for comment by interested parties. The Board is studying the matter but has not taken similar action. To assist us in considering the proposal we have asked and are being supplied with copies of all comments received.

REPORTS OF CONDITION OF STATE MEMBER BANKS

As you are probably aware, all State member banks are required to submit a report of condition on four occasions during each calendar year (June 30, December 31, and two are unannounced) and an income report at the close of each calendar year. The condition report consists of a rather detailed balance sheet of the bank's resources and liabilities. Each of these four condition reports are required to be published by the bank in a local newspaper. The annual income report is a profit and loss statement, including the breakdown of the major categories of income, expenses, non-recurring charge-off's and recoveries, and dividends paid. Copies of both the income and call reports of individual banks are made available to the public upon request. I have furnished the subcommittee staff with copies of the preprinted condition and income reports and instructions for their completion.

CHANGES IN CONTROL OF STATE MEMBER BANKS

Section 7 of the Federal Deposit Insurance Act requires that the chief executive officer of each State member bank report to the Board of Governors the details of any change in the ownership of the outstanding voting stock which will result in control, or in a change in control, of the bank. Control as defined in the statute "means the power to directly or indirectly direct or cause the direction of the management or policies of the bank." Ownership changes of less than 10 percent are excluded from the required reports as not constituting a change in control.

In addition, the statute requires a similar report to the Board whenever an insured bank makes a loan secured, or to be secured by 25 percent or more of the outstanding voting stock of a State member bank.

The details of the reports of changes in control or loans secured by bank stock as required by the Act to include the following:

(a) Number of shares involved,

(b) Names of the sellers (or transferors),

(c) Names of the purchasers (or transferees),

(d) Names of the beneficial owners if the shares are registered in another name,

(e) Purchase price,

(f) Total number of shares owned by the sellers (or transferors), the purchasers (or transferees) and the beneficial owners both immediately before and after the transaction, and in the case of a loan,

(g) Name of the borrower,

(h) Amount of the loan, and

(i) Name of the bank issuing the stock securing the loan and number of shares securing the loan.

In addition, the statute requires that the reports contain such other information as may be available to inform the Board of the effect of the transaction upon control of the bank whose stock is involved.

From the reports received, the Board makes available to the public the following six items regarding the transaction:

(1) Name and address of bank,

(2) Date of transaction,

(3) Total voting stock outstanding,

(4) Total number of shares involved in the transaction,
(5) Names of sellers, and

(6) Names of purchasers.

CHANGES IN CONTROL OF BANK HOLDING COMPANIES

The Board, acting pursuant to the Bank Holding Company Act and Regulation Y, has determined that a bank holding company will report each change in ownership or control of voting shares of the holding company that will result in a change in control of the company. The purpose of these reports is to enable the Board to determine the extent to which there are combinations of banking and commerce and concentrations of banking resources that are not prohibited or regulated under the Bank Holding Company Act.

Accordingly, each bank holding company is required to report to the Board changes in the ownership or control of the outstanding voting stock that will result in a change in control of the company. For purposes of these reports, the term "control," means control as defined in the Bank Holding Company Act and the Board's Regulation Y. A change in control of less than 5 percent of the voting shares of the company is not required to be reported.

The reports submitted are to contain the following items of information:

(1) Number of shares involved,

(2) Names of the transferors.

(3) Names of the transferees,

(4) The purchase price of the shares,

(5) Total number of shares held by the transferors, and

(6) Total number of shares held by the transferees.

If either the transferors or the transferees are holding title on behalf of someone else, the names of such beneficial owners are to be given.

ADMINISTRATION OF BANK HOLDING COMPANY ACT OF 1956

In administering the Bank Holding Company Act of 1956, as amended, the Board requires all bank holding companies to file a registration statement and an annual report. Various formal application forms for transactions requiring Board authority under the Bank Holding Company Act are provided bank holding companies. The Board makes available to the general public all information, except certain limited confidential information, submitted by bank holding companies in registration statements, annual reports, and applications for Board action.