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Mr. SMITH. We do, in our examination report list the number of shareholders and concentrations of control, if any. We have, by practice, interpreted "concentration" as a list of those holding 5 percent or more of the outstanding shares. The names of these persons, together with the number of shares held and the percentage of outstanding shares this figure represents, are listed on page B of the report.

Also, in this same vein, part 15 of the regulations of the Comptroller of the Currency requires that each national bank must promptly notify the Comptroller whenever a change occurs in the ownership of its outstanding voting stock of sufficient magnitude to effect a change in control of the bank. Control is interpreted to mean possession, directly or indirectly, of the power to direct or cause the direction of management and policies of the bank.

We, of course, exercise our responsibilities under the Securities Exchange Act of 1934, which requires a reporting, with respect to banks which have assets in excess of $1 million and 500 or more shareholders, of the stock holdings of the bank's directors and principal officers, as well as holders of 10 percent or more of the stock. They are required not only to file an initial statement of beneficial ownership, but thereafter of any material changes in ownership.

Senator METCALF. Mr. Smith, Tuesday-and this is only an example-Ms. Bentley, Chairman of the Federal Maritime Commission, testified that they demanded a report from Matson and they wanted to find out whether the domestic company is entitled to the benefits that a domestic ship company has.

The report came in that it was a wholly owned corporation by another corporation. I said: "Who are the stockholders of that corporation?" They didn't know. It could be something else.

Throughout these hearings we have had information that the banks, either through nominees, mostly through nominees or street names, own substantial interests in all of the industries of the United States.

The final question is, Who are the principal stockholders of the bank? It would seem to me that that is your responsibility to find out and make public.

Mr. SMITH. Let's play that back a little bit. When you say banks are the substantial owners, you mean the trust department, for the benefit of some institution or individual. Today you would find that as to the ownership of the bank, most major national banks are subsidiaries of bank holding companies.

Other than the directors, qualifying shares, the ownership of the bank will be the holding company. If you are looking to the real ownership of the bank, you would have to look to the equity holders of the holding company.

Senator METCALF. Mr. Solomon is backing you up today. Maybe we can go into that.

Mr. SMITH. I didn't mean to make Fred's job tougher. It is nonetheless true.

Senator METCALF. It would seem to me that you have the power and the statute to require this information. The statute requires the bank to have it on file, and it would seem that it would be useful and valuable to not only the financial community, but the people of

America, to have you request this information especially from major national banks, have it on file, and have it available for public dissemination.

I see no reason why there should be any confidentiality in the names of the largest stockholders of a national bank.

I am told that in some of the States that that is done, and the banks are able to comply without any problems, and down in Texas-in Dallas County-even the county assessor demanded that and the Dallas banks complied, and he publishes a list of the largest stockholders, which we will enter at this point in the record. [The information referred to follows:]

OFFICE OF THE COUNTY CLERK,

RECORDS BUILDING, Dallas, Tex., December 26, 1973.

Mr. VIC REINEMER,

161 Russell,

Senate Office Bldg.,

Washington, D.C.

DEAR MR. REINEMER: Enclosed are sample copies of Dallas County tax roll information requested by you recently.

1. Letter requesting rendition of taxable assets.

2. Form used by Dallas County Tax Office.

3. Copy of State law on personal property of banks.

4. Copy of rendition made by a bank.'

If my office can furnish additional information in this regard, please let me know.

[blocks in formation]

GENTLEMEN: There is enclosed rendition form to be used to report taxable assets to the County of Dallas for this year. Also, please furnish two copies of stockholder's list that includes addresses and number of shares owned. These documents should reach our office prior to May 1st.

Your cooperation is appreciated and will insure that proper information is used in computing tax assessments.

Sincerely,

H. F. BROWNLEE, Supervisor, Personal Tax Department.

COPY OF TEXAS STATE LAW ON PERSONAL PROPERTY OF BANKS

CH. 6-PROPERTY SUBJECT TO TAXATION

ART. 7165. [7521] [5079] ASSESSMENT OF PERSONAL PROPERTY OF BANK, ETC. Every bank, whether of issue or deposit, banker, broker, dealer in exchange, or stock jobber, shall at the time fixed by this chapter for listing personal property, make out and furnish the assessor of taxes a sworn statement showing:

1. If a national bank, the president or some other officer of such bank shall furnish to the assessor of the county in which such bank is located a list of the names of all the shareholders of the stock, together with the number and amount of the shares of each stockholder of stock in said bank; and the shareholders of the stock in national banks shall render to the tax assessor of the county in which said bank is located the number of their shares and the true and full value thereof.

1 See staff note. p. 66.

All shares of stocks in national banks not rendered to the assessor of taxes in the county where such bank is located within the time prescribed by law for listing property for taxes shall be assessed by the assessor against the owner or owners thereof as unrendered property is assessed; but the tax roll shall show the name of the owner or owners thereof as per statement furnished by the president or other officers of said bank.

2. National banks shall render all other bonds and stocks of every kind, except United States bonds, and all shares of capital stocks or joint stock or stocks of other companies or corporations held as an investment or in any way representing assets, together with all other personal property belonging or pertaining to said bank, except such personal property as is specially exempted from taxation by the laws of the United States.

3. National banks shall be required to render all of their real estate as other real estate is rendered; and all the personal property of said national banks herein taxes shall be valued as other personal property is valued.

4. All other banks, bankers, brokers, or dealers in exchange, or stock jobbers shall render their list in the following manner:

(1) The amount of money on hand or in transit or in the hands or other banks, bankers, brokers or others subject to draft, whether the same be in or out of the State.

(2) The amount of bills receivable, discounted or purchased and other credits due or to become due, including accounts receivable, interest accured but not due, and interest due and unpaid.

(3) From the aggregate amount of the items named in the first and second of the last two subdivisions shall be deducted the amount of money on deposit.

(4) The amount of bonds and stocks of every kind, except United States bonds, and all shares of capital stocks or joint stocks of other companies or corporations held as an investment or in any way representing assets.

(5) All other property belonging or appertaining to said bank or business, including both personal property and real estate, shall be listed as other personal property and real estate. Acts 1895 p. 37; G.L. vol. 10 p. 767.

STAFF NOTE

The report of a Texas bank regarding its stockholders, referred to by County Clerk Ellis in his above letter, is retained in the committee files. The list identifies, by name, address, and number of shares, the 172 holders of the 100,306 shares of stock in Fair Park National Bank of Dallas, as of Dec. 31, 1972.

The size of holdings ranges from 5 shares to 23,800 shares. The three largest stockholders, which together held more than 40% of the stock, were:

Republic Bond & Securities, Republic National Bank, Dallas...
Hoblitzelle Foundation, James Dulworth, Box 5961, Dallas-

Fair Park Enterprises, Inc., 3300 Commerce St., Dallas....

The fourth largest stockholder, an individual, held 3,632 shares.

Sharea

23, 800

12, 936

6, 046

Senator METCALF. It would seem to me that as a regulatory officia1 in a central location, you should let us know who own these major banks.

Mr. SMITH. I will certainly take that under consideration. I will say that there is one other requirement of law-where there are so-called major changes in controlling interest, and that is not a very precisely defined term, the banks' management is to advise us once such changes of controlling interests occur. It is an interesting anomaly that we go to great lengths with respect to the formation of new banks to satisfy ourselves as to the integrity and financial competence, and so forth, of the organizers and owners of a newly organized bank.

Yet I have utterly no power with respect to a change of control. I suppose John Dillinger could come in and take control and I am helpless to do anything about it until he does something wrong in management of the bank. Then his past record is beyond my reach.

Senator METCALF. That is true, and I certainly sympathize with that quandary that you are in. I don't know whether we can do something by statute or what we should do.

Mr. SMITH. It is a matter that has been discussed in the past. One of the difficulties has to do with individuals' rights to transfer their property. If they have to go through some sort of approval process, then conceivably you could raise some constitutional questions about the legality of that process.

Senator METCALF. But as you have eloquently pointed out, a good deal of regulation is accomplished merely by disclosure and public information.

You said that the mood of the country is such that more and more evidence of where the financial control is located is part of the attitude we have in the country today. The people are demanding the right to know.

So even though you are sometimes powerless in some of these areas, at least if you let us know and let the people know, there will be automatic regulation.

In preparing for the report on disclosure, we wrote you last September, asking you to supply corporate affiliations of each principal officer and each director of certain named banks.

You went to your records and you could only give us the principal corporate affiliation of each director. In most cases, no affiliation with respect to the principal officer.

You indicated that trust department examiners obtained comprehensive information of such affiliations, but then we went to the Federal Reserve and they obtained full disclosure on their form Y-6.

For instance, there is one director here and you gave us five other corporate affiliations and the Federal Reserve found that that same director had more than 30 important, varied other affiliations, perhaps involving conflicts of interest. Some of them were with other banks. Mr. SMITH. We will take account of that, I can tell you.

Senator METCALF. Why can't you or why can't this information be available from you just the same as it is from the Federal Reserve?

Mr. SMITH. We have done something that was not for this purpose, I might say, not because of trust departments, but we have just in the past 2 weeks issued proposed regulations which will require national banks to maintain at head office the business affiliations of all directors and executive officers of the banks.

This will be on a far, far more comprehensive and detailed basis than I am certain even the Fed is doing today. This is the business affiliation defined in the broadest of terms, including the equity holdings of a wife or minor child, borrowings from corporations, and so forth.

That information is not intended to be publicly available. It is to be maintained at the bank for our use in examining the bank, to permit us to track in a more effective way self-dealing loans by the bank. In other words, loans made by a bank to the business affiliates of officers or directors of the bank. Such lending is in no sense unlawful, but we are convinced it is a category to which we need to give the greatest attention.

I think out of that disclosure, we will be able much more readily to answer questions that you have about the business affiliations of the bank directors.

Senator METCALF. What is your justification for regarding that information as confidential?

Mr. SMITH. Do you know of any business corporation today or any governmental agency that would require the public disclosure of every conceivable business affiliation of a director?

Senator METCALF. We try to get that in these regulated industries and you are dealing with banks which are at least

Mr. SMITH. Our disclosure for our purposes will go well beyond other directorships and corporate office holdings; it will go to equity ownership in a small business, a director's wife's interest in a business, a director's minor child interest in a business.

It seems to me there is some point beyond which the right of privacy of the individual also has some standing.

Senator METCALF. I completely agree. I completely agree with that. I feel that even in such things as utilities or communications systems. They are more strictly regulated, of course, than even the banks and real monopolies in the sense that there are just fewer of them.

There has to be a line drawn where we don't inquire into the privacy, and so forth. But when we have large blocks of stock held by people who also exercise large control in other related and sometimes competing industries, it would seem to me that it would be in the public interest to have that revealed and known.

We ran into all of this in the so-called investigation into the energy crisis. We found out that bank after bank would have someone on the board of Exxon and on the board of Mobil and on the board of one of the other of the large oil companies.

Then they say: "We can't reveal some of these things because of trade secrets." But up on the board of directors there sit these same individuals going from one director's meeting to another.

That sort of information and disclosure it would seem to me to be valuable, important, and significant in the life of the people of America. Mr. SMITH. Yes, Senator. I don't take issue with that observation. I would say that we are endeavoring in the same active regulations that went out with respect to disclosure of trust department holdings, to propose as a matter of regulation that all national banks operating trust departments establish policies and procedures designed to assure that trust department investments do not utilize nonpublic financial information.

That sort of policy and procedure, literally construed, would mean that a director of a national bank who, for example, served on the bank's commercial loan review committee, could not also serve on the bank's trust investment committee because he can't operate effectively as a review director on commercial activities of the bank without being acquainted with information not generally available to the public about a particular borrowing corporation. There is no way he can go over to the other committee and on another day say: "I don't know that."

In the course of developing these regulations, one senior trust officer said to me: "You are saying in effect that the chief executive officer of my bank may not serve on the trust investment committee."

I said, "That is exactly what I am saying." There is no reason for him to serve on the trust investment committee in the first place and, second, there is no way he can go into a trust investment committee denying that he has certain privileged information about a particular corporation. It is not human.

Senator METCALF. What did he say? Did he agree?

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