Mr. SOLOMON. A very small percentage can control in a very large company. There is no question about it, Mr. Chairman.

Senator METCALF. So I wonder if you would explore some others? Do you have that information? Do you have available information as to stockholders of these companies?

Mr. SOLOMON. I don't think we would have it other than as requested by these reports.

Senator METCALF. You have never requested?

Mr. SOLOMON. No; I don't believe we have, Mr. Chairman. We do not have it in any systematic way. We might have it just in an isolated case where the examiner would know that a certain small group happened to control an institution. I don't believe we would have this on a systematic basis.

I think it certainly can be considered whether the scope of inquiry might be enlarged.

Senator METCALF. When the examiner reports come in, doesn't he give you a list of the stockholders of the bank?

Mr. SOLOMON. The principal ones; only the principal ones.

Senator METCALF. That is only the 5 percent?

Mr. SOLOMON. It would not even be as precise as that. It would be what seems to the examiner necessary to inform the office about what is the ownership and control of the bank.

Senator METCALF. In view of the fact that not only in banks, but in every large corporation, very small amounts of stock are sufficient. to exercise control, I think that most of us would on this committee want you to explore the possibility of going below the 5 percent reporting limitation and in giving yourself, for your own benefit, greater information and greater latitude.

Mr. SOLOMON. That will certainly be done, Mr. Chairman.

Senator METCALF. Is there any reason why the names of these directors and officers and principal stockholders should be kept confidential?

Mr. SOLOMON. No; I do not know of any reason. That information in the Y-6, of course, is made public. I don't think most banks really have any desire to keep that secret. In fact, they usually like to sort of parade the information to indicate that they have a very strong board of directors. They will often use it in their public advertisements. So I don't think there is any intention of keeping the directors, at least, secret. Perhaps larger stockholders could be a different matter. Senator METCALF. I don't know where to draw the line. Mr. Smith suggested that we don't want to have every juvenile court and every newly created affiliation exposed in the publication, but on the other hand, some of the work that you have done indicates possibilities for

abuse.

Certainly that sort of conflict of interest that is demonstrated by some of the directorates of the bank holding companies wouldn't be tolerated in Government.

Someone that had to take a job in the executive department downtown couldn't be confirmed without relinquishing some of those responsibilities and at least there has to be an exposure of people in the legislative branch of various potential conflicts.

I can agree that maybe someone can sit as a director of the bank and be a director of the bank and then move over to the oil company

and be a director of the oil company and move down to a drilling company and be a director of the drilling company.

But it is pretty hard, human nature being what it is. So at least we want to know and I think that if you will look into who owns the holding companies, it will be a great service to the people of the country.

Outside of the bank holding companies, what are your reporting requirements?

Mr. SOLOMON. We have the reporting requirements on the State member banks that have 500 stockholders or more which is approximately 80 banks outside of the holding companies.

Senator METCALF. Those are the banks that you referred to? Mr. SOLOMON. Yes, Mr. Chairman. We have that requirement. Mr. TURNER. Can you find the 30 largest holders of each of those 80 banks? Do you have that information?

Mr. SOLOMON. That is not available. It is, as I say, rather parallel to that of the SEC-stated in the act actually. It is 10 percent or more except that an acquisition of 5 percent or more must be reported. Senator METCALF. Some of that would be available, wouldn't it, under the terms of some of the State banking acts?

Mr. SOLOMON. I don't think many States would require very much disclosure, Mr. Chairman. It would vary as you say from State to State. With 50 States, you never know for sure exactly what the total requirements might be.

I don't think many States have very extensive requirements of this kind. The largest 20 or 30 stockholders might show up by these figures of 10 percent or 5 percent plus the holdings of officers and directors, but I don't believe that at the present time there is a specific requirement requiring the aggregation of the 20 or 30.

Senator METCALF. It would be pretty hard to get the 30 top stockholders if you only require one who owns 5 percent.

Mr. SOLOMON. Correct-even though the holdings of the officers and directors could add something to the 5-percent holdings.

Mr. TURNER. The Securities and Exchange witness testified that he would go back to the SEC and look into and develop a means of reporting which would include 30 largest stockholders, that SEC had no legislative impediment or any injunction against going down below the 10 percent and the 5-percent requirements.

He saw no legislative injunction there. Do you have any legislative injunction against looking at the 20 or 30 largest holders?

Mr. SOLOMON. I have not really explored this enough to have a positive opinion. I would doubt that there would be any legal difficulty with it. I would imagine it would be quite possible.

Mr. TURNER. So you are going back to the Federal Reserve Board with a recommendation that has been developed here, I take it, that you will look into that and see if you can't develop that kind of information?

Mr. SOLOMON. It will very definitely be explored; very definitely. Mr. TURNER. And also to explore the similar form Y information as to affiliates of officers and directors for the State banks reporting? Mr. SOLOMON. Surely.

Mr. TURNER. Similar public reporting of these affiliations which I must say, in looking it over, I find to be far different from the

limited information I was able to obtain from Moody's and Standard & Poor's.

Senator METCALF. That is more comprehensive.

Mr. SOLOMON. Yes; it is quite comprehensive as you say.

Mr. RYTER. Earlier we asked Mr. Smith about the possibility of the regulations in banks in accordance with size, for instance. You have some of the largest holding companies and largest banks.

Is it your feeling that similar compilation should be made in regulations to reflect those banks with assets over $1 billion or assets over $20 billion? Is there a need for this kind of distinction?

Mr. SOLOMON. You certainly have to make some kind of distinction. Banks vary so enormously in size and the circumstances that surround the bank vary so tremendously when it is one size or a radically different size that we find you almost have to have different requirements.

We have simplified reporting forms, for example, for the smaller institutions. There has been an attempt over the years to have a certain uniformity in a lot of the reports for purposes of comparability. That gets to be pretty tough sometimes on the smaller bank that has to fill out a very complicated report.

Parts do not apply to it. They have to stop and puzzle over which parts do apply. I think wherever possible and where it will not interfere with uniformity of treatment, it is very desirable to have a different form-different reporting requirements to apply to banks of different size because they are so drastically different really in the way they operate and what affects them.

Mr. RYTER. Will you also respond to the question that was asked with regard to characterizing from your own personal experience the amount of time that directors spend on their chores, the manner in which they are brought to their responsibilities and the net effect this really might have on one possibility for illicit activities?

Mr. SOLOMON. Of course, the amount of time and the way different boards of directors operate will naturally vary very considerably.

Again, size of banks will make quite a difference. In the smaller bank the board of directors frequently will know the local borrowers very intimately and will have quite a part in making the loan decisions and things of that kind.

In the larger bank, just by force of circumstances, the directors have to confine themselves largely to questions of broad general policy. Mr. RYTER. In the larger banks? Excuse me. In the larger banks we have a great deal of documentation as far as the widespread participation of banks, especially the largest banks, in sitting on boards of directors and in participating.

How would you characterize their activities? Are they really the participants in terms of leading the audit committees? Do they travel with pen in hand in a pro forma type of fashion from checking off their meeting in a room so that they can acknowledge they have been there and participated in some sort of activity?

There has been a great deal of tension, I think, evolving in the last 6 months over what has been going on in Penn Central, what are the activities of the larger banks? Would you characterize that?

Mr. SOLOMON. I think it would be very difficult to generalize. It will vary so much, but I will say this, that when the chips are down and

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.