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SECURITIES ACTIVITIES OF COMMERCIAL BANKS

HEARINGS

BEFORE THE

SUBCOMMITTEE ON SECURITIES

OF THE

COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

UNITED STATES SENATE

NINETY-FOURTH CONGRESS

FIRST SESSION

ON

THE EXPANSION OF COMMERCIAL BANKS' SECURITIES BUSINESS OPERATIONS AND THE ELIMINATION OF BARRIERS BETWEEN THE BANKING AND SECURITIES INDUSTRIES

DECEMBER 9 AND 10, 1975

Printed for the use of the
Committee on Banking, Housing and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE

65-699 O

WASHINGTON : 1976

COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS

WILLIAM PROXMIRE, Wisconsin, Chairman JOHN SPARKMAN, Alabama

JOHN TOWER, Texas HARRISON A. WILLIAMS, JR., New Jersey EDWARD W. BROOKE, Massachusetts THOMAS J. MCINTYRE, New Hampshire BOB PACKWOOD, Oregon ALAN CRANSTON, California

JESSE HELMS, North Carolina
ADLAI E. STEVENSON, Illinois

JAKE GARN, Utah
JOSEPH R. BIDEN, JR., Delaware
ROBERT MORGAN, North Carolina

KENNETH A. MCLEAN, Staff Director
ANTHONY T. CLUFF, Minority Staff Director
STEPHEN J. PARADISE, A88istant Counsel

SUBCOMMITTEE ON SECURITIES

HARRISON A. WILLIAMS, JR., New Jersey, Chairman THOMAS J. MCINTYRE, New Hampshire EDWARD W. BROOKE, Massachusetts ALAN CRANSTON, California

JOHN TOWER, Texas ADLAI E. STEVENSON, Illinois

JESSE HELMS, North Carolina
ROBERT MORGAN, North Carolina

HOWARD A. MENELL, Assistant Counsel
CLIFFORD J. ALEXANDER, Assistant Counsel

(II)

CONTENTS

LIST OF WITNESSES

Page

8

16
88

168

TUESDAY, DECEMBER 9

Jeffrey M. Bucher, Member, Board of Governors, Federal Reserve System.

Edwin H. Yeo III, Under Secretary for Monetary Affairs, Department of

the Treasury; accompanied by Robert A. Gerard, Deputy Assistant

Secretary

Roderick M. Hills, Chairman, Securities and Exchange Commission.-

James E. Smith, Comptroller of the Currency; accompanied by Dean
Miller, Deputy Comptroller of the Currency for Trusts.

WEDNESDAY, DECEMBER 10
I. W. Burnham II, chairman of the board, Securities Industry Association;

accompanied by Edward I. O'Brien, president; Carl M. Mueller, vice
chairman of the board and managing partner of Loeb, Rhoades &
Co.; James W. Walker, executive vice president, Washington office

and Richard O. Scribner, senior vice president and general counsel...

Ray F. Myers, executive vice president and corporate counsel, Continental

Illinois National Bank & Trust Co., Chicago; accompanied by

Robert L. Bevan, associate federal legislative counsel, American

Bankers Association..

Robert L. Augenblick, president, Investment Co. Institute; accompanied

by Ramsay D. Potts, counsel..

Charles W. Buek, chairman of the board, U.S. Trust Company of New

York..

280

303

331

298

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Committee print of Senate Banking Committee titled “The Securities Page

Activities of Commercial Banks”—Continued

Section IV-Advisory services for investment companies and real

estate investment trusts.-

199

A. Description

199

B. Securities laws..

200

C. Banking laws and regulations.

200

D. Recent developments.

201

E. Questions and issues.-

201

Section V-Tax-benefited retirement plans.

202

A. Description---

202

1. Keogh plans---

203

2. Individual retirement accounts

203

B. Securities laws.-

203

1. Keogh plans.-

203

2. Individual retirement accounts

204

C. Recent developments.

204

D. Questions and issues--

205

Section VI-Commingled agency accounts -

206

A. Description---

206

B. The divergent views of the Comptroller of the Currency

and the SEC on the applicability of the Federal

securities laws.--.

207

C. Recent developments -

209

D. Questions and issues..

209

Section VII–Underwriting municipal revenue bonds.

210

A. Description---

210

B. Securities laws.

210

C. Banking laws and regulations.

210

D. Recent developments.-

211

E. Questions and issues.

211

Section VIII–General questions applicable to securities activities

of commercial banks

212

Appendix A-Pertinent provisions of the Federal banking laws. 214

Appendix B- Pertinent provisions of the Federal securities laws. 220

Appendix C-Table: Applicability of Federal securities laws to

certain bank securities and bank-sponsored securities activities - 231

Federal Reserve Board, letter sent to Chairman Arthur F. Burns and an-
swer received..

---14 and 380
Mayer, Brown & Platt, copies of correspondence with the Investment

Management Division of the SEC regarding Continental Illinois Na-
tional Bank and Trust Company---

381

New York Clearing House Association, material accompanying prepared

Statement:

Descriptions of dividend reinvestment plans, automatic investment

services, and individual portfolio management services...--

353

“What Shall We Do About the Small Account Problem?" address by

Charles W. Buek, president, United States Trust Co. of New York,

October 27, 1972-

364

Patman, Wright, Representative in Congress from the State of Texas, and

vice chairman, Joint Economic Committee, letter to Senator Williams
regarding Glass-Steagall Act...

183

Securities and Exchange Commission:

Answers to subsequent questions submitted to Chairman Roderick M.

Hills

148

Commission inquiry concerning bank-sponsored investment services,

file S7-522_-

133

Memorandum of written comments on the securities activities of

commercial banks.

89

Treasury Department:

Answers to subsequent questions submitted to James E. Smith,

Comptroller of the Currency --

174

Issues paper titled "Public Policy Aspects of Bank Securities Activi-
ties":
I. Introduction...

25
II. Policies and objectives of Glass-Steagall Act restrictions on
bank securities activities.-

26

Treasury Department—Continued

Issues paper titled "Public Policy Aspects of Bank Securities Activ- Page
ities' — Continued
III. Description of current activities of commercial banks in the
securities area.-

28 Agency- or brokerage-oriented services.

29 Money management services -

31 Financial advisory work..

33 Medium- and long-term lending and private placements of bonds.

33 IV. Description of securities-related activities in which banks do not currently engage---

35 V. Analysis of the advantages and disadvantages of bank participation in securities activities.

36 A. Investment services -

37 Agency- and brokerage-oriented services..

39 Money management services.

43 B. Corporate financing services

45 Financial advisory work.

47 Medium- and long-term lending and private placements.

49 Underwriting and dealing in corporate securities.--

51 Underwriting of municipal revenue bonds -- 58 Review of the history, policies, and objectives of the Glass-Steagall Act: Policies and objectives of Glass-Steagall Act restrictions on bank securities activities..

62 Securities activities of commercial banks prior to Glass-Steagall Act..

63 Debt...

65 Equity

66 Criticism of the integration of commercial banking prior to Glass-Steagall Act-

70 Pujo hearings

71 Criticism of the Comptroller of the Currency

73 Ideas of Senator Glass and Professor Willis

73 Glass-Steagall legislation -

77 Reasons for adoption of Glass-Steagall Act

78 Abuses of security affiliates identified by Glass subcommittee

79 Impact of public opinion and changing economic and political events..

82 Conclusion...

86 CHARTS AND TABLES New York Clearing House Association charts accompanying prepared statement: Account size and costs

350 Breakdown of costs -

348 Dispersion of wealth (estates above $60,000).

351 Fee ceiling -

348 Buek, Charles W., president, United States Trust Co. of New York,

charts accompanying reprint of an address at the annual meeting of
the Florida Bankers Association Trust Division:
Account size and costs --

371 Breakdown of costs--

370 Dispersion of wealth (estates above $60,000)

376 Diversification and turnover doubled.

374 Diversification and turnover limited..

373 Fee ceiling

368 Fee scales differ (New York City banks)

369 Investment management profit margins

365 “Selective marketing--

375 Streamlining costs

372 Too many losers

366

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