around. After all, we do not live in a vacuum. That is the net of the whole thing, and it is a question of judgment. Senator TAFT. I cannot see why a bondholder should not be in the same position as an ordinary creditor of the company-why he should not be entitled to the same information, particularly if the company is violating a contract with him. He ought to be able to know that the company is violating the contract. Mr. AMBERG. That is perfectly sound in legalistic approach and in abstract morals. Senator BARKLEY. This language leaves it to the Commission to provide in the indenture that they must have due regard to the public interest and the protection of investors. That presupposes, I suppose, that under certain circumstances the Commission might not require that the trustee give notice to the bondholders of a default, although I must say that I agree with Senator Taft. I think investors are creditors. They are creditors of the corporation. It is a little different form of credit, but they are creditors. I cannot see, as a rule, why they ought to be kept in ignorance of the condition of the concern to which they have lent their money. Subsection (d) simply provides— In order to make effective the provisions of subsections (b) and (c) of this section About the prudent-man requirement the indenture to be qualified shall contain provisions which the Commission deems adequate, having due regard to the public interest and the interest of investors, with respect to the following matters (1) The definition of what shall constitute a default thereunder. The indenture certainly ought to contain that; ought it not? Senator BARKLEY. It ought to contain a definition of what is a default. Mr. AMBERG. They always do. Senator BARKLEY. So you have not any objection to that? Mr. AMBERG. No. Senator BARKLEY (reading): (2) The rights and powers of the indenture trustee with respect to (A) entry into possession of the trust estate. Certainly the indenture ought to contain provisions about the trustee's powers in regard to entering into possession of the trust estate in case of default. You do not object to that; do you? Mr. AMBERG. Well, I should be surprised if there is any corporate indenture trustee represented here that ever entered into possession: of an industrial plant. Senator BARKLEY. Regardless of whether they ever do or not, the indenture ought to contain something about the trustee's powers in doing it. Mr. AMBERG. Yes; that is correct. Senator BARKLEY. So you cannot object to that? Mr. AMBERG. No; I do not object to that. Senator BARKLEY (reading): (B) Obtaining, in its name as such trustee, a judgment for the entire amount due and owing under the indenture. The indenture certainly has to contain provisions about when the trustee may bring suit, and under what conditions; so you cannot object to that. [Reading:] (C) The institution of foreclosure proceedings and proceedings for the judicial or other sale of the property subject to the lien of the indenture. Certainly, if the indenture does not contain something about that, the trustee just relies on his ordinary rights as such. What objection is there to providing, in the indenture, provisions under which the trustee may foreclose or enter foreclosure proceedings? Mr. AMBERG. I have not any quarrel with any of these provisions, Mr. Senator. They are all quite proper. The point I intended to make was that with the inference all through this bill that the duties of the trustee are all stepped up, and he is going to be the salvation of the small investor-with all of that atmosphere and inference from the preamble to the very end of the bill, the trustee's powers are no greater than they ever were before. They cannot, in the nature of things, be any greater. Senator BARKLEY. Well, if they are not-if the ordinary prudent investment banker or ordinary deposit banker with a trust department would put these provisions in an indenture, which he certainly would I do not see any objection to requiring that they be put in. Mr. AMBERG. They all should be there. The CHAIRMAN. Are they in the usual indenture? Mr. AMBERG. Yes, sir; I suggested that they put in one more, Mr. Senator-the recently acquired right to start bankruptcy proceedings. Senator BARKLEY. That might be assumed by (D). Foreclosure proceedings are not necessarily bankrupt proceedings. They have power under (D) to intervene in case proceedings have already been instituted by somebody. The CHAIRMAN. Getting down to the meat of your argument—I am just trying to summarize it-is it not that you think the rules prescribed for the conduct of the trustee are a little too rigorous? Mr. AMBERG. That is one of my main objections; yes. The CHAIRMAN. The others are more in the nature of atmosphere; are they not? Mr. AMBERG. No; the other goes to the bill in its broad implications. The CHAIRMAN. Well, "implications" is a better word. Mr. AMBERG. I think its whole implications in six aspects, as I stated at the start of my testimony, are objectionable. I do not think it is the proper position to place the corporate trustee in, if you are going to ask him to do a good job for the bondholders, in the first place. In the second place, I do not think it is right to put on the banking structure of this country, and the depositors in banks, this risk of $70,000,000 suits for damages, and $40,000,000 suits. We cannot start with a clean sheet in this thing. We must build on our system as we have it; and the banks of deposit are the only ones that can take care of the responsibilities contemplated in the bill. Third, in the long run I do not think this bill will be for the interest of the investor, for whose benefit it is conceived. 126815-39——7 Fourth, I think it is very harsh on the stockholders of the borrowing corporation, and the employees of the borrowing corporation, and all that goes with it. Fifth, I think its effect on corporate trust indenture financing, which I have mentioned, is almost the last chloroform sponge-in my opinion. The CHAIRMAN. You mean to the flow of capital? Mr. AMBERG. I think so detrimentally so the nth degree. Sixth, I think its effect on the economic welfare of the country, and all these things we are worrying about, is all in the wrong direction. I just wanted to make that comment. I do not want to get into an argument. Senator BARKLEY. Every time Congress is asked or undertakes to do something to regulate securities or anything else, it is complained that it is going to stop the flow of capital. We were bombarded here about the repeal of the surplus-profits tax; and basketsful of letters and telegrams were sent in here from all over the country saying that if we would just repeal that tax, the flow of capital would open up like Niagara. Well, practically it was repealed; but if there has been any sudden upsurge in capital flow as a result of the practical repeal of that law, I have not observed it. Mr. AMBERG. I think it was a very rash statement for anyone to make that the repeal of that one law would make such a change. Senator BARKLEY. But those statements are made, and we have to discount them, just as I think I have to discount in all good faith your statement that this would be the nth degree of damming up the flow of investment in this country. Mr. AMBERG. I hope you will discount everything I have said, and still find a little merit in it. Senator BARKLEY. I am not discounting everything you say. I think you are perfectly sincere in all that you have said; but I can not visualize this law as plugging up the last hole that is open for the flow of investment. I cannot agree with you about that. Mr. AMBERG. If you will pardon me, I have been asked, if I may, to read this telegram into the record from the banks in Minneapolis, and one from a bank in Columbus, Ohio: H. V. AMBERG, Washington, D. C. MINNEAPOLIS, MINN., February 7, 1939. The undersigned banks handling nearly all of the trusteeships of bond issues in this Federal Reserve district vigorously protest the passage of Barkley bill S. 477 and you are authorized to present this protest to committee. It would so seriously affect commercial banking connections of our banks and affiliates that we would be extremely reluctant to accept trusteeship of bond issues and such business would necessarily leave this district. The responsibilities placed upon a trustee would be so burdensome that trustees' compensation would be so greatly increased as to be serious additional burden on obligations. FIRST NATIONAL BANK & TRUST CO. OF MINNEAPOLIS, L. E. WAKEFIELD, President. NORTHWESTERN NATIONAL BANK & TRUST CO. OF MINNEAPOLIS, FIRST TRUST Co. OF ST. PAUL, PHILIP L. RAY, President. HAROLD AMBERG, COLUMBUS, OHIO, February 7, 1939. Regarding Trust Indenture Act, Senate bill 477. We oppose passage of this act believing there are existing adequate legal remedies for ills sought to be corrected and unnecessary expense will be added to cost of private financing. However if some such bill is felt necessary we believe proposed act is particularly bad in removing from the owners of securities their control of defaulted bonds; also section on disqualifications of trustee which interfere with normal legitimate banking relations with obligor forcing bankruptcy action to possible detriment of bondholders; also injunction of control of banking institutions to jurisdiction of S. E. C., which institutions are already supervised by other governmental agencies. We believe that many banks will refuse acceptance of corporate trusteeships resulting in concentration thereof in a few larger centers. J. H. McCoy, President, The City National Bank & Trust Co. of Columbus. Senator BARKLEY. May I ask you, if you know, what proportion of the corporate trusteeships, both in numbers and in amount involved, covered by this bill, are conducted by the members of the American Bankers' Association? Mr. AMBERG. I do not know who are members of the association; but, assuming that all the big banks are, I should say that in Chicago it is all done by the banks which are members of the American Bankers' Association. I suppose it would be the same in New York, perhaps with some exceptions. Of course, 70 percent of this business in dollar volume is already done in New York, I am told; but I think it would be a fair assumption, Mr. Senator The CHAIRMAN. Mr. Page probably could tell you. I think the previous hearings give that information. Mr. AMBERG. May I add that I have been asked to tell the committee that banks in San Francisco, and a group of banks in Los Angeles, and a group of banks in Pittsburgh, are sending communications, either by letter or by telegram, that they wish to be incorporated in the record; and they have asked me to ask you to do so, Mr. Chairman. The CHAIRMAN. Of course, they will be incorporated in the record. Senator BARKLEY. In the previous hearings, which were quite extensive, the different banks mentioned by you did not protest, although this bill was before the country for a long time, and the bankers all knew about it. Has any effort been made since the last Congress adjourned to work up opposition to this bill? Mr. AMBERG. No, sir; except this-that the presidents of five Chicago banks signed a letter on the subject, and if you are interested in it I will leave you a copy of it. We tried to put it in dignified form, but we were not out to stir up any opposition. We sent copies of the bill and the hearings I think to practically all the banks in the country, the big banks that do a trust business. It was signed by the presidents of the City National Bank & Trust Co., the Continental-Illinois National Bank & Trust Co., the First National Bank of Chicago, the Harris Trust & Savings Bank, and the Northern Trust Co. Senator TAFT. What did you ask them to do? Mr. AMBERG. We asked them to read the bill, to inform themselves regarding it, and to take any action they saw fit. I have a copy of the letter. Senator BARKLEY. Did you express, in the letter, your own opposition to the bill? Mr. AMBERG. We expressed our opinion on the bill; yes. The CHAIRMAN. Would you like to leave a copy of the letter? Mr. AMBERG. I do not care about it, but I am perfectly willing to do so. The CHAIRMAN. I think we would like to have it. Senator BARKLEY. I think it might be well to have it go in the record. Mr. AMBERG. I should be glad to put in a copy of the letter. (The letter referred to is as follows:) CITY NATIONAL BANK & TRUST CO. OF CHICAGO THE NORTHERN TRUST Co. CHICAGO, ILL., May 12, 1958. Re Trust Indenture Act of 1938, the so-called Barkley bill, S. 2344-H. R. 10292. DEAR SIR: Senate bill 2344, introduced in the Senate on May 6, 1937, was reported favorably to the Senate by the Senate Committee on Banking and Currency on April 19, 1938, after a series of amendments. On April 18, 1938, a companion bill, in the form of the bill as reported favorably to the Senate, was introduced in the House of Representatives as H. R. 10292 and referred to the House Committee on Interstate and Foreign Commerce. On Monday, April 25, 1938, hearings, confined to 1 day, were held before a subcommittee of three members of the House Committee on Interstate and Foreign Commerce. The undersigned Chicago banks (the Continental-Illinois and the First National having also opposed the proposed legislation before the Senate committee last June) testified before the House subcommittee, in opposition to the bill, making such presentation as the short interval between notice of the hearings and the hearing itself permitted. Some of the testimony at this hearing carries, in our opinion, the inference that by and large the individual banks in this country are acquainted with the content and favor the passage of this legislation and that the banks testifying in opposition were filing something in the nature of a minority report. The Senate report carries inferences of similar but more limited nature. Spokesmen of the American Bankers Association, however, have expressely reserved the right of any bank to express its own opinion. We know that many banks, other than ourselves, have voiced their disapproval of this legislation and few banks, if any, believe that it is desirable from the standpoint of the investor. How many banks have studied the bill in its present form, we have no way of knowing and apologize if, by writing to you, we appear to assume too much. We believe it to be of serious moment that the banks, so desiring, should have an opportunity to acquaint themselves with the nature of this legislation. We are, therefore, addressing this letter to banks which, we think, might be interested in this question. Owing to our limited supply, we are unable to furnish to all of the banks copies of the Senate report and the hearings before the House subcommittee. At least one set of these copies, however, is going to at least one bank in each city covered by this letter, in the thought that the enclosures will be made accessible to other banks not receiving them. You will note that H. R. 10292 is set forth at the beginning of the House hearings. On rquest, however, we will mail you a large-type working copy of H. R. 10292 In our opinion, this legislation deserves consideration by all banks not only in its corporate trust but also in its commercial banking aspects. Briefly, by way of information and without any presumptuous attempt to impose our viewpoint on you, we outline our considered conclusions in respect of the more essential aspects of the proposed legislation: (1) The proposed legislation, designed to protect investors in corporate securities issued under trust indentures, contemplates the mandatory inclusion in trust indentures of provisions imposing on the trustee "duties" extremely ambiguous and inferentially of exceptional degree (see particularly sec. 7 (g) and (i)), coupled with practically a minimum of exoneration to the trustee for |