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without having thought in detail about this—I understand that the bank's problems are (1) the question of getting advance information out ahead of time, which is involved in the general question that we have been considering as a matter of general legislation for some time. It is a very difficult question. We have not seen any clear way in which we could make an exemption from or modification of the requirements of section 5 that would be suitable to the bank's situation without simply disregarding the law.

One of the other difficulties is, as I understand it, as to dealers. They feel they must sell through a wide group of dealers—including persons who are not accustomed to operating under the Securities Act and not accustomed to the liabilities that are imposed by the Securities Acts—that they would have trouble reaching as marketing instrumentalities for their securities persons whom they would really need to accomplish the widespread distribution that they want.

Mr. BENNETT of Michigan. Right there; is there anything in the law that would stop the bank from putting out a prospectus or putting out information in some form to the American investor that up to a certain point these bonds are as good as Government bonds, or stating the facts, that they are protected in this issue up to the amount of the United States Government's contribution, so that the public will know?

Commissioner McCONNAUGHEY. If they were registered under the act, they would be required to make those disclosures, and have done so in connection with the issue of last year.

Now, the point I am getting to relates to certain liabilities under the act, which are statutory and I understand absolute, that would fall upon the dealers. These liabilities would fall also upon the banks if they were participating in the marketing of these securities. Those are absolute requirements which, as I understand, we cannot waive.

We have done about all we can do in that direction in granting the exemption granted last year.

Mr. BENNETT of Michigan. Cannot the dealer under your regulations give out any advance information as to the type of security to be issued!

Mr. MOONEY. With respect to these securities, namely, International Bank securities, and with respect to the conditions under the act, the same condition exists as to all other issuers, and there are many sellers of securities, namely, that they are permitted under the act prior to the effective date to send out the red-herring prospectus which I have referred to before, but they are not allowed to send out any other selling literature.

Now, it is a question of fact as to whether particular literature which is sent out by dealers prior to the effective date of the registration statement is selling literature. It is pretty hard to conceive of a situation where you would have a brochure concerning the International Bank's securities stating the facts concerning it and concerning the condition of the bank and containing any favorable information concerning the bank, which would not be construed as an attempt to dispose of the securities subject to registration prior to the effective date.

Mr. BENNETT of Michigan. Is it the National Bank Act or the Securities and Exchange Act that prevents national banks dealing in these securities?

Mr. MOONEY. Well, it is not the Securities Act which prohibits them from dealing in the securities because under the Securities Act any person may buy or sell securities provided he complies with the requirements of the act. As I understand it, it is the National Banking Act which they want to amend to permit the banks to deal in particular securities.

Mr. BENXETT of Michigan. The National Banking Act.
Mr. VUONEY. Yes, sir.

Mr. BENNETT of Michigan. Then they want the securities registered under your act—that is, the International Bank's securities—and any national bank then could go ahead and sell.

Mr. MOONEY. That is not true. If all you did was to amend the National Banking Act and not the 1933 act with reference to these securities, namely, permit national banks to deal in these securities, but not amend the 1933 act to give an exemption, then the banks could not deal in these securities except pursuant to the restrictions presently imposed on all other persons, you see. If they engaged in the business of taking down these securities and selling them to other persons, then they would be dealers and would be subject to the requirements of the statute.

Mr. BENNETT of Michigan. One of the obstacles that Mr. Black is talking about here is the fact that banks cannot deal in these securities and hence they are not attractive to them and distribution is hampered. I just wanted to be clear as to what part of the law would have to be amended to cure that situation from his standpoint. Would it be the National Banking Act or your act or the Securities and Exchange Act, or both ?

Mr. MOONEY. I think Mr. Black, as I understood his discussion yesterday, was advertising particularly to the National Banking Act and not the Securities Act of of 1933, and that he assumed that, if the Securities Act of 1933 were amended to give this exemption to these securities, then his problem would be taken care of in its entirety.

The CHAIRMAN. If there are no further questions, gentlemen, we thank you. I think that we can conclude the hearings in a very few minutes. I would like to hear a word from Mr. Lynch, acting general counsel, Treasury Department, and I have one question that I want to put to Mr. Black. I think that we ought to be able to finish the hearings within 10 minutes at the most.

If there are no further questions I will call Mr. Fulton.



The CHAIRMAN. Mr. Fulton, will you give your full name and the organization for which you speak.

Mr. FULTON. Wallace H. Fulton, executive director, National Association of Security Dealers.

The CHAIRMAN. Are you satisfied with the amendment proposed by Mr. Black regarding the 2-year reports?

Mr. FULTON. Yes, sir.

The CHAIRMAN. Will it adequately protect investors? In other words, if you cannot speak for your association at any point, I would like to have your personal opinion.

Mr. Fulton. I should preface my remarks by saying that I can speak for the board of governors of my association in respect to the amendment. The proposed amendment was considered and, after consultation, the executive committee of that board came to the conclusion that the amendment was satisfactory and that it would protect, in their opinion, the interests of the public, particularly inasmuch as it would require the bank to make what we consider would be very comprehensive reports every 2-year period.

The CHAIRMAN. What do you think of the provision only to make a report on every 2-year period? All experience I have had in Congress has been on legislation requiring reports, has been not exceeding a year. I have in my mind some of them which have required some agencies to report in some particulars in periods of less than a year.

Mr. FULTON. Well, we would accept an amendment requiring, of course, a report within a period of 1 year.

The CHAIRMAN. I think that is better than every 2 years.

Mr. FULTON. We realize the work that would be entailed in such a report though.

The CHAIRMAN. Well corporations and everybody else make up reports once a year. There cannot be any dirth of Government employees needed to make up reports. I am speaking from the standpoint of investors, the public, and you people are the persons who sell to the public, so it seems to me that a period of 2 years in the rapidly changing conditions that we are experiencing at the present time is too long. I would say to you it would seem that we would be more justified in requiring reports within months.

Mr. Fuiron. Well I think a 1-year report, within a 1-year period, would be much better than a report over a 2-year period. I would question the necessity of the report within a shorter period than 1 year, recognizing that such a report would have to be quite comprehensive as I said before would take, I imagine, a considerable amount of time and effort to prepare.

The CHAIRMAN. Are there any questions, gentlemen?
Mr. BENNETT of Michigan. Mr. Chairman.
The CHAIRMAN. Mr. Bennett.

Mr. BENNETT of Michigan. What good do you think this report, that is, the report itself could do the investor on anything that happened before the report is made?

Mr. FULTON. Well, if the report, in our opinion, indicated conditions which needed correction, then we woud assume, of course, that those conditions would be corrected; but I agree with you that within the period before the report, the investor would have no protection other than the protection afforded by the statute and by the bank, by the proposal of the bank, through the National Advisory Council.

Mr. BENNETT of Michigan. Do you not think that these securities, having been put in the class of Government securities, that the National Advisory Council would so regard them and act accordingly?

Mr. Fulton. I do not think I could speak for the National Advisory Council. I do not know how they would regard them.

Mr. BENNETT of Michigan. Well, just as a matter of common interpretation. Congress is supposed to be the policy-making, one of the policy-making bodies of the country and if they set forth in a piece of legislation that the securities of this bank are in the same preferential

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status as Government bonds, do you not believe then that the National Advisory Council will believe Congress and so regard the securities?

Mr. FULTON. I should think so; yes, sir.

Mr. BENNETT of Michigan. So that for practical purposes they would probably be in the same position that you would be in if you had no National Advisory Council at all and simply take the Securities and Exchange Commission out of it so far as the investor is concerned.

Mr. Fulton. That might be true; yes, sir.

Mr. BENNETT of Michigan. Did your Council consider any alternative other than the amendment that has been proposed here!

Mr. FULTON. We did consider a time limitation, as has been advanced this morning. We recognized the difficulties in connection with that.

Mr. BENNETT of Michigan. In what respect would it be easier for you to sell these bonds or these securities if this law were amended as has been proposed here?

Mr. FULTON. I do not think that this legislation would make it any easier for the securities dealers to sell these securities; but this legislation would permit national banks to deal in and trade in these securities, and that would give the Bank in their opinion a broader market and would bring more selling power into the market for them.

We, in the National Association of Security Dealers, we do not have any national banks as members.

The CHAIRMAN. Will you repeat that?

Mr. FULTON. We have no national banks as members of the National Association of Security Dealers.

Mr. BENNETT of Michigan. This legislation would make them your competitors ?

Mr. FULTON. That is correct.

The CHAIRMAN. In the first instance you folks opposed this, did you not? Mr. Fulton. That is correct; yes, sir. Mr. BENNETT of Michigan. On what basis? Mr. FULTON. On the basis--you have the wire. Mr. BENNETT of Michigan. I have not seen the wire. Can you just give it generally? I would not want you to read any lengthy statement.

Mr. FULTON. Generally on the basis that we thought, and think, that would bring banks back into the securities business; would be the opening of the door for new issues that they might deal in.

Mr. BENNETT of Michigan. What caused you to change your mind then?

Mr. FULTON. Well, we feel this, that perhaps our fears are groundless. We feel that perhaps experience over the period of 1 or 2 years would show that the fears that we had that the banks as competitors would be groundless and, therefore, we were willing to take the 2 years' trial to see if we were right or were wrong.

Mr. BENNETT of Michigan. I assume the members of your association sold some of these bonds that have already been issued by the bank?

Mr. FULTON. Oh, ves.

Mr. BENNETT of Michigan. Did you have any trouble in getting rid of them?

Mr. FULTON. No; they did not.
Mr. BENNETT of Michigan. I think that is all, Mr. Chairman.

The CHAIRMAN. That first telegram, if I remember correctly, came from Hot Springs, or some other delightful place.

Mr. FULTON. White Sulphur Springs, I think, sir.

The CHAIRMAN. I do not know whether that has any bearing on the subject or not. Possibly facing the charges that are payable at resorts of that character, I can imagine that the delegates would be very conscious of loss of business.

Mr. Fulton. We received convention rates, sir, which are quite different.

The CHAIRMAX. At any rate, they are plenty high when you go to those kinds of places.

That is all, Mr. Fulton. Thank you.
Mr. Fulton. Thank you.



The CHAIRMAN. Mr. Lynch, what is the effect of the proposed amendment to the National Bank Act, will it permit national banks to underwrite or sell International Bank securities, even though under the Comptroller of the Currency rulings the bank cannot hold them for their own account.

Mr. LYNCH. I think, Mr. Chairman, theoretically that would be a possibility, in the respect that the eligibility of these bonds for investment depends upon the regulations of the Comptroller of the Currency as to investments by national banks. The Comptroller of Currency has specifically ruled that these bonds are now eligible for investment by national banks. It is conceivable that that ruling could be withdrawn at some future time, in view of circumstances then existing. The fact is that the proposed legislation, insofar as it makes banks eligible to act as dealers, will, of course, be on the books permanently, unless Congress acts otherwise.

So I have to say, Mr. Chairman, that is a theoretical possibility.

The CHAIRMAN. You speak of the Comptroller of the Currency having issued a ruling. Is that ruling in writing?

Mr. LYNCH. It is.
The CHAIRMAN. Would you read it into the record, please?

Mr. LYNCH. I have it in the form of a release. It is dated May 29, 1947. [Reading:]

It was announced today by Preston Delano, Comptroller of the Currency, that national banks may purchase the debentures of the International Bank for Reconstruction and Development up to the full legal limit of 10 percent of their capital and surplus.

The CHAIRMAN. So that there was no qualification, then, with respect to bonds that were issued before the limit of $3,175,000,000 were reached, or afterward.

Mr. LYNCH. No, Mr. Chairman.

The CHAIRMAN. I would take it as it stands, then, that they could buy even beyond the $3,175,000,000.

Mr. Lynch. Yes; but I think it fair to point out, Mr. Chairman, that that ruling can be changed or withdrawn any time by the Comp

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