Recommendation To eliminate reference to shareholders individual liability by repealing sections 63 and 64 of title 12. Reasons Title 12, United States Code, section 64a, as amended May 18, 1953, has eliminated the individual liability of the shareholders of a national bank provided for in sections 63 and 64. Therefore, the provisions of both sections are obsolete and unnecessary and should be repealed. 19. SHAREHOLDERS INDIVIDUAL LIABILITY UPON LIQUIDATION Existing law Title 12, U. S. C., sec. 65. That when any national banking association shall have gone into liquidation under the provisions of section five thousand two hundred and twenty of said statutes, the individual liability of the shareholders provided for by section fifty-one hundred and fifty-one of said statutes may be enforced by any creditor of such association by a civil action brought by such creditor on behalf of himself and of all other creditors of the association, against the shareholders thereof, in the United States district court for the district in which such association may have been located or established. Title 12, U. S. C., sec. 66 (U. S. R. S., sec. 5152).-Persons holding stock as executors, administrators, guardians, or trustees, shall not be personally subject to any liabilities as stockholders; but the estates and funds in their hands shall be liable in like manner and to the same extent as the testator, intestate, ward, or person interested in such trust-funds would be, if living and competent to act and hold the stock in his own name. Recommendation To eliminate by repeal reference to enforcement of the shareholders individual liability by creditors upon liquidation and personal liability of representatives of stockholders. Reasons Since section 64a, title 12, United States Code, has eliminated shareholders individual liability, any reference to such liability in subsequent sections should be eliminated. Sections 65 and 66 are both obsolete. Existing law 20. ELECTION OF NATIONAL BANK DIRECTORS Title 12, U. S. C., sec. 75 (U. S. R. S., sec. 5149).-If, from any cause, an election of directors is not made at the time appointed, the association shall not for that cause be dissolved, but an election may be held on any subsequent day, thirty days' notice thereof in all cases having been given in a newspaper published in the city, town, or county in which the association is located, and if no newspaper is published in such city, town, or county, such notice shall be published in a newspaper published nearest thereto. If the articles of association do not fix the day on which the election shall be held, or if no election. is held on the day fixed, the day for the election shall be designated by the board of directors in their by-laws, or otherwise; or if the directors fail to fix the day, shareholders representing two-thirds of the shares may do so. Recommendation It is recommended that this statute be amended to provide that if an election of directors is not held at the meeting of shareholders called for that purpose because the date set in the articles of association falls on a legal holiday, the meeting shall be held on the next following business day. Reasons In some cases the day specified in the articles of association for annual shareholders' meeting at which directors will be elected will fall on a legal holiday in the State in which the bank is located. In such cases the practice has been for a brief shareholders' meeting to be held at which no business is transacted but the meeting adjourned until some subsequent date decided upon and the directors are elected at that adjournment of the annual meeting. It is believed that it would be preferable to provide by legislation that in this event the meeting shall be held and the directors elected on the next following business day. 21. REMOVED DIRECTOR OR OFFICER VOTING STOCK Existing law Title 12, U. S. C., sec. 77 (Banking Act of 1933, sec. 30).—Whenever, in the opinion of the Comptroller of the Currency, any director or officer of a national bank, or of a bank or trust company doing business in the District of Columbia, or whenever, in the opinion of a Federal reserve agent, any director or officer of a State member bank in his district shall have continued to violate any law relating to such bank or trust company or shall have continued unsafe or unsound practices in conducting the business of such bank or trust company, after having been warned by the Comptroller of the Currency or the Federal reserve agent, as the case may be, to discontinue such violations of law or such unsafe or unsound practices, the Comptroller of the Currency or the Federal reserve agent, as the case may be, may certify the facts to the Board of Governors of the Federal Reserve System. In any such case the Board of Governors of the Federal Reserve System may cause notice to be served upon such director or officer to appear before such Board to show cause why he should not be removed from office. A copy of such order shall be sent to each director of the bank affected, by registered mail. If after granting the accused director or officer a reasonable opportunity to be heard, the Board of Governors of the Federal Reserve System finds that he has continued to violate any law relating to such bank or trust company or has continued unsafe or unsound practices in conducting the business of such bank or trust company after having been warned by the Comptroller of the Currency or the Federal reserve agent to discontinue such violation of law or such unsafe or unsound practices, the Board of Governors of the Federal Reserve System, in its discretion, may order that such director or officer be removed from office. A copy of such order shall be served upon such director or officer. A copy of such order shall also be served upon the bank of which he is a director or officer, whereupon such director or officer shall cease to be a director or officer of such bank: Provided, That such order and the findings of fact upon which it is based shall not be made public or disclosed to anyone except the director or officer involved and the directors of the bank involved, otherwise than in connection with proceedings for a violation of this section. Any such director or officer removed from office as herein provided who thereafter participates in any manner in the management of such bank shall be fined not more than $5,000, or imprisoned for not more than five years, or both, in the discretion of the court. Recommendation It is recommended that section 77 be amended to prevent a director or officer of a national bank who has been removed under the provisions of section 77 from voting his shares of stock for any purpose at regular or special meetings of the shareholders. The remaining outstanding stock shall be regarded as 100 percent of the bank's outstanding shares for all voting purposes. If the removed shareholder sells or transfers his shares, it may not be voted by the new owner unless the Comptroller of the Currency determines that the sale or transfer was bona fide and not merely an attempt by the removed officer to vote the shares through a third party. Reasons The statute provides that any director or officer who has been removed from office is subject to a fine of not more than $5,000, or imprisonment for not more than 5 years, or both, in the discretion of the court if he participates in any manner in the management of the bank. However, there is nothing in the statute that prohibits a removed officer or director from voting the stock of the bank owned by him. Thus, if he owns more than 50 percent of the stock of the bank, he can, as a practical matter, manage the bank through those he is able to elect to the directorate, and, in order to eliminate his direct or indirect control, his stock while owned by him or anyone he controls should be deprived of its voting power and the remainder of the stock of the bank held by independent parties should be considered as representing 100 percent of the voting stock of the bank. 22. LIABILITIES OF NATIONAL BANKS UNDER RECONSTRUCTION FINANCE CORPORATION ACT Existing law Title 12, U.S. C., sec. 82 (U.S. R. S., sec. 5202; Federal Reserve Act, sec. 13, par. 9).-No national banking association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature following: First. Notes of circulation. Second. Moneys deposited with or collected by the association. Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto. Fourth. Liabilities to the stockholders of the association for dividends and reserve profits. Fifth. Liabilities incurred under the provisions of the Federal Reserve Act. Sixth. Liabilities incurred under the provisions of the Reconstruction Finance Corporation Act. Seventh. Liabilities created by the endorsement of accepted bills of exchange payable abroad actually owned by the endorsing bank and discounted at home or abroad. Eighth. Liabilities incurred under the provisions of section 202 of Title II of the Federal Farm Loan Act, approved July 17, 1916, as amended by the Agricultural Credits Act of 1923. Ninth. Liabilities incurred on account of loans made with the express approval of the Comptroller of the Currency under paragraph (9) of section 5200 of the Revised Statutes, as amended. Tenth. Liabilities incurred under the provisions of section 13b of the Federal Reserve Act. Recommendation Eliminate by amendment paragraph 6 of section 82, title 12, United States Code. Reason The Reconstruction Finance Corporation is in the process of liquidation which should be completed by June 1957. National banking institutions do not now have any liabilities incurred under the provisions of the Reconstruction Finance Act. The liabilities referred to are those represented by preferred stock sold by national banks to the Reconstruction Finance Corporation. 23. EXCEPTIONS TO 10 PER CENT LIMIT ON OBLIGATIONS Existing law Title 12, U. S. C., sec. 84 (6) (U. S. R. S., sec. 5200).-Obligations of any person, copartnership, association or corporation, in the form of notes or drafts secured by shipping documents, warehouse receipts or other such documents transferring or securing title covering readily marketable nonperishable staples when such property is fully covered by insurance, if it is customary to insure such staples, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus when the market value of such staples securing such obligation is not at any time less than 115 per centum of the face amount of such obligation, and to an additional increase of limitation of 5 per centum of such capital and surplus in addition to such 25 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 120 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 30 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 125 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 35 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 130 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 40 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 135 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 45 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 140 per centum of the face amount of such additional obligation, but this exception shall not apply to obligations of any one person, copartnership, association or corporation arising from the same transactions and/or secured upon the identical staples for more than ten months. Recommendations (1) It is recommended that exception 6 to section 5200 of the Revised Statutes be amended by adding a new sentence which will permit national banks to acquire obligations of any person, copartnership, association or corporation in the form of notes or drafts secured by shipping documents, warehouse receipts or other such documents transferring or securing title covering readily marketable staples, when such property is fully covered by insurance, to a limitation of 15 percent of the bank's capital and surplus, in addition to the statutory limitation of 10 percent of capital and surplus, when the market value of such staples securing such obligation is not at any time less than 115 percent of the face amount of such obligation, but this exception shall not apply to obligations of any one person, copartnership, association, or corporation arising from the same transaction and/or secured by the identical staples for more than 6 months. The present first sentence in exception 6 should be amended by changing the word "upon" to "by" in the last full line as quoted above. (2) It is recommended that section 5200 of the Revised Statutes be amended to add a new exception which will permit a national bank to acquire from any one seller or dealer obligations arising out of the discount of installment consumer paper whether negotiable or nonnegotiable, which paper carries a full recourse endorsement or unconditional guaranty of the seller or dealer, to a limitation of 15 percent of the bank's capital and surplus in addition to such 10 percent of capital and surplus. Reasons (1) Exception 6 to Revised Statutes 5200 provides that readily marketable staples in order to qualify as security for loans under this exception must be nonperishable. Exception 6 has not been amended since 1927. In recent years frozen food processors have developed greatly improved methods in processing, freezing, and storing foods which must be kept under refrigeration before sale to consumers. Frozen packaged fruits, citrus juices, vegetables, meats and seafood represent a substantial proportion of foods sold in retail stores. Where insurance can be obtained, it is believed that national banks should be permitted to lend to 1 obligor not more than 25 percent of capital and surplus when the security consists of readily marketable staples |