That makes clear, I think, that the Commission would not be warranted in going in and making a general investigation of the financial condition of the bank, that might disclose to the public, at an inappropriate time, facts pertaining to the bank's liquidity, solvency, or what not. The Commission would be strictly limited, by virtue of the italicized sentence on page 47, to a very narrow issue, such as this: "Does the bank own more than 5 percent of the stock of the obligor?" That is the type of situation envisaged.

Senator BARKLEY. Judge Birdzell has called my attention to the fact that the language on page 46 prohibits the divulgence of the information obtained from the Federal, State, or Territorial authorities to the public, and may have some relation to, or may be qualified by the provisions of subsection (a) of section 10, which authorizes the Commission or any officer thereof to make investigations and examinations and all of that-which may be public, I suppose-may be public hearings. What have you to say about that?

Commissioner DOUGLAS. On that, Senator Barkley, I should say that the italicized sentence on page 47 would set up proper limitations on that general investigatorial power; because it says: "Any investigation of a prospective trustee under subsection (a) of this section"-in other words, it qualifies subsection (a) and must be read in connection with subsection (a).

Senator BARKLEY. Let us see what that says [reading]:

Any investigation of a prospective trustee under subsection (a) of this section or under any of the provisions of this act shall be limited to determining whether such prospective trustee is qualified to act as trustee under the provisions of section 7 of this act.

Of course, that limitation undoubtedly qualifies the power of examinations under section 10.

Commissioner DOUGLAS. Yes; I should think so.

Senator BARKLEY. At the same time that does not necessarily presuppose that the examination or investigation referred to in section 10 would be private. It might be a public hearing of some kind. Commissioner DOUGLAS. Yes; it might. Let me give you one type of case of that sort.

Senator BARKLEY. Because it provides that you shall have power to bring memoranda, contracts, agreements, force the attendance of witnesses, and all the usual authority for holding a hearing.

Commissioner DOUGLAS. Yes; I am not certain that section 10, as presently set up, is properly delimited. But I think that care must be taken lest the Commission not be wholly crippled in enforcing the statute. Let me give you two instances that I have in mind, Senator Barkley: The first is where the Commission enters a refusal order on the ground that the trustee is disqualified. The trustee, under our form of government, has a right to appeal to a court. Now, the Commission has to have substantial facts in support of its findings, and those facts are reviewable. There has to be a record to go up on appeal; and I do not know of a record that goes up that does not go up as a piece of public property. There has to be a way of getting those facts before the court; otherwise, just look at what would happen: The Commission would have in its possession facts adequate to disqualify the trustee, and yet the Commission could not disclose those facts to the public. Therefore, the Commission would have to enter an order without any facts to support it; and it would go up to the

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district court, and the district court would reverse it, quite properly, because there would not be a fact in the record to support it. That is case no. 1.

Case no. 2 is this: One of the functions of an administrative agency is reporting its findings to the public. That is a rather important function, I think. I think it may be less important under this statute than it was under the Securities Act. But I do not think it is out of reason to have a situation like this: Suppose there developed in this country, on the next wave of a boom, the type of real-estate practice that developed in the last boom-underwriters with vest-pocket trustees, so to speak-a situation that everybody admits is very, very bad from the point of view of investors and the public interest: If the Commission is foreclosed from using the facts that it gets in its investigation-forcelosed from using all such facts that it gets from its investigation-the Commission would never, under any circumstances, be able to write an opinion about the most nefarious case that came along, and of which the public should have notice.

I indicated this not for the purpose of suggesting to the committee that I think section 10, as it stands, is necessarily the section that should receive the committee's approval. But I think the problem is one of greater difficulty than appears on the surface. There are two interests there, and I do not think either one of them can be completely foreclosed.

Senator BARKLEY. Of course, if you can obtain the information carried in subsection (b) and if you can obtain it through the use of examiners of national banks, the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, or any other governmental agency, and if you can obtain it under that subsection, you do not have to obtain it under the other subsection. Commissioner DOUGLAS. That is right.

Senator BARKLEY. In other words, you can obtain it in a confidential way, and retain it as confidential information, under that subsection. Commissioner DOUGLAS. I think that is right, with this possible exception: If we have to sustain the validity of one of our orders, we have to have some facts in the record. I think that a court that found the Commission entering orders without any facts would quite justifiably brand the Commission as engaged in arbitrary, capricious, and oppressive practices.

Senator BARKLEY. Do you think the language in the italicized paragraph on page 46 would prevent you from divulging to the court the information you had obtained through these sources, and upon which you based an order?

Commissioner DOUGLAS. I think so. I would so read it. I think something like the italicized sentence on page 47 is necessary. I do not think subsection (a) should stand alone; I think there should be some qualification of that.

Senator BARKLEY. That is a matter that probably can be worked out, if there is any conflict.

Commissioner DOUGLAS. I do not think there would be any disagreement, from the point of view of the Commission, on the problem. I think it is merely a question of adequacy of language.

Senator BARKLEY. Yes.

Commissioner DOUGLAS. As we see the situation, these reports on the condition of banks-which reports are received from the Federal agencies clearly should be used very circumspectly.

Mr. BIRDZELL. It is not so much to hamper the use by the Commission, as to see that the confidential character is protected.

Commissioner DOUGLAS. I mean use in the sense of the Commission making them public.

Mr. BIRDZELL. For instance, in section 5 you may determine that the commission conduct a hearing to determine the qualifications of a trustee, basing its decision passing on that application and the applicant's motion, on certain stated facts. Now, conceivably you might require the applicant to present a copy of the examination made by a Federal agency of the proposed trustee and bank; and we would not necessarily make that public.

Commissioner DOUGLAS. Well, that information would not be current. The issuer is the applicant, and the issuer would not have that information, would he, Mr. Page?

Mr. PAGE. I wonder if we could not perhaps cure this. thing; because we both have the same thing in mind. If in section (a) in subdivision 10 you limited your subpena power on the trustees, so that you could not subpena from the trustees copies of examination reports; you got those from the Federal agencies, under section (b). Commissioner DOUGLAS. I think that might be the answer. Mr. BURKE. I think that is done already.

Mr. PAGE. I doubt if it is done.

Commissioner DOUGLAS. Mr. Chairman, I do not think there is an issue here, in substance. I think there may be an issue in form. But if the committee should desire a reexpression of opinion on the part of the Commission, we should be glad to submit suggestions. Senator BARKLEY. I think it is well to think that over.

Senator HUGHES. And the suggestion that that should not be made public.

Commissioner DOUGLAS. Yes; certain information certainly should not be made public. I do not think the information from examiners of banks should be made public. Nevertheless, there is, on the other side of the question, the matter of not crippling the Commission and making it impossible for the Commission to enforce the statute. Senator HUGHES. You do not want to shut off their right to appeal?

Commissioner DOUGLAS. Yes.

Senator BARKLEY. If there is such a condition existing in connection with any bank or trust company as would make it unsafe as a trustee, because of its financial condition, certainly the interests of the public ought not require that that fact be kept secret.

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Commissioner DOUGLAS. Yes. On that point, Senator Barkley, page 19 the bill provides-perhaps we had better go back to line 20, page 18 [reading]:

If the Commission deems it necessary or appropriate in the publlc interest or for the protection of investors, in view of the type of indenture, the amount of securities outstanding and thereafter issuable thereunder, and the duties and responsibilities imposed thereby on the trustee or trustees, the indenture to be qualified shall require that such institutional trustee have at all times a combined capital and surplus of such specified minimum amount as the Commission deems adequate, having due regard to the public interest and the interests of investors.

Now, coming to your question [reading]:

If such institutional trustee publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, the indenture may provide that for the purposes of this paragraph, the combined

capital and surplus of such trustees shall be deemed to be its combined capital and surplus as set forth in its most recent published report of condition.

So if such a report were available, as I read this, the Commission would be justified in basing its findings upon the published report. If that published report was not available, then the Commission would be foreclosed from making available a report that it received from the examining authority. So for all practical purposes there is in that situation this result, as I see it: Inasmuch as such reports are already made available to the public, the Commission would not encounter any legal difficulty in making them public.

Senator HUGHES. Most of the smaller banks refer to the examination. They would make a summary. You have seen summaries?

Commissioner DOUGLAS. Yes.

those

Senator HUGHES. That does not give you the information. Commissioner DOUGLAS. For the purposes of section 7 (a) (2), that probably would, because all that talks about is combined capital and surplus, and I think that many of those reports, Senator, would give combined capital and surplus.

Senator HUGHES. Of course, they have got in the habit of making their examinations together. They make up the report, but it is not published.

Commissioner DOUGLAS. No; and I do not think the Commission should, certainly not without written permission of such examining authority, be permitted to make public reports which otherwise would not be made public; but I think, intermediately there, between that on the one side and making no disclosure on the other, there can be worked out a power in the Commission, so that it can operate effectively as an administrative agency on the limited aspects of this problem.

Mr. BIRDZELL. I should think there would not be any limitation on the power of the Commission; when it comes to the public, it is another matter. I mean for the purpose of justifying your order you can take your facts from the reports which are confidential. If you have to justify them in court, you can justify your record.

Commissioner DOUGLAS. If nobody else made it public.

Mr. PAGE. That would be true only on appeal from an order? Commissioner DOUGLAS. That would be true only on an appeal from an order.

Senator HUGHES. If you have a bank that is qualified as trustee, and it is turned down, it does not hurt anyhow.

Senator MALONEY. Have you anything further to say, Commissioner Douglas?

Commissioner DOUGLAS. I have nothing more, I think. The other provisions that are left, that I have not mentioned, are mere armor plate.

Senator BARKLEY. You mean boiler plate.

Senator MALONEY. No; he means armor plate, Senator.

Senator BARKLEY. The rest of the bill has more or less standardized provisions that have been included in other legislation giving authority to the Commission to do the necessary things for the enforcement of the law.

Commissioner DOUGLAS. That is all. There is nothing new except this section 10.

Senator BARKLEY. Yes.

Senator MALONEY. Are there any other questions?

Senator BARKLEY. I have none.

Senator MALONEY. I presume that we shall meet again at 10:30 next Tuesday morning.

Senator BARKLEY. We might start at 10, if we want to conclude on Tuesday.

Senator MALONEY. We have three witnesses here, and I do not think we are going to finish on Tuesday, anyway.

Senator BARKLEY. The difficulty is that we are likely to be in session on Tuesday. If we are not, we can hold an afternoon session. Senator MALONEY. Suppose we agree tentatively to meet at 10 o'clock, if that is all right with everybody else. I shall have the clerk of the committee notify the chairman to that effect.

(At 5 p. m. an adjournment was taken until 10 a. m., Tuesday, June 15, 1937.)