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public interest," it clouds the act further by requiring registration disclosures with respect to credit transactions which are "private" and are so admitted to be by the language of the section itself.

The root of our objection to section 2 (14) is in the word “depositors,” which occurs in two places in the section. If this word and what it implies is taken out, no exemption of bank transactions will be necessary. We are opposed to this word because it invokes the unsound and unrelated concept that protection of a bank's depositors requires that when a bank makes a loan to a customer or purchases securities for investment the S. E. C. must supervise the disclosure made by the customer. So far as we are aware, there is no indication that commercial banks today are unable to obtain all the information they need before the making of loans or the private purchase of securities. Registration under the Securities Act of private transactions between a bank and its customers would not be of particular assistance to either the bank or its customers. On the contrary, our fear is that a registration requirement in connection with bank transactions will only handicap our customers, for they are the ones who will have to bear the burden of the registration, and the time factor involved will impede the ready flow of capital to industry and commerce.

The exemptions contained in the definition of the term "offering affected with a public interest” do not alter the basic objection to section 2 (14) just outlined. With or without exemptions, the enactment of the section would establish the principle that a bank and its depositors require the protection of the Securities and Exchange Commission. In effect, this changes the role of a depositor into that of a public investor. Once this principle is established, the scope of exemptions to be permitted becomes merely a matter of expediency at a particular time. Bank operations may be covered by exemptions today, but those exemptions may be taken away tomorrow simply by the definition of a term in the Securities Act, for example the term “public offering.” As you know, under section 19 (a) the Securities and Exchange Commission has the power to define technical terms in the act.

You gentlemen are aware that Congress has already provided for three Federal agencies to supervise banks and their operations. The Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation all possess and exercise regulatory and visitorial powers with respect to national bank operations; practically all State banks are subject to regulation and supervision not only by State banking departments but also by the Federal Deposit Insurance Corporation; and many of these State banks are also members of the Federal Reserve System.

The prevailing view is that the regulatory powers of these agencies now in effect are ample for all purposes connected with the commercial banking business. We do not believe it desirable or necessary in the public interest, or that it was the intent of Congress to superimpose the Securities and Exchange Commission as an additional regulatory body in the manner contemplated by section 2 (14).

The investment bankers have stated that they are trying to secure for themselves the opportunity of competing on an equal basis under the law. The fact is that there is no real competition between investment bankers and commercial banks. The commercial and investment bankring businesses are separate and distinct fields of enterprise. The investment banker does not accept deposits and hence operates on his own capital; he is primarily a merchant who buys securities for resale to the general public. He has to resell as otherwise his capital would soon be tied up in investory. Commercial banks, on the other hand, are empowered to accept deposits but are expressly prohibited by law from underwriting and distributing corporate securities. Commercial banks are permitted to utilize their capital and a portion of their deposits in the making of loans and the purchase of investment securities for their own investment account. The making of loans and investments is a business and not an incidental proposition to banks and they approach these transactions with a professional viewpoint, with experience and training backed by sources of information which are not at the command of the ordinary individual investor. Not the least important among the factors which enable a bank to appraise a credit risk is the direct contact with company officers and personnel.

It often has been to the advantage of a borrower to borrow from a bank or to sell corporate securities privately, whether or not registration of public offerings was required. There have been times when market conditions or other circumstances have made it practically impossible for investment bankers to make a public distribution of corporate securities of perfectly sound companies, and at such times banks, having knowledge of the intrinsic merit of the obligations of those companies, have advanced large sums of money in private transactions. If registration were obligatory, delays incident to such registration might prevent the banks from stepping into the breach to do emergency financing which might be necessary to avoid defaults and serious loss to thousands of public investors.

There are times when business enterprises need definite assurance that capital funds will be available at particular dates. In such cases commercial banks are able to give long-term commitments as to amount, interest rate, and other terms. Investment bankers, on the other hand, find it difficult to give similar commitments and even before the enactment of the Securities Act did not make a practice of it, because they are merchants of securities and such commitments are not feasible in the face of uncertain market conditions affecting the salability and price of their merchandise. In some cases, while our customers were attempting to arrange for public offerings of securities through investment bankers, our bank entered into contracts to insure the availability of funds if for one reason or another the public offering should not be consummated.

Again, a borrower may expect to be faced with changing business conditions which may make it important to change certain terms of the loan or security issue from time to time. These changes can be made easily where the borrower has to deal with only a few institutions at most, but are practically impossible to provide for after a security issue has been sold to the public. A bank loan is custom made to fit the requirements of the individual borrower, and it retains that particular characteristic throughout its life.

In many cases, loans have been brought to us by investment bankers who were actively engaged in working out arrangements for a sale of securities to the public to provide for the balance of a refunding operation.

It is true that the amended proposal submitted on behalf of the Investment Bankers Association specifically exempts bank loans from the requirement of registrations; but the proposed section 2 (14) still is based on the unsound theory that bank depositors are not now adequately protected.

Before closing, I should like at this time to comment upon certain statements and exhibits presented by Mr. Stewart and other representatives of the Investment Bankers Association, as they particularly refer to my bank and in my opinion are incorrect and misleading.

The chart labeled "Table F,” presented to the committee on November 7 by Mr. Stewart purports to disclose that in the 7 years between 1934 and 1940, inclusive, the Chase National Bank purchased $91,385,000 of corporate securities in private placement. In referring to table F, Mr. Stewart did state that the figures shown thereon included amounts which should, in all propriety, be regarded as bank loans. But, to anyone not analyzing carefully, Mr. Stewart's testimony, table F, with its title, “Corporate securities sold in transactions exempted from the Securities Act registration as not involving any public offering,” creates the impression that the Chase National Bank acquired $91,000,000 of corporate securities through private placement. Any such'impression would be wholly wrong. The fact is the entire amount of $91,385,000 is made up of bank loans and does not include a single corporate security.

As late as November 13, Mr. Bollard, an Investment Bankers Association witness, presented a table purporting to show among other things the amount of private placements consummated during the year 1938 with the Chase National Bank in the amount of $15,333,000. As I stated in regard to Mr. Stewart's testimony on table F we find, upon analysis of Mr. Bollard's table as to the Chase National Bank that it likewise contains no corporate securities, the entire amount of $45,333,000 being made up solely of bank loans. As a matter of fact, there were included in the table two bank loans which were made by my bank at the specific solicitation of Mr. Bollard's own firm, which firm received commissions for this service from the borrowers. It is interesting to note in passing that these two bank loans made possible public offerings headed by the same firm of $110,000,000 of long-term mortgage bonds.

In his opening statement to this committee, Mr. Bollard represented that private placement procedure was extremely damaging to the public. The inconsistency of these two positions of Mr. Bollard is so apparent as to need no further comment.

In conclusion, Mr. Chairman, I wish to state that we wholeheartedly support the endeavors of the investment banking industry to obtain correction and simplification of the Securities Act so as to further facilitate their part in the financing of industry. But we submit that this objective should not be attained through penalizing commercial banks and their customers.

The CHAIRMAN. We thank you, Mr. Love.
Mr. LOVE. Thank you.

The CHAIRMAN. You emphasize the importance of the time factor in selling securities. Do you distinguish between current obligations and long-time obligations in that respect ?

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Mr. LOVE. I emphasize the fact that they could get a commitment from a bank or from an institutional investor which was not possible from investment bankers, for the reasons that they are merchants of securities. Is that what you refer to, Mr. Chairman?

The CHAIRMAN. In part. What I really had in mind is what have you seen in your experience that is favorable to the time required to place issues on the market where they are long-time securities which are involved ?

Mr. Love. Well, I would say that I have had considerable experience in matters of that kind, and as a matter of fact I happen to be a director of a corporation that registered a security for public distribution during the year 1941, and I would say that there was a period of at least 60 days from the time we decided to sell the securities until the time our company actually received its money.

Now, by that I do not mean to say that it took 60 days' time from the time the registration statement was filed with the Securities and Exchange Commission. As a matter of fact, that went through rather speedily, but the time was consumed in preparing the mass of data and information that had to be brought together so it could be inserted in the A-2 statement. And that meant conference with lawyers, engineers, accountants, and I think we did that job rather speedily.

The CHAIRMAN. Well, in the case of private placements that information would all be assembled some place before the issue was sold, would it not?

Mr. LOVE. In the case of a bank loan, so far as my own bank is concerned, where we have had previous banking relations with the company, we have been able to give a borrower assurance in some cases within 15 minutes; in other cases, where we desired additional information, it might take us a matter of a few days or might take a week, depending on the circumstances; but unquestionably the time is much less; and, of course, the other factor which is important is that when we make a commitment to loan it is a firm commitment. By that I mean we definitely agree to loan a certain sum of money at a fixed rate, and then we usually provide that the borrower—let us assume the borrower is a public-utility company and therefore would require the approval of either a State commission or possible the Securities and Exchange Commission, or both, that we will then say that “You may have 30, 45, or 60 days to obtain the consent of these regulatory bodies," we standing by firmly committed all of the time, subject only to legalities and approval of these regulatory bodies.

Now, in the case of a company, a corporate security that is sold through investment bankers, the usual procedure, so far as my knowledge is concerned, is that the banker, the investment banker, would indicate to the issuer what he thought he could pay for bonds; what the coupons should be; and that would be an honest expression of opinion; but it would not be a firm commitment, because usually the actual price is not determined until a very short time before the effective date of the registration statement for the very obvious reason that the investment banker is a merchant and he does not want to commit himself for the goods until he can sell the goods. Have I made myself clear on that?

The CHAIRMAN. Yes. We thank you, Mr. Love.
Mr. LOVE. Thank you.
The CHAIRMAN. Mr. Oliver.




Mr. WIGGINS. Mr. Chairman, may I present before Mr. Oliver makes his statement, this very brief concluding statement of the American Bankers' Association?

The CHAIRMAN. Very well.

Mr. Wiggins. It is more or less a summary of our position, which I thought it might be well to put in—just a couple of pages.

First, the proposed section 2 (14) involves a fundamental departure from the avowed purpose of the Securities Act of 1933, which is declared to be: “To provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof * This proposed change is of grave concern to all commercial banks, both large and small.

In the first place, the proposed section 2 (14), as distinguished from other proposals before your committee, is not of a corrective or clarifying nature in respect of any existing feature of the Securities Act. In essence, it injects a new conception. Introduced here for the first time and reflected in the form of an arbitrary definition, this conception is that a private placement of a security in a bank' is a public offering” of the security because such a private placement is "affected with a public interest” predicated on a theory of affording protection to the depositors of the bank. The exact nature of this public interest or its necessary relation to the fulfillment of the purpose of the Securities Act is not disclosed. By this device the private sale of a security issue to a bank would be declared a “public offering” of the security, with the result that the jurisdiction of the Securities and Exchange Commission would be extended into the banking field in aspects unrelated to the avowed purpose of the Securities Act. This conception we vigorously oppose.

Secondly, a corollary of this new conception is that a bank should be treated as a part of the buying public for whose protection the Securities Act was passed. We cannot accept such a proposal.

Thirdly, we submit that considerations predicated on the protection of depositors of a bank have no fundamental relation to the avowed purpose of the Securities Act and do not justify an extension of the scope of the Securities Act which would result in arbitrarily and unrealistically warping a purely private sale of a security issue into a public offering of the issue and converting the depositors of a bank into the role of the buying public. Furthermore, we also submit that proposals directed to the protection of depositors of banks have traditionally been and properly should be confined to banking legislation and regulation thereunder by the designated supervisory banking authorities. As a matter of fact, the banking laws and the banking supervisory agencies, both Federal and State, provide adequate protection for depositors.

The apparent liberality of the proposed definition in section 2 (14) in excluding a new security issue of $3,000,000 or less or of a maturity of 5 years or less may obscure the fundamental consideration that the adoption of the proposed amendment would rest upon the false premises that the sale of any security issue to a bank

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