The CHAIRMAN. Let me just interrupt to ask you, does this happen every time there's a vote on margin requirements, that those who have a stake recuse themselves?

Dr. BRIMMER. No. I was addressing myself, Mr. Chairman, to this narrow question of the behavior of the silver market from September through March and the conditions for governing decisions on the date you cited. And all of the authority was vested in the committee.

The CHAIRMAN. Let me ask Mr. Berendt one other question.

INTERLOCKING DIRECTORSHIPS

There appears to be serious problems raised by interlocking directorships among the various boards of trade and representatives of the major brokerage houses. For example, Merrill Lynch, the Nation's largest brokerage firm, has present or former officials serving on the board of the following six exchanges: the American Commodities exchange, the Mid-America, Comex, the Chicago Board of Trade, recently approved New York Futures Exchange, and the Chicago Mercantile Exchange, on which two Merrill Lynch officials serve.

Now, four of these exchanges trade silver or silver coins, and four trade financial futures with different maturities of Treasury obligations. The point is that these exchanges compete with one another. This is only one example of interlocking directorates. Now, given the important regulatory responsibilities between margins and position limits expected of the boards of trade, don't such conflicts of interest and cobwebs of interrelationship interfere with the dispassionate disinterested discharge of the exchange's public functions?

Mr. BERENDT. We don't believe so, Mr. Chairman. Even those though firms, or that particular firm, may be represented on several boards within the industry, the members are different individuals. In many cases they come from different areas within the organization. They may represent different interests within the organization. Therefore, in terms of their ability to operate as members of the respective boards, we feel that they can do so and do so responsibly.

The CHAIRMAN. Well, without reference to the particular individuals and motivations, do you think that such dual and triple board memberships respond to the grave concerns expressed by Harold Williams-who, as you know, is Chairman of the SEC, who was here yesterday-and others about the duties and responsibilities of directors? What does it say of self-regulation by the exchanges if major firms can exert influence on firms trading silver futures contracts?

Mr. BERENDT. Well, Mr. Chairman, these firms are active in the industry and, whether represented on the board or not, they would have their views expressed. We don't believe that jades the selfregulatory process or affects it any way.

The CHAIRMAN. Aren't there possible antitrust violations?
Mr. BERENDT. We don't believe so.

The CHAIRMAN. How many public directors do each of your exchanges have at present? Let me just run down the list.

Mr. BERENDT. We now have spaces for up to four, and we presently have one.

The CHAIRMAN. You have one. You have a potential for three more?

Mr. BERENDT. Yes, sir.

Mr. WILMOUTH. We have three public directors, plus myself. I consider myself to be a public director in that I am not authorized to trade and I'm not a member of the board of trade. So out of 21, I consider us to have four.

The CHAIRMAN. Dr. Yeutter?

Dr. YEUTTER. Yes. We have three at the moment.

The CHAIRMAN. Out of how many?

Dr. YEUTTER. A few months ago we authorized an additional three, so we will then have six out of what will be 24. And I would just add, since I have the microphone, that I have been very sensitive to this issue from having spent 61⁄2 years in Washington, D.C., in the Government, and I was somewhat concerned about this as I entered this industry.

And clearly, one can make a theoretical case here for potential conflicts, but I have just not found that to be a question. As a practical matter, in my judgment, we have been able to avoid conflict really quite readily on our board.

Mr. VERNON. The Kansas City Board of Trade is primarily a commercial market. There is only about 10 percent speculative activity there, so therefore, at the present time, we have no public members other than myself. I am a paid staff person and sit on the board. I am not a member and do not trade.

The CHAIRMAN. My time is up. Let me ask just one more question, and then I am through. But I must ask Dr. Brimmer a question.

And, Dr. Brimmer, as I say, you know of my great regard for you. In fact, you were my choice for chairman of the Federal Reserve Board, and I made it pretty clear to the adminstration. Maybe that is why they didn't choose you. [Laughter.]

The CHAIRMAN. At any rate, Dr. Brimmer, what is the difference between giving an ex-Fed Governor, with no expertise in futures trading, authority over margins versus giving the same authority to the current Fed membership, who are at least publicly accountable?

Dr. BRIMMER. Since I was the ex-Fed Governor and the one to whom the authority was given, I naturally have a short-sighted view, Mr. Chairman. But in all seriousness, I was able to devote somewhat more time and did devote more time than the typical member of the Federal Reserve Board would be able to devote, given all of the other responsibilities they would have. This authority was lodged in a special committee for this particular commodity only. There were other commodities on Comex, wherein I had no such authority. As Chairman of the Control Committee, I did not have similar authority over copper and the other contracts. It was only with respect to silver, and it was carved out for that purpose. I would think there is a great deal of difference between giving it to a public member rather than to a member who owns a seat. I was delighted to hear that there are other exchanges which, for the most part, also have public members. I would expect in the future

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that, if similar issues were to arise, steps might be taken to lodge a subcommittee of public members with substantial responsibility for the same thing.

The CHAIRMAN. Senator Stewart.

Senator STEWART. I would like to ask the question, Mr. Chairman-and I won't belabor the committee's time, but I would like Dr. Brimmer to if he would, is provide us those foreign banking institutions who were participating at this time if there were other banking institutions.

[The following letter was received for the record:]

Hon. DONALD W. STEWART,

Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, D.C.

BAER MARKS & UPHAM, New York, N. Y. July 11, 1980.

DEAR SENATOR STEWART: As counsel to Commodity Exchange, Inc. ("Comex"), we are responding to your inquiry to Dr. Andrew Brimmer at the hearing of the Committee on Banking, Housing and Urban Affairs that took place on May 30, 1980. That inquiry related to foreign banking institutions that maintained silver futures positions on Comex from September 1979 through March 1980.

Reporting rules of Comex require member firms to identify all accounts that own one hundred or more Comex siver futures contracts. Based upon those reports, we are able to advise you that the only foreign banking institutions of which we or Comex have any knowledge, that maintained silver futures positions on Comex during the relevant period were as follows:

Banque Populaire Suisse, Cie de Banque d' Investissement, Banque de Paris et des Pays Bas, Union de Banque Suisse, J. Henry Schroeder Bank A. G., Citibank N.A. Zurich, Banque Arabe et Internationale d'Investissement, and Swiss Bank Corporation.

We note, however, that the position of Swiss Bank Corporation may have been a domestic rather than foreign position. To the extent that any foreign banking institutions maintained positions on Comex of less than one hundred contracts, those positions would not have been subject to the Comex reporting requirements and neither we nor Comex would have any knowledge thereof.

If we can be of any further assistance to you, please do not hesitate to contact us. Respectfully yours,

MARK A. BUCKSTEIN.

The CHAIRMAN. Thank you, gentlemen, very much. We are very much in your debt, and we thank you very much.

Our next panel is Richard Thomas, president of the First National Bank of Chicago; Elvis Mason, chairman of the board of the First National Bank in Dallas; Bros S. Berkovitch, senior vice president of Morgan Guaranty Trust Co.

I must say that all of these witnesses are appearing under subpena from the committee.

I'm going to yield first to Senator Tower.

Senator TOWER. Thank you, Mr. Chairman. I appreciate your yielding to me, and I want to welcome this distinguished panel of bankers to the committee.

I have personal knowledge of one of them, Mr. Elvis Mason, who is chairman of the board of the First National Bank in Dallas, one of the most progressive financial institutions in the country.

Unfortunately, I have an irrevocable conflict at this time that involves my responsibility as the ranking member on the Armed Services Committee. I will not be able to stay for the entire testimony.

I might say, however, Mr. Chairman, that I have looked into the $1.1 billion loan to the Hunts on my own initiative with the use of professional staff. I have come to the conclusion that the banking

institutions involved in no way ignored the lending criteria which guide their loan policies generally. All evidence to date suggests that the collateral for the loans is sufficient to secure complete repayment. I am satisfied that these banks have the facilities for evaluating the worth of the collateral, and I am satisfied that they did not take any shortcuts in evaluating the credit worthiness of the borrowers, and indeed if the consequence of the loan not being made might be some sort of undesirable aberration in the marketplace, then I would say that these banks have performed a useful public service function.

And I want to again express my welcome to them and to the committee and express my regret that I have, as we sometimes have around here, conflicts of interest between and among my respective committee responsibilities.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Tower.

Mr. Thomas?

STATEMENT OF RICHARD L. THOMAS, PRESIDENT, THE FIRST NATIONAL BANK OF CHICAGO

Mr. THOMAS. Mr. Chairman, my name is Richard Thomas, president of the First National Bank of Chicago. I have no prepared statement today. We are happy to be here at the invitation of the committee to answer whatever questions you might have.

We thought from the vantage point of our particular bank it would be more useful if the time allocated to me was devoted to whatever questions the members might wish to pose.

The CHAIRMAN. Very good. Thank you, sir.

Mr. Mason?

STATEMENT OF ELVIS L. MASON, CHAIRMAN OF THE BOARD, FIRST NATIONAL BANK IN DALLAS

Mr. MASON. I do have a statement I would like to read into the record. It is brief.

The Chairman. All right, sir. If it is brief, we welcome it especially.

Mr. MASON. Mr. Chairman and distinguished members of the committee, my name is Elvis L. Mason and I am from Dallas, Tex. I am chairman of the board and chief executive officer of the First National Bank in Dallas.

In reviewing Chairman Proxmire's letter inviting me to testify and the subpena issued for my testimony, it seems to me that the most useful information I can provide this committee relates to the $1.1 billion credit facility arranged by a group of banks for Placid Oil Co. for which First National Bank in Dallas and Morgan Guaranty Trust Co. of New York serve as coagents. In limiting my written testimony to certain matters relating to the Hunt brothers and Placid Oil Co., I understand that the committee's inquiry is of a much broader scope and I will be pleased to respond to specific questions on which I might be able to offer an informed opinion. Because of our bank's lack of participation in commodities lending in general, I would respectfully like to defer considerations in this area to those banks and witnesses who are more qualified to make comments and recommendations on those subjects.

As to the Placid Oil Co. loan, I did have direct involvement in the decision to initiate the credit facility and believe that I can, with some degree of accuracy, provide an accounting of why and how that debt restructuring took place.

Within that context, it seems appropriate for me to say something about the background from which we were proceeding.

For nearly 50 years, the Hunt family, and their many and extensive family enterprises, have been valued customers of First National Bank in Dallas. These family businesses affect several thousand people and extend considerably beyond Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt, the three brothers, who have been the subject of considerable public interest arising out of their activities in the silver markets.

Although First in Dallas does have major credit relationships with this entire family and their affiliated enterprises, our bank did not have any loans secured by silver. The loans which our bank has outstanding are not included in the credit restructuring resulting from the large loan to Placid Oil Co. and are secured by other types of collateral which we deem to be adequate in value to justify the credit extended.

Since First in Dallas was not extending loans based on silver as collateral, we did not have specific knowledge of the extent of the Hunt Borthers' holdings or commitments in the silver markets until late March and early April of this year.

Considerable work was done by our bank in late March and early April, after it was publicly known that problems existed, to assess the seriousness and the magnitude of the problems resulting from the precipitous drop in the silver markets and the obviously large positions held by the Hunts and their related entities. This assessment reflected a very unfortunate and serious situation over which we developed great concern once a reasonably complete picture emerged. Northwithstanding whatever judgment one might wish to make regarding the circumstances which caused this situation, it was apparent that some action should be taken to avoid further problems in the financial and credit markets in general, even though the extent of such potential developments was exceedingly difficult to assess in a definitive way.

CREDIT FACILITY FOR PLACID OIL

On Friday, April 4, after several meetings with the Hunts, our bank requested Morgan Guaranty to join our bank as coagents on a proposed credit facility for Placid Oil Co. First in Dallas and Morgan were already serving as coagents on a major Placid loan which was syndicated among a group of banks in 1979 and is presently outstanding. The new credit facility has been consummated and funds have now been advanced. I believe this debt restructuring has produced positive benefits in stabilizing the financial and credit markets in general. This action was taken entirely by the private sector based on a commitment and desire by the Hunt brothers and members of their immediate families that the problem should be solved without creditors, of any nature, being damaged in the process.