ance of advantages lies strongly on the side of vesting that responsibility also in the SEC, to be performed with the advice, of course, of the banking agencies. It is also possible under the bill that the provisions might be administered partly by one or two of the bank supervisory agencies and partly by the SEC. But to the extent that some banks were governed by regulatory requirements different from those imposed upon other competing banks, inequities and claims of unfairness inevitably would arise. In the effort to avoid such inequities, there might ensue a tendency toward lower standards than would be desirable in the public interest. Likewise, if a division of administration among two or more agencies led to different reporting requirements for different groups of banks, this would tend to defeat one of the purposes of the bill, namely, to provide investors with information that would enable them to make useful comparisons among securities. Even assuming that the information required by each of these agencies was entirely adequate, any differences among them would prevent the ready comparison of figures relating to different banks. Of course, it is possible, as well as desirable, that the various agencies might agree on a form that would be the same for all classes of banks. But if all banks were then to use the same form and were subject to the same definitions and instructions, and so forth, there would be no benefit in dividing the administration of this kind of requirement among several agencies when there exists in the SEC an agency that is equipped to handle it for banks along with other classes of issuing companies. Chairman Cary has made it clear that the Securities and Exchange Commission would consult and cooperate with the bank supervisory agencies in order to avoid unnecessary duplication and to assure that the actions of the Commission in this field would be consistent with those of the banking authorities. The Securities Exchange Act already provides that the Commission's reporting requirements, for any company whose accounting methods are already regulated by the Government, must not be inconsistent with those other requirements. Beyond a mere formal compliance with this, I think the public interest will require that a real spirit of cooperation be maintained, and I believe that it will be forthcoming. To sum up the Board's position, we feel that the provisions relating to reports, proxies, and insider trading should be extended to over-thecounter as well as listed stocks and should apply to bank stocks as well as other stocks, but that it would be preferable if those provisions were administered by the SEC and not by bank supervisory agencies. That completes my prepared statement, Mr. Chairman. Senator WILLIAMS. Thank you very much, Mr. Martin. The chairman of the committee, Senator Robertson, asked me to tell you that he had planned to be here and very much regrets that an Appropriations Committee meeting had to take priority this morning. Mr. MARTIN. I understand. Senator WILLIAMS. It is very much regretted. I take it that your objection to the bill's provision for supervision of banks by the appropriate regulatory body really runs to administration rather than to principle? Mr. MARTIN. That is correct, sir. 20-226 0-63—12 Senator WILLIAMS. Just how many member banks are there in the Federal Reserve System? Mr. MARTIN. Something over 6,000. Senator WILLIAMS. Under the bill, your supervision of these requirements would follow only upon your request for this authority., Mr. MARTIN. That is correct. Senator WILLIAMS. And under the bill as it is now written, if you do not request it, the SEC would retain judisdiction. Mr. MARTIN. That is correct. Senator WILLIAMS. You have 6,000 member banks that would fall Mr. MARTIN. That includes national banks, however, which are by mandate required to be members of the Federal Reserve System. Senator WILLIAMS. What banks would fall within your purview and which within the purview of the Comptroller of the Currency? Mr. MARTIN. All national banks would be under the Comptroller, and State member banks would be under our supervision. Senator WILLIAMS. How many banks are in each category? Mr. HEXTER. There are about 4,500 national banks and about 1,600 member State banks. Senator WILLIAMS. Out of our hearings last week there evolved some feeling that perhaps the bill might be amended, not in the direction that you suggested by retaining full authority in the SEC, but, rather, by directing that the supervision of banks be vested directly in the appropriate regulatory banking agency instead of leaving the matter on a request basis. Do you believe that this would be an undue burden on the Federal Reserve Board? Mr. MARTIN. No, I do not think it would be an undue burden, and we will do whatever the committee spells out. I merely wanted to point out that in our judgment the efficiency and effectiveness of this would in our judgment be better if it were administered by the SEC. If the Congress directed us to do this, it would be a burden, but it is something that we could do, of course. Senator WILLIAMS. On another matter, with regard to the disclosure and other provisions in this bill, what do you feel would be the general public attitude about bank stocks? Would the extension of these provisions to banks be a wholesome development for shareholders and potential shareholders of bank stocks? Mr. MARTIN. In my judgment it would be, yes, sir. I see no reason why bank stocks should not be subjected to the same scrutiny that corporate stocks are subjected to. Senator WILLIAMS. There has been a large gap in this area, has there not-over-the-counter shares that have not been subject to the time honored and tested disclosure provisions of the 1934 act? Mr. MARTIN. In my judgment there has, yes, sir. Senator WILLIAMS. Thank you very much, Mr. Martin. We are very pleased to have you. Our next witness this morning is James J. Saxon, Comptroller of the Currency. Good morning, Mr. Comptroller. You probably heard me tell Mr. Martin that Senator Robertson had expressed his regrets over not being here. STATEMENT OF JAMES J. SAXON, COMPTROLLER OF THE CURRENCY, TREASURY DEPARTMENT; ACCOMPANIED BY ROBERT BLOOM, CHIEF COUNSEL Mr. SAXON. Yes, sir. Senator WILLIAMS. He is very sorry. I understand that you have some problems with this bill, Mr. Saxon. I hope that they can be resolved to the satisfaction of all concerned. Senator BENNETT. This has also been my understanding. I am looking forward to hearing your statement, Mr. Saxon. Mr. SAXON. Thank you. Senator WILLIAMS. We are honored to have you with us. Mr. Chairman and members of the committee, I am pleased to have the opportunity to present our views on one provision of S. 1642. That provision would apply to every commercial bank with 500 or more shareholders certain major provisions of the Securities and Exchange Act of 1934. We strongly favor full and complete disclosure to shareholders and potential shareholders of all corporations of a certain size, including banks, and not merely those having 500 or more stockholders, of all the financial and other information necessary for their protection. In the entire history of the banking business, we have been the pioneers in putting into effect appropriate disclosure requirements for banks. We did this on our own initiative solely on the grounds of sound banking policy and without prompting or pressure from anyone. It was pursuant to this policy that immediately after assuming office we started work on regulations requiring the banks under our jurisdiction to furnish their shareholders with minimum. standards of information. Indeed, such information should be available to all parties interested in any corporation's affairs, and in the case of banks, to depositors as well as all other interested parties. We sought to fashion a first set of disclosure requirements to be followed by additional requirements as experience was gained. We put into effect what we considered the most important requirements first and announced our intention to add to these requirements as the banks and our office became accustomed to this new type of regulation and the accompanying administrative machinery. After months of preparation, we have the second installment ready. Moreover, further additions and refinements will be made from time to time as appropriate and necessary. Although we encountered considerable resistance to the regulations when first proposed, now, less than a year after their effectiveness, we are pleased to be able to say the spirit and purpose of these disclosure requirements have been widely accepted by the banks. Of course, there was compliance with the requirements. Indeed, in many instances, there has been disclosure substantially in excess of our requirements, as we expected. It is true that State banks are not subject to our regulations. There is no reason, however, why the other Federal banking agencies having jurisdiction over State banks or State banking agencies should not take similar action. It would appear likely, in any case, that the mounting public interest and acceptance of the steps taken with respect to national banks would in due course of time influence these authorities to act. In order that the committee might know specifically what national banks are now required to disclose, I will briefly run down our regulatory requirements. Effective as of last February 1, every national bank with deposits of $25 million or more has been required to furnish each of its shareholders with an annual report containing as a minimum the following information: (a) Comparative balance sheets as of the close of the last calendar or fiscal year and as of the close of the preceding calendar or fiscal year. (b) Comparative statements disclosing net operating income after applicable Federal income taxes, and net operating income per share for the last calendar or fiscal year and the preceding calendar or fiscal year. (c) A comparative reconciliation of capital accounts which summarizes the changes in capital accounts for the last calendar or fiscal year and the preceding calendar or fiscal year. This reconciliation includes items of nonoperating income or expense. Every such national bank is required to furnish every shareholder a proxy statement in connection with any annual or special meeting of shareholders, for which proxies are solicited. The proxy statement must include all of the information necessary for intelligent voting by a shareholder including the following: 1. The identity, age, principal occupation and the office held by each nominee for a directorship. 2. The remuneration paid to principal officers of the bank. 3. The amounts set aside or approved during the last calendar year for pension or retirement benefits payable to principal officers. 4. If action is to be taken with respect to any bonus, profitsharing or other remuneration plan, the material features of the plan and the identity of the persons who would benefit thereby. The amounts which would have been distributed under the plan during the last calendar year. If the plan may be amended, otherwise than by a vote of stockholders, to materially increase the cost of the bank, the nature of the amendment which may be so made. 5. If action is to be taken with respect to any pension or retirement plan, the material features of the plan and the estimated costs thereof. 6. If action is to be taken with respect to the granting or extension of any options, warrants or rights to purchase the stock of the bank, the following information must be disclosed: (a) the title and amount of stock called for or to be called for by such options, warrants, or rights; (b) the prices, expiration dates, and other material conditions upon which the options, warrants, or rights may be exercised; and (c) the market price of the stock called for or to be called for by the options, warrants, or rights as of the latest practicable date; (d) the amount of stock called for or to be called for by options, warrants, or rights received or to be received by the following persons, naming each such person: (1) each director of the bank or each nominee for election as a director of the bank, and (2) each other person who will be entitled to acquire 5 percent or more of the stock called for or to be called for by such options, warrants, or rights. 7. If action is to be taken with respect to the authorization or issuance of any security, the following information must be supplied: (a) The title and amount of securities to be authorized or issued. (b) If the securities are other than additional shares of common stock of a class outstanding, the applicable information with respect to (1) dividend rights, (2) voting rights, (3) liquidation rights, (4) preemptive rights, (5) conversion rights, (6) redemption provisions, (7) sinking fund provisions, (8) interest rate, and (9) maturity. (c) If the securities to be authorized or issued are other than additional shares of common stock of a class outstanding, the comptroller may require financial statements comparable to those contained in the annual report. 8. If action is to be taken with respect to any amendment of the articles of association, a statement of the reasons therefor and the general effect of such amendment and the vote needed for its approval. Our existing regulation requires that a report be filed whenever a change in stock ownership of the bank occurs of a magnitude sufficient to effect a change in control of the management of the bank. The amendment to be issued this week will expand this requirement to include a report to be filed whenever any officer, director or beneficial owner of 10 percent or more of the bank's stock purchases or sells any share of such stock. Our amended regulations will require that special information be included in proxy statements before meetings at which shareholders will vote on merger transactions. These requirements will include: (a) Dissenters' Rights of Appraisal. The rights of appraisal or similar rights of dissenters with respect to any matter to be acted upon; any statutory procedure required to be followed by dissenting security holders in order to perfect such rights; (b) Amount of Stock Outstanding Entitled to Vote. The total number of shares outstanding entitled to vote and the date on which the record of stockholders entitled to vote at the meeting will be determined. If the right to vote is not limited to stockholders of record on that date, the conditions under which other stockholders may be entitled to vote. (c) Plans or Agreements of Mergers, Consolidations, Acquisitions of Assets. 1. The material features of the plan or agreement, the reasons therefor, the factors considered in arriving at the terms, the general effect thereof upon the rights of existing stockholders and the vote needed for approval. 2. The names of the directors and principal officers of the merging banks together with the number of shares of stock |