each own beneficially in each of the banks as well as the number of shares each will receive in the merger of consolidation. If any director or officer has entered into or has agreed to enter into an employment contract with the resulting bank, the name of such officer or director together with a brief description of the contract.

3. The material terms and status, including estimated increased cost, of any pension or retirement plan or proposed plan and the principal provisions of any bonus or profit sharing plan.

4. A table showing the adjusted book value and market value per share of each bank for the last 3 years together with the pro forma book value per share of the resulting bank.

5. If available, the range in bid and asked prices for the last fiscal year, together with the current quoted market (a) The most recent balance sheet of each bank. 6. The following financial statements must be furnished: (a) The most recent balance sheet of each ban.

(b) Comparable profit and loss statement for the last 2 fiscal years for each bank. As a continuation of each profit and loss statement, the earnings per share after all taxes and the dividends paid per share.

(c) pro forma combined balance sheet and profit and loss statement giving effect to the necessary adjustments with respect to the resulting bank.

7. In cases where the resulting bank will be a subsidiary of a bank holding company and shares of the holding company are to be issued to stockholders in lieu of shares in the resulting bank, the financial information required above must be furnished for the holding company.

8. Where stockholders are to receive shares of a holding company, such shares must be fully described and any material differences in the rights accorded holders of the holding company shares, as opposed to the bank shares to be exchanged, shall be set forth.

Our amended regulation will spell out additional information to be furnished shareholders in the case of a proxy fight over the election of directors. These requirements will include the following information concerning every important participant on both sides, the management and dissenting group. The term "participant" will include principal officers and directors of the bank or banks involved in the contest, nominees for whose election proxies are solicited, and any other person, acting alone or in conjunction with one or more other persons, in organizing, directing, or financing the solicitation.

The following information must be furnished with respect to each person who is a participant in any proxy contest in respect to any special or annual meeting of stockholders at which directors are to be elected:

1. His name, age, and business address.

2. His principal occupation or employment, the name, type of business, and address of the corporation or other organization in which such employment is carried on.

3. If he has been a participant in any other proxy contest within the past 10 years, the principals involved, the subject

matter of the contest, the outcome thereof, and his relationship to the principals.

4. If within the past 10 years he has been convicted in a criminal proceeding (excluding traffic violations), the dates, nature of conviction, name and location of court, and the penalty imposed or other disposition of the case.

5. The amount of stock of the bank or any of its affiliates owned beneficially, directly or indirectly, by him or his family.

6. The amount of such stock owned of record but not beneficially by him or his family.

7. If any of the stock specified in items 5 and 6 was acquired in the last 2 years, the dates of acquisition and amounts acquired on each date.

8. If he has entered into any arrangement or understanding with any person regarding future employment or with respect to any future transaction to which the bank or any of its affiliates will, or may be a party, a description of such arrangement or understanding.

9. Whether or not he will bear any part of the expense incurred in the solicitation, and, if so, the amount thereof.

In addition, every covered national bank will be required to deliver to each prospective purchaser of any new issue of stock of the bank an offering circular containing essential and material information concerning the issuer to enable the professional securities analyst, present and potential investors, depositors and the public at large to make a judgment as to the investment quality of the issue in question.

Although our offering circular requirement will be another substantial innovation, as far as legal requirements are concerned, nonetheless, every major new issue of bank stock in recent months has been made by means of an offering circular which contained information as complete as any nonbank offering circular I have seen. For example, I would like to distribute to each member of the committee a copy of the circulars used by the Franklin National Bank of Long Island last September in connection with the marketing of $20 million of preferred stock. I would also ask the committee to take note of the circular issued just this week by the Security National Bank of Huntington, Long Island, in connection with a recent issue of common stock.

(The circulars referred to follow Mr. Saxon's testimony, p. 184.)

Mr. SAXON. By law, the securities of national banks are issued only with the approval of the Comptroller of the Currency, and, hence, the purchaser of these shares will be buying a security based on values, the existence of which is the responsibility of a governmental official. This is a crucial protection which only the investor in a national bank stock can enjoy.

While it is obvious that we consider disclosure of great importance, we regard direct supervision of banks of greater value. The combination of these two forms of public control gives the bank investor much greater protection than any other investor. No one should denigrate the direct supervision of banks as an effective means of public control. The continuous internal supervision, regulation, and examination of banks by Federal and State bank supervisory agencies provides a protection to investors in banks which is far greater than that af

forded by disclosure alone. For example, the National Bank Act requires that a complete examination at least three times in every 2-year period of the books and records of each national bank must be made by a bank examiner employed by the Comptroller of the Currency. Each of these examinations involves a detailed analysis and valuation of the assets and liabilities of the institution. This supervision provides protection for depositors and shareholders alike which is not available to investors in any other type of corporation.

We pass on the full details of such capital changes, including the relationship of the offering price to book value and to market value. No change in capital structure which would water the holdings of existing shareholders, or which conversely would cause an undue accretion to the book value of existing shares at the expense of new investors, would be approved.

Mr. Cary, in his statement to the committee, criticized our annual reporting and proxy rules as falling short of those issued by his agency. We are puzzled by this criticism because in another part of his testimony he emphasizes that the banking agencies will be free under the bill to apply their disclosure requirements in a manner which in their judgment would be most appropriate and which would best synchronize with their traditional supervisory and administrative practices. This criticism is a clear indication of one of the most undesirable features of the bill, which is that it requires the banking agencies to administer an act which for almost 30 years has been the exclusive responsibility of another agency. The delegation of authority to the banking agencies would soon prove illusory if every deviation from SEC regulations, interpretations and policies would be subject to challenge and criticism by that agency.

The specific criticisms made by Mr. Cary of our regulations would appear to stem from lack of familiarity with the laws and administrative procedures under which our office operates. Specifically, we refer to the following statements made to the committee by Mr. Cary:

He stated that our regulations did not provide for prior review by our office of proxy materials prior to their distribution. He is understandably unaware of the fact that our bank examiners, who visit each bank three times in every 2-year period, are under instructions to check carefully the last proxy statement used by the bank and to note in their report any deviation from our regulations or any misleading or inaccurate material in the statement. Also, even before our regulation was published, it had been the custom of most banks to submit their notices of meeting to our office for prior review, and this custom has continued and has been reinforced by our expanded proxy requirements.

Although it was contained in our first drafts, it was decided that a specific provision concerning false or misleading material would not be necessary in view of the heavy sanctions which would befall any bank management which was guilty of fraud of any kind. For this same reason it was decided not to rely upon private actions brought by shareholders for enforcement of our regulation. This is a concept which is foreign to bank regulation. We believe that it is clearly more effective and preferable for law enforcement to be accomplished directly by the responsible regulatory agency, rather than through

private lawsuits with their uncertain effectiveness and their attendant risk of abuses, such as strike and nuisance actions.

Mr. Cary cites that there is no express provision in the banking laws specifically providing for an injunction action by the Comptroller of the Currency. Firstly, we would reply that neither is there any provision or any court decision indicating lack of such authority in the Comptroller. The reason for the lack of judicial precedent on this question is simply that the enormous weight of the authority of the Comptroller over the national banks is traditionally such that with rare exception the banks comply with his requirements and instructions without resistance or resort to the courts. It has, thus, been over the years virtually unnecessary for Comptrollers to resort to the courts for enforcement of their requirements. Nonetheless, at any time it seemed necessary for us to do so, we would not hesitate to seek recourse to injunction procedure, and, in my opinion, the courts would respond.

Mr. Cary cites as a "serious shortcoming" in our regulation a failure to require that annual reports be submitted to shareholders before the date of the annual meeting. Mr. Cary is evidently unaware of the provisions of section 71 of title 12 which require that the annual meeting of a national bank must be held during the month of January. This old statutory requirement makes it physically impossible for a bank with a large number of shareholders to prepare, print and mail an annual report with December 31 figures at the same time as its proxy statement and notice of annual meeting. However, we know of no instance where the figures for the close of the calendar year are not available and read to shareholders present at the meeting.

We completely agree with Mr. Cary that it would be highly desirable to have a copy of the annual report in the hands of each shareholder at the same time his proxy is requested.

To that end, we have prepared an amendment to section 71 which would eliminate the obsolete requirement that the annual meeting be held during the month of January, and, instead, permit the meeting to be held at any time and place specified in the bank's bylaws. We have this amendment ready and will submit it through the usual Treasury channels at an early date, and we urge its approval. If this change is adopted, we would immediately amend our regulations to require that the annual report be mailed at the same time as the notice of annual meeting.

Mr. Cary stated that our proxy statement did not specify that information be given about the interests of officers and directors in material transactions or matters to be acted upon by shareholders. As I indicated earlier in my testimony, our amended regulation will require that such information be given in connection with any merger transaction being voted upon. In addition, national bank shareholders are protected by specific statutory provisions such as 12 United States Code, sections 375 and 375a, which prohibit conflict of interest transactions. They also have the benefit of the criminal laws against misappropriation of bank funds. If experience suggested to us that additional requirements in this area were needed, we would not hesitate to impose them.

Finally, Mr. Cary says that our regulation is "only applicable to some national banks." In answer to this, we would point out that

our regulations, which apply to every national bank having deposits of $25 million or more, cover more banks than does this bill with its cutoff point of 500 or more stockholders. If a figure of 1,000 shareholders is taken, as has been recommended to this committee by previous witnesses, our regulation covers many more. In fact, may I point out here our regulation would cover $130 billion of a total of $160 billion of National bank assets in this country today.

I would also later like to get into the comparison of the coverage of our regulations vis-a-vis the SEC proposal to show the extended coverage which our regulations presently provide.

We earnestly believe that our existing and impending disclosure requirements are a giant forward stride in protecting investors, present and future, depositors and the public at large.

As the members of the committee well know, it was not considered necessary or desirable to include banks within the provisions of similar legislation whenever it has been proposed herebefore. The Securities Act of 1933 contains a specific exemption for securities issued by banks.

The Securities and Exchange Act of 1934, although not containing an express exemption, does not apply to banks by virtue of the fact that bank stock is not listed on national securities exchanges. The Investment Company Act of 1940 contains specific exemption for banks from the provisions of that act. The Frear bill introduced in 1950 contained an exemption for bankstock as did the Fulbright bills of 1955 and 1957. On all of these occasions, the Congress was of the opinion that it was not necessary to subject banks to additional disclosure requirements.

What conditions exist today as to national banks which did not exist then? The most pertinent change in circumstances would appear to exert its influence in precisely the opposite direction than is proposed by the pending bill. Today, the national banking system is being required by regulation to disclose essential and material information to shareholders, which was not the case in any of the previous periods I have just mentioned. There would thus appear to be substantially less reason today for subjecting national banks to provisions of a law which recent Congresses have considered undesirable and inappropriate for banks.

The genesis of the proposed legislation is based upon the purported conclusions of the special study of securities markets. However, an examination of the special study findings which deal with the present disclosure practices of corporations including banks, now sought to be regulated, do not contain any specifics which would tend to support in any way the extensive reporting requirements which the bill would impose upon banks. A careful examination of the special study reveals no finding of any specific abuse or fraudulent practice of any kind on the part of banking corporations. If the special study group has any information of this nature not yet published, we feel that it is incumbent upon them, and we hereby request, that such information be turned over to our office immediately for appropriate action.

This office has fully adequate power to impose on national banks any disclosure requirements which it believes to be consistent with the public interest, the interests of shareholders and of depositors. It is unnecessary to state to the members of the Banking Committees