Mr. MARTIN. I will be glad to check that, and put an answer in the record on it.

Review of the Board's records reflecting appearances of counsel before the Board on behalf of applicants for Board action, as well as inquiry of the Board's staff as to any such representations, does not reflect the appearance in a representative capacity of Nova & Seymour or of the individuals whose names appear in the firm name.

Mr. MULTER. I do appreciate that offer of cooperation.

Just one other matter, and that is the reference to the bank in the Bahamas.

Does your Board have any jurisdiction over the operation of any banks in the Bahamas?

Mr. MARTIN. I don't think directly. We have had corporations that have an interest.

Mr. MULTER. There are any number of Americans, are there not, if you know-American firms, American banks, that do have banks or trust companies organized under the laws of the Bahamas?

Mr. MARTIN. Well, I know of a number that have interests in them.

I don't know of any controlling interest.

But I may be wrong on that. I would have to check that.
Mr. MULTER. I know that some of these matters may

I don't want to catch you unprepared.

be new.

And

I do hope that you will supplement, if you find you have any other information-you will supplement your answers after you check your

records.

I would like to state for the record that within my knowledge the First National City Bank of New York has a trust company which it organized in the Bahamas, under the Bahamian law. The Chase Manhattan Bank of New York has such a trust company, which it organized, and is operating under the laws of the Bahamas there. And there are any number of industrial corporations and other American interests that have trust companies that are operating there.

If you know or have anything in your records that indicates that any of these operations are improper or illegal, or are set up in order to avoid your regulations, or the law as written by the Congress as they affect financial institutions, I would like to have you supply the facts to us for our record.

Mr. MARTIN. I will have the records check.

Two member banks of the Federal Reserve System have branches in the Bahamas. Three member banks, including the two with branches, have wholly owned subsidiaries operating in the Bahamas, and one member bank has a minority interest in a trust company operating in the Bahamas.

So far as is known, none of these operations is improper or illegal or set up to avoid any regulations of the Federal Reserve.

Mr. MULTER. So far as I know, there is none. But if I am wrong, I would like to have the record show it. Mr. Patman?

Mr. PATMAN. I want to follow through, Governor Robertson, with the questions I asked this morning. I was trying to make the questions short this morning; I was thinking there might be short answers to the questions whether the banks make all the local loans they should.

We have in this country now, not only the commercial banks making loans, but we have the Small Business Administration making loans, because the banks do not adequately serve the credit needs of small business; and we have the Farmers Home Administration that makes farm loans. There are some counties in this country, I am told by people who should know, where the banks refuse to make any loans to farmers.

Generally they don't make them, or we wouldn't have such a big demand for loans through the Farmers Home Administration.

Then we have the production credit associations; and we have small loan companies all over the country.

I thought these facts alone would be recognition of the fact that the banks could probably make a lot more local loans than they do, and, therefore, they should be encouraged, through powers of supervision that this bill contemplates, to enlarge upon their local loans and do less investing in Government bonds and tax-exempt securities and other outside paper.

Did you take that into consideration this morning in your answer? Mr. ROBERTSON. No, I did not. I wasn't thinking in those terms at all.

Mr. PATMAN. I was afraid you were not. That is the reason I wanted to invite your attention to it.

Mr. ROBERTSON. My response would be that certainly there have been times in the past, as I indicated this morning in connection with an answer to another question, that banks have not filled credit needs in some communities, and that is why these various other types of organizations have been developed to fit into a given situation.

If you take it as it is today, and the other kinds of institutions are in the field, I suspect the banks are competing with those other kinds of institutions for some of those very loans.

There may be instances in which banks are not meeting the credit needs of their community adequately, and that is why the other organizations are growing.

But I don't think one could generalize on this. I could not generalize on the basis of my knowledge to the effect that banks are not really competing. I think they are competing.

son.

Mr. PATMAN. I have to differ with you on that, Governor RobertI think the facts are sufficient to generalize that the banks have not been doing their homework in the local area, or their statements would show a higher percentage of loans and discounts and a less percentage of investment in these bonds that I have mentioned.

The fact is that they are not competing in these farm loans at alland in many cases they are not competing for small business loans, but are refusing to make them.

And the fact that the country is flooded with finance companies and small loan offices, all over the Nation, seems to me to justify a generalization.

But, of course, you have your viewpoint, and I have my viewpoint. Do you have any way of ascertaining the number of small loan offices in the Nation?

Mr. ROBERTSON. I wouldn't know.

Mr. PATMAN. Do you know, Mr. Martin?

Mr. MARTIN. The number of small loan offices-no, I don't.

Mr. PATMAN. You would have to get that from each State, I assume. Mr. NOYES. We can provide that from our statistics.

Mr. MARTIN. Mr. Noyes, you know, is the head of our Department of Research.

Mr. PATMAN. Will you supply the information he has indicated to be available?

Mr. MARTIN. Yes.

Mr. MULTER. When it is received, it will be made a part of the record.

(The information follows:)

According to a survey conducted by the Board in mid-1960, in connection with the maintenance of its statistical series on consumer credit, there were 6,431 sales finance company offices, 8,947 consumer finance company offices, and 3,205 other personnel finance company offices in the United States at that time. tails see Federal Reserve Bulletin for October 1961, p. 1140, et seq.)

(For de

Mr. PATMAN. When the examiners go into the local banks, do they encourage the local bank to accommodate the people in the local area first, or do they have any recommendations to make on that?

Mr. ROBERTSON. They would make no recommendations whatsoever with respect to loans that should be made. They go into the soundness of the loans on the books. They would never go outside or advise a bank that they ought to be making more loans. This is one of the things the examiners don't do.

Mr. PATMAN. I would like to direct this question to Mr. Martin: Do you think that we should return to eligible paper, Mr. Martin, so as to encourage the local bank to pursue the small businessman and the farmer and the rancher? Would that be helpful?

Mr. MARTIN. Well, they can use whatever paper they have now. Mr. PATMAN. I know. But they don't do it, do they? Generally they don't.

Mr. MARTIN. In some instances they have not needed to. But, of course, this is a matter of judgment.

I think it would be bad to ask the examiners going into the area to tell the banks what they ought to do.

Mr. PATMAN. No, I wouldn't say tell them. But I think it ought to be reported to you, and to other people in authority, to let you know that they are not doing their full duty.

The way I look at the banking system is this: The charter for a local bank, of course is worth a lot of money, as it should be. It is a great privilege.

It is a charter of the Government's function to manufacture money, fractional reserve 10 to 1. I don't object to the fractional reserve system; I am all for it, but with the understanding that this great privilege, should be used to help first, the people in the area where the bank is charatered. That is the reason I object to absentee ownership.

I don't think these banks should be sold out to people elsewhere, to use the privilege of manufacturing money largely to invest in Government banks.

Therefore, I think it would be within the province of an examiner to make sure that the authorities for whom he worked knew that these banks were not carrying out their duties and responsibilities. Would that be asking too much of them?

Mr. MARTIN. Well, the banker has a very real responsibility which is recognized, Mr. Patman. The judgment on whether he is discharg

ing that responsibility or not is always a difficult one to make. And certainly we in the Federal Reserve want to develop and get all the information we can with respect to that, because we, like you, want to see sound banking encouraged throughout the country.

Mr. PATMAN. Certainly. And a profitable banking system. I know it has to be profitable, to be a good one, and we need the very best. But I feel that they have been overlooking their local responsibilities, and there is where I think that absentee ownership comes in in a devastating way.

I just cannot see this absentee ownership of banks.

I think our country today is suffering from absentee ownership of businesses that could be conducted by local people, particularly absentee ownership of the local banks. That is No. 1.

No. 2, retail stores of almost all kinds and services, these can be operated by local people. The way I have always considered it, where you have a community with local concerns, every dollar placed in that community travels around maybe 10, 15, 20, 30 times before it leaves town.

But now, with all the businesses absentee owned, the dollar goes to the absentee-owned store, and it goes to New York or Chicago or to one of a few other large centers that same night. This hurts all the little communities over the Nation.

Can't you see where that enters into the drying up of the little towns, Mr. Martin?

Mr. MARTIN. Well, I think it would be preferable not to have absentee ownership. But if you cannot get the ownership any other way, this is a means of getting capital into the business.

Mr. PATMAN. I thoroughly agree with you. But, you see, I prefaced my statement with businesses that could be conducted by local people. You know, there are so many businesses that can be conducted by local people just as well or better than by the absentee owners. These businesses, I think, should be encouraged.

Now, I was always under the impression that the reason bank stock was not sold on the exchanges was because they didn't want to encourage people elsewhere to buy bank stock in the local community— they wanted that bank stock to be owned locally, in the area where the bank is chartered.

The law used to require that directors had to live within 25 miles of the bank. Of course, that was changed to make certain exceptions. But am I correct in my belief that the reason that bank stock was not permitted to be sold on exchanges, was because they didn't want to encourage ownership elsewhere?

Mr. MARTIN. I don't know. That certainly was one of the elements originally. But the failure to list bank stocks on exchanges has come. largely because of the requirements of the exchanges

Mr. PATMAN. Of the exchanges themselves. Having been the head of an exchange yourself, I had an idea you have knowledge of this. Of course I know that you have.

I think it should be prohibited-bank stock, from being sold generally because you might wake up in a little town some morning and find that your stock had gone to a New York banker, or to a San Francisco banker. You would not know who owned your bank.

Mr. MARTIN. Well, the local bank, of course, is distinct from some of our big New York City banks today that have thousands of shares of stock out in the hands of a great many holders.

Mr. PATMAN. Yes, sir. But I do think that local ownership should be encouraged. Don't you think so?

Mr. MARTIN. I do indeed.

I am right with you on that.

Mr. PATMAN. Thank you, Mr. Chairman.

Mr. MULTER. I think, Mr. Martin, you were in the midst of one answer with reference to listing bank stock. Isn't part of the reason that bank stock is not listed on the exchange is because the exchanges have requirements that listed institutions make disclosures which the banks were unwilling to make in connection with their operations and in connection with their proxy solicitations and things of that kind?

Mr. MARTIN. Well, the original history of that, Mr. Multer, was that the proxy statements and the general requirements for corporations were different than for banks. And we recognized that. That is why we have a difference between banks and ordinary corporations. And not that the banks were unwilling to give the information.

Of course we were dealing at a time, also, when there was more local ownership of the type that Mr. Patman is talking about. And when you get some of these large banks today with the stockholders distributed from Maine to California, you have got an entirely different situation.

I think a time may come when those securities might well be listed on a stock exchange.

Mr. MULTER. Particularly with all the new requirements for fuller disclosure, and if the Comptroller's rules as to proxy information that must go out in connection with proxy solicitation remains effective, they might just as well give all this information voluntarily and get. listed, too.

Mr. MARTIN. That is right.

Mr. MULTER. Now, there is an important distinction to be drawn, is there not, between ownership and management of these banks. It doesn't make too much difference where the money comes that is being used as the capital for the bank. If the bank doesn't have the kind of local management and management in its branches or head offices that is going to serve the community, they will very soon cease to get any deposits there.

Mr. MARTIN. That is correct.

Mr. MULTER. Now, isn't one of the areas of controversy that gives you the most trouble that occurs between the examiner and bank management, when the examiner will say, "You have too much money in this kind of investment, and you haven't got enough in that kin and the bank manager says, "This is for us to determine

to do is tell us if our money is invested within +

restrictions laid down in the law and regulati

Am I not right on that?

Mr. MARTIN. Yes. But it is a good thin

these points with management, because in its position, it is a good thing for th ally.