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bition in the bill against the making of short term loans by banks which are acting as trustee for unsecured or short term issues. We at present are discussing with Mr. Douglas several other matters of some importance: One is the exclusion from the provisions of this bill of issues of foreign governments; because we do not believe the provisions of this bill would fit a foreign government issue; and second, the suggestion that paragraph () of section 7, subdivision B, be extended, so that in proper cases the Commission will be authorized to permit the inclusion in indentures of a provision limiting the monetary liability of a trustee, in the case of any given issue.

Despite the feeling of my committee that the bill in some respects is unnecessarily rigid and that the prohibition against certain types of short-term loans will substantially handicap not only the banks doing a corporate trust business, but also the obligor corporations who desire the loans, without commensurate benefit to the bondholders, nevertheless, we do believe that the bill is otherwise workable and livable; and I have been authorized on behalf of my committee to say to you gentlemen that we do not oppose the passage of the bill.

I should like to say that our committee is prepared, if the Commission so desires, to continue our work with them on questions involved in the preparation of regulations and on other problems of administration, under the bill. We are as anxious as you gentlemen that the bill, when enacted, shall accomplish its purpose promptly and with as little handicap to legitimate business as possible. To this end we pledge our full cooperation.

The CHAIRMAN. Thank you very much. That is a very fine spirit, Mr. Page.

Mr. PAGE. Well, we have found a fine spirit on the other side.



The CHAIRMAN. Very well, Mr. Tilney; we are glad to hear from you.

Mr. TILNEY. Mr. Chairman and gentlemen, I am chairman of the board of directors of Bankers Trust Co., New York, and appear as a representative of my own institution and also as chairman of an informal committee of New York bank executives who represent many of the banks of New York City doing a substantial corporate trust business. This committee was appointed, at about the time the Barkley bill was introduced in the Senate, to consider the bill on behalf of the New York institutions it represents.

We have consulted with the American Bankers Association committee which has been working with the Securities and Exchange Commission on the bill, and have studied the confidential committee print under date of June 9. We desire to join with the American Bankers Association in expressing appreciation of the spirit of cooperation extended by the Securities and Exchange Commission in discussions on the bill.

We do not oppose the enactment of the bill as amended in the confidential committee print. With the fundamental objectives of the bill we are in accord, however, we may differ as to the best means to accomplish the desired ends. However, we do wish to note upon the record that, in our judgment, first, the prohibition against short-term bank loans to a corporation for which a bank is acting as trustee under an unsecured or a short-term issue is unnecessary and unwise and will be burdensome to corporations and will work to the disadvantage of the bondholders themselves. We believe that it would have been wiser to remove this prohibition and to have concentrated on the penalty provisions against improvement by a trustee bank of its creditor position at the expense of its bondholder beneficiaries.

Second, certain other provisions of the bill seem to us too rigid and in some instances too severe and may prove unduly burdensome to legitimate business and many banks.

The broad discretionary power granted to the Securities and Exchange Commission by the bill will require in its administration, if the objectives of the bill are to be attained, a high degree of common sense, reasonableness, and cooperation both by the Commission and the trustee institutions. To this end we pledge our support.

We do not accept as well founded many of the statements and conclusions in the report of the Commission upon which the bill is based. We are, however, prepared to try in good faith to do our part toward the successful administration of the bill. We ask of the Senate a sympathetic hearing if after a fair trial we then find it necessary to suggest amendments. That is all I have to say, gentlemen.

Senator TOWNSEND. You have no suggested amendments, have you, sir?

Mr. TilNEY. The fundamental difficulty, if I may put it that way, that we see in the bill, is the question of the conflicts which may occur in loans made by trustee institutions, where they happen to be trustee under an indenture covering an unsecured or a short-term issue. We have suggested here that the emphasis should rather be placed on the penalty for the betterment of the position by the trustee institution, rather than on the prohibition of such loans themselves. I should think that it probably would improve the bill—at least, from our standpoint, gentlemen—if short-term loans, which we call bank loans in our section, were limited to 6 months rather than a year. I cannot see that it makes any particular difference to the purposes at which the Commission is aiming and certainly it is much more in accordance and in keeping with the general usages of the banking business.

That is fundamentally the only suggestion I have to make.
The CHAIRMAN. Thank you.

Senator TOWNSEND. You mean loans made by the trustee bank to the obligor?

Mr. TILNEY. Yes.
Senator TOWNSEND. Six-month loans?
Mr. TILNEY. Yes.
Senator BARKLEY. The bill provides for a year?
Mr. TILNEY. Yes.
Senator BARKLEY. And you think 6 months would be preferable?

Mr. TILNEY. Oh, I should think if that term were shortened to 6 months, you would make the operation of many business transactions which take place between corporate trustees—who in many instances have important banking connections with the obligor-and the obligors very much simpler and easier. In the last analysis, I cannot see that such a change would do violence to anything at which the bill aims.

The CHAIRMAN. Thank you, Mr. Tilney.



The CHAIRMAN. Mr. Bradley, are you ready to address the committee?

Mr. BRADLEY. Yes, sir; I am here primarily as the direct representative of my company, the Prudential Insurance Co., and I cannot say that I am authorized to speak for the business of life insurance as a whole. However, I may say that we of course have been in conference with our colleagues, both the financial and legal staff of many of the other companies, ever since the question of legislation of this character was first discussed; and the views that I express here today may be taken as the views of a number of the larger companies, from different parts of the country. I know of no company that dissents from the views that I may express here, although I wish it to be understood that I am not purporting to speak officially as the representative of any company other than my own.

Of course we, as a large institutional investor—and the whole business of life insurance constitutes perhaps the greatest institutional investors' interest in the country--are particular beneficiaries of this legislation; the investors are those whom it seeks to protect. I may say that we feel that the general conception of this legislation is wise and beneficial.

To regard it in detail: We do not feel that we are properly qualified to discuss the question of the qualification of trustees. Of course it is desirable, and wherever possible we always see to it, that the trustee shall be an institution of high financial responsibility.

With regard to the question of conflicts, I understand from the testimony given here today and from informal conversations that I have had, that essentially the trust companies are satisfied with these provisions, barring the question of short-term loans. I think I can serve no useful purpose by making any comment on them.

Our concern with the conflict provisions is only that we should not be in a position of having to deal with a trustee who will not faithfully serve the interests of the investors; and we are entirely satisfied to support those provisions as they stand today, without wishing to comment on them one way or the other. We do not oppose them in any way.

As to the affirmative provisions of the act directly touching the conduct of the trustee, we are in sympathy with practically all of them. We believe them to be beneficial, wise, in the interest of investorsrealizing, however, and I should like to go on record as saying, that much of this regulation is in a wholly novel field. It may well be that this legislation, if enacted, will prove unworkable in some of its details. We have no experience to guide us as to the effect of some of the provisions. I think, perhaps, that from the point of view of the bondholders and the investors, the most important of all the provisions are those which confer a very broad discretion upon the Commission. With those provisions we are in very hearty sympathy; because we feel that with an able, skilled Commission, experience will from time to time point out what those regulations should be and in what respects any changes should be made.

The particular provision to which I wish to refer is section 7, subsection (m), page 40. The administration of that subsection undoubtedly will prove difficult; but we regard it as exceedingly wise that it is left to the discretion of the Commission and that the obligor and the trustee are not put in a legislative strait jacket, as it were, by rigid, statutory provisions touching that subject matter.

On the whole, then, I think we may say, as an investor, that not only do we not oppose this bill in any particular, but that we are heartily in favor of the legislation as a whole, enthusiastic about some of its provisions, but do not wish to be understood as making any comment upon those features of the bill that concern the qualifications of trustees.

Senator BARKLEY. Let me ask a question which probably I should have asked the last witness: What is the particular disadvantage of having this period 1 year instead of 6 months, as suggested for bank loans?

Mr. BRADLEY. That is a question I should prefer to have the bankers answer. Again, that runs to the qualifications of the trustee and the question of conflict.


DIRECTORS, BANKERS TRUST CO., NEW YORK CITY Senator BARKLEY. I should like to ask the last witness that question: What is the particular disadvantage in having the period 1 year instead of 6 months?

Mr. TILNEY. Because in very many instances the corporation temporarily wants money for particular legitimate purposes—for an increase in inventory, or some similar use; they want that money only for a relatively short time; and for that purpose, a year probably would not be wise.

Senator BARKLEY. They do not have to take it for a year; that is a maximum, I understand.

Mr. TILNEY. No, sir; that is “a year or over”; a year is the minimum, and not the maximum.

Senator BARKLEY. Yes; that is right. It is the minimum.

Senator TOWNSEND. Then, if the minimum is made 6 months instead of a year, that would take care of your point?

Mr. TILNEY. I think it would facilitate many of the transactions that will occur under the terms of this bill.

Senator HUGHES. Will you explain why? How would it simplify them?

Mr. Tilney. Well, I suppose perhaps custom has a lot to do with it. The ordinary bank loan that is made for the purposes I indicated is probably a 90-day loan or a 4 months' loan. The closer you put the limit to the customary period, the more facility it seems to me you give to that particular kind of transaction.

Senator BARKLEY. The period referred to of course is the single period of the loan; it is not cumulative by reason of any renewals or anything of that sort?

Mr. TILNEY. Oh, no, sir; absolutely.
The CHAIRMAN. Thank you very much, Mr. Tilney.



Senator HUGHES. On page 40, I believe, is the provision to which you were referring, which is with relation to the restrictions or conditions on release and substitution subject to lien of the indenture. You thought that this particular provision might not be workable, did I understand you to say?

Mr. BRADLEY. No, Senator; I meant to express myself this way: that I thought it exceedingly wise that those particular types of provisions, which vary very much in accordance with the circumstances of each case, should be left elastic, as they have been, to the judgment and discretion of the Commission in each instance.

The CHAIRMAN. You favor those?

Mr. BRADLEY. Yes; I do favor those provisions, and in their present form.

Senator HUGHES. You favor release of a lien? You would favor that being safeguarded, would you not?

Mr. BRADLEY. Yes; by such regulations as the Commission might make, or such provision as they might prescribe in any particular instance.

The CHAIRMAN. There have been some abuses disclosed in the real-estate field, particularly, of making substitution of property that was valueless in place of property that was valuable.

Mr. BRADLEY. Yes; that is indeed true, and it is by no means limited to the real estate people.

The CHAIRMAN. Well, I happen to be familiar with some of those abuses.

Mr. BRADLEY. Yes; that is indeed true.
Senator HUGHES. That is a common evil that has crept in?

Mr. BRADLEY. That is an abuse of the administration of a trust indenture that we, as investors, keep as careful a watch upon as we can; for experience has shown that a careful watch is necessary.

Senator BARKLEY. If we have to assume that there may be some provisions of the bill which may not be workable or which may be poorly workable, nevertheless we never know that until we try them. So, from a legislative standpoint, it is better to include them, rather than leave them out; because otherwise you will never know whether they are workable or unworkable, until you try them. I think any responsible commission administering an act of this sort, of course would not desire to retain provisions which, from their own experience, they find out to be unworkable or hard to administer. For that reason there are probably some provisions here which, if we already had had the experience, we would leave out; but since we have not had the experience, we leave them in.

Senator Hughes. From the investor's standpoint, I think you can assume that the Commission will require provisions safeguarding the release of securities.

Mr. BRADLEY. We do so assume; and we are satisfied to have these powers rest in the Commission, recognizing at the same time that it is an exceedingly novel power. In effect, what this subsection does is to give the Commission power to write a contract between the two parties—an exceedingly novel power of regulatory legislation.


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