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FINANCIAL INSTITUTIONS SUPERVISORY POWERS

FRIDAY, MARCH 26, 1976

UNITED STATES SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS,

Washington, D.C. The committee met at 10 a.m., pursuant to notice, in room 5302, Dirksen Senate Office Building, Senator William Proxmire, chairman of the committee, presiding.

The CHAIRMAN. The committee will come to order.

Today we hold hearings on S. 2304, a bill to strengthen the supervisory authority of the Federal banking agencies over financial institutions and their affiliates.

Senator Tower and I introduced this bill on September 9, 1975 upon the joint recommendation of the Federal Reserve, the Federal Deposit Insurance Corporation and the Comptroller of the Currency.

The bill would augment the authority of the regulatory agencies to take supervisory actions to cure violations of law or unsafe or unsound conditions in the banking system. In addition, the bill contains a significant change in the authority of the regulatory agencies to remove bank officials to include actions of gross negligence or in willful disregard of the safety of a bank. The bill would also give specific authority to the Federal Reserve to order divestiture of bank holding company subsidiaries and new and stiffer proscriptions against insider loans are provided.

I strongly support this legislation as a step in the right direction. At the same time, in my judgment, passage of this bill will not cure the fundamental defects in our regulatory scheme which have been characterized as a competition-in-laxity and in Chairman Burns words, "conducive to subtle competition among regulatory authorities, sometimes to relax constraints, sometimes to delay corrective measures."

We all recognize that while the regulators may need more laws, what is really needed most is the will to use the powers that Congress gives them.

The authority the agencies now have to conduct bank examinations is perhaps the broadest possessed by any regulatory agency. Yet the capitalization of our banking institutions has deteriorated, and it has deteriorated more gravely under some regulators more than others.

Thus, while I believe that the added powers contained in S. 2304 are important, I do not believe they will do the whole job unless our regulatory structure is recast. (Copy of the bill follows:]

(1)

94TH CONGRESS

1st SESSION

S. 2304

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 9, 1975 Mr. PROXMIRE (for himself and Mr. TOWER) introduced the following bill;

which was read twice and referred to the Committee on Banking, Housing and Urban Affairs

A BILL

To strengthen the supervisory authority of the Federal banking

agencies over financial institutions and their affiliates. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

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AMENDMENTS TO THE FEDERAL RESERVE ACT

4 SECTION 1. The Federal Reserve Act (38 Stat. 251, as 5 amended) is amended by redesignating sections 29 and 30 as

6 sections 30 and 31 respectively, and by adding a new sec

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"SEC. 29. Any member bank which violates and/or any

9 officer, director, employee, agent, or other person partici

10 pating in the conduct of the affairs of such member bank

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who violates any provision of section 22 or 23A of this Act,

2 or any lawful regulation issued pursuant thereto, shall forfeit

3 and pay a civil penalty of not more than $1,000 per day 4 for each day during which such violation continues. The 5 Board shall have authority to assess such a civil penalty, 6 giving due consideration to the appropriateness of the penalty 7 with respect to the size of financial resources and good faith 8 of the member bank or person charged, the gravity of the 9 violation, and the history of previous violations. When as10 sessed, such a civil penalty may be collected, by suit or other11 wise, by the Board or the Federal Reserve Bank of the dis

12 trict in which such member bank is located. As used in this

13 section, the term 'violates' includes without limitation any

14 action (alone or with another or others) for or toward caus

15 ing, bringing about, participating in, counseling, or aiding or

16 abetting a violation.”.

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SEC. 2. Section 19 of the Federal Reserve Act, as

18 amended (12 U.S.C. 461), is amended by adding at the 19 end thereof the following new subsection: 20

“(1) Any member bank which violates any provi21 sion of this section, or any regulation or order issued by 22 the Board pursuant thereto, shall forfeit and pay a civil 23 penalty not exceeding $100 per day for each day during 24 which such violation continues. The Board shall have

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authority to assess such a civil penalty, giving due con

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sideration to the appropriateness of the penalty with

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respect to the size or financial resources and good faith

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of the member bank charged, the gravity of the violation,

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and the history of previous violations. When assessed, such a civil penalty may be collected, by suit or other

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wise, by the Board or the Federal Reserve Bank of the

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district in which such member bank is located.".

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SEC. 3. Section 22 of the Federal Reserve Act, as

9 amended (12 U.S.C. 375, 375a, 376, and 503), is amended 10 by adding at the end thereof the following new subsection: 11 “(h) (1) No member bank shall make any loan or ex12 tension of credit in any manner to any of its officers or direc13 tors or to any individual who directly or indirectly or acting 14 through or in concert with one or more persons owns, con15 trols, or has the power to vote more than 5 per centum of any 16 class of voting securities of said member bank or to any com17 pany controlled by such an officer, director, or individual, 18 where such loan or extension of credit, when aggregated and

19 combined with all the bank's loans or extensions of credit to

20 such officer, director, or individual and to all companies con

21 trolled by such officer, director, or individual, exceeds the

22 limits on loans to one borrower established by section 5200 23 of the Revised Statutes, as amended, in the case of national

24 banking associations, or by the State law applicable in the

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“(2) For purposes of this section, an officer, director,

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or individual shall be considered to have control of a com

3 pany if said officer, director, or individual :

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“(A) directly or indirectly or acting through or in concert with one or more other persons owns, controls,

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or has power to vote 25 per centum or more of any

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class of voting securities of the company; or

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“(B) controls in any manner the election of a

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majority of the directors of the company; or 10

" (C) has the power, directly or indirectly, to u exercise a controlling influence over the management 12 or policies of such company. 13 “ (3) For the purposes of this section, 'company' means 14 any corporation, partnership, business trust, association, joint 15 venture, pool syndicate, sole proprietorship, unincorporated 16 organization, any other form of business entity not specifi17 cally listed herein, or any other trust, but shall not include 18

any insured bank or any corporation the majority of the 19 shares of which are owned by the United States or by 20

any State. 'Extension of credit shall have the meaning as21 signed such term in the fourth paragraph of section 23A

22 of this Act.".

69-710 O. 76 - 2

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