38. 1975 39. 40. 41. 42. 43. 44. 45. · 6 An Agreement to eliminate transactions between affiliated An Agreement to eliminate various unsafe and unsound An Agreement to take corrective action relating to criticized An Agreement to eliminate various unsafe and unsound a new loan policy as well as the hiring of additional lending An Agreement to eliminate self-dealing, insider extensions of credit to affiliates and closely related individuals. Various provisions to eliminate unsafe and unsound practices and violations of law. An Agreement to eliminate participation of loans with A Notice of Charges and a Permanent Cease and Desist Order compliance with various laws including 12 United States Code an independent audit, additional capital and a new chief An Agreement to eliminate various violations of law including - 7 46. An Agreement to eliminate self-dealing and insider transactions and for the termination of certain officials of the bank responsible for extraordinary extensions of credit to closely related individuals and companies. Corrections of various violations of law including 12 United States Code $84. Restrictions placed on active officers of the bank. 47. An Agreement eliminating various violations of the law including 12 United States Code §84 and procedures to eliminate various unsafe and unsound banking practices concerning the elimination of criticized assets and overdue loans. A policy to hire additional lending officers and insuring that internal operations and control were instituted. 48. 49. 50. 51. 52. 53. An Agreement between several banks and this Office eliminating loans and participations with affiliates and the elimination of unsafe and unsound banking practices. An Agreement to eliminate unsafe and unsound banking A Notice of Charges, a Temporary Cease and Desist Order and An Agreement to eliminate internal controls and management problems and a provision requiring the hiring of a new executive officer. Provisions to improve the credit quality of the loan portfolio and to take steps to eliminate criticized problems, unsafe and unsound banking practices and violations of law including 12 United States Code $$375a and 463. An Agreement amending a previous agreement dealing with loans to affiliates and subsidiaries in violation of 12 United States Code §371c. An Agreement to eliminate internal controls and management 54. 55. 56. 57. 58. Provisions to preclude the assumptions of obligations A Notice of Charges and a Permanent Order to establish Resolution Agreement to eliminate unsafe and unsound and self-dealing practices and relationships with controlling owner. Resolution Agreement to eliminate unsafe and unsound Resolution Agreements to eliminate unsafe and unsound An Agreement to establish internal controls and eliminate management problems with provisions to improve the credit quality of the investment and loan portfolio and to take steps to eliminate criticized problems, unsafe and unsound banking practices and violations of law including 12 United States Code $84. Provisions to eliminate concentrations of credit to single or closely-related borrowers. 59. An Agreement to establish internal controls and eliminate management problems together with provisions to improve the credit quality of the investment and loan portfolio and to take steps to eliminate criticized problems, unsafe and unsound banking practices and provisions to strenghten the capital position of the bank. Provisions to eliminate self-dealing transactions by officials of the bank and to obtain new capable lending officers. 60. A Notice of Charges, Temporary Cease and Desist Order and · 9 61. A Notice of Charges and a Permanent Order for a breach The CHAIRMAN. Governor Holland, I'm concerned that the prohibitions on loans to insiders in this bill may not be strict enough. There are no flat prohibitions on loans to insiders. Loans to insiders may be aggregated and subject to the 10-percent loan limitation. For example, if a bank has maybe $5 billion in deposits, has capital and surplus of $400 million, the chairman of the board and the companies he controls could borrow $40 million. So what is the practical effect of these provisions in the bank? Are insider transactions of directors and officers of such magnitude that the provisions in this bill really have teeth? Mr. HOLLAND. We think so, on balance, Mr. Chairman. After all, this is an additional protection beyond the protections that apply to any other kind of loan. These loans presumably have run the gauntlet of examiner review and criticism as they do now. This is one that tries to guard against abuses beyone that-sort of a prophylactic measure. The CHAIRMAN. But under present law we have those other limitations you're talking about? Mr. HOLLAND. Yes. The CHAIRMAN. And we have had problems. We have had abuses. We have had situations where the insider loans have become serious problems. The most conspicuous was the San Diego Bank, but that's not the only one. It's happened in other cases. Mr. HOLLAND. Yes. One has to balance difficulties and gains on this issue. It seemed to us that if we tied the permissible aggregate total to the legal lending limit, we were tying it to a pragmatic rule of thumb which said, it a loan of this size turned out to be a loss, the bank could stand it. In that spirit, this seemed a good place to draw the line on insiders. Thus, even if you have a case where the insider and his controlled corporations are imposing bad loans on the bank, if they conform to that legal lending limit they represent a loss that the bank could stand. That's the way we have operated over time, and it gives us an extra degree of protection. The CHAIRMAN. Now you say that many insider loans are good; you said that on pages 5 and 6 of your statement. Mr. HOLLAND. Yes. The CHAIRMAN. And you indicate that in the particular community-and I can see that in a small community-I can understand how that might be the case. At the same time, maybe I misunderstood Mr. Murphy when he indicated that in 1917 the Comptroller recommended a prohibition on all insider loans to officers; is that correct, or was that officers and directors both? Mr. MURPHY. I believe it was officers and directors and their firms, but let me check that. The CHAIRMAN. That was 1917 and this is almost 60 years later, and that seems to me to be something that we certainly ought to get a clear answer on the record to. I'm not sure that I would go that far, but I might, and what is the argument against that? Mr. MURPHY. Excuse me, Senator. I find that the recommendation. was that there be no loan unless it's approved by two-thirds of the board of directors of the bank. The CHAIRMAN. OK. Well, let's then consider an outright prohibition. What would be the problem if the Congress went that far? |