The Board also suggests that the Committee consider as additions last January. to S. 71 some other provisions in the draft bill submitted to the Committee The by the Board in testinomy before your Committee in December 1975. and develop uniform reporting systems for banks, bank holding companies It seems particularly appropriate to establish. such a Council now in a period of improving liquidity and general strengthening of banking institutions, and coordinate the advances in procedure and technology that have been developed by the individual banking agencies as a result of the experience of the last few years. The existing informal nonstatutory coordinating committee has provided an effective forum for consultation primarily on interest not believe that it is desirable to use the coordinating committee mechanism for a Federal Bank Examination Council because both the membership and subjects to be considered would be different. The Federal Home Loan Bank Board is now a member of the Coordinating Committee and the Administrator of Federal Credit Unions may be added to its membership. The Bank Examination Council should be limited to the Federal banking agencies, and should include some degree of participation by the State banking departments so that attention can be concentrated on the unique problems of bank examinations, bank reports and the training of bank examiners. A new undertaking of this kind would be significantly assisted by statutory authorization. The Board also suggests that this period of strengthening in the banking system affords the opportunity for an objective assessment of the need for emergency takeover provisions such as those contained in S. 890, introduced at the Board's request in the 94th Congress and contained in Section 301 (b) to (d) of the Board's attached draft bill. In the last Congress your Committee approved the elimination of the 30-day notice requirement in Section 3(b) of the Bank Holding Company Act when the Board finds that an emergency situation exists or that immediate action is necessary to prevent the probable failure of the bank or bank holding company involved in the proposed acquisition. We urge you to take similar action this year. The Board also recommends serious consideration be given to the provisions in Section 301(d) to allow a large failing bank to be acquired in carefully controlled circumstances by an out-of-State holding company. In the last several years, there have been some instances requiring sales of a failing bank when the communities involved might have been better served if an emergency interstate acquisition procedure of this kind had been available. Turning to S. 73, a bill to prohibit interlocking management and director relationships between depository institutions, the Board continues to urge enactment of this proposal with the technical modification noted in our report of February 4, 1977. Let me briefly comment on the Board's involvement in this subject. In 1970, as a result of a request from the Congress, the Board made a special review of interlocking personnel relationships in all of the Federal Reserve districts and also considered the adequacy of the present provisions of Section 8 of the Clayton Act affecting interlocking relationships. As a result of this extensive review the Board concluded that it would be desirable to make several changes in the existing interlock provisions. The Board communicated the results of its study to the Congress in 1970, and in each of its annual reports thereafter has included a recommendation that these interlocking relationship prohibitions should be revised. Last year Chairman Proxmire requested the Board to draft appropriate amendments to implement these recommendations. in our proposal of a bill substantively the same as S. 73. This resulted Although interlocking directorates are not necessarily harmful, such relationships between institutions that compete for the funds of the public involve a risk of abuse that the Board believes outweighs any reasonable expectation of benefits. We believe this reasoning applies equally to relationships between all institutions engaged in the business of receiving deposits that may be in competition with each other, including member banks, nonmember banks, savings and loan associations, savings banks, industrial banks, credit unions, or other similar institutions, whether or not their deposits are insured by a Federal agency. Accordingly, the provisions of S. 73 would extend the interlock prohibitions to all such depository institutions. In order to simplify the test of determining which institutions are to be covered by the prohibition, now specified as being institutions in the same or adjacent communities, the bill would provide that interlocks would be prohibited between institutions located in either the same standard metropolitan statistical area, or within fifty miles of each other. Since there is also a likelihood of nationwide competition for large commercial accounts between very large institutions, this limitation would be supplemented by a nationwide prohibition against an interlock between an institution exceeding $1 billion in total assets, and another exceeding $500 million in total assets. Provisions are also included in S. 73, Section 2(c)(ii)), to continue the exemption for institutions under common control but in such a form as to prevent evasion of the prohibitions by such a device as the exchange of a few shares of stock between majority shareholders of two separate institutions. In one instance, the draft would make the present law less restrictive by prohibiting interlocking service by an employee or officer only if he performs management functions for one of the institutions. Employee interlocks involving those who do not perform management functions do not present a significant potential for diminishing competition. Although we do not believe that detailed regulations will be necessary, general regulatory authority is proposed to be given to the Board as a precautionary matter to prevent evasions of the statute. The Board would also be given the authority to authorize some interlocks. We believe there are circumstances such as an interlock between an established institution and a small or newly established depository institution or a minority bank that for a limited period of time might result in an increase rather than an inhibition of competition. Depository institutions would have five years after the date of enactment to find replacements for individuals who would be prohibited from service under the new legislation. It would seem needlessly disruptive to concentrate the search for qualified individuals in a shorter period of time. S. 895, amendments to the Federal Deposit Insurance Act, has been introduced by Chairman Proxmire at the request of the Federal Deposit Insurance Corporation. The Board has no comment to make on the proposals in this bill that are of a housekeeping nature and that extend to the Federal Deposit Insurance Corporation authority over foreign branches and investments of nonmember banks comparable to that the Board exercises for member banks. However, the provisions that would extend FDIC examination and subpoena authority to bank holding companies and subsidiaries of bank holding companies, of which nonmember banks are subsidiaries, amount to a substantive change in the law. The Congress, in enacting the Bank Holding Company Act of 1956, placed the jurisdiction and examination authority over bank holding companies in the Board. In connection with the Bank Holding Company Act Amendments of 1970, the Congress again gave extensive consideration to various proposals for a change in jurisdiction over bank holding companies and reconfirmed the Board's authority. We believe that giving this authority to the FDIC introduces an undesirable |