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CONTROL OF U.S. BANKS

HEARING

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES

NINETY-SEVENTH CONGRESS

SECOND SESSION

SEPTEMBER 30, 1982

Printed for the use of the Committee on Government Operations

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COMMITTEE ON GOVERNMENT OPERATIONS

JACK BROOKS, Texas, Chairman L. H. FOUNTAIN, North Carolina

FRANK HORTON, New York DANTE B. FASCELL, Florida

JOHN N. ERLENBORN, Ilinois BENJAMIN S. ROSENTHAL, New York CLARENCE J. BROWN, Ohio DON FUQUA, Florida

PAUL N. MCCLOSKEY, JR., California JOHN CONYERS, JR., Michigan

THOMAS N. KINDNESS, Ohio CARDISS COLLINS, Illinois

ROBERT S. WALKER, Pennsylvania JOHN L. BURTON, California

M. CALDWELL BUTLER, Virginia GLENN ENGLISH, Oklahoma

LYLE WILLIAMS, Ohio ELLIOTT H. LEVITAS, Georgia

JOEL DECKARD, Indiana DAVID W. EVANS, Indiana

WILLIAM F. CLINGER, JR., Pennsylvania TOBY MOFFETT, Connecticut

RAYMOND J. MCGRATH, New York HENRY A. WAXMAN, California

HAL DAUB, Nebraska FLOYD J. FITHIAN, Indiana

JOHN HILER, Indiana TED WEISS, New York

WENDELL BAILEY, Missouri MIKE SYNAR, Oklahoma

LAWRENCE J. DENARDIS, Connecticut EUGENE V. ATKINSON, Pennsylvania JUDD GREGG, New Hampshire STEPHEN L. NEAL, North Carolina

MICHAEL G. OXLEY, Ohio
DOUG BARNARD, JR., Georgia
PETER A. PEYSER, New York
BARNEY FRANK, Massachusetts
HAROLD WASHINGTON, Illinois
TOM LANTOS, California
BARBARA B. KENNELLY, Connecticut

WILLIAM M. JONES, General Counsel

JOHN E. MOORE, Staff Administrator
JOHN M. DUNCAN, Minority Staff Director

COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE

BENJAMIN S. ROSENTHAL, New York, Chairman JOHN CONYERS, JR., Michigan

LYLE WILLIAMS, Ohio EUGENE V. ATKINSON, Pennsylvania HAL DAUB, Nebraska STEPHEN L. NEAL, North Carolina

WILLIAM F. CLINGER, JR., Pennsylvania DOUG BARNARD, JR., Georgia

JOHN HILER, Indiana
PETER A. PEYSER, New York
BARBARA B. KENNELLY, Connecticut

JACK BROOKS, Texas

Ex OFFICIO

FRANK HORTON, New York
PETER S. BARASH, Staff Director
THEODORE J. JACOBS, Chief Counsel
DONALD P. TUCKER, Chief Economist

STEPHEN R. McSPADDEN, Counsel

CONTENTS

Page

Hearing held on September 30, 1982.........

1

Statement of,

Arnold, Doyle L., Senior Deputy Comptroller, Office of the Comptroller of

the Currency, accompanied by Robert R. Klinzing, Deputy Comptroller

for Bank Examinations

170

Berman, Carol, senator, New York State Senate....

2

Gough, Robert P., Associate Director, Division of Bank Supervision, Fed-
eral Deposit Insurance Corporation.

145

Kohn, Ernest, acting first deputy superintendent of banks, State of New

York, on behalf of Alan R. Cohen, acting superintendent of banks,

State of New York...

6

Rosenthal, Hon. Benjamin S., a Representative in Congress from the

State of New York, and chairman, Commerce, Consumer, and Mone-
tary Affairs Subcommittee: Opening statement..

1
Wallich, Henry C., member, Federal Reserve Board

52
Letters, statements, etc., submitted for the record by-

Arnold, Doyle L., Senior Deputy Comptroller, Office of the Comptroller of
the Currency: Prepared statement.

.172-204
Gough, Robert P., Associate Director, Division of Bank Supervision, Fed-

eral Deposit Insurance Corporation: Prepared statement and data on
U.S. banks owned by foreign individuals .....

147-169

Kohn, Ernest, acting first deputy superintendent of banks, State of New

York, on behalf of acting superintendent of banks, State of New York:

News release, Mr. Cohen's prepared statement, and resolution ........ 13-29

New York State Banking Department concerning the investigation of

the investors who applied for permission to acquire control of First

American ....

...... 33-45

Wallich, Henry C., member, Federal Reserve Board: Prepared statement.. 61-144

APPENDIXES

Appendix 1.—Materials relating to Financial General Bankshares, Inc....

213

Transcript of informal closed meeting at Federal Reserve Board, April 23,

1981 ....

213

Opening remarks

216

Statement of Virginia Banking Commissioner Bailey

222

Statement of Clark Clifford, attorney for applicants

230

Statement of Robert Altman, attorney for applicants, regarding fi-

nancing the acquisition .....

258

Statements of the individual investors.

264

Questions regarding the voting trust..

282

Questions regarding the origin of the group and the role of BCCI. 289

Further questions regarding the voting trust...

305

Questions regarding the investors' personal financial affairs.

310

Further questions regarding the voting trust and effective control of

the banks...

323

Questions regarding community lending, expansion plans, and man-

agement strategy..

334

Questions regarding the financing of the acquisition, the use of bank

dividends to service the acquisition debt, and tax savings on the

acquisition debt .......

350

Questions regarding self-dealing............

370

Miscellaneous questions and closing remarks..

377

Page

393

395

404

440

443

449

452 456

470 474 474

477

478

484

485

Appendix 1.—Materials relating to Financial General Bankshares, Inc-Con-
tinued
Federal Reserve Board order dismissing first holding company applica-

tion, February 16, 1979.........
Federal Reserve Board order approving second holding company applica-

tion, August 25, 1981......... Federal Reserve Board letter to subcommittee concerning identity and

financial resources of the investors, acquisition debt, and other matters,

February 1, 1982 .....
Subcommittee correspondence with Federal Reserve concerning confiden-

tial treatment for the identities of the other Financial General inves

tors, October 25 and November 16, 1982...... Comptroller of the Currency letters to Federal Reserve regarding Finan

cial General applications, December 26, 1978 and March 12, 1981... Manfred Ohrenstein letter to New York Banking Superintendent Siebert

regarding foreign investors' plans to purchase control of Financial General Bankshares, March 11, 1981 .... Virginia Banking Commissioner Bailey's questions to the applicants re

garding proposed acquisition of control of Financial General Bank

shares, April 15, 1981...... Applicants' responses to Commissioner Bailey's questions, May 1, 1981 Clark Clifford letter to Federal Reserve regarding press reports concern

ing Mr. Darwaish, August 16, 1982. Press materials.

"Lance: The Plot Sickens,” by Steven Brill, Esquire, April 25, 1978......
"Judge Refuses To Block Lance, Arabs," by Jerry Knight, Washing-

ton Post, April 28, 1978.......
“Bank of Credit and Commerce International: The Mysteries Behind

Abedi's Bank,” by Nigel Bance, Euromoney, July 1978..
"VA Regulators Ask Fed To Reject Takeover of FG,” by Jerry

Knight, Washington Post, January 3, 1979.
"Lance Sued on Filings at S.E.C)" by Nicholas M. Horrock, New York

Times, January 5, 1979....
“FG Asks Hearings on Lance," by Jerry Knight, Washington Post,

January 9, 1979
“Arab Bank Takeover Opposed,” by E. J. Dionne, Jr., New York

Times, March 26, 1981
“Arab's Bank Bid Thwarted," by Robert A. Bennett, New York

Times, November 20, 1981.....
"NYS Reversal Allows Arab Acquisition,” by Gordon Matthews,

American Banker, March 3, 1982...
"Copper Squeeze, Scandal Tied," by Tony DeStefano and Mark Ho-

senball, American Metal Market, July 22, 1982..
"Arab Investor in 1st American Banks Arrested," by Jerry Knight,

Washington Post, August 10, 1982.
Appendix 2:--Materials relating to LITCO Bancorporation of New York, Inc ...

Federal Reserve Board order approving holding company application of

Banca Comerciale Italiana, June 9, 1982.....
Comptroller of the Currency letter to Federal Reserve Board Chairman

Volcker concerning LITCO application, May 19, 1982..
Subcommittee letter to Federal Reserve Board requesting a legal analysis

on whether a foreign government holding company is a "company" for

purposes of the Bank Holding Company Act, November 10, 1982. Federal Reserve legal memorandum: Status of foreign governments and

foreign government-owned corporations under the Bank Holding Com

pany Act, February 8, 1983. Subcommittee letter to the Comptroller of the Currency concerning the

failure to apply certain reporting requirements and internal monitor

ing standards to the Long Island Trust Co., October 6, 1982....... Comptroller of the Currency response concerning the requirements for

reporting and monitoring interaffiliate transactions and their applica-
tion to the Long Island Trust Co., December 13, 1982
Holding company application by Banca Commerciale Italiana to acquire
LITCO Bancorporation .....

Introduction.
Description of applicant and proposed transaction (exhibit B).
Convenience and needs (exhibit E)........
Foreign organizations (supplement No. 1).

486

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491 492

492

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