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Another point I should like to make is that the crossing of State lines by trust institutions could be anticompetitive in another area, the area I referred to briefly of what they do with funds waiting for investment.

If trust institutions are crossing State lines, these funds, if they have only trust powers-these funds cannot be placed in a local bank that is owned by the parent because there isn't any such thing other than the national association with limited trust powers, or State trust company, but rather will be sent to the parent office in some other State.

In this case it is in Illinois, New York, or Michigan. As a result, fewer and fewer deposits will be available for local lending, the earning off those deposits will be accumulated as additions to capital in these centers, which already control a great deal of the money.

Certainly there would be no source for local lending from them. From my experience, I know that there are a number of instances when local bankers have simply because they had trust and confidence in some entrepreneur, or some young person starting out, have made loans that would not meet the impersonal standards that might be set by the larger institutions.

These people have gone on to become very productive citizens in the area in which they live. I would think that these people would likely be shut out of the credit market in New York and Chicago, largely because they are not known, they are not big enough to attract any attention.

It seems to me in this instance it would be definitely anticompetitive rather than procompetitive to charter such institutions.

Finally, I would think that it is obvious that this is a major departure from our existing financial structure, which if it is to come about ought to be the result of action expressly taken by the Congress of the United States and not by a banking regulatory.

Now, it may be that the Congress will, after reading the study, decide it wants to amend the McFadden Act and maybe repeal the Douglas amendment. But if it does, it ought to be the action of the Congress and not a regulator that brings that about.

It seems to me, if I can express a personal opinion, that the present system works very well. Particularly as it relates to trust departments and trust companies. Certainly I don't think it ought to be tampered with until the Congress has had its opportunity to do its complete study and make the policy decision which this really represents. Thank you, Mr. Chairman.

Mr. MILLER. Mr. Senterfitt.

STATEMENT OF DONALD T. SENTERFITT, ATTORNEY AT LAW AND CHAIRMAN OF THE EXECUTIVE COMMITTEE, SUN BANKS OF FLORIDA, ORLANDO, FLA.

Mr. SENTERFITT. Mr. Chairman, I should like to extend our thanks as a panel here, not only to the chairman and to the committee, but if we may be indulged, to the gentleman on the chairman's immediate right.

We think there is some degree of significance to that location in addition to party labels. The gentleman suggested to me:

Senterfitt, I am going to take you up on the mountain before the committee and if you tell one of those raunchy stories about me today, I will never speak to you again.

I am not sure. I am debating which is the better.

Mr. Chairman, I should like, however, in all seriousness, to suggest that the longstanding policy established by this Congress in the form of the McFadden Act and the Douglas amendment to the Bank Holding Company Act, which has been alluded to here, is reflective of what the Congress has felt is in the best interests of the system of financial institutions in our country, and of the consumers of bank and trust services.

As has been mentioned, a study on the continued viability of these pieces of legislation is underway. As Chairman LeMaistre has suggested, former Chairman LeMaistre, it may be a subject of proper debate but that debate should be, as Mr. LeMaistre has suggested, here in the Congress rather than going around through a back door approach to a circumvention of this congressional intent. We will refer to that in a moment.

How, then, does the trust business or trust companies or a bank, which has its powers in some fashion limited to trust functions, play a part in this.

I submit to you that the basis for that has already been laid by Mr. LeMaistre when he points out that banks are typically full service institutions, which include trust functions.

Indeed, we think it is clear from the study that he mentioned a moment ago that the trust assets which are held in banks and free standing trust companies, by far the majority of them are held in banks with trust departments of banks.

Trust departments of banks being not perhaps the greatest profit center in a bank, they are maintained, not only, though, for its profits, for its service to the customers, but as a means of promoting the business on the commercial side of the bank.

This is not done only through the deposit of fiduciary funds, but if a person has entrusted to the trust department of a bank the bulk of his assets, where is he going to do his business; actually in the commercial department of that same bank.

Trust functions, then, are an integral and an inseparable part of the business of banking.

Perhaps when the Douglas amendment was first enacted in the environment that existed then the situation was such that it was not necessary to cause it to extend to that.

We think, however, that in view of the situation that exists today, something must be done to hold up the pellmell rush of the money center holding companies to move into growth areas, targeting initially on Florida, and by going around the back door and taking advantage of a technicality in the existing something of a legal faction-in the existing law, they propose to really do a banking business in these other States, and initially Florida.

As pointed out by Mr. LeMaistre in earlier testimony:

If trust services could be offered in conjunction with an Edge Act Corporation and a Loan Production Office, a bank would be able to provide most conventional bank services outside of its home State.

Now, do these banks intend to do that? I think we might look again at some testimony that was presented at a hearing in Atlanta. An internal memorandum from the U.S. Trust Co., one of the applicants for the establishment of one of these creatures, was produced through discovery, and in that memorandum it dealt with the expansion of the Florida regional activities.

These comments I think will be of interest to the committee with respect to the scope of their intended banking presence in the State. Quoting from that:

We are rapidly approaching the point where we will no longer have two one-man representative offices but instead we will have a full trust company subsidiary in California, and hopefully a corporate presence in Florida in the form of a trust company subsidiary, an investment advisory subsidiary, an Edge Act office, and loan production offices.

I noticed with interest the segment of your new postscription referring to your responsibilities for the establishment of various appropriate entities to enhance the trust company presence and to provide incremental revenues for, among other things, the banking group. This would appear to make the loan production office, Edge Act operation conceptually compatible with our proposed Florida Trust Co. and investment advisory company.

He went on, Mr. Chairman, to suggest also that:

Business development efforts for a nondeposit trust company will also provide support for more personal and corporate banking, pension, institutional corporate activities in Florida.

The applicants have proved what we have been trying to assert. What, then, must be done in order to hold the situation in its present condition until the Congress can have an opportunity to address the subject and consider it in a rational, reasonable fashion, and how it would affect all segments of the industry, and its impact on the public generally.

For that, we think that time is one of the essential elements. It has been noted here today by the Comptroller's representative that he cannot stop the State regulators once the process has been started, under various administrative procedure acts and others, that he cannot hold it up.

He clearly stated in response to the chairman's question that if anything is going to be done, it is going to have to be done right here. We think, then, that whatever legislative remedy is seized upon, it is essential that it be carried on a vehicle that will move rapidly.

We feel that the chairman's legislation, proposed legislation, should definitely be supported, should cover, we feel, not only a clarification that a national bank is indeed a national bank, but also that instead of closing only half the door that the other half should be closed by having the prohibition to apply as well to start chartered banks which might voluntarily or otherwise limit their trust functions, as well as State-chartered trust companies.

Additionally, the time element comes into this, that the Federal Reserve Board, having already approved the applications of the hold

ing companies to acquire these creatures once they are chartered, there must in the legislation be something to cover that gap.

We would strongly urge that the committee give careful consideration to those elements of legislation, one that would clarify the status of a national bank, one that would cover not only those organizations, but also State banks and trust companies.

One that would cover the gap in respect of the Douglas amendment applying to the permitting process, the permitting process having been complete in some of them. That gap should be covered, and put it on a vehicle that will move and move rapidly.

Thank you, Mr. Chairman.

Mr. MILLER. Mr. Brenton.

STATEMENT OF C. ROBERT BRENTON, PRESIDENT, BRENTON BANKS, INC., CHAIRMAN, FEDERAL LEGISLATIVE COMMITTEE, IOWA BANKERS ASSOCIATION, DES MOINES, IOWA; ACCOMPANIED BY NEIL MILNER, EXECUTIVE VICE PRESIDENT OF THE ASSOCIATION

Mr. BRENTON. Mr. Chairman and members of the subcommittee, my name is Bob Brenton, president of Brenton Banks, Inc., appearing today representing the Iowa Bankers Association, which represents 650 of the 657 commercial banks in Iowa.

I am accompanied by Neil Milner, executive vice president of the Iowa Bankers Association, and he has been introduced.

This testimony has been reviewed by our Federal legislative task force and the views presented approved by the executive committee of the association.

In regard to restricting the activities of a bank holding company as proposed in H.R. 2747, section 1, restricting bank holding company acquisitions to 20 percent of the total assets would not directly affect Iowa since we have an 8-percent limitation currently existing in State law. We feel this is an issue that should be left to the individual States.

We strongly object to the restrictions proposed by section 3 of H.R. 2747. We feel that it is an attempt to immunize other businesses from modest competition that now exists. Congress should be encouraging competition, not restricting it.

Our insurance laws have proven more than adequate and an insurance license of an officer of a financial instituion in our State has been removed because of the use of coercion.

We feel this is a better solution than prohibiting the activity. We believe the same principle could be applied to real estate licenses. We see no more justification for prohibiting banks or bank holding companies from engaging in the activities listed than there would be to prohibit real estate brokers. Sears or other retailers, auctioneers, auto dealers, other financial institutions or any other business from engaging in the sale of insurance or any other activities beyond their primary functions.

We see no justification for these restrictions and do not believe they would be in the public's best interest.

We believe that banks should be permitted to underwrite not only general obligations, but also revenue bonds. Many of our municipalities in Iowa are utilizing revenue bonds for activities that traditionally were funded by general obligation bonds. Historically, local banks, either through holding company affiliations or private syndicates, have underwritten and purchased these bonds to the benefit of a local municipality.

We believe this authority should be expanded to authorize the banking industry to provide this same service in the revenue bond field. Since brokerage houses are now accepting unregulated deposits, we see no justification for being restricted from engaging in underwriting bonds. This means we strongly support H.R. 1539.

The price of farm operations and farm machinery and trucks continues to rise. The range of items currently being leased is growing in kind and importance in agribusiness every year and includes: Grain drying equipment, grain bins, irrigation systems, silos, agribusiness equipment including computers, railroad cars, barges and aircraft— to name just a few of the major ones.

To say that these could be authorized, but that farm trucks and business autos of these same customers would have to be handled elsewhere seems not only inconsistent, but undesirable.

There are two major reasons for engaging in leasing improved working capital and tax advantages.

Since the existing tax laws were created by Congress, we do not feel that that same body should restrict our ability to assist our customers in taking advantage of the tax provisions that we have been granted to them.

Leasing is of growing importance in meeting the financial needs of our agricultural community and to prohibit this activity would greatly restrict the banking industry's ability to fully serve the needs of our agricultural customers.

We favor means of expediting one bank holding company approvals and have been advised that the new procedures adopted by the Federal Reserve this fall should make a major move in that direction. However, we feel H.R. 4004 would be a further improvement and should be adopted. In Iowa we have hundreds of one bank holding companies. Because of the tax laws, it is almost mandatory that in the sale of an individual bank the one bank holding company vehicle be utilized.

At today's interest rates, the 12-year payback rule of the Federal Reserve is totally unrealistic. Twenty-five year amortization of the purchase of a business such as banking is a much more realistic approach and should be authorized.

We strongly support the provisions that were in section 112 of H.R. 5280. In Iowa we have been reviewing for several years the question of the establishment of trust subsidiaries. We recognize that there seem to be many business and economic justifications for consideration of this subject. However, after a very thorough and comprehensive review we have concluded that to permit the separate chartering of trust companies would not be in the best public interest.

Since we have made that determination for intrastate operations, we are opposed to the actions of the office of the Comptroller of the Currency in issuing national charters limited to the trust business on an interstate basis.

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