our closest estimate is around 560. We cannot be assured of the exactness of this figure; but that is as close as we could come.

Senator JAVITS. The orders of magnitude then are that 400 banks, let us say for the sake of discussion, must be related to 3,100 companies which are covered in the over-the-counter securities market? Mr. CARY. That is correct.

Senator JAVITS. And then the 400 banks covered must also be related to the 13,959 banks in the United States?

Mr. CARY. That is correct, sir.

Senator JAVITS. So that in both cases, in number at least, though it does involve our largest banks, it is relatively small?

Mr. CARY. It is relatively small; that is correct.

Senator JAVITS. Would it not be a very great mistake to allow this issue to become inflated to a struggle and thereby impede the enactment of the legislation while we argue about 400 banks out of 13,959?

Mr. CARY. I would agree, sir, that this has not been a major point that we are making in this legislation. Our basic point is to cover companies in general.

We do say, however, that the principle is equally applicable to banks and to industrial concerns and others and that we do feel it highly responsible to bring this to Congress' attention.

Indeed, I think, if I may get into the material directly related to banks, I will demonstrate that the Comptroller, although he has disagreed very frequently in the press with us, nevertheless, as Senator Robertson has indicated, is moving in this direction. So I really raise the question whether the controversy is of the magnitude that it has been made out to be.

Senator JAVITS. You do not seek any such controversy, do you? Mr. CARY. We do not. I have not made any press statement with respect to this question at all. I have simply filed the bill and made a statement with respect to what its character is.

Senator JAVITS. Now, I gather from page 15 of your prepared statement that you have yielded-I do not use that in any sense of giving up; it is often wisdom and intelligence to yield-on the bureaucratic problem of administration. That is, you are satisfied that the administrator of whatever regulation is provided by law shall be the Comptroller of the Currency for national banks? Mr. CARY. That is correct, sir. I want to get into that problem, Senator Javits, and point out that the problem is a little more difficult and a little more complex than you might originally think. The facts of the matter are if I can give you the figures here, I think it might be helpful to furnish background on this that at the 500-shareholder level, we estimate about 564 banks will be covered. However, of that, only 320 are national banks. In other words, a little over 55 percent. Then there would be about 140 which are members of the Federal Reserve System and are not national banks, which, therefore, would be subject to the jurisdiction of the Federal Reserve Board. There would be another 94 which are not members of the Federal Reserve System and not national banks which would be presently under the general supervision of the FDIC.

By the way, there are four others they are trust companies actually-which are not subject to the jurisdiction of any of these three Federal agencies.

Now you see, therefore, the problem is not exclusively a problem of the Comptroller of the Currency. Indeed, I think I can say with safety that he does not speak for all of the other agencies who are going to appear at this meeting. We, moreover, have been very anxious to avoid the notion, which would be false, that we are attempting to move into the regulation of banks, because these are very heavily regulated-it is alleged-by Federal agencies already. Therefore, as you have indicated, we have specifically said that any jurisdiction we may have to handle this matter of disclosure with respect to banks shall be delegated-not "may" but "shall" be delegated to the appropriate Federal regulatory agency upon their request.

Senator JAVITS. This will mean the potential delegation of the authority given by this act, if we pass it, to the Comptroller, to the Federal Reserve Board, to the FDIC, respectively?

Mr. CARY. That is correct.

Senator JAVITS. And the only ones the SEC would get are the banks not now subject to the jurisdiction of any of these agencies? Mr. CARY. Just the four actually. Four companies.

Senator JAVITS. Good. The second point which is not covered and which I would like to ask you about is this-and do not answer, because it is a serious question, unless you are ready to answer-I warn you about that because I am going to ask you a serious question:

Are you ready to take a commitment that, in respect of the particular items of disclosure which you will require and the regulations which you will make under this law, you will consult with the agency which will be charged with the administration in a deliberate and serious way so that for all practical purposes they will have not only the administration but the ability for coordinating the disclosure requirements with the way in which they themselves regulate these banks and trust companies and call for reports, etc.?

Mr. CARY. Yes, sir. Now, let me go into that in detail if I may in order to answer you fully.

First of all, Senator Javits, the bill as it stands on page 11-1 can read it, because it is just practically one sentence-says this:

In respect of any securities issued by banks the powers, functions, and duties of the Commission pursuant to the provisions of this title shall be delegated in whole or in part to the Federal banking regulatory agency or instrumentality which has jurisdiction to examine or supervise the business of such banks, upon the request of such agency or instrumentality.

Now I am not quite clear as to your assumption. If you are assuming, for example, that a banking agency has requested, under those circumstances we would regard all powers, functions and duties as in their hands.

Senator JAVITS. Including the establishment of the regulations, the nature of the report, the time of filing, and so forth.

Mr. CARY. That is correct.

Senator JAVITS. So that the capability exists to strip you of all that authority except for four banking institutions in the whole United States?

Mr. CARY. That is precisely correct. Yes, sir.

Senator JAVITS. I think that is very, very valuable.

Mr. CARY. All we are attempting to do, sir, is to achieve a sort of, shall we say, principle of uniform disclosure. It cannot be uniform with respect to industrial concerns and banks. It is a different kind. But sort of across-the-board disclosure, shall we say, of companies in which there is a substantial public shareholder interest.

Senator JAVITS. Well, Mr. Cary, would you therefore say in all fairness, to make it colloquial, that if there is any fight in this thing, it is unilateral by the people who want to do the fighting? It seems to me that you have pretty much taken the SEC out of it.

Mr. CARY. That is our belief, yes, sir.

Senator JAVITS. Thank you very much.

Senator WILLIAMS. One further question along this line, Mr. Cary. You eschewed any desire for the Commission to regulate banks. Would it clarify your position if the language indicating transfer of authority upon request be changed to provide that the authority for administration be placed directly in the appropriate banking agency?

Mr. CARY. We would have no objection to that at all. Indeed, it follows that if the agencies can request it, if Congress preferred to allocate the responsibility in the statute to those various agencies, needless to say that would be more than satisfactory to us.

That idea follows directly from the way the legislation is presently drafted.

Senator WILLIAMS. I think that point is one that our committee will want to pursue further. Thank you.

Mr. FREAR. Mr. Chairman, I am sure the Chairman of the SEC as well as its Commissioners and staff are not unmindful of the duties and obligations of the members of this Banking and Currency Committee and the Members of the Congress and their desires if they want to amend the bill.

Senator WILLIAMS. Thank you.

Mr. CARY. I think, Mr. Chairman, I was at page 15. I was finishing up before I got into the bank material, some of which I can cut out in view of our discussion here.

If for any reason the Commission could not accommodate the increased number of companies filing under the lower standard, it could defer operation of that standard. Since the pertinent provisions of S. 1642 do not become effective until 1964, companies will generally not register until fiscal year 1965. Costs of the program for that year-that is, for fiscal year 1965-are estimated at approximately $600,000.

G. DISCLOSURE WITH RESPECT TO BANK SECURITIES TRADED IN THE OVERTHE-COUNTER MARKET

Now, Mr. Chairman, if I can turn to the bank question. I might say that our discussion thus far has focused on the growth in the securities markets over-the-counter market, that is-and the need for disclosure generally. It is because, as you and Senator Javits have pointed out, there are particular problems, or at least particular

issues presented by banks and insurance companies, we have focused separately upon each of those.

I will read a good part of the material on the banks, but I will perhaps skip over those points that have already been made. However, you will note that they are of record. S. 1642 would apply to over-the-counter banks meeting the statutory standards. However, the bill also provides that all the powers, functions, and duties of the Commission with respect to bank securities shall be delegated to the appropriate Federal banking regulatory authority upon its request.

Approximately one-fifth of the securities designated in the 3month period covered by the January 1962 summary of the National Quotation Bureau, Inc., were bank stocks. Further data from the special study indicates that over 600 banks would be covered by S. 1642. Moody's Bank and Finance Manual for 1963 lists over 550 banks meeting the coverage standards.

The aggregate number of shareholders of these banks-without adjustment to eliminate duplication-was approximately 1,600,000, and the aggregate market value of the bank stocks held by these investors, as of December 31, 1962, was about $22.5 billion.

These figures vividly illustrate the extremely broad investor interest in over-the-counter bank stocks and the corresponding need for the disclosure requirements now recommended generally for over-the-counter companies. Do investors in bank stocks need this protection any less than other investors? The question frequently raised in connection with the application of these disclosure provisions to banks is whether duplicative and unnecessary regulation would result. This question has been resolved by S. 1642-authorizing their administration by the banking agencies.

Now I get to the very point which addresses itself, Senator Javits, to the question that you have raised. I perhaps therefore do not need to cover it again except to ask it be made a part of the record. (The portion of the prepared statement omitted in reading appears on p. 54.)

As I have said, delegation to these agencies is mandatory upon their request; enforcement power would go with it. That was a question I think that has been raised by the Comptroller, and he said that enforcement power would not be there. So far as we can construe the draft as we have it, this means all powers and functions. There will be no residual control in the Securities and Exchange Commission after this delegation. Moreover, if the Comptroller or the Federal Reserve Board (or the Federal Deposit Insurance Corporation with respect to a minority of banks) did not request such authority, we agree that any functions left with the Commission will be administered for the appropriate banking agencies.

Senator JAVITS. Well, you would agree, Mr. Chairman, that we could mandate the Comptroller, the Federal Reserve Board, and the FDIC, as the chairman of the subcommittee has indicated we might do, to carry out certain sections of the Securities Act? In that case there would be no question about their volition. We would be doing the directing.

I gather that was the thrust of Senator Frear's question.

Mr. CARY. That is correct. And we would be perfectly happy to see that. The only problem, Senator Javits, is in the event that one of these agencies might not want to take it on. If that were the case, we would say we would do it for them.

Senator JAVITS. If we mandate it, that is the end of that.

Mr. CARY. That is it. Yes, sir. If the bill is not crystal clear on these points, we will be glad to revise it accordingly, and, as you have already indicated, you might choose to do so yourselves.

In sum, the Commission has no desire, and is indeed reluctant, to take direct responsibility over bank disclosure in any respect. It is only the principle of adequate disclosure which we assert. In other words, applied to industrials, utility companies, banks, insurance companies, across the board.

Senator WILLIAMS. At this point, I am going to suggest that your full statement be included in the record. Parts of it have been omitted because of our interruptions and questions.

(Mr. Cary's complete statement appears at the end of his testimony.)

Senator WILLIAMS. I do note, however, in your prepared statement the word "adequate" does not appear but rather the word "uniform."

Mr. CARY. I changed that. I have been discussing this, may I say, with the officers of the American Bankers Association. We have tried to discuss these proposals with all the industries involved. I read this to them over the telephone yesterday; they were afraid that by "uniform" we meant that it would be uniform in exactly the same way as it was handled with respect to industrial concerns and others. What we meant there was "across the board." And I therefore changed it from "uniform" to "adequate" in order to demonstrate exactly our point of view. I do not want to commit them to what they would say on this, but at least it comes very close to the thinking of some of the people there.

Senator WILLIAMS. This change seems very important to the discussion we have had.

Senator JAVITS. That is on line 14?

Mr. CARY. At page 17, the next to the last line of the first paragraph, Senator Javits, the words "uniform disclosure" should read "adequate disclosure."

Accordingly, the only remaining issue is whether present practices of banks are such that the purposes of S. 1642 have already been satisfied. The great objectives of banking regulation are controls over the flow of credit in the monetary system, the maintenance of an effective banking structure, and the protection of depositors. These objectives neither utilize the same tools nor achieve the same ends as investor protection. The purpose of disclosure is to place the investor in a position to make an informed judgment on the merits of a security, and to provide a basis for comparing that security with others issued by companies in the same or different industries. Essentially this purpose is achieved through the furnishing of financial information which provides a uniform pattern of reporting. To say that bank regulation renders this disclosure philosophy unnecessary is to say that bank regulation is an effective substitute for the free exercise of an investor's judgment. Controls which pro