For Release Upon Delivery
9:30 a.m. June 25, 1999

                          TESTIMONY OF
                                
                       JULIE L. WILLIAMS
                                
                         CHIEF COUNSEL
                                
           OFFICE OF THE COMPTROLLER OF THE CURRENCY
                                
                           Before the
                                
          SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
                                
                             of the
                                
                     COMMITTEE ON COMMERCE
                                
                             of the
                                
                U. S. HOUSE OF REPRESENTATIVES 
                                
                         June 25, 1999
                                
                                
                                

Statement required by 12 U.S.C. . 250:  

The views expressed herein are those of the Office of the 
Comptroller of the Currency and do not necessarily represent 
the views of the President.  .Introduction

     Mr. Chairman and members of the subcommittee, I appreciate this 
opportunity to discuss the Office of the Comptroller of the Currency's 
("OCC") role and supervisory approach with respect to subsidiaries of 
national banks that are registered broker-dealers, and to review the
NationsSecurities matter.  The OCC is the primary supervisor for 
national banks.  The National Association of Securities Dealers 
Regulations, Inc., ("NASDR")  and the Securities and Exchange 
Commission ("SEC") are the primary supervisors for registered 
broker-dealers, including those that are subsidiaries of 
national banks.  The OCC recognizes that these securities
regulators have primary responsibility for overseeing the 
operations of brokerage subsidiaries of national banks and 
their compliance with comprehensive securities law 
requirements. 

     However, because we are responsible for supervising the 
parent bank, the OCC also has an interest in -- and 
responsibilities that pertain to -- the activities of bank 
subsidiaries.  Our approach begins with identifying risks 
these activities pose and determining if those risks are
being managed appropriately.  Risk may be present, for example, 
if the bank and its subsidiary do not have in place procedures 
to assure that bank customers receive full and accurate
disclosures about the uninsured status and risks of investment 
products they buy through the bank's subsidiary.  Failure to 
do so may injure the bank's customers, damage their relationship
with the bank, mar the bank's reputation, and expose the bank 
to liability.  We thus fully share the goals of the SEC and 
the NASDR to assure fair treatment of customers.  We do not, 
however, seek to duplicate or intrude into the responsibilities 
or activities of the securities regulatory bodies with respect 
to registered broker-dealers.

     In that regard, we have learned a great deal about effective 
regulatory coordination in this area since our efforts in 1993 and 
1994 to establish disclosure and operational guidance for sales
of  investment products on bank premises.  We have learned, for 
example, that no regulator's supervisory interests need be 
compromised simply because different regulators have different
direct and indirect interests with respect to the same entities.  
We have worked hard to coordinate on individual cases as well as 
larger policy and regulatory issues with the SEC and the NASDR. 
And we have learned that recognition of each agency's respective 
responsibilities, and effective inter-agency coordination, 
maximizes both safety and soundness of national banks and 
investor protection, and helps securities and bank regulators 
achieve their goals.

OCC's Supervisory Approach

     It is in that spirit that I will explain in more detail 
the OCC's current supervisory approach to broker-dealer subsidiaries 
of national banks, and our particular experiences in the Nations
Securities matter.  As noted at the outset, in determining our role 
with respect to broker-dealers that are subsidiaries of national banks, 
the OCC has been mindful of the vital primary supervisory role of the 
SEC and the NASDR.  One recent industry survey suggests that 96
percent of the sales force involved with bank-related investment sales 
are registered with the NASDR and are subject fully to regulation as 
brokers.

     Brokerage subsidiaries of national banks must register with the 
securities regulators and comply with a comprehensive securities law 
regulatory scheme that offers significant customer protection, to the 
same extent as brokers that are not affiliated with banks.  The NASDR 
and SEC have primary responsibility for inspecting these subsidiaries, 
interpreting and applying securities law and regulatory standards, and 
addressing any compliance concerns.  We fully understand the SEC's 
interest in maintaining its primacy in this area, as the SEC has clearly
communicated, and fully support its supervisory efforts to assure adequate 
protections for investors.  Accordingly, the OCC defers to the SEC and the 
NASDR to conduct inspections, address securities law compliance concerns 
and generally supervise brokers that are subsidiaries of banks.

     At the same time, due to our responsibilities for the safety and 
soundness of national banks, the OCC also has an interest in the operations 
of bank subsidiaries.  We seek to assure that the parent bank effectively 
monitors and controls risks presented by the subsidiary's operations. 
We focus on the adequacy of policies, procedures and risk management systems, 
and we test and verify to determine whether those systems work.  With respect 
to brokerage subsidiaries of banks, we emphasize risk identification and risk 
management systems applicable to a subsidiary's operations, rather than 
attempting to duplicate the work of the SEC or the NASDR by examining the 
subsidiary's daily operations.  In the case of a brokerage subsidiary that
operates on bank premises or effects sales through banks, however, a review 
of the bank's management and control systems for that activity will inevitably 
touch on aspects of the operations of the brokerage subsidiary as well.

     If, as a result of our oversight of a bank's compliance and risk 
management systems, the OCC becomes aware of conduct or activities that raise 
concerns about securities law compliance by a brokerage subsidiary or affiliate, 
we would promptly consult with the primary regulator to determine appropriate 
examination efforts and supervisory responses by each regulator to the
situation.  A recent example of how this functional approach works involved a 
national bank brokerage subsidiary with plans to significantly expand its 
securities sales program through the parent bank.  OCC examination staff had 
concerns with the sales program based on our knowledge of compliance function 
issues at the bank itself, and prior SEC inspections. Accordingly, prior to 
the expansion of the bank's sales program, the OCC invited the SEC to
participate in an examination that reviewed these sales activities.

     Collaborative efforts between examiners on-site and the local SEC office 
contributed to the success of the examination.  An SEC examiner participated 
directly in the examination and OCC staff met with representatives of the 
local SEC office before, during and at the conclusion of the examination.  
Since that review, OCC and SEC examiners have continued to share information 
and maintain communication.  Another joint examination is planned within the 
next twelve months.  Staff from both agencies found this approach efficient 
and effective.

     The OCC coordinates in other respects with the primary regulators for 
brokerage subsidiaries of national banks because of our related areas of 
responsibility.  In January of l995, the OCC and the other federal financial 
institution regulators signed an agreement with the NASDR relating to sharing 
information and coordinating efforts.  Shortly thereafter, the OCC exchanged 
lists of local contacts with the NASDR to facilitate exchanges of information 
and coordination at the local level, where coordination concerning individual 
institutions is most effective.  The OCC also coordinates and shares 
information  with the SEC.  As noted above, we have contacted the SEC when 
it appears that a substantive issue, subject to SEC's jurisdiction,
exists with respect to a broker subsidiary of a bank.   We also make 
examination reports available to the SEC relating to investigations and 
provide access to examiner work papers, internal documents and examination 
staff.  The OCC also has provided examination staff as witnesses in
SEC enforcement actions.  

     The OCC's policies on functional oversight of brokerage subsidiaries 
are reflected in revisions to the OCC's bank examination handbook that have 
been underway for some time and will be published shortly in a new examination 
handbook.  Under these policies, examiners defer to the primary role of the 
securities regulators, while reviewing risks to the bank from the subsidiaries' 
operations in evaluating the composite risk profile of the parent bank.  
Examiners are instructed that if they have concerns with the securities 
activities of a subsidiary, they should contact the primary regulator and 
work with the regulator to obtain necessary information and determine 
appropriate action.  Examiners also are advised to maintain communications 
with the local contacts for the primary regulators on an ongoing basis to 
keep abreast of any developments that could affect the bank.  The handbook 
also reminds examiners of the OCC's policy to refer evidence of potential 
violations of law that fall within the jurisdiction of another primary 
regulator.  All of these steps will enhance information sharing and 
coordination between our examination staff and securities regulators.

     In addition to the guidance contained in revisions to the OCC's 
bank examination handbook, OCC bank supervision staff have held meetings 
with representatives of the SEC in Washington, D. C., to identify areas 
where it is productive to exchange supervisory information. We intend 
to continue this dialogue.  The intent of these meetings is to establish 
avenues of communication similar to those that have traditionally existed 
with other federal and state bank supervisory agencies.

Development of Consumer Protection Standards For Securities Sales

     As noted at the outset, the OCC and the securities regulators 
share a common concern that bank customers understand the risks involved 
in securities investments and not mistakenly believe these products are 
FDIC-insured or guaranteed by the bank.  In July of 1993, the OCC issued 
Banking Circular 274, which established standards for national banks 
offering mutual funds, annuities and other nondeposit investment products.  
The Circular stressed that "[b]anks should view customers' interests as 
critical to all aspects of their sales programs."  It directed banks to 
disclose that securities products are not FDIC-insured, not backed by the 
bank and involve investment risks, including possible loss of principal.  
In addition, the Circular further directed that banks obtain signed 
statements from customers acknowledging receipt and understanding of 
these disclosures.  The Circular also addressed program management, 
physical separation of securities and depository activities, advertising, 
suitability, qualifications and training, and other consumer protection 
issues.

Shortly after the issuance of Banking Circular 274, the OCC worked 
with the other federal banking regulators to establish uniform interagency 
guidance for securities sales through banks. In February of 1994, the 
agencies issued the Interagency Statement on Retail Sales of Nondeposit 
Investment Products, which embraced the standards from Banking Circular 
274 and provided more detailed guidance on sales programs.  The OCC also 
issued detailed examination procedures for examiners on evaluating 
compliance with the Interagency Statement.  The banking agencies developed 
these standards due to the absence -- at the time -- of securities
regulatory requirements directed at the special concerns that arise from 
sales by registered broker-dealers through banks.  

     In 1998, the NASDR adopted its final rule applicable to broker-
dealers governing their securities sales through banks.  The new NASDR 
standards incorporate many of the standards in the Interagency Statement.  
We appreciate the efforts of the NASDR to coordinate and establish
consistent standards with the banking agencies, and since then, the OCC 
and the other federal banking agencies have undertaken a project to codify 
the Interagency Statement standards, in a manner consistent with the NASDR 
rules.  We anticipate our proposal will focus on activities and obligations 
that apply directly to banks, and should therefore mesh with the NASDR rules,
which focus on the activities of the broker-dealer.

OCC Supervisory Efforts Relating to NationsSecurities

     I would now like to turn to the matter of  securities sales 
abuses involving NationsSecurities in late l993 and early 1994. 

On April 9, l993, the OCC approved a partnership between a NationsBank 
subsidiary and Dean Witter named "NationsSecurities."  It was 
contemplated that the partnership would operate from some NationsBank 
offices and would offer securities to bank customers.  Before approving 
the proposal, the OCC required representations and imposed enforceable 
conditions of approval designed to establish proper management oversight 
of and basic customer protection standards for securities sales effected 
by the partnership on the premises of, or otherwise through, NationsBank.

     For example, one condition required that the partnership disclose 
that the products were not FDIC-insured, were not backed by the bank and 
involved investment risks, including loss of principal.  The condition 
also required that a signed statement be obtained from customers 
acknowledging receipt and understanding of these disclosures.  Another 
condition required that the partnership's products not be marketed in a 
manner that would mislead or deceive consumers as to the products' 
uninsured nature and lack of any guarantee by the bank or the 
partnership. Various other disclosure and operational requirements 
designed to protect bank customers were established in the 12 conditions 
imposed on this approval.  The OCC approval noted that the partnership 
would be registered as a broker-dealer and subject to the requirements 
of the federal securities laws and Rules of Fair Practice of the NASDR.  
Shortly after the partnership commenced operations on June 7, l993, 
the OCC adopted Banking Circular 274, which imposed additional consumer 
protection standards for banks offering securities on bank premises 
designed to avoid customer confusion.

     On November 1, l993, the OCC commenced an examination of 
NationsBank to evaluate the bank's progress towards compliance with 
the conditions in the OCC's approval and Banking Circular 274.  At that 
time there was great interest in the adequacy of disclosures of the
uninsured nature of investment products sold on bank premises, and 
the SEC had just issued its "Chubb Letter" addressing the propriety 
of payment of referral fees to unregistered employees of
financial institutions.  Thus, the examination concentrated on the 
disclosures being provided to customers and reviewed the operational 
policies and procedures of the bank, particularly with respect to 
whether the incentives made available to bank employees for 
referring business to the partnership were appropriate.  Our examiners 
issued an examination report that was critical of compliance efforts 
in general, stemming from a lack of coordinated effort by bank 
management to achieve compliance.  The report found specific 
noncompliance with Banking Circular 274 provisions relating to 
advertising, compliance management, disclosures and employee
compensation.

     On reviewing our examination findings, the bank took 
corrective actions to address areas criticized by the OCC and 
to ensure future compliance with the Interagency Statement.  
Bank management's response commenced during the examination 
with the formation of a compliance committee in January of 
1994 to establish a corrective action response plan.  The 
plan was drafted by February of 1994 and the response was 
in place by April of 1994.

     

     In late spring and summer of  l994, the OCC received 
customer and broker complaints about sales abuses relating 
to sales of Term Trusts that had occurred between August and
September of 1993 and January and February of l994.  After 
learning of these complaints, OCC examination staff 
immediately began a review, including interviewing employees 
of the bank and NationsSecurities and doing on-site reviews 
in the bank's Tampa locations.  The OCC also met with the 
SEC and other regulators and began sharing information 
regarding their work and their findings.  At roughly the same 
time, our on-site examination staff conducted additional
inquiries regarding the sales practices at issue and planned 
and organized an intensive examination of the bank's 
nondeposit investment products sales practices.  This exam 
formally began in January of 1995, using resident examiners 
and a cadre of expert examiners brought in from other parts 
of the country.  During that examination, OCC examination 
staff advised the bank of major deficiencies in the customer 
suitability and product selection process.  Between
May and September of 1995, at the direction of the OCC, 
the bank and NationsSecurities responded to OCC concerns 
and took actions to correct the customer suitability and 
product selection deficiencies.

     On July 24, l996, the OCC commenced another examination 
of NationsBank's retail sales program.  Following that exam, 
our examiners confirmed that corrective action had been 
taken to resolve concerns identified in the l995 examination 
and noted no instances of noncompliance with the Interagency 
Statement. 

The OCC, SEC and NASDR Coordinated their Efforts Along 
Functional Lines of Regulation
     
     The OCC and securities regulators pursued our examination 
and investigation reviews and enforcement actions consistent 
with our functional lines of regulation.  The SEC primarily
investigated potential violations of securities laws by 
NationsSecurities and the bank, while the OCC focused on 
the bank's compliance with banking laws and standards 
applicable to the bank that were relevant to customer 
protection.

     On learning of the sales practice abuses, the OCC 
and SEC staff consulted with one another and exchanged 
formal requests for access to each other's documents.  
The OCC provided the SEC access to our examination 
information and set up meetings between OCC examination
staff and SEC investigators, which occurred in August 
of l994. 

     In September of l994, the SEC opened a formal 
Order of Investigation.  Subsequently, the SEC would 
be conducting an in-depth investigation, including 
depositions of customers, and would share information 
from the investigation with the OCC.   The SEC shared 
with the OCC information gathered from its investigation.  
The OCC also shared with the SEC our examination
reports, work papers and other internal information 
relating to the securities sales programs.

     During the negotiation of settlement actions, 
the OCC, the SEC and the NASDR effectively coordinated 
our respective enforcement efforts and announced the 
settlements together on the same date.  At a joint 
press conference, the agencies expressed appreciation 
for each other's coordination and cooperation in 
these enforcement endeavors.  The agencies' final
enforcement actions reflect a functional regulation 
approach.  The OCC brought an action against
the bank based on the bank's failure to comply with 
the OCC's condition requiring that the bank
assure that securities products not be marketed in 
a manner that would mislead or deceive bank
consumers as to the products' uninsured nature 
and lack of any guaranty by the bank.  Through
the bank's noncompliance with this condition, the 
bank failed to adhere to the OCC's standards
on retail nondeposit investment sales contained in 
Banking Circular 274.  The OCC assessed a
civil money penalty of $750,000 against the bank 
for this violation.  The OCC also suspended
from engaging in bank securities activities and 
assessed a penalty against a bank employee who
had been involved in the sales practice abuses 
and entered into agreements with two other
individuals to prevent them from engaging in 
securities activities within banks during the 
period they had been suspended by the NASDR.  
In addition, the SEC assessed a $4 million 
penalty and the NASDR assessed a $2 million 
penalty against NationsSecurities for securities 
law violations.  The SEC also entered into a 
consent order with the bank in which it agreed 
to cease and desist from causing or engaging 
in violations of certain securities law provisions.  
The NASDR also fined and suspended three individuals 
based on violations of the federal securities laws 
falling within their jurisdiction.  The agencies 
relied upon information developed by each other in
completing their respective enforcement actions.

Legislative Proposals Affecting the Bank Regulators' Role

     In closing, I would like to briefly note a 
development that could impair much of the progress that 
has been made in recent years in coordination between 
bank regulators and securities regulators who are working 
toward that common goal of fair treatment of customers. 
The  current system of functional regulation involves 
different regulators on the lookout -- from their 
different perspectives -- for customer concerns 
arising from securities sales through banks. 
We are concerned that H.R. 10 could diminish these 
safeguards.  Under Section 117, the ability
of a bank or thrift regulator to seek information 
from, or examine a functionally regulated bank
affiliate or subsidiary, would be severely limited.  
As a practical matter, this could preclude a
bank regulator from promptly taking reasonable 
steps to verify the existence of information
relevant to a potential problem that would warrant 
a contact with the appropriate functional regulator.

     We would respectfully suggest that setting 
a framework for cooperation and coordination between, 
rather than segregation of, regulators would be 
preferable and would enhance both investor protection 
and the safety and soundness of all types of financial 
institutions that have functionally regulated affiliates 
and subsidiaries.

Conclusion

     We appreciate this opportunity to explain to the 
Subcommittee the OCC's role with respect to brokerage 
subsidiaries of banks and our coordination with their 
primary regulators, and hope you will find this 
information useful in your oversight activities.  
I would be pleased to answer any questions you have.