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stock, an election of such board of directors is held, the shares of such bank or trust company owned by this company shall be voted in favor of the election of a board of directors of which at least 75 percent shall consist of directors residing in the municipality where said bank or trust company is located or within a radius of 50 miles thereof.

This policy was adhered to. The selection of directors in the unit institutions was left to the unit directors who had previously been in charge of these institutions, and such changes as occurred after the acquisition of the stock of the unit institution by the Group Co. were very largely on account of death or an account of resignation for some other reason.

To further carry out these policies, the board of directors of Guardian Detroit Union Group, Inc., adopted the following resolution:

Resolved, That credit based upon the deposits in a local bank, which is a unit member of Guardian Detroit Union Group, Inc., shall be controlled wholly by the board of directors and the officers of the local unit bank.

The officers of each unit institution in the Group were responsible directly to the board of directors of their own institution.

The Group Co. performed the following useful functions for the local institutions without in any way violating the basic policy of encouraging local management to run their own banks, namely:

(a) Acting as a clearing house for information bearing upon policies, practices, and results obtained by the various member unit institutions,

(b) Systematically making available to all units the practice of the best with a view of enabling all to reach the highest standards of operations and resultant profit.

(c) Providing capable supervision in connection with building construction and management.

(d) Coordinating business development activities.
(e) Purchasing standard equipment and supplies in quantity.

(f) Providing an independent examining force, in no way responsible for the condition which its examination discloses, to supplement the work of the board of directors of a local unit in connection with the examining responsi. bilities imposed by statute.

(9) Provding investment counsel and advice, together with statistical data and information on investments which the local institution, on account of its size, could not afford to provide for itself.

(h) Where local industries required credit beyond the loaning capacity of the local unit, the excess amount was offered to and frequently taken by other banking units in the group, thus obviating the necessity of these industries going outside the State for their credit accommodation.

In brief, it was the principal function of the Group Co. to act purely in an advisory capacity and as any stockholder would act in an institution where his funds were invested.

Admittedly, the institutions in the Guardian Detroit Union Group made many mistakes; but, to the best of my personal knowledge, mistakes of judgment. Loans that were well secured at the time made, suffered losses due in large measure to the velocity of the deflation. This situation occurred in most banks throughout the country necessitating banks in the United States charging down hundreds of millions of dollars of assets which under any reasonably normal conditions could and would have liquidated in full.

It might be of interest to this committee to know some of the many helpful and constructive things which the Group Co. accomplished. During the period from 1930 to 1933 the Group Co. purchased from unit banks and trust companies nearly $8,400,000 of

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slow or undesirable assets, in some cases in an amount almost equal to the capital structure of the unit institution. The amounts were as follows, as reported to me: Union Guardian Trust Co----

$7,500,000.00 City National Bank & Trust Co., Battle Creek..

198, 068. 93 National Bank of Iona--

149, 468.90 City National Bank & Trust Co., Niles.

148, 4!!!.00 Guardian Bank of Dearborn.--.

130, 6 16. 79 Guardian Bank of Grosse Pointe-

99, 590. 18 Grand Rapids National Bank.

92, 333. 04 Guardian Bank of Trenton-

78, 030.90 Thus, in the case of the Union Trust Co., the Group Co. replaced the entire capital and surplus of that institution.

Senator COUZENS. May I interrupt you at that point: Where did you get the money to purchase those securities, from the dividends that you got from the paying institutions ? Mr. LORD. Senator, I think it is very difficult to earmark money.

, I would say it was from the borrowings of the Group Co., not from the dividends.

Senator COUZENS. I do not ask you to earmark the money, but did you relieve these units of these slow and doubtful assets by dividends received from the units?

Mr. LORD. Received from the units? No, sir; by borrowing money by the Group Co. Senator COUZENS. Was that the only source that you had ?

Mr. LORD. That was the source that was used. The situation in Michigan during the years 1931 and 1932 was probably more acute as regards bank failures than in any other State in the Union. In cities where our own units were located many failures occurred in spite of every aid to these competing banks that we could and did render. I have here a map of the State, prepared early in 1933, showing the bank failures throughout the State, and I would like to show it to this committee.

It is rather an interesting picture. [Exhibiting map.] There are 195 banks pictured there. The towns that are starred were left with no banking facilities whatever. In cases where they are marked with a number 2 or 3 it means 2 or 3 banks in the community have failed. That is in the period from January 1, 1931, to February 25, I think it was, 1933. Mr. PECORA. Have you any reproductions of those ?

Mr. LORD. I have some small ones, Mr. Pecora. They are not very clear.

Mr. PECORA. Would you let the committee have as many copies as you can gather?

Mr. LORD. They may have them all [handing copies].

Mr. PECORA. I think we might offer this chart produced by the witness in evidence.

Senator COUZENS. Following up my earlier inquiry, Mr. Lord, where did you borrow this money from that you used to relieve these banks of their slow assets?

Mr. LORD. Senator, most of that money was borrowed from New York and Chicago banks, practically all of it, and I cover it a little later. May I read it, and if I have not answered the question I will be glad to?

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Senator COUZENS. All right.

The CHAIRMAN. Let the chart be admitted and entered on the record.

(Chart presented by Mr. Lord showing bank failures in the State of Michigan from Jan. 1, 1931, to Feb. 25, 1933, was thereupon designated “ Committee Exhibit Nó. 2, Dec. 19, 1933 ", and is reproduced herewith.)

Mr. Lord. The effect upon the deposits of open banks where a closing occurs in the same or a nearby community is always serious and was particularly so during those years when lack of confidence and fear were so prevalent in the public mind.

Another interesting situation that I might comment upon that took place in Michigan during that period was the fact that many banks who called themselves open-and there were literally county after county where this occurred-presented a situation where a man who tried to cash a check for a hundred dollars must be given $5 or $10. In other words, those banks held their doors open by brute strength, and there was no one in the community who wanted to see them close it, and they did the best they could, but it made a very difficult banking situation.

It may also be of interest to this committee to know what the situation is of the largest unit of the group, the Guardian National Bank of Commerce. That bank was a consolidation of the Guardian Detroit Bank, Bank of Detroit, and National Bank of Commerce, which latter bank had some previously absorbed the Griswold National Bank. I might say that, as shown on this chart, the Griswole! National Bank had previously absorbed the First State Bank.

When these three banks were separate institutions they reported on December 31, 1929, total deposits of $190,609,633.78. When the final consolidation was completed December 31, 1931, the deposits were $169,058,328.36. On December 31, 1932, deposits were $138,385,923.37. After the bank had been refused a license to reopen after the holiday and was in the hands of a receiver 40 percent was paid to the depositors by the middle of the summer of 1933. Since then an additional 20 percent has been paid and plans are being completed for an additional 5 percent. Taking into consideration the current withdrawals made in normal course of business since December 31, 1931, that is, the date of the consolidation, and figuring as nearly accurately as I can without access to the bank's records, the deposit liability of approximately $33,000,000 remaining after this last 5percent payment-I say deposit liability as contrasted with contingent liabilities that come to a bank at its closing, such as rentals.

Senator Cotzens. Have you any estimate of that, Mr. Lord?

Mr. Lord. Very rough estimate. I should say they have set up four or five millions. That is the figure that I have heard, Senator, but I do not think it will take any such figure.

Senator COUZENS. That is for the leases and other claims?

Mr. Lord. For leases and other claims besides the depositors. The deposit liability of approximately $33,000,000 remaining after this last 5 percent payment means that during the period of less than 2 years, nearly 1 year of which the bank was closed, the bank has paid out to its depositors about $136,000,000, or nearly 80 percent of its deposits of December 1931. It is true that this was made possible

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which amounted in the aggregate to $3,595,000. He was later reimbursed in part by the other stockholders of the Flint Bank.

Second. When the Group Co., in December 1931, found it neces. sary to borrow, Mr. C. Mott loaned his credit on a note of the Grour. Co. with the Bankers Trust Co. of New York to the extent of $2,500,000.

Third: Late in 1930 Mr. Edsel B. Ford loaned to the Guardian Detroit Co. $1,000,000 in cash and also loaned to that same corporation—that was the securities company-approximately $5,000,000 of his personal securities.

Fourth: In December 1931 Mr. Edsel B. Ford loaned his credit to the Group Co. on a loan of $2,500,000 with the Continental Bank in Chicago.

Fifth: The Ford Motor Co. in December 1932 loaned the Group Co. $3,500,000 with which funds the Group Co. lifted out of the Union Guardian Trust Co. $3,500,000 of criticized assets.

Sixth. In December 1929 certain of the directors of the Guardian Detroit Group loaned their credit to the extent of $1,600,000 masimum, of which about $1,100,000 is now used, on a loan with the Bankers Trust Co. of New York, made for the purpose of carrying distress loans of certain officers and employees of the units of the Guardian Detroit Group.

Seventh: In November 1929, in order to relieve the Guardian Detroit Co. of part of its heavy inventory, a certain small group of stockholders purchased from that company, at $180 per share, 18,800 Group shares at a total cost of $3,384,000.

Eighth: In the early winter of 1930-31 certain individual stockholders agreed to subscribe for a total of approximately 93,000 shares of Group stock, to be bought from time to time in the open market at not to exceed $60 per share, the purpose of these purchases to stop or retard the decline in the quoted price of Group shares which was adversely affecting the institution's standing with an already hysterical public. That cost over $1,000,000.

Ninth: In the fall of 1930 certain individual stockholders put up $400,000 in cash through a company known as the Natum Corporation to purchase certain of the inventory of the Guardian Detroit Co., to provide funds for reduction in the loans of that company. These various items added together show that the larger stockholders contributed, in order to strengthen and stabilize the entire situation in the protection of the depositors, an aggregate of nearly $27,000,000.

Senator Couzens, that is where your money came from that lifted out the eight million four. Does that answer your question, sir?

Senator Couzens. Yes; except that you said that you got it from New York and Chicago banks, I understood.

Mr. LORD. Yes, sir.

Senator COUZENS. And these loans from New York and Chicago banks were guaranteed by these stockholders?

Mr. LORD. Yes, sir.
Senator COUZENS. That answers it.

Mr. LORD. Mr. Chairman, I do not know exactly what this committee wants, but I am here to cooperate in any way that I can.

The Chairman. Did any of these banks subsequently reopen as shown on this chart?

r the aid of the Reconstruction Finance Corporation, but there were no loans remaining from the Reconstruction Finance Corporaion until the first 20 percent payment was made.

I might state there that in paying and completing the 40 percent he Reconstruction Finance Corporation loaned the receiver of the juardian National Bank of Commerce four million three hundred tinety-one thousand and oild dollars; I think that is the correct fig. ire. The National Bank of Detroit had when it opened brought Tout 13 million dollarsr of the loans which enable the 40 percent payment, and by the end of the summer the Reconstruction Finance oan had been back in full and most of the loans taken by the National Bank of Detroit had been liquidated.

Mr. PECORA. Pardon me, Mr. Lord; that National Bank of Detroit o which you have just referred was a new bank that was organized n the spring of the current year?

Mr. Lord. It was a new bank that was organized this year. I hink it opened on March 24. In my opinion, with proper handling of the rentaining assets and any reasonable recovery of business, the lepositors will receive 100 cents on the dollar. Personally, I do not know of any closed institution with conditions in any way comparible where the showing is as good.

In 1929 Guardian had a definite plan to acquire bank shares in nstitutions in certain of the principal cities of Michigan, cities where ndustry was closely allied with the industries of Detroit. In no 'ommunty did we desire or attempt to have a banking monopoly. There were many cases where bank shares were offeret to and delined by our group, not only in cities where we already had a unit out in other communities. Our original program adopted in 1929 was completed early in the year 1930 and except for the Guardian Bank of Royal Oak which we organized in that city of upwards of 20,000 people at the request of its citizens because the three banks formerly serving that city had long since been closed, there were, I believe, no further additions of banking units to the group.

I have already stated that there were undoubtedly many errors in judginent. Broadly speaking, the greatest mistake of the Group was that it was organized at the peak of the Nation's prosperity that we along with others were unable to foresee the conditions which were to follow that long period of prosperity and expansion of business. During almost the entire history of the group it was engaged in a battle against a depression probably never before equalled in its severity in the history of the world and the consequences of which were felt more acutely in Michigan and in Detroit than in any other section of this country. In this battle against the depression, most of the larger stockholders contributed enormously to support and stabilize the situation. Here are some of the instances :

First. In the late fall of 1929, when negotiations were in progress for the merger of the Guardian Detroit Group and the Union Commerce Corporation, a series of defalcations were discovered in the Union Industrial Bank of Flint, the stock of which bank has been or was being acquired by the Union Commerce Corporation. Mr. C. S. Mott, from his own resources, made good these defalcations,

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