Mr. LORD (continuing). And supposing that bank had an account from somebody else and they wanted to withdraw their money. The Guardian National Bank stood in the same position. The mere fact that they were willing to reloan to that unit bank funds with which to provide for the pay ment of that deposit, puts the Guardian National Bank of Commerce in the same position as a depositor, as every other depositor. They had no claim on the deposit when they had no

Senator ADAMS (interposing). But when they make a bank deposit they are given collateral in place of an unsecured claim that the ordinary depositor holds.

Mr. LORD. It may be that the bank had the money with which to pay. If they did not have the funds they might have to come to the Guardian National Bank of Commerce and say: We need $200,000 or $250,000. Will you loan it to us on collateral. Those are two entirely separate and distinct transactions.

Senator ADAMS. But in doing that it was avoiding any hazard. Mr. LORD. No. If the bank had closed they would occupy the same position as any other depositor would. The mere fact that they might hold for safe-keeping any collateral on a prior loan did not change that situation.

Senator ADAMS. If a deposit is made, and it has been applied to bills payable, then when the parent bank wants to withdraw its deposit it gets from the unit bank a note in payment of the deposit and gets collateral to secure such note.

Mr. LORD. If the unit bank requires a loan to pay that deposit. Senator ADAMS. Well, we are assuming there will be no note unless they require it. But the mere fact that they require it would indicate preferential treatment in the case of the parent bank, wouldn't it!

Mr. LORD. I do not consider that there was any preferential

treatment.

Senator COUZENS. Let me use this illustration: Assuming a unit bank borrowed $250,000 from you and gave you a note and security. Later on you wanted that unit bank to be relieved of showing bills payable. So you put $250,000 on deposit in the unit bank and cancel the note and take the security out of your bank, or hold it for safe keeping. In what respect is your Guardian National Bank of Commerce any better off by that procedure than by holding the security with the note?

Mr. LORD. It made no difference to the Guardian National Bank of Commerce.

Senator COUZENS. If you are willing to deposit $250,000 in a unit bank so that they may avoid showing bills payable, why couldn't you have done that in the first instance instead of taking a note with security?

Mr. LORD. I think we did it in many cases. I think you will find

that

Senator COUZENS (interposing). I am not going into many cases. I am talking about the kind of loans you have been discussing. You said a unit bank might borrow $250,000 from you and put up security. In that case it was a bill payable and you were secured.

Mr. LORD. Yes, sir.

Senator COUZENS. Against an ordinary depositor.

Mr. LORD. Yes, sir.

Senator COUZENS. And later on you deposit $250,000 in that unit bank, on a C.D., for example. And they used that $250,000 to cancel the note that you had.

Mr. LORD. Yes, sir.

Senator COUZENS. And you surrendered the collateral. Why did you not do that in the first instance instead of taking a note as collateral?

Mr. LORD. We might not have had at that time surplus funds with which to do it.

Senator COUZENS. But you did not need security then, that being so, did you? But you did take security from your unit bank. Mr. LORD. We took security always when we made a bank a loan. Senator COUZENS. What is the difference between making them a loan and depositing $250,000, except that you prefer yourself? Mr. LORD. Well, that would apply to any bank making loans to other banks.

Senator COUZENS. I understand that that is so, but I am not asking you questions on that point. I am talking about your relations with your own units. You demand a note and security in one case, and in another case you put your money in a unit bank and stand the same chance as any other depositor.

Mr. LORD. That is true.

Mr. PECORA. Mr. Lord, it was the rule for the Comptroller of the Currency three times a year at least to call on banks for a report of their condition as of a prescribed date, was it not?

Mr. LORD. I believe so, sir.

Mr. PECORA. And at about what times or periods during the year would those three times occur?

Mr. LORD. I think I might say it is usually four times a year. Mr. PECORA. But three times is required at least?

Mr. LORD. I believe so.

Mr. PECORA. At about what time do those calls come?

Mr. LORD. Usually sometime about the 1st of March or the latter part of April; and then between the 1st of June and along some time in July; and always, if my recollection is correct, the last day of the year.

Mr. PECORA. That is by December 31?

Mr. LORD. Or December 30; depending on whether the 31st is a business day.

Mr. PECORA. And sometimes where a fourth call for a statement of condition was made it would occur around in September, wouldn't

it?

Mr. LORD. Yes, sir.

Mr. PECORA. So that bank executives could fairly approximate the time when they would be called upon for a statement of condition? Mr. LORD. Well, they could know within a period of from 30 to 45 days. But I have known cases where bank calls would run, believe, over 30 days of the ordinary time.

I

Mr. PECORA. Well, was it the settled policy of the group to so adjust things among the various unit banks in the group that when those calls came from the Comptroller of the Currency for a state

ment of financial condition, as of a date given by the Comptroller, bills payable would have been so taken care of, in the fashion that you have described, as to make it unnecessary for those unit banks to show, in their reports in answer to the call, any bills payable? Mr. LORD. Mr. Pecora, it was the policy to have as small an amount of bills payable at all times as possible. And it was the policy to make as good a showing as we properly could at the time of statement dates. Does that answer your question?

Mr. PECORA. In part. Did you especially strive to create a situation by reason of any policy adopted by the group and its unit banks, to avoid showing any bills payable on any of those reports? Mr. LORD. Wherever it could be properly done; yes, sir.

Mr. PECORA. Take, for instance, where one of the unit banks, like the National Bank of Ionia, owed some money to the parent bank, which is the Guardian National Bank of Commerce, and the time came around when it was reasonably to be expected that a call would be issued by the Comptroller of the Currency for a statement of financial condition, we will say as of September 15, in any one year: As a rule what were the mechanics employed to enable the National Bank of Ionia to avoid showing among its bills payable in the report a bill that it owed the parent bank?

Mr. LORD. Mr. Pecora, I do not recall the specific method of handling the National Bank of Ionia.

Mr. PECORA. Well, I am merely using that bank as an example. Mr. LORD. My recollection is that in the case of the National Bank of Ionia the Guardian National Bank of Commerce, or the Group Co., and I do not recall which, carried a deposit with that bank for a great many months to help it out during the period directly after the failure of the competing bank in that town. But I have not the figures in front of me and so cannot answer your question specifically.

Mr. PECORA. I am simply asking you to take a supposititious case and describe to the committee the mechanics.

Mr. LORD. I cannot take that case, because I do not know how it was handled. I do know that there was a deposit carried with Ionia for a great many months.

Mr. PECORA. Will you be good enough to look at this document which I show you, which purports to be a photostatic reproduction of a letter addressed to Mr. Alexander Robertson, vice president of the National Bank of Ionia, Mich., dated September 17, 1931, purporting to be signed by Mr. James L. Walsh, executive vice president of the group? Look at it and tell me if you recognize it to be a true and correct copy of such a letter sent by Colonel Walsh to Mr. Robertson.

Mr. LORD. I never saw it before, but I have no question as to its being a correct copy.

Mr. PECORA. I offer it in evidence.

The CHAIRMAN. Let it be admitted.

(The document referred to, letter, Sept. 17, 1931, Walsh to Robertson, was received in evidence, marked "Committee's Exhibit No. 37, Dec. 21, 1933, and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The letter has been marked "Committee's Exhibit No. 37, in evidence", and reads as follows. It is on the letterhead of the Guardian Detroit Bank, dated September 17, 1931 [reading]:

Mr. ALEXANDER ROBERTSON,

Vice President, National Bank of Ionia,

Ionia, Mich.

DEAR ALEX: From now until after next call date will you please wire me promptly each morning giving me your deposits in thousands of dollars, and also your bills payable in thousands of dollars. I think there will be no need to mention either the word "deposit" or "bills payable" in the message, but merely use two sets of figures, with the word "stop" between, as follows: "James L. Walsh, vice president, Guardian Detroit Bank, Detroit, Mich. $7,770,000. Stop. $100,000. Alexander Robertson."

Please do not fail to wire me just as early in the morning as possible, and certainly not later than 10 a.m. Even if you do not need any additional deposits to offset bills payable, it is extremely important that I be informed accordingly, as I may be holding up several other moves awaiting to hear from you.

Cordially yours.

Signed by Mr. Walsh.

Does the reading of that letter, Mr. Lord, serve to refresh your recollection in any way concerning the precise mechanics or means that were employed to offset bills payable by deposits so that it would not be necessary for a unit bank that had bills payable in favor of the parent bank to report the bills payable?

Mr. LORD. Mr. Pecora, let us not use the words "parent bank' because the Guardian Detroit Bank occupied the same position as any unit bank.

Mr. PECORA. Then eliminate that characterization "parent bank." Say any other bank in the group.

Mr. LORD. That does not change in any way my recollection, as 1 described to you, how these deposits and payment of bills payable were made before. I never saw the letter before, and never had anything to do with the transaction, so that it does not in any way enlighten me.

Mr. PECORA. Did you know that it was the practice for Colonel Walsh, who, as you said before, was one of the officers of the group who handled the mechanics of this thing, to send out letters in the form of the one I have just read to you?

Mr. LORD. I did not, sir.

Mr. PECORA. Then does not this letter serve to enlighten you in any way concerning the methods that were employed to offset bills payable by unit banks?

Mr. LORD. No.

Mr. PECORA. You mean that this letter is meaningless to you? Mr. LORD. No; it is not meaningless. It serves to show me how Colonel Walsh was keeping in constant touch with the Ionia Bank, to know what its condition was each day as to deposits and bills payable.

Mr. PECORA. He was not doing that each day throughout the year, was he?

Mr. LORD. Apparently not, from that letter.

Mr. PECORA. From this letter, he was apparently doing that at about the period when it was to be expected that a call would be made for a report of condition by the Comptroller of the Currency. Mr. LORD. I would assume so, from the wording of the letter.

Mr. PECORA. And it was done specifically to enable those things to be done which were necessary for the unit bank to offset its bills payable.

Mr. LORD. To clean up its bills payable.

Mr. PECORA. So that it would not have to show bills payable in any report of condition made pursuant to a call from the Comptroller.

Mr. LORD. So that it would not have any bills payable at the time of the report.

Senator ADAMS. The depositor in the unit bank, assuming the unit bank was not in good condition, would be better off in a situation where a deposit was made than where they had the bills payable secured by collateral, would he not?

Mr. LORD. Oh, yes: because the depositors would all be general creditors rather than loan creditors with specific collateral.

Senator ADAMS. The disadvantage of that transaction was with the bank making the deposit in substitution for the bill payable. Mr. LORD. I would say so, Senator.

Mr. PECORA, I show you what purports to be a photostatic copy of another letter, addressed by Mr. Walsh to Mr. Frank M. Brandon, president of the City National Bank & Trust Company of Niles, Mich., also dated September 17, 1931. Look at it and tell me if you recognize it as a true and correct copy of such letter.

Mr. LORD. I never saw the letter, but I assume it is a correct copy, and will accept it as such.

Mr. PECORA, I offer it in evidence.

The CHAIRMAN. Let it be admitted.

(The document referred to, letter, Sept. 17, 1931, Walsh to Brandon, was received in evidence, marked "Committee's Exhibit No. 38", Dec. 21, 1933, and the same was subsequently read into the record by Mr. Pecora.)

Mr. PECORA. The letter just received in evidence as Committee's Exhibit No. 38, of this date, is written on the letterhead of the Guardian Detroit Bank, and is dated September 17, 1931. It is addressed to Mr. Frank M. Brandon, president of the City National Bank & Trust Co. of Niles, Mich., and reads as follows [reading]:

DEAR FRANK: From now until after next call date will you please wire me promptly each morning, giving me your deposits in thousands of dollars and also your bills payable in thousands of dollars. I think there will be no need to mention either the word "deposits" or "bills payable" in the message, but merely use two sets of figures with the word "stop" between, as follows: "James L. Walsh, vice president, Guardian Detroit Bank, Detroit, Mich. $7.770,000. Stop. $100,000. Alexander Robertson."

Please do not fail to wire me just as early in the morning as possible, and certainly not later than 10 a.m. Even if you do not need any additional deposits to offset bills payable, it is extremely important that I be informed accordingly, as I may be holding up several other moves awaiting to hear from

you.

Cordially yours.

I observe that the phraseology of this letter is identical with the phraseology of the letter just offered in evidence prior to this one, Exhibit No. 37, with the exception that Exhibit No. 37 is addressed to Mr. Robertson, of the Ionia bank, and this one is addressed to Mr. Brandon, of the City National Bank & Trust Co. of Niles. That indicates that a sort of form letter was used as part of the mechanics in this process, does it not?