Mr. LORD. I would not say that two similar letters would indicate a form letter, Mr. Pecora. I would say that those two situations were evidently handled in the same manner. Mr. PECORA. You recall the first day you testified here, I showed you several different letters addressed by you to the executive heads of different unit banks with regard to dividend declarations by the unit banks, and those letters were all in the same phraseology, and you declined to acknowledge that in that case any particular form of letter was used. Do you think that in this case here the use of the identical language in these two letters was also an accident, as you called it the other day? Mr. LORD. No; I do not. I think in those two cases they used similar letters. If you care to call it a form letter I have no objection. Mr. PECORA. Do you object to calling it a form letter? Mr. LORD. No; I do not have any objection. Mr. PECORA. I understood that you did. Mr. LORD. No. Mr. PECORA. Is it not apparent to you, from the phraseology of these letters, Exhibits Nos. 37 and 38, that these letters were resorted to for a specific purpose? Mr. LORD. For the purpose of keeping in close contact with the bank, to know from day to day, at that period, what the condition of the bank's deposits and bills payable was. Mr. PECORA. And that information was sought by Colonel Walsh from the executive heads of unit banks for a period of time terminating in each instance after the next call date. Mr. LORD. From those two unit banks; yes, sir. Mr. PECORA. You know that that was the general procedure followed with all the unit banks. Mr. PECORA. Why do you think it was desired to have the unit banks wire Colonel Walsh each morning until after the next call date, as early as possible, and certainly not later than 10 a.m., a statement of the deposits of the unit bank and the bills payable of the unit bank? Mr. LORD. I do not know, sir. Mr. PECORA. You do not know? Mr. LORD. I do not know why he wanted it every day. Mr. PECORA. All this is new to you, apparently. Mr. LORD. I never saw those letters before. Mr. PECORA. I say, this whole scheme is new to you-those mechanics. Mr. LORD. Those mechanisc are new to me. Mr. PECORA. You never heard of them before? Mr. LORD. No, sir. Mr. PECORA. Who assigned Colonel Walsh to handle this part of the mechanics? Mr. LORD. Mr. Pecora, I assume it came in a general discussion at board meeting, as to the division of duties. I do not recall exactly how the assignment was made. Mr. PECORA. You were the president of the Guardian Detroit Bank at the time these letters were written. Mr. LORD. I was. Mr. PECORA. You were also president of the group at the same time. Mr. LORD. I was; yes, sir. Mr. PECORA. Colonel Walsh was executive vice president of the Guardian Detroit Bank at the time these letters were written. Mr. LORD. Yes, sir. Mr. PECORA. Also an officer of the group. Mr. LORD. Yes, sir. Mr. PECORA. You were the operating head of both the Guardian Detroit Bank and of the group, were you not? Mr. LORD. Yes, sir. Mr. PECORA. Can you not tell the committee who assigned important duties to different men in your bank and in your group? Mr. LORD. The duties of the officers are covered, in a measure, by the bylaws of the institution. Mr. PECORA. We know that. We know what the general duties are. You will not find anything in the bylaws that authorized Colonel Walsh to do this particular work, will you? Mr. LORD. No, sir. Mr. PECORA. Tell us who assigned him to this particular work. Mr. LORD. I do not know whether it was I or the board. I do not recollect. It may have been by my recommendation. Mr. PECORA. Why do you think Colonel Walsh, in these letters, requested the heads of the unit banks to whom these letters were addressed, as follows [reading]: 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. Mr. LORD. I have no idea. I do not know what he is talking about when he says "other moves" unless it is similar situations. Mr. PECORA. Unless it is similar situations in what respect? Mr. LORD. Taking a bank out of the bills payable. Mr. PECORA. In other words, he wanted this information from all the unit banks, even though any unit bank did not have any bills payable, or required no deposits with which to offset bills payable, so that he would know how to allocate funds from the parent bank to take care of the bills payable of their unit banks. Mr. LORD. Let us not use the words "parent bank ", because they were entirely separate corporations, occupying the same relative position. Mr. PECORA. All right. I will modify the question by referring to the creditor bank instead of the parent bank. Mr. LORD. I do not even know that those banks owed the Guardian National Bank of Commerce money. They may have owed it to another bank. They may have owed it to the Federal Reserve bank. They may have borrowed it somewhere else. Mr. PECORA. I do not think that answers my question. Mr. PECORA. You notice that in these letters, exhibits 37 and 38, Colonel Walsh makes the following statement in each of those two letters [reading]: 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. What do you suppose he meant by that? Mr. LORD. I think I answered that question, did I not? Mr. PECORA. Will you answer it again? I did not understand it. Mr. LORD. I assume that there may have been other situations where he wanted the banks to be out of bills payable. I do not know how many letters he sent out to the units of that tenor at that time. You have shown me 2 out of 23 banks and trust companies. I do not know whether he did it to all of them. There is no way I have of knowing. This is the first time, to my recollection, I have ever seen those letters. Mr. PECORA. Will you be good enough to look at this document that I now show you, which purports to be a photostatic copy of a letter addressed to Colonel Walsh by Mr. Brandon, president of the City National Bank & Trust Co. of Niles, dated September 16, 1931, and tell us if it is a true and correct copy of such a letter sent by Brandon to Walsh? Mr. LORD. I accept it as a true copy. (The document referred to, letter, Sept. 16, 1931, Brandon to Walsh, was received in evidence, marked "Committee's Exhibit No. 39", Dec. 21, 1933, and the same was subsequently read into the record by Mr. Pecora.) Mr. PECORA. The letter has been marked in evidence as committee's exhibit no. 39 of this date. It is written on the letterhead of the Guardian Detroit Union Group, Inc., entitled "Intra-Group Memorandum", dated September 16, 1931, to Mr. James L. Wash, Executive Vice President, Guardian Detroit Bank, from Mr. F. M. Brandon, President City National Bank & Trust Co., Niles [reading]: Personal. DEAR COLONEL: Confirming our telephone conversation today, we have borrowed $50,000 of the Federal Reserve bank on Government securities and believe we will need possibly another $50,000, and knowing your desire to avoid, if possible, bills payable, it occurred to us that you might arrange a deposit which would automatically eliminate bills payable at this time, when we are all looking for a call to report from the Comptroller. This loan is in no sense occasioned by a local loan demand, but is only because of a very decided decline in time deposits, which you know we have faced since June 15 this year, and I shall depend upon your cooperation in arranging for funds in the best way you think desirable at this time. Yours very truly, F. M. BRANDON. Is this letter enlightening to you, Mr. Lord, concerning the details of the mechanics employed to offset bills payable of unit banks to some other bank in the group which was a creditor bank? Mr. LORD. On that particular transaction it is enlightening. Apparently that bank was borrowing from the Federal Reserve bank, not from the Guardian National Bank of Commerce. They speak of borrowing $50,000 on Government securities from the Federal Reserve bank. Mr. PECORA. The letter says just a little bit more than that, does it not? Mr. LORD. It says he might need $50,000 more. Mr. PECORA. It says: We believe we will need possibly another $50,000, and knowing your desire to avoid, if possible, bills payable, it occurred to us that you might arrange a deposit which would automatically eliminate bills payable at this time, when we are all looking for a call to report from the Comptroller. Mr. LORD. That is perfectly clear. Mr. PECORA. And clearly informs you to the effect, in substance, that these deposits were sought by debtor banks in the group from other banks in the group at about the time when they were expecting a call to report from the Comptroller, in order to enable the debtor banks to avoid the necessity for reporting bills payable. Mr. LORD. In order to enable that debtor bank; yes. Mr. PECORA. Do you think this was an exceptional case, Mr. Lord, is it typical of the policy that was pursued by the group and its unit banks? or Mr. LORD. I do not know how many transactions of that character took place at that time. I have no information. Senator COUZENS. Was that policy adopted wherever it was thought to be necessary? Mr. LORD. Senator, I have testified it was the desire and effort of every unit bank to get out of debt, and to get out of debt at that time as well as throughout the year, wherever they could. I cannot say very much more than that. Senator COUZEN. So it was the policy Mr. LORD. It was the policy to keep our bills payable at the minimum at all times. Senator COUZENS. Even though you had to transfer deposits from one bank to another. Senator ADAMS. The Federal Reserve bank was created largely for the purpose of making loans to banks, was it not? Mr. LORD. Yes, sir. Senator ADAMS. Why should there be such a reluctance on the part of the bank to show that it was participating in the actual functions for which the Federal Reserve bank was created? Mr. LORD. Senator Adams, the public did not care whether you were borrowing from the Federal Reserve bank, or where you were borrowing at that time. Any bank borrowing made a bad impression on the public mind. Senator ADAMS. But the borrowing did not increase the liabilities of the bank, did it, if it used the money to pay deposits? Mr. LORD. Not a bit. The liabilities of the bank were either in borrowed money or to a depositor. I might say, in connection with that Niles situation, that it was a very critical situation, because, if my recollection is correct, at or about that time there were several bank failures in South Bend. The result was that Niles, which is only a short distance from South Bend, suffered very considerably in loss of deposits, and Mr. Brandon speaks in his letter of the need for borrowing because of the decline in their time deposits. Senator ADAMS. Mr. Lord, have not the banks had a good deal to do with creating the public feeling about loans? Mr. LORD. I think they have. Senator ADAMS. Here was the Federal Reserve, created to make the assets of the country liquid and available, the Federal Reserve furnishing currency, taking in their good loans of eligible paper, in order that the bank might accommodate its people. The bank that really accommodated its community would go to the Federal Reserve to get some additional accommodations to help the community. Why should the banks both avoid doing that and avoid having the thing made public? Mr. LORD. Senator Adams, in normal times the public would not have thought anything about a bank's borrowings. Those were not normal times, nor have we had normal times for the past 3 or 4 years. The banks, as I testified yesterday, brought that on themselves, in my opinion, by showing pride in attempting to keep out of bills payable, and being proud of it when they were out of bills payable. The Federal Reserve bank, as you say, was created for the very purpose of aiding the banks, and I blame the bankers, myself included, for the education of the public along that line. Senator ADAMS. You remember in 1920 and 1921 tremendous loans were made by the Federal Reserve, greater than had ever been made before. Mr. LORD. I do. I was in the banking business in Chicago at that time, and it was a pride to show borrowings from the Federal Reserve at that time, to help the war, or help the depression after the war. I blame the bankers for that, myself included. The CHAIRMAN. Here was a bank that had reported that it had borrowed $50,000 from the Federal Reserve. Mr. LORD. Yes, sir. The CHAIRMAN. Should not that be listed as bills payable? Mr. LORD. If they owed it at the time of the statement; yes, sir. The CHAIRMAN. How did you expect to cancel that, by arrang ing a deposit to the credit of this bank with you, to the amount of $50,000? Mr. LORD. Correct, depositing with that bank $50,000, giving them the funds with which to pay those bills payable, whether they were at the Federal Reserve bank or elsewhere. The CHAIRMAN. That is what he calls automatic settlement? Mr. LORD. That is what he speaks of as automatic. It is not automatic. It takes a separate transaction. The CHAIRMAN. The bills would not be paid at all, would they? It was just a bookkeeping proposition. Mr. LORD. No, sir. The bills would be paid. The CHAIRMAN. You would pay the Federal Reserve bank $50,000? Mr. LORD. Yes, sir. The CHAIRMAN. And they would owe it to you instead? Mr. LORD. They would not owe it to us, except as a depositor. Mr. PECORA. That is virtually owing it to you, is it not? Mr. LORD. Certainly. A bank is a debtor to all its depositors. Mr. PECORA. Then, in its report, in response to the Comptroller's call for a report, that loan, or rather that indebtedness, would not |