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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

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appear in the debtor bank's report of condition as a bill payable, would it?

Mr. Lord. No; but it would appear in the debtor bank's, or in that bank's obligation to its depositors.

Mr. PECORA. Which is something entirely different from its appearance as a bill payable, is it not?

Mr. LORD. Yes; it is different.

Mr. PECORA. This whole thing was simply done to enable the unit banks, in making out their reports of condition pursuant to the call of the Comptroller of the Currency, to avoid reporting to the Comptroller that they actually owed bills payable, was it not?

Mr. Lord. It was done in order to pay off the bills payable.

Mr. PECORA. Were the bills payable entirely liquidated, and the debtor bank entirely freed of the obligation?

Mr. LORD. So far as I know they were, sir.

Mr. Pecora. Was not another obligation substituted for the original obligation?

Mr. LORD. The obligation to a depositor; yes.

Mr. PECORA. Yes. But that obligation so substituted was of a character that made it unnecessary to report it or make it appear as a bill payable, was it not?

Mr. LORD. It was unnecessary to report bills payable when there were no bills payable.

Senator COCZENS. What were your relations with the Federal Reserve Bank? Did they examine your banks? ?

Mr. LORD. Senator Couzens, my recollection is that the Federal Reserve in Detroit accepted the national and the State reports, depending upon whether it was a national or State institution.

Senator Coczess. It did not send in separate examiners?

Mr. LORD. Not so far as I know. Mr. Patterson might be able to enlighten you on that.

Senator COUZEXS. Who is the head of the Federal Reserve at Chicago now?

Mr. LORD. They have just_had a new appointment, Senator. I saw it in the paper today. I have forgotten his name—some man fom Iowa. Governor McDougal has been.

Senator Corzews. What was Mr. Steven's activity with the Federal Reserve at Chicago?

Mr. Lord. He is a director of the Federal Reserve, representing the Washington end in Chicago.

Senator COCZEXS. He is there now?
Mr. LORD. Yes, sir.

Senator COCZENS. Mr. Chairman, I would like to have Mr. Stevens, of the Federal Reserve Bank of Chicago, subpoenaed before the committee.

Mr. PECORA. What is his full name?

Mr. LORD. Eugene W. Stevens. Senator Couzens, may I comment ? I do not think Eugene Stevens would know as much detail of the banks in the district as Governor McDougal or his assistant, Mr. McKay. He might.

Senator CoczeNs. Is Governor McDougal still there?
Mr. LORD. He has been on leave of absence.
Senator Couzens. Has he not been ill for quite some time?

Mr. LORD. He has been quite ill and a new appointment was announced in the paper today.

Senator Couzens. Mr. Stevens was present the night the famous closing order was issued, was he not?

Mr. LORD. If my recollection is correct he was there at or about that time.

Senator COUZENS. As I understand it he participated in the negotiations that closed all the banks in Michigan on the night of Febru

ary 13.

Mr. LORD. I think so.

Mr. PECORA. I show you what purports to be a photostatic reproduction of a letter, or so-called intra-group memorandum, addressed to Mr. James L. Walsh by Mr. Alexander Robertson, vice president of the National Bank of Ionia, Mich., dated September 19, 1931, and which is in answer to the letter of Colonel Walsh to Mr. Robertson of September 13, 1931, which was offered in evidence here a few minutes ago. Will you look at this photostatic copy and tell me if it is a true and correct copy of such a letter?

Mr. LORD. Yes; I think it is. Mr. PECORA. I offer it in evidence. The CHAIRMAN. Let it be admitted. (The document referred to, letter, Sept. 19, 1931, Robertson to Walsh, was received in evidence, marked - Committee Exhibit No. 40 ", 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. 40 in evidence, and reads as follows. It is on the letterhead of the Guardian Detroit Union Group, Inc., dated September 19, 1931 (reading]:

DEAR COLONEL. Your letter of September 17 requesting daily wires as to our deposits and bills payable was received. The only bills payable we have are the amounts advanced on certificates of deposit by the Guardian Bank, which at present is $400,000, so I think there is no need to mention this in our wires. If there is you can advise me. Very truly yours,

NATIONAL BANK OF IONIA, (Signed) ALEXANDER ROBERTSON,

l'ice President. Does this letter enlighten you concerning the purposes for which these certificates of deposit were used, to offset bills payable?

Mr. Lord. That letter enlightens me to the extent of saying that the Guardian National Bank of Commerce had $100,000 on deposit with the National Bank of Ionia.

Mr. PECORA. Is it not a fact that Mr. Robertson himself, in words, calls that a bill payable?

Mr. LORD. He does.

Mr. PECORA. So that he was not deceived in any way by the situation, was he?

Mr. LORD. That may not have been the fact, however.

Mr. PECORA. He regarded a certificate of deposit in the same light as a bill payable.

Mr. LORD. I do not know whether he did or not.
Mr. PECORA. Does not his letter indicate that?
Mr. Lord. It would indicate that; yes.

Senator COUZENS. So, in effect, this banker thought that $400,000 was substantially a bill payable.

Mr. LORD. It probably was a case where he wanted to liquidate that deposit of $400,000, and in his own mind he considered it as an adrance by the Guardian National Bank of Commerce in the form of a deposit which he ultimately wanted to get rid of through liquidation.

Senator COUZENS. Is it customary for banks to liquidate their deposits without a demand of the depositor? Does à bank go to a depositor and ask him to take his money out?

Mr. LORD. It has been done.
Senator COUZENS. That is a rare instance.
Mr. LORD. If it is too large a deposit in 1 month; yes.
Senator COUZENS. It is a rare incident, is it not?
Mr. LORD. Yes; I would say so, for a substantial-sized bank.

Mr. PECORA. Now, Mr. Lord, let us have before us the letter of Colonel Walsh to Mr. Robertson, dated September 17, 1931, marked * Committee's Exhibit 37", to which this letter, Exhibit No. 40, is specifically the reply. You observe that in Colonel Walsh's letter of September 17, 1931, to Mr. Robertson he specifically asks Mr. Robertson as follows (reading]:

From now until after next call date, will you please wire me propmptly each morning giving me your deposits in thousands of dollars and also your bills payable in thousands of dollars.

This letter of Mr. Robertson, in answer to that letter of September 17 from Colonel Walsh, says (reading] :

DEAR COLONEL: Your letter of September 17 requesting daily wires as to our deposits and bills payable was received. The only bills payable we have are the amounts advanced on certificates of deposits by the Guardian Bank, which at present is $400,000, so I think there is no need to mention this in our wires.

It is not apparent to you, from this correspondence, what the purpose of it all was?

Mr. LORD. Of that deposit? Mr. PECORA. Of this whole policy. Mr. LORD. Mr. Pecora, I have told you the purpose of the policy, namely, to get the banks out of bills payable.

Mr. Pecora. Wasn't that done for the purpose of enabling the banks in their reports submitted in response to calls to create a better appearance than they actually had Mr. LORD. I would say to put them in a stronger financial position.

a Mr. PECORA. Were they actually put in a stronger financial position !

Mr. LORD. They had the deposits. Mr. Pecora. Were they actually put in a stronger financial position !

Mr. LORD. I would think so.
Mr. PECORA. They owed $400,000 under the certificate of deposit ?
Mr. LORD. To a depositor; yes.

Mr. Pecora. Does that put the bank in a stronger position than if they owed the $400,000 as a bill payable ?

Mr. LORD. It does not make their liabilities any less, no; but I consider that it puts a bank in a stronger position to have its liabilities in the form of deposits rather than bills payable. Certainly the public thought so.

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Mr. PECORA. How do you know the public thought so? What evidence have you that the public thought so?

Mr. LORD. Šir. Pecora, through this whole history of the last 3 years you know and I know the result on the public of a bank showing bills payable.

Mr. PECORA. I don't know anything about it, Mr. Lord.
Mr. LORD. I do.

Mr. Pecora. All right. Apparently the public felt no differently then from the way the bankers felt, judging by the congratulatory letters and telegrams that you received from different bankers ail over the country in answer to your communication to them showing that all of the unit banks of the Group on December 31, 1930, had no bills payable?

Mr. Lord. I did not ask the public.

Senator Adams. Mr. Lord, was this $400,000 certificate of deposit secured by any collateral?

Mr. Lord. Not that I know of. I don't know the details, Senator. That transaction did not come under my direct operations, and I don't know.

Senator Adams. You do not know whether or not they were demand C.D.'s or had a definite period?

Mr. LORD. I assume they were demand C.D.'s, although I don't know.

Mr. Pecora. I show you another letter, or rather, what purports to be a photostatic copy of a letter, addressed to Mr. Walsh by Mr. H. S. Reynolds, president of the Union and Peoples National Bank of Jackson. Will you look at it and tell me if you recognize it to be a true and correct copy of such a letter?

Mr. Lord. I recognize Mr. Reynolds' signature.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN, Let it be admitted and incorporated in the record.

(Letter dated Sept. 18, 1931, from H. S. Reynolds to James L. Walsh was designated “ Committee Exhibit No. 41, Dec. 21, 1933". and the same appears immediately following where read by Mr. Pecora.)

Mr. PECORA. The letter that has been marked “ Committee's Exhibit No. 41" in evidence is written on the letterhead of the Guardian Detroit Union Group, Inc., entitled “Intra-Group Memorandum”, dated September 18, 1931, addressed to James L. Walsh, executive vice president, Guardian Detroit Bank, Detroit, from H. S. Reynolds, president, Union & Peoples National Bank of Jackson [reading]:

DEAR JIM: We will be very glad to wire you daily regarding our deposits and loans. I have been hoping to hear from you every day about a deposit. I think it is very important that we do not show any bills payable and that our deposits are increased between now and the time of the call. I have been hoping every day to get some outside money, and I sincerely trust that you will do something for us in the next 3 or 4 days. Yours very truly,

(Signed) H. S. REYNOLDS. Does this letter, Mr. Lord, enlighten you concerning any other practice or policy of the bank and its unit banks?

Mr. Lord. Any other policy?
Mr. PECORA. Yes.

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