Mr. LORD. Certainly.

Mr. PECORA. But in this particular instance I am discussing with you whether or not it was the policy of the group and its unit banks to do something which would enable the unit banks from time to time and when considered strategically important to do so, to show increases in their deposits.

Mr. LORD. Mr. Pecora, the unit banks were struggling and striving every day of the year to increase their deposits. It was not particularly at statement date, although Mr. Renolds mentioned it. But we were fighting all the time to increase deposits.

Mr. PECORA. But this particular letter

Mr. LORD (interposing). He calls attention to it at statement time. yes; but we had an organization known as the business development department.

Mr. PECORA. I know, but now, Mr. Lord, in case of this group of unit banks, because of the existence of the group and the affiliation among the various unit banks in the group, it was easily possible for a unit bank that desired, for any particular reason, at any call date a good showing, by way of increase of deposits, to make such a showing through the mere expedient of getting one of the other banks in the group to make a deposit?

Mr. LORD. It is possible; yes.

Senator COUZENS. Well, now, you referred a while ago to "new business." You would not call that new business, would you! Mr. LORD. No; but I was referring to the outside money, Senator. Senator COUZENS. Yes. But the evidence is quite clear that there was a swapping of deposits that was quite extensively engaged in, so as to build up a fictitious amount of money in the individual units of the bank, and undoubtedly that would have been the effect had the Guardian Bank given the Jackson bank a deposit, because giving them a deposit would not have diminished the deposits in the Detroit bank but would have augmented the deposits in the Jackson bank.

Mr. LORD. As I recall the Jackson situation, we carried a substantial account in Jackson for many months, just how long I don't

know.

Mr. PECORA. Wasn't it the settled policy of the Group to do that which would enable unit banks from time to time and whenever considered strategically important and necessary for them so to do, to have one or more of the banks in the Group to make deposits with another unit bank in the Group, so as to enable that other unit bank in the Group to make a good showing by way of increase of deposits! Mr. LORD. No, sir.

Mr. PECORA. What?

Mr. LORD. No, sir.

Mr. PECORA. That was not the policy of the bank?

Mr. LORD. No, sir. The purpose of those deposits was to liquidate the bills payable.

Mr. PECORA. Well, would you say that as a result of the way by which bills payable were offset by deposits one of the effects created by the method was to enable the debtor bank not only to show no bills payable but to show an increase of deposits?

Mr. LORD. That was the effect; yes. That was not the purpose. The purpose was to liquidate the bills payable.

Mr. PECORA. You do not think that that was the only purpose
Mr. LORD (interposing). Absolutely.

Mr. PECORA (Continuing). That Mr. Reynolds had in mind when he wrote this letter marked "Committee's Exhibit No. 41"?

Mr. LORD. I do not know what he had in mind except from what he says in the letter.

Mr. PECORA. Well, from what he says in the letter you do not think that?

Mr. LORD. He wanted increased deposits.

Mr. PECORA. Now, you remember that we put in evidence yesterday while you were testifying copy of the Intra-Group Memorandum that you addressed to the board of directors?

Mr. LORD. I do.

Mr. PECORA. Showing that as of December 31, 1930, the deposits had increased by 72 million dollars during the preceding 3 months and that there were no bills payable shown by any of the unit banks in the group; you recall that exhibit?

Mr. LORD. Yes, sir. I don't remember the 72 million figure. I guess it must be correct.

Mr. PECORA. Will you be good enough to look at this document which I now show you and which purports to be a photostatic copy of a letter addressed by Mr. Walsh to Herbert S. Reynolds, president of the Union & Peoples National Bank of Jackson, dated December 31, 1930, and tell us if you recognize it to be a true and correct copy of such a letter?

Mr. LORD (after examining document). I never saw the letter, I assume it is correct.

Mr. PECORA, I offer it in evidence.

The CHAIRMAN. Let it be admitted and embodied in the record. (Letter dated Dec. 31, 1930, from James L. Walsh to Herbert S. Reynolds was designated "Committee Exhibit No. 42, Dec. 21, 1933", and the same appears immediately following where read by Mr. Pecora.)

Mr. PECORA. The letter is marked "Committee's Exhibit No. 42" in evidence, written on the letterhead of the Guardian Detroit Bank, addressed to Mr. Herbert S. Reynolds, President, Union & Peoples National Bank of Jackson, dated December 31, 1930 [reading]:

DEAR HERE. It begins to look as if none of the banks or trust companies in the Group will be borrowing at the close of business December 31, 1930. Some of the banks have made a point of showing bills payable none

the word "none" being written out in capitals—

in order to emphasize this particular point. In Guardian Detroit Bank we are going to set up our statement with the word "none

in capital letters

instead of 0.00. I am passing along this information to you for what it may

be worth.

Please send me at least one half a dozen of your printed statements as soon as they are ready, because I have some time deposits under negotiation concerning which I will get in touch with you as they develop.

May I not take advantage of this opportunity to thank you for the contribution you have made to the work of the operating committee, to the cooperation you have extended to me personally during the past year, and to wish for you a happy and prosperous New Year.

Cordially yours,

Signed by Mr. James L. Walsh, who is chairman of the operating committee of the Guardian Detroit Union Group, Inc.

Now, will you tell the committee, Mr. Lord, what you think Colonel Walsh had in mind when he made the request to Mr. Reynolds in this letter for half a dozen of the printed statements in Mr. Reynolds' bank "because "-quoting from the letter

I have some time deposits under negotiation concerning which I will get in touch with you as they develop.

Mr. LORD. I assume Mr. Walsh meant just what he said.
Mr. PECORA. Well, what? What was it?

Mr. LORD. I assume that some of the corporations with which the Guardian or some of our units were doing business Mr. Walsh was negotiating with to deposit funds in Mr. Reynolds' bank on time, outside money entirely.

Mr. PECORA. So that Mr. Walsh could place these time deposits in such of the unit banks as would best be served thereby?

Mr. LORD. So that the corporations could place them in those unit banks.

Mr. PECORA. Yes. Then it was within the province and power. because of this group system, for officers of the group to distribute deposits among the various banks that were units of the Group in such manner as would be most helpful to the individual units that belonged to the Group?

Mr. LORD. No, sir; it was not within their power. The corporations or individuals, whoever made the deposits, placed them wher ever they chose. It may have been the desire of Colonel Walsh to get some corporation to make a deposit in Mr. Reynolds' bank, but the officers of our bank had no power to do that for one minute.

Mr. PECORA. Well, whether they had the power or not, was not the situation, due to the existence of this group system of banking. one that would enable the executive officers of the group to influence deposits in such of the unit banks as might be considered most advisable in the interest of the group?

Mr. LORD. The officers of the group, Mr. Pecora, may have solicited from this unit or that unit a deposit from this person or that corporation, but they had no control over where the corporation would put their funds in any way.

Mr. PECORA. Let me show you this document, which purports to be a photostatic reproduction of a letter or Intra-Group Memorandum addressed to Mr. Walsh by Mr. Brandon, president of the City National Bank & Trust Co. of Niles, dated January 5, 1931. Will you look at that and tell me if it is a true and correct copy of such a

letter?

Mr. LORD. I recognize Mr. Brandon's signature.
Mr. PECORA. I offer it in evidence.

The CHAIRMAN. Let it be admitted and incorporated in the record. (Letter dated Jan. 5, 1931, from F. M. Brandon to James L. Walsh was designated "Committee Exhibit No. 43, Dec. 21, 1933". and the same appears immediately following where read by Mr. Pecora.)

Mr. PECORA, The letter that has been received and marked "Exhibit No. 43" reads as follows [reading]:

DEAR COLONEL: Your letter of the 3d with reference to the next meeting of the operating committee at Flint is received, and it will be satisfactory to me to meet on Thursday the 22d instead of Friday the 23d.

Permit me to congratulate you on the splendid showing made by the Detroit units of the Group, as reflected in the growth of deposits, and it is also especially gratifying to me that all of the units of the Group were able to show bills payable none. No doubt the consolidated accounts in Chicago were a very helpful factor in showing this increase in Detroit, and we are glad to have had the opportunity of cooperating with you in bringing this about. Very truly yours,

(Signed) F. M. BRANDON. Senator COUZENS. What did he mean in there by the "consolidated reports in Chicago"?

Mr. LORD. "Consolidated accounts."

Senator COUZENS. Oh, "accounts." What accounts were consolidated?

Mr. LORD. Senator Couzens, I haven't all the details of that in mind, but at one time there was an arrangement under which, instead of, we will say, the Grand Rapids National and Ionia and Jackson or some group of banks each carrying a separate correspondent account, they combined it into one account, which made it more valuable to the Chicago bank, and they all had the privilege of drawing from their account, from that one account. I think that is the way it was handled. On their books they carried whatever balances they had, just as though they had their separate accounts.

Senator COUZENS. Under what name was it carried in the Chicago banks?

Mr. LORD. Well, I suppose it was carried under the three names or whatever they were, so that each bank could draw against it. Senator COUZENS. Yes; but you said it was consolidated accounts. How many were consolidated?

Mr. LORD. I suppose that is what he meant. Senator, you will have to ask somebody else who knows more of the details about it. Senator COUZENS. Colonel Walsh will know more about it. Senator ADAMS. What is the advantage of that?

Mr. LORD. It made a better account for the Chicago bank. Instead of having a dozen accounts of ten or fifteen thousand in balances, they combined a lot of detail in one account, and it was thrown into one account, and it made a better account for them. That was the theory of it.

Senator COUZENS. Why was it abandoned?

Mr. LORD. I don't recall. It was an operating committee matter. Senator ADAMS. Mr. Lord, in the operation of these unit banks was there any disposition or effort to have a bank in B with a deposit in C and C in D?

Mr. LORD. Oh, absolutely no.

Senator ADAMS. There was no pyramiding of deposits?

Mr. LORD. No, Senator; every bank in our group had of necessity to carry a Detroit correspondent.

Senator ADAMS. The bank in Lansing did not carry one in Jackson?

Mr. LORD. Oh, no; there was no effort to do that. I think if the record were taken out showing what you might call the interbank deposits, it was a very modest figure.

Senator COUZENS. I am glad you asked that question, Senator Adams, because I think the results are so different.

Mr. LORD. Well, I haven't the figures, Senator Couzens, but I question that it would show any substantial amount.

Senator COUZENS. Would you consider 18 millions a substantial amount?

Mr. LORD. No; not with deposits of 400 million, Senator. Senator COUZENS. It might be a substantial amount to a small unit with a few millions of deposits, might it not?

Mr. LORD. Yes; but there were 23 banks and trust companies. I do not know the figures, but I doubt whether it averaged 18 million. There may have been periods, due to the fluctuation of business, where it went up and down.

Senator ADAMS. In the conduct of your system did the Guardian Bank act as a general depositary in Detroit of the other 22 members of the system?

Mr. LORD. Yes, sir.

Senator ADAMS. What would be the situation where you were taking out a bill payable? Say the Niles bank had its reserves carried with the Guardian Bank and the Guardian Bank

Mr. LORD (interposing). Senator Adams, the Niles bank, being a national bank, had to carry its reserves in the Federal Reserve bank. Senator ADAMs. It did not carry all of them.

Mr. LORD. It might have had some excess, yes.

Senator ADAMS. Was there such a condition that the Niles bank had on deposit in the Guardian Bank a certain amount, and then the Guardian Bank, in order to help them meet the bills payable, would make a separate deposit; that is, each would pass on the independent deposits rather than offsetting?

Mr. LORD. Well, of course, in case of trouble the deposits would offset, in case of trouble. But they are entirely separate transactions. Senator ADAMS. They might have been carried as separate deposits so that they were actually susceptible of offsetting, but the offsetting was not done?

Mr. LORD. Yes, that is correct.

Mr. PECORA. Mr. Lord, will you look at this document which I now show you and which purports to be a photostatic copy of a letter addressed by Mr. Walsh to Mr. Frank M. Brandon, president of the City National Bank & Trust Co. of Niles, dated January 6, 1931, and tell me if you recognize it as a true and correct copy such a letter?

of

Mr. LORD (after examining document). I recognize Colonel Walsh's initials on that.

Mr. PECORA. I offer it in evidence.

The CHAIRMAN. Let it be admitted and entered in the record. (Letter dated Jan. 6, 1931, from James L. Walsh to Frank M. Brandon was designated" Committee Exhibit No. 44, Dec. 21, 1933", and appears immediately following where read by Mr. Pecora.) Mr. PECORA. The letter marked Committee's Exhibit No. 44" in evidence, reads as follows; it is on the letterhead of the Guardian Detroit Bank, addressed to Mr. Frank M. Brandon, president of the City National Bank & Trust Co., Niles [reading]:

DEAR FRANK: This is just a brief note to congratulate you on being able to show the item "Bills payable--none" in your statement of condition as of