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Mr. LORD. I would say so; yes. Mr. PECORA. You were interested as the executive head of the Group in anything that was put out in behalf of the Group to enlighten the public

with respect to the position of the Group and of the unit banks, were you not?

Mr. LORD. Yes, I was, naturally.

Mr. PECORA. And you knew that this public relations committee was functioning for the precise purpose or the specific purpose of keeping the public informed, among other things, concerning the activities, the condition, the progress of the Group and its unit banks?

Mr. LORD. Yes.
Mr. PECORA. That was not an unimportant detail, was it?
Mr. LORD. No.

Mr. PECORA. It is important to any bank to maintain friendly rela. tions with the public, is it not?

Mr. LORD. Indeed it is.

Mr. PECORA. And to impress upon the public any facts that would tend to reflect the sound condition of the bank?

Mr. LORD. Correct, sir. Mr. Kanzler tells me that the so-called “ understandable form” is the formal statement that you may not recall or that you may recall having seen gotten out by the Corn Exchange Bank.

Mr. Pecora. Published generally in theater programs and newspapers, and one that employs verbiage which is not technical?

Mr. Lord. Not technical. It was at that time certainly quite an unusual form used by banks.

Mr. PECORA. It was called an understandable form because it was considered that the lay public, unfamiliar with the technique of banking, would be able to understand a report in that form better than it could understand the standard form of report. Is not that so?

Mr. LORD. Yes. Part of the lay public—I mean, the man on the street. It said in words of one syllable what each item meant, so that you might say a child of 12 could understand it. It was quite the unusual form used by banks.

Mr. Pecora. It is a commendable form where it is sought to inform the public accurately and understandingly?

Mr. LORD. I think it is.

Mr. PECORA. Do you know the reason why in June 1931, it was considered inadvisable to issue a report or statement in behalf of the Group not in its understandable form, or the form that the public would more easily understand and appreciate the significance of, but in the standard form which was not quite so capable of being understood by the public?

Mr. Lord. Mr. Pecora, I cannot answer that question. My assumption would be that the reason they preferred to use the standard form was that no other bank in Detroit used the so-called understandable form, nor had we in any of our banks or in any of our Group statements ever used it, and it meant a change from the ordinary form.

Mr. PECORA. Had not the Group at any time issued a report in the so-called understandable form?

Mr. LORD. Not to my knowledge.

Mr. PECORA. Had it published anything embodying a statement of the condition in the so-called understandable form?

Mr. LORD. Not to my recollection, Mr. Pecora.
Mr. PECORA. Had it ever considered doing so?

Mr. LORD. I think it considered it at that time, apparently, from that memorandum.

Mr. Pecora. I am going to read something further from that memorandum to you

Senator CouzeNS. While you are on that—this section 3 of the memorandum says that it was felt that the understandable form was devised at a time when conditions warranted such a statement. When was that understandable form first devised ?

Mr. LORD. I have no idea, Senator. I think that about that time the Corn Exchange Bank started to use it in New York, but so far as I know it was the only New York bank that was using it.

Mr. Pecora. They used it, according to my recollection, long prior to 1931.

Senator COUZENS. That is true; and I know of no other bank that did use it, as a matter of fact.

Mr. LORD. I do not know when they started it.

The CHAIRMAN. What does he mean when he refers to conditionscertain conditions that would not warrant it?

Mr. LORD. I suppose, the disturbed conditions existent in Detroit at that time. It was just after the Detroit bank took over the American State Bank. They took it over in the spring of 1931. I believe that memorandum was written in June 1931 ?

Mr. PECORA. The meeting was held on June 25, 1931.
Mr. LORD. Yes. I suppose that is what they were referring to.

Mr. PECORA. Let me read further from these minutes of the meeting of the Public Relations Committee held on June 25, 1931 [reading]:

The posters will have the same heading as was shown on the understandable form. The consolidated statement is to be published in the newspapers as soon as it is ready, which will be 3 or 4 days after the regular statements are published and will appear in the following papers: Detroit papers, Chicago Journal of Commerce, a New York daily paper, and perhaps the Wall Street Journal, as well as the various local papers in the State where units are located, Mr. Walsh is to handle this.

It was thought particularly wise at this time to stress the names of the various units together with the cities in which they are located, so that the public will know exactly what banks are in our group in the various cities.

At a later date, it may be advisable to use the understandable consolidated statement form, and it was decided to hold it in reserve for the time being.

Mr. Paterson brought out the point of using the phrase " total resources in excess of $500,000,000 ", and it was decided to leave this off for the time being, inasmuch as we do not have much leeway with respect to this figure. Later on, if we find there is a wider margin, this phrase can be used. consolidated statement in the standard form will be made available for poster frames to be used at all branches and units, and a reprint of this poster will be made for distribution to units for passing out by their tellers and officers to customers. In this connection, Mr. Scrymgeour stated that an explanatory letter had been prepared by him, which was now in Mr. Walsh's hands for his approval, and which would educate the tellers and junior officers in the handling of passing out the consolidated statement.

(4) Mr. Covington stated that a bank call was received by the National Bank of Commerce at 2 o'clock in the afternoon and the same night the statement was published in the papers, and the printed statement was available the next afternoon and was mailed out to important commercial and savings customers that night. Many of the units are not as prompt in the publishing of their statements and Mr. Berry was delegated to write each unit, by special delivery, not later than tomorrow, that they should have their statements published within 24 hours after the call is received and that the printed statements should be available for mailing out to important savings and cummercial customers the following night.

I will omit the reading of paragraph 5 because it is relatively unimportant. (Continuing reading :)

(6) A discussion followed regarding the strength of group banking as contrasted to individual banks, and it was suggested that we should take advantage of this as much as possible in a subtle way, pointing out that very few, if any, group banks had failed and were ranked with our strongest institutions, whereas individual banks have been dropping by the wayside in small towns throughout the country. This is especially true in the lower Michigan district, where within the past month bank failures occurred in Pontiac, Birmingham, Royal Oak and other small towns.

17) Mr. Covington reported that at a meeting of the clearing house on bank advertising, it was decided that nothing would be done at this time. It seems that the Detroit bankers group have been anxious to do some advertising on account of the difficulties they have encountered recently.

(8) Mr. Scrymgeour reported that the marketing plan has received enthusiastic reception and that Fortune Magazine as well as several others are asking for stories.

What was the marketing plan referred to?

Mr. LORD. Mr. Pecora, I think Colonel Walsh could answer that. It came within his scope. I could not give you the details of it.

Mr. PECORA. Can you give us some enlightenment on it?

Mr. LORD. My recollection is that he showed a series of charts which had been prepared either by him or for him showing the various products and the percentage of products in different districts. It was a plan designed to help our own customers in the development of their business. I have not the details of that, but that was the general purpose of it.

Senator Corzens. Do you know what this memorandum means when it says

The posters will have the same heading as was shown on the understandable form?

Mr. LORD. I do not know what that meant, because I do not recall either form.

Mr. PECORA. Now I want to read to you from committee's exhibit no. 36, received in evidence yesterday, which consists of the printed annual report of the Guardian Detroit Union Group for the year ending December 31, 1930. At page 9 of that printed report appears the following statement-and this report is signed by you

Mr. LORD. Signed by Mr. Blair or by me!

Mr. PECORA. Signed by you as president and by Mr. Blair as chairman of the board. I am reading from page 9 thereof. [Reading):

Under the requirements of the national and State banking laws at least two examinations of the banks and trust companies are made each year by the national or State bank examiners and by the directors of the respective insti. tutions. In addition, the group company has a well-organized and highly efficient examining department headed by B. K. Paterson, vice president of the group company, formerly chief national bank examiner of the Seventh Federal Reserve District. This examining organization, entirely independent of any unit, responsible only to the group company, makes two thorough and complete examinations each year of all units of the group. Their reports, which are gone over in detail not only with the directors of the respective units but also with the group company management, indicate a thoroughly satisfactory condition of all banks and trust companies in the group.

Senator COUZENS. Were those annual reports put in the mail!
Mr. LORD. In 1930?
Senator COUZENS. Yes.
Mr. LORD. Yes; I should think so.

Mr. PECORA. Now, as bearing upon the testimony you have given regarding the use of certificates of deposit to offset bills payable, let me read to you what purports to be a photostatic copy of a letter addressed by Mr. Bert K. Paterson, under date of January 2, 1931, to Mr. John L. Proctor, Deputy Controller of the Currency, Washington, D.C. [reading]:

DEAR JOHN: The question has been raised here as to the proper method in which to report in public statements and reports of condition certificates of deposits of other banks held by the Guardian Detroit Bank. As an example of what I mean, on December 31 the Guardian Detroit Bank held an aggregate of $2,000,000 represented by certificates of deposit in other banks. Query: Should the Guardian Detroit Bank report these certificates as receivables or as cash due from banks in the proper segregation of the latter? The question has also been raised whether or not the certificates are drawn on demand of with a specific due date. If that were done, would it in your opinion have any bearing on the above subject? It runs in my mind that there has been a pretty well defined position taken by the Comptroller's Office in the past that such certificates of deposit should be reported as receivable. At least, before I left the Government service that was the way I personally held whenever the subject was discussed. Further, in substantiation of my position, I also held that the issuing bank must necessarily show the liability as borrowed money. Briefly, it is an answer to the old query of “When is a C.D. not a C.D.?” When it is borrowed money.

I would appreciate it if you would not take this up in an official way, treating it as a personal matter, but draw on the Department's position in formulating your reply. With kind personal regards, I am,

Sincerely. I will also read to you what purports to be a photostatic copy of a letter sent by Mr. Proctor in reply to this letter of Mr. Paterson, as follows (reading]:



Washington, January 5, 1931. Mr. B. K. PATERSON, Care of Guardian Detroit Union Group,

Detroit, Mich. DEAR BERT: I have your letter of January 2 with query as to the proper method in which to report certificates of deposit of other banks held by the Guardian Detroit Bank. The position taken by the Controller's Office is that time certificates of deposit of other banks held by a national bank should be treated as bills receivable, and demand certificates should be treated as due from banks, in the same manner as open accounts with banks are treated. As to whether or not the issuing bank should show the liability as borrowed money would depend upon the circumstances in each case; but my personal opinion is that the issuing bank requested an advance of funds against a certificate of deposit, it would be borrowed money. I have known of cases where a bank issued certificates of deposit at the request of the payee that made the deposit in order to place its funds out at larger rates of interest.

Trusting this will give you the information you desire, and with kind personal regards, I am, Sincerely,

JOHN L. PROCTOR. Was this correspondence ever brought to your notice? Mr. LORD. I do not recall it, Mr. Pecora.

Mr. PECORA. Was the information contained therein ever brought to your notice by Mr. Paterson?

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Mr. LORD. I do not recall it. Mr. Pecora. Did the group or any of the unit banks follow the advices contained in Mr. Proctor's letter to Mr. Paterson that I have just read to you?

Mr. LORD. I do not know, sir.
Mr. PECORA. You do not know?

Mr. LORD. I assume they did. I do not know. I have not the details as to the transaction.

Mr. PECORA. Do you know whether or not newspaper copy was furnished to newspapers by the Group or any of its unit banks?

Mr. LORD. Yes; I think it was. Mr. PECORA. Were they published as news items instead of as advertising items?

Mr. LORD. I do not know how they were handled. That went through Mr. Scrymgeour.

Mr. PECORA. I show you what purports to be a photostatic copy of an intragroup memorandum dated January 8, 1931, addressed by Mr. Frank M. Brandon, who was president of the City National Bank & Trust Co. of Niles, to Mr. James L. Walsh. Will you look at it and tell me if you recognize it as being a true and correct copy of such a memorandum?

Mr. LORD. That is Mr. Brandon's signature.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.

(Photostatic copy of Intra-group memorandum dated Jan. 8, 1931, from F. M. Brandon to James L. Walsh, was received in evidence, marked " Committee Exhibit No. 47, Dec. 21, 1933.")

Mr. PECORA. This memorandum has been received in evidence and marked " Committee's Exhibit No. 47.” It is on the letterhead of the Guardian Detroit Union Group, Inc., and reads as follows. (Reading :)



JANUARY 8, 1931. To Mr. James L. Walsh, vice president Guardian Detroit Union Group, Inc. From Mr. F. M. Brandon, President City National Bank & Trust Co., Niles, Mich.

DEAR COLONEL: Your letter of January 6 enclosing copy of a suggested newspaper article is received and the copy was delivered to the local editor. However, the fact that we had a slight decrease in commercial deposits between the September 24 and December 31 call necessitated some change so that the article was finally prepared and at the suggestion of the editor was published as an interview with the writer in order to divest the item from the appearance of advertising, and we are enclosing herewith a copy of the clipping. Yours very truly,

F. M. BRANDON, President, What appeared as a news item was really advertising matter, was it not?

Mr. LORD. I never saw the article.
Mr. PECORA. Have you any doubt of the fact from this letter?
Mr. LORD. Yes: I have.
Mr. PECORA. What creates that doubt?

175541-34-PT 9--12

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