Then follows a long, detailed, itemized statement, starting as follows:

In regard to formal application now on file of First National Bank of Detroit for a loan of $100,000,000, the following informatior is furnished you in order that a commitment might be made at once to enable present bank to perfect plans of reorganization. A commitment of $90,000,000 is recommended by your special committee to the applicant on the following collateral

Then follow considerable details of the collateral, which I will not burden the record with, except to state the total loan value of the collateral, which is stated to be $90,583,837.

Do you recall that, Mr. McKee?

Mr. McKEE. I do.

Mr. PECORA. Was that loan value of $90,583,837 representative of the full liquidating value of the collateral?

Mr. McKEE. It was not. It was a fully and adequately secured loan for that amount of money based on loan value. I think the collateral was in the neighborhood of $150,000,000 face value or $160,000,000.

Senator COUZENS. Do you know, Mr. McKee, that considerable comment has been made about the inability of you and others not familiar with Detroit values coming to Detroit and attempting to place values on securities of that class? What have you to say as to that?

Mr. MCKEE. Well, Senator, we were most liberal with the valuations, on the information given us in fact, too much so. Under normal conditions we certainly would not have been as liberal as we had been. We took valuations furnished us by the bank and predicated our loan values on those sums.

Senator COUZENS. You took the appraisals of the bank officials? Mr. McKEE. Am I correct in my belief that annually in Detroit they have an appraisement of real estate?

Senator COUZENS. An assessment by the assessors; yes.

Mr. McKEE. That is correct. They had the assessors' valuations in every case, especially in the case of the First National Bank. As to the mortgages in the First National Bank, everybody from our office that worked on them admitted that they were about as clean a group of mortgages as we had ever seen, well cared for, well amortized. The records were in proper shape as to delinquencies as well as to appraisements. I doubt whether there was any real criticism by anybody that knew.

Senator COUZENS. You did not make any physical valuation of the properties represented by these mortgages?

Mr. McKEE. No, sir.

Senator COUZENS. Did you reduce the valuation as placed on them by the bank, or did you accept their valuation?

Mr. McKEE. As I said, we loaned on the loan value. We took a percentage of it. I think we loaned as high as 85 and 90 percent on the face value of some of the mortgages of the First National Bank. They were good mortgages. They had some fifty thousand mort gages. I think we considered some thirty thousand; and all we had to do was to take good mortgages, because there was adequate security for as high a loan as we could possibly make.

Senator COUZENS. They were all current; there were none in default?

Mr. McKEE. There were very few in default.

Senator COUZENS. So you took the assessed valuation or the bank valuation-which?

Mr. McKEE. The assessed valuation.

Senator COUZENS. The assessed valuation could hardly have been less than the bank value, could it, when the property is supposed to be assessed at a hundred percent and the loan based on a 50-percent basis?

Mr. MCKEE. I did not mean to say that the loan was made on the assessed valuation, but we predicated our loan value on what the assessed valuation of that property was.

Mr. PECORA. The message which Mr. Milford presented to the board of the R.F.C. on February 25 last, and which it is stated you read over the telephone, from Detroit, in order to expedite the delivery of the message which was to be put in telegraphic form, was a message signed "McKee, LeRoy, Persons." You are the McKee referred to, are you not?

Mr. MCKEE. That is correct.

Mr. PECORA. Let me read further from the minutes of the meeting of the board of the R.F.C. on February 25, last. After the conclusion of the reading of you message in full, the minutes are as follows [reading]:

After considering all aspects of the matter, it was moved and seconded that the corporation agree to make loans, upon full and adequate security, to the First National Bank of Detroit and the Guardian National Bank of Commerce of Detroit in amounts sufficient to carry out plans for the organization of two new national banks under which the depositors of the First National Bank and the Guardian National Bank of Commerce would have 30 percent of their unsecured deposits assumed by the new national banks, with the understanding that the First National Bank of Detroit would obtain a loan in the amount of $20,000,000 from New York banks and rediscounts in the amount of $4,441,146.12 from the Federal Reserve Bank of Chicago.

Mr. Jones moved that the motion be amended so that the said loans would be made in amounts sufficient to permit 25 percent of the unsecured deposits, instead of 30 percent, to be assumed by the two new national banks.

The chairman put Mr. Jones' amendment to the motion, and the amendment was lost by a viva voce vote.

The chairman then put the original motion which was adopted by a vote of 5 to 1.

Those loans, the loans contemplated in this motion, were not made, were they?

Mr. MCKEE. They were not.

Mr. PECORA. They were not made, for the reason, I believe, as you have already stated, that the loan of $20,000,000 from certain New York banks and the rediscounts in the amount of over $4,000,000 from the Federal Reserve Bank of Chicago did not become available? Mr. McKEE. That is correct.

Mr. PECORA. Is there anything you can add to what you have already testified to with regard to the efforts made by the R.F.C. to assist the Detroit banking situation?

Mr. MCKEE. Not specifically, Mr. Pecora, other than we gave our undivided time to this Michigan situation, and have ever since the holiday, by keeping special representatives in the State of Michigan to try to reorganize and assist in any way possible the reestablishment of the banks in Michigan.

Mr. PECORA. Do you recall that on February 26, 1933, the board of directors of the R.F.C. made a commitment of a loan of

$24,000,000 to the Guardian National Bank of Commerce in Detroit upon collateral recommended by the special committee of which you were a member?

Mr. McKEE. What was the amount of that?

Mr. PECORA. $24,000,000. If you do not recall it readily, perhaps I can refresh your recollection by reading an excerpt from the minutes of the special meeting of the board of directors of the R.F.C. held at 5 p.m. on February 26, 1933 [reading]:

Mr. Talley then presented two other telegrams to Mr. Milford from Mr. McKee recommending, on behalf of the special committee, a loan not in excess of $24,000,000 to the Guardian National Bank of Commerce, Detroit, Mich. The telegrams referred to are as follows:

Milford.

"In reference suggested elimination of collateral offered by Guardian National Bank of Commerce, Detroit, special committee are willing to certify to the adequacy of security on a revised collateral offering as follows:

"Unsecured notes face value original offer $10,800,000, eliminate $2,660,000 with no reduction in loan value.

"Secured notes, original offer $49,200,000 face value, eliminate $16,700,000 with loan value of $3,088,000.

"Other real estate, 5 buildings, face value $3,600,000, 21 parcels of foreclosed real estate, face value $550,000, and 28 branch bank buildings, face value, $1,750,000, or total face value of all other real estate of $5,985,000, to which was allocated loan value of $1,111,000.

"Revise status of collateral with the elimination above proposed will evidence in the new offering the following collateral: Unsecured notes face value $8,142,288.53, with loan value $5,430,000; secured notes $32,480,314.61 with loan value of $18,492,000; bonds face value $10,707,987.22, with loan value of $4,648,811; mortgages with face value $14,659,518.33, with loan value of $8,984,000; total collateral pledged in new offering will have face value of $65,990,108.69, with loan value of $37,555,631. This elimination has reduced the face amount of collateral $25,428,536.79, to which was allocated loan value of $4,200,000.

"This collateral free in the hands of the bank offers adequate protection to creditors not of record, Considerable savings of time of expense to applicant and our own legal forces by elimination of other real estate as outlined above." Another telegram [reading]:

"Milford.

"Reference telegram application of Guardian National Bank of Commerce, forwarded you today, through my error the amount of loan was omitted. The commitment to this applicant is not to exceed $24,000,000 and which amount is recommended by the special committee secured by the collateral as outlined in former wire."

The board agreed to make a loan to the Guardian National Bank of Commerce, Detroit, Mich., in an amount not in excess of $24,000,000, secured by the collateral listed in Mr. McKee's telegram.

Upon advice of the acceptance of the board's commitment to make loans in the amount of $54,000,000 to the First National Bank of Detroit and not in excess of $24,000,000 to the Guardian National Bank of Commerce, the board instructed counsel to prepare resolutions authorizing such loans for its consideration.

Do you know, Mr. McKee, whether those loans were consummated? Mr. McKEE. A part of those loans were consummated to the conservators of the bank.

Mr. PECORA. Let me read to you, for the purpose of possibly refreshing your recollection, the following excerpt from the minutes of special meeting of the board of directors of the R.F.C. held at 8 a m. on March 1, 1933 [reading]:

The Secretary stated that J. K. McKee, assistant chief, examining division, who is in Detroit, had advised by telephone that the following is a copy of a letter, signed by Wilson W. Mills, chairman of the board of the First National Bank of Detroit, which was presented to him at 11:45 p.m., February 28, 1933.

FEBRUARY 28, 1933.

"Mr. J. K. MCKEE,

Reconstruction Finance Corporation, Detroit, Mich.

"DEAR Mr. MCKEE: I tried to reach you by telephone this evening, without

success.

At the conclusion of the board meeting today, I was instructed to telephone Mr. Edsel D. Ford and to state to him that the general opinion of the board is that it is inadvisable to go ahead under the proposed plan in which he and his father are interested. I might add, for your information, that this action of our board was unanimous.

"Will you be good enough to communicate this action to the board of directors of the Reconstruction Finance Corporation? I have informed Mr. Ford of the action of our board.

"I am sending a copy of this letter to your office at the Reconstruction Finance Corporation.

"Faithfully yours,

"WILSON W. MILLS, Chairman.”

Mr. McKEE. Mr. Pecora, I would like to change that answer of mine. Those loans were not made. Similar amounts were in my head that were made later to the conservator, but were not at that time.

Mr. PECORA. Have you, Mr. McKee, at my suggestion caused to be prepared a statement showing the status of loans made by the Reconstruction Finance Corporation to various banks in the Guardian Detroit Union Group as of December 19, 1933?

Mr. MCKEE. I think there was such a report prepared.

Mr. PECORA. I show you what purports to be such a report. Will you please look at it and tell me if you identify it as a correct statement of the status of those loans as of December 19, 1933?

Mr. McKEE. Although I did not prepare it, this is a copy.

Mr. PECORA. I offer that in evidence.

The CHAIRMAN. It will be admitted and made a part of the record.

(A tabulated statement headed "Status of Loans Made by Reconstruction Finance Corporation to Banks in Guardian Detroit Union Group as of Dec. 19, 1933," was received in evidence, marked "Committee Exhibit No. 79, Jan. 15, 1934," and will be found printed in full at the end of Witness McKee's testimony of this date.)

Senator COUZENS. As I recall your reply to Mr. Pecora's question as to what happened after the banks closed, that is, what happened in relation to the R.F.C., you stated that the money was applied for, that certain moneys were applied for to loan to two new banks that Mr. Ford was to organize; is that correct?

Mr. McKEE. That is correct-excuse me, Senator; not to the banks but to the existing banks. The loan was applied for by the existing banks.

Senator COUZENS. For the organization, however, of two new banks by Mr. Ford, as I understood?

Mr. McKEE. Yes; but the new banks would not assume our

Senator COUZENS. Yes; I understand that. If my recollection is correct, from February 14 on until the time Mr. Ford had agreed to reorganize two new banks, there were negotiations for loans; is not that correct?

Mr. MCKEE. That is right.

Senator COUZENS. You made no reference to those in your reply to the question of Mr. Pecora, did you? You started, as I recall the

recital of the events, beginning with the time that Mr. Ford was to start the two new banks. Were there not some applications prior to that time?

Mr. McKEE. There were applications made on Monday, or tentative applications considered on Monday, February 13. In order to liquidate the First National Bank and the Guardian Bank of Commerce those were considered up until midnight the night of the 13th-that if and when the Union Group would decide to close the Union Trust Co. and the other banks would decide, in face of that fact, to open for business on February 14, they wanted us to make emergency loans to those two banks. Those applications were considered in a tentative way. However, I question whether our board ever acted on them; but we were in position to recommend to our board from Detroit a loan to the First National Bank, if and when requested, and a loan to the Guardian National Bank if and when requested, if those institutions were going to open on February 14. Senator COUZENS. From February 14 until the time that Mr. Ford had agreed to establish two new banks, under certain conditions, were there any applications made by both the Guardian National Bank of Commerce and the First National Bank?

Mr. McKEE. Not that I recall, Senator, now.

Senator CoUZENS. I think there were.

Mr. McKEE. You may be correct on that, Senator, but I just do not recall it now. I do not remember that the records of our corporation indicate that anything was presented to our board. Senator COUZENS. Will you look at the records on that? Mr. McKEE. I will be happy to, Senator.

Mr. PECORA. The report or statement of the status of loans made by the R.F.C. to the Guardian Detroit Union Group as of December 19, 1933, has been received in evidence, marked “Committee Exhibit No. 79" of this date. It shows loans made by the R.F.C. commencing on May 24, 1932; and the last loan appears to have been made on December 16, 1933. That is the last loan shown on this statement. The total amount of loans authorized was $80,382,000, of which amount there was canceled a total of $10,273,204.23. The total amount disbursed up to December 19, 1933, on account of these, authorized loans, is stated to be $59,472,236.19, of which there has been repaid $14,377,393.05, leaving a balance due as of December 19, 1933, of $45,094,843.14. Collateral held has an aggregate value of $147,239,849.10.

Now I presume, Mr. McKee, that the value so given to this collateral is the face value?

Mr. McKEE. That is correct.

Mr. PECORA, That is the total interest paid on account of these loans up to December 19, 1933, was $251,822.91.

The CHAIRMAN. As payments are made, is the collateral surrendered?

Mr. McKEE. It is usually made from the sale or reduction of the collateral. In these instances there is no question that most of the repayments have come from the liquidation of collateral pledged, not from other sources.

(Witness excused.)