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Mr. LORD. I cannot. I know that $8,400,000 of assets were lifted out of the unit banks in a period of 2 or 3 years. How much they have gotten in the way of recoveries or how much there is that is recoverable I do not know.

Senator Couzens. The group had to borrow the money, however, to lift out those assets?

Mr. LORD. It did. It borrowed the money to protect those banks.

Mr. PECORA. Did you notice this expression of Mr. Huelsman's in this memorandum reading as follows (reading] :

The Group Co. then becomes purely a holding or group management company which will direct and coordinate the efforts of all the group units?

Mr. LORD, I heard it.

Mr. PECORA. Apparently, Mr. Huelsman was of the opinion that the Group Co. was directing and coordinating the efforts of all of the units of the group?

Mr. LORD. He was correct as to coordinating, but not as to directing. What is the date of that, Mr. Pecora ?

Mr. PECORA. It is dated February 25, 1932.

Mr. LORD. Well, that was very shortly after Mr. Huelsman came with the Group Co., and probably he wasn't acquainted with the policies of the company at that time.

Mr. PECORA. Well, apparently the fact that he had just come there and that he had become imbued with the idea that the Group Co. was directing the efforts of the various unit banks, was due to the fact that it was so readily apparent even to a casual observer, isn't that it?

Mr. LORD. I don't think so.

Senator Coczexs. Well, Mr. Lord, do you know the difference letween coordinating and directing?

Mr. Lord. We tried to confer with the banks and to help them, which I would call coordinating. But directing is what I would call running them.

Senator Couzens. How can you coordinate if you cannot direct!
Mr. LORD. We can advise.
Senator Couzens. That is in the nature of advisory work, then?
Mr. LORD. All right.

Senator Couzens. You are really not capable of coordinating, if you do not direct, as I take it.

Mr. LORD. I think you can help them.

Mr. PECORA. Mr. Lord, I want to show you a typewritten report or statement entitled :


Assets Purchased from Units

Will you look at it and tell us if you can identify it as being a true and correct statement of the amount of assets purchased from the units by the Congress Corporation at various times?

Mr. LORD. Well, that is the approximate figure. I do not remember each one, whether it is correct, or not.

Mr. PECORA. Is that approximately correct, at least?
Mr. Lord. That is my recollection.

Mr. PECORA. Mr. Chairman, I offer it in evidence.

Senator Couzens (presiding). Without objection it will be received and placed in the record.

(The statement entitled “ Congress Corporation; assets purchased from units ", was marked " Committee Exhibit No. 114, January 23, 1934 ", and will be found at the end of the day's proceedings.)

Mr. PECORA. This statement has been received as committee's exhibit no. 114, and shows that the total amounts paid in the purchase of assets from the different banking units was $8,414,501.28. Now, Mr. Lord, entirely apart from this statement, when you first appeared before the committee you gave some testimony relative to the approval that Mr. Bonthron, of Price, Waterhouse & Co. had expressed of the form of consolidated statements of conditions which the Guardian Detroit Union Group had issued at various times. Do you recall that?

Mr. LORD. I think the question was, including the consolidated earnings statement, as against the separate statement of the Group Corporation that we were discussing at that time.

Mr. PECORA. And you stated that the method adopted by the Group Co. had received the approval of Mr. Bonthron, and I then asked you to have Mr. Bonthron, or any other representative of Price, Waterhouse & Co. come before this committee to testify to that? Do you remember that request?

Mr. LORD. No. I think you said you might want him. You didn't ask me to get him.

Mr. PECORA. Oh, no. I made the suggestion to you to bring him. Mr. LORD. Well, I am sorry.

Mr. PECORA. Have you received, since you gave that testimony, a letter from Price, Waterhouse & Co., addressed to you, and dated January 8, 1934, and which letter I now show you?

Mr. LORD. I did. That letter was written to me at my suggestion. When I returned to Detroit after I had testified about that matter, I saw Mr. Bonthron, and he said that apparently there was some misunderstanding on the part of some of his partners as to just what advice they had given us. I then said to Mr. Bonthron: “Will you write me a letter and state exactly what you have done? Then I will be glad to put it before the committee.” And this is the letter he wrote. My discussion with Mr. Bonthron was exactly as stated in this letter, as to the propriety and correctness of making a consolidated statement of all the units of the group, including the Group Co. itself. That is the reason for this letter.

Mr. PECORA. In that letter Price, Waterhouse & Co. have expressed the wish that the statement be brought to the attention of his committee.

Mr. LORD. Yes, sir; and that is why I have brought the letter.

Mr. Pecora. In view of that situation, I think the letter should be offered in evidence, Mr. Chairman.

Senator COUZENS (presiding). The letter will be received in evidence.

(A letter dated Jan. 8, 1934, written by Price, Waterhouse & Co., and addressed to Robert O. Lord, Detroit, Mich., was marked "Committee Exhibit No. 115, Jan. 23, 1934 ", and will be found immediately following where read by Mr. Pecora.)

Mr. PECORA. The letter is on the letterhead of Price, Waterhouse & Co., Penobscot Building, Detroit, and is as follows (reading]:


Detroit, Michigan. DEAR SIR: Our attention has been directed to newspaper accounts of your testimony in Washington on Thursday, January 4, 1934, before the Senate Committee on Stock Exchange Practices in which the statement was made that our Mr. Bonthron approved the form in which the annual accounts of GuardianDetroit Union Group, Incorporated, and its subsidiary companies were reportid to its stockholders.

Since the statement as made by you may be misinterpreted and you have expressed readiness to make further explanations or amplification so that your testimony may be made entirely clear we are addressing this letter to you.

The exact facts are as follows: We have not at any time made any examination of the accounts of the company or any of its subsidiaries, and we therefore have no knowledge of any of the figures contained in the annual reports. The only time that the matter was before us was when you discussed it with Mr. Bonthron about 2 weeks ago. At that time he merely stated that the form of the consolidated statement of earnings, such as was adopted by you in 1929 when the company was formed, was an appropriate statement to the stockholders of the company.

We shall appreciate your bringing this matter promptly to the attention of the chairman of the committee, so that the necessary clarification may be made in the record. Yours very truly,

PRICE, WATERHOUSE & Co. Now, Mr. Lord, you have given me a rather voluminous document purporting to be a statement of views and opinions which you were good enough to reduce to writing at a suggestion made by me and attachés of the investigating staff of this committee.

Mr. LORD. Yes, sir.

Mr. PECORA. I show you what purports to be a copy thereof, and ask you if you can identify it as such true and correct copy?

Mr. LORD. It looks like it.
Mr. PECORA. Have you another copy of it?
Mr. LORD. Yes; I have. Do you want another one?

Mr. PECORA. No; this will suffice for me. Now, Mr. Chairman,
I offer it in evidence.

Senator COUZENS (presiding). It will be received and spread on the record, if that is what you wish, Mr. Pecora?

Mr. PECORA. No; it is too lengthy, but for the information of the committee I will read a part of it, because it contains what, in my opinion, are very interesting views, and perhaps some members of the committee will want to question Mr. Lord about some of those views.

Senator Couzens (presiding). The entire statement will be received and marked as an exhibit, and therefore become a part of the records of the subcommittee, without being spread in full upon the record.

(The statement of views and opinions prepared by Robert 0. Lord, was marked “ Committee Exhibit No. 116, Jan. 23, 1934," and will be held in the files of the subcommittee, only that portion which Mr. Pecora read later on in the proceedings, being spread on the record.)

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Mr. PECORA. The first part relates to conversations in which the witness was asked to prepare the statement of recommendations, and so forth, for this subcommittee; and then follow the witness' recommendations, which I will read for the benefit of the members of the committee, as follows: The business of banking may be divided into four general classifications:

First-Commercial Banking
Second—Savings Banking
Third--Investment Banking

Fourth-Fiduciary or Trust Company Activities
If I sense the needs in these four types of banking and the aims of this
Committee and of legislators, it is to provide in their order of importance-

First-Safety of deposits
Second-Ability of financial institutions to function to the greatest pos-

sible extent to aid industry, commerce, agriculture, the individual, and

the community Third-Safety of investments and the greatest possible protection to the

investor Fourth-Capable fiduciary management, for the conservation and manage

ment of the property of estates and individuals. Banks and Trust Companies may be classified as unit banks, group banks, or branch banks, with a substantial proportion of the institutions in the United States included in each class, and with arguments in favor of each, To attempt to discourse upon the advantages or disadvantages of each of these types would involve an endless discussion.

What we are all of us seeking is a better, stronger, and safer banking structure which can not only function smoothly and effectively in periods of normal business prosperity, but with the strength and flexibility to withstand the shocks of a severe depression and with the ability to contribute its full share toward a recovery in business from the depths of our present depression or any similar one in the future.

It would seem to me that one of the most important steps to be taken would be the inclusion of all banks in the nation in a single system under the national laws and under competent national supervision-operating under one banking law, rather than as at present having 48 separate state banking laws and one national banking law-49 in all.

Possibly the Banking Act of 1933 which, through its guaranty of deposits provisions, forces membership in the Federal Reserve system, is the first step in such direction. The ability of the separate states to tax banks and trust companies incorporated under state laws seems to be one of the principal reasons for the states' objection to a single national system, but this question could undoubtedly be satisfactorily settled by the national government taxing the national banks on an equitable basis and turning over the receipts of some portion of them to the respective states in which the banks are located.

The question of branch banking, within state lines, within trade areas, within Federal Reserve districts, and nation-wide, has been hotly argued for the past three years and longer. The strength of the British and Canadian systems is a strong argument in favor of a nation-wide or even state-wide branch banking. Personally. I believe we shall eventually come to branch banking over extended areas-even though not so far-flung as nation-wide--within the next decade.

The curtailing of some of the functions formerly carried on by banking institutions-and very properly so-has made it increasingly difficult for the bank of small or even moderate size to earn a reasonable return on its invested capital and at the same time set aside ample reserves for losses. A branch with deposits of as small an amount as $1,000,000 can be made to pay, whereas, as a unit bank, such an amount of deposits makes it difficult if not impossible of operation at a profit. The small community is entitled to the same degree of safety, the same quality of service, and the same ability in management as the large city, and this can more likely be secured through branch banking thau through the unit banks. I do not mean in any way to reflect upon the well-run and conservative small bank that is occasionally seen.

Group banking with all its faults and weaknesses has contributed in no smail measure to the strength of the banking structure during these past three years. Group banking might be classed as the intermediate step between the unit banking system and branch banking.

The Banking Act of 1933 was a most constructive piece of legislation and without doubt materially strengthened the banking structure of the nation. The complete separation of commercial and investment banking was both wise and necessary, as time will unquestionably prove.

The guaranty of bank deposits by the nation and by the banks subscribing to the Federal Bank Deposit Insurance Corporation is an experiment-probably successful if prosperity returns in the reasonably near future and if government supervision and examination can offset the possibility of additional bank failures in case this depression continues for a further extended period, and the usual mortality due to inefficient management or other causes. If this is to be made permanent, there should be a definitely known and reasonable maximum liability for the guaranteeing banks. For any bank to assume an unknown and unlimited liability for losses occasioned through the fault or mismanagement of other institutions and not of their own-offers a hazard harmful to the depositor and unfair to the stockholder. Furthermore, if this guaranty should continue indefinitely, it would seem only proper that the Postal Savings System ultimately be abolished and its competition with savings banks be removed.

On November 29, 1933, Mr. Winthrop W. Aldrich presented to your committee a very comprehensive and carefully prepared statement on the Banking Act of 1933 and on certain other phases of the banking situation. His statement contained many suggestions, the value of which this committee undoubtedly recognize. To Mr. Aldrich's suggestions, I might add for your consideration four more, as follows:

(1) That no employee of the Comptroller's Department, of any State Bank. ing Department, of the Examining Department of any bank clearing house as. sociation shall borrow from any member bank without the prior written consent of the Governor of the Federal Reserve Bank of the district in which the proposed lending bank is located; nor shall any such employee participate directly or indirectly in syndicates which are offering securities to the public, or in trading accounts or pool operations in securities which are dealt in publicly.

(2) No bank officer or employee shall serve as a director of any corporation other than his own bank without the prior consent of the Board of Directors of his own institution. When such consent has been given, advice thereof shall be sent to the Governor of the Federal Reserve Bank of the district in which such bank is located. The Governor of the Federal Reserve Bank, after re ceiving such advice, shall have the right to cancel the approval given by the Board of Directors of the institution by which such officer or employee is employed in case, in the opinion of said Governor of the Federal Reserve Bank, it is unwise or against the best interest of the bank that such officer or employee accept such directorship. Promotional schemes of types both good and bad have in the past sought the directorship of men occupying important positions in banking institutions, sometimes with resultant embarrassment or harm to the standing and prestige of the bank itself.

(3) That any director of a national bank or a state bank member of the Federal Reserve System, who shall fail to attend meetings of the Board for a period of four (or six) consecutive months, shall be automatically disqualified and shall cease to be such director; and, furthermore, that such director shall not be qualified for re-election to said Board for a period of six months from the date of his disqualification.

Such a provision, or one similar in tenor would, I believe, assure more regular attendance of bank directors.

(4) It seems to me that one point of criticism, entirely justified, was the form of condensed published statement issued by banks from time to time upon the call of the Comptroller of the Currency or of the State Banking Departments. Necessarily these statements had to be condensed as much as possible, but in most cases they failed to give a really intelligible picture of the facts. Furthermore, the statement of a single day might fail to give the full story. On that particular day a bank might happen to have an

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