Mr. MURFIN. Of what?

Senator COUZENS. Evanescent security.

Mr. PECORA. Evanescent security.

Mr. MURFIN. What kind of security is that? What kind of security do you mean by that? I know what evanescent means. I never heard of an evanescent security.

Mr. PECORA. A security which, I suppose, vanishes gradually until it almost disappears.

Mr. MURFIN. I am familiar with that.

Mr. PECORA. The ordinary meaning of the term "evanescent ", I take it, applied to security here means what I indicated.

Mr. MURFIN. I get you.

Mr. PECORA. I do not pose as a lexicographer. [Continuing reading:]

What the ultimate outcome would be I do not think is ascertainable at this time, but under present conditions I most seriously question the bank's solvency. I feel that the management is doing almost everything possible to improve their condition, except as noted on page 11, and that commendable progress has been made along the lines of reduction in operating expenses; but I question that, if the truth were actually known, whether or not they are breaking even, and feel that their earnings are more mythical than actual. I do not see how they will be able to absorb their losses from earnings. Neither do I believe it would do any material good to use the surplus of a bank of this size under present conditions, and it might do considerable and farreaching harm. Until such time as the Detroit Bankers Co. gets its outside bank loans paid, it would appear advisable to allow subject bank to pay dividends, as they are so closely interwoven that suit against the company would react too strongly on the bank. But under no circumstances do I feel that dividends should be disbursed outside.

The governing board in part appeared to question this attitude, and for sentimental reasons appeared to want to continue to pay dividends on the Detroit Bankers Co. stock. They have not been assured that your office will even countenance the payment of dividends as above; and if not out of order, examiner suggests that they be advised in your letter to the bank that any dividends paid by the bank must be used to retire the debts of the company only, and no distributive dividends are to be made without first obtaining the comptroller's approval.

As set out in the previous report, they have still too many involved offices, and officers who have been trained as fair-weather bankers, and unable to anticipate trouble in a loan. They have need for some conservative, hardhearted bankers, not only in the capacity of loan officers, but executive officers. The chairman of the board, Mr. Mills, is not unmindful of the bank's condition, and is very frank in committing himself to an examiner. However, one or more persons cannot do the impossible, and although he has had only 2 years' experience as an actual banker, I think he is doing as good a job as could be expected with what he has to work with.

In contrast with last examination, examiner placed no collateral value ou Detroit Bankers stock, and such loans will be found listed in the doubtful column, which previously were set up slow. A review of the general remarks in last examiner's report will bring out in detail some of the things mentioned in a cursory manner in this report, and I believe will help to give anyone reading this report a little clearer picture of this enigma. Loans on which the comment "probable loss" or "probable loss in part" appears where originally set up as such, and the governing board advised of examiner's opinion, but, as previously set out, the size of this bank appeared to all concerned too large to risk the destruction of public confidence, and the classifications were moderated.

Mr. MURFIN. That is a very long question you are asking.

Mr. PECORA. I have not asked you the question yet. I am reading that to you. Now, I have finished the reading of that particular portion or extract from this report. Have you any knowledge of

175541-34-PT 12- -2

facts that would prompt you to say that the comments or observa tions or statements which I have just read to you from this exam. iner's report of the bank as of November 1932 were exaggerated or unwarranted or were not based on fact?

Mr. MURFIN. Will you explain to me how an examiner can say the bank is probably insolvent and then instruct them to go ahead and pay a dividend to the Detroit Bankers Co., the stockholder that owns the company? That is the biggest piece of nonsense I ever heard coming from an official document. In one sentence he says the bank is insolvent. In the next sentence he says, "Let them pay a dividend to the Detroit Bankers."

Mr. PECORA. He did not say the bank was insolvent.

Mr. MURFIN. He pretty nearly said it in that first statement. Mr. PECORA. He said [reading]:

What the ultimate outcome will be I do not think is ascertainable at this time.

Mr. MURFIN. Earlier than that.

Mr. PECORA (Continuing reading):

But under present conditions I most seriously question the bank's solvency. Mr. MURFIN. Yes.

Mr. PECORA. In other words, he was himself uncertain about it st that time. He does not say definitely or unqualifiedly that it is solvent or that it is insolvent, as I construe this language. Do you place any other meaning upon it?

Mr. MURFIN. If I had such serious doubt about the bank's solvency, I would not seriously discuss paying a dividend, would you? Mr. PECORA. Just consider all that he said on the subject of divi dends. Let us go back to it. Here is what he said [reading]:

I do not see how they will be able to absorb their losses from earnings. Neither do I believe it would do any material good to use the surplus of a bank of this size under present conditions, and it might do considerable and far-reaching harm. Until such time as the Detroit Bankers Co. gets its outside bank loans paid, it would appear advisable to allow subject bank to pay dividends, as they are so closely interwoven that suit against the company would react too strongly on the bank. But under no circumstances do I feel dividends should be disbursed outside.

Mr. MURFIN. I think that was sound advice.

Mr. PECORA. What?

Mr. MURFIN. I think that was sound advice.

Mr. PECORA. That is the recommendation or the comment of the examiner.

Mr. MURFIN. I think that was sound.

Mr. PECORA. You agree with the soundness of it up to that point! Mr. MURFIN. I think at that time that was very sound advice. Mr. PECORA. Let us see what further he says from that point on [continuing reading]:

The governing board in part appeared to question this attitude, and for sentimental reasons appeared to want to continue to pay dividends on the Detroit Bankers Co. stock.

So, according to the report made by the examiner, certain of the members of the governing board do not share the feeling that you have just expressed-that this was sound advice on the part of the

examiner.

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Mr. MURFIN. Mr. Pecora, out of the 90 directors in that bankMr. PECORA. No; the governing board. I am confining this to the governing board.

Mr. MURFIN. I think there were 20 different ideas on every subject brought up. Men's opinions vary.

Mr. PECORA. I am merely calling attention, Judge, to the fact that members of the governing board, apparently, some of them, at least, did not share the feeling that you have just given expression to, that this was sound advice on the part of the examiner.

He goes on further, from the point at which I left off [continuing reading]:

They have not been assured that your office will even countenance the paythatment of dividends as above, and if not out of order, examiner suggests that they be advised in your letter to the bank that any dividends paid by the bank must be used to retire the debts of the company only, and no distributive dividends are to be made without first obtaining the Comptroller's approval. Mr. MURFIN. It seems to me that is good advice.

Mr. PECORA. And the substance of that advice is that because of the interwoven character of the Detroit Bankers Co., which had outside debts at the time in other banks, it might be all right for the bank to pay a dividend to the Detroit Bankers Co., but that that dividend, when received by the Detroit Bankers Co., should not be distributed to its stockholders, but should be used to retire its own indebtedness.

Mr. MURFIN. I think that is sound advice. I understand it that way, just as you do.

Senator COUZENS. Therefore, do you think it is at all inconsistent for the examiner to doubt the solvency, and still make that recommendation?

Mr. MURFIN. Yes, Senator; because if he doubts the solvency of what he calls the member bank-if he doubts the solvency of the First National Bank, he ought not to allow it to pay a dividend, even if the dividend does go to retire the debts of the Detroit Bankers. He should not allow money to go out of that bank by way of a dividend if the solvency of the bank is questioned.

Senator COUZENS. I understand the position you take all right, but, as Mr. Pecora has pointed out, the close relationship of the two suggested to the examiner that if you discontinued dividends on the Detroit Bankers Co. stock it might react against the bank.

Mr. MURFIN. I appreciate that.

Senator COUZENS. Therefore, is it inconceivable that an examiner might suggest that to avoid a reaction against the bank?

Mr. MURFIN. It is inconceivable to me that a bank examiner should permit a dividend to be paid from a bank whose solvency he questions, no matter what happens.

Senator COUZENS. Even though the reaction closed the First National?

Mr. MURFIN. That is not the way the First National was closed. Senator COUZENS. I am not talking about the way the First National was closed. I am talking about what happened when he wrote that report.

Mr. MURFIN. I think that is just a difference of opinion. I would not have done it that way. I doubt if you would have done it that way if you had been an examiner.

Senator COUZENS. I am asking if it is wholly unreasonable to issue a warning to his chief. He was not acting for himself. Mr. MURFIN. I appreciate that.

Senator COUZENS. He was issuing a warning or suggestion to his chief that it might be desirable to permit the bank to pay the divi dend to its owners so as to prevent a general public reaction against the bank.

Mr. MURFIN. I thoroughly appreciate that. It is just a mere question of opinion. One man's opinion is that this is the best way to handle it. Another man's opinion might be something else. Senator COUZENS. I only raised the question because you seemed to take the dogmatic position that the examiner was wholly incon sistent in his questioning the solvency of the bank and at the same time permitting a dividend to its owner.

Mr. MURFIN. I think it is most inconsistent. I am not dogmatic. I think it is most inconsistent.

Senator COUZENS. Even in spite of the fact of the close relationship between the two?

Mr. MURFIN. Exactly.

Mr. PECORA. In other words, in spite of the fact that the dividend so paid by the bank would have gone to the bank's parent and owner, namely, the Detroit Bankers Co.?

Mr. MURFIN. Yes.

Mr. PECORA. Would it not react favorably to the bank if the Detroit Bankers Co., which owned its capital stock, had been able to retire its outstanding indebtedness?

Mr. MURFIN. Oh, certainly. There is no doubt about that.

Mr. PECORA. Is not that the thing that the examiner, in this report, is virtually suggesting?

Mr. MURFIN. I think that is so. I think that is just what he is suggesting, Mr. Pecora.

Mr. PECORA. Do you not think it is apparent, through all this com ment by the examiner that I have read to you, that there was in the examiner's mind a strong desire to be as helpful as possible to the bank's situation at that time?

Mr. MURFIN. I think that is a fair statement.

Mr. PECORA. Now, I will ask you the question I asked before. Have you any knowledge of any facts which would cause you to feel that the comment or criticism-whichever you might choose to call it-which the examiner made to the Comptroller in this report from which I have read to you, was unwarranted, or was exaggerated, or was not based upon fact?

Mr. MURFIN. In my opinion his even questioning the solvency of the bank was a serious error. I think the bank was thoroughly solvent.

Mr. PECORA. What facts can you present here to substantiate that? You are giving us an opinion. I want facts.

Mr. MURFIN. I can only give you my opinion. My opinion is pred icated upon what I thought I knew, and what I still think I knew about that condition.

Mr. PECORA. Can you present any facts here to us to support that opinion?

Mr. MURFIN. All the supporting data in the world are in the hands fr of the Federal Government, and none of us has been able to have access to any of it.

Mr. PECORA. Have you knowledge, as you sit there now-have you knowledge or recollection of any knowledge of facts that supports Talk the opinion that you have so vigorously expressed?

Mr. MURFIN. That would involve my analyzing all the mortgages. It would involve my analyzing all the loans. It would involve my analyzing the past-due paper. It would involve my guessing as to whether Mr. Pecora could pay up his or Mr. Murfin could pay up his. Mr. PECORA. I do not owe the bank anything.

Mr. MURFIN. Neither do I. I am just using this as an illustration. It is impossible to analyze, Mr. Pecora.

Mr. PECORA. Why impossible, Judge?

Mr. MURFIN. It is impossible for me, anyway.

Mr. PECORA. This bank, after the consolidation of December 31, 1931, was known as the "First Wayne National Bank" for a while, was it not?

Mr. MURFIN. That is right.

Mr. PECORA. I have here what purports to be a comparative statement of income and expenses of the First Wayne National Bank. This is produced from the files and records of the bank itself, Judge, and I am going to show it to you and ask you to look at it and tell me if you know anything at all about the conditions, facts, and so forth, set forth in that comparative statement.

Mr. MURFIN (after examining paper). I have never seen this. At least I do not think I ever have. I have never seen this, or anything like it. I do not know anything about this, Mr. Pecora.

Mr. PECORA. Do you see what that indicates?

Mr. MURFIN. Oh, yes.

Mr. PECORA, What?

Mr. MURFIN. It indicates the bank is losing money.

Mr. PECORA. The bank lost approximately $5,700,000 in the year 1932.

Mr. MURFIN. The figures are right there; yes. I have never seen that, or anything like it. I know nothing about it.

Senator COUZENS. What date did you change it from the First Wayne National Bank to the First National Bank?

Mr. MURFIN. Senator, I cannot answer that question. I know this. There was a good deal of argument as to what the name of the merged bank should be, and some wanted to keep the name "Peoples" in it, and some wanted to keep the name "Wayne " because of the old Wayne County, and when they hit upon "First Wayne" nobody liked it, and they finally changed it to the First National Bank, Detroit.

Mr. PECORA. As a stockholder of the Detroit Bankers Co., Judge, did you attempt to keep yourself posted as to the financial condition of that company during its history?

Mr. MURFIN. Not of the Detroit Bankers, sir. I probably was remiss in that. I did try to keep in very close touch with the First National, but I knew none of the details of the Detroit Bankers.

Mr. PECORA. So, you feel it would be futile to ask you any ques