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Mr. MURFIN. I would believe anything that Mr. Wilson said; and I think anybody who knows him would do likewise. He stands very high.

Mr. Pecora. Mr. Mark Wilson is going to be put on the stand. And so will Mr. Mills, and so would Mr. Sweeny if he were able to be here. And if Mr. Bodde wants to come here the stand will be open to him.

Mr. MURFIN. I do not think, Mr. Pecora, that anybody wants to come here. [Laughter.] Have the newspaper boys told you the duscription of this hearing in Detroit?

Mr. PECORA. What is that?

Mr. MURFIN. In Detroit there is going about the expression, in connection with this committee's hearings, that all of the Detroit bankers have angina Pecora. [Laughter.] That indicates that they do not want to come here.

Mr. PECORA. Why, Judge Murfin, there are some people who have been collecting royalties on that wisecrack for about 8 months.

Mr. MURFIŇ. Well, it only reached Detroit when you got there.

Mr. PECORA. Did you ever, either as a member of the board of directors of the bank or in any other capacity, discuss with any of the other directors, or with any of the officers of the bank, reports of examinations of the bank made during the years 1931 and 1932 by national bank examiners?

Mr. MURFIN. I discussed with several directors, and with Mr. Sweeney and Mr. Mills, the report that Mr. Leyburn made in December of 1932 of the examination that he started in November of that same year.

Mr. PECORA. Do you recall that I read into the record, during the process of examining Mr. Stair on yesterday, many remarks, comments, and criticisms embodied in that particular report?

Mr. MURFIN. You told Mr. Stair you were reading from the yellow sheets. We never saw those. Those reports that came to Washington we haven't seen yet.

Mr. PECORA. I am referring to the report that was a part of the report mentioned.

Mr. MURFIN. Well, the situation is that there were two reports, one report that the bank got, and one report that we never saw, and haven't seen yet.

Mr. PECORA. You know that the examiners make reports to the Comptroller of the Currency after making examinations of banks, and that all these reports have included so-called “confidential criticisms” that are designed for the information and guidance of the Comptroller.

Mr. MURFIN. There was not a person connected with the First National Bank who ever heard of that practice until Senator Couzens testified on the subject before the Detroit grand jury, and then it came to Mr. Sweeny, Mr. Mills, and all of us as a distinct shock that the examiner should give the Comptroller one report and give the bank another report. I am shocked at that yet.

Mr. PECORA. Why, Judge Murfin, do not you know that the report given to the Comptroller of the Currency includes the report given to the directors of the bank, plus this so-called “confidential criticism or comment "?

Mr. MURFIN. All that I know about the report given to the Comptroller is what was brought out by Senator Couzens' testimony before the Keidan grand jury, and what you read to Mr. Stair here yesterday. Now, that is all that I know about it.

Mr. PECORA. Have you been under the impression all these years that the report made to the Comptroller of the Currency by national bank examiners consisted merely of what you have referred to as these yellow sheets?

Mr. MURFIN. I assumed that the report of the examination of the bank, which was given to the directors for their information and action, was the same as is given to the Comptroller.

Senator COUZENS. It is the same so far as figures are concerned, and so far as loans are concerned. The only difference is the comments which the examiners make to the Comptroller of the Currency, which the examiner does not put in writing to the directors, although the reports themselves frequently state that they have dis cussed these matters with the executive board or committee without putting them into the written report.

Mr. MURFIN. Well, that is all news to me. I never knew that before. Of course, what the Comptroller of the Currency has I know nothing about.

Senator Couzens. The Comptroller of the Currency has only the same figures that you have, so far as figures are concerned. He has no different set of figures.

Mr. PECORA. In other words, Judge Murfin, every report of examination given to a bank by the bank examiner is also given to the Comptroller of the Currency, plus the so-called “confidential criticisms or comments."

Mr. MURFIN. The “plus” part is all news to me, Mr. Pecora. I never knew there was any plus about it. And I might say that I went to these expert bankers—and I am not a banker, you understand—I went to Sweeny, I went to Bodde, I went to Livingstone, and asked nearly all of them about it, and they had never heard of such a thing.

Mr. PECORA. I do not quite understand their ignorance as to the practice. It has been well known for years in New York anyway. I do not know about Detroit.

Mr. MURFIN. I am just telling you what little I know.

Mr. PECORA. Let me read to you, Judge, the following from the general remarks

Mr. MURFIN. Is this from the report to the directors or the report to the Comptroller?

Mr. PECORA. The report to the Comptroller of the Currency by the national-bank examiner of his examination of your bank, made as of the 18th day of November 1932, which, as I understand, it was the last examination made prior to the closing of the bank in February 1933.

Mr. MURFIN. That is my understanding. Mr. PECORA. The remarks in this report are as follows (reading): To comment on the assets of this bank, one must dwell almost wholly in the past, as practically no recent loans are being made which are subject to criticism. The present picture portrays an effort to collect loans representing speculation in the nth degree at a time of evanescent security and no markes

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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 on 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

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facts that would prompt you to say that the comments or observa tions or statements which I have just read to you from this exaniner'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 pa 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 at 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.

Mr. MURFIN. Mr. Pecora, out of the 90 directors in that bank

Mr. 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 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.

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.

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