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Co. was stepped up very materially. That dividend rate was $180,000 a year, and the new dividend which would be necessary for them to pay was $1,020,000. It was more than double. But Mr. Browning took a position with Mr. Haass, who canvassed each one of those bank presidents whether they could carry through with that-Mr. Browning took the very definite position that the Trust Co. should carry through and pay that dividend. So he was committing his institution to pay out in excess of 60 percent of the earnings and the earnings were knocked down over a period of 312 or 4 years. The Bank of Michigan dividends were stepped up probably, as I recall, from $600,000 to $637,500. That was about a 5-percent step-up. Mr. Livingstone thought that his bank could earn around $900.000 a year based upon previous earnings and economies which he proposed to put through.

The First National Bank step-up was about a 10-percent step-upI forget the exact figure. They had been paying, roughly, about a million dollars, and I think it was stepped up to about $1,100,000. It was about a 10-percent step-up. Mr. Douglas thought he could carry through and effect economies, and his earnings had been estimated at about 112 to 2 million dollars at that time.

The real step-up came in the Peoples Wayne County Bank, which was a step-up to $2,500,000; and the dividend rate as fixed at that time was fixed for that purpose, but from later events it was too high. and it should have been reduced before it was reduced.

I would like to make this one statement, that I was more or less responsible for what was done in these outlying banks. We started to combat the payment of dividends in those outlying banks in 1931, and the only banks that carried through, with one exception, were those who have today paid their depositors 100 cents on the dollar. My records here indicate that even in June 1931 the dividend at River Rouge was discontinued. The dividend at Ecorse was discontinued entirely in June 1931 because they were accumulating undesirable assets. You can go through the records that I have available--and I am perfectly willing to submit them to you--in regard to the dividend policies of the outlying banks. The banks were in this position, that the Detroit Bankers Co. had already paid a sufficient amount of money to continue reasonable dividends without asking the outlying banks for any dividends for a period of a year or a year and a half. It had already been accumulated in a very short time.

Mr. SAPERSTEIN. Mr. Wilson, do you think that the indebtedness of $7,200,000 which the Detroit Bankers Co. assumed at the time of the acquisition of these outlying banks was a serious contributing cause to the difficulties in which the Detroit Bankers Co. found itself?

Mr. Wilson. There is no question whatsoever about that. It was a contributing factor.

Mr. SAPERSTEIN. When you say it was a contributing factor do you mean it was the principal cause of the difficulties of the group company?

Mr. Wilson. That is correct.

Mr. SAPERSTEIN. Just before you read your suggestions I would like to read into the record from the examiner's report of condition of the First National Bank of Detroit as of September 25, 1931, the examiner's comment with regard to those Redford banks which you mentioned a moment or two ago. He says, under the caption of Criticism, Redford Banks (reading):

The action of this bank in taking over the assets of the two Redford State banks without first submitting them to this office for appraisal is subject to severe criticism. You will find attached to this report schedules and an praisals made of the assets held in this bank under agreements dated May 29, 1931. These agreements provide for a 5-year program under which liquidation is to be made. The assets as a whole are of a highly objectionable character and nonconforming as to admissibility, notwithstanding the fact that the capital structure of the two banks offer a protection through the share holders' equity of $740,596.96, and a guarantee bond signed by the directors of one of the banks for $25,000. Substantial loss in cases of this kind will probably be serious. The elimination of those assets which are not ar forming to the national banking laws or represent questionable values under no circumstances could be permitted to run for the duration of 5 years. Shrould an examination have been made by your department prior to the acquisition of these assets, it would have been impossible to find sufficient acceptable items to make the take-over possible. The responsibility of the directors with respect to the matter is direct.

Do you agree with those conclusions of the bank examiner, Mr. Wilson?

Mr. Wilson. I might say that I do not find any fault with it, unless you just want me to answer in the affirmative. I believe the examiner is substantially correct in his deduction.

I have one statement which I would like to make before offering a few suggestions, and I will hurry through with those.

In regard to the inability of these banks to reopen following the Governor's proclamation and the President's proclamation, I have jotted down a few underlying causes. I do not believe there is any one contributing factor; I think there are many cumulative factors that brought about these conditions. I have them listed very concisely.

No. 1 is excessive and destructive competition. That has been proven all the way through.

Senator COUZENS. Between the Guardian Group and the Detroit Bankers Group?

Mr. Wilson. Not only the groups but between the banks before the formation of the groups.

The CHAIRMAN. You said excessive and destructive competition!

Mr. Wilson. Yes. No. 2 is lack of confidence brought about by many causes, partly due to the listing of the bank stock on the stock exchange and the falling of those quotations.

No. 3, the borrowings of directors and officers and the making of slow capital loans partly predicated upon stock of the holding company.

NO. 4, affiliates and security companies.
No. 5, the failure of the American State Bank.
No. 6, the economic depression.
No. 7, directors and the governing committee.

Senator Couzens. What do you mean by that? You say they were a contributing cause for the failure of the banks to open. elaborate on that?

Mr. WILSON. There was too much interference in the so-called "select steering committee.”

Senator COUZENS. Who made up that committee !
Mr. WILSON. They were self-selected. That is what I believe.

Will you

Senator COUZENS. Can you identify them by any records of the board of directors?

Mr. SAPERSTEIN. Would it help you to answer that question if you had before you the annual reports?

Mr. Wilson. I would say those names would be found in the final list of directors of the Detroit Bankers Co. and the governing committee—at least, at the time I resigned. I do not say all of them, but some of them.

Mr. SAPERSTEIN. Who constituted the governing committee at the time you resigned?

Mr. Wilson. I have not that information.

Senator COUZENS. Can you tell it from the list of the directors published in any one of the annual reports ?

Mr. Wilson. The greatest problem of the Detroit Bankers Co. was keeping the directors and the governing committee in line and in having too much interference in operation and giving the management the power to shape a few policies necessary to start the ship to port.

Senator COUZENS. Would they interfere with the loaning officers?

Mr. Wilson. The loaning officers jumped whenever they cracked the whip. The loaning officers didn't have any opinion that they could put into effect.

Mr. SAPERSTEIN. I show you the annual report to the stockholders dated December 31, 1931, which contains a list of the directors of the Detroit Bankers Co., and I ask you whether you can identify these directors whom you have designated as constituting the so-called steering committee.

Mr. Wilson. Going down the list, I would say Colonel Alger, first, Emory W. Clark, Ralph Gilchrist, James S. Holden, James T. McMillan, Wilson W. Mills, Truman H. Newberry, Wesson Seyburn, E. D. Stair, Oscar Webber.

No. 8 was “ Dame Rumor.”
No. 9, State bank stock investment

Mr. SAPERSTEIN. Will you go back to your no. 8 and expand a little on what you mean by “ Dame Rumor"!

Mr. Wilson. Well, there were rumors brought about through newspaper publicity in regard to the R.F.C. borrowings, large borrowings reflected in the statement of condition of the various banks through newspapers and the radio.

No. 10, devaluation of assets-
Mr. SAPERSTEIN. What was no. 9?
Mr. WILSON. State bank stock investments.
Mr. SAPERSTEIN. Go ahead.
Mr. Wilson. No. 10, devaluation of assets.
No. 11-and this was one of the prime ones—lack of leadership.
No. 12, lack of coordination of Government agencies.
Mr. SAPERSTEIN. What do you mean by that?

Mr. Wilson. I believe the Government agencies should have got together upon a plan of solving those large Detroit banking problems at the time of the holiday.

Mr. SAPERSTEIN. What Government agencies do you refer to?

Mr. Wilson. Well, I would say the Comptroller of the Currency, the Reconstruction Finance Corporation, and possibly the Federal Reserve Bank.

No. 13, liquidity of mortgages.
No. 14, free banking system in this country.
Mr. SAPERSTEIN. Will you expand on that?

Mr. Wilson. To this extent. If I am correct in my count there are 57 varieties of banking in this country today.

Mr. SAPERSTEIN. Is that by actual count, or is that just a figure of speech?

Mr. Wilson. No; that is by actual count.
Mr. SAPERSTEIN. How do you arrive at those figures?

Mr. Wilson. You have 48 State banking systems. That accounts for 48 of your 57.

The CHAIRMAN. What about the other nine?

Mr. Wilson. I have not them down here. I might recall a few of them. You have your national banking system; you have your trust companies accepting deposits; you have your savings banks; you have your small loan banks

Senator COUZENS. You have also group banks and chain banks! Mr. Wilson. Yes; and what not. There are 57.

Senator Couzens. So you did not get this figures from Heinz pickles ?

Mr. Wilson. No, sir. I did not realize I had reached exactly that figure.

Now, in regard to the suggestions, Mr. Chairman, I offer these for what they are worth. They are from observations which I have made after 15 or 16 years of examining work, including State, Federal, National, and clearing house.

No. 1: I believe a law should be passed to prohibit completely loans to officers, directors, and employees of a bank. The closing of many banks today was due to officers, directors, and employees haring loans. I have just reorganized a bank in Flint, Mich., last June. which was reopened upon a 55-percent basis, under what is known as the “Michigan plan”, the first bank in Michigan opened under that plan; and the contributing factor facing that bank was the directors, officers, and employees loans. If those had been out of the bank, the bank could have been opened on a 100-percent basis. There are many cases of that type in the State and Nation.

No. 2 is the publication of call statements. I believe consideration should be given in regard to amending the law to prohibit banks from making condensed statements of condition. That has been one of our great contributing factors toward difficulty over a period of years. A banker wanted to show a gain in his profits and he got in the habit of running a quarter-page or half-page statement giving a great deal of publicity to it. I believe banks should be confined to the publication of a statement of condition containing all the facts in regard to the condition of the bank, and the pledging of any assets or what not, so that depositors may know at all times as much as possible from the statement about the condition of the bank. And this I would certainly have, that there should be some check upon the manner in which the Comptroller of the Currency has been making his call statements to the banks throughout the country for years. It has been going on since Mr. Williams was Comptroller of the Currency.

Senator Couzens. Has a new policy been adopted by the present Comptroller? I was informed that it had been adopted.

Mr. Wilsox. I do not know, Senator.

Deposits in Postal Savings funds, where a bank has to go into the market and buy Government bonds

Mr. SAPERSTEIN. What is your suggestion with regard to that?

Mr. Wilson. I think it should be discontinued. Trustees should not deposit those funds in banks, with the possible exception of the Federal Reserve banks. They should be deposited with the Treasury Department, or they should go in the market themselves and buy their own Government securities. It forces banks to buy them to obtain the deposits and take the risk upon the marketing of Government securities.

The CHAIRMAN. Banks have been soliciting them, have they not? Mr. Wilson. They make very little money out of it, if anything. The CHAIRMAN. But I think they all want them.

Mr. Wilson. Any bank can go to the Postal Savings trustee and obtain large deposits for the purpose of inflation of statements. Postal Savings trustees are unable to find a lot of banks who will accept their deposits and the pledging of Government bonds. That is the condition today.

Senator Couzens. What have you to say with respect to the duplication of deposits by one bank depositing with another?

Mr. Wilson. I am coming to that.

No. 3: Prohibit absolutely the pledging of assets by any bank to secure any type of deposit. That law should be so written that they might control all the banks of the country. There is no reason why any type of depositor should be preferred over any other type.

Senator Cotzens. You and I will disagree on that, because there is a perfectly legitimate reason, preferably by the issuance of surety bonds rather than the selection of assets, because it is obviously necessary for these governmental activities to continue and perform their necessary public service, and they must have their funds available more readily than a private institution.

Mr. Wilson. More readily available; but those funds, in my opinion, Senator, should be deposited in the Federal Reserve banks.

Senator Cotzens. That probably would be a solution. But they must have their funds available for performing their public service.

Mr. Wilson. That is right.

I think that very careful study should be made of the laws concerning the various types of bonds, investments made for savings, and for commercial purposes. There should be a very definite restriction thrown around the type of bonds that banks may purchase in regard to classes of bonds and in regard to maturities. There is a difference between savings investments and commercial investments.

Mr. SAPERSTEIN. You recognize that there are such restrictions, do

you not?

Mr. Wilson. I recognize that many banks have failed on account of their bond account, thousands of them, on account of depreciation of their bond account, slow real-estate bond investments, which should never have been placed upon their books.

Senator Couzens. What kind of bonds?

Mr. Wilson. Real-estate bonds and holding-company bonds of public utilities. They should confine their bond investments to operating companies if they are going into the utility field and not

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