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. 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. 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: 1 you have your small loan banks Senator COUZENS. You have also group banks and chain banks! 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 hav ing loans. I have just reorganized a bank in Flint, Mich., last June. which was reopened upon a 55-percent basis, under what is known 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 as sets 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. WILSON. 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 COUZENS. 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 COUZENS. 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 have holding-company bonds. I think there should be certain restrictions there. Mr. SAPERSTEIN. You may go ahead with your recommendations. Mr. WILSON. I think there should be certain restrictions thrown around investment in banking houses and furniture and fixtures accounts. Mr. SAPERSTEIN. What do you mean by that? Mr. WILSON. Well, I am receiver for the Union Industrial Trust & Savings Bank of Flint, Mich. Since the beginning of the depres sion in 1930 they go ahead and build a 16-storied modern building and tie up hundreds of thousands of dollars of their deposits that are today, or should be, depositors' money. They did not need that building. But they got around the requirements as to building it. And many banks are getting around investments of that type by doing it through a real-estate corporation or a real-estate company. And, more particularly, fixtures should be included in the matter of a maximum amount that is allowed to be invested in banking struc tures. In the case of the Union Industrial Trust & Savings Bank in Flint, they took their legal limit, which was 50 percent of their capital and surplus, and put up another building, but they were still short of what was required for it. And what did they do? They went ahead and created a $500,000 furniture and fixture account. Senator COUZENS. And there was no inhibition against their doing that? Mr. WILSON. No. Mr. SAPERSTEIN. Go ahead with your recommendations. Mr. WILSON. The Federal Reserve System at the present time requires that certain percentages shall be carried with the Federal Reserve. I mean as reserves with the Federal Reserve bank. It is 3 percent on time deposits. And it varies with regard to demand deposits. It runs up to 7, 10, and I believe 12 or 14 percent. I think that reserve is too low. Mr. SAPERSTEIN. What reserve do you think would be adequate? Mr. WILSON. A 3-percent reserve on time deposits is perfectly absurd, in my opinion. The CHAIRMAN. That is a matter for action by the Federal Reserve Board. They are to determine that, are they not? Mr. WILSON. It is in the law. And I think the law should be amended to provide that the capital banking structure should be upon a conservative ratio to the deposit liabilities. Senator CoUZENS. Would you say 10 to 1 would be a conserva tive one? Mr. WILSON. Ten-to-one is absolutely not sufficient. We know that by experience. That is the old measuring stick. Senator COUZENS. Do you think the 10 to 1 was too big a ratio! Mr. WILSON. Undoubtedly too large. It should be fixed at 6 to 1 or 7 to 1. Assets depreciate much more rapidly than that, and onsequently you have all your bank failures in the country, just be cause you haven't had a sufficient buffer for the depreciation of those assets. The CHAIRMAN. What do you mean by that? Mr. WILSON. The old ratio was that a bank that had, say $1,000,000 of deposits should have $100,000 of surplus and capital structure. That is 10 to 1. Senator COUZENS. Then you believe that if a bank has a million dollars of deposits it should have about $200,000 in capital and surplus? Mr. WILSON. I believe that would be more like it. I think that would be a much more sufficient buffer to offset any depreciation of assets. The CHAIRMAN. What do you think about doing away with the double liability of bank stockholders? Mr. WILSON. I haven't that in my notes here, or, rather, my recommendations. But if the ratio of your capital structure is 5 or 6 or 7 to 1, then you do not need the double liability to the extent that you do if you go along under the old plan of 10 to 1. It would not be so much needed then. And it has not always proven successful, although in some cases you have been able to collect. It is not the protection that you think it is. And it would not be the protection to depositors as though you had a greater amount of capital structure to your deposits. Then you will have that protection. A stock assessment is something that you hope to collect, but you do not always collect it. Although in the case of the Genessee County Bank of Flint I collected stock assessments in June, in 19 days, 70 percent of it. I levied a 100-percent stock assessment against $1,000,000, and collected $700,000 in 19 days in order to reopen that bank. Mr. SAPERSTEIN. If the ratio should be retained at 10 to 1 would you be in favor of retaining that double stock liability? Mr. WILSON. The ratio of 10 to 1 is not any protection. Senator COUZENS. That is a rather hypothetical question, as it is being abandoned by many States and the Federal Government. Mr. WILSON. I believe in restrictions in regard to mortgages, the amount invested, the type of mortgage, and their location, should be studied with an idea of revamping the law. Mr. SAPERSTEIN. You may go ahead with your recommendations. Mr. WILSON. The next one I have is in regard to bank examiners. I believe that bank examiners should be included in the civil service. Mr. SAPERSTEIN. Should be in the civil service, do you say? Mr. WILSON. Yes, sir; they should be in the civil service. Senator COUZENS. Do you agree that a national bank examiner should be eligible for employment by banks he examines? Mr. WILSON. I seriously doubt whether he should be. Senator COUZENS. It was not very successful in the case of the Guardian Detroit Group, was it? Mr. WILSON. It was not very successful; no, sir. During the period I have examined banks, in the last 15 or 16 years, I have had many opportunities to go into a bank, but never accepted, with the one exception of going in as vice president of the Detroit Bankers Co., but not into a bank itself. Mr. SAPERSTEIN. You may proceed with your recommendations. Mr. WILSON. Then in regard to bank examinations, I should like to add to that that the law be so amended as to eliminate to some extent the terrific duplication which is going on in this country today. For instance, there are examinations Mr. SAPERSTEIN (interposing). Do you mean duplication of bank examinations? |