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the time, or the next day, that some one stated that remarks I made made a chill run up the spine of some of his departments. The chill should have run up his spine, as a matter of fact. The bank was never 80 percent liquid. It was really 25 percent. They even had to borrow to make the 5 percent disbursement during the banking holiday. In his bond account alone $52,948,500 was pledged, which included $44,606,000 Liberty bonds.

Mr. SAPERSTEIN. Did you take issue with him then and there!

Mr. LEYBURN. And how! I would take issue with him now if he were here. I stated that the large amount of real-estate mortgages which the bank had-approximately 60,000 separate mortgages

, totaling about $156,000,000—was not desirable for a commercial bank. The next time I made the statement I said they were no good.

It was proposed during the holiday that Henry and Edsel Ford subscribe approximately $11,000,000 new capital to make possible the organization of two new banks to take the place of the First National and the Guardian National Bank of Commerce. It was also contingent upon an R.F.C. loan of $100,000,000 to the First National Bank and approximately $35,000,000 to the Guardian National Bank, which would have made an initial payment to the depositors of around 50 percent. Later on the R.F.C. reduced its offer so that they could not disburse 50 percent. The Ford interests would not go through with any plan that contemplated payment to depositors under 50 percent, and that plan fell through. It was the hope of Mr. Mills that he could be president of the new bank, but the Ford people would have nothing to do with him in that direction.

The next plan was to reorganize the First National Bank, provided they could obtain a loan of $20,000,000 from a bank or banks in New York City and rediscounts of around $4,500,000 from the Federal Reserve Bank of Chicago. Mr. Mills, of course, was anxious to be president of this reorganized bank. The New York banks claimed that it was questionable if the First National Bank could transfer any of its assets during the banking holiday for a loan, and so the loan was not granted and this deal fell through.

It has previously been testified—and there is no question that they knew what they were talking about-it was testified by Mr. Edsel Ford and others, that Mr. Henry Ford stated that if the Union Trust Co. was not taken care of he would withdraw his deposit out of the First National the minute the bank opened, which was approximately $20,000,000. The bank, furthermore, would have been faced with withdrawals of $20,000,000 from other banks outside of Detroit. If that bank had been permitted to open the day following the bank holiday, you can see they would be ruined right away. Forty million dollars would have gone up, and all that would have been left would have been just a shell. So we could not let that happen. That is probably about the most sensible thing I ever did

They have claimed consistently that no criticism has ever been made of their real-estate loans by a bank examiner. If you would look into the report of examination of May 1932, there is a long page that reads like this:


as a

917 real-estate mortgages subject to redemption.

$6, 065, 000 672 real estate mortgage foreclosures.

3,580,000 66 land contracts being foreclosed..

601, 705 Other real-estate loans, interest past due more than 6 months, num

ber of items 929; past due as to interest or principal or both.- 5,051,233 Land contracts past due as to interest or principal or both_--- 1, 355, 195 Real-estate mortgages where interest is in default only, total of interest due----

450, 369 I am not adding up these totals.

Other real estate at this examination amounted to, in addition to banking house equity and sites, $8,398,325.

These items total $25,031,458. In addition to that, they carried an equity in the banking house of $18,071,495. There is the answer to the statement that we never criticised the real-estate loans.

Early in 1932 the First National Bank advanced $150,000 to the Detroit Bankers Co. to meet current expenses. This was carried

suspense item” on the books of the First National Bank. At that time the banks of the group were still paying dividends.

Then they had another outfit there called the First National Co., that you have heard a lot about. They had total liabilities and assets of $9,513,613.

The statement which I have before me is of November 18, 1932. It shows cash, $3,711.90; investments, book value, bonds, $757,292.44; stocks, $1,670,620.23; Detroit Bankers Co., trustee account, $1,143,033.24; State bank stocks, $5,791,974.80; notes and accounts receivable, $146,980.47; total assets, $9,513,613.08.

You come to the liability side with a capital of $1,000,000 and a surplus of $522,556.02 (red). That outfit was borrowing $8,749,000. That is their total borrowings besides accounts payable of $287,151. You people have gone into that pretty thoroughly

Senator COUZENS. What were the total liabilities?
Mr. LEYBURN. Including capital?
Senator COUZENS. No.
Mr. SAPERSTEIN. Without including capital.

Mr. LEYBURN. Over nine million dollars. That is borrowed money. The borrowed money was from the Detroit Bankers and the First National Bank. As a matter of fact, the notes payable to the First National Bank amounted to $400,000, and there was another note for $979,000. Then, from the Detroit Bankers Co. they borrowed $7,370,000.

Of this $7,000,000 loan I mentioned that they had with the Detroit Bankers Co., they charged off in 1932 at various times $3,100,000.

Senator COUZENS. Who charged it off!

Mr. LEYBURN. The Detroit Bankers Co., in 1932, $3,100,000. I am sure that is correct.

Senator COUZENS. How did you get those Detroit Bankers Co. figures ?

Mr. LEYBURN. I got them from the statement that we got during the examination.

Senator COUZENS. You did not examine them, did

Mr. LEYBURN. No; I had no power to examine affiliates at that time. I wish we had the power.


Senator COUZENS. I do not understand why you make the statement that they wrote off a certain amount

Mr. LEYBURN. Yes; I will show you where I got that. It shows on their own statement.

Senator COUZENS. On their own statement that they charged it off!
Mr. LEYBURN. It is right here in their own statement.
Senator COUZENS. What does it say?

Mr. LEYBURN. This statement that I am reading from now is called Reconcilement as of the 18th of November 1932", and it shows charged off $3,100,000. Then I checked this with the receiver as to how it was charged off. It was charged off in installments.

According to Mr. Mills' testimony before the left-handed grand jury, an additional advance of depositors' money of $900.000 was made on January 9, 1933, which was, of course, shortly before the banking holiday. If Mills' testimony was correct, this was used to pay off a loan at the Continental Illinois Bank & Trust Co. The depositors' money was used to prevent a suit being filed against the Detroit Bankers Co. The directors knew that the Detroit Bankers Co. could not pay the loan; and if a suit was started, the public would realize the condition and withdraw their money. I checked that. I think he gave you something on that. It is a fact about that $900,000

Mr. SAPERSTEIN. I think the record already shows that.
Mr. LEYBURN. I think that is correct.

The statement has been made that the American State Bank was taken over to save the depositors from loss. It may be true that a few of the officers of the Detroit banks were willing to give away from $2,000,000 to $10,000,000 of the money placed in their hands as trustees to save some other people from loss. As I see it now, perhaps there might have been some reason for it, for the bankers were afraid that their banks could not stand substantial withdrawals even back in 1931. These bankers that took over the American State Bank knew that the American State Bank had purchased a lot of other banks, paying fabulous prices for them.

The governing committee of the First National Bank, which consisted of the names I have mentioned, well knew the condition of the institution, and if their testimony is correct, they deliberately misled some members of their board. As a matter of fact, I think there is a serious liability there, because it absolutely is a breach of trust Let us assume for the purpose of argument that the examiners told Mills they had a swell bank

Senator COUZENS. How do you account for the fact that a number of those members of the governing board increased their deposits between that time and the closing of the bank!

Mr. LEYBURN. I can answer that.
Senator COUZENS. All right.

Mr. LEYBURN. That bank was so large and prominent that everybody up there thought that the Government would never let ansthing happen to it. That is the answer to that.

Senator COUZENS. You think that they increased their depoitwithout any assurance from anyone that the bank would continur to operate?

Mr. LEYBURN. I am of that opinion.

Senator COUZENS. It is only an opinion?

Mr. LEYBURN. Yes, sir; let us assume for the purpose of argument that the examiners told them that they had a good bank, or never told them that the bank was bad, and then they received the report of examination showing a precarious condition but raised no protest whatsoever. At no time did they ever protest to Washington. If I were to go into that bank and tell them something that was not the fact, they would come down here and raise hell. They never did,

Senator COUZENS. How do you account for the fact that the Comptroller of the Currency took no action when you sent those yellow sheets in?

Mr. LEYBURN. I thought I covered that question in the Guardian group.

Senator Couzens. How do you account for it in this group? Because I understand that the criticisms of this group are worse than in the case of the Guardian group.

Mr. LEYBURN. The same policy would hold in this case.

Senator Couzens. Did you ever discuss it with the Comptroller or the Deputy Comptroller or any other officer in the office of the Comptroller of the Currency, as to the condition of the First National Bank?

Mr. LEYBURN. Frequently, It was the biggest problem we had. Senator COUZENS. With whom did you discuss it?

Mr. LEYBURN. Mr. Pole and Mr. Awalt and a number of people at various times.

Senator COUZENS. What did they say?

Mr. LEYBURN. To use their words, they said, “Don't let anything happen."

Senator Couzens. How could you prevent letting anything happen?

Mr. LEYBURN. It looked like I could not.
Senator COUZENS. What did they mean?
Mr. LEYBURN. That I would “rock the boat."

Senator COUZENS. By rocking the boat you would compel them not to charge off these bad accounts ?

Mr. LEYBURN. Not to take the surplus away, or anything like that. That was the policy at the time.

Mr. SAPERSTEIN. Did you follow that policy with regard to this bank?

Mr. LEYBURN. I will let the evidence speak for itself in that direction.

The CHAIRMAN. Was there any political pressure brought to bear in the matter?

Mr. LEYBURN. If there was, I did not know it. I could not answer that; I do not know.

Senator COUZENS. Would you say that instructions from the Secretary of the Treasury or the President of the United States were political pressure? Mr. LEYBURN. If that is what you mean, I would say yes.

Senator COUZENS. You testified when you were on the stand before that these instructions came from the powers higher up.


Senator COUZENS. And when asked to enumerate those powers, you said the President of the United States and the Secretary of the Treasury.

Mr. LEYBURN. That is just what I said.

Senator COUZENS. I am asking as to your construction of political pressure, in answer to the question of the chairman, which was whether political pressure was used. I would like to know whether you interpret such pressure as being political.

Mr. LEYBURN. I do not think I would in that case. I think probably what Senator Fletcher meant was whether there were any Senators or politicians in Michigan that asked for leniency.

The CHAIRMAN. No; I did not mean that particularly. I meant, pressure from any source, from higher-ups or anyone else.

Mr. LEYBURN. The only thing I know is general instructions. If you want to construe that as political pressure, it was used on a lot of banks.

As you are aware, a conservator was appointed for the First National Bank of Detroit during the banking holiday, and later on a receiver was appointed, I think in May. The word “conserve means to keep from loss, decay, or injury; supervise and protect; preserve or be a guardian, or to take care of insane persons. After reading the testimony of some of the directors before that lefthanded jury up there, I am of the opinion that a conservator should have been appointed for some of the directors.

President Sweeny testified before the one-man grand jury and some ex-judge in Detroit_I know who he is now; Murfin, I think it was—that the so-called “yellow” confidential sheets of the reports of examination were false reports to the Comptroller. Of course, by the very nature of the confidential reports the bankers could not see them. They have been attached to every copy of a report that goes to the Comptroller of the Currency since 1914. I just glanced through some before I left to come down here. They give the comments of the examiner. Suppose he thought there was a shortage in the bank, he would put it in the confidential section. If he put it out where a man could see it, of course, he would cover the shortage up. He could not put it in the white sheets and have them floating all around. As a matter of fact, every banker that has been in the game very long is acquainted with those yellow sheets.

Mr. SAPERSTEIN. Mr. Mills stated that it developed at Detroit last summer that it had been the practice of the Comptroller of the Currency to have examiners make two reports upon the same examination.” Was there any effort on your part ever to conceal the fact that this practice existed!

Mr. LEYBURN. It has been the custom of the Comptroller's office ever since I can remember. They have the yellow sheets attached to this, and they go to the Federal Reserve bank and the Comptroller.

Mr. SAPERSTEIN. Is that still the practice?

Mr. LEYBURN. Yes; and I think it ought to be. If any of the directors or the governing committee of the First National Bank had just spent a half hour looking through those reports, they would have realized the condition of their bank. Some of them must have looked at them. I claim that the condition of the bank did not change over night; that it was known to the executive officers and

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