Mr. WILKIN. Well, as we know it in Michigan, Senator Townsend, that was the form in which they owned stock in every one of these units, but they hadn't a thing to do about the management of them.

Mr. PECORA. What do you mean by that? That the officers of the Group Co., and the board of directors of the Group Co., had nothing to say about the management of the unit banks whose capital stock the Group Co. owned?

Mr. WILKIN. It was so set up; yes, sir.

: Mr. PECORA. I do not quite understand when you say "it was so set up."

Mr. WILKIN. I think the bylaws of the group covered that.

Mr. PECORA. Apart from the bylaws what were the actual activities of group officers with respect to supervising and directing the activities or policies of the various banking units of the group? Mr. WILKIN. Shall I tell you my particular end of it?

Mr. PECORA. Tell me what you know about it.

Mr. WILKIN. All right.

Senator COUZENS. Mr. Wilkin, sit back so you can talk into the microphone, so these newspaper men around here may hear you. Mr. WILKIN. All right.

Mr. PECORA. Now go ahead and answer.

Mr. WILKIN. I came from Detroit to Flint in May of 1932. We had liquidated that bank down to a point where-well, we had taken loans from something like 14 million dollars down to 3 million dollars, where the liquidation had become very slow. So I came into the group office as vice president at that time. The big question. with every banker, and this follows in Detroit, I was associated with was the question of more liquidity and more liquidation. And I worked out what was known as a standardization loan plan for the unit banks to adopt if they saw fit. Together with Mr. Kanzler I went to Kalamazoo and Battle Creek. We went into this plan with them, with their directors, and they wanted it; and I was later elected to those boards. However, we put the plan up to Grand Rapids, and we put it up to Saginaw, and they just did not want it. They wouldn't have it. And that is why I say we did not have the control, or the group bank does not have control to operate those units.

· Mr. PECORA. What greater measure of control could the Group Co. have had, what more effective form of control could they have had than their ownership of practically all of the capital stock of the various unit banks?

Mr. WILKIN. This was perhaps hearsay, but it is my understanding that the laws of Michigan when this group was organized would not permit them to operate those units; that it was the distinct understanding when the group was organized that they must own but not operate.

Mr. PECORA. Will you say that that was the cause of some statutory provision in Michigan?

Mr. WILKIN. Well, I am not familiar with it, but that is my belief, Mr. Pecora.

Mr. PECORA. Can you refer me to any such statutory provision? Mr. WILKIN. No. But I think Mr. Lord might be able to explain that. Now, I am coming back to Mr. Lord's testimony given before this very committee, I think, as to perhaps 2 years ago.

Mr. PECORA. Didn't the Group Co. through its officers from time to time make changes in the personnel of the boards of directors of the various unit banks?

Mr. WILKIN. I do not know of any instance where they made changes in the boards of directors. I do know this, that I was asked to make some changes in officers by the banks themselves, and I was a group officer.

Mr. PECORA. Do you know of any instances where changes were made in the personnel of officers of unit banks by the Group Co.? Mr. WILKIN. In conjunction with the local board; yes.

Mr. PECORA. You know of cases, don't you, where the Group Co. fixed its own dividend requirements and then made what have been called here suggestions to the various unit banks to declare dividends in order to enable the Group Co. to meet its own dividend requirements?

Mr. WILKIN. Of my own knowledge I do not know that, Mr. Pecora.

Mr. PECORA. You do not know that?

Mr. WILKIN. No, sir; I know that when I declared dividends it was done after many consultations with the group officers and our directors.

Mr. PECORA. Have you heard testimony introduced before this committee showing that the Group Co. first adopted its own dividend requirements and then called upon the unit banks to support those requirements in their dividend declarations?

Mr. WILKIN. Yes: I think I do.

Mr. PECORA. Well, that testimony, much of which was documentary, is credible, isn't it?

Mr. WILKIN. Well, if you are asking for me to testify as to what I have read, that is different. I thought you wanted my own personal slant on the matter.

Mr. PECORA. You said you had never heard of it.

Mr. WILKIN. I said of my own knowledge I did not know that. In other words, in my own contacts I did not run into that situation. The CHAIRMAN. Wouldn't you, as vice president of the group, exercise the right to actually do that sort of thing?

Mr. WILKIN. What is that, Mr. Chairman?

The CHAIRMAN. To send to the unit banks from time to time your own investigators and examiners to advise with their boards of directors respecting the affairs of the institutions, and to give them some drections and instructions.

Mr. WILKIN. Senator Fletcher, when I became vice president of the group, the examining force had all been distributed. That is, they had all taken positions in the units. There was no more an examining force when I came in there.

The CHAIRMAN. Had that been done before by others?

Mr. WILKIN. Yes; as to the units I worked in, group examiners had examined my bank many times.

Mr. PECORA. What other defects or weaknesses in the group banking system can you point to in further answer to Senator Townsend's qustion?

Mr. WILKIN. Well, I think, for instance, the officers in most cases of the group were also officers of the unit banks. And that is where

the alliance was, and it is always natural, with respect to the unit banks. However, we were looking out for it, I think, more than they were, for the group itself.

Mr. PECORA. I just want to ask you one more question about the report of the condition of the Flint Bank as of December 31, 1931, which you signed and verified on January 8, 1932. I want to read to you the following from committee exhibit 103, which is a photostatic copy of that report. I am going to read the verified statement that you made over your signature and upon oath in connection with this report:

I, H. R. Wilkin, executive vice president and cashier of the above-named bank, do solemnly swear that the above statement is true, and that the schedules attached hereto and those on the back of this report, fully and correctly represent the true state of the several matters therein contained and set forth, to the best of my knowledge and belief.

That is signed by you and sworn to by you before a notarial officer of the State of Michigan.

Mr. WILKIN. Yes, sir.

Mr. PECORA. Do you think that the taking of that oath was a mere routine thing, Mr. Wilkin?

Mr. WILKIN. I can only say that it is so far as the executive officers of the bank are concerned, as far as I know.

Mr. PECORA. You can only tell so far as you personally view these statements?

Mr. WILKIN. That is true. However, I do not believe-and I have been in this business a long time-that any signing officer checks the detail on those statements. It may be that they do, but it is very doubtful to me.

Mr. PECORA. In this case, as the signing officer, you function not only as executive vice president, but also as cashier?

Mr. WILKIN. Yes, sir.

Mr. PECORA. Would you not, as cashier, have a knowledge that was something more than that which would be based entirely upon hearsay concerning the condition of the bank, and concerning particularly this item of $600,000 represented by this certificate of deposit?

Mr. WILKIN. I am not trying to alibi your question, Mr. Pecora, but in this particular bank I would answer that no; for the reason that every officer in this bank was wiped out when I went there. We did not have the men to make officers, and the reason I was cashier of that bank was simply because the president of the bank would not allow anyone else to have the title. It was not because I was doing the cashier's work, because I certainly had not the time. to do it, and I think it was understood by everyone concerned that I was not doing the cashier's work.

Mr. PECORA. In this particular instance, Mr. Wilkin, it appears from documentary evidence that you yourself called to our attention when you were on the stand last week, that on January 3, 1932, you knew all about the nonclearance of this $600,000 certificate of deposit, and the documentary evidence I refer to is the document. that you said had been obtained by your secretary from an officeboy of the Detroit bank. Do you remember?

Mr. WILKIN. Yes, sir.

Mr. PECORA. That memorandum or document, which was read in evidence, is dated January 3, 1932, and starts off by saying [reading]:

Mr. H. R. Wilkin telephoned today regarding a deposit of $600,000 which we were supposed to make with him over the week-end in the form of a certificate of deposit. I discussed the matter with Mr. B. K. Patterson of the Guardian Detroit Union Group, Inc., and it seems that due to the confusion incidental to the consolidating of the Guardian Detroit Bank and the National Bank of Commerce the instructions which he forwarded to us were mislaid. Due, however, to the fact that it was to be a transaction of a few days' duration, it was decided that rather than going to the trouble of making out a certificate of deposit and adjusting the entries on our books, the transaction would be better concluded by the Union Industrial Trust & Savings Bank of Flint making the necessary entries on their books.

Those necessary entries were made, were they not?

Mr. WILKIN. Yes, sir.

Mr. PECORA. And the entries show the clearance of the certificate of deposit as of January 2, 1932?

Mr. WILKIN. Yes, sir.

Mr. PECORA. I think that is all.

The CHAIRMAN. You may be excused.

Mr. PECORA. Mr. Lord.

TESTIMONY OF ROBERT 0. LORD-Resumed

The CHAIRMAN. Mr. Lord has been sworn?

Mr. PECORA. Yes, sir. Mr. Lord, I want to ask you a few questions concerning the merger or consolidation which was effected on January 30, 1930, between the Guardian Detroit Bank and the Bank of Detroit.

Mr. LORD. Yes, sir.

Mr. PECORA. You are familiar with the consolidation or merger? Mr. LORD. In general; yes, sir.

Mr. PECORA. At that time were you connected with the Guardian Detroit Bank?

Mr. LORD. I was president of the Guardian Detroit Bank.

Mr. PECORA. And upon the consolidation, the consolidated bank was called the Guardian National Bank of Commerce!

Mr. LORD. No, sir. It was the Guardian Detroit Bank.

Mr. PECORA. It was afterward merged with the National Bank of Commerce, and became the Guardian National Bank of Commerce.

Mr. LORD. Yes, sir.

Mr. PECORA. You continued as president of the Guardian Detroit Bank on and after this merger of June 30, 1930?

Mr. LORD. Yes, sir.

Mr. PECORA. What was the capital of the Guardian Detroit Bank immediately prior to that merger?

Mr. LORD. The capital was $5,000,000.

Mr. PECORA. What, at the same time, was the capital of the Bank of Detroit, immediately prior to the merger?

Mr. LORD. $4,000,000.

Mr. PECORA. What was the surplus of the Guardian Detroit Bank immediately prior to the merger?

Mr. LORD. $3,000,000.

Mr. PECORA. What was the surplus of the Bank of Detroit immediately prior to the merger?

Mr. LORD. $1,250,000.

Mr. PECORA. Was it not $1,274,510?

Mr. LORD. I think not. I have here the 1929 report, for the close of the year, which shows $1,250,000. I do not think there was any other amount.

Mr. PECORA. After the merger, what was the capital of the consolidated institution?

Mr. LORD. My recollection is $5,000,000 capital and $6,000,000 surplus.

Mr. PECORA. Immediately prior to the merger, the combined capital of the two banks was $9,000,000, and the combined surplus, according to your figures, was $4,250,000; is that right?

Mr. LORD. Yes, sir.

Mr. PECORA. A total of $13,250,000. After the merger, the capital of the consolidated institution was reduced to $5,000,000, and the surplus was increased to $6,000,000?

Mr. LORD. Yes, sir.

Mr. PECORA. Making a total capital and surplus for the consolidated institution of $11,000,000, as against a combined capital and surplus for the two constituent banks immediately prior to the merger, of $13,250,000?

Mr. LORD. Yes, sir.

Mr. PECORA. When the capital of the two merged institutions was reduced from a combination of $9,000,000 to $5,000,000, what was done with the $4,000,000 that was removed?

Mr. LORD. The surplus of the Guardian Detroit Bank after the consolidation was 134 millions more than the combined surplus of the two constituent institutions. That takes care of a million and three-quarters. There was declared, out of the Bank of Detroit, in a liquidating dividend to the Group Co., $2,500,000, as I recall the figure, in the form of United States Government securities.

Mr. PECORA. That is what I was coming to. As a result of this merger, there was a reduction of the combined capital and surplus of the two banks of approximately 22 million dollars, was there not?

Mr. LORD. Yes, sir.

Mr. PECORA. What disposition was made of that?

Mr. LORD. It went into the Group Co.

Mr. PECORA. Paid to the Group Co.?

Mr. LORD. Yes, sir.

Mr. PECORA. In the form of United States bonds?
Mr. LORD. Yes, sir.

Mr. PECORA. Why was that done, Mr. Lord?

Mr. LORD. The principal reason was that the combined capital was greater than necessary for the deposits that were in the combined institutions, and furthermore, it saved the new institution $75,000 a year in taxes.

Mr. PECORA. It also took out of the new institution the sum of $2,500,000 of capital funds that otherwise would have been available for depositors, did it not?

Mr. LORD. It did, with the full approval of the banking commissioner.