Mr. SAPERSTEIN, Mr. Awalt, in the course of your ordinary danes as Deputy Comptroller of the Currency or Acting Com perver of the Currency, would reports of examinations made by fieli esaminers be called to your attention!

Mr. AWALT. Well, I tried to explain that earlier in my testimony. Mr. SAPERSTEIN. You said that you had a staff of examiners Mr. AWALT (interposing). That is right.

Mr. SAPERSTEIN (continuing). In your office, who would examine those reports!

Mr. AwALT. Yes. If it were a situation such as this situation. for instance, they would have gone to Mr. Proctor, in regard to that particular thing, and he would have taken that matter up with the Comptroller if he thought it was a matter that he should call to his attention.

Mr. SAPERSTEIN. Those matters which the examiners in the Comp troller's office considered desirable to refer to a Deputy Comptroller's attention, would be called to his attention?

Mr. AWALT. Yes, sir.

The CHAIRMAN. Mr. Awalt, I believe you had not finished with the Detroit situation. You said you would get to certain subjects later.

Mr. AWALT. I tried to cover that in this letter. You were asking about land values and mortgages and things of that nature, I believe. The CHAIRMAN. All right.

Senator COUZENS. Mr. Awalt, was any policy adopted by the Comptroller's office with respect to valuation of real estate and mortgages and things of that kind?

Mr. AWALT. Only the instructions I have read here.

Senator COUZENS. And that did not pertain only to bonds, as I understood it?

Mr. AwALT. Oh, no. This is the letter that went out. up a letter.]

Senator COUZENS. That was in December, was it?

[Holding

Mr. AWALT. No; in October. It pertained to other things, too. That is, it was

Senator COUZENS (interposing). To be lenient generally.
Mr. AWALT. Consistent with public policy.

Senator COUZENS. That is pretty hard to define, public policy. The CHAIRMAN. Mr. Awalt, how could an examiner, if there were no really fixed values, estimate values of real estate or mortgages! How could he appraise them?

Mr. AWALT. That was the trouble. It was hard to estimate values. And for that reason it was very difficult to say that a bank was absolutely insolvent. As you know, it is so easy to close an institution, but I think there is a very serious duty on the part of the Comptroller of the Currency not to wreck a community, not to close a bank unless he is satisfied it is irrevocably insolvent. And I think that has been more or less the opinion of the courts, to that extent. And I might read that, if you would like to hear it, Senator Fletcher.

Please do so.

The CHAIRMAN. All right. Mr. AWALT. For instance, in the case of Fidelity & Deposit CvN. Kelso State Bank, 287 Fed. 828, the district court said, in part:

nay even be said that the tenor of the decisions, and the theory upon they proceed, is such that the directors, officers, and/or Comptroller of urrency should not suspend a bank's operations so long as there is a hope pectation that it may work its way out of its difficulties, notwithstanding ct that it is actually insolvent at the time.

ad also in the Supreme Court case of Eastern v. Iowa, 108 U.S. the court said:

ether a bank is or is not actually insolvent may be often a question hard swer. There may be good reason to believe that even though temporarily rrassed, a bank's affairs may take a fortunate turn, that some of the s that cannot be at once converted into money may be of a character to Ey the expectation that if actual and open insolvency be avoided, they be ultimately collectible, and thus the ruin of the bank and its creditors -nted. In such case the provisions of the Federal statute would permit Comptroller to withhold the closing of the bank in order to give opportunity cape final insolvency. It would seem that such exercise of discretion on part of the Comptroller would in many cases be better for all concerned the unyielding course of action prescribed by the State law. he CHAIRMAN. Well, you would consider some of the history ne bank, wouldn't you? For instance, if a bank has been losing ey year after year for a period of years, and getting down to re its capital is almost exhausted, even though it was meeting bills payable, and there was no run on it, yet the fact that it been losing money constantly would have some weight, wouldn't n determining whether it ought to go on or not?

[r. AwALT. Yes. But, of course, the Comptroller would have no nority to close a bank unless he felt it was really insolvent. And o not think, while the Comptroller has that power and it is a y mighty power, that he would exercise it arbitrarily or without discretion in view of public policy.

Ir. SAPERSTEIN. After you had this conversation with Mr. Ley-n in the latter part of January 1933, what did you do, if anyng, in regard to the Detroit situation?

Ir. AwALT. There was nothing to do in regard to the Detroit sit-ion except to hope that Mr. Leyburn and the R.F.C. could work - a program to save it.

Mr. SAPERSTEIN. Did you keep currently posted as to the course events?

Mr. AwALT. In a general way; yes.

Mr. SAPERSTEIN. Did you attend the R.F.C. meetings?

Mr. AwALT. I did not attend any R.F.C. meeting until the 13th February. Do you want that?

Senator COUZENS. Do you know what official of the R.F.C. adsed you orally that the two national banks in Detroit were in_vent?

Mr. AWALT. Senator Couzens, I could not say. I think I got it, obably, in the board meeting over there in the general discussion. Senator COUZENS. That would be before the closing?

Mr. AwALT. No; I think it was after the closing. It was after the osing, and there was some discussion of some plans for reopening. might have been Mr. McKee but am not certain about that.

Mr. SAPERSTEIN. Mr. Awalt, you were present at the R.F.C. meetg on February 13 during the afternoon and evening when messages pt coming in continually from Detroit, were you not?

Mr. AwALT. Yes. As Acting Comptroller of the Currency I had O power to sit on the Federal Reserve Board. However, I was

called into the meeting of the Federal Reserve Board in the afternoon of February 13, and told that they considered it a very serious situation, and I listened to various discussions as to what could te done, or might be done. They adjourned from there, the entire Board, to the R.F.C. Board rooms, and from then on, as testified by Mr. Ballantine, the Board was in session until the very early hours of the next day.

Mr. SAPERSTEIN. What was your personal attitude toward the proposed moratorium or Governor's proclamation?

Mr. AWALT. Do you mean in Michigan?

Mr. SAPERSTEIN. Yes.

Mr. AWALT. Of course, I had no say in the matter, but my attitude was one of opposition to such a holiday, because it was my opinion that the holiday could not be localized, but that it would extend to other States, and that it would mean a general crash.

Mr. SAPERSTEIN. Did you give expression to that opposition at the meeting?

Mr. AWALT. I did.

Mr. SAPERSTEIN. Did you offer any substitute for the moratorium! Mr. AWALT. Yes. I realized that we could not open those banks with the advice that was before us, as to the temper of the depositors, and that some depositors might pull their money out of the barks to the detriment of others; and I suggested that we might work out some method of clearing-house certificates, probably not on the basis of what are known as the usual clearing-house certificates of 100 percent, but on a proportion of the assets that might be placed with a trustee, and, say, that one bank would put up 40 percent, and another bank 30 percent, and so on, and issue those clearing-house certificates to the people, and thus avoid the situation confronting us.

Senator COUZENS. Wouldn't that of itself have been an act of insolvency?

Mr. AWALT. It might have been, Senator Couzens; I don't know. I have never considered that. It was done, as you know, by all the banks in the country in the panic of 1907, and at this particular time we were looking to a way to save the situation. That was merely my opinion.

I think Mr. Miller, of the Federal Reserve Board, was in sympathy with it, and probably Governor Harrison, of the Federal Reserve Bank of New York. But Mr. Ballantine explained that the situa tion out there was such that we did not have time to offer anything of that sort, and so forth.

The CHAIRMAN. In such a case, where a bank is authorized to issue clearing-house certificates, may they continue to receive deposits?

Mr. AWALT. Sir?

The CHAIRMAN. In that case would the bank continue to receive deposits?

Mr. AWALT. Only as a trust proposition.

The CHAIRMAN. They would start new deposits?

Mr. AWALT. Yes, sir.

Mr. SAPERSTEIN. Mr. Awalt, one of the witnesses who testified before this committee and who was formerly a chief national bank examiner, stated that in his opinion a chief national bank examiner

nothing but a rubber stamp. Will you tell us what the funcof a chief national bank examiner is?

. AWALT. The function of a chief national bank examiner, sir, tainly not to be a rubber stamp. And I think Mr. Leyburn hown by his testimony, of what he has done, and what he did that he was not a rubber stamp. Nor should any chief na1 bank examiner be a rubber stamp, and if he is he should not chief national bank examiner.

r. SAPERSTEIN. If a chief national bank examiner annexes his ture to a report prepared by one of the field examiners, is it ned by your office that he has read the report and that he es with its findings?

r. AwALT. It is my assumption that he does.

r. SAPERSTEIN. Can you tell us what the origin of these so-called ow sheets is?

r. AwALT. I can, from my understanding of the situation. r. SAPERSTEIN. All right.

r. AWALT. From people who have been in the office for years

years.

r. SAPERSTEIN. All right.

r. AwALT. The Comptroller of the Currency has examiners to nine a bank for the purpose of determining the condition of bank for the information of the Comptroller of the Currency. other words, they examine the bank for him, to find out what situation is. Now, prior to 1916 reports of examinations were in direct to the Comptroller, and no copy was sent to the bank. e office of the Comptroller wrote lengthy letters to banks, but k officials and directors did not see the reports. It was detered, so I understand, in 1916 that they should send a copy of the ort to the bank examined, in order that it would be, as was stated, h helpful to the bank and to the Comptroller's office in getting tters straightened out. It might say that before that time when ank was examined and a report was sent in, I am so advised at st, there was always a letter accompanying the report from the miner. But when this new method was adopted someone conved the idea that instead of having a letter attached to the rert, that they have a section in the bank's report which would be, effect, a letter from the examiner to the Comptroller, giving the mptroller the examiner's reactions as to management and various her things; that they have never been told to confine it to any rticular thing, but have more or less let the examiner express his inion at will. And that was the origin, as I understand it, of the

port.

Mr. SAPERSTEIN. So that as I understand you, these yellow sheets, confidential memoranda, were merely an extension of the practice ich had theretofore prevailed of having the chief national bank aminer accompany his report with a letter in which he stated his

eas.

Mr. AWALT. That the examiner would accompany his report with letter.

Mr. SAPERSTEIN. Well, that is what I mean.

Mr. AWALT. That is my understanding gained from people in the fice whom I have asked about it.

Senator COUZENS. What authority has a chief national bank examiner to tell banks whether they shall or shall not pay dividends or what they must or must not charge off? In other words, is there any power under the statute or the regulations of the Comptroller's office, as to what he can do, or what orders he can give to a bank!

Mr. AWALT. His order not to pay a dividend, Senator Couzens, has no legal effect. A bank may disregard it.

Senator COUZENS. Has he the power to say that this or that should be charged off?

Mr. AWALT. Well, the examiner who makes an examination has the power to set up losses.

Senator COUZENS. And to compel the charging off of them?

Mr. AWALT. He can only compel it in the sense of saying to the bank: Here are losses, and they must be charged off. But he cannot make them do it.

Senator COUZENS. Can the Comptroller's office make them do it! Mr. AWALT. No; the Comptroller cannot make them do it. But now, Senator Couzens, since this committee so wisely provided seetion 30 in the Banking Act of 1933, if the officers or directors of banks do not follow the recommendations of the Comptroller's office, or if they have bad practices, or violate the technical provisions of the law. we can cite either the officers or the directors to the Federal Reserve Board and have them removed. That is a power that the Comptroller of the Currency has been asking for since 1895, but the Congress never gave it to us. You left us in the situation of officiating at the birth of a bank, and at its death, but as a doctor in between with no power to make the patient take medicine. All we could do was to suggest, and, more or less, you might say, wield the "big stick ". But if they did not want to do it you could not make them do it, and the only thing you could do was to sue them for forfeiture of charter. And if you did that it closed the bank. That was no cure but killed the patient.

Mr. SAPERSTEIN. Mr. Awalt, have you any suggestions for addi tional legislation?

Mr. AWALT. Well, I cannot speak for the administration on legislation.

The CHAIRMAN. What do you think about the possibility of getting better bank examiners and improving the service by placing them under the Civil Service?

Mr. AwALT. My personal opinion is that we would get worse bank examiners.

Senator COUZENS. You prefer to have them politically appointed. do you?

Mr. AWALT. No, sir.

Senator COUZENS. What is the difference, then? How would you get them if they were not politically appointed unless you put them under the civil service?

Mr. AWALT. Senator Couzens, I have always been opposed to any politics in banking. I think it has no place in banking. I cannot tell you the politics of the chief examiners. They have been chief examiners, some of them, for years. I cannot tell you the politics of any of the examiners. I do not know it, and I do not care what it is, and it should play no part in the matter.