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Washington, D.C. The subcommittee met at 10:30 a.m., pursuant to adjournment on yesterday in Room No. 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Gore (substitute for Barkley), Adams (proxy for Costigan), Norbeck, Ìownsend, and Couzens.

Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, chief statistician to the committee.

The CHAIRMAN. The subcommittee will come to order, please. You may proceed, Mr. Pecora.


Mr. PECORA. Mr. Lord-
Mr. LORD. Mr. Pecora, may I speak for a moment?
Mr. PECORA. Yes.

Mr. Lord. I should like to correct an error in my testimony of vesterday afternoon. You asked me this question

Mr. Pecora (interposing). What page of the transcript are you reading from! Mr. LORD. Page 270. Mr. PECORA. All right. Mr. LORD. You asked me this question: Mr. PECORA. In other words, was not this one of the reasons, to enable the iuit banks to make reports which would show no bills payable, despite the fact that there were actually bills payable?

And my answer was “ Yes.” That answer is incorrect. My answer is unqualifiedly no. To the best of my knowledge and belief, based upon official statements furnished to me of the group banks, which statements I had no doubt about, there were no bills payable on December 31, 1930.

Mr. PECORA. The answer as it appears in the stenographic transcript is the answer you made, though, isn't it?

Mr. LORD. That is the answer I made. Mr. Pecora. You are not impeaching the accuracy of the stenographic transcript, are you?

Mr. LORD. I am not impeaching the answer in the transcript, but I did not understand your question fully, and now desire to correct the error in my testimony.

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Mr. PECORA. Now, so long as you have corrected that answer, or rather have changed it

Mr. LORD. Corrected it.
Mr. PECORA. What was that?
Mr. LORD. Corrected it.

Mr. PECORA. You are not correcting the answer as it appears in the stenographic transcript. The answer shown there is the one you gave, as I understand your testimony here now. You are changing it, aren't you?

Mr. Lord. My answer is changed; yes. I am correcting my testimony.

Mr. PECORA. You mean that you are changing your testimony, There is a difference between the two words correcting” and "changing."

Mr. Lord. Well, I gave an incorrect answer, not understanding the question. I desire now to give the correct answer.

Senator CoUZENS. Let us have the question repeated so we may understand how intelligent the witness is in understanding questions propounded to him.

Mr. PECORA. The question appears on page 270 of the stenographic transcript of yesterday's session, as follows:

In other words, was not this one of the reasons, to enable the unit banks to make reports which would show no bills payable, despite the fact that there were actually bills pa yable?

And then the answer to that question given by Mr. Lord on yesterday was “ Yes.”. And he continued with “Might I interject something at this point?

Now that is what we have before us.
Mr. LORD. And I want to change that answer of “ yes

to one of “no."

Mr. PECORA. You want to change that answer so that it will be no. Mr. LORD. I want to answer it now correctly, “ no.”

Mr. PECORA. Now, Mr. Lord, did you examine this stenographic transcript since you testified before the subcommittee on yesterday?

Mr. LORD. As I left the stand yesterday afternoon one of my associates asked me why I had answered that question incorrectly. I stated to him that I did not answer it incorrectly if I understood the question. There was some discussion about it, and then I sent for the transcript and saw that I had answered the question incorrectly.

Mr. PECORA. Well, did you read all the testimony you gave on yesterday on this point?

Mr. LORD. Merely on this particular point.

Mr. PECORA. For instance, did you read the testimony you gave on this point as it appears on page 269 of the stenographic transcript?

Mr. Lord. I read page 269, yes. To what are you now referring?

Mr. PECORA. The testimony that I have in mind appears on page 269 of the stenographic transcript as follows:

Question. At any of those times did any of those unit banks have bills payable which were taken care of temporarily in some fashion so as to make it unnecessary to show those bills payable in published reports of condition?

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And the answer was: Answer. Yes, sir. Question. How was that done, Mr. Lord? Answer. It was done usually by either the Guardian Detroit Bank buying some of their assets and supplying them with cash, or depositing funds in the form of C.D.'s.

Mr. LORD. I might add to that, that the Guardian Detroit Bank carried accounts in some of the units; in additions to C.D.'s, it was carried in the form of a regular checking account.

Mr. PECORA. Have you any desire to change any of the testimony that you gave on yesterday as it now appears on page 269 of the stenographic transcript?

Mr. LORD. None except the addition that in some cases it was not in the form of C.D.'s but in the form of a regular account on the books of the bank.

Senator ADAMS. Do I understand, Mr. Lord—and I was not here yesterday when this testimony was given—that the Group organization, or an organization of some kind, had loaned money to the local bank, evidenced by a bill payable, and that they substituted for the bill payable a C.D., took a C.D. in place of it?

Mr. Lord. They deposited funds to the credit of the local bank, and that bank used those funds to pay its bills payable.

Senator Adams. There was no exchange, then, of the bill payable itself for a C.D.?

Mr. LORD. No. I would say they were two separate transactions.

Mr. PECORA. That was invariably done at about the times when banks expected a call from the Comptroller of the Currency for condition statements, wasn't it?

Mr. LORD. I would not say invariably. From time to time we, throughout the year, carried funds in some of the out-State banks. Some of those funds remained there for many months. I would say it was the exception rather than the rule. Mr. PECORA. What did you say?

Mr. LORD. I would say that the placing of funds for the purpose of local banks liquidating their bills payable was the exception rather than the rule.

Mr. PECORA. Well, now, on yesterday afternoon you gave considerable testimony tending to create the impression, or at least it did in my mind, that this was the universal custom among banks. Do you recall that testimony? You gave considerable testimony along that line yesterday.

Mr. LORD. My recollection is that when I spoke of-or you used the words “universal custom.” I used, as I recall, different words, to the effect that it was the desire and the effort of banks to clean up their bills payable on or about the statement date period.

Mr. Pecora. They cleaned them up by making bona fide payments of the bills payable ?

Mr. LORD. Yes, sir.
Mr. PECORA. In all instances ?
Mr. LORD. I think so. I would say bona fide if they had the funds
with which to pay them, on deposit.

Mr. PECORA. You are quite sure of that, are you?
Mr. LORD. I would say so.

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Mr. PECORA. In all those instances those bills payable were actually paid?

Mr. LORD. So far as I know, Mr. Pecora.

Mr. PECORA. You sought to keep yourself currently informed as to what was going on in the unit banks, did you !

Mr. LORD. Yes. But I had nothing to do with the mechanics of the bookkeeping and the making of entries.

Mr. PECORA. Who had to do with those mechanics, principally?
Mr. Lord. I would say the teller handling-
Mr. Pecora (interrupting). I mean in behalf of the group.

Mr. Lord. I do not understand your question, because it was not a deposit on the group's books.

Mr. PECORA. Wasn't it the group's policy to have those unit banks show no bills payable?

Mr. Lord. So far as possible; yes, sir.

Mr. PECORA. And who handled the mechanics by which that was made possible?

Mr. LORD. I would say that was handled by several different officers, who handled the accounts of banks and bankers.

Mr. PECORA. Cannot you give us the names of the individuals who handled the mechanics of that thing?

Mr. LORD. At one period in the bank's history Colonel Walsh handled banks and bankers. At a later date Mr. D. F. Valley did it.

Mr. PECORA. What was Colonel Walsh's position or office in the group when he handled those mechanics!

Mr. LORD. His office in the group was that of executive vice president. And the bank at one period-well, he was the executive vice president of the bank at one period, and at a later date he was vice president, when he was giving the most of his time to the group.

Mr. PECORA. What was Mr. Valley's office or position in the group when he handled the mechanics?

Mr. LORD. He was not an officer of the group. Mr. Valley was vice president of the bank.

Mr. PECORA. Of which bank?
Mr. LORD. Of the Guardian National Bank of Commerce.

Mr. PECORA. As vice president of the Guardian National Bank did he direct or handle mechanics which enabled all the other unit banks in the group to avoid reporting bills payable ?

Mr. LORD. He might have so far as it related to deposits of the Guardian National Bank of Commerce in any of those units.

Mr. PECORA. Can you describe to the subcommittee the details of those mechanics?

Mr. LORD. If you could cite some instance I could probably describe it better.

Mr. PECORA. Describe the general mechanics, the details of that matter.

Mr. LORD. All the unit banks carried correspondent accounts in Detroit with the Guardian National Bank of Commerce. The Guardian National Bank of Commerce frequently and at different times during the year carried accounts with the other banks or carried C. D.'s with the other banks. A credit would be placed upon our books for the account of the out-State bank, or the out-State bank would show or would use for a deposit a certificate of deposit. That gave that bank the funds with which to liquidate bills payable.

Senator Adams. Mr. Lord, were bills payable due to the Guardian Bank in Detroit? What I mean is, if any of those out-state banks had occasion to borrow money did they invariably borrow it from the parent bank?

Mr. Lord. In some cases they borrowed it from the parent bank, and in some cases they borrowed it from the Federal Reserve bank. Later on in some cases they borrowed from the R.F.C.

Senator ADAMS. And in each of those cases a bill payable would be secured by collateral ?

Mr. LORD. Yes, sir. We never loaned to any unit bank without collateral, to my knowledge.

Senator Adams. Did you exact collateral when you made a deposit? Mr. LORD. No, sir; we did not

Senator Adams (continuing). Which was used to pay a bill payable?

Mr. LORD. Not to my knowledge.

Senator ADAMS. The fact of the matter would be that the unit bank got back its collateral!

Mr. LORD. Yes, or if it was held in safe-keeping for their account it was done with no claim that we had on it.

The CHAIRMAN. The statement of a unit bank would show bills receivable as well as bills payable, in the proper course, wouldn't it?

Mr. LORD. If a unit bank would borrow from the Guardian National Bank of Commerce the unit bank would show bills payable and the Guardian National Bank of Commerce would show that as bills receivable in its loans and discounts.

The CHAIRMAN. Yes; but the statement of the unit bank, the form of the statement is such, that it would show bills payable ?

Mr. LORD. If they owed money it would certainly show bills payable.

The CHAIRMAN. Well, I am speaking now about the form.
Mr. LORD. Yes, sir.
The CHAIRMAN. And it also would show bills receivable.
Mr. LORD. Why?

The CHAIRMAN. The form would show that, wouldn't it? In the statement of the bank they would have to give bills receivable and the cash owed to their other banks.

Mr. LORD. It would show cash as toThe CHAIRMAN (interposing). I mean it would show in their statement.

Mr. Lord. I do not understand your question, Senator Fletcher.

The CHAIRMAN. A bank makes a statement showing bills payable. In that same statement it should show bills receivable, amounts due from other banks.

Mr. Lord. Yes; indeed it would, if there were any.
The CHAIRMAN. If there were any, of course.
Mr. LORD. Yes.

The CHAIRMAN. Now, if a unit bank had on deposit with you certain funds with which it intended to pay bills payable and all that sort of thing, their statement would show that that amount of money was due it, under the head of bills payable, or cash due from other banks, or whatever heading they put it under.

Mr Lord. Yes, if I understand your question.

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