Senator COUZENS. During previous hearings there were introduced into the record certain testimony and certain certificates of deposit and records with respect to deposits made in the Union Industrial Bank by the Guardian Detroit Bank on December 31, 1931, which had the effect of wiping out bills payable. Then on January 2, 1932, 2 days afterward, those C.D.'s were returned and deposit withdrawn. The effect was to wipe out any bills payable in the Union Industrial Bank; but after the December 31, 1931, statement had been published bills payable again appeared. Among those put into the record at that time-and I am trusting somewhat to my memory: I may not be exactly accurate-there was a C.D. for $600.000. The testimony that was heretofore introduced referred to December 31. 1931. These certificates of deposit which I now hold in my hand are for $1,200,000 deposited in the Union Industrial Bank on Decem ber 31, 1931, and $600,000 deposited in the Union Industrial Bank by the Highland Park State Bank, December 31, 1930, which had the effect, as the records show, of wiping out $1,800,000 of bills payable as of December 31, 1930; and these were shortly afterward-sometime between then and the 15th of January-withdrawn and the bills payable were reinstated in the Union Industrial Bank.

I just want to make that a matter of record; and I would like to offer in evidence, Mr. Chairman, these two certificates of deposit. The CHAIRMAN. Let them be admitted.

(Certificate of deposit dated Dec. 31, 1930, in the amount of $600,000, was received in evidence and marked "Committee Exhibit No. 175, Feb. 8, 1934.")

(Certificate of deposit dated Dec. 31, 1930, in the amount of $1,200,000, was received in evidence and marked "Committee Exhibit No. 176, Feb. 8, 1934.")

Senator COUZENS. Mr. Chairman, I would like to offer for the record general journal ledger statement of condition of the Union Industrial Trust & Savings Bank of Flint as of December 30, 1930, showing bills payable of $1,800,000, and as of December 31, 1930, no bills payable, and as of January 2, 1931, the reinstatement of $1,000,000 of bills payable. I would like to have them just marked for identification.

The CHAIRMAN. That may be done.

(Tabulated statement headed "Union Industrial Bank, Flint, Mich.", dated Dec. 30, 1930, was marked for identification "Committee Exhibit No. 177, Feb. 8, 1934.")

(Tabulated statement headed "Union Industrial Bank, Flint, Mich.", dated Dec. 31, 1930, was marked for identification "Committee Exhibit No. 178, Feb. 8, 1934.")

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(Tabulated statement headed "Union Industrial Bank, Flint, Mich.", dated Jan. 2, 1931, was marked for identification "Committee Exhibit No. 179, Feb. 8, 1934.")

Mr. WILSON. Mr. Stair indicated in his testimony that I became a vice president of the bank at the time of its consolidation. I wish to state that I was never an officer of any bank in Detroit at any time. Senator COUZENS. Your official duties were all confined to the holding company?

Mr. WILSON. Yes, sir.

Mr. SAPERSTEIN. Of which you were vice president?

Mr. WILSON. Yes. Mr. Stair also indicated, in regard to the reduction of expenses of the Detroit Bankers Co.-I forget the figure, but it was rather a substantial amount at the time Mr. Ballantyne and myself resigned-I believe the record will show that while there may have been a substantial reduction in the expenses of the Detroit Bankers Co., I believe a checking would indicate that that was only a transfer to the First National Bank and that the expenses of the First National Bank increased more or less.

Senator COUZENS. In the same amount that the Detroit Bankers Co. was reduced?

Mr. WILSON. Approximately the same amount.

That is all I have on that. I just wanted to make that observation. Senator COUZENS. Then you do not agree with Mr. Stair that Mr. Ballantyne was not active?

Mr. WILSON. That Mr. Ballantyne was not active?

Senator COUZENS. I understood he was not well and was therefore not active and that was the reason his resignation was asked for. Mr. WILSON. No; I do not agree with that.

There was some reference also made by Mr. Stair that my examiners had examined two Redford banks which were bought by the First National Bank. That is not a statement of fact. We never examined either of those Redford banks.

Mr. SAPERSTEIN. Was there any examination made?

Mr. WILSON. An examination was made by Mr. Jacobs who was vice president of the First National Bank at that time, and upon his findings it was recommended that the First National Bank of Detroit purchase, as I recollect, the assets of those two banks and assume the deposit liabilities and probably other liabilities. I have not all the facts, but I wanted to correct the statement that we ever approved of that. We did not. The only approval I know of was as a member of the executive committee of the First National Bank at the time the statement was brought in regarding the taking over of those banks and it was presented to the committee and recommended that it be done, I believe the records would show that I voted in the affirmative.

Mr. SAPERSTEIN. Was the purchase of those Redford banks a wise one?

Mr. WILSON. It was not. I think members of the executive committee believed that if it was recommended that we take them over they would be taken over with the necessary and proper approval of the Comptroller of the Currency. That was not obtained. Mr. SAPERSTEIN. You mean that the approval of the Comptroller was never obtained for taking over these Redford banks? Mr. WILSON. That is my understanding,

I have one other matter. There was quite a good deal of discussion in regard to the twelve trustees of the Detroit Bankers Co. wherein they owned $100 worth of stock apiece. I would like to explain as briefly as possible what I know about those trustees'

shares.

Mr. SAPERSTEIN. Will you give us that explanation?

Mr. WILSON. Mr. Haass realized on the formation of the Detroit Bankers Co. that it was a large job. He wanted to be asolutely in

control throughout that period. He did not want any interference from any directors.

Senator COUZENS. Did he mean to accomplish that by voting control?

Mr. WILSON. He did; and you will find in those 12 names a voting control by Mr. Haass if he had wished it in case of an emergency. Senator COUZENS. You mean the committee to gather from that that Mr. Haass would control the other 11 votes?

Mr. WILSON. That he would control sufficient votes to have a majority; he would have had a majority of the votes. That is the explanation I have, and I believe it is a sound one, because he was embarking upon quite a journey with his bank, with a lot of directors who might have different opinions in regard to consolidations, and what not.

Senator COUZENS. How was the change brought about so that the board of directors of the Detroit Bankers Co. was increased by a considerable number later on?

Mr. WILSON. Those 12 trustees were later increased to 20, and within a month or two later to 21. That was brought about by the desire of some later directors to become directors of the Detroit Bankers Co. They wanted to get in.

Senator COUZENS. What became of the 12 trustees who were there at the organization of the Detroit Bankers Co.!

Mr. WILSON. As I recollect, they continued and became a part of the 20.

Senator COUZENS. And those in addition to the 12 were as much a part of the trustees' agreement as the original 12?

Mr. WILSON. Yes; and finally the 21.

Senator COUZENS. And Mr. Haass was able to control a majority of the 21 the same as he was able to control a majority of the 12! Mr. WILSON. At the time they were selected I think they were selected carefully so that the control could be carried through.

In regard to the 17-percent dividend which was declared by the Detroit Bankers Co., and which has been discussed, I would like to offer my explanation in regard to that.

Mr. SAPERSTEIN. Will you do so?

Mr. WILSON. The 17-percent dividend was fixed, as I recall it, in this manner. The Peninsular State Bank stockholders desired to receive approximately the same returns upon Detroit Bankers Co stock in the way of dividends as they had been receiving upon dends on stock in the Peninsular State Bank.

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Senator COUZENS. And that went through with all of the organi zations and became a part of the Detroit Bankers Co.!

Mr. WILSON. It had to go through the other major banking units in order to carry through the requirements as desired by the directors and officers of the Peninsular State Bank.

Mr. SAPERSTEIN. Is it not a fact, Mr. Wilson, that the 17-percent rate which was adopted by the Detroit Bankers Co. at its inception represented a step up over the 5-year average dividend rate of these five constituent banks, and that to maintain that 17-percent dividend rate it would have been necessary for those five constituent banks to step up their earnings as well?

Mr. WILSON. The Peninsular State Bank dividend was not stepped up; it was reduced from $350,000 to $348,500. The Detroit Trust

Co. was stepped up very materially. That dividend rate was $480,000 a year, and the new dividend which would be necessary for them to pay was $1,020,000. It was more than double. But Mr. Browning took a position with Mr. Haass, who canvassed each one of those bank presidents whether they could carry through with that Mr. Browning took the very definite position that the Trust Co. should carry through and pay that dividend. So he was committing his institution to pay out in excess of 60 percent of the earnings and the earnings were knocked down over a period of 32 or 4 years. The Bank of Michigan dividends were stepped up probably, as I recall, from $600,000 to $637,500. That was about a 5-percent step-up. Mr. Livingstone thought that his bank could earn around $900,000 a year based upon previous earnings and economies which he proposed to put through.

The First National Bank step-up was about a 10-percent step-upI forget the exact figure. They had been paying, roughly, about a million dollars, and I think it was stepped up to about $1,100,000. It was about a 10-percent step-up. Mr. Douglas thought he could carry through and effect economies, and his earnings had been estimated at about 12 to 2 million dollars at that time.

The real step-up came in the Peoples Wayne County Bank, which was a step-up to $2,500,000; and the dividend rate as fixed at that time was fixed for that purpose, but from later events it was too high. and it should have been reduced before it was reduced.

I would like to make this one statement, that I was more or less responsible for what was done in these outlying banks. We started to combat the payment of dividends in those outlying banks in 1931, and the only banks that carried through, with one exception, were those who have today paid their depositors 100 cents on the dollar. My records here indicate that even in June 1931 the dividend at River Rouge was discontinued. The dividend at Ecorse was discontinued entirely in June 1931 because they were accumulating undesirable assets. You can go through the records that I have available-and I am perfectly willing to submit them to you-in regard to the dividend policies of the outlying banks. The banks were in this position, that the Detroit Bankers Co. had already paid a sufficient amount of money to continue reasonable dividends without asking the outlying banks for any dividends for a period of a year or a year and a half. It had already been accumulated in a very short time.

Mr. SAPERSTEIN. Mr. Wilson, do you think that the indebtedness of $7,200,000 which the Detroit Bankers Co. assumed at the time of the acquisition of these outlying banks was a serious contributing cause to the difficulties in which the Detroit Bankers Co. found itself? Mr. WILSON. There is no question whatsoever about that. It was a contributing factor.

Mr. SAPERSTEIN. When you say it was a contributing factor do you mean it was the principal cause of the difficulties of the group company?

Mr. WILSON. That is correct.

Mr. SAPERSTEIN. Just before you read your suggestions I would like to read into the record from the examiner's report of condition of the First National Bank of Detroit as of September 25, 1931, the examiner's comment with regard to those Redford banks which you

mentioned a moment or two ago. He says, under the caption of Criticism, Redford Banks (reading):

The action of this bank in taking over the assets of the two Redford State banks without first submitting them to this office for appraisal is subject to severe criticism. You will find attached to this report schedules and ap praisals made of the assets held in this bank under agreements dated May 29, 1931. These agreements provide for a 5-year program under which liquidation is to be made. The assets as a whole are of a highly objectionable character and nonconforming as to admissibility, notwithstanding the fact that the capital structure of the two banks offer a protection through the shareholders' equity of $740,596.96, and a guarantee bond signed by the directors of one of the banks for $25,000. Substantial loss in cases of this kind will probably be serious. The elimination of those assets which are not conforming to the national banking laws or represent questionable values under no circumstances could be permitted to run for the duration of 5 years. Shrould an examination have been made by your department prior to the acquisition of these assets, it would have been impossible to find sufficient acceptable items to make the take-over possible. The responsibility of the directors with respect to the matter is direct.

Do you agree with those conclusions of the bank examiner, Mr. Wilson?

Mr. WILSON. I might say that I do not find any fault with it, unless you just want me to answer in the affirmative. I believe the examiner is substantially correct in his deduction.

I have one statement which I would like to make before offering a few suggestions, and I will hurry through with those.

In regard to the inability of these banks to reopen following the Governor's proclamation and the President's proclamation, I have jotted down a few underlying causes. I do not believe there is any one contributing factor; I think there are many cumulative factors that brought about these conditions. I have them listed very concisely.

No. 1 is excessive and destructive competition. That has been proven all the way through.

Senator COUZENS. Between the Guardian Group and the Detroit Bankers Group?

Mr. WILSON. Not only the groups but between the banks before the formation of the groups.

The CHAIRMAN. You said excessive and destructive competition! Mr. WILSON. Yes. No. 2 is lack of confidence brought about by many causes, partly due to the listing of the bank stock on the stock exchange and the falling of those quotations.

No. 3, the borrowings of directors and officers and the making of slow capital loans partly predicated upon stock of the holding

company.

No. 4, affiliates and security companies.

No. 5, the failure of the American State Bank.

No. 6, the economic depression.

No. 7, directors and the governing committee.

Senator COUZENS. What do you mean by that? You say they were a contributing cause for the failure of the banks to open. Will you

elaborate on that?

Mr. WILSON. There was too much interference in the so-called "select steering committee."

Senator COUZENS. Who made up that committee?

Mr. WILSON. They were self-selected. That is what I believe.