capital and surplus. It can loan me or my corporation $10,000. Now, you want it so if I deposit these Government obligations I can also get $10,000 more, not to exceed 10 per cent of their capital and surplus.

Mr. LONGWORTH. Is that what that means?

Mr. LEFFINGWELL. Except subject to such rules and regulations and limitations as may be established from time to time by the Comptroller of the Currency with the approval of the Secretary of the Treasury.

The CHAIRMAN. As I understand it, that except clause is not correct. You have given him the power to borrow 10 per cent more on these obligations. He can only borrow 10 per cent now, but if he puts up Government obligations

the purchase or discount of any note or notes secured by not less than a like face amount of bonds of the United States issued since April twenty-fourth, nineteen hundred and seventeen, or certificates of indebtedness of the United States, shall not be considered as money borrowed within the meaning of this section, but the total liabilities of any association, of any bank, or of any corporation, company, or firm, upon any note or notes secured by such bonds or certificates of indebtedness purchased or discounted by such association shall not exceed ten per centum of the capital and surplus of such association.

So right down to there means if I put up notes secured by these bonds issued since April 24, 1917, I can get as much as 10 per cent in addition. Some one says it may be $50,000, or unlimited, but the bill does not so state, unless this is the exception: "except subject to such rules, regulations, and limitations as may be established from time to time by the Comptroller of the Currency." What is the use of that? Why not say, "except subject to such general rules and regulations as may be established from time to time by the Comptroller of the Currency, with the approval of the Secretary of the Treasury," they can loan an amount in excess of 10 per cent of the capital and surplus, provided the note is secured by one of these bonds?

Mr. LEFFINGWELL. This section has already passed the House of Representatives, and it was the result of careful study of the problem by Secretary McAdoo and Comptroller Williams and discussion with the Banking and Currency Committee. As I understand it, this proviso accomplishes, first, a modification of the limitation imposed by the section originally and now imposes a new one, and that is 10 per cent of loans of this character regardless of what other loans there may be. Then it says that the Comptroller of the Currency, with the approval of the Secretary, may further remove this latter limitation.

The CHAIRMAN. Yes; but why have it in this form?
Mr. LEFFINGWELL. Well, it is self-acting.

The CHAIRMAN. Because everything is in the discretion of the Comptroller of the Currency in any amount. It says this is limited to 10 per cent, except it is not limited in any amount.

Mr. LEFFINGWELL. I think down to "except" does enlarge the limitation without further action by the Comptroller of the Currency. The CHAIRMAN. The whole thing is in the discretion of the Secretary of the Treasury.

Mr. LEFFINGWELL. May I ask Mr. Franklin to speak to you about that?

The CHAIRMAN. I would like to strike out any amount and let it be subject to such rules and regulations as the Secretary of the Treasury may provide.

Mr. GEORGE S. FRANKLIN. Mr. Chairman, I think the meaning of that provision is this: There was originally a limitation of the amount which national banks could lend to a single borrower to 10 per cent of their unimpaired capital and surplus. There were certain exceptions to this limitation; for example, in determining the amount which might be lent to a single borrower the discount of bills of exchange drawn in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same were thrown out. The purpose of this amendment is to throw out also loans secured by an equal amount of United States bonds or certificates of indebtedness up to 10 per cent of the capital and surplus of the bank unless a greater amount is permitted to be loaned upon such bonds and certificates under such rules, regulations, and limitations as may be established by the Comptroller of the Currency with the approval of the Secretary of the Treasury. Now, following the illustration which you put, a man might borrow from a bank which had a capital and surplus of $100,000, say, $10,000 secured by liberty bonds and also an additional $10,000 otherwise secured.

The CHAIRMAN. You mean the first $10,000 of liberty bonds leaves the additional $10,000 under the general law?

Mr. FRANKLIN. Exactly.

The CHAIRMAN. And the exception clause not only applies to the 10 per cent, but it applies to paragraph 3, and a person ought not to understand by this language that a bank can loan anyone, regardless of the rules and regulations of the Treasury Department, this 10 per cent additional secured by liberty bonds, except the Secretary of the Treasury or the Comptroller of the Currency may increase that limit. Is that what you mean?

Mr. FRANKLIN. The Comptroller of the Currency, with the approval of the Secretary of the Treasury, may increase the limit of 10 per cent which may be borrowed upon the security of bonds and certificates.

Mr. LEFFINGWELL. Is not the answer to Mr. Kitchin's question that under the amendment a bank may loan 10 per cent to one man on other paper and an additional 10 per cent on liberty bonds without any action by the Comptroller of the Currency?

Mr. FRANKLIN. Exactly.

The CHAIRMAN. It ought to be "except subject to such general rules and regulations as may be prescribed this limit may be increased." because under this exception you can loan 10 per cent, except under the general rules and regulations.

Mr. LEFFINGWELL. No regulations may ever be promulgated. It may be found that the 10 per cent is sufficient.

The CHAIRMAN. But what you intended by this was what you stated a while ago, that the banks without any rules or regulations, without consulting at all the Treasury officials, can loan this extra 10 per cent on liberty bonds. That is what you mean, and what you intended by the exception was that they could increase that limit under the rules of the comptroller, etc.

Mr. FRANKLIN. The limit might be increased under the regulations prescribed by the Comptroller of the Currency, with the approval of the Secretary of the Treasury.

Mr. LEFFINGWELL. There is a double negative there. It says that such loans shall not exceed 10 per cent. That is a different 10 per cent and in addition to the 10 per cent in the second part of the section. Then it says provided, however, that in arriving at that first 10 per cent certain things shall be excluded, among others loans secured by liberty bonds and certificates of indebtedness, but that such last-mentioned loans shall not exceed 10 per cent, except under such rules and regulations as the Comptroller of the Currency, with the approved of the Secretary of the Treasury, may establish. Is that correct?

Mr. FRANKLIN. That is correct.

The CHAIRMAN. The section says they can advance an additional 10 per cent on notes secured by liberty bonds, but they can not advance a larger sum unless the Secretary of the Treasury and the comptroller authorize a further advance by rules and regulations.

Mr. LEFFINGWELL. They can not advance more than 10 per cent in addition to the original 10 per cent, unless the comptroller and Secretary permit it to be done.

Mr. GARNER. A man goes into a bank of $100,000 capital and surplus. He borrows $10,000. He goes in with liberty bonds and desires to borrow $10,000 more. Under this provision he can borrow $10,000 more?

Mr. LEFFINGWELL. Yes.

Mr. GARNER. Under the provision, if he went in one day and borrowed $20,000, and if the Comptroller of the Currency, with the approval of the Secretary of the Treasury, issued regulations permitting him to do it, he could borrow $25,000 more. Is that correct? Mr. LEFFINGWELL. That is correct-$25,000 secured by liberty bonds or certificates of indebtedness.

The CHAIRMAN. Under the bill he can borrow an additional 10 per cent from what he can borrow now under the law by putting up notes secured by Government bonds except subject to the rules and regulations of the Secretary of the Treasury, and they can cut him out of all of that.

Mr. LEFFINGWELL. You have left out the negatives. In line 12 it says the original limitation shall not apply at all. On line 13 you throw out the original limitation, so that if you stopped at the words 66 as money borrowed within the meaning of this section" you would have no limitation at all upon loans secured by Government obligations. Then you begin on line 14 with the first words of the limitation, "but the total liabilities to any association, of any person or of any company, corporation, or firm, upon any note or notes secured by such bonds or certificates of indebtedness, purchased or discounted by such association, shall not exceed 10 per centum."

That is the first limitation of this section on Government collateral, and it goes on to say they shall not exceed 10 per cent except under such rules and regulations as the Comptroller of the Currency, with the approval of the Secretary of the Treasury, may establish. I think it would be clearer if you take out the comma at the end of line 18, so that the words shall hitch up with that clause.

satisfied it will work this way, and having passed the House once and having come from the Banking and Currency Committee after pretty careful study, I imagine that expedition would be along the lines of no change.

Mr. LONGWORTH. Was this the precise phraseology?

Mr. LEFFINGWELL. Exactly.

The CHAIRMAN. Except for the word "general."

Mr. LONGWORTH. I think there was the word "general."

Mr. LEFFINGWELL. That does not make any difference, whether that is in or out.

Mr. SLOAN. A man can go into a bank with $100,000 capital and surplus and borrow $10,000 on any ordinary form of security, and borrow $10,000 by giving Government bonds as collateral in addition, making $20,000. Then he could ask the Comptroller of the Currency to permit him to borrow $80,000 more on Government bonds from that bank?

Mr. LEFFINGWELL. It never was intended that any man could do that, except as permitted by general regulations. It was not intended that this should be anything involving action on the part of the Comptroller of the Currency as to individual cases. I have no doubt that the word "general" was wisely inserted, because the thought is that the comptroller would establish general rules and regulations and not pass on specific cases.

The CHAIRMAN. I notice on line 2, page 9, these words: "the capital stock of such associations actually paid in and unimpaired and one-tenth part of its unimpaired surplus fund." Now, that language is changed down in line 18 by using the words "of the capital and surplus of such associations." You mean "of such capital and surplus," because they are entirely different propositions. Mr. FRANKLIN. I think that point is very well taken. I think it is paid-in capital and unimpaired surplus, exactly like it is in the law. So if you put in "such," that would get it.

The CHAIRMAN. Why would not it be better to make it clear. Take the exception clause and put it in line 17, after the word " exceed" and cut it off by a parenthesis, and get what we all want, "shall not exceed (except subject to such rules, regulations, and limitations as may be established from time to time by the Comptroller of the Currency, with the approval of the Secretary of the Treasury) 10 per cent of the capital," etc.

Mr. FRANKLIN. I think that would remove any doubt, Mr. Chair

man.

The CHAIRMAN. I think the committee understands the bill thoroughly.

Mr. LEFFINGWELL. There is a brief clause which Mr. Franklin has written which is calculated to preserve and make perfectly clear the already existing contractual rights of the three and a half bonds which have not heretofore been converted.

In order that the contractual rights of holders of 33 per cent first liberty loan bonds who desire to avail themselves of the conversion privilege arising on the issue of the fourth liberty loan may be preserved, a clause is suggested granting them this $30,000 exemption to which they are entitled.

It is as follows:

The owners of bonds issued under the exercise of any conversion privilege arising as a consequence of the issue of bonds of the fourth liberty loan shall be entitled to a like exemption, as provided for in subdivision 1 of this paragraph, in respect of not to exceed $30,000, per amount of such bonds.

The CHAIRMAN. You mean when they are converted?

Mr. LEFFINGWELL. Yes.

The CHAIRMAN. I thought that was it, and I think it will be all right.

Mr. LEFFINGWELL. It would follow under the contract entered into with these bondholders, but in order to make it clear we drafted this language.

The CHAIRMAN. You expect another liberty loan campaign to begin on the 28th?

Mr. LEFFINGWELL. On the 28th of September.

The CHAIRMAN. And you think it is very important that we should stop right now with the revenue bill and put this bill through at once?

Mr. LEFFINGWELL. I hope you will not have to stop. I imagine, from the reception you have given this bill, that it is going to be supported in the House.

The CHAIRMAN. We will have to stop for probably two hours, because it will probably take about two hours to pass this bill in the House. You think its importance justifies our doing that?

Mr. LEFFINGWELL. If it is necessary to accomplish the purpose. Mr. GARNER. We would have to stop the consideration of the revenue bill, because we can not get that bill through before a week from Saturday.

Mr. LEFFINGWELL. Then it is necessary.

The CHAIRMAN. Suppose we meet at 3 o'clock and go over the bill section by section. In the meantime, I want Mr. Franklin, or either one of you or both, to go over the bill with Mr. Walker and Mr. Beaman. There is one question I want to ask you. Have you made any calculation as to how much taxes we will lose by this exemption? Mr. LEFFINGWELL. They asked that when you were out of the room; but it will be inconsiderable.

The CHAIRMAN. A great many have asked me about that.

Mr. LEFFINGWELL. And I think it may be that we will lose no taxes. Thereupon the committee adjourned.

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