Senator GLASS. Well, you agree to that provision, then, that the Federal Reserve Board may be authorized to suspend a bank from the privileges of the system after it has been warned that it is making excessive loans for stock speculation.

Mr. POPE. Do you know what section that is?

Senator GLASS. Section 11.

Mr. POPE. I said in regard to that that the Investment Bankers' Association of America has no objection to the provisions of this section, which provides that a member bank shall not make any security loans while borrowing from the Federal reserve bank after a warning, but it is opposed to the principle of this bill which indicates that a member bank could not make any collateral loan while so borrowing.

Senator GLASS. Of course, collateral loans there mean stock loans, speculative loans. You think, then, that a member bank should be permitted to extend its speculative loans to any extent it pleases and recoup itself by rediscounting with a Federal reserve bank!

Mr. POPE. Frankly, it seems to me that every time you mention loans you bring in a word that I do not mean to employ in there in my endeavor to answer your question. You employ the word "speculative" and we feel that these are not speculative

Senator GLASS (interposing). There is not a sentence in this bill which the subcommittee has intended to apply to legitimate investment loans. The whole purpose of it where it relates to collateral loans is well understood and accepted to mean loans on the open stock exchanges. The whole purpose of it is to prevent a repetition of the thing that we witnessed in 1928 and 1929.

Mr. POPE. Well, of course in this term "collateral loans" there are billions of dollars of high-grade bonds which are also applicable to that general statement. It is the general statement that we object You include them all.

to.

Senator GLASS. The law itself excludes investment loans from Federal reserve bank rediscounts, and it ought to because it is a commercial banking system we are setting up. It is not an investment banking system. People who want an investment banking system are at liberty to organize one and have organized one. The Federal reserve system is a commercial banking system. Its assets should be liquid. It should be amply able and cheerfully willing at any time to respond to the demands of agriculture, commerce, and industry, and that can not be if it is going into the investment banking business. You know that.

Mr. POPE. Well, sir, I can only say that if, for example, in times of tight money you restrict borrowing against a perfectly legitimate expansion of capital investments in industrial or public utility concerns, that require long-term credit, and if the receptivity of the market should happen at the time of issue to be nonreceptive, it would require the carrying over of the time of the loan of a bank, then as to the legitimate long-term borrowings of such public utility or corporation, you just keep them from borrowing.

Senator GLASS. Under the provisions of this bill, any national bank may gamble its head off if it wants to with its own assets, with the money of its depositors. It is not affected by this bill in doing that, but it is prevented in that circumstance from coming

and recouping itself at a Federal reserve bank in order to expand and exploit that sort of operation. Don't you think that ought to be done?

Mr. POPE. I think, of course, that is a commercial banking matter. I am presenting this situation to you on general terms as an investment banker.

Senator GLASS. But I am asking you now as to that specific provision of the bill. Do you think that a commercial bank, a member bank of the Federal reserve system, should be permitted-and it is not permitted by law now-to have access to the rediscount fa-cilities of the Federal reserve bank for speculative purposes?

Mr. POPE. When you say "speculative purposes " I answer I am not enough familiar with the speculative interests to answer you. If you mean speculative from the pure sense of being bad, why, I think it is right if it is bad. I do not know exactly what specula

tion means.

Senator GLASS. Do you think we should distinguish in the law between bad and good speculation? Do you think we could do that? Mr. POPE. If in the matter of investments it is the hope of having a fellow give up his speculation, then I think there is included in the provisions a blocking of the legitimate long-term borrowing of industry.

Senator GLASS. Do people invest for an hour? Do they invest for any period of time that requires them to stand at a ticker and ascertain the state of the market at any 15 or 20 minutes thereafter? Do you call that investing?

Mr. POPE. I wouldn't think that investing; no.

Senator GLASS. Well, I don't think so, either.

Senator BULKLEY. Did you tell us how many members of your association there are?

Mr. POPE. Approximately 500 members. That does not include the additional number of branch offices, but the principal offices. Senator BULKLEY. The members are institutions and not individuals?

Mr. POPE. They are not individuals-yes, I think there are individuals. They may be either so long as they are qualified under the by-laws of the Investment Bankers' Association of Americapartnerships, corporations, affiliates, or individuals.

Senator BULKLEY. They are units in the form that they do business. Mr. POPE. In the form that they do business, and according to the character of their operations, and the personnel and size of their organization.

Senator BULKLEY. Can you tell us how many of these members are either commercial banks or affiliates of commercial banks? Mr. POPE. Well, I can not tell you exactly.

Senator BULKLEY. Give it to us approximately.

Mr. POPE. Approximately 110 that are either bank affiliates or commercial or national or member banks or bond departments of banks.

Senator BULKLEY. That is what I mean. About a quarter of them. Mr. POPE. Yes, sir.

Senator BULKLEY. Could you tell us what that proportion would be as relates to the importance of their business? Would the bank members be more than a quarter based on the amount of business they do?

Mr. POPE. I should think without having any compilation of it that it would be much more.

Senator BULKLEY. More nearly half?

Mr. POPE. I should think it might be possible, because the capitalization of bank affiliates is in many cases larger than others.

Senator BULKLEY. Exactness is not necessary. I only wanted an idea of it.

Mr. POPE. Possibly one-half.

Senator BROOKHART. Are there other institutions outside similar to your organization, or is everybody in your organization who is in this kind of business?

Mr. POPE. Everybody in the association is in the investment-banking business.

Senator BROOKHART. But I mean are there other companies outside that are not in your association?

Mr. POPE. Yes, sir.

Senator BROOKHART. Have you any idea how many of those there are?

Mr. POPE. No, sir: I have not.

Senator GORE. What is the capitalization of the First National Bank and its affiliate?

Mr. POPE. The First National Corporation is capitalized and has a surplus of $25,000,000.

Senator GORE. How much is it capital?

Mr. POPE. It is $16,000,000.

Senator GORE. What is the capitalization of its affiliate?

Mr. POPE. Which one? That is, the First National-Old Colony Corporation is the one I am talking about.

Senator GORE. What is the capitalization of the First National itself?

Senator TOWNSEND. Do you refer to the bank?

Senator GORE. Yes, sir.

Mr. POPE. It seems that I should know definitely, but I can not recall the exact figures. The capital and surplus of the First National Bank of Boston, I think, is approximately $70,000,000.

The CHAIRMAN. Is there any further statement you would like to make, Mr. Pope?

Mr. POPE. No, sir.

The CHAIRMAN. The committee will now stand in recess until 3 o'clock this afternoon, when it will reconvene in the hearing room of the Interstate Commerce Committee on the gallery floor of the Capitol. The first witness at that time will be Harry J. Haas, president of the American Bankers' Association. Is he here? A VOICE. Yes, sir.

The CHAIRMAN. And we will try to hear Doctor Edwards if we

can.

(Thereupon, at 1.10 p. m. Wednesday, March 23, 1932, the committee recessed until 3 o'clock p. m. of the same day.)

AFTERNOON SESSION

Pursuant to the expiration of the noon recess, the committee reconvened at 3 o'clock p. m.

The CHAIRMAN. The committee will come to order. The first witness will be Harry J. Haas, president of the American Bankers' Association.

STATEMENT OF HARRY J. HAAS, PRESIDENT AMERICAN BANKERS' ASSOCIATION, AND VICE PRESIDENT FIRST NATIONAL BANK, PHILADELPHIA, PA.

The CHAIRMAN. Give your full name and address and official position, Mr. Haas.

Mr. HAAS. Mr. Chairman and gentlemen, I represent the American Bankers' Association, representing 16,000 banks. My name is Harry J. Haas, president of the American Bankers' Association, and vice president First National Bank, Philadelphia, Pa.

The CHAIRMAN. Do any members of the committee want to ask any questions, or let him go ahead and make his statement?

Senator TOWNSEND. Have you a prepared statement, Mr. Haas? Mr. HAAS. Yes, sir; I have. If I may read just a short statement I have here, Senator.

The CHAIRMAN. You may proceed.

Senator ToWNSEND. You have read the bill?

Mr. HAAS. Yes,

Senator TOWNSEND. And you are familiar with it?

Mr. HAAS. Yes.

Senator TOWNSEND. Are you making comments on the bill, as to how it should be improved or changed?

Mr. HAAS. No, Senator; we have had an analysis made, an analysis has been completed, but we have not had it typed to this moment, out we expect to have it ready this evening.

Senator TOWNSEND. That will include both your criticisms and the constructive side of your argument as well?

Mr. HAAS. Yes; and with your permission we would like to have that put into the record before you finish these hearings, if that is agreeable to you.

The CHAIRMAN, How long a statement is it?

Mr. HAAS. That is a full analysis of the bill.

The CHAIRMAN. If there is no objection

Senator GLASS (interposing). By whom is it made?

Mr. HAAS. We have all been working on it, Senator; we have all sat around with the interim committee of the American Bankers' Association. We have had some other people working on it. Senator GLASS. Can you tell us who they are?

Mr. HAAS. We have Mr. Edwards. Mr. Edwards is here to testify this afternoon, from the College of the City of New York. And a Mr. Willard.

Senator COUZENS. Mr. Chairman, I do not think we ought to have that put in the record. I think it ought to be read before the committee, so we can ask questions. I hope that it will be arranged so that the criticism will be read before the committee.

Mr. HAAS. Whatever you wish, Senator.

Senator COUZENS. Is that agreeable, Mr. Chairman?

The CHAIRMAN. Certainly. It will not be printed unless it is unanimously agreed upon by the committee. I share with the Senator from Michigan the view that it had better be read, so that we will know what it is. But you say it is not ready yet; is that it? Mr. HAAS. No; that is not ready yet, Senator.

The CHAIRMAN. We will be here next week. It can be presented by some members of your committee next week?

Mr. HAAS. Yes.

Senator GLASS. We should have as little duplication as possible. If Mr. Edwards is to appear in person, may he not state his views, and present facts here so that he may be interrogated upon it?

Mr. HAAS. All right, Senator. We thought you might like to

have it.

Senator TOWNSEND. Mr. Haas, you are aware under the resolution that the hearings close on Thursday?

Mr. HAAS. Yes; we are aware of that, Senator.

Senator FLETCHER. Did you appear before the subcommittee, Mr. Haas?

Mr. HAAS. No; I have not.

Senator FLETCHER. None of these gentlemen you mentioned were heard by the subcommittee?

Mr. HAAS. They have not been heard.

Senator GLASS. Oh, the President of the American Bankers' Association at that time was heard, and the chairman of the legislative committee at that time was repeatedly invited to be heard. So that we do not want to get the impression in the record that we had a private conference over the matter, and did not give them opportunity to be heard.

Mr. HAAS. What the Senator says is correct, Mr. Chairman.
The CHAIRMAN. Seven volumes of testimony were taken.

Mr. HAAS. That was under a former administration of the American Bankers' Association. Our administration changes the first week in October.

Senator FLETCHER. When did you become president?

Mr. HAAS. The first week in October.

Senator FLETCHER. Of last year?

Mr. HAAS. Of last year; yes.

Senator FLETCHER. I think it would be all right for him to make his statement.

Mr. HAAS. The statement I have is very brief.

The CHAIRMAN. You may proceed.

Mr. HAAS. Thank you.

We have carefully analyzed the provisions of S. 4115, section by section, and after due deliberation the interim committee of the American Bankers' Association has, by resolution, registered its opposition to the bill.

We are of the opinion that it would be a serious mistake to pass a bill at this time, having so many provisions of a deflationary and regulatory nature which would, in our opinion, cause the withdrawal of a considerable number of members of the Federal reserve system. We believe that its effect would be injurious, not only to the member banks, but to the business interest of the country.