ell, if a man should pay $250 and be guaranteed t back his principal, that would not be excessive

nder your plan, the depositors would do all the

Yes, sir. I am not a lawyer and I do not know, ou could take in all depositories of every kind, anks, savings banks, national banks, building and credit unions, and so forth. There does not need anged, and from what I have read that seems to re in Washington; you can not combine the State

What board or who would handle these funds? . That would be established by you gentlemenes the law. The Government would naturally have.

. We would have to thrust that upon the Federal some board?

I have a statement here on the self-supporting ehrbach plan, if you desire to listen to it.

. Yes; let us have that..

. The interest on the reserve as I stated would be years-that interest on the reserve will accumulate would amount to more than enough to make the ting. With all the new laws and measures now eration and that are already in operation, such as n Finance Corporation, the Glass-Steagall act, and with the Mehrbach plan (I call it that but I hope it is egotistical), the bank failures would decrease I think you can safely say there would be 90 per

wed a number of bankers, large and small, and they e cause of the failures of 95 to 99 per cent of the ithdrawals or runs, but I presume some withdrawals imes by necessity.

1. Is not this true that we have had a great many the recent past due directly to insolvency?

In this depression, yes, sir; I should say so; but sider the percentage anywhere near that that was ns and the fear and the silent withdrawals.

. Is it not rather a combination of the two? . Yes; but the one enters into the other. A failure ency will be the cause of creating fear in the com5 on other banks follow, causing them to fail al? be solvent.

. There is one bank that five years ago had loans dant collateral. The loans were not taken up bean to get a little tighter, and the very fact that ng tighter caused people to withdraw their money; and at the same time the value of the collaterals e value of the real estate on which the bank held ed, and still the people were getting more and more ey were drawing more of their money out of the

banks, and as the people had to withdraw their deposits to take care of themselves, the source from which the bank was to get the cash to pay the depositors was shrinking up, and that resulted inevitably in a case of insolvency, because the securities the bank held ha depreciated to where its capital stock and more was wiped out. Now the combination of the two caused that failure, is that not true! Mr. MEHRBACH. Yes; but does not the same thing hold true of all banks? Their securities had dropped in value, but they did not all go under.

Mr. STEVENSON. Yes; that is true; they did not all go under.

Mr. MEHRBACH. But in the immediate vicinity of those that started to go under were others that did go under, and fear affected those that did not go under which would not have happened if the Mehrbach plan was in operation.

Mr. STEVENSON. Yes; but if stock exchanges, for instance, were called on to-day to settle with their depositors it would break most of them. I do not think there is any doubt about that.

The CHAIRMAN. You favor the guaranty plan but your suggestion is that the reserve shall be created by assessing a charge against the depositors?

Mr. MEHRBACH. Yes, sir.

The CHAIRMAN. Would we not encounter this difficulty in undertaking to pass legislation embodying that theory, that we would be met with the argument instead of increasing the deposits, the tax on deposits would be calculated to bring about a curtailment of deposits!

Mr. MEHRBACH. That argument, I think, could be very easily overcome. If that argument were brought up, my view is that if we had a Government guaranty of deposits, it would at once stop hoarding and at once bring all the money back into circulation that is now hoarded and restore confidence in the people in all banks which would increase the deposits.

The CHAIRMAN. Maybe I have not quite understood you. I did not have an opportunity to hear the first part of your statement. You now refer to Government deposits, whereas it was my understanding you favor a guaranty of deposits with the burden placi on the depositors?

Mr. MEHRBACH. The depositor pays the premium-put it that way. The CHAIRMAN. But the Government stands back of the plan! Mr. MEHRBACH, Backs it up. But if it came to a necessity, the Government would finance it.

The CHAIRMAN. It is your idea that while a charge against the funds in bank would, over a period of years, accumulate a sufficient reserve, yet the Government would in the meantime have set up the machinery and provided funds to take care of any temporary emergency, and any advancements made by the Government because of such emergencies would be absorbed over a period of years embracing a normal time?

Mr. MEHRBACH. Correct; but I do not think there would be any financing needed to any great extent, though.

The CHAIRMAN. Of course those of us who believe that a successful guaranty plan can be maintained hold the view that such a plan would increase deposits, and of course decrease bank failure: but at the same time, in attempting to formulate legislation we

plan

and we must be prepared to face the criticism in abundant fund available to assure the successthe plan. Therefore, whatever we do, we must dignified fund and such a workable plan as will hat the plan is adequate and will succeed.

That is correct.

Then, if you hold that view, let me ask you how you think would be necessary to initiate the sysI basis?

My idea is that the conditions under what the writers have been telling us right along, which I sed to learn. They claim that in normal times, litions $100,000,000 a year is the average amount

What do you mean by $100,000,000?
Of deposits in banks that fail.

Not of losses to depositors, but $100,000,000 total banks which fail.

Yes, sir; that is it. We have to figure under the e amount of money on deposit because that has to ce in full, and you wish to know how much would rt with?

Yes.

Under the conditions which are called normal 00,000 would be ample. Conditions at this time ut under the different measures that have already et such as I have mentioned, namely, the ReconCorporation and the Glass-Steagall bill, there is y have decreased bank failures. In my judgment of that.

We have almost stopped bank failures for the è can not assure that our success will continue. We e devised an easy method by which banks can obcases of banks which suffer from a depreciation in es and collaterals-banks that are in difficulty beolvent, we have only postponed pay day, and unless removed, bank failures must ultimately resume, › contemplate.

How long, in your opinion, will this be post

I hope it is definitely and finally ended, but I am ractical situation that will confront us as advocates We must be able to say that we have a plan that otherwise it will lose its value.

. Well, under that condition as you mention it, in 1930, there was some eight hundred million and posit in banks that failed. In 1931 there was one ed million and odd dollars in banks that failed. will not occur again.

No; we all hope it and have every reason in the it will not happen; yet, if we go before the opposlation with any provision short of something that of a repetition of the conditions that we have just

witnessed, we shall be confronted with the argument that we have a plan that may not succeed.

Mr. MEHRBACH. Here are some figures. Since 1921 up to 1931, but leaving out 1930 and 1931, the largest amount of deposits in the banks that failed in those years previous to 1930 was $272,000,00* in one year. That was in 1926.

The CHAIRMAN. What would be the average over that period, leaving out 1930 and 1931 if you so desire?

Mr. MEHRBACH. $191,297,000. For the period from 1921 to 1961 the amount of deposits in banks that failed aggregated $4,277. 898,000. Using this 90 per cent basis as a basis of decrease of failures, the total would have been $427,789.800 for 11 years, or approxi mately about $38,889,990 of deposits per year in banks which failed. The CHAIRMAN. That is, you are figuring on a basis of what would have happened with a guaranty plan?

Mr. MEHRBACH. Yes; under the Mehrbach guaranty plan. The CHAIRMAN. Of course we would be confronted with the argument that that is speculation, and some fellow would dispute it, that his judgment was as good as ours, and that is where we would land, however justified the argument might be. But is undoubtedly true that the net loss over a long period of years which would have to be taken care of by the guaranty plan would be very small?

Mr. MEHRBACH. It would be very small; yes. I have been very liberal I think in allowing 25 per cent loss.

The CHAIRMAN. The record shows that is excessive, that there would not be incurred that great a loss over a long period of time. It is true that during the last two years the loss will aggregate something like 25 per cent, possibly more. We do not have the exact figures. Would not your suggestion that the loss be paid immediately upon the closing of the bank get the answer, that if we should set up a liquidating plan by which depositors might be dis charged in installments six months apart it would enable us to utilize the board in case of a large bank failure to help carry the burden in that particular instance?

Mr. MEHRBACH. I did not say anything about a liquidating board' The CHAIRMAN. No; but you spoke of depositors assigning their claims to the Government?

Mr. MEHRBACH. Yes; I said whoever had charge of the bank after it had failed-it may be a State bank or building and loan association-the one in charge at once sends a statement showing the amount on deposit of each depositor, that statement being sent to the Government's agent, whoever he may be. The Government at once sends a check for the full amount to the one in charge of the bank. He, in turn, pays the depositors off in full. They, in turn, assign all their claims over to the Government.

The CHAIRMAN. Of course if we attempted that plan we would have to set up a larger fund and make larger preparation than we would if we adopted a plan which would enable us to pay liabilities in installments and spread it out over a year or year and a half.

Mr. MEHRBACH. To offset those liabilities you speak of, the income, instead of being paid in installments, could be collected in advance the first year; it would amount to $250,000,000 to start the fund.

The CHAIRMAN. You believe that some guaranty plan should be adopted!

Positively.

That is the main thing, is it not?

You have got to do it. I do not know whether you erviewed the public or not. I suppose you have another; but I have interviewed, I should say, e from clerks behind counters to taxi drivers and gs, wherever I happened to be. This plan has or the past year.

I will say to you as an advocate of the guaranty d occasion to observe something of public opinion, I have coincides with yours, with this exception: the larger banks and there are some of the older me well-informed conservative bankers that are n. Of course, they all offer one argument which e. But in many instances, though not always, bankers against the bill.

I wrote a letter to Mr. Mitchell of the National ave his reply here. Would you like to see it? s discussed off the record.)

at per cent of the bankers whom you have conof such legislation?

6

Every banker that I have talked to is in favor they put in a "but," and that "but " is "wildcat " nned one of them down and when I saw how getting a reply I pinned the others down. I said do not want to mention his name but he is a very t not a fact that this wildcat' banking answer position to the guaranty plan is not what you lo not have that in mind when you say that; but at the banker on the corner, the little fellow with $10,000,000 if deposits against your $100,000,000 leposits, is liable to take away some of your acu fear is that it will create competition for you, t big banker that should not fear any competition wonderful service you can give in comparison to ut still you want to keep that little fellow from count away from you"? And he admitted to me he had in his mind.

There is one thing to be considered in connection and that is that we would not permit the granting iminately to any and everybody.

This letter to which I referred as coming from from Mr. George Roberts, who, is first vice presiof the National City Bank; but it was dictated by

What business are you engaged in?

Contracting. I have a material that has been sold y-odd years-a chemical that prevents disintegra

What size corporation are you?
We are incorporated for $10,000.
You are not a banker?

No, sir; I am not a banker.