Full text of Diaries of Henry Morgenthau, Jr. : Volume 357 : Bank of America : Part 1

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Book 357

Bank of America

October 7. 1937 - September 20, 1938

Bank of America

Book

Preliminary investigation: Oliphant memorandum 10/7/37

357

Notes concerning Bank of America National Trust and
Savings Association - 10/22/37

a) O'Connor letter stating additional facts 10/2/37

b) Supplementary explanation of losses provided
Comptroller of Currency in connection with
request for branches - 7/9/38

The Giannini System

Conference of Treasury group; present: HMJr, Magill,
Taylor, McReynolds, Lochhead, Bell, Gibbons, Haas,
Gaston, and Cliphant - 1/24/38
Crowley report: "Some Factors Involved in the Question
of Dissolution of Bank Holding Companies" - 1/28/38
a) Crowley memorandum: "Arguments for

Reorganization of Bank Supervision" - 1/28/38
Resume of activities of Comptroller of Currency for 1937
Conference; present: HMJr, Magill, Taylor, Oliphant,
Gaston, Lochhead, Upham, Gibbons, McReynolds, Haas,

and Bell . 1/31/38
a) Possible trouble with Comptroller's office

Page

1,3
6

135
14

53
56

discussed

O'Connor informs HMJr of Giannini conference with Crowley

who will now grant applications for branch banks as

requested - 1/31/38.
Securities and Exchange Commission's interest indicated 1/31/38

Call report form (uniform) for Comptroller of Currency,

Federal Reserve Board, and Federal Deposit Insurance
Corporation discussed by HMJr, Eccles, Ransom, Taylor,

and Oliphant - 2/1/38
Paganucci stock distribution without registration

discussed in Securities and Exchange Commission

memorandum - 2/1/38

Bank Holding Company Legislation:

Randolph Burgess prefers restrictive regulatory

legislation rather than "death sentence" legislation 2/3/38

Treasury group, Comptroller of Currency, Jones,
Federal Reserve group, and Crowley (Federal Deposit
Insurance Corporation) confer on FDR's request for
"a statement to be part of his message to Congress
on monopolies" - 3/10/38

Oliphant opinion that Secretary of Treasury must at all
times have access to material legally available to
Comptroller of Currency - 2/7/38
Central Bank, Oakland, California (part of Transamerica

108

Corporation), requests establishment of three branches:

Federal Deposit Insurance Corporation memorandum 2/16/38

National Labor Relations Board requests information for
use in determining whether Act applies to Bank of
America - 5/26/38

98.101.129

131

Bank of America - 2
Book

Page

357

143

Conference; present: HMJr. Taylor, Upham; Diggs and

Folger (Comptroller of Currency): Irey - 9/9/38.
a) Upham report on examinations and subsequent
lack of improvement discussed

1) Tie-in of new chairman of Federal Reserve
Bank of San Francisco with Transamerica
144

group discussed

a) Chairman (A.O. Stewart) owes Bank of
America approximately $8-11 million
b) Federal Reserve Board, Washington,
assured that copy of examination was
received by Federal Reserve Bank of
San Francisco on April 25, 1938, in

211,333

spite of their denial - 9/14/38

251,283,286,
291,293

c) Stewart and Pacific Coast Mortgage
Company tie-in discussed in Upham

letter - 9/15/38

333,400,414

b) Program signed by Diggs and Folger and HMJr asks

for time-table on each suggested step - 9/8/38
General Counsel's Office asked for opinion as to whether
confidential information of Office of Comptroller may
be shown to Tom K. Smith, Jeff Coolidge, and Robert M.
Hanes - 9/12/38

a) Oliphant opinion - 9/13/38
Dividend by Bank of America for second half of 1938

discussed - 9/12/38
a) FDR suggests preventing any dividend at all
Bank examinations and inadequate follow-up in Washington
office discussed in Upham memorandum - 9/12/38

Revision of Comptroller's Office as outlined by Upham 9/28/38

172

174

247
174
177
179

183

Giannini tie-in with California delegation at 1940

Democratic convention discussed in Upham memorandum
9/12/38

Dividend situation again discussed by HMJr, Oliphant,
Hanes (John w.), Upham, Gaston, Graves, Diggs, and
Folger - 9/13/38
a) Ransom and Crowley join group

b) Drafts of telegram to Bank of America advising
against any dividend at this time - 9/13/38
1) Giannini answer - 9/15/38

187

192
213

252

334,431

c) Securities and Exchange Commission asked to

proceed immediately with further investigation
of Transamerica - 9/14/38
d) Bank declares usual dividend; situation discussed
by HMJr, Hanes, Oliphant, Gaston, Tom K. Smith,
Diggs, and Folger - 9/14/38
1) Reconstruction Finance Corporation, Federal
Reserve Board, Federal Deposit Insurance
Corporation, and Securities and Exchange
Commission join group
Upham leaves for San Francisco - 9/13/38
a) Upham report - 9/20/38

260

261

304

212,250
430

Bank of America - 3

Farley asked by HMJr to keep political pressure off
Treasury in this connection - 9/14/38.
Possible investigation by Securities and Exchange

Book

Page

357

292

Commission discussed by Treasury and Comptroller

of Currency group - 9/15/38
Courses of action by Treasury after disregard of

warning and declaration of dividend set forth in
Oliphant memorandum - 9/15/38

Upham, Cyril B.: Resume' of career
Oppegard, Goodwin J.:
Gough, E. H.:

Diggs, Marshall R. :

339

368,372
385
390
391

392

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

AM
DATE October 7, 1937

Secretary Morgenthau

FROM Mr. Oliphant

Preliminary investigation on the Giannini-Transamerica

tie-ups discloses the following

The stock ownership of Transamerica Corporation, which is
the holding company of the Giannini banks and insurance companies
(as well as other miscellaneous interests), appears to be very widespread, The corporation has over 23,000,000 shares of common stock
outstanding, of which the directors (who appear to be entirely associates of Giannini) admit holding somewhat over 50,000 shares. The
company has over 200,000 stockholders, most of them apparently in

California. Giannini has always let it be known that he himself has
only a moderate personal fortune and a moderate stock interest in the
company. He is prima facie supported by the fact that in his proxy
fight with Elisha Walker for control of Transamerica in 1931 it was

necessary to hold large mass meetings of stockholders throughout

California before Giannini obtained the three to one victory. At

the present time the Banking Act of 1933 and financial considerations
have compelled a change in the form of Giannini's interests in the
Bank of America National Trust & Savings Association and Bancamerica-

Blair, the investment securities organization. There would appear,
however, to be an identity of stockholders of the three entities.

The tie-ups indicated by the present evidence are with the
National City Bank of New York and the Anglo-California National Bank

of California. The first arises from the fact that Transamerica Corporation is the largest single stockholder of the National City Bank
of New York, owning over 10 percent of its stock. Giannini is on the
Board of Directors of the National City Bank. How far his interest
is effective depends upon the distribution of the remaining stock, which
has thus far not been disclosed by the investigation; it is conceivable,
of course, that two or more interests can be easily depended upon to
outweigh the Giannini interest in National City. The Anglo-California
National Bank, controlled by the Fleishhacker interests, is the largest
competitor of Transamerica in California, but appears to be associated

with Giannini through a common ownership in Firemens' Fund Insurance
Company and related companies. With the Fleishhacker interests is asso-

ciated also the Standard Oil Company of California and possibly also
the Dollar Steamship Line. It should also be mentioned that Giannini

has followed the opportunist policy of associating himself with political
powers, especially in California.

-2-

A more definite statement depends upon a study of the

stockholders' lists of the Bank of America, N.T.S.A., National
City Bank, and the holding companies. This information is available in the office of the Comptroller of the Currency where it is
held confidential. F.D.I.C. has by statute a right to examine the
information and perhaps the information exists also therefore in

the F.D.I.C. files. It is thought that similar information is

contained in the Federal Reserve Board files.

3
COPY

Strictly Confidential

October 8, 1937
Secretary Morgenthau

Mr. Oliphant

Preliminary investigation on the Giannini-Transamerica
tie-ups discloses the following:
The stock ownership of Transamerica Corporation, which is
the holding company of the Giannini banks and insurance companies
(as well as other miscellaneous interests), appears to be very widespread. The corporation has over 23,000,000 shares of common stock
outstanding, of which the directors (who appear to be entirely associates of Giannini) admit holding somewhat over 50,000 shares. The
company has over 200,000 stockholders, most of them apparently in

California before Giannini obtained the three to one victory. At

the present time the Banking Act of 1933 and financial considerations
have compelled a change in the form of Giannini's interests in the
Bank of American National Trust & Savings Association and Bancamerica-

Blair, the investment securities organization. There would appear,
however, to be an identity of stockholders of the three entities.

The tie-ups indicated by the present evidence are with the
National City Bank of New York and the Anglo-California National Bank

of course, that two or more interests can be easily depended upon to
outweigh the Giannini interest in National City. The Anglo-California
National Bank, controlled by the Fleishhacker interests, is the largest
competitor of Transamerica in California, but appears to be associated

with Giannini through a common ownership in Firemens' Fund Insurance
Company and related companies. With the Fleishhacker interests is asso-

ciated also the Standard Oil Company of California and possibly also
the Dollar Steamship Line. It should also be mentioned that Giannini

has followed the opportunist policy of associating himself with political
powers, especially in California.

-2A more definite statement depends upon a study of the

the F.D.I.C. files. It is thought that similar information is
contained in the Federal Reserve Board files.

(Signed) Herman Oliphant

SKiafd

typed 10/7/37

5.
and keeping

ih stickels, taking
in 9% goods

Manupulating stock

Honest exam will show
invoicent
This Inchire before bank

October
22nd
1937

Notes Concerning the Bank of America National Trust and Savings
Association

1. Significance to the Federal Deposit Insurance Corporation
The Bank of America National Trust and Savings Association had insured deposits of $621,000,000 on May 13, 1936.

This figure is more than twice the capital of the Federal Deposit Insurance Corporation and gives some indication of the
significance of the one bank to the insurance organization.

No other single bank or banking group or chain has as much as
one-half this volume of insured deposits. Most nearly comparable are Security First National Bank of Los Angeles with
$298,000,000 of insured deposits, and National City Bank of
New York with $241,000,000 of such deposits. The insured deposits in the Bank of America N. T. and S. A. are greater
than the insured deposits in the 4,000 smallest insured banks

combined. If this one bank were to fail, the Federal Deposit

Insurance Corporation would be required to pay out a greater
amount than if the 4,000 smallest banks failed simultaneously.
In fact, the one bank seems to be a greater problem than the
4,000 small banks since it represents such a concentration of

risk. There is reason to believe that if 5,000 new small

banks with $200,000 of deposits each were to come into existence, they would not represent so great a financial hazard to
the Federal Government as does this one bank.

2. Status of the Bank in California
As indicated by the accompanying table, this bank
is the dominant element in the banking system of the state.

-2December 31, 1936

Percent of
Offices

Bank of America N. T. & S. A.
Security First National Bank
of Los Angeles

American Trust Company of
San Francisco

total assets

466

120

All branch banks

876

Unit banks

All banks

total offices

Percent of

186

1,062

100

The wide ownership of its stock and the stock of Transamerica

Corporation and the fact that it is the only branch system
covering all parts of the state further increase the import-

ance of this bank.

3. Importance in the United States
Even in the United States as a whole the Bank of
America N. T. & S. A. is the prime case of branch banking, and

is the fourth largest bank in the country. No other bank carries
on operations over so wide a territory or has nearly so large a
number of branches. The only comparable institutions in this
country are the two other large branch banks of the state of

California and two branch systems of Oregon, one of which is
also owned by Transamerica Corporation.

4. Condition of the Bank

On June 30, 1937, the total capital account of this
bank amounted to approximately 7 percent of the assets of the

bank. This indicates that a depreciation of its assets by as
little as 8 percent would more than wipe out the bank's capital and thus render it insolvent. Whether or not great alara

should be expressed over this low capital ratio depends in part
upon the nature of the assets which the bank holds. Consideration of reports of examination of this bank made by national
bank examiners indicates that large loans have been made to af-

filiates and other inside interests. Large volumes of loans
are secured by the stock of the bank's holding company affili-

ate, which in effect reduces the sound capital of the bank even
below the 7 percent figure.

-3Moreover, in 1933-1934 this bank had over $100,000,000

of non-conforming real estate loans, and in October 1936 (date
of the latest examination) this figure was still above $75,000,000.
More than one-fourth of the real estate loans of the corporation
do not conform to the requirements of the national bank law and,
therefore, should be considered illegal loans. Approximately
$48,000,000, or nearly half the capital funds of the bank are
invested in banking house, furniture and fixtures, (the comparable figure in 1933 was $42,000,000) and beside this it has
real estate other than banking house of $58,000,000 (including

real estate placed in the hands of affiliates under contract),
loans to affiliates of $20,000,000 (exclusive of loans to affiliates holding real estate acquired by the bank), and loans

on stock of Transamerica Corporation to the extent of $8,824,000.
Loans on Transamerica Corporation stock increased from $7,800,000
to $9,400,000 between November 1935 and April 1936. On April 10,

1933, 22 percent of the loans of this bank were to directors,

officers and employees and to corporations in which they were
largely interested, and 15 percent of the loans of the bank were

still of that nature at the time of the latest examination avail-

able - October 14, 1936. On this date, extensions of credit to
affiliates were 65 percent of sound capital.

There is considerable evidence to indicate that during the rise in bond prices in 1935 and 1936 this bank followed

the practice of writing up its securities to market price. In

part this was done by selling securities in the market and buying new ones at the same high price level; but in part values

were simply marked up on the books of the bank. Records in the
office of the Comptroller of the Currency show that in 1935,
government bonds were written up $5,000,000 and municipal bonds
$3,000,000, and that in 1936 further write-ups of $6,000,000
occurred. During these same two years some $10,000,000 of pro-

fits were realized from sale of securities. Thus, in the two

years, some $24,000,000 of "profits" came from the bond market
boom. It would thus appear that at the beginning of 1937 when
bond prices reached a peak, the Bank of America was carrying

its bonds at practically market price. If this is the case,

then the decline in bond market prices during 1937 must leave
the bank with its bonds valued far above current market price.
On December 31, 1936 the bank held $461,000,000 of

U. S. Government securities and $162,000,000 of other securi-

ties, or a total portfolio of $623,000,000. A conservative
estimate indicates that the market value of these securities

must have fallen at least $25,000,000 from January 1 to October

15, 1937. Since the realized security profits and write ups

of 1935 and 1936 were not used to increase capital, the $25,000,000
of security depreciation in 1937 may be deemed to reduce capital

-4materially. If it were reasonable for the bank to use profits
on securities sales and write-ups of securities values in computing net profits and paying dividends when the market was

rising, then it must be necessary that the decline shall be

reflected in profits or losses when the market is falling. If

this be accepted at least tentatively, the bank must be suffering net losses of some $13,000,000 this year. If at best this

bank was but breaking even after dividend payments in the years

of rising bond prices, then its condition must now be rapidly
retrograding.

5. Policies of the Bank
Misrepresented Earnings

The most reprehensible practices of this bank appear
to be connected with earnings and dividends policy. Earnings
figures as presented to the public cannot be reconciled with
the examination reports or the other reports made to the Comptroller of the Currency. The reports of examination and the
call reports showed the bank to have net operating earnings of
$8,200,000 and net profits of $9,900,000 in 1935, while the net

earnings as presented in Moody's Manual amounted to $16,300,000.
In 1934 the corresponding figures were $7,200,000, a negative

$2,600,000 and $8,900,000. In 1936 the bank reported to the
Comptroller of the Currency net current operating earnings of
$11,500,000 and net profits, after losses, of $12,500,000,
while the figure presented in Moody's is $22,500,000. For the
first half of 1937, the bank reported to the Comptroller net
current operating earnings of $5,900,000, net profits after
losses, of $6,000,000, while the Moody's Manual presents net
earnings as $10,000,000. (Cf. Table I)

Some question is thrown upon the net earnings figures
appearing in the Moody's Manual simply from examining the balance sheets presented therein. (Compare the Moody figures of

column (5) and column (7) of Table I). An estimate of net pro-

fits may be made by adding the net change in capital account

during the year to the dividends paid in that year. On this

basis one may compute from Moody's that the earnings of the
bank were $9,700,000 in 1935, whereas it was stated in Moody's
that net earnings were $16,300,000. Corresponding figures for
1936 are $12,200,000 and $22,500,000, while the corresponding
figures for the first half of 1937 were $6,200,000 and $10,000,000.

It is to be noted that the net profits figures presented by the

examiners of the Comptroller of the Currency and reported to the
Comptroller by the bank include both profits realised from the

TABLE

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION

(Amounts in thousands of dollars)

Free Comptroller's figures:
(1)

(2)

(3)

(4)

(5)

(6)

(2)

(8)

(9)

(10)

IID

Net prefite
Recoveries,

Net

current

operating
earnings

securities

Net change

profits on

Net

Realized

Net

prefita

losses

profits

and

before

write-ups

lesses

and

Charge-offs

after

lesses

Net change
in

Dividends
paid

undivided

profits

excluding

in capital
account

per balance

Net prefite

sheet

per share
(5)

(3)-(4)

(1)+(2)

Year ending
Dec. 1934
Year ending
Dec. 1935

excluding
write-ups

write-ups

(5)-(6)

2,000,000

2,658

5,502

per share

and

(6)

2,000,000

2,709

9,925

12,563

2,638

3,750

6,388

8,164

14,776

22,940

13,082

9,858

6,000

3,858

3,881

4.93

3.00

1,858

4,029

5,770

3,902

9,672

4,302

5,370

4,000

1,370

1,372

2.69

2.00

5,370

1,514

11,495

14,645

26,140

13,688

12,452

8,000

4,452

4,539

6.23

4.00

6,445

1,813

5,884

4,287

10,170

4,191

5,979

4,000

1,979

2,072

2.99

2.00

5,979

3,123

6 nos. ending
June 1937

profits

paid

7,216

6 nos. ending
June 1936
Year ending
Dec. 1936

Dividend

prefits on
securities

Net

1.32

Free Woodyn
Total
net

earnings

Dividends
paid

Dividends

Net change

paid plus

in capital

net change

account

per

in capital

per balance

account

Earnings

Book value

sheet

(6)+(8)
Year ending
Dec. 1934
Year ending
Dec. 1935

8,869

3,500

16,276

6,000

11,009

4,000

22,527

8,000

12,157

4,157

11.26

52.51

10,007

4,000

6,245

2,245

5.00

53.63

6 nos. ending
June 1936

9,703

3,703

4.43

48.58

8.14

50.43

5.50

Year ending
Dec. 1936

6 nos. ending
June 1937

Capital, surplus, undivided profits and re
Capital, surplus, undivided profits, but

for continger

all reserves

-5sale of securities and write-ups of the value of securities on
the books of the bank. If write-ups were excluded the net profits of the bank in 1935 would have been $1,900,000 and in 1936

$6,400,000. If write-ups and profits realised from the sale of

securities had both been eliminated the bank would have shown
net losses of $4,000,000 in 1935 and of $1,800,000 in 1936. We
have noted that in no sense did the bank have earnings adequate

to pay its dividends in 1934. In 1935 and 1936 it had net profits after losses sufficient to pay the dividends declared only

by virtue of the fact that it did write up securities on its
books.

Dividend Policies
In 1935 the bank paid dividends upon the par value of

its stock at the rate of 12 percent and upon book value at the
rate of 6 percent. In 1936 these figures were raised to 16
percent and 8 percent respectively. Beginning in the second
half of 1937, dividends are being paid at the rate of 19 percent
on par capital and 9 percent on book capital.
Bank of America National Trust and Savings Association
Dividends paid as percent of:
Year ending December 1934
1935
1936

1937 (1st half)
1937 (2nd half)

Par Value
-

Book Value
-

Market Value

5 (Sept.)

The unsoundness of this extraordinary dividend policy
is indicated on several bases. First, the earnings data which
we have just discussed show that such dividends were not earned.
Second, the volume of substandard assets held by the bank fur-

ther indicates the undesirability of such a policy. Even if

there were no substantial volume of substandard assets in the

bank the present capital ratio would indicate the desirability
of building up the capital of the bank either out of earnings or
otherwise. Congress, in 1956, saw fit to exempt banks from the

undistributed profits tax in order to permit those with inadequate capital structures to apply all or part of earnings thereto. But this gigantic branch bank which is of 80 much significance to the banking system and the whole country has followed

12
-6the opposite course. Furthermore, it is to be noted that this
bank, with its weak capital structure, did not sell stock to
the Reconstruction Finance Corporation. In view of this fact

it is especially necessary that earnings of the bank be devoted

Trans

to its rehabilitation rather than to pursuance of the irresponsible dividend policy indicated above. Until the second half
of 1937, practically all the dividends of the bank were paid to

distributed Transamerica Corporation and used primarily to maintain dividend
payments to the stockholders of Transamerica Corporation. Durstock
ing the period 1934-36, Transamerica paid out in cash dividends
amounts
equal to 96.5 percent of cash dividends received. (Cf.
led
for

the

Table II)

could now

6. Price of the Stock of Bank of America National Trust and Savings

Jods

Association

Since previous to July 1937 practically all of the

stock of this bank was in the hands of Transamerica Corporation,
it was not quoted upon the market and consideration can only be

given to the course of the market since July. Beginning with
July, more than 2,300,000 out of a total of 4,000,000 shares

outstanding of $12.50 par value have been in the hands of the
public. Thus, the par value of the Bank of America stock now
in the hands of the public amounts to approximately $29,000,000,

of a total of $50,000,000 outstanding. This stock, with a par

value of $12.50 per share and a book value, based on June 30,
1937 figures, of $26.82, sold in the over-the-counter market
during August 1937 in the neighborhood of $56.00 per share, but
by September 27, its price had fallen to $46.00 per share, and
on October 18, the bid price was $41.00.

Table II
Transamerica Corporation

(Amounts in thousands of dollars.)

Year
1932
1933
1934

1935
1936

1937 - 1st
half
1954-36

Dividends
received
-

5,946
5,636
8,113
11,072
-

24,821

Dividends
received
from Bank
of America
None

Cash dividends paid
None
None

2,242
5,737
5,979
7,972

5,903
6,484
11,577

3,986
17,688

4,636
23,964

Excess of
dividends
received

over divi-

dends paid
-

5,946
-267

1,629
-505
-

857

13
7-

We may summarize the pertinent facts concerning the
Bank of America National Trust and Savings Association as
follows:

1. The capital ratio is low and the management shows no

disposition to improve it.

2. Overvalued substandard assets are large; banking house,

furniture and fixtures and other real estate are as
great as capital.

3. The public is grossly misled with respect to earnings.
4. The book value of assets is subjected to unprincipled
juggling.

5. An inordinately liberal dividend policy is followed.
6. The relations of the bank with its affiliates have
apparently never been thoroughly investigated by super-

visory authorities.

Oct.27,1937
The Giannini System

Confidential
seep

The system of enterprises controlled by Amadeo P. Giannini

stems from, or is affiliated with, the Transamerica Corporation. The

system includes the following National Banks: The Bank of America,
N.T.S.A. (having as of December 31, 1936, 466 branches in 285 communities

in California), First National Bank in Reno (operating six branches,
apparently in Nevada), First National Bank of Portland (Operating 34

branches in Oregon). The system also has what may be the controlling

interest in the National City Bank of New York and a large interest, the
extent of which is at the present point of the investigation undetermined,
in Anglo California National Bank of San Francisco (operating 18 branches

in California and affiliated with Anglo National Corporation, which holds
substantial interests in the First National Bank of Fairfield, California,

First National Bank of Longview, Washington, Bank of Suisun, N.A. of
Suisun City, California, Mechanics and Merchants National Bank in Vallejo,

California, First National Bank of Weed, California, First National Bank
of Yreka, California, and at least one state bank).

The system also includes the following state banks: Bank of
America (California) (operating nine branches in nine communities in
California), Bank of Lake, Northern California Bank of Savings, and an
interest, through Anglo California National Bank and the Anglo National
Corporation, in Modesto Trust and Savings Bank of Modesto, California.

In addition, the system includes the California Joint Stock Land
Bank and the Banca d'America e d'Italia of Italy.
In addition to banks, the system includes the Occidental Life
Insurance Company and, with the Anglo National Corporation, the Firemens'
Fund Insurance Company and affiliated companies; General Metals Corporation, which is engaged in manufacturing steel products in Oakland and
Los Angeles, and several real estate companies, such as California Lands
Inc., Merchants National Realty Corp., and Downtown Properties Inc. There
should finally be included Bancamerica Blair Corporation of New York City,
the investment banking enterprise, which is associated with the system
by stockholding and an identity of stockholders and of management.
The expansion of the system is indicated by recent acquisitions.
In January, 1937, it absorbed the First National Bank of Long Beach, the
First National Bank of Atascadero, California and in March, 1936,
acquired control of the First National Bank of Calexico, California
(announced by the Comptroller of the Currency as liquidated August 2,
1937); in March, 1937 it acquired First National Bank of Paso Robles,

California; in July, 1937 it acquired control of First National Bank and

First Savings Bank of Glendora, California. In addition, included among
the branches of the Bank of America, N.T.S.A. mentioned above, are 44
acquired during 1936, including the Seaboard National Bank of Los Angeles.

15
-2The practice has been to turn the acquired banks into branches of the
Bank of America, N.T.S.A.

The corporate activity of the system has been characterized by
increases in the stock of the corporation and the distribution to stockholders of Transamerica, in the summer of 1937, of a large portion of the
stock held by Transamerica in Bank of America, N.T.S.A. The purpose of

this stock distribution is undoubtedly, in part, to create a market

value for Bank of America, N.T.S.A., stock which would enable trading in
that stock by Transamerica Corporation as well as the financial divorce
of the Transamerica enterprises from the Bank of America, if that should
seem advisable.

A consideration of the personnel of the directorate and the income
tax history of Giannini and his leading associates compels the conclusion

that A. P. Giannini is the only substantial figure evident. It is diffi-

cult to say at this point how far Giannini is, in turn, under the domination of National City Bank interests, or those interests under his domination.

As compared with other financial giants, Giannini income and investments
do not seem to be particularly large. While between 1902 and 1935 he
seems to have operated through a personal holding company (with relatives
as passive or dummy associates) in investment speculations in his own and
other companies, his income tax returns for 1932 on show either moderate
income or losses.

The Transamerica Corporation's stock is well distributed, there
being approximately 210,000 stockholders. How far Giannini and his friends

may have factually determinative stock interests is at this point of the

investigation unknown. However, it should be pointed out that when
Giannini and the Elisha Walker interests fought for control of the

Transamerica system in 1931, it was necessary to hold large mass meetings

of the stockholders all through California and otherwise to engage in a
widespread campaign in order to bring about the three-to-one vote in
Giannini's favor.
With reference to the financial condition statements which have

been issued, it is of interest to note that the Transamerica registration

statement, Form 24, filed with the SEC in August, 1937, containing schedules
as of December 31, 1936, discloses that the certified public accountants,

Ernst and Ernst, said with regard to their certification that it covered

all subsidiaries "except banks and insurance companies" and that in their
opinion the statement, in general, was correct "excepting as it bears
on statements of other companies the information on the financial position
and operating results of banks and insurance companies as shown in their
reports of condition and statements as filed with their respective
regulatory authorities ...," all as supplemented by certain notes and
supporting schedules (excepting statements for banks and insurance
companies as to which we made no examination).

-Finally, it should be noted, as evidence of the impression which
the published statements have made upon the investing public, that
Standard Trade and Securities in February, 1937, informed its readers
that Transamerica represented ownership of the largest bank on the
Pacific Coast, that "the management is progressive and has taken full
advantage of changing situations," that since 1933 deposits have increased
and expenses have been reduced, that the Bank of America, N.T.S.A.,

representing 63 per cent of Transamerica net assets, is the fourth
largest bank in the United States; while in July, 1937, the same

periodical advised holding the stock for fair possibilities.

17
4

TREASURY DEPARTMENT
COMPTROLLER OF THE CURRENCY
WASHINGTON
ADDRESS REPLY TO
MPTROLLER OF THE CURRENCY"

November 2, 1937

Dear Mr. Secretary:

Pursuant to your request, I am pleased to furnish you the
following information with reference to the Bank of America, National
Trust & Savings Association. The information is taken from the last
examination which we have in our office, which examination was
completed on August 17, 1937.

Our examiners are in this bank at the present time and will
complete their report in about thirty days. The last examination and
the present one is under the direction of Examiner L. H. Sedlacek, who
has been in the Service about thirteen years. Chief National Bank
Examiner Shanley has been ill in the hospital since the beginning of
the summer and was not able to participate in these examinations.
The last report of examination shows Capital
Surplus

Undivided profits and reserve for
contingencies

Estimated value of assets not shown
on books

Total deposits

$50,000,000
35,000,000

23,093,000
595,371

$1,266,016,477

The report also shows -Doubtful assets
Estimated losses

Total depreciation in securities

$5,568,807
6,788,399
1,074,952

or a total of doubtful, losses and depreciation of $13,432,158, which
deducted from total capital structure of $108,688,371, leaves a net
sound capital structure of $95,256,213, which is a ratio of net sound
capital to deposits of 1 to 13.29. The examiner listed various classes
of assets as slow aggregating $121,783,000.
Net earnings

According to our reports, this bank earned for the calendar
year 1936, $12,450,000 and dividends paid out during the same period
amounted to $8,000,000, leaving a net addition to the bank's undivided

18
Page 2

profits of $4,450,000.
Net earnings up to September 14, 1937 were $8,233,013 and the

bank paid dividends during the first nine months of the year amounting
to $6,400,000.

Dividends

This office has no power to fix the rate of dividends to be

paid by national banks and can only object when dividends are paid
which would impair the surplus, in cases where the surplus is not greater
than the capital, or when paid in violation of other provisions contained
in Sections 5199 and 5204 of the Revised Statutes.
We have, however, often suggested to various banks that they
should not pay dividends and in other cases have recommended a reduc-

tion in the rate and usually our suggestions are complied with. Sometimes banking students attempt to fix the dividend rate upon the capital
in the bank. This would need some explanation. As an illustration, the

First National Bank of New York has $10,000,000 capital and $100,000,000
surplus and pays dividends at an annual rate of 100% of its common capital
stock.

On August 1, 1937, Transamerica Corporation paid an asset

dividend to its shareholders and distributed 58 of the stock of the
Bank of America, National Trust & Savings Association to its individual
shareholders. The balance of the stock of the national bank is held by
Transamerica Corporation. The shares of Transamerica Corporation are
listed on the big board of the New York Stock Exchange and are subject
to the regulations and rules of the Securities Exchange Commission.
For purposes of comparison, I deem it expedient to give you a
similar summary of the Security-First National Bank of Los Angeles,

which is one of the larger institutions in California under the super-

vision of this Bureau and also of the Chase National Bank and the
National City Banks of New York City.
The Security-First National Bank of Los Angeles has Capital
($10,850,000 Preferred)
)

24,000,000 Common
Surplus

Undivided profits
Estimated value of assets not shown
on books

$34,850,000

11,150,000
17,151,000
768,000

Page 3

The report also shows -Doubtful assets
Estimated losses

$3,182,807
1,766,131

At the time of the examination the bank had appreciation
in securities of $3,793,000 and slow assets aggregating $77,858,000.
Deposits aggregated $573,000,000 and the ratio of sound capital to
deposits was 1 to 9.72.
The net earnings of the above named institution for 1936

amounted to $4,344,000 and $2,211,250 paid out in dividends on common

and preferred stock during the year. The net earnings of the bank
for the first six months of 1937 amounted to $1,873,968 and up to
August 1, 1937 the bank paid out in dividends $3,460,875. A calculation based on the net earnings for the first six months of the year
shows that the net earnings of the bank up to August 1, 1937 would be
$2,186,287.

The last report of examination of the National City Bank,
made in April of this year shows Slow assets

$75,187,000
5,815,000
25,979,000

Doubtful assets
Estimated losses

Total deposits

$1,424,000,000

The ratio of sound capital to deposits is 1 to 8.87.
The last report of examination of the Chase National Bank,

made in April of this year shows Slow assets

$97,142,000
16,185,000
15,216,000

Doubtful assets
Estimated losses

$2,005,272,000

Total deposits

The ratio of sound capital structure to deposits is 1 to 8.32.
It is believed that splendid examinations have been made
of all the banks mentioned and that the reports of these examinations

the

reflect the true conditions.

Very truly yours,

OUCONNOR

Comptroller

Honorable Henry Morgenthau, Jr.

Secretary of the Treasury

20
Return to Room 285

January 24, 1938.

GROUP MEETING

Present:

12:00 Noon

Mr. Magill
Mr. Taylor
Mrs Klotz

Mr. McReynolds
Mr. Lochhead

Mr. Bell

Mr. Gibbons
Mr. Haas'

Mr. Gaston
Mr. Oliphant

H.M.Jr:

Well, should I open the meeting by saying it's nice
to be back? I can't be honest about it. But I'll
say this: Mrs. Morgenthau gave me a prize for the
least fussing any ten days I was gone. We had to
have something - bank holding companies - so I
just wanted to at least stay one step behind the
President, anyway.

Isn't that putting it very nicely?
Magill:

You've got to be pretty agile to do that.
That's perfect.

H.M.Jr:

Well, Ros, what do you know?

Magill:

Well, that report came over from the S.E.C., as you

H.M.Jr:

No.

Magill:

I sent it in to Mr. Taylor.

H.M.Jr:

No, I have not.

Magill:

On the Hill, the situation S eems to be this. ....

Gaston:

perhaps have seen.

(Bell comes in)
H.M.Jr:

Hello, Dan.

Bell:

Hello. Glad to see you back.
(Gibbons comes in)

Magill:

The Ways and Means Committee is concluding today

the public hearings on the tax

-2-

H.M.Jr:

Hello, Steve.

Gibbons:

Glad to see you. Excuse me for being late.
How are you (Klotz)?

Klotz:

Nice to see you.

Magill:

The Ways and Means Committee is concluding today the

public hearings on the tax bill, and presumably will
start in again at the executive session. They have
annoyed me somewhat in private conversation with the
extent to which they seem jittery and unwilling to
carry their own load. I had a lengthy session with
them Saturday afternoon, much against my will - with
the leaders, in which they went over in detail all
of the different suggestions which had been made to
them in the course of the public hearings, principally
by lobbyists, and they seemed to me extraordinarily
impressed by what had been suggested to them, and
complained bitterly about the publicity which the
Committee had had, the fact that all the publicity
had been on the other side, and so on. What they
seem to want to do is to slide into the Treasury's
lap the job of defending them against all of the
various suggestions for changes that have been made
by these Washington representatives of various groups.

The most important aspect of that is this proposed
tax on closely-held corporations with incomes of
over $50,000. McCormack, of Massachusetts, has

fought that very strongly from the time it was
first suggested, and now claims to have a majority
of the Committee against it. I don't think he has.
That is not only the principal remainder of the
undistributed profits tax, but I think some provision

of that kind is essential. But it's going to be a
job of extreme difficulty to keep it in, even in the
Committee and even in the House, not to mention the

other side of the Capitol.
H.M.Jr:

Well now, let me ask you this. When does the Ways
and Means Committee think they'11 report a bill out?

Magill:

Well, Mr. Doughton has thought he was going to report
a bill out since about last November 15.

-3H.M.Jr:

I know, but I mean

Magill:

So if you spoke to him, he would say he was going to

H.M.Jr:

Magill:

report one about tomorrow. I should say that with
luck they might have one by the first of February.
But if we have to take care of ex-Governor Gardner
of North Carolina and all the other gentlemen who
have urged specific amendments upon the Committee,
why, they won't have a bill before March 1.
Well, do you think it's time that the President
should see them again?

Well, I would - I'd like someone to put a little
stiffening in their backbones - what they really
need. Vinson has been publicly excellent. He's
carried his load in the hearings very well. But they

seem to share too much this idea which I noticed was
expressed by the Midland Bank in the bulletin Cy Upham

dug up for me, to the effect that taxes ought to be
satisfactory to the taxpayer, and if they are not
they should be repealed. That seems to me a kind of
unattainable ideal.
H.M.Jr:

Well, I've read the newspapers more carefully when I
was away than I ever read them here, and - I mean I

got the time to contribute to it every day - and if

a person made a synopsis of every business committee
and every business organization that makes a recommen-

dation on what to do, they are a hundred percent for
doing away with surplus tax and capital gains.

H.M.Jr:

That's right.
And - but ...

Magill:

Well, on that, I'm not so much worried by the major

Magill:

H.M.Jr:

aspects of that. I think Vinson's 20-16 plan will be
retained without much trouble, and I think their kick
on the capital gains is mainly on the complexity of it.
Well, let's leave it this way. I'm here, feeling
well; I've again gone back to my sled factory for the
time being. I mean I got a complete mental rest.
I couldn't exercise on account of my back; I wrenched
it riding horseback. Horse shot through - couple

-4-

vertebrae out. Saved the horse - which was something.

Well, anyway, if and when you need help, will you
run up the proper signal?
Magill:
H.M.Jr:

This week, I think, will tell the story.
All right.

Magill:

My main purpose in these remarks is to give everybody,
including myself, a cold shower bath.

H.M.Jr:

All right. I notice you say shower bath instead of

Magill:

This is not the Interior Department. We rely on

H.M.Jr:

All right, fine.

a bath - not to qualify it - for sixty families.
shower baths over here.

One thing I wish everybody would do - when I ask for

things like this, Naster - in the future, when I
specifically ask for something, write it down for Mrs.

Klotz, and one for Mr. McReynolds, and one for me.
When I specifically ask.

I wish, Mac, that you'd ask everybody to give you
within a reasonable time all surveys and studies that

are being made within the Treasury, and how many
people you've got working on them and how long you've

been working on them. That includes statistics,
research - now, for instance, I asked somebody to
give me a report on this self-help thing here and if
the question is, is that the one that the President
wanted, you see. I wish you - that includes Health
Department, everything. I'd like to know - regular
fund, etc. I'd like that regularly once a month from
now on. Mac, see? I want everybody: George, Internal
Revenue, Customs, Oliphant's office, Magill's office,
Bell's office, Accounts and Deposits. I want a report
from them of every piece of study and research that is
McR:

going on. I'd like it once a month.
All right.

H.M.Jr:

I think we ought to have it once a month - how much

is going into it, how much it costs, all that sort of

-5-

thing. That includes everybody.
McR:

I got a book on that out in my room. We started it
once
before.
That's been kept up-to-date. It may
not cover
it all.

H.M.Jr:

I'll bet you a five-cent cigar that you can smoke

McR:

H.M.Jr:

I don't smoke cigars.
... that you don't know in your book what Mr. Shoup
is doing.

Mc4:

There's no report on that.

H.M.Jr:

What?

McR:

No report.

H.M.Jr:

I'll bet you a five-cent cigar you don't know about

the study that George Haas is making for Professor
Wesley Mitchell.
McR:

I think you'd probably lose that one, because I
think George's people are keeping all of that stuff

up.

H.M.Jr:

Anyway, will you do that?

McR:

I'm perfectly willing.
So we kind of bring it in. And I promise to look at

H.M.Jr:

it. I can't look at it if you don't bring it in.

But just a little heading - one for Mrs. Klotz and
one on Mr. McReynolds' desk.

Oliphant:
H.M.Jr:

What have you (Oliphant) got?
That of course covers studies and not extended work

on an individual case.

Well, I would say studies. I mean, for instance I don't know what you're doing, but, for instance, a
study of branch banking, or anything that is not a
case.

25
-6-

Oliphant:

That's not a case.

H.M.Jr:

I don't mean cases, but what you call - I don't
know what you call it legally.

Oliphant:

H.M.Jr:

Study - study project.
Study project.
As opposed to - for instance, we'll have a Customs
case and we'll work on that opinion for three months regular staff work.
I don't mean that.

Oliphant:

Projects.

H.M.Jr:

I mean I'm not up-to-date. But the sort of thing

H.M.Jr:

Oliphant:

that you had Yntema do.

Oliphant:

Customs study in New York.

H.M.Jr:

Yes.

Oliphant:

I'm just in the process of seeing my people and getting
up data on hard cases they have left.
All right. Does that make it ...

H.M.Jr:

Perfectly clear.
We're ready on that LaGuardia thing. It's being held
up in the Department of Justice, so I may have to
Well, when will you have a suggested bill for me on

Oliphant:

The copy of that is in Taylor's hands now.

Taylor:

Got one.

H.M.Jr:

All right. Have you (Oliphant) got anything else?

Oliphant:

No, nothing except

Oliphant:

branch banking - holding companies? Holding companies,
not branch banking.

.....

-7-

H.M.Jr:

All right. But you understand what I want on studies.
The Bulletin of the Section of Paintings and Sculpture,
Procurement Division, came over to my office to be
looked over, for our approval. It contains an announcement of a new Jefferson nickel - contest for the design.
That's right.

Gaston:

It's rather an interesting thing; of course, will stir

Gaston:

a lot of comment and controversy. I wondered if you
wanted to have us make this as your announcement, or
should it be handled in some other way. I had a
story prepared for a newspaper release on it, if you

H.M.Jr:
Gaston:

H.M.Jr:

Gaston:

want to do it in that way.
I cleared it at Cabinet.
You cleared it at Cabinet.

The only thing I didn't clear - I'm doing it on my
own initiative - the President said, "Put the buffalo
on the back," but that was silly; he wasn't thinking.
I mean to have Jefferson's head on one side and the
buffalo on the back - you could imagine the kick that
would create. So on my own - so let it go.
All right. Did you have any contact with anybody on
the Hill on the thing?

H.M.Jr:

No. Not necessary.

Gaston:

Think it's not necessary.

H.M.Jr:

Any more than when we got out that dollar. We didn't.
DO you?

Gaston:

H.M.Jr:

I think it will cause a lot of comment, lot of contro-

versy, because you're giving Jefferson a little more
than ever has been given. Washington has had his
picture on one side. This has
Well, we're leaving that great democrat, Lincoln,
on the penny.

Gaston:

He's only on one side, though.

27
-8-

Oliphant:

What's on the other side of this?

Gaston:

Monticello.

H.M.Jr:

What do you want, a buffalo on the other side?

Gaston:

I haven't any opinion; but it's going to be very

H.M.Jr:

That'11 take their mind off holding companies.
We'll shoot on it tomorrow, then.

Gaston:

Bell:

interesting. All right, we'll shoot on it.

I still think it ought to be the memorial - the

nickel be the memorial to Jefferson.

H.M.Jr:

I told the President that at Cabinet and the
President said, "Danny would think of that."

Bell:

Save money.

H.M.Jr:
Gaston:

All right.
I guess that's all right.

H.M.Jr:

Taylor?

Taylor:

Series of things. We've got this holding companies
thing; having little trouble with definition there,
and we have that ready for you.

Jesse wants to talk to you ....
H.M.Jr:

Before.

Taylor:

before, with the idea of possibly not going to
the President on that question about the interest.

H.M.Jr:

Ha ha ha!

Taylor:

That's this morning's bulletin.

H.M.Jr:

Well, I'll tell you something very funny. I've made
up my mind that if I went over there with Danny Bell,
I was going to sit tight, and the President could ram

28
-9-

it down his own throat, but I wasn't going to say
"Ies" - before I'd give up 15 or 20 million dollars.
All right. When is the meeting scheduled?
Taylor:
H.M.Jr:

He's having - on what?
"ell, I asked you to have a meeting on Wednesday

or Thursday.
Taylor:
H.M.Jr:

I don't know whether Cy made it for Wednesday or

Thursday. He was to report it into our office.
I said I thought Thursday would be a little better.
(To Mrs. Klotz) Ask Mr. Jones if he could come at

10:30 tomorrow morning.
Klotz:

10:30.

H.M.Jr:

If that would be convenient. Any time between - either
10:30 or 11, whichever suits him best.

Klotz:

Yes.

H.M.Jr:

See? I'll see Jones tomorrow.

Taylor:

He's seeing the President at noon today, but not
about that.

H.M.Jr:

(Laughs) Now listen, Wayne, I've been down just
imbibing sunshine and fresh air, and no exercise,

soI've had plenty of time. Got any other good fish

stories?
Taylor:

well, let's see

H.M.Jr:

How are your fallen arches?

Taylor:

Apparently it wasn't that at all.

H.M.Jr:

Well, I tell you what you do. We'11 see how we get

along. But before I see Jesse I'll see you - or even
later today, or tomorrow morning.

Taylor:
H.M.Jr:

All right.
Before I see him. What else?

29
-10-

Taylor:

Messrs. McReynolds, Bell, and I have a brief

H.M.Jr:

Which is that you leave it to me?

Taylor:

Pretty much.

H.M.Jr:

Bell:

Well, we can go into that afterwards.
Yes, that's something I want to talk about.
Now, Dan, I can't quite lay my hand on the letter that
Jesse wrote me. I wish you'd have that.
I have the copy of it.

H.M.Jr:

Plus an answer for me.

Bell:

You want an answer to him?

H.M.Jr:

Well, I mean a memorandum.

Bell:

Yes.

H.M.Jr:

Now, there are two things - now, make a note of this two things that I want. The letter which Jesse wrote
me and which - oh, about a month ago, saying he wanted
to do his own financing, which I never answered.

Bell:

Yes.

H.M.Jr:

And I got to thinking it was a mistake to have a letter
like that kicking around and come back six months from
now, as to why he'd better do his own financing. I
want to answer it, Number One. I want you to draft

Mcd:

H.M.Jr:

communication to give you.

that.

Number Two. Jesse made a mistake when he wrote me

this last letter of January 19, and I want to answer
that, and in that I want to remind him that we were
ready last June, as I told Mr. Taylor, and Taylor
said I could do that; that the Commodity Credit bill
has been ready since the date - whatever it was - that
they met in Mr. Taylor's office; and, as to the R.F.C.
bill, we've been waiting on him and the entire thing
is up to him. I don't want him three months or six
months from now to say that either the Commodity

30
-11-

Credit or the R.F.C. bill were waiting for me;
and I want to make it plain, as long as he's written
me those two letters, that we wouldn't let him do his
own financing until he has an honest balance sheet.

It's up to him. He's asking for it, and I'm going to
give to him, and give it to him perfectly straight.

I don't want him to come back and say, "I could have
borrowed money at a half of one percent, but Morgenthau wouldn't let me; I could have had a Commodity
Credit bill in, but Morgenthau went away for ten days;
I could have cleared up the R.F.C., but Morgenthau

wasn't ready." It's not so. We've been ready since
last June on the R.F.C. bill, ready on Commodity Credit
since that meeting took place in his (Taylor) office,

where he agreed to everything.
Bell:

Around November 15.

H.M.Jr:

And then he had to go away on his vacation for three
weeks. And I want to make it plain that I will not
let him do his own financing until he cleans up his
balance sheet. Now, he's written me two letters

which I think were silly, but he's done it and I've
got to answer them. I can't let them kick around in
the office. I mean I'm not going to have Jesse do
something which I don't understand and six months

from now come back and say, "Morgenthau went away

and I had to sit around and wait."

I don't know whether you (Taylor) agree with me or

not. But I didn't ask him to write me. But he did,

and I'm going to give him just as stiff an answer perfectly polite, but let him know where we stand.

Taylor:

I don't think this last one was intended to be

H.M.Jr:

In his own handwriting, on the bottom.

Taylor:

Yes, I know.

H.M.Jr:

"ell, I don't know, personally I think Jesse is a
fine fellow, I think he's absolutely trustworthy and

honest; but he's the shrewdest horse-trader in
Washington, and when he writes me a letter he's got
a reason for it, and when our skirts are clean and
we've tried our best to cooperate with him, and he's
always horse-trading - I just want to make a record.

-12-

Now, I didn't ask him to write me. I don't want
him to go on the Hill and say, "Well, I could have

borrowed the thing, but Morgenthau didn't let me.
He charges me two percent and I could borrow it for
a half of one percent." And furthermore he again
comes back and says the only reason he reduced the
interest rate was so that he could pass it along.

Bell:

Well now, that isn't so.
Not entirely.

H.M.Jr:

Part
of the reason for reducing the interest rate
was so

Bell:

Was the adjustment.

H.M.Jr:

Bell:

was the adjustment.

His contention is that that adjustment didn't take
into consideration the loans made to states for
relief purposes.

H.M.Jr:

Well, if you - is it crowding you too much?

Bell:

No, I've got a draft of it.

H.M.Jr:

But I want you to take the two letters and give me

one answer.

Bell:

O.K.

H.M.Jr:

And if you and Taylor would come in at 10 tomorrow,

why, I'll go over it with you at 10 before I see him.

See?

Bell:

O.K.

H.M.Jr:

But I'd like you to draft it, if you would, please.
I've got a draft of the reply to the letter of
January 19. I thought I'd better go back and figure

Bell:
H.M.Jr:

out some of these average rates.
But there's another letter which he wrote me
previously, saying he wanted to do his own financing,
which has never been answered. I don't like these
unanswered letters.

-13-

Bell:

He picked out a year which was very favorable to
the R.F.C. If he went back to the time you came
in, he couldn't borrow money ...

H.M.Jr:

I'm not asking Gaston to come in on this thing
like on the Comptroller General.

Gaston:

Oh, you don't want to burn him up.

H.M.Jr:

This is just a straight reply.

McR:

Were you talking about the Comptroller General?

H.M.Jr:

All right. Wayne?
That's all.

Taylor:
H.M.Jr:

Let's make it 10:30 and make Jones 11. Make Jones
11, and Taylor and Bell 10:30.
George?

Haas:

I've got a few things here. Here are some of these
reporting companies. Those figures are the best there

is in the business picture.

H.M.Jr:
Haas:

Yes. I saw that the Federal Reserve is releasing them.
Uh-huh. Those last two figures are their figures,
you see, and about equal to a year ago, which is
very good considering the situation.

H.M.Jr:

Everything else not so good.

Haas:

You'll notice Steel has turned there. You'll notice
the second one there is U. S. Steel. At least going
the right direction.

Bell:

How
does that compare with last year at this time,
on Steel?

Haas:

Oh, I've forgot, but it's way down.

Bell:

It's way below. It was up in the 50's, wasn't it?

Haas:

Last year it wa3 the peak. I don't remember exactly.

-14-

H.M.Jr:

Approximately, first two weeks of January - this
is approximate, averaging the two - they did about

a hundred thousand tons each week; that's the
approximate average; against, again averaging,
about 350,000 tons a week the previous year.
Bell:

Last year.

H.M.Jr:

Bell:

Last year.
One-third.

H.M.Jr:

On the other hand, the merchandising stores are

Haas:

doing well, aren't they?
That's right. On physical volume the department
stores are a little above a year ago.

H.M.Jr:

George, I see that Mr. Paul Mazur retained a group
to make a study of what happened last year - in
today's paper, or Sunday's paper.

Taylor:

Sunday's paper, it was.
Yes. Retained two German exiles to do a study for

H.M.Jr:

him. What is that institute - Social Science, is it?

What is that college?
Oliphant:

Princeton?

Magill:

Social Science Research Council.

H.M.Jr:
Gaston:

No, in New York.
New School for Social Research.

H.M.Jr:

New School for Social Research. Who's the Director?

Magill:

Johnson, isn't it?

Haas:

Alvin Johnson.

H.M.Jr:

Alvin Johnson. They made a study, and the headlines

all say, "Against the Taxes." You read all the way
down and you don't find a thing against the taxes not a thing. We ought to get a couple copies, so you
can have one, and everybody else that wants one.
Magill wants one. Everybody else that - will you?

-15Haas:

I'll get it.

H.M.Jr:

The most unfavorable piece of reporting I ever saw.

I read the thing carefully. Did you (Taylor) read it?

Taylor:

(Nods yes)

H.M.Jr:

I couldn't find anything about taxes, could you?

Taylor:

(Nods no)

H.M.Jr:

Still the headline says, "Report of Social Science
the Fault of Last Year's Depression." And darned if I read the whole thing through - I could see it.

School, Alvin Johnson, Director, Says the Taxes were
Taylor:

It was all about junior capital.

H.M.Jr:

There wasn't a thing about - the only thing that made
sense, I saw Paul Mazur was behind it, and financed
by Lehman Brothers. But the reporting - I never saw

anything like it.

Could you - you ought to have for me now, George,

that business on going back the last year, the

analysis.
Haas:

I think I'll have that for you.

H.M.Jr:

How would you describe it?

Haas:

"Chronology of the Business Situation Since July 1,

1936."

H.M.Jr:

And what about Wesley Mitchell?

Haas:

He's at Nassau, not expected back until February 1.

H.M.Jr:

What you going to do?

Haas:

Well, we can talk to his assistant, Arthur Burns,

H.M.Jr:

Well, have him come down. You see him.

Haas:

O.K.

that he had down here.

-16-

H.M.Jr:

Get him down, will you, quick?

Haas:

Do you want to see nim when he comes?

H.M.Jr:

Yes, if he has anything to say.

Haas:

O.K.

H.M.Jr:

What else?

Haas:

Vanderblue was in to see me. Still pretty blue.

Pinned him down, and he thinks there may be a spring
bulge.

H.M.Jr:

Who's Vanderblue?

Haas:

He's with Tri-Continental. de was; I'm not sure he
is now, because just before I left on the trip, a
man who was with Goldman-Sachs, named Naess,

who used to work with me out in Detroit, said he
was going over as Vice President in Charge of
Research. So maybe Vanderblue is not there; I'm
not sure.

H.M.Jr:

What else, George?

Haas:

I had some interesting charts - some time, if you

have time - take quite a little explanation to go

over them.
H.M.Jr:

We'11 get around to it. I've got lots of time.

Haas:

Wallace is having some meetings on business condi-

What else?

tions about once a month. I haven't attended any
of them, but I sent Daggit over there. He has
Goldenweiser and Lubin and several other people,
and ...
H.M.Jr:

Well, if you get a chance

Haas:

I understand they called you on the last meeting,
but you were out of town.
Wallace said he was not to be candidate for Governor
of Iowa this year.

Gaston:

36
-17H.M.Jr:

Senator.

Gaston:

Senator, oh yes. Not going to be a candidate for
anything.

H.M.Jr:

"hat happened to the price of corn after that

announcement?

Gaston:

I don't know. Ask George.

H.M.Jr:

Anything else, George?

Haas:

That's all I have, except ...
I'll give you time.

H.M.Jr:

You (Lochhead) gave me - I don't know whether through

December or not I think you did. I don't know

whether you did, or Harry White - showing the major
movements of gold each month last year, then a little
notation what happened. Is that up to December?
Lochhead:

Up to December.

H.M.Jr:

Did you include the month of December?

Lochhead:

Well, included everything they had figures on up to
that time.

H.M.Jr:

Well, will you bring it to date and through December?

Lochhead:

Right.

H.M.Jr:

I mean do - I don't know whether it was for the

calendar year.
Lochhead:

Oh, it ran back the full calendar year.

H.M.Jr:

will you fix it up? (To reporter) . Explaining the

movement of gold.
What?

Lochhead:

Yes, sir.

H.M.Jr:

All right.

37
-18Lochhead:

I'm holding up the two letters for the February
purchase of silver, for both Canada and Mexico.
I'm holding them up on the desk.

Taylor:

Also holding up the Mexican arrangements with the

Fed for the credit.

H.M.Jr:

Gave them a word on it.

Taylor:

Yes, this will go through, but it wasn't ready for -

H.M.Jr:

Gave them a word on it. You mean permitting them
to borrow against gold.

Taylor:

I don't see any reasons for not doing it.

H.M.Jr:

There isn't any reason. I mean because they don't
keep their word is no reason why we shouldn't keep
ours.

Gaston:

That's one of the things they'11 ask about this

until about two or three days ago.

afternoon: whether the commitment to buy silver
for February from Mexico has gone through.

H.M.Jr:

When does that come through?

Lochhead:

They have to apply for the renewal on the middle

of the month, which they both do. There is no date
set for us to give them the reply. We try to give
them the reply so it reaches them by mail in time
for the new month's business.

H.M.Jr:

What would be the deadline?

Lochhead:

The deadline would be somewhere around Wednesday or

Thursday of this week.

H.M.Jr:

You mean the 31st?

Lochhead:

We have to write the letter up to the Fed and they
have to write the letter down to Mexico.

H.M.Jr:

I thought it was a middle-of-the-month agreement.

Lochhead:

No, it runs for the calendar month, but they apply

-19-

for it the middle of each month.
H.M.Jr:
Lochhead:

I see. Well, have we granted it for February?

Not yet. The letters are all prepared, but they

haven't been signed.

There's been very little going on in gold. Haven't
been getting any imports to speak of, no exports or
no earmarking; but of course we are accumulating
quite a lot of domestically produced gold. That has
crept up.

H.M.Jr:

All right.

Gibbons:

On Opper, I took him all around. Pat Harrison has
got that under his thumb and they've got to use the
paddle on him. I talked to Jim Farley about it. He
said, "You can do more with Pat, Steve, than I can
right now. You know, I was part of the scheme to
kick the ground out from under him that time with
Barkley." But Pat has asked me to keep a Customs
station down at Biloxi which we were going to drop

out. I'm going to do it for him.

H.M.Jr:

Getting pretty expensive, getting Opper in there,

Gibbons:

Well, this thing we'd do anyhow.

H.M.Jr:

isn't it?

I put two men on. Had to give Wagner's man a job

and President's deacon of his church a job. Let

me call.

(On phone) Senator Harrison, please.
H.M.Jr:

He was very nice to us.
But he hasn't done anything.

Gibbons:

He hasn't done anything, and of course he can just

Gibbons:

let that thing lay in committee. Everybody else is

all right.
H.M.Jr:

Who's the secretary of his committee? The boy we
always work with.

39
-20-

Magill:

Skeeter Johnston.

H.M.Jr:

No, that name isn't familiar.

Magill:

Skeeter's the name.

H.M.Jr:

He wasn't there last year.

Magill:

Yes, he was.

H.M.Jr:

Johnston.

Bell:

Of the Finance Committee.

H.M.Jr:

Yes. All right. Well, thanks anyway for taking
him up.

Gibbons:

You're going to talk to him now?

H.M.Jr:

I'll talk to him.

Gibbons:

I have a list here of vacancies in Customs and
Internal Revenue, which the President's office they're sending it over once a week. Don't want
to be bothered with that. And each case, of course some reason why they haven't been filled. Maynard
just died in Boston.

H.M.Jr:

well, let's leave it this way. You handle it up

Gibbons:

Getting to an impasse. There are two now. Collector

to the point

of Internal Revenue up at Tacoma, State of Washington,
and Done and Schwellenbach are at odds.

H.M.Jr:

"ell, perfectly frankly, those things interest me the
least of anything in the Treasury - the appointments and if the fellows are honorable and able and Mac and
you are satisfied, I am.

Gibbons:

Well, the three cases where one Senator wants one and
another Senator wants

H.M.Jr:

If it gets to a point where you can't, then that's my
job. But it really interests me the least.

Gibbons:

The office is functioning, and where two Senators
disagree, why should we worry about it?

40
-21-

H.M.Jr:

On that Territory of Hawaii - Doyle - I said no.

Gibbons:

Jim has told Wilson held have to submit another
name. Wilson is National Committeeman.

H.M.Jr:

But things like that - but up to the point - I
mean more than pleased to leave it to you.

Gibbons:

Yes. On the posters, I could only get two. In that
campaign in '28 the President didn't really run until
right about the time of the state convention.

H.M.Jr:

Yes.

Gibbons:

And his campaign was sort of a tail to the Smith
campaign. Nothing available.

H.M.Jr:

I see.

(On phone) Hello. (Has conversation with Senator

Harrison)
MCR:

Bob (Wagner) has been home - he's been home sick

ever since you left.

H.M.Jr:

How many vacancies are there, Mac, on that thing

McR:

There are three yet.

H.M.Jr:

You got candidates for them all?
Bob Wagner's candidate will fill one of them.
That'11 be two left.

McR:

H.M.Jr:

over there - on that Tax

I mean Steve can just fill those as he sees fit,
can he?

Oliphant:

No!

(Hearty laughter)
H.M.Jr:

All right, that's all I wanted.

Klotz:

Hear the department that came from.
Who invented that sound?

Gibbons:

41
-22McR:

We filled two of them on Herman while he was gone.

Oliphant: Two?
McR:

Well, the second one hasn't come through, but it's
promised.

H.M.Jr:

You (Gibbons) know now, don't you - in a pinch.

Oliphant:

When I go away.

H.M.Jr:

Well, we'll send you away, if necessary, for
another week. In a pinch, now.

McR:

H.M.Jr:

Said to me this morning that the department's gone
to hell while he's been gone; specifically, because
we let Jefty O'Connor resign.
I see.

Gibbons:

Well, on the ...

H.M.Jr:

Send the poster to Mrs. Klotz, will you?

Gibbons:

She's got them. I sent them to Miss Chauncey.

H.M.Jr:
Gibbons:

Posters for the President's party.
There's nothing available.

H.M.Jr:

"e've got a good slogan.

Bell:

I have a couple of Coast Guard matters I'd like to

H.M.Jr:

Post card?

Bell:

Coast Guard estimates.

H.M.Jr:

I wondered ....

Bell:

For large airplanes. I'd like to talk to you sometime.
All right.

H.M.Jr:

Bell:

talk to you and Mac about - estimates - sometime.

Now, the other day you asked me about this Stitely
case over in the Interior Department. It turns out
that Allen paid about $20,000 to those payrolls.

42
-23-

H.M.Jr:

Who's Allen?

Bell:

Chief Disbursing Officer. But I think his records
are all clear. He had certifications, signatures
in his files, etc. Just a good forgery all the way
through.

McR:

Plain case of fellow stealing, that's all.

Bell:

But I think we ought to have some check-up on just
the procedure in the Department - payroll handling -

and I've started that. I think we'll find that the

certification of payrolls is rather perfunctory not
only in this Department but in every other depart-

ment, so I've started this morning getting a memorandum from each one as to just what is done on these
payrolls, and I think we'll have to make some recom-

mendations on it. You see, every payroll that is

made up by the bureau head is supposed to go through
Mr. Harper and be checked, and I find that some of
them do not, and the ones that go up there - why,

he takes the certification of the head of the
department. Well, that's not a check. I think
before we're through that we ought to transfer all
of the plates, that is, the name-plates, from the
bureau heads to Mr. Harper; that he ought to make
up the payroll and send it to the bureau heads for
check.

H.M.Jr:

Bureau heads in Treasury?

Bell:

Yes, and if there are any changes in that payroll
it comes back to Mr. Harper before it goes to the
disbursing officer. He ought to know why those
changes are made.

H.M.Jr:

I'd be very much interested to follow it.

Bell:

I think we ought
Has Eddie Bartelt heard anything from his 22 men on
Social Security?
He's been holding conferences the last two days.

H.M.Jr:

Will you ask him if he wants to see me, and if there

H.M.Jr:

is any state in trouble, tell him to let Mrs. Klotz

-24-

know and I'll see him this afternoon.
Bell:
H.M.Jr:

All right.
"ill
you? If there is any state which is in
trouble.

Bell:

I might tell you that we have paid or will have

paid out close of business today $23,700,000 during
the month of January, and we have taken in
$28,500,000, so that we have almost five million
dollars receipts over payments. Some of these states,
I am quite certain, are drawing out a good deal more
than they need. Pennsylvania wants ten million dollars

on the first, and they won't listen to any other
banking proposition. They like to put a big deposit
in some bank. Now, Pennsylvania probably won't pay
out ten million dollars in two months. We lose
interest on the ten million.
amount. I think it becomes a good many times a

H.M.Jr:

DO I see that you're showing it on the statement now?

Bell:

Yes.

H.M.Jr:

All right, Dan. Well, if Eddie Bartelt has anything,
tell him to let Mrs. Klotz know and I'll see him. I
mean if some state - I'11 see the two of you for a
couple minutes.

Dell:
H.M.Jr:

All right.
Only if any state is in trouble.

Bell:

I don't think they have had any detailed report yet.

H.M.Jr:

All right.
Mac?

McR:

+he only thing that troubles me, and this is very
troublesome, is the Collector of Internal Revenue
at Jersey City. You sent in a complaint of

political assessment of one of his employees about
six weeks or two months ago, and told me to go into

it and bring it back. There was a good deal to it.

This Mack

-25-

H.M.Jr:

M-a-c-k?

MCR:

Yes.

report about that thing - I don't think
there's any question but what Kelly has - well, as
a matter of fact, the report shows that he's continued as acting head of their political committees

although he submitted his resignation and it wasn't
accepted; and I think there's been more uniform

definite collection of percentage of salary from
all of the employees in the office of that Collector

of Internal Revenue than we have ever found any
place.

H.M.Jr:

Magill:

Now, here's a place - why shouldn't the Commissioner

of Internal Revenue sit on that instead of my having to
sit on that thing and spend hours? Why isn't that his
responsibility?
I should think it would be.

H.M.Jr:

Will you and Mac watch to see if the job is done,
and if

Magill:

I don't see why you should.

Gibbons:

Mr. Secretary, on this fellow - at the time he

was appointed, shortly afterwards we had a complaint
and Herbert had a lot of correspondence - newspaper
articles on it. And that really went over to the
White House. They know about his continuing on that

H.M.Jr:

board; I mean they just simply forgot about it.
Well, I can't - what I'm going to say, for procedure,
in order to make the best use of my time - I'm asking
McReynolds and Mr. Magill to take it up with the
Commissioner and keep Steve Gibbons informed, so
that he can let Mr. Farley know what we're doing,
because if Mr. Farley knows he'll always play ball.

Gibbons:

Sure.

H.M.Jr:

But I'd like
He always has; he's never once ...
a report back by Monday as to what's happened, do you
see?

Magill:

Yes.

45
-26-

H.M.Jr:

But I mean this is, if you don't mind - I mean
if it gets to the point that some other agency
outside of the Treasury interferes, then I'll
step in and back you up; but up to that time I

don't see why you and Mac and Helvering can't

Gibbons:

handle it, keeping Steve informed so that
You shouldn't be bothered with this stuff.

Magill:

I don't think it ought to be

H.M.Jr:

I mean hours and hours.

Gibbons:

You
know, when that fellow was appointed, you spent
more time

H.M.Jr:

But, Mac, I want a report back on Monday on that.

Are you (Magill) willing to accept that?
Magill:
H.M.Jr:

Well, I think somewhat the same situation applies
to me as to you. I don't know why the Commissioner
Perfectly true, but the Commissioner of Internal
Revenue is directly under you, so you send for him
and give it to him, will you, with Mac. "This is a
new way we're going to handle this thing. If you

get to a position that somebody is interfering, let
Magill know, and Magill will take it up with me. But
up to that time it's up to Helvering."

Magill:

Fair enough.

H.M.Jr:

Huh, Mac?

McR:

Yes, sir.

H.M.Jr:

I mean that takes a half a day, three-fourths. But
the important thing is, if Gibbons knows what's going
on, then he can tell Farley and Farley will leave us

alone. He always has.
Gibbons:

Oh yes.

McR:

This hasn't gone through Guy because you said to me,

"I want you to investigate and report back to me."

46
-27-

H.M.Jr:
McR:

H.M.Jr:

Well, you have. Now I think the thing to do is
Just to
ashandle
you suggested,
I think it's a good idea for
Ros
it.

Klotz:

Have you (Klotz) got anything?
Not a thing.

H.M.Jr:

Well, see you all tomorrow.

Return to Room 285

January 26, 1938

1. Holding company affiliate (bank holding company) was defined
in the Banking Act of 1933 as any corporation, business trust,

association, or other similar organization
A. Which owns or controls, directly or indirectly,
1. A majority of the shares of a member bank, or
2. Over 50% of shares voted for election of directors
of bank at last election, or
B. Which controls in any manner election of a majority of
the directors of any one bank, or
C. For whose benefit substantially all the stock of a
member bank is held by trustees.
2. In examining state member banks, Federal Reserve examiners

have the duty of examining the affairs of affiliates to
disclose fully relationships between them and effect upon
the member bank. If resistance is offered, the member banks
may lose membership in the Reserve System.

(The Controller has the same powers and duties in

connection with affiliates of national banks.)
3. Each state member bank must furnish the Federal Reserve Board

at least three reports each year from affiliates (including
holding company affiliates). Additional reports may be required by the Federal Reserve Board.

(National banks must furnish similar reports to
the Controller.)

-24. Holding companies, if they want to vote their stock in
national banks and state member banks, must secure a voting
permit from the Federal Reserve Board.

To get a voting permit, they must agree
A. To be examined by Federal Reserve and Controller,
or both.

B. To permit examination of all banks in group.
C. To build up a special reserve of assets other
than bank stocks.

D. To not be affiliated with an investment company.
E. To declare dividends only out of actual net
earnings.

5. Voting permits may be cancelled by the Federal Reserve Board
for

A. Violation of the statute, or
B. Violation of the agreement given the Federal Reserve.

6. Penalties after revocation of voting permit may be
A. National banks may be denied the right to hold public
funds.

B. National banks may be denied right to pay dividends
to the holding company.

-3C. National banks may be cited to court for revocation
of charter.
D. State member banks may have membership in Federal
Reserve cancelled.

7. There is a limit to the amount of loans a member bank can
make to a holding company affiliate.

8. Holding companies are limited in their right to vote for
directors of reserve banks.

1-28

to 235

Crowleys report Return Room

Confidential

Some Factors Involved in the Question of
DISSOLUTION OF BANK HOLDING COMPANIES

There was no regulation prior to the Banking Act of 1933, when the Board was
given limited authority.

There were 61 groups in the fall of 1933, not including a few with only nonmember banks of no great importance in the total figures.
21 groups, through disposal of bank stocks, mergers, conversions to branches,
etc., in most cases, have since been either completely terminated or determined under Section 301 to be "accidental" groups, embracing 322 banking
offices and deposits of over $1,200,000,000 in 141 towns.
One other small group was absorbed by a larger one, leaving 39 (of the 61 involving at least one member bank each) groups which embraced 576 banks with
659 branches-1,235 banking offices--and deposits of $4,540,000,000 in 816
towns in 1933, as compared with 410 banks with 890 branches--1,300 banking
offices--and deposits of $6,360,000,000 in 847 towns at present.

Marine Bancorporation (Wash.) -

U. S. National Corp. (Ore.) Almours Securities (Fla.) -

Net increase, 71 towns, 123 banking offices
"

Transamerica -

Marine Midland -

Principal cases of expansion:

Principal cases of contraction, other than explained above:

Wisconsin Bankshares - Net decrease, 14 towns, 17 banking offices
"

"
"

"
6

"
3

"
"
"

First Security Corp. (Ogden) -

14
12

Northwest Bancorporation Old National Corp. (Spokane) -

First Bank Stock Corp. -

No new bank holding company groups of importance have been developed since
1933.

Present companies weathered 1931-1933 storm, effected contributions and other

assistance in millions of dollars in many cases, $10,000,000 to $40,000,000
in several cases, and approximately $100,000,000 in one case, preventing failures and losses to depositors.

Put on sound and profitable basis, through operating economies, sounder loans
and investments, more efficient management, etc., many small subsidiary banks
which would have had difficulties as independent banks, especially during last
few years.

In no group has condition of banks endangered position of F.D.I.C. In general,
asset conditions of group banks are sound and comparatively liquid and capital
positions, even with large increases in deposits, compare favorably.

-2 Supervision of various units of groups facilitated as to details, credits,

etc., on account of audits and examinations and daily reviews by continuing
trained staff, and as to policies and management through having a focal point
for corrective action.

Ample credit and other banking facilities are available for large or small
concerns, as well as for debtor communities or areas, leveling interest rates,
etc.

Influence of large city correspondents upon many small banks, especially as
to "investments", eliminated.

Difficulties and Effects of Dissolution
Dissolution without regulation would necessitate definition based upon low
percentage of ownership, say 5 per cent, in order to be certain of preventing
all cases of control. Thus many hardships would be inflicted unnecessarily.

Distribution of shares would entail endless details and difficulties in a
great many cases, as where one company with over 18,000 shareholders, widely
scattered, owns varying numbers of shares of each of its 90-odd banks.
Absentee ownership would be increased and stockholder interest in the manage-

ment of the banks would be practically eliminated, thus making it possible

for undesirable elements, with but little outlay in buying up fractional or
small certificates, to exercise control for their selfish interests.

The sale in the market at anything approaching a fair value of shares in a
large number of small banks would be impossible in most cases, giving "insiders" opportunity to pick up stocks at bargain prices and convert groups
into chains which are not susceptible of regulation. There is no satisfactory
market for stocks of well-known banks, many selling below net sound values.
Local capital is neither available nor willing in many cases of small banks.
The R.F.C. has over 550,000,000 in more than 5,000 banks.
The liquidation of banks would be the only practical alternative in many
cases.

More important effects would be:

Tightening credit or even liquidation of loans and securities;
Loss of confidence in the banks by depositors (who are not to be
compared with purchasers of public utility products), weakening
most and possibly wrecking some of the banks;

Possible danger to position of F.D.I.C.;
Serious interference with efforts of supervisory agencies to inject sounder management and more capital into the banking structure.

52
-3- Adequate Regulation More Practical than Dissolution

Most of the criticisms of bank holding companies relate to conditions and
practices before any degree of regulation was provided for in the law (1933).
Others are associated with holding companies in other fields, particularly
public utilities. Supposed dangers are not based upon facts or experience
and are largely academic and imaginary in many cases.

Remaining criticisms could be greatly reduced, if not entirely eliminated, by
desirable legislation along the following lines:
Restrict or prohibit unwarranted expansion and new holding
companies.

Broaden regulation by lowering percentage of stock ownership in
definition of bank holding company.
Place all bank holding companies under regulation by law rather
than through voluntary agreements in connection with voting
permits.

Strengthen Board's authority to supervise and provide adequate

penalties for violation of law and regulations and principles

of sound banking.

Repeal present cumbersome and unsatisfactory voting permit provisions.

53
ARGUMENTS FOR

fan 28 1935

REORGANIZATION OF BANK SUPERVISION.

Under present arrangements 5,300 national banks are primarily
supervised by the Comptroller of the Currency 1,100 State member banks
by the Federal Reserve System; 7,500 other insured State banks by the Federal Deposit Insurance Corporation. However, in many matters the functions
,

of these agencies overlap and conflict with resulting confusion, inefficienoy, expense, and diffusion of responsibility.

The plan suggested would consolidate under the Board the supervision of all member banks, State and national, and facilitate the coordination of the work of the Federal Reserve System and the F.D.I.C. in the field

of bank supervision.

The plan here proposed would tends

1. To standardize and strengthen Federal examination
and supervision of banks.
2. To standardise and reduce the number of reports
required from nearly 14,000 banks.

3. To reduce multiple supervisory staffs, including
examiners, lawyers, statisticians and other technicians both
in Washington and in the field.
4. To reduce the cost of Federal supervision now borne

by the banking system.

5. To reduce conflicts in the exercise of similar authority, such as defining such terms as "deposits" and "in-

terest."

6. To reduce the possibility of one agency's exercising its power without reference to the activity of other

agencies. (See attached example.)

7. To avoid the confusion of bankers and the public
growing out of the existing divided and overlapping authorities of multiple agencies.
8. To standardize conditions under which banks become subject to Federal jurisdiction in whatever form, mak-

ing for a uniform policy with respect to the organization of

new banks.

9. To coordinate examining policy with oredit oontrol policy. (See attached statement of Jacob Viner.)

54
Attachment No. 2

"Recent Legislation and the Banking Situation"
appearing in the American Economic Review, Vol. XXVI, No. 1,
Supplement, March 1936.

By Dr. Jacob Viner

"It is evident, therefore, that bank supervision

and examination are neither necessary nor sufficient conditions to assure that the banking system will be strong
enough to withstand a severe depression without wholesale

collapse, although it may be presumed that the record of
the American banking system would have been even worse if

it had been wholly free from supervision and regulation.

But unless it is directed with this danger in mind, the
nature of the examining process is itself such as to impose upon the activities of the banks a perverse cyclical
pattern from the point of view of stabilization. The
examiners, through qualitative credit standards which
they impose on banks, indirectly influence the quantity
of bank oredit. When business is prosperous and optimism
prevails, examiners, like the bankers themselves, must
tend to appraise credit risks in terms of the favorable
conditions of the moment. The bankers, and especially
the small bankers, confident that what is good enough to
pass the sorutiny of the examiners should be good enough

to meet their own standards, persist on their career of
credit expansion. Later, when the tide of business turns,

when banks begin to fail and loans which were passed without oriticism during the boom days have to be written off
as bad debts, the examiners are blamed. Reacting in a
perfectly natural manner, they become stricter and more
exacting in the standards they apply, and they press the
banks to liquidate loans and investments which the banks,

if left to their own devices, would be happy to keep in
their portfolios. The process of bank examination thus

tends to encourage credit expansion during the upswing of

the business cycle and, more seriously, to intensify credit
contraction during the downswing.

"There is an obvious cure for this perverse offect of bank examination, requiring three innovations in

the administration of the examinations: unified control of
bank supervision and examination; oo-ordination of examina-

tion policy with credit control policy; and systematic and
continuous supervision and instruction of the examiners in

terms of a uniform and flexible policy. Fully to attain

all of these objectives would require the centralisation
of all bank examining functions under the direction of the

Federal Reserve Board."

Attachment No. 1

Recently the Federal Deposit Insurance Corporation instituted
statutory proceedings to terminate a national bank's insurance.
Under such proceedings the Corporation notifies the Comptroller of
the bank's violations of law and continued unsound practices and,
unless the Comptroller obtains correction in 120 days, the Federal
Deposit Insurance Corporation may hold a hearing and terminate the
bank's insured status, in which event the Comptroller must appoint
the Corporation receiver. While the Federal Deposit Insurance Corporation was considering the advisability of instituting proceedings

in the subject case, the Comptroller, by certificate filed with the

Board of Governors, instituted proceedings to remove the president of
the bank from office under section 30 of the Banking Act of 1933. The
Board promptly initiated an expensive hearing and during the course of
its deliberation in connection with the same, the Comptroller appointed
a conservator for the bank. The result was that the Board of Governors
removed an officer from a bank for which the Comptroller of the Currency
had already appointed a conservator, who in turn was supplanted by the
Federal Deposit Insurance Corporation as receiver.

RESUME' OF ACTIVITIES OF THE BUREAU OF
COMPTROLLER OF THE CURRENCY FOR

YEAR 1937.

Return to Room 286

LIQUIDATION OF INSOLVENT NATIONAL BANKS.

Number of National and District of Columbia State Bank Receiverships
completely liquidated and finally closed Jan 1 to Dec 31,1937

407

$132,239,491.00

Payments to depositors in these 407 insolvent banks

73.69%

Estimated average percentage of deposits paid off

Average percentage of expense of liquidation, including offsets

6.83%

allowed

Actual failures of National Banks year ended December 31, 1937
Cause of failure
Name of Bank
Date of failure
Aug 14, 1937

Fort Greene National Bank in

Aug 24, 1937

The Taylor National Bank,

Oct 22, 1937

Nescopeck National Bank
Nescopeck, Penna.

New York, N.Y.

Campbellsville, Ky.

Percent

insured.

Unwise and unethical
banking practices.

75%

Unethical banking
practices.

87%

Embezzlement by
Cashier.

Active National and District of Columbia State Bank Receiverships
as of the close of business December 31, 1937

92%

781

Number of Receiverships completely liquidated and finally closed

during the month of December, 1937

Sales authorized for 9,188 parcels of Real Estate for a total amount of $36,280,055.14
which includes 225 bank buildings.
Auction sales made in 111 individual receiverships.
10,000 assets secured by real estate liens in 622 receiverships analyzed during year.
7,853 reports on real estate owned were received and analyzed.

Personal calls made by representatives of this unit on receivers of 200 Trusts.
Proceeds of sales of securities by the Special Liquidator of

Securities in New York from Jan 1 to Dec 31, 1937 and also
sales directly by receivers from Jan 15 to Dec 31, 1937

$9,030,148.68

Number of active National and District of Columbia State Bank
Receivers as of January 1, 1937

474

Number of active National and District of Columbia State Bank

335

Receivers as of December 31, 1937

SUPREME COURT CASES

Prepared by Legal Division 6
Prepared by outside Attys 3
(FOLLOWUP OF THIS ON PAGE 2)

4 won

2 lost

1 won

2 lost

(2)

Petitions to Supreme Court for Writs of Certiorari to review decisions
in favor of Receivers in the Circuit Court of Appeals.
12 denied

Filed by Private Litigants 17

5 granted

Petitions filed by Receivers to review adverse decisions by Circuit Court

of Appeals.

Number of Petitions

8 granted

8 denied

There were on October 31, 1937 approximately 15,000 cases pending involving the 882
then active National Bank and District of Columbia State Bank Receiverships.

Deposits of National Banksfor the last three calls.
Date

Number of Banks

Deposits

Dec 31, 1936

5,331 (15,704)

$27,608,397,000 ($61,155,014.000)

March 31, 1937

5,311 ( - )

$26,515,110,000 (

June 30, 1937

5,299 (15,580)

$26,765,913,000 ($59,822,370,000)

)

NOTE: Figures within the brackets are for all banks and are shown to enable a quick
comparison as to the proportion that the national banks in number relate to
the total number of all banks - also a like comparison as to national bank
deposits as against the deposits of all banks.

Net liabilities (Direct and Indirect) of Officers of National Banks.
Date

Number of Banks

Direct liabilities
of officers

Indirect liabiliti
of officers

4,404

$93,743,000

$43,487,000

June 30, 1933

3,730

30,052,000

17,794,000

June 30, 1937
Decrease in number
of banks

Decrease in Direct

Liabilities

Decrease in Indirect

Liabilities

674 (15.3%)
$63,691,000 (68%)
$25,693,000 (59%)

Return to Room 25%

January 31, 1938.
9:30 a.m.

GROUP MEETING

Present:

Mr. Magill
Mr. Taylor
Mrs Klotz

Mr. Oliphant

Mr. Gaston
Mr. Lochhead
Mr. Upham

Mr. Gibbons
Mr. McReynolds
Mr. Haas

Mr. Bell

H.M.Jr:

Klotz:
H.M.Jr:

Let's see, who isn't here? Who's missing?
Bell.

Now, what I want to say is - I can't do this by
taking it up with each one of you, -- it would be

nice if I could. But it affects a lot of you, so
if you don't mind, I'll put it to the different ones.
(Haas comes in)

Hello, George.

It won't necessarily come to any decision. Then
we can talk about it tomorrow. I mean I haven't
got time to sit down with each one of you.

what I am talking about is this - extra-confidential.
I think we're going to have trouble on this banking
situation, particularly with the Comptroller's office.
Now, on the chart it comes under you (Taylor), but if
there is something wrong, it would be thoroughly
unfair to say, "Well, Wayne, why didn't you look
after the Comptroller's office?" Because on the
Treasury - if you don't mind my saying, you just
didn't.
Taylor:

I understand.

H.M.Jr:

I mean he just overlooked you, timed it so I got it
in just time enough not to do anything about it;
so I couldn't say anything about it. See? - I mean
all the correspondence was there, so if I said, "Why

-2-

didn't you consult me?" - there's nothing to consult,
because he gave me the letter, nicely timed so that
I couldn't do anything.
So the question comes up as we get into this thing
further, how are we going to do it and who's going to
handle it? See what I mean?
We have set up one committee here at the request

of Mr. Eccles. Eccles wants us to study the question
of where bank examinations should be, and I've asked
Taylor and Viner and Riefler and Upham to study that

question. Is that right?

Taylor:

(Nods yes)

H.M.Jr:

Which is - has really nothing to do with the immediate
problem, in a sense, although it may come to that.
But I mean we're dealing with an emergency, and this
is something which - well, I mean to handle it a month
from now or not at all, or we may have to handle it in
connection with an emergency.

Should there be somebody on from General Counsel's
office?
Oliphant:

H.M.Jr:

Oliphant:
H.M.Jr:

I'd like to call your attention to the fact that

early in the Administration I prepared an opinion
which held that the Comptroller's office under the
law should be more closely integrated in the operation of the Treasury than he would permit. I don't
know whether you recall that or not.
Well, to go back to that, we started to take over
the lawyers and then

There was a fight on that.
Then you decided that you wouldn't bring it to a
head, if my memory serves me right.

That is true of the whole situation.
No. No. No. I mean, as I remember, you ruled at
the time that you had the authority, didn't you, to go

in and take over his lawyers, but when it came down to
it, you decided that you wouldn't.

-3-

Oliphant:

The three of us discussed it.

H.M.Jr:

Who's the three?

Oliphant:

You, O'Connor and myself.

H.M.Jr:

"ho?

Oliphant:

You, O'Connor and myself.

H.M.Jr:

Well, I can't remember details. I remember I - we
got up to the point

Oliphant: That's right, and the three of us were in
H.M.Jr:

And he raised such hell.

Oliphant:

There was a fight on our hands. You just let it

H.M.Jr:

Yes. But that isn't - well, anyway, if you've got
Let me put it this way. I called
an opinion

slide.

up Oliphant this morning and said I wanted somebody

from his shop, not on this committee, but to work
with me on this as we - who would be up on this whole
banking thing; and he suggested Ed Foley. And again
I haven't - these meetings are meetings to discuss
things; I said I wanted somebody who would work in

sympathy, be "simpaticus," if that's the word, to
you (Upham), you see. So - I mean normally I take
each of your sides and do - on this I haven't got
time. There's no reason why I should have to, see?
So you people can be thinking it over and we'll talk it over amongst yourselves - we'll come back
again tomorrow.

But what I want to do is this. There are two things.
This thing, for instance, of having somebody just sit

up there and watch what the committee is doing - somebody
can do that besides Upham.

Magill:

Oh yes. Besides, there is not going to be anything
on that for a week or two.

H.M.Jr:

Because if Upham gets into the thing - well, there is
nobody in the Treasury who is as well trained for this
particular job as Upham is, and we've got to be

-4-

prepared for all angles, and if he gets into this
very deep he may not be able to give you much time.
Then the question is for you to say if it is
important to you - more important than what I'm
going to ask him to do. Everybody's going to have

a chance to think it over after I state the problem

and come back at me again tomorrow.

Magill:

I was going to say two things. First, Upham has
not merely been sitting up there watching to see what
they did; and second, most of the work which he has
been performing very well, I think, is now largely
done, and I think he can be released probably for
what you have in mind.

H.M.Jr:

Well, that's just the point. Well, I meant here
recently, the last week, isn't that what he's been
doing - sort of a listening post?

Upham:

Well, the last week I've been down here most of the

H.M.Jr:

Well, anyway, if Upham gets into the thing now, am
I unnecessarily handicap ing you?

Magill:

No, no, not now. You would have been a couple weeks

time.

ago.

H.M.Jr:

But I am not now. All right.
Well then, the thing that I think we want to do is I mean not on this question of whether the banks but this question - what I want is two men; then it's
up to Taylor to decide if he wants to sit in on

everything or whether he doesn't, see? But I want
two men to work out of the Secretary's office, and
you (Taylor) are part of the Secretary's office.
I mean it would be Upham and - if he decided on
Foley - nothing decided today - who can work with
me on this whole bank situation, see? And you fellows
can talk it over amongst yourselves and have another
chance.

(Bell comes in)

But as I say, I should think we can talk in here, and
if anybody doesn't think I'm going in the right
direction, why, they can either say it now or say it
at 9:30 tomorrow morning.

-5-

(To Bell) We're talking about a situation which
I think is going to develop in the Comptroller's
office, and I'm going to prepare myself to really
go into it, which I never have before.
So every person can think it over. Do you want to
ask me any questions if I haven't explained anything
fully? If anybody thinks they should be in on it
further

Mac, you ought to know - be prepared to tell me just
how much authority, Mac, I have from an administrative

standpoint. If Oliphant has an opinion, get hold of

it and I can study it.

McR:

O.K.

H.M.Jr:

In other words, just how far can I go before these
fellows say, "Well, wait a minute, you're stepping

beyond your authority as Secretary of the Treasury"?

Mac?
McR:

Yes.

H.M.Jr:

Now, who wants to ask me something on that?

Oliphant:

Well, I didn't answer the question you asked,
whether I thought a lawyer ought to be in on that
matter of bank examinations. There are angles on

Oliphant:

it that
I think it would be very helpful on it to have one.
I'll talk that over with Wayne?

H.M.Jr:

Yes. Yes.

Gibbons:

I got a clipping .....

H.M.Jr:

Wayne definitely heads that up formally.
Got a clipping on my desk this morning - newspaper
on the West Coast says Jefty is running for Governor
out there because this new organization bill of the
President is going to do away with his office.

Taylor:

Gibbons:

-6H.M.Jr:

Gibbons:

Well, you (Gaston) are running a series, aren't you?
Yes, I have a few. Don't know whether I have this
particular one.
Called "Red Ink" - the sheet.

Gaston:

No, I didn't see that one.

H.M.Jr:

Well, doesn't anybody else want to ask something on

Oliphant:

Well, just to clarify my own mind preparatory to
thinking about it, is one of the questions to be
thought about, does Jefty's resignation now give
us opportunity for a re-examination of the problem?

H.M.Jr:

No, I'm not raising that at all. I mean that isn't -

Gaston:

that?

I mean that's this whole trouble; that's the whole
trouble with Eccles. Eccles and what's-his-names they all think, "Well, with Jefty out of town, now
we can all S tep in." The situation is much more
serious than that. The situation - and I don't want
at this time to mix anything that is unimportant.
That's why I say the thing that Eccles is talking
about - they all think, "With O'Connor stepping out
now we can step in."

Oliphant:
H.M.Jr:

Upham:

What I don't want is this particular West Coast
situation to blow up in my face, and what I am trying
to prepare myself for is that.
Not get off on more general things.
No, I want to be prepared when this thing blows up.
I want it so that if I say to you, "How do they write
up Government issues," you can tell me like that
and not hesitate about the thing. In other words,
it isn't fair to ask you (Upham) when you've been
up to the neck saving the surplus tax to know - as
the author of the third basket, I mean - to know
about this thing. But I want you so you and Foley,

if I come in and I ask you a question like that, that
you know it, and I expect within a few days that you
will know it. See what I mean?
Well, I have never seen, for instance, a Bank of
America examination report, and didn't know whether

-7-

I had any right to see one. Now I'11 go ahead.

H.M.Jr:

Well, we start off with finding out what the rights
of the Secretary of Treasury, vis-a-vis the Comptroller, are.
That's right.

Taylor:

Yes.

McR:

Well, I can tell you this, that with their organiza-

Taylor:

tion down there - that each National Bank Examiner -

I have never failed to get a report of the examination
of any bank without any question whatever, and with
Jefty's knowledge, and I don't think you'11 find any
difference there as far as information is concerned.
So far as a suggestion as to what they do is concerned,

they usually will listen very courteously and

sympathetically and do as they damn please.
H.M.Jr:

Well, the situation is - it may be quite serious,

Mac, see?
McR:

Yes, I know that.

H.M.Jr:

And when I say I want Upham - and Oliphant suggested

Foley - I want you also, because when I come to ask
for something - I mean the thing would flow from you

to the Comptroller's office.

MCR:

H.M.Jr:

I want to keep informed about it.

Going to be more than that. If I sit down and write
a letter to the Comptroller that Iwant the report on
the Bank of America so I can study it, I want to

know before I send it that I'm going to get it. I
mean the thing would flow through you to them, and
it is up to you to get it. So you want to work very
closely with Upham and with Foley, see?

McR:

I don't anticipate you'll have any difficulty in
getting things of that kind; but we might just as
well find out what you've got a right to do if they
should refuse.

65
-8-

H.M.Jr:

Well, Jesse Jones tells me for the first time
that he's had a lot of trouble getting reports

on National Banks and usually doesn't get them.
But he has got the report of the Bank of America.
and of course there is a three-page letter which
you should see before I answer, criticizing me for
giving - not me, but Crowley, for giving Viner

that report on that. But as I told Oliphant

Upham:

H.M.Jr:

That's my fault.

well, it's unimportant. But as I told Oliphant,
I'm writing O'Connor a letter that I'm not interested
in a little bush; we may have a whole forest on fire,
and I'm interested in that, and he's talking about a
little weed, and I want to keep this forest from
catching fire. But I want to be ready so that I
can move awful fast.

Now, one of the things I'm going to ask is this:
Could I bring in a President of a National Bank and
ask him to advise me on, say, the California situation,
and invest him with powers, even though he stays as
the President of a Bank? Supposing I want to bring
in Tom Smith as a special adviser to me. Can he sit
in?

Oliphant:

I've been going into that problem since we got

Jefty's letter; that is, what material you are
entitled to have access to and people working
for you are entitled to have access to - not only

Jefty's shop, but Crowley's shop.
H.M.Jr:

Oliphant:

Could I, for instance, bring in a President of
a National Bank and give him - invest him with
powers, and he still stays President of that
institution?
I'd want to look into that. Certainly if we make
him a regular employee of the Treasury - I'd want
to look into that.

H.M.Jr:

Can I have an answer to that in 24 hours?

Oliphant:

Yes.

H.M.Jr:

Dan, in your shop, when they had this banking trouble,

who from there sat in on it - I mean did anybody sit
in on it?

-9-

Bell:

I did.

H.M.Jr:

Did you? What end did you sit in on?

Bell:

H.M.Jr:

Oh, not much of anything. Wasn't much I could do.
But I sat through all of these banking conferences
during the banking holiday and answered a good - helped
to answer a good many of the telegrams we got, and
telephone conversations over the country.
But was there anything particular?

Bell:

No.

H.M.Jr:

I mean it wouldn't naturally come to your shop.
No, sir.

Bell:
H.M.Jr:

I don't see - we're starting now - why we should
load you with this.

Bell:

Everybody around here, as a matter of fact, sat
in on the banking conference. Got all the help

they could. All the rest of the work just stopped.

H.M.Jr:

Bell:
McR:

H.M.Jr:
MCR:

H.M.Jr:

But I mean just nothing ...
No, sir.

There is just one item of local color ...
Speak a little louder, Mac, please.
The Chief Examiner, Gus Folger, told me at the time
he was talking about Bill Prentiss for the local
Chief Examiner in the San Francisco Division, that

for the last five or six years every Chief Examiner
they put out there had busted on being able to handle
this particular group of banks; that he's never been
able to get a satisfactory examination and he'd never
been able to give him such support as would enable
him to get a satisfactory examination; and the fire
had always been built against the fellow from this
end and he just couldn't do his job.
Built from this end?

-10McR:

Gus had tried to give him all the help that was
necessary, but had never been supported.

H.M.Jr:
McR:

If Folger got the proper backing ...
Folger would do it. Just as hardboiled as he can
be. And no influence will ever reach Folger unless

H.M.Jr:

it comes from his boss up front.
Why aren't the National Bank Examiners Civil Service?

McR:

Because - well, in the first place, the theory of it

was that they are not paid out of the Federal Treasury
and therefore they are not brought in. They ought to
be Civil Service. No reason in the world why they
shouldn't be and undoubtedly would be brought in
under any general r eorganization probably; but they

H.M.Jr:

are not. And of course there is in the President's
bill a discussion of the independent authority that
the Comptroller has with respect to this.
Well, one thing that I'd like you to do today for
me is - I don't know, Crowley has got a lot of stuff;
I haven't seen it. I haven't seen what he gave to
Viner. I wish you (Upham) - have you got it?

Upham:

No.

H.M.Jr:

What's happened to it? Have you (Oliphant) got it?

Oliphant:

No.

Upham:

He gave it back to Crowley.

H.M.Jr:

I wish you'd get it and digest it, you see, and see
what's in it which is at variance to - I mean what he

criticizes.

Now, what I've got to do, Wayne, is this, and you can I want Jesse to know. I mean on this bank thing that
Cy is the spearhead for us, you see, and if they are
doing that particular job, comparing what Crowley has
with what the Comptroller has, there is no use our
doing it, but I would like him to sit in on it. See
what I mean? If they've got what Crowley has got on
one hand and what the Comptroller has got, and they 're

-11-

matching it up, I want him to be in on it, see?
Now, will you call up Jesse and fix that?
Taylor:

Yes.

H.M.Jr:

You seem a little doubtful.

Taylor:

Oliphant:

No, I'm not doubtful.
I'd like to suggest

H.M.Jr:

Do you question the wisdom of it?

Taylor:

There are quite a few pieces here that haven't quite

got fitted together in my mind. That's the only thing

I was looking
H.M.Jr:

Well, I can wait 24 hours. I can wait 24 hours. I

Taylor:

I'm not quite sure what the problem is. In other words,

H.M.Jr:

said I could wait 24 hours.

this has to do with what has happened in the Comptroller's
office and what might happen in the Comptroller's
office?
There are two problems. The immediate problem is

this. I, as Secretary of the Treasury, under the

law have a right to ask the Chairman of the R.F.C.
to make examinations to see whether banks have

sufficient capital or not. He is now in the process
of doing that. I want - then I have to ask him to
supply this capital. Now, heretofore, he had a little
group set up here in the Treasury - R.F.C. did - to
make the study and to pass on it. Now, what I am
trying to do is to set up a group so when the material
comes over from Jesse, this group can take what Jesse

sends over here and advise - go through it. Now,
maybe it's time enough when it comes over. But when
it comes over, if Jesse says, "This bank, that bank,

hasn't sufficient capital. Will you write me a letter

saying that I should do so and so," which I have to do,

I want a group here headed by Upham that can take

this stuff.

After all, when I came here that's what Tommy Corcoran
was doing here for Acheson. I mean they had this group

set up here - four or five lawyers making that study

69
-12-

and advising Acheson whether he should or shouldn't

sign these requests for preferred stock. Now, what
ready, so we've got a machine all oiled, all greased.
And maybe it can wait until it comes, but I want the

I want to do is to get ready for it. I want to get

group ready.

Now, what I'm saying is, how much do you want in that?
Taylor:

Well, you know, we've already been doing that for

H.M.Jr:

I know.

Taylor:

for quite a while.

H.M.Jr:

One a month. One a week.

Taylor:

Whatever it might be.

H.M.Jr:

Well, it's insignificant. This is something that's
going to have to go awful fast.

Now do you get the problem?
Taylor:

Yes, I get the problem all right; but you've got to
get this fellow out there to ask for capital. Unless
you can get him to ask for capital

H.M.Jr:

That's something else.

Taylor:

... you don't get anywhere.

H.M.Jr:

That's something else. But in the meantime I want
a group here which we haven't got now - there is no
such group - who, when this stuff comes over from
Jesse, can take it intelligently and quickly and
analyze it and say "Yes" or "No." That's the
immediate problem. But - I mean the bank thing was
a thing that was dead; I can wait until tomorrow.
Plenty of time to wait until tomorrow. Now

Oliphant:

I'd like to ....

Taylor:

I still don't get it.

H.M.Jr:

What don't you get?

70
-13-

Oliphant:

Maybe this would clear it up.

H.M.Jr:

What don't you

Oliphant:

I'd like when Upham makes a request for information,
that he make that request - that you make that

- go ahead.

request on the basis of your interest as Secretary
of the Treasury and also on the basis of his being
the secretary of this joint group considering legislation; because the President, and you for the
President, have very broad power in connection
with informing yourself for purposes of legislation.
H.M.Jr:

Well, I don't want to do anything between now and

tomorrow morning unless something unforeseen happens.

But I don't see how I can make it any clearer, Wayne,
than I have.

Taylor:

I'm just not quite clear what the problem is.

H.M.Jr:

Well now, Wayne - what do you think the problem is?

Taylor:

Well, I think we've got - apparently there is a
situation in the Comptroller's office and there is

a situation having to do with the Bank of America,
Trans-America, and so on; I mean I gather that they

are interrelated. But then, this mechanism - why,
that's very easy to set up. You just say, "O.K.
well, if any bank things come over here, this will
be a committee to advise you."

H.M.Jr:

Yes.

Taylor:

Now, we can do that in eight seconds, that part of it.

H.M.Jr:

Well, I still don't see what you question. I'll go
through it again.

The question, as I put it, is this. The big problem
is this. Supposing there is something wrong in the
Comptroller's office. Right now it's under you.
Taylor:

Uh-huh.

H.M.Jr:

Do you want to take that responsibility?

-14-

Taylor:

Sure.

H.M.Jr:

For what's happened since you've been here?

Taylor:

No. That's part of my job, but I
I mean the point is, it would be unfair to say
to you - wouldn't it? I think I'd consider it
unfair. Now, what I'm trying to do is set up a
committee so that whatever the responsibility of
this office towards that is, that we can fulfill
that, which we haven't up till now.

H.M.Jr:

Taylor:

I think that's that; that's fine.

H.M.Jr:

Yes. Now, when we've got that, then we find out,
if there is anything wrong, what we're going to do
about it; and I want a group to work with me on that.

Taylor:

Well, I've got it. That's that same - either one
will be the same group. That's the point that I'm

making. And if a request comes over from the R.F.C.
for capital s tock, you want that the same group that

will be working on this.

H.M.Jr:

Yes.

Taylor:

Well, that's the point that I was
Well, the whole - anything that has to do with the

H.M.Jr:

Oliphant:

banking situation will be one group.
And problems on this holding company legislation

H.M.Jr:

Yes.

Taylor:

And the same thing would be so about this question

would also be handled

of examinations, where it ought to be and so on. I
think there's no point - there's no reason for compartmenting them.

H.M.Jr:

Well, that's in the future. I don't know - I mean

because that has Viner and Riefler on it, and I
don't want them in on this, see? That is more of a
study group. This has got to be an action group.
They can be off on the side.

72
-15-

Taylor:
H.M.Jr:

All right.
I don't want them in on this, because it's - I

mean they can take the stuff and take it nome and

study it. This thing - I want somebody that I can

get on the phone 24 hours a day on this thing.
Taylor:

I got it.

H.M.Jr:

All right?
No, no, I didn't - I wanted to see whether it was
going to be all one group that was going to handle
it.

Taylor:
H.M.Jr:

That's just what Oliphant asked - Are we going to
bring the Comptroller really under the Treasury?
All of that is something which can wait.

Taylor:

Well, everything except this long-range stuff is

H.M.Jr:

That's right.

Taylor:

O.K.

H.M.Jr:

But I mean we haven't had any such group. I mean
it's one thing to handle preferred stock of
Elizabethtown Bank or something like that, fuss

in that one group.

around with it for three to six months; but this

is something which might, say, break at ten o' 'clock
tonight. What are we going to do about such and
such a bank? I don't want to say, "Well, whose

responsibility is it? What is my responsibility?
What can I tell Gus Folger? What can't I tell
Gus Folger? What can I tell Mr. Crowley?" See?

I mean, in other words, I'm looking for trouble.
Now, I hope to heavens there won't be any. If there
is any, I want a smooth, well-oiled machine that will
work and that the fellows know - just the way you
don't know today, if I ask you, "How do National Banks
handle profits on securities, and do they write them
up or write them down?" You haven't got it at your
fingertips. I want this group to be ready to answer
those questions. I mean the Comptroller says we can't

73
-16-

stop a bank from paying a dividend. Well, can we

or can't we? And that kind of stuff. In other

words,
banks.
Oliphant!

we've got to learn something about running

This may throw some light on it. If, for instance,

there is something crooked in the Comptroller's
office and that were based on a phony legal practice,
our whole practice has been - and the record is

perfectly clear - that we do not take responsibility.
That's right.

H.M.Jr:

Oliphant:

We have been very careful in every situation that we

do not take responsibility.
Well, that's an important point.
And until this morning there is no

H.M.Jr:

Oliphant:
H.M.Jr:

Well, we're just talking about it in this room, and
I'm making no decisions. But I say I want a well-

oiled
knowing
my responsibilities could
be
if Imachine
wanted to
assumewhat
them.

Oliphant:

And use them in a particular situation.

H.M.Jr:

Yes, but I - just like the appointments of these men.
Incidentally, Mac, there is no record that I ever made
an investigation of these fellows.

McR:

Of course, they were on his rolls and had been for

years.
H.M.Jr:

McR:

H.M.Jr:

Not on - they were over at the other place. There
is no record that you made any - the usual investigation.
There is no investigation by Irey on those cases.
If you don't mind my saying, I think you slipped up
little bit, Mac. And if you will please send for
these two entlemen and tell them if they don't object
I want to subject them to the regular investigation.

McR:

Well, I'll start the investigation and send for them

at the same time. of course, there is no reason why

74
-17-

we can't do it.
H.M.Jr:

McR:

H.M.Jr:

After they're appointed it's rather unusual to
investigate
it to them. the man, and you've got to explain

I will.
It's very nice to know the fellow went to high
school, but that doesn't say whether he pays income
tax or not. I mean men of that responsibility
ought to have a very, very careful investigation.

So I say

Now I'll go around once more. Anybody? You (Magill)

don't figure in this.

Magill:

(Nods no)

H.M.Jr:

And what a cheerful smile.

Magill:

(Winks)

H.M.Jr:

All right. Bell, at three o'clock - I kind of got
my neck out at Cabinet on Dr. Alexander and his

troubles, so will you listen?

Bell:
H.M.Jr:

I'll be here.
You'll listen? All right. Wallace made some
rather unfair remarks and I got a little angry.

How could we know over here what their problems

were? We seem to be able, you and I, to work out

something to satisfy Hopkins; but, talking for
myself, if people were starving, I couldn't know
it if Wallace didn't say anything about it. I
said that they seemed to be willing to take the
fruit jars away from the people that had the fruit
in them.

All right, thank you.

Reed 4 30 from
Jan 31

TREASURY DEPARTMENT
COMPTROLLER OF THE CURRENCY
WASHINGTON
ADDRESS REPLY TO

OMPTROLLER OF THE CURRENCY"

January 31, 1938

MEMORANDUM TO MR. MORGENTHAU:

Mr. A. P. Giannini had a conference Saturday afternoon at 2:30 with Chairman Crowley, and Mr. Giannini re-

ported after the conference that the Chairman told him
he would grant his application for branches of State
banks as requested.

This is merely to complete my memorandum to you
of Saturday.

jost

F. a. 0 CONNOR

Comptroller

Return

January 31, 1938.
MEMORANDOM FOR THE FILES

Messrs. Troop, Lane and Judy of the SEC called at the Secretary's
house at five o'clock January 29 to advise him of the SEC's interest in
the Transamerica situation. Mr. Troop is General Counsel, Mr. Lane
Assistant General Counsel, and Mr. Judy Examiner in San Francisco of the

SEC.

The immediate question before the Commission is whether they will
permit the marketing over the counter of stock owned by one Paganucci
in Transamerica Corporation to the amount of about 19,000 out of a block

of 30,000 shares. This question, in turn, opens for consideration a further problem, and that is whether the Commission has now been warned of

1. About six months ago a wholly-owned subsidiary of Transaserica,
called Associated American Distributors, entered into an arrangement with

a group of affiliated dealers for the sale of Transamerica stock, the
company agreeing to pay, in addition to regular brokerage, a special consideration for sixty-day placement; that is, sales which resulted is contisued holding by the purchaser for at least sixty days. Last April or
May these activities were stopped by the Commission on the ground that

this method of distribution was tantamount to a sale by Transamerica itself and, that being so, the issue would have to be registered with the
Commission before further transactions of that kind could take place.
2. About a month later Transamerica stock broke sharply and the
company announced that it would buy for its own treasury, at prices considered by it to be adventageous, such blocks of stock as it might desire

to acquire. At about the same time it announced the distribution of
Bank of America stock to its stockholders and & recapitalization and re-

arrangement of Transamerica. These announcements apparently led to such

egitation and inquiry on the part of investors and the public generally,

and the Commission made an investigation at that time but found no

illegality.

3. In September an over-the-counter broker, H. R. Baker, inquired at the Commission whether it would be proper for him to sell
for the account of one A. O. Stewart 29,000 shares of new Transamerica
stock on a sixty-day placement arrangement. Stewart, one of the
governors of the Federal Reserve Bank of San Francisco, is heavily
interested in joint stock land banks and is indebted to the Bank of

-2America for several million dollars used by him to buy stock control

of several joint stock land banks. As a result of Baker's inquiry,

representatives of the Commission interviewed Stewart. He advised
them that he had owned Transamerica stock for a Long period of time,
was not being pressed for his loans, had ample assets apart from the

stock to Liquidate the loans, but did not wish to sell his Transamerica
stock on the regular stock exchange in order to &void depressing quo-

tations for the stock.

4. The Commission gave its approval and the sale proceeded, but
it warned Baker that if any other such deals were suggested to him he
must advise the Commission before he would be free to proceed, the
Stewart transaction being considered by the Commission not to be in the
nature of a precedent.
About a week ago, Baker advised the Commission that one Paganucci

had approached him to sell the 19,000 shares to which reference has already been made. As a result the Commission ande an investigation and

found the following facts

5. Paganucci is the owner of a commission business called the
Half Moon Fruit Company. In 1933 both Paganucci and the company were

indebted to the Bank of America. The loans apparently were insufficient-

ly secured and Transamerica General Holding Company, a Transamerica
subsidiary which had also advanced money to Paganucci and his company,

agreed to subordinate its loans and the collateral therefor to the loans

held by the bank.

Some ti e thereafter, nevertheless, Transameries General Holding
Company advanced more funds to Paganucci in a sufficient amount to finance
entirely the purchase by him of 10,000 shares of Transamerica stock.
When some time later Paganucci applied for a $10,000 loan for his conais-

sion business, the Bank of America, through one Gock, one of its officers,
denied the loan. But in spite of this fact the Tyansamerica Service Cospany, another Transamerica affiliate, placed orders with brokerage firms
for the purchase by Paganueei of 14,000 additional shares of Transamerica
stock which the Service Company financed entirely.

His total loans with Transamerica and its various affiliates, including the bank, amount to about $700,000, with collateral of about
$500,000, so that, all together, his account is under water, although
the loan with the bank itself in the amount of about $165,000 appears
to be adequately secured since it has all of the collateral behind it.
It was pointed out, however, that the bank itself is heavily

involved with Transamerica stock and, therefore, losses taken by Trans-

america will indirectly react against the bank. At the present market

about $11,000,000 of Transamerica stock is pledged with the Bank of
America as collateral.

-36. The Commission believes that Transamerica itself is concerned
with the proposed sale of Paganucci's stock. Not only Paganucci and his
attorney, but Gianani himself, Neblett and another lawyer named Scampini
have appeared at the SEC to urge upon then the granting of the requested
permission.

Under all the circumstances it seemed probable to the Commission's
representatives that the Commission would deny permission for the sale of
Paganueci's stock in the manner proposed. Further &han that, however, the
matters brought to their attention in connection with the Paganucei stock
may indicate that there are numerous other instances of which the Commission has not been advised where sales of stock, ostensibly for insiders
or stockholders not connected with the management, have actually been for

the account or at the instigation of the company itself. This might
necessitate a complete investigation of the entire Transamerica situation

with a view to determining whether the Securities Exchange Act or the
Securities Act, or both, have been violated, and whether other violations
in contemplation should be prevented.

It appears that, if such an investigation is undertaken and if the

Transamerica officials cooperate, a month or more might well elapse before

any suspicion would be aroused in the minds of the public. If, on the
other hand, the Commission finds it necessary to resort to court action
or to the examination of the records of third persons, it is believed
that rumors would leak out almost immediately. The possible effect of
such rumors might be two-fold: first, a market break of Transamerica
stock with a corresponding loss in collateral value to Bank of America,
and second, loss of confidence in the bank itself, possibly accompanied

by a run.

The conference was concluded by a request from the Secretary, ac-

ceded to by the Commission's representatives, that any final action determined upon by the Commission would be communicated to the Treasury. It was

made clear by the Secretary that he was not requesting or suggesting any
influence upon the Commission's decision and that he merely desired to be
kept advised.

CVO:BJ

January 31, 1938.
AEMORANDUM FOR THE FILES

Mesars. Troop, Lane and Judy of the SEC called at the Secretary's
house at five o'clock January 29 to advise him of the SEC's interest in
the Transamerica situation. Mr. Troop is General Counsel, Mr. Lane
Assistant General Counsel, and Mr. Judy Examiner in San Francisco of the

SEC.

of 30,000 shares. This question, in turn, opens for consideration a further problem, and that is whether the Commission has now been warned of

such a state of affairs in connection with Transamerica that a couplete
examination of its dealings with insiders is indicated. Should such an
examination be instituted, it would sooner or Later bring the entire
situation out into the open. The background for the foregoing is as
follows:

1. About six months ago a wholly-owned subsidiary of Transcerica,
called Associated American Distributors, entered into AD arrangement with

a group of affiliated deslers for the sale of Transameries stock, the
company agreeing to pay, in addition to regular brokerage, a special consideration for sixty-day placement; that is, sales which resulted in contisued holding by the purchaser for at Least sixty days. Last April or

May these activities were stopped by the Consission on the ground that
this method of distribution was tantamount to a sale by Transamerica itself and, that being so, the issue would have to be registered with the
Commission before further transactions of that kind could take place.

2. About s month later Transamerica stock broke sharply and the
company announced that it would buy for its own treasury, at prices considered by it to be advantageous, such blocks of stock as it might desire

to acquire. At about the same time it accounced the distribution of
Bank of America stock to its stockholders and a recapitalisation and re-

arrangement of Transamerica. These announcements apparently led to such

ngitation and inquiry on the part of investors and the public generally,
and the Commission made an investigation At that tise but found no

illegality.

3. In September an over-the-counter broker, H. R. Baker, inquired at the Commission whether it would be proper for his to sell
for the account of one A. 0. Stewart 29,000 shares of new Transamerica
stock on 6 sixty-day placement arrangement. Stewart, one of the
governors of the Federal Reserve Bank of San Francisco, is heavily
interested in joint stock land tanks and is indebted to the Bank of

America for several million dollars used by him to buy stock control

of several joint stock land banks. As a result of Baker's inquiry,

representatives of the Commission interviewed Stewart. He advised
them that he had owned Transamerica stock for a long period of time,
was not being pressed for his loans, had ample assets apart from the

stock to liquidate the loans, but did not wish to sell his Transasorica
stock on the regular stock exchange in order to avoid depreasing quo-

tations for the stock.

4. The Commission gave its approval and the sale proceeded, but
it warned Baker that if any other such deals were suggested to his be

must advise the Commission before he would be free to proceed, the
Stewart transaction being considered by the Commission not to be in the
nature of a precedent.

About a week ago, Baker advised the Commission that one Paganuesi

had approached his to sell the 19,000 shares to which reference has already been nade. As a result the Commission made an investigation and

found the following facts

5. Paganucci is the owner of a commission business called the
Half Moon Fruit Company. In 1933 both Paganuoci and the company were

indebted to the Bank of America. The loans apparently were insufficient

ly secured and Transamerica General Holding Company, a Transamerica
subsidiary which had also advanced money to Paganucci and his company,

agreed to subordinate its loans and the collateral therefor to the loans

held by the bank.

Sone time thereafter, Bevertheless, Transamerica General Holding
Company advanced more funds to Pagarucci in a sufficient amount to finance
entirely the purchase by his of 10,000 shares of Transamerica stock.
When some time later Paganueei applied for a $10,000 loan for his coamis-

sion business, the Bank of America, through one Gock, one of its officers,
denied the loan. But in spite of this fact the Transamerica Service Conpany, another Transamerica affiliate, placed orders with brokerage firms
for the purchase by Paganucci of 14,000 additional shares of Transemerica
stock which the Service Company financed entirely.

His total loans with Transamerica and its various affiliates, in-

cluding the bank, amount to about $7001000, with collateral of about
$500,000, so that, all together, his account is under water, although
the loan with the bank itself in the amount of about $165,000 appears

to be adsquately secured since it has all of the collateral behind it.
It was pointed out, however, that the bank itself is heavily

involved with Transamerica stock and, therefore, lesses taken by Trans-

america will indirectly react against the bank. At the present market

about $11,000,000 of Transamaries stock is pledged with the Bank of
America as collateral.

-3- 6. The Commission believes that Transamerica itself is concerned
with the proposed sale of Paganucci's stock. Not only Paganucci and his
attorney, but Gianani himself, Neblett and another lawyer named Scampini

have appeared at the SEC to urge upon them the granting of the requested
permission.

Under all the circumstances it seemed probable to the Commission's
representatives that the Commission would deny permission for the sale of
Paganucci's stock in the manner proposed. Further shan that, however, the

matters brought to their attention in connection with the Paganucci stock
may indicate that there are numerous other instances of which the Conmission has not been advised where sales of stock, estensibly for insiders
or stockholders not connected with the management, have actually been for

the account or at the instigation of the company itself. This night

necessitate a complete investigation of the entire Transamerica situation
with a view to determining whether the Securities Exchange Act or the
Securities Act, or both, have been violated, and whether other violations
in contemplation should be prevented.

It appears that, if such an investige tion is undertaken and if the

Transamerica officials cooperate, a month or more might well elapse before

any suspicion would be aroused in the minds of the public. If, on the
other hand, the Commission finds it necessary to resort to court action
or to the examination of the records of third persons, it is believed
that rusors would leak out almost immediately. The possible effect of
such rumors might be two-fold: first, a market break of Transamerica
stock with a corresponding loss in collateral value to Bank of America,
and second, loss of confidence in the bank itself, possibly accompanied

by a run.

The conference was concluded by a request from the Secretary, se-

ceded to by the Commission's representatives, that any final action deter-

nined upon by the Commission would be consumicated to the Treasury. It WEB
made clear by the Secretary that he was not requesting or suggesting any
influence upon the Commission's decision and that he aerely desired to be
kept advised.

CVOIBJ

January 31, 1938.
MEMORANDUS FOR THE FILES

desars. Troop, Lane and Judy of the SEC called at the Secretary's
house at five o'clock January 29 to advise him of the SEC's interest in
the Transamerica situation. 2v. Troop is General Counsel, Mr. Lane

Assistant General Counsel, and Mr. Judy Examiner in San Francisco of the

SEC.

The immediate question before the Commission is whether they will
permit the marketing over the counter of stock owned by OLD Paganucci
in Transamerica Corporation to the amount of about 19,000 out of & block

of 30,000 shares. This queation, in turn, opens for consideration a further problem, and that is whether the Commission has NOW been earned of

such a state of affairs in connection with Transamerica that a complete
examination of its dealings with insiders is indicated. Should such an
examination be instituted, it would sooner or Later bring the entire
follows:
situation
out into the open. The background for the foregoing is as
1. About six aonths ago a wholly-owned subsidiary of Transemerica,
called Associated American Distributors, entered into arrangement with

a group of offiliated deslers for the sale of Transameries stock, the
company sgreeing to pay, in addition to regular brokerage, a special conalderation for sixty-day placement; that is, sales itch resulted in continued holding by the purchaser for at least sixty days. Last April or

Say these activities sere stopped by the Consission on the ground that
this aethod of distribution was tantamount to a sale by Transamerica itself and, that being so, the issue would have to be registered with the
Commission before further transactions of that ind could take place.
2. About 5 month later Transamerica stock broke sharply and the
company enrounced that it would buy for its own treasury, at prices CODsidered by it to be adventageous, such blocks of stock no it eight desire

to acquire. st about the same time it announced the distribution of
Bank of America stock to its stockholders and a recapitalization and re-

errangement of Transaserica. These announcements apparently led to euch

gitation and inquiry on the part of investors and the public generally,

and
the Commission unde an investigation at that time but found no
illegality.

3. In September an over-the-counter broker, H. 3. Baker, inquired at the Commission whether it would be proper for him to sell
for the account of one A. 0. Stewart 29,000 shares of new Transamerica
stock on a sixty-day placement arrangement. Stewart, one of the
governors of the Federal Reserve Back of San Francisco, is heavily
interested in joint stock land banks and is indebted to the Bank of

-2America for several million dollars used by him to buy stock control

of several joint stock land banks. As a result of Baker's inquiry,

representatives of the Commission interviewed Steeart. He advised
them that he had owned Transamerica stock for a Long period of time,
was not being pressed for his loans, had ample assets spart from the

stock to liquidate the loans, but did not wish to sell his Transamerica
stock on the regular stock exchange in order to avoid depressing quo-

tations for the stock.

had approached him to sell the 19,000 shares to which reference has already been made. As a result the Commission unde an investigation and

found the following facts

5. Paganucci is the owner of a commission business called the

Half Moon Fruit Company. In 1933 both Paganucci and the company were

indebted to the Bank of America. The loans apparently were insufficient-

ly secured and Transamerica General Holding Company, a Transamerica
subsidiary which had also advanced money to Paganueci and his company,

agreed to subordinate its loans and the collateral therefor to the loans

held by the bank.

Some ti e theresiter, nevertheless, Transamerics General Holding
Company advanced more funds to Paganucci in a sufficient amount to finance
estirely the purchase by him of 10,000 shares of Transamerica stock.
When some time later Paganueci applied for E $10,000 loan for his conmission business, the Bank of America, through one Gock, one of its officers,

denied the loan. But in spite of this fact the Transamerica Service Cospany, another Transmerica affiliate, placed orders with brokerage firms

for the purchase by Paganueei of 14,000 additional shares of Transemerica
stock which the Service Company financed entirely.

His total loans with Transamerica and its various affiliates, including the bank, amount to about $700,000, with colleteral of about
$500,000, so that, all together, is account is under water, although
the loan with the bank itself in the amount of about 165,000 appears

to be adequately secured since it has all of the collateral behind it.
It was pointed out, however, that the bank itself is heavily

involved with Transamerica stock and, therefore, losses taken by Trans-

america will indirectly react against the bank. At the present market

about $11,000,000 of Transaserica stock is pledged with the Bank of
America as collateral.

84
3-

6. The Commission believes that Transemerica itself is concerned
with the proposed sale of Paganucci's stock. Not only Paganucci and his
attorney, but Gianani himself, Neblett and another lawyer named Scampini
have appeared at the SEC to urge upon then the granting of the requested
permission.

Under all the circumstances it seemed probable to the Commission's
representatives that the Commission would deny permission for the sale of
Paganueci's stock in the manner proposed. Further Ahan that, however, the
matters brought to their attention in connection with the Paganucci stock
may indicate that there are numerous other instances of which the Conmission has not been advised where sales of stock, ostensibly for insiders
or stockholders not connected with the management, have actually been for

the account or at the instigation of the company itself. This eight

It appears that, if such an investigation is undertaken and if the

Transamerica officials cooperato, a month or more might well elapse before

any suspicion would be aroused in the minds of the public. If, on the
other hand, the Commission finds it necessary to resort to court action
or to the examination of the records of third persons, it is believed
that remore would leak out almost immediately. The possible effect of
such reasons might be two-folds first, a market break of Transamerics
stock with 2 corresponding loss in collateral value to Bank of America,
and second, loss of confidence in the bank itself, possibly accompanied

by a run.

The conference was concluded by & request from the Secretary, se-

ceded to by the Commission's representatives, that any final action deter-

nined upon by the Commission would be communicated to the Treasury. It was
ande clear by the Secretary that be was not requesting or suggesting any
influence upon the Commission's decision and that he merely desired to be

kept advised.

CVO:BJ

85
Return to Room 285

TA Corp- SEC report.
Troop

Judy
Lane
AM.Amer. Distributors an affilliate OTTA
wholly owned.
bossip in Frisco about this Co-

Afilliated Dealers
AAD entend into deals with dealeis
TA stock.

Brokers got add, sum forbo d.a
placement

Activities stopped last spring by SEC
on gd. stock mustbe My stend (Maror Ap

TA ann ounced after bocate in stock (June)

that TA wd buy for transure TA
stock at advantageous prices.
TA announced distribution of Bh Au stock
to its stock holders & Marrange TA
stock

Raised many ingained

sec then had investigation

and found no illegality
In Sept. HRBaker, broker, asked Whether

they cd. sell for AO Stewart 29000 100
shares new TA stook on 60 day
placement Mrs Counter. Stewart inditted to

B.Am. for several million to buy
Tount stock land bk. stock control

SEC what to su Stewart He said he had
owned TA stock for a long time a was
not being pressed for his loans. Didn't

want n bul on exchange not to depress TA stock SEC approved &

stock sale initiated

SEC warmed Bahe, to inform them of
other such deals. About a weak ago

Baker told SEC Paganuce wanted
him to sell about 19 thousand 730000 block

SEC investigated - Aalf. woon
fruit Co, P's Co. both indi bird to
BR of America in'33 but were in
sufficiently collaturalized TA General
Holding Co. also had collateral for
their loans which

TAGH Corp financed purchase for

P. of 10 ofo 20.g TA stock
book, officer of Bh of America. turned
down further wah P ashed for about new
a yr. ago. (10,000) about TA Service Co

placed or dus with brokerage firm
for purchase by A ITA stock. 14000 35.
financed
entirely
TAunder
Service
Co. His
other
loans
were by
then
water
$700,000 loan tr 00000 under water
Combined loans-

Bk loan is solvent but Bk. can
lose then its holdings in TA

heblett a Granini have seen
SEC - also Scampini, another attaall to get SEC to permit P's stook

to be sold- Evident it is not P
who alone is an xious to get
stock sold

About $11 million of present market
value of TA stock is Hedged with

Bk.g Am. as collateral.

FITCH

Return to Room

Pacific Coast

REVIEW
89

PUBLISHED WEEKLY
COPYRIGHTED BY THE FITCH INVESTORS SERVICE PUBLISHERS
ESTABLISHED 1913

NEW YORK

LOS ANGELES

120 WALL STREET

WEST SEVENTH STREET

SAN FRANCISCO
156 MONTGOMERY STREET

July 27, 1937

TRANSAMERICA CORPORATION
Because of the seidespread interest in recent developments in the affairs of the corporation and the

apparent difficulty in determining a reasonable appraisal value for the shares, this analysis of
Transamerica Corporation is presented.

The announced intention of Transamerica Corporation to distribute part of its Bank of America holdings to
Transamerica stockholders, to reduce by one-half the number of shares of Transamerica stock outstanding and to
change carrying value of its own stock on its books from $1 to $2 per share appears to be a constructive move
Three primary questions arising from the proposed plan are:
1. What does the capital change accomplish?

2. What effect will distribution of the Bank of America, N.T.&S.A. shares
have upon the corporation's earnings and assets?

3. What appears to be a reasonable value for the new Transamerica shares?
A careful study of the considerations involved leads to satisfying answers to these questions and the following
discussion is designed to assist the individual holder in determining future possibilities of the corporation.

PURPOSE OF THE CAPITAL CHANGE
The capital change of Transamerica Corporation will simplify its branch banking program and substantially
reduce stock transfer charges.

BRANCH BANKING
PROGRAM:

The new plan paves the way for the Giannini management to accelerate the expansion of

its branch banking program in states where branch banking is already permitted and
across state lines within Federal Reserve Districts, should branch banking by such districts

become legal as hoped for.

At present the Transamerica group effectively covers California, Oregon and Nevada; Arizona has been entered
recently: expansion is under way in Washington, while Utah and Idaho so far have been left undeveloped. To illus.

trate the coverage of the Twelfth Federal Reserve District, Transamerica controlled banks, as of the
beginning of this year, held nearly $1,620,000,000 of assets and something more than $1,424,000,000
of deposits, representing almost a third of such totals of all banks in the district. These deposits and assets
are represented by 483 branch banks in California, 42 in Oregon, and 9 in Nevada.

PART TO BE
PLAYED BY
THE BANK:

The distribution of Bank of America N. & S. A., stock and the adjustment in Transamerica
shares provides a step in the internal simplification which should eventually take Transamerica

Corporation out of the bank holding and management field and divorce it and its subsidiaries
from their affiliate status with the banking unit. Should branch banking by Federal Reserve

Districts be legalized, this change would make possible the ambitions of the Giannini organization. The

management could then consolidate the banking units into a single institution with a representative
name covering the Twelfth Federal Reserve District, operating as a unified branch banking institution
throughout this District's seven states.
TRANSAMERICA'S
PART:

The corporation's part in this program envisioned by the Giannini management is to
facilitate the expansion of branch banking throughout the areas in which it is considered

desirable. Its function is somewhat that of an advance agent-to build and prepare
the way for the branch banking movement of the group.

The present Federal transfer tax is $4 per 100 shares of Transamerica stock. A stock having no par
value is taxed on the same basis as one having par value of $100. By changing the par value from
TAXES,
no par to $2 par per share, the transfer tax on 50 new shares of stock received for 100 old shares
will total only 4c or 1/100th of the amount previously charged.

SAVINGS IN

EFFECT ON TRANSAMERICA OF BANK STOCK DISTRIBUTION
Distribution of 58% of Transamerica's holding of Bank of America, N. A., stock, after the 2-for-1 split,
would call for about 2,312,000 shares, which would leave the corporation's holding approximately 1,674,000 shares

of the new stock. As of Dec. 31, 1936, the 99.65% of the 4,000,000 new shares were carried on the books of the
corporation at $103,928,254. The new stock is being traded on the over-the-counter market at around 57 bid and

59 asked on a when-issued basis, with principal confirmations being made at 59 retail. The approximate

1,674,000 shares to be retained by Transamerica will, at $59.00 a share, have a total market value of
$98,766,000. This is within about $5,162,000 of the figure at which Transamerica has carried its
holding in the bank stock since Dec. 31, 1931, representing the net asset value computed by the management at that time. Since the corporation owned all but 0.35% of the bank's capital stock, the market value could
not be used as a basis for carrying value.
WHILE CARE AND DILIGENCE ARE EXERCISED IN THE PREPARATION AND COMPILATION OF THE FACTUAL DATA
AND OPINIONS CONTAINED HEREIN THE FITCH PUBLISHING COMPANY DISCLAIMS ALL LEGAL RESPONSIBILITY

(1)

(

FITCH PACIFIC COAST REVIEW

July 27, 1937

With the distribution of 58% of the corporation's holding, the bank shares should have stable market and the
will be justified in computing the carrying value at a figure based on the actual market price of the stock
corporation Consequently, the remaining investment in Bank of America, N.T.&S.A. stock will be carried on the books of the

corporation at close to the same figure at which the 99.65% investment was previously carried.

PRICE-EARNINGS RATIO
American banking institutions.

CARRYING VALUE

The present market quotations, on a when-issued basis, for new Bank of America,

N. shares is approximately 13 times 1936 earnings, after estimated adjust

OF BANK STOCK

ments This ratio appears conservative in relation to prices of stocks of other large
The capital stock of Transamerica Corp., amounting to 23,170,000 shares, though

without par value, was carried on the company books at $1.00 per share. By
OF STOCK UNCHANGED changing the par value of the stock to $2.00 per share, and by exchanging 2 old
no-par shares for one new $2-par share, the total dollar capital value remains unchanged.

It is estimated that, had the proposed change been in effect over a similar period in 1936, is would
have reduced the net profit for Transamerica and all subsidiaries to about $12,286,201, or the equiso-

lent of $1.06 a share, as adjusted to 11,585,000 shares of new $2 par value stock, compared to
$25,016,201, or $1.08 a share as reported on the 23,181,568 no par value shares.

Discontinuance of the practice of including the Bank of America, N.T. & S. A., net profits not consolidated is
excess of dividends paid does not mean that such earnings are not to accrue to the benefit of holders of the bank
stock. It merely means that Transamerica stockholders retaining their Bank of America shares will have a direct 58%

and indirect 41.65% interest in such earnings instead of the indirect 99.65% interest as formerly.

AN APPRAISAL OF THE NEW TRANSAMERICA SHARES
On the basis of a reasonable appraisal of Transamerica's remaining assets, the new stock of the corporation has
an indicated value of around $16.80 per share. Currently quoted on a when-issued basis of around 15 1/2 at 16 1/2 the

stock appears moderately appraised. Stock of this general type usually sells on a higher price-earnings ratio.

As already indicated, the carrying value of the corporation's holdings of Bank of America, N. T. stock
will be in the neighborhood of $98,766,000, or approximately $8.53 a share on the 11,585,000 Transamerica shares

to be outstanding. While this still will form the principal single item in the corporation's portfolio, many other assets
are carried at figures practically identical with those shown on Dec. 31, 1932 Principal among these are the following:

CALIFORNIA LANDS,
INCORPORATED

This company, owning approximately 500,000 acres of improved farm and range lands,

mainly in California, was carried on Dec. 31, 1936, at $13,831,705 compared with

$13,827,207 on Dec. 31, 1932, although the aggregate of acreage held is approximately
the same on both dates. The 1936 report states that the farm income for the year was $2,552,925. the largest from its
operated properties for any year in its history, and the crop situation for 1937 is even more promising. The corporation

operatesbarley
in every
agricultural community of California and is a large grower of peaches, prunes, grapes,
potatoes,
and important
hay.
Some of the company's acreage has excellent oil, gas and other mineral possibilities with 726 acres already
proven on which are located completed or producing oil and gas wells. The company recently announced plans

for . development program under which aggressive exploration of the holdings will be made. An
intensive geological and geophysical survey will commence immediately, to be followed by drilling in
the more likely locations. Leases also have been made with established oil companies requiring the
progressive development of 11,000 acres in 1937 and an additional area in succeeding years. These
leases require the development of a well on each 10 or 20 acre tract, provided oil is discovered in the
first well. Among these holdings are properties in the Kern County Old River Field, Santa Maria, Mountain View,
Tracy gas field and in practically every section of the state that holds oil and gas possibilities.
CAPITAL

COMPANY

This company owns and operates office buildings, apartments, hotels, residential property and high
class retail store properties and manages all the banking premises of Bank of America,

The December 31, 1936, carrying value was $17,537,932 which compares with $17,362,030 on
December 31, 1932 It is believed most properties are carried at less than current appraisals would justify.

MARKETABLE
SECURITIES,

This item was carried on the balance sheet of Transamerica Corporation on December 31, 1936,

at $34,680,848 and had an indicated market value of $42,339,562 on that date. Included were

610,256 shares of National City Bank of New York, representing about a 10% interest in that
institution, 23,088 shares of General Foods Corporation 41,969 shares of Union Oil Co. of California and 22,819

shares of Fireman's Fund Insurance Company. The portfolio also included investments in several banks on the
Pacific Coast and in several Eastern banks Bancamerica-Blair Corp. stock remaining after the stock dividend distribution to Transamerica stockholders (463,095 shares distributed January 30, 1937) totalled 206,052 shares. As the
corporation uses the marketable portfolio in acquiring additional interests in banking and affiliated companies rather
than as an operating security trading account, there undoubtedly have been changes since the first of the year, but it
is believed there is no great reduction, if any, in the market value of securities carried.

PACIFIC NATIONAL
FIRE INSURANCE CO.:

Transamerica Corporation owns the entire stock of this company. Indicative of the
conservative valuation placed on this holding, which has been carried on the books

of the corporation since Dec. 31, 1931, at $2,268,799. the liquidating value on

Dec. 31, 1936, was equivalent to $78.20 a share, which would amount to $3,910,000 on the 50,000
by
$1,741,201.
shares
outstanding,

exclusive of unappropriated reserves. This liquidating value exceeds the carrying value

OCCIDENTAL LIFE
INSURANCE CO.:

Occidental is the second largest of California life insurance companies in point of insurance in force. Since Dec. 31, 1931, it has been carried on the books of the corporation at
$1,127,600. An appraisal based on $5 per thousand of group insurance in force and $12.50

per thousand of ordinary life insurance in force on Dec. 31, 1936, plus capital, surplus and contingency reserve,
would be $6,922,018, or $5,794,418 more than its carrying value.
THE

FITCH

WHILE AND OPINIONS CARE AND CONTAINED DILIGENCE HEREIN.PUBLISHING
ARE EXERCISED IN THE PREPARATION AND COMPILATION OF THE FACTUAL DATA
LEGAL
RESPONSIBILITY

(2)

July 27, 1937

FITCH PACIFIC COAST REVIEW

The 98.99% ownership of this bank was carried on Transamerica's books on Dec. 31,
1936, at $3,878,696 Earnings in 1936 were $877,171. Based on an appraisal of 13
times 1936 earnings, after estimated reserves for depreciation and amortization, (the

BANK OF AMERICA.
(CALIFORNIA)

ratio at which Bank of America, N. shares are currently selling (w.i.)), this interest would be appraised
at $11,300,000.

This bank, 41.53% owned, exclusive of 42.51% held by subsidiaries not consolidated

THE FIRST NATIONAL
BANK OF PORTLAND:

was carried at $2,095,885. Surplus, undivided profits and reserves increased
$1,378,000 during 1936, indicating earnings for the year of approximately that

amount. A reasonable appraisal of Transamerica's interest, based on the price-earnings ratio stated above would be
$7,400,000.

Owned 99% by Transamerica, this bank has 8 branches in Nevada and was carried at only
$695,500 on the books of the corporation on Dec. 31, 1936 Based on estimated adjusted
earnings for 1936 of around $267,000 a conservative appraisal (13 times earnings) would
place the value of this holding at $3,400,000.

FIRST NATIONAL
BANK IN RENO:

Transamerica carries 39,567 shares of Class A stock and 13,147 shares of Class B

THE FIRST NATIONAL
CORP. OF PORTLAND

stock in this corporation at $1,163,055. The current market value of Class A
holding alone is $1,701,381 so that to carry this holding at the indicated market

value of the Class A stock cannot be considered unreasonable

GENERAL METALS
CORPORATION
SUMMARIZED
APPRAISAL:

This investment, 50.70% controlled. was carried on the corporation's books on Dec. 31,
1936, at $969,214 compared with the current market value of approximately $1,410,000

It may be assumed that other assets, not detailed above, are carried at conservative valuations on

the corporation's books. The investment in Banca d' "America e d'Italia (Italy). for example, was
carried on Dec. 31, 1936, at $8,982,180, while its book value was in excess of $10,000,000. In the

summarized appraisal below, however, all stated assets on which present value is not readily computable are stated
at the Dec. 31, 1936, carrying value.

SUMMARIZED APPRAISAL OF TRANSAMERICA CORPORATION
INVESTMENTS IN CAPITAL STOCK OF:
1Approisal
Per Cent
Control

Bank of America, N.T.&S.A
Bank of America (California)
Banca d'America e d'Italia (Italy)

First National Bank in Reno
First National Bank of Portland
First National Corp. of Portland
Calif. Joint Stock Land Bank of S.F
Country Banks
Capital Company

California Lands, Incorporated

Bankamerica Agricultural Credit Corp
Bankamerica Company

Pacific National Fire Insurance Co
Occidental Life Insurance Company
General Metals Corporation
Miscellaneous

Value per ne

Appreisal

T.A. shares

Value

42.00

e-$ 98,766,000

98.99

e- 11,300,000

89.60
99.00

*41.53

$ 8.53
0.99

8,982,180
3,400,000
7,400,000

0.78
0.29
0.64

1,701,000

0.15

1,418,674
616,782

0.12

100.00

17,537,932

1.51

100.00

13,831,705

1.19

73.90
100.00

Various

0.05

100.00

1,088,862

0.09

100.00

600,000

0.05

3,910,000
6,922,018

0.34

1,410,000

0.12

439,657

0.04

$179,344,810
2,306,129
42,339,562
4,165,062

$15.48

1,129,488
2,279,533

4.51

100.00
100.00
$0.70
100.00

Total Appraised Value
Cash in Bank and on Hand

Marketable Securities (Value 12/31/36)
Notes, Contracts and Accounts Receivable less Reserves
Officers, Employees Notes and Accounts Receivable less Reserves

Owing from Subsidiaries not Consolidated

0.59

5,225

Other Assets

Goodwill, Going Concern and Control Value
Total

$231,569,810

$19.99

$ 36,887,016

$ 3.19

$191,126,776

$16.80

LESS:

Accounts Payable

Owing to Subsidiaries not Consolidated
Reserve for Liabilities and Possible Loss Under Outstanding
Intercompany Contracts
Reserve for Depreciation of Assets of Subsidiaries not Cons
Reserve for Taxes and Contingencies

NET TOTAL APPRAISALVALUE

$ 1,150,756
6,362,072
9,302,302
12,248,636
7,823,170

1-Based on 11,585,000 shares new $2.00 par value stock
e-Estimated Other items at Dec. 31. 1936 carrying value.
*-Exclusive of 42.51% held by subsidiaries not consolidated
WHILE CARE AND DILIGENCE ARE EXERCISED IN THE PREPARATION AND COMPILATION OF THE FACTUAL DATA

AND OPINIONS HEREIN THE FITCH PUBLISHING COMPANY DISCLAIMS ALL LEGAL RESPONSIBILITY
[3]

FITCH PACIFIC COAST REVIEW

July 27, 1937

DIVIDENDS PAID
1936

1935

1934

$1937

$11,576,806

$6,404,002

$5,902,715

$15,751,891

1-On January 30, 1937, . regular emi-annual cash dividend totalling $4,630,900 was paid and, is addition, an extra dividend
payable in Bancamerica Blair Corp. stock was distributed having market value of $5,325,600 which makes total of $9,556,500

This amount was charged against surplus earned since Jan. 1. 1932. An additional cash dividend of $0.25 . share -

paid July 31 to stock-of-record July 15. This is equivalent to rate of $1 per ennum on the new shares after
present shares of Transamerica are reclassified but without giving effect to proposed distribution of Bank, of
America stock.

In view of the statement by President John M. Grant on June 17, 1937, that "the aggregate of the dividends the
will be received by Transamerica Corporation stockholders, if they retain their Bank of America shares, will not be
less than they received during the year 1936 on their Transamerica holdings," it may reasonably be assumed that
liberal dividend policy will be maintained.
In determining the worth of an established corporate enterprise, the most important hidden asset
such an enterprise can have is that of continuing, far-sighted and aggressive management

INTANGIBLE
ASSETS:

Transamerica carries goodwill, going concern and control value of $1.00. It would
be difficult to duplicate an institution such as Transamerica Corporation, which took more than thirty
years of development, involving expenditures of considerable money, to become the proven piece of

machinery it is today. The background of experiment and development has given Transamerica's branch

banking units leadership that would require years for other large banking institutions to match, schile,
in the meantime, Transamerica would have again outdistanced its competitors.
The banking units of the corporation are well organised throughout its territory. They are well and
fully equipped and have the advantage of a vast experience. Approximately 10,000 young men and

women from California and other sections of the Pacific Coast have been trained in their branch
banking methods. No aggregation of capital, without such a personnel, would be in a position to offer

serious competition.
GIANNINI
BANKING
SERVICE:

A basic Transamerica banking unit principle has been to care for all classes of borrowers. In this
respect, it is worthwhile noting that thirty states permit finance companies to charge 3% per month and

more in serving the small borrower. The Giannini management has contended that, to a large extent,
it is the small depositor's money which is being loaned, since the banks, in turn, loan these deposits
finance companies to be reloaned by them at high rates of interest. Transamerica Corporation banks recognized this

situation years ago and, as soon as it was practicable, arranged to meet the small borrower's needs.

While A. P. Giannini was pioneering and building his branch banking system, he believed he was providing
machinery to ultimately serve the average man. The Transamerica philosophy has been that, to reach the latter field

of credit merchandising. the physical plant peculiar to branch banking is necessary; that banks cannot maintain
what is, in effect, a large credit store in the financial district of a city and expect to serve the average man in other
sections;
to
demand. and that branch banking is form of banking which can provide the kind of service the public is beginning

Branch banking provides the conveniences of large city banks to communities even too small to support unit
banks It makes possible the accumulation of numerous small deposits into funds available to satisfy seasonal demands

in different parts of the system. On the Pacific Coast, agricultural crops are being harvested every month of the year
in widely separated localities. Industrial production has seasonal demand variation Similarly, construction projects

too
largeareas
for small unit banks to sponsor are made possible by branch banking accumulations of deposits over
extended
MARKET

The capital stock of Transamerica Corporation appears reasonably priced at current
quotations and in our opinion, both its near and longer term outlook is favorable.

POSITION

Howell, Bouglass & Co.

40 WALL STREET
NEW YORK

MEMBERS OF NEW YORK CHICAGO SAN FRANCISCO

BAI RAMONA STREE

PALO ALTO CALM

STOCK EXCHANGES AND SAN FRANCISCO CURB EXCHANGE
317 MONTGOMERY STREET
aas COLUMBUS AVENUE
SAN FRANCISCO
TELEPHONE DOUGLAS 0131

This is not an offer to sell, not solicitation to buy. This review was prepared by the Fitch Investors Service It is sent to -

as information only. with the compliments of Howell, Douglase & Co. which company has made no of opinions statements There or opinions is therein stated Howell, Douglase & Co., therefore, does not guarantee the attempt of to such verify statement any

the sending no definite agreement between Transamerica Corporation or any of its affiliates accuracy and & Co.k
Corporation of and this review Howell, Douglass & Co., from time to time does some commission brokerage Howell, business Douglass for Transamerica

asits
result
of the sending
of this review.
ble amount
some of
affiliates:
and is hoped
that such commission business will increase in the future is an indetermine
WHILE

CARE

AND

DILIGENCE

ARE

AND OPINIONS CONTAINED HEREIN EXERCISED THE FITCH IN PUBLISHING THE PREPARATION COMPANY AND DISCLAIMS COMPILATION ALL LEGAL OF THE RESPONSIBILITY FACTUAL DATA

[4]

90
COPY

Jan. 31, 1938

Secretary Morgenthau
Mr. Opper

Chester Lane of the Securities and Exchange Commission just

called me. He said they had a meeting this afternoon with reference to the matter that was discussed with you last Saturday. The
discussion took place with Messrs. Neblitt, his partner Warner,

Baker and Scampini. No conclusions were reached and they are to
meet again tomorrow, although the Commission's representatives took

the position on the facts as they knew them, that they felt they
could not authorize the sale without registration.

(Initialed) C. V. 0
cc to Mr. Oliphant

91
Return to Room 285

February 1, 1938

Mr. Eccles, Mr. Ransom, Mr. Taylor and Mr. Upham had

lunch with the Secretary.
There was some discussion of the differing treatment

of securities appreciation and depreciation in banks by
the Comptroller of the Currency, the Federal Reserve Board

and the FDIC. Mr. Eccles remarked that it was not alone

in that field, that there were differences, and Mr. Ransom
added that it was impossible to get them to agree on a
uniform call report form.
Mr. Ransom stated that a part of the difficulty arose
from the suspicion with which the Comptroller's Office and
the FDIC regarded each other and he related incidents beginning with his arrival in Washington as a member of the Federal
Reserve Board to indicate the difficulties of securing common
action or any great measure of cooperation. He expressed with

considerable vigor the view that the Secretary of the Treasury
has an unusual and unique opportunity to do something effective
to bring about a better coordination of banking agencies and
a strengthened banking system. He feels that that is of fundamental importance and should be done at once.

-2Mr. Morgenthau told them that whereas he had been

informed by Mr. O'Connor that Mr. Giannini had reported
that Chairman Crowley had agreed to grant Giannini's
application for branches of state banks as requested,
Mr. Crowley had told Mr. Upham that he had definitely
refused to grant Mr. Giannini's request.
There was some discussion of the meeting of the
Open Market Committee on next Thursday and Mr. Morgenthau

indicated that it was merely to discuss the situation with
respect to the March 15th financing, and that the last time
he looked at it it had appeared as if all that would be
necessary would be $200,000,000 of bills into June and

a rolling over of maturing notes.

Upm

93
Return to Room 285

Feb. 1, 1938
Secretary Morgenthem
Mr. Opper

Chester Lane of the SEC called me again this afternoon about
the matter discussed with you last Saturday. No saye that the Cammission has now takes the position that the Pagement stock can not
be distributed without registration, and furthermore that the same
conclusion applies to any other stock hold by the beak or the Trensemerica group as collateral where the losas are under water and where

on organised effort to distribute over the counter is in contempletion.

Hoblitt came in alone this afternoon and was advised of this
conclusion. He is coming in again tomorrow morning to complete the
discussion but Lone thinks that nothing further will develop at that
time.

The question of a general investigation of Transamerica to

see how many " there are is still open, but Lane thinks

that the question will be decided by the Commission within a few days.
No will continue to keep us advised.

(Initialed) C. V. 9.

CVO:111

Typed 2/1/38

Return to Room 285

February 3, 1938

For the Secretary:
Randolph Burgess stopped in and we got on the subject
of bank holding company legislation for a few moments.

Mr. Burgess is very hopeful that restrictive regulatory
legislation can be enacted rather than "death sentence"

legislation.
He makes the point that bank capital is very difficult
to secure. The ratio of banking capital to banking assets
has been steadily declining and is now at a low point. By
virtue of reduced capitalization, the volume of loans and
the volume of investments available to banks is limited.
As business increases, it will be necessary for banks to

secure more capital if the ratio of capital to assets is
bettered or even maintained. He is reluctant to see anything done which will divert any flow of capital into banks.
He thinks it would be difficult for the Marine Midland to
sell many of its banks. They have put some $20 or $30 million

of capital into the banks in their group, diverting this
amount from the investment markets. Small, independent banks

cannot tap the investment market for capital funds. An

-2organization like the Marine Midland Corporation can and
does do so and has improved the position of banks in the
State of New York.

Mr. Burgess makes the further point that as a matter
of fact the Marine Midland group, the Northwest Bancorporation and the First Stock Bank Corporation of Minneapolis
build up local banking units independent of Wall Street.
Mr. Burgess informs me that when Giannini attempted

to enter New York (as is indicated in the SEC report), the
Federal Reserve Bank would not let the Giannini interests
retain their stock in Bank of America, N.A. They refused
to give the bank trust powers unless the Giannini interests
disposed of all their shares. Later, when Giannini was
reacquiring shares of Bank of America, N.A., the Federal

Reserve Bank protested this action as a violation of the
agreement previously entered into, and the New York repre-

sentative of Giannini resigned from Transamerica.
Mr. Burgess said he would like to see some kind of

action which would get at the Pacific Coast situation without penalizing groups which as a matter of fact have improved
the banking situation.

-3Mr. Burgess. said that on the face of things he was

impressed with the plausibility of my theory-since Transamerica owns more than 50 per cent of the stock of the
First National Bank of Portland and banks in Washington,
Nevada and Arizona that they come within the Federal Reserve

definition of "holding company affiliate" (regardless of
their distribution of the stock of Bank of America, N.T. & S.A.
down below the 50 per cent mark), and accordingly could be
supervised and regulated and examined and inspected by

courageous and vigorous action on the part of the Federal

Reserve Board. I shall try to find out from the Federal
Reserve people why this theory does not hold water, if it
does not.

Upm

Return to Room 285

TREASURY DEPARTMENT

INTER OFFICE COMMUNICATION
DATE

Secretary Morgenthau

FROM

Herman Oliphant

FEB7

1938

Information
I have examined the communication of January 28, sent you by

the Comptroller of the Currency, and referring to the developments

at the meeting held on that day. I observe what the Comptroller
says about Viner's access to material which was not submitted to the

Board of Directors of FDIC, but it should be pointed out that Viner
is a regular and sworn employee of the Treasury Department and is

working with you on, among other things, various aspects of the banking problem. The paper to which the Comptroller refers came to the
Treasury in connection with your duties as Secretary of the Treasury
and as Chairman of the Interdepartmental Committee on Lending Agencies,

along with other material from the Federal Reserve Board, the Recon-

struction Finance Corporation, and the Comptroller's office, in preparation for the meeting of January 28, and specifically through the
medium of Upham, another employee of the Treasury and Secretary of

that Committee. It goes without saying that the Secretary of the

Treasury must, at all times, have access to material legally available to the Office of the Comptroller of the Currency or to any other
part of the Treasury.

duman Oriental

98
933

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON

OFFICE OF THE CHAIRMAN

February 16, 1938

My dear Mr. Secretary:

There is transmitted herewith a copy
of letter addressed to the Central Bank, Oakland,

California, having reference to its application
for the establishment of three branches.

The Central Bank is a part of the
Transamerica Corporation.

Sincerely yours,

Read eventy
Chairman.

The Honorable

The Secretary of the Treasury
Washington, D. C.

18 VN à 20

HJ:JD

February
16th
1958

Central Bank,

Oakland, California.

Attention: Mr. D. W. Henderson,

Vice President and Cashier

Gentlemen:

Reference is made to your application to establish

branches in Alvarado, Niles, and Irvington, California, to succeed The Bank of Alameda County, Alvarado, California, a nonmember insured bank, and its branches at Niles and Irvington.

We are informed that, in addition to these three
proposed new branches, your bank contemplates further applica-

tion for permission to establish approximately ten additional
branches. Since the current application is apparently but a
part of & general expansion program, this general program, itself, is an important consideration.

Officials of the Administration have recently indicated concern about the status of group banking in the country,
and an intention to clarify public policy concerning the groups.
Your bank is a member of one of the most important groups. We

feel, therefore, that action by us upon your current application
should be postponed until public policy on this point has been
clarified. When the current uncertainty concerning public
policy on this matter has been settled, we shall give consideration to your application as provided in Paragraph (5) of subsection (v) of Section 12B of the Federal Reserve Act.
Very truly yours,
(Signed) Leo T. Crowley

Leo T. Crowley
Chairman

100

March 8, 1938

My dear Mr. Chairman:

I have before me your letter of February 16th
enclosing a copy of your letter of the same date
to the Central Bank, Oakland, California, which you
were
kind enough to send me voluntarily for my information.

In the letter to the Oakland bank, you state
with respect to the bank's application for approval
of the establishment of branches in Alvarado, Niles,
and Irvington, California, "We feel, therefore, that

action by us upon your current application should be
postponed until public policy on this point has been
clarified. When the current uncertainty concerning
public policy on this matter has been settled, we

shall give consideration to your application.

I am writing to inquire whether there has been
any change in the policy of the corporation on this

matter since February 16th.

Sincerely yours,

Secretary of the Treasury
Hon. Leo T. Crowley,
Chairman, Federal Deposit
Insurance Corporation,
Washington, D. C.

CBU:pa

lymm

101
1933

FEDERAL DEPOSIT INSURANCE CORPORATION

WASHINGTON

OFFICE OF THE CHAIRMAN

March 9, 1938.

My dear Mr. Secretary:

Your letter of March 8 inquiring whether there has
been any change in the policy of the Corporation regarding the
approval of the establishment of branches by the Central Bank,
Oakland, California, a subsidiary of the Transamerica Corporation in Alvarado, Niles and Irvington, California, was promptly
received.

Let me state to you that there has been no change in

the policy of this Corporation as set out in my letter to the

Central Bank, Oakland, California, a copy of which I sent to you
under date of February 16, which policy you quote in your letter
of March 8. I am firm in my feeling that neither the Central

Bank of Oakland, a non-member State bank, nor the Bank of America,
National Trust and Savings Association, a national bank, both subsidiaries of the Transamerica Corporation, should be permitted to
establish and operate any further branches. This conviction has
been made known to the officials and parties at interest of the
Transamerica Corporation.

With respect to the application of the Central Bank of

Oakland to convert the Bank of Alameda County in Alvarado, Cali-

fornia, operating branches at Niles and Irvington, into branches
of the main office at Oakland, we found ourselves in this position.
There is no bank supervisory agency that has authority to prohibit
the Transamerica Corporation from purchasing the control, or all of
the stock of any banking institution. In the present instance such
a purchase had been effected prior to the application of the Central Bank to this Corporation for its consent to the establishment
of branches. The Superintendent of Banks for the State of California approved the establishment of the proposed branches at the
time of purchase of the Bank of Alameda County by the Transamerica
Corporation. Under these circumstances it was deemed of minor
importance whether these institutions continued to operate as independent units or as branches of the Oakland Bank. Accordingly,

upon specific representation by the bank that no further expansion
will be made by the establishment of additional branches, and upon

condition that its capital will be increased to provide not less

than a 10% ratio of net capital to combined deposits, namely, 8
cash augmentation of capital in the minimum amount of $1,500,000,

102

- -2-

consent has been given to the establishment of these branches,
after obtaining favorable reactions from the office of the Comptroller of the Currency and the Board of Governors, Federal Reserve System.

There are transmitted herewith for your more complete

information copies of the letters from the Central Bank, the office

of the Comptroller of the Currency, and the Board of Governors,
Federal Reserve System, and of the Corporation's letter to the
Central Bank.

Sincerely yours,

Levo, everyly
Leo. T. Crowley
Chairman.

The Honorable

The Secretary of the Treasury
Washington, D. C.

bill

103
TREASURY DEPARTMENT
C

Comptroller of Currency
Washington

February 9, 1938.

Hon. Leo T. Crowley, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C.
Dear Sir:

Receipt is acknowledged of your letter dated
January 31, stating that your Corporation was in receipt of
an application from the Central Bank, Oakland, California,
to establish branches in Alvarado, Niles and Irvington, California, to succeed the Bank of Alameda County, Alvarado, a NonMember Insured Bank, and its branches at Niles and Irvington.

In reply it will be stated that although an

application made by the Bank of America National Trust and
Savings Association to establish a branch in Alvarado recently
had the conditional approval of the Comptroller, such approval
has lapsed and no reason is known why the application before
you should not be approved.

Very truly yours,
(Signed)
MARSHALL R. DIGGS,

Acting Comptroller.

104

BOARD OF GOVERNORS

of the
FEDERAL RESERVE SYSTEM

Washington.

February 23, 1938

Mr. Leo T. Crowley, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C.
Dear Mr.Crowley:

This refers to your letter of January 31 advising that the

Federal Deposit Insurance Corporation has an application from the Cen-

tral Bank, Oakland, California, for the establishment of branches at
Alvarado, Niles, and Irvington, California, for the purpose of succeeding to the business of the Bank of Alameda County, Alvarado, California,
and its branches at Niles and Irvington. You state that before passing upon the application you would appreciate receiving any information
in the Board's possession which might have a bearing on the matter,
together with any suggestions the Board might have on the subject.
The two banks involved are nonmember banks and we do not have

any current information regarding them. The gist of your letter, how-

ever, was transmitted to the Federal Reserve Bank of San Francisco,
with the request for advice as to whether the proposed establishment of
branches would have an adverse effect upon any member banks, and for

any other pertinent information regarding the matter. In reply the

Federal Reserve bank advised that the proposed conversion of the offices
of the Bank of Alameda County into branches of the Central Bank of Oakland would not have an undesirable effect upon existing member banks

serving that section and that its only suggestion for consideration of

the Federal Deposit Insurance Corporation is that the absorption be predicated upon the provision and maintenance of capital structure appro-

priate to the bank's liabilities.

From the information in your Corporation's files, which were
made available to the Board's Division of Examinations, it appears that
the Central Bank, Oakland, and the controlling interests contemplate a
further program of expansion and in a telegram dated February 8 the
Federal Reserve bank advised that the papers of that date carried the
report that the Central Bank intends to take over as a branch the Northern California Bank of Savings at Marysville, which is owned by

Transamerica Corporation.

105

-2-

According to the recent report of examination made by your
examiners, the Central Bank is somewhat undercapitalized, with an

investment in banking house, furniture and fixtures, other real estate,
and real estate sold under contract to the bank's affiliates aggregating
approximately one and one-half times the bank's capital after allowance
for estimated losses and assets classified as doubtful. Also, according to your files, in October 1937 the Bank of America (State) which
had changed its name to Central Bank, assumed the liabilities of the
Central Bank of Oakland (deposits amounted to approximately $37,100,000)
under 8 purchase and sale transaction whereby the liabilities assumed
were offset by assets acquired. No provision was made for strengthening
the capital position of the absorbing bank, but approximately $6,300,000
of the most liquid assets were left in the Central Bank of Oakland for
the retirement of preferred stock and distribution among the common
stockholders. The proposed acquisition of the business of the Bank of
Alameda County would result in the further dilution of the capital
strength of the bank.
Both the Central Bank and the Bank of Alameda County are owned

and controlled by the same interests, and the only suggestion which the
Board has to offer in response to your request for suggestions regarding
the matter is that the absorption of the Bank of Alameda County by the
Central Bank and the conversion of the offices of the former bank into
branches of the latter be predicated upon the provision of adequate

capital.

Very truly yours,
(Signed)
L. P. BETHEA,

Assistant Secretary.

106

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON

March 5, 1938.

Central Bank,

Oakland, California.

Gentlemen:

Your proposal to establish branches at Alvarado,

Niles, Irvington and Marysville, California, has
been given careful consideration.

With the distinct understanding that it is not your
intention to establish any additional branches, the

Federal Deposit Insurance Corporation, by action of

its Board of Directors, consents to the establishment and operation by your institution of the
branches presently proposed in the towns indicated
above conditioned, however, upon a prior cash in-

crease of the capital of your institution in an

amount not less than $1,500,000.

Upon receipt at this office of a certificate indi-

cating compliance with the condition stated, you
will be promptly advised of the effective date of
the Corporation's consent and you will then be at
liberty, so far as our requirements are concerned,
to proceed with the establishment of the branches.
Very truly yours,
(Signed)

A. C. Murphy,

Acting Secretary.

107
CENTRAL BANK

Oakland, California.

February 26, 1938

Honorable Leo T. Crowley, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C.

Dear Mr. Crowley:-

This is in reply to your letters of February sixteenth

and February eighteenth regarding our applications for branches at

Alvarado, Niles, Irvington and Marysville, California.

You have been informed that we contemplate further application for permission to establish approximately ten branches and
comment that the general expansion program of the bank is an important consideration.

We have no set plan or definite ideas in regard to a future
expansion program, nor any commitments beyond those presently under
discussion with you. These commitments were made after we had the
verbal approval of the Superintendent of Banks and on the assumption
that the Federal Deposit Insurance Corporation would grant permission
to convert the banks into branches in accordance with the present
provisions of the law.

We do not understand why the question of policy is raised at
this time since we are not advised of any change in the laws relating
to bank holding companies, or to branch banking. However, if the
pending applications are granted and we are advised that there is

a negative policy in your office with respect to further expansion
pending the establishing of an administration policy with regard

to bank holding companies, we will not undertake any further commitments in the way of expansion without first advising the Corporation
of our plans.

We hope, therefore, that you may see your way clear to grant
the applications now pending so that our commitments may be fulfilled.
Yours very truly,
(Signed)

D.W. Henderson,

Vice President & Cashier.

Return to Room 285

RE BANK HOLDING COMPANY LEGISLATION

Present:

Mr. Taylor

108

March 10, 1938.
11:00 a.m.

Mr. Upham

Mr. Gaston
Mr. O'Connor
Mr. Diggs

Mr. Oliphant
Mr. Jones
Mr. Eccles
Mr. Ransom

Mr. Crowley
Mr. Foley
H.M.Jr:

Well, gentlemen, the reason I asked you to meet with
me - there are a number of things here, and the most

pressing thing is this. The President asked us to
have ready for - all of us to have ready for him

before the 20th a message on bank holding companies
which would be part of his message on monopolies,

and take up one thing at a time; the Glass bill don't have to necessarily decide on that today, but
unless we decide that in connection with the President's message there should be a policy as to legislation, you see
Jones:

On this particular thing.

H.M.Jr:

Yes. Because I asked him particularly when Mr. Glass
announced that he wouldn't do anything on this thing

until April - I said, "Well, does that mean, Mr.
President, that we can wait until April?" He said,

"No." He said, "I want the message before Igo away"
before he goes away on the 20th. And I suppose then
that the natural thing he'11 say to us as a group

Jones:

"What do you suggest on that?"

H.M.Jr:

Yes, because he can't send a message on bank holding
unless he has a

Jones:

A basis

H.M.Jr:

... a basis of where we want to go.

...

I'll just read this; it is very short. Mr. Gaston took

everything we had and wrote this and we sent this over

to the President, and this is what we have. This is

109
-2-

what we had before the Glass bill - this was written
before the Glass bill was introduced in Congress:
"A development has occurred in our banking system

within the last few years that seems to me to hold
elements of very serious danger to our economic
life. This development is the extension of bank
holding companies across state lines.

"It is hardly necessary, I think, to point out to

you the great economic power that might be wielded
by a group which may succeed in acquiring domination
over banking resources in any considerable area of the
country. That power becomes particularly dangerous

when it is exercised from a distance, and notably so
when effective control is maintained without the
responsibilities of complete ownership.
"We have seen the multiplied evils which have arisen
from the holding company system in the case of public
utilities, where a small minority ownership has been
able to dominate a far-flung system.
"We don't want those evils repeated in the banking
field, and we should take steps now to see that they
are not. I am not thinking so much of the present
situation as what may result if we permit the trend

to continue. It is not a sufficient assurance against
the future to say that no great evil has yet resulted
from the control of banks by interstate holding companies. The possibilities and even the probabilities
of great harm are inherent in the situation.
"Both the Congress and the legislatures of a number

of the states have deemed it wise to place limits on

branch banking, but no limits have been placed on the
holding company system, which accomplishes a similar

result without is similar measure of responsibility,
and permits, with equivalent capital investment,

domination of a much broader field.

"I therefore recommend that the Congress enact at this

session legislation which will effectively regulate
the control of banks by holding companies."

Now, that was the work of this shop. But we work as a

committee. I told that to the President; also told him
that, due to pressure of work here, I hadn't been able

110

-3-

to get my teeth into this bank holding situation,
and nesomething
understood
it. But
wants
before
the now
20th.he said he definitely
Jones:

"I therefore recommend that the Congress enact at

this session legislation which will effectively

Lecles:

regulate the control of banks by holding companies."
"Owned by holding companies," that should be.

Jones:

I thinkbit.
you probably would need to interpret that a
little

H.M.Jr:

Well, in view of what has happened - this was written,
oh, a week or ten days before Senator Glass introduced

his bill, but I think that the question then will be -

the President will immediately say, "Well, have we got
any legislation to go with this?" because we haven't -

because 1 waited, and then some of you gentlemen went

out of town, which suited all right my plans, because

I just wasn't able to dig into this thing.

Crowley:

I wonder, Mr. Secretary, if I might explain my position
with me several times, and as you all know, he publicly,
before I ever had any conversation with him at all, had
stated that he was going to introduce a bill on bank

on this Glass bill a little bit. Senator Glass talked

holding companies, which I think he did without con-

ferring with any of this group. He lives at the hotel

and he and I spent several evenings and several afternoons discussing the bank holding company situation.

I presume, in a sense, it was unethical for me to work
with Senator Glass without the consent of this committee.

However, Senator Glass has been a good friend of mine,
he asked me for my ideas, and they were purely personal

and I felt it was to the advantage of everyone that I
give Senator Glass whatever views I had. The result of
the thing was that more or less it became a responsibi-

lity of putting this thing in form that I assumed for
the Senator, and I want everyone to know that.

The original bill that the Senator had called for an

out and out death penalty. The Senator later decided
that he wanted the death penalty eliminated. The

provisions that are in that bill do stop and prohibit

any further expansion of bank holding companies. It

111
-4-

does also further deny the right of bank holding
companies to operate any additional - take on any
additional branches. It demands that they liquidate
their affiliate indebtedness to their member banks
within three years, and it also prohibits any loans
on their
from now on, and they must liquidate
theirown
ownstock
loans.
(Foley comes in)

In a way - it is an indirect way, there is no question,
of creating their death. I think that they would find

it would be to their disadvantage over a period of years
to operate under this regulation.

I am embarrassed to the extent that the Federal Deposit
Insurance is mentioned in the bill. We have never done

anything like that before. Carter was willing for that.

He of course takes great pleasure in cussing out
Marriner every time he can. And I didn't discourage him

from including the Federal Deposit Insurance in the bill.

Jones:

Did you discourage him from cussing out Marriner?

Crowley:

I kind of left that to Carter's own judgment.

Eccles:

He thinks I can take care of myself.

Crowley:

But the ideas, of course, subject to change, are my
personal ideas of what I think a holding company bill
should cover.

Jones:

Your ideas are in that bill?

Crowley:

Yes, sir. Maybe they go further than some would go;
maybe it doesn't go as far as others.
But I do want to - if there's been any embarrassment

to this committee, I want them to know that this is
perhaps the first time since I've been in Washington
that a bill was put in like this with my help, but I
felt rather obligated to help Senator Glass, because
he's been a very personal friend of mine. Now, if
there's

H.M.Jr:

Well, it isn't that the committee is so embarrassed,
but I think it might be very embarrassing to you. And

112
-5-

you're always talking about upholding the President's
hand and I wouldn't say that this was holding his
hand up very high.

Crowley:

Ithe
think
bill.that's holding it up quite high if you analyze

H.M.Jr:

of course, here's this committee which is supposed
to do this job for the President, and what you're
telling me isn't any news, because we all know that
the thing was prepared over there. And certainly,

working as group, which we are, and for the
President, under his direction, and - I can't imagine
myself, after having said I'd work with the group that we'd prepare a bill and slip a bill to Senator
Glass.
Crowley:

Now wait a minute. There is this much in defense of
this thing. Senator Glass said he was not going to
introduce this bill until he conferred with you, conferred with the President, and he also said that he

was not going to introduce the bill until after the

20th. And then he made up his mind he was going to
introduce it at once, because Senator McAdoo had a
bill up there demanding hearings on
H.M.Jr:

Crowley:
H.M.JT:

Crowley:

H.M.Jr:

I can't - you say it's unethical; I'm not going to
it.

argue with you about it. I mean that's what you call

I think that's true, if - I don't believe that it's a

thing that I would be very proud of, but I
No. I agree with you.
But nevertheless I don't think it's treason, because I
think Senator Glass - I think any Senator's got a right
to ask us our views on any piece of legislation.
Well, I just wanted to tell you - I mean talking for
myself; I don't know how the others feel - that, to
put it mildly - to say that I am shocked is putting

it very mildly. But it's done and

Crowley:

Well, Mr. Secretary, let me say this in my own
defense. If this shocks you badly, then you've had
some awful bad shocks since you've been in Washington,
because I know a lot of legislation, not from your
shop, however, that has been inaugurated in the same

113
-6-

way. Now, one mistake doesn't
H.M.Jr:

Crowley:

H.M.Jr:

Jones:

H.M.Jr:

Yes, but every time some other person does that sort

of thing - I mean I'm still enough of a believer in
human relations and decency, all that sort of thing if one other person does it, it makes it that much
more difficult.
Well, I let you know some time ago that Senator Glass
had talked to me one day, but that Senator Glass was

not going to introduce a bill until he talked to you.
Well, it's awful hard to remember the details, but
it's
- that's that. Now we've got the job of trying
to decide

: what you're going to say to the President.
Exactly. And if - in view of the fact that you have that this bill was written in your shop and expresses

I mean your personal views - I don't see how you can
disassociate your personal views from your views as
Chairman of the F.D.I.C. and also your views as member
of an interdepartmental committee which has to do with

banking legislation. And - I mean, of course, this is
none of my concern, but I suppose that when you prepared this bill, you advised the Board of the F.D.I.C.
that this was being done.

Crowley:

No, I don't think I did.

Jones:

Does this bill drawn represent your views of what the
bill should be?

Crowley:

Yes, sir.

Jones:

Well now, how do you (H.M.Jr) feel we should proceed

with respect to your report to the President, and what
reference, if any, should be made to the Glass bill?

H.M.Jr:

Well, I'm thinking out loud. What I think - if I was
going to do this, what I think I'd do is start from
zero, try to build up what we think is best for the
country. After we have done that, without any regard
to the Glass bill, after we have done it and we have

satisfied ourselves that this is what we think is best

for the country, then we could draw up a memorandum and

say, "This differs from the Glass bill in the following

114

-7-

ways." But I mean shooting from the hip
Jones:

That's what I'm getting at.

H.M.Jr:

I'd start from zero. I wouldn't look at the Glass

Jones:

Then see where - then reconcile those things that
go along together and call attention to the differences.

bill at all, and just start

Yes. Does that make sense to you?
Jones:

Yes, and it would be helpful in point of legislation,
I think, if we could then all give these suggestions
on it, or have the President do it, to Glass and let
him - because you can't very well have two bills.

H.M.Jr:

No, I don't - you see, what I did, I leaned over back-

wards in press conferences and with Senator Glass, I
took the position that I had no comment to make on the

Glass bill one way or the other, and that until this
committee came to a decision I couldn't make up my
mind. And in fact we hadn't really started working
on it. I mean I repeated that over and over again at
my press conferences. Here a committee was appointed;
we hadn't done the work, we had no report. Until that
report was finished, I had no opinion. I told that to
the President, told that to Senator Glass. And Senator

Glass understands that, and the President understands

that. I want you people to. I said it two or three

times at press conferences, that until this committee
brought in a report, I had nothing to say, had made no
recommendations to the President. And so far as I

know, nobody else has made any comments and everybody's
been waiting.

Jones:

Well, how are we to reconcile our views now? How do

you want to proceed?
H.M.Jr:

I think that there's a hell of a lot of work to be

done, and, like all these things, somebody's got to
do the work.

Jones:

Yes.

H.M.Jr:

And

Accles:

We have done a lot of work. We have analyzed the Glass

115
-8-

bill and we have prepared alternative suggestions.
As you know, the Banking Act of 1933 covers the
question of holding companies to some extent, and
it gave to the Board certain powers, and under those
powers we have for a period of five years accumulated
a good deal of experience and a good deal of informa-

tion; and we are in, I believe, possibly a better
position by reason of that responsibility in that we

have had to know something about the problem, something

about what additional legislation was needed in order
to accomplish the objectives as stated in your memorandum
here of curbing and controlling them. So that if the
committee would like to have the analysis we made of
the Glass bill and the alternative suggestions, we'd
be very glad to give each member of the committee that
information.
H.M.Jr:

Well, what I'd like, just feeling my way, in view of
this rather unusual situation- can't do the spade
work. I mean I want to be very honest. But what I
can do, for the Treasury there is Taylor, there is

Upham, and Oliphant, who can work with whoever you
people have. Now, I don't know how snowed under

you (Jones) are.
Jones:

I've got plenty of help over there.

H.M.Jr:

Now, if you could - either yourself or somebody - and
then kind of Well, I mean just as soon as they've
got something, we can meet again. And then, I don't
know how you're (Eccles) fixed. I mean these men can
get right down in the trenches and do this work and
they're ready now and we haven't got much time to lose,

perfectly frankly. I mean I've got this French thing cabinet's resigned - and I've got lots of minute-to-

minute things, but whenever there is a report I'm ready
to sit down.

We've got this draft of this proposed message. I think
that before that message goes up, the President's got
to have a policy of his administration on bank holding
companies. I mean I don't think he can send a message
without one. We can go over and say, "Mr. President,

this is a majority report of this group. This is what -

here's a majority report and here's a minority report,
and here's the best we can give you." And meet with

him. What?

116
-9O'Connor:

H.M.Jr:

Mr. Secretary, at the last meeting, we were reaching
a rather important point in holding companies, a distinction between two kinds of holding companies, one
that we felt would have little or no effect upon the
banking structure, wherever they were in existence, and
the other holding company that would have a very serious
deflationary effect wherever they were in existence.
And had we concluded that to our satisfaction?

Well, since the last meeting, Jefty, I don't think

anything has been done. I mean perfectly frankly,
I haven't done a thing on it since we've met. We
have collected the stuff. I'm in Dutch with Cy; he
walks around with this stuff under his arm, and every
time - I've had about three meetings proposed, and
every time something has come up which had to be done
at the minute. The reason I asked you people to meet I thought Marriner was leaving; I know you're (0'Connor)

leaving. I wanted to get this thing started so you

could say who would do the work while you were gone.

And the 20th is getting very close and we have just got
to produce.

Incidentally, have you (Oliphant) been able to find

out how far along this message on monopoly is?
Oliphant:

No. I'11 get that afterwards.

H.M.Jr:

I mean how near are they to producing? I hope they're
not as far along as we are. Give us more time. I mean

let's find out how far the crowd that's working on the

monopoly message - how near are they to producing some-

thing, you see. I mean it'd be our good luck if they

were as tardy as I've been.

Oliphant: I think that will be the situation.
H.M.Jr:

What?

Oliphant:

Iinthink
you'll find that's the situation. I'll know
the course of the afternoon.

H.M.Jr:

You're (Eccles) going this afternoon?

Eccles:

No, I'm going tomorrow, but I

H.M.Jr:

Well now

...

117
-10Eccles:

I - Mr. Ransom is here, familiar with the situation,

and Mr. Cagle and Mr. Winfred over there have handled

holding
familiarcompanies
with it. for five years, so they're very
H.M.JT:

What I said - does that make sense as a way of pro-

Eccles:

Yes, I think it does. In fact that's the only way -

ceeding, Marriner?

practical way it seems to me we can proceed.

Jones:

Now, you've got your analysis of the Glass bill?

Eccles:

Yes.
of it. I've got one copy of that here. I'll get copies

Jones:

Is it very extensive?

Eccles:

This is all there is to it. Want me to read it?

H.M.Jr:

I don't think now.

Jones:

He doesn't want to do it that way.
No, we'll give you everything we've got. Now, we'll
put it - if Jones is going to do it himself, we'll
meet over there. If he's going to designate somebody,
I suggest that we give you 296, which is a nice big
room. We can work down here, see? But I mean if

H.M.Jr:

you're going to sit in, they'11 naturally meet at
your place, but if you're not, personally - they can

Jones:

meet down here in either Taylor's office or 296.
I have an alternative here that's ....
A bill?

Eccles:

Well, it isn't in the form of a bill, but it's ...

Jones:

It will take the place of the Glass suggestion.

Eccles:

Yes.

Eccles:

Jones:

That's pretty short. Does that abolish the Federal

Reserve Board?
Eccles:

Well, not altogether. It might leave a semblance.

118
-11Jones:

Well now, what you want to do is to make a definite
recommendation to the President as soon as you can.

H.M.Jr:

Yes.

Jones:

And if we can't get a unanimous agreement, you have
to report what you get.

H.M.Pr:

That's right.

Jones:

Then why don't we - those of us here - those boys
that you want to work, and then our fellows and his
fellows and his fellows meet, get together, see what
we can agree upon, and bring you back our respective
views?

And
in order - let's have the - let's say Tuesday
afternoon.
Jones:

We'll sit down ....

H.M.Jr:

Let's have it, say, Tuesday afternoon at three o'clock.

Jones:

Next Tuesday afternoon.

H.M.Jr:

Three o'clock.

Jones:

And then meet, with these recommendations.

H.M.Jr:

Yes. When you going away, Jefty?

O'Connor:

Tonight. But we've got a complete analysis of the
bill and we can work very rapidly from our office with
whatever suggestions we have.

You got any suggestions and things like that?
O'Connor: Yes.
Jones:

Jones:

Do you already know what your views are?

O'Connor: Yes.
Jones:

And you (Eccles) know what your views are?

Eccles: Yes.

119
-12Ransom:

H.M.Jr:

May I ask, Mr. Secretary - I didn't understand what
we're going to do at Tuesday, 3 p.m. Is that the
first meeting or the final meeting?
Well, it will be the meeting where, between now and

Tuesday, we'll try to meld the thing into a report

and

Jones:

See how near we can get together.

Ransom:

Between now and Tuesday.

H.M.Jr:

Yes,
ando'clock.
we'll try our best to get together by Tuesday
at three

Eccles:

But the committee ought to get together in the interim
and work it out together, so when they come for final
action it won't be a question of reconciling many differences.

H.M.Jr:

No, no, the committee when they leave here ought to
get together and from now until Tuesday - Cy and the

rest of them - just sort of stay right on this thing,

day and night, and try to grind something out.
Jones:

And come back here with whatever our views are, get
together as near as we can.

H.M.Jr:

Talking for the Treasury, we are completely open-

minded - completely.
Jones:

I think we can proceed on that.

H.M.Jr:

Completely.

Jones:

You (Diggs) will be available at any time?

Diggs:

(Nods yes)

Jones:

and you (Ransom) will. And Wayne and Upham. "e can

work at this - what's today, Thursday?
Eccles:

Thursday.

Jones:

I think we might meet Friday, some time tomorrow, or
Saturday, whichever is

120
-13-

Might I suggest, Mr. Secretary, if it meets with

Ransom:

everyone's approval we might meet this afternoon.

If we've got a quick job to do, I'd like to start on
it quickly.

H.M.dr:

Attaboy! Man after my own heart. Now - I mean don't
let's be too polite with each other. Somebody say
where you meet and when?

Oliphant:

About three o'clock this afternoon.

Ranson:

Suits me.

H.M.Jr:

Where do you people want to meet?

Jones:

Be convenient to meet at our board room?

Ransom:

Why, certainly.

Crowley:

That's all right. You fellows meet and I'll see what
kind of a bill you can draw.

O'Connor:

Mr. Secretary, can I ask for one other thing, to give

us now again what you want this committee to do?

What we want is this. The President has requested
this committee to produce for him a section of a

message on bank holding companies which will be part

of his message on monopoly. And it stands to reason
that when he sends a message up on bank holding com-

panies he's going to ask, "Well, what policy do you
gentlemen recommend that I should take in regard to
bank holding companies?" I mean it isn't sufficient
just to give him a message. He's naturally saying,
"What's the policy? Do you believe that you should
freeze them or you should have a death penalty and

do a way with them, and
Eccles:
11

H.M.Jr:

"Or permit them to grow?"
or permit them to grow? And what about branch

banking; is this part of it or isn't it? Do you want
to confine it to the states? And when it comes to the
policing, who's going to police it?" In other words,
it is only legitimate for him to ask those questions,

and I think when I go over there I want to be prepared
to say, "Well, Mr. President, the following people have
agreed on this, and the others haven't, and they're here

to speak for themselves." Is that

121
-14Connor:

That clears it up a great deal, because from what

you
have said now
consideration
of ayou
bill.have entirely eliminated any
Jones:

You mean the Glass bill.

O'Connor:

any bill.

H.M.Jr:
O'Connor:

No, no, just a policy. A policy.
That's what I wanted to get straight.

H.M.Jr:

Yes, but

Eccles:

You
bill. can't adopt a policy without a consideration of a

H.M.Jr:

Well, you've got to start with a policy first, and
then build a message on a policy.

O'Connor:

H.M.Jr:

That's right.
Can we agree on a policy, and then on that policy we

draft a message which is part of a monopoly message.
Now, between now and Tuesday, if I get a chance, I'm

going to ask the President if he will give us some
hints as to what he has in his mind - I mean as to
certain things, because he's had a chance, he's talked
to Glass, and if he could give us some hints it would
help us. But it's the policy and a message, and it
doesn't necessarily mean a bill.
O'Connor:

That's very important, because I think, as I indicated
before, there is such a great difference here between
certain hodling companies that might require entirely
different action that we've got to first agree on a
policy as to these holding companies and what effect
it's going to have on the economic condition of the
country. Then after we have agreed on the policy, of

course, a bill isn't going to be a very difficult thing

to prepare.
Jones:

I believe, Mr. Secretary, that the point we've all got
to agree upon is, what do we want to accomplish, and

not try to spell it out in detail. You've pretty near

got it in your bottom paragraph, in your closing paragraph there. I mean that's where you're going to - he

122
-15-

doesn't want a long message, he wants a paragraph
to go in his message. Then the details will be
worked out in the Banking and Currency Committee.

Somebody will submit a bill, then you' have hear-

ings, people will present their ideas. Out of that
will come a bill; I mean the final bill.
Eccles:

It seems to me, though, that the committee should if
possible agree on what kind of a bill they want, and
then, as to how that is brought about, whether it is
brought about by the committee recommending amendments
to the Glass bill or whether it is brought about as a
result of possibly getting Senator Glass to substitute

for his bill a bill which the committee might favor, is
a matter of procedure. But I do think that merely to

leave the question of the detail of the final bill up

to hearings, you'd get a good deal of confusion unless
the committee itself have agreed upon just what kind
of
H.M.Jr:

Well, Marriner, if this committee would agree - Do
you want a death penalty, who should have the policing,
should it be confined to state lines or districts, and
so forth - that whole business - you get half a dozen
of those things decided and then the question of throw-

ing that into a bill isn't very difficult. The diffi-

cult thing is to decide what is the administration's
policy towards bank holding companies. Now, once you
get that I wouldn't worry an awful lot about a bill.

I mean they can throw it together.
Jones:

My guess is that none of us would probably agree

entirely on everything. But you put your finger on it
when you said the policing. You've got Federal Reserve,
got Comptroller's office, you've got F.D.I.C. Each
of those agencies is going to be Jealous of its various
prerogatives. None of them will be willing to say,
"Well, Gaston, you take it." I think you might just

as well recognize that.
Eccles:

Well, I can say that as far as I'm concerned, if the
committee feel that some other agency should have it,
that then I wouldn't personally have the slightest
objection. So far as wanting the power to police the
thing is concerned, I have - it makes no difference.
The only thing is that if another agency is going to

have the power to police it, then we should be completely
divorced from the thing and it should be a simple admin-

istration of the thing. As it is now, the Glass bill

123
-16-

comes in and you have two agencies. You have - we

are still left with all of the same responsibilities
we have under the Banking Act of '33, and the F.D.I.C.
has a tremendous lot of duplication. It's a very,
very involved procedure when you've got the two

agencies, and it should be given entirely to one
agency, and whatever agency that goes to is up to
the committee; I don't care.
Ransom:

Might I suggest, Mr. Secretary, that as 1 understand
the existing situation, the Board and the Comptroller's
office both have some responsibility in the present

situation. The bill, as I read it, is in effect a

H.M.Jr:

tonsil operation that removes neither tonsil, but adds
a third tonsil to the patient's complicated situation.
Now, I think that, in principle, is rather bad procedure
and I am fully in agreement with Marriner that, wherever
the responsibility rests, it should be a clean-cut
operation and should rest definitely with some agency
of government charged with that responsibility.
Well, I'll underwrite that, b e cause - I wasn't going to

mention it, but I think what happened since February 16
on this Oakland Bank thing is a good demonstration that
you've got to have it in one place. I mean if you're
going to police - I mean then let's make one agency
responsible, so that if a bank is going to add branches
or isn't going to add branches, or whether they've
it
And
bought branches, and so forth and so on
just doesn't make sense to me that Mr. Crowley should
write a letter on February 16, tell the Oakland Bank

that pending the fixing of a national policy he won't
that time and this they do approve it.

approve adding the three branches, and then between
Crowley:

Well now, wait a minute. Have you read my letter?

H.M.Jr:

Yes.

Crowley:

My letter very definitely sets out there that these three
banks were acquired by Trans-America prior to - and you
understand we have no one in Washington, no Federal
agency has any authority over Trans-America acquiring
banks. They acquired these three banks some time ago.
We had those banks already insured. We have an understanding with them that they would not open up any

124
-17-

more branches, not acquire any more banks until this

situation is clarified. They had these three banks

that we had insured, that we had in the group in one
form or another. We have asked them to improve their
capital position. It is not anything in which we have
taken on an additional liability. We asked the Federal
Reserve and the Comptroller both for an opinion on the
matter, and I think their letters are all attached
there. And I don't think that we have gone back on

any policy that we have stood for at all. It isn't
anything that

H.M.Jr:

Well, I didn't ask - I didn't know anything about this

thing, and I have no authority, but when you write me
on the 16th and send me a copy of the letter which you
wrote to the Central Bank, in which you say this:

Crowley:

"Officials of the Administration have recently indicated concern about the status of group banking in the
country, and an intention to clarify public policy concerning the groups. Your bank is a member of one of the
most important groups. We feel, therefore, that action
by us upon your current application should be postponed
until public policy on this point has been clarified."
Yes, but, Mr. Secretary, we found after that that they
already had acquired these banks.

H.M.Jr:

Then when you wrote this letter it was meaningless.

Crowley:

No, it wasn't meaningless. We still stand behind that

H.M.Jr:

Oh, Leo, don't try and kid me; it's no use.
Well, if you don't
I mean what's the use? Here you write a letter in
which you say that pending - "We feel, therefore, that
action by us upon your current application should be
postponed until public policy on this point has been
clarified."

Crowley:

All right, these banks now are not made branches until

Crowley:

H.M.Jr:

proposition.

they comply with the capital rehabilitation.
But I mean you lay out this thing, which I think shows
very noble sentiments - and I didn't ask for it, you

125
-18-

volunteered this letter.
Crowley:

And
we haven't changed our views a particle in the
matter.

H.M.Jr:

All
you've done is act differently than what you've
stated.

Crowley:

Well, I don't agree with you on that.

H.M.Jr:

Well, that's really - to show you you have, this

fellow writes you here, this man of the banks: "We
do not understand why the question of policy is

raised at this time, since we are not advised of

any change in the laws relating to bank holding
companies."

Crowley:

H.M.Jr:

Well, that's just a legal question - that we didn't
have any right to

In other words, he called your bluff and then you

backed down and gave it to him.
Crowley:

H.M.Jr:

Well, I don't agree with that.
Well, it's what happened, and that's - that's the kind
of thing that's going on. And therefore, when Mr.

Eccles says that this thing should be in one place,
I agree with him. And this has been going on for a
couple years now, and possibly between now and Tuesday,
when this committee gets together, they may go a little

bit further than bank holding companies and decide some
more important questions, and this whole question which

we all know. I'm not suggesting that, but maybe you'll
find it is necessary to decide this whole question of
examination and everything else.

But - I mean I didn't ask for this thing and it isn't
any of my responsibility, but certainly the Bank of

Oakland has got a good laugh on the Administration,

and I'm getting pretty fed up with it, as I say. I
columnists, I don't say it to Republicans, I don't say
it to Senators. But I do say it to people who - every
one in this room been appointed by the President of the
United States. I feel if I feel this way, this is a
don't say this to newspapermen, I don't say this to

perfectly proper place to talk this way.

126
-19Jones:

H.M.Jr:
Jones:

Now, you'd like us to meet and get back something
here as near together as we can get back. And the

question of the - of who will police it - do you
want that
to be in the report? That's probably a
detail,
I think.
Well, I think it's pretty important, Jesse.
But I don't think it ought to go in the President's

message.

H.M.Jr:

No.

Jones:

That's a detail.

H.M.Jr:

No, just in case he asks us, if he says, "Well, who
should police it?" I think we should be ready to say,
"Well, Mr. President, some of us think this way and
some of us think that way."

Eccles:

It seems to me as far as a message is concerned that

naturally all he can put in that, inasmuch as it's

going to be a message dealing with the whole question
of monopoly and this banking aspect will be more or

less an incidental part of the whole message - that all
he can say in that is, it seems to me, to state whether
or not a death sentence is recommended or whether he

feels that under the circumstances the thing should be
frozen and then closely regulated.

Jones:

Marriner,
have you opposed the death sentence at the
time?

Eccles:

I don't think time makes any difference. I'm opposed
to a death sentence unless you have an alternative of
branch banking. What I say is that when you put a

death sentence on a holding company
Jones:

Then you want branch banking.

Eccles:

Then you have at the same time to find an alternative.
But merely to make a death sentence without having an
alternative doesn't make sense.

Jones:

How do you feel about it, Jefty?

O'Connor's

That's the question I raised in the early part of the
conference today - that we are confronted with a very

127
-20-

serious problem with reference to certain holding
companies, and with others it doesn't make a bit
of difference; you can wipe them out tonight at six
o'clock and it won't make any difference. But in

the other case of the holding company where they're
holding unit banks, and we require those banks to be
liquidated at once, or sold in the community, where
probably there isn't enough capital to do it, that's
a serious question which we've got to give serious
consideration to before we get the President out on

a limb.
Eccles:

It seems to me all you can do at the present time outside of one or two situations, there has been a
contraction and not an expansion of the holding
company picture since 1933, and there has been a
strengthening and a consolidation - that what we
should do now, in my opinion, is to stop any further
expansion and to get powers to regulate the existing
set-up and to broaden the definition of holding company so that - because without a broadening of it, then
it's impossible to get powers of regulation; 50 percent
is meaningless, and you've got to get a different
definition. And then if you get that and give powers
to regulate, you're certainly going to stop growth,
you're going to be able to enforce a satisfactory
operation of the existing structure; and then, at
such time as it seems possible or practical to get
a branch banking d evelopment, then simultaneously with

that you can provide for the liquidation of the holding

company. But to try to go beyond that seems to me to
be impractical and inadvisable. That can be done.

It isn't complicated to do that, the thing that I have

suggested here, and I think that you can make an excellent
case along that line.

H.M.Jr:

Well, Jesse, don't you think they'd be ready to meet now
unless there is something else you want to ask about the
principles involved.

Jones:

No, I think - that's all right.

H.M.Jr:

I mean I don't want to hurry you.

Diggs:

Three o'clock.

Oliphant:

Three o'clock, your (Jones) board room.

128

THE COMPTROLLER OF THE CURRENCY
WASHINGTON

April 20, 1938

Dear Mr. Upham,

Attached are letters about which
I spoke with you.

Sincerely

MARSHALL R. DIGGS

Acting Comptroller of the Currency

Mr. Cyril Upham

Land

Assistant to the Secretary
Room 289 - Treasury Building

129

April 1, 1938

Mr. A. P. Giannini
Chairman of the Board,
Bank of America

San Francisco, California.
Dear Mr. Gianninis

In response to your letter of April 1st regarding
the application of the Central Bank of Ockland, California,
for branch offices at Alvarado, Hiles, Irvington and Maryaville, California, in order that we may not embareas you in
this situation we will agree to permit you to proceed with

your program of taking over these four banks and making them
branches of the Central Bank of Oakland with the understanding
that this bank does not acquire any more banks without first

getting the permission of this office, further, that the

capital readjustment will be discussed with me when I an in
California for the bankers convention in May as our analysis
of this bank shows its capital ratio to be much below the
desired ratio.
Sincerely yours,
Leo T. Crowley (signed)
Chairman

130

Hon. Leo T. Crowley, Chairman,

Federal Deposit Insurance Corporation,
National Press Building,
Washington, D. C.
Dear Mr. Crowley,

I have been advised of the action of your Board
on March 5th, 1938 requiring additional capital in the Central Bank
of Oakland, California as a condition to establishing branch offices
at Alvarado, Niles, Irvington and Marysville, California.

In view of the fact that negotiations have gone
so far with reference to these small unit banks, all of which are already insured by your Corporation, and there is no additional liability
therefor created, I would appreciate it if you would advise me that it
will be satisfactory to the Corporation to establish these branches,

and I will be glad to discuss with you in May, when you come to the
California State Bankers Association meeting, the question of additional
capital.

California Statutes fix a ratio to capital structure

which is more liberal than that suggested by the national banking agencies.

It is difficult to discuss this question except in a personal interview.
If the above meets with your approval, would you be
good enough to wire me so that negotiations can be completed.

Cordially yours,

A. P. Giannini

131
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

FROM

MAY 26 1938

Secretary of the Treasury
General Counsel

A field examiner for the National Labor Relations Board recently
wrote to the Chief National Bank Examiner of the 12th Federal Reserve

District at San Francisco, California, requesting information on 29
separate items relating to the Bank of America, such information apparently being desired for use in determining whether or not the
National Labor Relations Act applies to the Bank of America. That
letter has been transmitted to the Office of the Comptroller of the
Currency for appropriate reply.

Much of the requested information is not in the possession of
the Office of the Comptroller of the Currency and some of the items
are obviously of a confidential character and accordingly should not
be transmitted to the representatives of the National Labor Relations
Board in the absence of a direction from the President pursuant to
section 11 (6) of the National Labor Relations Act.
Accordingly, there is attached a suggested draft of a memorandum
from you to the Acting Comptroller of the Currency, and a suggested

draft of a letter to the examiner of the National Labor Relations
Board transmitting a copy of the latest Report of Condition of the

Bank of America (which report has already been published) and advis-

ing him that confidential information can only be furnished by direction of the President.

Cliphend

132
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

FROM

Acting Comptroller of the Currency
Secretary of the Treasury

Reference is made to a letter of April 19, 1938 to the Office
of the Comptroller of the Currency from Mr. William Prentiss, Jr.,
Chief National Bank Examiner of the 12th Federal Reserve District,
enclosing a letter to Mr. Prentiss from Mr. George C. McKay, Field
Examiner
of the National Labor Relations Board, Los Angeles, California.
In his letter Mr. McKay requested that the Chief National Bank
Examiner of the 12th Federal Reserve District submit certain information to be used in assisting representatives of the National
Labor Relations Board in determining whether or not the National
Labor Relations Act applies to the Bank of America. Mr. Prentiss
transmitted Mr. McKay's letter to your office with the request that
an appropriate reply be made thereto.
It is apparent that some of the information requested by Mr.
McKay is not in the possession of your Office and also that some

of your information is of such a confidential character that it

could not be furnished in the absence of a direction from the
President pursuant to section 11 (6) of the National Labor Relations Act. However, the Treasury Department should do nothing to
hinder the National Labor Relations Board in executing and administering the National Labor Relations Act and should cooperate with

the Board in so far as it is possible. I suggest that a copy of

the most recent Report of Condition of the Bank of America be made
available to Mr. McKay accompanied by an appropriate explanatory

letter. A proposed draft of such a letter is attached.

A copy of Mr. McKay's letter and your reply should be transmitted to the Chairman of the National Labor Relations Board.

133

Mr. George C. McKay,
Field Examiner,

National Labor Relations Board,

745 Pacific Electric Building,

6th and Main Streets,
Los Angeles, California.
Dear Sir:

Reference is made to your letter of April 14, 1938 (XXI-C-570-GDM)

addressed to Mr. William Prentiss, Jr., Chief National Bank Examiner

of the 12th Federal Reserve District, in which you request certain information which you indicate is to be used in determining whether or
not the National Labor Relations Act applies to the Bank of America.
In response to your request there is enclosed herewith a copy of
the latest Report of Condition of the Bank of America National Trust
and Savings Association, dated March 7, 1938. This report contains
-

information with reference to a number of the items referred to in
your letter.
Much of the information which is requested in your letter is not
in the possession of the Office of the Comptroller of the Currency
and certain items of the information which are in the possession of

this office are of a confidential character.
It is the desire of this office to cooperate in so far as possible with the National Labor Relations Board in the fulfilling of
its functions. However, the relations of the Office of the Comptroller
of the Currency to the various national banks of the country are

134

-2in many respects of such a confidential character that much of

the material in its possession could not be divulged without

the possibility of resulting injurious effects upon the banks
in question. Accordingly, this office could not transmit such
confidential information to a representative of the National
Labor Relations Board in the absence of a direction by the
President pursuant to section 11 (6) of the National Labor Re-

lations Act, 49 Stat. 456 (U.S.C., Sup. III, title 29, sec. 161 (6)).
Representatives of this office will be glad to discuss this
subject further with representatives of the National Labor Relations Board should the Board so desire, and will cooperate with
the Board in every way possible.

Very truly yours,

Comptroller of the Currency.

CABLE ADORESS-BAMERICAL

135

13044

EXHIBIT 1*
8001 11 100

Bank of America
NATIONAL THIS ASSOCIATION
SAN FRANCISCO HEADQUARTERS

RUSSELL G. SMITH

SAN FRANCISCO, CALIFORNIA

July 9, 1938.

Honorable Marshall R. Diggs

Acting Comptroller of the Currency

Treasury Department
Washington, D.C.

My dear Mr. Diggs:

Our counsel, Mr. Zach Cobb, has reported the conversation with you
on the telephone yesterday and has indicated that approval of our applications for branches is being held up because certain items classified
as losses in the examination report of August 31, 1937 have not been
charged off. I reported on these items to the examiner on Thursday,
July 7, and he in turn transmitted the report by telephone to Mr. Folger.
However, I want to again review the losses as summarized in the report
and indicate the disposition which has been made of each item.
Loans and discounts - estimated loses $2,520,643.61: Loans charged off

Reserve set apart for German credits
Loans charged off since June 30

775,626.47

1,000,000.00
60,156.00

Balance not charged off as of this date $684,861.15 includes
the following items:
Loss classified based on sale of Los Angeles subdivision

real estate subject to contingent liability for street
improvements

Classified loss on real estate in process of
foreclosure

Loan loss

425,000.00

174,818.03
12,757.00

The contingent liability under the subdivision properties
referred to above at this date is $331,447.40. We will now
eliminate this account by charging expense.

Honor ble Marshall R. Digge

It has always been our under with the examiners that losses

classified on real estate loans under foreclosure will be charged off as
the foreclosures are completed. This is the most practical way of handling
these items from an accounting standpoint. The remaining loan loss of
$12,757 is no longer an admitted loss as a result of improvement in the value
of collateral.
4,440.63

Overdrafts

These items have been entirely eliminated
2,836,769.31

Bonds, Securities, etc.
$313,000 of this amount has been eliminated by charge

to losses and an increase in the valuation of reserves
for sub-standard securities.

The balance of $2,523,115.71 represents market depreciation
upon $105,000,000 par value U. S. government bonds and
$28,159,500.00 par value municipal bonds previously written
up.

All of the government bonds listed in this classification have been sold
thereb eliminating the loss classification of $2,064,300.15. The remaining
municipal securities are carried on our books at $31,288,912.03 representing
30 increase in book value over original cost of $1,834,233.03. As of August 31,
1937 these bonds had depreciation of $458,815.56. An appraisal on market values
ill show these bonds to have a market value in excess of book value and we
submit that on basis of presont values there should be no requirement that any

writeoff be made in the value of these securities.
Banking House

Unemortized balance of leased premises, alterations
charged off

336,409.50

10,409.50

The balance of this classification is an item of $326,000
representing the difference between the book value of our
investment in the Merchants National Realty Corporation
and the net worth of the company 83 of August 31, 1937.

Due to earnings the net worth of the company has improved and the
difference between book value and net worth is now $203,628.82. This differ-

race will be eliminated over a comparatively short period of time out of
enriings of the company but in order to eliminate this item we are now
setting up a reserve of $203,628.82 out of undivided profits.

Honorable Marshall R. Digga

Furniture and Fixtures

25,220.93

This item has been charged off
183,301.54

Other Real Estate

All of these items either have or will be eliminated
98,183.76

Other items

All of these items have been charged off

From the above review of classified items and our action with
respect to them you will observe that there only remains, subject to

discussion, $458,815.56 representing depreciation on municipal bonds
which depreciation existed on August 31, 1937 but does not exist on

present market value. We do not feel that this item is a proper loss
classification
particularly under the modified regulations with respect
to investments and examinations.
We should appreciate it very much if you would again review our
examination report and the action which we have taken with respect to

it with the Secretary. I feel sure that when the action which we have
taken with respect to the report is reviewed, you will agree that we

have substantially complied with all of the recommendations of the
report.

Yours very truly,
(Signed) R. G. Smith
Russell C.Smith

Vice President and Cashier.

138
"EXHIBIT 1"
TREASURY DEPARTMENT

Comptroller of the Currency
WASHINGTON

July 15, 1938.
Mr. Russell G. Smith
Vice President and Cashier
Bank of America, National Trust &
Savings Association

San Francisco, California
Dear Mr. Smith:

Receipt is acknowledged of your letter of July 9, referring to

conversation had with your counsel, Mr. Zach Cobb, regarding the applications for branches and also the estimated losses as shown by the last
report of examination of the bank.

According to your letter and other information in this office

recently obtained you have charged off less than one-third of the losses
estimated in the last report amounting to $6,004,866.18. It appears from
the information that items aggregating approximately $4,654,000 have not

actually been written off. This total consists of the following items $1,000,000 on German credits, for which you state a reserve

has been set apart

Los Angeles subdivision real estate subject to contingent
liability for street improvements - $425,000
Estimated losses on real estate in process of

foreclosure

Other loss in loans

$174,818

$12,757

Bonds and securities $2,523,000. Balance not written

off. Loss estimated on account of bonds having been written up on
books of the bank.

$336,000
$183,000

Banking house

Other real estate

With respect to the German credits, it has always been the

position of this office that estimated losses should be written off and
it is not satisfactory to set aside reserves for determined or estimated

losses.

With reference to the writing up of certain UnitedUnited
States
and
States
municipal bonds, you state in your letter

Government bonds written up

this eliminates loss of $2,064
will you
in the last

been

139

CABLE ADDRESS BAMERICAL

"EXHIBIT 1."

Bank
of America
NATIONAL I ASSOCIATION
SAN FRANCISCO HEADQUARTERS
RUSSELL G. SMITH
CASHER

SAN FRANCISCO CALIFORNIA

July 22, 1938.
Honorable Marshall R. Diggs

Acting Comptroller of the Currency
Treasury Department
Washington, D. C.

My dear Mr. Diggs:

This is in reply to your letter of July 15 with respect to the

disposition of estimated losses as shown in the report of examination

of this bank as of August 31, 1937. It appears that there is still

some misunderstanding with respect to the status of various items
classified as losses in that report and so we have asked the examiner,
Mr. L. H. Sedlacek, who made the report, to make a supplemental report
to you. He has now reviewed the various items with us and we assume

that you will receive his report concurrently with the receipt of this

letter.

However, in order to reply to your questions and in confirmation
of my conversation with Mr. Clarence F. Smith of your office, I will review herein the various items and the action taken with respect to each.

In the report there is listed total estimated losses of

$6,004,866.18 as follows:

$2,520,643.61

LOANS:

Of this amount we have charged off as loan losses $835,782.27.
We have eliminated the loss classification of $425,000 in connection with Los Angeles Subdivision real estate by charges to
Expense. We have transferred from Undivided Profits to a
reserve for contingencies earmarked for the purpose, $1,000,000
to eliminate the loss classification of that amount in German
credits. We have not charged off sunday loan losses aggregating $84,399.70 because these items were only tentatively
admitted as losses with the understanding that chargeoff would

be made if there was no improvement at the next examination.
We have not charged off $174,818.03 representing losses classi-

fied in connection with loans in the process of foreclosure
because the foreclosures have not been completed. It is our
practice in this connection to take any estimated loss in the
acquisition of real estate at the time the foreclosure sale is
held.

1AD
Honorable Marshall R. Diggs

-2-

July 22, 1938.

The operating reasons for this are known to the examiner
and the procedure has had his concurrence.
BONDS AND OTHER SECURITIES:

$2,836,769.31

$313,000 of this amount related to bonds in default and
sub-standard securities. These items were eliminated by
a charge to losses and a corresponding reduction in book

value of the securities. The balance of the classification, $2,523,769.31 related to depreciation, at the
time of examination, in certain United States and municipal

bonds previously written up. Subsequent to the examination all of the United States Government bonds included in

this classification were sold and the loss classification
of $2,064,300 thereby eliminated. Profit or loss, including
the realization of the writeup of these bonds, was cleared
from the books at the time of sale. The remainder of this
loss classification, consisted of $458,000 classified as
depreciation in certain municipal bonds previously written
up. This item was reduced to $381,748 by sales and maturities and the balance eliminated through the writeoff of
$668,595.53 of premiums. In the examination of August 31,
1937, the examiner did not take into consideration the
amounts which had been set aside to amortize the premiums
on these bonds. Since the examination there have been

further regular writeoffs of the premiums. In the writeup

of the bonds further premium was added to book value and the
writeoff of the premiums has therefore accomplished the

elimination of the loss classification set up in the report.

There has perhaps been some confusion with respect to this
item because we have referred to the writeoff of bond premiums

as a "reserve". However, this reserve which is indicated on

our ledger as "Allowance as Extinguishment of Bond Premiums"

is a valuation reserve deducted from the book value of the

securities to which it relates, so that it does actually

represent a write down of the book value of the securities.
There is approximately a $55,200 difference between

this figure and Mr. Sedlacek's supplemental report
because he did not take into consideration the
partial sales indicated by comparison of par value

owned at August 31, 1937 and July 15, 1938 in

schedule of these bonds attached to his report.

BANKING HOUSE:

$ 336,409.50

As mentioned in my letter of July 9 we have charged off
$10,409.50 of this amount representing the unamortized balance
of a leased premises account. Further, we have eliminated
$122,317.18 by increasing the net worth of the Merchants
National Realty Corporation. The balance is the difference

Honorable

of the
of

July

since my letter to you
the write down of the book value of

Merchants National Realty Corporation.

$25,220.93

FURNITURE AND FIXTURES:

This item has been charged off.
$183,301.54

OTHER REAL ESTATE OWNED:

In connection with this item we have eliminated $162,341.99
through the sale or write down of book value of the proper-

ties. In eliminating these items we have actually taken a
loss of $180,091.68. There remains three properties in
which the loss classification was $21,161.55 which we have
not written off because appraisals made subsequent to the
examination indicate that the value of the properties
exceeds our book values. These items, we feel, should be
reviewed at the next examination.

$98,183.76

OTHER RESOURCES:

These items have all been charged off.

To summarize, there remains of the loss classification of
$6,004,866.18, only $280,379.28 not charged off, as follows:
Loans

84,399.70

Real estate in process of foreclosure 174,318.03
Other Real Estate

21,161.55
280,379.28

The examiner's supplemental report should confirm this and when you have
reviewed these figures we hope that we may have a clearance with respect

to this examination and an early favorable answer on the applications for
branches which have apparently been withheld pending a satisfactory report
on the last examination.
Yours very truly,
(Signed) M. G. Smith
Russell G. Smith

Vice President and Cashier.
CC - Mr. A. P. Giannini

CC - Mr. William Prentiss, Jr.

CABLE - AABERICAL

142
"EXHIBIT 1"

Bank
of America
NATIONAL I ASSOCIATION
SAN FRANCISCO HEADQUARTERS
RUSSELL G. SMITH

SAN FRANCISCO CALIFORNIA

CASHIER

August 24, 1938

Honorable Marshall R. Diggs

Acting Comptroller of the Currency

Treasury Department

Washington, D. C.

My den Mr. Diggs:

In my letter to you of July 22 I reviewed the action
which had been taken with respect to the loss classification in the examination report of August 31, 1937. The
amount of loss classification which had not been charged

off was summarized on July 22 as $230,379.23.

There have been some further changen since that date

and as of August 22, 1938 the loss classification not

charged off has been further reduced to $220,594.10 which
is summarized as follows:
Loans

Real Estate loans in the
process of foreclosure

Other Real Estate

$ 32,382.60
171,935.22
16,276.28
$220,594.10

This letter is to supplement my letter of July 22 and
to bring the figures up to date. I appreciated the opportunity
to discuss this matter with you on the telephone and to explain
the reasons why the above items have not been charged off.

Yours very truly,
(Signed) R. G. Smith

Vice President and Cashier.

143

September 9, 1938
11:30 am
Present:

Mr. Taylor
Mr. Upham

Mrs. Klotz

Later:

Mr. Diggs

Mr. Folger
Mr. Irey

Mr. Upham: You want the bad news first or the
good news?

HM,Jr: Always the bad first; work up from the

bottom.

Mr. Upham: May I read it? I have not had time
to get the necessary copies. I did this last night.
(Reading Report attached marked (I))

HM,Jr: (after Upham had completed reading): Is
that the one you say is unpleasant?
Mr. Upham: The bad one is my own fomulations.
Now I have a program which Mr. Diggs and Mr. Folger
have made up, a program of what they want the Bank to

do. Shall I give you that one before I give you the
bad one?

HM,Jr: You use your judgment.

Mr. Upham: This is bad from my standpoint. You

won't like me when I get through this. I will give you
the program first. No, I will do this. And the very
first paragraph has a remark which I want to say, very
much

HM,Jr: (Interrupting) To operator: Tell Folger
and Diggs to stay in their respective offices until

144

-2-

one o' clock.

Mr. Upham: I never go out of my way to say anything to you about Jews, but neither do I ever go out

of my way toavoid saying anything about Jews.

(Reading from Exhibit II, attached.)

HM,Jr: (Interrupting at end of first paragraph.

Who is this talking?

Mr. Taylor: Giannini says this.
Mr. Upham: No. The Chief National Bank Examiner

of the San Francisco District tells me this; day before

yesterday.

HM,Jr: This is what Giannini says?
Mr. Upham: No, this is what the Chief Bank Examiner
says.

HM,Jr: But who is talking about the 'damn Jews'?
Mr. Upham: Giannini.
HM,Jr: Who is the Chief Examiner?

Mr. Upham: Prentiss.

(Reading at foot of page 2): "It is pointed out

that Mr. Giannini bragged that he would get rid of the

former head of the Federal Reserve Bank of San Francisco

and that that official was removed. It is pointed out

that the new chairman of the Board of the Federal Reserve
Bank of San Francisco, appointed by the Board of Governors
in Washington, is closely tied in with the Transamerica
group and has been extended many million dollars of

credit by the Bank of America.

HM Jr: (Interrupting the reading) Who is this

saying this!

Mr. Upham: Rumor. Gossip. The situation as it

was told me when I was in California and which 18 bandied
abouts the streets of Washington every day.

145

-3-

Mr. Upham( resumed reading and concluded without

interruption.)

HM,Jr: What's the matter with that report?
Mr. Upham: Well, it's my complaining and criticizing

other people. You once told me that I could criticize
well;
I ought
Iother
thinkvery
that's
what
it 18. to do a little on myself, and

HM,Jr: I think it is a good report.
Have you initialed that?
Mr. Upham: No, I haven't.

HM,Jr: Well, you had better do it.
Mr. Upham: (Initialed report)
HM,Jr: I am glad to get it. Now let's see what

we can do about it. Now, what are the recommendations?

Mr. Upham: (Reading from Exhibit III attached.)
HM,Jr: Whose recommendation is that?

Mr. Upham: Both Folger and Diggs.

HM,Jr: But they have not signed it:
Mr. Upham: Do you want them to sign it?

HM,Jr: Yes. I am going to have them in before

one o'clock.

Mr. Upham: Don't be too tough on them.

HM Jr: Listen, fellow! You put this in writing.
Mr. Upham: That's their program.

HM,Jr: I am going to give them a time limit to put
this in effect.
Mr. Upham: That's the third thing you asked for;

146

a program.

HM,Jr: That's right.
Mr. Upham: And there they say 'What can you do?'.
That's their answer.

HM,Jr: They can't do this?
Mr. Upham: What can they do! They say we tell
Mr. Giannini to do these things and he says he won't
and we can't do anything short of closing the bank or
removing him by citing him to the Federal Reserve Board
and that will just upset all the banks on the Coast and
you will have a terrible mess.
HM,Jr: Is Prentiss in town?
Mr. Upham: Yes. of course, each one talks about
the other. The three of them -- a triumvirate -- and
each could cut each other's throats.

HM,Jr: That's all right.
Mrs. Klotz: Don't you want to think about it?
HM,Jr: No; I have had plenty of time.
Mr. Upham: Well, it's partly my fault. I should

have spent the last couple of months being you and run-

ing the Comptroller's Office.

HM,Jr: No. I think this: I think the responsi-

bility is divided between the three of us.
(At this point: HM, Jr telephoned Mr. Prentiss,
Mr. Diggs and Mr. Folger and asked them to be in the
Secretary's office in five minutes.)
This is very simple. I am not going to get emotional. I am going to ask them if this is their recommendation and will they sign it and simply say,'
right, gentlemen, I accept the suggestions. What is
a reasonable time to ask you to put these into effect?
All right, I am going to hold you two people strictly
accountable for your own recommendations within the

147

-5-

time limit you have set. I am not adding or subtracting.
I am taking it at face value. I am going to hold you
strictly responsible to the recommendations. I

Mr. Upham: The authority rests in the Acting Comptroller.

HM,Jr: I will say in front of him 'Either you are
the Acting Comptroller or not. Are these your recommendations? All right. Will you please sign it? All
right. Now, gentlemen, what is a reasonable time to
ask you to put these into effect?
Mr. Upham: Of course, that's the though part of

it -- putting it into effect.

HM,Jr: Then why have a National Bank system? How

can I take the position that it's an adjunct of the

Treasury

Mr. Upham: I agree with you.

Mr. Taylor: There isn't anybody in the Comptroller's
Office that as any guts. That's the whole trouble.
HM,Jr: I know that.
Mr. Taylor: And Jefty never had any guts. Marshall
Diggs has not any guts. And Gus Folger hasn't got any
guts. That's the whole trouble with the Comptroller's
office.

Mr. Upham: If they had, he might.
HM,Jr: I have been fussing around and asking for
reports -- for how long?
Mr. Upham: Began in 1937. I don't know just when.
You appreciate that a lot of this stuff in my memo-

randum
is gossip. It may or may not be true. It's
talk.

HM,Jr: I am not going to show it. When I get this
cleaned up, I am asking you officially to get me a similar report, when I come back Tuesday, as to what recom-

148

-6-

mendations they make in regard to Anglo California.
I want a similar statement on Tuesday.

Mr. Upham: All I know about that is what Prentise

tells me. It may or may not be true.

HM,Jr: All right. And I am telling them to keep

Prentiss in town until I come back Tuesday and between
now and Tuesday I want a piece of paper from these two
same gentlemen what they recommend is necessary on the

Anglo California Bank and, I go one step further, what
other bank in the United States; but specifically on
the Anglo California.
Mr. Upham: I asked him what others.
HM,Jr: Wayne, are you with me on this?
cent!

Mr. Taylor: (Nodded assent.) Just a thousand per
(Mr. Diggs and Mr. Folger came in at this point.)
HM,Jr: Mr. Upham has just given me this memorandum

and I would like to know if it expresses the opinion of
you two gentlemen and, if it does, whether you would
both sign it.
Mr. Diggs: That's the one we prepared last night.
Mr. Folger: (To Mr. Diggs) There was a little
change in re-writing the corrected copy. This paragraph is the only change; nothing new.
HM,Jr: How would you change it?

Mr. Diggs: No ; just a change since I san it.
Mr. Folger: It's about the earnings record and

dividends paid since 1930.

Mr. Diggs: Those are the facts.
HM,Jr: Do you care to sign it?

Mr. Diggs; Yes; very glad to.

149
-7-

HM,Jr: Now, Mr. Acting Comptroller, what do you
consider a reasonable time for you to see that those
recommendations are put into effect?

Mr. Diggs: Well, some of it is going to take con-

siderable time to work out.

HM,Jr: I want a time limit . I want you to tell

me in 80 many days I can do the following.

Mr. Diggs: I would like to take it and look at
it, because some of it will take a lot of time.
HM,Jr: Let's take the dividend one.

Mr. Diggs: I think he has already declared it for
this year. He had his meeting in June and declared
it for the year. Nothing can be done on that until
next year.

HM,Jr: I don't know whether you are right or not.
Mr. Upham: He declared it for half a year.
Mr. Diggs: Are you sure?

Mr. Taylor: That would be for the rest of this

calendar year.

Mr. Upham: Declared semi-annually, payable quarterly.

Mr. Folger: Yes.
Mr. Diggs: He could also declare an annual and

pay quarterly.

HM,Jr: Can he declare for the next year too?
Mr.

Diggs: Oh, no. Declare for one year payable

quarterly.

Mr. Folger: Declare in December, payable in May,
and in June he will declare one in June payable in December.

Mr. Diggs: And that one has been declared.

150

-8-

Mr. Folger: Probably has.
HM,Jr: How about the December one?

Mr. Diggs: It has probably been declared.
Mr. Folger: I would have to see if it has been

declared to run past December.

HM,Jr: You can take it and give it back to me
Tuesday morning. I want a time table alongside each

recommendation on how long it 18 going to take uou to
put each one of these things, of your own recommendations, into effect. I want to know -- you can list
them. You make certain recommendations and I want to
know Recommendation #1: will be carried out within
80 many days. Recommendation #2, and so on.

I have been fooling around with this thing for
months. We have talked about this dividend thing for
months and it's just a question of how much longer you
people are going to kid me about it, and you have had

plenty of time to do this. There is nothing new in
this.

Mr. Diggs: The immediate problem I had when I

came over to get a charge-off in examination. Mr.
Smith, the cashier, was here last week and he has agreed
practically to $100,000 to $200,000, in six months, on
the charge-offs. That was done last week.
HM,Jr: Have they been charged off?

Mr. Diggs: They say they have.
Talking with
Mr. Folger: They said they had.
the Examiner, he said he had been in 400 branches since
Smith started east and found that the Directors had
been authorized to charge off, but some had not actually
been charged off.

HM,Jr: What I am asking is this: I am simply

going to ask this: here are. these recommendations.
When I get back Tuesday I want to know, after each one

151

-9-

of these, that you say you can have these carried
out in so many days.

Now, the other thing. There are certain charges
I would like to know whether, in your opinion, there are
certain changes which you want to recommend in regard
to the Anglo California Bank. I want that besides.
While you are doing it, you can put in the number of
days which it will take to carry out each recommendation.
And then, third. How many other banks are there in as
precarious a condition as Bank of America is on your
say 80 and the Anglo California on the say so of gossip?
that have been made against the Anglo California Bank.

How many others are there like that?

And then, I want to see Prentiss, because Prentiss
has informed me, through Upham, that there are certain

things he wants to do to clean up his office and I want
to know what they are. I got a lot of responsibilities
and I ought not to have to ask for any of these, but it

seems as though it was necessary.
Mr. Folger: Mr. Prentiss has made no recommendations

that have not been carried out in the Comptroller's Office.
HM,Jr: Well, we will get them in writing from him.
We will ask for them in writing. If you don't mind my
saying so, you claim there is no -- I want to find out
what recommendations he makes to clean out his office and
make it possible to carry out his sworn duty, which he
says he has not been able to do. This is pretty serious.
Mr. Diggs: Yes, I know. We asked him to make
certain recommendations on his personnel out there.

Mr. Folger: He said they were not completed and would

bring them in this morning and they are not in yet.
HM,Jr: will you ask him for his recommendations
and then may I see a copy of them? and also the number
of days it take to carry out those?

How many of your National Bank Examiners have recommendations they would like to make?

152

-10-

Mr. Folger: There 18 one or two men, Mr. Secretary.

HM,Jr: Let's get them cleaned up now. I don't
want to sit here and feel there 18 a lot of stuff here
that may blow up under my feet. It's not my responsi-

bility. It's your responsibility and it's just a question
of who is the Comptroller of the Currency, you or Mr.
Giannini. It's your question. It's been this way
and, as far as I am concerned, I want to know and within
a very short time.
Mr. Diggs: There are some of those things that
are going to take some time to do.

HM,Jr: And I am telling you now that I am asking
Elmer Irey to make an investigation of charges that have
been brought to me of Mr. Roberts' political activity
and I want every cooperation given Mr. Irey to run that

down to the limit of just what Mr. Roberts did. I want
every cooperation.

If there 18 anything else that is around on any
other bank that smells as bad as this does
Mr. Folger: No, we don't have any other like the

Bank of America.

HM,Jr: What about the Anglo California Bank?

Mr. Folger: It's not a very good situation either.

Quite different from the Bank of America.

HM,Jr: You people both know, under the law and

under your oaths and legal responsibilities, it's your
responsibility and my interest in this is, as far as I
know I don't have any responsibility; I am taking it
on gratuitously, because I am interested in the welfare
of the people of America, the depositors, and anything
that either of you have got you had better give it to
me voluntarily because I will get it anyway. I am not
going to fool around. I have waited and waited and

waited and it is always what Mr. Giannini and Mr. Smith
and Mr. Cobb, his attorney -- always what they recommend

or what they want. But I am putting you on notice just
what I am going to do and I am going to the bottom of

153

-11-

this and I am not going to fool around. I have been
very, very patient.

So if I could have a report on time limit on

Tuesday and I would like to have a report on what is
the matter with the Anglo California Bank and there
are any other banks or anything else -- because I
don't like to get reports that the Comptroller of the
Currency is seemingly not carrying on his duties.

So I will see you again, let's fix a time on Tuesday.
Wayne, are you in complete accord with me on this?

Mr. Taylor: Yes.
HM,Jr: Entirely?
Mr. Taylor: Yes.
HM,Jr: Anything you want to add?

Mr. Taylor: No.

HM,Jr: Going at it right?
Mr. Taylor: Only way you can go at it because

that Coast situation apparently runs itself.

HM,Jr: You know, on the chart, the Comptroller of
the Currency is placed under you.
Mr. Taylor: Yes.
HM,Jr: Supposing we say 11 o'clock Tuesday.

And I might add that telling the Bank of America
that I am the person holding up their charters does

not help the situation at all; does not help matters

a bit, because I have not held up anything that you
have recommended in writing. Nothing!

I might also add that what they are saying here,
from the standpoint of the depositors and stockholders

in these respective banks, naturally is filled with
dynamite and, as far as this room, it is in strictest
confidence. If there are any leaks it will be from

154

-12-

the Comptroller's Office. It will not be from this
office. There will not be anything in the Bankers'

Magazine from this office.

Mr. Diggs: You don't think there will be anything

in the Bankers Magazine from our office?

HM,Jr: There always has been. I am just inquiring. I feel the responsibility and nobody gives

me -- nobody tells me fairy talkes because I am beyond
that stage, but Mr. Taylor, Mr. Upham and I are taking

this responsibility for the President, so in order to
keep this thing -- we are just not going to take any
more excuses. I just am not going to do it. It's
too serious. I am sick and tired of being told, whenever
I raise the dividend question, it has always been declared for six months.

If that is your recommendation, there is a cut-off

time sometime and I want to know when and I want to know

what you fellows are going to do and I want to know, as far
as California is concerned, who is the Comptroller of the

Currency. And I don't want to be the Comptroller of the

Currency or the Chief National Bank Examiner or the Examiner

for the California district. All right, gentlemen.

(Mr. Diggs and Mr. Folger left the Secretary's office.)
HM,Jr: I just wanted to bring you in to this extent,

Wayne. It is there. I joked about it being on the
chart, but it is there.

Mr. Upham: You have been depending on me to have

something and I fell down on you both.

Mr. Taylor: Not a bit. You can't do business

with a bad man.

HM,J What I am doing is this ;; when I first went to
the President, months ago, put him on notice on this
thing. Jefty is around and he wants this job. This
fellow 18 here and Jeft is still pushing me plenty.

Mr. Taylor: Neither one is qualified for the post.
HM,Jr: Nobody is going to put a report under my

nose and let the sun set on it. That's my policy.

155

-13-

Mrs. Klotz: I don't think these boys can do any-

thing.

HM,Jr: I can remove the Acting Comptroller and,
pending the President's decision, my thought is to make
Gus Folger Acting Comptroller. You can think it over.

Mr. Taylor: He hasn't got any guts either.

HM,Jr: Well, think it over.
Mr. Upham: I meant to say one other thing when I
came in and be forgiven in advance. There are just

two things that have happened in the years I have been
here that have taken the heart out of me tremendously.
The first one was the appointment of Diggs and Oppegard
as Deputy Comptrollers and your statement, the other
day, that you would be delighted to have Jefty back.

HM,Jr: We are both being frank and I will be

frank, because I put the heat on you. I have been
could have brought to Taylor's attention while I was
gone. Let's all be honest, and while I was gone and
while he was in full charge, and I had to put the
heat
honest.

gone two in onths, but everything you brought to me you

on you in order to get it. So let's be 100%
Mr. Upham: I accept that 100%

HM,Jr: Ag long as we are all being very frank.
But no reason why I should always have to put the heat
on in order to get a thing and if you had handed that
to Taylor, it would have been his responsibility and
he would have had a couple of months to fool with it.
If I were in Diggs' place -- why is Morgenthau so suddenly decided; It must be because O'Connor is in town.

But it isn't. I knew it was happening. Nothing done
and a couple of months will roll around. I don't know
what SEC has done with Bank of American 6 tuff. I may
be a little self-righteous.
Mr. Upham: I haven't a thing to say.

HM,Jr: All right. So that's that. But fortunately

we can say those things to each other.

156

-14-

Mr. Taylor: I certainly would like to join with

Cy that the two biggest mistakes you could make would

be to appoint either o' Connor or Digge to that job.
In this report, the Upham report, based on action of

thethere.
Comptroller' 8 office, you have five years of 08 Connor
in

HM,Jr: That pentrated.
Mr. Upham: He doesn't have time.

Mr. Taylor: Neither one of them have time.

Mrs. Klotz: Yes, but will this boy now go back

and do it -- 0 Connor?

Mr. Taylor: I don't think 80.
HM,Jr: It's like this fellow, Mike Igoe, in Chicago.

Now that he has broke with the crowd, I understand he's
going back to what he was 20 years ago and become a Prosecuting Attorney.

(At this point Mr. Irey came in.)
Elmer, I just told the Acting Comptroller of the

Currency, Mr. Marshall Diggs, and Mr. Folg er, Chief Bank
Examiner, that I was asking you to make a complete in-

vestigation of the activities of Mr. Roberts, Chief Bank

Examiner for New York, who circulated a petition for the
renomination of Mr. Digge for permanent Comptroller of
the Currency. Now, there 18 one piece of paper which
I got, which Mr. Diggs asked me to see; he did not have
a copy. The point is I want that and I want all the
telegrams turned over to Mr. Irey to see, and I think

the best thing to do is to start with Mr. Roberts and

ask him 'How did you happen to start this campaign for

Mr. Diggs?'.

they thought

Mr. Upham: I don't think youmeant that Roberts.

HM,Jr: I told Diggs and I told Folger
thathave
I expect
nd they

them to give you every cooperation.

those telegrams plus a letter which he circularized.
Now, for your information, J. F. T. O'Connor tells

157

-15-

me that this campaign started while he was in office.
He also told me that Mr. Cobb, the attorney for the
Bank of America, called up Mr. Prentiss on the tele-

phone while Prentise was attending a convention at
Salt Lake City, Prentiss being Chief Bank Examiner
for California, and asked Prentiss why he, Prentiss,
was not doing more to help get in telegrams and Cobb
said, 'Now, I just want you to understand that Diggs
knows nothing about this, -- this is important -- and
hung up. Whereupon Prentiss asked that the telephone
call be traced and Cobb was talking from the home of
Marshall Diggs.

Now, Prentiss is in town and O'Connor is in town.
They are both in town. Now, you can get somebody to
look up the statute on what a Chief Bank Examiner can

or cannot do politically, but there are from 5,000 to
10,000 telegrams came in here.

I have told them I am going to do this and expect
them to give you full cooperation.
Now, you (Taylor) want to add anything between

now and Tuesday?

Mr. Taylor: No. I think this Anglo California

thing, I understand the report on the Anglo California

Bank on which the recommendations are based, is due

here sometime next week or so, and they feel they ought
to clean up to Anglo California. At least Prentiss
does. This is second hand to me. He thinks they ought

to clean up that situation before they clean up the Bank
of America one. I think there may be something in that.
HM,Jr: Prentiss is staying here until Tuesday?

Mr. Upham: Yes. I think he will be here longer
than that. He wants to stay until the Anglo California
is cleaned up.

HM,Jr: You (Upham) haven't anything as important
This is number one.
to do as this.

Cy, you have done a good job. I am tickled to
death and we will see this thing through together.
00o-o0o

158
EXHIBIT I.

September 9, 1938

For the Secretary:

I have taken all of the reports of examination of the
Bank of America, N.T.& S.A. of San Francisco made since

its reopening in 1933 and made a hasty survey of the criticisms made by the examiner. Many of these criticisms reach
back into examinations made prior to the banking holiday

as well. You are perhaps familiar with the fact that there
was considerable opinion to the effect that the Bank of
America was not in proper shape to be reopened in 1933.
One important reason for its being reopened was the adverse

effect on Pacific Coast banking in general that would have
resulted from any other course. There was talk at that
time of efforts being made to improve the condition of
the bank.

Since the bank reopened it has been examined ten

times by the Office of the Comptroller of the Currency.
In each of these examination reports the same criticisms
are made and the same recommended corrections indicated

by the examiner. Some of them are of major importance and
some of them are minor matters.

159

-2Running through every report since the reopening,

there has been criticism of the excessive and steadily
increasing dividends that have been declared by the bank.
There have been suggestions that perhaps on 9 strict

basis the dividend was illegally declared. This was
excused in the early years because the dividends, going
largely to the principal stockholder, Transamerica

Corporation, were utilized for a reduction in the debts
of that Corporation and its affiliates to the bank.
But this practice was soon abandoned, and there are

evidences of transactions which are in effect dividends
to Transameria although not declared as such and not

appearing as such. Regularly and repeatedly the examiner
has recommended that all earnings be devoted to the

elimination of undesirable and illegal assets. In the
examination that ended in August, 1937, the examiner

again stressed this point and stated that a further
increase in the dividend was believed to be in contemplation.

The dividends have actually been increased steadily
from a rate of 4.5% in 133 to 7.5% in 1934, to 12% in
9

1935, to 16% in 1936, to 17.6% for the first half of 1937,
to 19.2 for the second half of 1937 and continuing at
19.2% to date.

160

-3From the beginning there have been criticisms of
the excessive amounts of loans for account of Trans america

Corporation and its affiliates. This large line has been
constantly criticised as in continued violation of
Section 23(a) of the Federal Reserve Act.

There has been continued criticism of the contract

relationships with affiliates of Transamerica Corporation
whereby assets which would be classified as "other real

estate" are disguised as loans. The contract entered into
with these affiliates is of such a character that the real
ownership of assets does not pass to the affiliate but
remains with the bank.
0

There has been continued criticism of the disproport inate
investment in real estate loans and a steady increase in

illegal real estate loans and in illegal acquisition of
real estate in connection particularly with the purchase
of banks to be converted into branches.

There has been continued criticism of the so-called
German credits that are in the bank and Mr. Giannini agreed

in 1936 that $1 million should be charged off at each semiannual examination. Later he refused to honor that agree-

ment and the charge-offs are at least $1 million behind
schedule at the present time.

161

-4In 1933 after agreeing to charge off losses on real
estate loans as appraised by his own officers, Mr. Giannini
refused to do so and insisted upon the establishment of
8 reserve instead.

In 1934 the Executive Committee of the bank agreed

to furnish to the Comptroller in the near future a definite
program for effecting correction of the examiner's criticisms. I find no record of any such program having been
furnished.

There has been repeated criticism of the large line
to A. 0. Stewart, now chairman of the board of the
Federal Reserve Bank of San Francisco. It During the second

examination in 1934 Mr. Giannini refused to concur on

losses agreed to by other officers of the bank.
There has been repeated criticism of the practice
of the bank "writing up" Government bonds and other
investment securities.
The annual meeting of the bank in 1934 was held

with 1684 shares represented out of a total of & million
outstanding.

A statement repeated in several of the examinations

is that there has been "no verification of the liabilities

162

-5due to the ineffectiveness of the same in a far-flung
branch system, nor were accounts between the branches

and the head office reconciled."
Throughout the examiner's criticism there appears

the warning over and over again that this or that "must
be stopped." But there is no stop.
There is repeated criticism of loans against the
stock of Transamerica Corporation.
In one or two examinations there have been evidences

of a certain degree of reasonable ness on the part of the

bank's officials and some disposition to cooperate. This
is particularly noted in the examination which was completed in May, 1935. Since that time friction has increased.

There seems to be very little available in the files
of the Office of the Comptroller of the Currency in the
way of correspondence with the Bank of America or memoranda

of conversations with its officers in regard to the
examiner's criticisms.
On January 31, 1938 Mr. Giannini and Mr. Folger had

a long conversation in Washington. The main important

criticisms of the bank were presented to Mr. Giannini but
apparently only arguments against the validity of such

criticisms were elicited from him. Apparently no progress
was made.

163

-6On September 1, 1938 the Cashier of the bank,

Mr. Russell G. Smith, had a conference in Washington with
Mr. Folger. Mr. Folger went over again with Mr. Smith
much the same material that he had gone over with Mr.

Giannini previously. Apparently Mr. Smith's only interest
was in securing approval of pending applications for
branch permits. Neither he nor Mr. Giannini appeared
to have any comprehension of or concern about the condition of the bank.

I find no record of action taken by the Comptroller
of the Currency or the Acting Comptroller of the Currency
during this entire period.

00000

ligh

164
EXHIBIT II
September 8, 1938

For the Secretary:

Mr. Giannini has a new defense, I am told, to back up

his claim that he is being persecuted by the officials of
the national banking system. He now says "Why don't you
do something about those damned Jews down the street?

Their bank is in a lot worse condition than mine."
He refers to the Anglo California National Bank,

which is operated by the Fleishhackers. It appears that
the Anglo California has extended lines of several millions of dollars to the Fleishhacker brothers without the

knowledge of the board of directors of the bank. Criticisms by national bank examiners and demands that the

board of directors be informed of the situation are met

with the reply that the entire board of directors would
resign if they knew the facts. I understand that the
chief examiner in San Francisco has recently told the
Fleishhackers that unless they inform their own board of

directors, he will call a meeting of the board himself and
read the report of examination to them. The situation in
this bank is thought to be more fraught with possibilities
of imminent danger than even that of the Bank of America.

165

-2This situation reveals the chaos of fact and gossip,
rumor and suspicion which at the present time permeat es

the banking situation in California, particularly, and to
a lesser degree throughout the country. How does Mr.

Giannini know what the facts are with respect to the
Anglo California Bank if its own directors do not know?
How do other people up and down the Coast know about the

situation in these two banks? It has long been a common
rumor in California that Mr. Giannini owns the Federal
Reserve Bank of San Francisco; and because he has a

working arrangement with the Eccles group to keep out of
Utah and Idaho, has an influence with the Federal Reserve

Board in Washington; and because of his political activity
has an influence with the office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation,

and with one of the President's secretaries. It is
pointed out that Mr. Giannini bragged that he would get
rid of the former head of the Federal Reserve Bank of

San Francisco and that that official was removed. It is
pointed out that the new chairman of the board of the
Federal Reserve Bank of San Francisco, appointed by the

166

-3Board of Governors in Washington, is closely tied in with
the Transamerica group and has been extended many million

dollars of credit by the Bank of America. It is commonly
gossiped up and down California that Mr. Giannini has defied
the Comptroller of the Currency and has refused to do what
they demand of him and seems to be in every way on top in

the contest. It is his boast that he has had national bank
examiners removed and transferred when they were too criti-

cal of his operations. Bank examiners are said to be

reluctant to see copies of their examinations go to the
Federal Reserve Bank of San Francisco because they appear

to feel that whatever the chairman of the board of that
Bank knows about other banks in California, Mr. Giannini

will soon find out.
Mr. Russell Smith, the Cashier of the Bank of America,
was in to see me one day last week. He said that he had
been informed by Mr. Diggs the applications of that Bank
for branches were being held up by the Secretary of the

Treasury. Mr. Smith professed to believe that the Secretary
of the Treasury might consult me with respect to the applications and Mr. Smith told me that he would appreciate it

very much if I would make a favorable report. He said that
they had met all the demands made upon them by the Comptroller

167
-4of the Currency and he thought that they ought to be given
consideration in the matter of the branches. The Chief
National Examiner, on the other hand, told me that the
Bank of America has done substantially nothing to comply
with the suggestions made by his Office and that the
statements made by the Cashier of the Bank with respect

to some of the minor matters are not borne out by the
facts.

The situation with respect to the Bank of America

as I see it is that
(1) The number of their branches and the

complexity of their affiliated interrelationships is such that it is next
to impossible for examiners to ascertain
the facts.

(2) The situation has been dealt with with
such a lack of insistent and continued
firmness over so long a period that

an effective reversal of policy is now
extremely difficult.
(3) The whole attitude of the head of the
bank is one of refusing to admit that

any kind of criticism is justified and

168

-5of resisting any change suggested by
examiners and of refusing to meet facts

head on, but instead is one of drawing

red herrings across the trail, going off
on irrelevant tangents, and making the
oft-repeated statement that "You can
have the damned bank and run it yourself."
(4)

Inadequate authority short of very extreme
measures for the Comptroller to deal with
a recalcitrant banker who refuses outright

to pay any attention to the criticisms of
bank examiners.

On the other hand, there are those who point out that
Mr. Giannini, as perhaps no other banker in the country,

is, on the face of things at least, operating his bank
along New Deal lines. He points to a record of cooperation
in the program of the Federal Housing Administration that
is outstanding. He makes much of the fact that his bank

is liberal in its lending policy. He points to his large
purchases of Government securities. He insists that he is
doing the things in his bank that the Chairman of the Board
of Governors of the Federal Reserve System and the Chairman

of the Reconstruction Finance Corporation urge banks to do.

169

-6-

It is difficult for national bank examiners to have
any influence with the banks they examine unless they get
backing and support from Washington. When their complaints

about the actions of national bank examiners made to bank-

ing officials in Washington are met with cordial letters
of agreement with the banker as against the examiner, it
leads toward discouragement. That seems to have happened

of recent years with increasing frequency. Two or three
interesting cases have come to my attention.
There is a fairly general breakdown of morale throughout the national bank examining system by reason of rumors

as to what happened in the San Francisco District and

what is said to be happening now in the Dallas District.
It is commonly reported that the California District was
filled up with inadequate and incompetent examiners,

others being transferred out of the District. The chief
examiner of that District tells me that there are six
examiners who ought to be fired immediately. At least one
of them is a chronic drunk and has cashed checks upon banks

he is examining without having funds on deposit there.

Instead of reporting these matters to the Chief National
Bank Examiner or to the Acting Comptroller of the Currency,

170

-7-

the Twelfth District chief took the matters up with a
candidate for Governor of California because they had

been originally appointed to their positions by him.
He was asked to try to work the situation out and to
give them another sixty days for a chance to make good.

I gather from a long conversation with the chief

in the Twelfth District that he feels the situation out
there is very critical, that he is doing his best to
clean it up in honest fashion but that they must have
backing and support from Washington. He feels that it
would be a mistake to put in as Comptroller or to leave
in as Acting Comptroller anyone who is connected with

California politics or connected with those who are con-

nected with California politics. He professes to be
very much heartened by the rumor that the Secretary of

the Treasury is taking a direct hand in the administration
of the Office of the Comptroller; to have been disturbed,
as have many others, in the several but persistent rumors

that the Secretary of the Treasury is soon to resign, and
urges that an Acting Comptroller be appointed who will

cooperate with the Secretary of the Treasury in cleaning
up the situation.

171

-8That feeling of uncertainty as to what lies ahead
seems to be very general among national bank examiners.

After all, they are, from the Chief National Bank
Examiner down, responsible to the Comptroller of the

Currency and removable by him. It is a little risky
to place full trust and confidence in a Secretary of
the Treasury who, so far as they are able to guess from
current rumors, may not be long in the position to
protect them--in any event they feel probably not beyond
1940.

The Office needs a Comptroller who does not have

political ambitions, who does not want to build up a
personal following or make the office a refuge for his
friends, or an Acting Comptroller who does not have

ambitions to be Comptroller or to gain other political
advantage, but who both are willing to devote 48 hours
a day to hard work in making the supervision of national
banks outstanding in its excellence. The tough job of
reorganizing the work of the Bureau presents a real
opportunity. Unless it is done and done promptly, serious

reflections are going to be cast on the Office of the
Comptroller and upon the Office of the Secretary of the
Treasury as well.

00000

you

172
EXHIBIT III
September 8, 1938

A program to be followed by Bank of America, National Trust & Savings
Association, San Francisco, California.

******

1. The dividend rate of 19.2% should be reduced to an annual
rate not exceeding 6%.

The last report of examination of the bank shows a ratio
of $1 of sound capital to $12.79 deposits. Furthermore, the bank is
carrying in its assets a very large concentration of highly undesirable
obligations represented by loans and contracts to Transamerica Corporation and its affiliates amounting to $74,000,000, which amount includes
approximately $41,000,000 unsatisfactory contracts of the California
Lands, Inc. and the Capital Company, which actually represent other real
estate acquired by the bank at the time of foreclosure of mortgages.
The bank also carries in its assets $6,000,000 of German credits
and numerous other items of extremely doubtful value.
The reports show that from 1930 to June 30 of this year inclusive,
the net earnings of the bank amounted to $47,285,016.74 and during this
period the bank paid out in dividends $47,400,000 and the records show the
dividend rate paid by the bank since 1933 has been increased each year from
a rate of 4.5% to 19.2%
The reduction in the dividend rate as outlined above would give
the bank an additional amount of $6,600,000 annually for the purpose of
eliminating losses and reducing the book value of assets of unknown or
questionable value and in addition to improving the asset condition of the

institution will serve to increase its ratio of sound capital to deposits.

2.
Losses estimated by the national bank examiners at the time of
each semi-annual examination are to be charged off promptly upon receipt
of reports.

The bank will be furnished with a copy of the report of an
examination within a few days showing approximately $9,000,000 estimated

losses.

3. The practice of transferring the bank's other real estate to

the California Lands, Inc. and Capital Company and substituting therefor
the form of contract in use at this time should be discontinued.

173
Page 2

It is understood that the bank has in the recent past changed
the contracts which it accepts from both of the companies named, which
now provide that the title to the real estate will remain in the name of

the bank; no down payment to be made; no payments to be made within the

first two years; 10% to be paid annually thereafter; the bank paying
the taxes and insurance and it is not believed, therefore, to be a bona

fide sale by the bank of its other real estate.

The bank also carries in its bonds and securities account
stock of the Merchants National Realty Corporation, in the amount of
$19,332,000, which includes approximately $6,000,000 of other real estate,
which should be eliminated from the account and properly shown as other
real estate.

As the result of such unusual and objectionable practices the
bank carries on its books and reports in its published reports of
condition approximately $2,000,000 in other real estate, when as a matter
of fact it has approximately $49,000,000 in other real estate. This condition is caused largely by the form of contract accepted from the companies referred to.

In addition to correcting these existing matters, care should be
exercised by the management in the future to carry assets on its books
in the proper account in order that published reports of condition may

be correct.

There should be very little, if any, further expansibn
this bank by way of establishing additional branches until its condition
4.

has been materially improved.

within

174

September 12, 1938

In the middle of the afternoon Mr. Morgenthau called
me on the telephone from the farm and asked me to arrange

for myself and Mr. Prentiss to be at his house at 8:30 p.m.
Shortly after the Secretary's telephone conversation
with me, Mr. Diggs informed me that they had ascertained

by telephone to San Francisco that the board of directors
of the Bank of America, N.T. & S.A. is meeting tomorrow

and that the chances are they will declare a dividend for
the second half of 1938. He and Mr. Folger were preparing
a wire to the examiner in Los Angeles, where the meeting

is to be held with respect to dividend action. He suggested
that I take a copy and show it to the Secretary, which I
did.

Pursuant to the request of the Secretary and his telephone conversation, I asked Mr. Cairns to be prepared tomorrow morning with a memorandum as to whether or not the

Secretary could show confidential information on the
Office of the Comptroller to men such as Tom K. Smith,
Jeff Coolidge and Robert M. Hanes.

175

-2I also informed Mr. Cairns that I thought the Secretary
might want in the morning a memorandum on the authority, if

any, of the Comptroller of the Currency or the Secretary of
the Treasury to prevent a national bank from declaring or
paying a dividend.

About quarter of six Mr. Diggs showed me the proposed
telegram which he had prepared for transmission to the

examiner in Los Angeles. I told him that I thought it
might be made a good deal stronger.

When I showed the telegram to Mr. Morgenthau at 8:30

his first reaction was that they should be told not to
pay any dividend at all.
Mr. Prentiss came and told Mr. Morgenthau that he had
verbally made recommendations to Mr. Folger for a reorgan-

ization of his staff, and that he would have it in writing
by tomorrow at five o'clock and would give me a copy for
the Secretary.

Mr. Prentiss' idea is that five or six of the ace
bank examiners from all parts of the United States should
be concentrated in California to do the job there. He said
that there is a very real banking problem on the Coast,
that he ha s been studying it ever since he got there and

176

-3-

has been trying to clean the situation up. It is very
confused and the fact that there are so many affiliates
of the Bank of America makes it tremendously difficult.
Not all his bank examiners are qualified and he would like
to have some of them transferred out of the District.
Mr. Prentiss emphasized the necessity for Washington

backing for his decisions and complained that every time
the examiners have had a controversy with the Bank of
America, the officers of the Bank have been able to go
over their heads to the Comptroller in Washington.
Mr. Prentiss expressed his 100% approval of the

idea of advising the directors of the Bank of America
that they must not declare a dividend tomorrow. He

offered full cooperation to the Secretary so far as his
office is concerned.

Mr. Prentiss referred briefly to the situation in
the Anglo California National Bank but the Secretary said

he was not prepared to go into that in real fashion until
the Bank of America situation was moved forward some.

Mr. Morgenthau talked on the telephone to the President

of the United States at 9:50 p.m. and told him that we

177

-4proposed to send a telegram tomorrow recommending that the

Bank of America reduce the dividends from a rate of 19.2%

to 6% The President replied "19%? Repeat that My God.
Why let them pay anything?" Mr. Morgenthau explained that
the reason for the recommendation is that we feel that it

is the only way to conserve their capital, that there are
a good many losses in the bank. The President asked why

any dividends should be declared if that is the situation,
and Mr. Morgenthau replied that we feel maybe this recom-

mendation restricting it to the third quarter only, rather
than covering the entire second half of the year, will
permit us to decide better what to do after we have gone

into the situation further. He said we are not sure that
the directors would agree to even this. The President was
very emphatic that we should go ahead and clean up the

situation. Mr. Morgenthau also told him that we are looking into the Anglo California National Bank and that a
preliminary look makes it appear that perhaps the situation
there is even worse in some respects.
The President said he was 100% back of us.

178

-5Following that, Mr. Upham called Mr. Diggs on the
telephone and told him that Mr. Morgenthau had two sug-

gestions with respect to his telegram. First, that the
directors of the Bank be advised that if they declare
any dividend tomorrow, it should be for one quarter only;
and second, that the telegram should be made just as

strong as the Comptroller's legal counsel would permit.
Mr. Diggs said that there was a law or regulation

which prevented the declaration of quarterly dividends.
Mr. Morgenthau then talked to Mr. Diggs advising
him that he had placed the situation before the President
of the United States and that he, as well as the Secretary
himself, was prepared to give Mr. Diggs all the backing
he needed.

Upm

179

September 12, 1938

Mrs

For the Secretary:

While I have devoted a great deal of thought to the

possibilities of unification of the Federal agencies having
bank supervisory powers, I have concluded that the internal
problems of the Comptroller's Office are more pressing than

is the matter of consolidation or coordination of the three
agencies. A properly functioning Comptroller's Office will
automatically provide for coordination and cooperation.
Emphasis must be put upon developing a spirit of united
front among the three agencies rather than preserving and

protecting their individual "national honors." But internal
house cleaning should come first.

I am convinced that the major part of the difficulty
centers in Washington. The examiner, for instance, who
examines Bank of America, N.T.& S.A. and Anglo California

National Bank does an excellent job. Even in the face of
repeated discouragements in the form of inactions and

vacillations in Washington, he continues pressing for action
along the same lines.

180

-2In the Washington office there seems to have developed

something of the attitude that it is hopeless to try to get
anything done. Letters go unanswered, the file is unkempt,
the record is incomplete, -nothing much in the way of a
firm hand by responsible officials has been displayed, and
few really believe that there will be any change.
Bankers and examiners in the field have legitimate
complaints, it seems to me. Even the Bank of America,
N.T. & S.A., it seems to me, has not been given in many
cases the treatment which it should have a right to expect.
In other instances they have been pandered to and fawned on

in equally indefensible fashion. Other bankers find it
impossible to get replies to their letters. Washington appears repeatedly reluctant to make up its mind. There is
little consultation with the Federal Reserve and FDIC, and
sometimes conflicting opinions are given, all to the bankers
bewilderment.

As an example of how weak the office is in dealing
with the Bank of America, N.T. & S.A., for instance, the
case of the so-called German credits may be noted. The bank

employs an expert on these credits, and follows carefully,

181

-3at home and abroad, their status. The attitude of the bank
as to their value is based largely on a false optimism, but
they know more about the credits than the Comptroller does.
Surely someone at the Federal Reserve Board, or at the

New York bank, or in Treasury Research and Statistics, is an
expert on the German credits, and their help should be available when needed. Or else the Comptroller should have a
sizeable economic staff of his own.
When a bank is both big and bad, it should have one
capable man in the Washington office assigned to it exclusively. I think there should be one man now whose whole
time would be devoted to Bank of America, N.T. & S.A., who

would know all about it and have it in such form that arguments as to facts can be reduced to definiteness. The same
should be the case for Anglo California National Bank until
that situation has been cleared up.
As an example, I have tried to get information several
times about the time Bank of America, N.T. & S.A. declares
dividends, and covering what period. No one ever seems to

know--it is not revealed in the examination report or in the
correspondence file. There is always the greatest vagueness
about it. There ought to be a man who knows--as well as he
knows his ABC's.

182

-4Because the situation in these banks is of concern
to the Federal Reserve and the FDIC, I would favor having
one man in each of those agencies assigned almost exclu-

sively to these two banks, also. Instead, there seems to
be an attitude that it is the Comptroller's God-given
right to have exclusive jurisdiction, and even cooperative
and friendly interest by the other agencies is resented.
There is some pretty good personnel in the office
which could be organized into an effective working force

if properly directed. But there is need for a good deal
of prodding and reassurances that effort will be backed up
by action.

The present staff should not be blamed too much.

They have been badly let down too often. The present

Acting Comptroller should not be given all the blame.
He inherited a bad situation and probably didn't fully

realize it until recently. He didn't know that his job
was a working job. He assumed that the office would run

itself while he took care of other interests. It was to
have been expected that such would be his attitude. Even

if disposed to work at the job, I doubt his competence, but
even so, he should not be too greatly blamed.

183

-5The Chief National Bank Examiner deserves great credit.
He also deserves and needs support (and some pressure and

direction) from above and help from below. Office methods,

office files, etc. need revision and reorganization. The
office suffers, I believe, from a mistaken program of
economy instituted by the former Comptroller. It should be

noted that the funds available for the office are extremely
skimpy as compared to the FDIC. Better salaries are paid
by FDIC to examiners and other employees. But even so,

that is not a fatal defect, and could be overcome by excellence of performance at the top.
The program which I think should be instituted would

include the following as a start:
(1) The development of a small banking research
staff.

(2) The creation of two (or three) posts of
Assistant to the Comptroller.

(3) The reestablishment of the office of Chief
Examiner for the Fifth Federal Reserve District.
This was abolished as an economy measure and the

post merged with that of Chief National Bank

Examiner. He has enough to do without it. More-

over, it results in a silly situation: As Chief

184

185

-7-

these lines. A spirit of fairness, of firmness,
of impartiality, of objectivity, of counsel
rather than partnership in management of banks,
must permeate the force from the top.

(8) Fraternizing with bankers in wholesale
fashion, too much convention sociability, and
acceptance of favors from bankers, should be
discouraged. Especially, speech-making should

be reduced or eliminated. Work should replace

it for a time at least. We do not need a new
business department.

(9) The handling of the affairs of insolvent
banks might well be consolidated in the FDIC.--

(10) Further uniformity in the form of various
reports used by the three agencies should be
achieved.

(11) The Acting Comptroller should personally
read the confidential section in every examins-

tion report, when first received.
(12). We should arrange a united front with
Federal Reserve, FDIC, and RFC to do nothing

for any of Giannini's outfits, in the meantime.

186

-8(13) There should be an immediate intensification
of activity by both Comptroller and Federal Reserve

in examining affiliates. I am confident both agencies could press much harder than they do.

Upm

187

September 12, 1938

For the Secretary:

On the other hand--I am told that the President will
depend in 1940 upon a man named Elliott for the control
of the California delegation in the Democratic national

convention. It is claimed that the only man who can

control Elliott is Giannini. Thus, it is argued Mr.
Giannini will have great influence with the President,
and it is hinted he may make a visit to the White House
before long.

I am confident that if the President knew the facts
about the banking situation, he would not permit political
considerations to enter into the decision in any way.

Upm

188

September 12, 1938

For the Secretary:

Mr. Taylor got the impression from my memorandum of

September 8th, which I read in your office on September 9th,
that I had known for some time of the situation existing

in the Anglo California National Bank. I want to be sure
that you do not have that impression. I have explained the
facts to him.

The first knowledge I had of that situation was on
Wednesday, September 7th, when Mr. Prentiss, Chief National

Bank Examiner for the Twelfth District, mentioned it in my

office. I put it in my memorandum the following day, but
transmission to you was postponed until the conference in

your office on the following day.
After being informed of this situation by Mr. Prentiss,
I learned that a good many other people knew about the situation, and that it has come to the attention of a good many

people partly by reason of the fact that suits have been
brought against the president of the bank and he has been

found guilty of using trusteed funds for his private benefit
and advantage.

189

-2The reports of examination of national banks are very
closely guarded and it was only after getting explicit
authority from the Secretary of the Treasury that I was
permitted to have access to the reports of the Bank of
America, N.T. & S.A. Since that time, I do not suppose
I have seen the reports of a half dozen banks and then
only when it was necessary in connection with some matter

of subscription to preferred stock. Now that I have seen
the reports on the two banks in California, I do not wonder
that there was the greatest reluctance to permit inspection
by someone outside of the Office of the Comptroller.

Upm

190

AA
September 12, 1938

For the Secretary:

Mr. Gibbons told me today that Mr. O'Connor told

Mr. Farley that the Secretary of the Treasury is eager
to have him back as Comptroller.

Upm

191

September 13, 1938

Before the 9:30 meeting, HM,Jr called in Mr.
Hanes and the following is a record of their conversation:

HM,Jr: At 9:45 I have to start in on one of

the most difficult things I have ever had to handle -the Bank of America of California. Nobody can be more
short-handed than I am at this time.
You are not hooked up in any way with the Bank

of America?

Mr. Hanes: No, I am not at all.
HM,Jr: That's fine, because I would like you
to sit in at these meetings, because as this thing
unfolds itself, S.E.C. will have to come into the picture

and I am sure you will be of great help.
What I am going to do is send the Bank of America
a telegram not to declare any dividend. They are holding a meeting in San Francisco today. We don't know
whether they will carry out the orders of the Comptroller's
Office, but by issuing the order we will know where we
stand. It is the dividend of the Bank of America which
18 the "meat and drink" of Transamerica. I have been
trying to do this for six months and have been unable to
do it because J. F. T. O' Connor would not do it.
What we are proposing to do is the recommendation

of the Comptroller's Office. I talked to the President

about this, last night, and he gave me a clearance to go
ahead.

192

RE BANK OF AMERICA SITUATION
Present:

Mr. Oliphant

September 13, 1938.
9:50 a.m.

Mr. Hanes
Mr. Upham

Mr. Gaston
Mr. Graves
Mr. Diggs

Mr. Folger
Mrs Klotz

H.M.Jr:

Graves:

H.M.Jr:

Now, what I want to do is - some of you are up-to-date
and some of you are not. Harold, you get the thing as
we go along while you're here, see?
Yes, sir.
But I want you to - you're here as my strong-arm
squad.

Graves:

Yes.

H.M.Jr:

And
give me your support. "ith Mac away I need you,
see?

Graves:

Yes, sir.

H.M.Jr:

This thing - I haven't got all my dates, see, but

some time, I would say - was it last March that we
first talked about the dividends of Bank of America?

Upham:

Well, it was certainly that long ago. It was certainly
that long ago.

H.M.Jr:

Now, this situation - I don't want to be too dramatic
or anything, but I consider it the most vicious,
dangerous financial element in America, and up to
now - and I'm talking about Mr. Giannini and his

affiliates - up to now I've been unable to cope with

it, or rather, I haven't - take that back - the

President's appointees have been unable to cope with it,
and that goes for FDIC, Federal Reserve, and the
Comptroller's office.
(Upham)

Now, last Friday or Thursday, this fellow/brings to me
a lot of stuff about the Bank of America, and I get within 24 hours I get the Acting Comptroller in and

I say, "Now, you and the Chief Bank Examiner give me in

193
-2-

writing your recommendations." Which they do.
Then I say to them, "Take this back and come back
to me this morning and give me the time table, how
long would it take you to put it into effect?" And
amongst those three or four recommendations are that
their dividend should be reduced in order to conserve
their assets, because they earn 49 million dollars
roughly over - how long a period?
Upham:

Well, that's - that's a period of about ten years that
their earnings, after losses and write-offs, have been

about 49 million, and paid-out dividends have been 49
million.
H.M.Jr:

Well, the most recent thing - I mean how recent is our

report? The first six months of this year?

Upham:

Yes. Well, that report isn't in yet.

H.M.Jr:

It's made.

Upham:

H.M.Jr:
Upham:

H.M.Jr:

That report will be in within a few days.
Well, are they or are they not paying all their earnings
out in dividends?

Currently they are paying out practically all of their
earnings, that's right.
And I won't go into all of the losses, but unrealized
losses are something tremendous, is that right?

Upham:

Yes, they have a great many losses that they pay no

H.M.Jr:

Now, the Comptroller at six o'clock last night finds
they have a meeting at noon today in Los Angeles
at which they vote a dividend for the next six months
That's why I've got so little time to act - from now
till noon Los Angeles time. And this fellow Giannini
has just balked at every attempt on the part of the
Comptroller to do anything. He just doesn't do it,
that's all. And then on top of that we have Mr.

attention to.

Stewart, who owes the Giannini interests how much

money?
Upham:

Oh, I should think probably now around six or seven

million dollars.

194
-3H.M.Jr:

Chairman of the Federal Reserve Board of that

district and he owes Giannini six or seven million
dollars. And incidentally, the chairmen of the

boards have all been wiped out; they don't have
chairmen
of the boards, the Federal Reserve, except
in California.

Upham:

Oh no, they have a chairman everywhere.

H.M.Jr:

I thought they don't have a chairman and a president.

Upham:

They have both. They tried to get rid of the office

of chairman, but they didn't succeed.

Upham:

Could they do it here if they wanted to?
No, that would take legislation. Marriner wanted

Oliphant:

You mean take legislation to abolish the office.

Upham:

Yes.

H.M.Jr:

But you've got the picture of Mr. Stewart sitting
there, owing the Giannini interests millions, and

H.M.Jr:

that but didn't get it.

he sits there as chairman of the Federal Reserve
Board, and we talk about doing away with the

affiliates, and he's got his man as chairman of the

Federal Reserve Board of the West Coast.

Now, last night, the Acting Comptroller gives to
Upham a piece of paper in which he is proposing to
send out a telegram this morning telling these fellows that they should put their dividends on an annual

basis of six percent of the value of their capital

stock. Is that right?

Upham:

Yes, it is to be reduced.

H.M.Jr:

And they have been paying at the rate of 19 percent
plus, and under the law they have to declare their

dividends semi-annually, see? So for the first six
months this year they have paid at the rate of 19
percent plus, and in the telegram he suggested that
they put their dividends on the basis of six percent
annually. And my first reaction is, "Well, if they
pay - if their losses are - their unrealized losses
are greater than that, why pay any dividend?"

195
-4-

Well, knowing of the terrific political power of
this fellow - and also my responsibility in this
thing is very sketchy - I mean most of the
authority of the Comptroller flows from the
President to him, doesn't it?

Oliphant:

(Nods no)

H.M.Jr:

Me?

Oliphant:

(Nods yes)

H.M.Jr:

Well,
that's all the better. Fine, that makes it all
the better.
I called up the President of the United States, got

him on the phone eight minutes after he left Jimmy.
We talked about Jimmy, and he's coming along fine.
I told the President we were proposing to send out
this telegram, and he shrieked, "Nineteen percentI"
He said, "Why declare any dividend?" So I said,

"Well, Mr. President, I want to go ahead with this
thing and I want to be sure I've got your entire
backing." And he said, "Of course you have. Of
course you have. And do whatever you think is right,
clean this situation up."
And then I also told him that we only just Friday got
the first notice that the Anglo-California Bank may be
even in worse shape. I mean not on a total but on a
percentage - I mean for their capital they most likely
are in worse shape, because that picture is - the report
is here - the Chief Examiner for the district brings

it here unsigned, afraid to deliver it to the bank,

for fear Mr. Stewart, Chairman of the Federal Reserve,

will get hold of it. And I haven't had it all yet,

but just a little peek; it's about as bad a thing as

is possible.
Now the unfortunate thing is that intboth.Mr. O'Connor
and Mr. Diggs and Mr. Leo Crowley we have extremely

weak sisters; they won't take responsibility and they
haven't - I mean this thing has all grown up under
O'Connor. And what I want - at 10 o'clock Diggs comes
in, and FolUpham:

Folger.

196
-5H.M.Jr:

Folger, Chief of Bank Examiners. And we'll go
over their suggested telegram this morning. And
at
in. 10:30 I've invited Mr. Ransom and Mr. Crowley

Oliphant:

Where is Eccles?

H.M.Jr:

Eccles isn't here. Because I want to say, "Now,
gentlemen, we're going to do this, and I want to
know whether I've got your hundred percent backing;
this must be the united front of Washington." And
I told Mr. Diggs over the phone last night, "Make
this telegram as strong as your counsel will permit
you to, so that if by any chance he should refuse to
do it, you've got the best possible kind of a case.
But make it just as strong as your counsel will let

you do it, see, so that if the Board of Directors of

the Bank of America of California turns the Comptroller

down,
we want
to be in a position to know where we jump
from there."
Huh?
Oliphant:

Well, if you're going to go into it as I think under
the statute you must, then I want to take a look at

that telegram.
H.M.Jr:

Well, you can look at it in two minutes.

Oliphant:

I mean from now on I'm going to handle your part of
the legal work. Remember that old squabble we had

about the Comptroller's office, the legal shops.
H.M.Jr:

What do you mean from now on you're going to handle it?
For me or for you?

Oliphant: For you.

H.M.Jr: Well, you always handle it.
Oliphant: I mean in this.
H.M.Jr:
Well, you handle anything that I do. Your job is, after
I've done the thing, to see I don't go to jail.
Oliphant:

No, it's the other way around.

H.M.Jr:

That's the lawyer's idea. This is my idea. After
I've done it, you're to keep me out of jail. But the

197
-6-

Comptroller's office is ready to act. And after we

see what happens, then I want Hanes - I mean I want him

to soak this thing up, and after he's soaked it up and
we wait and see what happens, then we'll take it up with
the S.E.C. and find out what, if anything, they've done
with their report and investigation of Trans-America,
which must be at least three months or four or five
months old. But I don't want to do anything today,
because I don't want it subsequently said that, well,
I was persecuting, see?

So we'll do this first, then wait and see what action
they take today and then maybe tomorrow you (Hanes)
could officially ask S.E.C., "What is the status of

your investigation of Trans-America?" See?
Hanes:

(Nods yes)

Upham:

We've checked on that from time to time.

H.M.Jr:

Now, the reason my friend, Harold, is here is that
if what Upham says is true, about the organization
of the Comptroller's Office, and I have no doubt

it is true, and I've got to step in and run this

blankety-blank shop, I want the best fellow on
organization in Government, which is Mr. Harold
Graves, and if we've got to go in there and reorganize
the Comptroller's Office, why, whatever you are
doing, you'll just have to let that slide and step
in here, and I don't yet know how much this is my

responsibility, but certainly

Oliphant:

I am

H.M.Jr:

Certainly, going in as far as I have, I want an Act
drawn which is going to make either the Comptroller's
Office a responsibility, an integral part of the
Secretary of the Treasury, or kick him out on the
street. Now I want to know where I am, Mr. Oliphant.

Oliphant:

Well, I am loaded on that, and I think it is pretty
clear on that already. I am ready to state what
your duties are whenever you want.

H.M.Jr:

Well, your job, and everybody in this room - I am
moving, and I am going to move terribly fast. If
anybody disagrees - thinks I am going to make a
mistake, or wants to argue, please talk up.

198

-7Gaston:

Have you considered what the effect is going to be?

Suppose the Bank of America Board accedes and cuts

H.M.Jr:

down, or passes wholly the dividend, of course that
will be a matter of public notice. Now what is it
going to do to the banks in California?
I think it may save them.

Gaston:

Will there be a run on the Bank of America branches?

H.M.Jr:

If it occurs we've got to be prepared to handle it,
but I mean, the fact - if a person is sick and it
is a question of operating to save, of course you
always take the risk of killing the patient, but I
don't think that you can - certainly the country is
in shape to have one-twelfth of a Federal Reserve

District go sour, and the longer we wait, the stronger
the man gets.

Gaston:

I am not disagreeing, I am just wondering what is
going to happen and whether we are going to be
prepared to handle it when it does happen.

H.M.Jr:

Oliphant:

That is why, from four o'clock on this morning, I
didn't sleep.
Giannini's deposit liabilities - how many times his

Upham:

Oh, little better than two; two and a quarter,

capital?
perhaps.

H.M.Jr:

Well, now, look. You fellows don't frighten me, see,

because on that basis you never would go into a bank.

Upham:

Well, I think the answer to Mr. Gaston is that the
situation couldn't be any worse than it is at
present. Anything would be better than letting it
go on.

Gaston:

But we probably will have a run.

Upham:

Might.

H.M.Jr:

And the reason you are sitting there, Mr. Gaston,
is because you have the full background, and can

assist me in the public relations.

Gaston:

Right.

199

-8H.M.Jr:

on. I didn't sleep a wink from four o'clock this morning,
to

Oliphant:
H.M.Jr:

Well, we are all agreed we want/clean it up.
If the New Deal means anything, then I say a man like
Giannini, and what he stands for, should be put

run wide and
in this place had enough

out of business. Now for five years that fellow

has just time hog that wild, somebody high handsome, and guts it is

to say to that fellow, "No," and I've got to do it;
I've got to be the fellow. He is the most dangerous
fellow in America, financially. There's nobody -

you know
Bank.

the, old an ten per cent of the National City
y

Hanes:

Yes.

H.M.Jr:

He's got this big insurance company now, and if the
New Deal stands for anything - anything in financial

ethics at all, I mean, here is a chance for those of
us who believe in decent finance and an ethical way
of conducting business to step in, but it takes
backbone; it takes guts. I mean, I think
Oliphant: You want them to come in now?
(Mr. Folger and Mr. Diggs come in.)
H.M.Jr:

Good morning, gentlemen. You know everybody here.

You know Mr. Hanes, Mr. Diggs, Mr. Folger. You
know Harold Graves - all members of my club.

Well, what's your suggestion this morning, Mr.
Acting Comptroller?

Diggs:

Well, we've revised the telegram as presented to

H.M.Jr:

If you please.
This is to our Examiner in Charge of the Los Angeles
District: "You are instructed to personally advise
the Board of Directors of the Bank of America,

Diggs:

you last night. Shall I read it, sir?

National Trust and Savings Bank, San Francisco,
California, who are meeting there today, Tuesday,

the following: 'In view of the unsatisfactory
asset condition of the bank, other real estate in
excess of forty million dollars, carried in loans

200

-9and discounts and in the securities account, German

credits of 6,000,000, other items carried in assets
of questionable value and doubtful and losses it is
imperative that the earnings be used to write off
and reduce book value of such assets. Notwithstanding the condition as outlined above and the fact
that the dividend policy has been repeatedly criticized
the dividend rate has been repeatedly increased from
4.5% to the present rate of 19.2%. This condition

was discussed at length by the Chief Examiner in
Washington with the Chairman of your Board in January,
and again with the Vice President and Cashier in

August of this year. It is the opinion of this

office that sound banking practices would not permit
the declaration of any dividend until proper provision
has been made for criticized assets but in no event
should a dividend be declared at this time at a rate
in excess of 6% annually. I II

Oliphant:

Does that purport to be a telegram under the section
of the statute authorizing you to warn them?

Folger:

Warning them under Section 30 of the Act?

Oliphant: Yes.
Folger:

It is the foundation for such warning; it would

Oliphant:

Do you mind - was it drawn as the warning, the
technical statutory warning that would enable you

serve as a warning, I think. Unsafe, unsound practices.

to act, or was it drawn as sort of a preliminary to

the warning?
Folger:

Well, I wouldn't say that it is drawn as the

Diggs:

It is the first definite notice to the Board itself,

warning, no sir.

from this office, outside of the regular examination
nineteen - since they started declaring

criticisms that have been made repeatedly since
Oliphant:

Do you understand the legal side? If they give
the statutory warning, then the Comptroller is

authorized to certify the officers and directors to

the Governors of the Federal Reserve Board. I mean,
if they give the warning and they go ahead and do it,
then

201

- 10 H.M.Jr:

Well,
in other
words, they should say - as of under
the statute,
so-and-so.

Oliphant:

Then the Comptroller is authorized to certify the
officers and directors to the Governors of the
Federal Reserve Board for removal.

H.M.Jr:

Well, if we are going to do this thing, as I said
last night, I want to be in a position that if he
says, "No," that our path is perfectly clear as
to what we can or can not do, and listening to
Mr. Oliphant, I would say that it should be so
drafted that the next step

should be the notice to the Federal Reserve.

Diggs:

H.M.Jr:

Yes sir; yes sir.

Oliphant:

Otherwise, it is scolding that gives you no power.

H.M.Jr:

I don't want to scold; that is just what I don't

want.
Diggs:

No, I want it done; I want action.
How about you, Folger?

Folger:

Yes sir.

H.M.Jr:

Oliphant:

Let's stop right here and redictate this thing.
I'd like a chance to work over it.

H.M.Jr:

How long will it take you?

Oliphant:

It won't takeme long, but I don't want to dictate
it offhand.

H.M.Jr:

Well, how long?

Oliphant:

Take me thirty minutes, or twenty minutes.

H.M.Jr:

Well, is there much use in going further until we
have a statement that we can submit?

Oliphant:

I think it is the nub of it.

H.M.Jr:

I do know - why don't we give Mr. Oliphant a chance,
and when you've got something come in, and I'll
phone you, how's that?

202
- 11 Diggs:

In the meantime we'll also work on it from our
standpoint, as we do it down there.

Oliphant:

I want to get hold of your lawyer. Have him come
in my office and work with me.

Diggs:

All right; fine.

H.M.Jr:

Now, before you go, are you with me a hundred per

cent, that we want to do it the way Oliphant
suggests; that this is a notice and not a scolding?

Diggs:

Yes.

H.M.Jr:

All right. And I think you will agree that yours

Diggs:

is a scolding and not a notice.
I think so.

Folger:

Are you (Folger) with us?
Yes sir.

H.M.Jr:

Hundred per cent?

Folger:

Yes sir.

H.M.Jr:

Diggs:

All right. You want Kelly down there?
Your chief - your head lawyer.
Well, Mr. Barse is out of town.

Oliphant:

Anyone you want to send.

Diggs:

We'll have Mr. Kelly.

H.M.Jr:

Well, will you gentlemen, then, as soon as Mr.
Oliphant is ready, can I phone you?

Diggs:

Yes sir.

H.M.Jr:

Fine.

H.M.Jr:

Oliphant:

(Mr. Diggs and Mr. Folger leave.)
H.M.Jr:

Well, that's that.

Oliphant:

Now Stewart, the Governor of the Federal Reserve
Board can remove him.

203
- 12 H.M.Jr:

On what grounds?

Oliphant: For cause.
And that cause is..?
H.M.Jr:
eliphant:
Upham:

Well, I should say, just the status of those accounts.
of those, they existed when the Federal Reserve
Board
here appointed him. Does that make any
difference?

H.M.Jr:

No.

Oliphant:

No.

H.M.Jr:

(Laughs) We're singing together, Herman.

Oliphant:

You better - that's all right. Here's enough. The
statute is very broad. It gives the Board plenty

power to remove. It merely says that the Board may
remove and then shall send notice of the cause of
removal to the officer, so I should say they^ can
remove for any cause that has any rational relation
to his conduct as President of the Reserve Bank,
or Chairman.

H.M.Jr:

Upham:

Now where do you - where is the information available
as to the status of Mr. Stewart's borrowings?

Well, that would be in the last California report,
the last examination report.

H.M.Jr:

Could you be getting that in the next twenty minutes,
or thirty minutes?

Upham:

Surely.

H.M.Jr:

What?

Upham:

Surely.

H.M.Jr:

While Herman is working on the other.

Upham:

Surely.

H.M.Jr:

Now, who do you want to help you, Herman?

Oliphant:

Well, let me.....

204

- 13 H.M.Jr:

All right.

Oliphant:

I'll take care of it.

Hanes:

Meantime, do you want any of the factual data concerning
panies? the stock manipulations between these com-

H.M.Jr:
Hanes:

Well, we've got them all.
Have you got all that?

H.M.Jr:

Hasn't the S. E. C. got them?

Upham:

No, we have one report from them of a preliminary

survey
made out in California. But they've
got
somethey
others.

H.M.Jr:

Who are the men they sent out there?

Upham:

I forgot their names. Cavanaugh is the man I talked
to, and Schenker, I think, was the other.

Hanes:

Schenker.

H.M.Jr:

What I am thinking of, I mean, do we want to move
on Trans-America today? Haven't we got about all
we can chew off on this?

Hanes:

I just want - wondered if you wanted to get all the
factual data. I don't know whether they are impor-

Upham:

tant in this case or not.
I think they are a little reluctant to give us

confidential. data because they can't have access to

the confidential records of the Comptroller.
H.M.Jr:

My hunch is, I've got all I can digest on this, with

Hanes:

the Board of Directors meeting.
Do that afterwards.

H.M.Jr:

And when we get

Hanes:

.....

And also bring to the attention of the Federal

Reserve Stewart's condition, you see.
H.M.Jr:

What?

Upham:

They know all about that. Sedlacek is the Examiner.

205
- 14 H.M.Jr:

Who?

Upham:

The man who examines the Bank of America. He knows

H.M.Jr:

Tell Mr. Crowley and Mr. Ransom I won't be ready for
them until eleven o'clock. They were coming at

more about it than anybody else.

ten thirty; that I will not be ready for them until

eleven. Thank you. That will give you
Oliphant:

Now you said a little bit age that if you're moving

H.M.Jr:

Speak - yes.

Oliphant:

And I haven't any settled opinion about this; I
am just thinking out loud. Everybody has agreed
on our objective, that we want to clean up that
mess. Now, having agreed on that, we still have
the question, which are the best first steps, and

too fast, you wanted us to speak up.

in what order do we want to move, and how fast do
we want to move in cleaning up the situation?

I am just going to suggest the possibilities.

Your first move might be to clean up the house out
there and be sure of your own supervisory force by
getting Stewart and his gang out, and then getting
the picture that you get with the Federal Reserve
System cleaned up out there. That, for instance,

is another alternative. It is too quickly to reject

H.M.Jr:
Oliphant:
H.M.Jr:

all the alternatives.
It's all right. Now we've been fussing with this

thing for six to nine months.
Since February, is the date.
Since February, and it always gets up to the dividend
date; then they declare it, and the meat of this
coconut is the dividends that he pays, and just as
long as he can pull those dividends out, nobody can

stop him. I am sorry that they are meeting today.

We have so little time, but if we don't do it now,
then we're on another six months.

Oliphant:

Now I am going to urge this, that you proceed like
lightning to get Stewart out of there, and put a
man in there you can trust.

H.M.Jr:

I am going to do that today. I want that for today.

206
- 15 Oliphant:

That man ought to be out of there today.

H.M.Jr:

I want Ransom - I want Ransom - I want, formally,
to give this information to Ransom and when he
walks
this?" over here, say, "What are you going to do about

Oliphant:

Itect
want
another man in there at once, that will proyou.

H.M.Jr:

That's all right. Folger isn't working on that;

you get him to do - digging this up, so when
Ransom comes over here, say, "Here, Mr. Ransom, here
is the financial condition of the Chairman of the
Federal Reserve Board of San Francisco. What are
you
to do about it?" And I want twenty-four
hourgoing
service.

Uphain:

I think, however, that Mr. Oliphant put his finger

on a point when he talks about cleaning our own
house, because in the controversy between the Bank

of America and the Comptroller's Office, our skirts
are far from clear.

H.M.Jr:

All right, but I just want one thing from you, and

be very careful in how you are answering. Do you
believe that the Bank of America, when they meet

at noon today, in Los Angeles, with their financial
condition, should or should not declare a dividend?

Upham:

They should not.

H.M.Jr:

Now, that's all I want to know. That's all I want
to know. See? That's all I want to know. And I've

got awful good reasons. I wish I had a week to act,
pass this thing up.

but if I miss it this time I just might as well
Gaston:

Excepting, in Mr. Upham's judgment, we ought to

revise that telegram to forbid them to declare any

divident until further notice.

Upham:

H.M.Jr:

The Comptroller thinks he has no legal authority to

do that.

I have a
We are not only taking Mr. Upham's
written recommendation signed by the Acting Comptroller,
and the Chief Bank Examiner, Folger, recommending

this, and it is based on that thing that Mr. Upham
placed, plus the information he's got, but the
fundamental - the keystone of this is a written

207
- 16 recommendation from the Acting Comptroller and

the Chief Examiner. Right?

Upham:

To reduce it from 19.2 to 6 per cent.

Oliphant:

Well, if there is justification in reducing it from

Upham:

Right.

Gaston:

H.M.Jr:

19
to 6, you know there is justification for having
no dividend.

What bothers me is that we seem to sanction the
payment of a dividend by this bank which we regard

as virtually in an insolvent condition.
Well, the more I think of it - and I told this last
night- and my first reaction - "Why any dividend?"
The President's reaction - "Why any dividend?"

Oliphant:

Oh, I think clearly it has to be no dividend, when

you get into it.

H.M.Jr:

I agree with you.

Gaston:

If we are saying 6 per cent, we are saying, "Why,

it's all right for you to pay a dividend," and it

isn't all right.

H.M.Jr:

They have paid over nineteen per cent this year
to stockholders. The stockholders have got no kick.
I am thinking about the depositors. I want to conserve the assets for the depositors. The stockholders - so we are thinking of the depositors, plus the

F. D. I. C., and everything else, so I think if we

do anything, it makes us a party to their lax management, to say six per cent.

Gaston:

Yes. We say they are entitled to pay a dividend,
and we do'nt think they are.

H.M.Jr:

I think no dividend. That is just this fellow; he
can't face anything. I want to keep him until I
find out what this responsibility is. I don't want
to release him and have him walk out and say, "Let
that baby be Morgenthau's."

Go on, Herman.

208
- 17 Oliphant:

Well
now, your
relation
The statute
provides
thatto the Comptroller's Office.

H.M.Jr:

Go on, Herman.

Oliphant:

...

Klotz:

there shall be in the Department of the Treasury
Excuse
me. Want to read this (Paper brought in by
Miss
Chauncey)?

H.M.Jr:

Well - message from Mr. Diggs.
"The Chairman of the Board of the Federal Reserve
Bank of San Francisco, owes the Bank of America

Oliphant:
H.M.Jr:

approximately eight million dollars."
(Laughs) Try to forget that one.

I mean, it is - I just - well, if Mr. Ransom doesn't
act it is just unbelievable.
John, everybody in this town, with the exception of
Henry Morgenthau, Jr., is just scared to death, and

he's got this fellow buffaloed; he's got his wires he's got his lawyers; he's got his money - I'll
tell you, when I've got time, about the money he
spent in this town - cash. Unbelievable.

Oliphant:

Have you got somebody to go in there at once?

H.M.Jr:

Well, I don't know the name, but I'll find out.

Upham:

Oliphant:

The President, I think, is a pretty good man.
We'll have to start with a clean man, and I'd make

H.M.Jr:

Who's the fellow who you know - O'Shaughnessy, or

him Acting, so we can have him at once.

something - they tried to put in as head of the
stock exchange at San Francisco?

Hanes:

O'Shaughnessy.

H.M.Jr:

Is he a good fellow?

Hanes:

He was suggested for Commissioner over at S. E. C.

H.M.Jr:

Because he is the fellow who hates Giannini's guts,
and he's the fellow who tried to stop Giannini from

dealing - ruled off Trans-America, didn't he, off the

209
- 18 San Francisco Board, and on the basis of that,
Giannini had him put out of business. Now there is
the kind
of fellow we want to - O'Shaughnessy, is
that
right?
Hanes:

That's right, yes.

Oliphant:

I want to put him - that at least he take it as
Acting
a patriotic
basis, so he can step right
into theon
office
and act.

H.M.Jr:

Can you find out - wouldn't that be a good fellow
to put in there?

Hanes:

I don't know him personally.

H.M.Jr:

But you can check. He had the guts enough to rule
Trans-America off of the San Francisco Stock
Exchange, but they let him deal in the New York one.

Oliphant:

I have in mind - I want someone to go in there

quickly, as Acting, and, for instance, stop - prevent their stripping of the files - just take
charge of that situation. Shall I go on?

H.M.Jr:

Sure.

Oliphant:

The statute provides that "There shall be in the

Department of the Treasury a Bureau charged with

the execution of the laws, with relation to the banking, and so forth, the chief officer of which Bureau
shall be called the Comptroller of the Currency,
and shall perform his duties under the general
direction of the Secretary of the Treasury."

H.M.Jr:

Oliphant:

Shall do what?

"And shall perform his duties under the general
directions of the Secretary of the Treasury." Now
taking that language, the way it is being construed,

and under the statute, I think the picture is quite
clear, that with the possible exception of his
quasi-judicial functions, where there is a statute
that gives the idea that you can review those, then
you are charged with full responsibility for his
action, which means that all executive and administrative conduct of the office, the authority flows from
him, through you, to the President, and with the
authority goes the responsibility, and the Attorney
General has had occasion to pass on it, and his view

on it is pretty clear: Never faced it before - I

210
- 19 mean,
never pressed it before, but that is the
situation.
H.M.Jr:

Oliphant:

All
right. That makes it easier. What else,
Herman?
That's all.

H.M.Jr:

Well, you go back there and see whether, by eleven
o'clock, you can have something for me.

Oliphant:

Yes.

H.M.Jr:

But I'd rather have you late than

Oliphant:

Now, I want just to ask Cy, of the people that have
worked on the dividend idea, is there anybody that
thinks they do have the power?

Upham:

I think not.

Oliphant:

And the head man up there, now, is Kelly, in the
absence of

H.M.Jr:

Yes. Kelly works on this all the time.
We'll be waiting for you.

Oliphant:

By eleven.

H.M.Jr:

Let Delphi speak.

Oliphant:

All right.

Upham:

211
COMP. OF CURRENCY

- Acting - Mr. Diggs

10:15 a. m.

Tuesday sept 13, / 938
Following message from Mr. Diggs:
Please remember that the Chairman of the Board

of the Federal Reserve Bank of San Francisco owes the
Bank of America approximately $8,000,000.
nmc