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1 1 NOMINATION OF JEFFREY FRIDAY , MAY M. BUCHER 12, 1972 U.S. SENATE , COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, ngton,D.C. Washi teemetat 10:10 teOffice The commit a.m. ,inroom5302,New Sena lding atorJohn Sparkman, chair manof the commi ttee Bui , Sen , iding pres . Present : Senators Sparkman ,Proxmire , Bennett , andBrock . The CHAIRMAN.Letthecommittee cometoorder ,please . n of natio erthenomi The purposeofthehearingtoday isto consid ia,tobe a member of theBoard of iforn M. Bucher, Cal Mr. Jeffrey GovernorsoftheFederalReserveSystem. Mr.Bucher hasbeen nominated toserve a 14-year term intheplace ofGov.ShermanJ.Maisel ,whosetermhasexpired . Inaddition ,Mr. William Burkett ,formerly theSuperintendent of Banking ofCalifornia will appear asawitness . SenatorProxmire has a statementhe wants to make beforewe begin ourquestioning ofMr.Bucher . Senat orPROXMIRE. Mr. Chairman, I bel ieveitisnecessa ry to an nounceat theoutsetof the se heari ngs thatI str onglyopposethe nom inati onofMr. Buche r tothe Feder alReserv eBoard.Insodoing , I inte ndno perso naldisres pectfor Mr. Bucher.I am surehe isa fine lawyer,anda competent banktrust man,an abl executive . e Butinmy view ,he istotally unqualified toserve on theFederal Reserve Board—themostpowerful economic agency oftheFederal Government. , thecompetence DuringtheKennedyandJohnsonadministration ofmen upgraded by theappointment oftheFed wasconsiderably policy . andmonetary experienced ineconomics TheFedwas further strengthened whenthepresent administration appointed Dr.Arthur Burns ,a man who iseminently well qualified appointment toserve on theBoard andwhose Ienthusiastically en dorsed . However , during thelast 3 months , theadministration has sent theCongress twonotably weaknominations —Mr.JackSheehan last February andnowMr.Jeffrey Bucher . Theadministration nowappears tobetaking a major leap backward by appointing inexperienced amateurs tothe Board .Theseobviously weakappointments can produce tragic results fortheAmerican economy. I believ e Mr.Bucher' s nomi natio n shouldbeopp osed .He hashad virt no previ ually oustra ining inecono ormonet mics .Ther arypol icy e thousa arelite rally ndsofeconom istswho aremore qualif ied toserve on theBoard. (1 ) 2 In stressing theneedforeconomic training , I do notsaytheentire Boardshould becomposed ofacademic economists . Ifbanking ex perience isconsidered tobea desirable prerequisite ,why notselect oneofthehundreds ofeminently qualified economists employed by thecommercial bankingindustry , by theFederal Reserve banks, or bybanktrade associations ofconsulting firms ? I believe that suchmen asRoyL.Reierson ofBankers Trust ,Leif OlsonoftheFirst National CityBank,Tilford C.Gaines ofManu facturers Hanover , Guy E. Noyesof MorganGuarantee , Beryl W. Sprinkel of Harris TrustorWalterE. HoadleyofBank ofAmerica wouldallbe wellqualified toserve on theFed. I mightalso add Gabriel Hauge,ofManufacturers Hanover . Allareconservative bankeconomists withan intimate knowledge of banking andmonetary policy .Charls E.Walker ,theformer executive director of theAmericanBankersAssociation and now theUnder Secretary oftheTreasury wouldbefarmorequalified toserve onthe Fed than Mr. Bucher. Allthose men areconservatives ,all areexpert ,all arewell qualified . WhileI firmly believe thatall Fedappointees should havea back groundineconomics andmonetary policy , I realize that thisisnot widely shared within theCongress .However ,ifmy position on this isnotaccepted ,I believe there areseveral additional reasons forre jecting Mr.Bucher's nomination . First , Mr. Bucher's specific banking experience hasbeentoonar row toqualify him fortheFederal Reserve Board .Hisprincipal experience hasbeeninthetrust department ,a field farremoved from thecommercial banking functions withwhichtheFed hasbeen predominantly concerned . A trust officer essentially acts asthemanagerof an investment portfolio asdoestheinvestment manager ofa mutualfund ,pension fundorlife insurance company .He haslittle familiarity withcom mercial bank credit extension which iscentral totheFederalReserve regulation Board's ofourbanking system . Second ,Mr. BucherwouldbringtotheBoarda serious conflict of interest . He comesfromtheNation's largest multibank holding companyand as a Boardmember, he wouldbe required toruleon themany applications by bankholding companies toexpandtheir rangeof services . Bankcompetitors arelikewise anxious to stopbankholding com panies frominvading their particular business . UndertheBank Holding CompanyAct,theFed isrequired toweightheprocom petitive andanticompetitive efforts ofbankholding company applica tions which andrender a decision isbest for theeconomy asawhole . How canMr. Bucher giveanobjective and impartial judgment whenhecomesfromtheNation's largest multibank holding company andbecause of hisyoungage,will nodoubt seek toresume hisbank ingcareer following hisservice ontheBoard? Third ,Mr. Bucher's appointment canimpair foreign confidence in thesoundness of ourbank regulatory systembecause of hisassocia tion withtheUnited California Bank,a bankwhichhasbeenpar ticularly freewheeling inits international activities .Thisisthesame bankwhichpermitted its Swiss subsidiary tolose $48million inan 3 ill -fated attempt tocorner theinternational cocoamarket . Thisven ture produced a majorscandal inbanking circles ,and caused many foreign bankers towonderjust howeffectively U.S.banksweresuper vising their foreign subsidiaries . Moreover ,a multimillion -dollar lawsuit hasbeenfiled charging the managers oftheUnited California Bankwithgross negligence . WhileMr.Bucherapparently was notdirectly involved inthe activities ofthebank's Swisssubsidiary , hewas a memberofthe bank's topmanagement teamand ispresumably a product of the bank's aggressive management philosophy whichcaused ittorunup a sizableloss . Mr. Bucher obviously cannot beheldresponsible forthemistakes ofhis colleagues .Nonetheless ,because ofthe important role theFed playsinmaintaining confidence inourbankingsystem , we mustbe extremely careful toappoint men whosebackgrounds andprevious associations donotcontain eventheslightest suggestion ofimprudent judgment . orreckless Mr.Chairman ,theimportance ofthisnomination cannot beexag gerated .We aredealing withthehealth oftheAmerican economy .An error injudgment bythe Fed canplunge this country intoa deep recession orproduce a runaway inflation .We should ,therefore ,insist onobtaining the best -qualified menfortheBoard . UnderourConstitution ,onlytheCongress hastheright toregulate ourmonetary system .Article I,section 8 oftheConstitution specifi cally gives theCongress theright to“coin moneyandregulate the valuethereof." These powers belong exclusively totheCongress andnotthePresi dent . They may havebeendelegated totheFederal Reserve Board by theCongress .The Fed istherefore an agentoftheCongress . It wasdeliberately created tobeindependent oftheexecutive branch , but not the Congress. SincetheFederal Reserve Boardistheexclusive agentoftheCon gress ,we havea fargreater responsibility inconfirming appointments totheBoardcompared toa cabinet orjudicial appointment .We have the right - indeed theduty- undertheConstitution toreject a nom ineeifhe does notmeasure up toourstandard . IfCongress isseri ously interested inreasserting its constitutional prerogatives ,itshould beginwiththeFederal Reserve Systemwhereithasan exclusive con stitutional jurisdiction . Ifwe meekly acquiesce tothePresident andrubber stampanyap pointment ,nomatter how unqualified theman may be,we surrender constitutional power. à vital If we confirmtheBuchernomination ,I believe we willweakenthe traditional independence oftheFederal Reserve Boardby placing it under the control of the President and the executive branchof the Government . Why do I saythis? r enced entofine xperi men suchasMr. Buche e theappointm Becaus d. natetheBoar ease thepower ofChairman Burnsto domi willincr r and Mr.Sheehantoargueand llyexpec tMr. Buche istica Can we real iarwith the com ,whentheyareunfamil nsttheChairman voteagai cy? d insetting monetarypoli nical involve issues plextech 4 I haveenormous respect forDr.Burns . But undertheFederal Reserve Act, hehasonlyonevoteoutofseven .By confirming Mr. Sheehan and Mr.Bucher , we really giveMr.Burnsthree votes .He onlyneedsonemoretocontrol theBoard. WhileMr.Burns isabrilliant economist ,heisalso closely associated withthepolitical fortunes of President Nixon . He hasbeenone of Mr.Nixon's keyeconomic andpolitical advisers .Had hisadvice been followed in1960 ,Mr.Nixonmightverywell havedefeated President Kennedy. Dr. Burnshasalsobeena key member of theWhiteHousestaff prior tohisappointment totheFed.Inviewofthis close association , . conflict manymay fear that ifa developed between a sound monetary policy andthepolitical fortunes ofPresident Nixon ,Dr.Burnswould choosethe latter . I havefull faith inDr.Burns 'integrity ,buttheveryheart ofour constitutional system istodivide ,notconcentrate suchgreat power astheFederalReserveBoard exercise . By giving Dr.Burnsanother surevoteon theFed,we arereally giving President Nixonanother sure vote-indirect violation ofthe Constitution andtheFederal Reserve Act .Surely there mustbeother men withenoughintellectual stature to exercise their independent judgment onmonetary policy without becoming passive rubberstamps totheWhite House. Ifwe conclude there are ,then we havea duty ,under theConstitu tion ,toreject Mr. Bucher andinsist ontheappointment ofa more qualified man. Senator BENNETT .I donothave aprepared statement ,butIcannot let thestatement ofmy colleague gobywithout making someobserva tionsabout it. Inthefirst place this isthe mostblatant charge ofguilt byassocia tion thatI haveever heard .Mr.Bucher mustberejected because he hasbeen associated : (a) with banks ;(b) with a particular bank .To Secondly ,hemustberejected because heworks fora bankthat is part ofabankholding company anditwassuggested that instead of : me,that sort ofthing isindefensible . him,selection mightbemadefroma numberofimportant men whom theSenatorfromWisconsin mentioned .I havenothadtime ,obviously tocheckitout,butI thinkallor atleast mostof them work forbanks connected company. witha bankholding So,ifthatisa reason toreject a nominee ,thenthereason should apply toanybody else whocomes along . The Senator makesa great point aboutthefact thattheFederal Reserve Boardshould be filled up witheconomists .Thisman'sfatal weakness isthat heisnotan economist .I wouldlike toputinto the record bit alittle ofhistory . In January1970 ,before Mr. BurnsbecameChairmanoftheBoard, fourmembers were economists and threewerenot.The Chairmanof theBoardwasfrom thesecurities industry andonememberwasa former banker .IfMr.Bucherjoins theBoard,itwill againconsist of foureconomists andthree noneconomists , oneofwhom,Mr.Bucher , willhave been a former banker. Butthere isanimportant change which theSenator fromWisconsin hasadmitted ,whichisthat nowinstead ofhaving a securities man as 5 Chairman oftheBoard ,we haveaneconomist .So,totheextent that we needeconomists incontrol oftheBoard ,we notonly havefourof them ,which wasthesameasexisted whentheadministration changed , butwe haveoneofthem asChairman Now,there isnoformer banker ontheBoardandtraditionally ,one member ofthe Boardhasalwaysbeena banker . In its68 yearsof existence , there haveonlybeen 11 years whenthere wasnotatleast onebanker ontheBoardandatonetime ,about 1936 ,four members of theBoard ,orthecontrol ofit ,werebankers .I cannot let this observa tionpass without noting that oneofthemost prominent BoardChair men wasMarriner Eccles ,who camefrommy State ofUtah. Nobodycomplained inthose daysbecause Marriner Eccles wasa banker. I haveinquired ,and havebeentold thatthere are250economists on Reserve thestaff oftheFederal Board,andapproximately 100ofthem havetheir doctorate ,havetheir Ph.D.'s .SotheFederal Reserve Board isnotwithout theservices ofeconomists andI cannot accept asvalid theidea that oneman outofseven cannot beabanker ,norcanI accept theideathatbecause President Nixonappointed the Chairman and also Mr.Sheehan andMr.Bucher ,that Mr.Sheehan andMr.Bucher will automatically berubberstamps for the Chairman . Now that carries withittheimplication theChairman mustbeup tosomekindof evil . He mustbe involved insomekindofa plotto destroy themonetary policy oftheUnited States whichhecannot carry outexcept withtherubberstamp connivance ofothermen who havebeen appointed byPresident Nixon ,whobyimplication isalso involved insomekindofa plot against thesoundness oftheAmerican monetary system . To me al this isridiculous .We havea man before uswhoserecord we should check objectively andwe havea man before uswho could fill theplace that hasbeen traditionally reserved fora banker .AndI think weshouldmakeourjudgment on thatbasis ,andnoton this variety ofguilt -by-association charges that havebeenentered into the record ,bymy friend fromWisconsin . I thinkMr. Buchershould beallowed tostandon hisown feet and notbeaccused ofallofthefaults ,whether theyaretrue ornot ,of anybodywithwhom hehasbeenconnected . havelistened also tothestatement thatsince theFed answers to theCongress , thenitistheCongress , and notthePresident , who in effectshould choosethe members of the Fed . This is almost a claim that anyman thePresident sends upshould berejected because hewas appointed bythePresident unless hewascleared withthemajority of Congress inadvance . Nowthat isnot thewayit isdone .This President andeveryone of hispredecessors ,since theBoardwasorganized hashadtheprivilege ofnominating themembers oftheBoardandselecting theChairman . Unless Mr.Bucherisfound tobeunfit ,completely without background orbasis ,I donotthink wehavetheright ortheresponsibility tosayto thePresident ,youareexercising anunconstitutional power when you recommend this man forthis job ; andbecause we areMembersof Congress , we havea constitutional responsibility to reject your appointment . 78–312-72 -2 6 Proxmire , do you The CHAIRMAN. Senator have any further ? statement Senato r PROXMIR E.No,sir .I willwaitfor thequestio ning . two toaddtowhathasbeensaidjust The CHAIRMAN.I wouldlike . outoneofthem ,brought Bennett ,I think . Senator points verybrief officer andwemustrecognize istheappointing AsI see it ,thePresident . tonamea person doesnothavetheright thatfact .Congress We cansuggest butifthePresident doesnotactonourrecommenda tions we cannot force him toact .Ourresponsibility istohear theman thathas beennamed and passjudgmenton whetheror not he is qualified fortheposition . Second , I wouldlike tosaythisaboutChairman Burns,and I am sure Senator Proxmire wouldagree withme onthis ; while itistrue Dr.Burnswastheintimate economic advisor tothePresident , I think we allwould admit thatthatdoes not tiehishands. I recall thatwhen hewasbefore usforconfirmation ,we werenotfully content withthe progress that theadministration wasmaking intheir gameplanto restore theeconomy .I remember thatDr.Burnsatthattime ,recom mendedsomething that wasnotinkeeping withthethinking ofthe President .Rememberhewasthefirst onetoadvocate whathecalled ,a “Wage andPrice ReviewBoard ." The Pre siden t didnotacton thatrecom mend ationfor overa year, not until August , 1971,eigh teenmont hs afterDr. Burnswasdesig natedasChair manoftheFed eralRese rveBoard .My imp ressi onhas been- Ijust thr owthis out forwhat itisworth Dr.Burn along s all hasacted ,I thi nk,inamanne r thatshow edhe wasindepen dentof of theWhite House . Senator PROXMIRE .I just wanttosay ,Mr.Chairman , I havemade itclear I havegreat respect forMr.BurnsandI enthusiastically sup ported hisappointment as Chairmanof theFederal Reserve Board . However ,I think itisonething toapprove himandsomething else to givehimthree votes . Furthermore ,I dothink that thefact isthat this recommendation onwageandprice controls wasalso madebyEhrlichman ,Haldeman , Connally ,other veryclose political associates ofthePresident before accepted thePresident it . Senator BENNETT .Connally wasnotthere . Senator PROXMIRE .Nevertheless , Connally madetherecommenda tions before thePresident decided toacton— and he did. The CHAIRMAN. I know nothingaboutthe advicethe President sought formakingappointments . I do knowhedidnotaskme,and Ididnotspeak tohimabout it . Senator BENNETT.He didnotaskme ,either . SenatorPROXMIRE.You cantell he didnotaskme . TheCHAIRMAN .I wouldhavebeengladtorecommend someoneif he had askedme . (Laughter.) The CHAIRMAN . Anotherthing , I believe thatunderthelaw the Boardmembersmustcome fromcertain areas .I am notsureI could suggest a nameintheCalifornia area . Senator PROXMIRE .Hoadley isoneoftheonesI suggested . He is from theBank ofAmericainCalifornia . TheCHAIRMAN.When didhegooutthere ? SenatorPROXMIRE.He isthere now . 7 Senato r BENNETT.He went outbefor e 4 or5year s ago. The CHAIRMAN.I know GabrielHauge The CHAIRMAN.I do notknow him.I couldnothaverecommended him ifI had beencalled on because I do notknow him.I am surehe isa goodman. Anyhow ,letusproceed . Mr.Bucher ,there isa certain formal procedure thatI always like togetdoneassoonaspossible . First , we haveyourbiographical sketch , and without objection , that will beplaced intherecord atthis point . (Thebiographical sketch ofMr.Bucher follows :) BIOGRAPHICAL SKETCH OF JEFFREY M. BUCHER Home address : 222 SouthFigueroaStreet , # 1811 , Los Angeles , California 90012.Telephone:485–9386 . BusinessAddress : 600 South SpringStreet , Los Angeles , California 90014 . Telephone624-0111. DateofBirth:February 9,1933;LosAngeles , California . MaritalStatus:Married,5 children . Admittedtobar:California ,January1958;U.S.SupremeCourt ,1965 . Education :High School :Flintridge Preparatory School ,Pasadena ,California 1950; College : Occidental College , Los Angeles , California , A.B. , 1954; Law School : Stanford University , Stanford ,California ,J.D. ,1957 . MilitaryService:U.S.Army Reserve,1955–1963 . Employment:1967todate -Senior VicePresident inchargeofTrustDivision , UnitedCalifornia Bank , Los Angeles,California . Chairman , CentralTrustCommitteeand otherbank committees supervising trust and investment activities ;Director , WesternAssetManagementCompany thebank'sinvestmentcounseling affiliate . 1957–1959 , 1961-1967 – Vice President , Secretaryto the Board of Directors and Treasurer ,UnitedCalifornia Bank ,Los Angeles,California . 1959–1961 — Associate , Stephens , Jones , LaFever and Smith , Attorneys , Los Angeles , California .Generalcorporate , realestateand probatepractice . Memberships : Member, Los AngelesCounty, California and AmericanBar Associations ; AmericanSocietyof ComporateSecretaries ; Director , Travelers AidSociety ofLosAngeles ; Trustee ,Flintridge Preparatory School forBoys; Phi Gamma Deltaand Phi DeltaPhi. OtherActivities : Co-author , California BankersGuideto the UniformCom mercialCode (publishedby California Bankers Association ) ; Author, The Uni formCommercial CodeinCalifornia (published by theConference ofBarristers of theState BarofCalifornia ); Lecturer fortheContinuing Education oftheBar, American Institute ofBanking andspeaker before numerous legal andbanking groups . The CHAIRMAN . Second , we haveyourfinancial statement .I dis cussed withyou,whenyoucameby my office , thenecessity forthe financial statement ,andyoutold me youhaditandthatyouwould file itwiththecommittee .That statement isbeforeusnow,with your certification ,from the Senator BENNETT.Mr. ThomasJ.O'Connell —whichistheGeneral Counsel's opinion astotheabsence ofconflict ofinterests . The CHAIRMAN. And we do have a certification from him thathe nothing your statement finds . I havechecked , and I certainly see nothing toindicate a conflict ofinterest .I invite theothermembers tocheck thestatement and,asI explained toMr.Bucher ,itisavail ableto allof themembers of thiscommitteehereintheoffices of the committee . 8 After members have hadthat opportunity toexamine thestatement , itwill besealed andplaced inasafe ,andwillbekepton file during the timethatyouholdthis office , andfor1 yearthereafter .Thenit willbe destroyed . Letme askyouthis question . Do youhaveanyholdings orany interests in anything whichyou feel wouldconstitute a conflict of interest holding withyour this job ? Mr.BUCHER.I donot,Mr.Chairman . The CHAIRMAN.Now, wouldyoulike tomake a statement tous? Mr. BUCHER .Mr. Chairman,I haveno formalstatement .You have my biography asyoumentioned . The CHAIRMAN.Yes.Ithasbeenincluded intherecord . I notethatyourage, given by Senator Proxmire , was 39 years . I havenoted thedifferent positions that youhaveheld andyouractivi ties notonlyinbanking butinallfields .Inpublications ,forinstance , I noted youauthored theCalifornia Bankers ' GuidetotheUniform Commercial Code,published byCalifornia Bankers ' Association .You also wereauthor oftheUniform Commercial CodeinCalifornia ,pub lished by a Conference ofBarristers oftheStateBar ofCalifornia . You havelectured a great deal .Youhaveparticipated invarious civic activities .Thiswill beplaced intherecord . By theway,just incidentally ,Senator Bennett referred toMarriner Eccles . Marriner Eccles was appointed chairman oftheboardjusta short timebefore I entered Congress .He wasreappointed in1936 ,and thatwas done following a reorganization of the FederalReserve Boardasauthorized bytheBankingActof1935 . Then,in 1940 ,he was againappointed chairman for4 yearsand then ,in1944 wasreappointed toafull 14-year termandredesignated aschairman .In1948 President Truman appointed Mr.Tom McCabe , whom I recall quite well ,anddesignated himaschairman . Mr.Eccles remained asa memberoftheboarduntil July14,1951 , whenheresigned .He had17years ofservice ontheboard .He wasa banker ,a very ablebanker .And I believe heisstill inthebanking industry outinUtah. SenatorBENNETT.No. MarrinerEcclesnow lives in California and headswhatusedto be theUtah Construction Co.Itmay—they may still havethesamename,which wastheEccles firm whichpartici pated asoneofthesix companies tobuild theHoover Dam,andisnow engaged inconstruction around theworld . Marriner ,inhiseighties ,isstill theactive head. TheCHAIRMAN.I'mgladtohavethatinformation . I haveletters from him infrequently .I knowhestill maintains a greatinterest ,whom you have ,GeorgeEccles Senator BENNETT.It's hisbrother . metwho isheadofthebankingdepartment wellandI dostill quite The CHAIRMAN.Yes.But IknewMarriner fromhim fromtimetotime. haveletters Anyhow,I believe that's allthatwe havetogetintotherecord on a formal basis . thewit Senator Proxmire ,do youwishtocommencequestioning ness? youwerebeing ushow youlearned PROXMIRE Senator .Canyoutell veBoard? consider ntme nt totheFederalReser edfortheappoi Mr. BUCH ER . Yes. 9 ative edofthatby a repr esent from theWhite House. I was inform Senator PROXMIRE . Didyou seektheappointment or wereyou recommendedforit? Mr.BUCHER.I didnotseek theappointment . SenatorPROXMIRE.You wererecommendedforit? Mr.BUCHER .Ireally don't knowhowthenamecameup. Senator PROXMIRE .Couldyouidentify thepersons recommending youforthejob? Mr.BUCHER .No,Icannot identify persons recommending me for thejob .Icanidentify theperson who contacted me. Senator PROXMIRE . No.I am thinking ofthepeople who recom ? told byanyone ?You werenever mendedyou . You havenoidea . told Mr. BUCHER.I haveneverbeenformally ? informally told .How about PROXMIRE Senator ed.I thinkthat's Mr. BUCHER.I knowsome peoplewho werecontact ngit rway ofputti . abette d withMr. C. R. Smith of ainte orPROXMIRE.Are you acqu Senat go? SanDie Mr.BUCHER.No,sir ;I am not. Senator PROXMIRE . To yourknowledge hasMr.Smith contacted anyoneinsupport ofyournomination totheFederal Reserve Board? Mr. BUCHER. To my knowledge , no. I haveno reason to believe hedid.Iknow nothing that wouldindicate that hedid. Senator PROXMIRE .As youknow, appointments tototheFederal Reserve Boardarefor14years andnonrenewable . Youmentioned something about this inyouropening statement . Ifconfirmed canyouassure this committee thatyouwill serve out yourfull 14-yearterm? Mr.BUCHER .Itisdefinitely my present intention toserve a full term , yes,sir. Senator PROXMIRE . Should you serve thefull 14 -yeartermI be lieve — youwill be53years old .And atthepeakofyourcareer . Wouldyouintend atthat time toreturn tothecommercial banking Mr.BUCHER . I havenointent inthat regard atthis point ,no,sir . I am looking forward to14years andI havemadenoplans beyond industry ? thatpointintime . Senator PROXMIRE .Wouldn't itbelogical that this wouldbewhat you would do ? beayoungman. ,atthat timeyouwill I am 56.By my lights . withyou.I donothaveanyplans .I havetobehonest Mr.BUCHER ,ifconfirmed by forward longtime . Iam looking isa very To me that efforts tothe my full , todevoting andby theSenate thiscommittee Board.I really havenotmade anyplansandI as Reserve Federal sureyou ,I havemade no commitments . Senator PROXMIRE .How would youfeel about pledging categorically committee wouldyoureturn tothis thatundernocircumstances tothe commercial banking industry following yourservice withtheFederal ? Senat or BENNETT. I don' t think— we haveany rightto askfor commitmentofthattype. Senato r PROXMIRE.Thenhecansayyesor notothat . TheCHAIRMAN .Ithink thatwouldbeimpr oper . 10 r PROXMIRE.I am notsayi nghesho uld.Of cou rseoth erm em Senato teecan votefor thisnomineeon any basisthey s of the commit ber t. 'twant tosay thi s, that'swhat I wouldexpec want to.If he doesn . , I thinkthatwould have a greateffect If he does n shou ld be req uiredto 't thinka perso The CHAIRMAN. I justdon isethathewillor will notdo any par ad14 yearsandprom lookahe igndowninAlabama. rtha t.I havebeenin acampa ticular thingafte in afterthis ds asked me ,willyourun aga Some of my good frien n like thatatall .I just term? I said ,well,I won'tanswer a questio 'sproper don'tthinkit . Senator PROXMIRE. Yes . ng etodoanythi gthenomine lyam notforcin Well ,asIsayI certain at all . ly. orical The CHAIRMAN .No. But you askedhim categ r PROXMIRE.Well, he cansayno.That 's it . I thinkallthe Senato teewillallacc eptthatas the kindof othermembersof thecommit l. answertheywouldexpect aslogica I wouldhopehewouldanswertheother way.I won't pressit. edin my openi ngremar ks,Mr. Bucher,theUnitedCali As indicat y inan ill a Bank lost ionthr oughitsSwis s subs idiar forni $48mill nalcoco mpttocorn ertheinte rnatio a mark et.Do youthink atte fated ionisa propermarkettobein? culat spe Mr. BUCHER .No ,I do not. Senator PROXMIRE . Do you thinktheofficials of yourbankacted properly inpermitting theSwiss subsidiary toengage incommodity speculation ? e retootherpeopl ,letme say as I havesaidbefo Mr. BUCHER.First s--I wasnotinv ative olved esent ve,to someofyourrepr and, I belie y. Iwas notinvo lvedinthe idiar iontoacquire thesubs inthe decis n, s inthatcon nectio ent-making dec ision managementor theinvestm nd,saytha t ion ondha uidat ardtotheliq .I can,fromsec norwithreg licpress ion . ndsomefacts t thesituat .Itwas inthepub abou I understa ed. Itwas wellknown.I havehearditdiscuss My understanding was thatthat speculation was notauthorized bythemanagement ofUnited California Bank.Thatspeculation was undertaken by themanagement ofthesubsidiary incontravention of theexpress statement madetothempreviously by management ofthe California bankthattheyshould notparticipate in commodity speculation . SenatorPROXMIRE . Don'tyou thinkthereisa lackof effective responsibility withtheofficials ofyour bank? Ordo youthink the officials ofyourbankwerenegligent innotadequately supervising the activities oftheSwisssubsidiary ? a Shouldn't this havebeenknown? Shouldn't youhavehada method by whichyou coulddetermine whether thisenormous investment of $48million ormorewasbeing madesothat youcould decideit could bedecided notbyyoubutbythose responsible inyour bankfor this kind of commitment ? I cangiveyouisthatI am not thebestanswer Mr.BUCHER.I think ofourinter enoughwiththeday-to-dayoperations really familiar period ,tobeable tospecu that division now orduring national ,either ,I thatknowledge therewas; and without latehow much contact . onnegligence think difficult forme tomakeajudgment it's 11 magnitude ofthis for ascheme PROXMIRE .How isitpossible Senator knowingaboutit? thetopmanagement onwithout tobecarried Mr.BUCHER . I really can't answer that .Again , Ihavetoemphasize thatIdon'twanttospeculate without thefacts . Thatwouldconcern me ifI weretoanswer yourquestion directly .Please forgive me whatyouare PROXMIRE . Letmemake sureI understand Senator saying : You aresaying youdon't knowabout itbutareyoutelling me that thebank shouldhave known aboutitand shouldhave had a method of determining whether this kindof large commitment was being made ? Mr.BUCHER .WhatI am saying isIdonotknowhowmuchtime and how mucheffort wasdevoted tothesupervision ofthis subsidiary .If itwasa veryhighlevel of supervision andthis event tookplace in spite ofthat ,then I wouldhavetocomment thebankdideverything theycould under thecircumstances andwithin a situation where they trusted somepeople who wentastray . That's why I can't answer directly . SenatorPROXMIRE.Isn't ittruethechairmanofthebank isalsothe chairman subsidiary oftheSwiss ? Mr. BUCHER.I believe thatwas true . SenatorPROX.MIRE .Shouldn't he haveknown aboutit! Mr.BUCHER .I havetogo backandsayI don't knowhowmuch contacthe had with the bank. Senator PROXMIRE .Letme ask you this: One ofyourbank'svicepresidentswas quotedinthepress assaying “You winsome,you lo sesome.”when he was informedof the$18mil lion loss. Doesthat reflect yourmanagement philosophy ? Mr. BUCHER.No ,sir;itdoesnot. Senator PROXMIRE .Didyouatanytimeknoworsuspect thatsome thing waswrongwithyour bank's subsidiary ? I am nottalking about this particular incident ,butinanyother way? Mr. BUCHER.No,sir . Senator PROXMIRE . You know thatinFebruary of 1970 ,6 months before yourbank's Swiss subsidiary failed ,thatyour bank ordered the reimbursement of its Swiss subsidiary for $21 2million byusing unregistered stocks ? Mr.BUCHER.No,sir ,I didnotknow that . Senator PROXMIRE . Do youthink it's proper fora banktoadvise its customers toinvest inunregistered stock ? Mr.BUCHER .Generally , intheareas inwhichI havedealt ,that wouldnotbethetypeofrecommendation that I wouldtend tofavor . Circumstances , I think , wouldhavetobe looked atineachcase ,but certainly in theinvestment activities in whichI was involved -of course these areofa fiduciary nature - unregistered stock wouldnotbe atype ofinvestment I would recommend . Senator PROXMIRE .Mr.Chairman ,I havetwoarticles fromtheWall Street Journal dealing withthis matter whichsetforth thedetails and facts .I askyoutolookthemoverand ifyou would approve, I would appreciate thembeing placed intherecord . The CHAIRMAN. I haven't any objection totheir beingplaced in the record. 12 Senator BENNETT .Ithink they areirrelevant .Ithink this whole line ofquestioning isirrelevant .The witness hasindicated that astrust officer ofthebankhehadnothing todowiththeoperation oftheSwiss subsidiary .ButiftheSenator fromWisconsin wouldfeel better if these areintherecord ,it's allright withme . TheCHAIRMAN .No objection .Theywill beplaced intherecord . (Thearticles follow :) [From theWallStreet Journal ,Oct.8,1970] JAILED CHIEF OF UCB's Swiss UNIT TALKS OF HUGE FAILED COMMODITIES GAMBLE THAT (By Ray Vicker ) “This could be another salad oil scandal ,” speculatesone com modities trader , referring to themultimillion -dollar shortage that turnedup lastmonth at UnitedCalifornia Bank'ssubsidiary in Basel , Switzerland . Sevenofficials of theSwissbank currently are beingheld in localjails“on suspicion ," and banking authorities in boththe U.S.and Europehave beguninvestigations . But formal chargesaren'texpectedto be filed formonths.Meanwhile, few mean ingfulfactshave leakedout about the case.This is the first of two articles by Ray Vicker , The Wall Street Journal's Europeannews editor ,based largelyon an exclusive interviewin Basel Prisonwith Paul Erdman , who was chairman and directorof the Basel bank untilhe resignedlastmonth . BASEL , Switzerland .— For Paul Erdman, theslender , bespectacled occupant of one of thiscity's 17th-century dungeons , thematterof how more than$30 million vanishedisfairly simple. Therehe was in chargeof UnitedCalifornia Bank, Basel , a bank with an enviable recordof makinglotsof money foritself and itscustomers , and little by little things weregoingsour .So,ina grand-slamgesture he tried towin back the losses , allof them. He turned his stafflooseto speculateon the volatile commoditymarket .At onepoint ,withthehelpofsomenimblebookkeeping ,they were dealing in futurecontracts equalto abouthalfthe world's production of cocoa. "Itwas thebank I was thinking of,” Mr. Erdman says . "Oh, I know how I shouldhavecalled foran auditand reported everything . Instead , I thoughtof protecting the bank. I turnedmy head when the books were doctored , hoping to gaintimetostraighten thingsout somehow .” He didn't succeed , ofcourse .The cocoamarketslumped . In mid-September the Basel bank was closed . A preliminaryaudit shows it $31.5millionin the hole. The UnitedCalifornia Bank inLos Angeles ,whose58 % ownership makes itthe parent .hasputup $40million incredit topayoffdepositors andcreditors .And Mr. Erdman and six of his former executivesare being held, almost incom municado,behindbars on suspicion of fraud and falsifying accounts . STERN PENALTIES ASKED " I'vebeen toldthat even if bailis allowed , it may be as high as a million Swissfrancs($236,000 ) for Paul ," saysMr. Erdman'swife , Helly . “ That's far beyond my capacityto raise ,” she adds. Already theSwiss newspapers areclamoring forstern penalties .Forinstance , the Wirtschaft , a Baselpaper , bannereditsstory : “Inconceivable Act of De ception ," and saidtheevidence seemstoimplythatthebanks'staff “must be a bandof swindlers ." The newspaper added :“Although itcannot and mustnot be the taskof the pressto anticipate the judgmentof thecourt , we see our selves on thebasisof what was saidbefore thecourt ,provokedtopublish this sweeping judgment." Unquestionably , itistheworstscandal in Swissbankinghistory .Many think itsimpactwillchange , onceand forall , thelenient rulesunderwhichbanks function here .And,unquestionably ,itwill makeitfarharder forother American bankstotaptherichmoneymarketsinthis nation . In someways , of course , the disaster is theproductof Switzerland's com mercial atmosphere . The lawsallowbankstofunction as much likebrokers as 13 bankers . The prospect of unlimited profit , protected by secrecy rules , draws money from allcornersof the world. It isn'tsurprising that the UCB's Basel failureis shot through with rumors thatthe Mafia , or some otherinternational conspiracy riggeditand quietly sweptthemoney intonumberedaccounts . The bank couldn't possibly havelost thatmuch money throughinepttrading incocoafutures ,saysa New York com modity trader. Additionalinvestigation may show whether or not thisiscorrect .Max Studer, an official of Switzerland's Society forBank Inspection ,Basel ,an auditing com pany thatwent overUCB's books , toldtheBaselcourtthathad “indisputable proof ” that six or seven members of the bank'smanagement , plus a member of Switzerland's Board of Bank Inspection Authority , had “fraudently " procured a sum of $10 million. But Paul Erdman doesn'tseem to buy such tales . Nor is thereany evidence yet to indicatethat funds were siphonedfrom the bank intoanybody'spocket. What he does offeris a blow by blow account, rarelyairedbeforethe invest ment public ,of slipshodmanagement on a multinational scalein which the pres sures ofturning a profit permitted a deteriorating situation toturninto a monu mental loss . To fullyunderstandit one must take a closelook at the eventsa few yearsago and theratherwinningpersonality ofPaulErdman. A BRILLIANT STUDENT Mr. Erdman isa personnel man'sdream.He'san AmericanofCanadianbirth , schooled in FortWayne, Ind., Concordia College in St.Louisand Georgetown University inWashington . He received a PhD degreeineconomics fromtheUni versity ofBaselwhereoneofhisprofessors remembershim as “oneofthemost brilliant students evertoattend ” theuniversity . His academiccredentials gotMr. Erdman a jobwiththeEuropeanCoaland SteelCommunity headquartersof the Common Market in Luxembourg . There, he made such a good showing he was quicklyhired to become the European representative for StanfordResearch Institute of Palo Alto, Calif . But Mr. Erdman isa doer, eagerto do more thanconsult . In 1964 , he con. ceivedthe idea of a bank, operatingin Switzerland , but with the gutsy go-go techniques of Americanfundmanagers . Hisconsulting work had broughthim to touchwith CharlesSalik , a San Diego , Calif ., financier , and a man so im pressedby the then37-year-oldMr. Erdman'swork and ideasthathe agreed toopenthekindofbankMr.Erdman envisioned . In 1965 , with initial capital of $600,000 raisedby Mr. Salik , Mr. Erdman startedSalikBank in a two-room office where a three -foot high safe was the most imposing pieceofoffice equipment .And from thefirst thebankfunctioned notonlyas a deposit collector butas a brokerage housefortheequity accounts of customers , as wellas commodityand foreign -exchangetraders . The approachdidn't sitwellwith conservative Swissbankers . SalikBank operated on thepremise thatcapital shouldbe appreciated , themore thebetter . To make itappreciate Salik Bank was willing totakebigrisks . And itworked well in the earlyyears. Assetstotaled$ 3.1millionat the end of1966 , $9 million at theend of1967 , and $49 million attheend of1968. As the bank grew it increasedthe servicesit offered . A customer could buy gold or silver , speculate in cocoa, indulgein speculative currencyflowsduringmonetary crisis or invest inAmerican , European , Japanese , Australian , or SouthAfrican equities .He coulddo so,moreover ,withtheguidance ofthebank's management , which seemedalmostprescient aboutmoney matters . In November1967 , the bank correctly anticipated the devaluation of the British pound, advisedits customerstoact,and made some of them rich . One customer , for instance , earneda profit of $80,000overa weekendby selling poundsforfuturedelivery , worth$2.80 , and thenreplacing them after thedevaluation for$2.40a pound. The mastermindbehindthefinancial guidance was Mr. Erdman,himself , and he was perfectly willing toletitbe known . IIE CULTIVATED THE PRESS Unlikemost Swissbankers , who shun thepress , Mr. Erdman cultivated it , makinghimself readily available to reporters forinterpretation of complicated foreign -exchangematters . Typically , when threeof Switzerland's major estab lishment banks, SwissBank Corp. ,UnionBank of Switzerland and SwissCredit 78-312—72—-3 14 Bank, senthim a letter urgingthathe curtail hisassociations withthepress , he ignoredit. He was evenmore aggressive when itcame togetting new customers forSalik Bank . His executives literally rang doorbells outsidethe countrydrumming up business ,a practice Mr. Erdman himself followed .At onetime , thebankclaimed tobe SwissAirline's second -largest customer inBasel ,withMr. Erdman, alone , flying 125,000 milestocontactcustomers . To carry out his franticactivity Mr. Erdman assembleda remarkably young team of executives .The averageage of the bank's120 employeswas 30.Average ageofthemanagementteamwas 41.Forty-six -year-oldAlfredKaltenbach ,man agerofthebank's portfolio department ,was thebank's oldest executive . Mr. Kaltenbach , a natty dresserwith long sideburnsand a ready smile, also isin jail . That'ssomething thatbankersherefindintriguing . Mr. Kaltenbach once was associated with a Basel-based bank and mutual fund calledArbitrex , an outfitthat foldedwith a loud crash in 1967.The case isn'tclosedyet. But CarlWunderlin ,public prosecutor forthecityof Basel ,seesnothing significant inthelink.Mr. Kaltenbach ,he notes,leftArbitrexin 1963. BernardKummerli, 37-year-oldmanagerof thebank'sforeign -exchangeand commodities department , and a key figure inthe present situation , alsoisin jail .He isa dark-complexioned , near-sighted Swiss ,withthereputation ofbeing a "genius ” in foreign -exchangetrading . “Kummerli is a walkingcomputer ,” saysa London-baseddealerwho oftendealtwith him . But Kummerlialsohas thereputation ofbeingextremely ambitious .He kept a Reuter's electronic market -information device at home so he could better followdevelopments in international marketsand was known to effect risky $10million transactions without twitching a facemuscle . The cocoa tradingwas done in his department. In the currentinvestigations , accordingto auditorStuder, not everythingseemed to have been noted correctly in therightledgers .Mr. Studerreports thathe toldtheBaselcourtthatmany ofthe commoditytransactions “weren't entered either in thebooks , or in the balance sheet." LouisThole , anotherjailed executive from Mr. Erdman'steam, hailsfrom Amsterdam , where his fatherhad operateda family bank for years. He's a slender , light -haired man with a gentle , unobtrusivemanner . He had a high reputation oftrust in Basel .“ Iwouldputmy hand inthefire forPauland for Lou Thole ," saysa Baselresident who has known him a longtime. THREE OTHERS IDENTIFIED Although the names of threeothersjailedhaven'tbeen officially released , each of them had been a key member of the youthfulteam. One is Beat Schweitzer , a young accountantwho joinedMr. Erdran while SalikBank was justan idea. Another isVictor Zurmuhle ,an ex-UCB employee who wentto workfora com modityhouse , AltcoS.A. , in Lausanne , Switzerland . The thirdis Helmuth Brutschi , a man Mr. Erdman assignedto overseecommoditiestradingwhen thingsbegan tosour, Itwas thisteamand itsrather startling trackrecord thatcaughtthewatchful eye of top executivesat United CaliforniaBank and Western Bancorp., its parent . It especially fascinated Frank L. King, chairman of Western Bancorp., who thenproceeded toplayan instrumental roleinUCB'sbuyingSalikBank for $12 millionin thespringof 1969. There'slittle doubt about these motives . “We bought the bank to get Paul Erdman ," a UCB official remarked at the time of the purchase . And it alsois clearthat Mr. King took a more than casual interest in the man . “Mr King regard Paulalmost asa son," saysPaul's wife ,Helly . Under different circumstances suchconcern mightbe seenas a welcomecon trastto the usuallyimpersonalrelationships of a businessenterprise . But in thisinstance itmay have backfired . The preliminaryinvestigation of the collapseshow there were few controls exerted overoperations of theBaselbank, either by theUCB parentboardin Los Angeles or by the board of the subsidiary . What the Swiss Banking Com mission wants explained in no uncertain termsishow a spateoffree -wheeling transactions in silver , cocoaand equities couldhave occurred withoutknowl edgeofthedirectors .And theyaren't theonlyones .A formerCalifornia super intendent ofbankshas suggested an investigation ofwhy theparentUCB board allowedits58% subsidiary to getintosuch trouble . 15 Indeed , there's some reasonto wonderwhy UCB , Los Angeles , didn't keepa sharper eyeon theBaseloperations . At thetimeof thetake -overtherealready weresomesigns thatthings weren't asbullish astheyhad been. SILVER SPECULATION CITED The portfolio accounts handledby thebankshowedan appreciation averaging 30% in 1967 , saysMr. Erdman. In 1968 , thataveragefellto 20% . And 1969 started witha disastrous showinginsilver speculation ,a lotofitforcustomer accounts. The silvertradingby the bank'sstaffhad startedin earnestin 1968 with the priceof the metal risingbecause of searcity . “ These guys went wild buying silver ,” recalls Mr. Erdman. “ A lotofitat thehighof $2.72an ounce ,notonly forouraccount butforaccounts ofcustomers aswell ,” headds. But thenthepriceofsilver slidtoa low of$1.85an ounceinOctober ,picked up a little ,thenslumpedtoas low as $1.81an ounceinDecember .Aftera little pickupin January 1969 the priceplungedagain, hitting a low of $1.54an ounce intheNew York marketinJune 1969. By thattime,UCB Baselwas on itsway out of itsnear-disastrous venture . “When themarketswung around , we went short ,” saysMr. Erdman. “We playeditpretty welland managed to come out of itwithoutany lossforthebank,” he adds. But many of the bank'scustomers tooka beating , a factthattroubled Mr. Erdman deeply . For one thing , he had soldhimself to UCB's managementas a superstarand feltunder pressureto produce. For another , he feltpersonally obligated toappreciate hiscustomers 'accounts . He began casting about for investment opportunities that might let himquickly recoup ,he says .Thenhefoundwhatseemeda goldmine :Cocoafutures . [From theWallStreet Journal ,Oct.9,1970) “WIN SOME, LOSE SOME" WAS FIRSTREACTIONTO HUGE LOSSES , SAYS JAILED BANK CHIEF (By Ray Vicker ) BASEL , Switzerland — When PaulErdman flewtoLos Angelesto tell United California Bank'stopexecutive how thebankhe ranfortheminBaselmanaged to loseabout $20 millionplayingthe cocoa-futuresmarket he found the reaction surprisingly tolerant . “One ofthesenior vicepresidents ,”Mr.Erdman recalls ,“saidsomething about how you win some and losesome. Then everybody agreedto keep thisthing absolutely secret .” But thatwas Aug. 30.By mid -September the Basel bank was closed , itslosses not$20 million butat least $31.5million .The parenthas setup a $36.8million reserve to pay offdepositors and creditors Yesterday , UnitedCalifornia Bank reported a thirdquarter lossof$ 10,079,647 , aftersecurities transactions and an extraordinary chargeof$18.1 million representing after -taxcosts ofreserves for theBaselbankslosses ; a yearago thebank reported netincomeof $7,741,086 for the quarter . Thus, itisn't surprising thatnow theverymentionof Mr. Erdman or Basel turns UCB officials grim. UCB Los Angeles had a 58% interest in UCB Basel, and there's a possibility thebank's American shareholders may trytoprevent reimbursement of theSwissdepositors . The Swiss , meanwhile , wanttoknow how theparent bank couldhaveletsuchan enormouslosspileup— especially sinceitstemmed primarilyfrom free-wheelingspeculation in cocoafutures . And therearecontinuing rumorsherethatthelosses couldhavebeenrigged ,thatthe “lost ” millions have beenswept intosecret numbered accounts . Allthemore galling forUCB executives isthattheyhad boughtthe Swiss bank, then known as SalikBank , for some $12 millionin the springof 1969 so thattheycouldgetMr. Erdman's services . E I DID WRONG " "I REALIZ Sitting inthiscity's 17thcentury jail ,withalmostno prospect ofgetting out until at least nextyearand eventhenonlytofacea possible trial , Mr. Erdman feels badly , too. " I'mnot a whitelamb in thisthing ," he says . " I realize now that I did wrong when I turned my head " and letthe book be doctored . 16 But feeling sorryseemsto be partof Mr. Erdman'snature . Indeed , itwas precisely thatsentiment thatledthebank intoitspresent straits . Starting in late1968the bank was recommending speculation in silver futures . The mar ket priceslumpedand thenslumpedevenmore. The bank, itself , managed to straddlethe market and recoveritslossesby the summer of 1969.But a lotof itscustomers didn't and Mr. Erdman, eagerto givethem some quickway to recoup ,begancasting aroundforinvestment opportunities . What he settledon was tradingin the volatile cocoa-futuresmarket. UCB Baselhad donesome trading incocoafutures before , butneverin sizable quan tities . Sincetheynow plannedto do so in volumehe sentBernardKummerli , hischiefcommodities trader , to Ghana where most of the world's supplyof cocoaisgrowing .Mr. KummerliwanderedaroundGhana a whileand returned an “expert .” The reasonMr.Kummerliwentisatleast a partial reflection ofMr. Erdman's philosophy ofmanagement . He gavehisvarious executives almost unlimited powertodo things and operate on their own. Thisfreedom ,forexample , meant“therewereno limits established forforeign exchangeand commoditytrades ,” according toHellyErdman,Paul's wife .Most banksand commodityhouses , of course , do placea limiton trading activity . Mr.Kummerli's department didn't fool around . In Augustand September 1969 , "withoutauthorization , itpurchasedhalfthe cocoain theworld,” complains Mr. Erdman . He's speakingfiguratively , sincemost cocoa-futurescontractsare merelypaperpromises to deliver thecommodityat some futuredate , and they don'thaveany direct bearing on theownership ofthephysical commodity ,itself . One of the more spectacular transactions , which Mr. Erdman says he learned about only afterreturningfrom a vacation , was that "we had bought 17,000 cocoa contractsat around $9,000a contractfor deliveryat varioustimes over thefollowing 12 months.” He estimates thepoundprice at thetimewas “around 45 cents.” This would indicatethat the bank was tradingin both the London and New York futuresmarkets, because,at thattime,the facevalueof a London contract was around$5,000and theNew York valuewas around$13,000 , indi catingMr. Erdman is averagingvaluesin both markets in his $9,000estimate . The facevalueof thesecontracts adds up to about $153 million .While almost allfuturescontracts are heavilymargined, with the purchasersputtingup little more than 10% of the face value, even thiscommitment is, nevertheless , an incredible sum especially fora bankthathad onlyabout$8 million ofnetassets on its books. Who soldthesecontracts to UCB Basel? “We tradedwith fifteen otherbrokers including allthebig ones ,” saysMr. Erdman. “Hayden Stone , Merrill Lynch, Lomcrest(London).You name them. We didbusiness withthem,” he adds. One reason , of course , that the brokerswere willingto overlooktheirclient's incredible sim especially fora bankthathad onlyabout$8 million ofnetassets of itsCalifornia parent. Mr. Erdman estimates the bank had to put up 115 million Swissfrancsfor the17,000contracts .“ It's ronghlyabout$25 million ,” Mr. Edrman says. Marginfigures mustbelisted somewhereinthebalance sheet ofa bank,accord ing to Swisslaw. Yet a $25 million figure , ifreported correctly , would have invited an auditintothebank'scommodity trading . BALANC E SHEE T " FALSIFIED" So, “the balancesheetwas undeniablyfalsified ,” accordingto Max Studer, an auditorwith Switzerland's Societyfor Bank Inspection . Mr. Erdman seems to concur .“ Ididn't askanybodyany questions aboutthebalance sheet .I justturned my head away ,” he says. An audit, Mr. Erdman says, would have shown the cocoa tradesand thiscer tainlywould have marred his and the bank'srecord . Moreover, ifthe news had gotout,itmighthaveledtoa runon thebank and eventual bankruptcy . " I shouldhave calledfor the audit,” he now says.“ Instead , I thoughtI could put the lidon the trouble . My hope was thatI couldbuy time to ironitout.” One actionhe took was to dismissVictorZurmuhle, Mr. Kummerli's right hand man .The two had done so much tradingthatthey were referredto as the "Lee Brothers " incocoa-tradingcircles . (Mr. Zurmuhlesubsequently joinedAltco , a Lausannecompany thattraded cocoafutures withUCB ,a development thatledtospeculation aboutpossible col lusion . But Swissprosecutor CarlWunderlindeclares flatly : “Altcohas a clean 17 bill ofhealth " and addsthatMr.Zurmuhle's arrest stemsfromhispriorconnec tionswith UCB .) Anotherstephe took , saysMr. Erdman, was to "straddle " thecocoamarket to minimizelosses . Straddling means you buy or own one contract fordelivery ina certain monthand sell an equivalent amountinanother delivery month.The aim isto achieve a profit , or minimizerisk , by takingadvantage of particular strengths or weaknessesindifferent delivery months. But itdidn'twork . “ Every time we triedto get offthe straddleto pick up a little profit ,wham .We gothitagain ,” saysMr.Erdman. COCOA MARKET WAS SLIDING One reasonwhy the bank was havingso much difficulty isthatthe cocoa marketduring thatperiod was sliding erratically , And thebankhad madeits plungeat a time when cocoawas closeto the highestlevelitwould seefor some time . SinceNovember1969 , theaveragespotpriceof Ghana cocoahas plum metedfrom 48.57centsa pound, in New York, to29.74centsa poundin June. Itpickedup somewhattohit37.97centsa pound inAugustbefore itstarted to turndown again .Currently itisaround35cents . To compoundthe problem , UCB Baselhad anotherinvestment on whichit was losing .Late lastyear,AlfredKaltenbach , the bank'sportfolio manager, took a keeninterest inLeasing Consultants Inc. ,a Roslyn ,N.Y. ,companythatfinanced and leased airplanes ,industrial itemsand computerequipment .His interest had beenpiquedby a particularly glowinganalysis of thecompanyby a reputable Oslo , Norway, analyst . UCB plungedheavily intoLeasingConsultants letter stockwhen “theprice was around$12 to$13 a share ," saysMr.Erdman. For a whilethatmove was golden . The stockclimbedto as high as $28 a share on the over-the-countermarket. And Mr. Kaltenbachwas so convinceditwould go evenhigherthathe circulated a letter on the bank'sstationery urgingall portfolio holders togetinontheaction .Nineofthemdid. Then thatbubbleburst . On Feb. 2, 1970, LeasingConsultantsreportedthatits 1969earnings were overstated by $2 million .The stockplungedtoaround$7 a share , heldtherefora while , and thenplungedagain .On Aug.19,thecompany filed a voluntary petition forprotection under Chapter 11oftheBankruptcy Act. Last week, the stocktradedat 3712 centsa share bid, 871/2 centsa shareasked. UCB Los Angeleswas so distressed by the turn of events , especially sincethe stock had been recommended to customerson itssubsidiary's stationery , that itvotedto reimburseitscustomers ' losses . “ Thiswas the first time anybody had everreimbursedme fora bum trade," says one startled customerof the bank. The Leasing Consultant's bust showed up as a $2 millionlosson the Basel subsidiary's books .That's a lotofredinkbutnothing comparedwiththegallons thatwere carefully beingmasked. On paper , the1969annualreport showeda small profiton the margin account. Mr. Erdman claims that "anybody who studied thatreport veryclosely wouldhaverealized thatsomething was wrong.” SWISS SPOT DISCREPANCY Somebodydid. Swissbank examiners who went overthereport inearlyJune noteda discrepancy inthebank's balance sheet involving themarginaccount . Followingtheirusual practicein such casesthey sent Mr. Erdman a note of inquiry . The note was in German , the businesslanguageof thiscity .Mr. Erdman , translated thatnote intoEnglish . But insteadof translating “margin accounts " he made itread“foreign deposits ” and sentittothehome office inLos Angeles . “ Thiswas a criminalact," Mr. Erdman concedes . He didthis ,Mr. Erdman says ,toagainwin timetostraighten outaffairs .It did,but to no avail . On about July 10, “ Bam . We got hitforabout $7 millionin losses ,justlikethat,” he says. That's when PaulErdman packedup hiswifeand two daughters and wenton a vacation to Marbella , Spain . And thatiswhere, whilestaying at theHilton Hotel ,"Irealized that my hopes ofstraightening things outweregone . " On Aug.7,heflew backtoBasel ,still casting about forsomesolution .Finally , towardtheend ofAugust ,he placeda telephone call totheLos Angeles office to report thebank had a verysubstantial loss ,probably intheorderof$15million to $20 million . The first reaction he gotwas a lulu .When Mr.Erdman arrived inLos Angeles on Aug.29 tocheckin at theCenturyPlazaHotelhe was met by NeilMoore, senior vicepresident ofUCB .“Don'tgiveme thedetails ,” Mr.Erdman recollects 18 Mr. Mooresaying ."Justgiveme theexactamountofthelossright down tothe penny.” FrankL.King ischairmanofWesternBan -corp .,parentofUnitedCalifornia Bank . He alsois chairman of UCB Los Angeles and UCB Basel. He had been instrumental in UCB buyingthe Baselbank and, according to Mr. Erdman's wife,regardedPaul Erdman almostas a son. On SundayAugust30, he headedthegroupof UCB executives who saw Mr. Erdman. Here,theatmosphere was surprisingly cordial and itwas atthismeet ing thatthe remark about winning some and losingsome was made , Mr. Erdman recalls . The paramountconcern appearedtobe inkeeping everything secret for fearofa run on thebank. But from thatpointon thingsbecameincreasingly cooler . On Sept.2, Mr. Erdman returned to BaselalongwithMr. Mooreand an attorney forthebank. "Neithersaidverymuch tous on the way acrossthe Atlantic ,” saysMrs. Erdman , who accompanied herhusband . The nextday outside auditors already were at work on thebank'sbooksby the time a conferenceof allthe bank'sofficers began in the livingroom of the Erdman home . There, Mr. Erdman toldthem of the meeting in Los Angelesand thenswung tofaceMr. Kummerli . "We want thetruth . How much isinvolved ? Don'tlieto me any more,” Mr. Erdman demanded,according toHelly ,who had insisted on staying fortheshow down."Was itfifteen million ?Twentymillion ?Ifyou sayitistwenty ,canwe be sure itwon't be more ?" Says Mrs.Erdman :" Therewas no answer." But the auditorsof the bank'sbooks were finding some answers,and the extent of thelosses appeared tooutstrip the$20million mark everyone keptusing . Mr. King was notified , and he immediately setoutforBasel .He landedinLondon Sept. 3, telephoned Mr. Erdman ,andsuggested that a meeting oftheboardof UCB Baselbe setforSunday , Sept.6, in Basel . AlthoughUCB istheparent because ofits58% ownership italsohad thetaskofinforming minority holders . One ofthelargest inthisgroup ,with17.5 % ofthestock ,isa highly respected Norwegiangroupheadedby EinarFalck ,managingdirector ofVestaofBergen , Norway'ssecond-largest insurancecompany. Mr. Erdman owns between 3 % and 4% of the Basel bank's stock, and the remainder is widely scatteredamong officers and big customers of the bank. Charles Salik ,a California financier who in1965raised thebank's initial money and whose name was on the bank, was bought out by UCB and no longerowns any stock init. The board thatwas to gatherat 3 p.m.Sept.6 included Mr. King and VictorR. Rose, of UCB Los Angeles , Aurthur Schweitzer , retired general manager of Swiss Bank Corp. , Basel, and an uncle of Beat Schweitzer , the U'CBBaselbank's accountant .OtherswereH. Steiger ,operator ofa Swissprint ingplant , R. Rieder , an executive of the Swisscompany of Handels -Treuhand A.G. , Alfred Hopf, a Baselfinancier , Mr.FalckofBergen , and Basel attorney Peter Boeckli. Mr. Rose and Mr. Steiger couldn't attendthe meeting . And Mr. Erdman didn't staylong . Shortly after itstarted he was toldhisresignation wasaccepted , and he was asked to leave the room . The precise details of thatmeetingare known onlyto thosewho attended and a handfulof others . But one of theirfirst actionswas to send a delegation of ('CB Los Angeles officials to Bern. There, they had the task of explaining the situation to the Swiss Banking Commission. On themorningofThursday , Sept.10,Mr. Erdinanwas arrested . Soonafter ward , sixof his top executives alsowent to jail , also on suspicion of fraud and falsifying accounts . So far, official chargeshave notbeenreleased by theBaselcourt . But then , itisn't underany pressure to hurry . In Switzerland , suspects may be heldin jail on suspicion forthreeweeks,withthethree -week periods beingcontinually renewedifadditional investigation seemswarranted .Currently ,Swissauthorities areinvestigating alltrades madeby thebankandthat's going totakea while . Senato r ProxMRE. Now Weste orpor rn Banc ationis theappar ent paren tcorpora ? tion . Mr. BUCHER.That'sright bankholding thesize ofthis PROXMIRE Senator .Can youdescribe numberof ,thetotal of banksitowns ,thetotal number company in? itoperates control ,numberofStates banksunderits 19 Mr.BUCHER .Someofthese are goingtobeestimates ,Senator .The deposits range ,Ibelieve ,areinthe$12billion . Senator PROXMIRE .$12billion ? Mr. BUCHER . Yes. SenatorPROXMIRE. Yes,sir . companyinthe bankholding Mr.BUCHER .Thatisnotthelargest ,I mightadd. country Senat orPROXMI RE.Butitisthelar gest multi bankholdin gcompany . Mr.BUCHER.Bank ofAmericaislarger .Western hassome23banks and I wouldguess some650banking offices . Senator PROXMIRE . BankofAmerica isnota multibank holding company . Youoperate ina numberofStates ? Mr.BUCHER. In11States ,thatisright . Senator PROXMIRE .ThisWestern Bancorporation isoneofthefew bankholding companies tooperate across State lines . Do you seeanyproblems ininterstate bankingonthepartofbank holding companies ? Mr.Bucher .Notperse.I am a great believer incompetition andI believe intheantitrust laws .I think oneofthesignificant tests should bethecompetitive factor .Therefore ,I don't wanttosaycategorically that I think crossing State lines isbad. Senator PROXMIRE . Well,then ,do youthinkthinkthatother bank holding companies should begiventhesameprivilege being enjoyed by theWesternBancorporation withrespect tointerstate banking ? Mr.BUCHER .I think youhavetolookatthefacts ofeachcase , Senator. Senator PROXMIRE .Whatdoes that mean?What criteria wouldyou provide ? Mr. BUCHER .I think youwouldhavetolookatthefacts ofthe casethatwouldbepresented and I think itwouldvarydepending uponthecircumstances .I think thecompetitive factor wouldbevery important . Senator PROXMIRE .There isa prohibition inthelawasI under standit ,now,against interstate banking by multibank holding com panies .Wouldyoufavor lifting that prohibition ? Mr.BUCHER .No,I wouldn't without certainly considering allthe involved factors . I am notawareof allthefactors thatmightbe presented . Senat orPROXMI RE.What nonb ankin g activit iesare perfor medby Western Bancorpor ation ? Mr.BUCHER .How wouldyoudefine nonbanking ,Senator ? SenatorPROXMIRE . Well, thosethatdidn't haveto do withthe direct functions ofborrowing andlending andsoforth . operation ,anykindofmanu inanykindofservice Isitengaged ofthis kind ? ofoperation ,anykind operation facturing Mr. BUCHER.Of course ,bankingisa service business . Senat orPROXMIR E.Thatisright . Thatisa goodpoin t.I amtalking aboutanykind ofnonborrowi service ngorlending . Mr. BUCHER. Of cours e ,thetrus t activity isaa nonlendi ng func tion , counsel asis our invest ment ingse rvice . We prov idepayro llse rvice s, whic h asyouknow,isa servic uniform eprovide d quite lythr ougho ut theban kingbusi . ness ? Senator ProXMIRE.Computerservices 20 Mr. BUCHER .Pardon? Senator ProxMIRE .Computer services ? Mr.BUCHER .We donotprovide computer services assuch through an affiliate assomebanks do.Certainly a partofthepayroll service isoffering computer time . SenatorPROXMIRE.How aboutinsurance ? Mr.BUCHER .No,sir ;we dohavemortgage banking divisions which arenotseparate companies . They arepartofoneofthebanks .That hasbeen that way for sometime . Senator PROXMIRE . DoesWesternBancorporation haveplans for engaging infuture nonbanking activities ? Mr. BUCHER.Not thatI am aware of. Senator PROXMIRE . Inviewof yourassociation withthenation's largest multibank holding company ,howdoyoufeel about thekind ofconflict ofinterest which Ihaveraised here ?Do youthink that you conflict wouldhavea serious ofinterest inregulating bankholding companies ? Hereiswhat I am getting at.On theonehand ,thebankholding company might beeager toexpand into a nonbanking activity . On theother hand,thefirms already inthatbusiness mightpetition theBoardtoprevent thebankholding company fromexpanding into theirbusiness . Underthese circumstances ,how could you,asonewho hasbeenso closely identified ,how canyourender an impartial judgment which wouldbefair tobothparties inviewofyourclose association with thelargest multibank holding company inthecountry ? Mr.BUCHER .Thebest answer Icangive youis thatI am notgoing ontheboard inanyregard asa representative ofbanking ,bankers ,or bankholding companies . I havea verystrong feeling aboutmy at titude withregard tothis typeofsituation should I beconfirmed and become a member of theboard. Ifeel my background inbanking — incidentally ,ithasbeen quite a bitbroader than trust ,work— that isonlythemostrecent position I haveheld .I feel my background canbe Senator PROXMIRE .Go ahead ,andexpand onthat . Mr. BUCHER . I was with the bank's law divisionfor a number of years .Thiswasprior to1967 ,and, inthat capacity , I wasinvolved in various functions asthebank's representative innegotiating loan agreements ,working withthecommercial department ,theinstallment credit department , therealestate loandepartment , in almostevery activity theywereinvolved withbecause there arelegal aspects toall of these. Iwas also secretary -treasurer ofthebankand, inthiscapacity ,I worked withloancommittees .I feel I havevery soundgrounding in bankingfromallaspects . I don't claimtobe allknowing , Senator , butI thinkI haveaverygoodfeel forallaspects ofthecommercial bank. I was saying thatI am notgoingtobe representative of banking orbankholding companies .I canassure youthat ,now.My voting record , ifI am confirmed ,I know willbeproofofthattoeveryone . I hopetoyou. I think thebest thing todoistell youthat iswhatmy attitude is . Withregard 21 position ,asI am sure here PROXMIRE Senator .We areina difficult . youcanappreciate Youobviously haveimpressed members ofthecommittee .Youhave privately hadachance totalk withthem ,manyofthem . Yougoon allwe canjudge isonthebasis ofwhatyouhavedone .Thisisour only crack atyour 14-year service ontheBoard .Youdon't come back in2,4 ,6 yearsforconfirmation . You areon for1+ years . Most ofuswill beinthegrave bythen .Ifnotinthegrave ,atleast inthepo li tical grave. Thisistheonlychance we havetodetermine policies oftheBoard forthenext14yearsasfarasyouareconcerned . So whileyou can give us this kindofassurance ,we havetomakea judgment based on whatyouhavedonesofar . Mr. BUCHER. I under standthat. I am veryplea sedtoanswe r any quest you haveaslongasyouwis ions h. Senator ProxMIRE . In 1933 Congress passed theGlass -Steagall Act, whichseparated commercial banking frominvestment banking , one oftheprincipal reasons ,asyouwell know,wasduetotheinherent con flict ofinterests between a bank's investment bankingactivities and its commercial banking activities . ,many banks shows debacle of theearlythirties As thefinancial . stocksand bonds to theircustomers soldworthless Now,I would like toaskyouthis :Asamatter ofgeneral philosophy , do yousupport thestrict separation ofcommercial banking andinvest mentbanking? Mr. BUCHER.Yes,I do. Senator PROXMIRE . One of themostsignificant issues to facethe bankingindustry and theFederal Reserve Boardoverthenext10 yearsiswhethera similar conflict of interest exists betweena bank's trust department andits commercial lending activities . Forexample , ifa bankhasasubstantial equity intrust accounts andthecompany wereintrouble , itmightbe tempted torescue it through thecommercial loan department ,orthereverse might betrue . Thistrust department mightinvest ina company's stock inorder toshore up theshakyloan madeby its trust department . Do youthink there is aconflict ordanger incombining these twofunctions ? Mr.BUCHER . I think those twofunctions mustremain separate .I think there isnoquestion about that .I think inmostfinancial institu tions ,wheretheyarea partofthesamecorporate structure , theyare infact ,asapractical matter ,separate .Thathasbeen true intheorgani zationsinCalifornia . Senator PROXMIRE .Thatisreassuring tomakethatassertion ,butas Isay,there istheconflict .Afterall ,you havecommonownership . Theyareseparate onlyinthesense youhaveseparate departments and separate people . Theyareunderthesamemanagement andhavethesameincentive toprevent loss and increase profits aslongasyoupermit this operation . There isaconstant tendency for conflicts todevelop : Mr.BUCHER . I wouldagree there arepotential conflicts andthat iswhy I thinkitissoimportant theybeseparated .I don't feel ,how ever ,that corporate separation isnecessarily absolutely important for this purpose .I think aslong astheoperations arerunseparately , as 78-312--72 4 22 longastheofficers whoareresponsible understand thepotential con flict ,anddotake every step toavoid it ,which Idobelieve is afact ,then I am not concerned. Senator PROXMIRE . Butasa matter offact ,theonlywayCongress canassure this istohavethekindofsurgical operation that theGlass Steagall Actrepresented withrespect tocommercial anddevelopment banking . A clear separation . Senator BENNETT .WilltheSenator now offer a bill toforbid banks departments tohavetrust ? Senator PROXMIRE . I am trying to getthethinking of thefuture memberof theFederal Reserve Boardwho will havea great dealto sayabout this .I wanttoseeifthere issomeother waywe cando it . Imay verywelldothat . Senator BENNETT .You putitclearly andstate youfeel there must separation beasurgical . Senator PROXMIRE .II object tothat .When Iaska question ,itdoesn't mean I esp ousetheimplica tionof thatquestio n. I am trying to dra w SenatorBENNETT .Who elsedoes? Senator PROXMIRE . Iam trying todrawthenominee outtofind out how he feelsabout it. SenatorBROCK. He hasanswered . SenatorPROXMIRE. You fellowsdo thison your own time. I am happytoyield toyou.Ifhewants toanswer --if my timeisup— I will comeback. The CHAIRMAN .Letme at this point puta little levity into this matter .The BankingActof1933 ,theGlass-Steagall Act Senat orPROXMIRE.Ibegyour pardon . The CHAIRMAN.I wanttomake tha t correc tionout ofrespe cttoMr. Steaga ll SenatorPROXMIRE.Ifthechairmanwouldyield The CHAIRMAN .He was a friendfrom. Alabama Senator ProxMIRE . Thisisthefirst timeina longtimethat I have beenaccused ofhavingtoolittle gall . Senator BROCK.Probably thelast , Senator PROXMIRE .Thanks . Senator BENNETT . I wouldprefer to havethe Senatorfinish his questions . The CHAIRMAX.That's allright . I instructed MissChase ,thechief clerk ,nottocall time. SenatorPROXMIRE.I will beanother few minutes . Letme takea specific example . The trust department of yourbank underyourmanagement ownednearly 5,000 shares inLockheed . At thesametime thebank's loan department loaned Lockheed $21million undertheGovernment guarantee agreement . Do youthinka decision ofyourbanktotake partintheLockheed loan wasinfluenced bythe fact thatyour trust department hassucha sizeable equity interest in thecompany? Mr. BUCHER. No ,Idonot. Senat or PROXMIRE.You don't? Mr. BUCHER. Were thoseshares thatyou refer toheldin discre tionary accounts ? Senator PROXMIRE .We received a questionnaire fromthebanklast yearanditdidn't indicate whether these werediscretionary ornot . 23 Mr. BUCHER. If itisthe ques tionn aireusuall y sentout, they do define whi ch it is .My ventu rewouldbetho searenondisc retio nary accou ,meani nts ngsomebo dyelse direc tedtheinve stmen t. SenatorPROXMIRE.Thatwould mean thatunderthosecircumstances thereisno conflict ofinterest ? Mr. BUCHER.I don'tbelieve therewouldhavebeena conflict ,because oftheway we separate thedepartments . Butmy feeling wouldbe, frommy knowledge ofourportfolios ,that those weredirected bya third party woullbeanaddedfactor ,which asfar asseparation goes . we have:Itseems ,hereisthedifficulty PROXMIRE .You see Senator a companylike into asmuch as$20million thatwhena bankgets need andurgently theysodesperately indicate , andthey Lockheed water , thenisn't headabove tokeeptheir inorder additional funds togo ahead , tobe membersoftheteamalthough a temptation there there ! isthere ,isn't ,a temptation isseparate department yourtrust Mr.BUCHER .People might speculate intheabstract that there could be sucha temptation . From thestandpoint of practical operation , certainly inUnited California Bank,that wouldnotbethecase . Senator BROCK.Was therea new issue of stock ? Was thisa new issue ofstock ,a recent issue Lockheed putout? SenatorPROXMIRE . Itwasn'tan issueof stock. Senator BROCK . Any purchase of stock by thetrust department wouldn't be fromLockheed providing themfunds .Theywouldn't be assisting Lockheed . Senator PROXMIRE .Well ,there was$121,4 million ofadditional loans . respect That's whatI wasasking .I don't think Ihadanyquestion with to what stockwere issued . Mr. BUCHER. My understanding wasyes , youwereindicating that thetrust department mightbe supplying capital . I thinkSenator Brock's question iswhether that wouldprovide capital .Of course ,the answeris no.Thestock wouldbepurchased onthemarket . Senator PROXMIRE . No.Itwastheother way around . TheCHAIRMAN . Iunderstood yourquestion tobedoyouthink that there mightbeaa conflict ofinterests between thetrust department and the bank, when the bank made thisadditional loan , becauseof the bank's ownership ofaninterest intheLockheed Company. Mr. BUCHIER . Thenyou aretalking theotherway. I understand whatyouaresaying .My answer wouldbethesame . ,and .We hadan interruption PROXMIRE . Letme getback Senator ofthe separation onthesurgical giveyourphilosophy youdidn't .I may ormay nottakeoneposition frombanking trust department is . ortheother .Iwanttoknowwhatyourposition Mr.BUCHER . IfI weretobe confirmed , I wouldbeserving ina capacity quite a bitdifferent thanIhavebefore .I havesaid thatI thought Ican makeuseof my knowledge ofthepractical operations ofcommercial banks .I havealso saidthat I haveno predetermined ideas with respect toanyaspect ofbankregulations ,thesubject which we arediscussing . My answer would havetobethat I- asa member oftheFederal Reserve Board— wouldask forall thefacts ,wouldsort thefacts .I havealready said toyouthat I believe incompetition .I believe laws aspect intheantitrust . I think this isanimportant .I would have to look at those factsand make a consideration . I don't 24 expression forme tomakea philosophical believe itwould be proper . subject point onthat atthis Senator PROXMIRE . As a formertrust official , how can we expect youtorender animpartial judgment ,should thematter that I refer to towithrespect toLockheed loans andyourformer bankcomebefore the Fed ? Mr.BUCHER . As farasanymatters relating tomy former associa tion ,my mentalattitude isasI havealready expressed . That is,that Iwouldhaveanopenmind.On matters directly related toUCB orto WesternBancorporation , however , because of whatotherpeople mightthink , I wouldventure thattheproper action forme totake wouldbe toabstain foratleast a couple ofyears on decisions that directly affect thosecompanies , and ifa Lockheedmatterdirectly affecting UCB weretoarise before theboardwithin thenexttwoyears , wouldbetheproper action Iwouldventure thatabstaining . Senator PROXMIRE . Why do you limit itto2 years ? If a Lock heedmatter should arise during 14years ofservice , why wouldn't ou abstain? Mr. BUCHER. The reason foritisnotwhatmy mentalattitude is . The reason foritwouldbewhatother people mightthink . I would be concerned aboutanyone having theimpression I wasinfluenced by my past . Senator PROXMIRE .Why shouldn't theyhaveit5 years fromnow? Mr.BUCHER . Itispurely anarbitrary choice . I can't promise you that my opinion won't change . ButI think there would be less ofa chance after I hadshown my impartiality inmy voting records onthe board fora couple ofyears . Therewouldbeless chance that anyone mightevensuspect that I wouldbeinfluenced by my previous job . Senator PROXMIRE . Let me shift gearsand getintoanother area concerning this committee ,andthat istheareaofhousing . Therewasan article intheWall Street Journal abouta disturbing meeting ofinternational economists atMontreal yesterday . Letme readthefirst paragraph ofit: “Prospects aredim forgetting chronic worldwide inflation under control ,judging fromthegloomy session oftheeconomists here .The economists presented a picture ofpersistent , almost unrelieved , up vardprice pressure , while unemployment remained stubbornly high . Theonly exception wastheUnited States ,“where Mr.Stein said ,“ The revival ofprice pressure intheUnited States isbecoming a source of 29 concern . My problem isthis .You havehada great deal ofexperience ,asI understand it ,in teaching housing lawandsoforth , andyouhave thought aboutthis matter .How dowe goabout this verydifficult prob lemoftrying toinsulate housing froma monetary restraint designed torestrain inflation ? Inthepast ,it's beena victim anda terrific vic timofmonetary restraints . Inthe1966–67 period ,housing starts went ciown belowa million because theyaresosensitive tohighinterest . What canyoutell usaboutthis asonewho hasbeenconcerned about housing andreplaces ,incidentally ,Governor Maisel ontheboard in thisarea. Mr.BUCHER .I share yourconcern about housing . I am verydis turbed about theeffect that tight moneyhashadon both housing and financing oflocal governments . 25 allyis ne hascome up withtheanswerthatunivers I don'tthinkanyo m iscon ution edasthefina l word asfarasthesol tothisproble accept lsthatI thinkshoul d be look ed at n proposa . There havebee cerned se.One of them istofind a way further , and I thinkmake a lotofsen s. dstochan nelcapital area fromother duringthesecredit crunchperio ent intheinv nt osalhasbeenmade foran adjustm estme The prop it, forinsta nce y fundsthatwould haveother wise taxcred , whereb d into talspen dingmightbeavail ableforhousin g to re flowe capi ure lieve thepress . Idon't purport toknowtheanswer.Iam notsure anybodydoes . eralRe rnors oftheFed gove RE.One ofthe other r PROXMI Senato s. Inother ement wordsifa d rese rverequir serveBoard hassuggeste ments verequire ingarea ,the l'eser s fundsinto thehous bank putsit would be eased. Mr.BUCHER.I am awareofthat suggestion . Senator PROXMIRE .How doyoufeel about that approach ? Mr.BUCHIER .I know itas a theory .I havenothad an opportunity tostudyitindepth . I thinkitwouldbe wise forme tomake an answerspecifically . Senator PROXMIRE . How about theproposal thatsomeofushave beenurging verystrongly ,infact itpassed this committee ,ofpermit > tingtheFederal Reserve Board tohave thediscretion underthese circumstances ,notonly toinvest inGovernment securities ,butinhous ingobligations ? Mr. BUCHER. Well,ofcourse ,now theyhaveauthority topurchase agencies ,whichhasan indirect effect . SenatorPROXMIRE . I am nottalking abouttheopenmarket . I am talking aboutdirect purchase . Mr. BUCHER. Thisissomething thatIwouldagainhavetosaythat I wouldhavetolearn moreaboutbefore I wouldbecomedirectly involved . Senator PROXMIRE . I wouldhopethisisan areawhereyou would beable tocomeontheboard witha fresh , vigorous viewpoint .This areaissoimportant ,whereyouhavehad someexperience . Mr.BUCHER .Senator ,Iam fromCalifornia .California is a gigantic bousing market . I haveseenfirst hand theeffects of credit crunch on housing and on people . Believe me, I wouldbe veryinterested in thisarea. Senator PROXMIRE .Formonths we havebeenwaiting for theFed cral Reserve Boardhousing study . Ithasnow arrived ,anditincludes fewrecommendations foraction theFederal Reserve Boardcantake , theBoardlargely limits itself towhat otheragencies cando.What important steps tohelpusmeetyourhousing goals canthereserve systemtake! Mr.BUCHER .I think we havecovered this tosomeextent ina prior question .I knowtheFederal Reserve Boardhasconcern ,and Ishare that concern about engaging inprojects which would haveanadverse a effect onmonetary policy . Thisiswhy it becomes a difficult question . Itisthebalancing oftherole asthemonetary policymaker ,ineffect ' , withother responsibilities ,andI knowthat iswhatconcerns theFed. I knowtheyareconcerned also about housing , verydeeply so,and point Iam afraid Icannot sayatthis that Iknowtheanswer . 26 l lem withthisisthat our centra orPROXMIRE Senat .You seetheprob teve rymajor s tobeal l alone intheworld . Almos banktheFed seem t ng sys tem in theworld, excepttheFed, canand doesassis banki tingtheadversein terac s as a means of coun ng on othersector housi inues l Rese rveSystemcont to eoftig htmoney. ButtheFedera fluenc , ,isthatyouwouldhave tostudythis e that. Yourview , Itakeit oppos lysin ceyou comefrom m, especial gnize itasa proble tyour reco tha us , and an enormo a whereyouhavea bighousingneed forni Cali dviews. thave any settle tyou don' ingmarket,buttha hous Mr.BUCHER . Idonothaveanysettled views atthis point . Senator PROXMIRE . I haveoneother question ,andthenI will yield . TheCHAIRMAN.Letustalk off therecord ,please . (Discussion off therecord .) SenatorPROXMIRE. My finalquestions are theseand I willask themtogether andyou canmakeoneresponse . The 1970amendments totheBankHolding Actengendered much controversy .The Board isrequired tomake decisions and setlimits on bankholding companies andsubsidiaries . First , Iwanttoknowdoyouhaveanyviews onthesteps theBoard hastakento implement theseamendments ? Secondly , istheBoard goingtoofast or tooslowinauthorizing permissable activities , and finally hastheBoardbeentorestrictive ortooliberal intheactivities theBoardhaspermitted ? Mr.BUCHER . Ithink togive aproper answer tothat ,I wouldhave todo morethanI havedonetothis point and thatistoreadexcerpts fromarticles infinancial newspapers withregard torulings fromtime totime .I wouldwanttohavewellthough outanswers withrespect toyourquestions . I really don'tfeel thatI haveenoughbackground knowledge norenough information on thespecifics -although I cer tainly understand generally the provisions oftheact .Ithink itwould beunwise for me togiveaspecific answer toyourquestion inviewof thefact that I really don't havethebackground onthecases that you are referringto. Senator PROXMIRE . Letme follow up by asking whether ornotyou support theHuntCommittee recommendations that regulation Q be gradually phased out? Mr. BUCHER .I wouldhavetostudythat further .TheHuntCom mission report hasmany,many recommendations . Youarespeaking oftherecommendations withregard toregulation Q applying toall intermediaries ,isthat thepoint youaremaking ? SenatorPROXMIRE.That iscorrect . Mr. BUCHER .I thinkI would have to Senator PROXMIRE .Commercial banksand savings and loans . Mr.BUCHER . I wanttoanswer yourquestions ,butIam concerned aboutanswering whereI haven't seenthebackground material , the specifics and thearguments on bothsides . I think thatshould be deferred . Senat orPROXMIRE. Thankyou. The('ILAIRMAN .Withreference tothese last questions that Senator Proxmire hasasked , I wouldliketosaythatI thinkthatthisisa matter ofimportance .I wasabout tosayofreal concern butI don't wanttobeconstrued asnecessarily criticizing anything that hasbeen done . Butthelanguage intheBankHolding CompanyActsaid that 27 anyactivity thata bankcould undertake wouldhavetobe closely related tobanking . I havenoparticular objection toanyruling --any decision made-butIthink somepeople arebeginning towonder if theGovernors oftheFederal Reserve Boardaregiving sufficient atten tion tothewording :"closely related tobanking ."I dohopethat when yougoontheBoard ,careful attention will begiven tothat language because itwasourintention andthis ,I think ,wasagreed tobothby theHouseandby theSenate —that anyactivity other thanbanking , thata onebankholding company mightengage in,wouldhavetobe related "closely tobanking ." Theword"directly ” wasconsidered atonetimeduring ourdelibera tions ofholding company legislation .We hadgreat difficulty inarriv ingatthefinal language . What we were trying todo wastolaydown general guidelines butleave ituptotheFederal Reserve Boardtoact oneach individual case within those guidelines . I hopethat theywill giveveryclose attention tothat language andbecareful intrying to carryitout. Thereisoneother thingI wanttosay .The subject ofregulation Q hasbeen brought up.I am aware oftheHuntCommission treatment of that matter .Thereisprobably a feeling by a goodmanypeople that regulation Q hasprobably spentits force andoughttobedispensed with asfarassavings andloan associations andbanks areconcerned . I don't feel that way.I feel that regulation Q ismosthelpful andcer tainly could bein thecase oftight moneypolicies . I hopeitwill not bedoneawaywith . I don't knowwhether inorder toeliminate theregulation ,itwould require legislation .Idon't believe itwould .Ithink theFederal Reserve Board couldacton it . Senator PROXMIRE .Ithink itcould .Itisa regulation . The CHAIRMAN. But I hopetheydon't acton itbecause asSenator Proxmire pointed out ,housing took a terrible beating in1966 and1967 inthemoneycrunch andtheysuffered again in1969 and 1970. Home building always suffers whena tight moneypolicy isinvoked . We haveworkedinthis committ eeand intheCongre ssintrying to broad enthehomemortgage marke t asmuchaspossi .I thin ble kwe havedoneaprett ygood jobindoi ngthat .Iwouldhate tosee anythi ng happentha twouldnarr owthatmarket.When themarket isnar rowed , itmeansagre atmany peopl ecan notbuyhomesbecaus ethemortga ges canno tbedispose d ofadvanta geous ly.Ithin kitisveryimpo that rtant tho sething sbe doneand Ithi nkit isveryimp ortan t tha t housin g be keptinmind becau sehousin galwayssuffer sthemost. Ibelieve itwasGovernor Maisel whopointed outthat although the amount ofhousing within thegross national product wasonlya very small a Senato percent r PROXMIRE.Thre e andahalf . The CHAIRMAN. Thre e anda hal f percent , thatittook70percen t of the impact Senator PROXMIRE .Thatisright . The CHAIRMAN . Of that 1966-67 crunch. It wasn'tthat bad, I am quite sure ,during 1969-70 .And this goesbackmanyyears because I used to argue with Marriner Eccles he ofthe Board that not enough attention waswhen given towas theChairman peculiar position that housing occupies whenwe go into a tight moneysituation .I do 28 hope that that canbekept inmindandifother things are necessary , that they canbeworkedouttorelieve that situation . Iwanttoputin that wordbecause I think itismostimportant toemphasize that the Federal Reserve Boarddoes haveanimportant part toplayinit . Senator BENNETT .I wouldlike toyield toSenator Brock . TheCHAIRMAX .Senator Brock ,do youhavequestions ? Senator BROCK . Thankyou .Ihave-perhaps itwouldclarify ita little bitonthis bankholding companymatter ifI could askyoua couple ofbroad questions .Doyouagree withourintent inpassing the holding company actoftrying toavoid conflict ofinterest byexpan sion ofbankactivities into nonbank areas ? Mr. BUCHER.Yes,I do. Senator BROCK. Do youthinkthatthelaw aspassed was adequate toachieve thatobjective ? Mr. BUCHER. I thinkwe haveto work withitand I thinkyou shouldn't sayin any instance thatitshouldremainthe same, if experience indicates there areimprovements that canbemade. SenatorBROCK.I thinkwe dohave Mr.BUCHER.Generally ,I favor thelaw. Senator BROCK .Thepoint raised bySenator Proxmire withregard tocentral bankpurchase ofhousing paper ,you referred toEuropean central banks .Central banksinEuropearenotindependent ofthe political bodyofthe country . We havedeliberately established the independence of Federal Reserve witha particular reason inmind, that beingtohavethemonetary system setaside assomething almost sacrosanct ,toallowtheauthorities incontrol ofthatparticular ele ment of theeconomyto provide formaximum sustainable economic growth , fullemployment without inflation . Thereisinmy mind an enormously valid justification forthat independence ,wouldyounot agree? Mr. BUCHER.I agree withthat . Senator BROCK. The question thenarises as to whetherornotif weforce youtoinvolve yourself inthepurchase ofhousing securities , andI personally hopeverymuch that youwill notdo so,we arein danger ofmakingthis moreofa social purpose agency thana mon etary agency . We thenopenPandora's box , because if youwere appearing before theeducation committee theywouldtell youtobuy school bonds . Anyother committee oftheCongress wouldwantyou tosupport its particular areaofinterest .I thinkyouwouldlose that veryimportant quality of concentration on yourfundamental pur poseofmaintaining an adequate money supply andencouraging max imumgrowth andfull employment . I won'taskyoutocomment . Youhavealready doneso.But I feel verystrongly on thematter . Oneother thing that theSenator from Wisconsin raised ,theimpli cation thatyouwouldbe a pawnof Arthur Burns . Now I havea greatregard , as he does , for ArthurBurns , but perhapsyou can assure us astotheindependence ofthought thatyoumightbring to the board. Mr.BUCHER. I sharewitho ut any reserv ation yourfeeli ngabout ArthurBurns .It seem s to be auni versal feelin g. Thatpleases me ver y much,and workingwit h him issometh ingIlookforwardto wit h a greatdea l of antici patio n and happines s. I am reall y very 29 pleased about it .Iassure you,however , thatI will bemy own man andthat isunderall circumstances inevery situation . I mightcommentinthatregard thata comparable question was askedof GovernorSheehanathisconfirmation hearing .I can't cite case ,number ,andpage ,butI knowthat Governor Sheehan hasvoted on the othersidefrom Chairman Burns in at leastone instance .I know hismentalattitude ,and thatishe will continue wherehe feels appropriate ina situation todothat .I will do thesame . Senator BROCK .Thatisgood .And Iappreciate it . I am sure youarefamiliar withsection 10oftheFederal Reserve Actbutperhaps fortherecord maybeIoughttoreadoneparticular phrase here which saysthePresident shall havedueregard toa repre sentation of thefinancial ,agricultural , industrial , andcommercial industries ofthecountry .Mr.Proxmire apparently wants only econ omists on theboard ,butI thinkitwouldbe verydifficult tohaveall economists andadhere tothelaw.He charges that youandthePresi dent are in collusion to violate the Constitution . I thinkthe law is veryclear here .Theintent oftheFederal Reserve Actwastorequire a balanced board .To bespecific ,whenyougo on theBoard ,itwill haveonelawyer ,pureandsimple ,onebanker -lawyer ,ifyouwill ,one businessman ,and foureconomists . Now,Ihappentothink isa pretty goodspread .I think theBoard ought tohavea diffusion ofinput toallow broad range perspective on thetotal problem . I happen tothoroughly disagree withtheSen ator from Wisconsinas tothe need foralleconomists . That would be a mistake. As aa matter offact ,I am somewhatsurprised . I thought he had a higher regard forGovernor Robertson . He wouldsurely notbea professional economist by definition . He isan attorney as I under stand it .I waswondering when I readtheCongressional Record of theSenator's statement whether ornothe hadbeenworking with WrightPatmanonthatparticular statement . onsoftheBoar d thatdo deal Butanyway,therearemanydecisi miclife ntryandI for cific ectsof econo inthis cou withthe spe asp calinputon tha t Board,not just one thinkwe needsome practi tical theore . I wouldlike toconclude by saying I am absolutely delighted that thePresident has seenfit toappoint youandI think heismaking quitea contribution tothe Boardjustby thenature of yourback ground .I think youwill beanasset totheBoard. I think Mr.Proxmire may begiving youunusual credit .He seems dominate tothink youwill thatBoardassoonasyougoon.You may . doso.Youwould bequite . aguyifyoudid I congratulate youon giving us anexcellent statement today .I support yournomination . The CHAIRMAN . Thatwouldbedisregarding therule ofseniority . Senator BROCK .Thatismy pitch ,notyours . [Laughter .] TheCHAIRMAN .Senator Bennett ,doyouhaveanyfurther questions ? Senator BENNETT .I think mostof thequestions I have ,havebeen presented .I wasa little sorry toseeSenator Proxmire raise theques tion ofyourbackground asanattorney .I wassaving that . Itseems tomethatitis nota badidea tohave an attorney onthe Boardwho also hasbanking experience , rather thana man whose practice hasnotbeensobroad . 30 togo backand getfurther . Itisa temptation I made a lotof notes ,butI thinkthat withtheSenatorfromWisconsin intothedebate . would betimewasted I would just like tosaytoyou ,asIdidwhenImetyoufor the first timeinmy office ,thatIam impressed withyourbackground and,of course ,will beveryhappytovote foryourconfirmation ,andI sayto you,Ienvyyou.At yourage ,with14years ofopportunity tobeatthe center of financial problems ofthecountry andtheworld . I am sure youwill beable tomeasure uptothat responsibility . Mr. BUCHER.Thank you,Senator , Senator PROXMIRE . CouldI makeoneclosing observation ,rather combine briefly aseries ,very . butexperts tocomewhenwe havenothing I thinktheday isgoing and I am alive Board . Itmay notbewhile Reserve ontheFederal .I andsotechnical .ThatBoardissoimportant whileyouarealive ,theyarebank bankers who are would hopewhereyouhavepeople that areagriculture section fromtheagriculture ; people economists . ontheBoard kindofexpertise we look forthat ;that economists whenyou revise theoneinstance I wishyouwouldputintherecord yourremarks where Mr.Sheehan differed fromDr.Burns ,so we can have thatas a matterof record. (Thefollowing information wasreceived fromtheFederal Reserve Board:) INSTANCES IN WHICH GOVERNOR SHEEHAN AND CHAIRMAN VOTES ON SUPERVISORY MATTERS BURNS CAST OPPOSING CountyNational Bancorporation ,Clayton , Missouri --application forapproval under Sec. 3 (a ) (3 ) of the Bank Holding Company Act to acquirenot lessthan 90percent ofthevoting shares ofBigBend Bank,WebsterGroves ,Mo.Approved . Majority (forapproval ):Chairman Burns ,Governors Mitchell ,Daaneand Maisel . Minority(for denial ) : GovernorsRobertson , Brimmer, and Sheehan . March 9 ,1972. CrockerNational Corp. , San Francisco —applicationunderSec.4 (c)(8) ofthe Bank HoldingCompany Act to acquireallof thevotingsharesof Ralph C. SutroCo.,LosAngeles ,a mortgage banking firm .Denied . Majority (fordenial ) :ChairmanBurns,Governors Robertson ,Maiseland Brimmer . Minority(for approval): GovernorsMitchell , Daane , Sheehan. March 16, 1972. MarineBancorporation ,Seattle — application forapproval underSec .4(c)(8) Mortgage Company , Seattle . Approved , providing theapplicant terminates its oftheBankHolding Company Acttoretain allofthevoting shares ofCoast current landdevelopment activities . Majority(forapproval ) : ChairmanBurns, GovernorsMitchell , Daane, Maisel and Brimmer . Minority (fordenial ) : Governors Robertson and Sheehan .April17,1972 . Senator PROXMIRE .I wishthatMr.Brockwerestill here ,because there is nothing inthe Constitution ,butnothing ,tosay that theFed eral Reserve Boardshould bepolitically independent .Itisindepend entoftheExecutive ,butitisa direct agency anddependent ofthe Congress . Finally , againwithcomplete respect foryou,Mr.Bucher ,asa per son ,thefact isthat youdidnotreally givea single specific answer toanyoneofmy substantive questions . In virtually every case , you indicated thatyouwantedtostudyit ,youdon't havethefacts athand, 31 even though Iwasasking inareas like housing andmultibank holding companies , whereyoushould havewhatever competence youbring to the Board . Idon't meantoderogate yourability ,butIthink this wasestablished bytherecord morning this . Thankyou. Senator BENNETT .Mr. Chairman ,Iwouldlike togetbackinto — for justonecomment.I thinktoaskMr. Buchertotell usinadvancewhat heisgoing todo attheendof14years ,andthen inall ofthetimes inbetween withthebasic problems that comebefore him,islike asking a baseball player how many home runshe canguarantee innext season's games. I disagree withtheSenator thattheFederal Reserve Boardshould beall economists .Itisobvious that theFederal Reserve Boardisable tohire economists ,250ofthem,and maybeyou better havea non economist up there tojust kindofkeepthethingpractical . And onefinal commentaboutthis question ofindependence ofour central bank , whichtheSenator from Tennessee properly brought up:Ithink thekeyistheindependence oftheFederal Reserve Board fromtheTreasury . IftheTreasury wereable tousetheFedtosup portorassist inany social changedesired by theadministration in power ,ashasbeenthecase in mostcountries aroundtheworldwhere their central bankisan adjunct totheTreasury , I think we would problem havea much moreserious . I agreewiththeSenator fromWinconsin thatitwascreated tobe answerable totheCongress .To that extent ,itisnotcompletely inde pendent . But, thankheavenitisindependent oftheTreasury . The CHAIRMAN . Senator Bennett ,when you weretalking about homeruns ,I thought you said thequestion waswhether ornotmy fellow Alabamian ,Willie Mays,would beable tocatch upwith Babe 2 Ruth'srecordnow thathe iswith the Mets. Or I willthrow inanother competitor ,Hank AaronwiththeAtlanta Braves .I believe heisone behindWillie Mays. BENNETT .I seeyouhavebeendoinga goodjob. Senator SenatorPROXMIRE. You have the fans' votes . You know allthe answers . , Jesse Owens, ,I couldname JoeLouis The CHAIRMAN. Of course . Willie McCovey,anda goodmany others Senator PROXMIRE. Don Hudson ? The CHAIRMAN. Yes. Senator PROXMIRE .GreenBay Packers . The CHAIRMAN .ScottHunterisu p there now . SenatorBENNETT. Maybe we betterget an athleteon the Federal Reserve Board. The CHAIRMAN.I wanttogobacktojust two things : First , I thin k SenatorBrock broughtthisout.Of course ,ther e is nothin g inthe Consti relatin tution g tothisexcept thatthe Con stitut giv ion esCongr esstherig httolegi slate , andwe didle gislat e, or our forbear ,by passi s did ngtheFeder al Res erveAct. That actsaysthattheappo intme rdshould bebythe Pres ntstotheBoa i den t.And itfur ther saysthat thePreside ntshall havedueregardto a fair repr esent ofthefi ation nanci ,agri al cultu, indust, and rial ral com merci alinte andgeogra rests phica ldivision softhecount ry. 32 Now I havegreat respect foreconomists andIcertainly think that atalltimes there oughttobea goodrepresentation ofeconomists on theBoard,butIthinkthatthese other things areessential ,too . The second thingI wanttostate fortherecord isthatbothSenator Cranston andSenator Tunneyhaveapproved this nomination . s? hingfur ther Anyt from this witnes r. Tha nk youverymuch,Mr.Buche No w we willhear from Mr. Burkett. n offthe record (Discussio .) t. The CHAIRMAN.Allrigh a sta t? t,doyouhave a temen Mr.Burket STATEMENT OF WILLIAM A.BURKETT,FORMER SUPERINTENDENT OF BANKS , STATE OF CALIFORNIA; FORMER PRESIDENT, NA TIONAL ASSOCIATION OF SUPERVISORS OF STATE BANKS ; FOR MER DIRECTOR , DEPARTMENT OF EMPLOYMENT , STATE OF CALIFORNIA ,AND MEMBER OF THE CABINETOF GOV.GOODWIN J.KNIGHT ; FORMER CHAIRMAN , LIAISONCOMMITTEE WITH THE BOARD OF GOVERNORS , FEDERAL RESERVE SYSTEM , AND THE NATIONAL ASSOCIATIONOF SUPERVISORS OF STATE BANKS ; AND FORMER PRESIDENT AND CHAIRMAN OF THE BOARD ,SECU RITY NATIONAL BANK OF MONTEREY COUNTY , NOW RETIRED Mr.BURKETT .Yes,Mr.Chairman andmembers ofthecommittee , I respectfully submit thefollowing 14 reasons why I believe Mr. Buchershould notbeappointed . The CHAIRMAN. Justa minute. Mr. Burkett , forthebenefit of the record ,whileI stated atthebeginning thatyouwouldappear andthat you werea former supervisor ofState banks ;youarefrom California ? Mr. BURKETT . Yes . Senator PROXMIRE .I wouldlike topoint outthewitness hasa pre paredstatement whichhas hisqualifications on it . I thinkhehas nothanded itout .Perhaps iftheclerk could getitwe could all have copies ofit . I happentohavea copyhere . TheCHAIRMAN . I wasgoing tosuggest thattherecord showjust whatyourbackground is. Mr. BURKETT . I wasformer superintendent ofbanksintheState of California . Senator BENNETT.What year ,Mr. Burkett ? Mr. BURKETT.1956to1959. Iwasalso former director ofemployment oftheState ofCalifornia , priortothat , and I was a member ofGovernor Knight's Cabinet in California from1953to1959 ,serving sometimeunder Governor Brown . I wasalso president oftheNational Association ofSupervisors of StateBanksand was thechairman oftheliaison committee between theBoardofGovernors oftheFederal Reserve System andtheNa tional Association ofSupervisors ofState Banks,and I was likewise former president andchairman oftheboard oftheSecurity National BankofMonterey County ,Calif . 33 llydisabled Iam now retired ,physica . The CHAIRMAN.Thank youverymuch. I didn't realize that information wasa partofyourprinted state ment . I did want to have itin the record. Mr.BURKETT .The first reason isthatI believe thisgentleman is totally unqualified toserve asa memberoftheBoardofGovernors of theFederal Reserve System . He iswithout anyexperience whatsoever incommercial banking or dealing with theeconomic andmonetary problems ofourNation which arehandled bytheFederal Reserve System . A trust department officer isnottruly a banker .A man who does trust department workisasremovedfroma knowledge oftheNation's banking andfiscal problems asa horse doctor isfromtheskill required byaheart surgeon foropenheart surgery . The title "banker " or"doctor " issometimes deceiving . On theother hand,theBoardofGovernors oftheFederal Reserve System appears tobesorely inneed ofanappointee with wide banking experience anda knowledge oftheNation's fiscal problems . (2) As superintendent ofbanks ,State ofCalifornia ,itwasmy duty topass onthequalifications ofa candidate selected tobethepresident of a Statebank . Thisnominee would notqualify forappointment to thepresidency of eventhesmallest bank inCalifornia because of histotal lackof knowledge andexperience inbanking ,let alone anappointment tothe most powerfulbankingboard in theworld. There arehundreds ofoutstanding ,knowledgeable ,brilliantly quali fiedretired commercial bankersintheUnitedStates and inCalifornia andintheWest — with no axetogrind— who wouldbefarbetter quali fied thanMr.Bucher ,andwho thePresident could appoint ifhemade theslightest effort toseekthem out. There aremanyknowledgeable retired presidents andretired chair men oftheboardofbankswhowouldmakea majorcontribution to thisBoardof Governors ifaskedtoserveby thePresident of the United States . Theterm“retired banker ”ispurposely usedhere , forsuch an ap pointee wouldhaveless likelihood of"conflict ofinterest ”while per forming hisduties suchassitting withtheBoardofGovernors ,while ruling on bankholding companies , or ruling on bankandbranch applications where theproblems ofcompetitive banking arise . Certainly witha retired commercial bankerserving on theBoard, youwouldeliminate thepossibility offered by theambitious young appointee looking consciously , orunconsciously , tobetter himself in thefuture withoneoftheNation's 14,000 banks. As abanker andasa citizen ,I challenge thereasoning orthemotive back oftheappointment ofsuch apoorly qualified person forsuch a vitally important governmetal position . (3) A trust officer isthelast man inthefinancial field that should be appointed totheFederal Reserve Boardbecause theyarea par ticularly influence generally evil onbanking . Many bankers believe that thetrust departments ofcommercial banks arehelping todestroy theintegrity ofbanks because a trust depart mentobviously operates asa "conflict of interest ” within commercial banking. 34 (Someday , I predict ,we will haveFederal legislation forcing the separation ofcommercial banking fromtrust work.) For example , Mr.Bucher's UCB trust department musthavehad knowledge ofan $18million bad loanthatUCB made toLockheed . HisUCB madethis $18million "unsecured ” loandespite thefact that Lockheed wasfinancially insolvent . The honest fact isthatMr.Bucher's trust department atUCB held millions ofdollars inrich pension funds whichwereadministered for Lockheed . UCB apparently thought itcouldn't afford tolose sucha rich , profitmaking trust . Therefore , UCB gavespecial consideration toinsolvent Lockheed when itaskedfora loan. The commercialbankerwithinUCB was blinded by thetrust business thatLockheed had giventoUCB . (4) Itisno secret thatthereisnota single bankinCalifornia no large ,commercial bankin California — thatcanorwill makea large commercial loantoany corporation orbusiness ofanykindun less thatcorporation orbusiness will transfer their profit -sharing pen sions , trust matters , and corporate trusts tothelending bank's trust department . Therefore ,youcansee theevil influence that a trust officer atUCB , oranyother bank, wields inhaving suchpower to assist ,ornotto assist , a business inobtaining bank loans fromthecommercial side of the bank . (5) Mr.Bucher's trust department waslikewise negligent inallow inghisUCB banktoparticipate inloans toPennCentral Railroad . Certainly ,thecommercial bankers inUCB also knewthat ingranting further railroad loans tothisinsolvent thattheywereenhancing , or atleast protecting ,themany millions ofdollars ofPennCentral Rail roadstock and bonds whichMr.Bucher's trust department held inits thata ” typeofexperience ofinterest "conflict (6) Thisobvious needed orwanted ,nottheexperience ,inmy opinion officer hasis trust various private trusts andpension portfolios ,administered byUCB . . Reserve System oftheFederal ontheBoardofGovernors EverySenator whohasthepowertovote against this appointment should , Ibelieve ,demandthat ourGovernment ,ourpowerful Federal Reserve System ,should havea better qualified man. I doubtverymuch thatMr. Bucherhaseventheslightest knowl edgeoftheBoardofGovernors ’regulations ,let alone aknowledge of bankreserve requirements ; foreign currency operations ;financial flow markets Reserve operations and credit ; Federal bankexamination ; guidelines institutions forbanksand nonbankfinancial ;lending au thority of reserve banks ; revenue bond underwriting by member banks ; orpolicy actions oftheBoardofGovernors on goldreserve l'equirements ; international liquidity ;bankholding companies ; open markettransactions ; maximum permissible interest rates ; timede posits ;foreign deposits ; orbalance ofpayment andeconomic problems involved inourGovernment's monetary andfiscal problems . Allofthese areproblems whichpassoverthedesks ofmembersof theBoardofGovernors oftheFederal Reserve System fordiscussion and solution . WherewouldMr.Bucher's previous knowledge ofbanktrust busi nessbeofvaluehere? 35 I firmly believe that anyoneoftheChairmen ofthe12Federal Re serve banks ,orDeputyChairmen ofthe BoardofDirectors ofanyof these Reserve bankswouldbea farbetter 12Federal ,more knowl edgeable ,andmoreexperienced appointee by thePresident thanMr. Bucher. ofexperience lack qualifications andtotal verylimited Mr.Bucher's wouldwork Reserve matters , orofeconomics ofFederal orknowledge any are , morethan BoardofGovernors who severe hardship on the a of policies andeconomic forthemonetary ,solely responsible oneelse thisNation. (7) I further object totrust officer Bucher's appointment because healso served assecretary andtreasurer ofUCB where hesupervised someoftheinvestment activities ofUCB . IfMr.Buch erhel d the sepositio ully sugg nswithUCB ,I respectf est tha thebequesti astohowheescaped hisdutyasanoff oned ofthe icer bank whenUC B lo st$18 milli on froma 58-perc ent -ownedsubsidi ary whic h UCB operate , Swit d in Basel zerla nd, known asthe United Calif Bank inBasel ornia AG .This$18millio toUCB serio n loss usly refl onthemanagement andinve ects stmen ofUCB . tpolicies Themostgross kindofnegligence byUCB hasbeenuncovered .This may turnouttobe oneof theworstbank scandals sincethebank holi daysoftheearly 1930's .I understand ,however ,that Mr.Bucher has deniedanyinvolvement . (8) Mr. Bucherwishesto sitwith theBoard of Governors ,but I wouldlike toaskwhy theBoardofGovernors oftheFederal Reserve Systemevergavetheir official sanction toMr. FrankL.King, chair man oftheboardofUCB ,toallow UCB topayoffthis $40million loss? Did Mr. Bucher's bank informtheFederalReservethatMr. King was alsochairmanoftheboardofthisSwisssubsidiary and a member ofits executive committee atthetimeofthe$40million loss ? Was theFederal Reserve informed thatunderSwisslaw,thebank's > bankruptcy wouldmakeMr.Kingpersonally liable andresponsible forsomeofthe$40million loss ? (Theadditional $8 million Ìoss was UCB's investment .) Thequestion now iswhether ornotMr.Bucher should beappointed totheFederal Reserve System ata timewhenthis entire $48million loss isinlitigation intheFederal courts inCalifornia andan official investigation oftheactions ofall ofTCB'sofficers inconnection with these losses hasbeenrequested oftheHouseBanking Committee and theSenate BankingCommittee . Senator PROXMIRE . CouldI interrupt . Youskipped including Mr. Bucher. Mr. BURKETT.I haveaskedtheHouseBankingand theSenateBank ingCommittees toinvestigate allofficers 'involvement init .Itishard escapewhich one shouldknow or would not know . It shouldinclude Mr. Bucher . to Wouldn't itbebetter tohavethePresident appoint someone not inany way connected , evenremotely connected ,tothis scandalous UCB affair ,a bank withwhichMr. Bucherhasbeenassociated forthe pastseveral years! (9) IfMr Bucher,asanofficer ofUCB ,claims tohaveno knowledge ofthis $48million loss by UCB inSwitzerland ,andtheother millions 36 ofdollars ofpossible loss involved intheLockheed and Penn Central matters ,howdidheescape knowing about itwhenitwasknown even by bankersoutsideof UCB ? And canwe thenregard Mr.Bucherasqualified tositasa member ofthemostpowerful banking boardintheworld ? The Boardof Governors oftheFederal Reserve System haslife anddeath control overeverybankin theUnitedStates , whichtotal approximately 14,000 commercial banks , and 22,000 branches withcommercial de posits totaling over$500billion . hehasbeenthepro denythat Mr.Bucherwill (10) I donotbelieve ,FrankKing. banker andtrainee ofCalifornia tege Mr. King wearsthree hatswithUCB inCalifornia .He ischairman insolvent oftheboard oftheabove Swiss banksubsidiary ofUCB that lost last year $18million . Mr.Kingisalso chairman oftheboard ofUCB inLosAngeles where Mr.Bucherworks ;andMr.Kingisalso chairman oftheboardof Western Bancorporation ,theworld's largest bankholding corporation which , in turn ,ownsapproximately 98.6 percent ofUCB . IfMr. Bucherisasknowledgeable of bankingashe claims tobe, then why,during his career asanattorney ,anauditor ,andasanofficer ofUCB ,didn't heobject tosuchelementary bankfinancial statements distributed publicly bytheUCB ofBasel ,whichdisclosed under the “duefrombanks ”itemsome$7.5million which actually werenotin anyway "duefrombanks ,”butwere"duefrombrokerage houses ," something entirely different —anddangerously different . > The "due from banks” itemon a bank'sfinancial statement issuch elementary commercial bank terminology thatevenmost ordinary depositors understand theterm ,especially a former attorney ,auditor and officer of a a bank. As anofficer ,Mr.Bucher knew ,orcould haveknownby making the mostelementary inquiry , thatthis Swissbanksubsidiary of UCB wasoperating asa gambler's bankforcommodity trading .Mostofthe executives of UCB in Los Angeleshadknown thisfromthevery beginning ofthebank's existence ,yetMr.Bucherandhisfellow UCB officers allowed this illegal banking practice tocontinue until iteventu ally caused theinsolvency ofthe bankandthe$48million loss toUCB , whichisthelargest bankloss inthehistory ofSwiss banking . Suchgross negligence onthepartofofficers ofUCB isshocking . What assurance is there that Mr.Bucher's performance onbehalf of this Nation wouldbeanymoreresponsible thanhisdemonstrated rec ord atUCB ? (11) Mr.Bucherclaims tohaveknowledge and responsibilities inhandling hisbank's investments aswellasUCB leasing business . Ifthis istrue ,thenwhy didMr.Bucherallow UCB's58-percent -owned Swisssubsidiary inBasel topurchase theworstkindof "lettered > investment securities ,”meaning securities that are restricted andcan notbesoldintheopenmarket,whichlost UCB $1.25million ? Itiseither lack ofinitiative onMr.Bucher's partinnotfinding out whatwas going onatUCB ,ora studied effort tobeblinded during oneoftheworst banking scandals toface theNation indecades . (12) Mr. Bucherwasthepersonal appointee ofMr.FrankKing to thepositions he hasheldwithUCB .I am surethatMr. Bucherknows, asmostCalifornia bankers know,that Mr.Kinghasbeena verylarge 37 financial supporter toRichard Nixonthroughout Mr.Nixon's entire political career .Ifearthat Mr.Bucher's appointment will be inter preted as a political payoff andnotas an appointment basedon qualifications thatareneededonthis important Board . (13) Inconnection withMr.Bucher's appointment ,I havereason tobelieve that Mr.King,chairman oftheboard of UCB ,andmentor of Mr. Bucher,solicited the aid of Mr. C. ArnholtSmith, themost powerful Republican banker inCalifornia .Mr.Arnholt SmithofSan Diego admits tohaving raised hundreds ofthousands ofdollars for Mr.Nixon's political campaigns .Therearesomereports that hehas even raised asmuchasamillion dollars during hiscareer . Thequestion israised astowhether ornotitwasMr.Smith's hand thatengineered theBucherappointment from thePresident , with Mr. King beingthefirst toenlist Mr. Arnholt Smith's powerful support . ( 14 ) Finally ,another point against theBucher appointment isthat Mr.Arnholt Smithrecently purchased 94.5 percent oftheFidelity Bank of BeverlyHills , Calif ., andthisbank's purchaseand mer gerwillrequire theapproval of theBoardofGovernors of the Federal Reserve System .Lawsuits arenow beingprepared toprevent this merge .Mr.Arnholt Smithisconstantly seeking theappoval of theBoardofGovernors forbanks that hepurchases tomergeinto his U.S.National BankofSanDiego ,owned ,inturn ,byhisconglomerate , theWestgate -California Corp. The U.S.National has62branches and assets of$746million ,and Mr. Smith isthechairmanof theboardof theU.S.NationalBank. Inconclusion ,I wishtosaythat I firmly believe that selfish banking interests aretrying tofoist upontheAmerican public a man totally unqualified tosit asamemberoftheBoardofGovernors oftheFederal Reserve System forthenext14years ,andworse thanthat ,a man who could possibly besubjected toundueinfluence by hispowerful former employer ,theUCB bank ,ownedby theworld's largest bankholding company ,and possibly bythepowerful California bankers ,C.Arnholt Smith andFrank L.King :Will this gentleman betheproduct ofthe policies ofhisformer associates !Doeshereflect their type ofthinking ? What will happeninthefuture ifhe isfaced with“conflict of interest ?" er'snomina ject llvote tore Mr.Buch lyhopethatyouwi ctful Irespe d ntoftheUnite youwillinthisway askthePreside tionand that on. hpositi idate hig ified cand forthis itabetter qual tosubm States President Nixon's high sounding ,idealistic public promise tobring into Government “theveryhighest qualified andexperienced men” to serve their country should beputtothetest byyour committee .There aremanysuch menwhowouldbebetter qualified forthis appointment inevery way thanMr.Bucher . Certainly ,during these critical inflationary times ,with deterioration inU.S.foreign trade ,continued large deficits intheFederal budget , questionable economic activities ,restlessness and lackofconfidence of business ,labor andthepeople generally ,certainly this isnotime for thePresident toappoint totheFederal Reserve System someone less thanthebest qualified banker intheNation . Thank you. The CHAIRMAN.Thankyouverymuch,Mr.Burkett . 38 I shall askyoujust a few questions .I waslooking toseewhatwas given inyour little biographical sketch atthe beginning ofyourstate ment ,withreference toyour ownbanking experience . Mr. BURKETT .I waspresident and chairman oftheboard The CHAIRMAN .I seethat . President and chairmanof theboardof National County theSecurity BankinMonterey . Mr. BURKETT. Yes. TheCHAIRMAN .Was that after youwere superintendent orbefore ? Mr.BURKETTT .Yes.A fewyears afterwards . TheCHAIRMAN . Didyouhaveanybanking connections before you weresuperintendent ? Mr.BURKETT .Yes,I did. The CHAIRMAN .What was that? Mr. BURKETT . Iwaswiththetrust department ofBankofAmerica which inmy opinion qualifies me,I believe ,totheopinion that trust department andcommercial banking does notmix. experience youhad TheCHAIRMAN . Was thatallofthebanking appointed before being ? Mr.BURKETT .Right .I hadbeenwiththeU.S. Treasury intelligence unit during theEstes Kefauver taxscandals inthefifties ,serving from Department 1945to1950 withtheU.S.Treasury . TheCHAIRMAN .Wereyouinanywayever connected with this UCB ? Mr.BURKETT .Theypurchased my bank. TheCHAIRMAN .Was that theSecurity Bank? Mr. BURKETT .Yes . The CHAIRMAN . When ? Mr.BURKETT .In1961 — it's asmall country bankinMonterey County with sixbranchoffices . I received considerable UCB stockfrom the merger .I am most interested in UCB's welfare . Thisisnotin the sense ofa criticism ofUCB ,other thanconstructive criticism . I received over- overseveral thousandsharesof Western Bancor poration andUCB stock .I receive over$100,000 a yearinnetincome frombankbuildings that UCB rents fromme.Ihaveonly thegreatest interest inUCB's welfare . I am critical ofthis oftheloss of$18 million . TheCHAIRMAN .Whatisthenameoftheholding company ? Mr.BURKETT .Western Bancorporation ;they aretheworld's largest bankholding company .Theyown 98.6 percent ofUnited California Bank andMr.King ischairman oftheboardofthat ,andchairman of theboardofUCB ,andchairman oftheboardoftheSwissbank. TheCHAIRMAN.Mr.Kingwas? Mr.BURKETT .Yes,sir ; andchief executive officer up until recently . The CHAIRMAN. You saidthisbank was in— isitUCB or theWest ern — the holding companythatisinlitigation ? Mr. BURKETT. Both theUnitedCalifornia Bank and theWestern Bancorporation . The CHAIRMAN .Isinlitigation ? Mr.BURKETT . Yes ,sir ;there arethree suits . The CHAIRMAN.What arethose suits ? Mr.BURKETT .Two derivative suits andonestockholders 'class action suit. Senator BENNETT.Are youthesponsor ofoneofthesuits ? Mr.BURKETT . I am not .At onetimean attorney without my au thority signed my nametoa complaint . I wasoutof thecountry at 39 thetimeandIhadbeen working withtheattorneys ,butIhavea semi cancerous condition whichdoesnotpermit me toparticipate — this is thefirst public appearance Ihavemadeinabout 5years . I thought itwasworthwhile tocomefromCalifornia totestify because Ibelieve inthevital importance ofthis ,plusbringing tothe Senate Banking Committee's attention this UCB banking scandal . I withdrew - toanswer yourquestion — itwas filed without my authority .I didnot ,inturn ,file amalpractice caseagainst theattor ney.I hadanother attorney askthat my namebe removed anditwas. Itdidappear intheWallStreet Journal that I wasa plaintiff inthe suit .Thereisnodoubtabout itthat Ihad felt strongly about the$48 million support loss ,andI support thesuits .I also themanagement indoing something about itaspromptly asthey can. rs ' icers 'anddirecto off dtoMr. Kingand other lyobjecte ButIstrong s ofthisbankto pay off outoftheasset n totake$48 million decisio diary s of thi s subsi -nota branch s and creditor sitor Swissdepo ent , n'thavetopay100perc nt .Theydid y onlyowned58 perce whenthe cent . forUC B onlyowned 58per Senator BENNETT . Isn't this another case ofguilt byassociation ? Mr. BURKETT.Absolutely not,Senator . Senator BENNETT . You areattempting tofloat ontoMr.Bucher whatever guilt may belong toMr.Kingandhisassociates whomanage thebank .You areattempting totell usthat because Mr.Kingmay havemismanaged or evenbeenguilty of wrongdoing , we should therefore reject Mr.Bucher. Mr. BURKETT.The last timeI testified before a Senate committee it was Senator Kefauver's Committee on Organized Crime,and itwas thesamething .No onehadinvestigated a certain scandalous situation intheBureauof Internal Revenue . Senator Kefauveragreedthat these werescandalous facts thatshould be looked into .I am saying thatitwasn't guilt byassociation . Itwassimply saying that these scandalous facts should beinvestigated ,heldup,looked into , investi gatebefore youhastily goahead . In thatcase ,sixmen wereindicted by Senator Kefauver's com mittee .Ittook hima yearortwotogetall thenecessary evidence to convict .The Senatecommitteewent Senator BENNETT . Are yousaying thatMr.Bucherisinsucha situation that heprobably should beindicted ? Mr.BURKETT .That's ridiculous , sir . I didn't meanitin anysuch way.I think youarenow accusing me ofguilt bythese circumstances by yoursayingthesamesortofthing . Senator BENNETT .Youmadetheparallel that Mr. BURKETT . I sayas a Senatecommittee you havecertain au thority andresponsibilities aselected Senators .My uncle usedtobe U.S.Senator . Youhavecertain duties . I believe thatyouaretopassonthequalifications ofthis man.I think youshould bemorethorough inyour examination ofhis qualifi cations — I wasdirector oftheemployment oftheState ofCalifornia . We didn't pass onmenwithout checking into them .A cursory question ortwoora superficial office meeting withthemwasnotconsidered an adequate check ona man'squalifications . I was also on theGovernor's cabinet ,hisinner cabinet .Iwas the first man appointed tohiscabinet ,andthelast man toleave Governor 40 very forhighStatepositions Knight outnominees . We checked carefully . Thisappointment totheBoardofGovernors oftheFederal Reserve System isoneofthemostimportant jobs intheUnited States ,almost intheworld. SenatorBENNETT.I willcome back. TheCHAIRMAN.Letme getbacktomy questioning . withthequestioning Now ,youheardMr.Buchersayinconnection withthemanagement thathehadno connection Swissaffair on this ofthatbank atall;didyounot? Mr.BURKETT .Yes .He said hehadnoconnection withthebankat all. TheCHAIRMAN.When didthishappen ? Mr. BURKETT.Well,UCB bought thisbankin1969 ,first ,this bank > wasnottruly a Swiss bank .It wasanAmerican promoter that went toBasel ,Switzerland ,fromSanDiego ,a man namedSalik .I believe the SE hadsomequestion about him. Itwasstarted in1964and UCB purchased this bank in 1969witha 58 percent oftheinterest , andmadeita subsidiary ,nota branch . The CHAIRMAN .1969? Mr. BURKETT . Yes . The CHAIRMAN. Was it at the time of the Kefauver committee hearings? Mr. BURKETT . No. The CHAIRMAN .Was theKefauvermatterconnected withUCB ! Mr. BURKETT.No. The CHAIRMAN. I want tobe suretherecordisclearon that . Mr.BURKETT .You wishtohaveme repeat it ,sir ? TheCHAIRMAN .No.Youstated ananswer tomy question . Mr. BURKETT . Then UCB was advised by theSwissbankauthor ities in 1969thatmenlikeErdmanand Kaltenbach ,bothformer officers oftheSalik Bank,wereknownforinvolvement inspeculative deals andformakinggambling loans incommodities ,andUCB was askedto consider removingcertain officers named by the Swiss authorities . Butthese former Salik Bankofficers werenever removed .Mr.King wasa former bankexaminer .He knowsthat whenbanking author ities tell youthatsomething isprobably wrong ,thatthese arenot qualified people , theycertainly should havecomplied withtheSwiss banking authority's wishes . The CHAIRMAN.Well,I wanttogeta distinction between Mr.King, whoheaded upthewhole thing ,andMr.Bucher . Mr. Buchers ays he was a trustoff r. ice Mr. BURKET T .Yes. TheCHAIRMAN .And wasnotinanyway connected withtheman agement sofarastheSwiss bankwasconcerned . todoubtthat statement ? Do you have anyreason Mr. BURKETT .Depositions arenow being taken oftheofficers and various people .It's oneofthegreat bankmysteries .Swiss authorities as well as othersbelieveitis.It was never made a “branch.” It was a . "subsidiary .” Heretheyfoundunauthorized commodity trading tocover up offi cers 'fraud.Some sixhavebeenindicted .Therehasbeen 41 The CHAIRMAN. Wait a minute . Six have been indicted on this ? Mr. BURKETT.Six officers inSwitzerland .But on thissidetheUCB inCalifornia hasnever beeninvestigated bytheHouseBanking Com mittee ortheSenate Banking Committee todetermine its involvement . Therehavebeennone— although an official investigation hasbeen requested of yourcommittee . yousayinvestigation .I notice inyourstatement The CHAIRMAN and theSenate by theHouseBankingCommittee hasbeenrequested that . like .I don't recall anything Committee Banking Patman Mr.BURKETT .Congressman The CHAIRMAN .No,I am talking about theSenate Banking Com mittee . Mr.BURKETT .Thatwasovera yearago .October of1970 ,whenthe request was made. The CHAIRMAN .Wh o ? Mr. BURK ETT .I did it. The CHAIR MAN . You said recently .IfI came herejust withthestaff Mr.BURKETT .I talked back,I askedMr. by the itwasrequested .I thought The CHAIRMAN.I wasmistaken thanby. ofrather now,youmeantrequested .I understand committee Mr. BURKETT. Yes. Irespectfully request itagain ,sir . The CHAIRMAN.I misreadthat . Ithinkthat's allfromme . Senator Proxmire ? Senator PROXMIRE .First ,Mr.Burkett ,I wanttosaythat I think whatyouhavedonetoday isextraordinary .You areinserious condi tion andI understand youhavehadan operation forcancer ofthe colon. Mr. BURKETT . My entire stomach hasbeenremovedonthree occa sions .I havea verylimited timewheneffort canbeexpended between sleeping andtaking medicine . Senator PROXMIRE .When yousaydisabled ,youmeandisabled . Mr.BURKETT .I am totally disabled . Senator PROXMIRE . Thisisthefirst timeyou haveappeared in public in 5 yearssoyou thinkthis isa serious matter ? Mr. BURKETT.Thisisrigh t. Senator PROXMIRE .Asyousay ,this isthemostimportant economic appointment a President canmake ,andcertainly themostsignificant economic appointment this committee canpass upon .Ithasa profound effect andIwant tothankyousomuchforyourcomingbefore us. I am veryimpressed by yourbackground . I don't knowhow you could have higher qualifications .Youhave been abank president - you a havebeeninthetrust department ,soasyousay,youunderstand the limitations oftheBucher appointment . Wouldyousaythat itisfair andnotanexaggeration tocontend that Mr.Bucher will simply have todevelop ,onthe basis ofon-the -job training .that hewould begetting on-the-jobtraining asa Governor oftheFederal Reserve Boardthat hebrings noqualifications toitwhatsover ? Mr.BURKETT .I agree 100percent withwhatyousaid . . Senator PROXMIRE .Inyourstatement yougothrough thefunctions oftheboard andpoint outinnorespect does hehave significant quali 42 on Mr. Mr. Bucher fications , when Iquestioned . You werepresent ,hehadno ofhisknowledge tothebest Smith ,andhereplied Arnholt . withhim atall connection Yousayin point 14,youconnect Mr.Arnholt SmithwithMr.King, andsayMr.Bucher wasa protege ofMr.King.Isthat theonly connection ,asfar asyouknow ,between Mr.Bucher andMr.Smith Mr. BURKETT.Yes,asfarasI know. Senator PROXMIRE .You havenoreason toquestion theassertion of the nominee thathe did not know Mr.BURKETT . He may notknow,butmanyoftheappointments —I sayitbecause I satwiththeGovernor inhiscabinet whenwe made appointments ,wesorted themoutbefore wegavethemtotheGovernor . As Istated ,thepressure isquite great .There arecertain funnels which theapplications comethrough ,and a lotofthenominees ,including my own— I knewwhereitcamefromafterward ,probably . ButMr. Arnholt Smithwouldknow everything abouttopnominations in volving banking andfinance inCalifornia .These wouldclear through him,through toPresident Nixon . I used tohavesomething todowiththecampaign funds intheState fortheGovernor ,and I haveknowledge that Mr.Arnholt Smith -I know he doesn't denyit ,thathe hasgivenmany thousands tothe Republican Party andeven tothenational committee .There areseveral thousands onrecord ,ifyoucare tocall theheadquarters hereinWash ington , D.C.Ithasbeenestimated ashighas$1 million thathehas raised , andhe himself hasadmitted tohaveraised a quarter of a million personally . SenatorPROXMIRE.Mr. ArnholtSmith isa direct friendand con tributor and benefactor of thePresident of theUnitedStates .And Mr.Kinghasbeen his close associate ;isthat correct ? Mr.BURKETT . Yes. Theyareveryclose . Thatgroupofbankers works intandem . Senator PROXMIRE . Are yousaying thatthis isintheway of a political payoff ,thatMr. Bucherisappointed asapayoff toMr.King andthat Arnholt Smithistheman responsible forengineering it ,is thatthegist ofwhatyouaretelling us? Mr.BURKETT . Tothebest ofmy knowledge andbelief ,Ibelieve this tobenothing else than exactly what youstated ,apolitical payoff . Senator PROXMIRE .And yousaythatbecause youcanseeno real qualifications fortheFederal Reserve Boardforthis gentleman ? Mr. BUR KETT . Yes,sir. Senator PROXMIRE . He isveryclosely associated withMr. King . Mr.Kingcould stand tobenefit greatly bypolicies oftheFederal Reserve Board ,isthat right ? Mr. BURKETT . Yes,sir. Senator PROXMIRE .Now Itakeit youdon't share my view ,andvery fewpeople seemto,thatonlyprofessional economists should beap pointed totheFederal Reserve Board .Although youdisagree onthat , youstill feel that Mr.Bucher isnotqualified ? Mr. BURKETT . I am sorry , Senator , I cannot agree withyouon economists . Theyarevery ,veryneeded people ,butI agree withSen atorBennett thata banker , an experienced banker withno axesto grind ,should beappointed .There aremanyfine ,honest ,able men,not onlyactive ,butsomeretired ,twoorthreeformer presidents ofBankof America ,Crocker -Citizens ,Security ,all able andexperienced men. 43 geta ,don't ifyouwanta banker PROXMIRE .You aresaying Senator department ? man fromthetrust Mr.BURKETT .Right ,sir . Senator PROXMIRE . It's like getting a man to coachfootball who's hadonly experience inbaseball . Mr. BURK ETT .Yes ,sir. Senator PROXMIRE .Youhad anopportunity tohearMr.Bucher's answer tomy questions onbankregulatory manners .Inyour opinion , werehisanswers responsive ,anddothey demonstrate a solid knowl edgeofbanking ? Mr.BURKETT . I wouldsayagain ifhe wereinterviewed forthe presidency ofabankinCalifornia andcouldn't answer someofthose basic questions , hewould notinanywaybequalified tobea president ofa bankinCalifornia .He iscertainly notqualified tobe a member oftheBoardofGovernors ,Senator .I saythat heisnotinanyway qualified because hisanswers weretotally evasive ,andcertainly some ofthequestions werequite elementary .Thequestions could havebeen properly answered ,I would say ,bythemajority ofbankers ;even the small country bankers could answer . if togetbeyond tosee PROXMIRE .Didn't the- Iam trying Senator speculation , the tothecocoa example ,inaddition there isanyother Bank,this ,didn't theBasel $48million Salik companywherehelost in1967? pounddevaluation on theBritish branchofUCB , speculate oftheUCB whenitpurchased Wasn't this knowntothemanagement theBasel Bank ? Mr.BURKETT . Yes.Thisisdisclosed intheaudit reports — notonly didthebanksendauditors there ,buttheSwiss authorities sent audi tors . Itbrought this outtomanagement thatsubstantial trading in commodities began inSeptember 1969 ,andcontinued uptodiscovery of thelosses inAugust1970. Itwasseveral monthsbefore itwas released tothepublic .Then thelosses weredisclosed tothepublic on Labor Day of1970 ,andthepoints that youmentioned wereinvolved .The chairman oftheboard ,FrankL.King,wasontheexecutive committee ofthe“UnitedCalifornia Bank inBaselAG .," and many oftheoffi cers inthegroupknewabout it .Infact ,theyhadbeenadvised bythe Swissauthorities of this . They werescuttling aroundforseveral months .A loss wasexpected .Oneoftheofficers ,itisreported — who company— rushed wason theboardofdirectors ofaninsurance down and askedtheinsurance companyforadditional fidelity insurance coverage. A bonding companywill notplace a bondona loss thatisknown several months beforehand .There wasa$15million policy Lloyds with and another$5 million withanothercarrier . So therewas indemnity totaling $20million . Thelosses will beover $ 18million . The trust department officer attends staff meetings andtopechelon meetings , andhewasasenior vice president — itishardtosaywhether hewas there or notthere ,butthegeneral workings ofa large bankrequire thatthere becommunication departments between . In fact ,UCB communications extend through allofthebranches . I canshowyou communications on theBasel Bank thatwentoutto the branches . Senato r PROX MIRE .So asa form erbankpresi who wasa super dent int enden t ofbank s inCalifo rnia ,you conside r ithighl sualthat y unu 44 aman inMr.Bucher's position hadnoknowledge ,nounderstanding , about this speculation into thecocoa market andthekinds ofcommit mentandinvestment theyweremaking? Mr.BURKETT .Well ,unless hehastheclerk typeofbanking mind, whichI do notknow him tobe Senator PROXMIRE . In whichcase ,thatwouldbea point against him ? Mr.BURKETT .He wouldn't knowwhatisgoing on.TheBasel Bank was known throughoutsouthernCalifornia as a situation thatwas tricky .Mr.Salik wasa SanDiego man andorganized theSalik Bank inBasel ,and solditfor$8 million to UnitedCalifornia Bank.The Swiss banking authorities toldUCB officers that these former owners werebad .It's commonknowledge inbanking circles that commodity trading isbadbanking ,andyet UCB allowed this commodity trading tocontinue . Allofa sudden , when the$40 million inlosses was dis covered ,UCB officials rushed downtotheFederal Reserve Systemand asked permission topayitall off – 100 percent .So they paidoff 100per cent .Butwasthere an investigation conducted bytheFederal Reserve System? The Board of Governors of theFederal ReserveSystem approved themanner ofpayment ,andnow $40million hasbeenpaid offtopeople who made investments there .As a depositor saidtoan attorney sentoverthere toBaselontwo occasions to investigate : “The onlytimeinmy life whenI bought badstock ormadevalueless investments ,they ,UCB ,gavememymoneyback .”This isoneofthe greatest banklosses intheUnited States — theworst inmany,many years —notsince thedepression days — yetno official governmental agency orlegislative committee hasbothered toinvestigate what hap pened or hasattempted toprevent future occurrences of this magni tude . I believe this isa matterthattheSenateBankingCommittee shouldinvestigate . Senator PROXMIRE . Now, Mr.Buchermay ormay nothavebeen involved inanyway inthespeculations withwhichyouareinterested , thebigloss inwhich youarea party totheinvestigation ofthesuit ? Do youhaveany firmer information or firmer association ofthis man witheither theLockheedsituation whichyou allude to,or the a PennCentral situation ?As a trust department official ,whatwouldbe hisresponsibility there ? Mr.BURKETT .Ihave always found inbanking there were twokinds .. of executives .One ,who tookinitiative and who was notwedded tohis paycheck orhiscivil service status inGovernment ,andwho would speak outandsaytomanagement .“Look,this isabad,unsecured loan . Theydidn't putupanycollateral like youandtherest ofusdo." Lockheed camein,insolvent , withfinancial statements , andthey gavetheman$18million loan ,unsecured .UCB hadthepension funds inMr. Bucher's trust department . When trust officers review thein vestments instocks andbonds ,theystart toworryabout things that arebad.Theydon't wanttheir portfolio full ofinsolvent securities or insolvent businesses . SenatorPROXMIRE. So herethe connection withMr. Bucher would bethathe wouldberesponsible inoneway oranother ,withthe5,000 department shares ofstock ofLockheed inthetrust andyouaresay ingthatitwouldbeunusual ifthere werenotsomekindofinfluence withrespect toa loan unsecured toLockheed for$18million inviewof 45 Lockheed's tenuous record anddifficult position , thata banker nor mally require there tobesomesecurity onthat . Mr. BURKETT. Thatisright . A strong ,able trust officer wouldgoonrecord opposing suchaloan anda weakonewould close hiseyes , andpermit this sort ofthing togoon . I don't know thecircumstances , butwe do know theresults that Lockheed received the$18million loan ,an unsecured loan ,ata time theywereinsolvent . officer , what trust of a strong PROXMIRE . And apropros Senator haveintheFed? weshould kindofamandoyouthink Mr. BURKETT .Certainly a strong man,a man who could notbe influenced out inanyway,who wouldspeak . things to these outagainst ofspeaking hadarecord IfMr.Bucher Mr.Kingthathewas that he hadtold ,orifhehadsaid Mr.King Cali industry insouthern oftheaircraft thecondition about worried — thetrust overnight wasn't developed insolvency fornia . Lockheed's struc thefinancial makea review throughout andofficers department Cali on United hada director ,andLockheed ture ofthe company .Thechair theloan boardatthetimetheyobtained fornia Bank's man oftheboardof Lockheedwas a member oftheboardofdirectors , that kindofmoney Bank.When yougetinto California ofUnited a real ofthecondi -class audit ,first ,yougooutandmakea $18million . tion ofanorganization wasthe -maybethat tie thesituation don'toldschool You just received an$18mil is ,Lockheed know.Theresult here .I don't case . Lockheed wasinsolvent that sametime unsecured atthevery lion loan And Mr.King admitted atthe1971stockholders ' meetings that theaffiliated bankshad about$18 million unsecured loanswithLock heed— withno collateral . Senator PROXMIRE . Doyou knowasa matter offact that Mr.King was responsible - youtalkaboutMr. Bucherbeinghisprotege , was thisa personal relationship thatMr.Kingpromoted ,and was he responsible forthecareer ,toa great extent ,of Mr.Bucher ,ordoyou simply ,sir . . Notbyassociation Mr.BURKETT On an appointment ofthatcategory ina large bank,ithastobe approved by thepresident .Mr.Kingwasthepresident andtheexecu tive officer of thebankatthattime ,aswellaschairman oftheboard . Senat orPROXMIRE.Mr.King was? Mr.BURKETT .Yes,andhehasalways been a manwhopersonally handled these things until just recently . Senator PROXMIRE . You are saying that hewouldhavehadtohave direct explicit knowledge ofthe appointment ofMr.Bucher andhe wouldhavebeenresponsible — itwouldhavehadtohavebeencleared by him? Mr. BURKETT. That isrigh t. SenatorPROXMIRE.One othe r question . I mentioned inmy questioning ofthenominee that onesenior vice president ofthis bankwas quoted assaying ,"youwinsome,youlose some,” andtold about the$48million loss . Does thatindicate thatUnited California Bank knew aboutthe activities oftheSwiss subsidiary ,that ittooka risk andlost ? 46 Mr. BURKETT.Itindi catedthattome ,sir. Itisthis typeofbankmanagement that isbeing criticized bymem psychology .You gooutand PROXMIRE .Kindofaracetrack Senator withthe youaredealing it .Buthere ,winitorlose a little money take bers ofthepublic ,andbycertain legislators . depositors 'money. Mr. BURKETT. I don'tthinkanything likethathasbeensaidin banking circles publicly since thedays oftheInsull scandal .Itis a impossible tobelieve a banker wouldsaythat unless itis their think ing— apparently this iswhatisgoing on withthis typeofmanage mentthinking . ThatiswhatI sayhere , thatifMr. Bucherhadspoken outas secretary -treasurer oftheUnited California Bankorquestioned these matters asa trust officer ,hecertainly hasthepotential ,atleast ,orthe responsibility ofbeing paidasanofficer ofthebanktoaskquestions , > notbearubberstamp . Senat orPROXMIRE.Thankyouverymuch . TheCHAIRMAN .We haveranged pretty wideinthis hearing .This isnota court proceeding ,butI think everyone recognizes thefact that verylittle ofwhat hasbeensaidhereregarding UnitedCalifornia Bank, the Swissbank, Mr. King and Mr. Smith- Smith is his name Mr. BURKETT . Yes ,sir. The CHAIRMAN(continuing ). Wouldbeallowed intestimony ata court proceeding ;a lotofitishearsay ,a lotofitissurmise .Itseems tome you should haverealized this — there just does notappear tobe anytie -inresponsibility atall toMr.Bucher . I don't saythat critically ,butI just think itiswell forustokeep thesefactsinmind . Mr. BURKETT .I asked ,Senator ,ifI camebackhere — theideawas thehopethat a congressional investigating committee wouldinvesti gatethisUnitedCalifornia Bank - ifmany millions canbe lost of depositors 'moneyby onebank,we haveother international banksthat we could lose many moremillions thesameway. As I saidatthetimeI appeared before Senator Kefauver's Senate committee — it wasthesametypeofquestioning .He said isthis true ? I said ,we havereasontobelieve itistrue .SenatorKefauversaid ,fine , we willinvestigate it .Thatresulted inthe1950taxscandals inwhich sixorseven officials wereindicted inSanFrancisco andWashington , D.C. Thatistheonly relationship that Iintended . TheCHAIRMAN .Iagree withyouonthat . I am gladyoubrought this before us. a confirmation I thinkinweighing these matters on thequestion ofa ofMr.Bucher ,we mustbeverycareful totrytofind outwhatthe factsare. I just wantedtomakethat comment . Senator Bennett ,doyouhaveanything further ! Senator BENNETT . Ihavea lotofthings here ,Mr. Burkett ,because , asa Republican ,asamemberofthis committee ,I deeply resent some ofthethings youhavesaid heretoday . raising thatmoney,doesit? . Thatdoesnotinclude The CHAIRMAN . BENNETT.Ididnotgetanyofit Senator 47 Senator PROXMIRE .Thatiswhyyouresent it . Senator BENNETT.You talked aboutan $18million loantoan insol ventcorporation . The chairman oftheboardoftheBank ofAmerica testified thatwhen thatloanwas made,whichwas oneofabout20 loans that weremadebybigbanks all overthecountry ,Lockheed had a net worth of$370million ,andhadshown anet profit of$50million a year before taxes for6years . Now , those arenotthestigmata ofan insolvent company .After wards ,theywerediscovered tobeinsolvent .Itiseasytogobackand n cethatthese all - all theloa ethings.Buttheinferen thes secondguess heedmoney,ofwhichUnited Lock se30banksthat loaned ofthe officers ngthe edknowingly in loani l involv rniawas onlyone,were al Califo ntcompanyjust r'smoney toan insolve r'sandthedep osito kholde stoc isnot true. Mr.BURKETT .Senator ,itisa felony tomakeouta financial state mentthatisfraudulent .Now — perhaps yourSenate committee would like toinspect this Lockheed financial statement andcheck itoutas ourbank examiners do when smallbusinessmen mightmake outa financial statement , stating thathe has$50,000 , whenhe hasonly $2,000 .Ask Lockheed toprove their financial statement line by line under oath . Senator BENNETT .Thatthing wasfought through onthefloor of year? theSenate andincommittees .Was itlast SenatorPROXMIRE.Yes. Senator BENNETT . Thereisno useopening itup againnow.But you comehereand make a categorical statement whichputsyou in directcontradiction with thechairmanof theboardof theBank of America . Mr.BURKETT.I donotcontend tocontradict you,sir .Ijust asked one question .Didyouinvestigate thefinancial statement ,line by line ,of Lockheed ? Senator BENNETT.Itwas given tous ona confidential basis and we didlookatit .The inference thatwe acted aswe didisthatwe com pounded thefelony ,by agreeing ,asI do,withMr.Medberry ,that it was not insolvent . Now,whenyouwerea trust officer oftheBankof America ,were youawareof whatwenton in theBank of America's foreign subsidiaries ? Mr.BURKETT .I wasinthetrust department asatrainee for a year and Isatwiththevicepresident who wenttothe penitentiary .I learned onething ,that wastobevery careful anddosomenight school workandlearn more. Idid .I wenttonight school and learned more about trust work— andcommercial banking .ThenI Senator BENNETT .Butyouarecoming here andsaying ,because you werepart ofthetrust department ,youareina position topassjudg ment on Mr. Bucher ? Mr. BURKETT .Yes.I was likewise theheadoftheinvestigations of everytrust departmentofeveryStatebank intheStateof California , assuperintendent ofbanks .There ,we wentovera lotofthese prob lems .ThatiswhenI decided by talking withbankers ,meeting with bankers , and beingpresident of allthebank commissioners inthe United States ,I discussed this withbankexaminers ,andwe always 48 realized thetrouble thetrust departments could betothecommercial side ofa bank— that isthe"conflict ofinterest "problem . Senator BENNETT . Letus go down toMr. Bucher ,himself .When youleft yourposition asheadoftheBanking Commission of Cali fornia ,Mr.Bucher was21years ofage .Soyouhadnoexperience with himwhile youwereCommissioner ? Mr. BURKETT.No. I havenever- Ihavenonewhatsoever . Senator BENNETT .Haveyouever seen himbefore today ? Mr. BURKETT.No ,I havenot. Senat orBENNETT. So,youarecomin g here tocondemna man,pass judg menton him,and be very spe cific insomeofthethings youaccuse him of,and you haveneverme t him ? Mr.BURKETT. As farasmeeti ngpeople ,I am sur e youhave met a lo t ofpeopl e,Senato r. You mustlookatthe irrecord .There area lot ofthing syou canjud gewithou .ThisPres tconsi derin ality gperson i dent appoin ial tmen t hasnothing todowithpersonal ity . person . -looking isafine ,able Mr.Bucher FromwhatI saw,Ithink ,orexperience knowledge ,ability a man's ,youdonotjudge However himwith meeting ,orbymerely hehasonhishead byhowmanyhairs .] remarks . (Laughter ofa fewpleasant and anexchange a handshake Senator BENNETT .WhatofMr.Bucher's record ,doyouknow? Do youknowanything ofMr.Bucher except thefact that heworks for Mr.Kingandyoudonotlike Mr.King? Mr.BURKETT . Thatisnottrue .Ilike Mr.King.Thatisabsolutely a false statement ,sir .Ihave no malice towards Mr.Kinginanyway .I am sorry that youmadethat interpretation . Senator BENNETT . You havemade somerather serious charges against Mr.Kingfortheway heallowed theSwiss Bankscandal to develop . Mr.BURKETT .Thatisyourpersonality issue .Iam talking about his administrative ability andbanking judgment .Youaretalking about personalities here . Senator BENNETT .I am talking abouthisposition aschairman of thatbank.You attack Mr.Bucherbecause youthinkheisMr. King's protege .Do youknowwhether Mr.Kinggothimthejobinthebank inthefirst place ? DidMr.Kinghaveanything todowiththesucces sive promotions hegotbefore hebecame thesenior vice president in charge ofthetrust department ? Mr. BURKETT .Mr.Kinghadsomething todo withhispromotions within thebank. No onecan becomesecretary -treasurer of the14th largest bank— intheUnitedStates without thepresident of the position thesenior trust ? Senator BENNETT .Isthat nottrue ofevery officer inthat bank? bank- knowingsomething abouttheman,andthentomovehim up to Mr. BURKETT .No. ofthebank, BENNETT. Isn't ittrueof everymajorofficer Senator ofMr.King,and ofthemareproteges all andcanyouthensaythat whatMr.Kingdoesthatmay bewrongrubsoffon themand that like this ? fora job themtoqualify for makes itimpossible have lefwith us That'stheinference you t . Mr. BURKETT.Was thata questi on,sir? Sena torBENNE TT.Ifnot phr , I will aseit asa ques tion :Do you believe thatMr. Bucher isthekindof a protegeofMr. King who, 49 because ofhisassociations withMr.King wouldberendered undesir able tobeappointed inthis particular job? Mr. BURKETT . Yes. Senator BENNETT .So,isitnotguilt by association ? Mr.BURKETT .NotinthewayI lookatit ,sir . Senator BENNETT .You admit youdon't knowtheman.You admit youdon't knowanything about hisspecific record andall youknowis therecord ofMr.King . So ifMr.Bucherisunfit forthejob ,it's because heworkedforMr. Kingandtheinference isthat inorder toworkfor Mr.King ,hehad tobe a party toorinvolved incertain things thatyouthink were improper . Mr.BURKETT .Isaythatinthetopmanagement ofa bankwhere hewas,he wouldhavetohavesomeknowledge ofwhat's going on. There isnothing intherecord that hespoke outagainst anyUCB policies orprocedures orthat hedidnotapprove ofthese things .He never said that certain bankpolicies arebad .He said hehadtostudy it .He hadnoknowledge aboutthis oranything else . Senator BENNETT .And youwantustoassume that thechief trust officer of a bankhasa responsibility fortheoperation ofthesub sidiary inSwitzerland andyou justassumebecause he hasthatposi tion heautomatically hastheinformation andyoudon't know whether hespoke outornot .Youdon't knowanything about it . Mr.BURKETT .I think that question wasasked indirectly .He said he hadnoknowledge . you comment .In yourtestimony BENNETT Senator . Justonefinal whowouldbebetter retired bankers aremanyfine that there indicated in movement ofa youth .Haveyouheard position forthis candidates in was interested ?Don'tyou thinkthePresident theUnitedStates in ashehasbeeninterested thisposition a youngman into getting a retired positions and canyousuggest youngmen inother getting asa memberofthe outhis14years hopetoserve banker whocould headagainst the—theage his bumping Boardwithout Reserve Federal 70 limit? Mr.BURKETT.Yes.I believe there are.Butthere isno assurance that Mr.Bucherwill notdropdeadnextweek. Senator BENNETT . Iam nottalking about serving outinterms of living toserve itout .Youtake a retired banker andputhimina job that hastwoqualifications :It's a 14-year jobandyouhavetoquit when you're70 Mr.BURKETT.Yes,sir . Senator BENNETT .Do youknowofanyretired bankers that could meetthose twoqualifications ! Mr. BURKETT. Yes.I believe therearesome inCalifornia and on the particularly westcoast . Senator BENNETT.Men who haveretired atless than56? Mr.BURKETT .Yes,because ofdifferences onpolicy ofcertain bank aawalk ingoperations . Theyhavetaken their hatandtaken . . There are some inPebble Beach where I live Senator BENNETT .You think theywouldbemorequalified forthe jobthanMr. Bucher? Mr.BURKETT.Yes,sir . 50 Senator BENNETT .You think anybody wouldbemorequalified for thejobthan Mr. Bucher. Mr.BURKETT . I didn't saythat ,sir . I wasreferring toabanker's qualifications , knowledge ofeconomics ,monetary ,andfiscal policies of thisNation. Senator BENNETT . Youadmit youdon't knowanything about his personal record ,hispersonal experience ;allyouknow iswhatyouread inthepapers orwhatyoujudge bylooking attherésumé ? Youhave no personal background tojudge Mr.Bucher ! Mr.BURKETT .Youmeanthis piece ofpaper saying wherehewent tocollege ?That's all Ihaveseen ,that's right . Senator BENNETT .On that basis youcondemn him? Mr.BURKETT .No,I don't condemnhimbythis onepiece ofpaper . SenatorBENNETT. You didn't condemn him on thatbasis .You con demnedhim on guilt by association because he worksforMr. King. , youropinion ofopinion ,sir ,ifit's a matter .That's Mr.BURKETT notmine . fine; it's Senator PROXMIRE .Mr.Burkett ,Ithink youhave performed avery toughanddifficult andpainful job .It's nofuntocomebefore a com mittee andhavetooppose a nomination .Youareasick man.Youhave in appearance comeall theway across thecountry ,youronlypublic 5 years . As I said before ,I think youhaveserved asaverygoodcitizen and asoneSenator , I am deeply grateful thatyouhaveappeared before us . The mostimportant judgment we canmake,Ithink ,iswithrespect Reserve Board totheFederal . The oneway we haveanopportunity , ora realinfluence on theFederal Reserve Board, isto scrutinize the appointees carefully andmakesure they arewell qualified .Ithink in this casewe haveno moreinformation thantheSenator accused you ofhaving . résumés ofus.Theonlyway we can infront havethese We just istotryto findoutwhathas been additional information develop are ,and ,whathisresponsibilities inthepast donebythenominee . areas wherehe hashad someinfluence whatheknowsaboutthose I mustsay on thebasis oftherecord this morning ,it's very clear thenominee does nothaveknowledge evenintheareas where hehas had training and experience . Senator BENNETT .Mr.Chairman , I remindmyself ofthecartoon ofthehusband andwife ,somebody said ,doesn't yourwife havethe last word,andthehusband said ,she's never reached it. So I havetohaveonelast word. Mr. Bucher asked tovisit I think every memberofthecommittee . He cametovisit me.I hadanopportunity todiscuss muchmorethan thebackground onthisrésumé withhim. Did hegettovisit you? Senator PROXMIRE .Letme sayI made thedecision thatunderno circumstances will I everagain havea nominee comeinto my office inadvance of a public hearing to discuss privately withme whether heshould beappointed .I madethat decision because again andagain I foundthatIam a niceaffable fellow just like you Senator Bennett , andIalways wanttomakehimfeel good . 51 I saythatwithout having hada chance toheartheman asa witness , without having a chance tostudy hisrecord .I havetalked asamatter offact withother Members oftheSenate . Just yesterday onthetele phone ,aboutthis nominee . They asked me why didn't youtell me before hecameinto my office ?I think this isa great evil and asfaras this Senator isconcerned ,I sayinthefuture ,nonominee isgoing to see me privately . That's apolicy Iam going toadopt fromnowon. The CHAIRMAN.I think thatisallright . I thinkitwouldbefine . Senator BENNETT .While yousayyouarenotseeing himprivately youaregoingtoseehim publicly : You havedeveloped withMr. Burkett a veryobvious campaign against him. Mr.BURKETT .I wanttosayontherecord ,Senator ,I never readit inthenewspapers ,andI never knewSenator Proxmire ,wasopposed tohim. I onlylearned fromthepaper last night that hewasagainst appointment Mr.Bucher's . When I wasinvited toexpress my views before this committee ,I satdownanddictated themhurriedly , andI havenotbeenable to finish themascompletely asI wouldlike . But I didn't know thatSenatorProxmirehad theseviews .I com mendhim forthembecause theFederal Reserve System hasbecome weakened . Itsorely needs a strong ,wellqualified appointee . Senator BENNETT. Willyou tell thecommittee on therecord that youhavehadnoprevious contact withSenator Proxmire oranymem berofhisstaff withrespect tothetestimony that youhavegiven here today? Mr. BURKETT. I talkedto a staff member of thiscommittee — the BankingCommittee , Mr. McLean.I haveaskedhim questions . SenatorBENNETT. Did you outline to him thenatureof the testimony ? Mr.BURKETT . He asked me whatI thought ofMr.Bucher . I had about20reasons why Mr.Buchershould notbeappointed .In the interest of time I reducedthem to 14. TheCHAIRMAN .I think we havediscussed this sufficiently . Mr. Burkett ,I feel certain thatyou felt movedtocomehereand present yourcase .I wanttosayonbehalf ofthecommittee that we appreciate your coming . . Mr. BURKETT.Thank you,sir . isadjourned . Thankyou.Thehearing TheCHAIRMAN . tostay herea minute ofthecommittee I will askmembers (Whereupon , theopen session of thehearing was adjourned to executive session at12:45p.m.)