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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.)
@FedFRASER