And, gentlemen, in that respect, may I say that in New England we are fearful that the only liquid form of wealth that is left, the security wealth of this Nation, may be by unfortunate legislation put in the same category that real estate is at the present time.

I understand that there are at the present time some 31⁄2 to 4 billion dollars loaned by banks in the United States upon securities. We are not so much concerned with the fear that banks will lose by enforced liquidation of those security loans, as we in New England and Chicago, are concerned with the fear that individuals who own securities throughout this country will become affected by the fact that banks cannot liquidate those loans, and therefore the values of those securities will disappear.

The CHAIRMAN. Just what specific provision of this bill will force that liquidation?

Mr. WITHINGTON. Mr. Chairman, the first provision of the bill which I think forces that liquidation, is the provision with regard to margins, with regard to the suggestion that it be placed

The CHAIRMAN. You are talking about loans that are already in existence?

Mr. WITHINGTON. Mr. Chairman, I am talking about loans that are in existence as affected by the values of securities as they appear in the quotations of the markets of this country.

Unless those loans are so far under water that there is no use of liquidation, if there is not, and adequate market to absorb the liquidation of those securities, then those loans cease to be good loans and the values of the securities generally are certainly affected, because the loan values have disappeared.

The CHAIRMAN. What is there in this bill that will force the banker to call that loan?

Mr. WITHINGTON. If the values of securities disappear in quotations on the exchanges, those loans would have to be liquidated by banks, and as they saw the values decrease

The CHAIRMAN. They would have to be?

Mr. WITHINGTON. Well, if they could be liquidated.

The CHAIRMAN. I am not talking about that. We are not running the banks. We have nothing to do with when a bank can call its loan or tells a fellow that he has got to pay, or who is to tell them when; but is there anything in this bill that forces a man out who is in now, who has a loan now?

Mr. WITHINGTON. Yes, Mr. Chairman. If the value of the securities which are held in the portfolio of the bank as collateral for loans, values, as they appear on the market places and exchanges of the country, if they show a downward tendency, it is bound to result in the liquidation of loans on securities, and the throwing on the market of additional securities is going to further force the market down.

Mr. LEA. That statement, I take it, is based upon the assumption that the enactment of this bill would reduce the market prices of securities. Is that the idea?

Mr. WITHINGTON. Yes, Mr. Lea.

Mr. LEA. Well, why would this margin requirement force a decrease in the market prices of stocks?

Mr. WITHINGTON. Because, I am informed-I will have to take the statement of gentlemen who are more and better informed on those matters than I-that unless there is a certain amount of specu

lative buying and selling of securities, that market values will be seriously affected.

Mr. LEA. Would you attribute that to the margin provisions of this bill?

Mr. WITHINGTON. It could very well be attributed to the margin provisions of this bill.

Mr. LEA. Do you have in mind these outstanding loans, or new loans?

Mr. WITHINGTON. I have in mind both. I have in mind any loan that is made on the basis of security values as reflected upon the exchanges of the country and unless those security values appear upon the exchanges of the country, the loan value of the securities with institutions is affected, and indirectly those who own securities have something in their possession which is of less value.

Mr. LEA. Well, of course, that is always the operation of a margin requirement, when the market goes down, is it not?

Mr. WITHINGTON. That is true; and in that respect, I think the provisions, as written, the margin requirements as written in this bill are more lenient than the margin requirements which are generally enforced on exchanges.

Mr. LEA. Yet you think this margin requirement would work more unfortunately than the existing margin requirements, do you? Mr. WITHINGTON. At the present time, as I have worked it out upon stocks which are representative stocks, which were taken at random from the exchanges, the present borrowing value of securities, taking the market values, the low since July 1, 1933, would permit a margin in excess of what is required at the present time by most exchanges. That rule, however, is written in in such a way that every time that a stock is subjected to a downward reaction for whatever reason, then that margin requirement automatically tightens up until eventually, perforce of necessity, the margin requirement is so tightened that it cannot be relaxed unless there is an extraordinary circumstance which would warrnet the Federal Reserve coming in and saying what should then be the considered policy of the Congress.

Now, let me illustrate. In the case of a stock such as the American Telephone & Telegraph Co., under the margin provisions as they are now written, if that stock were a new issue, we will say, a preferred stock of the American Telephone & Telegraph Co., preferred stock ahead of the common stock, the loaning value of that stock, although it is a preferred stock against a common, if it were selling at $100, would be $40, and yet under the rules of the margin provisions as they are written, the loaning value on American Telephone common stock, taking the lowest in the past 3 years, would be $75 on the present market value, and because of the provision permitting the low since July 1, $90 today, which is more than the prevailing rates upon the exchanges.

Now, if because of the investigation or the proposed or threatened investigation of the American Telephone & Telegraph Co. by Congress, suggestions were circulated through publicity or whatnot, that the American Telephone & Telegraph Co. was a great monopoly which should be disbanded, although that thought that there was a monopoly might not be shared by the well informed, it would have a serious effect in the market. Just as the effect in the market upon the air ocks—and I am not dragging in any political issue-but merely ating the sort of thing that can happen.

Now, the moment that happens, a new margin is required under the provisions of this bill. At that time the Federal Reserve Board, which is given the power to increase those margins, to make them more strict, is given no power to relax them, although the Federal Reserve Board is going to be faced with the necessity of making reasonable margin provisions such as will permit banks to compete with bootleg loans and other money markets which are beyond the control of Congress. That is a very real danger.

Mr. LEA. Well, in a word, what would you suggest in lieu of the margin provisions of this bill?

Mr. WITHINGTON. Mr. Lea, I suggest-and I hesitate to state that I agree with Mr. Whitney's suggestion for fear that it may carry the inference that I have been influenced by his suggestions, and if you will look at Mr. Collins' brief, president of the Boston Stock Exchange, in the hearings before this committee, it will appear that he made the first suggestion that the entire credit control with regard to the margins should be put in the Federal Reserve Board, which Board, it is believed, because of its familiarity with conditions and the necessity of having provisions which will permit banks to operate and not be in competition with bootleg loans, would have a better judgment than the arbitrary provision written into the law. Putting that check in the Federal Reserve, giving them uncontrolled check, is a tremendous concession to what has been in force for over 100 years, that is absolute control of margins by the exchanges themselves.

Now, the exchanges are willing to say, "We will put that in the hands of the Federal Trade Commission", and at best, if the Federal Trade Commission does not act at all, they are only committing the error of leaving the margins in the hands of the people who have had it for over a hundred years.

That does not seem to us a very serious possibility.
Mr. MAPES. You mean the Federal Reserve?

Mr. WITHINGTON. Federal Reserve Board; yes, sir.
Now, I have said all I care to say on that provision.

With regard to the matter of segregation, there, again, the Boston Exchange and the Chicago Exchange have a very vital interest. We will take our chances before a commission. We will take our chances, Mr. Chairman, before any member of this committee and expect to be treated fairly when the responsibility is assumed by the person who is making the decision, having due regard paid to the reasons advanced for a particular practice.

Now, in the drafting of this bill, the original bill insisted on absolute segregation of broker and dealer capacities. Yesterday Mr. Smith pointed out that it is a vital thing, a necessary thing, to have this great distributing organization available for financing. And that has been written into the present bill. And yet, after 8 days of study, and 8 days of concentration and criticism, when the present bill was drafted dealing with segregation, Boston and Chicago Exchanges were forbidden from carrying on a service which is extended to the small investors in those communities, and without which the small investor would be deprived of the market privileges, that is, the odd-lot business.

There is no broker on the Boston or Chicago Exchanges that could live solely on odd-lot business. In New York, yes; but in the smaller places the odd-lot business which is carried on solely for the benefit

lative buying and selling of securities, that market values will be seriously affected.

Mr. LEA. Would you attribute that to the margin provisions of this bill?

Mr. WITHINGTON. It could very well be attributed to the margin provisions of this bill.

Mr. LEA. Do you have in mind these outstanding loans, or new loans?

Mr. WITHINGTON. I have in mind both. I have in mind any loan that is made on the basis of security values as reflected upon the exchanges of the country and unless those security values appear upon the exchanges of the country, the loan value of the securities with institutions is affected, and indirectly those who own securities have something in their possession which is of less value.

Mr. LEA. Well, of course, that is always the operation of a margin requirement, when the market goes down, is it not?

Mr. WITHINGTON. That is true; and in that respect, I think the provisions, as written, the margin requirements as written in this bill are more lenient than the margin requirements which are generally enforced on exchanges.

Mr. LEA. Yet you think this margin requirement would work more unfortunately than the existing margin requirements, do you? Mr. WITHINGTON. At the present time, as I have worked it out upon stocks which are representative stocks, which were taken at random from the exchanges, the present borrowing value of securities, taking the market values, the low since July 1, 1933, would permit a margin in excess of what is required at the present time by most exchanges. That rule, however, is written in in such a way that every time that a stock is subjected to a downward reaction for whatever reason, then that margin requirement automatically tightens up until eventually, perforce of necessity, the margin requirement is so tightened that it cannot be relaxed unless there is an extraordinary circumstance which would warrnet the Federal Reserve coming in and saying what should then be the considered policy of the Congress.

Now, let me illustrate. In the case of a stock such as the American Telephone & Telegraph Co., under the margin provisions as they are now written, if that stock were a new issue, we will say, a preferred stock of the American Telephone & Telegraph Co., preferred stock ahead of the common stock, the loaning value of that stock, although it is a preferred stock against a common, if it were selling at $100, would be $40, and yet under the rules of the margin provisions as they are written, the loaning value on American Telephone common stock, taking the lowest in the past 3 years, would be $75 on the present market value, and because of the provision permitting the low since July 1, $90 today, which is more than the prevailing rates upon the exchanges.

Now, if because of the investigation or the proposed or threatened investigation of the American Telephone & Telegraph Co. by Congress, suggestions were circulated through publicity or whatnot, that the American Telephone & Telegraph Co. was a great monopoly which should be disbanded, although that thought that there was a monopoly might not be shared by the well informed, it would have a serious effect in the market. Just as the effect in the market upon the air stocks and I am not dragging in any political issue-but merely stating the sort of thing that can happen.

Now, the moment that happens, a new margin is required under the provisions of this bill. At that time the Federal Reserve Board, which is given the power to increase those margins, to make them more strict, is given no power to relax them, although the Federal Reserve Board is going to be faced with the necessity of making reasonable margin provisions such as will permit banks to compete with bootleg loans and other money markets which are beyond the control of Congress. That is a very real danger.

Mr. LEA. Well, in a word, what would you suggest in lieu of the margin provisions of this bill?

Mr. WITHINGTON. Mr. Lea, I suggest-and I hesitate to state that I agree with Mr. Whitney's suggestion for fear that it may carry the inference that I have been influenced by his suggestions, and if you will look at Mr. Collins' brief, president of the Boston Stock Exchange, in the hearings before this committee, it will appear that he made the first suggestion that the entire credit control with regard to the margins should be put in the Federal Reserve Board, which Board, it is believed, because of its familiarity with conditions and the necessity of having provisions which will permit banks to operate and not be in competition with bootleg loans, would have a better judgment than the arbitrary provision written into the law. Putting that check in the Federal Reserve, giving them uncontrolled check, is a tremendous concession to what has been in force for over 100 years, that is absolute control of margins by the exchanges themselves.

Now, the exchanges are willing to say, "We will put that in the hands of the Federal Trade Commission", and at best, if the Federal Trade Commission does not act at all, they are only committing the error of leaving the margins in the hands of the people who have had it for over a hundred years.

That does not seem to us a very serious possibility.
Mr. MAPES. You mean the Federal Reserve?

Mr. WITHINGTON. Federal Reserve Board; yes, sir.
Now, I have said all I care to say on that provision.

With regard to the matter of segregation, there, again, the Boston Exchange and the Chicago Exchange have a very vital interest. We will take our chances before a commission. We will take our chances, Mr. Chairman, before any member of this committee and expect to be treated fairly when the responsibility is assumed by the person who is making the decision, having due regard paid to the reasons advanced for a particular practice.

Now, in the drafting of this bill, the original bill insisted on absolute segregation of broker and dealer capacities. Yesterday Mr. Smith pointed out that it is a vital thing, a necessary thing, to have this great distributing organization available for financing. And that has been written into the present bill. And yet, after 8 days of study, and 8 days of concentration and criticism, when the present bill was drafted dealing with segregation, Boston and Chicago Exchanges were forbidden from carrying on a service which is extended to the small investors in those communities, and without which the small investor would be deprived of the market privileges, that is, the odd-lot business.

There is no broker on the Boston or Chicago Exchanges that could live solely on odd-lot business. In New York, yes; but in the smaller places the odd-lot business which is carried on solely for the benefit