Senator BULKLEY. But how can you possibly reach the conclusion that you state without any knowledge of the figures?

Mr. HECHT. I do not admit that I do not have any knowledge. Senator BULKLEY. What knowledge have you? Let us get it on the record.

Mr. HECHT. I have already made the statement that I could name, without giving the name of the institutions, any number of banks. Senator GORE. Can you give a hypothetical case that would parallel one of those actual cases?

Mr. HECHT. Why, yes; very easily.

Senator GORE. Give us that.

Mr. HECHT. You take a bank that may have $5,000,000 of capital and surplus and it has a bank building that may be on its books for three and a half or four million dollars. There are any number of such cases as that. It might also have a certain amount of mortgage business besides. But the bank of that magnitude would have a good many real estate loans. Under this provision not only would the Comptroller revalue the real estate which they are carrying, which to me appears to be an impossible task in times such as we are living in now, because I do not know what the market value of any real estate is just now, but in addition to that the real estate owned by that bank, plus the mortgage business that they may normally do, plus the real estate that they may have money loaned on more or less against their will that they may have taken as collateral security after a loan was made, would certainly so far exceed the limitations in this bill that that bank could not under any condition within two years put itself in shape to comply with the provisions of the bill.

Now, how many times that case can be multiplied I am not prepared to say, but I should say that there are hundreds of cases, to be conservative, that would be in that class of cases.

Senator BULKLEY. Is that an actual case, Mr. Hecht, that you have just given?

Mr. HECHT. Yes.

Senator BULKLEY. You have given us actual facts?

Mr. HECHT. Yes. There are several cases where the figures are almost identical where this description would fit.

Senator BULKLEY. What is your opinion as a banker of the condition of that bank as a commercial banking institution?

Mr. HECHT. Senator, the question comes right back to what I said a moment ago. If they were starting from scratch and were trying to lay down laws of what is good business for a bank to do in the way of encouraging it to own its own bank building or office building, I might be inclined to say that the bank was unwise in going that far. But at the same time, there were circumstances that make that a perfectly sound transaction. In the several cases I have in mind I know the return is perfectly satisfactory, and while it may not be what you and I would do if we started today, still to undo that all over this country would do a great deal

of harm.

Senator BULKLEY. Now let us avoid the hypothetical question of what we might do if we were starting all over again. I would like to know your opinion about whether that is a good sound condition. to-day or whether it is a bad condition.

Mr. HECHT. It is not necessarily an unsound or bad condition at all.

Senator BULKLEY. You think that is all right for a commercial bank to be in the position that you have just stated?

Mr. HECHT. I think that the four or five banks that I have in mind in what I am speaking about are perfectly sound, good banks. Senator BULKLEY. I do not mean to question that, but I am asking you whether you think that is a good condition for a commercial bank to be in.

Mr. HECHT. I think it is a perfectly safe condition for the particular institutions to be in. I am not prepared to say that there may not be some other banks where it is not a good condition.

Senator BULKLEY. We will have to measure the value of your conclusions in the light of that opinion expressed, that that is a sound and proper condition for a bank to be in.

Mr. HECHT. Well, Senator, you have no right to put more in my statement than I have put in it.

Senator BULKLEY. I do not mean to put a bit more in it. I want to get your own statement.

Mr. HECHT. I think it is not possible to lay down a hard and fast rule and say that a thing is sound or unsound, because circumstances alter cases, and there are many good banks that are in that position that are just as safe and safer than banks that have no bank buildings at all; but I have no doubt that there are other banks that have gotten themselves into a tight position as a result of such unwise investments.

Senator BARKLEY. Let us suppose that your hypothetical bank that has $5,000,000 of capital and surplus has three and a half or four million of it invested in a bank building, and let us suppose that the value of that bank building has gone down to $2,000,000. You are still valuing it on the books at three and a half or four-I don't mean you, but your bank. Supposing that the Comptroller of the Currency should take the same position with reference to that that he has taken with reference to the deflation of the value of bonds. What would be the result of that? Many banks have been closed because of the deflation of the value of bonds in which the capital and surplus of the banks have been invested-that is true, is it not?

Mr. HECHT. Yes.

Senator BARKLEY. Suppose the Comptroller of the Currency took the same position with reference to the enormous decrease in the value of real estate. What would be the result?

Mr. HECHT. Senator, there could only be one result.

Senator BARKLEY. Yes.

Mr. HECHT. And that would be disaster.

Senator BARKLEY. What is the difference, though, in the soundness of the security?

Mr. HECHT. Senator, I do not believe the man lives who could go over these United States to-day and tell you or me what the value, the market value, on all the bank buildings is in the United States to-day. I do not think anybody can do that.

Senator BARKLEY. No; but we all know that there has been a considerable deflation in real-estate values.

Mr. HECHT. That is true, and yet the rentals from these bank buildings probably have not changed at all; but I admit if you tried

to sell these buildings to-day you would unquestionably have to take a very severe loss.

Senator GLASS. Do you believe in the existing law and in the requirements as to the judgment of the comptroller in writing off bad loans?

Mr. HECHT. Why, yes; of course.

Senator GLASS. Do you think if he were to do that now he would not close about 60 per cent of the existing banks?

Mr. HECHT. I should hate to think that there was any such percentage as that, Senator, but no doubt that would close some banks. Senator GLASS. I have heard it put much higher than that by experienced bankers.

Mr. HECHT. Well, of course, I would leave it to the comptroller to make that estimate. I would not care to hazard a guess of that kind. But I would not like to add to his difficulties.

Senator GLASS. You do not think the law ought to be enforced, then, do you?

Mr. HECHT. No; I do not say that. I think the comptroller is quite capable of reaching his own conclusions on that. I think he is doing the right thing in the valuation of high-class bonds. I think that has been a very sound practice on the part of the comptroller in not attempting, just because there are a few chalk marks that say a bond that is perfectly good and gives a good return and is high class in every respect, that a bank should write down its surplus because 5 or 10 bonds have sold at a certain price. I think the comptroller on the whole has pursued a very sane and sensible policy.

Senator GLASS. I am not questioning that, but it is not a policy in conformity with the practice in ordinary times, is it, under the law? Mr. HECHT. Well, he has undoubtedly made some modifications. The one I have just spoken of is the best example. I do not happen to be a national banker, and I am not perhaps in as close touch with that as I might be.

Senator GLASS. What more reason is there requiring a comptroller to require banks to write off depreciated stocks and bonds that does not apply to real estate?.

Mr. HECHT. For the simple reason that I do not think it is possible to determine the value of real estate with anything like the accuracy that you can determine the value of securities. I just do not believe any real-estate appraiser in the land is capable of that. Senator GLASS. Do you think the value of securities were very accurately determined in 1928 and 1929?

Mr. HECHT. They were very accurately determined from the standpoint of their salability. Too many of us made the mistake in not selling them, but they were certainly salable at that time.

Senator BROOKHART (presiding). Wasn't that the time when this hysteria that you talk so much about occurred?

Mr. HECHT. It was another type of hysteria, Senator; yes. There was just as much hysteria in 1929 on the bull side of it as there is hysteria at the present time in fear and lack of confidence.

Senator BROOKHART. This thing you call hysteria now simply is cautiousness against the hysteria we had in 1928 and 1929?

Mr. HECHT. No, Senator; I would go a little further than that I would say that, taking the value of securities in 1929, the question of earnings or anything of that sort did not enter into it apparently. Things were boomed up to an unreasonable point.

Senator BROOKHART. That was all hysteria, was it not?

Mr. HECHT. That was hysteria; yes.

Senator BROOKHART. And the bankers had just as much in that as anybody else?

Mr. HECHT. I am not excusing the bankers from making out any better than the average man. But I say that now the same is true; that earnings and general values have just as little to do with quoted prices on the exchanges as they had in 1929, because they have gone down just as much below their intrinsic value as they were above their intrinsic value in 1929.

Senator BROOKHART. I have here an Alexander Hamilton Institute chart which shows the value of those bonds, 95 stocks, are still, to-day, as high or perhaps slightly higher than they were in the warinflation period of 1919.

Mr. HECHT. Well, of course, I am not familiar with the chart that you have or know anything about it, but the question of what stocks are picked out there and all that would enter into it. I would not care to discuss that without knowing what I was referring to.

Senator BROOKHART. There is another chart of the Federal Reserve Board, with all 337 of them, showing about the same condition of the whole output of stocks.

Mr. HECHT. What do you call the inflationary period of the war? Senator BROOKHART. 1919 is what I am referring to here. That is the high period until 1921.

Mr. HECHT. Of course, I am not an expert on stocks, and I do not pretend to have any opinions on them; but just thinking in my own terms of the large corporations in this country, and thinking of their values to-day as compared with 12 or 14 years ago, I am sure that they are selling far below their 1919 quotations to-day.

Senator BROOKHART. The Alexander Hamilton Institute would be quite reliable?

Mr. HECHT. I should think it ought to be; but I repeat, I prefer to stick to banking and not express opinions on stock exchange operations, because I know very little about that.

Senator BROOKHART. Well, but you have come here before us and want to maintain these affiliates with the banks that deal in stocks and bonds.

Mr. HECHT. I am to begin with not thinking of affiliates in the terms of dealing in stocks.

Senator BROOKHART. You limit them to bonds altogether?

Mr. HECHT. Yes; I think the investment business is not a stock business.

Senator BROOKHART. Bonds themselves are behind the stocks, though, are they not?

Mr. HECHT. They come ahead of them, not behind them.

Senator BROOKHART. Well, ahead of them. They are part of the same organization?

Mr. HECHT. But in quality they do vary materially from stocks. Senator BROOKHART. But a bond may be watered just as easily as a stock?

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Mr. HECHT. Most assuredly, yes; but it has security behind it. Senator BROOKHART. Were you in the National Credit Corporation that was organized by the banks?

Mr. HECHT. Yes, sir.

Senator BROOKHART. To help themselves and to take care of this situation?

Mr. HECHT. We were.

Senator BROOKHART. And that did not get very far?

Mr. HECHT. We loaned out in our particular section in Louisiana and Mississippi some eight or nine million dollars.

Senator BROOKHART. And how much was altogether? You have quit now, haven't you?

Mr. HECHT. About one hundred eighty million, if I am not mistaken.

Senator BROOKHART. Out of the five hundred million that was subscribed?

Mr. HECHT. Yes, sir; approximately that. Some of it has been paid back.

Senator GLASS. You subscribed how much?

Mr. HECHT. We subscribed to 10 per cent of our capital and surplus.

Senator BROOKHART. How much did you ever pay in?

Mr. HECHT. We paid in 30 per cent of that. In our case, with five hundred fifty thousand subscription, we paid in 30 per cent, one hundred sixty-five thousand, of which 15 per cent is being paid back to-day, the first payment.

Senator GLASS. Do you regard that as a very great burden?
Mr. HECHT. Not under the circumstances.

Senator GLASS. Why, then, do you regard this one-half of 1 per cent, or really one-quarter of 1 per cent assessment, of this liquidating corporation burdensome?

Mr. HECHT. I think there is a little difference there, because what we were doing in subscribing to that, we were helping out our own immediate situation in Louisiana and Mississippi, which was of course very close to our hearts. In this we would be a little further removed from it, but I have indicated that so far as the provision of the liquidating corporation was concerned, while I think that is a little too high, I have no serious difference of opinion with you on that whole plan.

Senator GLASS. What percentage would you assess the banks?

Mr. HECHT. My objection to it, frankly, Senator, was more on the proportion of the Federal reserve contribution who would have to put in very little cash, and the banks who would have to put up a proportionately large amount. Of course, you may say that was offset, but my opinions on that are so nearly the same as yours that I do not believe that if we had that bill under consideration by itself it would be very difficult for me to agree with you, except that I still might want to argue a little about the proportions, but I do not think I would even want to oppose the bill itself on that ground.

Senator GLASS. The proportion would be just as burdensome in a separate bill as in this, would it not?

Mr. HECHT. Yes, it would be. I have only made the statement that I thought the proportions might be adjusted to some extent, but