Mr. HAAS. I will say this, Senator, it is so much easier to run a good bank than it is to run a poor bank.

Senator BROOKHART. Is it not true that most of these banks have failed because of economic conditions that were forced on them?

Mr. HAAS. Many of them have in certain sections of the country where they have had unusual conditions, like drought and crop failures, and things of that kind.

Senator BROOKHART. In the agricultural States, they said to the bankers, "Lay off of farmers' loans. They are not sound. They are not liquid. Buy these long-time bonds." About 5,000 banks were closed with farmers' frozen paper. And then they loaded up with the long-time bonds, and then in 1929 they came along and they were deflated more than the farmers' paper, and now they are being closed because they have got the bonds.

Senator COUZENS. Are you going to have any more witnesses this afternoon, Mr. Chairman?

The CHAIRMAN. There will be another witness.

Senator FLETCHER. How do you account for the fact that there were only nine bank failures in Canada last year?

Senator GLASS. Last year?

Senator FLETCHER. Last year.

Senator GLASS. No; they have not had but one bank failure since 1914.

Senator FLETCHER. I understand there were nine.

Mr. HAAS. Their system is very flexible.

The CHAIRMAN. When one fails that means 500 fail, does it not, or a thousand, or two thousand?

Senator FLETCHER. Five of these paid the depositors in full, and only four did not.

Mr. HAAS. There have been no failures recently, Senator.

Senator BULKLEY. Mr. Haas, aside from the advisability of acting at this time, or the inadvisability of it, is there anything in this bill that is unsound in itself?

Mr. HAAS. Unsound theory?

Senator BULKLEY. Yes; is there anything in the bill that is affirmatively bad, leaving aside the question of whether it is wise to do it now or some other time?

Mr. HAAS. Well, I would say that there are certain provisions, as I have tried to outline here, in the bill that would be detrimental of the interest of some of the member banks, because of the character of their business.

Senator BULKLEY. You mean the instance where you have a hundred million dollar institution with a million dollars worth of rediscountable paper? Is that the sort of example you mean?

Mr. HAAS. I do not think that I understand you.

Senator BULKLEY. You gave an instance of a great institution. Mr. HAAS. Yes.

Senator BULKLEY. Is that what you mean by your statement? Mr. HAAS. Take the collateral loans in our bank, if we have a commercial demand for money, we are an active bank, we take care of our commercial demand. That is our first job.

Senator BULKLEY. Yes, sir.

Mr. HAAS. If we have money left over we have to use it in some way to produce an income for the bank.

During this easy-money period, we could have increased the deposits of our bank millions of dollars, but we would not take the money, because we could not do anything with it, they wanted a high rate of interest, and we refused to pay it, and if we had taken it and paid the rate of interest and put it into the kind of securities and investments that would have enabled us to pay that rate of interest, we would have lost a great deal of money.

Senator BULKLEY. What is there in this bill that makes that any worse?

Mr. HAAS. The collateral loans.

Senator BULKLEY. Do you mean the possibility that they might restrict your percentage of collateral loans? Is that what you mean? Mr. HAAS. Yes.

Senator BULKLEY. The possibility that it might be restricted unwisely?

Mr. HAAS. Yes; that is right.

Senator COUZENS. What would you say to Congress fixing the amount instead of leaving it to the Federal Reserve Board?

Mr. HAAS. I do not know whether you can fix it, Senator, under any percentage or any yardstick. I think the bank has to regulate its loans according to its business needs at that time.

Senator COUZENS. What is your experience over these three kinds of periods that you just spoke of, bad times, fair times, and good times? What does your experience indicate that the percentage of deposits was invested in security loans?

Mr. HAAS. Well, they have gone up when the commercial demand was low, and there was an active demand for money on collateral. On brokers' loans we never lost a dollar.

Senator COUZENS. But what percentage of your loans?

Mr. HAAS. I do not recall, Senator.

Senator COUZENS. Don't you have an idea how far you went up at any time?

Mr. HAAS. Not just offhand.

Senator COUZENS. You haven't the slightest idea?

Mr. HAAS. Oh, I have an idea, yes; but whatever I would give you would simply be a guess.

Senator COUZENS. That is what I am asking you, to give us a guess so that we could get some light on it. Mr. HAAS. I would say 10 per cent. Senator COUZENS. Of your deposits? Mr. HAAS. Of our gross deposits.

Senator COUZENS. Then during the demands for your customers, how low would you go down, or would you wipe that out entirely? Mr. HAAS. No; we would not wipe them out entirely. It is necessary to have some money that you can call and get quickly as a secondary reserve in the shape of collateral loan, that you can immediately call, that you do not have to wait for the maturity of an obligation but can call immediately.

Senator GLASS. Do you know of a panic we have ever had in this country that did not result from the call system, call-loan system?

Mr. HAAS. You mean, Senator, that all of them have been caused by call loans?

Senator GLASS. Yes; in one way or another.

Mr. HAAS. Well, I have not analyzed all of them just to see whether that is the cause. I am wondering whether it is the cause or the effect, Senator. Now, you take

Senator GLASS (interposing). Is it not a fixed system of the average bank to maintain what it calls its standard rate of discount, never giving to the commerce or industry of the community the advantage that ought to ensue from easy money and easy credit, but bundling it up—I think that was under the old system before the adoption of the Federal reserve act-bundling it up and sending it to the money centers to be loaned on call at a nominal rate of interest?

Mr. HAAS. Well, of course, the corporation business or the private business that has been sent to the money centers to be loaned on call has taken care of itself by the clearing houses that have passed their own particular rules.

Senator GLASS. I am not talking about loans now for others; I am talking about the banks themselves.

Mr. HAAS. The clearing houses have themselves passed rules prohibiting the members from making loans for account of others.

Senator GLASS. Oh, yes; and may rescind them day after to-morrow for that matter, if we do not put a provision in the statute. But I am not talking about loans for others; I am talking about the banking system itself. Generally, do not the banks of each community have what they call their standard rate of interest from which they are always reluctant to depart, no matter what the condition of the money market is?

Mr. HAAS. I will say that the customer of a bank gets a rate of interest commensurate with the type of account which he carries. Naturally, the customer that carries a very good balance in the bank and you analyze his account find it profitable. He would expect the very lowest rate which you could possibly give him.

Senator GLASS. But what I am asking is: Do many banks give a rate below their standard to the average borrower, no matter how easy money is?

Mr. HAAS. Well, Senator, many country banks, you know, have a standard rate, and that is 6 per cent.

Senator GLASS. That is what I am saying-or more, I say "or

more."

Mr. HAAS. I am talking about Pennsylvania particularly. The country bankers get generally 6 per cent.

Senator FLETCHER. Is that the legal rate in Pennsylvania?
Mr. HAAS. Yes; except by contract.

Senator BROOKHART. How about city banks? Do they have a standard rate, too?

Mr. HAAS. No. What I meant, Senator, in explaining that, is that the rate is based on the character of the man's account, the amount of balance he carries, whether the account is profitable, how much work you do for him. Take, for instance, one with a large balance carried in a city bank. If you look at it and on the face of it you might think that it is profitable; you would think that

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you could give that man a low rate for money; but when you analyze that account you find that the activity of the account does not give you any profit. You can not even pay him interest on his account. Senator BROOKHART. There is a certain portion, though, of surplus credit that you send to New York particularly, even from Philadelphia, is there not?

Mr. HAAS. Yes, Senator.

Senator BROOKHART. From all over the country?

Mr. HAAS. We have not had a New York loan for ages. We happen to have one loan in Chicago, and that was simply because we had a customer there.

Senator BROOKHART. I mean to send to New York banks for redeposit.

Mr. HAAS. We would not do that, Senator, just to carry balances there and just to carry money there. We do that for the service which they render us. For instance, we have many thousands of coupons that are payable in New York, and we have to send them to some one in New York.

Senator BROOKHART. You maintain a balance there all the time? Mr. HAAS. We maintain a balance there?

Senator BROOKHART. You get an interest on that?

Mr. HAAS. Yes; according to the clearing-house rule.
Senator BROOKHART. What is that rate now?

Mr. HAAS. One-half of 1 per cent.

Senator BROOKHART. The banks out in our country, when they have a surplus they charge a farmer 7 or 8 per cent and business 6 or 7 per cent. The eastern part of the State is lower than the rate in the western part, but they send surpluses down to New York for this one-half of 1 per cent in order to maintain that standard rate. Is that not the pretty general custom over the country?

Mr. HAAS. Well, I would hate to accuse them of doing that, Senator, just to get a half of 1 per cent. I think they send it down to have it available when they want it.

Senator BROOK HART. Most of the time they have got a higher rate than that, have they not?

Mr. HAAS. In New York?

Senator BROOKHART. Yes; since the Federal reserve act went into effect.

Mr. HAAS. Over a long period of time now we have had a very low rate. As a matter of fact, they were considering

Senator GLASS (interposing). Yes; but prior to the adoption of the Federal reserve act the normal commercial rate was 2 per cent, was it not?

Mr. HAAS. Yes.

Senator GORE. Why do you pick on this one-half of 1 per cent in New York? You say they do not pay any attention to the Volstead Act there anyway.

Senator BROOKHART. I made a comparison of it once, and I found it was 134 per cent for quite a long time after the Federal reserve act, and I think it got up once to 2/2, which was the highest, I believe, that they ever paid on that money.

Mr. HAAS. Yes; I would say that is right.

Senator BROOKHART. Since the panic it has gone back down to this one-half of 1 per cent.

Mr. HAAS. Senator, I would not like to say that a bank out in your State sends money to New York to get that half of 1 per cent.

Senator BROOKHART. Well, they had better get that than nothing, had they not?

Mr. HAAS. Oh, yes; rather than to-they would have to carry it somewhere. They either carry it in some bank or cash.

Senator BROOKHART. Would it not be better banking and better to them if they would lower their interest rate at home down to where people could afford to pay it and lend it at home?

Mr. HAAS. That is a matter for them to work out.

Senator BROOKHART. Would not the whole banking system be sounder if the interest rate were lowered all over the country so that business could afford to pay it?

Mr. HAAS. Senator, if you were starting with a clean slate, if we were trying to have an ideal banking situation and we started with a clean slate of no interest on any kind of deposits, then, of course, we could have saved 38 to 50 per cent of the banks' gross expense on interest on deposits. Now, if we start with a clean slate, no interest anywhere, neither State bank, national bank, or trust company pay no interest, why, of course, we could afford to do business all along the line on a lower basis of income.

Senator BROOKHART. You mean by that you start by paying too high an interest rate to a depositor and then you collect off of the public too high an interest rate to make it back?

Mr. HAAS. You have to govern the rate according to your business, your cost. What is your cost? The cost of the banking business is so much, and it takes from 38 to 50 per cent of your gross income to pay the interest which the banks pay on their deposits.

Senator BROOKHART. I do not know that that is particularly material to this bill, but I do think that interest rates charged by all the banks and all the other lending companies are higher than the American people can ever afford to pay, higher than American production can stand.

Mr. HAAS. Senator, I am just wondering

Senator GLASS (interposing). I am just going to say we are not trying to restrict that in this bill.

Senator BROOKHART. No; that is outside the bill.

Mr. HAAS. Just on your point. Senator, I am just wondering whether you make a distinction between short-time money and longtime money?

Senator BROOKHART. I think it is all too high, short and long and the whole business, except these particular situations we have just described in the New York bank. They are low enough.

Senator BULKLEY. Mr. Haas, I would like to go back to something we were talking about a few minutes ago and see if we can understand it a little better. See if I understand you correctly. I think you said your bank was refusing considerable sums on deposit because you did not think it was wise to use the money on collateral loans at this time and did not have any other use for it; is that right?

Mr. HAAS. No. I would like to correct you on that. We did not think we could handle it satisfactorily at a profit. In other words, it was not permanent money.

Senator BULKLEY. Yes.