up tight like real estate, and it will be a tremendous blow to Florida if you pass this bill. And, Mr. Chairman, I enjoyed being down there in January.

Now, Mr. Pecora, you told me the last time I was here that I would not have to close up shop. I am going to hold you to that.

Mr. PECORA. I hope you are not looking to interest me as a partner.

Mr. BUTCHER. Partners are not so willing to take the risks these days.

The CHAIRMAN. All right, if that is all. Mr. Butcher, you spoke about Florida, and I have a telegram from a man saying that perhaps under the bill the State of Florida next winter will very much resemble the State of Nevada. I do not know what he means. you?

Do

Mr. BUTCHER. I can tell you later, after your hearing. Mr. PECORA. Perhaps he means that the wives of brokers will seek divorces. [Laughter.]

The CHAIRMAN. I think Nevada is doing very well.

Mr. BUTCHER. Well, I think I know what he has reference to, but I would rather tell you after the hearing closes today. (Mr. Butcher left the committee table.)

The CHAIRMAN. Mr. Smith was supposed to come before us first this afternoon, but Mr. Butcher wanted to go back home in Philadelphia, and promised that he would not take very long, and in order to give an opportunity for more members of the committee to be in attendance we delayed hearing Mr. Smith. Now, Mr. Smith, if you will take a seat at the committee table opposite the microphone, and will state your name, residence, and occupation.

Mr. SMITH. My name is Tom K. Smith. I am president of the Boatman's National Bank, St. Louis, Mo., temporarily acting as Assistant to the Secretary of the Treasury.

STATEMENT OF TOM K. SMITH, ASSISTANT TO THE SECRETARY OF THE TREASURY, WASHINGTON, D.C.

The CHAIRMAN. Mr. Smith, have you considered some portions, anyhow, of this bill, H.R. 8720? If so, we would like to hear your views about the bill.

Mr. SMITH. Mr. Chairman, if you please, I should like to make a prepared statement first.

The CHAIRMAN. Very well; you may proceed.

Mr. SMITH. The Nation has experienced undoubtedly the most severe depression in its history. There seems to be no doubt that excessive speculation and harmful practices that developed in the securities market-particularly on the stock exchanges were among the major causes of economic disaster.

We have started on our way to recovery. It is of supreme importance that a repetition of old mistakes should not wreck our efforts to bring about a broad and lasting economic improvement. The time is appropriate for legislation to remedy stock-exchange abuses and to place stock-market activities under reasonable and adequate regulation in the public interest. Those who wish to invest their savings, and industries having legitimate need for capital funds, must alike be protected from the evils of wild and unchecked speculation.

The general purposes of the National Securities Exchange Act of 1934 is to attain these ends. And, incidentally, I am referring to the House bill as revised. But, I take it that is understood.

Mr. PECORA. You mean H.R. 8720.

Mr. SMITH. Yes.

The CHAIRMAN. You may continue your statement.

Mr. SMITH. The general purposes of the National Securities Exchange Act of 1934 is to attain these ends. Its major objectives are: First. To establish Federal supervision over securities exchanges. Second. To prevent manipulation of security prices and to protect the public against unfair practices.

Third. To prevent excessive fluctuations in security prices due to speculative influences.

Fourth. To discourage the use of credit in the financing of excessive speculation in securities.

With these general objectives the Treasury is in full accord.

The Treasury has been consulted on certain parts of the bill which are of direct concern to it. Within the limited time available, these have been studied to determine whether they would have an unduly adverse effect on the marketing of Government securities or on the national financial structure. Changes which were regarded as necessary within the framework of a general regulatory measure were suggested to the counsel for the committees of the Senate and House and were, in all material respects, incorporated in the bill.

The Treasury has not considered those provisions of the bill which relate to the strictly technical matters of stock-exchange practice and regulation. Failure to comment on those provisions does not mean that the Treasury is opposed to them, but only that they have not been the objects of our study. The Treasury is, therefore, not in a position to express an opinion on them.

Mr. Chairman, I am submitting that statement with the approval of the Secretary of the Treasury. I will be glad to answer any questions the members of the committee may desire to ask.

The CHAIRMAN. Are there any questions?

Senator ADAMs. Personally, I should like to have Mr. Smith's views about the bill.

The CHAIRMAN. He has given them to us.

Senator GORE. How well is this bill designed to attain the desires ascribed to it?

Senator ADAMs. He has not given us very much about the bill so far.

Mr. SMITH. That is all that I can give you.

Senator KEAN. What portions of the bill did you study?

Mr. SMITH. We studied the portions that had to do directly with Government financing.

Senator KEAN. Which ones were those?

Mr. SMITH. I would have to go through the bill in order to be able to tell you. They are parts of sections all the way through the bill. It would be better, perhaps, for you to ask me about particular sections of the bill, and then I can tell you.

Senator KEAN. Did you study the section in regard to margins? Mr. SMITH. No, sir.

Senator KEAN. Don't you think that that section might seriously affect the banks?

Mr. SMITH. I cannot answer that question because the subject of margins was not submitted to us for study.

Senator KEAN. Suppose that the president of the Chemical National Bank and the president of the Guaranty Trust Co. were down here and they said in regard to the other bill, and this bill is practically the same, that it would make for tremendous liquidation in a number of their loans. Wouldn't that affect banking if that were true?

Mr. SMITH. I am instructed by the Secretary of the Treasury only to comment on those sections that we studied at the request of the committee.

Senator WALCOTT. What sections of the bill did you study?
Mr. SMITH. We studied section 10.

Senator WALCOTT. There is no reference in your statement to what portions of the bill you studied.

Mr. SMITH. It is impossible to do that.

Senator WALCOTT. We would like to know for our information. Mr. SMITH. Well, we studied section 10 of the bill, which has to do with brokers-dealers.

Senator GOLDSBOROUGH. You answered Senator Kean that you had not studied section 6 with reference to margin requirements, I believe.

Senator ADAMS. He goes beyond that, Senator Goldsborough, and says he is instructed not to comment on other sections of the bill. Senator GOLDSBOROUGH. Then I do not care to ask him any questions.

Senator WALCOTT. What sections of the bill can you speak to us about?

Mr. SMITH. Only the sections submitted for our study.

175541-34—PT 16— -5

Senator ADAMS. And you are under instructions not to give a personal opinion about things? I had supposed you were more or less an expert and student of this bill.

Mr. SMITH. We studied section 6 inasmuch as we considered the question of regulation by the Federal Reserve System of the flexibility of the control of bank loans.

Senator GOLDSBOROUGH. Does the Treasury Department approve of that section?

Mr. SMITH. Not in its entirety.

Senator TOWNSEND. How would they want it modified in order to comply with the desires of the Treasury Department?

Mr. SMITH. We are not asking for any modification.

Senator TOWNSEND. You understand, I take it, that we are engaged here in an effort to get this bill in shape and are very anxious to have the ideas and recommendations of the Treasury Department. Mr. SMITH. We were asked to study certain sections of the bill, Senator Townsend, and that is what we have done.

Senator GORE. Well, your statement does not contribute very much, and you will probably agree with us that it is not very helpful in solving the problem before us.

Senator BULKLEY. Mr. Smith, are you instructed not to tell which sections of the bill you have studied?

Mr. SMITH. No, sir.

Senator WALCOTT. Well, what sections have you read?

Mr. SMITH. All of them.

Senator WALCOTT. What sections are you now speaking of?

Mr. SMITH. If you care to ask me questions about sections of the bill, I will tell you whether we were asked to study them or not; and if we did study them, we will give you our views.

Senator ADAMS. Do you have permission to give expression as to whether or not this bill, if put in operation as it stands, would affect seriously the operations of stock exchanges as a legitimate market for securities?

Mr. SMITH. I will let my prepared statement answer that question. Senator ADAMS. My reason for asking you that question is this: That the stock market as it stands is one of the places where Government securities are sold. You realize that?

Mr. SMITH. Yes, sir.

Senator ADAMS. And therefore, if the bill had a tendency to destroy that as an open market, it would have a very decided effect upon your department. I thought you would be interested in that general effect of the bill.

Mr. SMITH. It was not a question of what we were interested in but what we were asked to report on.

Mr. PECORA. Mr. Smith, may I ask you a question right there?
Mr. SMITH. Certainly.

Mr. PECORA. In your prepared statement you say the Treasury has been consulted on certain parts of the bill which are of direct concern to it. Now, what were those parts of the bill?

Mr. SMITH. You will recall that at the first conference we were asked to give our views as to the effect on Government financing and bank credits as well as other subjects of direct concern to the Treasury and were not consulted about the regulatory provisions of the bill. Senator GORE. Who asked you about those?

asked me!

Senator WALCOTT. Yes. But I do not understand why you cannot answer these questions.

Mr. SMITH. He asked me who wrote this bill.

Senator WALCOTT. It was done down in the Department, wasn't it? Mr. SMITH. This bill?

Senator WALCOTT. Yes. Or you say you do not know who wrote it. Mr. SMITH. The first time I heard of this bill I was asked to get in touch with the chairman of your committee, and I did so, and he asked Mr. Pecora to meet us. Previous to that time we had gotten in touch with the chairman of the House committee, who asked us to meet his counsel, Messrs. Corcoran and Cohan.

Senator ADAMS. Were you as cautious in advising Mr. Pecora as you have been in advising this committee?

Mr. SMITH (simply laughing, without making answer).

Senator WALCOTT. Did you get in touch with Mr. Corcoran and Mr. Cohan?

Mr. SMITH. Yes; but I do not know who wrote this bill.
Senator GORE. Did you talk with them at all?

Mr. SMITH. If they had any questions to ask about the bill.

Senator WALCOTT. Well, our questions are entirely related to the bill, but you do not answer any of them.

Mr. SMITH. I do not know who wrote the bill. It was not written in the Treasury Department.

Senator GORE. I think Mr. Smith better go back and tell them to stop tattling.

Mr. SMITH. Did you have the impression that the bill was written in the Treasury?

Senator WALCOTT. I was told it was partly written there.

Mr. SMITH. We made suggestions regarding the revised copy.
Senator WALCOTT. What suggestions did you make?

Mr. SMITH. We made suggestions as to the separation of brokerdealer, and as to the question of bank loans, and as to the question of Government financing.