Mr. SMITH. We have on that subject; yes. That is not under the section that Congressman Wolverton was asking about.

Mr. WOLVERTON. What is the opinion of your department with respect to the reports and accounting methods required by this bill? Mr. SMITH. You are asking about the things that we were asked not to devote ourselves to.

Mr. WOLVERTON. Were you asked for an opinion as to whether the bill should be drawn on the theory that it should provide, by statute, rules, and regulations to govern the stock exchanges, or whether the stock exchanges should be permitted to regulate themselves with a reserve power in a Government agency to control?

Mr. SMITH. No, sir; we were not. We were asked to consider certain parts of this bill, and that, of course, is not in this bill. Mr. WOLVERTON. Well, Mr. Smith, your frankness

Mr. SMITH. My what?

Mr. WOLVERTON. I say, your frankness

Mr. SMITH. My frankness.

Mr. WOLVERTON. Your frankness in answering my questions encourages me to suggest, and with the hope, that the Department will be asked its opinion on the other important matters in the bill, so that we can have your opinion as frankly on all that is in the bill, as we have had your opinion, frankly, about some of the provisions that are in the bill.

Mr. MILLIGAN. Mr. Chairman.

The CHAIRMAN. Mr. Milligan.

Mr. MILLIGAN. Mr. Smith, as I understand, the President of the United States has asked you to consider certain sections of this bill that apply to banking and the sale of Government securities and you did that under the direction of the President of the United States. Mr. SMITH. Yes, sir.

Mr. MILLIGAN. And, you are here today prepared to answer any questions upon those sections that you have studied and are willing to give the opinions of the Treasury on those particular sections. Mr. SMITH. Yes, sir.

Mr. MILLIGAN. And I would suggest that you go through the bill and point out the sections that you were directed to study and give the opinions of the Treasury on those sections.

Mr. KENNEY. Mr. Chairman.

The CHAIRMAN. Mr. Smith, before you proceed Mr. Kenney has some questions.

Mr. KENNEY. Mr. Smith, I would like to clear up one matter in my mind. You stated that certain sections have the approval of the Treasury. I have marked these sections here.

Now, when you say that, do you mean that the Treasury approves of the sections so far as the interests of the Government are concerned, or do you mean that they have the approval of the Treasury as they affect business and financial interests of the country also?

Mr. SMITH. Well, what was the first alternative so far as what? Mr. KENNEY. So far as the interest of the Government is concerned, and by that I mean the market for Government securities. Mr. SMITH. Both elements were considered.

Mr. KENNEY. And you approve these sections, and when you say they were approved by the Treasury you approve them so far as the business and financial interests of the country were concerned; is that right?

Mr. SMITH. Yes, sir.

Mr. MARLAND. Mr. Chairman.

The CHAIRMAN. Mr. Marland wants to ask a question, Mr. Smith. Mr. SMITH. Yes; Mr. Marland.

Mr. MARLAND. If the effect of this bill should be to materially limit trading in securities on stock exchanges, how would that affect the sale of Government securities; what effect would that have?

Mr. SMITH. How would it affect the sale of Government securities? Mr. MARLAND. Yes, sir.

Mr. SMITH. I do not understand the question.

Mr. MARLAND. Let us put it another way. If as a result of the passage of this bill there should be a decline in security prices, would that aid in the sale of Government securities?

Mr. SMITH. What do you mean; do you mean stock prices?

Mr. MARLAND. Yes, sir.

Mr. SMITH. I do not think it would.

Mr. MARLAND. If there were a general decline in security prices, would that help the sale of Government securities?

Mr. SMITH. No.

Mr. MARLAND. It would not have any effect on the sale of Government securities?

Mr. SMITH. I think that unfortunate, adverse conditions in the country would.

Now, here is what we have said. We have studied these sections of the bill to ascertain whether they would have a needless adverse effect upon Government finance operations. The portions of the bill we have studied met that test.

Mr. MARLAND. But there are other sections of the bill which you have not been called upon to study?

Mr. SMITH. I have no opinion on them. I have so stated.

Mr. MARLAND. They might have an effect.

Mr. SMITH. Of course they might. We have no opinion to express as to those things.

Mr. MARLAND. I am asking your opinion on what effect the general decline in the market would have on the sale of Government securities. Mr. SMITH. I think it would, of course, have an adverse effect. Mr. PETENGILL. Mr. Chairman.

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Mr. Smith, I know that you have worked under great pressure of time, and consequently you must not draw the inference of criticism, but it seems to me that even with respect to matters concerning which you say you particularly studied that your mimeographed statement is just filled with saving clauses.

that you were directed particularly to study the provisions of the bill with regard to the governmental and financial structure of the Nation. to ascertain whether certain of its provisions might have a needlessly adverse effect upon the Government's financing operations, or upon the financial structure of the country; and that you offered certain suggestions most of which have been incorporated. That implies that some have not. Then indeed

Mr. SMITH. Well, may I answer your questions as you state them? Mr. PETTENGILL. Yes.

Mr. SMITH. Of course, when you are studying a bill, its intimate details, as we did these sections, there are many sections where op

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tional language is suggested. And, often after discussion, our suggestions were not accepted.

Mr. PETTENGILL. Then, in the next sentence, where you say, "I believe, that for the most part, matters about which we were principally concerned, had been corrected by the exchanges."

Mr. SMITH. The answer to that is that you cannot operate without drawing blood, as I have said before. Of course, we cannot foresee all of the possibilities, all of the consequences of this act.

Mr. PETTENGILL. Exactly. Neither can we.

Mr. SMITH. That is correct.

Mr. PETTENGILL. And our responsibility in this matter is as great as yours.

Mr. SMITH. Yes.

Mr. PETTENGILL. Certainly no responsible person would want to do anything that would adversely affect the financial structure of the Nation.

Now then, with reference to that statement of yours that it is "our belief that for the most part these matters have been corrected", do you still retain in your mind some suggestions which, as an individual, you would have us put in the bill?

Mr. SMITH. Of any consequence?

Mr. PETTENGILL. Yes.

Mr. SMITH. No, sir; I would not be here testifying if I did.

Mr. PETTENGILL. Well, of course, I do not know but what your views were representing some compromise that you felt

Mr. SMITH. We could not compromise on matters of any importance. Mr. PETTENGILL. Then, the next paragraph where you say that you think that the provisions of the bill have been so revised as to mimimize the dangers which you infer existed in the original draft of the bill with reference to the business recovery of the Nation. Now, the language "mimimize this danger"; does that imply that you think that there is still some danger?

Mr. SMITH. Well, there is a certain degree of danger. It is a matter of degree. There is bound to be in a measure of such magnitude as this, and

Mr. PETTENGILL (interposing). Can you point out to us at this time any provisions of the bill which, in your judgment, do contain dangers to the financial recovery of the Nation?

Mr. SMITH. I think none in the part we reviewed; none of any consequence. But when you are tampering with the stock exchanges of this country and the dealer-broker relations and banking relationsbank's relations with its customers, while we think we have interfered as little as possible with the banking business of this country, there is bound to be some interference. For instance, the bank of the future, in making its collateral loans, will be governed by the requirements of this law.

Mr. PETTENGILL. Do you think, sir, that the margin requirements in the bill will have the effect of depressing security prices?

Mr. SMITH. I have explained several times that I did not consider this subject.

Mr. PETTENGILL. But, if it did have that effect, then with reference to Government securities, it would have an adverse effect; is that a fair statement?

Mr. SMITH. That is a hypothetical thing again.

Mr. PETTENGILL. I say, if the margin requirements of the bill tended to depress security prices generally, it would also tend to make Government financing more difficult and to depress Government bonds?

Mr. SMITH. I think if there is anything in this bill, in the part that we have studied, or outside of the parts that we have studied that injures the country, of course, it will interfere with Government financing. That is true in general.

Mr. PETTENGILL. But, you express no opinion as to whether it will have that effect. You have answered my hypothetical question, yes. But, you do not express any opinion as to the margin requirements in the bill?

Mr. SMITH. The reason I stay away from that is because we did not consider it, that same question has been asked a number of times, and the one thing that we want to do, is to be perfectly frank with each other so that there could be no misunderstanding as to our positions.

Mr. PETTENGILL. Exactly.

Mr. SMITH. Because the Treasury was called in on this.

Mr. PETTENGILL. I understand, but I wanted to get an expression from you.

Mr. SMITH. And we will be glad to do anything we can. We are at your service in any connection. We are not advocating this measure. We are and, above all, I am answering you in order that there may be no misunderstanding about our position-we are anxious to do what we can, and when you mention the margin subject, that is a subject that we have not studied.

Mr. PETTENGILL. Of course, our responsibility is to adopt a bill that will not retard honest and legitimate business recovery in this Nation.

Mr. SMITH. Certainly; but please do not ask us to express an opinion about something about which you have not consulted us. Mr. PETTENGILL. Our responsibility will not be saved by any saving clauses, such as are outlined in your formal statement. Mr. SMITH. That is correct.

Mr. MARLAND. Do you not think that the Treasury should be consulted?

Mr. SMITH. It seems to me that this committee should answer that question, Mr. Marland, if I may say so.

The CHAIRMAN. I will state, in order that there may be no misunderstanding, the President, at my suggestion, asked the Treasury and the Federal Reserve Board for their opinions and assistance in the working out of this bill of the things that they are supposed to know about. I did that, because I thought that was what the committee wanted. I do not see why Mr. Smith should be an expert on stock-exchange regulations, as such. Of course, I do not imagine that he has ever been engaged in that business.

Mr. WOLVERTON. Mr. Chairman.

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. I can appreciate, so far as the Treasury is concerned, that there are certain matters that are particularly in their knowledge. The same applies equally to the other Departments, to the Federal Reserve, the Comptroller of the Currency, and the Re

construction Finance Corporation. It would seem to me, however, that after each department has passed on the questions which are particularly within its knowledge, then there should have been a bringing together of those departments, to discuss between themselves the effect, one upon the other, so that when this bill came before us, that these representatives could come and state, "We, after study of the bill by our own particular department, and in consultation with those in other departments, are unqualifiedly in favor of the bill." That would be reassuring to the country, and certainly would be helpful to this committee, in my opinion.

The CHAIRMAN. Are there any other questions?

Mr. Smith, do you have anything further to state to the committee? Mr. SMITH. I have nothing further.

Mr. WADSWORTH. Mr. Chairman, may I ask just one question? The CHAIRMAN. Mr. Wadsworth.

Mr. WADSWORTH. I have observed that the witness has emphasized his concern and that of the Treasury Department on the stability of the financial structure of the country. Do not the margin requirements, as expressed in percentages, have a very direct effect upon that problem?

Mr. SMITH. That is a question that is entirely outside the subject of our review.

Mr. WADSWORTH. Should it not be?

Mr. SMITH. I cannot answer that for the committee, Mr. Wadsworth. I cannot answer that for you.

Mr. WADSWORTH. All right.

Mr. HOLMES. Mr. Chairman, may I ask just one question?
The CHAIRMAN. Mr. Holmes.

Mr. HOLMES. In relation to section 3, page 8, paragraph 13. The term "exempted security" or "exempted securities"-I will read a part of the bill:

The term "exempted security" or "exempted securities" shall include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States.

Were you asked to make any observations on whether or not in

exempted securities you would allow States and the subdivisions thereof, the same privilege as the Federal Government?

Mr. SMITH. Well, the provisions of the bill are that United States. Government bonds shall be exempted.

Mr. HOLMES. That is true.

Mr. SMITH. And the Federal Trade Commission may exempt other securities. Now

Mr. HOLMES. You do not give them the latitude that you do the Federal Government?

Mr. SMITH. No, sir.

Mr. HOLMES. What is the reason for that; have you any?

Mr. SMITH. Well

Mr. HOLMES. Is it not going to be more difficult for the States and municipalities to finance their obligations when they are not included in the same category?

Mr. SMITH. I think it is reasonable to believe that the Federal Trade Commission will make a study of this question of exempted securities and set up certain definitions, and I would say that about