Mr. MAPES. Is your organization making a more intensive study of the technical part of the operation of the exchanges so that we can have the benefit of your advice on that?

Governor BLACK. We are, Mr. Mapes. We are continually continuing our studies upon this bill, but what has been reached here has been studied for the last 10 days and is the best results we can reach from that study.

Mr. MAPES. I would like to ask your opinion about the so-called "segregation provisions" of the bill."

The CHAIRMAN. Let me say before you do that, Mr. Mapes-and I say this for the benefit of the committee-when we get into executive session on this bill, which will probably take several days, I certainly intend to stay in touch with the Federal Reserve Board in order that the committee may have any additional suggestions that they have to offer.

Mr. BLACK. Thank you very much.

Mr. MAPES. I would like to ask your judgment about the segregation provisions of the bill. Do you think this committee should enact that provision into law, or allow the subject matter of that section to be fixed by regulations of the Federal Trade Commission or any other agency that is set up to administer the law?

Governor BLACK. You are talking now about the segregation between broker and dealer regulations?

Mr. MAPES. Yes.

Governor BLACK. Mr. Mapes, I am not an expert in stock exchange operations.

Mr. MAPES. I do not think any of us are either.

Governor BLACK. We have studied that provision as well as we could, although that provision really was handled by the Treasury people and not by us. We were more concerned about the credit situation. I understand at the conclusion of our studies, that the results reached in this bill were practically a satisfactory solution of that. I cannot answer myself whether it is or not, because I am not enough of a stock exchange expert.

Mr. MAPES. In the language of Mr. Merritt, I think that that also might be called a diplomatic answer.

Governor BLACK. I am going to try to tell you, and leave out diplomacy.

Mr. MAPES. I am trying to get your individual judgment.

Governor BLACK. Mr. Mapes, I do not know enough about it to give you a judgment. I can only answer this by giving you the results of the expert's treatment. That is the view they took.

Mr. MAPES. For one, let me say that it is refreshing to hear one witness on this bill who is conservative in his answers and the expression of his opinion about it.

Governor BLACK. Thank you.

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Governor Black, when you say that the bill, in the light of your present study, has the approval of the Board, do I understand that it has had the study of every member of the Board; that it represents the unanimous views of the Board?

Governor BLACK. A meeting was held of the Board yesterday afternoon and this report was read and is the unanimous report of the Board, and when I say that, I again have got to be diplomatic,

because they were the active members. The Secretary of the Treasury was not present and the Comptroller of the Currency was not present. The other members of the Board were.

Mr. PETTENGILL. Thank you.

Mr. LEA. Mr. Chairman

The CHAIRMAN. Mr. Lea.

Mr. LEA. Would you regard the exercise of control, or control given to the Federal Reserve Board by this bill, as a desirable supplement to the powers that have been given to the Federal Reserve in this Congress?

Governor BLACK. I think it would be a very desirable supplement to the powers given, especially in the Glass bill, and that is not diplomatic, because those powers were largely vested in the Glass bill, you remember.

Mr. LEA. Yes. If the Federal Reserve Board were granted these additional powers, do you think it would exercise more effective control over speculation than it had power to exercise in 1929?

Governor BLACK. A great deal more. We have had a great many additional powers given to us since 1929. Our control in 1929 was the rates. These other powers have been given since then.

Mr. LEA. So you feel that there would be a very substantial increased power in the Federal Reserve Board?

Governor BLACK. Yes.

Mr. LEA. Sufficient to prevent the repetition of the wild speculation of 1929?

Governor BLACK. I think so, sir.

Mr. PETTENGILL. Is it your judgment, sir, that if this bill had been in effect in 1927, 1928, and 1929, and had been administered by a courageous board in sympathy with the objects of the bill, that the tremendous overexpansion of speculative credit would have been stopped?

Governor BLACK. I do not think anything could have stopped the gambling mania of 1929 after it got underway. I think if the Federal Reserve Board had had these authorities in 1929, and had exercised them early enough, it would have curbed those excesses to a very great extent.

Mr. BULWINKLE. Mr. Chairman, may I ask a question?
The CHAIRMAN. Mr. Bulwinkle.

Mr. BULWINKLE. Governor, you are a lawyer, are you not?
Governor BLACK. I used to be a lawyer; yes.

Mr. BULWINKLE. You are recognized as a very able lawyer in Atlanta, are you not?

Governor BLACK. Let me answer that question. You have given me a chance to brag a little now. Nobody ever told me that until after I had quit practicing law. If they had, I would not have quit.

Mr. BULWINKLE. What do you think about the constitutionality of this bill?

Governor BLACK. Well, you elevate me to the Supreme Court now, sir.

Mr. BULWINKLE. No; I do not. I will take your opinion.

Governor BLACK. I am just awfully sorry, but I have not studied it with respect to that at all. That is not diplomatic. That is honest. I have not studied it in relation to that.

Mr. BULWINKLE. All right.
Mr. COLE. Mr. Chairman-
The CHAIRMAN. Mr. Cole.

Mr. COLE. Governor, I would like to have you state what effect, in your judgment, the passage of this bill would have upon State banks and trust companies not members of the Federal Reserve System.

Governor BLACK. By reason of limiting brokers' loans to member banks? Is that the object?

Mr. COLE. Under section 7 of the act.

Governor BLACK. Well, I do not think it will have but very little effect. Our banks out in the country do not go in for much of this business.

Mr. COLE. How about the trust companies in the cities that are not members of the Federal Reserve?

Governor BLACK. Well, I do not know but a very few of them who are not members of the Federal Reserve; down in my country, the trust companies are all members, but just to answer your question directly, of course, it would limit the lending power on equities in the operation of trust companies which are not members of the Federal Reserve System.

Mr. COLE. And have a tendency to bring them into the Federal Reserve, would it not?

Governor BLACK. If they wanted to do this business, yes; necessarily so.

Mr. COLE. That is all.

Mr. HOLMES. On that particular point, would that apply to the mutual savings banks?

Governor BLACK. Yes; I think it would.

Mr. HOLMES. Just as much as to any other nonmember banks? Governor BLACK. Yes.

Mr. HUDDLESTON. Governor Black, I wonder what legal hold we have on nonmember banks to limit them as to the loans they should make, and what kind of securities they should accept.

Governor BLACK. You do not have any, sir, and the bill does not undertake to have any. Your hold is through the Federal Trade Commission's hold on the members of the exchange. You tell them that they cannot borrow. But you do not tell a nonmember that it cannot lend. You cannot tell them that. At least, I take it that you cannot.

Mr. HUDDLESTON. That is the question I had in mind.

May I ask if the Reserve Board considered this bill in its entirety or merely the provisions which related to credits and other things like that?

Governor BLACK. The Board considered every sentence in the bill and suggested changes relative to everything in the bill that looked to us that needed changes to make this a more acceptable bill to accomplish its purpose.

Mr. HUDDLESTON. And the approval of the Board extends to the entire bill?

Governor BLACK. That is correct.

Mr. HUDDLESTON. May I ask what your view is with reference to the effect of this bill on the listing of securities by corporations? It has some provisions extending liabilities to officers, and having

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application to corporations having their stocks listed. What, in your opinion, would be the effect of that class of provisions on listings of corporations and the maintenance of their listings of their securities?

Governor BLACK. Of course, I am only giving a personal opinion. Mr. HUDDLESTON. That is what I want.

Governor BLACK. I think it would be very limited:

Mr. HUDDLESTON. Very limited?

Governor BLACK. I think so.

I remember the Federal Reserve System, when it was established, that the national banks were going to quit, and the national banks were fighting it, and were going to quit, and it was going to be a great disaster, and nothing happened.

Mr. HUDDLESTON. Corporations are required to make certain reports and certain acts of officers are forbidden. They are forbidden to collect proxies, except under certain limitations. They are forbidden to deal in the securities of corporations, subject to certain limitations; and there are various provisions for which the violation of which would subject them to heavy penalties.

Governor BLACK. That is right, sir.

Mr. HUDDLESTON. You do not think that would operate as a deterrent to listing?

Governor BLACK. It might operate as a deterrent, but on the other side, by being listed, they have got a perfectly free market for their stocks all of the time.

Mr. HUDDLESTON. Have got what?

Governor BLACK. A free market for their stocks, which I think that they should have. I do not think that stock exchanges ought to be closed. I think they serve a very useful purpose in furnishing a free market for equities in America, and I think these corporations are going to have in mind the fact that while they have got to go through these formalities and live under these restrictions, that they want a perfect free market for their stocks, and that especially if you look at the larger ones, which have such a large number of stockholders.

Mr. HUDDLESTON. In your view, should corporations be encouraged to list their securities and not discouraged?

Governor BLACK. Well, I think the listing of securities is entirely an appropriate thing for a corporation to do, sir.

Mr. HUDDLESTON. I am wondering what effect it would have to permit the trading in unlisted stocks on the exchanges.

Governor BLACK. Unlisted stocks are not traded in on the exchanges.

Mr. HUDDLESTON. They are on some exchanges, it seems, from the testimony that has been given here.

Governor BLACK. I thought that you were talking about national exchanges, and listed securities on national exchanges.

Mr. HUDDLESTON. The provisions of this bill, of course, forbid trading in unlisted stocks.

Governor BLACK. Well, it limits it only in the open market. I mean, the over-the-counter operations can still be handled under regulations made by the Trade Commission.

Mr. HUDDLESTON. I am under the impression that the New York Curb Exchange permits trading in unlisted securities.

Governor BLACK. I think that is right. I was talking about registered.

Mr. HUDDLESTON. I am wondering whether it is not desirable in the public interest that a market for unlisted securities should be provided. Is it not desirable, in the public interest, that there should be free commerce in all kinds of securities, listed as well as unlisted? Governor BLACK. I think so, sir.

Mr. HUDDLESTON. Yes, this bill makes it impossible to trade in such securities on a national exchange.

Governor BLACK. Well, as I say, when we talk about national exchanges, I was talking about Boston, or Philadelphia, or San Francisco or the New York Stock Exchange.

Mr. HUDDLESTON. Yes.

Governor BLACK. I did not understand that they traded in unlisted securities on those exchanges, but only listed securities. Mr. HUDDLESTON. That is no doubt correct as to them.

Governor BLACK. They are the ones that are being reulated. Mr. HUDDLESTON. I am inviting your attention to that, and want to ask you about your opinion. Do you think that it would be a desirable thing to relax the rule and permit trading on national exchanges of unlisted securities?

Governor BLACK. I do not know that there is any rule against that, sir, except it just is not the custom of the exchanges to deal in any such securities, except those represented by the registered companies.

Mr. HUDDLESTON. This bill, as is my understanding of it, prohibits trading in unlisted securities on the exchanges that are licensed.

Governor BLACK. Well, I do not understand that. I understand this bill limits borrowing by members of exchanges on unlisted securities.

Mr. HUDDLESTON. Now, going to that ponit. Is that desirable, in the public interest?

Governor BLACK. Well, I think that is the only way you can curb loans on securities, speculative loans, based on securities, because if you do not do that and allow loans of a speculative character to be made on unlisted securities, for speculative purposes, it is very difficult to get any margin requirements, because nobody knows what is the loan value of those securities. There is no market.

Mr. HUDDLESTON. You would not think that it would be desirable to forbid a bank making loans on unlisted securities?

Governor BLACK. No, sir. We have corrected that in this bill so that they may make them, except for speculative purposes.

Mr. HUDDLESTON. Of course, the purpose of borrowing may be unknown to the bank.

Governor BLACK. Well, a banker said that to me yesterday. I said, "I do not believe you have a loan in your bank that you do not known whether it is speculative or is not, and having that intimate knowledge with your loans, and realizing that there is a penalty of 10 years in the penitentiary, I believe it will be very easy to decide whether a loan is speculative or is not.

Mr. HUDDLESTON. We have no definition as to what is a "speculative loan." It is a rather loose expression, it seems to me.

Governor BLACK. Well, sir, the Senate committee asked me the difference between gambling and speculation, and I told them that