Mr. RAGON. What is the average yield on your Government bonds? Mr. FERRISS. The long-time bonds, I would say, up to 10 days ago, were on a 3.20 basis. Is that right?

Mr. RAGON. I believe that is.

Mr. CANFIELD. I believe you said, and others have said, that if the bonds went down it was necessary to take that mark down on your report?

Mr. FERRISS. I say for financial institutions, banks, and insurance companies who are audited periodically. They are supposed to mark the stuff at the prevailing market.

Mr. CANFIELD. I think that the testimony here shows that these bonds have increased considerably in value in the last nine months or year. Was it necessary to report that increase?

Mr. FERRISS. Well, they had a right to do it and take advantage of it.

Mr. CANFIELD. In other words, they are just afraid they will lose the profit they have already made by this increase?

Mr. FERRISS. There has been an increase but in no such substantial amount as we have been fearing would result from this other program.

Mr. CANFIELD. If we only issued a billion dollars?

Mr. FERRISS. If we are right in our belief that it would take a 4 per cent yield to sell a billion dollars of new Government bonds, it is very simple. The Government Treasury 4's have been selling around 108 or 109, if they are down to a 4 per cent basis they will go down to par and yield 4 per cent. They have been selling on a premium of 8 or 9 points in recent months, and if a bank has bought Government bonds in these last three or four months at a premium of 107 or 108 or 109 and they go down to par, they are supposed to mark off that shrinkage.

Mr. CANFIELD. Supposing they did not mark it up?

Mr. FERRISS. If they bought them at that price they would not have to.

Mr. CANFIELD. If they are holding it and did not mark it up, they would not have to mark it down?

Mr. FERRISS. That is correct.

The CHAIRMAN. We thank you, sir, for the information you have given the committee.

Mr. GARNER. Mr. Chairman, I just want to say this to the gentleman in the room here that told me that he had put his name with the clerk for a hearing. I do not know what the policy of the committee is going to be. I may say I do not agree with General Coxey and many of his suggestions; at least, I have never found myself in accord with them. I do not know whether you are going to give him a hearing or not, but since he spoke to me about it I feel that I ought to call it to the attention of the committee.

The CHAIRMAN. This matter is on the adjusted-compensation certificates, not on his proposal.

Mr. GARNER. All right.

The CHAIRMAN. The committee will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 3.55 o'clock p. m., an adjournment was taken until Wednesday, February 4, 1931, at 10 o'clock a. m.)

WEDNESDAY, FEBRUARY 4, 1931

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D. C.

The committee met at 10 o'clock a. m., Hon. Allen T. Treadway, presiding.

Mr. TREADWAY. The committee will be in order. The chairman of the committee is detained on official business and he has requested that I preside during his absence.

The first witness we have scheduled for this morning is Mr. R. C. Stephenson, of South Bend, Ind.

Mr. Stephenson, we shall be glad to hear you at this time.

STATEMENT OF ROME C. STEPHENSON, SOUTH BEND, IND., PRESIDENT, AMERICAN BANKERS ASSOCIATION

Mr. TREADWAY. Mr. Stephenson, you may proceed in your own way and at the conclusion of your formal statement it is customary to ask questions of the witness.

Mr. GARNER. It is also customary, Mr. Stephenson, that when a witness appears, he states for whom he appears and why he appears before the committee.

Mr. TREADWAY. We shall be glad to have that information, Mr. Stephenson.

Mr. STEPHENSON. I am appearing for the membership of the American Bankers' Association. That includes the whole membership of the American Bankers' Association. I appear as a representative of the association.

Mr. GARNER. Were you requested to appear by anybody?

Mr. STEPHENSON. Yes; I have been requested to appear by various members. They thought we should make a representation before the committee regarding the position taken by the bankers of the country, especially by the country bankers, because the large representation of the American Bankers' Association is the country bankers.

Mr. TREADWAY. I think what Mr. Garner had in mind was to find out whether you had been requested by the chairman of this committee to appear. Mr. Garner has asked that question of various other witnesses.

Mr. STEPHENSON. The chairman of this committee?

Mr. TREADWAY. Yes.

Mr. STEPHENSON. No. I think the American Bankers' Association requested the privilege of the chairman of this committee of appearing here and making a statement, giving the position of the membership of the American Bankers' Association.

Mr. TREADWAY. Very well; will you proceed?

Mr. STEPHENSON. Our fellow citizens of the American Legion are loyal and patriotic men, and when they offered themselves as the supreme sacrifice for their country they were actuated by the highest ideals and finest motives that a human being is capable of. The Nation is mindful of its obligations to them and our Government will in years to come be required to take further steps for the care,

support, and maintenance of aged veterans of the World War and for their dependents.

I believe that if the members of the legion fully realized the seriousness of the proposed legislation, which would require the issuance and sale of bonds at this time, and how seriously it would affect the financial structure of our country, that there would be no demand whatever among them that the legislation for the cash payment of veterans' adjusted-service certificates be passed at this time. If any of the proposed measures for this purpose are enacted into law, it is quite possible that the results thereof would be so serious that in the future the public would be inclined to oppose the passage of other really deserving bills for the relief of the World War veterans.

The plan to pay the veterans, of course, is to be accepted as a sincere proposal for the general public welfare brought forward in good faith, but when it is subjected to equally sincere scrutiny such as presented by Secretary of the Treasury Mellon in his recent analysis of it, it is conclusively shown to be distinctly against the general welfare. It is simply a plan that will not do the thing it is aimed to do, which is to serve the economic interests of the Nation.

I have the viewpoints on this proposition of many of my associates in banking and in the American Bankers Association. Universally they are unalterably opposed to it strictly on principles of sound public policy. These men include commercial, savings, and investment bankers. From no angle of the various viewpoints they represent can we find a favorable argument for the proposed payment that is not outweighed by considerations of the real public good. Therefore, as president of the American Bankers Association, I say without hesitation that the views of men whose daily work consists of dealing at first hand with the practical phases of business in which the workings of cause and effect connected with this proposal are most clearly apparent are overwhelmingly against it. Their position is based not on the narrow stand that their own personal or corporate interests would be injured, but on the broad basis of their obligations to the public by virtue of the financial interests that the public has entrusted to their care.

Bankers are above all the custodians of the financial welfare of our people. Over $53,000,000,000 of the people's deposits are in their hands-some $28,000,000,000 of these deposits are classed as savings. How broad a public responsibility the banker carries is indicated by the fact that there are more than 50,000,000 savings depositors in the savings, national, and State banks and trust companies of this country. There are many million more depositors with commercial accounts in our banks. The bankers, therefore, are, directly or indirectly, the representatives of the financial welfare, not of a few, but of the great majority of all of our people, because anything that affects the banks has a bearing on the interests of their depositors.

A large part of the resources of the banks is intrusted to investment in bonds. The last reports show that the banks of the Nation held $18,000,000,000 in bond-investment assets. In discharging the duties of their trusteeship toward the people who have intrusted their deposits with them, the bankers have made these investments in accordance with the dictates of experience and prudence, guided always by the principle that their foremost duty is

to safeguard the funds committed to their care by every means in their power. As an evidence of their conscientious endeavors to discharge this duty, and also of their faith in the obligations of our Government, more than $1,000,000,000 of these bank investments consist of United States Government securities, and they have also accepted a large volume of these bonds as security for loans to cus

tomers.

United States Government bonds also enter largely into the assets of those other great financial institutions laden with fiduciary responsibilities to the public, namely, the life insurance companies. The assets of the legal reserve life insurance companies in the United States amount to almost $19,000,000,000. These reserves constitute a part of the accumulated savings of 68,000,000 policyholders. They constitute also the protection and the defense against want of the millions of dependents who are the beneficiaries of these policyholders. The insurance companies, therefore, also represent the interests not only of a few but of the great majority of our people. Therefore, when bankers and others intrusted with the investment of large sums of the public's money speak against any measure affecting the stability of the value of our country's bonds, which is bound also to react on other securities, they speak essentially on behalf of the great masses of our people of small means who have confided to them their savings and their defenses against destitution. The fact that a proposed measure will affect adversely any part of the security on which this trust rests certainly makes it imperative that it be considered as a question of broad public welfare, to be determined on the grounds of the greatest good of the greatest number of our people and not only of a specific, limited group.

It is for this reason that heads of our great financial and fiduciary organizations take particularly to heart Secretary Mellon's warning. There is no question but what the sale of a great new issue of Government bonds, with the interest rate higher than the vields on already outstanding issues which would be necessary to make them salable, would seriously depreciate the prices of existing bond issues that enter so largely into the basic values of the investment structures of our banks and insurance companies and millions of our people. The markets have already unequivocably demonstrated the truth of his words and the danger of the proposal. Already the public has suffered a substantial impairment of the foundations of its direct and indirect investments, and this is only a forerunner of what may be expected if the present threat becomes an actuality.

At most, only a relatively small portion of our people who are in need would be the immediate beneficiaries of the proposed distribution, and at best the stimulation that might accrue to general business through putting more buying power into circulation would be but temporary. Although thereby a little good would be done here and there, a far greater harm would be done everywhere by this measure not only through unsettling existing values but by interfering with the normal financing of business recovery through more constructive security issues for building and other practical industrial purposes, and also by saddling a large increase in current taxation upon our people.

The Nation has suffered enough economic adversity already. Blow after blow has fallen upon it and sent it staggering into one of the greatest business depressions of its history. The collapse of the securities market wiped out the savings and investments and impaired the purchasing power of an unprecedented number of our people. The drought with its unparalleled severity and duration brought economic catastrophy to great areas of our agricultural life. The breakdown in world commodity prices and the curtailment of our exports by over 25 per cent in 1930 still further demoralized our business. The resulting industrial stagnation, with its losses on invested capital and its losses in wages to our working people through unemployment cast the Nation into a critical condition from which it is recovering only with difficulty.

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It has been well said that the United States was plunged into its present economic depression by this series of what have been termed economic surprises" that fell upon it one after another. Coupled with this statement the hope was expressed that "the liquidation of the unexpected in this depression has apparently been about complete," leading to the conclusion that the Nation was now headed back toward economic recovery and that there was no further economic catastrophy lurking in the future to retard its gradual business revival.

However, if this bonus plan payment is to eventuate it would seem that these hopes are ill-founded that there is still another depressing economic surprise in store for the country to struggle with before it can consider itself on the clear highway to better times.

A careful study of the arguments against payment of the face value of the veterans' adjusted-service certificates as presented by Secretary Mellon shows that his analysis of the unfortunate financial and economic effects bound to result from such a measure is absolutely unanswerable.

I believe we can say without equivocation that, even though a temporary stimulation for business and a limited benefit to a few deserving ones would result from the distribution to the veterans of a tremendous sum of cash, the broad general economic effect would be severly adverse and would still further retard our recovery from the depression. In the long run it would harm far more than it would help. There are certainly better ways of helping the relatively few than by harming the overwhelming many.

I feel, therefore, that in using the weight of my position as representing the American Bankers Association to oppose this projected measure and to uphold the hands of Secretary Mellon in his_conscientious and well-conceived defense of the public finances, I am really speaking, not primarily for the banks or for any particular interests, but that I am speaking essentially for the far greater welfare of all of our people.

Mr. TREADWAY. Have you concluded your statement, Mr. Stephenson?

Mr. STEPHENSON. I have.

Mr. TREADWAY. For the record, and before the members of the committee ask you questions concerning your statement, will you be good enough to tell us how many members there are in your

association?