Mr. STEPHENSON. I would still say that I do not think it would be as injurious to the business interests of the country if those certificates were converted into cash to take the place of any contemplated bond issue.

Mr. HADLEY. That is all.

Mr. BACHARACH. I was responsible for the suggestion made to Mr. Hadley of the amount of certificates in the veterans' fund being $784,000,000 actually on hand. I find from General Hines's statement that there is $771,550,391.65, and General Hines says that actuarially the fund is within $34,000,000 of being the correct reserve to redeem all the outstanding certificates; that there has been appropriated to that fund at the rate of about $112,000,000 a year and that that appropriation would have to be increased from $112,000,000 to $160,000,000 to be actuarially correct.

Mr. ESTEP. Mr. Stephenson, referring to the proposition suggested by Doctor Crowther, which you suggested would not be as disturbing to the country as if the Treasury issued securities and then paid the soldiers in cash, as I understand it, Doctor Crowther suggested that we issue a bond for the full-face value of the certificate.

Mr. CROWTHER. Oh, no.

Mr. STEPHENSON. No; I did not understand that.

Mr. ESTEP. You would have to issue that kind of a bond if you made it optional to accept either the bond or cash the certificate, or retain the certificate, because you could not treat differently any two of the soldiers. Congress would not say that we are going to pay the man who takes the bond for his certificate only the present-day value of his certificate, while the man who retains his certificate is going to get the full value of it at maturity. We are going under the assumption that under the act of 1924 Congress said that the Government owed this money to these men as compensation which they had not received during the period of the war while other people were being paid big wages.

Mr. STEPHENSON. As I understood the suggestion made by Doctor Crowther, it was that bonds be issued for the present value of the compensation certificate.

Mr. CROWTHER. Yes.

Mr. STEPHENSON. And these bonds were to draw 4 per cent interest and were to be in the amount of the present value of the certificates. I do not believe that that would be disturbing to the business interests of the country.

Mr. CROWTHER. My suggestion was that he be allowed to make application for adjusted-service certificate bonds in an amount equal to the cash value of his adjusted-service certificate at four per cent per annum compounded annually from the date of the certificate to the date of the issuance of the bond, any fractional amount to be paid in cash.

Mr. ESTEP. Let us assume that the bonds were issued to the individual veterans, do you think the banks in the various localities throughout the United States would absorb 50 per cent of those bonds, if 50 per cent of the veterans undertook to cash them?

Mr. STEPHENSON. I do not believe that 50 per cent of the veterans would want to cash them.

Mr. ESTEP. General Hines said that they would. I think that was possibly a conservative figure, because his figures showed that 48 per cent of the veterans have already borrowed on their certificates. So we will assume that 48 per cent will take their money now.

Mr. STEPHENSON. I think that it would be an injustice to many of the veterans who will need the money in 1945, to be placed in a situation where they could get it to-day. It would have the effect of furnishing money to these men who are in dire distress to-day, it is true, but I will answer your question this way; that if those bonds were issued for an amount equal to the present value of the certificates, drawing 4 per cent, I do not think that it would be as disturbing to the business interests of the country, as if an attempt were made to float a large issue; because those bonds would be used gradually by the veterans. Many of them, I am sure, would retain the bonds, hold them until their maturity.

Mr. ESTEP. Mr. Mills in his testimony, as I recall it, and Mr. Case, of the Federal reserve bank, said that that would create a worse situation; that is, if we issued bonds to the veterans as individuals for the purpose of permitting them to cash the bonds. First of all, 50 per cent of the bonds would be thrown on the market practically at the same time, assuming that 50 per cent of those veterans needed the money. They would be scattered all over the country. It would be a question whether there would not be a decrease in the price of the bonds, and whether there would not be loan sharks setting up offices on the main street and purchasing those bonds at a discount, because of the inability of the banks in certain of the smaller communities to absorb them. What do you think about that?

Mr. STEPHENSON. I would think that the interest of the veterans could probably be protected by the law, such as you have to-day. At present, the law throws every safeguard around the veteran. I think if you provided the same sort of safeguard, you should pass a law that those certificates should not be sold for less than their actual value, providing a very heavy penalty to be imposed on any man who would do anything to defraud the soldier, who would try to buy those certicates for less than they are worth. But you must take into consideration that all of those certificates that are now up on which loans have been made means that a great many of the soldiers would not be enabled to get very much more than they have already borrowed on those certificates.

I have had contact with a great many of the veterans. I want to say incidentally that the bank with which I am connected is one of the few banks in northern Indiana that has made loans on compensation certificates. I have had an opportunity to talk with a great many veterans. Most of the men with whom I have talked are anxious to retain their certificates, hold them over until 1945.

I believe that a majority of the veterans, if they had 4 per cent bonds, would not dispose of their certificates. They might temporarily borrow money on them and use them as collateral. But I think the veterans would want to hold those bonds until they matured. I do not think that that proposal would be as disastrous, and I do not believe that it would greatly disturb the business of the country. That is my opinion.

Mr. COLLIER. I would like to ask you this question. I did not understand your direct answer to Mr. Estep's question as to what

percentage of these bonds under this plan you think would be taken by the banks of the country. Do you believe the banks would be willing to take over a large percentage of these bonds?

Mr. STEPHENSON. If the veterans had the bonds they would not all of them use them at one time. I do not believe there would be a great rush among the veterans, if they were given bonds for the present value of the certificates, drawing 4 per cent.

Mr. COLLIER. What do you think would be the situation of veterans in sparsely settled communities, where they had little banks, away from large centers of population, where a great many of the banks had already failed, and as to a great many of them, orders had been issued that only $25 or $50 a day of individual deposits could be withdrawn, that no savings deposits could be withdrawn on less than 90 days' notice? What do you think would be the condition of a veteran in absolute need, if he had a bond of $400 or $500 or $600 and we passed a law making it a criminal offense, enforced by a penalty, for any one to buy that bond below its par value? What would be the situation of that veteran, living in that section of the country? Do you think those banks that have adopted this plan of allowing deposits to be withdrawn only gradually, and in small amounts, which plan, of course, was intended to save the banks, would be in a position to take over those bonds?

Mr. STEPHENSON. If in connection with the bill that was enacted into law you would provide that notes secured by those bonds as collateral, running not over 3 or 4 months, could be rediscounted with the Federal reserve banks, that would enable the smaller banks to handle them and rediscount them if they desired to do so.

Mr. COLLIER. You think, then, that in a good many instances, the banks would be able to extend this relief?

Mr. STEPHENSON. Yes, sir; I do.

Mr. CANFIELD. Mr. Stephenson, I notice that you stated you were very much afraid that the placing of a billion dollars worth of bonds on the market would affect the small banks throughout the country. Mr. STEPHENSON. Yes, sir.

Mr. CANFIELD. Do you not think that if a billion dollars of money were placed in circulation, that that money going through the smaller banks that are in such hard straits at the present time, would be very helpful to them?

Mr. STEPHENSON. I think it would be helpful temporarily.

Mr. CANFIELD. Somebody suggested the other day that it would be like giving a good dose of strychnine to the human body. Do you not think the business structure of this country at this time needs a pretty good dose of strychnine, to stimulate it?

Mr. STEPHENSON. Mr. Canfield, the trouble would be this. You know what the condition is in southern Indiana?

Mr. CANFIELD. Very well.

Mr. STEPHENSON. If the money were withdrawn by savings depositors to purchase the bonds, it would be necessary for your banks in southern Indiana to sell some of their securities with which to furnish the money to pay the depositors, who wanted to invest that money in the bonds. That is why it would be very detrimental to the country banks.

Mr. CANFIELD. I know, but if you put this money in circulation it is bound to revive business.

Mr. STEPHENSON. I think temporarily it would help business, but it would cause the banks a great deal of trouble by reason of the fact that they would have to sell bonds that they are now carrying, upon a depreciating market. Most of those banks, the smaller country banks in your locality and throughout southern and northern Indiana, and all parts of this country, have a great many bonds on which there is now depreciation and I believe there would be a further depreciation and they would have to sell many of the bonds on a depreciating market.

Mr. CANFIELD. A great many of these bonds that they are holding were bought at a much lower price than they are at the present time?

Mr. STEPHENSON. Yes.

Mr. CANFIELD. Possibly they might dispose of them even at a profit.

Mr. STEVENSON. Not the character of bonds they are holding now. If compelled to sell them, they would sustain a loss. They have had a loss from the price that they have paid for the bonds. I am not referring especially to Government bonds, but if a large bond issue were put on the market, there would be a further depreciation and in order to obtain the money that their depositors would want to withdraw to take up the new issue, many of these banks would have to sell some of the bonds that they have now at further losses. Mr. RAGON. You say you think there would be a depreciation in the price of other bonds; that is, industrial and municipal bonds? Mr. STEVENSON. Yes.

Mr. RAGON. Would that be true of first-class industrial and municipal bonds?

Mr. STEVENSON. I think so; I think it would.

Mr. RAGON. What would be the result, if this bond issue were floated, on industrial and municipal bonds? Do you think that the yield on those bonds would be increased, and the profit to an investment company, let us say, be greater?

Mr. STEPHENSON. On the bonds they now have?

Mr. RAGON. On first-class municipal or industrial bonds?

Mr. STEPHENSON. No; I think that the first-class municipal bonds that they have to-day and that are netting them 32 or 34 per cent would suffer a still further depreciation.

Mr. RAGON. We had an investment man here yesterday, who said that he thought it would increase their value.

Mr. STEPHENSON. I do not think it would. I think it would cause a further depreciation in those bonds.

Mr. TREADWAY. If there are no further questions, we appreciate the information you have given the committee.

Mr. STEPHENSON. I thank you for your patience, gentlemen. Mr. TREADWAY. There are three other gentlemen listed here, also connected with the American Bankers' Association. The first is Mr. Waldo Newcomer. Then there are also Mr. Cooke and Mr. Mylander. The Chair would be glad to call those three witnesses, following Mr. Stephenson, if they have any further testimony that they desire to submit. Mr. Newcomer, would you care to make a statement?

Mr. NEWCOMER. Mr. Chairman, I do not think there is anything I need say. I would rather the other gentlemen did the talking. They

are much better posted than I, and unless Mr. Stephenson wants me to make a statement, I should rather not.

Mr. TREADWAY. Then I understand you do not desire to present any statement at this time?

Mr. NEWCOMER. I have no prepared statement; no, sir.

Mr. TREADWAY. I will therefore call Mr. Thornton Cooke, presi dent of the Columbia National Bank, Kansas City.

STATEMENT OF THORNTON COOKE, KANSAS CITY, MO., REPRESENTING THE AMERICAN BANKERS ASSOCIATION

Mr. TREADWAY. Will you state your name and whom you represent?

Mr. COOKE. My name is Thornton Cooke. I am president of the Columbia National Bank, Kansas City.

Mr. TREADWAY. Mr. Cooke, you have 10 minutes to make such statement as you wish.

Mr. COOKE. Mr. Chairman, I have reduced nothing to writing, because I realize that the evidence reaching you now is largely cumulative.

All bankers agree that veterans, disabled or not, who lack shelter or clothing or food, should in some manner be relieved. We believe that most of the current proposals are such as would so much upset the economic balances of the country as, in the end, to work to the detriment of the veterans. That would be particularly true of a large bond issue of a billion dollars or more. That is merely a mathematical matter. We all know that it would have to be obtained at a rate considerably in excess of the basic yield at which United States obligations are currently selling.

It would, therefore, depreciate those bonds. It would depreciate other high-grade bonds, and those forces are already, as you know, operating on the market.

I may say that merely as a measure of prudence, before leaving for Washington, I sold some of the United States bonds held by our bank-not all of them. And I take it from the action of the market that other bankers thought such action was wise on their own part

too.

Banks buy such bonds as a secondary reserve. Our primary reserve consists of cash on hand, our balancies in Federal reserve banks, and balances in other banks.

Back of that, for emergency purposes, we carry the best bonds we can buy. It is true that bonds of the character banks hold or ought to hold, will be worth par at maturity. But the time frequently comes when we have to reinforce our primary reserve by selling some of our secondary reserve and at times like this and in times that would inevitably follow if Congress should see fit to authorize a large bond issue, our inventory values would be reduced to a degree that might affect our dividends; that might, in some cases, affect the solvency of banks. The writing down of inventories for banks and financial institutions is, therefore, as we regard it, a serious matter. As to the proposition of promoting business by arrangements that would bring about a large cash expenditure of funds, that, it seems to me, is something that all human experience has proved to be fallacious. There are no exceptions to the rule that large, non