made no doubt in good faith in the belief that cotton would be 30 or 40 cents a pound or that wheat would stay up to $2 a bushel, which was a mistake. I think it would be considered heresy to say that, in Miami, land was not worth several thousand dollars a front foot, and a banker who would not loan on that basis would be considered an antisocial being. You have the same situation wherever land is going up rapidly, and some kind of protection, therefore, seems to me to be absolutely essential

The CHAIRMAN. I am very much impressed with what you say about the matter of appraisal. I was wondering if you had any suggestions as to the line legislation should follow. I understand how, in each institution, the need of a system of appraisal is clearly understood, but I was wondering how, in legislation on a national scale, you could set up standards of appraisal which would be anything more than academic.

Doctor WILLIS. One way is to appoint official appraisers whose duty it should be to check up the actual appraisals made by the banks. Another way is to give the Comptroller of the Currency the power and duty of ascertaining land values in given places for the purpose of bank loans.

The CHAIRMAN. In the first place, I could see how such a system could work where you have a relatively small number of banks, as in the Federal farm loan bank system, but to set up a system of appraisals to operate throughout the country and on the Federal reserve scale would be almost impracticable, would it not?

Doctor WILLIS. I believe the Federal reserve banks could manage it in a way. They would lay down general rules, like the real estate people, in estimating city real estate, and I believe standard tables of lending power could be worked out without any undue expense. The CHAIRMAN. Will your basis be to attempt to arrive at the assessment for taxation purposes?

Doctor WILLIS. Yes, sir; along with your income tax returns, which are presumably correct, for the owners of the landed property, and with those as a basis, such figures can be compiled. It is merely a clerical matter, and beyond that, of course, banking judgment must

come.

The CHAIRMAN. I think I can speak for the subcommittee and probably for the whole committee in saying that if and when you come to reflect further on the matter, you could give us an actual draft of an appraisal provision, that you would think was not merely sound theoretically, but could be applied practically on a wide scale, we certainly would like to consider it.

Doctor WILLIS. I have made such a draft, but it is not a satisfactory one. It merely requires the comptroller to do it, which is, of course, a slovenly way to handle it.

The CHAIRMAN. The difficulty is that if you simply impose a duty upon a central Federal official and know in your heart of hearts that the imposition of that duty carries with it no possibility of satisfactory discharge, we are fooling ourselves, are we not?

Doctor WILLIS. No more than the issuing of any kind of moral injunction. We hear suggestions from the pulpit every Sunday that are not followed, but we believe they are right.

The CHAIRMAN. In other words, the setting up of the ideal is of some value?

Doctor WILLIS. Yes, sir. And I believe the Comptroller of the Currency could get, through his examiners, an entirely adequate table of appraisals and that is the least that can be done, and to go ahead now and allowing deposits, ipso facto, to be invested in commercial loans, to be invested in real estate booms, to sanction that and provide no remedy or protection, is to insure another epidemic of failures or, at least, a continuance of the present one.

I have given you, in a very sketchy way, my thought about H. R. 2 in its real estate and savings provisions.

I want to add one word about the investment bank side. There you see the continuance of the same bad psychology which has already been taken over in the Federal reserve system. Three or four years ago Congress authorized small banks to act as insurance brokers. Now it authorizes them to act as investment agents. Much has been said about the danger of their operating sawmills and water systems. Why should they go into the investment business or savings banks and other business, without the safeguards which experience has shown necessary? I see no reason why a bank should not have an investment department, and every large bank has it to-day, under the implied powers referred to it. Of course, it has. It buys securities and holds them for its customers, and in that way performs a useful service, and if it exercises fiduciary powers it must do that. But that is quite a different thing from underwriting and bringing out issues of securities as granted under H. R. 2; in other words, there should be something to prevent its becoming a rediscount securities bank. There should be the safeguards thrown around it which the experience of Philadelphia and New York and California, and to some extent Illinois, and conspicuously in the New England States, has shown desirable and necessary, but there is no vestige of anything of that kind in H. R. 2. The bank is told to go right to it; in other words, the present practice is sanctified in the existing law. The committee has been very generous with me in the matter of time, and while I have just barely scratched the surface of the investigation, I told you at the outset I was going to limit myself to the direct bearings of what I have done on H. R. 2, and therefore I have finished.

If you will permit, I should like to take a few minutes more to show that the whole point of the situation seems to me to be this: You ought not to pass H. R. 2 at all in any form, but in lieu of it you should make a careful investigation of what is needed in the present banking system for the purpose of getting at the present time a thoroughly proper and carefully reviewed line of banking legislation, and that seems to me to be essential from a great many standpoints. We have on our statute books now a large mass of war amendments to the act. They were passed at the time, without much discussion, because of necessity. They have greatly changed the working of our system. Among other things they have, in my opinion, greatly conduced to inflation and have permitted the growth of the system in which we have an undue amount of speculation in New York and elsewhere. At the present time we have more than $3,000,000,000 invested in loans on Stock Exchange collateral and other collateral of the same type, and, according to the officers of the New York Stock Exchange itself, the loans to members of that exchange by New York banks amounted to $3,500,000,000. You

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have a system under which the reserve system-well, it has not prevented a very large proportion of our bank resources from being shunted into this particular kind of security.

Senator GLASS. In other words, more than a billion dollars from the interior banks were represented in that aggregate?

Doctor WILLIS. About $1,300,000,000 were represented in those figures.

I do not believe the Federal reserve system is a patent cure-all and I have never thought so. I do know, however, that our banking system now was organized to prevent the undue diversion of funds into frozen assets. It has not done that, but has permitted the bad conditions that now exist in the mid West and has done the same thing with stock exchange loans in New York and elsewhere.

And let me say distinctly that I am not at all a proponent of stock exchange speculation, but I believe it performs a useful function and I believe it should be amply and generously financed in certain circumstances. That does not mean it should be permitted to draw heavily on our Federal reserve system.

I believe the King resolution, which is before you, and calls for a general investigation of banking conditions in this country with the view of a revision of the banking legislation and getting a sound revision, is desirable. I want to make some small contribution to that, and so I present here, in volume 7, a digest or revision of the Federal reserve act and of the national banking act, which is intended to eliminate the obsolete features of both and to consolidate those sections that are repetitious and add some new features. I have no idea, of course, that it will receive more than passing attention, but I do seriously urge that some investigation be promptly undertaken for the purpose of getting similar results.

I do not see that there is any emergency existing calling for the passage of H. R. 2 at the present time. The only emergency is the continuance of the present epidemic that calls for some legislative adjustment that will not make it worse, as H. R. 2 will do, but that will check it.

If H. R. 2 is to be passed, it needs drastic and complete revision from the ground up. Better still that it should not be passed at all, but that the whole subject be deferred to the future, that, in the meantime, it may be carefully examined.

I do not want to be academic-I know how disastrous that isso I have prepared here a proposed redraft of the McFadden bill, which I submit to the committee for your use or for no use as it may see fit. In this redraft of the McFadden bill I have retained section 5200 in the same form in which it was reported by the committee last year.

Senator GLASS. You mean by the Senate committee?

Doctor WILLIS. Yes, sir; I have done that not because I agree with the draft put forward there, although I think it a vast improvement over the House bill. As I said to Senator Edge this morning, what I would rather see is section 5200 go back to the pre-war status. However, legislation is a matter of give and take, and regrettably it is highly likely that something like that will find its way into the bill. If it must be done, then the Senate draft, it seems to me, is the highly desirable one. I say that because I do not want to seem inconsistent between my statements this morning and this afternoon,

in taking a fall out of the Senate's proposed 5200. I do not indorse this proposition, but suggest it. I simply put it forward as I think a rather more fortunate way of meeting the ideas contained in H. R. 2; for instance, the changes in the criminal sections, the recharter provisions, etc., but of course I have introduced here a provision on branch banking which would leave the matter to the States, which I believe is where it should go. It is essentially a local matter. I think the national banks should have the branch power and should be allowed to exercise it in each State on substantially the same basis as the State banks with which they have to compete, and under proper supervision and direction.

The CHAIRMAN. It seems to me your course is entirely consistent. You have made it perfectly clear to us that you think there is no emergency that calls for immediate legislation.

Doctor WILLIS. No, sir.

The CHAIRMAN. But you say if there is to be immediate legislation you think it can be more wisely enacted in the form of this draft you submit, than in the form of the House or Senate bill.

Doctor WILLIS. You state that sympathetically and accurately, Senator.

The CHAIRMAN. I was trying to interpret your thought and we feel very appreciative for all you have done, and you must not suppose that what you leave will receive only passing consideration. We propose to give it careful study.

Doctor WILLIS. Senator, I have here seven volumes, covering this study, and also a volume of appendices, which gives a lot of figure studies which went with it, and I have also here a collection of statistics, which are intended to give the fundamental or basic tables upon which this rests. The statistics I have used in discussion during the day are merely summary tables which furnish the results. The basic tables are here and are fairly bulky. I do not know what your practice is about printing anything of this bulk. At any rate, I should like to file it with you for such use as you may care to make of it.

The CHAIRMAN. We shall be glad to have you file them. It will be necessary to consult with the whole committee for the purpose of deciding what use to make of the tables you have filed here. There is a practical difficulty in printing them.

Doctor WILLIS. May I add one thing, Senator, I have overlooked? Senator Edge asked me this morning about an apparent discrepancy in a table which I filed, which I see here, which purported to show the number of national banks converted into State banks and trust companies, comparing it with certain figures in the comptroller's report. May I say, with Deputy Comptroller Collins's permission, who is present, that he says that the difference is due to the fact that the comptroller's figures contained not only absorption

Mr. COLLINS. Absorptions where the business went on under the State authority.

Doctor WILLIS. Whereas my figures only show the conversion from State to national banks, which is the proper basis of comparison, because it shows directly those institutions which can not afford to go on operating under a State charter rather than a national, and which did not have the same motive for shifting, such as consolidation or amalgamation. I offer that in further comment upon the point raised by Senator Edge which I was not prepared to meet then.

The CHAIRMAN. We have a very difficult function to perform, You have quite properly stated with earnestness and conviction your view on each one of these disputable questions. You are aware, as we are keenly aware, of the existence of difference of opinion, as are customary in any scientific investigation. We have got to take account of equally earnest convictions different from yours.

Doctor WILLIS. Undoubtedly.

The CHAIRMAN. And there is one question which is a delicate question to ask, but it is necessary in order to appraise this expression of opinion of yours in relation to the whole field of discussion, and that is this: You spoke of a group of bankers, at whose instance you had been working, although you were left free to do your work in a scholarly way without predirection.

Doctor WILLIS. Yes, sir.

The CHAIRMAN. But it would help us to tell us what that group is, so we can know how to relate up what you have been saying.

Doctor WILLIS. I shall be glad to do so. I wish I had done it at the outset. The proposal to me to undertake this study came to me from Edward Elliott, vice president of the Security Trust Co., of Los Angeles, Calif. Mr. Elliott communicated with me in May last and asked me to go out to California and talk with him about their banking problems. I went out there, after consulting with the institution with which I am associated, Columbia University, and received from Mr. Elliott a proposal that I should undertake the investigation. The investigation was quite in line with studies we have been carrying on for some time, but which I could not prosecute without an extensive staff. I asked Mr. Elliott at whose request this work was being done, and he said he represented a group of bankers, some of them in California and others in the farthest part of the country, as he expressed it, and while he would be glad to give me, from time to time, the particulars of those engaged in it, he did. not know that that was needful; that I could simply know that I was doing it for a group of bankers who were interested in the situation and who were putting him in a position to have the study made. The matter was announced to the newspapers, I believe, by Mr. Elliott, in about that way, that he, on behalf of a group of bankers, had requested me to do that work and it had been since published in the Journal of the American Bankers' Association and elsewhere.

On my return to this part of the country I took the matter up with Columbia University and put it before them, and, after due investigation, on the city of New York end, the thing was made a project of university research, which meant it was more or less carefully supervised by the institution, and I, of course, have to report my methods, staff outlays, etc., to them. That I have regularly done, and I have filed with them a set of these reports as a matter of university research.

Do I cover your question?

The CHAIRMAN. Entirely. I thought it was only fair to you as well as helpful to the committee.

Doctor WILLIS. It is entirely proper and it is my wish that you should have that information and anything more you wish extending even to the details of outlay on the investigation, and which, I might