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Mr. KOPPLEMANN. Under the new act?

Mr. BROWN of Michigan. Yes; I think so, and would not apply to a case where there had been no assessment, but there still existed, in the judgment of the taxing authorities, under this decision, the right to assess for a past year. My language would be the same as yours and say, "taxation by any State, county, municipality, or local taxing authority, hereafter imposed, levied, or assessed, and whether for a past, present, or future taxing period."

Mr. GOLDSBOROUGH. As a matter of fact, Mr. Jones, the change in that language would be simply this: That Maryland could collect her taxes

Mr. JONES. Yes.

Mr. GOLDSBOROUGH. That is the only difference, practically?
Mr. BROWN of Michigan. Practically so; yes.

Mr. ALLEY. I think that is going to lead to arguments based on State law, Mr. Chairman, in these States, whether or not they actually made the assessments, and they are going to raise the question of when is an assessment made? In all of these States in which we have opinions of the Attorney General we may be confronted with the question, "We sent you the tax blanks in 1933 and you returned them, saying the property was nonexempt, and the Attorneys General agreed. Now, is that, or is it not, an assessment?" I see no merit in such a contention but I think you are going to get us into more litigation in more States by leaving those words out than if you put them in.

Mr. CROSS. If it is a right to all of the States, Maryland has got no right to come in and hog something because she ignored probably the opinion of her attorney general and others who are more conservative. Besides, the Supreme Court says one way and the Attorney General says the other. I think we ought to pass it like we did. If we can shut Maryland out, shut her out.

Mr. JONES. She will still have a fighting chance, with an underhold.
Mr. GOLDSBOROUGH. Mr. Crowley, perhaps you can help us.
Mr. HANCOCK. May I ask Mr. Jones one question?

Mr. GOLDSBOROUGH. Yes.

Mr. HANCOCK. I did not understand from the statement awhile ago that you wanted the burden-where you said the burden really fell on account of this decision. Where does it fall?

Mr. JONES. On the Federal Government.

Mr. HANCOCK. I was under the impression you said on the commonstock holders?

Mr. JONES. No; our dividends are limited to 321⁄2 percent, and if we have got to pay 2 percent of that, or 1 percent, or 3 for the tax when we already pay the Treasury 2 percent.

Mr. HANCOCK. In other words, you feel you are penalized for trying to help the banks?

Mr. JONES. Yes; and they could not sell the stock, because it has no value, has no earning power.

Mr. HOLLISTER. The Government sometimes goes pretty far to make the rescue as cheap as possible?

Mr. JONES. Yes.

Mr. WILLIAMS. Are we liable to be taxed by the States?

Mr. JONES. Yes, by the county, city, State, and school districts, and so on.

Mr. WILLIAMS. What is the average?

Mr. JONES. That would be a big job to ascertain. We have got to go to the location of 3,500 national banks, to find out how they are assessed in their particular localities.

Mr. WILLIAMS. You have the figures to show just what that assessment would average?

Mr. JONES. I twould be a good many millions of dollars a year. Mr. WILLIAMS. How much percentage? I mean 1 percent, 2 percent or 3 percent? You have no figures on that?

Mr. JONES. No.

Mr. SISSON. If you are taxable at all, you are taxable everywhere, under all of the subdivisions of the State governments?

Mr. JONES. Yes; if a State taxes them, all subdivisions of the State can tax them, and they run all the way from-up to 5 percent or 6 percent in a lot of places. This is the taxing period, to assess the taxes right now, and they are going to be assessed pretty fast. That is what we think and I want to repeat what I said before, that this tax is in no sense upon the bank; it is a tax upon the stockholder and would be borne in this case exclusively by the R. F. C. Then, too, I want to repeat that counsel are of the opinion that so much of the bill as deals with state banks merely restates an existing immunity under section 10 of the R. F. C. act. We inserted it merely to avoid any contention that Congress in legislating with respect to national bank stock meant to consent to the taxation of state bank stock.

Mr. GOLDSBOROUGH. Mr. Crowley?

STATEMENT OF LEO T. CROWLEY, CHAIRMAN, FEDERAL

DEPOSIT INSURANCE CORPORATION

Mr. CROWLEY. I just want to say this, Mr. Chairman, that we concur with Mr. Jones of the R. F. C. in this matter, and it is a little embarrassing to the F. D. I. C., for this reason: That prior to this decision, we were working on some consolidations, and we had them all through, or all planned to go through, and the Reconstruction Finance Corporation was putting in some new capital. On account of this decision, we have had to delay some of that work. We had stockholders' meetings for this week-end in a very large city in one of our States, where we were going to put three large banks together, and Mr. Jones feels as though he does not care to go ahead and make any new disbursements, until that matter is finally disposed of. We cannot blame him for that. So, therefore, we are anxious that this matter, if you concur, be disposed of as quickly as possible, so we might go ahead with this work. It is not an easy matter to get everything ready with the stockholders and depositors and the bookeekping that is necessary to consolidate three or four banks into one, and then have to make the announcement to the public that it has to be deferred another 30 days or so. That is our interest in the proposition.

Mr. FORD. Mr. Crowley, assuming that we pass this bill and Mr. Jones went ahead and bought this preferred stock and put in $50,000,000 or $75,000,000, or whatever the sum might be, and then the Supreme Court said we did not have the right to do it, then we would be in trouble again?

Mr. CROWLEY. There is no question about that.

Mr. JONES. We will take our chances. We will go right along as we have been doing before. I would like to add to that statement, that this situation that he mentioned is one in which the F. D. I. C. is going to take a substantial loss, in order that the depositors may be protected in these banks that he has in mind. They are in bad shape, and we have tried to work out a plan, and if we are going to put in a million dollars or so of new money and not get any return on it, we do not feel we are authorized to do that under the act. We think we have got to stop, look, and listen, and see if the situation cannot be corrected.

Mr. HANCOCK. How many situations have you outlined or involved?

Mr. CROWLEY. We have one right now that is going to cost the F. D. I. C. close to $5,000,000, and Mr. Jones is putting in $1,000,000 to help us build a new capital, in addition to contributions made by local people. We have been working on that thing for a long time. We had to raise the capital locally and had to have stockholders' meetings, and those stockholders' meetings are called for Friday of this week.

We cannot blame Mr. Jones for not wishing to disburse that $1,000,000 and have it subject to this tax. Also we have another one where a disbursement will be made of about $2,000,000 by Mr. Jones, and we, again, cannot blame him if he holds off.

As a matter of fact, as I view it, if that Maryland decision stands, it may prohibit him from doing very much work in completing the bank program.

Mr. JONES. Yes; I might state for the benefit of the committee, that we have withdrawn or stopped disbursements on any of these authorizations heretofore made, probably several hundred of them over the country, where arrangements are being worked out locally to open the banks. Our authorization is there, and when they complete theirs, as he is doing in this instance, the money is ready, but in view of this decision, we have withdrawn the authority to disburse until we can see where we are. We would have to make an entirely different arrangement. That is the reason it is kind of touchy.

Mr. HOLLISTER. Do you anticipate any objection anywhere on the practical side, to one bank, which has, because of the tax exemption, been able to put out 3 percent or 4 percent preferred stock or debentures and another bank, which, because its preferred stock or debentures are held by private individuals, has to put it out on a 5-percent or 6-percent basis? Do you anticipate any particular objection anywhere around the country because of that?

Mr. JONES. I do not think so. If the stock is taken in a situation where we had to come to the rescue of the bank, they had gone along and I do not think there will be any complaint about it.

Mr. HOLLISTER. Of course, a bank that would have to pay a high rate would have a little harder time getting ahead?

Mr. JONES. Yes.

Mr. HOLLISTER. Can you tell, offhand, how many cases there are that have R. F. C. money?

Mr. JONES. I think probably, in all of our operations of course, this would not any thing like be all of the stock, but we have had local contributions of $175,000,000.

Mr. HOLLISTER. Was not that, in most cases, new common stock?

Mr. JONES. It has been new common and very often preferred.
Mr. HOLLISTER. I was thinking of the fixed return obligation.
Mr. JONES. I say a great deal of it, and a very substantial part
of it was second preferred stock at a higher rate than ours.
Mr. HOLLISTER. In most of those cases you had some money,
Mr. JONES. Yes.

Mr. HOLLISTER. It was not solely a local thing?
Mr. JONES. No.

too?

Mr. HOLLISTER. In other words, what I am trying to get at is, are there many cases where all of the preferred stock in any bank is of the R. F. C.'s, and all of the preferred stock in another competitor bank is private money?

Mr. JONES. I do not think there is but one in the United States, and one other where the stock was sold locally.

Mr. HOLLISTER. I was thinking of the part of it that might come. Mr. JONES. It is negligible.

Mr. HANCOCK. Mr. Crowley, do you feel that the passage of this bill is absolutely necessary in aiding and helping the banks and the thousands of depositors who have a vital interest in connection with this matter?

Mr. CROWLEY. It is, in my judgment. We have possibly 200 banks that we are working with the R. F. C. on now, trying to work out a program, and in a great many instances, there is a program already worked out, and I think it would be very vital to our corporation if the R. F. C. could not complete this program.

Mr. JONES. I would like to make a further statement here, that I think Mr. Crowely will concur in: That his institution could not have functioned without the generous cooperation of the R. F. C. in these banks.

Mr. CROWLEY. I think everyone admits that, for this reason: That in 1934, as you may know, the Federal Deposits took in practically all of the banks of the country. After we had gotten them into the fund, the original bill called for the banks only having sufficient assets to meet its deposit liability. Now, then, if you are trying to determine the value of an asset in January 1933, it was a difficult thing to determine that value. They all came in, and the result was, that we had to go to the R. F. C. to rebuild the capital structure of these banks; and I think, at one time, either directly or indirectly, there was close to 8,000 banks that had been helped in one form or another, from either local contributors or the R. F. C.

Now, that job has all been done, with the exception of the fact that we are down to perhaps 200 cases- some are large and some are very small. But the only thing that the Federal Deposit had to tide itself over the last few years was this money that has been put in in the form of preferred stock and debentures and common stock, which gave us a chance to charge out the losses.

So there is not any question, in my mind, that the success of the F. D. I. C., up to date, has been largely due to the fact of the cooperation we have had in rebuilding the capital structure of these banks.

I do not think, gentlemen, that ever before was your banking structure of the banks of the country in as good shape as they are in today. I say, despite this taxing program, and everything else, we are on a good job that has been well done, and I think it is easy to try to

hold it and not have any more uneasiness in our banking system. I thank you, Mr. Chairman.

Mr. BROWN of Michigan. I would like to ask Mr. Alley one more question: Can it be said authoritatively that the Senate committee voted out the bill, or reported the bill as submitted?

Mr. ALLEY. Yes.

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Mr. BROWN of Michigan. Well, I would say, Mr. Chairman, knowing, as I do, something about the situation of which Mr. Crowley speaks, that I do not think the objection I made on the amendment is of sufficient importance to delay the passage of this bill; and unless someone else who thinks as I do that the present language should be eliminated, I move that the bill be reported out.

Mr. GOLDSBOROUGH. Let us go into executive session on it.
Mr. BROWN of Michigan. Yes.

Mr. GOLDSBOROUGH. Mr. Williams, do you want to be heard?
Mr. WILLIAMS. No.

Mr. HANCOCK. Mr. Jones, do I understand that, unless some measure of this kind is enacted, you will not be able to purchase any preferred stock in banks?

Mr. JONES. No; we would have to protect ourselves.

Mr. HANCOCK. In other words, if you did purchase preferred stock, your rate would be much higher?

Mr. JONES. Yes; we would just raise the rate and just pass the tax right back to the bank.

Mr. HANCOCK. Probably have to require 5 percent preferred dividends?

Mr. JONES. Yes; and it might be more.

Mr. HANCOCK. I am talking about on future disbursement?

Mr. JONES. On these future jobs, we have got a good many hundreds of dollars where the disbursements have not gone out, like this gentleman mentioned, and those we are holding up now to see what we have got to do about it; and it is taxing time and I say, in the language of the lawyer, "Time is the essence of the contract." Anything else, Mr. Chairman or gentlemen?

Mr. GOLDSBOROUGH. No; thank you, Mr. Jones.

The committee will go into executive session.

(Thereupon the committee proceeded to executive session.)

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