Before proceeding with the inquiry I will state that this is an investigation, not a trial, and the committee has the assistance of counsel, who will conduct the investigation; and the procedure has been fixed with the concurrence of the committee.

Under the rules of the House governing committees questions can be propounded to the witness through the chairman, after being submitted to counsel. That applies, under the rules, even to a member of the committee. It is not always observed, but I merely state the rule in carrying out the complete theory of an investigation.

As I understand it, witnesses who appear here have the right, when asked a question, to confer with counsel, but have not the right to be represented by counsel so far as examinations are concerned. With the consent of the committee, however, the courtesy of the committee may be extended so that a question may be propounded to a witness when submitted to counsel for the committee and then put by the chairman.

We will proceed with the first witness.

TESTIMONY OF W. W. CLOUD.

The witness was sworn by the chairman.

Mr. UNTERMYER. Will you be good enough to state where you reside, Mr. Cloud?

Mr. CLOUD. Baltimore, Md.

Mr. UNTERMYER. What is your occupation?.

Mr. CLOUD. I am president of the State Bank of Maryland.

Mr. UNTERMYER. Is that a newly organized bank?

Mr. CLOUD. That bank was organized in January, 1907, and opened for business on the 1st day of April of the same year.

Mr. UNTERMYER. That is a bank organized under the laws of the State of Maryland, is it?

Mr. CLOUD. Yes. We organized under a special charter, I should say, granted by the legislature of 1906, which was prior to what is known as the new banking law of Maryland.

Mr. UNTERMYER. What is your capital?

Mr. CLOUD. Our authorized capital is half a million dollars. least the charter gave the right to do business with a paid-in capital of $250,000, and we had the right to increase that to half a million. Mr. UNTERMYER. What is your paid-in capital?

Mr. CLOUD. Our paid-in capital last fall was-if you will pardon me for referring to a memorandum

Mr. UNTERMYER. Certainly; use anything you may have to aid

you.

Mr. CLOUD (continuing). $432,725.

Mr. UNTERMYER. Had you a surplus?

Mr. CLOUD. The surplus and undivided profits at the last call-that is, the call of November 26-were $128,168.08.

Mr. UNTERMYER. What were your deposits, may I ask?

Mr. CLOUD. Our deposits were $1,755,687.38.

Mr. UNTERMYER. Is there a clearing house in existence in Baltimore?

Mr. CLOUD. There is.

Mr. UNTERMYER. What is its title?

Mr. CLOUD. It is the Baltimore Clearing House, I presume, sir.

Mr. UNTERMYER. Is it an unincorporated association?
Mr. CLOUD. I am under the impression that it is, sir.

Mr. UNTERMYER. Did your bank make application for membership in that association?

Mr. CLOUD. Our bank made application to clear through another institution, which was a full member of the Baltimore Clearing House. Mr. UNTERMYER. What is the name of the member through which you made application for the privilege of clearing?

Mr. CLOUD. The Merchants' National Bank.

Mr. UNTERMYER. And this clearing house has members and socalled nonmembers, has it not?

Mr. CLOUD. It has members, and I presume you would call the others nonmembers. They have the right or privilege of clearing through members.

Mr. UNTERMYER. But they have no vote in the association?

Mr. CLOUD. I presume not.

Mr. UNTERMYER. They are required to bind themselves to observe the rules and regulations of the clearing house association, are they

not!

Mr. CLOUD. They are, as those rules apply to those who have the privilege of clearing through the membership banks.

Mr. UNTERMYER. When was this application made by you for clearance through a clearing house bank?

Mr. CLOUD. My recollection is that the first application was made shortly after we organized. I can not give you the exact date.

Mr. UNTERMYER. Did you present a statement of your bank's affairs?

Mr. CLOUD. I am under the impression that we did, sir. That was a matter, however, of public property. We responded to the call. Mr. UNTERMYER. What happened to your application?

Mr. CLOUD. That application was considered and verbally declined. The message was conveyed to me through Mr. Douglas Thomas, president of the Merchants' National Bank.

Mr. UNTERMYER. What reason was assigned for declining it? Mr. CLOUD. The reason that it was the desire of the Baltimore Clearing House that no financial institution should clear through another financial institution thereafter; that they would have to become full members. I do not recall the exact conversation. The matter was being considered at that time, however. There were some changes contemplated, I presume, from what I have understood, in the clearing house, with regard to methods and rules.

Mr. UNTERMYER. Did you then make application to become a

member?

Mr. CLOUD. We did.

Mr. UNTERMYER. What other effort did you make to procure the privilege of clearance?

order to see

Of

Mr. CLOUD. We took the matter up with a number of the bankers who were members of the clearing house, to get their point of view, in just where we stood, and to see what was in view. Course I was cognizant of what was going on, and what it seemed to be their desire to bring about met with my full approval or the full approval of the officers of my institution. We subsequently made application, in May, 1911, for the same privilege, by reason of the fact that the constitution of the Baltimore Clearing House had not been

changed. That change would have provided for the inclusion of all financial institutions that were eligible.

Mr. UNTERMYER. As members?

Mr. CLOUD. Yes; to put them all on the same basis. I am stating my understanding. As I say, there was no correspondence. It was a matter of discussion, and it has been some time ago. It was a matter of amicable discussion, and that is my recollection.

Mr. UNTERMYER. What I want to find out is what subsequently happened, and whether you have become a member of the clearing house; whether you have obtained the privileges of the clearing house.

Mr. CLOUD. We made this application through the Merchants' Bank in May, 1911-that is, the second application-feeling that it would be accepted at that time, and that we would be accorded this privilege enjoyed by a number of the financial institutions of the city. That application was not declined. It was considered; but before action was taken on that application-this is a matter of hearsay, gentlemen; I am not a member of the clearing house; the institution which I represent is not a member, and I have this simply as a matter of verbal statement a resolution was put before the clearing house and acted upon favorably, which definitely stated that on and after a certain date-I do not recall the date-no financial institution would be granted the right of clearing through another financial institution, or words to that effect.

Mr. UNTERMYER. You have not obtained the privilege of clearing. have you?

Mr. CLOUD. We have not.

Mr. UNTERMYER. You are desirous of obtaining it, are you not? Mr. CLOUD. We are, under certain conditions. We, of course, would have to know the conditions.

Mr. UNTERMYER. Is it or not the fact that other institutions in Baltimore still enjoy the right of clearance through clearing-house banks?

Mr. CLOUD. It is a fact, and they do.

Mr. UNTERMYER. How many such institutions are there?

Mr. CLOUD. From 17 to 20, possibly.

Mr. UNTERMYER. Have you examined the regulations of the clearing house?

Mr. CLOUD. I have read them. I do not know whether I am familiar with them up to date, sir. There may have been some changes with which I am not familiar.

Mr. UNTERMYER. Your bank is prepared to subscribe to those, is it not?

Mr. CLOUD. We feel that it is, so far as I know, sir. I can not say what the regulations and rules are, at this date, sir, because I do not know.

Mr. UNTERMYER. But at the time when you were seeking to get admission to the clearing house, you were ready to subscribe to them, were you not?

Mr. CLOUD. We were at that time, sir. We were ready to subscribe to the rules and regulations as they applied to the institutions that were enjoying the privilege which we asked for.

Mr. UNTERMYER. And you have been ever since ready to comply with those regulations, have you?

Mr. CLOUD. As they existed at that time, sir.

Mr. UNTERMYER. And so far as you know, as they exist now? Mr. CLOUD. I do not know what they are at present. Therefore I can not make that statement, because that would not be conservative, and financial men have to be conservative.

Mr. UNTERMYER. But what is the trouble about your getting in, Mr. Cloud? That is what we want to get at.

Mr. CLOUD. I do not know that there is any trouble, sir.
Mr. UNTERMYER. But you are not in, are you?

Mr. CLOUD. No.

Mr. UNTERMYER. And you want to get in?

Mr. CLOUD. As I stated before, sir, we understand that there have been changes proposed in the Baltimore Clearing House rules and regulations which will admit all institutions, which, of course, would mean doing away with the advantage that certain institutions enjoy at the present time.

Mr. UNTERMYER. My question was this: You do want to get in, do you not?

Mr. CLOUD. To be sure.

Mr. UNTERMYER. You have not any fear or hesitation about possibly arousing the antagonism or animosity of the other Baltimore institutions, have you, by your testimony here?

Mr. CLOUD. Have I any fear?

Mr. UNTERMYER. Yes, or anxiety?
Mr. CLOUD. Absolutely none.

Mr. UNTERMYER. That is not material to you?

Mr. CLOUD. I did not invite this. I am here in response to a summons. I knew nothing about it. A man at the head of a financial institution has no right to have fear.

Mr. UNTERMYER. Have you been promised admission?

Mr. CLOUD. I have not.

Mr. UNTERMYER. I think that is all, unless there is some explanation you would like to make.

Mr. CLOUD. No; I think I have tried to make myself clear.

Mr. UNTERMYER. There is nothing else you want to say, is there, on the subject?

Mr. CLOUD. No, sir.

Mr. UNTERMYER. Will you be good enough to state to the committee the advantages of the clearing-house privileges?

Mr. CLOUD. The clearing house is a medium for making exchanges of checks. It facilitates the handling of the business and saves some expense to the institutions.

Mr. UNTERMYER. Have the institutions in Baltimore any uniform regulations imposed on the banks with respect to charges for collecting out-of-town checks?

Mr. CLOUD. They have, sir. I might say in that connection that we have conformed to those charges so far as we were familiar with them and knew them.

Mr. UNTERMYER. Why did not your bank apply directly to the clearing house for membership, instead of applying to clear through another bank?

Mr. CLOUD. We are a new institution, sir. It would have put us at an unfair advantage, because we simply would have had to have

competed with existing institutions that enjoyed the privileges that we craved.

Mr. UNTERMYER. You say it would have given you an unfair advantage?

Mr. CLOUD. No.

Mr. UNTERMYER. A disadvantage, you meant?
Mr. CLOUD. A disadvantage.

Mr. UNTERMYER. It would have given you a disadvantage. Let me see if I understand that. When you become what they call a nonmember that is, clearing through a member of the association-are you not subject to all the rules and regulations that apply to a member, except that you have no vote?

Mr. CLOUD. We are subject to the rules and regulations as they apply to those members.

Mr. UNTERMYER. Are not the rules and regulations as applied to nonmembers who clear through members precisely the same as the rules that apply to members?

Mr. CLOUD. They were not at that time, sir.

Mr. UNTERMYER. In what respect did they ever differ?

Mr. CLOUD. My understanding is that those members who cleared. through the other institutions at that time did not have to conform to the exchange charges.

Mr. UNTERMYER. Are you not mistaken about that?

Mr. CLOUD. I may be. I can not say positively, sir. I do not know how they are at this time.

Mr. UNTERMYER. Have you now explained as fully as you care to explain why you did not apply for membership directly?

Mr. CLOUD. That is the explanation-because of the disadvantage that we would have labored under.

Mr. UNTERMYER. The disadvantage to which you refer, as I understand, is that being a full member you would not have had the right to act independently in the matter of exchange?

Mr. CLOUD. No; we would not have had the right.

Mr. UNTERMYER. That is the disadvantage?

Mr. CLOUD. The disadvantage would have been that these institutions that are or were clearing through membership banks-now, this is my understanding did not have to comply at that time with the exchange rules. There may have been individual cases where they did; but, not being a member, I can not state, sir.

Mr. UNTERMYER. When you speak of exchange rules, you mean the rules of the clearing-house association with respect to the charges for exchange?

Mr. CLOUD. The charges for exchange.

Mr. UNTERMYER. And that is the only disadvantage which you supposed you would be under in applying for full membership, is it? Mr. CLOUD. That was my feeling at the time. Competition is very keen, particularly with a new institution; and we wanted to be on the same basis as other institutions that were enjoying that privilege. That was the whole thing.

Mr. UNTERMYER. Competition is keen also with respect to getting customers, is it not?

Mr. CLOUD. Oh, yes.

Mr. UNTERMYER. And if you were able to say to customers that you would not charge them for collecting out-of-town checks, or if