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Mr. TARLETON. No, sir, I did not.

Mr. HYDE. Let me read a part of it from page 172 of the paperback version:

A company in trouble must scour around for loans at more and more banks, and at each bank where it secures a loan it must leave a compensating balance which shows up on its books as cash.

During 1970-says James Coquilla—of the $250 million Merchants National Bank in Cedar Rapids many large corporations headed for the hinterlands, and we have had some interesting approaches. Some large companies offered to open a deposit relationship but this is hot money in the truest sense of the word, and we won't do it.

Would you agree with this idea of this banker from Cedar Rapids?

Mr. TARLETON. With regard to what particular area of that statement?

Mr. HYDE. Running around and getting compensating balances and getting loans from this bank and moving money into that. I am sorry. Correspondent bank balances, not compensating balances. Moving them around and then getting loans. They refer to that as hot money.

Mr. TARLETON. This is referring to a bank that is having difficulties?

Mr. HYDE. Well, a bank, a company or entity who needs funds for whatever purpose.

Mr. TARLETON. I have not in my experience observed any such scenario as that. In our regular examination procedures we do have programs which the examiners perform that are designed to detect so-called hot money and bring it to the attention of everybody concerned just how hot that money is and what volumes there are of it.

Mr. HYDE. On your return trip from Washington after coming up here and introducing Mr. Lance around the Comptroller's Office, you say you flew back on his bank's plane?

Mr. TARLETON. That is right. Mr. HYDE. You came up by commercial jet? Mr. TARLETON. That is right. Mr. HYDE. Did you pay for that ticket? Did the taxpayers or did Mr. Lance?

Mr. TARLETON. The Office of the Comptroller of the Currency paid for it. I would point out this trip benefited me in no way, in that it was considered to be official business. There was official business conducted.

Mr. HYDE. You had something else to do up here in addition to taking this private citizen soon to be, if confirmed, Director of the Office of Management and Budget?

Mr. TARLETON. Yes.

Mr. HYDE. Have you ever flown on Mr. Lance's plane other than that occasion, or the bank's plane other than on that occasion?

Mr. TARLETON. I might have a problem, a technical problem in answering that. I would like to-may I consult with my counsel?

Mr. HYDE. Surely.

Mr. TARLETON. I was concerned about this other matter that was discussed earlier with the referral to it, referral to the Justice Department.

The answer to that question is no.

Mr. HYDE. Have you ever flown on any plane operated, owned or maintained by other entities that you supervise?

Mr. TARLETON. Yes.

Mr. HYDE. Is that good practice, to accept the hospitality of these banks by way of transportation?

Mr. TARLETON. I don't know that I would say it is a good practice. The Office has never had a policy against it. I have never received any personal benefit from it. Any benefit from that would have accrued to the Office, as a matter of fact. I will say it is very seldom done, very seldom.

Mr. HYDE. On page 3 of the summary printed by the Senate just a few days ago and containing the covering letter from Mr. Heimann, of the report he says:

It is clear from the summary of information that Mr. Lance made his principal borrowings from banking institutions which had a correspondent relationship, including deposit balances, with the banks in which Mr. Lance served as officer or director. This recurring pattern of shifting bank relationships and personal borrowing raises unresolved questions as to what constitutes acceptable builking practices.

Then we have the summary on B-16: “There is some documentary and circumstantial evidence suggesting the possibility that a 20-percent compensating balance from National Bank of Georgia was a condition of the loan to Mr. Lance, the Manufacturers Hanover Trust. However, all the principals involved denied under oath such an arrangement existed or that it was ever discussed” so that the matter seems to be dropped.

Is this amazing series of coincidences, where the correspondent bank balances were put into a bank and all of a sudden a loan is negotiated to Mr. Lance-I am thinking of the First National Bank in Chicago. I am thinking of Manufacturers Hanover, Citizens and Southern, and others. Do you know if the Office of Comptroller will continue to look into that or has it abandoned that line of inquiry, Mr. Bloom?

Mr. BLOOM. As Mr. Heimann tried to indicate in that cover letter to the Senate committee, we intended, with the help of the banking committees and with our fellow banking agencies, to try and get some facts about this practice and to react as quickly as possible with new approaches and regulations, guidelines, recommendations for statutes, possible disclosure approaches, as we discussed this morning. I know it is an area that Mr. Heimann is going to pursue vigorously and so is the FDIC.

We have various surveys going on now to get the basic facts in hand, and I can assure you, Mr. Hyde, that the unresolved question of acceptable banking practice which at that point in the letter is referring to the whole banking picture, not just to Mr. Lance, will be pursued to a speedy resolution.

Mr. HYDE. Now with reference to reporting requirements applicable to loans to executive officers, the report of your Office indicates that some 50 loans were made to Mr. Lance and his entities that were reportable but not reported, and there were some 6 loans where they were reported to the board of directors but information was incomplete. There are some 14 loans where there is insufficient information to judge whether the loan was reportable, and actually there are 5 loans that were reported as required by the law. The list of those is extensive and it goes back to 1972, 1973, 1974, 1975, 1976.

The existence of these loans that ought to have been reported but were not reported by Mr. Lance, was that known to you at the time you wrote your letter of endorsement?

Mr. BLOOM. No, sir; it wasn't.

Mr. HYDE. Is there something missing in the bank examining process where these things are missed and permitted to go on for so long? Don't you have a checklist of questions to ask these officers and directors and those people who are most able to selfdeal, where you can get answers from these people in these sensitive areas, every time you go through for examination?

Mr. BLOOM. Yes, sir, we have extensive checklists and the examination is very detailed, and a very comprehensive operation. However, we do miss things. I suppose given the volume of assets that we have to check, I can't say it will never occur, but we surely try to fill in the gaps in our procedure and learn from experience such as this.

Mr. HYDE. You did tell us this morning that Mr. Lance was notable for his penchant for disclosure, that he was not one to conceal things. I recall your saying that, and I was impressed by that. It just seems to me someone should have asked him some questions along the line about some of these interesting transactions.

An interesting article by Hobart Rowen in the Post, August 25. He said some rather interesting things. He said Lance got bankerto-banker privileges not accorded outside the fraternity. “A banker should not be able to feather his own nest by throwing his bank's business in the right direction. Rather, a banker should have the same relationship to his depositors that a trustee does to the trust he manages." Would you agree with that, Mr. Bloom?

Mr. BLOOM. Yes, I would.
Mr. HYDE. He also says there is a

. beneficial fallout to this case that dramatically underscores the fact that there are vast and worrisome gaps in banking regulations. We only have a choice between ... closing down a bank, which would be painful to innocent depositors, or doing nothing, so mostly we wind up doing nothing.” That may be exaggerating for the sake of emphasis, but it does seem to me all of these regulations aren't very enforceable if they are merely violated “technically," and no action is taken.

We ought to take a good look at the regulations and the banking laws so there will be some teeth in them, so the depositors can be protected. Wouldn't you agree with that? Won't you help us do it?

Mr. BLOOM. Yes, sir.
Mr. HYDE. I yield to Mr. Wylie.
Mr. WYLIE. Thank you very much.

Mr. Henderson, in Ohio we have a law which prohibits borrowing money from the national bank for campaign purposes or to be used in financing a political campaign. Does Georgia have such a law, to your knowledge?

Mr. HENDERSON. I am not an attorney and don't know the answer to that.

Mr. WYLIE. The reason I ask that is, the question occurs to me as te where these overdrafts from Calhoun National-which were in effect loans-were really laundered campaign money. Do you think that is a fair observation?

Mr. HENDERSON. No, sir. In retrospect, I can see the questions that are raised but at the time we did it I think all of us thought that we were acting properly and that we were completely covered

from any

Mr. WYLIE. In the hindsight though, you think that might be a proper, or fair, observation?

Mr. HENDERSON. I am certain this could be considered, in retro spect.

Mr. HYDE. The brand new report dated September 7 from the Comptroller, have you seen that, Mr. Bloom?

Mr. BLOOM. No, sir. September 7? That is tomorrow.

Mr. HYDE. That is right. That is how fast our staff gets these things.

The conclusion states, "The Fulton-Calhoun transaction shows a pattern of loans to Mr. and Mrs. Lance and associates from a correspondent bank. The correspondent bank looked in some measure to the maintenance of satisfactory correspondent balances in determining whether to make the loans and in calculating the profitability of loans after they were made. In addition, there is some evidence tending to support the view that but for the correspondent accounts the loans would not have been made."

Do you think that this ought to be referred to the Justice Department, this series of things? You did refer a campaign problem, the Bert Lance campaign account overdrafts, but all of this pattern of correspondent bank balances and personal loans shifting around, do you think that the Justice Department might want to take a look at this and should not the Office of the Comptroller send that over too?

Mr. BLOOM. Mr. Hyde, I am sure this is a set of facts that is being reported to the Congress as of tomorrow morning, that the Office, in the person of the Comptroller

and the Chief Counseland I am sure I will perhaps be in on the discussions—will very seriously consider whether that is in order, but I cannot say without seeing all the facts whether it should be referred.

Mr. HYDE. I am not just talking about this. I am talking about the whole pattern. I understand it is a matter that is under study.

I yield to the chairman and I yield my time.

Chairman ST GERMAIN. I just want to state to the gentleman that their compensating, corresponding regulations have been bothersome to us before. That which you have just read from the latest hot line from the Comptroller, I think, at long last recognizes that which the Comptroller was reluctant to recognize in the initial report, and that is, that you just cannot ok at these charts; you just cannot look at these numbers where, when the correspondent balance goes up, all of a sudden the loans go up to these individuals, and at long last they are finally admitting there is a relationship between the transfer of these corresponding balances.

Now if you read further on and previous to that, there is a lot of discussion there as to what type of stock is pledged, what kind of an interest rate is involved, promises to pay that aren't fulfilled.

I am just happy that at long last that which you have just read to us—and this is in the Comptroller's report-indicates that the Comptroller is now recognizing and admitting that you can no longer turn your back to these facts that are so self-evident that we began on this morning and continued on this afternoon.

Mr. Leach?

Mr. LEACH. Mr. Henderson, for the record, could you tell us what the capitalization and the footings of your bank are, as well as the percent stock ownership of Mr. Lance, Mrs. Lance and their respective families?

Mr. HENDERSON. Mr. Leach, I will try.
Mr. LEACH. The capitalization, first.
Mr. HENDERSON. It is about $4.8 million.
Mr. LEACH. The footings then?

Mr. HENDERSON. The footings are running about $53 million or $54 million.

Mr. LEACH. And the percent of ownership of Mr. and Mrs. Lance and their families?

Mr. HENDERSON. That is one that I am not—this I am not sure of. I think it is around 11 percent.

Mr. LEACH. The Comptroller's report indicated that a lending officer, Mr. Bill L. Campbell, embezzled $994,000 from your bank; the bank then entered into litigation with the bonding company which alleged the bank knew of Campbell's fraudulent activities prior to his being fired, and that Mr. Lance himself was aware that Mr. Campbell had exceeded his lending limit, and the bank knew he had a continued record as a check bouncer.

Are all those facts true?

Mr. HENDERSON. No, those were allegations from our bonding company.

Mr. LEACH. And you didn't accept them?
Mr. HENDERSON. That is right.

Mr. LEACH. But it is true your bank settled the litigation be tween the bonding company for $450,000, somewhat less than half the amount that was embezzled.

Mr. HENDERSON. Plus salvage on all collateral and third party rights and all which we are still working on, Mr. Leach.

Mr. LEACH. Mr. Bloom, you were aware of this embezzlement, were you not, and was not the banking community in Georgia aware of it prior to November of 1976?

Mr. BLOOM. I first became aware of it, I think, at the time of the lifting of the agreement, November 22, and my becoming aware of that, November 26.

Mr. LEACH. Did this increase the reputation of Mr. Lance in the banking community?

Mr. BLOOM. I would think not.

Mr. LEACH. Is it true that a friend of yours wrote the transition team and requested consideration for yourself to be considered for Comptroller of the Currency?

Mr. BLOOM. Yes, it is, sir.

Mr. LEACH. Is it true that you wrote Secretary-designate Blumenthal with the same request in mind?

Mr. Bloom. Yes, sir. Mr. LEACH. Is it true that you discussed your letter to Secretary Blumenthal with Mr. Lance?

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