country banks must be profitable so that it may support and protect the public and private deposits entrusted to our care.

In the hearings of the House Banking and Currency Committee in January, I heard many statements from the Reserve Board to the effect that failure to sustain their regulation would result in artificial and abnormal concentrations of deposits in undersirable and off-center points. My personal opinion is that the Board has "strained at a 20 millimeter and swallowed a block-buster" since I shall not be surprised if the year-end statements show a far larger shift in correspondent balances (from member to nonmember banks) than ever occurred in the years before.

In introducing this bill, Senator Maybank was speaking for the banks of South Carolina. Most of our banks charge exchange. There are 156 banks in our State and 113 charge exchange. These banks and the customers they serve are very anxious that this bill be enacted into law.

In conclusion I should like to say this: We have all seen banks— both National and State-come and go, but I believe very sincerely that the home-owned and home-managed independent bank can serve our people and our Government in the very best way possible. Senator MAYBANK. Are there any questions?

Senator BUTLER. No, except I would like to commend the gentleman for that last statement, especially.

Mr. NORRIS. Thank you, sir.

Senator MAYBANK. Mr. Norris, we appreciate your coming here.

I would like to say to the gentlemen that we have not been able to hear this morning, that we will have to ask your forgiveness, but these gentlemen have been here several days. We will meet at 2 o'clock over in the District Committee room, and we will try to get through with everybody this afternoon. We will stand recessed until then.

(Thereupon, at 12 p. m. a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

The committee resumed at 2 p. m., in the District of Columbia hearing room in the Capitol, upon the expiration of the recess.

Senator MAYBANK. The committee will resume. The first witness on the list for this morning was Mr. TREFZ, of Nebraska, and he testified. The next witness is Mr. Ward, vice president of the Charleston National Bank, Charleston, W. Va. I will ask Mr. Ward to come to the committee table. Senator Kilgore called my office about him, and I told the Senator we would be very happy to hear Mr. Ward.

Mr. WARD. Thank you, Senator Maybank. I have a reservation for tonight to return home.

Senator MAYBANK. Just take a seat at the committee table opposite the committee reporter.

STATEMENT OF GEORGE WARD, VICE PRESIDENT, CHARLESTON NATIONAL BANK, CHARLESTON, W. VA.

Mr. WARD. Mr. Chairman and gentlemen of the committee, my name is George Ward. I am 50 years old and my banking experience began at the age of 17 when, following my graduation from preparatory

school, I began work as a file clerk for the Bank of Mill Creek, located at Mill Creek, Randolph County, W. Va. The bank had the same capital then as now, $25,000, and had begun business in January of that year, 1912, as a one-man bank, the cashier, in a town of 700 people. For three summer vacations I worked in that bank without compensation, and during the third vacation I ran the bank for 2 weeks while the cashier took a vacation.

After my return from the Army in 1919 I again began to help out in peak times in what had then become a two-man bank, and in 1920 I became cashier of the $400,000 of deposits in the bank. In 1927 I was made president, and in 1934 I resigned to accept the appointment as commissioner of banking of West Virginia, to which position I was twice reappointed and confirmed. After 512 years in that office, the longest tenure on record, I resigned to become trust officer of the Charleston National Bank of Charleston, W. Va. Two years ago the additional title of vice president was conferred; and in June of this year I was elected president of the West Virginia Bankers' Association.

In my judgment, this bill, S. 1642, should not pass for the reasons given herewith.

First. The bill is rankly discriminatory. By enactment of this measure the Congress, in substance, gives sanction to the charging of exchange and thereby places national banks and Federal Reserve member banks at a great disadvantage. It is these banks which provide, through the Federal Reserve System, the clearance facilities upon which the nonpar banks rely for collection of their foreign items. They are expressly prohibited from charging exchange by law.

If the Congress believes unqualifiedly that the charging of exchange generally is a legitimate activity, that it is fair and equitable and in the public interest, it should make that same privilege available to all the banks of the Nation. Perhaps the Treasurer of the United States could also adopt it and thereby discover a source of funds to be applied to the retirement of the public debt.

Undoubtedly the passage of this bill would greatly stimulate the charging of exchange. Many banks now on the par list would quickly go back to reap the benefits of easy and lush profits, and the public would pay. After all, this item of exchange is no small figure, and the charges are larger than generally stated and could be expected to increase if the practice should receive the blessing of congressional approval by the passage of this bill. Our own bank forwarded a check drawn by a Florida Federal savings and loan association and payable to a customer of ours in the sum of $400 through regular channels and charged her account with the 80 cents exchange charged by the Florida bank. I am informed that an Ohio bank sent a check on an Arizona bank direct in the sum of $40 and received a remittance of $39.60. They remonstrated and were advised by letter to do better if they could.

Second. It will make for bad public relations. Banks are just now regaining their good name, so gravely impugned in the dark days of the early thirties, and can ill afford to create a wave of unfavorable public feeling toward them. If my assumption be correct that many more banks will go nonpar upon passage of this bill, there will be a vastly increased charging back of exchange charges. After all, a

good horse can be ridden only so far, and as money becomes tighter and excess reserves disappear, the city correspondents will not be so ready to absorb an ever-increasing amount of exchange, so the public will be called upon to take over an increased amount. The public has always been resentful toward exchange, for it feels that it is being gouged against its will and without its consent.

I think it might be helpful to draw the distinction between service charges and exchange. In the language of the trade a service charge is imposed against a depositor with notice and his consent and becomes a part of the contract between the bank and its customer. Exchange is a charge imposed upon an unknown creditor of the banking institution, without notice and without his consent.

The public will feel unkindly toward all banks because it has come to expect to find banking conditions relatively uniform and can understand practices that are explained to it when they are uniform. The justification for the exchange charge is most difficult to explain to the person who has just been charged.

Third. Fassage of this bill could seriously disrupt the entire business of banking in the United States. Today about 90 percent of all bank deposits are in Federal Reserve member banks and there is an additional portion in the nonmember par banks. The Federal Reserve System handles the bulk of the country clearings and has been developed to a very high state of efficiency with countless and recurring savings in time and money thus made available to the commerce of the Nation. But the weight of the profit factor is heavy and the tie between the nonmember par bank and the Federal is very frail. It would not be unreasonable to expect national banks favorably situated for such a course to leave the System in order to take advantage of it.

The courts of our land have held that banks are quasi-public service corporations and that their existence is essential to the conduct of modern business. With communication and transportation developed to the point that it is, it seems reasonable to conclude that deposit banking and the use of bank-check money should keep pace if our evolution is to be complete. After 30 years of service the policies of the Federal Reserve System must have attained some degree of popularity or they would not now serve by voluntary choice so great a part of the deposits of the Nation.

Based upon my belief that the business of banking is dedicated to the service of the public, and not that the public is dedicated to exploitation by the business of banking I have reached the conclusions stated herein.

I want to add to that statement, this: That when regulation Q was first promulgated, I believe in 1937, the banks of Charleston, W. Va., accepted it as law, and have continued to observe it as such. There has been no charge for exchange service in West Virginia, at least of any consequence. Also as to whether or not nonpar banks can live if they are deprived of exchange, I think they can, if their management is sufficiently alert and resourceful.

During the course of my tenure of office as commissioner of banking of West Virginia, I approved charters for three new banking institutions. I turned down several other applications. In each instance I sent my examiners to the scene of the application to conduct a survey

of the territory. I asked the Federal Deposit Insurance Corporation to send their examiners along with my own examiners, and it was considered that the charter application should be approved only if the economic need for the facilities was shown to exist and the bank had a reasonable chance to succeed. In none of those analyses was exchange given any consideration whatever in determining the profit or the loss of the situation.

Senator BUCK. Mr. Ward, I understood you to say that in your opinion if this bill is enacted into law a number of banks would go nonpar; and then you stated, later on, that you thought national banks would be the ones to withdraw from the System. Why would you confine that to national banks?

Mr. WARD. I think the nonmember par bank would only have to write a letter to the Federal Reserve Board in order to go off the par list. That is the situation with my bank at Mill Creek. It could write a letter and erect a tariff wall around Mill Creek immediately. But a Federal Reserve member would have to withdraw from membership. A national bank would have to convert into a State bank. Senator BUCK. And that is even a little more of a detailed proposition.

Mr. WARD. Yes, sir. But it can be done and has been done. Senator BUCK. Then you did not mean to give us the impression that only national banks might withdraw from the System.

Mr. WARD. No, sir. But there is no reason why a national bank would not do so if the profit opportunity was sufficiently great. Senator MAYBANK (presiding). You may proceed with your state

ment.

Mr. WARD. The West Virginia Bankers' Association at its convention in June of this year, adopted a resolution opposing this bill, and à certified copy of that resolution should be in the files of this committee. I have such a certified copy that I would like to leave with you.

Senator MAYBANK. Without objection it may be made a part of your statement.

Mr. WARD. It is as follows:

Whereas Senate bill 1642, known as the Maybank bill, a companion bill of the Brown bill already passed by the House, is pending in the Senate of the United States, and

Whereas the measure under consideration proposes to authorize absorption of exchange by banks, in effect repealing the prohibition against payment of interest on demand deposits by authorizing said absorption: Now therefore be it Resolved, That this association go on record as opposing, and urge the defeat of S. 1642 on the grounds that the enactment of said bill would be unwise, would hamper the progress which has been made in creating an almost Nationwide par clearance system and, in addition, result in an unsound distribution of bank deposits: Be it further

Resolved, That a copy of this resolution be forwarded to each of the representatives of West Virginia in the United States Senate and House of Representatives and to the chairman of the Senate Committee on Banking and Currency.

I hereby certify that the above is an exact copy of a resolution passed by the West Virginia Bankers' Association at their annual convention held in Charleston, W. Va., on June 2, 1944. FRANK N. GANS, Secretary.

I thank you gentlemen.

Senator MAYBANK (presiding). We thank you for your statement.

(Thereupon Mr. Ward left the committee table.)

Senator MAYBANK. I believe we were next to hear Mr. Sherman Drawdy, vice president and cashier, Georgia Railroad Bank & Trust Co., Augusta, Ga.

Mr. GORMLEY. Mr. Chairman, if you will permit us to do so we would like to change our testimony a little bit and put on Mr. J. W. Latham.

Senator MAYBANK. We have a list made out, and I am afraid we will not be able to get through by 3 o'clock if Mr. Latham goes on now. We will be called into the Senate for a vote at 3 o'clock.

Mr. GORMLEY. In that event the other man might go on, as scheduled.

Senator MAYBANK. If we start voting at 3 o'clock amendments may be offered and we may not be able to get back here again this afternoon. However, we will proceed with Mr. Drawdy.

STATEMENT OF SHERMAN DRAWDY, VICE PRESIDENT AND CASHIER, GEORGIA RAILROAD BANK & TRUST CO., AUGUSTA, GA.

Mr. DRAWDY. Mr. Chairman and members of the Senate Banking and Currency Committee, as vice president and cashier of Georgia Railroad Bank & Trust Co., Augusta, Ga., I respect fully submit for your consideration these remarks relative to our position on the bill now being considered by your committee, introduced by Hon. Burnet R. Maybank, Senator from South Carolina.

First, please permit me to state that I appreciate this privilege of appearing before you in the interest of legislation that is vital to the welfare of a great number of small country banks and bankers who have rendered a most outstanding service in building their individual communities throughout various sections of our great country. It was also my privilege to appear before the Banking and Currency Committee of the House of Representatives last January prior to the date similar legislation was reported favorably and later passed by an overwhelming vote of the House.

It is my sincere hope that this testimony may be of interest and assistance to you, particularly since our position is not the same as that of many of the other banks whose officers vou have previously heard, in that ours is a par-clearance bank as well as a bank that has absorbed exchange for other banks, as well as having had exchange absorbed by other banks for us over a period of the greater part of a century.

In my home town, Augusta, with a population of some 80,000, are located three commercial banks, one of which is a branch of one of the South's largest banks, another a bank affiliated with several other Georgia banks, and our bank, the Georgia Railroad Bank & Trust Co., for many years and now the largest home-owned, independent State banking institution in Georgia.

For the past 111 years Georgia Railroad Bank & Trust Co., with its predecessor, Georgia Railroad & Banking Co., has served our section of the South, having pioneered in both the railroad and banking business. Over this period of more than a century we have built a business and reputation of which we feel justifiably proud. Even