BSORPTION OF EXCHANGE OR COLLECTION CHARGES

BY MEMBER BANKS

THURSDAY, DECEMBER 7, 1944

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10:30 a. m., pursuant to call, in room 301, Senate Office Building, Senator Robert F. Wagner, chairman, presiding.

Present: Senators Wagner (chairman), Bankhead, Maybank, Taft, Capper, Buck, and Hawkes.

The CHAIRMAN. The committee will come to order. We are considering S. 1642, introduced by Senator Maybank, of South Carolina. The bills under consideration, H. R. 3956 and S. 1642, are as follows:

[S. 1642, 78th Cong., 2d sess.]

A BILL To amend the Federal Reserve Act, as amended, to provide that the absorption of exchange and collection charges shall not be deemed the payment of interest on deposits

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first sentence of the twelfth paragraph of section 19 of the Federal Reserve Act, as amended (relating to the payment of interest by member banks on demand deposits), is amended by inserting before the period at the end thereof a colon and the following: "Provided further, That this paragraph shall not be deemed to prohibit the absorption of exchange or collection charges by member banks."

[H. R. 3956, 78th Cong., 2d sess.]

AN ACT To amend the Federal Reserve Act, as amended, to provide that the absorption of exchange and collection charges shall not be deemed the payment of interest on deposits

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first sentence of the twelfth paragraph of section 19 of the Federal Reserve Act, as amended (relating to the payment of interest by member banks on demand deposits), is amended by inserting before the period at the end thereof a colon and the following: "Provided further, That this paragraph shall not be deemed to prohibit the absorption of exchange or collection charges by member banks". Passed the House of Representatives March 2, 1944. Attest:

SOUTH TRIMBLE, Clerk.

The CHAIRMAN. Mr. Gormley, I understand that you are to be the first witness this morning.

Senator MAYBANK. And, Mr. Chairman, he will present the other witnesses to be heard.

The CHAIRMAN. Very well. You will present the other witnesses. Mr. GORMLEY. Yes, sir; I will present the first witness now, but I would just like to make a brief preliminary statement.

The CHAIRMAN. You may

do so.

1

STATEMENT OF R. E. GORMLEY, VICE PRESIDENT, GEORGIA SAVINGS BANK & TRUST CO., ATLANTA, GA.; CHAIRMAN, NATIONAL ASSOCIATION OF NONPAR BANKS

Mr. GORMLEY. Mr. Chairman and gentlemen of the committee, my name is R. E. Gormley. I am vice president of the Georgia Savings Bank & Trust Co. in Atlanta. I am also chairman of the National Association of Nonpar Banks. That organization is composed of between 1,400 and 1,500 small banks located largely in the Southeast, in the four or five States in the upper Mississippi Valley region.

As you gentlemen no doubt know, this bill was introduced in the House of Representatives by Hon. Paul Brown, Congressman from Georgia, in January or February of this year, and finally they succeeded in passing the bill in the House. I believe it was transmitted to the Senate the latter part of February or first of March, where we had a companion bill introduced by our Senate champion, Senator Maybank, of South Carolina.

The minority group which we represent, of course, have been interested in pursuing this proposed legislation through your body for the reason that in it we see the life or death of the smaller group which I am undertaking to represent here.

Gentlemen of the committee, I realize that this session of Congress is fast growing to a close. By reason of circumstances which certainly we had no control over, we have not had an opportunity to present our case here, and there now arises in my mind the serious question whether or not there is time to complete the hearings on this bill before this committee and get the desired action from the Senate. That, of course, is going to depend on you gentlemen and whether or not the testimony will be limited in this hearing.

We have here with us, in addition to 6 men from Georgia, a group of some 18 other gentlemen from the Southeast, and 1 or 2 from the Midwest. We would like to have a hearing on this bill in spite of the fact that there has already been held in the House a very voluminous hearing, in which hearing I think practically everything that can be said, pro and con, on this bill has already been said.

Even though we represent the minority group, and even though we realize that probably a majority of the Senators composing this committee are from States that are not concerned with the question of absorption of exchange, and the accompanying question of whether or not these country banks shall be permitted to continue to charge exchange, I feel quite sure we can present a good case to you of our cause. We have that much confidence in our cause that we believe if we are given an opportunity of presenting the situation to you, you gentlemen will be convinced of the fairness of what we ask and will vote this bill out with favorable action, so that we may get the action of the Senate at this session.

Now, as I understand your Senate procedure, this bill would have to go from this committee-or is this a subcommittee, may I ask, Mr. Chairman?

The CHAIRMAN. No. The full committee is hearing it.

Mr. GORMLEY. Even so, I seriously doubt whether or not we are going to have sufficient time now, judging by the signs of the remaining session, to get action.

In discussing the matter with Senator Maybank this morning he has offered this alternative, which we feel is the only possibility of our getting action on this question at this session, and that is to offer this bill as an amendment to the crop insurance bill of Senator Thomas. That we would like to do if it would be the only means of getting this question before the Senate at this session.

We do not want to sacrifice or jeopardize any of our rights by reason of waiving a hearing. We are here, and while you may say that we only have an insignificant number of people present, I will ask you gentlemen to consider this

The CHAIRMAN. I have not said that you had an insignificant number of people present.

Mr. GORMLEY. Well, what I meant was this, that it might look that way on the face of it. But I will say this, gentlemen of the committee, if any of you live in the country or in a country town and know anything about the operation of a country bark, you realize that there is usually one key officer in such a bank, and that it is almost necessary that he be present in the bank every day. It is very difficult for us to get representation of all the people interested." I could bring 100 men from Georgia today to testify in favor of this bill if there were any point in doing so. But every one of them would come here at a very serious sacrifice to himself. And so it is that we are at a disadvantage, by reason of the fact that the very nature of our operation is such as to make it difficult for us to get away. But we would like to present our case to you as fully as we can. And yet if this bill is to go through to its natural conclusion, and the testimony is unlimited here before this Senate committee, there is no chance in the world of this proposed legislation ever getting out of this committee before the end of the present session.

Now, that is our position. We are here to lay our cause before you. But, as I have suggested, it will be largely repetition of what has been said before the House Committee on Banking and Currency.

We believe in the fairness of our cause. We believe that we represent little business. We feel sure we represent individual initiative, and there has been quite a lot said in this Congress, and throughout the United States, about the American way of life and a fair opportunity for little business to conduct itself, and we believe that we represent just that.

We have been doing business in Georgia-and I speak of my own State particularly because I am more familiar with conditions therefor 50 years on this particular basis, and the commercial and industrial worlds have been accepting that way of doing business. They have never raised any question about it except in this instance where the Federal Reserve banks in their several attempts have tried to force us into the Federal Reserve System.

Senator MAYBANK. And at the present time you are operating under the laws of the State of Georgia, are you not?

Mr. GORMLEY. Yes, sir.

Senator MAYBANK. And if there were anything wrong about it the Legislature of Georgia would take the appropriate action.

Mr. GORMLEY. I think that is true. On the contrary, Georgia law specifically allows us to charge exchange.

Senator MAYBANK. And that is true of South Carolina law.

Mr. GORMLEY. Yes. I had not intended to lead off these hearings, but now I desire to change the order a little bit. I would like the opportunity to make a little longer preliminary statement.

The CHAIRMAN. You may proceed to do so.

Mr. GORMLEY. This bill before the House committee was known as the Brown bill. It merely provides or states that absorption of exchange shall not constitute payment of interest. That is a rather harmless sort of statement.

As a matter of fact, we have no particular fault to find with the Federal Reserve Board in their regulation Q, but we cannot agree with them that this absorption of exchange constitutes payment of interest. The objection we have to the action of the Federal Reserve Board is not so much directly concerned with what they are literally undertaking to do by regulation, but indirectly it is a sort of squeeze play, to stop this charge made by about 2,600 small banks. Our State laws authorize us to make that charge. But even if those laws did not so provide, the commercial and industrial world of the United States has accepted that practice from time immemorial. The business life of the Nation has done business with Georgia-yes; millions of people have done business with Georgia-selling their goods in Georgia and accepting checks on nonpar banks and absorbing the exchange.

Senator MAYBANK. And half the banks in the country are nonpar banks.

Mr. GORMLEY. In 14 States the vast majority of the banks are non

par.

Senator MAYBANK. I take it that about two-thirds of the banks in South Carolina are such banks.

Mr. GORMLEY. Yes; and they represent the rural small-town life. In Georgia, out of about 240 State banks, there are only about 20 that are Federal Reserve member banks. By and large, these banks are vital to the economy of my State, and certainly to the smaller towns there.

Senator MAYBANK. Everything that you speak of as applying to Georgia also applies to South Carolina, Mississippi, and Florida, I

take it.

Mr. GORMLEY. Yes, sir. Even if we were not authorized by law to charge exchange in the State of Georgia, the fact that that has been the established custom for 50 years, ever since a chartered bank has existed in the State of Georgia, would seem to legalize that practice. The fact that the business world and the financial world has done business with us in that way, would legalize that practice even if we did not have a specific statute covering it.

Senator BUCK. Even if this bill were not enacted into law, you could continue to charge exchange, then.

Mr. GORMLEY. That is quite true. But I will undertake to show you gentlemen that the enforcement of this regulation by the Federal Reserve banks is not really concerned specifically with the absorption of exchange. It is true that the Federal Reserve Board has had pressure put upon them by a few large banks that have been absorbing this exchange and incidentally right there I will say that the country banks of these States which operate on a nonpar basis, do not require these clearing banks in the large centers, such as New York, Philadelphia, and so on, in the North and in the South, Atlanta, Birming