Mr. HICKMAN. No, it depends on who has the low bid, the high ask-whoever it might be. If you are on the buy side, you want to get the low offer, and so forth. Mr. WIDNALL. But the reason you are limited to the number that you do utilize is the fact that there is no one else that actually makes a market? Mr. HICKMAN. That is correct. It is a very risky business, and requires a fairly substantial capital to engage in it, and, of course, a great deal of skill. And there are very few people who wish to undertake this kind of enterprise. Mr. WIDNALL. So it is not really an unholy conspiracy that is going on when you just limit it to a few dealers? Mr. HICKMAN. No, sir. Mr. WIDNALL. That is all. The CHAIRMAN. Mr. Vanik? Mr. VANIK. Mr. Chairman, I would like to ask Mr. Hickman, how many banks are there in the Cleveland district? Mr. HICKMAN. We have altogether, sir; 870 in the Fourth Federal Reserve District. Mr. VANIK. What is the total number of banks, including those not in the System? Mr. HICKMAN. That is 870. This was the figure for 1963. Mr. VANIK. And how many are in the System? Mr. HICKMAN. Of that number, we have 513 in the System. Mr. VANIK. 513? Now, in your opinion, is it very important for the small banks to be associated with the System? Mr. HICKMAN. No; it is not. Mr. VANIK. They can, after all, get their money out of the city banks? Mr. HICKMAN. They can hold deposits instead of holding them with the Fed, they can hold deposits with the correspondent banks in the city. Mr. VANIK. What is the real advantage that they have, if any, in membership? Mr. HICKMAN. The larger banks? Mr. VANIK. No; the smaller ones. Mr. HICKMAN. I should say the primary advantage is the feeling that they belong to the Federal Reserve System, where they can obtain reserves in the event of emergencies. For example, the tobacco Mr. VANIK. Can they obtain reserves in the event of an emergency from the Fed that they would not be able to get from their correspondent banks-the city banks? Mr. HICKMAN. In a period of great national stress, such as the 1930's, that is conceivable, sir. Mr. VANIK. Yes. Now, you said something about-I have a question here in the Federal Reserve building in Cleveland, we have some private tenants; is that right? Mr. HICKMAN. That is correct. Mr. VANIK. So that in a sense you are engaged in a proprietary operation? Mr. HICKMAN. To that extent. Mr. VANIK. You have an office building for general tenancies. Now, to the extent that you rent out private space in the building, don't you feel that you ought to pay something to the local communities in lieu of taxes for at least that part of your operation which is a proprietary function? Mr. HICKMAN. Well, we do pay general property taxes in Cleveland. Mr. HICKMAN. We have one or two. I think we have the ScrippsHoward, a small office of Scripps-Howard there, as I recollect. Mr. VANIK. There are less than I thought. I knew at one time there were quite a few. Mr. HICKMAN. We have the Internal Revenue Service. Mr. VANIK. That is all right. Mr. HICKMAN. The Comptroller of the Currency is in there; organizations of that sort. Mr. VANIK. Yes. Mr. HICKMAN. We do pay general property taxes to the city. Mr. VANIK. The question that I am driving at is eventually, when we get our new building in Cleveland, it is conceivable that we might be able to consolidate all of our Federal facilities in either the Federal Reserve bank building or the new office building, so we can avoid the scattering around throughout the entire metropolitan area. What are your space demands now? Are you contemplating any expansions, or do you find your space satisfactory? Mr. HICKMAN. We have 12 floors. We have something like 500,000 square feet of space in our three offices, and about 250,000 square feet at Cleveland. About 50,000 square feet is available for tenants and the rest is for our own requirements. I have the figure. It is 500,097 square feet at our three offices. Mr. VANIK. All right. Now, let me ask you this: What is the total cost in dollars of the check clearance operation? Mr. HICKMAN. Total cost in dollars? Mr. VANIK. You said it was 30 percent? Mr. HICKMAN. Yes, we have that figure right here. I had it right here a minute ago, on that same sheet. Mr. VANIK. While Mr. Hoy is looking for that Mr. HICKMAN. I have it right here, sir. The total cost of the check operation is $3,725,000, out of total expenses of $17,548,000; $3.7 million. Mr. VANIK. Yes. Now, what part-what would this figure-how would this relate to the total cost of the check-handling function by the banks in the Cleveland district? In other words, as we consider the whole business of commercial accounts, what percentage of the total cost of this check handling would be represented by what you do at the clearinghouse? Does this represent 30 percent of it? Mr. HICKMAN. Well, the total cost-a very rough estimate obtained. by discussions with bankers in the district for the national scenewould be around $3 billion cost to the commercial banks for handling their part. Mr. VANIK. How much? Mr. HICKMAN. Yes, sir. Now, the Federal Reserve Bank of Cleveland's district has about one-tenth of the banking assets in the country in it. So that it would be around $300 million. Mr. VANIK. I am trying to orient this in my mind. What would you estimate would be the cost in the Cleveland district? Mr. HICKMAN. I would say roughly $300 million. Mr. VANIK. To handle checks? Mr. HICKMAN. By the commercial banks; yes. Mr. VANIK. I am just trying to figure out this operation. The checks are issued, they are circulated, they go to the bank, and then they get to the clearinghouse, and you sort them all out, and get everybody's balances calculated. It seems to me--I don't know, but it seems like you do about a third of the work for about $3.7 million. I cannot quite see how the rest of it should cost so much. I am trying to determine whether or not the commercial banks are passing on to the consumer-there are some 65 million people that have checking accounts now-I want to know if they are passing on to the consumer some of the advantages of the reduced costs of check handling brought about through the data processing systems and the computer systems that are now in vogue. Mr. HICKMAN. I think they will over a period of time. The competitive process, as you know, works over a period of time. Mr. VANIK. In the Cleveland district, for example, what is the charge to the individual account holder-what is the charge that is made for each check, for each item? How does it vary? Mr. HICKMAN. It varies-I don't have the schedule. Mr. VANIK. What is the peak on it? Mr. HICKMAN. It varies with the size of the account and the activity of the account. Debits and credits are charged at a different rate. And that is all related to the average balance in the account, as I understand it. Mr. VANIK. Well, does it range as high as 10 cents an item or higher? Now, is it possible that you could provide for the record a variation of the schedule in the Cleveland district on check handling chargesin other words, the maximums-and get the minimums so that we have some idea here as to the range, the competitive range, as you say, in the cost of these services? Mr. HICKMAN. We would be glad to do it. Mr. VANIK. Because the cost of check handling is an item that every consumer must face. And I am anxious to see that these charges are related in some measure to the actual cost of the service to the bank. Mr. HICKMAN. Mr. Vanik, may I say that we will be glad to provide that information. Of course, the banks also compete in many other ways. Mr. VANIK. I would like to know the extent of their competition. For example, in the Cleveland area Mr. HICKMAN. Through their loan and investment processes. Mr. VANIK. Yes. I would like to know the extent of the competition. In other words, I would like to know what is the rangewhat is the competitive range in the city of Cleveland, what is the competitive range in the city of Akron, what is the competitive range in Pittsburgh, and perhaps some rural area. So that we have an opportunity to get a cross section. It seems that in the rural areas, and in other places, that these things are done for almost nothing. And in the cities, where there is a tremendous volume, the cost goes up to 10 cents an item and even higher. Mr. HICKMAN. Yes, it may do that. Mr. VANIK. And, at the same time, I would also like to have a cross section of the cost of official drafts. If a person in my community, for example, has to send a check to the registrar of motor vehicles to get a license number, he pays 30 cents or more for a $11 check. It seems to me it doesn't seem in any way to relate itself to the service, because a man comes in and brings in his $11, there is no risk to the bank, they write out a piece of paper, they charge him 30 cents, so that he can send a proper check down with his application for a motor vehicle license plate. It seems to me that these costs are getting to be a little bit out of line with reality. And it also seems to be considerable uniformity in the charge. I haven't been able to personally find this high degree of competition that you have talked about. And I would like to have some evidence of it submitted for the record, if you can. The CHAIRMAN. Without objection-you will submit the information for the record. Mr. HICKMAN. I will be glad to do that, although I don't believe I said there was a high degree of competition. Mr. VANIK. You said there is competition. Mr. HICKMAN. There is. Mr. VANIK. I would like to see evidence of the competition. Mr. HICKMAN. I think the competition is mainly on the side of availability of funds, the searching for investment outlets, loan outlets. Mr. VANIK. If I want to open a checking account, I don't want to do it where it is going to cost me $50 a year. You show me where it can be done for $25. I want to see if there is some range of choice in where I can open my account, because the average person doesn't care which bank. They are all insured, they are all solid. The choice doesn't mean so much to him. He is concerned in getting this service at the lowest practicable cost. (The information referred to follows:) SCHEDULE OF SERVICE CHARGES ON CHECKING ACCOUNTS AND OFFICIAL CHECKS CLEVELAND High, medium, and low range, as follows: Bank A Regular checking accounts: 6 cents for each check written during the month. 4 cents for each check written after 100 checks in the month. 3 cents for each item deposited during the month. 2 cents for each item deposited after 100 items in the month. Offsetting credit of 122 cents for each $100 of the average balance on deposit in the checking account for a month and a maintenance charge of 50 cents is made. 28-680-64-vol. 1-12 No charge is made to an established depositor for an official check covering funds withdrawn by the depositor to effect a transfer of funds. Bank B Regular checking accounts: 6 cents for each check paid up to 500 during the month. 4 cents for each check paid over 500 during the month. 3 cents for each item deposited up to 500 during the month. 2 cents for each item deposited over 500 during the month. A credit allowance per $100 of average balance is given personal accounts at rate of 15 cents and business accounts at rate of 18 cents and a maintenance charge of 75 cents is made. 6 cents for each check paid up to 100 during the month. 4 cents for each check paid over 100 during the month. 10 cents for each deposit made during the month. A monthly charge of 50 cents is made for maintaining and analyzing the account and for preparing and mailing a statement. A monthly of 121⁄2 cents per $100 is made on average collected balances of $100 and over. Business accounts: 6 cents for each check paid up to 500 during the month. 4 cents for each check paid over 500 during the month. 3 cents for each item deposited up to 500 during the month. 2 cents for each item deposited over 500 during the month. A monthly charge of 50 cents is made for maintaining and analyzing the account and preparing and mailing a statement. A monthly allowance is made based upon average funds in the account available for investment (average realized balance less required reserves) computed at an annual rate of 2.67 percent. Regular checking accounts: 6 cents for each check written during month. 4 cents for each check written after 100 checks in the month. 3 cents for each item deposited during the month. 2 cents for each item deposited after 100 items in the month. Maintenance charge of 50 cents per month if balance is under $200 and if over $200 an allowance is made at the rate of 10 cents for each $100 of average balance. |