Mr. TAIT. That is right. In the past most of it has been absorbed. In some sections it is being passed right directly to the payee. Nonpar banks do not like that, of course, because ultimately it would break down the custom, and I think they realize it. But as long as it can be absorbed the public does not know about it.

Senator HAWKES. Of course, if the payee has to absorb the amount of the exchange, then the payee, if he is a businessman, has to put that in the cost of the goods and pass it over to the people he does business with, because he is not going to accept any burden of cost of that kind in doing his business.

Mr. TAIT. Yes, sir. He will very shortly make arrangements, through his own bank or his customers, to be paid in full; certainly if the amount is substantial he will insist upon payment in full. Senator HAWKES. Any further questions?

Senator BUTLER. The description the gentleman just ahead of you gave of the service charge and of exchange, I think is quite to the point. Exchange in a way is a tax, and when you have exchange without the customer of the bank knowing it is a tax on his check, it is a hidden tax.

Mr. TAIT. That is right. The service charge is on the bank's customer, and presumably it is analyzed and should be sufficient to cover cost of par clearance, and the other is hidden from the customer. It does not hit the customer but is passed on to the man on the other end. Senator HAWKES. This question has been raised a number of times, that this is a controversy between the big banks and the little country banks. As I have listened to the evidence given by different people, it would seem to me that this is a fight for better practices in banking and to avoid taking a step backward.

Mr. TAIT. I agree with you. In fact, New York State banking service is largely made up of small. banks despite New York City. Of the 737 banks in New York State very few of them are large banks-not over 50, I would say. The great majority of the banks in New York State are small banks. One hundred percent of them pay at par and do not want to do otherwise. They are managing to make a profit, and to pay dividends too.

Senator HAWKES. Thank you very much.

(Thereupon Mr. Tait withdrew from the committee table.)

Senator HAWKES. The next witness will be Mr. Charles W. Hawkins.

STATEMENT OF CHARLES W. HAWKINS, PRESIDENT, FIRST NATIONAL BANK, SPRING VALLEY, N. Y.

Mr. HAWKINS. I am president of the First National Bank of Spring Valley, N. Y. Our deposits are $4,400,000. There is nothing that I can add to what already has been said in opposition to the Maybank bill, which we regard as unsound legislation.

I thank you.

Senator HAWKES. Any questions?

Senator BUTLER. I have none.

Senator BUCK. No questions.

(Thereupon Mr. Hawkins withdrew from the committee table.) Senator HAWKES. We will now hear Mr. Guhring.

STATEMENT OF H. F. GUHRING, EXECUTIVE VICE PRESIDENT, CITIZENS FIRST NATIONAL BANK, FRANKFORT, N. Y.

Mr. GUHRING. My name is Fred Guhring. I am executive vice president of the Citizens First National Bank of Frankfort, N. Y.

In spite of the long name, I might say that it is a small community, 4,000 people, predominantly agriculture. Dairy farming is one of our largest sources of income.

For the last 23 years I have worked for a small country bank. I do not pretend to be an expert on banking matters, and do not pretend to speak for other people.

In all the time I have been with small country banks, neither shop for whom I worked has ever had any income from this nonpar payment of checks. We just do not know what it is like. That may disqualify me from expressing an opinion on it; nevertheless, the bank I am now with has been through a lot of trouble. We have a heavy debt to the Reconstruction Finance Corporation, which we are whittling down. We have a building twice as big as it ought to be, and cannot use all of it, and we have our troubles.

However, we are merchandising our bank service to our community. Some day we hope to get out of the woods in spite of the competition of federally subsidized production credit associations, which competition we think very unfair, very much more unfair than this exchange business may be.

The only point I can bring to you is that we are a small country shop; that we are hoping to get out of the woods without resort to the clipping of checks or doing any other thing to disturb the in banking that has come about in recent years.

progress

The Federal Reserve has been a big help to the country banks. Our city correspondents are a big help, and rather than the city bank being against the country bank, I will say that the boys in the city could not get along without us. We are the source of their deposits and their business.

I have listened with a great deal of interest to the hearings here and the arguments on the floor of the Senate, and take hope in your concern for the welfare of small banks. It is very heartening to me after some of the things we have known in the past.

Anything that will hurt us, hurts everybody. It is not a question of the big bank versus the little bank, or the squabble between Government agencies. That is of little concern to us.

I believe, Mr. Chairman, that covers as much as I could mention without infringing upon the testimony already given and duplicating it.

Senator HAWKES. Mr. Guhring, do you make a service charge to your customers?

Mr. GUHRING. Absolutely; yes.

Senator HAWKES. And they are perfectly satisfied with it?

Mr. GUHRING. I would not say completely satisfied; but there is not much complaint.

Senator HAWKES. Perhaps no one desires to pay unless he has to, but at least it does not interfere with your doing business, does it?

Mr. GUHRING. That is the place where we charge, on the basis of the balance carried. The argument advanced that it is a service to the payee of the check to take his money to Dallas or to some place in

Nebraska, does not stand up in practice. Yesterday we heard that 90 percent of the business of the country is done by check. Nine-tenths of the deposits that come to my bank are check deposits. That money comes to us at the clearing center. It does not come in in cash. When a cash letter comes in with 100 checks on it, we draw one check.

Testimony has been given here that it costs much more to pay a check in Nebraska or some distant point than over the counter. We had an analysis of that matter made by a firm of bank analysts, and they tell us it costs 82 cents to pay a check over the counter, whereas it costs 2 cents by mail.

Senator HAWKES. Any questions by members of the committee?
Senator BUTLER. I have none.

Senator BUCK. No questions.

Senator HAWKES. All right. Thank you very much.

Mr. GUHRING. And I thank you.

(Thereupon Mr. Guhring withdrew from the committee table.) Senator HAWKES. We will now hear Mr. Holmes.

STATEMENT OF F. V. HOLMES, CASHIER, THE STATE BANK OF PARISH, PARISH, N. Y.

Mr. HOLMES. Mr. Chairman, my name is F. V. Holmes. I am vice president and cashier of the State Bank of Parish, Parish, N. Y., and past president of the Central New York Bankers Association. This association is made up of the 33 commercial banks in the counties of Onondaga, Cayuga, and Oswego, of the State of New York.

The State Bank of Parish serves a community of less than 500 inhabitants and has no manufacturing plants. It is strictly a dairy farming locality with few cash crops.

Last spring we received a communication from Mr. Leo Crowley of the Federal Deposit Insurance Corporation stating that he believed if the proposed Maybank bill, which allowed the absorption of exchange, was not passed, many of the 2,500 small banks throughout the country would be forced to close because of the lack of income.

For the year July 1, 1943, to June 30, 1944, we show a net earnings of $8,000 above all expenses and these profits are made with a rate range of 2 to 6 percent-which I believe is one of the lowest legal rates throughout the Nation.

Deposits are insured up to $5,000 with the Federal Deposit Insurance Corporation, adequate service charges are made direct to customers' checking accounts, and all checks are paid at par.

Years ago many banks offered coin banks, fountain pens, umbrellas, and other gifts as inducements for new business, but this practice was abolished by Mr. Crowley and the F. D. I. C. as unsound banking, yet today the same Mr. Crowley approves the absorption of exchange as a means of soliciting correspondent accounts by larger banks.

With an interest rate of 1 percent on time deposits and moderate service charges on checking accounts, our deposits have grown from $500,000 in 1939 to a present-day total of over a million and this increase has been accomplished in a village of less than 500, with no manufacturing or influx of war workers.

From our experience, we feel that the small bank can exist without the clipping privilege and that legalized absorption of exchange is not only a step backward, but definitely an unsound banking practice.

In closing I wish to say that small banks can grow and make money and still pay their customers' checks 100 cents on a dollar.

I thank you.

Senator HAWKES. Any questions by members of the committee? Senator BUTLER. I have no questions.

Senator BUCK. I have none.

Senator HAWKES. We will now hear Mr. Worden.

STATEMENT OF FREDERIC E. WORDEN, PRESIDENT, NATIONAL BANK OF AUBURN, AUBURN, N. Y.

Mr. WORDEN. I am connected with the National Bank of Auburn, Auburn, N. Y. It was established in 1817, and during the intervening 127 years to my knowledge it has never cost its depositors or stockholders any money.

I am also chairman of the legislative committee of the New York Bankers Association, and have been for a number of years.

Briefly I would like to say that I am opposed to the absorption of exchange charges. I thoroughly believe in par clearance on checks, and am against the clipping of currency or the clipping of checks.

I would like to have in the record that in the State of New York, with over 700 commercial banks that are members of our State association; there are over 113, if I remember correctly, that are not members of the Federal Reserve System. That is roughly one-seventh of the banks of New York State, I mean that are not members of the Federal Reserve System. In spite of that we have in New York State a situation that every bank pays par clearance on checks.

Senator HAWKES. How many banks did you say were not members of the Federal Reserve System?

Mr. WORDEN. We have 113 banks that are not members of the Federal Reserve System, out of something over 737 banks. Yet every bank in New York State pays par clearance on checks.

Senator HAWKES. There are none that make that charge?

Mr. WORDEN. Yes. We take pride in paying our depositors 100 cents on the dollar.

I thank you very much.

(Thereupon Mr. Worden withdrew from the committee table.) Senator HAWKES. We will now hear Mr. Cleveland.

STATEMENT OF BURR P. CLEVELAND, PRESIDENT, FIRST NATIONAL BANK, CORTLAND, N. Y.

Mr. CLEVELAND. I am president of the First National Bank of Cortland, N. Y. Ours is a small city, about 18,000 people. My bank has deposits of $13,000,000. We are located in an agricultural community. About 35 to 40 percent of our business is with farmers.

I cannot add anything to what has already been said, but would like to go on record as being opposed to the Maybank bill."

Senator HAWKES. And you are in favor of what has been said here this morning?

Mr. CLEVELAND. Yes, sir; what these gentlemen representing New York State Bankers Association have said.

Senator HAWKES. We thank you very much.
Mr. CLEVELAND. And I thank you.

(Thereupon Mr. Cleveland withdrew from the committee table.) Senator HAWKES. We will now hear Mr. Kielmann,

STATEMENT OF WILLIAM A. KIELMANN, PRESIDENT, PEOPLES NATIONAL BANK & TRUST CO., LYNBROOK, N. Y.

Mr. KIELMANN. I am president of the Peoples National Bank of Lynbrook, Long Island, and chairman of the Bankers Association of Nassau County, having a membership of 47 small banks. We feel that the adoption of this legislation would be most unsound. We feel that it would take away from us one of the most constructive steps in American banking, which was the adoption of the Federal Reserve System.

We believe it would have a tendency to encourage banks to leave the system, and that it would lead to many steps which would bring about concentration of money in places, which would prove a bad thing in event of the withdrawal of that money, in fact that it would create abnormal deposits in certain places.

I was amazed yesterday afternoon when listening in the Senate to hear that the proponents of the measure were trying to make it appear this was a battle between the big bank and the small bank. Well, it occurred to me that it takes two to make a contract, and if this is desirable to the little banks it must also be desirable to the big banks that are willing to absorb exchange. So as it strikes me, that takes away the argument that this is an issue between the big banks and the small banks, because if the big bank is willing to absorb exchange charges then they must be profitable to them. I would like to call that thought to your attention."

Thank you very much.

Senator HAWKES. And thank you very much. Any questions by members of the committee?

Senator BUTLER. I have no questions.

Senator BUCK. No questions.

Senator HAWKES. We will now hear Mr. Louis Auperin.

STATEMENT OF LOUIS AUPERIN, VICE PRESIDENT, FIRST
NATIONAL BANK & TRUST CO., AMITYVILLE, N. Y.

Mr. AUPERIN. My name is Louis Auperin. I am vice president of the First National Bank & Trust Co., Amityville, N. Y. The population of our village is 5,000. Our bank has $3,200,000 in deposits.

I am grateful for the privilege of being here. My reason for adding my voice in opposition to the bill before us may be stated as follows: In considering a question such as the one before us, one which has been complicated by the many events which have occurred over the period of time it has been considered and complicated by the statistical data in it, it is easy to become confused and to miss the main issues.

There is complete agreement that the prohibition in section 19 of the Federal Reserve Act against the payment of interest on demand deposits, either directly or by any device whatsoever, is a good law. In this same section 19, Congress directed the Governors of the Federal Reserve System to prescribe such rules and regulations as were necessary to prevent evasion of the law. In June 1934 the Board issued rulings which defined how absorption of exchange charges in some

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