has issued my bank a charter under a law enacted by our legislature which, among other things, gave us a right to buy and sell exchange. That act does not require us to give away exchange. The act further provides that we can charge a maximum of one-eighth of 1 percent, $1.25 per thousand for paying our checks in Atlanta, or New York, or other cities.

In 1917 a State bank was established in my town which joined the Federal Reserve System. Nine years later we found out, very much to our financial disadvantage, that we could not make a living as a member of the Federal Reserve System. We withdrew from the Federal Reserve System in 1926 and since that time to now we have charged the uniform exchange rate of $1 per thousand for paying checks in Atlanta, New York, Chicago, or other reserve cities with our checks drawn on New York or Atlanta banks and through these years that exchange has constituted a substantial part of our income and I am frank to say that our institution would not be here today if it had been a par bank.

In 1928 I moved from West Point, Ga., to Athens, Ga., where I spent 11⁄2 years in a small national bank, a par bank. Early in 1930 I found out that that bank could not operate profitably. A large State-wide banking system was set up in North Carolina under the leadership of former Governor McLean, which took over 18 banks, merged them into 12 branch banks, and immediately wanted 12 men to study efficiency in banking with a view to figuring out how to operate a financial institution with safety to the depositors and profit to the stockholders.

You gentlemen of the Senate Banking and Currency Committee are familiar with what happened to the North Carolina Bank & Trust Co., of Greensboro, N. C. In March 1930, the day I went to work for them as manager of one of their branches, they had over $40,000,000 resources and employed 300 people and 75 officers. Every known device of efficiency and analysis was used in that institution, and when the bank holiday came the institution was placed in receivership with large losses to the stockholders and losses to the depositors as well.

In 1932 I was invited back to West Point, Ga., to a bank where I grew up, and that bank, on October 15, 1932, had total resources of $750,000. The day of the holiday, March 1933, the bank had total resources of less than $500,000. When I left home yesterday, it had total resources of just under $6,000,000. If any of the 6,000 depositors or the 101 shareholders are dissatisfied with their investments in the bank or the safety or efficiency of the handling of their deposit accounts, I do not know anything about it, and if I knew that there was one dissatisfied customer in that area I would hasten back and use every means possible to satisfy him.

Our city bankers, Federal Reserve bankers, the expert bankers, tell us that we should not charge exchange as we have through all the years; that we should charge our depositors. In my neighboring town, Newman, Ga., there are two mighty fine national banks, both of them together slightly larger than my bank, so I visited with my neighbors, Federal Reserve members, and asked them how they solved the problems of clearing checks at par. They stated to me that they charged every deposit account 50 cents each month for doing business with the bank whether the balance was $5 or $50,000. The question naturally arose with me if they were going to make that sort of

charge to operate their banks on, why not charge admission to the bank as a picture show does, and charge a customer to come into the bank. We are having such throngs of customers at my bank it would not be hard for me to realize $10,000 income at a small admission charge. We accept money on deposit and pledge our depositor that we will keep his money safe and return it to him in West Point, Ga., when he calls for it. We did not tell him that we would return it to him in Atlanta or New York or Washington, We did not get the money there.

A United States bond in West Point, Ga., has a different value than a United States bond in Atlanta. A United States bond in Atlanta has a different value than a United States bond in New York. Therefore, if we charge 10 cents to transfer $100 from West Point to Atlanta, I do not think we have gypped our customer, nor does our customer think we have gypped him. The Federal Reserve Bank in Atlanta sends my customers letters from the president of the Federal Reserve bank telling them that exchange is a gyp or a clip; that it is old fashioned and should not be tolerated.

That same Federal Reserve bank tells me that if I will give a holder of a $18.75 bond $18.75 in money in West Point and will send that bond up to Atlanta and assume the responsibility of identification, and so forth, that they will give me a dime. I do not see any difference in the transaction. We have a chain store in Atlanta that maintains a store in West Point, Ga. They want a bank account in West Point for no other reason than to transfer their weekly receipts from West Point to Atlanta each Monday morning. They have a truck that comes from Atlanta to West Point each day. They could put their money, their total daily receipts, in their truck and send it to Atlanta, but their risk and their cost would greatly exceed 10 cents a hundred.

The Western Union Telegraph Co. transfers money. I sent the Western Union Telegraph Co. $30 to be transferred to one of my depositors 40 miles away and they charged 89 cents. They brought the $30.89 along with some other money back to me, and I charged the Western Union 60 cents to transfer $600 90 miles to Atlanta. The Federal Reserve said I gypped them. I do not think so.

All of the large city banks in New York, Atlanta, and elsewhere, are members of the Federal Reserve System. They all charge fees for issuing drafts payable at other points. They all charge exchange for issuing foreign-currency drafts. There is no difference in principle between fees for drafts or foreign exchange and the exchange charges which the nonpar banks collect. Yet the Federal Reserve Board condemns and is attempting to outlaw our exchange charges while it places its blessing on all other forms of service charges and on the foreign-exchange operations and charges of the big city banks. We hear a lot about protecting small business, assisting small enterprises, maintaining the American way of free enterprise. Here is a very definite way that the United States Senate can materially assist and maintain small business, small enterprise, without cost to the Federal Government.

The Federal Reserve Board would only have to look into the dictionary to see that exchange is not interest. This Federal Bureau on Constitution Avenue has issued a regulation, regulation Q, that

has the effect of making a law that even changes the dictionary's definition of "exchange." Of course, money is worth interest. That is the reason we have banks. I am trying to maintain the capitalistic system which, in final analysis, is interest; your right to operate a business and live on interest.

It is a well-known fact that if you give power somebody will take it up and use it. So the Federal Reserve System, with all of their power, are attempting to do indirectly what they could not do directly. One of the big tobacco companies of North Carolina wrote to one of my customers and told him that he had had to pay 17 cents exchange on a check to transfer the money from West Point, Ga., to Winston-Salem, N. C. This customer is one of my largest stockholders.

He took the matter up with me, and I told him that the bank does not belong to me. "It belongs to you and half of the profits are exchange. If you want to reduce your profits in half have the board of directors apply for membership in the Federal Reserve System and then all of your checks would be paid at par and your investments, net profits, would be reduced 50 percent unless we could find some other way to make up the difference in income."

I asked this stockholder if he thought that West Point, where over 6,000 people through a long period of time had enjoyed the safest and cheapest banking services possible, should be put on an admission basis as a picture show or if we should attempt to sell them $10,000 worth of checks or continue as we had operated through all the years. He readily agreed that we should continue to operate as heretofore, but he immediately came up and asked me for $25,000 in cash.

When I inquired what he was going to do with the money he said, "I am going to Atlanta and open an account where my checks will clear at par and want to take the currency with me.' I told him that the next day was a holiday. "The risk is too great for you to take $25,000 in currency from West Point to Atlanta. I will give you a check on the First National Bank of Atlanta for $25,000 that you can deposit day after tomorrow and there will be no risk from transferring the money from West Point to Atlanta."

He accepted the check and came back later and said, "I do not know an Atlanta banker. I have never done business with an Atlanta bank. Will you write me a recommendation to one of the banks of your choice so that I can open an account in Atlanta?", which I did. I received a very cordial letter back from my Atlanta friend thanking me for sending him a new customer with a $25,000 account.

The Federal Reserve's regulation Q, involving 17 cents, cost me a part of an account that I have serviced and maintained satisfactorily from 1908 except the 4 years that I was away from my bank.

Gentlemen, this is the old story of the big dog and the little dog; of big business running over little business, and they go down on Constitution Avenue and get the Federal Reserve Board to dig up a regulation that they passed in 1934, or thereabouts, and start out in 1943 to enforce it. It is inconceivable to me that if the United States Senate wants to assist small business, independent business, American free enterprise, that they would permit a bureau in Wash

ington to pass a regulation that has the effect of a law. That, to my mind, conceivably may bring about an end to State banking.

If my bank is to be a par bank, then why should it be a state-chartered bank? I do not want a law that requires a bank to absorb exchange or requires a corporation or individual to accept a check at par that will cost him a nominal exchange charge to collect, but if we are to be free, let's let that bank, if it wants to, absorb the exchange; let's let that bank, if it wants to, pay the exchange; let's let him even charge it back direct to the bank if he wants to, but don't let the Federal Reserve System, that should be only a reserve bank-a bank of issue-use their influence to break down a banking practice that is much older than the system itself.

Of course, large balances are valuable. When my bank's balance in Atlanta was less than $50,000 they turned us down for loans on good collateral at 6 percent. As my balances grew they did take me to lunch and absorb the cost of the meal. When the banks' balance was small the lunch was 65 cents; when the balance got over a million dollars they took me to the Capital City Club and the dinner was $3, and the bank absorbed the cost of the dinner. I am certainly in favor of sound banking. I do not want our banking system weakened.

The most obnoxious thing about the Federal Reserve ruling is that it attempts to force us to change our way of doing business because they think it is old-fashioned.

Gentlemen, our way of doing business may be old-fashioned, but it is legal and banks have done business in this manner for over a hundred years. The banking business consists of giving service in exchange for the use of money. Giving service costs the banks money. Many of the services which all banks, including the Federal Reserve member banks render today involve out-of-pocket expenses just as readily traceable to a particular depositor's account as the absorption of exchange charges on the checks which he deposits. How can the Federal Reserve justify its prohibition against absorbing exchange while it permits banks to absorb all other expenses put to for its depositors' accounts? There is just no common sense in trying to justify such a discrimination.

We have a big job to do. I do not want the prohibition against the payment of interest on demand deposits touched, but please don't let this Federal Reserve crowd by regulation change exchange into interest. Let's keep our dual banking system and make it safe where it can meet the financial needs of the future. We are going to have a hard enough time at best. The Federal Reserve has not always been wise. The crash in the stock market of 1929 was largely due to Federal Reserve regulations. The depression of the 30's and the panics of 1932 were contributed to substantially by the Federal Reserve. At least the Federal Reserve was not good enough to or great enough to stop the banking trouble of the early 30's. Keep business free. Let it earn some reasonable profit so that it can help pay the cost of running our Government and our share of carrying the national debt.

If my bank loses half of its profit, it cannot possibly pay as much income tax as it has formerly paid.

Help us keep the dual banking system. Let's have national banks and State banks. Let them be competitive.

If one banker has got $100,000 with its city correspondent, let him eat a 65-cent lunch. Let the bank absorb the cost. If he has a milliondollar balance let him get the $3 dinner and let the bank absorb that cost, if it wants to, but let banks do business on a business basis and according to methods of their own devising like they have always done. Let us bankers do our business in a way that we can understand and help us avoid such conflicts as we are having today because of this ruling.

I thank you.

Senator MAYBANK. I would like for you to state for the record, as the other witnesses did, your belief in short as to the reason for this order being put into effect last year.

Mr. JOHNSON. Beg your pardon?

Senator MAYBANK. I say, I wish you would state in short your thought as to why this order was put into effect last year.

Mr. JOHNSON. It is a very simple reason, that any informed person knows, that Congressman Steagall died.

Senator McCLELLAN. I understood that there was some definite agreement or understanding that this order would never be put into effect, between Congressman Steagall and some others in authority, and immediately after his death it was put into effect. Is that correct? Mr. JOHNSON. It is my firm conviction that if Congressman Steagall had lived, the Federal Reserve would never have attempted to enforce regulation Q during his lifetime.

Senator MCCLELLAN. Well, aside from that- that might be the occasion of their putting it into effect, but what is their reason? Mr. JOHNSON. What is their reason?

Senator MCCLELLAN. Their reason. That is not a reason. That may be the excuse, or the occasion for putting it into effect at the time they did.

Mr. JOHNSON. The reason the Federal Reserve

Senator MCCLELLAN. What is their objective.' What are they to gain by it?

Mr. JOHNSON. The reason the Federal Reserve has put regulation Q into effect is, they have been diligently trying since 1915 to my intimate knowledge to find out how to make all the banks members of the Federal Reserve System. My bank has been invited many times to join. Now a group of important men in banking that do not believe that Georgia should charter banks, that the Federal Government should charter banks, that all banks should be federally chartered, are trying to put this across.

Senator MCCLELLAN. So you think it is a device to coerce small banks, or other banks, to come into the system?

Mr. JOHNSON. It has been admitted by a distinguished Georgia. member of the Federal Reserve Board that that was the purpose of it-not in public-but it has been admitted. I would not impugn his motive. This is a new experience to me. I have very high respect for the gentleman. It is just the way he sees it.

Senator MCCLELLAN. That is all, Mr. Chairman.

Senator MAYBANK. That is all. I just wanted to get it briefly. We appreciate your testimony, Mr. Johnson. Mr. JOHNSON. Thank you.