Mr. GORMLEY. Mr. Chairman, I would like to present Mr. J. N. Coburn, of Whiteville, N. C.

Senator MAYBANK. Mr. Coburn, please come up and have a seat opposite the committee reporter. All right, you may proceed.

STATEMENT OF J. N. COBURN, EXECUTIVE VICE PRESIDENT OF WACAMAW BANK & TRUST CO. OF WHITEVILLE, N. C., PRESIDENT OF NORTH CAROLINA BANKERS ASSOCIATION

Mr. COBURN. Mr. Chairman and gentlemen of the committee, my name is J. N. Coburn. I am executive vice president of the Wacamaw Bank & Trust Co. of Whiteville, N. C. I am also president of the North Carolina Bankers Association. I am appearing before you as a representative of the Wacamaw Bank and in behalf of other banks interested in securing favorable consideration of the matter before you, and I am not appearing in my official capacity as a representative of the North Carolina Bankers Association. In this connection, however, I would like to remind you that there was a resolution, I think, presented with the testimony of Mr. Thompson this morning, that was adopted at the last convention.

Senator MAYBANK. That is what I was going to ask you. You state you are appearing as the president of your bank but not as the representative of the North Carolina Bankers Association?

Mr. COBURN. Yes, sir.

Senator MAYBANK. At the same time, as I understood this morning, the North Carolina Bankers Association has approved the pending measure?

Mr. COBURN. That is correct, and a copy of that resolution has been filed.

Senator MAYBANK. And in that association, of course, you have not only your State banks but also members of the Federal Reserve? Mr. COBURN. Yes, sir.

Senator MAYBANK. Was there much opposition to it?

Mr. COBURN. The vote was 53 to 11, I think.

Senator MAYBANK. Were there any members of the Federal Reserve who believe in this legislation?

Mr. COBURN. Yes, sir.

Senator MAYBANK. In other words, it was not 53 State banks versus 11 Federal Reserve?

Mr. COBURN. There were some members of the Federal Reserve System that voted for the resolution.

The bank organization I represent operates a chain of nonpar banks consisting of nine units in as many localities, covering a radius of about 100 miles in southeastern North Carolina. Total deposits at the present time aggregate about $25,000,000. Practically all of the business activity of the area we serve is derived, directly or indirectly, from agriculture and lumbering.

All of the points are small towns; Whiteville, the largest and head office, has a population of about 3,500 people, and some of the smaller units are located in villages of not more than three to four hundred

people. Even these units in small communities serve a sizable area, and we think are filling quite a need.

Of the nine units operated, four are at locations where the revenue would not meet expenses if they were deprived the right to charge exchange. I have prepared an analysis of the relation of exchange to operating profit for the year 1943, which shows that exchange on our cash letters or remittances represented 99 percent of our net income. At four of the small points, exchange represented 116 percent, 19 percent, 222 percent, and 366 percent of the net profits of the respective

units.

Therefore, it is easy to see that if this bill fails to pass and exchange is interpreted as interest under regulation Q, the branches operated by us in these four communities will be forced out of business and the people deprived of banking facilities. This would result in serious inconvenience and hardship and most especially to the little businessman and small farmer.

(A copy of the analysis referred to appears at conclusion of witness' testimony.)

Just now much emphasis is being placed on the necessity of reviving small business during our post-war period. To assist in that direction the American Bankers Association, under the able leadership of Mr. Wiggins, who is now in this room, created the post-war Small Business Credit Commission, and the banks, both large and small, have gone "all out" in their endorsement of the program and have pledged themselves to meet every safe, legitimate credit need of small business. What greater encouragement can the little businessman.or the small farmer have than a soundly operated bank in his community that he knows is interested in his problems and willing to assist and advise with him?

Now the opponents of this bill contend the enforcement of regulation Q does not prevent a nonpar bank from charging exchange on its items. In this connection I want to emphasize the point so ably brought out by Mr. Gormley in his testimony yesterday and Mr. Thompson's this morning, concerning the letters being written by manufacturers and distributors to the customers of small nonpar banks, and in some instances, refusing to accept for goods or payment of an account a check that is not payable at par.

Gentlemen, if that procedure continues, and it will if this bill fails, there is no alternative for the small nonpar banks but to join the Federal Reserve System and go on a par basis. And, as so clearly pointed out by Mr. Crowley in his letter of March 16 of this year, that would deprive a large number of communities now being served by the 2,500 nonpar banks of any banking facilities whatsoever. It seems to me the hardships that would be suffered by the people in these communities through loss of banking facilities would far outweigh the benefits received by the large city clearing banks.

Now just a few remarks about interpretation of exchange. The banking theory has always been founded on the principle that the bank would render certain services to the depositor in consideration of the funds he maintained in his account. Now I contend the absorption of collection costs is not any more a part of interest than is the absorp

tion of salaries of personnel or the payment of taxes, insurance, supplies, machines, etc. All of these are operating costs in the handling of demand deposits. The recent interpretation of regulation Q is an arbitrary ruling for it is impossible to segregate operating cost. One of the valued services now being rendered by the correspondent banks to the small country banks in consideration of their accounts is the safekeeping of their bonds and securities. This service represents an out-of-pocket expense to the larger banks for salaries and so forth, just as much as the absorption of exchange, and could just as easily and reasonably be interpreted as interest under regulation Q.

The practice of absorbing exchange has been in existence for many years, and if there had been a few instances of the practice being abused, these could no doubt have been handled appropriately under present law. The matter of par clearance is a matter for each bank to decide. If not, then it should be decided by the individual States to charter them.

I have here a bulletin which, with your permission, I would like to read just a little paragraph from. It appeared in April of this year, an article by Mr. Walter E. Spahr, commenting on this bill.

Senator MAYBANK. What is the bulletin, if I may ask, from curiosity?

Mr. COBURN. Monetary Notes, published by the Economists' National Committee on Monetary Policy. I will be glad to file this with

the record.

Senator MAYBANK. If you wish. I was curious to know.

Mr. COBURN. The paragraph is as follows:

Perhaps the most peculiar aspect of the issue is the question of why, if the Reserve authorities wished to regulate the absorption of exchange charges by banks, they did not ask Congress to amend the act rather than attempt to read into it a power which others, including the Federal Deposit Insurance Corporation, had never supposed was there.

The Brown bill (Paul Brown, of Georgia) is probably outside the field of interest of this committee; its chief significance is in the fact that it is aimed at a too common occurrence of these times-the readiness of administrative bodies in Washington to assume powers not clearly granted in law and their general unwillingness in such instances to go to Congress for the desired authority. In short, the Brown bill is designed to force the Reserve Board to obey the Federal Reserve Act as written.

Despite the fact that this was the essence of the issue, all sorts of extraneous issues, a large proportion of them irrelevant, were raised and discussed and dragged out until the result was a report of 752 pages.

The Senate Committee on Banking and Currency has not yet held hearings on the Brown bill. A companion bill was introduced in the Senate by Senator Maybank, of South Carolina.

One of the recent and surprising developments is the fact that banks and officers of banking associations in New York and other sections of the North have suddenly taken up the matter and are asking that the Brown-Maybank bill be defeated. The reasons they give for their action provide a remarkable collection of confusions and irrelevancies. But perhaps the most striking aspect of their drive on the Senate is their failure to insist that, if it is desirable for the Reserve Board to regulate the absorption of exchange charges by banks, the Board should ask Congress for specific authority to do so. It is a surprising thing to see bankers taking the side of an administrative agency which has attempted to exercise powers not specifically granted by the Federal Reserve Act. Senator MAYBANK. Thank you. Have you anything further?

Analysis of relation of exchange to operating profit for 1943

Senator MCCLELLAN. Mr. Chairman, if I may: You made some reference to 2,500 nonpar banks. Does that represent the number of nonpar banks throughout the Nation?

Mr. COBURN. Yes, sir.

Senator MCCLELLAN. In round numbers.

Mr. COBURN. I think it is about 2,530 or 2,529.

Senator MCCLELLAN. Some of this may have already been covered in the hearing. I was not able to attend yesterday. I would like to ask you a further question in connection with that. In your remarks you indicated, if you did not definitely say so just now, that these banks would be compelled to go out of business, I assume, because they could not earn sufficient revenue to cover their operating expenses. Is that correct?

Mr. COBURN. It is estimated by the F. D. I. C. and others who claim to know that a great majority of them-I wouldn't say the entire 2,500-but the great majority of them would.

Senator MCCLELLAN. That is something I want to establish in my own mind. The F. D. I. C. believes and the general belief is thatMr. COBURN. That a large number

Senator MCCLELLAN. That a large number of them will be compelled to go out of business?

Mr. COBURN. That was very definitely stated in a letter I just referred to by Mr. Crowley, dated March 16.

Senator MCCLELLAN. One thing further in that connection: The large majority of these banks, nonpar banks, of the 2,500 you have referred to, are they banks serving small communities and in many instances providing the only banking service in the particular com munity?

Mr. COBURN. Largely so; yes, sir.

Senator MCCLELLAN. Then if that prediction should come true-I mean if this law is not passed and they continue to enforce regulation Q-you think that would mean that a great many communities

throughout the Nation would be actually deprived of banking service? Mr. COBURN. That is correct. I mentioned in my statement, and I would like to emphasize it, out of nine banks we operate we would definitely have to close four of them.

Senator MCCLELLAN. There are nine banks you operate? I did not hear the earlier part of your statement.

Mr. COBURN. We operate nine banks, and four of them we would be obliged to close up if we could not charge exchange.

Senator MCCLELLAN. What is your State?

Mr. COBURN. North Carolina, southeastern North Carolina, Whiteville.

Senator MCCLELLAN. All right. Thank you, Senator.
Senator MAYBANK. Thank you so much.

Mr. GORMLEY. Mr. Chairman, in presenting our next witness, I am again deviating from my planned order, but I do it in order to let this gentleman, whom we planned to hear next week, catch a train he is obliged to get. It is necessary for him to get back to his State. And I am also keeping in mind the time limit we agreed on this morning, the extra time you so kindly consented to give to us. I would like to present Mr. W. P. McMullan, from Newton, Miss.

Senator MAYBANK. We are glad to have you. Will you come up here and have a seat opposite the committee reporter? I might say the reason for the time today is that we are going to pass the socialsecurity freeze bill. We hope to do it this afternoon, so we will have to leave about 3 o'clock.

Mr. GORMLEY. I am keeping that in mind.

Senator MAYBANK. That is all right. You may proceed, Mr. McMullan.

STATEMENT OF W. P. MCMULLAN, EXECUTIVE VICE PRESIDENT, NEWTON COUNTY BANK, NEWTON, MISS.

Mr. MCMULLAN. Mr. Chairman and members of the committee, I am W. P. McMullan, executive vice president of the Newton County Bank, Newton, Miss.

It appears to me there are only two issues involved before this hearing which you have been kind enough to grant us, namely, whether we shall have a dual banking system or not, and whether Congress will enact the laws or whether some agency, through interpretations and directives, shall control. I am of the opinion that we should have a dual banking system, and I certainly believe that Congress should enact the laws which govern 130,000,000 people.

I come from a section which is purely agricultural, located in a town of approximately 2,500 people, about 60 miles east of our capital city. We have approximately $3,000,000 of deposits and operate two branches.

Regulation Q as now interpreted by the Federal Reserve would be very costly to country banks. Our county is purely agricultural-at least 80 percent of the income coming from the soil. We are attempting to balance agriculture with agriculture-I mean by that supplementing our agricultural system, diversification, more than one crop system, and then process our raw materials with some industry coming into our section to supplement the income of the farmers.