Mr. BETTS. I know.

Governor ROBERTSON. But we have taken the position throughout that the principle is sound; that Congress shouldn't act unless it is satisfied, after hearing all the evidence available-maybe there is evidence we don't know about-after it has heard all the evidence as to whether the disadvantages of having cumulative voting outweigh the advantages.

Mr. BETTS. Now, with respect to section 29, again, as I understand, the mechanics are that a charge is made against a director or official, and then a hearing can be had before the Board or a designated member thereof; is that right?

Governor ROBERTSON. Well, in practice, our whole Board would reach its decision on the facts brought out at the hearing.

Mr. BETTS. The purpose of appeal is from the decision of the Board; is that correct?

Governor ROBERTSON. To the courts; yes, sir.

Mr. BETTS. I am wondering if the section really provides that. As I read the section, it really provides for an appeal from a hearing. It says nothing about an appeal from a decision. It seems to me that should be clarified.

Governor ROBERTSON. I don't see how you could have

Mr. BETTS. You would have to have both, wouldn't you?
Governor ROBERTSON. I think you do.

Mr. BETTS. I think the section only refers to hearings. It seems to me that is a technicality, because actually, what you contemplate is an appeal from a decision.

Governor ROBERTSON. Absolutely so.

Mr. BETTS. Now, with respect to the remarks of the Chairman on pages 16 and 17, there apparently was some difference between the thinking of your Board and the FDIC on what does and what does

not constitute interest.

Do you have an amendment prepared which would satisfy your contention there?

Governor ROBERTSON. Oh, yes, sir; we have made specific recommendations as to language, which would do it.

Mr. BETTS. I see. Could that be submitted to the committee?

Governor ROBERTSON. Oh, yes; definitely so. We would be very

glad to.

Mr. BETTS. And in connection with your remarks on page 17, about absorption and exchange, could you furnish for the record an example of the difference between charge for absorption and exchange? Governor ROBERTSON. I would be glad to.

Mr. BETTS. That is all, Mr. Chairman, at this time. (The data requested above is as follows:)

EXCHANGE CHARGES AND THE ABSORPTION OF SUCH CHARGES

It has been requested that examples be given of the making of exchange charges and the absorption of such charges.

Exchange charges. The term "exchange charge" is sometimes used to mean different things in different situations. As used in discussions of par clearance, absorption of exchange charges, and similar matters, the term "exchange charge" is used to mean a charge made by a bank for remitting for a check drawn by its customer when the check is presented through the mails for payment. The charge takes the form of a deduction made by the bank from the face amount of the check. Banks which make such charges are known as nonpar banks.

To illustrate the workings of exchange charges, assume that John Smith, of Town A, wishes to pay a debt of $1,000 which he owes to Richard Jones, of Town B. John Smith draws a check in that amount on his bank, the nonpar bank of Town A, payable to Richard Jones. Jones receives the check and deposits it in his own bank, the depository bank of Town B. Depository bank may then send the check for payment directly to the bank on which it is drawn or it may send the check, along with other checks on banks in or near Town A, to a collecting bank in a large city near Town A. Usually it will do the latter. Assume, therefore, that depository bank sends the check to the collecting bank for collection. The collecting bank will then mail the check to the nonpar bank for payment. The latter bank remits payment for the check, but because it charges exchange at the rate of one-tenth of 1 percent, it deducts $1 from the amount of its remittance. Consequently, the collecting bank actually receives only $999. It is to be noted that this exchange charge which is imposed by the nonpar bank is different from a collection charge which might have been imposed by either the depository bank or the collecting bank for services in collecting the check. It also differs from a service charge which might have been made by the nonpar bank directly against its depositor, John Smith.

Absorption of exchange charges.-Continuing the example given above, if either the collecting bank or the depository bank pays out of its own pocket all or part of the $1 charge which was levied by the nonpar bank, instead of passing the charge back to Richard Jones who received the check, the bank that does this could be said to have absorbed all or part of the exchange charge. Such absorption is usually done, if at all, by the collecting bank. It might have an understanding, for example, with depository bank that it will absorb exchange charges on checks sent by that bank to it for collection, provided depository bank maintains with it a sufficient compensating balance. Pursuant to this under

standing, the collecting bank may absorb the charge of $1 which it had to pay to the nonpar bank; the depository bank, therefore, receives full credit for the $1,000 face amount of the check; and it in turn credits Richard Jones with the same amount.

The circumstances may vary with the principle remaining the same. Thus it may be that the collecting bank will absorb only a part of the exchange instead of the entire $1. It may not absorb any of the exchange, but the charge may be absorbed by the depository bank, and in that event, Richard Jones would still receive full credit for the amount of the check. As a matter of fact, however, exchange charges are seldom absorbed by a bank for its individual customers. The typical case is that given in the example above where the charge is absorbed by a city correspondent bank for a country bank which maintains a compensating balance with the city correspondent.

The CHAIRMAN. Mrs. Sullivan.

Mrs. SULLIVAN. No questions at this time, Mr. Chairman.

The CHAIRMAN. Mr. Hiestand.

Mr. HIESTAND. Mr. Chairman, apropos of Mr. Betts' question, Governor Robertson, wouldn't you say that it would be perhaps harder and perhaps more embarrassing to the individual to have to institute removal proceedings than to allow a free election, instead of mandatory cumulative voting, to prevent him getting on in the first place? Governor ROBERTSON. I would say in a particular case that is probably true, but by making it permissive, you would prevent hundreds of people from getting on who might be good, and I would say that on account of one individual, you shouldn't take an action contrary to the public interest.

Mr. HIESTAND. Do you concur in that, Chairman Martin?

Mr. MARTIN. I do. I have thought about this a great deal. I think there are advantages and disadvantages, but the broad principle, in my mind, is weighted in favor of the provision.

The CHAIRMAN. Will the gentleman yield?

Mr. HIESTAND. I shall be happy to.

The CHAIRMAN. Would the fact that the American Bankers Association, and the Independent Bankers Association, have endorsed the

provisions in the bill with reference to cumulative voting indicate that they had a different experience than Governor Robertson with reference to this matter?

Governor ROBERTSON. I would say that that would indicate that someone argued persuasively enough so that they came out with that conclusion.

The difficulty is that in a case like this you never have anyone arguing from the contrary point of view. The few who are affected by some man getting on the board of directors whom they don't like and who goes out and talks in a way that is not consistent with the bank's position puts them in a spot where they can argue vehemently about this and no one argues against it, because in most cases they are all satisfied and they don't realize, as a matter of fact, in many parts of the country, that this bill, as now drawn, would completely abolish cumulative voting in every instance, where a majority of the directors, of the shareholders rather, did not want it.

Consequently, I am not overly impressed by the fact that the American Bankers Association and Independent Bankers Association have come out in favor of the proposal.

The CHAIRMAN. That is the general sentiment of the banks of the country, isn't it?

Governor ROBERTSON. I don't think it is, sir.

The CHAIRMAN. Then the organizations don't express the opinions of the members.

Governor ROBERTSON. Perhaps that is not always the case.

Mr. HIESTAND. Mr. Chairman, I would like further to comment, if I might, upon the objectivity of this rather comprehensive analysis and say that I am very much impressed with it, the point of view being clearly in the public interest rather than any other interest.

I further would like to commend, while I have a minute, the policy of the Federal Reserve System in conservative restraint over the last some months, and ask if there is anything in this bill that would in any way restrict the Board in its policy, such as has been exemplified in the past 6 or 8 months-a very necessary and valuable policy as far as the country is concerned?

Mr. MARTIN. Nothing in this bill, as we see it, Congressman.

Mr. HIESTAND. Do you see any likelihood of any amendments coming in that might in any way restrict the Board?

Mr. MARTIN. We know of none at this time.

Mr. HIESTAND. Thank you very much.

The CHAIRMAN. Mrs. Griffiths.

Mr. GRIFFITHS. Mr. Chairman.

Under section 37 of title I, would it increase inflation to permit-
Governor ROBERTSON. Would you please repeat that?

Mrs. GRIFFITHS. You have stated here section 37 of title I would increase the maximum limits of national banks.

Governor ROBERTSON. Yes, I see it.

Mrs. GRIFFITHS. Is that inflationary?

Governor ROBERTSON. I think it would be. If you had an inflationary situation and the bank wanted to extend more credit, this is a very easy way in which it could do it, because its borrowing limit would be increased by almost 200 percent.

Mrs. GRIFFITHS. Well, then couldn't you write in a provision that under certain circumstances, when the economy had reached a certain point, it would curtail such a right?

Governor ROBERTSON. I suppose you could do that. But it seems to me that it would be much easier not to grant the power in the first place, because I don't think they need it. They don't need that additional borrowing privilege. As a matter of fact, there is almost no bank in the country that ever reaches its present ceiling.

Mrs. GRIFFITHS. Well, then how did this get in here?
Governor ROBERTSON. Not by our recommendation.
Mrs. GRIFFITHS. Somebody must have wanted it.
Governor ROBERTSON. Yes, I am sure that is so.
Mrs. GRIFFITHS. Thank you.

The CHAIRMAN. Mr. Henderson.

Mr. HENDERSON. Chairman Martin, pursuing that question just one point further, what do you feel is the motivation behind that provision with regard to the enlargement of borrowing limits? I would like to know what is the reason behind it.

Mr. MARTIN. Well, I can't speak for the motivation, but I think it is obviously just to have access to more credit.

Governor Robertson might want to comment more extensively. Governor ROBERTSON. I would think, Mr. Congressman, that your question should be addressed to those who proposed it. Because I don't know what information they had behind them.

I have attempted to go over the banking system as a whole in an endeavor to ascertain whether it is necessary. We don't think it is necessary. We think it would be undesirable.

Mr. HENDERSON. Do you know of any cases in the banking industry where it might be necessary?

Governor ROBERTSON. No; I do not. There may be, but I do not know of them.

Mr. HENDERSON. I mean, looking at it from the banker's point of view.

Governor ROBERTSON. I have tried to do that, and I don't see it. Mrs. GRIFFITHS. Will you yield?

Mr. HENDERSON. Certainly.

Mrs. GRIFFITHS. Would it get them out from under your control to a certain extent?

Governor ROBERTSON. To a certain extent, it would, because they wouldn't have to borrow from a Federal Reserve bank.

Mr. KILBURN. Will the gentleman yield?

Mr. HENDERSON. I yield.

Mr. KILBURN. What provision are you talking about?
Mr. HENDERSON. Section 37 of title I.

Now, turning for a moment-on page 15 you make this statement:

The Board, therefore, recommends that this legislation include at an appropriate place a provision making all fiscal agency operations of the reserve banks specifically subject to supervision and regulation by the Board.

First, could we have for the record a list of the more than 25 governmental agencies, in some 50 different capacities, in which the Federal Reserve banks are now engaged full time in fiscal agency operations?

Governor ROBERTSON. I have the list prepared but not in form to submit. I will submit it, however.

(The information requested above is as follows:)

AGENCIES FOR WHICH THE FEDERAL RESERVE BANKS ACT AS FISCAL AGENTS AND THE CAPACITIES IN WHICH THEY ACT

Chairman Martin's original statement was as follows: "An equivalent of more than 3,100 of the approximately 18,600 employees of the Federal Reserve banks are now engaged full time in fiscal agency operations on behalf of more than 25 governmental agencies in some 50 different capacities."

The list of agencies for which the Federal Reserve banks act as fiscal agents and the capacities in which they act include the following:

For Treasury Department

Handle issuance, servicing, and retirement of Treasury issues (other than United States savings bonds).

Handle issuance, servicing, retirement, and safekeeping of United States savings bonds.

Maintain Treasury tax and loan accounts and hold collateral securities there

for.

Maintain United States Treasurer's general account.
Process Government checks.

Pay United States Government coupons.

Receive and process deposits of withheld income, employment (social security), railroad retirement, and excise taxes.

Verify and destroy unfit United States paper currency.

Receive and forward to the Treasury reports of unusual currency transactions. Purchase and sell gold, silver, and foreign exchange for account of the stabilization fund; perform work incident to the operation of the stabilization agreement; and handle work incident to the purchase of silver pursuant to the Silver Purchase Act (New York only).

Perform miscellaneous foreign activities such as certification of foreign exchange rates, purchase and sale of foreign exchange for various Government agencies (other than the stabilization fund), and report data relative to foreign exchange transactions (New York only).

Execute orders for purchase and sale of securities for account of the Treasury Department (New York only).

Administer foreign assets control regulations.

For Post Office Department

Receive, punch in amounts, prove, and settle for postal money orders.
Receive, prove, and account for surplus funds deposited by postmasters.

For Commodity Credit Corporation

Receive notes, warehouse receipts, and producers' loan statements; and make disbursements pertaining to cotton loan program.

Handle similar matters pertaining to commodity programs other than cotton. Handle issuance, servicing, and retirement of Commodity Credit Corporation certificates of interest.

For Department of the Army

Department of the Navy
Department of the Air Force
Atomic Energy Commission

General Services Administration
Department of Agriculture
Department of the Interior
Department of Commerce

Receive and function loan applications, make credit investigations, and collect interest and other fees on behalf of the guaranteeing agencies incident to the program for guaranteeing defense production loans under the Defense Production Act of 1950, as amended.