View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FDt€

NEW S RELEASE

FEDERAI DEPOSIT INSURANCE CORPORATION

0raty

Statem ent on
E L E C T R O N IC FUNDS TR A N SFE R
M O RATORIU M A C T O F 1974
Subm itted to the
S u bcom m ittee on F in a n cia l Institutions
o f the
C om m ittee on B anking, H ousing and Urban A ffa ir s
United States Senate
by
F rank W ille , C hairm an
F e d e ra l D e p o sit Insuran ce C o rp o ra tio n

M a rch 14, 1975

■■

FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D.C. 20429



•

202*389*4221

The F e d e ra l D e p o sit Insurance C o rp o ra tio n a p p re cia te s this
op portu n ity to subm it its v iew s with r e s p e c t to S. 245, 94th C o n g r e s s ,
the " E le c t r o n ic Funds T r a n s fe r M o ra to riu m A ct o f 1974, " an A ct w hich
w ould p reven t fe d e r a lly in su red fin a n cia l institution s fr o m op era tin g
e le c t r o n ic funds tr a n s fe r (" E F T " ) fa c ilit ie s at lo ca tio n s oth er than th eir
own banking p r e m is e s p r io r to D e c e m b e r 1, 1976.

The p u rp ose o f the

b ill is to give the r e c e n tly a u th orized N ational C o m m is s io n on E le c t r o n ic
Fund T r a n s fe r s a re a so n a b le opportun ity to study this a re a and subm it
its reco m m e n d a tio n s to the C o n g re ss b e fo r e allow in g in su red fin an cial
in stitu tion s to p r o c e e d with the e sta b lish m e n t and op e ra tio n o f such o f f ­
site E F T fa c ilit ie s without re g a rd to F e d e r a l and State law s on b ra n ch
banking.
The th re sh o ld qu estion fo r the th ree F e d e ra l bank reg u la tory
a g e n cie s (C o m p tro lle r o f the C u rre n cy , FDIC and F e d e ra l R e s e rv e ) is
w hether som e o r a ll such o f f - s it e fa c ilit ie s m ust be trea ted as "b r a n c h e s "
under F e d e ra l banking law .

The re a so n this q u estion is so im portan t is

that if they a re "b r a n c h e s " under F e d e ra l banking law , the three F e d e ra l
bank re g u la to ry a g e n cie s w ill then be le g a lly bound by the p ro v is io n « o f
State law gov ern in g the lo ca tio n and a p p rov a l c r it e r ia fo r E F T fa c ilit ie s
w hich banks h ead qu artered in that State m ay w ish to e s ta b lis h .

If they

a re not " b r a n c h e s " under F e d e ra l banking law , the FDIC with r e s p e c t
to State n on m em b er banks and the F e d e ra l R e s e rv e with r e s p e c t to State




-

2

-

m e m b e r banks would have only lim ite d au th ority to su p e rv ise d e v e lo p ­
m ents in this a re a u n less som e in ju ry to the sa fety and soundness o f
individual in stitu tion s could be d e m o n stra te d .

P re su m a b ly , n o t ific a ­

tion re q u ire m e n ts could be im p osed on S ta te -c h a rte re d banks w hich
w ould a llow the FDIC and the F e d e ra l R e s e r v e to m o n ito r the lo ca tio n ,
c o s t , o p e ra tio n and co m p e titiv e im p a ct o f such fa c ilitie s but advance
a p p rov a l o r a p p ro v a l con d ition ed on ce rta in changes in the planned
o p e ra tio n o f such fa c ilit ie s , e . g. , in the te rm s o f a c c e s s to an in t e r ­
rela ted netw ork o f such f a c ilit ie s , m ight not be p o s s ib le .

B y co n tra st,

the C o m p tr o lle r o f the C u rre n cy fo r national banks and State banking
a u th orities fo r S ta te -c h a rte re d banks would m o st lik e ly have m o re
co m p re h e n siv e p ow ers o v e r the d evelop m en t o f such fa c ilit ie s b y virtue
o f th eir status as ch a rte rin g a u th orities and p rim a r y s u p e r v is o r s fo r
such banks.

The F e d e ra l Hom e L oan Bank B o a rd is not bound, as you

know , by any s im ila r p ro v is io n s o f F e d e ra l o r State law in p erm ittin g
fe d e r a lly in su red savings and loan a s s o c ia tio n s to e sta b lish b ra n ch or
E F T fa c ilit ie s , sin ce its govern in g statute is to ta lly silen t on the su b je ct.
O f the m any q u estion s ra ise d by E F T fa c ilit ie s , one a pp ears to
us to be r e la tiv e ly in co n se q u e n tia l, and that is w hether a ty p ica l b ra n ch
a p p lica tion and in v estig a tion should be n e c e s s a r y fo r these fa c ilitie s
even if they a re to be co n s id e r e d "b ra n ch e s . "

We at the FDIC b e lie v e ,

and I am ce rta in the oth er F e d e ra l s u p e r v is o r y a g e n cie s would resp on d




s im ila r ly , that s im p le r fo rm s and a d iffe re n t kind o f re v ie w a re
d e s ira b le fo r E F T fa c ilit ie s than fo r m anned, f u ll- s e r v ic e b ra n ch
fa c ilit ie s .

That q u estion is b a s ic a lly a d m in istra tiv e , not le g is la t iv e ,

and the fou r F e d e ra l a g e n cie s would undoubtedly adapt th e ir p resen t
b ra n ch a p p lica tion p r o c e d u r e s to the s p e c ia l needs o f the new e le c t r o n ic
en v iron m en t.
On the m e r its o f S. Z45, our view is that ra th er than im p o sin g
a m o r a to r iu m on the expanded use o f E F T equ ipm en t, w hich m igh t p r e ­
vent e x p e rim e n ta tio n , te c h n o lo g ic a l re fin e m e n t, and im p ro v e d cu s to m e r
s e r v ic e , we would p r e fe r that the C o n g re ss give the F e d e ra l bank r e g u la ­
t o r y a g e n cie s e x p lic it le g is la tiv e guidance on the "b ra n ch
hence on the a p p lica b ility o f State law .

issu e and

If, h o w e v e r, the C o n g re ss should

p r e fe r to aw ait the N ational C o m m is s io n 's r e p o r t , o r a ju d icia l re so lu tio n
o f the "b r a n c h " q u estion , b e fo r e en a ctin g le g is la tio n in this a re a and
d e cid e s to pursu e the m o r a to r iu m a p p ro a ch , we b e lie v e that it would be
inequitable to im p o s e a co m p le te m o r a to r iu m on the d evelop m en t o f E F T
fa c ilitie s b y in su red and regu la ted fin a n cia l institution s o v e r the next
tw enty m onths when uninsured and un regulated fir m s in the private s e c t o r
a re not s im ila r ly co n s tra in e d , e. g. , nonbank c r e d it ca rd firm s and m a jo r
r e t a ile r s .
W ithin m any S tates, in ways fu lly co n s iste n t with State la w , c o m ­
m e r c ia l banks and th rift institution s have a lre a d y com m itted sig n ifica n t




- 4 -

r e s o u r c e s to the v a rio u s types o f E F T fa c ilit ie s , m any o f w h ich a re
p re s e n tly o r n e a rly in p la ce .

In view o f the sig n ifica n t p o lic y is s u e s

to be dealt with by the N ational C o m m is s io n , an a n a ly sis o f the actu a l
o p e ra tio n s and continued co m p e titiv e e v o lu tio n o f such fa c ilit ie s should
s e rv e as a va lu able and n e c e s s a r y input to the C o m m is s io n .
We b e lie v e , h o w e v e r, that the S u bcom m ittee and the C o n g re ss
could p r o p e r ly d istin g u ish at the p re se n t tim e b etw een the intrastate
op e ra tio n o f such E F T fa c ilit ie s b y in su red fin a n cia l in stitu tion s h ea d ­
q u a rtered within that State and the p o s s ib le in tersta te o p e ra tio n o f such
fa c ilit ie s b y in su red fin a n cia l in stitu tio n s.

M ost cu r re n tly op era ted E F T

fa c ilit ie s a re in the f o r m e r c a te g o r y , w h ile p o s s ib le in tersta te sy ste m s
app ear at this point in tim e to be on ly in v a rio u s sta ges o f e a r ly d e v e lo p ­
m ent.

F ew States have a d d re s s e d th e m s e lv e s to this a s p e ct o f E F T

d ev elop m en t, and on ly a handful o f banks o r bank holding com p a n ies with
’ ’g ra n d fath er p r iv ile g e s " p re s e n tly o p e ra te " r e t a i l" fa c ilit ie s o r d e p o s it ­
r e c e iv in g b ra n ch e s ou tsid e th e ir hom e S tates.

On the oth er hand, the

ru lin gs o f the C o m p tr o lle r and the F e d e ra l H om e Loan Bank B oa rd m a y
have the e ffe c t o f giving fe d e r a lly ch a rte re d in stitu tion s a sig n ifica n t head
sta rt o v e r th e ir S ta te -c h a r te r e d c o m p e tito rs in the d evelop m en t o f in t e r ­
state E F T fa c ilit ie s w h ich in due c o u r s e the N ational C o m m is s io n m ay
re co m m e n d that the C o n g re ss lim it o r p roh ib it a lto g e th e r.

In this r e g a r d ,

these a d m in istra tiv e ru lin g s m a y re s u lt in a fundam ental and b a s ic change




in the e s s e n tia lly lo c a l ch a r a c te r o f " r e t a il" banking in the United
States - - without b e n e fit o f any c o n s c io u s study, a n a ly sis o r a p p ro v a l
by the L e g is la tiv e B ra n ch .
If, a fte r r e v ie w , the C o n g re ss w e r e to d e cid e that it did not w ish
to p ro h ib it the in te rsta te e sta b lish m e n t and o p e ra tio n o f E F T fa c ilit ie s
a lto g e th e r, th ere is a m id d le c o u r s e w h ich it m igh t w ish to c o n s id e r .
This w ould a llo w such in te rsta te fa c ilit ie s on ly w h ere the State o f intended
lo ca tio n h a s, b y statute, e x p lic it ly a u th orizèd the esta b lish m e n t and o p e r a ­
tion o f such fa c ilit ie s b y an in su red fin a n cia l institution h ea d qu a rtered in
another State.

T h is w ould a v oid the im p o s itio n o f a F e d e ra l ban on in t e r ­

state E F T a c tiv itie s that m igh t w e ll be p e r m is s ib le under e x p lic it p r o v i­
sion s o f State law .

Such State law p r o v is io n s m igh t, but need not, be

lim ited to in stitu tion s h ea d q u a rtered in another State w h ich had en acted
r e c ip r o c a l le g is la tio n a u th orizin g in su red fin a n cia l institution s h ea d ­
q u a rtered in the fir s t State to e s ta b lis h s im ila r fa c ilit ie s w ithin its
b ord ers.

A ny rem a in in g p ro b le m s o f co m p e titiv e im b a la n ce betw een

State and fe d e r a lly ch a rte re d in situ tion s h ea d qu a rtered in the sam e State
could then be adju sted b y chan ges in the State law in the h ea d qu a rters
State, ju st as they could be w ith r e s p e c t to the in tra sta te fa c ilit ie s we
re com m en d not be c o v e r e d b y a F e d e r a l m o r a to r iu m .
The F D IC ’ s p o sitio n on S. 245 m a y thus be su m m a riz e d as
fo llo w s :

We o p p o se the total m o r a to r iu m on E F T fa c ilit ie s re q u ire d




by the p re se n t te r m s o f the b ill and would urge instead e x p lic it C o n g r e s ­
sional guidance on w hether o r not such fa c ilit ie s constitu te " b r a n c h e s "
under p resen t F e d e r a l lav/ fo r p u rp oses o f applying the p ro v is io n s o f
State law w h ich m ight g ov e rn th e ir lo ca tio n and a p p ro v a l.

If this a p p ea rs

neither d e s ir a b le n or fe a s ib le and the C o n g re ss b e lie v e s som e m o ra to r iu m
should be en acted w hile it aw aits the r e p o r t o f the N ational C o m m is s io n
or a ju d ic ia l d eterm in a tion o f the "b r a n c h " q u estion , we re co m m e n d that
the m o ra to r iu m not apply to the esta b lish m e n t o f such fa c ilit ie s in tra sta te
but only to the e sta b lish m e n t o f such E F T fa c ilit ie s a c r o s s State lin e s
(u n less, p o s s ib ly , such fa c ilit ie s a re a ffir m a tiv e ly a u th orized b y e x p lic it
statute in the State o f intended lo ca tio n ).
Should the S u bcom m ittee d e s ir e the C o r p o r a tio n 's te ch n ica l a s s i s ­
tance in d ra ftin g the le g is la tiv e p ro v is io n s on w h ich it m ay u ltim a tely
d e cid e , we stand re a d y to help at any tim e .