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36 (c) national banks can establish
and operate CBCT'S " when,
where, and how state law would au-
thorize a state bank to establish
and operate such a branch ...":

A national banking association may,
with the approval of the Comp oller
of the Currency, establish and oper-
ate new branches i.e., CBCT's)

if such establishment and op-
eration are at the time authorized
to State banks by the statute law of
the State in question by language
specifically granting such authority
affirmatively and not merely by im-
plication or recognition, and subject
to the restrictions as to location
imposed by the law of the State on
State banks.

of course, in order to secure the
Comptroller's approval, national
banks will have to comply with any
additional restrictions on CBCT'S
prescribed by the Comptroller, e.g.,
the thirty day notice requirement
and the fifty mile limit. Under the
federal statutory scheme CBCT's are
"branches" within section 36 (f)'s
federal definition; therefore, for
federal purposes the state law appli-
cable to CBCT's is a part of the
"branch" banking law of that state,
which is incorporated into the Na-
tional Bank Act by section 36 (c).
(footnotes omitted)
IBAA V. Smith, 534 F2d 921, 948-949
(D.C. Circuit), cert. denied, 429
U.S. 862 (1976)

2. You mentioned in your testimony that in your state, Delaware, you have a lenient attitude toward ATMs of national banks, but that you require national banks to file reports with the state on their ATM activities. What is Delaware's legal authority under the McFadden Act for requiring such reports from national banks?

Response: My testimony on this point was that "We do require national banks to submit certain reports.

We require them to have the same record retention schedule that state banks do. When we went to the ATM part, we dealt only with the state chartered banks." With regard to national banks, we require only the filing of their quarterly call report and what current time and savings deposit plans they have.


Generally, the bases for state statutes regarding electronic
facilities include the right of states to regulate commerce
within its borders, the general reservation of "powers and
jurisdiction" to states over banks, bank holding companies
and subsidiaries thereof found in Section 7 of the Bank
Holding Company Act, the general police power of the states
and state authority under the McFadden Act. As to the au-
thority of the states under the McFadden Act, the Supreme
Court has held that "a 'branch' may be established (by a
national bank] only when, where, and how state law would
authorize a state bank to establish and operate such a
branch." The Supreme Court has further said that the
McFadden Act "has incorporated by reference the limitations
which state law places on branch banking activities by state
banks." This is so because "Congress had deliberately
settled upon a policy intended to foster competitive
equality'" between national and state banks. (First National
Bank in Plant City v. Dickinson, 396 U.S. 122, 130-31 (1969))

These holdings relevant to bank branching are equally relevant to the establishment and operation of ATMs, where such state ATM laws constitute an exception to state branching laws, as set forth in my response to your first question, referencing the case of IBAA V. Smith. Where an exception to state branching law is made conditional, any institution, state or federal, must meet those conditions in order to qualify for the exception.

3. If national banks were subject to state jurisdiction with respect to "ownership, operation and permissible functions" of ATMs, as in your proposed amendments to s. 2898, what would be the additional regulatory and reporting burden to national banks, on a state by state basis? To what extent would this generate redundant reporting and application procedures with respect to ATMs shared by several national banks?

Response: National banks are now subject to state jurisdiction in the above-mentioned areas by virtue of their need to qualify for the state exceptions to the McFadden Act

as discussed above. National banks, as state banks, must meet conditions precedent in order to qualify for such exceptions. As I testified, to the best of my knowledge, national banks now do comply with state law in these areas. It appears that such compliance is probably based on the legal advice of their counsel, relying on the court decisions in IBAA v. Smith and Plant City, discussed above. Therefore, my response must be that no additional regulatory or reporting burden would be placed on national banks by CSBS language which simply affirms the existing provisions of the McFadden Act.

CSBS policy is clear on the following two relevant points:


States should encourage the establishment and operation of such EFT systems subject to reasonable requirements as the state may choose, including the nature and geographic scope of transactions to be offered.


States should supervise and examine state-
chartered institutions providing EFT services
for customers of institutions located 'else-
where; and the Comptroller of the Currency or
the Federal Home Loan Bank Board should super-
vise and examine respective federally charter-
ed institutions.

Little redundancy could be expected, save to the extent the availability of certain information is necessary for state officials to protect valid state and public interest in the establishment and operation or use of ATMS. To the extent that such redundancy is necessary, it would parallel only to some small degree the redundancy in examination, supervision and reporting to which state-chartered banks are now subjected in order to satisfy federal interest in the banking system.

The most significant feature of duplication and redundancy in bank supervision is the double track that each statechartered institution must follow in regulation and examination, as well as in control of market entry and expansion. Almost step for step, a state-chartered bank has to follow a similar and largely redundant track with either the FDIC or the FRS. In contrast, national banks are regulated by only a single entity, the Comptroller of the Currency. Although all national banks are insured by the FDIC and all are required by law to be members of the FRS, neither the

FDIC nor the FRS routinely is involved in the supervision and regulation of national banks. The FRS and FDIC basically accept the recommendations, opinions and examination findings of the Comptroller in meeting their responsibilities. States generally believe that the FRS and FDIC should accord them the same recognition as the Comptroller in carrying out their functions. This would mean a stepping back by these specialized federal agencies from their involvement in examination, regulation and the approval process of applications for state-chartered banks and some increase in their regulatory presence with national banks.

Respectfully submitted,

John Malarkey

John/E. Malarkey
Vice President and Chairman
Federal Legislation


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Thank you very much for testifying on S.2898 on Wednesday, September 19, 1984,

I believe Senator Gorton mentioned the possibility that there would be additional written questions submitted to you. The questions are attached. Because of the time deadlines involved, I would appreciate your written responses by Monday, October 1, 1984.

Once again, thank you for taking the time to appear on this important legislative matter.

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In your testimony, you stated several times that IBANYS v.

Marine Midland involves only an intrastate issue.

Since the

court clearly concluded that the Marine Midland ATM was a "branch"

of Marine Midland, why does this not indicate that banks participating in interstate ATM networks have violated the McFadden Act, in your


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