commercial banks. In the absence of S. 2898, or of a circuit court or Supreme Court decision overruling Marine Midland, many national and state member banks will be required to withdraw from these systems. Even though the Marine Midland decision is not legally binding outside the federal district of New York in which it was rendered, it creates a precedent which will likely freeze or decrease the number of shared networks. Higher transaction fees for the remaining institutions will result. While some of the higher costs may eventually be reduced by network consolidations, it will be much more difficult for a network to achieve the cost benefits generated by current national and state member bank participation. Moreover, the lack of national and state member bank participation in ATM networks will impede the development of more efficient, lower cost electronic funds transfer mechanisms. Given these considerations, the Bank Board believes that S. 2898 appropriately preserves the benefits of shared ATM networks.

You have also requested the Bank Board's comments on the Conference of State Bank Supervisors' ("CSBS") proposed amendment. That amendment would subject national and state member bank use of ATMs to state laws regarding the operation and location of ATMs. Unlike S. 2898, the CSBS amendment is not a return to the status quo before the Marine Midland decision. Rather, it could result in greater state restrictions on national and state member bank use of shared networks than under the Marine Midland decision. This amendment could severely curtail, rather than advance, shared network

The Bank Board

use by national and state member banks, and indirectly, by federally chartered savings and loans and other thrifts. considers this amendment to be harmful to consumers and depository institutions.

The CSBS amendment raises additional concerns because it refers to "pertinent state laws." This phrase could be misinterpreted to refer not only to state laws specifically relating to ATMs but also to state bank branching laws if the state law could be interpreted to define a branch to include an ATM. This provision could cause great confusion and litigation as currently drafted.

In conclusion, the Bank Board believes that shared ATM networks benefit consumers because they permit small- and medium-size depository institutions to offer the convenience of remote automated banking at reasonable costs. The Marine Midland precedent could prohibit further development of shared networks and could foster the disintegration of existing systems by causing withdrawal by commercial banks. The Board believes that a return to the law before the Marine Midland case is appropriate. S.2898, without the CSBS

amendment, would accomplish this purpose.

I appreciate the opportunity to comment on S. 2898, and will be

happy to answer any questions you may have.

Senator TRIBLE. I thank you for your very positive testimony this morning. Mr. Sebastian.

STATEMENT OF WENDELL SEBASTIAN, GENERAL COUNSEL, NATIONAL CREDIT UNION ADMINISTRATION

Mr. SEBASTIAN. Good morning, Mr. Chairman. I will keep my remarks very brief in view of your lengthy agenda today.

In our judgment, the legislation you have proposed is necessary and welcome and should hopefully continue to provide the American people with a cost-efficient system of financial services delivery.

From the credit union perspective, as I'm sure you know but others may not, there are some 19,000 credit unions in the United States and a little over 70 percent of those are under $2 million in size. Some are much larger, but the vast majority are small and they would depend on a shared network to be able to provide these types of services to their members.

On the other end of the spectrum, there are some very large credit unions who have begun and are the principal stockholders of EFT systems, but they also depend on the participation of banks and savings and loans to make the economies of scale that they need for their systems to operate.

SEVENTY PERCENT OF SMALL CREDIT UNIONS ARE NOT IN ATM'S

I would say that the 70 percent of the small credit unions are not now in ATM systems but would hope to be, and it will be the continuation of the types of systems that are in existence today that will allow them to make it cost effective for them to get into those systems.

On the other hand, there are large credit unions-I have in mind Alaska, U.S.A. Federal Credit Union in Anchorage-that began an ATM system approximately 1 year ago. They have 28 ATM's up and working in the Anchorage area. But very significantly, they only own 51 percent of the company, the service corporation that operates and services those ATM's. The other 49 percent is owned by two of the major banks up there and two of the major S&L's. If they were to be forced to pull out of the system, for whatever reason, it would become at least less cost effective and possibly impossible for them to continue those kinds of services.

An additional area of concern to the credit unions is the credit unions that we designate as Department of Defense credit unions. There are some 300 military credit unions based around the country that have overseas branches and in fact branches on aircraft carriers and things like that. It's not quite intergallactic, but they are certainly worldwide, and it would be in their best interest and the best interests of the military personnel around the world for them to be able to not only set up their own systems which they have the authority to do now, but DOD is interested in making all types of services available to its personnel, including banking and savings and loan type services, and so we would think that that would be an area where mandatory sharing or at least potential possible sharing of ATM systems would also be required.

As far as the amendment suggested by the Conference of State Bank Supervisors, put quite simply, we just don't see any need for that. The system is up and running quite well in our opinion and ought to be left alone.

For those reasons, we would support the legislation and urge you to do whatever you can to make sure that the potential effects of the Marine Midland decision are not wreaked on the rest of the country.

[The complete statement follows:]

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TESTIMONY OF WENDELL A. SEBASTIAN, GENERAL COUNSEL,
NATIONAL CREDIT UNION ADMINISTRATION

Mr. Chairman, members of the Committee, I am pleased to be here today to offer my views on S. 2898, the "Banking Convenience Act of 1984." In my judgment, this legislation is extremely important in ensuring the continued development of financial systems which will provide widespread financial convenience to all consumers and at the lowest possible cost. Certainly, the economies of scale of shared ATM networks are basic building blocks in the development of a financial system that can best serve an increasingly mobile society.

As this Committee knows, the National Credit Union Administration charters, supervises, and insures the 11,000 Federal credit unions in this country. In addition, we insure the accounts of approximately 5,000 state-chartered credit unions. Presently, there are 50 million Americans who avail themselves of the services of our nation's 19,000 credit unions. I am sure that, eventually, the vast majority of these credit unions would like to be able to offer their members a method of remotely accessing their share accounts whether for information, cash withdrawal, bill paying, transfer between accounts, accessing a line of credit, or making a deposit.

Some credit unions presently have their own ATM. A very few have begun ATM systems. But the vast majority of credit unions will, of necessity, have to be participants in shared systems. This is due primarily to their size. Credit unions by far are the smallest sized category of financial institutions. over 70% are under $2 million in assets. Sharing, therefore, is the name of the game for credit unions.

In fact