are met. If they need an extra day, for example, in certain circumstances, why I think that the chairman and other members are reasonable.

There's no pride of authorship on my side, nor do I think it is here with the chairman.

But I think we have to deal with this situation. To simply say we're going to leave it to the financial institutions to take the action themselves, they're never going to do it.

Some have. It's not fair to tar everyone with the brush and say that they're all indifferent to the consumer's legitimate interests. But I think we are doing a disservice to the American public by not seeing to it that there are standards, reasonable standards, that everyone must comply with; and isn't that what we're talking about? Reasonable standards that every financial institution must comply with.

Mr. MCKINNEY. I think, just to finish off, that there's an interesting way to work at this backward. I suggest to any of you that have grown children-you know, those are the ones that spread their wings every way except financially-that you try to determine how you get them cash now.

It's a real exercise, Mr. Chairman. I remember when you used to go down to your bank and get a bank money order and send it through the mail. Well, that seems almost impossible now. Try it.

For example, you go to your bank and your bank calls X bank and says, "We are number so and so in the Reserve System and we will today credit your account for so much, so that the child of one of our depositors can go to that bank and get the money." It's a very interesting experiment.

In other words, they better be prepared to sit and eat bread and water until you get to them in a couple of days.

Mr. BARNARD. Would the gentleman yield?

Mr. MCKINNEY. I'd be delighted to.

Mr. BARNARD. Let me ask the Senator another question.

Senator, has the legislation in New York, corrected some of the so-called money management practices of companies who draw their accounts payable checks and payroll checks on banks in far distant places?

Senator D'AMATO. California.

Mr. BARNARD. All right, California. In other words, has that been corrected?

Senator D'AMATO. It does not apply to business, only to consumers, the banking superintendent is telling me.

But, of course, consumers are the ones that get some of these checks. I mean, for example a mom and pop bakery store, you know, would get a check from some big conglomerate but it's drawn on a bank in California. A lot of payroll checks are done the same way.

I mean, big national corporations will place their payroll account, Mr. Chairman, as far across the country as they can find and they're the ones that benefit from the float.

Chairman ST GERMAIN. Would the gentleman yield to me. Senator, listen to this one about playing the float.

Forget the corporation. Would you be startled to hear that one of the trade associations in Washington, DC, draws its checks on a far

distant bank. That trade association plays the float with its employees who try to work with us here on the Banking Committee. No, it's just not the big corporations.

May I make another observation, Senator, and to my colleagues about the kiting process. You know, let's keep things in perspective here.

Because there are criminal elements out there in this vast country of ours, are we to say to Grandma Jones, who is down to her last 75 cents when she gets her social security check, that we are not going to give her relief on funds availability because we have some nefarious, ugly, bad, bad people out there? I don't think so. I don't think so.

We've got to help Grandma Jones, here, and yet protect the financial institutions; and I think we can do both.

Senator D'AMATO. Mr. Chairman, I agree with you. This is analogous to the 10-percent withholding furor that the other body had. The fact of the matter is that people are indignant and outraged when they are unduly penalized simply because a very small percentage may be breaking the law or taking advantage of a situation, not paying their taxes or kiting or bouncing checks.

Our legislative initiatives may sometimes be too drastic to correct a minor situation; but I'd suggest that maybe the fact of the matter is that what's taken place is that the American public has endured quietly, the masses have endured quietly because there is a very small minority of the public who engage in these practices. So the sledgehammer has been used on them by financial institutions to justify these practices. The Commissioner tells me that in terms of the out-of-State checks the maximum clearing period is 6 business days, very reasonable. With respect to thrifts, because they have their clearing done through commercial banks, it's 8 days. They haven't experienced problems.

Chairman ST GERMAIN. Senator, you just came up with a brilliant, brilliant persuasive argument.

Senator D'AMATO. Me?

Chairman ST GERMAIN. Yes, indeed. [Laughter.]

Now, just think back to the furor. Now the financial institutions all wrote to their depositors and said, "That terrible Uncle Sam in the person of Senator D'Amato, Senator Dole, Senator," so and so and so and so, "and those ugly House Members, those Members of Congress, they want to deny you the use of your funds." "They're going to force us to withhold——

Senator D'AMATO. That's right.

Chairman ST GERMAIN [continuing]. Money from you for the payment of your taxes on interest"; right? Those very same institutions are withholding funds, interest on money to those very same depositors when they overdo the float; not all of them.

We all know there are a lot of institutions that really and truly serve their customers well. But if, on the one hand, Uncle Sam was being an ogre by proposing to withhold on interest, on the other hand shouldn't those same banks conduct the same campaign and insist we adopt this type of legislation with some amendment? Senator D'AMATO. The same principle, Mr. Chairman. Chairman ST GERMAIN. Isn't it, though?

Senator D'AMATO. Same principle.

Chairman ST GERMAIN. Hey; that was brilliant. Thank you. Senator D'AMATO. Mr. Chairman, I just wish that my mom was here to have heard you say that. [Laughter.]

Chairman ST GERMAIN. There being no further questions, Senator, thank you so much for your assistance.

Senator D'AMATO. Thank you, Mr. Chairman. I thank the members of the subcommittee, also.

Senator D'AMATO. At this time we'll have our second panel and I hope I pronounce the name properly. From the great State of New York, following the great Senator, Vincent Tese-is that proper? Mr. TESE. That is correct, Mr. Chairman.

Chairman ST GERMAIN. The superintendent of banks in the State of New York; and we have Mr. William E. Douglas, Commissioner of Bureau of Government Financial Operations of the U.S. Treasury. Very popular group at this time of year, aren't you, as we approach April 15.

Mr. DOUGLAS. Less so as we get closer.

Chairman ST GERMAIN. We want to welcome you both. Superintendent Tese, do you have a prepared statement?

Mr. TESE. Yes, I do.

Chairman ST GERMAIN. We'll put that in the record in its entirety and you may proceed.

Without objection, the superintendent's statement is put into the record.

STATEMENT OF VINCENT TESE, SUPERINTENDENT OF BANKS, STATE OF NEW YORK

Mr. TESE. Mr. Chairman, No. 1, I'd like to thank you very much for inviting me to testify. I certainly enjoyed the dialog here over the last hour.

Instead of reading directly from my testimony, it might be better if I gave you the process that New York went through and how we arrived at that process. No. 1, I agree with everybody that's testified here this morning concerning the horror stories that have been associated with check clearing times throughout the Nation and certainly in New York State.

It became a very significant consumer issue in New York State because many people were subjected to 20 days and even 30 days on clearance of certain checks. With that, the legislature drafted a bill which was signed by the Governor which basically gave the banking board the power to set specific clearing times for check clearing in New York.

Given that authority, the banking department sent out a questionnaire to various banking institutions of which a good part of it is in my testimony, and that questionnaire revealed that there was a great disparity in the clearing times among institutions within New York State.

Some institutions had a 2-day hold on local checks. Other institutions had a 4-day hold on local checks. Out of State checks took anywhere from 12 days to 20 days to clear. It really varied throughout the State.

We noticed that in upstate New York in smaller communities where the banking institutions knew their customers better, there

were no holds on any availability; and, in fact, there was a 1-day clearing arrangement. When we got downstate into the larger money center banks, we found as much as 7 or 8 days for an inState check to clear.

After we received our questionnaire back from the institutions we sat down and reviewed it, and then we prepared a set of rules that took into consideration the report we received from the various banking institutions and also our knowledge of the clearing procedure.

We then sat down with the banking community. We laid out our findings to them. We laid out the rules that we recommended and the banking community agree with us in toto.

We had the commercial bankers there. They agreed. We have the thrift institutions in New York divided into two categories. We have savings banks and savings and loans, and both of those groups concurred.

Then we called in the consumer groups and we gave them our findings. They were elated because actually our findings and our recommendations were better than what they expected. Then we had the legislators in and we told them of our findings and our recommendations.

What I'd like to emphasize is that we got a signoff by each segment of our constituency. The banks signed off, the consumers signed off, and the legislators signed off before we enacted our rules and regulations.

Chairman ST GERMAIN. Excuse me. How about the thrifts?
Mr. TESE. The thrifts signed off also.

Chairman ST GERMAIN. When you use the term "banker," are you including mutuals and S&L's?

Mr. TESE. That's correct.

Chairman ST GERMAIN. How about credit unions?

Mr. TESE. In fact, credit unions asked that the rules would apply to them so they could get the same status as thrifts, as I remember. I would also like to say that our approach to these rules and regulations was to try to get the largest universe of checks cleared in the smallest amount of time without affecting the safety and soundness of institutions. Therefore, we developed a 1-day availability rule, which means that if a check is deposited on MondayMonday doesn't count because that's the first day the check is deposited the check is then cleared on Tuesday; and, on Wednesday morning, those funds would be available. It's called 1-day availability.

We said all government checks and all checks under $100 should be subject to 1-day availability. Our reasoning there was that on the Government check-say, for instance, a Social Security check or an IRS check, Treasury check-obviously that check is going to be paid because it's a Government check.

The only possible problem with that check would be a forged endorsement and a forged endorsement would take 30 days or 60 days to find out anyway. So, availability is really not an issue when it comes to a government check.

Second, our study of returned checks showed that it was really a very small percentage of the universe of checks that were cleared and we decided that all checks under $100 should be subject to 1

day availability because it would not affect the loss ratios of the banks based upon our studies. That actually took care of 80 percent of the checks that went through the system.

Then we applied normal clearing times to checks as we found out they should have been or they were actually taking place in various institutions.

Chairman ST GERMAIN. Excuse me. Could I interrupt?

As far as that $100 is concerned, if somebody is going to engage in check kiting they wouldn't be satisfied with trying to do it on checks for that minimal amount, would they?

Mr. TESE. Well, it would have to be a kiter with a small horizon. [Laughter.]

Chairman ST GERMAIN. But the point is that when you consider the penalties-Does New York have penalties for kiting?

Mr. TESE. Oh, yes.

Chairman ST GERMAIN. Well, when you consider that, then it's hardly worth the salt.

Mr. BARNARD. Mr. Chairman, may I just make a comment to that?

You find more counterfeit $20's, though, than you do $100's.
Chairman ST GERMAIN. Well, that's very different.

Mr. BARNARD. No; I mean, if you're going to do something crooked, you're not going to do it for $1 million. That's why I make the analogy, that when you find counterfeit bills you don't find them in the $1,000 denominations.

Chairman ST GERMAIN. Well, I hope the gentleman will find, as hearings proceed and as we question the superintendent, that the financial institutions are not concerned with kiting in that small amount; but rather with the larger amounts. That's why there's a certain provision in the bill that I'm sure he'll explain to us that was effectuated as a result of a compromise with the financial institutions.

Mr. TESE. Right; we also have a provision within our rules and regulations that says that if an institution, in good faith, suspects somebody of kiting, then they can subject that check to the normal clearing process. So that gives them an out where they do, in good faith, think somebody is kiting.

We also have other provisions in there about new accounts. An account has to be opened for a certain amount of time before they are subject to these rules and regulations.

Theoretically, then, you get a certain relationship with your customer and get to know your customer a little bit better. We also have in there the fact that if somebody has three bounced checks within, I think it's a 3- or 6-month period, then he's off these rules and regulations and he goes back to the normal clearing procedures.

I really feel that our rules and regulations were well thought out. I believe that they covered all bases. As you know, there are national banks and State-chartered banks, and we really wanted a signoff by all the institutions so we wouldn't put State-chartered banks at a disadvantage to nationally chartered banks.

All the commercial banks in New York are complying with these rules, whether they're national or State. All the savings banks in New York are complying with these rules, whether they're nation