What do you think about the relationship between the money-center banks and their correspondent-bank customers? There seem to be a lot of changes taking place and it's not very clear what's going on.

Let me give you a couple of statistics to set up a frame for this. Nine out of ten banks in this country have fewer than fifty employees. They're a monopoly in a small town. They do very well. They buy government bonds, and they do some local lending, but lately they've been completely usurped by the retailers.

I go to Phoenix, Arizona, for example, where we have twenty-two Person-to-Person finance offices, and my banker friend, Gil Bradley, says "Walt, what are you doing out here? Get out of my market." I hand him a copy of the Sherman Act, and we have a drink and I point out to him that Sears has more credit outstanding in Phoenix than he does. And his is the largest bank in Phoenix.

I see our future in correspondent banking not in the current money-center overline business,[24]  which will always be there. I see our future as going into the First of Painted Post and saying, here is what a total correspondent business relationship can provide. Here's the whole bit, and here are three of our guys who will install it for you on a fee basis. We've got a couple of fellows running around the country doing that now.

There'll always be banks that need overline coverage, and we will always be there to provide it, as a lender of last resort. But the whole concept of correspondent services is going to change, item by item. A customer of one of our correspondents might have travelers checks charged to his account when they were cashed instead of when they were sold, to pick a random example. That would substantially change the economics of that market.

Money center banks now do a lot of check clearing,[25]  but there are very few that make any money on the business, if you cost it out on an incremental cost basis. So, we're investing a large sum of money in research and development on this problem. I don't know how it will come out. All I can tell you is the way we did it yesterday is uneconomic, and we have to figure out a better way to do it.

[24] When a customer, usually a corporation, asks a so-called country bank for a loan that is larger than its internal or legal limit, the local bank may lend what it can, then ask its large city correspondent bank to lend the rest, called "the overline."

[25] Most checks are drawn on funds deposited in one bank but presented for payment at another. A check is negotiable at the second bank once it has cleared through larger money center banks which have balances on deposit from both smaller banks. The clearing banks debit the first bank's balance and credit the second for the amount of the check. The check then makes its way back to the originating bank to be debited finally against the issuer's account.