II 109th CONGRESS 1st Session S. 1586 IN THE SENATE OF THE UNITED STATES July 29, 2005 Mr. Hagel (for himself, Ms. Snowe, and Mr. Reed) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To allow all businesses to make up to 24 transfers each month from interest-bearing transaction accounts to other transaction accounts, to require the payment of interest on reserves held for depository institutions at Federal reserve banks, to repeal the prohibition of interest on business accounts, and for other purposes.

1.

Short title

This Act may be cited as the Interest on Business Checking Act of 2005.

2.

Interest-bearing transaction accounts authorized for all businesses

Section 2(a) of Public Law 93–100 (12 U.S.C. 1832(a)) is amended by adding at the end the following: (3)(A)Notwithstanding any other provision of law, any depository institution may permit the owner of any deposit or account which is a deposit or account on which interest or dividends are paid to make not more than 24 transfers per month (or such greater number as the Board of Governors of the Federal Reserve System may determine by rule or order), for any purpose, to another account of the owner in the same institution. (B)An account offered pursuant to this paragraph shall be considered a transaction account for purposes of section 19 of the Federal Reserve Act, unless the Board of Governors of the Federal Reserve System determines otherwise. .

3.

Authorization of interest-bearing transaction accounts

(a)

Repeal of prohibition on payment of interest on demand deposits

(1)

Federal Reserve Act

Section 19(i) of the Federal Reserve Act (12 U.S.C. 371a) is repealed. (2)

Home owners’ loan Act

Section 5(b)(1)(B) of the Home Owners’ Loan Act (12 U.S.C. 1464(b)(1)(B)) is amended by striking savings association may not— and all that follows through (ii) permit any and inserting savings association may not permit any. (3)

Federal Deposit Insurance Act

Section 18(g) of the Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is repealed. (b)

Joint rulemaking required

(1)

In general

Not later than 90 days after the date of enactment of this Act, the Federal banking agencies shall issue joint final regulations implementing the provisions of subsection (a). (2)

Effective date of regulations

The regulations required by this subsection shall take effect not later than 90 days after the date of enactment of this Act. (3)

Definitions

As used in this subsection, the term Federal banking agency has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813). (c)

Effective date of repeal

The amendments made by subsection (a) shall become effective on the earlier of— (1)90 days after the date of enactment of this Act; or (2)the date on which final regulations required to be issued under subsection (b) become effective.

4.

Payment of interest on reserves at Federal reserve banks

(a)

In general

Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)) is amended by adding at the end the following: (12)

Earnings on reserves

(A)

In general

Balances maintained at a Federal reserve bank by or on behalf of a depository institution may receive earnings to be paid by the Federal reserve bank at least once each calendar quarter at a rate or rates not to exceed the general level of short-term interest rates. (B)

Regulations relating to payments and distribution

The Board may promulgate regulations concerning— (i)the payment of earnings in accordance with this paragraph; (ii)the distribution of such earnings to the depository institutions which maintain balances at such banks or on whose behalf such balances are maintained; and (iii)the responsibilities of depository institutions, Federal home loan banks, and the National Credit Union Administration Central Liquidity Facility with respect to the crediting and distribution of earnings attributable to balances maintained, in accordance with subsection (c)(1)(A), in a Federal reserve bank by any such entity on behalf of depository institutions. (C)

Depository institution defined

For purposes of this paragraph, the term depository institution, in addition to any institution described in paragraph (1)(A), includes any trust company, corporation organized under section 25A or having an agreement with the Board under section 25, or any branch or agency of a foreign bank (as defined in section 1(b) of the International Banking Act of 1978). . (b)

Authorization for pass through reserves for member banks

Section 19(c)(1)(B) of the Federal Reserve Act (12 U.S.C. 461(c)(1)(B)) is amended by striking which is not a member bank. (c)

Technical and conforming amendments

Section 19 of the Federal Reserve Act (12 U.S.C. 461) is amended— (1)in subsection (b)(4), (A)by striking subparagraph (C); and (B)by redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively; and (2)in subsection (c)(1)(A), by striking subsection (b)(4)(C) and inserting subsection (b).

5.

Increased Federal reserve Board flexibility in setting reserve requirements

Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended— (1)in clause (i), by striking the ratio of 3 per centum and inserting a ratio not greater than 3 percent (and which may be zero); and (2)in clause (ii), by striking and not less than 8 per centum, and inserting (and which may be zero),.

6.

Treatment of certain escrow accounts

(a)

In general

In the case of an escrow account maintained at a depository institution for the purpose of completing the settlement of a real estate transaction, activities described in subsection (b) shall not be treated as the payment or receipt of interest for purposes of this Act or any other provision of law relating to the payment of interest on accounts or deposits maintained at depository institutions, including such provisions in— (1)Public Law 93–100; (2)the Federal Reserve Act; (3)the Home Owners’ Loan Act; or (4)the Federal Deposit Insurance Act. (b)

Exclusions

For purposes of subsection (a), activities described in this paragraph are— (1)the absorption, by the depository institution, of expenses incidental to providing a normal banking service with respect to an escrow account described in subsection (a); (2)the forbearance, by the depository institution, from charging a fee for providing any such banking function; and (3)any benefit which may accrue to the holder or the beneficiary of such escrow account as a result of an action of the depository institution described in paragraph (1) or (2) or a similar action.