[Congressional Record Volume 146, Number 45 (Tuesday, April 11, 2000)]
[House]
[Pages H2076-H2079]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BUSINESS CHECKING MODERNIZATION ACT
Mr. LEACH. Mr. Speaker, I move to suspend the rules and pass the bill
(H.R. 4067) to repeal the prohibition on the payment of interest on
demand deposits, and for other purposes, as amended.
The Clerk read as follows:
H.R. 4067
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Business Checking
Modernization Act''.
SEC. 2. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT
DEPOSITORY INSTITUTIONS.
(a) Interest-Bearing Transaction Accounts Authorized.--
(1) Federal reserve act.--Section 19(i) of the Federal
Reserve Act (12 U.S.C. 371a) is amended by inserting at the
end the following: ``Notwithstanding any other provision of
this section, a member bank may permit the owner of any
deposit, any account which is a deposit, or any account on
which interest or dividends are paid to make up to 24
transfers per month (or such greater number as the Board may
determine by rule or order), for any purpose, to a demand
deposit account of the owner in the same institution. Nothing
in this subsection shall be construed to prevent an account
offered pursuant to this subsection from being considered a
transaction account for purposes of this Act.''.
(2) Home owners' loan act.--
(A) In general.--Section 5(b)(1) of the Home Owners' Loan
Act (12 U.S.C. 1464 (b)(1)) is amended by adding at the end
the following new subparagraph:
``(G) Transfers.--Notwithstanding any other provision of
this paragraph, a Federal savings association may permit the
owner of any deposit or share, any account which is a deposit
or share, or any account on which interest or dividends are
paid to make up to 24 transfers per month (or such greater
number as the Board of Governors of the Federal Reserve
System may determine by rule or order under section 19(i) to
be permissible for member banks), for any purpose, to a
demand deposit account of the owner in the same institution.
Nothing in this subsection shall be construed to prevent an
account offered pursuant to this subsection from being
considered a transaction account (as defined in section 19(b)
of the Federal Reserve Act) for purposes of the Federal
Reserve Act.''.
(B) Repeal.--Effective at the end of the 3-year period
beginning on the date of the enactment of this Act, section
5(b)(1) of the Home Owners' Loan Act (12 U.S.C. 1464 (b)(1))
is amended by striking subparagraph (G).
(3) Federal deposit insurance act.--Section 18(g) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended
by adding at the end the following new paragraph:
``(3) Transfers.--Notwithstanding any other provision of
this subsection, an insured nonmember bank or insured State
savings association may permit the owner of any deposit or
share, any account which is a deposit or share, or any
account on which interest or dividends are paid to make up to
24 transfers per month (or such greater number as the Board
of Governors of the Federal Reserve System may determine by
rule or order under section 19(i) to be permissible for
member banks), for any purpose, to a demand deposit account
of the owner in the same institution. Nothing in this
subsection shall be construed to prevent an account offered
pursuant to this subsection from being considered a
transaction account (as defined in section 19(b) of the
Federal Reserve Act) for purposes of the Federal Reserve
Act.''.
(b) 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 amended to read as follows:
``(i) [Repealed]''.
(2) Home owners' loan act.--The 1st sentence of 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 amended
to read as follows:
``(g) [Repealed]''.
(c) Effective Date.--The amendments made by subsection (b)
shall take effect at the end of the 3-year period beginning
on the date of the enactment of this Act.
SEC. 3. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY IN
SETTING RESERVE REQUIREMENTS.
Section 19(b)(2) of the Federal Reserve Act (12 U.S.C.
461(b)(2)) is amended--
(1) in clause (i), by striking ``the ratio of 3 per
centum'' and inserting ``a ratio not greater than 3
percent''; and
(2) in clause (ii), by striking ``and not less than 8 per
centum''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Iowa (Mr. Leach) and the gentleman from New York (Mr. LaFalce) each
will control 20 minutes.
The Chair recognizes the gentleman from Iowa (Mr. Leach).
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Mr. LEACH. Mr. Speaker, under current law, there is a prohibition on
the payment of interest on demand deposits, particularly as they affect
business institutions. This prohibition has been in law since 1933.
What this bill does is offer and allow banks the right to make daily
sweep adjustments and interest to be paid in these daily sweeps to
business accounts, and then eventually, that is, at the end of 3 years,
for the prohibition on the payment of demand interest to be fully
removed.
In essence, this bill symbolically is the most pro-customer banking
legislation in modern times. It is pro-small business, for it will
allow for the first time small businesses, in small rural settings in
particular, to be paid interest on their hard-earned extra funds or
savings. It is pro-small bank because small banks are not in a position
to use some of the sophisticated techniques of their larger bank
competitors in this particular arena. It is pro-competition because it
simply says the market should act freely without legislative
intervention.
The market today is stilted. One reason banks in the savings business
have been declining in size is because of legislative protectionism of
this kind of nature. It is no accident that over the last 3\1/2\
decades or so, the banks' share of the saved dollars have been reduced
from about two-thirds to one-quarter because Americans want to go to
places they can get the greatest return on their investments, and they
have found when there are legislative restraints, that they have
incentives to move assets elsewhere, to money market mutual funds, to
CMAs of securities firms.
The American business community deserves a better deal. As far as
banks are concerned, we are finding finally the recognition that
protectionism is counterproductive.
Let me say as strongly as I can that banking, just like any other
business in America, if it is going to be sustaining, has to be
concerned for the customer. Pro-customer institutions in America
survive. Those that have restraints on dealing with the customer are
placed in a more difficult position.
Mr. Speaker, what this bill in the final measure does is say that the
free market will prevail, that the customers' concerns will be
dominant, and
[[Page H2077]]
that it is no accident, again, that customers throughout the country,
as symbolized by their associations in business and banking, have come
to support this legislation. It has been a long time in coming, but I
am convinced it is the right thing to do.
Mr. Speaker, I reserve the balance of my time.
Mr. LaFALCE. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 4067, the Business Checking
Modernization Act. I, too, would like to associate myself with all of
the remarks of the gentleman from Iowa (Mr. Leach), the distinguished
chairman of the Committee on Banking and Financial Services.
As a result of our bipartisan work on this and other legislation,
today we are able to take another step in the modernization of our
financial services industry. The ban on interest-bearing checking
accounts was adopted in the Great Depression out of fear that banks
seeking business accounts would bid against each other with higher
interest rates and thus contribute to bank insolvencies.
In the 1980s, Congress recognized these concerns had faded and
removed the legislative prohibition against paying interest on the
checking accounts of individuals. Of course, Congress was responding to
market forces, too, and the tremendous disintermediation that had taken
place.
Today we complete that work by permitting the payment of interest on
business demand deposits. This is something we should have done years
ago. We do it today.
The current law and market conditions prevent many small businesses
from obtaining easy access to interest-bearing checking accounts. For
this reason, the repeal of the ban on interest-bearing business
checking accounts is strongly supported by the business community. A
yes vote for H.R. 4067 promotes healthy competition within the
financial services community for commercial checking accounts, which
can only benefit the business community, particularly the small
business community, with more efficient, cost-effective financial
services.
Mr. Speaker, I yield the balance of my time, to control the time, to
the gentlewoman from Oregon (Ms. Hooley).
The SPEAKER pro tempore. Without objection, the gentlewoman from
Oregon (Ms. Hooley) will control the time of the gentleman from New
York (Mr. LaFalce.)
There was no objection.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, let me first express my enormous gratitude to the
gentleman from New York (Mr. LaFalce) for his tremendous cooperation on
this issue, as well as the minority party in general.
But then I would like to note that this is a bill that has been the
bedrock concern of one Member of the United States Congress and that is
the gentleman from Washington (Mr. Metcalf), who is retiring at the end
of the year. If there is a bill and sponsor which have been identified
together more, I do not know what it is in the Congress.
Mr. Speaker, I express to the gentleman from Washington (Mr. Metcalf)
particular appreciation and gratitude for his thoughtfulness on this
piece of legislation, but also for his enormous thoughtfulness on the
committee on which he serves. I am very grateful for his leadership and
friendship.
Mr. Speaker, I yield 5 minutes to the gentleman from Washington (Mr.
Metcalf).
{time} 1615
Mr. METCALF. Mr. Speaker, I would like to express my appreciation of
the gentleman from Iowa (Mr. Leach) and the gentleman from New York
(Mr. LaFalce), the ranking member, for their strong support of
repealing an archaic Great Depression era statute preventing banks from
offering interest on business checking accounts.
I am pleased to say that H.R. 4067 enjoys bipartisan support and was
passed by the full Committee on Banking and Financial Services by voice
vote.
The current prohibition against banks offering interest-bearing
business checking accounts makes no sense. Allow me to highlight what a
couple of banks have said to me about this issue.
A banker from North Carolina said repeal would save maintaining a
separate sweep money market account and expenses related to tracking
the number of sweeps per month to ensure compliance.
A banker from Texas said, small businesses have a right to earn
interest on their money and national and State banks should have a
right to offer this service.
A banker from Wisconsin said that they use a sweep account to pay
interest but that repealing the prohibition would make their job easier
and more competitive.
A banker from Nebraska summed up his views even more succinctly about
abolishing this statute. The sooner the better.
We should vote today to remove this unnecessary regulation and allow
banks the opportunity to better address business concerns of their
local communities without having to undergo costly, cumbersome
procedures.
Federal Reserve Chairman Alan Greenspan has written in support of
repealing this prohibition against paying interest on business checking
accounts.
The legislation also enjoys broad-based support among others: The
U.S. Chamber of Commerce; the world's largest business federation, the
National Federation of Independent Businesses, which represents over
600,000 small and independent businesses; America's Community Bankers;
the American Banking Association; and the Association for Financial
Professionals which represents over 10,000 cash management
professionals within the corporate sector.
Let us pass this bill today and move forward to help our financial
institutions be more competitive in the marketplace and free small
business from outdated regulations.
Ms. HOOLEY of Oregon. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I want to thank the gentleman from New York (Mr.
LaFalce), the ranking member, and the gentleman from Iowa (Chairman
Leach), as well as the gentleman from Washington (Mr. Metcalf), for
their leadership in bringing to the floor today H.R. 4067, the Business
Checking Modernization Act.
This bill is very simple. It allows businesses to earn interest on
their checking accounts.
The ban on paying interest on commercial accounts was adopted during
the Depression for policy reasons that are no longer relevant today.
The banking regulators all agree that this legislation is overdue.
This legislation will promote healthy competition within the
financial services community for commercial checking accounts, which
will benefit all businesses, especially small businesses who will now
be able to earn interest on the business checking accounts.
Currently, business customers are able to earn interest on their bank
checking accounts only by placing their funds in banks that are able to
offer sweep accounts. So this is really good for big businesses and big
banks where they can afford to offer these sweep accounts.
Other businesses use securities firms that offer liberal check
writing services or ATM access or similar services through interest-
paying transaction accounts.
This compromise legislation appropriately provides a 3-year
transition period so that financial institutions that offer sweep
accounts or other concessions in lieu of interest can make necessary
changes in their pricing to accommodate the repeal of this prohibition.
Finally, during this transition period, all insured depository
institutions will be able to offer interest through a 24-transfer per
month, money market accounts.
Again, this is a very simple bill, long overdue, that allows
businesses to earn interest on their checking accounts with a 3-year
period for implementation.
Because the bill opens up competition in the business checking market
in a fair and equitable manner, I urge my colleagues to support its
adoption.
Mr. Speaker, I yield back the balance of my time.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
[[Page H2078]]
Mr. Speaker, let me just say that historically what occurred is that
Congress disadvantaged America's business community to protect its
banks. Then as time went on, it became clear that the effect was that
Congress disadvantaged its banking community in favor of banking
competitors. What this legislation amounts to is a free market return
to basic American competitive values. It is a congressional ``mea
culpa'' to America's business and banking community. It is good for the
country, good for the financial system and good for the precept of a
free and unfettered market that this country stands for, and I urge its
adoption.
Mrs. KELLY. Mr. Speaker, I rise today in support of the legislation
before us. Today in the financial services sector the laws, rules and
regulations of the 1930's have little to do with safety and soundness
of today's banks. Before us we have legislation to bring some of the
laws pertaining to commercial checking accounts into the 21st Century.
While I do not consider this package perfect, it does constitute a
reasonable middle ground to banks and industry which much be preserved
as this legislation moves forward.
This legislation contains a three year transition period that gives
banks the ability to sit down with their business customers and decide
how their accounts are best served. We must note that while banks have
been prohibited from paying interest to their commercial accounts, they
have been offering other services to attract their accounts. This three
year transition period must be preserved.
In this transition period we give banks the ability to expand their
current sweep activities. Sweeps are a way that banks can currently pay
interest on commercial accounts by moving a portion or all of the money
out of the account into an interest investment, like treasury bills,
which is then redeposited in the checking account at a specified time
with interest. Currently, banks are only allowed to do this six times a
month. This legislation increases this to 24 times a month so an
account could be swept every night giving those with smaller balances
the ability to participate in these activities.
One of the issues that has troubled me about this legislation is the
new cost it will impose upon banks, particularly small banks. This is
not the first time a bill with these provisions has come before the
House, but in the past the cost of this legislation was at least in
part addressed. Last year Laurence Meyer from the Board of Governors of
the Federal Reserve System came before the Banking Committee and stated
in this testimony that quote--The higher costs to banks would be
partially offset by the interest on reserve balances--end quote. The
problem arises because the initiative that allowed Federal Reserve
Banks to pay interest on reserve balances is not included in this bill
now before us.
I have introduced legislation with the sponsor of this bill [Mr.
Metcalf] and the Gentleman from Connecticut [Mr. Maloney] to address
this problem. The chairman of the Banking Committee has been supportive
of this effort by scheduling a hearing on this issue in the near
future. I hope that if this bill is conferenced with a Senate bill that
contains the authority to allow Federal Reserve Banks to pay interest
on reserves we could accept those provisions. If not, I fear that the
cost of this legislation will simply be passed onto the commercial
customers through higher loan rates. Without the Federal Reserve Bank
interest authority the benefits of this legislation could be lost.
I urge my colleagues to join me in support of this bill.
Mr. VENTO. Mr. Speaker, I rise in support of this bill, H.R. 4067,
which was reported out of the Banking and Financial Services Committee
on a bipartisan basis. This bill will repeal a curious prohibition on
banks and thrifts paying interest on business checking accounts. It
will help community banks and countless small businesses currently not
able to offer or compete for ``sweep'' accounts that move money out of
non-interest earning accounts into other accounts that will earn
interest for corporate customers. During the transition period, a new
daily sweep--or 24-hour transaction per month allowance--would be an
option.
Although there is a small rift within and among the various financial
institutions, on the main, the repeal of the prohibition is a shared
goal. The bill is broadly supported by small businesses. Not
surprisingly, a National Federation of Independent Business membership
survey shows that 86 percent of small business owners support this
repeal that would allow their checking accounts to earn interest. H.R.
4067 does not mandate the payment of interest. It merely removes the
last vestiges of controls on bank accounts that arose during the Great
Depression. In so doing, the bill will make possible more competition
and hopefully better service to business customers.
Although an immediate repeal would be sensible, there are some
entities that have developed the programs and systems to limit the
effect of the existing prohibition and that would prefer a ``phase in''
of the commercial interest repeal. The Committee found that three years
from the date of enactment was a good compromise from the starting
point of one year and those seeking a six-year sunset period. I am
uncomfortable with any further extension of the delay in allowing
interest on business checking accounts, a sound public policy change
that should really be effective as soon as possible. Three years is
long enough time in this Internet e-world. Six years is just too long.
I am pleased that what we have before this House today is not a
negative bill. It is a straightforward bill that does not adversely
affect customers or undercut our laws that protect safety and soundness
of our financial institutions.
Mr. Speaker, I do need to take this opportunity to suggest, however,
that here we are again ``modernizing'' another banking law. This one to
help community bankers and small businesses. Yet there is so much
consumer protection in financial services that has yet to even receive
a hearing, let alone action. We need a consumer financial modernization
act that will modernize Truth in Lending limits, high cost mortgage
protections, and vital consumer law updates. To just stand still is to
lose ground in today's dynamic marketplace and consumers are losing
ground. It is well past the time that this Congress should act upon
some of the positive, proactive proposals introduced by many of our
Colleagues so that these measures might be enacted into law. Sound
consumer relief and modernization is needed and should be the order of
the day.
I do have reservation about a provision of the bill added in the
Committee markup. This provision changes the reserve requirement in the
Federal Reserve Act for transaction accounts to give the Federal
Reserve the discretion to lower reserve ratios to as little as nothing
because the minimum statutory ratios for reserve requirements. Although
the Federal Reserve has not argued against this provision, they have
stated that this is authority they would not use. However, its addition
would certainly shift the field of lobbying solely to the Federal
Reserve for the purpose of lowering bank reserves. The Board should use
extreme caution in exercising this new flexibility being conveyed in
this bill especially if the policy is to reduce the reserves to
``zero.''
The inherent stability of the banking system and the implementation
of monetary policy dictate that a minimal level of reserves is
appropriate. Although their role may have waned somewhat, lower reserve
levels could lead to increased volatility in the federal funds interest
rate, which in turn could harm institutions attempting to manage their
clearing and reserves needs. Further, as I stated in the markup of the
bill, consultation with the Congress on any adjustment to reserve
requirements would be a prudent course of action by the Federal
Reserve.
I ask my colleagues to join me in supporting this bill.
Mr. DAVIS of Virginia. Mr. Speaker, I rise today in support of H.R.
4067, the Business Checking Modernization Act. This critically needed
legislation would lift the sixty-five year prohibition against banks
paying interest on business checking accounts.
Present law restricts the ability of the banking industry to provide
interest-bearing checking accounts for businesses. H.R. 4067 would
repeal this Depression-ear ban on such accounts by allowing banks to
competitively price their products and services in an open market to
business customers. Additionally, this legislation offers an important
opportunity for small business owners to establish a more complete
relationship with their financial service provider.
I applaud Chairman Leach and Representative Metcalf who when crafting
this vital piece of legislation recognized that a transition time
period is necessary to allow banks to implement these sweeping changes
that would alter the long-standing way banks have been conducting their
relationships with business customers. Because of the prohibition
against paying interest on corporate demand deposits, many banks have
structured their relationship with business customers to take this into
account by providing additional services, such as handling payroll
accounts, or establishing lower loan rates for these customers. A
substantial transition period is needed to allow for the conclusion of
these existing relationships and provides banks an opportunity to enter
into new relationships with their business customers that are priced to
reflect the change in law. I strongly support a reasonable transition
period to allow banks to adapt to these new banking practices. Should
this bill go to conference, I believe that it would be detrimental to
the banking industry to agree to any shorter transition period than
that provided in H.R. 4067.
[[Page H2079]]
While I do strongly support the positive changes this bill will bring
to the banking industry, I do have one concern that this bill failed to
address. Several banks in my district have expressed their alarm that
the shift towards a direct interest payment on business checking
accounts will impose new burdensome costs on banks because of the
interest payments themselves and the cost of establishing these new
types of accounts. In 1998, when we passed legislation similar to H.R.
4067, we provided banks with an offset for these expenses. In this
previous bill the Federal Reserve would have paid interest on required
and excess reserves that depository institutions maintain as balances
at Federal Reserve Banks. The Federal Reserve has testified in support
of paying interest on these ``sterile reserves'' because it could
induce banks to increase their reserve balances.
I am encouraged by Chairman Leach's promise to further explore this
option by holding a Banking Committee hearing on this issue on May 5,
2000. I believe that the hearing will reveal a strong need by the
banking industry to ease the cost-burdens associated with this bill and
the Federal Reserve's willingness to collaborate on this matter. It is
my hope that the Chairman will support allowing for the payment of
interest on sterile reserves, as provided for in related legislation in
the Senate, should this bill go to conference.
I applaud Chairman Leach and Representative Metcalf for their hard
work on this initiative to increase fair competition in the marketplace
and economic efficiency in banking practices. It is my hope that we can
continue to work towards perfecting this bill at conference in the near
future. I urge all my colleagues to vote in support of the Business
Checking Modernization Act.
Mr. LEACH. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. LaHood). The question is on the motion
offered by the gentleman from Iowa (Mr. Leach) that the House suspend
the rules and pass the bill, H.R. 4067, as amended.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
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