[Congressional Record Volume 147, Number 47 (Tuesday, April 3, 2001)]
[House]
[Pages H1374-H1380]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS INTEREST CHECKING ACT OF 2001
Mr. OXLEY. Madam Speaker, I move to suspend the rules and pass the
bill (H.R. 974) to increase the number of interaccount transfers which
may be made from business accounts at depository institutions, to
authorize the Board of Governors of the Federal Reserve System to pay
interest on reserves, and for other purposes, as amended.
The Clerk read as follows:
H.R. 974
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 ``Small Business Interest
Checking Act of 2001''.
SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED.
(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 amended to read as follows:
``(i) [Repealed]''.
(2) Home owners' loan act.--The first 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``(g) [Repealed]''.
(b) Effective Date.--The amendments made by subsection (a)
shall take effect at the end of the 2-year period beginning
on the date of the enactment of this Act.
SEC. 3. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED FOR
ALL BUSINESSES.
Section 2 of Public Law 93-100 (12 U.S.C. 1832) is
amended--
(1) in subsection (a), by adding at the end the following
new paragraph:
``(3) Exception from paragraph (2) limitation.--Paragraph
(2) shall not apply to any depository institution which is
prohibited by the applicable law of its chartering State from
offering demand deposits and either--
``(A) does not engage in any lending activities; or
``(B) is not an affiliate of any company or companies with
assets that, in the aggregate, represent more than 10 percent
of the total assets of the depository institution.'';
(2) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(3) by inserting after subsection (a) the following:
``(b) 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 and is not a deposit or account described
in subsection (a)(2) 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 another 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 such Act).''.
SEC. 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 new paragraph:
``(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 prescribe 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)(B),
in a Federal reserve bank by any such entity on behalf of
depository institutions.''.
(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) Survey of Bank Fees and Services.--Section 19 of the
Federal Reserve Act (as amended by subsections (a) and (b) of
this section) is amended by adding at the end the following
new subsection:
``(n) Survey of Bank Fees and Services.--
``(1) Annual survey required.--The Board shall obtain
annually a sample, which is representative by type and size
of the institution and geographic location, of the following
retail banking services and products provided by insured
depository institutions and insured credit unions (along with
related fees and minimum balances):
``(A) Checking and other transaction accounts.
``(B) Negotiable order of withdrawal and savings accounts.
``(C) Automated teller machine transactions.
``(D) Other electronic transactions.
``(E) Credit Cards.
``(2) Minimum survey requirement.--The annual survey
described in paragraph (1) shall meet the following minimum
requirements:
``(A) Checking and other transaction accounts.--Data on
checking and transaction accounts shall include, at a
minimum, the following:
``(i) Monthly and annual fees and minimum balances to avoid
such fees.
``(ii) Minimum opening balances.
``(iii) Check processing fees.
``(iv) Check printing fees.
``(v) Balance inquiry fees.
``(vi) Fees imposed for using a teller or other institution
employee.
``(vii) Stop payment order fees.
``(viii) Nonsufficient fund fees.
``(ix) Overdraft fees.
``(x) Deposit items returned fees.
``(xi) Availability of no-cost or low-cost accounts for
consumers who maintain low balances.
``(B) Negotiable order of withdrawal accounts and savings
accounts.--Data on negotiable order of withdrawal accounts
and savings accounts shall include, at a minimum, the
following:
``(i) Monthly and annual fees and minimum balances to avoid
such fees.
``(ii) Minimum opening balances.
``(iii) Rate at which interest is paid to consumers.
``(iv) Check processing fees for negotiable order of
withdrawal accounts.
``(v) Check printing fees for negotiable order of
withdrawal accounts.
``(vi) Balance inquiry fees.
``(vii) Fees imposed for using a teller or other
institution employee.
``(viii) Stop payment order fees for negotiable order of
withdrawal accounts.
``(ix) Nonsufficient fund fees for negotiable order of
withdrawal accounts.
``(x) Overdraft fees for negotiable order of withdrawal
accounts.
``(xi) Deposit items returned fees.
``(xii) Availability of no-cost or low-cost accounts for
consumers who maintain low balances.
``(C) Automated teller transactions.--Data on automated
teller machine transactions shall include, at a minimum, the
following:
``(i) Annual and monthly fees.
``(ii) Card fees.
``(iii) Fees charged to customers for withdrawals,
deposits, transfers between accounts, balance inquiries
through institution-owned machines.
``(iv) Fees charged to customers for withdrawals, deposits,
transfers between accounts, balance inquiries through
machines owned by others.
``(v) Fees charged to noncustomers for withdrawals,
deposits, transfers between accounts, balance inquiries
through institution-owned machines.
``(vi) Point-of-sale transaction fees.
``(vii) Surcharges.
``(D) Other electronic transactions.--Data on other
electronic transactions shall include, at a minimum, the
following:
``(i) Wire transfer fees.
[[Page H1375]]
``(ii) Fees related to payments made over the Internet or
through other electronic means.
``(E) Credit card charges and fees.--Data related to credit
cards shall include, at a minimum, the following:
``(i) Application fees.
``(ii) Annual and monthly fees.
``(iii) Rates of interest charged for purchases and cash
advances, when an account is not in default.
``(iv) Rates of interest charged for purchases and cash
advances, when an account is in default.
``(v) Average annual finance charges paid by customers.
``(vi) Late payment fees.
``(vii) Cash advance and convenience check fees.
``(viii) Balance transfer fees.
``(ix) Over-the-credit-limit fees.
``(x) Foreign currency conversion fees.
``(F) Other fees and charges.--Data on any other fees and
charges that the Board determines to be appropriate to meet
the purposes of this section.
``(3) Annual Report to Congress Required.--
``(A) Preparation.--The Board shall prepare a report of the
results of each survey conducted pursuant to paragraph (1)
and (2).
``(B) Contents of the report.--In addition to the data
required to be collected pursuant to paragraphs (1) and (2),
each report prepared pursuant to subparagraph (A) shall
include a description of any discernible trend, in the Nation
as a whole, in each of the 50 States, and in each
metropolitan statistical area (as defined by the Director of
the Office of Management and Budget), in the cost and
availability of the retail banking services, including those
described in paragraphs (1) and (2) (including related fees
and minimum balances), that delineates differences between
institutions on the basis of the type of institution, the
size of the institution and any engagement of the institution
in multistate activity.
``(C) Submission to congress.--The Board shall submit an
annual report to the Congress under this paragraph not later
than June 1, 2002, and not later than June 1 of each
subsequent year.
``(4) Definitions.--For purposes of this subsection, the
terms `insured depository institution' and `insured credit
union' mean any depository institution (as defined in
subsection (b)(1)(A)) the deposits or shares in which are
insured under the Federal Deposit Insurance Act or the
Federal Credit Union Act.''.
(d) Technical and Conforming Amendments.--Section 19 of the
Federal Reserve Act (12 U.S.C. 461) is amended--
(1) in subsection (b)(4) (12 U.S.C. 461(b)(4)), by striking
subparagraph (C) and redesignating subparagraphs (D) and (E)
as subparagraphs (C) and (D), respectively; and
(2) in subsection (c)(1)(A) (12 U.S.C. 461(c)(1)(A)), by
striking ``subsection (b)(4)(C)'' and inserting ``subsection
(b)''.
SEC. 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),''.
SEC. 6. TRANSFER OF FEDERAL RESERVE SURPLUSES.
(a) In General.--Section 7(b) of the Federal Reserve Act
(12 U.S.C. 289(b)) is amended by adding at the end the
following new paragraph:
``(4) Additional transfers to cover interest payments for
fiscal years 2002 through 2006.--
``(A) In general.--In addition to the amounts required to
be transferred from the surplus funds of the Federal reserve
banks pursuant to subsection (a)(3), the Federal reserve
banks shall transfer from such surplus funds to the Board of
Governors of the Federal Reserve System for transfer to the
Secretary of the Treasury for deposit in the general fund of
the Treasury, such sums as are necessary to equal the net
cost of section 19(b)(12), as estimated by the Office of
Management and Budget, in each of the fiscal years 2002
through 2006.
``(B) Allocation by federal reserve board.--Of the total
amount required to be paid by the Federal reserve banks under
subparagraph (A) for fiscal years 2002 through 2006, the
Board of Governors of the Federal Reserve System shall
determine the amount each such bank shall pay in such fiscal
year.
``(C) Replenishment of surplus fund prohibited.--During
fiscal years 2002 through 2006, no Federal reserve bank may
replenish such bank's surplus fund by the amount of any
transfer by such bank under subparagraph (A).''.
(b) Technical and Conforming Amendment.--Section 7(a) of
the Federal Reserve Act (12 U.S.C. 289(a)) is amended by
adding at the end the following new paragraph:
``(3) Payment to treasury.--During fiscal years 2002
through 2006, any amount in the surplus fund of any Federal
reserve bank in excess of the amount equal to 3 percent of
the paid-in capital and surplus of the member banks of such
bank shall be transferred to the Secretary of the Treasury
for deposit in the general fund of the Treasury.''.
SEC. 7. RULE OF CONSTRUCTION.
No provision of this Act, or any amendment made by this
Act, shall be construed as creating any presumption or
implication that, in the case of an escrow account maintained
at a depository institution in connection with a real estate
transaction--
(1) the absorption, by the depository institution, of
expenses incidental to providing a normal banking function
with respect to such escrow account;
(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),
may be treated as the payment or receipt of interest for
purposes of any provision of Public Law 93-100, the Federal
Reserve Act, the Home Owners' Loan Act, or the Federal
Deposit Insurance Act relating to the payment of interest on
accounts or deposits at depository institutions.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Ohio (Mr. Oxley) and the gentleman from New York (Mr. LaFalce) each
will control 20 minutes.
The Chair recognizes the gentleman from Ohio (Mr. Oxley).
General Leave
Mr. OXLEY. Madam Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and to include extraneous material on H.R. 974, the bill now
under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Ohio?
There was no objection.
Mr. OXLEY. Madam Speaker, I yield myself 5 minutes, and I rise today
in support of H.R. 974, the Small Business Interest Checking Act. H.R.
974 lifts the ban on the payment of interest on checking accounts,
increases the number of transfers which may be made from business
accounts to depository institutions, authorizes the Federal Reserve to
pay interest on sterile reserves, and gives the Fed flexibility in
setting reserve limits.
The changes in current law made by H.R. 974 are long overdue and
represent our continued efforts to update outdated laws that ultimately
limit the choices of small businesses and consumers.
The legislation provides that after 2 years banks will be able to
offer interest-bearing checking accounts to all customers. Because of a
quirk in current law, America's small businesses are the only entities
that currently have little choice but to allow their money to sit idly
in banks. This legislation will allow those small businesses to put
their money to work.
The bill will also allow banks to earn interest on the money they are
required by law to hold with the Federal Reserve. Like small
businesses, America's banks currently must hold money in accounts which
give them no return. This has created an incentive for banks to put
their money elsewhere, which in turn can damage the Federal Reserve's
ability to conduct monetary policy. The Federal Reserve supports us in
this long-overdue change.
The bill will also give the Federal Reserve flexibility in setting
reserve requirements, so that the market can respond to changing
economic conditions.
The amendment will allow certain depository institutions to offer NOW
accounts to all of their customers and clarify that certain
transactions in connection with real estate escrow accounts are not to
be treated as ``interest'' for any purpose under the legislation that
we are considering.
The only difference between H.R. 974 that we consider today and the
reported bill is an amendment requested by the Fed that describes the
types of depository institutions which will be able to offer business
NOW accounts.
Madam Speaker, I thank the gentlewoman from New York Mrs. Kelly) and
the gentleman from Pennsylvania Mr. Toomey) for their leadership that
they have shown on this issue. I also thank the gentleman from New York
Mr. LaFalce), the ranking member, for his cooperation in moving this
important bill.
Madam Speaker, the legislation we consider today advances the work
begun by Congress with the passage of the Gramm-Leach-Bliley Act to
make America's financial services industry more efficient, and to
provide consumers with more options.
[[Page H1376]]
Madam Speaker, I urge my colleagues to support passage of H.R. 974.
Madam Speaker, I reserve the balance of my time.
Mr. LaFALCE. Madam Speaker, I yield myself such time as I may
consume.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Madam Speaker, I agree with the overall thrust of H.R.
974, the Small Business Interest Checking Act, which permits banks and
thrifts to offer interest-bearing business checking accounts; and I,
therefore, support its adoption.
The repeal of the ban on interest-bearing business checking accounts
represents another important step in the modernization of our financial
services industry. The ban 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.
The Federal banking agencies have all concluded, however, that the ban
no longer serves any useful public purpose; that it is outdated in the
modern financial services environment, and I concur.
Madam Speaker, this legislation promotes healthy competition within
the financial services community for commercial checking accounts,
which can only benefit the business community, and most especially the
small business community, with more efficient, cost-effective financial
services.
{time} 1615
The current law and market conditions prevent many small businesses
from obtaining easy access to interest-bearing checking accounts. For
this reason, it is important that repeal of the ban be accomplished
with a minimum of delay. The 2-year phase-in provided for in the bill,
with 24 sweeps per month for money market demand accounts in the
meantime, represents a fair compromise of the competing interests,
although I personally would have preferred a shorter phase-in period.
However, I do have some reservations about the policy priorities
represented by other provisions in the bill, provisions permitting the
Federal Reserve Banks to pay interest on reserves. It is estimated that
the sterile reserve provision will use $1.1 billion of the projected
surplus over the next 10 years. I am conscious of the view of many in
the banking industry that the combination of required reserves and the
inability to receive interest on those reserves is a burden on the
industry.
I understand that. However, I believe that there are other priorities
that should take precedence over interest on sterile reserves,
priorities that provide funding for homes for the homeless, adequate
funding for food for our hungry, adequate funding for medicine and
health care for our sick. These and other governmental corporal works
should be given far greater precedence and priority by this body on
this floor of the House.
Nevertheless, I support the bill, not only because it provides access
to financial services for small businesses but also because it will
improve Congress' ability to monitor the problem posed by ever-
increasing bank fees. This was a very important amendment that we
offered to the bill during markup which requires an annual assessment
of the fees charged to retail bank customers. With fees representing an
ever-growing share of bank earnings, an annual survey of retail bank
fees becomes much more important than ever.
Mr. Speaker, I believe that H.R. 974 accomplishes two sound policy
objectives. It provides small business easy access to interest-bearing
checking accounts and it provides a much needed survey of retail
banking fees. For those particular reasons, I support its adoption by
the House.
Mr. Speaker, I reserve the balance of my time.
Mr. OXLEY. Mr. Speaker, I yield 3 minutes to the gentleman from
Alabama (Mr. Bachus), the chairman of the Subcommittee on Financial
Institutions and Consumer Credit.
Mr. BACHUS. Mr. Speaker, I rise in strong support for this
legislation. I want to commend the chairman of the Committee on
Financial Services for bringing this common sense measure to the floor
today, for doing it promptly.
What does this legislation mean? What will it do? I have a letter
here from the National Association of Federal Credit Unions which says
that it will mean two things. It will mean that their customers, small
businesses and their members of the credit unions will receive interest
on their accounts, and it also means that their loan rates will be
lower.
So I think anything we can do to lower the cost of loans for
consumers is good. I think anything we can do to allow small
businesses, whether they bank at a bank or a thrift or they are members
of a credit union to be able to draw interest on those. It really is
legislation that is going to benefit small businesses, whether they are
the small banks, the thrifts or the credit unions or the small
businesses that put deposits in those institutions. Large corporations
already get implicit interest because large financial institutions have
complex programs such as sweeps which allow the payment of something
very akin to interest. But it is the small businesses today that have
been denied the right to draw interest. That is why the NFIB and the
Chamber of Commerce totally supports this legislation and has endorsed
it.
It will also allow small banks, thrifts and credit unions in our
hometowns to compete against large international financial
conglomerates and large financial banks because it will make them more
competitive and will allow them to keep more of their deposits. That is
why the associations representing our small banks and our thrifts have
endorsed this legislation.
Finally, I want to praise the gentleman from Pennsylvania and the
gentlewoman from New York who authored this legislation. We will hear
from the gentlewoman from New York (Mrs. Kelly) in a minute. I also
want to praise a freshman member, the gentlewoman from Pennsylvania
(Ms. Hart), for her active work on this bill.
Finally, I would like to address what the gentleman from New York
said about paying interest on regulation D reserves at the Federal
Reserve. The Federal Reserve and the Treasury both came before us; and
the Federal Reserve said if we are to maintain a solid monetary policy,
a sound dollar, we need this legislation. That is reason enough to pass
this.
Mr. Speaker, I include for the Record the following letter from the
National Association of Federal Credit Unions that I referred to in my
remarks:
National Association of
Federal Credit Unions,
Washington, DC, April 2, 2001.
Hon. Spencer Bachus,
Chairman, Subcommittee on Financial Institutions & Consumer
Credit, House of Representatives, Washington, DC.
Dear Chairman Bachus: I am writing on behalf of the
National Association of Federal Credit Unions (NAFCU), the
only national trade association that exclusively represents
the interests of our nation's federal credit unions, to
express our support for H.R. 974 as approved by the Financial
Services Committee. NAFCU supports this effort to allow
payment of interest on Regulation D reserve requirements of
depository institutions, to increase the number of allowed
transfers of non-interest-bearing accounts into those paying
interest, and to include credit unions in a regular bank fee
study by the Federal Reserve. NAFCU thanks you for your
leadership on this issue and urges passage of H.R. 974.
Regulation D imposes costly burdens on regulated financial
institutions such as federal credit unions. As member-owned
cooperatives, credit unions have no choice but to pass the
opportunity cost resulting from the posting of sterile
reserves along to their members either in the form of lower
dividend rates on savings, higher rates on loans, or some
combination of the two. Under Regulation D Federal credit
unions are required to structure accounts to meet regulatory
definitions, limit transactions to required types and
numbers, and must forego interest on sterile reserves. The
cost of Regulation D contributes to the continuing exodus of
savings from regulated financial institutions to the stock
market, mutual funds, and other products of largely
unregulated financial service providers.
The current Regulation D reserve ratios are 3% for
transaction balances between $0 and $42.8 million with an
exemption for balances below $5.5 million. For institutions
with reservable balances in excess of $42.8 million, the
reserve requirement is $1,329,000 plus 10% of the deposits
above $42.8 million. Based on NAFCU year-end 2000 data and
utilizing the current Regulation D tranches and ratios, 866
federally-chartered credit unions are currently required to
post $1,276,386,000 in required reserves. If legislation were
enacted into law today and the Federal Reserve were to pay
interest at the current Federal Funds rate of 5.5%, then
these credit unions and
[[Page H1377]]
their member owners would collectively receive $70,201,230 in
interest.
As of December 2000, 121 credit unions had $12.95 billion
in reservable balances in excess of $42.8 million and
required reserves of $938.7 million. Another 745 credit
unions, with $11.12 billion in reservable balances, had to
hold $337.6 million in required reserves.
With its non-payment of interest on sterile reserves,
Regulation D gives an unfair advantage to non-regulated
financial institutions that offer checking accounts but do
not have to maintain sterile reserves with the Fed.
Furthermore, NAFCU supports the language sought by
Representative John LaFalce (D-NY) and included by the
Financial Services Committee to make permanent the bank fee
study by the Federal Reserve Board and to include credit
union fees as part of that study.
NAFCU appreciates your leadership on this issue and thanks
you for pursuing this legislation. We urge the House to pass
this important legislation. If I or my staff may be of
assistance to you or if you have any questions or desire
further information please do not hesitate to contact me or
NAFCU's Director of Legislative and Political Affairs,
Charlie Frohman, at (703) 522-4770.
Sincerely,
William J. Donovan,
Senior Vice President/General Counsel.
Mr. OXLEY. Mr. Speaker, I am pleased to yield 3 minutes to the
gentlewoman from New York (Mrs. Kelly), the chairwoman of the
Subcommittee on Oversight and Investigations.
Mrs. KELLY. Mr. Speaker, I want to thank the gentleman from Ohio for
both yielding me the time and for his considerable efforts to move this
legislation forward. I also want to thank my fellow New Yorker, ranking
member, the gentleman from New York (Mr. LaFalce), for his work on this
issue and for allowing us to bring this legislation to the floor under
suspension today.
My legislation today can be passed in such a way in which everyone
wins. This has been an issue which has been pending before the Congress
for the past 6 years. Last year, our committee passed everything before
us now by a voice vote; and the full House also passed these provisions
by a voice vote. It is my hope we can do that again today.
The Small Business Interest Checking Act contains four initiatives.
First, to repeal the prohibition on allowing banks to pay interest on
business checking accounts after a transition period. This prohibition
has been in place since the 1930s.
While I believe it should be repealed, I believe a proper transition
period is critical. The 2-year transition contained in this bill is not
adequate in my estimation. However, I believe it is time that this
legislation does move forward.
Second, this legislation allows banks to increase money market
deposits and savings accounts sweeps from the current 6 to 24 times a
month. This gives banks an increase in their sweep activities, enabling
them to sweep every night, increasing the interest which businesses can
make on their accounts.
Third, the bill gives the Federal Reserve the authority to pay
interest on reserves banks keep in the Federal Reserve system. This is
good economically since it will bring stability to the Federal funds
rate which is subject to volatility when the reserves become too low.
It is also good public policy since these reserves have functioned as
an implicit tax on our banks and would partially offset the costs of a
repeal of the prohibition on business checking.
Fourth and finally, my bill gives the Federal Reserve the additional
flexibility to lower the reserve requirements. This will give the
Federal Reserve greater control at maintaining reserves at a specific
and consistent level.
My goal in this legislation is to best help our main street banks
which are so essential to our small communities. Without their support,
our communities would struggle where they are now thriving and stall
where they now move. Quite simply, this legislation is about creating
new and broader market options. We allow banks to pay interest on
business checking accounts. We allow banks to increase sweep
activities. And we allow the Fed to pay interest on the reserves all
banks are required to keep with them. We also allow the Fed to lower
reserve requirements. We do not require or mandate anything. This way
we can allow the market to create change, not the government.
Mr. Speaker, I have much, much more to say on this legislation but in
the interest of time, I will place the rest of my comments in the
Record. I again thank the gentleman from Ohio for his strong leadership
on this issue and for the swift consideration of this legislation. I
ask my colleagues on both sides of the aisle to join me in strong
support for this common sense bipartisan legislation.
Mr. Speaker, I want to thank the gentleman from Ohio [Mr. Oxley] for
both yielding me the time and for his considerable efforts to move this
legislation forward. I also want to thank my fellow New Yorker, Ranking
Member LaFalce, for his work on this issue and for allowing us to bring
this legislation to the floor under suspension today. In addition, I
want to thank the gentleman from Alabama [Mr. Bachus] for his work as
well as the gentleman from Pennsylvania [Mr. Toomey] for the very
significant contribution he made to this legislation with his bill,
H.R. 1009, which was merged into my bill during committee
consideration.
My legislation today can be passed in such a way in which everyone
wins. This has been an issue which has been pending before Congress for
the past six years. Last year our committee passed everything now
before us by voice vote and the full House also passed these provisions
by a voice vote.
Provisions of this legislation enjoy strong support from a diverse
group of associations. The list of these groups includes the American
Bankers Association, America's Community Bankers, The National
Federation of Small Businesses, The Financial Services Roundtable, The
National Association of Federal Credit Unions, The National Chamber of
Commerce, The Credit Union National Association, and The National Farm
Bureau.
Mr. Speaker, one issue which has held this legislation up in past
years has been the issue of the transition period from the bill's
enactment to when banks are allowed to pay interest on business
checking accounts. Currently, the bill contains a two year transition
period. This is a shorter transition period than was contained in
Congresswomen Roukema's bill, H.R. 1585, the Depository Institutions
Regulatory Streamlining Act, in the 105th which passed the House on
October 8, 1998 by voice vote. How many years was the delay in H.R.
1585? Six years. Again last year the House passed Congressman Metcalf's
bill, H.R. 4067, which again contained this issue, but this time
contained a three year transition period. I supported that deal last
year and continue to support a three or four year transition period.
This transition period are not arbitrary and have been contained in
laws that have made changes to interest payments in the past. When
Congress enacted legislation to gradually remove interest rate controls
on consumer checking accounts in the 1980s (Reg Q), it did so with a
six-year transition period.
We have listened to testimony before the Financial Services committee
about why banks need this transition period to unravel the agreements
they currently have with their business customers. Those groups
advocating for shorter transition periods unfortunately seek to create
instability in the banking sector. For some this is intentional. The
Thrifts, until recently, were prohibited from business checking
activities. They would like this authority in attempt to attract
business clients from the banks. I don't blame them for this, but the
small community banks with assets under $2 billion will suffer under
this scenario without a transition.
Those who argue that since there is no transition period in the bill
for the Fed to pay interest on reserves ignore the innumerable
differences between banks and the Fed and the very different reasons we
are changing these laws. One has to do with effective monetary policy
of the Fed and the other about the more efficient operation of our
banks.
Let me also clear the air on another point. The Federal Reserve is
opposed to a transition period of this length. They see this in a
purely economic perspective. They believe that the disruptions this
policy presents will work themselves out.
Well I stand in strong disagreement with the Fed's read of this
issue. Banks have long established relationships with the business
customers they serve. These banks, while being prohibited in paying
interest on reserves provide other tangible benefits to their business
customers, such as doing the payroll for the business.
These banks need time to properly prepare for this change we are
proposing to the law. They need to be able to sit down with their
commercial accounts when their loans turn over, which is every few
years.
Some may speak about wasteful sweep activities. Sweeps may be more
complicated but they do not hurt the small banks that way. The repeal
of the prohibition will. Sweeps are temporally invested outside of the
bank typically in safe repurchase agreements involving T-bills. This
imposes zero cost to the bank and the commercial accounts can earn
interest. I also
[[Page H1378]]
refer to an article from the American Banker I inserted into the record
during a hearing last May. It stated that the majority of small banks
operate sweep accounts. The computer programs are becoming much simpler
and less costly to handle these activities. Additionally, if banks can
do this every day they are not limited to commercial customers that
keep large balances in the accounts.
Some will say that this bill does not require the payment of interest
on commercial accounts, it just allows it. That's true but the market
place will require it in order to remain competitive.
Let me sum this up with one final observation. The banks that will be
hardest hit with this new cost will be the smaller banks. This will
make them more liable to takeovers and jeopardize the best friend of
the small businesses--Small banks. We must do everything we can to
preserve small banks. They need time to prepare, and should at least
give them more time to do so.
Again, I want to thank the Gentleman from Ohio, [Mr. Oxley] for his
strong support and leadership on this issue. I also want to thank all
of the others I have worked with on this issue that deserve some of the
credit, this list includes former Congressman Jack Metcalf, for whom
these issues were one of his highest priorities; Congressman Jim Leach,
whose leadership on these issues ensured a fair debate; Congresswoman
Marge Roukema, whose attention to these issues has been both helpful
and thoughtful; Congressman Spencer Bachus, whose insights and
encouragement have helped drive this debate; Congressman Pat Toomey,
who brought his first hand experience and considerable knowledge to
this issue; Senator Charles Schumer, for his strong support for our
priorities on this legislation in the Senate; I also need to thank the
staff, especially Terry Haines, Bob Foster, Hugh Halpern, Gregg Zerzan,
Jim Clinger, Garry Parker, Laurie Schaffer, and Alison Watson.
Without the assistance of these good folks we would not have been
able to bring such a strong bill to the floor this year. We have before
us the best opportunity to move this legislative package through the
process. I hope we are able to take advantage of this opportunity. I
stand ready to work with all interested parties to ensure that this
legislation truly benefits all concerned.
Mr. OXLEY. Mr. Speaker, I yield 3 minutes to the gentleman from
Pennsylvania (Mr. Toomey) who has been a leader and one of the original
sponsors of this legislation.
(Mr. TOOMEY asked and was given permission to revise and extend his
remarks.)
Mr. TOOMEY. Mr. Speaker, I want to thank the gentleman from Ohio for
yielding me this time.
Mr. Speaker, I rise today to urge my colleagues to pass H.R. 974.
This is a bill that contains a number of very good, sensible
provisions. As we have heard, it will allow the Federal Reserve to pay
interest on sterile reserves; and we have heard that it will give
flexibility to the Federal Reserve in setting reserve requirements
which in turn will help in maintaining our monetary policy.
This bill also includes language from H.R. 1009 which I introduced to
allow banks to pay interest on commercial checking accounts. Now, as we
all know and we recall from last year, we passed sweeping modernization
legislation, modernizing the legal framework within which the financial
services industry is regulated. It was historic legislation. We
repealed antiquated laws that dated back to the Depression. But we
missed one, we might have missed more than one, but one that we missed
was repeal of the prohibition on interest on corporate checking
accounts. So today we are going to take that up, among other things.
Let me address that specifically as a part of the bill that I had
focused mostly on. First of all, repealing the prohibition on interest
on business checking is not really for big banks. Oh, it will apply to
big banks but as a practical matter, big banks, large, sophisticated
financial institutions have the means to circumvent this prohibition
and they have done so for years, quite legally, quite appropriately.
Through a very sophisticated series of transactions, they can offer
implicit interest if not explicit interest.
This really is also not for large corporations. As the gentleman from
Alabama mentioned earlier, large corporations have ways around this as
well. They have sophisticated Treasury operations. They have the
ability with extensive full-time staff to make sure they do not have
idle cash sitting there not earning interest.
What this legislation is really for is small banks and small
business. It is for small banks that do not have the means to develop
ways to circumvent the prohibition. It will allow them simply to
directly pay the interest that they want to pay so that they can
compete with the larger institutions and can attract deposits.
And it is for small businesses, small businesses that do not have the
resources to have a Treasury operation. They do not have the manpower
to devote countless hours to making sure there are no idle reserves.
What this bill is going to do is it is going to allow those small
businesses which struggle so much to provide so many jobs and so much
of the vigorous growth in our economy in recent years, it is going to
allow them to be a little more competitive and give them a little bit
more of a break by allowing them to earn interest on the deposits that
they own.
It is quite appropriate also as the gentlewoman from New York pointed
out that there is no mandate in this bill. This simply allows business
and banking institutions to decide amongst themselves without the
prohibition of government to decide how much if any interest will be
paid on these accounts. But I am confident that market pressures being
what they are will develop an habitual interest for these balances as
ought to be the case.
It is long overdue. I think we are getting to the point where we are
going to pass this legislation. I am hopeful that the other Chamber
will do likewise. I just want to thank the chairman, the gentleman from
Ohio (Mr. Oxley). I would also like to thank the gentleman from
Pennsylvania (Mr. Kanjorski) and the gentleman from Alabama (Mr.
Bachus) for their leadership in this effort as well as the ranking
member, the gentleman from New York (Mr. LaFalce). I urge my colleagues
to pass this legislation.
Mr. OXLEY. Mr. Speaker, I am pleased to yield 2 minutes to the
gentlewoman from New Jersey (Mrs. Roukema), the chairwoman of the
Subcommittee on Housing and Community Opportunity.
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. Mr. Speaker, I certainly want to express my strong
support for this legislation and urge that it be passed. I want to
particularly commend the gentlewoman from New York (Mrs. Kelly) and
certainly the gentleman from Alabama (Mr. Bachus), the chairman of the
Subcommittee on Financial Institutions and Consumer Credit, for what
they have outlined in their opening statements and associate myself
with their remarks.
I do want to also make the observation that this was passed, at least
in the House, in the 105th and the 106th Congress. I am hopeful that
this time, the third time ``will be the charm'' and that we are going
to get this passed. It makes absolute, complete sense. Although I was
one that originally wanted the 3-year phase-in, I believe that this
bill strikes the proper, good compromise, using the 2-year phase-in.
{time} 1630
Of course, the NFIB and the U.S. Chamber, as has already been
reported, strongly support the repeal; and we have a large segment of
the banking industry and the thrift industries that are supportive. I
guess I just have to say that this is long overdue. It is a compromise
with the 2-year phase-in which will be included in this bill, and I
trust that we will finally be successful this year. Again, long overdue
and we must do our job here today.
The controversy in past Congresses and during consideration in the
Financial Services Committee this year has been the appropriate time
frame for repeal.
While I support a 3-year phase-in, I believe the bill before us today
strikes a good compromise between the one year and three year
alternatives. The one year transition period in the original bill is
just too short. Removing the prohibition against the payment on
commercial Demand Deposit Accounts raises a variety of difficult
transition issues, especially for smaller financial institutions.
Banks currently assume a stable deposit base with stable costs when
they enter commercial checking account relationships with small
businesses. These contractual relations frequently include a number of
other products--such as loans for periods ranging from 5-25 years--at a
price and for a period of time that takes into account that the bank is
not paying interest on the underlying business checking account.
[[Page H1379]]
The immediate implementation of paying interest on those accounts
would disrupt the cost/profit assumption under which those loans were
made and would require a renegotiation of the overall relationship. If
banks are required to pay interest immediately, they would be required
to adjust investment portfolios at a time of high market volatility.
Banks will be required to review all current customer contracts;
determine steps necessary to honor existing commitments for both public
and private sectors. Many contracts, particularly those with state,
local and federal governments have time periods from 12-36 months and
would require substantial adjustments.
Mr. Speaker, this legislation is long overdue and with the compromise
of a two year phase in which is included in this bill, I trust that we
can finally enact this legislation this year. I urge my colleagues
support.
Mr. OXLEY. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I would point out that this was a brilliant maneuver on
the part of the committee. There were arguments whether it should be an
extension of 3 years or 1 year, and after great deliberation and a lot
of hard work we decided to compromise on 2 years.
They said it could not be done, but we were able to do that; and I
want to thank everybody for their participation.
Mr. Speaker, I yield 2 minutes to the gentlewoman from Pennsylvania
(Ms. Hart), a new member of our committee and a very valuable member.
Ms. HART. Mr. Speaker, I also rise in support of H.R. 974. I am a big
fan of giving flexibility to people in their own businesses.
Understanding that banks are heavily regulated and understanding also
that there was a concern when this initial law was instituted back in
the 1930s, that was a long time ago, Mr. Speaker, and it is no longer
reasonable for us to be concerned that these banks will put themselves
out of business by paying interest to their business customers.
Mr. Speaker, this legislation abolishes a ban that is long overdue,
preventing banks from offering interest on their business checking
accounts. I do not think it is time for us anymore to be worried that
these banks would fail because they would pay interest to their
business customers. In fact, as a result of Graham-Leach-Bliley, this
is just the natural next step.
We tried to give the financial services industries more flexibility.
We succeeded with Graham-Leach-Bliley, and I think this is simply the
next step. I believe that the men and women who run our financial
institutions certainly have the training and are much more competent
than we are to make those business decisions for them.
This policy actually prevented a lot of those financial institutions,
those small banks, from being competitive; and like many other
districts across the country, my district is heavily populated with
some very strong, very successful financial institutions, the Main
Street banks that keep a lot of people employed and that provide a very
good resource for a lot of small businesspeople.
This will certainly allow them to provide even more of a resource for
small businesspeople, those who are building up their businesses and
want to support the other industries within their own hometown. Now,
that hometown bank will be able to provide them with an additional
incentive to invest with them.
Mr. Speaker, it promotes competition. It promotes consumer
convenience. It will repeal, as I said, an outdated and I believe
anticompetitive impediment to attracting these interest-bearing
accounts to these smaller financial institutions, but also to give the
larger financial institutions an opportunity to offer interest.
Mr. OXLEY. Mr. Speaker, I yield 2 minutes to the gentleman from
Nebraska (Mr. Bereuter), the chairman of the Subcommittee on
International Monetary Policy and Trade.
(Mr. BEREUTER asked and was given permission to revise and extend his
remarks.)
Mr. BEREUTER. Mr. Speaker, I thank the gentleman from Ohio (Mr.
Oxley) for yielding me time to speak on this legislation.
Mr. Speaker, I commend the gentleman and the ranking member,
particularly the gentlewoman from New York (Mrs. Kelly), for her
effort; the gentleman from Alabama (Mr. Bachus.) This has been, as was
mentioned, 3 years in the making.
Much has been said, and I would extend my remarks to cover some of
the details that have been covered in part by others or perhaps wholly;
but I want to say that the emphasis should be here on the positive
effect that this will have on small businesses nationwide, not just
banks but their small business customers. I think that is the most
important thing for us to consider. Yes, it affects sterile reserves
that the Fed holds, and it permits those sterile reserves to bring
interest to the banks involved. I think that is only a matter of
equity.
The most important part, I think, is the fact that the banking laws
implemented during the Great Depression are changed. They have
prohibited banks and thrifts from paying interest on business checking
accounts. What I expect to happen now is that we are going to have a
competition among financial institutions to take advantage of this
opportunity to pay interest on these checking accounts.
This has, in effect, been done, as mentioned, by large banks in a
different way. Small banks have not had the technical expertise or the
capacity to offer this service by sweeps to small customers, small
business customers. This will now be possible. It deserves our support.
I urge my colleagues of the whole House to vote yes on this
legislation.
Ms. JACKSON-LEE of Texas. Mr. Speaker, I rise in support of H.R. 974,
Small Business Interest Checking Act. This bill is a step in the right
direction because it aims at diminishing the comparative disadvantage
that certainly exists for small banks and small businesses.
Banking laws implemented during the Great Depression currently
prohibit banks and thrifts from paying interests on business checking
accounts. Large banks often get around this restriction, however, by
periodically transferring a company's checking account to an interest-
bearing account--with the money transferred back after it has earned
interest. But banks are only allowed to make such transfers six times
per month, and small banks often cannot offer these ``sweep'' accounts
because of legal constraints or because they lack the technical
expertise to do so. Consequently, smaller banks and the small
businesses that bank at those institutions are often left at a
competitive disadvantage.
H.R. 974 allows banks and thrifts to pay interest on balances held in
business checking accounts, and it permits the Federal Reserve to pay
interest on the Fed-held ``sterile'' reserves of bank. At the moment,
they obtain no interest. This bill is intended to eliminate the
competitive disadvantage that currently exist for both small banks and
small businesses concerning business-checking accounts. It is also
aimed at encouraging banks to leave funds in those accounts for which
they must post cash reserves with the Federal Reserve--which would
boast reserves held by the Federal Reserve and thereby enhance its
ability to conduct national monetary policy.
For example, the bill allows--but does not require--the Federal
Reserve to pay interest on the cash reserves that banks are required to
maintain at Federal Reserve banks. The rate of interest to be paid
would be paid by the Federal Reserve, but could not exceed the general
level of short-term interest rates.
Any mechanisms that may facilitate the growth of small businesses in
the banking industry are very important. For this reason, I support
this measure. Under the proposed legislation, small business may now
obtain an interest on their banking accounts. We must do our best to
assist our small businesses in eliminating barriers to economic growth.
Mr. LaFALCE. Mr. Speaker, I yield back the balance of my time.
Mr. OXLEY. Mr. Speaker, I have no further requests for time, and I
yield back the balance of my time.
The SPEAKER pro tempore (Mr. Shays). The question is on the motion
offered by the gentleman from Ohio (Mr. Oxley) that the House suspend
the rules and pass the bill, H.R. 974, 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.
The title of the bill was amended so as to read:
Amend the title so as to read ``A bill to repeal the
prohibition on the payment of interest on demand deposits, to
increase the number of interaccount transfers which may be
made from business accounts at depository institutions, to
authorize the Board of Governors of the Federal Reserve
System to pay interest on reserves, and for other
purposes.''.
A motion to reconsider was laid on the table.
[[Page H1380]]
____________________