[Congressional Record (Bound Edition), Volume 145 (1999), Part 13]
[House]
[Pages 18896-18897]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 18896]]

AMENDING FEDERAL RESERVE ACT TO BROADEN RANGE OF DISCOUNT WINDOW LOANS 
       WHICH MAY BE USED AS COLLATERAL FOR FEDERAL RESERVE NOTES

  Mr. LEACH. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 1094) to amend the Federal Reserve Act to broaden the range of 
discount window loans which may be used as collateral for Federal 
reserve notes, as amended.
  The Clerk read as follows:

                               H.R. 1094

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled, That the 
     third sentence of the second undesignated paragraph of 
     section 16 of the Federal Reserve Act (12 U.S.C. 412) is 
     amended by striking ``acceptances acquired under the 
     provisions of section 13 of this Act'' and inserting 
     ``acceptances acquired under section 10A, 10B, 13, or 13A of 
     this Act''.

  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. Speaker, I rise in support of H.R. 1094, a bill to broaden the 
range of discount window loans which may be used as collateral for 
Federal Reserve notes.
  I would like to point out at the outset this is not a new approach 
for this House. Virtually the same proposal was incorporated into the 
bankruptcy reform bill, H.R. 833, which passed this body on May 5, but 
which has not yet cleared the other body.
  The bill enjoys the strong support of the Federal Reserve, as 
reflected in correspondence with Federal Reserve Chairman Alan 
Greenspan to the last Congress, and again in testimony by the member of 
the Federal's Board of Governors, Edward Kelly, at a hearing held by 
the committee in April.
  The bill also enjoins strong bipartisan support on the Committee on 
Banking and Financial Services. The original sponsors of the bill 
include the ranking minority member of the full committee, the 
gentleman from New York (Mr. LaFalce), as well as the Chairman of the 
Subcommittee on Domestic and Monetary Policy, the gentleman from 
Alabama (Mr. Bachus), the ranking member, the gentlewoman from 
California (Ms. Waters), and I understand it has the support of my good 
friend, the gentleman from Minnesota (Mr. Vento).
  Mr. Speaker, I would like to take a brief moment to explain the need 
for the bill and the issue of timing. Section 16 of the Federal Reserve 
Act requires the Federal Reserve to collateralize Federal Reserve notes 
when they are issued. The list of eligible collateral includes, at 
present, Treasury and Federal agency securities, gold certificates, 
special drawing rights certificates, and foreign currencies. In 
addition, the legally eligible backing for currency includes discount 
window loans made under Section 13 of the Federal Reserve Act.
  Over the years, Congress has added a new section to the law to permit 
lending by the Federal Reserve to depository institutions under 
provisions other than section 13 and against a broader range of 
collateral. However, section 16 has not been similarly amended to 
accommodate these new sections, thus limiting the types of loans the 
Federal can use to back currency. For example, certain discount window 
loans made by the Federal under 10B of the Act and secured by mortgages 
on one-to-four family residences cannot be used to back currency.
  The bill before us today, H.R. 1094, simply seeks to update the 
currency collateral provisions in section 16 to reflect the broader 
range of collateral accepted for discounted window loans under section 
10A, section 10B and section 13A of the Federal Reserve Act.
  Finally, I would like to point out the reason for bringing this 
measure to the floor today as a stand-alone proposal is one of timing. 
According to the Federal Reserve Board, the existing limits on currency 
collateral are becoming a potential problem because of the increased 
use of retail sweep accounts over the past 5 years and the 
corresponding decline in reserve balances that can be used as excess 
collateral for currency. The small margin of available currency 
collateral could pose a potential problem should there be a substantial 
increase in the demand for discount window loans due to temporary, or 
unusual, circumstances, such as might occur around the year 2000 date 
change.
  Mr. Speaker, as I explained earlier, this is not a new proposal, but 
given the issues of timing and the need to ensure that our bank 
agencies have all the necessary tools at their disposal to smooth the 
transition to the year 2000, I believe it is important for this body to 
act separately on this bill. I appreciate the great courtesies extended 
by the minority in this regard.
  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 join the gentleman from Iowa (Chairman Leach) of the 
Committee on Banking and Financial Services in supporting this much 
needed measure. It will ensure that the public has available any and 
all cash it might demand near the end of the year as the country's 
computer systems make their changeover to the new millennium. Although 
we expect few if any problems with our Nation's banks at that time, 
this is a prudent move to help relieve any doubt that the public will 
have access to hard currency.
  H.R. 1094 provides for a technical change in the Federal Reserve Act 
to facilitate the Federal Reserve's ability to distribute as much as 
$50 billion in currency during this period, if needed. Under current 
law, every unit of currency issued by the Federal Reserve must be 
collateralized by certain assets held by the Federal Reserve. The 
assets on the current list have always been adequate to collateralize 
currency in circulation. However, should there be a surge in currency 
demand at the end of 1999 and the beginning of the year 2000, the 
current list could be inadequate.
  The list, therefore, needs to be expanded to include other assets 
which the Federal Reserve already owns but which, largely due to 
historical oversight, are not now included.
  Chairman Greenspan in a letter to me dated July 30, 1998, suggested 
language comparable to that contained in H.R. 1094. Federal Reserve 
Governor Edward Kelly in testimony before the Committee on Banking and 
financial services on April 13 of this year specifically endorsed H.R. 
1094.
  Mr. Speaker, I fully support H.R. 1094 and wish to express my 
appreciation to the chairman of our committee for the bipartisan 
attitude which has been able in all circumstances to approach Y2K 
problems. I also wish to thank especially the ranking minority member 
of the financial institutions subcommittee, the gentleman from 
Minnesota (Mr. Vento), for his great work on this legislation. This 
legislation is merely the latest example of that general tremendous 
bipartisan spirit.
  Mr. Speaker, I yield such time as he may consume to the gentleman 
from Minnesota (Mr. Vento).
  Mr. VENTO. Mr. Speaker, I thank the gentleman ranking Banking Member 
LaFalce for yielding me time, as well as the gentleman from Iowa 
(Chairman Leach) for his comments.
  Mr. Speaker, I concur in their statements. I think this is an 
appropriate bill to forestall any emerging problems with regard to the 
issuance of Federal Reserve Board paper, the one dollar bills and 
larger bills that some of us have an opportunity to spend.
  Two things have happened. One is, obviously as has been pointed out 
by the chairman and ranking member, the types of credit paper available 
have changed and evolved and we have not kept up with them with regard 
to the provisions of law to be used as collateral to back up the 
Federal Reserve Board notes the dollar bills.
  The other, as pointed out by our staff and research folks, is in fact 
the Fed, like most accounts, are subject to

[[Page 18897]]

sweep accounts. Some of the credit paper that they otherwise have is 
not deposited there long enough to use, so it cannot be used to offset 
the dollars placed into circulation. As our good counsel, Mr. Peterson, 
pointed out in the research papers of the gentleman from New York (Mr. 
LaFalce), if in fact we issue treasuries, which the Fed could do, they 
could buy treasuries at the end of the year and that might cause a 
spike in the market with the demand for currency expected regarding the 
Y2K phenomena.

                              {time}  1415

  So in order to preserve orderly markets, to respond to Y2K problems 
and other events that may occur of an unusual nature in the history of 
monetary policy, it is prudent to, in fact, have these alternative and 
new instruments to offset and use as collateral.
  Mr. Speaker, I yield back the balance of my time.
  Mr. LEACH. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Stearns). 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. 1094, 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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