[Congressional Record (Bound Edition), Volume 146 (2000), Part 4]
[House]
[Pages 5258-5261]
[From the U.S. 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. 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.

[[Page 5259]]

  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 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

[[Page 5260]]

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.
  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 must 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

[[Page 5261]]

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.
  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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