House Report 107-38 - SMALL BUSINESS INTEREST CHECKING ACT OF 2001

[House Report 107-38]
[From the U.S. Government Publishing Office]

107th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 107-38

======================================================================

SMALL BUSINESS INTEREST CHECKING ACT OF 2001

_______

April 3, 2001.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Oxley, from the Committee on Financial Services, submitted the
following

R E P O R T

together with

ADDITIONAL & DISSENTING VIEWS

[To accompany H.R. 974]

[Including cost estimate of the Congressional Budget Office]

The Committee on Financial Services, to whom was referred 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, having considered the same, report favorably
thereon with amendments and recommend that the bill as amended
do pass.

CONTENTS

Page
Amendment........................................................ 2
Purpose and Summary.............................................. 5
Background and Need for Legislation.............................. 6
Hearings......................................................... 6
Committee Consideration.......................................... 7
Committee Votes.................................................. 7
New Budget Authority, Entitlement Authority, and Tax Expenditures 9
Committee Cost Estimate.......................................... 9
Congressional Budget Office Estimate............................. 9
Federal Mandates Statement....................................... 18
Advisory Committee Statement..................................... 18
Constitutional Authority Statement............................... 18
Applicability to Legislative Branch.............................. 18
Section-by-Section Analysis of the Legislation................... 18
Changes in Existing Law Made by the Bill, as Reported............ 20
Minority and Additional Views.................................... 29

Amendment

The amendments are as follows:
Strike all after the enacting clause and insert the
following:

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)(2), by striking ``Paragraph'' and
inserting ``Except in the case of any depository institution
which is prohibited by the applicable law of any State from
offering demand deposits, paragraph'';
(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.
``(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.

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.

Purpose and Summary

H.R. 974, the Small Business Interest Checking Act of 2001,
will repeal the prohibition on the payment of interest on
commercial demand deposits, increase the number of interaccount
transfers which may be made from business accounts at
depository institutions, and authorize the Board of Governors
of the Federal Reserve System to pay interest on reserves.
The legislation removes the prohibition on the payment of
interest on commercial demand deposit accounts after a two year
period, increases the number of transactions that customers can
make between interest bearing or dividend earning accounts and
other accounts, authorizes the Federal Reserve to pay interest
on the reserves that depository institutions maintain at
Federal Reserve Banks, and eliminates the minimum statutory
ratios that currently apply to those reserves, thereby giving
the Board of Governors of the Federal Reserve greater
flexibility in setting reserve requirements. To offset the
revenue loss associated with allowing interest payments on
reserve balances, the legislation requires that the Federal
Reserve remit from its surplus fund to the Treasury an amount
equal to the estimated annual revenue loss. The legislation
increases the number of allowable transfers from interest
bearing or dividend earning commercial deposits or accounts to
24 per month, from the current limit of six, enabling
depository institutions to sweep funds between non-interest
bearing commercial checking accounts and interest bearing
accounts on a daily basis. The legislation authorizes
depository institutions which are prohibited by State law from
offering demand deposits to offer negotiable order of
withdrawal (NOW) accounts to all customers, and directs the
Board of Governors of the Federal Reserve System to conduct an
annual survey of bank fees and services. Finally, the bill
contains a rule of construction clarifying that the legislation
is not intended to alter the current legal presumption that the
absorption of expenses or the forbearance of receiving a fee by
a depository institution in connection with a real estate
transaction, and the receipt of the same, is not interest.

Background and Need for Legislation

Under current law, depository institutions may not pay
interest on demand deposit accounts. Because of the widespread
availability of NOW accounts for non-business account holders,
business account holders are the only depositors effectively
barred from earning interest on their checking accounts. This
disparity creates an incentive for banks to circumvent this
restriction by using methods to offer their business customers
accounts that are roughly equivalent to interest-bearing
checking accounts, but at significant cost to the customer.
Because of the costs associated with these programs, small
businesses are particularly disadvantaged in attempting to earn
some return on the money they hold in checking accounts.
Additionally, under the Federal Reserve Act, banks,
thrifts, and credit unions are required to hold funds against
transaction accounts held by customers of such institutions.
These funds must be held either in cash or on reserve at
Federal Reserve Banks. Current law does not authorize Federal
Reserve Banks to pay interest on reserve balances. Because of
this limitation, these funds have come to be known as ``sterile
reserves'' and financial institutions have sought ways to
minimize their reserve requirements. Consequently, reserve
balances at Federal Reserve Banks have declined dramatically in
recent years, falling from approximately $28 billion in 1993 to
approximately $6 billion in 2000.
According to the Federal Reserve, the decline in reserves
has potential consequences for its ability to conduct monetary
policy. Reserve requirements play an important role in open
market operations aimed at influencing general monetary and
credit conditions by varying the cost and availability of
reserves to the banking system. Declines in reserves could lead
to increased volatility in the Federal funds rate, and, if it
became a persistent feature of the money market, would affect
other overnight interest rates, raising funding risks for large
banks, securities dealers, and other market participants. Small
banks and thrifts, as well as other sources of funds for
overnight markets, would face increased uncertainty about their
rates of return.

Hearings

The Subcommittee on Financial Institutions and Consumer
Credit held a hearing on H.R. 974, the Small Business Interest
Checking Act of 2001 on March 13, 2001. The Subcommittee
received testimony from: The Honorable Laurence H. Meyer,
Member, Board of Governors, Federal Reserve System; Mr. Donald
V. Hammond, Acting Under Secretary for Domestic Finance,
Department of the Treasury; Mr. James E. Smith, Chairman and
Chief Executive Officer, Citizens Union State Bank & Trust of
Clinton, Missouri, President-Elect of the American Bankers
Association; Mr. David A. Bochnowski, Chairman and Chief
Executive Officer, Peoples Bank of Munster, Indiana, Chairman
of America's Community Bankers; Mr. Thomas P. Jennings, Senior
Vice President and General Counsel, First Virginia Banks, Inc.,
on behalf of the Financial Services Roundtable; and Mr. Robert
Gulledge, President and Chief Executive Officer, Citizens Bank,
Inc. of Robertsdale, Alabama, Chairman of the Independent
Community Bankers of America.

Committee Consideration

On March 21, 2001, the Subcommittee on Financial
Institutions and Consumer Credit met in open session and
approved H.R. 974 for full Committee consideration by a voice
vote, without amendment.
On March 29, the Committee met in open session and ordered
H.R. 974 reported to the House with a favorable recommendation
by a voice vote.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Oxley to report the bill to the House with a
favorable recommendation was agreed to by a voice vote.
The following amendments were considered--
An amendment in the nature of a substitute by Mr. Oxley,
No. 1, removing the prohibitions on the payment of interest on
demand deposits contained in the Federal Reserve Act, the Home
Owner's Loan Act, and the Federal Deposit Insurance Act,
clarifying that depository institutions which are prohibited by
State law from offering demand deposits may offer NOW accounts
to all customers, including businesses, and clarifying that
nothing in the bill is intended to create any presumption that
certain services offered by depository institutions in
connection with real estate transactions are to be treated as
the payment of interest, was agreed to by a voice vote, as
amended.
An amendment to the amendment in the nature of a substitute
by Mr. Watt of North Carolina, No. 1a, requiring the payment of
a set rate of interest on certain escrow accounts, was
withdrawn. The amendment was modified by unanimous consent.
An amendment to the amendment in the nature of a substitute
by Mr. Inslee, No. 1b, conditioning the payment of interest on
sterile reserves on the establishment of certain consumer
privacy protections, was ruled nongermane by the Chair. A
motion to appeal the ruling of the Chair was tabled upon the
motion of Mr. Baker by a record vote of 34 yeas and 16 nays
(Record vote no. 1). The names of Members voting for and
against follow:
YEAS NAYS
Mr. Oxley Mr. LaFalce
Mrs. Roukema Mr. Kanjorski
Mr. Baker Mrs. Maloney of New York
Mr. Bachus Mr. Gutierrez
Mr. Castle Mr. Ackerman
Mr. King Ms. Hooley of Oregon
Mr. Royce Ms. Carson of Indiana
Mr. Lucas of Oklahoma Mr. Mascara
Mr. Ney Mr. Inslee
Mrs. Kelly Ms. Schakowsky
Mr. Gillmor Mr. Gonzalez
Mr. Weldon of Florida Mr. Capuano
Mr. Ryun of Kansas Mr. Ford
Mr. Ose Mr. Hinojosa
Mrs. Biggert Mr. Clay
Mr. Green of Wisconsin Mr. Israel
Mr. Toomey
Mr. Shadegg
Mr. Fossella
Mr. Gary Miller of California
Mr. Cantor
Ms. Hart
Mrs. Capito
Mr. Ferguson
Mr. Rogers of Michigan
Mr. Tiberi
Mr. Frank
Mr. Watt of North Carolina
Mr. Bentsen
Mr. Maloney of Connecticut
Mr. Moore
Mr. Lucas of Kentucky
Mr. Shows
Mr. Crowley

An amendment to the amendment in the nature of a substitute
by Mr. LaFalce, No. 1c, reauthorizing a survey of bank fees and
services, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Ms. Schakowsky, No. 1d, limiting eligibility for interest on
sterile reserves to depository institutions that permit holders
of reservable transaction accounts to engage in at least three
free teller transactions per month, was ruled nongermane by the
Chair.
An amendment to the amendment in the nature of a substitute
by Ms. Waters, No. 1e, striking the provisions permitting the
payment of interest on sterile reserves, was withdrawn.
An amendment to the amendment in the nature of a substitute
by Ms. Waters, No. 1f, prohibiting the payment of interest on
sterile reserves unless the depository institution reduces
consumer costs by an equal or greater amount, was not agreed to
by a record vote of 12 yeas and 31 nays (Record vote no. 2).
The names of Members voting for and against follow:
YEAS NAYS
Mr. LaFalce Mr. Oxley
Mr. Kanjorski Mrs. Roukema
Ms. Waters Mr. Baker
Ms. Carson of Indiana Mr. Bachus
Mr. Sandlin Mr. Castle
Ms. Lee Mr. Royce
Ms. Schakowsky Mr. Lucas of Oklahoma
Mr. Gonzalez Mrs. Kelly
Mrs. Jones of Ohio Mr. Gillmor
Mr. Ford Mr. Cox
Mr. Lucas of Kentucky Mr. Weldon of Florida
Mr. Clay Mr. Ryun of Kansas
Mrs. Biggert
Mr. Fossella
Mr. Gary Miller of California
Mr. Cantor
Mr. Grucci
Ms. Hart
Mrs. Capito
Mr. Tiberi
Mr. Frank
Mrs. Maloney of New York
Mr. Gutierrez
Mr. Watt of North Carolina
Mr. Ackerman
Mr. Bentsen
Mr. Maloney of Connecticut
Ms. Hooley of Oregon
Mr. Shows
Mr. Crowley
Mr. Israel

The title was amended by unanimous consent.

Performance Goals and Objectives

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee finds that this
legislation does not authorize funding, and therefore no
statement is required.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that this
legislation would result in new or increased budget authority,
entitlement authority, or tax expenditures or revenues
consistent with the estimate of the Congressional Budget Office
prepared pursuant to section 402 of the Congressional Budget
Act of 1974.

Committee Cost Estimate

The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimate

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:

U.S. Congress,
Congressional Budget Office,
Washington, DC, April 3, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 974, the Small
Business Interest Checking Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contracts are Carolyn
Lynch (for revenues), and Patrice Gordon (for the private-
sector impact).
Sincerely,
Robert A. Sunshine,
(For Dan L. Crippen, Director).
Enclosure.

H.R. 974--Small Business Interest Checking Act of 2001

Summary: H.R. 974, the Small Business Interest Checking Act
of 2001 (SBICA), would allow depository institutions to pay
interest on business demand deposit accounts and permit the
Federal Reserve System to pay interest on any reserve balances
held on deposit at the Federal Reserve by insured depository
institutions. The Federal Reserve Board would also be given
greater flexibility in setting reserve requirements and would
be required to submit an annual report to the Congress
summarizing many of the services provided and fees charged to
consumers by depository institutions. The reduction in revenues
as a result of the interest payments on reserves would be
offset by transfers from surplus funds of Federal Reserve Banks
to the U.S. Treasury over the next five years. Pay-as-you-go
procedures would apply because the bill would affect receipts.
CBO estimates that the bill would not have any net effect on
annual revenues over the 2002-2006 period because the estimated
loss in revenues would be offset by transfers from surplus
funds of the Federal Reserve. Enacting H.R. 974 would decrease
revenues after 2006. CBO estimates that the loss in revenues
would total approximately $1.2 billion over the 2007-2011
period.
H.R. 974 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated Cost to the Federal Government: The estimated
budgetary impact of H.R. 974 is shown in the following table.

Allowing Interest on Reserves.................. -125 -110 -106 -112 -117 -570 -679
Surplus Transfer to the Treasury............... 125 110 106 112 117 570 -570
----------------------------------------------------------------
Net Budgetary Effect..................... 0 0 0 0 0 0 -1,249
----------------------------------------------------------------------------------------------------------------

The initial budgetary effect of SBICA would be a decrease
in the payment of profits from the Federal Reserve System to
the U.S. Treasury. The Federal Register remits its profits to
the Treasury, and those payments are classified as governmental
receipts, or revenues, in the federal budget. Any additional
income or costs to the Federal Reserve, therefore, can affect
the federal budget. The Federal Reserve's largest source of
income is interest from its holdings of Treasury securities. In
effect, the Federal Reserve invests in Treasury securities the
reserve balances and issues of currency that constitute the
bulk of its liabilities. Since the Federal Reserve pays no
interest on reserves or currency, and the Treasury pays the
Federal Reserve interest on its holdings of securities, the
Federal Reserve earns profits.
By allowing the Federal Reserve to pay interest on
reserves, the bill would decrease the Federal Reserve's profits
and thereby reduce federal revenues by an estimated $570
million over the period from 2002 to 2006. This budgetary
response has several significant components. First, the Federal
Reserve's payment of interest on required reserve balances held
at Federal Reserve banks would reduce governmental receipts. It
is anticipated that some depository institutions and depositors
would respond to the interest payments on reserves (given
interest payments on business demand deposit accounts) by
shifting funds out of consumer ``retail'' and business
``wholesale'' sweep accounts and into demand deposit accounts.
This secondary response would increase required reserve
balances and partially offset the loss in federal reserves from
the payment of interest on reserves. Finally, the profits of
depository institutions or their customers would increase with
a consequent increase in tax revenues. That result would also
have the effect of partially offsetting the decline in federal
receipts. The legislation stipulates that this overall revenue
loss would be offset by a transfer from surplus funds of
Federal Reserve banks to the U.S. Treasury for each of the
fiscal years 2002 through 2006.
Basis of Estimate: The estimates are based on the
assumption that the provisions would become effective early in
fiscal year 2002, unless otherwise specified.

The allowance of interest on reserve balances

H.R. 974 would permit the Federal Reserve to pay interest
on balances held on deposit at the Federal Reserve. Depository
institutions hold three types of balances at the Federal
Reserve--required reserve balances, contractual clearing
balances, and excess reserve balances. Required reserve
balances are the balances that a depository institution must
hold to meet reserve requirements. Depository institutions may
also hold additional balances called required or contractual
clearing balances, which can earn an implicit rate of interest
in the form of an interest credit that is used to defray fees
for Federal Reserve services. Contractual clearing balances
have risen over the decade from under $2 billion in 1990 to
between $6 billion and $7 billion today. Excess reserves are
funds held at reserve banks in excess of a depository
institution's required reserve and contractual clearing
balances. Staff at the Federal Reserve have indicated that,
given the authority, the Federal Reserve would pay interest on
required reserve balances and give depository institutions the
option of earning an explicit rate of interest on contractual
clearing balances or continuing with the current system of
earning an interest credit. The Federal Reserve would choose
not to pay interest on excess reserve balances, unless required
reserve balances fell to such a low level that interest on
excess reserves was needed to build reserves. That is
considered to be an unlikely scenario.
The payment of interest on required balances is discussed
first and the payment of interest on contractual clearing
balances is discussed second, since their effect on revenues
are likely to be different. Allowing the payment of interest on
required reserve balances held by depository institutions at
the Federal Reserve would shift profits from the Federal
Reserve to depository institutions and reduce governmental
receipts. This budgetary effect is divided into three
components. First, the bill would result in the Federal Reserve
paying interest on the level of its required reserve balances
expected under current law, reducing its net income and,
therefore, governmental receipts. Second, the payment of
interest on reserve is expected to cause demand balances at
depository institutions to increase. That increase would raise
the level of reserve balances held at the Federal Reserve,
which would invest them at a higher rate than it would pay on
them. This change in projected reserves would increase
governmental receipts, but only partially offset the loss
caused by the payment of interest on reserves projected under
current law. Third, the reduction in governmental receipts
would be partially offset by increased income tax receipts. The
net effect of interest payments on reserves and the anticipated
shift to more demand deposit accounts would result in higher
profits for depository institutions or their customers.

----------------------------------------------------------------------------------------------------------------
Estimated budgetary impact of allowing interest on reserve
balances (by fiscal year, in millions of dollars)--
----------------------------------------------------------------
2002- 2007-
2002 2003 2004 2005 2006 2006 2011
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES

Revenue from Federal Reserve:
Interest on Required Reserves.............. -185 -194 -204 -214 -224 -1,021 -1,300
Profits from Increased Reserves............ 18 48 62 65 68 261 395
----------------------------------------------------------------
Net Effect on Revenues from the Federal -167 -146 -142 -149 -156 -760 -905
Reserve.................................
Income Tax Revenue............................. 42 36 36 37 39 190 226
----------------------------------------------------------------
Net Revenue Effect....................... -125 -110 -106 -112 -117 -570 -679
----------------------------------------------------------------------------------------------------------------

Interest Payments on Reserves Projected Under Current Law.
Because depository institutions currently do not earn a return
on required reserve balances, they have an incentive to
minimize such balances. Required reserve balances measured
almost $30 billion at the end of 1993, but have since fallen
sharply to under $7 billion today. The widely reported
expansion of consumer and business sweep accounts has caused
this decline. In typical sweep accounts, banks shift their
depositors' funds from demand deposits, against which reserves
are required, into other depository accounts, against which
reserves are not required. The banks shift the funds back to
the demand deposit accounts the next business day, or when
needed by the depositor. Sweep accounts for business demand
deposits have existed in various forms since the early 1970s.
Recent advances in computer technology have now made the
shifting of funds feasible for many consumer accounts as well.
Under current law, CBO expects the expansion of retail and
business sweep accounts to continue and required reserve
balances to decline further to about $4 billion by 2003.
Thereafter, CBO projects them to rise gradually with growth in
the economy.
The Federal Reserve would be allowed to choose the interest
rate it pays on reserve balances, although the rate chosen
could not exceed the general level of short-term interest
rates. Staff at the Federal Reserve have indicated that the
Federal Reserve would choose an interest rate near the key
short-term rate, the federal funds rate. The likely rate would
be 10 to 15 basis points lower than the federal funds rate to
account for the lack of risk. Accordingly, CBO assumes that the
Federal Reserve would pay interest only on required reserves
and clearing balances at a rate of 10 to 15 basis points below
the federal funds rate.
CBO projects that the federal funds rate will average about
5.0 percent over the 10-year period from 2002 through 2011. The
payment of interest on reserves is assumed to start early in
fiscal year 2002. CBO projects that SBICA would cause the
Federal Reserve to pay interest to depository institutions of
about $185 million in 2002 on the $4.25 billion of required
reserve balances expected under current law. Over the 2002-2006
period, such interest payments would total approximately $1
billion. Those payments would reduce the profits of the Federal
Reserve--and thus its payments to the Treasury--by the same
amount.
Projected Impact of the Bill on the Volume of Reserves. If
the Federal Reserve pays interest on required reserve balances,
there would be a second budgetary effect on the Federal Reserve
that would reduce--but not eliminate--the net revenue loss from
the payment of interest. In particular, based on a survey by
the Board of Governors of the Federal Reserve System, we would
expect reserve balances to increase because depository
institutions would close a significant share of their retail
and business sweep accounts and, as a result, maintain a higher
level of required reserves. Given the payment of interest on
business demand deposit accounts, the payment of interest would
give both businesses and depository institutions an incentive
to open business checking accounts and close wholesale sweep
accounts. (Under current law, depository institutions are
already allowed to pay interest on consumer demand deposits.)
By closing a significant share of consumer and business sweep
accounts, depository institutions could eliminate the costs of
maintaining the sweep accounts and receive a return on their
required reserves, although presumably at a lower rate than
what they could receive with alternative use of the funds.
CBO assumes that depository institutions would eliminate
approximately 30 percent of both retail and business sweep
accounts currently in existence by 2002, and half of those that
otherwise would be established. Although the payment of
interest on business demand deposits by depository institutions
would not be permitted until two years after enactment of H.r.
974, the act would allow businesses to establish interest-
bearing transaction accounts. businesses would be allowed up to
24 transfers per month (or more if the Federal Reserve permits)
into a demand deposit account that would be subject to reserve
requirements. Because reserve requirements would also apply to
those accounts, they would be similar to interest-bearing
demand deposits. As a result of the closings of retail and
business sweep accounts, the amount of demand deposits on which
required reserves are calculated would increase at depository
institutions. CBO projects that required reserve balances would
increase above the level expected under current law by about
$12 billion by 2006. Although the Federal Reserve would pay
interest on the added reserves at approximately the federal
funds rate, it would invest the reserves in Treasury
securities, earning a return of approximately 0.40 of a
percentage point in excess of the federal funds rate. As a
result of the rate differential, the Federal Reserve would
generate additional profits of about $261 million through 2006
and remit them to the Treasury as governmental receipts.
Projected Impact on Income Tax Revenues. Allowing interest
on required reserve balances held at the Federal Reserve would
have a third budgetary effect, which would also reduce--but not
eliminate--the decline in revenue from the payment of interest
on current balances. The net effect of interest payments on
reserves and the anticipated shift to more demand deposit
accounts is expected to be a reduction in the profits of the
Federal Reserve and an increase in the profits of depository
institutions or their customers, with a consequent increase in
income tax revenues. CBO assumes that the profits of depository
institutions or their customers would increase by roughly the
same amount that the profits of the Federal Reserve decline. It
is likely that, instead of retaining the additional interest
income from the Federal Reserve, depository institutions would
pass through some of the increased profits to their consumer
and business customers by, for example, raising interest rates
on deposits or lowering rates on loans. If a complete
passthrough did occur, then the customers--not the depository
institutions--would accrue the income and pay additional taxes.
Although some of the additional interest income of depository
institutions may be passed through in nontaxable form either to
their customers or to nontaxable entities, this amount is
expected to be negligible. CBO assumes that depository
institutions and their customers face an average marginal tax
rate on income of 25 percent. We therefore estimate that income
tax receipts would increase by about $42 million in 2002 and
approximately $190 million through 2006.
The Allowance of Interest on Contractual Clearing balances.
As discussed previously, staff at the Federal Reserve have
indicated that, given the authority, the Federal Reserve would
give depository institutions the option of earning an explicit
rate of interest on contractual clearing balances or continuing
with the current system of earning an implicit rate of interest
in the form of an interest credit. CBO estimates that giving
depository institutions the option of earning an explicit rate
of interest on contractual clearing balances would have little
or no budgetary effect. for those depository institutions
choosing to earn an explicit rate of interest on contractual
balances, the explicit interest earnings, for the most part,
would be substituted for what is now an implicit interest
payment. Earning an explicit rate of interest on contractual
balances may give some depository institutions an incentive to
hold somewhat higher balances than currently because the
interest credit earned under the present system can only be
used to offset user fees for services provided by the Federal
Reserve. A number of banks are already able to cover all of
their service costs this way, so that an explicit rate of
interest is required to give them an incentive to hold more
reserves. As with required reserve balances, the Federal
Reserve would pay an interest rate near the federal funds rate
on these additional contractual balances and invest the funds
in Treasury securities, which normally earn a higher return.
The difference between what the Federal Reserve pays in
interest on these additional balances and what it earns by
investing them in Treasury securities would result in an
increase in the Federal Reserve's earnings. Depository
institutions, however, may choose to increase their contractual
clearing balances by reducing the excess reserve balances they
hold at the Federal Reserve. The Federal Reserve currently pays
no interest on excess reserves and invests them in Treasury
securities, remitting these earnings to the Treasury. The
additional earnings on contractual clearing balances could be
completely offset, or possibly more than offset, depending on
the extent to which depository institutions choose to increase
their clearing balances by reducing their excess reserve
balances. For example, if clearing balances increase by $2
billion and the rate differential between the federal funds
rate and Treasury securities is 0.50 percentage points, then
Federal Reserve earnings would increase by $10 million. If,
however, the increase of $200 million in clearing balances was
the result of a transfer from excess reserves by depository
institutions, then, assuming a rate of return on Treasury
securities of 5 percent, Federal Reserve earnings would not
change: the $10 million increase in earnings would be offset by
a decline of $10 million from the investment of excess
reserves. CBO, therefore, estimates that offering an explicit
interest rate on contractual clearing balances is likely to
have no significant effect on earnings.

Transfer from surplus funds of the Federal Reserve

During the first five years SBICA would be effective
(fiscal years 2002 through 2006), the legislation provides that
the revenue loss associated with allowing interest payments on
reserve balances would be offset by requiring the Federal
Reserve to remit from its surplus fund to the Treasury an
amount equal to an estimate of the annual net revenue loss. In
addition, during this same five-year period, the bill would
make the Federal Reserve's payment of net earnings to the
Treasury mandatory and the Federal Reserve would not be allowed
to replenish its surplus fund. Those provisions would have the
effect of reducing the net budgetary impact of the legislation
to zero for the first five years the bill is in effect and
postpone the accumulated net revenue loss to the federal
government to the sixth year, 2007.
Out of its annual earnings, the Federal Reserve covers its
operating costs, pays a small dividend to its member banks,
retains monies for its surplus fund, and voluntarily remits the
remaining profits to the U.S. Treasury. The Federal Reserve's
surplus fund is a stock of retained earnings accumulated over
time and is set by the Federal Reserve banks each year at a
level equal to the paid-in capital of its member banks. The
fund can be used as collateral for issuance of Federal Reserve
notes and may be viewed as a fiscal cushion. The surplus funds
are invested in Treasury securities and the interest generated
is remitted to the Treasury along with other profits of the
Federal Reserve. During the first five years SBICA is in
effect, the Federal Reserve would remit to the Treasury all of
its earnings above its dividend payments to member banks, the
additions to its surplus account, and its operating costs,
which would now include interest paid on reserves. In addition,
it would be required to remit from its surplus fund an amount
equal to the estimated payment of interest on reserves. The
Federal Reserve would be prevented from replenishing its
surplus fund by the amount of these transfers during this five-
year period, and its payment of net earnings to the Treasury
would be mandatory. In fiscal year 2007, however, the Federal
Reserve would be expected to replenish its surplus fund by the
entire amount that was transferred from the fund to the
Treasury during the 2002-2006 period, an estimated $570
million. This response is anticipated because the Federal
Reserve has replenished its surplus account at its first
available opportunity after past legislated transfers of
surplus funds. The legislated transfer of surplus funds under
SBICA, therefore, would have the effect of postponing the
accumulated net revenue loss to the Treasury during the first
five years the legislation is in effect until the sixth fiscal
year, 2007. CBO estimates that the total revenue loss in fiscal
year 2007 would be about $693 million. The Federal Reserve
would be expected to retain $570 million out of its earnings to
replenish its surplus fund instead of remitting these profits
to the Treasury. The remaining $123 million is the estimated
net revenue loss of allowing interest payments on reserve
balances for that year. CBO estimates that the resulting
revenue loss for the 2007-2011 period would be approximately
$1.2 billion.
The transfer of the surplus funds does not reduce the cost
of the bill to the federal government over the long term--it
just postpones the budgetary impact. It also is important to
note that the transfer of surplus funds from the Federal
Reserve to the Treasury has no import for the fiscal status of
the federal government. If the surplus funds are held at the
Federal Reserve, they are invested in government securities and
the interest generated is remitted to the Treasury. If the
surplus funds are transferred to the Treasury instead, they
reduce the public debt and in turn the interest payments owed
by the Treasury. Since the interest payments would be identical
in either case, where the funds reside has no economic
significance. Hence, any transfer of the Federal Reserve
surplus fund to the Treasury would have no effect on national
savings, economic growth, or income.

Payment of interest on business demand deposit accounts

Allowing depository institutions to pay interest on
business demand deposit accounts would, in itself, have the
effect of increasing demand deposit accounts at depository
institutions, although CBO estimates that this effect would not
be significant without the additional provision of allowing
interest on required reserves. Depository institutions that do
not currently offer commercial sweep accounts would offer
interest-bearing business demand deposit accounts and
businesses that currently have sweep accounts would have an
incentive to hold higher levels of demand deposits with the
allowance of interest on business demand deposits. Required
reserves held at the Federal Reserve would increase with the
rise in the level of demand deposits, increasing the earnings
of the Federal Reserve and the amount that is remitted to the
Treasury as governmental receipts. CBO, however, estimates that
the revenue effect of that increase in required reserves would
be negligible and that it is the combined effect of the payment
of interest on reserves and the allowances of interest on
business demand deposit accounts that results in the revenue
loss described above. That effect is included in the profits
from increased reserves shown in the table on page 4.

Provisions in the bill estimated to have an insignificant budgetary
effect

CBO estimates that there would be no budgetary effect from
the provision that gives the Federal Reserve additional
flexibility in setting reserve requirement ratios by removing
the lower limits on the ranges of allowable ratios. Federal
Reserve staff have indicated that no policy change would likely
to occur as a result of enacting that provision in the current
economic environment. The bill would require the Federal
Reserve to conduct a survey of insured depository institutions
and credit unions and submit an annual report to the Congress
on the availability and cost of banking services. Since the
Federal Reserve currently collects this information, albeit on
a smaller scale, CBO estimates that the additional costs to the
Federal Reserve would be insignificant. In addition, based on
information from the Federal Deposit Insurance Corporation, CBO
expects that the bill would have no significant impact on the
total balance of insured deposits or the likelihood that some
institutions would fail. Therefore, the bill would have no
significant impact in federal spending.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. CBO
estimates that H.R. 974 would not affect receipts over the
2002-2006 period, but would reduce receipts by $1,249 million
over the 2007-2011 period, as shown in the following table. For
the purposes of enforcing pay-as-you-go procedures, only the
effects in the current year, the budget year, and the
succeeding four years are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
Changes in receipts............. 0 0 0 0 0 -693 -130 -135 -142 -149
Changes in outlays.............. Not applicable
----------------------------------------------------------------------------------------------------------------

Estimated impact on state, local, and tribal governments:
H.R. 974 contains no intergovernmental mandates as defined in
UMRA and would impose no cost on the budgets of state, local,
or tribal governments.
Estimated impact on the private sector: H.R. 974 would
authorize the Federal Reserve to pay interest on reserve
balances held on deposit at the Federal Reserve. The bill would
also authorize the Board of Governors of the Federal Reserve
System to prescribe regulations concerning the responsibilities
of correspondent banks that maintain balances at the Federal
Reserve on behalf of other institutions. Such private
institutions as commercial banks, Federal Home Loan Banks, and
corporate credit unions serve as correspondent banks for many
depository institutions that are not members of the Federal
Reserve. Based on information provided by the FRB, CBO
anticipates that the FRB would not use its authority to issue
regulations unless problems arose in the crediting and
distribution of interest earnings. Thus, CBO expects that this
bill would not impose a mandate as defined by UMRA on the
private sector. If after a period of time the FRB determined a
rule was necessary, it would most likely require that
correspondent banks pass the interest earnings back to the
institutions for which they maintain required balances at the
Federal Reserve. The cost to the correspondent banks of
complying with such a rule would be negligible.
Estimate prepared by: Federal Revenues: Carolyn Lynch.
Impact on Governmental Sector: Susan Sieg Tompkins. Impact on
the Private Sector: Patrice Gordon.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis. Robert A. Sunshine, Assistant
Director for Budget Analysis.

Federal Mandates Statement

The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.

Constitutional Authority Statement

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States); Article 1, section 8,
clause 3 (relating to the power to regulate interstate
commerce); Article 1, section 8, clause 5 (relating to the
power to coin money and regulate the value thereof); and
Article I, section 8, clause 18 (relating to making all laws
necessary and proper for carrying into execution powers vested
by the Constitution in the government of the United States).

Applicability to Legislative Branch

The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This section establishes the short title of the bill, the
``Small Business Interest Checking Act of 2001.''

Section 2. Interest-bearing transaction accounts authorized

This section repeals the prohibitions in current law on the
payment of interest on commercial demand deposits. The repeal
takes effect at the end of the two year period beginning on the
date of enactment.

Section 3. Interest-bearing transaction accounts authorized for all
businesses

This section authorizes depository institutions which are
prohibited by any State law from offering demand deposits to
offer all owners of a deposit or account on which interest or
dividends are paid to make withdrawals by negotiable or
transferable instruments for the purpose of making payments to
third parties.
The section also authorizes depository institutions to
offer customers the ability to make 24 transfers per month from
an interest bearing or dividend earning deposit or account into
any other account maintained by that customer at that
institution. The Board of Governors of the Federal Reserve
Board is given the authority to permit more than 24 transfers
per month, and to determine that the interest-bearing accounts
from which funds are transferred are subject to reserve
requirements. The Committee does not intend anything in this
section to affect or preempt any State law governing any
depository institution which is not otherwise regulated under
Federal law with respect to limitations on the transfer of
funds from interest bearing accounts to any other account
maintained at a depository institution by the transferring
account holder.

Section 4. Payment of interest on reserves at Federal Reserve Banks

This section permits the Federal Reserve to pay interest on
the reserves that depository institutions are required to
maintain at Federal Reserve Banks, at a rate not to exceed the
general level of short-term interest rates. The Federal Reserve
is also authorized to prescribe regulations concerning the
payment and distribution of earnings to depository institutions
that maintain balances at Federal Reserve Banks.
This section also amends the Federal Reserve Act to require
the Board of Governors of the Federal Reserve to conduct an
annual survey of retail banking fees, services and products
provided by insured depository institutions and insured credit
unions.

Section 5. Increased Federal Reserve flexibility in setting reserve
requirements

This section amends the Federal Reserve Act to eliminate
the minimum statutory ratios of 3 percent against the first $25
million in transaction accounts held at a depository
institution and 8 percent against the amount above that
threshold level, thereby giving the Federal Reserve greater
flexibility in setting reserve requirements.

Section 6. Transfer of Federal Reserve surpluses

This section provides that during the first five years that
the Act is in effect, the revenue loss associated with allowing
interest payments on required reserve balances will be offset
by requiring the Federal Reserve to remit from its surplus fund
to the Treasury an amount equal to the estimated annual net
revenue loss.

Section 7. Rule of construction

This section provides that nothing in the bill is to 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, the
absorption of expenses incidental to a normal banking function,
or the forbearance of any fee in connection with the same, or
the receipt of any benefits thereof by the beneficiary of that
escrow account, may be treated as the payment or receipt of
interest for purposes of Public Law 93-100, the Federal Reserve
Act, the Home Owner's Loan Act, or the Federal Deposit
Insurance Act. The Committee intends that this provision
clarify that the current treatment of such transactions under
Federal law and regulation, particularly the regulations of the
Board of Governors of the Federal Reserve DD and Q, is
unaffected by this legislation. Current law does not treat the
services and benefits described by this section as the payment
of interest to the beneficiary of an escrow account, and that
presumption will remain the law upon the enactment of this
bill.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

FEDERAL RESERVE ACT

* * * * * * *

division of earnings.

Sec. 7. (a) Dividends and Surplus Funds of Reserve Banks.--
(1) * * *

* * * * * * *

(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.
(b) Transfer For Fiscal Year 2000.--
(1) * * *

* * * * * * *

(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).

* * * * * * *

Sec. 19. (a) * * *
(b) Reserve Requirements.--
(1) * * *
(2) Reserve requirements.--(A) Each depository
institution shall maintain reserves against its
transaction accounts as the Board may prescribe by
regulation solely for the purpose of implementing
monetary policy--
(i) in [the ratio of 3 per centum] a ratio
not greater than 3 percent (and which may be
zero) for that portion of its total transaction
accounts of $25,000,000 or less, subject to
subparagraph (C); and
(ii) in the ratio of 12 per centum, or in
such other ratio as the Board may prescribe not
greater than 14 per centum [and not less than 8
per centum,] (and which may be zero), for that
portion of its total transaction accounts in
excess of $25,000,000, subject to subparagraph
(C).

* * * * * * *

(4) Supplemental reserves.--(A) * * *

* * * * * * *

[(C) The supplemental reserve authorized under
subparagraph (A) shall be maintained by the Federal
Reserve banks in an Earnings Participation Account.
Except as provided in subsection (c)(1)(A)(ii), such
Earnings Participation Account shall receive earnings
to be paid by the Federal Reserve banks during each
calendar quarter at a rate not more than the rate
earned on the securities portfolio of the Federal
Reserve System during the previous calendar quarter.
The Board may prescribe rules and regulations
concerning the payment of earnings on Earnings
Participation Accounts by Federal Reserve banks under
this paragraph.]
[(D)] (C) If a supplemental reserve under
subparagraph (A) has been required of depository
institutions for a period of one year or more, the
Board shall review and determine the need for continued
maintenance of supplemental reserves and shall transmit
annual reports to the Congress regarding the need, if
any, for continuing the supplemental reserve.
[(E)] (D) Any supplemental reserve imposed under
subparagraph (A) shall terminate at the close of the
first 90-day period after such requirement is imposed
during which the average amount of reserves required
under paragraph (2) are less than the amount of
reserves which would be required during such period if
the initial ratios specified in paragraph (2) were in
effect.

* * * * * * *

(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.
(c)(1) Reserves held by a depository institution to meet the
requirements imposed pursuant to subsection (b) shall, subject
to such rules and regulations as the Board shall prescribe, be
in the form of--
(A) balances maintained for such purposes by such
depository institution in the Federal Reserve bank of
which it is a member or at which it maintains an
account, except that (i) the Board may, by regulation
or order, permit depository institutions to maintain
all or a portion of their required reserves in the form
of vault cash, except that any portion so permitted
shall be identical for all depository institutions, and
(ii) vault cash may be used to satisfy any supplemental
reserve requirement imposed pursuant to subsection
(b)(4), except that all such vault cash shall be
excluded from any computation of earnings pursuant to
[subsection (b)(4)(C)] subsection (b); and
(B) balances maintained by a depository institution
[which is not a member bank] in a depository
institution which maintains required reserve balances
at a Federal Reserve bank, in a Federal Home Loan Bank,
or in the National Credit Union Administration Central
Liquidity Facility, if such depository institution,
Federal Home Loan Bank, or National Credit Union
Administration Central Liquidity Facility maintains
such funds in the form of balances in a Federal Reserve
bank of which it is a member or at which it maintains
an account. Balances received by a depository
institution from a second depository institution and
used to satisfy the reserve requirement imposed on such
second depository institution by this section shall not
be subject to the reserve requirements of this section
imposed on such first depository institution, and shall
not be subject to assessments or reserves imposed on
such first depository institution pursuant to section 7
of the Federal Deposit Insurance Act (12 U.S.C. 1817),
section 404 of the National Housing Act (12 U.S.C.
1727), or section 202 of the Federal Credit Union Act
(12 U.S.C. 1782).

* * * * * * *

[(i) No member bank shall, directly or indirectly, by any
device whatsoever, pay any interest on any deposit which is
payable on demand: Provided, That nothing herein contained
shall be construed as prohibiting the payment of interest in
accordance with the terms of any certificate of deposit or
other contract entered into in good faith which is in force on
the date on which the bank becomes subject to the provisions of
this paragraph; but no such certificate of deposit or other
contract shall be renewed or extended unless it shall be
modified to conform to this paragraph, and every member bank
shall take such action as may be necessary to conform to this
paragraph as soon as possible consistently with its contractual
obligations: Provided further, That this paragraph shall not
apply to any deposit of such bank which is payable only at an
office thereof located outside of the States of the United
States and the District of Columbia: Provided further, That
until the expiration of two years after the date of enactment
of the Banking Act of 1935 this paragraph shall not apply (1)
to any deposit made by a savings bank as defined in section 12B
of this Act, as amended, or by a mutual savings bank, or (2) to
any deposit of public funds made by or on behalf of any State,
county, school district, or other subdivision or municipality,
or to any deposit of trust funds if the payment of interest
with respect to such deposit of public funds or of trust funds
is required by State law. So much of existing law as requires
the payment of interest with respect to any funds deposited by
the United States, by any Territory, District, or possession
thereof (including the Philippine Islands), or by any public
instrumentality, agency, or officer of the foregoing, as is
inconsistent with the provisions of this section as amended, is
hereby repealed. Notwithstanding any other provision of this
section, a member bank may permit withdrawals to be made
automatically from a savings deposit that consists only of
funds in which the entire beneficial interest is held by one or
more individuals through payment to the bank itself or through
transfer of credit to a demand deposit or other account
pursuant to written authorization from the depositor to make
such payments or transfers in connection with checks or drafts
drawn upon the bank, pursuant to terms and conditions
prescribed by the Board.]
(i) [Repealed]

* * * * * * *

(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.
(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.

* * * * * * *

----------

SECTION 5 OF THE HOME OWNERS' LOAN ACT

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

(a) * * *
(b) Deposits and Related Powers.--
(1) Deposit accounts.--
(A) * * *
(B) A Federal [savings association may not--
[(i) pay interest on a demand
account; or
[(ii) permit any] savings association
may not permit any overdraft (including
an intraday overdraft) on behalf of an
affiliate, or incur any such overdraft
in such savings association's account
at a Federal reserve bank or Federal
home loan bank on behalf of an
affiliate.

* * * * * * *

----------

SECTION 18 OF THE FEDERAL DEPOSIT INSURANCE ACT

Sec. 18. (a) * * *

* * * * * * *

[(g)(1) The Board of Directors shall by regulation prohibit
the payment of interest or dividends on demand deposits in
insured nonmember banks and in insured branches of foreign
banks and for such purpose it may define the term ``demand
deposits''; but such exceptions from this prohibition shall be
made as are now or may hereafter be prescribed with respect to
deposits payable on demand in member banks by section 19 of the
Federal Reserve Act, as amended, or by regulation of the Board
of Governors of the Federal Reserve System. The Board of
Directors may from time to time, after consulting with the
Board of Governors of the Federal Reserve System and the
Director of the Office of Thrift Supervision, prescribe rules
governing the advertisement of interest or dividends on
deposits, including limitations on the rates of interest or
dividends that may be paid by insured nonmember banks
(including insured mutual savings banks) on time and savings
deposits. The Board of Directors is authorized for the purposes
of this subsection to define the terms ``time deposits'' and
``savings deposits'', to determine what shall be deemed a
payment of interest, and to prescribe such regulations as it
may deem necessary to effectuate the purposes of this
subsection and to prevent evasions thereof. The provisions of
this subsection and of regulations issued thereunder shall also
apply, in the discretion of the Board of Directors, to
obligations other than deposits that are undertaken by insured
nonmember banks or their affiliates. As used in this
subsection, the term ``affiliate'' has the same meaning as when
used in section 2(b) of the Banking Act of 1933, as amended (12
U.S.C. 221a(b)), except that the term ``member bank'', as used
in such section 2(b), shall be deemed to refer to an insured
nonmember bank. During the period commencing on October 15,
1962, and ending on October 15, 1968, the provisions of this
subsection shall not apply to the rate of interest which may be
paid by insured nonmember banks on time deposits of foreign
governments, monetary and financial authorities of foreign
governments when acting as such, or international financial
institutions of which the United States is a member. The
authority conferred by this subsection shall also apply to
noninsured banks in any State if the total amount of time and
savings deposits held in all such banks in the State, plus the
total amount of deposits, shares, and withdrawable accounts
held in all building and loan, savings and loan, and homestead
associations (including cooperative banks) in the State which
are not members of a Federal home loan bank, is more than 20
per centum of the total amount of such deposits, shares, and
withdrawable accounts held in all banks, and building and loan,
savings and loan, and homestead associations (including
cooperative banks) in the State. Such authority shall only be
exercised by the Board of Directors with respect to such
noninsured banks prior to July 31, 1970, to limit the rates of
interest or dividends which such banks may pay on time and
savings deposits to maximum rates not lower than 5\1/2\ per
centum per annum. Whenever it shall appear to the Board of
Directors that any noninsured bank or any affiliate thereof is
engaged or has engaged or is about to engage in any acts or
practices which constitute or will constitute a violation of
the provisions of this subsection or of any regulations
thereunder, the Board of Directors may, in its discretion,
bring an action in the United States district court for the
judicial district in which the principal office of the
noninsured bank or affiliate thereof is located to enjoin such
acts or practices, to enforce compliance with this subsection
or any regulations thereunder, or for a combination of the
foregoing, and such courts shall have jurisdiction of such
actions, and, upon a proper showing, an injunction, restraining
order, or other appropriate order may be granted without bond.
[(2) Notwithstanding the provisions of paragraph (1), an
insured nonmember bank may permit withdrawals to be made
automatically from a savings deposit that consists only of
funds in which the entire beneficial interest is held by one or
more individuals through payment to the bank itself or through
transfer of credit to a demand deposit or other account
pursuant to written authorization from the depositor to make
such payments or transfers in connection with checks or drafts
drawn upon the bank, pursuant to terms and conditions
prescribed by the Board of Directors.]
(g) [Repealed]

* * * * * * *

----------

SECTION 2 OF THE ACT OF AUGUST 16, 1973

AN ACT To extend certain laws relating to the payment of interest on
time and savings deposits, to prohibit depository institutions from
permitting negotiable orders of withdrawl to be made with respect to
any deposit or account on which any interest of divident is paid, to
authorize Federal savings and loan associations and national banks to
own stock in and invest in loans to certain State housing corporations,
and for other purposes.

prohibition on certain activities by depository institutions

Sec. 2. (a)(1) * * *
(2) [Paragraph] Except in the case of any depository
institution which is prohibited by the applicable law of any
State from offering demand deposits, paragraph (1) shall apply
only with respect to deposits or accounts which consist solely
of funds in which the entire beneficial interest is held by one
or more individuals or by an organization which is operated
primarily for religious, philanthropic, charitable,
educational, political, or other similar purposes and which is
not operated for profit, and with respect to deposits of public
funds by an officer, employee, or agent of the United States,
any State, county, municipality, or political subdivision
thereof, the District of Columbia, the Commonwealth of Puerto
Rico, American Samoa, Guam, any territory or possession of the
United States, or any political subdivision thereof.
(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).
[(b)] (c) For purposes of this section, the term ``depository
institution'' means--
(1) * * *

* * * * * * *

[(c)] (d) Any depository institution which violates this
section shall be fined $1,000 for each violation.

ADDITIONAL VIEWS

The Small Business Interest Checking Act of 2001 lifts the
Depression-era ban on paying interest on business demand
deposits--a prohibition that in today's modern financial
services environment is anachronistic.
Many large financial institutions effectively circumvent
this long-standing prohibition by offering so-called ``sweep
accounts.'' Sweep accounts are transaction accounts whose
balance is ``swept out'' of the financial institution for
investment in an overnight interest-bearing financial
instrument, thereby allowing a bank's business customers to
earn interest on their transaction accounts. However, current
market conditions, as well as the costs involved, prevent many
smaller institutions from offering these sweep accounts. As a
result, many small businesses across the country, many of whom
bank with smaller financial institutions, are unable to take
advantage of such services. By repealing the prohibition on
payment of interest to business checking accounts, this
legislation provides small business with well-deserved relief
and promotes healthy competition within the financial services
industry for commercial checking accounts.
Many have argued that the repeal of the ban should be
delayed to allow depository institutions that offer
alternatives to interest-bearing business checking accounts
time to adjust their business practices and contractual
relationships. While a reasonable transition period is
necessary and appropriate, there is no good public policy
reason for excessive delay. The two-year phase-in provided for
in the legislation represents a fair compromise of the
competing concerns and is preferable to past proposals calling
for a longer phase-in.
Some supporters of another provision in this legislation
which permits the payment of interest on sterile reserves have
suggested that the change will benefit customers through
reduced costs for services. To help gauge the effect of the
legislation and to provide consumers, industry and regulators
with an assessment retail banking practices throughout the
country, the Small Business Interest Checking Act of 2001
amends the Federal Reserve Act to require the Federal Reserve
to conduct an annual survey of retail banking fees, services
and products.
Since 1990, the Federal Reserve has conducted annual
national surveys of the types and amounts of fees charged for
basic checking and savings account services by banks and thrift
institutions. These surveys have provided consumers with a
broad overview of market practices and invaluable guidance on
where to find the most affordable financial services. The
provision of law authorizing this survey expires on September
30, 2001. With fees representing an ever-growing share of
earnings, the provision in the bill requiring a survey on
retail bank fees become even more important.
The requirements of the legislation parallel the
requirements in current law with several important changes.
First, where past surveys focused almost entirely on fees
associated with checking accounts, savings accounts, and ATM
services, the legislation also includes fees associated with
consumer credit card accounts and fees charged in connection
with payments over the Internet and other forms of electronic
transactions. Second, the legislation includes fees charged by
credit unions, in addition to those charged by banks and
thrifts, to provide a more comprehensive picture of market
practices. The rapid pace of change and consolidation within
our financial marketplace requires that these surveys be
continued to assess whether consumers are receiving the
promised cost benefits of financial modernization.

John J. LaFalce.

ADDITIONAL VIEWS OF REPRESENTATIVE STEVE ISRAEL

Mr. Chairman, I wish to thank you and my distinguished
colleague from New York, Ms. Kelly, for your efforts to build
consensus on the issue of repealing interest on business
checking accounts. Although I do have some concerns regarding
the proposed amendments to H.R. 974, I will support the
compromise. Specifically, Mr. Chairman, I share the concerns of
some banks in Long Island that a two-year phase-in period is
simply insufficient; and that we should proceed more cautiously
and more prudently.
Furthermore, Mr. Chairman, I support the authorization of
banks to increase, from six to twenty-four, the number of
transfers from money market deposit accounts. In my view, this
authorization, over a longer transition period, would have
provided effective relief and a more balanced approach.
Thank you, Mr. Chairman.
Steve Israel.

DISSENTING VIEWS

H.R. 974, the Small Business Checking Act of 2001,
represents an example of mixed-up budget priorities. I agree
that the Depression-era ban on interest-bearing business
checking accounts serves no public policy purpose, and I would
have supported repeal of the prohibition, provided it had been
accomplished in a clean bill. However, I cannot in good
conscience support this bill because it contains a provision
that results in a transfer of taxpayer money to a very small
segment of the country's largest and most powerful depository
institutions, while other budget priorities are left unfunded
or underfunded.
The provision permitting the Federal Reserve banks to pay
interest on the sterile reserves maintained by depository
institutions in Federal Reserve Banks will result in the annual
transfer of about $100 million in real taxpayer dollars to
about 1700 of the approximately 21,000 depository institutions
in this country. Thirty of the largest, most powerful financial
institutions will receive one-third of the interest that the
Federal Reserve Banks will pay out each year.
The Administration has proposed a broad-based tax cut
proposal that will consume $2 trillion of the budget surplus.
We do not know how we will pay for the President's tax cut,
while meeting the other budget priorities of the
Administration, addressing critical needs of the American
public, paying down the debt and protecting Social Security and
Medicare. Yet, the Small Business Checking Act will make that
job harder by using $1.1 billion of the surplus over ten years
to provide a benefit to a very small subset of the American
taxpayers. The $1.1 billion could be put to better use by
providing adequate funding for combating AIDS in Africa or
restoring part of the $2 billion in housing cuts the
Administration has proposed or, even, tax relief for the
average taxpayer.

Maxine Waters.