[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.

----------------------------------------------------------------------------------------------------------------
                                                             By fiscal year, in millions of dollars--
                                                ----------------------------------------------------------------
                                                                                                2002-     2007-
                                                   2002     2003     2004     2005     2006     2006      22011
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

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.

                                  
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