[House Report 108-53]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 108-53
======================================================================
BUSINESS CHECKING FREEDOM ACT OF 2003
_______
March 31, 2003.--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
DISSENTING VIEWS
[To accompany H.R. 758]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 758) to allow all businesses to make up to 24
transfers each month from interest-bearing transaction accounts
to other transaction accounts, to require the payment of
interest on reserves held for depository institutions at
Federal reserve banks, and for other purposes, having
considered the same, report favorably thereon with an amendment
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
Committee Oversight Findings..................................... 10
Performance Goals and Objectives................................. 10
New Budget Authority, Entitlement Authority, and Tax Expenditures 10
Committee Cost Estimate.......................................... 10
Congressional Budget Office Cost Estimate........................ 10
Federal Mandates Statement....................................... 19
Constitutional Authority Statement............................... 19
Applicability to Legislative Branch.............................. 19
Changes in Existing Law Made by the Bill, as Reported............ 21
Section-by-Section Analysis...................................... 19
Dissenting Views................................................. 33
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Business Checking Freedom Act of
2003''.
SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED FOR ALL
BUSINESSES.
(a) Section 2 of Public Law 93-100 (12 U.S.C. 1832) is amended--
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively; and
(2) 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 of Governors
of the Federal Reserve System may determine by rule or order), for any
purpose, to another account of the owner in the same institution. An
account offered pursuant to this subsection shall be considered a
transaction account for purposes of section 19 of the Federal Reserve
Act unless the Board of Governors of the Federal Reserve System
determines otherwise.''.
(b) Effective at the end of the 2-year period beginning on the date
of the enactment of this Act, section 2 of Public Law 93-100 (12 U.S.C.
1832) is amended--
(1) in subsection (a)(1), by striking ``but subject to
paragraph (2)'';
(2) by striking paragraph (2) of subsection (a) and inserting
the following new paragraph:
``(2) No provision of this section may be construed as
conferring the authority to offer demand deposit accounts to
any institution that is prohibited by law from offering demand
deposit accounts.''; and
(3) in subsection (b) (as added by subsection (a) of this
section) by striking ``and is not a deposit or account
described in subsection (a)(2)''.
SEC. 3. 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. 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)(A), in a
Federal reserve bank by any such entity on
behalf of depository institutions.
``(C) Depository institutions defined.--For purposes
of this paragraph, the term `depository institution',
in addition to the institutions described in paragraph
(1)(A), includes any trust company, corporation
organized under section 25A or having an agreement with
the Board under section 25, or any branch or agency of
a foreign bank (as defined in section 1(b) of the
International Banking Act of 1978).''.
(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) Consumer Banking Costs Assessment.--
(1) In general.--The Federal Reserve Act (12 U.S.C. 221 et
seq.) is amended--
(A) by redesignating sections 30 and 31 as sections
31 and 32, respectively; and
(B) by inserting after section 29 the following new
section:
``SEC. 30. SURVEY OF BANK FEES AND SERVICES.
``(a) Annual Survey Required.--The Board of Governors of the Federal
Reserve System shall obtain annually a sample, which is representative
by type and size of the institution (including small institutions) 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):
``(1) Checking and other transaction accounts.
``(2) Negotiable order of withdrawal and savings accounts.
``(3) Automated teller machine transactions.
``(4) Other electronic transactions.
``(b) Minimum Survey Requirement.--The annual survey described in
subsection (a) shall meet the following minimum requirements:
``(1) Checking and other transaction accounts.--Data on
checking and transaction accounts shall include, at a minimum,
the following:
``(A) Monthly and annual fees and minimum balances to
avoid such fees.
``(B) Minimum opening balances.
``(C) Check processing fees.
``(D) Check printing fees.
``(E) Balance inquiry fees.
``(F) Fees imposed for using a teller or other
institution employee.
``(G) Stop payment order fees.
``(H) Nonsufficient fund fees.
``(I) Overdraft fees.
``(J) Deposit items returned fees.
``(K) Availability of no-cost or low-cost accounts
for consumers who maintain low balances.
``(2) 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:
``(A) Monthly and annual fees and minimum balances to
avoid such fees.
``(B) Minimum opening balances.
``(C) Rate at which interest is paid to consumers.
``(D) Check processing fees for negotiable order of
withdrawal accounts.
``(E) Fees imposed for using a teller or other
institution employee.
``(F) Availability of no-cost or low-cost accounts
for consumers who maintain low balances.
``(3) Automated teller transactions.--Data on automated
teller machine transactions shall include, at a minimum, the
following:
``(A) Monthly and annual fees.
``(B) Card fees.
``(C) Fees charged to customers for withdrawals,
deposits, and balance inquiries through institution-
owned machines.
``(D) Fees charged to customers for withdrawals,
deposits, and balance inquiries through machines owned
by others.
``(E) Fees charged to noncustomers for withdrawals,
deposits, and balance inquiries through institution-
owned machines.
``(F) Point-of-sale transaction fees.
``(4) Other electronic transactions.--Data on other
electronic transactions shall include, at a minimum, the
following:
``(A) Wire transfer fees.
``(B) Fees related to payments made over the Internet
or through other electronic means.
``(5) Other fees and charges.--Data on any other fees and
charges that the Board of Governors of the Federal Reserve
System determines to be appropriate to meet the purposes of
this section.
``(6) Federal reserve board authority.--The Board of
Governors of the Federal Reserve System may cease the
collection of information with regard to any particular fee or
charge specified in this subsection if the Board makes a
determination that, on the basis of changing practices in the
financial services industry, the collection of such information
is no longer necessary to accomplish the purposes of this
section.
``(c) Annual Report to Congress Required.--
``(1) Preparation.--The Board of Governors of the Federal
Reserve System shall prepare a report of the results of each
survey conducted pursuant to subsections (a) and (b) of this
section and section 136(b)(1) of the Consumer Credit Protection
Act.
``(2) Contents of the report.--In addition to the data
required to be collected pursuant to subsections (a) and (b),
each report prepared pursuant to paragraph (1) shall include a
description of any discernible trend, in the Nation as a whole,
in a representative sample of the 50 States (selected with due
regard for regional differences), and in each consolidated
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 subsections (a) and (b) (including related fees
and minimum balances), that delineates differences between
institutions on the basis of the type of institution and the
size of the institution, between large and small institutions
of the same type, and any engagement of the institution in
multistate activity.
``(3) Submission to congress.--The Board of Governors of the
Federal Reserve System shall submit an annual report to the
Congress not later than June 1, 2005, and not later than June 1
of each subsequent year.
``(d) Definitions.--For purposes of this section, the term `insured
depository institution' has the meaning given such term in section 3 of
the Federal Deposit Insurance Act, and the term `insured credit union'
has the meaning given such term in section 101 of the Federal Credit
Union Act.''.
(2) Conforming Amendment.--
(A) In general.--Paragraph (1) of section 136(b) of
the Truth in Lending Act (15 U.S.C. 1646(b)(1)) is
amended to read as follows:
``(1) Collection required.--The Board shall collect, on a
semiannual basis, from a broad sample of financial institutions
which offer credit card services, credit card price and
availability information including--
``(A) the information required to be disclosed under
section 127(c) of this chapter;
``(B) the average total amount of finance charges
paid by consumers; and
``(C) the following credit card rates and fees:
``(i) Application fees.
``(ii) Annual percentage rates for cash
advances and balance transfers.
``(iii) Maximum annual percentage rate that
may be charged when an account is in default.
``(iv) Fees for the use of convenience
checks.
``(v) Fees for balance transfers.
``(vi) Fees for foreign currency
conversions.''.
(B) Effective date.--The amendment made by
subparagraph (A) shall take effect on January 1, 2004.
(3) Repeal of other report provisions.--Section 1002 of
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 and section 108 of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 are hereby repealed.
(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 2003 through 2007.--
``(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) in each of the fiscal years
2003 through 2007.
``(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 2003
through 2007, 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 2003 through 2007, 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 2003 through
2007, 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.
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 service 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 subparagraph (1) or (2)
or similar in nature to such action,
shall not be treated as the payment or receipt of interest for purposes
of this Act and 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, provided, however, that nothing herein shall
be construed so as to require a depository institution that maintains
an escrow account in connection with a real estate transaction to pay
interest on such escrow account or to prohibit such institution from
paying interest on such escrow account. Nor shall anything herein be
construed to preempt the provisions of law of any State dealing with
the payment of interest on escrow accounts maintained in connection
with real estate transactions.
Purpose and Summary
H.R. 758, the Business Checking Freedom Act of 2003, 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, and authorizes the payment of interest on negotiable
order of withdrawal (NOW) accounts maintained by businesses.
The bill also 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 during the first 5 years the legislation is
in effect. 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. Finally, the legislation
directs the Board of Governors of the Federal Reserve System to
conduct an annual survey of bank fees and services.
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 those 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 $7 to 8 billion in 2002.
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. 758, the Business Checking
Freedom Act of 2003 and H.R. 859, the Business Checking Freedom
Act of 2003, on March 5, 2003. The Subcommittee received
testimony from: The Honorable Donald L. Kohn, Member, Board of
Governors, Federal Reserve System; The Honorable Wayne A.
Abernathy, Assistant Secretary for Financial Institutions,
Department of the Treasury; Mr. Edwin R. Maus, President and
Chief Executive Officer, Laurel Savings Bank, on behalf of
America's Community Bankers (ACB); Mr. R. Michael Stewart
Menzies, Sr., President and Chief Executive Officer, Easton
Bank and Trust Co., on behalf of Independent Community Bankers
of America (ICBA); Mr. Rex Hammock, President, Hammock
Publishing, Inc., on behalf of National Federation of
Independent Business (NFIB); Mr. Bruce Bent, Sr., Chairman and
Chief Executive Officer, Reserve Management Co.; and Dr. Robert
Auerbach, Professor, Lyndon B. Johnson School of Public
Affairs, University of Texas.
Committee Consideration
The Committee on Financial Services met in open session on
March 13, 2003 and ordered H.R. 758, the Business Checking
Freedom Act of 2003, reported to the House with a favorable
recommendation by a voice vote, a quorum being present.
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 by a record vote. The
names of members voting for and against follow:
An amendment by Mr. Frank of Massachusetts to the
amendment offered by Mr. Toomey, no. 2a, extending the
effective date to 2 years, was agreed to by a record
vote of 28 yeas and 23 nays (Record vote no. FC-1).
Record vote no. FC-1
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... X ........ ......... Mr. Frank (MA).. X ........ .........
Mr. Leach...................... ........ X ......... Mr. Kanjorski... ........ X .........
Mr. Bereuter................... ........ X ......... Ms. Waters...... ........ ........ .........
Mr. Baker...................... X ........ ......... Mr. Sanders*.... X ........ .........
Mr. Bachus..................... X ........ ......... Mrs. Maloney.... ........ ........ .........
Mr. Castle..................... X ........ ......... Mr. Gutierrez... ........ ........ .........
Mr. King....................... ........ ........ ......... Ms. Velazquez... ........ ........ .........
Mr. Royce...................... ........ X ......... Mr. Watt........ X ........ .........
Mr. Lucas (OK)................. ........ X ......... Mr. Ackerman.... ........ ........ .........
Mr. Ney........................ ........ ........ ......... Ms. Hooley (OR). X ........ .........
Mrs. Kelly..................... X ........ ......... Ms. Carson (IN). X ........ .........
Mr. Paul....................... ........ X ......... Mr. Sherman..... ........ ........ .........
Mr. Gillmor.................... ........ X ......... Mr. Meeks (NY).. ........ ........ .........
Mr. Ryun (KS).................. ........ X ......... Ms. Lee......... X ........ .........
Mr. LaTourette................. ........ ........ ......... Mr. Inslee...... X ........ .........
Mr. Manzullo................... ........ X ......... Mr. Moore........ X ........ .........
Mr. Jones (NC)................. ........ X ......... Mr. Gonzalez.... X ........ .........
Mr. Ose........................ ........ X ......... Mr. Capuano..... X ........ .........
Mrs. Biggert................... X ........ ......... Mr. Ford......... ........ ........ .........
Mr. Green (WI)................. ........ X ......... Mr. Hinojosa.... X ........ .........
Mr. Toomey..................... ........ X ......... Mr. Lucas (KY).. X ........ .........
Mr. Shays...................... ........ ........ ......... Mr. Crowley..... ........ ........ .........
Mr. Shadegg.................... ........ X ......... Mr. Clay........ X ........ .........
Mr. Fossella................... X ........ ......... Mr. Israel...... ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ ........ ......... Mr. Ross........ X ........ .........
Ms. Hart....................... ........ X ......... Mrs. McCarthy X ........ .........
(NY).
Mrs. Capito.................... X ........ ......... Mr. Baca........ X ........ .........
Mr. Tiberi..................... X ........ ......... Mr. Matheson.... X ........ .........
Mr. Kennedy (MN)............... ........ X ......... Mr. Lynch....... ........ ........ .........
Mr. Feeney..................... ........ ........ ......... Mr. Miller (NC). X ........ .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel..... X ........ .........
Mr. Garrett (NJ)............... ........ X ......... Mr. Scott (GA).. ........ ........ .........
Mr. Murphy..................... ........ X ......... Mr. Davis (AL).. ........ ........ .........
Ms. Ginny Brown-Waite (FL)..... ........ X ......... ................. ........ ........ .........
Mr. Barrett (SC)............... ........ X ......... ................. ........ ........ .........
Ms. Harris..................... ........ X ......... ................. ........ ........ .........
Mr. Renzi...................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
*Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
An amendment by Mr. Leach to the amendment offered by
Mr. Royce, no. 3a, changing the definition of NOW
accounts, was not agreed to by a record vote of 8 yeas
and 55 nays, (Record vote no. FC-2).
Record vote no. FC-2
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... ........ X ......... Mr. Frank (MA).. ........ X .........
Mr. Leach...................... X ........ ......... Mr. Kanjorski... X ........ .........
Mr. Bereuter................... X ........ ......... Ms. Waters...... ........ X .........
Mr. Baker...................... ........ X ......... Mr. Sanders*.... ........ X .........
Mr. Bachus..................... ........ ........ ......... Mrs. Maloney.... ........ X .........
Mr. Castle..................... ........ X ......... Mr. Gutierrez... ........ ........ .........
Mr. King....................... ........ ........ ......... Ms. Velazquez... ........ ........ .........
Mr. Royce...................... ........ X ......... Mr. Watt........ ........ ........ .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Ackerman.... ........ X .........
Mr. Ney........................ ........ X ......... Ms. Hooley (OR). ........ X .........
Mrs. Kelly..................... X ........ ......... Ms. Carson (IN). ........ X .........
Mr. Paul....................... ........ X ......... Mr. Sherman..... ........ X .........
Mr. Gillmor.................... X ........ ......... Mr. Meeks (NY).. ........ X .........
Mr. Ryun (KS).................. ........ X ......... Ms. Lee......... ........ X .........
Mr. LaTourette................. ........ X ......... Mr. Inslee...... ........ X .........
Mr. Manzullo................... X ........ ......... Mr. Moore........ ........ X .........
Mr. Jones (NC)................. ........ ........ ......... Mr. Gonzalez.... ........ X .........
Mr. Ose........................ ........ X ......... Mr. Capuano..... ........ X .........
Mrs. Biggert................... ........ X ......... Mr. Ford......... ........ X .........
Mr. Green (WI)................. ........ X ......... Mr. Hinojosa.... ........ X .........
Mr. Toomey..................... ........ X ......... Mr. Lucas (KY).. ........ X .........
Mr. Shays...................... ........ X ......... Mr. Crowley..... ........ X .........
Mr. Shadegg.................... ........ X ......... Mr. Clay........ X ........ .........
Mr. Fossella................... ........ X ......... Mr. Israel...... ........ X .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Ross........ ........ X .........
Ms. Hart....................... ........ X ......... Mrs. McCarthy ........ X .........
(NY).
Mrs. Capito.................... ........ X ......... Mr. Baca........ ........ X .........
Mr. Tiberi..................... ........ X ......... Mr. Matheson.... ........ X .........
Mr. Kennedy (MN)............... X ........ ......... Mr. Lynch....... ........ X .........
Mr. Feeney..................... ........ X ......... Mr. Miller (NC). ........ X .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel..... ........ X .........
Mr. Garrett (NJ)............... ........ X ......... Mr. Scott (GA).. ........ X .........
Mr. Murphy..................... ........ X ......... Mr. Davis (AL).. ........ X .........
Ms. Ginny Brown-Waite (FL)..... ........ X ......... ................. ........ ........ .........
Mr. Barrett (SC)............... ........ X ......... ................. ........ ........ .........
Ms. Harris..................... ........ X ......... ................. ........ ........ .........
Mr. Renzi...................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
*Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
An amendment by Mr. Leach to the amendment offered by
Mr. Royce, no. 3b, limiting the exclusion of ILCs, was
not agreed to by a record vote of 8 yeas and 53 nays
(Record vote no. FC-3).
Record vote no. FC-3
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... ........ X ......... Mr. Frank (MA).. ........ X .........
Mr. Leach...................... X ........ ......... Mr. Kanjorski... X ........ .........
Mr. Bereuter................... X ........ ......... Ms. Waters...... ........ X .........
Mr. Baker...................... ........ ........ ......... Mr. Sanders*.... ........ X .........
Mr. Bachus..................... ........ X ......... Mrs. Maloney.... ........ X .........
Mr. Castle..................... ........ X ......... Mr. Gutierrez... ........ ........ .........
Mr. King....................... ........ ........ ......... Ms. Velazquez... ........ ........ .........
Mr. Royce...................... ........ X ......... Mr. Watt........ ........ X .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Ackerman.... ........ X .........
Mr. Ney........................ ........ ........ ......... Ms. Hooley (OR). ........ X .........
Mrs. Kelly..................... X ........ ......... Ms. Carson (IN). ........ X .........
Mr. Paul....................... ........ X ......... Mr. Sherman..... ........ X .........
Mr. Gillmor.................... X ........ ......... Mr. Meeks (NY).. ........ X .........
Mr. Ryun (KS).................. ........ X ......... Ms. Lee......... ........ X .........
Mr. LaTourette................. ........ X ......... Mr. Inslee...... ........ X .........
Mr. Manzullo................... X ........ ......... Mr. Moore........ ........ X .........
Mr. Jones (NC)................. ........ ........ ......... Mr. Gonzalez.... ........ X .........
Mr. Ose........................ ........ X ......... Mr. Capuano..... ........ X .........
Mrs. Biggert................... ........ X ......... Mr. Ford......... ........ X .........
Mr. Green (WI)................. X ........ ......... Mr. Hinojosa.... ........ X .........
Mr. Toomey..................... ........ X ......... Mr. Lucas (KY).. ........ X .........
Mr. Shays...................... ........ ........ ......... Mr. Crowley..... ........ X .........
Mr. Shadegg.................... ........ X ......... Mr. Clay........ ........ X .........
Mr. Fossella................... ........ X ......... Mr. Israel...... ........ X .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Ross........ ........ X .........
Ms. Hart....................... ........ ........ ......... Mrs. McCarthy ........ X .........
(NY).
Mrs. Capito.................... ........ X ......... Mr. Baca........ ........ X .........
Mr. Tiberi..................... ........ X ......... Mr. Matheson.... ........ X .........
Mr. Kennedy (MN)............... X ........ ......... Mr. Lynch....... ........ X .........
Mr. Feeney..................... ........ X ......... Mr. Miller (NC). ........ X .........
Mr. Hensarling................. ........ X ......... Mr. Emanuel..... ........ X .........
Mr. Garrett (NJ)............... ........ X ......... Mr. Scott (GA).. ........ X .........
Mr. Murphy..................... ........ X ......... Mr. Davis (AL).. ........ X .........
Ms. Ginny Brown-Waite (FL)..... ........ X ......... ................. ........ ........ .........
Mr. Barrett (SC)............... ........ X ......... ................. ........ ........ .........
Ms. Harris..................... ........ X ......... ................. ........ ........ .........
Mr. Renzi...................... ........ X ......... ................. ........ ........ .........
----------------------------------------------------------------------------------------------------------------
*Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
The following other amendments were also considered:
An amendment offered by Mr. Frank of Massachusetts,
no. 1, requiring the Federal Reserve to provide an
annual report on bank fees and services, was agreed to
by a voice vote.
An amendment offered by Mr. Toomey, no. 2, allowing
the payment of interest on business checking accounts,
as amended, was agreed to by a voice vote.
An amendment by Mr. Watt to the amendment offered by
Mr. Toomey, no. 2b, clarifying language to assure the
legislation does not prevent or require depository
institutions to pay interest on real estate escrow
accounts and ensuring that State laws are not
preempted, was agreed to by a voice vote.
An amendment offered by Mr. Royce, no. 3, allowing
depository institutions to pay interest to businesses
on negotiable order of withdrawl accounts, was agreed
to by a voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held hearings and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The Board of Governors of the Federal Reserve will use the
authority granted by this legislation to ensure that funds held
by the Federal Reserve, depository institutions, or in NOW
accounts may earn interest in accordance with the provisions of
this legislation.
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 adopts as its
own the estimate of budget authority, entitlement authority, or
tax expenditures or revenues contained in the cost estimate
prepared by the Director of the Congressional Budget Office
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 Cost 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, March 27, 2003.
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. 758, the Business
Checking Freedom Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Booth
(for revenues) and Paige Piper/Bach (for the private-sector
impact).
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.
H.R. 758--Business Checking Freedom Act of 2003
Summary: H.R. 758, the Business Checking Freedom Act of
2003, 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 Federal Reserve would also be authorized to
pay interest on contractual clearing balances, instead of only
providing credits that can be used to pay the costs of the
services it provides to depository institutions. The reduction
in revenues as a result of the interest payments on reserves
would be offset through 2007 by transfers from surplus funds of
Federal Reserve Banks to the U.S. Treasury.
CBO estimates that the bill would not have any net effect
on annual revenues over the 2004-2007 period because the
estimated loss in revenues would be offset by transfers from
Federal Reserve surplus funds. Enacting H.R. 758 would decrease
revenues after 2007. CBO estimates that the loss in revenues
would total approximately $1.5 billion over the 2008-2013
period.
H.R. 758 would not affect federal spending. It 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. 758 is shown in the following table.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Allowing interest on Reserves....................... 0 -92 -132 -115 -128 -141
Surplus transfer to the Treasury.................... 0 92 132 115 28 -466
-----------------------------------------------------------
New budgetary effect.......................... 0 0 0 0 0 -608
----------------------------------------------------------------------------------------------------------------
The initial budgetary effect of H.R. 758 would be a
decrease in the payment of profits from the Federal Reserve
System to the U.S. Treasury. The Federal Reserve 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 security
holdings, the Federal Reserve earns profits.
By allowing the Federal Reserve to pay interest on
reserves, the bill is expected to decrease the Federal
Reserve's profits and thereby reduce federal revenues by $608
million over the 2004-2008 period. 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 tend to reduce governmental
receipts. CBO anticipates that some depository institutions and
depositors would respond to the interest payments on reserves
(and 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, although the Federal Reserve would be expected to
offset a portion of it by lowering reserve requirements. The
net increase in reserves would partially offset the loss in
federal revenues from the payment of interest on reserves.
Finally, those net reductions in Federal Reserve receipts would
act like reductions in indirect business taxes, generating
increases in other incomes in the economy and subsequently
higher income and payroll taxes. Those higher income and
payroll taxes would offset the declines in Federal Reserve
receipts by an estimated 25 percent, roughly the marginal tax
rate on overall incomes in the economy. The legislation also
stipulates that the overall revenue loss would be offset by a
transfer from surplus funds of Federal Reserve banks to the
U.S. Treasury for each fiscal year through 2007. Revenues
losses would therefore commence in 2008.
Basis of estimate
The estimates are based on the assumption that the
provisions would become effective early in fiscal year 2004,
unless otherwise specified.
The allowance of interest on Reserve balances
H.R. 758 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 last decade from under $2 billion in 1990
to roughly $10 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
payment of interest on required reserve balances and the
payment of interest on contractual clearing balances are
discussed separately in this estimate, since their effects on
revenues are likely to be different.) 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.
Interest on Required Reserve Balances. The budgetary effect
of interest on required reserve balances is divided into three
components. First, the bill would result in the Federal Reserve
paying interest on the required reserve balances expected under
current law, reducing its net income and, therefore,
governmental receipts. Second, the payment of interest on
reserves would cause demand balances at depository institutions
to increase. That increase would raise the level of reserve
balances held at the Federal Reserve, although the increase
would likely be diminished by Federal Reserve actions to reduce
reserve requirements. The higher reserve balances at the
Federal Reserve would increase its earningsbecause it would
invest the higher balances 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 net reduction in
Federal Reserve receipts from the first two effects would be partially
offset by increased income and payroll tax receipts.
----------------------------------------------------------------------------------------------------------------
Allowing interest on reserve balances (by fiscal year, in
millions of dollars)
-----------------------------------------------------------
2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Revenue from Federal Reserve:
Interest on required Reserves................... 0 -223 -252 -255 -269 -283
Profits from Increased Reserves................. 0 101 77 101 98 95
-----------------------------------------------------------
Net effect on revenue from Federal Reserve.... 0 -122 -175 -154 -170 -188
Income and payroll tax offsets...................... 0 31 44 38 43 47
-----------------------------------------------------------
Net Effect of Allowing Interest on Reserves... 0 -92 -132 -115 -128 -141
----------------------------------------------------------------------------------------------------------------
Note.--Totals may not sum due to rounding.
Interest Payments on Required 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 around $7 billion or $8 billion today. The
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 $5 billion over the next
two years. Thereafter, CBO projects them to rise gradually with
growth in the economy.
Under H.R. 758, 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 of 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
3.8 percent in 2004 and 5.1 percent over the 10-year period
from 2004 through 2013. The payment of interest on reserves is
assumed to start early in fiscal year 2004. CBO projects that
H.R. 758 would cause the Federal Reserve to pay interest to
depository institutions of about $223 million in 2004 on the $6
billion of required reserve balances expected under current
law. Over the 2004-2008 period, such interest payments would
total about $1.3 billion. Those payments would reduce the
profits of the Federal Reserve--and thus its payment 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. The payment of interest on business
demand deposit accounts coupled with the payment of interest on
reserve gives 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 if they
invested the funds in other ways.
CBO assumes that depository institutions would eliminate
approximately 30 percent of both retail and business sweep
accounts currently in existence by 2006, 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.
758, the bill 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 sweepaccounts, demand deposits for which reserves are
required would increase at depository institutions.
The increase in reserves from the closing of many sweep
accounts would likely provide the Federal Reserve with more
reserves than needed for implementing monetary policy. H.R. 758
would relax the current lower bound on reserve requirements,
therefore providing the Federal Reserve with the option of
lowering reserve requirements, perhaps substantially, in the
face of increasing reserves. The Federal Reserve has indicated
that it would study the possible strategies for setting reserve
requirements in such an environment.
Under current law, the Federal Reserve can set reserve
requirements as high as 14 percent and as low as 8 percent of
transactions deposits (above a fixed threshold). The Federal
Reserve has kept the requirement at 10 percent for most
transaction deposits since 1992. H.R. 758 would remove the
lower limit of 8 percent.
CBO assumes the Federal Reserve would offset a part of the
increase in reserve balances by lowering reserve requirements.
The magnitude and timing of such changes is very uncertain, but
we assume that required reserves would be maintained at roughly
$20 billion to $25 billion, compared to $7 billion to $8
billion currently. That would require reductions in reserve
requirements starting in 2006.
As a result, CBO projects that required reserve balances
would increase above the level expected under current law and
generate additional net income to the Federal Reserve. 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 rate of return
approximately 0.6 of a percentage point in excess of that which
it pays. As a result of the rate differential, the Federal
Reserve would generate additional profits of about $101 million
in 2004 and $472 million over the 2004-2008 period. The Federal
Reserve would remit those profits to the Treasury as
governmental receipts.
Projects Offsetting Impact on Tax Revenues. Allowing
interest on required reserve balances held at the Federal
Reserve would have a third budgetary effect that would also
partially offset the decline in revenue from the payment of
interest on current balances. The current reserve requirement
on depository institutions, without provision of interest, is
like an indirect business tax. Allowing interest payments on
reserves, therefore, generates the same economic effects as
does removing an excise tax. Assuming that GDP remains
unchanged, reductions in excise tax receipts generate equal
increases in other incomes in the economy. The higher incomes
produce increases in income and payroll taxes that offset an
estimated 25 percent of the reduction in excise tax receipts,
roughly the marginal tax rate on overall incomes in the
economy. In this case, a quarter of the loss in receipts from
the Federal Reserve would be offset by an increase in income
and payroll tax receipts. CBO estimates that the loss in
Federal Reserve receipts would total $122 million in 2004,
offset partially by an increase in income and payroll taxes of
$31 million. Over the 2004-2008 period, the loss in Federal
Reserve receipts would total $810 million and the increase in
income and payroll taxes would total $203 million.
The Allowance of Interest on Contractual Clearing Balances.
Staff at the Federal Reserve have indicated that, given the
authority, the Federal Reserve would give depository
institutions the option of earning an explicit interest payment
on contractual clearing balances or continuing with the current
system of earning an implicit interest payment in the form of
an interest credit, which can be used to offset fees for
services provided by the Federal Reserve. 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 an explicit
interest payment 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 interest payment is required to give them an incentive
to hold more balances. 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 Federal Reserve 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 zero
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, $200 million of the increase 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 because 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 making explicit
interestpayments on contractual clearing balances is likely to
have little or no significant effect on earnings.
Transfer from surplus funds of the Federal Reserve
During the first four years that H.R. 758 would be
effective (fiscal years 2004 through 2007), 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 period, the bill
would make the Federal Reserve 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 cost of the legislation to zero through
2007 and postpone the accumulated net revenue loss to the
federal government until 2008.
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 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 period through 2007, H.R. 758 would direct the
Federal Reserve to remit to the Treasury all of its earnings
above its member bank dividend payments, additions to its
surplus account, and 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
cost of paying interest on reserves. The Federal Reserve would
be prevented from replenishing its surplus fund by the amount
of these transfers through 2007 and its payment of net earnings
to the Treasury would be mandatory. In fiscal year 2008,
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 2004-2007 period, an estimated
$466 million. This response is anticipated because the Federal
Reserve has replenished its surplus account at its first
available opportunity when transfers from the surplus fund have
been mandated in the past. The legislated surplus fund transfer
under H.R. 758, therefore, would postpone until 2008 the
accumulated net revenue loss to the Treasury during the period
from 2004 to 2007. CBO estimates that the revenue loss in
fiscal year 2008 would be about $608 million. The Federal
Reserve would be expected to retain $466 million out of its
earnings to replenish its surplus fund instead of remitting
these profits to the Treasury. The remaining $141 million is
the estimated net revenue loss from making interest payments on
reserve balances for that year. CBO estimates that the
resulting revenue loss for the 2008-2013 period would be about
$1.5 billion.
The transfer of the surplus funds would not reduce the cost
of the bill to the federal government over the long term; it
would just postpone it. 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 allowance of interest on
business demand deposit accounts that would result in the
revenue loss described above.
Provisions in the bill estimated to have an insignificant
budgetary effect
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 availability and
cost of banking services. Based on information provided by
staff at the Federal Reserve, 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 estimates that the bill would have
no significant impact on the total balance of insured deposits
or the likelihood that some institutions would fail and,
therefore, would have no significant impact on federal
spending.
Estimated impact on revenues and direct spending: CBO's
estimate of the net effect of H.R. 758 on revenues and direct
spending over the 2003-2013 period is shown in the table below.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts............................................ 0 0 0 0 0 -608 -152 -163 -175 -187 -200
Changes in outlays............................................. 0 0 0 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated impact on state, local, and tribal governments:
H.R. 758 contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector: The bill would
authorize the Board of Governors of the Federal Reserve System
(FRB) 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 Board of Governors 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 on the
private sector. If after a period of time the FRB determined a
rule was necessary, the FRB indicates the rule could require
correspondent banks to pass the interest earnings back to the
institutions for which they maintain required reserves 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 and
Mark Booth; federal spending: Mark Hadley; impact on state,
local and tribal governments: Victoria Heid Hall; impact on the
private sector: Page Piper/Bach.
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
defense and general welfare of the United States) and clause 3
(relating to the power to regulate foreign and interstate
commerce).
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
``Business Checking Freedom Act of 2003.''
Section 2. Interest-Bearing Transaction Accounts Authorized for All
Businesses
This section 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.
This section authorizes all depository institutions to pay
interest on business accounts from which funds can be withdrawn
for payment to third parties by negotiable or transferable
instruments. Thus, depository institutions not authorized to
offer demand deposit accounts to their business customers would
be permitted to offer interest bearing NOW accounts to those
same depositors. This section does not, however, confer
authority to offer demand deposits to any institution that is
prohibited by law from offering such accounts.
Section 3. 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 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 governing 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 bill 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 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 holder or the beneficiary of that escrow
account, shall not be treated as the payment or receipt of
interest for purposes of this Act and any provision of Public
Law 93-100, the Federal Reserve Act, the Home Owner's Loan Act,
or the Federal Deposit Insurance Act relating to the payment of
interest on accounts or deposits at depository institutions.
By including this provision, the Committee intends to
clarify that the current treatment of such transactions under
Federal law and regulation, particularly Regulation Q of the
Federal Reserve Board and interpretive letters thereunder, 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 or holder of an escrow account.
This section also provides that nothing in the legislation
will be construed so as to require a depository institution
that maintains an escrow account in connection with a real
estate transaction to pay interest on such escrow account or to
prohibit such institution from paying interest on such escrow
account. Nor shall anything herein be construed to preempt the
provisions of law of any State dealing with the payment of
interest on post-settlement escrow accounts for taxes and
insurance for residential mortgage loans.
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):
SECTION 2 OF THE ACT OF AUGUST 16, 1973
(Public Law 93-100)
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 withdrawal to be made with respect to
any deposit or account on which any interest or dividend 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) * * *
(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 of Governors of the Federal Reserve
System may determine by rule or order), for any purpose, to
another account of the owner in the same institution. An
account offered pursuant to this subsection shall be considered
a transaction account for purposes of section 19 of the Federal
Reserve Act unless the Board of Governors of the Federal
Reserve System determines otherwise.
[(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.
* * * * * * *
[The amendments to section 2, set out below, shall take effect at the
end of the 2-year period beginning on the date of enactment of H.R.
758. The text of subsection (b) is shown to reflect the amendment made
to that subsection by H.R. 758 that shall take effect on the date of
enactment of H.R. 758.]
PROHIBITION ON CERTAIN ACTIVITIES BY DEPOSITORY INSTITUTIONS
Sec. 2. (a)(1) Notwithstanding any other provision of law but
[subject to paragraph (2)], a depository institution is
authorized to permit the owner 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 transfers to third parties.
[(2) 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.]
(2) No provision of this section may be construed as
conferring the authority to offer demand deposit
accounts to any institution that is prohibited by law
from offering demand deposit accounts.
(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 of Governors of the Federal
Reserve System may determine by rule or order), for any
purpose, to another account of the owner in the same
institution. An account offered pursuant to this subsection
shall be considered a transaction account for purposes of
section 19 of the Federal Reserve Act unless the Board of
Governors of the Federal Reserve System determines otherwise.
* * * * * * *
----------
FEDERAL RESERVE ACT
* * * * * * *
division of earnings.
Sec. 7. (a) Dividends and Surplus Funds of Reserve Banks.--
(1) * * *
* * * * * * *
(3) Payment to treasury.--During fiscal years 2003
through 2007, 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 2003 through 2007.--
(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) in each of
the fiscal years 2003 through 2007.
(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 2003 through 2007, 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 2003 through
2007, 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)(A),
in a Federal reserve bank by any such
entity on behalf of depository
institutions.
(C) Depository institutions defined.--For
purposes of this paragraph, the term
``depository institution'', in addition to the
institutions described in paragraph (1)(A),
includes any trust company, corporation
organized under section 25A or having an
agreement with the Board under section 25, or
any branch or agency of a foreign bank (as
defined in section 1(b) of the International
Banking Act of 1978).
(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).
* * * * * * *
[The amendment to section 19(i), set out below, shall take effect at
the end of the 2-year period beginning on the date of enactment of H.R.
758.]
Sec. 19. (a) * * *
* * * * * * *
[(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]
* * * * * * *
SEC. 30. SURVEY OF BANK FEES AND SERVICES.
(a) Annual Survey Required.--The Board of Governors of the
Federal Reserve System shall obtain annually a sample, which is
representative by type and size of the institution (including
small institutions) 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):
(1) Checking and other transaction accounts.
(2) Negotiable order of withdrawal and savings
accounts.
(3) Automated teller machine transactions.
(4) Other electronic transactions.
(b) Minimum Survey Requirement.--The annual survey described
in subsection (a) shall meet the following minimum
requirements:
(1) Checking and other transaction accounts.--Data on
checking and transaction accounts shall include, at a
minimum, the following:
(A) Monthly and annual fees and minimum
balances to avoid such fees.
(B) Minimum opening balances.
(C) Check processing fees.
(D) Check printing fees.
(E) Balance inquiry fees.
(F) Fees imposed for using a teller or other
institution employee.
(G) Stop payment order fees.
(H) Nonsufficient fund fees.
(I) Overdraft fees.
(J) Deposit items returned fees.
(K) Availability of no-cost or low-cost
accounts for consumers who maintain low
balances.
(2) 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:
(A) Monthly and annual fees and minimum
balances to avoid such fees.
(B) Minimum opening balances.
(C) Rate at which interest is paid to
consumers.
(D) Check processing fees for negotiable
order of withdrawal accounts.
(E) Fees imposed for using a teller or other
institution employee.
(F) Availability of no-cost or low-cost
accounts for consumers who maintain low
balances.
(3) Automated teller transactions.--Data on automated
teller machine transactions shall include, at a
minimum, the following:
(A) Monthly and annual fees.
(B) Card fees.
(C) Fees charged to customers for
withdrawals, deposits, and balance inquiries
through institution-owned machines.
(D) Fees charged to customers for
withdrawals, deposits, and balance inquiries
through machines owned by others.
(E) Fees charged to noncustomers for
withdrawals, deposits, and balance inquiries
through institution-owned machines.
(F) Point-of-sale transaction fees.
(4) Other electronic transactions.--Data on other
electronic transactions shall include, at a minimum,
the following:
(A) Wire transfer fees.
(B) Fees related to payments made over the
Internet or through other electronic means.
(5) Other fees and charges.--Data on any other fees
and charges that the Board of Governors of the Federal
Reserve System determines to be appropriate to meet the
purposes of this section.
(6) Federal reserve board authority.--The Board of
Governors of the Federal Reserve System may cease the
collection of information with regard to any particular
fee or charge specified in this subsection if the Board
makes a determination that, on the basis of changing
practices in the financial services industry, the
collection of such information is no longer necessary
to accomplish the purposes of this section.
(c) Annual Report to Congress Required.--
(1) Preparation.--The Board of Governors of the
Federal Reserve System shall prepare a report of the
results of each survey conducted pursuant to
subsections (a) and (b) of this section and section
136(b)(1) of the Consumer Credit Protection Act.
(2) Contents of the report.--In addition to the data
required to be collected pursuant to subsections (a)
and (b), each report prepared pursuant to paragraph (1)
shall include a description of any discernible trend,
in the Nation as a whole, in a representative sample of
the 50 States (selected with due regard for regional
differences), and in each consolidated 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 subsections (a) and (b) (including
related fees and minimum balances), that delineates
differences between institutions on the basis of the
type of institution and the size of the institution,
between large and small institutions of the same type,
and any engagement of the institution in multistate
activity.
(3) Submission to congress.--The Board of Governors
of the Federal Reserve System shall submit an annual
report to the Congress not later than June 1, 2005, and
not later than June 1 of each subsequent year.
(d) Definitions.--For purposes of this section, the term
``insured depository institution'' has the meaning given such
term in section 3 of the Federal Deposit Insurance Act, and the
term ``insured credit union'' has the meaning given such term
in section 101 of the Federal Credit Union Act.
* * * * * * *
Sec. [30.] 31. If any clause, sentence, paragraph, or part of
this Act shall for any reason be adjudged by any court of
competent jurisdiction to be invalid, such judgment shall not
affect, impair, or invalidate the remainder of this Act, but
shall be confined in its operation to the clause, sentence,
paragraph, or part thereof directly involved in the controversy
in which such judgment shall have been rendered. (Omitted from
U.S. Code)
Sec. [31.] 32. The right to amend, alter, or repeal this Act
is hereby expressly reserved. (Omitted from U.S. Code)
----------
SECTION 5 OF THE HOME OWNERS' LOAN ACT
[The amendment to section 5, set out below, shall take effect at the
end of the 2-year period beginning on the date of enactment of H.R.
758.]
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
[The amendment to section 18, set out below, shall take effect at the
end of the 2-year period beginning on the date of enactment of H.R.
758.]
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 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 136 OF THE TRUTH IN LENDING ACT
[The amendment to section 136, set out below, shall take effect on
January 1, 2004.]
Sec. 136. Dissemination of annual percentage rates
(a) * * *
(b) Credit Card Price and Availability Information.--
[(1) Collection required.--The Board shall collect,
on a semiannual basis, credit card price and
availability information, including the information
required to be disclosed under section 127(c) of this
chapter, from a broad sample of financial institutions
which offer credit card services.]
(1) Collection required.--The Board shall collect, on
a semiannual basis, from a broad sample of financial
institutions which offer credit card services, credit
card price and availability information including--
(A) the information required to be disclosed
under section 127(c) of this chapter;
(B) the average total amount of finance
charges paid by consumers; and
(C) the following credit card rates and fees:
(i) Application fees.
(ii) Annual percentage rates for cash
advances and balance transfers.
(iii) Maximum annual percentage rate
that may be charged when an account is
in default.
(iv) Fees for the use of convenience
checks.
(v) Fees for balance transfers.
(vi) Fees for foreign currency
conversions.
* * * * * * *
----------
SECTION 1002 OF FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND
ENFORCEMENT ACT OF 1989
[SEC. 1002. SURVEY OF BANK FEES AND SERVICES.
[(a) Annual Survey Required.--The Board of Governors of the
Federal Reserve System shall obtain a sample, which is
representative by geographic location and size of the
institution, of--
[(1) certain retail banking services provided by
insured depository institutions; and
[(2) the fees, if any, which are imposed by such
institutions for providing any such service, including
fees imposed for not sufficient funds, deposit items
returned, and automated teller machine transactions.
[(b) Annual Report to Congress Required.--
[(1) Preparation.--The Board of Governors of the
Federal Reserve System shall prepare a report of the
results of each survey conducted pursuant to subsection
(a).
[(2) Contents of the report.--Each report prepared
pursuant to paragraph (1) shall include--
[(A) a description of any discernible trend,
in the Nation as a whole, in each of the 50
States, and in each consolidated metropolitan
statistical area or primary metropolitan
statistical area (as defined by the Director of
the Office of Management and Budget), in the
cost and availability of retail banking
services (including fees imposed for providing
such services), that delineates differences
between insured depository institutions on the
basis of both the size of the institution and
any engagement of the institution in multistate
activity; and
[(B) a description of the correlation, if
any, among the following factors:
[(i) An increase or decrease in the
amount of any deposit insurance premium
assessed by the Federal Deposit
Insurance Corporation against insured
depository institutions.
[(ii) An increase or decrease in the
amount of the fees imposed by such
institutions for providing retail
banking services.
[(iii) A decrease in the availability
of such services.
[(3) Submission to congress.--The Board of Governors
of the Federal Reserve System shall submit an annual
report to the Congress not later than September 1,
1995, and not later than June 1 of each subsequent
year.]
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SECTION 108 OF THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING
EFFICIENCY ACT OF 1994
[SEC. 108. FEDERAL RESERVE BOARD STUDY ON BANK FEES.
[(a) In General.--Section 1002 of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1811
note) is amended to read as follows:
[``SEC. 1002. SURVEY OF BANK FEES AND SERVICES.
[``(a) Annual Survey Required.--The Board of Governors of the
Federal Reserve System shall obtain a sample, which is
representative by geographic location and size of the
institution, of--
[``(1) certain retail banking services provided by
insured depository institutions; and
[``(2) the fees, if any, which are imposed by such
institutions for providing any such service, including
fees imposed for not sufficient funds, deposit items
returned, and automated teller machine transactions.
[``(b) Annual Report to Congress Required.--
[``(1) Preparation.--The Board of Governors of the
Federal Reserve System shall prepare a report of the
results of each survey conducted pursuant to subsection
(a).
[``(2) Contents of the report.--Each report prepared
pursuant to paragraph (1) shall include--
[``(A) a description of any discernible
trend, in the Nation as a whole and in each
region, in the cost and availability of retail
banking services which delineates differences
on the basis of size of the institution and
engagement in multistate activity; and
[``(B) a description of the correlation, if
any, among the following factors:
[``(i) An increase or decrease in the
amount of any deposit insurance premium
assessed by the Federal Deposit
Insurance Corporation against insured
depository institutions.
[``(ii) An increase or decrease in
the amount of the fees imposed by such
institutions for providing retail
banking services.
[``(iii) A decrease in the
availability of such services.
[``(3) Submission to congress.--The Board of
Governors of the Federal Reserve System shall submit an
annual report to the Congress not later than September
1, 1995, and not later than June 1 of each subsequent
year.''.
[(b) Sunset.--The requirements of subsection (a) shall not
apply after the end of the 7-year period beginning on the date
of enactment of this Act.]
DISSENTING VIEWS
According to revised estimates by the House Budget
Committee, the record-breaking Federal deficit could ``soar to
$400 billion if President Bush's tax cuts are approved and if
war costs this year run into tens of billions of dollars,''
according to a recent article in the New York Times. The
national debt is over $6.3 trillion. The cost of war with Iraq
could cost between $100 billion and $1 trillion over the next
10 years. And, President Bush's tax cuts will cost us trillions
of dollars over the next decade with the wealthiest one percent
of the population receiving the lion's share of the benefits.
Given this reality, the question is should the Federal
Reserve be giving corporate welfare to the largest banks in
this country through interest on so-called sterile reserves?
The answer should be a resounding no.
Specifically, H.R. 758 would permit the Federal Reserve to
pay interest on reserves that financial institutions are
required to hold at Federal Reserve banks against transaction
accounts held by customers of those institutions.
In February, the Federal Reserve held about $9.3 billion in
required reserves. The amount of reserves have declined over
the years, as the Federal Reserve took actions that lowered
these requirements through increases in cash in ATMs (which
count toward reserve requirements), and institutions' use of
sweep accounts and other products. However, in December 1989,
there were $34.4 billion in required reserves.
If this legislation is signed into law it would provide
incentives to these institutions to increase sterile reserves
because the Federal Reserve would be paying them interest. This
would lead to an even higher Federal deficit, and this money
would mainly flow to CEOs and large stockholders in these
institutions.
In 2001, CBO estimated that paying interest on reserves
would cost $1.249 billion over 10 years.
However, Professor Robert Auerbach from the LBJ School of
Public Policy, has calculated this cost to be as much as $16.7
billion.
Paying interest on sterile reserves is corporate welfare
that will lead to an increase on our record breaking Federal
deficit.
First, we must ask, who will be getting these taxpayer
dollars? According to estimates from the Congressional Research
Service, the top beneficiaries would be:
1. Bank of America Corporation. In 2001, this company made
over $6.7 billion in net income and did so well that it gave
its CEO Kenneth Lewis over $17.5 million in total compensation.
2. Wells Fargo. In 2001, this company made over $3.4
billion in net income and did so well that it gave its CEO
Richard Kovacevich over $34.4 million in total compensation.
3. J.P. Morgan Chase. In 2001, this company made over $1.69
billion in net income and did so well that it gave its CEO
William Harrison over $21.9 million in total compensation.
4. Citigroup. In 2001, this company made over $14.1 billion
in profits and did so well that it gave its CEO Sanford Weill
over $30.3 million in total compensation.
The question is this: do we want to give these large,
profitable banks corporate welfare given our current fiscal
situation?
According to Assistant Treasury Secretary Wayne Abernathy
``inasmuch as the potential budgetary costs associated with
this proposal are not provided for in the President's Budget,
the Administration is not prepared to endorse the proposal at
this time.''
So, not even the President has endorsed this proposal.
In addition, permitting the Federal Reserve to pay interest
on sterile reserves would provide a perverse incentive to banks
to push for higher interest rates. Since these institutions to
a large extent determine who sits on the Federal Open Market
Committee at the Federal Reserve, they would be in a position
to choose members who support increasing the Federal Funds
rate. Increasing the Federal Funds rate would increase the
amount of interest the banks would get on their sterile
reserves. The last thing this economy needs is higher interest
rates.
Bernard Sanders.