[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.]
                              ----------                              


    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.

                                
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