[House Report 115-1078]
[From the U.S. Government Publishing Office]


115th Congress     }                                 {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session        }                                 {       115-1078

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



 
                     FOMC POLICY RESPONSIBILITY ACT

                                _______
                                

 December 12, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4758]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4758) to amend the Federal Reserve Act to 
require the Federal Open Market Committee to establish interest 
rates on balances maintained at a Federal Reserve Bank by 
depository institutions, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                          Purpose and Summary

    On January 10, 2018, Representative Tenney introduced H.R. 
4758, the ``FOMC Policy Responsibility Act'', which amends 
Subparagraph (A) of section 19(b)(12) of the Federal Reserve 
Act (12 U.S.C. 461(b)(12)(A)) to provide for the full Federal 
Open Market Committee (FOMC), not just the Board of Governors 
of the Federal Reserve System (Federal Reserve), to establish 
interest rates on balances maintained at a Federal Reserve Bank 
by depository institutions.

                  Background and Need for Legislation

    Monetary policy independence is a cornerstone for price 
stability, and the opportunity it can create for every American 
to fully engage with our economy. But emergency measures that 
the Fed initiated in response to the 2007-09 financial crisis 
have, contrary to clear legislative intent, become 
conventional. As Dr. Norbert Michel told the Subcommittee on 
Monetary Policy and Trade, ``Congress should hold the Fed 
accountable, and ensure that it no longer has the discretion to 
``manage'' the economy however it sees fit through some vague 
macroeconomic mandate.'' The Federal Reserve's payment of 
above-market interest rates on balances that depository 
institutions maintain at their Federal Reserve Banks is just 
such a measure. It provides for excessive interest payments to 
the world's largest depository institutions and continues to 
finance sizeable holdings of mortgage-backed-securities a 
decade out from the crisis.
    To be sure, Congress's authorization for Federal Reserve 
Banks to pay interest on reserves was intended to address the 
fact that banking under a Federal Reserve charter used to mean 
that required reserves earned zero interest. Instead of 
respecting this clear intent, the Federal Reserve Board 
stretched well beyond this statutory authority turn interest 
rates on reserves away from addressing an unnecessary cost for 
Federal Reserve membership into the Fed's main monetary policy 
rate. Congress never intended this rate to play such a direct 
role in monetary policy. As George Selgin, Director, Center for 
Monetary and Financial Alternatives, Cato Institute, noted in 
his January 10, 2018 testimony H.R. 4758, ``would correct the 
present, anomalous state of affairs, legally ensuring that 
monetary policy decisions rest with the FOMC, and not the 
Board.'' Indeed, if Congress had any such intention, then the 
authorizing statute would have provided for the Federal Open 
Market Committee (FOMC) to establish rates of interest on 
reserve deposits. Instead, Congress explicitly gave the Board 
of Governors, not the FOMC, the sole responsibility to 
establish such rates.
    Given that interest on reserves now regularly serves as a 
monetary policy rate, instead of a rate that simply addresses 
the opportunity cost of Federal Reserve membership, the Federal 
Reserve's full monetary policy committee--the FOMC, not just 
the Board of Governors--should vote on that rate. As Alex 
Pollock from the R Street Institute noted in his January 10, 
2018 testimony before the Subcommittee on Monetary Policy and 
Trade, ``Since this interest rate has now become a key element 
of monetary policy, placing it with related monetary decisions 
is quite appropriate.'' The Interest Rates on Balances 
Maintained at a Federal Reserve bank by Depository Institutions 
Established by the FOMC Policy Responsibility Act simply treats 
interest rates on reserves for what they have become--that is, 
monetary policy rates.

                                Hearings

    The Subcommittee on Monetary Policy and Trade held a 
hearing titled ``A Further Examination of Federal Reserve 
Reform Proposals'' to consider matters relating to H.R. 4758 on 
January 10, 2018.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 13, 2018, and ordered H.R. 4758 to be reported 
favorably to the House without amendment by 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 Chairman Hensarling to report the bill favorably to 
the House was agreed to by a voice vote, a quorum being 
present.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of 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 states that H.R. 4758 
will provide for more independent and better informed monetary 
policies.

   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 new 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.

                 Congressional Budget Office Estimates

    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, October 15, 2018.
Hon. Jeb Hensarling,
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. 4758, the FOMC 
Policy Responsibility Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Nathaniel 
Frentz.
            Sincerely,
                                             Mark P. Hadley
                                        (For Keith Hall, Director).
    Enclosure.

H.R. 4758--FOMC Policy Responsibility Act

    Under current law, Federal Reserve Banks are authorized to 
pay interest on balances held by or on behalf of depository 
institutions at Reserve Banks, subject to regulations of the 
Board of Governors. The central bank sets requirements on the 
minimum amount of reserves that must be held by a commercial 
bank. The Federal Reserve pays interest on those required 
reserves in order to offset the implicit tax that such 
requirements may otherwise impose on depository institutions. 
The Federal Reserve also pays interest on excess reserve 
balances as a principal tool of monetary policy, specifically 
to help control short term interest rates.
    H.R. 4758 would amend the Federal Reserve Act to change the 
responsibility for setting the interest rate on reserve 
balances from the Board of Governors to the Federal Open Market 
Committee (FOMC), which consists of the seven members of the 
Board of Governors of the Federal Reserve System; the president 
of the Federal Reserve Bank of New York; and four of the 
remaining eleven Reserve Bank presidents, who serve one-year 
terms on a rotating basis.
    It is possible that the FOMC would choose different 
interest rates than those that the Board of Governors will 
choose under current law. CBO estimates, however, that the 
rates would not materially differ. The target range of interest 
rates is already set by the FOMC, and the interest rates set on 
reserve balances would be chosen to be consistent with those 
targets, whether the decision is made by the Board of Governors 
or the FOMC. As a result, CBO estimates implementing the bill 
would not affect the amount of interest paid on reserve 
balances or on the budget of the Federal Reserve System. CBO 
therefore estimates that the bill would not affect direct 
spending or revenues.
    CBO estimates that enacting H.R. 4758 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    H.R. 4758 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Nathaniel 
Frentz. The estimate was approved by John McClelland, Assistant 
Director for Tax Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995. The Committee has 
determined that the bill does not contain Federal mandates on 
the private sector. The Committee has determined that the bill 
does not impose a Federal intergovernmental mandate on State, 
local, or tribal governments.

                      Advisory Committee Statement

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

                  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 the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 4758 as the FOMC Policy 
Responsibility Act.

Section 2. Interest rates on balances maintained by depository 
        institutions established by Federal Open Market Committee

    This section provides for the Federal Open Market Committee 
(FOMC), not just the Federal Reserve Board of Governors, to 
establish interest rates on balances maintained at a Federal 
Reserve Bank by depository institutions.

         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, and existing law in which no 
change is proposed is shown in roman):

         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 (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                          FEDERAL RESERVE ACT




           *       *       *       *       *       *       *
  Sec. 19. (a) The Board is authorized for the purposes of this 
section to define the terms used in this section, to determine 
what shall be deemed a payment of interest, to determine what 
types of obligations, whether issued directly by a member bank 
or indirectly by an affiliate of a member bank or by other 
means, and regardless of the use of the proceeds, shall be 
deemed a deposit, and to prescribe such regulations as it may 
deem necessary to effectuate the purposes of this section and 
to prevent evasions thereof.
  (b) Reserve Requirements.--
          (1) Definitions.--The following definitions and rules 
        apply to this subsection, subsection (c), section 11A, 
        the first paragraph of section 13, and the second, 
        thirteenth, and fourteenth paragraphs of section 16:
                  (A) The term ``depository institution'' 
                means--
                          (i) any insured bank as defined in 
                        section 3 of the Federal Deposit 
                        Insurance Act or any bank which is 
                        eligible to make application to become 
                        an insured bank under section 5 of such 
                        Act;
                          (ii) any mutual savings bank as 
                        defined in section 3 of the Federal 
                        Deposit Insurance Act or any bank which 
                        is eligible to make application to 
                        become an insured bank under section 5 
                        of such Act;
                          (iii) any savings bank as defined in 
                        section 3 of the Federal Deposit 
                        Insurance Act or any bank which is 
                        eligible to make application to become 
                        an insured bank under section 5 of such 
                        Act;
                          (iv) any insured credit union as 
                        defined in section 101 of the Federal 
                        Credit Union Act or any credit union 
                        which is eligible to make application 
                        to become an insured credit union 
                        pursuant to section 201 of such Act;
                          (v) any member as defined in section 
                        2 of the Federal Home Loan Bank Act;
                          (vi) any savings association (as 
                        defined in section 3 of the Federal 
                        Deposit Insurance Act) which is an 
                        insured depository institution (as 
                        defined in such Act) or is eligible to 
                        apply to become an insured depository 
                        institution under the Federal Deposit 
                        Insurance Act; and
                          (vii) for the purpose of section 13 
                        and the fourteenth paragraph of section 
                        16, any association or entity which is 
                        wholly owned by or which consists only 
                        of institutions referred to in clauses 
                        (i) through (vi).
                  (B) The term ``bank'' means any insured or 
                noninsured bank, as defined in section 3 of the 
                Federal Deposit Insurance Act, other than a 
                mutual savings bank or a savings bank as 
                defined in such section.
                  (C) The term ``transaction account'' means a 
                deposit or account on which the depositor or 
                account holder is permitted to make withdrawals 
                by negotiable or transferable instrument, 
                payment orders of withdrawal, telephone 
                transfers, or other similar items for the 
                purpose of making payments or transfers to 
                third persons or others. Such term includes 
                demand deposits, negotiable order of withdrawal 
                accounts, savings deposits subject to automatic 
                transfers, and share draft accounts.
                  (D) The term ``nonpersonal time deposits'' 
                means a transferable time deposit or account or 
                a time deposit or account representing funds 
                deposited to the credit of, or in which any 
                beneficial interest is held by, a depositor who 
                is not a natural person.
                  (E) The term ``reservable liabilities'' means 
                transaction accounts, nonpersonal time 
                deposits, and all net balances, loans, assets, 
                and obligations which are, or may be, subject 
                to reserve requirements under paragraph (5).
                  (F) In order to prevent evasions of the 
                reserve requirements imposed by this 
                subsection, after consultation with the Board 
                of Directors of the Federal Deposit Insurance 
                Corporation, the Comptroller of the Currency, 
                and the National Credit Union Administration 
                Board, the Board of Governors of the Federal 
                Reserve System is authorized to determine, by 
                regulation or order, that an account or deposit 
                is a transaction account if such account or 
                deposit may be used to provide funds directly 
                or indirectly for the purpose of making 
                payments or transfers to third persons or 
                others.
          (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 a ratio of 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 which may be 
                zero), for that portion of its total 
                transaction accounts in excess of $25,000,000, 
                subject to subparagraph (C).
          (B) Each depository institution shall maintain 
        reserves against its nonpersonal time deposits in the 
        ratio of 3 per centum, or in such other ratio not 
        greater than 9 per centum and not less than zero per 
        centum as the Board may prescribe by regulation solely 
        for the purpose of implementing monetary policy.
          (C) Beginning in 1981, not later than December 31 of 
        each year the Board shall issue a regulation increasing 
        for the next succeeding calendar year the dollar amount 
        which is contained in subparagraph (A) or which was 
        last determined pursuant to this subparagraph for the 
        purpose of such subparagraph, by an amount obtained by 
        multiplying such dollar amount by 80 per centum of the 
        percentage increase in the total transaction accounts 
        of all depository institutions. The increase in such 
        transaction accounts shall be determined by subtracting 
        the amount of such accounts on June 30 of the preceding 
        calendar year from the amount of such accounts on June 
        30 of the calendar year involved. In the case of any 
        such 12-month period in which there has been a decrease 
        in the total transaction accounts of all depository 
        institutions, the Board shall issue such a regulation 
        decreasing for the next succeeding calendar year such 
        dollar amount by an amount obtained by multiplying such 
        dollar amount by 80 per centum of the percentage 
        decrease in the total transaction accounts of all 
        depository institutions. The decrease in such 
        transaction accounts shall be determined by subtracting 
        the amount of such accounts on June 30 of the calendar 
        year involved from the amount of such accounts on June 
        30 of the previous calendar year.
          (D) Any reserve requirement imposed under this 
        subsection shall be uniformly applied to all 
        transaction accounts at all depository institutions. 
        Reserve requirements imposed under this subsection 
        shall be uniformly applied to nonpersonal time deposits 
        at all depository institutions, except that such 
        requirements may vary by the maturity of such deposits.
          (3) Waiver of ratio limits in extraordinary 
        circumstances.--Upon a finding by at least 5 members of 
        the Board that extraordinary circumstances require such 
        action, the Board, after consultation with the 
        appropriate committees of the Congress, may impose, 
        with respect to any liability of depository 
        institutions, reserve requirements outside the 
        limitations as to ratios and as to types of liabilities 
        otherwise prescribed by paragraph (2) for a period not 
        exceeding 180 days, and for further periods not 
        exceeding 180 days each by affirmative action by at 
        least 5 members of the Board in each instance. The 
        Board shall promptly transmit to the Congress a report 
        of any exercise of its authority under this paragraph 
        and the reasons for such exercise of authority.
          (4) Supplemental reserves.--(A) The Board may, upon 
        the affirmative vote of not less than 5 members, impose 
        a supplemental reserve requirement on every depository 
        institution of not more than 4 per centum of its total 
        transaction accounts. Such supplemental reserve 
        requirement may be imposed only if--
                  (i) the sole purpose of such requirement is 
                to increase the amount of reserves maintained 
                to a level essential for the conduct of 
                monetary policy;
                  (ii) such requirement is not imposed for the 
                purpose of reducing the cost burdens resulting 
                from the imposition of the reserve requirements 
                pursuant to paragraph (2);
                  (iii) such requirement is not imposed for the 
                purpose of increasing the amount of balances 
                needed for clearing purposes; and
                  (iv) on the date on which the supplemental 
                reserve requirement is imposed, except as 
                provided in paragraph (11), the total amount of 
                reserves required pursuant to paragraph (2) is 
                not less than the amount of reserves that would 
                be required if the initial ratios specified in 
                paragraph (2) were in effect.
          (B) The Board may require the supplemental reserve 
        authorized under subparagraph (A) only after 
        consultation with the Board of Directors of the Federal 
        Deposit Insurance Corporation, the Comptroller of the 
        Currency, and the National Credit Union Administration 
        Board. The Board shall promptly transmit to the 
        Congress a report with respect to any exercise of its 
        authority to require supplemental reserves under 
        subparagraph (A) and such report shall state the basis 
        for the determination to exercise such authority.
          (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.
          (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.
          (5) Reserves related to foreign obligations or 
        assets.--Foreign branches, subsidiaries, and 
        international banking facilities of nonmember 
        depository institutions shall maintain reserves to the 
        same extent required by the Board of foreign branches, 
        subsidiaries, and international banking facilities of 
        member banks. In addition to any reserves otherwise 
        required to be maintained pursuant to this subsection, 
        any depository institution shall maintain reserves in 
        such ratios as the Board may prescribe against--
                  (A) net balances owed by domestic offices of 
                such depository institution in the United 
                States to its directly related foreign offices 
                and to foreign offices of nonrelated depository 
                institutions;
                  (B) loans to United States residents made by 
                overseas offices of such depository institution 
                if such depository institution has one or more 
                offices in the United States; and
                  (C) assets (including participations) held by 
                foreign offices of a depository institution in 
                the United States which were acquired from its 
                domestic offices.
          (6) Exemption for certain deposits.--The requirements 
        imposed under paragraph (2) shall not apply to deposits 
        payable only outside the States of the United States 
        and the District of Columbia, except that nothing in 
        this subsection limits the authority of the Board to 
        impose conditions and requirements on member banks 
        under section 25 of this Act or the authority of the 
        Board under section 7 of the International Banking Act 
        of 1978.
          (7) Discount and borrowing.--Any depository 
        institution in which transaction accounts or 
        nonpersonal time deposits are held shall be entitled to 
        the same discount and borrowing privileges as member 
        banks. In the administration of discount and borrowing 
        privileges, the Board and the Federal Reserve banks 
        shall take into consideration the special needs of 
        savings and other depository institutions for access to 
        discount and borrowing facilities consistent with their 
        long-term asset portfolios and the sensitivity of such 
        institutions to trends in the national money markets.
          (8) Transitional adjustments.--
                  (A) Any depository institution required to 
                maintain reserves under this subsection which 
                was engaged in business on July 1, 1979, but 
                was not a member of the Federal Reserve System 
                on or after that date, shall maintain reserves 
                against its deposits during the first twelve-
                month period following the effective date of 
                this paragraph in amounts equal to one-eighth 
                of those otherwise required by this subsection, 
                during the second such twelve-month period in 
                amounts equal to one-fourth of those otherwise 
                required, during the third such twelve-month 
                period in amounts equal to three-eighths of 
                those otherwise required, during the fourth 
                twelve-month period in amounts equal to one-
                half of those otherwise required, and during 
                the fifth twelve-month period in amounts equal 
                to five-eighths of those otherwise required, 
                during the sixth twelve-month period in amounts 
                equal to three-fourths of those otherwise 
                required, and during the seventh twelve-month 
                period in amounts equal to seven-eighths of 
                those otherwise required. This subparagraph 
                does not apply to any category of deposits or 
                accounts which are first authorized pursuant to 
                Federal law in any State after April 1, 1980.
                  (B) With respect to any bank which was a 
                member of the Federal Reserve System during the 
                entire period beginning on July 1, 1979, and 
                ending on the effective date of the Monetary 
                Control Act of 1980, the amount of required 
                reserves imposed pursuant to this subsection on 
                and after the effective date of such Act that 
                exceeds the amount of reserves which would have 
                been required of such bank if the reserve 
                ratios in effect during the reserve computation 
                period immediately preceding such effective 
                date were applied may, at the discretion of the 
                Board and in accordance with such rules and 
                regulations as it may adopt, be reduced by 75 
                per centum during the first year which begins 
                after such effective date, 50 per centum during 
                the second year, and 25 per centum during the 
                third year.
                  (C)(i) With respect to any bank which is a 
                member of the Federal Reserve System on the 
                effective date of the Monetary Control Act of 
                1980, the amount of reserves which would have 
                been required of such bank if the reserve 
                ratios in effect during the reserve computation 
                period immediately preceding such effective 
                date were applied that exceeds the amount of 
                required reserves imposed pursuant to this 
                subsection shall, in accordance with such rules 
                and regulations as the Board may adopt, be 
                reduced by 25 per centum during the first year 
                which begins after such effective date, 50 per 
                centum during the second year, and 75 per 
                centum during the third year.
                  (ii) If a bank becomes a member bank during 
                the four-year period beginning on the effective 
                date of the Monetary Control Act of 1980, and 
                if the amount of reserves which would have been 
                required of such bank, determined as if the 
                reserve ratios in effect during the reserve 
                computation period immediately preceding such 
                effective date were applied, and as if such 
                bank had been a member during such period, 
                exceeds the amount of reserves required 
                pursuant to this subsection, the amount of 
                reserves required to be maintained by such bank 
                beginning on the date on which such bank 
                becomes a member of the Federal Reserve System 
                shall be the amount of reserves which would 
                have been required of such bank if it had been 
                a member on the day before such effective date, 
                except that the amount of such excess shall, in 
                accordance with such rules and regulations as 
                the Board may adopt, be reduced by 25 per 
                centum during the first year which begins after 
                such effective date, 50 per centum during the 
                second year, and 75 per centum during the third 
                year.
                  (D)(i) Any bank which was a member bank on 
                July 1, 1979, and which withdrew from 
                membership in the Federal Reserve System during 
                the period beginning on July 1, 1979, and 
                ending on March 31, 1980, shall maintain 
                reserves during the first twelve-month period 
                beginning on the date of enactment of this 
                clause in amounts equal to one-half of those 
                otherwise required by this subsection, during 
                the second such twelve-month period in amounts 
                equal to two-thirds of those otherwise 
                required, and during the third such twelve-
                month period in amounts equal to five-sixths of 
                those otherwise required.
                  (ii) Any bank which withdraws from membership 
                in the Federal Reserve System on or after the 
                date of enactment of the Depository 
                Institutions Deregulation and Monetary Control 
                Act of 1980 shall maintain reserves in the same 
                amount as member banks are required to maintain 
                under this subsection, pursuant to 
                subparagraphs (B) and (C)(i).
                  (E) This subparagraph applies to any 
                depository institution that, on August 1, 1978, 
                (i) was engaged in business as a depository 
                institution in a State outside the continental 
                limits of the United States, and (ii) was not a 
                member of the Federal Reserve System at any 
                time on or after such date. Such a depository 
                institution shall not be required to maintain 
                reserves against such deposits held or 
                maintained at its offices located in a State 
                outside the continental limits of the United 
                States until the first day of the sixth 
                calendar year which begins after the effective 
                date of the Monetary Control Act of 1980. Such 
                a depository institution shall maintain 
                reserves against such deposits during the sixth 
                calendar year which begins after such effective 
                date in an amount equal to one-eighth of that 
                otherwise required by paragraph (2), during the 
                seventh such year in an amount equal to one-
                fourth of that otherwise required, during the 
                eighth such year in an amount equal to three-
                eighths of that otherwise required, during the 
                ninth such year in an amount equal to one-half 
                of that otherwise required, during the tenth 
                such year in an amount equal to five-eighths of 
                that otherwise required, during the eleventh 
                such year in an amount equal to three-fourths 
                of that otherwise required, and during the 
                twelth such year in an amount equal to seven-
                eighths of that otherwise required.
          (9) Exemption.--This subsection shall not apply with 
        respect to any financial institution which--
                  (A) is organized solely to do business with 
                other financial institutions;
                  (B) is owned primarily by the financial 
                institutions with which it does business; and
                  (C) does not do business with the general 
                public.
          (10) Waivers.--In individual cases, where a Federal 
        supervisory authority waives a liquidity requirement, 
        or waives the penalty for failing to satisfy a 
        liquidity requirement, the Board shall waive the 
        reserve requirement, or waive the penalty for failing 
        to satisfy a reserve requirement, imposed pursuant to 
        this subsection for the depository institution involved 
        when requested by the Federal supervisory authority 
        involved.
          (11) Additional exemptions.--(A)(i) Notwithstanding 
        the reserve requirement ratios established under 
        paragraphs (2) and (5) of this subsection, a reserve 
        ratio of zero per centum shall apply to any combination 
        of reservable liabilities, which do not exceed 
        $2,000,000 (as adjusted under subparagraph (B)), of 
        each depository institution.
          (ii) Each depository institution may designate, in 
        accordance with such rules and regulations as the Board 
        shall prescribe, the types and amounts of reservable 
        liabilities to which the reserve ratio of zero per 
        centum shall apply, except that transaction accounts 
        which are designated to be subject to a reserve ratio 
        of zero per centum shall be accounts which would 
        otherwise be subject to a reserve ratio of 3 per centum 
        under paragraph (2).
          (iii) The Board shall minimize the reporting 
        necessary to determine whether depository institutions 
        have total reservable liabilities of less than 
        $2,000,000 (as adjusted under subparagraph (B)). 
        Consistent with the Board's responsibility to monitor 
        and control monetary and credit aggregates, depository 
        institutions which have reserve requirements under this 
        subsection equal to zero per centum shall be subject to 
        less overall reporting requirements than depository 
        institutions which have a reserve requirement under 
        this subsection that exceeds zero per centum.
          (B)(i) Beginning in 1982, not later than December 31 
        of each year, the Board shall issue a regulation 
        increasing for the next succeeding calendar year the 
        dollar amount specified in subparagraph (A), as 
        previously adjusted under this subparagraph, by an 
        amount obtained by multiplying such dollar amount by 80 
        per centum of the percentage increase in the total 
        reservable liabilities of all depository institutions.
          (ii) The increase in total reservable liabilities 
        shall be determined by subtracting the amount of total 
        reservable liabilities on June 30 of the preceding 
        calendar year from the amount of total reservable 
        liabilities on June 30 of the calendar year involved. 
        In the case of any such twelve-month period in which 
        there has been a decrease in the total reservable 
        liabilities of all depository institutions, no 
        adjustment shall be made. A decrease in total 
        reservable liabilities shall be determined by 
        subtracting the amount of total reservable liabilities 
        on June 30 of the calendar year involved from the 
        amount of total reservable liabilities on June 30 of 
        the previous calendar year.
          (12) Earnings on balances.--
                  (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 
                established by the Federal Open Market 
                Committee not to exceed the general level of 
                short-term interest rates.
                  (B) Regulations relating to payments and 
                distributions.--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); and
          (B) balances maintained by a depository institution 
        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).
  (2) The balances maintained to meet the reserve requirements 
of subsection (b) by a depository institution in a Federal 
Reserve bank or passed through a Federal Home Loan Bank or the 
National Credit Union Administration Central Liquidity Facility 
or another depository institution to a Federal Reserve bank may 
be used to satisfy liquidity requirements which may be imposed 
under other provisions of Federal or State law.
  (d) No member bank shall act as the medium or agent of any 
nonbanking corporation, partnership, association, business 
trust, or individual in making loans on the security of stocks, 
bonds, and other investment securities to brokers or dealers in 
stocks, bonds, and other investment securities. Every violation 
of this provision by any member bank shall be punishable by a 
fine of not more than $100 per day during the continuance of 
such violation; and such fine may be collected, by suit or 
otherwise, by the Federal reserve bank of the district in which 
such member bank is located.
  (e) No member bank shall keep on deposit with any depository 
institution which is not authorized to have access to Federal 
Reserve advances under section 10(b) of this Act a sum in 
excess of 10 per centum of its own paid-up capital and surplus. 
No member bank shall act as the medium or agent of a nonmember 
bank in applying for or receiving discounts from a Federal 
reserve bank under the provisions of this Act, except by 
permission of the Board of Governors of the Federal Reserve 
System.
  (f) The required balance carried by a member bank with a 
Federal reserve bank may, under the regulations and subject to 
such penalties as may be prescribed by the Board of Governors 
of the Federal Reserve System, be checked against and withdrawn 
by such member bank for the purpose of meeting existing 
liabilities.
  (g) In estimating the reserve balances required by this Act, 
member banks may deduct from the amount of their gross demand 
deposits the amounts of balances due from other banks (except 
Federal Reserve banks and foreign banks) and cash items in 
process of collection payable immediately upon presentation in 
the United States, within the meaning of these terms as defined 
by the Board of Governors of the Federal Reserve System.
  (h) National banks, or banks organized under local laws, 
located in a dependency or insular posssession or any part of 
the United States outside the continental United States may 
remain nonmember banks, and shall in that event maintain 
reserves and comply with all the conditions now provided by law 
regulating them; or said banks may, with the consent of the 
Board of Governors of the Federal Reserve System, become member 
banks of any one of the reserve districts, and shall in that 
event take stock, maintain reserves, and be subject to all the 
other provisions of this Act.
  (j) The Board may from time to time, after consulting with 
the Board of Directors of the Federal Deposit Insurance 
Corporation and the Director of the Office of Thrift 
Supervision, prescribe rules governing the payment and 
advertisement of interest on deposits, including limitations on 
the rates of interest which may be paid by member banks on time 
and savings deposits. The Board may prescribe different rate 
limitations for different classes of deposits, for deposits of 
different amounts or with different maturities or subject to 
different conditions regarding withdrawal or repayment, 
according to the nature or location of member banks or their 
depositors, or according to such other reasonable bases as the 
Board may deem desirable in the public interest. No member bank 
shall pay any time deposit before its maturity except upon such 
conditions and in accordance with such rules and regulations as 
may be prescribed by the said Board, or waive any requirement 
of notice before payment of any savings deposit except as to 
all savings deposits having the same requirement: Provided, 
That the provisions of this paragraph shall not apply to any 
deposit which is payable only at an office of a member bank 
located outside of the States of the United States and the 
District of Columbia. During the period commencing on October 
15, 1962, and ending on October 15, 1968, the provisions of 
this paragraph shall not apply to the rate of interest which 
may be paid by member 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.
  (k) No member bank or affiliate thereof, or any successor or 
assignee of such member bank or affiliate or any endorser, 
guarantor, or surety of such member bank or affiliate may 
plead, raise, or claim directly or by counterclaim, setoff, or 
otherwise, with respect to any deposit or obligation of such 
member bank or affiliate, any defense, right, or benefit under 
any provision of a statute or constitution of a State or of a 
territory of the United States, or of any law of the District 
of Columbia, regulating or limiting the rate of interest which 
may be charged, taken, received, or reserved, and any such 
provision is hereby preempted, and no civil or criminal penalty 
which would otherwise be applicable under such provision shall 
apply to such member bank or affiliate or to any other person.
  (l) Civil Money Penalty.--
          (1) First tier.--Any member bank which, and any 
        institution-affiliated party (within the meaning of 
        section 3(u) of the Federal Deposit Insurance Act) with 
        respect to such member bank who, violates any provision 
        of this section, or any regulation issued pursuant 
        thereto, shall forfeit and pay a civil penalty of not 
        more than $5,000 for each day during which such 
        violation continues.
          (2) Second tier.--Notwithstanding paragraph (1), any 
        member bank which, and any institution-affiliated party 
        (within the meaning of section 3(u) of the Federal 
        Deposit Insurance Act) with respect to such member bank 
        who--
                  (A)(i) commits any violation described in 
                paragraph (1);
                  (ii) recklessly engages in an unsafe or 
                unsound practice in conducting the affairs of 
                such member bank; or
                  (iii) breaches any fiduciary duty;
                  (B) which violation, practice, or breach--
                          (i) is part of a pattern of 
                        misconduct;
                          (ii) causes or is likely to cause 
                        more than a minimal loss to such member 
                        bank; or
                          (iii) results in pecuniary gain or 
                        other benefit to such party,
                shall forfeit and pay a civil penalty of not 
                more than $25,000 for each day during which 
                such violation, practice, or breach continues.
                  (3) Third tier.--Notwithstanding paragraphs 
                (1) and (2), any member bank which, and any 
                institution-affiliated party (within the 
                meaning of section 3(u) of the Federal Deposit 
                Insurance Act) with respect to such member bank 
                who--
                          (A) knowingly--
                                  (i) commits any violation 
                                described in paragraph (1);
                                  (ii) engages in any unsafe or 
                                unsound practice in conducting 
                                the affairs of such member 
                                bank; or
                                  (iii) breaches any fiduciary 
                                duty; and
                          (B) knowingly or recklessly causes a 
                        substantial loss to such member bank or 
                        a substantial pecuniary gain or other 
                        benefit to such party by reason of such 
                        violation, practice, or breach,
        shall forfeit and pay a civil penalty in an amount not 
        to exceed the applicable maximum amount determined 
        under paragraph (4) for each day during which such 
        violation, practice, or breach continues.
          (4) Maximum amounts of penalties for any violation 
        described in paragraph (3).--The maximum daily amount 
        of any civil penalty which may be assessed pursuant to 
        paragraph (3) for any violation, practice, or breach 
        described in such paragraph is--
                  (A) in the case of any person other than a 
                member bank, an amount not to exceed 
                $1,000,000; and
                  (B) in the case of a member bank, an amount 
                not to exceed the lesser of--
                          (i) $1,000,000; or
                          (ii) 1 percent of the total assets of 
                        such member bank.
          (5) Assessment; etc.--Any penalty imposed under 
        paragraph (1), (2), or (3) may be assessed and 
        collected by the Board in the manner provided in 
        subparagraphs (E), (F), (G), and (I) of section 8(i)(2) 
        of the Federal Deposit Insurance Act for penalties 
        imposed (under such section) and any such assessment 
        shall be subject to the provisions of such section.
          (6) Hearing.--The member bank or other person against 
        whom any penalty is assessed under this subsection 
        shall be afforded an agency hearing if such member bank 
        or person submits a request for such hearing within 20 
        days after the issuance of the notice of assessment. 
        Section 8(h) of the Federal Deposit Insurance Act shall 
        apply to any proceeding under this subsection.
          (7) Disbursement.--All penalties collected under 
        authority of this subsection shall be deposited into 
        the Treasury.
          (8) Violate defined.--For purposes of this section, 
        the term ``violate'' includes any action (alone or with 
        another or others) for or toward causing, bringing 
        about, participating in, counseling, or aiding or 
        abetting a violation.
          (9) Regulations.--The Board shall prescribe 
        regulations establishing such procedures as may be 
        necessary to carry out this subsection.
  (m) Notice Under This Section After Separation From 
Service.--The resignation, termination of employment or 
participation, or separation of an institution-affiliated party 
(within the meaning of section 3(u) of the Federal Deposit 
Insurance Act) with respect to a member bank (including a 
separation caused by the closing of such a bank) shall not 
affect the jurisdiction and authority of the Board to issue any 
notice and proceed under this section against any such party, 
if such notice is served before the end of the 6-year period 
beginning on the date such party ceased to be such a party with 
respect to such bank (whether such date occurs before, on, or 
after the date of the enactment of this subsection).

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4758 would transfer the authority to set interest paid 
on required and excess reserves from the Board of Governors of 
the Federal Reserve (``Board of Governors'' or ``Board'') to 
the Federal Open Markets Committee (FOMC), in an apparent 
attempt to prevent the members of the Board of Governors from 
having too much influence over the conduct of monetary 
policy.\1\ The FOMC is comprised of the seven Board Governors, 
the New York Reserve Bank President and 4 of the remaining 11 
Reserve Bank Presidents on a rotating basis.
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    \1\https://www.federalreserve.gov/aboutthefed/bios/board/
default.htm
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    Setting the interest paid on reserves is currently the main 
tool by which the Fed effectuates monetary policy. However, 
given the current environment of abundant bank reserves, the 
key monetary policy decision is now setting the target range 
for the federal funds rate. This is a decision that, is made 
collectively between the FOMC and the Board. The bill is 
premised on the idea that the Board, the members of which are 
Presidentially-appointed and Senate confirmed, has too much 
influence over the conduct of monetary policy because it has 
the authority to set interest on reserves. However, this is 
incorrect as different monetary policy functions are split 
between the Board and the FOMC and the decisions to set the 
federal funds rate and interest paid on reserves are not made 
in a vacuum. We also note that the Reserve Bank Presidents are 
appointed by Directors of the Reserve Banks, some of which are 
commercial banks. As a result, private bankers would have a 
much stronger voice to advocate for policy decisions that would 
directly benefit their bottom line.
    Additionally, Republicans have put forward numerous other 
proposals to reform the Federal Reserve system that increase 
the power of the Reserve Banks and roll back constraints on the 
influence of commercial banks within the Federal Reserve 
System. In this light, transferring the power to set the level 
of interest paid on reserves to the FOMC is particularly 
imprudent.
    For these reasons, we oppose H.R. 4758.

                                   Maxine Waters.
                                   Carolyn B. Maloney.
                                   Nydia M. Velazquez.
                                   Wm. Lacy Clay.
                                   Michael E. Capuano.

                                  [all]