ICBA - Publications - Key Senators Introduce New and Troublesome Business Checking Bill

Key Senators Introduce New and Troublesome Business Checking Bill

DECEMBER 5, 2003


Key Senators Introduce New and Troublesome Business Checking Bill

Senate Banking Committee member Chuck Hagel (R-NE) and Senate Small Business Committee chair Olympia Snowe (R-ME) have jointly introduced new legislation (S. 1967) on interest on business checking accounts. The measure is very similar to a House-passed bill (H.R. 758), with one major exception.

Like its House counterpart, the Hagel-Snowe bill contains an ICBA-supported provision that would immediately increase the allowable number of monthly MMDA sweep transactions from six to 24. This would enable banks and thrifts effectively to offer an interest-bearing account for their business customers, but without mandating that they do so. Both bills would also permit the Federal Reserve to pay interest on sterile reserves. ICBA believes that these two provisions could serve as the basis for good compromise legislation on the controversial interest on business checking issue, which has been kicking around Congress for close to a decade.

However, the Hagel-Snowe bill, like H.R. 758, also calls for repeal of the existing prohibition on the payment of interest on demand deposit accounts, including business checking, two years after enactment. Community banks remain divided on this issue.

So what does the new bill propose for the industrial loan company-that unsightly creature that swims in murky waters outside of holding company supervision and regulation? The Hagel-Snowe bill contains a new provision, not included in the House-passed bill, that would call for the Treasury Department and federal financial regulators jointly to issue, within two years of enactment, regulations that could limit or restrict the type of institutions or accounts covered under the new law. Hypothetically, this could prevent ILCs from gaining this new authority. But such an outcome seems highly improbable, since while the Fed (thankfully) would support such an ILC-focused restriction, the FDIC apparently wouldn't. If the regulators did not issue any regulations within two years, the full-repeal language would take effect and ILCs would get this new power anyway.

Senator Hagel is a proven friend of community banking. But ILCs that can be owned by commercial firms such as Wal-Mart must not be accorded additional banking powers, nor should their owner parents, such as Merrill Lynch or Salomon Smith Barney, be allowed to continue gaming the regulatory system (their "games" to date have faced extraordinary regulatory attention, but the fines don't seem commensurate with the nature of the "crimes"). Chairman Greenspan has expressed both these concerns.