110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: In recent years, legislation has been introduced that would allow banks to pay interest on business checking accounts, and require the Federal Reserve to pay interest on so- called sterile reserves deposited by financial institutions at the twelve Federal Reserve Banks. The Federal Reserve Act currently requires depository institutions to maintain reserves against certain deposit liabilities. These funds, referred to as required reserve balances or sterile reserves, do not earn interest. As of the end of 2000, 1,285 credit unions were subject to reserve requirements, and filed FR 2900 forms with the Federal Reserve either weekly or quarterly.

Rep. Kelly (R-NY) reintroduced the Business Checking Freedom Act of 2005. The legislation contains a provision, that was offered as an amendment to the bill in the 108th Congress, to include credit unions in the Federal Reserve's annual survey of retail financial services fees and extends indefinitely the requirement that the Fed conduct the annual survey and reports its findings to Congress.

Sen. Hagel (R-NE) introduced a companion bill, the Interest on Business Checking Act of 2005. The Senate legislation does not contain a provision regarding the Federal Reserve’s annual fee study.

CUNA POSITION: CUNA does not have a position on business checking accounts for banks, but supports efforts to require the Fed to pay interest on sterile reserves. Additionally, CUNA strongly supports the inclusion of credit unions in the Fed’s annual survey in order to make it easier for consumers to comparison shop when looking for financial services providers.

OPPOSING VIEWS: The banking industry is split on the issue of whether to pay interest on business checking accounts. The inclusion of credit unions into the fee study has been accepted by the banking industry.

IMPACT ON CREDIT UNIONS: Paying interest on sterile reserves would bring fairness to the reserve requirement process and lessen the regulatory burdens for credit unions dealing with the Fed. Including credit unions in the Federal Reserve Board’s annual retail bank fee survey will document the differences in costs between banks, thrifts and credit unions in a way that helps consumers and enhances competition in the marketplace.

STATUS/OUTLOOK: H.R. 1224 was marked- up by the House Financial Services Committee on April 27, 2005 and was passed by voice vote. An amendment was offered and passed by voice vote that would include courtesy pay and bounce protection fees as part of the Fed Fee study. The bill passed the House of Representatives by voice vote on May 24, 2005.

The Senate companion bill, S. 1586, was introduced on July 29, 2005 and was referred to the Senate Banking Committee.

Related Documents:

April 26, 2005: Letter to House Committee on Financial Services Regarding H.R. 1224

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