[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]