[House Report 106-568]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-568
======================================================================
BUSINESS CHECKING MODERNIZATION ACT
_______
April 11, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following
R E P O R T
[To accompany H.R. 4067]
[Including cost estimate of the Congressional Budget Office]
The Committee on Banking and Financial Services, to whom was
referred the bill (H.R. 4067) to repeal the prohibition on the
payment of interest on demand deposits, and for other purposes,
having considered the same, report favorably thereon with an
amendment and recommend that the bill as amended do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Business Checking Modernization Act''.
SEC. 2. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT DEPOSITORY
INSTITUTIONS.
(a) Interest-Bearing Transaction Accounts Authorized.--
(1) Federal reserve act.--Section 19(i) of the Federal
Reserve Act (12 U.S.C. 371a) is amended by inserting at the end
the following: ``Notwithstanding any other provision of this
section, a member bank may permit the owner of any deposit, any
account which is a deposit, or any account on which interest or
dividends are paid to make up to 24 transfers per month (or
such greater number as the Board may determine by rule or
order), for any purpose, to a demand deposit account of the
owner in the same institution. Nothing in this subsection shall
be construed to prevent an account offered pursuant to this
subsection from being considered a transaction account for
purposes of this Act.''.
(2) Home owners' loan act.--
(A) In general.--Section 5(b)(1) of the Home Owners'
Loan Act (12 U.S.C. 1464 (b)(1)) is amended by adding
at the end the following new subparagraph:
``(G) Transfers.--Notwithstanding any other provision
of this paragraph, a Federal savings association may
permit the owner of any deposit or share, any account
which is a deposit or share, or any account on which
interest or dividends are paid to make up to 24
transfers per month (or such greater number as the
Board of Governors of the Federal Reserve System may
determine by rule or order under section 19(i) to be
permissible for member banks), for any purpose, to a
demand deposit account of the owner in the same
institution. Nothing in this subsection shall be
construed to prevent an account offered pursuant to
this subsection from being considered a transaction
account (as defined in section 19(b) of the Federal
Reserve Act) for purposes of the Federal Reserve
Act.''.
(B) Repeal.--Effective at the end of the 3-year
period beginning on the date of the enactment of this
Act, section 5(b)(1) of the Home Owners' Loan Act (12
U.S.C. 1464 (b)(1)) is amended by striking subparagraph
(G).
(3) Federal deposit insurance act.--Section 18(g) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended by
adding at the end the following new paragraph:
``(3) Transfers.--Notwithstanding any other provision of this
subsection, an insured nonmember bank or insured State savings
association may permit the owner of any deposit or share, any
account which is a deposit or share, or any account on which
interest or dividends are paid to make up to 24 transfers per
month (or such greater number as the Board of Governors of the
Federal Reserve System may determine by rule or order under
section 19(i) to be permissible for member banks), for any
purpose, to a demand deposit account of the owner in the same
institution. Nothing in this subsection shall be construed to
prevent an account offered pursuant to this subsection from
being considered a transaction account (as defined in section
19(b) of the Federal Reserve Act) for purposes of the Federal
Reserve Act.''.
(b) Repeal of Prohibition on Payment of Interest on Demand
Deposits.--
(1) Federal reserve act.--Section 19(i) of the Federal
Reserve Act (12 U.S.C. 371a) is amended to read as follows:
``(i) [Repealed]''.
(2) Home owners' loan act.--The 1st sentence of section
5(b)(1)(B) of the Home Owners' Loan Act (12 U.S.C.
1464(b)(1)(B)) is amended by striking ``savings association may
not--'' and all that follows through ``(ii) permit any'' and
inserting ``savings association may not permit any''.
(3) Federal deposit insurance act.--Section 18(g) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended to
read as follows:
``(g) [Repealed]''.
(c) Effective Date.--The amendments made by subsection (b) shall take
effect at the end of the 3-year period beginning on the date of the
enactment of this Act.
SEC. 3. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY IN SETTING RESERVE
REQUIREMENTS.
Section 19(b)(2) of the Federal Reserve Act (12 U.S.C. 461(b)(2)) is
amended--
(1) in clause (i), by striking ``the ratio of 3 per centum''
and inserting ``a ratio not greater than 3 percent''; and
(2) in clause (ii), by striking ``and not less than 8 per
centum''.
Background and Need for Legislation
The Business Checking Modernization Act (the ``Act'')
continues the efforts begun in the 102nd Congress to modernize
the Federal banking laws by removing unnecessary and outmoded
restrictions on the nation's depository institutions and
financial markets and their consumers. Much like the
restrictions imposed by the Glass-Steagall Act, recently
amended in the Gramm-Leach-Bliley Act, the prohibition on
paying interest on demand deposits is a depression-era law put
into place in 1933 in the belief that such a restriction would
help restore the health of the nation's depository
institutions. While history suggests that this restriction may
not have been necessary at that time, there is now wide-spread
agreement that the restriction certainly has no validity in
today's competitive marketplace.
Removing the prohibition on payment of interest on demand
deposits has been under Congressional consideration for more
than 20 years. Initially, the effect of not paying interest on
demand deposits was minimal because of the low inflation
environment that existed until the 1950's. As the markets and
consumers became more sophisticated during a period of rising
interest rates, and competition increased from money market
funds, depository institutions found methods of providing their
deposit customers compensation in the form of ``implicit''
interest in order to retain deposits. This ``implict'' interest
took the form of consumers receiving free checking and other
services at a low cost. As time passed, some institutions
shifted funds on a regular basis into instruments that earned
interest much like today's ``sweep'' programs. State savings
banks created ``NOW'' accounts. In response to the piecemeal
manner in which the prohibition was being eroded, Congress in
1980 authorized depository institutions to offer NOW accounts
to consumers and charitable organizations. At the time NOW
accounts were authorized, consideration was also given to
completely lifting the prohibition on depository institutions
paying interest on demand deposits. Given the significant
changes taking place in the financial industry at the time
because of interest rate deregulation on time and savings
deposits as well as the authorization of NOW accounts for all
depository institutions, it was decided to delay removal of the
prohibition on paying interest on demand deposits.
With the 1980 authorization of NOW accounts for individuals
and charitable organizations, the primary effect of the
prohibition on payment of interest on demand deposits has been
on businesses. Once again, the prohibition on businesses
receiving interest on demand deposits has been eroded in a
piecemeal fashion. Many business depositors earn interest in
the form of a credit against service charges based on the size
of their balance. In addition, depository institutions
construct packages of services for businesses that offer loan
or other products at reduced rates tied to the size of the
balance in the account resulting in an implicit payment of
interest. Also large or sophisticated depositors are able to
minimize holdings in non-interest bearing accounts through
``sweep'' programs where deposits are swept into money market
funds or repurchase agreements which provide a return on the
amount invested. Smaller, less sophisticated, depositors though
have been denied the same opportunities. Permitting the payment
of interest on business demand deposits would result in clear,
full, costing of services leading to more explicit competition.
It is important to recognize that the Act does not require
depository institutions to pay any interest on demand deposits.
Instead, the Act merely removes the prohibition on depository
institutions paying explicit interest on demand deposits
thereby providing institutions more flexibility in how they
structure their accounts. As with consumer checking accounts
today, institutions may offer a range of different business
demand deposits including accounts on which no interest is paid
and those on which interest is paid.
Purpose and Summary
The purpose of this legislation is to eliminate the Federal
prohibition on depository institutions paying interest on
demand deposits. It is intended to permit depository
institutions full flexibility to price their services as
necessary to respond to a highly competitive marketplace and to
remove any legal restriction on paying interest on business
checking accounts. Recognizing that current banking
relationships between depository institutions and their
business customers have been structured to provide for the
receipt of imputed interest and may need to be renegotiated,
the legislation provides for a three-year phase-in period.
During that period, the legislation permits depository
institutions to offer business customers checking accounts that
allow the funds in the account to be swept into an interest-
bearing account on a daily basis. With the repeal of the
prohibition on direct payment of interest on commercial
checking accounts three years after enactment, depository
institutions will be allowed to offer their business customers
a wide range of interest-bearing product options, including
direct interest payments and internal and external sweep
accounts of unlimited frequency, based upon market demands. The
legislation also eliminates the minimum statutory ratios for
reserves that depository institutions are required to maintain
at the Federal Reserve Banks granting the Federal Reserve Board
greater flexibility in setting reserve requirements.
Committee Consideration and Votes
(Rule XI, Clause 2(l)(2)(B))
On March 29, 2000, the Committee met in open session to
mark up H.R. 4067, the ``Business Checking Modernization Act.''
During the markup, the Committee approved, by voice vote, an
amendment to H.R. 4067. With a quorum being present, a motion
to adopt and favorably report H.R. 4067, as amended, to the
House was approved by voice vote.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee reports that 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.
Committee on Government Reform and Oversight Findings
As provided for in clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, no oversight findings have
been submitted to the Committee by the Committee on Government
Reform.
Constitutional Authority
In compliance with clause 3(d)(1) of rule XIII of the Rules
of the House of Representatives, the Constitutional Authority
of Congress to enact this legislation is derived from Article
I, section 8, clause 1 (relating to the general welfare of the
United States): Article I, section 8, clause 3 (relating to
Congressional power to regulate commerce); Article 1, section
8, clause 5 (relating to the power ``to coin money'' and
``regulate the value thereof''); and Article I, section 8,
clause 18 (relating to making all laws necessary and proper for
carrying into execution powers vested by the Constitution in
the government of the United States).
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Congressional Accountability Act
The reporting requirement under section 102(b)(3) of the
Congressional Accountability Act (P.L. 104-1) is inapplicable
because this legislation does not relate to terms and
conditions of employment or access to public services or
accommodations.
Congressional Budget Office Cost Estimate and Unfunded Mandates
Analysis
H.R. 4067--Business Checking Modernization Act
H.R. 4067 would repeal the prohibition on depository
institutions paying interest on the demand deposits of their
business customers. The repeal would take effect three years
after the date of enactment. In the interim three-year period,
H.R. 4067 would in effect authorize depository institutions to
offer a new type of savings deposit. It would be allowed up to
24 transfers per month (more if the Federal Reserve allows)
into a demand deposit, and it would be subject to reserve
requirements. The bill would also provide the Federal Reserve
with more flexibility in setting required reserve ratios on
transactions accounts by removing the lower limits on the
ranges of allowable ratios.
CBO estimates that the bill would have insignificant
effects on both federal revenues and outlays. The bill could
have the effect of increasing demand deposits at depository
institutions, especially after three years when interest could
be paid on demand deposits, but based on information provided
by staff of the Board of Governors of the Federal Reserve
System, CBO estimates that such an effect would not be
significant. If the bill did have a significant effect on
demand deposits, that could cause a significant increase in
required reserves on deposit at the Federal Reserve, which
would invest the reserves and remit the return to the Treasury
as governmental receipts.
Allowing banks to pay interest on commercial checking
accounts could reduce the profitability of some depository
institutions. However, certain institutions may be able to
retain deposits that would otherwise flow to other providers of
financial services. Even if reduced profitability of some
institutions did occur because they faced higher interest
costs, their business depositors would earn greater profits.
Overall profits and federal revenue, therefore, would not be
affected.
Based on information from the Federal Deposit Insurance
Corporation, CBO estimates that the bill would have no
significant impact on the total balance of insured deposits or
the likelihood that some institutions would fail and,
therefore, no significant impact on federal spending.
Section-by-Section Analysis
Section 2. Amendments relating to demand deposit accounts at depository
institutions
Section 2(a) amends the Federal Reserve Act, the Home
Owners' Loan Act, and the Federal Deposit Insurance Act to
permit banks and thrifts to immediately on the date of
enactment offer customers the ability to have a daily sweep--24
transfers a month--from an interest bearing account into their
checking account. The Federal Reserve Board is given the
authority to permit more than 24 transfers a month. This
subsection also permits the Federal Reserve Board to determine
that the interest-bearing account from which funds would be
transferred is subject to reserve requirements.
Section 2(b) amends the Federal Reserve Act, the Home
Owner's Loan Act, and the Federal Deposit Insurance Act to
repeal the prohibition on the payment of interest on demand
deposits.
Section 2(c) provides that the provisions of section 2(b)
shall take effect at the end of the 3-year period beginning on
the date of enactment.
Section 3. Increased Federal Reserve Board flexibility in setting
reserve requirements
Section 3 amends the Federal Reserve Act to eliminate the
minimum statutory ratios of 3% against the first $25 million in
transactions accounts held at a depository institution and 8%
against the amount above that threshold level leaving the
Federal Reserve Board with greater flexibility in setting
reserve requirements. The Committee recognizes that changing
circumstances could warrant adjustments to required ratios in
the future, possibly including reductions, but the greater
flexibility granted the Federal Reserve Board is not intended
to encourage the Board to reduce reserves to ``zero.'' A
positive level of required reserve balances is likely to
continue to be helpful to the Federal Reserve in the
implementation of monetary policy. For instance, the
maintenance of reserve balances help guard against an
undesirable increase in the volatility of the federal funds
rate. It would be expected that the Federal Reserve Board, as
part of its semi-annual Humphrey-Hawkins report or equivalent
report to Congress, discuss any reasoning behind any adjustment
in reserve requirements it makes.
Over the three-year interim period, the bill would have an
insignificant effect on demand deposits because the new
accounts would have limited appeal. Many depository
institutions currently utilize sweep programs that regularly
transfer amounts between savings accounts not subject to
reserve requirements and demand deposits in order to minimize
amounts in the non-interest-bearing, demand deposits of
businesses that are subject to reserve requirements. Where
depository institutions do not provide sweep accounts, many
businesses achieve the same effect through their own cash
management programs. Since the new accounts would be subject to
reserve requirements, they would likely pay a lower yield than
the instruments utilized by sweep or cash management accounts.
The effect of allowing interest on business demand
depositors would also be limited for the same reason. The
interest earned on demand deposits would be less than that
available on alternative instruments, which would be nearly as
liquid. Some effect might be possible, especially for firms
without sophisticated cash management programs with demand
deposits in institutions without sweep programs, who might
otherwise move their deposits to nonbank competitors. Such an
effect, however, is not expected to cause significant budgetary
effects.
CBO estimates no budgetary effect would occur from the
provision providing the Federal Reserve with additional
flexibility in setting required reserve ratios. The Federal
Reserve is not currently limited by one of the two ranges
affected, and its staff have indicated no policy change would
be likely to occur economic environment.
Because H.R. 4067 would affect direct specifying or
receipts, pay-as-you-go procedures would apply. However, CBO
estimates that such effects would be insignificant. H.R. 4067
contains no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act and would impose no
costs on the budgets of state, local, or tribal governments.
The CBO staff contacts for this estimate are Mark Booth
(for federal revenues), and Mark Hadley (for federal spending).
This estimate was approved by Peter H. Fontaine, Deputy
Assistant Director for Budget Analysis, and G. Thomas Woodward,
Assistant Director for Tax Analysis
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 (which unless stated otherwise, are effective on the
date of enactment), as reported, are shown as follows (existing
law proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECTION 19 OF THE FEDERAL RESERVE ACT
bank reserves
Sec. 19. (a) * * *
* * * * * * *
(b) Reserve Requirements.--
(1) * * *
* * * * * * *
(2) Reserve requirements.--(A) Each depository
institution shall maintain reserves against its
transaction accounts as the Board may prescribe by
regulation solely for the purpose of implementing
monetary policy--
(i) in [the ratio of 3 per centum] a ratio
not greater than 3 percent for that portion of
its total transaction accounts of $25,000,000
or less, subject to subparagraph (C); and
(ii) in the ratio of 12 per centum, or in
such other ratio as the Board may prescribe not
greater than 14 per centum [and not less than 8
per centum], for that portion of its total
transaction accounts in excess of $25,000,000,
subject to subparagraph (C).
* * * * * * *
(i) No member bank shall, directly or indirectly, by any
device whatsoever, pay any interest on any deposit which is
payable on demand: Provided, That nothing herein contained
shall be construed as prohibiting the payment of interest in
accordance with the terms of any certificate of deposit or
other contract entered into in good faith which is in force on
the date on which the bank becomes subject to the provisions of
this paragraph; but no such certificate of deposit or other
contract shall be renewed or extended unless it shall be
modified to conform to this paragraph, and every member bank
shall take such action as may be necessary to conform to this
paragraph as soon as possible consistently with its contractual
obligations: Provided further, That this paragraph shall not
apply to any deposit of such bank which is payable only at an
office thereof located outside of the States of the United
States and the District of Columbia: Provided further, That
until the expiration of two years after the date of enactment
of the Banking Act of 1935 this paragraph shall not apply (1)
to any deposit made by a savings bank as defined in section 12B
of this Act, as amended,or by a mutual savings bank, or (2) to
any deposit of public funds made by or on behalf of any State, county,
school district, or other subdivision or municipality, or to any
deposit of trust funds if the payment of interest with respect to such
deposit of public funds or of trust funds is required by State law. So
much of existing law as requires the payment of interest with respect
to any funds deposited by the United States, by any Territory,
District, or possession thereof (including the Philippine Islands), or
by any public instrumentality, agency, or officer of the foregoing, as
is inconsistent with the provisions of this section as amended, is
hereby repealed. Notwithstanding any other provision of this section, a
member bank may permit withdrawals to be made automatically from a
savings deposit that consists only of funds in which the entire
beneficial interest is held by one or more individuals through payment
to the bank itself or through transfer of credit to a demand deposit or
other account pursuant to written authorization from the depositor to
make such payments or transfers in connection with checks or drafts
drawn upon the bank, pursuant to terms and conditions prescribed by the
Board. Notwithstanding any other provision of this section, a member
bank may permit the owner of any deposit, any account which is a
deposit, or any account on which interest or dividends are paid to make
up to 24 transfers per month (or such greater number as the Board may
determine by rule or order), for any purpose, to a demand deposit
account of the owner in the same institution. Nothing in this
subsection shall be construed to prevent an account offered pursuant to
this subsection from being considered a transaction account for
purposes of this Act.
* * * * * * *
The amendment to this section, shall take effect 3 years after the
enactment of this bill
bank reserves
Sec. 19. (a) * * *
* * * * * * *
[(i) No member bank shall, directly or indirectly, by any
device whatsoever, pay any interest on any deposit which is
payable on demand: Provided, That nothing herein contained
shall be construed as prohibiting the payment of interest in
accordance with the terms of any certificate of deposit or
other contract entered into in good faith which is in force on
the date on which the bank becomes subject to the provisions of
this paragraph; but no such certificate of deposit or other
contract shall be renewed or extended unless it shall be
modified to conform to this paragraph, and every member bank
shall take such action as may be necessary to conform to this
paragraph as soon as possible consistently with its contractual
obligations: Provided further, That this paragraph shall not
apply to any deposit of such bank which is payable only at an
office thereof located outside of the States of the United
States and the District of Columbia: Provided further, That
until the expiration of two years after the date of enactment
of the Banking Act of 1935 this paragraph shall not apply (1)
to any deposit made by a savings bank as defined in section 12B
of this Act, as amended, or by a mutual savings bank, or (2) to
any deposit of public funds made by or on behalf of any State,
county, school district, or other subdivision or municipality,
or to any deposit of trust funds if the payment of interest
with respect to such deposit of public funds or of trust funds
is required by State law. So much of existing law as requires
the payment of interest with respect to any funds deposited by
the United States, by any Territory, District, or possession
thereof (including the Philippine Islands), or by any public
instrumentality, agency, or officer of the foregoing, as is
inconsistent with the provisions of this section as amended, is
hereby repealed. Notwithstanding any other provision of this
section, a member bank may permit withdrawals to be made
automatically from a savings deposit that consists only of
funds in which the entire beneficial interest is held by one or
more individuals through payment to the bank itself or through
transfer of credit to a demand deposit or other account
pursuant to written authorization from the depositor to make
such payments or transfers in connection with checks or drafts
drawn upon the bank, pursuant to terms and conditions
prescribed by the Board. Notwithstanding any other provision of
this section, a member bank may permit the owner of any
deposit, any account which is a deposit, or any account on
which interest or dividends are paid to make up to 24 transfers
per month (or such greater number as the Board may determine by
rule or order), for any purpose, to a demand deposit account of
the owner in the same institution. Nothing in this subsection
shall be construed to prevent an account offered pursuant to
this subsection from being considered a transaction account for
purposes of this Act.]
(i) [Repealed]
* * * * * * *
----------
SECTION 5 OF THE HOME OWNERS' LOAN ACT
SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.
(a) * * *
* * * * * * *
(b) Deposits and Related Powers.--
(1) Deposit accounts.--
(A) * * *
* * * * * * *
(B) A Federal [savings association may not--
[(i) pay interest on a demand
account; or
[(ii) permit any] savings association
may not permit any overdraft (including
an intraday overdraft) on behalf of an
affiliate, or incur any such overdraft
in such savings association's account
at a Federal reserve bank or Federal
home loan bank on behalf of an
affiliate.
* * * * * * *
(G) Transfers.--Notwithstanding any other
provision of this paragraph, a Federal savings
association may permit the owner of any deposit
or share, any account which is a deposit or
share, or any account on which interest or
dividends are paid to make up to 24 transfers
per month (or such greater number as the Board
of Governors of the Federal Reserve System may
determine by rule or order under section 19(i)
to be permissible for member banks), for any
purpose, to a demand deposit account of the
owner in the same institution. Nothing in this
subsection shall be construed to prevent an
account offered pursuant to this subsection
from being considered a transaction account (as
defined in section 19(b) of the Federal Reserve
Act) for purposes of the Federal Reserve Act.
* * * * * * *
The amendment to this section, shall take effect 3 years after the date
of enactment of this bill
SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.
(a) * * *
* * * * * * *
(b) Deposits and Related Powers.--
(1) Deposit accounts.--
(A) * * *
* * * * * * *
[(G) Transfers.--Notwithstanding any other
provision of this paragraph, a Federal savings
association may permit the owner of any deposit
or share, any account which is a deposit or
share, or any account on which interest or
dividends are paid to make up to 24 transfers
per month (or such greater number as the Board
of Governors of the Federal Reserve System may
determine by rule or order under section 19(i)
to be permissible for member banks), for any
purpose, to a demand deposit account of the
owner in the same institution. Nothing in this
subsection shall be construed to prevent an
account offered pursuant to this subsection
from being considered a transaction account (as
defined in section 19(b) of the Federal Reserve
Act) for purposes of the Federal Reserve Act.]
* * * * * * *
----------
SECTION 18 OF THE FEDERAL DEPOSIT INSURANCE ACT
Sec. 18. (a) * * *
* * * * * * *
(g)(1) * * *
* * * * * * *
(3) Transfers.--Notwithstanding any other provision
of this subsection, an insured nonmember bank or
insured State savings association may permit the owner
of any deposit or share, any account which is a deposit
or share, or any account on which interest or dividends
are paid to make up to 24 transfers per month (or such
greater number as the Board of Governors of the Federal
Reserve System may determine by rule or order under
section 19(i) to be permissible for member banks), for
any purpose, to a demand deposit account of the owner
in the same institution. Nothing in this subsection
shall be construed to prevent an account offered
pursuant to this subsection from being considered a
transaction account (as defined in section 19(b) of the
Federal Reserve Act) for purposes of the Federal
Reserve Act.
* * * * * * *
The amendment to this section, shall take effect 3 years after the date
of enactment of this bill
Sec. 18. (a) * * *
* * * * * * *
[(g)(1) The Board of Directors shall by regulation prohibit
the payment of interest or dividends on demand deposits in
insured nonmember banks and in insured branches of foreign
banks and for such purpose it may define the term ``demand
deposits''; but such exceptions from this prohibition shall be
made as are now or may hereafter be prescribed with respect to
deposits payable on demand in member banks by section 19 of the
Federal Reserve Act, as amended, or by regulation of the Board
of Governors of the Federal Reserve System. The Board of
Directors may from time to time, after consulting with the
Board of Governors of the Federal Reserve System and the
Director of the Office of Thrift Supervision, prescribe rules
governing the advertisement of interest or dividends on
deposits, including limitations on the rates of interest or
dividends that may be paid by insured nonmember banks
(including insured mutual savings banks) on time and savings
deposits. The Board of Directors is authorized for the purposes
of this subsection to define the terms ``time deposits'' and
``savings deposits'', to determine what shall be deemed a
payment of interest, and to prescribe such regulations as it
may deem necessary to effectuate the purposes of this
subsection and to prevent evasions thereof. The provisions of
this subsection and of regulations issued thereunder shall also
apply, in the discretion of the Board of Directors, to
obligations other than deposits that are undertaken by insured
nonmember banks or their affiliates. As used in this
subsection, the term ``affiliate'' has the same meaning as when
used in section 2(b) of the Banking Act of 1933, as amended (12
U.S.C. 221a(b)), except that the term ``member bank'', as used
in such section 2(b), shall be deemed to refer to an insured
nonmember bank. During the period commencing on October 15,
1962, and ending on October 15, 1968, the provisions of this
subsection shall not apply to the rate of interest which may be
paid by insured nonmember banks on time deposits of foreign
governments, monetary and financial authorities of foreign
governments when acting as such, or international financial
institutions of which the United States is a member. The
authority conferred by this subsection shall also apply to
noninsured banks in any State if the total amount of time and
savings deposits held in all such banks in the State, plus the
total amount of deposits, shares, and withdrawable accounts
held in all building and loan, savings and loan, and homestead
associations (including cooperative banks) in the State which
are not members of a Federal home loan bank, is more than 20
per centum of the total amount of such deposits, shares, and
withdrawable accounts held in all banks, and building and loan,
savings and loan, and homestead associations (including
cooperative banks) in the State. Such authority shall only be
exercised by the Board of Directors with respect to such
noninsured banks prior to July 31, 1970, to limit the rates of
interest or dividends which such banks may pay on time and
savings deposits to maximum rates not lower than 5\1/2\ per
centum per annum. Whenever it shall appear to the Board of
Directors that any noninsured bank or any affiliate thereof is
engaged or has engaged or is about to engage in any acts or
practices which constitute or will constitute a violation of
the provisions of this subsection or of any regulations
thereunder, the Board of Directors may, in its discretion,
bring an action in the United States district court for the
judicial district in which the principal office of the
noninsured bank or affiliate thereof is located to enjoin such
acts or practices, to enforce compliance with this subsection
or any regulations thereunder, or for a combination of the
foregoing, and such courts shall have jurisdiction of such
actions, and, upon a proper showing, an injunction, restraining
order, or other appropriate order may be granted without bond.
[(2) Notwithstanding the provisions of paragraph (1), an
insured nonmember bank may permit withdrawals to be made
automatically from a savings deposit that consists only of
funds in which the entire beneficial interest is held by one or
more individuals through payment to the bank itself or through
transfer of credit to a demand deposit or other account
pursuant to written authorization from the depositor to make
such payments or transfers in connection with checks or drafts
drawn upon the bank, pursuant to terms and conditions
prescribed by the Board of Directors.
[(3) Transfers.--Notwithstanding any other provision of this
subsection, an insured nonmember bank or insured State savings
association may permit the owner of any deposit or share, any
account which is a deposit or share, or any account on which
interest or dividends are paid to make up to 24 transfers per
month (or such greater number as the Board of Governors of the
Federal Reserve System may determine by rule or order under
section 19(i) to be permissible for member banks), for any
purpose, to a demand deposit account of the owner in the same
institution. Nothing in this subsection shall be construed to
prevent an account offered pursuant to this subsection from
being considered a transaction account (as defined in section
19(b) of the Federal Reserve Act) for purposes of the Federal
Reserve Act.]
(g) [Repealed]
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