The Independent Bankers Association of America will not lobby for interest-bearing business checking accounts, though most community bankers in a recent survey favored them.
Of the 805 community bankers queried by the association, 58% favored letting banks pay interest on business checking accounts to any customer; 42% were opposed.
"To our minds there wasn't enough of a consensus to have us push for interest on transaction accounts," said Karen Thomas, the association's director of regulatory affairs.
The IBAA wanted to gauge member sentiment about a bill that would let banks offer business customers interest-bearing checking accounts and would require the Federal Reserve to pay interest on "sterile reserves." These reserves are funds banks must keep on deposit with the Fed as a cushion against losses.
Trade groups are expected to testify in mid-May at a hearing of House Banking's financial institutions subcommittee, according to Eric Strom, a senior legislative assistant to Rep. Jack Metcalf, R-Wash.
The banks surveyed by IBAA consistently fell into a 60%-40% split on most facets of the issue, including interest on sterile reserves.
Basically, banks that favor the bill said they need the added service to compete with larger banks that have the resources to offer sweep accounts moving customers' money into short-term deposits. Banks that oppose the bill said the added business would not defray the interest cost.
Rep. Metcalf and Rep. Marge Roukema, R-N.J., tried to entice bank support by attaching the plan for interest on Fed reserves.
But apparently the sweetener was not sweet enough for the 40% of dissenting banks.
"The interesting thing for us," Ms. Thomas said, "was that the issue of sterile reserves was not enough of a sweetener for some of our members."
A popular alternative, favored by 63% of the banks, was permitting more than six transactions a month in and out of money market accounts. Such flexibility would let community banks use the accounts as sweep vehicles.
Mr. Smith writes for Medill News Service.
