WASHINGTON - More than 60 small banks have banded together to stop legislation that would permit interest payments on business checking accounts, but their opposition may be too little, too late.

J. William Johnson, chairman and chief executive officer of First National Bank of Long Island in Huntington, N.Y., and Peter Fasseas, chairman of Metropolitan Bank Group, based in Chicago, spearheaded the group's letter to House Republican leaders this month blasting the bill. Signed primarily by bankers from New York, Illinois, and Texas, the letter said community banks could not bear the expense of interest payments and added reserve requirements.

Instead, the group favors expanding to 24 the number of withdrawals that corporate customers may make each month from so-called "sweep," or money market deposit, accounts. The current limit is six per month. Mr. Johnson said in an interview Monday that expanded sweep accounts would be less expensive because fewer customers can afford to take advantage of them because they require large balances.

"We feel a lot less at risk cost-wise with 24 transfers," Mr. Johnson said. "This would not expose all of [small banks'] corporate checking accounts to the payment of interest, which could be really devastating."

While paying interest would be voluntary under the bill, competition would force small banks' hands, he said. Mr. Johnson's co-organizer, Mr. Fasseas, is said to be politically connected. Among other contributions, he gave $20,000 to the Republican National Committee in January and donated $1,000 each to Democratic Sens. Paul Sarbanes of Maryland and Tim Johnson of South Dakota in the past 15 months, according to the Center for Responsive Politics. (Mr. Fasseas was on vacation and unavailable to comment.)

But the community bankers face an uphill battle. Last week the House adopted a compromise version on a voice vote, and the Clinton Administration supported the measure after opposing similar bills in the past.

The legislation is enthusiastically supported by the business lobby and America's Community Bankers while the American Bankers Association and the Independent Community Bankers of America have given lukewarm endorsements.

Industry lobbyists say interest payments are probably a foregone conclusion and that the key disputes will be over how soon they will be permitted and whether banks may earn interest on reserves placed at the Federal Reserve.

The ABA backed the House bill after Banking Committee Chairman Jim Leach, who co-authored it, agreed to delay interest payments on business checking until three years after enactment. The original bill would have kicked in within a year. In the interim, sweep accounts would be expanded to 24 transfers per month.

The Senate bill, which the Banking Committee approved in February 1999, would permit interest payments on Jan. 1 and expand withdrawals from sweep accounts in the interim. Sen. Charles E. Schumer, D-N.Y., is asking Sen. Richard C. Shelby, R-Ala., a co-author of the legislation, to delay enactment to give small bankers more time to prepare.

But the business lobby wants interest payments to start as soon as possible. "Three years is entirely too long for small business owners to [wait to] receive interest on their business checking accounts," said Mary E. Leon, a National Federation of Independent Business lobbyist. "Most of them don't like sweep accounts and can't understand why it would be so enormously difficult for banks to set these accounts up if they are already offering individuals interest on their personal accounts."

The banking lobby will push for a provision in the Senate bill that would let the Fed pay interest on mandatory reserves as a way to offset banks' costs for paying interest on business checking. The House excluded interest payments on reserves from its bill, however, because the White House opposes these payments as too expensive.

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