WASHINGTON — Sen. Chuck Hagel, R-Neb., has reintroduced legislation that would let banks pay interest on business checking accounts as early as 2003.

Under the bill, banks and thrifts would be able to offer the interest-bearing products two years after enactment. In the interim, the legislation would increase to 24 per month, from six, the number of times banks could “sweep” funds overnight from non-interest-bearing commercial checking accounts into interest-bearing accounts.

The legislation, introduced Wednesday, also would authorize the government to pay interest on reserves that banks and thrifts are required to deposit with the Federal Reserve.

“There are nonbanking institutions who offer ‘deposit-like’ money accounts to individuals and large corporations, and larger banks are able to offer a similar product to their wealthier customers,” according to a statement last week from Sen. Hagel, a member of the Banking Committee. “This leaves small banks and small businesses at a competitive disadvantage.”

The measure is substantively identical to one that easily cleared the House and Senate Banking Committee last year, then stalled in the Senate. It has the strong backing of the small-business and farm lobbies, but banking industry opinion is divided on interest-bearing business checking.

Some small banks predict that the new product would attract more customers and funds. Other community banks opposed it out of fear that it would drive up the cost of deposits. A few large institutions oppose the move because they have already invested so much in sweep programs and hold a competitive advantage.

America’s Community Bankers, which has long advocated permitting interest payments on commercial checking accounts, hailed the bill. “It’s necessary for community banks to service their small-business customers,” a spokesman for the group said, adding that the prospect of enactment “should be very good.”

The American Bankers Association strongly supports the sweep provision of the bill. “We want to pass the sweeps portion of the legislation,” said Edward L. Yingling, the group’s chief lobbyist, “and the order from our board is that if that ends up in a package with interest on business checking accounts, then we’ll support it.”

Mr. Yingling said that though requiring the government to pay interest on mandatory reserves would be good monetary policy it probably would not transfer significant amounts to banks because of the small amounts of funds they keep at the Fed.

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