Banks and thrifts could offer business customers interest-bearing checking accounts under a bill expected to be introduced next month.
Banks are split on whether they want to pay interest on business checking accounts, but as a sweetener the bill would also allow institutions to earn interest on reserves they must keep.
Leading sponsors of the bill are Rep. Jack Metcalf, R-Wash., and Rep. Marge Roukema, R-N.J., chairwoman of House Banking's financial institutions subcommittee.
America's Community Bankers, the thrift trade group, supports the plan because small institutions are losing customers to big banks and brokerage houses. These larger competitors can offer sophisticated "sweep accounts," which move customers' excess checking balances into short-term deposits such as money market funds or government securities.
"Our financial institutions and businesses, especially small businesses, are being hurt by outdated legislation that has benefited only those able to afford complicated and expensive sweep processes," Rep. Metcalf said in a prepared statement.
But the bill's chances for enactment may be slim in this election year, as lawmakers spend more time in their districts campaigning. Still, the bill could be attached to a larger one with more momentum, such as the regulatory relief bill, said an aide to Rep. Roukema.
Reps. Metcalf and Roukema decided to include interest on reserves at the urging of the Fed, which wants to eliminate a longtime sore point with banks, according to an aide to Rep. Metcalf.
Bank are required to keep up to 10% of their transaction deposits on reserve at the Fed as a cushion against loan losses. Bankers have complained that "sterile" reserves force them to pay lower deposit rates to customers.
But some aren't eager to pay business customers for the checking accounts, even if they earn interest on Fed reserves.
Anthony S. Abbate, president of Interchange State Bank in Saddle Brook, N.J., said he is able to compete without offering interest checking to business customers. "I'm only 15 minutes away from New York City. How come I can survive if this is so important?"
Still, Kenneth Guenther, executive vice president at the Independent Bankers Association of America, insisted most small banks would like to offer the service. To find out, the group plans to survey its members on the question. The American Bankers Association has not taken a position on the legislation.