WASHINGTON - The House Banking Committee approved a bill Wednesday that would let banks pay interest on business checking accounts - but not until three years after enactment.
In the interim, banks would be granted broader powers to "sweep" funds from interest-bearing accounts to business checking accounts. Some big banks have used so-called sweep accounts for years to avoid a Depression-era ban on paying interest to commercial checking customers.
House Banking Committee Chairman Jim Leach said current law, which had been adopted to prevent banks from recklessly bidding for business customers, is anticompetitive and cuts off a source of funds that could bolster sagging deposits at small banks.
"It is time Congress gets out of the protectionism business that is proving to be blatantly counterproductive," the Iowa Republican said.
Banking industry officials praised the legislation.
"We strongly support the bill, and we are optimistic that it will pass the House very quickly," said Edward L. Yingling, chief lobbyist for the American Bankers Association.
"This has been a top priority for us and we are glad to see it moving through the House," said Diane M. Casey, president of America's Community Bankers. Her group had favored quicker implementation, "but if that's what it takes to get the bill moving, we can live with three years."
Despite industry support and a noncontroversial voice vote in House Banking, sources said that partisan politics is likely to keep the bill from being enacted this year. House Republicans are reportedly reluctant to send any banking bills to the Senate, out of concern that Democrats there will try to attach consumer privacy amendments. The Senate Banking Committee approved similar provisions last year as part of a broader regulatory relief bill, but it stalled for a variety of reasons.
Rep. Leach will push for a full House vote as soon as possible, his spokesman said, adding that House rules will shield it from "extraneous" amendments. Although Senate rules are far more permissive, the spokesman argued that the bill's narrow scope and broad support from the business community would overcome attempts there to bog it down.
Under pressure from commercial bankers who fret about the cost of paying interest on business checking, lawmakers extended implementation to three years after enactment from one year in the original bill. The amendment also would increase the number of sweep transfers a customer may make, to 24 per month from six, effectively allowing one transfer per business day.
Rep. Sue Kelly, R-N.Y., withdrew an amendment that would have required the Federal Reserve to pay banks interest on mandatory reserves. The amendment received broad support, but was withdrawn at the request of Rep. Leach, who warned that it would invite a presidential veto. The Clinton Administration has complained that the price tag on paying interest on reserves at the Fed, an estimated $500 million to $700 million over five years, would be too high. Rep. Leach promised to hold hearings on the matter.
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