A House Banking subcommittee will hold hearings on a Federal Reserve Board proposal to give banks an extra day to clear local checks.

Rep. Michael N. Castle, the panel's chairman, said Wednesday that he is skeptical of the Fed's plan. "With the current level of technology available, the Fed's proposal to add an additional day to the check clearing process seems to be going in the wrong direction," the Delaware Republican said.

Fed Chairman Alan Greenspan, who presented his semi-annual economic report to House Banking's monetary policy subcommittee, did not respond to Rep. Castle's remarks.

At the hearing, however, Rep. Carolyn Maloney released a March 3 letter from Mr. Greenspan that claims an extra day would allow banks to clear 81% of checks before making a customer's funds available.

"Providing banks with a reasonable opportunity to learn about the nonpayment of checks gives banks a tool to protect themselves from fraud associated with check deposits," Mr. Greenspan wrote.

The Fed chairman added that a 1996 study showed most banks would only use the extra day to hold checks they suspected would not clear.

Also during the hearing, Rep. Jack Metcalf, R-Wash., said he plans to introduce legislation to allow the Fed to pay interest on the reserves that banks keep on deposit. It also would allow banks to pay interest on small business checking accounts.

Senate Banking Committee Chairman Alfonse M. D'Amato pledged last week to introduce similar legislation.

Rep. Castle also announced he plans to hold hearings on the emergence of electronic payment systems. "We look forward to hearing how the Fed is planning for the potential of new technology to affect systemic security, safety, soundness, consumer privacy, as well as the future conduct of monetary policy," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.