WASHINGTON - Banks that are required to keep deposits in Federal Reserve banks would earn interest on this money under a bill approved by bipartisan voice vote in the House Banking Committee on Wednesday.
Banks currently earn no interest on reserve deposits held by the Fed, so they have devised complex systems to reduce their reserve requirements. The total amount held in reserve deposits fell to $6 billion last year from $28 billion in 1993. The Fed has claimed that declining reserve deposits affect its ability to implement effective monetary policy.
The Bank Reserves Modernization Act of 2000, introduced by Rep. Sue Kelly, R-N.Y., was designed to stabilize the amount of reserves in the system. Committee Chairman Jim Leach, R-Iowa, said in his opening statement that the bill would "give the Fed additional leverage in managing monetary policy, chiefly by eliminating a major disincentive for holding funds at the Fed."
The Fed indicated its support of the bill in testimony before the committee by Governor Laurence H. Meyer last month and in a letter from Chairman Alan Greenspan that members of the committee received on Tuesday.
As introduced, the bill did not specify how the government would pay the more than $100 million annual interest on reserves. Rep. Leach began the session by introducing an amendment that would require the interest be paid from the Fed's surplus account. The amendment was adopted after a short debate.
A similar piece of legislation has already passed the Senate Banking Committee as part of a regulatory relief package. An unrelated amendment on privacy has held up a vote on the Senate floor. If the Senate does not vote, the House bill could still be adopted by attaching it to other legislation approved by the Senate.
Banking industry trade groups applauded the House Banking Committee's vote. "We are very supportive of the bill and we think it now has a good chance to be enacted, given the fact that the final vote was completely bipartisan," said Edward L. Yingling, chief lobbyist for the American Bankers Association.
Mr. Yingling gave the measure a better than 50-50 chance of enactment this year.
Democrats proposed seven amendments to the bill, each of which were ruled non-germane by Rep. Leach. One, introduced by ranking Democrat John J. LaFalce of New York, would have required banks to offer low- cost transaction accounts to unbanked individuals in order to collect interest on their Fed reserves.
A series of other amendments would have required banks to reduce or eliminate various fees. Rep. Jay Inslee, D-Wash., tried to introduce an amendment that would have required banks to gain customers' express consent before sharing personal financial information with affiliates.
An amendment by Rep. Michael Capuano, D-Mass., that would have phased-in the payment of interest over five years, was defeated.