Action on Legislation

Business Checking Accounts/Sterile Reserves

Rep. Leach is preparing legislation that would let banks circumvent the ban on interest-bearing corporate checking accounts. The Iowa Republican said he plans to introduce a bill that would let corporate customers cover checks by withdrawing funds from money market deposit accounts each business day.

His plan is an alternative to bills introduced by Rep. Jack Metcalf, R- Wash., and Sen. Chuck Hagel, R-Neb., that would let banks pay interest on business checking accounts. Both approaches are intended to help small banks compete with large financial institutions, many of which offer businesses sophisticated "sweep" money market accounts.

The Metcalf/Hagel bills would also require the Federal Reserve banks to pay interest on required reserves.

Regulatory Relief

Sens. Richard Shelby, R-Ala., and Connie Mack, R-Fla., introduced a regulatory relief bill on Nov. 7 that would roll back more than 50 banking rules.

Most of the provisions are modest, such as elimination of some branch application requirements and simplification of Truth-in-Lending Act disclosures.

One of the bill's most controversial provisions would repeal the Banking Holding Company Act's anti-tying rules.

Their bill also includes the Metcalf/Hagel proposals on interest payments for business checking accounts and required reserves. Pending Legislation

Financial Modernization

House Banking Committee Chairman Jim Leach and Commerce Committee Chairman Thomas Bliley will resume efforts to settle differences between their financial reform bills when Congress returns Jan. 27.

Major discrepancies include the amount of non-financial business that bank holding companies would be permitted to own, limits on bank operating subsidiaries, and restrictions on bank securities sales.

Bankers oppose plans put forth by both men. Among the reasons: States would have too much power over bank insurance operations, and securities firms and insurance companies that acquire banks would be exempt from strict supervision by the Federal Reserve.

S&Ls oppose the bills because both would eliminate the federal thrift charter.

Private Mortgage Insurance

Lawmakers must also work out disparities between House and Senate versions of bills that would require lenders to automatically cancel private mortgage insurance.

The Senate plan, approved Nov. 9, would require lenders to automatically cancel private mortgage insurance when a borrower's equity in a home reaches 22%. The legislation passed after seven months of negotiations between Senate Banking Committee Chairman Alfonse M. D'Amato and Sen. Lauch Faircloth, R-N.C.

The plan also would allow borrowers to demand that mortgage insurance be terminated when their equity reaches 20%, as long as they kept up with payments in the preceding two years. For high risk borrowers, however, lenders could require that insurance remain in place for half the life of a mortgage.

The House bill, passed in April, would terminate insurance when equity reaches 25% and gives lenders no slack for high-risk loans. Also in contrast to the Senate plan, the House bill would apply to home equity loans and would permit states to impose tougher cancellation standards on lenders.

Resolution Trust Corp. Oversight

The Senate on Nov. 9 also passed legislation to abolish the Thrift Depositor Protection Oversight Board. Treasury Secretary Robert E. Rubin had asked Congress to eliminate the board, estimating that the move would save $250,000 a year.

The board's chief function of overseeing the Resolution Trust Corp. was eliminated in 1995 when the RTC was abolished. Other responsibilities- oversight of the Resolution Funding Corp. and membership on the Affordable Housing Advisory Board-would be transferred to the Treasury Department.

The House passed identical legislation on Sept. 23.

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