Federal regulators told Congress Thursday that they strongly support letting banks pay interest on business checking accounts, but they differed on when this power should be granted.

"There is no good reason to prohibit banks from paying interest on business checking," said Richard S. Carnell, assistant Treasury secretary for financial institutions. "It has been on the books for 65 years, and it deserves an early retirement."

Rep. Marge Roukema, chairwoman of the House Banking Committee's financial institutions subcommittee, called the hearing to solicit testimony on her regulatory relief bill, which has not yet been introduced.

Among other things, the proposed bill would let the Fed pay interest on reserves and use deposit insurance funds to pay off Financing Corp. bonds. The New Jersey Republican said she wants the subcommittee to vote on the bill before the August recess. "If that is possible, it is conceivable that we could get something enacted" this year, Rep. Roukema said.

The Senate Banking Committee is expected to vote on a similar bill July 29.

Mr. Carnell and Federal Reserve Board Governor Laurence H. Meyer urged an immediate repeal of the ban on interest-bearing corporate checking accounts.

"Small businesses, which often earn no interest on their demand deposits because they do not have account balances large enough to justify the fees charged for sweeps programs, stand to gain the most from eliminating the prohibition of interest on demand deposits," Mr. Meyer said. "For these reasons, the board strong supports the immediate repeal of the prohibition."

Julie L. Williams, acting comptroller of the currency, however, urged lawmakers to continue the ban until at least 2001. "I don't want the industry's attention distracted from year-2000," she said, noting that most banks do not have enough programmers to both fix the millennium bug and rewrite the software that monitors corporate checking accounts.

Industry officials who testified at the hearing also were split. Anthony S. Abbate, president of Interchange Bank, Saddle Brook, N.J., said the Independent Bankers Association of America would prefer to keep the ban but make it easier for banks to offer sweep accounts by allowing up to 24 withdrawals a month from money market deposit accounts. Currently, the law permits only six withdrawals a month.

E. Lee Beard, president of First Federal Bank, Hazleton, Pa., and first vice chairman of America's Community Bankers, however, said the 24- transaction account would be a poor substitute for paying interest on corporate checking.

"The 24-transaction account is a strained, inefficient, and redundant account that should not be used as a means to delay the authorization to permit the payment of explicit interest on business checking accounts," she said.

Paying interest on required reserves received a big boost from the Fed, but the Treasury's Mr. Carnell called it a budget buster, noting that the subcommittee has not identified how it would recover the $800 million that it would cost the government between 1999 and 2003.

The regulators, including Federal Deposit Insurance Corp. Chairman Donna Tanoue and Office of Thrift Supervision Chief Counsel Carolyn Buck, unanimously opposed using deposit insurance funds to pay part of the Fico bond obligations. Under Rep. Roukema's proposal, the FDIC would transfer up to $200 million annually from the funds to pay Fico, provided the FDIC had $1.35 for every $100 in insured deposits.

Ms. Tanoue said this was nothing more than a rebate. "Although it may be very tempting to use deposit insurance funds for other purposes, including rebates, at this time there is no guarantee that either banks or the economy will always be so healthy," she said.

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