The Clinton administration on Tuesday came out against legislation that would allow banks to earn interest on funds they must keep at the Federal Reserve.

Testifying before the Senate Banking Committee, Treasury Under Secretary John D. Hawke Jr. said the plan would cost too much money.

"Given the many high priority claims we and the Congress have on scarce budget resources, and the current high level of earnings in the banking industry, we do not believe there is sufficient reason to make a change at this time," he said.

The Congressional Budget Office recently estimated that the interest payments would cost the government $660 million over five years.

Fed Governor Laurence H. Meyer told lawmakers that if the Fed is not allowed to pay interest on these reserves, then banks will move customer funds into accounts that are exempt from the requirements. Mr. Meyer said that if that occurs, the central bank may find it difficult to implement monetary policy.

But Mr. Hawke said the Fed must rely on other means to carry out monetary policy. "We agree with the Fed's rationale that this would be more fair to banks, but it's not a matter of great urgency."

The proposal is part of a bill sponsored by Sens. Richard Shelby, R- Ala., and Connie Mack, R-Fla., that would roll back more than 40 banking regulations and allow banks to pay interest on business checking accounts.

Andrew C. Hove Jr., acting chairman of the Federal Deposit Insurance Corp., praised plans to drop a rule that requires deposit brokers to notify his agency before soliciting customers.

In a written statement, Comptroller of the Currency Eugene A. Ludwig endorsed a measure that would make it easier for national banks to set up holding companies.

Regulators attacked several measures including one that would allow banks to provide discounts to customers who obtain a bundle of services. "Restrictions against tying are more important than ever," said Office of Thrift Supervision Director Ellen S. Seidman.

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