To provide for direct and accurate compensation to financial institutions for providing various critical depositary and financial agency services for or on behalf of the United States, and for other purposes.

Summary: Depositary Services Efficiency and Cost Reduction Act - Authorizes appropriations to reimburse financial institutions in their capacity as depositaries and financial agents of the United States for all services required or directed by the Secretary of the Treasury to be performed by them on behalf of a Federal agency.



 Amends the Federal Reserve Act to make technical amendments to reflect this Act.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Depositary Services Efficiency and 
Cost Reduction Act''.

SEC. 2. FINDINGS.

    The Congress finds as follows:
            (1) The Secretary of the Treasury has long compensated 
        financial institutions for various critical depositary and 
        financial agency services provided for or on behalf of the 
        United States by--
                    (A) placing large balances, commonly referred to as 
                ``compensating balances'', on deposit at such 
                institutions; and
                    (B) using imputed interest on such funds to offset 
                charges for the various depositary and financial agency 
                services provided to or on behalf of the Government.
            (2) As a result of sharp declines in interest rates over 
        the last few years to record low levels, or the public debt 
        outstanding reaching the statutory debt limit, the Department 
        of the Treasury often has had to dramatically increase or 
        decrease the size of the compensating balances on deposit at 
        these financial institutions.
            (3) The fluctuation of the compensating balances, and the 
        necessary pledging of collateral by financial institutions to 
        secure the value of compensating balances placed with those 
        institutions, have created unintended financial uncertainty for 
        the Secretary of the Treasury and for the management by 
        financial institutions of their cash and securities.
            (4) It is imperative that the process for providing 
        financial services to the Government be transparent, and 
        provide the information necessary for the Congress to 
        effectively exercise its appropriation and oversight 
        responsibilities.
            (5) The use of direct payment for services rendered would 
        strengthen cash and debt management responsibilities of the 
        Secretary of the Treasury because the Secretary would no longer 
        need to dramatically increase or decrease the level of such 
        balances when interest rates fluctuate sharply or when the 
        public debt outstanding reaches the statutory debt limit.
            (6) An alternative to the use of compensating balances, 
        such as direct payments to financial institutions, would ensure 
        that payments to financial institutions for the services they 
        provide would be made in a more predictable manner and could 
        result in cost savings.
            (7) Limiting the use of compensating balances could result 
        in a more direct and cost-efficient method of obtaining those 
        services currently provided under compensating balance 
        arrangements.
            (8) A transition from the use of compensating balances to 
        another compensation method must be carefully managed to 
        prevent higher-than-necessary transitional costs and enable 
        participating financial institutions to modify their planned 
        investment of cash and securities.

SEC. 3. AUTHORIZATION OF APPROPRIATIONS FOR SERVICES RENDERED BY 
              DEPOSITARIES AND FINANCIAL AGENCIES OF THE UNITED STATES.

    There are authorized to be appropriated for fiscal years beginning 
after fiscal year 2003 to the Secretary of the Treasury such sums as 
may be necessary for reimbursing financial institutions in their 
capacity as depositaries and financial agents of the United States for 
all services required or directed by the Secretary of the Treasury, or 
a designee of the Secretary, to be performed by such financial 
institutions on behalf of the Secretary of the Treasury or another 
Federal agency, including services rendered before fiscal year 2004.

SEC. 4. ORDERLY TRANSITION.

    (a) In General.--As appropriations authorized under section 3 
become available, the Secretary of the Treasury shall promptly begin 
the process of phasing in the use of the appropriations to pay 
financial institutions serving as depositaries and financial agents of 
the United States, and transitioning from the use of compensating 
balances to fund these services.
    (b) Post-Transition Use Limited to Extraordinary Circumstances.--
            (1) In general.--Following the transition to the use of the 
        appropriations authorized under section 3, the Secretary of the 
        Treasury may use the compensating balances to pay financial 
        institutions serving as depositaries and financial agents of 
        the United States only in extraordinary situations where the 
        Secretary determines that they are needed to ensure the fiscal 
        operations of the Government continue to function in an 
        efficient and effective manner.
            (2) Report.--Any use of compensating balances pursuant to 
        paragraph (1) shall promptly be reported by the Secretary of 
        the Treasury to the Committee on Financial Services of the 
        House of Representatives and the Committee on Banking, Housing, 
        and Urban Affairs of the Senate.
    (c) Requirements for Orderly Transition.--In transitioning to the 
use of the appropriations authorized in section 3, the Secretary of the 
Treasury shall take such steps as may be appropriate to--
            (1) prevent abrupt financial disruption to the functions of 
        the Department of the Treasury or to the participating 
        financial institutions; and
            (2) maintain adequate accounting and management controls to 
        ensure that payments to financial institutions for their 
        banking services provided to the Government as depositaries and 
        financial agents are accurate and that the arrangements last no 
        longer than is necessary.
    (d) Reports Required.--
            (1) Annual report.--
                    (A) In general.--For each fiscal year, the 
                Secretary of the Treasury shall submit a report to the 
                Congress on the use of compensating balances and on the 
                use of appropriations authorized in section 3 during 
                that fiscal year.
                    (B) Inclusion in budget.--The report required under 
                subparagraph (A) may be submitted as part of the budget 
                submitted by the President under section 1105 of the 
                title 31, United States Code, for the following fiscal 
                year and if so, the report shall be submitted 
                concurrently to the Committee on Financial Services of 
                the House of Representatives and the Committee on 
                Banking, Housing, and Urban Affairs of the Senate.
            (2) Final report following transition.--
                    (A) In general.--Following completion of the 
                transition from the use of compensating balances to the 
                use of the appropriations authorized in section 3 to 
                pay financial institutions for their services as 
                depositaries and financial agents of the United States, 
                the Secretary of the Treasury shall submit a report on 
                the transition to the Committee on Financial Services 
                of the House of Representatives and the Committee on 
                Banking, Housing, and Urban Affairs of the Senate.
                    (B) Contents of report.--The report submitted under 
                subparagraph (A) shall include a detailed analysis of--
                            (i) the cost of transition;
                            (ii) the direct costs of the services being 
                        paid from the appropriations authorized under 
                        section 3; and
                            (iii) the benefits realized from the use of 
                        direct payment for such services, rather than 
                        the use of compensating balance arrangements.

SEC. 5. TECHNICAL AMENDMENT.

    The 2d undesignated paragraph of section 16 of the Federal Reserve 
Act (12 U.S.C. 412) is amended--
            (1) in the 3d sentence, by inserting ``or any other asset 
        of a Federal reserve bank'' before the period at the end; and
            (2) in the last sentence, by inserting ``, or are otherwise 
        held by or on behalf of,'' after ``in the vaults of''.