A bill to allow all businesses to make up to 24 transfers each month from interest-bearing transaction accounts to other transaction accounts, to require the payment of interest on reserves held for depository institutions at Federal reserve banks, to repeal the prohibition of interest on business accounts, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Interest on Business Checking Act of 
2003''.

SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED FOR ALL 
              BUSINESSES.

    (a) In General.--Section 2(a) of Public Law 93-100 (12 U.S.C. 
1832(a)) is amended by inserting after paragraph (2) the following:
            ``(3) Notwithstanding any other provision of law, any 
        depository institution may permit the owner of any deposit or 
        account which is a deposit or account on which interest or 
        dividends are paid and is not a deposit or account described in 
        paragraph (2) to make not more than 24 transfers per month (or 
        such greater number as the Board of Governors of the Federal 
        Reserve System may determine by rule or order), for any 
        purpose, to another account of the owner in the same 
        institution. An account offered pursuant to this paragraph 
        shall be considered a transaction account for purposes of 
        section 19 of the Federal Reserve Act, unless the Board of 
        Governors of the Federal Reserve System determines 
        otherwise.''.
    (b) Conforming Amendments.--
            (1) In general.--Section 2(a) of Public Law 93-100 (12 
        U.S.C. 1832(a)), as amended by subsection (a), is further 
        amended--
                    (A) in paragraph (1), by striking ``but subject to 
                paragraph (2)'';
                    (B) by amending paragraph (2) to read as follows:
            ``(2) No provision of this section may be construed as 
        conferring the authority to offer demand deposit accounts to 
        any institution that is prohibited by law from offering demand 
        deposit accounts.''; and
                    (C) in paragraph (3), by striking ``and is not a 
                deposit or account described in paragraph (2)''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall take effect on the date which is 2 years after the date 
        of enactment of this Act.

SEC. 3. AUTHORIZATION OF INTEREST-BEARING TRANSACTION ACCOUNTS.

    (a) Repeal of Prohibition on Payment of Interest on Demand 
Deposits.--
            (1) Federal reserve act.--Section 19(i) of the Federal 
        Reserve Act (12 U.S.C. 371a) is repealed.
            (2) Home owners' loan act.--Section 5(b)(1)(B) of the Home 
        Owners' Loan Act (12 U.S.C. 1464(b)(1)(B)) is amended by 
        striking ``savings association may not--'' and all that follows 
        through ``(ii) permit any'' and inserting ``savings association 
        may not permit any''.
            (3) Federal deposit insurance act.--Section 18(g) of the 
        Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is repealed.
    (b) Joint Rulemaking Required.--
            (1) In general.--Not later than 2 years after the date of 
        enactment of this Act, the Secretary of the Treasury and the 
        Federal banking agencies shall issue joint final regulations 
        authorizing the payment of interest and dividends on 
        transaction accounts at depository institutions that are 
        subject to regulation by those entities.
            (2) Contents.--Regulations required by this subsection 
        shall--
                    (A) establish the scope of the authorization 
                described in paragraph (1) and the types of transaction 
                accounts to which that authorization shall apply; and
                    (B) include any appropriate limitations, 
                exceptions, or restrictions on that authorization, 
                consistent with the purposes of this section.
            (3) Effective date of regulations.--The regulations 
        required by this subsection shall take effect not later than 2 
        years after the date of enactment of this Act.
            (4) Definitions.--As used in this subsection--
                    (A) the terms ``depository institution'' and 
                ``transaction account'' have the meanings given such 
                terms in subparagraphs (A) and (C), respectively, of 
                section 19(b)(1) of the Federal Reserve Act (12 U.S.C. 
                461(b)(1)); and
                    (B) the term ``Federal banking agency'' has the 
                meaning the term in section 3 of the Federal Deposit 
                Insurance Act (12 U.S.C. 1813).
    (c) Effective Date of Repeal.--The amendments made by subsection 
(a) shall become effective on the earlier of--
            (1) 2 years after the date of enactment of this Act; or
            (2) the date on which final regulations required to be 
        issued under subsection (b) become effective.

SEC. 4. PAYMENT OF INTEREST ON RESERVES AT FEDERAL RESERVE BANKS.

    (a) In General.--Section 19(b) of the Federal Reserve Act (12 
U.S.C. 461(b)) is amended by adding at the end the following:
            ``(12) Earnings on reserves.--
                    ``(A) In general.--Balances maintained at a Federal 
                reserve bank by or on behalf of a depository 
                institution may receive earnings to be paid by the 
                Federal reserve bank at least once each calendar 
                quarter at a rate or rates not to exceed the general 
                level of short-term interest rates.
                    ``(B) Regulations relating to payments and 
                distribution.--The Board may promulgate regulations 
                concerning--
                            ``(i) the payment of earnings in accordance 
                        with this paragraph;
                            ``(ii) the distribution of such earnings to 
                        the depository institutions which maintain 
                        balances at such banks or on whose behalf such 
                        balances are maintained; and
                            ``(iii) the responsibilities of depository 
                        institutions, Federal home loan banks, and the 
                        National Credit Union Administration Central 
                        Liquidity Facility with respect to the 
                        crediting and distribution of earnings 
                        attributable to balances maintained, in 
                        accordance with subsection (c)(1)(A), in a 
                        Federal reserve bank by any such entity on 
                        behalf of depository institutions.
                    ``(C) Depository institution defined.--For purposes 
                of this paragraph, the term `depository institution', 
                in addition to any institution described in paragraph 
                (1)(A), includes any trust company, corporation 
                organized under section 25A or having an agreement with 
                the Board under section 25, or any branch or agency of 
                a foreign bank (as defined in section 1(b) of the 
                International Banking Act of 1978).''.
    (b) Authorization for Pass Through Reserves for Member Banks.--
Section 19(c)(1)(B) of the Federal Reserve Act (12 U.S.C. 461(c)(1)(B)) 
is amended by striking ``which is not a member bank''.
    (c) Technical and Conforming Amendments.--Section 19 of the Federal 
Reserve Act (12 U.S.C. 461) is amended--
            (1) in subsection (b)(4),
                    (A) by striking subparagraph (C); and
                    (B) by redesignating subparagraphs (D) and (E) as 
                subparagraphs (C) and (D), respectively; and
            (2) in subsection (c)(1)(A), by striking ``subsection 
        (b)(4)(C)'' and inserting ``subsection (b)''.

SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY IN SETTING RESERVE 
              REQUIREMENTS.

    Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 
461(b)(2)(A)) is amended--
            (1) in clause (i), by striking ``the ratio of 3 per 
        centum'' and inserting ``a ratio not greater than 3 percent 
        (and which may be zero)''; and
            (2) in clause (ii), by striking ``and not less than 8 per 
        centum,'' and inserting ``(and which may be zero),''.

SEC. 6. TREATMENT OF CERTAIN ESCROW ACCOUNTS.

    (a) In General.--In the case of an escrow account maintained at a 
depository institution for the purpose of completing the settlement of 
a real estate transaction, activities described in subsection (b) shall 
not be treated as the payment or receipt of interest for purposes of 
this Act or any other provision of law relating to the payment of 
interest on accounts or deposits maintained at depository institutions, 
including such provisions in--
            (1) Public Law 93-100;
            (2) the Federal Reserve Act;
            (3) the Home Owners' Loan Act; or
            (4) the Federal Deposit Insurance Act.
    (b) Exclusions.--For purposes of subsection (a), activities 
described in this paragraph are--
            (1) the absorption, by the depository institution, of 
        expenses incidental to providing a normal banking service with 
        respect to an escrow account described in subsection (a);
            (2) the forbearance, by the depository institution, from 
        charging a fee for providing any such banking function; and
            (3) any benefit which may accrue to the holder or the 
        beneficiary of such escrow account as a result of an action of 
        the depository institution described in paragraph (1) or (2) or 
        a similar action.

Summary: Interest on Business Checking Act of 2003 - Amends Federal law to authorize interest-bearing transaction accounts for all businesses, permitting up to 24 transfers per month to another account of the owner in the same institution . Amends the Federal Reserve Act, the Home Owners' Loan Act, and the Federal Deposit Insurance Act to repeal the proscription on the payment of interest on demand deposits. Requires a joint rulemaking by the Secretary of the Treasury and the Federal banking agencies authorizing the payment of interest and dividends on transaction accounts at depository institutions under their respective jurisdictions. Amends the Federal Reserve Act to authorize the payment of interest at least quarterly by a Federal reserve bank on reserves maintained there on behalf of a depository institution. Revises the ratio of reserves a depository institution must maintain against its transaction accounts, permitting a ratio of zero. States that where escrow accounts are maintained at a depository institution for completion of a real estate settlement transaction specified expense-taking or fee-waiving activities shall not be treated as the payment or receipt of interest for purposes relating to the payment of interest on accounts or deposits maintained at depository institutions.