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[House Report 106-568]
[From the U.S. Government Publishing Office]

                                                                       
106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-568

======================================================================

 
                  BUSINESS CHECKING MODERNIZATION ACT
                                _______
                                

 April 11, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4067]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Banking and Financial Services, to whom was 
referred the bill (H.R. 4067) to repeal the prohibition on the 
payment of interest on demand deposits, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Business Checking Modernization Act''.

SEC. 2. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT DEPOSITORY 
                    INSTITUTIONS.

  (a) Interest-Bearing Transaction Accounts Authorized.--
          (1) Federal reserve act.--Section 19(i) of the Federal 
        Reserve Act (12 U.S.C. 371a) is amended by inserting at the end 
        the following: ``Notwithstanding any other provision of this 
        section, a member bank may permit the owner of any deposit, any 
        account which is a deposit, or any account on which interest or 
        dividends are paid to make up to 24 transfers per month (or 
        such greater number as the Board may determine by rule or 
        order), for any purpose, to a demand deposit account of the 
        owner in the same institution. Nothing in this subsection shall 
        be construed to prevent an account offered pursuant to this 
        subsection from being considered a transaction account for 
        purposes of this Act.''.
          (2) Home owners' loan act.--
                  (A) In general.--Section 5(b)(1) of the Home Owners' 
                Loan Act (12 U.S.C. 1464 (b)(1)) is amended by adding 
                at the end the following new subparagraph:
                  ``(G) Transfers.--Notwithstanding any other provision 
                of this paragraph, a Federal savings association may 
                permit the owner of any deposit or share, any account 
                which is a deposit or share, or any account on which 
                interest or dividends are paid to make up to 24 
                transfers per month (or such greater number as the 
                Board of Governors of the Federal Reserve System may 
                determine by rule or order under section 19(i) to be 
                permissible for member banks), for any purpose, to a 
                demand deposit account of the owner in the same 
                institution. Nothing in this subsection shall be 
                construed to prevent an account offered pursuant to 
                this subsection from being considered a transaction 
                account (as defined in section 19(b) of the Federal 
                Reserve Act) for purposes of the Federal Reserve 
                Act.''.
                  (B) Repeal.--Effective at the end of the 3-year 
                period beginning on the date of the enactment of this 
                Act, section 5(b)(1) of the Home Owners' Loan Act (12 
                U.S.C. 1464 (b)(1)) is amended by striking subparagraph 
                (G).
          (3) Federal deposit insurance act.--Section 18(g) of the 
        Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended by 
        adding at the end the following new paragraph:
          ``(3) Transfers.--Notwithstanding any other provision of this 
        subsection, an insured nonmember bank or insured State savings 
        association may permit the owner of any deposit or share, any 
        account which is a deposit or share, or any account on which 
        interest or dividends are paid to make up to 24 transfers per 
        month (or such greater number as the Board of Governors of the 
        Federal Reserve System may determine by rule or order under 
        section 19(i) to be permissible for member banks), for any 
        purpose, to a demand deposit account of the owner in the same 
        institution. Nothing in this subsection shall be construed to 
        prevent an account offered pursuant to this subsection from 
        being considered a transaction account (as defined in section 
        19(b) of the Federal Reserve Act) for purposes of the Federal 
        Reserve Act.''.
  (b) 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 amended to read as follows:
  ``(i) [Repealed]''.
          (2) Home owners' loan act.--The 1st sentence of 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 amended to 
        read as follows:
  ``(g) [Repealed]''.
  (c) Effective Date.--The amendments made by subsection (b) shall take 
effect at the end of the 3-year period beginning on the date of the 
enactment of this Act.

SEC. 3. INCREASED FEDERAL RESERVE BOARD FLEXIBILITY IN SETTING RESERVE 
                    REQUIREMENTS.

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

                  Background and Need for Legislation

    The Business Checking Modernization Act (the ``Act'') 
continues the efforts begun in the 102nd Congress to modernize 
the Federal banking laws by removing unnecessary and outmoded 
restrictions on the nation's depository institutions and 
financial markets and their consumers. Much like the 
restrictions imposed by the Glass-Steagall Act, recently 
amended in the Gramm-Leach-Bliley Act, the prohibition on 
paying interest on demand deposits is a depression-era law put 
into place in 1933 in the belief that such a restriction would 
help restore the health of the nation's depository 
institutions. While history suggests that this restriction may 
not have been necessary at that time, there is now wide-spread 
agreement that the restriction certainly has no validity in 
today's competitive marketplace.
    Removing the prohibition on payment of interest on demand 
deposits has been under Congressional consideration for more 
than 20 years. Initially, the effect of not paying interest on 
demand deposits was minimal because of the low inflation 
environment that existed until the 1950's. As the markets and 
consumers became more sophisticated during a period of rising 
interest rates, and competition increased from money market 
funds, depository institutions found methods of providing their 
deposit customers compensation in the form of ``implicit'' 
interest in order to retain deposits. This ``implict'' interest 
took the form of consumers receiving free checking and other 
services at a low cost. As time passed, some institutions 
shifted funds on a regular basis into instruments that earned 
interest much like today's ``sweep'' programs. State savings 
banks created ``NOW'' accounts. In response to the piecemeal 
manner in which the prohibition was being eroded, Congress in 
1980 authorized depository institutions to offer NOW accounts 
to consumers and charitable organizations. At the time NOW 
accounts were authorized, consideration was also given to 
completely lifting the prohibition on depository institutions 
paying interest on demand deposits. Given the significant 
changes taking place in the financial industry at the time 
because of interest rate deregulation on time and savings 
deposits as well as the authorization of NOW accounts for all 
depository institutions, it was decided to delay removal of the 
prohibition on paying interest on demand deposits.
    With the 1980 authorization of NOW accounts for individuals 
and charitable organizations, the primary effect of the 
prohibition on payment of interest on demand deposits has been 
on businesses. Once again, the prohibition on businesses 
receiving interest on demand deposits has been eroded in a 
piecemeal fashion. Many business depositors earn interest in 
the form of a credit against service charges based on the size 
of their balance. In addition, depository institutions 
construct packages of services for businesses that offer loan 
or other products at reduced rates tied to the size of the 
balance in the account resulting in an implicit payment of 
interest. Also large or sophisticated depositors are able to 
minimize holdings in non-interest bearing accounts through 
``sweep'' programs where deposits are swept into money market 
funds or repurchase agreements which provide a return on the 
amount invested. Smaller, less sophisticated, depositors though 
have been denied the same opportunities. Permitting the payment 
of interest on business demand deposits would result in clear, 
full, costing of services leading to more explicit competition.
    It is important to recognize that the Act does not require 
depository institutions to pay any interest on demand deposits. 
Instead, the Act merely removes the prohibition on depository 
institutions paying explicit interest on demand deposits 
thereby providing institutions more flexibility in how they 
structure their accounts. As with consumer checking accounts 
today, institutions may offer a range of different business 
demand deposits including accounts on which no interest is paid 
and those on which interest is paid.

                          Purpose and Summary

    The purpose of this legislation is to eliminate the Federal 
prohibition on depository institutions paying interest on 
demand deposits. It is intended to permit depository 
institutions full flexibility to price their services as 
necessary to respond to a highly competitive marketplace and to 
remove any legal restriction on paying interest on business 
checking accounts. Recognizing that current banking 
relationships between depository institutions and their 
business customers have been structured to provide for the 
receipt of imputed interest and may need to be renegotiated, 
the legislation provides for a three-year phase-in period. 
During that period, the legislation permits depository 
institutions to offer business customers checking accounts that 
allow the funds in the account to be swept into an interest-
bearing account on a daily basis. With the repeal of the 
prohibition on direct payment of interest on commercial 
checking accounts three years after enactment, depository 
institutions will be allowed to offer their business customers 
a wide range of interest-bearing product options, including 
direct interest payments and internal and external sweep 
accounts of unlimited frequency, based upon market demands. The 
legislation also eliminates the minimum statutory ratios for 
reserves that depository institutions are required to maintain 
at the Federal Reserve Banks granting the Federal Reserve Board 
greater flexibility in setting reserve requirements.

                   Committee Consideration and Votes

                      (Rule XI, Clause 2(l)(2)(B))

    On March 29, 2000, the Committee met in open session to 
mark up H.R. 4067, the ``Business Checking Modernization Act.'' 
During the markup, the Committee approved, by voice vote, an 
amendment to H.R. 4067. With a quorum being present, a motion 
to adopt and favorably report H.R. 4067, as amended, to the 
House was approved by voice vote.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    As provided for in clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, no oversight findings have 
been submitted to the Committee by the Committee on Government 
Reform.

                        Constitutional Authority

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, the Constitutional Authority 
of Congress to enact this legislation is derived from Article 
I, section 8, clause 1 (relating to the general welfare of the 
United States): Article I, section 8, clause 3 (relating to 
Congressional power to regulate commerce); Article 1, section 
8, clause 5 (relating to the power ``to coin money'' and 
``regulate the value thereof''); and Article I, section 8, 
clause 18 (relating to making all laws necessary and proper for 
carrying into execution powers vested by the Constitution in 
the government of the United States).

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

    Congressional Budget Office Cost Estimate and Unfunded Mandates 
                                Analysis

H.R. 4067--Business Checking Modernization Act

    H.R. 4067 would repeal the prohibition on depository 
institutions paying interest on the demand deposits of their 
business customers. The repeal would take effect three years 
after the date of enactment. In the interim three-year period, 
H.R. 4067 would in effect authorize depository institutions to 
offer a new type of savings deposit. It would be allowed up to 
24 transfers per month (more if the Federal Reserve allows) 
into a demand deposit, and it would be subject to reserve 
requirements. The bill would also provide the Federal Reserve 
with more flexibility in setting required reserve ratios on 
transactions accounts by removing the lower limits on the 
ranges of allowable ratios.
    CBO estimates that the bill would have insignificant 
effects on both federal revenues and outlays. The bill could 
have the effect of increasing demand deposits at depository 
institutions, especially after three years when interest could 
be paid on demand deposits, but based on information provided 
by staff of the Board of Governors of the Federal Reserve 
System, CBO estimates that such an effect would not be 
significant. If the bill did have a significant effect on 
demand deposits, that could cause a significant increase in 
required reserves on deposit at the Federal Reserve, which 
would invest the reserves and remit the return to the Treasury 
as governmental receipts.
    Allowing banks to pay interest on commercial checking 
accounts could reduce the profitability of some depository 
institutions. However, certain institutions may be able to 
retain deposits that would otherwise flow to other providers of 
financial services. Even if reduced profitability of some 
institutions did occur because they faced higher interest 
costs, their business depositors would earn greater profits. 
Overall profits and federal revenue, therefore, would not be 
affected.
    Based on information from the Federal Deposit Insurance 
Corporation, CBO estimates that the bill would have no 
significant impact on the total balance of insured deposits or 
the likelihood that some institutions would fail and, 
therefore, no significant impact on federal spending.

                      Section-by-Section Analysis

Section 2. Amendments relating to demand deposit accounts at depository 
        institutions

    Section 2(a) amends the Federal Reserve Act, the Home 
Owners' Loan Act, and the Federal Deposit Insurance Act to 
permit banks and thrifts to immediately on the date of 
enactment offer customers the ability to have a daily sweep--24 
transfers a month--from an interest bearing account into their 
checking account. The Federal Reserve Board is given the 
authority to permit more than 24 transfers a month. This 
subsection also permits the Federal Reserve Board to determine 
that the interest-bearing account from which funds would be 
transferred is subject to reserve requirements.
    Section 2(b) amends the Federal Reserve Act, the Home 
Owner's Loan Act, and the Federal Deposit Insurance Act to 
repeal the prohibition on the payment of interest on demand 
deposits.
    Section 2(c) provides that the provisions of section 2(b) 
shall take effect at the end of the 3-year period beginning on 
the date of enactment.

Section 3. Increased Federal Reserve Board flexibility in setting 
        reserve requirements

    Section 3 amends the Federal Reserve Act to eliminate the 
minimum statutory ratios of 3% against the first $25 million in 
transactions accounts held at a depository institution and 8% 
against the amount above that threshold level leaving the 
Federal Reserve Board with greater flexibility in setting 
reserve requirements. The Committee recognizes that changing 
circumstances could warrant adjustments to required ratios in 
the future, possibly including reductions, but the greater 
flexibility granted the Federal Reserve Board is not intended 
to encourage the Board to reduce reserves to ``zero.'' A 
positive level of required reserve balances is likely to 
continue to be helpful to the Federal Reserve in the 
implementation of monetary policy. For instance, the 
maintenance of reserve balances help guard against an 
undesirable increase in the volatility of the federal funds 
rate. It would be expected that the Federal Reserve Board, as 
part of its semi-annual Humphrey-Hawkins report or equivalent 
report to Congress, discuss any reasoning behind any adjustment 
in reserve requirements it makes.
    Over the three-year interim period, the bill would have an 
insignificant effect on demand deposits because the new 
accounts would have limited appeal. Many depository 
institutions currently utilize sweep programs that regularly 
transfer amounts between savings accounts not subject to 
reserve requirements and demand deposits in order to minimize 
amounts in the non-interest-bearing, demand deposits of 
businesses that are subject to reserve requirements. Where 
depository institutions do not provide sweep accounts, many 
businesses achieve the same effect through their own cash 
management programs. Since the new accounts would be subject to 
reserve requirements, they would likely pay a lower yield than 
the instruments utilized by sweep or cash management accounts.
    The effect of allowing interest on business demand 
depositors would also be limited for the same reason. The 
interest earned on demand deposits would be less than that 
available on alternative instruments, which would be nearly as 
liquid. Some effect might be possible, especially for firms 
without sophisticated cash management programs with demand 
deposits in institutions without sweep programs, who might 
otherwise move their deposits to nonbank competitors. Such an 
effect, however, is not expected to cause significant budgetary 
effects.
    CBO estimates no budgetary effect would occur from the 
provision providing the Federal Reserve with additional 
flexibility in setting required reserve ratios. The Federal 
Reserve is not currently limited by one of the two ranges 
affected, and its staff have indicated no policy change would 
be likely to occur economic environment.
    Because H.R. 4067 would affect direct specifying or 
receipts, pay-as-you-go procedures would apply. However, CBO 
estimates that such effects would be insignificant. H.R. 4067 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and would impose no 
costs on the budgets of state, local, or tribal governments.
    The CBO staff contacts for this estimate are Mark Booth 
(for federal revenues), and Mark Hadley (for federal spending). 
This estimate was approved by Peter H. Fontaine, Deputy 
Assistant Director for Budget Analysis, and G. Thomas Woodward, 
Assistant Director for Tax Analysis

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill (which unless stated otherwise, are effective on the 
date of enactment), as reported, are shown as follows (existing 
law proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 SECTION 19 OF THE FEDERAL RESERVE ACT

                             bank reserves

  Sec. 19. (a)  * * *

           *       *       *       *       *       *       *

  (b) Reserve Requirements.--
          (1)  * * *

           *       *       *       *       *       *       *

          (2) Reserve requirements.--(A) Each depository 
        institution shall maintain reserves against its 
        transaction accounts as the Board may prescribe by 
        regulation solely for the purpose of implementing 
        monetary policy--
                  (i) in [the ratio of 3 per centum] a ratio 
                not greater than 3 percent for that portion of 
                its total transaction accounts of $25,000,000 
                or less, subject to subparagraph (C); and
                  (ii) in the ratio of 12 per centum, or in 
                such other ratio as the Board may prescribe not 
                greater than 14 per centum [and not less than 8 
                per centum], for that portion of its total 
                transaction accounts in excess of $25,000,000, 
                subject to subparagraph (C).

           *       *       *       *       *       *       *

  (i) No member bank shall, directly or indirectly, by any 
device whatsoever, pay any interest on any deposit which is 
payable on demand: Provided, That nothing herein contained 
shall be construed as prohibiting the payment of interest in 
accordance with the terms of any certificate of deposit or 
other contract entered into in good faith which is in force on 
the date on which the bank becomes subject to the provisions of 
this paragraph; but no such certificate of deposit or other 
contract shall be renewed or extended unless it shall be 
modified to conform to this paragraph, and every member bank 
shall take such action as may be necessary to conform to this 
paragraph as soon as possible consistently with its contractual 
obligations: Provided further, That this paragraph shall not 
apply to any deposit of such bank which is payable only at an 
office thereof located outside of the States of the United 
States and the District of Columbia: Provided further, That 
until the expiration of two years after the date of enactment 
of the Banking Act of 1935 this paragraph shall not apply (1) 
to any deposit made by a savings bank as defined in section 12B 
of this Act, as amended,or by a mutual savings bank, or (2) to 
any deposit of public funds made by or on behalf of any State, county, 
school district, or other subdivision or municipality, or to any 
deposit of trust funds if the payment of interest with respect to such 
deposit of public funds or of trust funds is required by State law. So 
much of existing law as requires the payment of interest with respect 
to any funds deposited by the United States, by any Territory, 
District, or possession thereof (including the Philippine Islands), or 
by any public instrumentality, agency, or officer of the foregoing, as 
is inconsistent with the provisions of this section as amended, is 
hereby repealed. Notwithstanding any other provision of this section, a 
member bank may permit withdrawals to be made automatically from a 
savings deposit that consists only of funds in which the entire 
beneficial interest is held by one or more individuals through payment 
to the bank itself or through transfer of credit to a demand deposit or 
other account pursuant to written authorization from the depositor to 
make such payments or transfers in connection with checks or drafts 
drawn upon the bank, pursuant to terms and conditions prescribed by the 
Board. Notwithstanding any other provision of this section, a member 
bank may permit the owner of any deposit, any account which is a 
deposit, or any account on which interest or dividends are paid to make 
up to 24 transfers per month (or such greater number as the Board may 
determine by rule or order), for any purpose, to a demand deposit 
account of the owner in the same institution. Nothing in this 
subsection shall be construed to prevent an account offered pursuant to 
this subsection from being considered a transaction account for 
purposes of this Act.

           *       *       *       *       *       *       *

  The amendment to this section, shall take effect 3 years after the 
                         enactment of this bill

                             bank reserves

  Sec. 19. (a)  * * *

           *       *       *       *       *       *       *

  [(i) No member bank shall, directly or indirectly, by any 
device whatsoever, pay any interest on any deposit which is 
payable on demand: Provided, That nothing herein contained 
shall be construed as prohibiting the payment of interest in 
accordance with the terms of any certificate of deposit or 
other contract entered into in good faith which is in force on 
the date on which the bank becomes subject to the provisions of 
this paragraph; but no such certificate of deposit or other 
contract shall be renewed or extended unless it shall be 
modified to conform to this paragraph, and every member bank 
shall take such action as may be necessary to conform to this 
paragraph as soon as possible consistently with its contractual 
obligations: Provided further, That this paragraph shall not 
apply to any deposit of such bank which is payable only at an 
office thereof located outside of the States of the United 
States and the District of Columbia: Provided further, That 
until the expiration of two years after the date of enactment 
of the Banking Act of 1935 this paragraph shall not apply (1) 
to any deposit made by a savings bank as defined in section 12B 
of this Act, as amended, or by a mutual savings bank, or (2) to 
any deposit of public funds made by or on behalf of any State, 
county, school district, or other subdivision or municipality, 
or to any deposit of trust funds if the payment of interest 
with respect to such deposit of public funds or of trust funds 
is required by State law. So much of existing law as requires 
the payment of interest with respect to any funds deposited by 
the United States, by any Territory, District, or possession 
thereof (including the Philippine Islands), or by any public 
instrumentality, agency, or officer of the foregoing, as is 
inconsistent with the provisions of this section as amended, is 
hereby repealed. Notwithstanding any other provision of this 
section, a member bank may permit withdrawals to be made 
automatically from a savings deposit that consists only of 
funds in which the entire beneficial interest is held by one or 
more individuals through payment to the bank itself or through 
transfer of credit to a demand deposit or other account 
pursuant to written authorization from the depositor to make 
such payments or transfers in connection with checks or drafts 
drawn upon the bank, pursuant to terms and conditions 
prescribed by the Board. Notwithstanding any other provision of 
this section, a member bank may permit the owner of any 
deposit, any account which is a deposit, or any account on 
which interest or dividends are paid to make up to 24 transfers 
per month (or such greater number as the Board may determine by 
rule or order), for any purpose, to a demand deposit account of 
the owner in the same institution. Nothing in this subsection 
shall be construed to prevent an account offered pursuant to 
this subsection from being considered a transaction account for 
purposes of this Act.]
  (i) [Repealed]

           *       *       *       *       *       *       *

                              ----------                              

                 SECTION 5 OF THE HOME OWNERS' LOAN ACT

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

  (a)  * * *

           *       *       *       *       *       *       *

  (b) Deposits and Related Powers.--
          (1) Deposit accounts.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (B) A Federal [savings association may not--
                          [(i) pay interest on a demand 
                        account; or
                          [(ii) permit any] savings association 
                        may not permit any overdraft (including 
                        an intraday overdraft) on behalf of an 
                        affiliate, or incur any such overdraft 
                        in such savings association's account 
                        at a Federal reserve bank or Federal 
                        home loan bank on behalf of an 
                        affiliate.

           *       *       *       *       *       *       *

                  (G) Transfers.--Notwithstanding any other 
                provision of this paragraph, a Federal savings 
                association may permit the owner of any deposit 
                or share, any account which is a deposit or 
                share, or any account on which interest or 
                dividends are paid to make up to 24 transfers 
                per month (or such greater number as the Board 
                of Governors of the Federal Reserve System may 
                determine by rule or order under section 19(i) 
                to be permissible for member banks), for any 
                purpose, to a demand deposit account of the 
                owner in the same institution. Nothing in this 
                subsection shall be construed to prevent an 
                account offered pursuant to this subsection 
                from being considered a transaction account (as 
                defined in section 19(b) of the Federal Reserve 
                Act) for purposes of the Federal Reserve Act.

           *       *       *       *       *       *       *

The amendment to this section, shall take effect 3 years after the date 
                       of enactment of this bill

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

  (a)  * * *

           *       *       *       *       *       *       *

  (b) Deposits and Related Powers.--
          (1) Deposit accounts.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  [(G) Transfers.--Notwithstanding any other 
                provision of this paragraph, a Federal savings 
                association may permit the owner of any deposit 
                or share, any account which is a deposit or 
                share, or any account on which interest or 
                dividends are paid to make up to 24 transfers 
                per month (or such greater number as the Board 
                of Governors of the Federal Reserve System may 
                determine by rule or order under section 19(i) 
                to be permissible for member banks), for any 
                purpose, to a demand deposit account of the 
                owner in the same institution. Nothing in this 
                subsection shall be construed to prevent an 
                account offered pursuant to this subsection 
                from being considered a transaction account (as 
                defined in section 19(b) of the Federal Reserve 
                Act) for purposes of the Federal Reserve Act.]

           *       *       *       *       *       *       *

                              ----------                              

            SECTION 18 OF THE FEDERAL DEPOSIT INSURANCE ACT

  Sec. 18. (a)  * * *

           *       *       *       *       *       *       *

  (g)(1) * * *

           *       *       *       *       *       *       *

          (3) Transfers.--Notwithstanding any other provision 
        of this subsection, an insured nonmember bank or 
        insured State savings association may permit the owner 
        of any deposit or share, any account which is a deposit 
        or share, or any account on which interest or dividends 
        are paid to make up to 24 transfers per month (or such 
        greater number as the Board of Governors of the Federal 
        Reserve System may determine by rule or order under 
        section 19(i) to be permissible for member banks), for 
        any purpose, to a demand deposit account of the owner 
        in the same institution. Nothing in this subsection 
        shall be construed to prevent an account offered 
        pursuant to this subsection from being considered a 
        transaction account (as defined in section 19(b) of the 
        Federal Reserve Act) for purposes of the Federal 
        Reserve Act.

           *       *       *       *       *       *       *

The amendment to this section, shall take effect 3 years after the date 
                       of enactment of this bill

  Sec. 18. (a)  * * *

           *       *       *       *       *       *       *

  [(g)(1) The Board of Directors shall by regulation prohibit 
the payment of interest or dividends on demand deposits in 
insured nonmember banks and in insured branches of foreign 
banks and for such purpose it may define the term ``demand 
deposits''; but such exceptions from this prohibition shall be 
made as are now or may hereafter be prescribed with respect to 
deposits payable on demand in member banks by section 19 of the 
Federal Reserve Act, as amended, or by regulation of the Board 
of Governors of the Federal Reserve System. The Board of 
Directors may from time to time, after consulting with the 
Board of Governors of the Federal Reserve System and the 
Director of the Office of Thrift Supervision, prescribe rules 
governing the advertisement of interest or dividends on 
deposits, including limitations on the rates of interest or 
dividends that may be paid by insured nonmember banks 
(including insured mutual savings banks) on time and savings 
deposits. The Board of Directors is authorized for the purposes 
of this subsection to define the terms ``time deposits'' and 
``savings deposits'', to determine what shall be deemed a 
payment of interest, and to prescribe such regulations as it 
may deem necessary to effectuate the purposes of this 
subsection and to prevent evasions thereof. The provisions of 
this subsection and of regulations issued thereunder shall also 
apply, in the discretion of the Board of Directors, to 
obligations other than deposits that are undertaken by insured 
nonmember banks or their affiliates. As used in this 
subsection, the term ``affiliate'' has the same meaning as when 
used in section 2(b) of the Banking Act of 1933, as amended (12 
U.S.C. 221a(b)), except that the term ``member bank'', as used 
in such section 2(b), shall be deemed to refer to an insured 
nonmember bank. During the period commencing on October 15, 
1962, and ending on October 15, 1968, the provisions of this 
subsection shall not apply to the rate of interest which may be 
paid by insured nonmember banks on time deposits of foreign 
governments, monetary and financial authorities of foreign 
governments when acting as such, or international financial 
institutions of which the United States is a member. The 
authority conferred by this subsection shall also apply to 
noninsured banks in any State if the total amount of time and 
savings deposits held in all such banks in the State, plus the 
total amount of deposits, shares, and withdrawable accounts 
held in all building and loan, savings and loan, and homestead 
associations (including cooperative banks) in the State which 
are not members of a Federal home loan bank, is more than 20 
per centum of the total amount of such deposits, shares, and 
withdrawable accounts held in all banks, and building and loan, 
savings and loan, and homestead associations (including 
cooperative banks) in the State. Such authority shall only be 
exercised by the Board of Directors with respect to such 
noninsured banks prior to July 31, 1970, to limit the rates of 
interest or dividends which such banks may pay on time and 
savings deposits to maximum rates not lower than 5\1/2\ per 
centum per annum. Whenever it shall appear to the Board of 
Directors that any noninsured bank or any affiliate thereof is 
engaged or has engaged or is about to engage in any acts or 
practices which constitute or will constitute a violation of 
the provisions of this subsection or of any regulations 
thereunder, the Board of Directors may, in its discretion, 
bring an action in the United States district court for the 
judicial district in which the principal office of the 
noninsured bank or affiliate thereof is located to enjoin such 
acts or practices, to enforce compliance with this subsection 
or any regulations thereunder, or for a combination of the 
foregoing, and such courts shall have jurisdiction of such 
actions, and, upon a proper showing, an injunction, restraining 
order, or other appropriate order may be granted without bond.
  [(2) Notwithstanding the provisions of paragraph (1), an 
insured nonmember bank may permit withdrawals to be made 
automatically from a savings deposit that consists only of 
funds in which the entire beneficial interest is held by one or 
more individuals through payment to the bank itself or through 
transfer of credit to a demand deposit or other account 
pursuant to written authorization from the depositor to make 
such payments or transfers in connection with checks or drafts 
drawn upon the bank, pursuant to terms and conditions 
prescribed by the Board of Directors.
  [(3) Transfers.--Notwithstanding any other provision of this 
subsection, an insured nonmember bank or insured State savings 
association may permit the owner of any deposit or share, any 
account which is a deposit or share, or any account on which 
interest or dividends are paid to make up to 24 transfers per 
month (or such greater number as the Board of Governors of the 
Federal Reserve System may determine by rule or order under 
section 19(i) to be permissible for member banks), for any 
purpose, to a demand deposit account of the owner in the same 
institution. Nothing in this subsection shall be construed to 
prevent an account offered pursuant to this subsection from 
being considered a transaction account (as defined in section 
19(b) of the Federal Reserve Act) for purposes of the Federal 
Reserve Act.]
  (g) [Repealed]

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