I 

108TH CONGRESS 

1ST SESSION H. R. 3183

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. 

IN THE HOUSE OF REPRESENTATIVES 

SEPTEMBER 25, 2003

Mr. OXLEY (for himself and Mr. FRANK of Massachusetts) introduced the 

following bill; which was referred to the Committee on Financial Services 

A BILL

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Depositary Services 

5 Efficiency and Cost Reduction Act’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds as follows: 
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1 (1) The Secretary of the Treasury has long 

2 compensated financial institutions for various critical 

3 depositary and financial agency services provided for 

4 or on behalf of the United States by—

5 (A) placing large balances, commonly re6 ferred to as ‘‘compensating balances’’, on de7 posit at such institutions; and 

8 (B) using imputed interest on such funds 

9 to offset charges for the various depositary and 

10 financial agency services provided to or on be11 half of the Government. 

12 (2) As a result of sharp declines in interest 

13 rates over the last few years to record low levels, or 

14 the public debt outstanding reaching the statutory 

15 debt limit, the Department of the Treasury often 

16 has had to dramatically increase or decrease the size 

17 of the compensating balances on deposit at these fi18 nancial institutions. 

19 (3) The fluctuation of the compensating bal20 ances, and the necessary pledging of collateral by fi21 nancial institutions to secure the value of compen22 sating balances placed with those institutions, have 

23 created unintended financial uncertainty for the Sec24 retary of the Treasury and for the management by 

25 financial institutions of their cash and securities. 
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1 (4) It is imperative that the process for pro2 viding financial services to the Government be trans3 parent, and provide the information necessary for 

4 the Congress to effectively exercise its appropriation 

5 and oversight responsibilities. 

6 (5) The use of direct payment for services ren7 dered would strengthen cash and debt management 

8 responsibilities of the Secretary of the Treasury be9 cause the Secretary would no longer need to dra10 matically increase or decrease the level of such bal11 ances when interest rates fluctuate sharply or when 

12 the public debt outstanding reaches the statutory 

13 debt limit. 

14 (6) An alternative to the use of compensating 

15 balances, such as direct payments to financial insti16 tutions, would ensure that payments to financial in17 stitutions for the services they provide would be 

18 made in a more predictable manner and could result 

19 in cost savings. 

20 (7) Limiting the use of compensating balances 

21 could result in a more direct and cost-efficient meth22 od of obtaining those services currently provided 

23 under compensating balance arrangements. 

24 (8) A transition from the use of compensating 

25 balances to another compensation method must be 
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1 carefully managed to prevent higher-than-necessary 

2 transitional costs and enable participating financial 

3 institutions to modify their planned investment of 

4 cash and securities. 

5 SEC. 3. AUTHORIZATION OF APPROPRIATIONS FOR SERV6 ICES RENDERED BY DEPOSITARIES AND FI7 NANCIAL AGENCIES OF THE UNITED STATES. 

8 There are authorized to be appropriated for fiscal 

9 years beginning after fiscal year 2003 to the Secretary of 

10 the Treasury such sums as may be necessary for reimburs11 ing financial institutions in their capacity as depositaries 

12 and financial agents of the United States for all services 

13 required or directed by the Secretary of the Treasury, or 

14 a designee of the Secretary, to be performed by such finan15 cial institutions on behalf of the Secretary of the Treasury 

16 or another Federal agency, including services rendered be17 fore fiscal year 2004. 

18 SEC. 4. ORDERLY TRANSITION. 

19 (a) IN GENERAL.—As appropriations authorized 

20 under section 3 become available, the Secretary of the 

21 Treasury shall promptly begin the process of phasing in 

22 the use of the appropriations to pay financial institutions 

23 serving as depositaries and financial agents of the United

24 States, and transitioning from the use of compensating 

25 balances to fund these services. 
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1 (b) POST-TRANSITION USE LIMITED TO EXTRAOR2 DINARY CIRCUMSTANCES.—

3 (1) IN GENERAL.—Following the transition to 

4 the use of the appropriations authorized under sec5 tion 3, the Secretary of the Treasury may use the 

6 compensating balances to pay financial institutions 

7 serving as depositaries and financial agents of the 

8 United States only in extraordinary situations where 

9 the Secretary determines that they are needed to en10 sure the fiscal operations of the Government con11 tinue to function in an efficient and effective man12 ner. 

13 (2) REPORT.—Any use of compensating bal14 ances pursuant to paragraph (1) shall promptly be 

15 reported by the Secretary of the Treasury to the 

16 Committee on Financial Services of the House of 

17 Representatives and the Committee on Banking, 

18 Housing, and Urban Affairs of the Senate. 

19 (c) REQUIREMENTS FOR ORDERLY TRANSITION.—In 

20 transitioning to the use of the appropriations authorized 

21 in section 3, the Secretary of the Treasury shall take such 

22 steps as may be appropriate to—

23 (1) prevent abrupt financial disruption to the 

24 functions of the Department of the Treasury or to 

25 the participating financial institutions; and 
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1 (2) maintain adequate accounting and manage2 ment controls to ensure that payments to financial 

3 institutions for their banking services provided to 

4 the Government as depositaries and financial agents 

5 are accurate and that the arrangements last no 

6 longer than is necessary. 

7 (d) REPORTS REQUIRED.—

8 (1) ANNUAL REPORT.—

9 (A) IN GENERAL.—For each fiscal year, 

10 the Secretary of the Treasury shall submit a re11 port to the Congress on the use of compen12 sating balances and on the use of appropria13 tions authorized in section 3 during that fiscal 

14 year. 

15 (B) INCLUSION IN BUDGET.—The report 

16 required under subparagraph (A) may be sub17 mitted as part of the budget submitted by the 

18 President under section 1105 of the title 31, 

19 United States Code, for the following fiscal year 

20 and if so, the report shall be submitted concur21 rently to the Committee on Financial Services 

22 of the House of Representatives and the Com23 mittee on Banking, Housing, and Urban Affairs 

24 of the Senate. 

25 (2) FINAL REPORT FOLLOWING TRANSITION.—
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1 (A) IN GENERAL.—Following completion of 

2 the transition from the use of compensating 

3 balances to the use of the appropriations au4 thorized in section 3 to pay financial institu5 tions for their services as depositaries and fi6 nancial agents of the United States, the Sec7 retary of the Treasury shall submit a report on 

8 the transition to the Committee on Financial 

9 Services of the House of Representatives and 

10 the Committee on Banking, Housing, and 

11 Urban Affairs of the Senate. 

12 (B) CONTENTS OF REPORT.—The report 

13 submitted under subparagraph (A) shall include 

14 a detailed analysis of—

15 (i) the cost of transition; 

16 (ii) the direct costs of the services 

17 being paid from the appropriations author18 ized under section 3; and 

19 (iii) the benefits realized from the use 

20 of direct payment for such services, rather 

21 than the use of compensating balance ar22 rangements. 

23 SEC. 5. TECHNICAL AMENDMENT. 

24 The 2d undesignated paragraph of section 16 of the 

25 Federal Reserve Act (12 U.S.C. 412) is amended—
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1 (1) in the 3d sentence, by inserting ‘‘or any 

2 other asset of a Federal reserve bank’’ before the pe3 riod at the end; and 

4 (2) in the last sentence, by inserting ‘‘, or are 

5 otherwise held by or on behalf of,’’ after ‘‘in the 

6 vaults of’’.

Æ