II 

109TH CONGRESS 

1ST SESSION S. 1586 

To allow all businesses to make up to 24 transfers each month from interestbearing 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. 

IN THE SENATE OF THE UNITED STATES 

JULY 29, 2005 

Mr. HAGEL (for himself, Ms. SNOWE, and Mr. REED) introduced the following 

bill; which was read twice and referred to the Committee on Banking, 

Housing, and Urban Affairs 

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. 

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 ‘‘Interest on Business 

5 Checking Act of 2005’’. 
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•S 1586 IS

1 SEC. 2. INTEREST-BEARING TRANSACTION ACCOUNTS AU2 THORIZED FOR ALL BUSINESSES. 

3 Section 2(a) of Public Law 93–100 (12 U.S.C. 

4 1832(a)) is amended by adding at the end the following: 

5 ‘‘(3)(A) Notwithstanding any other provision of 

6 law, any depository institution may permit the owner 

7 of any deposit or account which is a deposit or ac8 count on which interest or dividends are paid to 

9 make not more than 24 transfers per month (or 

10 such greater number as the Board of Governors of 

11 the Federal Reserve System may determine by rule 

12 or order), for any purpose, to another account of the 

13 owner in the same institution. 

14 ‘‘(B) An account offered pursuant to this para15 graph shall be considered a transaction account for 

16 purposes of section 19 of the Federal Reserve Act, 

17 unless the Board of Governors of the Federal Re18 serve System determines otherwise.’’. 

19 SEC. 3. AUTHORIZATION OF INTEREST-BEARING TRANS20 ACTION ACCOUNTS. 

21 (a) REPEAL OF PROHIBITION ON PAYMENT OF IN22 TEREST ON DEMAND DEPOSITS.— 

23 (1) FEDERAL RESERVE ACT.—Section 19(i) of 

24 the Federal Reserve Act (12 U.S.C. 371a) is re25 pealed. 
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1 (2) HOME OWNERS’ LOAN ACT.—Section 

2 5(b)(1)(B) of the Home Owners’ Loan Act (12 

3 U.S.C. 1464(b)(1)(B)) is amended by striking ‘‘sav4 ings association may not—’’ and all that follows 

5 through ‘‘(ii) permit any’’ and inserting ‘‘savings as6 sociation may not permit any’’. 

7 (3) FEDERAL DEPOSIT INSURANCE ACT.—Sec8 tion 18(g) of the Federal Deposit Insurance Act (12 

9 U.S.C. 1828(g)) is repealed. 

10 (b) JOINT RULEMAKING REQUIRED.— 

11 (1) IN GENERAL.—Not later than 90 days after 

12 the date of enactment of this Act, the Federal bank13 ing agencies shall issue joint final regulations imple14 menting the provisions of subsection (a). 

15 (2) EFFECTIVE DATE OF REGULATIONS.—The 

16 regulations required by this subsection shall take ef17 fect not later than 90 days after the date of enact18 ment of this Act. 

19 (3) DEFINITIONS.—As used in this subsection, 

20 the term ‘‘Federal banking agency’’ has the same 

21 meaning as in section 3 of the Federal Deposit In22 surance Act (12 U.S.C. 1813). 

23 (c) EFFECTIVE DATE OF REPEAL.—The amend24 ments made by subsection (a) shall become effective on 

25 the earlier of— 
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1 (1) 90 days after the date of enactment of this 

2 Act; or 

3 (2) the date on which final regulations required 

4 to be issued under subsection (b) become effective. 

5 SEC. 4. PAYMENT OF INTEREST ON RESERVES AT FEDERAL 

6 RESERVE BANKS. 

7 (a) IN GENERAL.—Section 19(b) of the Federal Re8 serve Act (12 U.S.C. 461(b)) is amended by adding at 

9 the end the following: 

10 ‘‘(12) EARNINGS ON RESERVES.— 

11 ‘‘(A) IN GENERAL.—Balances maintained 

12 at a Federal reserve bank by or on behalf of a 

13 depository institution may receive earnings to 

14 be paid by the Federal reserve bank at least 

15 once each calendar quarter at a rate or rates 

16 not to exceed the general level of short-term in17 terest rates. 

18 ‘‘(B) REGULATIONS RELATING TO PAY19 MENTS AND DISTRIBUTION.—The Board may 

20 promulgate regulations concerning— 

21 ‘‘(i) the payment of earnings in ac22 cordance with this paragraph; 

23 ‘‘(ii) the distribution of such earnings 

24 to the depository institutions which main-
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1 tain balances at such banks or on whose 

2 behalf such balances are maintained; and 

3 ‘‘(iii) the responsibilities of depository 

4 institutions, Federal home loan banks, and 

5 the National Credit Union Administration 

6 Central Liquidity Facility with respect to 

7 the crediting and distribution of earnings 

8 attributable to balances maintained, in ac9 cordance with subsection (c)(1)(A), in a 

10 Federal reserve bank by any such entity on 

11 behalf of depository institutions. 

12 ‘‘(C) DEPOSITORY INSTITUTION DE13 FINED.—For purposes of this paragraph, the 

14 term ‘depository institution’, in addition to any 

15 institution described in paragraph (1)(A), in16 cludes any trust company, corporation orga17 nized under section 25A or having an agree18 ment with the Board under section 25, or any 

19 branch or agency of a foreign bank (as defined 

20 in section 1(b) of the International Banking Act 

21 of 1978).’’. 

22 (b) AUTHORIZATION FOR PASS THROUGH RESERVES

23 FOR MEMBER BANKS.—Section 19(c)(1)(B) of the Fed24 eral Reserve Act (12 U.S.C. 461(c)(1)(B)) is amended by 

25 striking ‘‘which is not a member bank’’. 
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1 (c) TECHNICAL AND CONFORMING AMENDMENTS.— 

2 Section 19 of the Federal Reserve Act (12 U.S.C. 461) 

3 is amended— 

4 (1) in subsection (b)(4), 

5 (A) by striking subparagraph (C); and 

6 (B) by redesignating subparagraphs (D) 

7 and (E) as subparagraphs (C) and (D), respec8 tively; and 

9 (2) in subsection (c)(1)(A), by striking ‘‘sub10 section (b)(4)(C)’’ and inserting ‘‘subsection (b)’’. 

11 SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXI12 BILITY IN SETTING RESERVE REQUIRE13 MENTS. 

14 Section 19(b)(2)(A) of the Federal Reserve Act (12 

15 U.S.C. 461(b)(2)(A)) is amended— 

16 (1) in clause (i), by striking ‘‘the ratio of 3 per 

17 centum’’ and inserting ‘‘a ratio not greater than 3 

18 percent (and which may be zero)’’; and 

19 (2) in clause (ii), by striking ‘‘and not less than 

20 8 per centum,’’ and inserting ‘‘(and which may be 

21 zero),’’. 

22 SEC. 6. TREATMENT OF CERTAIN ESCROW ACCOUNTS. 

23 (a) IN GENERAL.—In the case of an escrow account 

24 maintained at a depository institution for the purpose of 

25 completing the settlement of a real estate transaction, ac-
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1 tivities described in subsection (b) shall not be treated as 

2 the payment or receipt of interest for purposes of this Act 

3 or any other provision of law relating to the payment of 

4 interest on accounts or deposits maintained at depository 

5 institutions, including such provisions in— 

6 (1) Public Law 93–100; 

7 (2) the Federal Reserve Act; 

8 (3) the Home Owners’ Loan Act; or 

9 (4) the Federal Deposit Insurance Act. 

10 (b) EXCLUSIONS.—For purposes of subsection (a), 

11 activities described in this paragraph are— 

12 (1) the absorption, by the depository institution, 

13 of expenses incidental to providing a normal banking 

14 service with respect to an escrow account described 

15 in subsection (a); 

16 (2) the forbearance, by the depository institu17 tion, from charging a fee for providing any such 

18 banking function; and 

19 (3) any benefit which may accrue to the holder 

20 or the beneficiary of such escrow account as a result 

21 of an action of the depository institution described 

22 in paragraph (1) or (2) or a similar action. 

Æ