II 

108TH CONGRESS 

1ST SESSION S. 1967

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 

NOVEMBER 25, 2003

Mr. HAGEL (for himself and Ms. SNOWE) 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 2003’’. 
2

•S 1967 IS 

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

3 (a) IN GENERAL.—Section 2(a) of Public Law 93–

4 100 (12 U.S.C. 1832(a)) is amended by inserting after 

5 paragraph (2) the following: 

6 ‘‘(3) Notwithstanding any other provision of 

7 law, any depository institution may permit the owner 

8 of any deposit or account which is a deposit or ac9 count on which interest or dividends are paid and is 

10 not a deposit or account described in paragraph (2) 

11 to make not more than 24 transfers per month (or 

12 such greater number as the Board of Governors of 

13 the Federal Reserve System may determine by rule 

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

15 owner in the same institution. An account offered 

16 pursuant to this paragraph shall be considered a 

17 transaction account for purposes of section 19 of the 

18 Federal Reserve Act, unless the Board of Governors 

19 of the Federal Reserve System determines other20 wise.’’. 

21 (b) CONFORMING AMENDMENTS.—

22 (1) IN GENERAL.—Section 2(a) of Public Law 

23 93–100 (12 U.S.C. 1832(a)), as amended by sub24 section (a), is further amended—

25 (A) in paragraph (1), by striking ‘‘but sub26 ject to paragraph (2)’’; 
3

•S 1967 IS 

1 (B) by amending paragraph (2) to read as 

2 follows: 

3 ‘‘(2) No provision of this section may be con4 strued as conferring the authority to offer demand 

5 deposit accounts to any institution that is prohibited 

6 by law from offering demand deposit accounts.’’; and 

7 (C) in paragraph (3), by striking ‘‘and is 

8 not a deposit or account described in paragraph 

9 (2)’’. 

10 (2) EFFECTIVE DATE.—The amendments made 

11 by paragraph (1) shall take effect on the date which 

12 is 2 years after the date of enactment of this Act. 

13 SEC. 3. AUTHORIZATION OF INTEREST-BEARING TRANS14 ACTION ACCOUNTS. 

15 (a) REPEAL OF PROHIBITION ON PAYMENT OF IN16 TEREST ON DEMAND DEPOSITS.—

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

18 the Federal Reserve Act (12 U.S.C. 371a) is re19 pealed. 

20 (2) HOME OWNERS’ LOAN ACT.—Section 

21 5(b)(1)(B) of the Home Owners’ Loan Act (12 

22 U.S.C. 1464(b)(1)(B)) is amended by striking ‘‘sav23 ings association may not—’’ and all that follows 

24 through ‘‘(ii) permit any’’ and inserting ‘‘savings as25 sociation may not permit any’’. 
4

•S 1967 IS 

1 (3) FEDERAL DEPOSIT INSURANCE ACT.—Sec2 tion 18(g) of the Federal Deposit Insurance Act (12 

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

4 (b) JOINT RULEMAKING REQUIRED.—

5 (1) IN GENERAL.—Not later than 2 years after 

6 the date of enactment of this Act, the Secretary of 

7 the Treasury and the Federal banking agencies shall 

8 issue joint final regulations authorizing the payment 

9 of interest and dividends on transaction accounts at 

10 depository institutions that are subject to regulation 

11 by those entities. 

12 (2) CONTENTS.—Regulations required by this 

13 subsection shall—

14 (A) establish the scope of the authorization 

15 described in paragraph (1) and the types of 

16 transaction accounts to which that authoriza17 tion shall apply; and 

18 (B) include any appropriate limitations, ex19 ceptions, or restrictions on that authorization, 

20 consistent with the purposes of this section. 

21 (3) EFFECTIVE DATE OF REGULATIONS.—The 

22 regulations required by this subsection shall take ef23 fect not later than 2 years after the date of enact24 ment of this Act.
5

•S 1967 IS 

1 (4) DEFINITIONS.—As used in this sub2 section—

3 (A) the terms ‘‘depository institution’’ and 

4 ‘‘transaction account’’ have the meanings given 

5 such terms in subparagraphs (A) and (C), re6 spectively, of section 19(b)(1) of the Federal 

7 Reserve Act (12 U.S.C. 461(b)(1)); and 

8 (B) the term ‘‘Federal banking agency’’ 

9 has the meaning the term in section 3 of the 

10 Federal Deposit Insurance Act (12 U.S.C. 

11 1813). 

12 (c) EFFECTIVE DATE OF REPEAL.—The amend13 ments made by subsection (a) shall become effective on 

14 the earlier of—

15 (1) 2 years after the date of enactment of this 

16 Act; or 

17 (2) the date on which final regulations required 

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

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

20 RESERVE BANKS. 

21 (a) IN GENERAL.—Section 19(b) of the Federal Re22 serve Act (12 U.S.C. 461(b)) is amended by adding at 

23 the end the following: 

24 ‘‘(12) EARNINGS ON RESERVES.—
6

•S 1967 IS 

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

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

3 depository institution may receive earnings to 

4 be paid by the Federal reserve bank at least 

5 once each calendar quarter at a rate or rates 

6 not to exceed the general level of short-term in7 terest rates. 

8 ‘‘(B) REGULATIONS RELATING TO PAY9 MENTS AND DISTRIBUTION.—The Board may 

10 promulgate regulations concerning—

11 ‘‘(i) the payment of earnings in ac12 cordance with this paragraph; 

13 ‘‘(ii) the distribution of such earnings 

14 to the depository institutions which main15 tain balances at such banks or on whose 

16 behalf such balances are maintained; and 

17 ‘‘(iii) the responsibilities of depository 

18 institutions, Federal home loan banks, and 

19 the National Credit Union Administration 

20 Central Liquidity Facility with respect to 

21 the crediting and distribution of earnings 

22 attributable to balances maintained, in ac23 cordance with subsection (c)(1)(A), in a 

24 Federal reserve bank by any such entity on 

25 behalf of depository institutions. 
7

•S 1967 IS 

1 ‘‘(C) DEPOSITORY INSTITUTION DE2 FINED.—For purposes of this paragraph, the 

3 term ‘depository institution’, in addition to any 

4 institution described in paragraph (1)(A), in5 cludes any trust company, corporation orga6 nized under section 25A or having an agree7 ment with the Board under section 25, or any 

8 branch or agency of a foreign bank (as defined 

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

10 of 1978).’’. 

11 (b) AUTHORIZATION FOR PASS THROUGH RESERVES

12 FOR MEMBER BANKS.—Section 19(c)(1)(B) of the Fed13 eral Reserve Act (12 U.S.C. 461(c)(1)(B)) is amended by 

14 striking ‘‘which is not a member bank’’. 

15 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

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

17 is amended—

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

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

20 (B) by redesignating subparagraphs (D) 

21 and (E) as subparagraphs (C) and (D), respec22 tively; and 

23 (2) in subsection (c)(1)(A), by striking ‘‘sub24 section (b)(4)(C)’’ and inserting ‘‘subsection (b)’’. 
8

•S 1967 IS 

1 SEC. 5. INCREASED FEDERAL RESERVE BOARD FLEXI2 BILITY IN SETTING RESERVE REQUIRE3 MENTS. 

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

5 U.S.C. 461(b)(2)(A)) is amended—

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

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

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

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

10 8 per centum,’’ and inserting ‘‘(and which may be 

11 zero),’’. 

12 SEC. 6. TREATMENT OF CERTAIN ESCROW ACCOUNTS. 

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

14 maintained at a depository institution for the purpose of 

15 completing the settlement of a real estate transaction, ac16 tivities described in subsection (b) shall not be treated as 

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

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

19 interest on accounts or deposits maintained at depository 

20 institutions, including such provisions in—

21 (1) Public Law 93–100; 

22 (2) the Federal Reserve Act; 

23 (3) the Home Owners’ Loan Act; or 

24 (4) the Federal Deposit Insurance Act. 

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

26 activities described in this paragraph are—
9

•S 1967 IS 

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

2 of expenses incidental to providing a normal banking 

3 service with respect to an escrow account described 

4 in subsection (a); 

5 (2) the forbearance, by the depository institu6 tion, from charging a fee for providing any such 

7 banking function; and 

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

9 or the beneficiary of such escrow account as a result 

10 of an action of the depository institution described 

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

Æ