Date: 1983-07-12
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. in last years Garn/St Germain Depository Institution Deregulation Act.. the Depository Institutions Deregulation Committee (DIDC) -was directed to create an account that depository institutions could offer that would be truly competitive with money market mutual funds. The statutory language provided that the account could be offered to businesses if that account was subject to reserves and provided that the account allowed no more than three thirdparty withdrawals per month. The section was also interpreted by some as authorizing the DIDC to create another account which would be available to businesses and which had no thirdparty transaction limitsin other words a Super NOW account (an interestpaying checking account). About 2 weeks ago. tile DIDC concluded that its authority to authorize depository institutions to offer such an account was unclear. Instead. it decided to seek congressional clarification. The legislation that I am introducing today responds to the concerns of the members of the DIDC and also addresses the major remaining deregulation issue involving the liability side of depository institutions balance sheets. This bill is not new. In the 95th Congress when the regulatory agencies were inventing ways around the restrictions imposed by regulation Q (ol the amount of interest payable on savings accounts) and the prohibition on paying interest on checking accounts. I concluded that the time had come to repeal the prohibition and to authorIze all depository institutions to offer their customers (whether business or individual) checking accounts. Institutions would have been free to determine the characteristics of the accounts they offered their customersinterest paying or not. for example. The 95th Congress ended before action could be taken on that bill. In the 96th Congress I reintroduced that legislation. At the same time a U.S. circuit court of appeals had declared that regulatory actions authorizing share drafts for credit unions and automatic transfer accounts for commercial banks were invalid. Since the bill would have ended the prohibiLion on paying interest on demand deposits and allowed any depository institution to offer its customers such accounts. the legislation also addressed the issues raised by the court. It was a bill designed to truly deregulate depository institutions. It would have allowed each institution to design accounts that it believed would be attractive to Its customers free of governmental restrictions. It became clear during hearings on the legislation that depository institutions. particularly commercial banks. were not ready for the freedom to compete that this bill would have provided. Bankers appearing before the committee in essence said competition is fine. but. The buts had substantial support and the committee and the House ultimately passed a bill extending the NOW account experimentinterest paying checking accounts for individuals and nonprofit orgalizations--from New England to the Nation. Thus. individuals and nonprofit organizations were allowed to have demand deposits which receive interest payments from any depository institition. In the last Congress the deregulaLion effort was continued with further reVision of the regulations imposing controls oil tile type of savings deposits offered by depository inst it ut ions and with the directive to the DIDC to create an account to compete with the nioney market mutual funds. Oil the latter point. DIDC created the money market account and allowed instituLions to offer a Super NOW to customers eligible to hold regular NOW accounts. Small businesses and corporations are still precluded from enjoying the full benefits of receiving interest oil their checking accounts. This particularly affects small businesses. because most large corporations are sophisticated enough to assure that their cash resources earn a return. These large firms are able to circumvent the prohibition on paying interest onl demand accounts by utilizing cash managenent devices which minimize the amount of cash kept in noninterest earning accounts. The typical small business cannot afford this luxury or does not have sufficient resources to make effective use of such a service. The bill I am introducing today would address this inequity. Under the terms of the bill all depository institutions serving businesses would be able to offer checking accounts to businesses and corporations and those accounts could be interest paying. The institutions would have the freedom to determine what type of account they want to offer and attempt to sell that account in the market. Now that regulation Q will be virtually eliminated. the time has come to remove the remaining controls on deposits. This bill will do that and I hope that the committee and the House will adopt this approach. Mr. Speaker. I Insert the text of the bill in tile RECORD at this point. H.R. 3535 A bill to atthorize depository institutions to offer intrestbearing demand deposits Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled.