, powers and ownership of ilcs. for example, one ilc operating under the exception now has more than $ 60 billion in assets and more than $ 52 billion in deposits, and an additional nine exempt ilcs each have more than $ 1 billion in deposits. the aggregate amount of estimated insured deposits held by all ilcs has grown by more than 500 percent since 1999, and the total assets of all ilcs has grown from $ 3. 8 billion in 1987 to $ 140 billion in 2004. several large, internationally active commercial companies now own ilcs under this exception and use these banks to support various aspects of their global commercial operations. while only a handful of states have the ability to charter exempt ilcs, there is no limit on the number of exempt ilcs these grandfathered states may charter in the future. in addition, due to the limited restrictions that apply under federal law to the ilcs operating under this exemption, an exempt ilc legally may engage in the full range of commercial, mortgage, credit card and consumer lending activities ; offer payment - related services, including fedwire, automated clearing house ( ach ) and check clearing services, to affiliated and unaffiliated persons ; and accept time and savings deposits, including certificates of deposit ( cds ), from any type of customer. why does this growth and potential further expansion of ilcs matter? simply stated, it has the potential to undermine several important policies that congress has established for the banking system. let me explain. congress has established a prudential framework for banking organizations in the united states that is based both on the supervision of insured banks and the supervision of their corporate owners on a group - wide or consolidated basis. consolidated supervision refers to the legal framework that provides a supervisor the tools it needs - - such as reporting, examination, capital and enforcement authority - - to understand, monitor and, when appropriate, restrain the risks associated with an organization's consolidated or group - wide activities. consolidated supervision of the organizations that control banks not only helps prevent bank failures, it also provides important tools for managing and resolving bank failures if and when they do occur. in fact, following the collapse of bank of commerce and credit international ( bcci ), which lacked a single supervisor capable of monitoring its diverse and global activities, congress amended the bhc act in 1991 to require that foreign banks demonstrate that they are subject to comprehensive supervision on a consolidated basis prior to acquiring a bank in the united states. for a variety of

, improve the supervision of banking organizations, or otherwise enhance the federal banking laws without compromising the fundamental goals of bank regulation and supervision. a complete listing and summary of the proposals supported by the board is included in the appendix to my testimony. we believe these proposals provide an excellent starting point for any regulatory relief legislation, and we look forward to working with the committee as you develop and perfect such legislation. in my remarks, i will highlight the three items that are the board's highest regulatory relief priorities. these proposals would allow the federal reserve to pay interest on balances held by depository institutions at reserve banks, provide the board greater flexibility in setting reserve requirements, and permit depository institutions to pay interest on demand deposits. these proposals may well sound familiar to you and they should. the board has supported these amendments for many years because we believe each of them would improve the operation of our financial system. i should note that these three amendments form the core of s. 1586, the interest on business checking act of 2005, which was introduced last year by senators hagel, reed and snowe. the board strongly supports passage of s. 1586, either independently or as part of a broader regulatory relief bill. in addition to these priority items, i will highlight a few other legislative proposals that we believe would provide meaningful regulatory relief to banking organizations as well as some steps that the board has taken on its own to reduce regulatory burden. finally, i will discuss several matters related to industrial loan companies ( ilcs ). this topic has been raised by some regulatory relief proposals, but it has much broader policy implications for the structure and supervision of the banking industry. interest on reserves and reserve requirement flexibility ( matrix nos. 1 and 2 ) the first two of the board's priority items relate to reserve requirements, which exist to assist the federal reserve conduct monetary policy. federal law currently obliges the board to establish reserve requirements on certain deposits held at depository institutions and mandates that the board set the ratio of required reserves on transaction deposits above a certain threshold at between 8 and 14 percent. because the federal reserve does not pay interest on the balances held at reserve banks to meet reserve requirements, depositories have an incentive to reduce their required reserve balances to a minimum. to do so, they engage in a variety of reserve avoidance activities, including sweep arrangements that move funds from deposits that are subject to reserve requirements to deposits and money market investments that are not. these sweep programs and similar activities