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Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release March 3, 2003 #03-10
E-mail: [email protected]

ACB URGES CONGRESS TO GIVE COMMUNITY BANKS OPTION TO PAY INTEREST TO BUSINESS CUSTOMERS

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WASHINGTON, D.C. — America’s Community Bankers urged Congress today to give community banks the option of paying interest on the checking accounts of their business customers. ACB also expressed support for legislation authorizing the Federal Reserve System to pay interest on the sterile reserves banks hold at Federal Reserve Banks.

“The interest on business checking option would provide a stimulus for America’s small businesses and the economy as a whole,” said Edwin R. “Bud” Maus, president and CEO, Laurel Savings Bank, Allison Park, Pa., in testimony before the House Financial Institutions Subcommittee.

“Many small businesses do not earn interest on their demand deposits because they cannot afford to maintain the minimum level of deposits required of a sweep account,” he said. “By lifting the ban on interest-bearing business checking accounts, Congress can give these small businesses the opportunity to finally earn a market rate of return on their demand deposits.

“For many “mom ‘n pop” businesses, this could mean the margin of difference for surviving a weak economy. In addition, it would open up an entire segment of potential new deposits for community banks to lend to our neighbors and communities. Given the current debate in Washington over how best to revive the economy, doesn’t a revenue-neutral economic stimulus tool like H.R. 859 make all the more sense?”

H.R. 859, sponsored by Reps. Pat Toomey (R-Pa.) and Paul Kanjorski (D-Pa.), would repeal of the ban on paying interest, effective one year after enactment of the legislation. America’s Community Bankers brought the issue to the attention of Congress nearly a decade ago. Because institutions have had ample time over the years to foresee changes in systems, operations and business plans, Maus strongly urged Congress not to extend the phase-in period beyond one year.

Maus noted that the legislation passed the House twice in the previous Congress and three other times before that. “We hope the House will follow suit this year with a strong vote in favor of this much needed legislation,” he said.

ACB has been joined in supporting the legislation by the Federal Reserve Board, the Treasury Department, the National Federation of Independent Business, the U.S. Chamber of Commerce, the Association of Financial Professionals and the Independent Insurance Agents of America.

Maus explained that the major beneficiaries of the Depression-era ban have been a handful of large financial institutions with the financial resources “to circumvent the prohibition by conducting so-called sweep arrangements.”

He said sweep arrangements can be costly and cumbersome for a community bank to offer its customers. “In fact, many institutions that offer sweeps today do so only because they are not allowed to pay interest on business checking accounts.”

Maus said ACB also supported allowing the Federal Reserve to pay interest on sterile reserves, which would be authorized by H.R. 758, a bill sponsored by Rep. Sue Kelly (R-N.Y.). “Paying interest on required reserve balances will increase the effectiveness of monetary policy and help make a bank’s payment of interest on its business checking accounts more feasible,” Maus said.

Testimony

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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