ACB: Press Releases

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 13, 2001 #01-19
E-mail: [email protected]

ACB URGES CONGRESS TO ALLOW BANKS TO PAY INTEREST ON BUSINESS CHECKING ACCOUNTS

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WASHINGTON, D.C. — America’s Community Bankers urged Congress today to give banks the option of paying interest on business checking accounts as a way of increasing deposits while better serving small- and medium-sized businesses.

Testifying before the House Financial Institutions Subcommittee, ACB Chairman David A. Bochnowski strongly endorsed a bill introduced today by Reps. Pat Toomey (R-Pa.) and Paul Kanjorski (D-Pa.) as “an important step in allowing banks to offer interest-bearing business checking accounts.”

Bochnowski also commended Rep. Sue Kelly (R-N.Y.) for her ongoing efforts to pass legislation allowing the Federal Reserve System to pay interest on reserves held at the Federal Reserve Banks.

“These issues were first brought to the attention of Congress by ACB in 1994, and we have continued to make the passage of legislation a top priority since that time,” said Bochnowski, who is also chairman and chief executive officer of Peoples Bank, Munster, Ind.

He noted that repealing the ban on paying interest on business checking accounts also has the support of the federal bank regulatory agencies, the National Federation of Independent Business, the U.S. Chamber of Commerce, the American Farm Bureau and the Association for Financial Professionals (formerly the Treasury Management Association).

Bochnowski said that much of the opposition has come from a few large financial firms and big banks, which use sweep arrangements to give businesses a return on their idle funds without violating the law. These sweep programs generally move funds out of the banking system and into mutual funds or government securities.

“We think the time has come to lift this artificial prohibition and keep more money on Main Street, rather than continue diverting it to Wall Street,” Bochnowski said.

“As the head of a $400 million community bank, I can tell you first-hand that for most of us, sweep arrangements are a costly and cumbersome product,” Bochnowski said. “Peoples Bank offers sweeps because we do not have the option of paying interest on business checking accounts, which would be much more efficient and beneficial to our business customers. For smaller community banks, sweep arrangements are not even a realistic business option.”

Bochnowski said that it is “our strong preference” that the business checking bill take effect immediately upon enactment. “We recognize that some institutions are seeking an extensive transition period. While we appreciate the efforts made by Representatives Toomey and Kanjorski to accommodate these concerns, we strongly believe that a phase-in period is unnecessary,” he said.

He emphasized that the change in the law would not require banks to pay interest on business checking accounts. “We simply want the option of doing so. If a bank would choose not to offer such a product, that’s fine. But please don’t stand in the way of those of us who would.”

Bochnowski said that allowing the Fed to pay interest on a bank’s sterile reserves will increase the effectiveness of monetary policy and help make a bank’s payment of interest on its business checking accounts more feasible. He explained that the current lack of return on sterile reserves “creates an incentive to adopt sweep arrangements on demand deposits that are not subject to reserve requirements.”

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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