Mr. Chairman, I thank you for conducting this hearing on the payment of interest on reserves and business checking provisions in this year's Shelby/Mack deregulation bill. Without your leadership on these issues, we would not be here today.
I also want to thank Senator Shelby for his hard work on all four of our deregulation bills. His continued support of simplifying the regulation of financial institutions is unparalleled on this committee and I thank him for again allowing me to join him in this effort. If passed this will be our third success on this front.
I also appreciate the early support offered by senators on both sides of the aisle. We have not had such bipartisan success in years past and I am hopeful that the current cooperative atmosphere will translate into quick and easy passage of our legislation. Small businesses, consumers and financial institutions will all benefit if we succeed.
The ability of banks to compete with a wide range of financial services providers are being unnecessarily impeded due to the existing prohibition on paying interest on business checking. Combined with the inability of the Fed to pay interest on reserves, these two antiquated regulatory barriers have resulted in very "inefficient" behavior by some depository institutions and an outright competitive disadvantage to others.
In my view, these prohibitions do not serve any public policy goal. Our bill's approach of simply allowing, yet not requiring, banks to offer interest bearing accounts to their corporate customers is a small but reasonable step toward economic freedom for banks. More importantly, it is the least we can do to keep the engine of small business humming in our economy. The prohibition hurts small businesses because they do not have the means to employ expensive technology to avoid the loss of interest on their accounts. Leveling the playing field for banks and the nation's businesses was our motivation in including this provision in our bill.
With regard to the bill's provision to allow the fed to pay interest on reserves, I believe we must correct this problem soon. The decline in reserves is alarming and likely to continue unless we act now. Sweep technology will become more accessible and more affordable. As the Fed representative will no doubt explain in greater detail, this is a troubling trend if they are to have adequate means of conducting monetary policy.
The written testimony submitted by First Union and the Treasury Management Association is
appreciated, and I look forward to hearing from all our witnesses today. I hope we will see this
bill passed out of committee very soon.
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