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WASHINGTON-The House approved the Business Checking Freedom Act of 2003 (H.R. 758) by a voice vote last week. H.R. 758 directs the Federal Reserve to pay interest on reserves held for credit unions and other financial institutions by the Fed to maintain cash reserves to cover potential withdrawals and to help the Fed manage the nation’s monetary supply. Paying interest on these so-called “sterile” reserves provides incentive for financial institutions to increase their reserve balances, which have been dropping in recent years, voluntarily. In an April 1 letter to bill sponsor Representative Sue Kelly (R-N.Y.), NAFCU President and CEO Fred Becker said 813 of his organization’s member credit unions had $1,173,783,323 in reserve at the Fed based on NAFCU September 2002 data. “If legislation were enacted into law today and the Federal Reserve were to pay interest at the current Federal Funds rate of 1.25%, then these credit unions and their member owners could collectively receive $14,672,290 in interest on this amount,” Becker wrote. The bill also includes a credit union-backed provision to continue the Fed’s annual report to Congress on retail banking fees, including credit union pricing. Additionally, the bill permits banks to pay interest on business checking accounts. Credit unions already have this authority. The fate of H.R. 758 is now in the Senate’s hands, where a similar bill has yet to be introduced.

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