Jack Faris of the National Federation of Independent Business recently wrote a column in the Fairfield Country Business Journal discussing Depression era legislation that prohibits banks from paying interest on business checking accounts. The legislation falls hardest on small companies because they cannot afford "sweep" accounts that pay interest but require a much higher minimum balance. In effect, the law puts small businesses between a rock and a hard place.
Legislators have long considered deregulating aspects of banking laws so that interest-bearing checking accounts are available to businesses of all sizes. As Faris notes in his column, last May Congress voted 424 to 1 in favor of a bill that would remove this prohibition.
Senators, however, have been slower to act. In June 2004, Senator Chuck Hagel, Republican of Kansas, spoke at length with the Senate's Committee on Banking, Housing, and Urban Development about the unfair nature of the prohibition on interest bearing accounts for businesses. "While this prohibition applies to all banks and businesses, it targets and discriminates against small banks and small businesses," said Hagel in a 2004 speech before the committee.
But it has taken a full year for senators to act. In August, Hagel and Maine Republican Olympia Snowe introduced the "Interest on Business Checking Act of 2005" bill to address this matter. At present, Senator Mike Crapo is leading his colleagues in negotiating a version. Mr. Crapo's press secretary refused to comment on the negotiations, saying only that a vote is not likely until sometime next year.
The securities legislation passed in the 1930's was largely a knee-jerk reaction to the Depression and an attempt to clamp down on the scapegoats of the day -- financial capitalists. What's more, many scholars have unearthed evidence that those purported reforms have had adverse consequences, namely stifling entrepreneurship and preserving the monopolies of local banks.
It's surprising and unsettling that 70 years later, legislators still hesitate to reform an obviously flawed system. It seems that Hagel and Snowe are the only two senators who recognize the need to move beyond the past. Where are the other 98?