Legislation designed to keep banks from leaving the Federal Reserve system appears to be dead for this year.
But the controversial legislation - backed in principle by the chairmen of both the House and Senate Banking Committee as well as Federal Reserve Board chairman G. William Miller - will likely be high on the banking committees' agenda in the next Congress.
The proposal, passed two weeks ago by the Housing Banking Committee and scheduled for mark-up later this week in the Senate committee, would require the nation's biggest banks to keep interest-free reserves on deposit with the central bank whether they were members of the Fed system or not.
The House and Senate versions, which differ on some technical points but are the same in principle, were strongly opposed by the American Bankers Association.
The ABA said the bills would in effect force all big banks to become members of the Fed system, a decision that banks now make voluntarily.
The bankers group also argued that neither committee had taken enough time with the legislation, which was not drafted until late August. The Federal Reserve Board and its chairman G. William Miller supported the House and Senate bills with a few reservations.
Earlier, the Fed had bakked a proposal that would have paid interest to banks that kept so-called reserve requirements with the central bank.
The Fed has long worried that it was losing control over monetary policy because of the large numbers of banks fleeing the Fed system. Most banks leave the system because of the high cost of maintaining interest-free reserves at the Fed.
Earlier in the summer Miller and the House Banking Committee got into a spat over whether the Fed needed legislative authority to pay interest on reserves. Miller eventually gave in to House Banking Committee chairman Henry Reuss (D., Wisc.) and said he would not pay interest on the reserves without Congressional approval.
Yesterday Miller, Reuss and other top members of the House Banking Committee met and agreed that they would not push for Fed membership legislation this year. Sources close to the committee said that Miller has assured Reuses the Fed would take no unilateral action to induce banks to stay in the system.
Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee, has apparently decided to withdraw his version of the bill from the commitee's agenda.
Committee sources said that while Proxmire could probably get a bill out of committee, there was considerable opposition on the Senate floor and majority leader Sen. Robert Byrd (D-W. Va.) would be reluctant to schedule such a bill for floor debate with only several weeks left in the session.
But Proxmire, like Reuss, plans to introduce the bill again early next year.
At present, the 5,600 banks that are members of the Federal Reserve system - including all nationally chartered banks - are required to keep interest-free reserves at the central bank.
Reuss and Proxmire balked at Fed's proposal to pay interest on reserves because of the high cost to the Treasury. Most states permit interest on reserves.
Instead, they both backed proposals to require the nation's biggest banks to keep reserves with the Fed while exempting the remaining banks - whether members of the Fed system or not - from keeping reserves at the central bank.