A bill intended to stem the exodus of banks from the Federal Reserve System effectively died in the House Banking Committee yesterday under apparent industry lobbying pressure.
Rep. Henry S. Reuss (D-Wis.), the panel's chairman, who gaveled the session to a quick close after it became clear the measure would fail, angrily blamed the American Bankers' Association, whose lobbying he said shifted votes.
Reuss said he would not attempt to bring the bill up again unless the ABA somehow reversed its opposition-a move he conceded did not seem too likely. The measure failed on an earlier vote in March, 21 to 20.
Reuss told reporters at an impromptu press conference after the session, "It looks to me that the ABA has triumphed. They won and I lost. I know when I'm licked."
Reuss said the Fed would now be left "in the ridiculous position of having to control monetary policy while the banking system is in a position to thumb its nose at the Fed and vitiate its power."
"I have shot my bolt," the Banking Committee chairman said. "The ABA, whose members have been fueling inflation in this country by gushing out credit, will now have to answer the public's questions."
Yesterday's legislation was a compromise proposal designed to halt the recent shrinkage of banks' membership in the Federal Reserve, which Fed authorities have said is making it more difficult for them to conduct monetary policy.
One way the Fed has of tightening or loosening credit is to increase or reduce the proportion of a bank's total deposits that the institution must keep on reserve with the Fed. The fewer banks that belong, the weaker such steps are.
The legislation would have stemmed that erosion by requiring some non-member banks to keep reserves on deposit anyway, at once eliminating the advantage of leaving the Fed system and subjecting them to Fed policy moves.
The banks say they do not like to belong to the Fed both because of the reserve requirements and other conditions that the central bank imposes. The U.S. is one of the few big nations where all bank reserves are not controlled.
Reuss had pushed hard with the committee for approval of yesterday's measure, and said later he had expected to win as much as a three-vote margin in favor of the bill before the coalition fell apart.
But early in the panel's consideration, Rep. Thomas L. Ashley (D-Ohio) protested that the committee should not consider the Fed bill until it settled the issue of whether to allow savings institutions to offer checking accounts.
Although the checking account issue was not related to the Fed legislation, the objection appeared to set off a wave of second thoughts among panel members, and it soon became clear that the Fed bill could not pass.
A U.S. appeals court ruled Friday that automatic transfers of funds between checking and savings accounts by thrift institutions is illegal. The Banking Committee already has scheduled hearings on a bill to resolve the issue.
According to the Banking Committee, the Fed legislation that the panel shelved yesterday would have affected only 222 of the 8,336 U.S. banks that currently are not members of the Federal Reserve System.
At the same time, however, it would have increased the Fed's control over credit to 78 percent of total bank deposits in the U.S., up from the present 70 percent. Four-fifths of all U.S. banks still would have been exempted.