The House voted overwhelmingly yesterday to partially deregulate the nation's banking industry. At the same time it voted to give the Federal Reserve Board greater control over the monetary system.
The Depository Institutions and Monetary Control Act of 1980, called the most significant banking legislation in nearly half a century, passed by a vote of 380-13. The Senate, which is due to consider the bill today, is also expected to approve it.
The principal titles of the Monetary Control Act set mandatory reserve requirements on all financial institutions, gradually eliminate interest rate ceilings over a six year period, authorize nationwide payment of interest on checking (NOW) accounts starting next Jan. 1, preempt state usury laws on mortgages and agricultural and business loans over $25,000, and give savings institutions new lending and trust powers.
The legislation also authorizes share drafts, remote service units and automatic transfers of funds. The ceiling on federally insured bank accounts is raised to $100,000.
Passage of this omnibus banking bill represents a bipartisan compromise. During the two years of often bitter debate that preceded yesterday's vote, the House banking committee was pitted against its Senate counterpart; banks were pitted against savings and loans; small S&Ls were pitted against large ones; and industry was pitted against consumer.
In the end, although not all got what they wanted, the legislation had widespread support from every sector. The House agreed to include the issue of deregulation of interest rates demanded by the Senate, and the Senate agreed to add the question of Fed membership to the basic package reauthorizing some transactions. Industry came around to higher interest payments after it was promised new asset powers. Finally, the sad state of the economy contributed to the feeling the bill must be passed, according to Banking committee chairman Henry Reuss (D-Wis.).
The 13 opposing votes came from midwestern and southern states where there are many small banks. Rep. Robert McClory (R-Ill.) warned that financial institutions "would live to regret" this legislation because it would not provide all the benefits promised. He opposed letting credit unions and savings institutions act like banks.
Rep. Frank Annunzio (D-Ill.), one of the bill's authors, voted against it yesterday after two changes made by the conference committee. He disapproved requiring states opposed to a federal override of their usury laws to pass legislation within three years in order to set lower limits. And he opposed a federal override on agricultural and business loans of more than $25,000 because financial institutions would be able to charge 21 percent interest at current rates.
The new reserve requirements, ranging from 8 to 14 percent for transaction deposits and 0 to 9 percent for corporate time deposit, are intended to solve the problem of declining membership in the Federal Reserve System. Banks were leaving the system in large numbers rather than post non-interest bearing reserves with the Fed. Now that all financial institutions will have to do so, the Fed will have more control over the money supply.