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113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     113-640


                         REGULATION D STUDY ACT


December 2, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


Mr. Hensarling, from the Committee on Financial Services, submitted the 

                              R E P O R T

                        [To accompany H.R. 3240]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3240) to instruct the Comptroller General of the 
United States to study the impact of Regulation D, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                          PURPOSE AND SUMMARY

    Section 19 of the Federal Reserve Act gives the Federal 
Reserve authority to impose reserve requirements on the 
deposits of member institutions. Section 19 is codified in the 
Federal Reserve's Reserve Requirements of Depository 
Institutions (12 CFR Sec. 204), also known as Regulation D. 
Regulation D sets uniform requirements for all depository 
institutions to maintain reserve balances either with their 
Federal Reserve Bank or as cash.
    Regulation D reserve requirements are calculated as a 
percentage of the amount of funds a financial institution's 
members hold in ``transaction'' accounts. A transaction account 
is typically an account from which the depositor or account 
holder is permitted to make unlimited transfers or withdrawals, 
such as a checking account. Because balances in those accounts 
can change quickly, the Federal Reserve requires institutions 
to reserve funds for those accounts as a stabilizing tool for 
the money supply. Regulation D limits the number of transfers 
and withdrawals from non-transaction accounts to six per month.
    H.R. 3240, the ``Regulation D Study Act,'' would require 
the Government Accountability Office (GAO), in consultation 
with credit unions and community banks, to conduct a study 
examining the impact of the Federal Reserve Regulation D 
minimum reserve requirements on depository institutions, 
consumers, and monetary policy.


    H.R. 3240 addresses concerns expressed by representatives 
of America's community-based banks and credit unions regarding 
the effect that Regulation D is having on their institutions 
and the customers they serve.
    On July 15, 2014, Mr. Doug Fecher, President and Chief 
Executive Officer, Wright-Patt Credit Union, on behalf of the 
Credit Union National Association, testified before the 
Committee that ``[Regulation D] adversely impacts credit union 
members when they trigger more than six automatic transfers 
from savings to checking accounts in a month. Members are 
frustrated when their payments do not go through and they are 
hit with an unexpected [non-sufficient funds] fee. We think the 
cap on automatic transfers ought to be increased, and [H.R. 
3240] is a first step in that regard.'' Mr. Fecher further 
testified that:

          Regulation D, which I would imagine a lot of folks in 
        this room have never ever heard of, causes unnecessary 
        [non-sufficient funds] charges to consumers when they 
        exceed the statutory maximum number of automatic 
        transfers from a savings account to a checking account 
        to cover drafts or debits that may come in. And it is 
        not an uncommon occurrence, especially with the way 
        money moves through the financial system today, that a 
        member of the credit union, which happened at Wright-
        Patt Credit Union just last week, calls up and says, 
        ``Why did you charge this NSF fee?'' We attempt to 
        explain to them that they exceeded their number of 
        statutorily required automatic transactions of six in 
        the month and they say, ``What?'' And they first think 
        it's the credit union's fault, and then we explain, no, 
        this is a federal regulation that we have to enforce. 
        And frankly, that makes them madder. So we advocate for 
        the bill and we think it should be studied. We hope 
        that the outcome of the study is that this tool for 
        monetary policy, that number of transactions could 
        almost be tripled without impacting the use of that 
        regulation in terms of monetary policy. So real 
        briefly, that's what that regulation is all about, and 
        we support the study.

    During that same hearing, Mr. David Clendaniel, President 
and Chief Executive Officer, Dover Federal Credit Union, on 
behalf of the National Association of Federal Credit Unions, 
testified in support of H.R. 3240:

          Regulation D limits a credit union member's ability 
        to transfer their money between savings and checking 
        accounts to six transactions per month. Once a 
        transaction is made beyond that limit, a member is 
        either charged a fee or has their savings account re-
        classified as a ``transaction account''. Under current 
        Regulation D rules, savings accounts are not subject to 
        reserve requirements, while transaction accounts are. 
        This discrepancy tends to be confusing for credit union 
        members and often forces credit union employees to 
        focus their attention on the compliance issue rather 
        than customer service. . . . Federal Reserve Regulation 
        D is a prime example of a regulation that hasn't been 
        reconsidered by Congress or the agencies in far too 

    In a July 28, 2014 letter to the Committee, the American 
Bankers Association wrote in support of H.R. 3240, stating, 
``[u]nder this regulation, such transaction accounts are 
subjected to higher reserve requirements. This rule is both 
confusing to financial institutions and consumers. A study of 
this regulation is long overdue and is the reason that ABA 
supports passage of H.R. 3240.''


    The Subcommittee on Financial Institutions and Consumer 
Credit held a hearing on H.R. 3240 on July 15, 2014.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
July 29-30, 2014, and ordered H.R. 3240 to be reported 
favorably to the House without amendment by voice vote, a 
quorum being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
There were no record votes during the consideration of H.R. 


    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.


    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 3240 
will provide Congress with important information about the 
impact of Federal Reserve Regulation D.


    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.


    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:
                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 13, 2014.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3240, the 
Regulation D Study Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Daniel 
                                         Robert A. Sunshine
                              (For Douglas W. Elmendorf, Director).

H.R. 3240--Regulation D Study Act

    H.R. 3240 would direct the Government Accountability Office 
(GAO) to conduct a study on the impact of reserve requirements 
on depository institutions (DIs), consumers, and monetary 
policy. CBO estimates that implementing this legislation would 
cost less than $500,000 over the next five years. Such costs 
would be subject to the availability of appropriated funds. 
Enacting H.R. 3240 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    Regulation D imposes reserve requirements on certain 
deposits and other liabilities of DIs. Currently, DIs must hold 
reserves equal to 3 percent of applicable deposits greater than 
$13.3 million, plus an additional 7 percent for total deposits 
greater than $89 million. Reserves must be held in the form of 
vault cash or deposits with a Federal Reserve Bank (FRB). FRBs 
pay interest on required and excess reserves held with the 
Federal Reserve.
    H.R. 3240 would direct GAO to conduct a study on how 
Regulation D has been used to conduct monetary policy and how 
this affects the operational costs of DIs and how consumers 
manage their accounts. GAO would report to the Congress on the 
results and any recommendations within one year of enactment. 
Based on the resources used for similar studies, CBO estimates 
that producing such a report would cost GAO less than $500,000 
over the next five years.
    H.R. 3240 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
    The CBO staff contact for this estimate is Daniel Hoople. 
The estimate was approved by Peter H. Fontaine, Assistant 
Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 


    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 


    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 3240 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.


    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 3240 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.


    Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), 
the Committee states that H.R. 3240 requires no directed 


Section 1. Short title

    This Section cites H.R. 3240 as the ``Regulation D Study 

Section 2. Government Accountability Office Study

    This section directs the GAO, in consultation with credit 
unions and community banks, to study the impact that Federal 
Reserve Regulation D minimum reserve requirements have on 
depository institutions, consumers, and monetary policy. The 
study must consider: (i) a historic review of how the Board of 
Governors of the Federal Reserve System has used reserve 
requirements to conduct U.S. monetary policy; (ii) the impact 
of the maintenance of reserves upon depository institutions; 
(iii) the impact on consumers in managing their accounts; and 
(iv) alternatives the Board may have to the maintenance of 
reserves to effect monetary policy.