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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.
BACKGROUND AND NEED FOR LEGISLATION
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
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.
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.
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.
COMMITTEE OVERSIGHT FINDINGS
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.
PERFORMANCE GOALS AND OBJECTIVES
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.
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES
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.
CONGRESSIONAL BUDGET OFFICE ESTIMATES
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:
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
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
ADVISORY COMMITTEE STATEMENT
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
APPLICABILITY TO LEGISLATIVE BRANCH
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.
H.R. 3240 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
DUPLICATION OF FEDERAL PROGRAMS
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.
DISCLOSURE OF DIRECTED RULEMAKING
Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013),
the Committee states that H.R. 3240 requires no directed
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
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.