Lost in all the talk of consumer protection and big bank punishments surrounding the government’s push toward financial reform are the plan’s potential benefits for businesses.
The financial overhaul bill could allow business checking accounts to pay interest by lifting a ban on the practice that has been in place since the 1930s, The Wall Street Journal discovered.
Businesses Could Benefit
Businesses have obviously supported the allowance of interest checking for years.
Companies might not see much initial return from the reform considering interest rates are at super-low levels (0.29% average), but if and when rates rise businesses could see tangible money coming from their checking account interest.
Businesses that previously held money in offshore interest-earning accounts in other countries might be more likely to move their funds to a U.S. bank.
Not a Bank-Friendly Measure
Like many pieces of the financial reform bill, making interest available to businesses doesn’t help banks out much.
No bank is being forced to offer interest checking to businesses, but most will probably jump on board after one bank does in an effort to attract customers. That could be an expensive proposition for banks, considering checking accounts held $920 billion from consumer and business deposits, according to Market Rates Insight.
Small banks might benefit from the move, as it could give them an advantage over bigger banks without the flexibility or willingness to offer businesses high interest checking. Wells Fargo, Bank of America® and Citizens Financial Group all declined comment to The Wall Street Journal regarding their plans to offer business checking with interest.
Details on Glass-Steagall
The Glass-Steagall Act, put into place in 1933, established the Federal Deposit Insurance Corporation (FDIC) and set in place regulations to help split banks’ investment and commercial banking units. The portion of Glass-Steagall that restricted business interest rates was originally designed to keep banks from luring customers with high interest rates.
The act was officially repealed in 1999, allowing banks more freedom, but recent financial reform ideas have actually brought back some of the key regulations included in Glass-Steagall.