The Honorable James A. Leach
Chairman, Committee on Banking and Financial Services
U.S. House of Representatives
2186 Rayburn House Office Building
Washington D.C. 20515-6050

Dear Chairman Leach:

The Treasury Management Association (TMA) is pleased to offer its views on legislative priorities for the treasury management profession. These priorities are designed to foster a more competitive environment based on technological innovation; a breakdown of outmoded artificial geographic and product barriers which restrict open markets; and reduce unnecessary government intrusion into the conduct of business. These priorities fit within the following themes:

1. Working toward a uniform nationwide framework for payments and bank relationships which would contribute to the efficiency, cost-effectiveness and automation of financial transactions;
    
2. Reforming the financial services industry to achieve free and open competition while preserving the safety and soundness of the banking system;
    
3. Directing the Federal Deposit Insurance Corporation to overhaul an archaic and unfair deposit insurance assessment system;
    
4. Reforming and modernizing the pension and retirement benefits system;
    
5. Simplifying corporate reporting requirements for capital markets activities;
    
6. Removing an obsolete and unnecessary prohibition against the payment of interest on corporate demand deposits in the form of Regulation Q.

The TMA represents approximately 8,500 treasury professionals who on behalf of over 3,500 corporations and other organizations are significant users of the nation's financial system. Our members have responsibility for banking relationships, investments, pension management, credit, payments and cash management. Organizations represented by our members are drawn generally from the Fortune 1000 and the largest of the middle market companies. They have an active interest and a sizable stake in proposed changes to the financial industry already under examination. Therefore, we offer a brief statement capsulizing our suggested priorities for legislative initiatives to meet the above objectives.

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TMA urges Congress to enact legislation that contributes to the efficiency, cost-effectiveness, and automation of financial transactions. In many cases, the private sector can only realize such payment system efficiencies within a uniform, nationwide framework. TMA recommends that Congress:

• Amend the Electronic Fund Transfer Act to provide for federal law to override state law with regard to direct deposit of pay.
  
  The Federal Government deserves praise for encouraging or requiring electronic funds transfer on a nationwide basis for an increasing number of its disbursements. The electronic delivery of social security launched a payments revolution that today saves the government over $70 million. Department of Defense personnel must receive their pay electronically. Electronic benefit transfer is the most recent federal initiative.
  
  Because states can preempt provisions of the Electronic Fund Transfer Act, private employers are hampered by 50 different state rules inhibiting direct deposit of pay.
  
  Payroll check fraud is on the increase, costing banks and employers hundreds of millions of dollars each year. The inefficiencies of processing and delivery of checks issued for payroll purposes drain resources that companies could better devote to improving competitiveness and productivity. Congress should not prevent the private sector from following the path that the federal government is taking for its own employees.
  
  The Federal Reserve has proposed a revision to Regulation E to permit an employer to "require direct deposit of salary by electronic means if employees are given a choice of institutions that would receive direct deposit." States should not be permitted to override this provision.
   
• Amend the Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994 to prohibit states from opting out of interstate branching.
  
  TMA supported legislation to remove barriers to interstate banking and branching. Corporate treasurers that are able to do business with the same bank nationwide can simplify and streamline their banking relationships and realize significant cost savings as a result. According to a corporate survey conducted by TMA last year, a large, multi-state company can expect to save over a half million dollars per year in banking service charges when nationwide banking becomes a reality.
  
  The benefits of the Riegle-Neale Act are negated when states prohibit banks from interstate branching. Impediments to uniform, nationwide financial transactions are inefficiencies that harm the economic growth of the nation as well as the competitiveness of individual companies. Congress should repeal the Riegle-Neale provision empowering states to opt out of interstate branching before June 1, 1997.
   
• Enact legislation to authorize the creation of a single electronic tax filing and payment system for federal and state governments.
  
  Corporations waste needless amounts of time and money complying with the differing technical requirements established by each of the states for the filing and payment of state taxes.
  
  The Internal Revenue Service is currently working with other federal and state agencies in an effort to reduce employer wage and tax reporting requirements. This project is designed to result eventually in a single electronic filing system for state and federal taxes.
  
  Congress should consider favorably and expedite any legislation that may be necessary to permit the federal government to enter into reimbursable cooperative agreements with state tax agencies, to allow either party to collect taxes for the other.
   
• Congress should act to advance this country's leadership role in information technology and electronic commerce. Legislative obstacles to innovation should be repealed and the path cleared for technological development. To create a favorable environment for business transactions, Congress should follow these guidelines:
  
  Encourage the movement from paper checks to electronic payments by advancing programs that eliminate check float.
  
  Support increased use of technology in the capital markets by promoting the electronic book entry of securities.
  
  Encourage the development of effective data security for electronic payments, balancing national security needs with the needs for private sector efficiency.
  
  Support a single standard electronic interface between all government agencies and the public, notably for program enrollment and payment functions.
  
  Amend the Electronic Fund Transfer Act provisions, when necessary, to support the rapid technological advances taking place in the consumer payments area.

Congress should proceed with legislation to modernize the financial services industry through open competition by increased and alternative distribution of financial services. We urge that a legislative approach include the following elements:

• Financial service organizations may offer an unrestricted range of financial services and products;
   
• Financial service companies may be owned by any type of business or industry entity;
   
• Financial service company activities would be subject to a functional regulatory environment;
   
• Structural firewalls and regulatory oversight would be required for depository institutions;
   
• Uninsured wholesale financial institutions would be a permitted option within the financial services structure.

Efficiency and innovation in the development and delivery of products and services are hallmarks of a healthy and competitive business environment. These benefits will be directly realized by users of financial products and services by enhancing the ability of financial service providers to compete freely. Less expensive and more creative product offerings, delivered more efficiently to the customer, will result from increased competition.

Over time, the legal and regulatory environment has allowed diverse entrants into the financial services industry. This has often been accomplished through technical loopholes and special legal provisions. The resulting patchwork pattern of services provided is often materially affected by geographic location, the most recent court decision, or regulatory fiat. This has led to the creation of somewhat limited and less efficient organizations which offer an inconsistent array of services in an uneven competitive arena.

We believe that restrictions that favor any particular industry or market segment with respect to its ability to engage in financial services activities should be eliminated in support of the goal of free and open competition framed by far-sighted legislation. Allowing business to engage in a broader array of financial services activities will further strengthen the industry through diversification and stability in earnings.

The Congress should direct the Federal Deposit Insurance Corporation (FDIC) to overhaul an archaic and unfair deposit insurance assessment system.

The Treasury Management Association urges that a more equitable assessment base be developed to reflect more accurately the insurance protection provided by the FDIC. We recommend a relatively simple set of adjustments which can be quickly and equitably implemented:

• Only insured balances should be assessed. Eliminate the current inequitable system of assessing total domestic deposits while insuring some lesser amount -- currently $100,000.
   
• The 16 2/3% float adjustment factor should be discontinued. TMA members report that almost all banks with which they have relationships have the capability to calculate collected balances. Collected balances should be the assessment base.
   
• The assessment base should be average daily balances for the reporting quarter, rather than quarter-end "as-of" balances.
   
• Bank customers should have the option of not having deposit insurance, as well as obtaining insurance from a private provider.

TMA believes that the above outlined formula presents a simple, fair, direct and understandable assessment structure.

Congress needs to move forward pension reform legislation which would simplify burdensome administrative regulations, and provide important retirement benefit options not now available in the current restrictive environment.

TMA supports efforts to ease the overly-complicated regulatory requirements for employers with respect to their provision of retirement benefits to employees. We believe that existing regulations are not only burdensome, but have the unintended consequence of diminishing retirement security for American workers. In order to meet the objective of promoting retirement security in a cost-effective manner, TMA advocates the following:

• Remove contribution caps from defined contribution and defined benefit plans to promote retirement security. The U.S. suffers from abysmally low savings rates. The continued racheting down of benefit caps has only contributed to that declining savings rate.

Savings rates and retirement security can be promoted by removal of caps for defined benefits, 401(k), and IRAs. While these moves may reduce current tax revenues, earnings would be taxable at the time of distribution. This would improve the capability of individuals to pay a greater share of Medicare premiums and health benefit costs at retirement.

• Grant private employers the same right as the Federal Government to substitute a qualified retirement plan for Social Security. A private plan alternative provided by employers would offer better investment returns and potential growth of retirement benefits than Social Security.
   
• Allow reversion of excess defined benefit assets. The current tax bill contains a proposal to remove prohibitive tax penalties that keep companies from accessing assets that appear to exceed future pension needs for other worthwhile purposes.
   
• Simplify administrative regulations by
   
• Automating the processing of ERISA Annual Financial Reports (Form 5500) to cut costs and delays in obtaining benefit plan data, and
   
• Amending the ERISA requirement for summary plan descriptions. The filing of summary plan descriptions by employee benefit plan administrators with the Department of Labor is intended to make the plans available for participants. Since requests for copies are received for one percent of the plans, the cost to maintain the system and the administrative burden on employers far outweighs any public benefit.

Congress should enact key provisions of the "Capital Markets Deregulation and Liberalization Act of 1995" which would simplify and make uniform the complex mosaic of state securities laws. Some of the bill's provisions favored by TMA would simplify corporate reporting requirements and interaction with capital markets. They include:

• National oversight which would preempt state securities laws;
• Easing of prospectus requirements for initial public offerings;
• Ending duplicate regulatory oversight;
• Streamlining regulations for protection of investors while focusing on improved efficiency of capital formation.

The thrust of this bill introduced by Rep. Jack Fields (R-TX) is to eliminate many duplicative securities regulation functions of the states. The bill is a step towards a more streamlined capital market operation.

Congress should remove the Regulation Q prohibition against the payment of interest on corporate demand deposits.

The Federal Reserve Act of 1933 prohibited banks from paying interest on demand deposits and was implemented by the Federal Reserve as Regulation Q. Most of these restrictions were removed early in the 1980s, but some vestige remains in the prohibition of interest on corporate demand deposits.

For most of TMA membership, Regulation Q has become an annoying anachronism. Earnings on balances can be managed through other types of accounts and transfers available through current technology, and willing competitors to commercial banks. The practical effect of Regulation Q today is that it has spawned a myriad of demand deposit substitutes which obviate the long obsoleted intention of the Federal Reserve Act of 1933. Many smaller businesses however still suffer the effects of Regulation Q because of lack of sophistication, or access to technology.

Cash management would be simplified for all businesses and banks through abolition of Regulation Q.

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We appreciate the opportunity to present the legislative priorities of our Association. These priorities were developed in a series of interactive forums with the TMA's Government Relations Committee, and the Board of Directors. We believe that this discussion is representative of the legislative goals of the treasury management profession.

Sincerely,

/s/ Thomas D. Logan, CCM Treasurer
Basic American, Inc.
Chair, Government Relations Committee
Treasury Management Association

/s/ Frank P. Curran
Director of Government Relations and Standards
Treasury Management Association