Amends the Federal Reserve Act to authorize a Federal reserve bank to pay interest at least quarterly (at a rate not to exceed the general level of short term interest rates) to a depository institution on any balance it maintains at the reserve bank.
Repeals a specified restriction in order to authorize pass-through reserves for member banks (as well as non-member banks).
Reformulates the mandatory depository institution reserve ratio to: (1) one that is not greater than three percent, and may be zero, (currently, a flat ratio of three percent) for transaction accounts of $25 million or less; and (2) reduce from eight percent to zero the minimum ratio for transaction accounts exceeding $25 million. (Thus authorizes zero reserve requirements for such accounts.)
Requires the Federal Reserve banks to transfer certain surplus funds for deposit into the general fund of the Treasury equal to the estimated net cost of making the quarterly payments of interest mandated by this Act for FY 2002 through 2006.
Prohibits such banks from replenishing surplus funds by the amount of any such transfers during that time period.