Small banks in particular should be able to bid for business demand deposits on a more level playing field vis-a-vis both nonbank competition and large banks that currently use sweep programs for such deposits.
The payment of interest on demand deposits would have no direct effect on federal revenues, as interest payments would be deductible for banks but taxable for the firms that received them. However, the payment of interest on required reserve balances, or reductions in reserve requirements, would lower the revenues received by the Treasury from the Federal Reserve.