Small Business Loan Securitization and Secondary Market Enhancement Act of 1993

Summary: Small Business Loan Securitization and Secondary Market Enhancement Act of 1993 - Amends the Securities Exchange Act of 1934 to define a "small business related security" (SBRS) as generally a high rated security that represents and is secured by promissory notes evidencing and that provides for payments of principal in relation to payments on the notes.  Provides that SBRSs shall be exempt from:  (1) certain restrictions in the margin and securities delivery rules; (2) certain restrictions on borrowing on securities by and lending among, brokers, dealers, and other members of national securities exchanges; and (3) certain prohibitions on the extension of credit by members of exchanges, brokers, and dealers against a security which was part of a new issue. 
Amends the Home Owners' Loan Act, the Federal Credit Union Act, and related statutes to allow banks, credit unions, and other depository institutions to invest in SBRSs. 
Amends the Secondary Mortgage Market Enhancement Act of 1984 to: (1) authorize any U.S. person or entity to invest in SBRS, to the same extent such person is authorized to invest in U.S. obligations issued; and (2) exempt SBRSs from any State law's security registration and qualification to the same extent that U.S. securities are so exempt. Provides for States to enact provisions prescribing specific requirement for SBRSs. 
Requires the accounting principles applicable to the transfer of a small business loan with recourse contained in reports or statements required by appropriate Federal banking agencies to be uniform and consistent with generally accepted accounting principles. Prohibits the amount of capital required to be maintained by a depository institution with respect to the sale of a small business loan with recourse from exceeding an amount sufficient to meet the institution's reasonable estimated liability under the recourse arrangement.  Requires an SBRS to be treated as a mortgage-backed security under the risk-based capital requirements applicable to insured depository institutions. 
Directs the Secretary of Labor to exclude transactions involving SBRSs from certain restrictions and taxes imposed on "prohibited transactions" under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (thereby allowing pension fund managers to participate in the pooling and packaging of small business loans for sale as securities). 
Requires the Secretary of the Treasury to promulgate regulations providing for the taxation of a small business loan investment conduit and the holder of an interest therein in a manner similar to the taxation of a real estate mortgage investment conduit and the holder of an interest therein under the Internal Revenue Code.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Loan Securitization 
and Secondary Market Enhancement Act of 1993''.

SEC. 2. SMALL BUSINESS RELATED SECURITY.

    (a) Definition.--Section 3(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following 
new paragraph:
            ``(53)(A) The term `small business related security' means 
        a security that is rated in 1 of the 4 highest rating 
        categories by at least 1 nationally recognized statistical 
        rating organization, and either--
                    ``(i) represents an interest in 1 or more 
                promissory notes evidencing the indebtedness of a small 
                business and originated by an insured depository 
                institution (as defined in section 3 of the Federal 
                Deposit Insurance Act), credit union, insurance 
                company, or similar institution which is supervised and 
                examined by a Federal or State authority; or
                    ``(ii) is secured by an interest in 1 or more 
                promissory notes (with or without recourse to the 
                issuer) and provides for payments of principal in 
                relation to payments, or reasonable projections of 
                payments, on notes meeting the requirements of 
                subparagraph (A).
            ``(B) For purposes of this paragraph--
                    ``(i) an interest in a promissory note includes 
                ownership rights, certificates of interest or 
                participation in such notes, and rights designed to 
                assure servicing of such notes, or the receipt or 
                timely receipt of amounts payable under such notes; and
                    ``(ii) a small business is a business that meets 
                the criteria for a `small business concern' established 
                under section 3(a) of the Small Business Act.''.
    (b) Conforming Amendment.--Section 3(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)) is amended by redesignating paragraph 
(51) defining the term ``foreign financial regulatory authority'' as 
paragraph (52) and inserting such paragraph after paragraph (51), 
defining the term ``penny stocks''.

SEC. 3. APPLICABILITY OF MARGIN REQUIREMENTS.

    Section 7(g) of the Securities Exchange Act of 1934 (15 U.S.C. 
78g(g)) is amended by inserting ``or a small business related 
security'' after ``mortgage related security''.

SEC. 4. BORROWING IN THE COURSE OF BUSINESS.

    Section 8(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78h(a)) is amended in the last sentence by inserting ``or a small 
business related security'' after ``mortgage related security''.

SEC. 5. SMALL BUSINESS RELATED SECURITIES AS COLLATERAL.

    Clause (ii) of section 11(d)(1) of the Securities Exchange Act of 
1934 (15 U.S.C. 78k(d)(1)) is amended by inserting ``or any small 
business related security'' after ``mortgage related security''.

SEC. 6. INVESTMENT BY DEPOSITORY INSTITUTIONS.

    (a) Home Owners' Loan Act Amendment.--Section 5(c)(1) of the Home 
Owners' Loan Act (12 U.S.C. 1464(c)(1)) is amended by adding at the end 
the following new subparagraph:
                    ``(S) Small business related securities.--
                Investments in small business related securities (as 
                defined in section 3(a)(53) of the Securities Exchange 
                Act of 1934), subject to such regulations as the 
                Director may prescribe, including regulations 
                concerning the minimum size of the issue (at the time 
                of the initial distribution) or minimum aggregate sales 
                price, or both.''.
    (b) Credit Unions.--Section 107(15) of the Federal Credit Union Act 
(12 U.S.C. 1757(15)) is amended--
            (1) in subparagraph (A), by striking ``or'' at the end;
            (2) in subparagraph (B), by inserting ``or'' at the end; 
        and
            (3) by adding at the end the following new subparagraph:
                    ``(C) are small business related securities (as 
                defined in section 3(a)(53) of the Securities Exchange 
                Act of 1934), subject to such regulations as the Board 
                may prescribe, including regulations prescribing the 
                minimum size of the issue (at the time of the initial 
                distribution) or minimum aggregate sales price, or 
                both;''.
    (c) National Banking Associations.--Section 5136 of the Revised 
Statutes (12 U.S.C. 24) is amended in the last sentence in the first 
full paragraph of paragraph Seventh by striking ``or (B) are mortgage'' 
and inserting the following: ``(B) are small business related 
securities (as defined in section 3(a)(53) of the Securities Exchange 
Act of 1934); or (C) are mortgage''.

SEC. 7. PREEMPTION OF STATE LAW.

    (a) In General.--Section 106(a)(1) of the Secondary Mortgage Market 
Enhancement Act of 1984 (15 U.S.C. 77r-1(a)(1)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) small business related securities (as defined 
                in section 3(a)(53) of the Securities Exchange Act of 
                1934), or''.
    (b) Obligations of the United States.--Section 106(a)(2) of the 
Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r-
1(a)(2)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) small business related securities (as defined 
                in section 3(a)(53) of the Securities Exchange Act of 
                1934), or''.
    (c) Preemption of State Laws.--Section 106(c) of the Secondary 
Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r-1(c)) is 
amended--
            (1) in the first sentence, by striking ``or that'' and 
        inserting ``, that'';
            (2) by inserting ``, or that are small business related 
        securities (as defined in section 3(a)(53) of the Securities 
        Exchange Act of 1934)'' before ``shall be exempt''; and
            (3) by adding at the end the following new subsection:
    ``(d) Implementation.--
            ``(1) Limitation.--The provisions of subsections (a) and 
        (b) concerning small business related securities shall not 
        apply with respect to a particular person, trust, corporation, 
        partnership, association, business trust, or business entity or 
        class thereof in any State that, prior to the expiration of 7 
        years after the date of enactment of this Act, enacts a statute 
        that specifically refers to this section and either prohibits 
        or provides for a more limited authority to purchase, hold, or 
        invest in small business related securities by any person, 
        trust, corporation, partnership, association, business trust, 
        or business entity or class thereof than is provided in such 
        amendments. The enactment by any State of any statute of the 
        type described in the preceding sentence shall not affect the 
        validity of any contractual commitment to purchase, hold, or 
        invest that was made prior to such enactment, and shall not 
        require the sale or other disposition of any small business 
        related securities acquired prior to the date of such 
        enactment.
            ``(2) Enactment of state provisions.--Any State may, not 
        later than 7 years after the date of enactment of this Act, 
        enact a statute that specifically refers to this section and 
        requires registration or qualification of any small business 
        related securities on terms that differ from those applicable 
        to any obligation issued by the United States.''.

SEC. 8. INSURED DEPOSITORY INSTITUTION CAPITAL REQUIREMENTS FOR 
              TRANSFERS OF SMALL BUSINESS LOANS AND INVESTMENTS IN 
              SMALL BUSINESS RELATED SECURITIES.

    (a) Accounting Principles.--The accounting principles applicable to 
the transfer of a small business loan with recourse contained in 
reports or statements required to be filed with the appropriate Federal 
banking agencies by all insured depository institutions shall be 
uniform and consistent with generally accepted accounting principles.
    (b) Capital Requirements.--The amount of capital required to be 
maintained by an insured depository institution under applicable 
capital standards and other capital measures with respect to the sale 
of a small business loan with recourse, as reported under subsection 
(a), shall not exceed an amount sufficient to meet the institution's 
reasonable estimated liability under the recourse arrangement.
    (c) Investments in Small Business Related Securities.--A small 
business related security shall be treated as a similarly rated 
mortgage-backed security under the risk-based capital requirement 
applicable to insured depository institutions.
    (d) Regulations Required.--Not later than 180 days after the date 
of enactment of this Act, each appropriate Federal banking agency shall 
promulgate final regulations implementing this section not later than 
180 days after the date of enactment of this Act.
    (e) Definitions.--For purposes of this section--
            (1) the term ``appropriate Federal banking agency'' has the 
        same meaning as in section 3 of the Federal Deposit Insurance 
        Act;
            (2) the term ``capital standards'' has the same meaning as 
        in section 38(c) of the Federal Deposit Insurance Act;
            (3) the term ``insured depository institution'' has the 
        same meaning as in section 3 of the Federal Deposit Insurance 
        Act;
            (4) the term ``other capital measures'' has the same 
        meaning as in section 38(c) of the Federal Deposit Insurance 
        Act;
            (5) the term ``recourse'' shall have the meaning given such 
        term under generally accepted accounting principles;
            (6) the term ``small business'' means a business that meets 
        the criteria for a small business concern established under 
        section 3(a) of the Small Business Act; and
            (7) the term ``small business related security'' has the 
        same meaning as in section 3(a)(53) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78c(a)(53).

SEC. 9. TRANSACTIONS IN SMALL BUSINESS RELATED SECURITIES BY EMPLOYEE 
              BENEFIT PLANS.

    (a) Prohibited Transaction Exemption.--The Secretary of Labor, in 
consultation with the Secretary of the Treasury, shall exempt 
transactions involving small business related securities (as defined in 
section 3(a)(53) of the Securities Exchange Act of 1934 (as added by 
section 2 of this Act)), either unconditionally or on stated terms and 
conditions, from the restrictions of sections 406 and 407 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1106, 1107) 
and the taxes imposed under section 4975 of the Internal Revenue Code 
of 1986 (26 U.S.C. 4975).
    (b) Conditions.--In providing for the exemption required under 
subsection (a) the Secretary of Labor shall consider--
            (1) the importance of facilitating transactions in small 
        business related securities; and
            (2) the necessity of imposing any term or condition to 
        protect the rights and interests of participants and 
        beneficiaries of such plan.
    (c) Regulations.--Not later than 180 days after the date of 
enactment of this Act, the Secretary of Labor shall promulgate final 
regulations to carry out subsection (a).

SEC. 10. TAXATION OF SMALL BUSINESS LOAN INVESTMENT CONDUITS.

    (a) Taxation Similar to REMIC.--The Secretary of the Treasury shall 
promulgate regulations providing for the taxation of a small business 
loan investment conduit and the holder of an interest therein similar 
to the taxation of a real estate mortgage investment conduit and the 
holder of interests therein under the Internal Revenue Code of 1986.
    (b) Adjustment to REMIC Provisions.--In promulgating regulations 
under subsection (a), the Secretary shall make any necessary 
adjustments to the real estate mortgage investment conduit provisions 
to take into consideration--
            (1) the purpose of facilitating the securitization of small 
        business loans through the use of small business loan 
        investment conduits and the development of a secondary market 
        in small business loans;
            (2) differences in the nature of qualifying mortgages in a 
        real estate mortgage investment conduit and small business 
        loans and obligations; and
            (3) differences in the practices of participants in the 
        securitization of real estate mortgages in a real estate 
        mortgage investment conduit and the securitization of other 
        assets.
    (c) Small Business Loan Investment Conduit Defined.--For purposes 
of this section, the term ``small business loan investment conduit'' 
means--
            (1) any entity substantially all of the assets of which 
        consist of any obligation (including any participation or 
        certificate of beneficial ownership therein) of a business that 
        meets the criteria for a small business concern established 
        under section 3(a) of the Small Business Act; and
            (2) if such obligation was originated by an insured 
        depository institution (as defined in section 3 of the Federal 
        Deposit Insurance Act), credit union, insurance company, or 
        similar institution which is supervised and examined by an 
        appropriate Federal or State authority.