Union Calendar No. 74

104TH CONGRESS

1ST SESSION H. R. 1062

[Report No. 104–127, Parts I, II, and III]

A BILL

To enhance competition in the financial services inother financial service providers. the affiliation of banks, securities firms, and dustry by providing a prudential framework for

JUNE 22, 1995

Reported with an amendment without recommendation,

the State of the Union, and ordered to be printedcommitted to the Committee of the Whole House on
IB

Union Calendar No. 74

104TH CONGRESS

1ST SESSION H. R. 1062

[Report No. 104–127, Parts I, II, and III]

To enhance competition in the financial services industry by providing a

prudential framework for the affiliation of banks, securities firms, and

other financial service providers.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 27, 1995

Mr. LEACH introduced the following bill; which was referred to the Committee

on Banking and Financial Services and, in addition, to the Committee

on Commerce, for a period to be subsequently determined by the Speaker,

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

MAY 18, 1995

Reported from the Committee on Banking and Financial Services with an

amendment

[Strike out all after the enacting clause and insert the part printed in italic]

MAY 18, 1995

Referral to the Committee on Commerce extended for a period ending not

later than June 16, 1995

JUNE 16, 1995

Referral to the Committee on Commerce extended for a period ending not

later than June 22, 1995

JUNE 22, 1995

Reported from the Committee on Commerce with an amendment without recommendation, committed to the Committee of the Whole House on the

State of the Union, and ordered to be printed
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[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on February 27, 1995]

A BILL

To enhance competition in the financial services industry

by providing a prudential framework for the affiliation

of banks, securities firms, and other financial service

providers.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the ‘‘Fi5 nancial Services Competitiveness Act of 1995’’.

6 (b) TABLE OF CONTENTS.—The table of contents for

7 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—BANK SECURITIES ACTIVITIES AND AFFILIATIONS WITH

SECURITIES FIRMS AND OTHER FINANCIAL COMPANIES

Subtitle A—Securities Activities

Sec. 101. Anti-affiliation provision of the Banking Act of 1933 repealed.

Sec. 102. Financial services holding companies authorized to have securities affiliates.

Sec. 103. Establishment and operations of securities affiliates.

Sec. 104. Safeguards relating to securities affiliates.

Sec. 105. Ownership of shares of certain companies by financial services holding

companies.

Sec. 106. Provisions applicable to limited purpose banks.

Sec. 107. Securities company affiliations of FDIC—insured banks.

Sec. 108. Authority to terminate grandfather rights under the International

Banking Act of 1978.

Sec. 109. Effect on State laws prohibiting the affiliation of banks and securities

companies.

Sec. 110. Municipal securities.

Sec. 111. Interagency agreement relating to retail sales of certain nondeposit investment products.
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Sec. 112. Effective date.

Subtitle B—Investment Bank Holding Companies

Sec. 116. Investment bank holding companies.

Sec. 117. Wholesale financial institutions.

Subtitle C—Financial Activities

Sec. 121. Financial activities.

Sec. 122. No prior approval required for well capitalized and well managed financial services holding companies.

Sec. 123. Streamlined examination and reporting requirements for all financial

services holding companies.

Sec. 124. Holding company supervision for financial services holding companies

engaged primarily in nonbanking activities.

Sec. 125. Conversion of unitary savings and loan holding companies to financial

services holding companies.

Sec. 126. Financial services advisory committee.

Sec. 127. Coordination with State law.

Sec. 128. Conforming amendments to the Bank Holding Company Act of 1956.

Sec. 129. Conforming amendments to the Bank Holding Company Act Amendments of 1970.

Sec. 130. Credit cards for business purposes.

Subtitle D—Interagency Banking and Financial Services Advisory Committee

Sec. 141. Interagency banking and financial services advisory committee.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

Sec. 203. Power to exempt from the definitions of broker and dealer.

Sec. 204. Margin requirements.

Sec. 205. Effective date.

Subtitle B—Bank Investment Company Activities

Sec. 211. Custody of investment company assets by affiliated bank.

Sec. 212. Indebtedness to affiliated person.

Sec. 213. Lending to an affiliated investment company.

Sec. 214. Independent directors.

Sec. 215. Additional SEC disclosure authority.

Sec. 216. Definition of broker under the Investment Company Act of 1940.

Sec. 217. Definition of dealer under the Investment Company Act of 1940.

Sec. 218. Removal of the exclusion from the definition of investment adviser for

banks that advise investment companies.

Sec. 219. Definition of broker under the Investment Advisers Act of 1940.

Sec. 220. Definition of dealer under the Investment Advisers Act of 1940.

Sec. 221. Interagency consultation.

Sec. 222. Treatment of bank common trust funds.

Sec. 223. Investment advisers prohibited from having controlling interest in registered investment company.

Sec. 224. Conforming change in definition.

Sec. 225. Effective date.
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1 TITLE I—BANK SECURITIES AC2 TIVITIES AND AFFILIATIONS

3 WITH SECURITIES FIRMS AND

4 OTHER FINANCIAL COMPA5 NIES

6 Subtitle A—Securities Activities

7 SEC. 101. ANTI-AFFILIATION PROVISION OF THE BANKING

8 ACT OF 1933 REPEALED.

9 (a) SECTION 20 REPEALED.—Section 20 (12 U.S.C.

10 377) of the Banking Act of 1933 (commonly referred to as

11 the ‘‘Glass-Steagall Act’’) is repealed.

12 (b) CONFORMING AMENDMENT TO SECTION 32.—Sec13 tion 32 (12 U.S.C. 78) of the Banking Act of 1933 is

14 amended by adding at the end the following sentence: ‘‘This

15 section shall not apply so as to prohibit an officer, director,

16 or employee of a securities affiliate (as defined in section

17 2 of the Financial Services Company Act of 1995) from

18 serving at the same time as an officer, director, or employee

19 of a member bank affiliated with that securities affiliate

20 pursuant to section 10 of such Act. This section shall not

21 apply so as to prohibit an officer, director, or employee of

22 an investment company registered under the Investment

23 Company Act of 1940 or an investment adviser registered

24 under the Investment Advisers Act of 1940 from serving at
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1 the same time as an officer, director, or employee of a mem2 ber bank.’’.

3 SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AU4 THORIZED TO HAVE SECURITIES AFFILIATES.

5 Section 4(c) of the Bank Holding Company Act of

6 1956 (12 U.S.C. 1843(c)) is amended—

7 (1) by striking ‘‘or’’ at the end of paragraph

8 (13);

9 (2) by striking the period at the end of para10 graph (14) and inserting ‘‘; or’’; and

11 (3) by adding after paragraph (14) the following

12 new paragraph:

13 ‘‘(15) shares of a securities affiliate in accord14 ance with section 10.’’.

15 SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURI16 TIES AFFILIATES.

17 (a) IN GENERAL.—Section 10 of the Bank Holding

18 Company Act of 1956 (12 U.S.C. 1841 et seq.) is amended

19 to read as follows:

20 ‘‘SEC. 10. SECURITIES ACTIVITIES.

21 ‘‘(a) ACTIVITIES PERMISSIBLE FOR SECURITIES AF22 FILIATES.—

23 ‘‘(1) IN GENERAL.—A securities affiliate may en24 gage in 1 or more of the following activities:
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1 ‘‘(A) Underwrite, deal in, broker, place, or

2 distribute securities of any type, provide invest3 ment advice regarding securities of any type,

4 and engage in other securities activities as deter5 mined by the Board.

6 ‘‘(B) Sponsor, organize, control, manage,

7 and act as investment adviser to an investment

8 company.

9 ‘‘(C) Engage in, or acquire the shares of a

10 company engaged in, any activity if—

11 ‘‘(i) a provision of section 4(c) permits

12 financial services holding companies gen13 erally to engage in that activity or acquire

14 those shares; and

15 ‘‘(ii) either—

16 ‘‘(I) the Board permits the finan17 cial services holding company to en18 gage in that activity or acquire those

19 shares through the securities affiliate;

20 or

21 ‘‘(II) a provision of section 4(c)

22 permits the financial services holding

23 company to engage in such activity or

24 acquire such shares without the

25 Board’s approval.
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1 ‘‘(2) FACTOR TO BE CONSIDERED.—In making

2 determinations pursuant to this section, the Board

3 shall take into account the need for securities firms

4 affiliated with banks to be innovative and competi5 tive.

6 ‘‘(b) ACQUIRING INTEREST IN SECURITIES AFFILI7 ATE.—

8 ‘‘(1) NOTICE REQUIRED.—A financial services

9 holding company shall not, without complying with

10 and receiving approval pursuant to the notice proce11 dure in section 4(j)(1), directly or indirectly acquire

12 or retain more than 5 percent of the voting shares of,

13 or all or substantially all of the assets of, a securities

14 affiliate (or a company that would be a securities af15 filiate if the Board permitted the financial services

16 holding company to acquire that company).

17 ‘‘(2) CRITERIA FOR APPROVAL.—The Board shall

18 disapprove a notice required under paragraph (1) un19 less the Board determines that the requirements of the

20 following subparagraphs have been met:

21 ‘‘(A) CAPITAL.—

22 ‘‘(i) DEPOSITORY INSTITUTIONS.—

23 ‘‘(I) The lead depository institu24 tion of the financial services holding

25 company is well capitalized.
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1 ‘‘(II) Well capitalized depository

2 institutions control at least 80 percent

3 of the aggregate total risk-weighted as4 sets of depository institutions con5 trolled by the financial services holding

6 company.

7 ‘‘(III) All depository institutions

8 controlled by the financial services

9 holding company are well capitalized

10 or adequately capitalized.

11 ‘‘(ii) RECENTLY ACQUIRED DEPOSI12 TORY INSTITUTIONS.—Depository institu13 tions acquired by a financial services hold14 ing company during the 12-month period

15 preceding the submission of a notice under

16 paragraph (1) may be excluded for purposes

17 of clause (i)(II) if—

18 ‘‘(I) the financial services holding

19 company has submitted a plan to the

20 appropriate Federal banking agency to

21 restore the capital of the institution

22 and the plan has been accepted by such

23 agency; and

24 ‘‘(II) all such institutions that are

25 excluded for the purposes of clause
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1 (i)(II) represent, in the aggregate, less

2 than 25 percent of the aggregate total

3 risk-weighted assets of all depository

4 institutions controlled by the financial

5 services holding company.

6 ‘‘(iii) FINANCIAL SERVICES HOLDING

7 COMPANY.—The financial services holding

8 company is (and immediately after the ac9 quisition of a securities affiliate would con10 tinue to be) adequately capitalized under

11 the capital standards applicable, if any, to

12 such financial services holding company.

13 ‘‘(iv) FOREIGN BANKS AND COMPA14 NIES.—For purposes of applying this sub15 section and other provisions of this section,

16 the Board shall establish and apply com17 parable capital standards for the acquisi18 tion, retention, and operation of a securities

19 affiliate in the United States by a foreign

20 bank that operates a branch or agency or

21 owns or controls a bank or commercial

22 lending company in the United States, and

23 any company that owns or controls such a

24 foreign bank, giving due regard to the prin-
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1 ciple of national treatment and equality of

2 competitive opportunity.

3 ‘‘(B) ALTERNATIVE CAPITAL TREATMENT

4 FOR WELL CAPITALIZED FINANCIAL SERVICES

5 HOLDING COMPANIES.—

6 ‘‘(i) IN GENERAL.—A financial services

7 holding company and the depository insti8 tution subsidiaries of such company shall be

9 deemed to have met the capital requirements

10 set forth in subparagraph (A) if—

11 ‘‘(I) the holding company files a

12 written notice with the Board of such

13 company’s election to meet such capital

14 requirements in the manner provided

15 in this subparagraph;

16 ‘‘(II) all depository institutions

17 controlled by the financial services

18 holding company are at least ade19 quately capitalized; and

20 ‘‘(III) the financial services hold21 ing company is (and immediately after

22 the acquisition of a securities affiliate

23 would continue to be) well capitalized.

24 ‘‘(ii) LOSSES INCURRED BY FDIC.—A

25 financial services holding company which
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1 makes an election under clause (i) in con2 nection with the acquisition of control of

3 any securities affiliate shall be liable for

4 any loss incurred by the Federal Deposit

5 Insurance Corporation, or any loss which

6 the Federal Deposit Insurance Corporation

7 reasonably anticipates incurring in connec8 tion with—

9 ‘‘(I) the default of any insured de10 pository institution controlled by the

11 financial services holding company; or

12 ‘‘(II) any assistance provided by

13 the Corporation to any insured deposi14 tory institution in danger of default

15 that is controlled by the financial serv16 ices holding company.

17 ‘‘(C) MANAGERIAL RESOURCES.—

18 ‘‘(i) IN GENERAL.—The financial serv19 ices holding company and each depository

20 institution subsidiary of such company—

21 ‘‘(I) are well managed; and

22 ‘‘(II) were well managed during

23 the 12-month period preceding the ac24 quisition of a securities affiliate (but

25 for purposes of this subparagraph the
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1 Board may disregard any depository

2 institution acquired by the financial

3 services holding company during that

4 period).

5 ‘‘(ii) SECURITIES ACTIVITIES.—The fi6 nancial services holding company has the

7 managerial resources to conduct the pro8 posed securities activities safely and sound9 ly.

10 ‘‘(D) INTERNAL CONTROLS.—The financial

11 services holding company has established ade12 quate policies and procedures to manage finan13 cial and operational risks, to provide reasonable

14 assurance of compliance with this section and

15 other applicable laws, and to provide reasonable

16 assurance of maintenance of corporate separate17 ness within the financial services holding com18 pany.

19 ‘‘(E) NO DETRIMENTAL EFFECT ON FINAN20 CIAL SERVICES HOLDING COMPANY OR ITS SUB21 SIDIARY DEPOSITORY INSTITUTIONS.—The acqui22 sition of a securities affiliate would not adversely

23 affect the safety and soundness of—

24 ‘‘(i) the financial services holding com25 pany; or
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1 ‘‘(ii) any depository institution sub2 sidiary of the financial services holding

3 company.

4 ‘‘(F) CONCENTRATION OF RESOURCES.—The

5 acquisition of a securities affiliate would not re6 sult in an undue concentration of resources in

7 the financial services business.

8 ‘‘(G) RESPONSIVENESS TO COMMUNITY

9 NEEDS.—The lead insured depository institution

10 subsidiary of the financial services holding com11 pany and insured depository institutions con12 trolling at least 80 percent of the aggregate total

13 risk-weighted assets of insured depository institu14 tions controlled by the financial services holding

15 company have achieved a ‘satisfactory record of

16 meeting community credit needs’, or better, dur17 ing the most recent examination of such insured

18 depository institutions.

19 ‘‘(3) LIMITED NOTICE PROCEDURES FOR PRO20 POSALS BY WELL CAPITALIZED AND WELL MANAGED

21 COMPANIES TO ACQUIRE ADDITIONAL SECURITIES AF22 FILIATES.—A financial services holding company

23 may, without providing the notice required under

24 paragraph (1), directly or indirectly acquire the

25 shares or substantially all of the assets of any com-
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1 pany that is engaged in activities described in sub2 paragraph (A) or (B) of subsection (a)(1), if—

3 ‘‘(A) the financial services holding company

4 previously received the Board’s approval under

5 paragraph (1) to control a securities affiliate

6 and continues to control the securities affiliate

7 pursuant to that approval;

8 ‘‘(B) the acquisition proposal qualifies

9 under section 4(j)(4);

10 ‘‘(C) the financial services holding company

11 provides the written notification required in sec12 tion 4(j)(5); and

13 ‘‘(D) the acquisition would not result in an

14 undue concentration of resources in the financial

15 services business.

16 ‘‘(c) ADDITIONAL INVESTMENT IN SECURITIES AFFILI17 ATE.—

18 ‘‘(1) PRIOR NOTICE REQUIRED.—A financial

19 services holding company that has acquired control of

20 a securities affiliate under this section shall not, di21 rectly or indirectly, make any additional investment

22 in the securities affiliate that is considered capital for

23 purposes of any capital requirement imposed on the

24 securities affiliate under the Securities Exchange Act

25 of 1934 (other than an extension of credit under a re-
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1 volving credit agreement approved by the Board), un2 less the financial services holding company gives the

3 Board prior written notice of the proposed investment

4 and the Board—

5 ‘‘(A) issues a written statement of the

6 Board’s intent not to disapprove the notice; or

7 ‘‘(B) does not disapprove the notice within

8 30 days after the notice is filed.

9 ‘‘(2) NO PRIOR NOTICE REQUIRED FOR CERTAIN

10 FINANCIAL SERVICES HOLDING COMPANIES.—

11 ‘‘(A) IN GENERAL.—A financial services

12 holding company shall not be required to provide

13 prior notice under paragraph (1) if after making

14 any investment described in paragraph (1)—

15 ‘‘(i) the financial services holding com16 pany would be adequately capitalized under

17 the capital standards applicable, if any, to

18 such financial services holding company

19 and each of the financial services holding

20 company’s subsidiary depository institu21 tions would be well capitalized; and

22 ‘‘(ii) the financial services holding

23 company and each of its subsidiary deposi24 tory institutions are well managed (but for

25 purposes of this clause the Board may dis-
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1 regard any depository institution acquired

2 by the financial services holding company

3 during the previous 12-month period).

4 ‘‘(B) SUBSEQUENT NOTICE.—A financial

5 services holding company that makes an invest6 ment pursuant to subparagraph (A) shall pro7 vide written notice to the Board of the additional

8 investment within 10 days after making the in9 vestment.

10 ‘‘(3) CRITERIA FOR DISAPPROVING NOTICE.—The

11 Board may disapprove a notice filed under para12 graph (1) if—

13 ‘‘(A) any depository institution affiliate of

14 the securities affiliate is undercapitalized; or

15 ‘‘(B) the Board determines that the finan16 cial services holding company would be

17 undercapitalized under the capital standards ap18 plicable, if any, to such financial services hold19 ing company after making the investment or

20 that the investment would otherwise be unsafe or

21 unsound.

22 ‘‘(4) EMERGENCY APPROVAL.—Notwithstanding

23 any provision of this subsection, in the event of ad24 verse market conditions, or concerns regarding the fi25 nancial or operational condition of the securities af-
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1 filiate, the Board may approve any additional invest2 ment in the securities affiliate on an emergency basis

3 if such additional investment does not adversely affect

4 the safety and soundness of all insured depository in5 stitution affiliates of such securities affiliate and does

6 not diminish the ability of the financial services hold7 ing company to maintain an appropriate amount of

8 capital in all such insured depository institutions.

9 ‘‘(d) PROVISIONS APPLICABLE IF AFFILIATED DEPOSI10 TORY INSTITUTION CEASES TO BE WELL CAPITALIZED.—

11 ‘‘(1) HOLDING COMPANY ACTION REQUIRED IF

12 AFFILIATED INSTITUTIONS ARE NOT WELL CAPITAL13 IZED.—

14 ‘‘(A) APPLICABILITY.—This paragraph shall

15 apply if—

16 ‘‘(i) the lead depository institution of

17 the financial services holding company is

18 not well capitalized, or

19 ‘‘(ii) well capitalized depository insti20 tutions do not control at least 80 percent of

21 the aggregate total risk-weighted assets of

22 depository institutions affiliated with the

23 securities affiliate.

24 ‘‘(B) CAPITAL MAINTENANCE AGREE25 MENT.—Within 30 days after subparagraph (A)
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1 becomes applicable with respect to any financial

2 services holding company, such company shall

3 execute an agreement with the Board—

4 ‘‘(i) to meet the capital requirements of

5 subparagraph (A) within a reasonable pe6 riod of time; or

7 ‘‘(ii) to divest control of the depository

8 institution in an orderly manner within

9 180 days, or within such additional period

10 of time as the Board may determine is rea11 sonably required in order to effect such di12 vestiture.

13 ‘‘(C) RESTRICTIONS ON CERTAIN SECURI14 TIES ACTIVITIES.—If a financial services holding

15 company fails to meet the requirements of, or

16 comply with the agreement executed pursuant to,

17 subparagraph (B), a securities affiliate of such

18 financial services holding company shall not, be19 ginning 180 days after subparagraph (A) be20 comes applicable with respect to such company,

21 agree to underwrite or deal in, any securities

22 other than—

23 ‘‘(i) securities expressly authorized by

24 section 5136 of the Revised Statutes of the
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1 United States as permissible for a national

2 bank to underwrite or deal in;

3 ‘‘(ii) securities backed by or represent4 ing interests in notes, drafts, acceptances,

5 loans, leases, receivables, other obligations,

6 or pools of any such obligations; or

7 ‘‘(iii) securities issued by an open-end

8 investment company registered under the

9 Investment Company Act of 1940.

10 ‘‘(D) EXCEPTION.—The Board may permit

11 the securities affiliate of a financial services

12 holding company described in subparagraph (C)

13 to underwrite or deal in securities not described

14 in clauses (i) through (iii) of such subparagraph

15 for a period of 1 year from the date on which

16 subparagraph (A) first becomes applicable with

17 respect to such company, if—

18 ‘‘(i) the financial services holding com19 pany submits a capital restoration plan to

20 the Board specifying the steps the financial

21 services holding company will take to meet

22 the requirements of subsection (b)(2)(A),

23 and containing such other information as

24 the Board may require; and

25 ‘‘(ii) the Board approves the plan.
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1 ‘‘(E) EXTENSION OF PERIOD.—

2 ‘‘(i) IN GENERAL.—Upon application

3 by a financial services holding company,

4 the Board may extend, for not more than 1

5 year at a time, the period provided in sub6 paragraph (C).

7 ‘‘(ii) MAXIMUM EXTENSION.—No exten8 sion under clause (i) of the period provided

9 in subparagraph (C) shall, in the aggregate,

10 exceed 2 years.

11 ‘‘(2) DIVESTITURE OF SECURITIES AFFILIATE.—

12 ‘‘(A) IN GENERAL.—A financial services

13 holding company shall divest itself of the securi14 ties affiliate if any of the financial services hold15 ing company’s subsidiary depository institutions

16 has been undercapitalized for more than 6

17 months.

18 ‘‘(B) EXTENDING TIME.—The Board may

19 provide additional time, not exceeding 18

20 months, for a divestiture under subparagraph

21 (A) if—

22 ‘‘(i) the appropriate Federal banking

23 agency or, in the case of a foreign bank or

24 company that owns or controls a foreign

25 bank, the Board, has approved the
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1 undercapitalized institution’s capital res2 toration plan; and

3 ‘‘(ii) the Board determines that the se4 curities affiliate poses no significant risk to

5 any affiliated depository institution.

6 ‘‘(e) SECURITIES AFFILIATE EXCLUDED IN DETER7 MINING WHETHER FINANCIAL SERVICES HOLDING COM8 PANY IS ADEQUATELY CAPITALIZED.—

9 ‘‘(1) IN GENERAL.—In determining whether a fi10 nancial services holding company is adequately cap11 italized—

12 ‘‘(A) the financial services holding compa13 ny’s capital and total assets shall each be re14 duced by—

15 ‘‘(i) an amount equal to the amount of

16 the financial services holding company’s eq17 uity investment in any securities affiliate;

18 and

19 ‘‘(ii) an amount equal to the amount

20 of any extensions of credit by the financial

21 services holding company to any securities

22 affiliate that are considered capital for pur23 poses of any capital requirement imposed

24 on the securities affiliate under section
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1 15(c)(3) of the Securities Exchange Act of

2 1934; and

3 ‘‘(B) the securities affiliate’s assets and li4 abilities shall not be consolidated with those of

5 the financial services holding company.

6 ‘‘(2) EXCEPTION FOR NONSECURITIES ACTIVI7 TIES.—Paragraph (1) shall not apply to the extent

8 that the Board determines by regulation or order

9 that—

10 ‘‘(A) an item described in such paragraph

11 relates to activities which are not described in

12 subparagraph (A) or (B) of subsection (a)(1); or

13 ‘‘(B) another method of adjusting capital is

14 more appropriate to ensure the safety and sound15 ness of depository institutions.

16 ‘‘(f) SAFEGUARDS.—Each financial services holding

17 company and each subsidiary of any such company shall

18 comply with all applicable safeguard requirements of sec19 tion 11.

20 ‘‘(g) ACTIVITIES NOT PERMISSIBLE FOR DEPOSITORY

21 INSTITUTIONS.—

22 ‘‘(1) IN GENERAL.—A financial services holding

23 company that acquires control of a securities affiliate

24 shall not, after the end of the 1-year period beginning

25 on the date of such acquisition, permit any depository
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1 institution, or any subsidiary of any depository insti2 tution, which is controlled by such holding com3 pany—

4 ‘‘(A) to engage, directly or indirectly, in the

5 United States—

6 ‘‘(i) in underwriting securities backed

7 by or representing interests in notes, drafts,

8 acceptances, loans, leases, receivables, other

9 obligations, or pools of any such obligations

10 originated or purchased by the institution

11 or its affiliates, other than—

12 ‘‘(I) securities backed by or rep13 resenting an interest in 1—4 family

14 residential mortgages originated or

15 purchased by the depository institution

16 or any affiliate or subsidiary of the in17 stitution; or

18 ‘‘(II) securities backed by or rep19 resenting an interest in consumer re20 ceivables or consumer leases originated

21 or purchased by the depository institu22 tion or any affiliate or subsidiary of

23 the institution; or

24 ‘‘(ii) in underwriting or dealing in

25 any other securities, except securities ex-
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1 pressly authorized by section 5136 of the

2 Revised Statutes of the United States as

3 permissible for a national bank to under4 write or deal in; or

5 ‘‘(B) to make an equity investment in any

6 securities affiliate.

7 ‘‘(2) EXCEPTION FOR CERTAIN EDGE ACT AND

8 AGREEMENT CORPORATIONS.—The limitations in

9 paragraph (1)(A) shall not apply with respect to ac10 tivities conducted by a subsidiary of a financial serv11 ices holding company which is held pursuant to sec12 tion 25 or 25A of the Federal Reserve Act or section

13 4(c)(13) of this Act.

14 ‘‘(3) RULE OF CONSTRUCTION.—No provision of

15 this subsection shall be construed as permitting a se16 curities affiliate to accept deposits in contravention of

17 section 21 of the Banking Act of 1933.

18 ‘‘(h) APPROVAL OF SECURITIES ACTIVITIES UNDER

19 SECTION 4(c)(8) RESTRICTED.—The Board shall deny any

20 notice or application by a financial services holding com21 pany under authority of section 4(c)(8) to engage in, or

22 acquire the shares of a company engaged in, underwriting

23 or dealing in securities in the United States, other than

24 securities expressly authorized by section 5136 of the Re-
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1 vised Statutes of the United States as permissible for a na2 tional bank to underwrite or deal in.

3 ‘‘(i) BANKERS’ BANKS.—

4 ‘‘(1) IN GENERAL.—For purposes of this section,

5 each shareholder of or participant in a company that

6 controls a depository institution described in section

7 5169(b)(1) of the Revised Statutes of the United

8 States or in a similar statute of any State, and each

9 subsidiary of such a shareholder or participant, shall

10 be treated as if such shareholder, participant, or sub11 sidiary were a subsidiary of that company.

12 ‘‘(2) EXCEPTION.—This subsection shall not

13 apply with respect to a shareholder or participant in

14 a company described in subparagraph (A) (or any

15 subsidiary of such shareholder or participant) if the

16 shareholder or participant, and the affiliates of any

17 such shareholder or participant, do not, in the aggre18 gate, control more than 5 percent of any class of vot19 ing shares of such company.

20 ‘‘(j) SHARES ACQUIRED IN CONNECTION WITH UN21 DERWRITING AND INVESTMENT BANKING ACTIVITIES.—

22 ‘‘(1) IN GENERAL.—Notwithstanding section

23 4(a), a financial services holding company may di24 rectly or indirectly acquire or control, whether as

25 principal, on behalf of 1 or more entities (including
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1 entities, other than a depository institution or sub2 sidiary of a depository institution, that the financial

3 services holding company controls), or otherwise,

4 shares, assets, or ownership interests (including with5 out limitation debt or equity securities, partnership

6 interests, trust certificates, or other instruments rep7 resenting ownership) of a company or other entity,

8 whether or not constituting control of such company

9 or entity, engaged in activities not authorized pursu10 ant to section 4 if—

11 ‘‘(A) the shares, assets, or ownership inter12 ests are not acquired or held by a depository in13 stitution or a subsidiary of a depository institu14 tion;

15 ‘‘(B) such shares, assets, or ownership inter16 ests are acquired and held by a securities affili17 ate or an affiliate of a securities affiliate as part

18 of a bona fide underwriting or investment bank19 ing activity, which includes investment activities

20 engaged in for the purpose of appreciation and

21 ultimate resale or other disposition of the invest22 ment, and such shares, assets, or ownership in23 terests are held for such a period of time as will

24 permit the sale or disposition thereof on a rea-
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1 sonable basis consistent with the nature of such

2 activities; and

3 ‘‘(C) during the period such shares, assets,

4 or ownership interests are held, the financial

5 services holding company does not actively man6 age or operate the company or entity except in7 sofar as necessary to achieve the objectives of sub8 paragraph (B).

9 ‘‘(2) NO EXPANSION OF UNDERWRITING ACTIVI10 TIES.—No provision of this subsection shall be con11 strued as authorizing any financial services holding

12 company, or any subsidiary of any such company, to

13 underwrite or deal in any security.

14 ‘‘(k) DEFINITIONS.—For purposes of this section and

15 sections 11 and 12, the following definitions shall apply:

16 ‘‘(1) CAPITAL STOCK AND SURPLUS.—The term

17 ‘capital stock and surplus’ has the same meaning as

18 in section 23A of the Federal Reserve Act.

19 ‘‘(2) COVERED TRANSACTION.—The term ‘covered

20 transaction’ has the same meaning as in section 23A

21 of the Federal Reserve Act.

22 ‘‘(3) SECURITY.—

23 ‘‘(A) IN GENERAL.—The term ‘security’ has

24 the meaning given to such term in section

25 3(a)(10) of the Securities Exchange Act of 1934.
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1 ‘‘(B) EXCEPTIONS.—For purposes of this

2 section, other than subsection (a), the term ‘secu3 rity’ does not include any of the following:

4 ‘‘(i) A contract of insurance.

5 ‘‘(ii) A deposit account, savings ac6 count, certificate of deposit, or other deposit

7 instrument issued by a depository institu8 tion.

9 ‘‘(iii) A share account issued by a sav10 ings association if the account is insured by

11 the Federal Deposit Insurance Corporation.

12 ‘‘(iv) A banker’s acceptance.

13 ‘‘(v) A letter of credit issued by a de14 pository institution.

15 ‘‘(vi) A debit account at a depository

16 institution arising from a credit card or

17 similar arrangement.

18 ‘‘(vii) A loan or loan participation (as

19 determined by the Board).

20 ‘‘(C) BOARD’S AUTHORITY TO EXEMPT TRA21 DITIONAL BANKING PRODUCTS.—The Board may,

22 by regulation or order and after consultation

23 with and consideration of the views of the Secu24 rities and Exchange Commission, exempt a
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1 banking product from the definition of security

2 if the Board determines that—

3 ‘‘(i) the product is more appropriately

4 regulated as a banking product; and

5 ‘‘(ii) the exemption is otherwise con6 sistent with the purposes of this section.

7 ‘‘(D) DEFINITION FOR LIMITED PURPOSE.—

8 The fact that a particular instrument is excluded

9 pursuant to subparagraph (B) or (C) from the

10 definition of security for purposes of this section

11 shall not be construed as finding or implying

12 that such instrument is or is not a security for

13 purposes of Federal securities laws.’’.

14 (b) TRANSITION RULE FOR SECURITIES AFFILIATES

15 APPROVED UNDER SECTION 4(c)(8).—

16 (1) CONVERSION TO (4)(c)(15) SUBSIDIARY.—

17 (A) IN GENERAL.—Except as provided in

18 subparagraph (B) and paragraphs (3) and (4),

19 effective 18 months after the date of enactment of

20 this Act, no financial services holding company

21 may engage in, or retain the shares of any com22 pany engaged in, underwriting or dealing in se23 curities based on the approval of an application

24 under section 4(c)(8) of the Bank Holding Com25 pany Act of 1956 (as in effect before the date of
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1 the enactment of the Financial Services Competi2 tiveness Act of 1995) unless the financial services

3 holding company has obtained the Board’s ap4 proval to retain the shares of that company

5 under section 10.

6 (B) EXCEPTION FOR BANK ELIGIBLE SECU7 RITIES.—Subparagraph (A) shall not apply with

8 respect to underwriting or dealing in securities

9 expressly authorized by section 5136 of the Re10 vised Statutes of the United States as permissible

11 for a national bank to underwrite or deal in.

12 (2) EXTENDING TIME.—

13 (A) IN GENERAL.—The Board may, for

14 good cause shown, extend the time provided

15 under paragraph (1) for not more than 18

16 months.

17 (B) PENDING NOTICES.—If a financial serv18 ices holding company has filed a notice under

19 section 10(b) of the Bank Holding Company Act

20 of 1956 not later than 180 days after the date

21 of enactment of this Act, paragraph (1) shall not

22 apply with respect to the company engaged in

23 such underwriting or dealing until 180 days

24 after the Board has acted on the notice.
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1 (3) CONVERSION PROCEDURES FOR COMPANIES

2 PREVIOUSLY AUTHORIZED TO CONDUCT SECURITIES

3 ACTIVITIES.—Any financial services holding company

4 that controls a company engaged in underwriting

5 and dealing in corporate debt and equity securities

6 pursuant to an order issued by the Board under sec7 tion 4(c)(8) of the Bank Holding Company Act of

8 1956 before the date of enactment of the Financial

9 Services Competitiveness Act of 1995 shall be treated

10 as follows:

11 (A) REVENUE TEST AND CERTAIN OTHER

12 RESTRICTIONS.—Upon filing the notice required

13 under section 10(b) of the Financial Services

14 Holding Company Act of 1995, the financial

15 services holding company shall be relieved

16 from—

17 (i) the limitation contained in such

18 order on the amount of revenue that may be

19 derived from securities underwriting and

20 dealing activities; and

21 (ii) any other restriction contained in

22 such order that would not be required under

23 section 11 of such Act, as permitted by the

24 Board.
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1 (B) EXAMINATION OF INTERNAL CON2 TROLS.—The financial services holding company

3 shall not, in connection with action on the notice

4 submitted under section 10(b)(1) of the Finan5 cial Services Holding Company Act of 1995, be

6 subject to an examination of internal controls

7 under section 10(b)(2)(D) of such Act.

8 (4) RETENTION OF COMPANIES CONDUCTING LIM9 ITED SECURITIES ACTIVITIES.—Notwithstanding

10 paragraph (1), any financial services holding com11 pany that controls a company engaged in underwrit12 ing and dealing in securities (other than corporate

13 debt or equity securities) pursuant to an order issued

14 by the Board under section 4(c)(8) of the Bank Hold15 ing Company Act of 1956 before the date of enactment

16 of the Financial Services Competitiveness Act of 1995

17 may retain control of such company, so long as such

18 company complies with all of the limitations, restric19 tions and conditions, including the limitation on the

20 revenue that may be derived from such underwriting

21 or dealing activities, contained in such order.
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1 SEC. 104. SAFEGUARDS RELATING TO SECURITIES AFFILI2 ATES.

3 (a) IN GENERAL.—The Bank Holding Company Act

4 of 1956 (12 U.S.C. 1841 et seq.) is amended—

5 (1) by redesignating sections 11 and 12 as sec6 tions 13 and 14, respectively; and

7 (2) by inserting after section 10 (as added by

8 section 103 of this Act) the following new section:

9 ‘‘SEC. 11. SAFEGUARDS RELATING TO SECURITIES AFFILI10 ATES.

11 ‘‘(a) EXTENSIONS OF CREDIT AND ASSET PURCHASES

12 RESTRICTED.—

13 ‘‘(1) IN GENERAL.—No depository institution af14 filiated with a securities affiliate shall, directly or in15 directly, do any of the following:

16 ‘‘(A) Extend credit in any manner to the

17 securities affiliate.

18 ‘‘(B) Issue a guarantee, acceptance, or letter

19 of credit, including an endorsement or a standby

20 letter of credit, for the benefit of the securities af21 filiate.

22 ‘‘(C) Except as provided in paragraph (3),

23 purchase for its own account, or for the account

24 of any subsidiary of such institution, financial

25 assets of the securities affiliate.
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1 ‘‘(2) EXCEPTION FOR CLEARING SECURITIES.—

2 Paragraph (1)(A) shall not apply with respect to an

3 extension of credit by a well capitalized depository in4 stitution to acquire or sell securities if the following

5 conditions are met:

6 ‘‘(A) The extension of credit is incidental to

7 clearing transactions in those securities through

8 that depository institution.

9 ‘‘(B) Both the principal of and the interest

10 on the extension of credit are fully secured by

11 those securities.

12 ‘‘(C) Either—

13 ‘‘(i) the extension of credit is to be re14 paid before the close of business on the same

15 business day; or

16 ‘‘(ii) all of the following conditions are

17 satisfied:

18 ‘‘(I) The securities cannot, in the

19 ordinary course of business, be cleared

20 on that business day.

21 ‘‘(II) The extension of credit is to

22 be repaid before the close of business on

23 the next business day.
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1 ‘‘(III) Extensions of credit subject

2 to this clause, when aggregated with all

3 other covered transactions between the

4 institution and all affiliated securities

5 affiliates do not exceed 10 percent of

6 the institution’s capital stock and sur7 plus.

8 ‘‘(D) Either—

9 ‘‘(i) the securities are securities ex10 pressly authorized by section 5136 of the

11 Revised Statutes of the United States as

12 permissible for a national bank to under13 write or deal in; or

14 ‘‘(ii) the Board permits transactions

15 under this paragraph in securities not de16 scribed in clause (i) and the securities affil17 iate provides the depository institution with

18 such additional security or other assurance

19 of performance, if any, as the Board shall

20 require to prevent such transactions from

21 posing any appreciable risk to the institu22 tion.

23 ‘‘(3) EXCEPTIONS FOR CERTAIN SECURITIES

24 PURCHASED FOR A DEPOSITORY INSTITUTION’S OWN

25 ACCOUNT.—Paragraph (1)(C) shall not apply with
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1 respect to purchases at the current market value

2 (based on reliable and regularly available price

3 quotations) of—

4 ‘‘(A) securities expressly authorized by sec5 tion 5136 of the Revised Statutes of the United

6 States as permissible for a national bank to un7 derwrite or deal in; or

8 ‘‘(B) securities that—

9 ‘‘(i) the securities affiliate has been

10 marking to market daily; and

11 ‘‘(ii) are rated investment grade by at

12 least 1 nationally recognized statistical rat13 ing organization.

14 ‘‘(4) OTHER EXCEPTIONS.—The Board may

15 make exceptions to paragraph (1) for well capitalized

16 depository institutions if—

17 ‘‘(A) the transaction is fully secured in ac18 cordance with section 23A(c) of the Federal Re19 serve Act; and

20 ‘‘(B) the aggregate amount of covered trans21 actions between the institution and all securities

22 affiliates of the financial services holding com23 pany, excluding transactions permitted under

24 paragraph (2)(C)(i) or (3)(A), does not exceed 10
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1 percent of the institution’s capital stock and sur2 plus.

3 ‘‘(b) CREDIT ENHANCEMENT RESTRICTED.—

4 ‘‘(1) IN GENERAL.—No depository institution af5 filiated with a securities affiliate shall, directly or in6 directly, extend credit, or issue or enter into a stand7 by letter of credit, asset purchase agreement, indem8 nity, guarantee, insurance, or other facility, for the

9 purpose of enhancing the marketability of a securities

10 issue underwritten by the securities affiliate.

11 ‘‘(2) DEFINITION OF TERM BY BOARD.—The

12 Board shall prescribe a definition for the term ‘for the

13 purpose of enhancing the marketability of a securities

14 issue’ for purposes of paragraph (1).

15 ‘‘(3) EXCEPTION FOR BANK ELIGIBLE SECURI16 TIES.—Paragraph (1) shall not apply with regard to

17 securities expressly authorized by section 5136 of the

18 Revised Statutes of the United States as permissible

19 for a national bank to underwrite or deal in.

20 ‘‘(4) APPLICATION TO WELL CAPITALIZED DE21 POSITORY INSTITUTIONS.—

22 ‘‘(A) IN GENERAL.—A well capitalized de23 pository institution may engage in a transaction

24 described in paragraph (1) if—
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1 ‘‘(i) the depository institution has

2 adopted appropriate limits on exposure on

3 a consolidated basis to any single customer

4 whose securities are underwritten by the se5 curities affiliate; and

6 ‘‘(ii) the institution and its securities

7 affiliate have adopted appropriate proce8 dures, including maintenance of necessary

9 documentary records, to assure that any

10 such extension of credit, standby letter of

11 credit, asset purchase agreement, indemnity,

12 guarantee, insurance or other facility, is on

13 an arm’s length basis.

14 ‘‘(B) ARM’S LENGTH TRANSACTION DE15 SCRIBED.—An extension of credit may be consid16 ered to be on an arm’s length basis if the terms

17 and conditions are substantially the same as

18 those prevailing at the time for comparable

19 transactions involving securities that are not un20 derwritten by the securities affiliate.

21 ‘‘(C) COMPLIANCE WITH PARAGRAPH (1).—

22 The Board may require, by regulation or order,

23 compliance with paragraph (1) by well capital24 ized depository institutions exempt under this
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1 paragraph in order to achieve any purpose spec2 ified in subsection (l).

3 ‘‘(c) PROHIBITION ON FINANCING PURCHASE OF SECU4 RITY BEING UNDERWRITTEN.—

5 ‘‘(1) IN GENERAL.—No financial services holding

6 company or subsidiary of a financial services holding

7 company (other than a securities affiliate) shall

8 knowingly extend or arrange for the extension of cred9 it, directly or indirectly, secured by or for the purpose

10 of purchasing any security while, or for 30 days after,

11 that security is the subject of a distribution in which

12 a securities affiliate of that financial services holding

13 company participates as an underwriter or a member

14 of a selling group.

15 ‘‘(2) RELIANCE ON ACKNOWLEDGEMENT.—For

16 purposes of paragraph (1), a financial services hold17 ing company or subsidiary may rely on an express

18 written acknowledgement signed by the borrower that

19 the credit is not secured by or for the purpose of pur20 chasing a security described in this subparagraph.

21 ‘‘(3) APPLICATION TO BANK ELIGIBLE SECURI22 TIES.—Paragraph (1) shall not apply with regard to

23 extensions of credit if the securities are securities ex24 pressly authorized by section 5136 of the Revised
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1 Statutes of the United States as permissible for a na2 tional bank to underwrite or deal in.

3 ‘‘(4) APPLICATION TO WELL CAPITALIZED DE4 POSITORY INSTITUTIONS.—The Board may make ex5 ceptions, by regulation or order, to paragraph (1) for

6 an extension of credit, after consultation with and

7 considering the views of the Securities and Exchange

8 Commission, if—

9 ‘‘(A) the financial services holding company

10 is adequately capitalized;

11 ‘‘(B) the financial services holding compa12 ny’s lead depository institution is well capital13 ized;

14 ‘‘(C) well capitalized depository institutions

15 control at least 80 percent of the assets of deposi16 tory institutions controlled by the financial serv17 ices holding company; and

18 ‘‘(D) all depository institutions controlled

19 by the financial services holding company are

20 well capitalized or adequately capitalized.

21 ‘‘(5) CONSISTENCY WITH THE FEDERAL SECURI22 TIES LAWS.—No provision of this subsection shall be

23 construed as permitting a securities affiliate to extend

24 or maintain credit, or arrange for an extension of

25 credit, except in compliance with applicable provi-
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1 sions of the Securities Exchange Act of 1934 and the

2 regulations prescribed and interpretations issued

3 under such Act.

4 ‘‘(d) RESTRICTION ON EXTENDING CREDIT TO MAKE

5 PAYMENTS ON SECURITIES.—

6 ‘‘(1) IN GENERAL.—No depository institution af7 filiated with a securities affiliate shall, directly or in8 directly, extend credit to an issuer of securities under9 written by the securities affiliate for the purpose of

10 paying the principal of those securities or interest or

11 dividends on those securities.

12 ‘‘(2) EXCEPTIONS FOR CERTAIN EXTENSIONS OF

13 CREDIT.—Paragraph (1) shall not apply to an exten14 sion of credit for a documented purpose (other than

15 paying principal, interest, or dividends) if the tim16 ing, maturity, and other terms of the credit, taken as

17 a whole, are substantially different from those of the

18 underwritten securities.

19 ‘‘(3) EXCEPTIONS FOR BANK ELIGIBLE SECURI20 TIES.—Paragraph (1) shall not apply with respect to

21 any security expressly authorized by section 5136 of

22 the Revised Statutes of the United States as permis23 sible for a national bank to underwrite or deal in.

24 ‘‘(4) APPLICATION TO WELL CAPITALIZED DE25 POSITORY INSTITUTIONS.—
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1 ‘‘(A) IN GENERAL.—Paragraph (1) shall

2 not apply with respect to well capitalized deposi3 tory institutions if—

4 ‘‘(i) the depository institution has

5 adopted appropriate limits on exposure on

6 a consolidated basis to any single customer

7 whose securities are underwritten by the se8 curities affiliate; and

9 ‘‘(ii) the depository institution has

10 adopted appropriate procedures, including

11 maintenance of necessary documentary

12 records, to assure that any extension of

13 credit by the depository institution to an is14 suer for the purpose of paying the prin15 cipal, interest or dividends on securities un16 derwritten by the securities affiliate is on

17 an arm’s length basis.

18 ‘‘(B) ARM’S LENGTH TRANSACTION DE19 SCRIBED.—An extension of credit may be consid20 ered to have been made on an arm’s length basis

21 if the terms and conditions are substantially the

22 same as those prevailing at the time for com23 parable transactions with issuers whose securi24 ties are not underwritten by the securities affili25 ate.
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1 ‘‘(C) COMPLIANCE WITH SUBPARAGRAPH

2 (A).—The Board may require, by regulation or

3 order, compliance with paragraph (1) by well

4 capitalized depository institutions exempt under

5 this paragraph in order to achieve any purpose

6 specified in subsection (l).

7 ‘‘(e) COMMON DIRECTORS AND SENIOR EXECUTIVE

8 OFFICERS.—

9 ‘‘(1) IN GENERAL.—The Board shall, by regula10 tion or order, prescribe the circumstances under

11 which directors and senior executive officers of a secu12 rities affiliate may serve at the same time as directors

13 or senior executive officers of any affiliated depository

14 institutions.

15 ‘‘(2) STANDARDS.—The Board, in issuing any

16 regulation or order pursuant to paragraph (1), shall

17 consider appropriate factors including—

18 ‘‘(A) any burdens imposed by restrictions

19 on director and senior executive officer inter20 locks;

21 ‘‘(B) the safety and soundness of depository

22 institutions and securities affiliates;

23 ‘‘(C) unfair competition in securities activi24 ties;
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1 ‘‘(D) improper exchange of customer infor2 mation; or

3 ‘‘(E) harm to customers of securities affili4 ates or depository institutions that could reason5 ably result from director and senior officer inter6 locks.

7 ‘‘(3) EXCEPTION FOR SMALL FINANCIAL SERV8 ICES HOLDING COMPANIES.—

9 ‘‘(A) IN GENERAL.—Notwithstanding para10 graph (1), a director or senior executive officer

11 of a securities affiliate may serve at the same

12 time as a director or senior executive officer of

13 an affiliated depository institution if that insti14 tution and all affiliated depository institutions

15 have, in the aggregate, total assets of not more

16 than $500,000,000.

17 ‘‘(B) INFLATION ADJUSTMENT.—The dollar

18 limitation contained in subparagraph (A) shall

19 be adjusted annually after December 31, 1995,

20 by the annual percentage increase in the

21 Consumer Price Index for Urban Wage Earners

22 and Clerical Workers published by the Bureau of

23 Labor Statistics.

24 ‘‘(4) EXCEPTION FOR CERTAIN REGULATION K

25 AFFILIATES.—Paragraph (1) shall not prohibit a di-
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1 rector or senior executive officer of a securities affili2 ate from serving at the same time as a director or

3 senior executive officer of a depository institution

4 which—

5 ‘‘(A) is organized under section 25 or 25A

6 of the Federal Reserve Act;

7 ‘‘(B) is an affiliate of such securities affili8 ate; and

9 ‘‘(C) principally engages in business outside

10 the United States.

11 ‘‘(f) DISCLOSURE REQUIRED BY SECURITIES AFFILI12 ATE.—

13 ‘‘(1) IN GENERAL.—At the time a securities ac14 count is opened, a securities affiliate shall conspicu15 ously disclose in writing to each of its customers

16 that—

17 ‘‘(A) securities sold, offered, or recommended

18 by the securities affiliate—

19 ‘‘(i) are not deposits;

20 ‘‘(ii) are not insured by the Federal

21 Deposit Insurance Corporation;

22 ‘‘(iii) are not guaranteed by an affili23 ated insured depository institution;
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1 ‘‘(iv) are not otherwise an obligation of

2 an insured depository institution (unless

3 such is the case); and

4 ‘‘(v) with regard to any product that

5 includes any investment component, are

6 subject to investment risks including pos7 sible loss of principal invested;

8 ‘‘(B) the securities affiliate is not an in9 sured depository institution, and is a corpora10 tion separate from any insured depository insti11 tution; and

12 ‘‘(C) the securities affiliate may be under13 writing or dealing in the securities being sold,

14 offered or recommended, and if so, would have a

15 financial interest in the transaction.

16 ‘‘(2) FORM OF DISCLOSURE.—The disclosures re17 quired by paragraph (1) shall be made in clear and

18 concise language that—

19 ‘‘(A) is readily comprehensible to customers

20 of the securities affiliate, and

21 ‘‘(B) is designed to promote customer un22 derstanding that uninsured investment products

23 are not deposits insured by the Federal Deposit

24 Insurance Corporation.
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1 ‘‘(3) BOARD AUTHORITY.—Subject to paragraph

2 (2), the Board may, in the Board’s discretion, pre3 scribe disclosures in addition to the disclosures pre4 scribed by paragraph (1).

5 ‘‘(g) DISCLOSURE REQUIRED BY INSURED DEPOSI6 TORY INSTITUTIONS.—

7 ‘‘(1) IN GENERAL.—No insured depository insti8 tution shall knowingly express any opinion on the

9 value of, or the advisability of purchasing or selling,

10 nonbanking products (as defined by the Board) sold

11 by the insured depository institution or any affiliate

12 of an insured depository institution unless the in13 sured depository institution conspicuously discloses in

14 writing to the customer that—

15 ‘‘(A) the insured depository institution or

16 affiliate (whichever is applicable) is selling the

17 nonbanking product and has a financial interest

18 in the transaction (if such is the case);

19 ‘‘(B) the nonbanking products—

20 ‘‘(i) are not deposits;

21 ‘‘(ii) are not insured by the Federal

22 Deposit Insurance Corporation;

23 ‘‘(iii) are not guaranteed by the insti24 tution or any other affiliated insured depos25 itory institution;
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1 ‘‘(iv) are not otherwise an obligation of

2 an insured depository institution (unless

3 such is the case); and

4 ‘‘(v) with regard to any nonbanking

5 product that includes any investment com6 ponent, are subject to investment risks in7 cluding possible loss of principal invested;

8 and

9 ‘‘(C) an affiliate, if involved, is not an in10 sured depository institution (unless such is the

11 case), and is a corporation separate from any

12 insured depository institution (unless such is not

13 the case).

14 ‘‘(2) FORM OF DISCLOSURE.—The disclosures re15 quired by paragraph (1) shall be made in clear and

16 concise language that—

17 ‘‘(A) is readily comprehensible to customers

18 of the insured depository institution, and

19 ‘‘(B) is designed to promote customer un20 derstanding that nonbanking products are not

21 deposits insured by the Federal Deposit Insur22 ance Corporation.

23 ‘‘(3) CUSTOMER ACKNOWLEDGEMENT OF DISCLO24 SURE.—
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1 ‘‘(A) IN GENERAL.—Whenever any insured

2 depository institution or securities affiliate opens

3 an account for the purpose of selling a

4 nondeposit investment product or products to a

5 customer, such insured depository institution or

6 securities affiliate as the case may be, shall ob7 tain a 1-time acknowledgment of receipt by the

8 customer of such disclosures, including the date

9 of receipt with the customer’s name, address, and

10 the account number.

11 ‘‘(B) SPECIAL RULE FOR ACCREDITED IN12 VESTORS.—In the case of any customer who is,

13 or meets the requirements for, an accredited in14 vestor (as defined in section 2(15) of the Securi15 ties Act of 1933), the acknowledgment of the re16 ceipt of any disclosure described in subpara17 graph (A) may be obtained by the insured depos18 itory institution or securities affiliate at the

19 time any account is opened by such customer.

20 ‘‘(4) BOARD AUTHORITY.—Subject to paragraph

21 (2), the Board, after consultation with the other ap22 propriate Federal banking agencies, may prescribe

23 disclosures in addition to the disclosures required by

24 paragraph (1).
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1 ‘‘(h) IMPROPER DISCLOSURE OF CONFIDENTIAL CUS2 TOMER INFORMATION PROHIBITED.—

3 ‘‘(1) IN GENERAL.—No depository institution

4 subsidiary of a financial services holding company

5 shall disclose to any affiliate of such institution which

6 is not a depository institution, and no affiliate of

7 such company which is not a depository institution

8 shall disclose to any other affiliate which is a deposi9 tory institution or a subsidiary of such an institu10 tion, any nonpublic customer information (including

11 an evaluation of the creditworthiness of an issuer or

12 other customer of that institution or securities affili13 ate), unless it is clearly and conspicuously disclosed

14 that such information may be communicated among

15 such persons and the customer is given the oppor16 tunity, before the time that the information is ini17 tially communicated, to direct that such information

18 not be communicated among such persons.

19 ‘‘(2) DEFINITION.—For purposes of paragraph

20 (1), the term ‘nonpublic customer information’ does

21 not include—

22 ‘‘(A) customers’ names and addresses (un23 less a customer has specified otherwise);
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1 ‘‘(B) information that could be obtained

2 from unaffiliated credit bureaus or similar com3 panies in the ordinary course of business; or

4 ‘‘(C) information that is customarily pro5 vided to unaffiliated credit bureaus or similar

6 companies in the ordinary course of business

7 by—

8 ‘‘(i) depository institutions not affili9 ated with securities affiliates; or

10 ‘‘(ii) brokers and dealers not affiliated

11 with depository institutions.

12 ‘‘(i) UNDERWRITING SECURITIES REPRESENTING OB13 LIGATIONS ORIGINATED BY AFFILIATE RESTRICTED.—A se14 curities affiliate shall not underwrite securities secured by

15 or representing an interest in mortgages or other obligations

16 originated or purchased by an affiliated depository institu17 tion or subsidiary of such an institution—

18 ‘‘(1) unless those securities—

19 ‘‘(A) are rated by at least 1 unaffiliated,

20 nationally recognized statistical rating organiza21 tion;

22 ‘‘(B) are issued or guaranteed by the Fed23 eral Home Loan Mortgage Corporation, the Fed24 eral National Mortgage Association, or the Gov25 ernment National Mortgage Association; or
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1 ‘‘(C) represent interests in securities de2 scribed in subparagraph (B); or

3 ‘‘(2) except as permitted by the Board.

4 ‘‘(j) RECIPROCAL ARRANGEMENTS PROHIBITED.—No

5 financial services holding company and no subsidiary of

6 a financial services holding company may enter into any

7 agreement, understanding, or other arrangement under

8 which—

9 ‘‘(1) 1 financial services holding company (or

10 subsidiary of that financial services holding com11 pany) agrees to engage in a transaction with, or on

12 behalf of, another financial services holding company

13 (or subsidiary of that financial services holding com14 pany), in exchange for

15 ‘‘(2) the agreement of the second financial serv16 ices holding company referred to in paragraph (1) (or

17 a subsidiary of that financial services holding com18 pany) to engage in any transaction with, or on behalf

19 of, the first financial services holding company re20 ferred to in such paragraph (or any subsidiary of

21 that financial services holding company), for the pur22 pose of evading any requirement or restriction of Fed23 eral law on transactions between, or for the benefit of,

24 affiliates of financial services holding companies.
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1 ‘‘(k) SAFEGUARDS APPLY TO CERTAIN SUBSIDI2 ARIES.—Except as provided in this section—

3 ‘‘(1) SECURITIES AFFILIATE.—No subsidiary of

4 a securities affiliate may do anything that this sec5 tion prohibits the securities affiliate from doing.

6 ‘‘(2) DEPOSITORY INSTITUTION.—No subsidiary

7 of a depository institution may do anything that this

8 subsection prohibits the institution from doing.

9 ‘‘(l) AUTHORITY TO MODIFY AND IMPOSE ADDITIONAL

10 SAFEGUARDS; INTERPRETIVE AUTHORITY.—

11 ‘‘(1) IN GENERAL.—The Board may, by regula12 tion or order—

13 ‘‘(A) adopt additional limitations, restric14 tions or conditions on relationships or trans15 actions among depository institutions, their af16 filiates, and their customers; and

17 ‘‘(B) make any modification to any limita18 tion, restriction, or condition imposed under this

19 section on relationships or transactions among

20 depository institutions, the affiliates of insured

21 depository institutions, and the customers of

22 such institutions or affiliates, including modi23 fications in addition to those expressly provided

24 for in this section.
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1 ‘‘(2) STANDARDS.—The Board may not exercise

2 authority under paragraph (1) unless the Board finds

3 that such action is consistent with the purposes of this

4 Act, including—

5 ‘‘(A) the avoidance of any significant risk

6 to the safety and soundness of depository institu7 tions or the Federal deposit insurance funds;

8 ‘‘(B) the enhancement of the financial sta9 bility of financial services holding companies;

10 ‘‘(C) the prevention of the subsidization of

11 securities affiliates by depository institutions;

12 ‘‘(D) the avoidance of conflicts of interest or

13 other abuses; and

14 ‘‘(E) the application of the principle of na15 tional treatment and equality of competitive op16 portunity between securities affiliates owned or

17 controlled by domestic financial services holding

18 companies and securities affiliates owned or con19 trolled by foreign banks operating in the United

20 States.

21 ‘‘(3) BIENNIAL REVIEW.—Beginning 2 years

22 after the date of enactment of the Financial Services

23 Competitiveness Act of 1995, the Board shall, on a bi24 ennial basis—
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1 ‘‘(A) review all restrictions established pur2 suant to paragraph (1) to determine whether

3 any such restrictions are required any longer to

4 carry out the purposes of this Act; and

5 ‘‘(B) modify or eliminate any such restric6 tion that the Board determines is no longer re7 quired to carry out the purposes of this Act.

8 ‘‘(m) COMPLIANCE PROGRAMS REQUIRED.—

9 ‘‘(1) IN GENERAL.—Each appropriate Federal

10 banking and agency the Securities and Exchange

11 Commission shall establish a program for—

12 ‘‘(A) sharing information concerning com13 pliance with subtitle A of title I or subtitle A or

14 B of title II of the Financial Services Competi15 tiveness Act of 1995, and the amendments made

16 by such subtitles, by—

17 ‘‘(i) brokers, dealers, investment advis18 ers, or investment companies that are reg19 istered with the Securities and Exchange

20 Commission that are affiliated with deposi21 tory institutions, or are separately identifi22 able departments or divisions of depository

23 institutions registered as brokers, dealers, or

24 investment advisers; and
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1 ‘‘(ii) depository institutions and their

2 affiliates;

3 ‘‘(B) enforcing compliance with subtitle A

4 of title I of the Financial Services Competitive5 ness Act of 1995, and the amendments made by

6 such subtitle and paragraphs (4) and (5) of sec7 tion 3(a) of the Securities Exchange Act of 1934

8 by entities under its supervision; and

9 ‘‘(C) responding to any complaints from

10 customers about inappropriate cross-marketing

11 of securities products or inadequate disclosure.

12 ‘‘(2) DATA COLLECTION.—

13 ‘‘(A) IN GENERAL.—The appropriate Fed14 eral banking agencies, after consultation with

15 and consideration of the views of the Securities

16 and Exchange Commission, may require any de17 pository institution that has effected securities

18 transactions pursuant to any exception enumer19 ated in paragraphs (4) and (5) of section 3(a)

20 of the Securities Exchange Act of 1934 to iden21 tify the exceptions relied upon and to submit

22 such information necessary to monitor compli23 ance under such paragraphs.

24 ‘‘(B) COMMISSION ACCESS.—The appro25 priate Federal banking agency shall make any
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1 information referred to in subparagraph (A)

2 available to the Securities and Exchange Com3 mission, upon the request of the Commission.

4 ‘‘(C) COMPLIANCE.—In implementing the

5 provisions of this paragraph, the appropriate

6 Federal banking agencies shall ensure that any

7 information requests to depository institutions

8 take into account the size and activities of the

9 institutions and do not cause undue reporting

10 burdens.

11 ‘‘(3) COMMISSION’S ENFORCEMENT AUTHOR12 ITY.—Without limiting in any way the authority of

13 the appropriate Federal banking agencies under this

14 section, the Securities and Exchange Commission

15 shall have the authority to enforce any subsection of

16 this section against a securities affiliate as if such

17 subsection were a provision of the Securities Ex18 change Act of 1934 to the extent that the subsection

19 applies with respect to the conduct or activities of the

20 securities affiliate.

21 ‘‘(4) EXAMINATION REPORTS.—The appropriate

22 Federal banking agencies shall, to the extent prac23 ticable, use the reports of examination of any broker,

24 dealer, investment adviser, or investment company

25 made by or on behalf of the Securities and Exchange
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1 Commission and reports made by or on behalf of a

2 registered securities association or national securities

3 exchange, and shall defer to such examinations for

4 compliance with the Federal securities laws.

5 ‘‘(5) INTERPRETATIONS OF THE FEDERAL SECU6 RITIES LAWS.—The appropriate Federal banking

7 agencies shall defer to the Securities and Exchange

8 Commission regarding all interpretations and en9 forcement of the Federal securities laws relating to the

10 application of the Federal securities laws to the ac11 tivities and conduct of brokers, dealers, investment

12 advisers, and investment companies.

13 ‘‘(6) NOTICE OF CERTAIN ACTIONS BY SEC.—The

14 Securities and Exchange Commission shall give notice

15 to the appropriate Federal banking agency upon the

16 commencement of any disciplinary or law enforce17 ment proceedings by the Commission and a copy of

18 any order entered by the Commission against—

19 ‘‘(A) any broker, dealer, or investment ad20 viser that—

21 ‘‘(i) is registered with the Securities

22 and Exchange Commission; and

23 ‘‘(ii) is affiliated with, or is a sepa24 rately identifiable department or division

25 of, a depository institution;
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1 ‘‘(B) any investment company registered

2 with the Securities and Exchange Commission

3 that is an affiliate of or is advised by an invest4 ment adviser affiliated with a depository institu5 tion or by a separately identifiable department

6 or division of a depository institution that is a

7 registered investment adviser; or

8 ‘‘(C) any financial services holding com9 pany, depository institution, or subsidiary of

10 such company or institution, if the proposed ac11 tion relates to subtitle A of title I or subtitle A

12 or B of title II of the Financial Services Com13 petitiveness Act of 1995.

14 ‘‘(7) NOTICE OF CERTAIN ACTIONS BY APPRO15 PRIATE FEDERAL BANKING AGENCIES.—Upon the

16 commencement of any disciplinary or law enforce17 ment proceedings to enforce the provisions of subtitle

18 A of title I of the Financial Services Competitiveness

19 Act of 1995, or any amendment made by such sub20 title, by an appropriate Federal banking agency

21 against any broker, dealer, investment adviser, or in22 vestment company that is registered under the Fed23 eral securities laws and is affiliated with a depository

24 institution or is a separately identifiable department

25 or division of a depository institution, the appro-
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1 priate Federal banking agency shall give notice to the

2 Securities and Exchange Commission of the proposed

3 action.

4 ‘‘(8) IMMEDIATE ACTION ALLOWED BEFORE NO5 TICE.—The notice required under paragraph (6) or

6 (7) may be provided promptly after action by the Se7 curities and Exchange Commission or the appropriate

8 Federal banking agency, if—

9 ‘‘(A) the Commission determines that the

10 protection of investors requires immediate action

11 by the Commission and prior notice under para12 graph (6) is not practical under the cir13 cumstances; or

14 ‘‘(B) the appropriate Federal banking agen15 cy determines that concerns for the safety and

16 soundness of a depository institution or its affili17 ate require immediate action by the agency and

18 prior notice under paragraph (7) is not prac19 tical under the circumstances.

20 ‘‘(9) COORDINATED ENFORCEMENT ACTIONS.—

21 The Securities and Exchange Commission and the ap22 propriate Federal banking agencies shall, to the extent

23 practicable, coordinate supervisory actions based on

24 applicable law where the actions are based on the

25 same or related events or practices.
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1 ‘‘(10) INVESTMENT COMPANIES NOT AFFILIATED

2 WITH A DEPOSITORY INSTITUTION.—The appropriate

3 Federal banking agency shall not have authority

4 under this Act or any other provision of law to in5 spect or examine any investment company registered

6 under the Federal securities laws that is not—

7 ‘‘(A) affiliated with a depository institu8 tion; or

9 ‘‘(B) advised by an investment adviser af10 filiated with a depository institution or by a

11 separately identifiable department or division of

12 a depository institution that is a registered in13 vestment adviser.

14 ‘‘(11) DEFINITION.—For purposes of this sub15 section, the term ‘Federal securities laws’ means the

16 provisions of Federal law governing securities activi17 ties that are within the jurisdiction of the Securities

18 and Exchange Commission under the Securities Act

19 of 1933, the Securities Exchange Act of 1934, the In20 vestment Company Act of 1940, the Investment Advis21 ers Act of 1940, and the Trust Indenture Act of 1939.

22 ‘‘(n) FOREIGN BANK FIREWALLS.—

23 ‘‘(1) IN GENERAL.—A foreign bank that operates

24 a branch, agency, or commercial lending company in

25 the United States and accepts no deposits in the
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1 United States, either directly or through an affiliate,

2 that are insured under the Federal Deposit Insurance

3 Act, and any affiliate of such foreign bank, shall not

4 be subject to the restrictions of any subsection of this

5 section, other than subsections (l) and (m), if the con6 ditions described in paragraph (2) are met.

7 ‘‘(2) CONDITIONS FOR APPLICABILITY OF EXCEP8 TION.—The conditions of this paragraph have been

9 met with respect to any foreign bank referred to in

10 paragraph (1) if—

11 ‘‘(A) transactions between a securities affili12 ate of such foreign bank and any branch, agency

13 or commercial lending company operated in the

14 United States by such foreign bank comply with

15 the provisions of sections 23A and 23B of the

16 Federal Reserve Act as if the foreign bank were

17 a member bank; and

18 ‘‘(B) such foreign bank has received a deter19 mination from the Board that the bank meets

20 capital standards comparable to those established

21 by the Board for well capitalized financial serv22 ices holding companies, giving due regard to the

23 principle of national treatment and equality of

24 competitive opportunity, subject to any changes
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1 the Board may adopt with respect to such stand2 ards.

3 ‘‘(3) APPLICABILITY OF SUBSECTION (l) TO FOR4 EIGN BANKS.—Any limitation, restriction, condition,

5 or modification adopted by the Board under sub6 section (l) may be applied by the Board to—

7 ‘‘(A) a foreign bank described in paragraph

8 (1) (and any company that owns or controls

9 such foreign bank);

10 ‘‘(B) any branch, agency or commercial

11 lending company operated by such foreign bank

12 in the United States; or

13 ‘‘(C) any other affiliate of such foreign bank

14 in the United States,

15 if such limitation, restriction, condition, or modifica16 tion is applied by regulation or order of general ap17 plicability under section 12(a)(2)(B)(ii) to wholesale

18 financial institutions and securities affiliates con19 trolled by investment bank holding companies, subject

20 to such modifications, conditions, or exemptions as

21 the Board deems appropriate, giving due regard to

22 the principle of national treatment and equality of

23 competitive opportunity.’’.

24 (b) AMENDMENT TO THE FEDERAL RESERVE ACT.—

25 Section 23B(b)(1)(B) of the Federal Reserve Act (12 U.S.C.
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1 371c-l(b)(1)(B)) is amended by inserting ‘‘and for 30 days

2 thereafter’’ after ‘‘during the existence of any underwriting

3 or selling syndicate’’.

4 (c) EXEMPTION FROM SECTION 305(b) OF THE FED5 ERAL POWER ACT.—Section 305(b) of the Federal Power

6 Act shall not apply to any person now holding, or propos7 ing to hold, at the same time the position of officer or direc8 tor of a public utility and the position of officer or director

9 of a bank, trust company, banking association, or firm per10 mitted by section 10 of the Financial Services Holding

11 Company Act of 1995 (as amended by section 103(a) of this

12 Act) to underwrite or participate in the marketing of secu13 rities (including commercial paper) of a public utility, if

14 that bank, trust company, banking association, or firm does

15 not underwrite or participate in the marketing of securities

16 of the public utility for which the person serves, or proposes

17 to serve, as an officer or director.

18 (d) AMENDMENT TO THE RIGHT TO FINANCIAL PRI19 VACY ACT.—Section 1112(e) of the Right to Financial Pri20 vacy Act (12 U.S.C. 3412(e)) is amended as follows—

21 (1) by striking ‘‘this title’’ and inserting ‘‘law’’;

22 and

23 (2) by inserting ‘‘, examination reports,’’ after

24 ‘‘financial records’’.
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1 (e) REGULATIONS TO PRESERVE SEPARATION OF

2 BANKING AND COMMERCE.—Section 5(b) of the Bank Hold3 ing Company Act of 1956 (12 U.S.C. 1844(b)) is amended

4 by inserting ‘‘, including the protection of depository insti5 tutions and the separation of banking and commerce,’’ after

6 ‘‘purposes of this Act’’.

7 SEC. 105. OWNERSHIP OF SHARES OF CERTAIN COMPANIES

8 BY FINANCIAL SERVICES HOLDING COMPA9 NIES.

10 Section 4 of the Bank Holding Company Act of 1956

11 (12 U.S.C. 1843) is amended by adding at the end the fol12 lowing new subsection:

13 ‘‘(k) OWNERSHIP OF SHARES OF CERTAIN COMPANIES

14 BY FINANCIAL SERVICES HOLDING COMPANIES.—

15 ‘‘(1) NONCONFORMING FINANCIAL COMPANIES.—

16 Notwithstanding section 4(a), a financial services

17 holding company may retain direct or indirect own18 ership or control of voting shares of any company

19 that—

20 ‘‘(A) engages solely in activities that the

21 Board finds to be financial but which the Board

22 has not authorized under section 4(c)(8) (and

23 such other financial activities that the Board has

24 authorized) if—
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1 ‘‘(i) the financial services holding com2 pany acquired the shares of a company en3 gaged in such activities or of each company

4 to which the company engaged in such ac5 tivities is a successor more than 2 years be6 fore the date that such financial services

7 holding company becomes a financial serv8 ices holding company;

9 ‘‘(ii) the aggregate investment by the

10 financial services holding company in

11 shares of all such companies does not exceed

12 10 percent of the total consolidated capital

13 and surplus of the financial services holding

14 company as of the date that the holding

15 company becomes a financial services hold16 ing company or as of the date of any addi17 tional investment by the financial services

18 holding company in such shares;

19 ‘‘(iii) more than 50 percent of the ag20 gregate gross revenues of the financial serv21 ices holding company and the subsidiaries

22 of such holding company for each of the 2

23 calendar years before the date the holding

24 company becomes a financial services hold25 ing company were attributable to securities
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1 activities described in subparagraphs (A)

2 and (B) of section 10(a)(1), as determined

3 without taking into account any activities

4 (other than securities activities) in which fi5 nancial services holding companies were

6 permitted to engage before the date of the

7 enactment of the Financial Services Com8 petitiveness Act of 1995; and

9 ‘‘(iv) the company engaged in such ac10 tivities continues to engage only in activi11 ties that such company conducted as of the

12 date that such financial services holding

13 company becomes a financial services hold14 ing company (or other activities permitted

15 under section 4(c)(8) or section 10); or

16 ‘‘(B) engages in activities not authorized

17 under section 4 if—

18 ‘‘(i) the financial services holding com19 pany held the shares of any company en20 gaged in such activities as of the date of the

21 enactment of the Financial Services Com22 petitiveness Act of 1995 and the financial

23 services holding company was then exempt

24 from the provisions of section 4 pursuant to

25 section 4(d) as of such date;
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1 ‘‘(ii) the company engaged in such ac2 tivities continues to engage only in the same

3 general lines of business and related activi4 ties that such company conducted as of the

5 date of the enactment of the Financial Serv6 ices Competitiveness Act of 1995 (or other

7 activities permitted under section 4(c) or

8 section 10); and

9 ‘‘(iii) 80 percent of the aggregate gross

10 revenues of the financial services holding

11 company and the subsidiaries of such hold12 ing company as of the date of the enactment

13 of the Financial Services Competitiveness

14 Act of 1995 was attributable to—

15 ‘‘(I) ownership and operation of

16 depository institutions;

17 ‘‘(II) activities that are financial

18 in nature as determined by the Board

19 pursuant to section 4(c)(8);

20 ‘‘(III) activities permissible under

21 section 10; and

22 ‘‘(IV) such other activities that

23 would be permissible generally for the

24 holding company as a financial serv-
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1 ices holding company (other than as

2 an investment bank holding company).

3 ‘‘(2) NONFINANCIAL COMPANIES.—

4 ‘‘(A) IN GENERAL.—Notwithstanding sec5 tion 4(a), a financial services holding company

6 described in paragraph (1)(A)(iii) may, during

7 the 5-year period beginning on the date that the

8 company becomes a financial services holding

9 company, retain direct or indirect ownership or

10 control of voting shares of any company that the

11 financial services holding company owns or con12 trols on the date such holding company becomes

13 a financial services holding company.

14 ‘‘(B) EXTENSION OF DIVESTITURE PE15 RIOD.—The Board may extend the period de16 scribed in subparagraph (A) for an additional

17 period not to exceed 5 years if the Board—

18 ‘‘(i) determines that such extension is

19 necessary to avert substantial loss to the fi20 nancial services holding company; and

21 ‘‘(ii) finds that the financial services

22 holding company has made good faith ef23 forts to divest such shares.

24 ‘‘(C) NO EXPANSION OF NONFINANCIAL COM25 PANIES PRIOR TO DIVESTITURE.—Unless an ac-
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1 quisition or activity is permitted in accordance

2 with section 3 or 4(c)—

3 ‘‘(i) no financial services holding com4 pany, and no company whose shares are

5 owned or controlled by a financial services

6 holding company in accordance with this

7 paragraph, may acquire any interest in or

8 assets of any other company, and

9 ‘‘(ii) no company whose shares are

10 owned or controlled by a financial services

11 holding company pursuant to this para12 graph may engage directly or indirectly in

13 any activity that the company did not con14 duct on the day before the financial services

15 holding company registered as a financial

16 services holding company.

17 ‘‘(3) RESTRICTIONS ON JOINT MARKETING.—No

18 depository institution (and no subsidiary of such in19 stitution) shall—

20 ‘‘(A) offer or market, directly or indirectly

21 through any arrangement, any product or service

22 of any affiliate whose shares are owned or con23 trolled by the financial services holding company

24 pursuant to this subsection or section 10(j); or
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1 ‘‘(B) permit any of such depository institu2 tion’s or subsidiary’s products or services to be

3 offered or marketed, directly or indirectly

4 through any arrangement, by or through any af5 filiate whose shares are owned or controlled by

6 the financial services holding company pursuant

7 to this subsection or section 10(j),

8 unless, in a case involving an affiliate held under this

9 subsection, the product or service is permissible for fi10 nancial services holding companies to provide under

11 section 4(c)(8) or 10.

12 ‘‘(4) DEPOSITORY INSTITUTION DEFINED.—For

13 purposes of paragraph (3), the term ‘depository insti14 tution’ includes a foreign bank.’’.

15 SEC. 106. PROVISIONS APPLICABLE TO LIMITED PURPOSE

16 BANKS.

17 (a) EXCEPTION TO RESTRICTION ON ASSET GROWTH

18 OF NONBANK BANKS.—

19 (1) IN GENERAL.—Section 4(f)(3) of the Bank

20 Holding Company Act of 1956 (12 U.S.C. 1843(f)(3))

21 is amended by adding at the end the following new

22 subparagraph:

23 ‘‘(D) EXCEPTION TO RESTRICTION ON

24 ASSET GROWTH, ACTIVITIES, AND CERTAIN

25 CROSS-MARKETING RESTRICTIONS.—
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1 ‘‘(i) QUALIFICATION FOR EXCEPTION

2 FROM GROWTH RESTRICTION.—A bank con3 trolled by a company described in para4 graph (1) shall not be subject to the limita5 tion contained in subparagraph (B)(iv) if

6 the company meets the requirements of this

7 subparagraph and the requirements of para8 graph (14).

9 ‘‘(ii) QUALIFICATION FOR EXCEPTION

10 FROM ACTIVITIES RESTRICTION.—Notwith11 standing subparagraph (B)(i), a bank con12 trolled by a company described in para13 graph (1) that meets the requirements of

14 clause (i) may engage in an activity au15 thorized under applicable law (other than

16 an activity that would have resulted in the

17 institution being a bank for purposes of this

18 Act, as in effect on the day before the date

19 of the enactment of the Competitive Equal20 ity Banking Act of 1987, based on the ac21 tivities each bank conducted on March 5,

22 1987, as reported to the Board) if such

23 bank, at least 60 days before commencing

24 such activity, has notified the Board of the
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1 bank’s intention to commence such activity

2 and either—

3 ‘‘(I) the Board has notified such

4 bank that the Board will not dis5 approve the proposed activity as un6 safe or unsound; or

7 ‘‘(II) the Board has not, within

8 60 days after receiving such notice,

9 disapproved the proposal on the basis

10 of such criteria.

11 ‘‘(iii) QUALIFICATION FOR EXCEPTION

12 FROM CROSS-MARKETING RESTRICTION.—

13 Notwithstanding subparagraph (B)(ii), a

14 bank controlled by a company described in

15 paragraph (1) that meets the requirements

16 of clause (i) may offer or market products

17 or services of an affiliate or permit the

18 bank’s products or services to be offered or

19 marketed in connection with products or

20 services of an affiliate if such products or

21 services are offered or marketed only to the

22 extent permissible for banks or financial

23 services holding companies to provide by

24 law, regulation, or order under paragraph

25 (8) or (15) of subsection (c).
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1 ‘‘(iv) EXCEPTION FROM DIVESTITURE

2 REQUIREMENT FOR BANKS RESTORED TO

3 WELL CAPITALIZED LEVEL.—If any bank

4 controlled by a company that meets the re5 quirements of clause (i) ceases to be well

6 capitalized, the company shall divest control

7 of such bank in accordance with paragraph

8 (4) unless—

9 ‘‘(I) within 12 months after the

10 date the bank ceases to be well capital11 ized, the capital of the bank is restored

12 to the well capitalized level; and

13 ‘‘(II) after the end of such 12-

14 month period, the bank remains well

15 capitalized, subject to the capital res16 toration requirements in subclause (I).

17 ‘‘(v) ACTION REQUIRED IF BANK

18 CEASES TO BE ADEQUATELY CAPITAL19 IZED.—If any bank controlled by a com20 pany that meets the requirements of clause

21 (i) ceases to be adequately capitalized, the

22 company shall, within 30 days after the

23 date as of which the bank ceases to be ade24 quately capitalized—
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1 ‘‘(I) execute an agreement with

2 the Board to divest control of such

3 bank in accordance with paragraph

4 (4); or

5 ‘‘(II) restore the capital of the

6 bank to at least the adequately capital7 ized level.’’.

8 (2) QUALIFICATIONS FOR COMPANIES UNDER

9 PARAGRAPH (3)(D).—Section 4(f) of the Bank Holding

10 Company Act of 1956 (12 U.S.C. 1843(f)) is amended

11 by adding at the end the following new paragraph:

12 ‘‘(14) QUALIFICATIONS FOR COMPANIES UNDER

13 PARAGRAPH (3)(D).—A company meets the require14 ments of paragraph (3)(D)(i) if—

15 ‘‘(A) the company (based on consolidated

16 revenues) engages in activities that are financial

17 (including activities not authorized under sub18 section (c)(8)) and predominantly in—

19 ‘‘(i) banking;

20 ‘‘(ii) activities that the Board has de21 termined under subsection (c)(8) to be fi22 nancial in nature or incidental to such fi23 nancial activities;
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1 ‘‘(iii) activities permitted under sub2 paragraph (A) or (B) of section 10(a)(1);

3 and

4 ‘‘(iv) other activities that would be per5 missible for such company as a financial

6 services holding company (other than as an

7 investment bank holding company);

8 ‘‘(B) all insured depository institutions con9 trolled by such company are well capitalized and

10 well managed;

11 ‘‘(C) the bank and any affiliate of the bank

12 that is engaged in securities activities described

13 in section 10(a) comply with the safeguards con14 tained in section 11 as if that affiliate were a

15 securities affiliate; and

16 ‘‘(D) the company has provided at least 60

17 days prior written notice to the Board and, dur18 ing that period, the Board has not disapproved

19 the proposal.’’.

20 (b) AMENDED DIVESTITURE PROCEDURE FOR CER21 TAIN COMPANIES.—Section 4(f)(4) of the Bank Holding

22 Company Act of 1956 (12 U.S.C. 1843(f)(4)) is amended

23 by adding at the end the following: ‘‘If any company de24 scribed in paragraph (1) which meets the requirements of

25 paragraph (3)(D)(i) fails to qualify for the exemption pro-
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1 vided under paragraph (2), such company shall divest, in

2 accordance with this paragraph, control of each bank the

3 company controls unless, within 12 months after the date

4 that the company fails to comply with the provisions of

5 paragraph (2), the company has corrected the condition or

6 ceased the activity that led to the failure to comply.’’.

7 (c) CONVERSION OF CERTAIN NONBANK HOLDING

8 COMPANIES TO FINANCIAL SERVICES HOLDING COMPA9 NIES.—Section 4(f) of the Bank Holding Company Act of

10 1956 (12 U.S.C. 1843(f)) is amended by inserting after

11 paragraph (14) (as added by subsection (a)(2)) the follow12 ing new paragraph:

13 ‘‘(15) CONVERSION OF CERTAIN COMPANIES TO

14 FINANCIAL SERVICES HOLDING COMPANIES.—

15 ‘‘(A) IN GENERAL.—During the 18-month

16 period beginning on the date of the enactment of

17 the Financial Services Competitiveness Act of

18 1995, any company described in paragraph (1)

19 may become a financial services holding com20 pany if—

21 ‘‘(i) the company (on a consolidated

22 basis) engages in activities that are finan23 cial (including activities not authorized

24 under subsection (c)(8)) and predominantly

25 in—
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1 ‘‘(I) banking;

2 ‘‘(II) activities that the Board has

3 determined under subsection (c)(8) to

4 be financial in nature or incidental to

5 such financial activities;

6 ‘‘(III) activities permitted under

7 subparagraph (A) or (B) of section

8 10(a)(1); and

9 ‘‘(IV) other activities that would

10 be permissible for such company as a

11 financial services holding company

12 (other than an investment bank hold13 ing company);

14 ‘‘(ii) all insured depository institutions

15 controlled by such company are well cap16 italized and well managed;

17 ‘‘(iii) the company provides written

18 notice to the Board under sections 4 and 10

19 at least 60 days before the company becomes

20 a financial services holding company; and

21 ‘‘(iv) the Board does not object to such

22 transaction before the end of such 60-day

23 period.

24 ‘‘(B) RETENTION OF FINANCIAL COMPA25 NIES.—
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1 ‘‘(i) IN GENERAL.—Notwithstanding

2 subsection (a), a company that becomes a

3 financial services holding company pursu4 ant to subparagraph (A) may retain direct

5 or indirect ownership or control of voting

6 shares of any company that engages solely

7 in activities that the Board finds to be fi8 nancial but which the Board has not au9 thorized under subsection (c)(8) (and such

10 other financial activities that the Board has

11 authorized) if the financial services holding

12 company acquired the shares of such com13 pany, or of each company to which such

14 company is a successor, before January 1,

15 1995.

16 ‘‘(ii) LIMITS ON EXPANSION FOLLOW17 ING REGISTRATION.—A company that be18 comes a financial services holding company

19 pursuant to this paragraph, and any com20 pany whose shares are owned or controlled

21 by a financial services holding company

22 pursuant to this paragraph, shall be subject

23 to the limitations contained in paragraphs

24 (2)(C) and (3) of section 4(k) as if the ac-
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1 tivities or shares of such company were con2 ducted or held pursuant to section 4(k)(2).

3 ‘‘(iii) PERIOD TO CONFORM OTHER AC4 TIVITIES.—Notwithstanding subsection (a),

5 a company that becomes a financial services

6 holding company pursuant to subparagraph

7 (A) may retain direct or indirect ownership

8 or control of voting shares of any company

9 not otherwise permitted under this section

10 for the period provided in, and subject to

11 the conditions contained in, paragraphs (2)

12 and (3) of section 4(k).

13 ‘‘(C) ELECTION FOR REDUCED SUPER14 VISION.—Any company that becomes a financial

15 services holding company pursuant to subpara16 graph (A) may elect to be governed by the provi17 sions of paragraphs (3), (4), (5), and (6) of sec18 tion 5(g), subject to the requirements of such sec19 tion, if—

20 ‘‘(i) the company, and any insured de21 pository institution controlled by such com22 pany, meet the requirements of section 5(g)

23 (other than the requirements of paragraph

24 (2)(A) of such section);
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1 ‘‘(ii) the company does not acquire

2 more than 5 percent of the shares of any ad3 ditional depository institution after the date

4 that such company becomes a financial

5 services holding company; and

6 ‘‘(iii) no depository institution con7 trolled by such company acquires, estab8 lishes, or operates an additional branch of9 fice after the date that the company becomes

10 a financial services holding company.’’.

11 SEC. 107. SECURITIES COMPANY AFFILIATIONS OF FDIC—

12 INSURED BANKS.

13 (a) IN GENERAL.—Section 18 of the Federal Deposit

14 Insurance Act (12 U.S.C. 1828) is amended by adding at

15 the end the following new subsections:

16 ‘‘(s) SECURITIES AFFILIATIONS OF BANKS.—

17 ‘‘(1) IN GENERAL.—A bank shall not be an affili18 ate of any company that, directly or indirectly, acts

19 as an underwriter or dealer of any security, other

20 than—

21 ‘‘(A) a securities affiliate in accordance

22 with section 10 of the Financial Services Hold23 ing Company Act of 1995; or

24 ‘‘(B) a company that underwrites or deals

25 only in securities described in section 10(g) of
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1 the Financial Services Holding Company Act of

2 1995.

3 ‘‘(2) EXCEPTIONS.—

4 ‘‘(A) CERTAIN BANKS NOT INCLUDED.—For

5 purposes of this subsection, the term ‘bank’ does

6 not include—

7 ‘‘(i) an insured bank described in sub8 paragraph (D), (F), or (H) of section

9 2(c)(2) of the Financial Services Holding

10 Company Act of 1995; and

11 ‘‘(ii) a Federal branch or an insured

12 branch (as defined in section 3 of the Fed13 eral Deposit Insurance Act).

14 ‘‘(B) AFFILIATIONS WITH EDGE ACT AND

15 AGREEMENT CORPORATIONS.—Paragraph (1)

16 shall not apply with respect to the affiliation of

17 a bank with a company held pursuant to section

18 25 or 25A of the Federal Reserve Act or section

19 4(c)(13) of the Financial Services Holding Com20 pany Act of 1995.

21 ‘‘(3) GRANDFATHER PROVISION.—This subsection

22 shall not apply with respect to—

23 ‘‘(A) an affiliation that existed on January

24 1, 1995; or
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1 ‘‘(B) any new affiliation by an insured

2 bank that has an affiliation that would be pro3 hibited if the affiliation were not covered by sub4 paragraph (A).

5 ‘‘(4) DEFINITIONS.—For purposes of this sub6 section, the following definitions shall apply:

7 ‘‘(A) BROKER.—The term ‘broker’ has the

8 meaning given to such term in section 3(a)(4) of

9 the Securities Exchange Act of 1934.

10 ‘‘(B) DEALER.—The term ‘dealer’ has the

11 meaning given to such term in section 3(a)(5) of

12 the Securities Exchange Act of 1934.

13 ‘‘(C) SECURITY.—The term ‘security’ has

14 the meaning given to such term in section 10(k)

15 of the Financial Services Holding Company Act

16 of 1995.

17 ‘‘(D) UNDERWRITER.—The term ‘under18 writer’ has the meaning given to such term in

19 section 2(11) of the Securities Act of 1933.

20 ‘‘(5) AFFILIATE.—For purposes of this sub21 section, a separately identifiable department or divi22 sion (as defined in section 3(a) of the Securities Ex23 change Act of 1934) of a bank shall be deemed to be

24 a company which is an affiliate of the bank.
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1 ‘‘(t) BROKER-DEALER REGISTRATION.—An insured

2 bank may not use the United States mails or any means

3 or instrumentality of interstate commerce to act as a broker

4 or dealer without registration under the Securities Ex5 change Act of 1934—

6 ‘‘(1) except to the extent permitted under the cir7 cumstances described in paragraph (4) or (5) of sec8 tion 3(a) of such Act; or

9 ‘‘(2) unless otherwise exempt from registrations

10 as a broker or dealer pursuant to regulations pre11 scribed by the Securities and Commission.

12 ‘‘(u) EXAMINATION REPORTS.—The Federal banking

13 agencies shall, to the maximum extent practicable, use the

14 reports of examination of any broker, dealer, investment ad15 viser, or investment company made by or on behalf of the

16 Securities and Exchange Commission and reports made by

17 or on behalf of a registered securities association or national

18 securities exchange and shall defer to such examination for

19 compliance with Federal securities laws.’’.

20 (b) STUDY OF RISKS TO DEPOSIT INSURANCE SYS21 TEM.—

22 (1) STUDY REQUIRED.—During the 6-month pe23 riod beginning 18 months after the date of the enact24 ment of the Financial Services Competitiveness Act of

25 1995, the Federal Deposit Insurance Corporation
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1 shall conduct a study of the risks posed to the deposit

2 insurance funds by—

3 (A) the affiliation of insured depository in4 stitutions with securities affiliates and other in5 stitutions described in subsection (s)(1) of section

6 18 of the Federal Deposit Insurance Act (as

7 added by subsection (a) of this section); or

8 (B) any activity described in section 10(a)

9 (as added by section 103(a) of this Act) of the

10 Financial Services Holding Company Act of

11 1995 (as so redesignated by section 128(a) of this

12 Act) in which insured depository institutions

13 may engage in accordance with any provision of

14 Federal or State law.

15 (2) REPORT TO CONGRESS AND GAO.—

16 (A) IN GENERAL.—Before the end of the 6-

17 month period described in paragraph (1), the

18 Federal Deposit Insurance Corporation shall

19 submit a report to the Congress on the findings

20 and conclusions of the Corporation with respect

21 to the study conducted under such paragraph, to22 gether with such conclusions for administrative

23 or legislative action as the Corporation may de24 termine to be appropriate.
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1 (B) DETAILS OF SPECIFIC RISKS.—If the

2 Federal Deposit Insurance Corporation concludes

3 that certain kinds of activities not specifically

4 authorized by statute for insured depository in5 stitutions before the date of the enactment of this

6 Act, or the affiliation of insured depository insti7 tutions with securities affiliates engaged in cer8 tain kinds of securities activities, pose a greater

9 risk to the deposit insurance funds than activi10 ties specifically authorized by statute for na11 tional banks before January 1, 1995, the report

12 submitted under subparagraph (A) shall contain

13 a detailed explanation of the basis for such con14 clusion.

15 (C) TRANSMITTAL TO GAO.—The Federal

16 Deposit Insurance Corporation shall transmit a

17 copy of the report referred to in paragraph (1)

18 to the Comptroller General.

19 (3) ACTION BY FDIC.—If the Federal Deposit In20 surance Corporation concludes that any activity or

21 affiliation with respect to insured depository institu22 tions poses a greater risk to any deposit insurance

23 fund than the risk posed by activities specifically au24 thorized by statute for national banks before January

25 1, 1995, the Federal Deposit Insurance Corporation
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1 shall treat such conclusion as a factor to be considered

2 in setting semiannual assessments under section

3 7(b)(2)(A) of the Federal Deposit Insurance Act.

4 (4) EVALUATION OF REPORT BY GAO.—The

5 Comptroller General shall—

6 (A) evaluate the report transmitted by the

7 Federal Deposit Insurance Corporation to the

8 Comptroller General under paragraph (2); and

9 (B) submit a report to the Congress on such

10 evaluation, including a discussion on the meth11 odology used by the Corporation to assess risks

12 posed by nonbanking activities to the deposit in13 surance funds.

14 SEC. 108. AUTHORITY TO TERMINATE GRANDFATHER

15 RIGHTS UNDER THE INTERNATIONAL BANK16 ING ACT OF 1978.

17 Section 8(c) of the International Banking Act of 1978

18 (12 U.S.C. 3106(c)) is amended by adding at the end the

19 following new paragraph:

20 ‘‘(3) PARITY IN CONDUCT OF AUTHORIZED SECU21 RITIES ACTIVITIES.—

22 ‘‘(A) IN GENERAL.—Notwithstanding the

23 provisions of paragraph (1) or any other provi24 sion of law, any authority conferred under this

25 subsection on any foreign bank or company with
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1 respect to securities activities authorized for fi2 nancial services holding companies in the United

3 States shall terminate 30 days following ap4 proval by the Board of an application by such

5 foreign bank or company under section 10 of the

6 Financial Services Holding Company Act of

7 1995.

8 ‘‘(B) AUTHORITY TO IMPOSE CONDITIONS.—

9 If a foreign bank or company that engages di10 rectly or through an affiliate in any securities

11 activity pursuant to paragraph (1) has not re12 ceived approval by the Board under section 10 of

13 the Financial Services Holding Company Act of

14 1995 to control a securities affiliate by the end

15 of the 3-year period beginning on the effective

16 date of such Act, the Board may impose such

17 limitations and restrictions, including the termi18 nation of any activities conducted under para19 graph (1) or a requirement that such activities

20 be conducted in compliance with the safeguards

21 of section 11 of such Act, as the Board considers

22 appropriate consistent with the purposes of this

23 Act and the Financial Services Holding Com24 pany Act of 1995.’’.
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1 SEC. 109. EFFECT ON STATE LAWS PROHIBITING THE AF2 FILIATION OF BANKS AND SECURITIES COM3 PANIES.

4 (a) IN GENERAL.—Section 7 of the Bank Holding

5 Company Act of 1956 (12 U.S.C. 1846) is amended by add6 ing at the end the following new subsection:

7 ‘‘(c) AFFILIATIONS AND ACTIVITIES.—No State may

8 prohibit or limit—

9 ‘‘(1) the affiliation of a bank or financial serv10 ices holding company with a securities affiliate solely

11 because the securities affiliate is engaged in activities

12 described in subparagraph (A) or (B) of section

13 10(a)(1); or

14 ‘‘(2) the insurance or other activities of a sub15 sidiary of a financial services holding company solely

16 because the financial services holding company is no

17 longer exempt under this Act pursuant to section

18 4(d).’’.

19 (b) BANK ACTIVITIES.—No provision of this Act, and

20 no amendment made by this Act to any other provision of

21 law (other than section 10 or 11 of the Financial Services

22 Holding Company Act of 1995 (as added by sections 103

23 and 104 of this Act), section 18(s) of the Federal Deposit

24 Insurance Act (as added by section 107 of this Act), or any

25 amendments made by title II of this Act), may be construed

26 as affecting the authority of any bank to engage in any
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1 activity authorized for such bank under the law of such

2 bank’s home State (as defined in section 2(o)(4) of the Fi3 nancial Services Holding Company Act of 1995).

4 SEC. 110. MUNICIPAL SECURITIES.

5 The paragraph designated the ‘‘Seventh’’ of section

6 5136 of the Revised Statutes of the United States (12 U.S.C.

7 24) is amended by adding at the end the following new sen8 tences: ‘‘Notwithstanding any limitation and restriction

9 contained in this paragraph relating to dealing, underwrit10 ing, and purchasing securities and in addition to any au11 thorization in this paragraph to deal in, underwrite or pur12 chase securities, a national bank may deal in, underwrite,

13 and purchase for such association’s own account any obli14 gation (including general and limited obligation bonds, rev15 enue bonds and obligations that satisfy the requirements of

16 section 142(b)(1) of the Internal Revenue Code of 1986) is17 sued by or on behalf of any State or political subdivision

18 of a State, including any municipal corporate instrumen19 talities of 1 or more States, or any public agency or author20 ity of any State or political subdivision of a State, if the

21 national bank—

22 ‘‘(1) is well capitalized (as defined in section

23 38(b) of the Federal Deposit Insurance Act); and

24 ‘‘(2) engages in the business of banking.’’.
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1 SEC. 111. INTERAGENCY AGREEMENT RELATING TO RETAIL

2 SALES OF CERTAIN NONDEPOSIT INVEST3 MENT PRODUCTS.

4 Section 18 of the Federal Deposit Insurance Act (12

5 U.S.C. 1828) is amended by inserting after subsection (u)

6 (as added by section 107 of this Act) the following new sub7 section:

8 ‘‘(v) JOINT STANDARDS RELATING TO RETAIL SALES

9 OF CERTAIN NONDEPOSIT INVESTMENT PRODUCTS.—

10 ‘‘(1) IN GENERAL.—The appropriate Federal

11 banking agencies shall jointly prescribe, after consult12 ing with and considering the views of the Securities

13 and Exchange Commission, standards applicable to

14 any insured depository institution which—

15 ‘‘(A) is not registered as a broker under the

16 Securities Exchange Act of 1934; and

17 ‘‘(B) effects transactions in securities issued

18 by an investment company or annuities.

19 ‘‘(2) SCOPE OF STANDARDS.—The standards re20 quired under paragraph (1) with respect to securities

21 and annuities referred to in such paragraph shall, at

22 a minimum, establish requirements with respect to—

23 ‘‘(A) sales practices;

24 ‘‘(B) disclosures and advertising in connec25 tion with transactions in such securities and an26 nuities, including—
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1 ‘‘(i) the content, form, and timing of

2 any such disclosure; and

3 ‘‘(ii) disclaimers concerning the

4 noninsured status of the security or annu5 ity;

6 ‘‘(C) the compensation of sales personnel

7 with respect to referrals or transactions;

8 ‘‘(D) the training of and qualifications for

9 personnel involved in such transactions, includ10 ing training in making an accurate judgment

11 about the suitability of a particular investment

12 product for a prospective customer; and

13 ‘‘(E) the setting in which and the cir14 cumstances under which transactions may be ef15 fected, and referrals made, by sales personnel

16 with respect to such securities and annuities.’’.

17 SEC. 112. EFFECTIVE DATE.

18 The amendments made by this subtitle shall take effect

19 at the end of the 90-day period beginning on the date of

20 the enactment of this Act.

21 Subtitle B—Investment Bank

22 Holding Companies

23 SEC. 116. INVESTMENT BANK HOLDING COMPANIES.

24 (a) DEFINITIONS.—
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1 (1) IN GENERAL.—Section 2 of the Bank Hold2 ing Company Act of 1956 (12 U.S.C. 1842) is amend3 ed by adding at the end the following new subsections:

4 ‘‘(s) WHOLESALE FINANCIAL INSTITUTION.—The term

5 ‘wholesale financial institution’ means any institution that

6 is an uninsured State member bank authorized pursuant

7 to section 9B of the Federal Reserve Act.

8 ‘‘(t) INVESTMENT BANK HOLDING COMPANY.—The

9 term ‘investment bank holding company’ means any finan10 cial services holding company that—

11 ‘‘(1) controls a company engaged in underwrit12 ing corporate equity securities pursuant to section 10;

13 ‘‘(2) controls a wholesale financial institution;

14 and

15 ‘‘(3) if the company is a foreign bank that oper16 ates a branch, agency or commercial lending com17 pany in the United States, or is a company that con18 trols such foreign bank, is treated as an investment

19 bank holding company because such bank or company

20 meets the criteria in section 12(b) and has received

21 the determination required by such section.’’.

22 (2) DEFINITION OF BANK INCLUDES WHOLESALE

23 FINANCIAL INSTITUTION.—Section 2(c)(1) of the Bank

24 Holding Company Act of 1956 (12 U.S.C. 1841(c)(1))
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1 is amended by adding at the end the following new

2 subparagraph:

3 ‘‘(C) A wholesale financial institution.’’.

4 (b) INVESTMENT BANK HOLDING COMPANIES.—The

5 Bank Holding Company Act of 1956 (12 U.S.C. 1841 et

6 seq.) is amended by inserting after section 11 (as added by

7 section 104 of this Act) the following new section:

8 ‘‘SEC. 12. INVESTMENT BANK HOLDING COMPANIES.

9 ‘‘(a) PERMISSIBLE AFFILIATIONS FOR INVESTMENT

10 BANK HOLDING COMPANIES.—

11 ‘‘(1) FINANCIAL ACTIVITIES.—

12 ‘‘(A) ACTIVITIES AUTHORIZED.—An invest13 ment bank holding company may directly or in14 directly own or control shares of any company

15 engaged in any activity the Board has deter16 mined to be financial in nature or incidental to

17 a financial activity (other than activities ex18 pressly limited under subsection (c)(8)), or any

19 activity in compliance with subparagraph (B) or

20 (C).

21 ‘‘(B) INCIDENTAL ACTIVITIES.—

22 ‘‘(i) IN GENERAL.—Notwithstanding

23 subparagraph (A), the aggregate investment

24 by an investment bank holding company in

25 shares of companies that engage in non-
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1 financial activities and financial activities

2 (other than those otherwise permitted under

3 this section) shall not at any time exceed

4 7.5 percent (or such greater percentage as

5 the Board may determine to be appro6 priate) of the consolidated total risk-weight7 ed assets of the investment bank holding

8 company (excluding assets of companies

9 held pursuant to this subparagraph), except

10 that the amount invested by the investment

11 bank holding company in any 1 company

12 (including all affiliates of such company

13 other than preexisting affiliates of such in14 vestment bank holding company) may not

15 exceed the amount which is equal to 25 per16 cent of the total capital and surplus of such

17 investment bank holding company.

18 ‘‘(ii) APPLICABILITY TO SUCCESSOR IN

19 INTEREST.—Any successor to any invest20 ment bank holding company referred to in

21 clause (i) may retain any investments made

22 pursuant to this subparagraph—

23 ‘‘(I) during the 5-year period be24 ginning on the date the succession is

25 consummated; and
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1 ‘‘(II) with the consent of the

2 Board, for an additional period not to

3 exceed 5 years after the 5-year period

4 referred to in subclause (I),

5 unless the Board determines that the reten6 tion of such investment would jeopardize the

7 safety and soundness of any insured deposi8 tory institution affiliate of such successor.

9 ‘‘(iii) CROSS MARKETING RESTRIC10 TIONS.—A wholesale financial institution

11 shall not—

12 ‘‘(I) offer or market, directly or

13 through any arrangement, any product

14 or service of an affiliate whose shares

15 are owned or controlled by the invest16 ment bank holding company pursuant

17 to this subparagraph or subparagraph

18 (C); or

19 ‘‘(II) permit any of such wholesale

20 financial institution’s or subsidiary’s

21 products or services to be offered or

22 marketed, directly or through any ar23 rangement, by or through any such af24 filiate.
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1 ‘‘(iv) USE OF COMMON NAME.—An in2 vestment bank holding company shall not

3 permit a wholesale financial institution to

4 adopt a name which is the same as or simi5 lar to, or a variation of, the name or title

6 of an affiliate engaged in activities pursu7 ant to subparagraph (B).

8 ‘‘(C) COMMODITIES.—

9 ‘‘(i) IN GENERAL.—An investment

10 bank holding company predominantly en11 gaged as of January 1, 1995, in securities

12 activities in the United States (or any suc13 cessor to any such company) may engage

14 in, or directly or indirectly own or control

15 shares of a company engaged in, activities

16 related to the trading, sale, or investment in

17 commodities and underlying physical prop18 erties that were not permissible for bank

19 holding companies to conduct in the United

20 States as of January 1, 1995, provided such

21 investment bank holding company, or any

22 subsidiary of such holding company, was

23 engaged directly, indirectly, or through any

24 such company in any of such activities as

25 of January 1, 1995, in the United States.
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1 ‘‘(ii) LIMITATION.—Notwithstanding

2 subparagraphs (A) and (B), the aggregate

3 investment by an investment bank holding

4 company in activities under this subpara5 graph (other than those otherwise permitted

6 under this section) shall not at any time ex7 ceed 5 percent of the total consolidated as8 sets of the investment bank holding com9 pany.

10 ‘‘(iii) SUCCESSOR DEFINED.—For pur11 poses of this subparagraph and subpara12 graph (B), the term ‘successor’ means, with

13 respect to any investment bank holding

14 company described in clause (i), any com15 pany that merges with, or acquires control

16 of, such investment bank holding company.

17 ‘‘(D) QUALIFIED INVESTOR IN AN INVEST18 MENT BANK HOLDING COMPANY.—

19 ‘‘(i) IN GENERAL.—Notwithstanding

20 any other provision of Federal or State law,

21 a qualified investor—

22 ‘‘(I) shall not be, or be deemed to

23 be, an investment bank holding com24 pany, a financial services holding com-
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1 pany, a bank holding company, or any

2 similar organization; and

3 ‘‘(II) shall not be deemed to con4 trol any such company or organization

5 or any subsidiary of any such com6 pany or organization (other than for

7 purposes of section 23A and 23B of the

8 Federal Reserve Act),

9 by virtue of the investor’s ownership or con10 trol of shares of an investment bank holding

11 company.

12 ‘‘(ii) QUALIFIED INVESTOR DE13 FINED.—For purposes of this subparagraph,

14 the term ‘qualified investor’ means any

15 United States company (including a parent

16 company and all subsidiaries of which the

17 parent company holds at least 80 percent of

18 the total voting equity securities) which

19 since February 27, 1995, has directly or in20 directly owned or controlled shares of cap21 ital stock representing at least 10 percent,

22 and not more than 45 percent, of the out23 standing voting shares or voting power of a

24 company that—
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1 ‘‘(I) becomes an investment bank

2 holding company or a subsidiary of an

3 investment bank holding company; and

4 ‘‘(II) before such company became

5 an investment bank holding company

6 or a subsidiary of an investment bank

7 holding company, had more than 50

8 percent of the company’s assets em9 ployed directly or indirectly in securi10 ties activities.

11 ‘‘(iii) CROSS-MARKETING AND COMMON

12 NAME.—A wholesale financial institution

13 shall not—

14 ‘‘(I) offer or market products or

15 services of a qualified investor in the

16 investment bank holding company of

17 which the wholesale financial institu18 tion is an affiliate;

19 ‘‘(II) permit the institution’s

20 products or services to be offered or

21 marketed in connection with products

22 or services of such qualified investor; or

23 ‘‘(III) adopt a name which is the

24 same as or similar to, or a variation
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1 of, the name or title of such qualified

2 investor.

3 ‘‘(iv) EXAMINATION AND REPORTING.—

4 Notwithstanding any other provision of law,

5 the Board may conduct examinations of, or

6 require reports from, a qualified investor

7 only to the extent that the Board reasonably

8 determines that such examinations or re9 ports are necessary—

10 ‘‘(I) to ensure compliance with

11 this subparagraph; or

12 ‘‘(II) to the extent that the quali13 fied investor is an affiliate of a whole14 sale financial institution for purposes

15 of section 23A of the Federal Reserve

16 Act, to ensure compliance with restric17 tions imposed by law or regulation on

18 transactions between the qualified in19 vestor and such wholesale financial in20 stitution.

21 ‘‘(E) SPECIAL RULE.—An investment bank

22 holding company that owns and controls shares

23 of a company pursuant to subparagraph (B) or

24 (C) may not own or control shares of a company

25 pursuant to section 4(k).
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1 ‘‘(F) CONSOLIDATED TOTAL RISK-WEIGHT2 ED ASSETS.—For purposes of this paragraph,

3 the following definitions shall apply:

4 ‘‘(i) IN GENERAL.—The term ‘consoli5 dated total risk-weighted assets’ shall have

6 the meaning given to such term in regula7 tions prescribed by the Board as in effect on

8 the date of the enactment of the Financial

9 Services Competitiveness Act of 1995.

10 ‘‘(ii) APPLICATION TO FOREIGN

11 BANKS.—In the case of a foreign bank or a

12 company that owns or controls a foreign

13 bank, the term ‘consolidated total risk14 weighted assets’ means total risk-weighted

15 assets held by the foreign bank or company

16 in the United States in any United States

17 branch, agency, or commercial lending com18 pany subsidiary, any depository institution

19 controlled by the foreign bank or company,

20 any subsidiary held under the authority of

21 this section, section 3, 4, or 10 (other than

22 paragraph (9) or (13) of section 4(c)), or

23 section 25 or 25A of the Federal Reserve

24 Act.

25 ‘‘(2) SECURITIES ACTIVITIES.—
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1 ‘‘(A) INSTITUTIONS MUST BE WELL CAP2 ITALIZED.—The Board shall disapprove a notice

3 under section 10 by an investment bank holding

4 company (or a company seeking to become an

5 investment bank holding company) to acquire a

6 securities affiliate if any wholesale financial in7 stitution controlled by the investment bank hold8 ing company is not well capitalized or would not

9 be well capitalized following the transaction.

10 ‘‘(B) TRANSACTIONS WITH AFFILIATES.—

11 ‘‘(i) IN GENERAL.—A wholesale finan12 cial institution controlled by an investment

13 bank holding company shall be treated as a

14 bank for purposes of the provisions of sec15 tions 23A and 23B of the Federal Reserve

16 Act.

17 ‘‘(ii) OTHER RESTRICTIONS REGARD18 ING SECURITIES AFFILIATES DETERMINED

19 BY THE BOARD.—A securities affiliate of an

20 investment bank holding company, and a

21 wholesale financial institution controlled by

22 an investment bank holding company, shall

23 not be subject to the provisions of section 11,

24 except that the securities affiliate and

25 wholesale financial institution shall be sub-
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1 ject to subsections (l) and (m) of such sec2 tion in the same manner and to the same

3 extent such paragraphs would apply if the

4 wholesale financial institution were an in5 sured depository institution.

6 ‘‘(3) LIMITATION ON AFFILIATION WITH INSURED

7 DEPOSITORY INSTITUTIONS.—An investment bank

8 holding company may not, directly or indirectly, own

9 or control—

10 ‘‘(A) any bank, other than a wholesale fi11 nancial institution;

12 ‘‘(B) any savings association;

13 ‘‘(C) any institution described in section

14 2(c)(2) (other than subparagraphs (C) and (G)

15 of such section); or

16 ‘‘(D) any institution that accepts—

17 ‘‘(i) initial deposits of $100,000 or less,

18 other than on an incidental or occasional

19 basis, or

20 ‘‘(ii) deposits that are insured under

21 the Federal Deposit Insurance Act.

22 ‘‘(4) NO DEPOSIT INSURANCE FUND LIABILITY.—

23 No Federal deposit insurance funds may be used in

24 connection with the failure of, or any proposed assist-
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1 ance to, a wholesale financial institution or an in2 vestment bank holding company.

3 ‘‘(5) CAPITAL OF IBHC.—

4 ‘‘(A) IN GENERAL.—The Board shall not

5 impose any capital requirement on investment

6 bank holding companies or subsidiaries of such

7 companies (other than depository institutions)

8 unless any such requirement is based upon ap9 propriate risk-weighing considerations.

10 ‘‘(B) APPLICABLE ACCOUNTING PRIN11 CIPLES.—In applying any capital standard to

12 investment bank holding companies, or subsidi13 aries of such companies, the Board shall utilize

14 uniform accounting principles consistent with

15 generally accepted accounting principles in ac16 cordance with section 37(a)(2) of the Federal De17 posit Insurance Act.

18 ‘‘(b) QUALIFICATION OF FOREIGN BANK AS INVEST19 MENT BANK HOLDING COMPANY.—

20 ‘‘(1) IN GENERAL.—Any foreign bank that—

21 ‘‘(A) operates a branch, agency or commer22 cial lending company in the United States (and

23 any company that owns or controls such foreign

24 bank), including a foreign bank that does not
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1 own or control a wholesale financial institution;

2 and

3 ‘‘(B) controls a security affiliate that en4 gages in underwriting corporate equity securi5 ties,

6 may request a determination from the Board that

7 such bank or company be treated as an investment

8 bank holding company.

9 ‘‘(2) CONDITIONS FOR TREATMENT AS AN IN10 VESTMENT BANK HOLDING COMPANY.—A foreign bank

11 and a company that owns or controls a foreign bank

12 may not be treated as an investment bank holding

13 company unless the bank and company meet and con14 tinue to meet the following criteria:

15 ‘‘(A) NO INSURED DEPOSITS.—No deposits

16 held directly by a foreign bank or through an af17 filiate are insured under the Federal Deposit In18 surance Act.

19 ‘‘(B) CAPITAL STANDARDS.—The foreign

20 bank meets risk-based capital standards com21 parable to the capital standards required for a

22 wholesale financial institution, giving due re23 gard to the principle of national treatment and

24 equality of competitive opportunity.
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1 ‘‘(C) TRANSACTIONS WITH AFFILIATES.—

2 Transactions between a branch, agency, or com3 mercial lending company subsidiary of the for4 eign bank in the United States, and any securi5 ties affiliate or company in which the foreign

6 bank (or any company that owns or controls

7 such foreign bank) has invested pursuant to sub8 section (a)(1)(B), comply with the provisions of

9 sections 23A and 23B of the Federal Reserve Act

10 in the same manner and to the same extent as

11 such transactions would be required to comply

12 with such sections if the bank were a member

13 bank.

14 ‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL

15 INSTITUTION.—Any foreign bank which is, or is affili16 ated with a company which is, treated as an invest17 ment bank holding company under this subsection

18 shall be treated as a wholesale financial institution

19 for purposes of clauses (iii) and (iv) of subsection

20 (a)(1)(B), subsection (a)(2)(B)(ii), and section 5(g),

21 except that the Board may adopt such modifications,

22 conditions, or exemptions as the Board deems appro23 priate, giving due regard to the principle of national

24 treatment and equality of competitive opportunity.
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1 ‘‘(4) NONAPPLICABILITY OF OTHER EXEMP2 TION.—Any foreign bank or company which is treated

3 as an investment bank holding company under this

4 subsection shall not be eligible for any exemption de5 scribed in section 2(h).

6 ‘‘(c) ELIGIBILITY OF FOREIGN BANKS FOR CERTAIN

7 TREATMENT.—

8 ‘‘(1) RECIPROCAL NATIONAL TREATMENT.—

9 ‘‘(A) IN GENERAL.—A foreign bank that op10 erates a branch, agency or commercial lending

11 company in the United States, and any com12 pany that owns or controls such a foreign bank,

13 shall be eligible for the treatment afforded under

14 subsection (b) or section 11(n) only if the home

15 country of such foreign bank or company accords

16 to United States banks the same competitive op17 portunities in banking as such country accords

18 to domestic banks of such country.

19 ‘‘(B) COORDINATION WITH NAFTA.—Sub20 paragraph (A) shall not apply in derogation of

21 any obligation under the North American Free

22 Trade Agreement.

23 ‘‘(C) HOME COUNTRY DEFINED.—For pur24 poses of subparagraph (A), the term ‘home coun25 try’ means, with respect to any foreign bank or
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1 company referred to in subparagraph (A), the

2 country under the laws of which the foreign bank

3 or company is organized.

4 ‘‘(2) PREVENTION OF EVASION.—No foreign bank

5 or bank owned by a former United States national

6 may operate a branch or agency in the United States

7 if the predominance of the assets of such bank were

8 acquired in connection with a merger with, or pur9 chase or assumption of all or substantially all the as10 sets of, a wholesale financial institution.

11 ‘‘(d) RULE FOR FINANCIAL SERVICES HOLDING COM12 PANIES.—For purposes of section 5(g)(2)(A)(ii), any for13 eign bank (as defined in section 1(b) of the International

14 Banking Act of 1978) which is directly or indirectly owned,

15 controlled, or operated by a company that—

16 ‘‘(1) as of January 1, 1995, was registered as a

17 bank holding company; or

18 ‘‘(2) is a successor to any such bank holding

19 company,

20 shall be treated as a wholesale financial institution.’’.

21 (c) CONFORMING AMENDMENTS.—

22 (1) EXCEPTION TO DEPOSIT INSURANCE RE23 QUIREMENT.—Section 3(e) of the Bank Holding Com24 pany Act of 1956 (12 U.S.C. 1842(e)) is amended by

25 adding at the end the following: ‘‘This subsection shall
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1 not apply to a wholesale financial institution that is

2 controlled by an investment bank holding company

3 that controls no banks other than wholesale financial

4 institutions.’’.

5 (2) APPROPRIATE FEDERAL BANKING AGENCY.—

6 Section 3(q)(2)(A) of the Federal Deposit Insurance

7 Act (12 U.S.C. 1813(q)(2)(A)) is amended to read as

8 follows:

9 ‘‘(A) any State member insured bank (ex10 cept a District bank) and wholesale financial in11 stitution as authorized pursuant to section 9B of

12 the Federal Reserve Act;’’.

13 SEC. 117. WHOLESALE FINANCIAL INSTITUTIONS.

14 (a) IN GENERAL.—The Federal Reserve Act (12 U.S.C.

15 221 et seq.) is amended by inserting after section 9A the

16 following new section:

17 ‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

18 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLESALE

19 FINANCIAL INSTITUTION.—

20 ‘‘(1) APPLICATION REQUIRED.—

21 ‘‘(A) IN GENERAL.—Any bank incorporated

22 by special law of any State, or organized under

23 the general laws of any State, may apply to the

24 Board of Governors of the Federal Reserve Sys25 tem to become a wholesale financial institution
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1 and to subscribe to the stock of the Federal re2 serve bank organized within the district where

3 the applying bank is located.

4 ‘‘(B) TREATMENT AS STATE MEMBER

5 BANK.—Any application under subparagraph

6 (A) shall be treated as an application to become

7 a State member bank under, and shall be subject

8 to the provisions of, section 9.

9 ‘‘(2) INSURANCE TERMINATION.—No bank that is

10 insured under the Federal Deposit Insurance Act may

11 become a wholesale financial institution unless it has

12 met all requirements under that Act for voluntary ter13 mination of deposit insurance.

14 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

15 WHOLESALE FINANCIAL INSTITUTIONS.—

16 ‘‘(1) FEDERAL RESERVE ACT.—Except as other17 wise provided in this section, wholesale financial in18 stitutions shall be member banks and shall be subject

19 to the provisions of this Act that apply to member

20 banks to the same extent and in the same manner as

21 State member insured banks, except that a wholesale

22 financial institution may terminate membership

23 under this Act only with the prior written approval

24 of the Board and on terms and conditions that the
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1 Board determines are appropriate to carry out the

2 purposes of this Act.

3 ‘‘(2) PROMPT CORRECTIVE ACTION.—A wholesale

4 financial institution shall be deemed to be an insured

5 depository institution for purposes of section 38 of the

6 Federal Deposit Insurance Act except that—

7 ‘‘(A) the relevant capital levels and capital

8 measures for each capital category shall be the

9 levels specified by the Board for wholesale finan10 cial institutions in accordance with subsection

11 (c);

12 ‘‘(B) the provisions applicable to well cap13 italized insured depository institutions shall be

14 inapplicable to wholesale financial institutions;

15 ‘‘(C) the provisions authorizing or requiring

16 an institution to be placed into receivership shall

17 not apply to a wholesale financial institution,

18 and, instead, the Board is authorized or re19 quired, as the case may be, to terminate the

20 wholesale financial institution’s membership in

21 the Federal Reserve System or place the bank

22 into conservatorship; and

23 ‘‘(D) for purposes of applying the provi24 sions of section 38 of the Federal Deposit Insur25 ance Act to wholesale financial institutions, all
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1 references to the appropriate Federal banking

2 agency or to the Corporation in that section

3 shall be deemed to be references to the Board.

4 ‘‘(3) ENFORCEMENT AUTHORITY.—Subsections

5 (j) and (k) of section 7, subsections (b) through (n),

6 (s), (u), and (v) of section 8, and section 19 of the

7 Federal Deposit Insurance Act shall apply to a whole8 sale financial institution in the same manner and to

9 the same extent as such provisions apply to State

10 member insured banks and any reference in such sec11 tions to an insured depository institution shall be

12 deemed, for purposes of this paragraph, to be a ref13 erence to a wholesale financial institution.

14 ‘‘(4) CERTAIN OTHER STATUTES APPLICABLE.—

15 A wholesale financial institution shall be deemed to

16 be a banking institution, and the Board shall be the

17 appropriate Federal banking agency for such bank

18 and all such bank’s affiliates, for purposes of the

19 International Lending Supervision Act.

20 ‘‘(5) BANK MERGER ACT.—A wholesale financial

21 institution shall be subject to the provisions of sec22 tions 18(c) and 44 of the Federal Deposit Insurance

23 Act in the same manner and to the same extent the

24 wholesale financial institution would be subject to
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1 such sections if the institution were a State member

2 insured bank.

3 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

4 WHOLESALE FINANCIAL INSTITUTIONS.—

5 ‘‘(1) LIMITATIONS ON DEPOSITS.—

6 ‘‘(A) MINIMUM AMOUNT.—

7 ‘‘(i) IN GENERAL.—Pursuant to such

8 regulations as the Board may prescribe, no

9 wholesale financial institution may receive

10 initial deposits of $100,000 or less, other

11 than on an incidental and occasional basis.

12 ‘‘(ii) LIMITATION ON DEPOSITS OF

13 LESS THAN $100,000.—No bank may be

14 treated as a wholesale financial institution

15 if the total amount of the initial deposits of

16 $100,000 or less at such bank constitute

17 more than 5 percent of the bank’s total de18 posits.

19 ‘‘(B) NO DEPOSIT INSURANCE.—No deposits

20 held by a wholesale financial institution shall be

21 insured deposits under the Federal Deposit In22 surance Act.

23 ‘‘(C) ADVERTISING AND DISCLOSURE.—The

24 Board shall prescribe regulations pertaining to

25 advertising and disclosure by wholesale financial
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1 institutions to ensure that each depositor is noti2 fied that deposits at the wholesale financial in3 stitution are not federally insured or otherwise

4 guaranteed by the United States Government.

5 ‘‘(2) SPECIAL CAPITAL REQUIREMENTS APPLICA6 BLE TO WHOLESALE FINANCIAL INSTITUTIONS.—

7 ‘‘(A) MINIMUM CAPITAL LEVELS.—

8 ‘‘(i) IN GENERAL.—The Board shall,

9 by regulation, adopt capital requirements

10 for wholesale financial institutions—

11 ‘‘(I) to account for the status of

12 wholesale financial institutions as in13 stitutions that accept deposits that are

14 not insured under the Federal Deposit

15 Insurance Act; and

16 ‘‘(II) to provide for the safe and

17 sound operation of the wholesale finan18 cial institution without undue risk to

19 creditors or other persons, including

20 Federal reserve banks, engaged in

21 transactions with the bank.

22 ‘‘(ii) MINIMUM LEVERAGE RATIO.—The

23 minimum leverage ratio of tier one capital

24 to total assets of wholesale financial institu25 tions shall be not less than the level required
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1 for a State member insured bank to be well

2 capitalized unless the Board determines oth3 erwise, consistent with safety and sound4 ness.

5 ‘‘(B) CAPITAL CATEGORIES FOR PROMPT

6 CORRECTIVE ACTION.—For purposes of applying

7 section 38 of the Federal Deposit Insurance Act

8 with respect to any wholesale financial institu9 tion, the Board shall, by regulation, establish, for

10 each relevant capital measure specified by the

11 Board under subparagraph (A), the levels at

12 which a wholesale financial institution is well

13 capitalized, adequately capitalized,

14 undercapitalized, significantly undercapitalized,

15 and critically undercapitalized.

16 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

17 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi18 tion to any requirement otherwise applicable to State

19 member banks or applicable, under this section, to

20 wholesale financial institutions, the Board may pre21 scribe, by regulation or order, for wholesale financial

22 institutions—

23 ‘‘(A) limitations on transactions with affili24 ates to prevent an affiliate from gaining access

25 to, or the benefits of, credit from a Federal re-
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1 serve bank, including overdrafts at a Federal re2 serve bank;

3 ‘‘(B) special clearing balance requirements;

4 and

5 ‘‘(C) any additional requirements that the

6 Board determines to be appropriate or necessary

7 to—

8 ‘‘(i) promote the safety and soundness

9 of the wholesale financial institution, or

10 ‘‘(ii) protect creditors and other per11 sons, including Federal reserve banks, en12 gaged in transactions with the wholesale fi13 nancial institution.

14 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

15 INSTITUTIONS.—The Board may, by regulation or

16 order, exempt any wholesale financial institution

17 from any provision applicable to a State member

18 bank that is not a wholesale financial institution, if

19 the Board finds that such exemption is not inconsist20 ent with—

21 ‘‘(A) the promotion of the safety and sound22 ness of the wholesale financial institution; and

23 ‘‘(B) the protection of creditors and other

24 persons, including Federal reserve banks, en-
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1 gaged in transactions with the wholesale finan2 cial institution.

3 ‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This

4 section shall not be construed as limiting the Board’s

5 authority over member banks under any other provi6 sion of law, or to create any obligation for any Fed7 eral reserve bank to make, increase, renew, or extend

8 any advances or discount under this Act to any mem9 ber bank or other depository institution.

10 ‘‘(d) CONSERVATORSHIP AUTHORITY.—

11 ‘‘(1) IN GENERAL.—The Board may appoint a

12 conservator to take possession and control of a whole13 sale financial institution to the same extent and in

14 the same manner as the Comptroller of the Currency

15 may appoint a conservator for a national bank under

16 section 203 of the Bank Conservation Act, and the

17 conservator shall exercise the same powers, functions,

18 and duties, subject to the same limitations, as are

19 provided under such Act for conservators of national

20 banks.

21 ‘‘(2) BOARD AUTHORITY.—The Board shall have

22 the same authority with respect to any conservator

23 appointed under paragraph (1) and the wholesale fi24 nancial institution for which such conservator has

25 been appointed as the Comptroller of the Currency
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1 has under the Bank Conservation Act with respect to

2 a conservator appointed under such Act and a na3 tional bank for which the conservator has been ap4 pointed.

5 ‘‘(e) DEFINITIONS.—For purposes of this section, the

6 following definitions shall apply:

7 ‘‘(1) WHOLESALE FINANCIAL INSTITUTION.—The

8 term ‘wholesale financial institution’ means a bank

9 whose application to become a wholesale financial in10 stitution and a State member bank has been approved

11 by the Board under this section.

12 ‘‘(2) DEPOSIT.—The term ‘deposit’ has the

13 meaning given to such term by the Board under this

14 Act.

15 ‘‘(3) STATE MEMBER INSURED BANK.—The term

16 ‘State member insured bank’ means a State member

17 bank which is an insured bank (as defined in section

18 3(h) of the Federal Deposit Insurance Act).

19 ‘‘(f) EXCLUSIVE JURISDICTION.—Subsections (c) and

20 (e) of section 43 of the Federal Deposit Insurance Act shall

21 not apply to any wholesale financial institution.’’.

22 (b) VOLUNTARY TERMINATION OF INSURED STATUS BY

23 CERTAIN INSTITUTIONS.—
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1 (1) SECTION 8 DESIGNATIONS.—Section 8(a) of

2 the Federal Deposit Insurance Act (12 U.S.C.

3 1818(a)) is amended—

4 (A) by striking paragraph (1); and

5 (B) by redesignating paragraphs (2)

6 through (9) as paragraphs (1) through (8), re7 spectively.

8 (2) VOLUNTARY TERMINATION OF INSURED STA9 TUS.—The Federal Deposit Insurance Act (12 U.S.C.

10 1811 et seq.) is amended by inserting after section 8

11 the following new section:

12 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN13 SURED DEPOSITORY INSTITUTION.

14 ‘‘(a) IN GENERAL.—Except as provided in subsection

15 (b), an insured State bank or a national bank may volun16 tarily terminate such bank’s status as an insured depository

17 institution in accordance with regulations of the Corpora18 tion if—

19 ‘‘(1) the bank provides written notice of the

20 bank’s intent to terminate such insured status—

21 ‘‘(A) to the Corporation and the Board of

22 Governors of the Federal Reserve System not less

23 than 6 months before the effective date of such

24 termination; and
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1 ‘‘(B) to all depositors at such bank, not less

2 than 6 months before the effective date of the ter3 mination of such status; and

4 ‘‘(2) either—

5 ‘‘(A) the deposit insurance fund of which

6 such bank is a member equals or exceeds the

7 fund’s designated reserve ratio as of the date the

8 bank provides a written notice under paragraph

9 (1) and the Corporation determines that the fund

10 will equal or exceed the applicable designated re11 serve ratio for the 2 semiannual assessment peri12 ods immediately following such date; or

13 ‘‘(B) the Corporation and the Board of Gov14 ernors of the Federal Reserve System approve the

15 termination of the bank’s insured status and the

16 bank pays an exit fee in accordance with sub17 section (e).

18 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply with

19 respect to—

20 ‘‘(1) an insured savings association;

21 ‘‘(2) an insured branch that is required to be in22 sured under subsection (a) or (b) of section 6 of the

23 International Banking Act of 1978; or

24 ‘‘(3) any institution described in section 2(c)(2)

25 of the Bank Holding Company Act of 1956.
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1 ‘‘(c) ELIGIBILITY FOR INSURANCE TERMINATED.—

2 Any bank that voluntarily elects to terminate the bank’s

3 insured status under subsection (a) shall not be eligible for

4 insurance on any deposits or any assistance authorized

5 under this Act after the period specified in subsection (f)(1).

6 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FINAN7 CIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING AC8 TIVITIES.—Any depository institution which voluntarily

9 terminates such institution’s status as an insured deposi10 tory institution under this section may not, upon termi11 nation of insurance, accept any deposits unless the institu12 tion is a wholesale financial institution under section 9B

13 of the Federal Reserve Act.

14 ‘‘(e) EXIT FEES.—

15 ‘‘(1) IN GENERAL.—Any bank that voluntarily

16 terminates such bank’s status as an insured deposi17 tory institution under this section shall pay an exit

18 fee in an amount that the Corporation determines is

19 sufficient to account for the institution’s pro rata

20 share of the amount (if any) which would be required

21 to restore the relevant deposit insurance fund to the

22 fund’s designated reserve ratio as of the date the bank

23 provides a written notice under subsection (a)(1).
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1 ‘‘(2) PROCEDURES.—The Corporation shall pre2 scribe, by regulation, procedures for assessing any exit

3 fee under this subsection.

4 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

5 AS OF TERMINATION.—

6 ‘‘(1) TRANSITION PERIOD.—The insured deposits

7 of each depositor in a State bank or a national bank

8 on the effective date of the voluntary termination of

9 the bank’s insured status, less all subsequent with10 drawals from any deposits of such depositor, shall

11 continue to be insured for a period of not less than

12 6 months and not more than 2 years, as determined

13 by the Corporation. During such period, no additions

14 to any such deposits, and no new deposits in the de15 pository institution made after the effective date of

16 such termination shall be insured by the Corporation.

17 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

18 AND DUTIES.—During the period specified in para19 graph (1) with respect to any bank, the bank shall

20 continue to pay assessments under section 7 as if the

21 bank were an insured depository institution. The

22 bank shall, in all other respects, be subject to the au23 thority of the Corporation and the duties and obliga24 tions of an insured depository institution under this

25 Act during such period, and in the event that the
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1 bank is closed due to an inability to meet the de2 mands of the bank’s depositors during such period,

3 the Corporation shall have the same powers and

4 rights with respect to such bank as in the case of an

5 insured depository institution.

6 ‘‘(g) ADVERTISEMENTS.—

7 ‘‘(1) IN GENERAL.—A bank that voluntarily ter8 minates the bank’s insured status under this section

9 shall not advertise or hold itself out as having insured

10 deposits, except that the bank may advertise the tem11 porary insurance of deposits under subsection (f) if,

12 in connection with any such advertisement, the adver13 tisement also states with equal prominence that addi14 tions to deposits and new deposits made after the ef15 fective date of the termination are not insured.

16 ‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,

17 AND SECURITIES.—Any certificate of deposit or other

18 obligation or security issued by a State bank or a na19 tional bank after the effective date of the voluntary

20 termination of the bank’s insured status under this

21 section shall be accompanied by a conspicuous,

22 prominently displayed notice that such certificate of

23 deposit or other obligation or security is not insured

24 under this Act.

25 ‘‘(h) NOTICE REQUIREMENTS.—
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1 ‘‘(1) NOTICE TO THE CORPORATION.—The notice

2 required under subsection (a)(1)(A) shall be in such

3 form as the Corporation may require.

4 ‘‘(2) NOTICE TO DEPOSITORS.—The notice re5 quired under subsection (a)(1)(B) shall be—

6 ‘‘(A) sent to each depositor’s last address of

7 record with the bank; and

8 ‘‘(B) in such manner and form as the Cor9 poration finds to be necessary and appropriate

10 for the protection of depositors.’’.

11 (3) DEFINITION.—Section 19(b)(1)(A)(i) of the

12 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is

13 amended after ‘‘such Act’’ by inserting ‘‘, or any

14 wholesale financial institution as defined in section

15 9B of this Act’’.

16 (c) REPORTS ON DISCOUNTS AND ADVANCES TO

17 WHOLESALE FINANCIAL INSTITUTIONS.—Section 10B of

18 the Federal Reserve Act (12 U.S.C. 347(b)) is amended by

19 adding at the end the following new subsection:

20 ‘‘(c) REPORTS ON DISCOUNTS AND ADVANCES TO

21 WHOLESALE FINANCIAL INSTITUTIONS.—

22 ‘‘(1) IN GENERAL.—The Board shall submit a re23 port to the Congress at the end of any year in which

24 any wholesale financial institution has obtained a
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1 discount, advance, or other extension of credit from a

2 Federal reserve bank.

3 ‘‘(2) CONTENTS.—Any report submitted under

4 paragraph (1) shall explain the circumstances and

5 need for any discount, advance, or other extension of

6 credit to a wholesale financial institution during the

7 period covered by the report, including the type and

8 amount of credit extended and the amount of credit

9 remaining outstanding as of the date of the report.’’.

10 Subtitle C—Financial Activities

11 SEC. 121. FINANCIAL ACTIVITIES.

12 Section 4(c)(8) of the Bank Holding Company Act of

13 1956 (12 U.S.C. 1843(c)(8)) is amended—

14 (1) by striking ‘‘shares of any company’’ and all

15 that follows through ‘‘for a bank holding company to

16 provide’’ and inserting ‘‘shares of any company the

17 activities of which the Board after due notice has de18 termined (by order, regulation, or advisory opinion)

19 to be financial in nature or incidental to such finan20 cial activities. In determining whether an activity is

21 financial in nature or incidental to financial activi22 ties, the Board shall take into account changes or rea23 sonably expected changes in the marketplace in which

24 financial services holding companies compete as well

25 as changes or reasonably expected changes in the tech-
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1 nology by which these services are delivered. In addi2 tion, the Board shall take into account activities con3 sidered financial activities or banking or financial

4 operations for purposes of the regulation of the Board

5 designated as ‘Regulation K’ (12 C.F.R. 211.23

6 (f)(5)(iii)(B)) as in effect on the date of the enactment

7 of the Financial Services Competitiveness Act of 1995.

8 Any activity that the Board has determined, by order

9 or regulation that is in effect on such date to be so

10 closely related to banking or managing or controlling

11 banks as to be a proper incident thereto shall be

12 deemed to be of a financial nature for purposes of this

13 paragraph without further action by the Board (sub14 ject to the same terms and conditions contained in

15 such order or regulation, unless modified by the

16 Board), but for purposes of this subsection it shall not

17 be closely related to banking or managing or control18 ling banks or financial in nature or incidental to a

19 financial activity for a financial services holding

20 company to provide’’;

21 (2) in the 3d sentence, by inserting ‘‘and between

22 activities commenced by affiliates of different classes

23 of banks’’ before the period at the end; and

24 (3) by striking the 2d sentence.
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1 SEC. 122. NO PRIOR APPROVAL REQUIRED FOR WELL CAP2 ITALIZED AND WELL MANAGED FINANCIAL

3 SERVICES HOLDING COMPANIES.

4 Section 4(j) of the Bank Holding Company Act of 1956

5 (12 U.S.C. 1843(j)) is amended—

6 (1) in paragraph (1), by striking ‘‘No’’ and in7 serting ‘‘Except as provided in paragraph (3) or sec8 tion 10(b)(3), no’’; and

9 (2) by adding at the end the following new para10 graphs:

11 ‘‘(3) NO NOTICE REQUIRED FOR CERTAIN TRANS12 ACTIONS.—Notwithstanding paragraph (1), no notice

13 under subsection (c)(8) or (a)(2)(B) is required for a

14 proposal by a financial services holding company to

15 engage in any activity (other than an activity de16 scribed in subparagraph (A) or (B) of section

17 10(a)(1)) or acquire or retain the shares or assets of

18 any company (other than a securities affiliate) if the

19 proposal qualifies under paragraph (4).

20 ‘‘(4) CRITERIA FOR STATUTORY APPROVAL.—A

21 proposal qualifies under this paragraph if all of the

22 following criteria are met:

23 ‘‘(A) FINANCIAL CRITERIA.—Both before

24 and immediately after the proposed trans25 action—
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1 ‘‘(i) the acquiring financial services

2 holding company is well capitalized;

3 ‘‘(ii) the lead depository institution of

4 such holding company is well capitalized;

5 ‘‘(iii) well capitalized depository insti6 tutions control at least 80 percent of the ag7 gregate total risk-weighted assets of deposi8 tory institutions controlled by such holding

9 company; and

10 ‘‘(iv) no depository institution con11 trolled by such holding company is

12 undercapitalized.

13 ‘‘(B) MANAGERIAL CRITERIA.—

14 ‘‘(i) WELL MANAGED.—At the time of

15 the transaction, the acquiring financial

16 services holding company, the lead deposi17 tory institution of such holding company,

18 and depository institutions that control at

19 least 80 percent of the aggregate total risk20 weighted assets of depository institutions

21 controlled by such holding company are well

22 managed.

23 ‘‘(ii) LIMITATION ON POORLY MANAGED

24 INSTITUTIONS.—No depository institution

25 which is controlled by the acquiring finan-
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1 cial services holding company has received

2 any of the lowest 2 composite ratings at the

3 later of the institution’s most recent exam4 ination or subsequent review.

5 ‘‘(iii) RECENTLY ACQUIRED INSTITU6 TIONS.—Depository institutions acquired by

7 the financial services holding company dur8 ing the 12-month period ending on the date

9 of the proposed transaction may be excluded

10 for purposes of clause (ii) if—

11 ‘‘(I) the financial services holding

12 company has developed a plan accept13 able to the appropriate Federal bank14 ing agency for the institution to restore

15 the capital and management of the in16 stitution; and

17 ‘‘(II) all such depository institu18 tions represent, in the aggregate, less

19 than 25 percent of the total risk20 weighted assets of all depository insti21 tutions controlled by the financial serv22 ices holding company.

23 ‘‘(C) ACTIVITIES PERMISSIBLE.—Following

24 consummation of the proposed transaction, the
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1 financial services holding company engages di2 rectly or through a subsidiary solely in—

3 ‘‘(i) activities that are permissible

4 under subsection (c)(8), as determined by

5 the Board by any regulation, order, or advi6 sory opinion under such subsection that is

7 in effect at the time of the proposed trans8 action, subject to all of the restrictions,

9 terms, and conditions of such subsection

10 and such regulation, order, or advisory

11 opinion; and

12 ‘‘(ii) such other activities as are other13 wise permissible under this Act, subject to

14 the restrictions, terms and conditions, in15 cluding any prior notice or approval re16 quirements, provided in this Act.

17 ‘‘(D) SIZE OF ACQUISITION.—

18 ‘‘(i) ASSET SIZE.—The book value of

19 the total risk-weighted assets acquired does

20 not exceed 10 percent of the consolidated

21 total risk-weighted assets of the acquiring fi22 nancial services holding company.

23 ‘‘(ii) CONSIDERATION.—The gross con24 sideration to be paid for the securities or

25 assets does not exceed 15 percent of the con-
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1 solidated tier 1 capital of the acquiring fi2 nancial services holding company.

3 ‘‘(E) NOTICE NOT OTHERWISE WAR4 RANTED.—For proposals described in paragraph

5 (5)(B), the Board has not, before the conclusion

6 of the period described in such paragraph, ad7 vised the financial services holding company that

8 a notice under paragraph (1) is required.

9 ‘‘(5) NOTIFICATION.—

10 ‘‘(A) COMMENCEMENT OF ACTIVITIES AP11 PROVED BY RULE.—A financial services holding

12 company that qualifies under paragraph (4) and

13 proposes to engage de novo, directly or through

14 a subsidiary, in any activity that is permissible

15 under subsection (c)(8), as determined by the

16 Board by regulation, may commence that activ17 ity without prior notice to the Board.

18 ‘‘(B) SUBSEQUENT NOTICE.—A financial

19 services holding company that commences an ac20 tivity under subsection (c)(8) without prior no21 tice to the Board shall provide written notice to

22 the Board no later than 10 business days after

23 commencing the activity.

24 ‘‘(C) ACTIVITIES PERMITTED BY ORDER AND

25 ACQUISITIONS.—
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1 ‘‘(i) IN GENERAL.—At least 12 business

2 days prior to commencing any activity

3 (other than an activity described in sub4 paragraph (A)) or acquiring shares or as5 sets of any company in a proposal that

6 qualifies under paragraph (4), the financial

7 services holding company shall provide

8 written notice to the Board of the proposal,

9 unless the Board determines that no notice

10 or a shorter notice period is appropriate.

11 ‘‘(ii) DESCRIPTION OF PROPOSED AC12 TIVITIES.—A notice under clause (i) shall

13 include a description of the proposed activi14 ties and the terms of any proposed acquisi15 tion.

16 ‘‘(6) ADJUSTMENT OF AMOUNTS.—The Board

17 may, by regulation, adjust the amounts and the man18 ner in which the percentage of depository institutions

19 is calculated under subparagraph (B)(i), (B)(iii)(II),

20 or (D) of paragraph (4) if the Board determines that

21 any such adjustment is consistent with safety and

22 soundness and the purposes of this Act.

23 ‘‘(7) EXPEDITED PROCEDURE FOR NEW ACTIVI24 TIES.—
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1 ‘‘(A) EXPEDITED PREACQUISITION RE2 VIEW.—After the end of the 12-day period re3 ferred to in paragraph (5)(C) and subject to any

4 final ruling under subparagraph (B), a financial

5 services holding company may acquire a com6 pany engaged in activities that the company be7 lieves are financial in nature for purposes of

8 subsection (c)(8) and that the Board has not pre9 viously reviewed under such subsection if—

10 ‘‘(i) the proposal qualifies under all of

11 the criteria in paragraph (4) other than

12 paragraph (4)(C);

13 ‘‘(ii) the financial services holding

14 company provides the notice required under

15 paragraph (5)(C), and includes with such

16 notice an explanation of the facts and cir17 cumstances that provide a reasonable basis

18 for concluding that the proposed activities

19 are financial in nature or incidental to

20 such financial activities; and

21 ‘‘(iii) before the end of such 12-day pe22 riod, the Board has not—

23 ‘‘(I) required a notice under para24 graph (1) with respect to the proposed

25 transaction; or
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1 ‘‘(II) advised the financial serv2 ices holding company that the com3 pany has failed to provide a reasonable

4 basis for concluding that the proposed

5 activities are financial in nature or

6 incidental to such financial activities.

7 ‘‘(B) POSTACQUISITION REVIEW.—

8 ‘‘(i) NOTICE PROCEDURE.—A financial

9 services holding company which is per10 mitted to make an acquisition under this

11 paragraph shall file a notice with the Board

12 in accordance with paragraph (1) before the

13 end of the 30-day period beginning on the

14 date of the consummation of the acquisition.

15 ‘‘(ii) LIMITED REVIEW.—The Board’s

16 review of a postconsummation notice re17 quired under this subparagraph shall be

18 limited to determining whether the proposed

19 activities are permissible under subsection

20 (c)(8), including whether the proposal meets

21 the criteria in paragraph (2)(A).

22 ‘‘(iii) CONDITIONAL ACTION.—No pro23 vision of this paragraph shall be construed

24 as limiting in any way the authority of the

25 Board under this section to impose condi-
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1 tions on the conduct of any activity or the

2 ownership of any company.

3 ‘‘(iv) DIVESTITURE OF IMPERMISSIBLE

4 ACTIVITIES.—If the Board determines that

5 any proposed activity is not permissible

6 under subsection (c)(8), the financial serv7 ices holding company shall terminate the

8 activity or divest the company acquired in

9 reliance on this paragraph before the end of

10 the 2-year period beginning on the date of

11 such determination.

12 ‘‘(C) INITIAL DECISION NOT PREJUDICIAL

13 TO SUBSEQUENT DETERMINATION.—A decision

14 by the Board under subparagraph (A) not to re15 quire a notice under paragraph (1) during the

16 12-day period referred to in such subparagraph

17 shall not prejudice the Board’s decision under

18 subparagraph (B).’’.

19 SEC. 123. STREAMLINED EXAMINATION AND REPORTING

20 REQUIREMENTS FOR ALL FINANCIAL SERV21 ICES HOLDING COMPANIES.

22 Section 5(c) of the Bank Holding Company Act of

23 1956 (12 U.S.C. 1844(c)) is amended to read as follows—

24 ‘‘(c) REPORTS AND EXAMINATIONS.—

25 ‘‘(1) PURPOSES.—
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1 ‘‘(A) IN GENERAL.—The purpose of this

2 subsection is to authorize the Board, through re3 ports and examinations, to gather information

4 from a financial services holding company and

5 the subsidiaries of any such holding company re6 garding the structure, activities, and financial

7 condition of the financial services holding com8 pany and such subsidiaries so that the Board

9 can monitor risks within the holding company

10 system that could adversely affect any depository

11 institution subsidiary of the holding company

12 and may monitor and enforce compliance with

13 this Act.

14 ‘‘(B) PURPOSE NOT TO IMPOSE ADDITIONAL

15 BURDENS ON HOLDING COMPANIES.—It is the in16 tended purpose of this subsection that the Board

17 shall—

18 ‘‘(i) exercise the Board’s authority to

19 collect information under this section in a

20 manner that is the least burdensome to fi21 nancial services holding companies and the

22 subsidiaries of such companies; and

23 ‘‘(ii) rely, to the fullest extent possible,

24 on reports prepared for and examinations
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1 conducted by or for other Federal and State

2 supervisors.

3 ‘‘(C) PURPOSE TO REQUIRE CAREFULLY

4 TAILORED EXAMINATIONS.—It is the intended

5 purpose of this subsection that the Board shall

6 tailor the focus and scope of any examination

7 under this section to a financial services holding

8 company or to any subsidiary of such company

9 which, because of financial conditions, activities,

10 operations of such subsidiary, the transactions

11 between such subsidiary and other affiliates, or

12 the size of any such subsidiary poses a potential

13 material risk to a depository institution subsidi14 ary of such holding company.

15 ‘‘(2) REPORTS.—

16 ‘‘(A) IN GENERAL.—The Board from time to

17 time may require any financial services holding

18 company and any subsidiary of such company

19 to submit reports under oath to keep the Board

20 informed as to—

21 ‘‘(i) the company’s or the subsidiary’s

22 activities, financial condition, policies, sys23 tems for monitoring and controlling finan24 cial and operational risks, and transactions
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1 with depository institution subsidiaries of

2 the holding company; and

3 ‘‘(ii) the extent to which the company

4 or subsidiary has complied with the provi5 sions of this Act and regulations prescribed

6 and orders issued under this Act.

7 ‘‘(B) USE OF EXISTING REPORTS.—

8 ‘‘(i) IN GENERAL.—The Board shall, to

9 the fullest extent possible, accept reports in

10 fulfillment of the Board’s reporting require11 ments under this paragraph that a finan12 cial services holding company or any sub13 sidiary of such company has been required

14 to provide to other Federal and State super15 visors or to appropriate self-regulatory or16 ganizations.

17 ‘‘(ii) AVAILABILITY.—A financial serv18 ices holding company or a subsidiary of

19 such company shall provide to the Board, at

20 the request of the Board, a report referred to

21 in clause (i).

22 ‘‘(3) EXAMINATIONS.—

23 ‘‘(A) LIMITED USE OF EXAMINATION AU24 THORITY.—The Board may make examinations
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1 of each financial services holding company and

2 each subsidiary of such company in order to—

3 ‘‘(i) inform the Board of the nature of

4 the operations and financial condition of

5 the financial services holding company and

6 such subsidiaries;

7 ‘‘(ii) inform the Board of the—

8 ‘‘(I) financial and operational

9 risks within the financial services hold10 ing company system that may affect

11 any depository institution owned by

12 such holding company; and

13 ‘‘(II) the systems of the holding

14 company and such subsidiaries for

15 monitoring and controlling those risks;

16 and

17 ‘‘(iii) monitor compliance with the

18 provisions of this Act and those governing

19 transactions and relationships between any

20 depository institution controlled by a finan21 cial services holding company and any of

22 the company’s other subsidiaries.

23 ‘‘(B) RESTRICTED FOCUS OF EXAMINA24 TIONS.—The Board shall, to the fullest extent

25 possible, limit the focus and scope of any exam-
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1 ination of a financial services holding company

2 to—

3 ‘‘(i) the holding company; and

4 ‘‘(ii) to any subsidiary (other than a

5 depository institution subsidiary) of the

6 holding company which, because of the size,

7 condition, or activities of the subsidiary, the

8 nature or size of transactions between such

9 subsidiary and any depository institution

10 affiliate, or the centralization of functions

11 within the holding company system, could

12 have a materially adverse effect on the safe13 ty and soundness of any depository institu14 tion affiliate of the subsidiary or of the

15 holding company.

16 ‘‘(C) DEFERENCE TO BANK EXAMINA17 TIONS.—The Board shall, to the fullest extent

18 possible, use the report of examinations of depos19 itory institutions made by the Comptroller of the

20 Currency, the Federal Deposit Insurance Cor21 poration, the Office of Thrift Supervision or the

22 appropriate State depository institution super23 visory authority for the purposes of this section.

24 ‘‘(D) DEFERENCE TO OTHER EXAMINA25 TIONS.—The Board shall, to the fullest extent
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1 possible, use the reports of examination made

2 of—

3 ‘‘(i) any registered broker or dealer by

4 or on behalf of the Securities Exchange

5 Commission, and

6 ‘‘(ii) any other subsidiary that the

7 Board finds to be comprehensively super8 vised under relevant Federal or State law

9 by a Federal or state agency or authority.

10 ‘‘(E) CONFIDENTIALITY OF REPORTED IN11 FORMATION.—

12 ‘‘(i) IN GENERAL.—Notwithstanding

13 any other provision of law, the Board shall

14 not be compelled to disclose any information

15 required to be reported under this para16 graph, or any information supplied to the

17 Board by any domestic or foreign regu18 latory agency, that relates to the financial

19 or operational condition of any financial

20 services holding company or any subsidiary

21 of such company.

22 ‘‘(ii) COMPLIANCE WITH REQUESTS

23 FOR INFORMATION.—No provision of this

24 subparagraph shall be construed as author25 izing the Board to withhold information
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1 from Congress, or preventing the Board

2 from complying with a request for informa3 tion from any other Federal department or

4 agency for purposes within the scope of such

5 department’s or agency’s jurisdiction, or

6 from complying with an order of a court of

7 competent jurisdiction in an action brought

8 by the United States or the Board.

9 ‘‘(iii) COORDINATION WITH OTHER

10 LAW.—For purposes of section 552 of title 5,

11 United States Code, this subparagraph shall

12 be considered to be a statute described in

13 subsection (b)(3)(B) of such section.

14 ‘‘(iv) DESIGNATION OF CONFIDENTIAL

15 INFORMATION.—In prescribing regulations

16 to carry out the requirements of this sub17 section, the Board shall designate informa18 tion described in or obtained pursuant to

19 this paragraph as confidential information.

20 ‘‘(F) COSTS.—The cost of any examination

21 conducted by the Board under this section may

22 be assessed against, and made payable by, such

23 holding company.’’.
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1 SEC. 124. HOLDING COMPANY SUPERVISION FOR FINAN2 CIAL SERVICES HOLDING COMPANIES EN3 GAGED PRIMARILY IN NONBANKING ACTIVI4 TIES.

5 Section 5 of the Bank Holding Company Act of 1956

6 (12 U.S.C. 1844) is amended by adding at the end the fol7 lowing new subsection:

8 ‘‘(g) REDUCED SUPERVISION OF COMPANIES CON9 TROLLING PRINCIPALLY NONDEPOSITORY INSTITUTIONS.—

10 ‘‘(1) ELECTION.—

11 ‘‘(A) IN GENERAL.—Any financial services

12 holding company that qualifies under paragraph

13 (2) may make an election to be governed by the

14 approval, capital, reporting and examination re15 quirements of paragraphs (3), (4), (5) and (6)

16 by—

17 ‘‘(i) filing a written notice of such elec18 tion with the Board; and

19 ‘‘(ii) if applicable, providing a written

20 guarantee to the Federal Deposit Insurance

21 Corporation pursuant to paragraph (2).

22 ‘‘(B) EFFECTIVE PERIOD OF ELECTION.—

23 An election under subparagraph (A) shall re24 main in effect—
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1 ‘‘(i) so long as the financial services

2 holding company continues to qualify under

3 paragraph (2); or

4 ‘‘(ii) until the financial services hold5 ing company revokes the election.

6 ‘‘(2) CRITERIA FOR ELECTION.—A financial

7 services holding company may make an election

8 under paragraph (1) if the company meets all of the

9 following criteria:

10 ‘‘(A) COMPANY PRINCIPALLY CONTROLS

11 NONDEPOSITORY COMPANIES.—

12 ‘‘(i) FINANCIAL SERVICES HOLDING

13 COMPANIES WITH DEPOSITORY INSTITU14 TIONS.—In the case of a financial services

15 holding company (other than an investment

16 bank holding company), the consolidated

17 total risk-weighted assets of all depository

18 institutions and foreign banks (as defined

19 in section 1(b)(7) of the International

20 Banking Act of 1978) controlled by the fi21 nancial services holding company—

22 ‘‘(I) constitute less than 10 per23 cent of the consolidated total risk24 weighted assets of such company; and

25 ‘‘(II) are less than $5,000,000,000.
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1 ‘‘(ii) INVESTMENT BANK HOLDING COM2 PANIES.—In the case of an investment bank

3 holding company, the consolidated total

4 risk-weighted assets of all wholesale finan5 cial institutions controlled by the invest6 ment bank holding company—

7 ‘‘(I) constitute less than 25 per8 cent of the consolidated total risk9 weighted assets of such company; and

10 ‘‘(II) are less than

11 $15,000,000,000.

12 ‘‘(iii) INFLATION ADJUSTMENT.—The

13 dollar limitation contained in clauses

14 (i)(II) and (ii)(II) shall be adjusted annu15 ally after December 31, 1995, by the annual

16 percentage increase in the Consumer Price

17 Index for Urban Wage Earners and Clerical

18 Workers published by the Bureau of Labor

19 Statistics.

20 ‘‘(iv) AUTHORITY TO INCREASE LIM21 ITS.—The Board may increase any of the

22 percentages referred to in clauses (i)(I) and

23 (ii)(I) and the dollar amounts described in

24 clauses (i)(II) and (ii)(II) as the Board

25 may determine to be appropriate.
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1 ‘‘(B) WELL CAPITALIZED INSTITUTIONS.—

2 Each depository institution controlled by the fi3 nancial services holding company is well capital4 ized.

5 ‘‘(C) WELL MANAGED INSTITUTIONS.—

6 ‘‘(i) IN GENERAL.—Each depository

7 institution controlled by the financial serv8 ices holding company received a CAMEL

9 composite rating of 1 or 2 (or an equivalent

10 rating under an equivalent rating system)

11 in the most recent examination of such in12 stitution.

13 ‘‘(ii) EXCLUSION FOR NEWLY AC14 QUIRED INSTITUTIONS.—A depository insti15 tution acquired by a financial services hold16 ing company during the 12-month period

17 ending on the date of the election by such

18 company under paragraph (1) may be ex19 cluded for purposes of clause (i) if the fi20 nancial services holding company has devel21 oped a plan acceptable to the appropriate

22 Federal banking agency (for such institu23 tion) to restore the capital and management

24 of the institution.

25 ‘‘(D) HOLDING COMPANY GUARANTEE.—
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1 ‘‘(i) IN GENERAL.—The financial serv2 ices holding company provides a written

3 guarantee acceptable to the Federal Deposit

4 Insurance Corporation to maintain the cap5 ital levels of each insured depository insti6 tution controlled by the financial services

7 holding company at not less than the levels

8 required for such institution to remain well

9 capitalized.

10 ‘‘(ii) LIMITATION ON LIABILITY.—The

11 liability of a financial services holding com12 pany under a guarantee provided under

13 this subparagraph shall not exceed an

14 amount equal to 10 percent of the total risk15 weighted assets of the insured depository in16 stitution, measured as of the date that the

17 institution becomes undercapitalized.

18 ‘‘(iii) DURATION OF GUARANTEE.—

19 Notwithstanding paragraph (1), a financial

20 services holding company that has elected

21 treatment under this subsection shall con22 tinue to be bound by the guarantee made

23 under this subsection until released in ac24 cordance with this subparagraph.
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1 ‘‘(iv) RELEASE FROM LIABILITY.—The

2 Board shall release a financial services

3 holding company from the guarantee appli4 cable with respect to any depository institu5 tion subsidiary of such company—

6 ‘‘(I) upon the written request of

7 the financial services holding company

8 to revoke the company’s election under

9 paragraph (1) if the Board determines

10 that each depository institution con11 trolled by the financial services holding

12 company is well capitalized and well

13 managed at the time of such revoca14 tion;

15 ‘‘(II) in the case of a financial

16 services holding company which no

17 longer meets the requirements of sub18 paragraph (A), upon a determination

19 by the Board that each depository in20 stitution controlled by the financial

21 services holding company is well cap22 italized and well managed;

23 ‘‘(III) upon the written request of

24 the financial services holding company

25 following the divestiture of control of
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1 the depository institution in a trans2 action that does not require Federal as3 sistance if the Board determines that,

4 immediately following the divestiture,

5 the depository institution is or will be

6 well capitalized; or

7 ‘‘(IV) upon a determination by

8 the Board, after consultation with the

9 Federal Deposit Insurance Corpora10 tion, that, subject to the limit on liabil11 ity provided in clause (ii), the finan12 cial services holding company has fully

13 performed under the guarantee.

14 ‘‘(E) RESPONSIVENESS TO COMMUNITY

15 NEEDS.—The lead insured depository institution

16 subsidiary of the financial services holding com17 pany and insured depository institutions con18 trolling at least 80 percent of the aggregate total

19 risk-weighted assets of insured depository institu20 tions controlled by the financial services holding

21 company have achieved a ‘satisfactory record of

22 meeting community credit needs’, or better, dur23 ing the most recent examination of such insured

24 depository institutions.
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1 ‘‘(3) NO NOTICE OR APPROVAL REQUIRED FOR

2 CERTAIN PURPOSES UNDER PARAGRAPHS (8), (13), OR

3 (15) OF SECTION 4(c).—

4 ‘‘(A) IN GENERAL.—Notwithstanding para5 graphs (8), (13), and, in the case of an invest6 ment bank holding company, (15) of section 4(c),

7 a financial services holding company that has in

8 effect an election under paragraph (1), and any

9 subsidiary of such holding company, may, with10 out prior notice to, or the approval of, the Board

11 under paragraph (8), (13), or, in the case of an

12 investment bank holding company, (15) of sec13 tion 4(c), engage de novo in any activity, or ac14 quire shares of any company engaged in any ac15 tivity, if—

16 ‘‘(i) the Board has determined, by

17 order or regulation in effect at the time the

18 company or subsidiary commences to en19 gage in such activity or acquire such shares,

20 that the activity is permissible for a finan21 cial services holding company or a subsidi22 ary of such company to engage in under

23 paragraph (8) or (13) of section 4(c) (and

24 regulations prescribed under such para25 graphs); and
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1 ‘‘(ii) the activity is conducted in com2 pliance with all conditions and limitations

3 applicable to such activity under any regu4 lation, order, or advisory opinion prescribed

5 or issued by the Board.

6 ‘‘(B) SUBSEQUENT NOTICE.—A financial

7 services holding company that commences to en8 gage in an activity, or makes an acquisition, in

9 accordance with subparagraph (A) shall inform

10 the Board of such fact, in writing, not later than

11 10 days after commencing the activity or con12 summating the acquisition.

13 ‘‘(4) CAPITAL.—

14 ‘‘(A) IN GENERAL.—The Board shall not

15 (by regulation or order), directly or indirectly,

16 establish or apply minimum capital require17 ments to a financial services holding company

18 which has in effect an election under paragraph

19 (1) unless the Board concludes, on the basis of all

20 information available to the Board, that the fi21 nancial services holding company is not main22 taining sufficient financial resources to meet

23 fully any guarantee required under paragraph

24 (2).
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1 ‘‘(B) CRITERIA FOR CONSIDERATION.—For

2 purposes of making a determination under sub3 paragraph (A), the Board shall consider, in ad4 dition to any other relevant considerations, the

5 financial condition and the adequacy of the cap6 ital of each of the depository institutions con7 trolled by the financial services holding com8 pany.

9 ‘‘(5) REPORTS.—

10 ‘‘(A) IN GENERAL.—The reporting require11 ments contained in subsection (c)(2) shall apply

12 to a financial services holding company which

13 qualifies under this subsection, to the extent pro14 vided by the Board.

15 ‘‘(B) EXEMPTIONS FROM REPORTING RE16 QUIREMENTS.—

17 ‘‘(i) IN GENERAL.—The Board may, by

18 regulation or order, exempt any company

19 or class of companies, under such terms and

20 conditions and for such periods as the

21 Board shall provide in such regulation or

22 order, from the provisions of this paragraph

23 and any regulations prescribed under this

24 paragraph.
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1 ‘‘(ii) CRITERIA FOR CONSIDERATION.—

2 In granting any exemption under clause (i),

3 the Board shall consider, among other fac4 tors—

5 ‘‘(I) whether information of the

6 type required under this paragraph is

7 available from a supervisory agency

8 (as defined in section 1101(7) of the

9 Right to Financial Privacy Act of

10 1978), the Commodity Futures Trad11 ing Commission, or a foreign regu12 latory body of a similar type;

13 ‘‘(II) the primary business of the

14 company; and

15 ‘‘(III) the nature and extent of do16 mestic or foreign regulations of the

17 company’s activities.

18 ‘‘(6) EXAMINATIONS.—

19 ‘‘(A) LIMITED USE OF EXAMINATION AU20 THORITY FOR FINANCIAL SERVICES HOLDING

21 COMPANIES.—The Board shall not examine,

22 under this section, any financial services holding

23 company described in paragraph (2)(A)(i) for

24 which an election is in effect under paragraph
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1 (1) or any subsidiary (other than a depository

2 institution) of such holding company unless—

3 ‘‘(i) the Board determines, on the basis

4 of all information available to the Board,

5 that—

6 ‘‘(I) the operations or activities of

7 the financial services holding company

8 or any subsidiary of such company, or

9 any transaction involving such com10 pany or subsidiary and an affiliated

11 depository institution, may pose a ma12 terial risk to the safety and soundness

13 of any depository institution owned by

14 such holding company; or

15 ‘‘(II) the financial services hold16 ing company does not appear to have

17 sufficient resources to meet the guaran18 tee required under paragraph (2); or

19 ‘‘(ii) the Board is unable to accomplish

20 the purposes described in subsection

21 (c)(3)(A) without such examinations.

22 ‘‘(B) LIMITED USE OF EXAMINATION AU23 THORITY FOR INVESTMENT BANK HOLDING COM24 PANIES.—The Board shall not examine, under

25 this section, any investment bank holding com-
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1 pany described in paragraph (2)(A)(ii) which

2 has an election in effect under paragraph (1) or

3 any subsidiary (other than a depository institu4 tion) of such holding company unless—

5 ‘‘(i) the Board determines that the op6 erations or activities of the investment bank

7 holding company or any subsidiary of such

8 company, or any transaction involving such

9 company or subsidiary and an affiliated

10 depository institution, may pose a material

11 risk to the safety and soundness of any de12 pository institution owned by such holding

13 company; or

14 ‘‘(ii) the Board is unable to determine

15 from reports the nature of the operations, fi16 nancial condition, activities, or effectiveness

17 of the risk management systems of the in18 vestment bank holding company or any sub19 sidiary of such company, or to assess com20 pliance with the provisions of this Act and

21 those governing transactions and relation22 ships between any depository institution

23 controlled by the investment bank holding

24 company and the investment bank holding

25 company or any of such subsidiaries.
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1 ‘‘(C) RESTRICTED FOCUS AND DEFERENCE

2 IN EXAMINATIONS.—The Board shall limit the

3 focus and scope of any examination, under this

4 section, of a financial services holding company

5 or investment bank holding company for which

6 an election is in effect under paragraph (1) or

7 of any subsidiary (other than a depository insti8 tution) of such holding company and shall defer

9 to examinations conducted by the Securities Ex10 change Commission or other supervisors in ac11 cordance with subparagraphs (B), (C), and (D)

12 of subsection (c)(3).’’.

13 SEC. 125. CONVERSION OF UNITARY SAVINGS AND LOAN

14 HOLDING COMPANIES TO FINANCIAL SERV15 ICES HOLDING COMPANIES.

16 The Bank Holding Company Act of 1956 (12 U.S.C.

17 1841 et seq.) is amended by inserting after section 5 the

18 following new section:

19 ‘‘SEC. 6. CONVERSION OF UNITARY SAVINGS AND LOAN

20 HOLDING COMPANIES TO FINANCIAL SERV21 ICES HOLDING COMPANIES.

22 ‘‘(a) STREAMLINED PROCEDURE FOR CONVERSION.—

23 ‘‘(1) IN GENERAL.—During the 18-month period

24 beginning on the date of the enactment of the Finan25 cial Services Competitiveness Act of 1995, no ap-
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1 proval shall be required under section 3(a) or para2 graph (8) or (13) of section 4(c) for any qualified sav3 ings and loan holding company to become a financial

4 services holding company for any company that, both

5 prior to January 1, 1995, and on the date of enact6 ment of the Financial Services Competitiveness Act of

7 1995, is a savings and loan holding company if the

8 requirements of paragraph (2) are met.

9 ‘‘(2) ELIGIBILITY REQUIREMENTS.—A qualified

10 savings and loan holding company shall be eligible to

11 become a financial services holding company pursu12 ant to paragraph (1) if—

13 ‘‘(A) the company becomes a financial serv14 ices holding company as the result of the conver15 sion of a savings association controlled by such

16 company as of the date of enactment of the Fi17 nancial Services Competitiveness Act of 1995

18 into a bank;

19 ‘‘(B) the company is adequately capitalized

20 before and immediately after the conversion re21 ferred to in subparagraph (A);

22 ‘‘(C) all depository institutions controlled

23 by such company are well capitalized before and

24 immediately after such conversion;
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1 ‘‘(D) all depository institutions controlled

2 by such company are well managed before the

3 conversion;

4 ‘‘(E) the Board would not be prohibited

5 under any provision of section 3(d) from approv6 ing the transaction;

7 ‘‘(F) the activities of the company and of

8 each subsidiary of the company comply with this

9 Act (and regulations prescribed under this Act);

10 and

11 ‘‘(G) the company provides the Board with

12 at least 30 days written notice of the proposed

13 conversion, and, before the expiration of such 30-

14 day period, the Board has not objected to the

15 company becoming a financial services holding

16 company based on the criteria contained in this

17 subsection.

18 ‘‘(3) QUALIFIED SAVINGS AND LOAN HOLDING

19 COMPANY DEFINED.—For purposes of this subsection,

20 the term ‘qualified savings and loan holding com21 pany’ means any company which became a savings

22 and loan holding company before January 1, 1995,

23 and is a savings and loan holding company as of the

24 date of the enactment of the Financial Services Com25 petitiveness Act of 1995.
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1 ‘‘(b) LIMITED RETENTION OF EXISTING INVEST2 MENTS.—Any holding company which converts to a finan3 cial services holding company in accordance with subsection

4 (a) may retain direct or indirect ownership or control of

5 voting shares of any company as provided in, and subject

6 to, section 4(k) if—

7 ‘‘(1) the holding company controlled 1 or more

8 savings associations in accordance with section

9 10(c)(3) of the Home Owners Loan Act before Janu10 ary 1, 1995, and as of the date of the enactment of

11 the Financial Services Competitiveness Act of 1995;

12 ‘‘(2) the investment in voting shares and the fi13 nancial services holding company meet the require14 ments of section 4(k) (other than paragraph

15 (1)(A)(iii) of such section); and

16 ‘‘(3) more than 75 percent of the revenues of the

17 financial services holding company for each of the 2

18 calendar years before the date such company became

19 a financial services holding company involved securi20 ties activities described in subparagraphs (A) and (B)

21 of section 10(a)(1) and activities that the Board has

22 determined to be permissible under section 4(c)(8).’’.
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1 SEC. 126. FINANCIAL SERVICES ADVISORY COMMITTEE.

2 (a) ESTABLISHMENT.—There is hereby established the

3 Financial Services Advisory Committee (hereinafter in this

4 section referred to as the ‘‘Committee’’).

5 (b) MEMBERSHIP.—

6 (1) IN GENERAL.—The Committee shall consist

7 of 9 members, appointed as follows from among indi8 viduals who are not officers or employees of the Fed9 eral Government and who are especially qualified to

10 serve on such committee by virtue of their education,

11 training, or experience:

12 (A) 1 member appointed by the Secretary of

13 the Treasury.

14 (B) 2 members appointed by the Comptrol15 ler of the Currency.

16 (C) 2 members appointed by the Director of

17 the Office of Thrift Supervision.

18 (D) 2 members appointed by the Board of

19 Governors of the Federal Reserve System.

20 (E) 2 members appointed by the Board of

21 Directors of the Federal Deposit Insurance Cor22 poration.

23 (2) REPRESENTATION OF SMALL AND INDEPEND24 ENT DEPOSITORY INSTITUTIONS.—Of the members ap25 pointed under subparagraphs (B), (C), (D), and (E)

26 of paragraph (1), 1 of the 2 members appointed under
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1 each such paragraph shall be appointed from among

2 individuals who are especially qualified to represent

3 the interests of depository institutions which—

4 (A) have total assets of less than

5 $500,000,000; or

6 (B) are not controlled by any depository in7 stitution holding company.

8 (c) VACANCIES.—Any vacancy on the Committee shall

9 be filled in the same manner in which the original appoint10 ment was made.

11 (d) PAY AND EXPENSES.—Members of the Committee

12 shall serve without pay, but each member shall be reim13 bursed for expenses incurred in connection with attendance

14 of such members at meetings of the Committee by the agency

15 which appointed such member to the Committee.

16 (e) TERMS.—Members shall be appointed for terms of

17 1 year.

18 (f) AUTHORITY OF THE COMMITTEE.—The Committee

19 may select a chairperson, vice chairperson, and secretary,

20 and adopt methods of procedure, and shall have power—

21 (1) to confer with each Federal banking agency

22 on general and special business conditions and regu23 latory and other matters relating to the financial

24 services industry in the United States and the impact

25 of this Act, and the amendments made by this Act, on
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1 the financial service industry, especially with regard

2 to depository institutions described in subsection

3 (b)(2); and

4 (2) to request information from, and to make

5 recommendations to, each of the Federal banking

6 agencies with respect to matters within the jurisdic7 tion of such agency.

8 (g) MEETINGS.—The Committee shall meet at least 2

9 times each year at the call of the chairperson or a majority

10 of the members.

11 (h) REPORTS.—The Committee shall submit a semi12 annual written report to the Committee on Banking and

13 Financial Services of the House and to the Committee on

14 Banking, Housing, and Urban Affairs of the Senate. Such

15 report shall describe the activities of the Committee for such

16 semiannual period and contain such recommendations as

17 the Committee considers appropriate.

18 (i) PROVISION OF STAFF AND OTHER RESOURCES.—

19 Each of the Federal banking agencies shall provide the Com20 mittee with the use of such resources, including staff, as the

21 Committee reasonably shall require to carry out its duties,

22 including the preparation and submission of reports to

23 Congress, under this section.

24 (j) DEFINITIONS.—The terms ‘‘insured depository in25 stitution’’ and ‘‘Federal banking agencies’’ have the mean-
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1 ing given to such terms in section 3 of the Federal Deposit

2 Insurance Act.

3 (k) FEDERAL ADVISORY COMMITTEE ACT DOES NOT

4 APPLY.—The Federal Advisory Committee Act shall not

5 apply to the Committee.

6 (l) SUNSET.—The Committee shall cease to exist 10

7 years after the enactment of this section.

8 SEC. 127. COORDINATION WITH STATE LAW.

9 Except as specifically provided in section 109, no pro10 vision of this Act, and no amendment made by this Act

11 to any other provision of law, may be construed as super12 seding any provision of the law of any State which imposes

13 additional requirements or establishes higher standards for

14 the safe and sound operation and condition of depository

15 institutions (as defined in section 3 of the Federal Deposit

16 Insurance Act) and the protection of consumers than the

17 requirements imposed or the standards established under

18 this Act and the amendments made by this Act to other

19 provisions of law (including capital standards and other

20 safeguards placed on affiliates).

21 SEC. 128. CONFORMING AMENDMENTS TO THE BANK HOLD22 ING COMPANY ACT OF 1956.

23 (a) SHORT TITLE; TABLE OF CONTENTS.—The first

24 section of the Bank Holding Company Act of 1956 (12

25 U.S.C. 1841 nt.) is amended to read as follows:
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1 ‘‘SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 ‘‘(a) SHORT TITLE.—This Act may be cited as the ‘Fi3 nancial Services Holding Company Act of 1995’.

4 ‘‘(b) TABLE OF CONTENTS.—The table of contents for

5 this Act is as follows:

‘‘Sec. 1. Short title; table of contents.

‘‘Sec. 2. Definitions.

‘‘Sec. 3. Acquisition of bank shares or assets.

‘‘Sec. 4. Interests in nonbanking organizations.

‘‘Sec. 5. Administration.

‘‘Sec. 6. Conversion of unitary savings and loan holding companies to financial

services holding companies.

‘‘Sec. 7. Reservation of rights to States.

‘‘Sec. 8. Penalties.

‘‘Sec. 9. Judicial review.

‘‘Sec. 10. Securities activities.

‘‘Sec. 11. Safeguards relating to securities activities.

‘‘Sec. 12. Investment bank holding companies and other financial activities.

‘‘Sec. 13. Saving provision.

‘‘Sec. 14. Separability of provisions.

6 ‘‘(c) REFERENCES IN OTHER LAWS.—Any reference in

7 any Federal or State law to a provision of the Bank Hold8 ing Company Act of 1956 shall be deemed to be a reference

9 to the corresponding provision of this Act.’’.

10 (b) DEFINITIONS.—

11 (1) Subsection (n) of section 2 of the Bank Hold12 ing Company Act of 1956 (12 U.S.C. 1841(n)) is

13 amended by inserting ‘‘ ‘depository institution’, ’’ be14 fore ‘‘ ‘insured depository institution’ ’’.

15 (2) Subsection (o) of section 2 of the Bank Hold16 ing Company Act of 1956 (12 U.S.C. 1841(o)) is

17 amended—
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1 (A) by striking paragraph (1) and inserting

2 the following new paragraph:

3 ‘‘(1) LEAD DEPOSITORY INSTITUTION.—The term

4 ‘lead depository institution’ means the largest deposi5 tory institution controlled by the financial services

6 holding company, based on a comparison of the aver7 age total assets controlled by each depository institu8 tion during the previous 12-month period.’’; and

9 (B) by adding at the end the following new

10 paragraphs:

11 ‘‘(8) INSURED DEPOSITORY INSTITUTION FOR

12 CERTAIN SECTIONS.—Notwithstanding subsection (n),

13 the terms ‘depository institution’ and ‘insured deposi14 tory institution’ include, for purposes of paragraph

15 (1) and sections 4(k), 10, and 11, any branch, agency,

16 or commercial lending company operated in the Unit17 ed States by a foreign bank.

18 ‘‘(9) WELL MANAGED.—The term ‘well managed’

19 means—

20 ‘‘(A) in the case of any company or deposi21 tory institution which receives examinations, the

22 achievement of—

23 ‘‘(i) a CAMEL composite rating of 1

24 or 2 (or an equivalent rating under an

25 equivalent rating system) in connection
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1 with the most recent examination or subse2 quent review of such company or institu3 tion; and

4 ‘‘(ii) at least a satisfactory rating for

5 management, if such rating is given; or

6 ‘‘(B) in the case of a company or depository

7 institution that has not received an examination

8 rating, the existence and use of managerial re9 sources which the Board determines are satisfac10 tory.’’.

11 (3) Section 2 of the Bank Holding Company Act

12 of 1956 (12 U.S.C. 1841) (as amended by section

13 116(a)(1) of this Act) is amended by inserting after

14 subsection (o) the following new subsections:

15 ‘‘(p) SECURITIES AFFILIATE.—The term ‘securities af16 filiate’ means any company—

17 ‘‘(1) that is (or is required to be) registered

18 under the Securities Exchange Act of 1934 as a broker

19 or dealer; and

20 ‘‘(2) the acquisition or retention of the shares or

21 assets of which the Board has approved under section

22 10.

23 ‘‘(q) CAPITAL TERMS.—

24 ‘‘(1) DEPOSITORY INSTITUTIONS.—With respect

25 to depository institutions, the terms ‘well capitalized,’
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1 ‘adequately capitalized’ and ‘undercapitalized’ have

2 the meanings given to such terms in accordance with

3 section 38(b) of the Federal Deposit Insurance Act.

4 ‘‘(2) FINANCIAL SERVICES HOLDING COMPANY.—

5 The following definitions shall apply with respect to

6 financial services holding companies:

7 ‘‘(A) ADEQUATELY CAPITALIZED.—The term

8 ‘adequately capitalized’ means a level of capital9 ization which meets or exceeds the required mini10 mum level established by the Board for each rel11 evant capital measure for financial services hold12 ing companies.

13 ‘‘(B) WELL CAPITALIZED.—The term ‘well

14 capitalized’ means a level of capitalization which

15 meets or exceeds the required capital levels estab16 lished by the Board for well capitalized financial

17 services holding companies.

18 ‘‘(3) OTHER CAPITAL TERMS.—The terms ‘tier 1’

19 and ‘risk-weighted assets’ have the meaning given

20 those terms in the capital guidelines or regulations

21 established by the Board for financial services holding

22 companies.

23 ‘‘(r) FOREIGN BANK TERMS.—For purposes of sub24 sections (s) and (u), sections 4(k), 10, and 11, and sub25 sections (b) and (c) of section 12—
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1 ‘‘(1) the terms ‘agency’, ‘branch’, and ‘commer2 cial lending company’ have the same meaning as in

3 section 1(b) of the International Banking Act of 1978.

4 ‘‘(2) the term ‘foreign bank’ means a foreign

5 bank (as defined in section 1(b) of the International

6 Banking Act of 1978) which operates a branch, agen7 cy or commercial lending company, or owns or con8 trols a bank, in the United States.’’.

9 (c) AMENDMENT REGARDING CONDITIONAL APPROVAL

10 OF NOTICES.—Section 4(a)(2) of the Bank Holding Com11 pany Act of 1956 (12 U.S.C. 1843(a)(2)) is amended by

12 striking ‘‘paragraph (8)’’ and all that follows through ‘‘is13 sued by the Board under such paragraph’’ and inserting

14 ‘‘subsection (c)(8) or section 4(k), 10, or 11, subject to all

15 the conditions specified in those provisions or in any order

16 or regulation issued by the Board under those provisions’’.

17 (d) AMENDMENT TO NOTICE PROCEDURES.—Section

18 4(j) of the Bank Holding Company Act of 1956 (12 U.S.C.

19 1843(j)) is amended—

20 (1) in paragraph (1)(A), by striking ‘‘subsection

21 (c)(8) or (a)(2)’’ and inserting ‘‘subsection (a)(2),

22 (c)(8), (c)(15), or (k)’’;

23 (2) in paragraph (1)(E)—
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1 (A) by striking ‘‘subsection (c)(8) or (a)(2)’’

2 and inserting ‘‘subsection (a)(2), (c)(8), (c)(15),

3 or (k)’’; and

4 (B) by striking the last sentence and insert5 ing the following: ‘‘In no event may the Board,

6 without the agreement of the financial services

7 holding company submitting the notice, extend

8 the notice period under this subparagraph be9 yond the period that ends 180 days after the date

10 that a notice is filed with the Board or the rel11 evant Federal reserve bank in accordance with

12 the regulations of the Board.’’; and

13 (3) in paragraph (2), by redesignating subpara14 graphs (B) and (C) as subparagraphs (C) and (D),

15 respectively, and inserting after subparagraph (A) the

16 following new subparagraph:

17 ‘‘(B) CRITERIA FOR NOTICES INVOLVING SE18 CURITIES AFFILIATES.—In considering any no19 tice that involves the acquisition of shares of a

20 securities affiliate pursuant to section 4(c)(15),

21 the Board shall apply the criteria and safe22 guards contained in this paragraph and in sec23 tions 10 and 11.’’.
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1 (e) ELIMINATION OF OBSOLETE PROVISIONS.—The

2 Bank Holding Company Act of 1956 (12 U.S.C. 1841

3 through 1849) is amended—

4 (1) in section 4(a)(2)—

5 (A) by striking ‘‘or in the case of a com6 pany’’ and ending ‘‘after December 31, 1980,’’;

7 and

8 (B) by striking the sentence beginning ‘‘Not9 withstanding any other provision of this para10 graph’’;

11 (2) in section 4(b), by striking ‘‘After two years

12 from the date of enactment of this Act, no’’ and in13 serting ‘‘No’’; and

14 (3) in section 5(a)—

15 (A) by striking ‘‘Within one hundred and

16 eighty days after the date of enactment of this

17 Act, or within’’ and inserting ‘‘Within’’; and

18 (B) by striking ‘‘whichever is later,’’.

19 (f) CONFORMING AMENDMENTS.—The Bank Holding

20 Company Act of 1956 (12 U.S.C. 1841 et seq.) is amended

21 as follows:

22 (1) In section 3(c)(4), by striking ‘‘one-bank

23 holding company’’ each place such term appears and

24 inserting ‘‘1-bank financial services holding com25 pany’’.
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1 (2) In section 3(f)(5), by striking ‘‘bank holding

2 company’’ the first and second time such term ap3 pears and inserting ‘‘financial services holding com4 pany’’.

5 (3) In section 4(i)(3)(A), by striking ‘‘is ac6 quired’’ and inserting ‘‘was acquired’’.

7 (4) By striking ‘‘bank holding companies’’ each

8 place such appears in the following sections and in9 serting ‘‘financial services holding companies’’:

10 (A) Section 3(d).

11 (B) Section 4(f).

12 (C) Section 7(a).

13 (5) By striking ‘‘bank holding company’s’’ each

14 place such term appears in section 4(c)(14) and in15 serting ‘‘financial services holding company’s’’.

16 (6) By striking ‘‘bank holding company’’ each

17 place such term appears in the following sections and

18 inserting ‘‘financial services holding company’’:

19 (A) Subsections (a), (d), (e), (g), (h), and

20 (o) of section 2.

21 (B) Subsections (a), (b), (d), (f)(1), (f)(2),

22 and (f)(3) of section 3.

23 (C) Subsections (a), (d), (e), (g), (h), and (j)

24 of section 4.
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1 (D) Clause (ii) in the portion of section 4(c)

2 which precedes paragraph (1) of such section.

3 (E) Paragraphs (2), (3), (7), (8), (10), (11),

4 (12)(A), and (14) of section 4(c).

5 (F) Paragraphs (4), (5), and (9) of section

6 4(f).

7 (G) Paragraphs (1) and (2) of section 4(i).

8 (H) Sections 5, 7(b), 8, and 11.

9 (7) In section 4(f)(1), by striking ‘‘bank holding

10 company’’ the 2d place such term appears and insert11 ing ‘‘financial services holding company’’.

12 (8) In the headings for section 3(f) and 4(f), by

13 striking ‘‘BANK HOLDING’’ and inserting ‘‘FINANCIAL

14 SERVICES HOLDING’’.

15 (9) In the heading the heading for section

16 2(o)(7), by striking ‘‘BANK’’ and inserting ‘‘FINANCIAL

17 SERVICES’’.

18 (g) TREATMENT OF EXISTING BANK HOLDING COMPA19 NIES.—Section 2(a)(6) of the Bank Holding Company Act

20 of 1956 (12 U.S.C. 1841(a)(6)) is amended by inserting at

21 the end the following: ‘‘Any company that was a bank hold22 ing company on the day before the date of enactment of

23 the Financial Services Competitiveness Act of 1995 shall,

24 for purposes of this chapter, be deemed to have been a finan-
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1 cial services holding company as of the date on which the

2 company became a bank holding company.’’.

3 (h) OTHER REFERENCES.—Any reference in any Fed4 eral law to ‘‘bank holding company’’ or ‘‘bank holding com5 panies’’ as those terms were defined under the Bank Hold6 ing Company Act of 1956 before the enactment of this Act

7 shall be deemed to include a reference to ‘‘financial services

8 holding company’’ and ‘‘financial services holding compa9 nies’’, respectively, as such terms are defined under the Fi10 nancial Services Holding Company Act of 1995.

11 SEC. 129. CONFORMING AMENDMENTS TO THE BANK HOLD12 ING COMPANY ACT AMENDMENTS OF 1970.

13 Section 106 of the Bank Holding Company Act

14 Amendments of 1970 (12 U.S.C. 1971 through 1978) is

15 amended by striking ‘‘bank holding company’’ each place

16 such term appears and inserting ‘‘financial services holding

17 company’’.

18 SEC. 130. CREDIT CARDS FOR BUSINESS PURPOSES.

19 Section 2(c)(2)(F) of the Bank Holding Company Act

20 of 1956 (relating to the definition of credit card banks) is

21 amended—

22 (1) in clause (i), by inserting ‘‘including the pro23 vision of credit card accounts for business purposes’’

24 before the semicolon; and
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1 (2) in clause (v), by inserting ‘‘(other than the

2 provision of credit card accounts for business pur3 poses in connection with the credit card operations re4 ferred to in clause (i))’’ before the period.

5 Subtitle D—Interagency Banking

6 and Financial Services Advisory

7 Committee

8 SEC. 141. INTERAGENCY BANKING AND FINANCIAL SERV9 ICES ADVISORY COMMITTEE.

10 (a) ESTABLISHMENT; COMPOSITION.—There is estab11 lished the Banking and Financial Services Advisory Com12 mittee which shall consist of 6 members as follows:

13 (1) The Secretary of the Treasury.

14 (2) The Chairman of the Board of Governors of

15 the Federal Reserve System.

16 (3) The Chairperson of the Board of Directors of

17 the Federal Deposit Insurance Corporation.

18 (4) The Chairman of the Securities and Ex19 change Commission.

20 (5) The Chairperson of the Commodities Futures

21 Trading Commission.

22 (6) The Comptroller of the Currency.

23 (b) CHAIRPERSON.—The chairperson of the Committee

24 shall be the Secretary of the Treasury.
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1 (c) DESIGNATION OF OFFICERS AND EMPLOYEES.—

2 The members of the Committee may, from time to time, des3 ignate other officers or employees of their respective agencies

4 to carry out their duties on the Committee.

5 (d) COMPENSATION AND EXPENSES.—Each member of

6 the Committee shall serve without additional compensation

7 but shall be entitled to reasonable expenses incurred in car8 rying out official duties as a member.

9 (e) FUNCTION OF THE COMMITTEE.—

10 (1) IN GENERAL.—The Committee shall meet as

11 appropriate to consider matters of mutual interest to

12 the members and to consider making recommenda13 tions to the Board of Governors of the Federal Reserve

14 System regarding the types of activities that may be

15 financial in nature for purposes of the Financial

16 Services Holding Company Act and to the Comptrol17 ler of the Currency regarding the types of activities

18 that may be incidental to banking for purposes of sec19 tion 5136 of the Revised Statutes of the United States.

20 (2) CONSIDERATION OF RECOMMENDATIONS.—

21 The Board of Governors of the Federal Reserve Sys22 tem and the Comptroller of the Currency, as appro23 priate, shall take into account any recommendation

24 made to the respective agency by the Committee and,
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1 if the agency does not adopt the recommendation,

2 shall provide a written explanation to the Committee.

3 (f) IMPROVING THE SUPERVISION, EFFICIENCY, AND

4 COMPETITIVENESS OF THE FINANCIAL SERVICES INDUS5 TRY.—

6 (1) IN GENERAL.—The Committee shall seek to

7 improve the supervision, efficiency, and competitive8 ness of the financial services industry by making rec9 ommendations for such legislative or administrative

10 action as the Committee determines to be appropriate

11 to the Congress, each agency or office represented by

12 a member on the Committee, and other agencies or de13 partments of the United States, including rec14 ommendations for changes in law and in the regula15 tions, policies, and procedures of any department or

16 agency.

17 (2) PRINTING IN FEDERAL REGISTER.—Rec18 ommendations from paragraph (1) shall be printed in

19 the Federal Register and submitted to the Committee

20 on Banking and Financial Services of the House of

21 Representatives and the Committee on Banking,

22 Housing, and Urban Affairs of the Senate.
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1 TITLE II—FUNCTIONAL

2 REGULATION

3 Subtitle A—Brokers and Dealers

4 SEC. 201. DEFINITION OF BROKER.

5 (a) IN GENERAL.—Section 3(a)(4) of the Securities

6 Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to

7 read as follows:

8 ‘‘(4) BROKER.—

9 ‘‘(A) IN GENERAL.—The term ‘broker’

10 means any person engaged in the business of

11 effecting transactions in securities for the ac12 count of others.

13 ‘‘(B) EXCLUSION OF BANKS.—The term

14 ‘broker’ does not include a bank unless such

15 bank—

16 ‘‘(i) publicly solicits the business of

17 effecting securities transactions for the ac18 count of others;

19 ‘‘(ii) is compensated for such business

20 by the payment of commissions or similar

21 remuneration based on effecting trans22 actions in securities (other than fees cal23 culated as a percentage of assets under

24 management) in excess of the bank’s incre25 mental costs directly attributable to
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1 effecting such transactions (hereafter re2 ferred to as ‘incentive compensation’); or

3 ‘‘(iii) is a separately identifiable de4 partment or division of the bank.

5 ‘‘(C) EXEMPTION FOR CERTAIN BANK AC6 TIVITIES.—A bank shall not be deemed to be a

7 broker because it engages in any of the following

8 activities under the conditions described:

9 ‘‘(i) THIRD PARTY BROKERAGE AR10 RANGEMENTS.—The bank enters into a con11 tractual or other arrangement with a broker

12 or dealer registered under this title under

13 which the broker or dealer offers brokerage

14 services on or off the premises of the bank

15 if—

16 ‘‘(I) such broker or dealer is clear17 ly identified as the person performing

18 the brokerage services;

19 ‘‘(II) the broker or dealer performs

20 brokerage services in an area that is

21 clearly marked and, unless made im22 possible by space or personnel consider23 ations, physically separate from the

24 routine deposit-taking activities of the

25 bank;
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1 ‘‘(III) any materials used by the

2 bank to advertise or promote generally

3 the availability of brokerage services

4 under the contractual or other arrange5 ment clearly indicate that the broker6 age service are being provided by the

7 broker or dealer and not by the bank;

8 ‘‘(IV) any materials used by the

9 bank to advertise or promote generally

10 the availability of brokerage services

11 under the contractual or other arrange12 ment are in compliance with the Fed13 eral securities laws before distribution;

14 ‘‘(V) bank employees perform only

15 clerical or ministerial functions in

16 connection with brokerage transactions,

17 including scheduling appointments

18 with the associated persons of a broker

19 or dealer and, on behalf of a broker or

20 dealer, transmitting orders or handling

21 customers funds or securities, except

22 that bank employees who are not so

23 qualified may describe in general terms

24 investment vehicles under the contrac25 tual or other arrangement and accept
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1 customer orders on behalf of the broker

2 or dealer if such employees have re3 ceived training that is substantially

4 equivalent to the training required for

5 personnel qualified to sell securities

6 pursuant to the requirements of a self7 regulatory organization (as defined in

8 section 3(a) of the Securities Exchange

9 Act of 1934);

10 ‘‘(VI) bank employees do not di11 rectly receive incentive compensation

12 for any brokerage transaction unless

13 such employees are associated persons

14 of a broker or dealer and are qualified

15 pursuant to the requirements of a self16 regulatory organization (as so defined)

17 except that the bank employees may re18 ceive nominal cash and noncash com19 pensation for customer referrals if the

20 cash compensation is a 1-time fee of a

21 fixed dollar amount and the payment

22 of the fee is not contingent on whether

23 the referral results in a transaction;

24 ‘‘(VII) such services are provided

25 by the broker or dealer on a basis in
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1 which all customers which receive any

2 services are fully disclosed to the broker

3 or dealer; and

4 ‘‘(VIII) the broker or dealer in5 forms each customer that the brokerage

6 services are provided by the broker or

7 dealer and not by the bank and that

8 the securities are not deposits or other

9 obligations of the bank, are not guar10 anteed by the bank, and are not in11 sured by the Federal Deposit Insurance

12 Corporation.

13 ‘‘(ii) TRUST ACTIVITIES.—The bank

14 engages in trust activities (including

15 effecting transactions in the course of such

16 trust activities) permissible for national

17 banks under the first section of the Act of

18 September 28, 1962, or for State banks

19 under relevant State trust statutes or law

20 (including securities safekeeping, self-di21 rected individual retirement accounts, or

22 managed agency accounts or other function23 ally equivalent accounts of a bank) unless

24 the bank—
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1 ‘‘(I) publicly solicits brokerage

2 business, other than by advertising that

3 it effects transactions in securities in

4 conjunction with advertising its other

5 trust activities; or

6 ‘‘(II) receives incentive compensa7 tion for such brokerage activities.

8 ‘‘(iii) PERMISSIBLE SECURITIES

9 TRANSACTIONS.—The bank effects trans10 actions in exempted securities, other than

11 municipal securities, or in commercial

12 paper, bankers acceptances, commercial

13 bills, qualified Canadian Government obli14 gations as defined in section 5136 of the Re15 vised Statues, obligations of the Washington

16 Metropolitan Area Transit Authority which

17 are guaranteed by the Secretary of Trans18 portation under section 9 of the National

19 Capital Transportation Act of 1969, obliga20 tions of the North American Development

21 Bank, and obligations of any local public

22 agency (as defined in section 110(h) of the

23 Housing Act of 1949) or any public housing

24 agency (as defined in the United States

25 Housing Act of 1937) that are expressly au-
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1 thorized by section 5136 of the Revised Stat2 utes of the United States as permissible for

3 a national bank to underwrite or deal in.

4 ‘‘(iv) MUNICIPAL SECURITIES.—The

5 bank effects transactions in municipal secu6 rities.

7 ‘‘(v) EMPLOYEE AND SHAREHOLDER

8 BENEFIT PLANS.—The bank effects trans9 actions as part of any bonus, profit-sharing,

10 pension, retirement, thrift, savings, incen11 tive, stock purchase, stock ownership, stock

12 appreciation, stock option, dividend rein13 vestment, or similar plan for employees or

14 shareholders of an issuer or its subsidiaries.

15 ‘‘(vi) SWEEP ACCOUNTS.—The bank ef16 fects transactions as part of a program for

17 the investment or reinvestment of bank de18 posit funds into any no-load, open-end

19 management investment company registered

20 under the Investment Company Act of 1940

21 that holds itself out as a money market

22 fund.

23 ‘‘(vii) AFFILIATE TRANSACTIONS.—The

24 bank effects transactions for the account of

25 any affiliate of the bank, as defined in sec-
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1 tion 2 of the Financial Services Holding

2 Company Act of 1995.

3 ‘‘(viii) PRIVATE SECURITIES OFFER4 INGS.—The bank—

5 ‘‘(I) effects sales as part of a pri6 mary offering of securities by an is7 suer, not involving a public offering,

8 pursuant to section 3(b), 4(2), or 4(6)

9 of the Securities Act of 1933 and the

10 rules and regulations issued there11 under;

12 ‘‘(II) effects such sales exclusively

13 to an accredited investor, as defined in

14 section 3 of the Securities Act of 1933;

15 and

16 ‘‘(III) if affiliated with a securi17 ties affiliate, as provided under section

18 10 of the Financial Services Holding

19 Company Act of 1995—

20 ‘‘(aa) has not been so affili21 ated for more than 1 year; or

22 ‘‘(bb) effects such sales

23 through a separately identifiable

24 department or division that itself

25 shall be deemed to be a broker.
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1 ‘‘(ix) DE MINIMIS EXEMPTION.—If the

2 bank does not have a subsidiary or affiliate

3 registered as a broker or dealer under sec4 tion 15, the bank effects, other than in

5 transactions referenced in clauses (i)

6 through (viii), not more than—

7 ‘‘(I) 800 transactions in any cal8 endar year in securities for which a

9 ready market exists, and

10 ‘‘(II) 200 other transactions in se11 curities in any calendar year.

12 ‘‘(x) SAFEKEEPING AND CUSTODY

13 SERVICES.—The bank, as part of customary

14 banking activities—

15 ‘‘(I) provides safekeeping or cus16 tody services with respect to securities,

17 including the exercise of warrants or

18 other rights on behalf of customers;

19 ‘‘(II) clears or settles transactions

20 in securities;

21 ‘‘(III) effects securities lending or

22 borrowing transactions with or on be23 half of customers as part of services

24 provided to customers pursuant to

25 subclauses (I) and (II) or invests cash
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1 collateral pledged in connection with

2 such transactions; or

3 ‘‘(IV) holds securities pledged by 1

4 customer to another customer or securi5 ties subject to resale agreements be6 tween customers or facilitates the

7 pledging or transfer of such securities

8 by book entry.

9 ‘‘(xi) BANKING PRODUCTS.—The bank

10 effects transactions that have been deter11 mined pursuant to section 10(k)(3)(C) to be

12 more appropriately treated as banking

13 products, if the bank effects such trans14 actions through a separately identifiable de15 partment or division that itself shall be

16 deemed to be a broker.

17 ‘‘(D) EXEMPTION FOR ENTITIES SUBJECT

18 TO SECTION 15(e).—The term ‘broker’ does not

19 include a bank that—

20 ‘‘(i) was, immediately prior to the en21 actment of the Financial Services Competi22 tiveness Act of 1995, subject to section 15(e);

23 and
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1 ‘‘(ii) is subject to such restrictions and

2 requirements as the Commission deems ap3 propriate.’’.

4 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DI5 VISION DEFINED.—Section 3(a) of the Securities Exchange

6 Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at

7 the end the following new paragraph:

8 ‘‘(54) For purposes of paragraphs (4) and (5),

9 the term ‘separately identifiable department or divi10 sion’ of a bank means a unit—

11 ‘‘(A) that is under the direct supervision of

12 an officer or officers designated by the board of

13 directors of the bank as responsible for the day14 to-day conduct of the bank’s activities, including

15 the supervision of all bank employees engaged in

16 the performance of such activities; and

17 ‘‘(B) for which all of the records relating to

18 its activities described in paragraphs (4) and (5)

19 are separately maintained in or extractable from

20 such unit’s own facilities or the facilities of the

21 bank, and such records are so maintained or oth22 erwise accessible as to permit independent exam23 ination and enforcement of this Act and rules

24 and regulations promulgated under this Act.’’.
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1 (c) REGULATION.—Section 15(c) of the Securities Ex2 change Act of 1934 (15 U.S.C. 78o(c)) is amended by add3 ing at the end the following new paragraph:

4 ‘‘(8)(A) The Commission may prescribe rules,

5 after consultation with and considering the views of

6 the appropriate Federal banking agencies, with re7 spect to a broker or dealer that is a separately identi8 fiable department or division of a bank as the Com9 mission finds necessary in the public interest or for

10 the protection of investors to take into account the

11 characteristics of a separately identifiable department

12 or division of a bank.

13 ‘‘(B) If a bank of which a separately identifiable

14 department or division is a part is adequately cap15 italized (as defined by the bank’s appropriate Federal

16 banking agency), the separately identifiable depart17 ment or division that is a broker or dealer shall be

18 deemed to be in compliance with the net capital rules

19 adopted pursuant to paragraph (3).’’.

20 SEC. 202. DEFINITION OF DEALER.

21 Section 3(a)(5) of the Securities Exchange Act of 1934

22 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

23 ‘‘(5) DEALER.—

24 ‘‘(A) IN GENERAL.—The term ‘dealer’

25 means any person engaged in the business of
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1 buying and selling securities for his own account

2 through a broker or otherwise.

3 ‘‘(B) EXCEPTIONS.—Such term does not in4 clude—

5 ‘‘(i) a person that buys or sells securi6 ties for such person’s own account, either

7 individually or in a fiduciary capacity, but

8 not as a part of a regular business; or

9 ‘‘(ii) a bank, to the extent that the

10 bank—

11 ‘‘(I) buys and sells commercial

12 paper, bankers acceptances, exempted

13 securities (other than municipal secu14 rities), qualified Canadian Govern15 ment obligations as defined in section

16 5136 of the Revised Statues, obliga17 tions of the Washington Metropolitan

18 Area Transit Authority which are

19 guaranteed by the Secretary of Trans20 portation under section 9 of the Na21 tional Capital Transportation Act of

22 1969, obligations of the North Amer23 ican Development Bank, and obliga24 tions of any local public agency (as de25 fined in section 110(h) of the Housing
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1 Act of 1949) or any public housing

2 agency (as defined in the United States

3 Housing Act of 1937) that are ex4 pressly authorized by section 5136 of

5 the Revised Statutes of the United

6 States as permissible for a national

7 bank to underwrite or deal in;

8 ‘‘(II) buys and sells municipal se9 curities;

10 ‘‘(III) buys and sells securities for

11 investment purposes for the bank or for

12 accounts for which the bank acts as a

13 trustee or fiduciary;

14 ‘‘(IV) engages in the issuance or

15 sale of designated asset-back securities

16 through a grantor trust or otherwise

17 and—

18 ‘‘(aa) has not been affiliated

19 with a securities affiliate under

20 section 10 of the Financial Serv21 ices Holding Company Act of

22 1995 for more than 1 year; or

23 ‘‘(bb) effects such trans24 actions through a separately iden25 tifiable department or division
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1 that itself shall be deemed to be a

2 dealer; or

3 ‘‘(V) buys and sells securities that

4 have been determined pursuant to sec5 tion 10(k)(3)(C) to be more appro6 priately treated as banking products, if

7 a separately identifiable department or

8 division that itself is deemed to be a

9 broker or dealer for purposes of this

10 Act engages in such purchases and

11 sales.

12 ‘‘(C) DESIGNATED ASSET-BACKED SECURI13 TIES DEFINED.—For purposes of subparagraph

14 (B)(ii)(IV), the term ‘designated asset-backed se15 curities’ means—

16 ‘‘(i) securities backed by or represent17 ing an interest in 1–4 family residential

18 mortgages originated or purchased by the

19 bank, its affiliates, or its subsidiaries; and

20 ‘‘(ii) securities backed by or represent21 ing an interest in consumer receivables or

22 consumer leases originated or purchased by

23 the bank, its affiliates, or its subsidiaries.’’.
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1 SEC. 203. POWER TO EXEMPT FROM THE DEFINITIONS OF

2 BROKER AND DEALER.

3 Section 3 of the Securities Exchange Act of 1934 (15

4 U.S.C. 78c) is amended by adding at the end the following:

5 ‘‘(e) EXEMPTION FROM DEFINITION OF BROKER OR

6 DEALER.—The Commission, by regulation or order, upon

7 its own motion or upon application, may conditionally or

8 unconditionally exclude any person or class of persons from

9 the definitions of ‘broker’ or ‘dealer’, if the Commission

10 finds that such exclusion is consistent with the public inter11 est, the protection of investors, and the purposes of this

12 title.’’.

13 SEC. 204. MARGIN REQUIREMENTS.

14 (a) Section 7(d) of the Securities Exchange Act of 1934

15 (15 U.S.C. 15g(d)) is amended by striking ‘‘or (E)’’ and

16 inserting ‘‘(E) to a loan to a broker or dealer by a member

17 bank or any other person that has entered into an agree18 ment pursuant to section 8(a) if the proceeds of the loan

19 are to be used in the ordinary course of the broker’s or deal20 er’s business other than for the purpose of funding the pur21 chase of securities for the account of such broker or dealer,

22 or (F)’’.

23 (b) Section 8(a) of the Securities and Exchange Act

24 of 1934 is amended—

25 (1) by striking ‘‘nonmember bank’’ and inserting

26 ‘‘person other than a member bank’’; and
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1 (2) by striking ‘‘such bank’’ in the second sen2 tence and inserting ‘‘such person’’.

3 SEC. 205. EFFECTIVE DATE.

4 This subtitle shall become effective 270 days after the

5 date of enactment of this Act.

6 Subtitle B—Bank Investment

7 Company Activities

8 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

9 AFFILIATED BANK.

10 (a) MANAGEMENT COMPANIES.—Section 17(f) of the

11 Investment Company Act of 1940 (15 U.S.C. 80a–17(f)) is

12 amended—

13 (1) by redesignating paragraphs (1), (2), and (3)

14 as subparagraphs (A), (B), and (C), respectively;

15 (2) by striking ‘‘(f) Every registered’’ and insert16 ing ‘‘(f) CUSTODY OF SECURITIES.—

17 ‘‘(1) Every registered’’;

18 (3) by designating the 2d, 3d, 4th, and 5th sen19 tences of such subsection as paragraphs (2) through

20 (5), respectively, and indenting the left margin of

21 such paragraphs appropriately; and

22 (4) by adding at the end the following new para23 graph:

24 ‘‘(6) Notwithstanding any provision of this sub25 section, if a bank described in paragraph (1) or an
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1 affiliated person of such bank is an affiliated person,

2 promoter, organizer, or sponsor of, or principal un3 derwriter for the registered company, such bank may

4 serve as custodian under this subsection in accordance

5 with such rules, regulations, or orders as the Commis6 sion may prescribe, consistent with the protection of

7 investors, after consulting in writing with the appro8 priate Federal banking agency, as defined in section

9 3 of the Federal Deposit Insurance Act.’’.

10 (b) UNIT INVESTMENT TRUSTS.—Section 26(a)(1) of

11 the Investment Company Act of 1940 (15 U.S.C. 80a–

12 26(a)(1)) is amended by inserting before the semicolon at

13 the end the following: ‘‘, except that, if the trustee or custo14 dian described in this subsection is an affiliated person of

15 such underwriter or depositor, the Commission may adopt

16 rules and regulations or issue orders, consistent with the

17 protection of investors, prescribing the conditions under

18 which such trustee or custodian may serve, after consulting

19 in writing with the appropriate Federal banking agency

20 (as defined in section 3 of the Federal Deposit Insurance

21 Act)’’.

22 (c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)

23 of the Investment Company Act of 1940 (15 U.S.C. 80a–

24 35(a)) is amended—
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1 (1) in paragraph (1), by striking ‘‘or’’ at the

2 end;

3 (2) in paragraph (2), by striking the period at

4 the end and inserting ‘‘; or ‘‘; and

5 (3) by inserting after paragraph (2) the follow6 ing:

7 ‘‘(3) as custodian.’’.

8 SEC. 212. INDEBTEDNESS TO AFFILIATED PERSON.

9 Section 10(f) of the Investment Company Act of 1940

10 (15 U.S.C. 80a–10(f)) is amended—

11 (1) in the 1st sentence, by striking ‘‘issuer) a

12 principal underwriter’’ and inserting ‘‘issuer)—

13 ‘‘(1) a principal underwriter’’; and

14 (2) by striking ‘‘for the issuer. The Commission’’

15 and inserting ‘‘for the issuer; or

16 ‘‘(2) the issuer of which has a material lending

17 relationship with the adviser of such registered invest18 ment company or any person controlling, controlled

19 by, or under common control with the adviser in con20 travention of such rules, regulations, or orders as the

21 Commission may prescribe in the public interest and

22 consistent with the protection of investors.

23 The Commission’’.
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1 SEC. 213. LENDING TO AN AFFILIATED INVESTMENT COM2 PANY.

3 Section 18 of the Investment Company Act of 1940 (15

4 U.S.C. 80a–18) is amended by adding at the end the follow5 ing:

6 ‘‘(l) Notwithstanding any provision of this section, it

7 shall be unlawful for any affiliated person of a registered

8 investment company or any affiliated person of such a per9 son to loan money to such investment company in con10 travention of such rules, regulations, or orders as the Com11 mission may prescribe in the public interest and consistent

12 with the protection of investors.’’.

13 SEC. 214. INDEPENDENT DIRECTORS.

14 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest15 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

16 is amended—

17 (1) by striking clause (v) and inserting the fol18 lowing new clause:

19 ‘‘(v) any person (other than a reg20 istered investment company) that, at any

21 time during the preceding 6 months, has ex22 ecuted any portfolio transactions for, en23 gaged in any principal transactions with,

24 or distributed shares for—

25 ‘‘(I) the investment company,
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1 ‘‘(II) any other investment com2 pany having the same investment ad3 viser as such investment company or

4 holding itself out to investors as a re5 lated company for purposes of invest6 ment or investor services, or

7 ‘‘(III) any account over which the

8 investment company’s investment ad9 viser has brokerage placement discre10 tion,

11 or any affiliated person of such a person,’’;

12 (2) by redesignating clause (vi) as clause (vii);

13 and

14 (3) by inserting after clause (v) the following

15 new clause:

16 ‘‘(vi) any person (other than a reg17 istered investment company) that, at any

18 time during the preceding 6 months, has

19 loaned money to—

20 ‘‘(I) the investment company,

21 ‘‘(II) any other investment com22 pany having the same investment ad23 viser as such investment company or

24 holding itself out to investors as a re-
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1 lated company for purposes of invest2 ment or investor services, or

3 ‘‘(III) any account for which the

4 investment company’s investment ad5 viser has borrowing authority,

6 or any affiliated person of such a person,

7 or’’.

8 (b) AFFILIATION OF DIRECTORS.—Section 10(c) of the

9 Investment Company Act of 1940 (15 U.S.C. 80a–10(c)) is

10 amended by striking ‘‘bank, except’’ and inserting ‘‘bank

11 (and its subsidiaries) or any single financial services hold12 ing company (and its affiliates and subsidiaries), as those

13 terms are defined in the Financial Services Holding Com14 pany Act of 1995, except’’.

15 (c) EFFECTIVE DATE.—The provisions of subsection

16 (a) of this section shall become effective 1 year after the

17 date of enactment of this subtitle.

18 SEC. 215. ADDITIONAL SEC DISCLOSURE AUTHORITY.

19 (a) MISREPRESENTATION.—Section 35(a) of the In20 vestment Company Act of 1940 (15 U.S.C. 80a–34(a)) is

21 amended to read as follows:

22 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

23 ‘‘(1) IN GENERAL.—It shall be unlawful for any

24 person, issuing or selling any security of which a reg25 istered investment company is the issuer, to represent
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1 or imply in any manner whatsoever that such secu2 rity or company—

3 ‘‘(A) has been guaranteed, sponsored, rec4 ommended, or approved by the United States, or

5 any agency, instrumentality or officer of the

6 United States;

7 ‘‘(B) has been insured by the Federal De8 posit Insurance Corporation; or

9 ‘‘(C) is guaranteed by or is otherwise an ob10 ligation of any bank or insured depository insti11 tution.

12 ‘‘(2) DISCLOSURES.—Any person issuing or sell13 ing the securities of a registered investment company

14 shall prominently disclose that the investment com15 pany or any security issued by the investment com16 pany—

17 ‘‘(A) is not insured by the Federal Deposit

18 Insurance Corporation;

19 ‘‘(B) is not guaranteed by an affiliated in20 sured depository institution; and

21 ‘‘(C) is not otherwise an obligation of any

22 bank or insured depository institution,

23 in accordance with such rules, regulations, or orders

24 as the Commission may prescribe as reasonably nec25 essary or appropriate in the public interest for the
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1 protection of investors, after consulting in writing

2 with the appropriate Federal banking agencies.

3 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi4 tory institution’ and ‘appropriate Federal banking

5 agency’ have the meanings given to such terms in sec6 tion 3 of the Federal Deposit Insurance Act.’’.

7 (b) DECEPTIVE USE OF NAMES.—Section 35(d) of the

8 Investment Company Act of 1940 (15 U.S.C. 80a–34(d))

9 is amended to read as follows:

10 ‘‘(d)(1) It shall be unlawful for any registered invest11 ment company to adopt as part of the name or title of such

12 company, or of any securities of which it is the issuer, any

13 word or words that the Commission finds are materially

14 deceptive or misleading. The Commission may adopt such

15 rules or regulations or issue such orders as are necessary

16 or appropriate to prevent the use of deceptive or misleading

17 names or titles by investment companies.

18 ‘‘(2) It shall be deceptive and misleading for any reg19 istered investment company (A) that is an affiliated person

20 of a bank or an affiliated person of such a person, or (B)

21 for which a bank or an affiliated person of a bank acts

22 as investment adviser, sponsor, promoter, or principal un23 derwriter, to adopt, as part of the name or title of such

24 company, or of any security of which it is an issuer, any

25 word that is the same or similar to, or a variation of, the
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1 name or title of such bank or affiliated person thereof, in

2 contravention of such rules, regulations, or orders as the

3 Commission may prescribe as necessary or appropriate in

4 the public interest or for the protection of investors.’’.

5 SEC. 216. DEFINITION OF BROKER UNDER THE INVEST6 MENT COMPANY ACT OF 1940.

7 Section 2(a)(6) of the Investment Company Act of

8 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as follows:

9 ‘‘(6) ‘Broker’ has the same meaning as in the Se10 curities Exchange Act of 1934, except that it does not

11 include any person solely by reason of the fact that

12 such person is an underwriter for 1 or more invest13 ment companies.’’.

14 SEC. 217. DEFINITION OF DEALER UNDER THE INVESTMENT

15 COMPANY ACT OF 1940.

16 Section 2(a)(11) of the Investment Company Act of

17 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol18 lows:

19 ‘‘(11) The term ‘dealer’ has the same meaning as

20 in the Securities Exchange Act of 1934, but does not

21 include an insurance company or investment com22 pany.’’.
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1 SEC. 218. REMOVAL OF THE EXCLUSION FROM THE DEFINI2 TION OF INVESTMENT ADVISER FOR BANKS

3 THAT ADVISE INVESTMENT COMPANIES.

4 (a) INVESTMENT ADVISER.—Section 202(a)(11) of the

5 Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11))

6 is amended in subparagraph (A), by striking ‘‘investment

7 company’’ and inserting ‘‘investment company, except that

8 the term ‘investment adviser’ includes any bank or finan9 cial services holding company to the extent that such bank

10 or financial services holding company acts as an investment

11 adviser to a registered investment company, or if, in the

12 case of a bank, such services are performed through a sepa13 rately identifiable department or division, the department

14 or division, and not the bank itself, shall be deemed to be

15 the investment adviser’’.

16 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DI17 VISION.—Section 202(a) of the Investment Advisers Act of

18 1940 (15 U.S.C. 80b–2(a)) is amended by adding at the

19 end the following:

20 ‘‘(25) The term ‘separately identifiable depart21 ment or division’ of a bank means a unit—

22 ‘‘(A) that is under the direct supervision of

23 an officer or officers designated by the board of

24 directors of the bank as responsible for the day25 to-day conduct of the bank’s investment adviser

26 activities for 1 or more investment companies,
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1 including the supervision of all bank employees

2 engaged in the performance of such activities;

3 and

4 ‘‘(B) for which all of the records relating to

5 its investment adviser activities are separately

6 maintained in or extractable from such unit’s

7 own facilities or the facilities of the bank, and

8 such records are so maintained or otherwise ac9 cessible as to permit independent examination

10 and enforcement of this Act or the Investment

11 Company Act of 1940 and rules and regulations

12 promulgated under this Act or the Investment

13 Company Act of 1940.’’.

14 SEC. 219. DEFINITION OF BROKER UNDER THE INVEST15 MENT ADVISERS ACT OF 1940.

16 Section 202(a)(3) of the Investment Advisers Act of

17 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as follows:

18 ‘‘(3) The term ‘broker’ has the same meaning as

19 in the Securities Exchange Act of 1934.’’.

20 SEC. 220. DEFINITION OF DEALER UNDER THE INVESTMENT

21 ADVISERS ACT OF 1940.

22 Section 202(a)(7) of the Investment Advisers Act of

23 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as follows:

24 ‘‘(7) The term ‘dealer’ has the same meaning as

25 in the Securities Exchange Act of 1934, but does not
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1 include an insurance company or investment com2 pany.’’.

3 SEC. 221. INTERAGENCY CONSULTATION.

4 The Investment Advisers Act of 1940 (15 U.S.C. 80b–

5 1 et seq.) is amended by inserting after section 210 the fol6 lowing new section:

7 ‘‘SEC. 210A. CONSULTATION.

8 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA9 TION.—

10 ‘‘(1) The appropriate Federal banking agency

11 shall provide the Commission upon request the results

12 of any examination, reports, records, or other infor13 mation as each may have access to with respect to the

14 investment advisory activities of any financial serv15 ices holding company, bank, or separately identifiable

16 department or division of a bank, that is registered

17 under section 203 of this title, or, in the case of a fi18 nancial services holding company or bank, that has

19 a subsidiary or a separately identifiable department

20 or division registered under that section, to the extent

21 necessary for the Commission to carry out its statu22 tory responsibilities.

23 ‘‘(2) The Commission shall provide to the appro24 priate Federal banking agency upon request the re25 sults of any examination, reports, records, or other
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1 information with respect to the investment advisory

2 activities of any financial services holding company,

3 bank, or separately identifiable department or divi4 sion of a bank, any of which is registered under sec5 tion 203 of this title, to the extent necessary for the

6 agency to carry out its statutory responsibilities.

7 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing herein

8 shall limit in any respect the authority of the appropriate

9 Federal banking agency with respect to such financial serv10 ices holding company, bank, or department or division

11 under any provision of law.

12 ‘‘(c) DEFINITION.—For purposes of this section, the

13 term ‘appropriate Federal banking agency’ shall have the

14 same meaning as in section 3 of the Federal Deposit Insur15 ance Act.’’.

16 SEC. 222. TREATMENT OF BANK COMMON TRUST FUNDS.

17 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of the

18 Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended

19 by striking ‘‘or any interest or participation in any com20 mon trust fund or similar fund maintained by a bank ex21 clusively for the collective investment and reinvestment of

22 assets contributed thereto by such bank in its capacity as

23 trustee, executor, administrator, or guardian’’ and insert24 ing ‘‘or any interest or participation in any common trust

25 fund or similar fund that is excluded from the definition
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1 of the term ‘investment company’ under section 3(c)(3) of

2 the Investment Company Act of 1940’’.

3 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

4 3(a)(l2)(A)(iii) of the Securities Exchange Act of 1934 (15

5 U.S.C. 78c(a)(l2)(A)(iii)) is amended to read as follows:

6 ‘‘(iii) any interest or participation in any

7 common trust fund or similar fund that is ex8 cluded from the definition of the term ‘invest9 ment company’ under section 3(c)(3) of the In10 vestment Company Act of 1940;’’.

11 (c) INVESTMENT COMPANY ACT OF 1940.—Section

12 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C.

13 80a–3(c)(3)) is amended by inserting before the period the

14 following: ‘‘, if—

15 ‘‘(A) such fund is employed by the bank

16 solely as an aid to the administration of trusts,

17 estates, or other accounts created and main18 tained for a fiduciary purpose;

19 ‘‘(B) except in connection with the ordinary

20 advertising of the bank’s fiduciary services, in21 terests in such fund are not—

22 ‘‘(i) advertised; or

23 ‘‘(ii) offered for sale to the general pub24 lic; and
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1 ‘‘(C) fees and expenses charged by such fund

2 are not in contravention of fiduciary principles

3 established under applicable Federal or State

4 law’’.

5 (d) TAX EFFECT.—It is the sense of the Congress that

6 the public interest would be furthered by enacting legisla7 tion to amend section 584 of the Internal Revenue Code of

8 1986 by inserting after subsection (h) the following new sub9 section:

10 ‘‘(i) CONVERSION, MERGERS, OR REORGANIZATION OF

11 COMMON TRUST FUNDS.—Notwithstanding any other pro12 vision of the Internal Revenue Code, any transfer of all or

13 substantially all of the assets of a common trust fund tax14 able under this section to a registered investment company

15 taxable under subchapter M shall not result in a gain or

16 loss to the participants in such common trust fund where

17 the transfer is a result of a merger, conversion, reorganiza18 tion, transfer, or other similar transaction or series of

19 transactions.’’.

20 SEC. 223. INVESTMENT ADVISERS PROHIBITED FROM HAV21 ING CONTROLLING INTEREST IN REG22 ISTERED INVESTMENT COMPANY.

23 Section 15 of the Investment Company Act of 1940 (15

24 U.S.C. 80a–15) is amended by adding at the end the follow25 ing new subsection:
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1 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM2 PANY PROHIBITED.—

3 ‘‘(1) IN GENERAL.—If any investment adviser to

4 a registered investment company, or an affiliated per5 son of that investment adviser, holds a controlling in6 terest in that registered investment company in a

7 trustee or fiduciary capacity, such person shall—

8 ‘‘(A) if it holds the shares in a trustee or fi9 duciary capacity with respect to any employee

10 benefit plan subject to the Employee Retirement

11 Income Security Act of 1974, transfer the power

12 to vote the shares of the investment company

13 through to another person acting in a fiduciary

14 capacity with respect to the plan who is not an

15 affiliated person of that investment adviser or

16 any affiliated person thereof; or

17 ‘‘(B) if it holds the shares in a trustee or fi18 duciary capacity with respect to any other per19 son or entity other than an employee benefit

20 plan subject to the Employee Retirement Income

21 Security Act of 1974—

22 ‘‘(i) transfer the power to vote the

23 shares of the investment company through

24 to—
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1 ‘‘(I) the beneficial owners of the

2 shares;

3 ‘‘(II) another person acting in a

4 fiduciary capacity who is not an affili5 ated person of that investment adviser

6 or any affiliated person thereof; or

7 ‘‘(III) any person authorized to

8 receive statements and information

9 with respect to the trust who is not an

10 affiliated person of that investment ad11 viser or any affiliated person thereof;

12 ‘‘(ii) vote the shares of the investment

13 company held by it in the same proportion

14 as shares held by all other shareholders of

15 the investment company; or

16 ‘‘(iii) vote the shares of the investment

17 company as otherwise permitted under such

18 rules, regulations, or orders as the Commis19 sion may prescribe for the protection of in20 vestors.

21 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

22 apply to any investment adviser to a registered in23 vestment company, or an affiliated person of that in24 vestment adviser, holding shares of the investment

25 company in a trustee or fiduciary capacity if that
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1 registered investment company consists solely of assets

2 held in such capacities.

3 ‘‘(3) SAFE HARBOR.—No investment adviser to a

4 registered investment company or any affiliated per5 son of such investment adviser shall be deemed to have

6 acted unlawfully or to have breached a fiduciary duty

7 under State or Federal law solely by reason of acting

8 in accordance with clause (i), (ii), or (iii) of para9 graph (1)(B).

10 ‘‘(4) CHURCH PLAN EXEMPTION.—Paragraph (1)

11 shall not apply to any investment adviser to a reg12 istered investment company, or an affiliated person of

13 that investment adviser, holding shares in such a ca14 pacity, if such investment adviser or such affiliated

15 person is an organization described in section

16 414(e)(3)(A) of the Internal Revenue Code of 1986.’’.

17 SEC. 224. CONFORMING CHANGE IN DEFINITION.

18 Section 2(a)(5) of the Investment Company Act of

19 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking ‘‘(A)

20 a banking institution organized under the laws of the Unit21 ed States’’ and inserting ‘‘(A) a depository institution (as

22 defined in section 3 of the Federal Deposit Insurance Act)

23 or a branch or agency of a foreign bank (as such terms

24 are defined in section 101(b) of the International Banking

25 Act of 1978)’’.
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1 SEC. 225. EFFECTIVE DATE.

2 This subtitle shall take effect 270 days after the date

3 of the enactment of this Act.

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