I

104TH CONGRESS

1ST SESSION H. R. 1062

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

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

5 ‘‘Financial Services Competitiveness Act of 1995’’.

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

7 this Act is as follows:
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TITLE I—BANK SECURITIES ACTIVITIES AND AFFILIATIONS

WITH SECURITIES FIRMS AND OTHER FINANCIAL COMPANIES

Subtitle A—Securities Activities

Sec. 101. Anti-affiliation provision of Glass-Steagall Act repealed.

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

affiliates.

Sec. 103. Establishment and operations of securities affiliates.

Sec. 104. Unitary thrift holding companies.

Sec. 105. Securities company affiliations of FDIC-insured banks.

Sec. 106. Authority to terminate grandfather rights under the International

Banking Act of 1978.

Sec. 107. Effect on State laws prohibiting the affiliation of banks and securities

companies.

Sec. 108. Municipal securities.

Sec. 109. Investment bank holding companies.

Sec. 110. Conforming amendments for investment bank holding companies.

Sec. 111. Effective date.

Subtitle B—Brokers and Dealers

Sec. 120. Definition of broker.

Sec. 121. Definition of dealer.

Sec. 122. Power to exempt from the definitions of broker and dealer.

Sec. 123. Margin requirements.

Sec. 124. Effective date.

Subtitle C—Bank Investment Company Activities

Sec. 130. Custody of investment company assets by affiliated bank.

Sec. 131. Affiliated transactions.

Sec. 132. Borrowing from an affiliated bank.

Sec. 133. Independent directors.

Sec. 134. Additional SEC disclosure authority.

Sec. 135. Definition of broker under the Investment Company Act of 1940.

Sec. 136. Definition of dealer under the Investment Company Act of 1940.

Sec. 137. Removal of the exclusion from the definition of investment adviser for

banks that advise investment companies.

Sec. 138. Definition of broker under the Investment Advisers Act of 1940.

Sec. 139. Definition of dealer under the Investment Advisers Act of 1940.

Sec. 140. Interagency consultation.

Sec. 141. Treatment of bank common trust funds.

Sec. 142. Investment advisers prohibited from having controlling interest in

registered investment company.

Sec. 143. Purchase of investment company securities as fiduciary.

Sec. 144. Conforming change in definition.

Sec. 145. Effective date.

Subtitle D—Financial Activities

Sec. 150. Financial activities.

Sec. 151. No prior approval required for well capitalized and well managed

financial services holding companies.

Sec. 152. Conforming amendment to the Bank Holding Company Act.

Sec. 153. Conforming amendment to the Bank Holding Company Act Amendments of 1970.
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Sec. 154. Elimination of duplicative applications.

1 TITLE I—BANK SECURITIES ACTIVITIES

2 AND AFFILIATIONS WITH SECURITIES

3 FIRMS AND OTHER FINANCIAL COM4 PANIES

5 Subtitle A—Securities Activities

6 SEC. 101. ANTI-AFFILIATION PROVISION OF GLASS7 STEAGALL ACT REPEALED.

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

9 377) of the Banking Act of 1933 is repealed.

10 (b) CONFORMING AMENDMENT TO SECTION 32.—

11 Section 32 (12 U.S.C. 78) of the Banking Act of 1933

12 is amended by adding at the end the following sentence:

13 ‘‘This section does not prohibit an officer, director, or em14 ployee of a securities affiliate (as defined in section 2 of

15 the Bank Holding Company Act of 1956) from serving

16 at the same time as an officer, director, or employee of

17 a member bank affiliated with that securities affiliate

18 under section 10 of the Bank Holding Company Act of

19 1956.’’.

20 SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AU21 THORIZED TO HAVE SECURITIES AFFILIATES.

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

23 1956 (12 U.S.C. 1943(c)) is amended—

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

25 (13);
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1 (2) by striking the period at the end of para2 graph (14) and inserting ‘‘; or’’; and

3 (3) by adding after paragraph (14) the follow4 ing new paragraph:

5 ‘‘(15) shares of a securities affiliate in accord6 ance with section 10.’’.

7 SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURI8 TIES AFFILIATES.

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

10 Company Act of 1956 (12 U.S.C. 1841 et seq.) is amend11 ed to read as follows:

12 ‘‘SEC. 10. SECURITIES ACTIVITIES.

13 ‘‘(a) ACTIVITIES PERMISSIBLE FOR SECURITIES AF14 FILIATES.—A securities affiliate may engage in 1 or more

15 of the following activities:

16 ‘‘(1) Underwrite, deal in, broker, place, or dis17 tribute securities of any type, provide investment ad18 vice regarding securities of any type, and engage in

19 other securities activities as determined by the

20 Board.

21 ‘‘(2) Sponsor, organize, control, manage, and

22 act as investment adviser to an investment company.

23 ‘‘(3) Engage in, or acquire the shares of a com24 pany engaged in any activity if—
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1 ‘‘(A) a provision of section 4(c) permits fi2 nancial services holding companies generally to

3 engage in that activity or acquire those shares;

4 and

5 ‘‘(B) either—

6 ‘‘(i) the Board permits the financial

7 services holding company to engage in that

8 activity or acquire those shares through

9 the securities affiliate; or

10 ‘‘(ii) that provision permits the finan11 cial services holding company to engage in

12 that activity or acquire those shares with13 out the Board’s approval.

14 ‘‘(b) ACQUIRING INTEREST IN SECURITIES AFFILI15 ATE.—

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

17 holding company shall not, without complying with

18 and receiving approval pursuant to the notice proce19 dure in section 4(j)(1), directly or indirectly acquire

20 or retain more than 5 percent of the voting shares

21 of, or all or substantially all of the assets of, a secu22 rities affiliate (or a company that would be a securi23 ties affiliate if the Board permitted the financial

24 services holding company to acquire that company).
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1 ‘‘(2) CRITERIA FOR APPROVAL.—The Board

2 shall disapprove a notice required under paragraph

3 (1) unless the Board determines that all of the fol4 lowing are satisfied:

5 ‘‘(A) CAPITAL.—

6 ‘‘(i) INSURED DEPOSITORY INSTITU7 TIONS.—

8 ‘‘(I) The lead insured depository

9 institution of the financial services

10 holding company is well capitalized.

11 ‘‘(II) Well capitalized insured de12 pository institutions control at least

13 80 percent of the aggregate total risk14 weighted assets of insured depository

15 institutions controlled by the financial

16 services holding company.

17 ‘‘(III) All insured depository in18 stitutions controlled by the financial

19 services holding company are well cap20 italized or adequately capitalized.

21 ‘‘(ii) FINANCIAL SERVICES HOLDING

22 COMPANY.—The financial services holding

23 company is (and immediately after the ac24 quisition would continue to be) adequately

25 capitalized.
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1 ‘‘(iii) FOREIGN BANKS AND COMPA2 NIES.—The Board shall establish and

3 apply comparable capital standards for the

4 ownership or control of a securities affili5 ate in the United States by a foreign bank

6 (as defined in section 1(b) of the Inter7 national Banking Act of 1978), giving due

8 regard to the principle of national treat9 ment and equality of competitive oppor10 tunity in the United States.

11 ‘‘(B) MANAGERIAL RESOURCES.—

12 ‘‘(i) IN GENERAL.—The financial

13 services holding company and each of its

14 subsidiary insured depository institu15 tions—

16 ‘‘(I) are well managed; and

17 ‘‘(II) were well managed during

18 the preceding 12-month period (but

19 for purposes of this subparagraph the

20 Board may disregard any insured de21 pository institution acquired by the fi22 nancial services holding company dur23 ing that period).

24 ‘‘(ii) SECURITIES ACTIVITIES.—The

25 financial services holding company has the
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1 managerial resources to conduct the pro2 posed securities activities safely and sound3 ly.

4 ‘‘(C) INTERNAL CONTROLS.—The financial

5 services holding company has established ade6 quate policies and procedures to manage finan7 cial and operational risks and to provide rea8 sonable assurance of compliance with this sec9 tion and other applicable laws.

10 ‘‘(D) NO DETRIMENTAL EFFECT ON FI11 NANCIAL SERVICES HOLDING COMPANY OR ITS

12 SUBSIDIARY INSURED DEPOSITORY INSTITU13 TIONS.—The acquisition would not adversely af14 fect the safety and soundness of—

15 ‘‘(i) the financial services holding

16 company; or

17 ‘‘(ii) any insured depository institu18 tion subsidiary of the financial services

19 holding company.

20 ‘‘(E) CONCENTRATION OF RESOURCES.—

21 The acquisition would not result in an undue

22 concentration of resources in the commercial

23 banking and investment banking business.
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1 ‘‘(3) NO NOTICE FOR PROPOSALS BY WELL2 CAPITALIZED AND WELL-MANAGED COMPANIES TO

3 ACQUIRE ADDITIONAL SECURITIES AFFILIATES.—

4 ‘‘(A) ADDITIONAL SECURITIES AFFILI5 ATES.—A financial services holding company

6 may, without providing the notice required

7 under subsection (b), directly or indirectly ac8 quire the shares or substantially all of the as9 sets of any company that is engaged in activi10 ties described in subsection (a) (1) and (2), if—

11 ‘‘(i) the financial services holding

12 company previously received the Board’s

13 approval under subsection (b) to control a

14 securities affiliate and continues to control

15 the securities affiliate pursuant to that ap16 proval; and

17 ‘‘(ii) the acquisition proposal qualifies

18 under section 4(j)(4), and the financial

19 services holding company provides the writ20 ten notification required in section 4(j)(5).

21 ‘‘(c) ADDITIONAL INVESTMENT IN SECURITIES AF22 FILIATE.—

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

24 services holding company that has acquired control

25 of a securities affiliate under this section shall not,
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1 directly or indirectly, make any additional invest2 ment in the securities affiliate that is considered

3 capital for purposes of any capital requirement im4 posed on the securities affiliate under the Securities

5 Exchange Act of 1934 (other than an extension of

6 credit under a revolving credit agreement approved

7 by the Board), unless the financial services holding

8 company gives the Board prior written notice of the

9 proposed investment and—

10 ‘‘(A) the Board issues a written statement

11 of its intent not to disapprove the notice; or

12 ‘‘(B) the Board does not disapprove the

13 notice within 30 days after the notice is filed.

14 ‘‘(2) NO PRIOR NOTICE REQUIRED FOR CER15 TAIN FINANCIAL SERVICES HOLDING COMPANIES.—

16 A financial services holding company is not required

17 to provide prior notice under paragraph (1) if after

18 making any investment described in paragraph (1)—

19 ‘‘(A) the financial services holding com20 pany would be adequately capitalized and each

21 of the financial services holding company’s sub22 sidiary insured depository institutions would be

23 well capitalized; and

24 ‘‘(B) the financial services holding com25 pany and each of its subsidiary insured deposi-
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1 tory institutions are well managed (but for pur2 poses of this clause the Board may disregard

3 any insured depository institution acquired by

4 the financial services holding company during

5 the previous 12-month period).

6 ‘‘A financial services holding company that makes

7 an investment pursuant to this paragraph shall pro8 vide written notice to the Board of the additional in9 vestment within 10 days after making the invest10 ment.

11 ‘‘(3) CRITERIA FOR DISAPPROVING NOTICE.—

12 The Board may disapprove a notice filed under

13 paragraph (1) if any insured depository institution

14 affiliate of the securities affiliate is undercapitalized,

15 or if the Board determines that the financial services

16 holding company would be undercapitalized after

17 making the investment or that the investment would

18 otherwise be unsafe or unsound.

19 ‘‘(4) EMERGENCY APPROVAL.—Notwithstanding

20 any provision of this subsection, in the event of ad21 verse market conditions, or concerns regarding the

22 financial or operational condition of the securities

23 affiliate, the Board may approve any additional in24 vestment in the securities affiliate on an emergency

25 basis.
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1 ‘‘(d) PROVISIONS APPLICABLE IF AFFILIATED IN2 SURED DEPOSITORY INSTITUTION CEASES TO BE WELL

3 CAPITALIZED.—

4 ‘‘(1) CERTAIN SECURITIES ACTIVITIES RE5 STRICTED UNLESS AFFILIATED INSTITUTIONS ARE

6 WELL CAPITALIZED.—

7 ‘‘(A) APPLICABILITY.—This paragraph

8 shall apply to a securities affiliate if—

9 ‘‘(i) the lead insured depository insti10 tution of the financial services holding

11 company is not well capitalized, or

12 ‘‘(ii) well capitalized insured deposi13 tory institutions do not control at least 80

14 percent of the assets of insured depository

15 institutions affiliated with the securities af16 filiate.

17 ‘‘(B) IN GENERAL.—Except as provided in

18 subparagraph (C), the securities affiliate shall

19 not, beginning 180 days after subparagraph (A)

20 applies, agree to underwrite or deal in any secu21 rities other than—

22 ‘‘(i) securities expressly specified by

23 section 5136 of the Revised Statutes as

24 permissible for a national bank to under25 write or deal in;
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1 ‘‘(ii) securities backed by or represent2 ing interests in notes, drafts, acceptances,

3 loans, leases, receivables, other obligations,

4 or pools of any such obligations; or

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

6 investment company registered under the

7 Investment Company Act of 1940.

8 ‘‘(C) EXCEPTION.—The Board may permit

9 the securities affiliate to underwrite or deal in

10 securities not described in clauses (i) through

11 (iii) of subparagraph (B) for a period of 1 year

12 from the date on which subparagraph (A) ap13 plies, if—

14 ‘‘(i) the financial services holding

15 company submits a capital restoration plan

16 to the Board specifying the steps the fi17 nancial services holding company will take

18 to meet the requirements of section

19 10(b)(2)(A), and containing such other in20 formation as the Board may require; and

21 ‘‘(ii) the Board approves the plan.

22 ‘‘(D) EXTENSION OF PERIOD.—Upon ap23 plication by the financial services holding com24 pany, the Board may extend, for not more than

25 one year at a time, the period provided in sub-
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1 paragraph (C), but no such extension under

2 this subparagraph shall in the aggregate exceed

3 two years.

4 ‘‘(2) DIVESTITURE.—

5 ‘‘(A) IN GENERAL.—The financial services

6 holding company shall divest itself of the securi7 ties affiliate if any of the financial services

8 holding company’s subsidiary insured depository

9 institutions has been undercapitalized for more

10 than 6 months.

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

12 provide additional time for divestiture not ex13 ceeding 30 months if—

14 ‘‘(i) the appropriate Federal banking

15 agency has approved the undercapitalized

16 institution’s capital restoration plan under

17 section 38(e) of the Federal Deposit Insur18 ance Act; and

19 ‘‘(ii) the Board determines that the

20 securities affiliate poses no significant risk

21 to any affiliated insured depository institu22 tion.

23 ‘‘(e) SECURITIES AFFILIATE EXCLUDED IN DETER24 MINING WHETHER FINANCIAL SERVICES HOLDING COM25 PANY IS ADEQUATELY CAPITALIZED.—
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1 ‘‘(1) IN GENERAL.—In determining whether a

2 financial services holding company is adequately cap3 italized—

4 ‘‘(A) the financial services holding compa5 ny’s capital and total assets shall each be re6 duced by—

7 ‘‘(i) an amount equal to the amount

8 of the financial services holding company’s

9 equity investment in any securities affili10 ate; and

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

12 of any extensions of credit by the financial

13 services holding company to any securities

14 affiliate that are considered capital for

15 purposes of any capital requirement im16 posed on the securities affiliate under sec17 tion 15(c)(3) of the Securities Exchange

18 Act of 1934; and

19 ‘‘(B) the securities affiliate’s assets and li20 abilities shall not be consolidated with those of

21 the financial services holding company.

22 ‘‘(2) EXCEPTION FOR NONSECURITIES ACTIVI23 TIES.—Paragraph (1) does not apply to the extent

24 that the Board determines by regulation or order

25 that—
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1 ‘‘(A) an item described in that paragraph

2 relates to activities that are not described in

3 paragraph (1) or (2) of subsection (a); or

4 ‘‘(B) the calculation in paragraph (1) is

5 not required or appropriate, or another method

6 of adjusting capital is more appropriate, to en7 sure the safety and soundness of insured depos8 itory institutions.

9 ‘‘(f) SAFEGUARDS RELATING TO SECURITIES AFFILI10 ATES.—

11 ‘‘(1) EXTENSIONS OF CREDIT AND ASSET PUR12 CHASES RESTRICTED.—

13 ‘‘(A) IN GENERAL.—No insured depository

14 institution affiliated with a securities affiliate

15 shall, directly or indirectly, do any of the follow16 ing:

17 ‘‘(i) Extend credit in any manner to

18 the securities affiliate.

19 ‘‘(ii) Issue a guarantee, acceptance, or

20 letter of credit, including an endorsement

21 or a standby letter of credit, for the benefit

22 of the securities affiliate.

23 ‘‘(iii) Purchase for its own account fi24 nancial assets of the securities affiliate, ex25 cept to the extent permitted by the Board
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1 with respect to purchasing at the current

2 market value (based on reliable and regu3 larly available price quotations)—

4 ‘‘(I) securities expressly specified

5 by section 5136 of the Revised Stat6 utes as permissible for a national

7 bank to underwrite or deal in; or

8 ‘‘(II) securities that—

9 ‘‘(aa) the securities affiliate

10 has been marking to market

11 daily; and

12 ‘‘(bb) are rated investment

13 grade by at least 1 nationally

14 recognized statistical rating orga15 nization.

16 ‘‘(B) EXCEPTION FOR CLEARING SECURI17 TIES.—Subparagraph (A)(i) does not prohibit

18 an extension of credit by a well capitalized in19 sured depository institution made to acquire or

20 sell securities if—

21 ‘‘(i) the extension of credit is inciden22 tal to clearing transactions in those securi23 ties through that insured depository insti24 tution;
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1 ‘‘(ii) both the principal of and the in2 terest on the extension of credit are fully

3 secured by those securities;

4 ‘‘(iii) either—

5 ‘‘(I) the extension of credit is to

6 be repaid on the same calendar day;

7 or

8 ‘‘(II) all of the following condi9 tions are satisfied:

10 ‘‘(aa) the securities cannot,

11 in the ordinary course of busi12 ness, be cleared on that calendar

13 day;

14 ‘‘(bb) the extension of credit

15 is to be repaid before the close of

16 business on the next calendar

17 day; and

18 ‘‘(cc) extensions of credit

19 under this subclause, when ag20 gregated with all other covered

21 transactions between the institu22 tion and all affiliated securities

23 affiliates do not exceed 10 per24 cent of the institution’s capital

25 stock and surplus; and
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1 ‘‘(iv) either—

2 ‘‘(I) the securities are securities

3 expressly specified by section 5136 of

4 the Revised Statutes as permissible

5 for a national bank to underwrite or

6 deal in; or

7 ‘‘(II) to the extent that the

8 Board permits transactions under this

9 paragraph in securities not described

10 in subclause (I), the securities affiliate

11 provides the insured depository insti12 tution such additional security or

13 other assurance of performance, if

14 any, as the Board shall require to pre15 vent such transactions from posing

16 any appreciable risk to the institution.

17 ‘‘(C) OTHER EXCEPTIONS.—The Board

18 may make exceptions to subparagraph (A) for

19 well capitalized insured depository institutions

20 if—

21 ‘‘(i) the transaction is fully secured in

22 accordance with section 23A(c) of the Fed23 eral Reserve Act; and

24 ‘‘(ii) the aggregate amount of covered

25 transactions between the institution and all
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1 securities affiliates of the financial services

2 holding company, excluding transactions

3 permitted under subparagraph (A)(iii)(I)

4 or (B)(iii)(I), does not exceed 10 percent

5 of the institution’s capital stock and sur6 plus.

7 ‘‘(2) CREDIT ENHANCEMENT RESTRICTED.—

8 ‘‘(A) IN GENERAL.—No insured depository

9 institution affiliated with a securities affiliate

10 shall, directly or indirectly, extend credit, or

11 issue or enter into a standby letter of credit,

12 asset purchase agreement, indemnity, guaran13 tee, insurance, or other facility, for the purpose

14 of enhancing the marketability of a securities

15 issue underwritten by the securities affiliate.

16 ‘‘(B) EXCEPTIONS.—The Board may make

17 exceptions to subparagraph (A)—

18 ‘‘(i) for well capitalized insured depos19 itory institutions if—

20 ‘‘(I) the insured depository insti21 tution has adopted appropriate limits

22 on exposure on a consolidated basis to

23 any single customer whose securities

24 are underwritten by the securities af25 filiate; and
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1 ‘‘(II) the institution and its secu2 rities affiliate have adopted appro3 priate procedures, including mainte4 nance of necessary documentary

5 records, to assure that any such ex6 tension of credit, standby letter of

7 credit, asset purchase agreement, in8 demnity, guarantee, insurance or

9 other facility, is on an arm’s length

10 basis. An extension of credit is consid11 ered to be on an arm’s length basis if

12 the terms and conditions are substan13 tially the same as those prevailing at

14 the time for comparable transactions

15 involving securities that are not un16 derwritten by the securities affiliate;

17 or

18 ‘‘(ii) for securities expressly specified

19 by section 5136 of the Revised Statutes as

20 permissible for a national bank to under21 write or deal in.

22 ‘‘(3) PROHIBITION ON FINANCING PURCHASE

23 OF SECURITY BEING UNDERWRITTEN.—

24 ‘‘(A) IN GENERAL.—No financial services

25 holding company or subsidiary of a financial
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1 services holding company (other than a securi2 ties affiliate) shall knowingly extend or arrange

3 for the extension of credit, directly or indirectly,

4 secured by or for the purpose of purchasing any

5 security while, or for 30 days after, that secu6 rity is the subject of a distribution in which a

7 securities affiliate of that financial services

8 holding company participates as an underwriter

9 or a member of a selling group. For purposes

10 of this subparagraph, a financial services hold11 ing company or subsidiary may rely on an ex12 press written acknowledgement signed by the

13 borrower that the credit is not secured by or for

14 the purpose of purchasing a security described

15 in this subparagraph.

16 ‘‘(B) EXCEPTIONS.—The Board may make

17 exceptions to subparagraph (A)—

18 ‘‘(i) for extensions of credit if the se19 curities are securities expressly specified by

20 section 5136 of the Revised Statutes as

21 permissible for a national bank to under22 write or deal in;

23 ‘‘(ii) for any other extension of credit,

24 after consultation with and considering the
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1 views of the Securities and Exchange Com2 mission, if—

3 ‘‘(I) the financial services holding

4 company is adequately capitalized,

5 ‘‘(II) the financial services hold6 ing company’s lead insured depository

7 institution is well capitalized, and

8 ‘‘(III) well capitalized insured de9 pository institutions control at least

10 80 percent of the assets of insured de11 pository institutions controlled by the

12 financial services holding company

13 and all insured depository institutions

14 controlled by the financial services

15 holding company are well capitalized

16 or adequately capitalized.

17 ‘‘(C) CONSISTENCY WITH THE FEDERAL

18 SECURITIES LAWS.—Nothing in this paragraph

19 shall permit a securities affiliate to extend or

20 maintain credit or arrange for an extension of

21 credit except in compliance with applicable pro22 visions of the Securities Exchange Act of 1934

23 and the rules and interpretations thereunder.

24 ‘‘(4) RESTRICTIONS ON EXTENDING CREDIT TO

25 MAKE PAYMENTS ON SECURITIES.—
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1 ‘‘(A) IN GENERAL.—No insured depository

2 institution affiliated with a securities affiliate

3 shall, directly or indirectly, extend credit to an

4 issuer of securities underwritten by the securi5 ties affiliated for the purpose of paying the

6 principal of those securities or interest or divi7 dends on those securities. This subparagraph

8 does not apply to an extension of credit for a

9 documented purpose (other than paying prin10 cipal, interest, or dividends) if the timing, ma11 turity, and other terms of the credit, taken as

12 a whole, are substantially different from those

13 of the underwritten securities.

14 ‘‘(B) EXCEPTIONS.—The Board may make

15 exceptions to subparagraph (A) for well capital16 ized insured depository institutions if—

17 ‘‘(i)(I) the insured depository institu18 tion has adopted appropriate limits on ex19 posure on a consolidated basis to any sin20 gle customer whose securities are under21 written by the securities affiliate; and

22 ‘‘(II) the insured depository institu23 tion has adopted appropriate procedures,

24 including maintenance of necessary docu25 mentary records, to assure that any exten-
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1 sion of credit by the depository institution

2 to an issuer for the purpose of paying the

3 principal, interest or dividends on securi4 ties underwritten by the securities affiliate

5 is on an arm’s length basis. An extension

6 of credit is considered to be on an arm’s

7 length basis if the terms and conditions

8 are substantially the same as those prevail9 ing at the time for comparable transactions

10 with issuers whose securities are not un11 derwritten by the securities affiliate; or

12 ‘‘(ii) the securities are securities ex13 pressly specified by section 5136 of the Re14 vised Statutes as permissible for a national

15 bank to underwrite to deal in.’’.

16 ‘‘(5) DIRECTOR AND SENIOR EXECUTIVE OFFI17 CER INTERLOCKS RESTRICTED.—

18 ‘‘(A) IN GENERAL.—No director or senior

19 executive officer of a securities affiliate shall

20 serve at the same time as a director or senior

21 executive officer of any affiliated insured depos22 itory institution.

23 ‘‘(B) EXCEPTION FOR SMALL FINANCIAL

24 SERVICES HOLDING COMPANIES.—Notwith25 standing subparagraph (A), a director or senior
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1 executive officer of a securities affiliate may

2 serve at the same time as a director or senior

3 executive officer of an affiliated insured deposi4 tory institution if that institution and all affili5 ated insured depository institutions have, in the

6 aggregate, total assets of not more than

7 $500,000,000. The dollar limitation in the pre8 ceding sentence shall be adjusted annually after

9 December 31, 1995, by the annual percentage

10 increase in the Consumer Price Index for

11 Urban Wage Earners and Clerical Workers

12 published by the Bureau of Labor Statistics.

13 ‘‘(C) BOARD’S AUTHORITY TO MAKE EX14 CEPTIONS.—

15 ‘‘(i) IN GENERAL.—The Board may,

16 by regulation or order, make exceptions to

17 subparagraph (A).

18 ‘‘(ii) STANDARDS.—The Board—

19 ‘‘(I) shall, in determining wheth20 er to make such exceptions, consider

21 the size of the financial services hold22 ing companies, insured depository in23 stitutions, and securities affiliates in24 volved, any burdens that may be im25 posed by subparagraph (A), the safety
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1 and soundness of the insured deposi2 tory institutions and securities affili3 ates, and other appropriate factors,

4 including unfair competition in securi5 ties activities or the improper ex6 change of nonpublic customer infor7 mation; and

8 ‘‘(II) shall not permit—

9 ‘‘(aa) more than half of the

10 insured depository institution’s

11 directors to be directors or senior

12 executive officers of the securities

13 affiliate; or

14 ‘‘(bb) more than half of the

15 securities affiliate’s directors to

16 be directors or senior executive

17 officers of the insured depository

18 institution.

19 ‘‘(D) SENIOR EXECUTIVE OFFICER DE20 FINED.—For purposes of this paragraph, the

21 term ‘senior executive officer’ has the same

22 meaning as the term ‘executive officer’ has in

23 section 22(h) of the Federal Reserve Act.

24 ‘‘(6) DISCLOSURE REQUIRED BY SECURITIES

25 AFFILIATE.—At the time a securities account is
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1 opened, a securities affiliate shall conspicuously dis2 close in writing to each of its customers that—

3 ‘‘(A) securities sold, offered, or rec4 ommended by the securities affiliate are not de5 posits, are not insured by the Federal Deposit

6 Insurance Corporation, are not guaranteed by

7 an affiliate insured depository institution, and

8 are not otherwise an obligation of an insured

9 depository institution (unless such is the case);

10 ‘‘(B) the securities affiliate is not an in11 sured depository institution, and is a corpora12 tion separate from any insured depository insti13 tution; and

14 ‘‘(C) the securities affiliate may be under15 writing or dealing in the securities being sold,

16 offered or recommended, and if so, would have

17 a financial interest in the transaction.

18 ‘‘(7) DISCLOSURE REQUIRED BY INSURED DE19 POSITORY INSTITUTIONS.—No insured depository in20 stitution shall knowingly express any opinion on the

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

22 non-deposit investment products being underwritten

23 or dealt in by the insured depository institution or

24 any affiliate thereof unless the insured depository in-
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1 stitution conspicuously discloses in writing to the

2 customer that—

3 ‘‘(A) the insured depository institution or

4 affiliate (whichever is applicable) is underwrit5 ing or dealing in the non-deposit investment

6 product and has a financial interest in the

7 transaction;

8 ‘‘(B) the non-deposit investment products

9 are not deposits, are not insured by the Federal

10 Deposit Insurance Corporation, are not guaran11 teed by the institution or any other affiliated

12 insured depository institution, and are not oth13 erwise an obligation of an insured depository in14 stitution (unless such is the case), and, with re15 gard to any non-deposit investment product

16 that includes any investment component, are

17 subject to investment risks including possible

18 loss of principal invested; and

19 ‘‘(C) an affiliate, if involved, is not an in20 sured depository institution (unless such is the

21 case), and is a corporation separate from any

22 insured depository institution (unless such is

23 the case).

24 ‘‘(8) IMPROPER DISCLOSURE OF CONFIDENTIAL

25 CUSTOMER INFORMATION PROHIBITED—
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1 ‘‘(A) IN GENERAL.—No insured depository

2 institution subsidiary of a financial services

3 holding company shall disclose to a securities

4 affiliate of that financial services holding com5 pany, nor shall a securities affiliate disclose to

6 any affiliated insured depository institution or

7 subsidiary of such an institution, any nonpublic

8 customer information (including an evaluation

9 of the creditworthiness of an issuer or other

10 customer of that institution or securities affili11 ate), unless it is clearly and conspicuously dis12 closed that such information may be commu13 nicated among such persons and the customer

14 is given the opportunity, prior to the time that

15 the information is initially communicated, to di16 rect that such information not be communicated

17 among such persons.

18 ‘‘(B) DEFINITION.—For purposes of sub19 paragraph (A), the term ‘nonpublic customer

20 information’ does not include—

21 ‘‘(i) customers’ names and addresses

22 (unless a customer has specified other23 wise);

24 ‘‘(ii) information that could be ob25 tained from unaffiliated credit bureaus or
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1 similar companies in the ordinary course of

2 business; or

3 ‘‘(iii) information that is customarily

4 provided to unaffiliated credit bureaus or

5 similar companies in the ordinary course of

6 business by—

7 ‘‘(I) insured depository institu8 tions not affiliated with securities af9 filiates; or

10 ‘‘(II) brokers and dealers not af11 filiated with insured depository insti12 tutions.

13 ‘‘(9) UNDERWRITING SECURITIES REPRESENT14 ING OBLIGATIONS ORIGINATED BY AFFILIATE RE15 STRICTED.—A securities affiliate shall not under16 write securities secured by or representing an inter17 est in mortgages or other obligations originated or

18 purchased by an affiliated insured depository institu19 tion or subsidiary of such an institution—

20 ‘‘(A) unless those securities—

21 ‘‘(i) are rated by at least 1 unaffili22 ated, nationally recognized statistical rat23 ing organization;

24 ‘‘(ii) are issued or guaranteed by the

25 Federal Home Loan Mortgage Corpora-
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1 tion, the Federal National Mortgage Asso2 ciation, or the Government National Mort3 gage Association; or

4 ‘‘(iii) represent interests in securities

5 described in clause (ii); or

6 ‘‘(B) except as permitted by the Board.

7 ‘‘(10) RECIPROCAL ARRANGEMENTS PROHIB8 ITED.—No financial services holding company and

9 no subsidiary of a financial services holding company

10 may enter into any agreement, understanding, or

11 other arrangement under which—

12 ‘‘(A) one financial services holding com13 pany (or subsidiary of that financial services

14 holding company) agrees to engage in a trans15 action with, or in behalf of, another financial

16 services holding company (or subsidiary of that

17 financial services holding company), in ex18 change for

19 ‘‘(B) the agreement of the second financial

20 services holding company referred to in sub21 paragraph (A) (or a subsidiary of that financial

22 services holding company) to engage in any

23 transaction with, or on behalf of, the first fi24 nancial services holding company referred to in

25 that subparagraph (or any subsidiary of that fi-
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1 nancial services holding company), for the pur2 pose of evading any requirement or restriction

3 of Federal law on transactions between, or for

4 the benefit of, affiliates of financial services

5 holding companies.

6 ‘‘(11) SAFEGUARDS APPLY TO CERTAIN SUB7 SIDIARIES.—Except as provided in this subsection:

8 ‘‘(A) SECURITIES AFFILIATE.—No subsidi9 ary of a securities affiliate may do anything

10 that this subsection prohibits the securities af11 filiate from doing.

12 ‘‘(B) DEPOSITORY INSTITUTION.—No sub13 sidiary of an insured depository institution or of

14 a wholesale financial institution may do any15 thing that this subsection prohibits the institu16 tion from doing.

17 ‘‘(12) AUTHORITY TO MODIFY AND IMPOSE AD18 DITIONAL SAFEGUARDS; INTERPRETIVE AUTHOR19 ITY.—

20 ‘‘(A) IN GENERAL.—The Board may, by

21 regulation or order—

22 ‘‘(i) adopt additional limitations, re23 strictions or conditions on relationships or

24 transactions among insured depository in-
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1 stitutions, their affiliates, and their cus2 tomers; and

3 ‘‘(ii) make any modification to any

4 limitation, restriction or condition on rela5 tionships or transactions among insured

6 depository institutions, their affiliates and

7 their customers imposed under this sub8 section, including modifications in addition

9 to those expressly provided for in this sub10 section.

11 ‘‘(B) STANDARDS.—The Board may not

12 exercise authority under subparagraph (A)(i) or

13 subparagraph (A)(ii) unless the Board finds

14 that such action is consistent with the purposes

15 of this Act, including the avoidance of any sig16 nificant risk to the safety and soundness of in17 sured depository institutions or the federal de18 posit insurance funds, enhancement of the fi19 nancial stability of financial services holding

20 companies, prevention of the subsidization of

21 securities affiliates by insured depository insti22 tutions, avoidance of conflicts of interest or

23 other abuses, and application of the principle of

24 national treatment and equality of competitive

25 opportunity between securities affiliates owned
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1 or controlled by domestic financial services

2 holding companies and securities affiliates

3 owned or controlled by foreign banks operating

4 in the United States.

5 ‘‘(13) COMPLIANCE PROGRAMS REQUIRED.—

6 ‘‘(A) IN GENERAL.—Each appropriate

7 Federal banking agency and the Securities and

8 Exchange Commission shall establish a program

9 for—

10 ‘‘(i) sharing information concerning

11 compliance with subtitles A, B, or C of

12 title I of the Financial Services Competi13 tiveness Act of 1995 by—

14 ‘‘(I) entities that are brokers,

15 dealers, investment advisers or invest16 ment companies registered with the

17 Securities and Exchange Commission

18 that are affiliated with insured deposi19 tory institutions, or are separately

20 identifiable departments or divisions

21 of insured depository institutions reg22 istered as investment advisers; and

23 ‘‘(II) such insured depository in24 stitutions and their affiliates;
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1 ‘‘(ii) enforcing compliance with sub2 title A of title I of the Financial Services

3 Competitiveness Act of 1995 and section

4 3(a)(4) and 3(a)(5) of the Securities Ex5 change Act of 1934 by entities under its

6 supervision; and

7 ‘‘(iii) responding to any complaints

8 from customers about inappropriate cross9 marketing of securities products or inad10 equate disclosure.

11 (B) DATA COLLECTION.—

12 ‘‘(i) IN GENERAL.—The appropriate

13 Federal banking agencies, after consulta14 tion with and consideration of the views of

15 the Securities and Exchange Commission,

16 may require any depository institution that

17 has effected securities transactions pursu18 ant to any exception enumerated in sec19 tions 3(a)(4)(C) and 3(a)(5) of the Securi20 ties Exchange Act of 1934 to identify the

21 exceptions relied upon and to submit such

22 information necessary to monitor compli23 ance under sections 3(a)(4)(C) and 3(a)(5)

24 of the Securities Exchange Act of 1934.
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1 ‘‘(ii) COMMISSION ACCESS.—The ap2 propriate Federal banking agency shall

3 make any such information available to the

4 commission upon request.

5 ‘‘(iii) COMPLIANCE.—In implementing

6 the provisions of this subparagraph, the

7 appropriate Federal banking agencies shall

8 ensure that any information requests to in9 sured depository institutions take into ac10 count the size and activities of the institu11 tions and do not cause undue reporting

12 burdens.

13 ‘‘(C) COMMISSION’S ENFORCEMENT AU14 THORITY.—Without limiting in any way the au15 thority of the appropriate Federal banking

16 agencies under this subsection, the Securities

17 and Exchange Commission shall have the au18 thority to enforce the provisions of this sub19 section against a securities affiliate to the ex20 tent that those provisions govern the conduct or

21 activities of the securities affiliate as if they

22 were provisions of the Securities Exchange Act

23 of 1934.

24 ‘‘(D) EXAMINATION REPORTS.—The ap25 propriate Federal banking agencies shall, to the
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1 extent practicable, use the reports of examina2 tion of any broker, dealer, investment adviser,

3 or investment company made by or on behalf of

4 the Securities and Exchange Commission and

5 reports made by or on behalf of a registered se6 curities association or national securities ex7 change, and shall defer to such examinations

8 for compliance with the federal securities laws.

9 ‘‘(E) INTERPRETATIONS OF THE FEDERAL

10 SECURITIES LAWS.—The appropriate Federal

11 banking agencies shall defer to the Securities

12 and Exchange Commission regarding all inter13 pretations and enforcement of the Federal secu14 rities laws relating to the application of the

15 Federal securities laws to the activities and con16 duct of brokers, dealers, investment advisers,

17 and investment companies.

18 ‘‘(F) NOTICE OF CERTAIN ACTIONS.—

19 ‘‘(i) SECURITIES AND EXCHANGE

20 COMMISSION.—The Securities and Ex21 change Commission shall give notice to the

22 appropriate Federal banking agency upon

23 the entry of an order of investigation of, or

24 the commencement of any disciplinary or

25 law enforcement proceedings by the Com-
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1 mission and a copy of any order entered by

2 the Commission against—

3 ‘‘(I) any broker, dealer, or invest4 ment adviser that—

5 ‘‘(aa) is registered with the

6 Securities and Exchange Com7 mission; and

8 ‘‘(bb) is affiliated with or is

9 a separately identifiable depart10 ment or division of an insured

11 depository institution;

12 ‘‘(II) any investment company

13 registered with the Securities and Ex14 change Commission that is an affiliate

15 of or is advised by an investment ad16 viser affiliated with an insured deposi17 tory institution or by a separately

18 identifiable department or division of

19 an insured depository institution that

20 is a registered investment adviser; or

21 ‘‘(III) any financial services hold22 ing company, insured depository insti23 tution, or subsidiary of such company

24 or institution, if the proposed action

25 relates to subtitles A, B, or C of title
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1 I of the Financial Services Competi2 tiveness Act of 1995.

3 ‘‘(ii) APPROPRIATE FEDERAL BANK4 ING AGENCIES.—Upon the entry of an

5 order of investigation of, or the commence6 ment of any disciplinary or law enforce7 ment proceedings to enforce the provisions

8 of subtitle A of title I of the Financial

9 Services Competitiveness Act of 1995 by

10 an appropriate Federal banking agency

11 against any broker, dealer, investment ad12 viser, or investment company that is reg13 istered under the Federal securities laws

14 and is affiliated with an insured depository

15 institution, the appropriate Federal bank16 ing agency shall give notice to the Securi17 ties and Exchange Commission of the pro18 posed action.

19 ‘‘(iii) EXTENSION.—The notice re20 quired under clause (i) or (ii) may be pro21 vided promptly after action by the Securi22 ties and Exchange Commission or the ap23 propriate Federal banking agency, if—

24 ‘‘(I) the Commission determines

25 that the protection of investors re-
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1 quires immediate action by the Com2 mission and prior notice under clause

3 (i) is not practical under the cir4 cumstances; or

5 ‘‘(II) the appropriate Federal

6 banking agency determines that con7 cerns for the safety and soundness of

8 an insured depository institution or its

9 affiliate require immediate action by

10 the agency and prior notice under

11 clause (ii) is not practical under the

12 circumstances.

13 ‘‘(G) COORDINATED ENFORCEMENT AC14 TIONS.—The Securities and Exchange Commis15 sion and the appropriate Federal banking agen16 cies shall, to the extent practicable, coordinate

17 supervisory actions based on applicable law

18 where the actions are based on the same or re19 lated events or practices.

20 ‘‘(H) INVESTMENT COMPANIES NOT AF21 FILIATED WITH AN INSURED DEPOSITORY IN22 STITUTION.—The appropriate Federal banking

23 agency shall not have authority under this title

24 or any other provision of law to inspect or ex-
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1 amine any investment company registered

2 under the Federal securities laws that is not—

3 ‘‘(i) affiliated with an insured deposi4 tory institution; or

5 ‘‘(ii) advised by an investment adviser

6 affiliated with an insured depository insti7 tution or by a separately identifiable de8 partment or division of an insured deposi9 tory institution that is a registered invest10 ment adviser.

11 ‘‘(I) DEFINITION.—For purposes of this

12 paragraph, the term ‘Federal securities laws’

13 shall mean the provisions of Federal law gov14 erning securities activities that are within the

15 jurisdiction of the Securities and Exchange

16 Commission as set forth in the Securities Act of

17 1933, the Securities Exchange Act of 1934, the

18 Investment Company Act of 1940, the Invest19 ment Advisers Act of 1940, and the Trust In20 denture Act of 1939.

21 ‘‘(g) ACTIVITIES NOT PERMISSIBLE FOR DEPOSI22 TORY INSTITUTIONS OR SECURITIES AFFILIATES.—

23 ‘‘(1) A financial services holding company that

24 acquires control of a securities affiliate shall not, be25 ginning 1 year after the date of that acquisition,
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1 permit any depository institution (as defined in sec2 tion 3 of the Federal Deposit Insurance Act) of

3 which it has control or any subsidiary of that insti4 tution—

5 ‘‘(A) to engage, directly or indirectly, in

6 the United States—

7 ‘‘(i) in underwriting securities backed

8 by or representing interests in notes,

9 drafts, acceptances, loans, leases, receiv10 ables, other obligations, or pools of any

11 such obligations, originated or purchased

12 by the institution or its affiliates;

13 ‘‘(ii) in underwriting or dealing in any

14 other securities, except securities expressly

15 specified by section 5136 of the Revised

16 Statutes as permissible for a national bank

17 to underwrite or deal in; or

18 ‘‘(iii) in effecting sales as part of a

19 primary offering to an accredited investor

20 (as defined in section 2 of the Securities

21 Act of 1933) of securities of an issuer, not

22 involving a public offering, pursuant to

23 section 3(b), 4(2), or 4(6) of the Securities

24 Act of 1933 and the rules and regulations

25 issued thereunder; or
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1 ‘‘(B) to make an equity investment in any

2 securities affiliate.

3 ‘‘(2) For purposes of this subsection, the term

4 ‘depository institution’ shall include any state branch

5 or agency of a foreign bank, as those terms are de6 fined in section 1(b) of the International Banking

7 Act of 1978.

8 ‘‘(3) The limitations in paragraph (1)(A) shall

9 not apply to activities conducted by a subsidiary held

10 pursuant to section 25 or 25A of the Federal Re11 serve Act of section 4(c)(13) of this Act.

12 ‘‘(4) Nothing in this section shall permit a secu13 rities affiliate to accept deposits in contravention of

14 section 21 of the Banking Act of 1933 (12 U.S.C.

15 378(a)).

16 ‘‘(h) APPROVAL OF SECURITIES ACTIVITIES UNDER

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

18 any notice or application by a financial services holding

19 company under authority of section 4(c)(8) to engage in,

20 or acquire the shares of a company engaged in, underwrit21 ing or dealing in securities in the United States, except

22 securities expressly specified by section 5136 of the Re23 vised Statutes as permissible for a national bank to under24 write or deal in.
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1 ‘‘(i) BANKERS’ BANKS.—For purposes of this sec2 tion, each shareholder of or participant in a company that

3 controls a depository institution described in section

4 5169(b)(1) of the Revised Statutes or in a similar statute

5 of any State, and each subsidiary of that company. This

6 subsection shall not apply to a shareholder or participant

7 in that company (or subsidiary of that shareholder or par8 ticipant) if the shareholder or participant and its affiliates

9 do not, in the aggregate, control more than 5 percent of

10 any class of voting shares of that company.

11 ‘‘(j) SHARES ACQUIRED IN CONNECTION WITH UN12 DERWRITING AND INVESTMENT BANKING ACTIVITIES.—

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

14 4(a), a financial services holding company may di15 rectly or indirectly own or control shares of any

16 company engaged in activities not authorized pursu17 ant to section 4 of this Act if—

18 ‘‘(A) the shares are acquired and held by

19 a securities affiliate as part of a bona fide un20 derwriting or investment banking activity and

21 such shares are held only for such period of

22 time as will permit the sale thereof on a reason23 able basis consistent with the nature of such ac24 tivity; and
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1 ‘‘(B) during the period such shares are

2 held, the financial services holding company

3 does not directly or indirectly participate in the

4 day to day management or operation of the

5 company.

6 ‘‘(2) BOARD RULES.—The Board may establish

7 rules governing the acquisition and retention of

8 shares under this subsection, including limitations

9 governing the circumstances and time period such

10 shares may be held, in order to assure compliance

11 with the purposes of this Act, including the protec12 tion of insured depository institutions and the sepa13 ration of banking and commerce.

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

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

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

17 in section 23A of the Federal Reserve Act.

18 ‘‘(2) COVERED TRANSACTION.—The term ‘cov19 ered transaction’ has the same meaning as in section

20 23A of the Federal Reserve Act.

21 ‘‘(3) SECURITY.—

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

23 has the meaning given to that term in section

24 3(a)(10) of the Securities Exchange Act of

25 1934.
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1 ‘‘(B) EXCEPTIONS.—For purposes of this

2 section, other than subsection (a), the term ‘se3 curity’ 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 de7 posit instrument issued by a depository in8 stitution.

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

11 by the Federal Deposit Insurance Corpora12 tion.

13 ‘‘(iv) A banker’s acceptance.

14 ‘‘(v) A letter of credit issued by a de15 pository institution.

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

17 institution arising from a credit card or

18 similar arrangement.

19 ‘‘(vii) A traditional loan or loan par20 ticipation (as determined by the Board).

21 ‘‘(C) BOARD’S AUTHORITY TO EXEMPT

22 TRADITIONAL BANKING PRODUCTS.—The Board

23 may, after consultation and consideration of the

24 views of the Securities and Exchange Commis25 sion, by regulation exempt from the definition
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1 of ‘security’ a banking product that national

2 banks have traditionally and customarily origi3 nated or handled (such as mortgage notes) if

4 the exemption is consistent with the purposes of

5 this section.

6 ‘‘(D) DEFINITION FOR LIMITED PUR7 POSE.—The fact that a particular instrument is

8 excluded pursuant to subparagraphs (B) or (C)

9 from the definition of ‘security’ for purposes of

10 this section shall not be construed as finding or

11 implying that such instrument is or is not a ‘se12 curity’ for purposes of section 3(a)(10) of the

13 Securities Exchange Act of 1934.’’.

14 (b) TRANSITION RULE FOR SECURITIES AFFILIATES

15 APPROVED UNDER SECTION 4(c)(8).—

16 (1) IN GENERAL.—Effective 18 months after

17 the date of enactment of this Act, no financial serv18 ices holding company may engage in, or retain the

19 shares of any company engaged in, underwriting or

20 dealing in securities based on the approval of an ap21 plication under section 4(c)(8) of the Bank Holding

22 Company Act of 1956—

23 (A) unless the financial services holding

24 company has obtained the Board’s approval to
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1 retain the shares of that company under section

2 10; or

3 (B) except underwriting or dealing in secu4 rities expressly specified by section 5136 of the

5 Revised Statutes as permissible for a national

6 bank to underwrite or deal in.

7 (2) EXTENDING TIME.—

8 (A) IN GENERAL.—The Board may, for

9 good cause shown, extend the time provided

10 under paragraph (1) for not more than 18

11 months.

12 (B) PENDING NOTICES.—If a financial

13 services holding company has filed a notice

14 under section 10(b) of the Bank Holding Com15 pany Act of 1956 not later than 180 days after

16 the date of enactment of this Act, paragraph

17 (1) shall not apply with respect to the company

18 engaged in such underwriting or dealing until

19 180 days after the Board has acted on the

20 notice.

21 (c) CONFORMING AMENDMENTS.—

22 (1) DEFINITIONS.—Section 2 of the Bank

23 Holding Company Act of 1956 (12 U.S.C. 1841) is

24 amended by adding at the end the following new

25 subsections:
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1 ‘‘(n) SECURITIES AFFILIATE.—The term ‘securities

2 affiliate’ means any company—

3 ‘‘(1) that is (or is required to be) registered

4 under the Securities Exchange Act of 1934 as a

5 broker or dealer; and

6 ‘‘(2) the acquisition or retention of the shares

7 or assets of which the Board has approved under

8 section 10.

9 ‘‘(o) INSURED DEPOSITORY INSTITUTION.—The

10 term ‘insured depository institution’ has the meaning

11 given to that term in section 3 of the Federal Deposit In12 surance Act.

13 ‘‘(p) LEAD INSURED DEPOSITORY INSTITUTION.—

14 The term ‘lead insured depository institution’ shall mean

15 the largest insured depository institution controlled by the

16 financial services holding company, based on a comparison

17 of the average total assets controlled by each insured de18 pository institution during the previous 12-month period.

19 ‘‘(q) APPROPRIATE FEDERAL BANKING AGENCY.—

20 The term ‘appropriate Federal banking agency’ has the

21 same meaning as in section 3(q) of the Federal Deposit

22 Insurance Act.

23 ‘‘(r) CAPITAL TERMS.—

24 ‘‘(1) INSURED DEPOSITORY INSTITUTIONS.—

25 With respect to insured depository institutions, the
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1 terms ‘well-capitalized,’ ‘adequately capitalized’ and

2 ‘undercapitalized’ have the meaning given those

3 terms in section 38(b) of the Federal Deposit Insur4 ance Act.

5 ‘‘(2) FINANCIAL SERVICES HOLDING COM6 PANY.—

7 ‘‘(A) ADEQUATELY CAPITALIZED.—A fi8 nancial services holding company is ‘adequately

9 capitalized’ if it meets the required minimum

10 level for each relevant capital measure estab11 lished by the Board for financial services hold12 ing companies;

13 ‘‘(B) WELL CAPITALIZED.—A financial

14 services holding company is ‘well capitalized’ if

15 it meets the required capital levels for well cap16 italized financial services holding companies es17 tablished by the Board.

18 ‘‘(3) OTHER CAPITAL TERMS.—The terms ‘Tier

19 1’ 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 hold22 ing companies.

23 ‘‘(s) INSURED DEPOSITORY INSTITUTION FOR CER24 TAIN SECTIONS.—For purposes of section 2(p), section

25 4(j)(4), and section 10, the term ‘insured depository insti-
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1 tution’ includes any branch, agency or commercial lending

2 company operated in the United States by a foreign bank

3 (as the terms ‘agency’, ‘branch’, ‘commercial lending com4 pany’, and ‘foreign bank’ are defined in section 1 of the

5 International Banking Act of 1978).

6 ‘‘(t) WELL MANAGED.—A company or depository in7 stitution is ‘well managed’ if—

8 ‘‘(1) at its most recent examination or subse9 quent review, the company or institution received—

10 ‘‘(A) one of the highest two composite rat11 ings; and

12 ‘‘(B) at least a satisfactory rating for man13 agement, if such rating is given; or

14 ‘‘(2) in the case of a company or depository in15 stitution that has not received an examination rat16 ing, the Board determines that the managerial re17 sources of the company or depository institution are

18 satisfactory.’’.

19 (2) AMENDMENT REGARDING CONDITIONAL AP20 PROVAL OF NOTICES.—Section 4(a)(2) of the Bank

21 Holding Company Act of 1956 (12 U.S.C.

22 1843(a)(2)) is amended by striking ‘‘paragraph (8)’’

23 and all that follows through ‘‘issued by the Board

24 under such paragraph’’ and inserting ‘‘section 10,

25 subsection (l) or subsection (c)(8), subject to all the
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1 conditions specified in those provisions or in any

2 order or regulation issued by the Board under those

3 provisions’’.

4 (3) AMENDMENT TO NOTICE PROCEDURES.—

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

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

7 (A) in paragraph (1)(A) by striking ‘‘sub8 section (c)(8) or (a)(2)’’ and inserting in its

9 place ‘‘subsection (c)(8), (c)(15), (l), or (a)(2)’’;

10 (B) in paragraph (1)(E) by striking ‘‘sub11 section (c)(8) or (a)(2)’’ and inserting in its

12 place ‘‘subsection (c)(8), (c)(15), (l), or (a)(2)’’;

13 (C) by redesignating paragraphs (2)(B)

14 and (2)(C) as paragraphs (2)(C) and (2)(D) re15 spectively, and inserting a new paragraph

16 (2)(B) as follows:

17 ‘‘(B) CRITERIA FOR NOTICES INVOLVING

18 SECURITIES AFFILIATES.—In considering any

19 notice that involves the acquisition of shares of

20 a securities affiliate pursuant to section

21 4(c)(15), the Board shall apply the criteria and

22 safeguards contained in this paragraph and in

23 section 10.’’

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

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

2 30 days thereafter’’ after ‘‘during the existence of any un3 derwriting or selling syndicate’’.

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

6 Act (16 U.S.C. 825d(b)) shall not apply to any person

7 now holding or proposing to hold the position of officer

8 or director of a public utility and officer or director of

9 a bank, trust company, banking association, or firm per10 mitted by section 10 of the Bank Holding Company Act

11 of 1956 (as amended by subsection (a)) to underwrite or

12 participate in the marketing of securities (including com13 mercial paper) of a public utility, if that bank, trust com14 pany, banking association, or firm does not underwrite or

15 participate in the marketing of securities of the public util16 ity for which the person serves or proposes to serve as

17 an officer or director.

18 (f) RETENTION OF CERTAIN INVESTMENTS BY SECU19 RITIES COMPANIES AFFILIATING WITH INSURED DEPOSI20 TORY INSTITUTIONS.—Section 4 of the Bank Holding

21 Company Act (12 U.S.C. 1843) is amended by adding at

22 the end the following new subsection:

23 ‘‘(k) OWNERSHIP OF SHARES OF CERTAIN COMPA24 NIES BY SECURITIES COMPANIES THAT BECOME FINAN25 CIAL SERVICES HOLDING COMPANIES.—
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1 ‘‘(1) NONCONFORMING FINANCIAL COMPA2 NIES.—Notwithstanding subsection (a), a financial

3 services holding company may retain direct or indi4 rect ownership or control of voting shares of any

5 company that engages solely in financial activities

6 that the Board has not authorized under this section

7 (and such other financial activities that the Board

8 has authorized) if—

9 ‘‘(A) the financial services holding com10 pany acquired the shares of such company or of

11 each company to which it is a successor more

12 than two years prior to the date that such fi13 nancial services holding company becomes a fi14 nancial services holding company;

15 ‘‘(B) the aggregate investment by the fi16 nancial services holding company in shares of

17 all such companies does not exceed 10 percent

18 of the total consolidated capital and surplus of

19 the financial services holding company on the

20 date that it becomes a financial services holding

21 company or on the date of any additional in22 vestment by the financial services holding com23 pany in such shares;

24 ‘‘(C) more than 50 percent of the business

25 of the financial services holding company for
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1 each of the two calendar years prior to the date

2 it becomes a financial services holding company

3 involved securities activities described in sec4 tions 10(a)(1) and (2), excluding from such cal5 culation activities (other than securities activi6 ties) in which financial services holding compa7 nies were permitted to engage prior to the en8 actment of the Financial Services Competitive9 ness Act of 1995; and

10 ‘‘(D) such company continues to engage

11 only in activities that it conducted on the date

12 that such financial services holding company be13 comes a financial services holding company (or

14 other activities permitted under subsection

15 (c)(8) or section (10)).

16 ‘‘(2) NONFINANCIAL COMPANIES.—

17 ‘‘(A) IN GENERAL.—Notwithstanding sub18 section (a), a financial services holding company

19 that is described in paragraph (1)(C) may, for

20 a period of 5 years from the date that the com21 pany becomes a financial services holding com22 pany, retain direct or indirect ownership or con23 trol of voting shares of any company that the

24 financial services holding company owns or con-
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1 trols on the date it becomes a financial services

2 holding company.

3 ‘‘(B) EXTENSION OF DIVESTITURE PE4 RIOD.—The Board may extend the period de5 scribed in subparagraph (A) for an additional

6 period not to exceed 5 years if the Board deter7 mines that such extension is necessary to avert

8 substantial loss to the financial services holding

9 company and finds that the financial services

10 holding company has made good faith efforts to

11 divest such shares.

12 ‘‘(C) NO EXPANSION OF NONFINANCIAL

13 COMPANIES PRIOR TO DIVESTITURE.—Unless

14 such acquisition or activity is permitted in ac15 cordance with section 4(c)—

16 ‘‘(i) no financial services holding com17 pany or company whose shares are owned

18 or controlled by a financial services holding

19 company pursuant to this paragraph (2)

20 may acquire any interest in or assets of

21 any company, and

22 ‘‘(ii) no company whose shares are

23 owned or controlled by a financial services

24 holding company pursuant to this para25 graph (2) may engage directly or indirectly
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1 in any activity that the company did not

2 conduct on the day before the financial

3 services holding company registered as a

4 financial services holding company.

5 ‘‘(3) RESTRICTIONS ON JOINT MARKETING.—

6 No insured depository institution (and no subsidiary

7 of such institution) shall—

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

9 through any arrangement, any product or serv10 ice of any affiliate whose shares are owned or

11 controlled by the financial services holding com12 pany pursuant to this subsection or section

13 10(j), or

14 ‘‘(B) permit any of its products or services

15 to be offered or marketed, directly or indirectly

16 through any arrangement, by or through any

17 affiliate whose shares are owned or controlled

18 by the financial services holding company pur19 suant to this subsection or section 10(j),

20 unless the product or service is permissible for finan21 cial services holding companies to provide under sec22 tion 10 or section 4(c)(8).’’.

23 (g) AMENDMENT TO THE RIGHT TO FINANCIAL PRI24 VACY ACT.—Section 1112(e) of the Right to Financial

25 Privacy Act (12 U.S.C. 3412(e)) is amended as follows—
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1 (1) by deleting ‘‘this chapter’’ and inserting in

2 its place ‘‘law’’; and

3 (2) by adding ‘‘, examination reports’’ after ‘‘fi4 nancial records’’.

5 (h) EXCEPTION TO RESTRICTION ON ASSET GROWTH

6 OF NONBANK BANKS.—Section 4(f)(3) of the Bank Hold7 ing Company Act of 1956 (12 U.S.C. 1843(f)(3)) is

8 amended—

9 (1) in subparagraph (B)(iv), by inserting ‘‘ex10 cept as provided in subparagraph (D),’’ before ‘‘in11 crease its assets’’; and

12 (2) by adding at the end the following new sub13 paragraph:

14 ‘‘(D) EXCEPTION TO RESTRICTION ON

15 ASSET GROWTH.—

16 ‘‘(i) QUALIFICATION FOR EXCEP17 TION.—A bank controlled by a company

18 described in paragraph (1) shall not be

19 subject to the limitation contained in sub20 paragraph (B)(iv) if—

21 ‘‘(I) each insured depository in22 stitution controlled by such company

23 is and remains well-capitalized; and

24 ‘‘(II) such company engages, di25 rectly or indirectly, only in activities—
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1 ‘‘(aa) permitted pursuant to

2 subsections 4(c)(8) or (15); and

3 ‘‘(bb) insurance activities,

4 subject to the limitations con5 tained in subsections (k) (1) and

6 (3) as if the company were a fi7 nancial services holding company;

8 and

9 ‘‘(III) the company has provided

10 at least 60 days prior written notice

11 to the Board and, during that period,

12 the Board has not disapproved the

13 proposal after applying the standards

14 provided in subsection (j)(2);

15 ‘‘(ii) EXCEPTION FROM DIVESTITURE

16 REQUIREMENT.—If any bank controlled by

17 a company that qualifies under clause (i)

18 ceases to be well capitalized, the company

19 shall divest control of such bank it controls

20 in accordance with paragraph (4) unless—

21 ‘‘(I) within 12 months after the

22 date that the bank first ceases to be

23 well capitalized, the capital of the

24 bank is restored to the well capitalized

25 level; and
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1 ‘‘(II) thereafter the bank remains

2 well capitalized.’’.

3 (i) APPLICATION OF SECURITIES FIREWALLS TO

4 NONBANK BANKS.—Section 4(f)(3)(B)(ii) of the Bank

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

6 1843(f)(3)(B)(ii)) is amended—

7 (1) in subclause (II), by striking ‘‘or’’ as it ap8 pears after the semicolon;

9 (2) in subclause (III), by inserting ‘‘or’’ after

10 the semicolon; and

11 (3) by adding at the end the following new

12 subclause:

13 ‘‘(IV) each of the following cri14 teria are met:

15 ‘‘(aa) the bank is well cap16 italized;

17 ‘‘(bb) more than 50 percent

18 of the consolidated business of

19 the company described in para20 graph (1) involved securities ac21 tivities described in sections

22 10(a) (1) and (2) for the preced23 ing two calendar years;

24 ‘‘(cc) such products or serv25 ices are offered or marketed only
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1 to the extent permissible for

2 banks and securities affiliates

3 under section 10; and

4 ‘‘(dd) the bank and any af5 filiate of the bank that is en6 gaged in securities activities de7 scribed in section 10(a) comply

8 with the safeguards contained in

9 section 10(f) as if that affiliate

10 were a securities affiliate.’’.

11 SEC. 104. UNITARY THRIFT HOLDING COMPANIES.

12 Section 10(c)(3) of the Home Owners’ Loan Act (12

13 U.S.C. 1467a(c)(3)) is amended—

14 (1) by inserting immediately before the first

15 sentence the following:

16 ‘‘(A) UNITARY THRIFT HOLDING COMPA17 NIES.—’’;

18 (2) by redesignating subparagraphs (A) and

19 (B) as clauses (i) and (ii) and redesignating other

20 provisions of such subparagraphs accordingly; and

21 (3) by adding the following new subparagraph

22 (B):

23 ‘‘(B) STATUS AS A UNITARY THRIFT

24 HOLDING COMPANY.—The provisions of sub25 paragraph (A) shall only be applicable to sav-
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1 ings and loan holding companies that controlled

2 savings associations pursuant to subparagraph

3 (A) as of January 4, 1995 and that continue to

4 control such savings associations.’’.

5 SEC. 105. SECURITIES COMPANY AFFILIATIONS OF FDIC6 INSURED BANKS.

7 Section 18 of the Federal Deposit Insurance Act (12

8 U.S.C. 1828) is amended by adding at the end the follow9 ing new subsections:

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

11 ‘‘(1) IN GENERAL.—A bank shall not be an af12 filiate of any company that, directly or indirectly,

13 acts as an underwriter or dealer of any security, ex14 cept—

15 ‘‘(A) as provided in section 10 of the Bank

16 Holding Company Act of 1956; or

17 ‘‘(B) A company that underwrites or deal

18 only in securities expressly specified by section

19 5136 of the Revised Statutes as permissible for

20 a national bank to underwrite or deal in.

21 ‘‘(2) EXCEPTION.—This subsection does not

22 apply to—

23 ‘‘(A) an insured bank described in sub24 paragraph (D), (F), or (H) of section 2(c)(2) of
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1 the Financial Services Holding Company Act of

2 1995;

3 ‘‘(B) a company held pursuant to section

4 25 or 25A of the Federal Reserve Act or section

5 4(c) (13) of the Financial Services Holding

6 Company Act; or

7 ‘‘(C) to a Federal branch or an insured

8 branch, as defined in section 3 of the Federal

9 Deposit Insurance Act.

10 ‘‘(3) GRANDFATHER PROVISION.—This sub11 section does not prohibit—

12 ‘‘(A) the continuation of an affiliation that

13 existed on January 1, 1995; or

14 ‘‘(B) any new affiliation by an insured

15 bank that has an affiliation that would be pro16 hibited if the affiliation were not covered by

17 subparagraph (A).

18 ‘‘(4) DEFINITIONS.—For purposes of this sub19 section:

20 ‘‘(A) AFFILIATE.—The term ‘affiliate’ has

21 the meaning given to that term in section 2(k)

22 of the Bank Holding Company Act of 1956.

23 ‘‘(B) COMPANY.—The term ‘company’ has

24 the meaning given to that term in section 2(b)

25 of the Bank Holding Company Act of 1956.
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1 ‘‘(C) BROKER.—The term ‘broker’ has the

2 meaning given to that term in section 3(a)(4)

3 of the Securities Exchange Act of 1934.

4 ‘‘(D) DEALER.—The term ‘dealer’ has the

5 meaning given to that term in section 3(a)(5)

6 of the Securities Exchange Act of 1934.

7 ‘‘(E) SECURITY.—

8 ‘‘(i) IN GENERAL.—The term ‘secu9 rity’ has the meaning given to that term in

10 section 3(a)(10) of the Securities Ex11 change Act of 1934.

12 ‘‘(ii) EXCEPTIONS.—For purposes of

13 this subsection, the term ‘security’ does

14 not include any of the following:

15 ‘‘(I) A contract of insurance.

16 ‘‘(II) A deposit account, savings

17 account, certificate of deposit, or

18 other deposit instrument issued by a

19 depository institution.

20 ‘‘(III) A share account issued by

21 a savings association if the account is

22 insured under the Federal Deposit In23 surance Act.

24 ‘‘(IV) A banker’s acceptance.
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1 ‘‘(V) A letter of Credit issued by

2 a depository institution.

3 ‘‘(VI) A debit account at a depos4 itory institution arising from a credit

5 card or similar arrangement.

6 ‘‘(VII) A traditional loan or loan

7 participation (as determined by the

8 Board).

9 ‘‘(iii) FEDERAL RESERVE BOARD’S

10 AUTHORITY TO EXEMPT TRADITIONAL

11 BANKING PRODUCTS.—The Board of Gov12 ernors of the Federal Reserve System may,

13 after consultation with and considering the

14 views of the Securities and Exchange Com15 mission, by regulation exempt from the

16 definition of ‘security’ a banking product

17 that national banks have traditionally and

18 customarily originated or handled (such as

19 mortgage notes) if the exemption is con20 sistent with the purposes of this sub21 section.

22 ‘‘(iv) DEFINITION FOR LIMITED PUR23 POSE.—The fact that a particular instru24 ment is excluded pursuant to clauses (ii) or

25 (iii) from the definition of ‘security’ for
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1 purposes of this subsection shall not be

2 construed as finding or implying that such

3 instrument is or is not a ‘security’ for pur4 poses of section 3(a)(10) of the Securities

5 Exchange Act of 1934.

6 ‘‘(E) UNDERWRITER.—The term ‘under7 writer’ has the meaning given to that term in

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

9 ‘‘(t) BROKER/DEALER REGISTRATION.—An insured

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

11 or instrumentality of interstate commerce to act as a

12 broker or dealer without registration under the Securities

13 Exchange Act of 1934, except to the extent permitted

14 under section 3(a)(4) or 3(a)(5), or unless otherwise ex15 empt pursuant to rules promulgated by the Securities and

16 Commission.’’.

17 SEC. 106. AUTHORITY TO TERMINATE GRANDFATHER

18 RIGHTS UNDER THE INTERNATIONAL BANK19 ING ACT OF 1978.

20 Section 8(c) of the International Banking Act of

21 1978 (12 U.S.C. 3106(c)) is amended by adding at the

22 end the following new paragraph:

23 ‘‘(3) PARITY IN CONDUCT OF AUTHORIZED SE24 CURITIES ACTIVITIES.—
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1 ‘‘(A) IN GENERAL.—Notwithstanding any

2 provision of paragraph (l) or any other provi3 sion of law, any authority conferred under this

4 subsection on any foreign bank or company

5 with respect to an activity of an affiliate en6 gaged in securities activities shall terminate 18

7 months after the Board determines that such

8 activity is authorized for financial services hold9 ing companies in the United States, except

10 that—

11 ‘‘(i) the foreign bank or company may

12 retain the shares of an affiliate engaged in

13 securities activities if, prior to the expira14 tion of such 18 month period, the foreign

15 bank or company has obtained the Board’s

16 approval under section 10 or section

17 4(c)(8) of the Bank Holding Company Act

18 to retain such shares, and

19 ‘‘(ii) the Board, for good cause shown,

20 may extend the termination period for an

21 additional period not to exceed 18 months.

22 ‘‘(B) EXTENSION TO OBTAIN REQUIRED

23 APPROVAL.—If the foreign bank or company

24 has filed a notice under section 10(b) of the

25 Bank Holding Company Act not later than 180
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1 days after the Board has made a determination

2 under subparagraph (A), the effective date of

3 any termination of authority for that foreign

4 bank or company under subparagraph (A) shall

5 be 24 months after the Board has acted on the

6 notice.’’.

7 SEC. 107. EFFECT ON STATE LAWS PROHIBITING THE AF8 FILIATION OF BANKS AND SECURITIES COM9 PANIES.

10 Section 7 of the Bank Holding Company Act of 1956

11 (12 U.S.C. 1846) is amended by inserting before the final

12 period the following: ‘‘, except that no State may prohibit

13 or limit the affiliation of a bank or financial services hold14 ing company with a securities affiliate solely because the

15 securities affiliate is engaged in activities described in

16 paragraph (1) or (2) of section 10(a) of this Act.’’.

17 SEC. 108. MUNICIPAL SECURITIES.

18 At the end of section 5136 of the Revised Statutes

19 (12 U.S.C. 24(Seventh)), add the following new sentences:

20 ‘‘Notwithstanding any other provision of this paragraph,

21 a national banking association may deal in, underwrite,

22 and purchase for such association’s own account any obli23 gation of, or obligation guaranteed as to principal or inter24 est by, a State or of any political subdivision thereof, or
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1 any agency or instrumentality of a State or any political

2 subdivision thereof, if the association—

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

4 38(b) of the Federal Deposit Insurance Act),

5 ‘‘(2) engages in the business of banking,

6 ‘‘(3) has not been affiliated with a securities af7 filiate under section 10 of the Bank Holding Com8 pany Act of 1956 for more than 1 year, and

9 ‘‘(4) maintains its main office or any branch in

10 such State or political subdivision, or within 100

11 miles of such State or political subdivision.’’.

12 SEC. 109. INVESTMENT BANK HOLDING COMPANIES.

13 (a) DEFINITIONS.—Section 2 of the Bank Holding

14 Company Act of 1956 (12 U.S.C. 1842) is amended by

15 adding at the end the following new subsections:

16 ‘‘(r) WHOLESALE FINANCIAL INSTITUTION.—The

17 term ‘wholesale financial institution’ means any institution

18 that is an uninsured state member bank authorized pursu19 ant to section 9B of the Federal Reserve Act.

20 ‘‘(s) INVESTMENT BANK HOLDING COMPANY.—The

21 term ‘investment bank holding company’ means any finan22 cial services holding company that controls or seeks to

23 control—

24 ‘‘(1) a wholesale financial institution, and
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1 ‘‘(2) a company engaged in securities activities

2 pursuant to section 10.’’.

3 (b) EXEMPTION.—Section 4 of the Bank Holding

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

5 adding at the end the following new subsection:

6 ‘‘(l) PERMISSIBLE AFFILIATIONS FOR INVESTMENT

7 BANK HOLDING COMPANIES.—

8 ‘‘(1) FINANCIAL ACTIVITIES.—

9 ‘‘(A) ACTIVITIES AUTHORIZED.—An in10 vestment bank holding company may directly or

11 indirectly own or control shares of any company

12 the activities of which the Board has deter13 mined to be financial in nature (other than ac14 tivities expressly limited under subsection

15 (c)(8)), incidental to financial activity, or any

16 activity in compliance with subparagraph (B).

17 ‘‘(B) INCIDENTAL ACTIVITIES.—

18 ‘‘(i) IN GENERAL.—Notwithstanding

19 subparagraph (A), the aggregate invest20 ment by an investment bank holding com21 pany in shares of any companies that en22 gage in nonfinancial activities and financial

23 activities (other than those otherwise per24 mitted under this section) shall not exceed

25 10 percent of the total consolidated capital
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1 and surplus of the investment bank holding

2 company.

3 ‘‘(ii) CROSS MARKETING RESTRIC4 TIONS.—A wholesale financial institution

5 shall not offer or market products or serv6 ices of an affiliate that are part of any

7 nonfinancial activities conducted pursuant

8 to subparagraph (B) or permit its products

9 or services to be offered or marketed in

10 connection with products and services of

11 an affiliate that are part of any non12 financial activities conducted pursuant to

13 subparagraph (B).

14 ‘‘(iii) USE OF COMMON NAME.—An in15 vestment bank holding company shall not

16 permit a wholesale financial institution to

17 adopt a name which is the same as or

18 similar to, or a variation of, the name or

19 title of an affiliate engaged in nonfinancial

20 activities pursuant to subparagraph (B).

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

22 holding company that owns and controls shares

23 of a company pursuant to subparagraph (B)

24 may not also own or control shares of a com25 pany pursuant to subsection (k).
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1 ‘‘(2) SECURITIES ACTIVITIES.—

2 ‘‘(A) INSTITUTIONS MUST BE WELL-CAP3 ITALIZED.—The Board shall disapprove a no4 tice under section 10 by an investment bank

5 holding company to acquire a securities affiliate

6 if any wholesale financial institution controlled

7 by the investment bank holding company is not

8 well capitalized or would not be well capitalized

9 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 a ‘bank’ for

14 purposes of the provisions of sections 23A

15 and 23B of the Federal Reserve Act.

16 ‘‘(ii) OTHER RESTRICTIONS REGARD17 ING SECURITIES AFFILIATES DETERMINED

18 BY THE BOARD.—A securities affiliate and

19 a wholesale financial institution controlled

20 by an investment bank holding company

21 shall not be subject to the provisions of

22 section 10(f), except that the securities af23 filiate and wholesale financial institution

24 shall be subject to paragraphs (12) and

25 (13) of that section as if the wholesale fi-
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1 nancial institution were an insured deposi2 tory institution.

3 ‘‘(3) LIMITATION ON AFFILIATION WITH IN4 SURED DEPOSITORY INSTITUTIONS.—An investment

5 bank holding company may not directly or indirectly

6 own or control—

7 ‘‘(A) any bank, other than a wholesale fi8 nancial institution;

9 ‘‘(B) any savings association;

10 ‘‘(C) any institution described in section

11 2(c)(2); or

12 ‘‘(D) any institution that accepts—

13 ‘‘(i) initial deposits of $100,000 or

14 less, other than on an incidental or occa15 sional basis, or

16 ‘‘(ii) deposits that are insured under

17 the Federal Deposit Insurance Act.’’.

18 (c) CONFORMING AMENDMENTS.—

19 (1) INSURANCE REQUIREMENT IN THE BANK

20 HOLDING COMPANY ACT.—Section 3(e) of the Bank

21 Holding Company Act of 1956 (12 U.S.C. 1842(e))

22 is amended by adding at the end the following:

23 ‘‘This subsection does not apply to a wholesale fi24 nancial institution that is controlled by an invest-
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1 ment bank holding company that controls no banks

2 other than wholesale financial institutions.’’

3 (2) APPROPRIATE FEDERAL BANKING AGEN4 CY.—Section 3(q)(2)(A) of the Federal Deposit In5 surance Act (12 U.S.C. 1813(q)(2)(A)) is amended

6 to read as follows:

7 ‘‘(A) any State member insured bank (ex8 cept a District bank) and wholesale financial in9 stitution as authorized pursuant to section 9B

10 of the Federal Reserve Act,’’.

11 SEC. 110. CONFORMING AMENDMENTS FOR INVESTMENT

12 BANK HOLDING COMPANIES.

13 (a) WHOLESALE FINANCIAL INSTITUTIONS.—The

14 Federal Reserve Act (12 U.S.C. 221 et seq.) is amended

15 by inserting after section 9A the following new section:

16 ‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

17 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLESALE

18 FINANCIAL INSTITUTION.—

19 ‘‘(1) APPLICATION REQUIRED.—Any bank in20 corporated by special law of any State, or organized

21 under the general laws of any State, may apply to

22 the Board of Governors of the Federal Reserve Sys23 tem to subscribe to the stock of the Federal Reserve

24 bank organized within the district where the apply25 ing bank is located as a wholesale financial institu-
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1 tion. Such application shall be treated as an applica2 tion under, and shall be subject to the provisions of,

3 section 9.

4 ‘‘(2) APPROVAL OF MEMBERSHIP.—No bank

5 may become a wholesale financial institution un6 less—

7 ‘‘(A) the Board has approved an applica8 tion by the bank, under such rules and regula9 tions and subject to such conditions and re10 quirements as the Board may prescribe, to be

11 a wholesale financial institution; and

12 ‘‘(B) in the case of a bank that is insured

13 under the Federal Deposit Insurance Act, the

14 bank has met all requirements under that Act

15 for voluntary termination of deposit insurance.

16 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

17 WHOLESALE FINANCIAL INSTITUTIONS.—

18 ‘‘(1) FEDERAL RESERVE ACT.—Except as oth19 erwise provided in this section, wholesale financial

20 institutions shall be member banks and shall be sub21 ject to the provisions of this Act that apply to mem22 ber banks to the same extent and in the same man23 ner as State member insured banks, except that a

24 wholesale financial institution may only terminate

25 membership under this Act with the prior written
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1 approval of the Board and on terms and conditions

2 that the Board determines are appropriate to carry

3 out the purposes of this Act.

4 ‘‘(2) PROMPT CORRECTIVE ACTION.—A whole5 sale financial institution shall be deemed to be an in6 sured depository institution for purposes of section

7 38 of the Federal Deposit Insurance Act except

8 that—

9 ‘‘(A) the relevant capital levels and capital

10 measures for each capital category shall be the

11 levels specified by the Board for wholesale fi12 nancial institutions in accordance with sub13 section (c);

14 ‘‘(B) the provisions applicable to well cap15 italized insured depository institutions shall be

16 inapplicable to wholesale financial institutions;

17 ‘‘(C) the provisions authorizing or requir18 ing an institution to be placed into receivership

19 shall not apply to a wholesale financial institu20 tion, and, in its place, the Board is authorized

21 or required, as the case may be, to terminate

22 the wholesale financial institution’s membership

23 in the Federal Reserve System or, where pro24 vided in section 38 of the Federal Deposit In25 surance Act, place the bank into
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1 conservatorship and, in the Board’s discretion,

2 terminate the bank’s membership; and

3 ‘‘(D) for purposes of applying the provi4 sions of section 38 of the Federal Deposit In5 surance Act to wholesale financial institutions,

6 all references to the appropriate Federal bank7 ing agency or to the Corporation in that section

8 shall be deemed to be references to the Board.

9 ‘‘(3) ENFORCEMENT AUTHORITY.—Sections 7

10 (j) and (k), subsections (b) through (n), (s), (u), and

11 (v) of section 8, and section 19 of the Federal De12 posit Insurance Act shall apply to a wholesale finan13 cial institution in the same manner and to the same

14 extent as they apply to State member insured banks

15 and any reference in such sections to an insured de16 pository institution shall also be deemed to be a ref17 erence to a wholesale financial institution.

18 ‘‘(4) CERTAIN OTHER STATUTES APPLICA19 BLE.—A wholesale financial institution shall be

20 deemed to be a banking institution and the Board

21 shall be the appropriate Federal banking agency for

22 such bank and all of its affiliates for purposes of the

23 International Lending Supervision Act.

24 ‘‘(5) BANK MERGER ACT.—A wholesale finan25 cial institution shall be subject to the provisions of
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1 the Bank Merger Act in the same manner as if the

2 wholesale financial institution were a State member

3 insured bank for purposes of that Act.

4 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

5 WHOLESALE FINANCIAL INSTITUTIONS.—

6 ‘‘(1) LIMITATIONS ON DEPOSITS.—

7 ‘‘(A) MINIMUM AMOUNT.—Pursuant to

8 regulations of the Board, no wholesale financial

9 institution shall receive initial deposits of

10 $100,000 or less, other than on an incidental

11 and occasional basis and where such deposits in

12 no event represent more than 5 percent of the

13 institution’s total deposits.

14 ‘‘(B) NO DEPOSIT INSURANCE.—No depos15 its held by a wholesale financial institution shall

16 be insured deposits under the Federal Deposit

17 Insurance Act.

18 ‘‘(C) ADVERTISING AND DISCLOSURE.—

19 The Board shall prescribe regulations pertain20 ing to advertising and disclosure by wholesale

21 financial institutions to ensure that each deposi22 tor is notified that deposits at the wholesale fi23 nancial institution are not federally insured or

24 otherwise guaranteed by the United States Gov25 ernment.
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1 ‘‘(2) SPECIAL CAPITAL REQUIREMENTS APPLI2 CABLE TO WHOLESALE FINANCIAL INSTITUTIONS.—

3 ‘‘(A) MINIMUM CAPITAL LEVELS.—

4 ‘‘(i) IN GENERAL.—The Board shall,

5 by regulation, adopt capital requirements

6 for wholesale financial institutions—

7 ‘‘(I) to account for the status of

8 wholesale financial institutions as in9 stitutions that accept deposits that

10 are not insured under the Federal De11 posit Insurance Act; and

12 ‘‘(II) to provide for the safe and

13 sound operation of the wholesale fi14 nancial institution without undue risk

15 to creditors or other persons, includ16 ing Federal Reserve banks, engaged

17 in transactions with the bank.

18 ‘‘(ii) MINIMUM LEVERAGE RATIO.—

19 The minimum leverage ratio of tier one

20 capital to total assets of wholesale financial

21 institutions shall be not less than the level

22 required for a State member insured bank

23 to be well capitalized.

24 ‘‘(B) CAPITAL CATEGORIES FOR PROMPT

25 CORRECTIVE ACTION.—For purposes of apply-
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1 ing the provisions of section 38 of Federal De2 posit Insurance Act, the Board shall, by regula3 tion, establish, for each relevant capital meas4 ure specified by the Board under subparagraph

5 (A), the levels at which a wholesale financial

6 institution is adequately capitalized,

7 undercapitalized, significantly undercapitalized,

8 and critically undercapitalized.

9 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

10 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi11 tion to any requirements otherwise applicable to

12 State member banks or otherwise applicable under

13 this section, the Board may prescribe, by rule or

14 order, for wholesale financial institutions—

15 ‘‘(A) limitations on transactions with affili16 ates to prevent an affiliate from gaining access

17 to, or the benefits of, credit from a Federal Re18 serve bank, including overdrafts at a Federal

19 Reserve bank;

20 ‘‘(B) special clearing balance requirements;

21 and

22 ‘‘(C) any additional requirements that the

23 Board determines to be appropriate or nec24 essary to—
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1 ‘‘(i) promote the safety and soundness

2 of the wholesale financial institution, or

3 ‘‘(ii) protect creditors and other per4 sons, including Federal Reserve banks, en5 gaged in transactions with the wholesale fi6 nancial institution.

7 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

8 INSTITUTIONS.—The Board may, by rule or order,

9 exempt any wholesale financial institution from any

10 provision applicable to a State member bank that is

11 not a wholesale financial institution, provided that

12 the Board finds that such exemption is not incon13 sistent with—

14 ‘‘(A) the promotion of the safety and

15 soundness of the wholesale financial institution;

16 and

17 ‘‘(B) the protection of creditors and other

18 persons, including Federal Reserve banks, en19 gaged in transactions with the wholesale finan20 cial institution.

21 ‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This

22 section shall not be construed to limit the Board’s

23 authority over member banks under any other provi24 sion of law, or to create any obligation for any Fed25 eral Reserve bank to make, increase, renew, or ex-
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1 tend any advances or discount under this Act to any

2 member bank or other depository institution.

3 ‘‘(d) CONSERVATORSHIP AUTHORITY.—The Board is

4 authorized to appoint a conservator to take possession and

5 control of a wholesale financial institution to the same ex6 tent and in the same manner as the Comptroller of the

7 Currency is authorized to appoint a conservator for a na8 tional bank under section 203 of the Bank Conservation

9 Act.

10 ‘‘(e) DEFINITIONS.—For purposes of this section—

11 ‘‘(1) the term ‘wholesale financial institution’

12 means a bank whose application to become an unin13 sured State member bank has been approved by the

14 Board of Governors of the Federal Reserve System

15 under this section;

16 ‘‘(2) the term ‘deposit’ has the meaning given

17 to such term by the Board under the Federal Re18 serve Act; and

19 ‘‘(3) the term ‘State member insured bank’

20 means a State member bank, the deposits of which

21 are insured under the Federal Deposit Insurance

22 Act.

23 ‘‘(f) EXCLUSIVE JURISDICTION.—Section 43 (c) and

24 (e) of the Federal Deposit Insurance Act (12 U.S.C.

25 1831t) shall not apply to wholesale financial institutions.’’.
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1 (b) VOLUNTARY TERMINATION OF INSURED STATUS

2 BY CERTAIN INSTITUTIONS.—

3 (1) SECTION 8 DESIGNATIONS.—Section 8 of

4 the Federal Deposit Insurance Act (12 U.S.C. 1818)

5 is amended—

6 (A) in the section heading, by inserting

7 ‘‘INVOLUNTARY’’ after ‘‘SEC. 8’’; and

8 (B) in subsection (a)—

9 (i) by striking paragraph (1); and

10 (ii) by redesignating paragraphs (2)

11 through (9) as paragraphs (1) through (8),

12 respectively.

13 (2) VOLUNTARY TERMINATION OF INSURED

14 STATUS.—The Federal Deposit Insurance Act (12

15 U.S.C. 1811 et seq.) is amended by inserting after

16 section 8 the following new section:

17 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN18 SURED DEPOSITORY INSTITUTION.

19 ‘‘(a) IN GENERAL.—Except as provided in subsection

20 (b), an insured State-chartered bank or a national bank

21 may voluntarily terminate its status as an insured deposi22 tory institution in accordance with regulations of the Cor23 poration if—

24 ‘‘(1) such institution provides written notice of

25 its intent to terminate its insured status—
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1 ‘‘(A) to the Corporation and to the Board

2 of Governors of the Federal Reserve System,

3 not less than 6 months before the effective date

4 of such termination; and

5 ‘‘(B) to its depositors, not less than 6

6 months before the effective date of such termi7 nation; and

8 ‘‘(2) either—

9 ‘‘(A) the deposit insurance fund of which

10 such bank is a member equals or exceeds the

11 fund’s designated reserve ratio as set forth in

12 section 7(b)(2)(A)(iv) of the Federal Deposit

13 Insurance Act (12 U.S.C. 1817(b)(2)(A)(iv)) as

14 of the date the bank provides a written notice

15 of its intent to terminate its insured status and

16 the Corporation determines that the fund will

17 equal or exceed its designated reserve ratio for

18 the two semiannual assessment periods imme19 diately following such date; or

20 ‘‘(B) the Corporation and the Board of

21 Governors of the Federal Reserve System ap22 prove termination of the bank’s insured status

23 and such bank pays the exit fee prescribed by

24 paragraph (e) of this section.
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1 ‘‘(b) EXCEPTION.—The option to terminate insured

2 status under subsection (a) shall not be available to—

3 ‘‘(1) an insured savings association;

4 ‘‘(2) an insured branch that is required to be

5 insured under subsection (a) or (b) of section 6 of

6 the International Banking Act of 1978; or

7 ‘‘(3) any institution described in section 2(c)(2)

8 of the Bank Holding Company Act of 1956.

9 ‘‘(c) ELIGIBILITY FOR INSURANCE TERMINATED.—

10 A depository institution that voluntarily elects to termi11 nate its insured status under subsection (a) shall not re12 ceive insurance of any of its deposits or any other assist13 ance authorized under this Act after the period specified

14 in subsection (f)(1).

15 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FI16 NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING

17 ACTIVITIES.—Any institution that voluntarily terminates

18 its status as an insured depository institution under this

19 section may not, upon termination of insurance, accept

20 any deposits unless the institution is a wholesale financial

21 institution under section 9B of the Federal Reserve Act.

22 ‘‘(e) EXIT FEES.—

23 ‘‘(1) IN GENERAL.—Any institution that volun24 tarily terminates its status as an insured depository

25 institution under this section shall pay an exit fee in
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1 an amount that the Corporation determines is suffi2 cient to account for the institution’s pro rata share

3 of the amount (if any) which would be required to

4 restore the relevant deposit insurance fund to the

5 fund’s designated reserve ratio as set forth in sec6 tion 7(b)(2)(A)(iv) of the Federal Deposit Insurance

7 Act as of the date the bank provides a written notice

8 of its intent to terminate its insured status.

9 ‘‘(2) PROCEDURES.—The Corporation shall pre10 scribe, by regulation, procedures for assessing any

11 exit fee under this subsection.

12 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

13 AS OF TERMINATION.—

14 ‘‘(1) TRANSITION PERIOD.—The insured depos15 its of each depositor in a State-chartered bank or a

16 national bank on the effective date of the voluntary

17 termination of the institution’s insured status, less

18 all subsequent withdrawals from any deposits of

19 such depositor, shall continue to be insured for a pe20 riod of not less than 6 months nor more than 2

21 years, within the discretion of the Corporation. Dur22 ing such period, no additions to any such deposits,

23 and no new deposits in the depository institution

24 made after the effective date of such termination

25 shall be insured by the Corporation.
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1 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

2 AND DUTIES.—During the period specified in para3 graph (1), a depository institution shall continue to

4 pay assessments required under this Act as if it

5 were an insured depository institution. Such deposi6 tory institution shall, in all other respects, be subject

7 to the authority of the Corporation and the duties

8 and obligations of an insured depository institution

9 during such period as provided in this Act, and in

10 the event that the depository institution is closed

11 due to an inability to meet the demands of its de12 positors during such period, the Corporation shall

13 have the same powers and rights with respect to

14 such depository institution as in the case of an in15 sured depository institution.

16 ‘‘(g) ADVERTISEMENTS.—

17 ‘‘(1) IN GENERAL.—A depository institution

18 that voluntarily terminates its insured status under

19 this section shall not advertise or hold itself out as

20 having insured deposits, except that it may advertise

21 the temporary insurance of deposits under sub22 section (f) if, in connection with any such advertise23 ment, it shall also state with equal prominence that

24 additions to deposits and new deposits made after

25 the effective date of the termination are not insured.
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1 ‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,

2 AND SECURITIES.—Any certificate of deposit or

3 other obligation or security issued by a State-char4 tered bank or a national bank after the effective

5 date of the voluntary termination of its insured sta6 tus under this section shall be accompanied by a

7 conspicuous, prominently displayed notice that such

8 certificate of deposit or other obligation or security

9 is not insured under this Act.

10 ‘‘(h) NOTICE REQUIREMENTS.—

11 ‘‘(1) NOTICE TO THE CORPORATION.—The no12 tice to the Corporation of an institution’s intent to

13 terminate its insured status required under sub14 section (a) shall be in such form as the Corporation

15 may require.

16 ‘‘(2) NOTICE TO DEPOSITORS.—The notice to

17 depositors of an institution’s intent to terminate its

18 insured status required under subsection (a) shall

19 be—

20 ‘‘(A) at such depositor’s last address of

21 record with the institution; and

22 ‘‘(B) in such manner and form as the Cor23 poration finds to be necessary and appropriate

24 for the protection of depositors.’’.
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1 SEC. 111. EFFECTIVE DATE.

2 The amendments made by this subtitle shall become

3 effective 90 days after the date of enactment of this Act.

4 Subtitle B—Brokers and Dealers

5 SEC. 120. DEFINITION OF BROKER.

6 Section 3(a)(4) of the Securities Exchange Act of

7 1934 (15 U.S.C. 78c(a)(4)) is amended to 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 publicly solicits the business of effecting

16 securities transactions for the account of others

17 or is compensated for such business by the pay18 ment of commissions or similar remuneration

19 based on effecting transactions in securities

20 (other than fees calculated as a percentage of

21 assets under management) in excess of the

22 bank’s incremental costs directly attributable to

23 effecting such transactions (hereafter referred

24 to as ‘incentive compensation’).

25 ‘‘(C) EXEMPTION FOR CERTAIN BANK AC26 TIVITIES.—A bank shall not be deemed to be a
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1 ‘broker’ because it engages in any of the follow2 ing activities:

3 ‘‘(i) THIRD PARTY BROKERAGE AR4 RANGEMENTS.—The bank enters into a

5 contractual or other arrangement with a

6 broker or dealer registered under this title

7 under which the broker or dealer offers

8 brokerage services on or off the premises

9 of the bank if—

10 ‘‘(I) such broker or dealer is

11 clearly identified as the person per12 forming the brokerage services;

13 ‘‘(II) such broker or dealer per14 forms brokerage services in an area

15 that is clearly marked and physically

16 separate from the retail deposit-taking

17 activities of the bank;

18 ‘‘(III) any materials used to ad19 vertise or promote the availability of

20 brokerage services under the contrac21 tual or other arrangement are ap22 proved by the broker or dealer for

23 compliance with the Federal securities

24 laws prior to distribution and are
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1 deemed to be the materials of the

2 broker or dealer;

3 ‘‘(IV) bank employees perform

4 only clerical or ministerial functions in

5 connection with brokerage trans6 actions, unless such employees are as7 sociated persons of a broker or dealer

8 and are qualified pursuant to the re9 quirements of a self-regulatory organi10 zation;

11 ‘‘(V) bank employees do not re12 ceive incentive compensation for any

13 brokerage activities unless such em14 ployees are associated persons of a

15 broker or dealer and are qualified

16 pursuant to the requirements of a

17 self-regulatory organization;

18 ‘‘(VI) such services are provided

19 by the broker or dealer on a basis in

20 which all customers that receive such

21 services are fully disclosed to that

22 broker or dealer; and

23 ‘‘(VII) the broker or dealer in24 forms each customer that the broker25 age services are provided by the
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1 broker or dealer and not by the bank

2 and that the securities are not guar3 anteed by the bank, the Federal De4 posit Insurance Corporation, or any

5 other Federal or State deposit guar6 antee fund relating to banks.

7 ‘‘(ii) TRUST ACTIVITIES.—The bank

8 engages in trust activities (including

9 effecting transactions in the course of such

10 trust activities) permissible for national

11 banks under the first section of the Act of

12 September 28, 1962 or for State banks

13 under relevant State trust statutes or law

14 (including securities safekeeping, self-di15 rected individual retirement accounts, or

16 managed agency accounts or other func17 tionally equivalent accounts of a bank) un18 less the bank—

19 ‘‘(I) publicly solicits brokerage

20 business, other than by advertising

21 that it effects transactions in securi22 ties in conjunction with advertising its

23 other trust activities; or
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1 ‘‘(II) receives incentive com2 pensation for such brokerage activi3 ties.

4 ‘‘(iii) PERMISSIBLE SECURITIES

5 TRANSACTIONS.—The bank effects trans6 actions in exempted securities, other than

7 municipal securities, or in commercial

8 paper, bankers acceptances, commercial

9 bills, qualified Canadian Government obli10 gations as defined in section 5136 of the

11 Revised Statutes, obligations of the Wash12 ington Metropolitan Area Transit Author13 ity which are guaranteed by the Secretary

14 of Transportation under section 9 of the

15 National Capital Transportation Act of

16 1969, obligations of the North American

17 Development Bank, and obligations of any

18 local public agency (as defined in section

19 110(h) of the Housing Act of 1949) or any

20 public housing agency (as defined in the

21 United States Housing Act of 1937) that

22 are expressly specified by section 5136 of

23 the Revised Statutes as permissible for a

24 national bank to underwrite or deal in.
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1 ‘‘(iv) MUNICIPAL SECURITIES.—The

2 bank effects transactions in municipal se3 curities, and has not been affiliated with a

4 securities affiliate under section 10 of the

5 Financial Services Holding Company Act

6 of 1995 for more than 1 year.

7 ‘‘(v) EMPLOYEE AND SHAREHOLDER

8 BENEFIT PLANS.—The bank effects trans9 actions as part of any bonus, profit-shar10 ing, pension, retirement, thrift, savings, in11 centive, stock purchase, stock ownership,

12 stock appreciation, stock option, dividend

13 reinvestment, or similar plan for employees

14 or shareholders of an issuer or its subsidi15 aries.

16 ‘‘(vi) SWEEP ACCOUNTS.—The bank

17 effects transactions as part of a program

18 for the investment or reinvestment of bank

19 deposit funds into any no-load, open-end

20 management investment company reg21 istered under the Investment Company Act

22 of 1940 that holds itself out as a money

23 market fund.

24 ‘‘(vii) AFFILIATE TRANSACTIONS.—

25 The bank effects transactions for the ac-
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1 count of any affiliate of the bank, as de2 fined in section 2 of the Financial Services

3 Holding Company Act of 1995.

4 ‘‘(viii) PRIVATE SECURITIES OFFER5 INGS.—The bank—

6 ‘‘(I) effects sales as part of a pri7 mary offering of securities by an is8 suer, not involving a public offering,

9 pursuant to section 3(b), 4(2), or 4(6)

10 of the Securities Act of 1933 and the

11 rules and regulations issued there12 under, other than securities backed by

13 or representing an interest in obliga14 tions originated or purchased by the

15 bank, its affiliates, or its subsidiaries

16 unless those securities are described

17 in section 3(a)(5)(B)(ii)(IV) (aa) or

18 (bb);

19 ‘‘(II) effects such sales exclu20 sively to an accredited investor, as de21 fined in section 3 of the Securities Act

22 of 1933; and

23 ‘‘(III) if affiliated with a securi24 ties affiliate, as provided under sec25 tion 10 of the Financial Services
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1 Holding Company Act of 1995, has

2 not been so affiliated for more than 1

3 year.

4 ‘‘(ix) DE MINIMIS EXEMPTION.—If the

5 bank does not have a subsidiary or affiliate

6 registered as a broker or dealer under sec7 tion 15, the bank effects, other than in

8 transactions referenced in clauses (i)

9 through (viii), not more than—

10 ‘‘(I) 800 transactions in any cal11 endar year in securities for which a

12 ready market exists, and

13 ‘‘(II) 200 other transactions in

14 securities in any calendar year.

15 ‘‘(x) SAFEKEEPING AND CUSTODY

16 SERVICES.—The bank acts as an

17 intermediary in the safekeeping of securi18 ties or the provision of custody services in

19 respect of securities, including the exercise

20 of warrants or other rights.

21 ‘‘(ix) CLEARANCE AND SETTLE22 MENT.—The bank acts as an intermediary

23 in the clearance and settlement of trans24 actions in securities.
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1 ‘‘(xii) SECURITIES LENDING.—The

2 bank acts as an intermediary in the lend3 ing and borrowing of securities or in the

4 investment of cash collateral pledged in

5 connection with any securities borrowing.

6 ‘‘(xiii) COLLATERAL AGENCY SERV7 ICES.—The bank acts as an intermediary

8 in the pledging, sale subject to a resale

9 agreement of securities.

10 ‘‘(D) EXEMPTION FOR ENTITIES SUBJECT

11 TO SECTION 15(e).—The term ‘broker’ does not

12 include a bank that is subject to—

13 ‘‘(i) section 15(e); and

14 ‘‘(ii) such restrictions and require15 ments as the Commission deems appro16 priate.’’.

17 SEC. 121. DEFINITION OF DEALER.

18 Section 3(a)(5) of the Securities Exchange Act of

19 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

20 ‘‘(5) ‘DEALER’.—

21 ‘‘(A) IN GENERAL.—The term ‘dealer’

22 means any person engaged in the business of

23 buying and selling securities for his own ac24 count through a broker or otherwise.
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1 ‘‘(B) EXCEPTIONS.—Such term does not

2 include—

3 ‘‘(i) a person that buys or sells securi4 ties for his or her own account, either indi5 vidually or in a fiduciary capacity, but not

6 as a part of a regular business; or

7 ‘‘(ii) a bank, to the extent that the

8 bank—

9 ‘‘(I) buys and sells commercial

10 paper, bankers acceptances, exempted

11 securities (other than municipal secu12 rities), qualified Canadian Govern13 ment obligations as defined in section

14 5136 of the Revised Statues, obliga15 tions of the Washington Metropolitan

16 Area Transit Authority which are

17 guaranteed by the Secretary of Trans18 portation under section 9 of the Na19 tional Capital Transportation Act of

20 1969, obligations of the North Amer21 ican Development Bank, and obliga22 tions of any local public agency (as

23 defined in section 110(h) of the Hous24 ing Act of 1949) or any public hous25 ing agency (as defined in the United
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1 States Housing Act of 1937) that are

2 expressly specified by section 5136 of

3 the Revised Statutes as permissible

4 for a national bank to underwrite or

5 deal in;

6 ‘‘(II) buys and sells municipal se7 curities and has not been affiliated

8 with a securities affiliate, as provided

9 under section 10 of the Financial

10 Services Holding Company Act of

11 1995 for more than 1 year;

12 ‘‘(III) buys and sells securities

13 for investment purposes for the bank

14 or for accounts for which the bank

15 acts as a trustee or fiduciary; or

16 ‘‘(IV) has not been affiliated with

17 a securities affiliate under section 10

18 of the Financial Services Holding

19 Company Act of 1995 for more than

20 1 year and engages in the issuance or

21 sale through a grantor trust or other22 wise of—

23 ‘‘(aa) securities backed by or

24 representing an interest in 1–4

25 family residential mortgages
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1 originated or purchased by the

2 bank, its affiliates, or its subsidi3 aries; or

4 ‘‘(bb) securities backed by or

5 representing an interest in

6 consumer receivables or

7 consumer leases originated or

8 purchased by the bank, its affili9 ates, or its subsidiaries.’’.

10 SEC. 122. POWER TO EXEMPT FROM THE DEFINITIONS OF

11 BROKER AND DEALER.

12 Section 3 of the Securities Exchange Act of 1934 (15

13 U.S.C. 78c) is amended by adding at the end the follow14 ing:

15 ‘‘(e) EXEMPTION FROM DEFINITION OF BROKER OR

16 DEALER.—The Commission, by regulation or order, upon

17 its own motion or upon application, may conditionally or

18 unconditionally exclude any person or class of persons

19 from the definitions of ‘broker’ or ‘dealer’, if the Commis20 sion finds that such exclusion is consistent with the public

21 interest, the protection of investors, and the purposes of

22 this title.’’.

23 SEC. 123. MARGIN REQUIREMENTS.

24 (a) Section 7(d) of the Securities Exchange Act of

25 1934 (15 U.S.C. 15g(d)) is amended by—
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1 (1) deleting the word ‘‘or’’ after clause (D);

2 (2) redesignating clause (E) as clause (F); and

3 (3) inserting a new clause (E) as follows:

4 ‘‘(E) to a loan to a broker or dealer by a

5 member bank or any other person that has en6 tered into an agreement pursuant to section

7 8(a) hereof if the proceeds of the loan are to be

8 used in the ordinary course of the broker’s or

9 dealer’s business other than for the purpose of

10 funding the purchase of securities for the ac11 count of such broker or dealer, or’’.

12 (b) Section 8(a) of the Securities and Exchange Act

13 of 1934 is amended:

14 (1) by deleting the phrase ‘‘nonmember bank’’

15 in clause (2) and replacing it with the phrase ‘‘per16 son other than a member bank’’; and

17 (2) by deleting the phrase ‘‘such bank’’ in the

18 second sentence and replacing it with the phrase

19 ‘‘such person’’.

20 SEC. 124. EFFECTIVE DATE.

21 This subtitle shall become effective 270 days after the

22 date of enactment of this Act.
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1 Subtitle C—Bank Investment Company

2 Activities

3 SEC. 130. CUSTODY OF INVESTMENT COMPANY ASSETS BY

4 AFFILIATED BANK.

5 (a) MANAGEMENT COMPANIES.—Section 17(f) of the

6 Investment Company Act of 1940 (15 U.S.C. 80a–17(f))

7 is amended—

8 (1) by redesignating paragraphs (1), (2), and

9 (3) as subparagraphs (A), (B), and (C), respectively;

10 (2) by designating the five sentences of such

11 subsection as paragraphs (1) through (5), respec12 tively, and by indenting those paragraphs appro13 priately; and

14 (3) by adding at the end the following new

15 paragraph:

16 ‘‘(6) Notwithstanding paragraph (l)(A), if a

17 bank described in paragraph (1) or an affiliated per18 son of such bank is an affiliated person, promoter,

19 organizer, or sponsor of, or principal underwriter for

20 the registered company, such bank may serve as cus21 todian under this subsection in accordance with such

22 rules, regulations, or orders as the Commission may

23 prescribe, consistent with the protection of investors,

24 after consulting in writing with the appropriate Fed-
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1 eral banking agency, as defined in section 3 of Fed2 eral Deposit Insurance Act.’’.

3 (b) UNIT INVESTMENT TRUSTS.—Section 26(a)(l) of

4 the Investment Company Act of 1940 (15 U.S.C. 80a–

5 26(a)(l)) is amended by inserting after ‘‘bank’’ the follow6 ing: ‘‘not affiliated with such underwriter or depositor, or

7 if such bank is so affiliated, only in accordance with such

8 regulations or orders as the Commission may prescribe,

9 consistent with the protection of investors, after consulting

10 in writing with the appropriate Federal banking agency,

11 as defined in section 3 of the Federal Deposit Insurance

12 Act’’.

13 (c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)

14 of the Investment Company Act of 1940 (15 U.S.C. 80a–

15 35(a)) is amended—

16 (1) in paragraph (1), by striking ‘‘or’’ at the

17 end;

18 (2) in paragraph (2), by striking the period at

19 the end and inserting ‘‘; or’’; and

20 (3) by inserting after paragraph (2) the follow21 ing:

22 ‘‘(3) as custodian.’’.
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1 SEC. 131. AFFILIATED TRANSACTIONS.

2 (a) INDEBTEDNESS TO AFFILIATED PERSON.—Sec3 tion 10(f) of the Investment Company Act of 1940 (15

4 U.S.C. 80a–10(f) is amended in the first sentence—

5 (1) by inserting ‘‘(1)’’ before ‘‘a principal un6 derwriter’’; and

7 (2) by inserting before the period ‘‘, or (2) the

8 proceeds of which will be used to retire an indebted9 ness owed to an affiliated person of such registered

10 company’’.

11 (b) AFFILIATED PERSON OF INVESTMENT COM12 PANY.—Section 10(f) of the Investment Company Act of

13 1940 is amended by adding at the end the following: ‘‘For

14 purposes of this subsection, a person that is under com15 mon control with an investment adviser shall be deemed

16 to be an affiliated person of the registered investment

17 company advised by such investment adviser.’’.

18 SEC. 132. BORROWING FROM AN AFFILIATED BANK.

19 Section 18(f) of the Investment Company Act of

20 1940 (15 U.S.C. 80a–18(f)) is amended by adding at the

21 end the following:

22 ‘‘(3) Notwithstanding the provisions of paragraph

23 (1), it shall be unlawful for any registered investment com24 pany to borrow from any bank if such bank or any affili25 ated person thereof is an affiliated person, promotor, orga26 nizer, or sponsor of, or principal underwriter for, such
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1 company, except that the Commission may, by rule, regu2 lation, or order, permit such borrowing that the Commis3 sion finds to be in the public interest and consistent with

4 the protection of investors.’’.

5 SEC. 133. INDEPENDENT DIRECTORS.

6 (a) INTERESTED PERSON.—Section 2(a)(19)(A)(v)

7 of the Investment Company Act of 1940 (15 U.S.C. 80a–

8 2(a)(19)(A)(v)) is amended by striking ‘‘1934 or any af9 filiated person of such a broker or dealer, and’’ and insert10 ing ‘‘1934 or any person that, at any time during the pre11 ceding 6 months, has acted as custodian or transfer agent

12 or has executed any portfolio transactions for, engaged in

13 any principal transactions with, or loaned money to, the

14 investment company, or any other investment company

15 having the same investment adviser, principal underwriter,

16 sponsor, or promoter, or any affiliated person of such a

17 broker, dealer, or person, and’’.

18 (b) AFFILIATION OF DIRECTORS.—Section 10(c) of

19 the Investment Company Act of 1940 (15 U.S.C. 80a–

20 10(c)) is amended by striking ‘‘bank, except’’ and insert21 ing ‘‘bank (and its subsidiaries) or any single financial

22 services holding company (and its affiliates and subsidi23 aries), as those terms are defined in the Financial Services

24 Holding Company Act of 1995, except’’.
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1 (c) EFFECTIVE DATE.—The provisions of subsection

2 (a) of this section shall become effective 1 year after the

3 date of enactment of this subtitle.

4 SEC. 134. ADDITIONAL SEC DISCLOSURE AUTHORITY.

5 (a) MISREPRESENTATION.—Section 35(a) of the In6 vestment Company Act of 1940 (15 U.S.C. 80a–34(a)) is

7 amended to read as follows:

8 ‘‘SEC. 35. MISREPRESENTATIONS.

9 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

10 ‘‘(1) IN GENERAL.—It shall be unlawful for any

11 person, in issuing or selling any security of which a

12 registered company is the issuer, to represent or

13 imply in any manner whatsoever that such security

14 or company—

15 ‘‘(A) has been guaranteed, sponsored, rec16 ommended, or approved by the United States,

17 or any agency, instrumentality or officer there18 of,

19 ‘‘(B) has been insured by the Federal De20 posit Insurance Corporation; or

21 ‘‘(C) is guaranteed by or is otherwise an

22 obligation of any bank or insured institution.

23 ‘‘(2) DISCLOSURES.—The Commission shall re24 quire the person issuing or selling the securities of

25 a registered investment company to prominently dis-
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1 close, in writing or orally, as appropriate, that the

2 investment company or any security issued by it is

3 not insured by the Federal Deposit Insurance Cor4 poration and is not guaranteed by an affiliated de5 pository institution, and is not otherwise an obliga6 tion of such a bank or insured institution, in any

7 case where—

8 ‘‘(A) a financial services holding company,

9 bank, or separately identifiable division or de10 partment of a bank, or any affiliate or subsidi11 ary thereof is an investment adviser, organizer,

12 sponsor, promoter, principal underwriter, or an

13 affiliated person of the investment company; or

14 ‘‘(B) a bank or an affiliated person of a

15 bank is offering or selling securities of the in16 vestment company.

17 ‘‘The requirement of any disclosures referred to

18 above shall be subject to regulations adopted by the

19 Commission, after consultation with the appropriate

20 Federal banking agencies (as defined in section 3 of

21 the Federal Deposit Insurance Act).’’.

22 (b) DECEPTIVE USE OF NAMES.—Section 35(d) of

23 the Investment Company Act of 1940 (15 U.S.C. 80a–

24 34(d)) is amended by inserting after the first sentence the

25 following: ‘‘It shall be deceptive and misleading for any
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1 registered investment company which has an insured de2 pository institution (as defined in section 3 of the Federal

3 Deposit Insurance Act) or any affiliated person thereof as

4 an affiliated person, promoter, or principal underwriter,

5 to adopt, as part of the name or title of such company,

6 or of any security of which it is the issuer, any word which

7 is the same as or similar to, or a variation of, the name

8 or title of such insured depository institution or affiliate

9 thereof. The Commission, by rules or regulations upon its

10 own motion or by order upon application, may condi11 tionally or unconditionally exempt an investment company

12 from the preceding sentence if the Commission finds that

13 such exemption is consistent with the public interest, the

14 protection of investors, and the purposes of this title.’’.

15 SEC. 135. DEFINITION OF BROKER UNDER THE INVEST16 MENT COMPANY ACT OF 1940.

17 Section 2(a)(6) of the Investment Company Act of

18 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol19 lows:

20 ‘‘(6) ‘Broker’ has the same meaning as in the

21 Securities Exchange Act of 1934, except that it does

22 not include any person solely by reason of the fact

23 that such person is an underwriter for 1 or more in24 vestment companies.’’.
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1 SEC. 136. DEFINITION OF DEALER UNDER THE INVEST2 MENT COMPANY ACT OF 1940.

3 Section 2(a)(11) of the Investment Company Act of

4 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as

5 follows:

6 ‘‘(11) ‘Dealer’ has the same meaning as in the

7 Securities Exchange Act of 1934, but does not in8 clude an insurance company or investment com9 pany.’’.

10 SEC. 137. REMOVAL OF THE EXCLUSION FROM THE DEFINI11 TION OF INVESTMENT ADVISER FOR BANKS

12 THAT ADVISE INVESTMENT COMPANIES.

13 (a) INVESTMENT ADVISER.—Section 202(a)(11) of

14 the Investment Advisers Act of 1940 (15 U.S.C. 80b–

15 2(a)(11)) is amended in subparagraph (A), by striking

16 ‘‘investment company’’ and inserting ‘‘investment com17 pany, except that the term ‘investment adviser’ includes

18 any bank or financial services holding company to the ex19 tent that such bank or financial services holding company

20 acts as an investment adviser to a registered investment

21 company, or if, in the case of a bank, such services are

22 performed through a separately identifiable department or

23 division, the department or division, and not the bank it24 self shall be deemed to be the ‘investment adviser’ ’’; and

25 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR

26 DIVISION.—Section 202(a) of the Investment Advisers Act
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1 of 1940 (15 U.S.C. 80b–2(a)) is amended by adding at

2 the end the following:

3 ‘‘(25) ‘Separately identifiable department or di4 vision’ of a bank means a unit—

5 ‘‘(A) that is under the direct supervision of

6 an officer or officers designated by the board of

7 directors of the bank as responsible for the day8 to-day conduct of the bank’s investment adviser

9 activities for 1 or more investment companies,

10 including the supervision of all bank employees

11 engaged in the performance of such activities;

12 and

13 ‘‘(B) for which all of the records relating

14 to its investment adviser activities, are sepa15 rately maintained in or extractable from such

16 unit’s own facilities or the facilities of the bank,

17 and such records are so maintained or other18 wise accessible as to permit independent exam19 ination and enforcement of this Act and rules

20 and regulations promulgated under this Act.’’.

21 SEC. 138. DEFINITION OF BROKER UNDER THE INVEST22 MENT ADVISERS ACT OF 1940.

23 Section 202(a)(3) of the Investment Advisers Act of

24 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol25 lows:
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1 ‘‘(3) ‘Broker’ has the same meaning as in the

2 Securities Exchange Act of 1934.’’.

3 SEC. 139. DEFINITION OF DEALER UNDER THE INVEST4 MENT ADVISERS ACT OF 1940.

5 Section 202(a)(7) of the Investment Advisers Act of

6 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as

7 follows:

8 ‘‘(7) ‘Dealer’ has the same meaning as in the

9 Securities Exchange Act of 1934, but does not in10 clude an insurance company or investment com11 pany.’’.

12 SEC. 140. INTERAGENCY CONSULTATION.

13 The Investment Advisers Act of 1940 (15 U.S.C.

14 80b–1 et seq.) is amended by inserting after section 210

15 the following new section:

16 ‘‘SEC. 210A. CONSULTATION.

17 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA18 TION.—

19 ‘‘(1) The appropriate Federal banking agency

20 shall provide the Commission upon request the re21 sults of any examination, reports, records, or other

22 information as each may have with respect to the in23 vestment advisory activities of any financial services

24 holding company, bank, or department or division of

25 a bank, any of which is registered under section 203
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1 of this title, or, in the case of a financial services

2 holding company or bank, has a subsidiary, depart3 ment, or division registered under that section, to

4 the extent necessary for the Commission to carry out

5 its statutory responsibilities.

6 ‘‘(2) The Commission shall provide to the ap7 propriate Federal banking agency upon request the

8 results of any examination, reports, records, or other

9 information with respect to the investment advisory

10 activities of any financial services holding company,

11 bank, or department or division of a bank, any of

12 which is registered under section 203 of this title, to

13 the extent necessary for the agency to carry out its

14 statutory responsibilities.

15 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing

16 herein shall limit in any respect the authority of the appro17 priate Federal banking agency with respect to such finan18 cial services holding company, bank, or department or di19 vision under any provision of law.

20 ‘‘(c) DEFINITION.—For purposes of this section, the

21 term ‘appropriate Federal banking agency’ shall have the

22 same meaning as in section 3 of the Federal Deposit In23 surance Act.’’.
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1 SEC. 141. TREATMENT OF BANK COMMON TRUST FUNDS.

2 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

3 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

4 amended by striking ‘‘or any interest or participation in

5 any common trust fund or similar fund maintained by a

6 bank exclusively for the collective investment and reinvest7 ment of assets contributed thereto by a bank in its capac8 ity as trustee, executor, administrator, or guardian’’ and

9 inserting ‘‘or any interest of participation in any common

10 trust fund or similar fund that is excluded from the defini11 tion of the term ‘investment company’ under section

12 3(c)(3) of the Investment Company Act of 1940’’.

13 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

14 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

15 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol16 lows:

17 ‘‘(iii) any interest or participation in

18 any common trust fund or similar fund

19 that is excluded from the definition of the

20 term ‘investment company’ under section

21 3(c)(3) of the Investment Company Act of

22 1940.’’.

23 (c) INVESTMENT COMPANY ACT OF 1940.—Section

24 3(c)(3) of the Investment Company Act of 1940 (15

25 U.S.C. 80a–3(c)(3)) is amended by inserting before the

26 period the following: ‘‘, if—
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1 ‘‘(A) such fund is employed by the bank

2 solely as an aid to the administration of trusts,

3 estates, or other accounts created and main4 tained for a fidiciary purpose;

5 ‘‘(B) except in connection with the ordi6 nary advertising of the bank’s fidiciary services,

7 interests in such fund are not—

8 ‘‘(i) advertised; or

9 ‘‘(ii) offered for sale to the general

10 public; and

11 ‘‘(C) such fund is not charged any fees or

12 expenses that, when added to any other com13 pensation charged by the bank to a participant

14 account, would exceed the total amount of com15 pensation that would have been charged to such

16 participant account if no assets of the account

17 had been invested in interests in the fund, ex18 cept that any reasonable and necessary ex19 penses related to the prudent operation of the

20 fund, as determined by the appropriate Federal

21 banking agency (as defined in section 3(q) of

22 the Federal Deposit Insurance Act), shall be

23 permitted to be charged directly to the fund.’’

24 ‘‘(d) TAX EFFECT.—It is the sense of the Congress

25 that the public interest would be furthered by enacting
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1 legislation to amend section 584 of the Internal Revenue

2 Code of 1986 by inserting after subsection (g) the follow3 ing new subsection:

4 ‘‘(h) CONVERSION, MERGERS, OR REORGANIZATION

5 OF COMMON TRUST FUNDS.—Notwithstanding any other

6 provision of the Internal Revenue Code, any transfer of

7 all or substantially all of the assets of a common trust

8 fund taxable under this section to a registered investment

9 company taxable under subchapter M shall not result in

10 a gain or loss to the participants in such common trust

11 fund where the transfer is a result of a merger, conversion,

12 reorganization, transfer, or other similar transaction or se13 ries of transactions.’’.

14 SEC. 142. INVESTMENT ADVISERS PROHIBITED FROM HAV15 ING CONTROLLING INTEREST IN REG16 ISTERED INVESTMENT COMPANY.

17 Section 15 of the Investment Company Act of 1940

18 (15 U.S.C. 80a–15) is amended by adding at the end the

19 following new subsection:

20 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM21 PANY PROHIBITED.—

22 ‘‘(1) IN GENERAL.—If any investment adviser

23 to a registered investment company, or an affiliated

24 person of that investment adviser, also holds shares

25 of the investment company in a trustee or fiduciary
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1 capacity, that investment adviser or affiliated person

2 may own, directly or indirectly, a controlling interest

3 in that registered investment company only—

4 ‘‘(A) if it passes the power to vote the

5 shares of the investment company through to—

6 ‘‘(i) the beneficial owners of the

7 shares;

8 ‘‘(ii) any person acting in a fiduciary

9 capacity who is not an affiliated person of

10 that investment adviser or any affiliated

11 person thereof; or

12 ‘‘(iii) any person authorized to receive

13 statements and information with respect to

14 the trust who is not an affiliated person of

15 that investment adviser or any affiliated

16 person thereof;

17 ‘‘(B) if it votes the shares of the invest18 ment company held by it in the same proportion

19 as shares held by all other shareholders of the

20 investment company; or

21 ‘‘(C) as otherwise permitted under such

22 rules, regulations, or orders as the Commission

23 may prescribe for the protection of investors.

24 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

25 apply to any investment adviser to a registered in-
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1 vestment company, or an affiliated person of that in2 vestment adviser, holding shares of the investment

3 company in a trustee or fiduciary capacity if that

4 registered investment company consists solely of as5 sets of—

6 ‘‘(A) any common trust fund or similar

7 fund described in section 3(c)(3) of the Invest8 ment Company Act of 1940;

9 ‘‘(B) any employees’ stock bonus, pension,

10 or profit-sharing trust that qualifies under sec11 tion 401 of the Internal Revenue Code of 1986;

12 ‘‘(C) any governmental plan described in

13 section 3(a)(2)(C) of the Securities Act of

14 1933; or

15 ‘‘(D) any collective trust fund maintained

16 by a bank and consisting solely of assets of

17 trusts or governmental plans described in sub18 paragraph (B) or (C).’’.

19 SEC. 143. PURCHASE OF INVESTMENT COMPANY SECURI20 TIES AS FIDUCIARY.

21 (a) IN GENERAL.—Section 17 of the Investment

22 Company Act of 1940 (15 U.S.C. 80a–17) is amended by

23 adding at the end the following:

24 ‘‘(k) PURCHASE OF INVESTMENT COMPANY SECURI25 TIES AS FIDUCIARY.—
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1 ‘‘(1) IN GENERAL.—An investment adviser to a

2 registered investment company, or an affiliated per3 son of the investment adviser, promoter, organizer,

4 or sponsor of the registered investment company, or

5 principal underwriter for the registered company

6 may purchase securities issued by such investment

7 company for the account of a beneficiary as fidu8 ciary, only if disclosure of such information as the

9 Commission shall prescribe under paragraph (2) has

10 been provided to the person (other than to the in11 vestment advisor to the registered investment com12 pany, or an affiliated person of the investment advi13 sor, promoter, organizer, or sponsor of the registered

14 investment company, or principal underwriter for the

15 registered company who may purchase securities of

16 the registered company as fiduciary for the account)

17 to whom periodic financial statements are customar18 ily provided.

19 ‘‘(2) DISCLOSURE RULES.—The Commission

20 shall prescribe, by rule, regulation, or order, the

21 manner, form, and content of the information re22 quired to be disclosed under paragraph (1), as the

23 Commission determines necessary or appropriate in

24 the public interest and for the protection of inves25 tors.
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1 ‘‘(3) PROSPECTIVE EFFECT.—This subsection

2 shall be effective for purchase for fiduciary accounts

3 made after the effective date of this subtitle.’’.

4 (b) EXAMINATION OF TRUST DEPARTMENT SECURI5 TIES PURCHASES.—Section 10(d) of the Federal Deposit

6 Insurance Act (12 U.S.C. 1820(d)) is amended by adding

7 at the end the following:

8 ‘‘(6) TRUST DEPARTMENT EXAMINATION.—In

9 performing an examination under this subsection,

10 the appropriate Federal banking agency shall exam11 ine purchases by an insured depository institution’s

12 trust department or division of the securities of an

13 affiliated investment company, or an investment

14 company that is an affiliated person of an affiliated

15 person of the institution (as those terms are defined

16 in sections 2 and 3 of the Investment Company Act

17 of 1940), to assure compliance with applicable Fed18 eral and State trust laws.’’.

19 SEC. 144. CONFORMING CHANGE IN DEFINITION.

20 Section 2(a)(5) of the Investment Company Act of

21 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking

22 ‘‘(A) a banking organization organized under the laws of

23 the United States’’ and inserting ‘‘(A) a depository insti24 tution, as that term is defined in section 3 of the Federal
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1 Deposit Insurance Act or a United States branch or agen2 cy of a foreign bank’’.

3 SEC. 145. EFFECTIVE DATE.

4 This subtitle shall become effective 270 days after the

5 date of enactment of this Act.

6 Subtitle D—Financial Activities

7 SEC. 150. FINANCIAL ACTIVITIES.

8 Section 4(c)(8) of the Bank Holding Company Act

9 (12 U.S.C. 1843(c)(8)) is amended—

10 (1) by striking the text beginning with ‘‘shares

11 of any company’’ through ‘‘for a bank holding com12 pany to provide’’ and inserting instead the following:

13 ‘‘shares of any company the activities of which the

14 Board after due notice has determined (by order,

15 regulation, or advisory opinion) to be financial in na16 ture or incidental to such financial activities. Any

17 activity that the Board has determined, by order or

18 regulation that is in effect on the date of enactment

19 of the Financial Services Competitiveness Act of

20 1995, to be so closely related to banking or manag21 ing or controlling banks as to be a proper incident

22 thereto shall be deemed to be of a financial nature

23 for purposes of this paragraph without further ac24 tion by the Board (subject to the same terms and

25 conditions contained in such order or regulation, un-
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1 less modified by the Board), but for purposes of this

2 subsection it is not closely related to banking or

3 managing or controlling banks or financial in nature

4 or incidental to a financial activity for a financial

5 services holding company to provide’’;

6 (2) by inserting before the period at the end of

7 the third sentence thereof the following: ‘‘and be8 tween activities commenced by affiliates of different

9 classes of banks.’’; and

10 (3) by striking the second sentence.

11 SEC. 151. NO PRIOR APPROVAL REQUIRED FOR WELL CAP12 ITALIZED AND WELL MANAGED FINANCIAL

13 SERVICES HOLDING COMPANIES.

14 (a) PERMISSIBLE NONBANKING ACTIVITIES.—Sec15 tion 4(j) of the Bank Holding Company Act of 1956 (12

16 U.S.C. 1843(j)) is amended—

17 (1) in paragraph (1), by striking ‘‘No’’ and in18 serting in its place ‘‘Except as provided in para19 graph (3), no’’; and

20 (2) by adding at the end the following new

21 paragraphs:

22 ‘‘(3) NO NOTICE REQUIRED FOR CERTAIN

23 TRANSACTIONS.—No notice under paragraph (1) or

24 subsections (c)(8) or (a)(2)(B) is required for a pro25 posal by a financial services holding company to en-
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1 gage in any activity or acquire the shares or assets

2 of any company if the proposal qualifies under para3 graph (4).

4 ‘‘(4) CRITERIA FOR STATUTORY APPROVAL.—A

5 proposal qualifies under this paragraph if all of the

6 following criteria are met:

7 ‘‘(A) FINANCIAL CRITERIA.—Both before

8 and immediately after the proposed transaction:

9 ‘‘(i) the acquiring financial services

10 holding company is well capitalized;

11 ‘‘(ii) the lead insured depository insti12 tution of such holding company is well cap13 italized;

14 ‘‘(iii) well capitalized insured deposi15 tory institutions control at least 80 percent

16 of the aggregate total risk-weighted assets

17 of insured depository institutions controlled

18 by such holding company; and

19 ‘‘(iv) no insured depository institution

20 controlled by such holding company is

21 undercapitalized.

22 ‘‘(B) MANAGERIAL CRITERIA.—

23 ‘‘(i) WELL MANAGED.—At the time of

24 the transaction, the acquiring financial

25 services holding company, its lead insured
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1 depository institution, and insured deposi2 tory institutions that control at least 80

3 percent of the aggregate total risk-weight4 ed assets of insured depository institutions

5 controlled by such holding company are

6 well managed;

7 ‘‘(ii) LIMITATION ON POORLY MAN8 AGED INSTITUTIONS.—

9 ‘‘(I) IN GENERAL.—No insured

10 depository institution controlled by

11 the acquiring financial services hold12 ing company has received one of the

13 lowest two composite ratings at the

14 later of the institution’s most recent

15 examination or subsequent review;

16 ‘‘(II) RECENTLY ACQUIRED IN17 STITUTIONS.—Insured depository in18 stitutions acquired by the financial

19 services holding company within the

20 previous 12 months may be excluded

21 for purposes of subclause (I) if—

22 ‘‘(aa) the financial services

23 holding company has developed a

24 plan acceptable to the appro25 priate Federal banking agency
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1 (as defined in section 3 of the

2 Federal Deposit Insurance Act)

3 for the institution to restore the

4 capital and management of the

5 institution; and

6 ‘‘(bb) all such insured depos7 itory institutions represent, in

8 the aggregate, less than 25 per9 cent of the aggregate total risk10 weighted assets of all insured de11 pository institutions controlled by

12 the financial services holding

13 company.

14 ‘‘(C) ACTIVITIES PERMISSIBLE.—Following

15 consummation of the proposal, the financial

16 services holding company engages directly or

17 through a subsidiary solely in:

18 ‘‘(i) activities that are permissible

19 under subsection (c)(8), as determined by

20 the Board by regulation, order, or advisory

21 opinion thereunder, subject to all of the re22 strictions, terms and conditions of such

23 subsection and such regulation, order, or

24 advisory opinion; and
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1 ‘‘(ii) such other activities as are other2 wise permissible under another subsection

3 of this Act, subject to the restrictions,

4 terms and conditions, including any prior

5 notice or approval requirements, provided

6 in this Act.

7 ‘‘(D) SIZE OF ACQUISITION.—

8 ‘‘(i) ASSET SIZE.—The book value of

9 the total risk-weighted assets acquired does

10 not exceed 10 percent of the consolidated

11 total risk-weighted assets of the acquiring

12 financial services holding company.

13 ‘‘(ii) CONSIDERATION.—The gross

14 consideration to be paid for the securities

15 or assets does not exceed 15 percent of the

16 consolidated Tier 1 capital of the acquiring

17 financial services holding company.

18 ‘‘(E) NOTICE NOT OTHERWISE WAR19 RANTED.—For proposals described in para20 graph (5)(B), the Board has not, prior to the

21 conclusion of the period provided in paragraph

22 (5)(B), advised the financial services holding

23 company that a notice under paragraph (1) is

24 required.

25 ‘‘(5) NOTIFICATION.—
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1 ‘‘(A) COMMENCEMENT OF ACTIVITIES AP2 PROVED BY RULE.—A financial services holding

3 company that qualifies under paragraph (4)

4 and that proposes to engage de novo, directly or

5 through a subsidiary, in any activity that is per6 missible under subsection (c)(8), as determined

7 by the Board by regulation, may commence that

8 activity without prior notice to the Board and

9 must provide written notification to the Board

10 no later than 10 business days after commenc11 ing the activity.

12 ‘‘(B) ACTIVITIES PERMITTED BY ORDER

13 AND ACQUISITIONS.—At least 12 business days

14 prior to commencing any activity (other than an

15 activity described in subparagraph (A)) or ac16 quiring shares or assets of any company in a

17 proposal that qualifies under paragraph (4), the

18 financial services holding company must provide

19 the Board written notification of the proposal,

20 unless the Board determines that no notice or

21 a shorter notice period is appropriate. A notifi22 cation under this subparagraph must include a

23 description of the proposed activities and the

24 terms of any proposed acquisition.
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1 ‘‘(6) ADJUSTMENT OF AMOUNTS.—The Board

2 may by regulation adjust the amounts and the man3 ner in which the percentage of insured depository in4 stitutions is calculated under paragraph (4)(B)(i),

5 paragraph (4)(B)(ii)(II)(bb), and paragraph (4)(D)

6 if the Board determines that any such adjustment is

7 consistent with safety and soundness and the pur8 poses of this Act.

9 ‘‘(7) EXPEDITED PROCEDURE FOR NEW ACTIVI10 TIES.—

11 ‘‘(A) EXPEDITED PRE-ACQUISITION RE12 VIEW.—A financial services holding company

13 may, at the end of the period provided in para14 graph (5)(B) and subject to a final ruling as

15 provided in subparagraph (B), acquire a com16 pany engaged in activities that the Board has

17 not previously determined to be financial in na18 ture if—

19 ‘‘(i) the proposal qualifies under all of

20 the criteria in paragraph (4) except para21 graph (4)(C);

22 ‘‘(ii) the financial services holding

23 company provides the notification required

24 under paragraph (5)(B), and includes in

25 that notification an explanation of the
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1 facts and circumstances that provide a rea2 sonable basis for concluding that the pro3 posed activities are financial in nature or

4 incidental to such financial activities; and

5 ‘‘(iii) prior to the end of the notifica6 tion period in paragraph (5)(B), the Board

7 has not required a notice under paragraph

8 (1) or advised the financial services hold9 ing company that the company has failed

10 to provide a reasonable basis for conclud11 ing that the proposed activities are finan12 cial in nature or incidental to such finan13 cial activities. A decision by the Board not

14 to require a notice under paragraph (1)

15 during this period does not prejudice the

16 Board’s decision under subparagraphs (B)

17 and (C).

18 ‘‘(B) POST-ACQUISITION REVIEW.—

19 ‘‘(i) NOTICE PROCEDURE.—A finan20 cial services holding company that is per21 mitted to make an acquisition under this

22 paragraph must, within 30 days following

23 consummation of the acquisition, file a no24 tice with the Board in accordance with

25 paragraph (1).
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1 ‘‘(ii) LIMITED REVIEW.—The Board’s

2 review of a post-consummation notice re3 quired under this subparagraph shall be

4 limited to determining whether the pro5 posed activities are permissible under sub6 section (c)(8).

7 ‘‘(C) CONDITIONAL ACTION.—Nothing in

8 this paragraph shall limit in any way the au9 thority of the Board under this section to im10 pose conditions on the conduct of any activity

11 or the ownership of any company.

12 ‘‘(D) DIVESTITURE OF IMPERMISSIBLE AC13 TIVITIES.—If the Board finds that any activity

14 proposed is not permissible under subsection

15 (c)(8), the financial services holding company

16 must, within two years of the date of such de17 termination, terminate the activity or divest the

18 company acquired in reliance on this para19 graph.’’.

20 SEC. 152. CONFORMING AMENDMENTS TO THE BANK HOLD21 ING COMPANY ACT.

22 (a) ELIMINATION OF OBSOLETE PROVISIONS.—The

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

24 through 1849) is amended:

25 (1) in section 4(a)(2)—
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1 (A) by striking the phrase beginning ‘‘or in

2 the case of a company’’ and ending ‘‘after De3 cember 31, 1980,’’; and

4 (B) by striking the sentence beginning

5 ‘‘Notwithstanding any other provision’’;

6 (2) in section 4(b), by striking ‘‘After two years

7 from May 9, 1956, no’’ and inserting in its place

8 ‘‘No’’; and

9 (3) in section 5—

10 (A) by striking ‘‘Within one hundred and

11 eighty days after May 9, 1956, or within’’ and

12 inserting in its place ‘‘Within’’; and

13 (B) by striking ‘‘whichever is later,’’.

14 (b) CONFORMING AMENDMENTS.—The Bank Hold15 ing Company Act of 1956 (12 U.S.C. 1841 through 1849)

16 is amended:

17 (1) in section 3(c)(4), by striking ‘‘one-bank

18 holding company’’ each place it appears and insert19 ing in its place ‘‘one-bank financial services holding

20 company’’;

21 (2) in section 3(f)(5), by striking ‘‘bank holding

22 company’’ the first and second time it appears and

23 inserting in each place ‘‘financial services holding

24 company’’;
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1 (3) in section 4(i)(3)(A), by striking ‘‘is ac2 quired’’ and inserting in its place ‘‘was acquired’’;

3 (4) by striking ‘‘bank holding companies’’ each

4 place it appears in the following sections and insert5 ing in each place ‘‘financial services holding compa6 nies’’—

7 (A) Section 3(d);

8 (B) Section 3(f);

9 (C) Section 4(f); and

10 (D) Section 7(a);

11 (5) by striking ‘‘bank holding company’s’’ each

12 place it appears in the following sections and insert13 ing in each place ‘‘financial services holding compa14 ny’s’’—

15 (A) Section 2(d); and

16 (B) Section 4(c)(14);

17 (6) by striking ‘‘bank holding company’’ each

18 place it appears in the following sections and insert19 ing in each place ‘‘financial services holding com20 pany’’—

21 (A) Section 2(a);

22 (B) Section 2(d);

23 (C) Section 2(e);

24 (D) Section 2(g);

25 (E) Section 2(h);
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1 (F) Section 2(o);

2 (G) Section 3(a);

3 (H) Section 3(b);

4 (I) Section 3(d);

5 (J) Section 3(f)(1);

6 (K) Section 3(f)(2);

7 (L) Section 3(f)(3);

8 (M) Section 4(a);

9 (N) Section 4(c)(ii);

10 (O) Section 4(c)(1);

11 (P) Section 4(c)(2);

12 (Q) Section 4(c)(3);

13 (R) Section 4(c)(7);

14 (S) Section 4(c)(8);

15 (T) Section 4(c)(10);

16 (U) Section 4(c)(11);

17 (V) Section 4(c)(12)(A);

18 (W) Section 4(c)(14);

19 (X) Section 4(d);

20 (Y) Section 4(e);

21 (Z) Section 4(f)(4);

22 (AA) Section 4(f)(5);

23 (BB) Section 4(f)(9);

24 (CC) Section 4(g);

25 (DD) Section 4(h);
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1 (EE) Section 4(i)(1);

2 (FF) Section 4(i)(2);

3 (GG) Section 4(j);

4 (HH) Section 5;

5 (II) Section 7(b);

6 (JJ) Section 8; and

7 (KK) Section 11;

8 (7) in section 4(f)(1), by striking ‘‘bank holding

9 company’’ the second place it appears and inserting

10 in its place ‘‘financial services holding company’’;

11 and

12 (8) in section 4(i)(3), by striking ‘‘is acquired’’

13 and inserting in its place ‘‘was acquired’’.

14 (c) TREATMENT OF EXISTING BANK HOLDING COM15 PANIES.—Section 2(a)(6) of the Bank Holding Company

16 Act of 1956 (12 U.S.C. 1841(a)(6)) is amended by insert17 ing at the end the following: ‘‘Any company that was a

18 bank holding company on the day before the date of enact19 ment of the Financial Services Competitiveness Act of

20 1995 shall, for purposes of this chapter, be deemed to have

21 been a financial services holding company from the date

22 on which the company became a bank holding company.’’

23 (d) SHORT TITLE.—Section 1 of the Bank Holding

24 Company Act of 1956 shall be amended to read as follows:
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1 ‘‘This Act may be cited as the ‘Financial Services

2 Holding Company Act of 1995’, and any reference in any

3 Federal or State law to a provision of the Bank Holding

4 Company Act of 1956 shall be deemed to be a reference

5 to the corresponding provision of the Financial Services

6 Holding Company Act of 1995.’’.

7 (e) OTHER REFERENCES.—Any reference in Federal

8 law to ‘‘bank holding company’’ or ‘‘bank holding compa9 nies’’ as those terms were defined under the Bank Holding

10 Company Act of 1956 prior to the enactment of this Act

11 shall be deemed to include a reference to ‘‘financial serv12 ices holding company’’ and ‘‘financial services holding

13 companies’’, respectively, as those terms are defined under

14 the Financial Services Holding Company Act of 1995.

15 SEC. 153. CONFORMING AMENDMENTS TO THE BANK HOLD16 ING COMPANY ACT AMENDMENTS OF 1970.

17 Section 106 of the Bank Holding Company Act

18 Amendments of 1970 (12 U.S.C. 1971 through 1978) is

19 amended by striking ‘‘bank holding company’’ each place

20 it appears and inserting in its place ‘‘financial services

21 holding company’’.

22 SEC. 154. ELIMINATION OF DUPLICATIVE APPLICATIONS.

23 Section 18(c) of the Federal Deposit Insurance Act

24 (12 U.S.C. 1828(c)) is amended by adding at the end the

25 following new paragraph:
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1 ‘‘(12) The provisions of this subsection do not

2 apply to any merger, consolidation, acquisition of as3 sets or assumption of liabilities involving only in4 sured depository institutions that are subsidiaries of

5 the same depository institution holding company if—

6 ‘‘(A) the responsible agency would not be

7 prohibited from approving the transaction

8 under section 44 of this Act;

9 ‘‘(B) the acquiring, assuming, or resulting

10 institution complies with all applicable provi11 sions of section 44 as if the merger, consolida12 tion or acquisition was approved under this sub13 section; and

14 ‘‘(C) the acquiring, assuming, or resulting

15 institution provides written notification of the

16 transaction to the appropriate Federal banking

17 agency for the institution at least 10 days prior

18 to consummation of the transaction.’’.

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