I

104TH CONGRESS

2D SESSION H. R. 2981

To amend the Bank Holding Company Act of 1956 to provide investment

opportunities for small bank holding companies.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 28, 1996

Mr. BAKER of Louisiana introduced the following bill; which was referred to

the Committee on Banking and Financial Services

A BILL

To amend the Bank Holding Company Act of 1956 to provide investment opportunities for small bank holding

companies.

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.

4 This Act may be cited as the ‘‘Entrepreneurial In5 vestment Act of 1996’’.

6 SEC. 2. EQUITY CAPITAL INVESTMENTS BY SMALLER BANK

7 HOLDING COMPANIES.

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

9 1956 (12 U.S.C. 1843(c)) is amended by adding at the

10 end thereof the following new paragraph:
2

HR 2981 IH

1 ‘‘(15) shares of a company (other than an in2 sured depository institution or a depository institu3 tion holding company) engaged in activities not au4 thorized pursuant to section 4 provided the condi5 tions and requirements of this paragraph are met.

6 ‘‘(A) ACQUISITION AND RETENTION OF

7 SHARES.—No bank holding company may ac8 quire and retain ownership or control of shares

9 of a company pursuant to this paragraph un10 less—

11 ‘‘(i) each insured depository institu12 tion controlled by the bank holding com13 pany is well-capitalized;

14 ‘‘(ii) the total consolidated assets of

15 the bank holding company are less than $1

16 billion;

17 ‘‘(iii) the bank holding company or

18 any subsidiary of the bank holding com19 pany has had a significant debt relation20 ship with the company for at least 1 year;

21 ‘‘(iv) the aggregate amount of all in22 vestments held by the bank holding com23 pany and all of its subsidiaries under this

24 paragraph, measured quarterly, does not

25 exceed 50 percent of the sum of the excess
3

HR 2981 IH

1 capital of each insured depository institu2 tion controlled by the bank holding com3 pany;

4 ‘‘(v) the shares do not represent 25

5 percent or more of any class of voting

6 shares of any company;

7 ‘‘(vi) the shares are not acquired or

8 held by a depository institution or a sub9 sidiary of a depository institution; and

10 ‘‘(vii) the bank holding company does

11 not actively manage or operate the com12 pany.

13 ‘‘(B) RESTRICTIONS ON JOINT MARKET14 ING.—No depository institution (and no sub15 sidiary of such depository institution) shall—

16 ‘‘(i) offer or market, directly or indi17 rectly through any arrangement, any prod18 uct or service of any company whose

19 shares are owned or controlled by the bank

20 holding company pursuant to this para21 graph; or

22 ‘‘(ii) permit any of such depository in23 stitution’s (or subsidiary’s) products or

24 services to be offered or marketed, directly

25 or indirectly through any arrangement, by
4

HR 2981 IH

1 or through any company whose shares are

2 owned or controlled by the bank holding

3 company pursuant to this paragraph.

4 ‘‘(C) ONE-TIME PRIOR APPROVAL.—Prior

5 to making any investments under this para6 graph, the bank holding company must obtain

7 approval from the Board to engage in invest8 ment activities under this paragraph.

9 ‘‘(D) ACCOUNTING REQUIREMENTS.—

10 ‘‘(i) AGGREGATE VALUE OF INVEST11 MENTS.—The value of all investments

12 made under this paragraph shall be com13 puted quarterly and shall be the lower of

14 the initial cost of the shares or the book

15 value of the shares.

16 ‘‘(ii) MARK-TO-MARKET.—For pur17 poses of determining compliance with the

18 limitations in this paragraph, the value of

19 any shares held under this paragraph shall

20 be determined—

21 ‘‘(I) by treating the shares as

22 having been sold by the bank holding

23 company for the fair market value of

24 such shares as of the date of such de25 termination; or
5

HR 2981 IH

1 ‘‘(II) in the case of any shares

2 which are not traded in any market or

3 on any exchange, the value of any

4 such shares shall be the lower of the

5 cost of the shares to the bank holding

6 company at the time of the acquisition

7 of such shares or the book value of

8 the shares.

9 ‘‘(E) ACQUISITION OF SHARES IN EXCESS

10 OF LIMITATION THROUGH SATISFACTION OF A

11 PRIOR DEBT.—

12 ‘‘(i) NOT SUBJECT TO LIMITATIONS.—

13 The acquisition of voting shares of any

14 company in satisfaction of a debt which

15 was previously contracted in good faith

16 shall not be subject to the limitations con17 tained in this paragraph and any shares so

18 acquired shall not be taken into account

19 under this paragraph in connection with

20 any other acquisition of shares by the bank

21 holding company under this paragraph.

22 ‘‘(ii) DIVESTITURE REQUIRED.—Not23 withstanding any other provision of law,

24 any voting shares of any company which

25 are acquired in satisfaction of a debt which
6

HR 2981 IH

1 was previously contracted in good faith at

2 a time when such company was a company

3 referred to in this paragraph shall be di4 vested before the end of the 3-year period

5 beginning on the date of such acquisition.

6 ‘‘(F) AUTHORITY OF THE BOARD.—

7 ‘‘(i) IN GENERAL.—No provision of

8 this paragraph shall be construed as limit9 ing the authority of the Board to—

10 ‘‘(I) supervise and regulate the

11 investments in voting shares of any

12 company; or

13 ‘‘(II) require the divestiture of a

14 bank holding company or any of its

15 subsidiaries of shares of any company

16 whenever the Board determines such

17 action to be appropriate in order to

18 preserve the safety and soundness of

19 any insured depository institution.

20 ‘‘(ii) BANK WITH FALLING CAPITAL

21 LEVELS.—If, at any time, the aggregate

22 amount of the investments in shares made

23 under this paragraph exceeds the amount

24 described in subparagraph (A)(iv) due to a

25 decrease in the capital levels of any insured
7

HR 2981 IH

1 depository institution, the Board may take

2 such action, including requiring the sale of

3 any shares held under this paragraph, as

4 may be appropriate in order to preserve

5 the safety and soundness of the insured

6 depository institution.

7 ‘‘(G) DEFINITIONS.—

8 ‘‘(i) EXCESS CAPITAL.—For purposes

9 of this paragraph, the term ‘excess capital’

10 means the amount by which the total risk11 based capital of a depository institution ex12 ceeds the level required for the institution

13 to be well-capitalized for purposes of sec14 tion 38 of the Federal Deposit Insurance

15 Act;

16 ‘‘(ii) BOOK VALUE OF SHARES.—For

17 purposes of this paragraph, the term ‘book

18 value of shares’ means the product of—

19 ‘‘(I) the amount equal to the

20 total assets of the company issuing

21 the shares minus the total liabilities of

22 such company; and

23 ‘‘(II) the percentage of the total

24 amount of shares of the company
8

HR 2981 IH

1 which are owned by the bank holding

2 company.

3 ‘‘(iii) FOREIGN BANKS.—For purposes

4 of subparagraph (B), the term ‘depository

5 institution’ includes a foreign bank.’’.

Æ