59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–407 

TO REQUIRE THE APPROPRIATE FEDERAL BANKING AGENCIES TO TREAT 

CERTAIN MUNICIPAL OBLIGATIONS AS LEVEL 2A LIQUID ASSETS, AND 

FOR OTHER PURPOSES 

FEBRUARY 1, 2016.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 2209] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 2209) to require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, 

and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do 

pass. 

PURPOSE AND SUMMARY

Introduced by Representative Luke Messer on May 1, 2015, H.R. 

2209 amends the Federal Deposit Insurance Act to require the Federal banking agencies (the Federal Deposit Insurance Corporation 

(FDIC), the Board of Governors of the Federal Reserve System 

(Federal Reserve), and the Office of the Comptroller of the Currency (OCC)) to treat certain municipal securities that are liquid, 

readily marketable, and investment grade as of the calculation date 

as high-quality level 2A liquid assets. Under H.R. 2209, the agencies are required to implement these changes by amending the rule 

titled ‘‘Liquidity Coverage Ratio: Liquidity Risk Measurement 

Standards; Final Rule.’’ 

BACKGROUND AND NEED FOR LEGISLATION

Given the problem posed by insufficient liquidity during the financial crisis, the Basel Committee on Banking Supervision 

reached a consensus that banks should have enough cash or easily 

monetizable assets (such as government securities) on hand to survive for 30 days if their usual sources of short-term funding disappear. Although requiring banks to maintain a higher portion of 


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their assets in the form of cash or easily-sold assets would make 

them better able to withstand liquidity crunches, these assets offer 

a significantly lower rate of return than other investments. In addition, funds held as cash or government securities cannot be loaned, 

reducing the amount of credit available to the financial system and 

pushing up the price of credit that is available. 

The Liquidity Coverage Ration (LCR) is defined as the stock of 

‘‘high-quality liquid assets’’ (HQLAs) divided by the bank’s net cash 

outflows over a 30-day time period under an acute liquidity stress 

scenario. The LCR’s value must be greater than ‘‘1’’ to ensure that 

the bank can meets its cash outflow obligations. Many market participants believe that the final rules to implement the LCR too narrowly defines the approved assets that meet the HQLA definition. 

Qualifying assets include domestic sovereign debt issued in domestic currency and some public sector entity debt, and high quality 

non-financial corporate bonds. The net cash outflow is calculated 

through the application of run-off rates for liabilities to reflect the 

amount of deposits that will be withdrawn or loans that will not 

be rolled over during a time of financial stress. One cause of the 

recent illiquidity in certain fixed-income markets may be that 

banks striving to satisfy the mandate to hold HQLAs are not buying as many bonds that do not qualify as HQLAs. 

On September 3, 2014, the OCC, Federal Reserve, and the FDIC 

issued a final rule that implements the LCR consistent with the 

Basel Committee’s policy directive. The final rule is designed to 

strengthen the liquidity risk management of banks, savings associations, and bank holding companies. Banks with at least $250 billion in total assets or consolidated on-balance sheet foreign exposures of at least $10 billion are required to be 80 percent compliant 

by January 1, 2015, and will need to be 90 percent compliant by 

January 1, 2016, and 100 percent compliant by January 1, 2017. 

For an asset to qualify as a HQLA, it must be liquid and readily 

marketable, a reliable source of funding in repo or sales markets, 

and not an obligation of a financial company. Examples of HQLAs 

include: 

• U.S. Treasuries 

• Government debt 

• Investment grade corporate debt (limited to 15% of liquidity) 

• Excess reserves held at the Federal Reserve 

• Stocks included in the S&P 500 (limited to 50% of liquidity) 

• Limited amount of GSE-sponsored debt (Fannie Mae and 

Freddie Mac debt subject to a 15% haircut)—but excluding private 

label mortgage-backed securities 

• Sovereign debt (20% risk weight) 

In their final rule to implement the LCR, the OCC, FDIC and 

Federal Reserve excluded municipal securities from HQLA treatment. Municipal securities are frequently issued by the transportation, housing, and healthcare authorities of state and local governments to raise funds to pay for projects ranging from bridges 

and schools to hospitals and recreational facilities. A significant 

number of investors participate in the $3.7 trillion municipal securities market: as of September 2015, individuals directly held about 

$1.56 trillion of the outstanding municipal securities, and another 

approximately $1.04 trillion was held by money market funds, mutual funds, and closed end funds on behalf of primarily retail invesVerDate Sep 11 2014 01:30 Feb 04, 2016 Jkt 059006 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\HR407.XXX HR407

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1Securities Industry and Financial Markets Association, ‘‘U.S. Municipal Securities Holders’’ 

(Sept. 21, 2015), available at http://www.sifma.org/uploadedFiles/Research/Statistics/ 

StatisticsFiles/Municipal-US-Municipal-Holders-SIFMA.xls?n=18927. 2 Id. 

3http://www.infrastructurereportcard.org/executive-summary/ 

4 Andrew Ackman and Victoria McGrane, ‘‘Fed Is Expected to Shift on Muni Bonds,’’ The Wall 

Street Journal (Apr. 16, 2015) available at: http://www.wsj.com/articles/fed-is-expected-to-shifton-muni-bonds–1429232200. 5 ‘‘Monetary Policy and the State of the Economy’’: Hearing before the Committee on Financial 

Services, 114th Cong. (2015). 6 Board of Governors of the Federal Reserve System Press Release (May 21, 2015) available 

at: http://www.federalreserve.gov/newsevents/press/bcreg/20150521a.htm. 7 Id. 

tors.1 The retail participation rate in the municipal securities market is approximately 70 percent.2

Critics of the LCR argue that the exclusion of municipal securities from HQLA treatment will result in higher borrowing costs for 

state and local governments during times of economic stress. Additionally, dis-incentivizing financial institutions from holding investment-grade municipal securities could cause banks to retreat from 

the $3.7 trillion market, thereby forcing state and local governments to scale back spending on roads, schools and other infrastructure projects financed with the bonds. 

According to the American Society of Civil Engineers, state and local governments are facing an estimated $3.6 trillion outlay over 

the next 5 years to meet infrastructure needs.3 With such significant costs anticipated, it is important for municipalities and states 

to finance infrastructure projects at the lowest possible cost. 

Classifying investment-grade municipal securities as HQLA will 

help ensure low-cost infrastructure financing remains available for 

state and local governments. 

Members of the Federal Reserve have been sympathetic to arguments about the liquidity profile of municipal securities and their 

treatment under the LCR. During a September 2014 hearing before 

the Senate Banking Committee, Federal Reserve Governor Daniel 

Tarullo observed that some state and local debt is frequently traded and may be ‘‘comparable to that of the very liquid corporate 

bonds’’ that qualify as HQLAs.4 Additionally, during her February 

2015 Humphrey-Hawkins testimony before the Financial Services 

Committee, Federal Reserve Chair Janet Yellen stated that she 

hoped ‘‘to be able to identify some of those [municipal] bonds that 

would qualify for different LCR treatment. We are in discussions 

with the other banking agencies on that.’’ 5

On May 21, 2015, the Federal Reserve issued a proposed rule 

adding certain general obligation state and municipal bonds to the 

definition of HQLAs, noting that its study of the issue suggested 

these instruments should qualify as HQLAs because ‘‘they have liquidity characteristics sufficiently similar to investment grade corporate bonds and other HQLA asset classes.’’ 6 The proposed rule 

would allow investment grade, general obligation U.S. state and 

municipal bonds to be counted as HQLAs (specifically level 2B liquid assets) up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. The limits 

on the amount of a state or municipality’s bonds that could qualify 

are based on the specific liquidity characteristics of the bonds.7

The proposed rule would apply only to entities subject to the 

LCR and supervised by the Federal Reserve, including (1) bank 

holding companies, certain savings and loan holding companies, 


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and state member banks with $250 billion or more in total consolidated assets; (2) state member banks with $10 billion or more in 

total consolidated assets that are subsidiaries of the above entities; 

and (3) bank holding companies and certain savings and loan holding companies with $50 billion or more in total consolidated assets, 

to which a less stringent LCR applies. 

There are limits to the effectiveness of the Federal Reserve’s 

rulemaking, however, as neither the OCC nor the FDIC plan to follow the Federal Reserve’s lead to amend their HQLA definitions to 

include municipal securities. This will likely create a bifurcated 

regulatory system as some entities national bank units are subject 

to the OCC’s rule, which would still exclude municipal securities 

from favorable liquidity treatment. 

At an October 21, 2015, Financial Institutions and Consumer 

Credit Subcommittee hearing, Paul Kupiec of the American Enterprise Institute testified that, ‘‘the change mandated by H.R. 2209 

is appropriate and consistent with the public interest. There is no 

reason why high quality liquid bonds issued by U.S. states and municipalities should receive a lower standing than foreign sovereign 

debt with equivalent (or even lesser) credit quality and market liquidity.’’ 

HEARINGS

The Committee on Financial Services’ Subcommittee on Financial Institutions and Consumer Credit held a hearing examining 

matters relating to H.R. 2209 on October 21, 2015. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on November 3, 2015, and ordered H.R. 2209 to be reported favorably to 

the House without amendment by a recorded vote of 56 yeas to 1 

nay (recorded vote no. FC–68), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 56 yeas to 1 nay (Record vote no. FC–68), 

a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 2209 will provide regulatory parity for certain municipal securities by requiring 

federal banking agencies (the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller 

of the Currency, to treat investment grade municipal securities 

that are liquid, readily marketable, and investment grade as of the 

calculation date as high-quality level 2A assets under the Liquidity 

Coverage Ratio (LCR). 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, January 15, 2016. 

Hon. JEB HENSARLING, Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2209, a bill to require the 

appropriate federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Sarah Puro. 

Sincerely, 

ROBERT A. SUNSHINE, 

(For Keith Hall, Director) 


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Enclosure. 

H.R. 2209—A bill to require the appropriate federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes 

H.R. 2209 would require the federal banking regulators—the 

Federal Deposit Insurance Corporation (FDIC), the Office of the 

Comptroller of the Currency (OCC), and the Federal Reserve—to 

revise regulations concerning the treatment of municipal bonds in 

bank portfolios. 

Specifically, H.R. 2209 would require the FDIC, the OCC, and the Federal Reserve to allow large banks with more than $250 billion in consolidated assets or $10 billion in foreign assets and any 

subsidiaries of those institutions with assets of at least $10 billion 

to treat highly rated municipal bonds as liquid assets. Liquid assets are used to calculate the amount of liquid reserves an institution must have to cover the cost of its operating cash flows for 30 

days (this requirement is known as the liquidity coverage ratio). 

Based on information from the OCC, CBO estimates that less than 

5 percent of the value of municipal bonds is held by banks subject 

to such regulations and it is very unlikely that small changes in 

the liquidity of assets held by certain large banks would lead to a 

bank failure resulting in costs to the Deposit Insurance Fund. As 

a result, CBO estimates that enacting this provision would have no 

significant cost. 

H.R. 2209 would require the FDIC, the OCC, and the Federal 

Reserve to amend current regulations. Costs incurred by the FDIC 

and the OCC are recorded in the budget as an increase in direct 

spending. Those two agencies are authorized to collect premiums 

and fees from insured depository institutions to cover administrative expenses. CBO expects that they would do so to recover any 

costs associated with amending current regulations under the bill. 

Costs to the Federal Reserve System are reflected on the federal 

budget as a reduction in remittances to the Treasury (which are recorded in the budget as revenues). CBO expects that any additional 

administrative costs to the Federal Reserve under the bill would be 

insignificant. 

Because enacting H.R. 2209 could affect direct spending and revenues, pay-as-you-go procedures apply. However, CBO estimates 

that the net effects would be negligible for each year. CBO estimates that enacting H.R. 2209 would not increase net direct spending or on-budget deficits by more than $5 billion in any of the four 

consecutive 10-year periods beginning in 2026. 

H.R. 2209 contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA) and would impose no 

costs on state, local, or tribal governments. 

If the OCC or the FDIC increase fees or premiums to offset the 

costs associated with implementing the bill, H.R. 2209 would increase the cost of an existing mandate on private entities required 

to pay those assessments. CBO expects that the incremental cost 

of the mandate would be small and would fall well below the annual threshold for private-sector mandates established in UMRA 

($154 million in 2016, adjusted annually for inflation). 

The CBO staff contacts for this estimate are Sarah Puro (for the 

FDIC and the OCC), Nathaniel Frentz (for the Federal Reserve), 


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and Logan Smith (for private-sector mandates). The estimate was 

approved by H. Samuel Papenfuss, Deputy Assistant Director for 

Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 2209 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 2209 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 2209 contains one directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Treatment of certain municipal debt obligations 

This Section amends the Federal Deposit Insurance Act to require federal banking agencies (the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency) to treat certain municipal securities that 

are liquid, readily marketable, and investment grade as of the calculation date as high-quality level 2A liquid assets. Such change 

shall be implemented by amending the rule titled ‘‘Liquidity Coverage Ratio: Liquidity Risk Measurement Standards; Final Rule.’’ 


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CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (new matter is printed in italic 

and existing law in which no change is proposed is shown in 

roman): 

FEDERAL DEPOSIT INSURANCE ACT 

* * * * * * * 

SEC. 18. (a) REPRESENTATIONS OF DEPOSIT INSURANCE.— 

(1) INSURED DEPOSITORY INSTITUTIONS.— 

(A) IN GENERAL.—Each insured depository institution 

shall display at each place of business maintained by that 

institution a sign or signs relating to the insurance of the 

deposits of the institution, in accordance with regulations 

to be prescribed by the Corporation. 

(B) STATEMENT TO BE INCLUDED.—Each sign required 

under subparagraph (A) shall include a statement that insured deposits are backed by the full faith and credit of 

the United States Government. 

(2) REGULATIONS.—The Corporation shall prescribe regulations to carry out this subsection, including regulations governing the substance of signs required by paragraph (1) and 

the manner of display or use of such signs. 

(3) PENALTIES.—For each day that an insured depository institution continues to violate paragraph (1) or any regulation 

issued under paragraph (2), it shall be subject to a penalty of 

not more than $100, which the Corporation may recover for its 

use. 

(4) FALSE ADVERTISING, MISUSE OF FDIC NAMES, AND MISREPRESENTATION TO INDICATE INSURED STATUS.— 

(A) PROHIBITION ON FALSE ADVERTISING AND MISUSE OF

FDIC NAMES.—No person may represent or imply that any 

deposit liability, obligation, certificate, or share is insured 

or guaranteed by the Corporation, if such deposit liability, 

obligation, certificate, or share is not insured or guaranteed by the Corporation— 

(i) by using the terms ‘‘Federal Deposit’’, ‘‘Federal 

Deposit Insurance’’, ‘‘Federal Deposit Insurance Corporation’’, any combination of such terms, or the abbreviation ‘‘FDIC’’ as part of the business name or 

firm name of any person, including any corporation, 

partnership, business trust, association, or other business entity; or 

(ii) by using such terms or any other terms, sign, or 

symbol as part of an advertisement, solicitation, or 

other document. 

(B) PROHIBITION ON MISREPRESENTATIONS OF INSURED

STATUS.—No person may knowingly misrepresent— 

(i) that any deposit liability, obligation, certificate, 

or share is insured, under this Act, if such deposit liability, obligation, certificate, or share is not so insured; or 


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(ii) the extent to which or the manner in which any 

deposit liability, obligation, certificate, or share is insured under this Act, if such deposit liability, obligation, certificate, or share is not so insured, to the extent or in the manner represented. 

(C) AUTHORITY OF THE APPROPRIATE FEDERAL BANKING

AGENCY.—The appropriate Federal banking agency shall 

have enforcement authority in the case of a violation of 

this paragraph by any person for which the agency is the 

appropriate Federal banking agency, or any institution-affiliated party thereof. 

(D) CORPORATION AUTHORITY IF THE APPROPRIATE FEDERAL BANKING AGENCY FAILS TO FOLLOW RECOMMENDATION.— 

(i) RECOMMENDATION.—The Corporation may recommend in writing to the appropriate Federal banking 

agency that the agency take any enforcement action 

authorized under section 8 for purposes of enforcement 

of this paragraph with respect to any person for which 

the agency is the appropriate Federal banking agency 

or any institution-affiliated party thereof. 

(ii) AGENCY RESPONSE.—If the appropriate Federal 

banking agency does not, within 30 days of the date 

of receipt of a recommendation under clause (i), take 

the enforcement action with respect to this paragraph 

recommended by the Corporation or provide a plan acceptable to the Corporation for responding to the situation presented, the Corporation may take the recommended enforcement action against such person or 

institution-affiliated party. 

(E) ADDITIONAL AUTHORITY.—In addition to its authority 

under subparagraphs (C) and (D), for purposes of this 

paragraph, the Corporation shall have, in the same manner and to the same extent as with respect to a State nonmember insured bank— 

(i) jurisdiction over— 

(I) any person other than a person for which another agency is the appropriate Federal banking 

agency or any institution-affiliated party thereof; 

and 

(II) any person that aids or abets a violation of 

this paragraph by a person described in subclause 

(I); and 

(ii) for purposes of enforcing the requirements of this 

paragraph, the authority of the Corporation under— 

(I) section 10(c) to conduct investigations; and 

(II) subsections (b), (c), (d) and (i) of section 8 to 

conduct enforcement actions. 

(F) OTHER ACTIONS PRESERVED.—No provision of this 

paragraph shall be construed as barring any action otherwise available, under the laws of the United States or any 

State, to any Federal or State agency or individual. 

(b) No insured depository institution shall pay any dividends on 

its capital stock or interest on its capital notes or debentures (if 

such interest is required to be paid only out of net profits) or disVerDate Sep 11 2014 01:30 Feb 04, 2016 Jkt 059006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR407.XXX HR407

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tribute any of its capital assets while it remains in default in the 

payment of any assessment due to the Corporation; and any director or officer of any insured depository institution who participates 

in the declaration or payment of any such dividend or interest or 

in any such distribution shall, upon conviction, be fined not more 

than $1,000 or imprisoned not more than one year, or both: Provided, That, if such default is due to a dispute between the insured 

depository institution and the Corporation over the amount of such 

assessment, this subsection shall not apply if the insured depository institution deposits security satisfactory to the Corporation for 

payment upon final determination of the issue. 

(c)(1) Except with the prior written approval of the responsible 

agency, which shall in every case referred to in this paragraph be 

the Corporation, no insured depository institution shall— 

(A) merge or consolidate with any noninsured bank or institution; 

(B) assume liability to pay any deposits (including liabilities 

which would be ‘‘deposits’’ except for the proviso in section 

3(l)(5) of this Act) made in, or similar liabilities of, any noninsured bank or institution; or 

(C) transfer assets to any noninsured bank or institution in 

consideration of the assumption of liabilities for any portion of 

the deposits made in such insured depository institution. 

(2) No insured depository institution shall merge or consolidate 

with any other insured depository institution or, either directly or 

indirectly, acquire the assets of, or assume liability to pay any deposits made in, any other insured depository institution except 

with the prior written approval of the responsible agency, which 

shall be— 

(A) the Comptroller of the Currency if the acquiring, assuming, or resulting bank is to be a national bank or a Federal 

savings association; 

(B) the Board of Governors of the Federal Reserve System if 

the acquiring, assuming, or resulting bank is to be a State 

member bank; and 

(C) the Corporation if the acquiring, assuming, or resulting 

bank is to be a State nonmember insured bank or a State savings association. 

(3) Notice of any proposed transaction for which approval is required under paragraph (1) or (2) (referred to hereafter in this subsection as a ‘‘merger transaction’’) shall, unless the responsible 

agency finds that it must act immediately in order to prevent the 

probable default of one of the banks or savings associations involved, be published— 

(A) prior to the granting of approval of such transaction, 

(B) in a form approved by the responsible agency, 

(C) at appropriate intervals during a period at least as long 

as the period allowed for furnishing reports under paragraph 

(4) of this subsection, and 

(D) in a newspaper of general circulation in the community 

or communities where the main offices of the banks or savings 

associations involved are located, or, if there is no such newspaper in any such community, then in the newspaper of general circulation published nearest thereto. 

(4) REPORTS ON COMPETITIVE FACTORS.— 


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(A) REQUEST FOR REPORT.—In the interests of uniform 

standards and subject to subparagraph (B), before acting 

on any application for approval of a merger transaction, 

the responsible agency shall— 

(i) request a report on the competitive factors involved from the Attorney General of the United 

States; and 

(ii) provide a copy of the request to the Corporation 

(when the Corporation is not the responsible agency). 

(B) FURNISHING OF REPORT.—The report requested under 

subparagraph (A) shall be furnished by the Attorney General to the responsible agency— 

(i) not later than 30 calendar days after the date on 

which the Attorney General received the request; or 

(ii) not later than 10 calendar days after such date, 

if the requesting agency advises the Attorney General 

that an emergency exists requiring expeditious action. 

(C) EXCEPTIONS.—A responsible agency may not be required to request a report under subparagraph (A) if— 

(i) the responsible agency finds that it must act immediately in order to prevent the probable failure of 1 

of the insured depository institutions involved in the 

merger transaction; or 

(ii) the merger transaction involves solely an insured 

depository institution and 1 or more of the affiliates of 

such depository institution. 

(5) The responsible agency shall not approve— 

(A) any proposed merger transaction which would result in 

a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize 

the business of banking in any part of the United States, or 

(B) any other proposed merger transaction whose effect in 

any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other 

manner would be in restraint of trade, unless it finds that the 

anticompetitive effects of the proposed transaction are clearly 

outweighed in the public interest by the probable effect of the 

transaction in meeting the convenience and needs of the community to be served. 

In every case, the responsible agency shall take into consideration 

the financial and managerial resources and future prospects of the 

existing and proposed institutions, the convenience and needs of 

the community to be served, and the risk to the stability of the 

United States banking or financial system. 

(6) The responsible agency shall immediately notify the Attorney 

General of any approval by it pursuant to this subsection of a proposed merger transaction. If the agency has found that it must act 

immediately to prevent the probable failure of one of the insured 

depository institutions involved, or if the proposed merger transaction is solely between an insured depository institution and 1 or 

more of its affiliates, and the report on the competitive factors has 

been dispensed with, the transaction may be consummated immediately upon approval by the agency. If the agency has advised the 

Attorney General under paragraph (4)(B)(ii) of the existence of an 

emergency requiring expeditious action and has requested a report 


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on the competitive factors within 10 days, the transaction may not 

be consummated before the fifth calendar day after the date of approval by the agency. In all other cases, the transaction may not 

be consummated before the thirtieth calendar day after the date of 

approval by the agency or, if the agency has not received any adverse comment from the Attorney General of the United States relating to competitive factors, such shorter period of time as may be 

prescribed by the agency with the concurrence of the Attorney General, but in no event less than 15 calendar days after the date of 

approval. 

(7)(A) Any action brought under the antitrust laws arising out of 

a merger transaction shall be commenced prior to the earliest time 

under paragraph (6) at which a merger transaction approved under 

paragraph (5) might be consummated. The commencement of such 

an action shall stay the effectiveness of the agency’s approval unless the court shall otherwise specifically order. In any such action, 

the court shall review de novo the issues presented. 

(B) In any judicial proceeding attacking a merger transaction approved under paragraph (5) on the ground that the merger transaction alone and of itself constituted a violation of any antitrust 

laws other than section 2 of the Act of July 2, 1890 (section 2 of 

the Sherman Antitrust Act, 15 U.S.C. 2), the standards applied by 

the court shall be identical with those that the banking agencies 

are directed to apply under paragraph (5). 

(C) Upon the consummation of a merger transaction in compliance with this subsection and after the termination of any antitrust litigation commenced within the period prescribed in this 

paragraph, or upon the termination of such period if no such litigation is commenced therein, the transaction may not thereafter be 

attacked in any judicial proceeding on the ground that it alone and 

of itself constituted a violation of any antitrust laws other than section 2 of the Act of July 2, 1890 (section 2 of the Sherman Antitrust 

Act, 15 U.S.C. 2), but nothing in this subsection shall exempt any 

bank or savings association resulting from a merger transaction 

from complying with the antitrust laws after the consummation of 

such transaction. 

(D) In any action brought under the antitrust laws arising out 

of a merger transaction approved by a Federal supervisory agency 

pursuant to this subsection, such agency, and any State banking 

supervisory agency having jurisdiction within the State involved, 

may appear as a party of its own motion and as of right, and be 

represented by its counsel. 

(8) For the purposes of this subsection, the term ‘‘antitrust laws’’ 

means the Act of July 2, 1890 (the Sherman Antitrust Act, 15 

U.S.C. 1–7), the Act of October 15, 1914 (the Clayton Act, 15 U.S.C. 

12–27), and any other Acts in pari materia. 

(9) Each of the responsible agencies shall include in its annual 

report to the Congress a description of each merger transaction approved by it during the period covered by the report, along with— 

(A) the name and total resources of each bank or savings association involved; 

(B) whether a report was submitted by the Attorney General 

under paragraph (4), and, if so, a summary by the Attorney 

General of the substance of such report; and 


SSpencer on DSK4SPTVN1PROD with REPORTS
14 

(C) a statement by the responsible agency of the basis for its 

approval. 

(10) Until June 30, 1976, the responsible agency shall not grant 

any approval required by law which has the practical effect of permitting a conversion from the mutual to the stock form of organization, including approval of any application pending on the date of 

enactment of this subsection, except that this sentence shall not be 

deemed to limit now or hereafter the authority of the responsible 

agency to grant approvals in cases where the responsible agency 

finds that it must act in order to maintain the safety, soundness, 

and stability of an insured depository institution. The responsible 

agency may by rule, regulation, or otherwise and under such civil 

penalties (which shall be cumulative to any other remedies) as it 

may prescribe take whatever action it deems necessary or appropriate to implement or enforce this subsection. 

(11) MONEY LAUNDERING.—In every case, the responsible 

agency, shall take into consideration the effectiveness of any 

insured depository institution involved in the proposed merger 

transaction in combatting money laundering activities, including in overseas branches. 

(12) The provisions of this subsection do not apply to any merger 

transaction involving a foreign bank if no party to the transaction 

is principally engaged in business in the United States. 

(13)(A) Except as provided in subparagraph (B), the responsible 

agency may not approve an application for an interstate merger 

transaction if the resulting insured depository institution (including all insured depository institutions which are affiliates of the resulting insured depository institution), upon consummation of the 

transaction, would control more than 10 percent of the total 

amount of deposits of insured depository institutions in the United 

States. 

(B) Subparagraph (A) shall not apply to an interstate merger 

transaction that involves 1 or more insured depository institutions 

in default or in danger of default, or with respect to which the Corporation provides assistance under section 13. 

(C) In this paragraph— 

(i) the term ‘‘interstate merger transaction’’ means a merger 

transaction involving 2 or more insured depository institutions 

that have different home States and that are not affiliates; and 

(ii) the term ‘‘home State’’ means— 

(I) with respect to a national bank, the State in which 

the main office of the bank is located; 

(II) with respect to a State bank or State savings association, the State by which the State bank or State savings 

association is chartered; and 

(III) with respect to a Federal savings association, the 

State in which the home office (as defined by the regulations of the Director of the Office of Thrift Supervision, or, 

on and after the transfer date, the Comptroller of the Currency) of the Federal savings association is located. 

(d)(1) No State nonmember insured bank shall establish and operate any new domestic branch unless it shall have the prior written consent of the Corporation, and no State nonmember insured 

bank shall move its main office or any such branch from one location to another without such consent. No foreign bank may move 


SSpencer on DSK4SPTVN1PROD with REPORTS
15 

any insured branch from one location to another without such consent. The factors to be considered in granting or withholding the 

consent of the Corporation under this subsection shall be those 

enumerated in section 6 of this Act. 

(2) No State nonmember insured bank shall establish or operate 

any foreign branch, except with the prior written consent of the 

Corporation and upon such conditions and pursuant to such regulations as the Corporation may prescribe from time to time. 

(3) EXCLUSIVE AUTHORITY FOR ADDITIONAL BRANCHES.— (A) IN GENERAL.—Effective June 1, 1997, a State nonmember bank may not acquire, establish, or operate a 

branch in any State other than the bank’s home State (as 

defined in section 44(f)(4)) or a State in which the bank already has a branch unless the acquisition, establishment, 

or operation of a branch in such State by a State nonmember bank is authorized under this subsection or section 13(f), 13(k), or 44. 

(B) RETENTION OF BRANCHES.—In the case of a State 

nonmember bank which relocates the main office of such 

bank from 1 State to another State after May 31, 1997, the 

bank may retain and operate branches within the State 

which was the bank’s home State (as defined in section 

44(f)(4)) before the relocation of such office only to the extent the bank would be authorized, under this section or 

any other provision of law referred to in subparagraph (A), 

to acquire, establish, or commence to operate a branch in 

such State if— 

(i) the bank had no branches in such State; or 

(ii) the branch resulted from— 

(I) an interstate merger transaction approved 

pursuant to section 44; or 

(II) a transaction after May 31, 1997, pursuant 

to which the bank received assistance from the 

Corporation under section 13(c). 

(4) STATE ‘‘OPT-IN’’ ELECTION TO PERMIT INTERSTATE BRANCH- ING THROUGH DE NOVO BRANCHES.— (A) IN GENERAL.—Subject to subparagraph (B), the Corporation may approve an application by an insured State 

nonmember bank to establish and operate a de novo 

branch in a State (other than the bank’s home State) in 

which the bank does not maintain a branch if— 

(i) the law of the State in which the branch is located, or is to be located, would permit establishment 

of the branch, if the bank were a State bank chartered 

by such State; and 

(ii) the conditions established in, or made applicable 

to this paragraph by, subparagraph (B) are met. 

(B) CONDITIONS ON ESTABLISHMENT AND OPERATION OF

INTERSTATE BRANCH.— (i) ESTABLISHMENT.—An application by an insured 

State nonmember bank to establish and operate a de 

novo branch in a host State shall be subject to the 

same requirements and conditions to which an application for a merger transaction is subject under paragraphs (1), (3), and (4) of section 44(b). 


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16 

(ii) OPERATION.—Subsections (c) and (d)(2) of section 

44 shall apply with respect to each branch of an insured State nonmember bank which is established and 

operated pursuant to an application approved under 

this paragraph in the same manner and to the same 

extent such provisions of such section apply to a 

branch of a State bank which resulted from a merger 

transaction under such section 44. 

(C) DE NOVO BRANCH DEFINED.—For purposes of this 

paragraph, the term ‘‘de novo branch’’ means a branch of 

a State bank which— 

(i) is originally established by the State bank as a 

branch; and 

(ii) does not become a branch of such bank as a result of— 

(I) the acquisition by the bank of an insured depository institution or a branch of an insured depository institution; or 

(II) the conversion, merger, or consolidation of 

any such institution or branch. 

(D) HOME STATE DEFINED.—The term ‘‘home State’’ 

means the State by which a State bank is chartered. 

(E) HOST STATE DEFINED.—The term ‘‘host State’’ means, 

with respect to a bank, a State, other than the home State 

of the bank, in which the bank maintains, or seeks to establish and maintain, a branch. 

(e) The Corporation may require any insured depository institution to provide protection and indemnity against burglary, defalcation, and other similar insurable losses. Whenever any insured depository institution refuses to comply with any such requirement 

the Corporation may contract for such protection and indemnity 

and add the cost thereof to the assessment otherwise payable by 

such bank. 

(f) Whenever any insured depository institution (except a national bank), after written notice of the recommendations of the 

Corporation based on a report of examination of such insured depository institution by an examiner of the Corporation, shall fail to 

comply with such recommendations within one hundred and twenty 

days after such notice, the Corporation shall have the power, and 

is hereby authorized, to publish only such part of such report of examination as relates to any recommendation not complied with: 

Provided, That notice of intention to make such publication shall 

be given to the insured depository institution at least ninety days 

before such publication is made. 

(h) PENALTY FOR FAILURE TO TIMELY PAY ASSESSMENTS.— 

(1) IN GENERAL.—Subject to paragraph (3), any insured depository institution which fails or refuses to pay any assessment shall be subject to a penalty in an amount of not more 

than 1 percent of the amount of the assessment due for each 

day that such violation continues. 

(2) EXCEPTION IN CASE OF DISPUTE.—Paragraph (1) shall not 

apply if— 

(A) the failure to pay an assessment is due to a dispute 

between the insured depository institution and the Corporation over the amount of such assessment; and 


SSpencer on DSK4SPTVN1PROD with REPORTS
17 

(B) the insured depository institution deposits security 

satisfactory to the Corporation for payment upon final determination of the issue. 

(3) SPECIAL RULE FOR SMALL ASSESSMENT AMOUNTS.—If the 

amount of the assessment which an insured depository institution fails or refuses to pay is less than $10,000 at the time of 

such failure or refusal, the amount of any penalty to which 

such institution is subject under paragraph (1) shall not exceed 

$100 for each day that such violation continues. 

(4) AUTHORITY TO MODIFY OR REMIT PENALTY.—The Corporation, in the sole discretion of the Corporation, may compromise, 

modify or remit any penalty which the Corporation may assess 

or has already assessed under paragraph (1) upon a finding 

that good cause prevented the timely payment of an assessment. 

(i)(1) No insured State nonmember bank shall, without the prior 

consent of the Corporation, reduce the amount or retire any part 

of its common or preferred capital stock, or retire any part of its 

capital notes or debentures. 

(2) No insured Federal depository institution shall convert into 

an insured State depository institution if its capital stock or its surplus will be less than the capital stock or surplus, respectively, of 

the converting bank at the time of the shareholder’s meeting approving such conversion, without the prior written consent of— 

(A) the Board of Governors of the Federal Reserve System if 

the resulting bank is to be a State member bank; 

(B) the Corporation if the resulting bank is to be a State 

nonmember insured bank; and 

(C) the Corporation if the resulting institution is to be an insured State savings association. 

(3) Without the prior written consent of the Corporation, no insured depository institution shall convert into a noninsured bank 

or institution. 

(4) In granting or withholding consent under this subsection, the 

responsible agency shall consider— 

(A) the financial history and condition of the bank, 

(B) the adequacy of its capital structure, 

(C) its future earnings prospects, 

(D) the general character and fitness of its management, 

(E) the convenience and needs of the community to be 

served, and 

(F) whether or not its corporate powers are consistent with 

the purposes of this Act. 

(j) RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES AND INSIDERS.— 

(1) TRANSACTIONS WITH AFFILIATES.— 

(A) IN GENERAL.—Sections 23A and 23B of the Federal 

Reserve Act shall apply with respect to every nonmember 

insured bank in the same manner and to the same extent 

as if the nonmember insured bank were a member bank. 

(B) AFFILIATE DEFINED.—For the purpose of subparagraph (A), any company that would be an affiliate (as defined in sections 23A and 23B) of a nonmember insured 

bank if the nonmember insured bank were a member bank 


SSpencer on DSK4SPTVN1PROD with REPORTS
18 

shall be deemed to be an affiliate of that nonmember insured bank. 

(2) EXTENSIONS OF CREDIT TO OFFICERS, DIRECTORS, AND

PRINCIPAL SHAREHOLDERS.—Subsections (g) and (h) of section 

22 of the Federal Reserve Act shall apply with respect to every 

nonmember insured bank in the same manner and to the same 

extent as if the nonmember insured bank were a member 

bank. 

(3) AVOIDING EXTRATERRITORIAL APPLICATION TO FOREIGN

BANKS.— 

(A) TRANSACTIONS WITH AFFILIATES.—Paragraph (1) 

shall not apply with respect to a foreign bank solely because the foreign bank has an insured branch. 

(B) EXTENSIONS OF CREDIT TO OFFICERS, DIRECTORS, AND

PRINCIPAL SHAREHOLDERS.—Paragraph (2) shall not apply 

with respect to a foreign bank solely because the foreign 

bank has an insured branch, but shall apply with respect 

to the insured branch. 

(C) FOREIGN BANK DEFINED.—For purposes of this paragraph, the term ‘‘foreign bank’’ has the same meaning as 

in section 1(b)(7) of the International Banking Act of 1978. 

(k) AUTHORITY TO REGULATE OR PROHIBIT CERTAIN FORMS OF

BENEFITS TO INSTITUTION-AFFILIATED PARTIES.— 

(1) GOLDEN PARACHUTES AND INDEMNIFICATION PAYMENTS.— 

The Corporation may prohibit or limit, by regulation or order, 

any golden parachute payment or indemnification payment. 

(2) FACTORS TO BE TAKEN INTO ACCOUNT.—The Corporation 

shall prescribe, by regulation, the factors to be considered by 

the Corporation in taking any action pursuant to paragraph (1) 

which may include such factors as the following: 

(A) Whether there is a reasonable basis to believe that 

the institution-affiliated party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or 

insider abuse with regard to the depository institution or 

covered company that has had a material affect on the financial condition of the institution. 

(B) Whether there is a reasonable basis to believe that 

the institution-affiliated party is substantially responsible 

for— 

(i) the insolvency of the depository institution or covered company; 

(ii) the appointment of a conservator or receiver for 

the depository institution; or 

(iii) the troubled condition of the depository institution (as defined in the regulations prescribed pursuant 

to section 32(f)). 

(C) Whether there is a reasonable basis to believe that 

the institution-affiliated party has materially violated any 

applicable Federal or State banking law or regulation that 

has had a material affect on the financial condition of the 

institution. 

(D) Whether there is a reasonable basis to believe that 

the institution-affiliated party has violated or conspired to 

violate— 


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19 

(i) section 215, 656, 657, 1005, 1006, 1007, 1014, 

1032, or 1344 of title 18, United States Code; or 

(ii) section 1341 or 1343 of such title affecting a federally insured financial institution. 

(E) Whether the institution-affiliated party was in a position of managerial or fiduciary responsibility. 

(F) The length of time the party was affiliated with the 

insured depository institution or covered company, and the 

degree to which— 

(i) the payment reasonably reflects compensation 

earned over the period of employment; and 

(ii) the compensation involved represents a reasonable payment for services rendered. 

(3) CERTAIN PAYMENTS PROHIBITED.—No insured depository 

institution or covered company may prepay the salary or any 

liability or legal expense of any institution-affiliated party if 

such payment is made— 

(A) in contemplation of the insolvency of such institution 

or covered company or after the commission of an act of insolvency; and 

(B) with a view to, or has the result of— 

(i) preventing the proper application of the assets of 

the institution to creditors; or 

(ii) preferring one creditor over another. 

(4) GOLDEN PARACHUTE PAYMENT DEFINED.—For purposes of 

this subsection— 

(A) IN GENERAL.—The term ‘‘golden parachute payment’’ 

means any payment (or any agreement to make any payment) in the nature of compensation by any insured depository institution or covered company for the benefit of any 

institution-affiliated party pursuant to an obligation of 

such institution or covered company that— 

(i) is contingent on the termination of such party’s 

affiliation with the institution or covered company; 

and 

(ii) is received on or after the date on which— 

(I) the insured depository institution or covered 

company, or any insured depository institution 

subsidiary of such covered company, is insolvent; 

(II) any conservator or receiver is appointed for 

such institution; 

(III) the institution’s appropriate Federal banking agency determines that the insured depository 

institution is in a troubled condition (as defined in 

the regulations prescribed pursuant to section 

32(f)); 

(IV) the insured depository institution has been 

assigned a composite rating by the appropriate 

Federal banking agency or the Corporation of 4 or 

5 under the Uniform Financial Institutions Rating 

System; or 

(V) the insured depository institution is subject 

to a proceeding initiated by the Corporation to terminate or suspend deposit insurance for such institution. 


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20 

(B) CERTAIN PAYMENTS IN CONTEMPLATION OF AN

EVENT.—Any payment which would be a golden parachute 

payment but for the fact that such payment was made before the date referred to in subparagraph (A)(ii) shall be 

treated as a golden parachute payment if the payment was 

made in contemplation of the occurrence of an event described in any subclause of such subparagraph. 

(C) CERTAIN PAYMENTS NOT INCLUDED.—The term ‘‘golden parachute payment’’ shall not include— 

(i) any payment made pursuant to a retirement plan 

which is qualified (or is intended to be qualified) under 

section 401 of the Internal Revenue Code of 1986 or 

other nondiscriminatory benefit plan; 

(ii) any payment made pursuant to a bona fide deferred compensation plan or arrangement which the 

Board determines, by regulation or order, to be permissible; or 

(iii) any payment made by reason of the death or 

disability of an institution-affiliated party. 

(5) OTHER DEFINITIONS.—For purposes of this subsection— 

(A) INDEMNIFICATION PAYMENT.—Subject to paragraph 

(6), the term ‘‘indemnification payment’’ means any payment (or any agreement to make any payment) by any insured depository institution or covered company for the 

benefit of any person who is or was an institution-affiliated 

party, to pay or reimburse such person for any liability or 

legal expense with regard to any administrative proceeding or civil action instituted by the appropriate Federal banking agency which results in a final order under 

which such person— 

(i) is assessed a civil money penalty; 

(ii) is removed or prohibited from participating in 

conduct of the affairs of the insured depository institution; or 

(iii) is required to take any affirmative action described in section 8(b)(6) with respect to such institution. 

(B) LIABILITY OR LEGAL EXPENSE.—The term ‘‘liability or 

legal expense’’ means— 

(i) any legal or other professional expense incurred 

in connection with any claim, proceeding, or action; 

(ii) the amount of, and any cost incurred in connection with, any settlement of any claim, proceeding, or 

action; and 

(iii) the amount of, and any cost incurred in connection with, any judgment or penalty imposed with respect to any claim, proceeding, or action. 

(C) PAYMENT.—The term ‘‘payment’’ includes— 

(i) any direct or indirect transfer of any funds or any 

asset; and 

(ii) any segregation of any funds or assets for the 

purpose of making, or pursuant to an agreement to 

make, any payment after the date on which such 

funds or assets are segregated, without regard to 


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21 

whether the obligation to make such payment is contingent on— 

(I) the determination, after such date, of the liability for the payment of such amount; or 

(II) the liquidation, after such date, of the 

amount of such payment. 

(D) COVERED COMPANY.—The term ‘‘covered company’’ 

means any depository institution holding company (including any company required to file a report under section 

4(f)(6) of the Bank Holding Company Act of 1956), or any 

other company that controls an insured depository institution. 

(6) CERTAIN COMMERCIAL INSURANCE COVERAGE NOT TREATED

AS COVERED BENEFIT PAYMENT.—No provision of this subsection shall be construed as prohibiting any insured depository institution or covered company, from purchasing any commercial insurance policy or fidelity bond, except that, subject 

to any requirement described in paragraph (5)(A)(iii), such insurance policy or bond shall not cover any legal or liability expense of the institution or covered company which is described 

in paragraph (5)(A). 

(l) When authorized by State law, a State nonmember insured 

bank may, but only with the prior written consent of the Corporation and upon such conditions and under such regulations as the 

Corporation may prescribe from time to time, acquire and hold, directly or indirectly, stock or other evidences of ownership in one or 

more banks or other entities organized under the law of a foreign 

country or a dependency or insular possession of the United States 

and not engaged, directly or indirectly, in any activity in the 

United States except as, in the judgment of the Board of Directors, 

shall be incidental to the international or foreign business of such 

foreign bank or entity; and, notwithstanding the provisions of subsection (j) of this section, such State nonmember insured bank may, 

as to such foreign bank or entity, engage in transactions that 

would otherwise be covered thereby, but only in the manner and 

within the limit prescribed by the Corporation by general or specific regulation or ruling. 

(m) ACTIVITIES OF SAVINGS ASSOCIATIONS AND THEIR SUBSIDI- ARIES.— 

(1) PROCEDURES.—When an insured savings association establishes or acquires a subsidiary or when an insured savings 

association elects to conduct any new activity through a subsidiary that the insured savings association controls, the insured savings association— 

(A) shall notify the Corporation or the Comptroller of the 

Currency, as appropriate, not less than 30 days prior to 

the establishment, or acquisition, of any such subsidiary, 

and not less than 30 days prior to the commencement of 

any such activity, and in either case shall provide at that 

time such information as each such agency may, by regulation, require; and 

(B) shall conduct the activities of the subsidiary in accordance with regulations of the Comptroller of the Currency and orders of the Corporation and the Comptroller 

of the Currency. 


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22 

(2) ENFORCEMENT POWERS.—With respect to any subsidiary 

of an insured savings association: 

(A) the Corporation and the Comptroller of the Currency, as appropriate, shall each have, with respect to such 

subsidiary, the respective powers that each has with respect to the insured savings association pursuant to this 

section or section 8; and 

(B) the Corporation or the Comptroller of the Currency, 

as appropriate, may determine, after notice and opportunity for hearing, that the continuation by the insured 

savings association of its ownership or control of, or its relationship to, the subsidiary— 

(i) constitutes a serious risk to the safety, soundness, or stability of the insured savings association, or 

(ii) is inconsistent with sound banking principles or 

with the purposes of this Act. 

Upon making any such determination, the Corporation or 

the Office of the Comptroller of the Currency, as appropriate, shall have authority to order the insured savings 

association to divest itself of control of the subsidiary. The 

Corporation or the Comptroller of the Currency, as appropriate, may take any other corrective measures with respect to the subsidiary, including the authority to require 

the subsidiary to terminate the activities or operations 

posing such risks, as the Corporation or the Comptroller of 

the Currency, respectively, may deem appropriate. 

(3) ACTIVITIES INCOMPATIBLE WITH DEPOSIT INSURANCE.— 

(A) IN GENERAL.—The Corporation may determine by 

regulation or order that any specific activity poses a serious threat to the Deposit Insurance Fund. Prior to adopting any such regulation, the Corporation shall, in the case 

of a Federal savings association, consult with the Comptroller of the Currency and shall provide appropriate State 

supervisors the opportunity to comment thereon, and the 

Corporation shall specifically take such comments into consideration. Any such regulation shall be issued in accordance with section 553 of title 5, United States Code. If the 

Board of Directors makes such a determination with respect to an activity, the Corporation shall have authority 

to order that no savings association may engage in the activity directly. 

(B) AUTHORITY OF COMPTROLLER OF THE CURRENCY.— 

This section does not limit the authority of the Comptroller 

of the Currency to issue regulations to promote safety and 

soundness, or to enforce compliance as to Federal savings 

associations with other applicable laws. 

(C) ADDITIONAL AUTHORITY OF FDIC TO PREVENT SERIOUS

RISKS TO INSURANCE FUND.—Notwithstanding subparagraph (A), the Corporation may prescribe and enforce such 

regulations and issue such orders as the Corporation determines to be necessary to prevent actions or practices of 

savings associations that pose a serious threat to the Deposit Insurance Fund. 


SSpencer on DSK4SPTVN1PROD with REPORTS
23 

(4) ‘‘SUBSIDIARY’’ DEFINED.—As used in this subsection, the 

term ‘‘subsidiary’’ does not include an insured depository institution. 

(5) APPLICABILITY TO CERTAIN SAVINGS BANKS.—Subparagraphs (A) and (B) of paragraph (1) of this subsection do not 

apply to— 

(A) any Federal savings bank that was chartered prior 

to October 15, 1982, as a savings bank under State law, 

or 

(B) a savings association that acquired its principal assets from an institution that was chartered prior to October 15, 1982, as a savings bank under State law. 

(n) CALCULATION OF CAPITAL.—No appropriate Federal banking 

agency shall allow any insured depository institution to include an 

unidentifiable intangible asset in its calculation of compliance with 

the appropriate capital standard, if such unidentifiable intangible 

asset was acquired after April 12, 1989, except to the extent permitted under section 5(t) of the Home Owners’ Loan Act. 

(o) REAL ESTATE LENDING.— 

(1) UNIFORM REGULATIONS.—Not more than 9 months after 

the date of enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991, each appropriate Federal 

banking agency shall adopt uniform regulations prescribing 

standards for extensions of credit that are— 

(A) secured by liens on interests in real estate; or 

(B) made for the purpose of financing the construction of 

a building or other improvements to real estate. 

(2) STANDARDS.— 

(A) CRITERIA.—In prescribing standards under paragraph (1), the agencies shall consider— 

(i) the risk posed to the Deposit Insurance Fund by 

such extensions of credit; 

(ii) the need for safe and sound operation of insured 

depository institutions; and 

(iii) the availability of credit. 

(B) VARIATIONS PERMITTED.—In prescribing standards 

under paragraph (1), the appropriate Federal banking 

agencies may differentiate among types of loans— 

(i) as may be required by Federal statute; 

(ii) as may be warranted, based on the risk to the 

Deposit Insurance Fund; or 

(iii) as may be warranted, based on the safety and 

soundness of the institutions. 

(3) LOAN EVALUATION STANDARD.—No appropriate Federal 

banking agency shall adversely evaluate an investment or a 

loan made by an insured depository institution, or consider 

such a loan to be nonperforming, solely because the loan is 

made to or the investment is in commercial, residential, or industrial property, unless such investment or loan may affect 

the institution’s safety and soundness. 

(4) EFFECTIVE DATE.—The regulations adopted under paragraph (1) shall become effective not later than 15 months after 

the date of enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991. Such regulations shall conVerDate Sep 11 2014 01:30 Feb 04, 2016 Jkt 059006 PO 00000 Frm 00023 Fmt 6659 Sfmt 6602 E:\HR\OC\HR407.XXX HR407

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tinue in effect except as uniformly amended by the appropriate 

Federal banking agencies, acting in concert. 

(p) PERIODIC REVIEW OF CAPITAL STANDARDS.—Each appropriate 

Federal banking agency shall, in consultation with the other Federal banking agencies, biennially review its capital standards for 

insured depository institutions to determine whether those standards require sufficient capital to facilitate prompt corrective action 

to prevent or minimize loss to the Deposit Insurance Fund, consistent with section 38. 

(q) SOVEREIGN RISK.—Section 25C of the Federal Reserve Act 

shall apply to every nonmember insured bank in the same manner 

and to the same extent as if the nonmember insured bank were a 

member bank. 

(r) SUBSIDIARY DEPOSITORY INSTITUTIONS AS AGENTS FOR CERTAIN AFFILIATES.— 

(1) IN GENERAL.—Any bank subsidiary of a bank holding 

company may receive deposits, renew time deposits, close 

loans, service loans, and receive payments on loans and other 

obligations as an agent for a depository institution affiliate. 

(2) BANK ACTING AS AGENT IS NOT A BRANCH.—Notwithstanding any other provision of law, a bank acting as an agent 

in accordance with paragraph (1) for a depository institution 

affiliate shall not be considered to be a branch of the affiliate. 

(3) PROHIBITIONS ON ACTIVITIES.—A depository institution 

may not— 

(A) conduct any activity as an agent under paragraph (1) 

or (6) which such institution is prohibited from conducting 

as a principal under any applicable Federal or State law; 

or 

(B) as a principal, have an agent conduct any activity 

under paragraph (1) or (6) which the institution is prohibited from conducting under any applicable Federal or State 

law. 

(4) EXISTING AUTHORITY NOT AFFECTED.—No provision of this 

subsection shall be construed as affecting— 

(A) the authority of any depository institution to act as 

an agent on behalf of any other depository institution 

under any other provision of law; or 

(B) whether a depository institution which conducts any 

activity as an agent on behalf of any other depository institution under any other provision of law shall be considered 

to be a branch of such other institution. 

(5) AGENCY RELATIONSHIP REQUIRED TO BE CONSISTENT WITH

SAFE AND SOUND BANKING PRACTICES.—An agency relationship 

between depository institutions under paragraph (1) or (6) 

shall be on terms that are consistent with safe and sound 

banking practices and all applicable regulations of any appropriate Federal banking agency. 

(6) AFFILIATED INSURED SAVINGS ASSOCIATIONS.—An insured 

savings association which was an affiliate of a bank on July 1, 

1994, may conduct activities as an agent on behalf of such 

bank in the same manner as an insured bank affiliate of such 

bank may act as agent for such bank under this subsection to 

the extent such activities are conducted only in— 

(A) any State in which— 


SSpencer on DSK4SPTVN1PROD with REPORTS
25 

(i) the bank is not prohibited from operating a 

branch under any provision of Federal or State law; 

and 

(ii) the savings association maintained an office or 

branch and conducted business as of July 1, 1994; or 

(B) any State in which— 

(i) the bank is not expressly prohibited from operating a branch under a State law described in section 

44(a)(2); and 

(ii) the savings association maintained a main office 

and conducted business as of July 1, 1994. 

(s) PROHIBITION ON CERTAIN AFFILIATIONS.— 

(1) IN GENERAL.—No depository institution may be an affiliate of, be sponsored by, or accept financial support, directly or 

indirectly, from any Government-sponsored enterprise. 

(2) EXCEPTION FOR MEMBERS OF A FEDERAL HOME LOAN

BANK.—Paragraph (1) shall not apply with respect to the membership of a depository institution in a Federal home loan 

bank. 

(3) ROUTINE BUSINESS FINANCING.—Paragraph (1) shall not 

apply with respect to advances or other forms of financial assistance provided by a Government-sponsored enterprise pursuant to the statutes governing such enterprise. 

(4) STUDENT LOANS.— (A) IN GENERAL.—This subsection shall not apply to any 

arrangement between the Holding Company (or any subsidiary of the Holding Company other than the Student 

Loan Marketing Association) and a depository institution, 

if the Secretary approves the affiliation and determines 

that— 

(i) the reorganization of such Association in accordance with section 440 of the Higher Education Act of 

1965, as amended, will not be adversely affected by 

the arrangement; 

(ii) the dissolution of the Association pursuant to 

such reorganization will occur before the end of the 2- 

year period beginning on the date on which such arrangement is consummated or on such earlier date as 

the Secretary deems appropriate: Provided, That the 

Secretary may extend this period for not more than 1 

year at a time if the Secretary determines that such 

extension is in the public interest and is appropriate 

to achieve an orderly reorganization of the Association 

or to prevent market disruptions in connection with 

such reorganization, but no such extensions shall in 

the aggregate exceed 2 years; 

(iii) the Association will not purchase or extend credit to, or guarantee or provide credit enhancement to, 

any obligation of the depository institution; 

(iv) the operations of the Association will be separate from the operations of the depository institution; 

and 

(v) until the ‘‘dissolution date’’ (as that term is defined in section 440 of the Higher Education Act of 

1965, as amended) has occurred, such depository instiVerDate Sep 11 2014 01:30 Feb 04, 2016 Jkt 059006 PO 00000 Frm 00025 Fmt 6659 Sfmt 6602 E:\HR\OC\HR407.XXX HR407

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tution will not use the trade name or service mark 

‘‘Sallie Mae’’ in connection with any product or service 

it offers if the appropriate Federal banking agency for 

such depository institution determines that— 

(I) the depository institution is the only institution offering such product or service using the 

‘‘Sallie Mae’’ name; and 

(II) such use would result in the depository institution having an unfair competitive advantage 

over other depository institutions. 

(B) TERMS AND CONDITIONS.—In approving any arrangement referred to in subparagraph (A) the Secretary may 

impose any terms and conditions on such an arrangement 

that the Secretary considers appropriate, including— 

(i) imposing additional restrictions on the issuance 

of debt obligations by the Association; or 

(ii) restricting the use of proceeds from the issuance 

of such debt. 

(C) ADDITIONAL LIMITATIONS.—In the event that the 

Holding Company (or any subsidiary of the Holding Company) enters into such an arrangement, the value of the 

Association’s ‘‘investment portfolio’’ shall not at any time 

exceed the lesser of— 

(i) the value of such portfolio on the date of the enactment of this subsection; or 

(ii) the value of such portfolio on the date such an 

arrangement is consummated. The term ‘‘investment 

portfolio’’ shall mean all investments shown on the 

consolidated balance sheet of the Association other 

than— 

(I) any instrument or assets described in section 

439(d) of the Higher Education Act of 1965, as 

such section existed on the day before the date of 

the repeal of such section; 

(II) any direct noncallable obligations of the 

United States or any agency thereof for which the 

full faith and credit of the United States is 

pledged; or 

(III) cash or cash equivalents. 

(D) ENFORCEMENT.—The terms and conditions imposed 

under subparagraph (B) may be enforced by the Secretary 

in accordance with section 440 of the Higher Education Act 

of 1965. 

(E) DEFINITIONS.—For purposes of this paragraph, the 

following definition shall apply— 

(i) ASSOCIATION; HOLDING COMPANY.—Notwithstanding any provision in section 3, the terms ‘‘Association’’ and ‘‘Holding Company’’ have the same meanings as in section 440(i) of the Higher Education Act 

of 1965. 

(ii) SECRETARY.—The term ‘‘Secretary’’ means the 

Secretary of the Treasury. 

(5) GOVERNMENT-SPONSORED ENTERPRISE DEFINED.—For purposes of this subsection, the term ‘‘Government-sponsored enterprise’’ has the meaning given to such term in section 


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1404(e)(1)(A) of the Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989. 

(t) RECORDKEEPING REQUIREMENTS.— 

(1) REQUIREMENTS.—Each appropriate Federal banking 

agency, after consultation with and consideration of the views 

of the Commission, shall establish recordkeeping requirements 

for banks relying on exceptions contained in paragraphs (4) 

and (5) of section 3(a) of the Securities Exchange Act of 1934. 

Such recordkeeping requirements shall be sufficient to demonstrate compliance with the terms of such exceptions and be 

designed to facilitate compliance with such exceptions. 

(2) AVAILABILITY TO COMMISSION; CONFIDENTIALITY.—Each 

appropriate Federal banking agency shall make any information required under paragraph (1) available to the Commission 

upon request. Notwithstanding any other provision of law, the 

Commission shall not be compelled to disclose any such information. Nothing in this paragraph shall authorize the Commission to withhold information from Congress, or prevent the 

Commission from complying with a request for information 

from any other Federal department or agency or any self-regulatory organization requesting the information for purposes 

within the scope of its jurisdiction, or complying with an order 

of a court of the United States in an action brought by the 

United States or the Commission. For purposes of section 552 

of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section 

552. 

(3) DEFINITION.—As used in this subsection the term ‘‘Commission’’ means the Securities and Exchange Commission. 

(u) LIMITATION ON CLAIMS.— 

(1) IN GENERAL.—No person may bring a claim against any 

Federal banking agency (including in its capacity as conservator or receiver) for the return of assets of an affiliate or controlling shareholder of the insured depository institution transferred to, or for the benefit of, an insured depository institution 

by such affiliate or controlling shareholder of the insured depository institution, or a claim against such Federal banking 

agency for monetary damages or other legal or equitable relief 

in connection with such transfer, if at the time of the transfer— 

(A) the insured depository institution is subject to any 

direction issued in writing by a Federal banking agency to 

increase its capital; and 

(B) for that portion of the transfer that is made by an 

entity covered by section 5(g) of the Bank Holding Company Act of 1956 or section 45 of this Act, the Federal 

banking agency has followed the procedure set forth in 

such section. 

(2) DEFINITION OF CLAIM.—For purposes of paragraph (1), 

the term ‘‘claim’’— 

(A) means a cause of action based on Federal or State 

law that— 

(i) provides for the avoidance of preferential or 

fraudulent transfers or conveyances; or 


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28 

(ii) provides similar remedies for preferential or 

fraudulent transfers or conveyances; and 

(B) does not include any claim based on actual intent to 

hinder, delay, or defraud pursuant to such a fraudulent 

transfer or conveyance law. 

(v) LOANS BY INSURED INSTITUTIONS ON THEIR OWN STOCK.— 

(1) GENERAL PROHIBITION.—No insured depository institution 

may make any loan or discount on the security of the shares 

of its own capital stock. 

(2) EXCLUSION.—For purposes of this subsection, an insured 

depository institution shall not be deemed to be making a loan 

or discount on the security of the shares of its own capital 

stock if it acquires the stock to prevent loss upon a debt previously contracted for in good faith. 

(w) WRITTEN EMPLOYMENT REFERENCES MAY CONTAIN SUSPICIONS OF INVOLVEMENT IN ILLEGAL ACTIVITY.— 

(1) AUTHORITY TO DISCLOSE INFORMATION.—Notwithstanding 

any other provision of law, any insured depository institution, 

and any director, officer, employee, or agent of such institution, 

may disclose in any written employment reference relating to 

a current or former institution-affiliated party of such institution which is provided to another insured depository institution 

in response to a request from such other institution, information concerning the possible involvement of such institution-affiliated party in potentially unlawful activity. 

(2) INFORMATION NOT REQUIRED.—Nothing in paragraph (1) 

shall be construed, by itself, to create any affirmative duty to 

include any information described in paragraph (1) in any employment reference referred to in paragraph (1). 

(3) MALICIOUS INTENT.—Notwithstanding any other provision 

of this subsection, voluntary disclosure made by an insured depository institution, and any director, officer, employee, or 

agent of such institution, under this subsection concerning potentially unlawful activity that is made with malicious intent, 

shall not be shielded from liability from the person identified 

in the disclosure. 

(4) DEFINITION.—For purposes of this subsection, the term 

‘‘insured depository institution’’ includes any uninsured branch 

or agency of a foreign bank. 

(x) PRIVILEGES NOT AFFECTED BY DISCLOSURE TO BANKING

AGENCY OR SUPERVISOR.— 

(1) IN GENERAL.—The submission by any person of any information to the Bureau of Consumer Financial Protection, any 

Federal banking agency, State bank supervisor, or foreign 

banking authority for any purpose in the course of any supervisory or regulatory process of such Bureau, agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim 

with respect to such information under Federal or State law as 

to any person or entity other than such Bureau, agency, supervisor, or authority. 

(2) RULE OF CONSTRUCTION.—No provision of paragraph (1) 

may be construed as implying or establishing that— 


SSpencer on DSK4SPTVN1PROD with REPORTS
29 

(A) any person waives any privilege applicable to information that is submitted or transferred under any circumstance to which paragraph (1) does not apply; or 

(B) any person would waive any privilege applicable to 

any information by submitting the information to the Bureau of Consumer Financial Protection, any Federal banking agency, State bank supervisor, or foreign banking authority, but for this subsection. 

(y) STATE LENDING LIMIT TREATMENT OF DERIVATIVES TRANSACTIONS.—An insured State bank may engage in a derivative 

transaction, as defined in section 5200(b)(3) of the Revised Statutes 

of the United States (12 U.S.C. 84(b)(3)), only if the law with respect to lending limits of the State in which the insured State bank 

is chartered takes into consideration credit exposure to derivative 

transactions. 

(z) GENERAL PROHIBITION ON SALE OF ASSETS.— 

(1) IN GENERAL.—An insured depository institution may not 

purchase an asset from, or sell an asset to, an executive officer, 

director, or principal shareholder of the insured depository institution, or any related interest of such person (as such terms 

are defined in section 22(h) of Federal Reserve Act), unless— 

(A) the transaction is on market terms; and 

(B) if the transaction represents more than 10 percent of 

the capital stock and surplus of the insured depository institution, the transaction has been approved in advance by 

a majority of the members of the board of directors of the 

insured depository institution who do not have an interest 

in the transaction. 

(2) RULEMAKING.—The Board of Governors of the Federal 

Reserve System may issue such rules as may be necessary to 

define terms and to carry out the purposes this subsection. Before proposing or adopting a rule under this paragraph, the 

Board of Governors of the Federal Reserve System shall consult with the Comptroller of the Currency and the Corporation 

as to the terms of the rule. 

(aa) TREATMENT OF CERTAIN MUNICIPAL OBLIGATIONS.— 

(1) IN GENERAL.—For purposes of the final rule titled ‘‘Liquidity Coverage Ratio: Liquidity Risk Measurement Standards; Final Rule’’ (79 Fed. Reg. 61439; published October 10, 

2014) (the ‘‘Final Rule’’) and any other regulation which incorporates a definition of the term ‘‘high-quality liquid asset’’, the 

appropriate Federal banking agencies shall treat a municipal 

obligation that is both liquid and readily marketable (as defined in the Final Rule) and investment grade as of the calculation date as a high-quality liquid asset that is a level 2A liquid 

asset. 

(2) DEFINITIONS.—For purposes of this subsection: 

(A) INVESTMENT GRADE.—With respect to an obligation, 

the term ‘‘investment grade’’ has the meaning given that 

term under part 1 of title 12, Code of Federal Regulations. 

(B) MUNICIPAL OBLIGATION.—The term ‘‘municipal obligation’’ means an obligation of a State or any political subVerDate Sep 11 2014 01:30 Feb 04, 2016 Jkt 059006 PO 00000 Frm 00029 Fmt 6659 Sfmt 6603 E:\HR\OC\HR407.XXX HR407

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division thereof, or any agency or instrumentality of a State 

or any political subdivision thereof. 

* * * * * * * 

Æ 


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