I

106TH CONGRESS

1ST SESSION H. R. 665

To enhance the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, and other financial

service providers and ensuring adequate protection for consumers, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 10, 1999

Mr. LAFALCE (for himself, Mr. VENTO, Mr. BAKER, Mr. CAPUANO, and Mr.

ACKERMAN) 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 the financial services industry by providing a

prudential framework for the affiliation of banks, securities firms, and other financial service providers and ensuring adequate protection for consumers, and for other

purposes.

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 ‘‘Financial Services

5 Modernization Act’’.
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1 SEC. 2. TABLE OF CONTENTS.

2 The table of contents for this Act is as follows:

Sec. 1. Short title.

Sec. 2. Table of contents.

TITLE I—FINANCIAL SERVICES MODERNIZATION

Subtitle A—Affiliations

Sec. 101. Anti-affiliation provisions of ‘‘Glass-Steagall Act’’ repealed.

Sec. 102. Financial activities.

Sec. 103. Limited nonfinancial activities and affiliations permitted.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 106. Amendments relating to limited purpose banks.

Subtitle B—Streamlining Supervision of Bank Holding Companies

Sec. 111. Streamlining bank holding company supervision.

Sec. 112. Authority of State insurance regulator and securities and exchange

commission.

Sec. 113. Limitation on rulemaking, prudential, supervisory, and enforcement

authority of the Board.

Sec. 114. Examination of investment companies.

Sec. 115. Equivalent regulation and supervision.

Subtitle C—Subsidiaries of National Banks

Sec. 121. Subsidiaries of national banks authorized to engage in financial activities.

Sec. 122. Safety and soundness firewalls between banks and their financial subsidiaries.

Sec. 123. Functional regulation.

Subtitle D—Review of Bank Mergers and Acquisitions

Sec. 131. Amendment to the Bank Holding Company Act of 1956 to modify

notification and post-approval waiting period for section 3

transactions.

Sec. 132. Interagency data sharing.

Sec. 133. Clarification of status of subsidiaries and affiliates.

Sec. 134. Annual GAO report.

Subtitle E—Direct Activities of Banks

Sec. 141. Authority of national banks to underwrite certain municipal bonds.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

Sec. 203. Registration for sales of private securities offerings.

Sec. 204. Information sharing.

Sec. 205. Definition and treatment of banking products.
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Sec. 206. Derivative instrument and qualified investor defined.

Sec. 207. Government securities defined.

Sec. 208. Effective date.

Sec. 209. Rule of construction.

Subtitle B—Bank Investment Company Activities

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

Sec. 212. Lending to an affiliated investment company.

Sec. 213. Independent directors.

Sec. 214. Additional SEC disclosure authority.

Sec. 215. Definition of broker under the Investment Company Act of 1940.

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

Sec. 217. Removal of the exclusion from the definition of investment adviser for

banks that advise investment companies.

Sec. 218. Definition of broker under the Investment Advisers Act of 1940.

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

Sec. 220. Interagency consultation.

Sec. 221. Treatment of bank common trust funds.

Sec. 222. Investment advisers prohibited from having controlling interest in

registered investment company.

Sec. 223. Conforming change in definition.

Sec. 224. Conforming amendment.

Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment

Bank Holding Companies

Sec. 231. Supervision of investment bank holding companies by the Securities

and Exchange Commission.

Subtitle D—Studies

Sec. 241. Study of methods to inform investors and consumers of uninsured

products.

Sec. 242. Study of limitation on fees associated with acquiring financial products.

TITLE III—INSURANCE

Sec. 301. State regulation of the business of insurance.

Sec. 302. Mandatory insurance licensing requirements.

Sec. 303. Functional regulation of insurance.

Sec. 304. Insurance underwriting in national banks.

Sec. 305. Title insurance activities of national banks and their affiliates.

Sec. 306. Expedited dispute resolution for Federal regulators.

Sec. 307. Certain State affiliation laws preempted for insurance companies and

affiliates.

TITLE IV—CUSTOMER SERVICE AND EDUCATION

Sec. 401. Customer service and education regulations.
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1 TITLE I—FINANCIAL SERVICES

2 MODERNIZATION

3 Subtitle A—Affiliations

4 SEC. 101. ANTI-AFFILIATION PROVISIONS OF ‘‘GLASS5 STEAGALL ACT’’ REPEALED.

6 (a) SECTION 20 REPEALED.—Section 20 of the

7 Banking Act of 1933 (12 U.S.C. 377) is repealed.

8 (b) SECTION 32 REPEALED.—Section 32 of the

9 Banking Act of 1933 (12 U.S.C. 78) is repealed.

10 SEC. 102. FINANCIAL ACTIVITIES.

11 (a) ENGAGING IN ACTIVITIES FINANCIAL IN NA12 TURE.—Section 4 of the Bank Holding Company Act of

13 1956 (12 U.S.C. 1843) is amended by adding at the end

14 the following new subsections:

15 ‘‘(k) ENGAGING IN ACTIVITIES FINANCIAL IN NA16 TURE.—

17 ‘‘(1) IN GENERAL.—Notwithstanding subsection

18 (a) and subject to subsection (l) and (m), a bank

19 holding company may engage in any activity, and ac20 quire and retain the shares of any company engaged

21 in any activity, which the Board and the Secretary

22 of the Treasury have jointly determined (by regula23 tion or order) to be financial in nature or incidental

24 to such financial activities.
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1 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter2 mining whether an activity is financial in nature or

3 incidental to financial activities, the Board and the

4 Secretary shall take into account—

5 ‘‘(A) the purposes of this Act and the Fi6 nancial Services Modernization Act;

7 ‘‘(B) changes or reasonably expected

8 changes in the marketplace in which bank hold9 ing companies compete;

10 ‘‘(C) changes or reasonably expected

11 changes in the technology for delivering finan12 cial services; and

13 ‘‘(D) whether such activity is necessary or

14 appropriate to allow bank holding companies

15 and the affiliates of a bank holding company

16 to—

17 ‘‘(i) compete effectively with any com18 pany seeking to provide financial services

19 in the United States;

20 ‘‘(ii) use any available or emerging

21 technological means, including any applica22 tion necessary to protect the security or ef23 ficacy of systems for the transmission of

24 data or financial transactions, in providing

25 financial services; and
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1 ‘‘(iii) offer customers any available or

2 emerging technological means for using fi3 nancial services.

4 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA5 TURE.—The following activities shall be considered

6 to be financial in nature:

7 ‘‘(A) Lending, exchanging, transferring, in8 vesting for others, or safeguarding money or se9 curities.

10 ‘‘(B) Insuring, guaranteeing, or indemnify11 ing against loss, harm, damage, illness, disabil12 ity, or death, or providing and issuing annu13 ities, and acting as principal, agent, or broker

14 for purposes of the foregoing, in any State, in

15 full compliance with the laws and regulations of

16 such State that apply to each type of insurance

17 license or authorization in such State, except

18 that—

19 ‘‘(i) in no event shall the bank holding

20 company or any affiliate of the bank hold21 ing company be subject to any State law or

22 regulation that restricts a bank from hav23 ing an affiliate, agent, or employee in such

24 State licensed to provide insurance as prin25 cipal, agent, or broker; and
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1 ‘‘(ii) the Board shall prescribe regula2 tions concerning insurance affiliations that

3 provide equivalent treatment for all stock

4 and mutual insurance companies that con5 trol or are otherwise affiliated with a bank

6 and fully accommodate and are consistent

7 with State law.

8 ‘‘(C) Providing financial, investment, or

9 economic advisory services, including advising

10 an investment company (as defined in section 3

11 of the Investment Company Act of 1940).

12 ‘‘(D) Issuing or selling instruments rep13 resenting interests in pools of assets permissible

14 for a bank to hold directly.

15 ‘‘(E) Underwriting, dealing in, or making

16 a market in securities.

17 ‘‘(F) Engaging in any activity that the

18 Board has determined, by order or regulation

19 that is in effect on the date of enactment of the

20 Financial Services Modernization Act, to be so

21 closely related to banking or managing or con22 trolling banks as to be a proper incident thereto

23 (subject to the same terms and conditions con24 tained in such order or regulation, unless modi25 fied by the Board).
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1 ‘‘(G) Engaging, in the United States, in

2 any activity that—

3 ‘‘(i) a bank holding company may en4 gage in outside the United States; and

5 ‘‘(ii) the Board has determined, under

6 regulations issued pursuant to subsection

7 (c)(13) (as in effect on the day before the

8 date of enactment of the Financial Services

9 Modernization Act) to be usual in connec10 tion with the transaction of banking or

11 other financial operations abroad.

12 ‘‘(H) Directly or indirectly acquiring or

13 controlling, whether as principal, on behalf of 1

14 or more entities (including entities, other than

15 a depository institution or subsidiary of a de16 pository institution, that the bank holding com17 pany controls) or otherwise, shares, assets, or

18 ownership interests (including without limita19 tion debt or equity securities, partnership inter20 ests, trust certificates or other instruments rep21 resenting ownership) of a company or other en22 tity, whether or not constituting control of such

23 company or entity, engaged in any activity not

24 authorized pursuant to this section if—
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1 ‘‘(i) the shares, assets, or ownership

2 interests are not acquired or held by a de3 pository institution;

4 ‘‘(ii) such shares, assets, or ownership

5 interests are acquired and held as part of

6 a bona fide underwriting or merchant

7 banking activity, including investment ac8 tivities engaged in for the purpose of ap9 preciation and ultimate resale or disposi10 tion of the investment;

11 ‘‘(iii) such shares, assets, or owner12 ship interests, are held for such a period of

13 time as will permit the sale or disposition

14 thereof on a reasonable basis consistent

15 with the nature of the activities described

16 in clause (ii); and

17 ‘‘(iv) during the period such shares,

18 assets, or ownership interests are held, the

19 bank holding company does not actively

20 participate, directly or indirectly, in the

21 day to day management or operation of

22 such company or entity, except insofar as

23 necessary to achieve the objectives of

24 clause (ii).
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1 ‘‘(I) Directly or indirectly acquiring or con2 trolling, whether as principal, on behalf of 1 or

3 more entities (including any subsidiary of the

4 holding company which is not a depository in5 stitution or subsidiary of a depository institu6 tion) or otherwise, shares, assets, or ownership

7 interests (including without limitation debt or

8 equity securities, partnership interests, trust

9 certificates or other instruments representing

10 ownership) of a company or other entity, wheth11 er or not constituting control of such company

12 or entity, engaged in any activity not authorized

13 pursuant to this section if—

14 ‘‘(i) the shares, assets, or ownership

15 interests are not acquired or held by a de16 pository institution or a subsidiary of a de17 pository institution;

18 ‘‘(ii) such shares, assets, or ownership

19 interests are acquired and held by an in20 surance company that is predominantly en21 gaged in underwriting life, accident and

22 health, or property and casualty insurance

23 (other than credit-related insurance);

24 ‘‘(iii) such shares, assets, or owner25 ship interests represent an investment
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1 made in the ordinary course of business of

2 such insurance company in accordance

3 with relevant State law governing such in4 vestments; and

5 ‘‘(iv) during the period such shares,

6 assets, or ownership interests are held, the

7 bank holding company does not directly or

8 indirectly participate in the day-to-day

9 management or operation of the company

10 or entity except insofar as necessary to

11 achieve the objectives of clause (iii).

12 ‘‘(4) ACTIONS REQUIRED.—

13 ‘‘(A) REGULATION OF MERCHANT BANK14 ING.—The Board may prescribe regulations and

15 issue interpretations to implement paragraph

16 3(H);

17 ‘‘(B) REGULATION OF OTHER ACTIVI18 TIES.—The Board and the Secretary—

19 ‘‘(i) may jointly prescribe regulations and

20 issue interpretations under paragraph (3), other

21 than subparagraph (H); and

22 ‘‘(ii) shall jointly define by regulation the

23 following activities, to the extent they are con24 sistent with the purposes of this Act, as finan-
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1 cial in nature or incidental to activities that are

2 financial in nature:

3 ‘‘(I) Lending, exchanging, trans4 ferring, investing for others, or safe5 guarding financial assets other than

6 money or securities.

7 ‘‘(II) Providing any device or

8 other instrumentality for transferring

9 money or other financial assets;

10 ‘‘(III) Arranging, effecting, or fa11 cilitating financial transactions for the

12 account of third parties.

13 ‘‘(5) NOTIFICATION.—

14 ‘‘(A) COMMENCEMENT OF NEW ACTIV15 ITY.—A bank holding company that commences

16 any activity pursuant to this subsection shall

17 provide written notice to the Board describing

18 the activity commenced or conducted by the

19 company acquired no later than 30 calendar

20 days after commencing the activity or con21 summating the acquisition.

22 ‘‘(B) NOTICE REQUIRED FOR ACQUISI23 TIONS.—

24 ‘‘(i) IN GENERAL.—At least 12 busi25 ness days before acquiring shares or assets
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1 of any going concern pursuant to para2 graphs (3), (4), or (5), a bank holding

3 company shall provide written notice of the

4 proposal to the Board, unless the Board

5 determines that no notice or a shorter no6 tice period is appropriate.

7 ‘‘(ii) GROUNDS FOR DISAPPROVAL

8 THE BOARD SHALL NOT APPROVE—

9 ‘‘(I) any acquisition which would

10 result in a monopoly, or which would

11 be in furtherance of any combination

12 or conspiracy to monopolize or at13 tempt to monopolize the business of

14 financial intermediation in any part of

15 the United States, or

16 ‘‘(II) any other proposed acquisi17 tion whose effect in any section of the

18 country may be substantially to lessen

19 competition, or to tend to create a

20 monopoly, or which in any other man21 ner would be in restraint of trade, un22 less it finds that the anticompetitive

23 effects of the proposed transaction are

24 clearly outweighed in the public inter25 est by the probable effect of the trans-
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1 action in meeting the convenience and

2 needs of the community to be served.

3 ‘‘(iii) ADDITIONAL INFORMATION AND

4 EXTENSION OF PERIOD.—Before the expi5 ration of the 12-day period referred to in

6 clause (i), the Board may require the sub7 mission of additional information and may

8 extend the 12-day period for no more than

9 60 calendar days to consider such addi10 tional information.

11 ‘‘(iv) DISAPPROVAL BEFORE END OF

12 PERIOD.—If, at the end of the 12-day pe13 riod referred to in clause (i) or the end of

14 any extension of such period pursuant to

15 clause (iii), as the case may be, the Board

16 has not issued an order disapproving the

17 notice, the notice shall be deemed ap18 proved.’’

19 ‘‘(C) APPROVAL NOT REQUIRED FOR CER20 TAIN FINANCIAL ACTIVITIES.—Except as pro21 vided in subsection (j) with regard to the acqui22 sition of a savings association, a bank holding

23 company may commence any activity pursuant

24 to paragraph (3) or any regulation prescribed
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1 under paragraph (4), without prior approval of

2 the Board.

3 ‘‘(l) CONDITIONS FOR ENGAGING IN BROAD RANGE

4 OF FINANCIAL ACTIVITIES.—Notwithstanding subsection

5 (k), a bank holding company may not engage in any activ6 ity, or directly or indirectly acquire or retain shares of any

7 company engaged in any activity, under subsection (k),

8 other than activities permissible for a bank holding com9 pany under subsection (c)(8), unless the bank holding

10 company meets the following requirements:

11 ‘‘(1) All of the subsidiary depository institutions

12 of the bank holding company are well capitalized, as

13 determined pursuant to section 38 of the Federal

14 Deposit Insurance Act.

15 ‘‘(2) All of the subsidiary depository institutions

16 of the bank holding company are well managed, as

17 determined by the appropriate Federal banking

18 agency.

19 ‘‘(3) All of the subsidiary depository institutions

20 of the bank holding company have achieved a rating

21 of ‘satisfactory record of meeting community credit

22 needs’, or better, at the most recent examination of

23 each such institution under the Community Rein24 vestment Act of 1977.

25 ‘‘(4) The company has filed with the Board—
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1 ‘‘(A) a declaration that the company elects

2 to engage in activities or acquire and retain

3 shares of a company which were not permissible

4 for a bank holding company to engage in or ac5 quire before the enactment of the Financial

6 Services Modernization Act; and

7 ‘‘(B) a certification that the company

8 meets the requirements of paragraphs (1), (2),

9 and (3).

10 ‘‘(m) PROVISIONS APPLICABLE TO BANK HOLDING

11 COMPANIES THAT FAIL TO MEET CERTAIN REQUIRE12 MENTS.—

13 ‘‘(1) IN GENERAL.—If—

14 ‘‘(A) a bank holding company is engaged,

15 directly or indirectly, in any activity under sub16 section (k), other than activities permissible for

17 a bank holding company under subsection

18 (c)(8); and

19 ‘‘(B) such company is not in compliance

20 with the requirements of subsection (l),

21 the Board shall give notice to the company to that

22 effect, describing the conditions giving rise to the

23 notice.

24 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE25 QUIRED.—Within 45 days of receipt by a bank hold-
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1 ing company of a notice given under paragraph (1)

2 (or such additional period as the Board may per3 mit), the company shall execute an agreement with

4 the Board to comply with the requirements applica5 ble to a bank holding company under subsection (l).

6 ‘‘(3) APPROPRIATE FEDERAL BANKING AGENCY

7 MAY IMPOSE LIMITATIONS.—Until the conditions de8 scribed in a notice to a bank holding company under

9 paragraph (1) are corrected, the appropriate Federal

10 banking agency may impose such limitations on the

11 conduct or activities of the company or any affiliate

12 of the company as the agency determines to be ap13 propriate under the circumstances.

14 ‘‘(4) FAILURE TO CORRECT.—If the conditions

15 described in a notice to a bank holding company

16 under paragraph (1) are not corrected within 180

17 days after receipt by the company of notice under

18 paragraph (1), the Board may require such com19 pany, under such terms and conditions as may be

20 imposed by the Board and subject to such extension

21 of time as may be granted in the Board’s discretion,

22 either—

23 ‘‘(A) to divest control of any subsidiary in24 sured depository institutions; or
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1 ‘‘(B) to cease to engage in any activity

2 conducted by such company or its subsidiaries

3 (other than a depository institution or a sub4 sidiary of a depository institution) that is not

5 an activity that is permissible for a bank hold6 ing company under subsection (c)(8).’’.

7 (b) FINANCIAL ACTIVITIES OF BANK HOLDING COM8 PANIES INELIGIBLE FOR SUBSECTION (k) POWERS.—

9 (1) IN GENERAL.—Section 4(c)(8) of the Bank

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

11 1843(c)(8)) is amended to read as follows:

12 ‘‘(8) shares of any company the activities of

13 which had been determined by the Board by regula14 tion under this paragraph as of the day before the

15 date of the enactment of the Financial Services

16 Modernization Act, to be so closely related to bank17 ing as to be a proper incident thereto (subject to

18 such terms and conditions contained in such regula19 tion, unless modified by the Board);’’.

20 (2) CONFORMING CHANGES TO OTHER STAT21 UTES.—

22 (A) AMENDMENT TO THE BANK HOLDING

23 COMPANY ACT AMENDMENTS OF 1970.—Section

24 105 of the Bank Holding Company Act Amend25 ments of 1970 (12 U.S.C. 1850) is amended by
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1 striking ‘‘, to engage directly or indirectly in a

2 nonbanking activity pursuant to section 4 of

3 such Act,’’.

4 (B) AMENDMENTS TO THE HOMEOWNERS

5 LOAN ACT.—

6 (i) Section 10(c)(2)(F)(i) of the Home

7 Owners Loan Act is amended—

8 (I) by inserting ‘‘is permitted for

9 bank holding companies under sub10 sections (c) or (k) of section 4 of the

11 Bank Holding company Act of 1956,

12 or which’’ after ‘‘(i) which’’; and

13 (II) by striking ‘‘section 4(c)’’

14 and inserting ‘‘such subsections’’.

15 (ii) Section 10(o)(5) of the Home

16 Owners Loan Act is amended by striking

17 ‘‘, except subparagraph (B)’’.

18 SEC. 103. LIMITED NONFINANCIAL ACTIVITIES AND AFFILI19 ATIONS PERMITTED.

20 Section 4 of the Bank Holding Company Act of 1956

21 (12 U.S.C. 1843) is amended by inserting after subsection

22 (m) (as added by section 3(a) of this Act) the following

23 new subsection:

24 ‘‘(n) NONFINANCIAL ACTIVITIES.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding subsection

2 (a), a bank holding company may engage in activi3 ties which are not (or have not been determined to

4 be) financial in nature or incidental to activities

5 which are financial in nature, or acquire and retain

6 ownership and control of the shares of a company

7 engaged in such activities, if—

8 ‘‘(A) the aggregate annual gross revenues

9 derived from all such activities and all such

10 companies does not exceed 15 percent of the

11 consolidated annual gross revenues of the bank

12 holding company;

13 ‘‘(B) the consolidated total assets of any

14 company the shares of which are acquired by

15 the bank holding company pursuant to this

16 paragraph are less than $750,000,000 at the

17 time the shares are acquired by the holding

18 company; and

19 ‘‘(C) the holding company provides notice

20 to the Board within 30 days of commencing the

21 activity or acquiring the ownership or control.

22 ‘‘(2) FOREIGN BANKS.—In lieu of the limitation

23 contained in paragraph (1)(A) in the case of a for24 eign bank or a company that owns or controls a for25 eign bank which engages in any activity or acquires
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1 or retains ownership or control of shares of any

2 company pursuant to paragraph (1), the aggregate

3 annual gross revenues derived from all such activi4 ties and all such companies in the United States

5 shall not exceed 15 percent of the consolidated an6 nual gross revenues of the foreign bank or company

7 in the United States derived from any branch, agen8 cy, commercial lending company, or depository insti9 tution controlled by the foreign bank or company

10 and any subsidiary engaged in the United States in

11 activities permissible under this section.

12 ‘‘(3) NONAPPLICABILITY OF OTHER EXEMP13 TION.—Any foreign bank or company that owns or

14 controls a foreign bank which engages in any activ15 ity or acquires or retains ownership or control of

16 shares of any company pursuant to this subsection

17 shall not be eligible for any exception described in

18 section 2(h).

19 ‘‘(4) TRANSACTIONS WITH NONFINANCIAL AF20 FILIATES.—An insured depository institution con21 trolled by a bank holding company may not engage

22 in a covered transaction (as defined by section

23 23A(b)(7) of the Federal Reserve Act) with any af24 filiate controlled by the company pursuant to this
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1 subsection or subparagraph (H) or (I) of subsection

2 (k)(3).’’.

3 SEC. 104. OPERATION OF STATE LAW.

4 (a) AFFILIATIONS.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), no State may, by statute, regulation,

7 order, interpretation, or other action, prevent or re8 strict an insured depository institution, or a subsidi9 ary or affiliate thereof, from being affiliated directly

10 or indirectly or associated with any person or entity,

11 as authorized or permitted by this Act or any other

12 provision of Federal law.

13 (2) INSURANCE.—With respect to affiliations

14 between insured depository institutions, or any sub15 sidiary or affiliate thereof, and persons or entities

16 engaged in the business of insurance, paragraph (1)

17 does not prohibit any State from—

18 (A) requiring any person or entity that

19 proposes to acquire control of an entity that is

20 engaged in the business of insurance and domi21 ciled in that State (hereafter in this subpara22 graph referred to as the ‘‘insurer’’) to furnish

23 to the insurance regulatory authority of that

24 State, not later than 60 days before the effec25 tive date of the proposed acquisition—
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1 (i) the name and address of each per2 son by whom, or on whose behalf, the af3 filiation referred to in this subparagraph is

4 to be effected (hereafter in this subpara5 graph referred to as the ‘‘acquiring

6 party’’);

7 (ii) if the acquiring party is an indi8 vidual, his or her principal occupation and

9 all offices and positions held during the 5

10 years preceding the date of notification,

11 and any conviction of crimes other than

12 minor traffic violations during the 10 years

13 preceding the date of notification;

14 (iii) if the acquiring party is not an

15 individual—

16 (I) a report of the nature of its

17 business operations during the 5 years

18 preceding the date of notification, or

19 for such shorter period as such person

20 and any predecessors thereof shall

21 have been in existence;

22 (II) an informative description of

23 the business intended to be done by

24 the acquiring party and any subsidi25 ary thereof; and
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1 (III) a list of all individuals who

2 are, or who have been selected to be3 come, directors or executive officers of

4 the acquiring party or who perform,

5 or will perform, functions appropriate

6 to such positions, including, for each

7 such individual, the information re8 quired by clause (ii);

9 (iv) the source, nature, and amount of

10 the consideration used, or to be used, in ef11 fecting the merger or other acquisition of

12 control, a description of any transaction

13 wherein funds were, or are to be, obtained

14 for any such purpose, and the identity of

15 persons furnishing such consideration, ex16 cept that, if a source of such consideration

17 is a loan made in the lender’s ordinary

18 course of business, the identity of the lend19 er shall remain confidential if the person

20 filing such statement so requests;

21 (v) fully audited financial information

22 as to the earnings and financial condition

23 of each acquiring party for the 5 fiscal

24 years preceding the date of notification of

25 each such acquiring party, or for such less-
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1 er period as such acquiring party and any

2 predecessors thereof shall have been in ex3 istence, and similar unaudited information

4 as of a date not earlier than 90 days be5 fore the date of notification, except that, in

6 the case of an acquiring party that is an

7 insurer actively engaged in the business of

8 insurance, the financial statements of such

9 insurer need not be audited, but such audit

10 may be required if the need therefor is de11 termined by the insurance regulatory au12 thority of the State;

13 (vi) any plans or proposals that each

14 acquiring party may have to liquidate such

15 insurer, to sell its assets, or to merge or

16 consolidate it with any person or to make

17 any other material change in its business

18 or corporate structure or management;

19 (vii) the number of shares of any se20 curity of the insurer that each acquiring

21 party proposes to acquire, the terms of any

22 offer, request, invitation, agreement, or ac23 quisition, and a statement as to the meth24 od by which the fairness of the proposal

25 was arrived at;
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1 (viii) the amount of each class of any

2 security of the insurer that is beneficially

3 owned or concerning which there is a right

4 to acquire beneficial ownership by each ac5 quiring party;

6 (ix) a full description of any contracts,

7 arrangements, or understandings with re8 spect to any security of the insurer in

9 which any acquiring party is involved, in10 cluding transfer of any of the securities,

11 joint ventures, loan or option arrange12 ments, puts or calls, guarantees of loans,

13 guarantees against loss or guarantees of

14 profits, division of losses or profits, or the

15 giving or withholding of proxies, and iden16 tification of the persons with whom such

17 contracts, arrangements, or understand18 ings have been entered into;

19 (x) a description of the purchase of

20 any security of the insurer during the 12-

21 month period preceding the date of notifi22 cation by any acquiring party, including

23 the dates of purchase, names of the pur24 chasers, and consideration paid, or agreed

25 to be paid, therefor;
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1 (xi) a description of any recommenda2 tions to purchase any security of the in3 surer made during the 12-month period

4 preceding the date of notification by any

5 acquiring party or by any person based

6 upon interviews or at the suggestion of

7 such acquiring party;

8 (xii) copies of all tender offers for, re9 quests or invitations for tenders of, ex10 change offers for and agreements to ac11 quire or exchange any securities of the in12 surer and, if distributed, of additional so13 liciting material relating thereto; and

14 (xiii) the terms of any agreement,

15 contract, or understanding made with any

16 broker-dealer as to solicitation of securities

17 of the insurer for tender and the amount

18 of any fees, commissions, or other com19 pensation to be paid to broker-dealers with

20 regard thereto;

21 (B) requiring an entity that is acquiring

22 control of an entity that is engaged in the busi23 ness of insurance and domiciled in that State to

24 maintain or restore the capital requirements of

25 that insurance entity to the level required under
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•HR 665 IH

1 the capital regulations of general applicability

2 in that State to avoid the requirement of pre3 paring and filing with the insurance regulatory

4 authority of that State a plan to increase the

5 capital of the entity, except that any determina6 tion by the State insurance regulatory authority

7 with respect to such requirement shall be made

8 not later than 60 days after the date of notifi9 cation under subparagraph (A);

10 (C) taking actions with respect to the re11 ceivership or conservatorship of any insurance

12 company; or

13 (D) restricting a change in the ownership

14 of stock in an insurance company, or a com15 pany formed for the purpose of controlling such

16 insurance company, for a period of not more

17 than 3 years beginning on the date of the con18 version of such company from mutual to stock

19 form.

20 (3) PRESERVATION OF STATE ANTITRUST AND

21 GENERAL CORPORATE LAWS.—

22 (A) IN GENERAL.—Nothing in paragraph

23 (1) shall be construed as affecting State laws,

24 regulations, orders, interpretations, or other ac25 tions of general applicability relating to the gov-
29

•HR 665 IH

1 ernance of corporations, partnerships, limited li2 ability companies or other business associations

3 incorporated or formed under the laws of that

4 State or domiciled in that State, or the applica5 bility of the antitrust laws of any State or any

6 State law that is similar to the antitrust laws.

7 (B) DEFINITION.—The term ‘‘antitrust

8 laws’’ has the same meaning as in subsection

9 (a) of the first section of the Clayton Act, and

10 includes section 5 of the Federal Trade Com11 mission Act to the extent that such section 5

12 relates to unfair methods of competition.

13 (b) ACTIVITIES.—

14 (1) IN GENERAL.—Except as provided in para15 graphs (2) and (3), no State may, by statute, regu16 lation, order, interpretation, or other action, prevent

17 or restrict an insured depository institution or any

18 subsidiary or affiliate of an insured depository insti19 tution from engaging directly or indirectly, either by

20 itself or in conjunction with a subsidiary, affiliate, or

21 any other entity or person, in any activity authorized

22 or permitted under this Act.

23 (2) INSURANCE ACTIVITIES OTHER THAN

24 SALES.—State statutes, regulations, interpretations,
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1 orders, and other actions shall not be preempted

2 under subsection (b)(1) to the extent that they—

3 (A) relate to, or are issued, adopted, or en4 acted for the purpose of regulating the business

5 of insurance in accordance with the Act of

6 March 9, 1945 (commonly known as the

7 ‘‘McCarran-Ferguson Act’’);

8 (B) apply only to persons or entities that

9 are not insured depository institutions, but that

10 are directly engaged in the business of insur11 ance (except that they may apply to depository

12 institutions engaged in providing savings bank

13 life insurance as principal to the extent of regu14 lating such insurance);

15 (C) do not relate to or directly or indirectly

16 regulate insurance sales, solicitations, or cross17 marketing activities; and

18 (D) are not prohibited under subsection

19 (c).

20 (3) FINANCIAL ACTIVITIES OTHER THAN INSUR21 ANCE.—No State statute, regulation, interpretation,

22 order, or other action shall be preempted under sub23 section (b)(1) to the extent that—

24 (A) it does not relate to, and is not issued

25 and adopted, or enacted for the purpose of reg-
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•HR 665 IH

1 ulating, directly or indirectly, insurance sales,

2 solicitations, or cross marketing activities;

3 (B) it does not relate to, and is not issued

4 and adopted, or enacted for the purpose of reg5 ulating, directly or indirectly, the business of in6 surance activities other than sales, solicitations,

7 or cross marketing activities;

8 (C) it does not relate to securities inves9 tigations or enforcement actions referred to in

10 subsection (d); and

11 (D) it—

12 (i) does not distinguish by its terms

13 between insured depository institutions and

14 subsidiaries and affiliates thereof engaged

15 in the activity at issue and other persons

16 or entities engaged in the same activity in

17 a manner that is in any way adverse with

18 respect to the conduct of the activity by

19 any such insured depository institution or

20 subsidiary or affiliate thereof engaged in

21 the activity at issue;

22 (ii) as interpreted or applied, does not

23 have, and will not have, an impact on de24 pository institutions or subsidiaries or af25 filiates thereof engaged in the activity at
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•HR 665 IH

1 issue, or any person or entity affiliated

2 therewith, that is substantially more ad3 verse than its impact on other persons or

4 entities engaged in the same activity that

5 are not insured depository institutions, or

6 subsidiaries or affiliates thereof, or persons

7 or entities affiliated therewith;

8 (iii) does not effectively prevent a de9 pository institution, or a subsidiary or af10 filiate thereof, from engaging in activities

11 authorized or permitted by this Act or any

12 other provision of Federal law; and

13 (iv) does not conflict with the intent

14 of this Act generally to permit affiliations

15 that are authorized or permitted by Fed16 eral law.

17 (4) CONSTRUCTION.—No provision of this sub18 section shall be construed to limit the applicability of

19 the decision of the Supreme Court in Barnett Bank

20 of Marion County N.A. v. Nelson, 116 S. Ct. 1103

21 (1996) with respect to a State statute, regulation,

22 order, interpretation, or other action.

23 (c) NONDISCRIMINATION.—No State may, by statute,

24 regulation, order, interpretation, or other action, regulate

25 the insurance activities authorized or permitted under this
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•HR 665 IH

1 Act or any other provision of Federal law of an insured

2 depository institution, or a subsidiary or affiliate thereof,

3 to the extent that such statute, regulation, order, interpre4 tation, or other action—

5 (1) distinguishes by its terms between insured

6 depository institutions, or subsidiaries or affiliates

7 thereof, and other persons or entities engaged in

8 such activities, in a manner that is in any way ad9 verse to any such insured depository institution, or

10 subsidiary or affiliate thereof;

11 (2) as interpreted or applied, has or will have

12 an impact on depository institutions, or subsidiaries

13 or affiliates thereof, that is substantially more ad14 verse than its impact on other persons or entities

15 providing the same products or services or engaged

16 in the same activities that are not insured depository

17 institutions, or subsidiaries or affiliates thereof, or

18 persons or entities affiliated therewith;

19 (3) effectively prevents a depository institution,

20 or subsidiary or affiliate thereof, from engaging in

21 insurance activities authorized or permitted by this

22 Act or any other provision of Federal law; or

23 (4) conflicts with the intent of this Act gen24 erally to permit affiliations that are authorized or

25 permitted by Federal law between insured depository
34

•HR 665 IH

1 institutions, or subsidiaries or affiliates thereof, and

2 persons and entities engaged in the business of in3 surance.

4 (d) LIMITATION.—Subsections (a) and (b) shall not

5 be construed to affect the jurisdiction of the securities

6 commission (or any agency or office performing like func7 tions) of any State, under the laws of such State, to inves8 tigate and bring enforcement actions, consistent with sec9 tion 18(c) of the Securities Act of 1933, with respect to

10 fraud or deceit or unlawful conduct by any person, in con11 nection with securities or securities transactions.

12 (e) DEFINITION.—For purposes of this section, the

13 term ‘‘State’’ means any State of the United States, the

14 District of Columbia, any territory of the United States,

15 Puerto Rico, Guam, American Samoa, the Trust Territory

16 of the Pacific Islands, the Virgin Islands, and the North17 ern Mariana Islands.

18 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR19 IZED.

20 Section 3(g)(2) of the Bank Holding Company Act

21 of 1956 (12 U.S.C. 1842(g)(2)) is amended to read as

22 follows:

23 ‘‘(2) REGULATIONS.—A bank holding company

24 organized as a mutual holding company shall be reg25 ulated on terms, and shall be subject to limitations,
35

•HR 665 IH

1 comparable to those applicable to any other bank

2 holding company.’’.

3 SEC. 106. AMENDMENTS RELATING TO LIMITED PURPOSE

4 BANKS.

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

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

7 (1) in paragraph (2)(A)(ii)—

8 (A) by striking ‘‘and’’ at the end of sub9 clause (IX);

10 (B) by inserting ‘‘and’’ after the semicolon

11 at the end of subclause (X); and

12 (C) by inserting after subclause (X) the

13 following new subclause:

14 ‘‘(XI) consumer loan assets that

15 are derived from, or are incidental to,

16 activities in which institutions de17 scribed in subparagraph (F) or (H) of

18 section 2(c)(2) are permitted to en19 gage,’’;

20 (2) in paragraph (2), by striking subparagraph

21 (B) and inserting the following new subparagraphs:

22 ‘‘(B) any bank subsidiary of such company

23 engages in any activity in which the bank was

24 not lawfully engaged as of March 5, 1987, un-
36

•HR 665 IH

1 less the bank is well managed and well capital2 ized;

3 ‘‘(C) any bank subsidiary of such company

4 both—

5 ‘‘(i) accepts demand deposits or de6 posits that the depositor may withdraw by

7 check or similar means for payment to

8 third parties; and

9 ‘‘(ii) engages in the business of mak10 ing commercial loans (and, for purposes of

11 this clause, loans made in the ordinary

12 course of a credit card operation shall not

13 be treated as commercial loans); or

14 ‘‘(D) after the date of the enactment of the

15 Competitive Equality Amendments of 1987, any

16 bank subsidiary of such company permits any

17 overdraft (including any intraday overdraft), or

18 incurs any such overdraft in such bank’s ac19 count at a Federal reserve bank, on behalf of

20 an affiliate, other than an overdraft described

21 in paragraph (3).’’; and

22 (3) by striking paragraphs (3) and (4) and in23 serting the following new paragraphs:
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•HR 665 IH

1 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

2 For purposes of paragraph (2)(D), an overdraft is

3 described in this paragraph if—

4 ‘‘(A) such overdraft results from an inad5 vertent computer or accounting error that is be6 yond the control of both the bank and the affili7 ate; or

8 ‘‘(B) such overdraft—

9 ‘‘(i) is permitted or incurred on behalf

10 of an affiliate which is monitored by, re11 ports to, and is recognized as a primary

12 dealer by the Federal Reserve Bank of

13 New York; and

14 ‘‘(ii) is fully secured, as required by

15 the Board, by bonds, notes, or other obli16 gations which are direct obligations of the

17 United States or on which the principal

18 and interest are fully guaranteed by the

19 United States or by securities and obliga20 tions eligible for settlement on the Federal

21 Reserve book entry system.

22 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EX23 EMPTION.—If any company described in paragraph

24 (1) fails to qualify for the exemption provided under

25 such paragraph by operation of paragraph (2), such
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•HR 665 IH

1 exemption shall cease to apply to such company and

2 such company shall divest control of each bank it

3 controls before the end of the 180-day period begin4 ning on the date that the company receives notice

5 from the Board that the company has failed to con6 tinue to qualify for such exemption, unless before

7 the end of such 180-day period, the company has—

8 ‘‘(A) corrected the condition or ceased the

9 activity that caused the company to fail to con10 tinue to qualify for the exemption; and

11 ‘‘(B) implemented procedures that are rea12 sonably adapted to avoid the reoccurrence of

13 such condition or activity.’’.

14 (b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER15 DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com16 pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended

17 by inserting before the period at the end ‘‘, or that is oth18 erwise permissible for a bank controlled by a company de19 scribed in section 4(f)(1)’’.
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•HR 665 IH

1 Subtitle B—Streamlining Super2 vision of Bank Holding Compa3 nies

4 SEC. 111. STREAMLINING BANK HOLDING COMPANY SU5 PERVISION.

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

7 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

8 ‘‘(c) REPORTS AND EXAMINATIONS.—

9 ‘‘(1) REPORTS.—

10 ‘‘(A) IN GENERAL.—The Board from time

11 to time may require any bank holding company

12 and any subsidiary of such company to submit

13 reports under oath to keep the Board informed

14 as to—

15 ‘‘(i) its financial condition, systems

16 for monitoring and controlling financial

17 and operating risks, and transactions with

18 depository institution subsidiaries of the

19 holding company; and

20 ‘‘(ii) compliance by the company or

21 subsidiary with applicable provisions of

22 this Act.

23 ‘‘(B) USE OF EXISTING REPORTS.—

24 ‘‘(i) IN GENERAL.—The Board shall,

25 to the fullest extent possible, accept re-
40

•HR 665 IH

1 ports in fulfillment of the Board’s report2 ing requirements under this paragraph

3 that a bank holding company or any sub4 sidiary of such company has provided or

5 been required to provide to other Federal

6 and State supervisors or to appropriate

7 self-regulatory organizations.

8 ‘‘(ii) AVAILABILITY.—A bank holding

9 company or a subsidiary of such company

10 shall provide to the Board, at the request

11 of the Board, a report referred to in clause

12 (i).

13 ‘‘(iii) REQUIRED USE OF PUBLICLY

14 REPORTED INFORMATION.—The Board

15 shall, to the fullest extent possible, accept

16 in fulfillment of any reporting or record17 keeping requirements under this Act infor18 mation that is otherwise required to be re19 ported publicly and externally audited fi20 nancial statements.

21 ‘‘(iv) REPORTS FILED WITH OTHER

22 AGENCIES.—In the event the Board re23 quires a report from a functionally regu24 lated nondepository institution subsidiary

25 of a bank holding company of a kind that
41

•HR 665 IH

1 is not required by another Federal or State

2 regulator or appropriate self-regulatory or3 ganization, the Board shall request that

4 the appropriate regulator or self-regulatory

5 organization obtain such report. If the re6 port is not made available to the Board,

7 and the report is necessary to assess a ma8 terial risk to the bank holding company or

9 any of its subsidiary depository institutions

10 or compliance with this Act, the Board

11 may require such subsidiary to provide

12 such a report to the Board.

13 ‘‘(C) DEFINITION.—For purposes of this

14 subsection, the term ‘functionally regulated

15 nondepository institution’ means—

16 ‘‘(i) a broker or dealer registered

17 under the Securities Exchange Act of

18 1934;

19 ‘‘(ii) an investment adviser registered

20 under the Investment Advisers Act of

21 1940, or with any State, with respect to

22 the investment advisory activities of such

23 investment adviser and activities incidental

24 to such investment advisory activities;
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1 ‘‘(iii) an insurance company subject to

2 supervision by a State insurance commis3 sion, agency, or similar authority; and

4 ‘‘(iv) an entity subject to regulation

5 by the Commodity Futures Trading Com6 mission, with respect to the commodities

7 activities of such entity and activities inci8 dental to such commodities activities.

9 ‘‘(2) EXAMINATIONS.—

10 ‘‘(A) EXAMINATION AUTHORITY.—

11 ‘‘(i) IN GENERAL.—The Board may

12 make examinations of each bank holding

13 company and each subsidiary of a bank

14 holding company.

15 ‘‘(ii) FUNCTIONALLY REGULATED

16 NONDEPOSITORY INSTITUTION SUBSIDI17 ARIES.—Notwithstanding clause (i), the

18 Board may make examinations of a func19 tionally regulated nondepository institution

20 subsidiary of a bank holding company only

21 if—

22 ‘‘(I) the Board has reasonable

23 cause to believe that such subsidiary

24 is engaged in activities that pose a
43

•HR 665 IH

1 material risk to an affiliated deposi2 tory institution, or

3 ‘‘(II) based on reports and other

4 available information, the Board has

5 reasonable cause to believe that a sub6 sidiary is not in compliance with this

7 Act or with provisions relating to

8 transactions with an affiliated deposi9 tory institution and the Board cannot

10 make such determination through ex11 amination of the affiliated depository

12 institution or bank holding company.

13 ‘‘(B) LIMITATIONS ON EXAMINATION AU14 THORITY FOR BANK HOLDING COMPANIES AND

15 SUBSIDIARIES.—Subject to subparagraph

16 (A)(ii), the Board may make examinations

17 under subparagraph (A)(i) of each bank holding

18 company and each subsidiary of such holding

19 company in order to—

20 ‘‘(i) inform the Board of the nature of

21 the operations and financial condition of

22 the holding company and such subsidiaries;

23 ‘‘(ii) inform the Board of—

24 ‘‘(I) the financial and operational

25 risks within the holding company sys-
44

•HR 665 IH

1 tem that may pose a threat to the

2 safety and soundness of any subsidi3 ary depository institution of such

4 holding company; and

5 ‘‘(II) the systems for monitoring

6 and controlling such risks; and

7 ‘‘(iii) monitor compliance with the

8 provisions of this Act and those governing

9 transactions and relationships between any

10 subsidiary depository institution and its af11 filiates.

12 ‘‘(C) RESTRICTED FOCUS OF EXAMINA13 TIONS.—The Board shall, to the fullest extent

14 possible, limit the focus and scope of any exam15 ination of a bank holding company to—

16 ‘‘(i) the bank holding company; and

17 ‘‘(ii) any subsidiary of the holding

18 company that, because of—

19 ‘‘(I) the size, condition, or activi20 ties of the subsidiary;

21 ‘‘(II) the nature or size of trans22 actions between such subsidiary and

23 any depository institution which is

24 also a subsidiary of such holding com25 pany; or
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1 ‘‘(III) the centralization of func2 tions within the holding company sys3 tem,

4 could have a materially adverse effect on

5 the safety and soundness of any depository

6 institution affiliate of the holding company.

7 ‘‘(D) DEFERENCE TO BANK EXAMINA8 TIONS.—The Board shall, to the fullest extent

9 possible, use, for the purposes of this para10 graph, the reports of examinations of depository

11 institutions made by the appropriate Federal

12 and State depository institution supervisory au13 thority.

14 ‘‘(E) DEFERENCE TO OTHER EXAMINA15 TIONS.—The Board shall, to the fullest extent

16 possible, address the circumstances which might

17 otherwise permit or require an examination by

18 the Board by forgoing an examination and in19 stead reviewing the reports of examination

20 made of—

21 ‘‘(i) any registered broker or dealer by

22 or on behalf of the Securities and Ex23 change Commission;

24 ‘‘(ii) any registered investment adviser

25 properly registered by or on behalf of ei-
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1 ther the Securities and Exchange Commis2 sion or any State;

3 ‘‘(iii) any licensed insurance company

4 by or on behalf of any state regulatory au5 thority responsible for the supervision of

6 insurance companies; and

7 ‘‘(iv) any other subsidiary that the

8 Board finds to be comprehensively super9 vised by a Federal or State authority.

10 ‘‘(3) CAPITAL.—

11 ‘‘(A) IN GENERAL.—The Board shall not,

12 by regulation, guideline, order or otherwise, pre13 scribe or impose any capital or capital adequacy

14 rules, guidelines, standards, or requirements on

15 any subsidiary of a bank holding company that

16 is not a depository institution and—

17 ‘‘(i) is in compliance with applicable

18 capital requirements of another Federal

19 regulatory authority (including the Securi20 ties and Exchange Commission) or State

21 insurance authority; or

22 ‘‘(ii) is properly registered as an in23 vestment adviser under the Investment Ad24 visers Act of 1940, or with any State.
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1 ‘‘(B) RULE OF CONSTRUCTION.—Subpara2 graph (A) shall not be construed as preventing

3 the Board from imposing capital or capital ade4 quacy rules, guidelines, standards, or require5 ments with respect to activities of a registered

6 investment adviser other than investment advi7 sory activities or activities incidental to invest8 ment advisory activities.

9 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP10 PROPRIATE FEDERAL BANKING AGENCY.—

11 ‘‘(A) IN GENERAL.—In the case of any

12 bank holding company which is not significantly

13 engaged in nonbanking activities, the Board, in

14 consultation with the appropriate Federal bank15 ing agency, may designate the appropriate Fed16 eral banking agency of the lead insured deposi17 tory institution subsidiary of such holding com18 pany as the appropriate Federal banking agen19 cy for the bank holding company.

20 ‘‘(B) AUTHORITY TRANSFERRED.—An

21 agency designated by the Board under subpara22 graph (A) shall have the same authority as the

23 Board under this Act to—

24 ‘‘(i) examine and require reports from

25 the bank holding company and any affiliate
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1 of such company (other than a depository

2 institution) under section 5;

3 ‘‘(ii) approve or disapprove applica4 tions or transactions under section 3;

5 ‘‘(iii) take actions and impose pen6 alties under subsections (e) and (f) of sec7 tion 5 and section 8; and

8 ‘‘(iv) take actions regarding the hold9 ing company, any affiliate of the holding

10 company (other than a depository institu11 tion), or any institution-affiliated party of

12 such company or affiliate under the Fed13 eral Deposit Insurance Act and any other

14 statute which the Board may designate.

15 ‘‘(C) AGENCY ORDERS.—Section 9 of this

16 Act and section 105 of the Bank Holding Com17 pany Act Amendments of 1970 shall apply to

18 orders issued by an agency designated under

19 subparagraph (A) in the same manner such sec20 tions apply to orders issued by the Board.’’.
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1 SEC. 112. AUTHORITY OF STATE INSURANCE REGULATOR

2 AND SECURITIES AND EXCHANGE COMMIS3 SION.

4 Section 5 of the Bank Holding Company Act of 1956

5 (12 U.S.C. 1844) is amended by adding at the end the

6 following new subsection:

7 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

8 AND THE SECURITIES AND EXCHANGE COMMISSION.—

9 ‘‘(1) IN GENERAL.—Notwithstanding any other

10 provision of law, any regulation, order, or other ac11 tion of the Board which requires a bank holding

12 company to provide funds or other assets to a sub13 sidiary insured depository institution shall not be ef14 fective nor enforceable if—

15 ‘‘(A) such funds or assets are to be pro16 vided by—

17 ‘‘(i) a bank holding company that is

18 an insurance company or is a broker or

19 dealer registered under the Securities Ex20 change Act of 1934; or

21 ‘‘(ii) an affiliate of the depository in22 stitution which is an insurance company or

23 a broker or dealer registered under such

24 Act; and

25 ‘‘(B) the State insurance authority for the

26 insurance company or the Securities and Ex-
50

•HR 665 IH

1 change Commission for the registered broker or

2 dealer, as the case may be, determines in writ3 ing sent to the holding company and the Board

4 that the holding company shall not provide such

5 funds or assets because such action would have

6 a material adverse effect on the financial condi7 tion of the insurance company or the broker or

8 dealer, as the case may be.

9 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

10 OR SEC REQUIRED.—If the Board requires a bank

11 holding company, or an affiliate of a bank holding

12 company, which is an insurance company or a

13 broker or dealer described in paragraph (1)(A) to

14 provide funds or assets to an insured depository in15 stitution subsidiary of the holding company pursuant

16 to any regulation, order, or other action of the

17 Board referred to in paragraph (1), the Board shall

18 promptly notify the State insurance authority for the

19 insurance company or the Securities and Exchange

20 Commission, as the case may be, of such require21 ment.

22 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC23 TION.—If the Board receives a notice described in

24 paragraph (1)(B) from a State insurance authority

25 or the Securities and Exchange Commission with re-
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1 gard to a bank holding company or affiliate referred

2 to in such paragraph, the Board may order the bank

3 holding company to divest the insured depository in4 stitution within 180 days of receiving notice or such

5 longer period as the Board determines consistent

6 with the safe and sound operation of the insured de7 pository institution.

8 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur9 ing the period beginning on the date an order to di10 vest is issued by the Board under paragraph (3) to

11 a bank holding company and ending on the date the

12 divestiture is completed, the Board may impose any

13 conditions or restrictions on the holding company’s

14 ownership or operation of the insured depository in15 stitution, including restricting or prohibiting trans16 actions between the insured depository institution

17 and any affiliate of the institution, as are appro18 priate under the circumstances.’’.

19 SEC. 113. LIMITATION ON RULEMAKING, PRUDENTIAL, SU20 PERVISORY, AND ENFORCEMENT AUTHORITY

21 OF THE BOARD.

22 The Bank Holding Company Act of 1956 (12 U.S.C.

23 1841 et seq.) is amended by inserting after section 10 the

24 following new section:
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1 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU2 PERVISORY, AND ENFORCEMENT AUTHORITY

3 OF THE BOARD.

4 ‘‘(a) LIMITATION ON DIRECT ACTION.—

5 ‘‘(1) IN GENERAL.—The Board may not pre6 scribe regulations, issue or seek entry of orders, im7 pose restraints, restrictions, guidelines, require8 ments, safeguards, or standards, or otherwise take

9 any action under or pursuant to any provision of

10 this Act or section 8 of the Federal Deposit Insur11 ance Act against or with respect to a regulated sub12 sidiary of a bank holding company unless the action

13 is necessary to prevent or redress an unsafe or un14 sound practice or breach of fiduciary duty by such

15 subsidiary that poses a material risk to—

16 ‘‘(A) the financial safety, soundness, or

17 stability of an affiliated depository institution;

18 or

19 ‘‘(B) the domestic or international pay20 ment system.

21 ‘‘(2) CRITERIA FOR BOARD ACTION.—The

22 Board shall not take action otherwise permitted

23 under paragraph (1) unless the Board finds that it

24 is not reasonably possible to effectively protect

25 against the material risk at issue through action di-
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1 rected at or against the affiliated depository institu2 tion or against depository institutions generally.

3 ‘‘(b) LIMITATION ON INDIRECT ACTION.—The Board

4 may not prescribe regulations, issue or seek entry of or5 ders, impose restraints, restrictions, guidelines, require6 ments, safeguards, or standards, or otherwise take any ac7 tion under or pursuant to any provision of this Act or sec8 tion 8 of the Federal Deposit Insurance Act against or

9 with respect to a bank holding company where the purpose

10 or effect of doing so would be to take action indirectly

11 against or with respect to a regulated subsidiary that may

12 not be taken directly against or with respect to such sub13 sidiary in accordance with subsection (a).

14 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not15 withstanding subsection (a), the Board may take action

16 under this Act or section 8 of the Federal Deposit Insur17 ance Act to enforce compliance by a regulated subsidiary

18 with Federal law that the Board has specific jurisdiction

19 to enforce against such subsidiary.

20 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur21 poses of this section, the term ‘regulated subsidiary’

22 means any company that is not a bank holding company

23 and is—

24 ‘‘(1) a broker or dealer registered under the Se25 curities Exchange Act of 1934;
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1 ‘‘(2) an investment adviser registered under the

2 Investment Advisers Act of 1940, with respect to the

3 investment advisory activities of such investment ad4 viser and activities incidental to such investment ad5 visory activities;

6 ‘‘(3) an investment company registered under

7 the Investment Company Act of 1940;

8 ‘‘(4) an insurance company or an insurance

9 agency subject to supervision by a State insurance

10 commission, agency, or similar authority; or

11 ‘‘(5) an entity subject to regulation by the Com12 modity Futures Trading Commission, with respect

13 to the commodities activities of such entity and ac14 tivities incidental to such commodities activities.’’.

15 SEC. 114. EXAMINATION OF INVESTMENT COMPANIES.

16 (a) EXCLUSIVE COMMISSION AUTHORITY.—

17 (1) IN GENERAL.—Except as provided in para18 graph (3), the Commission shall be the sole Federal

19 agency with authority to inspect and examine any

20 registered investment company that is not a bank

21 holding company or a savings and loan holding com22 pany.

23 (2) PROHIBITION ON BANKING AGENCIES.—Ex24 cept as provided in paragraph (3), a Federal bank25 ing agency may not inspect or examine any reg-
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1 istered investment company that is not a bank hold2 ing company or a savings and loan holding company.

3 (3) CERTAIN EXAMINATIONS AUTHORIZED.—

4 Nothing in this subsection prevents the Federal De5 posit Insurance Corporation, if the Corporation finds

6 it necessary to determine the condition of an insured

7 depository institution for insurance purposes, from

8 examining an affiliate of any insured depository in9 stitution, pursuant to its authority under section

10 10(b)(4) of the Federal Deposit Insurance Act, as

11 may be necessary to disclose fully the relationship

12 between the depository institution and the affiliate,

13 and the effect of such relationship on the depository

14 institution.

15 (b) EXAMINATION RESULTS AND OTHER INFORMA16 TION.—The Commission shall provide to any Federal

17 banking agency, upon request, the results of any examina18 tion, reports, records, or other information with respect

19 to any registered investment company to the extent nec20 essary for the agency to carry out its statutory responsibil21 ities.

22 (c) DEFINITIONS.—For purposes of this section, the

23 following definitions shall apply:

24 (1) BANK HOLDING COMPANY.—The term

25 ‘‘bank holding company’’ has the same meaning as
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1 in section 2 of the Bank Holding Company Act of

2 1956.

3 (2) COMMISSION.—The term ‘‘Commission’’

4 means the Securities and Exchange Commission.

5 (3) FEDERAL BANKING AGENCY.—The term

6 ‘‘Federal banking agency’’ has the same meaning as

7 in section 3(z) of the Federal Deposit Insurance Act.

8 (4) REGISTERED INVESTMENT COMPANY.—The

9 term ‘‘registered investment company’’ means an in10 vestment company which is registered with the Com11 mission under the Investment Company Act of 1940.

12 (5) SAVINGS AND LOAN HOLDING COMPANY.—

13 The term ‘‘savings and loan holding company’’ has

14 the same meaning as in section 10(a)(1)(D) of the

15 Home Owners’ Loan Act.

16 SEC. 115. EQUIVALENT REGULATION AND SUPERVISION.

17 (a) IN GENERAL.—Notwithstanding any other provi18 sion of law, the provisions of—

19 (1) section 5(c) of the Bank Holding Company

20 Act of 1956 (as amended by this Act) that limit the

21 authority of the Board of Governors of the Federal

22 Reserve System to require reports from, to make ex23 aminations of, or to impose capital requirements on

24 bank holding companies and their nonbank subsidi25 aries; and
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1 (2) section 10A of the Bank Holding Company

2 Act of 1956 (as added by this Act) that limit what3 ever authority the Board might otherwise have to

4 take direct or indirect action with respect to bank

5 holding companies and their nonbank subsidiaries,

6 shall also limit whatever authority that the Federal De7 posit Insurance Corporation might otherwise have under

8 any statute to require reports, make examinations, impose

9 capital requirements or take any other direct or indirect

10 action with respect to bank holding companies and their

11 nonbank subsidiaries (including nonbank subsidiaries of

12 depository institutions), subject to the same standards and

13 requirements as are applicable to the Board under such

14 provisions.

15 (b) CERTAIN EXAMINATIONS AUTHORIZED.—Noth16 ing in this section shall prevent the Federal Deposit Insur17 ance Corporation, if the Corporation finds it necessary to

18 determine the condition of an insured depository institu19 tion for insurance purposes, from examining an affiliate

20 of any insured depository institution, pursuant to its au21 thority under section 10(b)(4) of the Federal Deposit In22 surance Act, as may be necessary to disclose fully the rela23 tionship between the depository institution and the affili24 ate, and the effect of such relationship on the depository

25 institution.
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1 Subtitle C—Subsidiaries of

2 National Banks

3 SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED

4 TO ENGAGE IN FINANCIAL ACTIVITIES.

5 Chapter one of title LXII of the revised statutes of

6 United States (12 U.S.C. 21 et seq.) is amended—

7 (1) by redesignating section 5136A (12 U.S.C.

8 25a) as section 5136C; and

9 (2) by inserting after section 5136 (12 U.S.C.

10 24) the following new section:

11 ‘‘SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

12 ‘‘(a) ACTIVITIES PERMISSIBLE.—

13 ‘‘(1) IN GENERAL.—A subsidiary of a national

14 bank may—

15 ‘‘(A) engage in any activity that is permis16 sible for the parent national bank; and

17 ‘‘(B) engage in any activity permissible for

18 a bank holding company under any provision of

19 section 4(k) of the Bank Holding Company Act

20 of 1956 other than—

21 ‘‘(i) paragraph (3)(B) of such section

22 (relating to insurance activities) insofar as

23 such paragraph permits a bank holding

24 company to engage as principal in insur25 ing, guaranteeing, or indemnifying against
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1 loss, harm, damage, illness, disability, or

2 death, on in providing or issuing annuities;

3 and

4 ‘‘(ii) paragraph (3)(I) of such section

5 (relating to insurance company invest6 ments).

7 ‘‘(2) LIMITATIONS.—A subsidiary of a national

8 bank—

9 ‘‘(A) may not, pursuant to subparagraph

10 (C) of paragraph (1)—

11 ‘‘(i) underwrite insurance other than

12 credit-related insurance;

13 ‘‘(ii) engage in real estate investment

14 or development activities (except to the ex15 tent that a Federal statute expressly au16 thorizes a national bank to engage directly

17 in such an activity); and

18 ‘‘(B) may not engage in any activity

19 not permissible under paragraph (1).

20 ‘‘(b) REQUIREMENTS APPLICABLE TO NATIONAL

21 BANKS WITH FINANCIAL SUBSIDIARIES.—

22 ‘‘(1) IN GENERAL.—A financial subsidiary of a

23 national bank may engage in activities pursuant to

24 subsection (a)(1)(C) only if—
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1 ‘‘(A) the national bank is well capitalized,

2 is well managed, and achieved the rating de3 scribed in section 4(l)(3) of the Bank Holding

4 Company Act of 1956 during the most recent

5 examination of the bank by the Comptroller of

6 the Currency;

7 ‘‘(B) each insured depository institution

8 affiliate of the national bank is well capitalized,

9 is well managed, and achieved the rating de10 scribed in section 4(1)(3) of the Bank Holding

11 Company Act of 1956 during the most recent

12 examination of the institution by the appro13 priate Federal banking agency; and

14 ‘‘(C) the national bank has received the

15 approval of the Comptroller of the Currency by

16 regulation or order.

17 ‘‘(2) CORRECTIVE PROCEDURES.—

18 ‘‘(A) IN GENERAL.—The Comptroller of

19 the Currency shall, by regulation prescribe pro20 cedures to enforce paragraph (1).

21 ‘‘(B) STRINGENCY.—The regulation pre22 scribed under subparagraph (A) shall be no less

23 stringent than the corresponding restrictions

24 and requirements of section 4(m) of the Bank

25 Holding Company Act of 1956.
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1 ‘‘(c) DEFINITIONS.—For purposes of this section, the

2 following definitions shall apply:

3 ‘‘(1) AFFILIATE.—The term ‘affiliate’ has the

4 same meaning in section 3 of the Federal Deposit

5 Insurance Act.

6 ‘‘(2) FINANCIAL SUBSIDIARY.—The term ‘fi7 nancial subsidiary’ means a company that—

8 ‘‘(A) is a subsidiary of an insured bank;

9 and

10 ‘‘(B) is engaged as principal in any finan11 cial activity that is not permissible under sub12 paragraph (A) or (B) of subsection (a)(1) of

13 this section.

14 ‘‘(3) SUBSIDIARY.—The term ‘subsidiary’ has

15 the same meaning as in section 2 of the Bank Hold16 ing Company Act of 1956.

17 ‘‘(4) WELL CAPITALIZED.—The term ‘well cap18 italized’ has the same meaning as in section 38 of

19 the Federal Deposit Insurance Act.

20 ‘‘(5) WELL MANAGED.—The term ‘well man21 aged’ means—

22 ‘‘(A) in the case of an insured depository

23 institution that has been examined, the achieve24 ment of—
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1 ‘‘(i) a composite rating of 1 or 2

2 under the Uniform Financial Institutions

3 Rating System (or an equivalent rating

4 under an equivalent rating system) in con5 nection with the most recent examination

6 or subsequent review of the insured deposi7 tory institution; and

8 ‘‘(ii) at least a rating of 2 for man9 agement, if that rating is given; or

10 ‘‘(B) in the case of an insured depository

11 institution that has not been examined, the ex12 istence and use of managerial resources that

13 the appropriate Federal banking agency deter14 mines are satisfactory.

15 ‘‘(d) RULE OF CONSTRUCTION.—No provision of this

16 section shall be construed so as to prohibit national banks

17 from owning or controlling subsidiaries pursuant to sec18 tion 25 or 25A of the Federal Reserve Act, the Bank Serv19 ice Company Act, or any other Federal statute that ex20 pressly by its terms authorizes national banks to own or

21 control subsidiaries.’’.

22 SEC. 122. SAFETY AND SOUNDNESS FIREWALLS BETWEEN

23 BANKS AND THEIR FINANCIAL SUBSIDIARIES.

24 (a) PURPOSES.—The purposes of this section are—
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1 (1) to protect the safety and soundness of any

2 insured bank that has a financial subsidiary;

3 (2) to apply to any transaction between the

4 bank and the financial subsidiary (including a loan,

5 extension of credit, guarantee, or purchase of as6 sets), other than an equity investment, the same re7 strictions and requirements as would apply if the fi8 nancial subsidiary were a subsidiary of a bank hold9 ing company having control of the bank; and

10 (3) to apply to any equity investment of the

11 bank in the financial subsidiary restrictions and re12 quirements equivalent to those that would apply if—

13 (A) the bank paid a dividend in the same

14 dollar amount to a bank holding company hav15 ing control of the bank; and

16 (B) the bank holding company used the

17 proceeds of the dividend to make an equity in18 vestment in a subsidiary that was engaged in

19 the same activities as the financial subsidiary of

20 the bank.

21 (b) SAFETY AND SOUNDNESS FIREWALLS APPLICA22 BLE TO SUBSIDIARIES OF BANKS.—The Federal Deposit

23 Insurance Act (12 U.S.C. 1811 et seq.) is amended by

24 adding at the end the following new section:
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1 ‘‘SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICA2 BLE TO SUBSIDIARIES OF BANKS.

3 ‘‘(a) LIMITING THE EQUITY INVESTMENT OF A BANK

4 IN A SUBSIDIARY.—

5 ‘‘(1) CAPITAL DEDUCTION.—In determining

6 whether an insured bank complies with applicable

7 regulatory capital standards—

8 ‘‘(A) the appropriate Federal banking

9 agency shall deduct from the assets and tan10 gible equity of the bank the aggregate amount

11 of the outstanding equity investments of the

12 bank in financial subsidiaries of the bank; and

13 ‘‘(B) the assets and liabilities of such fi14 nancial subsidiaries shall not be consolidated

15 with those of the bank.

16 ‘‘(2) INVESTMENT LIMITATION.—An insured

17 bank shall not, without the prior approval of the ap18 propriate Federal banking agency, make any equity

19 investment in a financial subsidiary of the bank if

20 that investment would, when made, exceed the

21 amount that the bank could pay as a dividend with22 out obtaining prior regulatory approval.

23 ‘‘(b) OPERATIONAL AND FINANCIAL SAFEGUARDS

24 FOR THE BANK.—An insured bank that has a financial

25 subsidiary shall maintain procedures for identifying and
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1 managing any financial and operational risks posed by the

2 financial subsidiary.

3 ‘‘(c) MAINTENANCE OF SEPARATE CORPORATE

4 IDENTITY AND SEPARATE LEGAL STATUS.—

5 ‘‘(1) IN GENERAL.—Each insured bank shall

6 ensure that the bank maintains and complies with

7 reasonable policies and procedures to preserve the

8 separate corporate identity and legal status of the

9 bank and any financial subsidiary or affiliate of the

10 bank.

11 ‘‘(2) EXAMINATIONS.—The appropriate Federal

12 banking agency, as part of each examination, shall

13 review whether an insured bank is observing the sep14 arate corporate identity and separate legal status of

15 any subsidiaries and affiliates of the bank.

16 ‘‘(d) FINANCIAL SUBSIDIARY DEFINED.—For pur17 poses of this section, the term ‘financial subsidiary’ has

18 the same meaning as section 5136A(c)(2)(B) of the Re19 vised Statutes of the United States.

20 ‘‘(e) REGULATIONS.—The appropriate Federal bank21 ing agencies shall jointly prescribe regulations implement22 ing this section.’’.

23 (c) LIMITING A BANK’S CREDIT EXPOSURE TO A FI24 NANCIAL SUBSIDIARY TO THE AMOUNT OF PERMISSIBLE
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1 CREDIT EXPOSURE TO AN AFFILIATE.—Section 23A of

2 the Federal Reserve Act (12 U.S.C. 371c) is amended—

3 (1) by redesignating subsection (e) as sub4 section (f); and

5 (2) by inserting after subsection (d), the follow6 ing new subsection:

7 ‘‘(e) RULES RELATING TO BANKS WITH FINANCIAL

8 SUBSIDIARIES.—

9 ‘‘(1) FINANCIAL SUBSIDIARY DEFINED.—For

10 purposes of this section and section 23B, the term

11 ‘financial subsidiary’ has the same meaning as sec12 tion 5136A(c)(2)(B) of the revised statutes of the

13 United States.

14 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN

15 A FINANCIAL SUBSIDIARY OF A BANK AND THE

16 BANK.—For purposes of applying this section and

17 section 23B to a transaction between a financial

18 subsidiary of a bank and the bank (or between such

19 financial subsidiary and any other subsidiary of the

20 bank that is not a financial subsidiary), and not21 withstanding subsection (b)(2) and section

22 23B(d)(1)—

23 ‘‘(A) the financial subsidiary of the bank—

24 ‘‘(i) shall be deemed to be an affiliate

25 of the bank and of any other subsidiary of
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1 the bank that is not a financial subsidiary;

2 and

3 ‘‘(ii) shall not be deemed a subsidiary

4 of the bank; and

5 ‘‘(B) a purchase of or investment in equity

6 securities issued by the financial subsidiary

7 shall not be deemed to be a covered transaction.

8 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

9 FINANCIAL SUBSIDIARY AND NONBANK AFFILI10 ATES.—

11 ‘‘(A) IN GENERAL.—A transaction between

12 a financial subsidiary and an affiliate of the fi13 nancial subsidiary (that is not a subsidiary of

14 a bank) shall not be deemed to be a transaction

15 between a subsidiary of a bank and an affiliate

16 of the bank for purposes of section 23A or sec17 tion 23B of this Act.

18 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—

19 For purposes of this paragraph, the term ‘affili20 ate’ shall not include a bank, or a subsidiary of

21 a bank that is engaged exclusively in activities

22 permissible for a national bank to engage in di23 rectly or activities described in clause (ii) of

24 paragraph (1)(B).’’.
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1 SEC. 123. FUNCTIONAL REGULATION.

2 (a) PURPOSE.—The purpose of this section is to en3 sure that—

4 (1) securities activities conducted in a subsidi5 ary of a bank are functionally regulated by the Secu6 rities and Exchange Commission to the same extent

7 as if they were conducted in a nondepository subsidi8 ary of a bank holding company; and

9 (2) insurance agency and brokerage activities

10 conducted in a subsidiary of a bank are functionally

11 regulated by a State insurance authority to the same

12 extent as if they were conducted in a nondepository

13 subsidiary of a bank holding company.

14 (b) FUNCTIONAL REGULATION OF FINANCIAL SUB15 SIDIARIES.—The Federal Deposit Insurance Act (12

16 U.S.C. 1811 et seq.), is amended by inserting after section

17 45 (as added by section 122 of this subtitle) the following

18 new section:

19 ‘‘SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUB20 SIDIARIES AND INSURANCE AGENCY SUBSIDI21 ARIES OF INSURED DEPOSITORY INSTITU22 TIONS.

23 ‘‘(a) BROKER OR DEALER SUBSIDIARY.—A broker or

24 dealer that is a subsidiary of an insured depository institu25 tion shall be subject to regulation under the Securities Ex-
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1 change Act of 1934 in the same manner and to the same

2 extent as a broker or dealer that—

3 ‘‘(1) is controlled by the same bank holding

4 company as controls the insured depository institu5 tion; and

6 ‘‘(2) is not an insured depository institution or

7 a subsidiary of an insured depository institution.

8 ‘‘(b) INSURANCE AGENCY SUBSIDIARY.—An insur9 ance agency or brokerage that is a subsidiary of an in10 sured depository institution shall be subject to regulation

11 by a State insurance authority in the same manner and

12 to the same extent as an insurance agency or brokerage

13 that—

14 ‘‘(1) is controlled by the same bank holding

15 company as controls the insured depository institu16 tion; and

17 ‘‘(2) is not an insured depository institution or

18 a subsidiary of an insured depository institution.

19 ‘‘(c) DEFINITIONS.—For purposes of this section, the

20 terms ‘broker’ and ‘dealer’ have the same meanings as in

21 section 3 of the Securities Exchange Act of 1934.’’.
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1 Subtitle D—Review of Bank

2 Mergers and Acquisitions

3 SEC. 131. AMENDMENT TO THE BANK HOLDING COMPANY

4 ACT OF 1956 TO MODIFY NOTIFICATION AND

5 POST-APPROVAL WAITING PERIOD FOR SEC6 TION 3 TRANSACTIONS.

7 Section 11(b)(1) of the Bank Holding Company Act

8 of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting

9 ‘‘and, if the transaction also involves an acquisition under

10 section 4 or section 6, the Board shall also notify the Fed11 eral Trade Commission of such approval’’ before the pe12 riod at the end of the first sentence.

13 SEC. 132. INTERAGENCY DATA SHARING.

14 To the extent not prohibited by other law, the Comp15 troller of the Currency, the Director of the Office of Thrift

16 Supervision, the Federal Deposit Insurance Corporation,

17 and the Board of Governors of the Federal Reserve Sys18 tem shall make available to the Attorney General and the

19 Federal Trade Commission any data in the possession of

20 any such banking agency that the antitrust agency deems

21 necessary for antitrust review of any transaction requiring

22 notice to any such antitrust agency or the approval of such

23 agency under section 3, 4, or 6 of the Bank Holding Com24 pany Act of 1956, section 18(c) of the Federal Deposit

25 Insurance Act, the National Bank Consolidation and
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1 Merger Act, section 10 of the Home Owners’ Loan Act,

2 or the antitrust laws.

3 SEC. 133. CLARIFICATION OF STATUS OF SUBSIDIARIES

4 AND AFFILIATES.

5 (a) CLARIFICATION OF FEDERAL TRADE COMMIS6 SION JURISDICTION.—Any person which directly or indi7 rectly controls, is controlled directly or indirectly by, or

8 is directly or indirectly under common control with, any

9 bank or savings association (as such terms are defined in

10 section 3 of the Federal Deposit Insurance Act) and is

11 not itself a bank or savings association shall not be

12 deemed to be a bank or savings association for purposes

13 of the Federal Trade Commission Act or any other law

14 enforced by the Federal Trade Commission.

15 (b) SAVINGS PROVISION.—No provision of this sec16 tion shall be construed as restricting the authority of any

17 Federal banking agency (as defined in section 3 of the

18 Federal Deposit Insurance Act) under any Federal bank19 ing law, including section 8 of the Federal Deposit Insur20 ance Act.

21 (c) HART-SCOTT-RODINO AMENDMENT.—Section

22 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)) is amend23 ed by inserting before the semicolon at the end the follow24 ing: ‘‘, except that a portion of a transaction is not exempt

25 under this paragraph if such portion of the transaction
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1 (A) requires notice under section 4 of the Bank Holding

2 Company Act of 1956; and (B) does not require approval

3 under section 3 or 4 of the Bank Holding Company Act

4 of 1956’’.

5 SEC. 134. ANNUAL GAO REPORT.

6 (a) IN GENERAL.—By the end of the 1-year period

7 beginning on the date of the enactment of this Act and

8 annually thereafter, the Comptroller General of the United

9 States shall submit a report to the Congress on market

10 concentration in the financial services industry and its im11 pact on consumers.

12 (b) ANALYSIS.—Each report submitted under sub13 section (a) shall contain an analysis of—

14 (1) the positive and negative effects of affili15 ations between various types of financial companies,

16 and of acquisitions pursuant to this Act and the

17 amendments made by this Act to other provisions of

18 law, including any positive or negative effects on

19 consumers, area markets, and submarkets thereof or

20 on registered securities brokers and dealers which

21 have been purchased by depository institutions or

22 depository institution holding companies;

23 (2) the changes in business practices and the

24 effects of any such changes on the availability of

25 venture capital, consumer credit, and other financial
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1 services or products and the availability of capital

2 and credit for small businesses; and

3 (3) the acquisition patterns among depository

4 institutions, depository institution holding compa5 nies, securities firms, and insurance companies in6 cluding acquisitions among the largest 20 percent of

7 firms and acquisitions within regions or other lim8 ited geographical areas.

9 Subtitle E—Direct Activities of

10 Banks

11 SEC. 141. AUTHORITY OF NATIONAL BANKS TO UNDER12 WRITE CERTAIN MUNICIPAL BONDS.

13 The paragraph designated the Seventh of section

14 5136 of the Revised Statutes of the United States (12

15 U.S.C. 24(7)) is amended by adding at the end the follow16 ing new sentence: ‘‘In addition to the provisions in this

17 paragraph for dealing in, underwriting or purchasing secu18 rities, the limitations and restrictions contained in this

19 paragraph as to dealing in, underwriting, and purchasing

20 investment securities for the national bank’s own account

21 shall not apply to obligations (including limited obligation

22 bonds, revenue bonds, and obligations that satisfy the re23 quirements of section 142(b)(1) of the Internal Revenue

24 Code of 1986) issued by or on behalf of any state or politi25 cal subdivision of a state, including any municipal cor-
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1 porate instrumentality of 1 or more states, or any public

2 agency or authority of any state or political subdivision

3 of a state, if the national banking association is well cap4 italized (as defined in section 38 of the Federal Deposit

5 Insurance Act).’’.

6 TITLE II—FUNCTIONAL

7 REGULATION

8 Subtitle A—Brokers and Dealers

9 SEC. 201. DEFINITION OF BROKER.

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

11 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

12 ‘‘(4) BROKER.—

13 ‘‘(A) IN GENERAL.—The term ‘broker’

14 means any person engaged in the business of

15 effecting transactions in securities for the ac16 count of others.

17 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC18 TIVITIES.—A bank shall not be considered to be

19 a broker because the bank engages in any of

20 the following activities under the conditions de21 scribed:

22 ‘‘(i) THIRD PARTY BROKERAGE AR23 RANGEMENTS.—The bank enters into a

24 contractual or other arrangement with a

25 broker or dealer registered under this title
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1 under which the broker or dealer offers

2 brokerage services on or off the premises

3 of the bank if—

4 ‘‘(I) such broker or dealer is

5 clearly identified as the person per6 forming the brokerage services;

7 ‘‘(II) the broker or dealer per8 forms brokerage services in an area

9 that is clearly marked and, to the ex10 tent practicable, physically separate

11 from the routine deposit-taking activi12 ties of the bank;

13 ‘‘(III) any materials used by the

14 bank to advertise or promote generally

15 the availability of brokerage services

16 under the contractual or other ar17 rangement clearly indicate that the

18 brokerage services are being provided

19 by the broker or dealer and not by the

20 bank;

21 ‘‘(IV) any materials used by the

22 bank to advertise or promote generally

23 the availability of brokerage services

24 under the contractual or other ar25 rangement are in compliance with the
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1 Federal securities laws before dis2 tribution;

3 ‘‘(V) bank employees (other than

4 associated persons of a broker or deal5 er who are qualified pursuant to the

6 rules of a self-regulatory organization)

7 perform only clerical or ministerial

8 functions in connection with broker9 age transactions including scheduling

10 appointments with the associated per11 sons of a broker or dealer, except that

12 bank employees may forward cus13 tomer funds or securities and may de14 scribe in general terms the range of

15 investment vehicles available from the

16 bank and the broker or dealer under

17 the contractual or other arrangement;

18 ‘‘(VI) bank employees do not di19 rectly receive incentive compensation

20 for any brokerage transaction unless

21 such employees are associated persons

22 of a broker or dealer and are qualified

23 pursuant to the rules of a self-regu24 latory organization, except that the

25 bank employees may receive com-
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1 pensation for the referral of any cus2 tomer if the compensation is a nomi3 nal one-time cash fee of a fixed dollar

4 amount and the payment of the fee is

5 not contingent on whether the referral

6 results in a transaction;

7 ‘‘(VII) such services are provided

8 by the broker or dealer on a basis in

9 which all customers which receive any

10 services are fully disclosed to the

11 broker or dealer;

12 ‘‘(VIII) the bank does not carry

13 a securities account of the customer

14 except in a customary custodian or

15 trustee capacity; and

16 ‘‘(IX) the bank, broker, or dealer

17 informs each customer that the bro18 kerage services are provided by the

19 broker or dealer and not by the bank

20 and that the securities are not depos21 its or other obligations of the bank,

22 are not guaranteed by the bank, and

23 are not insured by the Federal De24 posit Insurance Corporation.
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1 ‘‘(ii) TRUST ACTIVITIES.—The bank

2 effects transactions in a trustee capacity,

3 or effects transactions in a fiduciary capac4 ity in its trust department or other depart5 ment that is regularly examined by bank

6 examiners for compliance with fiduciary

7 principles and standards, and (in either

8 case)—

9 ‘‘(I) is primarily compensated for

10 such transactions on the basis of an

11 administration or annual fee (payable

12 on a monthly, quarterly, or other

13 basis), a percentage of assets under

14 management, or a flat or capped per

15 order processing fee equal to not more

16 than the cost incurred by the bank in

17 connection with executing securities

18 transactions for trustee and fiduciary

19 customers, or any combination of such

20 fees, consistent with fiduciary prin21 ciples and standards; and

22 ‘‘(II) does not publicly solicit bro23 kerage business, other than by adver24 tising that it effects transactions in
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1 securities in conjunction with advertis2 ing its other trust activities.

3 ‘‘(iii) PERMISSIBLE SECURITIES

4 TRANSACTIONS.—The bank effects trans5 actions in—

6 ‘‘(I) commercial paper, bankers

7 acceptances, or commercial bills;

8 ‘‘(II) exempted securities;

9 ‘‘(III) qualified Canadian govern10 ment obligations as defined in section

11 5136 of the Revised Statutes, in con12 formity with section 15C of this title

13 and the rules and regulations there14 under, or obligations of the North

15 American Development Bank; or

16 ‘‘(IV) any standardized, credit

17 enhanced debt security issued by a

18 foreign government pursuant to the

19 March 1989 plan of then Secretary of

20 the Treasury Brady, used by such for21 eign government to retire outstanding

22 commercial bank loans.

23 ‘‘(iv) CERTAIN STOCK PURCHASE

24 PLANS.—
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1 ‘‘(I) EMPLOYEE BENEFIT

2 PLANS.—The bank effects trans3 actions, as part of its transfer agency

4 activities, in the securities of an issuer

5 as part of any pension, retirement,

6 profit-sharing, bonus, thrift, savings,

7 incentive, or other similar benefit plan

8 for the employees of that issuer or its

9 subsidiaries, if—

10 ‘‘(aa) the bank does not so11 licit transactions or provide in12 vestment advice with respect to

13 the purchase or sale of securities

14 in connection with the plan; and

15 ‘‘(bb) the bank’s compensa16 tion for such plan or program

17 consists primarily of administra18 tion fees, or flat or capped per

19 order processing fees, or both.

20 ‘‘(II) DIVIDEND REINVESTMENT

21 PLANS.—The bank effects trans22 actions, as part of its transfer agency

23 activities, in the securities of an issuer

24 as part of that issuer’s dividend rein25 vestment plan, if—
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1 ‘‘(aa) the bank does not so2 licit transactions or provide in3 vestment advice with respect to

4 the purchase or sale of securities

5 in connection with the plan;

6 ‘‘(bb) the bank does not net

7 shareholders’ buy and sell orders,

8 other than for programs for odd9 lot holders or plans registered

10 with the Commission; and

11 ‘‘(cc) the bank’s compensa12 tion for such plan or program

13 consists primarily of administra14 tion fees, or flat or capped per

15 order processing fees, or both.

16 ‘‘(III) ISSUER PLANS.—The bank

17 effects transactions, as part of its

18 transfer agency activities, in the secu19 rities of an issuer as part of a plan or

20 program for the purchase or sale of

21 that issuer’s shares, if—

22 ‘‘(aa) the bank does not so23 licit transactions or provide in24 vestment advice with respect to

25 the purchase or sale of securities
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1 in connection with the plan or

2 program;

3 ‘‘(bb) the bank does not net

4 shareholders’ buy and sell orders,

5 other than for programs for odd6 lot holders or plans registered

7 with the Commission; and

8 ‘‘(cc) the bank’s compensa9 tion for such plan or program

10 consists primarily of administra11 tion fees, or flat or capped per

12 order processing fees, or both.

13 ‘‘(IV) PERMISSIBLE DELIVERY

14 OF MATERIALS.—The exception to

15 being considered a broker for a bank

16 engaged in activities described in sub17 clauses (I), (II), and (III) will not be

18 affected by a bank’s delivery of writ19 ten or electronic plan materials to em20 ployees of the issuer, shareholders of

21 the issuer, or members of affinity

22 groups of the issuer, so long as such

23 materials are—

24 ‘‘(aa) comparable in scope or

25 nature to that permitted by the
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1 Commission as of the date of the

2 enactment of the Financial Serv3 ices Modernization Act of 1999;

4 or

5 ‘‘(bb) otherwise permitted by

6 the Commission.

7 ‘‘(v) SWEEP ACCOUNTS.—The bank

8 effects transactions as part of a program

9 for the investment or reinvestment of bank

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

11 management investment company reg12 istered under the Investment Company Act

13 of 1940 that holds itself out as a money

14 market fund.

15 ‘‘(vi) AFFILIATE TRANSACTIONS.—

16 The bank effects transactions for the ac17 count of any affiliate of the bank (as de18 fined in section 2 of the Bank Holding

19 Company Act of 1956) other than—

20 ‘‘(I) a registered broker or deal21 er; or

22 ‘‘(II) an affiliate that is engaged

23 in merchant banking, as described in

24 section 6(c)(3)(H) of the Bank Hold25 ing Company Act of 1956.
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1 ‘‘(vii) PRIVATE SECURITIES OFFER2 INGS.—The bank—

3 ‘‘(I) effects sales as part of a pri4 mary offering of securities not involv5 ing a public offering, pursuant to sec6 tion 3(b), 4(2), or 4(6) of the Securi7 ties Act of 1933 or the rules and reg8 ulations issued thereunder;

9 ‘‘(II) at any time after the date

10 that is 1 year after the date of enact11 ment of the Financial Services Mod12 ernization Act of 1999, is not affili13 ated with a broker or dealer that has

14 been registered for more than 1 year

15 in accordance with this Act, and en16 gages in dealing, market making, or

17 underwriting activities, other than

18 with respect to exempted securities;

19 and

20 ‘‘(III) effects transactions exclu21 sively with qualified investors.

22 ‘‘(viii) SAFEKEEPING AND CUSTODY

23 ACTIVITIES.—

24 ‘‘(I) IN GENERAL.—The bank, as

25 part of customary banking activities—
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1 ‘‘(aa) provides safekeeping

2 or custody services with respect

3 to securities, including the exer4 cise of warrants and other rights

5 on behalf of customers;

6 ‘‘(bb) facilitates the transfer

7 of funds or securities, as a custo8 dian or a clearing agency, in con9 nection with the clearance and

10 settlement of its customers’

11 transactions in securities;

12 ‘‘(cc) effects securities lend13 ing or borrowing transactions

14 with or on behalf of customers as

15 part of services provided to cus16 tomers pursuant to division (aa)

17 or (bb) or invests cash collateral

18 pledged in connection with such

19 transactions; or

20 ‘‘(dd) holds securities

21 pledged by a customer to another

22 person or securities subject to

23 purchase or resale agreements in24 volving a customer, or facilitates

25 the pledging or transfer of such
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1 securities by book entry or as

2 otherwise provided under applica3 ble law.

4 ‘‘(II) EXCEPTION FOR CARRYING

5 BROKER ACTIVITIES.—The exception

6 to being considered a broker for a

7 bank engaged in activities described in

8 subclause (I) shall not apply if the

9 bank, in connection with such activi10 ties, acts in the United States as a

11 carrying broker (as such term, and

12 different formulations thereof, are

13 used in section 15(c)(3) and the rules

14 and regulations thereunder) for any

15 broker or dealer, unless such carrying

16 broker activities are engaged in with

17 respect to government securities (as

18 defined in paragraph (42) of this sub19 section).

20 ‘‘(ix) BANKING PRODUCTS.—The bank

21 effects transactions in traditional banking

22 products, as defined in section 205(a) of

23 the Financial Services Modernization Act

24 of 1999.
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1 ‘‘(x) DE MINIMIS EXCEPTION.—The

2 bank effects, other than in transactions re3 ferred to in clauses (i) through (ix), not

4 more than 500 transactions in securities in

5 any calendar year, and such transactions

6 are not effected by an employee of the

7 bank who is also an employee of a broker

8 or dealer.

9 ‘‘(C) BROKER DEALER EXECUTION.—The

10 exception to being considered a broker for a

11 bank engaged in activities described in clauses

12 (ii), (iv), and (viii) of subparagraph (B) shall

13 not apply if the activities described in such pro14 visions result in the trade in the United States

15 of any security that is a publicly traded security

16 in the United States, unless—

17 ‘‘(i) the bank directs such trade to a

18 registered broker or dealer for execution;

19 ‘‘(ii) the trade is a cross trade or

20 other substantially similar trade of a secu21 rity that—

22 ‘‘(I) is made by the bank or be23 tween the bank and an affiliated fidu24 ciary; and
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1 ‘‘(II) is not in contravention of

2 fiduciary principles established under

3 applicable Federal or State law; or

4 ‘‘(iii) the trade is conducted in some

5 other manner permitted under rules, regu6 lations, or orders as the Commission may

7 prescribe or issue.

8 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS

9 ON OTHER COMMISSION AUTHORITY.—The ex10 ception to being considered a broker for a bank

11 engaged in activities described in subpara12 graphs (B) and (C) shall not affect the author13 ity of the Commission under any other provi14 sion of this Act or any other securities law.

15 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

16 of subparagraph (B)(ii), the term ‘fiduciary ca17 pacity’ means—

18 ‘‘(i) in the capacity as trustee, execu19 tor, administrator, registrar of stocks and

20 bonds, transfer agent, guardian, assignee,

21 receiver, or custodian under a uniform gift

22 to minor act, or as an investment adviser

23 if the bank receives a fee for its investment

24 advice;
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1 ‘‘(ii) in any capacity in which the

2 bank possesses investment discretion on

3 behalf of another; or

4 ‘‘(iii) in any other similar capacity.

5 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT

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

7 include a bank that—

8 ‘‘(i) was, immediately prior to the en9 actment of the Financial Services Mod10 ernization Act of 1999, subject to section

11 15(e); and

12 ‘‘(ii) is subject to such restrictions

13 and requirements as the Commission con14 siders appropriate.’’.

15 SEC. 202. DEFINITION OF DEALER.

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

17 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

18 ‘‘(5) DEALER.—

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

20 means any person engaged in the business of

21 buying and selling securities for such person’s

22 own account through a broker or otherwise.

23 ‘‘(B) EXCEPTION FOR PERSON NOT EN24 GAGED IN THE BUSINESS OF DEALING.—The

25 term ‘dealer’ does not include a person that
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1 buys or sells securities for such person’s own

2 account, either individually or in a fiduciary ca3 pacity, but not as a part of a regular business.

4 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC5 TIVITIES.—A bank shall not be considered to be

6 a dealer because the bank engages in any of the

7 following activities under the conditions de8 scribed:

9 ‘‘(i) PERMISSIBLE SECURITIES TRANS10 ACTIONS.—The bank buys or sells—

11 ‘‘(I) commercial paper, bankers

12 acceptances, or commercial bills;

13 ‘‘(II) exempted securities;

14 ‘‘(III) qualified Canadian govern15 ment obligations as defined in section

16 5136 of the Revised Statutes of the

17 United States, in conformity with sec18 tion 15C of this title and the rules

19 and regulations thereunder, or obliga20 tions of the North American Develop21 ment Bank; or

22 ‘‘(IV) any standardized, credit

23 enhanced debt security issued by a

24 foreign government pursuant to the

25 March 1989 plan of then Secretary of
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1 the Treasury Brady, used by such for2 eign government to retire outstanding

3 commercial bank loans.

4 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI5 DUCIARY TRANSACTIONS.—The bank buys

6 or sells securities for investment

7 purposes—

8 ‘‘(I) for the bank; or

9 ‘‘(II) for accounts for which the

10 bank acts as a trustee or fiduciary.

11 ‘‘(iii) ASSET-BACKED TRANS12 ACTIONS.—The bank engages in the

13 issuance or sale to qualified investors,

14 through a grantor trust or otherwise, of se15 curities backed by or representing an inter16 est in notes, drafts, acceptances, loans,

17 leases, receivables, other obligations, or

18 pools of any such obligations predomi19 nantly originated by the bank, or a syn20 dicate of banks of which the bank is a

21 member, or an affiliate of any such bank

22 other than a broker or dealer.

23 ‘‘(iv) BANKING PRODUCTS.—The bank

24 buys or sells traditional banking products,
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1 as defined in section 205(a) of the Finan2 cial Services Modernization Act of 1999.

3 ‘‘(v) DERIVATIVE INSTRUMENTS.—

4 The bank issues, buys, or sells any deriva5 tive instrument to which the bank is a

6 party—

7 ‘‘(I) to or from a qualified inves8 tor, except that if the instrument pro9 vides for the delivery of one or more

10 securities (other than a derivative in11 strument or government security), the

12 transaction shall be effected with or

13 through a registered broker or dealer;

14 ‘‘(II) to or from other persons,

15 except that if the derivative instru16 ment provides for the delivery of one

17 or more securities (other than a deriv18 ative instrument or government secu19 rity), or is a security (other than a

20 government security), the transaction

21 shall be effected with or through a

22 registered broker or dealer; or

23 ‘‘(III) to or from any person if

24 the instrument is neither a security

25 nor provides for the delivery of one or
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1 more securities (other than a deriva2 tive instrument).’’.

3 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI4 TIES OFFERINGS.

5 Section 15A of the Securities Exchange Act of 1934

6 (15 U.S.C. 78o–3) is amended by inserting after sub7 section (i) the following new subsection:

8 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI9 TIES OFFERINGS.—A registered securities association

10 shall create a limited qualification category for any associ11 ated person of a member who effects sales as part of a

12 primary offering of securities not involving a public offer13 ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi14 ties Act of 1933 and the rules and regulations thereunder,

15 and shall deem qualified in such limited qualification cat16 egory, without testing, any bank employee who, in the six

17 month period preceding the date of enactment of this Act,

18 engaged in effecting such sales.’’.

19 SEC. 204. INFORMATION SHARING.

20 Section 18 of the Federal Deposit Insurance Act is

21 amended by adding at the end the following new sub22 section:

23 ‘‘(t) RECORDKEEPING REQUIREMENTS.—

24 ‘‘(1) REQUIREMENTS.—Each appropriate Fed25 eral banking agency, after consultation with and
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1 consideration of the views of the Commission, shall

2 establish recordkeeping requirements for banks rely3 ing on exceptions contained in paragraphs (4) and

4 (5) of section 3(a) of the Securities Exchange Act of

5 1934. Such recordkeeping requirements shall be suf6 ficient to demonstrate compliance with the terms of

7 such exceptions and be designed to facilitate compli8 ance with such exceptions. Each appropriate Federal

9 banking agency shall make any such information

10 available to the Commission upon request.

11 ‘‘(2) DEFINITIONS.—As used in this subsection

12 the term ‘Commission’ means the Securities and Ex13 change Commission.’’.

14 SEC. 205. DEFINITION AND TREATMENT OF BANKING PROD15 UCTS.

16 (a) DEFINITION OF TRADITIONAL BANKING PROD17 UCT.—For purposes of paragraphs (4) and (5) of section

18 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.

19 78c(a) (4), (5)), the term ‘‘traditional banking product’’

20 means—

21 (1) a deposit account, savings account, certifi22 cate of deposit, or other deposit instrument issued

23 by a bank;

24 (2) a banker’s acceptance;
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1 (3) a letter of credit issued or loan made by a

2 bank;

3 (4) a debit account at a bank arising from a

4 credit card or similar arrangement;

5 (5) a participation in a loan which the bank or

6 an affiliate of the bank (other than a broker or deal7 er) funds, participates in, or owns that is sold—

8 (A) to qualified investors; or

9 (B) to other persons that—

10 (i) have the opportunity to review and

11 assess any material information, including

12 information regarding the borrower’s cred13 itworthiness; and

14 (ii) based on such factors as financial

15 sophistication, net worth, and knowledge

16 and experience in financial matters, have

17 the capability to evaluate the information

18 available, as determined under generally

19 applicable banking standards or guidelines;

20 and

21 (6) any derivative instrument, whether or not

22 individually negotiated, involving or relating to—

23 (A) foreign currencies, except options on

24 foreign currencies that trade on a national se25 curities exchange;
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1 (B) interest rates, except interest rate de2 rivative instruments that—

3 (i) are based on a security or a group

4 or index of securities (other than govern5 ment securities or a group or index of gov6 ernment securities);

7 (ii) provide for the delivery of one or

8 more securities (other than government se9 curities); or

10 (iii) trade on a national securities ex11 change; or

12 (C) commodities, other rates, indices, or

13 other assets, except derivative instruments

14 that—

15 (i) are securities or that are based on

16 a group or index of securities (other than

17 government securities or a group or index

18 of government securities);

19 (ii) provide for the delivery of one or

20 more securities (other than government se21 curities); or

22 (iii) trade on a national securities ex23 change.

24 (b) AMENDMENT TO THE SECURITIES EXCHANGE

25 ACT OF 1934.—Section 15 of the Securities Exchange Act
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1 of 1934 (15 U.S.C. 78o) is amended by adding at the end

2 the following new subsection:

3 ‘‘(i) TRANSACTIONS INVOLVING HYBRID PROD4 UCTS.—

5 ‘‘(1) COMMISSION AUTHORITY.—

6 ‘‘(A) IN GENERAL.—The Commission may,

7 after consultation with the Board, determine,

8 by regulation published in the Federal Register,

9 that a bank that effects transactions in, or buys

10 or sells, a new product should be subject to the

11 registration requirements of this section.

12 ‘‘(B) LIMITATION.—The Commission may

13 not impose the registration requirements of this

14 section on any bank that effects transactions in,

15 or buys or sells, a product under this subsection

16 unless the Commission determines in the regu17 lations described in subparagraph (A) that—

18 ‘‘(i) the subject product is a new prod19 uct;

20 ‘‘(ii) the subject product is a security;

21 and

22 ‘‘(iii) imposing the registration re23 quirements of this section is necessary or

24 appropriate in the public interest and for

25 the protection of investors.
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1 ‘‘(2) OBJECTION TO COMMISSION REGULA2 TION.—

3 ‘‘(A) FILING OF PETITION FOR REVIEW.—

4 The Board, or any aggrieved party, may obtain

5 review of any final regulation described in para6 graph (1) in the United States Court of Ap7 peals for the District of Columbia Circuit by fil8 ing in such court, not later than 60 days after

9 the date of publication of the final regulation,

10 a written petition requesting that the regulation

11 be set aside.

12 ‘‘(B) TRANSMITTAL OF PETITION AND

13 RECORD.—A copy of a petition described in

14 subparagraph (A) shall be transmitted as soon

15 as possible by the Clerk of the Court to an offi16 cer or employee of the Commission designated

17 for that purpose. Upon receipt of the petition,

18 the Commission shall file with the court the

19 regulation under review and any documents re20 ferred to therein, and any other relevant mate21 rials prescribed by the court.

22 ‘‘(C) EXCLUSIVE JURISDICTION.—On the

23 date of the filing of the petition under subpara24 graph (A), the court has jurisdiction, which be25 comes exclusive on the filing of the materials
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1 set forth in subparagraph (B), to affirm and

2 enforce or to set aside the regulation at issue.

3 ‘‘(D) STANDARD OF REVIEW.—

4 ‘‘(i) IN GENERAL.—The court shall

5 determine to affirm and enforce or set

6 aside a regulation of the Commission

7 under this subsection, based on the deter8 mination of the court as to whether the

9 subject product—

10 ‘‘(I) is a new product, as defined

11 in this subsection;

12 ‘‘(II) is a security; and

13 ‘‘(III) would be more appro14 priately regulated under the Federal

15 securities laws or the Federal banking

16 laws, giving equal deference to the

17 views of the Commission and the

18 Board.

19 ‘‘(ii) CONSIDERATIONS.—In making a

20 determination under clause (i)(III), the

21 court shall consider—

22 ‘‘(I) the nature of the subject

23 new product;

24 ‘‘(II) the history, purpose, extent,

25 and appropriateness of the regulation
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1 of the new product under the Federal

2 securities laws; and

3 ‘‘(III) the history, purpose, ex4 tent, and appropriateness of the regu5 lation of the new product under the

6 Federal banking laws.

7 ‘‘(E) JUDICIAL STAY.—The filing of a peti8 tion by the Board or an aggrieved party pursu9 ant to subparagraph (A) shall operate as a judi10 cial stay, until the date on which the court

11 makes a final determination under this para12 graph, of—

13 ‘‘(i) any Commission requirement that

14 a bank register as a broker or dealer under

15 this section, because the bank engages in

16 any transaction in, or buys or sells, the

17 new product that is the subject of the peti18 tion; and

19 ‘‘(ii) any Commission action against a

20 bank for a failure to comply with a re21 quirement described in clause (i).

22 ‘‘(3) DEFINITIONS.—For purposes of this

23 subsection—

24 ‘‘(A) the term ‘Board’ means the Board of

25 Governors of the Federal Reserve System; and
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1 ‘‘(B) the term ‘new product’ means a prod2 uct or instrument offered or provided by a bank

3 that—

4 ‘‘(i) was not subject to regulation by

5 the Commission as a security under this

6 Act before the date of enactment of this

7 subsection; and

8 ‘‘(ii) is not a traditional banking prod9 uct, as defined in paragraphs (1) through

10 (6) of section 205(a) of the Financial Serv11 ices Modernization Act of 1999.’’.

12 (c) CLASSIFICATION LIMITED.—Classification of a

13 particular product or instrument as a traditional banking

14 product pursuant to this section or the amendments made

15 by this section shall not be construed as finding or imply16 ing that such product or instrument is or is not a security

17 for any purpose under the securities laws, or is or is not

18 an account, agreement, contract, or transaction for any

19 purpose under the Commodity Exchange Act.

20 (d) NO LIMITATION ON OTHER AUTHORITY TO

21 CHALLENGE.—Nothing in this section or the amendments

22 made by this section shall affect the right or authority

23 of the Board of Governors of the Federal Reserve System,

24 any appropriate Federal banking agency, or any interested

25 party under any other provision of law to object to or seek
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1 judicial review as to whether a product or instrument is

2 or is not appropriately classified as a traditional banking

3 product under paragraphs (1) through (6) of section

4 205(a).

5 (e) INCORPORATED DEFINITIONS.—For purposes of

6 this section—

7 (1) the term ‘‘appropriate Federal banking

8 agency’’ has the same meaning as in section 3 of the

9 Federal Deposit Insurance Act;

10 (2) the term ‘‘bank’’ has the same meaning as

11 in section 3(a)(6) of the Securities Exchange Act of

12 1934;

13 (3) the term ‘‘Board’’ means the Board of Gov14 ernors of the Federal Reserve System;

15 (4) the term ‘‘government securities’’ has the

16 same meaning as in section 3(a)(42) of the Securi17 ties Exchange Act of 1934, and, for purposes of this

18 subsection, commercial paper, bankers acceptances,

19 and commercial bills shall be treated in the same

20 manner as government securities; and

21 (5) the term ‘‘qualified investor’’ has the same

22 meaning as in section 3(a)(55) of the Securities Ex23 change Act of 1934, as amended by this Act.
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1 SEC. 206. DERIVATIVE INSTRUMENT AND QUALIFIED IN2 VESTOR DEFINED.

3 Section 3(a) of the Securities Exchange Act of 1934

4 (15 U.S.C. 78c(a)) is amended by adding at the end the

5 following new paragraphs:

6 ‘‘(54) DERIVATIVE INSTRUMENT.—

7 ‘‘(A) DEFINITION.—The term ‘derivative

8 instrument’ means any individually negotiated

9 contract, agreement, warrant, note, or option

10 that is based, in whole or in part, on the value

11 of, any interest in, or any quantitative measure

12 or the occurrence of any event relating to, one

13 or more commodities, securities, currencies, in14 terest or other rates, indices, or other assets,

15 but does not include a traditional banking prod16 uct, as defined in section 205(a) of the Finan17 cial Services Modernization Act of 1999.

18 ‘‘(B) CLASSIFICATION LIMITED.—Classi19 fication of a particular contract as a derivative

20 instrument pursuant to this paragraph shall not

21 be construed as finding or implying that such

22 instrument is or is not a security for any pur23 pose under the securities laws, or is or is not

24 an account, agreement, contract, or transaction

25 for any purpose under the Commodity Ex26 change Act.
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1 ‘‘(55) QUALIFIED INVESTOR.—

2 ‘‘(A) DEFINITION.—For purposes of this

3 title, the term ‘qualified investor’ means—

4 ‘‘(i) any investment company reg5 istered with the Commission under section

6 8 of the Investment Company Act of 1940;

7 ‘‘(ii) any issuer eligible for an exclu8 sion from the definition of investment com9 pany pursuant to section 3(c)(7) of the In10 vestment Company Act of 1940;

11 ‘‘(iii) any bank (as defined in para12 graph (6) of this subsection), savings asso13 ciation (as defined in section 3(b) of the

14 Federal Deposit Insurance Act), broker,

15 dealer, insurance company (as defined in

16 section 2(a)(13) of the Securities Act of

17 1933), or business development company

18 (as defined in section 2(a)(48) of the In19 vestment Company Act of 1940);

20 ‘‘(iv) any small business investment

21 company licensed by the United States

22 Small Business Administration under sec23 tion 301 (c) or (d) of the Small Business

24 Investment Act of 1958;
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1 ‘‘(v) any State sponsored employee

2 benefit plan, or any other employee benefit

3 plan, within the meaning of the Employee

4 Retirement Income Security Act of 1974,

5 other than an individual retirement ac6 count, if the investment decisions are made

7 by a plan fiduciary, as defined in section

8 3(21) of that Act, which is either a bank,

9 savings and loan association, insurance

10 company, or registered investment adviser;

11 ‘‘(vi) any trust whose purchases of se12 curities are directed by a person described

13 in clauses (i) through (v) of this subpara14 graph;

15 ‘‘(vii) any market intermediary ex16 empt under section 3(c)(2) of the Invest17 ment Company Act of 1940;

18 ‘‘(viii) any associated person of a

19 broker or dealer other than a natural per20 son;

21 ‘‘(ix) any foreign bank (as defined in

22 section 1(b)(7) of the International Bank23 ing Act of 1978);

24 ‘‘(x) the government of any foreign

25 country;
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1 ‘‘(xi) any corporation, company, or

2 partnership that owns and invests on a dis3 cretionary basis, not less than $10,000,000

4 in investments;

5 ‘‘(xii) any natural person who owns

6 and invests on a discretionary basis, not

7 less than $10,000,000 in investments;

8 ‘‘(xiii) any government or political

9 subdivision, agency, or instrumentality of a

10 government who owns and invests on a dis11 cretionary basis not less than $50,000,000

12 in investments; or

13 ‘‘(xiv) any multinational or supra14 national entity or any agency or instru15 mentality thereof.

16 ‘‘(B) ADDITIONAL AUTHORITY.—The Com17 mission may, by rule or order, define a ‘quali18 fied investor’ as any other person, taking into

19 consideration such factors as the financial so20 phistication of the person, net worth, and

21 knowledge and experience in financial mat22 ters.’’.

23 SEC. 207. GOVERNMENT SECURITIES DEFINED.

24 Section 3(a)(42) of the Securities Exchange Act of

25 1934 (15 U.S.C. 78c(a)(42)) is amended—
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1 (1) by striking ‘‘or’’ at the end of subparagraph

2 (C);

3 (2) by striking the period at the end of sub4 paragraph (D) and inserting ‘‘; or’’; and

5 (3) by adding at the end the following new sub6 paragraph:

7 ‘‘(E) for purposes of section 15C as ap8 plied to a bank, a qualified Canadian govern9 ment obligation as defined in section 5136 of

10 the Revised Statutes.’’.

11 SEC. 208. EFFECTIVE DATE.

12 This subtitle shall take effect at the end of the 270-

13 day period beginning on the date of the enactment of this

14 Act.

15 SEC. 209. RULE OF CONSTRUCTION.

16 Nothing in this Act shall supersede, affect, or other17 wise limit the scope and applicability of the Commodity

18 Exchange Act (7 U.S.C. 1 et seq.).

19 Subtitle B—Bank Investment

20 Company Activities

21 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

22 AFFILIATED BANK.

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

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

25 is amended—
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1 (1) by redesignating paragraphs (1), (2), and

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

3 (2) by striking ‘‘(f) Every registered’’ and in4 serting the following:

5 ‘‘(f) CUSTODY OF SECURITIES.—

6 ‘‘(1) Every registered’’;

7 (3) by redesignating the second, third, fourth,

8 and fifth sentences of such subsection as paragraphs

9 (2) through (5), respectively, and indenting the left

10 margin of such paragraphs appropriately; and

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

12 paragraph:

13 ‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—

14 The Commission may adopt rules and regulations,

15 and issue orders, consistent with the protection of

16 investors, prescribing the conditions under which a

17 bank, or an affiliated person of a bank, either of

18 which is an affiliated person, promoter, organizer, or

19 sponsor of, or principal underwriter for, a registered

20 management company may serve as custodian of

21 that registered management company.’’.

22 (b) UNIT INVESTMENT TRUSTS.—Section 26 of the

23 Investment Company Act of 1940 (15 U.S.C. 80a–26) is

24 amended—
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1 (1) by redesignating subsections (b) through (e)

2 as subsections (c) through (f), respectively; and

3 (2) by inserting after subsection (a) the follow4 ing new subsection:

5 ‘‘(b) The Commission may adopt rules and regula6 tions, and issue orders, consistent with the protection of

7 investors, prescribing the conditions under which a bank,

8 or an affiliated person of a bank, either of which is an

9 affiliated person of a principal underwriter for, or deposi10 tor of, a registered unit investment trust, may serve as

11 trustee or custodian under subsection (a)(1).’’.

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

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

14 35(a)) is amended—

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

16 end;

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

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

19 (3) by inserting after paragraph (2) the follow20 ing:

21 ‘‘(3) as custodian.’’.

22 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM23 PANY.

24 Section 17(a) of the Investment Company Act of

25 1940 (15 U.S.C. 80a–17(a)) is amended—
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1 (1) by striking ‘‘or’’ at the end of paragraph

2 (2);

3 (2) by striking the period at the end of para4 graph (3) and inserting ‘‘; or’’; and

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

6 paragraph:

7 ‘‘(4) to loan money or other property to such

8 registered company, or to any company controlled by

9 such registered company, in contravention of such

10 rules, regulations, or orders as the Commission may

11 prescribe or issue consistent with the protection of

12 investors.’’.

13 SEC. 213. INDEPENDENT DIRECTORS.

14 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest15 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

16 is amended—

17 (1) by striking clause (v) and inserting the fol18 lowing new clause:

19 ‘‘(v) any person or any affiliated per20 son of a person (other than a registered in21 vestment company) that, at any time dur22 ing the 6-month period preceding the date

23 of the determination of whether that per24 son or affiliated person is an interested

25 person, has executed any portfolio trans-
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1 actions for, engaged in any principal trans2 actions with, or distributed shares for—

3 ‘‘(I) the investment company;

4 ‘‘(II) any other investment com5 pany having the same investment ad6 viser as such investment company or

7 holding itself out to investors as a re8 lated company for purposes of invest9 ment or investor services; or

10 ‘‘(III) any account over which the

11 investment company’s investment ad12 viser has brokerage placement discre13 tion,’’;

14 (2) by redesignating clause (vi) as clause (vii);

15 and

16 (3) by inserting after clause (v) the following

17 new clause:

18 ‘‘(vi) any person or any affiliated per19 son of a person (other than a registered in20 vestment company) that, at any time dur21 ing the 6-month period preceding the date

22 of the determination of whether that per23 son or affiliated person is an interested

24 person, has loaned money or other prop25 erty to—
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1 ‘‘(I) the investment company;

2 ‘‘(II) any other investment com3 pany having the same investment ad4 viser as such investment company or

5 holding itself out to investors as a re6 lated company for purposes of invest7 ment or investor services; or

8 ‘‘(III) any account for which the

9 investment company’s investment ad10 viser has borrowing authority,’’.

11 (b) CONFORMING AMENDMENT.—Section

12 2(a)(19)(B) of the Investment Company Act of 1940 (15

13 U.S.C. 80a–2(a)(19)(B)) is amended—

14 (1) by striking clause (v) and inserting the fol15 lowing new clause:

16 ‘‘(v) any person or any affiliated per17 son of a person (other than a registered in18 vestment company) that, at any time dur19 ing the 6-month period preceding the date

20 of the determination of whether that per21 son or affiliated person is an interested

22 person, has executed any portfolio trans23 actions for, engaged in any principal trans24 actions with, or distributed shares for—
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1 ‘‘(I) any investment company for

2 which the investment adviser or prin3 cipal underwriter serves as such;

4 ‘‘(II) any investment company

5 holding itself out to investors, for pur6 poses of investment or investor serv7 ices, as a company related to any in8 vestment company for which the in9 vestment adviser or principal under10 writer serves as such; or

11 ‘‘(III) any account over which the

12 investment adviser has brokerage

13 placement discretion,’’;

14 (2) by redesignating clause (vi) as clause (vii);

15 and

16 (3) by inserting after clause (v) the following

17 new clause:

18 ‘‘(vi) any person or any affiliated per19 son of a person (other than a registered in20 vestment company) that, at any time dur21 ing the 6-month period preceding the date

22 of the determination of whether that per23 son or affiliated person is an interested

24 person, has loaned money or other prop25 erty to—
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1 ‘‘(I) any investment company for

2 which the investment adviser or prin3 cipal underwriter serves as such;

4 ‘‘(II) any investment company

5 holding itself out to investors, for pur6 poses of investment or investor serv7 ices, as a company related to any in8 vestment company for which the in9 vestment adviser or principal under10 writer serves as such; or

11 ‘‘(III) any account for which the

12 investment adviser has borrowing au13 thority,’’.

14 (c) AFFILIATION OF DIRECTORS.—Section 10(c) of

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

16 10(c)) is amended by striking ‘‘bank, except’’ and insert17 ing ‘‘bank (together with its affiliates and subsidiaries) or

18 any one bank holding company (together with its affiliates

19 and subsidiaries) (as such terms are defined in section 2

20 of the Bank Holding Company Act of 1956), except’’.

21 (d) EFFECTIVE DATE.—The amendments made by

22 this section shall take effect at the end of the 1-year period

23 beginning on the date of enactment of this subtitle.
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1 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

2 Section 35(a) of the Investment Company Act of

3 1940 (15 U.S.C. 80a–34(a)) is amended to read as fol4 lows:

5 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

6 ‘‘(1) IN GENERAL.—It shall be unlawful for any

7 person, issuing or selling any security of which a

8 registered investment company is the issuer, to rep9 resent or imply in any manner whatsoever that such

10 security or company—

11 ‘‘(A) has been guaranteed, sponsored, rec12 ommended, or approved by the United States,

13 or any agency, instrumentality or officer of the

14 United States;

15 ‘‘(B) has been insured by the Federal De16 posit Insurance Corporation; or

17 ‘‘(C) is guaranteed by or is otherwise an

18 obligation of any bank or insured depository in19 stitution.

20 ‘‘(2) DISCLOSURES.—Any person issuing or

21 selling the securities of a registered investment com22 pany that is advised by, or sold through, a bank

23 shall prominently disclose that an investment in the

24 company is not insured by the Federal Deposit In25 surance Corporation or any other government agen26 cy. The Commission may adopt rules and regula-
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1 tions, and issue orders, consistent with the protec2 tion of investors, prescribing the manner in which

3 the disclosure under this paragraph shall be pro4 vided.

5 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi6 tory institution’ and ‘appropriate Federal banking

7 agency’ have the same meanings as in section 3 of

8 the Federal Deposit Insurance Act.’’.

9 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST10 MENT COMPANY ACT OF 1940.

11 Section 2(a)(6) of the Investment Company Act of

12 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol13 lows:

14 ‘‘(6) The term ‘broker’ has the same meaning

15 as in section 3 of the Securities Exchange Act of

16 1934, except that such term does not include any

17 person solely by reason of the fact that such person

18 is an underwriter for one or more investment compa19 nies.’’.

20 SEC. 216. DEFINITION OF DEALER UNDER THE INVEST21 MENT COMPANY ACT OF 1940.

22 Section 2(a)(11) of the Investment Company Act of

23 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol24 lows:
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1 ‘‘(11) The term ‘dealer’ has the same meaning

2 as in section 3 of the Securities Exchange Act of

3 1934, but does not include an insurance company or

4 investment company.’’.

5 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI6 TION OF INVESTMENT ADVISER FOR BANKS

7 THAT ADVISE INVESTMENT COMPANIES.

8 (a) INVESTMENT ADVISER.—Section 202(a)(11) of

9 the Investment Advisers Act of 1940 (15 U.S.C. 80b–

10 2(a)(11)) is amended in subparagraph (A), by striking

11 ‘‘investment company’’ and inserting ‘‘investment com12 pany, except that the term ‘investment adviser’ includes

13 any bank or bank holding company to the extent that such

14 bank or bank holding company serves or acts as an invest15 ment adviser to a registered investment company, but if,

16 in the case of a bank, such services or actions are per17 formed through a separately identifiable department or di18 vision, the department or division, and not the bank itself,

19 shall be deemed to be the investment adviser’’.

20 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR

21 DIVISION.—Section 202(a) of the Investment Advisers Act

22 of 1940 (15 U.S.C. 80b–2(a)) is amended by adding at

23 the end the following:

24 ‘‘(26) The term ‘separately identifiable depart25 ment or division’ of a bank means a unit—
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1 ‘‘(A) that is under the direct supervision of

2 an officer or officers designated by the board of

3 directors of the bank as responsible for the day4 to-day conduct of the bank’s investment adviser

5 activities for one or more investment companies,

6 including the supervision of all bank employees

7 engaged in the performance of such activities;

8 and

9 ‘‘(B) for which all of the records relating

10 to its investment adviser activities are sepa11 rately maintained in or extractable from such

12 unit’s own facilities or the facilities of the bank,

13 and such records are so maintained or other14 wise accessible as to permit independent exam15 ination and enforcement by the Commission of

16 this Act or the Investment Company Act of

17 1940 and rules and regulations promulgated

18 under this Act or the Investment Company Act

19 of 1940.’’.

20 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST21 MENT ADVISERS ACT OF 1940.

22 Section 202(a)(3) of the Investment Advisers Act of

23 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol24 lows:
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1 ‘‘(3) The term ‘broker’ has the same meaning

2 as in section 3 of the Securities Exchange Act of

3 1934.’’.

4 SEC. 219. DEFINITION OF DEALER UNDER THE INVEST5 MENT ADVISERS ACT OF 1940.

6 Section 202(a)(7) of the Investment Advisers Act of

7 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol8 lows:

9 ‘‘(7) The term ‘dealer’ has the same meaning as

10 in section 3 of the Securities Exchange Act of 1934,

11 but does not include an insurance company or in12 vestment company.’’.

13 SEC. 220. INTERAGENCY CONSULTATION.

14 The Investment Advisers Act of 1940 (15 U.S.C.

15 80b–1 et seq.) is amended by inserting after section 210

16 the following new section:

17 ‘‘SEC. 210A. CONSULTATION.

18 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA19 TION.—

20 ‘‘(1) The appropriate Federal banking agency

21 shall provide the Commission upon request the re22 sults of any examination, reports, records, or other

23 information to which such agency may have access

24 with respect to the investment advisory activities—

25 ‘‘(A) of any—
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1 ‘‘(i) bank holding company;

2 ‘‘(ii) bank; or

3 ‘‘(iii) separately identifiable depart4 ment or division of a bank, that is reg5 istered under section 203 of this title; and

6 ‘‘(B) in the case of a bank holding com7 pany or bank that has a subsidiary or a sepa8 rately identifiable department or division reg9 istered under that section, of such bank or bank

10 holding company.

11 ‘‘(2) The Commission shall provide to the ap12 propriate Federal banking agency upon request the

13 results of any examination, reports, records, or other

14 information with respect to the investment advisory

15 activities of any bank holding company, bank, or

16 separately identifiable department or division of a

17 bank, any of which is registered under section 203

18 of this title.

19 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in

20 this section shall limit in any respect the authority of the

21 appropriate Federal banking agency with respect to such

22 bank holding company, bank, or department or division

23 under any provision of law.

24 ‘‘(c) DEFINITION.—For purposes of this section, the

25 term ‘appropriate Federal banking agency’ has the same
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1 meaning as in section 3 of the Federal Deposit Insurance

2 Act.’’.

3 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

4 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

5 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

6 amended by striking ‘‘or any interest or participation in

7 any common trust fund or similar fund maintained by a

8 bank exclusively for the collective investment and reinvest9 ment of assets contributed thereto by such bank in its ca10 pacity as trustee, executor, administrator, or guardian’’

11 and inserting ‘‘or any interest or participation in any com12 mon trust fund or similar fund that is excluded from the

13 definition of the term ‘investment company’ under section

14 3(c)(3) of the Investment Company Act of 1940’’.

15 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

16 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

17 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol18 lows:

19 ‘‘(iii) any interest or participation in any

20 common trust fund or similar fund that is ex21 cluded from the definition of the term ‘invest22 ment company’ under section 3(c)(3) of the In23 vestment Company Act of 1940;’’.

24 (c) INVESTMENT COMPANY ACT OF 1940.—Section

25 3(c)(3) of the Investment Company Act of 1940 (15
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1 U.S.C. 80a–3(c)(3)) is amended by inserting before the

2 period the following: ‘‘, if—

3 ‘‘(A) such fund is employed by the bank

4 solely as an aid to the administration of trusts,

5 estates, or other accounts created and main6 tained for a fiduciary purpose;

7 ‘‘(B) except in connection with the ordi8 nary advertising of the bank’s fiduciary serv9 ices, interests in such fund are not—

10 ‘‘(i) advertised; or

11 ‘‘(ii) offered for sale to the general

12 public; and

13 ‘‘(C) fees and expenses charged by such

14 fund are not in contravention of fiduciary prin15 ciples established under applicable Federal or

16 State law’’.

17 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV18 ING CONTROLLING INTEREST IN REG19 ISTERED INVESTMENT COMPANY.

20 Section 15 of the Investment Company Act of 1940

21 (15 U.S.C. 80a–15) is amended by adding at the end the

22 following new subsection:

23 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM24 PANY PROHIBITED.—
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1 ‘‘(1) IN GENERAL.—If an investment adviser to

2 a registered investment company, or an affiliated

3 person of that investment adviser, holds a control4 ling interest in that registered investment company

5 in a trustee or fiduciary capacity, such person

6 shall—

7 ‘‘(A) if it holds the shares in a trustee or

8 fiduciary capacity with respect to any employee

9 benefit plan subject to the Employee Retire10 ment Income Security Act of 1974, transfer the

11 power to vote the shares of the investment com12 pany through to another person acting in a fi13 duciary capacity with respect to the plan who is

14 not an affiliated person of that investment ad15 viser or any affiliated person thereof; or

16 ‘‘(B) if it holds the shares in a trustee or

17 fiduciary capacity with respect to any person or

18 entity other than an employee benefit plan sub19 ject to the Employee Retirement Income Secu20 rity Act of 1974—

21 ‘‘(i) transfer the power to vote the

22 shares of the investment company through

23 to—

24 ‘‘(I) the beneficial owners of the

25 shares;
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1 ‘‘(II) another person acting in a

2 fiduciary capacity who is not an affili3 ated person of that investment adviser

4 or any affiliated person thereof; or

5 ‘‘(III) any person authorized to

6 receive statements and information

7 with respect to the trust who is not an

8 affiliated person of that investment

9 adviser or any affiliated person there10 of;

11 ‘‘(ii) vote the shares of the investment

12 company held by it in the same proportion

13 as shares held by all other shareholders of

14 the investment company; or

15 ‘‘(iii) vote the shares of the invest16 ment company as otherwise permitted

17 under such rules, regulations, or orders as

18 the Commission may prescribe or issue

19 consistent with the protection of investors.

20 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

21 apply to any investment adviser to a registered in22 vestment company, or any affiliated person of that

23 investment adviser, that holds shares of the invest24 ment company in a trustee or fiduciary capacity if
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1 that registered investment company consists solely of

2 assets held in such capacities.

3 ‘‘(3) SAFE HARBOR.—No investment adviser to

4 a registered investment company or any affiliated

5 person of such investment adviser shall be deemed to

6 have acted unlawfully or to have breached a fidu7 ciary duty under State or Federal law solely by rea8 son of acting in accordance with clause (i), (ii), or

9 (iii) of paragraph (1)(B).’’.

10 SEC. 223. CONFORMING CHANGE IN DEFINITION.

11 Section 2(a)(5) of the Investment Company Act of

12 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking

13 ‘‘(A) a banking institution organized under the laws of the

14 United States’’ and inserting ‘‘(A) a depository institution

15 (as defined in section 3 of the Federal Deposit Insurance

16 Act) or a branch or agency of a foreign bank (as such

17 terms are defined in section 1(b) of the International

18 Banking Act of 1978)’’.

19 SEC. 224. CONFORMING AMENDMENT.

20 Section 202 of the Investment Advisers Act of 1940

21 (15 U.S.C. 80b–2) is amended by adding at the end the

22 following new subsection:

23 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI24 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

25 Whenever pursuant to this title the Commission is en-
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1 gaged in rulemaking and is required to consider or deter2 mine whether an action is necessary or appropriate in the

3 public interest, the Commission shall also consider, in ad4 dition to the protection of investors, whether the action

5 will promote efficiency, competition, and capital forma6 tion.’’.

7 SEC. 225. EFFECTIVE DATE.

8 This subtitle shall take effect 90 days after the date

9 of the enactment of this Act.

10 Subtitle C—Securities and Ex11 change Commission Supervision

12 of Investment Bank Holding

13 Companies

14 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING

15 COMPANIES BY THE SECURITIES AND EX16 CHANGE COMMISSION.

17 (a) AMENDMENT.—Section 17 of the Securities Ex18 change Act of 1934 (15 U.S.C. 78q) is amended—

19 (1) by redesignating subsection (i) as subsection

20 (k); and

21 (2) by inserting after subsection (h) the follow22 ing new subsections:

23 ‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—
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1 ‘‘(1) ELECTIVE SUPERVISION OF AN INVEST2 MENT BANK HOLDING COMPANY NOT HAVING A

3 BANK OR SAVINGS ASSOCIATION AFFILIATE.—

4 ‘‘(A) IN GENERAL.—An investment bank

5 holding company that is not—

6 ‘‘(i) an affiliate of an insured bank

7 (other than an institution described in sub8 paragraph (D), (F), or (G) of section

9 2(c)(2), or held under section 4(f), of the

10 Bank Holding Company Act of 1956) or a

11 savings association;

12 ‘‘(ii) a foreign bank, foreign company,

13 or company that is described in section

14 8(a) of the International Banking Act of

15 1978; or

16 ‘‘(iii) a foreign bank that controls, di17 rectly or indirectly, a corporation chartered

18 under section 25A of the Federal Reserve

19 Act,

20 may elect to become supervised by filing with

21 the Commission a notice of intention to become

22 supervised, pursuant to subparagraph (B) of

23 this paragraph. Any investment bank holding

24 company filing such a notice shall be supervised

25 in accordance with this section and comply with
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1 the rules promulgated by the Commission appli2 cable to supervised investment bank holding

3 companies.

4 ‘‘(B) NOTIFICATION OF STATUS AS A SU5 PERVISED INVESTMENT BANK HOLDING COM6 PANY.—An investment bank holding company

7 that elects under subparagraph (A) to become

8 supervised by the Commission shall file with the

9 Commission a written notice of intention to be10 come supervised by the Commission in such

11 form and containing such information and doc12 uments concerning such investment bank hold13 ing company as the Commission, by rule, may

14 prescribe as necessary or appropriate in fur15 therance of the purposes of this section. Unless

16 the Commission finds that such supervision is

17 not necessary or appropriate in furtherance of

18 the purposes of this section, such supervision

19 shall become effective 45 days after the date of

20 receipt of such written notice by the Commis21 sion, or within such shorter time period as the

22 Commission, by rule or order, may determine.

23 ‘‘(2) ELECTION NOT TO BE SUPERVISED BY

24 THE COMMISSION AS AN INVESTMENT BANK HOLD25 ING COMPANY.—
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1 ‘‘(A) VOLUNTARY WITHDRAWAL.—A su2 pervised investment bank holding company that

3 is supervised pursuant to paragraph (1) may,

4 upon such terms and conditions as the Commis5 sion deems necessary or appropriate, elect not

6 to be supervised by the Commission by filing a

7 written notice of withdrawal from Commission

8 supervision. Such notice shall not become effec9 tive until one year after receipt by the Commis10 sion, or such shorter or longer period as the

11 Commission deems necessary or appropriate to

12 ensure effective supervision of the material

13 risks to the supervised investment bank holding

14 company and to the affiliated broker or dealer,

15 or to prevent evasion of the purposes of this

16 section.

17 ‘‘(B) DISCONTINUATION OF COMMISSION

18 SUPERVISION.—If the Commission finds that

19 any supervised investment bank holding com20 pany that is supervised pursuant to paragraph

21 (1) is no longer in existence or has ceased to be

22 an investment bank holding company, or if the

23 Commission finds that continued supervision of

24 such a supervised investment bank holding com25 pany is not consistent with the purposes of this
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1 section, the Commission may discontinue the

2 supervision pursuant to a rule or order, if any,

3 promulgated by the Commission under this sec4 tion.

5 ‘‘(3) SUPERVISION OF INVESTMENT BANK

6 HOLDING COMPANIES.—

7 ‘‘(A) RECORDKEEPING AND REPORTING.—

8 ‘‘(i) IN GENERAL.—Every supervised

9 investment bank holding company and

10 each affiliate thereof shall make and keep

11 for prescribed periods such records, furnish

12 copies thereof, and make such reports, as

13 the Commission may require by rule, in

14 order to keep the Commission informed as

15 to—

16 ‘‘(I) the company’s or affiliate’s

17 activities, financial condition, policies,

18 systems for monitoring and control19 ling financial and operational risks,

20 and transactions and relationships be21 tween any broker or dealer affiliate of

22 the supervised investment bank hold23 ing company; and

24 ‘‘(II) the extent to which the

25 company or affiliate has complied with
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1 the provisions of this Act and regula2 tions prescribed and orders issued

3 under this Act.

4 ‘‘(ii) FORM AND CONTENTS.—Such

5 records and reports shall be prepared in

6 such form and according to such specifica7 tions (including certification by an inde8 pendent public accountant), as the Com9 mission may require and shall be provided

10 promptly at any time upon request by the

11 Commission. Such records and reports may

12 include—

13 ‘‘(I) a balance sheet and income

14 statement;

15 ‘‘(II) an assessment of the con16 solidated capital of the supervised in17 vestment bank holding company;

18 ‘‘(III) an independent auditor’s

19 report attesting to the supervised in20 vestment bank holding company’s

21 compliance with its internal risk man22 agement and internal control objec23 tives; and

24 ‘‘(IV) reports concerning the ex25 tent to which the company or affiliate
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1 has complied with the provisions of

2 this title and any regulations pre3 scribed and orders issued under this

4 title.

5 ‘‘(B) USE OF EXISTING REPORTS.—

6 ‘‘(i) IN GENERAL.—The Commission

7 shall, to the fullest extent possible, accept

8 reports in fulfillment of the requirements

9 under this paragraph that the supervised

10 investment bank holding company or its af11 filiates have been required to provide to

12 another appropriate regulatory agency or

13 self-regulatory organization.

14 ‘‘(ii) AVAILABILITY.—A supervised in15 vestment bank holding company or an af16 filiate of such company shall provide to the

17 Commission, at the request of the Commis18 sion, any report referred to in clause (i).

19 ‘‘(C) EXAMINATION AUTHORITY.—

20 ‘‘(i) FOCUS OF EXAMINATION AU21 THORITY.—The Commission may make ex22 aminations of any supervised investment

23 bank holding company and any affiliate of

24 such company in order to—
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1 ‘‘(I) inform the Commission

2 regarding—

3 ‘‘(aa) the nature of the oper4 ations and financial condition of

5 the supervised investment bank

6 holding company and its affili7 ates;

8 ‘‘(bb) the financial and oper9 ational risks within the super10 vised investment bank holding

11 company that may affect any

12 broker or dealer controlled by

13 such supervised investment bank

14 holding company; and

15 ‘‘(cc) the systems of the su16 pervised investment bank holding

17 company and its affiliates for

18 monitoring and controlling those

19 risks; and

20 ‘‘(II) monitor compliance with

21 the provisions of this subsection, pro22 visions governing transactions and re23 lationships between any broker or

24 dealer affiliated with the supervised

25 investment bank holding company and
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1 any of the company’s other affiliates,

2 and applicable provisions of sub3 chapter II of chapter 53, title 31,

4 United States Code (commonly re5 ferred to as the ‘Bank Secrecy Act’)

6 and regulations thereunder.

7 ‘‘(ii) RESTRICTED FOCUS OF EXAMI8 NATIONS.—The Commission shall limit the

9 focus and scope of any examination of a

10 supervised investment bank holding com11 pany to—

12 ‘‘(I) the company; and

13 ‘‘(II) any affiliate of the company

14 that, because of its size, condition, or

15 activities, the nature or size of the

16 transactions between such affiliate

17 and any affiliated broker or dealer, or

18 the centralization of functions within

19 the holding company system, could, in

20 the discretion of the Commission,

21 have a materially adverse effect on the

22 operational or financial condition of

23 the broker or dealer.

24 ‘‘(iii) DEFERENCE TO OTHER EXAMI25 NATIONS.—For purposes of this subpara-
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1 graph, the Commission shall, to the fullest

2 extent possible, use the reports of examina3 tion of an institution described in subpara4 graph (D), (F), or (G) of section 2(c)(2),

5 or held under section 4(f), of the Bank

6 Holding Company Act of 1956 made by

7 the appropriate regulatory agency, or of a

8 licensed insurance company made by the

9 appropriate State insurance regulator.

10 ‘‘(4) HOLDING COMPANY CAPITAL.—

11 ‘‘(A) AUTHORITY.—If the Commission

12 finds that it is necessary to adequately super13 vise investment bank holding companies and

14 their broker or dealer affiliates consistent with

15 the purposes of this subsection, the Commission

16 may adopt capital adequacy rules for supervised

17 investment bank holding companies.

18 ‘‘(B) METHOD OF CALCULATION.—In de19 veloping rules under this paragraph:

20 ‘‘(i) DOUBLE LEVERAGE.—The Com21 mission shall consider the use by the su22 pervised investment bank holding company

23 of debt and other liabilities to fund capital

24 investments in affiliates.
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1 ‘‘(ii) NO UNWEIGHTED CAPITAL

2 RATIO.—The Commission shall not impose

3 under this section a capital ratio that is

4 not based on appropriate risk-weighting

5 considerations.

6 ‘‘(iii) NO CAPITAL REQUIREMENT ON

7 REGULATED ENTITIES.—The Commission

8 shall not, by rule, regulation, guideline,

9 order or otherwise, impose any capital ade10 quacy provision on a nonbanking affiliate

11 (other than a broker or dealer) that is in

12 compliance with applicable capital require13 ments of another Federal regulatory au14 thority or State insurance authority.

15 ‘‘(iv) APPROPRIATE EXCLUSIONS.—

16 The Commission shall take full account of

17 the applicable capital requirements of an18 other Federal regulatory authority or State

19 insurance regulator.

20 ‘‘(C) INTERNAL RISK MANAGEMENT MOD21 ELS.—The Commission may incorporate inter22 nal risk management models into its capital

23 adequacy rules for supervised investment bank

24 holding companies.
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1 ‘‘(5) FUNCTIONAL REGULATION OF BANKING

2 AND INSURANCE ACTIVITIES OF SUPERVISED IN3 VESTMENT BANK HOLDING COMPANIES.—The Com4 mission shall defer to—

5 ‘‘(A) the appropriate regulatory agency

6 with regard to all interpretations of, and the

7 enforcement of, applicable banking laws relating

8 to the activities, conduct, ownership, and oper9 ations of banks, and institutions described in

10 subparagraph (D), (F), and (G) of section

11 2(c)(2), or held under section 4(f), of the Bank

12 Holding Company Act of 1956; and

13 ‘‘(B) the appropriate State insurance regu14 lators with regard to all interpretations of, and

15 the enforcement of, applicable State insurance

16 laws relating to the activities, conduct, and op17 erations of insurance companies and insurance

18 agents.

19 ‘‘(6) DEFINITIONS.—For purposes of this sub20 section and subsection (j)—

21 ‘‘(A) the term ‘investment bank holding

22 company’ means—

23 ‘‘(i) any person other than a natural

24 person that owns or controls one or more

25 brokers or dealers; and
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1 ‘‘(ii) the associated persons of the in2 vestment bank holding company;

3 ‘‘(B) the term ‘supervised investment bank

4 holding company’ means any investment bank

5 holding company that is supervised by the Com6 mission pursuant to this subsection;

7 ‘‘(C) the terms ‘affiliate’, ‘bank’, ‘bank

8 holding company’, ‘company’, ‘control’, and

9 ‘savings association’ have the same meanings as

10 in section 2 of the Bank Holding Company Act

11 of 1956;

12 ‘‘(D) the term ‘insured bank’ has the same

13 meaning as in section 3 of the Federal Deposit

14 Insurance Act;

15 ‘‘(E) the term ‘foreign bank’ has the same

16 meaning as in section 1(b)(7) of the Inter17 national Banking Act of 1978; and

18 ‘‘(F) the terms ‘person associated with an

19 investment bank holding company’ and ‘associ20 ated person of an investment bank holding com21 pany’ mean any person directly or indirectly

22 controlling, controlled by, or under common

23 control with, an investment bank holding com24 pany.
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1 ‘‘(j) AUTHORITY TO LIMIT DISCLOSURE OF INFOR2 MATION.—Notwithstanding any other provision of law, the

3 Commission shall not be compelled to disclose any infor4 mation required to be reported under subsection (h) or

5 (i) or any information supplied to the Commission by any

6 domestic or foreign regulatory agency that relates to the

7 financial or operational condition of any associated person

8 of a broker or dealer, investment bank holding company,

9 or any affiliate of an investment bank holding company.

10 Nothing in this subsection shall authorize the Commission

11 to withhold information from Congress, or prevent the

12 Commission from complying with a request for informa13 tion from any other Federal department or agency or any

14 self-regulatory organization requesting the information for

15 purposes within the scope of its jurisdiction, or complying

16 with an order of a court of the United States in an action

17 brought by the United States or the Commission. For pur18 poses of section 552 of title 5, United States Code, this

19 subsection shall be considered a statute described in sub20 section (b)(3)(B) of such section 552. In prescribing regu21 lations to carry out the requirements of this subsection,

22 the Commission shall designate information described in

23 or obtained pursuant to subparagraphs (A), (B), and (C)

24 of subsection (i)(5) as confidential information for pur25 poses of section 24(b)(2) of this title.’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 3(a)(34) of the Securities Exchange

3 Act of 1934 (15 U.S.C. 78c(a)(34)) is amended by

4 adding at the end the following new subparagraphs:

5 ‘‘(H) When used with respect to an institu6 tion described in subparagraph (D), (F), or (G)

7 of section 2(c)(2), or held under section 4(f), of

8 the Bank Holding Company Act of 1956—

9 ‘‘(i) the Comptroller of the Currency,

10 in the case of a national bank or a bank

11 in the District of Columbia examined by

12 the Comptroller of the Currency;

13 ‘‘(ii) the Board of Governors of the

14 Federal Reserve System, in the case of a

15 State member bank of the Federal Reserve

16 System or any corporation chartered under

17 section 25A of the Federal Reserve Act;

18 ‘‘(iii) the Federal Deposit Insurance

19 Corporation, in the case of any other bank

20 the deposits of which are insured in ac21 cordance with the Federal Deposit Insur22 ance Act; or

23 ‘‘(iv) the Commission in the case of all

24 other such institutions.’’.
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1 (2) Section 1112(e) of the Right to Financial

2 Privacy Act of 1978 (12 U.S.C. 3412(e)) is

3 amended—

4 (A) by striking ‘‘this title’’ and inserting

5 ‘‘law’’; and

6 (B) by inserting ‘‘, examination reports’’

7 after ‘‘financial records’’.

8 Subtitle D—Studies

9 SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND

10 CONSUMERS OF UNINSURED PRODUCTS.

11 Not later than 1 year after the date of enactment

12 of this Act, the Comptroller General of the United States

13 shall submit a report to the Congress regarding the effi14 cacy, costs, and benefits of requiring that any depository

15 institution that accepts federally insured deposits and

16 that, directly or through a contractual or other arrange17 ment with a broker, dealer, or agent, buys from, sells to,

18 or effects transactions for retail investors in securities or

19 consumers of insurance to inform such investors and con20 sumers through the use of a logo or seal that the security

21 or insurance is not insured by the Federal Deposit Insur22 ance Corporation.
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1 SEC. 242. STUDY OF LIMITATION ON FEES ASSOCIATED

2 WITH ACQUIRING FINANCIAL PRODUCTS.

3 Not later than 1 year after the date of enactment

4 of this Act, the Comptroller General of the United States

5 shall submit a report to the Congress regarding the effi6 cacy and benefits of uniformly limiting any commissions,

7 fees, markups, or other costs incurred by customers in the

8 acquisition of financial products.

9 TITLE III—INSURANCE

10 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR11 ANCE.

12 The Act entitled ‘‘An Act to express the intent of the

13 Congress with reference to the regulation of the business

14 of insurance’’ and approved March 9, 1945 (15 U.S.C.

15 1011 et seq.), commonly referred to as the ‘‘McCarran16 Ferguson Act’’ remains the law of the United States.

17 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE18 MENTS.

19 No person or entity shall provide insurance in a State

20 as principal or agent unless such person or entity is li21 censed as required by the appropriate insurance regulator

22 of such State in accordance with the relevant State insur23 ance law, subject to section 104.
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1 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

2 The insurance sales activity of any person or entity

3 shall be functionally regulated by the States, subject to

4 section 104.

5 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL

6 BANKS.

7 (a) IN GENERAL.—Except as provided in section 305,

8 a national bank and the subsidiaries of a national bank

9 may not provide insurance in a State as principal except

10 that this prohibition shall not apply to authorized prod11 ucts.

12 (b) AUTHORIZED PRODUCTS.—For the purposes of

13 this section, a product is authorized if—

14 (1) as of January 1, 1997, the Comptroller of

15 the Currency had determined in writing that na16 tional banks may provide such product as principal,

17 or national banks were in fact lawfully providing

18 such product as principal;

19 (2) no court of relevant jurisdiction had, by

20 final judgment, overturned a determination of the

21 Comptroller of the Currency that national banks

22 may provide such product as principal; and

23 (3) the product is not title insurance, or an an24 nuity contract the income of which is subject to tax

25 treatment under section 72 of the Internal Revenue

26 Code of 1986.
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1 (c) DEFINITION.—For purposes of this section, the

2 term ‘‘insurance’’ means—

3 (1) any product regulated as insurance as of

4 January 1, 1997, in accordance with the relevant

5 State insurance law, in the State in which the prod6 uct is provided;

7 (2) any product first offered after January 1,

8 1997, which—

9 (A) a State insurance regulator determines

10 shall be regulated as insurance in the State in

11 which the product is provided because the prod12 uct insures, guarantees, or indemnifies against

13 liability, loss of life, loss of health, or loss

14 through damage to or destruction of property,

15 including, but not limited to, surety bonds, life

16 insurance, health insurance, title insurance, and

17 property and casualty insurance (such as pri18 vate passenger or commercial automobile,

19 homeowners, mortgage, commercial multiperil,

20 general liability, professional liability, workers’

21 compensation, fire and allied lines, farm owners

22 multiperil, aircraft, fidelity, surety, medical

23 malpractice, ocean marine, inland marine, and

24 boiler and machinery insurance); and
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1 (B) is not a product or service of a bank

2 that is—

3 (i) a deposit product;

4 (ii) a loan, discount, letter of credit,

5 or other extension of credit;

6 (iii) a trust or other fiduciary service;

7 (iv) a qualified financial contract (as

8 defined in or determined pursuant to sec9 tion 11(e)(8)(D)(i) of the Federal Deposit

10 Insurance Act); or

11 (v) a financial guaranty, except that

12 this subparagraph (B) shall not apply to a

13 product that includes an insurance compo14 nent such that if the product is offered or

15 proposed to be offered by the bank as

16 principal—

17 (I) it would be treated as a life

18 insurance contract under section 7702

19 of the Internal Revenue Code of 1986;

20 or

21 (II) in the event that the product

22 is not a letter of credit or other simi23 lar extension of credit, a qualified fi24 nancial contract, or a financial guar25 anty, it would qualify for treatment
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1 for losses incurred with respect to

2 such product under section 832(b)(5)

3 of the Internal Revenue Code of 1986,

4 if the bank were subject to tax as an

5 insurance company under section 831

6 of that Code; or

7 (3) any annuity contract, the income on which

8 is subject to tax treatment under section 72 of the

9 Internal Revenue Code of 1986.

10 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

11 BANKS AND THEIR AFFILIATES.

12 (a) AUTHORITY.—Notwithstanding any other provi13 sion of this Act or any other law, no national bank, and

14 no subsidiary of a national bank, may engage in any activ15 ity involving the underwriting of title insurance, other

16 than title insurance underwriting activities in which such

17 national bank or subsidiary was actively and lawfully en18 gaged before the date of the enactment of this Act.

19 (b) INSURANCE AFFILIATE.—In the case of a na20 tional bank which has an affiliate which provides insur21 ance as principal and is not a subsidiary of the bank, the

22 national bank and any subsidiary of the national bank

23 may not engage in any activity involving the underwriting

24 of title insurance pursuant to subsection (a).
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1 (c) INSURANCE SUBSIDIARY.—In the case of a na2 tional bank which has a subsidiary which provides insur3 ance as principal and has no affiliate which provides insur4 ance as principal and is not a subsidiary, the national

5 bank may not engage in any activity involving the under6 writing of title insurance pursuant to subsection (a).

7 (d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—

8 For purposes of this section, the terms ‘‘affiliate’’ and

9 ‘‘subsidiary’’ have the same meanings as in section 2 of

10 the Bank Holding Company Act of 1956.

11 SEC. 306. EXPEDITED DISPUTE RESOLUTION FOR FEDERAL

12 REGULATORS.

13 (a) FILING IN COURT OF APPEALS.—In the case of

14 a regulatory conflict between a State insurance regulator

15 and a Federal regulator as to whether any product is or

16 is not insurance, as defined in section 304(c) of this Act,

17 either regulator may seek expedited judicial review of such

18 determination by the United States Court of Appeals for

19 the circuit in which the State is located or in the United

20 States Court of Appeals for the District of Columbia Cir21 cuit by filing a petition for review in such court.

22 (b) EXPEDITED REVIEW.—The United States Court

23 of Appeals in which a petition for review is filed in accord24 ance with subsection (a) shall complete all action on such

25 petition, including rendering a judgment, before the end
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1 of the 60-day period beginning on the date on which such

2 petition is filed, unless all parties to such proceeding agree

3 to any extension of such period.

4 (c) SUPREME COURT REVIEW.—Any request for cer5 tiorari to the Supreme Court of the United States of any

6 judgment of a United States Court of Appeals with respect

7 to a petition for review under this section shall be filed

8 with the Supreme Court of the United States as soon as

9 practicable after such judgment is issued.

10 (d) STATUTE OF LIMITATION.—No action may be

11 filed under this section challenging an order, ruling, deter12 mination, or other action of a Federal regulator or State

13 insurance regulator after the later of—

14 (1) the end of the 12-month period beginning

15 on the date on which the first public notice is made

16 of such order, ruling, determination or other action

17 in its final form; or

18 (2) the end of the 6-month period beginning on

19 the date on which such order, ruling, determination,

20 or other action takes effect.

21 (e) STANDARD OF REVIEW.—The court shall decide

22 an action filed under this section based on its review on

23 the merits of all questions presented under State and Fed24 eral law, including the nature of the product or activity
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1 and the history and purpose of its regulation under State

2 and Federal law.

3 SEC. 307. CERTAIN STATE AFFILIATION LAWS PREEMPTED

4 FOR INSURANCE COMPANIES AND AFFILI5 ATES.

6 Except as provided in section 104(a)(2), no State

7 may, by law, regulation, order, interpretation, or

8 otherwise—

9 (1) prevent or significantly interfere with the

10 ability of any insurer, or any affiliate of an insurer

11 (whether such affiliate is organized as a stock com12 pany, mutual holding company, or otherwise), to be13 come a bank holding company or to acquire control

14 of an insured depository institution;

15 (2) limit the amount of an insurer’s assets that

16 may be invested in the voting securities of an in17 sured depository institution (or any company which

18 controls such institution), except that the laws of an

19 insurer’s State of domicile may limit the amount of

20 such investment to an amount that is not less than

21 5 percent of the insurer’s admitted assets; or

22 (3) prevent, significantly interfere with, or have

23 the authority to review, approve, or disapprove a

24 plan of reorganization by which an insurer proposes

25 to reorganize from mutual form to become a stock
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1 insurer (whether as a direct or indirect subsidiary of

2 a mutual holding company or otherwise) unless such

3 State is the State of domicile of the insurer.

4 TITLE IV—CUSTOMER SERVICE

5 AND EDUCATION

6 SEC. 401. CUSTOMER PROTECTION AND EDUCATION REGU7 LATIONS.

8 The Federal Deposit Insurance Act (12 U.S.C. 1811

9 et seq.) is amended by inserting after section 46 (as added

10 by section 123 of this Act) the following new section:

11 ‘‘SEC. 47. CUSTOMER SERVICE AND EDUCATION REGULA12 TIONS.

13 ‘‘(a) REGULATIONS REQUIRED.—

14 ‘‘(1) IN GENERAL.—The Federal banking agen15 cies shall prescribe and publish in final form, before

16 the end of the 1-year period beginning on the date

17 of enactment of the Financial Services Moderniza18 tion Act, customer protection regulations (which the

19 agencies jointly determine to be appropriate) that—

20 ‘‘(A) apply to retail sales practices, solici21 tations, advertising, or offers of any nondeposit

22 product by any insured depository institution or

23 any person who is engaged in such activities at

24 an office of the institution or on behalf of the

25 institution; and
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1 ‘‘(B) are consistent with the requirements

2 of this Act and provide such additional protec3 tions for customers to whom such sales, solicita4 tions, advertising, or offers are directed as the

5 agency determines to be appropriate.

6 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The

7 regulations prescribed pursuant to paragraph (1)

8 shall extend such protections to any subsidiary of an

9 insured depository institution, as deemed appro10 priate by the regulators referred to in paragraph (3),

11 where such extension is determined to be necessary

12 to ensure the customer protections provided by this

13 section.

14 ‘‘(3) CONSULTATION AND JOINT REGULA15 TIONS.—The Federal banking agencies shall consult

16 with each other and prescribe joint regulations pur17 suant to paragraph (1), after consultation with the

18 State insurance regulators, as appropriate.

19 ‘‘(4) NONDEPOSIT PRODUCT DEFINED.—For

20 purposes of this section, the term ‘nondeposit

21 product’—

22 ‘‘(A) means any investment and insurance

23 product which is not a deposit;

24 ‘‘(B) includes shares issued by a registered

25 investment company; and
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1 ‘‘(C) does not include—

2 ‘‘(i) any loan or any other extension

3 of credit by an insured depository institu4 tion;

5 ‘‘(ii) any letter of credit;

6 ‘‘(iii) any trust services;

7 ‘‘(iv) any discount; or

8 ‘‘(v) any other instrument or insur9 ance or investment product specifically ex10 cluded from the definition of such term by

11 regulations prescribed jointly by the Fed12 eral banking agencies, to the extent nec13 essary to carry out the purpose of this Act.

14 ‘‘(5) INSURANCE PRODUCT DEFINED.—For pur15 poses of this section, the term ‘insurance product’

16 includes an annuity contract the income of which is

17 subject to tax treatment under section 72 of the In18 ternal Revenue Code of 1986.

19 ‘‘(b) SALES PRACTICES.—

20 ‘‘(1) ANTICOERCION RULES.—The regulations

21 prescribed pursuant to subsection (a) shall include

22 anticoercion rules applicable to the sale of non23 deposit products which prohibit an insured deposi24 tory institution from engaging in any practice that

25 would lead a customer to believe an extension of
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1 credit, in violation of section 106(b) of the Bank

2 Holding Company Act Amendments of 1970, is con3 ditional upon—

4 ‘‘(A) the purchase of a nondeposit product

5 from the institution or any of its affiliates; or

6 ‘‘(B) an agreement by the customer not to

7 obtain, or a prohibition on the customer from

8 obtaining, a nondeposit product from an unaf9 filiated entity.

10 ‘‘(2) SUITABILITY OF PRODUCT.—

11 ‘‘(A) IN GENERAL.—The regulations pre12 scribed pursuant to subsection (a) with respect

13 to the sale of nondeposit products shall include

14 standards to ensure that an investment product

15 sold to a customer is suitable and any other

16 nondeposit product is appropriate for the cus17 tomer based on financial information disclosed

18 by the customer.

19 ‘‘(B) RULES OF FAIR PRACTICE.—In pre20 scribing the standards under subparagraph (A)

21 with respect to the sale of investments, the

22 Federal banking agencies shall take into ac23 count the Rules of Fair Practice of the Na24 tional Association of Securities Dealers.
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1 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula2 tions prescribed pursuant to subsection (a) shall include

3 the following provisions relating to disclosures and adver4 tising in connection with the initial purchase of a non5 deposit product:

6 ‘‘(1) DISCLOSURES.—

7 ‘‘(A) IN GENERAL.—Requirements that the

8 following disclosures be made orally and in writ9 ing before the completion of the initial sale and,

10 in the case of clause (iii), at the time of applica11 tion for an extension of credit:

12 ‘‘(i) UNINSURED STATUS.—As appro13 priate, the product is not insured by the

14 Federal Deposit Insurance Corporation,

15 the United States Government, or the in16 sured depository institution.

17 ‘‘(ii) INSURANCE PRODUCT.—In the

18 case of an insurance policy which is sold by

19 the depository institution, or any affiliate

20 of the institution, as agent, the product is

21 not an obligation of or guaranteed by the

22 depository institution.

23 ‘‘(iii) INVESTMENT RISK.—In the case

24 of an investment product, variable annuity,

25 or other product which involves an invest-
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1 ment risk, that there is an investment risk

2 associated with the product, including pos3 sible loss of value.

4 ‘‘(iv) COERCION.—The approval of an

5 extension of credit may not be conditioned

6 on—

7 ‘‘(I) the purchase of a nondeposit

8 product from the institution in which

9 the application for credit is pending or

10 any of affiliate of the institution; or

11 ‘‘(II) an agreement by the cus12 tomer not to obtain, or a prohibition

13 on the customer from obtaining, a

14 nondeposit product from an unaffili15 ated entity.

16 ‘‘(B) MAKING DISCLOSURE READILY UN17 DERSTANDABLE.—Regulations prescribed under

18 subparagraph (A) shall encourage the use of

19 disclosure that is conspicuous, simple, direct,

20 and readily understandable, such as the follow21 ing:

22 ‘‘(i) ‘NOT FDIC–INSURED’.

23 ‘‘(ii) ‘NOT GUARANTEED BY THE

24 BANK’.

25 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.
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1 ‘‘(C) ADJUSTMENTS FOR ALTERNATIVE

2 METHODS OF PURCHASE.—In prescribing the

3 requirements under subparagraphs (A) and

4 (D), necessary adjustments shall be made for

5 purchase in person, by telephone, or by elec6 tronic media to provide for the most appro7 priate and complete form of disclosure and ac8 knowledgments.

9 ‘‘(D) CUSTOMER ACKNOWLEDGMENT.—A

10 requirement that an insured depository institu11 tion shall require any person selling a non12 deposit product at any office of, or on behalf of,

13 the institution to obtain, at the time a customer

14 receives the disclosures required under this

15 paragraph or at the time of the initial purchase

16 by the customer of such product, an acknowl17 edgment by such customer of the receipt of the

18 disclosure required under this paragraph with

19 respect to such product.

20 ‘‘(2) PROHIBITION ON MISREPRESENTA21 TIONS.—A prohibition on any practice, or any adver22 tising, at any office of, or on behalf of, the insured

23 depository institution, or any subsidiary as appro24 priate, which could mislead any person or otherwise
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1 cause a reasonable person to reach an erroneous be2 lief with respect to—

3 ‘‘(A) the uninsured nature of any non4 deposit product sold, or offered for sale, by the

5 institution or any subsidiary of the institution;

6 or

7 ‘‘(B) in the case of a nondeposit product

8 that involves an investment risk, the investment

9 risk associated with any such product.

10 ‘‘(d) SEPARATION OF BANKING AND NONBANKING

11 ACTIVITIES.—

12 ‘‘(1) REGULATIONS REQUIRED.—The regula13 tions prescribed pursuant to subsection (a) shall in14 clude such provisions as the Federal banking agen15 cies consider appropriate to ensure that the routine

16 acceptance of deposits is kept, to the extent prac17 ticable, physically segregated from nondeposit prod18 uct activity.

19 ‘‘(2) REQUIREMENTS.—Regulations prescribed

20 pursuant to paragraph (1) shall include the follow21 ing requirements:

22 ‘‘(A) SEPARATE SETTING.—A clear delin23 eation of the setting in which, and the cir24 cumstances under which, transactions involving

25 nondeposit products should be conducted in a
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1 location physically segregated from an area

2 where retail deposits are routinely accepted.

3 ‘‘(B) REFERRALS.—Standards which per4 mit any person accepting deposits from the

5 public in an area where such transactions are

6 routinely conducted in an insured depository in7 stitution to refer a customer who seeks to pur8 chase any nondeposit product to a qualified per9 son who sells such product, only if the person

10 making the referral receives no more than a

11 one-time nominal fee of a fixed dollar amount

12 for each referral that does not depend on

13 whether the referral results in a transaction.

14 ‘‘(C) QUALIFICATION AND LICENSING RE15 QUIREMENTS.—Standards prohibiting any in16 sured depository institution from permitting

17 any person to sell or offer for sale any non18 deposit product in any part of any office of the

19 institution, or on behalf of the institution, un20 less such person is appropriately qualified and

21 licensed.

22 ‘‘(e) CUSTOMER GRIEVANCE PROCESS.—The Federal

23 banking agencies shall jointly establish a customer com24 plaint mechanism, for receiving and expeditiously address-
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1 ing customer complaints alleging a violation of regulations

2 issued under this section, which mechanism shall—

3 ‘‘(1) establish a group within each regulatory

4 agency to receive such complaints;

5 ‘‘(2) develop procedures for investigating such

6 complaints;

7 ‘‘(3) develop procedures for informing cus8 tomers of rights they may have in connection with

9 such complaints; and

10 ‘‘(4) develop procedures for addressing concerns

11 raised by such complaints, as appropriate, including

12 procedures for the recovery of losses to the extent

13 appropriate.

14 ‘‘(f) EFFECT ON OTHER AUTHORITY.—

15 ‘‘(1) IN GENERAL.—No provision of this section

16 shall be construed as granting, limiting, or otherwise

17 affecting—

18 ‘‘(A) any authority of the Securities and

19 Exchange Commission, any self-regulatory or20 ganization, the Municipal Securities Rule21 making Board, or the Secretary of the Treasury

22 under any Federal securities law; or

23 ‘‘(B) except as provided in paragraph (2),

24 any authority of any State insurance commis-
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1 sioner or other State authority under any State

2 law.

3 ‘‘(2) COORDINATION WITH STATE LAW.—

4 ‘‘(A) IN GENERAL.—Except as provided in

5 subparagraph (B), regulations prescribed by a

6 Federal banking agency under this section shall

7 not apply to retail sales, solicitations, advertis8 ing, or offers of any nondeposit product by any

9 insured depository institution or to any person

10 who is engaged in such activities at an office of

11 such institution or on behalf of the institution,

12 in a State where the State has in effect stat13 utes, regulations, orders, or interpretations,

14 that are inconsistent with or contrary to the

15 regulations prescribed by the Federal banking

16 agencies.

17 ‘‘(B) PREEMPTION.—If, with respect to

18 any provision of the regulations prescribed

19 under this section, the Board of Governors of

20 the Federal Reserve System, the Comptroller of

21 the Currency, the Director of the Office of

22 Thrift Supervision, and the Board of Directors

23 of the Federal Deposit Insurance Corporation

24 determine jointly that the protection afforded

25 by such provision for consumers is greater than
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1 the protection provided by a comparable provi2 sion of the statutes, regulations, orders, or in3 terpretations referred to in subparagraph (A) of

4 any State, such provision of the regulations pre5 scribed under this section shall supersede the

6 comparable provision of such State statute, reg7 ulation, order, or interpretation.’’.

Æ