I

106TH CONGRESS

1ST SESSION H. R. 823

To modernize and improve the financial services industry.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 24, 1999

Mr. BAKER 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 modernize and improve the financial services industry.

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 Competitive Enhancement Act’’.
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1 TITLE I—FINANCIAL SERVICES COMPETITIVE

2 ENHANCEMENT

3 SEC. 101. ANTI-AFFILIATION PROVISIONS OF ‘‘GLASS4 STEAGALL ACT’’ REPEALED.

5 (a) SECTION 20 REPEALED.—Section 20 of the

6 Banking Act of 1933 (12 U.S.C. 377) is repealed.

7 (b) SECTION 32 REPEALED.—Section 32 of the

8 Banking Act of 1933 (12 U.S.C. 78) is repealed.

9 SEC. 102. FINANCIAL ACTIVITIES.

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

11 of 1956 (12 U.S.C. 1843(c)(8)) is amended to read as

12 follows:

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

14 which the Board, in accordance with subsection (l)

15 has determined (by regulation or order) to be finan16 cial in nature or incidental to such financial activi17 ties and—

18 ‘‘(A) effective 90 days after the date of the

19 enactment of the Financial Services Competitive

20 Equality Act, it shall be financial in nature to

21 provide insurance as principal, agent, or broker

22 in any State, in full compliance with the laws

23 and regulations of such State that uniformly

24 apply to each type of insurance license or au25 thorization in such State, except that in no
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1 event shall the company, the bank holding com2 pany, or any affiliate of the company or bank

3 holding company be subject to any State law or

4 regulation that restricts a bank from having an

5 affiliate, agent, or employee in such State li6 censed to provide insurance as principal, agent,

7 or broker; and

8 ‘‘(B) the Board shall prescribe regulations

9 concerning insurance affiliations that provide

10 equivalent treatment for all stock and mutual

11 insurance companies that control or are other12 wise affiliated with a bank and fully accommo13 date and are consistent with State law;’’.

14 SEC. 103. INSURANCE COMPANY INVESTMENTS.

15 Section 4 of the Bank Holding Company Act of 1956

16 (12 U.S.C. 1843) is amended by adding at the end the

17 following new subsection:

18 ‘‘(k) INSURANCE COMPANY INVESTMENTS.—Not19 withstanding subsection (a), a bank holding company may

20 directly or indirectly acquire or control, whether as prin21 cipal, on behalf of 1 or more entities (including any sub22 sidiary of the holding company which is not a depository

23 institution or subsidiary of a depository institution) or oth24 erwise, shares, assets, or ownership interests (including

25 without limitation debt or equity securities, partnership
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1 interests, trust certificates or other instruments represent2 ing ownership) of a company or other entity, whether or

3 not constituting control of such company or entity, en4 gaged in any activity not authorized pursuant to this sec5 tion if—

6 ‘‘(1) the shares, assets, or ownership interests

7 are not acquired or held by a depository institution

8 or a subsidiary of a depository institution;

9 ‘‘(2) such shares, assets, or ownership interests

10 are acquired and held by an insurance company that

11 is predominately engaged in underwriting life, acci12 dent and health, or property and casualty insurance

13 (other than credit-related insurance);

14 ‘‘(3) such shares, assets, or ownership interests

15 represent an investment made in the ordinary course

16 of business of such insurance company in accordance

17 with relevant State law governing such investments;

18 and

19 ‘‘(4) during the period such shares, assets, or

20 ownership interests are held, the bank holding com21 pany does not directly or indirectly participate in the

22 day-to-day management or operation of the company

23 or entity except insofar as necessary to achieve the

24 objectives of paragraph (3).’’.
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1 SEC. 104. FINANCIAL IN NATURE.

2 Section 4 of the Bank Holding Company Act of 1956

3 (12 U.S.C. 1843) is amended by inserting after subsection

4 (k) (as added by section 4 of this Act) the following new

5 subsection:

6 ‘‘(l) ENGAGING IN ACTIVITIES FINANCIAL IN NA7 TURE.—

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

9 4(a), a bank holding company may engage in any

10 activity which the Board has determined (by regula11 tion or order) to be financial in nature or incidental

12 to such financial activities.

13 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter14 mining whether an activity is financial in nature or

15 incidental to financial activities, the Board shall take

16 into account—

17 ‘‘(A) the purposes of this Act and the Fi18 nancial Services Competitive Enhancement Act;

19 ‘‘(B) changes or reasonably expected

20 changes in the marketplace in which the bank

21 holding companies compete;

22 ‘‘(C) changes or reasonably expected

23 changes in the technology for delivering finan24 cial services; and

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

26 appropriate to allow a bank holding company
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1 and the affiliates of a bank holding company

2 to—

3 ‘‘(i) compete effectively with any com4 pany seeking to provide financial services

5 in the United States;

6 ‘‘(ii) use any available or emerging

7 technological means, including any applica8 tion necessary to protect the security or ef9 ficacy of systems for the transmission of

10 data or financial transactions, in providing

11 financial services; and

12 ‘‘(iii) offer customers any available or

13 emerging technological means for using fi14 nancial services.

15 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA16 TURE.—The following activities shall be considered

17 to be financial in nature:

18 ‘‘(A) Lending, exchanging, transferring, in19 vesting for others, or safeguarding money or se20 curities.

21 ‘‘(B) Insuring, guaranteeing, or indemnify22 ing against loss, harm, damage, illness, disabil23 ity, or death, or providing and issuing annu24 ities, and acting as principal, agent, or broker

25 for purposes of the foregoing.
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1 ‘‘(C) Providing financial, investment, or

2 economic advisory services, including advising

3 an investment company (as defined in section 3

4 of the Investment Company Act of 1940).

5 ‘‘(D) Issuing or selling instruments rep6 resenting interests in pools of assets permissible

7 for a bank to hold directly.

8 ‘‘(E) Underwriting, dealing, or making a

9 market in securities.

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

11 Board has determined, by order or regulation

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

13 Financial Services Competitive Enhancement

14 Act, to be so closely related to banking or man15 aging or controlling banks as to be a proper in16 cident thereto (subject to the same terms and

17 conditions contained in such order or regula18 tion, unless modified by the Board).

19 ‘‘(G) Engaging, in the United States, in

20 any activity that—

21 ‘‘(i) a bank holding company may en22 gage in outside the United States; and

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

24 regulations issued pursuant to section

25 4(c)(13) of this Act (as in effect on the
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1 day before the date of enactment of the Fi2 nancial Services Competitive Enhancement

3 Act) to be usual in connection with the

4 transaction of banking or other financial

5 operations abroad.

6 ‘‘(H) Directly or indirectly acquiring or

7 controlling, whether as principal, on behalf of 1

8 or more entities (including entities, other than

9 a depository institution or subsidiary of a de10 pository institution, that the bank holding com11 pany controls) or otherwise, shares, assets, or

12 ownership interests (including without limita13 tion debt or equity securities, partnership inter14 ests, trust certificates or other instruments rep15 resenting ownership) of a company or other en16 tity, whether or not constituting control of such

17 company or entity, engaged in any activity not

18 authorized pursuant to this section if—

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

20 interests are not acquired or held by a de21 pository institution or subsidiary of a de22 pository institution;

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

24 interests are acquired and held by a securi25 ties affiliate or an affiliate thereof as part
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1 of a bona fide underwriting or merchant

2 banking activity, including investment ac3 tivities engaged in for the purpose of ap4 preciation and ultimate resale or disposi5 tion of the investment;

6 ‘‘(iii) such shares, assets, or owner7 ship interests, are held for such a period of

8 time as will permit the sale or disposition

9 thereof on reasonable basis consistent with

10 the nature of the activities described in

11 clause (ii); and

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

13 assets, or ownership interests are held, the

14 bank holding company does not actively

15 participate in the day to day management

16 or operation of such company or entity, ex17 cept insofar as necessary to achieve the ob18 jectives of clause (ii).

19 ‘‘(4) ACTIONS REQUIRED.—The Board shall, by

20 regulation or order, define, consistent with the pur21 poses of this Act, the following activities as, and the

22 extent to which such activities are, financial in na23 ture or incidental to activities which are financial in

24 nature:
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1 ‘‘(A) Lending, exchanging, transferring, in2 vesting for others, or safeguarding financial as3 sets other than money or securities.

4 ‘‘(B) Providing any device or other instru5 mentality for transferring money or other finan6 cial assets;

7 ‘‘(C) Arranging, effecting, or facilitating fi8 nancial transactions for the account of third

9 parties.

10 ‘‘(5) POST CONSUMMATION NOTIFICATION.—

11 ‘‘(A) IN GENERAL.—A bank holding com12 pany that acquires any company, or commences

13 any activity, pursuant to this subsection shall

14 provide written notice to the Board describing

15 the activity commenced or conducted by the

16 company acquired no later than 30 calendar

17 days after commencing the activity or con18 summating the acquisition.

19 ‘‘(B) APPROVAL NOT REQUIRED FOR CER20 TAIN FINANCIAL ACTIVITIES.—Except as pro21 vided in section 4(j) with regard to the acquisi22 tion of a savings association, a bank holding

23 company may commence any activity, or ac24 quire any company, pursuant to paragraph (3)

25 or any regulation prescribed or order issued
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1 under paragraph (4), without prior approval of

2 the Board.

3 SEC. 105. STREAMLINING BANK HOLDING COMPANY SU4 PERVISION.

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

6 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

7 ‘‘(c) REPORTS AND EXAMINATIONS.—

8 ‘‘(1) REPORTS.—

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

10 to time may require any bank holding company

11 and any subsidiary of such company to submit

12 reports under oath to keep the Board informed

13 as to—

14 ‘‘(i) its financial condition, systems

15 for monitoring and controlling financial

16 and operating risks, and transactions with

17 depository institution subsidiaries of the

18 holding company; and

19 ‘‘(ii) compliance by the company or

20 subsidiary with applicable provisions of

21 this Act.

22 ‘‘(B) USE OF EXISTING REPORTS.—

23 ‘‘(i) IN GENERAL.—The Board shall,

24 to the fullest extent possible, accept re25 ports in fulfillment of the Board’s report-
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1 ing requirements under this paragraph

2 that a bank holding company or any sub3 sidiary of such company has provided or

4 been required to provide to other Federal

5 and State supervisors or to appropriate

6 self-regulatory organizations.

7 ‘‘(ii) AVAILABILITY.—A bank holding

8 company or a subsidiary of such company

9 shall provide to the Board, at the request

10 of the Board, a report referred to in clause

11 (i).

12 ‘‘(iii) REQUIRED USE OF PUBLICLY

13 REPORTED INFORMATION.—The Board

14 shall, to the fullest extent possible, accept

15 in fulfillment of any reporting or record16 keeping requirements under this Act infor17 mation that is otherwise required to be re18 ported publicly and externally audited fi19 nancial statements.

20 ‘‘(iv) REPORTS FILED WITH OTHER

21 AGENCIES.—In the event the Board re22 quires a report from a functionally regu23 lated nondepository institution subsidiary

24 of a bank holding company of a kind that

25 is not required by another Federal or State
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1 regulator or appropriate self-regulatory or2 ganization, the Board shall request that

3 the appropriate regulator or self-regulatory

4 organization obtain such report. If the re5 port is not made available to the Board,

6 and the report is necessary to assess a ma7 terial risk to the bank holding company or

8 its subsidiary depository institution or

9 compliance with this Act, the Board may

10 require such subsidiary to provide such a

11 report to the Board.

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

13 subsection, the term ‘functionally regulated

14 nondepository institution’ means—

15 ‘‘(i) a broker or dealer registered

16 under the Securities Exchange Act of

17 1934;

18 ‘‘(ii) an investment adviser registered

19 under the Investment Advisers Act of

20 1940, with respect to the investment advi21 sory activities of such investment adviser

22 and activities incidental to such investment

23 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
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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-
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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; or

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,
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1 could have a materially adverse effect on

2 the safety and soundness of any depository

3 institution affiliate of the holding company.

4 ‘‘(D) DEFERENCE TO BANK EXAMINA5 TIONS.—The Board shall, to the fullest extent

6 possible, use for the purposes of this paragraph,

7 the reports of examinations of depository insti8 tutions made by the appropriate Federal and

9 State depository institution supervisory author10 ity.

11 ‘‘(E) DEFERENCE TO OTHER EXAMINA12 TIONS.—The Board shall, to the fullest extent

13 possible, address the circumstances which might

14 otherwise permit or require an examination by

15 the Board by forgoing an examination and in16 stead reviewing the reports of examination

17 made of—

18 ‘‘(i) any registered broker or dealer or

19 registered investment adviser by or on be20 half of the Securities and Exchange Com21 mission;

22 ‘‘(ii) any licensed insurance company

23 by or on behalf of any state regulatory au24 thority responsible for the supervision of

25 insurance companies; and
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1 ‘‘(iii) any other subsidiary that the

2 Board finds to be comprehensively super3 vised by a Federal or State authority.

4 ‘‘(3) CAPITAL.—

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

6 by regulation, guideline, order or otherwise pre7 scribe or impose any capital or capital adequacy

8 rules, guidelines, standards, or requirements on

9 any subsidiary of a bank holding company that

10 is not a depository institution and—

11 ‘‘(i) is in compliance with applicable

12 capital requirements of another Federal

13 regulatory authority (including the Securi14 ties and Exchange Commission) or State

15 insurance authority; or

16 ‘‘(ii) is registered as an investment

17 adviser under the Investment Advisers Act

18 of 1940.

19 ‘‘(B) RULE OF CONSTRUCTION.—Subpara20 graph (A) shall not be construed as preventing

21 the Board from imposing capital or capital ade22 quacy rules, guidelines, standards, or require23 ments with respect to activities of a registered

24 investment adviser other than investment advi-
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1 sory activities or activities incidental to invest2 ment advisory activities.

3 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP4 PROPRIATE FEDERAL BANKING AGENCY.—

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

6 bank holding company which is not significantly

7 engaged in nonbanking activities, the Board, in

8 consultation with the appropriate Federal bank9 ing agency, may designate the appropriate Fed10 eral banking agency of the lead insured deposi11 tory institution subsidiary of such holding com12 pany as the appropriate Federal banking agen13 cy for the bank holding company.

14 ‘‘(B) AUTHORITY TRANSFERRED.—An

15 agency designated by the Board under subpara16 graph (A) shall have the same authority as the

17 Board under this Act to—

18 ‘‘(i) examine and require reports from

19 the bank holding company and any affiliate

20 of such company (other than a depository

21 institution) under section 5;

22 ‘‘(ii) approve or disapprove applica23 tions or transactions under section 3;
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1 ‘‘(iii) take actions and impose pen2 alties under subsections (e) and (f) of sec3 tion 5 and section 8; and

4 ‘‘(iv) take actions regarding the hold5 ing company, any affiliate of the holding

6 company (other than a depository institu7 tion), or any institution-affiliated party of

8 such company or affiliate under the Fed9 eral Deposit Insurance Act and any other

10 statute which the Board may designate.

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

12 Act) and section 105 of the Bank Holding

13 Company Act Amendments of 1970 shall apply

14 to orders issued by an agency designated under

15 subparagraph (A) in the same manner such sec16 tions apply to orders issued by the Board.

17 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

18 AND INSURANCE ACTIVITIES.—The Board shall defer

19 to—

20 ‘‘(A) the Securities and Exchange Commis21 sion with regard to all interpretations of, and

22 the enforcement of, applicable Federal securi23 ties laws relating to the activities, conduct, and

24 operations of registered brokers, dealers, invest25 ment advisers, and investment companies; and
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1 ‘‘(B) the relevant State insurance authori2 ties with regard to all interpretations of, and

3 the enforcement of, applicable State insurance

4 laws relating to the activities, conduct, and op5 erations of insurance companies and insurance

6 agents.’’.

7 SEC. 106. AMENDMENT TO DIVESTITURE PROCEDURES.

8 Section 5(e)(1) of the Bank Holding Company Act

9 of 1956 (12 U.S.C. 1844(e)(1)) is amended—

10 (1) by striking ‘‘Financial Institutions Super11 visory Act of 1966, order’’ and inserting ‘‘Financial

12 Institutions Supervisory Act of 1966, at the election

13 of the bank holding company—

14 ‘‘(A) order’’; and

15 (2) by striking ‘‘shareholders of the bank hold16 ing company. Such distribution’’ and inserting

17 ‘‘shareholders of the bank holding company; or

18 ‘‘(B) order the bank holding company,

19 after due notice and opportunity for hearing,

20 and after consultation with the bank’s primary

21 supervisor, which shall be the Comptroller of

22 the Currency in the case of a national bank and

23 the Federal Deposit Insurance Corporation and

24 the appropriate State supervisor in the case of

25 an insured nonmember bank, to terminate
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1 (within 120 days or such longer period as the

2 Board may direct) the ownership or control of

3 any such bank by such company.

4 ‘‘The distribution referred to in subparagraph (A)’’.

5 SEC. 107. AUTHORITY OF STATE INSURANCE REGULATOR

6 AND SECURITIES AND EXCHANGE COMMIS7 SION.

8 Section 5 of the Bank Holding Company Act of 1956

9 (12 U.S.C. 1844) is amended by adding at the end the

10 following new subsection:

11 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

12 AND THE SECURITIES AND EXCHANGE COMMISSION.—

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

14 provision of law, any regulation, order, or other ac15 tion of the Board which requires a bank holding

16 company to provide funds or other assets to a sub17 sidiary insured depository institution shall not be ef18 fective nor enforceable if—

19 ‘‘(A) such funds or assets are to be pro20 vided by—

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

22 an insurance company or is a broker or

23 dealer registered under the Securities Ex24 change Act of 1934; or
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1 ‘‘(ii) an affiliate of the depository in2 stitution which is an insurance company or

3 a broker or dealer registered under such

4 Act; and

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

6 insurance company or the Securities and Ex7 change Commission for the registered broker or

8 dealer, as the case may be, determines in writ9 ing sent to the holding company and the Board

10 that the holding company shall not provide such

11 funds or assets because such action would have

12 a material adverse effect on the financial condi13 tion of the insurance company or the broker or

14 dealer, as the case may be.

15 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

16 OF SEC REQUIRED.—If the Board requires a bank

17 holding company, or an affiliate of a bank holding

18 company, which is an insurance company or a

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

20 provide funds or assets to an insured depository in21 stitution subsidiary of the holding company pursuant

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

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

24 promptly notify the State insurance authority for the

25 insurance company or the Securities and Exchange
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1 Commission, as the case may be, of such require2 ment.

3 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC4 TION.—If the Board receives a notice described in

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

6 or the Securities and Exchange Commission with re7 gard to a bank holding company or affiliate referred

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

9 holding company to divest the insured depository in10 stitution within 180 days of receiving notice or such

11 longer period as the Board determines consistent

12 with the safe and sound operation of the insured de13 pository institution.

14 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur15 ing the period beginning on the date an order to di16 vest is issued by the Board under paragraph (3) to

17 a bank holding company and ending on the date the

18 divestiture is completed, the Board may impose any

19 conditions or restrictions on the holding company’s

20 ownership or operation of the insured depository in21 stitution, including restricting or prohibiting trans22 actions between the insured depository institution

23 and any affiliate of the institution, as are appro24 priate under the circumstances.’’.
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1 SEC. 108. PRUDENTIAL SAFEGUARDS.

2 Section 5 of the Bank Holding Company Act of 1956

3 (12 U.S.C. 1844) is amended by inserting after subsection

4 (g) (as added by section 8 of this Act) the following new

5 subsection:

6 ‘‘(h) PRUDENTIAL SAFEGUARDS.—

7 ‘‘(1) IN GENERAL.—The Board may, by regula8 tion or order, impose restrictions or requirements on

9 relationships or transactions between a depository

10 institution subsidiary of a bank holding company

11 and any affiliate of such depository institution (other

12 than a subsidiary of such institution) which the

13 Board finds is consistent with the public interest,

14 the purposes of this Act, the Financial Services

15 Competitive Enhancement Act, the Federal Reserve

16 Act, and other Federal law applicable to depository

17 institution subsidiaries of bank holding companies

18 and the standards in paragraph (2).

19 ‘‘(2) STANDARDS.—The Board may exercise au20 thority under paragraph (1) if the Board finds that

21 such action will have any of the following effects:

22 ‘‘(A) Avoid any significant risk to the safe23 ty and soundness of depository institutions or

24 any Federal deposit insurance fund.

25 ‘‘(B) Enhance the financial stability of

26 bank holding companies.
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1 ‘‘(C) Avoid conflicts of interest or other

2 abuses.

3 ‘‘(D) Enhance the privacy of customers of

4 depository institutions.

5 ‘‘(E) Promote the application of national

6 treatment and equality of competitive oppor7 tunity between nonbank affiliates owned or con8 trolled by domestic bank holding companies and

9 nonbank affiliates owned or controlled by for10 eign banks operating in the United States.

11 ‘‘(3) REVIEW.—The Board shall regularly—

12 ‘‘(A) review all restrictions or requirements

13 established pursuant to paragraph (1) to deter14 mine whether there is a continuing need for any

15 such restriction or requirement to carry out the

16 purposes of the Act, including any purpose de17 scribed in paragraph (2); and

18 ‘‘(B) modify or eliminate any restriction or

19 requirement the Board finds is no longer re20 quired for such purposes.’’.

21 SEC. 109. EXAMINATION OF INVESTMENT COMPANIES.

22 (a) EXCLUSIVE COMMISSION AUTHORITY.—

23 (1) IN GENERAL.—The Commission shall be the

24 sole agency with authority to inspect and examine
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1 any registered investment company that is not a

2 bank holding company.

3 (2) PROHIBITION ON BANKING AGENCIES.—A

4 Federal banking agency may not inspect or examine

5 any registered investment company that is not a

6 bank holding company.

7 (b) EXAMINATION RESULTS AND OTHER INFORMA8 TION.—The Commission shall provide to any Federal

9 banking agency, upon request, the results of any examina10 tion, reports, records, or other information with respect

11 to any registered investment company to the extent nec12 essary for the agency to carry out its statutory responsibil13 ities.

14 (c) DEFINITION.—For purposes of this section, the

15 following definitions shall apply:

16 (1) BANK HOLDING COMPANY.—The term

17 ‘‘bank holding company’’ has the meaning given to

18 such term in section 2 of the Bank Holding Com19 pany Act of 1956.

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

21 means the Securities and Exchange Commission.

22 (3) FEDERAL BANKING AGENCY.—The term

23 ‘‘Federal banking agency’’ has the meaning given to

24 such term in section 3(z) of the Federal Deposit In25 surance Act.
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1 (4) REGISTERED INVESTMENT COMPANY.—The

2 term ‘‘registered investment company’’ means an in3 vestment company which is registered with the Com4 mission under the Investment Company Act of 1940.

5 SEC. 110. LIMITATION ON RULEMAKING, PRUDENTIAL, SU6 PERVISORY, AND ENFORCEMENT AUTHORITY

7 OF THE BOARD.

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

9 1841 et seq.) is amended by inserting after section 10 the

10 following new section:

11 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU12 PERVISORY, AND ENFORCEMENT AUTHORITY

13 OF THE BOARD.

14 ‘‘(a) LIMITATION ON DIRECT ACTION.—

15 ‘‘(1) IN GENERAL.—The Board may not pre16 scribe regulations, issue or seek entry of orders, im17 pose restraints, restrictions, guidelines, require18 ments, safeguards, or standards, or otherwise take

19 any action under or pursuant to any provisions of

20 this Act or section 8 of the Federal Deposit Insur21 ance Act against or with respect to a regulated sub22 sidiary of a bank holding company unless the action

23 is necessary to prevent or redress an unsafe or un24 sound practice or breach of fiduciary duty by such

25 subsidiary that poses a material risk to—
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1 ‘‘(A) the financial safety, soundness, or

2 stability of an affiliated depository institution;

3 or

4 ‘‘(B) the domestic or international pay5 ment system.

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

7 Board shall not take action otherwise permitted

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

9 is not reasonably possible to effectively protect

10 against the material risk at issue through action di11 rected at or against the affiliated depository institu12 tion or against depository institutions generally.

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

14 may not prescribe regulations, issue or seek entry of or15 ders, impose restraints, restrictions, guidelines, require16 ments, safeguards, or standards, or otherwise take any ac17 tion under or pursuant to any provision of this Act or sec18 tion 8 of the Federal Deposit Insurance Act against or

19 with respect to a bank holding company where the purpose

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

21 against or with respect to a regulated subsidiary that may

22 not be taken directly against or with respect to such sub23 sidiary in accordance with subsection (a).

24 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not25 withstanding subsection (a), the Board may take action
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1 under this Act or section 8 of the Federal Deposit Insur2 ance Act to enforce compliance by a regulated subsidiary

3 with Federal law that the Board has specific jurisdiction

4 to enforce against each subsidiary.

5 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur6 poses of this section, the term ‘regulated subsidiary’

7 means any company that is not a bank holding company

8 and is—

9 ‘‘(1) a broker or dealer registered under the Se10 curities Exchange Act of 1934;

11 ‘‘(2) an investment adviser registered under the

12 Investment Advisers Act of 1940, with respect to the

13 investment advisory activities of such investment ad14 viser and activities incidental to such investment ad15 visory activities;

16 ‘‘(3) an investment company registered under

17 the Investment Company Act of 1940;

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

19 agency subject to supervision by a State insurance

20 commission, agency, or similar authority; or

21 ‘‘(5) an entity subject to regulation by the Com22 modity Futures Trading Commission, with respect

23 to the commodities activities of such entity and ac24 tivities incidental to such commodities activities.’’.

Æ