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[Senate Report 109-256]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 437
109th Congress                                                   Report
                                 SENATE
 2d Session                                                     109-256

======================================================================

 
            FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006

                                _______
                                

                  May 18, 2006.--Ordered to be printed

                                _______
                                

 Mr. Crapo, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2856]

    The Committee on Banking, Housing, and Urban Affairs, which 
took up an original bill, having considered the same, reports 
favorably thereon and recommends that the bill do pass.

                              INTRODUCTION

    On May 4, 2006, the Senate Committee on Banking, Housing, 
and Urban Affairs considered a Committee Print, entitled ``The 
Financial Services Regulatory Relief Act of 2006,'' a bill to 
provide regulatory relief and improve productivity for insured 
depository institutions, and for other purposes. The Committee 
passed the bill by voice vote.

                       PURPOSE OF THE LEGISLATION

    Regulatory burdens imposed on the financial services 
industry have grown over time. Some of these requirements have 
become obsolete or unnecessary. The purpose of this legislation 
is to lessen the regulatory burden, so banks, thrifts, and 
credit unions can better serve their customers and communities.

                                HEARINGS

    The Committee heard testimony in the 109th Congress on 
March 1, 2006, regarding the consideration of regulatory relief 
proposals. The witnesses testifying were: John M. Reich, 
Director, Office of Thrift Supervision; Gavin M. Gee, Director 
of Finance, Idaho Department of Finance; Donald L. Kohn, 
Governor--Federal Reserve Board of Governors, Federal Reserve 
System; Douglas H. Jones, Acting General Counsel, Federal 
Deposit Insurance Corporation; Julie L. Williams, First Senior 
Deputy Comptroller and Chief Counsel, Office of the Comptroller 
of the Currency; JoAnn Johnson, Chairman--Board of Directors, 
National Credit Union Administration; Linda Jekel, Chair and 
Director of Credit Unions, National Association of State Credit 
Union Supervisors; Bradley Rock, President and CEO, Bank of 
Smithtown; Edmund Mierzwinski, Consumer Program Director, U.S. 
Public Interest Research Group; F. Weller Meyer, President and 
CEO, Acacia Federal Savings Bank; H. Greg McClellan, President 
and CEO, MAX Federal Credit Union; Travis Plunkett, Legislative 
Director, Consumer Federation of America; Steve Bartlett, 
President and CEO, Financial Services Roundtable; Joe McGee, 
President and CEO, Legacy Community Federal Credit Union; 
Margot Saunders, Managing Attorney, National Consumer Law 
Center; and Terry Jorde, President and CEO, CountryBank USA.
    The Committee had previously heard testimony on June 21, 
2005, regarding the consideration of regulatory relief 
proposals. The witnesses testifying were: John M. Reich, Vice 
Chairman, Federal Deposit Insurance Corporation; Julie L. 
Williams, Acting Comptroller, Office of the Comptroller of the 
Currency; Mark W. Olson, Member, Board of Governors, Federal 
Reserve System; Richard M. Riccobono, Acting Director, Office 
of Thrift Supervision; JoAnn Johnson, Chairman--Board of 
Directors, National Credit Union Administration; Eric McClure, 
Commissioner, Missouri Division of Finance; Steve Bartlett, 
President and CEO, Financial Services Roundtable; Carolyn 
Carter, Counsel, National Consumer Law Center; Arthur R. 
Connelly, Chairman and CEO, South Shore Savings Bank; David 
Hayes, President and CEO, Security Bank; Christopher A. Korst, 
Senior Vice President, Rent-A-Center, Inc.; Chris Loseth, 
President and CEO, Potlatch No. 1 Federal Credit Union; Ed 
Pinto, President, Courtesy Settlement Services LLC; Eugene 
Maloney, Executive Vice President, Federated Investors, Inc.; 
Travis Plunkett, Legislative Director, Consumer Federation of 
America; Bradley Rock, President and CEO, Bank of Smithtown; 
and Michael Vadala, President and CEO, The Summit Federal 
Credit Union.
    The Committee also heard testimony in the 108th Congress on 
June 22, 2004, regarding the consideration of regulatory relief 
proposals. The witnesses testifying were: Mary L. Landrieu, 
United States Senator; Blanche Lambert Lincoln, United States 
Senator; Donald Kohn, Member of the Board of Governors of the 
Federal Reserve; John M. Reich, Vice Chairman, Federal Deposit 
Insurance Corporation; JoAnn Johnson, Chair, National Credit 
Union Administration; John Bowman, Chief Counsel, Office of 
Thrift Supervision; John Allison, Mississippi State Banking 
Commissioner; Roger W. Little, Deputy Commissioner, Credit 
Union Division, Division of Financial Institutions, State of 
Michigan; Mark Macomber, President and CEO, Litchfield Bancorp; 
Edward J. Pinto, President & CEO, Lenders Residential Asset 
Company LLC; Dale L. Leighty, Chairman/President, First 
National Bank of Las Animas; Bradley Rock, President and CEO, 
Bank of Smithtown; Eugene Maloney, Executive Vice President, 
Federated Investors, Inc.; Marilyn F. James, CEO of NEPCO 
Federal Credit Union; Margot Saunders, Managing Attorney, 
National Consumer Law Center; Edmund Mierzwinski, Consumer 
Program Director, U.S. Public Interest Research Group; Julie 
Williams, First Senior Deputy Comptroller and Chief Counsel, 
Office of the Comptroller of the Currency; William Cheney, 
President/CEO, Xerox Federal Credit Union; and William A. 
Longbrake, Vice Chair, Washington Mutual Incorporated.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title; table of contents

    This section provides a short title and table of contents.

Section 101. Rulemaking required for revised definition of broker in 
        the Securities Exchange Act of 1934

    Prior to passage of the Gramm-Leach-Bliley Act (``GLBA''), 
banks were exempt from the definition of ``broker'' under the 
Securities Exchange Act of 1934 (``Exchange Act'') and 
therefore not required to register as a broker under the 
Exchange Act.
    Section 201 of GLBA repealed the banks' blanket exemption 
and replaced it with a series of activity-specific statutory 
exceptions. Thus, as long as a bank is engaged in these 
``traditional banking activities,'' it would not be subject to 
broker-dealer regulation by the Securities andExchange 
Commission (``SEC''). These activities would, however, continue to be 
supervised by the Federal bank regulators.
    Section 101 directs the SEC to consult with and seek the 
concurrence of the Federal banking agencies in implementing the 
exceptions to the definition of broker under Section 201 of 
GLBA. Section 101 also provides for expedited judicial review 
in the event that one of the Federal banking agencies decides 
to challenge a final rule by the SEC on the grounds that it is 
not consistent with the purposes and language of Section 
3(a)(4) of the Exchange Act. Section 101 in no way amends or 
otherwise affects the provisions of Section 25 of the Exchange 
Act permitting private parties to challenge a rule adopted by 
the SEC. In addition, Section 101 provides that (1) upon 
enactment, no rules previously issued by the SEC with regard to 
the bank exception from the definition of ``broker'' under 
Section 3(a)(4) of the Exchange Act (whether or not issued in 
final form) shall have any force or effect as of the date of 
enactment of GLBA, and (2) the final rule issued in accordance 
with Section 101 shall supersede such previous rules.

Section 201. Authorization for the Federal Reserve to pay interest on 
        reserves

    This section authorizes the payment of interest on balances 
held by depository institutions at a Federal reserve bank.

Section 202. Increased flexibility for the Federal Reserve Board to 
        establish reserve requirements

    This section provides the Federal Reserve with greater 
flexibility to set the ratio of reserves a depository 
institution must maintain against its transaction accounts, 
allowing a zero reserve ratio, if appropriate.

Section 301. Voting in shareholder elections

    This section permits a national bank to provide in its 
articles of association which method of electing its directors 
best suits its business goals and needs--a national bank could 
choose whether to allow cumulative voting, which is mandated by 
the current law.

Section 302. Simplifying dividend calculations for national banks

    This section provides more flexibility than current law to 
a national bank to pay dividends as deemed appropriate by its 
board of directors. Consistent with safety and soundness, the 
amendment retains the current requirements that Office of the 
Comptroller of the Currency (``OCC'') approval is necessary if 
the dividend exceeds a certain amount. These same dividend 
approval requirements apply to State member banks with the 
exception that the Federal Reserve Board is the approval 
authority rather than the OCC.

Section 303. Repeal of obsolete limitation on removal authority of the 
        Comptroller of the Currency

    This section gives the OCC the same removal authority as 
the other banking agencies to remove an institution-affiliated 
party (``IAP'') from the banking business.

Section 304. Repeal of obsolete provisions in the Revised Statutes

    This section deletes references to two obsolete provisions 
regarding capital requirements, but makes no changes to the 
requirement that a national bank may not reduce its capital 
unless approved by shareholders owning two-thirds of its 
capital stock and by the OCC.

Section 401. Parity for savings associations under the Securities 
        Exchange Act of 1934 and the Investment Advisers Act of 1940

    This section exempts Federal savings associations from the 
investment adviser and broker-dealer regulatory requirements to 
the same extent that banks are exempt under the Investment 
Advisers Act of 1940 and the Securities and Exchange Act of 
1934.

Section 402. Repeal of overlapping rules governing purchased mortgage 
        servicing rights

    This section repeals the overlapping, obsolete requirements 
governing purchased mortgage servicing rights (``PMSRs'') in 
the Home Owners'' Loan Act. Section 475 of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 will continue to 
govern the valuation of PMSRs for savings associations and 
other depository institutions. Section 475 already permits 
overriding the valuation limit, and repealing this provision 
will simply eliminate potential confusion without sacrificing 
safety and soundness objectives.

Section 403. Clarifying citizenship of Federal savings associations for 
        Federal court jurisdiction

    This section expressly provides that a Federal savings 
association is only a citizen of the State in which its home 
office is located for purposes of determining diversity 
jurisdiction.

Section 404. Repeal of limitation on loans to one borrower

    This section eliminates the limitation in the loans to one 
borrower provision applicable to thrifts that restricts loans 
to develop domestic residential housing units to units with a 
purchase price that does not exceed $500,000. It does not alter 
the overall limitation of the lesser of $30 million or 30% of a 
savings association's unimpaired capital and unimpaired surplus 
for residential housing development.

Section 501. Leases of land on Federal facilities for credit unions

    This section gives military and civilian authorities 
responsible for buildings erected on Federal property the 
discretion to extend to credit unions that finance the 
construction of credit union facilities on Federal land real 
estate leases at minimal charge.

Section 502. Increase in general 12-year limitation of term of Federal 
        credit union loans to 15 years

    This section increases the maturity limitation on Federal 
credit union loans from 12 to 15 years.

Section 503. Check cashing and money transfer services offered within 
        the field of membership

    This section amends the Federal Credit Union Act to allow 
Federal credit unions to sell negotiable checks, money orders, 
and other similar transfer instruments, including international 
and domestic electronic fund transfers, to anyone eligible for 
membership, regardless of their membership status.

Section 504. Clarification of definition of net worth under certain 
        circumstances for purposes of prompt corrective action

    This section amends the Federal Credit Union Act's prompt 
corrective action requirements by redefining a credit union's 
net worth as the retained earnings balance of the credit union 
(as determined under generally accepted accounting principles, 
as under current law), together with any amounts that were 
previously retained earnings of any other credit union with 
which the credit union has merged.

Section 601. Reporting requirements relating to insider lending

    This section eliminates certain reporting requirements 
currently imposed on banks and their executive officers and 
principal shareholders related to lending by banks to insiders. 
This would not alter restrictions on the ability of banks to 
make insider loans or limit the ability of Federal banking 
agencies to take enforcement action against a bank or its 
insiders for violation of lending limits.

Section 602. Investments by insured savings associations in bank 
        service companies authorized

    This section provides investment authority for banks and 
thrifts to participate in bank service companies, while 
preserving existing activity and geographic limits and maximum 
investment rules, as well as the roles of the Federal 
regulatory agencies with respect to subsidiary activities of 
the institutions under their primary jurisdiction.

Section 603. Authorization for member bank to use pass-through reserve 
        accounts

    This section permits banks that are members of the Federal 
Reserve System to count as reserves the deposits in other banks 
that are ``passed through'' by those banks to the Federal 
Reserve as required reserve balances. Nonmember banks already 
are able to use such pass-through reserve accounts.

Section 604. Streamlining reports of condition

    This section directs all Federal banking agencies to 
conduct a review of call report requirements every five years 
to determine which data requirements are no longer necessary or 
appropriate.

Section 605. Expansion of eligibility for 18-month examination schedule 
        for community banks

    This section amends the Federal Deposit Insurance Act to 
increase from $250 million to $500 million the asset size of 
well-capitalized, well-managed institutions eligible for the 
extended 18-month examination schedule.

Section 606. Streamlining depository institution merger applications 
        requirements

    This section eliminates the requirement that each federal 
banking agency must request a competitive factors report from 
the other three federal banking agencies as well as from the 
Attorney General. The amendment decreases the number to two, 
with the Attorney General continuing to be required to consider 
the competitive factors involved in each merger transaction and 
the Federal Deposit Insurance Corporation (``FDIC''), as 
insurer, receiving notice even where it is not the appropriate 
banking agency for the particular merger. Federal banking 
agencies are not required to request a competitive factors 
report if they find that they must act on a merger application 
immediately to prevent the probable failure of a depository 
institution involved in the transaction, or the transaction 
consists of a merger solely between an insured depository 
institution and one or more of its affiliates.

Section 607. Nonwaiver of privileges

    This section provides that a depository institution does 
not waive any privilege it may claim with respect to 
information when it submits such information to a Federal, 
State, or foreign bank regulator as part of the supervisory 
process.

Section 608. Clarification of application requirements for optional 
        conversion for Federal savings associations

    This section clarifies that conversions which result in 
more than one bank require deposit insurance applications from 
the resulting institutions, as well as review and approval by 
the appropriate Federal banking agency. In addition, the 
amendment clarifies that no applications under Section 18(c) of 
the Federal Deposit Insurance Act would be required for such 
conversions.

Section 609. Exemption from disclosure of privacy policy for accounting 
        firms

    This section exempts from compliance with the disclosure 
requirements of section 503(a) of GLBA certified public 
accountants that are subject to State law that prohibits the 
disclosure of a consumer's nonpublic personal information 
without the knowing and expressed consent of the consumer.

Section 610. Inflation adjustment for the small depository institution 
        exception under the Depository Institution Management 
        Interlocks Act

    This section increases the small depository institution 
exemption limit under Depository Institution Management 
Interlock Act (``DIMIA'') from $20 million in assets to $50 
million in assets. Unless the institutions have less than $20 
million in assets, DIMIA currently prohibits a management 
official of one institution from serving as a management 
official of any other nonaffiliated depository institution or 
depository institution holding company if the institutions or 
an affiliate of such institutions have offices that are located 
in the same metropolitan statistical area. The amendment 
increases this exemption threshold to $50 million in assets.

Section 611. Modification to cross marketing restrictions

    This section allows depository institution subsidiaries of 
a financial holding company to engage in cross-marketing 
activities with portfolio companies that are held under GLBA 
merchant banking authority to the same extent as such 
activities are currently permissible for portfolio companies 
held under GLBA insurance company investment authority.

Section 701. Statute of limitations for judicial review of appointment 
        of a receiver for depository institutions

    This section provides for a 30-day period for a party to 
judicially challenge a determination by the OCC to appoint a 
receiver for a national bank. This section also amends the Bank 
Conservation Act and the Federal Deposit Insurance Act to 
provide greater consistency regarding the time an insured 
depository institution has to challenge the appointment of a 
receiver.

Section 702. Enhancing the safety and soundness of insured depository 
        institutions

    This section clarifies the discretionary authority of the 
Federal banking agencies to enforce (1) any condition imposed 
in writing in connection with any action on any application, 
notice, or other request, or (2) any written agreement between 
the agency and an IAP, particularly those in which an IAP or 
controlling shareholder agrees to provide capital to the 
depository institution, without showing unjust enrichment or 
limiting recovery to 5% of the institution's assets at the time 
it became undercapitalized. Also, this section clarifies 
existing FDIC authority as receiver or conservator to enforce 
written conditions or agreements. This section eliminates the 
requirement that the insured depository institution receiving 
the transfer be undercapitalized at the time of the transfer.

Section 703. Cross guarantee authority

    This section clarifies the scope of cross guarantee 
liability to include all insured depository institutions 
commonly controlled by the same company.

Section 704. Golden parachute authority and nonbank holding companies

    This section clarifies that the authority to prohibit 
golden parachute payments includes nonbank holding companies as 
well as depository institution holding companies.

Section 705. Amendments relating to change in bank control

    This section amends the Change in Bank Control Act to 
clarify the bases for which change-in-control notices may be 
disapproved and to expand the bases for extensions of time for 
consideration of certain notices raising novel or significant 
issues.

Section 706. Amendment to provide the Federal Reserve Board with 
        discretion concerning the imputation of control of shares of a 
        company by trustees

    This section permits the Federal Reserve Board to waive the 
attribution rule in section 2(g)(2) of the Bank Holding Company 
Act (12 U.S.C. 1841(g)(2)) in appropriate circumstances. It is 
expected that the Federal Reserve Board would grant such a 
waiver only in situations where the facts and circumstances 
indicate that the company does not have the ability to control 
the shares held on behalf of its shareholders, members or 
employees. This attribution rule currently provides that, for 
purposes of the Bank Holding Company Act, a company is deemed 
in all circumstances to own or control any shares that are held 
by a trust (such as an employee benefit plan) for the benefit 
of the company or its shareholders or employees.

Section 707. Interagency data sharing

    GLBA gave the Federal Reserve Board authority to provide 
confidential supervisory information concerning an examined 
entity to another supervisory authority, an officer, director, 
or receiver of the examined entity, or any other person 
determined by the supervisory agency to be appropriate. This 
section gives the same authority to all federal banking 
agencies.

Section 708. Clarification of extent of suspension, removal, and 
        prohibition authority of Federal banking agencies in cases of 
        certain crimes by institution-affiliated parties

    This section clarifies that the appropriate Federal banking 
agency may suspend or prohibit individuals charged with certain 
crimes from participation in the affairs of any depository 
institution and not solely the insured depository institution 
with which the institution affiliated party is or was 
associated. This section further clarifies that the section 
8(g) remedy may be imposed even where the institution with 
which the individuals were associated ceases to exist. The 
proposed amendment also allows the appropriate Federal banking 
agency to suspend or remove an individual who attempts to 
become involved in the affairs of an insured depository 
institution after being charged with a crime involving 
dishonesty or a breach of trust and clarifies the standards and 
process for issuing a suspension or removal order in situations 
where an individual terminates his or her affiliation with one 
depository institution after being charged with a crime, but 
then becomes or seeks to become affiliated with another.

Section 709. Protection of confidential information received by Federal 
        banking regulators from foreign banking supervisors

    This section provides that a Federal banking agency may not 
be compelled to disclose information received from a foreign 
regulatory or supervisory authority if public disclosure of the 
information would violate the laws applicable to that authority 
and the agency obtained the information in connection with the 
administration and enforcement of Federal banking laws or under 
a memorandum of understanding between the authority and the 
agency. This section also provides that such information would 
be exempt under FOIA, but does not authorize an agency to 
withhold information from Congress or in response to a court 
order.

Section 710. Prohibition on participation by convicted individuals

    This section would prohibit a person convicted of a 
criminal offense involving dishonesty, a breach of trust, or 
money laundering from participating in the affairs of a bank 
holding company or an Edge or Agreement Corporation, without 
the consent of the Federal Reserve Board, and from 
participating in the affairs of a savings and loan holding 
company or any of its nonthrift subsidiaries, without the 
consent of the Office of Thrift Supervision (``OTS''). Foreign 
banks and nonbank subsidiaries of a bank holding company are 
excluded.

Section 711. Coordination of State examination authority

    This section is intended to improve coordination of 
supervision of multi-state state-chartered banks, by clarifying 
how state-chartered institutions with branches in more than one 
state are examined. While giving primacy of supervision to the 
chartering or home state, this section requires the home state 
bank supervisor to abide by any written cooperative agreement 
relating to coordination of exams and joint participation in 
exams, with the host state supervisor where an out-of-state 
branch is located. Unless otherwise permitted by a cooperative 
agreement, only the home state supervisor may charge state 
supervisory fees on the bank. If a branch in a host state 
resulted from certain interstate merger transactions, the host 
state supervisor may, with written notice to the home state 
supervisor, examine the branch for compliance with host state 
consumer protection laws. If permitted by a cooperative 
agreement or if the out-of-state bank is in a troubled 
condition, the host state supervisor may participate in the 
examination of the bank by the home state supervisor to 
ascertain that branch activities are not conducted in an unsafe 
or unsound manner. If the host state supervisor determines that 
a branch is violating host state consumer protection laws, the 
supervisor may, with written notice to the home state 
supervisor, undertake enforcement actions. This section does 
not limit in any way the authority of federal banking 
regulators and does not affect state taxation authority.

Section 712. Deputy Director; succession authority for the Director of 
        the OTS

    This section authorizes the Treasury Secretary to appoint 
one or more individuals within the OTS to serve as Acting 
Director in order to promote agency continuity of leadership 
during a vacancy in the office of the Director of the OTS or in 
the absence or disability of the Director of the OTS. An Acting 
Director shall serve until a permanent Director is confirmed.

Section 713. OTS representation on Basel Committee on Banking 
        Supervision

    This section amends International Lending Supervision Act 
of 1983 to give the OTS equal representation on the Committee 
on Banking Regulations and Supervisory Practices of the Group 
of Ten Countries and Switzerland (Basel Committee).

Section 714. Federal Financial Institutions Examination Council

    This section adds a representative State regulator as a 
full voting member on the Federal Financial Institutions 
Examination Council.

Section 715. Technical amendments concerning enforcement actions

    This section clarifies that a Federal banking agency may 
take enforcement action against a person for conduct that 
occurred during his or her affiliation with a banking 
organization even if the person resigns from the organization, 
regardless of whether the enforcement action is initiated 
through a notice or an order. This section also makes a 
parallel amendment to the Federal Credit Union Act.

Section 716. Clarification of enforcement authority

    This section amends section 8 of the Federal Deposit 
Insurance Act to clarify authority to enforce conditions 
imposed in connection with a notice, including a change-in-
control notice. It also makes similar changes to Section 206 
the Federal Credit Union Act.

Section 717. Federal banking agency authority to enforce deposit 
        insurance conditions

    This section amends section 8 of the Federal Deposit 
Insurance Act to provide each of the other three appropriate 
Federal banking agencies with express authority to enforce 
conditions imposed in writing in connection with the approval 
of an institution's application for deposit insurance.

Section 718. Receiver or conservator consent requirement

    This section requires the consent of the receiver or 
conservator before a party to a contract to which a depository 
institution or credit union is a party could exercise any right 
or power to terminate, accelerate, or declare a default under 
any contract, or to obtain possession of or exercise control 
over any property of the institution or affect any contractual 
rights of the institution or credit union.

Section 719. Acquisition of FICO scores

    This section amends the Fair Credit Reporting Act to define 
an FDIC or National Credit Union Administration (``NCUA'') 
request for FICO scores as part of its preparation for a 
resolution as a permissible purpose, enabling the FDIC or NCUA 
to obtain FICO scores by contacting credit reporting agencies 
and to obtain current consumer credit reports.

Section 720. Elimination of criminal indictments against receiverships

    This section amends the Federal Deposit Insurance Act to 
require that any criminal indictment against a bank be 
dismissed if the FDIC is appointed receiver of that bank. This 
section also amends the Federal Credit Union Act to require 
that any criminal indictment against a credit union be 
dismissed if the NCUA is appointed receiver of that credit 
union.

Section 721. Resolution of deposit insurance disputes

    This section clarifies that the Administrative Procedures 
Act standard of review, the 60-day limitation period, and U.S. 
district court jurisdiction apply to the FDIC's final 
determination of insurance coverage whether made pursuant to 
procedural regulations or not. Similar clarifications are made 
to the Federal Credit Union Act.

Section 722. Recordkeeping

    This section permits the FDIC and NCUA to destroy records 
that are 10 or more years old at the time of its appointment as 
receiver, unless directed not to do so by a court or a 
government agency or prohibited by law.

Section 723. Preservation of records

    This section provides that the FDIC and NCUA may rely upon 
records preserved electronically, such as optically imaged or 
computer scanned images.

Section 724. Technical amendments to information sharing provisions in 
        the Federal Deposit Insurance Act

    This section amends section 11(t) of the Federal Deposit 
Insurance Act to clarify that the FDIC is a ``covered agency'' 
for purposes of privilege, regardless of the type of failed 
depository institution to which transferred information 
pertains.

Section 725. Technical and conforming amendments relating to banks 
        operating under the Code of Law for the District of Columbia

    This section makes technical and conforming amendments 
reflecting the transfer of authority for the supervision and 
regulation of District banks from the OCC to the FDIC.

Section 726. Technical corrections to the Federal Credit Union Act

    This section makes technical corrections to the Federal 
Credit Union Act.

Section 727. Repeal obsolete provisions of the Bank Holding Company Act 
        of 1956

    This section eliminates certain outdated provisions of the 
Bank Holding Company Act that no longer have any effect.

Section 728. Development of model privacy forms

    This section directs the agencies to develop jointly a 
model form of privacy notice to satisfy the requirements of 
GLBA that is succinct, comprehensible to consumers and enables 
consumers to compare privacy practices among financial 
institutions. A financial institution that elects to provide 
the model form developed by the agencies shall be deemed to be 
in compliance with the disclosures required under Section 503 
of GLBA.

Section 801. Exemption for certain bad check enforcement programs

    Over five hundred State or district attorneys across the 
country operate pre-trial diversion programs for alleged bad 
check offenders so that those individuals can avoid criminal 
prosecution if they voluntarily participate in these programs. 
These programs have been in operation for over twenty years. 
The programs typically require restitution to the harmed 
merchant, a class designed to discourage the writing of bad 
checks in the future, and the payment of a fee to cover the 
class and the administrative burden on the State or district 
attorneys.
    In some instances, however, the State or District attorneys 
contract with private entities to help administer these 
programs and several lawsuits have been filed contending that 
the private entities are in violation of the Fair Debt 
Collection Practices Act (``FDCPA''). This provision amends the 
FDCPA to exempt those entities provided they comply with the 
safeguards outlined in the provision. These requirements 
include the following: comply with the penal laws of the state 
in which they operate; conform their activities to the terms of 
their contract and the directives of the State or district 
attorney; not exercise any independent prosecutorial 
discretion; contact alleged offenders only as a result of a 
determination by the State or district attorney that there is 
probable cause of a bad check violation under State penal law 
and that contact with the offender is appropriate; communicate 
in writing a clear and conspicuous statement that the alleged 
offender may dispute the validity of alleged bad check 
violation, and assert via a crime report that the alleged bad 
check was actually stolen, forged, or related to identity theft 
or some other fraud; and charge only fees in connection with 
the services that have been authorized by the contract with the 
State or district attorney.
    If the alleged offender disputes the validity of the 
allegation and notifies either the private entity or State or 
district attorney in writing within 30 days after demand for 
payment has been sent, then restitution efforts have to be 
halted until the State or district attorney or their authorized 
employees determine there is probable cause to believe a crime 
has been committed.
    Finally, this provision excludes certain types of checks 
from the program, such as: a postdated check presented in 
connection with payday loans or similar transactions where the 
payee knew the issuer had insufficient funds when the check was 
written; a stop payment order where the issuer acted in good 
faith and had reasonable cause to stop payment; a check 
dishonored because of an adjustment to the issuer's account by 
his or her financial institution without notice to the issuer 
of the adjustment; a partial payment check where the payee had 
accepted that form of payment previously; a check issued by a 
person who was incompetent or not of legal age to issue checks; 
or a check issued to pay an obligation arising from a 
transaction that was illegal in the jurisdiction of the State 
or district attorney.

Section 901. Collateral modernization

    This section makes changes to 31 U.S.C. 9301 and 31 U.S.C. 
9303 that allow the Secretary of the Treasury to determine the 
types of securities that may be pledged in lieu of surety bonds 
and require that the securities be valued at current market 
rates.

Section 1001. Study and report by the Comptroller General on the 
        currency transaction report filing system

    This section requires a study by the Comptroller General on 
the volume of currency transaction reports filed with the 
Treasury, including, if appropriate, recommendations for 
changes to the filing system.

Section 1002. Study and report on institution diversity and 
        consolidation

    This section requires a study by the Comptroller General on 
the cost and overall regulatory regime of the financial 
services industry.

                             COST ESTIMATE

                                                      May 18, 2006.
Hon. Richard C. Shelby,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Financial Services 
Regulatory Relief Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Kathleen 
Gramp (for federal costs), Barbara Edwards (for revenues), 
Sarah Puro (for the state and local impact), and Judith Ruud 
(for the private-sector impact).
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

Financial Services Regulatory Relief Act of 2006

    Summary: This bill would affect the operations of financial 
institutions and the agencies that regulate them. It would 
allow the Federal Reserve System to pay interest on certain 
reserve balances of depository institutions that are held on 
deposit at the Federal Reserve, and would give the Board of 
Governors of the Federal Reserve greater flexibility in setting 
reserve requirements. Other provisions would modify the 
regulatory standards for certain types of financial 
transactions, expand and clarify federal authorities and 
procedures for enforcing regulations, and give financial 
regulatory agencies more flexibility in sharing data, retaining 
records, and scheduling examinations. Finally, the bill would 
allow federal agencies to lease land to credit unions without 
charge and direct the Government Accountability Office (GAO) to 
conduct various studies.
    CBO estimates that enacting this bill would reduce federal 
revenues by $1.0 billion over the 2007-2011 period and by a 
total of $2.4 billion over the 2007-2016 period. In addition, 
we estimate that direct spending would increase by $2 million 
over the 2007-2011 period and by a total of $6 million over the 
2007-2016 period. Provisions affecting programs funded by 
annual appropriations would cost another $1 million in 2007, 
CBO estimates.
    The legislation contains intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA), but CBO 
estimates that the cost of complying with the requirements 
would be small and would not exceed the threshold established 
in UMRA ($64 million in 2006, adjusted annually for inflation).
    The bill contains several private-sector mandates as 
defined in UMRA. Those mandates would affect certain depository 
institutions, nondepository institutions that control 
depository institutions, uninsured banks, certain holding 
companies, and parties with contracts or agreements with 
depository institutions that go into conservatorship or 
receivership. At the same time, the bill would relax some 
restrictions on the operations of certain financial 
institutions. CBO estimates that the aggregate direct costs of 
complying with the private-sectormandates in the bill would not 
exceed the annual threshold established by UMRA ($126 million in 2006, 
adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of this bill is shown in Table 1.--The costs 
of this legislation fall within budget function 370 (commerce 
and housing credit).

                              TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF THE FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006
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                                                                                    By fiscal year, in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                         2006     2007     2008     2009     2010     2011     2012     2013     2014     2015     2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  CHANGES IN REVENUESa

Estimated Revenues...................................        0     -192     -192     -202     -212     -221     -242     -253     -266     -293     -308

                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority...........................        0      (*)      (*)      (*)        1        1        1        1        1        1        1
Estimated Outlays....................................        0      (*)      (*)      (*)        1        1        1        1        1        1        1

                                                           CHANGES IN SUBJECT TO APPROPRIATION

Estimated Authorization Level........................        0        1        0        0        0        0        0        0        0        0        0
Estimated Outlays....................................        0        1        0        0        0        0        0        0        0        0        0
--------------------------------------------------------------------------------------------------------------------------------------------------------
aNegative revenues indicate a reduction in revenue collections.
Note: * = Revenue loss or spending of less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
legislation will be enacted near the end of fiscal year 2006.
    Most of the budgetary impact of this legislation would 
result from provisions allowing the Federal Reserve System to 
pay interest on certain reserve balances. Enacting this bill 
also would affect the workload at agencies that regulate 
financial institutions. We estimate that the net change in 
agencies' spending would not be significant. Based on 
information from each of the agencies, CBO estimates that the 
change in administrative expenses--both costs and potential 
savings--would average less than $500,000 a year over the next 
several years. Expenditures of the Office of the Comptroller of 
the Currency, the Office of Thrift Supervision, the National 
Credit Union Administration (NCUA), and the Federal Deposit 
Insurance Corporation (FDIC) are classified as direct spending 
and would be covered by fees or insurance premiums paid by the 
institutions they regulate. Any change in spending by the 
Federal Reserve would affect net revenues, while adjustments in 
the budgets of the Securities and Exchange Commission (SEC) and 
Government Accountability Office would be subject to 
appropriation.

Revenues

    The legislation would allow the Federal Reserve System to 
pay interest on any reserve balances held on deposit at the 
Federal Reserve by insured depository institutions. The Board 
of Governors of the Federal Reserve Board would have greater 
flexibility in setting reserve requirements. CBO estimates that 
the bill would reduce revenues by $1.0 billion over the 2007-
2011 period and by $2.4 billion over the 2007-2016 period.
    The initial budgetary effect of the bill would be a 
decrease in the payment of profits from the Federal Reserve 
System to the U.S. Treasury. The Federal Reserve remits its 
profits to the Treasury, and those payments are classified as 
governmental receipts, or revenues, in the federal budget. Any 
additional income or costs to the Federal Reserve, therefore, 
can affect the federal budget. The Federal Reserve's largest 
source of income is interest from its holdings of Treasury 
securities. In effect, the Federal Reserve invests in Treasury 
securities the reserve balances and issues of currency that 
constitute the bulk of its liabilities. Since the Federal 
Reserve pays no interest on reserves or currency, and the 
Treasury pays the Federal Reserve interest on its security 
holdings, the Federal Reserve earns profits.
    By allowing the Federal Reserve to pay interest on 
reserves, the bill would decrease the Federal Reserve's profits 
and thereby reduce federal revenues. This budgetary response 
has three significant components. First, the Federal Reserve's 
payment of interest on required reserve balances held at 
Federal Reserve banks would tend to reduce governmental 
receipts. CBO anticipates that some depository institutions and 
depositors would respond to the interest payments on reserves 
by shifting funds out of consumer ``retail'' sweep accounts and 
into demand deposit accounts. This secondary response would 
increase required reserve balances although the Federal Reserve 
would be expected to offset a portion of that increase by 
lowering reserve requirements. The net increase in reserves 
would partially offset the loss in federal revenues from the 
payment of interest on reserves. Finally, those net 
reductionsin Federal Reserve receipts would act like reductions in 
indirect business taxes, generating increases in other incomes in the 
economy and subsequently higher income and payroll taxes. Those higher 
income and payroll taxes would offset the declines in Federal Reserve 
receipts by an estimated 25 percent, roughly the marginal tax rate on 
overall incomes in the economy.
    Allowing the Federal Reserve to Pay Interest on Reserve 
Balances. Depository institutions hold three types of balances 
at the Federal Reserve--required reserve balances, contractual 
clearing balances, and excess reserve balances. Required 
reserve balances are the balances that a depository institution 
must hold to meet reserve requirements. Depository institutions 
may also hold additional balances, called required or 
contractual clearing balances, which can earn an implicit rate 
of interest in the form of an interest credit that is used to 
defray fees for Federal Reserve services. Contractual clearing 
balances have risen over the past decade from under $2 billion 
in 1990 to between $6.5 billion and $7.0 billion today. Excess 
reserves are funds held at reserve banks in excess of a 
depository institution's required reserve and contractual 
clearing balances.
    Interest on Required Reserve Balances. The budgetary effect 
of interest on required reserve balances consists of three 
components. First, the bill would result in the Federal Reserve 
paying interest on the required reserve balances expected under 
current law, thus reducing its net income and, therefore, 
governmental receipts. Second, the payment of interest on 
reserves would cause demand deposit balances at depository 
institutions to increase. That increase would raise the amount 
of reserve balances held at the Federal Reserve, although the 
increase would likely be diminished by actions taken by the 
Federal Reserve to reduce reserve requirements. The higher 
reserve balances at the Federal Reserve would increase its 
earnings because it would invest the balances at a higher rate 
than it would pay on them. This change in projected reserves 
would increase governmental receipts, but would only partially 
offset the loss caused by the payment of interest on reserves 
projected under current law. Third, the net reduction in the 
Federal Reserve's receipts from the first two effects would be 
partially offset by increased income and payroll tax receipts.
    Interest Payments on Required Reserves Projected Under 
Current Law. Because depository institutions currently do not 
earn a return on required reserve balances, they have an 
incentive to minimize such balances. Required reserve balances 
measured almost $30 billion at the end of 1993, but generally 
have ranged between $7.5 billion and $12 billion in the past 
year. The expansion of retail and business sweep accounts has 
caused this general decline. In typical sweep accounts, banks 
shift their depositors' funds from demand deposits, against 
which reserves are required, into other depository accounts, 
against which reserves are not required. The banks shift the 
funds back to the demand deposit accounts the next business 
day, or when needed by the depositor. Sweep accounts for 
business demand deposits have existed in various forms since 
the early 1970s. They originated and grew in importance because 
financial institutions cannot pay interest on business demand 
deposits. Advances in computer technology in the 1990s made the 
shifting of funds feasible for many consumer accounts as well. 
Under current law, CBO expects the expansion of retail and 
business sweep accounts to continue, in part because of the 
effects of rising interest rates. CBO expects required reserve 
balances to decline to about $6.5 billion over the next two 
years and to rise gradually in subsequent years, with growth in 
the economy.
    Under this bill, the Federal Reserve would be allowed to 
choose the interest rate it pays on reserve balances, although 
the rate chosen could not exceed the general level of short-
term interest rates. Staff at the Federal Reserve have 
indicated that the Federal Reserve would choose an interest 
rate near the key short-term rate, the federal funds rate. The 
likely rate would be 10 to 15 basis points lower than the 
federal funds rate to account for the lack of risk. 
Accordingly, CBO assumes that the Federal Reserve would pay 
interest only on required reserves at a rate of 10 to 15 basis 
points below the federal funds rate.
    CBO projects that the federal funds rate will average about 
4.75 percent in 2007 and 4.5 percent over the nine-year period 
from 2008 through 2016. The payment of interest on reserves is 
assumed to start early in fiscal year 2007. CBO projects that 
the legislation would cause the Federal Reserve to pay interest 
to depository institutions of about $300 million in 2007 on 
about $6.5 billion of required reserve balances expected under 
current law. Throughout the projection period, the interest 
paid to depository institutions would be higher because 
required reserves under current law will grow based on growth 
of the economy. Such interest payments would total about $1.6 
billion over the 2007-2011 period and $3.6 billion over the 
2007-2016 period. Those payments would reduce the profits of 
the Federal Reserve--and thus its payments to the Treasury--by 
the same amount (see Table 2).
    Projected Impact of the Bill on the Volume of Reserves. If 
the Federal Reserve pays interest on required reserve balances, 
there would be a second budgetary effect on the Federal Reserve 
that would reduce, but not eliminate, the net revenue loss from 
the payment of interest. In particular, CBO expects that 
reserve balances would increase because depository institutions 
would close a significant share of their retail sweep accounts 
and, as a result, maintain a higher level of required reserves. 
Under current law, depository institutions are already allowed 
to pay interest on consumer demand deposits. By closing a 
significant share of the retail sweep accounts, depository 
institutions could eliminate the costs of maintaining the sweep 
accounts and receive a return on their required reserves, 
although presumably at a lower rate than what they could 
receive if they invested the funds in other ways. The payment 
of interest on reserves would have no effect on business sweep 
accounts because it would offer no incentive to businesses to 
discontinue their current practices regarding sweep activity. 
(The bill would not lift the ban on interest payments on 
business demand deposits.)

                                       TABLE 2.--ESTIMATED BUDGETARY IMPACT OF PAYING INTEREST ON RESERVE BALANCES
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                                                                                     By fiscal year, in millions of dollars
                                                      --------------------------------------------------------------------------------------------------
                                                         2006     2007     2008     2009     2010     2011     2012     2013     2014     2015     2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Revenues from Federal Reserve:
    Interest on Required Reserves....................        0     -299     -298     -313     -328     -343     -359     -375     -395     -416     -437
    Profits from Increased Reserves..................        0       43       42       44       46       48       36       38       40       25       27
                                                      --------------------------------------------------------------------------------------------------
    Net Effect on Revenue from Federal Reserve.......        0     -256     -256     -269     -282     -295     -323     -337     -355     -390     -410
Income and Payroll Tax Offsets.......................        0       64       64       67       71       74       81       84       89       98      103
Net Effect of Allowing Interest on Reserves..........        0     -192     -192     -202     -212     -221     -242     -253     -266     -293    -308
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add up to totals because of rounding.

    CBO estimates that depository institutions would eliminate 
approximately 30 percent of retail sweep accounts currently in 
existence by 2009 and half of those that otherwise would be 
established. As a result, demand deposits for which reserves 
are required would increase at depository institutions.
    The increase in reserves from the closing of many sweep 
accounts would likely provide the Federal Reserve with more 
reserves than needed for implementing monetary policy. The 
legislation would relax the current lower bound on reserve 
requirements, therefore providing the Federal Reserve with the 
option of lowering reserve requirements, perhaps substantially, 
in the face of increasing reserves. The Federal Reserve has 
indicated that it would study possible strategies for setting 
reserve requirements in such an environment.
    Under current law, the Federal Reserve can set reserve 
requirements as high as 14 percent and as low as 8 percent of 
transactions deposits (above a fixed threshold). The Federal 
Reserve has kept the requirement at 10 percent for most 
transactions deposits since 1992. The legislation would remove 
the lower limit of 8 percent.
    CBO assumes the Federal Reserve would offset a part of the 
increase in reserve balances by lowering reserve requirements. 
The magnitude and timing of such changes is very uncertain, but 
CBO assumes that required reserves would be maintained at 
roughly $10 billion to $15 billion, which is consistent with 
balances in the past five years.
    As a result, CBO projects that required reserve balances 
would be greater than under current law and thus generate 
additional net income to the Federal Reserve. Although the 
Federal Reserve would pay interest on the added reserves at 
approximately the federal funds rate, it would invest the 
reserves in Treasury securities, earning a rate of return 
approximately 0.6 of a percentage point more than it pays. As a 
result of that differential, the Federal Reserve would generate 
additional profits of about $223 million over the 2007-2011 
period and $389 million over the 2007-2016 period.
    Projected Offsetting Impact on Tax Revenues. Allowing 
interest on required reserve balances held at the Federal 
Reserve would have a third budgetary effect, which would also 
partially offset the decline in revenue from the payment of 
interest on current balances. The current reserve requirement 
on depository institutions, without provision of interest, is 
like an indirect business tax. Allowing interest payments on 
reserves, therefore, would generate the same economic effects 
as does removing an excise tax. Assuming that GDP remains 
unchanged, reductions in excise tax receipts generate equal 
increases in other incomes in the economy. The higher incomes 
produce increases in income and payroll taxes that offset an 
estimated 25 percent of the reduction in excise tax receipts, 
roughly the marginal tax rate on overall incomes in the 
economy. In this case, a quarter of the loss in receipts to the 
Treasury from the Federal Reserve would be offset by an 
increase in income and payroll tax receipts. CBO estimates that 
the loss in Federal Reserve receipts would total $1.4 billion 
from 2007 through 2011, offset partially by an increase in 
income and payroll taxes of $340 million. Over the 2007-2016 
period, the loss in Federal Reserve receipts would total about 
$3.2 billion, and the increase in income and payroll taxes 
would total about $0.8 billion.
    Impact on Other Balances Held at the Federal Reserve. The 
estimate assumes no change in the current arrangements 
regarding contractual clearing balances. However, a great deal 
of uncertainty exists regarding how the Federal Reserve would 
structure its policy regarding contractual clearing balances if 
this legislation was enacted. A change in that policy could 
affect federal revenues, but the staff at the Federal Reserve 
have provided no clear indication of whether a change would 
occur or what any change would entail except to indicate that 
one policy would be prescribed for all depository institutions 
regarding contractual clearing balances. CBO believes that the 
Federal Reserve would choose not to pay interest on excess 
reserve balances, unless required reserve balances fall to such 
a low level that interest on excess reserves would be needed to 
build reserves. That is an unlikely scenario.

Direct spending

    CBO estimates that enacting this legislation would increase 
direct spending by $2 million over the 2007-2011 period and $6 
million over the 2007-2016 period by reducing offsetting 
receipts collected from credit unions that lease federal 
facilities. Enacting the bill also could affect the cost of 
deposit insurance, but CBO has no basis for estimating the 
amount of the net change in spending that would result.
    Credit Union Leases. Section 501 would allow federal 
agencies to lease land to federal credit unions without charge 
under certain conditions. Under existing law, agencies may 
allocate space in federal buildings without charge if at least 
95 percent of the credit union's members are or were federal 
employees. Some credit unions, primarily those serving military 
bases, have leased federal land to build a facility. Prior to 
1991, leases awarded by the Department of Defense (DoD) were 
free of charge and for terms of up to 25 years; a statutory 
change enacted that year limited the term of such leases to 
five years and required the lessee to pay a fair market value 
for the property. According to DoD, about 35 credit unions have 
leased land since 1991 and are paying a total of about $525,000 
a year to lease federal property. Those proceeds are recorded 
as offsetting receipts, and any spending of those payments is 
subject to appropriation.
    CBO expects that enacting this provision would result in a 
loss of offsetting receipts from all credit union leases. Those 
lessees currently paying a fee would stop making those payments 
after they renew their current leases, all of which should 
expire within the next five years. In addition, credit unions 
that have long-term, no-cost leases would be able to renew them 
without becoming subject to the fees they otherwise would pay 
under current law. CBO estimates that enacting this provision 
would cost a total of about $2 million over the next five years 
and an average of about $700,000 annually after 2011.
    Deposit Insurance. Several provisions in the bill could 
affect the cost of federal deposit insurance. For example, the 
bill would enhance the ability of the FDIC and NCUA to 
negotiate with other parties regarding the disposition of 
certain assets of failed institutions. Such changes could 
reduce the government's losses from future failures in some 
circumstances. It is also possible, however, that some of the 
new business arrangements authorized by the bill could increase 
the risk of losses to the deposit insurance funds. The net 
budgetary impact of such changes would likely be negligible 
over time because any significant increase or decrease in costs 
would be offset by adjustments in the insurance premiums paid 
by banks, thrifts, or credit unions.

Spending subject to appropriation

    The legislation also would affect spending for activities 
funded by annual appropriations. It would direct the GAO to 
prepare two studies, one related to currency transaction 
reports filed with Department of the Treasury, and one on 
issues related to the effectiveness and efficiency of the 
current approach to regulating financial institutions. Based on 
information from GAO, CBO estimates that completing those 
studies would cost about $1 million in 2007.
    The bill also would require the SEC to issue new 
regulations on various matters, exempt thrift institutions from 
certain registration requirements, and exempt certified public 
accountants from certain disclosure requirements. Based on 
information from the SEC, CBO estimates that the budgetary 
effects of those changes would not be significant.
    Estimated impact on State, local, and tribal governments: 
The legislation contains intergovernmental mandates, as defined 
in UMRA, because it would limit certain fees that bank 
supervisors may impose on banks not domiciled in their state 
and place certain notification requirements on bank 
supervisors. The bill also would preempt state laws if banks or 
credit unions go into receivership. Based on information from 
industry authorities and state entities, CBO estimates that 
these provisions would impose minimal costs, if any, on state, 
local, and tribal governments that would not exceed the 
threshold established in UMRA ($64 million in 2006, adjusted 
annually for inflation).
    Other provisions of the bill would impose no costs on 
state, local, or tribal governments.
    Estimated impact on the private sector: The bill contains 
several private-sector mandates as defined in UMRA. The 
mandates in the bill would impose:
           Requirements on certain insured depository 
        institutions and parties affiliated with such 
        institutions with respect to safety and soundness;
           Restrictions on parties with certain 
        contracts or agreements with depository institutions 
        that go into conservatorship or receivership; and
           Restrictions on participation in the affairs 
        of certain financial institutions by people convicted 
        of certain crimes.
    At the same time, the bill would relax some restrictions on 
the operations of certain financial institutions. CBO estimates 
that the aggregate direct costs of mandates in the bill would 
not exceed the annual threshold established in UMRA ($126 
million in 2006, adjusted annually for inflation).

Enhanced safety and soundness enforcement

    The bill would expand and enhance some of the authorities 
of federal banking agencies with respect to troubled or failing 
institutions, and certain parties affiliated with those 
institutions. For example, the bill would enhance the authority 
of banking agencies to enforce certain conditions imposed on 
depository institutions and parties affiliated with such 
institutions. The bill also would make companies that control 
depository institutions subject to certain authorities of the 
FDIC. Based on information from the FDIC, CBO expects that the 
cost to the private sector of these expanded authorities would 
be small.
    The Gramm-Leach-Bliley Act allowed new forms of 
affiliations among depositories and other financial services 
firms. Consequently, insured depository institutions may now be 
controlled by a company other than a depository institution 
holding company (DIHC). The bill would amend current law to 
give the FDIC certain authorities concerning troubled or 
failing depository institutions held by those new forms of 
holding companies.
    Cross-Guarantee Authority. Under current law, if the FDIC 
suffers a loss from liquidating or selling a failed depository 
institution, the FDIC has the authority to obtain reimbursement 
from any insured depository institution within the same DIHC. 
Section 703 would expand the scope of the FDIC's reimbursement 
power to include all insured depository institutions controlled 
by the same company, not just those controlled by the same 
DIHC.
    The cost of this mandate would depend, among other things, 
on the probability of failure of the additional institutions 
subject to this authority and the probability that the FDIC 
would incur a loss as a result of those failures. The new 
authority would apply only to a few depository institutions. 
Based on information from the FDIC, CBO estimates that the cost 
of this mandate would not be substantial.
    Golden Parachute Authority and Nonbank Holding Companies. 
Section 704 would allow the FDIC to prohibit or limit any 
company that controls an insured depository from making 
``golden parachute'' payments or indemnification payments to 
parties affiliated with troubled or failing insured 
depositories. (Affiliated parties include directors, officers, 
employees, and controlling shareholders. Such parties also 
include independent contractors such as accountants or lawyers 
who participate in violations of the law or undertake 
unsoundbusiness practices that may cause a financial loss to, or 
adverse effect on, the insured depository institution.)
    Based on information from the FDIC, CBO expects that only a 
few institutions would be covered by the new authority. In the 
event that the FDIC exercises this authority, CBO expects that 
the cost to institutions of withholding such payments would be 
administrative in nature and minimal, if any.

Receiver or conservator consent requirement

    The bill would enhance the ability of the FDIC and NCUA to 
negotiate with parties to certain contracts or agreements with 
depository institutions that go into conservatorship or 
receivership. With some exceptions, the bill would require the 
consent of the receiver or conservator before any party to a 
contract with the insured depository institution would be 
allowed to exercise any right or power to terminate, 
accelerate, or declare a default under that contract during the 
45-day period beginning on the date of conservatorship, or 
during the 90-day period beginning on the date of appointment 
of the receiver. The mandate would be on entities that have 
certain types of contracts with depository institutions that go 
into conservatorship or receivership. Based on information from 
the FDIC, CBO expects that the cost to the private sector of 
this provision over the next five years is likely to be 
minimal.

Restrictions on convicted individuals

    Current law prohibits a person convicted of a crime 
involving dishonesty, a breach of trust, or money laundering 
from participating in the affairs of an insured depository 
institution without FDIC approval. The bill would extend that 
prohibition so that uninsured banks, bank holding companies, 
and savings and loan holding companies and their subsidiaries 
could not allow such persons to participate in their affairs 
without the prior written consent of their designated federal 
banking regulator.
    Assuming that those institutions already screen potential 
directors, officers, and employees for criminal offenses, the 
incremental cost of complying with this mandate would be small.
    Previous CBO estimate: CBO has transmitted several cost 
estimates for legislation that contained provisions similar to 
those in this bill. They include: H.R. 3505, as ordered 
reported by the House Committee on Financial Services on 
November 16, 2005 (transmitted on December 8, 2005); H.R. 3505, 
as ordered reported by the House Committee on the Judiciary on 
February 15, 2006 (transmitted on February 16, 2006); H.R. 
1224, the Business Checking Freedom Act of 2005, as ordered 
reported by the House Committee on Financial Services on April 
27, 2005 (transmitted on May 10, 2005); and H.R. 3508, the 2005 
District of Columbia Omnibus Authorization Act, as ordered 
reported by the House Committee on Government Reform on 
September 15, 2005 (transmitted on October 12, 2005).
    The provisions of this bill that affect direct spending are 
identical to those in H.R. 3505, and the estimated costs are 
the same as those shown in CBO's February 15, 2006, estimate. 
Differences between the estimated revenue impact of this bill 
and the estimated revenue impacts of H.R. 3505 and H.R. 1224 
are due to differences in the legislation and changes in CBO's 
economic assumptions.
    H.R. 3505, as ordered reported by both the House Committee 
on Judiciary and the House Committee on Financial Services, 
would preempt certain state securities laws that require agents 
who represent a federal savings association to register as 
brokers or dealers if they sell certain products; it would also 
preempt state laws that regulate certain fiduciary activities 
performed by insured banks and other depository institutions. 
This bill does not contain such provisions, and the mandates 
statements reflect those differences.
    H.R. 3505 had a mandate on certain industrial loan 
companies or industrial banks that is not included in this 
bill. This bill contains a mandate on parties with certain 
contracts with depository institutions that go into 
conservatorship or receivership that was not in H.R. 3505. The 
other mandates in this bill are similar to those in H.R. 3505. 
The aggregate cost of complying with the mandates in both bills 
would fall below UMRA's annual threshold for private-sector 
mandates.
    Estimate prepared by: Federal spending: Kathleen Gramp; 
Federal revenues: Barbara Edwards; impact on State, local, and 
tribal governments: Sarah Puro; impact on the private sector: 
Judith Ruud.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                                  
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