I

104TH CONGRESS

1ST SESSION H. R. 18

To enhance competition in the financial services industry by providing a

prudential framework for the affiliation of banks and securities firms.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. LEACH introduced the following bill; which was referred to the Committee

on Banking and Financial Services and, in addition, to the Committee

on Commerce, for a period to be subsequently determined by the Speaker,

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To enhance competition in the financial services industry

by providing a prudential framework for the affiliation

of banks and securities firms.

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 Competitiveness Act of 1995’’.
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1 TITLE I—BANK SECURITIES ACTIVITIES

2 AND AFFILIATIONS

3 Subtitle A—Securities Activities

4 SEC. 101. ANTI-AFFILIATION PROVISION OF GLASS5 STEAGALL ACT REPEALED.

6 (a) SECTION 20 REPEALED.—Section 20 (12 U.S.C.

7 377) of the Banking Act of 1933 is repealed.

8 (b) CONFORMING AMENDMENT TO SECTION 32.—

9 Section 32 (12 U.S.C. 78) of the Banking Act of 1933

10 is amended by adding at the end the following sentence:

11 ‘‘This section does not prohibit an officer, director, or em12 ployee of a securities affiliate (as defined in section 2 of

13 the Bank Holding Company Act of 1956) from serving

14 at the same time as an officer, director, or employee of

15 a member bank affiliated with that securities affiliate

16 under section 10 of the Bank Holding Company Act of

17 1956.’’.

18 SEC. 102. BANK HOLDING COMPANIES AUTHORIZED TO

19 HAVE SECURITIES AFFILIATES.

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

21 1956 (12 U.S.C. 1843(c)) is amended—

22 (1) by striking ‘‘or’’ at the end of paragraph

23 (13);

24 (2) by striking the period at the end of para25 graph (14) and inserting ‘‘; or’’; and
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1 (3) by adding after paragraph (14) the follow2 ing new paragraph:

3 ‘‘(15) shares of a securities affiliate in accord4 ance with section 10.’’.

5 SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURI6 TIES AFFILIATES.

7 (a) IN GENERAL.—Section 10 of the Bank Holding

8 Company Act of 1956 (12 U.S.C. 1841 et seq.) is amend9 ed to read as follows:

10 ‘‘SEC. 10. SECURITIES ACTIVITIES.

11 ‘‘(a) ACTIVITIES PERMISSIBLE FOR SECURITIES AF12 FILIATES.—A securities affiliate may engage in one or

13 more of the following activities:

14 ‘‘(1) Underwrite, deal in, broker, place, or dis15 tribute securities of any type, and engage in other

16 securities activities as permitted by the Board.

17 ‘‘(2) Sponsor, organize, control, manage, and

18 act as investment adviser to an investment company.

19 ‘‘(3) Engage in, or acquire the shares of a com20 pany engaged in, any activity if—

21 ‘‘(A) a provision of section 4(c) permits

22 bank holding companies generally to engage in

23 that activity or acquire those shares; and—

24 ‘‘(B) either—
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1 ‘‘(i) the Board permits the bank hold2 ing company to engage in that activity or

3 acquire those shares through the securities

4 affiliate; or

5 ‘‘(ii) that provision permits the bank

6 holding company to engage in that activity

7 or acquire those shares without the

8 Board’s approval.

9 ‘‘(b) ACQUIRING INTEREST IN SECURITIES AFFILI10 ATE.—

11 ‘‘(1) NOTICE REQUIRED.—A bank holding com12 pany shall not, without complying with and receiving

13 approval pursuant to the notice procedure in section

14 4(j), directly or indirectly acquire or retain more

15 than 5 percent of the voting shares of, or all or sub16 stantially all of the assets of, a securities affiliate (or

17 a company that would be a securities affiliate if the

18 Board permitted the bank holding company to ac19 quire that company).

20 ‘‘(2) CRITERIA FOR APPROVAL.—The Board

21 shall disapprove a notice required under paragraph

22 (1) unless the Board determines that all of the fol23 lowing are satisfied:

24 ‘‘(A) CAPITAL.—
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1 ‘‘(i) INSURED DEPOSITORY INSTITU2 TIONS.—

3 ‘‘(I) The lead insured depository

4 institution of the bank holding com5 pany is well capitalized;

6 ‘‘(II) Well capitalized insured de7 pository institutions control at least

8 80 percent of the total assets of in9 sured depository institutions con10 trolled by the bank holding company;

11 and

12 ‘‘(III) All insured depository in13 stitutions controlled by the bank hold14 ing company are well capitalized or

15 adequately capitalized.

16 ‘‘(ii) BANK HOLDING COMPANY.—The

17 bank holding company is (and immediately

18 after the acquisition would continue to be)

19 adequately capitalized.

20 ‘‘(iii) FOREIGN BANKS AND COMPA21 NIES.—The Board shall establish and

22 apply comparable capital standards for the

23 ownership or control of a securities affili24 ate in the United States by a foreign bank

25 (as defined in section 1(b) of the Inter-
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1 national Banking Act of 1978), giving due

2 regard to the principle of national treat3 ment and equality of competitive oppor4 tunity in the United States.

5 ‘‘(B) MANAGERIAL RESOURCES.—

6 ‘‘(i) IN GENERAL.—The bank holding

7 company and each of its subsidiary insured

8 depository institutions—

9 ‘‘(I) are well managed; and

10 ‘‘(II) were well managed during

11 the preceding 12-month period (but

12 for purposes of this subparagraph the

13 Board may disregard any insured de14 pository institution acquired by the

15 bank holding company during that

16 period).

17 ‘‘(ii) SECURITIES ACTIVITIES.—The

18 bank holding company has the managerial

19 resources to conduct the proposed securi20 ties activities safely and soundly.

21 ‘‘(C) INTERNAL CONTROLS.—The bank

22 holding company has established adequate poli23 cies and procedures to manage financial and

24 operational risks and to provide reasonable as-
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1 surance of compliance with this section and

2 other applicable laws.

3 ‘‘(D) NO DETRIMENTAL EFFECT ON BANK

4 HOLDING COMPANY OR ITS SUBSIDIARY IN5 SURED DEPOSITORY INSTITUTIONS.—The ac6 quisition would not adversely affect the safety

7 and soundness of—

8 ‘‘(i) the bank holding company; or

9 ‘‘(ii) any insured depository institu10 tion subsidiary of the bank holding com11 pany.

12 ‘‘(E) CONCENTRATION OF RESOURCES.—

13 The acquisition would not result in an undue

14 concentration of resources in the commercial

15 banking and investment banking business.

16 ‘‘(3) EXPEDITED NOTICE PROCEDURE FOR AC17 QUISITION OF ADDITIONAL SECURITIES AFFILI18 ATES.—

19 ‘‘(A) ADDITIONAL SECURITIES AFFILI20 ATES.—A bank holding company may, without

21 providing the notice required under subsection

22 (b), directly or indirectly acquire the shares or

23 substantially all of the assets of any company

24 that is engaged predominantly in activities de25 scribed in subsection (a) (1) and (2), if—
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1 ‘‘(i) the bank holding company pre2 viously received the Board’s approval

3 under subsection (b) to control a securities

4 affiliate and continues to control the secu5 rities affiliate pursuant to that approval;

6 ‘‘(ii) the bank holding company is

7 adequately capitalized and would continue

8 to be adequately capitalized following the

9 acquisition; and

10 ‘‘(iii) all insured depository institu11 tions controlled by the bank holding com12 pany are well capitalized and would con13 tinue to be well capitalized following the

14 acquisition.

15 ‘‘(B) APPROVAL REQUIRED.—

16 ‘‘(i) ABBREVIATED NOTICE PROCE17 DURE.—A bank holding company may not

18 acquire shares or assets under subpara19 graph (A) unless the company has pro20 vided the Board at least 30-days written

21 notice prior to the transaction and, during

22 that period, the Board has not disapproved

23 the transaction.

24 ‘‘(ii) LIMITED EXTENSION OF PE25 RIOD.—The Board may extend the dis-
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1 approval period provided in clause (i) for

2 up to an additional 15 days.

3 ‘‘(iii) STANDARDS APPLIED BY THE

4 BOARD.—In reviewing a notice under this

5 paragraph, the Board shall consider wheth6 er the activities of the company to be ac7 quired are authorized under section 10 and

8 shall apply the standards provided in sec9 tion 4(j)(2).

10 ‘‘(c) ADDITIONAL INVESTMENT IN SECURITIES AF11 FILIATE.—

12 ‘‘(1) PRIOR NOTICE REQUIRED.—A bank hold13 ing company that has acquired control of a securi14 ties affiliate under this section shall not, directly or

15 indirectly, make any additional investment in the se16 curities affiliate that is considered capital for pur17 poses of any capital requirement imposed on the se18 curities affiliate under the Securities Exchange Act

19 of 1934 (other than an extension of credit under a

20 revolving credit agreement approved by the Board),

21 unless the bank holding company gives the Board

22 prior written notice of the proposed investment

23 and—

24 ‘‘(A) the Board issues a written statement

25 of its intent not to disapprove the notice; or
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1 ‘‘(B) the Board does not disapprove the

2 notice within 30 days after the notice is filed.

3 ‘‘(2) NO PRIOR NOTICE REQUIRED FOR CER4 TAIN BANK HOLDING COMPANIES.—A bank holding

5 company is not required to provide prior notice

6 under paragraph (1) if after making any investment

7 described in paragraph (1)—

8 ‘‘(A) the bank holding company would ade9 quately capitalized and each of the bank hold10 ing company’s subsidiary insured depository in11 stitutions would be well capitalized; and

12 ‘‘(B) the bank holding company and each

13 of its subsidiary insured depository institutions

14 are well managed (but for purposes of this

15 clause the Board may disregard any insured de16 pository institution acquired by the bank hold17 ing company during the previous 12-month pe18 riod). A bank holding company that makes an

19 investment pursuant to this paragraph shall

20 provide written notice to the Board of the addi21 tional investment within 10 days after making

22 the investment.

23 ‘‘(3) CRITERIA FOR DISAPPROVING NOTICE.—

24 The Board may disapprove a notice filed under

25 paragraph (1) if any insured depository institution
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1 affiliate of the securities affiliate is undercapitalized,

2 or if the Board determines that the bank holding

3 company would be undercapitalized after making the

4 investment or that the investment would otherwise

5 be unsafe or unsound.

6 ‘‘(4) EMERGENCY APPROVAL.—Notwithstanding

7 any provision of this subsection, in the event of ad8 verse market conditions, or concerns regarding the

9 financial or operational condition of the securities

10 affiliate, the Board may approve any additional in11 vestment in the securities affiliate on an emergency

12 basis.

13 ‘‘(d) PROVISIONS APPLICABLE IF AFFILIATED IN14 SURED DEPOSITORY INSTITUTION CEASES TO BE WELL

15 CAPITALIZED.—

16 ‘‘(1) CERTAIN SECURITIES ACTIVITIES RE17 STRICTED UNLESS AFFILIATED INSTITUTIONS ARE

18 WELL CAPITALIZED.—

19 ‘‘(A) APPLICABILITY.—This paragraph

20 shall apply to a securities affiliate if—

21 ‘‘(i) the lead insured depository insti22 tution of the bank holding company is not

23 well capitalized, or

24 ‘‘(ii) well capitalized insured deposi25 tory institutions do not control at least 80
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1 percent of the assets of insured depository

2 institutions affiliated with the securities

3 affiliate.

4 ‘‘(B) IN GENERAL.—Except as provided in

5 subparagraph (C), the securities affiliate shall

6 not, beginning 180 days after subparagraph (A)

7 applies, agree to underwrite or deal in any secu8 rities other than—

9 ‘‘(i) securities expressly specified by

10 section 5136 of the Revised Statutes as

11 permissible for a national bank to under12 write or deal in;

13 ‘‘(ii) securities backed by or represent14 ing interests in notes, drafts, acceptances,

15 loans, leases, receivables, other obligations,

16 or pools of any such obligations; or

17 ‘‘(iii) securities issued by an open-end

18 investment company registered under the

19 Investment Company Act of 1940.

20 ‘‘(C) EXCEPTION.—The Board may permit

21 the securities affiliate to underwrite or deal in

22 securities not described in clauses (i) through

23 (iii) of subparagraph (B) for a period of 1 year

24 from the date on which subparagraph (A) ap25 plies, if—
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1 ‘‘(i) the bank holding company sub2 mits a capital restoration plan to the

3 Board specifying the steps the bank hold4 ing company will take to meet the require5 ments of section 10(b)(2)(A), and contain6 ing such other information as the Board

7 may require; and

8 ‘‘(ii) the Board approves the plan.

9 ‘‘(D) EXTENSION OF PERIOD.—Upon ap10 plication by the bank holding company, the

11 Board may extend, for not more than 1 year at

12 a time, the period provided in subparagraph

13 (C), but no such extension shall in the aggre14 gate exceed 2 years.

15 ‘‘(2) DIVESTITURE.—

16 ‘‘(A) IN GENERAL.—The bank holding

17 company shall divest itself of the securities af18 filiate if any of the bank holding company’s

19 subsidiary insured depository institutions has

20 been undercapitalized for more than 24 months.

21 ‘‘(B) EXTENDING TIME.—The Board may

22 provide additional time for divestiture not ex23 ceeding 12 months if the appropriate Federal

24 banking agency has approved the

25 undercapitalized institution’s capital restoration
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1 plan under section 38(e) of the Federal Deposit

2 Insurance Act, and the Board determines

3 that—

4 ‘‘(i) the bank holding company has at5 tempted in good faith to sell the securities

6 affiliate at a realistic price; and

7 ‘‘(ii) the securities affiliate poses no

8 significant risk to any affiliated insured de9 pository institution.

10 ‘‘(e) SECURITIES AFFILIATE EXCLUDED IN DETER11 MINING WHETHER BANK HOLDING COMPANY IS ADE12 QUATELY CAPITALIZED.—

13 ‘‘(1) IN GENERAL.—In determining whether a

14 bank holding company is adequately capitalized—

15 ‘‘(A) the bank holding company’s capital

16 and total assets shall each be reduced by—

17 ‘‘(i) an amount equal to the amount

18 of the bank holding company’s equity in19 vestment in any securities affiliate; and

20 ‘‘(ii) an amount equal to the amount

21 of any extensions of credit by the bank

22 holding company to any securities affiliate

23 that are considered capital for purposes of

24 any capital requirement imposed on the se-
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1 curities affiliate under section 15(c)(3) of

2 the Securities Exchange Act of 1934; and

3 ‘‘(B) the securities affiliate’s assets and li4 abilities shall not be consolidated with those of

5 the bank holding company.

6 ‘‘(2) EXCEPTION FOR NONSECURITIES ACTIVI7 TIES.—Paragraph (1) does not apply to the extent

8 that the Board determines by regulation or order

9 that an item described in that paragraph relates to

10 activities that are not described in paragraph (1) or

11 (2) of subsection (a).

12 ‘‘(f) SAFEGUARDS RELATING TO SECURITIES AFFILI13 ATES.—

14 ‘‘(1) EXTENSION OF CREDIT AND ASSET PUR15 CHASES RESTRICTED.—

16 ‘‘(A) IN GENERAL.—No insured depository

17 institution affiliated with a securities affiliate

18 shall, directly or indirectly, do any of the follow19 ing:

20 ‘‘(i) Extend credit in any manner to

21 the securities affiliate.

22 ‘‘(ii) Issue a guarantee, acceptance, or

23 letter of credit, including an endorsement

24 or a standby letter of credit, for the benefit

25 of the securities affiliate.
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1 ‘‘(iii) Purchase for its own account fi2 nancial assets of the securities affiliate, ex3 cept to the extent permitted by the Board

4 with respect to purchasing at the current

5 market value (based on reliable and regu6 larly available price quotations)—

7 ‘‘(I) securities expressly specified

8 by section 5136 of the Revised Status

9 as permissible for a national bank to

10 underwrite or deal in; or

11 ‘‘(II) securities that—

12 ‘‘(aa) the securities affiliate

13 has been marking to market

14 daily; and

15 (bb) are rated investment

16 grade by at least 1 nationally

17 recognized statistical rating orga18 nization.

19 ‘‘(B) EXCEPTION FOR CLEARING SECURI20 TIES.—Subparagraph (A)(i) does not prohibit

21 an extension of credit by a well capitalized in22 sured depository institution made to acquire or

23 sell securities if—

24 ‘‘(i) the extension of credit is inciden25 tal to clearing transactions in those securi-
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1 ties through that insured depository insti2 tution;

3 ‘‘(ii) both the principal of and the in4 terest on the extension of credit are fully

5 secured by those securities;

6 ‘‘(iii) either—

7 ‘‘(I) the extension of credit is to

8 be repaid on the same calendar day;

9 or

10 ‘‘(II) all of the following condi11 tions are satisfied:

12 ‘‘(aa) the securities cannot,

13 in the ordinary course of busi14 ness, be cleared on that calendar

15 day;

16 ‘‘(bb) the extension of credit

17 is to be repaid before the close of

18 business on the next calendar

19 day; and

20 ‘‘(cc) extensions of credit

21 under this subclause, when ag22 gregated with all other covered

23 transactions between the institu24 tion and all affiliated securities

25 affiliates do not exceed 10 per-
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1 cent of the institution’s capital

2 stock and surplus; and

3 ‘‘(iv) either—

4 ‘‘(I) the securities are securities

5 expressly specified by section 5136 of

6 the Revised Statutes as permissible

7 for a national bank to underwrite or

8 deal in; or

9 ‘‘(II) to the extent that the

10 Board permits transactions under this

11 paragraph in securities not described

12 in subclause (I), the securities affiliate

13 provides the insured depository insti14 tution such addition security or other

15 assurance of performance, if any, as

16 the Board shall require to prevent

17 such transactions from posing any ap18 preciable risk to the institution.

19 ‘‘(C) OTHER EXCEPTIONS.—The board

20 may make exceptions to subparagraph (A) for

21 well capitalized insured depository institutions

22 if—

23 ‘‘(i) the transaction is fully secured in

24 accordance with section 23A(c) of the Fed25 eral Reserve Act; and
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1 ‘‘(ii) the aggregate amount of covered

2 transactions between the institution and all

3 securities affiliates of the bank holding

4 company, excluding transactions permitted

5 under subparagraph (A)(iii)(I) or

6 (B)(iii)(I), does not exceed 10 percent of

7 the institution’s capital stock and surplus.

8 ‘‘(2) CREDIT ENHANCEMENT RESTRICTED.—

9 ‘‘(A) IN GENERAL.—No insured depository

10 institution affiliated with a securities affiliate

11 shall, directly or indirectly, extend credit, or

12 issue or enter into a standby letter of credit,

13 asset purchase agreement, indemnity, guaran14 tee, insurance, or other facility, for the purpose

15 of enhancing the marketability of a securities

16 issue underwritten by the securities affiliate.

17 ‘‘(B) EXCEPTIONS.—The Board may make

18 exceptions to subparagraph (A)—

19 ‘‘(i) for well capitalized insured depos20 itory institutions if there is substantial

21 participation by other lenders in the exten22 sion of credit, standby letter of credit,

23 asset purchase agreement, indemnity,

24 guarantee, insurance or other facility; and
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1 ‘‘(ii) for securities expressly specified

2 by section 5136 of the Revised Status as

3 permissible for a national bank to under4 write or deal in.

5 ‘‘(3) PROHIBITION ON FINANCING PURCHASE

6 OF SECURITY BEING UNDERWRITTEN.—

7 ‘‘(A) IN GENERAL.—No bank holding com8 pany or subsidiary of a bank holding company

9 (other than a securities affiliate) shall know10 ingly extend or arrange for the extension of

11 credit, directly or indirectly, secured by or for

12 the purpose of purchasing any security while, or

13 for 30 days after, that security is the subject of

14 a distribution in which a securities affiliate of

15 that bank holding company participates as an

16 underwriter or a member of a selling group.

17 For purposes of this subparagraph, a bank

18 holding company or subsidiary may rely on an

19 express written acknowledgement signed by the

20 borrower that the credit is not secured by or for

21 the purpose of purchasing a security described

22 in this subparagraph.

23 ‘‘(B) EXCEPTIONS.—The Board may make

24 exceptions to subparagraph (A)—
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1 ‘‘(i) for extensions of credit if the se2 curities are securities expressly specified by

3 section 5136 of the Revised Statutes as

4 permissible for a national bank to under5 write or deal in;

6 ‘‘(ii) for any other extension of credit,

7 after consultation with and considering the

8 views of the Securities and Exchange Com9 mission, if:

10 ‘‘(I) the bank holding company is

11 adequately capitalized,

12 ‘‘(II) the bank holding company’s

13 lead insured depository institution is

14 well capitalized, and

15 ‘‘(III) well capitalized insured de16 pository institutions control at least

17 80 percent of the assets of insured de18 pository institutions controlled by the

19 bank holding company and all insured

20 depository institutions controlled by

21 the bank holding company are well

22 capitalized or adequately capitalized.

23 ‘‘(C) CONSISTENCY WITH THE FEDERAL

24 SECURITIES LAWS.—Nothing in this paragraph

25 shall permit a securities affiliate to extend or
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1 maintain credit or arrange for an extension of

2 credit except in compliance with applicable pro3 visions of the Securities Exchange Act of 1934

4 and the rules and interpretations thereunder.

5 ‘‘(4) RESTRICTION ON EXTENDING CREDIT TO

6 MAKE PAYMENTS ON SECURITIES.—

7 ‘‘(A) IN GENERAL.—No insured depository

8 institution affiliated with a securities affiliate

9 shall, directly or indirectly, extend credit to an

10 issuer of securities underwritten by the securi11 ties affiliate for the purpose of paying the prin12 cipal of those securities or interest or dividends

13 on those securities. This subparagraph does not

14 apply to an extension of credit for a docu15 mented purpose (other than paying principal,

16 interest, or dividends) if the timing, maturity,

17 and other terms of the credit, taken as a whole,

18 are substantially different from those of the un19 derwritten securities.

20 ‘‘(B) EXCEPTIONS.—The Board may make

21 exceptions to subparagraph (A) if the insured

22 depository institution is well capitalized, and—

23 ‘‘(i) the securities are securities ex24 pressly specified by section 5136 of the Re-
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1 vised Statutes as permissible for a national

2 bank to underwrite or deal in; or

3 ‘‘(ii) there is substantial participation

4 by other lenders in the extension of credit.

5 ‘‘(5) DIRECTOR AND SENIOR EXECUTIVE OFFI6 CER INTERLOCKS RESTRICTED.—

7 ‘‘(A) IN GENERAL.—No director or senior

8 executive officer of a securities affiliate shall

9 serve at the same time as a director or senior

10 executive officer of any affiliated insured depos11 itory institution.

12 ‘‘(B) EXCEPTION FOR SMALL BANK HOLD13 ING COMPANIES.—Notwithstanding subpara14 graph (A), a director or senior executive officer

15 of a securities affiliate may serve at the same

16 time as a director or senior executive officer of

17 an affiliated insured depository institution if

18 that institution and all affiliated insured deposi19 tory institutions have, in the aggregate, total

20 assets of not more than $500,000,000. The dol21 lar limitation in the preceding sentence shall be

22 adjusted annually after December 31, 1995, by

23 the annual percentage increase in the Consumer

24 Price Index for Urban Wage Earners and Cleri-
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1 cal Workers published by the Bureau of Labor

2 Statistics.

3 ‘‘(C) BOARD’S AUTHORITY TO MAKE EX4 CEPTIONS.—

5 ‘‘(i) IN GENERAL.—The Board may,

6 by regulation or order, make exceptions to

7 subparagraph (A).

8 ‘‘(ii) STANDARDS.—The Board—

9 ‘‘(I) shall, in determining wheth10 er to make such exceptions, consider

11 the size of the bank holding compa12 nies, insured depository institutions,

13 and securities affiliates involved, any

14 burdens that may be imposed by sub15 paragraph (A), the safety and sound16 ness of the insured depository institu17 tions and securities affiliates, and

18 other appropriate factors, including

19 unfair competition in securities activi20 ties or the improper exchange of

21 nonpublic customer information; and

22 ‘‘(II) shall not permit—

23 ‘‘(aa) more than half of the

24 insured depository institution’s

25 directors to be directors or senior
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1 executive officers of the securities

2 affiliate; or

3 ‘‘(bb) more than half of the

4 securities affiliate’s directors to

5 be directors or senior executive

6 officers of the insured depository

7 institution.

8 ‘‘(D) SENIOR EXECUTIVE OFFICER DE9 FINED.—For purposes of this paragraph, the

10 term ‘senior executive officer’ has the same

11 meaning as the term ‘executive officer’ has in

12 section 22(h) of the Federal Reserve Act.

13 ‘‘(6) DISCLOSURE REQUIRED BY SECURITIES

14 AFFILIATE.—At the time a securities account is

15 opened, a securities affiliate shall conspicuously dis16 close in writing to each of its customers that—

17 ‘‘(A) securities sold, offered, or rec18 ommended by the securities affiliate are not de19 posits, are not insured by the Federal Deposit

20 Insurance Corporation, are not guaranteed by

21 an affiliated insured depository institution, and

22 are not otherwise an obligation of an insured

23 depository institution (unless such is the case);

24 ‘‘(B) the securities affiliate is not an in25 sured depository institution, and is a corpora-
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1 tion separate from any insured depository insti2 tution; and

3 ‘‘(C) the securities affiliate may be under4 writing or dealing in the securities being sold,

5 offered or recommended, and if so, would have

6 a financial interest in the transaction.

7 ‘‘(7) DISCLOSURE REQUIRED BY INSURED DE8 POSITORY INSTITUTIONS.—No insured depository in9 stitution that is affiliated with a securities affiliate

10 shall knowingly express any opinion on the value of,

11 or the advisability of purchasing or selling, securities

12 being underwritten or dealt in by a securities affili13 ate of that bank holding company unless the insured

14 depository institution conspicuously discloses in writ15 ing to the customer that—

16 ‘‘(A) the securities affiliate is underwriting

17 or dealing in the securities and has a financial

18 interest in the transaction;

19 ‘‘(B) the securities recommended are not

20 deposits, are not insured by the Federal De21 posit Insurance Corporation, are not guaran22 teed by the institution or any other affiliated

23 insured depository institution, and are not oth24 erwise an obligation of an insured depository in25 stitution (unless such is the case), and are sub-
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1 ject to investment risks including possible loss

2 of principal invested; and

3 ‘‘(C) the securities affiliate is not an in4 sured depository institution, and is a corpora5 tion separate from any insured depository insti6 tution.

7 ‘‘(8) IMPROPER DISCLOSURE OF CONFIDENTIAL

8 CUSTOMER INFORMATION PROHIBITED.—

9 ‘‘(A) IN GENERAL.—No insured depository

10 institution subsidiary of a bank holding com11 pany shall disclose to a securities affiliate of

12 that bank holding company, nor shall a securi13 ties affiliate disclose to any affiliated insured

14 depository institution or subsidiary of such an

15 institution, any nonpublic customer conforma16 tion (including an evaluation of the credit17 worthiness of an issuer or other customer of

18 that institution or securities affiliate), unless it

19 is clearly and conspicuously disclosed that such

20 information may be communicated among such

21 persons and the customer is given the oppor22 tunity, prior to the time that the information is

23 initially communicated, to direct that such in24 formation not be communicated among such

25 persons.
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1 ‘‘(B) DEFINITION.—For purposes of sub2 paragraph (A), the term ‘nonpublic customer

3 information’ does not include—

4 ‘‘(i) customers’ names and addresses

5 (unless a customer has specified other6 wise);

7 ‘‘(ii) information that could be ob8 tained from unaffiliated credit bureaus or

9 similar companies in the ordinary course of

10 business; or

11 ‘‘(iii) information that is customarily

12 provided to unaffiliated credit bureaus or

13 similar companies in the ordinary course of

14 business by—

15 ‘‘(I) insured depository institu16 tions not affiliated with securities af17 filiates; or

18 ‘‘(II) brokers and dealers not af19 filiated with insured depository insti20 tutions.

21 ‘‘(9) UNDERWRITING SECURITIES REPRESENT22 ING OBLIGATIONS ORIGINATED BY AFFILIATE RE23 STRICTED.—A securities affiliate shall not under24 write securities secured by or representing an inter25 est in mortgages or other obligations originated or
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1 purchased by an affiliated insured depository institu2 tion or subsidiary of such an institution—

3 ‘‘(A) unless those securities—

4 ‘‘(i) are rated by at least one unaffili5 ated, nationally recognized statistical rat6 ing organization;

7 ‘‘(ii) are issued or guaranteed by the

8 Federal Home Loan Mortgage Corpora9 tion, the Federal National Mortgage Asso10 ciation, or the Government National Mort11 gage Association; or

12 ‘‘(iii) represent interests in securities

13 described in clause (ii); or

14 ‘‘(B) except as permitted by the Board.

15 ‘‘(10) RECIPROCAL ARRANGEMENTS PROHIB16 ITED.—No bank holding company and no subsidiary

17 of a bank holding company may enter into any

18 agreement, understanding, or other arrangement

19 under which—

20 ‘‘(A) one bank holding company (or sub21 sidiary of that bank holding company) agrees to

22 engage in a transaction with, or on behalf of,

23 another bank holding company (or subsidiary of

24 that bank holding company), in exchange for
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1 ‘‘(B) the agreement of the second bank

2 holding company referred to in subparagraph

3 (A) (or a subsidiary of that bank holding com4 pany) to engage in any transaction with, or on

5 behalf of, the first bank holding company re6 ferred to in that subparagraph (or any subsidi7 ary of that bank holding company), for the pur8 pose of evading any requirement or restriction

9 of Federal law on transactions between, or for

10 the benefit of, affiliates of bank holding compa11 nies.

12 ‘‘(11) SAFEGUARDS APPLY TO CERTAIN SUB13 SIDIARIES.—Except as provided in this subsection:

14 ‘‘(A) SECURITIES AFFILIATE.—No subsidi15 ary of a securities affiliate may do anything

16 that this subsection prohibits the securities af17 filiate from doing.

18 ‘‘(B) DEPOSITORY INSTITUTION.—No sub19 sidiary of an insured depository institution or of

20 a wholesale financial institution may do any21 thing that this subsection prohibits the institu22 tion from doing.

23 ‘‘(12) AUTHORITY TO MODIFY AND IMPOSE AD24 DITIONAL SAFEGUARDS; INTERPRETIVE AUTHOR25 ITY—
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1 ‘‘(A) IN GENERAL.—The Board may, by

2 regulation or order—

3 ‘‘(i) adopt additional limitations, re4 strictions or conditions on relationships or

5 transactions among insured depository in6 stitutions, their affiliates, and their cus7 tomers; and

8 ‘‘(ii) make any modification to any

9 limitation, restriction or condition on rela10 tionships or transactions among insured

11 depository institutions, their affiliates and

12 their customers imposed under this sub13 section, including modifications in addition

14 to those expressly provided for in this sub15 section.

16 ‘‘(B) STANDARDS.—The Board may not

17 exercise authority under subparagraph (A)(i) or

18 subparagraph (A)(ii) unless the Board finds

19 that such action is consistent with the purposes

20 of this Act, including the avoidance of any sig21 nificant risk to the safety and soundness of in22 sured depository institutions or the Federal de23 posit insurance funds, enhancement of the fi24 nancial stability of bank holding companies,

25 prevention of the subsidization of securities af-
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1 filiates by insured depository institutions, avoid2 ance of conflicts of interest or other abuses, and

3 application of the principle of national treat4 ment and equality of competitive opportunity

5 between securities affiliates owned or controlled

6 by domestic bank holding companies and securi7 ties affiliates owned or controlled by foreign

8 banks operating in the United States.

9 ‘‘(13) COMPLIANCE PROGRAMS REQUIRED.—

10 ‘‘(A) IN GENERAL.—Each appropriate

11 Federal banking agency and the Securities and

12 Exchange Commission shall establish a program

13 for—

14 ‘‘(i) sharing information concerning

15 compliance with subtitles A, B, or C of

16 title I of the Financial Services Competi17 tiveness Act of 1995 by:

18 ‘‘(I) entities that are brokers,

19 dealers, investment advisers or invest20 ment companies registered with the

21 Securities and Exchange Commission

22 that are affiliated with insured deposi23 tory institutions, or are separately

24 identifiable departments or divisions
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1 of insured depository institutions reg2 istered as investment advisers; and

3 ‘‘(II) such insured depository in4 stitutions and their affiliates;

5 ‘‘(ii) enforcing compliance with sub6 title A of title I of the Financial Services

7 Competitiveness Act of 1995 and section

8 3(a)(4) and 3(a)(5) of the Securities Ex9 change Act of 1934 by entities under its

10 supervision; and

11 ‘‘(iii) responding to any complaints

12 from customers about inappropriate cross13 marketing of securities products or inad14 equate disclosure.

15 ‘‘(B) DATA COLLECTION.—

16 ‘‘(i) IN GENERAL.—The appropriate

17 Federal banking agencies, after consulta18 tion with and consideration of the views of

19 the Securities and Exchange Commission,

20 may require any depository institution that

21 has effected securities transactions pursu22 ant to any exception enumerated in sec23 tions 3(a)(4)(C) and 3(a)(5) of the Securi24 ties Exchange Act of 1934 to identify the

25 exceptions relied upon and to submit such
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1 information necessary to monitor compli2 ance under sections 3(a)(4)(C) and 3(a)(5)

3 of the Securities Exchange Act of 1934.

4 ‘‘(ii) COMMISSION ACCESS.—The ap5 propriate Federal banking agency shall

6 make any such information available to the

7 Commission upon request.

8 ‘‘(iii) COMPLIANCE.—In implementing

9 the provisions of this subparagraph, the

10 appropriate Federal banking agencies shall

11 ensure that any information requests to in12 sured depository institutions take into ac13 count the size and activities of the institu14 tions and do not cause undue reporting

15 burdens.

16 ‘‘(C) COMMISSION’S ENFORCEMENT AU17 THORITY.—Without limiting in any way the au18 thority of the appropriate Federal banking

19 agencies under this subsection, the Securities

20 and Exchange Commission shall have the au21 thority to enforce the provisions of this sub22 section against a securities affiliate to the ex23 tent that those provisions govern the conduct or

24 activities of the securities affiliate as if they
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1 were provisions of the Securities Exchange Act

2 of 1934.

3 ‘‘(D) EXAMINATION REPORTS.—The ap4 propriate Federal banking agencies shall, to the

5 extent practicable, use the reports of examina6 tion of any broker, dealer, investment adviser,

7 or investment company made by or on behalf of

8 the Securities and Exchange Commission and

9 reports made by or on behalf of a registered se10 curities association or national securities ex11 change, and shall defer to such examinations

12 for compliance with the Federal securities laws.

13 ‘‘(E) INTERPRETATIONS OF THE FEDERAL

14 SECURITIES LAWS.—The appropriate Federal

15 banking agencies shall defer to the Securities

16 and Exchange Commission regarding all inter17 pretations and enforcement of the Federal secu18 rities laws relating to the application of the

19 Federal securities laws to the activities and con20 duct of brokers, dealers, investment advisers,

21 and investment companies.

22 ‘‘(F) NOTICE OF CERTAIN ACTIONS.—

23 ‘‘(i) SECURITIES AND EXCHANGE

24 COMMISSION.—The Securities and Ex25 change Commission shall give notice to the
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1 appropriate Federal banking agency upon

2 the entry of an order of investigation of, or

3 the commencement of any disciplinary or

4 law enforcement proceedings by the Com5 mission and a copy of any order entered by

6 the Commission against—

7 ‘‘(I) any broker, dealer, or invest8 ment adviser that—

9 ‘‘(aa) is registered with the

10 Securities and Exchange Com11 mission; and

12 ‘‘(bb) is affiliated with or is

13 a separately identifiable depart14 ment or division of an insured

15 depository institution;

16 ‘‘(II) any investment company

17 registered with the Securities and Ex18 change Commission that is an affiliate

19 of or is advised by an investment ad20 viser affiliated with an insured deposi21 tory institution or by a separately

22 identifiable department or division of

23 an insured depository institution that

24 is a registered investment adviser; or
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1 ‘‘(III) any bank holding com2 pany, insured depository institution,

3 or subsidiary of such company or in4 stitution, if the proposed action re5 lates to subtitles A, B, or C of title I

6 of the Financial Services Competitive7 ness Act of 1995.

8 ‘‘(ii) APPROPRIATE FEDERAL BANK9 ING AGENCIES.—Upon the entry of an

10 order of investigation of, or the commence11 ment of any disciplinary or law enforce12 ment proceedings to enforce the provisions

13 of subtitle A of title I of the Financial

14 Services Competitiveness Act of 1995 by

15 an appropriate Federal banking agency

16 against any broker, dealer, investment ad17 viser, or investment company that is reg18 istered under the Federal securities laws

19 and is affiliated with an insured depository

20 institution, the appropriate Federal bank21 ing agency shall give notice to the Securi22 ties and Exchange Commission of the pro23 posed action.

24 ‘‘(iii) EXTENSION.—The notice re25 quired under clause (i) or (ii) may be pro-
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1 vided promptly after action by the Securi2 ties and Exchange Commission or the ap3 propriate Federal banking agency, if—

4 ‘‘(I) the Commission determines

5 that the protection of investors re6 quires immediate action by the Com7 mission and prior notice under clause

8 (i) is not practical under the cir9 cumstances; or

10 ‘‘(II) the appropriate Federal

11 banking agency determines that con12 cerns for the safety and soundness of

13 an insured depository institution or its

14 affiliate require immediate action by

15 the agency and prior notice under

16 clause (ii) is not practical under the

17 circumstances.

18 ‘‘(G) COORDINATED ENFORCEMENT AC19 TIONS.—The Securities and Exchange Commis20 sion and the appropriate Federal banking agen21 cies shall, to the extent practicable, coordinate

22 supervisory actions based on applicable law

23 where the actions are based on the same or re24 lated events or practices.
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1 ‘‘(H) INVESTMENT COMPANIES NOT AF2 FILIATED WITH AN INSURED DEPOSITORY IN3 STITUTION.—The appropriate Federal banking

4 agency shall not have authority under this title

5 or any other provision of law to inspect or ex6 amine any investment company registered

7 under the Federal securities laws that is not—

8 ‘‘(i) affiliated with an insured deposi9 tory institution; or

10 ‘‘(ii) advised by an investment adviser

11 affiliated with an insured depository insti12 tution or by a separately identifiable de13 partment or division of an insured deposi14 tory institution that is a registered invest15 ment adviser.

16 ‘‘(I) DEFINITION.—For purposes of this

17 paragraph, the term ‘Federal securities laws’

18 shall mean the provisions of Federal law gov19 erning securities activities that are within the

20 jurisdiction of the Securities and Exchange

21 Commission as set forth in the Securities Act of

22 1993, the Securities Exchange Act of 1934, the

23 Investment Company Act of 1940, the Invest24 ment Advisers Act of 1940, and the Trust In25 denture Act of 1939.
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1 ‘‘(g) ACTIVITIES NOT PERMISSIBLE FOR DEPOSI2 TORY INSTITUTIONS OR SECURITIES AFFILIATES.—

3 ‘‘(1) A bank holding company that acquires

4 control of a securities affiliate shall not, beginning

5 1 year after the date of that acquisition, permit any

6 depository institution (as defined in section 3 of the

7 Federal Deposit Insurance Act) of which it has con8 trol or any subsidiary of that institution—

9 ‘‘(A) to engage, directly or indirectly, in

10 the United States—

11 ‘‘(i) in underwriting securities backed

12 by or representing interests in notes,

13 drafts, acceptances, loans, leases, receiv14 ables, other obligations, or pools of any

15 such obligations, originated or purchased

16 by the insured depository institution or its

17 affiliates;

18 ‘‘(ii) in underwriting or dealing in any

19 other securities, except securities expressly

20 specified by section 5136 of the Revised

21 Statutes as permissible for a national bank

22 to underwrite or deal in; or

23 ‘‘(iii) in effecting sales as part of a

24 primary offering to an accredited investor

25 (as defined in section 2 of the Securities
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1 Act of 1933) of securities of an issuer, not

2 involving a public offering, pursuant to

3 section 3(b), 4(2), or 4(6) of the Securities

4 Act of 1933 and the rules and regulations

5 issued thereunder; or

6 ‘‘(B) to make an equity investment in any

7 securities affiliate.

8 ‘‘(2) The limitations in paragraph (1)(A) shall

9 not apply to activities conducted by a subsidiary held

10 pursuant to section 25 or 25A of the Federal Re11 serve Act or section 4(c)(13) of this Act.

12 ‘‘(3) Nothing in this section shall permit a secu13 rities affiliate to accept deposits in contravention of

14 section 21 of the Banking Act of 1933 (12 U.S.C.

15 378(a)).

16 ‘‘(h) APPROVAL OF SECURITIES ACTIVITIES UNDER

17 SECTION 4(c)(8) RESTRICTED.—The Board shall deny

18 any notice or application by a bank holding company

19 under authority of section 4(c)(8) to engage in, or acquire

20 the shares of a company engaged in, underwriting or deal21 ing in securities in the United States, except securities ex22 pressly specified by section 5136 of the Revised Statutes

23 as permissible for a national bank to underwrite or deal

24 in.
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1 ‘‘(i) BANKERS’ BANKS.—For purposes of this sec2 tion, each shareholder of or participant in a company that

3 controls a depository institution described in section

4 5169(b)(1) of the Revised Statutes or in a similar statute

5 of any State, and each subsidiary of such a shareholder

6 or participant, shall be treated as if it were a subsidiary

7 of that company. This subsection shall not apply to a

8 shareholder or participant in that company (or subsidiary

9 of that shareholder or participant) if the shareholder or

10 participant and its affiliates do not, in the aggregate, con11 trol more than 5 percent of any class of voting shares of

12 that company.

13 ‘‘(j) SHARES ACQUIRED IN CONNECTION WITH UN14 DERWRITING AND INVESTMENT BANKING ACTIVITIES.—

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

16 4(a), a bank holding company may directly or indi17 rectly own or control shares of any company engaged

18 in activities not authorized pursuant to section 4 of

19 this Act if—

20 ‘‘(A) the shares are acquired and held by

21 a securities affiliate as part of a bona fide un22 derwriting or investment banking activity and

23 such shares are held only for such period of

24 time as will permit the sale thereof on a reason-
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1 able basis consistent with the nature of such ac2 tivity; and

3 ‘‘(B) during the period such shares are

4 held, the bank holding company does not di5 rectly or indirectly participate in the day to day

6 management or operation of the company.

7 ‘‘(2) BOARD RULES.—The Board may establish

8 rules governing the acquisition and retention of

9 shares under this subsection, including limitations

10 governing the amount and percentage of shares that

11 may be held under this paragraph and the cir12 cumstances and time period such shares may be

13 held, in order to assure compliance with the pur14 poses of this Act, including the separation of bank15 ing and commerce.

16 ‘‘(k) DEFINITIONS.—For purposes of this section—

17 ‘‘(1) CAPITAL CATEGORIES.—

18 ‘‘(A) INSURED DEPOSITORY INSTITU19 TIONS.—With respect to insured depository in20 stitutions, the terms ‘well capitalized’, ‘ade21 quately capitalized’, and ‘undercapitalized’ have

22 the meaning given to those terms in section

23 38(b) of the Federal Deposit Insurance Act.

24 ‘‘(B) BANK HOLDING COMPANIES.—A

25 bank holding company is ‘adequately capital-
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1 ized’ if it meets the required minimum level for

2 each relevant capital measure established by the

3 Board for bank holding companies, and

4 ‘undercapitalized’ if it fails to meet the required

5 minimum level for any such relevant capital

6 measure.

7 ‘‘(2) CAPITAL STOCK AND SURPLUS.—The term

8 ‘capital stock and surplus’ has the same meaning as

9 in section 23A of the Federal Reserve Act.

10 ‘‘(3) COVERED TRANSACTION.—The term ‘cov11 ered transaction’ has the same meaning as in section

12 23A of the Federal Reserve Act.

13 ‘‘(4) FOREIGN BANKS.—A branch or agency of

14 a foreign bank or a commercial lending company

15 controlled by a foreign bank (as in terms ‘agency’,

16 ‘branch’, ‘commercial lending company’, and ‘foreign

17 bank’ are defined in section 1 of the International

18 Banking Act of 1978) shall be deemed to be an in19 sured depository institution.

20 ‘‘(5) SECURITY.—

21 ‘‘(A) IN GENERAL.—The term ‘security’

22 has the meaning given to that term in section

23 3(a)(10) of the Securities Exchange Act of

24 1934.
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1 ‘‘(B) EXCEPTIONS.—For purposes of this

2 section, other than subsection (a), the term ‘se3 curity’ does not include any of the following:

4 ‘‘(i) A contract of insurance.

5 ‘‘(ii) A deposit account, savings ac6 count, certificate of deposit, or other de7 posit instrument issued by a depository in8 stitution.

9 ‘‘(iii) A share account issued by a sav10 ings association if the account is insured

11 by the Federal Deposit Insurance Corpora12 tion.

13 ‘‘(iv) A banker’s acceptance.

14 ‘‘(v) A letter of credit issued by a de15 pository institution.

16 ‘‘(vi) A debit account at a depository

17 institution arising from a credit card or

18 similar arrangement.

19 ‘‘(vii) A traditional loan or loan par20 ticipation (as determined by the Board).

21 ‘‘(C) BOARD’S AUTHORITY TO EXEMPT

22 TRADITIONAL BANKING PRODUCTS.—The Board

23 may, after consultation and consideration of the

24 views of the Securities and Exchange Commis25 sion, by regulation exempt from the definition
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1 of ‘security’ a banking product that national

2 banks have traditionally and customarily origi3 nated or handled (such as mortgage notes) if

4 the exemption is consistent with the purposes of

5 this section.

6 ‘‘(D) DEFINITION FOR LIMITED PUR7 POSE.—The fact that a particular instrument is

8 excluded pursuant to subparagraphs (B) or (C)

9 from the definition of ‘security’ for purposes of

10 this section shall not be construed as finding or

11 implying that such instrument is or is not a ‘se12 curity’ for purposes of section 3(a)(10) of the

13 Securities Exchange Act of 1934.’’.

14 (b) TRANSITION RULE FOR SECURITIES AFFILIATES

15 APPROVED UNDER SECTION 4(c)(8).—

16 (1) IN GENERAL.—Effective 18 months after

17 the date of enactment of this Act, no bank holding

18 company may engage in, or retain the shares of any

19 company engaged in, underwriting or dealing in se20 curities based on the approval of an application

21 under section 4(c)(8) of the Bank Holding Company

22 Act of 1956—

23 (A) unless the bank holding company has

24 obtained the Board’s approval to retain the

25 shares of that company under section 10; or
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1 (B) except underwriting or dealing in secu2 rities expressly specified by section 5136 of the

3 Revised Statutes as permissible for a national

4 bank to underwrite or deal in.

5 (2) EXTENDING TIME.—

6 (A) IN GENERAL.—The Board may, for

7 good cause shown, extend the time provided

8 under paragraph (1) for not more than 18

9 months.

10 (B) PENDING NOTICES.—If a bank holding

11 company has filed a notice under section 10(b)

12 of the Bank Holding Company Act of 1956 not

13 later than 180 days after the date of enactment

14 of this Act, paragraph (1) shall not apply with

15 respect to the company engaged in such under16 writing or dealing until 180 days after the

17 Board has acted on the notice.

18 (c) CONFORMING AMENDMENTS.—

19 (1) DEFINITIONS.—Section 2 of the Bank

20 Holding Company Act of 1956 (12 U.S.C. 1841) is

21 amended by adding at the end the following new

22 subsections:

23 ‘‘(n) SECURITIES AFFILIATE.—The term ‘securities

24 affiliate’ means any company—
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1 ‘‘(1) that is (or is required to be) registered

2 under the Securities Exchange Act of 1934 as a

3 broker or dealer; and

4 ‘‘(2) the acquisition or retention of the shares

5 or assets of which the Board has approved under

6 section 10.

7 ‘‘(o) INSURED DEPOSITORY INSTITUTION.—The

8 term ‘insured depository institution’ has the meaning

9 given to that term in section 3 of the Federal Deposit In10 surance Act.

11 ‘‘(p) LEAD INSURED DEPOSITORY INSTITUTION.—

12 The term ‘lead insured depository institution’ shall mean

13 the largest insured depository institution controlled by the

14 bank holding company, based on a comparison on the av15 erage total assets controlled by each insured depository in16 stitution during the previous 12-month period.

17 ‘‘(q) APPROPRIATE FEDERAL BANKING AGENCY.—

18 The term ‘appropriate Federal banking agency’ has the

19 same meaning as in section 3(q) of the Federal Deposit

20 Insurance Act.’’.

21 (2) AMENDMENT REGARDING CONDITIONAL AP22 PROVAL OF APPLICATIONS.—Section 4(a)(2) of the

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

24 1843(a)(2)) is amended by striking ‘‘paragraph (8)’’

25 and all that follows through ‘‘issued by the Board
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1 under such paragraph’’ and inserting ‘‘section 10,

2 subsection (l) or subsection (c)(8), subject to all the

3 conditions specified in those provisions or in any

4 order or regulation issued by the Board under those

5 provisions’’.

6 (3) AMENDMENT TO NOTICE PROCEDURES.—

7 Section 4(j) of the Bank Holding Company Act of

8 1956 (12 U.S.C. 1843(j)) is amended—

9 (A) in paragraph (1)(A) by striking ‘‘sub10 section (c)(8) or (a)(2)’’ and inserting in its

11 place ‘‘subsection (c)(8), (c)(15), (l), or (a)(2)’’;

12 (B) in paragraph (1)(E) by striking ‘‘sub13 section (c)(8) or (a)(2)’’ and inserting in its

14 place ‘‘subsection (c)(8), (c)(15), (l), or (a)(2)’’;

15 (C) by redesignating paragraphs (2)(B)

16 and (2)(C) as paragraphs (2)(C) and (2)(D) re17 spectively, and inserting a new paragraph

18 (2)(B) as follows:

19 ‘‘(B) CRITERIA FOR NOTICES INVOLVING

20 SECURITIES AFFILIATES.—In considering any

21 notice that involves the acquisition of shares of

22 a securities affiliate pursuant to section

23 4(c)(15), the Board shall apply the criteria and

24 safeguards contained in this paragraph and in

25 section 10.’’.
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1 (d) AMENDMENT TO THE FEDERAL RESERVE ACT.—

2 Section 23B(b)(1)(B) of the Federal Reserve Act (12

3 U.S.C. 371c–1(b)(1)(B)) is amended by inserting ‘‘and for

4 30 days thereafter’’ after ‘‘during the existence of any un5 derwriting or selling syndicate’’.

6 (e) EXEMPTION FROM SECTION 305(b) OF THE FED7 ERAL POWER ACT.—Section 305(b) of the Federal Power

8 Act (16 U.S.C. 825d(b)) shall not apply to any person

9 now holding or proposing to hold the position of officer

10 or director of a public utility and officer or director of

11 a bank, trust company, banking association, or firm per12 mitted by section 10 of the Bank Holding Company Act

13 of 1956 (as amended by subsection (a)) or section 5136(b)

14 of the Revised Statutes (12 U.S.C. 24(b)) (as amended

15 by section 716) to underwrite or participate in the market16 ing of securities (including commercial paper) of a public

17 utility, if that bank, trust company, banking association,

18 or firm does not underwrite or participate in the market19 ing of securities of the public utility for which the person

20 serves or proposes to serve as an officer or director.

21 (f) RETENTION OF CERTAIN INVESTMENTS BY SECU22 RITIES COMPANIES AFFILIATING WITH INSURED DEPOSI23 TORY INSTITUTIONS.—Section 4 of the Bank Holding

24 Company Act (12 U.S.C. 1843) is amended by adding at

25 the end the following new subsection:
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1 ‘‘(k) OWNERSHIP OF SHARES OF CERTAIN COMPA2 NIES BY SECURITIES COMPANIES THAT BECOME BANK

3 HOLDING COMPANIES.—

4 ‘‘(1) FINANCIAL COMPANIES.—Notwithstanding

5 subsection (a), a bank holding company may retain

6 direct or indirect ownership or control of voting

7 shares of any company that engages solely in activi8 ties that the Board determines to be financial in na9 ture if—

10 ‘‘(A) the bank holding company acquired

11 the shares of such company or of each company

12 to which it is a successor more than two years

13 prior to the date that such bank holding com14 pany becomes a bank holding company;

15 ‘‘(B) the aggregate investment by the bank

16 holding company in shares ownership or control

17 of which the bank holding company would be

18 prohibited from retaining but for this para19 graph does not exceed 10 percent of the total

20 consolidated capital and surplus of the bank

21 holding company on the date that it becomes a

22 bank holding company or on the date of any ad23 ditional investment by the bank holding com24 pany in such shares; and
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1 ‘‘(C) more than 50 percent of the business

2 of the bank holding company for each of the

3 two calendar years prior to the date it becomes

4 a bank holding company involved securities ac5 tivities described in sections 10(a) (1) and (2),

6 excluding from such calculation activities (other

7 than securities activities) in which bank holding

8 companies were permitted to engage prior to

9 the enactment of the Financial Services Com10 petitiveness Act of 1995.

11 ‘‘(2) NONFINANCIAL COMPANIES.—

12 ‘‘(A) IN GENERAL.—Notwithstanding sub13 section (a), a bank holding company that is de14 scribed in paragraph (1)(C) may, for a period

15 of 5 years from the date that the company be16 comes a bank holding company, retain direct or

17 indirect ownership or control of voting shares of

18 any company that the bank holding company

19 owns or controls on the date it becomes a bank

20 holding company.

21 ‘‘(B) EXTENSION OF DIVESTITURE PE22 RIOD.—The Board may extend the period de23 scribed in subparagraph (A) for an additional

24 period not to exceed 5 years if the Board deter25 mines that such extension is necessary to avert
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1 substantial loss to the bank holding company

2 and finds that the bank holding company has

3 made good faith efforts to divest such shares.

4 ‘‘(C) NO EXPANSION OF NONFINANCIAL

5 COMPANIES PRIOR TO DIVESTITURE.—Unless

6 such acquisition or activity is permitted in ac7 cordance with section 4(c)—

8 ‘‘(i) no bank holding company or com9 pany whose shares are owned or controlled

10 by a bank holding company pursuant to

11 this paragraph (2) may acquire any inter12 est in or assets of any company, and

13 ‘‘(ii) no company whose shares are

14 owned or controlled by a bank holding

15 company pursuant to this paragraph (2)

16 may engage directly or indirectly in any

17 activity that the company did not conduct

18 on the day before the bank holding com19 pany registered as a bank holding com20 pany.

21 ‘‘(3) RESTRICTIONS ON JOINT MARKETING.—

22 No insured depository institution (and no subsidiary

23 of such institution) shall—

24 ‘‘(A) offer or market, directly or indirectly

25 through any arrangement, any product or serv-
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1 ice of any affiliate whose shares are owned or

2 controlled by the bank holding company pursu3 ant to this subsection or section 10(j), or

4 ‘‘(B) permit any of its products or services

5 to be offered or marketed, directly or indirectly

6 through any arrangement, by or through any

7 affiliate whose shares are owned or controlled

8 by the bank holding company pursuant to this

9 subsection or section 10(j),

10 unless the product or service is permissible for bank

11 holding companies to provide under section 10 or

12 section 4(c)(8).’’.

13 (g) AMENDMENT TO THE RIGHT TO FINANCIAL PRI14 VACY ACT.—Section 1112(e) of the Right to Financial

15 Privacy Act (12 U.S.C. 3412(e)) is amended as follows—

16 (1) by deleting ‘‘this chapter’’ and inserting in

17 its place ‘‘law’’; and

18 (2) by adding ‘‘, examination reports’’ after ‘‘fi19 nancial records’’.

20 (h) EXCEPTION TO RESTRICTION ON ASSET GROWTH

21 OF NONBANK BANKS.—Section 4(f)(3)(B)(iv) of the Bank

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

23 1843(f)(3)(B)(iv)) is amended by striking the period and

24 inserting the following: ‘‘unless—
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1 ‘‘(I) the company has provided at

2 least 60 days prior written notice to the

3 Board and, during that period, the Board

4 has not disapproved the proposal after ap5 plying the standards provided in subsection

6 (j)(2);

7 ‘‘(II) each insured depository institu8 tion controlled by the company is at all

9 times well-capitalized; and

10 ‘‘(III) the company engages, directly

11 or indirectly, only in activities—

12 ‘‘(aa) permitted pursuant to sub13 section 4(c)(8) or (15); or

14 ‘‘(bb) determined by the Board to

15 be financial in nature and the com16 pany satisfies the provisions of sub17 section (k)(1) (B) and (C), or would

18 satisfy the provisions of subsection

19 (k)(1) (B) and (C) if the company

20 were a bank holding company.’’.

21 (i) CONFORMING AMENDMENT FOR CERTAIN HOLD22 ING COMPANIES.—Section 10(c) of the Home Owners’

23 Loan Act (12 U.S.C. 1467a(c)) is amended by striking

24 paragraphs (3), (5), and (6) and redesignating other para25 graphs accordingly.
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1 SEC. 104. SECURITIES COMPANY AFFILIATIONS OF FDIC-IN2 SURED BANKS.

3 Section 18 of the Federal Deposit Insurance Act (12

4 U.S.C. 1828) is amended by adding at the end the follow5 ing new subsections:

6 ‘‘(s) SECURITIES AFFILIATIONS OF INSURED

7 BANKS.—

8 ‘‘(1) IN GENERAL.—A bank shall not be an af9 filiate of any company that, directly or indirectly,

10 acts as an underwriter or dealer of any security, ex11 cept—

12 ‘‘(A) as provided in section 10 of the Bank

13 Holding Company Act of 1956; or

14 ‘‘(B) a company that underwrites or deals

15 only in securities expressly specified by section

16 5136 of the Revised Statutes as permissible for

17 a national bank to underwrite or deal in.

18 ‘‘(2) EXCEPTION.—This subsection does not

19 apply to an insured bank described in subparagraph

20 (D), (F), or (H) or section 2(c)(2) of the Bank

21 Holding Company Act of 1956 or to a company held

22 pursuant to section 25 or 25A of the Federal Re23 serve Act or section 4(c)(13) of the Bank Holding

24 Company Act.

25 ‘‘(3) GRANDFATHER PROVISION.—This sub26 section does not prohibit—
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1 ‘‘(A) the continuation of an affiliation that

2 existed on January 1, 1995; or

3 ‘‘(B) any new affiliation by an insured

4 bank that has an affiliation that would be pro5 hibited if the affiliation were not covered by

6 subparagraph (A).

7 ‘‘(4) DEFINITIONS.—For purposes of this sub8 section:

9 ‘‘(A) AFFILIATE.—The term ‘affiliate’ has

10 the meaning given to that term in section 2(k)

11 of the Bank Holding Company Act of 1956.

12 ‘‘(B) COMPANY.—The term ‘company’ has

13 the meaning given to that term in section 2(b)

14 of the Bank Holding Company Act of 1956.

15 ‘‘(C) BROKER.—The term ‘broker’ has the

16 meaning given to that term in section 3(a)(4)

17 of the Securities Exchange Act of 1934.

18 ‘‘(D) DEALER.—The term ‘dealer’ has the

19 meaning given to that term in section 3(a)(5)

20 of the Securities Exchange Act of 1934.

21 ‘‘(E) SECURITY.—

22 ‘‘(i) IN GENERAL.—The term ‘secu23 rity’ has the meaning given to that term in

24 section 3(a)(10) of the Securities Ex25 change Act of 1934.
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1 ‘‘(ii) EXCEPTIONS.—For purposes of

2 this subsection, the term ‘security’ does

3 not include any of the following:

4 ‘‘(I) A contract of insurance.

5 ‘‘(II) A deposit account, savings

6 account, certificate of deposit, or

7 other deposit instrument issued by a

8 depository institution.

9 ‘‘(III) A share account issued by

10 a savings association if the account is

11 insured under the Federal Deposit In12 surance Act.

13 ‘‘(IV) A banker’s acceptance.

14 ‘‘(V) A letter of credit issued by

15 a depository institution.

16 ‘‘(VI) A debit account at a depos17 itory institution arising from a credit

18 card or similar arrangement.

19 ‘‘(VII) A traditional loan or loan

20 participation (as determined by the

21 Board).

22 ‘‘(iii) FEDERAL RESERVE BOARD’S

23 AUTHORITY TO EXEMPT TRADITIONAL

24 BANKING PRODUCTS.—The Board of Gov25 ernors of the Federal Reserve System may,
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1 after consultation with and considering the

2 views of the Securities and Exchange Com3 mission, by regulation exempt from the

4 definition of ‘security’ a banking product

5 that national banks have traditionally and

6 customarily originated or handled (such as

7 mortgage notes) if the exemption is con8 sistent with the purposes of this sub9 section.

10 ‘‘(iv) DEFINITION FOR LIMITED PUR11 POSE.—The fact that a particular instru12 ment is excluded pursuant to clauses (ii) or

13 (iii) from the definition of ‘security’ for

14 purposes of this subsection shall not be

15 construed as finding or implying that such

16 instrument is or is not a ‘security’ for pur17 poses of section 3(a)(10) of the Securities

18 Exchange Act of 1934.

19 ‘‘(E) UNDERWRITER.—The term ‘under20 writer’ has the meaning given to that term in

21 section 2(11) of the Securities Act of 1933.

22 ‘‘(t) BROKER/DEALER REGISTRATION.—An insured

23 bank may not use the United States mails or any means

24 or instrumentality of interstate commerce to act as a

25 broker or dealer without registration under the Securities
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1 Exchange Act of 1934, except to the extent permitted

2 under section 3(a)(4) or 3(a)(5), or unless otherwise ex3 empt pursuant to rules promulgated by the Securities and

4 Commission.’’.

5 SEC. 105. AUTHORITY TO TERMINATE GRANDFATHER

6 RIGHTS UNDER THE INTERNATIONAL BANK7 ING ACT OF 1978.

8 Section 8(c) of the International Banking Act of

9 1978 (12 U.S.C. 3106(c)) is amended by adding at the

10 end the following new paragraph:

11 ‘‘(3) PARITY IN CONDUCT OF AUTHORIZED SE12 CURITIES ACTIVITIES.—

13 ‘‘(A) IN GENERAL.—Notwithstanding any

14 provision of paragraph (1) or any other provi15 sion of law, any authority conferred under this

16 subsection on any foreign bank or company

17 with respect to an activity of an affiliate en18 gaged in securities activities shall terminate 18

19 months after the Board determines that such

20 activity is authorized for bank holding compa21 nies in the United States, except that—

22 ‘‘(i) the foreign bank or company may

23 retain the shares of an affiliate engaged in

24 securities activities, if, prior to the expira25 tion of such 18 months period, the foreign
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1 bank or company has obtained the Board’s

2 approval under section 10 or section

3 4(c)(8) of the Bank Holding Company Act

4 to retain such shares, and

5 ‘‘(ii) the Board, for good cause shown,

6 may extend the termination period for an

7 additional period not to exceed 18 months.

8 ‘‘(B) EXTENSION TO OBTAIN REQUIRED

9 APPROVAL.—If the foreign bank or company

10 has filed a notice under section 10(b) of the

11 Bank Holding Company Act not later than 180

12 days after the board has made a determination

13 under subparagraph (A), the effective date of

14 any termination of authority for that foreign

15 bank or company under subparagraph (A) shall

16 be 24 months after the Board has acted on the

17 notice.’’.

18 SEC. 106. EFFECT ON STATE LAWS PROHIBITING THE AF19 FILIATION OF BANKS AND SECURITIES COM20 PANIES.

21 Section 7 of the Bank Holding Company Act of 1956

22 (12 U.S.C. 1846) is amended by inserting before the final

23 period the following: ‘‘, except that no State may prohibit

24 or limit the affiliation of a bank or bank holding company

25 with a securities affiliate solely because the securities affil-
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1 iate is engaged in activities described in paragraph (1) or

2 (2) of section 10(a) of this Act.’’.

3 SEC. 107. MUNICIPAL SECURITIES

4 At the end of section 5136 of the Revised Statutes

5 (12 U.S.C. 24(Seventh)), add the following new sentences:

6 ‘‘Notwithstanding any other provision of this para7 graph, a national banking association may deal in, under8 write, and purchase for such association’s own account

9 any obligation of, or obligation guaranteed as to principal

10 or interest by, a State or of any political subdivision there11 of, or any agency or instrumentality of a State or any po12 litical subdivision thereof, if the association—

13 ‘‘(1) is well capitalized (as defined in section

14 38(b) of the Federal Deposit Insurance Act);

15 ‘‘(2) engages in the business of banking;

16 ‘‘(3) has not been affiliated with a securities af17 filiate under section 10 of the Bank Holding Com18 pany Act of 1956 for more than 1 year; and

19 ‘‘(4) maintains its main office or any branch in

20 such State or political subdivision, or within 100

21 miles of such State or political subdivision.’’.

22 SEC. 108. INVESTMENT BANK HOLDING COMPANIES.

23 (a) DEFINITIONS.—Section 2 of the Bank Holding

24 Company Act of 1956 (12 U.S.C. 1842) is amended by

25 adding at the end the following new subsections:
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1 ‘‘(r) WHOLESALE FINANCIAL INSTITUTION.—The

2 term ‘wholesale financial institution’ means any institution

3 that is an uninsured state member bank authorized pursu4 ant to section 9B of the Federal Reserve Act.

5 ‘‘(s) INVESTMENT BANK HOLDING COMPANY.—The

6 term ‘investment bank holding company’ means any bank

7 holding company that controls or seeks to control—

8 ‘‘(1) a wholesale financial institution, and

9 ‘‘(2) a company engaged in underwriting, dis10 tributing or dealing in securities pursuant to section

11 10.’’.

12 (b) EXEMPTION.—Section 4 of the Bank Holding

13 Company Act of 1956 (12 U.S.C. 1843) is amended by

14 adding at the end the following new subsection:

15 ‘‘(l) PERMISSIBLE AFFILIATIONS FOR INVESTMENT

16 BANK HOLDING COMPANIES.—

17 ‘‘(1) FINANCIAL ACTIVITIES.—

18 ‘‘(A) ACTIVITIES AUTHORIZED.—An in19 vestment bank holding company may directly or

20 indirectly own or control shares of any company

21 the activities of which the Board has deter22 mined to be of a financial nature, without re23 gard to the limitations contained in subsections

24 (k)(1) or (k)(3).
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1 ‘‘(B) INSURANCE UNDERWRITING ACTIVI2 TIES LIMITED TO INCIDENTAL ACTIVITIES.—In

3 the event that the Board determines that insur4 ance underwriting activities (other than activi5 ties permissible under subsection (c)(8)) are fi6 nancial in nature, the aggregate investment by

7 an investment bank holding company in shares

8 of all companies that engage in insurance un9 derwriting activities (other than insurance un10 derwriting activities permissible under section

11 (c)(8)) shall not exceed 10 percent of the total

12 consolidated capital and surplus of the invest13 ment bank holding company.

14 ‘‘(C) NOTICE REQUIRED.—An investment

15 bank holding company may not own or control

16 shares of any company described in subpara17 graph (A) without complying with the notice

18 procedures provided in subsection (j).

19 ‘‘(2) SECURITIES ACTIVITIES.—

20 ‘‘(A) INSTITUTIONS MUST BE WELL-CAP21 ITALIZED.—The Board shall disapprove a no22 tice under section 10 by an investment bank

23 holding company to acquire a securities affiliate

24 if any wholesale financial institution controlled

25 by the investment bank holding company is not
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1 well capitalized or would not be well capitalized

2 following the transaction.

3 ‘‘(B) TRANSACTIONS WITH A SECURITIES

4 AFFILIATE.—

5 ‘‘(i) IN GENERAL.—A wholesale finan6 cial institution controlled by an investment

7 bank holding company shall be a ‘bank’ for

8 purposes of the provisions of sections 23A

9 and 23B of the Federal Reserve Act.

10 ‘‘(ii) OTHER RESTRICTIONS DETER11 MINED BY THE BOARD.—A securities affili12 ate and a wholesale financial institution

13 controlled by an investment bank holding

14 company shall not be subject to the provi15 sions of section 10(f), except that the secu16 rities affiliate and wholesale financial insti17 tution shall be subject to paragraphs (12)

18 and (13) of that section as if the wholesale

19 financial institution were an insured depos20 itory institution.

21 ‘‘(3) LIMITATION ON AFFILIATION WITH IN22 SURED DEPOSITORY INSTITUTIONS.—An investment

23 bank holding company may not directly or indirectly

24 own or control—
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1 ‘‘(A) any bank, other than a wholesale fi2 nancial institution;

3 ‘‘(B) any savings association;

4 ‘‘(C) any institution described in section

5 2(c)(2); or

6 ‘‘(D) any institution that accepts—

7 ‘‘(i) initial deposits of $100,000 or

8 less, other than on an incidental or occa9 sional basis, or

10 ‘‘(ii) deposits that are insured under

11 the Federal Deposit Insurance Act.’’.

12 (c) CONFORMING AMENDMENTS.—

13 (1) INSURANCE REQUIREMENT IN THE BANK

14 HOLDING COMPANY ACT.—Section 3(e) of the Bank

15 Holding Company Act of 1956 (12 U.S.C. 1842(e))

16 is amended by adding at the end the following:

17 ‘‘This subsection does not apply to a wholesale fi18 nancial institution that is controlled by an invest19 ment bank holding company that controls no banks

20 other than wholesale financial institutions.’’.

21 (2) APPROPIATE FEDERAL BANKING AGENCY.—

22 Section 3(q)(2)(A) of the Federal Deposit Insurance

23 Act (12 U.S.C. 1813(q)(2)(A)) is amended to read

24 as follows:
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1 ‘‘(A) any State member insured bank (ex2 cept a District bank) and wholesale financial in3 stitution as authorized pursuant to section 9B

4 of the Federal Reserve Act,’’.

5 SEC. 109. CONFORMING AMENDMENTS FOR INVESTMENT

6 BANK HOLDING COMPANIES.

7 (a) WHOLESALE FINANCIAL INSTITUTIONS.—The

8 Federal Reserve Act (12 U.S.C. 221 et seq.) is amended

9 by inserting after section 9A the following new section:

10 ‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

11 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLE12 SALE FINANCIAL INSTITUTION.—

13 ‘‘(1) APPLICATION REQUIRED.—Any bank in14 corporated by special law of any State, or organized

15 under the general laws of any State, may apply to

16 the Board of Governors of the Federal Reserve Sys17 tem to subscribe to the stock of the Federal Reserve

18 bank organized within the district where the apply19 ing bank is located as a wholesale financial institu20 tion. Such application shall be treated as an applica21 tion under, and shall be subject to the provisions of

22 section 9.

23 ‘‘(2) APPROVAL OF MEMBERSHIP.—No bank

24 may become a wholesale financial institution un25 less—
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1 ‘‘(A) the Board has approved an applica2 tion by the bank, under such rules and regula3 tions and subject to such conditions and re4 quirements as the Board may prescribe, to be

5 a wholesale financial institution; and

6 ‘‘(B) in the case of a bank that is insured

7 under the Federal Deposit Insurance Act, the

8 bank has met all requirements under that Act

9 for voluntary termination of deposit insurance.

10 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

11 WHOLESALE FINANCIAL INSTITUTIONS.—

12 ‘‘(1) FEDERAL RESERVE ACT.—Except as oth13 erwise provided in this section, wholesale financial

14 institutions shall be member banks and shall be sub15 ject to the provisions of this Act that apply to mem16 ber banks to the same extent and in the same man17 ner as State member insured banks, except that the

18 wholesale financial institution may only terminate

19 membership under this Act with the prior written

20 approval of the Board and on terms and conditions

21 that the Board determines are appropriate to carry

22 out the purposes of this Act.

23 ‘‘(2) PROMPT CORRECTIVE ACTION.—A whole24 sale financial institution shall be deemed to be an in25 sured depository institution for purposes of section
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1 38 of the Federal Deposit Insurance Act except

2 that—

3 ‘‘(A) the relevant capital levels and capital

4 measures for each capital category shall be the

5 levels specified by the Board for wholesale fi6 nancial institutions in accordance with sub7 section (c);

8 ‘‘(B) the provisions applicable to well cap9 italized insured depository institutions shall be

10 inapplicable to wholesale financial institutions;

11 ‘‘(C) the provisions authorizing or requir12 ing an institution to be placed into receivership

13 shall not apply to a wholesale financial institu14 tion, and, in its place, the Board is authorized

15 or required, as the case may be, to terminate

16 the wholesale financial institution’s membership

17 in the Federal Reserve System or, where pro18 vided in section 38 of the Federal Deposit

19 Insurance Act, place the bank into

20 conservatorship and, in the Board’s discretion,

21 terminate the bank’s membership; and

22 ‘‘(D) for purposes of applying the provi23 sions of section 38 of the Federal Deposit In24 surance Act to wholesale financial institutions,

25 all references to the appropriate Federal bank-
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1 ing agency or to the Corporation that section

2 shall be deemed to be references to the Board.

3 ‘‘(3) ENFORCEMENT AUTHORITY.—Section 7 (j)

4 and (k), subsections (b) through (n), (s), (u), and

5 (v) of section 8, and section 19 of the Federal De6 posit Insurance Act shall apply to a wholesale finan7 cial institution in the same manner and to the same

8 extent as they apply to State member insured banks

9 and any reference in such sections to an insured de10 pository institution shall also be deemed to be a ref11 erence to a wholesale financial institution.

12 ‘‘(4) CERTAIN OTHER STATUTES APPLICA13 BLE.—A wholesale financial institution shall be

14 deemed to be a banking institution and the Board

15 shall be the appropriate Federal banking agency for

16 such bank and all of its affiliates for purposes of the

17 International Lending Supervision Act.

18 ‘‘(5) BANK MERGER ACT.—A wholesale finan19 cial institution shall be subject to the provisions of

20 the Bank Merger Act in the same manner as if the

21 wholesale financial institution were a State member

22 insured bank for purposes of that Act.

23 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

24 WHOLESALE FINANCIAL INSTITUTIONS.—

25 ‘‘(1) LIMITATIONS ON DEPOSITS.—
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1 ‘‘(A) MINIMUM AMOUNT.—Pursuant to

2 regulations of the Board, no wholesale financial

3 institution shall receive initial deposits of

4 $100,000 or less, other than on an incidental

5 and occasional basis and where such deposits in

6 no event represent more than 5 percent of the

7 institution’s total deposits.

8 ‘‘(B) NO DEPOSIT INSURANCE.—No depos9 its held by a wholesale financial institution shall

10 be insured deposits under the Federal Deposit

11 Insurance Act.

12 ‘‘(C) ADVERTISING AND DISCLOSURE.—

13 The Board shall prescribe regulations pertain14 ing to advertising and disclosure by wholesale

15 financial institutions to ensure that each deposi16 tor is notified that deposits at the wholesale fi17 nancial institution are not federally insured or

18 otherwise guaranteed by the United States Gov19 ernment.

20 ‘‘(2) SPECIAL CAPITAL REQUIREMENTS APPLI21 CABLE TO WHOLESALE FINANCIAL INSTITUTIONS.—

22 ‘‘(A) MINIMUM CAPITAL LEVELS.—

23 ‘‘(i) IN GENERAL.—The Board shall,

24 by regulation, adopt capital requirements

25 for wholesale financial institutions. The
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1 capital levels for wholesale financial insti2 tutions shall be sufficiently higher than the

3 capital levels applicable to State member

4 insured banks—

5 ‘‘(I) to account for the status of

6 wholesale financial institutions as in7 stitutions that accept deposits that

8 are not insured under the Federal De9 posit Insurance Act; and

10 ‘‘(II) to provide for the safe and

11 sound operation of the wholesale fi12 nancial institution without undue risk

13 to creditors or other persons, includ14 ing Federal Reserve banks, engaged

15 in transactions with the bank.

16 ‘‘(ii) MINIMUM LEVERAGE RATIO.—

17 The minimum leverage ratio of tier one

18 capital to total assets of wholesale financial

19 institutions shall be not less than the level

20 required for a State member insured bank

21 to be well capitalized.

22 ‘‘(B) CAPITAL CATEGORIES FOR PROMPT

23 CORRECTIVE ACTION.—For purposes of apply24 ing the provisions of section 38 of Federal De25 posit Insurance Act, the Board shall, by regula-
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1 tion, establish, for each relevant capital meas2 ure specified by the Board under subparagraph

3 (A), the levels at which a wholesale financial

4 institution is adequately capitalized,

5 undercapitalized, significantly undercapitalized,

6 and critically undercapitalized.

7 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

8 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi9 tion to any requirements otherwise applicable to

10 State member banks or otherwise applicable under

11 this section, the Board may prescribe, by rule or

12 order, for wholesale financial institutions—

13 ‘‘(A) limitations on transactions with affili14 ates to prevent an affiliate from gaining access

15 to, or the benefits of, credit from a Federal Re16 serve bank, including overdrafts at a Federal

17 Reserve bank;

18 ‘‘(B) special clearing balance requirements;

19 and

20 ‘‘(C) any additional requirements that the

21 Board determines to be appropriate or nec22 essary to—

23 ‘‘(i) promote the safety and soundness

24 of the wholesale financial institution, or
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1 ‘‘(ii) protect creditors and other per2 sons, including Federal Reserve banks, en3 gaged in transactions with the wholesale fi4 nancial institution.

5 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

6 INSTITUTIONS.—The Board may, by rule or order,

7 exempt any wholesale financial institution from any

8 provision applicable to a State member bank that is

9 not a wholesale financial institution, provided that

10 the Board finds that such exemption is not incon11 sistent with—

12 ‘‘(i) the promotion of the safety and sound13 ness of the wholesale financial institution; and

14 ‘‘(ii) the protection of creditors and other

15 persons, including Federal Reserve banks, en16 gaged in transactions with the wholesale finan17 cial institution.

18 ‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This

19 section shall not be construed to limit the Board’s

20 authority over member banks under any other provi21 sion of law, or to create any obligation for any Fed22 eral Reserve bank to make, increase, renew, or ex23 tend any advances or discount under this Act to any

24 member bank or other depository institution.
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1 ‘‘(d) CONSERVATORSHIP AUTHORITY.—The Board is

2 authorized to appoint a conservator to take possession and

3 control of a wholesale financial institution to the same ex4 tent and in the same manner as the Comptroller of the

5 Currency is authorized to appoint a conservator for a na6 tional bank under section 203 of the Bank Conservation

7 Act.

8 ‘‘(e) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) the term ‘wholesale financial institution’

10 means a bank whose application to become an unin11 sured State member bank has been approved by the

12 Board of Governors of the Federal Reserve System

13 under this section;

14 ‘‘(2) the term ‘deposit’ has the meaning given

15 to such term by the Board under the Federal Re16 serve Act; and

17 ‘‘(3) the term ‘State member insured bank’

18 means a State member bank, the deposits of which

19 are insured under the Federal Deposit Insurance

20 Act.’’.

21 (b) VOLUNTARY TERMINATION OF INSURED STATUS

22 BY CERTAIN INSTITUTIONS.—

23 (1) SECTION 8 DESIGNATIONS.—Section 8 of

24 the Federal Deposit Insurance Act (12 U.S.C. 1818)

25 is amended—
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1 (A) in the section heading, by inserting

2 ‘‘INVOLUNTARY’’ after ‘‘SEC. 8’’; and

3 (B) in subsection (a)—

4 (i) by striking paragraph (1); and

5 (ii) by redesignating paragraphs (2)

6 through (9) as paragraphs (1) through (8),

7 respectively.

8 (2) VOLUNTARY TERMINATION OF INSURED

9 STATUS.—The Federal Deposit Insurance Act (12

10 U.S.C. 1811 et seq.) is amended by inserting after

11 section 8 the following new section:

12 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN13 SURED DEPOSITORY INSTITUTION.

14 ‘‘(a) IN GENERAL.—Except as provided in subsection

15 (b), an insured State-chartered bank or a national bank

16 may voluntarily terminate its status as an insured deposi17 tory institution in accordance with regulations of the Cor18 poration if—

19 ‘‘(1) such institution provides written notice of

20 its intent to terminate its insured status—

21 ‘‘(A) to the Corporation, not less than 6

22 months before the effective date of such termi23 nation; and
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1 ‘‘(B) to its depositors, not less than 6

2 months before the effective date of such termi3 nation; and

4 ‘‘(2) the deposit insurance fund of which such

5 bank is a member equals or exceeds the fund’s des6 ignated reserve ratio as set forth in section

7 7(b)(2)(A)(iv) of the Federal Deposit Insurance Act

8 (12 U.S.C. 1817(b)(2)(A)(iv) as of the date the

9 bank provides a written notice of its intent to termi10 nate its insured status.

11 ‘‘(b) EXCEPTION.—The option to terminate insured

12 status under subsection (a) shall not be available to—

13 ‘‘(1) an insured savings association;

14 ‘‘(2) an insured branch that is required to be

15 insured under subsection (a) or (b) of section 6 of

16 the International Banking Act of 1978; or

17 ‘‘(3) any institution described in section 2(c)(2)

18 of the Bank Holding Company Act of 1956.

19 ‘‘(c) ELIGIBILITY FOR INSURANCE TERMINATED.—

20 A depository institution that voluntarily elects to termi21 nate its insured status under subsection (a) shall not re22 ceive insurance of any of its deposits or any other assist23 ance authorized under this Act after the period specified

24 in subsection (f)(1).
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1 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FI2 NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING

3 ACTIVITIES.—Any institution that voluntarily terminates

4 its status as an insured depository institution under this

5 section may not, upon termination of insurance, accept

6 any deposits unless the institution is a wholesale financial

7 institution under section 9B of the Federal Reserve Act.

8 ‘‘(e) EXIT FEES.—

9 ‘‘(1) IN GENERAL.—Any institution that volun10 tarily terminates its status as an insured depository

11 institution under this section shall pay an exit fee in

12 an amount that the Corporation determines is suffi13 cient to account for the institution’s pro rata share

14 of contingent and other liabilities of the relevant de15 posit insurance fund.

16 ‘‘(2) PROCEDURES.—The Corporation shall pre17 scribe, by regulation, procedures for assessing any

18 exit fee under this subsection.

19 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

20 AS OF TERMINATION.—

21 ‘‘(1) TRANSITION PERIOD.—The insured depos22 its of each depositor in a State-chartered bank or a

23 national bank on the effective date of the voluntary

24 termination of the institution’s insured status, less

25 all subsequent withdrawals from any deposits of
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1 such depositor, shall continue to be insured for a pe2 riod of not less than 6 months nor more than 2

3 years, within the discretion of the Corporation. Dur4 ing such period, no additions to any such deposits,

5 and no new deposits in the depository institution

6 made after the effective date of such termination

7 shall be insured by the Corporation,

8 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

9 AND DUTIES.—During the period specified in para10 graph (1), a depository institution shall continue to

11 pay assessments required under this Act as if it

12 were an insured depository institution. Such deposi13 tory institution shall, in all other respects, be subject

14 to the authority of the Corporation and the duties

15 and obligations of an insured depository institution

16 during such period as provided in this Act, and in

17 the event that the depository institution is closed

18 due to an inability to meet the demands of its de19 positors during such period, the Corporation shall

20 have the same powers and rights with respect to

21 such depository institution as in the case of an in22 sured depository institution.

23 ‘‘(g) ADVERTISEMENTS.—

24 ‘‘(1) IN GENERAL.—A depository institution

25 that voluntarily terminates its insured status under
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1 this section shall not advertise or hold itself out as

2 having insured deposits, except that it may advertise

3 the temporary insurance of deposits under sub4 section (f) if, in connection with any such advertise5 ment, it shall also state with equal prominence that

6 additions to deposits and new deposits made after

7 the effective date of the termination are not insured.

8 ‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,

9 AND SECURITIES.—Any certificate of deposit or

10 other obligation or security issued by a State-char11 tered bank or a national bank after the effective

12 date of the voluntary termination of its insured sta13 tus under this section shall be accompanied by a

14 conspicuous, prominently displayed notice that such

15 certificate of deposit or other obligation or security

16 is not insured under this Act.

17 ‘‘(h) NOTICE REQUIREMENTS.—

18 ‘‘(1) NOTICE TO THE CORPORATION.—The no19 tice to the Corporation of an institution’s intent to

20 terminate its insured status required under sub21 section (a) shall be in such form as the Corporation

22 may require.

23 ‘‘(2) NOTICE TO DEPOSITORS.—The notice to

24 depositors of an institution’s intent to terminate its
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1 insured status required under subsection (a) shall

2 be—

3 ‘‘(A) at such depositor’s last address of

4 record with the institution; and

5 ‘‘(B) in such manner and form as the Cor6 poration finds to be necessary and appropriate

7 for the protection of depositors.’’.

8 SEC. 110. EFFECTIVE DATE.

9 The amendments made by this subtitle shall become

10 effective 90 days after the date of enactment of this Act.

11 Subtitle B—Brokers and Dealers

12 SEC. 120. DEFINITION OF BROKER.

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

14 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

15 ‘‘(4) ‘BROKER’.—

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

17 means any person engaged in the business of

18 effecting transactions in securities for the ac19 count of others.

20 ‘‘(B) EXCLUSION OF BANKS.—The term

21 ‘broker’ does not include a bank unless such

22 bank publicly solicits the business of effecting

23 securities transactions for the account of others

24 or is compensated for such business by the pay25 ment of commissions or similar remuneration
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1 based on effecting transactions in securities

2 (other than fees calculated as a percentage of

3 assets under management) in excess of the

4 bank’s incremental costs directly attributable to

5 effecting such transactions (hereafter referred

6 to as ‘incentive compensation’).

7 ‘‘(C) EXEMPTION FOR CERTAIN BANK AC8 TIVITIES.—A bank shall not be deemed to be a

9 ‘broker’ because it engages in any of the follow10 ing activities:

11 ‘‘(i) THIRD PARTY BROKERAGE AR12 RANGEMENTS.—The bank enters into a

13 contractual or other arrangement with a

14 broker or dealer registered under this title

15 under which the broker or dealer offers

16 brokerage services on or off the premises

17 of the bank if—

18 ‘‘(I) such broker or dealer is

19 clearly identified as the person per20 forming the brokerage services;

21 ‘‘(II) such broker or dealer per22 forms brokerage services in an area

23 that is clearly marked and physically

24 separate from the retail deposit-taking

25 activities of the bank;
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1 ‘‘(III) any materials used to ad2 vertise or promote the availability of

3 brokerage services under the contrac4 tual or other arrangement are ap5 proved by the broker or dealer for

6 compliance with the Federal securities

7 laws prior to distribution and are

8 deemed to be the materials of the

9 broker or dealer;

10 ‘‘(IV) bank employees perform

11 only clerical or ministerial functions in

12 connection with brokerage trans13 actions, unless such employees are as14 sociated persons of a broker or dealer

15 and are qualified pursuant to the re16 quirements of a self-regulatory organi17 zation;

18 ‘‘(V) bank employees do not re19 ceive incentive compensation for any

20 brokerage activities unless such em21 ployees are associated persons of a

22 broker or dealer and are qualified

23 pursuant to the requirements of a

24 self-regulatory organization;
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1 ‘‘(VI) such services are provided

2 by the broker or dealer on a basis in

3 which all customers that receive such

4 services are fully disclosed to that

5 broker or dealer; and

6 ‘‘(VII) the broker or dealer in7 forms each customer that the broker8 age services are provided by the

9 broker or dealer and not by the bank

10 and that the securities are not guar11 anteed by the bank, the Federal De12 posit Insurance Corporation, or any

13 other federal or state deposit guaran14 tee fund relating to banks.

15 ‘‘(ii) TRUST ACTIVITIES.—The bank

16 engages in trust activities (including

17 effecting transactions in the course of such

18 trust activities) permissible for national

19 banks under the first section of the Act of

20 September 28, 1962 or for State banks

21 under relevant State trust statutes or law

22 (including securities safekeeping, self-di23 rected individual retirement accounts, or

24 managed agency accounts or other func-
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1 tionally equivalent accounts of a bank) un2 less the bank—

3 ‘‘(I) publicly solicits brokerage

4 business, other than by advertising

5 that it effects transactions in securi6 ties in conjunction with advertising its

7 other trust activities; or

8 ‘‘(II) receives incentive com9 pensation for such brokerage activi10 ties.

11 ‘‘(iii) PERMISSIBLE SECURITIES

12 TRANSACTIONS.—The bank effects trans13 actions in exempted securities, other than

14 municipal securities, or in commercial

15 paper, bankers acceptances, commercial

16 bills, qualified Canadian Government obli17 gations as defined in section 5136 of the

18 Revised Statutes, obligations of the Wash19 ington Metropolitan Area Transit Author20 ity which are guaranteed by the Secretary

21 of Transportation under section 9 of the

22 National Capital Transportation Act of

23 1969, obligations of the North American

24 Development Bank, and obligations of any

25 local public agency (as defined in section
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1 110(h) of the Housing Act of 1949) or any

2 public housing agency (as defined in the

3 United States Housing Act of 1937) that

4 are expressly specified by section 5136 of

5 the Revised statutes as permissible for a

6 national bank to underwrite or deal in.

7 ‘‘(iv) MUNICIPAL SECURITIES.—The

8 bank effects transactions in municipal se9 curities, and has not been affiliated with a

10 securities affiliate under section 10 of the

11 Bank Holding Company Act of 1956 for

12 more than 1 year.

13 ‘‘(v) EMPLOYEE AND SHAREHOLDER

14 BENEFIT PLANS.—The bank effects trans15 actions as part of any bonus, profit-shar16 ing, pension, retirement, thrift, savings, in17 centive, stock purchase, stock ownership,

18 stock appreciation, stock option, dividend

19 reinvestment, or similar plan for employees

20 or shareholders of an issuer or its subsidi21 aries.

22 ‘‘(vi) SWEEP ACCOUNTS.—The bank

23 effects transactions as part of a program

24 for the investment or reinvestment of bank

25 deposit funds into any no-loan, open-end
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1 management investment company reg2 istered under the Investment Company Act

3 of 1940 that holds itself out as a money

4 market fund.

5 ‘‘(vii) AFFILIATE TRANSACTIONS.—

6 The bank effects transactions for the ac7 count of any affiliate of the bank, as de8 fined in section 2 of the Bank Holding

9 Company Act of 1956.

10 ‘‘(viii) PRIVATE SECURITIES OFFER11 INGS.—The bank—

12 ‘‘(I) effects sales as part of a pri13 mary offering of securities by an is14 suer, not involving a public offering,

15 pursuant to section 3(b), 4(2), or 4(6)

16 of the Securities Act of 1933 and the

17 rules and regulations issued there18 under, other than securities backed by

19 or representing an interest in obliga20 tions originated or purchased by the

21 bank, its affiliates, or its subsidiaries

22 unless those securities are described

23 in section 3(a)(5)(B)(ii)(IV) (aa) or

24 (bb);
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1 ‘‘(II) effects such sales exclu2 sively to an accredited investor, as de3 fined in section 3 of the Securities Act

4 of 1933; and

5 ‘‘(III) if affiliated with a securi6 ties affiliate, as provided under sec7 tion 10 of the Bank Holding Company

8 Act of 1956, has not been so affiliated

9 for more than 1 year.

10 ‘‘(ix) DE MINIMIS EXEMPTION.—If the

11 bank does not have a subsidiary or affiliate

12 registered as a broker or dealer under sec13 tion 15, the bank effects, other than in

14 transactions referenced in clauses (i)

15 through (viii), not more than—

16 ‘‘(I) 800 transactions in any cal17 endar year in securities for which a

18 ready market exists, and

19 ‘‘(II) 200 other transactions in

20 securities in any calendar year.

21 ‘‘(D) EXEMPTION FOR ENTITIES SUBJECT

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

23 include a bank that is subject to—

24 ‘‘(i) section 15(e); and
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1 ‘‘(ii) such restrictions and require2 ments as the Commission deems appro3 priate.’’.

4 SEC. 121. DEFINITION OF DEALER.

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

6 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

7 ‘‘(5) ‘DEALER’.—

8 ‘‘(A) IN GENERAL.—The term ‘dealer’

9 means any person engaged in the business of

10 buying and selling securities for his own ac11 count through a broker or otherwise.

12 ‘‘(B) EXCEPTIONS.—Such term does not

13 include—

14 ‘‘(i) a person that buys or sells securi15 ties for his or her own account, either indi16 vidually or in a fiduciary capacity, but not

17 as a part of a regular business; or

18 ‘‘(ii) a bank, to the extent that the

19 bank—

20 ‘‘(I) buys and sells commercial

21 paper, bankers acceptances, exempted

22 securities (other than municipal secu23 rities), qualified Canadian Govern24 ment obligations as defined in section

25 5136 of the Revised Statutes, obliga-
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1 tions of the Washington Metropolitan

2 Area Transit Authority which are

3 guaranteed by the Secretary of Trans4 portation under section 9 of the Na5 tional Capital Transportation Act of

6 1969, obligations of the North Amer7 ican Development Bank, and obliga8 tions of any local public agency (as

9 defined in section 110(h) of the Hous10 ing Act of 1949) or any public hous11 ing agency (as defined in the United

12 States Housing Act of 1937) that are

13 expressly specified by section 5136 of

14 the Revised Statutes as permissible

15 for a national bank to underwrite or

16 deal in;

17 ‘‘(II) buys and sells municipal se18 curities and has not been affiliated

19 with a securities affiliate, as provided

20 under section 10 of the Bank Holding

21 Company Act of 1956 for more than

22 1 year;

23 ‘‘(III) buys and sells securities

24 for investment purposes for the bank
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1 or for accounts for which the bank

2 acts as a trustee or fiduciary; or

3 ‘‘(IV) has not been affiliated with

4 a securities affiliate under section 10

5 of the Bank Holding Company Act of

6 1956 for more than 1 year and en7 gages in the issuance or sale through

8 a grantor trust or otherwise of—

9 ‘‘(aa) securities backed by or

10 representing an interest in 1–4

11 family residential mortgages

12 originated or purchased by the

13 bank, its affiliates, or its subsidi14 aries; or

15 ‘‘(bb) securities backed by or

16 representing an interest in

17 consumer receivables or

18 consumer leases originated or

19 purchased by the bank, its affili20 ates, or its subsidiaries.’’.

21 SEC. 122. POWER TO EXEMPT FROM THE DEFINITIONS OF

22 BROKER AND DEALER.

23 Section 3 of the Securities Exchange Act of 1934 (15

24 U.S.C. 78c) is amended by adding at the end the

25 following:
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1 ‘‘(e) EXEMPTION FROM DEFINITION OF BROKER OR

2 DEALER.—The Commission, by regulation or order, upon

3 its own motion or upon application, may conditionally or

4 unconditionally exclude any person or class of persons

5 from the definitions of ‘broker’ or ‘dealer’, if the Commis6 sion finds that such exclusion is consistent with the public

7 interest, the protection of investors, and the purposes of

8 this title.’’.

9 SEC. 123. MARGIN REQUIREMENTS.

10 (a) Section 7(d) of the Securities Exchange Act of

11 1934 (15 U.S.C. 15g(d)) is amended by:

12 (1) deleting the word ‘‘or’’ after clause (D);

13 (2) redesignating clause (E) as clause (F); and

14 (3) inserting a new clause (E) as follows:

15 ‘‘(E) to a loan to a broker or dealer by a

16 member bank or any other person that has en17 tered into an agreement pursuant to section

18 8(a) hereof if the proceeds of the loan are to be

19 used in the ordinary course of the broker’s or

20 dealer’s business other than for the purpose of

21 funding the purchase of securities for the ac22 count of such broker or dealer, or’’.

23 (b) Section 8(a) of the Securities and Exchange Act

24 of 1934 is amended:
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1 (1) by deleting the phrase ‘‘nonmember bank’’

2 in clause (2) and replacing it with the phrase ‘‘per3 son other than a member bank’’; and

4 (2) by deleting the phrase ‘‘such bank’’ in the

5 second sentence and replacing it with the phrase

6 ‘‘such person’’.

7 SEC. 124. EFFECTIVE DATE.

8 This subtitle shall become effective 270 days after the

9 date of enactment of this Act.

10 Subtitle C—Bank Investment Company

11 Activities

12 SEC. 130. CUSTODY OF INVESTMENT COMPANY ASSETS BY

13 AFFILIATED BANK.

14 (a) MANAGEMENT COMPANIES.—Section 17(f) of the

15 Investment Company Act of 1940 (15 U.S.C. 80a–17(f))

16 is amended—

17 (1) by redesignating paragraphs (1), (2), and

18 (3) as subparagraphs (A), (B), and (C), respectively;

19 (2) by designating the five sentences of such

20 subsection as paragraphs (1) through (5), respec21 tively, and by indenting those paragraphs appro22 priately; and

23 (3) by adding at the end the following new

24 paragraph:
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1 ‘‘(6) Notwithstanding paragraph (1)(A), if a

2 bank described in paragraph (1) or an affiliated per3 son of such bank is an affiliated person, promoter,

4 organizer, or sponsor of, or principal underwriter for

5 the registered company, such bank may serve as cus6 todian under this subsection in accordance with such

7 rules, regulations, or orders as the Commission may

8 prescribe, consistent with the protection of investors,

9 after consulting in writing with the appropriate Fed10 eral banking agency, as defined in section 3 of the

11 Federal Deposit Insurance Act.’’.

12 (b) UNIT INVESTMENT TRUSTS.—Section 26(a)(1) of

13 the Investment Company Act of 1940 (15 U.S.C. 80a–

14 26(a)(1)) is amended by inserting after ‘‘bank’’ the follow15 ing: ‘‘not affiliated with such underwriter or depositor, or

16 if such bank is so affiliated, only in accordance with such

17 regulations or orders as the Commission may prescribe,

18 consistent with the protection of investors, after consulting

19 in writing with the appropriate Federal banking agency,

20 as defined in section 3 of the Federal Deposit Insurance

21 Act’’.

22 (c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)

23 of the Investment Company Act of 1940 (15 U.S.C. 80a–

24 35(a)) is amended—
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1 (1) in paragraph (1), by striking ‘‘or’’ at the

2 end;

3 (2) in paragraph (2), by striking the period at

4 the end and inserting ‘‘; or’’; and

5 (3) by inserting after paragraph (2) the follow6 ing:

7 ‘‘(3) as custodian.’’.

8 SEC. 131. AFFILIATED TRANSACTIONS.

9 (a) INDEBTEDNESS TO AFFILIATED PERSON.—Sec10 tion 10(f) of the Investment Company Act of 1940 (15

11 U.S.C. 80a–10(f)) is amended in the first sentence—

12 (1) by inserting ‘‘(1)’’ before ‘‘a principal un13 derwriter’’; and

14 (2) by inserting before the period ‘‘, or (2) the

15 proceeds of which will be used to retire an indebted16 ness owed to an affiliated person of such registered

17 company’’.

18 (b) AFFILIATED PERSON OF INVESTMENT COM19 PANY.—Section 10(f) of the Investment Company Act of

20 1940 is amended by adding at the end the following: ‘‘For

21 purposes of this subsection, a person that is under com22 mon control with an investment adviser shall be deemed

23 to be an affiliated person of the registered investment

24 company advised by such investment adviser.’’.
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1 SEC. 132. BORROWING FROM AN AFFILIATED BANK.

2 Section 18(f) of the Investment Company Act of

3 1940 (15 U.S.C. 80a–18(f)) is amended by adding at the

4 end the following:

5 ‘‘(3) Notwithstanding the provisions of paragraph

6 (1), it shall be unlawful for any registered investment com7 pany to borrow from any bank if such bank or any affili8 ated person thereof is an affiliated person, promoter, orga9 nizer, or sponsor of, or principal underwriter for, such

10 company, except that the Commission may, by rule, regu11 lation, or order, permit such borrowing that the Commis12 sion finds to be in the public interest and consistent with

13 the protection of investors.’’.

14 SEC. 133. INDEPENDENT DIRECTORS.

15 (a) INTERESTED PERSON.—Section 2(a)(19)(A)(v)

16 of the Investment Company Act of 1940 (15 U.S.C. 80a–

17 2(a)(19)(A)(v)) is amended by striking ‘‘1934 or any af18 filiated person of such a broker or dealer, and’’ and insert19 ing ‘‘1934 or any person that, at any time during the pre20 ceding 6 months, has acted as custodian or transfer agent

21 or has executed any portfolio transactions for, engaged in

22 any principal transactions with, or loaned money to, the

23 investment company, or any other investment company

24 having the same investment adviser, principal underwriter,

25 sponsor, or promoter, or any affiliated person of such a

26 broker, dealer, or person, and’’.
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1 (b) AFFILIATION OF DIRECTORS.—Section 10(c) of

2 the Investment Company Act of 1940 (15 U.S.C. 80a–

3 10(c)) is amended by striking ‘‘bank, except’’ and insert4 ing ‘‘bank (and its subsidiaries) or any single bank holding

5 company (and its affiliates and subsidiaries), as those

6 terms are defined in the Bank Holding Company Act of

7 1956, except’’.

8 (c) EFFECTIVE DATE.—The provisions of subsection

9 (a) of this section shall become effective 1 year after the

10 date of enactment of this subtitle.

11 SEC. 134. ADDITIONAL SEC DISCLOSURE AUTHORITY.

12 (a) MISREPRESENTATION.—Section 35(a) of the In13 vestment Company Act of 1940 (15 U.S.C. 80a–34(a)) is

14 amended to read as follows:

15 ‘‘SEC. 35. MISREPRESENTATIONS.

16 ‘‘(a) MISREPRESENTATIONS OF GUARANTEES.—

17 ‘‘(1) IN GENERAL.—It shall be unlawful for any

18 person, in issuing or selling any security of which a

19 registered investment company is the issuer, to rep20 resent or imply in any manner whatsoever that such

21 security or company—

22 ‘‘(A) has been guaranteed, sponsored, rec23 ommended, or approved by the United States,

24 or any agency, instrumentality or officer there25 of,
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1 ‘‘(B) has been insured by the Federal De2 posit Insurance Corporation; or

3 ‘‘(C) is guaranteed by or is otherwise an

4 obligation of any bank or insured institution.

5 ‘‘(2) DISCLOSURES.—The Commission shall re6 quire the person issuing or selling the securities of

7 a registered investment company to prominently dis8 close, in writing or orally, as appropriate, that the

9 investment company or any security issued by it is

10 not insured by the Federal Deposit Insurance Cor11 poration and is not guaranteed by an affiliated de12 pository institution, and is not otherwise an obliga13 tion of such a bank or insured institution, in any

14 case where—

15 ‘‘(A) a bank holding company, bank, or

16 separately identifiable division or department of

17 a bank, or any affiliate or subsidiary thereof is

18 an investment adviser, organizer, sponsor, pro19 moter, principal underwriter, or an affiliated

20 person of the investment company; or

21 ‘‘(B) a bank or an affiliated person of a

22 bank is offering or selling securities of the in23 vestment company.

24 The requirement of any disclosures referred to above

25 shall be subject to regulations adopted by the Com-
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1 mission, after consultation with the appropriate Fed2 eral banking agencies (as defined in section 3 of the

3 Federal Deposit Insurance Act).’’.

4 (b) DECEPTIVE USE OF NAMES.—Section 35(d) of

5 the Investment Company Act of 1940 (15 U.S.C. 80a–

6 34(d)) is amended by inserting after the first sentence the

7 following: ‘‘It shall be deceptive and misleading for any

8 registered investment company which has an insured de9 pository institution (as defined in section 3 of the Federal

10 Deposit Insurance Act) or any affiliated person thereof as

11 an affiliated person, promoter, or principal underwriter,

12 to adopt, as part of the name or title of such company,

13 or of any security of which it is the issuer, any word which

14 is the same as or similar to, or a variation of, the name

15 or title of such insured depository institution or affiliate

16 thereof. The Commission, by rules or regulations upon its

17 own motion or by order upon application, may condi18 tionally or unconditionally exempt an investment company

19 from the preceding sentence if the Commission finds that

20 such exemption is consistent with the public interest, the

21 protection of investors, and the purposes of this title.’’.
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1 SEC. 135. DEFINITION OF BROKER UNDER THE INVEST2 MENT COMPANY ACT OF 1940.

3 Section 2(a)(6) of the Investment Company Act of

4 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as

5 follows:

6 ‘‘(6) ‘Broker’ has the same meaning as in the

7 Securities Exchange Act of 1934, except that it does

8 not include any person solely by reason of the fact

9 that such person is an underwriter for 1 or more in10 vestment companies.’’.

11 SEC. 136. DEFINITION OF DEALER UNDER THE INVEST12 MENT COMPANY ACT OF 1940.

13 Section 2(a)(11) of the Investment Company Act of

14 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol15 lows:

16 ‘‘(11) ‘Dealer’ has the same meaning as in the

17 Securities Exchange Act of 1934, but does not in18 clude an insurance company or investment com19 pany.’’.

20 SEC. 137. REMOVAL OF THE EXCLUSION FROM THE DEFINI21 TION OF INVESTMENT ADVISER FOR BANKS

22 THAT ADVISE INVESTMENT COMPANIES.

23 (a) INVESTMENT ADVISER.—Section 202(a)(11) of

24 the Investment Advisers Act of 1940 (15 U.S.C. 80b–

25 2(a)(11)) is amended in subparagraph (A), by striking

26 ‘‘investment company’’ and inserting ‘‘investment com-
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1 pany, except that the term ‘investment adviser’ includes

2 any bank or bank holding company to the extent that such

3 bank or bank holding company acts as an investment ad4 viser to a registered investment company, or if, in the case

5 of a bank, such services are performed through a sepa6 rately identifiable department or division, the department

7 or division, and not the bank itself shall be deemed to be

8 the ‘investment adviser’ ’’; and

9 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR

10 DIVISION.—Section 202(a) of the Investment Advisers Act

11 of 1940 (15 U.S.C. 80b–2(a)) is amended by adding at

12 the end the following:

13 ‘‘(25) ‘Separately identifiable department or di14 vision’ of a bank means a unit—

15 ‘‘(A) that is under the direct supervision of

16 an officer or officers designated by the board of

17 directors of the bank as responsible for the day18 to-day conduct of the bank’s investment adviser

19 activities for 1 or more investment companies,

20 including the supervision of all bank employees

21 engaged in the performance of such activities;

22 and

23 ‘‘(B) for which all of the records relating

24 to its investment adviser activities, are sepa25 rately maintained in or extractable from such
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1 unit’s own facilities or the facilities of the bank,

2 and such records are so maintained or other3 wise accessible as to permit independent exam4 ination and enforcement of this Act and rules

5 and regulations promulgated under this Act.’’.

6 SEC. 138. DEFINITION OF BROKER UNDER THE INVEST7 MENT ADVISERS ACT OF 1940.

8 Section 202(a)(3) of the Investment Advisers Act of

9 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as

10 follows:

11 ‘‘(3) ‘Broker’ has the same meaning as in the

12 Securities Exchange Act of 1934.’’.

13 SEC. 139. DEFINITION OF DEALER UNDER THE INVEST14 MENT ADVISERS ACT OF 1940.

15 Section 202(a)(7) of the Investment Advisers Act of

16 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as

17 follows:

18 ‘‘(7) ‘Dealer’ has the same meaning as in the

19 Securities Exchange Act of 1934, but does not in20 clude an insurance company or investment com21 pany.’’.

22 SEC. 140. INTERAGENCY CONSULTATION.

23 The Investment Advisers Act of 1940 (15 U.S.C.

24 80b–1 et seq.) is amended by inserting after section 210

25 the following new section:
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1 ‘‘SEC. 210A. CONSULTATION.

2 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA3 TION.—

4 ‘‘(1) The appropriate Federal banking agency

5 shall provide the Commission upon request the re6 sults of any examination, reports, records, or other

7 information as each may have with respect to the in8 vestment advisory activities of any bank holding

9 company, bank, or department or division of a bank,

10 any of which is registered under section 203 of this

11 title, or, in the case of a bank holding company or

12 bank, has a subsidiary, department, or division reg13 istered under that section, to the extent necessary

14 for the Commission to carry out its statutory re15 sponsibilities.

16 ‘‘(2) The Commission shall provide to the ap17 propriate Federal banking agency upon request the

18 results of any examination, reports, records, or other

19 information with respect to the investment advisory

20 activities of any bank holding company, bank, or de21 partment or division of a bank, any of which is reg22 istered under section 203 of this title, to the extent

23 necessary for the agency to carry out its statutory

24 responsibilities.

25 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing

26 herein shall limit in any respect the authority of the appro-
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1 priate Federal banking agency with respect to such bank

2 holding company, bank, or department or division under

3 any provision of law.

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

5 term ‘appropriate Federal banking agency’ shall have the

6 same meaning as in section 3 of the Federal Deposit In7 surance Act.’’.

8 SEC. 141. TREATMENT OF BANK COMMON TRUST FUNDS.

9 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

10 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

11 amended by striking ‘‘or any interest or participation in

12 any common trust fund or similar fund maintained by a

13 bank exclusively for the collective investment and reinvest14 ment of assets contributed thereto by a bank in its capac15 ity as trustee, executor, administrator, or guardian’’ and

16 inserting ‘‘or any interest or participation in any common

17 trust fund or similar fund that is excluded from the defini18 tion of the term ‘investment company’ under section

19 3(c)(3) of the Investment Company Act of 1940’’.

20 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

21 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

22 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol23 lows:

24 ‘‘(iii) any interest or participation in

25 any common trust fund or similar fund
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1 that is excluded from the definition of the

2 term ‘investment company’ under section

3 3(c)(3) of the Investment Company Act of

4 1940.’’.

5 (c) INVESTMENT COMPANY ACT OF 1940.—Section

6 3(c)(3) of the Investment Company Act of 1940 (15

7 U.S.C. 80a–3(c)(3)) is amended by inserting before the

8 period the following: ‘‘, if—

9 ‘‘(A) such fund is employed by the bank

10 solely as an aid to the administration of trusts,

11 estates, or other accounts created and main12 tained for a fiduciary purpose;

13 ‘‘(B) except in connection with the ordi14 nary advertising of the bank’s fiduciary serv15 ices, interests in such fund are not—

16 ‘‘(i) advertised; or

17 ‘‘(ii) offered for sale to the general

18 public; and

19 ‘‘(C) such fund is not charged any fees or

20 expenses that, when added to any other com21 pensation charged by the bank to a participa22 tion account, would exceed the total amount of

23 compensation that would have been charged to

24 such participant account if no assets of the ac25 count had been invested in interests in the
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1 fund, except that any reasonable and necessary

2 expenses related to the prudent operation of the

3 fund, as determined by the appropriate Federal

4 banking agency (as defined in section 3(q) of

5 the Federal Deposit Insurance Act), shall be

6 permitted to be charged directly to the fund.’’.

7 (d) TAX EFFECT.—It is the sense of the Congress

8 that the public interest would be furthered by enacting

9 legislation to amend section 584 of the Internal Revenue

10 Code of 1986 by inserting after subsection (g) the follow11 ing new subsection:

12 ‘‘(h) CONVERSION, MERGERS, OR REORGANIZATION

13 OF COMMON TRUST FUNDS.—Notwithstanding any other

14 provision of the Internal Revenue Code, any transfer of

15 all or substantially all of the assets of a common trust

16 fund taxable under this section to a registered investment

17 company taxable under subchapter M shall not result in

18 a gain or loss to the participants in such common trust

19 fund where the transfer is a result of a merger, conversion,

20 reorganization, transfer, or other similar transaction or se21 ries of transactions.’’.
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1 SEC. 142. INVESTMENT ADVISERS PROHIBITED FROM HAV2 ING CONTROLLING INTEREST IN REG3 ISTERED INVESTMENT COMPANY.

4 Section 15 of the Investment Company Act of 1940

5 (15 U.S.C. 80a–15) is amended by adding at the end the

6 following new subsection:

7 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM8 PANY PROHIBITED.—

9 ‘‘(1) IN GENERAL.—If any investment adviser

10 to a registered investment company, or an affiliated

11 person of that investment adviser, also holds shares

12 of the investment company in a trustee or fiduciary

13 capacity, that investment adviser or affiliated person

14 may own, directly or indirectly, a controlling interest

15 in that registered investment company only—

16 ‘‘(A) if it passes the power to vote the

17 shares of the investment company through to—

18 ‘‘(i) the beneficial owners of the

19 shares;

20 ‘‘(ii) any person acting in a fiduciary

21 capacity who is not an affiliated person of

22 that investment adviser or any affiliated

23 person thereof; or

24 ‘‘(iii) any person authorized to receive

25 statements and information with respect to

26 the trust who is not an affiliated person of
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1 that investment adviser or any affiliated

2 person thereof;

3 ‘‘(B) if it votes the shares of the invest4 ment company held by it in the same proportion

5 as shares held by all other shareholders of the

6 investment company; or

7 ‘‘(C) as otherwise permitted under such

8 rules, regulations, or orders as the Commission

9 may prescribe for the protection of investors.

10 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

11 apply to any investment adviser to a registered in12 vestment company, or an affiliated person of that in13 vestment adviser, holding shares of the investment

14 company in a trustee or fiduciary capacity if that

15 registered investment company consists solely of as16 sets of—

17 ‘‘(A) any common trust fund or similar

18 fund described in section 3(c)(3) of the Invest19 ment Company Act of 1940;

20 ‘‘(B) any employees’ stock bonus, pension,

21 or profit-sharing trust that qualifies under sec22 tion 401 of the Internal Revenue Code of 1986;

23 ‘‘(C) any governmental plan described in

24 section 3(a)(2)(C) of the Securities Act of

25 1933; or
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1 ‘‘(D) any collective trust fund maintained

2 by a bank and consisting solely of assets of

3 trusts or governmental plans described in sub4 paragraph (B) or (C).’’.

5 SEC. 143. PURCHASE OF INVESTMENT COMPANY SECURI6 TIES AS FIDUCIARY.

7 (a) IN GENERAL.—Section 17 of the Investment

8 Company Act of 1940 (15 U.S.C. 80a–17) is amended by

9 adding at the end the following:

10 ‘‘(k) PURCHASE OF INVESTMENT COMPANY SECURI11 TIES AS FIDUCIARY.—

12 ‘‘(1) IN GENERAL.—An investment adviser to a

13 registered investment company, or an affiliated per14 son of the investment adviser, promoter, organizer,

15 or sponsor of the registered investment company, or

16 principal underwriter for the registered company

17 may purchase securities issued by such investment

18 company for the account of a beneficiary as fidu19 ciary, only if disclosure of such information as the

20 Commission shall prescribe under paragraph (2) has

21 been provided to the person (other than to the in22 vestment advisor to the registered investment com23 pany, or an affiliated person of the investment advi24 sor, promoter, organizer, or sponsor of the registered

25 investment company, or principal underwriter for the
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1 registered company who may purchase securities of

2 the registered company as fiduciary for the account)

3 to whom periodic financial statements are customar4 ily provided.

5 ‘‘(2) DISCLOSURE RULES.—The Commission

6 shall prescribe, by rule, regulation, or order, the

7 manner, form, and content of the information re8 quired to be disclosed under paragraph (1), as the

9 Commission determines necessary or appropriate in

10 the public interest and for the protection of inves11 tors.

12 ‘‘(3) PROSPECTIVE EFFECT.—This subsection

13 shall be effective for purchase for fiduciary accounts

14 made after the effective date of this subtitle.’’.

15 (b) EXAMINATION OF TRUST DEPARTMENT SECURI16 TIES PURCHASES.—Section 10(d) of the Federal Deposit

17 Insurance Act (12 U.S.C. 1820(d)) is amended by adding

18 at the end the following:

19 ‘‘(6) TRUST DEPARTMENT EXAMINATION.—In

20 performing an examination under this subsection,

21 the appropriate Federal banking agency shall exam22 ine purchases by an insured depository institution’s

23 trust department or division of the securities of an

24 affiliated investment company, or an investment

25 company that is an affiliated person of an affiliated
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1 person of the institution (as those terms are defined

2 in sections 2 and 3 of the Investment Company Act

3 of 1940), to assure compliance with applicable Fed4 eral and State trust laws.’’.

5 SEC. 144. CONFORMING CHANGE IN DEFINITION.

6 Section 2(a)(5) of the Investment Company Act of

7 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking

8 ‘‘(A) a banking organization organized under the laws of

9 the United States’’ and inserting ‘‘(A) a depository insti10 tution, as that term is defined in section 3 of the Federal

11 Deposit Insurance Act or a U.S. branch or agency of a

12 foreign bank’’.

13 SEC. 145. EFFECTIVE DATE.

14 This subtitle shall become effective 270 days after the

15 date of enactment of this Act.

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