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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 18 Introduced in House (IH)]

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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Financial Services Competitiveness 
Act of 1995''.

          TITLE I--BANK SECURITIES ACTIVITIES AND AFFILIATIONS

                   Subtitle A--Securities Activities

SEC. 101. ANTI-AFFILIATION PROVISION OF GLASS-STEAGALL ACT REPEALED.

    (a) Section 20 Repealed.--Section 20 (12 U.S.C. 377) of the Banking 
Act of 1933 is repealed.
    (b) Conforming Amendment to Section 32.--Section 32 (12 U.S.C. 78) 
of the Banking Act of 1933 is amended by adding at the end the 
following sentence: ``This section does not prohibit an officer, 
director, or employee of a securities affiliate (as defined in section 
2 of the Bank Holding Company Act of 1956) from serving at the same 
time as an officer, director, or employee of a member bank affiliated 
with that securities affiliate under section 10 of the Bank Holding 
Company Act of 1956.''.

SEC. 102. BANK HOLDING COMPANIES AUTHORIZED TO HAVE SECURITIES 
              AFFILIATES.

    Section 4(c) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(c)) is amended--
            (1) by striking ``or'' at the end of paragraph (13);
            (2) by striking the period at the end of paragraph (14) and 
        inserting ``; or''; and
            (3) by adding after paragraph (14) the following new 
        paragraph:
            ``(15) shares of a securities affiliate in accordance with 
        section 10.''.

SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURITIES AFFILIATES.

    (a) In General.--Section 10 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1841 et seq.) is amended to read as follows:

``SEC. 10. SECURITIES ACTIVITIES.

    ``(a) Activities Permissible for Securities Affiliates.--A 
securities affiliate may engage in one or more of the following 
activities:
            ``(1) Underwrite, deal in, broker, place, or distribute 
        securities of any type, and engage in other securities 
        activities as permitted by the Board.
            ``(2) Sponsor, organize, control, manage, and act as 
        investment adviser to an investment company.
            ``(3) Engage in, or acquire the shares of a company engaged 
        in, any activity if--
                    ``(A) a provision of section 4(c) permits bank 
                holding companies generally to engage in that activity 
                or acquire those shares; and--
                    ``(B) either--
                            ``(i) the Board permits the bank holding 
                        company to engage in that activity or acquire 
                        those shares through the securities affiliate; 
                        or
                            ``(ii) that provision permits the bank 
                        holding company to engage in that activity or 
                        acquire those shares without the Board's 
                        approval.
    ``(b) Acquiring Interest in Securities Affiliate.--
            ``(1) Notice required.--A bank holding company shall not, 
        without complying with and receiving approval pursuant to the 
        notice procedure in section 4(j), directly or indirectly 
        acquire or retain more than 5 percent of the voting shares of, 
        or all or substantially all of the assets of, a securities 
        affiliate (or a company that would be a securities affiliate if 
        the Board permitted the bank holding company to acquire that 
        company).
            ``(2) Criteria for approval.--The Board shall disapprove a 
        notice required under paragraph (1) unless the Board determines 
        that all of the following are satisfied:
                    ``(A) Capital.--
                            ``(i) Insured depository institutions.--
                                    ``(I) The lead insured depository 
                                institution of the bank holding company 
                                is well capitalized;
                                    ``(II) Well capitalized insured 
                                depository institutions control at 
                                least 80 percent of the total assets of 
                                insured depository institutions 
                                controlled by the bank holding company; 
                                and
                                    ``(III) All insured depository 
                                institutions controlled by the bank 
                                holding company are well capitalized or 
                                adequately capitalized.
                            ``(ii) Bank holding company.--The bank 
                        holding company is (and immediately after the 
                        acquisition would continue to be) adequately 
                        capitalized.
                            ``(iii) Foreign banks and companies.--The 
                        Board shall establish and apply comparable 
                        capital standards for the ownership or control 
                        of a securities affiliate in the United States 
                        by a foreign bank (as defined in section 1(b) 
                        of the International Banking Act of 1978), 
                        giving due regard to the principle of national 
                        treatment and equality of competitive 
                        opportunity in the United States.
                    ``(B) Managerial resources.--
                            ``(i) In general.--The bank holding company 
                        and each of its subsidiary insured depository 
                        institutions--
                                    ``(I) are well managed; and
                                    ``(II) were well managed during the 
                                preceding 12-month period (but for 
                                purposes of this subparagraph the Board 
                                may disregard any insured depository 
                                institution acquired by the bank 
                                holding company during that period).
                            ``(ii) Securities activities.--The bank 
                        holding company has the managerial resources to 
                        conduct the proposed securities activities 
                        safely and soundly.
                    ``(C) Internal controls.--The bank holding company 
                has established adequate policies and procedures to 
                manage financial and operational risks and to provide 
                reasonable assurance of compliance with this section 
                and other applicable laws.
                    ``(D) No detrimental effect on bank holding company 
                or its subsidiary insured depository institutions.--The 
                acquisition would not adversely affect the safety and 
                soundness of--
                            ``(i) the bank holding company; or
                            ``(ii) any insured depository institution 
                        subsidiary of the bank holding company.
                    ``(E) Concentration of resources.--The acquisition 
                would not result in an undue concentration of resources 
                in the commercial banking and investment banking 
                business.
            ``(3) Expedited notice procedure for acquisition of 
        additional securities affiliates.--
                    ``(A) Additional securities affiliates.--A bank 
                holding company may, without providing the notice 
                required under subsection (b), directly or indirectly 
                acquire the shares or substantially all of the assets 
                of any company that is engaged predominantly in 
                activities described in subsection (a) (1) and (2), 
                if--
                            ``(i) the bank holding company previously 
                        received the Board's approval under subsection 
                        (b) to control a securities affiliate and 
                        continues to control the securities affiliate 
                        pursuant to that approval;
                            ``(ii) the bank holding company is 
                        adequately capitalized and would continue to be 
                        adequately capitalized following the 
                        acquisition; and
                            ``(iii) all insured depository institutions 
                        controlled by the bank holding company are well 
                        capitalized and would continue to be well 
                        capitalized following the acquisition.
                    ``(B) Approval required.--
                            ``(i) Abbreviated notice procedure.--A bank 
                        holding company may not acquire shares or 
                        assets under subparagraph (A) unless the 
                        company has provided the Board at least 30-days 
                        written notice prior to the transaction and, 
                        during that period, the Board has not 
                        disapproved the transaction.
                            ``(ii) Limited extension of period.--The 
                        Board may extend the disapproval period 
                        provided in clause (i) for up to an additional 
                        15 days.
                            ``(iii) Standards applied by the board.--In 
                        reviewing a notice under this paragraph, the 
                        Board shall consider whether the activities of 
                        the company to be acquired are authorized under 
                        section 10 and shall apply the standards 
                        provided in section 4(j)(2).
    ``(c) Additional Investment in Securities Affiliate.--
            ``(1) Prior notice required.--A bank holding company that 
        has acquired control of a securities affiliate under this 
        section shall not, directly or indirectly, make any additional 
        investment in the securities affiliate that is considered 
        capital for purposes of any capital requirement imposed on the 
        securities affiliate under the Securities Exchange Act of 1934 
        (other than an extension of credit under a revolving credit 
        agreement approved by the Board), unless the bank holding 
        company gives the Board prior written notice of the proposed 
        investment and--
                    ``(A) the Board issues a written statement of its 
                intent not to disapprove the notice; or
                    ``(B) the Board does not disapprove the notice 
                within 30 days after the notice is filed.
            ``(2) No prior notice required for certain bank holding 
        companies.--A bank holding company is not required to provide 
        prior notice under paragraph (1) if after making any investment 
        described in paragraph (1)--
                    ``(A) the bank holding company would adequately 
                capitalized and each of the bank holding company's 
                subsidiary insured depository institutions would be 
                well capitalized; and
                    ``(B) the bank holding company and each of its 
                subsidiary insured depository institutions are well 
                managed (but for purposes of this clause the Board may 
                disregard any insured depository institution acquired 
                by the bank holding company during the previous 12-
                month period). A bank holding company that makes an 
                investment pursuant to this paragraph shall provide 
                written notice to the Board of the additional 
                investment within 10 days after making the investment.
            ``(3) Criteria for disapproving notice.--The Board may 
        disapprove a notice filed under paragraph (1) if any insured 
        depository institution affiliate of the securities affiliate is 
        undercapitalized, or if the Board determines that the bank 
        holding company would be undercapitalized after making the 
        investment or that the investment would otherwise be unsafe or 
        unsound.
            ``(4) Emergency approval.--Notwithstanding any provision of 
        this subsection, in the event of adverse market conditions, or 
        concerns regarding the financial or operational condition of 
        the securities affiliate, the Board may approve any additional 
        investment in the securities affiliate on an emergency basis.
    ``(d) Provisions applicable if Affiliated Insured Depository 
Institution Ceases to be Well Capitalized.--
            ``(1) Certain securities activities restricted unless 
        affiliated institutions are well capitalized.--
                    ``(A) Applicability.--This paragraph shall apply to 
                a securities affiliate if--
                            ``(i) the lead insured depository 
                        institution of the bank holding company is not 
                        well capitalized, or
                            ``(ii) well capitalized insured depository 
                        institutions do not control at least 80 percent 
                        of the assets of insured depository 
                        institutions affiliated with the securities 
                        affiliate.
                    ``(B) In general.--Except as provided in 
                subparagraph (C), the securities affiliate shall not, 
                beginning 180 days after subparagraph (A) applies, 
                agree to underwrite or deal in any securities other 
                than--
                            ``(i) securities expressly specified by 
                        section 5136 of the Revised Statutes as 
                        permissible for a national bank to underwrite 
                        or deal in;
                            ``(ii) securities backed by or representing 
                        interests in notes, drafts, acceptances, loans, 
                        leases, receivables, other obligations, or 
                        pools of any such obligations; or
                            ``(iii) securities issued by an open-end 
                        investment company registered under the 
                        Investment Company Act of 1940.
                    ``(C) Exception.--The Board may permit the 
                securities affiliate to underwrite or deal in 
                securities not described in clauses (i) through (iii) 
                of subparagraph (B) for a period of 1 year from the 
                date on which subparagraph (A) applies, if--
                            ``(i) the bank holding company submits a 
                        capital restoration plan to the Board 
                        specifying the steps the bank holding company 
                        will take to meet the requirements of section 
                        10(b)(2)(A), and containing such other 
                        information as the Board may require; and
                            ``(ii) the Board approves the plan.
                    ``(D) Extension of period.--Upon application by the 
                bank holding company, the Board may extend, for not 
                more than 1 year at a time, the period provided in 
                subparagraph (C), but no such extension shall in the 
                aggregate exceed 2 years.
            ``(2) Divestiture.--
                    ``(A) In general.--The bank holding company shall 
                divest itself of the securities affiliate if any of the 
                bank holding company's subsidiary insured depository 
                institutions has been undercapitalized for more than 24 
                months.
                    ``(B) Extending time.--The Board may provide 
                additional time for divestiture not exceeding 12 months 
                if the appropriate Federal banking agency has approved 
                the undercapitalized institution's capital restoration 
                plan under section 38(e) of the Federal Deposit 
                Insurance Act, and the Board determines that--
                            ``(i) the bank holding company has 
                        attempted in good faith to sell the securities 
                        affiliate at a realistic price; and
                            ``(ii) the securities affiliate poses no 
                        significant risk to any affiliated insured 
                        depository institution.
    ``(e) Securities Affiliate Excluded in Determining Whether Bank 
Holding Company is Adequately Capitalized.--
            ``(1) In general.--In determining whether a bank holding 
        company is adequately capitalized--
                    ``(A) the bank holding company's capital and total 
                assets shall each be reduced by--
                            ``(i) an amount equal to the amount of the 
                        bank holding company's equity investment in any 
securities affiliate; and
                            ``(ii) an amount equal to the amount of any 
                        extensions of credit by the bank holding 
                        company to any securities affiliate that are 
                        considered capital for purposes of any capital 
                        requirement imposed on the securities affiliate 
                        under section 15(c)(3) of the Securities 
                        Exchange Act of 1934; and
                    ``(B) the securities affiliate's assets and 
                liabilities shall not be consolidated with those of the 
                bank holding company.
            ``(2) Exception for nonsecurities activities.--Paragraph 
        (1) does not apply to the extent that the Board determines by 
        regulation or order that an item described in that paragraph 
        relates to activities that are not described in paragraph (1) 
        or (2) of subsection (a).
    ``(f) Safeguards Relating to Securities Affiliates.--
            ``(1) Extension of credit and asset purchases restricted.--
                    ``(A) In general.--No insured depository 
                institution affiliated with a securities affiliate 
                shall, directly or indirectly, do any of the following:
                            ``(i) Extend credit in any manner to the 
                        securities affiliate.
                            ``(ii) Issue a guarantee, acceptance, or 
                        letter of credit, including an endorsement or a 
                        standby letter of credit, for the benefit of 
                        the securities affiliate.
                            ``(iii) Purchase for its own account 
                        financial assets of the securities affiliate, 
                        except to the extent permitted by the Board 
                        with respect to purchasing at the current 
                        market value (based on reliable and regularly 
                        available price quotations)--
                                    ``(I) securities expressly 
                                specified by section 5136 of the 
                                Revised Status as permissible for a 
                                national bank to underwrite or deal in; 
                                or
                                    ``(II) securities that--
                                            ``(aa) the securities 
                                        affiliate has been marking to 
                                        market daily; and
                                            (bb) are rated investment 
                                        grade by at least 1 nationally 
                                        recognized statistical rating 
                                        organization.
                    ``(B) Exception for clearing securities.--
                Subparagraph (A)(i) does not prohibit an extension of 
                credit by a well capitalized insured depository 
                institution made to acquire or sell securities if--
                            ``(i) the extension of credit is incidental 
                        to clearing transactions in those securities 
                        through that insured depository institution;
                            ``(ii) both the principal of and the 
                        interest on the extension of credit are fully 
                        secured by those securities;
                            ``(iii) either--
                                    ``(I) the extension of credit is to 
                                be repaid on the same calendar day; or
                                    ``(II) all of the following 
                                conditions are satisfied:
                                            ``(aa) the securities 
                                        cannot, in the ordinary course 
                                        of business, be cleared on that 
                                        calendar day;
                                            ``(bb) the extension of 
                                        credit is to be repaid before 
                                        the close of business on the 
                                        next calendar day; and
                                            ``(cc) extensions of credit 
                                        under this subclause, when 
                                        aggregated with all other 
                                        covered transactions between 
                                        the institution and all 
                                        affiliated securities 
                                        affiliates do not exceed 10 
                                        percent of the institution's 
                                        capital stock and surplus; and
                            ``(iv) either--
                                    ``(I) the securities are securities 
                                expressly specified by section 5136 of 
                                the Revised Statutes as permissible for 
                                a national bank to underwrite or deal 
                                in; or
                                    ``(II) to the extent that the Board 
                                permits transactions under this 
                                paragraph in securities not described 
                                in subclause (I), the securities 
                                affiliate provides the insured 
                                depository institution such addition 
                                security or other assurance of 
                                performance, if any, as the Board shall 
                                require to prevent such transactions 
                                from posing any appreciable risk to the 
                                institution.
                    ``(C) Other exceptions.--The board may make 
                exceptions to subparagraph (A) for well capitalized 
                insured depository institutions if--
                            ``(i) the transaction is fully secured in 
                        accordance with section 23A(c) of the Federal 
                        Reserve Act; and
                            ``(ii) the aggregate amount of covered 
                        transactions between the institution and all 
                        securities affiliates of the bank holding 
                        company, excluding transactions permitted under 
                        subparagraph (A)(iii)(I) or (B)(iii)(I), does 
                        not exceed 10 percent of the institution's 
                        capital stock and surplus.
            ``(2) Credit enhancement restricted.--
                    ``(A) In general.--No insured depository 
                institution affiliated with a securities affiliate 
                shall, directly or indirectly, extend credit, or issue 
                or enter into a standby letter of credit, asset 
                purchase agreement, indemnity, guarantee, insurance, or 
                other facility, for the purpose of enhancing the 
                marketability of a securities issue underwritten by the 
                securities affiliate.
                    ``(B) Exceptions.--The Board may make exceptions to 
                subparagraph (A)--
                            ``(i) for well capitalized insured 
                        depository institutions if there is substantial 
                        participation by other lenders in the extension 
                        of credit, standby letter of credit, asset 
                        purchase agreement, indemnity, guarantee, 
                        insurance or other facility; and
                            ``(ii) for securities expressly specified 
                        by section 5136 of the Revised Status as 
                        permissible for a national bank to underwrite 
                        or deal in.
            ``(3) Prohibition on financing purchase of security being 
        underwritten.--
                    ``(A) In general.--No bank holding company or 
                subsidiary of a bank holding company (other than a 
                securities affiliate) shall knowingly extend or arrange 
                for the extension of credit, directly or indirectly, 
                secured by or for the purpose of purchasing any 
                security while, or for 30 days after, that security is 
                the subject of a distribution in which a securities 
                affiliate of that bank holding company participates as 
                an underwriter or a member of a selling group. For 
                purposes of this subparagraph, a bank holding company 
                or subsidiary may rely on an express written 
                acknowledgement signed by the borrower that the credit 
                is not secured by or for the purpose of purchasing a 
                security described in this subparagraph.
                    ``(B) Exceptions.--The Board may make exceptions to 
                subparagraph (A)--
                            ``(i) for extensions of credit if the 
                        securities are securities expressly specified 
                        by section 5136 of the Revised Statutes as 
                        permissible for a national bank to underwrite 
                        or deal in;
                            ``(ii) for any other extension of credit, 
                        after consultation with and considering the 
                        views of the Securities and Exchange 
                        Commission, if:
                                    ``(I) the bank holding company is 
                                adequately capitalized,
                                    ``(II) the bank holding company's 
                                lead insured depository institution is 
                                well capitalized, and
                                    ``(III) well capitalized insured 
                                depository institutions control at 
                                least 80 percent of the assets of 
                                insured depository institutions 
                                controlled by the bank holding company 
                                and all insured depository institutions 
                                controlled by the bank holding company 
                                are well capitalized or adequately 
                                capitalized.
                    ``(C) Consistency with the federal securities 
                laws.--Nothing in this paragraph shall permit a 
                securities affiliate to extend or maintain credit or 
                arrange for an extension of credit except in compliance 
                with applicable provisions of the Securities Exchange 
                Act of 1934 and the rules and interpretations 
                thereunder.
            ``(4) Restriction on extending credit to make payments on 
        securities.--
                    ``(A) In general.--No insured depository 
                institution affiliated with a securities affiliate 
                shall, directly or indirectly, extend credit to an 
                issuer of securities underwritten by the securities 
                affiliate for the purpose of paying the principal of 
                those securities or interest or dividends on those 
                securities. This subparagraph does not apply to an 
                extension of credit for a documented purpose (other 
                than paying principal, interest, or dividends) if the 
                timing, maturity, and other terms of the credit, taken 
                as a whole, are substantially different from those of 
                the underwritten securities.
                    ``(B) Exceptions.--The Board may make exceptions to 
                subparagraph (A) if the insured depository institution 
                is well capitalized, and--
                            ``(i) the securities are securities 
                        expressly specified by section 5136 of the 
                        Revised Statutes as permissible for a national 
                        bank to underwrite or deal in; or
                            ``(ii) there is substantial participation 
                        by other lenders in the extension of credit.
            ``(5) Director and senior executive officer interlocks 
        restricted.--
                    ``(A) In general.--No director or senior executive 
                officer of a securities affiliate shall serve at the 
                same time as a director or senior executive officer of 
                any affiliated insured depository institution.
                    ``(B) Exception for small bank holding companies.--
                Notwithstanding subparagraph (A), a director or senior 
                executive officer of a securities affiliate may serve 
                at the same time as a director or senior executive 
                officer of an affiliated insured depository institution 
                if that institution and all affiliated insured 
                depository institutions have, in the aggregate, total 
                assets of not more than $500,000,000. The dollar 
                limitation in the preceding sentence shall be adjusted 
                annually after December 31, 1995, by the annual 
                percentage increase in the Consumer Price Index for 
                Urban Wage Earners and Clerical Workers published by 
                the Bureau of Labor Statistics.
                    ``(C) Board's authority to make exceptions.--
                            ``(i) In general.--The Board may, by 
                        regulation or order, make exceptions to 
                        subparagraph (A).
                            ``(ii) Standards.--The Board--
                                    ``(I) shall, in determining whether 
                                to make such exceptions, consider the 
                                size of the bank holding companies, 
                                insured depository institutions, and 
                                securities affiliates involved, any 
                                burdens that may be imposed by 
                                subparagraph (A), the safety and 
                                soundness of the insured depository 
                                institutions and securities affiliates, 
                                and other appropriate factors, 
                                including unfair competition in 
                                securities activities or the improper 
                                exchange of nonpublic customer 
                                information; and
                                    ``(II) shall not permit--
                                            ``(aa) more than half of 
                                        the insured depository 
                                        institution's directors to be 
                                        directors or senior executive 
                                        officers of the securities 
                                        affiliate; or
                                            ``(bb) more than half of 
                                        the securities affiliate's 
                                        directors to be directors or 
                                        senior executive officers of 
                                        the insured depository 
                                        institution.
                    ``(D) Senior executive officer defined.--For 
                purposes of this paragraph, the term `senior executive 
                officer' has the same meaning as the term `executive 
                officer' has in section 22(h) of the Federal Reserve 
                Act.
            ``(6) Disclosure required by securities affiliate.--At the 
        time a securities account is opened, a securities affiliate 
        shall conspicuously disclose in writing to each of its 
        customers that--
                    ``(A) securities sold, offered, or recommended by 
                the securities affiliate are not deposits, are not 
                insured by the Federal Deposit Insurance Corporation, 
                are not guaranteed by an affiliated insured depository 
                institution, and are not otherwise an obligation of an 
                insured depository institution (unless such is the 
                case);
                    ``(B) the securities affiliate is not an insured 
                depository institution, and is a corporation separate 
                from any insured depository institution; and
                    ``(C) the securities affiliate may be underwriting 
                or dealing in the securities being sold, offered or 
                recommended, and if so, would have a financial interest 
                in the transaction.
            ``(7) Disclosure required by insured depository 
        institutions.--No insured depository institution that is 
        affiliated with a securities affiliate shall knowingly express 
        any opinion on the value of, or the advisability of purchasing 
        or selling, securities being underwritten or dealt in by a 
        securities affiliate of that bank holding company unless the 
        insured depository institution conspicuously discloses in 
        writing to the customer that--
                    ``(A) the securities affiliate is underwriting or 
                dealing in the securities and has a financial interest 
                in the transaction;
                    ``(B) the securities recommended are not deposits, 
                are not insured by the Federal Deposit Insurance 
                Corporation, are not guaranteed by the institution or 
                any other affiliated insured depository institution, 
                and are not otherwise an obligation of an insured 
                depository institution (unless such is the case), and 
                are subject to investment risks including possible loss 
                of principal invested; and
                    ``(C) the securities affiliate is not an insured 
                depository institution, and is a corporation separate 
                from any insured depository institution.
            ``(8) Improper disclosure of confidential customer 
        information prohibited.--
                    ``(A) In general.--No insured depository 
                institution subsidiary of a bank holding company shall 
                disclose to a securities affiliate of that bank holding 
                company, nor shall a securities affiliate disclose to 
                any affiliated insured depository institution or 
                subsidiary of such an institution, any nonpublic 
                customer conformation (including an evaluation of the 
                creditworthiness of an issuer or other customer of that 
                institution or securities affiliate), unless it is 
                clearly and conspicuously disclosed that such 
                information may be communicated among such persons and 
                the customer is given the opportunity, prior to the 
                time that the information is initially communicated, to 
                direct that such information not be communicated among 
                such persons.
                    ``(B) Definition.--For purposes of subparagraph 
                (A), the term `nonpublic customer information' does not 
                include--
                            ``(i) customers' names and addresses 
                        (unless a customer has specified otherwise);
                            ``(ii) information that could be obtained 
                        from unaffiliated credit bureaus or similar 
                        companies in the ordinary course of business; 
                        or
                            ``(iii) information that is customarily 
                        provided to unaffiliated credit bureaus or 
                        similar companies in the ordinary course of 
                        business by--
                                    ``(I) insured depository 
                                institutions not affiliated with 
                                securities affiliates; or
                                    ``(II) brokers and dealers not 
                                affiliated with insured depository 
                                institutions.
            ``(9) Underwriting securities representing obligations 
        originated by affiliate restricted.--A securities affiliate 
        shall not underwrite securities secured by or representing an 
        interest in mortgages or other obligations originated or 
        purchased by an affiliated insured depository institution or 
        subsidiary of such an institution--
                    ``(A) unless those securities--
                            ``(i) are rated by at least one 
                        unaffiliated, nationally recognized statistical 
rating organization;
                            ``(ii) are issued or guaranteed by the 
                        Federal Home Loan Mortgage Corporation, the 
                        Federal National Mortgage Association, or the 
                        Government National Mortgage Association; or
                            ``(iii) represent interests in securities 
                        described in clause (ii); or
                    ``(B) except as permitted by the Board.
            ``(10) Reciprocal arrangements prohibited.--No bank holding 
        company and no subsidiary of a bank holding company may enter 
        into any agreement, understanding, or other arrangement under 
        which--
                    ``(A) one bank holding company (or subsidiary of 
                that bank holding company) agrees to engage in a 
                transaction with, or on behalf of, another bank holding 
                company (or subsidiary of that bank holding company), 
                in exchange for
                    ``(B) the agreement of the second bank holding 
                company referred to in subparagraph (A) (or a 
                subsidiary of that bank holding company) to engage in 
                any transaction with, or on behalf of, the first bank 
                holding company referred to in that subparagraph (or 
                any subsidiary of that bank holding company), for the 
                purpose of evading any requirement or restriction of 
                Federal law on transactions between, or for the benefit 
                of, affiliates of bank holding companies.
            ``(11) Safeguards apply to certain subsidiaries.--Except as 
        provided in this subsection:
                    ``(A) Securities affiliate.--No subsidiary of a 
                securities affiliate may do anything that this 
                subsection prohibits the securities affiliate from 
                doing.
                    ``(B) Depository institution.--No subsidiary of an 
                insured depository institution or of a wholesale 
                financial institution may do anything that this 
                subsection prohibits the institution from doing.
            ``(12) Authority to modify and impose additional 
        safeguards; interpretive authority--
                    ``(A) In general.--The Board may, by regulation or 
                order--
                            ``(i) adopt additional limitations, 
                        restrictions or conditions on relationships or 
                        transactions among insured depository 
                        institutions, their affiliates, and their 
                        customers; and
                            ``(ii) make any modification to any 
                        limitation, restriction or condition on 
                        relationships or transactions among insured 
                        depository institutions, their affiliates and 
                        their customers imposed under this subsection, 
                        including modifications in addition to those 
                        expressly provided for in this subsection.
                    ``(B) Standards.--The Board may not exercise 
                authority under subparagraph (A)(i) or subparagraph 
                (A)(ii) unless the Board finds that such action is 
                consistent with the purposes of this Act, including the 
                avoidance of any significant risk to the safety and 
                soundness of insured depository institutions or the 
                Federal deposit insurance funds, enhancement of the 
                financial stability of bank holding companies, 
                prevention of the subsidization of securities 
                affiliates by insured depository institutions, 
                avoidance of conflicts of interest or other abuses, and 
                application of the principle of national treatment and 
                equality of competitive opportunity between securities 
                affiliates owned or controlled by domestic bank holding 
                companies and securities affiliates owned or controlled 
                by foreign banks operating in the United States.
            ``(13) Compliance programs required.--
                    ``(A) In general.--Each appropriate Federal banking 
                agency and the Securities and Exchange Commission shall 
                establish a program for--
                            ``(i) sharing information concerning 
                        compliance with subtitles A, B, or C of title I 
                        of the Financial Services Competitiveness Act 
                        of 1995 by:
                                    ``(I) entities that are brokers, 
                                dealers, investment advisers or 
                                investment companies registered with 
                                the Securities and Exchange Commission 
that are affiliated with insured depository institutions, or are 
separately identifiable departments or divisions of insured depository 
institutions registered as investment advisers; and
                                    ``(II) such insured depository 
                                institutions and their affiliates;
                            ``(ii) enforcing compliance with subtitle A 
                        of title I of the Financial Services 
                        Competitiveness Act of 1995 and section 3(a)(4) 
                        and 3(a)(5) of the Securities Exchange Act of 
                        1934 by entities under its supervision; and
                            ``(iii) responding to any complaints from 
                        customers about inappropriate cross-marketing 
                        of securities products or inadequate 
                        disclosure.
                    ``(B) Data collection.--
                            ``(i) In general.--The appropriate Federal 
                        banking agencies, after consultation with and 
                        consideration of the views of the Securities 
                        and Exchange Commission, may require any 
                        depository institution that has effected 
                        securities transactions pursuant to any 
                        exception enumerated in sections 3(a)(4)(C) and 
                        3(a)(5) of the Securities Exchange Act of 1934 
                        to identify the exceptions relied upon and to 
                        submit such information necessary to monitor 
                        compliance under sections 3(a)(4)(C) and 
                        3(a)(5) of the Securities Exchange Act of 1934.
                            ``(ii) Commission access.--The appropriate 
                        Federal banking agency shall make any such 
                        information available to the Commission upon 
                        request.
                            ``(iii) Compliance.--In implementing the 
                        provisions of this subparagraph, the 
                        appropriate Federal banking agencies shall 
                        ensure that any information requests to insured 
                        depository institutions take into account the 
                        size and activities of the institutions and do 
                        not cause undue reporting burdens.
                    ``(C) Commission's enforcement authority.--Without 
                limiting in any way the authority of the appropriate 
                Federal banking agencies under this subsection, the 
                Securities and Exchange Commission shall have the 
                authority to enforce the provisions of this subsection 
                against a securities affiliate to the extent that those 
                provisions govern the conduct or activities of the 
                securities affiliate as if they were provisions of the 
                Securities Exchange Act of 1934.
                    ``(D) Examination reports.--The appropriate Federal 
                banking agencies shall, to the extent practicable, use 
                the reports of examination of any broker, dealer, 
                investment adviser, or investment company made by or on 
                behalf of the Securities and Exchange Commission and 
                reports made by or on behalf of a registered securities 
                association or national securities exchange, and shall 
                defer to such examinations for compliance with the 
                Federal securities laws.
                    ``(E) Interpretations of the federal securities 
                laws.--The appropriate Federal banking agencies shall 
                defer to the Securities and Exchange Commission 
                regarding all interpretations and enforcement of the 
                Federal securities laws relating to the application of 
                the Federal securities laws to the activities and 
                conduct of brokers, dealers, investment advisers, and 
                investment companies.
                    ``(F) Notice of certain actions.--
                            ``(i) Securities and exchange commission.--
                        The Securities and Exchange Commission shall 
                        give notice to the appropriate Federal banking 
                        agency upon the entry of an order of 
                        investigation of, or the commencement of any 
                        disciplinary or law enforcement proceedings by 
                        the Commission and a copy of any order entered 
                        by the Commission against--
                                    ``(I) any broker, dealer, or 
                                investment adviser that--
                                            ``(aa) is registered with 
                                        the Securities and Exchange 
Commission; and
                                            ``(bb) is affiliated with 
                                        or is a separately identifiable 
                                        department or division of an 
                                        insured depository institution;
                                    ``(II) any investment company 
                                registered with the Securities and 
                                Exchange Commission that is an 
                                affiliate of or is advised by an 
                                investment adviser affiliated with an 
                                insured depository institution or by a 
                                separately identifiable department or 
                                division of an insured depository 
                                institution that is a registered 
                                investment adviser; or
                                    ``(III) any bank holding company, 
                                insured depository institution, or 
                                subsidiary of such company or 
                                institution, if the proposed action 
                                relates to subtitles A, B, or C of 
                                title I of the Financial Services 
                                Competitiveness Act of 1995.
                            ``(ii) Appropriate federal banking 
                        agencies.--Upon the entry of an order of 
                        investigation of, or the commencement of any 
                        disciplinary or law enforcement proceedings to 
                        enforce the provisions of subtitle A of title I 
                        of the Financial Services Competitiveness Act 
                        of 1995 by an appropriate Federal banking 
                        agency against any broker, dealer, investment 
                        adviser, or investment company that is 
                        registered under the Federal securities laws 
                        and is affiliated with an insured depository 
                        institution, the appropriate Federal banking 
                        agency shall give notice to the Securities and 
                        Exchange Commission of the proposed action.
                            ``(iii) Extension.--The notice required 
                        under clause (i) or (ii) may be provided 
                        promptly after action by the Securities and 
                        Exchange Commission or the appropriate Federal 
                        banking agency, if--
                                    ``(I) the Commission determines 
                                that the protection of investors 
                                requires immediate action by the 
                                Commission and prior notice under 
                                clause (i) is not practical under the 
                                circumstances; or
                                    ``(II) the appropriate Federal 
                                banking agency determines that concerns 
                                for the safety and soundness of an 
                                insured depository institution or its 
                                affiliate require immediate action by 
                                the agency and prior notice under 
                                clause (ii) is not practical under the 
                                circumstances.
                    ``(G) Coordinated enforcement actions.--The 
                Securities and Exchange Commission and the appropriate 
                Federal banking agencies shall, to the extent 
                practicable, coordinate supervisory actions based on 
                applicable law where the actions are based on the same 
                or related events or practices.
                    ``(H) Investment companies not affiliated with an 
                insured depository institution.--The appropriate 
                Federal banking agency shall not have authority under 
                this title or any other provision of law to inspect or 
                examine any investment company registered under the 
                Federal securities laws that is not--
                            ``(i) affiliated with an insured depository 
                        institution; or
                            ``(ii) advised by an investment adviser 
                        affiliated with an insured depository 
                        institution or by a separately identifiable 
                        department or division of an insured depository 
                        institution that is a registered investment 
                        adviser.
                    ``(I) Definition.--For purposes of this paragraph, 
                the term `Federal securities laws' shall mean the 
                provisions of Federal law governing securities 
                activities that are within the jurisdiction of the 
                Securities and Exchange Commission as set forth in the 
                Securities Act of 1993, the Securities Exchange Act of 
                1934, the Investment Company Act of 1940, the 
                Investment Advisers Act of 1940, and the Trust 
                Indenture Act of 1939.
    ``(g) Activities not Permissible for Depository Institutions or 
Securities Affiliates.--
            ``(1) A bank holding company that acquires control of a 
        securities affiliate shall not, beginning 1 year after the date 
of that acquisition, permit any depository institution (as defined in 
section 3 of the Federal Deposit Insurance Act) of which it has control 
or any subsidiary of that institution--
                    ``(A) to engage, directly or indirectly, in the 
                United States--
                            ``(i) in underwriting securities backed by 
                        or representing interests in notes, drafts, 
                        acceptances, loans, leases, receivables, other 
                        obligations, or pools of any such obligations, 
                        originated or purchased by the insured 
                        depository institution or its affiliates;
                            ``(ii) in underwriting or dealing in any 
                        other securities, except securities expressly 
                        specified by section 5136 of the Revised 
                        Statutes as permissible for a national bank to 
                        underwrite or deal in; or
                            ``(iii) in effecting sales as part of a 
                        primary offering to an accredited investor (as 
                        defined in section 2 of the Securities Act of 
                        1933) of securities of an issuer, not involving 
                        a public offering, pursuant to section 3(b), 
                        4(2), or 4(6) of the Securities Act of 1933 and 
                        the rules and regulations issued thereunder; or
                    ``(B) to make an equity investment in any 
                securities affiliate.
            ``(2) The limitations in paragraph (1)(A) shall not apply 
        to activities conducted by a subsidiary held pursuant to 
        section 25 or 25A of the Federal Reserve Act or section 
        4(c)(13) of this Act.
            ``(3) Nothing in this section shall permit a securities 
        affiliate to accept deposits in contravention of section 21 of 
        the Banking Act of 1933 (12 U.S.C. 378(a)).
    ``(h) Approval of Securities Activities Under Section 4(c)(8) 
Restricted.--The Board shall deny any notice or application by a bank 
holding company under authority of section 4(c)(8) to engage in, or 
acquire the shares of a company engaged in, underwriting or dealing in 
securities in the United States, except securities expressly specified 
by section 5136 of the Revised Statutes as permissible for a national 
bank to underwrite or deal in.
    ``(i) Bankers' Banks.--For purposes of this section, each 
shareholder of or participant in a company that controls a depository 
institution described in section 5169(b)(1) of the Revised Statutes or 
in a similar statute of any State, and each subsidiary of such a 
shareholder or participant, shall be treated as if it were a subsidiary 
of that company. This subsection shall not apply to a shareholder or 
participant in that company (or subsidiary of that shareholder or 
participant) if the shareholder or participant and its affiliates do 
not, in the aggregate, control more than 5 percent of any class of 
voting shares of that company.
    ``(j) Shares Acquired in Connection With Underwriting and 
Investment Banking Activities.--
            ``(1) In general.--Notwithstanding section 4(a), a bank 
        holding company may directly or indirectly own or control 
        shares of any company engaged in activities not authorized 
        pursuant to section 4 of this Act if--
                    ``(A) the shares are acquired and held by a 
                securities affiliate as part of a bona fide 
                underwriting or investment banking activity and such 
                shares are held only for such period of time as will 
                permit the sale thereof on a reasonable basis 
                consistent with the nature of such activity; and
                    ``(B) during the period such shares are held, the 
                bank holding company does not directly or indirectly 
                participate in the day to day management or operation 
                of the company.
            ``(2) Board rules.--The Board may establish rules governing 
        the acquisition and retention of shares under this subsection, 
        including limitations governing the amount and percentage of 
        shares that may be held under this paragraph and the 
        circumstances and time period such shares may be held, in order 
        to assure compliance with the purposes of this Act, including 
        the separation of banking and commerce.
    ``(k) Definitions.--For purposes of this section--
            ``(1) Capital categories.--
                    ``(A) Insured depository institutions.--With 
                respect to insured depository institutions, the terms 
                `well capitalized', `adequately capitalized', and 
                `undercapitalized' have the meaning given to those 
                terms in section 38(b) of the Federal Deposit Insurance 
Act.
                    ``(B) Bank holding companies.--A bank holding 
                company is `adequately capitalized' if it meets the 
                required minimum level for each relevant capital 
                measure established by the Board for bank holding 
                companies, and `undercapitalized' if it fails to meet 
                the required minimum level for any such relevant 
                capital measure.
            ``(2) Capital stock and surplus.--The term `capital stock 
        and surplus' has the same meaning as in section 23A of the 
        Federal Reserve Act.
            ``(3) Covered transaction.--The term `covered transaction' 
        has the same meaning as in section 23A of the Federal Reserve 
        Act.
            ``(4) Foreign banks.--A branch or agency of a foreign bank 
        or a commercial lending company controlled by a foreign bank 
        (as in terms `agency', `branch', `commercial lending company', 
        and `foreign bank' are defined in section 1 of the 
        International Banking Act of 1978) shall be deemed to be an 
        insured depository institution.
            ``(5) Security.--
                    ``(A) In general.--The term `security' has the 
                meaning given to that term in section 3(a)(10) of the 
                Securities Exchange Act of 1934.
                    ``(B) Exceptions.--For purposes of this section, 
                other than subsection (a), the term `security' does not 
                include any of the following:
                            ``(i) A contract of insurance.
                            ``(ii) A deposit account, savings account, 
                        certificate of deposit, or other deposit 
                        instrument issued by a depository institution.
                            ``(iii) A share account issued by a savings 
                        association if the account is insured by the 
                        Federal Deposit Insurance Corporation.
                            ``(iv) A banker's acceptance.
                            ``(v) A letter of credit issued by a 
                        depository institution.
                            ``(vi) A debit account at a depository 
                        institution arising from a credit card or 
                        similar arrangement.
                            ``(vii) A traditional loan or loan 
                        participation (as determined by the Board).
                    ``(C) Board's authority to exempt traditional 
                banking products.--The Board may, after consultation 
                and consideration of the views of the Securities and 
                Exchange Commission, by regulation exempt from the 
                definition of `security' a banking product that 
                national banks have traditionally and customarily 
                originated or handled (such as mortgage notes) if the 
                exemption is consistent with the purposes of this 
                section.
                    ``(D) Definition for limited purpose.--The fact 
                that a particular instrument is excluded pursuant to 
                subparagraphs (B) or (C) from the definition of 
                `security' for purposes of this section shall not be 
                construed as finding or implying that such instrument 
                is or is not a `security' for purposes of section 
                3(a)(10) of the Securities Exchange Act of 1934.''.
    (b) Transition Rule for Securities Affiliates Approved Under 
Section 4(c)(8).--
            (1) In general.--Effective 18 months after the date of 
        enactment of this Act, no bank holding company may engage in, 
        or retain the shares of any company engaged in, underwriting or 
        dealing in securities based on the approval of an application 
        under section 4(c)(8) of the Bank Holding Company Act of 1956--
                    (A) unless the bank holding company has obtained 
                the Board's approval to retain the shares of that 
                company under section 10; or
                    (B) except underwriting or dealing in securities 
                expressly specified by section 5136 of the Revised 
                Statutes as permissible for a national bank to 
                underwrite or deal in.
            (2) Extending time.--
                    (A) In general.--The Board may, for good cause 
                shown, extend the time provided under paragraph (1) for 
                not more than 18 months.
                    (B) Pending notices.--If a bank holding company has 
                filed a notice under section 10(b) of the Bank Holding 
                Company Act of 1956 not later than 180 days after the 
                date of enactment of this Act, paragraph (1) shall not 
                apply with respect to the company engaged in such 
                underwriting or dealing until 180 days after the Board 
                has acted on the notice.
    (c) Conforming Amendments.--
            (1) Definitions.--Section 2 of the Bank Holding Company Act 
        of 1956 (12 U.S.C. 1841) is amended by adding at the end the 
        following new subsections:
    ``(n) Securities Affiliate.--The term `securities affiliate' means 
any company--
            ``(1) that is (or is required to be) registered under the 
        Securities Exchange Act of 1934 as a broker or dealer; and
            ``(2) the acquisition or retention of the shares or assets 
        of which the Board has approved under section 10.
    ``(o) Insured Depository Institution.--The term `insured depository 
institution' has the meaning given to that term in section 3 of the 
Federal Deposit Insurance Act.
    ``(p) Lead Insured Depository Institution.--The term `lead insured 
depository institution' shall mean the largest insured depository 
institution controlled by the bank holding company, based on a 
comparison on the average total assets controlled by each insured 
depository institution during the previous 12-month period.
    ``(q) Appropriate Federal Banking Agency.--The term `appropriate 
Federal banking agency' has the same meaning as in section 3(q) of the 
Federal Deposit Insurance Act.''.
            (2) Amendment regarding conditional approval of 
        applications.--Section 4(a)(2) of the Bank Holding Company Act 
        of 1956 (12 U.S.C. 1843(a)(2)) is amended by striking 
        ``paragraph (8)'' and all that follows through ``issued by the 
        Board under such paragraph'' and inserting ``section 10, 
        subsection (l) or subsection (c)(8), subject to all the 
        conditions specified in those provisions or in any order or 
        regulation issued by the Board under those provisions''.
            (3) Amendment to notice procedures.--Section 4(j) of the 
        Bank Holding Company Act of 1956 (12 U.S.C. 1843(j)) is 
        amended--
                    (A) in paragraph (1)(A) by striking ``subsection 
                (c)(8) or (a)(2)'' and inserting in its place 
                ``subsection (c)(8), (c)(15), (l), or (a)(2)'';
                    (B) in paragraph (1)(E) by striking ``subsection 
                (c)(8) or (a)(2)'' and inserting in its place 
                ``subsection (c)(8), (c)(15), (l), or (a)(2)'';
                    (C) by redesignating paragraphs (2)(B) and (2)(C) 
                as paragraphs (2)(C) and (2)(D) respectively, and 
                inserting a new paragraph (2)(B) as follows:
                    ``(B) Criteria for notices involving securities 
                affiliates.--In considering any notice that involves 
                the acquisition of shares of a securities affiliate 
                pursuant to section 4(c)(15), the Board shall apply the 
                criteria and safeguards contained in this paragraph and 
                in section 10.''.
    (d) Amendment to the Federal Reserve Act.--Section 23B(b)(1)(B) of 
the Federal Reserve Act (12 U.S.C. 371c-1(b)(1)(B)) is amended by 
inserting ``and for 30 days thereafter'' after ``during the existence 
of any underwriting or selling syndicate''.
    (e) Exemption From Section 305(b) of the Federal Power Act.--
Section 305(b) of the Federal Power Act (16 U.S.C. 825d(b)) shall not 
apply to any person now holding or proposing to hold the position of 
officer or director of a public utility and officer or director of a 
bank, trust company, banking association, or firm permitted by section 
10 of the Bank Holding Company Act of 1956 (as amended by subsection 
(a)) or section 5136(b) of the Revised Statutes (12 U.S.C. 24(b)) (as 
amended by section 716) to underwrite or participate in the marketing 
of securities (including commercial paper) of a public utility, if that 
bank, trust company, banking association, or firm does not underwrite 
or participate in the marketing of securities of the public utility for 
which the person serves or proposes to serve as an officer or director.
    (f) Retention of Certain Investments by Securities Companies 
Affiliating With Insured Depository Institutions.--Section 4 of the 
Bank Holding Company Act (12 U.S.C. 1843) is amended by adding at the 
end the following new subsection:
    ``(k) Ownership of Shares of Certain Companies by Securities 
Companies That Become Bank Holding Companies.--
            ``(1) Financial companies.--Notwithstanding subsection (a), 
        a bank holding company may retain direct or indirect ownership 
        or control of voting shares of any company that engages solely 
        in activities that the Board determines to be financial in 
        nature if--
                    ``(A) the bank holding company acquired the shares 
                of such company or of each company to which it is a 
                successor more than two years prior to the date that 
                such bank holding company becomes a bank holding 
                company;
                    ``(B) the aggregate investment by the bank holding 
                company in shares ownership or control of which the 
                bank holding company would be prohibited from retaining 
                but for this paragraph does not exceed 10 percent of 
                the total consolidated capital and surplus of the bank 
                holding company on the date that it becomes a bank 
                holding company or on the date of any additional 
                investment by the bank holding company in such shares; 
                and
                    ``(C) more than 50 percent of the business of the 
                bank holding company for each of the two calendar years 
                prior to the date it becomes a bank holding company 
                involved securities activities described in sections 
                10(a) (1) and (2), excluding from such calculation 
                activities (other than securities activities) in which 
                bank holding companies were permitted to engage prior 
                to the enactment of the Financial Services 
                Competitiveness Act of 1995.
            ``(2) Nonfinancial companies.--
                    ``(A) In general.--Notwithstanding subsection (a), 
                a bank holding company that is described in paragraph 
                (1)(C) may, for a period of 5 years from the date that 
                the company becomes a bank holding company, retain 
                direct or indirect ownership or control of voting 
                shares of any company that the bank holding company 
                owns or controls on the date it becomes a bank holding 
                company.
                    ``(B) Extension of divestiture period.--The Board 
                may extend the period described in subparagraph (A) for 
                an additional period not to exceed 5 years if the Board 
determines that such extension is necessary to avert substantial loss 
to the bank holding company and finds that the bank holding company has 
made good faith efforts to divest such shares.
                    ``(C) No expansion of nonfinancial companies prior 
                to divestiture.--Unless such acquisition or activity is 
                permitted in accordance with section 4(c)--
                            ``(i) no bank holding company or company 
                        whose shares are owned or controlled by a bank 
                        holding company pursuant to this paragraph (2) 
                        may acquire any interest in or assets of any 
                        company, and
                            ``(ii) no company whose shares are owned or 
                        controlled by a bank holding company pursuant 
                        to this paragraph (2) may engage directly or 
                        indirectly in any activity that the company did 
                        not conduct on the day before the bank holding 
                        company registered as a bank holding company.
            ``(3) Restrictions on joint marketing.--No insured 
        depository institution (and no subsidiary of such institution) 
        shall--
                    ``(A) offer or market, directly or indirectly 
                through any arrangement, any product or service of any 
                affiliate whose shares are owned or controlled by the 
                bank holding company pursuant to this subsection or 
                section 10(j), or
                    ``(B) permit any of its products or services to be 
                offered or marketed, directly or indirectly through any 
                arrangement, by or through any affiliate whose shares 
                are owned or controlled by the bank holding company 
                pursuant to this subsection or section 10(j),
        unless the product or service is permissible for bank holding 
        companies to provide under section 10 or section 4(c)(8).''.
    (g) Amendment to the Right to Financial Privacy Act.--Section 
1112(e) of the Right to Financial Privacy Act (12 U.S.C. 3412(e)) is 
amended as follows--
            (1) by deleting ``this chapter'' and inserting in its place 
        ``law''; and
            (2) by adding ``, examination reports'' after ``financial 
        records''.
    (h) Exception to Restriction on Asset Growth of Nonbank Banks.--
Section 4(f)(3)(B)(iv) of the Bank Holding Company Act of 1956 (12 
U.S.C. 1843(f)(3)(B)(iv)) is amended by striking the period and 
inserting the following: ``unless--
                            ``(I) the company has provided at least 60 
                        days prior written notice to the Board and, 
                        during that period, the Board has not 
                        disapproved the proposal after applying the 
                        standards provided in subsection (j)(2);
                            ``(II) each insured depository institution 
                        controlled by the company is at all times well-
                        capitalized; and
                            ``(III) the company engages, directly or 
                        indirectly, only in activities--
                                    ``(aa) permitted pursuant to 
                                subsection 4(c)(8) or (15); or
                                    ``(bb) determined by the Board to 
                                be financial in nature and the company 
                                satisfies the provisions of subsection 
                                (k)(1) (B) and (C), or would satisfy 
                                the provisions of subsection (k)(1) (B) 
                                and (C) if the company were a bank 
                                holding company.''.
    (i) Conforming Amendment for Certain Holding Companies.--Section 
10(c) of the Home Owners' Loan Act (12 U.S.C. 1467a(c)) is amended by 
striking paragraphs (3), (5), and (6) and redesignating other 
paragraphs accordingly.

SEC. 104. SECURITIES COMPANY AFFILIATIONS OF FDIC-INSURED BANKS.

    Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is 
amended by adding at the end the following new subsections:
    ``(s) Securities Affiliations of Insured Banks.--
            ``(1) In general.--A bank shall not be an affiliate of any 
        company that, directly or indirectly, acts as an underwriter or 
        dealer of any security, except--
                    ``(A) as provided in section 10 of the Bank Holding 
                Company Act of 1956; or
                    ``(B) a company that underwrites or deals only in 
                securities expressly specified by section 5136 of the 
                Revised Statutes as permissible for a national bank to 
                underwrite or deal in.
            ``(2) Exception.--This subsection does not apply to an 
        insured bank described in subparagraph (D), (F), or (H) or 
        section 2(c)(2) of the Bank Holding Company Act of 1956 or to a 
        company held pursuant to section 25 or 25A of the Federal 
        Reserve Act or section 4(c)(13) of the Bank Holding Company 
        Act.
            ``(3) Grandfather provision.--This subsection does not 
        prohibit--
                    ``(A) the continuation of an affiliation that 
                existed on January 1, 1995; or
                    ``(B) any new affiliation by an insured bank that 
                has an affiliation that would be prohibited if the 
                affiliation were not covered by subparagraph (A).
            ``(4) Definitions.--For purposes of this subsection:
                    ``(A) Affiliate.--The term `affiliate' has the 
                meaning given to that term in section 2(k) of the Bank 
                Holding Company Act of 1956.
                    ``(B) Company.--The term `company' has the meaning 
                given to that term in section 2(b) of the Bank Holding 
                Company Act of 1956.
                    ``(C) Broker.--The term `broker' has the meaning 
                given to that term in section 3(a)(4) of the Securities 
                Exchange Act of 1934.
                    ``(D) Dealer.--The term `dealer' has the meaning 
                given to that term in section 3(a)(5) of the Securities 
                Exchange Act of 1934.
                    ``(E) Security.--
                            ``(i) In general.--The term `security' has 
                        the meaning given to that term in section 
                        3(a)(10) of the Securities Exchange Act of 
                        1934.
                            ``(ii) Exceptions.--For purposes of this 
                        subsection, the term `security' does not 
                        include any of the following:
                                    ``(I) A contract of insurance.
                                    ``(II) A deposit account, savings 
                                account, certificate of deposit, or 
                                other deposit instrument issued by a 
                                depository institution.
                                    ``(III) A share account issued by a 
                                savings association if the account is 
                                insured under the Federal Deposit 
                                Insurance Act.
                                    ``(IV) A banker's acceptance.
                                    ``(V) A letter of credit issued by 
                                a depository institution.
                                    ``(VI) A debit account at a 
                                depository institution arising from a 
                                credit card or similar arrangement.
                                    ``(VII) A traditional loan or loan 
                                participation (as determined by the 
                                Board).
                            ``(iii) Federal reserve board's authority 
                        to exempt traditional banking products.--The 
                        Board of Governors of the Federal Reserve 
                        System may, after consultation with and 
                        considering the views of the Securities and 
                        Exchange Commission, by regulation exempt from 
                        the definition of `security' a banking product 
                        that national banks have traditionally and 
                        customarily originated or handled (such as 
                        mortgage notes) if the exemption is consistent 
                        with the purposes of this subsection.
                            ``(iv) Definition for limited purpose.--The 
                        fact that a particular instrument is excluded 
                        pursuant to clauses (ii) or (iii) from the 
                        definition of `security' for purposes of this 
                        subsection shall not be construed as finding or 
                        implying that such instrument is or is not a 
                        `security' for purposes of section 3(a)(10) of 
                        the Securities Exchange Act of 1934.
                    ``(E) Underwriter.--The term `underwriter' has the 
                meaning given to that term in section 2(11) of the 
                Securities Act of 1933.
    ``(t) Broker/Dealer Registration.--An insured bank may not use the 
United States mails or any means or instrumentality of interstate 
commerce to act as a broker or dealer without registration under the 
Securities Exchange Act of 1934, except to the extent permitted under 
section 3(a)(4) or 3(a)(5), or unless otherwise exempt pursuant to 
rules promulgated by the Securities and Commission.''.

SEC. 105. AUTHORITY TO TERMINATE GRANDFATHER RIGHTS UNDER THE 
              INTERNATIONAL BANKING ACT OF 1978.

    Section 8(c) of the International Banking Act of 1978 (12 U.S.C. 
3106(c)) is amended by adding at the end the following new paragraph:
            ``(3) Parity in conduct of authorized securities 
        activities.--
                    ``(A) In general.--Notwithstanding any provision of 
                paragraph (1) or any other provision of law, any 
                authority conferred under this subsection on any 
                foreign bank or company with respect to an activity of 
                an affiliate engaged in securities activities shall 
                terminate 18 months after the Board determines that 
                such activity is authorized for bank holding companies 
                in the United States, except that--
                            ``(i) the foreign bank or company may 
                        retain the shares of an affiliate engaged in 
                        securities activities, if, prior to the 
                        expiration of such 18 months period, the 
                        foreign bank or company has obtained the 
                        Board's approval under section 10 or section 
                        4(c)(8) of the Bank Holding Company Act to 
                        retain such shares, and
                            ``(ii) the Board, for good cause shown, may 
                        extend the termination period for an additional 
                        period not to exceed 18 months.
                    ``(B) Extension to obtain required approval.--If 
                the foreign bank or company has filed a notice under 
                section 10(b) of the Bank Holding Company Act not later 
                than 180 days after the board has made a determination 
                under subparagraph (A), the effective date of any 
                termination of authority for that foreign bank or 
                company under subparagraph (A) shall be 24 months after 
                the Board has acted on the notice.''.

SEC. 106. EFFECT ON STATE LAWS PROHIBITING THE AFFILIATION OF BANKS AND 
              SECURITIES COMPANIES.

    Section 7 of the Bank Holding Company Act of 1956 (12 U.S.C. 1846) 
is amended by inserting before the final period the following: ``, 
except that no State may prohibit or limit the affiliation of a bank or 
bank holding company with a securities affiliate solely because the 
securities affiliate is engaged in activities described in paragraph 
(1) or (2) of section 10(a) of this Act.''.

SEC. 107. MUNICIPAL SECURITIES

    At the end of section 5136 of the Revised Statutes (12 U.S.C. 
24(Seventh)), add the following new sentences:
    ``Notwithstanding any other provision of this paragraph, a national 
banking association may deal in, underwrite, and purchase for such 
association's own account any obligation of, or obligation guaranteed 
as to principal or interest by, a State or of any political subdivision 
thereof, or any agency or instrumentality of a State or any political 
subdivision thereof, if the association--
            ``(1) is well capitalized (as defined in section 38(b) of 
        the Federal Deposit Insurance Act);
            ``(2) engages in the business of banking;
            ``(3) has not been affiliated with a securities affiliate 
        under section 10 of the Bank Holding Company Act of 1956 for 
        more than 1 year; and
            ``(4) maintains its main office or any branch in such State 
        or political subdivision, or within 100 miles of such State or 
        political subdivision.''.

SEC. 108. INVESTMENT BANK HOLDING COMPANIES.

    (a) Definitions.--Section 2 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1842) is amended by adding at the end the following new 
subsections:
    ``(r) Wholesale Financial Institution.--The term `wholesale 
financial institution' means any institution that is an uninsured state 
member bank authorized pursuant to section 9B of the Federal Reserve 
Act.
    ``(s) Investment Bank Holding Company.--The term `investment bank 
holding company' means any bank holding company that controls or seeks 
to control--
            ``(1) a wholesale financial institution, and
            ``(2) a company engaged in underwriting, distributing or 
        dealing in securities pursuant to section 10.''.
    (b) Exemption.--Section 4 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1843) is amended by adding at the end the following new 
subsection:
    ``(l) Permissible Affiliations for Investment Bank Holding 
Companies.--
            ``(1) Financial activities.--
                    ``(A) Activities authorized.--An investment bank 
                holding company may directly or indirectly own or 
                control shares of any company the activities of which 
                the Board has determined to be of a financial nature, 
                without regard to the limitations contained in 
                subsections (k)(1) or (k)(3).
                    ``(B) Insurance underwriting activities limited to 
                incidental activities.--In the event that the Board 
                determines that insurance underwriting activities 
                (other than activities permissible under subsection 
                (c)(8)) are financial in nature, the aggregate 
                investment by an investment bank holding company in 
                shares of all companies that engage in insurance 
                underwriting activities (other than insurance 
                underwriting activities permissible under section 
                (c)(8)) shall not exceed 10 percent of the total 
                consolidated capital and surplus of the investment bank 
                holding company.
                    ``(C) Notice required.--An investment bank holding 
                company may not own or control shares of any company 
                described in subparagraph (A) without complying with 
                the notice procedures provided in subsection (j).
            ``(2) Securities activities.--
                    ``(A) Institutions must be well-capitalized.--The 
                Board shall disapprove a notice under section 10 by an 
                investment bank holding company to acquire a securities 
                affiliate if any wholesale financial institution 
                controlled by the investment bank holding company is 
                not well capitalized or would not be well capitalized 
                following the transaction.
                    ``(B) Transactions with a securities affiliate.--
                            ``(i) In general.--A wholesale financial 
                        institution controlled by an investment bank 
                        holding company shall be a `bank' for purposes 
                        of the provisions of sections 23A and 23B of 
                        the Federal Reserve Act.
                            ``(ii) Other restrictions determined by the 
                        board.--A securities affiliate and a wholesale 
                        financial institution controlled by an 
                        investment bank holding company shall not be 
                        subject to the provisions of section 10(f), 
                        except that the securities affiliate and 
                        wholesale financial institution shall be 
                        subject to paragraphs (12) and (13) of that 
                        section as if the wholesale financial 
                        institution were an insured depository 
                        institution.
            ``(3) Limitation on affiliation with insured depository 
        institutions.--An investment bank holding company may not 
        directly or indirectly own or control--
                    ``(A) any bank, other than a wholesale financial 
                institution;
                    ``(B) any savings association;
                    ``(C) any institution described in section 2(c)(2); 
                or
                    ``(D) any institution that accepts--
                            ``(i) initial deposits of $100,000 or less, 
                        other than on an incidental or occasional 
                        basis, or
                            ``(ii) deposits that are insured under the 
                        Federal Deposit Insurance Act.''.
    (c) Conforming Amendments.--
            (1) Insurance requirement in the bank holding company 
        act.--Section 3(e) of the Bank Holding Company Act of 1956 (12 
        U.S.C. 1842(e)) is amended by adding at the end the following: 
        ``This subsection does not apply to a wholesale financial 
        institution that is controlled by an investment bank holding 
        company that controls no banks other than wholesale financial 
        institutions.''.
            (2) Appropiate federal banking agency.--Section 
3(q)(2)(A) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(q)(2)(A)) is amended to read as follows:
                    ``(A) any State member insured bank (except a 
                District bank) and wholesale financial institution as 
                authorized pursuant to section 9B of the Federal 
                Reserve Act,''.

SEC. 109. CONFORMING AMENDMENTS FOR INVESTMENT BANK HOLDING COMPANIES.

    (a) Wholesale Financial Institutions.--The Federal Reserve Act (12 
U.S.C. 221 et seq.) is amended by inserting after section 9A the 
following new section:

``SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

    ``(a) Application for Membership as Wholesale Financial 
Institution.--
            ``(1) Application required.--Any bank incorporated by 
        special law of any State, or organized under the general laws 
        of any State, may apply to the Board of Governors of the 
        Federal Reserve System to subscribe to the stock of the Federal 
        Reserve bank organized within the district where the applying 
        bank is located as a wholesale financial institution. Such 
        application shall be treated as an application under, and shall 
        be subject to the provisions of section 9.
            ``(2) Approval of membership.--No bank may become a 
        wholesale financial institution unless--
                    ``(A) the Board has approved an application by the 
                bank, under such rules and regulations and subject to 
                such conditions and requirements as the Board may 
                prescribe, to be a wholesale financial institution; and
                    ``(B) in the case of a bank that is insured under 
                the Federal Deposit Insurance Act, the bank has met all 
                requirements under that Act for voluntary termination 
                of deposit insurance.
    ``(b) General Requirements Applicable to Wholesale Financial 
Institutions.--
            ``(1) Federal reserve act.--Except as otherwise provided in 
        this section, wholesale financial institutions shall be member 
        banks and shall be subject to the provisions of this Act that 
        apply to member banks to the same extent and in the same manner 
        as State member insured banks, except that the wholesale 
        financial institution may only terminate membership under this 
        Act with the prior written approval of the Board and on terms 
        and conditions that the Board determines are appropriate to 
        carry out the purposes of this Act.
            ``(2) Prompt corrective action.--A wholesale financial 
        institution shall be deemed to be an insured depository 
        institution for purposes of section 38 of the Federal Deposit 
        Insurance Act except that--
                    ``(A) the relevant capital levels and capital 
                measures for each capital category shall be the levels 
                specified by the Board for wholesale financial 
                institutions in accordance with subsection (c);
                    ``(B) the provisions applicable to well capitalized 
                insured depository institutions shall be inapplicable 
                to wholesale financial institutions;
                    ``(C) the provisions authorizing or requiring an 
                institution to be placed into receivership shall not 
                apply to a wholesale financial institution, and, in its 
                place, the Board is authorized or required, as the case 
                may be, to terminate the wholesale financial 
                institution's membership in the Federal Reserve System 
                or, where provided in section 38 of the Federal Deposit 
                Insurance Act, place the bank into conservatorship and, 
                in the Board's discretion, terminate the bank's 
                membership; and
                    ``(D) for purposes of applying the provisions of 
                section 38 of the Federal Deposit Insurance Act to 
                wholesale financial institutions, all references to the 
                appropriate Federal banking agency or to the 
                Corporation that section shall be deemed to be 
                references to the Board.
            ``(3) Enforcement authority.--Section 7 (j) and (k), 
        subsections (b) through (n), (s), (u), and (v) of section 8, 
        and section 19 of the Federal Deposit Insurance Act shall apply 
        to a wholesale financial institution in the same manner and to 
        the same extent as they apply to State member insured banks and 
        any reference in such sections to an insured depository 
        institution shall also be deemed to be a reference to a 
        wholesale financial institution.
            ``(4) Certain other statutes applicable.--A wholesale 
        financial institution shall be deemed to be a banking 
        institution and the Board shall be the appropriate Federal 
        banking agency for such bank and all of its affiliates for 
        purposes of the International Lending Supervision Act.
            ``(5) Bank merger act.--A wholesale financial institution 
        shall be subject to the provisions of the Bank Merger Act in 
        the same manner as if the wholesale financial institution were 
        a State member insured bank for purposes of that Act.
    ``(c) Specific Requirements Applicable to Wholesale Financial 
Institutions.--
            ``(1) Limitations on deposits.--
                    ``(A) Minimum amount.--Pursuant to regulations of 
                the Board, no wholesale financial institution shall 
                receive initial deposits of $100,000 or less, other 
                than on an incidental and occasional basis and where 
                such deposits in no event represent more than 5 percent 
                of the institution's total deposits.
                    ``(B) No deposit insurance.--No deposits held by a 
                wholesale financial institution shall be insured 
                deposits under the Federal Deposit Insurance Act.
                    ``(C) Advertising and disclosure.--The Board shall 
                prescribe regulations pertaining to advertising and 
                disclosure by wholesale financial institutions to 
                ensure that each depositor is notified that deposits at 
                the wholesale financial institution are not federally 
                insured or otherwise guaranteed by the United States 
                Government.
            ``(2) Special capital requirements applicable to wholesale 
        financial institutions.--
                    ``(A) Minimum capital levels.--
                            ``(i) In general.--The Board shall, by 
                        regulation, adopt capital requirements for 
                        wholesale financial institutions. The capital 
                        levels for wholesale financial institutions 
                        shall be sufficiently higher than the capital 
                        levels applicable to State member insured 
                        banks--
                                    ``(I) to account for the status of 
                                wholesale financial institutions as 
                                institutions that accept deposits that 
                                are not insured under the Federal 
                                Deposit Insurance Act; and
                                    ``(II) to provide for the safe and 
                                sound operation of the wholesale 
                                financial institution without undue 
                                risk to creditors or other persons, 
                                including Federal Reserve banks, 
                                engaged in transactions with the bank.
                            ``(ii) Minimum leverage ratio.--The minimum 
                        leverage ratio of tier one capital to total 
                        assets of wholesale financial institutions 
                        shall be not less than the level required for a 
                        State member insured bank to be well 
                        capitalized.
                    ``(B) Capital categories for prompt corrective 
                action.--For purposes of applying the provisions of 
                section 38 of Federal Deposit Insurance Act, the Board 
                shall, by regulation, establish, for each relevant 
                capital measure specified by the Board under 
                subparagraph (A), the levels at which a wholesale 
                financial institution is adequately capitalized, 
                undercapitalized, significantly undercapitalized, and 
                critically undercapitalized.
            ``(3) Additional requirements applicable to wholesale 
        financial institutions.--In addition to any requirements 
        otherwise applicable to State member banks or otherwise 
        applicable under this section, the Board may prescribe, by rule 
        or order, for wholesale financial institutions--
                    ``(A) limitations on transactions with affiliates 
                to prevent an affiliate from gaining access to, or the 
                benefits of, credit from a Federal Reserve bank, 
                including overdrafts at a Federal Reserve bank;
                    ``(B) special clearing balance requirements; and
                    ``(C) any additional requirements that the Board 
                determines to be appropriate or necessary to--
                            ``(i) promote the safety and soundness of 
                        the wholesale financial institution, or
                            ``(ii) protect creditors and other persons, 
                        including Federal Reserve banks, engaged in 
                        transactions with the wholesale financial 
                        institution.
            ``(4) Exemptions for wholesale financial institutions.--The 
        Board may, by rule or order, exempt any wholesale financial 
        institution from any provision applicable to a State member 
        bank that is not a wholesale financial institution, provided 
        that the Board finds that such exemption is not inconsistent 
        with--
                    ``(i) the promotion of the safety and soundness of 
                the wholesale financial institution; and
                    ``(ii) the protection of creditors and other 
                persons, including Federal Reserve banks, engaged in 
                transactions with the wholesale financial institution.
            ``(5) No effect on other provisions.--This section shall 
        not be construed to limit the Board's authority over member 
        banks under any other provision of law, or to create any 
        obligation for any Federal Reserve bank to make, increase, 
        renew, or extend any advances or discount under this Act to any 
        member bank or other depository institution.
    ``(d) Conservatorship Authority.--The Board is authorized to 
appoint a conservator to take possession and control of a wholesale 
financial institution to the same extent and in the same manner as the 
Comptroller of the Currency is authorized to appoint a conservator for 
a national bank under section 203 of the Bank Conservation Act.
    ``(e) Definitions.--For purposes of this section--
            ``(1) the term `wholesale financial institution' means a 
        bank whose application to become an uninsured State member bank 
        has been approved by the Board of Governors of the Federal 
        Reserve System under this section;
            ``(2) the term `deposit' has the meaning given to such term 
        by the Board under the Federal Reserve Act; and
            ``(3) the term `State member insured bank' means a State 
        member bank, the deposits of which are insured under the 
        Federal Deposit Insurance Act.''.
    (b) Voluntary Termination of Insured Status by Certain 
Institutions.--
            (1) Section 8 designations.--Section 8 of the Federal 
        Deposit Insurance Act (12 U.S.C. 1818) is amended--
                    (A) in the section heading, by inserting 
                ``involuntary'' after ``sec. 8''; and
                    (B) in subsection (a)--
                            (i) by striking paragraph (1); and
                            (ii) by redesignating paragraphs (2) 
                        through (9) as paragraphs (1) through (8), 
                        respectively.
            (2) Voluntary termination of insured status.--The Federal 
        Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by 
        inserting after section 8 the following new section:

``SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS INSURED DEPOSITORY 
              INSTITUTION.

    ``(a) In general.--Except as provided in subsection (b), an insured 
State-chartered bank or a national bank may voluntarily terminate its 
status as an insured depository institution in accordance with 
regulations of the Corporation if--
            ``(1) such institution provides written notice of its 
        intent to terminate its insured status--
                    ``(A) to the Corporation, not less than 6 months 
                before the effective date of such termination; and
                    ``(B) to its depositors, not less than 6 months 
                before the effective date of such termination; and
            ``(2) the deposit insurance fund of which such bank is a 
        member equals or exceeds the fund's designated reserve ratio as 
        set forth in section 7(b)(2)(A)(iv) of the Federal Deposit 
        Insurance Act (12 U.S.C. 1817(b)(2)(A)(iv) as of the date the 
        bank provides a written notice of its intent to terminate its 
        insured status.
    ``(b) Exception.--The option to terminate insured status under 
subsection (a) shall not be available to--
            ``(1) an insured savings association;
            ``(2) an insured branch that is required to be insured 
        under subsection (a) or (b) of section 6 of the International 
        Banking Act of 1978; or
            ``(3) any institution described in section 2(c)(2) of the 
        Bank Holding Company Act of 1956.
    ``(c) Eligibility for Insurance Terminated.--A depository 
institution that voluntarily elects to terminate its insured status 
under subsection (a) shall not receive insurance of any of its deposits 
or any other assistance authorized under this Act after the period 
specified in subsection (f)(1).
    ``(d) Institution Must Become Wholesale Financial Institution or 
Terminate Deposit-Taking Activities.--Any institution that voluntarily 
terminates its status as an insured depository institution under this 
section may not, upon termination of insurance, accept any deposits 
unless the institution is a wholesale financial institution under 
section 9B of the Federal Reserve Act.
    ``(e) Exit Fees.--
            ``(1) In general.--Any institution that voluntarily 
        terminates its status as an insured depository institution 
        under this section shall pay an exit fee in an amount that the 
        Corporation determines is sufficient to account for the 
        institution's pro rata share of contingent and other 
        liabilities of the relevant deposit insurance fund.
            ``(2) Procedures.--The Corporation shall prescribe, by 
        regulation, procedures for assessing any exit fee under this 
        subsection.
    ``(f) Temporary Insurance of Deposits Insured as of Termination.--
            ``(1) Transition period.--The insured deposits of each 
        depositor in a State-chartered bank or a national bank on the 
        effective date of the voluntary termination of the 
        institution's insured status, less all subsequent withdrawals 
        from any deposits of such depositor, shall continue to be 
        insured for a period of not less than 6 months nor more than 2 
years, within the discretion of the Corporation. During such period, no 
additions to any such deposits, and no new deposits in the depository 
institution made after the effective date of such termination shall be 
insured by the Corporation,
            ``(2) Temporary assessments; obligations and duties.--
        During the period specified in paragraph (1), a depository 
        institution shall continue to pay assessments required under 
        this Act as if it were an insured depository institution. Such 
        depository institution shall, in all other respects, be subject 
        to the authority of the Corporation and the duties and 
        obligations of an insured depository institution during such 
        period as provided in this Act, and in the event that the 
        depository institution is closed due to an inability to meet 
        the demands of its depositors during such period, the 
        Corporation shall have the same powers and rights with respect 
        to such depository institution as in the case of an insured 
        depository institution.
    ``(g) Advertisements.--
            ``(1) In general.--A depository institution that 
        voluntarily terminates its insured status under this section 
        shall not advertise or hold itself out as having insured 
        deposits, except that it may advertise the temporary insurance 
        of deposits under subsection (f) if, in connection with any 
        such advertisement, it shall also state with equal prominence 
        that additions to deposits and new deposits made after the 
        effective date of the termination are not insured.
            ``(2) Certificates of deposit, obligations, and 
        securities.--Any certificate of deposit or other obligation or 
        security issued by a State-chartered bank or a national bank 
        after the effective date of the voluntary termination of its 
        insured status under this section shall be accompanied by a 
        conspicuous, prominently displayed notice that such certificate 
        of deposit or other obligation or security is not insured under 
        this Act.
    ``(h) Notice Requirements.--
            ``(1) Notice to the corporation.--The notice to the 
        Corporation of an institution's intent to terminate its insured 
        status required under subsection (a) shall be in such form as 
        the Corporation may require.
            ``(2) Notice to depositors.--The notice to depositors of an 
        institution's intent to terminate its insured status required 
        under subsection (a) shall be--
                    ``(A) at such depositor's last address of record 
                with the institution; and
                    ``(B) in such manner and form as the Corporation 
                finds to be necessary and appropriate for the 
                protection of depositors.''.

SEC. 110. EFFECTIVE DATE.

    The amendments made by this subtitle shall become effective 90 days 
after the date of enactment of this Act.

                    Subtitle B--Brokers and Dealers

SEC. 120. DEFINITION OF BROKER.

    Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(4)) is amended to read as follows:
            ``(4) `Broker'.--
                    ``(A) In general.--The term `broker' means any 
                person engaged in the business of effecting 
                transactions in securities for the account of others.
                    ``(B) Exclusion of banks.--The term `broker' does 
                not include a bank unless such bank publicly solicits 
                the business of effecting securities transactions for 
                the account of others or is compensated for such 
                business by the payment of commissions or similar 
                remuneration based on effecting transactions in 
                securities (other than fees calculated as a percentage 
                of assets under management) in excess of the bank's 
                incremental costs directly attributable to effecting 
                such transactions (hereafter referred to as `incentive 
                compensation').
                    ``(C) Exemption for certain bank activities.--A 
                bank shall not be deemed to be a `broker' because it 
                engages in any of the following activities:
                            ``(i) Third party brokerage arrangements.--
                        The bank enters into a contractual or other 
                        arrangement with a broker or dealer registered 
                        under this title under which the broker or 
                        dealer offers brokerage services on or off the 
                        premises of the bank if--
                                    ``(I) such broker or dealer is 
                                clearly identified as the person 
                                performing the brokerage services;
                                    ``(II) such broker or dealer 
                                performs brokerage services in an area 
                                that is clearly marked and physically 
                                separate from the retail deposit-taking 
                                activities of the bank;
                                    ``(III) any materials used to 
                                advertise or promote the availability 
                                of brokerage services under the 
                                contractual or other arrangement are 
                                approved by the broker or dealer for 
                                compliance with the Federal securities 
                                laws prior to distribution and are 
                                deemed to be the materials of the 
                                broker or dealer;
                                    ``(IV) bank employees perform only 
                                clerical or ministerial functions in 
                                connection with brokerage transactions, 
                                unless such employees are associated 
                                persons of a broker or dealer and are 
                                qualified pursuant to the requirements 
                                of a self-regulatory organization;
                                    ``(V) bank employees do not receive 
                                incentive compensation for any 
                                brokerage activities unless such 
                                employees are associated persons of a 
                                broker or dealer and are qualified 
                                pursuant to the requirements of a self-
                                regulatory organization;
                                    ``(VI) such services are provided 
                                by the broker or dealer on a basis in 
                                which all customers that receive such 
                                services are fully disclosed to that 
                                broker or dealer; and
                                    ``(VII) the broker or dealer 
                                informs each customer that the 
                                brokerage services are provided by the 
                                broker or dealer and not by the bank 
                                and that the securities are not 
                                guaranteed by the bank, the Federal 
                                Deposit Insurance Corporation, or any 
                                other federal or state deposit 
                                guarantee fund relating to banks.
                            ``(ii) Trust activities.--The bank engages 
                        in trust activities (including effecting 
                        transactions in the course of such trust 
                        activities) permissible for national banks 
                        under the first section of the Act of September 
                        28, 1962 or for State banks under relevant 
                        State trust statutes or law (including 
                        securities safekeeping, self-directed 
individual retirement accounts, or managed agency accounts or other 
functionally equivalent accounts of a bank) unless the bank--
                                    ``(I) publicly solicits brokerage 
                                business, other than by advertising 
                                that it effects transactions in 
                                securities in conjunction with 
                                advertising its other trust activities; 
                                or
                                    ``(II) receives incentive 
                                compensation for such brokerage 
                                activities.
                            ``(iii) Permissible securities 
                        transactions.--The bank effects transactions in 
                        exempted securities, other than municipal 
                        securities, or in commercial paper, bankers 
                        acceptances, commercial bills, qualified 
                        Canadian Government obligations as defined in 
                        section 5136 of the Revised Statutes, 
                        obligations of the Washington Metropolitan Area 
                        Transit Authority which are guaranteed by the 
                        Secretary of Transportation under section 9 of 
                        the National Capital Transportation Act of 
                        1969, obligations of the North American 
                        Development Bank, and obligations of any local 
                        public agency (as defined in section 110(h) of 
                        the Housing Act of 1949) or any public housing 
                        agency (as defined in the United States Housing 
                        Act of 1937) that are expressly specified by 
                        section 5136 of the Revised statutes as 
                        permissible for a national bank to underwrite 
                        or deal in.
                            ``(iv) Municipal securities.--The bank 
                        effects transactions in municipal securities, 
                        and has not been affiliated with a securities 
                        affiliate under section 10 of the Bank Holding 
                        Company Act of 1956 for more than 1 year.
                            ``(v) Employee and shareholder benefit 
                        plans.--The bank effects transactions as part 
                        of any bonus, profit-sharing, pension, 
                        retirement, thrift, savings, incentive, stock 
                        purchase, stock ownership, stock appreciation, 
                        stock option, dividend reinvestment, or similar 
                        plan for employees or shareholders of an issuer 
                        or its subsidiaries.
                            ``(vi) Sweep accounts.--The bank effects 
                        transactions as part of a program for the 
                        investment or reinvestment of bank deposit 
                        funds into any no-loan, open-end management 
                        investment company registered under the 
                        Investment Company Act of 1940 that holds 
                        itself out as a money market fund.
                            ``(vii) Affiliate transactions.--The bank 
                        effects transactions for the account of any 
                        affiliate of the bank, as defined in section 2 
                        of the Bank Holding Company Act of 1956.
                            ``(viii) Private securities offerings.--The 
                        bank--
                                    ``(I) effects sales as part of a 
                                primary offering of securities by an 
                                issuer, not involving a public 
                                offering, pursuant to section 3(b), 
                                4(2), or 4(6) of the Securities Act of 
                                1933 and the rules and regulations 
                                issued thereunder, other than 
                                securities backed by or representing an 
                                interest in obligations originated or 
                                purchased by the bank, its affiliates, 
                                or its subsidiaries unless those 
                                securities are described in section 
                                3(a)(5)(B)(ii)(IV) (aa) or (bb);
                                    ``(II) effects such sales 
                                exclusively to an accredited investor, 
                                as defined in section 3 of the 
                                Securities Act of 1933; and
                                    ``(III) if affiliated with a 
                                securities affiliate, as provided under 
                                section 10 of the Bank Holding Company 
                                Act of 1956, has not been so affiliated 
                                for more than 1 year.
                            ``(ix) De minimis exemption.--If the bank 
                        does not have a subsidiary or affiliate 
                        registered as a broker or dealer under section 
                        15, the bank effects, other than in 
                        transactions referenced in clauses (i) through 
                        (viii), not more than--
                                    ``(I) 800 transactions in any 
                                calendar year in securities for which a 
                                ready market exists, and
                                    ``(II) 200 other transactions in 
                                securities in any calendar year.
                    ``(D) Exemption for entities subject to section 
                15(e).--The term `broker' does not include a bank that 
                is subject to--
                            ``(i) section 15(e); and
                            ``(ii) such restrictions and requirements 
                        as the Commission deems appropriate.''.

SEC. 121. DEFINITION OF DEALER.

    Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(5)) is amended to read as follows:
            ``(5) `Dealer'.--
                    ``(A) In general.--The term `dealer' means any 
                person engaged in the business of buying and selling 
                securities for his own account through a broker or 
                otherwise.
                    ``(B) Exceptions.--Such term does not include--
                            ``(i) a person that buys or sells 
                        securities for his or her own account, either 
                        individually or in a fiduciary capacity, but 
                        not as a part of a regular business; or
                            ``(ii) a bank, to the extent that the 
                        bank--
                                    ``(I) buys and sells commercial 
                                paper, bankers acceptances, exempted 
                                securities (other than municipal 
                                securities), qualified Canadian 
                                Government obligations as defined in 
                                section 5136 of the Revised Statutes, 
                                obligations of the Washington 
                                Metropolitan Area Transit Authority 
                                which are guaranteed by the Secretary 
                                of Transportation under section 9 of 
                                the National Capital Transportation Act 
                                of 1969, obligations of the North 
                                American Development Bank, and 
                                obligations of any local public agency 
                                (as defined in section 110(h) of the 
                                Housing Act of 1949) or any public 
                                housing agency (as defined in the 
                                United States Housing Act of 1937) that 
                                are expressly specified by section 5136 
                                of the Revised Statutes as permissible 
                                for a national bank to underwrite or 
                                deal in;
                                    ``(II) buys and sells municipal 
                                securities and has not been affiliated 
                                with a securities affiliate, as 
                                provided under section 10 of the Bank 
                                Holding Company Act of 1956 for more 
                                than 1 year;
                                    ``(III) buys and sells securities 
                                for investment purposes for the bank or 
                                for accounts for which the bank acts as 
                                a trustee or fiduciary; or
                                    ``(IV) has not been affiliated with 
                                a securities affiliate under section 10 
                                of the Bank Holding Company Act of 1956 
                                for more than 1 year and engages in the 
                                issuance or sale through a grantor 
                                trust or otherwise of--
                                            ``(aa) securities backed by 
                                        or representing an interest in 
                                        1-4 family residential 
                                        mortgages originated or 
                                        purchased by the bank, its 
                                        affiliates, or its 
                                        subsidiaries; or
                                            ``(bb) securities backed by 
                                        or representing an interest in 
                                        consumer receivables or 
                                        consumer leases originated or 
                                        purchased by the bank, its 
                                        affiliates, or its 
                                        subsidiaries.''.

SEC. 122. POWER TO EXEMPT FROM THE DEFINITIONS OF BROKER AND DEALER.

    Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c) is 
amended by adding at the end the following:
    ``(e) Exemption From Definition of Broker or Dealer.--The 
Commission, by regulation or order, upon its own motion or upon 
application, may conditionally or unconditionally exclude any person or 
class of persons from the definitions of `broker' or `dealer', if the 
Commission finds that such exclusion is consistent with the public 
interest, the protection of investors, and the purposes of this 
title.''.

SEC. 123. MARGIN REQUIREMENTS.

    (a) Section 7(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
15g(d)) is amended by:
            (1) deleting the word ``or'' after clause (D);
            (2) redesignating clause (E) as clause (F); and
            (3) inserting a new clause (E) as follows:
                    ``(E) to a loan to a broker or dealer by a member 
                bank or any other person that has entered into an 
                agreement pursuant to section 8(a) hereof if the 
                proceeds of the loan are to be used in the ordinary 
                course of the broker's or dealer's business other than 
                for the purpose of funding the purchase of securities 
                for the account of such broker or dealer, or''.
    (b) Section 8(a) of the Securities and Exchange Act of 1934 is 
amended:
            (1) by deleting the phrase ``nonmember bank'' in clause (2) 
        and replacing it with the phrase ``person other than a member 
        bank''; and
            (2) by deleting the phrase ``such bank'' in the second 
        sentence and replacing it with the phrase ``such person''.

SEC. 124. EFFECTIVE DATE.

    This subtitle shall become effective 270 days after the date of 
enactment of this Act.

             Subtitle C--Bank Investment Company Activities

SEC. 130. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED BANK.

    (a) Management Companies.--Section 17(f) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-17(f)) is amended--
            (1) by redesignating paragraphs (1), (2), and (3) as 
        subparagraphs (A), (B), and (C), respectively;
            (2) by designating the five sentences of such subsection as 
        paragraphs (1) through (5), respectively, and by indenting 
        those paragraphs appropriately; and
            (3) by adding at the end the following new paragraph:
            ``(6) Notwithstanding paragraph (1)(A), if a bank described 
        in paragraph (1) or an affiliated person of such bank is an 
        affiliated person, promoter, organizer, or sponsor of, or 
        principal underwriter for the registered company, such bank may 
        serve as custodian under this subsection in accordance with 
        such rules, regulations, or orders as the Commission may 
        prescribe, consistent with the protection of investors, after 
        consulting in writing with the appropriate Federal banking 
        agency, as defined in section 3 of the Federal Deposit 
        Insurance Act.''.
    (b) Unit Investment Trusts.--Section 26(a)(1) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-26(a)(1)) is amended by inserting 
after ``bank'' the following: ``not affiliated with such underwriter or 
depositor, or if such bank is so affiliated, only in accordance with 
such regulations or orders as the Commission may prescribe, consistent 
with the protection of investors, after consulting in writing with the 
appropriate Federal banking agency, as defined in section 3 of the 
Federal Deposit Insurance Act''.
    (c) Fiduciary Duty of Custodian.--Section 36(a) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-35(a)) is amended--
            (1) in paragraph (1), by striking ``or'' at the end;
            (2) in paragraph (2), by striking the period at the end and 
        inserting ``; or''; and
            (3) by inserting after paragraph (2) the following:
            ``(3) as custodian.''.

SEC. 131. AFFILIATED TRANSACTIONS.

    (a) Indebtedness to Affiliated Person.--Section 10(f) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-10(f)) is amended in the 
first sentence--
            (1) by inserting ``(1)'' before ``a principal 
        underwriter''; and
            (2) by inserting before the period ``, or (2) the proceeds 
        of which will be used to retire an indebtedness owed to an 
        affiliated person of such registered company''.
    (b) Affiliated Person of Investment Company.--Section 10(f) of the 
Investment Company Act of 1940 is amended by adding at the end the 
following: ``For purposes of this subsection, a person that is under 
common control with an investment adviser shall be deemed to be an 
affiliated person of the registered investment company advised by such 
investment adviser.''.

SEC. 132. BORROWING FROM AN AFFILIATED BANK.

    Section 18(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-
18(f)) is amended by adding at the end the following:
    ``(3) Notwithstanding the provisions of paragraph (1), it shall be 
unlawful for any registered investment company to borrow from any bank 
if such bank or any affiliated person thereof is an affiliated person, 
promoter, organizer, or sponsor of, or principal underwriter for, such 
company, except that the Commission may, by rule, regulation, or order, 
permit such borrowing that the Commission finds to be in the public 
interest and consistent with the protection of investors.''.

SEC. 133. INDEPENDENT DIRECTORS.

    (a) Interested Person.--Section 2(a)(19)(A)(v) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)(v)) is amended by 
striking ``1934 or any affiliated person of such a broker or dealer, 
and'' and inserting ``1934 or any person that, at any time during the 
preceding 6 months, has acted as custodian or transfer agent or has 
executed any portfolio transactions for, engaged in any principal 
transactions with, or loaned money to, the investment company, or any 
other investment company having the same investment adviser, principal 
underwriter, sponsor, or promoter, or any affiliated person of such a 
broker, dealer, or person, and''.
    (b) Affiliation of Directors.--Section 10(c) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-10(c)) is amended by striking 
``bank, except'' and inserting ``bank (and its subsidiaries) or any 
single bank holding company (and its affiliates and subsidiaries), as 
those terms are defined in the Bank Holding Company Act of 1956, 
except''.
    (c) Effective Date.--The provisions of subsection (a) of this 
section shall become effective 1 year after the date of enactment of 
this subtitle.

SEC. 134. ADDITIONAL SEC DISCLOSURE AUTHORITY.

    (a) Misrepresentation.--Section 35(a) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-34(a)) is amended to read as follows:

``SEC. 35. MISREPRESENTATIONS.

    ``(a) Misrepresentations of Guarantees.--
            ``(1) In general.--It shall be unlawful for any person, in 
        issuing or selling any security of which a registered 
        investment company is the issuer, to represent or imply in any 
        manner whatsoever that such security or company--
                    ``(A) has been guaranteed, sponsored, recommended, 
                or approved by the United States, or any agency, 
                instrumentality or officer thereof,
                    ``(B) has been insured by the Federal Deposit 
                Insurance Corporation; or
                    ``(C) is guaranteed by or is otherwise an 
                obligation of any bank or insured institution.
            ``(2) Disclosures.--The Commission shall require the person 
        issuing or selling the securities of a registered investment 
        company to prominently disclose, in writing or orally, as 
        appropriate, that the investment company or any security issued 
        by it is not insured by the Federal Deposit Insurance 
        Corporation and is not guaranteed by an affiliated depository 
        institution, and is not otherwise an obligation of such a bank 
        or insured institution, in any case where--
                    ``(A) a bank holding company, bank, or separately 
                identifiable division or department of a bank, or any 
                affiliate or subsidiary thereof is an investment 
                adviser, organizer, sponsor, promoter, principal 
                underwriter, or an affiliated person of the investment 
                company; or
                    ``(B) a bank or an affiliated person of a bank is 
                offering or selling securities of the investment 
                company.
        The requirement of any disclosures referred to above shall be 
        subject to regulations adopted by the Commission, after 
        consultation with the appropriate Federal banking agencies (as 
        defined in section 3 of the Federal Deposit Insurance Act).''.
    (b) Deceptive use of Names.--Section 35(d) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-34(d)) is amended by inserting after 
the first sentence the following: ``It shall be deceptive and 
misleading for any registered investment company which has an insured 
depository institution (as defined in section 3 of the Federal Deposit 
Insurance Act) or any affiliated person thereof as an affiliated 
person, promoter, or principal underwriter, to adopt, as part of the 
name or title of such company, or of any security of which it is the 
issuer, any word which is the same as or similar to, or a variation of, 
the name or title of such insured depository institution or affiliate 
thereof. The Commission, by rules or regulations upon its own motion or 
by order upon application, may conditionally or unconditionally exempt 
an investment company from the preceding sentence if the Commission 
finds that such exemption is consistent with the public interest, the 
protection of investors, and the purposes of this title.''.

SEC. 135. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY ACT OF 
              1940.

    Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(6)) is amended to read as follows:
            ``(6) `Broker' has the same meaning as in the Securities 
        Exchange Act of 1934, except that it does not include any 
        person solely by reason of the fact that such person is an 
        underwriter for 1 or more investment companies.''.

SEC. 136. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY ACT OF 
              1940.

    Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(11)) is amended to read as follows:
            ``(11) `Dealer' has the same meaning as in the Securities 
        Exchange Act of 1934, but does not include an insurance company 
        or investment company.''.

SEC. 137. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF INVESTMENT 
              ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES.

    (a) Investment Adviser.--Section 202(a)(11) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)) is amended in 
subparagraph (A), by striking ``investment company'' and inserting 
``investment company, except that the term `investment adviser' 
includes any bank or bank holding company to the extent that such bank 
or bank holding company acts as an investment adviser to a registered 
investment company, or if, in the case of a bank, such services are 
performed through a separately identifiable department or division, the 
department or division, and not the bank itself shall be deemed to be 
the `investment adviser'''; and
    (b) Separately Identifiable Department or Division.--Section 202(a) 
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended 
by adding at the end the following:
            ``(25) `Separately identifiable department or division' of 
        a bank means a unit--
                    ``(A) that is under the direct supervision of an 
                officer or officers designated by the board of 
                directors of the bank as responsible for the day-to-day 
                conduct of the bank's investment adviser activities for 
                1 or more investment companies, including the 
                supervision of all bank employees engaged in the 
                performance of such activities; and
                    ``(B) for which all of the records relating to its 
                investment adviser activities, are separately 
                maintained in or extractable from such unit's own 
                facilities or the facilities of the bank, and such 
                records are so maintained or otherwise accessible as to 
                permit independent examination and enforcement of this 
Act and rules and regulations promulgated under this Act.''.

SEC. 138. DEFINITION OF BROKER UNDER THE INVESTMENT ADVISERS ACT OF 
              1940.

    Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(3)) is amended to read as follows:
            ``(3) `Broker' has the same meaning as in the Securities 
        Exchange Act of 1934.''.

SEC. 139. DEFINITION OF DEALER UNDER THE INVESTMENT ADVISERS ACT OF 
              1940.

    Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C. 
80b-2(a)(7)) is amended to read as follows:
            ``(7) `Dealer' has the same meaning as in the Securities 
        Exchange Act of 1934, but does not include an insurance company 
        or investment company.''.

SEC. 140. INTERAGENCY CONSULTATION.

    The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is 
amended by inserting after section 210 the following new section:

``SEC. 210A. CONSULTATION.

    ``(a) Examination Results and Other Information.--
            ``(1) The appropriate Federal banking agency shall provide 
        the Commission upon request the results of any examination, 
        reports, records, or other information as each may have with 
        respect to the investment advisory activities of any bank 
        holding company, bank, or department or division of a bank, any 
        of which is registered under section 203 of this title, or, in 
        the case of a bank holding company or bank, has a subsidiary, 
        department, or division registered under that section, to the 
        extent necessary for the Commission to carry out its statutory 
        responsibilities.
            ``(2) The Commission shall provide to the appropriate 
        Federal banking agency upon request the results of any 
        examination, reports, records, or other information with 
        respect to the investment advisory activities of any bank 
        holding company, bank, or department or division of a bank, any 
        of which is registered under section 203 of this title, to the 
        extent necessary for the agency to carry out its statutory 
        responsibilities.
    ``(b) Effect on Other Authority.--Nothing herein shall limit in any 
respect the authority of the appropriate Federal banking agency with 
respect to such bank holding company, bank, or department or division 
under any provision of law.
    ``(c) Definition.--For purposes of this section, the term 
`appropriate Federal banking agency' shall have the same meaning as in 
section 3 of the Federal Deposit Insurance Act.''.

SEC. 141. TREATMENT OF BANK COMMON TRUST FUNDS.

    (a) Securities Act of 1933.--Section 3(a)(2) of the Securities Act 
of 1933 (15 U.S.C. 77c(a)(2)) is amended by striking ``or any interest 
or participation in any common trust fund or similar fund maintained by 
a bank exclusively for the collective investment and reinvestment of 
assets contributed thereto by a bank in its capacity as trustee, 
executor, administrator, or guardian'' and inserting ``or any interest 
or participation in any common trust fund or similar fund that is 
excluded from the definition of the term `investment company' under 
section 3(c)(3) of the Investment Company Act of 1940''.
    (b) Securities Exchange Act of 1934.--Section 3(a)(12)(A)(iii) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is 
amended to read as follows:
                            ``(iii) any interest or participation in 
                        any common trust fund or similar fund that is 
                        excluded from the definition of the term 
                        `investment company' under section 3(c)(3) of 
                        the Investment Company Act of 1940.''.
    (c) Investment Company Act of 1940.--Section 3(c)(3) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is amended by 
inserting before the period the following: ``, if--
                    ``(A) such fund is employed by the bank solely as 
                an aid to the administration of trusts, estates, or 
                other accounts created and maintained for a fiduciary 
                purpose;
                    ``(B) except in connection with the ordinary 
                advertising of the bank's fiduciary services, interests 
                in such fund are not--
                            ``(i) advertised; or
                            ``(ii) offered for sale to the general 
                        public; and
                    ``(C) such fund is not charged any fees or expenses 
                that, when added to any other compensation charged by 
                the bank to a participation account, would exceed the 
                total amount of compensation that would have been 
                charged to such participant account if no assets of the 
                account had been invested in interests in the fund, 
                except that any reasonable and necessary expenses 
                related to the prudent operation of the fund, as 
                determined by the appropriate Federal banking agency 
                (as defined in section 3(q) of the Federal Deposit 
                Insurance Act), shall be permitted to be charged 
                directly to the fund.''.
    (d) Tax Effect.--It is the sense of the Congress that the public 
interest would be furthered by enacting legislation to amend section 
584 of the Internal Revenue Code of 1986 by inserting after subsection 
(g) the following new subsection:
    ``(h) Conversion, Mergers, or Reorganization of Common Trust 
Funds.--Notwithstanding any other provision of the Internal Revenue 
Code, any transfer of all or substantially all of the assets of a 
common trust fund taxable under this section to a registered investment 
company taxable under subchapter M shall not result in a gain or loss 
to the participants in such common trust fund where the transfer is a 
result of a merger, conversion, reorganization, transfer, or other 
similar transaction or series of transactions.''.

SEC. 142. INVESTMENT ADVISERS PROHIBITED FROM HAVING CONTROLLING 
              INTEREST IN REGISTERED INVESTMENT COMPANY.

    Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80a-15) 
is amended by adding at the end the following new subsection:
    ``(g) Controlling Interest in Investment Company Prohibited.--
            ``(1) In general.--If any investment adviser to a 
        registered investment company, or an affiliated person of that 
        investment adviser, also holds shares of the investment company 
        in a trustee or fiduciary capacity, that investment adviser or 
        affiliated person may own, directly or indirectly, a 
        controlling interest in that registered investment company 
        only--
                    ``(A) if it passes the power to vote the shares of 
                the investment company through to--
                            ``(i) the beneficial owners of the shares;
                            ``(ii) any person acting in a fiduciary 
                        capacity who is not an affiliated person of 
                        that investment adviser or any affiliated 
                        person thereof; or
                            ``(iii) any person authorized to receive 
                        statements and information with respect to the 
                        trust who is not an affiliated person of that 
                        investment adviser or any affiliated person 
                        thereof;
                    ``(B) if it votes the shares of the investment 
                company held by it in the same proportion as shares 
                held by all other shareholders of the investment 
                company; or
                    ``(C) as otherwise permitted under such rules, 
                regulations, or orders as the Commission may prescribe 
                for the protection of investors.
            ``(2) Exemption.--Paragraph (1) shall not apply to any 
        investment adviser to a registered investment company, or an 
        affiliated person of that investment adviser, holding shares of 
        the investment company in a trustee or fiduciary capacity if 
        that registered investment company consists solely of assets 
        of--
                    ``(A) any common trust fund or similar fund 
                described in section 3(c)(3) of the Investment Company 
                Act of 1940;
                    ``(B) any employees' stock bonus, pension, or 
                profit-sharing trust that qualifies under section 401 
                of the Internal Revenue Code of 1986;
                    ``(C) any governmental plan described in section 
                3(a)(2)(C) of the Securities Act of 1933; or
                    ``(D) any collective trust fund maintained by a 
                bank and consisting solely of assets of trusts or 
                governmental plans described in subparagraph (B) or 
                (C).''.

SEC. 143. PURCHASE OF INVESTMENT COMPANY SECURITIES AS FIDUCIARY.

    (a) In General.--Section 17 of the Investment Company Act of 1940 
(15 U.S.C. 80a-17) is amended by adding at the end the following:
    ``(k) Purchase of Investment Company Securities as Fiduciary.--
            ``(1) In general.--An investment adviser to a registered 
        investment company, or an affiliated person of the investment 
        adviser, promoter, organizer, or sponsor of the registered 
        investment company, or principal underwriter for the registered 
        company may purchase securities issued by such investment 
        company for the account of a beneficiary as fiduciary, only if 
        disclosure of such information as the Commission shall 
        prescribe under paragraph (2) has been provided to the person 
        (other than to the investment advisor to the registered 
        investment company, or an affiliated person of the investment 
        advisor, promoter, organizer, or sponsor of the registered 
        investment company, or principal underwriter for the registered 
        company who may purchase securities of the registered company 
        as fiduciary for the account) to whom periodic financial 
        statements are customarily provided.
            ``(2) Disclosure rules.--The Commission shall prescribe, by 
        rule, regulation, or order, the manner, form, and content of 
        the information required to be disclosed under paragraph (1), 
        as the Commission determines necessary or appropriate in the 
        public interest and for the protection of investors.
            ``(3) Prospective effect.--This subsection shall be 
        effective for purchase for fiduciary accounts made after the 
        effective date of this subtitle.''.
    (b) Examination of Trust Department Securities Purchases.--Section 
10(d) of the Federal Deposit Insurance Act (12 U.S.C. 1820(d)) is 
amended by adding at the end the following:
            ``(6) Trust department examination.--In performing an 
        examination under this subsection, the appropriate Federal 
        banking agency shall examine purchases by an insured depository 
        institution's trust department or division of the securities of 
        an affiliated investment company, or an investment company that 
        is an affiliated person of an affiliated person of the 
        institution (as those terms are defined in sections 2 and 3 of 
        the Investment Company Act of 1940), to assure compliance with 
        applicable Federal and State trust laws.''.

SEC. 144. CONFORMING CHANGE IN DEFINITION.

    Section 2(a)(5) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(5)) is amended by striking ``(A) a banking organization 
organized under the laws of the United States'' and inserting ``(A) a 
depository institution, as that term is defined in section 3 of the 
Federal Deposit Insurance Act or a U.S. branch or agency of a foreign 
bank''.

SEC. 145. EFFECTIVE DATE.

    This subtitle shall become effective 270 days after the date of 
enactment of this Act.
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