49–006 

109TH CONGRESS REPT. 109–356 " ! HOUSE OF REPRESENTATIVES 2d Session Part 2 

FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2005 

FEBRUARY 16, 2006.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. SENSENBRENNER, from the Committee on the Judiciary, 

submitted the following 

R E P O R T 

[To accompany H.R. 3505] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on the Judiciary, to whom was referred the bill 

(H.R. 3505) to provide regulatory relief and improve productivity 

for insured depository institutions, and for other purposes, having 

considered the same, report favorably thereon with an amendment 

and recommend that the bill as amended do pass. 

The amendment adopted by this committee is identical to the 

text reported by the Committee on Financial Services shown in 

their report filed December 17, 2005 (Rept. 109–356, Part 1). 

TABLE OF CONTENTS 

Page 

The Amendment ...................................................................................................... 1 

Purpose and Summary ............................................................................................ 2 

Background and Need for the Legislation ............................................................. 2 

Hearings ................................................................................................................... 4 

Committee Consideration ........................................................................................ 4 

Vote of the Committee ............................................................................................. 4 

Committee Oversight Findings ............................................................................... 4 

New Budget Authority and Tax Expenditures ...................................................... 4 

Congressional Budget Office Cost Estimate .......................................................... 4 

Performance Goals and Objectives ......................................................................... 12 

Constitutional Authority Statement ...................................................................... 12 

Section-by-Section Analysis and Discussion .......................................................... 12 

Changes in Existing Law Made by the Bill, as Reported ..................................... 15 

THE AMENDMENT

The amendment adopted by this committee is identical to the 

text reported by the Committee on Financial Services shown in 

their report filed December 17, 2005 (Rept. 109–356, Part I). 


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1See H.R. Rep. No. 109–356, Part I (2005). 2See H.R. Rep. No. 108–152, Part II, (2003). 

PURPOSE AND SUMMARY

As reported by the Committee on the Judiciary, H.R. 3505, the 

‘‘Financial Services Regulatory Relief Act of 2005,’’ is intended to 

alter or eliminate statutory banking provisions in order to reduce 

the growing regulatory burden on insured depository institutions, 

improve their productivity, and to make needed technical corrections to current law. H.R. 3505 contains a broad range of constructive provisions that, taken as a whole, will allow banks and other 

depository institutions to devote more resources to the business of 

lending to consumers and less to the bureaucratic maze of compliance with outdated and unneeded regulations. Reducing the regulatory burden on financial institutions lowers the cost of credit and 

will help restore vibrancy to the national economy. 

BACKGROUND AND NEED FOR THE LEGISLATION

On November 16, 2005, the Committee on Financial Services reported H.R. 3505, the ‘‘Financial Services Regulatory Relief Act of 

2005.’’ 1 The bill was sequentially referred to the Committee on the 

Judiciary for a period ending not later than December 31, 2005. On 

December 31, 2005, the sequential referral was extended for a period ending not later than February 3, 2006, and later extended for 

a period ending not later than February 24, 2006. The sections 

within the jurisdiction of the Committee on the Judiciary pertain 

to the operation of the Federal courts, criminal law enforcement, 

and the regulation of the banking industry as it pertains to antitrust. This legislation is substantially similar to H.R. 1375, the ‘‘Financial Services Regulatory Relief Act of 2003,’’ which was reported 

from the Committee on the Judiciary last Congress.2

Congress has not passed structural reforms to America’s banking 

industry since the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) was enacted in 1989. At that time, the national banking industry and the broader economy were recovering 

from a savings and loan crisis that undermined public confidence 

in America’s financial institutions. As a result, Congress enacted 

FIRREA to help restore the integrity and reliability of the banking 

industry. H.R. 3505 addresses many shortcomings in that law. For 

example, economic analysts have estimated that the annual cost of 

compliance with various State and Federal banking regulations is 

nearly $36 billion. While effective regulation of the financial services industry is central to the preservation of public trust in financial institutions, excessive regulation undermines competition and 

consumer choice, results in higher service fees for consumers, and 

stifles innovation among competing institutions. 

H.R. 3505 provides the following regulatory improvements for national banks: (1) removes the prohibition on national and State 

banks expanding across State lines by opening branches; (2) allows 

the use of subordinated debt instruments to meet eligibility requirements for national banks to benefit from subchapter S tax 

treatment; (3) eliminates duplicative and costly reporting requirements on banks regarding lending to bank officials; (4) changes the 

exemption from the prohibition on management interlocks for 


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banks in metropolitan statistical areas from $20 million in assets 

to $100 million; and (5) streamlines bank merger application regulatory requirements. 

The legislation provides the following regulatory improvements 

for savings associations: (1) gives savings associations parity with 

banks with respect to Securities and Exchange Commission (SEC) 

broker-dealer and investment adviser registration requirements; (2) 

removes auto lending and small business lending limits and expands business lending limit for Federal thrifts; (3) allows Federal 

thrifts to merge with one or more of their non-thrift subsidiaries 

or affiliates, as national banks; (4) increases the aggregate limit on 

commercial real estate loans by Federal thrifts from 400 to 500 

percent of capital; and (5) gives Federal thrifts the same authority 

as national and State banks to make investments primarily designed to promote community development. 

H.R. 3505 provides the following regulatory improvements for 

credit unions: (1) allows privately insured credit unions to apply for 

membership to the Federal Home Loan Bank system; (2) expands 

the investment authority of Federal credit unions; (3) permits offering of check cashing and money transfer services to eligible members; (4) increases the limit on investment by Federal credit unions 

in credit union service organizations from 1 percent to 3 percent of 

shares and earnings; (5) raises the general limit on the term of 

Federal credit union loans from 12 to 15 years; and (6) allows for 

expedited consideration of credit union mergers. 

In addition, H.R. 3505 provides the following regulatory improvements for Federal financial regulatory agencies: (1) provides agencies the discretion to adjust the examination cycle for insured depository institutions to use agency resources in the most efficient 

manner; (2) increases from $250 million to $1 billion the asset size 

of well-capitalized, well-managed banks eligible for an 18-month 

exam schedule and allows banks with less than $1 billion in assets 

to file short-form call reports; (3) authorizes the agencies to share 

confidential supervisory information concerning an examined institution; (4) modernizes agency recordkeeping requirements to allow 

use of optically imaged or computer scanned images; and (5) clarifies that agencies may suspend or prohibit institution-affiliated 

parties charged with certain crimes from participation in the affairs of any depository institution and not only the institution with 

which the individual is or was associated. 

H.R. 3505 also addresses some financial institutions’ concerns regarding duplicative and burdensome anti-money laundering requirements. Title VII seeks to make a number of changes—some 

statutory and others directing swift regulatory changes—to balance 

law enforcement’s needs to prevent terrorist financing and money 

laundering with the industry’s very real concerns about excessive 

burdens. The bill streamlines the process by which legitimate businesses with large cash-based operations may be exempted from certain requirements to file ‘‘currency transaction reports’’ (CTRs) on 

‘‘seasoned customers,’’ and directs the Secretary of the Treasury to 

prescribe regulations under which the filing institution may retain 

the exemption if the institution is acquired or merged. The bill also 

contains provisions to ease or eliminate inconsistent or duplicative 

requirements to file Suspicious Activity Reports (SARs), and directs 


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the Secretary to devise computer-based methods of filing required 

reports electronically. 

These improvements will allow financial institutions to devote 

more resources to the business of lending to consumers and less to 

compliance with outdated and unneeded regulations. Reducing the 

regulatory burden will serve to lower credit costs for consumers 

and help invigorate the national economy. 

HEARINGS

The Committee on the Judiciary held no hearings on H.R. 3505. 

COMMITTEE CONSIDERATION

On December 17, 2005, the House Committee on the Judiciary 

received a sequential referral of H.R. 3505. On February 15, 2006, 

the Committee met in open session and ordered favorably reported 

the bill H.R. 3505 to the full House by voice vote, a quorum being 

present. 

VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the Committee notes that there were no 

recorded votes during the Committee consideration of H.R. 3505. 

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives, the Committee reports that the findings 

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report. 

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

Clause 3(c)(2) of rule XIII of the Rules of the House of Representatives is inapplicable because the provisions of this legislation 

within the jurisdiction of the Judiciary Committee do not provide 

new budgetary authority or increased tax expenditures. 

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, the Committee sets forth, with respect to 

the bill, H.R. 3505, the following estimate and comparison prepared 

by the Director of the Congressional Budget Office under section 

402 of the Congressional Budget Act of 1974: 

FEBRUARY 16, 2005. 

Hon. F. JAMES SENSENBRENNER Jr., 

Chairman, Committee on the Judiciary, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3505, the Financial Services Regulatory Relief Act of 2005. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Kathleen Gramp (for 


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federal costs), Pam Greene (for revenues), Sarah Puro (for the state 

and local impact), and Judith Ruud (for the private-sector impact). 

Sincerely, 

DONALD B. MARRON, 

Acting Director. 

Enclosure. 

H.R. 3505—Financial Services Regulatory Relief Act of 2005 

Summary: H.R. 3505 would affect the operations of financial institutions and the agencies that regulate them. Some provisions 

would address specific sectors: national banks could more easily operate as S corporations or adopt other alternative organizational 

structures; thrift institutions would be given some of the same investment, lending, and ownership options available to banks; credit 

unions would have new options for investments, lending, mergers, 

and leasing federal property; and certain privately insured credit 

unions could become members of the Federal Home Loan Bank system. The bill would provide the Federal Deposit Insurance Corporation (FDIC) with new enforcement authority and modify regulatory procedures governing certain types of transactions. It also 

would give financial regulatory agencies more flexibility in sharing 

data, retaining records, and scheduling examinations. Finally, the 

bill would direct the Secretary of the Treasury to develop various 

reports, regulations, and programs related to currency transactions. 

CBO estimates that enacting this bill would reduce federal revenues by $64 million over the 2006–2011 period and by a total of 

$167 million over the 2006–2016 period. In addition, we estimate 

that direct spending would increase by $2 million over the 2006–

2011 period and by a total of $7 million over the 2006–2016 period. 

Provisions affecting programs funded by annual appropriations 

would cost another $4 million in 2007, CBO estimates, assuming 

appropriation of the necessary amounts. 

H.R. 3505 contains intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA), but CBO estimates 

that the cost of complying with the requirements would be small 

and would not exceed the threshold established in UMRA ($64 million in 2006, adjusted annually for inflation). 

H.R. 3505 contains several private-sector mandates as defined in 

UMRA. Those mandates would affect some depository institutions 

controlled by commercial firms, certain depository institutions and 

institution-affiliated parties, nondepository institutions that control 

depository institutions, uninsured banks, bank holding companies 

and their subsidiaries, and savings and loan association holding 

companies and their subsidiaries. At the same time, the bill would 

relax some restrictions on the operations of certain financial institutions. CBO estimates that the aggregate direct costs of complying 

with the private-sector mandates in the bill would not exceed the 

annual threshold established by UMRA ($128 million in 2006, adjusted annually for inflation). 

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 3505 is shown in the following table. The costs 

of this legislation fall within budget function 370 (commerce and 

housing credit). 


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By fiscal year, in millions of dollars— 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 

CHANGES IN REVENUES 

Estimated Revenues: 1

S Corporation Status ..................... * ¥6 ¥11 ¥14 ¥16 ¥13 ¥14 ¥15 ¥16 ¥17 ¥18 

Business Organization Flexibility ... 0 * * ¥1 ¥1 ¥2 ¥2 ¥4 ¥5 ¥6 ¥6 

Total ............. * ¥6 ¥11 ¥15 ¥17 ¥15 ¥16 ¥19 ¥21 ¥23 ¥24 

CHANGES IN DIRECT SPENDING 

Estimated Budget Authority ......................... * * * * 1 1 1 1 1 1 1 

Estimated Outlays .......... * * * * 1 1 1 1 1 1 1 

CHANGES IN SUBJECT TO APPROPRIATION 

Estimated Authorization 

Level ........................... 0 4 0 0 0 0 0 0 0 0 0 

Estimated Outlays .......... 0 4 0 0 0 0 0 0 0 0 0 

1 Negative revenues indicate a reduction in revenue collections. 

Note.—* = Revenue loss or spending cost of less than $500,000. 

Basis of estimate: Most of the budgetary impacts of this legislation would result from three provisions: section 101, which would 

make it easier for national banks to convert to S corporation status 

or alternative organization forms; section 302, which would allow 

certain federal credit unions to lease federal land at no charge; and 

title VII, which would direct the Secretary of the Treasury to complete various studies, programs, and regulatory proceedings. For 

this estimate, CBO assumes that H.R. 3505 will be enacted during 

fiscal year 2006. 

H.R. 3505 also would affect the workload at agencies that regulate financial institutions. We estimate that the net change in 

agency spending would not be significant. Based on information 

from each of the agencies, CBO estimates that the change in administrative expenses—both costs and potential savings—would average less than $500,000 a year over the next several years. Expenditures of the Office of the Comptroller of the Currency (OCC), 

the Office of Thrift Supervision (OTS), the National Credit Union 

Administration (NCUA), and the FDIC are classified as direct 

spending and would be covered by fees or insurance premiums paid 

by the institutions they regulate. Any change in spending by the 

Federal Reserve would affect net revenues, while adjustments in 

the budgets of the Department of the Treasury, Securities and Exchange Commission (SEC), and Federal Trade Commission (FTC) 

would be subject to appropriation. 

Revenues 

CBO estimates that enacting H.R. 3505 would reduce federal tax 

revenues collected from national and state-chartered banks and 

would have an insignificant effect on civil and criminal penalties 

collected for violations of the bill’s provisions. 

S Corporation Status. Under this bill, some national banks would 

find it easier to convert from C corporation status to S corporation 

status. Section 101 would allow directors of national banks to be 

issued subordinated debt to satisfy the requirement that directors 

of a bank own qualifying shares in the bank. This provision would 

effectively reduce the number of shareholders of a bank by removVerDate Aug 31 2005 03:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR356P2.XXX HR356P2

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ing directors from shareholder status, making it easier for banks 

to comply with the 100-shareholder limit that defines eligibility for 

subchapter-S election. 

Income earned by banks taxed as C corporations is subject to the 

corporate income tax, and post-tax income distributed to shareholders is taxed again at individual income-tax rates. Income 

earned by banks operating as S corporations is taxed only at the 

personal income-tax rates of the banks’ shareholders and is not 

subject to the corporate income tax. The average effective tax rate 

on S-corporation income is lower than the average effective tax rate 

on C-corporation income. CBO estimates that enacting this provision would reduce revenues by a total of $60 million over the 2006– 2011 period and by $140 million over the 2006–2016 period. 

Based on information from the Federal Reserve Board, the OCC, 

and private trade associations, CBO expects that most of the banks 

that would be affected are small, although banks and bank holding 

companies with assets over $500 million would also be affected. In 

addition, states are likely to amend the rules for state-chartered 

banks to match those for national banks. CBO expects that most 

conversions to subchapter-S status would occur between 2006 and 

2008 and that national banks would convert earlier than statechartered banks. 

Business Organization Flexibility. Under section 109 of this bill, 

the Comptroller of the Currency could allow national banks to organize in noncorporate form, for example as Limited Liability Companies (LLCs) as defined by state law. LLCs generally choose to be 

taxed as partnerships. Only a few states currently allow banks to 

organize as LLCs, however, and the IRS currently taxes state-chartered bank-LLCs as C corporations. LLCs provide more organizational flexibility than S corporations while retaining the corporate 

characteristic of limited liability. 

Income earned by banks taxed as C corporations is subject to the 

corporate income tax, and post-tax income distributed to shareholders is taxed again at individual income tax rates. Income 

earned by partnerships—like that earned by S corporations—is 

taxed only at the personal income-tax rates of the partners and is 

not subject to the corporate income tax. The average effective tax 

rate on partnerships is lower than the average effective tax rate on 

C-corporation income but is similar to the average effective tax rate 

on S-corporation income. 

Based on information from the OCC, the FDIC, and private trade 

associations, CBO views that it is quite possible that the OCC 

would alter its regulations to allow national banks to organize in 

noncorporate form. CBO expects that, over the next decade, most 

states that do not currently allow banks to organize as LLCs will 

begin allowing them to do so out of competitiveness concerns. CBO 

also expects that the IRS is likely to reconsider allowing passthrough tax treatment to banks organized as LLCs and may allow 

such tax treatment at some point in the next decade. CBO believes 

that banks forming as LLCs would most likely be newly chartered 

institutions. Over the next decade, only a very limited number of 

banks would convert from C corporation or S corporation status to 

LLCs taxed as partnerships. CBO estimates that enacting this provision would reduce revenues by a total of $4 million over the 

2006–2011 period and by $27 million over the 2006–2016 period. 


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Civil and Criminal Penalties. H.R. 3505 would make all depository institutions—not just insured institutions—subject to certain 

civil and criminal fines for violating rules regarding breach of trust, 

dishonesty, and certain other crimes. It also would authorize the 

FDIC to take enforcement action or impose civil penalties of up to 

$1 million a day on any individual, corporation, or other entity that 

falsely implies that deposits or other funds are insured by the 

agency. Based on information from the FDIC, CBO expects that enforcement actions would likely deter most individuals or institutions from violating rules regarding breach of trust, dishonesty, or 

certain other crimes. As a result, we estimate that any additional 

penalty collections under those provisions would not be significant. 

Direct spending 

CBO estimates that enacting H.R. 3505 would increase direct 

spending by $2 million over the 2006–2011 period and about $7 

million over the 2006–2016 period by reducing offsetting receipts 

collected from credit unions that lease federal facilities. Enacting 

the bill also could affect the cost of deposit insurance, but CBO has 

no basis for estimating the amount of any change. 

Credit Union Leases. Section 302 would allow federal agencies to 

lease land to federal credit unions without charge under certain 

conditions. Under existing law, agencies may allocate space in federal buildings without charge if at least 95 percent of the credit 

union’s members are or were federal employees. Some credit 

unions, primarily those serving military bases, have leased federal 

land to build a facility. Prior to 1991, leases awarded by the Department of Defense (DoD) were free of charge and for terms of up 

to 25 years; a statutory change enacted that year limited the term 

of such leases to five years and required the lessee to pay a fair 

market value for the property. According to DoD, about 35 credit 

unions have leased land since 1991 and are paying a total of about 

$525,000 a year to lease federal property. Those proceeds are recorded as offsetting receipts, and any spending of those payments 

is subject to appropriation. 

CBO expects that enacting this provision would result in a loss 

of offsetting receipts from all credit union leases. Those lessees currently paying a fee would stop making those payments after they 

renew their current leases, all of which should expire within the 

next five years. In addition, credit unions that have long-term, nocost leases would be able to renew them without becoming subject 

to the fees they otherwise would pay under current law. CBO estimates that enacting this provision would cost a total of about $2 

million over the next six years and an average of about $700,000 

annually after 2011. 

Deposit Insurance. Several provisions in the bill could affect the 

cost of federal deposit insurance. For example, the bill would 

streamline the approval process for mergers, branching, and affiliations, which could give eligible institutions the opportunity to diversify and compete more effectively with other financial businesses. In some cases, such efficiencies could reduce the risk of insolvency. It is also possible, however, that some of the new lending 

and investment options could increase the risk of losses to the deposit insurance funds. 


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CBO has no clear basis for predicting the direction or the amount 

of any change in spending for insurance that could result from the 

new investment, lending, and operational arrangements authorized 

by this bill. The net budgetary impact of such changes would be 

negligible over time, however, because any increase or decrease in 

costs would be offset by adjustments in the insurance premiums 

paid by banks, thrifts, or credit unions. 

Spending subject to appropriation 

H.R. 3505 also would affect spending for activities funded by annual appropriations. CBO estimates implementing those provisions 

would cost about $4 million in 2007, assuming appropriation of the 

necessary amounts. 

Title VII would direct the Secretary of the Treasury to develop 

and implement various measures related to the reporting of currency transactions. Based on information from the Treasury, CBO 

estimates that it would cost about $4 million to complete the regulations, reports, and programs required by the bill, assuming appropriation of the necessary amounts. 

In addition, section 201 provides thrift institutions with exemptions from broker-dealer and investment-advisor registration requirements similar to those accorded banks. Section 313 provides 

similar exemptions for federally insured credit unions. Based on information from the SEC, CBO estimates that the budgetary effects 

of those exemptions would not be significant. 

Finally, section 312 would exempt federally insured credit unions 

from filing certain acquisition or merger notices with the FTC. 

Under current law, the FTC charges filing fees ranging from 

$45,000 to $280,000, depending on the value of the transaction. 

The collection of such fees is contingent on appropriation action. 

Based on information from the FTC, CBO estimates that this exemption would have no significant effect on the amounts collected 

from such fees. 

Estimated impact on State, local, and tribal governments: H.R. 

3505 contains intergovernmental mandates as defined in UMRA, 

because it would preempt certain state laws and place new requirements on certain state agencies that regulate financial institutions. 

CBO estimates that the cost of complying with the requirements 

would be small and would not exceed the threshold established in 

UMRA ($64 million in 2006, adjusted annually for inflation). 

Provisions in section 209 would preempt certain state securities 

laws by prohibiting states from requiring agents who represent a 

federal savings association to register as brokers or dealers if they 

sell deposit products (CDs) issued by the savings association. Such 

a preemption would impose costs (in the form of lost revenues) on 

those states that currently require such registration. Based on information from representatives of the securities industry and securities regulators, CBO estimates that losses to states as a result of 

this prohibition would total less than $1 million a year. 

Other provisions of the bill would place requirements on state 

regulators of credit unions to review documents related to federal 

deposit insurance and to provide certain information to the NCUA. 

Also, section 401 would extend certain preemptions of state laws 

related to mergers between insured depository institutions chartered in different states and preempt state laws that regulate cerVerDate Aug 31 2005 03:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR356P2.XXX HR356P2

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tain fiduciary activities performed by insured banks and other depository institutions. Section 619 provides that only certain bank 

supervisors may impose supervisory fees on the bank. Based on information from industry authorities and state entities, CBO estimates that these provisions would impose minimal costs, if any, on 

state, local, and tribal governments. 

Estimated impact on the private sector: H.R. 3505 contains several private-sector mandates as defined by UMRA. At the same 

time, the bill would relax some restrictions on the operations of certain financial institutions. CBO estimates that the aggregate direct 

costs of mandates in the bill would not exceed the annual threshold 

established in UMRA ($128 million in 2006, adjusted annually for 

inflation). 

Mandates in the bill include a prohibition of interstate branching 

by certain depository institutions controlled by commercial firms, 

an expansion of the authority of federal banking agencies over insured depository institutions and institution-affiliated parties with 

respect to safety and soundness enforcement, and restrictions on 

participation in the affairs of financial institutions of people convicted of certain crimes or the subject of certain criminal proceedings. 

Prohibition of interstate branching by subsidiaries of commercial 

firms 

The bill would prohibit interstate branching by industrial loan 

companies or industrial banks or certain other depository institutions that are controlled by firms that derive 15 percent or more 

of their revenues from nonfinancial activities. The prohibition 

would not apply to such institutions that became insured depository institutions before October 1, 2003. 

This mandate only applies to a handful of institutions, none of 

which currently operates any branches. While the mandate does 

take away their option to open branches in other states, according 

to government and industry sources, the affected institutions had 

no immediate plans to use the option to branch. Consequently, 

CBO estimates that there would be little or no direct cost to comply 

with this mandate. 

Enhanced safety and soundness enforcement 

The bill would expand some of the authorities of federal banking 

agencies with respect to troubled or failing institutions, and institution-affiliated parties. Based on information from the FDIC, the 

cost to the private sector of these expanded authorities would be 

small. 

The Gramm-Leach-Bliley Act allowed new forms of affiliations 

among depositories and other financial services firms. Consequently, insured depository institutions may now be controlled by 

a company other than a depository institution holding company 

(DIHC). The bill would amend current law to give the FDIC certain 

authorities concerning troubled or failing depository institutions 

held by those new forms of holding companies. 

Cross-Guarantee Authority. Under current law, if the FDIC suffers a loss from liquidating or selling a failed depository institution, 

the FDIC has the authority to obtain reimbursement from any insured depository institution within the same DIHC. Section 407 


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would expand the scope of the FDIC’s reimbursement power to include all insured depository institutions controlled by the same 

company, not just those controlled by the same DIHC. 

The cost of this mandate would depend, among other things, on 

the probability of failure of the additional institutions subject to 

this authority and the probability that the FDIC would incur a loss 

as a result of those failures. The new authority would apply only 

to a handful of depository institutions. Based on information from 

the FDIC, CBO estimates that the cost of this mandate would not 

be substantial. 

Golden Parachute Authority and Nonbank Holding Companies. 

Section 408 would allow the FDIC to prohibit or limit any company 

that controls an insured depository from making ‘‘golden parachute’’ payments or indemnification payments to institution-affiliated parties of troubled or failing insured depositories. (Institutionaffiliated parties include directors, officers, employees, and controlling shareholders. Institution-affiliated parties also include independent contractors such as accountants or lawyers who participate 

in violations of the law or undertake unsound business practices 

that may cause a financial loss to, or adverse effect on, the insured 

depository institution.) 

Based on information from the FDIC, CBO expects that only a 

few institutions would be covered by the new authority. In the 

event that the FDIC exercises this authority, CBO expects that the 

cost to institutions of withholding such payments would be administrative in nature and minimal, if any. 

Restrictions on convicted individuals 

Current law prohibits a person convicted of a crime involving dishonesty, a breach of trust, or money laundering from participating 

in the affairs of an insured depository institution without FDIC approval. The bill would extend that prohibition so that uninsured 

banks, bank holding companies and their subsidiaries, and savings 

and loan holding companies and their subsidiaries could not allow 

such persons to participate in their affairs without the prior written consent of their designated federal banking regulator. 

Assuming that those institutions already screen potential directors, officers, and employees for criminal offenses, the incremental 

cost of complying with this mandate would be small. 

Previous CBO estimate: On December 8, 2005, CBO transmitted 

a cost estimate for H.R. 3505 as ordered reported by the House 

Committee on Financial Services on November 16, 2005. The two 

versions of the bill are identical, but CBO updated the estimate of 

costs to reflect a later date of enactment and CBO’s new baseline 

projections of corporate tax revenues. 

The intergovernmental and private-sector mandates in both 

versions of the bill are the same. 

Estimate prepared by: Federal Spending: Kathleen Gramp. Federal Revenues: Pam Greene. Impact on State, Local, and Tribal 

Governments: Sarah Puro. Impact on the Private Sector: Judith 

Ruud. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis, and G. Thomas Woodward, Assistant 

Director for Tax Analysis. 


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PERFORMANCE GOALS AND OBJECTIVES

The Committee states that pursuant to clause 3(c)(4) of rule XIII 

of the Rules of the House of Representatives, H.R. 3505 is intended 

to alter or eliminate statutory banking provisions in order to reduce the growing regulatory burden on insured depository institutions, improve their productivity, and to make needed technical corrections to current law. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds the authority for this legislation in art. 1, § 8 of the Constitution. 

SECTION-BY-SECTION ANALYSIS AND DISCUSSION

The following section-by-section analysis contains a description of 

principal provisions contained in H.R. 3505 as reported within the 

jurisdiction of the Committee on the Judiciary. H.R. 3505 was reported from the Committee on Financial Services on November 16, 

2005. For a discussion of the provisions within the jurisdiction of 

the Committee on Financial Services, please see H.R. Rept. 109–

356, Part I. 

TITLE I—NATIONAL BANKS 

Section 106. Clarification of Waiver of Publication Requirements for 

Bank Merger Notices 

Section 106 amends the National Bank Consolidation and Merger Act (12 U.S.C. § 215(a) and 215(a)(2)) to provide the Comptroller 

with authority to waive the publication of notice requirement for 

bank mergers if the Comptroller determines that an emergency justifies such a waiver or if shareholders of the association or State 

bank agree by unanimous action to waive the publication requirement for their respective institutions. 

TITLE II—SAVINGS ASSOCIATIONS 

Section 203. Mergers and consolidations of Federal Savings Associations with nondepository institution affiliates 

This section amends the Home Owners Loan Act (12 U.S.C. 

§ 1464) to permit a Federal savings association to merge with any 

nondepository institution affiliate of the savings association. 

Section 213. Citizenship of Federal Savings Associations for determining Federal court diversity jurisdiction 

This section amends the Home Owners’ Loan Act (12 U.S.C. 

§ 1464) to establish that a Federal savings association shall be considered—for purposes of establishing diversity jurisdiction—a citizen only of the State where the savings association locates its 

main office. Diversity jurisdiction requires complete diversity 

among all parties to a lawsuit, i.e. that all parties be citizens of different States, and for there to be a minimum sum of $75,000 in 

controversy. Since they are chartered by the Federal government 

and not incorporated in a State, it has been held that federallychartered savings associations that conduct business in more than 


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one State are not considered to be a citizen of any State. In contrast, a federally-chartered savings association that confines its 

business to a single State is considered to be a citizen of that State. 

This section will provide parity among federally-chartered savings 

associations. This section also ensures greater parity between federally-chartered savings associations and national banking associations by providing that each is considered to be a citizen of the 

State where it is located for purposes of diversity jurisdiction. 

TITLE III—CREDIT UNIONS 

Section 312. Exemption from pre-merger notification requirement of 

the Clayton Act 

This section amends the Clayton Act to exempt credit unions 

from provisions of the Hart-Scott-Rodino Antitrust Improvements 

Act of 1976 (15 U.S.C. § 18a) which require certain acquired and 

acquiring persons—including federally insured credit unions—to 

file a notification and report form with the Federal Trade Commission (FTC) to provide advance notification of mergers and acquisitions when the value of the transaction exceeds $50 million. 

TITLE IV—DEPOSITORY INSTITUTIONS 

Section 401. Easing restrictions on interstate branching and mergers 

This section removes the prohibition in current law on national 

and State banks expanding through de novo interstate branching. 

Currently, banks may expand in this fashion only if a State’s law 

expressly permits interstate branching. This section clarifies that a 

State member bank may establish a de novo interstate branch 

under the same terms and conditions applicable to national banks. 

The authority for a State to prohibit an out-of-State bank or bank 

holding company from acquiring, through merger or acquisition, an 

in-State bank that has not existed for at least five years is eliminated. Insured banks are authorized to acquire by merger or consolidation another insured depository institution (including a savings association) or an uninsured trust company that has a different home State than the acquiring insured bank. Industrial loan 

companies (ILCs) controlled by firms that derive 15 percent or 

more of their consolidated revenues from non-financial activities 

would not be permitted to engage in interstate branching, unless 

the ILC became an insured depository institution prior to October 

1, 2003. 

This section permits a State bank supervisor to authorize State 

trust companies it supervises to act in a fiduciary capacity on an 

interstate basis either with or without interstate offices. Such activities must not be in contravention of State law, but will not be 

deemed to contravene State law to the extent that a host State 

grants to its trust institutions the fiduciary powers sought to be exercised on an interstate basis. This authority parallels existing authority of national banks and national trust companies under the 

National Bank Act. 


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Section 402. Statute of limitations for judicial review of appointment of a receiver for depository institutions 

This section amends the National Bank Receivership Act (12 

U.S.C. § 191), the Federal Deposit Insurance Act (12 U.S.C. 

§ 1821(c)(7)), and the Federal Credit Union Act (12 U.S.C. 

§ 1787(a)(1)), to establish a uniform 30-day statute of limitations for 

national banks, State chartered non-member banks, and credit 

unions to challenge decisions by the Office of the Comptroller of the 

Currency, Federal Deposit Insurance Corporation, and the National 

Credit Union Administration to appoint a receiver. Current law 

generally provides that challenges to a decision by the Federal Deposit Insurance Corporation or the Office of Thrift Supervision to 

appoint a receiver for an insured State bank or savings association 

must be raised within 30 days of the appointment (see 12 U.S.C. 

§ 1821(c)(7) and § 1464(d)(2)(B)). However, there is no statutory limitation on national banks’ ability to challenge a decision by the Office of the Comptroller of the Currency to appoint a receiver of an 

insured or uninsured national bank. As a result, the general sixyear statute of limitations currently applies to national banks in 

these instances. This protracted time period severely limits the Office of the Comptroller of the Currency’s authority to manage insolvent national banks that are placed in receivership and the ability 

of the Federal Deposit Insurance Corporation to wind up the affairs 

of an insured national bank in a timely manner with legal certainty. 

TITLE VI—BANKING AGENCIES 

Section 603. Penalty for unauthorized participation by convicted individual 

A person convicted of a crime involving dishonesty or a breach 

of trust may not participate in the affairs of an insured depository 

institution without FDIC approval. Certain special purpose banks 

and foreign banking institutions operate without insured status 

(e.g., trust banks and foreign branches). This section extends the 

prohibition to include uninsured national and State member banks 

and uninsured offices of foreign banks. 

Section 609. Clarification of suspension, removal, and prohibition 

authority of Federal banking agencies in cases of certain crimes 

by institution-affiliated parties 

This section clarifies that the appropriate Federal banking agency may suspend or prohibit individuals who are the subject of 

criminal proceedings from participation in the affairs of any depository institution, instead of only a prohibition from the insured depository with which the institution affiliated party is or was associated. The agency may also use the prohibition authority even when 

the institution with which the individuals were associated ceases 

to exist. 

Section 610. Streamlining depository institution merger application 

requirements 

This section amends the Federal Deposit Insurance Act (12 

U.S.C. § 1828) to require the Attorney General to provide within 30 

days a report on the competitive factors associated with a deposiVerDate Aug 31 2005 03:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR356P2.XXX HR356P2

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tory institution merger to a requesting agency. This section reduces 

this period to 10 days if the requesting agency advises the Attorney 

General that an emergency exists requiring expeditious action. 

Section 613. Prohibition on participation by convicted individual 

This section would prohibit a person convicted of a criminal offense involving dishonesty, a breach of trust, or money laundering 

from participating in the affairs of a bank holding company or an 

Edge or Agreement Corporation, without the consent of the Federal 

Reserve Board, and from participating in the affairs of a savings 

and loan holding company or any of its non-thrift subsidiaries, 

without the consent of the Office of Thrift Supervision. Foreign 

banks and nonbank subsidiaries of a bank holding company are excluded. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

The bill was referred to this committee for consideration of such 

provisions of the bill and amendment as fall within the jurisdiction 

of this committee pursuant to clause 1(l) of Rule X of the Rules of 

the House of Representatives. The changes made to existing law by 

the amendment reported by the Committee on Financial Services 

are shown in the report filed by that committee (Rept. 109–356, 

Part 1). 

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