I

106TH CONGRESS

1ST SESSION H. R. 10

To enhance competition in the financial services industry by providing a

prudential framework for the affiliation of banks, securities firms, and

other financial service providers, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. LEACH (for himself, Mr. MCCOLLUM, Mrs. ROUKEMA, Mr. BAKER, Mr.

LAZIO, Mr. BACHUS, Mr. CASTLE, Mr. KING, Mr. NEY, Mr. COOK, Mr.

LATOURETTE, and Mrs. KELLY) 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, securities firms, and other financial service

providers, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CON2 TENTS.

3 (a) SHORT TITLE.—This Act may be cited as the

4 ‘‘Financial Services Act of 1999’’.

5 (b) PURPOSES.—The purposes of this Act are as fol6 lows:

7 (1) To enhance competition in the financial

8 services industry, in order to foster innovation and

9 efficiency.

10 (2) To ensure the continued safety and sound11 ness of depository institutions.

12 (3) To provide necessary and appropriate pro13 tections for investors and ensure fair and honest

14 markets in the delivery of financial services.

15 (4) To avoid duplicative, potentially conflicting,

16 and overly burdensome regulatory requirements

17 through the creation of a regulatory framework for

18 financial holding companies that respects the diver19 gent requirements of each of the component busi20 nesses of the holding company, and that is based

21 upon principles of strong functional regulation and

22 enhanced regulatory coordination.

23 (5) To reduce and, to the maximum extent

24 practicable, to eliminate the legal barriers preventing

25 affiliation among depository institutions, securities

26 firms, insurance companies, and other financial serv-
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1 ice providers and to provide a prudential framework

2 for achieving that result.

3 (6) To enhance the availability of financial serv4 ices to citizens of all economic circumstances and in

5 all geographic areas.

6 (7) To enhance the competitiveness of United

7 States financial service providers internationally.

8 (8) To ensure compliance by depository institu9 tions with the provisions of the Community Rein10 vestment Act of 1977 and enhance the ability of de11 pository institutions to meet the capital and credit

12 needs of all citizens and communities, including un13 derserved communities and populations.

14 (c) TABLE OF CONTENTS.—The table of contents for

15 this Act is as follows:

Sec. 1. Short title; purposes; table of contents.

TITLE I—FACILITATING AFFILIATION AMONG SECURITIES FIRMS,

INSURANCE COMPANIES, AND DEPOSITORY INSTITUTIONS

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act reformed.

Sec. 102. Activity restrictions applicable to bank holding companies which are

not financial holding companies.

Sec. 103. Financial holding companies.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Clarification of branch closure requirements.

Sec. 108. Amendments relating to limited purpose banks.

Sec. 109. Reports on ongoing FTC study of consumer privacy issues.

Sec. 110. GAO study of economic impact on community banks and other small

financial institutions.

Subtitle B—Streamlining Supervision of Financial Holding Companies

Sec. 111. Streamlining financial holding company supervision.
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Sec. 112. Elimination of application requirement for financial holding companies.

Sec. 113. Authority of State insurance regulator and Securities and Exchange

Commission.

Sec. 114. Prudential safeguards.

Sec. 115. Examination of investment companies.

Sec. 116. Limitation on rulemaking, prudential, supervisory, and enforcement

authority of the Board.

Sec. 117. Interagency consultation.

Sec. 118. Equivalent regulation and supervision.

Sec. 119. Prohibition on FDIC assistance to affiliates and subsidiaries.

Sec. 120. Repeal of savings bank provisions in the Bank Holding Company Act

of 1956.

Subtitle C—Subsidiaries of National Banks

Sec. 121. Permissible activities for subsidiaries of national banks.

Sec. 122. Misrepresentations regarding depository institution liability for obligations of affiliates.

Sec. 123. Repeal of stock loan limit in Federal Reserve Act.

Subtitle D—Wholesale Financial Holding Companies; Wholesale Financial

Institutions

CHAPTER 1—WHOLESALE FINANCIAL HOLDING COMPANIES

Sec. 131. Wholesale financial holding companies established.

Sec. 132. Authorization to release reports.

Sec. 133. Conforming amendments.

CHAPTER 2—WHOLESALE FINANCIAL INSTITUTIONS

Sec. 136. Wholesale financial institutions.

Subtitle E—Preservation of FTC Authority

Sec. 141. Amendment to the Bank Holding Company Act of 1956 to modify

notification and post-approval waiting period for section 3

transactions.

Sec. 142. Interagency data sharing.

Sec. 143. Clarification of status of subsidiaries and affiliates.

Sec. 144. Annual GAO report.

Subtitle F—Applying the Principles of National Treatment and Equality of

Competitive Opportunity to Foreign Banks and Foreign Financial Institutions

Sec. 151. Applying the principles of national treatment and equality of competitive opportunity to foreign banks that are financial holding

companies.

Sec. 152. Applying the principles of national treatment and equality of competitive opportunity to foreign banks and foreign financial institutions that are wholesale financial institutions.

Sec. 153. Representative offices.

Subtitle G—Federal Home Loan Bank System Modernization

Sec. 161. Short title.

Sec. 162. Definitions.
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Sec. 163. Savings association membership.

Sec. 164. Advances to members; collateral.

Sec. 165. Eligibility criteria.

Sec. 166. Management of banks.

Sec. 167. Resolution Funding Corporation.

Subtitle H—Direct Activities of Banks

Sec. 181. Authority of national banks to underwrite certain municipal bonds.

Subtitle I—Deposit Insurance Funds

Sec. 186. Study of safety and soundness of funds.

Sec. 187. Elimination of SAIF and DIF special reserves.

Subtitle J—Effective Date of Title

Sec. 191. Effective date.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

Sec. 203. Registration for sales of private securities offerings.

Sec. 204. Sales practices and complaint procedures.

Sec. 205. Information sharing.

Sec. 206. Definition and treatment of banking products.

Sec. 207. Derivative instrument and qualified investor defined.

Sec. 208. Government securities defined.

Sec. 209. Effective date.

Sec. 210. Rule of construction.

Subtitle B—Bank Investment Company Activities

Sec. 211. Custody of investment company assets by affiliated bank.

Sec. 212. Lending to an affiliated investment company.

Sec. 213. Independent directors.

Sec. 214. Additional SEC disclosure authority.

Sec. 215. Definition of broker under the Investment Company Act of 1940.

Sec. 216. Definition of dealer under the Investment Company Act of 1940.

Sec. 217. Removal of the exclusion from the definition of investment adviser for

banks that advise investment companies.

Sec. 218. Definition of broker under the Investment Advisers Act of 1940.

Sec. 219. Definition of dealer under the Investment Advisers Act of 1940.

Sec. 220. Interagency consultation.

Sec. 221. Treatment of bank common trust funds.

Sec. 222. Investment advisers prohibited from having controlling interest in

registered investment company.

Sec. 223. Conforming change in definition.

Sec. 224. Conforming amendment.

Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment

Bank Holding Companies
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Sec. 231. Supervision of investment bank holding companies by the Securities

and Exchange Commission.

Subtitle D—Studies

Sec. 241. Study of methods to inform investors and consumers of uninsured

products.

Sec. 242. Study of limitation on fees associated with acquiring financial products.

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

Sec. 301. State regulation of the business of insurance.

Sec. 302. Mandatory insurance licensing requirements.

Sec. 303. Functional regulation of insurance.

Sec. 304. Insurance underwriting in national banks.

Sec. 305. Title insurance activities of national banks and their affiliates.

Sec. 306. Expedited and equalized dispute resolution for Federal regulators.

Sec. 307. Consumer protection regulations.

Sec. 308. Certain State affiliation laws preempted for insurance companies and

affiliates.

Sec. 309. Publication of preemption of State laws.

Subtitle B—Redomestication of Mutual Insurers

Sec. 311. General application.

Sec. 312. Redomestication of mutual insurers.

Sec. 313. Effect on State laws restricting redomestication.

Sec. 314. Other provisions.

Sec. 315. Definitions.

Sec. 316. Effective date.

Subtitle C—National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.

Sec. 322. National Association of Registered Agents and Brokers.

Sec. 323. Purpose.

Sec. 324. Relationship to the Federal Government.

Sec. 325. Membership.

Sec. 326. Board of Directors.

Sec. 327. Officers.

Sec. 328. Bylaws, rules, and disciplinary action.

Sec. 329. Assessments.

Sec. 330. Functions of the NAIC.

Sec. 331. Liability of the Association and the directors, officers, and employees

of the Association.

Sec. 332. Elimination of NAIC oversight.

Sec. 333. Relationship to State law.

Sec. 334. Coordination with other regulators.

Sec. 335. Judicial review.

Sec. 336. Definitions.

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Prevention of creation of new savings and loan holding companies

with commercial affiliates.
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Sec. 402. Retention of ‘‘Federal’’ in name of converted Federal savings association.

1 TITLE I—FACILITATING AFFILI2 ATION AMONG SECURITIES

3 FIRMS, INSURANCE COMPA4 NIES, AND DEPOSITORY IN5 STITUTIONS

6 Subtitle A—Affiliations

7 SEC. 101. GLASS-STEAGALL ACT REFORMED.

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

9 Banking Act of 1933 (12 U.S.C. 377) (commonly referred

10 to as the ‘‘Glass-Steagall Act’’) is repealed.

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

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

13 SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK

14 HOLDING COMPANIES WHICH ARE NOT FI15 NANCIAL HOLDING COMPANIES.

16 (a) IN GENERAL.—Section 4(c)(8) of the Bank Hold17 ing Company Act of 1956 (12 U.S.C. 1843(c)(8)) is

18 amended to read as follows:

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

20 which had been determined by the Board by regula21 tion under this paragraph as of the day before the

22 date of the enactment of the Financial Services Act

23 of 1999, to be so closely related to banking as to be

24 a proper incident thereto (subject to such terms and
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1 conditions contained in such regulation, unless modi2 fied by the Board);’’.

3 (b) CONFORMING CHANGES TO OTHER STATUTES.—

4 (1) AMENDMENT TO THE BANK HOLDING COM5 PANY ACT AMENDMENTS OF 1970.—Section 105 of

6 the Bank Holding Company Act Amendments of

7 1970 (12 U.S.C. 1850) is amended by striking ‘‘, to

8 engage directly or indirectly in a nonbanking activity

9 pursuant to section 4 of such Act,’’.

10 (2) AMENDMENT TO THE BANK SERVICE COM11 PANY ACT.—Section 4(f) of the Bank Service Com12 pany Act (12 U.S.C. 1864(f)) is amended by strik13 ing the period and adding at the end the following:

14 ‘‘as of the day before the date of enactment of the

15 Financial Services Act of 1999.’’.

16 SEC. 103. FINANCIAL HOLDING COMPANIES.

17 The Bank Holding Company Act of 1956 is amended

18 by inserting after section 5 (12 U.S.C. 1844) the following

19 new section:

20 ‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.

21 ‘‘(a) FINANCIAL HOLDING COMPANY DEFINED.—

22 For purposes of this section, the term ‘financial holding

23 company’ means a bank holding company which meets the

24 requirements of subsection (b).
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1 ‘‘(b) ELIGIBILITY REQUIREMENTS FOR FINANCIAL

2 HOLDING COMPANIES.—

3 ‘‘(1) IN GENERAL.—No bank holding company

4 may engage in any activity or directly or indirectly

5 acquire or retain shares of any company under this

6 section unless the bank holding company meets the

7 following requirements:

8 ‘‘(A) All of the subsidiary depository insti9 tutions of the bank holding company are well

10 capitalized.

11 ‘‘(B) All of the subsidiary depository insti12 tutions of the bank holding company are well

13 managed.

14 ‘‘(C) The company has filed with the

15 Board a declaration that the company elects to

16 be a financial holding company and certifying

17 that the company meets the requirements of

18 subparagraphs (A) and (B) and paragraph (2).

19 ‘‘(2) COMMUNITY NEEDS REQUIREMENT.—No

20 bank holding company may become a financial hold21 ing company unless all of the subsidiary depository

22 institutions of the bank holding company have

23 achieved a rating of ‘satisfactory record of meeting

24 community credit needs’, or better, at the most re-
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1 cent examination of each such institution under the

2 Community Reinvestment Act of 1977.

3 ‘‘(3) FOREIGN BANKS AND COMPANIES.—For

4 purposes of paragraph (1), the Board shall establish

5 and apply comparable capital and other operating

6 standards to a foreign bank that operates a branch

7 or agency or owns or controls a bank or commercial

8 lending company in the United States, and any com9 pany that owns or controls such foreign bank, giving

10 due regard to the principle of national treatment

11 and equality of competitive opportunity.

12 ‘‘(c) ENGAGING IN ACTIVITIES THAT ARE FINANCIAL

13 IN NATURE.—

14 ‘‘(1) FINANCIAL ACTIVITIES.—

15 ‘‘(A) IN GENERAL.—Notwithstanding sec16 tion 4(a), a financial holding company and a

17 wholesale financial holding company may en18 gage in any activity, and acquire and retain the

19 shares of any company engaged in any activity,

20 that the Board has determined (by regulation

21 or order) to be financial in nature or incidental

22 to such financial activities.

23 ‘‘(B) COORDINATION BETWEEN THE

24 BOARD AND THE DEPARTMENT OF THE TREAS25 URY.—
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1 ‘‘(i) PROPOSALS RAISED BEFORE THE

2 BOARD.—

3 ‘‘(I) CONSULTATION.—The

4 Board shall notify the Secretary of

5 the Treasury of, and consult with the

6 Secretary of the Treasury concerning,

7 any request, proposal, or application

8 under this subsection for a determina9 tion of whether an activity is financial

10 in nature or incidental to such a fi11 nancial activity.

12 ‘‘(II) TREASURY VIEW.—The

13 Board shall not determine that any

14 activity is financial in nature or inci15 dental to a financial activity under

16 this subsection if the Secretary of the

17 Treasury notifies the Board in writ18 ing, not later than 30 days after the

19 date of receipt of the notice described

20 in subclause (I) (or such longer period

21 as the Board determines to be appro22 priate in light of the circumstances)

23 that the Secretary of the Treasury be24 lieves that the activity is not financial
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1 in nature or incidental to a financial

2 activity.

3 ‘‘(ii) PROPOSALS RAISED BY THE

4 TREASURY.—

5 ‘‘(I) TREASURY RECOMMENDA6 TION.—The Secretary of the Treasury

7 may, at any time, recommend in writ8 ing that the Board find an activity to

9 be financial in nature or incidental to

10 a financial activity.

11 ‘‘(II) TIME PERIOD FOR BOARD

12 ACTION.—Not later than 30 days

13 after the date of receipt of a written

14 recommendation from the Secretary of

15 the Treasury under subclause (I) (or

16 such longer period as the Secretary of

17 the Treasury and the Board deter18 mine to be appropriate in light of the

19 circumstances), the Board shall deter20 mine whether to initiate a public rule21 making proposing that the subject

22 recommended activity be found to be

23 financial in nature or incidental to a

24 financial activity under this sub25 section, and shall notify the Secretary
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1 of the Treasury in writing of the de2 termination of the Board and, in the

3 event that the Board determines not

4 to seek public comment on the pro5 posal, the reasons for that determina6 tion.

7 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter8 mining whether an activity is financial in nature or

9 incidental to financial activities, the Board shall take

10 into account—

11 ‘‘(A) the purposes of this Act and the Fi12 nancial Services Act of 1999;

13 ‘‘(B) changes or reasonably expected

14 changes in the marketplace in which bank hold15 ing companies compete;

16 ‘‘(C) changes or reasonably expected

17 changes in the technology for delivering finan18 cial services; and

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

20 appropriate to allow a bank holding company

21 and the affiliates of a bank holding company

22 to—

23 ‘‘(i) compete effectively with any com24 pany seeking to provide financial services

25 in the United States;
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1 ‘‘(ii) use any available or emerging

2 technological means, including any applica3 tion necessary to protect the security or ef4 ficacy of systems for the transmission of

5 data or financial transactions, in providing

6 financial services; and

7 ‘‘(iii) offer customers any available or

8 emerging technological means for using fi9 nancial services.

10 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA11 TURE.—The following activities shall be considered

12 to be financial in nature:

13 ‘‘(A) Lending, exchanging, transferring, in14 vesting for others, or safeguarding money or se15 curities.

16 ‘‘(B) Insuring, guaranteeing, or indemnify17 ing against loss, harm, damage, illness, disabil18 ity, or death, or providing and issuing annu19 ities, and acting as principal, agent, or broker

20 for purposes of the foregoing.

21 ‘‘(C) Providing financial, investment, or

22 economic advisory services, including advising

23 an investment company (as defined in section 3

24 of the Investment Company Act of 1940).
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1 ‘‘(D) Issuing or selling instruments rep2 resenting interests in pools of assets permissible

3 for a bank to hold directly.

4 ‘‘(E) Underwriting, dealing in, or making

5 a market in securities.

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

7 Board has determined, by order or regulation

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

9 Financial Services Act of 1999, to be so closely

10 related to banking or managing or controlling

11 banks as to be a proper incident thereto (sub12 ject to the same terms and conditions contained

13 in such order or regulation, unless modified by

14 the Board).

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

16 any activity that—

17 ‘‘(i) a bank holding company may en18 gage in outside the United States; and

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

20 regulations issued pursuant to section

21 4(c)(13) of this Act (as in effect on the

22 day before the date of enactment of the Fi23 nancial Services Act of 1999) to be usual

24 in connection with the transaction of bank25 ing or other financial operations abroad.
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1 ‘‘(H) Directly or indirectly acquiring or

2 controlling, whether as principal, on behalf of 1

3 or more entities (including entities, other than

4 a depository institution or subsidiary of a de5 pository institution, that the bank holding com6 pany controls) or otherwise, shares, assets, or

7 ownership interests (including without limita8 tion debt or equity securities, partnership inter9 ests, trust certificates or other instruments rep10 resenting ownership) of a company or other en11 tity, whether or not constituting control of such

12 company or entity, engaged in any activity not

13 authorized pursuant to this section if—

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

15 interests are not acquired or held by a de16 pository institution or subsidiary of a de17 pository institution;

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

19 interests are acquired and held by a securi20 ties affiliate or an affiliate thereof as part

21 of a bona fide underwriting or merchant

22 banking activity, including investment ac23 tivities engaged in for the purpose of ap24 preciation and ultimate resale or disposi25 tion of the investment;
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1 ‘‘(iii) such shares, assets, or owner2 ship interests are held only for such a pe3 riod of time as will permit the sale or dis4 position thereof on a reasonable basis con5 sistent with the nature of the activities de6 scribed in clause (ii); and

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

8 assets, or ownership interests are held, the

9 bank holding company does not actively

10 participate in the day to day management

11 or operation of such company or entity, ex12 cept insofar as necessary to achieve the ob13 jectives of clause (ii).

14 ‘‘(I) Directly or indirectly acquiring or con15 trolling, whether as principal, on behalf of 1 or

16 more entities (including entities, other than a

17 depository institution or subsidiary of a deposi18 tory institution, that the bank holding company

19 controls) or otherwise, shares, assets, or owner20 ship interests (including without limitation debt

21 or equity securities, partnership interests, trust

22 certificates or other instruments representing

23 ownership) of a company or other entity, wheth24 er or not constituting control of such company
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1 or entity, engaged in any activity not authorized

2 pursuant to this section if—

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

4 interests are not acquired or held by a de5 pository institution or a subsidiary of a de6 pository institution;

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

8 interests are acquired and held by an in9 surance company that is predominantly en10 gaged in underwriting life, accident and

11 health, or property and casualty insurance

12 (other than credit-related insurance) or

13 providing and issuing annuities;

14 ‘‘(iii) such shares, assets, or owner15 ship interests represent an investment

16 made in the ordinary course of business of

17 such insurance company in accordance

18 with relevant State law governing such in19 vestments; and

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

21 assets, or ownership interests are held, the

22 bank holding company does not directly or

23 indirectly participate in the day-to-day

24 management or operation of the company

25 or entity except insofar as necessary to
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1 achieve the objectives of clauses (ii) and

2 (iii).

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

4 regulation or order, define, consistent with the pur5 poses of this Act, the following activities as, and the

6 extent to which such activities are, financial in na7 ture or incidental to activities which are financial in

8 nature:

9 ‘‘(A) Lending, exchanging, transferring, in10 vesting for others, or safeguarding financial as11 sets other than money or securities.

12 ‘‘(B) Providing any device or other instru13 mentality for transferring money or other finan14 cial assets.

15 ‘‘(C) Arranging, effecting, or facilitating fi16 nancial transactions for the account of third

17 parties.

18 ‘‘(5) POST-CONSUMMATION NOTIFICATION.—

19 ‘‘(A) IN GENERAL.—A financial holding

20 company and a wholesale financial holding com21 pany that acquires any company, or commences

22 any activity, pursuant to this subsection shall

23 provide written notice to the Board describing

24 the activity commenced or conducted by the

25 company acquired no later than 30 calendar
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1 days after commencing the activity or con2 summating the acquisition.

3 ‘‘(B) APPROVAL NOT REQUIRED FOR CER4 TAIN FINANCIAL ACTIVITIES.—Except as pro5 vided in section 4(j) with regard to the acquisi6 tion of a savings association or in paragraph

7 (6) of this subsection, a financial holding com8 pany and a wholesale financial holding company

9 may commence any activity, or acquire any

10 company, pursuant to paragraph (3) or any

11 regulation prescribed or order issued under

12 paragraph (4), without prior approval of the

13 Board.

14 ‘‘(6) NOTICE REQUIRED FOR LARGE COMBINA15 TIONS.—

16 ‘‘(A) IN GENERAL.—No financial holding

17 company or wholesale financial holding com18 pany shall directly or indirectly acquire, and no

19 company that becomes a financial holding com20 pany or a wholesale financial holding company

21 shall directly or indirectly acquire control of,

22 any company in the United States, including

23 through merger, consolidation, or other type of

24 business combination, that—
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1 ‘‘(i) is engaged in activities permitted

2 under this subsection or subsection (g);

3 and

4 ‘‘(ii) has consolidated total assets in

5 excess of $40,000,000,000,

6 unless such holding company has provided no7 tice to the Board, not later than 60 days prior

8 to such proposed acquisition or prior to becom9 ing a financial holding company or wholesale fi10 nancial holding company, and during that time

11 period, or such longer time period not exceeding

12 an additional 60 days, as established by the

13 Board, the Board has not issued a notice dis14 approving the proposed acquisition or retention.

15 ‘‘(B) FACTORS FOR CONSIDERATION.—In

16 reviewing any prior notice filed under this para17 graph, the Board shall take into

18 consideration—

19 ‘‘(i) whether the company is in com20 pliance with all applicable criteria set forth

21 in subsection (b) and the provisions of sub22 section (d);

23 ‘‘(ii) whether the proposed combina24 tion represents an undue aggregation of

25 resources;
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1 ‘‘(iii) whether the proposed combina2 tion poses a risk to the deposit insurance

3 system;

4 ‘‘(iv) whether the proposed combina5 tion poses a risk to State insurance guar6 anty funds;

7 ‘‘(v) whether the proposed combina8 tion can reasonably be expected to be in

9 the best interests of depositors or policy10 holders of the respective entities; and

11 ‘‘(vi) whether the proposed trans12 action can reasonably be expected to

13 produce benefits to the public.

14 ‘‘(C) REQUIRED INFORMATION.—The

15 Board may disapprove any prior notice filed

16 under this paragraph if the company submitting

17 such notice neglects, fails, or refuses to furnish

18 to the Board all relevant information required

19 by the Board.

20 ‘‘(D) SOLICITATION OF VIEWS OF OTHER

21 SUPERVISORY AGENCIES.—

22 ‘‘(i) IN GENERAL.—Upon receiving a

23 prior notice under this paragraph, in order

24 to provide for the submission of their views
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1 and recommendations, the Board shall give

2 notice of the proposal to—

3 ‘‘(I) the appropriate Federal

4 banking agency of any bank involved;

5 ‘‘(II) the appropriate functional

6 regulator of any functionally regulated

7 nondepository institution (as defined

8 in section 5(c)(1)(C)) involved; and

9 ‘‘(III) the Secretary of the Treas10 ury, the Department of Justice, and

11 the Federal Trade Commission.

12 ‘‘(ii) TIMING.—The views and rec13 ommendations of any agency provided no14 tice under this paragraph shall be submit15 ted to the Board not later than 30 cal16 endar days after the date on which notice

17 to the agency was given, unless the Board

18 determines that another shorter time pe19 riod is appropriate.

20 ‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL HOLD21 ING COMPANIES THAT FAIL TO MEET REQUIREMENTS.—

22 ‘‘(1) IN GENERAL.—If the Board finds that a

23 financial holding company is not in compliance with

24 the requirements of subparagraph (A) or (B) of sub-
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1 section (b)(1), the Board shall give notice of such

2 finding to the company.

3 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE4 QUIRED.—Not later than 45 days after receipt by a

5 financial holding company of a notice given under

6 paragraph (1) (or such additional period as the

7 Board may permit), the company shall execute an

8 agreement acceptable to the Board to comply with

9 the requirements applicable to a financial holding

10 company.

11 ‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—Until

12 the conditions described in a notice to a financial

13 holding company under paragraph (1) are corrected,

14 the Board may impose such limitations on the con15 duct or activities of the company or any affiliate of

16 the company as the Board determines to be appro17 priate under the circumstances.

18 ‘‘(4) FAILURE TO CORRECT.—If, after receiving

19 a notice under paragraph (1), a financial holding

20 company does not—

21 ‘‘(A) execute and implement an agreement

22 in accordance with paragraph (2);

23 ‘‘(B) comply with any limitations imposed

24 under paragraph (3);
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1 ‘‘(C) in the case of a notice of failure to

2 comply with subsection (b)(1)(A), restore each

3 depository institution subsidiary to well capital4 ized status before the end of the 180-day period

5 beginning on the date such notice is received by

6 the company (or such other period permitted by

7 the Board); or

8 ‘‘(D) in the case of a notice of failure to

9 comply with subparagraph (B) of subsection

10 (b)(1), restore compliance with any such sub11 paragraph on or before the date on which the

12 next examination of the depository institution

13 subsidiary is completed or by the end of such

14 other period as the Board determines to be ap15 propriate,

16 the Board may require such company, under such

17 terms and conditions as may be imposed by the

18 Board and subject to such extension of time as may

19 be granted in the Board’s discretion, to divest con20 trol of any depository institution subsidiary or, at

21 the election of the financial holding company, in22 stead to cease to engage in any activity conducted by

23 such company or its subsidiaries pursuant to this

24 section.
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1 ‘‘(5) CONSULTATION.—In taking any action

2 under this subsection, the Board shall consult with

3 all relevant Federal and State regulatory agencies.

4 ‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—A fi5 nancial holding company shall assure that—

6 ‘‘(1) the procedures of the holding company for

7 identifying and managing financial and operational

8 risks within the company, and the subsidiaries of

9 such company, adequately protect the subsidiaries of

10 such company which are insured depository institu11 tions from such risks;

12 ‘‘(2) the holding company has reasonable poli13 cies and procedures to preserve the separate cor14 porate identity and limited liability of such company

15 and the subsidiaries of such company, for the pro16 tection of the company’s subsidiary insured deposi17 tory institutions; and

18 ‘‘(3) the holding company complies with this

19 section.

20 ‘‘(f) AUTHORITY TO RETAIN LIMITED NON21 FINANCIAL ACTIVITIES AND AFFILIATIONS.—

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

23 4(a), a company that is not a bank holding company

24 or a foreign bank (as defined in section 1(b)(7) of

25 the International Banking Act of 1978) and becomes
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1 a financial holding company after the date of the en2 actment of the Financial Services Act of 1999 may

3 continue to engage in any activity and retain direct

4 or indirect ownership or control of shares of a com5 pany engaged in any activity if—

6 ‘‘(A) the holding company lawfully was en7 gaged in the activity or held the shares of such

8 company on September 30, 1997;

9 ‘‘(B) the holding company is predomi10 nantly engaged in financial activities as defined

11 in paragraph (2); and

12 ‘‘(C) the company engaged in such activity

13 continues to engage only in the same activities

14 that such company conducted on September 30,

15 1997, and other activities permissible under

16 this Act.

17 ‘‘(2) PREDOMINANTLY FINANCIAL.—For pur18 poses of this subsection, a company is predominantly

19 engaged in financial activities if the annual gross

20 revenues derived by the holding company and all

21 subsidiaries of the holding company (excluding reve22 nues derived from subsidiary depository institu23 tions), on a consolidated basis, from engaging in ac24 tivities that are financial in nature or are incidental

25 to activities that are financial in nature under sub-
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1 section (c) represent at least 85 percent of the con2 solidated annual gross revenues of the company.

3 ‘‘(3) NO EXPANSION OF GRANDFATHERED COM4 MERCIAL ACTIVITIES THROUGH MERGER OR CON5 SOLIDATION.—A financial holding company that en6 gages in activities or holds shares pursuant to this

7 subsection, or a subsidiary of such financial holding

8 company, may not acquire, in any merger, consolida9 tion, or other type of business combination, assets of

10 any other company which is engaged in any activity

11 which the Board has not determined to be financial

12 in nature or incidental to activities that are financial

13 in nature under subsection (c).

14 ‘‘(4) CONTINUING REVENUE LIMITATION ON

15 GRANDFATHERED COMMERCIAL ACTIVITIES.—Not16 withstanding any other provision of this subsection,

17 a financial holding company may continue to engage

18 in activities or hold shares in companies pursuant to

19 this subsection only to the extent that the aggregate

20 annual gross revenues derived from all such activi21 ties and all such companies does not exceed 15 per22 cent of the consolidated annual gross revenues of the

23 financial holding company (excluding revenues de24 rived from subsidiary depository institutions).
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•HR 10 IH

1 ‘‘(5) CROSS MARKETING RESTRICTIONS APPLI2 CABLE TO COMMERCIAL ACTIVITIES.—A depository

3 institution controlled by a financial holding company

4 shall not—

5 ‘‘(A) offer or market, directly or through

6 any arrangement, any product or service of a

7 company whose activities are conducted or

8 whose shares are owned or controlled by the fi9 nancial holding company pursuant to this sub10 section or subparagraph (H) or (I) of sub11 section (c)(3); or

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

13 to be offered or marketed, directly or through

14 any arrangement, by or through any company

15 described in subparagraph (A).

16 ‘‘(6) TRANSACTIONS WITH NONFINANCIAL AF17 FILIATES.—An insured depository institution con18 trolled by a financial holding company or wholesale

19 financial holding company may not engage in a cov20 ered transaction (as defined by section 23A(b)(7) of

21 the Federal Reserve Act) with any affiliate con22 trolled by the company pursuant to section 10(c),

23 this subsection, or subparagraph (H) or (I) of sub24 section (c)(3).
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•HR 10 IH

1 ‘‘(7) SUNSET OF GRANDFATHER.—A financial

2 holding company engaged in any activity, or retain3 ing direct or indirect ownership or control of shares

4 of a company, pursuant to this subsection, shall ter5 minate such activity and divest ownership or control

6 of the shares of such company before the end of the

7 10-year period beginning on the date of the enact8 ment of the Financial Services Act of 1999. The

9 Board may, upon application by a financial holding

10 company, extend such 10-year period by a period not

11 to exceed an additional 5 years if such extension

12 would not be detrimental to the public interest.

13 ‘‘(g) DEVELOPING ACTIVITIES.—A financial holding

14 company and a wholesale financial holding company may

15 engage directly or indirectly, or acquire shares of any com16 pany engaged, in any activity that the Board has not de17 termined to be financial in nature or incidental to financial

18 activities under subsection (c) if—

19 ‘‘(1) the holding company reasonably concludes

20 that the activity is financial in nature or incidental

21 to financial activities;

22 ‘‘(2) the gross revenues from all activities con23 ducted under this subsection represent less than 5

24 percent of the consolidated gross revenues of the

25 holding company;
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•HR 10 IH

1 ‘‘(3) the aggregate total assets of all companies

2 the shares of which are held under this subsection

3 do not exceed 5 percent of the holding company’s

4 consolidated total assets;

5 ‘‘(4) the total capital invested in activities con6 ducted under this subsection represents less than 5

7 percent of the consolidated total capital of the hold8 ing company;

9 ‘‘(5) the Board has not determined that the ac10 tivity is not financial in nature or incidental to fi11 nancial activities under subsection (c);

12 ‘‘(6) the holding company is not required to

13 provide prior written notice of the transaction to the

14 Board under subsection (c)(6); and

15 ‘‘(7) the holding company provides written noti16 fication to the Board describing the activity com17 menced or conducted by the company acquired no

18 later than 10 business days after commencing the

19 activity or consummating the acquisition.’’.

20 SEC. 104. OPERATION OF STATE LAW.

21 (a) AFFILIATIONS.—

22 (1) IN GENERAL.—Except as provided in para23 graph (2), no State may, by statute, regulation,

24 order, interpretation, or other action, prevent or re25 strict an insured depository institution or wholesale
32

•HR 10 IH

1 financial institution, or a subsidiary or affiliate

2 thereof, from being affiliated directly or indirectly or

3 associated with any person or entity, as authorized

4 or permitted by this Act or any other provision of

5 Federal law.

6 (2) INSURANCE.—With respect to affiliations

7 between insured depository institutions or wholesale

8 financial institutions, or any subsidiary or affiliate

9 thereof, and persons or entities engaged in the busi10 ness of insurance, paragraph (1) does not prohibit

11 any State from—

12 (A) requiring any person or entity that

13 proposes to acquire control of an entity that is

14 engaged in the business of insurance and domi15 ciled in that State (hereafter in this subpara16 graph referred to as the ‘‘insurer’’) to furnish

17 to the insurance regulatory authority of that

18 State, not later than 60 days before the effec19 tive date of the proposed acquisition—

20 (i) the name and address of each per21 son by whom, or on whose behalf, the af22 filiation referred to in this subparagraph is

23 to be effected (hereafter in this subpara24 graph referred to as the ‘‘acquiring

25 party’’);
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1 (ii) if the acquiring party is an indi2 vidual, his or her principal occupation and

3 all offices and positions held during the 5

4 years preceding the date of notification,

5 and any conviction of crimes other than

6 minor traffic violations during the 10 years

7 preceding the date of notification;

8 (iii) if the acquiring party is not an

9 individual—

10 (I) a report of the nature of its

11 business operations during the 5 years

12 preceding the date of notification, or

13 for such shorter period as such person

14 and any predecessors thereof shall

15 have been in existence;

16 (II) an informative description of

17 the business intended to be done by

18 the acquiring party and any subsidi19 ary thereof; and

20 (III) a list of all individuals who

21 are, or who have been selected to be22 come, directors or executive officers of

23 the acquiring party or who perform,

24 or will perform, functions appropriate

25 to such positions, including, for each
34

•HR 10 IH

1 such individual, the information re2 quired by clause (ii);

3 (iv) the source, nature, and amount of

4 the consideration used, or to be used, in ef5 fecting the merger or other acquisition of

6 control, a description of any transaction

7 wherein funds were, or are to be, obtained

8 for any such purpose, and the identity of

9 persons furnishing such consideration, ex10 cept that, if a source of such consideration

11 is a loan made in the lender’s ordinary

12 course of business, the identity of the lend13 er shall remain confidential if the person

14 filing such statement so requests;

15 (v) fully audited financial information

16 as to the earnings and financial condition

17 of each acquiring party for the 5 fiscal

18 years preceding the date of notification of

19 each such acquiring party, or for such less20 er period as such acquiring party and any

21 predecessors thereof shall have been in ex22 istence, and similar unaudited information

23 as of a date not earlier than 90 days be24 fore the date of notification, except that, in

25 the case of an acquiring party that is an
35

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1 insurer actively engaged in the business of

2 insurance, the financial statements of such

3 insurer need not be audited, but such audit

4 may be required if the need therefor is de5 termined by the insurance regulatory au6 thority of the State;

7 (vi) any plans or proposals that each

8 acquiring party may have to liquidate such

9 insurer, to sell its assets, or to merge or

10 consolidate it with any person or to make

11 any other material change in its business

12 or corporate structure or management;

13 (vii) the number of shares of any se14 curity of the insurer that each acquiring

15 party proposes to acquire, the terms of any

16 offer, request, invitation, agreement, or ac17 quisition, and a statement as to the meth18 od by which the fairness of the proposal

19 was arrived at;

20 (viii) the amount of each class of any

21 security of the insurer that is beneficially

22 owned or concerning which there is a right

23 to acquire beneficial ownership by each ac24 quiring party;
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1 (ix) a full description of any contracts,

2 arrangements, or understandings with re3 spect to any security of the insurer in

4 which any acquiring party is involved, in5 cluding transfer of any of the securities,

6 joint ventures, loan or option arrange7 ments, puts or calls, guarantees of loans,

8 guarantees against loss or guarantees of

9 profits, division of losses or profits, or the

10 giving or withholding of proxies, and iden11 tification of the persons with whom such

12 contracts, arrangements, or understand13 ings have been entered into;

14 (x) a description of the purchase of

15 any security of the insurer during the 12-

16 month period preceding the date of notifi17 cation by any acquiring party, including

18 the dates of purchase, names of the pur19 chasers, and consideration paid, or agreed

20 to be paid, therefor;

21 (xi) a description of any recommenda22 tions to purchase any security of the in23 surer made during the 12-month period

24 preceding the date of notification by any

25 acquiring party or by any person based
37

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1 upon interviews or at the suggestion of

2 such acquiring party;

3 (xii) copies of all tender offers for, re4 quests or invitations for tenders of, ex5 change offers for and agreements to ac6 quire or exchange any securities of the in7 surer and, if distributed, of additional so8 liciting material relating thereto; and

9 (xiii) the terms of any agreement,

10 contract, or understanding made with any

11 broker-dealer as to solicitation of securities

12 of the insurer for tender and the amount

13 of any fees, commissions, or other com14 pensation to be paid to broker-dealers with

15 regard thereto;

16 (B) requiring an entity that is acquiring

17 control of an entity that is engaged in the busi18 ness of insurance and domiciled in that State to

19 maintain or restore the capital requirements of

20 that insurance entity to the level required under

21 the capital regulations of general applicability

22 in that State to avoid the requirement of pre23 paring and filing with the insurance regulatory

24 authority of that State a plan to increase the

25 capital of the entity, except that any determina-
38

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1 tion by the State insurance regulatory authority

2 with respect to such requirement shall be made

3 not later than 60 days after the date of notifi4 cation under subparagraph (A);

5 (C) taking actions with respect to the re6 ceivership or conservatorship of any insurance

7 company; or

8 (D) restricting a change in the ownership

9 of stock in an insurance company, or a com10 pany formed for the purpose of controlling such

11 insurance company, for a period of not more

12 than 3 years beginning on the date of the con13 version of such company from mutual to stock

14 form.

15 (3) PRESERVATION OF STATE ANTITRUST AND

16 GENERAL CORPORATE LAWS.—

17 (A) IN GENERAL.—Nothing in paragraph

18 (1) shall be construed as affecting State laws,

19 regulations, orders, interpretations, or other ac20 tions of general applicability relating to the gov21 ernance of corporations, partnerships, limited li22 ability companies or other business associations

23 incorporated or formed under the laws of that

24 State or domiciled in that State, or the applica-
39

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1 bility of the antitrust laws of any State or any

2 State law that is similar to the antitrust laws.

3 (B) DEFINITION.—The term ‘‘antitrust

4 laws’’ has the same meaning as in subsection

5 (a) of the first section of the Clayton Act, and

6 includes section 5 of the Federal Trade Com7 mission Act to the extent that such section 5

8 relates to unfair methods of competition.

9 (b) ACTIVITIES.—

10 (1) IN GENERAL.—Except as provided in para11 graph (3), and except with respect to insurance

12 sales, solicitation, and cross marketing activities,

13 which shall be governed by paragraph (2), no State

14 may, by statute, regulation, order, interpretation, or

15 other action, prevent or restrict an insured deposi16 tory institution, wholesale financial institution, or

17 subsidiary or affiliate thereof from engaging directly

18 or indirectly, either by itself or in conjunction with

19 a subsidiary, affiliate, or any other entity or person,

20 in any activity authorized or permitted under this

21 Act.

22 (2) INSURANCE SALES.—

23 (A) IN GENERAL.—In accordance with the

24 legal standards for preemption set forth in the

25 decision of the Supreme Court of the United
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1 States in Barnett Bank of Marion County N.A.

2 v. Nelson, 116 S. Ct. 1103 (1996), no State

3 may, by statute, regulation, order, interpreta4 tion, or other action, prevent or significantly

5 interfere with the ability of an insured deposi6 tory institution or wholesale financial institu7 tion, or a subsidiary or affiliate thereof, to en8 gage, directly or indirectly, either by itself or

9 in conjunction with a subsidiary, affiliate, or

10 any other party, in any insurance sales, solicita11 tion, or cross-marketing activity.

12 (B) CERTAIN STATE LAWS PRESERVED.—

13 Notwithstanding subparagraph (A), a State

14 may impose any of the following restrictions, or

15 restrictions which are substantially the same as

16 but no more burdensome or restrictive than

17 those in each of the following clauses:

18 (i) Restrictions prohibiting the rejec19 tion of an insurance policy solely because

20 the policy has been issued or underwritten

21 by any person who is not associated with

22 such insured depository institution or

23 wholesale financial institution, or any sub24 sidiary or affiliate thereof, when such in-
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1 surance is required in connection with a

2 loan or extension of credit.

3 (ii) Restrictions prohibiting a require4 ment for any debtor, insurer, or insurance

5 agent or broker to pay a separate charge

6 in connection with the handling of insur7 ance that is required in connection with a

8 loan or other extension of credit or the

9 provision of another traditional banking

10 product, unless such charge would be re11 quired when the insured depository institu12 tion or wholesale financial institution, or

13 any subsidiary or affiliate thereof, is the li14 censed insurance agent or broker providing

15 the insurance.

16 (iii) Restrictions prohibiting the use of

17 any advertisement or other insurance pro18 motional material by an insured depository

19 institution or wholesale financial institu20 tion, or any subsidiary or affiliate thereof,

21 that would cause a reasonable person to

22 believe mistakenly that—

23 (I) a State or the Federal Gov24 ernment is responsible for the insur25 ance sales activities of, or stands be-
42

•HR 10 IH

1 hind the credit of, the institution, af2 filiate, or subsidiary; or

3 (II) a State, or the Federal Gov4 ernment guarantees any returns on

5 insurance products, or is a source of

6 payment on any insurance obligation

7 of or sold by the institution, affiliate,

8 or subsidiary;

9 (iv) Restrictions prohibiting the pay10 ment or receipt of any commission or bro11 kerage fee or other valuable consideration

12 for services as an insurance agent or

13 broker to or by any person, unless such

14 person holds a valid State license regard15 ing the applicable class of insurance at the

16 time at which the services are performed,

17 except that, in this clause, the term ‘‘serv18 ices as an insurance agent or broker’’ does

19 not include a referral by an unlicensed per20 son of a customer or potential customer to

21 a licensed insurance agent or broker that

22 does not include a discussion of specific in23 surance policy terms and conditions.

24 (v) Restrictions prohibiting any com25 pensation paid to or received by any indi-
43

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1 vidual who is not licensed to sell insurance,

2 for the referral of a customer that seeks to

3 purchase, or seeks an opinion or advice on,

4 any insurance product to a person that

5 sells or provides opinions or advice on such

6 product, based on the purchase of insur7 ance by the customer.

8 (vi) Restrictions prohibiting the re9 lease of the insurance information of a cus10 tomer (defined as information concerning

11 the premiums, terms, and conditions of in12 surance coverage, including expiration

13 dates and rates, and insurance claims of a

14 customer contained in the records of the

15 insured depository institution or wholesale

16 financial institution, or a subsidiary or af17 filiate thereof) to any person or entity

18 other than an officer, director, employee,

19 agent, subsidiary, or affiliate of an insured

20 depository institution or a wholesale finan21 cial institution, for the purpose of soliciting

22 or selling insurance, without the express

23 consent of the customer, other than a pro24 vision that prohibits—
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1 (I) a transfer of insurance infor2 mation to an unaffiliated insurance

3 company, agent, or broker in connec4 tion with transferring insurance in

5 force on existing insureds of the in6 sured depository institution or whole7 sale financial institution, or subsidiary

8 or affiliate thereof, or in connection

9 with a merger with or acquisition of

10 an unaffiliated insurance company,

11 agent, or broker; or

12 (II) the release of information as

13 otherwise authorized by State or Fed14 eral law.

15 (vii) Restrictions prohibiting the use

16 of health information obtained from the in17 surance records of a customer for any pur18 pose, other than for its activities as a li19 censed agent or broker, without the ex20 press consent of the customer.

21 (viii) Restrictions prohibiting the ex22 tension of credit or any product or service

23 that is equivalent to an extension of credit,

24 lease or sale of property of any kind, or

25 furnishing of any services or fixing or vary-
45

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1 ing the consideration for any of the fore2 going, on the condition or requirement that

3 the customer obtain insurance from the in4 sured depository institution, wholesale fi5 nancial institution, a subsidiary or affiliate

6 thereof, or a particular insurer, agent, or

7 broker, other than a prohibition that would

8 prevent any insured depository institution

9 or wholesale financial institution, or any

10 subsidiary or affiliate thereof—

11 (I) from engaging in any activity

12 that would not violate section 106 of

13 the Bank Holding Company Act

14 Amendments of 1970, as interpreted

15 by the Board of Governors of the Fed16 eral Reserve System; or

17 (II) from informing a customer

18 or prospective customer that insur19 ance is required in order to obtain a

20 loan or credit, that loan or credit ap21 proval is contingent upon the procure22 ment by the customer of acceptable

23 insurance, or that insurance is avail24 able from the insured depository insti25 tution or wholesale financial institu-
46

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1 tion, or any subsidiary or affiliate

2 thereof.

3 (ix) Restrictions requiring, when an

4 application by a consumer for a loan or

5 other extension of credit from an insured

6 depository institution or wholesale financial

7 institution is pending, and insurance is of8 fered or sold to the consumer or is re9 quired in connection with the loan or ex10 tension of credit by the insured depository

11 institution or wholesale financial institu12 tion, that a written disclosure be provided

13 to the consumer or prospective customer

14 indicating that his or her choice of an in15 surance provider will not affect the credit

16 decision or credit terms in any way, except

17 that the insured depository institution or

18 wholesale financial institution, or subsidi19 ary or affiliate thereof, may impose reason20 able requirements concerning the credit21 worthiness of the insurance provider and

22 scope of coverage chosen.

23 (x) Restrictions requiring clear and

24 conspicuous disclosure, in writing, where

25 practicable, to the customer prior to the
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1 sale of any insurance policy that such

2 policy—

3 (I) is not a deposit;

4 (II) is not insured by the Federal

5 Deposit Insurance Corporation;

6 (III) is not guaranteed by the in7 sured depository institution or whole8 sale financial institution or, if appro9 priate, its subsidiaries or affiliates or

10 any person soliciting the purchase of

11 or selling insurance on the premises

12 thereof; and

13 (IV) where appropriate, involves

14 investment risk, including potential

15 loss of principal.

16 (xi) Restrictions requiring that, when

17 a customer obtains insurance (other than

18 credit insurance or flood insurance) and

19 credit from an insured depository institu20 tion or wholesale financial institution, or

21 any subsidiary or affiliate thereof, or any

22 person soliciting the purchase of or selling

23 insurance on the premises thereof, the

24 credit and insurance transactions be com25 pleted through separate documents.
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1 (xii) Restrictions prohibiting, when a

2 customer obtains insurance (other than

3 credit insurance or flood insurance) and

4 credit from an insured depository institu5 tion or wholesale financial institution or its

6 subsidiaries or affiliates, or any person so7 liciting the purchase of or selling insurance

8 on the premises thereof, inclusion of the

9 expense of insurance premiums in the pri10 mary credit transaction without the ex11 press written consent of the customer.

12 (xiii) Restrictions requiring mainte13 nance of separate and distinct books and

14 records relating to insurance transactions,

15 including all files relating to and reflecting

16 consumer complaints, and requiring that

17 such insurance books and records be made

18 available to the appropriate State insur19 ance regulator for inspection upon reason20 able notice.

21 (C) LIMITATIONS.—

22 (i) OCC DEFERENCE.—Section 306(e)

23 does not apply with respect to any State

24 statute, regulation, order, interpretation,

25 or other action regarding insurance sales,
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1 solicitation, or cross marketing activities

2 described in subparagraph (A) that was

3 issued, adopted, or enacted before Septem4 ber 3, 1998, and that is not described in

5 subparagraph (B).

6 (ii) NONDISCRIMINATION.—Subsection

7 (c) does not apply with respect to any

8 State statute, regulation, order, interpreta9 tion, or other action regarding insurance

10 sales, solicitation, or cross marketing ac11 tivities described in subparagraph (A) that

12 was issued, adopted, or enacted before

13 September 3, 1998, and that is not de14 scribed in subparagraph (B).

15 (iii) CONSTRUCTION.—Nothing in this

16 paragraph shall be construed to limit the

17 applicability of the decision of the Supreme

18 Court in Barnett Bank of Marion County

19 N.A. v. Nelson, 116 S. Ct. 1103 (1996)

20 with respect to a State statute, regulation,

21 order, interpretation, or other action that

22 is not described in subparagraph (B).

23 (iv) LIMITATION ON INFERENCES.—

24 Nothing in this paragraph shall be con25 strued to create any inference with respect
50

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1 to any State statute, regulation, order, in2 terpretation, or other action that is not re3 ferred to or described in this paragraph.

4 (3) INSURANCE ACTIVITIES OTHER THAN

5 SALES.—State statutes, regulations, interpretations,

6 orders, and other actions shall not be preempted

7 under subsection (b)(1) to the extent that they—

8 (A) relate to, or are issued, adopted, or en9 acted for the purpose of regulating the business

10 of insurance in accordance with the Act of

11 March 9, 1945 (commonly known as the

12 ‘‘McCarran-Ferguson Act’’);

13 (B) apply only to persons or entities that

14 are not insured depository institutions or whole15 sale financial institutions, but that are directly

16 engaged in the business of insurance (except

17 that they may apply to depository institutions

18 engaged in providing savings bank life insur19 ance as principal to the extent of regulating

20 such insurance);

21 (C) do not relate to or directly or indirectly

22 regulate insurance sales, solicitations, or cross23 marketing activities; and

24 (D) are not prohibited under subsection

25 (c).
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1 (4) FINANCIAL ACTIVITIES OTHER THAN INSUR2 ANCE.—No State statute, regulation, interpretation,

3 order, or other action shall be preempted under sub4 section (b)(1) to the extent that—

5 (A) it does not relate to, and is not issued

6 and adopted, or enacted for the purpose of reg7 ulating, directly or indirectly, insurance sales,

8 solicitations, or cross marketing activities cov9 ered under paragraph (2);

10 (B) it does not relate to, and is not issued

11 and adopted, or enacted for the purpose of reg12 ulating, directly or indirectly, the business of in13 surance activities other than sales, solicitations,

14 or cross marketing activities, covered under

15 paragraph (3);

16 (C) it does not relate to securities inves17 tigations or enforcement actions referred to in

18 subsection (d); and

19 (D) it—

20 (i) does not distinguish by its terms

21 between insured depository institutions,

22 wholesale financial institutions, and sub23 sidiaries and affiliates thereof engaged in

24 the activity at issue and other persons or

25 entities engaged in the same activity in a
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1 manner that is in any way adverse with re2 spect to the conduct of the activity by any

3 such insured depository institution, whole4 sale financial institution, or subsidiary or

5 affiliate thereof engaged in the activity at

6 issue;

7 (ii) as interpreted or applied, does not

8 have, and will not have, an impact on de9 pository institutions, wholesale financial in10 stitutions, or subsidiaries or affiliates

11 thereof engaged in the activity at issue, or

12 any person or entity affiliated therewith,

13 that is substantially more adverse than its

14 impact on other persons or entities en15 gaged in the same activity that are not in16 sured depository institutions, wholesale fi17 nancial institutions, or subsidiaries or af18 filiates thereof, or persons or entities affili19 ated therewith;

20 (iii) does not effectively prevent a de21 pository institution, wholesale financial in22 stitution, or subsidiary or affiliate thereof

23 from engaging in activities authorized or

24 permitted by this Act or any other provi25 sion of Federal law; and
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1 (iv) does not conflict with the intent

2 of this Act generally to permit affiliations

3 that are authorized or permitted by Fed4 eral law.

5 (c) NONDISCRIMINATION.—Except as provided in any

6 restrictions described in subsection (b)(2)(B), no State

7 may, by statute, regulation, order, interpretation, or other

8 action, regulate the insurance activities authorized or per9 mitted under this Act or any other provision of Federal

10 law of an insured depository institution or wholesale finan11 cial institution, or subsidiary or affiliate thereof, to the

12 extent that such statute, regulation, order, interpretation,

13 or other action—

14 (1) distinguishes by its terms between insured

15 depository institutions or wholesale financial institu16 tions, or subsidiaries or affiliates thereof, and other

17 persons or entities engaged in such activities, in a

18 manner that is in any way adverse to any such in19 sured depository institution or wholesale financial in20 stitution, or subsidiary or affiliate thereof;

21 (2) as interpreted or applied, has or will have

22 an impact on depository institutions or wholesale fi23 nancial institutions, or subsidiaries or affiliates

24 thereof, that is substantially more adverse than its

25 impact on other persons or entities providing the
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1 same products or services or engaged in the same

2 activities that are not insured depository institu3 tions, wholesale financial institutions, or subsidiaries

4 or affiliates thereof, or persons or entities affiliated

5 therewith;

6 (3) effectively prevents a depository institution

7 or wholesale financial institution, or subsidiary or af8 filiate thereof, from engaging in insurance activities

9 authorized or permitted by this Act or any other

10 provision of Federal law; or

11 (4) conflicts with the intent of this Act gen12 erally to permit affiliations that are authorized or

13 permitted by Federal law between insured depository

14 institutions or wholesale financial institutions, or

15 subsidiaries or affiliates thereof, and persons and en16 tities engaged in the business of insurance.

17 (d) LIMITATION.—Subsections (a) and (b) shall not

18 be construed to affect the jurisdiction of the securities

19 commission (or any agency or office performing like func20 tions) of any State, under the laws of such State, to inves21 tigate and bring enforcement actions, consistent with sec22 tion 18(c) of the Securities Act of 1933, with respect to

23 fraud or deceit or unlawful conduct by any person, in con24 nection with securities or securities transactions.
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1 (e) DEFINITION.—For purposes of this section, the

2 term ‘‘State’’ means any State of the United States, the

3 District of Columbia, any territory of the United States,

4 Puerto Rico, Guam, American Samoa, the Trust Territory

5 of the Pacific Islands, the Virgin Islands, and the North6 ern Mariana Islands.

7 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR8 IZED.

9 Section 3(g)(2) of the Bank Holding Company Act

10 of 1956 (12 U.S.C. 1842(g)(2)) is amended to read as

11 follows:

12 ‘‘(2) REGULATIONS.—A bank holding company

13 organized as a mutual holding company shall be reg14 ulated on terms, and shall be subject to limitations,

15 comparable to those applicable to any other bank

16 holding company.’’.

17 SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF18 FICES.

19 (a) IN GENERAL.—Section 109(d) of the Riegle-Neal

20 Interstate Banking and Branching Efficiency Act of 1994

21 (12 U.S.C. 1835a(d)) is amended—

22 (1) by inserting ‘‘, the Financial Services Act of

23 1999,’’ after ‘‘pursuant to this title’’; and

24 (2) by inserting ‘‘or such Act’’ after ‘‘made by

25 this title’’.
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1 (b) TECHNICAL AND CONFORMING AMENDMENT.—

2 Section 109(e)(4) of the Riegle-Neal Interstate Banking

3 and Branching Efficiency Act of 1994 (12 U.S.C.

4 1835a(e)(4)) is amended by inserting ‘‘and any branch of

5 a bank controlled by an out-of-State bank holding com6 pany (as defined in section 2(o)(7) of the Bank Holding

7 Company Act of 1956)’’ before the period.

8 SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE9 MENTS.

10 Section 42(d)(4)(A) of the Federal Deposit Insurance

11 Act (12 U.S.C. 1831r–1(d)(4)(A)) is amended by inserting

12 ‘‘and any bank controlled by an out-of-State bank holding

13 company (as defined in section 2(o)(7) of the Bank Hold14 ing Company Act of 1956)’’ before the period.

15 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE

16 BANKS.

17 (a) IN GENERAL.—Section 4(f) of the Bank Holding

18 Company Act of 1956 (12 U.S.C. 1843(f)) is amended—

19 (1) in paragraph (2)(A)(ii)—

20 (A) by striking ‘‘and’’ at the end of sub21 clause (IX);

22 (B) by inserting ‘‘and’’ after the semicolon

23 at the end of subclause (X); and

24 (C) by inserting after subclause (X) the

25 following new subclause:
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1 ‘‘(XI) assets that are derived

2 from, or are incidental to, activities in

3 which institutions described in section

4 2(c)(2)(F) are permitted to engage,’’;

5 (2) in paragraph (2), by striking subparagraph

6 (B) and inserting the following new subparagraphs:

7 ‘‘(B) any bank subsidiary of such company

8 engages in any activity in which the bank was

9 not lawfully engaged as of March 5, 1987, un10 less the bank is well managed and well capital11 ized;

12 ‘‘(C) any bank subsidiary of such company

13 both—

14 ‘‘(i) accepts demand deposits or de15 posits that the depositor may withdraw by

16 check or similar means for payment to

17 third parties; and

18 ‘‘(ii) engages in the business of mak19 ing commercial loans (and, for purposes of

20 this clause, loans made in the ordinary

21 course of a credit card operation shall not

22 be treated as commercial loans); or

23 ‘‘(D) after the date of the enactment of the

24 Competitive Equality Amendments of 1987, any

25 bank subsidiary of such company permits any
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1 overdraft (including any intraday overdraft), or

2 incurs any such overdraft in such bank’s ac3 count at a Federal reserve bank, on behalf of

4 an affiliate, other than an overdraft described

5 in paragraph (3).’’; and

6 (3) by striking paragraphs (3) and (4) and in7 serting the following new paragraphs:

8 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

9 For purposes of paragraph (2)(D), an overdraft is

10 described in this paragraph if—

11 ‘‘(A) such overdraft results from an inad12 vertent computer or accounting error that is be13 yond the control of both the bank and the affili14 ate; or

15 ‘‘(B) such overdraft—

16 ‘‘(i) is permitted or incurred on behalf

17 of an affiliate which is monitored by, re18 ports to, and is recognized as a primary

19 dealer by the Federal Reserve Bank of

20 New York; and

21 ‘‘(ii) is fully secured, as required by

22 the Board, by bonds, notes, or other obli23 gations which are direct obligations of the

24 United States or on which the principal

25 and interest are fully guaranteed by the
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1 United States or by securities and obliga2 tions eligible for settlement on the Federal

3 Reserve book entry system.

4 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EX5 EMPTION.—If any company described in paragraph

6 (1) fails to qualify for the exemption provided under

7 such paragraph by operation of paragraph (2), such

8 exemption shall cease to apply to such company and

9 such company shall divest control of each bank it

10 controls before the end of the 180-day period begin11 ning on the date that the company receives notice

12 from the Board that the company has failed to con13 tinue to qualify for such exemption, unless before

14 the end of such 180-day period, the company has—

15 ‘‘(A) corrected the condition or ceased the

16 activity that caused the company to fail to con17 tinue to qualify for the exemption; and

18 ‘‘(B) implemented procedures that are rea19 sonably adapted to avoid the reoccurrence of

20 such condition or activity.’’.

21 (b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER22 DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com23 pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended

24 by inserting before the period at the end ‘‘, or that is oth-
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1 erwise permissible for a bank controlled by a company de2 scribed in section 4(f)(1)’’.

3 SEC. 109. REPORTS ON ONGOING FTC STUDY OF CON4 SUMER PRIVACY ISSUES.

5 With respect to the ongoing multistage study being

6 conducted by the Federal Trade Commission on consumer

7 privacy issues, the Commission shall submit to the Con8 gress an interim report on the findings and conclusions

9 of the Commission, together with such recommendations

10 for legislative and administrative action as the Commis11 sion determines to be appropriate, at the conclusion of

12 each stage of such study and a final report at the conclu13 sion of the study.

14 SEC. 110. GAO STUDY OF ECONOMIC IMPACT ON COMMU15 NITY BANKS AND OTHER SMALL FINANCIAL

16 INSTITUTIONS.

17 (a) STUDY REQUIRED.—The Comptroller General of

18 the United States shall conduct a study of the projected

19 economic impact that the enactment of this Act will have

20 on financial institutions which have total assets of

21 $100,000,000 or less.

22 (b) REPORT TO THE CONGRESS.—The Comptroller

23 General of the United States shall submit a report to the

24 Congress before the end of the 6-month period beginning

25 on the date of the date of the enactment of this Act con-
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1 taining the findings and conclusions of the Comptroller

2 General with regard to the study required under sub3 section (a) and such recommendations for legislative or

4 administrative action as the Comptroller General may de5 termine to be appropriate.

6 Subtitle B—Streamlining Super7 vision of Financial Holding

8 Companies

9 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY

10 SUPERVISION.

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

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

13 ‘‘(c) REPORTS AND EXAMINATIONS.—

14 ‘‘(1) REPORTS.—

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

16 to time may require any bank holding company

17 and any subsidiary of such company to submit

18 reports under oath to keep the Board informed

19 as to—

20 ‘‘(i) its financial condition, systems

21 for monitoring and controlling financial

22 and operating risks, and transactions with

23 depository institution subsidiaries of the

24 holding company; and
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1 ‘‘(ii) compliance by the company or

2 subsidiary with applicable provisions of

3 this Act.

4 ‘‘(B) USE OF EXISTING REPORTS.—

5 ‘‘(i) IN GENERAL.—The Board shall,

6 to the fullest extent possible, accept re7 ports in fulfillment of the Board’s report8 ing requirements under this paragraph

9 that a bank holding company or any sub10 sidiary of such company has provided or

11 been required to provide to other Federal

12 and State supervisors or to appropriate

13 self-regulatory organizations.

14 ‘‘(ii) AVAILABILITY.—A bank holding

15 company or a subsidiary of such company

16 shall provide to the Board, at the request

17 of the Board, a report referred to in clause

18 (i).

19 ‘‘(iii) REQUIRED USE OF PUBLICLY

20 REPORTED INFORMATION.—The Board

21 shall, to the fullest extent possible, accept

22 in fulfillment of any reporting or record23 keeping requirements under this Act infor24 mation that is otherwise required to be re-
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1 ported publicly and externally audited fi2 nancial statements.

3 ‘‘(iv) REPORTS FILED WITH OTHER

4 AGENCIES.—In the event the Board re5 quires a report from a functionally regu6 lated nondepository institution subsidiary

7 of a bank holding company of a kind that

8 is not required by another Federal or State

9 regulator or appropriate self-regulatory or10 ganization, the Board shall request that

11 the appropriate regulator or self-regulatory

12 organization obtain such report. If the re13 port is not made available to the Board,

14 and the report is necessary to assess a ma15 terial risk to the bank holding company or

16 any of its subsidiary depository institutions

17 or compliance with this Act, the Board

18 may require such subsidiary to provide

19 such a report to the Board.

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

21 subsection, the term ‘functionally regulated

22 nondepository institution’ means—

23 ‘‘(i) a broker or dealer registered

24 under the Securities Exchange Act of

25 1934;
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1 ‘‘(ii) an investment adviser registered

2 under the Investment Advisers Act of

3 1940, or with any State, with respect to

4 the investment advisory activities of such

5 investment adviser and activities incidental

6 to such investment advisory activities;

7 ‘‘(iii) an insurance company subject to

8 supervision by a State insurance commis9 sion, agency, or similar authority; and

10 ‘‘(iv) an entity subject to regulation

11 by the Commodity Futures Trading Com12 mission, with respect to the commodities

13 activities of such entity and activities inci14 dental to such commodities activities.

15 ‘‘(2) EXAMINATIONS.—

16 ‘‘(A) EXAMINATION AUTHORITY.—

17 ‘‘(i) IN GENERAL.—The Board may

18 make examinations of each bank holding

19 company and each subsidiary of a bank

20 holding company.

21 ‘‘(ii) FUNCTIONALLY REGULATED

22 NONDEPOSITORY INSTITUTION SUBSIDI23 ARIES.—Notwithstanding clause (i), the

24 Board may make examinations of a func25 tionally regulated nondepository institution
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1 subsidiary of a bank holding company only

2 if—

3 ‘‘(I) the Board has reasonable

4 cause to believe that such subsidiary

5 is engaged in activities that pose a

6 material risk to an affiliated deposi7 tory institution, or

8 ‘‘(II) based on reports and other

9 available information, the Board has

10 reasonable cause to believe that a sub11 sidiary is not in compliance with this

12 Act or with provisions relating to

13 transactions with an affiliated deposi14 tory institution and the Board cannot

15 make such determination through ex16 amination of the affiliated depository

17 institution or bank holding company.

18 ‘‘(B) LIMITATIONS ON EXAMINATION AU19 THORITY FOR BANK HOLDING COMPANIES AND

20 SUBSIDIARIES.—Subject to subparagraph

21 (A)(ii), the Board may make examinations

22 under subparagraph (A)(i) of each bank holding

23 company and each subsidiary of such holding

24 company in order to—
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1 ‘‘(i) inform the Board of the nature of

2 the operations and financial condition of

3 the holding company and such subsidiaries;

4 ‘‘(ii) inform the Board of—

5 ‘‘(I) the financial and operational

6 risks within the holding company sys7 tem that may pose a threat to the

8 safety and soundness of any subsidi9 ary depository institution of such

10 holding company; and

11 ‘‘(II) the systems for monitoring

12 and controlling such risks; and

13 ‘‘(iii) monitor compliance with the

14 provisions of this Act and those governing

15 transactions and relationships between any

16 subsidiary depository institution and its af17 filiates.

18 ‘‘(C) RESTRICTED FOCUS OF EXAMINA19 TIONS.—The Board shall, to the fullest extent

20 possible, limit the focus and scope of any exam21 ination of a bank holding company to—

22 ‘‘(i) the bank holding company; and

23 ‘‘(ii) any subsidiary of the holding

24 company that, because of—
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1 ‘‘(I) the size, condition, or activi2 ties of the subsidiary;

3 ‘‘(II) the nature or size of trans4 actions between such subsidiary and

5 any depository institution which is

6 also a subsidiary of such holding com7 pany; or

8 ‘‘(III) the centralization of func9 tions within the holding company sys10 tem,

11 could have a materially adverse effect on

12 the safety and soundness of any depository

13 institution affiliate of the holding company.

14 ‘‘(D) DEFERENCE TO BANK EXAMINA15 TIONS.—The Board shall, to the fullest extent

16 possible, use, for the purposes of this para17 graph, the reports of examinations of depository

18 institutions made by the appropriate Federal

19 and State depository institution supervisory au20 thority.

21 ‘‘(E) DEFERENCE TO OTHER EXAMINA22 TIONS.—The Board shall, to the fullest extent

23 possible, address the circumstances which might

24 otherwise permit or require an examination by

25 the Board by forgoing an examination and in-
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1 stead reviewing the reports of examination

2 made of—

3 ‘‘(i) any registered broker or dealer by

4 or on behalf of the Securities and Ex5 change Commission;

6 ‘‘(ii) any registered investment adviser

7 properly registered by or on behalf of ei8 ther the Securities and Exchange Commis9 sion or any State;

10 ‘‘(iii) any licensed insurance company

11 by or on behalf of any state regulatory au12 thority responsible for the supervision of

13 insurance companies; and

14 ‘‘(iv) any other subsidiary that the

15 Board finds to be comprehensively super16 vised by a Federal or State authority.

17 ‘‘(3) CAPITAL.—

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

19 by regulation, guideline, order or otherwise, pre20 scribe or impose any capital or capital adequacy

21 rules, guidelines, standards, or requirements on

22 any subsidiary of a financial holding company

23 that is not a depository institution and—

24 ‘‘(i) is in compliance with applicable

25 capital requirements of another Federal
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1 regulatory authority (including the Securi2 ties and Exchange Commission) or State

3 insurance authority; or

4 ‘‘(ii) is properly registered as an in5 vestment adviser under the Investment Ad6 visers Act of 1940, or with any State.

7 ‘‘(B) RULE OF CONSTRUCTION.—Subpara8 graph (A) shall not be construed as preventing

9 the Board from imposing capital or capital ade10 quacy rules, guidelines, standards, or require11 ments with respect to activities of a registered

12 investment adviser other than investment advi13 sory activities or activities incidental to invest14 ment advisory activities.

15 ‘‘(C) LIMITATIONS ON INDIRECT AC16 TION.—In developing, establishing, or assessing

17 holding company capital or capital adequacy

18 rules, guidelines, standards, or requirements for

19 purposes of this paragraph, the Board shall not

20 take into account the activities, operations, or

21 investments of an affiliated investment company

22 registered under the Investment Company Act

23 of 1940, if the investment company is not—

24 ‘‘(i) a bank holding company; or
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1 ‘‘(ii) controlled by a bank holding

2 company by reason of ownership by the

3 bank holding company (including through

4 all of its affiliates) of 25 percent or more

5 of the shares of the investment company,

6 where the shares owned by the bank hold7 ing company have a market value equal to

8 more than $1,000,000.

9 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP10 PROPRIATE FEDERAL BANKING AGENCY.—

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

12 bank holding company which is not significantly

13 engaged in nonbanking activities, the Board, in

14 consultation with the appropriate Federal bank15 ing agency, may designate the appropriate Fed16 eral banking agency of the lead insured deposi17 tory institution subsidiary of such holding com18 pany as the appropriate Federal banking agen19 cy for the bank holding company.

20 ‘‘(B) AUTHORITY TRANSFERRED.—An

21 agency designated by the Board under subpara22 graph (A) shall have the same authority as the

23 Board under this Act to—

24 ‘‘(i) examine and require reports from

25 the bank holding company and any affiliate
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1 of such company (other than a depository

2 institution) under section 5;

3 ‘‘(ii) approve or disapprove applica4 tions or transactions under section 3;

5 ‘‘(iii) take actions and impose pen6 alties under subsections (e) and (f) of sec7 tion 5 and section 8; and

8 ‘‘(iv) take actions regarding the hold9 ing company, any affiliate of the holding

10 company (other than a depository institu11 tion), or any institution-affiliated party of

12 such company or affiliate under the Fed13 eral Deposit Insurance Act and any other

14 statute which the Board may designate.

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

16 Act and section 105 of the Bank Holding Com17 pany Act Amendments of 1970 shall apply to

18 orders issued by an agency designated under

19 subparagraph (A) in the same manner such sec20 tions apply to orders issued by the Board.

21 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

22 AND INSURANCE ACTIVITIES.—The Board shall defer

23 to—

24 ‘‘(A) the Securities and Exchange Commis25 sion with regard to all interpretations of, and
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1 the enforcement of, applicable Federal securi2 ties laws (and rules, regulations, orders, and

3 other directives issued thereunder) relating to

4 the activities, conduct, and operations of reg5 istered brokers, dealers, investment advisers,

6 and investment companies;

7 ‘‘(B) the relevant State securities authori8 ties with regard to all interpretations of, and

9 the enforcement of, applicable State securities

10 laws (and rules, regulations, orders, and other

11 directives issued thereunder) relating to the ac12 tivities, conduct, and operations of registered

13 brokers, dealers, and investment advisers; and

14 ‘‘(C) the relevant State insurance authori15 ties with regard to all interpretations of, and

16 the enforcement of, applicable State insurance

17 laws (and rules, regulations, orders, and other

18 directives issued thereunder) relating to the ac19 tivities, conduct, and operations of insurance

20 companies and insurance agents.’’.

21 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT

22 FOR FINANCIAL HOLDING COMPANIES.

23 (a) PREVENTION OF DUPLICATIVE FILINGS.—Sec24 tion 5(a) of the Bank Holding Company Act of 1956 (12

25 U.S.C. 1844(a)) is amended by adding the following new
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1 sentence at the end: ‘‘A declaration filed in accordance

2 with section 6(b)(1)(C) shall satisfy the requirements of

3 this subsection with regard to the registration of a bank

4 holding company but not any requirement to file an appli5 cation to acquire a bank pursuant to section 3.’’.

6 (b) DIVESTITURE PROCEDURES.—Section 5(e)(1) of

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

8 1844(e)(1)) is amended—

9 (1) by striking ‘‘Financial Institutions Super10 visory Act of 1966, order’’ and inserting ‘‘Financial

11 Institutions Supervisory Act of 1966, at the election

12 of the bank holding company—

13 ‘‘(A) order’’; and

14 (2) by striking ‘‘shareholders of the bank hold15 ing company. Such distribution’’ and inserting

16 ‘‘shareholders of the bank holding company; or

17 ‘‘(B) order the bank holding company, after due

18 notice and opportunity for hearing, and after con19 sultation with the primary supervisor for the bank,

20 which shall be the Comptroller of the Currency in

21 the case of a national bank, and the Federal Deposit

22 Insurance Corporation and the appropriate State su23 pervisor in the case of an insured nonmember bank,

24 to terminate (within 120 days or such longer period
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1 as the Board may direct) the ownership or control

2 of any such bank by such company.

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

4 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR

5 AND SECURITIES AND EXCHANGE COMMIS6 SION.

7 Section 5 of the Bank Holding Company Act of 1956

8 (12 U.S.C. 1844) is amended by adding at the end the

9 following new subsection:

10 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

11 AND THE SECURITIES AND EXCHANGE COMMISSION.—

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

13 provision of law, any regulation, order, or other ac14 tion of the Board which requires a bank holding

15 company to provide funds or other assets to a sub16 sidiary insured depository institution shall not be ef17 fective nor enforceable if—

18 ‘‘(A) such funds or assets are to be pro19 vided by—

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

21 an insurance company or is a broker or

22 dealer registered under the Securities Ex23 change Act of 1934; or

24 ‘‘(ii) an affiliate of the depository in25 stitution which is an insurance company or
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1 a broker or dealer registered under such

2 Act; and

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

4 insurance company or the Securities and Ex5 change Commission for the registered broker or

6 dealer, as the case may be, determines in writ7 ing sent to the holding company and the Board

8 that the holding company shall not provide such

9 funds or assets because such action would have

10 a material adverse effect on the financial condi11 tion of the insurance company or the broker or

12 dealer, as the case may be.

13 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

14 OR SEC REQUIRED.—If the Board requires a bank

15 holding company, or an affiliate of a bank holding

16 company, which is an insurance company or a

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

18 provide funds or assets to an insured depository in19 stitution subsidiary of the holding company pursuant

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

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

22 promptly notify the State insurance authority for the

23 insurance company or the Securities and Exchange

24 Commission, as the case may be, of such require25 ment.
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1 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC2 TION.—If the Board receives a notice described in

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

4 or the Securities and Exchange Commission with re5 gard to a bank holding company or affiliate referred

6 to in that paragraph, the Board may order the bank

7 holding company to divest the insured depository in8 stitution not later than 180 days after receiving the

9 notice, or such longer period as the Board deter10 mines consistent with the safe and sound operation

11 of the insured depository institution.

12 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur13 ing the period beginning on the date an order to di14 vest is issued by the Board under paragraph (3) to

15 a bank holding company and ending on the date the

16 divestiture is completed, the Board may impose any

17 conditions or restrictions on the holding company’s

18 ownership or operation of the insured depository in19 stitution, including restricting or prohibiting trans20 actions between the insured depository institution

21 and any affiliate of the institution, as are appro22 priate under the circumstances.’’.

23 SEC. 114. PRUDENTIAL SAFEGUARDS.

24 Section 5 of the Bank Holding Company Act of 1956

25 (12 U.S.C. 1844) is amended by inserting after subsection
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1 (g) (as added by section 113 of this subtitle) the following

2 new subsection:

3 ‘‘(h) PRUDENTIAL SAFEGUARDS.—

4 ‘‘(1) IN GENERAL.—The Board may, by regula5 tion or order, impose restrictions or requirements on

6 relationships or transactions between a depository

7 institution subsidiary of a bank holding company

8 and any affiliate of such depository institution (other

9 than a subsidiary of such institution) which the

10 Board finds is consistent with the public interest,

11 the purposes of this Act, the Financial Services Act

12 of 1999, the Federal Reserve Act, and other Federal

13 law applicable to depository institution subsidiaries

14 of bank holding companies and the standards in

15 paragraph (2).

16 ‘‘(2) STANDARDS.—The Board may exercise au17 thority under paragraph (1) if the Board finds that

18 such action would—

19 ‘‘(A) avoid any significant risk to the safe20 ty and soundness of depository institutions or

21 any Federal deposit insurance fund;

22 ‘‘(B) enhance the financial stability of

23 bank holding companies;

24 ‘‘(C) avoid conflicts of interest or other

25 abuses;
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1 ‘‘(D) enhance the privacy of customers of

2 depository institutions; or

3 ‘‘(E) promote the application of national

4 treatment and equality of competitive oppor5 tunity between nonbank affiliates owned or con6 trolled by domestic bank holding companies and

7 nonbank affiliates owned or controlled by for8 eign banks operating in the United States.

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

10 ‘‘(A) review all restrictions or requirements

11 established pursuant to paragraph (1) to deter12 mine whether there is a continuing need for any

13 such restriction or requirement to carry out the

14 purposes of the Act, including any purpose de15 scribed in paragraph (2); and

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

17 requirement the Board finds is no longer re18 quired for such purposes.

19 ‘‘(4) FOREIGN BANKS.—The Board may, by

20 regulation or order, impose restrictions or require21 ments on relationships or transactions between a

22 foreign bank and any affiliate in the United States

23 of such foreign bank that the Board finds are con24 sistent with the public interest, the purposes of this

25 Act, the Financial Services Act of 1999, the Federal
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1 Reserve Act, and other Federal law applicable to for2 eign banks and their affiliates in the United States,

3 and the standards in paragraphs (2) and (3).’’.

4 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

5 (a) EXCLUSIVE COMMISSION AUTHORITY.—

6 (1) IN GENERAL.—Except as provided in para7 graph (3), the Commission shall be the sole Federal

8 agency with authority to inspect and examine any

9 registered investment company that is not a bank

10 holding company or a savings and loan holding com11 pany.

12 (2) PROHIBITION ON BANKING AGENCIES.—Ex13 cept as provided in paragraph (3), a Federal bank14 ing agency may not inspect or examine any reg15 istered investment company that is not a bank hold16 ing company or a savings and loan holding company.

17 (3) CERTAIN EXAMINATIONS AUTHORIZED.—

18 Nothing in this subsection prevents the Federal De19 posit Insurance Corporation, if the Corporation finds

20 it necessary to determine the condition of an insured

21 depository institution for insurance purposes, from

22 examining an affiliate of any insured depository in23 stitution, pursuant to its authority under section

24 10(b)(4) of the Federal Deposit Insurance Act, as

25 may be necessary to disclose fully the relationship
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1 between the depository institution and the affiliate,

2 and the effect of such relationship on the depository

3 institution.

4 (b) EXAMINATION RESULTS AND OTHER INFORMA5 TION.—The Commission shall provide to any Federal

6 banking agency, upon request, the results of any examina7 tion, reports, records, or other information with respect

8 to any registered investment company to the extent nec9 essary for the agency to carry out its statutory responsibil10 ities.

11 (c) DEFINITIONS.—For purposes of this section, the

12 following definitions shall apply:

13 (1) BANK HOLDING COMPANY.—The term

14 ‘‘bank holding company’’ has the same meaning as

15 in section 2 of the Bank Holding Company Act of

16 1956.

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

18 means the Securities and Exchange Commission.

19 (3) FEDERAL BANKING AGENCY.—The term

20 ‘‘Federal banking agency’’ has the same meaning as

21 in section 3(z) of the Federal Deposit Insurance Act.

22 (4) REGISTERED INVESTMENT COMPANY.—The

23 term ‘‘registered investment company’’ means an in24 vestment company which is registered with the Com25 mission under the Investment Company Act of 1940.
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1 (5) SAVINGS AND LOAN HOLDING COMPANY.—

2 The term ‘‘savings and loan holding company’’ has

3 the same meaning as in section 10(a)(1)(D) of the

4 Home Owners’ Loan Act.

5 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU6 PERVISORY, AND ENFORCEMENT AUTHORITY

7 OF THE BOARD.

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

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

10 following new section:

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

13 OF THE BOARD.

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

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

19 any action under or pursuant to any provision of

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

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

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

2 stability of an affiliated depository institution;

3 or

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

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

7 Board shall not take action otherwise permitted

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

9 is not reasonably possible to effectively protect

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

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

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

19 with respect to a financial holding company or a wholesale

20 financial holding company where the purpose or effect of

21 doing so would be to take action indirectly against or with

22 respect to a regulated subsidiary that may not be taken

23 directly against or with respect to such subsidiary in ac24 cordance with subsection (a).
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1 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not2 withstanding subsection (a), the Board may take action

3 under this Act or section 8 of the Federal Deposit Insur4 ance Act to enforce compliance by a regulated subsidiary

5 with Federal law that the Board has specific jurisdiction

6 to enforce against such subsidiary.

7 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur8 poses of this section, the term ‘regulated subsidiary’

9 means any company that is not a bank holding company

10 and is—

11 ‘‘(1) a broker or dealer registered under the Se12 curities Exchange Act of 1934;

13 ‘‘(2) a registered investment adviser, properly

14 registered by or on behalf of either the Securities

15 and Exchange Commission or any State, with re16 spect to the investment advisory activities of such in17 vestment adviser and activities incidental to such in18 vestment advisory activities;

19 ‘‘(3) an investment company registered under

20 the Investment Company Act of 1940;

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

22 agency subject to supervision by a State insurance

23 commission, agency, or similar authority; or

24 ‘‘(5) an entity subject to regulation by the Com25 modity Futures Trading Commission, with respect
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1 to the commodities activities of such entity and ac2 tivities incidental to such commodities activities.’’.

3 SEC. 117. INTERAGENCY CONSULTATION.

4 (a) PURPOSE.—It is the intention of Congress that

5 the Board of Governors of the Federal Reserve System,

6 as the umbrella supervisor for financial holding compa7 nies, and the State insurance regulators, as the functional

8 regulators of companies engaged in insurance activities,

9 coordinate efforts to supervise companies that control both

10 a depository institution and a company engaged in insur11 ance activities regulated under State law. In particular,

12 Congress believes that the Board and the State insurance

13 regulators should share, on a confidential basis, informa14 tion relevant to the supervision of companies that control

15 both a depository institution and a company engaged in

16 insurance activities, including information regarding the

17 financial health of the consolidated organization and infor18 mation regarding transactions and relationships between

19 insurance companies and affiliated depository institutions.

20 The appropriate Federal banking agencies for depository

21 institutions should also share, on a confidential basis, in22 formation with the relevant State insurance regulators re23 garding transactions and relationships between depository

24 institutions and affiliated companies engaged in insurance

25 activities. The purpose of this section is to encourage this
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1 coordination and confidential sharing of information, and

2 to thereby improve both the efficiency and the quality of

3 the supervision of financial holding companies and their

4 affiliated depository institutions and companies engaged

5 in insurance activities.

6 (b) EXAMINATION RESULTS AND OTHER INFORMA7 TION.—

8 (1) INFORMATION OF THE BOARD.—Upon the

9 request of the appropriate insurance regulator of

10 any State, the Board may provide any information

11 of the Board regarding the financial condition, risk

12 management policies, and operations of any financial

13 holding company that controls a company that is en14 gaged in insurance activities and is regulated by

15 such State insurance regulator, and regarding any

16 transaction or relationship between such an insur17 ance company and any affiliated depository institu18 tion. The Board may provide any other information

19 to the appropriate State insurance regulator that the

20 Board believes is necessary or appropriate to permit

21 the State insurance regulator to administer and en22 force applicable State insurance laws.

23 (2) BANKING AGENCY INFORMATION.—Upon

24 the request of the appropriate insurance regulator of

25 any State, the appropriate Federal banking agency
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1 may provide any information of the agency regard2 ing any transaction or relationship between a deposi3 tory institution supervised by such Federal banking

4 agency and any affiliated company that is engaged

5 in insurance activities regulated by such State insur6 ance regulator. The appropriate Federal banking

7 agency may provide any other information to the ap8 propriate State insurance regulator that the agency

9 believes is necessary or appropriate to permit the

10 State insurance regulator to administer and enforce

11 applicable State insurance laws.

12 (3) STATE INSURANCE REGULATOR INFORMA13 TION.—Upon the request of the Board or the appro14 priate Federal banking agency, a State insurance

15 regulator may provide any examination or other re16 ports, records, or other information to which such

17 insurance regulator may have access with respect to

18 a company which—

19 (A) is engaged in insurance activities and

20 regulated by such insurance regulator; and

21 (B) is an affiliate of an insured depository

22 institution, wholesale financial institution, or fi23 nancial holding company.

24 (c) CONSULTATION.—Before making any determina25 tion relating to the initial affiliation of, or the continuing
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1 affiliation of, an insured depository institution, wholesale

2 financial institution, or financial holding company with a

3 company engaged in insurance activities, the appropriate

4 Federal banking agency shall consult with the appropriate

5 State insurance regulator of such company and take the

6 views of such insurance regulator into account in making

7 such determination.

8 (d) EFFECT ON OTHER AUTHORITY.—Nothing in

9 this section shall limit in any respect the authority of the

10 appropriate Federal banking agency with respect to an in11 sured depository institution, wholesale financial institu12 tion, or bank holding company or any affiliate thereof

13 under any provision of law.

14 (e) CONFIDENTIALITY AND PRIVILEGE.—

15 (1) CONFIDENTIALITY.—The appropriate Fed16 eral banking agency shall not provide any informa17 tion or material that is entitled to confidential treat18 ment under applicable Federal banking agency regu19 lations, or other applicable law, to a State insurance

20 regulator unless such regulator agrees to maintain

21 the information or material in confidence and to

22 take all reasonable steps to oppose any effort to se23 cure disclosure of the information or material by the

24 regulator. The appropriate Federal banking agency

25 shall treat as confidential any information or mate-
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1 rial obtained from a State insurance regulator that

2 is entitled to confidential treatment under applicable

3 State regulations, or other applicable law, and take

4 all reasonable steps to oppose any effort to secure

5 disclosure of the information or material by the Fed6 eral banking agency.

7 (2) PRIVILEGE.—The provision pursuant to this

8 section of information or material by a Federal

9 banking agency or State insurance regulator shall

10 not constitute a waiver of, or otherwise affect, any

11 privilege to which the information or material is oth12 erwise subject.

13 (f) DEFINITIONS.—For purposes of this section, the

14 following definitions shall apply:

15 (1) APPROPRIATE FEDERAL BANKING AGENCY;

16 INSURED DEPOSITORY INSTITUTION.—The terms

17 ‘‘appropriate Federal banking agency’’ and ‘‘insured

18 depository institution’’ have the same meanings as

19 in section 3 of the Federal Deposit Insurance Act.

20 (2) BOARD; FINANCIAL HOLDING COMPANY;

21 AND WHOLESALE FINANCIAL INSTITUTION.—The

22 terms ‘‘Board’’, ‘‘financial holding company’’, and

23 ‘‘wholesale financial institution’’ have the same

24 meanings as in section 2 of the Bank Holding Com25 pany Act of 1956.
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1 SEC. 118. EQUIVALENT REGULATION AND SUPERVISION.

2 (a) IN GENERAL.—Notwithstanding any other provi3 sion of law, the provisions of—

4 (1) section 5(c) of the Bank Holding Company

5 Act of 1956 (as amended by this Act) that limit the

6 authority of the Board of Governors of the Federal

7 Reserve System to require reports from, to make ex8 aminations of, or to impose capital requirements on

9 bank holding companies and their nonbank subsidi10 aries; and

11 (2) section 10A of the Bank Holding Company

12 Act of 1956 (as added by this Act) that limit what13 ever authority the Board might otherwise have to

14 take direct or indirect action with respect to bank

15 holding companies and their nonbank subsidiaries,

16 shall also limit whatever authority that the Federal De17 posit Insurance Corporation might otherwise have under

18 any statute to require reports, make examinations, impose

19 capital requirements or take any other direct or indirect

20 action with respect to bank holding companies and their

21 nonbank subsidiaries (including nonbank subsidiaries of

22 depository institutions), subject to the same standards and

23 requirements as are applicable to the Board under such

24 provisions.

25 (b) CERTAIN EXAMINATIONS AUTHORIZED.—Noth26 ing in this section shall prevent the Federal Deposit Insur-
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1 ance Corporation, if the Corporation finds it necessary to

2 determine the condition of an insured depository institu3 tion for insurance purposes, from examining an affiliate

4 of any insured depository institution, pursuant to its au5 thority under section 10(b)(4) of the Federal Deposit In6 surance Act, as may be necessary to disclose fully the rela7 tionship between the depository institution and the affili8 ate, and the effect of such relationship on the depository

9 institution.

10 SEC. 119. PROHIBITION ON FDIC ASSISTANCE TO AFFILI11 ATES AND SUBSIDIARIES.

12 Section 11(a)(4)(B) of the Federal Deposit Insurance

13 Act (12 U.S.C. 1821(a)(4)(B)) is amended by striking ‘‘to

14 benefit any shareholder of’’ and inserting ‘‘to benefit any

15 shareholder, affiliate (other than an insured depository in16 stitution that receives assistance in accordance with the

17 provisions of this Act), or subsidiary of’’.

18 Subtitle C—Subsidiaries of

19 National Banks

20 SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF

21 NATIONAL BANKS.

22 (a) FINANCIAL SUBSIDIARIES OF NATIONAL

23 BANKS.—Chapter one of title LXII of the Revised Stat24 utes of United States (12 U.S.C. 21 et seq.) is amended—
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1 (1) by redesignating section 5136A as section

2 5136C; and

3 (2) by inserting after section 5136 (12 U.S.C.

4 24) the following new section:

5 ‘‘SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

6 ‘‘(a) SUBSIDIARIES OF NATIONAL BANKS AUTHOR7 IZED TO ENGAGE IN FINANCIAL ACTIVITIES.—

8 ‘‘(1) EXCLUSIVE AUTHORITY.—No provision of

9 section 5136 or any other provision of this title

10 LXII of the Revised Statutes shall be construed as

11 authorizing a subsidiary of a national bank to en12 gage in, or own any share of or any other interest

13 in any company engaged in, any activity that—

14 ‘‘(A) is not permissible for a national bank

15 to engage in directly; or

16 ‘‘(B) is conducted under terms or condi17 tions other than those that would govern the

18 conduct of such activity by a national bank,

19 unless a national bank is specifically authorized by

20 the express terms of a Federal statute and not by

21 implication or interpretation to acquire shares of or

22 an interest in, or to control, such subsidiary, such as

23 by paragraph (2) of this subsection and section 25A

24 of the Federal Reserve Act.
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1 ‘‘(2) SPECIFIC AUTHORIZATION TO CONDUCT

2 AGENCY ACTIVITIES WHICH ARE FINANCIAL IN NA3 TURE.—A national bank may control a company, or

4 hold an interest in a company that is wholly owned

5 by an insured depository institution or subsidiary

6 thereof, that engages in agency activities that have

7 been determined to be financial in nature or inciden8 tal to such financial activities pursuant to and in ac9 cordance with section 6(c) of the Bank Holding

10 Company Act of 1956 if—

11 ‘‘(A) the company engages in such activi12 ties solely as agent and not directly or indirectly

13 as principal;

14 ‘‘(B) the national bank is well capitalized

15 and well managed;

16 ‘‘(C) all depository institution affiliates of

17 the national bank are well capitalized and well

18 managed; and

19 ‘‘(D) the bank has received the approval of

20 the Comptroller of the Currency.

21 ‘‘(3) COMMUNITY NEEDS REQUIREMENT.—A

22 national bank may not acquire control of, or an in23 terest in, any company under paragraph (2) unless

24 the national bank, and all depository institution af25 filiates of the national bank, have achieved a rating
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1 of ‘satisfactory record of meeting community credit

2 needs’, or better, at the most recent examination of

3 each such bank or institution under the Community

4 Reinvestment Act of 1977.

5 ‘‘(4) DEFINITIONS.—For purposes of this sec6 tion, the following definitions shall apply:

7 ‘‘(A) COMPANY; CONTROL; AFFILIATE;

8 SUBSIDIARY.—The terms ‘company’, ‘control’,

9 ‘affiliate’, and ‘subsidiary’ have the same mean10 ings as in section 2 of the Bank Holding Com11 pany Act of 1956.

12 ‘‘(B) WELL CAPITALIZED.—The term ‘well

13 capitalized’ has the same meaning as in section

14 38 of the Federal Deposit Insurance Act and,

15 for purposes of this section, the Comptroller

16 shall have exclusive jurisdiction to determine

17 whether a national bank is well capitalized.

18 ‘‘(C) WELL MANAGED.—The term ‘well

19 managed’ means—

20 ‘‘(i) in the case of a depository insti21 tution that has been examined, unless oth22 erwise determined in writing by the appro23 priate Federal banking agency—

24 ‘‘(I) the achievement of a com25 posite rating of 1 or 2 under the Uni-
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1 form Financial Institutions Rating

2 System (or an equivalent rating under

3 an equivalent rating system) in con4 nection with the most recent examina5 tion or subsequent review of the de6 pository institution; and

7 ‘‘(II) at least a rating of 2 for

8 management, if that rating is given;

9 or

10 ‘‘(ii) in the case of any depository in11 stitution that has not been examined, the

12 existence and use of managerial resources

13 that the appropriate Federal banking agen14 cy determines are satisfactory.

15 ‘‘(D) INCORPORATED DEFINITIONS.—The

16 terms ‘appropriate Federal banking agency’ and

17 ‘depository institution’ have the same meanings

18 as in section 3 of the Federal Deposit Insur19 ance Act.’’.

20 (b) LIMITATION ON CERTAIN ACTIVITIES IN SUB21 SIDIARIES.—Section 21(a)(1) of the Banking Act of 1933

22 (12 U.S.C. 378(a)(1)) is amended—

23 (1) by inserting ‘‘, or to be a subsidiary of any

24 person, firm, corporation, association, business trust,

25 or similar organization engaged (unless such subsidi-
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1 ary (A) was engaged in such securities activities as

2 of September 15, 1997, or (B) is a nondepository

3 subsidiary of (i) a foreign bank and is not also a

4 subsidiary of a domestic depository institution, or

5 (ii) an unincorporated private bank that is not in6 sured under the Federal Deposit Insurance Act),’’

7 after ‘‘to engage at the same time’’; and

8 (2) by inserting ‘‘or any subsidiary of such

9 bank, company, or institution’’ after ‘‘or private

10 bankers’’.

11 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

12 (1) ANTITYING.—Section 106(a) of the Bank

13 Holding Company Act Amendments of 1970 is

14 amended by adding at the end the following new

15 sentence: ‘‘For purposes of this section, a subsidiary

16 of a national bank which engages in activities as an

17 agent pursuant to section 5136A(a)(2) shall be

18 deemed to be a subsidiary of a bank holding com19 pany, and not a subsidiary of a bank.’’.

20 (2) SECTION 23B.—Section 23B(a) of the Fed21 eral Reserve Act (12 U.S.C. 371c–1(a)) is amended

22 by adding at the end the following new paragraph:

23 ‘‘(4) SUBSIDIARY OF NATIONAL BANK.—For

24 purposes of this section, a subsidiary of a national

25 bank which engages in activities as an agent pursu-
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1 ant to section 5136A(a)(2) shall be deemed to be an

2 affiliate of the national bank and not a subsidiary of

3 the bank.’’.

4 (d) CLERICAL AMENDMENT.—The table of sections

5 for chapter one of title LXII of the Revised Statutes of

6 the United States is amended—

7 (1) by redesignating the item relating to section

8 5136A as section 5136C; and

9 (2) by inserting after the item relating to sec10 tion 5136 the following new item:

‘‘5136A. Financial subsidiaries of national banks.’’.

11 SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY

12 INSTITUTION LIABILITY FOR OBLIGATIONS

13 OF AFFILIATES.

14 (a) IN GENERAL.—Chapter 47 of title 18, United

15 States Code, is amended by inserting after section 1007

16 the following new section:

17 ‘‘§ 1008. Misrepresentations regarding financial insti18 tution liability for obligations of affiliates

19 ‘‘(a) IN GENERAL.—No institution-affiliated party of

20 an insured depository institution or institution-affiliated

21 party of a subsidiary or affiliate of an insured depository

22 institution shall fraudulently represent that the institution

23 is or will be liable for any obligation of a subsidiary or

24 other affiliate of the institution.
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1 ‘‘(b) CRIMINAL PENALTY.—Whoever violates sub2 section (a) shall be fined under this title, imprisoned for

3 not more than 1 year, or both.

4 ‘‘(c) INSTITUTION-AFFILIATED PARTY DEFINED.—

5 For purposes of this section, the term ‘institution-affili6 ated party’ with respect to a subsidiary or affiliate has

7 the same meaning as in section 3 of the Federal Deposit

8 Insurance Act, except that references to an insured deposi9 tory institution shall be deemed to be references to a sub10 sidiary or affiliate of an insured depository institution.

11 ‘‘(d) OTHER DEFINITIONS.—For purposes of this

12 section, the terms ‘affiliate’, ‘insured depository institu13 tion’, and ‘subsidiary’ have same meanings as in section

14 3 of the Federal Deposit Insurance Act.’’.

15 (b) CLERICAL AMENDMENT.—The table of sections

16 for chapter 47 of title 18, United States Code, is amended

17 by inserting after the item relating to section 1007 the

18 following new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

19 SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE20 SERVE ACT.

21 Section 11 of the Federal Reserve Act (12 U.S.C.

22 248) is amended by striking the paragraph designated as

23 ‘‘(m)’’ and inserting ‘‘(m) [Repealed]’’.
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1 Subtitle D—Wholesale Financial

2 Holding Companies; Wholesale

3 Financial Institutions

4 CHAPTER 1—WHOLESALE FINANCIAL

5 HOLDING COMPANIES

6 SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES

7 ESTABLISHED.

8 (a) DEFINITION AND SUPERVISION.—Section 10 of

9 the Bank Holding Company Act of 1956 (12 U.S.C. 1841

10 et seq.) is amended to read as follows:

11 ‘‘SEC. 10. WHOLESALE FINANCIAL HOLDING COMPANIES.

12 ‘‘(a) COMPANIES THAT CONTROL WHOLESALE FI13 NANCIAL INSTITUTIONS.—

14 ‘‘(1) WHOLESALE FINANCIAL HOLDING COM15 PANY DEFINED.—The term ‘wholesale financial

16 holding company’ means any company that—

17 ‘‘(A) is registered as a bank holding com18 pany;

19 ‘‘(B) is predominantly engaged in financial

20 activities as defined in section 6(f)(2);

21 ‘‘(C) controls 1 or more wholesale financial

22 institutions;

23 ‘‘(D) does not control—

24 ‘‘(i) a bank other than a wholesale fi25 nancial institution;
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1 ‘‘(ii) an insured bank other than an

2 institution permitted under subparagraph

3 (D), (F), or (G) of section 2(c)(2); or

4 ‘‘(iii) a savings association; and

5 ‘‘(E) is not a foreign bank (as defined in

6 section 1(b)(7) of the International Banking

7 Act of 1978).

8 ‘‘(2) SAVINGS ASSOCIATION TRANSITION PE9 RIOD.—Notwithstanding paragraph (1)(D)(iii), the

10 Board may permit a company that controls a sav11 ings association and that otherwise meets the re12 quirements of paragraph (1) to become supervised

13 under paragraph (1), if the company divests control

14 of any such savings association within such period,

15 not to exceed 5 years after becoming supervised

16 under paragraph (1), as permitted by the Board.

17 ‘‘(b) SUPERVISION BY THE BOARD.—

18 ‘‘(1) IN GENERAL.—The provisions of this sec19 tion shall govern the reporting, examination, and

20 capital requirements of wholesale financial holding

21 companies.

22 ‘‘(2) REPORTS.—

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

24 to time may require any wholesale financial

25 holding company and any subsidiary of such
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1 company to submit reports under oath to keep

2 the Board informed as to—

3 ‘‘(i) the company’s or subsidiary’s ac4 tivities, financial condition, policies, sys5 tems for monitoring and controlling finan6 cial and operational risks, and transactions

7 with depository institution subsidiaries of

8 the holding company; and

9 ‘‘(ii) the extent to which the company

10 or subsidiary has complied with the provi11 sions of this Act and regulations prescribed

12 and orders issued under this Act.

13 ‘‘(B) USE OF EXISTING REPORTS.—

14 ‘‘(i) IN GENERAL.—The Board shall,

15 to the fullest extent possible, accept re16 ports in fulfillment of the Board’s report17 ing requirements under this paragraph

18 that the wholesale financial holding com19 pany or any subsidiary of such company

20 has provided or been required to provide to

21 other Federal and State supervisors or to

22 appropriate self-regulatory organizations.

23 ‘‘(ii) AVAILABILITY.—A wholesale fi24 nancial holding company or a subsidiary of

25 such company shall provide to the Board,
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1 at the request of the Board, a report re2 ferred to in clause (i).

3 ‘‘(C) EXEMPTIONS FROM REPORTING RE4 QUIREMENTS.—

5 ‘‘(i) IN GENERAL.—The Board may,

6 by regulation or order, exempt any com7 pany or class of companies, under such

8 terms and conditions and for such periods

9 as the Board shall provide in such regula10 tion or order, from the provisions of this

11 paragraph and any regulation prescribed

12 under this paragraph.

13 ‘‘(ii) CRITERIA FOR CONSIDER14 ATION.—In making any determination

15 under clause (i) with regard to any exemp16 tion under such clause, the Board shall

17 consider, among such other factors as the

18 Board may determine to be appropriate,

19 the following factors:

20 ‘‘(I) Whether information of the

21 type required under this paragraph is

22 available from a supervisory agency

23 (as defined in section 1101(7) of the

24 Right to Financial Privacy Act of
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1 1978) or a foreign regulatory author2 ity of a similar type.

3 ‘‘(II) The primary business of the

4 company.

5 ‘‘(III) The nature and extent of

6 the domestic and foreign regulation of

7 the activities of the company.

8 ‘‘(3) EXAMINATIONS.—

9 ‘‘(A) LIMITED USE OF EXAMINATION AU10 THORITY.—The Board may make examinations

11 of each wholesale financial holding company

12 and each subsidiary of such company in order

13 to—

14 ‘‘(i) inform the Board regarding the

15 nature of the operations and financial con16 dition of the wholesale financial holding

17 company and its subsidiaries;

18 ‘‘(ii) inform the Board regarding—

19 ‘‘(I) the financial and operational

20 risks within the wholesale financial

21 holding company system that may af22 fect any depository institution owned

23 by such holding company; and
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1 ‘‘(II) the systems of the holding

2 company and its subsidiaries for mon3 itoring and controlling those risks;

4 and

5 ‘‘(iii) monitor compliance with the

6 provisions of this Act and those governing

7 transactions and relationships between any

8 depository institution controlled by the

9 wholesale financial holding company and

10 any of the company’s other subsidiaries.

11 ‘‘(B) RESTRICTED FOCUS OF EXAMINA12 TIONS.—The Board shall, to the fullest extent

13 possible, limit the focus and scope of any exam14 ination of a wholesale financial holding com15 pany under this paragraph to—

16 ‘‘(i) the holding company; and

17 ‘‘(ii) any subsidiary (other than an in18 sured depository institution subsidiary) of

19 the holding company that, because of the

20 size, condition, or activities of the subsidi21 ary, the nature or size of transactions be22 tween such subsidiary and any affiliated

23 depository institution, or the centralization

24 of functions within the holding company

25 system, could have a materially adverse ef-
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1 fect on the safety and soundness of any de2 pository institution affiliate of the holding

3 company.

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

6 possible, use the reports of examination of de7 pository institutions made by the Comptroller of

8 the Currency, the Federal Deposit Insurance

9 Corporation, the Director of the Office of Thrift

10 Supervision or the appropriate State depository

11 institution supervisory authority for the pur12 poses of this section.

13 ‘‘(D) DEFERENCE TO OTHER EXAMINA14 TIONS.—The Board shall, to the fullest extent

15 possible, address the circumstances which might

16 otherwise permit or require an examination by

17 the Board by forgoing an examination and by

18 instead reviewing the reports of examination

19 made of—

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

21 any registered investment adviser by or on

22 behalf of the Commission; and

23 ‘‘(ii) any licensed insurance company

24 by or on behalf of any State government
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1 insurance agency responsible for the super2 vision of the insurance company.

3 ‘‘(E) CONFIDENTIALITY OF REPORTED IN4 FORMATION.—

5 ‘‘(i) IN GENERAL.—Notwithstanding

6 any other provision of law, the Board shall

7 not be compelled to disclose any nonpublic

8 information required to be reported under

9 this paragraph, or any information sup10 plied to the Board by any domestic or for11 eign regulatory agency, that relates to the

12 financial or operational condition of any

13 wholesale financial holding company or any

14 subsidiary of such company.

15 ‘‘(ii) COMPLIANCE WITH REQUESTS

16 FOR INFORMATION.—No provision of this

17 subparagraph shall be construed as author18 izing the Board to withhold information

19 from the Congress, or preventing the

20 Board from complying with a request for

21 information from any other Federal de22 partment or agency for purposes within the

23 scope of such department’s or agency’s ju24 risdiction, or from complying with any

25 order of a court of competent jurisdiction
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1 in an action brought by the United States

2 or the Board.

3 ‘‘(iii) COORDINATION WITH OTHER

4 LAW.—For purposes of section 552 of title

5 5, United States Code, this subparagraph

6 shall be considered to be a statute de7 scribed in subsection (b)(3)(B) of such sec8 tion.

9 ‘‘(iv) DESIGNATION OF CONFIDENTIAL

10 INFORMATION.—In prescribing regulations

11 to carry out the requirements of this sub12 section, the Board shall designate informa13 tion described in or obtained pursuant to

14 this paragraph as confidential information.

15 ‘‘(F) COSTS.—The cost of any examination

16 conducted by the Board under this section may

17 be assessed against, and made payable by, the

18 wholesale financial holding company.

19 ‘‘(4) CAPITAL ADEQUACY GUIDELINES.—

20 ‘‘(A) CAPITAL ADEQUACY PROVISIONS.—

21 Subject to the requirements of, and solely in ac22 cordance with, the terms of this paragraph, the

23 Board may adopt capital adequacy rules or

24 guidelines for wholesale financial holding com25 panies.
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1 ‘‘(B) METHOD OF CALCULATION.—In de2 veloping rules or guidelines under this para3 graph, the following provisions shall apply:

4 ‘‘(i) FOCUS ON DOUBLE LEVERAGE.—

5 The Board shall focus on the use by whole6 sale financial holding companies of debt

7 and other liabilities to fund capital invest8 ments in subsidiaries.

9 ‘‘(ii) NO UNWEIGHTED CAPITAL

10 RATIO.—The Board shall not, by regula11 tion, guideline, order, or otherwise, impose

12 under this section a capital ratio that is

13 not based on appropriate risk-weighting

14 considerations.

15 ‘‘(iii) NO CAPITAL REQUIREMENT ON

16 REGULATED ENTITIES.—The Board shall

17 not, by regulation, guideline, order or oth18 erwise, prescribe or impose any capital or

19 capital adequacy rules, standards, guide20 lines, or requirements upon any subsidiary

21 that—

22 ‘‘(I) is not a depository institu23 tion; and

24 ‘‘(II) is in compliance with appli25 cable capital requirements of another
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1 Federal regulatory authority (includ2 ing the Securities and Exchange Com3 mission) or State insurance authority.

4 ‘‘(iv) CERTAIN SUBSIDIARIES.—The

5 Board shall not, by regulation, guideline,

6 order or otherwise, prescribe or impose any

7 capital or capital adequacy rules, stand8 ards, guidelines, or requirements upon any

9 subsidiary that is not a depository institu10 tion and that is registered as an invest11 ment adviser under the Investment Advis12 ers Act of 1940, except that this clause

13 shall not be construed as preventing the

14 Board from imposing capital or capital

15 adequacy rules, guidelines, standards, or

16 requirements with respect to activities of a

17 registered investment adviser other than

18 investment advisory activities or activities

19 incidental to investment advisory activities.

20 ‘‘(v) LIMITATIONS ON INDIRECT AC21 TION.—In developing, establishing, or as22 sessing holding company capital or capital

23 adequacy rules, guidelines, standards, or

24 requirements for purposes of this para25 graph, the Board shall not take into ac-
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1 count the activities, operations, or invest2 ments of an affiliated investment company

3 registered under the Investment Company

4 Act of 1940, if the investment company is

5 not—

6 ‘‘(I) a bank holding company; or

7 ‘‘(II) controlled by a bank hold8 ing company by reason of ownership

9 by the bank holding company (includ10 ing through all of its affiliates) of 25

11 percent or more of the shares of the

12 investment company, where the shares

13 owned by the bank holding company

14 have a market value equal to more

15 than $1,000,000.

16 ‘‘(vi) APPROPRIATE EXCLUSIONS.—

17 The Board shall take full account of—

18 ‘‘(I) the capital requirements

19 made applicable to any subsidiary that

20 is not a depository institution by an21 other Federal regulatory authority or

22 State insurance authority; and

23 ‘‘(II) industry norms for capital24 ization of a company’s unregulated

25 subsidiaries and activities.
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1 ‘‘(vii) INTERNAL RISK MANAGEMENT

2 MODELS.—The Board may incorporate in3 ternal risk management models of whole4 sale financial holding companies into its

5 capital adequacy guidelines or rules and

6 may take account of the extent to which

7 resources of a subsidiary depository insti8 tution may be used to service the debt or

9 other liabilities of the wholesale financial

10 holding company.

11 ‘‘(c) NONFINANCIAL ACTIVITIES AND INVEST12 MENTS.—

13 ‘‘(1) GRANDFATHERED ACTIVITIES.—

14 ‘‘(A) IN GENERAL.—Notwithstanding sec15 tion 4(a), a company that becomes a wholesale

16 financial holding company may continue to en17 gage, directly or indirectly, in any activity and

18 may retain ownership and control of shares of

19 a company engaged in any activity if—

20 ‘‘(i) on the date of the enactment of

21 the Financial Services Act of 1999, such

22 wholesale financial holding company was

23 lawfully engaged in that nonfinancial activ24 ity, held the shares of such company, or

25 had entered into a contract to acquire
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1 shares of any company engaged in such ac2 tivity; and

3 ‘‘(ii) the company engaged in such ac4 tivity continues to engage only in the same

5 activities that such company conducted on

6 the date of the enactment of the Financial

7 Services Act of 1999, and other activities

8 permissible under this Act.

9 ‘‘(B) NO EXPANSION OF GRANDFATHERED

10 COMMERCIAL ACTIVITIES THROUGH MERGER OR

11 CONSOLIDATION.—A wholesale financial holding

12 company that engages in activities or holds

13 shares pursuant to this paragraph, or a subsidi14 ary of such wholesale financial holding com15 pany, may not acquire, in any merger, consoli16 dation, or other type of business combination,

17 assets of any other company which is engaged

18 in any activity which the Board has not deter19 mined to be financial in nature or incidental to

20 activities that are financial in nature under sec21 tion 6(c).

22 ‘‘(C) LIMITATION TO SINGLE EXEMP23 TION.—No company that engages in any activ24 ity or controls any shares under subsection (f)
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1 of section 6 may engage in any activity or own

2 any shares pursuant to this paragraph.

3 ‘‘(2) COMMODITIES.—

4 ‘‘(A) IN GENERAL.—Notwithstanding sec5 tion 4(a), a wholesale financial holding company

6 which was predominately engaged as of Janu7 ary 1, 1997, in financial activities in the United

8 States (or any successor to any such company)

9 may engage in, or directly or indirectly own or

10 control shares of a company engaged in, activi11 ties related to the trading, sale, or investment

12 in commodities and underlying physical prop13 erties that were not permissible for bank hold14 ing companies to conduct in the United States

15 as of January 1, 1997, if such wholesale finan16 cial holding company, or any subsidiary of such

17 holding company, was engaged directly, indi18 rectly, or through any such company in any of

19 such activities as of January 1, 1997, in the

20 United States.

21 ‘‘(B) LIMITATION.—The attributed aggre22 gate consolidated assets of a wholesale financial

23 holding company held under the authority

24 granted under this paragraph and not otherwise

25 permitted to be held by all wholesale financial
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1 holding companies under this section may not

2 exceed 5 percent of the total consolidated assets

3 of the wholesale financial holding company, ex4 cept that the Board may increase such percent5 age of total consolidated assets by such

6 amounts and under such circumstances as the

7 Board considers appropriate, consistent with

8 the purposes of this Act.

9 ‘‘(3) CROSS MARKETING RESTRICTIONS.—A

10 wholesale financial holding company shall not

11 permit—

12 ‘‘(A) any company whose shares it owns or

13 controls pursuant to paragraph (1) or (2) to

14 offer or market any product or service of an af15 filiated wholesale financial institution; or

16 ‘‘(B) any affiliated wholesale financial in17 stitution to offer or market any product or serv18 ice of any company whose shares are owned or

19 controlled by such wholesale financial holding

20 company pursuant to such paragraphs.

21 ‘‘(d) QUALIFICATION OF FOREIGN BANK AS WHOLE22 SALE FINANCIAL HOLDING COMPANY.—

23 ‘‘(1) IN GENERAL.—Any foreign bank, or any

24 company that owns or controls a foreign bank, that

25 operates a branch, agency, or commercial lending
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1 company in the United States, including a foreign

2 bank or company that owns or controls a wholesale

3 financial institution, may request a determination

4 from the Board that such bank or company be treat5 ed as a wholesale financial holding company (other

6 than for purposes of subsection (c)), subject to such

7 conditions as the Board deems appropriate, giving

8 due regard to the principle of national treatment

9 and equality of competitive opportunity and the re10 quirements imposed on domestic banks and compa11 nies.

12 ‘‘(2) CONDITIONS FOR TREATMENT AS A

13 WHOLESALE FINANCIAL HOLDING COMPANY.—A for14 eign bank and a company that owns or controls a

15 foreign bank may not be treated as a wholesale fi16 nancial holding company unless the bank and com17 pany meet and continue to meet the following cri18 teria:

19 ‘‘(A) NO INSURED DEPOSITS.—No deposits

20 held directly by a foreign bank or through an

21 affiliate (other than an institution described in

22 subparagraph (D) or (F) of section 2(c)(2)) are

23 insured under the Federal Deposit Insurance

24 Act.
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1 ‘‘(B) CAPITAL STANDARDS.—The foreign

2 bank meets risk-based capital standards com3 parable to the capital standards required for a

4 wholesale financial institution, giving due re5 gard to the principle of national treatment and

6 equality of competitive opportunity.

7 ‘‘(C) TRANSACTION WITH AFFILIATES.—

8 Transactions between a branch, agency, or com9 mercial lending company subsidiary of the for10 eign bank in the United States, and any securi11 ties affiliate or company in which the foreign

12 bank (or any company that owns or controls

13 such foreign bank), has invested and which en14 gages in any activity authorized only as a result

15 of the application of subsection (c) or (g) of

16 section 6, comply with the provisions of sections

17 23A and 23B of the Federal Reserve Act in the

18 same manner and to the same extent as such

19 transactions would be required to comply with

20 such sections if the foreign bank were a mem21 ber bank.

22 ‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL

23 INSTITUTION.—Any foreign bank which is, or is af24 filiated with a company which is, treated as a whole25 sale financial holding company under this subsection
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1 shall be treated as a wholesale financial institution

2 for purposes of paragraphs (1)(C) and (3) of section

3 9B(c) of the Federal Reserve Act, and any such for4 eign bank or company shall be subject to paragraphs

5 (3), (4), and (5) of section 9B(d) of the Federal Re6 serve Act, except that the Board may adopt such

7 modifications, conditions, or exemptions as the

8 Board deems appropriate, giving due regard to the

9 principle of national treatment and equality of com10 petitive opportunity.

11 ‘‘(4) SUPERVISION OF FOREIGN BANK WHICH

12 MAINTAINS NO BANKING PRESENCE OTHER THAN

13 CONTROL OF A WHOLESALE FINANCIAL INSTITU14 TION.—A foreign bank that owns or controls a

15 wholesale financial institution but does not operate

16 a branch, agency, or commercial lending company in

17 the United States (and any company that owns or

18 controls such foreign bank) may request a deter19 mination from the Board that such bank or com20 pany be treated as a wholesale financial holding

21 company, except that such bank or company shall be

22 subject to the restrictions of paragraphs (2)(A) and

23 (3) of this subsection.

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

25 section shall not be construed as limiting the author-
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1 ity of the Board under the International Banking

2 Act of 1978 with respect to the regulation, super3 vision, or examination of foreign banks and their of4 fices and affiliates in the United States.’’.

5 (b) UNINSURED STATE BANKS.—Section 9 of the

6 Federal Reserve Act (12 U.S.C. 321 et seq.) is amended

7 by adding at the end the following new paragraph:

8 ‘‘(24) ENFORCEMENT AUTHORITY OVER UNIN9 SURED STATE MEMBER BANKS.—Section 3(u) of the

10 Federal Deposit Insurance Act, subsections (j) and

11 (k) of section 7 of such Act, and subsections (b)

12 through (n), (s), (u), and (v) of section 8 of such

13 Act shall apply to an uninsured State member bank

14 in the same manner and to the same extent such

15 provisions apply to an insured State member bank

16 and any reference in any such provision to ‘insured

17 depository institution’ shall be deemed to be a ref18 erence to ‘uninsured State member bank’ for pur19 poses of this paragraph.’’.

20 SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

21 (a) FEDERAL RESERVE ACT.—The last sentence of

22 the eighth undesignated paragraph of section 9 of the

23 Federal Reserve Act (12 U.S.C. 326) is amended to read

24 as follows: ‘‘The Board of Governors of the Federal Re25 serve System, at its discretion, may furnish reports of ex-
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1 amination or other confidential supervisory information

2 concerning State member banks or any other entities ex3 amined under any other authority of the Board to any

4 Federal or State authorities with supervisory or regulatory

5 authority over the examined entity, to officers, directors,

6 or receivers of the examined entity, and to any other per7 son that the Board determines to be proper.’’.

8 (b) COMMODITY FUTURES TRADING COMMISSION.—

9 The Right to Financial Privacy Act of 1978 (12 U.S.C.

10 3401 et seq.) is amended—

11 (1) in section 1101(7) (12 U.S.C. 3401(7))—

12 (A) by redesignating subparagraphs (G)

13 and (H) as subparagraphs (H) and (I), respec14 tively; and

15 (B) by inserting after subparagraph (F)

16 the following new subparagraph:

17 ‘‘(G) the Commodity Futures Trading

18 Commission; or’’; and

19 (2) in section 1112(e) (12 U.S.C. 3412(e)), by

20 striking ‘‘and the Securities and Exchange Commis21 sion’’ and inserting ‘‘, the Securities and Exchange

22 Commission, and the Commodity Futures Trading

23 Commission’’.

24 SEC. 133. CONFORMING AMENDMENTS.

25 (a) BANK HOLDING COMPANY ACT OF 1956.—
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1 (1) DEFINITIONS.—Section 2 of the Bank

2 Holding Company Act of 1956 (12 U.S.C. 1842) is

3 amended by adding at the end the following new

4 subsections:

5 ‘‘(p) WHOLESALE FINANCIAL INSTITUTION.—The

6 term ‘wholesale financial institution’ means a wholesale fi7 nancial institution subject to section 9B of the Federal

8 Reserve Act.

9 ‘‘(q) COMMISSION.—The term ‘Commission’ means

10 the Securities and Exchange Commission.

11 ‘‘(r) DEPOSITORY INSTITUTION.—The term ‘deposi12 tory institution’—

13 ‘‘(1) has the same meaning as in section 3 of

14 the Federal Deposit Insurance Act; and

15 ‘‘(2) includes a wholesale financial institution.’’.

16 (2) DEFINITION OF BANK INCLUDES WHOLE17 SALE FINANCIAL INSTITUTION.—Section 2(c)(1) of

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

19 1841(c)(1)) is amended by adding at the end the fol20 lowing new subparagraph:

21 ‘‘(C) A wholesale financial institution.’’.

22 (3) INCORPORATED DEFINITIONS.—Section

23 2(n) of the Bank Holding Company Act of 1956 (12

24 U.S.C. 1841(n)) is amended by inserting ‘‘ ‘insured

25 bank’,’’ after ‘‘ ‘in danger of default’,’’.
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1 (4) EXCEPTION TO DEPOSIT INSURANCE RE2 QUIREMENT.—Section 3(e) of the Bank Holding

3 Company Act of 1956 (12 U.S.C. 1842(e)) is

4 amended by adding at the end the following: ‘‘This

5 subsection shall not apply to a wholesale financial

6 institution.’’.

7 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section

8 3(q)(2)(A) of the Federal Deposit Insurance Act (12

9 U.S.C. 1813(q)(2)(A)) is amended to read as follows:

10 ‘‘(A) any State member insured bank (ex11 cept a District bank) and any wholesale finan12 cial institution as authorized pursuant to sec13 tion 9B of the Federal Reserve Act;’’.

14 CHAPTER 2—WHOLESALE FINANCIAL

15 INSTITUTIONS

16 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

17 (a) NATIONAL WHOLESALE FINANCIAL INSTITU18 TIONS.—

19 (1) IN GENERAL.—Chapter one of title LXII of

20 the Revised Statutes of the United States (12

21 U.S.C. 21 et seq.) is amended by inserting after sec22 tion 5136A (as added by section 121(a) of this title)

23 the following new section:
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1 ‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU2 TIONS.

3 ‘‘(a) AUTHORIZATION OF THE COMPTROLLER RE4 QUIRED.—A national bank may apply to the Comptroller

5 on such forms and in accordance with such regulations

6 as the Comptroller may prescribe, for permission to oper7 ate as a national wholesale financial institution.

8 ‘‘(b) REGULATION.—A national wholesale financial

9 institution may exercise, in accordance with such institu10 tion’s articles of incorporation and regulations issued by

11 the Comptroller, all the powers and privileges of a national

12 bank formed in accordance with section 5133 of the Re13 vised Statutes of the United States, subject to section 9B

14 of the Federal Reserve Act and the limitations and restric15 tions contained therein.

16 ‘‘(c) COMMUNITY REINVESTMENT ACT OF 1977.—A

17 national wholesale financial institution shall be subject to

18 the Community Reinvestment Act of 1977.’’.

19 (2) CLERICAL AMENDMENT.—The table of sec20 tions for chapter one of title LXII of the Revised

21 Statutes of the United States is amended by insert22 ing after the item relating to section 5136A (as

23 added by section 121(d) of this title) the following

24 new item:

‘‘5136B. National wholesale financial institutions.’’.
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1 (b) STATE WHOLESALE FINANCIAL INSTITUTIONS.—

2 The Federal Reserve Act (12 U.S.C. 221 et seq.) is

3 amended by inserting after section 9A the following new

4 section:

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

6 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLE7 SALE FINANCIAL INSTITUTION.—

8 ‘‘(1) APPLICATION REQUIRED.—

9 ‘‘(A) IN GENERAL.—Any bank may apply

10 to the Board of Governors of the Federal Re11 serve System to become a wholesale financial

12 institution and, as a wholesale financial institu13 tion, to subscribe to the stock of the Federal re14 serve bank organized within the district where

15 the applying bank is located.

16 ‘‘(B) TREATMENT AS MEMBER BANK.—

17 Any application under subparagraph (A) shall

18 be treated as an application under, and shall be

19 subject to the provisions of, section 9.

20 ‘‘(2) INSURANCE TERMINATION.—No bank the

21 deposits of which are insured under the Federal De22 posit Insurance Act may become a wholesale finan23 cial institution unless it has met all requirements

24 under that Act for voluntary termination of deposit

25 insurance.
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1 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

2 WHOLESALE FINANCIAL INSTITUTIONS.—

3 ‘‘(1) FEDERAL RESERVE ACT.—Except as oth4 erwise provided in this section, wholesale financial

5 institutions shall be member banks and shall be sub6 ject to the provisions of this Act that apply to mem7 ber banks to the same extent and in the same man8 ner as State member insured banks, except that a

9 wholesale financial institution may terminate mem10 bership under this Act only with the prior written

11 approval of the Board and on terms and conditions

12 that the Board determines are appropriate to carry

13 out the purposes of this Act.

14 ‘‘(2) PROMPT CORRECTIVE ACTION.—A whole15 sale financial institution shall be deemed to be an in16 sured depository institution for purposes of section

17 38 of the Federal Deposit Insurance Act except

18 that—

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

20 measures for each capital category shall be the

21 levels specified by the Board for wholesale fi22 nancial institutions; and

23 ‘‘(B) all references to the appropriate Fed24 eral banking agency or to the Corporation in
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1 that section shall be deemed to be references to

2 the Board.

3 ‘‘(3) ENFORCEMENT AUTHORITY.—Subsections

4 (j) and (k) of section 7, subsections (b) through (n),

5 (s), and (v) of section 8, and section 19 of the Fed6 eral Deposit Insurance Act shall apply to a wholesale

7 financial institution in the same manner and to the

8 same extent as such provisions apply to State mem9 ber insured banks and any reference in such sections

10 to an insured depository institution shall be deemed

11 to include a reference to a wholesale financial insti12 tution.

13 ‘‘(4) CERTAIN OTHER STATUTES APPLICA14 BLE.—A wholesale financial institution shall be

15 deemed to be a banking institution, and the Board

16 shall be the appropriate Federal banking agency for

17 such bank and all such bank’s affiliates, for pur18 poses of the International Lending Supervision Act.

19 ‘‘(5) BANK MERGER ACT.—A wholesale finan20 cial institution shall be subject to sections 18(c) and

21 44 of the Federal Deposit Insurance Act in the same

22 manner and to the same extent the wholesale finan23 cial institution would be subject to such sections if

24 the institution were a State member insured bank.
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1 ‘‘(6) BRANCHING.—Notwithstanding any other

2 provision of law, a wholesale financial institution

3 may establish and operate a branch at any location

4 on such terms and conditions as established by the

5 Board and, in the case of a State-chartered whole6 sale financial institution, with the approval of the

7 Board, and, in the case of a national bank wholesale

8 financial institution, with the approval of the Comp9 troller of the Currency.

10 ‘‘(7) ACTIVITIES OF OUT-OF-STATE BRANCHES

11 OF WHOLESALE FINANCIAL INSTITUTIONS.—

12 ‘‘(A) GENERAL.—A State-chartered whole13 sale financial institution shall be deemed to be

14 a State bank and an insured State bank for

15 purposes of paragraphs (1), (2), and (3) of sec16 tion 24(j) of the Federal Deposit Insurance

17 Act, and a national wholesale financial institu18 tion shall be deemed to be a national bank for

19 purposes of section 5155(f) of the Revised Stat20 utes of the United States.

21 ‘‘(B) DEFINITIONS.—The following defini22 tions shall apply solely for purposes of applying

23 paragraph (1):

24 ‘‘(i) HOME STATE.—The term ‘home

25 State’ means—
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1 ‘‘(I) with respect to a national

2 wholesale financial institution, the

3 State in which the main office of the

4 institution is located; and

5 ‘‘(II) with respect to a State6 chartered wholesale financial institu7 tion, the State by which the institu8 tion is chartered.

9 ‘‘(ii) HOST STATE.—The term ‘host

10 State’ means a State, other than the home

11 State of the wholesale financial institution,

12 in which the institution maintains, or seeks

13 to establish and maintain, a branch.

14 ‘‘(iii) OUT-OF-STATE BANK.—The

15 term ‘out-of-State bank’ means, with re16 spect to any State, a wholesale financial

17 institution whose home State is another

18 State.

19 ‘‘(8) DISCRIMINATION REGARDING INTEREST

20 RATES.—Section 27 of the Federal Deposit Insur21 ance Act shall apply to State-chartered wholesale fi22 nancial institutions in the same manner and to the

23 same extent as such provisions apply to State mem24 ber insured banks and any reference in such section

25 to a State-chartered insured depository institution
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1 shall be deemed to include a reference to a State2 chartered wholesale financial institution.

3 ‘‘(9) PREEMPTION OF STATE LAWS REQUIRING

4 DEPOSIT INSURANCE FOR WHOLESALE FINANCIAL

5 INSTITUTIONS.—The appropriate State banking au6 thority may grant a charter to a wholesale financial

7 institution notwithstanding any State constitution or

8 statute requiring that the institution obtain insur9 ance of its deposits and any such State constitution

10 or statute is hereby preempted solely for purposes of

11 this paragraph.

12 ‘‘(10) PARITY FOR WHOLESALE FINANCIAL IN13 STITUTIONS.—A State bank that is a wholesale fi14 nancial institution under this section shall have all

15 of the rights, powers, privileges, and immunities (in16 cluding those derived from status as a federally

17 chartered institution) of and as if it were a national

18 bank, subject to such terms and conditions as estab19 lished by the Board.

20 ‘‘(11) COMMUNITY REINVESTMENT ACT OF

21 1977.—A State wholesale financial institution shall

22 be subject to the Community Reinvestment Act of

23 1977.

24 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

25 WHOLESALE FINANCIAL INSTITUTIONS.—
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1 ‘‘(1) LIMITATIONS ON DEPOSITS.—

2 ‘‘(A) MINIMUM AMOUNT.—

3 ‘‘(i) IN GENERAL.—No wholesale fi4 nancial institution may receive initial de5 posits of $100,000 or less, other than on

6 an incidental and occasional basis.

7 ‘‘(ii) LIMITATION ON DEPOSITS OF

8 LESS THAN $100,000.—No wholesale finan9 cial institution may receive initial deposits

10 of $100,000 or less if such deposits con11 stitute more than 5 percent of the institu12 tion’s total deposits.

13 ‘‘(B) NO DEPOSIT INSURANCE.—Except as

14 otherwise provided in section 8A(f) of the Fed15 eral Deposit Insurance Act, no deposits held by

16 a wholesale financial institution shall be insured

17 deposits under the Federal Deposit Insurance

18 Act.

19 ‘‘(C) ADVERTISING AND DISCLOSURE.—

20 The Board shall prescribe regulations pertain21 ing to advertising and disclosure by wholesale

22 financial institutions to ensure that each deposi23 tor is notified that deposits at the wholesale fi24 nancial institution are not federally insured or
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1 otherwise guaranteed by the United States Gov2 ernment.

3 ‘‘(2) MINIMUM CAPITAL LEVELS APPLICABLE

4 TO WHOLESALE FINANCIAL INSTITUTIONS.—The

5 Board shall, by regulation, adopt capital require6 ments for wholesale financial institutions—

7 ‘‘(A) to account for the status of wholesale

8 financial institutions as institutions that accept

9 deposits that are not insured under the Federal

10 Deposit Insurance Act; and

11 ‘‘(B) to provide for the safe and sound op12 eration of the wholesale financial institution

13 without undue risk to creditors or other per14 sons, including Federal reserve banks, engaged

15 in transactions with the bank.

16 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

17 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi18 tion to any requirement otherwise applicable to State

19 member insured banks or applicable, under this sec20 tion, to wholesale financial institutions, the Board

21 may impose, by regulation or order, upon wholesale

22 financial institutions—

23 ‘‘(A) limitations on transactions, direct or

24 indirect, with affiliates to prevent—
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1 ‘‘(i) the transfer of risk to the deposit

2 insurance funds; or

3 ‘‘(ii) an affiliate from gaining access

4 to, or the benefits of, credit from a Federal

5 reserve bank, including overdrafts at a

6 Federal reserve bank;

7 ‘‘(B) special clearing balance requirements;

8 and

9 ‘‘(C) any additional requirements that the

10 Board determines to be appropriate or nec11 essary to—

12 ‘‘(i) promote the safety and soundness

13 of the wholesale financial institution or any

14 insured depository institution affiliate of

15 the wholesale financial institution;

16 ‘‘(ii) prevent the transfer of risk to

17 the deposit insurance funds; or

18 ‘‘(iii) protect creditors and other per19 sons, including Federal reserve banks, en20 gaged in transactions with the wholesale fi21 nancial institution.

22 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

23 INSTITUTIONS.—The Board may, by regulation or

24 order, exempt any wholesale financial institution

25 from any provision applicable to a member bank
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1 that is not a wholesale financial institution, if the

2 Board finds that such exemption is not inconsistent

3 with—

4 ‘‘(A) the promotion of the safety and

5 soundness of the wholesale financial institution

6 or any insured depository institution affiliate of

7 the wholesale financial institution;

8 ‘‘(B) the protection of the deposit insur9 ance funds; and

10 ‘‘(C) the protection of creditors and other

11 persons, including Federal reserve banks, en12 gaged in transactions with the wholesale finan13 cial institution.

14 ‘‘(5) LIMITATION ON TRANSACTIONS BETWEEN

15 A WHOLESALE FINANCIAL INSTITUTION AND AN IN16 SURED BANK.—For purposes of section 23A(d)(1) of

17 the Federal Reserve Act, a wholesale financial insti18 tution that is affiliated with an insured bank shall

19 not be a bank.

20 ‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This

21 section shall not be construed as limiting the

22 Board’s authority over member banks under any

23 other provision of law, or to create any obligation for

24 any Federal Reserve bank to make, increase, renew,
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1 or extend any advance or discount under this Act to

2 any member bank or other depository institution.

3 ‘‘(d) CAPITAL AND MANAGERIAL REQUIREMENTS.—

4 ‘‘(1) IN GENERAL.—A wholesale financial insti5 tution shall be well capitalized and well managed.

6 ‘‘(2) NOTICE TO COMPANY.—The Board shall

7 promptly provide notice to a company that controls

8 a wholesale financial institution whenever such

9 wholesale financial institution is not well capitalized

10 or well managed.

11 ‘‘(3) AGREEMENT TO RESTORE INSTITUTION.—

12 Not later than 45 days after the date of receipt of

13 a notice under paragraph (2) (or such additional pe14 riod not to exceed 90 days as the Board may per15 mit), the company shall execute an agreement ac16 ceptable to the Board to restore the wholesale finan17 cial institution to compliance with all of the require18 ments of paragraph (1).

19 ‘‘(4) LIMITATIONS UNTIL INSTITUTION RE20 STORED.—Until the wholesale financial institution is

21 restored to compliance with all of the requirements

22 of paragraph (1), the Board may impose such limi23 tations on the conduct or activities of the company

24 or any affiliate of the company as the Board deter25 mines to be appropriate under the circumstances.
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1 ‘‘(5) FAILURE TO RESTORE.—If the company

2 does not execute and implement an agreement in ac3 cordance with paragraph (3), comply with any limi4 tation imposed under paragraph (4), restore the

5 wholesale financial institution to well capitalized sta6 tus not later than 180 days after the date of receipt

7 by the company of the notice described in paragraph

8 (2), or restore the wholesale financial institution to

9 well managed status within such period as the Board

10 may permit, the company shall, under such terms

11 and conditions as may be imposed by the Board and

12 subject to such extension of time as may be granted

13 in the Board’s discretion, divest control of its sub14 sidiary depository institutions.

15 ‘‘(6) WELL MANAGED DEFINED.—For purposes

16 of this subsection, the term ‘well managed’ has the

17 same meaning as in section 2 of the Bank Holding

18 Company Act of 1956.

19 ‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI20 TUTIONS.—

21 ‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—

22 ‘‘(A) APPOINTMENT.—The Board may ap23 point a conservator or receiver for a wholesale

24 financial institution to the same extent and in

25 the same manner as the Comptroller of the
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1 Currency may appoint a conservator or receiver

2 for a national bank.

3 ‘‘(B) POWERS.—The conservator or re4 ceiver for a wholesale financial institution shall

5 exercise the same powers, functions, and duties,

6 subject to the same limitations, as a conserva7 tor or receiver for a national bank.

8 ‘‘(2) BOARD AUTHORITY.—The Board shall

9 have the same authority with respect to any con10 servator or receiver appointed for a wholesale finan11 cial institution under paragraph (1), and the whole12 sale financial institution for which it has been ap13 pointed, as the Comptroller of the Currency has with

14 respect to a conservator or receiver for a national

15 bank and the national bank for which the conserva16 tor or receiver has been appointed.

17 ‘‘(3) BANKRUPTCY PROCEEDINGS.—The Comp18 troller of the Currency (in the case of a national

19 wholesale financial institution) and the Board may

20 direct the conservator or receiver of a wholesale fi21 nancial institution to file a petition pursuant to title

22 11, United States Code, in which case, title 11,

23 United States Code, shall apply to the wholesale fi24 nancial institution in lieu of otherwise applicable

25 Federal or State insolvency law.
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1 ‘‘(f) EXCLUSIVE JURISDICTION.—Subsections (c) and

2 (e) of section 43 of the Federal Deposit Insurance Act

3 shall not apply to any wholesale financial institution.’’.

4 (c) VOLUNTARY TERMINATION OF INSURED STATUS

5 BY CERTAIN INSTITUTIONS.—

6 (1) SECTION 8 DESIGNATIONS.—Section 8(a) of

7 the Federal Deposit Insurance Act (12 U.S.C.

8 1818(a)) is amended—

9 (A) by striking paragraph (1); and

10 (B) by redesignating paragraphs (2)

11 through (10) as paragraphs (1) through (9), re12 spectively.

13 (2) VOLUNTARY TERMINATION OF INSURED

14 STATUS.—The Federal Deposit Insurance Act (12

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

16 section 8 the following new section:

17 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN18 SURED DEPOSITORY INSTITUTION.

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

20 (b), an insured State bank or a national bank may volun21 tarily terminate such bank’s status as an insured deposi22 tory institution in accordance with regulations of the Cor23 poration if—

24 ‘‘(1) the bank provides written notice of the

25 bank’s intent to terminate such insured status—
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1 ‘‘(A) to the Corporation and the Board of

2 Governors of the Federal Reserve System not

3 less than 6 months before the effective date of

4 such termination; and

5 ‘‘(B) to all depositors at such bank, not

6 less than 6 months before the effective date of

7 the termination of such status; and

8 ‘‘(2) either—

9 ‘‘(A) the deposit insurance fund of which

10 such bank is a member equals or exceeds the

11 fund’s designated reserve ratio as of the date

12 the bank provides a written notice under para13 graph (1) and the Corporation determines that

14 the fund will equal or exceed the applicable des15 ignated reserve ratio for the 2 semiannual as16 sessment periods immediately following such

17 date; or

18 ‘‘(B) the Corporation and the Board of

19 Governors of the Federal Reserve System ap20 proved the termination of the bank’s insured

21 status and the bank pays an exit fee in accord22 ance with subsection (e).

23 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply

24 with respect to—

25 ‘‘(1) an insured savings association; or
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1 ‘‘(2) an insured branch that is required to be

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

3 the International Banking Act of 1978.

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

5 Any bank that voluntarily elects to terminate the bank’s

6 insured status under subsection (a) shall not be eligible

7 for insurance on any deposits or any assistance authorized

8 under this Act after the period specified in subsection

9 (f)(1).

10 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FI11 NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING

12 ACTIVITIES.—Any depository institution which voluntarily

13 terminates such institution’s status as an insured deposi14 tory institution under this section may not, upon termi15 nation of insurance, accept any deposits unless the institu16 tion is a wholesale financial institution subject to section

17 9B of the Federal Reserve Act.

18 ‘‘(e) EXIT FEES.—

19 ‘‘(1) IN GENERAL.—Any bank that voluntarily

20 terminates such bank’s status as an insured deposi21 tory institution under this section shall pay an exit

22 fee in an amount that the Corporation determines is

23 sufficient to account for the institution’s pro rata

24 share of the amount (if any) which would be re25 quired to restore the relevant deposit insurance fund
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1 to the fund’s designated reserve ratio as of the date

2 the bank provides a written notice under subsection

3 (a)(1).

4 ‘‘(2) PROCEDURES.—The Corporation shall pre5 scribe, by regulation, procedures for assessing any

6 exit fee under this subsection.

7 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

8 AS OF TERMINATION.—

9 ‘‘(1) TRANSITION PERIOD.—The insured depos10 its of each depositor in a State bank or a national

11 bank on the effective date of the voluntary termi12 nation of the bank’s insured status, less all subse13 quent withdrawals from any deposits of such deposi14 tor, shall continue to be insured for a period of not

15 less than 6 months and not more than 2 years, as

16 determined by the Corporation. During such period,

17 no additions to any such deposits, and no new de18 posits in the depository institution made after the ef19 fective date of such termination shall be insured by

20 the Corporation.

21 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

22 AND DUTIES.—During the period specified in para23 graph (1) with respect to any bank, the bank shall

24 continue to pay assessments under section 7 as if

25 the bank were an insured depository institution. The
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1 bank shall, in all other respects, be subject to the

2 authority of the Corporation and the duties and obli3 gations of an insured depository institution under

4 this Act during such period, and in the event that

5 the bank is closed due to an inability to meet the de6 mands of the bank’s depositors during such period,

7 the Corporation shall have the same powers and

8 rights with respect to such bank as in the case of

9 an insured depository institution.

10 ‘‘(g) ADVERTISEMENTS.—

11 ‘‘(1) IN GENERAL.—A bank that voluntarily

12 terminates the bank’s insured status under this sec13 tion shall not advertise or hold itself out as having

14 insured deposits, except that the bank may advertise

15 the temporary insurance of deposits under sub16 section (f) if, in connection with any such advertise17 ment, the advertisement also states with equal prom18 inence that additions to deposits and new deposits

19 made after the effective date of the termination are

20 not insured.

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

22 AND SECURITIES.—Any certificate of deposit or

23 other obligation or security issued by a State bank

24 or a national bank after the effective date of the vol25 untary termination of the bank’s insured status
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1 under this section shall be accompanied by a con2 spicuous, prominently displayed notice that such cer3 tificate of deposit or other obligation or security is

4 not insured under this Act.

5 ‘‘(h) NOTICE REQUIREMENTS.—

6 ‘‘(1) NOTICE TO THE CORPORATION.—The no7 tice required under subsection (a)(1)(A) shall be in

8 such form as the Corporation may require.

9 ‘‘(2) NOTICE TO DEPOSITORS.—The notice re10 quired under subsection (a)(1)(B) shall be—

11 ‘‘(A) sent to each depositor’s last address

12 of record with the bank; and

13 ‘‘(B) in such manner and form as the Cor14 poration finds to be necessary and appropriate

15 for the protection of depositors.’’.

16 (3) DEFINITION.—Section 19(b)(1)(A)(i) of the

17 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is

18 amended by inserting ‘‘, or any wholesale financial

19 institution subject to section 9B of this Act’’ after

20 ‘‘such Act’’.

21 (d) TECHNICAL AND CONFORMING AMENDMENTS TO

22 THE BANKRUPTCY CODE.—

23 (1) BANKRUPTCY CODE DEBTORS.—Section

24 109(b)(2) of title 11, United States Code, is amend-
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1 ed by striking ‘‘; or’’ and inserting the following: ‘‘,

2 except that—

3 ‘‘(A) a wholesale financial institution es4 tablished under section 5136B of the Revised

5 Statutes of the United States or section 9B of

6 the Federal Reserve Act may be a debtor if a

7 petition is filed at the direction of the Comp8 troller of the Currency (in the case of a whole9 sale financial institution established under sec10 tion 5136B of the Revised Statutes of the

11 United States) or the Board of Governors of

12 the Federal Reserve System (in the case of any

13 wholesale financial institution); and

14 ‘‘(B) a corporation organized under section

15 25A of the Federal Reserve Act may be a debt16 or if a petition is filed at the direction of the

17 Board of Governors of the Federal Reserve Sys18 tem; or’’.

19 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

20 title 11, United States Code, is amended to read as

21 follows:

22 ‘‘(d) Only a railroad and a person that may be a debt23 or under chapter 7 of this title, except that a stockbroker,

24 a wholesale financial institution established under section

25 5136B of the Revised Statutes of the United States or
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1 section 9B of the Federal Reserve Act, a corporation orga2 nized under section 25A of the Federal Reserve Act, or

3 a commodity broker, may be a debtor under chapter 11

4 of this title.’’.

5 (3) DEFINITION OF FINANCIAL INSTITUTION.—

6 Section 101(22) of title 11, United States Code, is

7 amended to read as follows:

8 ‘‘(22) ‘financial institution’ means a person that

9 is a commercial or savings bank, industrial savings

10 bank, savings and loan association, trust company,

11 wholesale financial institution established under sec12 tion 5136B of the Revised Statutes of the United

13 States or section 9B of the Federal Reserve Act, or

14 corporation organized under section 25A of the Fed15 eral Reserve Act and, when any such person is act16 ing as agent or custodian for a customer in connec17 tion with a securities contract, as defined in section

18 741 of this title, such customer,’’.

19 (4) SUBCHAPTER V OF CHAPTER 7.—

20 (A) IN GENERAL.—Section 103 of title 11,

21 United States Code, is amended—

22 (i) by redesignating subsections (e)

23 through (i) as subsections (f) through (j),

24 respectively; and
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1 (ii) by inserting after subsection (d)

2 the following:

3 ‘‘(e) Subchapter V of chapter 7 of this title applies

4 only in a case under such chapter concerning the liquida5 tion of a wholesale financial institution established under

6 section 5136B of the Revised Statutes of the United

7 States or section 9B of the Federal Reserve Act, or a cor8 poration organized under section 25A of the Federal Re9 serve Act.’’.

10 (B) WHOLESALE BANK LIQUIDATION.—

11 Chapter 7 of title 11, United States Code, is

12 amended by adding at the end the following:

13 ‘‘SUBCHAPTER V—WHOLESALE BANK

14 LIQUIDATION

15 ‘‘§ 781. Definitions for subchapter

16 ‘‘In this subchapter—

17 ‘‘(1) the term ‘Board’ means the Board of Gov18 ernors of the Federal Reserve System;

19 ‘‘(2) the term ‘depository institution’ has the

20 same meaning as in section 3 of the Federal Deposit

21 Insurance Act, and includes any wholesale bank;

22 ‘‘(3) the term ‘national wholesale financial insti23 tution’ means a wholesale financial institution estab24 lished under section 5136B of the Revised Statutes

25 of the United States; and
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1 ‘‘(4) the term ‘wholesale bank’ means a na2 tional wholesale financial institution, a wholesale fi3 nancial institution established under section 9B of

4 the Federal Reserve Act, or a corporation organized

5 under section 25A of the Federal Reserve Act.

6 ‘‘§ 782. Selection of trustee

7 ‘‘Notwithstanding any other provision of this title,

8 the conservator or receiver who files the petition shall be

9 the trustee under this chapter, unless the Comptroller of

10 the Currency (in the case of a national wholesale financial

11 institution for which it appointed the conservator or re12 ceiver) or the Board (in the case of any wholesale bank

13 for which it appointed the conservator or receiver) des14 ignates an alternative trustee. The Comptroller of the Cur15 rency or the Board (as applicable) may designate a succes16 sor trustee, if required.

17 ‘‘§ 783. Additional powers of trustee

18 ‘‘(a) The trustee under this subchapter has power,

19 with permission of the court—

20 ‘‘(1) to sell the wholesale bank to a depository

21 institution or consortium of depository institutions

22 (which consortium may agree on the allocation of

23 the wholesale bank among the consortium);

24 ‘‘(2) to merge the wholesale bank with a deposi25 tory institution;
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1 ‘‘(3) to transfer contracts to the same extent as

2 could a receiver for a depository institution under

3 paragraphs (9) and (10) of section 11(e) of the Fed4 eral Deposit Insurance Act;

5 ‘‘(4) to transfer assets or liabilities to a deposi6 tory institution;

7 ‘‘(5) to distribute property not of the estate, in8 cluding distributions to customers that are man9 dated by subchapters III and IV of this chapter; or

10 ‘‘(6) to transfer assets and liabilities to a bridge

11 bank as provided in paragraphs (1), (3)(A), (5), (6),

12 and (9) through (13), and subparagraphs (A)

13 through (H) and (K) of paragraph (4) of section

14 11(n) of the Federal Deposit Insurance Act, except

15 that—

16 ‘‘(A) the bridge bank shall be treated as a

17 wholesale bank for the purpose of this sub18 section; and

19 ‘‘(B) any references in any such provision

20 of law to the Federal Deposit Insurance Cor21 poration shall be construed to be references to

22 the appointing agency and that references to

23 deposit insurance shall be omitted.
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1 ‘‘(b) Any reference in this section to transfers of li2 abilities includes a ratable transfer of liabilities within a

3 priority class.

4 ‘‘§ 784. Right to be heard

5 ‘‘The Comptroller of the Currency (in the case of a

6 national wholesale financial institution), the Board (in the

7 case of any wholesale bank), or a Federal Reserve bank

8 (in the case of a wholesale bank that is a member of that

9 bank) may raise and may appear and be heard on any

10 issue in a case under this subchapter.

11 ‘‘§ 785. Expedited transfers

12 ‘‘The trustee may make a transfer pursuant to sec13 tion 783 without prior judicial approval, if the Comptroller

14 of the Currency (in the case of a national wholesale finan15 cial institution for which it appointed the conservator or

16 receiver) or the Board (in the case of any wholesale bank

17 for which it appointed the conservator or receiver) deter18 mines that the transfer would be necessary to avert serious

19 adverse effects on economic conditions or financial stabil20 ity.’’.

21 (C) CONFORMING AMENDMENT.—The

22 table of sections for chapter 7 of title 11,

23 United States Code, is amended by adding at

24 the end the following:

‘‘781. Definitions for subchapter.

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.
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‘‘784. Right to be heard.

‘‘785. Expedited transfers.’’.

1 (e) RESOLUTION OF EDGE CORPORATIONS.—Section

2 25A(16) of the Federal Reserve Act (12 U.S.C. 624(16))

3 is amended to read as follows:

4 ‘‘(16) APPOINTMENT OF RECEIVER OR CON5 SERVATOR.—

6 ‘‘(A) IN GENERAL.—The Board may ap7 point a conservator or receiver for a corporation

8 organized under the provisions of this section to

9 the same extent and in the same manner as the

10 Comptroller of the Currency may appoint a con11 servator or receiver for a national bank, and the

12 conservator or receiver for such corporation

13 shall exercise the same powers, functions, and

14 duties, subject to the same limitations, as a

15 conservator or receiver for a national bank.

16 ‘‘(B) EQUIVALENT AUTHORITY.—The

17 Board shall have the same authority with re18 spect to any conservator or receiver appointed

19 for a corporation organized under the provisions

20 of this section under this paragraph and any

21 such corporation as the Comptroller of the Cur22 rency has with respect to a conservator or re23 ceiver of a national bank and the national bank
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1 for which a conservator or receiver has been ap2 pointed.

3 ‘‘(C) TITLE 11 PETITIONS.—The Board

4 may direct the conservator or receiver of a cor5 poration organized under the provisions of this

6 section to file a petition pursuant to title 11,

7 United States Code, in which case, title 11,

8 United States Code, shall apply to the corpora9 tion in lieu of otherwise applicable Federal or

10 State insolvency law.’’.

11 Subtitle E—Preservation of FTC

12 Authority

13 SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY

14 ACT OF 1956 TO MODIFY NOTIFICATION AND

15 POST-APPROVAL WAITING PERIOD FOR SEC16 TION 3 TRANSACTIONS.

17 Section 11(b)(1) of the Bank Holding Company Act

18 of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting

19 ‘‘and, if the transaction also involves an acquisition under

20 section 4 or section 6, the Board shall also notify the Fed21 eral Trade Commission of such approval’’ before the pe22 riod at the end of the first sentence.

23 SEC. 142. INTERAGENCY DATA SHARING.

24 To the extent not prohibited by other law, the Comp25 troller of the Currency, the Director of the Office of Thrift
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1 Supervision, the Federal Deposit Insurance Corporation,

2 and the Board of Governors of the Federal Reserve Sys3 tem shall make available to the Attorney General and the

4 Federal Trade Commission any data in the possession of

5 any such banking agency that the antitrust agency deems

6 necessary for antitrust review of any transaction requiring

7 notice to any such antitrust agency or the approval of such

8 agency under section 3, 4, or 6 of the Bank Holding Com9 pany Act of 1956, section 18(c) of the Federal Deposit

10 Insurance Act, the National Bank Consolidation and

11 Merger Act, section 10 of the Home Owners’ Loan Act,

12 or the antitrust laws.

13 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES

14 AND AFFILIATES.

15 (a) CLARIFICATION OF FEDERAL TRADE COMMIS16 SION JURISDICTION.—Any person which directly or indi17 rectly controls, is controlled directly or indirectly by, or

18 is directly or indirectly under common control with, any

19 bank or savings association (as such terms are defined in

20 section 3 of the Federal Deposit Insurance Act) and is

21 not itself a bank or savings association shall not be

22 deemed to be a bank or savings association for purposes

23 of the Federal Trade Commission Act or any other law

24 enforced by the Federal Trade Commission.
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1 (b) SAVINGS PROVISION.—No provision of this sec2 tion shall be construed as restricting the authority of any

3 Federal banking agency (as defined in section 3 of the

4 Federal Deposit Insurance Act) under any Federal bank5 ing law, including section 8 of the Federal Deposit Insur6 ance Act.

7 (c) HART-SCOTT-RODINO AMENDMENT.—Section

8 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is

9 amended by inserting before the semicolon at the end

10 thereof the following: ‘‘, except that a portion of a trans11 action is not exempt under this paragraph if such portion

12 of the transaction (A) requires notice under section 6 of

13 the Bank Holding Company Act of 1956; and (B) does

14 not require approval under section 3 or 4 of the Bank

15 Holding Company Act of 1956’’.

16 SEC. 144. ANNUAL GAO REPORT.

17 (a) IN GENERAL.—By the end of the 1-year period

18 beginning on the date of the enactment of this Act and

19 annually thereafter, the Comptroller General of the United

20 States shall submit a report to the Congress on market

21 concentration in the financial services industry and its im22 pact on consumers.

23 (b) ANALYSIS.—Each report submitted under sub24 section (a) shall contain an analysis of—
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1 (1) the positive and negative effects of affili2 ations between various types of financial companies,

3 and of acquisitions pursuant to this Act and the

4 amendments made by this Act to other provisions of

5 law, including any positive or negative effects on

6 consumers, area markets, and submarkets thereof or

7 on registered securities brokers and dealers which

8 have been purchased by depository institutions or

9 depository institution holding companies;

10 (2) the changes in business practices and the

11 effects of any such changes on the availability of

12 venture capital, consumer credit, and other financial

13 services or products and the availability of capital

14 and credit for small businesses; and

15 (3) the acquisition patterns among depository

16 institutions, depository institution holding compa17 nies, securities firms, and insurance companies in18 cluding acquisitions among the largest 20 percent of

19 firms and acquisitions within regions or other lim20 ited geographical areas.
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1 Subtitle F—Applying the Principles

2 of National Treatment and

3 Equality of Competitive Oppor4 tunity to Foreign Banks and

5 Foreign Financial Institutions

6 SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT7 MENT AND EQUALITY OF COMPETITIVE OP8 PORTUNITY TO FOREIGN BANKS THAT ARE

9 FINANCIAL HOLDING COMPANIES.

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

11 1978 (12 U.S.C. 3106(c)) is amended by adding at the

12 end the following new paragraph:

13 ‘‘(3) TERMINATION OF GRANDFATHERED

14 RIGHTS.—

15 ‘‘(A) IN GENERAL.—If any foreign bank or

16 foreign company files a declaration under sec17 tion 6(b)(1)(C) of the Bank Holding Company

18 Act of 1956, or receives a determination under

19 section 10(d)(1) of the Bank Holding Company

20 Act of 1956, any authority conferred by this

21 subsection on any foreign bank or company to

22 engage in any activity which the Board has de23 termined to be permissible for financial holding

24 companies under section 6 of such Act shall ter25 minate immediately.
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1 ‘‘(B) RESTRICTIONS AND REQUIREMENTS

2 AUTHORIZED.—If a foreign bank or company

3 that engages, directly or through an affiliate

4 pursuant to paragraph (1), in an activity which

5 the Board has determined to be permissible for

6 financial holding companies under section 6 of

7 the Bank Holding Company Act of 1956 has

8 not filed a declaration with the Board of its sta9 tus as a financial holding company under such

10 section or received a determination under sec11 tion 10(d)(1) by the end of the 2-year period

12 beginning on the date of enactment of the Fi13 nancial Services Act of 1999, the Board, giving

14 due regard to the principle of national treat15 ment and equality of competitive opportunity,

16 may impose such restrictions and requirements

17 on the conduct of such activities by such foreign

18 bank or company as are comparable to those

19 imposed on a financial holding company orga20 nized under the laws of the United States, in21 cluding a requirement to conduct such activities

22 in compliance with any prudential safeguards

23 established under section 5(h) of the Bank

24 Holding Company Act of 1956.’’.
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1 SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREAT2 MENT AND EQUALITY OF COMPETITIVE OP3 PORTUNITY TO FOREIGN BANKS AND FOR4 EIGN FINANCIAL INSTITUTIONS THAT ARE

5 WHOLESALE FINANCIAL INSTITUTIONS.

6 Section 8A of the Federal Deposit Insurance Act (as

7 added by section 136(c)(2) of this Act) is amended by add8 ing at the end the following new subsection:

9 ‘‘(i) VOLUNTARY TERMINATION OF DEPOSIT INSUR10 ANCE.—The provisions on voluntary termination of insur11 ance in this section shall apply to an insured branch of

12 a foreign bank (including a Federal branch) in the same

13 manner and to the same extent as they apply to an insured

14 State bank or a national bank.’’.

15 SEC. 153. REPRESENTATIVE OFFICES.

16 (a) DEFINITION OF ‘‘REPRESENTATIVE OFFICE’’.—

17 Section 1(b)(15) of the International Banking Act of 1978

18 (12 U.S.C. 3101(15)) is amended by striking ‘‘State agen19 cy, or subsidiary of a foreign bank’’ and inserting ‘‘or

20 State agency’’.

21 (b) EXAMINATIONS.—Section 10(c) of the Inter22 national Banking Act of 1978 (12 U.S.C. 3107(c)) is

23 amended by adding at the end the following: ‘‘The Board

24 may also make examinations of any affiliate of a foreign

25 bank conducting business in any State if the Board deems

26 it necessary to determine and enforce compliance with this
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1 Act, the Bank Holding Company Act of 1956 (12 U.S.C.

2 1841 et seq.), or other applicable Federal banking law.’’.

3 Subtitle G—Federal Home Loan

4 Bank System Modernization

5 SEC. 161. SHORT TITLE.

6 This subtitle may be cited as the ‘‘Federal Home

7 Loan Bank System Modernization Act of 1999’’.

8 SEC. 162. DEFINITIONS.

9 Section 2 of the Federal Home Loan Bank Act (12

10 U.S.C. 1422) is amended—

11 (1) in paragraph (1), by striking ‘‘term ‘Board’

12 means’’ and inserting ‘‘terms ‘Finance Board’ and

13 ‘Board’ mean’’;

14 (2) by striking paragraph (3) and inserting the

15 following:

16 ‘‘(3) STATE.—The term ‘State’, in addition to

17 the States of the United States, includes the District

18 of Columbia, Guam, Puerto Rico, the United States

19 Virgin Islands, American Samoa, and the Common20 wealth of the Northern Mariana Islands.’’; and

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

22 paragraph:

23 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

24 ‘‘(A) IN GENERAL.—The term ‘community

25 financial institution’ means a member—
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1 ‘‘(i) the deposits of which are insured

2 under the Federal Deposit Insurance Act;

3 and

4 ‘‘(ii) that has, as of the date of the

5 transaction at issue, less than

6 $500,000,000 in average total assets,

7 based on an average of total assets over

8 the 3 years preceding that date.

9 ‘‘(B) ADJUSTMENTS.—The $500,000,000

10 limit referred to in subparagraph (A)(ii) shall

11 be adjusted annually by the Finance Board,

12 based on the annual percentage increase, if any,

13 in the Consumer Price Index for all urban con14 sumers, as published by the Department of

15 Labor.’’.

16 SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.

17 (a) FEDERAL HOME LOAN BANK MEMBERSHIP.—

18 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

19 1464(f)) is amended to read as follows:

20 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

21 On and after January 1, 1999, a Federal savings associa22 tion may become a member of the Federal Home Loan

23 Bank System, and shall qualify for such membership in

24 the manner provided by the Federal Home Loan Bank

25 Act.’’.
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1 (b) WITHDRAWAL.—Section 6(e) of the Federal

2 Home Loan Bank Act (12 U.S.C. 1426(e)) is amended

3 by striking ‘‘Any member other than a Federal savings

4 and loan association may withdraw’’ and inserting ‘‘Any

5 member may withdraw’’.

6 SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.

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

8 Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—

9 (1) by redesignating paragraphs (1) through

10 (4) as subparagraphs (A) through (D), respectively,

11 and indenting appropriately;

12 (2) by striking ‘‘(a) Each’’ and inserting the

13 following:

14 ‘‘(a) IN GENERAL.—

15 ‘‘(1) ALL ADVANCES.—Each’’;

16 (3) by striking the second sentence and insert17 ing the following:

18 ‘‘(2) PURPOSES OF ADVANCES.—A long-term

19 advance may only be made for the purposes of—

20 ‘‘(A) providing funds to any member for

21 residential housing finance; and

22 ‘‘(B) providing funds to any community fi23 nancial institution for small businesses, agricul24 tural, rural development, or low-income commu25 nity development lending.’’;
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1 (4) by striking ‘‘A Bank’’ and inserting the fol2 lowing:

3 ‘‘(3) COLLATERAL.—A Bank’’;

4 (5) in paragraph (3) (as so designated by para5 graph (4) of this subsection)—

6 (A) in subparagraph (C) (as so redesig7 nated by paragraph (1) of this subsection) by

8 striking ‘‘Deposits’’ and inserting ‘‘Cash or de9 posits’’;

10 (B) in subparagraph (D) (as so redesig11 nated by paragraph (1) of this subsection), by

12 striking the second sentence; and

13 (C) by inserting after subparagraph (D)

14 (as so redesignated by paragraph (1) of this

15 subsection) the following new subparagraph:

16 ‘‘(E) Secured loans for small business, ag17 riculture, rural development, or low-income

18 community development, or securities represent19 ing a whole interest in such secured loans, in

20 the case of any community financial institu21 tion.’’;

22 (6) in paragraph (5)—

23 (A) in the second sentence, by striking

24 ‘‘and the Board’’;
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1 (B) in the third sentence, by striking

2 ‘‘Board’’ and inserting ‘‘Federal home loan

3 bank’’; and

4 (C) by striking ‘‘(5) Paragraphs (1)

5 through (4)’’ and inserting the following:

6 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara7 graphs (A) through (E) of paragraph (3)’’; and

8 (7) by adding at the end the following:

9 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND10 ARDS.—The Board may review the collateral stand11 ards applicable to each Federal home loan bank for

12 the classes of collateral described in subparagraphs

13 (D) and (E) of paragraph (3), and may, if necessary

14 for safety and soundness purposes, require an in15 crease in the collateral standards for any or all of

16 those classes of collateral.

17 ‘‘(6) DEFINITIONS.—For purposes of this sub18 section, the terms ‘small business’, ‘agriculture’,

19 ‘rural development’, and ‘low-income community de20 velopment’ shall have the meanings given those

21 terms by rule or regulation of the Finance Board.’’.

22 (b) CLERICAL AMENDMENT.—The section heading

23 for section 10 of the Federal Home Loan Bank Act (12

24 U.S.C. 1430) is amended to read as follows:
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1 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

2 (c) CONFORMING AMENDMENTS RELATING TO MEM3 BERS WHICH ARE NOT QUALIFIED THRIFT LENDERS—

4 Section 10(e)(1) of the Federal Home Loan Bank Act (12

5 U.S.C. 1430(e)(1)) is amended in the second sentence, by

6 inserting before the period ‘‘or, in the case of any commu7 nity financial institution, for the purposes described in

8 subsection (a)(2)’’.

9 SEC. 165. ELIGIBILITY CRITERIA.

10 Section 4(a) of the Federal Home Loan Bank Act

11 (12 U.S.C. 1424(a)) is amended—

12 (1) in paragraph (2)(A), by inserting, ‘‘(other

13 than a community financial institution)’’ after ‘‘in14 stitution’’; and

15 (2) by adding at the end the following new

16 paragraph:

17 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI18 NANCIAL INSTITUTIONS.—A community financial in19 stitution that otherwise meets the requirements of

20 paragraph (2) may become a member without regard

21 to the percentage of its total assets that is rep22 resented by residential mortgage loans, as described

23 in subparagraph (A) of paragraph (2).’’.
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1 SEC. 166. MANAGEMENT OF BANKS.

2 (a) BOARD OF DIRECTORS.—Section 7(d) of the Fed3 eral Home Loan Bank Act (12 U.S.C. 1427(d)) is

4 amended—

5 (1) by striking ‘‘(d) The term’’ and inserting

6 the following:

7 ‘‘(d) TERMS OF OFFICE.—The term’’; and

8 (2) by striking ‘‘shall be two years’’.

9 (b) COMPENSATION.—Section 7(i) of the Federal

10 Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by

11 striking ‘‘, subject to the approval of the board’’.

12 (c) REPEAL OF SECTIONS 22A AND 27.—The Fed13 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is

14 amended by striking sections 22A (12 U.S.C. 1442a) and

15 27 (12 U.S.C. 1447).

16 (d) SECTION 12.—Section 12 of the Federal Home

17 Loan Bank Act (12 U.S.C. 1432) is amended—

18 (1) in subsection (a)—

19 (A) by striking ‘‘, but, except’’ and all that

20 follows through ‘‘ten years’’;

21 (B) by striking ‘‘, subject to the approval

22 of the Board’’ each place that term appears;

23 (C) by striking ‘‘and, by its Board of direc24 tors,’’ and all that follows through ‘‘agent of

25 such bank,’’ and inserting ‘‘and, by the board

26 of directors of the bank, to prescribe, amend,
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1 and repeal by-laws governing the manner in

2 which its affairs may be administered, consist3 ent with applicable laws and regulations, as ad4 ministered by the Finance Board. No officer,

5 employee, attorney, or agent of a Federal home

6 loan bank’’; and

7 (D) by striking ‘‘Board of directors’’ each

8 place that term appears and inserting ‘‘board of

9 directors’’; and

10 (2) in subsection (b), by striking ‘‘loans banks’’

11 and inserting ‘‘loan banks’’.

12 (e) POWERS AND DUTIES OF FEDERAL HOUSING FI13 NANCE BOARD.—

14 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

15 Section 2B(a) of the Federal Home Loan Bank Act

16 (12 U.S.C. 1422b(a)) is amended by adding at the

17 end the following new paragraphs:

18 ‘‘(5) To issue and serve a notice of charges

19 upon a Federal home loan bank or upon any execu20 tive officer or director of a Federal home loan bank

21 if, in the determination of the Finance Board, the

22 bank, executive officer, or director is engaging or

23 has engaged in, or the Finance Board has reason24 able cause to believe that the bank, executive officer,

25 or director is about to engage in, any conduct that
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1 violates any provision of this Act or any law, order,

2 rule, or regulation or any condition imposed in writ3 ing by the Finance Board in connection with the

4 granting of any application or other request by the

5 bank, or any written agreement entered into by the

6 bank with the agency, in accordance with the proce7 dures provided in section 1371(c) of the Federal

8 Housing Enterprises Financial Safety and Sound9 ness Act of 1992. Such authority includes the same

10 authority to take affirmative action to correct condi11 tions resulting from violations or practices or to

12 limit activities of a bank or any executive officer or

13 director of a bank as appropriate Federal banking

14 agencies have to take with respect to insured deposi15 tory institutions under paragraphs (6) and (7) of

16 section 8(b) of the Federal Deposit Insurance Act,

17 and to have all other powers, rights, and duties to

18 enforce this Act with respect to the Federal home

19 loan banks and their executive officers and directors

20 as the Office of Federal Housing Enterprise Over21 sight has to enforce the Federal Housing Enter22 prises Financial Safety and Soundness Act of 1992,

23 the Federal National Mortgage Association Charter

24 Act, or the Federal Home Loan Mortgage Corpora25 tion Act with respect to the Federal housing enter-
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1 prises under the Federal Housing Enterprises Fi2 nancial Safety and Soundness Act of 1992.

3 ‘‘(6) To address any insufficiencies in capital

4 levels resulting from the application of section 5(f)

5 of the Home Owners’ Loan Act.

6 ‘‘(7) To sue and be sued, by and through its

7 own attorneys.’’.

8 (2) TECHNICAL AMENDMENT.—Section 111 of

9 Public Law 93–495 (12 U.S.C. 250) is amended by

10 inserting ‘‘Federal Housing Finance Board,’’ after

11 ‘‘Director of the Office of Thrift Supervision,’’.

12 (f) ELIGIBILITY TO SECURE ADVANCES.—

13 (1) SECTION 9.—Section 9 of the Federal

14 Home Loan Bank Act (12 U.S.C. 1429) is

15 amended—

16 (A) in the second sentence, by striking

17 ‘‘with the approval of the Board’’; and

18 (B) in the third sentence, by striking ‘‘,

19 subject to the approval of the Board,’’.

20 (2) SECTION 10.—Section 10 of the Federal

21 Home Loan Bank Act (12 U.S.C. 1430) is

22 amended—

23 (A) in subsection (c)—
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1 (i) in the first sentence, by striking

2 ‘‘Board’’ and inserting ‘‘Federal home loan

3 bank’’; and

4 (ii) in the second sentence, by striking

5 ‘‘held by’’ and all that follows before the

6 period;

7 (B) in subsection (d)—

8 (i) in the first sentence, by striking

9 ‘‘and the approval of the Board’’; and

10 (ii) by striking ‘‘Subject to the ap11 proval of the Board, any’’ and inserting

12 ‘‘Any’’; and

13 (C) in subsection (j)(1)—

14 (i) by striking ‘‘to subsidize the inter15 est rate on advances’’ and inserting ‘‘to

16 provide subsidies, including subsidized in17 terest rates on advances’’;

18 (ii) by striking ‘‘Pursuant’’ and in19 serting the following:

20 ‘‘(A) ESTABLISHMENT.—Pursuant’’; and

21 (iii) by adding at the end the follow22 ing new subparagraph:

23 ‘‘(B) NONDELEGATION OF APPROVAL AU24 THORITY.—Subject to such regulations as the

25 Finance Board may prescribe, the board of di-
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1 rectors of each Federal home loan bank may

2 approve or disapprove requests from members

3 for Affordable Housing Program subsidies, and

4 may not delegate such authority.’’.

5 (g) SECTION 16.—Section 16(a) of the Federal Home

6 Loan Bank Act (12 U.S.C. 1436(a)) is amended—

7 (1) in the third sentence—

8 (A) by striking ‘‘net earnings’’ and insert9 ing ‘‘previously retained earnings or current net

10 earnings’’; and

11 (B) by striking ‘‘, and then only with the

12 approval of the Federal Housing Finance

13 Board’’; and

14 (2) by striking the fourth sentence.

15 (h) SECTION 18.—Section 18(b) of the Federal Home

16 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik17 ing paragraph (4).

18 SEC. 167. RESOLUTION FUNDING CORPORATION.

19 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed20 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

21 amended to read as follows:

22 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

23 BANKS.—

24 ‘‘(i) IN GENERAL.—To the extent that

25 the amounts available pursuant to sub-
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1 paragraphs (A) and (B) are insufficient to

2 cover the amount of interest payments,

3 each Federal home loan bank shall pay to

4 the Funding Corporation in each calendar

5 year, 20.75 percent of the net earnings of

6 that bank (after deducting expenses relat7 ing to section 10(j) and operating ex8 penses).

9 ‘‘(ii) ANNUAL DETERMINATION.—The

10 Board annually shall determine the extent

11 to which the value of the aggregate

12 amounts paid by the Federal home loan

13 banks exceeds or falls short of the value of

14 an annuity of $300,000,000 per year that

15 commences on the issuance date and ends

16 on the final scheduled maturity date of the

17 obligations, and shall select appropriate

18 present value factors for making such de19 terminations.

20 ‘‘(iii) PAYMENT TERM ALTER21 ATIONS.—The Board shall extend or short22 en the term of the payment obligations of

23 a Federal home loan bank under this sub24 paragraph as necessary to ensure that the

25 value of all payments made by the banks
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1 is equivalent to the value of an annuity re2 ferred to in clause (ii).

3 ‘‘(iv) TERM BEYOND MATURITY.—If

4 the Board extends the term of payments

5 beyond the final scheduled maturity date

6 for the obligations, each Federal home loan

7 bank shall continue to pay 20.75 percent

8 of its net earnings (after deducting ex9 penses relating to section 10(j) and operat10 ing expenses) to the Treasury of the

11 United States until the value of all such

12 payments by the Federal home loan banks

13 is equivalent to the value of an annuity re14 ferred to in clause (ii). In the final year in

15 which the Federal home loan banks are re16 quired to make any payment to the Treas17 ury under this subparagraph, if the dollar

18 amount represented by 20.75 percent of

19 the net earnings of the Federal home loan

20 banks exceeds the remaining obligation of

21 the banks to the Treasury, the Finance

22 Board shall reduce the percentage pro rata

23 to a level sufficient to pay the remaining

24 obligation.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall become effective on January 1, 1999.

3 Payments made by a Federal home loan bank before that

4 effective date shall be counted toward the total obligation

5 of that bank under section 21B(f)(2)(C) of the Federal

6 Home Loan Bank Act, as amended by this section.

7 Subtitle H—Direct Activities of

8 Banks

9 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER10 WRITE CERTAIN MUNICIPAL BONDS.

11 The paragraph designated the Seventh of section

12 5136 of the Revised Statutes of the United States (12

13 U.S.C. 24(7)) is amended by adding at the end the follow14 ing new sentence: ‘‘In addition to the provisions in this

15 paragraph for dealing in, underwriting or purchasing secu16 rities, the limitations and restrictions contained in this

17 paragraph as to dealing in, underwriting, and purchasing

18 investment securities for the national bank’s own account

19 shall not apply to obligations (including limited obligation

20 bonds, revenue bonds, and obligations that satisfy the re21 quirements of section 142(b)(1) of the Internal Revenue

22 Code of 1986) issued by or on behalf of any state or politi23 cal subdivision of a state, including any municipal cor24 porate instrumentality of 1 or more states, or any public

25 agency or authority of any state or political subdivision
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1 of a state, if the national banking association is well cap2 italized (as defined in section 38 of the Federal Deposit

3 Insurance Act).’’.

4 Subtitle I—Deposit Insurance

5 Funds

6 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.

7 (a) STUDY REQUIRED.—The Board of Directors of

8 the Federal Deposit Insurance Corporation shall conduct

9 a study of the following issues with regard to the Bank

10 Insurance Fund and the Savings Association Insurance

11 Fund:

12 (1) SAFETY AND SOUNDNESS.—The safety and

13 soundness of the funds and the adequacy of the re14 serve requirements applicable to the funds in light

15 of—

16 (A) the size of the insured depository insti17 tutions which are resulting from mergers and

18 consolidations since the effective date of the

19 Riegle-Neal Interstate Banking and Branching

20 Efficiency Act of 1994; and

21 (B) the affiliation of insured depository in22 stitutions with other financial institutions pur23 suant to this Act and the amendments made by

24 this Act.
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1 (2) CONCENTRATION LEVELS.—The concentra2 tion levels of the funds, taking into account the

3 number of members of each fund and the geographic

4 distribution of such members, and the extent to

5 which either fund is exposed to higher risks due to

6 a regional concentration of members or an insuffi7 cient membership base relative to the size of member

8 institutions.

9 (3) MERGER ISSUES.—Issues relating to the

10 planned merger of the funds, including the cost of

11 merging the funds and the manner in which such

12 costs will be distributed among the members of the

13 respective funds.

14 (b) REPORT REQUIRED.—

15 (1) IN GENERAL.—Before the end of the 9-

16 month period beginning on the date of the enact17 ment of this Act, the Board of Directors of the Fed18 eral Deposit Insurance Corporation shall submit a

19 report to the Congress on the study conducted pur20 suant to subsection (a).

21 (2) CONTENTS OF REPORT.—The report shall

22 include—

23 (A) detailed findings of the Board of Di24 rectors with regard to the issues described in

25 subsection (a);
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1 (B) a description of the plans developed by

2 the Board of Directors for merging the Bank

3 Insurance Fund and the Savings Association

4 Insurance Fund, including an estimate of the

5 amount of the cost of such merger which would

6 be borne by Savings Association Insurance

7 Fund members; and

8 (C) such recommendations for legislative

9 and administrative action as the Board of Di10 rectors determines to be necessary or appro11 priate to preserve the safety and soundness of

12 the deposit insurance funds, reduce the risks to

13 such funds, provide for an efficient merger of

14 such funds, and for other purposes.

15 (c) DEFINITIONS.—For purposes of this section, the

16 following definitions shall apply:

17 (1) INSURED DEPOSITORY INSTITUTION.—The

18 term ‘‘insured depository institution’’ has the same

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

20 Insurance Act.

21 (2) BIF AND SAIF MEMBERS.—The terms

22 ‘‘Bank Insurance Fund member’’ and ‘‘Savings As23 sociation Insurance Fund member’’ have the same

24 meanings as in section 7(l) of the Federal Deposit

25 Insurance Act.
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1 SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE2 SERVES.

3 (a) SAIF SPECIAL RESERVES.—Section 11(a)(6) of

4 the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6))

5 is amended by striking subparagraph (L).

6 (b) DIF SPECIAL RESERVES.—Section 2704 of the

7 Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821

8 note) is amended—

9 (1) by striking subsection (b); and

10 (2) in subsection (d)—

11 (A) by striking paragraph (4);

12 (B) in paragraph (6)(C)(i), by striking

13 ‘‘(6) and (7)’’ and inserting ‘‘(5), (6), and (7)’’;

14 and

15 (C) in paragraph (6)(C), by striking clause

16 (ii) and inserting the following:

17 ‘‘(ii) by redesignating paragraph (8)

18 as paragraph (5).’’.

19 Subtitle J—Effective Date of Title

20 SEC. 191. EFFECTIVE DATE.

21 Except with regard to any subtitle or other provision

22 of this title for which a specific effective date is provided,

23 this title and the amendments made by this title shall take

24 effect at the end of the 270-day period beginning on the

25 date of the enactment of this Act.
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1 TITLE II—FUNCTIONAL

2 REGULATION

3 Subtitle A—Brokers and Dealers

4 SEC. 201. DEFINITION OF BROKER.

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

6 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

7 ‘‘(4) BROKER.—

8 ‘‘(A) IN GENERAL.—The term ‘broker’

9 means any person engaged in the business of

10 effecting transactions in securities for the ac11 count of others.

12 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC13 TIVITIES.—A bank shall not be considered to be

14 a broker because the bank engages in any of

15 the following activities under the conditions de16 scribed:

17 ‘‘(i) THIRD PARTY BROKERAGE AR18 RANGEMENTS.—The bank enters into a

19 contractual or other arrangement with a

20 broker or dealer registered under this title

21 under which the broker or dealer offers

22 brokerage services on or off the premises

23 of the bank if—
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1 ‘‘(I) such broker or dealer is

2 clearly identified as the person per3 forming the brokerage services;

4 ‘‘(II) the broker or dealer per5 forms brokerage services in an area

6 that is clearly marked and, to the ex7 tent practicable, physically separate

8 from the routine deposit-taking activi9 ties of the bank;

10 ‘‘(III) any materials used by the

11 bank to advertise or promote generally

12 the availability of brokerage services

13 under the contractual or other ar14 rangement clearly indicate that the

15 brokerage services are being provided

16 by the broker or dealer and not by the

17 bank;

18 ‘‘(IV) any materials used by the

19 bank to advertise or promote generally

20 the availability of brokerage services

21 under the contractual or other ar22 rangement are in compliance with the

23 Federal securities laws before dis24 tribution;
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1 ‘‘(V) bank employees (other than

2 associated persons of a broker or deal3 er who are qualified pursuant to the

4 rules of a self-regulatory organization)

5 perform only clerical or ministerial

6 functions in connection with broker7 age transactions including scheduling

8 appointments with the associated per9 sons of a broker or dealer, except that

10 bank employees may forward cus11 tomer funds or securities and may de12 scribe in general terms the range of

13 investment vehicles available from the

14 bank and the broker or dealer under

15 the contractual or other arrangement;

16 ‘‘(VI) bank employees do not di17 rectly receive incentive compensation

18 for any brokerage transaction unless

19 such employees are associated persons

20 of a broker or dealer and are qualified

21 pursuant to the rules of a self-regu22 latory organization, except that the

23 bank employees may receive com24 pensation for the referral of any cus25 tomer if the compensation is a nomi-
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1 nal one-time cash fee of a fixed dollar

2 amount and the payment of the fee is

3 not contingent on whether the referral

4 results in a transaction;

5 ‘‘(VII) such services are provided

6 by the broker or dealer on a basis in

7 which all customers which receive any

8 services are fully disclosed to the

9 broker or dealer;

10 ‘‘(VIII) the bank does not carry

11 a securities account of the customer

12 except in a customary custodian or

13 trustee capacity; and

14 ‘‘(IX) the bank, broker, or dealer

15 informs each customer that the bro16 kerage services are provided by the

17 broker or dealer and not by the bank

18 and that the securities are not depos19 its or other obligations of the bank,

20 are not guaranteed by the bank, and

21 are not insured by the Federal De22 posit Insurance Corporation.

23 ‘‘(ii) TRUST ACTIVITIES.—The bank

24 effects transactions in a trustee capacity,

25 or effects transactions in a fiduciary capac-
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1 ity in its trust department or other depart2 ment that is regularly examined by bank

3 examiners for compliance with fiduciary

4 principles and standards, and (in either

5 case)—

6 ‘‘(I) is primarily compensated for

7 such transactions on the basis of an

8 administration or annual fee (payable

9 on a monthly, quarterly, or other

10 basis), a percentage of assets under

11 management, or a flat or capped per

12 order processing fee equal to not more

13 than the cost incurred by the bank in

14 connection with executing securities

15 transactions for trustee and fiduciary

16 customers, or any combination of such

17 fees, consistent with fiduciary prin18 ciples and standards; and

19 ‘‘(II) does not publicly solicit bro20 kerage business, other than by adver21 tising that it effects transactions in

22 securities in conjunction with advertis23 ing its other trust activities.
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1 ‘‘(iii) PERMISSIBLE SECURITIES

2 TRANSACTIONS.—The bank effects trans3 actions in—

4 ‘‘(I) commercial paper, bankers

5 acceptances, or commercial bills;

6 ‘‘(II) exempted securities;

7 ‘‘(III) qualified Canadian govern8 ment obligations as defined in section

9 5136 of the Revised Statutes, in con10 formity with section 15C of this title

11 and the rules and regulations there12 under, or obligations of the North

13 American Development Bank; or

14 ‘‘(IV) any standardized, credit

15 enhanced debt security issued by a

16 foreign government pursuant to the

17 March 1989 plan of then Secretary of

18 the Treasury Brady, used by such for19 eign government to retire outstanding

20 commercial bank loans.

21 ‘‘(iv) CERTAIN STOCK PURCHASE

22 PLANS.—

23 ‘‘(I) EMPLOYEE BENEFIT

24 PLANS.—The bank effects trans25 actions, as part of its transfer agency
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1 activities, in the securities of an issuer

2 as part of any pension, retirement,

3 profit-sharing, bonus, thrift, savings,

4 incentive, or other similar benefit plan

5 for the employees of that issuer or its

6 subsidiaries, if—

7 (aa) the bank does not so8 licit transactions or provide in9 vestment advice with respect to

10 the purchase or sale of securities

11 in connection with the plan; and

12 ‘‘(bb) the bank’s compensa13 tion for such plan or program

14 consists primarily of administra15 tion fees, or flat or capped per

16 order processing fees, or both.

17 ‘‘(II) DIVIDEND REINVESTMENT

18 PLANS.—The bank effects trans19 actions, as part of its transfer agency

20 activities, in the securities of an issuer

21 as part of that issuer’s dividend rein22 vestment plan, if—

23 ‘‘(aa) the bank does not so24 licit transactions or provide in25 vestment advice with respect to
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1 the purchase or sale of securities

2 in connection with the plan;

3 ‘‘(bb) the bank does not net

4 shareholders’ buy and sell orders,

5 other than for programs for odd6 lot holders or plans registered

7 with the Commission; and

8 ‘‘(cc) the bank’s compensa9 tion for such plan or program

10 consists primarily of administra11 tion fees, or flat or capped per

12 order processing fees, or both.

13 ‘‘(III) ISSUER PLANS.—The bank

14 effects transactions, as part of its

15 transfer agency activities, in the secu16 rities of an issuer as part of a plan or

17 program for the purchase or sale of

18 that issuer’s shares, if—

19 ‘‘(aa) the bank does not so20 licit transactions or provide in21 vestment advice with respect to

22 the purchase or sale of securities

23 in connection with the plan or

24 program;
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1 ‘‘(bb) the bank does not net

2 shareholders’ buy and sell orders,

3 other than for programs for odd4 lot holders or plans registered

5 with the Commission; and

6 ‘‘(cc) the bank’s compensa7 tion for such plan or program

8 consists primarily of administra9 tion fees, or flat or capped per

10 order processing fees, or both.

11 ‘‘(IV) PERMISSIBLE DELIVERY

12 OF MATERIALS.—The exception to

13 being considered a broker for a bank

14 engaged in activities described in sub15 clauses (I), (II), and (III) will not be

16 affected by a bank’s delivery of writ17 ten or electronic plan materials to em18 ployees of the issuer, shareholders of

19 the issuer, or members of affinity

20 groups of the issuer, so long as such

21 materials are—

22 ‘‘(aa) comparable in scope or

23 nature to that permitted by the

24 Commission as of the date of the
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1 enactment of the Financial Serv2 ices Act of 1999; or

3 ‘‘(bb) otherwise permitted by

4 the Commission.

5 ‘‘(v) SWEEP ACCOUNTS.—The bank

6 effects transactions as part of a program

7 for the investment or reinvestment of bank

8 deposit funds into any no-load, open-end

9 management investment company reg10 istered under the Investment Company Act

11 of 1940 that holds itself out as a money

12 market fund.

13 ‘‘(vi) AFFILIATE TRANSACTIONS.—

14 The bank effects transactions for the ac15 count of any affiliate of the bank (as de16 fined in section 2 of the Bank Holding

17 Company Act of 1956) other than—

18 ‘‘(I) a registered broker or deal19 er; or

20 ‘‘(II) an affiliate that is engaged

21 in merchant banking, as described in

22 section 6(c)(3)(H) of the Bank Hold23 ing Company Act of 1956.

24 ‘‘(vii) PRIVATE SECURITIES OFFER25 INGS.—The bank—
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1 ‘‘(I) effects sales as part of a pri2 mary offering of securities not involv3 ing a public offering, pursuant to sec4 tion 3(b), 4(2), or 4(6) of the Securi5 ties Act of 1933 or the rules and reg6 ulations issued thereunder;

7 ‘‘(II) at any time after the date

8 that is 1 year after the date of enact9 ment of the Financial Services Act of

10 1999, is not affiliated with a broker

11 or dealer that has been registered for

12 more than 1 year in accordance with

13 this Act, and engages in dealing, mar14 ket making, or underwriting activities,

15 other than with respect to exempted

16 securities; and

17 ‘‘(III) effects transactions exclu18 sively with qualified investors.

19 ‘‘(viii) SAFEKEEPING AND CUSTODY

20 ACTIVITIES.—

21 ‘‘(I) IN GENERAL.—The bank, as

22 part of customary banking activities—

23 ‘‘(aa) provides safekeeping

24 or custody services with respect

25 to securities, including the exer-
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1 cise of warrants and other rights

2 on behalf of customers;

3 ‘‘(bb) facilitates the transfer

4 of funds or securities, as a custo5 dian or a clearing agency, in con6 nection with the clearance and

7 settlement of its customers’

8 transactions in securities;

9 ‘‘(cc) effects securities lend10 ing or borrowing transactions

11 with or on behalf of customers as

12 part of services provided to cus13 tomers pursuant to division (aa)

14 or (bb) or invests cash collateral

15 pledged in connection with such

16 transactions; or

17 ‘‘(dd) holds securities

18 pledged by a customer to another

19 person or securities subject to

20 purchase or resale agreements in21 volving a customer, or facilitates

22 the pledging or transfer of such

23 securities by book entry or as

24 otherwise provided under applica25 ble law.
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1 ‘‘(II) EXCEPTION FOR CARRYING

2 BROKER ACTIVITIES.—The exception

3 to being considered a broker for a

4 bank engaged in activities described in

5 subclause (I) shall not apply if the

6 bank, in connection with such activi7 ties, acts in the United States as a

8 carrying broker (as such term, and

9 different formulations thereof, are

10 used in section 15(c)(3) and the rules

11 and regulations thereunder) for any

12 broker or dealer, unless such carrying

13 broker activities are engaged in with

14 respect to government securities (as

15 defined in paragraph (42) of this sub16 section).

17 ‘‘(ix) BANKING PRODUCTS.—The bank

18 effects transactions in traditional banking

19 products, as defined in section 206(a) of

20 the Financial Services Act of 1999.

21 ‘‘(x) DE MINIMIS EXCEPTION.—The

22 bank effects, other than in transactions re23 ferred to in clauses (i) through (ix), not

24 more than 500 transactions in securities in

25 any calendar year, and such transactions
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1 are not effected by an employee of the

2 bank who is also an employee of a broker

3 or dealer.

4 ‘‘(C) BROKER DEALER EXECUTION.—The

5 exception to being considered a broker for a

6 bank engaged in activities described in clauses

7 (ii), (iv), and (viii) of subparagraph (B) shall

8 not apply if the activities described in such pro9 visions result in the trade in the United States

10 of any security that is a publicly traded security

11 in the United States, unless—

12 ‘‘(i) the bank directs such trade to a

13 registered broker or dealer for execution;

14 ‘‘(ii) the trade is a cross trade or

15 other substantially similar trade of a secu16 rity that—

17 ‘‘(I) is made by the bank or be18 tween the bank and an affiliated fidu19 ciary; and

20 ‘‘(II) is not in contravention of

21 fiduciary principles established under

22 applicable Federal or State law; or

23 ‘‘(iii) the trade is conducted in some

24 other manner permitted under rules, regu-
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1 lations, or orders as the Commission may

2 prescribe or issue.

3 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS

4 ON OTHER COMMISSION AUTHORITY.—The ex5 ception to being considered a broker for a bank

6 engaged in activities described in subpara7 graphs (B) and (C) shall not affect the author8 ity of the Commission under any other provi9 sion of this Act or any other securities law.

10 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

11 of subparagraph (B)(ii), the term ‘fiduciary ca12 pacity’ means—

13 ‘‘(i) in the capacity as trustee, execu14 tor, administrator, registrar of stocks and

15 bonds, transfer agent, guardian, assignee,

16 receiver, or custodian under a uniform gift

17 to minor act, or as an investment adviser

18 if the bank receives a fee for its investment

19 advice;

20 ‘‘(ii) in any capacity in which the

21 bank possesses investment discretion on

22 behalf of another; or

23 ‘‘(iii) in any other similar capacity.
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1 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT

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

3 include a bank that—

4 ‘‘(i) was, immediately prior to the en5 actment of the Financial Services Act of

6 1999, subject to section 15(e); and

7 ‘‘(ii) is subject to such restrictions

8 and requirements as the Commission con9 siders appropriate.’’.

10 SEC. 202. DEFINITION OF DEALER.

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

12 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

13 ‘‘(5) DEALER.—

14 ‘‘(A) IN GENERAL.—The term ‘dealer’

15 means any person engaged in the business of

16 buying and selling securities for such person’s

17 own account through a broker or otherwise.

18 ‘‘(B) EXCEPTION FOR PERSON NOT EN19 GAGED IN THE BUSINESS OF DEALING.—The

20 term ‘dealer’ does not include a person that

21 buys or sells securities for such person’s own

22 account, either individually or in a fiduciary ca23 pacity, but not as a part of a regular business.

24 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC25 TIVITIES.—A bank shall not be considered to be
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1 a dealer because the bank engages in any of the

2 following activities under the conditions de3 scribed:

4 ‘‘(i) PERMISSIBLE SECURITIES TRANS5 ACTIONS.—The bank buys or sells—

6 ‘‘(I) commercial paper, bankers

7 acceptances, or commercial bills;

8 ‘‘(II) exempted securities;

9 ‘‘(III) qualified Canadian govern10 ment obligations as defined in section

11 5136 of the Revised Statutes of the

12 United States, in conformity with sec13 tion 15C of this title and the rules

14 and regulations thereunder, or obliga15 tions of the North American Develop16 ment Bank; or

17 ‘‘(IV) any standardized, credit

18 enhanced debt security issued by a

19 foreign government pursuant to the

20 March 1989 plan of then Secretary of

21 the Treasury Brady, used by such for22 eign government to retire outstanding

23 commercial bank loans.

24 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI25 DUCIARY TRANSACTIONS.—The bank buys
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1 or sells securities for investment

2 purposes—

3 ‘‘(I) for the bank; or

4 ‘‘(II) for accounts for which the

5 bank acts as a trustee or fiduciary.

6 ‘‘(iii) ASSET-BACKED TRANS7 ACTIONS.—The bank engages in the

8 issuance or sale to qualified investors,

9 through a grantor trust or otherwise, of se10 curities backed by or representing an inter11 est in notes, drafts, acceptances, loans,

12 leases, receivables, other obligations, or

13 pools of any such obligations predomi14 nantly originated by the bank, or a syn15 dicate of banks of which the bank is a

16 member, or an affiliate of any such bank

17 other than a broker or dealer.

18 ‘‘(iv) BANKING PRODUCTS.—The bank

19 buys or sells traditional banking products,

20 as defined in section 206(a) of the Finan21 cial Services Act of 1999.

22 ‘‘(v) DERIVATIVE INSTRUMENTS.—

23 The bank issues, buys, or sells any deriva24 tive instrument to which the bank is a

25 party—
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1 ‘‘(I) to or from a qualified inves2 tor, except that if the instrument pro3 vides for the delivery of one or more

4 securities (other than a derivative in5 strument or government security), the

6 transaction shall be effected with or

7 through a registered broker or dealer;

8 ‘‘(II) to or from other persons,

9 except that if the derivative instru10 ment provides for the delivery of one

11 or more securities (other than a deriv12 ative instrument or government secu13 rity), or is a security (other than a

14 government security), the transaction

15 shall be effected with or through a

16 registered broker or dealer; or

17 ‘‘(III) to or from any person if

18 the instrument is neither a security

19 nor provides for the delivery of one or

20 more securities (other than a deriva21 tive instrument).’’.
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1 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI2 TIES OFFERINGS.

3 Section 15A of the Securities Exchange Act of 1934

4 (15 U.S.C. 78o–3) is amended by inserting after sub5 section (i) the following new subsection:

6 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI7 TIES OFFERINGS.—A registered securities association

8 shall create a limited qualification category for any associ9 ated person of a member who effects sales as part of a

10 primary offering of securities not involving a public offer11 ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi12 ties Act of 1933 and the rules and regulations thereunder,

13 and shall deem qualified in such limited qualification cat14 egory, without testing, any bank employee who, in the six

15 month period preceding the date of enactment of this Act,

16 engaged in effecting such sales.’’.

17 SEC. 204. SALES PRACTICES AND COMPLAINT PROCE18 DURES.

19 Section 18 of the Federal Deposit Insurance Act is

20 amended by adding at the end the following new sub21 section:

22 ‘‘(s) SALES PRACTICES AND COMPLAINT PROCE23 DURES WITH RESPECT TO BANK SECURITIES ACTIVI24 TIES.—

25 ‘‘(1) REGULATIONS REQUIRED.—Each Federal

26 banking agency shall prescribe and publish in final
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1 form, not later than 6 months after the date of en2 actment of the Financial Services Act of 1999, regu3 lations which apply to retail transactions, solicita4 tions, advertising, or offers of any security by any

5 insured depository institution or any affiliate thereof

6 other than a registered broker or dealer or an indi7 vidual acting on behalf of such a broker or dealer

8 who is an associated person of such broker or dealer.

9 Such regulations shall include—

10 ‘‘(A) requirements that sales practices

11 comply with just and equitable principles of

12 trade that are substantially similar to the Rules

13 of Fair Practice of the National Association of

14 Securities Dealers; and

15 ‘‘(B) requirements prohibiting (i) condi16 tioning an extension of credit on the purchase

17 or sale of a security; and (ii) any conduct lead18 ing a customer to believe that an extension of

19 credit is conditioned upon the purchase or sale

20 of a security.

21 ‘‘(2) PROCEDURES REQUIRED.—The appro22 priate Federal banking agencies shall jointly estab23 lish procedures and facilities for receiving and expe24 ditiously processing complaints against any bank or

25 employee of a bank arising in connection with the
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1 purchase or sale of a security by a customer, includ2 ing a complaint alleging a violation of the regula3 tions prescribed under paragraph (1), but excluding

4 a complaint involving an individual acting on behalf

5 of such a broker or dealer who is an associated per6 son of such broker or dealer. The use of any such

7 procedures and facilities by such a customer shall be

8 at the election of the customer. Such procedures

9 shall include provisions to refer a complaint alleging

10 fraud to the Securities and Exchange Commission

11 and appropriate State securities commissions.

12 ‘‘(3) REQUIRED ACTIONS.—The actions re13 quired by the Federal banking agencies under para14 graph (2) shall include the following:

15 ‘‘(A) establishing a group, unit, or bureau

16 within each such agency to receive such com17 plaints;

18 ‘‘(B) developing and establishing proce19 dures for investigating, and permitting cus20 tomers to investigate, such complaints;

21 ‘‘(C) developing and establishing proce22 dures for informing customers of the rights

23 they may have in connection with such com24 plaints;
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1 ‘‘(D) developing and establishing proce2 dures that allow customers a period of at least

3 6 years to make complaints and that do not re4 quire customers to pay the costs of the proceed5 ing; and

6 ‘‘(E) developing and establishing proce7 dures for resolving such complaints, including

8 procedures for the recovery of losses to the ex9 tent appropriate.

10 ‘‘(4) CONSULTATION AND JOINT REGULA11 TIONS.—The Federal banking agencies shall consult

12 with each other and prescribe joint regulations pur13 suant to paragraphs (1) and (2), after consultation

14 with the Securities and Exchange Commission.

15 ‘‘(5) PROCEDURES IN ADDITION TO OTHER

16 REMEDIES.—The procedures and remedies provided

17 under this subsection shall be in addition to, and not

18 in lieu of, any other remedies available under law.

19 ‘‘(6) DEFINITION.—As used in this

20 subsection—

21 ‘‘(A) the term ‘security’ has the same

22 meaning as in section 3(a)(10) of the Securities

23 Exchange Act of 1934;
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1 ‘‘(B) the term ‘registered broker or dealer’

2 has the same meaning as in section 3(a)(48) of

3 the Securities Exchange Act of 1934; and

4 ‘‘(C) the term ‘associated person’ has the

5 same meaning as in section 3(a)(18) of the Se6 curities Exchange Act of 1934.’’.

7 SEC. 205. INFORMATION SHARING.

8 Section 18 of the Federal Deposit Insurance Act is

9 amended by adding at the end the following new sub10 section:

11 ‘‘(t) RECORDKEEPING REQUIREMENTS.—

12 ‘‘(1) REQUIREMENTS.—Each appropriate Fed13 eral banking agency, after consultation with and

14 consideration of the views of the Commission, shall

15 establish recordkeeping requirements for banks rely16 ing on exceptions contained in paragraphs (4) and

17 (5) of section 3(a) of the Securities Exchange Act of

18 1934. Such recordkeeping requirements shall be suf19 ficient to demonstrate compliance with the terms of

20 such exceptions and be designed to facilitate compli21 ance with such exceptions. Each appropriate Federal

22 banking agency shall make any such information

23 available to the Commission upon request.
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1 ‘‘(2) DEFINITIONS.—As used in this subsection

2 the term ‘Commission’ means the Securities and Ex3 change Commission.’’.

4 SEC. 206. DEFINITION AND TREATMENT OF BANKING PROD5 UCTS.

6 (a) DEFINITION OF TRADITIONAL BANKING PROD7 UCT.—For purposes of paragraphs (4) and (5) of section

8 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.

9 78c(a) (4), (5)), the term ‘‘traditional banking product’’

10 means—

11 (1) a deposit account, savings account, certifi12 cate of deposit, or other deposit instrument issued

13 by a bank;

14 (2) a banker’s acceptance;

15 (3) a letter of credit issued or loan made by a

16 bank;

17 (4) a debit account at a bank arising from a

18 credit card or similar arrangement;

19 (5) a participation in a loan which the bank or

20 an affiliate of the bank (other than a broker or deal21 er) funds, participates in, or owns that is sold—

22 (A) to qualified investors; or

23 (B) to other persons that—

24 (i) have the opportunity to review and

25 assess any material information, including
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1 information regarding the borrower’s cred2 itworthiness; and

3 (ii) based on such factors as financial

4 sophistication, net worth, and knowledge

5 and experience in financial matters, have

6 the capability to evaluate the information

7 available, as determined under generally

8 applicable banking standards or guidelines;

9 and

10 (6) any derivative instrument, whether or not

11 individually negotiated, involving or relating to—

12 (A) foreign currencies, except options on

13 foreign currencies that trade on a national se14 curities exchange;

15 (B) interest rates, except interest rate de16 rivative instruments that—

17 (i) are based on a security or a group

18 or index of securities (other than govern19 ment securities or a group or index of gov20 ernment securities);

21 (ii) provide for the delivery of one or

22 more securities (other than government se23 curities); or

24 (iii) trade on a national securities ex25 change; or
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1 (C) commodities, other rates, indices, or

2 other assets, except derivative instruments

3 that—

4 (i) are securities or that are based on

5 a group or index of securities (other than

6 government securities or a group or index

7 of government securities);

8 (ii) provide for the delivery of one or

9 more securities (other than government se10 curities); or

11 (iii) trade on a national securities ex12 change.

13 (b) AMENDMENT TO THE SECURITIES EXCHANGE

14 ACT OF 1934.—Section 15 of the Securities Exchange Act

15 of 1934 (15 U.S.C. 78o) is amended by adding at the end

16 the following new subsection:

17 ‘‘(i) TRANSACTIONS INVOLVING HYBRID PROD18 UCTS.—

19 ‘‘(1) COMMISSION AUTHORITY.—

20 ‘‘(A) IN GENERAL.—The Commission may,

21 after consultation with the Board, determine,

22 by regulation published in the Federal Register,

23 that a bank that effects transactions in, or buys

24 or sells, a new product should be subject to the

25 registration requirements of this section.
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1 ‘‘(B) LIMITATION.—The Commission may

2 not impose the registration requirements of this

3 section on any bank that effects transactions in,

4 or buys or sells, a product under this subsection

5 unless the Commission determines in the regu6 lations described in subparagraph (A) that—

7 ‘‘(i) the subject product is a new prod8 uct;

9 ‘‘(ii) the subject product is a security;

10 and

11 ‘‘(iii) imposing the registration re12 quirements of this section is necessary or

13 appropriate in the public interest and for

14 the protection of investors.

15 ‘‘(2) OBJECTION TO COMMISSION REGULA16 TION.—

17 ‘‘(A) FILING OF PETITION FOR REVIEW.—

18 The Board, or any aggrieved party, may obtain

19 review of any final regulation described in para20 graph (1) in the United States Court of Ap21 peals for the District of Columbia Circuit by fil22 ing in such court, not later than 60 days after

23 the date of publication of the final regulation,

24 a written petition requesting that the regulation

25 be set aside.
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1 ‘‘(B) TRANSMITTAL OF PETITION AND

2 RECORD.—A copy of a petition described in

3 subparagraph (A) shall be transmitted as soon

4 as possible by the Clerk of the Court to an offi5 cer or employee of the Commission designated

6 for that purpose. Upon receipt of the petition,

7 the Commission shall file with the court the

8 regulation under review and any documents re9 ferred to therein, and any other relevant mate10 rials prescribed by the court.

11 ‘‘(C) EXCLUSIVE JURISDICTION.—On the

12 date of the filing of the petition under subpara13 graph (A), the court has jurisdiction, which be14 comes exclusive on the filing of the materials

15 set forth in subparagraph (B), to affirm and

16 enforce or to set aside the regulation at issue.

17 ‘‘(D) STANDARD OF REVIEW.—

18 ‘‘(i) IN GENERAL.—The court shall

19 determine to affirm and enforce or set

20 aside a regulation of the Commission

21 under this subsection, based on the deter22 mination of the court as to whether the

23 subject product—

24 ‘‘(I) is a new product, as defined

25 in this subsection;
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1 ‘‘(II) is a security; and

2 ‘‘(III) would be more appro3 priately regulated under the Federal

4 securities laws or the Federal banking

5 laws, giving equal deference to the

6 views of the Commission and the

7 Board.

8 ‘‘(ii) CONSIDERATIONS.—In making a

9 determination under clause (i)(III), the

10 court shall consider—

11 ‘‘(I) the nature of the subject

12 new product;

13 ‘‘(II) the history, purpose, extent,

14 and appropriateness of the regulation

15 of the new product under the Federal

16 securities laws; and

17 ‘‘(III) the history, purpose, ex18 tent, and appropriateness of the regu19 lation of the new product under the

20 Federal banking laws.

21 ‘‘(E) JUDICIAL STAY.—The filing of a peti22 tion by the Board or an aggrieved party pursu23 ant to subparagraph (A) shall operate as a judi24 cial stay, until the date on which the court
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1 makes a final determination under this para2 graph, of—

3 ‘‘(i) any Commission requirement that

4 a bank register as a broker or dealer under

5 this section, because the bank engages in

6 any transaction in, or buys or sells, the

7 new product that is the subject of the peti8 tion; and

9 ‘‘(ii) any Commission action against a

10 bank for a failure to comply with a re11 quirement described in clause (i).

12 ‘‘(3) DEFINITIONS.—For purposes of this

13 subsection—

14 ‘‘(A) the term ‘Board’ means the Board of

15 Governors of the Federal Reserve System; and

16 ‘‘(B) the term ‘new product’ means a prod17 uct or instrument offered or provided by a bank

18 that—

19 ‘‘(i) was not subject to regulation by

20 the Commission as a security under this

21 Act before the date of enactment of this

22 subsection; and

23 ‘‘(ii) is not a traditional banking prod24 uct, as defined in paragraphs (1) through
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1 (6) of section 206(a) of the Financial Serv2 ices Act of 1999.’’.

3 (c) CLASSIFICATION LIMITED.—Classification of a

4 particular product or instrument as a traditional banking

5 product pursuant to this section or the amendments made

6 by this section shall not be construed as finding or imply7 ing that such product or instrument is or is not a security

8 for any purpose under the securities laws, or is or is not

9 an account, agreement, contract, or transaction for any

10 purpose under the Commodity Exchange Act.

11 (d) NO LIMITATION ON OTHER AUTHORITY TO

12 CHALLENGE.—Nothing in this section or the amendments

13 made by this section shall affect the right or authority

14 of the Board of Governors of the Federal Reserve System,

15 any appropriate Federal banking agency, or any interested

16 party under any other provision of law to object to or seek

17 judicial review as to whether a product or instrument is

18 or is not appropriately classified as a traditional banking

19 product under paragraphs (1) through (6) of section

20 206(a).

21 (e) INCORPORATED DEFINITIONS.—For purposes of

22 this section—

23 (1) the term ‘‘appropriate Federal banking

24 agency’’ has the same meaning as in section 3 of the

25 Federal Deposit Insurance Act;
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1 (2) the term ‘‘bank’’ has the same meaning as

2 in section 3(a)(6) of the Securities Exchange Act of

3 1934;

4 (3) the term ‘‘Board’’ means the Board of Gov5 ernors of the Federal Reserve System;

6 (4) the term ‘‘government securities’’ has the

7 same meaning as in section 3(a)(42) of the Securi8 ties Exchange Act of 1934, and, for purposes of this

9 subsection, commercial paper, bankers acceptances,

10 and commercial bills shall be treated in the same

11 manner as government securities; and

12 (5) the term ‘‘qualified investor’’ has the same

13 meaning as in section 3(a)(55) of the Securities Ex14 change Act of 1934, as amended by this Act.

15 SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED IN16 VESTOR DEFINED.

17 Section 3(a) of the Securities Exchange Act of 1934

18 (15 U.S.C. 78c(a)) is amended by adding at the end the

19 following new paragraphs:

20 ‘‘(54) DERIVATIVE INSTRUMENT.—

21 ‘‘(A) DEFINITION.—The term ‘derivative

22 instrument’ means any individually negotiated

23 contract, agreement, warrant, note, or option

24 that is based, in whole or in part, on the value

25 of, any interest in, or any quantitative measure
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1 or the occurrence of any event relating to, one

2 or more commodities, securities, currencies, in3 terest or other rates, indices, or other assets,

4 but does not include a traditional banking prod5 uct, as defined in section 206(a) of the Finan6 cial Services Act of 1999.

7 ‘‘(B) CLASSIFICATION LIMITED.— Classi8 fication of a particular contract as a derivative

9 instrument pursuant to this paragraph shall not

10 be construed as finding or implying that such

11 instrument is or is not a security for any pur12 pose under the securities laws, or is or is not

13 an account, agreement, contract, or transaction

14 for any purpose under the Commodity Ex15 change Act.

16 ‘‘(55) QUALIFIED INVESTOR.—

17 ‘‘(A) DEFINITION.—For purposes of this

18 title, the term ‘qualified investor’ means—

19 ‘‘(i) any investment company reg20 istered with the Commission under section

21 8 of the Investment Company Act of 1940;

22 ‘‘(ii) any issuer eligible for an exclu23 sion from the definition of investment com24 pany pursuant to section 3(c)(7) of the In25 vestment Company Act of 1940;
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1 ‘‘(iii) any bank (as defined in para2 graph (6) of this subsection), savings asso3 ciation (as defined in section 3(b) of the

4 Federal Deposit Insurance Act), broker,

5 dealer, insurance company (as defined in

6 section 2(a)(13) of the Securities Act of

7 1933), or business development company

8 (as defined in section 2(a)(48) of the In9 vestment Company Act of 1940);

10 ‘‘(iv) any small business investment

11 company licensed by the United States

12 Small Business Administration under sec13 tion 301 (c) or (d) of the Small Business

14 Investment Act of 1958;

15 ‘‘(v) any State sponsored employee

16 benefit plan, or any other employee benefit

17 plan, within the meaning of the Employee

18 Retirement Income Security Act of 1974,

19 other than an individual retirement ac20 count, if the investment decisions are made

21 by a plan fiduciary, as defined in section

22 3(21) of that Act, which is either a bank,

23 savings and loan association, insurance

24 company, or registered investment adviser;
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1 ‘‘(vi) any trust whose purchases of se2 curities are directed by a person described

3 in clauses (i) through (v) of this subpara4 graph;

5 ‘‘(vii) any market intermediary ex6 empt under section 3(c)(2) of the Invest7 ment Company Act of 1940;

8 ‘‘(viii) any associated person of a

9 broker or dealer other than a natural per10 son;

11 ‘‘(ix) any foreign bank (as defined in

12 section 1(b)(7) of the International Bank13 ing Act of 1978);

14 ‘‘(x) the government of any foreign

15 country;

16 ‘‘(xi) any corporation, company, or

17 partnership that owns and invests on a dis18 cretionary basis, not less than $10,000,000

19 in investments;

20 ‘‘(xii) any natural person who owns

21 and invests on a discretionary basis, not

22 less than $10,000,000 in investments;

23 ‘‘(xiii) any government or political

24 subdivision, agency, or instrumentality of a

25 government who owns and invests on a dis-
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1 cretionary basis not less than $50,000,000

2 in investments; or

3 ‘‘(xiv) any multinational or supra4 national entity or any agency or instru5 mentality thereof.

6 ‘‘(B) ADDITIONAL AUTHORITY.—The Com7 mission may, by rule or order, define a ‘quali8 fied investor’ as any other person, taking into

9 consideration such factors as the financial so10 phistication of the person, net worth, and

11 knowledge and experience in financial mat12 ters.’’.

13 SEC. 208. GOVERNMENT SECURITIES DEFINED.

14 Section 3(a)(42) of the Securities Exchange Act of

15 1934 (15 U.S.C. 78c(a)(42)) is amended—

16 (1) by striking ‘‘or’’ at the end of subparagraph

17 (C);

18 (2) by striking the period at the end of sub19 paragraph (D) and inserting ‘‘; or’’; and

20 (3) by adding at the end the following new sub21 paragraph:

22 ‘‘(E) for purposes of section 15C as ap23 plied to a bank, a qualified Canadian govern24 ment obligation as defined in section 5136 of

25 the Revised Statutes.’’.
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1 SEC. 209. EFFECTIVE DATE.

2 This subtitle shall take effect at the end of the 270-

3 day period beginning on the date of the enactment of this

4 Act.

5 SEC. 210. RULE OF CONSTRUCTION.

6 Nothing in this Act shall supersede, affect, or other7 wise limit the scope and applicability of the Commodity

8 Exchange Act (7 U.S.C. 1 et seq.).

9 Subtitle B—Bank Investment

10 Company Activities

11 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

12 AFFILIATED BANK.

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

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

15 is amended—

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

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

18 (2) by striking ‘‘(f) Every registered’’ and in19 serting the following:

20 ‘‘(f) CUSTODY OF SECURITIES.—

21 ‘‘(1) Every registered’’;

22 (3) by redesignating the second, third, fourth,

23 and fifth sentences of such subsection as paragraphs

24 (2) through (5), respectively, and indenting the left

25 margin of such paragraphs appropriately; and
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1 (4) by adding at the end the following new

2 paragraph:

3 ‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—

4 The Commission may adopt rules and regulations,

5 and issue orders, consistent with the protection of

6 investors, prescribing the conditions under which a

7 bank, or an affiliated person of a bank, either of

8 which is an affiliated person, promoter, organizer, or

9 sponsor of, or principal underwriter for, a registered

10 management company may serve as custodian of

11 that registered management company.’’.

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

13 Investment Company Act of 1940 (15 U.S.C. 80a–26) is

14 amended—

15 (1) by redesignating subsections (b) through (e)

16 as subsections (c) through (f), respectively; and

17 (2) by inserting after subsection (a) the follow18 ing new subsection:

19 ‘‘(b) The Commission may adopt rules and regula20 tions, and issue orders, consistent with the protection of

21 investors, prescribing the conditions under which a bank,

22 or an affiliated person of a bank, either of which is an

23 affiliated person of a principal underwriter for, or deposi24 tor of, a registered unit investment trust, may serve as

25 trustee or custodian under subsection (a)(1).’’.
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1 (c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)

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

3 35(a)) is amended—

4 (1) in paragraph (1), by striking ‘‘or’’ at the

5 end;

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

7 the end and inserting ‘‘; or’’; and

8 (3) by inserting after paragraph (2) the follow9 ing:

10 ‘‘(3) as custodian.’’.

11 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM12 PANY.

13 Section 17(a) of the Investment Company Act of

14 1940 (15 U.S.C. 80a–17(a)) is amended—

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

16 (2);

17 (2) by striking the period at the end of para18 graph (3) and inserting ‘‘; or’’; and

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

20 paragraph:

21 ‘‘(4) to loan money or other property to such

22 registered company, or to any company controlled by

23 such registered company, in contravention of such

24 rules, regulations, or orders as the Commission may
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1 prescribe or issue consistent with the protection of

2 investors.’’.

3 SEC. 213. INDEPENDENT DIRECTORS.

4 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest5 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

6 is amended—

7 (1) by striking clause (v) and inserting the fol8 lowing new clause:

9 ‘‘(v) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has executed any portfolio trans16 actions for, engaged in any principal trans17 actions with, or distributed shares for—

18 ‘‘(I) the investment company;

19 ‘‘(II) any other investment com20 pany having the same investment ad21 viser as such investment company or

22 holding itself out to investors as a re23 lated company for purposes of invest24 ment or investor services; or
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1 ‘‘(III) any account over which the

2 investment company’s investment ad3 viser has brokerage placement discre4 tion,’’;

5 (2) by redesignating clause (vi) as clause (vii);

6 and

7 (3) by inserting after clause (v) the following

8 new clause:

9 ‘‘(vi) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has loaned money or other prop16 erty to—

17 ‘‘(I) the investment company;

18 ‘‘(II) any other investment com19 pany having the same investment ad20 viser as such investment company or

21 holding itself out to investors as a re22 lated company for purposes of invest23 ment or investor services; or
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1 ‘‘(III) any account for which the

2 investment company’s investment ad3 viser has borrowing authority,’’.

4 (b) CONFORMING AMENDMENT.—Section

5 2(a)(19)(B) of the Investment Company Act of 1940 (15

6 U.S.C. 80a–2(a)(19)(B)) is amended—

7 (1) by striking clause (v) and inserting the fol8 lowing new clause:

9 ‘‘(v) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has executed any portfolio trans16 actions for, engaged in any principal trans17 actions with, or distributed shares for—

18 ‘‘(I) any investment company for

19 which the investment adviser or prin20 cipal underwriter serves as such;

21 ‘‘(II) any investment company

22 holding itself out to investors, for pur23 poses of investment or investor serv24 ices, as a company related to any in25 vestment company for which the in-
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1 vestment adviser or principal under2 writer serves as such; or

3 ‘‘(III) any account over which the

4 investment adviser has brokerage

5 placement discretion,’’;

6 (2) by redesignating clause (vi) as clause (vii);

7 and

8 (3) by inserting after clause (v) the following

9 new clause:

10 ‘‘(vi) any person or any affiliated per11 son of a person (other than a registered in12 vestment company) that, at any time dur13 ing the 6-month period preceding the date

14 of the determination of whether that per15 son or affiliated person is an interested

16 person, has loaned money or other prop17 erty to—

18 ‘‘(I) any investment company for

19 which the investment adviser or prin20 cipal underwriter serves as such;

21 ‘‘(II) any investment company

22 holding itself out to investors, for pur23 poses of investment or investor serv24 ices, as a company related to any in25 vestment company for which the in-
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1 vestment adviser or principal under2 writer serves as such; or

3 ‘‘(III) any account for which the

4 investment adviser has borrowing au5 thority,’’.

6 (c) AFFILIATION OF DIRECTORS.—Section 10(c) of

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

8 10(c)) is amended by striking ‘‘bank, except’’ and insert9 ing ‘‘bank (together with its affiliates and subsidiaries) or

10 any one bank holding company (together with its affiliates

11 and subsidiaries) (as such terms are defined in section 2

12 of the Bank Holding Company Act of 1956), except’’.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall take effect at the end of the 1-year period

15 beginning on the date of enactment of this subtitle.

16 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

17 Section 35(a) of the Investment Company Act of

18 1940 (15 U.S.C. 80a–34(a)) is amended to read as fol19 lows:

20 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

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

22 person, issuing or selling any security of which a

23 registered investment company is the issuer, to rep24 resent or imply in any manner whatsoever that such

25 security or company—
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1 ‘‘(A) has been guaranteed, sponsored, rec2 ommended, or approved by the United States,

3 or any agency, instrumentality or officer of the

4 United States;

5 ‘‘(B) has been insured by the Federal De6 posit Insurance Corporation; or

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

8 obligation of any bank or insured depository in9 stitution.

10 ‘‘(2) DISCLOSURES.—Any person issuing or

11 selling the securities of a registered investment com12 pany that is advised by, or sold through, a bank

13 shall prominently disclose that an investment in the

14 company is not insured by the Federal Deposit In15 surance Corporation or any other government agen16 cy. The Commission may adopt rules and regula17 tions, and issue orders, consistent with the protec18 tion of investors, prescribing the manner in which

19 the disclosure under this paragraph shall be pro20 vided.

21 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi22 tory institution’ and ‘appropriate Federal banking

23 agency’ have the same meanings as in section 3 of

24 the Federal Deposit Insurance Act.’’.
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1 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST2 MENT COMPANY ACT OF 1940.

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

4 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol5 lows:

6 ‘‘(6) The term ‘broker’ has the same meaning

7 as in section 3 of the Securities Exchange Act of

8 1934, except that such term does not include any

9 person solely by reason of the fact that such person

10 is an underwriter for one or more investment compa11 nies.’’.

12 SEC. 216. DEFINITION OF DEALER UNDER THE INVEST13 MENT COMPANY ACT OF 1940.

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

15 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol16 lows:

17 ‘‘(11) The term ‘dealer’ has the same meaning

18 as in section 3 of the Securities Exchange Act of

19 1934, but does not include an insurance company or

20 investment company.’’.

21 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI22 TION OF INVESTMENT ADVISER FOR BANKS

23 THAT ADVISE INVESTMENT COMPANIES.

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

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

26 2(a)(11)) is amended in subparagraph (A), by striking
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1 ‘‘investment company’’ and inserting ‘‘investment com2 pany, except that the term ‘investment adviser’ includes

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

4 bank or bank holding company serves or acts as an invest5 ment adviser to a registered investment company, but if,

6 in the case of a bank, such services or actions are per7 formed through a separately identifiable department or di8 vision, the department or division, and not the bank itself,

9 shall be deemed to be the investment adviser’’.

10 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR

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

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

13 the end the following:

14 ‘‘(26) The term ‘separately identifiable depart15 ment or division’ of a bank means a unit—

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

17 an officer or officers designated by the board of

18 directors of the bank as responsible for the day19 to-day conduct of the bank’s investment adviser

20 activities for one or more investment companies,

21 including the supervision of all bank employees

22 engaged in the performance of such activities;

23 and

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

25 to its investment adviser activities are sepa-
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1 rately maintained in or extractable from such

2 unit’s own facilities or the facilities of the bank,

3 and such records are so maintained or other4 wise accessible as to permit independent exam5 ination and enforcement by the Commission of

6 this Act or the Investment Company Act of

7 1940 and rules and regulations promulgated

8 under this Act or the Investment Company Act

9 of 1940.’’.

10 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST11 MENT ADVISERS ACT OF 1940.

12 Section 202(a)(3) of the Investment Advisers Act of

13 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol14 lows:

15 ‘‘(3) The term ‘broker’ has the same meaning

16 as in section 3 of the Securities Exchange Act of

17 1934.’’.

18 SEC. 219. DEFINITION OF DEALER UNDER THE INVEST19 MENT ADVISERS ACT OF 1940.

20 Section 202(a)(7) of the Investment Advisers Act of

21 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol22 lows:

23 ‘‘(7) The term ‘dealer’ has the same meaning as

24 in section 3 of the Securities Exchange Act of 1934,
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1 but does not include an insurance company or in2 vestment company.’’.

3 SEC. 220. INTERAGENCY CONSULTATION.

4 The Investment Advisers Act of 1940 (15 U.S.C.

5 80b–1 et seq.) is amended by inserting after section 210

6 the following new section:

7 ‘‘SEC. 210A. CONSULTATION.

8 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA9 TION.—

10 ‘‘(1) The appropriate Federal banking agency

11 shall provide the Commission upon request the re12 sults of any examination, reports, records, or other

13 information to which such agency may have access

14 with respect to the investment advisory activities—

15 ‘‘(A) of any—

16 ‘‘(i) bank holding company;

17 ‘‘(ii) bank; or

18 ‘‘(iii) separately identifiable depart19 ment or division of a bank, that is reg20 istered under section 203 of this title; and

21 ‘‘(B) in the case of a bank holding com22 pany or bank that has a subsidiary or a sepa23 rately identifiable department or division reg24 istered under that section, of such bank or bank

25 holding company.
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1 ‘‘(2) The Commission shall provide to the ap2 propriate Federal banking agency upon request the

3 results of any examination, reports, records, or other

4 information with respect to the investment advisory

5 activities of any bank holding company, bank, or

6 separately identifiable department or division of a

7 bank, any of which is registered under section 203

8 of this title.

9 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in

10 this section shall limit in any respect the authority of the

11 appropriate Federal banking agency with respect to such

12 bank holding company, bank, or department or division

13 under any provision of law.

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

15 term ‘appropriate Federal banking agency’ has the same

16 meaning as in section 3 of the Federal Deposit Insurance

17 Act.’’.

18 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

19 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

20 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

21 amended by striking ‘‘or any interest or participation in

22 any common trust fund or similar fund maintained by a

23 bank exclusively for the collective investment and reinvest24 ment of assets contributed thereto by such bank in its ca25 pacity as trustee, executor, administrator, or guardian’’
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1 and inserting ‘‘or any interest or participation in any com2 mon trust fund or similar fund that is excluded from the

3 definition of the term ‘investment company’ under section

4 3(c)(3) of the Investment Company Act of 1940’’.

5 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

6 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

7 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol8 lows:

9 ‘‘(iii) any interest or participation in any

10 common trust fund or similar fund that is ex11 cluded from the definition of the term ‘invest12 ment company’ under section 3(c)(3) of the In13 vestment Company Act of 1940;’’.

14 (c) INVESTMENT COMPANY ACT OF 1940.—Section

15 3(c)(3) of the Investment Company Act of 1940 (15

16 U.S.C. 80a–3(c)(3)) is amended by inserting before the

17 period the following: ‘‘, if—

18 ‘‘(A) such fund is employed by the bank

19 solely as an aid to the administration of trusts,

20 estates, or other accounts created and main21 tained for a fiduciary purpose;

22 ‘‘(B) except in connection with the ordi23 nary advertising of the bank’s fiduciary serv24 ices, interests in such fund are not—

25 ‘‘(i) advertised; or
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1 ‘‘(ii) offered for sale to the general

2 public; and

3 ‘‘(C) fees and expenses charged by such

4 fund are not in contravention of fiduciary prin5 ciples established under applicable Federal or

6 State law’’.

7 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV8 ING CONTROLLING INTEREST IN REG9 ISTERED INVESTMENT COMPANY.

10 Section 15 of the Investment Company Act of 1940

11 (15 U.S.C. 80a–15) is amended by adding at the end the

12 following new subsection:

13 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM14 PANY PROHIBITED.—

15 ‘‘(1) IN GENERAL.—If an investment adviser to

16 a registered investment company, or an affiliated

17 person of that investment adviser, holds a control18 ling interest in that registered investment company

19 in a trustee or fiduciary capacity, such person

20 shall—

21 ‘‘(A) if it holds the shares in a trustee or

22 fiduciary capacity with respect to any employee

23 benefit plan subject to the Employee Retire24 ment Income Security Act of 1974, transfer the

25 power to vote the shares of the investment com-
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1 pany through to another person acting in a fi2 duciary capacity with respect to the plan who is

3 not an affiliated person of that investment ad4 viser or any affiliated person thereof; or

5 ‘‘(B) if it holds the shares in a trustee or

6 fiduciary capacity with respect to any person or

7 entity other than an employee benefit plan sub8 ject to the Employee Retirement Income Secu9 rity Act of 1974—

10 ‘‘(i) transfer the power to vote the

11 shares of the investment company through

12 to—

13 ‘‘(I) the beneficial owners of the

14 shares;

15 ‘‘(II) another person acting in a

16 fiduciary capacity who is not an affili17 ated person of that investment adviser

18 or any affiliated person thereof; or

19 ‘‘(III) any person authorized to

20 receive statements and information

21 with respect to the trust who is not an

22 affiliated person of that investment

23 adviser or any affiliated person there24 of;
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1 ‘‘(ii) vote the shares of the investment

2 company held by it in the same proportion

3 as shares held by all other shareholders of

4 the investment company; or

5 ‘‘(iii) vote the shares of the invest6 ment company as otherwise permitted

7 under such rules, regulations, or orders as

8 the Commission may prescribe or issue

9 consistent with the protection of investors.

10 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

11 apply to any investment adviser to a registered in12 vestment company, or any affiliated person of that

13 investment adviser, that holds shares of the invest14 ment company in a trustee or fiduciary capacity if

15 that registered investment company consists solely of

16 assets held in such capacities.

17 ‘‘(3) SAFE HARBOR.—No investment adviser to

18 a registered investment company or any affiliated

19 person of such investment adviser shall be deemed to

20 have acted unlawfully or to have breached a fidu21 ciary duty under State or Federal law solely by rea22 son of acting in accordance with clause (i), (ii), or

23 (iii) of paragraph (1)(B).’’.
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1 SEC. 223. CONFORMING CHANGE IN DEFINITION.

2 Section 2(a)(5) of the Investment Company Act of

3 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking

4 ‘‘(A) a banking institution organized under the laws of the

5 United States’’ and inserting ‘‘(A) a depository institution

6 (as defined in section 3 of the Federal Deposit Insurance

7 Act) or a branch or agency of a foreign bank (as such

8 terms are defined in section 1(b) of the International

9 Banking Act of 1978)’’.

10 SEC. 224. CONFORMING AMENDMENT.

11 Section 202 of the Investment Advisers Act of 1940

12 (15 U.S.C. 80b–2) is amended by adding at the end the

13 following new subsection:

14 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI15 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

16 Whenever pursuant to this title the Commission is en17 gaged in rulemaking and is required to consider or deter18 mine whether an action is necessary or appropriate in the

19 public interest, the Commission shall also consider, in ad20 dition to the protection of investors, whether the action

21 will promote efficiency, competition, and capital forma22 tion.’’.

23 SEC. 225. EFFECTIVE DATE.

24 This subtitle shall take effect 90 days after the date

25 of the enactment of this Act.
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1 Subtitle C—Securities and Ex2 change Commission Supervision

3 of Investment Bank Holding

4 Companies

5 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING

6 COMPANIES BY THE SECURITIES AND EX7 CHANGE COMMISSION.

8 (a) AMENDMENT.—Section 17 of the Securities Ex9 change Act of 1934 (15 U.S.C. 78q) is amended—

10 (1) by redesignating subsection (i) as subsection

11 (l); and

12 (2) by inserting after subsection (h) the follow13 ing new subsections:

14 ‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—

15 ‘‘(1) ELECTIVE SUPERVISION OF AN INVEST16 MENT BANK HOLDING COMPANY NOT HAVING A

17 BANK OR SAVINGS ASSOCIATION AFFILIATE.—

18 ‘‘(A) IN GENERAL.—An investment bank

19 holding company that is not—

20 ‘‘(i) an affiliate of a wholesale finan21 cial institution, an insured bank (other

22 than an institution described in subpara23 graph (D), (F), or (G) of section 2(c)(2),

24 or held under section 4(f), of the Bank
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1 Holding Company Act of 1956), or a sav2 ings association;

3 ‘‘(ii) a foreign bank, foreign company,

4 or company that is described in section

5 8(a) of the International Banking Act of

6 1978; or

7 ‘‘(iii) a foreign bank that controls, di8 rectly or indirectly, a corporation chartered

9 under section 25A of the Federal Reserve

10 Act,

11 may elect to become supervised by filing with

12 the Commission a notice of intention to become

13 supervised, pursuant to subparagraph (B) of

14 this paragraph. Any investment bank holding

15 company filing such a notice shall be supervised

16 in accordance with this section and comply with

17 the rules promulgated by the Commission appli18 cable to supervised investment bank holding

19 companies.

20 ‘‘(B) NOTIFICATION OF STATUS AS A SU21 PERVISED INVESTMENT BANK HOLDING COM22 PANY.—An investment bank holding company

23 that elects under subparagraph (A) to become

24 supervised by the Commission shall file with the

25 Commission a written notice of intention to be-
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1 come supervised by the Commission in such

2 form and containing such information and doc3 uments concerning such investment bank hold4 ing company as the Commission, by rule, may

5 prescribe as necessary or appropriate in fur6 therance of the purposes of this section. Unless

7 the Commission finds that such supervision is

8 not necessary or appropriate in furtherance of

9 the purposes of this section, such supervision

10 shall become effective 45 days after the date of

11 receipt of such written notice by the Commis12 sion, or within such shorter time period as the

13 Commission, by rule or order, may determine.

14 ‘‘(2) ELECTION NOT TO BE SUPERVISED BY

15 THE COMMISSION AS AN INVESTMENT BANK HOLD16 ING COMPANY.—

17 ‘‘(A) VOLUNTARY WITHDRAWAL.—A su18 pervised investment bank holding company that

19 is supervised pursuant to paragraph (1) may,

20 upon such terms and conditions as the Commis21 sion deems necessary or appropriate, elect not

22 to be supervised by the Commission by filing a

23 written notice of withdrawal from Commission

24 supervision. Such notice shall not become effec25 tive until one year after receipt by the Commis-
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1 sion, or such shorter or longer period as the

2 Commission deems necessary or appropriate to

3 ensure effective supervision of the material

4 risks to the supervised investment bank holding

5 company and to the affiliated broker or dealer,

6 or to prevent evasion of the purposes of this

7 section.

8 ‘‘(B) DISCONTINUATION OF COMMISSION

9 SUPERVISION.—If the Commission finds that

10 any supervised investment bank holding com11 pany that is supervised pursuant to paragraph

12 (1) is no longer in existence or has ceased to be

13 an investment bank holding company, or if the

14 Commission finds that continued supervision of

15 such a supervised investment bank holding com16 pany is not consistent with the purposes of this

17 section, the Commission may discontinue the

18 supervision pursuant to a rule or order, if any,

19 promulgated by the Commission under this sec20 tion.

21 ‘‘(3) SUPERVISION OF INVESTMENT BANK

22 HOLDING COMPANIES.—

23 ‘‘(A) RECORDKEEPING AND REPORTING.—

24 ‘‘(i) IN GENERAL.—Every supervised

25 investment bank holding company and
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1 each affiliate thereof shall make and keep

2 for prescribed periods such records, furnish

3 copies thereof, and make such reports, as

4 the Commission may require by rule, in

5 order to keep the Commission informed as

6 to—

7 ‘‘(I) the company’s or affiliate’s

8 activities, financial condition, policies,

9 systems for monitoring and control10 ling financial and operational risks,

11 and transactions and relationships be12 tween any broker or dealer affiliate of

13 the supervised investment bank hold14 ing company; and

15 ‘‘(II) the extent to which the

16 company or affiliate has complied with

17 the provisions of this Act and regula18 tions prescribed and orders issued

19 under this Act.

20 ‘‘(ii) FORM AND CONTENTS.—Such

21 records and reports shall be prepared in

22 such form and according to such specifica23 tions (including certification by an inde24 pendent public accountant), as the Com25 mission may require and shall be provided
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1 promptly at any time upon request by the

2 Commission. Such records and reports may

3 include—

4 ‘‘(I) a balance sheet and income

5 statement;

6 ‘‘(II) an assessment of the con7 solidated capital of the supervised in8 vestment bank holding company;

9 ‘‘(III) an independent auditor’s

10 report attesting to the supervised in11 vestment bank holding company’s

12 compliance with its internal risk man13 agement and internal control objec14 tives; and

15 ‘‘(IV) reports concerning the ex16 tent to which the company or affiliate

17 has complied with the provisions of

18 this title and any regulations pre19 scribed and orders issued under this

20 title.

21 ‘‘(B) USE OF EXISTING REPORTS.—

22 ‘‘(i) IN GENERAL.—The Commission

23 shall, to the fullest extent possible, accept

24 reports in fulfillment of the requirements

25 under this paragraph that the supervised
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1 investment bank holding company or its af2 filiates have been required to provide to

3 another appropriate regulatory agency or

4 self-regulatory organization.

5 ‘‘(ii) AVAILABILITY.—A supervised in6 vestment bank holding company or an af7 filiate of such company shall provide to the

8 Commission, at the request of the Commis9 sion, any report referred to in clause (i).

10 ‘‘(C) EXAMINATION AUTHORITY.—

11 ‘‘(i) FOCUS OF EXAMINATION AU12 THORITY.—The Commission may make ex13 aminations of any supervised investment

14 bank holding company and any affiliate of

15 such company in order to—

16 ‘‘(I) inform the Commission

17 regarding—

18 ‘‘(aa) the nature of the oper19 ations and financial condition of

20 the supervised investment bank

21 holding company and its affili22 ates;

23 ‘‘(bb) the financial and oper24 ational risks within the super25 vised investment bank holding
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1 company that may affect any

2 broker or dealer controlled by

3 such supervised investment bank

4 holding company; and

5 ‘‘(cc) the systems of the su6 pervised investment bank holding

7 company and its affiliates for

8 monitoring and controlling those

9 risks; and

10 ‘‘(II) monitor compliance with

11 the provisions of this subsection, pro12 visions governing transactions and re13 lationships between any broker or

14 dealer affiliated with the supervised

15 investment bank holding company and

16 any of the company’s other affiliates,

17 and applicable provisions of sub18 chapter II of chapter 53, title 31,

19 United States Code (commonly re20 ferred to as the ‘Bank Secrecy Act’)

21 and regulations thereunder.

22 ‘‘(ii) RESTRICTED FOCUS OF EXAMI23 NATIONS.—The Commission shall limit the

24 focus and scope of any examination of a
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1 supervised investment bank holding com2 pany to—

3 ‘‘(I) the company; and

4 ‘‘(II) any affiliate of the company

5 that, because of its size, condition, or

6 activities, the nature or size of the

7 transactions between such affiliate

8 and any affiliated broker or dealer, or

9 the centralization of functions within

10 the holding company system, could, in

11 the discretion of the Commission,

12 have a materially adverse effect on the

13 operational or financial condition of

14 the broker or dealer.

15 ‘‘(iii) DEFERENCE TO OTHER EXAMI16 NATIONS.—For purposes of this subpara17 graph, the Commission shall, to the fullest

18 extent possible, use the reports of examina19 tion of an institution described in subpara20 graph (D), (F), or (G) of section 2(c)(2),

21 or held under section 4(f), of the Bank

22 Holding Company Act of 1956 made by

23 the appropriate regulatory agency, or of a

24 licensed insurance company made by the

25 appropriate State insurance regulator.
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1 ‘‘(4) HOLDING COMPANY CAPITAL.—

2 ‘‘(A) AUTHORITY.—If the Commission

3 finds that it is necessary to adequately super4 vise investment bank holding companies and

5 their broker or dealer affiliates consistent with

6 the purposes of this subsection, the Commission

7 may adopt capital adequacy rules for supervised

8 investment bank holding companies.

9 ‘‘(B) METHOD OF CALCULATION.—In de10 veloping rules under this paragraph:

11 ‘‘(i) DOUBLE LEVERAGE.—The Com12 mission shall consider the use by the su13 pervised investment bank holding company

14 of debt and other liabilities to fund capital

15 investments in affiliates.

16 ‘‘(ii) NO UNWEIGHTED CAPITAL

17 RATIO.—The Commission shall not impose

18 under this section a capital ratio that is

19 not based on appropriate risk-weighting

20 considerations.

21 ‘‘(iii) NO CAPITAL REQUIREMENT ON

22 REGULATED ENTITIES.—The Commission

23 shall not, by rule, regulation, guideline,

24 order or otherwise, impose any capital ade25 quacy provision on a nonbanking affiliate
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1 (other than a broker or dealer) that is in

2 compliance with applicable capital require3 ments of another Federal regulatory au4 thority or State insurance authority.

5 ‘‘(iv) APPROPRIATE EXCLUSIONS.—

6 The Commission shall take full account of

7 the applicable capital requirements of an8 other Federal regulatory authority or State

9 insurance regulator.

10 ‘‘(C) INTERNAL RISK MANAGEMENT MOD11 ELS.—The Commission may incorporate inter12 nal risk management models into its capital

13 adequacy rules for supervised investment bank

14 holding companies.

15 ‘‘(5) FUNCTIONAL REGULATION OF BANKING

16 AND INSURANCE ACTIVITIES OF SUPERVISED IN17 VESTMENT BANK HOLDING COMPANIES.—The Com18 mission shall defer to—

19 ‘‘(A) the appropriate regulatory agency

20 with regard to all interpretations of, and the

21 enforcement of, applicable banking laws relating

22 to the activities, conduct, ownership, and oper23 ations of banks, and institutions described in

24 subparagraph (D), (F), and (G) of section
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1 2(c)(2), or held under section 4(f), of the Bank

2 Holding Company Act of 1956; and

3 ‘‘(B) the appropriate State insurance regu4 lators with regard to all interpretations of, and

5 the enforcement of, applicable State insurance

6 laws relating to the activities, conduct, and op7 erations of insurance companies and insurance

8 agents.

9 ‘‘(6) DEFINITIONS.—For purposes of this sub10 section and subsection (j)—

11 ‘‘(A) the term ‘investment bank holding

12 company’ means—

13 ‘‘(i) any person other than a natural

14 person that owns or controls one or more

15 brokers or dealers; and

16 ‘‘(ii) the associated persons of the in17 vestment bank holding company;

18 ‘‘(B) the term ‘supervised investment bank

19 holding company’ means any investment bank

20 holding company that is supervised by the Com21 mission pursuant to this subsection;

22 ‘‘(C) the terms ‘affiliate’, ‘bank’, ‘bank

23 holding company’, ‘company’, ‘control’, and

24 ‘savings association’ have the same meanings as
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1 in section 2 of the Bank Holding Company Act

2 of 1956;

3 ‘‘(D) the term ‘insured bank’ has the same

4 meaning as in section 3 of the Federal Deposit

5 Insurance Act;

6 ‘‘(E) the term ‘foreign bank’ has the same

7 meaning as in section 1(b)(7) of the Inter8 national Banking Act of 1978; and

9 ‘‘(F) the terms ‘person associated with an

10 investment bank holding company’ and ‘associ11 ated person of an investment bank holding com12 pany’ mean any person directly or indirectly

13 controlling, controlled by, or under common

14 control with, an investment bank holding com15 pany.

16 ‘‘(j) COMMISSION BACKUP AUTHORITY.—

17 ‘‘(1) AUTHORITY.—The Commission may make

18 inspections of any wholesale financial holding com19 pany that—

20 ‘‘(A) controls a wholesale financial institu21 tion;

22 ‘‘(B) is not a foreign bank; and

23 ‘‘(C) does not control an insured bank

24 (other than an institution permitted under sub25 paragraph (D), (F), or (G) of section 2(c)(2),
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1 or held under section 4(f), of the Bank Holding

2 Company Act of 1956) or a savings association,

3 and any affiliate of such company, for the purpose

4 of monitoring and enforcing compliance by the

5 wholesale financial holding company with the Fed6 eral securities laws.

7 ‘‘(2) LIMITATION.—The Commission shall limit

8 the focus and scope of any inspection under para9 graph (1) to those transactions, policies, procedures,

10 or records that are reasonably necessary to monitor

11 and enforce compliance by the wholesale financial

12 holding company or any affiliate with the Federal

13 securities laws.

14 ‘‘(3) DEFERENCE TO EXAMINATIONS.—To the

15 fullest extent possible, the Commission shall use, for

16 the purposes of this subsection, the reports of

17 examinations—

18 ‘‘(A) made by the Board of Governors of

19 the Federal Reserve System of any wholesale fi20 nancial holding company that is supervised by

21 the Board;

22 ‘‘(B) made by or on behalf of any State

23 regulatory agency responsible for the super24 vision of an insurance company of any licensed

25 insurance company; and
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1 ‘‘(C) made by any Federal or State bank2 ing agency of any bank or institution described

3 in subparagraph (D), (F), or (G) of section

4 2(c)(2), or held under section 4(f), of the Bank

5 Holding Company Act of 1956.

6 ‘‘(4) NOTICE.—To the fullest extent possible,

7 the Commission shall notify the appropriate regu8 latory agency prior to conducting an inspection of a

9 wholesale financial institution or institution de10 scribed in subparagraph (D), (F), or (G) of section

11 2(c)(2), or held under section 4(f), of the Bank

12 Holding Company Act of 1956.

13 ‘‘(k) AUTHORITY TO LIMIT DISCLOSURE OF INFOR14 MATION.—Notwithstanding any other provision of law, the

15 Commission shall not be compelled to disclose any infor16 mation required to be reported under subsection (h) or

17 (i) or any information supplied to the Commission by any

18 domestic or foreign regulatory agency that relates to the

19 financial or operational condition of any associated person

20 of a broker or dealer, investment bank holding company,

21 or any affiliate of an investment bank holding company.

22 Nothing in this subsection shall authorize the Commission

23 to withhold information from Congress, or prevent the

24 Commission from complying with a request for informa25 tion from any other Federal department or agency or any
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1 self-regulatory organization requesting the information for

2 purposes within the scope of its jurisdiction, or complying

3 with an order of a court of the United States in an action

4 brought by the United States or the Commission. For pur5 poses of section 552 of title 5, United States Code, this

6 subsection shall be considered a statute described in sub7 section (b)(3)(B) of such section 552. In prescribing regu8 lations to carry out the requirements of this subsection,

9 the Commission shall designate information described in

10 or obtained pursuant to subparagraphs (A), (B), and (C)

11 of subsection (i)(5) as confidential information for pur12 poses of section 24(b)(2) of this title.’’.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Section 3(a)(34) of the Securities Exchange

15 Act of 1934 (15 U.S.C. 78c(a)(34)) is amended by

16 adding at the end the following new subparagraphs:

17 ‘‘(H) When used with respect to an institu18 tion described in subparagraph (D), (F), or (G)

19 of section 2(c)(2), or held under section 4(f), of

20 the Bank Holding Company Act of 1956—

21 ‘‘(i) the Comptroller of the Currency,

22 in the case of a national bank or a bank

23 in the District of Columbia examined by

24 the Comptroller of the Currency;
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1 ‘‘(ii) the Board of Governors of the

2 Federal Reserve System, in the case of a

3 State member bank of the Federal Reserve

4 System or any corporation chartered under

5 section 25A of the Federal Reserve Act;

6 ‘‘(iii) the Federal Deposit Insurance

7 Corporation, in the case of any other bank

8 the deposits of which are insured in ac9 cordance with the Federal Deposit Insur10 ance Act; or

11 ‘‘(iv) the Commission in the case of all

12 other such institutions.’’.

13 (2) Section 1112(e) of the Right to Financial

14 Privacy Act of 1978 (12 U.S.C. 3412(e)) is

15 amended—

16 (A) by striking ‘‘this title’’ and inserting

17 ‘‘law’’; and

18 (B) by inserting ‘‘, examination reports’’

19 after ‘‘financial records’’.

20 Subtitle D—Studies

21 SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND

22 CONSUMERS OF UNINSURED PRODUCTS.

23 Not later than 1 year after the date of enactment

24 of this Act, the Comptroller General of the United States

25 shall submit a report to the Congress regarding the effi-
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1 cacy, costs, and benefits of requiring that any depository

2 institution that accepts federally insured deposits and

3 that, directly or through a contractual or other arrange4 ment with a broker, dealer, or agent, buys from, sells to,

5 or effects transactions for retail investors in securities or

6 consumers of insurance to inform such investors and con7 sumers through the use of a logo or seal that the security

8 or insurance is not insured by the Federal Deposit Insur9 ance Corporation.

10 SEC. 242. STUDY OF LIMITATION ON FEES ASSOCIATED

11 WITH ACQUIRING FINANCIAL PRODUCTS.

12 Not later than 1 year after the date of enactment

13 of this Act, the Comptroller General of the United States

14 shall submit a report to the Congress regarding the effi15 cacy and benefits of uniformly limiting any commissions,

16 fees, markups, or other costs incurred by customers in the

17 acquisition of financial products.

18 TITLE III—INSURANCE

19 Subtitle A—State Regulation of

20 Insurance

21 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR22 ANCE.

23 The Act entitled ‘‘An Act to express the intent of the

24 Congress with reference to the regulation of the business

25 of insurance’’ and approved March 9, 1945 (15 U.S.C.
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1 1011 et seq.), commonly referred to as the ‘‘McCarran2 Ferguson Act’’ remains the law of the United States.

3 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE4 MENTS.

5 No person or entity shall provide insurance in a State

6 as principal or agent unless such person or entity is li7 censed as required by the appropriate insurance regulator

8 of such State in accordance with the relevant State insur9 ance law, subject to section 104.

10 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

11 The insurance sales activity of any person or entity

12 shall be functionally regulated by the States, subject to

13 section 104.

14 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL

15 BANKS.

16 (a) IN GENERAL.—Except as provided in section 305,

17 a national bank and the subsidiaries of a national bank

18 may not provide insurance in a State as principal except

19 that this prohibition shall not apply to authorized prod20 ucts.

21 (b) AUTHORIZED PRODUCTS.—For the purposes of

22 this section, a product is authorized if—

23 (1) as of January 1, 1997, the Comptroller of

24 the Currency had determined in writing that na25 tional banks may provide such product as principal,
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1 or national banks were in fact lawfully providing

2 such product as principal;

3 (2) no court of relevant jurisdiction had, by

4 final judgment, overturned a determination of the

5 Comptroller of the Currency that national banks

6 may provide such product as principal; and

7 (3) the product is not title insurance, or an an8 nuity contract the income of which is subject to tax

9 treatment under section 72 of the Internal Revenue

10 Code of 1986.

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

12 term ‘‘insurance’’ means—

13 (1) any product regulated as insurance as of

14 January 1, 1997, in accordance with the relevant

15 State insurance law, in the State in which the prod16 uct is provided;

17 (2) any product first offered after January 1,

18 1997, which—

19 (A) a State insurance regulator determines

20 shall be regulated as insurance in the State in

21 which the product is provided because the prod22 uct insures, guarantees, or indemnifies against

23 liability, loss of life, loss of health, or loss

24 through damage to or destruction of property,

25 including, but not limited to, surety bonds, life
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•HR 10 IH

1 insurance, health insurance, title insurance, and

2 property and casualty insurance (such as pri3 vate passenger or commercial automobile,

4 homeowners, mortgage, commercial multiperil,

5 general liability, professional liability, workers’

6 compensation, fire and allied lines, farm owners

7 multiperil, aircraft, fidelity, surety, medical

8 malpractice, ocean marine, inland marine, and

9 boiler and machinery insurance); and

10 (B) is not a product or service of a bank

11 that is—

12 (i) a deposit product;

13 (ii) a loan, discount, letter of credit,

14 or other extension of credit;

15 (iii) a trust or other fiduciary service;

16 (iv) a qualified financial contract (as

17 defined in or determined pursuant to sec18 tion 11(e)(8)(D)(i) of the Federal Deposit

19 Insurance Act); or

20 (v) a financial guaranty, except that

21 this subparagraph (B) shall not apply to a

22 product that includes an insurance compo23 nent such that if the product is offered or

24 proposed to be offered by the bank as

25 principal—
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1 (I) it would be treated as a life

2 insurance contract under section 7702

3 of the Internal Revenue Code of 1986;

4 or

5 (II) in the event that the product

6 is not a letter of credit or other simi7 lar extension of credit, a qualified fi8 nancial contract, or a financial guar9 anty, it would qualify for treatment

10 for losses incurred with respect to

11 such product under section 832(b)(5)

12 of the Internal Revenue Code of 1986,

13 if the bank were subject to tax as an

14 insurance company under section 831

15 of that Code; or

16 (3) any annuity contract, the income on which

17 is subject to tax treatment under section 72 of the

18 Internal Revenue Code of 1986.

19 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

20 BANKS AND THEIR AFFILIATES.

21 (a) AUTHORITY.—Notwithstanding any other provi22 sion of this Act or any other law, no national bank, and

23 no subsidiary of a national bank, may engage in any activ24 ity involving the underwriting of title insurance, other

25 than title insurance underwriting activities in which such
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1 national bank or subsidiary was actively and lawfully en2 gaged before the date of the enactment of this Act.

3 (b) INSURANCE AFFILIATE.—In the case of a na4 tional bank which has an affiliate which provides insur5 ance as principal and is not a subsidiary of the bank, the

6 national bank and any subsidiary of the national bank

7 may not engage in any activity involving the underwriting

8 of title insurance pursuant to subsection (a).

9 (c) INSURANCE SUBSIDIARY.—In the case of a na10 tional bank which has a subsidiary which provides insur11 ance as principal and has no affiliate which provides insur12 ance as principal and is not a subsidiary, the national

13 bank may not engage in any activity involving the under14 writing of title insurance pursuant to subsection (a).

15 (d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—

16 For purposes of this section, the terms ‘‘affiliate’’ and

17 ‘‘subsidiary’’ have the same meanings as in section 2 of

18 the Bank Holding Company Act of 1956.

19 SEC. 306. EXPEDITED AND EQUALIZED DISPUTE RESOLU20 TION FOR FEDERAL REGULATORS.

21 (a) FILING IN COURT OF APPEALS.—In the case of

22 a regulatory conflict between a State insurance regulator

23 and a Federal regulator as to whether any product is or

24 is not insurance, as defined in section 304(c) of this Act,

25 or whether a State statute, regulation, order, or interpre-
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1 tation regarding any insurance sales or solicitation activity

2 is properly treated as preempted under Federal law, either

3 regulator may seek expedited judicial review of such deter4 mination by the United States Court of Appeals for the

5 circuit in which the State is located or in the United

6 States Court of Appeals for the District of Columbia Cir7 cuit by filing a petition for review in such court.

8 (b) EXPEDITED REVIEW.—The United States Court

9 of Appeals in which a petition for review is filed in accord10 ance with subsection (a) shall complete all action on such

11 petition, including rendering a judgment, before the end

12 of the 60-day period beginning on the date on which such

13 petition is filed, unless all parties to such proceeding agree

14 to any extension of such period.

15 (c) SUPREME COURT REVIEW.—Any request for cer16 tiorari to the Supreme Court of the United States of any

17 judgment of a United States Court of Appeals with respect

18 to a petition for review under this section shall be filed

19 with the Supreme Court of the United States as soon as

20 practicable after such judgment is issued.

21 (d) STATUTE OF LIMITATION.—No action may be

22 filed under this section challenging an order, ruling, deter23 mination, or other action of a Federal regulator or State

24 insurance regulator after the later of—
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1 (1) the end of the 12-month period beginning

2 on the date on which the first public notice is made

3 of such order, ruling, determination or other action

4 in its final form; or

5 (2) the end of the 6-month period beginning on

6 the date on which such order, ruling, determination,

7 or other action takes effect.

8 (e) STANDARD OF REVIEW.—The court shall decide

9 an action filed under this section based on its review on

10 the merits of all questions presented under State and Fed11 eral law, including the nature of the product or activity

12 and the history and purpose of its regulation under State

13 and Federal law, without unequal deference.

14 SEC. 307. CONSUMER PROTECTION REGULATIONS.

15 The Federal Deposit Insurance Act (12 U.S.C. 1811

16 et seq.) is amended by adding at the end the following

17 new section:

18 ‘‘SEC. 45. CONSUMER PROTECTION REGULATIONS.

19 ‘‘(a) REGULATIONS REQUIRED.—

20 ‘‘(1) IN GENERAL.—The Federal banking agen21 cies shall prescribe and publish in final form, before

22 the end of the 1-year period beginning on the date

23 of enactment of the Financial Services Act of 1999,

24 consumer protection regulations (which the agencies

25 jointly determine to be appropriate) that—
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1 ‘‘(A) apply to retail sales practices, solici2 tations, advertising, or offers of any insurance

3 product by any insured depository institution or

4 wholesale financial institution or any person

5 who is engaged in such activities at an office of

6 the institution or on behalf of the institution;

7 and

8 ‘‘(B) are consistent with the requirements

9 of this Act and provide such additional protec10 tions for consumers to whom such sales, solici11 tations, advertising, or offers are directed as

12 the agency determines to be appropriate.

13 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The

14 regulations prescribed pursuant to paragraph (1)

15 shall extend such protections to any subsidiaries of

16 an insured depository institution, as deemed appro17 priate by the regulators referred to in paragraph (3),

18 where such extension is determined to be necessary

19 to ensure the consumer protections provided by this

20 section.

21 ‘‘(3) CONSULTATION AND JOINT REGULA22 TIONS.—The Federal banking agencies shall consult

23 with each other and prescribe joint regulations pur24 suant to paragraph (1), after consultation with the

25 State insurance regulators, as appropriate.
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1 ‘‘(b) SALES PRACTICES.—The regulations prescribed

2 pursuant to subsection (a) shall include anticoercion rules

3 applicable to the sale of insurance products which prohibit

4 an insured depository institution from engaging in any

5 practice that would lead a consumer to believe an exten6 sion of credit, in violation of section 106(b) of the Bank

7 Holding Company Act Amendments of 1970, is condi8 tional upon—

9 ‘‘(1) the purchase of an insurance product from

10 the institution or any of its affiliates or subsidiaries;

11 or

12 ‘‘(2) an agreement by the consumer not to ob13 tain, or a prohibition on the consumer from obtain14 ing, an insurance product from an unaffiliated en15 tity.

16 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula17 tions prescribed pursuant to subsection (a) shall include

18 the following provisions relating to disclosures and adver19 tising in connection with the initial purchase of an insur20 ance product:

21 ‘‘(1) DISCLOSURES.—

22 ‘‘(A) IN GENERAL.—Requirements that the

23 following disclosures be made orally and in writ24 ing before the completion of the initial sale and,
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1 in the case of clause (iii), at the time of applica2 tion for an extension of credit:

3 ‘‘(i) UNINSURED STATUS.—As appro4 priate, the product is not insured by the

5 Federal Deposit Insurance Corporation,

6 the United States Government, or the in7 sured depository institution.

8 ‘‘(ii) INVESTMENT RISK.—In the case

9 of a variable annuity or other insurance

10 product which involves an investment risk,

11 that there is an investment risk associated

12 with the product, including possible loss of

13 value.

14 ‘‘(iii) COERCION.—The approval of an

15 extension of credit may not be conditioned

16 on—

17 ‘‘(I) the purchase of an insurance

18 product from the institution in which

19 the application for credit is pending or

20 any of its affiliates or subsidiaries; or

21 ‘‘(II) an agreement by the con22 sumer not to obtain, or a prohibition

23 on the consumer from obtaining, an

24 insurance product from an unaffili25 ated entity.
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1 ‘‘(B) MAKING DISCLOSURE READILY UN2 DERSTANDABLE.—Regulations prescribed under

3 subparagraph (A) shall encourage the use of

4 disclosure that is conspicuous, simple, direct,

5 and readily understandable, such as the follow6 ing:

7 ‘‘(i) ‘NOT FDIC–INSURED’.

8 ‘‘(ii) ‘NOT GUARANTEED BY THE

9 BANK’.

10 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

11 ‘‘(C) ADJUSTMENTS FOR ALTERNATIVE

12 METHODS OF PURCHASE.—In prescribing the

13 requirements under subparagraphs (A) and

14 (D), necessary adjustments shall be made for

15 purchase in person, by telephone, or by elec16 tronic media to provide for the most appro17 priate and complete form of disclosure and ac18 knowledgments.

19 ‘‘(D) CONSUMER ACKNOWLEDGMENT.—A

20 requirement that an insured depository institu21 tion shall require any person selling an insur22 ance product at any office of, or on behalf of,

23 the institution to obtain, at the time a con24 sumer receives the disclosures required under

25 this paragraph or at the time of the initial pur-
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1 chase by the consumer of such product, an ac2 knowledgment by such consumer of the receipt

3 of the disclosure required under this paragraph

4 with respect to such product.

5 ‘‘(2) PROHIBITION ON MISREPRESENTA6 TIONS.—A prohibition on any practice, or any adver7 tising, at any office of, or on behalf of, the insured

8 depository institution, or any subsidiary as appro9 priate, which could mislead any person or otherwise

10 cause a reasonable person to reach an erroneous be11 lief with respect to—

12 ‘‘(A) the uninsured nature of any insur13 ance product sold, or offered for sale, by the in14 stitution or any subsidiary of the institution; or

15 ‘‘(B) in the case of a variable annuity or

16 other insurance product that involves an invest17 ment risk, the investment risk associated with

18 any such product.

19 ‘‘(d) SEPARATION OF BANKING AND NONBANKING

20 ACTIVITIES.—

21 ‘‘(1) REGULATIONS REQUIRED.—The regula22 tions prescribed pursuant to subsection (a) shall in23 clude such provisions as the Federal banking agen24 cies consider appropriate to ensure that the routine

25 acceptance of deposits is kept, to the extent prac-
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1 ticable, physically segregated from insurance product

2 activity.

3 ‘‘(2) REQUIREMENTS.—Regulations prescribed

4 pursuant to paragraph (1) shall include the follow5 ing requirements:

6 ‘‘(A) SEPARATE SETTING.—A clear delin7 eation of the setting in which, and the cir8 cumstances under which, transactions involving

9 insurance products should be conducted in a lo10 cation physically segregated from an area where

11 retail deposits are routinely accepted.

12 ‘‘(B) REFERRALS.—Standards which per13 mit any person accepting deposits from the

14 public in an area where such transactions are

15 routinely conducted in an insured depository in16 stitution to refer a customer who seeks to pur17 chase any insurance product to a qualified per18 son who sells such product, only if the person

19 making the referral receives no more than a

20 one-time nominal fee of a fixed dollar amount

21 for each referral that does not depend on

22 whether the referral results in a transaction.

23 ‘‘(C) QUALIFICATION AND LICENSING RE24 QUIREMENTS.—Standards prohibiting any in25 sured depository institution from permitting
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1 any person to sell or offer for sale any insur2 ance product in any part of any office of the in3 stitution, or on behalf of the institution, unless

4 such person is appropriately qualified and li5 censed.

6 ‘‘(e) DOMESTIC VIOLENCE DISCRIMINATION PROHI7 BITION.—

8 ‘‘(1) IN GENERAL.—In the case of an applicant

9 for, or an insured under, any insurance product de10 scribed in paragraph (2), the status of the applicant

11 or insured as a victim of domestic violence, or as a

12 provider of services to victims of domestic violence,

13 shall not be considered as a criterion in any decision

14 with regard to insurance underwriting, pricing, re15 newal, or scope of coverage of insurance policies, or

16 payment of insurance claims, except as required or

17 expressly permitted under State law.

18 ‘‘(2) SCOPE OF APPLICATION.—The prohibition

19 contained in paragraph (1) shall apply to any insur20 ance product which is sold or offered for sale, as

21 principal, agent, or broker, by any insured deposi22 tory institution or any person who is engaged in

23 such activities at an office of the institution or on

24 behalf of the institution.
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1 ‘‘(3) SENSE OF THE CONGRESS.—It is the sense

2 of the Congress that, by the end of the 30-month pe3 riod beginning on the date of the enactment of the

4 Financial Services Act of 1999, the States should

5 enact prohibitions against discrimination with re6 spect to insurance products that are at least as

7 strict as the prohibitions contained in paragraph (1).

8 ‘‘(4) DOMESTIC VIOLENCE DEFINED.—For pur9 poses of this subsection, the term ‘domestic violence’

10 means the occurrence of 1 or more of the following

11 acts by a current or former family member, house12 hold member, intimate partner, or caretaker:

13 ‘‘(A) Attempting to cause or causing or

14 threatening another person with physical harm,

15 severe emotional distress, psychological trauma,

16 rape, or sexual assault.

17 ‘‘(B) Engaging in a course of conduct or

18 repeatedly committing acts toward another per19 son, including following the person without

20 proper authority, under circumstances that

21 place the person in reasonable fear of bodily in22 jury or physical harm.

23 ‘‘(C) Subjecting another person to false

24 imprisonment.
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1 ‘‘(D) Attempting to cause or causing dam2 age to property so as to intimidate or attempt

3 to control the behavior of another person.

4 ‘‘(f) CONSUMER GRIEVANCE PROCESS.—The Federal

5 banking agencies shall jointly establish a consumer com6 plaint mechanism, for receiving and expeditiously address7 ing consumer complaints alleging a violation of regulations

8 issued under this section, which mechanism shall—

9 ‘‘(1) establish a group within each regulatory

10 agency to receive such complaints;

11 ‘‘(2) develop procedures for investigating such

12 complaints;

13 ‘‘(3) develop procedures for informing consum14 ers of rights they may have in connection with such

15 complaints; and

16 ‘‘(4) develop procedures for addressing concerns

17 raised by such complaints, as appropriate, including

18 procedures for the recovery of losses to the extent

19 appropriate.

20 ‘‘(g) EFFECT ON OTHER AUTHORITY.—

21 ‘‘(1) IN GENERAL.—No provision of this section

22 shall be construed as granting, limiting, or otherwise

23 affecting—

24 ‘‘(A) any authority of the Securities and

25 Exchange Commission, any self-regulatory or-
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1 ganization, the Municipal Securities Rule2 making Board, or the Secretary of the Treasury

3 under any Federal securities law; or

4 ‘‘(B) except as provided in paragraph (2),

5 any authority of any State insurance commis6 sioner or other State authority under any State

7 law.

8 ‘‘(2) COORDINATION WITH STATE LAW.—

9 ‘‘(A) IN GENERAL.—Except as provided in

10 subparagraph (B), regulations prescribed by a

11 Federal banking agency under this section shall

12 not apply to retail sales, solicitations, advertis13 ing, or offers of any insurance product by any

14 insured depository institution or wholesale fi15 nancial institution or to any person who is en16 gaged in such activities at an office of such in17 stitution or on behalf of the institution, in a

18 State where the State has in effect statutes,

19 regulations, orders, or interpretations, that are

20 inconsistent with or contrary to the regulations

21 prescribed by the Federal banking agencies.

22 ‘‘(B) PREEMPTION.—If, with respect to

23 any provision of the regulations prescribed

24 under this section, the Board of Governors of

25 the Federal Reserve System, the Comptroller of
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1 the Currency, and the Board of Directors of the

2 Federal Deposit Insurance Corporation deter3 mine jointly that the protection afforded by

4 such provision for consumers is greater than

5 the protection provided by a comparable provi6 sion of the statutes, regulations, orders, or in7 terpretations referred to in subparagraph (A) of

8 any State, such provision of the regulations pre9 scribed under this section shall supersede the

10 comparable provision of such State statute, reg11 ulation, order, or interpretation.

12 ‘‘(h) INSURANCE PRODUCT DEFINED.—For purposes

13 of this section, the term ‘insurance product’ includes an

14 annuity contract the income of which is subject to tax

15 treatment under section 72 of the Internal Revenue Code

16 of 1986.’’.

17 SEC. 308. CERTAIN STATE AFFILIATION LAWS PREEMPTED

18 FOR INSURANCE COMPANIES AND AFFILI19 ATES.

20 Except as provided in section 104(a)(2), no State

21 may, by law, regulation, order, interpretation, or

22 otherwise—

23 (1) prevent or significantly interfere with the

24 ability of any insurer, or any affiliate of an insurer

25 (whether such affiliate is organized as a stock com-
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1 pany, mutual holding company, or otherwise), to be2 come a financial holding company or to acquire con3 trol of an insured depository institution;

4 (2) limit the amount of an insurer’s assets that

5 may be invested in the voting securities of an in6 sured depository institution (or any company which

7 controls such institution), except that the laws of an

8 insurer’s State of domicile may limit the amount of

9 such investment to an amount that is not less than

10 5 percent of the insurer’s admitted assets; or

11 (3) prevent, significantly interfere with, or have

12 the authority to review, approve, or disapprove a

13 plan of reorganization by which an insurer proposes

14 to reorganize from mutual form to become a stock

15 insurer (whether as a direct or indirect subsidiary of

16 a mutual holding company or otherwise) unless such

17 State is the State of domicile of the insurer.

18 SEC. 309. PUBLICATION OF PREEMPTION OF STATE LAWS.

19 Section 5244 of the Revised Statutes of the United

20 States (12 U.S.C. 43) is amended—

21 (1) by inserting ‘‘or Federal savings associa22 tion’’ after ‘‘national bank’’ each place that term ap23 pears; and

24 (2) in subsection (c)(3)(B)(i), by inserting ‘‘or

25 savings associations’’ after ‘‘banks’’.
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1 Subtitle B—Redomestication of

2 Mutual Insurers

3 SEC. 311. GENERAL APPLICATION.

4 This subtitle shall only apply to a mutual insurance

5 company in a State which has not enacted a law which

6 expressly establishes reasonable terms and conditions for

7 a mutual insurance company domiciled in such State to

8 reorganize into a mutual holding company.

9 SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

10 (a) REDOMESTICATION.—A mutual insurer organized

11 under the laws of any State may transfer its domicile to

12 a transferee domicile as a step in a reorganization in

13 which, pursuant to the laws of the transferee domicile and

14 consistent with the standards in subsection (f), the mutual

15 insurer becomes a stock insurer that is a direct or indirect

16 subsidiary of a mutual holding company.

17 (b) RESULTING DOMICILE.—Upon complying with

18 the applicable law of the transferee domicile governing

19 transfers of domicile and completion of a transfer pursu20 ant to this section, the mutual insurer shall cease to be

21 a domestic insurer in the transferor domicile and, as a

22 continuation of its corporate existence, shall be a domestic

23 insurer of the transferee domicile.

24 (c) LICENSES PRESERVED.—The certificate of au25 thority, agents’ appointments and licenses, rates, approv-
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1 als and other items that a licensed State allows and that

2 are in existence immediately prior to the date that a re3 domesticating insurer transfers its domicile pursuant to

4 this subtitle shall continue in full force and effect upon

5 transfer, if the insurer remains duly qualified to transact

6 the business of insurance in such licensed State.

7 (d) EFFECTIVENESS OF OUTSTANDING POLICIES

8 AND CONTRACTS.—

9 (1) IN GENERAL.—All outstanding insurance

10 policies and annuities contracts of a redomesticating

11 insurer shall remain in full force and effect and need

12 not be endorsed as to the new domicile of the in13 surer, unless so ordered by the State insurance regu14 lator of a licensed State, and then only in the case

15 of outstanding policies and contracts whose owners

16 reside in such licensed State.

17 (2) FORMS.—

18 (A) Applicable State law may require a re19 domesticating insurer to file new policy forms

20 with the State insurance regulator of a licensed

21 State on or before the effective date of the

22 transfer.

23 (B) Notwithstanding subparagraph (A), a

24 redomesticating insurer may use existing policy

25 forms with appropriate endorsements to reflect
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1 the new domicile of the redomesticating insurer

2 until the new policy forms are approved for use

3 by the State insurance regulator of such li4 censed State.

5 (e) NOTICE.—A redomesticating insurer shall give

6 notice of the proposed transfer to the State insurance reg7 ulator of each licensed State and shall file promptly any

8 resulting amendments to corporate documents required to

9 be filed by a foreign licensed mutual insurer with the in10 surance regulator of each such licensed State.

11 (f) PROCEDURAL REQUIREMENTS.—No mutual in12 surer may redomesticate to another State and reorganize

13 into a mutual holding company pursuant to this section

14 unless the State insurance regulator of the transferee

15 domicile determines that the plan of reorganization of the

16 insurer includes the following requirements:

17 (1) APPROVAL BY BOARD OF DIRECTORS AND

18 POLICYHOLDERS.—The reorganization is approved

19 by at least a majority of the board of directors of

20 the mutual insurer and at least a majority of the

21 policyholders who vote after notice, disclosure of the

22 reorganization and the effects of the transaction on

23 policyholder contractual rights, and reasonable op24 portunity to vote, in accordance with such notice,

25 disclosure, and voting procedures as are approved by
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1 the State insurance regulator of the transferee domi2 cile.

3 (2) CONTINUED VOTING CONTROL BY POLICY4 HOLDERS; REVIEW OF PUBLIC STOCK OFFERING.—

5 After the consummation of a reorganization, the pol6 icyholders of the reorganized insurer shall have the

7 same voting rights with respect to the mutual hold8 ing company as they had before the reorganization

9 with respect to the mutual insurer. With respect to

10 an initial public offering of stock, the offering shall

11 be conducted in compliance with applicable securities

12 laws and in a manner approved by the State insur13 ance regulator of the transferee domicile.

14 (3) AWARD OF STOCK OR GRANT OF OPTIONS

15 TO OFFICERS AND DIRECTORS.—For a period of 6

16 months after completion of an initial public offering,

17 neither a stock holding company nor the converted

18 insurer shall award any stock options or stock

19 grants to persons who are elected officers or direc20 tors of the mutual holding company, the stock hold21 ing company, or the converted insurer, except with

22 respect to any such awards or options to which a

23 person is entitled as a policyholder and as approved

24 by the State insurance regulator of the transferee

25 domicile.
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1 (4) CONTRACTUAL RIGHTS.—Upon reorganiza2 tion into a mutual holding company, the contractual

3 rights of the policyholders are preserved.

4 (5) FAIR AND EQUITABLE TREATMENT OF POL5 ICYHOLDERS.—The reorganization is approved as

6 fair and equitable to the policyholders by the insur7 ance regulator of the transferee domicile.

8 SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMES9 TICATION.

10 (a) IN GENERAL.—Unless otherwise permitted by

11 this subtitle, State laws of any transferor domicile that

12 conflict with the purposes and intent of this subtitle are

13 preempted, including but not limited to—

14 (1) any law that has the purpose or effect of

15 impeding the activities of, taking any action against,

16 or applying any provision of law or regulation to,

17 any insurer or an affiliate of such insurer because

18 that insurer or any affiliate plans to redomesticate,

19 or has redomesticated, pursuant to this subtitle;

20 (2) any law that has the purpose or effect of

21 impeding the activities of, taking action against, or

22 applying any provision of law or regulation to, any

23 insured or any insurance licensee or other inter24 mediary because such person or entity has procured

25 insurance from or placed insurance with any insurer
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1 or affiliate of such insurer that plans to redomes2 ticate, or has redomesticated, pursuant to this sub3 title, but only to the extent that such law would

4 treat such insured licensee or other intermediary dif5 ferently than if the person or entity procured insur6 ance from, or placed insurance with, an insured li7 censee or other intermediary which had not redomes8 ticated;

9 (3) any law that has the purpose or effect of

10 terminating, because of the redomestication of a mu11 tual insurer pursuant to this subtitle, any certificate

12 of authority, agent appointment or license, rate ap13 proval, or other approval, of any State insurance

14 regulator or other State authority in existence imme15 diately prior to the redomestication in any State

16 other than the transferee domicile.

17 (b) DIFFERENTIAL TREATMENT PROHIBITED.—No

18 State law, regulation, interpretation, or functional equiva19 lent thereof, of a State other than a transferee domicile

20 may treat a redomesticating or redomesticated insurer or

21 any affiliate thereof any differently than an insurer oper22 ating in that State that is not a redomesticating or re23 domesticated insurer.

24 (c) LAWS PROHIBITING OPERATIONS.—If any li25 censed State fails to issue, delays the issuance of, or seeks
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1 to revoke an original or renewal certificate of authority

2 of a redomesticated insurer immediately following re3 domestication, except on grounds and in a manner consist4 ent with its past practices regarding the issuance of cer5 tificates of authority to foreign insurers that are not re6 domesticating, then the redomesticating insurer shall be

7 exempt from any State law of the licensed State to the

8 extent that such State law or the operation of such State

9 law would make unlawful, or regulate, directly or indi10 rectly, the operation of the redomesticated insurer, except

11 that such licensed State may require the redomesticated

12 insurer to—

13 (1) comply with the unfair claim settlement

14 practices law of the licensed State;

15 (2) pay, on a nondiscriminatory basis, applica16 ble premium and other taxes which are levied on li17 censed insurers or policyholders under the laws of

18 the licensed State;

19 (3) register with and designate the State insur20 ance regulator as its agent solely for the purpose of

21 receiving service of legal documents or process;

22 (4) submit to an examination by the State in23 surance regulator in any licensed state in which the

24 redomesticated insurer is doing business to deter25 mine the insurer’s financial condition, if—
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1 (A) the State insurance regulator of the

2 transferee domicile has not begun an examina3 tion of the redomesticated insurer and has not

4 scheduled such an examination to begin before

5 the end of the 1-year period beginning on the

6 date of the redomestication; and

7 (B) any such examination is coordinated to

8 avoid unjustified duplication and repetition;

9 (5) comply with a lawful order issued in—

10 (A) a delinquency proceeding commenced

11 by the State insurance regulator of any licensed

12 State if there has been a judicial finding of fi13 nancial impairment under paragraph (7); or

14 (B) a voluntary dissolution proceeding;

15 (6) comply with any State law regarding decep16 tive, false, or fraudulent acts or practices, except

17 that if the licensed State seeks an injunction regard18 ing the conduct described in this paragraph, such in19 junction must be obtained from a court of competent

20 jurisdiction as provided in section 314(a);

21 (7) comply with an injunction issued by a court

22 of competent jurisdiction, upon a petition by the

23 State insurance regulator alleging that the redomes24 ticating insurer is in hazardous financial condition

25 or is financially impaired;
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1 (8) participate in any insurance insolvency

2 guaranty association on the same basis as any other

3 insurer licensed in the licensed State; and

4 (9) require a person acting, or offering to act,

5 as an insurance licensee for a redomesticated insurer

6 in the licensed State to obtain a license from that

7 State, except that such State may not impose any

8 qualification or requirement that discriminates

9 against a nonresident insurance licensee.

10 SEC. 314. OTHER PROVISIONS.

11 (a) JUDICIAL REVIEW.—The appropriate United

12 States district court shall have exclusive jurisdiction over

13 litigation arising under this section involving any redomes14 ticating or redomesticated insurer.

15 (b) SEVERABILITY.—If any provision of this section,

16 or the application thereof to any person or circumstances,

17 is held invalid, the remainder of the section, and the appli18 cation of such provision to other persons or circumstances,

19 shall not be affected thereby.

20 SEC. 315. DEFINITIONS.

21 For purposes of this subtitle, the following definitions

22 shall apply:

23 (1) COURT OF COMPETENT JURISDICTION.—

24 The term ‘‘court of competent jurisdiction’’ means a
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1 court authorized pursuant to section 314(a) to adju2 dicate litigation arising under this subtitle.

3 (2) DOMICILE.—The term ‘‘domicile’’ means

4 the State in which an insurer is incorporated, char5 tered, or organized.

6 (3) INSURANCE LICENSEE.—The term ‘‘insur7 ance licensee’’ means any person holding a license

8 under State law to act as insurance agent, subagent,

9 broker, or consultant.

10 (4) INSTITUTION.—The term ‘‘institution’’

11 means a corporation, joint stock company, limited li12 ability company, limited liability partnership, asso13 ciation, trust, partnership, or any similar entity.

14 (5) LICENSED STATE.—The term ‘‘licensed

15 State’’ means any State, the District of Columbia,

16 American Samoa, Guam, Puerto Rico, or the United

17 States Virgin Islands in which the redomesticating

18 insurer has a certificate of authority in effect imme19 diately prior to the redomestication.

20 (6) MUTUAL INSURER.—The term ‘‘mutual in21 surer’’ means a mutual insurer organized under the

22 laws of any State.

23 (7) PERSON.—The term ‘‘person’’ means an in24 dividual, institution, government or governmental

25 agency, State or political subdivision of a State, pub-
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1 lic corporation, board, association, estate, trustee, or

2 fiduciary, or other similar entity.

3 (8) POLICYHOLDER.—The term ‘‘policyholder’’

4 means the owner of a policy issued by a mutual in5 surer, except that, with respect to voting rights, the

6 term means a member of a mutual insurer or mu7 tual holding company granted the right to vote, as

8 determined under applicable State law.

9 (9) REDOMESTICATED INSURER.—The term

10 ‘‘redomesticated insurer’’ means a mutual insurer

11 that has redomesticated pursuant to this subtitle.

12 (10) REDOMESTICATING INSURER.—The term

13 ‘‘redomesticating insurer’’ means a mutual insurer

14 that is redomesticating pursuant to this subtitle.

15 (11) REDOMESTICATION OR TRANSFER.—The

16 terms ‘‘redomestication’’ and ‘‘transfer’’ mean the

17 transfer of the domicile of a mutual insurer from

18 one State to another State pursuant to this subtitle.

19 (12) STATE INSURANCE REGULATOR.—The

20 term ‘‘State insurance regulator’’ means the prin21 cipal insurance regulatory authority of a State, the

22 District of Columbia, American Samoa, Guam,

23 Puerto Rico, or the United States Virgin Islands.

24 (13) STATE LAW.—The term ‘‘State law’’

25 means the statutes of any State, the District of Co-
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1 lumbia, American Samoa, Guam, Puerto Rico, or the

2 United States Virgin Islands and any regulation,

3 order, or requirement prescribed pursuant to any

4 such statute.

5 (14) TRANSFEREE DOMICILE.—The term

6 ‘‘transferee domicile’’ means the State to which a

7 mutual insurer is redomesticating pursuant to this

8 subtitle.

9 (15) TRANSFEROR DOMICILE.—The term

10 ‘‘transferor domicile’’ means the State from which a

11 mutual insurer is redomesticating pursuant to this

12 subtitle.

13 SEC. 316. EFFECTIVE DATE.

14 This subtitle shall take effect on the date of the en15 actment of this Act.

16 Subtitle C—National Association of

17 Registered Agents and Brokers

18 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING

19 REFORMS.

20 (a) IN GENERAL.—The provisions of this subtitle

21 shall take effect unless, not later than 3 years after the

22 date of enactment of this Act, at least a majority of the

23 States—

24 (1) have enacted uniform laws and regulations

25 governing the licensure of individuals and entities
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1 authorized to sell and solicit the purchase of insur2 ance within the State; or

3 (2) have enacted reciprocity laws and regula4 tions governing the licensure of nonresident individ5 uals and entities authorized to sell and solicit insur6 ance within those States.

7 (b) UNIFORMITY REQUIRED.—States shall be deemed

8 to have established the uniformity necessary to satisfy

9 subsection (a)(1) if the States—

10 (1) establish uniform criteria regarding the in11 tegrity, personal qualifications, education, training,

12 and experience of licensed insurance producers, in13 cluding the qualification and training of sales per14 sonnel in ascertaining the appropriateness of a par15 ticular insurance product for a prospective customer;

16 (2) establish uniform continuing education re17 quirements for licensed insurance producers;

18 (3) establish uniform ethics course require19 ments for licensed insurance producers in conjunc20 tion with the continuing education requirements

21 under paragraph (2);

22 (4) establish uniform criteria to ensure that an

23 insurance product, including any annuity contract,

24 sold to a consumer is suitable and appropriate for
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1 the consumer based on financial information dis2 closed by the consumer; and

3 (5) do not impose any requirement upon any in4 surance producer to be licensed or otherwise quali5 fied to do business as a nonresident that has the ef6 fect of limiting or conditioning that producer’s ac7 tivities because of its residence or place of oper8 ations, except that counter-signature requirements

9 imposed on nonresident producers shall not be

10 deemed to have the effect of limiting or conditioning

11 a producer’s activities because of its residence or

12 place of operations under this section.

13 (c) RECIPROCITY REQUIRED.—States shall be

14 deemed to have established the reciprocity required to sat15 isfy subsection (a)(2) if the following conditions are met:

16 (1) ADMINISTRATIVE LICENSING PROCE17 DURES.—At least a majority of the States permit a

18 producer that has a resident license for selling or so19 liciting the purchase of insurance in its home State

20 to receive a license to sell or solicit the purchase of

21 insurance in such majority of States as a non22 resident to the same extent that such producer is

23 permitted to sell or solicit the purchase of insurance

24 in its State, if the producer’s home State also

25 awards such licenses on such a reciprocal basis,
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1 without satisfying any additional requirements other

2 than submitting—

3 (A) a request for licensure;

4 (B) the application for licensure that the

5 producer submitted to its home State;

6 (C) proof that the producer is licensed and

7 in good standing in its home State; and

8 (D) the payment of any requisite fee to the

9 appropriate authority.

10 (2) CONTINUING EDUCATION REQUIRE11 MENTS.—A majority of the States accept an insur12 ance producer’s satisfaction of its home State’s con13 tinuing education requirements for licensed insur14 ance producers to satisfy the States’ own continuing

15 education requirements if the producer’s home State

16 also recognizes the satisfaction of continuing edu17 cation requirements on such a reciprocal basis.

18 (3) NO LIMITING NONRESIDENT REQUIRE19 MENTS.—A majority of the States do not impose

20 any requirement upon any insurance producer to be

21 licensed or otherwise qualified to do business as a

22 nonresident that has the effect of limiting or condi23 tioning that producer’s activities because of its resi24 dence or place of operations, except that

25 countersignature requirements imposed on non-
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1 resident producers shall not be deemed to have the

2 effect of limiting or conditioning a producer’s activi3 ties because of its residence or place of operations

4 under this section.

5 (4) RECIPROCAL RECIPROCITY.—Each of the

6 States that satisfies paragraphs (1), (2), and (3)

7 grants reciprocity to residents of all of the other

8 States that satisfy such paragraphs.

9 (d) DETERMINATION.—

10 (1) NAIC DETERMINATION.—At the end of the

11 3-year period beginning on the date of the enact12 ment of this Act, the National Association of Insur13 ance Commissioners shall determine, in consultation

14 with the insurance commissioners or chief insurance

15 regulatory officials of the States, whether the uni16 formity or reciprocity required by subsections (b)

17 and (c) has been achieved.

18 (2) JUDICIAL REVIEW.—The appropriate

19 United States district court shall have exclusive ju20 risdiction over any challenge to the National Asso21 ciation of Insurance Commissioners’ determination

22 under this section and such court shall apply the

23 standards set forth in section 706 of title 5, United

24 States Code, when reviewing any such challenge.
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1 (e) CONTINUED APPLICATION.—If, at any time, the

2 uniformity or reciprocity required by subsections (b) and

3 (c) no longer exists, the provisions of this subtitle shall

4 take effect 2 years after the date on which such uniformity

5 or reciprocity ceases to exist, unless the uniformity or reci6 procity required by those provisions is satisfied before the

7 expiration of that 2-year period.

8 (f) SAVINGS PROVISION.—No provision of this sec9 tion shall be construed as requiring that any law, regula10 tion, provision, or action of any State which purports to

11 regulate insurance producers, including any such law, reg12 ulation, provision, or action which purports to regulate un13 fair trade practices or establish consumer protections, in14 cluding countersignature laws, be altered or amended in

15 order to satisfy the uniformity or reciprocity required by

16 subsections (b) and (c), unless any such law, regulation,

17 provision, or action is inconsistent with a specific require18 ment of any such subsection and then only to the extent

19 of such inconsistency.

20 (g) UNIFORM LICENSING.—Nothing in this section

21 shall be construed to require any State to adopt new or

22 additional licensing requirements to achieve the uniformity

23 necessary to satisfy subsection (a)(1).
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1 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED

2 AGENTS AND BROKERS.

3 (a) ESTABLISHMENT.—There is established the Na4 tional Association of Registered Agents and Brokers

5 (hereafter in this subtitle referred to as the ‘‘Associa6 tion’’).

7 (b) STATUS.—The Association shall—

8 (1) be a nonprofit corporation;

9 (2) have succession until dissolved by an Act of

10 Congress;

11 (3) not be an agent or instrumentality of the

12 United States Government; and

13 (4) except as otherwise provided in this Act, be

14 subject to, and have all the powers conferred upon

15 a nonprofit corporation by the District of Columbia

16 Nonprofit Corporation Act (D.C. Code, sec. 29y–

17 1001 et seq.).

18 SEC. 323. PURPOSE.

19 The purpose of the Association shall be to provide

20 a mechanism through which uniform licensing, appoint21 ment, continuing education, and other insurance producer

22 sales qualification requirements and conditions can be

23 adopted and applied on a multistate basis, while preserv24 ing the right of States to license, supervise, and discipline

25 insurance producers and to prescribe and enforce laws and
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1 regulations with regard to insurance-related consumer

2 protection and unfair trade practices.

3 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

4 The Association shall be subject to the supervision

5 and oversight of the National Association of Insurance

6 Commissioners (hereafter in this subtitle referred to as the

7 ‘‘NAIC’’).

8 SEC. 325. MEMBERSHIP.

9 (a) ELIGIBILITY.—

10 (1) IN GENERAL.—Any State-licensed insurance

11 producer shall be eligible to become a member in the

12 Association.

13 (2) INELIGIBILITY FOR SUSPENSION OR REV14 OCATION OF LICENSE.—Notwithstanding paragraph

15 (1), a State-licensed insurance producer shall not be

16 eligible to become a member if a State insurance

17 regulator has suspended or revoked such producer’s

18 license in that State during the 3-year period pre19 ceding the date on which such producer applies for

20 membership.

21 (3) RESUMPTION OF ELIGIBILITY.—Paragraph

22 (2) shall cease to apply to any insurance producer

23 if—
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1 (A) the State insurance regulator renews

2 the license of such producer in the State in

3 which the license was suspended or revoked; or

4 (B) the suspension or revocation is subse5 quently overturned.

6 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI7 TERIA.—The Association shall have the authority to estab8 lish membership criteria that—

9 (1) bear a reasonable relationship to the pur10 poses for which the Association was established; and

11 (2) do not unfairly limit the access of smaller

12 agencies to the Association membership.

13 (c) ESTABLISHMENT OF CLASSES AND CAT14 EGORIES.—

15 (1) CLASSES OF MEMBERSHIP.—The Associa16 tion may establish separate classes of membership,

17 with separate criteria, if the Association reasonably

18 determines that performance of different duties re19 quires different levels of education, training, or expe20 rience.

21 (2) CATEGORIES.—The Association may estab22 lish separate categories of membership for individ23 uals and for other persons. The establishment of any

24 such categories of membership shall be based either

25 on the types of licensing categories that exist under
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1 State laws or on the aggregate amount of business

2 handled by an insurance producer. No special cat3 egories of membership, and no distinct membership

4 criteria, shall be established for members which are

5 insured depository institutions or wholesale financial

6 institutions or for their employees, agents, or affili7 ates.

8 (d) MEMBERSHIP CRITERIA.—

9 (1) IN GENERAL.—The Association may estab10 lish criteria for membership which shall include

11 standards for integrity, personal qualifications, edu12 cation, training, and experience.

13 (2) MINIMUM STANDARD.—In establishing cri14 teria under paragraph (1), the Association shall con15 sider the highest levels of insurance producer quali16 fications established under the licensing laws of the

17 States.

18 (e) EFFECT OF MEMBERSHIP.—Membership in the

19 Association shall entitle the member to licensure in each

20 State for which the member pays the requisite fees, includ21 ing licensing fees and, where applicable, bonding require22 ments, set by such State.

23 (f) ANNUAL RENEWAL.—Membership in the Associa24 tion shall be renewed on an annual basis.
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1 (g) CONTINUING EDUCATION.—The Association shall

2 establish, as a condition of membership, continuing edu3 cation requirements which shall be comparable to or great4 er than the continuing education requirements under the

5 licensing laws of a majority of the States.

6 (h) SUSPENSION AND REVOCATION.—The Associa7 tion may—

8 (1) inspect and examine the records and offices

9 of the members of the Association to determine com10 pliance with the criteria for membership established

11 by the Association; and

12 (2) suspend or revoke the membership of an in13 surance producer if—

14 (A) the producer fails to meet the applica15 ble membership criteria of the Association; or

16 (B) the producer has been subject to dis17 ciplinary action pursuant to a final adjudicatory

18 proceeding under the jurisdiction of a State in19 surance regulator, and the Association con20 cludes that retention of membership in the As21 sociation would not be in the public interest.

22 (i) OFFICE OF CONSUMER COMPLAINTS.—

23 (1) IN GENERAL.—The Association shall estab24 lish an office of consumer complaints that shall—
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1 (A) receive and investigate complaints

2 from both consumers and State insurance regu3 lators related to members of the Association;

4 and

5 (B) recommend to the Association any dis6 ciplinary actions that the office considers appro7 priate, to the extent that any such rec8 ommendation is not inconsistent with State law.

9 (2) RECORDS AND REFERRALS.—The office of

10 consumer complaints of the Association shall—

11 (A) maintain records of all complaints re12 ceived in accordance with paragraph (1) and

13 make such records available to the NAIC and

14 to each State insurance regulator for the State

15 of residence of the consumer who filed the com16 plaint; and

17 (B) refer, when appropriate, any such com18 plaint to any appropriate State insurance regu19 lator.

20 (3) TELEPHONE AND OTHER ACCESS.—The of21 fice of consumer complaints shall maintain a toll-free

22 telephone number for the purpose of this subsection

23 and, as practicable, other alternative means of com24 munication with consumers, such as an Internet

25 home page.
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1 SEC. 326. BOARD OF DIRECTORS.

2 (a) ESTABLISHMENT.—There is established the

3 board of directors of the Association (hereafter in this sub4 title referred to as the ‘‘Board’’) for the purpose of govern5 ing and supervising the activities of the Association and

6 the members of the Association.

7 (b) POWERS.—The Board shall have such powers and

8 authority as may be specified in the bylaws of the Associa9 tion.

10 (c) COMPOSITION.—

11 (1) MEMBERS.—The Board shall be composed

12 of 7 members appointed by the NAIC.

13 (2) REQUIREMENT.—At least 4 of the members

14 of the Board shall have significant experience with

15 the regulation of commercial lines of insurance in at

16 least 1 of the 20 States in which the greatest total

17 dollar amount of commercial-lines insurance is

18 placed in the United States.

19 (3) INITIAL BOARD MEMBERSHIP.—

20 (A) IN GENERAL.—If, by the end of the 2-

21 year period beginning on the date of enactment

22 of this Act, the NAIC has not appointed the

23 initial 7 members of the Board of the Associa24 tion, the initial Board shall consist of the 7

25 State insurance regulators of the 7 States with

26 the greatest total dollar amount of commercial-
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1 lines insurance in place as of the end of such

2 period.

3 (B) ALTERNATE COMPOSITION.—If any of

4 the State insurance regulators described in sub5 paragraph (A) declines to serve on the Board,

6 the State insurance regulator with the next

7 greatest total dollar amount of commercial-lines

8 insurance in place, as determined by the NAIC

9 as of the end of such period, shall serve as a

10 member of the Board.

11 (C) INOPERABILITY.—If fewer than 7

12 State insurance regulators accept appointment

13 to the Board, the Association shall be estab14 lished without NAIC oversight pursuant to sec15 tion 332.

16 (d) TERMS.—The term of each director shall, after

17 the initial appointment of the members of the Board, be

for 3 years, with 1 18 ⁄3 of the directors to be appointed each

19 year.

20 (e) BOARD VACANCIES.—A vacancy on the Board

21 shall be filled in the same manner as the original appoint22 ment of the initial Board for the remainder of the term

23 of the vacating member.
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1 (f) MEETINGS.—The Board shall meet at the call of

2 the chairperson, or as otherwise provided by the bylaws

3 of the Association.

4 SEC. 327. OFFICERS.

5 (a) IN GENERAL.—

6 (1) POSITIONS.—The officers of the Association

7 shall consist of a chairperson and a vice chairperson

8 of the Board, a president, secretary, and treasurer

9 of the Association, and such other officers and as10 sistant officers as may be deemed necessary.

11 (2) MANNER OF SELECTION.—Each officer of

12 the Board and the Association shall be elected or ap13 pointed at such time and in such manner and for

14 such terms not exceeding 3 years as may be pre15 scribed in the bylaws of the Association.

16 (b) CRITERIA FOR CHAIRPERSON.—Only individuals

17 who are members of the NAIC shall be eligible to serve

18 as the chairperson of the board of directors.

19 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

20 (a) ADOPTION AND AMENDMENT OF BYLAWS.—

21 (1) COPY REQUIRED TO BE FILED WITH THE

22 NAIC.—The board of directors of the Association

23 shall file with the NAIC a copy of the proposed by24 laws or any proposed amendment to the bylaws, ac-
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1 companied by a concise general statement of the

2 basis and purpose of such proposal.

3 (2) EFFECTIVE DATE.—Except as provided in

4 paragraph (3), any proposed bylaw or proposed

5 amendment shall take effect—

6 (A) 30 days after the date of the filing of

7 a copy with the NAIC;

8 (B) upon such later date as the Associa9 tion may designate; or

10 (C) upon such earlier date as the NAIC

11 may determine.

12 (3) DISAPPROVAL BY THE NAIC.—Notwith13 standing paragraph (2), a proposed bylaw or amend14 ment shall not take effect if, after public notice and

15 opportunity to participate in a public hearing—

16 (A) the NAIC disapproves such proposal as

17 being contrary to the public interest or contrary

18 to the purposes of this subtitle and provides no19 tice to the Association setting forth the reasons

20 for such disapproval; or

21 (B) the NAIC finds that such proposal in22 volves a matter of such significant public inter23 est that public comment should be obtained, in

24 which case it may, after notifying the Associa25 tion in writing of such finding, require that the
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1 procedures set forth in subsection (b) be fol2 lowed with respect to such proposal, in the

3 same manner as if such proposed bylaw change

4 were a proposed rule change within the mean5 ing of such subsection.

6 (b) ADOPTION AND AMENDMENT OF RULES.—

7 (1) FILING PROPOSED REGULATIONS WITH THE

8 NAIC.—

9 (A) IN GENERAL.—The board of directors

10 of the Association shall file with the NAIC a

11 copy of any proposed rule or any proposed

12 amendment to a rule of the Association which

13 shall be accompanied by a concise general state14 ment of the basis and purpose of such proposal.

15 (B) OTHER RULES AND AMENDMENTS IN16 EFFECTIVE.—No proposed rule or amendment

17 shall take effect unless approved by the NAIC

18 or otherwise permitted in accordance with this

19 paragraph.

20 (2) INITIAL CONSIDERATION BY THE NAIC.—

21 Not later than 35 days after the date of publication

22 of notice of filing of a proposal, or before the end

23 of such longer period not to exceed 90 days as the

24 NAIC may designate after such date, if the NAIC

25 finds such longer period to be appropriate and sets
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1 forth its reasons for so finding, or as to which the

2 Association consents, the NAIC shall—

3 (A) by order approve such proposed rule or

4 amendment; or

5 (B) institute proceedings to determine

6 whether such proposed rule or amendment

7 should be modified or disapproved.

8 (3) NAIC PROCEEDINGS.—

9 (A) IN GENERAL.—Proceedings instituted

10 by the NAIC with respect to a proposed rule or

11 amendment pursuant to paragraph (2) shall—

12 (i) include notice of the grounds for

13 disapproval under consideration;

14 (ii) provide opportunity for hearing;

15 and

16 (iii) be concluded not later than 180

17 days after the date of the Association’s fil18 ing of such proposed rule or amendment.

19 (B) DISPOSITION OF PROPOSAL.—At the

20 conclusion of any proceeding under subpara21 graph (A), the NAIC shall, by order, approve or

22 disapprove the proposed rule or amendment.

23 (C) EXTENSION OF TIME FOR CONSIDER24 ATION.—The NAIC may extend the time for
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1 concluding any proceeding under subparagraph

2 (A) for—

3 (i) not more than 60 days if the

4 NAIC finds good cause for such extension

5 and sets forth its reasons for so finding; or

6 (ii) for such longer period as to which

7 the Association consents.

8 (4) STANDARDS FOR REVIEW.—

9 (A) GROUNDS FOR APPROVAL.—The NAIC

10 shall approve a proposed rule or amendment if

11 the NAIC finds that the rule or amendment is

12 in the public interest and is consistent with the

13 purposes of this Act.

14 (B) APPROVAL BEFORE END OF NOTICE

15 PERIOD.—The NAIC shall not approve any pro16 posed rule before the end of the 30-day period

17 beginning on the date on which the Association

18 files proposed rules or amendments in accord19 ance with paragraph (1), unless the NAIC finds

20 good cause for so doing and sets forth the rea21 sons for so finding.

22 (5) ALTERNATE PROCEDURE.—

23 (A) IN GENERAL.—Notwithstanding any

24 provision of this subsection other than subpara25 graph (B), a proposed rule or amendment relat-
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1 ing to the administration or organization of the

2 Association shall take effect—

3 (i) upon the date of filing with the

4 NAIC, if such proposed rule or amendment

5 is designated by the Association as relating

6 solely to matters which the NAIC, consist7 ent with the public interest and the pur8 poses of this subsection, determines by rule

9 do not require the procedures set forth in

10 this paragraph; or

11 (ii) upon such date as the NAIC shall

12 for good cause determine.

13 (B) ABROGATION BY THE NAIC.—

14 (i) IN GENERAL.—At any time within

15 60 days after the date of filing of any pro16 posed rule or amendment under subpara17 graph (A)(i) or clause (ii) of this subpara18 graph, the NAIC may repeal such rule or

19 amendment and require that the rule or

20 amendment be refiled and reviewed in ac21 cordance with this paragraph, if the NAIC

22 finds that such action is necessary or ap23 propriate in the public interest, for the

24 protection of insurance producers or policy-
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1 holders, or otherwise in furtherance of the

2 purposes of this subtitle.

3 (ii) EFFECT OF RECONSIDERATION BY

4 THE NAIC.—Any action of the NAIC pur5 suant to clause (i) shall—

6 (I) not affect the validity or force

7 of a rule change during the period

8 such rule or amendment was in effect;

9 and

10 (II) not be considered to be a

11 final action.

12 (c) ACTION REQUIRED BY THE NAIC.—The NAIC

13 may, in accordance with such rules as the NAIC deter14 mines to be necessary or appropriate to the public interest

15 or to carry out the purposes of this subtitle, require the

16 Association to adopt, amend, or repeal any bylaw, rule or

17 amendment of the Association, whenever adopted.

18 (d) DISCIPLINARY ACTION BY THE ASSOCIATION.—

19 (1) SPECIFICATION OF CHARGES.—In any pro20 ceeding to determine whether membership shall be

21 denied, suspended, revoked, or not renewed (here22 after in this section referred to as a ‘‘disciplinary ac23 tion’’), the Association shall bring specific charges,

24 notify such member of such charges, give the mem-
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1 ber an opportunity to defend against the charges,

2 and keep a record.

3 (2) SUPPORTING STATEMENT.—A determina4 tion to take disciplinary action shall be supported by

5 a statement setting forth—

6 (A) any act or practice in which such

7 member has been found to have been engaged;

8 (B) the specific provision of this subtitle,

9 the rules or regulations under this subtitle, or

10 the rules of the Association which any such act

11 or practice is deemed to violate; and

12 (C) the sanction imposed and the reason

13 for such sanction.

14 (e) NAIC REVIEW OF DISCIPLINARY ACTION.—

15 (1) NOTICE TO THE NAIC.—If the Association

16 orders any disciplinary action, the Association shall

17 promptly notify the NAIC of such action.

18 (2) REVIEW BY THE NAIC.—Any disciplinary

19 action taken by the Association shall be subject to

20 review by the NAIC—

21 (A) on the NAIC’s own motion; or

22 (B) upon application by any person ag23 grieved by such action if such application is

24 filed with the NAIC not more than 30 days

25 after the later of—
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1 (i) the date the notice was filed with

2 the NAIC pursuant to paragraph (1); or

3 (ii) the date the notice of the discipli4 nary action was received by such aggrieved

5 person.

6 (f) EFFECT OF REVIEW.—The filing of an applica7 tion to the NAIC for review of a disciplinary action, or

8 the institution of review by the NAIC on the NAIC’s own

9 motion, shall not operate as a stay of disciplinary action

10 unless the NAIC otherwise orders.

11 (g) SCOPE OF REVIEW.—

12 (1) IN GENERAL.—In any proceeding to review

13 such action, after notice and the opportunity for

14 hearing, the NAIC shall—

15 (A) determine whether the action should be

16 taken;

17 (B) affirm, modify, or rescind the discipli18 nary sanction; or

19 (C) remand to the Association for further

20 proceedings.

21 (2) DISMISSAL OF REVIEW.—The NAIC may

22 dismiss a proceeding to review disciplinary action if

23 the NAIC finds that—

24 (A) the specific grounds on which the ac25 tion is based exist in fact;
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1 (B) the action is in accordance with appli2 cable rules and regulations; and

3 (C) such rules and regulations are, and

4 were, applied in a manner consistent with the

5 purposes of this subtitle.

6 SEC. 329. ASSESSMENTS.

7 (a) INSURANCE PRODUCERS SUBJECT TO ASSESS8 MENT.—The Association may establish such application

9 and membership fees as the Association finds necessary

10 to cover the costs of its operations, including fees made

11 reimbursable to the NAIC under subsection (b), except

12 that, in setting such fees, the Association may not dis13 criminate against smaller insurance producers.

14 (b) NAIC ASSESSMENTS.—The NAIC may assess the

15 Association for any costs that the NAIC incurs under this

16 subtitle.

17 SEC. 330. FUNCTIONS OF THE NAIC.

18 (a) ADMINISTRATIVE PROCEDURE.—Determinations

19 of the NAIC, for purposes of making rules pursuant to

20 section 328, shall be made after appropriate notice and

21 opportunity for a hearing and for submission of views of

22 interested persons.

23 (b) EXAMINATIONS AND REPORTS.—

24 (1) EXAMINATIONS.—The NAIC may make

25 such examinations and inspections of the Association
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1 and require the Association to furnish to the NAIC

2 such reports and records or copies thereof as the

3 NAIC may consider necessary or appropriate in the

4 public interest or to effectuate the purposes of this

5 subtitle.

6 (2) REPORT BY ASSOCIATION.—As soon as

7 practicable after the close of each fiscal year, the As8 sociation shall submit to the NAIC a written report

9 regarding the conduct of its business, and the exer10 cise of the other rights and powers granted by this

11 subtitle, during such fiscal year. Such report shall

12 include financial statements setting forth the finan13 cial position of the Association at the end of such

14 fiscal year and the results of its operations (includ15 ing the source and application of its funds) for such

16 fiscal year. The NAIC shall transmit such report to

17 the President and the Congress with such comment

18 thereon as the NAIC determines to be appropriate.

19 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC20 TORS, OFFICERS, AND EMPLOYEES OF THE

21 ASSOCIATION.

22 (a) IN GENERAL.—The Association shall not be

23 deemed to be an insurer or insurance producer within the

24 meaning of any State law, rule, regulation, or order regu25 lating or taxing insurers, insurance producers, or other en-
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1 tities engaged in the business of insurance, including pro2 visions imposing premium taxes, regulating insurer sol3 vency or financial condition, establishing guaranty funds

4 and levying assessments, or requiring claims settlement

5 practices.

6 (b) LIABILITY OF THE ASSOCIATION, ITS DIREC7 TORS, OFFICERS, AND EMPLOYEES.—Neither the Associa8 tion nor any of its directors, officers, or employees shall

9 have any liability to any person for any action taken or

10 omitted in good faith under or in connection with any mat11 ter subject to this subtitle.

12 SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

13 (a) IN GENERAL.—The Association shall be estab14 lished without NAIC oversight and the provisions set forth

15 in section 324, subsections (a), (b), (c), and (e) of section

16 328, and sections 329(b) and 330 of this subtitle shall

17 cease to be effective if, at the end of the 2-year period

18 beginning on the date on which the provisions of this sub19 title take effect pursuant to section 321—

20 (1) at least a majority of the States represent21 ing at least 50 percent of the total United States

22 commercial-lines insurance premiums have not satis23 fied the uniformity or reciprocity requirements of

24 subsections (a), (b), and (c) of section 321; and
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1 (2) the NAIC has not approved the Associa2 tion’s bylaws as required by section 328 or is unable

3 to operate or supervise the Association, or the Asso4 ciation is not conducting its activities as required

5 under this Act.

6 (b) BOARD APPOINTMENTS.—If the repeals required

7 by subsection (a) are implemented, the following shall

8 apply:

9 (1) GENERAL APPOINTMENT POWER.—The

10 President, with the advice and consent of the Sen11 ate, shall appoint the members of the Association’s

12 Board established under section 326 from lists of

13 candidates recommended to the President by the

14 National Association of Insurance Commissioners.

15 (2) PROCEDURES FOR OBTAINING NATIONAL

16 ASSOCIATION OF INSURANCE COMMISSIONERS AP17 POINTMENT RECOMMENDATIONS.—

18 (A) INITIAL DETERMINATION AND REC19 OMMENDATIONS.—After the date on which the

20 provisions of subsection (a) take effect, the

21 NAIC shall, not later than 60 days thereafter,

22 provide a list of recommended candidates to the

23 President. If the NAIC fails to provide a list by

24 that date, or if any list that is provided does

25 not include at least 14 recommended candidates
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1 or comply with the requirements of section

2 326(c), the President shall, with the advice and

3 consent of the Senate, make the requisite ap4 pointments without considering the views of the

5 NAIC.

6 (B) SUBSEQUENT APPOINTMENTS.—After

7 the initial appointments, the NAIC shall pro8 vide a list of at least 6 recommended candidates

9 for the Board to the President by January 15

10 of each subsequent year. If the NAIC fails to

11 provide a list by that date, or if any list that

12 is provided does not include at least 6 rec13 ommended candidates or comply with the re14 quirements of section 326(c), the President,

15 with the advice and consent of the Senate, shall

16 make the requisite appointments without con17 sidering the views of the NAIC.

18 (C) PRESIDENTIAL OVERSIGHT.—

19 (i) REMOVAL.—If the President deter20 mines that the Association is not acting in

21 the interests of the public, the President

22 may remove the entire existing Board for

23 the remainder of the term to which the

24 members of the Board were appointed and

25 appoint, with the advice and consent of the
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1 Senate, new members to fill the vacancies

2 on the Board for the remainder of such

3 terms.

4 (ii) SUSPENSION OF RULES OR AC5 TIONS.—The President, or a person des6 ignated by the President for such purpose,

7 may suspend the effectiveness of any rule,

8 or prohibit any action, of the Association

9 which the President or the designee deter10 mines is contrary to the public interest.

11 (c) ANNUAL REPORT.—As soon as practicable after

12 the close of each fiscal year, the Association shall submit

13 to the President and to the Congress a written report rel14 ative to the conduct of its business, and the exercise of

15 the other rights and powers granted by this subtitle, dur16 ing such fiscal year. Such report shall include financial

17 statements setting forth the financial position of the Asso18 ciation at the end of such fiscal year and the results of

19 its operations (including the source and application of its

20 funds) for such fiscal year.

21 SEC. 333. RELATIONSHIP TO STATE LAW.

22 (a) PREEMPTION OF STATE LAWS.—State laws, reg23 ulations, provisions, or other actions purporting to regu24 late insurance producers shall be preempted as provided

25 in subsection (b).
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1 (b) PROHIBITED ACTIONS.—No State shall—

2 (1) impede the activities of, take any action

3 against, or apply any provision of law or regulation

4 to, any insurance producer because that insurance

5 producer or any affiliate plans to become, has ap6 plied to become, or is a member of the Association;

7 (2) impose any requirement upon a member of

8 the Association that it pay different fees to be li9 censed or otherwise qualified to do business in that

10 State, including bonding requirements, based on its

11 residency;

12 (3) impose any licensing, appointment, integ13 rity, personal or corporate qualifications, education,

14 training, experience, residency, or continuing edu15 cation requirement upon a member of the Associa16 tion that is different from the criteria for member17 ship in the Association or renewal of such member18 ship, except that counter-signature requirements im19 posed on nonresident producers shall not be deemed

20 to have the effect of limiting or conditioning a pro21 ducer’s activities because of its residence or place of

22 operations under this section; or

23 (4) implement the procedures of such State’s

24 system of licensing or renewing the licenses of insur-
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1 ance producers in a manner different from the au2 thority of the Association under section 325.

3 (c) SAVINGS PROVISION.—Except as provided in sub4 sections (a) and (b), no provision of this section shall be

5 construed as altering or affecting the continuing effective6 ness of any law, regulation, provision, or other action of

7 any State which purports to regulate insurance producers,

8 including any such law, regulation, provision, or action

9 which purports to regulate unfair trade practices or estab10 lish consumer protections, including countersignature

11 laws.

12 SEC. 334. COORDINATION WITH OTHER REGULATORS.

13 (a) COORDINATION WITH STATE INSURANCE REGU14 LATORS.—The Association shall have the authority to—

15 (1) issue uniform insurance producer applica16 tions and renewal applications that may be used to

17 apply for the issuance or removal of State licenses,

18 while preserving the ability of each State to impose

19 such conditions on the issuance or renewal of a li20 cense as are consistent with section 333;

21 (2) establish a central clearinghouse through

22 which members of the Association may apply for the

23 issuance or renewal of licenses in multiple States;

24 and
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1 (3) establish or utilize a national database for

2 the collection of regulatory information concerning

3 the activities of insurance producers.

4 (b) COORDINATION WITH THE NATIONAL ASSOCIA5 TION OF SECURITIES DEALERS.—The Association shall

6 coordinate with the National Association of Securities

7 Dealers in order to ease any administrative burdens that

8 fall on persons that are members of both associations, con9 sistent with the purposes of this subtitle and the Federal

10 securities laws.

11 SEC. 335. JUDICIAL REVIEW.

12 (a) JURISDICTION.—The appropriate United States

13 district court shall have exclusive jurisdiction over litiga14 tion involving the Association, including disputes between

15 the Association and its members that arise under this sub16 title. Suits brought in State court involving the Associa17 tion shall be deemed to have arisen under Federal law and

18 therefore be subject to jurisdiction in the appropriate

19 United States district court.

20 (b) EXHAUSTION OF REMEDIES.—An aggrieved per21 son shall be required to exhaust all available administra22 tive remedies before the Association and the NAIC before

23 it may seek judicial review of an Association decision.

24 (c) STANDARDS OF REVIEW.—The standards set

25 forth in section 553 of title 5, United States Code, shall
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1 be applied whenever a rule or bylaw of the Association is

2 under judicial review, and the standards set forth in sec3 tion 554 of title 5, United States Code, shall be applied

4 whenever a disciplinary action of the Association is judi5 cially reviewed.

6 SEC. 336. DEFINITIONS.

7 For purposes of this subtitle, the following definitions

8 shall apply:

9 (1) HOME STATE.—The term ‘‘home State’’

10 means the State in which the insurance producer

11 maintains its principal place of residence and is li12 censed to act as an insurance producer.

13 (2) INSURANCE.—The term ‘‘insurance’’ means

14 any product, other than title insurance, defined or

15 regulated as insurance by the appropriate State in16 surance regulatory authority.

17 (3) INSURANCE PRODUCER.—The term ‘‘insur18 ance producer’’ means any insurance agent or

19 broker, surplus lines broker, insurance consultant,

20 limited insurance representative, and any other per21 son that solicits, negotiates, effects, procures, deliv22 ers, renews, continues or binds policies of insurance

23 or offers advice, counsel, opinions or services related

24 to insurance.
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1 (4) STATE.—The term ‘‘State’’ includes any

2 State, the District of Columbia, American Samoa,

3 Guam, Puerto Rico, and the United States Virgin

4 Islands.

5 (5) STATE LAW.—The term ‘‘State law’’ in6 cludes all laws, decisions, rules, regulations, or other

7 State action having the effect of law, of any State.

8 A law of the United States applicable only to the

9 District of Columbia shall be treated as a State law

10 rather than a law of the United States.

11 TITLE IV—UNITARY SAVINGS

12 AND LOAN HOLDING COMPA13 NIES

14 SEC. 401. PREVENTION OF CREATION OF NEW S&L HOLD15 ING COMPANIES WITH COMMERCIAL AFFILI16 ATES.

17 (a) IN GENERAL.—Section 10(c) of the Home Own18 ers’ Loan Act (12 U.S.C. 1467a(c)) is amended by adding

19 at the end the following new paragraph:

20 ‘‘(9) PREVENTION OF NEW AFFILIATIONS BE21 TWEEN S&L HOLDING COMPANIES AND COMMERCIAL

22 FIRMS.—

23 ‘‘(A) IN GENERAL.—Notwithstanding para24 graph (3), no company may directly or indi25 rectly, including through any merger, consolida-
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1 tion, or other type of business combination, ac2 quire control of a savings association after Oc3 tober 7, 1998, unless the company is engaged,

4 directly or indirectly (including through a sub5 sidiary other than a savings association), only

6 in activities that are permitted—

7 ‘‘(i) under paragraph (1)(C) or (2); or

8 ‘‘(ii) for financial holding companies

9 under section 6(c) of the Bank Holding

10 Company Act of 1956.

11 ‘‘(B) PREVENTION OF NEW COMMERCIAL

12 AFFILIATIONS.—Notwithstanding paragraph

13 (3), no savings and loan holding company may

14 engage directly or indirectly (including through

15 a subsidiary other than a savings association)

16 in any activity other than as described in

17 clauses (i) and (ii) of subparagraph (A).

18 ‘‘(C) PRESERVATION OF AUTHORITY OF

19 EXISTING UNITARY S&L HOLDING COMPA20 NIES.—Subparagraphs (A) and (B) do not

21 apply with respect to any company that was a

22 savings and loan holding company on October

23 7, 1998, or that becomes a savings and loan

24 holding company pursuant to an application
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1 pending before the Office of Thrift Supervision

2 on or before that date, and that—

3 ‘‘(i) meets and continues to meet the

4 requirements of paragraph (3); and

5 ‘‘(ii) continues to control not fewer

6 than 1 savings association that it con7 trolled on October 7, 1998, or that it ac8 quired pursuant to an application pending

9 before the Office of Thrift Supervision on

10 or before that date, or the successor to

11 such savings association.

12 ‘‘(D) CORPORATE REORGANIZATIONS PER13 MITTED.—This paragraph does not prevent a

14 transaction that—

15 ‘‘(i) involves solely a company under

16 common control with a savings and loan

17 holding company from acquiring, directly

18 or indirectly, control of the savings and

19 loan holding company or any savings asso20 ciation that is already a subsidiary of the

21 savings and loan holding company; or

22 ‘‘(ii) involves solely a merger, consoli23 dation, or other type of business combina24 tion as a result of which a company under

25 common control with the savings and loan
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1 holding company acquires, directly or indi2 rectly, control of the savings and loan hold3 ing company or any savings association

4 that is already a subsidiary of the savings

5 and loan holding company.

6 ‘‘(E) AUTHORITY TO PREVENT EVA7 SIONS.—The Director may issue interpreta8 tions, regulations, or orders that the Director

9 determines necessary to administer and carry

10 out the purpose and prevent evasions of this

11 paragraph, including a determination that, not12 withstanding the form of a transaction, the

13 transaction would in substance result in a com14 pany acquiring control of a savings association.

15 ‘‘(F) PRESERVATION OF AUTHORITY FOR

16 FAMILY TRUSTS.—Subparagraphs (A) and (B)

17 do not apply with respect to any trust that be18 comes a savings and loan holding company with

19 respect to a savings association, if—

20 ‘‘(i) not less than 85 percent of the

21 beneficial ownership interests in the trust

22 are continuously owned, directly or indi23 rectly, by or for the benefit of members of

24 the same family, or their spouses, who are

25 lineal descendants of common ancestors
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1 who controlled, directly or indirectly, such

2 savings association on October 7, 1998, or

3 a subsequent date pursuant to an applica4 tion pending before the Office of Thrift

5 Supervision on or before October 7, 1998;

6 and

7 ‘‘(ii) at the time at which such trust

8 becomes a savings and loan holding com9 pany, such ancestors or lineal descendants,

10 or spouses of such descendants, have di11 rectly or indirectly controlled the savings

12 association continuously since October 7,

13 1998, or a subsequent date pursuant to an

14 application pending before the Office of

15 Thrift Supervision on or before October 7,

16 1998.’’.

17 (b) CONFORMING AMENDMENT.—Section 10(o)(5) of

18 the Home Owners’ Loan Act (15 U.S.C. 1467a(o)(5)) is

19 amended—

20 (1) in subparagraph (E), by striking ‘‘, except

21 subparagraph (B)’’; and

22 (2) by adding at the end the following new sub23 paragraph:

24 ‘‘(F) In the case of a mutual holding com25 pany which is a savings and loan holding com-
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1 pany described in subsection (c)(3), engaging in

2 the activities permitted under subsection

3 (c)(9)(A)(ii).’’.

4 SEC. 402. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON5 VERTED FEDERAL SAVINGS ASSOCIATION.

6 Section 2 of the Act entitled ‘‘An Act to enable na7 tional banking associations to increase their capital stock

8 and to change their names or locations’’, approved May

9 1, 1886 (12 U.S.C. 30), is amended by adding at the end

10 the following new subsection:

11 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CON12 VERTED FEDERAL SAVINGS ASSOCIATION.—

13 ‘‘(1) IN GENERAL.—Notwithstanding subsection

14 (a) or any other provision of law, any depository in15 stitution the charter of which is converted from that

16 of a Federal savings association to a national bank

17 or a State bank after the date of the enactment of

18 the Financial Services Act of 1999 may retain the

19 term ‘Federal’ in the name of such institution if

20 such depository institution remains an insured de21 pository institution.

22 ‘‘(2) DEFINITIONS.—For purposes of this sub23 section, the terms ‘depository institution’, ‘insured

24 depository institution’, ‘national bank’, and ‘State
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1 bank’ have the same meanings as in section 3 of the

2 Federal Deposit Insurance Act.’’.

Æ