Calendar No. 105

106TH CONGRESS

1ST SESSION H. R. 10

[Report No. 106–74, Parts I, II, and III]

A BILL

To enhance competition in the financial services inpurposes. other financial service providers, and for other the affiliation of banks, securities firms, and dustry by providing a prudential framework for

JUNE 15, 1999

Reported from the Committee on Commerce with an

printedHouse on the State of the Union, and ordered to beamendment, committed to the Committee of the Whole
IB

Union Calendar No. 105

106TH CONGRESS

1ST SESSION H. R. 10

[Report No. 106–74, Parts I, II, and III]

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

MARCH 23, 1999

Reported from the Committee on Banking and Financial Services with an

amendment

[Strike out all after the enacting clause and insert the part printed in italic]

MARCH 23, 1999

Referral to the Committee on Commerce extended for a period ending not

later than May 14, 1999

MAY 13, 1999

Referral to the Committee on Commerce extended for a period ending not

later than June 11, 1999

JUNE 11, 1999

Referral to the Committee on Commerce extended for a period ending not

later than June 15, 1999

JUNE 15, 1999

Additional sponsor: Mr. MALONEY of Connecticut
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JUNE 15, 1999

Reported from the Committee on Commerce with an amendment, committed

to the Committee of the Whole House on the State of the Union, and

ordered to be printed

[Strike out all after the enacting clause and insert the part printed in boldface roman]

[For text of introduced bill, see copy of bill as introduced on January 6, 1999]

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,

3 SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CON4 TENTS.

5 (a) SHORT TITLE.—This Act may be cited as the ‘‘Fi6 nancial Services Act of 1999’’.

7 (b) PURPOSES.—The purposes of this Act are as fol8 lows:

9 (1) To enhance competition in the financial serv10 ices industry, in order to foster innovation and effi11 ciency.

12 (2) To ensure the continued safety and soundness

13 of depository institutions.
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1 (3) To provide necessary and appropriate protec2 tions for investors and ensure fair and honest markets

3 in the delivery of financial services.

4 (4) To avoid duplicative, potentially conflicting,

5 and overly burdensome regulatory requirements

6 through the creation of a regulatory framework for fi7 nancial holding companies that respects the divergent

8 requirements of each of the component businesses of

9 the holding company, and that is based upon prin10 ciples of strong functional regulation and enhanced

11 regulatory coordination.

12 (5) To reduce and, to the maximum extent prac13 ticable, to eliminate the legal barriers preventing af14 filiation among depository institutions, securities

15 firms, insurance companies, and other financial serv16 ice providers and to provide a prudential framework

17 for achieving that result.

18 (6) To enhance the availability of financial serv19 ices to citizens of all economic circumstances and in

20 all geographic areas.

21 (7) To enhance the competitiveness of United

22 States financial service providers internationally.

23 (8) To ensure compliance by depository institu24 tions with the provisions of the Community Reinvest25 ment Act of 1977 and enhance the ability of deposi-
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1 tory institutions to meet the capital and credit needs

2 of all citizens and communities, including under3 served communities and populations.

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

5 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. 105A. Public hearings for large bank acquisitions and mergers.

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.

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.

Sec. 120A. Technical amendment.

Subtitle C—Subsidiaries of National Banks

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

Sec. 122. Safety and soundness firewalls between banks and their financial subsidiaries.

Sec. 123. Misrepresentations regarding depository institution liability for obligations of affiliates.
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Sec. 124. Functional regulation.

Sec. 125. 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.

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.

Sec. 168. Capital structure of Federal home loan banks.

Subtitle H—ATM Fee Reform

Sec. 171. Short title.

Sec. 172. Electronic fund transfer fee disclosures at any host ATM.

Sec. 173. Disclosure of possible fees to consumers when ATM card is issued.

Sec. 174. Feasibility study.

Sec. 175. No liability if posted notices are damaged.

Subtitle I—Customer Service, Education, and Privacy

Sec. 176. Customer protection and education regulations.

Sec. 177. Depository institution privacy policies.
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Sec. 178. Confidentiality of health and medical information.

Sec. 179. Financial information privacy.

Sec. 180. Study of current financial privacy laws.

Subtitle J—Direct Activities of Banks

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

Subtitle K—Deposit Insurance Funds

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

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

Subtitle L—Miscellaneous Provisions

Sec. 191. Termination of ‘‘Know Your Customer’’ regulations.

Sec. 192. GAO study of conflicts of interest

Sec. 193. Clarification of source of strength doctrine.

Sec. 194. Study of cost of all Federal banking regulations.

Sec. 195. Study and report on adapting existing legislative requirements to online banking and lending.

Subtitle M—Effective Date of Title

Sec. 196. 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. Information sharing.

Sec. 205. Definition and treatment of banking products.

Sec. 206. Qualified investor defined.

Sec. 207. Government securities defined.

Sec. 208. Effective date.

Sec. 209. 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.
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Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment

Bank Holding Companies

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. Certain State affiliation laws preempted for insurance companies and

affiliates.

Subtitle B—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. Prohibition on new unitary savings and loan holding companies.

Sec. 402. Retention of ‘‘Federal’’ in name of converted Federal savings association.
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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 Bank9 ing Act of 1933 (12 U.S.C. 377) (commonly referred to as

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

11 (b) SECTION 32 REPEALED.—Section 32 of the Bank12 ing 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 amend18 ed to read as follows:

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

20 which had been determined by the Board by regula21 tion or order under this paragraph as of the day be22 fore the date of the enactment of the Financial Serv23 ices Act of 1999, to be so closely related to banking

24 as to be a proper incident thereto (subject to such
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1 terms and conditions contained in such regulation or

2 order, unless modified 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 the

6 Bank Holding Company Act Amendments of 1970 (12

7 U.S.C. 1850) is amended by striking ‘‘, to engage di8 rectly or indirectly in a nonbanking activity pursu9 ant 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 striking

13 the period and adding at the end the following: ‘‘as

14 of the day before the date of enactment of the Finan15 cial Services Act of 1999.’’.

16 SEC. 103. FINANCIAL HOLDING COMPANIES.

17 (a) IN GENERAL.—The Bank Holding Company Act

18 of 1956 is amended by inserting after section 5 (12 U.S.C.

19 1844) the following new section:

20 ‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.

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

22 purposes of this section, the term ‘financial holding com23 pany’ means a bank holding company which meets the re24 quirements 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) All of the subsidiary depository insti15 tutions of the bank holding company have

16 achieved a rating of ‘satisfactory record of meet17 ing community credit needs’, or better, at the

18 most recent examination of each such institution;

19 ‘‘(D) In the case of any bank holding com20 pany which underwrites or sells, or any affiliate

21 of which underwrites or sells, annuities contracts

22 or contracts insuring, guaranteeing, or indem23 nifying against loss, harm, damage, illness, dis24 ability, or death—
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1 ‘‘(i) the company or affiliate has not

2 been adjudicated in any Federal court, and

3 has not entered into a consent decree filed

4 in a Federal court or into a settlement

5 agreement, premised upon a violation of the

6 Fair Housing Act for the activities de7 scribed in this subparagraph;

8 ‘‘(ii) if such company or affiliate has

9 entered into any such consent decree or set10 tlement agreement, the company or the affil11 iate is not in violation of the decree or set12 tlement agreement as determined by a court

13 of competent jurisdiction or the agency with

14 which the decree or agreement was entered

15 into; or

16 ‘‘(iii) the company has been exempted

17 from the requirements of clauses (i) and (ii)

18 by the Board under paragraph (4).

19 ‘‘(E) The company has filed with the Board

20 a declaration that the company elects to be a fi21 nancial holding company and certifying that the

22 company meets the requirements of subpara23 graphs (A), (B), (C), and (D).

24 ‘‘(2) FOREIGN BANKS AND COMPANIES.—For

25 purposes of paragraph (1), the Board shall establish
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1 and apply comparable capital and other operating

2 standards to a foreign bank that operates a branch or

3 agency or owns or controls a bank or commercial

4 lending company in the United States, and any com5 pany that owns or controls such foreign bank, giving

6 due regard to the principle of national treatment and

7 equality of competitive opportunity.

8 ‘‘(3) LIMITED EXCLUSIONS FROM COMMUNITY

9 NEEDS REQUIREMENTS FOR NEWLY ACQUIRED DEPOS10 ITORY INSTITUTIONS.—Any depository institution ac11 quired by a bank holding company during the 12-

12 month period preceding the submission of a notice

13 under paragraph (1)(E) and any depository institu14 tion acquired after the submission of such notice may

15 be excluded for purposes of paragraph (1)(C) during

16 the 12-month period beginning on the date of such ac17 quisition if—

18 ‘‘(A) the bank holding company has sub19 mitted an affirmative plan to the appropriate

20 Federal banking agency to take such action as

21 may be necessary in order for such institution to

22 achieve a rating of ‘satisfactory record of meet23 ing community credit needs’, or better, at the

24 next examination of the institution; and
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1 ‘‘(B) the plan has been accepted by such

2 agency.

3 ‘‘(4) VIOLATIONS OF THE FAIR HOUSING ACT.—

4 The Board may, on a case-by-case basis, exempt a

5 bank holding company from meeting the requirements

6 of clauses (i) and (ii) of paragraph (1)(D).

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

8 IN NATURE.—

9 ‘‘(1) FINANCIAL ACTIVITIES.—

10 ‘‘(A) IN GENERAL.—Notwithstanding sec11 tion 4(a), a financial holding company and a

12 wholesale financial holding company may engage

13 in any activity, and acquire and retain the

14 shares of any company engaged in any activity,

15 that the Board has determined (by regulation or

16 order and in accordance with subparagraph (B))

17 to be—

18 ‘‘(i) financial in nature or incidental

19 to such financial activities; or

20 ‘‘(ii) complementary to activities au21 thorized under this subsection to the extent

22 that the amount of such complementary ac23 tivities remains small.

24 ‘‘(B) COORDINATION BETWEEN THE BOARD

25 AND THE SECRETARY OF THE TREASURY.—
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1 ‘‘(i) PROPOSALS RAISED BEFORE THE

2 BOARD.—

3 ‘‘(I) CONSULTATION.—The Board

4 shall notify the Secretary of the Treas5 ury of, and consult with the Secretary

6 of the Treasury concerning, any re7 quest, proposal, or application under

8 this subsection, including a regulation

9 or order proposed under paragraph

10 (4), for a determination of whether an

11 activity is financial in nature or inci12 dental to such a financial activity.

13 ‘‘(II) TREASURY VIEW.—The

14 Board shall not determine that any ac15 tivity is financial in nature or inci16 dental to a financial activity under

17 this subsection if the Secretary of the

18 Treasury notifies the Board in writing,

19 not later than 30 days after the date of

20 receipt of the notice described in sub21 clause (I) (or such longer period as the

22 Board determines to be appropriate in

23 light of the circumstances) that the

24 Secretary of the Treasury believes that
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1 the activity is not financial in nature

2 or incidental to a financial 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 after

13 the date of receipt of a written rec14 ommendation from the Secretary of the

15 Treasury under subclause (I) (or such

16 longer period as the Secretary of the

17 Treasury and the Board determine to

18 be appropriate in light of the cir19 cumstances), the Board shall determine

20 whether to initiate a public rule21 making proposing that the subject rec22 ommended activity be found to be fi23 nancial in nature or incidental to a fi24 nancial activity under this subsection,

25 and shall notify the Secretary of the
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1 Treasury in writing of the determina2 tion of the Board and, in the event

3 that the Board determines not to seek

4 public comment on the proposal, the

5 reasons for that determination.

6 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter7 mining whether an activity is financial in nature or

8 incidental to financial activities, the Board shall take

9 into account—

10 ‘‘(A) the purposes of this Act and the Fi11 nancial Services Act of 1999;

12 ‘‘(B) changes or reasonably expected changes

13 in the marketplace in which bank holding com14 panies compete;

15 ‘‘(C) changes or reasonably expected changes

16 in the technology for delivering financial serv17 ices; and

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

19 appropriate to allow a bank holding company

20 and the affiliates of a bank holding company

21 to—

22 ‘‘(i) compete effectively with any com23 pany seeking to provide financial services

24 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 effi4 cacy of systems for the transmission of data

5 or financial transactions, in providing fi6 nancial 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 to

12 be financial in nature:

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

16 ‘‘(B) Insuring, guaranteeing, or indem17 nifying against loss, harm, damage, illness, dis18 ability, 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 a

5 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 (subject

12 to the same terms and conditions contained in

13 such order or regulation, unless modified by the

14 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 day

22 before the date of enactment of the Finan23 cial Services Act of 1999) to be usual in

24 connection with the transaction of banking

25 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 a

4 depository institution, that the bank holding

5 company controls) or otherwise, shares, assets, or

6 ownership interests (including without limita7 tion debt or equity securities, partnership inter8 ests, trust certificates or other instruments rep9 resenting ownership) of a company or other enti10 ty, whether or not constituting control of such

11 company or entity, engaged in any activity not

12 authorized pursuant to this section if—

13 ‘‘(i) the shares, assets, or ownership in14 terests are not acquired or held by a deposi15 tory institution;

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

17 interests are acquired and held by an affil18 iate of the bank holding company that is a

19 registered broker or dealer that is engaged

20 in securities underwriting activities, or an

21 affiliate of such broker or dealer, as part of

22 a bona fide underwriting or merchant bank23 ing activity, including investment activities

24 engaged in for the purpose of appreciation
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1 and ultimate resale or disposition of the in2 vestment;

3 ‘‘(iii) such shares, assets, or ownership

4 interests are held only for such a period of

5 time as will permit the sale or disposition

6 thereof on a reasonable basis consistent with

7 the nature of the activities described in

8 clause (ii); and

9 ‘‘(iv) during the period such shares, as10 sets, or ownership interests are held, the

11 bank holding company does not actively

12 participate in the day to day management

13 or operation of such company or entity, ex14 cept insofar as necessary to achieve the ob15 jectives of clause (ii).

16 ‘‘(I) Directly or indirectly acquiring or con17 trolling, whether as principal, on behalf of 1 or

18 more entities (including entities, other than a de19 pository institution or subsidiary of a depository

20 institution, that the bank holding company con21 trols) or otherwise, shares, assets, or ownership

22 interests (including without limitation debt or

23 equity securities, partnership interests, trust cer24 tificates or other instruments representing own25 ership) of a company or other entity, whether or
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1 not constituting control of such company or enti2 ty, engaged in any activity not authorized pur3 suant to this section if—

4 ‘‘(i) the shares, assets, or ownership in5 terests are not acquired or held by a deposi6 tory institution or a subsidiary of a deposi7 tory institution;

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

9 interests are acquired and held by an insur10 ance company that is predominantly en11 gaged in underwriting life, accident and

12 health, or property and casualty insurance

13 (other than credit-related insurance) or pro14 viding and issuing annuities;

15 ‘‘(iii) such shares, assets, or ownership

16 interests represent an investment made in

17 the ordinary course of business of such in18 surance company in accordance with rel19 evant State law governing such investments;

20 and

21 ‘‘(iv) during the period such shares, as22 sets, or ownership interests are held, the

23 bank holding company does not directly or

24 indirectly participate in the day-to-day

25 management or operation of the company
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1 or entity except insofar as necessary to

2 achieve the objectives of clauses (ii) and

3 (iii).

4 ‘‘(4) AUTHORIZATION OF NEW FINANCIAL ACTIVI5 TIES.—The Board shall, by regulation or order and

6 in accordance with paragraph (1)(B), define, con7 sistent with the purposes of this Act, the following ac8 tivities as, and the extent to which such activities are,

9 financial in nature or incidental to activities which

10 are financial in nature:

11 ‘‘(A) Lending, exchanging, transferring, in12 vesting for others, or safeguarding financial as13 sets other than money or securities.

14 ‘‘(B) Providing any device or other instru15 mentality for transferring money or other finan16 cial assets.

17 ‘‘(C) Arranging, effecting, or facilitating fi18 nancial transactions for the account of third

19 parties.

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

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

22 company and a wholesale financial holding com23 pany that acquires any company, or commences

24 any activity, pursuant to this subsection shall

25 provide written notice to the Board describing
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1 the activity commenced or conducted by the com2 pany acquired no later than 30 calendar days

3 after commencing the activity or consummating

4 the acquisition.

5 ‘‘(B) APPROVAL NOT REQUIRED FOR CER6 TAIN FINANCIAL ACTIVITIES.—Except as pro7 vided in section 4(j) with regard to the acquisi8 tion of a savings association or in paragraph (6)

9 of this subsection, a financial holding company

10 and a wholesale financial holding company may

11 commence any activity, or acquire any com12 pany, pursuant to paragraph (3) or any regula13 tion prescribed or order issued under paragraph

14 (4), without prior approval of the Board.

15 ‘‘(6) NOTICE REQUIRED FOR LARGE COMBINA16 TIONS.—

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

18 company or wholesale financial holding com19 pany shall directly or indirectly acquire, and no

20 company that becomes a financial holding com21 pany or a wholesale financial holding company

22 shall directly or indirectly acquire control of,

23 any company in the United States, including

24 through merger, consolidation, or other type of

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

2 under this subsection or subsection (g); and

3 ‘‘(ii) has consolidated total assets in

4 excess of $40,000,000,000,

5 unless such holding company has provided notice

6 to the Board, not later than 60 days prior to

7 such proposed acquisition or prior to becoming a

8 financial holding company or wholesale finan9 cial holding company, and during that time pe10 riod, or such longer time period not exceeding an

11 additional 60 days, as established by the Board,

12 the Board has not issued a notice disapproving

13 the proposed acquisition or retention.

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

15 reviewing any prior notice filed under this para16 graph, the Board shall take into consideration—

17 ‘‘(i) whether the company is in compli18 ance with all applicable criteria set forth in

19 subsection (b) and the provisions of sub20 section (d);

21 ‘‘(ii) whether the proposed combination

22 represents an undue aggregation of re23 sources;
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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 combination

5 poses a risk to State insurance guaranty

6 funds;

7 ‘‘(v) whether the proposed combination

8 can reasonably be expected to be in the best

9 interests of depositors or policyholders of the

10 respective entities; and

11 ‘‘(vi) whether the proposed transaction

12 can reasonably be expected to further the

13 purposes of this Act and produce benefits to

14 the public.

15 ‘‘(C) REQUIRED INFORMATION.—The Board

16 may disapprove any prior notice filed under this

17 paragraph if the company submitting such no18 tice neglects, fails, or refuses to furnish to the

19 Board all relevant information required by the

20 Board.

21 ‘‘(D) SOLICITATION OF VIEWS OF OTHER

22 SUPERVISORY AGENCIES.—

23 ‘‘(i) IN GENERAL.—Upon receiving a

24 prior notice under this paragraph, in order

25 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 submitted

15 to the Board not later than 30 calendar

16 days after the date on which notice to the

17 agency was given, unless the Board deter18 mines that another shorter time period is

19 appropriate.

20 ‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL HOLDING

21 COMPANIES THAT FAIL TO MEET REQUIREMENTS.—

22 ‘‘(1) IN GENERAL.—If a financial holding com23 pany is not in compliance with the requirements of

24 subparagraph (A), (B), or (C) of subsection (b)(1), the

25 appropriate Federal banking agency of the subsidiary
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1 depository institution shall notify the Board which

2 shall give notice of such 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 and any relevant

8 depository institution shall execute an agreement ac9 ceptable to the Board and the appropriate Federal

10 banking agency to comply with the requirements ap11 plicable to a financial holding company.

12 ‘‘(3) AUTHORITY TO IMPOSE LIMITATIONS.—

13 Until the conditions described in a notice to a finan14 cial holding company under paragraph (1) are

15 corrected—

16 ‘‘(A) the Board may impose such limita17 tions on the conduct or activities of the company

18 or any affiliate of the company (other than a de19 pository institution or a subsidiary of a deposi20 tory institution) as the Board determines to be

21 appropriate under the circumstances; and

22 ‘‘(B) the appropriate Federal banking agen23 cy may impose such limitations on the conduct

24 or activities of an affiliated depository institu25 tion or subsidiary of a depository institution as
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1 the appropriate Federal banking agency deter2 mines to be appropriate under the circumstances.

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

4 notice under paragraph (1), a financial holding com5 pany or a depository institution affiliate of such com6 pany does not—

7 ‘‘(A) execute and implement an agreement

8 in accordance with paragraph (2);

9 ‘‘(B) comply with any limitations imposed

10 under paragraph (3);

11 ‘‘(C) in the case of a notice of failure to

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

13 depository institution subsidiary to well capital14 ized status before the end of the 180-day period

15 beginning on the date such notice is received by

16 the company (or such other period permitted by

17 the Board); or

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

19 comply with subparagraph (B) or (C) of sub20 section (b)(1), restore compliance with any such

21 subparagraph on or before the date on which the

22 next examination of the depository institution

23 subsidiary is completed or by the end of such

24 other period as the Board determines to be ap25 propriate,
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1 the Board may require such company, under such

2 terms and conditions as may be imposed by the

3 Board and subject to such extension of time as may

4 be granted in the Board’s discretion, to divest control

5 of any depository institution subsidiary or, at the

6 election of the financial holding company, instead to

7 cease to engage in any activity conducted by such

8 company or its subsidiaries pursuant to this section.

9 ‘‘(5) CONSULTATION.—In taking any action

10 under this subsection, the Board shall consult with all

11 relevant Federal and State regulatory agencies.

12 ‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—A fi13 nancial holding company shall assure that—

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

15 identifying and managing financial and operational

16 risks within the company, and the subsidiaries of

17 such company, adequately protect the subsidiaries of

18 such company which are insured depository institu19 tions from such risks;

20 ‘‘(2) the holding company has reasonable policies

21 and procedures to preserve the separate corporate

22 identity and limited liability of such company and

23 the subsidiaries of such company, for the protection of

24 the company’s subsidiary insured depository institu25 tions; and
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1 ‘‘(3) the holding company complies with this sec2 tion.

3 ‘‘(f) AUTHORITY TO RETAIN LIMITED NONFINANCIAL

4 ACTIVITIES AND AFFILIATIONS.—

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

6 4(a), a company that is not a bank holding company

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

8 International Banking Act of 1978) and becomes a fi9 nancial holding company after the date of the enact10 ment of the Financial Services Act of 1999 may con11 tinue to engage in any activity and retain direct or

12 indirect ownership or control of shares of a company

13 engaged in any activity if—

14 ‘‘(A) the holding company lawfully was en15 gaged in the activity or held the shares of such

16 company on September 30, 1997;

17 ‘‘(B) the holding company is predominantly

18 engaged in financial activities as defined in

19 paragraph (2); and

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

21 continues to engage only in the same activities

22 that such company conducted on September 30,

23 1997, and other activities permissible under this

24 Act.
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1 ‘‘(2) PREDOMINANTLY FINANCIAL.—For purposes

2 of this subsection, a company is predominantly en3 gaged in financial activities if the annual gross reve4 nues derived by the holding company and all subsidi5 aries of the holding company (excluding revenues de6 rived from subsidiary depository institutions), on a

7 consolidated basis, from engaging in activities that

8 are financial in nature or are incidental to activities

9 that are financial in nature under subsection (c) rep10 resent at least 85 percent of the consolidated annual

11 gross revenues of the company.

12 ‘‘(3) NO EXPANSION OF GRANDFATHERED COM13 MERCIAL ACTIVITIES THROUGH MERGER OR CONSOLI14 DATION.—A financial holding company that engages

15 in activities or holds shares pursuant to this sub16 section, or a subsidiary of such financial holding

17 company, may not acquire, in any merger, consolida18 tion, or other type of business combination, assets of

19 any other company which is engaged in any activity

20 which the Board has not determined to be financial

21 in nature or incidental to activities that are financial

22 in nature under subsection (c).

23 ‘‘(4) CONTINUING REVENUE LIMITATION ON

24 GRANDFATHERED COMMERCIAL ACTIVITIES.—Not25 withstanding any other provision of this subsection, a
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1 financial holding company may continue to engage in

2 activities or hold shares in companies pursuant to

3 this subsection only to the extent that the aggregate

4 annual gross revenues derived from all such activities

5 and all such companies does not exceed 15 percent of

6 the consolidated annual gross revenues of the finan7 cial holding company (excluding revenues derived

8 from subsidiary depository institutions).

9 ‘‘(5) CROSS MARKETING RESTRICTIONS APPLICA10 BLE TO COMMERCIAL ACTIVITIES.—A depository in11 stitution controlled by a financial holding company

12 shall not—

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

14 any arrangement, any product or service of a

15 company whose activities are conducted or whose

16 shares are owned or controlled by the financial

17 holding company pursuant to this subsection or

18 subparagraph (H) or (I) of subsection (c)(3); or

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

20 to be offered or marketed, directly or through any

21 arrangement, by or through any company de22 scribed in subparagraph (A).

23 ‘‘(6) TRANSACTIONS WITH NONFINANCIAL AFFILI24 ATES.—An insured depository institution controlled

25 by a financial holding company or wholesale finan-
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1 cial holding company may not engage in a covered

2 transaction (as defined by section 23A(b)(7) of the

3 Federal Reserve Act) with any affiliate controlled by

4 the company pursuant to section 10(c), this sub5 section, or subparagraph (H) or (I) of subsection

6 (c)(3).

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

8 holding company engaged in any activity, or retain9 ing direct or indirect ownership or control of shares

10 of a company, pursuant to this subsection, shall ter11 minate such activity and divest ownership or control

12 of the shares of such company before the end of the

13 10-year period beginning on the date of the enactment

14 of the Financial Services Act of 1999. The Board

15 may, upon application by a financial holding com16 pany, extend such 10-year period by a period not to

17 exceed an additional 5 years if such extension would

18 not be detrimental to the public interest.

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

20 company and a wholesale financial holding company may

21 engage directly or indirectly, or acquire shares of any com22 pany engaged, in any activity that the Board has not deter23 mined to be financial in nature or incidental to financial

24 activities under subsection (c) if—
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1 ‘‘(1) the holding company reasonably concludes

2 that the activity is financial in nature or incidental

3 to financial activities;

4 ‘‘(2) the gross revenues from all activities con5 ducted under this subsection represent less than 5 per6 cent of the consolidated gross revenues of the holding

7 company;

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

9 the shares of which are held under this subsection do

10 not exceed 5 percent of the holding company’s consoli11 dated total assets;

12 ‘‘(4) the total capital invested in activities con13 ducted under this subsection represents less than 5

14 percent of the consolidated total capital of the holding

15 company;

16 ‘‘(5) neither the Board nor the Secretary of the

17 Treasury has determined that the activity is not fi18 nancial in nature or incidental to financial activities

19 under subsection (c);

20 ‘‘(6) the holding company is not required to pro21 vide prior written notice of the transaction to the

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

23 ‘‘(7) the holding company provides written noti24 fication to the Board describing the activity com25 menced or conducted by the company acquired no
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1 later than 10 business days after commencing the ac2 tivity or consummating the acquisition.’’.

3 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec4 tion 4(j) of the Bank Holding Company Act of 1956 (12

5 U.S.C. 1843(j)) is amended—

6 (1) in paragraph (1)(A), by inserting ‘‘or in any

7 complementary activity under section 6(c)(1)(A)(ii)’’

8 after ‘‘subsection (c)(8) or (a)(2)’’; and

9 (2) in paragraph (3)—

10 (A) by inserting ‘‘, other than any com11 plementary activity under section

12 6(c)(1)(A)(ii),’’ after ‘‘to engage in any activ13 ity’’; and

14 (B) by inserting ‘‘or a company engaged in

15 any complementary activity under section

16 6(c)(1)(A)(ii)’’ after ‘‘insured depository institu17 tion’’.

18 (c) REPORT.—

19 (1) IN GENERAL.—By the end of the 4-year pe20 riod beginning on the date of the enactment of this

21 Act and every 4 years thereafter, the Board of Gov22 ernors of the Federal Reserve System and the Sec23 retary of the Treasury shall submit a joint report to

24 the Congress containing a summary of new activities

25 which are financial in nature, including grand-
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1 fathered commercial activities, in which any finan2 cial holding company is engaged pursuant to sub3 section (c)(1) or (f) of section 6 of the Bank Holding

4 Company Act of 1956 (as added by subsection (a)).

5 (2) OTHER CONTENTS.—Each report submitted

6 to the Congress pursuant to paragraph (1) shall also

7 contain the following:

8 (A) A discussion of actions by the Board of

9 Governors of the Federal Reserve System and the

10 Secretary of the Treasury, whether by regulation,

11 order, interpretation, or guideline or by approval

12 or disapproval of an application, with regard to

13 activities of financial holding companies which

14 are incidental to activities financial in nature or

15 complementary to such financial activities.

16 (B) An analysis and discussion of the risks

17 posed by commercial activities of financial hold18 ing companies to the safety and soundness of af19 filiate depository institutions.

20 (C) An analysis and discussion of the effect

21 of mergers and acquisitions under section 6 of

22 the Bank Holding Company Act of 1956 on mar23 ket concentration in the financial services indus24 try.
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1 (D) An analysis and discussion, by the

2 Board and the Secretary in consultation with

3 the other Federal banking agencies (as defined in

4 section 3(z) of the Federal Deposit Insurance

5 Act), of the impact of the implementation of this

6 Act, and the amendments made by this Act, on

7 the extent of meeting community credit needs

8 and capital availability under the Community

9 Reinvestment Act of 1977.

10 SEC. 104. OPERATION OF STATE LAW.

11 (a) AFFILIATIONS.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), no State may, by statute, regulation, order,

14 interpretation, or other action, prevent or restrict an

15 insured depository institution or wholesale financial

16 institution, or a subsidiary or affiliate thereof, from

17 being affiliated directly or indirectly or associated

18 with any person or entity, as authorized or permitted

19 by this Act or any other provision of Federal law.

20 (2) INSURANCE.—With respect to affiliations be21 tween insured depository institutions or wholesale fi22 nancial institutions, or any subsidiary or affiliate

23 thereof, and persons or entities engaged in the busi24 ness of insurance, paragraph (1) does not prohibit

25 any State from—
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1 (A) requiring any person or entity that pro2 poses to acquire control of an entity that is en3 gaged in the business of insurance and domiciled

4 in that State (hereafter in this subparagraph re5 ferred to as the ‘‘insurer’’) to furnish to the in6 surance regulatory authority of that State, not

7 later than 60 days before the effective date of the

8 proposed acquisition—

9 (i) the name and address of each per10 son by whom, or on whose behalf, the affili11 ation referred to in this subparagraph is to

12 be effected (hereafter in this subparagraph

13 referred to as the ‘‘acquiring party’’);

14 (ii) if the acquiring party is an indi15 vidual, his or her principal occupation and

16 all offices and positions held during the 5

17 years preceding the date of notification, and

18 any conviction of crimes other than minor

19 traffic violations during the 10 years pre20 ceding the date of notification;

21 (iii) if the acquiring party is not an

22 individual—

23 (I) a report of the nature of its

24 business operations during the 5 years

25 preceding the date of notification, or
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1 for such shorter period as such person

2 and any predecessors thereof shall have

3 been in existence;

4 (II) an informative description of

5 the business intended to be done by the

6 acquiring party and any subsidiary

7 thereof; and

8 (III) a list of all individuals who

9 are, or who have been selected to be10 come, directors or executive officers of

11 the acquiring party or who perform, or

12 will perform, functions appropriate to

13 such positions, including, for each such

14 individual, the information required

15 by clause (ii);

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

17 the consideration used, or to be used, in ef18 fecting the merger or other acquisition of

19 control, a description of any transaction

20 wherein funds were, or are to be, obtained

21 for any such purpose, and the identity of

22 persons furnishing such consideration, ex23 cept that, if a source of such consideration

24 is a loan made in the lender’s ordinary

25 course of business, the identity of the lender
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1 shall remain confidential if the person fil2 ing such statement so requests;

3 (v) fully audited financial information

4 as to the earnings and financial condition

5 of each acquiring party for the 5 fiscal

6 years preceding the date of notification of

7 each such acquiring party, or for such lesser

8 period as such acquiring party and any

9 predecessors thereof shall have been in exist10 ence, and similar unaudited information as

11 of a date not earlier than 90 days before the

12 date of notification, except that, in the case

13 of an acquiring party that is an insurer ac14 tively engaged in the business of insurance,

15 the financial statements of such insurer

16 need not be audited, but such audit may be

17 required if the need therefor is determined

18 by the insurance regulatory authority of the

19 State;

20 (vi) any plans or proposals that each

21 acquiring party may have to liquidate such

22 insurer, to sell its assets, or to merge or con23 solidate it with any person or to make any

24 other material change in its business or cor25 porate structure or management;
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1 (vii) the number of shares of any secu2 rity of the insurer that each acquiring

3 party proposes to acquire, the terms of any

4 offer, request, invitation, agreement, or ac5 quisition, and a statement as to the method

6 by which the fairness of the proposal was

7 arrived at;

8 (viii) the amount of each class of any

9 security of the insurer that is beneficially

10 owned or concerning which there is a right

11 to acquire beneficial ownership by each ac12 quiring party;

13 (ix) a full description of any contracts,

14 arrangements, or understandings with re15 spect to any security of the insurer in which

16 any acquiring party is involved, including

17 transfer of any of the securities, joint ven18 tures, loan or option arrangements, puts or

19 calls, guarantees of loans, guarantees

20 against loss or guarantees of profits, divi21 sion of losses or profits, or the giving or

22 withholding of proxies, and identification of

23 the persons with whom such contracts, ar24 rangements, or understandings have been

25 entered into;
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1 (x) a description of the purchase of

2 any security of the insurer during the 12-

3 month period preceding the date of notifica4 tion by any acquiring party, including the

5 dates of purchase, names of the purchasers,

6 and consideration paid, or agreed to be

7 paid, therefor;

8 (xi) a description of any recommenda9 tions to purchase any security of the insurer

10 made during the 12-month period preceding

11 the date of notification by any acquiring

12 party or by any person based upon inter13 views or at the suggestion of such acquiring

14 party;

15 (xii) copies of all tender offers for, re16 quests or invitations for tenders of, exchange

17 offers for and agreements to acquire or ex18 change any securities of the insurer and, if

19 distributed, of additional soliciting material

20 relating thereto; and

21 (xiii) the terms of any agreement, con22 tract, or understanding made with any

23 broker-dealer as to solicitation of securities

24 of the insurer for tender and the amount of

25 any fees, commissions, or other compensa-
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1 tion to be paid to broker-dealers with regard

2 thereto;

3 (B) requiring an entity that is acquiring

4 control of an entity that is engaged in the busi5 ness of insurance and domiciled in that State to

6 maintain or restore the capital requirements of

7 that insurance entity to the level required under

8 the capital regulations of general applicability

9 in that State to avoid the requirement of pre10 paring and filing with the insurance regulatory

11 authority of that State a plan to increase the

12 capital of the entity, except that any determina13 tion by the State insurance regulatory authority

14 with respect to such requirement shall be made

15 not later than 60 days after the date of notifica16 tion under subparagraph (A);

17 (C) taking actions with respect to the re18 ceivership or conservatorship of any insurance

19 company; or

20 (D) restricting a change in the ownership of

21 stock in an insurance company, or a company

22 formed for the purpose of controlling such insur23 ance company, for a period of not more than 3

24 years beginning on the date of the conversion of

25 such company from mutual to stock form.
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1 (3) PRESERVATION OF STATE ANTITRUST AND

2 GENERAL CORPORATE LAWS.—

3 (A) IN GENERAL.—Subject to subsection (c)

4 and the nondiscrimination provisions contained

5 in such subsection, no provision in paragraph

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

7 regulations, orders, interpretations, or other ac8 tions of general applicability relating to the gov9 ernance of corporations, partnerships, limited li10 ability companies or other business associations

11 incorporated or formed under the laws of that

12 State or domiciled in that State, or the applica13 bility of the antitrust laws of any State or any

14 State law that is similar to the antitrust laws.

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

16 laws’’ has the same meaning as in subsection (a)

17 of the first section of the Clayton Act, and in18 cludes section 5 of the Federal Trade Commis19 sion Act to the extent that such section 5 relates

20 to unfair methods of competition.

21 (b) ACTIVITIES.—

22 (1) IN GENERAL.—Except as provided in para23 graph (3), and except with respect to insurance sales,

24 solicitation, and cross marketing activities, which

25 shall be governed by paragraph (2), no State may, by
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1 statute, regulation, order, interpretation, or other ac2 tion, prevent or restrict an insured depository institu3 tion, wholesale financial institution, or subsidiary or

4 affiliate thereof from engaging directly or indirectly,

5 either by itself or in conjunction with a subsidiary,

6 affiliate, or any other entity or person, in any activ7 ity authorized or permitted under this Act.

8 (2) INSURANCE SALES.—

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

10 legal standards for preemption set forth in the

11 decision of the Supreme Court of the United

12 States in Barnett Bank of Marion County N.A.

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

14 by statute, regulation, order, interpretation, or

15 other action, prevent or significantly interfere

16 with the ability of an insured depository institu17 tion or wholesale financial institution, or a sub18 sidiary or affiliate thereof, to engage, directly or

19 indirectly, either by itself or in conjunction with

20 a subsidiary, affiliate, or any other party, in

21 any insurance sales, solicitation, or cross-mar22 keting activity.

23 (B) CERTAIN STATE LAWS PRESERVED.—

24 Notwithstanding subparagraph (A), a State may

25 impose any of the following restrictions, or re-
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1 strictions which are substantially the same as

2 but no more burdensome or restrictive than those

3 in each of the following clauses:

4 (i) Restrictions prohibiting the rejec5 tion of an insurance policy solely because

6 the policy has been issued or underwritten

7 by any person who is not associated with

8 such insured depository institution or

9 wholesale financial institution, or any sub10 sidiary or affiliate thereof, when such insur11 ance is required in connection with a loan

12 or extension of credit.

13 (ii) Restrictions prohibiting a require14 ment for any debtor, insurer, or insurance

15 agent or broker to pay a separate charge in

16 connection with the handling of insurance

17 that is required in connection with a loan

18 or other extension of credit or the provision

19 of another traditional banking product, un20 less such charge would be required when the

21 insured depository institution or wholesale

22 financial institution, or any subsidiary or

23 affiliate thereof, is the licensed insurance

24 agent or broker providing the insurance.
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1 (iii) Restrictions prohibiting the use of

2 any advertisement or other insurance pro3 motional material by an insured depository

4 institution or wholesale financial institu5 tion, or any subsidiary or affiliate thereof,

6 that would cause a reasonable person to be7 lieve mistakenly that—

8 (I) a State or the Federal Govern9 ment is responsible for the insurance

10 sales activities of, or stands behind the

11 credit of, the institution, affiliate, or

12 subsidiary; or

13 (II) a State, or the Federal Gov14 ernment guarantees any returns on in15 surance products, or is a source of pay16 ment on any insurance obligation of or

17 sold by the institution, affiliate, or

18 subsidiary;

19 (iv) Restrictions prohibiting the pay20 ment or receipt of any commission or bro21 kerage fee or other valuable consideration

22 for services as an insurance agent or broker

23 to or by any person, unless such person

24 holds a valid State license regarding the ap25 plicable class of insurance at the time at
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1 which the services are performed, except

2 that, in this clause, the term ‘‘services as an

3 insurance agent or broker’’ does not include

4 a referral by an unlicensed person of a cus5 tomer or potential customer to a licensed

6 insurance agent or broker that does not in7 clude a discussion of specific insurance pol8 icy terms and conditions.

9 (v) Restrictions prohibiting any com10 pensation paid to or received by any indi11 vidual who is not licensed to sell insurance,

12 for the referral of a customer that seeks to

13 purchase, or seeks an opinion or advice on,

14 any insurance product to a person that sells

15 or provides opinions or advice on such

16 product, based on the purchase of insurance

17 by the customer.

18 (vi) Restrictions prohibiting the release

19 of the insurance information of a customer

20 (defined as information concerning the pre21 miums, terms, and conditions of insurance

22 coverage, including expiration dates and

23 rates, and insurance claims of a customer

24 contained in the records of the insured de25 pository institution or wholesale financial
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1 institution, or a subsidiary or affiliate

2 thereof) to any person or entity other than

3 an officer, director, employee, agent, sub4 sidiary, or affiliate of an insured depository

5 institution or a wholesale financial institu6 tion, for the purpose of soliciting or selling

7 insurance, without the express consent of the

8 customer, other than a provision that

9 prohibits—

10 (I) a transfer of insurance infor11 mation to an unaffiliated insurance

12 company, agent, or broker in connec13 tion with transferring insurance in

14 force on existing insureds of the in15 sured depository institution or whole16 sale financial institution, or sub17 sidiary or affiliate thereof, or in con18 nection with a merger with or acquisi19 tion of an unaffiliated insurance com20 pany, agent, or broker; or

21 (II) the release of information as

22 otherwise authorized by State or Fed23 eral law.

24 (vii) Restrictions prohibiting the use of

25 health information obtained from the insur-
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1 ance records of a customer for any purpose,

2 other than for its activities as a licensed

3 agent or broker, without the express consent

4 of the customer.

5 (viii) Restrictions prohibiting the ex6 tension of credit or any product or service

7 that is equivalent to an extension of credit,

8 lease or sale of property of any kind, or fur9 nishing of any services or fixing or varying

10 the consideration for any of the foregoing,

11 on the condition or requirement that the

12 customer obtain insurance from the insured

13 depository institution, wholesale financial

14 institution, a subsidiary or affiliate thereof,

15 or a particular insurer, agent, or broker,

16 other than a prohibition that would prevent

17 any insured depository institution or whole18 sale financial institution, or any subsidiary

19 or affiliate thereof—

20 (I) from engaging in any activity

21 that would not violate section 106 of

22 the Bank Holding Company Act

23 Amendments of 1970, as interpreted by

24 the Board of Governors of the Federal

25 Reserve System; or
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1 (II) from informing a customer or

2 prospective customer that insurance is

3 required in order to obtain a loan or

4 credit, that loan or credit approval is

5 contingent upon the procurement by

6 the customer of acceptable insurance,

7 or that insurance is available from the

8 insured depository institution or

9 wholesale financial institution, or any

10 subsidiary or affiliate thereof.

11 (ix) Restrictions requiring, when an

12 application by a consumer for a loan or

13 other extension of credit from an insured

14 depository institution or wholesale financial

15 institution is pending, and insurance is of16 fered or sold to the consumer or is required

17 in connection with the loan or extension of

18 credit by the insured depository institution

19 or wholesale financial institution or any af20 filiate or subsidiary thereof, that a written

21 disclosure be provided to the consumer or

22 prospective customer indicating that his or

23 her choice of an insurance provider will not

24 affect the credit decision or credit terms in

25 any way, except that the insured depository
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1 institution or wholesale financial institu2 tion may impose reasonable requirements

3 concerning the creditworthiness of the insur4 ance provider and scope of coverage chosen.

5 (x) Restrictions requiring clear and

6 conspicuous disclosure, in writing, where

7 practicable, to the customer prior to the sale

8 of any insurance policy that such policy—

9 (I) is not a deposit;

10 (II) is not insured by the Federal

11 Deposit Insurance Corporation;

12 (III) is not guaranteed by the in13 sured depository institution or whole14 sale financial institution or, if appro15 priate, its subsidiaries or affiliates or

16 any person soliciting the purchase of

17 or selling insurance on the premises

18 thereof; and

19 (IV) where appropriate, involves

20 investment risk, including potential

21 loss of principal.

22 (xi) Restrictions requiring that, when

23 a customer obtains insurance (other than

24 credit insurance or flood insurance) and

25 credit from an insured depository institu-
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1 tion or wholesale financial institution, or

2 its subsidiaries or affiliates, or any person

3 soliciting the purchase of or selling insur4 ance on the premises thereof, the credit and

5 insurance transactions be completed through

6 separate documents.

7 (xii) Restrictions prohibiting, when a

8 customer obtains insurance (other than

9 credit insurance or flood insurance) and

10 credit from an insured depository institu11 tion or wholesale financial institution or its

12 subsidiaries or affiliates, or any person so13 liciting the purchase of or selling insurance

14 on the premises thereof, inclusion of the ex15 pense of insurance premiums in the pri16 mary credit transaction without the express

17 written consent of the customer.

18 (xiii) Restrictions requiring mainte19 nance of separate and distinct books and

20 records relating to insurance transactions,

21 including all files relating to and reflecting

22 consumer complaints, and requiring that

23 such insurance books and records be made

24 available to the appropriate State insurance
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1 regulator for inspection upon reasonable no2 tice.

3 (C) LIMITATIONS.—

4 (i) OCC DEFERENCE.—Section 306(e)

5 does not apply with respect to any State

6 statute, regulation, order, interpretation, or

7 other action regarding insurance sales, so8 licitation, or cross marketing activities de9 scribed in subparagraph (A) that was

10 issued, adopted, or enacted before September

11 3, 1998, and that is not described in sub12 paragraph (B).

13 (ii) NONDISCRIMINATION.—Subsection

14 (c) does not apply with respect to any State

15 statute, regulation, order, interpretation, or

16 other action regarding insurance sales, so17 licitation, or cross marketing activities de18 scribed in subparagraph (A) that was

19 issued, adopted, or enacted before September

20 3, 1998, and that is not described in sub21 paragraph (B).

22 (iii) CONSTRUCTION.—Nothing in this

23 paragraph shall be construed to limit the

24 applicability of the decision of the Supreme

25 Court in Barnett Bank of Marion County
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1 N.A. v. Nelson, 116 S. Ct. 1103 (1996) with

2 respect to a State statute, regulation, order,

3 interpretation, or other action that is not

4 described in subparagraph (B).

5 (iv) LIMITATION ON INFERENCES.—

6 Nothing in this paragraph shall be con7 strued to create any inference with respect

8 to any State statute, regulation, order, in9 terpretation, or other action that is not re10 ferred to or described in this paragraph.

11 (3) INSURANCE ACTIVITIES OTHER THAN

12 SALES.—State statutes, regulations, interpretations,

13 orders, and other actions shall not be preempted

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

15 (A) relate to, or are issued, adopted, or en16 acted for the purpose of regulating the business

17 of insurance in accordance with the Act of March

18 9, 1945 (commonly known as the ‘‘McCarran19 Ferguson Act’’);

20 (B) apply only to persons or entities that

21 are not insured depository institutions or whole22 sale financial institutions, but that are directly

23 engaged in the business of insurance (except that

24 they may apply to depository institutions en25 gaged in providing savings bank life insurance
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1 as principal to the extent of regulating such in2 surance);

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

4 regulate insurance sales, solicitations, or cross5 marketing activities; and

6 (D) are not prohibited under subsection (c).

7 (4) FINANCIAL ACTIVITIES OTHER THAN INSUR8 ANCE.—No State statute, regulation, interpretation,

9 order, or other action shall be preempted under sub10 section (b)(1) to the extent that—

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

12 and adopted, or enacted for the purpose of regu13 lating, directly or indirectly, insurance sales, so14 licitations, or cross marketing activities covered

15 under paragraph (2);

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

17 and adopted, or enacted for the purpose of regu18 lating, directly or indirectly, the business of in19 surance activities other than sales, solicitations,

20 or cross marketing activities, covered under

21 paragraph (3);

22 (C) it does not relate to securities investiga23 tions or enforcement actions referred to in sub24 section (d); and

25 (D) it—
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1 (i) does not distinguish by its terms be2 tween insured depository institutions,

3 wholesale financial institutions, and sub4 sidiaries and affiliates thereof engaged in

5 the activity at issue and other persons or

6 entities engaged in the same activity in a

7 manner that is in any way adverse with re8 spect to the conduct of the activity by any

9 such insured depository institution, whole10 sale financial institution, or subsidiary or

11 affiliate thereof engaged in the activity at

12 issue;

13 (ii) as interpreted or applied, does not

14 have, and will not have, an impact on de15 pository institutions, wholesale financial in16 stitutions, or subsidiaries or affiliates there17 of engaged in the activity at issue, or any

18 person or entity affiliated therewith, that is

19 substantially more adverse than its impact

20 on other persons or entities engaged in the

21 same activity that are not insured deposi22 tory institutions, wholesale financial insti23 tutions, or subsidiaries or affiliates thereof,

24 or persons or entities affiliated therewith;
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1 (iii) does not effectively prevent a de2 pository institution, wholesale financial in3 stitution, or subsidiary or affiliate thereof

4 from engaging in activities authorized or

5 permitted by this Act or any other provi6 sion of Federal law; and

7 (iv) does not conflict with the intent of

8 this Act generally to permit affiliations that

9 are authorized or permitted by Federal law.

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

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

12 by statute, regulation, order, interpretation, or other action,

13 regulate the insurance activities authorized or permitted

14 under this Act or any other provision of Federal law of an

15 insured depository institution or wholesale financial insti16 tution, or subsidiary or affiliate thereof, to the extent that

17 such statute, regulation, order, interpretation, or other

18 action—

19 (1) distinguishes by its terms between insured

20 depository institutions or wholesale financial institu21 tions, or subsidiaries or affiliates thereof, and other

22 persons or entities engaged in such activities, in a

23 manner that is in any way adverse to any such in24 sured depository institution or wholesale financial in25 stitution, or subsidiary or affiliate thereof;
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1 (2) as interpreted or applied, has or will have an

2 impact on depository institutions or wholesale finan3 cial institutions, or subsidiaries or affiliates thereof,

4 that is substantially more adverse than its impact on

5 other persons or entities providing the same products

6 or services or engaged in the same activities that are

7 not insured depository institutions, wholesale finan8 cial institutions, or subsidiaries or affiliates thereof,

9 or persons or entities affiliated therewith;

10 (3) effectively prevents a depository institution

11 or wholesale financial institution, or subsidiary or af12 filiate thereof, from engaging in insurance activities

13 authorized or permitted by this Act or any other pro14 vision of Federal law; or

15 (4) conflicts with the intent of this Act generally

16 to permit affiliations that are authorized or permitted

17 by Federal law between insured depository institu18 tions or wholesale financial institutions, or subsidi19 aries or affiliates thereof, and persons and entities en20 gaged in the business of insurance.

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

22 construed to affect the jurisdiction of the securities commis23 sion (or any agency or office performing like functions) of

24 any State, under the laws of such State, to investigate and

25 bring enforcement actions, consistent with section 18(c) of
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1 the Securities Act of 1933, with respect to fraud or deceit

2 or unlawful conduct by any person, in connection with se3 curities or securities transactions.

4 (e) DEFINITION.—For purposes of this section, the

5 term ‘‘State’’ means any State of the United States, the Dis6 trict of Columbia, any territory of the United States, Puerto

7 Rico, Guam, American Samoa, the Trust Territory of the

8 Pacific Islands, the Virgin Islands, and the Northern Mar9 iana Islands.

10 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR11 IZED.

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

13 1956 (12 U.S.C. 1842(g)(2)) is amended to read as follows:

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

15 organized as a mutual holding company shall be reg16 ulated on terms, and shall be subject to limitations,

17 comparable to those applicable to any other bank

18 holding company.’’.

19 SEC. 105A. PUBLIC MEETINGS FOR LARGE BANK ACQUISI20 TIONS AND MERGERS.

21 (a) BANK HOLDING COMPANY ACT OF 1956.—Section

22 3(c)(2) of the Bank Holding Company Act of 1956 (12

23 U.S.C. 1842(c)(2)) is amended—

24 (1) by striking ‘‘FACTORS.—In every case’’ and

25 inserting ‘‘FACTORS.—
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1 ‘‘(A) IN GENERAL.—In every case’’; and

2 (2) by adding at the end the following new sub3 paragraph:

4 ‘‘(B) PUBLIC MEETINGS.—In each case in5 volving 1 or more insured depository institutions

6 each of which has total assets of $1,000,000,000

7 or more, the Board shall, as necessary and on a

8 timely basis, conduct public meetings in 1 or

9 more areas where the Board believes there will be

10 a substantial public impact.’’.

11 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section

12 18(c) of the Federal Deposit Insurance Act (12 U.S.C.

13 1828(c)) is amended by adding at the end the following new

14 paragraph:

15 ‘‘(12) PUBLIC MEETINGS.—In each merger trans16 action involving 1 or more insured depository institu17 tions each of which has total assets of $1,000,000,000

18 or more, the responsible agency shall, as necessary

19 and on a timely basis, conduct public meetings in 1

20 or more areas where the agency believes there will be

21 a substantial public impact.’’.

22 (c) NATIONAL BANK CONSOLIDATION AND MERGER

23 ACT.—The National Bank Consolidation and Merger Act

24 (12 U.S.C. 215 et seq.) is amended by adding at the end

25 the following new section:
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1 ‘‘SEC. 6. PUBLIC MEETINGS FOR LARGE BANK CONSOLIDA2 TIONS AND MERGERS.

3 ‘‘In each case of a consolidation or merger under this

4 Act involving 1 or more banks each of which has total assets

5 of $1,000,000,000 or more, the Comptroller shall, as nec6 essary and on a timely basis, conduct public meetings in

7 1 or more areas where the Comptroller believes there will

8 be a substantial public impact.’’.

9 (d) HOME OWNERS’ LOAN ACT.—Section 10(e) of the

10 Home Owners’ Loan Act (12 U.S.C. 1463) is amended by

11 adding at the end the following new paragraph:

12 ‘‘(7) PUBLIC MEETINGS FOR LARGE DEPOSITORY

13 INSTITUTION ACQUISITIONS AND MERGERS.—In each

14 case involving 1 or more insured depository institu15 tions each of which has total assets of $1,000,000,000

16 or more, the Director shall, as necessary and on a

17 timely basis, conduct public meetings in 1 or more

18 areas where the Director believes there will be a sub19 stantial public impact.’’.

20 SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF21 FICES.

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

23 Interstate Banking and Branching Efficiency Act of 1994

24 (12 U.S.C. 1835a(d)) is amended—

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

26 1999,’’ after ‘‘pursuant to this title’’; and
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1 (2) by inserting ‘‘or such Act’’ after ‘‘made by

2 this title’’.

3 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec4 tion 109(e)(4) of the Riegle-Neal Interstate Banking and

5 Branching Efficiency Act of 1994 (12 U.S.C. 1835a(e)(4))

6 is amended by inserting ‘‘and any branch of a bank con7 trolled by an out-of-State bank holding company (as defined

8 in section 2(o)(7) of the Bank Holding Company Act of

9 1956)’’ before the period.

10 SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE11 MENTS.

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

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

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

15 company (as defined in section 2(o)(7) of the Bank Holding

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

17 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE

18 BANKS.

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

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

21 (1) in paragraph (2)(A)(ii)—

22 (A) by striking ‘‘and’’ at the end of sub23 clause (IX);

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

25 at the end of subclause (X); and
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1 (C) by inserting after subclause (X) the fol2 lowing new subclause:

3 ‘‘(XI) assets that are derived from,

4 or are incidental to, consumer lending

5 activities in which institutions de6 scribed in subparagraph (F) or (H) of

7 section 2(c)(2) are permitted to en8 gage,’’;

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

10 (B) and inserting the following new subparagraphs:

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

12 engages in any activity in which the bank was

13 not lawfully engaged as of March 5, 1987, unless

14 the bank is well managed and well capitalized;

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

16 both—

17 ‘‘(i) accepts demand deposits or depos18 its that the depositor may withdraw by

19 check or similar means for payment to

20 third parties; and

21 ‘‘(ii) engages in the business of making

22 commercial loans (and, for purposes of this

23 clause, loans made in the ordinary course of

24 a credit card operation shall not be treated

25 as commercial loans); or
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1 ‘‘(D) after the date of the enactment of the

2 Competitive Equality Amendments of 1987, any

3 bank subsidiary of such company permits any

4 overdraft (including any intraday overdraft), or

5 incurs any such overdraft in such bank’s account

6 at a Federal reserve bank, on behalf of an affil7 iate, other than an overdraft described in para8 graph (3).’’; and

9 (3) by striking paragraphs (3) and (4) and in10 serting the following new paragraphs:

11 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

12 For purposes of paragraph (2)(D), an overdraft is de13 scribed in this paragraph if—

14 ‘‘(A) such overdraft results from an inad15 vertent computer or accounting error that is be16 yond the control of both the bank and the affil17 iate;

18 ‘‘(B) such overdraft—

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

20 of an affiliate which is monitored by, re21 ports to, and is recognized as a primary

22 dealer by the Federal Reserve Bank of New

23 York; and

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

25 the Board, by bonds, notes, or other obliga-
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1 tions which are direct obligations of the

2 United States or on which the principal

3 and interest are fully guaranteed by the

4 United States or by securities and obliga5 tions eligible for settlement on the Federal

6 Reserve book entry system; or

7 ‘‘(C) such overdraft—

8 ‘‘(i) is incurred on behalf of an affil9 iate solely in connection with an activity

10 that is so closely related to banking, or

11 managing or controlling banks, as to be a

12 proper incident thereto, to the extent the

13 bank incurring the overdraft and the affil14 iate on whose behalf the overdraft is in15 curred each document that the overdraft is

16 incurred for such purpose; and

17 ‘‘(ii) does not cause the bank to violate

18 any provision of section 23A or 23B of the

19 Federal Reserve Act, either directly, in the

20 case of a member bank, or by virtue of sec21 tion 18(j) of the Federal Deposit Insurance

22 Act, in the case of a nonmember bank.

23 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EXEMP24 TION.—If any company described in paragraph (1)

25 fails to qualify for the exemption provided under such
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1 paragraph by operation of paragraph (2), such ex2 emption shall cease to apply to such company and

3 such company shall divest control of each bank it con4 trols before the end of the 180-day period beginning

5 on the date that the company receives notice from the

6 Board that the company has failed to continue to

7 qualify for such exemption, unless before the end of

8 such 180-day period, the company has—

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

10 activity that caused the company to fail to con11 tinue to qualify for the exemption; and

12 ‘‘(B) implemented procedures that are rea13 sonably adapted to avoid the reoccurrence of such

14 condition or activity.

15 The issuance of any notice under this paragraph that

16 relates to the activities of a bank shall not be con17 strued as affecting the authority of the bank to con18 tinue to engage in such activities until the expiration

19 of such 180-day period.’’.

20 (b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER21 DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com22 pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended

23 by inserting before the period at the end ‘‘, or that is other24 wise permissible for a bank controlled by a company de25 scribed in section 4(f)(1)’’.
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1 SEC. 109. REPORTS ON ONGOING FTC STUDY OF CONSUMER

2 PRIVACY ISSUES.

3 With respect to the ongoing multistage study being

4 conducted by the Federal Trade Commission on consumer

5 privacy issues, the Commission shall submit to the Congress

6 an interim report on the findings and conclusions of the

7 Commission, together with such recommendations for legis8 lative and administrative action as the Commission deter9 mines to be appropriate, at the conclusion of each stage of

10 such study and a final report at the conclusion of the study.

11 SEC. 110. GAO STUDY OF ECONOMIC IMPACT ON COMMU12 NITY BANKS AND OTHER SMALL FINANCIAL

13 INSTITUTIONS.

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

15 the United States shall conduct a study of the projected eco16 nomic impact that the enactment of this Act will have on

17 financial institutions which have total assets of

18 $100,000,000 or less.

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

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

21 Congress before the end of the 6-month period beginning on

22 the date of the date of the enactment of this Act containing

23 the findings and conclusions of the Comptroller General

24 with regard to the study required under subsection (a) and

25 such recommendations for legislative or administrative ac-
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1 tion as the Comptroller General may determine to be appro2 priate.

3 Subtitle B—Streamlining Super4 vision of Financial Holding

5 Companies

6 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY

7 SUPERVISION.

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

9 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

10 ‘‘(c) REPORTS AND EXAMINATIONS.—

11 ‘‘(1) REPORTS.—

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

13 time may require any bank holding company

14 and any subsidiary of such company to submit

15 reports under oath to keep the Board informed as

16 to—

17 ‘‘(i) its financial condition, systems for

18 monitoring and controlling financial and

19 operating risks, and transactions with de20 pository institution subsidiaries of the hold21 ing company; and

22 ‘‘(ii) compliance by the company or

23 subsidiary with applicable provisions of

24 this Act.

25 ‘‘(B) USE OF EXISTING REPORTS.—
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1 ‘‘(i) IN GENERAL.—The Board shall, to

2 the fullest extent possible, accept reports in

3 fulfillment of the Board’s reporting require4 ments under this paragraph that a bank

5 holding company or any subsidiary of such

6 company has provided or been required to

7 provide to other Federal and State super8 visors or to appropriate self-regulatory or9 ganizations.

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

11 company or a subsidiary of such company

12 shall provide to the Board, at the request of

13 the Board, a report referred to in clause (i).

14 ‘‘(iii) REQUIRED USE OF PUBLICLY

15 REPORTED INFORMATION.—The Board

16 shall, to the fullest extent possible, accept in

17 fulfillment of any reporting or record18 keeping requirements under this Act infor19 mation that is otherwise required to be re20 ported publicly and externally audited fi21 nancial statements.

22 ‘‘(iv) REPORTS FILED WITH OTHER

23 AGENCIES.—In the event the Board requires

24 a report from a functionally regulated non25 depository institution subsidiary of a bank
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1 holding company of a kind that is not re2 quired by another Federal or State regu3 lator or appropriate self-regulatory organi4 zation, the Board shall request that the ap5 propriate regulator or self-regulatory orga6 nization obtain such report. If the report is

7 not made available to the Board, and the

8 report is necessary to assess a material risk

9 to the bank holding company or any of its

10 subsidiary depository institutions or com11 pliance with this Act, the Board may re12 quire such subsidiary to provide such a re13 port to the Board.

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

15 subsection, the term ‘functionally regulated non16 depository institution’ means—

17 ‘‘(i) a broker or dealer registered under

18 the Securities Exchange Act of 1934;

19 ‘‘(ii) an investment adviser registered

20 under the Investment Advisers Act of 1940,

21 or with any State, with respect to the in22 vestment advisory activities of such invest23 ment adviser and activities incidental to

24 such investment advisory activities;
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1 ‘‘(iii) an insurance company subject to

2 supervision by a State insurance commis3 sion, agency, or similar authority; and

4 ‘‘(iv) an entity subject to regulation by

5 the Commodity Futures Trading Commis6 sion, with respect to the commodities activi7 ties of such entity and activities incidental

8 to such commodities activities.

9 ‘‘(2) EXAMINATIONS.—

10 ‘‘(A) EXAMINATION AUTHORITY.—

11 ‘‘(i) IN GENERAL.—The Board may

12 make examinations of each bank holding

13 company and each subsidiary of a bank

14 holding company.

15 ‘‘(ii) FUNCTIONALLY REGULATED NON16 DEPOSITORY INSTITUTION SUBSIDIARIES.—

17 Notwithstanding clause (i), the Board may

18 make examinations of a functionally regu19 lated nondepository institution subsidiary

20 of a bank holding company only if—

21 ‘‘(I) the Board has reasonable

22 cause to believe that such subsidiary is

23 engaged in activities that pose a mate24 rial risk to an affiliated depository in25 stitution, or
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1 ‘‘(II) based on reports and other

2 available information, the Board has

3 reasonable cause to believe that a sub4 sidiary is not in compliance with this

5 Act or with provisions relating to

6 transactions with an affiliated deposi7 tory institution and the Board cannot

8 make such determination through ex9 amination of the affiliated depository

10 institution or bank holding company.

11 ‘‘(B) LIMITATIONS ON EXAMINATION AU12 THORITY FOR BANK HOLDING COMPANIES AND

13 SUBSIDIARIES.—Subject to subparagraph (A)(ii),

14 the Board may make examinations under sub15 paragraph (A)(i) of each bank holding company

16 and each subsidiary of such holding company in

17 order to—

18 ‘‘(i) inform the Board of the nature of

19 the operations and financial condition of

20 the holding company and such subsidiaries;

21 ‘‘(ii) inform the Board of—

22 ‘‘(I) the financial and operational

23 risks within the holding company sys24 tem that may pose a threat to the safe25 ty and soundness of any subsidiary de-
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1 pository institution of such holding

2 company; and

3 ‘‘(II) the systems for monitoring

4 and controlling such risks; and

5 ‘‘(iii) monitor compliance with the

6 provisions of this Act and those governing

7 transactions and relationships between any

8 subsidiary depository institution and its af9 filiates.

10 ‘‘(C) RESTRICTED FOCUS OF EXAMINA11 TIONS.—The Board shall, to the fullest extent

12 possible, limit the focus and scope of any exam13 ination of a bank holding company to—

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

15 ‘‘(ii) any subsidiary of the holding

16 company that, because of—

17 ‘‘(I) the size, condition, or activi18 ties of the subsidiary; or

19 ‘‘(II) the nature or size of trans20 actions between such subsidiary and

21 any depository institution which is

22 also a subsidiary of such holding com23 pany,
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1 could have a materially adverse effect on the

2 safety and soundness of any depository in3 stitution affiliate of the holding company.

4 ‘‘(D) DEFERENCE TO BANK EXAMINA5 TIONS.—The Board shall, to the fullest extent

6 possible, use, for the purposes of this paragraph,

7 the reports of examinations of depository institu8 tions made by the appropriate Federal and State

9 depository institution supervisory authority.

10 ‘‘(E) DEFERENCE TO OTHER EXAMINA11 TIONS.—The Board shall, to the fullest extent

12 possible, address the circumstances which might

13 otherwise permit or require an examination by

14 the Board by forgoing an examination and in15 stead reviewing the reports of examination made

16 of—

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

18 or on behalf of the Securities and Exchange

19 Commission;

20 ‘‘(ii) any registered investment adviser

21 properly registered by or on behalf of either

22 the Securities and Exchange Commission or

23 any State;

24 ‘‘(iii) any licensed insurance company

25 by or on behalf of any state regulatory au-
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1 thority responsible for the supervision of in2 surance companies; and

3 ‘‘(iv) any other subsidiary that the

4 Board finds to be comprehensively super5 vised by a Federal or State authority.

6 ‘‘(3) CAPITAL.—

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

8 regulation, guideline, order or otherwise, pre9 scribe or impose any capital or capital adequacy

10 rules, guidelines, standards, or requirements on

11 any subsidiary of a financial holding company

12 that is not a depository institution and—

13 ‘‘(i) is in compliance with applicable

14 capital requirements of another Federal reg15 ulatory authority (including the Securities

16 and Exchange Commission) or State insur17 ance authority; or

18 ‘‘(ii) is properly registered as an in19 vestment adviser under the Investment Ad20 visers Act of 1940, or with any State.

21 ‘‘(B) RULE OF CONSTRUCTION.—Subpara22 graph (A) shall not be construed as preventing

23 the Board from imposing capital or capital ade24 quacy rules, guidelines, standards, or require25 ments with respect to activities of a registered
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1 investment adviser other than investment advi2 sory activities or activities incidental to invest3 ment advisory activities.

4 ‘‘(C) LIMITATIONS ON INDIRECT ACTION.—

5 In developing, establishing, or assessing holding

6 company capital or capital adequacy rules,

7 guidelines, standards, or requirements for pur8 poses of this paragraph, the Board shall not take

9 into account the activities, operations, or invest10 ments of an affiliated investment company reg11 istered under the Investment Company Act of

12 1940, if the investment company is not—

13 ‘‘(i) a bank holding company; or

14 ‘‘(ii) controlled by a bank holding com15 pany by reason of ownership by the bank

16 holding company (including through all of

17 its affiliates) of 25 percent or more of the

18 shares of the investment company, where the

19 shares owned by the bank holding company

20 have a market value equal to more than

21 $1,000,000.

22 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP23 PROPRIATE FEDERAL BANKING AGENCY.—

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

25 holding company which is not significantly en-
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1 gaged in nonbanking activities, the Board, in

2 consultation with the appropriate Federal bank3 ing agency, may designate the appropriate Fed4 eral banking agency of the lead insured deposi5 tory institution subsidiary of such holding com6 pany as the appropriate Federal banking agency

7 for the bank holding company.

8 ‘‘(B) AUTHORITY TRANSFERRED.—An agen9 cy designated by the Board under subparagraph

10 (A) shall have the same authority as the Board

11 under this Act to—

12 ‘‘(i) examine and require reports from

13 the bank holding company and any affiliate

14 of such company (other than a depository

15 institution) under section 5;

16 ‘‘(ii) approve or disapprove applica17 tions or transactions under section 3;

18 ‘‘(iii) take actions and impose pen19 alties under subsections (e) and (f) of sec20 tion 5 and section 8; and

21 ‘‘(iv) take actions regarding the hold22 ing company, any affiliate of the holding

23 company (other than a depository institu24 tion), or any institution-affiliated party of

25 such company or affiliate under the Federal
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1 Deposit Insurance Act and any other stat2 ute which the Board may designate.

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

4 Act and section 105 of the Bank Holding Com5 pany Act Amendments of 1970 shall apply to or6 ders issued by an agency designated under sub7 paragraph (A) in the same manner such sections

8 apply to orders issued by the Board.

9 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

10 AND INSURANCE ACTIVITIES.—The Board shall defer

11 to—

12 ‘‘(A) the Securities and Exchange Commis13 sion with regard to all interpretations of, and

14 the enforcement of, applicable Federal securities

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

16 directives issued thereunder) relating to the ac17 tivities, conduct, and operations of registered

18 brokers, dealers, investment advisers, and invest19 ment companies;

20 ‘‘(B) the relevant State securities authorities

21 with regard to all interpretations of, and the en22 forcement of, applicable State securities laws

23 (and rules, regulations, orders, and other direc24 tives issued thereunder) relating to the activities,
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1 conduct, and operations of registered brokers,

2 dealers, and investment advisers; and

3 ‘‘(C) the relevant State insurance authori4 ties with regard to all interpretations of, and the

5 enforcement of, applicable State insurance laws

6 (and rules, regulations, orders, and other direc7 tives issued thereunder) relating to the activities,

8 conduct, and operations of insurance companies

9 and insurance agents.’’.

10 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT

11 FOR FINANCIAL HOLDING COMPANIES.

12 (a) PREVENTION OF DUPLICATIVE FILINGS.—Section

13 5(a) of the Bank Holding Company Act of 1956 (12 U.S.C.

14 1844(a)) is amended by adding the following new sentence

15 at the end: ‘‘A declaration filed in accordance with section

16 6(b)(1)(E) shall satisfy the requirements of this subsection

17 with regard to the registration of a bank holding company

18 but not any requirement to file an application to acquire

19 a bank pursuant to section 3.’’.

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

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

22 1844(e)(1)) is amended—

23 (1) by striking ‘‘Financial Institutions Super24 visory Act of 1966, order’’ and inserting ‘‘Financial
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1 Institutions Supervisory Act of 1966, at the election

2 of the bank holding company—

3 ‘‘(A) order’’; and

4 (2) by striking ‘‘shareholders of the bank holding

5 company. Such distribution’’ and inserting ‘‘share6 holders of the bank holding company; or

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

8 notice and opportunity for hearing, and after con9 sultation with the primary supervisor for the bank,

10 which shall be the Comptroller of the Currency in the

11 case of a national bank, and the Federal Deposit In12 surance Corporation and the appropriate State super13 visor in the case of an insured nonmember bank, to

14 terminate (within 120 days or such longer period as

15 the Board may direct) the ownership or control of

16 any such bank by such company.

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

18 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR

19 AND SECURITIES AND EXCHANGE COMMIS20 SION.

21 Section 5 of the Bank Holding Company Act of 1956

22 (12 U.S.C. 1844) is amended by adding at the end the fol23 lowing new subsection:

24 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

25 AND THE SECURITIES AND EXCHANGE COMMISSION.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding any other

2 provision of law, any regulation, order, or other ac3 tion of the Board which requires a bank holding com4 pany to provide funds or other assets to a subsidiary

5 insured depository institution shall not be effective

6 nor enforceable if—

7 ‘‘(A) such funds or assets are to be provided

8 by—

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

10 an insurance company or is a broker or

11 dealer registered under the Securities Ex12 change Act of 1934; or

13 ‘‘(ii) an affiliate of the depository in14 stitution which is an insurance company or

15 a broker or dealer registered under such Act;

16 and

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

18 insurance company or the Securities and Ex19 change Commission for the registered broker or

20 dealer, as the case may be, determines in writing

21 sent to the holding company and the Board that

22 the holding company shall not provide such

23 funds or assets because such action would have

24 a material adverse effect on the financial condi-
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1 tion of the insurance company or the broker or

2 dealer, as the case may be.

3 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

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

5 holding company, or an affiliate of a bank holding

6 company, which is an insurance company or a broker

7 or dealer described in paragraph (1)(A) to provide

8 funds or assets to an insured depository institution

9 subsidiary of the holding company pursuant to any

10 regulation, order, or other action of the Board referred

11 to in paragraph (1), the Board shall promptly notify

12 the State insurance authority for the insurance com13 pany or the Securities and Exchange Commission, as

14 the case may be, of such requirement.

15 ‘‘(3) DIVESTITURE IN LIEU OF OTHER ACTION.—

16 If the Board receives a notice described in paragraph

17 (1)(B) from a State insurance authority or the Secu18 rities and Exchange Commission with regard to a

19 bank holding company or affiliate referred to in that

20 paragraph, the Board may order the bank holding

21 company to divest the insured depository institution

22 not later than 180 days after receiving the notice, or

23 such longer period as the Board determines consistent

24 with the safe and sound operation of the insured de25 pository institution.
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1 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur2 ing the period beginning on the date an order to di3 vest is issued by the Board under paragraph (3) to

4 a bank holding company and ending on the date the

5 divestiture is completed, the Board may impose any

6 conditions or restrictions on the holding company’s

7 ownership or operation of the insured depository in8 stitution, including restricting or prohibiting trans9 actions between the insured depository institution and

10 any affiliate of the institution, as are appropriate

11 under the circumstances.’’.

12 SEC. 114. PRUDENTIAL SAFEGUARDS.

13 (a) COMPTROLLER OF THE CURRENCY.—

14 (1) IN GENERAL.—The Comptroller of the Cur15 rency may, by regulation or order, impose restrictions

16 or requirements on relationships or transactions be17 tween a national bank and a subsidiary of the na18 tional bank which the Comptroller finds are con19 sistent with the public interest, the purposes of this

20 Act, title LXII of the Revised Statutes of the United

21 States, and other Federal law applicable to national

22 banks, and the standards in paragraph (2).

23 (2) STANDARDS.—The Comptroller of the Cur24 rency may exercise authority under paragraph (1) if
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1 the Comptroller finds that such action will have any

2 of the following effects:

3 (A) Avoid any significant risk to the safety

4 and soundness of depository institutions or any

5 Federal deposit insurance fund.

6 (B) Enhance the financial stability of

7 banks.

8 (C) Avoid conflicts of interest or other

9 abuses.

10 (D) Enhance the privacy of customers of the

11 national bank or any subsidiary of the bank.

12 (E) Promote the application of national

13 treatment and equality of competitive oppor14 tunity between subsidiaries owned or controlled

15 by domestic banks and subsidiaries owned or

16 controlled by foreign banks operating in the

17 United States.

18 (3) REVIEW.—The Comptroller of the Currency

19 shall regularly—

20 (A) review all restrictions or requirements

21 established pursuant to paragraph (1) to deter22 mine whether there is a continuing need for any

23 such restriction or requirement to carry out the

24 purposes of the Act, including any purpose de25 scribed in paragraph (2); and
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1 (B) modify or eliminate any restriction or

2 requirement the Comptroller finds is no longer

3 required for such purposes.

4 (b) BOARD OF GOVERNORS OF THE FEDERAL RE5 SERVE SYSTEM.—

6 (1) IN GENERAL.—The Board of Governors of the

7 Federal Reserve System may, by regulation or order,

8 impose restrictions or requirements on relationships

9 or transactions—

10 (A) between a depository institution sub11 sidiary of a bank holding company and any af12 filiate of such depository institution (other than

13 a subsidiary of such institution); or

14 (B) between a State member bank and a

15 subsidiary of such bank,

16 which the Board finds are consistent with the public

17 interest, the purposes of this Act, the Bank Holding

18 Company Act of 1956, the Federal Reserve Act, and

19 other Federal law applicable to depository institution

20 subsidiaries of bank holding companies or State banks

21 (as the case may be), and the standards in paragraph

22 (2).

23 (2) STANDARDS.—The Board of Governors of the

24 Federal Reserve System may exercise authority under
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1 paragraph (1) if the Board finds that such action will

2 have any of the following effects:

3 (A) Avoid any significant risk to the safety

4 and soundness of depository institutions or any

5 Federal deposit insurance fund.

6 (B) Enhance the financial stability of bank

7 holding companies.

8 (C) Avoid conflicts of interest or other

9 abuses.

10 (D) Enhance the privacy of customers of the

11 State member bank or any subsidiary of the

12 bank.

13 (E) Promote the application of national

14 treatment and equality of competitive oppor15 tunity between nonbank affiliates owned or con16 trolled by domestic bank holding companies and

17 nonbank affiliates owned or controlled by foreign

18 banks operating in the United States.

19 (3) REVIEW.—The Board of Governors of the

20 Federal Reserve System shall regularly—

21 (A) review all restrictions or requirements

22 established pursuant to paragraph (1) to deter23 mine whether there is a continuing need for any

24 such restriction or requirement to carry out the
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1 purposes of the Act, including any purpose de2 scribed in paragraph (2); and

3 (B) modify or eliminate any restriction or

4 requirement the Board finds is no longer re5 quired for such purposes.

6 (4) FOREIGN BANKS.—

7 (A) IN GENERAL.—The Board may, by reg8 ulation or order, impose restrictions or require9 ments on relationships or transactions between a

10 branch, agency, or commercial lending company

11 of a foreign bank in the United States and any

12 affiliate in the United States of such foreign

13 bank that the Board finds are consistent with the

14 public interest, the purposes of this Act, the

15 Bank Holding Company Act of 1956, the Federal

16 Reserve Act, and other Federal law applicable to

17 foreign banks and their affiliates in the United

18 States, and the standards in paragraphs (2) and

19 (3).

20 (B) EVASION.—In the event that the Board

21 determines that there may be circumstances that

22 would result in an evasion of this paragraph, the

23 Board may also impose restrictions or require24 ments on relationships or transactions between

25 operations of a foreign bank outside the United
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1 States and any affiliate in the United States of

2 such foreign bank that are consistent with na3 tional treatment and equality of competitive op4 portunity.

5 (c) FEDERAL DEPOSIT INSURANCE CORPORATION.—

6 (1) IN GENERAL.—The Federal Deposit Insur7 ance Corporation may, by regulation or order, impose

8 restrictions or requirements on relationships or trans9 actions between a State nonmember bank (as defined

10 in section 3 of the Federal Deposit Insurance Act)

11 and a subsidiary of the State nonmember bank which

12 the Corporation finds are consistent with the public

13 interest, the purposes of this Act, the Federal Deposit

14 Insurance Act, or other Federal law applicable to

15 State nonmember banks and the standards in para16 graph (2).

17 (2) STANDARDS.—The Federal Deposit Insurance

18 Corporation may exercise authority under paragraph

19 (1) if the Corporation finds that such action will have

20 any of the following effects:

21 (A) Avoid any significant risk to the safety

22 and soundness of depository institutions or any

23 Federal deposit insurance fund.

24 (B) Enhance the financial stability of

25 banks.
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1 (C) Avoid conflicts of interest or other

2 abuses.

3 (D) Enhance the privacy of customers of the

4 State nonmember bank or any subsidiary of the

5 bank.

6 (E) Promote the application of national

7 treatment and equality of competitive oppor8 tunity between subsidiaries owned or controlled

9 by domestic banks and subsidiaries owned or

10 controlled by foreign banks operating in the

11 United States.

12 (3) REVIEW.—The Federal Deposit Insurance

13 Corporation shall regularly—

14 (A) review all restrictions or requirements

15 established pursuant to paragraph (1) to deter16 mine whether there is a continuing need for any

17 such restriction or requirement to carry out the

18 purposes of the Act, including any purpose de19 scribed in paragraph (2); and

20 (B) modify or eliminate any restriction or

21 requirement the Corporation finds is no longer

22 required for such purposes.

23 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

24 (a) EXCLUSIVE COMMISSION AUTHORITY.—
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1 (1) IN GENERAL.—Except as provided in para2 graphs (3), (4), and (5), the Commission shall be the

3 sole Federal agency with authority to inspect and ex4 amine any registered investment company that is not

5 a bank holding company or a savings and loan hold6 ing company.

7 (2) PROHIBITION ON BANKING AGENCIES.—Ex8 cept as provided in paragraph (3), a Federal banking

9 agency may not inspect or examine any registered in10 vestment company that is not a bank holding com11 pany or a savings and loan holding company.

12 (3) CERTAIN EXAMINATIONS AUTHORIZED.—

13 Nothing in this subsection prevents the Federal De14 posit Insurance Corporation, if the Corporation finds

15 it necessary to determine the condition of an insured

16 depository institution for insurance purposes, from

17 examining an affiliate of any insured depository in18 stitution, pursuant to its authority under section

19 10(b)(4) of the Federal Deposit Insurance Act, as may

20 be necessary to disclose fully the relationship between

21 the depository institution and the affiliate, and the ef22 fect of such relationship on the depository institution.

23 (4) OTS REVIEW OF SAVINGS ASSOCIATIONS.—

24 No provision of this section shall be construed as pre25 venting the Director of the Office of Thrift Super-
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1 vision, where the Director finds it reasonably nec2 essary to determine the financial condition of a sav3 ings association, from examining or requiring reports

4 from an affiliate, service company, or subsidiary of

5 any such savings association pursuant to section 5(d)

6 of the Home Owners’ Loan Act, solely for the purposes

7 of disclosing fully the transactions or relationships be8 tween such association and such entities and their ef9 fect on the financial condition of the association.

10 (5) OCC REVIEW OF NATIONAL BANKS.—No pro11 vision of this section shall be construed as preventing

12 the Comptroller of the Currency, where the Comp13 troller finds it reasonably necessary to determine the

14 financial condition of a national bank, from exam15 ining or requiring reports from an affiliate, service

16 company, or subsidiary of any such national bank

17 pursuant to section 5240 of the Revised Statutes, sole18 ly for the purposes of disclosing fully the transactions

19 or relationships between such national bank and such

20 entities and their effect on the financial condition of

21 the national bank.

22 (b) EXAMINATION RESULTS AND OTHER INFORMA23 TION.—The Commission shall provide to any Federal bank24 ing agency, upon request, the results of any examination,

25 reports, records, or other information with respect to any
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1 registered investment company to the extent necessary for

2 the agency to carry out its statutory responsibilities.

3 (c) DEFINITIONS.—For purposes of this section, the fol4 lowing definitions shall apply:

5 (1) BANK HOLDING COMPANY.—The term ‘‘bank

6 holding company’’ has the same meaning as in sec7 tion 2 of the Bank Holding Company Act of 1956.

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

9 means the Securities and Exchange Commission.

10 (3) FEDERAL BANKING AGENCY.—The term

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

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

13 (4) REGISTERED INVESTMENT COMPANY.—The

14 term ‘‘registered investment company’’ means an in15 vestment company which is registered with the Com16 mission under the Investment Company Act of 1940.

17 (5) SAVINGS AND LOAN HOLDING COMPANY.—The

18 term ‘‘savings and loan holding company’’ has the

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

20 Owners’ Loan Act.
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1 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU2 PERVISORY, AND ENFORCEMENT AUTHORITY

3 OF THE BOARD.

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

5 1841 et seq.) is amended by inserting after section 10 the

6 following new section:

7 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU8 PERVISORY, AND ENFORCEMENT AUTHORITY

9 OF THE BOARD.

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

11 ‘‘(1) IN GENERAL.—The Board may not pre12 scribe regulations, issue or seek entry of orders, im13 pose restraints, restrictions, guidelines, requirements,

14 safeguards, or standards, or otherwise take any action

15 under or pursuant to any provision of this Act or sec16 tion 8 of the Federal Deposit Insurance Act against

17 or with respect to a regulated subsidiary of a bank

18 holding company unless the action is necessary to

19 prevent or redress an unsafe or unsound practice or

20 breach of fiduciary duty by such subsidiary that poses

21 a material risk to—

22 ‘‘(A) the financial safety, soundness, or sta23 bility of an affiliated depository institution; or

24 ‘‘(B) the domestic or international payment

25 system.
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1 ‘‘(2) CRITERIA FOR BOARD ACTION.—The Board

2 shall not take action otherwise permitted under para3 graph (1) unless the Board finds that it is not reason4 ably possible to effectively protect against the material

5 risk at issue through action directed at or against the

6 affiliated depository institution or against depository

7 institutions generally.

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

9 may not prescribe regulations, issue or seek entry of orders,

10 impose restraints, restrictions, guidelines, requirements,

11 safeguards, or standards, or otherwise take any action

12 under or pursuant to any provision of this Act or section

13 8 of the Federal Deposit Insurance Act against or with re14 spect to a financial holding company or a wholesale finan15 cial holding company where the purpose or effect of doing

16 so would be to take action indirectly against or with respect

17 to a regulated subsidiary that may not be taken directly

18 against or with respect to such subsidiary in accordance

19 with subsection (a).

20 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Notwith21 standing subsection (a), the Board may take action under

22 this Act or section 8 of the Federal Deposit Insurance Act

23 to enforce compliance by a regulated subsidiary with Fed24 eral law that the Board has specific jurisdiction to enforce

25 against such subsidiary.
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1 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur2 poses of this section, the term ‘regulated subsidiary’ means

3 any company that is not a bank holding company and is—

4 ‘‘(1) a broker or dealer registered under the Secu5 rities Exchange Act of 1934;

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

7 registered by or on behalf of either the Securities and

8 Exchange Commission or any State, with respect to

9 the investment advisory activities of such investment

10 adviser and activities incidental to such investment

11 advisory activities;

12 ‘‘(3) an investment company registered under the

13 Investment Company Act of 1940;

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

15 agency subject to supervision by a State insurance

16 commission, agency, or similar authority; or

17 ‘‘(5) an entity subject to regulation by the Com18 modity Futures Trading Commission, with respect to

19 the commodities activities of such entity and activi20 ties incidental to such commodities activities.’’.

21 SEC. 117. INTERAGENCY CONSULTATION.

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

23 Board of Governors of the Federal Reserve System, as the

24 umbrella supervisor for financial holding companies, and

25 the State insurance regulators, as the functional regulators
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1 of companies engaged in insurance activities, coordinate ef2 forts to supervise companies that control both a depository

3 institution and a company engaged in insurance activities

4 regulated under State law. In particular, Congress believes

5 that the Board and the State insurance regulators should

6 share, on a confidential basis, information relevant to the

7 supervision of companies that control both a depository in8 stitution and a company engaged in insurance activities,

9 including information regarding the financial health of the

10 consolidated organization and information regarding trans11 actions and relationships between insurance companies and

12 affiliated depository institutions. The appropriate Federal

13 banking agencies for depository institutions should also

14 share, on a confidential basis, information with the relevant

15 State insurance regulators regarding transactions and rela16 tionships between depository institutions and affiliated

17 companies engaged in insurance activities. The purpose of

18 this section is to encourage this coordination and confiden19 tial sharing of information, and to thereby improve both

20 the efficiency and the quality of the supervision of financial

21 holding companies and their affiliated depository institu22 tions and companies engaged in insurance activities.

23 (b) EXAMINATION RESULTS AND OTHER INFORMA24 TION.—
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1 (1) INFORMATION OF THE BOARD.—Upon the re2 quest of the appropriate insurance regulator of any

3 State, the Board may provide any information of the

4 Board regarding the financial condition, risk man5 agement policies, and operations of any financial

6 holding company that controls a company that is en7 gaged in insurance activities and is regulated by such

8 State insurance regulator, and regarding any trans9 action or relationship between such an insurance

10 company and any affiliated depository institution.

11 The Board may provide any other information to the

12 appropriate State insurance regulator that the Board

13 believes is necessary or appropriate to permit the

14 State insurance regulator to administer and enforce

15 applicable State insurance laws.

16 (2) BANKING AGENCY INFORMATION.—Upon the

17 request of the appropriate insurance regulator of any

18 State, the appropriate Federal banking agency may

19 provide any information of the agency regarding any

20 transaction or relationship between a depository in21 stitution supervised by such Federal banking agency

22 and any affiliated company that is engaged in insur23 ance activities regulated by such State insurance reg24 ulator. The appropriate Federal banking agency may

25 provide any other information to the appropriate
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1 State insurance regulator that the agency believes is

2 necessary or appropriate to permit the State insur3 ance regulator to administer and enforce applicable

4 State insurance laws.

5 (3) STATE INSURANCE REGULATOR INFORMA6 TION.—Upon the request of the Board or the appro7 priate Federal banking agency, a State insurance reg8 ulator may provide any examination or other reports,

9 records, or other information to which such insurance

10 regulator may have access with respect to a company

11 which—

12 (A) is engaged in insurance activities and

13 regulated by such insurance regulator; and

14 (B) is an affiliate of an insured depository

15 institution, wholesale financial institution, or fi16 nancial holding company.

17 (c) CONSULTATION.—Before making any determina18 tion relating to the initial affiliation of, or the continuing

19 affiliation of, an insured depository institution, wholesale

20 financial institution, or financial holding company with

21 a company engaged in insurance activities, the appropriate

22 Federal banking agency shall consult with the appropriate

23 State insurance regulator of such company and take the

24 views of such insurance regulator into account in making

25 such determination.
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1 (d) EFFECT ON OTHER AUTHORITY.—Nothing in this

2 section shall limit in any respect the authority of the appro3 priate Federal banking agency with respect to an insured

4 depository institution, wholesale financial institution, or

5 bank holding company or any affiliate thereof under any

6 provision of law.

7 (e) CONFIDENTIALITY AND PRIVILEGE.—

8 (1) CONFIDENTIALITY.—The appropriate Federal

9 banking agency shall not provide any information or

10 material that is entitled to confidential treatment

11 under applicable Federal banking agency regulations,

12 or other applicable law, to a State insurance regu13 lator unless such regulator agrees to maintain the in14 formation or material in confidence and to take all

15 reasonable steps to oppose any effort to secure disclo16 sure of the information or material by the regulator.

17 The appropriate Federal banking agency shall treat

18 as confidential any information or material obtained

19 from a State insurance regulator that is entitled to

20 confidential treatment under applicable State regula21 tions, or other applicable law, and take all reasonable

22 steps to oppose any effort to secure disclosure of the

23 information or material by the Federal banking agen24 cy.
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1 (2) PRIVILEGE.—The provision pursuant to this

2 section of information or material by a Federal bank3 ing agency or State insurance regulator shall not con4 stitute a waiver of, or otherwise affect, any privilege

5 to which the information or material is otherwise sub6 ject.

7 (f) DEFINITIONS.—For purposes of this section, the fol8 lowing definitions shall apply:

9 (1) APPROPRIATE FEDERAL BANKING AGENCY;

10 INSURED DEPOSITORY INSTITUTION.—The terms ‘‘ap11 propriate Federal banking agency’’ and ‘‘insured de12 pository institution’’ have the same meanings as in

13 section 3 of the Federal Deposit Insurance Act.

14 (2) BOARD; FINANCIAL HOLDING COMPANY; AND

15 WHOLESALE FINANCIAL INSTITUTION.—The terms

16 ‘‘Board’’, ‘‘financial holding company’’, and ‘‘whole17 sale financial institution’’ have the same meanings as

18 in section 2 of the Bank Holding Company Act of

19 1956.

20 SEC. 118. EQUIVALENT REGULATION AND SUPERVISION.

21 (a) IN GENERAL.—Notwithstanding any other provi22 sion of law, the provisions of—

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

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

25 authority of the Board of Governors of the Federal
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1 Reserve System to require reports from, to make ex2 aminations of, or to impose capital requirements on

3 bank holding companies and their nonbank subsidi4 aries or that require deference to other regulators; and

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

6 Act of 1956 (as added by this Act) that limit what7 ever authority the Board might otherwise have to take

8 direct or indirect action with respect to bank holding

9 companies and their nonbank subsidiaries,

10 shall also limit whatever authority that a Federal banking

11 agency (as defined in section 3(z) of the Federal Deposit

12 Insurance Act) might otherwise have under any statute to

13 require reports, make examinations, impose capital require14 ments or take any other direct or indirect action with re15 spect to bank holding companies and their nonbank subsidi16 aries (including nonbank subsidiaries of depository institu17 tions), subject to the same standards and requirements as

18 are applicable to the Board under such provisions.

19 (b) CERTAIN EXAMINATIONS AUTHORIZED.—

20 (1) FDIC REVIEW OF DEPOSITORY INSTITU21 TIONS.—No provision of this section shall be con22 strued as preventing the Federal Deposit Insurance

23 Corporation, if the Corporation finds it necessary to

24 determine the condition of an insured depository in25 stitution for insurance purposes, from examining an
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1 affiliate of any insured depository institution, pursu2 ant to its authority under section 10(b)(4) of the Fed3 eral Deposit Insurance Act, as may be necessary to

4 disclose fully the relationship between the depository

5 institution and the affiliate, and the effect of such re6 lationship on the depository institution.

7 (2) OTS REVIEW OF SAVINGS ASSOCIATIONS.—

8 No provision of this section shall be construed as pre9 venting the Director of the Office of Thrift Super10 vision, where the Director finds it reasonably nec11 essary to determine the financial condition of a sav12 ings association, from examining or requiring reports

13 from an affiliate, service company, or subsidiary of

14 any such savings association pursuant to section 5(d)

15 of the Home Owners’ Loan Act, solely for the purposes

16 of disclosing fully the transactions or relationships be17 tween such association and such entities and their ef18 fect on the financial condition of the association.

19 (3) OCC REVIEW OF NATIONAL BANKING ASSO20 CIATIONS.—No provision of this section shall be con21 strued as preventing the Comptroller of the Currency,

22 where the Comptroller finds it reasonably necessary to

23 determine the financial condition of a national bank,

24 from examining or requiring reports from an affil25 iate, service company, or subsidiary of any such na-
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1 tional bank pursuant to section 5240 of the Revised

2 Statutes, solely for the purposes of disclosing fully the

3 transactions or relationships between such national

4 bank and such entities and their effect on the finan5 cial condition of the national bank.

6 SEC. 119. PROHIBITION ON FDIC ASSISTANCE TO AFFILI7 ATES AND SUBSIDIARIES.

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

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

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

11 shareholder, affiliate (other than an insured depository in12 stitution that receives assistance in accordance with the

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

14 SEC. 120. REPEAL OF SAVINGS BANK PROVISIONS IN THE

15 BANK HOLDING COMPANY ACT OF 1956.

16 Section 3(f) of the Bank Holding Company Act of 1956

17 (12 U.S.C. 1842(f)) is amended to read as follows:

18 ‘‘(f) [Repealed].’’.

19 SEC. 120A. TECHNICAL AMENDMENT.

20 Section 2(o)(1)(A) of the Bank Holding Company Act

21 of 1956 (12 U.S.C. 1841(o)(1)(A)) is amended by striking

22 ‘‘section 38(b)’’ and inserting ‘‘section 38’’.
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1 Subtitle C—Subsidiaries of

2 National Banks

3 SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF

4 NATIONAL BANKS.

5 (a) FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.—

6 Chapter one of title LXII of the Revised Statutes of United

7 States (12 U.S.C. 21 et seq.) is amended—

8 (1) by redesignating section 5136A as section

9 5136C; and

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

11 24) the following new section:

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

13 ‘‘(a) SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED

14 TO ENGAGE IN FINANCIAL ACTIVITIES.—

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

16 section 5136 or any other provision of this title LXII

17 of the Revised Statutes of the United States shall be

18 construed as authorizing a subsidiary of a national

19 bank to engage in, or own any share of or any other

20 interest in any company engaged in, any activity

21 that—

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

23 to engage in directly; or
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1 ‘‘(B) is conducted under terms or conditions

2 other than those that would govern the conduct

3 of such activity by a national bank,

4 unless a national bank is specifically authorized by

5 the express terms of a Federal statute and not by im6 plication or interpretation to acquire shares of or an

7 interest in, or to control, such subsidiary, such as by

8 paragraph (2) of this subsection and section 25A of

9 the Federal Reserve Act.

10 ‘‘(2) SPECIFIC AUTHORIZATION TO CONDUCT AC11 TIVITIES WHICH ARE FINANCIAL IN NATURE.—Subject

12 to paragraphs (3) and (4), a national bank may con13 trol a financial subsidiary, or hold an interest in a

14 financial subsidiary, that is controlled by insured de15 pository institutions or subsidiaries thereof.

16 ‘‘(3) ELIGIBILITY REQUIREMENTS.—A national

17 bank may control or hold an interest in a company

18 pursuant to paragraph (2) only if—

19 ‘‘(A) the national bank and all depository

20 institution affiliates of the national bank are

21 well capitalized;

22 ‘‘(B) the national bank and all depository

23 institution affiliates of the national bank are

24 well managed;
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1 ‘‘(C) the national bank and all depository

2 institution affiliates of such national bank have

3 achieved a rating of ‘satisfactory record of meet4 ing community credit needs’, or better, at the

5 most recent examination of each such bank or in6 stitution; and

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

8 the Comptroller of the Currency.

9 ‘‘(4) ACTIVITY LIMITATIONS.—In addition to any

10 other limitation imposed on the activity of subsidi11 aries of national banks, a subsidiary of a national

12 bank may not, pursuant to paragraph (2)—

13 ‘‘(A) engage as principal in insuring, guar14 anteeing, or indemnifying against loss, harm,

15 damage, illness, disability, or death (other than

16 in connection with credit-related insurance) or

17 in providing or issuing annuities;

18 ‘‘(B) engage in real estate investment or de19 velopment activities; or

20 ‘‘(C) engage in any activity permissible for

21 a financial holding company under paragraph

22 (3)(I) of section 6(c) of the Bank Holding Com23 pany Act of 1956 (relating to insurance com24 pany investments).
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1 ‘‘(5) SIZE FACTOR WITH REGARD TO FREE2 STANDING NATIONAL BANKS.—Notwithstanding para3 graph (2), a national bank which has total assets of

4 $10,000,000,000 or more may not control a sub5 sidiary engaged in financial activities pursuant to

6 such paragraph unless such national bank is a sub7 sidiary of a bank holding company.

8 ‘‘(6) LIMITED EXCLUSIONS FROM COMMUNITY

9 NEEDS REQUIREMENTS FOR NEWLY AFFILIATED DE10 POSITORY INSTITUTIONS.—Any depository institution

11 which becomes an affiliate of a national bank during

12 the 12-month period preceding the date of an ap13 proval by the Comptroller of the Currency under

14 paragraph (3)(D) for such bank, and any depository

15 institution which becomes an affiliate of the national

16 bank after such date, may be excluded for purposes of

17 paragraph (3)(C) during the 12-month period begin18 ning on the date of such affiliation if—

19 ‘‘(A) the national bank or such depository

20 institution has submitted an affirmative plan to

21 the appropriate Federal banking agency to take

22 such action as may be necessary in order for

23 such institution to achieve a rating of ‘satisfac24 tory record of meeting community credit needs’,
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1 or better, at the next examination of the institu2 tion; and

3 ‘‘(B) the plan has been accepted by such

4 agency.

5 ‘‘(7) DEFINITIONS.—For purposes of this section,

6 the following definitions shall apply:

7 ‘‘(A) COMPANY; CONTROL; AFFILIATE; SUB8 SIDIARY.—The terms ‘company’, ‘control’, ‘affil9 iate’, and ‘subsidiary’ have the same meanings

10 as in section 2 of the Bank Holding Company

11 Act of 1956.

12 ‘‘(B) FINANCIAL SUBSIDIARY.—The term ‘fi13 nancial subsidiary’ means a company which is

14 a subsidiary of an insured bank and is engaged

15 in financial activities that have been determined

16 to be financial in nature or incidental to such fi17 nancial activities in accordance with subsection

18 (b) or permitted in accordance with subsection

19 (b)(4), other than activities that are permissible

20 for a national bank to engage in directly or that

21 are authorized under the Bank Service Company

22 Act, section 25 or 25A of the Federal Reserve

23 Act, or any other Federal statute (other than this

24 section) that specifically authorizes the conduct
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1 of such activities by its express terms and not by

2 implication or interpretation.

3 ‘‘(C) WELL CAPITALIZED.—The term ‘well

4 capitalized’ has the same meaning as in section

5 38 of the Federal Deposit Insurance Act and, for

6 purposes of this section, the Comptroller shall

7 have exclusive jurisdiction to determine whether

8 a national bank is well capitalized.

9 ‘‘(D) WELL MANAGED.—The term ‘well

10 managed’ means—

11 ‘‘(i) in the case of a depository institu12 tion that has been examined, unless other13 wise determined in writing by the appro14 priate Federal banking agency—

15 ‘‘(I) the achievement of a com16 posite rating of 1 or 2 under the Uni17 form Financial Institutions Rating

18 System (or an equivalent rating under

19 an equivalent rating system) in con20 nection with the most recent examina21 tion or subsequent review of the deposi22 tory institution; and

23 ‘‘(II) at least a rating of 2 for

24 management, if that rating is given; or
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1 ‘‘(ii) in the case of any depository in2 stitution that has not been examined, the

3 existence and use of managerial resources

4 that the appropriate Federal banking agen5 cy determines are satisfactory.

6 ‘‘(E) INCORPORATED DEFINITIONS.—The

7 terms ‘appropriate Federal banking agency’ and

8 ‘depository institution’ have the same meanings

9 as in section 3 of the Federal Deposit Insurance

10 Act.

11 ‘‘(b) ACTIVITIES THAT ARE FINANCIAL IN NATURE.—

12 ‘‘(1) FINANCIAL ACTIVITIES.—

13 ‘‘(A) IN GENERAL.—For purposes of sub14 section (a)(7)(B), an activity shall be considered

15 to have been determined to be financial in na16 ture or incidental to such financial activities

17 only if—

18 ‘‘(i) such activity is permitted for a fi19 nancial holding company pursuant to sec20 tion 6(c)(3) of the Bank Holding Company

21 Act of 1956 (to the extent such activity is

22 not otherwise prohibited under this section

23 or any other provision of law for a sub24 sidiary of a national bank engaged in ac25 tivities pursuant to subsection (a)(2)); or
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1 ‘‘(ii) the Secretary of the Treasury de2 termines the activity to be financial in na3 ture or incidental to such financial activi4 ties in accordance with subparagraph (B)

5 or paragraph (3).

6 ‘‘(B) COORDINATION BETWEEN THE BOARD

7 AND THE SECRETARY OF THE TREASURY.—

8 ‘‘(i) PROPOSALS RAISED BEFORE THE

9 SECRETARY OF THE TREASURY.—

10 ‘‘(I) CONSULTATION.—The Sec11 retary of the Treasury shall notify the

12 Board of, and consult with the Board

13 concerning, any request, proposal, or

14 application under this subsection, in15 cluding any regulation or order pro16 posed under paragraph (3), for a deter17 mination of whether an activity is fi18 nancial in nature or incidental to such

19 a financial activity.

20 ‘‘(II) BOARD VIEW.—The Sec21 retary of the Treasury shall not deter22 mine that any activity is financial in

23 nature or incidental to a financial ac24 tivity under this subsection if the

25 Board notifies the Secretary in writ-
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1 ing, not later than 30 days after the

2 date of receipt of the notice described

3 in subclause (I) (or such longer period

4 as the Secretary determines to be ap5 propriate in light of the circumstances)

6 that the Board believes that the activ7 ity is not financial in nature or inci8 dental to a financial activity.

9 ‘‘(ii) PROPOSALS RAISED BY THE

10 BOARD.—

11 ‘‘(I) BOARD RECOMMENDATION.—

12 The Board may, at any time, rec13 ommend in writing that the Secretary

14 of the Treasury find an activity to be

15 financial in nature or incidental to a

16 financial activity (other than an activ17 ity which the Board has sole authority

18 to regulate under subparagraph (C)).

19 ‘‘(II) TIME PERIOD FOR SECRE20 TARIAL ACTION.—Not later than 30

21 days after the date of receipt of a writ22 ten recommendation from the Board

23 under subclause (I) (or such longer pe24 riod as the Secretary of the Treasury

25 and the Board determine to be appro-
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1 priate in light of the circumstances),

2 the Secretary shall determine whether

3 to initiate a public rulemaking pro4 posing that the subject recommended

5 activity be found to be financial in na6 ture or incidental to a financial activ7 ity under this subsection, and shall no8 tify the Board in writing of the deter9 mination of the Secretary and, in the

10 event that the Secretary determines not

11 to seek public comment on the pro12 posal, the reasons for that determina13 tion.

14 ‘‘(C) AUTHORITY OVER MERCHANT BANK15 ING.—The Board shall have sole authority to

16 prescribe regulations and issue interpretations to

17 implement this paragraph with respect to activi18 ties described in section 6(c)(3)(H) of the Bank

19 Holding Company Act of 1956.

20 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter21 mining whether an activity is financial in nature or

22 incidental to financial activities, the Secretary shall

23 take into account—

24 ‘‘(A) the purposes of this Act and the Fi25 nancial Services Act of 1999;
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1 ‘‘(B) changes or reasonably expected changes

2 in the marketplace in which banks compete;

3 ‘‘(C) changes or reasonably expected changes

4 in the technology for delivering financial serv5 ices; and

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

7 appropriate to allow a bank and the subsidiaries

8 of a bank to—

9 ‘‘(i) compete effectively with any com10 pany seeking to provide financial services

11 in the United States;

12 ‘‘(ii) use any available or emerging

13 technological means, including any applica14 tion necessary to protect the security or effi15 cacy of systems for the transmission of data

16 or financial transactions, in providing fi17 nancial services; and

18 ‘‘(iii) offer customers any available or

19 emerging technological means for using fi20 nancial services.

21 ‘‘(3) AUTHORIZATION OF NEW FINANCIAL ACTIVI22 TIES.—The Secretary of the Treasury shall, by regu23 lation or order and in accordance with paragraph

24 (1)(B), define, consistent with the purposes of this

25 Act, the following activities as, and the extent to
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1 which such activities are, financial in nature or inci2 dental to activities which are financial in nature:

3 ‘‘(A) Lending, exchanging, transferring, in4 vesting for others, or safeguarding financial as5 sets other than money or securities.

6 ‘‘(B) Providing any device or other instru7 mentality for transferring money or other finan8 cial assets.

9 ‘‘(C) Arranging, effecting, or facilitating fi10 nancial transactions for the account of third

11 parties.

12 ‘‘(4) DEVELOPING ACTIVITIES.—Subject to sub13 section (a)(2), a financial subsidiary of a national

14 bank may engage directly or indirectly, or acquire

15 shares of any company engaged, in any activity that

16 the Secretary has not determined to be financial in

17 nature or incidental to financial activities under this

18 subsection if—

19 ‘‘(A) the subsidiary reasonably concludes

20 that the activity is financial in nature or inci21 dental to financial activities;

22 ‘‘(B) the gross revenues from all activities

23 conducted under this paragraph represent less

24 than 5 percent of the consolidated gross revenues

25 of the national bank;
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1 ‘‘(C) the aggregate total assets of all compa2 nies the shares of which are held under this

3 paragraph do not exceed 5 percent of the na4 tional bank’s consolidated total assets;

5 ‘‘(D) the total capital invested in activities

6 conducted under this paragraph represents less

7 than 5 percent of the consolidated total capital

8 of the national bank;

9 ‘‘(E) neither the Secretary of the Treasury

10 nor the Board has determined that the activity

11 is not financial in nature or incidental to finan12 cial activities under this subsection; and

13 ‘‘(F) the national bank provides written no14 tice to the Secretary of the Treasury describing

15 the activity commenced by the subsidiary or con16 ducted by the company acquired no later than 10

17 business days after commencing the activity or

18 consummating the acquisition.

19 ‘‘(c) PROVISIONS APPLICABLE TO NATIONAL BANKS

20 THAT FAIL TO MEET REQUIREMENTS.—

21 ‘‘(1) IN GENERAL.—If a national bank or deposi22 tory institution affiliate is not in compliance with the

23 requirements of subparagraph (A), (B), or (C) of sub24 section (a)(3), the appropriate Federal banking agen-
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1 cy shall notify the Comptroller of the Currency, who

2 shall give notice of such finding to the national bank.

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

5 national bank of a notice given under paragraph (1)

6 (or such additional period as the Comptroller of the

7 Currency may permit), the national bank and any

8 relevant affiliated depository institution shall execute

9 an agreement acceptable to the Comptroller of the

10 Currency and the other appropriate Federal banking

11 agencies, if any, to comply with the requirements ap12 plicable under subsection (a)(3).

13 ‘‘(3) COMPTROLLER OF THE CURRENCY MAY IM14 POSE LIMITATIONS.—Until the conditions described in

15 a notice to a national bank under paragraph (1) are

16 corrected—

17 ‘‘(A) the Comptroller of the Currency may

18 impose such limitations on the conduct or activi19 ties of the national bank or any subsidiary of the

20 bank as the Comptroller of the Currency deter21 mines to be appropriate under the circumstances;

22 and

23 ‘‘(B) the appropriate Federal banking agen24 cy may impose such limitations on the conduct

25 or activities of an affiliated depository institu-
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1 tion or any subsidiary of the depository institu2 tion as such agency determines to be appropriate

3 under the circumstances.

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

5 notice under paragraph (1), a national bank and

6 other affiliated depository institutions do not—

7 ‘‘(A) execute and implement an agreement

8 in accordance with paragraph (2);

9 ‘‘(B) comply with any limitations imposed

10 under paragraph (3);

11 ‘‘(C) in the case of a notice of failure to

12 comply with subsection (a)(3)(A), restore the na13 tional bank or any depository institution affil14 iate of the bank to well capitalized status before

15 the end of the 180-day period beginning on the

16 date such notice is received by the national bank

17 (or such other period permitted by the Comp18 troller of the Currency); or

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

20 comply with subparagraph (B) or (C) of sub21 section (a)(3), restore compliance with any such

22 subparagraph on or before the date on which the

23 next examination of the depository institution

24 subsidiary is completed or by the end of such
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1 other period as the Comptroller of the Currency

2 determines to be appropriate,

3 the Comptroller of the Currency may require such na4 tional bank, under such terms and conditions as may

5 be imposed by the Comptroller of the Currency and

6 subject to such extension of time as may be granted

7 in the Comptroller of the Currency’s discretion, to di8 vest control of any subsidiary engaged in activities

9 pursuant to subsection (a)(2) or, at the election of the

10 national bank, instead to cease to engage in any ac11 tivity conducted by a subsidiary of the national bank

12 pursuant to subsection (a)(2).

13 ‘‘(5) CONSULTATION.—In taking any action

14 under this subsection, the Comptroller of the Currency

15 shall consult with all relevant Federal and State reg16 ulatory agencies.’’.

17 (b) CLERICAL AMENDMENT.—The table of sections for

18 chapter one of title LXII of the Revised Statutes of the

19 United States is amended—

20 (1) by redesignating the item relating to section

21 5136A as section 5136C; and

22 (2) by inserting after the item relating to section

23 5136 the following new item:

‘‘5136A. Subsidiaries of national banks.’’.
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1 SEC. 122. SAFETY AND SOUNDNESS FIREWALLS BETWEEN

2 BANKS AND THEIR FINANCIAL SUBSIDIARIES.

3 (a) PURPOSES.—The purposes of this section are—

4 (1) to protect the safety and soundness of any in5 sured bank that has a financial subsidiary;

6 (2) to apply to any transaction between the bank

7 and the financial subsidiary (including a loan, exten8 sion of credit, guarantee, or purchase of assets), other

9 than an equity investment, the same restrictions and

10 requirements as would apply if the financial sub11 sidiary were a subsidiary of a bank holding company

12 having control of the bank; and

13 (3) to apply to any equity investment of the

14 bank in the financial subsidiary restrictions and re15 quirements equivalent to those that would apply if—

16 (A) the bank paid a dividend in the same

17 dollar amount to a bank holding company hav18 ing control of the bank; and

19 (B) the bank holding company used the pro20 ceeds of the dividend to make an equity invest21 ment in a subsidiary that was engaged in the

22 same activities as the financial subsidiary of the

23 bank.

24 (b) SAFETY AND SOUNDNESS FIREWALLS APPLICABLE

25 TO SUBSIDIARIES OF BANKS.—The Federal Deposit Insur-
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1 ance Act (12 U.S.C. 1811 et seq.) is amended by adding

2 at the end the following new section:

3 ‘‘SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICA4 BLE TO SUBSIDIARIES OF BANKS.

5 ‘‘(a) LIMITING THE EQUITY INVESTMENT OF A BANK

6 IN A SUBSIDIARY.—

7 ‘‘(1) CAPITAL DEDUCTION.—In determining

8 whether an insured bank complies with applicable

9 regulatory capital standards—

10 ‘‘(A) the appropriate Federal banking agen11 cy shall deduct from the assets and tangible eq12 uity of the bank the aggregate amount of the out13 standing equity investments of the bank in fi14 nancial subsidiaries of the bank; and

15 ‘‘(B) the assets and liabilities of such finan16 cial subsidiaries shall not be consolidated with

17 those of the bank.

18 ‘‘(2) INVESTMENT LIMITATION.—An insured

19 bank shall not, without the prior approval of the ap20 propriate Federal banking agency, make any equity

21 investment in a financial subsidiary of the bank if

22 that investment would, when made, exceed the amount

23 that the bank could pay as a dividend without ob24 taining prior regulatory approval.
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1 ‘‘(3) TREATMENT OF RETAINED EARNINGS.—The

2 amount of any net earnings retained by a financial

3 subsidiary of an insured depository institution shall

4 be treated as an outstanding equity investment of the

5 bank in the subsidiary for purposes of paragraph (1).

6 ‘‘(b) OPERATIONAL AND FINANCIAL SAFEGUARDS FOR

7 THE BANK.—An insured bank that has a financial sub8 sidiary shall maintain procedures for identifying and man9 aging any financial and operational risks posed by the fi10 nancial subsidiary.

11 ‘‘(c) MAINTENANCE OF SEPARATE CORPORATE IDEN12 TITY AND SEPARATE LEGAL STATUS.—

13 ‘‘(1) IN GENERAL.—Each insured bank shall en14 sure that the bank maintains and complies with rea15 sonable policies and procedures to preserve the sepa16 rate corporate identity and legal status of the bank

17 and any financial subsidiary or affiliate of the bank.

18 ‘‘(2) EXAMINATIONS.—The appropriate Federal

19 banking agency, as part of each examination, shall

20 review whether an insured bank is observing the sepa21 rate corporate identity and separate legal status of

22 any subsidiaries and affiliates of the bank.

23 ‘‘(d) FINANCIAL SUBSIDIARY DEFINED.—For purposes

24 of this section, the term ‘financial subsidiary’ has the mean-
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1 ing given to such term in section 5136A(a)(7)(B) of the Re2 vised Statutes of the United States.

3 ‘‘(e) REGULATIONS.—The appropriate Federal bank4 ing agencies shall jointly prescribe regulations imple5 menting this section.’’.

6 (c) TRANSACTIONS BETWEEN FINANCIAL SUBSIDI7 ARIES AND OTHER AFFILIATES.—Section 23A of the Fed8 eral Reserve Act (12 U.S.C. 371c) is amended—

9 (1) by redesignating subsection (e) as subsection

10 (f); and

11 (2) by inserting after subsection (d), the fol12 lowing new subsection:

13 ‘‘(e) RULES RELATING TO BANKS WITH FINANCIAL

14 SUBSIDIARIES.—

15 ‘‘(1) FINANCIAL SUBSIDIARY DEFINED.—For

16 purposes of this section and section 23B, the term ‘fi17 nancial subsidiary’ means a company which is a sub18 sidiary of a bank and is engaged in activities that

19 are financial in nature or incidental to such finan20 cial activities pursuant to subsection (a)(2) or (b)(4)

21 of section 5136A of the Revised Statutes of the United

22 States.

23 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN A

24 FINANCIAL SUBSIDIARY OF A BANK AND THE BANK.—

25 For purposes of applying this section and section 23B
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1 to a transaction between a financial subsidiary of a

2 bank and the bank (or between such financial sub3 sidiary and any other subsidiary of the bank which

4 is not a financial subsidiary) and notwithstanding

5 subsection (b)(2) and section 23B(d)(1), the financial

6 subsidiary of the bank—

7 ‘‘(A) shall be an affiliate of the bank and

8 any other subsidiary of the bank which is not a

9 financial subsidiary; and

10 ‘‘(B) shall not be treated as a subsidiary of

11 the bank.

12 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

13 FINANCIAL SUBSIDIARY AND NONBANK AFFILIATES.—

14 ‘‘(A) IN GENERAL.—A transaction between

15 a financial subsidiary and an affiliate of the fi16 nancial subsidiary shall not be deemed to be a

17 transaction between a subsidiary of a national

18 bank and an affiliate of the bank for purposes of

19 section 23A or section 23B of the Federal Reserve

20 Act.

21 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—For

22 purposes of subparagraph (A) and notwith23 standing paragraph (4), the term ‘affiliate’ shall

24 not include a bank, or a subsidiary of a bank,

25 which is engaged exclusively in activities permis-
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1 sible for a national bank to engage in directly or

2 which are authorized by any Federal law other

3 than section 5136A of the Revised Statutes of the

4 United States.

5 ‘‘(4) EQUITY INVESTMENTS EXCLUDED SUBJECT

6 TO THE APPROVAL OF THE BANKING AGENCY.—Sub7 section (a)(1) shall not apply so as to limit the equity

8 investment of a bank in a financial subsidiary of

9 such bank, except that any investment that exceeds the

10 amount of a dividend that the bank could pay at the

11 time of the investment without obtaining prior ap12 proval of the appropriate Federal banking agency and

13 is in excess of the limitation which would apply

14 under subsection (a)(1), but for this paragraph, may

15 be made only with the approval of the appropriate

16 Federal banking agency (as defined in section 3(q) of

17 the Federal Deposit Insurance Act) with respect to

18 such bank.’’.

19 (d) ANTITYING.—Section 106(a) of the Bank Holding

20 Company Act Amendments of 1970 is amended by adding

21 at the end the following new sentence: ‘‘For purposes of this

22 section, a subsidiary of a national bank which engages in

23 activities pursuant to subsection (a)(2) or (b)(4) of section

24 5136A of the Revised Statutes of the United States shall
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1 be deemed to be a subsidiary of a bank holding company,

2 and not a subsidiary of a bank.’’.

3 SEC. 123. MISREPRESENTATIONS REGARDING DEPOSITORY

4 INSTITUTION LIABILITY FOR OBLIGATIONS

5 OF AFFILIATES.

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

7 States Code, is amended by inserting after section 1007 the

8 following new section:

9 ‘‘§ 1008. Misrepresentations regarding financial insti10 tution liability for obligations of affiliates

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

12 an insured depository institution or institution-affiliated

13 party of a subsidiary or affiliate of an insured depository

14 institution shall fraudulently represent that the institution

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

16 other affiliate of the institution.

17 ‘‘(b) CRIMINAL PENALTY.—Whoever violates subsection

18 (a) shall be fined under this title, imprisoned for not more

19 than 1 year, or both.

20 ‘‘(c) INSTITUTION-AFFILIATED PARTY DEFINED.—For

21 purposes of this section, the term ‘institution-affiliated

22 party’ has the same meaning as in section 3 of the Federal

23 Deposit Insurance Act and any reference in that section

24 shall also be deemed to refer to a subsidiary or affiliate of

25 an insured depository institution.
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1 ‘‘(d) OTHER DEFINITIONS.—For purposes of this sec2 tion, the terms ‘affiliate’, ‘insured depository institution’,

3 and ‘subsidiary’ have same meanings as in section 3 of the

4 Federal Deposit Insurance Act.’’.

5 (b) CLERICAL AMENDMENT.—The table of sections for

6 chapter 47 of title 18, United States Code, is amended by

7 inserting after the item relating to section 1007 the fol8 lowing new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

9 SEC. 124. FUNCTIONAL REGULATION.

10 The Federal Deposit Insurance Act (12 U.S.C. 1811

11 et seq.), is amended by inserting after section 45 (as added

12 by section 122 of this subtitle) the following new section:

13 ‘‘SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUB14 SIDIARIES AND INSURANCE AGENCY SUBSIDI15 ARIES OF INSURED DEPOSITORY INSTITU16 TIONS.

17 ‘‘(a) BROKER OR DEALER SUBSIDIARY.—A broker or

18 dealer that is a subsidiary of an insured depository institu19 tion shall be subject to regulation under the Securities Ex20 change Act of 1934 in the same manner and to the same

21 extent as a broker or dealer that—

22 ‘‘(1) is controlled by the same bank holding com23 pany as controls the insured depository institution;

24 and
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1 ‘‘(2) is not an insured depository institution or

2 a subsidiary of an insured depository institution.

3 ‘‘(b) INSURANCE AGENCY SUBSIDIARY.—An insurance

4 agency or brokerage that is a subsidiary of an insured de5 pository institution shall be subject to regulation by a State

6 insurance authority in the same manner and to the same

7 extent as an insurance agency or brokerage that—

8 ‘‘(1) is controlled by the same bank holding com9 pany as controls the insured depository institution;

10 and

11 ‘‘(2) is not an insured depository institution or

12 a subsidiary of an insured depository institution.

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

14 terms ‘broker’ and ‘dealer’ have the same meanings as in

15 section 3 of the Securities Exchange Act of 1934.’’.

16 SEC. 125. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE17 SERVE ACT.

18 Section 11 of the Federal Reserve Act (12 U.S.C. 248)

19 is amended by striking the paragraph designated as ‘‘(m)’’

20 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 ES7 TABLISHED.

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

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

10 seq.) is amended to read as follows:

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

12 ‘‘(a) COMPANIES THAT CONTROL WHOLESALE FINAN13 CIAL INSTITUTIONS.—

14 ‘‘(1) WHOLESALE FINANCIAL HOLDING COMPANY

15 DEFINED.—The term ‘wholesale financial holding

16 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 Act

7 of 1978).

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

10 Board may permit a company that controls a savings

11 association and that otherwise meets the requirements

12 of paragraph (1) to become supervised under para13 graph (1), if the company divests control of any such

14 savings association within such period, not to exceed

15 5 years after becoming supervised under paragraph

16 (1), as permitted by the Board.

17 ‘‘(b) SUPERVISION BY THE BOARD.—

18 ‘‘(1) IN GENERAL.—The provisions of this section

19 shall govern the reporting, examination, and capital

20 requirements of wholesale financial holding compa21 nies.

22 ‘‘(2) REPORTS.—

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

24 time may require any wholesale financial hold25 ing company and any subsidiary of such com-
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1 pany to submit reports under oath to keep the

2 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, to

15 the fullest extent possible, accept reports in

16 fulfillment of the Board’s reporting require17 ments under this paragraph that the whole18 sale financial holding company or any sub19 sidiary of such company has provided or

20 been required to provide to other Federal

21 and State supervisors or to appropriate self22 regulatory organizations.

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

25 such company shall provide to the Board, at
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1 the request of the Board, a report referred to

2 in clause (i).

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

5 ‘‘(i) IN GENERAL.—The Board may, by

6 regulation or order, exempt any company

7 or class of companies, under such terms and

8 conditions and for such periods as the

9 Board shall provide in such regulation or

10 order, from the provisions of this paragraph

11 and any regulation prescribed under this

12 paragraph.

13 ‘‘(ii) CRITERIA FOR CONSIDERATION.—

14 In making any determination under clause

15 (i) with regard to any exemption under

16 such clause, the Board shall consider,

17 among such other factors as the Board may

18 determine to be appropriate, the following

19 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 authority

2 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 and

12 each subsidiary of such company in order to—

13 ‘‘(i) inform the Board regarding the

14 nature of the operations and financial con15 dition of the wholesale financial holding

16 company and its subsidiaries;

17 ‘‘(ii) inform the Board regarding—

18 ‘‘(I) the financial and operational

19 risks within the wholesale financial

20 holding company system that may af21 fect any depository institution owned

22 by such holding company; and

23 ‘‘(II) the systems of the holding

24 company and its subsidiaries for mon25 itoring and controlling those risks; and
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1 ‘‘(iii) monitor compliance with the

2 provisions of this Act and those governing

3 transactions and relationships between any

4 depository institution controlled by the

5 wholesale financial holding company and

6 any of the company’s other subsidiaries.

7 ‘‘(B) RESTRICTED FOCUS OF EXAMINA8 TIONS.—The Board shall, to the fullest extent

9 possible, limit the focus and scope of any exam10 ination of a wholesale financial holding com11 pany under this paragraph to—

12 ‘‘(i) the holding company; and

13 ‘‘(ii) any subsidiary (other than an in14 sured depository institution subsidiary) of

15 the holding company that, because of the

16 size, condition, or activities of the sub17 sidiary, the nature or size of transactions

18 between such subsidiary and any affiliated

19 depository institution, or the centralization

20 of functions within the holding company

21 system, could have a materially adverse ef22 fect on the safety and soundness of any de23 pository institution affiliate of the holding

24 company.
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1 ‘‘(C) DEFERENCE TO BANK EXAMINA2 TIONS.—The Board shall, to the fullest extent

3 possible, use the reports of examination of depos4 itory institutions made by the Comptroller of the

5 Currency, the Federal Deposit Insurance Cor6 poration, the Director of the Office of Thrift Su7 pervision or the appropriate State depository in8 stitution supervisory authority for the purposes

9 of this section.

10 ‘‘(D) DEFERENCE TO OTHER EXAMINA11 TIONS.—The Board shall, to the fullest extent

12 possible, address the circumstances which might

13 otherwise permit or require an examination by

14 the Board by forgoing an examination and by

15 instead reviewing the reports of examination

16 made of—

17 ‘‘(i) any registered broker or dealer or

18 any registered investment adviser by or on

19 behalf of the Commission; and

20 ‘‘(ii) any licensed insurance company

21 by or on behalf of any State government in22 surance agency responsible for the super23 vision of the insurance company.

24 ‘‘(E) CONFIDENTIALITY OF REPORTED IN25 FORMATION.—
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1 ‘‘(i) IN GENERAL.—Notwithstanding

2 any other provision of law, the Board shall

3 not be compelled to disclose any nonpublic

4 information required to be reported under

5 this paragraph, or any information sup6 plied to the Board by any domestic or for7 eign regulatory agency, that relates to the

8 financial or operational condition of any

9 wholesale financial holding company or any

10 subsidiary of such company.

11 ‘‘(ii) COMPLIANCE WITH REQUESTS

12 FOR INFORMATION.—No provision of this

13 subparagraph shall be construed as author14 izing the Board to withhold information

15 from the Congress, or preventing the Board

16 from complying with a request for informa17 tion from any other Federal department or

18 agency for purposes within the scope of such

19 department’s or agency’s jurisdiction, or

20 from complying with any order of a court

21 of competent jurisdiction in an action

22 brought by the United States or the Board.

23 ‘‘(iii) COORDINATION WITH OTHER

24 LAW.—For purposes of section 552 of title 5,

25 United States Code, this subparagraph shall
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1 be considered to be a statute described in

2 subsection (b)(3)(B) of such section.

3 ‘‘(iv) DESIGNATION OF CONFIDENTIAL

4 INFORMATION.—In prescribing regulations

5 to carry out the requirements of this sub6 section, the Board shall designate informa7 tion described in or obtained pursuant to

8 this paragraph as confidential information.

9 ‘‘(F) COSTS.—The cost of any examination

10 conducted by the Board under this section may

11 be assessed against, and made payable by, the

12 wholesale financial holding company.

13 ‘‘(4) CAPITAL ADEQUACY GUIDELINES.—

14 ‘‘(A) CAPITAL ADEQUACY PROVISIONS.—

15 Subject to the requirements of, and solely in ac16 cordance with, the terms of this paragraph, the

17 Board may adopt capital adequacy rules or

18 guidelines for wholesale financial holding compa19 nies.

20 ‘‘(B) METHOD OF CALCULATION.—In devel21 oping rules or guidelines under this paragraph,

22 the following provisions shall apply:

23 ‘‘(i) FOCUS ON DOUBLE LEVERAGE.—

24 The Board shall focus on the use by whole25 sale financial holding companies of debt
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1 and other liabilities to fund capital invest2 ments in subsidiaries.

3 ‘‘(ii) NO UNWEIGHTED CAPITAL

4 RATIO.—The Board shall not, by regulation,

5 guideline, order, or otherwise, impose under

6 this section a capital ratio that is not based

7 on appropriate risk-weighting consider8 ations.

9 ‘‘(iii) NO CAPITAL REQUIREMENT ON

10 REGULATED ENTITIES.—The Board shall

11 not, by regulation, guideline, order or other12 wise, prescribe or impose any capital or

13 capital adequacy rules, standards, guide14 lines, or requirements upon any subsidiary

15 that—

16 ‘‘(I) is not a depository institu17 tion; and

18 ‘‘(II) is in compliance with appli19 cable capital requirements of another

20 Federal regulatory authority (includ21 ing the Securities and Exchange Com22 mission) or State insurance authority.

23 ‘‘(iv) CERTAIN SUBSIDIARIES.—The

24 Board shall not, by regulation, guideline,

25 order or otherwise, prescribe or impose any
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1 capital or capital adequacy rules, stand2 ards, guidelines, or requirements upon any

3 subsidiary that is not a depository institu4 tion and that is registered as an investment

5 adviser under the Investment Advisers Act

6 of 1940, except that this clause shall not be

7 construed as preventing the Board from im8 posing capital or capital adequacy rules,

9 guidelines, standards, or requirements with

10 respect to activities of a registered invest11 ment adviser other than investment advi12 sory activities or activities incidental to in13 vestment advisory activities.

14 ‘‘(v) LIMITATIONS ON INDIRECT AC15 TION.—In developing, establishing, or as16 sessing holding company capital or capital

17 adequacy rules, guidelines, standards, or re18 quirements for purposes of this paragraph,

19 the Board shall not take into account the

20 activities, operations, or investments of an

21 affiliated investment company registered

22 under the Investment Company Act of 1940,

23 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

4 through all of its affiliates) of 25 per5 cent or more of the shares of the invest6 ment company, where the shares owned

7 by the bank holding company have a

8 market value equal to more than

9 $1,000,000.

10 ‘‘(vi) APPROPRIATE EXCLUSIONS.—The

11 Board shall take full account of—

12 ‘‘(I) the capital requirements

13 made applicable to any subsidiary that

14 is not a depository institution by an15 other Federal regulatory authority or

16 State insurance authority; and

17 ‘‘(II) industry norms for capital18 ization of a company’s unregulated

19 subsidiaries and activities.

20 ‘‘(vii) INTERNAL RISK MANAGEMENT

21 MODELS.—The Board may incorporate in22 ternal risk management models of wholesale

23 financial holding companies into its capital

24 adequacy guidelines or rules and may take

25 account of the extent to which resources of
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1 a subsidiary depository institution may be

2 used to service the debt or other liabilities of

3 the wholesale financial holding company.

4 ‘‘(c) NONFINANCIAL ACTIVITIES AND INVESTMENTS.—

5 ‘‘(1) GRANDFATHERED ACTIVITIES.—

6 ‘‘(A) IN GENERAL.—Notwithstanding sec7 tion 4(a), a company that becomes a wholesale

8 financial holding company may continue to en9 gage, directly or indirectly, in any activity and

10 may retain ownership and control of shares of a

11 company engaged in any activity if—

12 ‘‘(i) on the date of the enactment of the

13 Financial Services Act of 1999, such whole14 sale financial holding company was law15 fully engaged in that nonfinancial activity,

16 held the shares of such company, or had en17 tered into a contract to acquire shares of

18 any company engaged in such activity; and

19 ‘‘(ii) the company engaged in such ac20 tivity continues to engage only in the same

21 activities that such company conducted on

22 the date of the enactment of the Financial

23 Services Act of 1999, and other activities

24 permissible under this Act.
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1 ‘‘(B) NO EXPANSION OF GRANDFATHERED

2 COMMERCIAL ACTIVITIES THROUGH MERGER OR

3 CONSOLIDATION.—A wholesale financial holding

4 company that engages in activities or holds

5 shares pursuant to this paragraph, or a sub6 sidiary of such wholesale financial holding com7 pany, may not acquire, in any merger, consoli8 dation, or other type of business combination, as9 sets of any other company which is engaged in

10 any activity which the Board has not determined

11 to be financial in nature or incidental to activi12 ties that are financial in nature under section

13 6(c).

14 ‘‘(C) LIMITATION TO SINGLE EXEMPTION.—

15 No company that engages in any activity or con16 trols any shares under subsection (f) of section 6

17 may engage in any activity or own any shares

18 pursuant to this paragraph.

19 ‘‘(2) COMMODITIES.—

20 ‘‘(A) IN GENERAL.—Notwithstanding sec21 tion 4(a), a wholesale financial holding company

22 which was predominately engaged as of January

23 1, 1997, in financial activities in the United

24 States (or any successor to any such company)

25 may engage in, or directly or indirectly own or
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1 control shares of a company engaged in, activi2 ties related to the trading, sale, or investment in

3 commodities and underlying physical properties

4 that were not permissible for bank holding com5 panies to conduct in the United States as of

6 January 1, 1997, if such wholesale financial

7 holding company, or any subsidiary of such

8 holding company, was engaged directly, indi9 rectly, or through any such company in any of

10 such activities as of January 1, 1997, in the

11 United States.

12 ‘‘(B) LIMITATION.—The attributed aggre13 gate consolidated assets of a wholesale financial

14 holding company held under the authority grant15 ed under this paragraph and not otherwise per16 mitted to be held by all wholesale financial hold17 ing companies under this section may not exceed

18 5 percent of the total consolidated assets of the

19 wholesale financial holding company, except that

20 the Board may increase such percentage of total

21 consolidated assets by such amounts and under

22 such circumstances as the Board considers ap23 propriate, consistent with the purposes of this

24 Act.
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1 ‘‘(3) CROSS MARKETING RESTRICTIONS.—A

2 wholesale financial holding company shall not

3 permit—

4 ‘‘(A) any company whose shares it owns or

5 controls pursuant to paragraph (1) or (2) to

6 offer or market any product or service of an af7 filiated wholesale financial institution; or

8 ‘‘(B) any affiliated wholesale financial in9 stitution to offer or market any product or serv10 ice of any company whose shares are owned or

11 controlled by such wholesale financial holding

12 company pursuant to such paragraphs.

13 ‘‘(d) QUALIFICATION OF FOREIGN BANK AS WHOLE14 SALE FINANCIAL HOLDING COMPANY.—

15 ‘‘(1) IN GENERAL.—Any foreign bank, or any

16 company that owns or controls a foreign bank, that

17 operates a branch, agency, or commercial lending

18 company in the United States, including a foreign

19 bank or company that owns or controls a wholesale

20 financial institution, may request a determination

21 from the Board that such bank or company be treated

22 as a wholesale financial holding company (other than

23 for purposes of subsection (c)), subject to such condi24 tions as the Board deems appropriate, giving due re25 gard to the principle of national treatment and equal-
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1 ity of competitive opportunity and the requirements

2 imposed on domestic banks and companies.

3 ‘‘(2) CONDITIONS FOR TREATMENT AS A WHOLE4 SALE FINANCIAL HOLDING COMPANY.—A foreign bank

5 and a company that owns or controls a foreign bank

6 may not be treated as a wholesale financial holding

7 company unless the bank and company meet and con8 tinue to meet the following criteria:

9 ‘‘(A) NO INSURED DEPOSITS.—No deposits

10 held directly by a foreign bank or through an af11 filiate (other than an institution described in

12 subparagraph (D) or (F) of section 2(c)(2)) are

13 insured under the Federal Deposit Insurance

14 Act.

15 ‘‘(B) CAPITAL STANDARDS.—The foreign

16 bank meets risk-based capital standards com17 parable to the capital standards required for a

18 wholesale financial institution, giving due re19 gard to the principle of national treatment and

20 equality of competitive opportunity.

21 ‘‘(C) TRANSACTION WITH AFFILIATES.—

22 Transactions between a branch, agency, or com23 mercial lending company subsidiary of the for24 eign bank in the United States, and any securi25 ties affiliate or company in which the foreign
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1 bank (or any company that owns or controls

2 such foreign bank), has invested and which en3 gages in any activity authorized only as a result

4 of the application of subsection (c) or (g) of sec5 tion 6, comply with the provisions of sections

6 23A and 23B of the Federal Reserve Act in the

7 same manner and to the same extent as such

8 transactions would be required to comply with

9 such sections if the foreign bank were a member

10 bank.

11 ‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL

12 INSTITUTION.—Any foreign bank which is, or is affili13 ated with a company which is, treated as a wholesale

14 financial holding company under this subsection shall

15 be treated as a wholesale financial institution for

16 purposes of paragraphs (1)(C) and (3) of section

17 9B(c) of the Federal Reserve Act, and any such for18 eign bank or company shall be subject to paragraphs

19 (3), (4), and (5) of section 9B(d) of the Federal Re20 serve Act, except that the Board may adopt such

21 modifications, conditions, or exemptions as the Board

22 deems appropriate, giving due regard to the principle

23 of national treatment and equality of competitive op24 portunity.
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1 ‘‘(4) SUPERVISION OF FOREIGN BANK WHICH

2 MAINTAINS NO BANKING PRESENCE OTHER THAN CON3 TROL OF A WHOLESALE FINANCIAL INSTITUTION.—A

4 foreign bank that owns or controls a wholesale finan5 cial institution but does not operate a branch, agency,

6 or commercial lending company in the United States

7 (and any company that owns or controls such foreign

8 bank) may request a determination from the Board

9 that such bank or company be treated as a wholesale

10 financial holding company, except that such bank or

11 company shall be subject to the restrictions of para12 graphs (2)(A) and (3) of this subsection.

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

14 section shall not be construed as limiting the author15 ity of the Board under the International Banking Act

16 of 1978 with respect to the regulation, supervision, or

17 examination of foreign banks and their offices and af18 filiates in the United States.’’.

19 (b) UNINSURED BANKS.—

20 (1) UNINSURED STATE BANKS.—Section 9 of the

21 Federal Reserve Act (12 U.S.C. 321 et seq.) is amend22 ed by adding at the end the following new paragraph:

23 ‘‘(24) ENFORCEMENT AUTHORITY OVER UNIN24 SURED STATE MEMBER BANKS.—Section 3(u) of the

25 Federal Deposit Insurance Act, subsections (j) and (k)
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1 of section 7 of such Act, and subsections (b) through

2 (n), (s), (u), and (v) of section 8 of such Act shall

3 apply to an uninsured member bank in the same

4 manner and to the same extent such provisions apply

5 to an insured member bank and any reference in any

6 such provision to ‘insured depository institution’ shall

7 be deemed to be a reference to ‘uninsured member

8 bank’ for purposes of this paragraph.’’.

9 (2) UNINSURED NATIONAL BANKS.—Section 5239

10 of the Revised Statutes of the United States (12

11 U.S.C. 93) is amended—

12 (A) by redesignating the 2d of the 2 sub13 sections designated as subsection (d) as sub14 section (e); and

15 (B) by adding at the end the following new

16 subsection:

17 ‘‘(f) ENFORCEMENT AUTHORITY OVER UNINSURED

18 NATIONAL BANKS.—Section 3(u) of the Federal Deposit In19 surance Act, subsections (j) and (k) of section 7 of such Act,

20 and subsections (b) through (n), (s), (u), and (v) of section

21 8 of such Act shall apply to an uninsured national bank

22 in the same manner and to the same extent such provisions

23 apply to an insured national bank and any reference in

24 any such provision to ‘insured depository institution’ shall
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1 be deemed to be a reference to ‘uninsured national bank’

2 for purposes of this subsection.’’.

3 SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

4 (a) FEDERAL RESERVE ACT.—The last sentence of the

5 eighth undesignated paragraph of section 9 of the Federal

6 Reserve Act (12 U.S.C. 326) is amended to read as follows:

7 ‘‘The Board of Governors of the Federal Reserve System,

8 at its discretion, may furnish reports of examination or

9 other confidential supervisory information concerning State

10 member banks or any other entities examined under any

11 other authority of the Board to any Federal or State au12 thorities with supervisory or regulatory authority over the

13 examined entity, to officers, directors, or receivers of the ex14 amined entity, and to any other person that the Board de15 termines to be proper.’’.

16 (b) COMMODITY FUTURES TRADING COMMISSION.—

17 The Right to Financial Privacy Act of 1978 (12 U.S.C.

18 3401 et seq.) is amended—

19 (1) in section 1101(7) (12 U.S.C. 3401(7))—

20 (A) by redesignating subparagraphs (G)

21 and (H) as subparagraphs (H) and (I), respec22 tively; and

23 (B) by inserting after subparagraph (F) the

24 following new subparagraph:
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1 ‘‘(G) the Commodity Futures Trading Com2 mission; or’’; and

3 (2) in section 1112(e) (12 U.S.C. 3412(e)), by

4 striking ‘‘and the Securities and Exchange Commis5 sion’’ and inserting ‘‘, the Securities and Exchange

6 Commission, and the Commodity Futures Trading

7 Commission’’.

8 SEC. 133. CONFORMING AMENDMENTS.

9 (a) BANK HOLDING COMPANY ACT OF 1956.—

10 (1) DEFINITIONS.—Section 2 of the Bank Hold11 ing Company Act of 1956 (12 U.S.C. 1842) is amend12 ed by adding at the end the following new subsections:

13 ‘‘(p) WHOLESALE FINANCIAL INSTITUTION.—The term

14 ‘wholesale financial institution’ means a wholesale finan15 cial institution subject to section 9B of the Federal Reserve

16 Act.

17 ‘‘(q) COMMISSION.—The term ‘Commission’ means the

18 Securities and Exchange Commission.

19 ‘‘(r) DEPOSITORY INSTITUTION.—The term ‘depository

20 institution’—

21 ‘‘(1) has the same meaning as in section 3 of the

22 Federal Deposit Insurance Act; and

23 ‘‘(2) includes a wholesale financial institution.’’.

24 (2) DEFINITION OF BANK INCLUDES WHOLESALE

25 FINANCIAL INSTITUTION.—Section 2(c)(1) of the Bank
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1 Holding Company Act of 1956 (12 U.S.C. 1841(c)(1))

2 is amended by adding at the end the following new

3 subparagraph:

4 ‘‘(C) A wholesale financial institution.’’.

5 (3) INCORPORATED DEFINITIONS.—Section 2(n)

6 of the Bank Holding Company Act of 1956 (12

7 U.S.C. 1841(n)) is amended by inserting ‘‘ ‘insured

8 bank’,’’ after ‘‘ ‘in danger of default’,’’.

9 (4) EXCEPTION TO DEPOSIT INSURANCE RE10 QUIREMENT.—Section 3(e) of the Bank Holding Com11 pany Act of 1956 (12 U.S.C. 1842(e)) is amended by

12 adding at the end the following: ‘‘This subsection shall

13 not apply to a wholesale financial institution.’’.

14 (b) FEDERAL DEPOSIT INSURANCE ACT.—

15 (1) Section 3(q)(1) of the Federal Deposit Insur16 ance Act (12 U.S.C. 1813(q)(2)(A)) is amended by in17 serting ‘‘national wholesale financial institution au18 thorized by the Comptroller of the Currency pursuant

19 to section 5136B of the Revised Statutes of the United

20 States,’’ after ‘‘District bank,’’.

21 (2) Section 3(q)(2)(A) of the Federal Deposit In22 surance Act (12 U.S.C. 1813(q)(2)(A)) is amended to

23 read as follows:

24 ‘‘(A) any State member insured bank (ex25 cept a District bank) and any wholesale finan-
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1 cial institution as authorized by the Board pur2 suant to section 9B of the Federal Reserve Act,’’.

3 CHAPTER 2—WHOLESALE FINANCIAL

4 INSTITUTIONS

5 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

6 (a) NATIONAL WHOLESALE FINANCIAL INSTITU7 TIONS.—

8 (1) IN GENERAL.—Chapter one of title LXII of

9 the Revised Statutes of the United States (12 U.S.C.

10 21 et seq.) is amended by inserting after section

11 5136A (as added by section 121(a) of this title) the

12 following new section:

13 ‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU14 TIONS.

15 ‘‘(a) AUTHORIZATION OF THE COMPTROLLER RE16 QUIRED.—

17 ‘‘(1) IN GENERAL.—A national bank may apply

18 to the Comptroller on such forms and in accordance

19 with such regulations as the Comptroller may pre20 scribe, for permission to operate as a wholesale finan21 cial institution.

22 ‘‘(2) NATIONAL WHOLESALE FINANCIAL INSTITU23 TION.—Any national bank that is approved by the

24 Comptroller of the Currency to operate as a wholesale
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1 financial institution under paragraph (1) shall be

2 known as a national wholesale financial institution.

3 ‘‘(b) REGULATION.—A national wholesale financial in4 stitution may exercise, in accordance with such institu5 tion’s articles of incorporation and regulations issued by

6 the Comptroller, all the powers and privileges of a national

7 bank formed in accordance with section 5133 of the Revised

8 Statutes of the United States, subject to section 9B of the

9 Federal Reserve Act and the limitations and restrictions

10 contained therein.

11 ‘‘(c) COMMUNITY REINVESTMENT ACT OF 1977.—A

12 national wholesale financial institution shall be subject to

13 the Community Reinvestment Act of 1977.

14 ‘‘(d) LIMIT ON NUMBER.—Not more than 5 national

15 wholesale financial institutions may be chartered by the

16 Comptroller of the Currency.’’.

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions for chapter one of title LXII of the Revised Stat19 utes of the United States is amended by inserting

20 after the item relating to section 5136A (as added by

21 section 121(d) of this title) the following new item:

‘‘5136B. National wholesale financial institutions.’’.

22 (b) WHOLESALE FINANCIAL INSTITUTIONS.—The Fed23 eral Reserve Act (12 U.S.C. 221 et seq.) is amended by in24 serting after section 9A the following new section:
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1 ‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

2 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLESALE

3 FINANCIAL INSTITUTION.—

4 ‘‘(1) APPLICATION REQUIRED.—

5 ‘‘(A) IN GENERAL.—Any bank may apply

6 to the Board of Governors of the Federal Reserve

7 System to become a State wholesale financial in8 stitution, or to the Comptroller of the Currency

9 under section 5136B of the Revised Statutes of

10 the United States to be a national wholesale fi11 nancial institution, and, as a wholesale finan12 cial institution, to subscribe to the stock of the

13 Federal reserve bank organized within the dis14 trict where the applying bank is located.

15 ‘‘(B) TREATMENT AS MEMBER BANK.—Any

16 application under subparagraph (A) shall be

17 treated as an application under, and shall be

18 subject to the provisions of, section 9.

19 ‘‘(C) LIMIT ON NUMBER.—Not more than 5

20 wholesale financial institutions may be approved

21 by the Board under this subsection.

22 ‘‘(2) INSURANCE TERMINATION.—No bank the de23 posits of which are insured under the Federal Deposit

24 Insurance Act may become a wholesale financial in25 stitution unless it has met all requirements under
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1 that Act for voluntary termination of deposit insur2 ance.

3 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

4 WHOLESALE FINANCIAL INSTITUTIONS.—

5 ‘‘(1) FEDERAL RESERVE ACT.—Except as other6 wise provided in this section, wholesale financial in7 stitutions shall be member banks and shall be subject

8 to the provisions of this Act that apply to member

9 banks to the same extent and in the same manner as

10 State member insured banks or national banks, except

11 that a wholesale financial institution may terminate

12 membership under this Act only with the prior writ13 ten approval of the Board and on terms and condi14 tions that the Board determines are appropriate to

15 carry out the purposes of this Act.

16 ‘‘(2) PROMPT CORRECTIVE ACTION.—A wholesale

17 financial institution shall be deemed to be an insured

18 depository institution for purposes of section 38 of the

19 Federal Deposit Insurance Act except that—

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

21 measures for each capital category shall be the

22 levels specified by the Board for wholesale finan23 cial institutions;

24 ‘‘(B) subject to subparagraph (A), all ref25 erences to the appropriate Federal banking agen-
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1 cy or to the Corporation in that section shall be

2 deemed to be references to the Comptroller of the

3 Currency, in the case of a national wholesale fi4 nancial institution authorized under section

5 5136B(a)(1) of the Revised Statutes of the

6 United States, and to the Board, in the case of

7 other wholesale financial institutions; and

8 ‘‘(C) in the case of wholesale financial insti9 tutions, the purpose of prompt corrective action

10 shall be to protect taxpayers and the financial

11 system from risks associated with the operation

12 and activities of wholesale financial institutions.

13 ‘‘(3) ENFORCEMENT AUTHORITY.—Section 3(u),

14 subsections (j) and (k) of section 7, subsections (b)

15 through (n), (s), (u), and (v) of section 8, and section

16 19 of the Federal Deposit Insurance Act shall apply

17 to a wholesale financial institution in the same man18 ner and to the same extent as such provisions apply

19 to State member insured banks or national banks, as

20 the case may be, and any reference in such sections

21 to an insured depository institution shall be deemed

22 to include a reference to a wholesale financial institu23 tion.

24 ‘‘(4) CERTAIN OTHER STATUTES APPLICABLE.—

25 A wholesale financial institution shall be deemed to
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1 be a banking institution, and the Board shall be the

2 appropriate Federal banking agency for such bank

3 and all such bank’s affiliates, for purposes of the

4 International Lending Supervision Act.

5 ‘‘(5) BANK MERGER ACT.—A wholesale financial

6 institution shall be subject to sections 18(c) and 44 of

7 the Federal Deposit Insurance Act in the same man8 ner and to the same extent the wholesale financial in9 stitution would be subject to such sections if the insti10 tution were a State member insured bank or a na11 tional bank.

12 ‘‘(6) BRANCHING.—Notwithstanding any other

13 provision of law, a wholesale financial institution

14 may establish and operate a branch at any location—

15 ‘‘(A) on such terms and conditions as estab16 lished, in the case of a State-chartered wholesale

17 financial institution, by the Board or, in the

18 case of a national wholesale financial institu19 tion, by the Comptroller of the Currency; and

20 ‘‘(B) in the case of a State-chartered whole21 sale financial institution, with the approval of

22 the Board, and, in the case of a national bank

23 wholesale financial institution, with the ap24 proval of the Comptroller of the Currency.
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1 ‘‘(7) ACTIVITIES OF OUT-OF-STATE BRANCHES OF

2 WHOLESALE FINANCIAL INSTITUTIONS.—

3 ‘‘(A) GENERAL.—A State-chartered whole4 sale financial institution shall be deemed to be a

5 State bank and an insured State bank for pur6 poses of paragraphs (1), (2), and (3) of section

7 24(j) of the Federal Deposit Insurance Act, and

8 a national wholesale financial institution shall

9 be deemed to be a national bank for purposes of

10 section 5155(f) of the Revised Statutes of the

11 United States.

12 ‘‘(B) DEFINITIONS.—The following defini13 tions shall apply solely for purposes of applying

14 paragraph (1):

15 ‘‘(i) HOME STATE.—The term ‘home

16 State’ means—

17 ‘‘(I) with respect to a national

18 wholesale financial institution, the

19 State in which the main office of the

20 institution is located; and

21 ‘‘(II) with respect to a State-char22 tered wholesale financial institution,

23 the State by which the institution is

24 chartered.
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1 ‘‘(ii) HOST STATE.—The term ‘host

2 State’ means a State, other than the home

3 State of the wholesale financial institution,

4 in which the institution maintains, or seeks

5 to establish and maintain, a branch.

6 ‘‘(iii) OUT-OF-STATE BANK.—The term

7 ‘out-of-State bank’ means, with respect to

8 any State, a wholesale financial institution

9 whose home State is another State.

10 ‘‘(8) DISCRIMINATION REGARDING INTEREST

11 RATES.—Section 27 of the Federal Deposit Insurance

12 Act shall apply to State-chartered wholesale financial

13 institutions in the same manner and to the same ex14 tent as such provisions apply to State member in15 sured banks and any reference in such section to a

16 State-chartered insured depository institution shall be

17 deemed to include a reference to a State-chartered

18 wholesale financial institution.

19 ‘‘(9) PREEMPTION OF STATE LAWS REQUIRING

20 DEPOSIT INSURANCE FOR WHOLESALE FINANCIAL IN21 STITUTIONS.—The appropriate State banking author22 ity may grant a charter to a wholesale financial in23 stitution notwithstanding any State constitution or

24 statute requiring that the institution obtain insurance

25 of its deposits and any such State constitution or
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1 statute is hereby preempted solely for purposes of this

2 paragraph.

3 ‘‘(10) PARITY FOR WHOLESALE FINANCIAL INSTI4 TUTIONS.—A State bank that is a wholesale financial

5 institution under this section shall have all of the

6 rights, powers, privileges, and immunities (including

7 those derived from status as a federally chartered in8 stitution) of and as if it were a national bank, subject

9 to such terms and conditions as established by the

10 Board.

11 ‘‘(11) COMMUNITY REINVESTMENT ACT OF

12 1977.—A State wholesale financial institution shall be

13 subject to the Community Reinvestment Act of 1977.

14 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

15 WHOLESALE FINANCIAL INSTITUTIONS.—

16 ‘‘(1) LIMITATIONS ON DEPOSITS.—

17 ‘‘(A) MINIMUM AMOUNT.—

18 ‘‘(i) IN GENERAL.—No wholesale finan19 cial institution may receive initial deposits

20 of $100,000 or less, other than on an inci21 dental and occasional basis.

22 ‘‘(ii) LIMITATION ON DEPOSITS OF

23 LESS THAN $100,000.—No wholesale finan24 cial institution may receive initial deposits

25 of $100,000 or less if such deposits con-
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1 stitute more than 5 percent of the institu2 tion’s total deposits.

3 ‘‘(B) NO DEPOSIT INSURANCE.—Except as

4 otherwise provided in section 8A(f) of the Federal

5 Deposit Insurance Act, no deposits held by a

6 wholesale financial institution shall be insured

7 deposits under the Federal Deposit Insurance

8 Act.

9 ‘‘(C) ADVERTISING AND DISCLOSURE.—The

10 Board and the Comptroller of the Currency shall

11 prescribe jointly regulations pertaining to adver12 tising and disclosure by wholesale financial in13 stitutions to ensure that each depositor is noti14 fied that deposits at the wholesale financial in15 stitution are not federally insured or otherwise

16 guaranteed by the United States Government.

17 ‘‘(2) MINIMUM CAPITAL LEVELS APPLICABLE TO

18 WHOLESALE FINANCIAL INSTITUTIONS.—The Board

19 shall, by regulation, adopt capital requirements for

20 wholesale financial institutions—

21 ‘‘(A) to account for the status of wholesale

22 financial institutions as institutions that accept

23 deposits that are not insured under the Federal

24 Deposit Insurance Act; and
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1 ‘‘(B) to provide for the safe and sound oper2 ation of the wholesale financial institution with3 out undue risk to creditors or other persons, in4 cluding Federal reserve banks, engaged in trans5 actions with the bank.

6 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

7 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi8 tion to any requirement otherwise applicable to State

9 member insured banks or applicable, under this sec10 tion, to wholesale financial institutions, the Board

11 may impose, by regulation or order, upon wholesale

12 financial institutions—

13 ‘‘(A) limitations on transactions, direct or

14 indirect, with affiliates to prevent—

15 ‘‘(i) the transfer of risk to the deposit

16 insurance funds; or

17 ‘‘(ii) an affiliate from gaining access

18 to, or the benefits of, credit from a Federal

19 reserve bank, including overdrafts at a Fed20 eral reserve bank;

21 ‘‘(B) special clearing balance requirements;

22 and

23 ‘‘(C) any additional requirements that the

24 Board determines to be appropriate or necessary

25 to—
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1 ‘‘(i) promote the safety and soundness

2 of the wholesale financial institution or any

3 insured depository institution affiliate of

4 the wholesale financial institution;

5 ‘‘(ii) prevent the transfer of risk to the

6 deposit insurance funds; or

7 ‘‘(iii) protect creditors and other per8 sons, including Federal reserve banks, en9 gaged in transactions with the wholesale fi10 nancial institution.

11 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

12 INSTITUTIONS.—The Board may, by regulation or

13 order, exempt any wholesale financial institution

14 from any provision applicable to a member bank that

15 is not a wholesale financial institution, if the Board

16 finds that such exemption is consistent with—

17 ‘‘(A) the promotion of the safety and sound18 ness of the wholesale financial institution or any

19 insured depository institution affiliate of the

20 wholesale financial institution;

21 ‘‘(B) the protection of the deposit insurance

22 funds; and

23 ‘‘(C) the protection of creditors and other

24 persons, including Federal reserve banks, en-
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1 gaged in transactions with the wholesale finan2 cial institution.

3 ‘‘(5) LIMITATION ON TRANSACTIONS BETWEEN A

4 WHOLESALE FINANCIAL INSTITUTION AND AN IN5 SURED BANK.—For purposes of section 23A(d)(1) of

6 the Federal Reserve Act, a wholesale financial institu7 tion that is affiliated with an insured bank shall not

8 be a bank.

9 ‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This

10 section shall not be construed as limiting the Board’s

11 authority over member banks or the authority of the

12 Comptroller of the Currency over national banks

13 under any other provision of law, or to create any ob14 ligation for any Federal Reserve bank to make, in15 crease, renew, or extend any advance or discount

16 under this Act to any member bank or other deposi17 tory institution.

18 ‘‘(d) CAPITAL AND MANAGERIAL REQUIREMENTS.—

19 ‘‘(1) IN GENERAL.—A wholesale financial insti20 tution shall be well capitalized and well managed.

21 ‘‘(2) NOTICE TO COMPANY.—The Board, in the

22 case of a State-chartered wholesale financial institu23 tion, or the Comptroller of the Currency, in the case

24 of a national wholesale financial institution, shall

25 promptly provide notice to a company that controls
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1 a wholesale financial institution whenever such whole2 sale financial institution is not well capitalized or

3 well managed.

4 ‘‘(3) AGREEMENT TO RESTORE INSTITUTION.—

5 Not later than 45 days after the date of receipt of a

6 notice under paragraph (2) (or such additional pe7 riod not to exceed 90 days as the Board or the Comp8 troller of the Currency, as the case may be, may per9 mit), the company shall execute an agreement accept10 able to the Board or the Comptroller of the Currency,

11 as the case may be, to restore the wholesale financial

12 institution to compliance with all of the requirements

13 of paragraph (1).

14 ‘‘(4) LIMITATIONS UNTIL INSTITUTION RE15 STORED.—Until the wholesale financial institution is

16 restored to compliance with all of the requirements of

17 paragraph (1), the Board or the Comptroller of the

18 Currency, as the case may be, may impose such limi19 tations on the conduct or activities of the company or

20 any affiliate of the company as the Board or the

21 Comptroller of the Currency determines to be appro22 priate under the circumstances.

23 ‘‘(5) FAILURE TO RESTORE.—If the company

24 does not execute and implement an agreement in ac25 cordance with paragraph (3), comply with any limi-
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1 tation imposed under paragraph (4), restore the

2 wholesale financial institution to well capitalized sta3 tus not later than 180 days after the date of receipt

4 by the company of the notice described in paragraph

5 (2), or restore the wholesale financial institution to

6 well managed status within such period as the Board

7 may permit, the company shall, under such terms

8 and conditions as may be imposed by the Board or

9 the Comptroller of the Currency, as the case may be

10 and subject to such extension of time as may be

11 granted in the discretion of the Board or the Comp12 troller of the Currency, divest control of its subsidiary

13 depository institutions.

14 ‘‘(6) WELL MANAGED DEFINED.—For purposes of

15 this subsection, the term ‘well managed’ has the same

16 meaning as in section 2 of the Bank Holding Com17 pany Act of 1956.

18 ‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI19 TUTIONS.—

20 ‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—

21 ‘‘(A) APPOINTMENT.—The Board may ap22 point a conservator or receiver for a State-char23 tered wholesale financial institution to the same

24 extent and in the same manner as the Comp-
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1 troller of the Currency may appoint a conser2 vator or receiver for a national bank.

3 ‘‘(B) POWERS.—The conservator or receiver

4 for a wholesale financial institution shall exer5 cise the same powers, functions, and duties, sub6 ject to the same limitations, as a conservator or

7 receiver for a national bank.

8 ‘‘(2) BOARD AUTHORITY.—The Board shall have

9 the same authority with respect to any conservator or

10 receiver appointed for a State-chartered wholesale fi11 nancial institution under paragraph (1), and the

12 wholesale financial institution for which it has been

13 appointed, as the Comptroller of the Currency has

14 with respect to a conservator or receiver for a na15 tional bank and the national bank for which the con16 servator 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 approved by the

20 Comptroller of the Currency under section

21 5136B(a)(1) of the Revised Statutes of the United

22 States) or the Board (in the case of other wholesale

23 financial institutions) may direct the conservator or

24 receiver of a wholesale financial institution to file a

25 petition pursuant to title 11, United States Code, in
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1 which case, title 11, United States Code, shall apply

2 to the wholesale financial institution in lieu of other3 wise applicable Federal or State insolvency law.

4 ‘‘(f) EXCLUSIVE JURISDICTION.—Subsections (c) and

5 (e) of section 43 of the Federal Deposit Insurance Act shall

6 not apply to any wholesale financial institution.’’.

7 (c) VOLUNTARY TERMINATION OF INSURED STATUS BY

8 CERTAIN INSTITUTIONS.—

9 (1) SECTION 8 DESIGNATIONS.—Section 8(a) of

10 the Federal Deposit Insurance Act (12 U.S.C.

11 1818(a)) is amended—

12 (A) by striking paragraph (1); and

13 (B) by redesignating paragraphs (2)

14 through (10) as paragraphs (1) through (9), re15 spectively.

16 (2) VOLUNTARY TERMINATION OF INSURED STA17 TUS.—The Federal Deposit Insurance Act (12 U.S.C.

18 1811 et seq.) is amended by inserting after section 8

19 the following new section:

20 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN21 SURED DEPOSITORY INSTITUTION.

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

23 (b), an insured State bank or a national bank may volun24 tarily terminate such bank’s status as an insured depository
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1 institution in accordance with regulations of the Corpora2 tion if—

3 ‘‘(1) the bank provides written notice of the

4 bank’s intent to terminate such insured status—

5 ‘‘(A) to the Corporation and the Board of

6 Governors of the Federal Reserve System, in the

7 case of an insured State bank, or to the Corpora8 tion and the Comptroller of the Currency, in the

9 case of an insured national bank authorized to

10 operate as a wholesale financial institution, not

11 less than 6 months before the effective date of

12 such termination; and

13 ‘‘(B) to all depositors at such bank, not less

14 than 6 months before the effective date of the ter15 mination of such status; and

16 ‘‘(2) either—

17 ‘‘(A) the deposit insurance fund of which

18 such bank is a member equals or exceeds the

19 fund’s designated reserve ratio as of the date the

20 bank provides a written notice under paragraph

21 (1) and the Corporation determines that the fund

22 will equal or exceed the applicable designated re23 serve ratio for the 2 semiannual assessment peri24 ods immediately following such date; or
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1 ‘‘(B) the Corporation and the Board of Gov2 ernors of the Federal Reserve System, in the case

3 of an insured State bank, or the Corporation and

4 the Comptroller of the Currency, in the case of

5 an insured national bank authorized to operate

6 as a wholesale financial institution, has ap7 proved the termination of the bank’s insured sta8 tus and the bank pays an exit fee in accordance

9 with subsection (e).

10 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply with

11 respect to—

12 ‘‘(1) an insured savings association; or

13 ‘‘(2) an insured branch that is required to be in14 sured under subsection (a) or (b) of section 6 of the

15 International Banking Act of 1978.

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

17 Any bank that voluntarily elects to terminate the bank’s

18 insured status under subsection (a) shall not be eligible for

19 insurance on any deposits or any assistance authorized

20 under this Act after the period specified in subsection (f)(1).

21 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FINAN22 CIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING AC23 TIVITIES.—Any depository institution which voluntarily

24 terminates such institution’s status as an insured deposi25 tory institution under this section may not, upon termi-
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1 nation of insurance, accept any deposits unless the institu2 tion is a wholesale financial institution subject to section

3 9B of the Federal Reserve Act.

4 ‘‘(e) EXIT FEES.—

5 ‘‘(1) IN GENERAL.—Any bank that voluntarily

6 terminates such bank’s status as an insured deposi7 tory institution under this section shall pay an exit

8 fee in an amount that the Corporation determines is

9 sufficient to account for the institution’s pro rata

10 share of the amount (if any) which would be required

11 to restore the relevant deposit insurance fund to the

12 fund’s designated reserve ratio as of the date the bank

13 provides a written notice under subsection (a)(1).

14 ‘‘(2) PROCEDURES.—The Corporation shall pre15 scribe, by regulation, procedures for assessing any exit

16 fee under this subsection.

17 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

18 AS OF TERMINATION.—

19 ‘‘(1) TRANSITION PERIOD.—The insured deposits

20 of each depositor in a State bank or a national bank

21 on the effective date of the voluntary termination of

22 the bank’s insured status, less all subsequent with23 drawals from any deposits of such depositor, shall

24 continue to be insured for a period of not less than

25 6 months and not more than 2 years, as determined
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1 by the Corporation. During such period, no additions

2 to any such deposits, and no new deposits in the de3 pository institution made after the effective date of

4 such termination shall be insured by the Corporation.

5 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

6 AND DUTIES.—During the period specified in para7 graph (1) with respect to any bank, the bank shall

8 continue to pay assessments under section 7 as if the

9 bank were an insured depository institution. The

10 bank shall, in all other respects, be subject to the au11 thority of the Corporation and the duties and obliga12 tions of an insured depository institution under this

13 Act during such period, and in the event that the

14 bank is closed due to an inability to meet the de15 mands of the bank’s depositors during such period,

16 the Corporation shall have the same powers and

17 rights with respect to such bank as in the case of an

18 insured depository institution.

19 ‘‘(g) ADVERTISEMENTS.—

20 ‘‘(1) IN GENERAL.—A bank that voluntarily ter21 minates the bank’s insured status under this section

22 shall not advertise or hold itself out as having insured

23 deposits, except that the bank may advertise the tem24 porary insurance of deposits under subsection (f) if,

25 in connection with any such advertisement, the adver-
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1 tisement also states with equal prominence that addi2 tions to deposits and new deposits made after the ef3 fective date of the termination are not insured.

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

5 AND SECURITIES.—Any certificate of deposit or other

6 obligation or security issued by a State bank or a na7 tional bank after the effective date of the voluntary

8 termination of the bank’s insured status under this

9 section shall be accompanied by a conspicuous,

10 prominently displayed notice that such certificate of

11 deposit or other obligation or security is not insured

12 under this Act.

13 ‘‘(h) NOTICE REQUIREMENTS.—

14 ‘‘(1) NOTICE TO THE CORPORATION.—The notice

15 required under subsection (a)(1)(A) shall be in such

16 form as the Corporation may require.

17 ‘‘(2) NOTICE TO DEPOSITORS.—The notice re18 quired under subsection (a)(1)(B) shall be—

19 ‘‘(A) sent to each depositor’s last address of

20 record with the bank; and

21 ‘‘(B) in such manner and form as the Cor22 poration finds to be necessary and appropriate

23 for the protection of depositors.’’.

24 (3) DEFINITION.—Section 19(b)(1)(A)(i) of the

25 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is
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1 amended by inserting ‘‘, or any wholesale financial

2 institution subject to section 9B of this Act’’ after

3 ‘‘such Act’’.

4 (d) TECHNICAL AND CONFORMING AMENDMENTS TO

5 THE BANKRUPTCY CODE.—

6 (1) BANKRUPTCY CODE DEBTORS.—Section

7 109(b)(2) of title 11, United States Code, is amended

8 by striking ‘‘; or’’ and inserting the following: ‘‘, ex9 cept that—

10 ‘‘(A) a wholesale financial institution estab11 lished under section 5136B of the Revised Stat12 utes of the United States or section 9B of the

13 Federal Reserve Act may be a debtor if a peti14 tion is filed at the direction of the Comptroller

15 of the Currency (in the case of a wholesale finan16 cial institution established under section 5136B

17 of the Revised Statutes of the United States) or

18 the Board of Governors of the Federal Reserve

19 System (in the case of any wholesale financial

20 institution); and

21 ‘‘(B) a corporation organized under section

22 25A of the Federal Reserve Act may be a debtor

23 if a petition is filed at the direction of the Board

24 of Governors of the Federal Reserve System; or’’.
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1 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

2 title 11, United States Code, is amended to read as

3 follows:

4 ‘‘(d) Only a railroad and a person that may be a debt5 or under chapter 7 of this title, except that a stockbroker,

6 a wholesale financial institution established under section

7 5136B of the Revised Statutes of the United States or sec8 tion 9B of the Federal Reserve Act, a corporation organized

9 under section 25A of the Federal Reserve Act, or a com10 modity broker, may be a debtor under chapter 11 of this

11 title.’’.

12 (3) DEFINITION OF FINANCIAL INSTITUTION.—

13 Section 101(22) of title 11, United States Code, is

14 amended to read as follows:

15 ‘‘(22) ‘financial institution’ means a person that

16 is a commercial or savings bank, industrial savings

17 bank, savings and loan association, trust company,

18 wholesale financial institution established under sec19 tion 5136B of the Revised Statutes of the United

20 States or section 9B of the Federal Reserve Act, or

21 corporation organized under section 25A of the Fed22 eral Reserve Act and, when any such person is acting

23 as agent or custodian for a customer in connection

24 with a securities contract, as defined in section 741

25 of this title, such customer,’’.
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1 (4) SUBCHAPTER V OF CHAPTER 7.—

2 (A) IN GENERAL.—Section 103 of title 11,

3 United States Code, is amended—

4 (i) by redesignating subsections (e)

5 through (i) as subsections (f) through (j), re6 spectively; and

7 (ii) by inserting after subsection (d)

8 the following:

9 ‘‘(e) Subchapter V of chapter 7 of this title applies only

10 in a case under such chapter concerning the liquidation of

11 a wholesale financial institution established under section

12 5136B of the Revised Statutes of the United States or sec13 tion 9B of the Federal Reserve Act, or a corporation orga14 nized under section 25A of the Federal Reserve Act.’’.

15 (B) WHOLESALE BANK LIQUIDATION.—

16 Chapter 7 of title 11, United States Code, is

17 amended by adding at the end the following:

18 ‘‘SUBCHAPTER V—WHOLESALE BANK

19 LIQUIDATION

20 ‘‘§ 781. Definitions for subchapter

21 ‘‘In this subchapter—

22 ‘‘(1) the term ‘Board’ means the Board of Gov23 ernors of the Federal Reserve System;
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1 ‘‘(2) the term ‘depository institution’ has the

2 same meaning as in section 3 of the Federal Deposit

3 Insurance Act, and includes any wholesale bank;

4 ‘‘(3) the term ‘national wholesale financial insti5 tution’ means a wholesale financial institution estab6 lished under section 5136B of the Revised Statutes of

7 the United States; and

8 ‘‘(4) the term ‘wholesale bank’ means a national

9 wholesale financial institution, a wholesale financial

10 institution established under section 9B of the Federal

11 Reserve Act, or a corporation organized under section

12 25A of the Federal Reserve Act.

13 ‘‘§ 782. Selection of trustee

14 ‘‘Notwithstanding any other provision of this title, the

15 conservator or receiver who files the petition shall be the

16 trustee under this chapter, unless the Comptroller of the

17 Currency (in the case of a national wholesale financial in18 stitution for which it appointed the conservator or receiver)

19 or the Board (in the case of any wholesale bank for which

20 it appointed the conservator or receiver) designates an al21 ternative trustee. The Comptroller of the Currency or the

22 Board (as applicable) may designate a successor trustee, if

23 required.
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1 ‘‘§ 783. Additional powers of trustee

2 ‘‘(a) The trustee under this subchapter has power, with

3 permission of the court—

4 ‘‘(1) to sell the wholesale bank to a depository in5 stitution or consortium of depository institutions

6 (which consortium may agree on the allocation of the

7 wholesale bank among the consortium);

8 ‘‘(2) to merge the wholesale bank with a deposi9 tory institution;

10 ‘‘(3) to transfer contracts to the same extent as

11 could a receiver for a depository institution under

12 paragraphs (9) and (10) of section 11(e) of the Fed13 eral Deposit Insurance Act;

14 ‘‘(4) to transfer assets or liabilities to a deposi15 tory institution;

16 ‘‘(5) to distribute property not of the estate, in17 cluding distributions to customers that are mandated

18 by subchapters III and IV of this chapter; or

19 ‘‘(6) to transfer assets and liabilities to a bridge

20 bank as provided in paragraphs (1), (3)(A), (5), (6),

21 and (9) through (13), and subparagraphs (A) through

22 (H) and (K) of paragraph (4) of section 11(n) of the

23 Federal Deposit Insurance Act, except that—

24 ‘‘(A) the bridge bank shall be treated as a

25 wholesale bank for the purpose of this subsection;

26 and
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1 ‘‘(B) any references in any such provision

2 of law to the Federal Deposit Insurance Corpora3 tion shall be construed to be references to the ap4 pointing agency and that references to deposit

5 insurance shall be omitted.

6 ‘‘(b) Any reference in this section to transfers of liabil7 ities includes a ratable transfer of liabilities within a pri8 ority class.

9 ‘‘§ 784. Right to be heard

10 ‘‘The Comptroller of the Currency (in the case of a na11 tional wholesale financial institution), the Board (in the

12 case of any wholesale bank), or a Federal Reserve bank (in

13 the case of a wholesale bank that is a member of that bank)

14 may raise and may appear and be heard on any issue in

15 a case under this subchapter.

16 ‘‘§ 785. Expedited transfers

17 ‘‘The trustee may make a transfer pursuant to section

18 783 without prior judicial approval, if the Comptroller of

19 the Currency (in the case of a national wholesale financial

20 institution for which it appointed the conservator or re21 ceiver) or the Board (in the case of any wholesale bank for

22 which it appointed the conservator or receiver) determines

23 that the transfer would be necessary to avert serious adverse

24 effects on economic conditions or financial stability.’’.
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1 (C) CONFORMING AMENDMENT.—The table

2 of sections for chapter 7 of title 11, United States

3 Code, is amended by adding at the end the fol4 lowing:

‘‘SUBCHAPTER V—WHOLESALE BANK LIQUIDATION

‘‘781. Definitions for subchapter.

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.

‘‘785. Expedited transfers.’’.

5 (e) RESOLUTION OF EDGE CORPORATIONS.—The 16th

6 undesignated paragraph of section 25A of the Federal Re7 serve Act (12 U.S.C. 624) is amended to read as follows:

8 ‘‘(16) APPOINTMENT OF RECEIVER OR CONSER9 VATOR.—

10 ‘‘(A) IN GENERAL.—The Board may ap11 point a conservator or receiver for a corporation

12 organized under the provisions of this section to

13 the same extent and in the same manner as the

14 Comptroller of the Currency may appoint a con15 servator or receiver for a national bank, and the

16 conservator or receiver for such corporation shall

17 exercise the same powers, functions, and duties,

18 subject to the same limitations, as a conservator

19 or receiver for a national bank.

20 ‘‘(B) EQUIVALENT AUTHORITY.—The Board

21 shall have the same authority with respect to any

22 conservator or receiver appointed for a corpora-
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1 tion organized under the provisions of this sec2 tion under this paragraph and any such cor3 poration as the Comptroller of the Currency has

4 with respect to a conservator or receiver of a na5 tional bank and the national bank for which a

6 conservator or receiver has been appointed.

7 ‘‘(C) TITLE 11 PETITIONS.—The Board may

8 direct the conservator or receiver of a corpora9 tion organized under the provisions of this sec10 tion to file a petition pursuant to title 11,

11 United States Code, in which case, title 11,

12 United States Code, shall apply to the corpora13 tion in lieu of otherwise applicable Federal or

14 State insolvency law.’’.

15 (f) LIMITATION ON ACCESS TO DISCOUNT WINDOW

16 AND PAYMENT SYSTEM.—Section 19(b)(1) of the Federal

17 Reserve Act (12 U.S.C. 461(b)(1)) is amended by adding

18 at the end the following new subparagraph:

19 ‘‘(G) LIMITATION ON WHOLESALE FINAN20 CIAL INSTITUTIONS.—Not more than 10 whole21 sale financial institutions subject to section 9B

22 of the Federal Reserve Act may be treated by the

23 Board as depository institutions, as defined in

24 subparagraph (A), for purposes of this para25 graph.’’.
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1 Subtitle E—Preservation of FTC

2 Authority

3 SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY

4 ACT OF 1956 TO MODIFY NOTIFICATION AND

5 POST-APPROVAL WAITING PERIOD FOR SEC6 TION 3 TRANSACTIONS.

7 Section 11(b)(1) of the Bank Holding Company Act

8 of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting

9 ‘‘and, if the transaction also involves an acquisition under

10 section 4 or section 6, the Board shall also notify the Fed11 eral Trade Commission of such approval’’ before the period

12 at the end of the first sentence.

13 SEC. 142. INTERAGENCY DATA SHARING.

14 To the extent not prohibited by other law, the Comp15 troller of the Currency, the Director of the Office of Thrift

16 Supervision, the Federal Deposit Insurance Corporation,

17 and the Board of Governors of the Federal Reserve System

18 shall make available to the Attorney General and the Fed19 eral Trade Commission any data in the possession of any

20 such banking agency that the antitrust agency deems nec21 essary for antitrust review of any transaction requiring no22 tice to any such antitrust agency or the approval of such

23 agency under section 3, 4, or 6 of the Bank Holding Com24 pany Act of 1956, section 18(c) of the Federal Deposit In25 surance Act, the National Bank Consolidation and Merger
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1 Act, section 10 of the Home Owners’ Loan Act, or the anti2 trust laws.

3 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES

4 AND AFFILIATES.

5 (a) CLARIFICATION OF FEDERAL TRADE COMMISSION

6 JURISDICTION.—Any person which directly or indirectly

7 controls, is controlled directly or indirectly by, or is directly

8 or indirectly under common control with, any bank or sav9 ings association (as such terms are defined in section 3 of

10 the Federal Deposit Insurance Act) and is not itself a bank

11 or savings association shall not be deemed to be a bank or

12 savings association for purposes of the Federal Trade Com13 mission Act or any other law enforced by the Federal Trade

14 Commission.

15 (b) SAVINGS PROVISION.—No provision of this section

16 shall be construed as restricting the authority of any Fed17 eral banking agency (as defined in section 3 of the Federal

18 Deposit Insurance Act) under any Federal banking law, in19 cluding section 8 of the Federal Deposit Insurance Act.

20 (c) HART-SCOTT-RODINO AMENDMENT.—Section

21 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is amend22 ed by inserting before the semicolon at the end thereof the

23 following: ‘‘, except that a portion of a transaction is not

24 exempt under this paragraph if such portion of the trans25 action (A) requires notice under section 6 of the Bank Hold-
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1 ing Company Act of 1956; and (B) does not require ap2 proval under section 3 or 4 of the Bank Holding Company

3 Act of 1956’’.

4 SEC. 144. ANNUAL GAO REPORT.

5 (a) IN GENERAL.—By the end of the 1-year period be6 ginning on the date of the enactment of this Act and annu7 ally thereafter, the Comptroller General of the United States

8 shall submit a report to the Congress on market concentra9 tion in the financial services industry and its impact on

10 consumers.

11 (b) ANALYSIS.—Each report submitted under sub12 section (a) shall contain an analysis of—

13 (1) the positive and negative effects of affiliations

14 between various types of financial companies, and of

15 acquisitions pursuant to this Act and the amend16 ments made by this Act to other provisions of law, in17 cluding any positive or negative effects on consumers,

18 area markets, and submarkets thereof or on registered

19 securities brokers and dealers which have been pur20 chased by depository institutions or depository insti21 tution holding companies;

22 (2) the changes in business practices and the ef23 fects of any such changes on the availability of ven24 ture capital, consumer credit, and other financial
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1 services or products and the availability of capital

2 and credit for small businesses; and

3 (3) the acquisition patterns among depository

4 institutions, depository institution holding compa5 nies, securities firms, and insurance companies in6 cluding acquisitions among the largest 20 percent of

7 firms and acquisitions within regions or other limited

8 geographical areas.

9 Subtitle F—Applying the Principles

10 of National Treatment and

11 Equality of Competitive Oppor12 tunity to Foreign Banks and For13 eign Financial Institutions

14 SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT15 MENT AND EQUALITY OF COMPETITIVE OP16 PORTUNITY TO FOREIGN BANKS THAT ARE FI17 NANCIAL HOLDING COMPANIES.

18 Section 8(c) of the International Banking Act of 1978

19 (12 U.S.C. 3106(c)) is amended by adding at the end the

20 following new paragraph:

21 ‘‘(3) TERMINATION OF GRANDFATHERED

22 RIGHTS.—

23 ‘‘(A) IN GENERAL.—If any foreign bank or

24 foreign company files a declaration under section

25 6(b)(1)(E) of the Bank Holding Company Act of
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1 1956, or receives a determination under section

2 10(d)(1) of the Bank Holding Company Act of

3 1956, any authority conferred by this subsection

4 on any foreign bank or company to engage in

5 any activity which the Board has determined to

6 be permissible for financial holding companies

7 under section 6 of such Act shall terminate im8 mediately.

9 ‘‘(B) RESTRICTIONS AND REQUIREMENTS

10 AUTHORIZED.—If a foreign bank or company

11 that engages, directly or through an affiliate

12 pursuant to paragraph (1), in an activity which

13 the Board has determined to be permissible for

14 financial holding companies under section 6 of

15 the Bank Holding Company Act of 1956 has not

16 filed a declaration with the Board of its status

17 as a financial holding company under such sec18 tion or received a determination under section

19 10(d)(1) by the end of the 2-year period begin20 ning on the date of enactment of the Financial

21 Services Act of 1999, the Board, giving due re22 gard to the principle of national treatment and

23 equality of competitive opportunity, may impose

24 such restrictions and requirements on the con25 duct of such activities by such foreign bank or
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1 company as are comparable to those imposed on

2 a financial holding company organized under

3 the laws of the United States, including a re4 quirement to conduct such activities in compli5 ance with any prudential safeguards established

6 under section 114 of the Financial Services Act

7 of 1999.’’.

8 SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREAT9 MENT AND EQUALITY OF COMPETITIVE OP10 PORTUNITY TO FOREIGN BANKS AND FOR11 EIGN FINANCIAL INSTITUTIONS THAT ARE

12 WHOLESALE FINANCIAL INSTITUTIONS.

13 Section 8A of the Federal Deposit Insurance Act (as

14 added by section 136(c)(2) of this Act) is amended by add15 ing at the end the following new subsection:

16 ‘‘(i) VOLUNTARY TERMINATION OF DEPOSIT INSUR17 ANCE.—The provisions on voluntary termination of insur18 ance in this section shall apply to an insured branch of

19 a foreign bank (including a Federal branch) in the same

20 manner and to the same extent as they apply to an insured

21 State bank or a national bank.’’.

22 SEC. 153. REPRESENTATIVE OFFICES.

23 (a) DEFINITION OF ‘‘REPRESENTATIVE OFFICE’’.—

24 Section 1(b)(15) of the International Banking Act of 1978

25 (12 U.S.C. 3101(15)) is amended by striking ‘‘State agency,
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1 or subsidiary of a foreign bank’’ and inserting ‘‘or State

2 agency’’.

3 (b) EXAMINATIONS.—Section 10(c) of the Inter4 national Banking Act of 1978 (12 U.S.C. 3107(c)) is

5 amended by adding at the end the following: ‘‘The Board

6 may also make examinations of any affiliate of a foreign

7 bank conducting business in any State if the Board deems

8 it necessary to determine and enforce compliance with this

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

10 1841 et seq.), or other applicable Federal banking law.’’.

11 Subtitle G—Federal Home Loan

12 Bank System Modernization

13 SEC. 161. SHORT TITLE.

14 This subtitle may be cited as the ‘‘Federal Home Loan

15 Bank System Modernization Act of 1999’’.

16 SEC. 162. DEFINITIONS.

17 Section 2 of the Federal Home Loan Bank Act (12

18 U.S.C. 1422) is amended—

19 (1) in paragraph (1), by striking ‘‘term ‘Board’

20 means’’ and inserting ‘‘terms ‘Finance Board’ and

21 ‘Board’ mean’’;

22 (2) by striking paragraph (3) and inserting the

23 following:

24 ‘‘(3) STATE.—The term ‘State’, in addition to

25 the States of the United States, includes the District
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1 of Columbia, Guam, Puerto Rico, the United States

2 Virgin Islands, American Samoa, and the Common3 wealth of the Northern Mariana Islands.’’; and

4 (3) by adding at the end the following new para5 graph:

6 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

7 ‘‘(A) IN GENERAL.—The term ‘community

8 financial institution’ means a member—

9 ‘‘(i) the deposits of which are insured

10 under the Federal Deposit Insurance Act;

11 and

12 ‘‘(ii) that has, as of the date of the

13 transaction at issue, less than $500,000,000

14 in average total assets, based on an average

15 of total assets over the 3 years preceding

16 that date.

17 ‘‘(B) ADJUSTMENTS.—The $500,000,000

18 limit referred to in subparagraph (A)(ii) shall be

19 adjusted annually by the Finance Board, based

20 on the annual percentage increase, if any, in the

21 Consumer Price Index for all urban consumers,

22 as published by the Department of Labor.’’.

23 SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.

24 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

25 1464(f)) is amended to read as follows:
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1 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—On

2 and after January 1, 1999, a Federal savings association

3 may become a member of the Federal Home Loan Bank

4 System, and shall qualify for such membership in the man5 ner provided by the Federal Home Loan Bank Act.’’.

6 SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.

7 (a) IN GENERAL.—Section 10(a) of the Federal Home

8 Loan Bank Act (12 U.S.C. 1430(a)) is amended—

9 (1) by redesignating paragraphs (1) through (4)

10 as subparagraphs (A) through (D), respectively, and

11 indenting appropriately;

12 (2) by striking ‘‘(a) Each’’ and inserting the fol13 lowing:

14 ‘‘(a) IN GENERAL.—

15 ‘‘(1) ALL ADVANCES.—Each’’;

16 (3) by striking the 2d sentence and inserting the

17 following:

18 ‘‘(2) PURPOSES OF ADVANCES.—A long-term ad19 vance 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 business, 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 redesignated

7 by paragraph (1) of this subsection) by striking

8 ‘‘Deposits’’ and inserting ‘‘Cash or deposits’’;

9 (B) in subparagraph (D) (as so redesig10 nated by paragraph (1) of this subsection), by

11 striking the 2d sentence; and

12 (C) by inserting after subparagraph (D) (as

13 so redesignated by paragraph (1) of this sub14 section) the following new subparagraph:

15 ‘‘(E) Secured loans for small business, agri16 culture, rural development, or low-income com17 munity development, or securities representing a

18 whole interest in such secured loans, in the case

19 of any community financial institution.’’;

20 (6) in paragraph (5)—

21 (A) in the 2d sentence, by striking ‘‘and the

22 Board’’;

23 (B) in the 3d sentence, by striking ‘‘Board’’

24 and inserting ‘‘Federal home loan bank’’; and
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1 (C) by striking ‘‘(5) Paragraphs (1) through

2 (4)’’ and inserting the following:

3 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara4 graphs (A) through (E) of paragraph (3)’’; and

5 (7) by adding at the end the following:

6 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND7 ARDS.—The Board may review the collateral stand8 ards applicable to each Federal home loan bank for

9 the classes of collateral described in subparagraphs

10 (D) and (E) of paragraph (3), and may, if necessary

11 for safety and soundness purposes, require an increase

12 in the collateral standards for any or all of those

13 classes of collateral.

14 ‘‘(6) DEFINITIONS.—For purposes of this sub15 section, the terms ‘small business’, ‘agriculture’, ‘rural

16 development’, and ‘low-income community develop17 ment’ shall have the meanings given those terms by

18 rule or regulation of the Finance Board.’’.

19 (b) CLERICAL AMENDMENT.—The section heading for

20 section 10 of the Federal Home Loan Bank Act (12 U.S.C.

21 1430) is amended to read as follows:

22 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

23 (c) CONFORMING AMENDMENTS RELATING TO MEM24 BERS WHICH ARE NOT QUALIFIED THRIFT LENDERS—The

25 1st of the 2 subsections designated as subsection (e) of sec-
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1 tion 10 of the Federal Home Loan Bank Act (12 U.S.C.

2 1430(e)(1)) is amended—

3 (1) in the last sentence of paragraph (1), by in4 serting ‘‘or, in the case of any community financial

5 institution, for the purposes described in subsection

6 (a)(2)’’ before the period; and

7 (2) in paragraph (5)(C), by inserting ‘‘except

8 that, in determining the actual thrift investment per9 centage of any community financial institution for

10 purposes of this subsection, the total investment of

11 such member in loans for small business, agriculture,

12 rural development, or low-income community develop13 ment, or securities representing a whole interest in

14 such loans, shall be treated as a qualified thrift in15 vestment (as defined in such section 10(m))’’ before

16 the period.

17 SEC. 165. ELIGIBILITY CRITERIA.

18 Section 4(a) of the Federal Home Loan Bank Act (12

19 U.S.C. 1424(a)) is amended—

20 (1) in paragraph (2)(A), by inserting, ‘‘(other

21 than a community financial institution)’’ after ‘‘in22 stitution’’; and

23 (2) by adding at the end the following new para24 graph:
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1 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI2 NANCIAL INSTITUTIONS.—A community financial in3 stitution that otherwise meets the requirements of

4 paragraph (2) may become a member without regard

5 to the percentage of its total assets that is represented

6 by residential mortgage loans, as described in sub7 paragraph (A) of paragraph (2).’’.

8 SEC. 166. MANAGEMENT OF BANKS.

9 (a) BOARD OF DIRECTORS.—Section 7(d) of the Fed10 eral Home Loan Bank Act (12 U.S.C. 1427(d)) is

11 amended—

12 (1) by striking ‘‘(d) The term’’ and inserting the

13 following:

14 ‘‘(d) TERMS OF OFFICE.—The term’’; and

15 (2) by striking ‘‘shall be two years’’.

16 (b) COMPENSATION.—Section 7(i) of the Federal Home

17 Loan Bank Act (12 U.S.C. 1427(i)) is amended by striking

18 ‘‘, subject to the approval of the board’’.

19 (c) REPEAL OF SECTIONS 22A AND 27.—The Federal

20 Home Loan Bank Act (12 U.S.C. 1421 et seq.) is amended

21 by striking sections 22A (12 U.S.C. 1442a) and 27 (12

22 U.S.C. 1447).

23 (d) SECTION 12.—Section 12 of the Federal Home

24 Loan Bank Act (12 U.S.C. 1432) is amended—

25 (1) in subsection (a)—
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1 (A) by striking ‘‘, but, except’’ and all that

2 follows through ‘‘ten years’’;

3 (B) by striking ‘‘subject to the approval of

4 the Board’’ the first place that term appears;

5 (C) by striking ‘‘and, by its Board of direc6 tors,’’ and all that follows through ‘‘agent of such

7 bank,’’ and inserting ‘‘and, by the board of direc8 tors of the bank, to prescribe, amend, and repeal

9 by-laws governing the manner in which its af10 fairs may be administered, consistent with ap11 plicable laws and regulations, as administered

12 by the Finance Board. No officer, employee, at13 torney, or agent of a Federal home loan bank’’;

14 and

15 (D) by striking ‘‘Board of directors’’ where

16 such term appears in the penultimate sentence

17 and inserting ‘‘board of directors’’; and

18 (2) in subsection (b), by striking ‘‘loans banks’’

19 and inserting ‘‘loan banks’’.

20 (e) POWERS AND DUTIES OF FEDERAL HOUSING FI21 NANCE BOARD.—

22 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—Sec23 tion 2B(a) of the Federal Home Loan Bank Act (12

24 U.S.C. 1422b(a)) is amended by adding at the end the

25 following new paragraphs:
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1 ‘‘(5) To issue and serve a notice of charges upon

2 a Federal home loan bank or upon any executive offi3 cer or director of a Federal home loan bank if, in the

4 determination of the Finance Board, the bank, execu5 tive officer, or director is engaging or has engaged in,

6 or the Finance Board has reasonable cause to believe

7 that the bank, executive officer, or director is about to

8 engage in, any conduct that violates any provision of

9 this Act or any law, order, rule, or regulation or any

10 condition imposed in writing by the Finance Board

11 in connection with the granting of any application or

12 other request by the bank, or any written agreement

13 entered into by the bank with the agency, in accord14 ance with the procedures provided in section 1371(c)

15 of the Federal Housing Enterprises Financial Safety

16 and Soundness Act of 1992. Such authority includes

17 the same authority to take affirmative action to cor18 rect conditions resulting from violations or practices

19 or to limit activities of a bank or any executive officer

20 or director of a bank as appropriate Federal banking

21 agencies have to take with respect to insured deposi22 tory institutions under paragraphs (6) and (7) of sec23 tion 8(b) of the Federal Deposit Insurance Act, and

24 to have all other powers, rights, and duties to enforce

25 this Act with respect to the Federal home loan banks
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1 and their executive officers and directors as the Office

2 of Federal Housing Enterprise Oversight has to en3 force the Federal Housing Enterprises Financial

4 Safety and Soundness Act of 1992, the Federal Na5 tional Mortgage Association Charter Act, or the Fed6 eral Home Loan Mortgage Corporation Act with re7 spect to the Federal housing enterprises under the

8 Federal Housing Enterprises Financial Safety and

9 Soundness Act of 1992.

10 ‘‘(6) To address any insufficiencies in capital

11 levels resulting from the application of section 5(f) of

12 the Home Owners’ Loan Act.

13 ‘‘(7) To sue and be sued, by and through its own

14 attorneys.’’.

15 (2) TECHNICAL AMENDMENT.—Section 111 of

16 Public Law 93–495 (12 U.S.C. 250) is amended by

17 striking ‘‘Federal Home Loan Bank Board,’’ and in18 serting ‘‘Director of the Office of Thrift Supervision,

19 ‘‘the Federal Housing Finance Board,’’.

20 (f) ELIGIBILITY TO SECURE ADVANCES.—

21 (1) SECTION 9.—Section 9 of the Federal Home

22 Loan Bank Act (12 U.S.C. 1429) is amended—

23 (A) in the 2d sentence, by striking ‘‘with the

24 approval of the Board’’; and
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1 (B) in the 3d sentence, by striking ‘‘, subject

2 to the approval of the Board,’’.

3 (2) SECTION 10.—Section 10 of the Federal

4 Home Loan Bank Act (12 U.S.C. 1430) is amended—

5 (A) in subsection (c)—

6 (i) in the 1st sentence, by striking

7 ‘‘Board’’ and inserting ‘‘Federal home loan

8 bank’’; and

9 (ii) by striking the 2d sentence;

10 (B) in subsection (d)—

11 (i) in the 1st sentence, by striking

12 ‘‘and the approval of the Board’’; and

13 (ii) by striking ‘‘Subject to the ap14 proval of the Board, any’’ and inserting

15 ‘‘Any’’; and

16 (C) in subsection (j)(1)—

17 (i) by striking ‘‘to subsidize the interest

18 rate on advances’’ and inserting ‘‘to provide

19 subsidies, including subsidized interest rates

20 on advances’’;

21 (ii) by striking ‘‘Pursuant’’ and insert22 ing the following:

23 ‘‘(A) ESTABLISHMENT.—Pursuant’’; and

24 (iii) by adding at the end the following

25 new subparagraph:
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1 ‘‘(B) NONDELEGATION OF APPROVAL AU2 THORITY.—Subject to such regulations as the Fi3 nance Board may prescribe, the board of direc4 tors of each Federal home loan bank may ap5 prove or disapprove requests from members for

6 Affordable Housing Program subsidies, and may

7 not delegate such authority.’’.

8 (g) SECTION 16.—Section 16(a) of the Federal Home

9 Loan Bank Act (12 U.S.C. 1436(a)) is amended—

10 (1) in the 3d sentence—

11 (A) by striking ‘‘net earnings’’ and insert12 ing ‘‘previously retained earnings or current net

13 earnings’’; and

14 (B) by striking ‘‘, and then only with the

15 approval of the Federal Housing Finance

16 Board’’; and

17 (2) by striking the 4th sentence.

18 (h) SECTION 18.—Section 18(b) of the Federal Home

19 Loan Bank Act (12 U.S.C. 1438(b)) is amended by striking

20 paragraph (4).

21 SEC. 167. RESOLUTION FUNDING CORPORATION.

22 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Federal

23 Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amend24 ed to read as follows:
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1 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

2 BANKS.—

3 ‘‘(i) IN GENERAL.—To the extent that

4 the amounts available pursuant to subpara5 graphs (A) and (B) are insufficient to cover

6 the amount of interest payments, each Fed7 eral home loan bank shall pay to the Fund8 ing Corporation in each calendar year,

9 20.75 percent of the net earnings of that

10 bank (after deducting expenses relating to

11 section 10(j) and operating expenses).

12 ‘‘(ii) ANNUAL DETERMINATION.—The

13 Board annually shall determine the extent

14 to which the value of the aggregate amounts

15 paid by the Federal home loan banks ex16 ceeds or falls short of the value of an annu17 ity of $300,000,000 per year that com18 mences on the issuance date and ends on the

19 final scheduled maturity date of the obliga20 tions, and shall select appropriate present

21 value factors for making such determina22 tions.

23 ‘‘(iii) PAYMENT TERM ALTERATIONS.—

24 The Board shall extend or shorten the term

25 of the payment obligations of a Federal
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1 home loan bank under this subparagraph as

2 necessary to ensure that the value of all

3 payments made by the banks is equivalent

4 to the value of an annuity referred to in

5 clause (ii).

6 ‘‘(iv) TERM BEYOND MATURITY.—If the

7 Board extends the term of payments beyond

8 the final scheduled maturity date for the ob9 ligations, each Federal home loan bank shall

10 continue to pay 20.75 percent of its net

11 earnings (after deducting expenses relating

12 to section 10(j) and operating expenses) to

13 the Treasury of the United States until the

14 value of all such payments by the Federal

15 home loan banks is equivalent to the value

16 of an annuity referred to in clause (ii). In

17 the final year in which the Federal home

18 loan banks are required to make any pay19 ment to the Treasury under this subpara20 graph, if the dollar amount represented by

21 20.75 percent of the net earnings of the Fed22 eral home loan banks exceeds the remaining

23 obligation of the banks to the Treasury, the

24 Finance Board shall reduce the percentage
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1 pro rata to a level sufficient to pay the re2 maining obligation.’’.

3 (b) EFFECTIVE DATE.—The amendment made by sub4 section (a) shall become effective on January 1, 1999. Pay5 ments made by a Federal home loan bank before that effec6 tive date shall be counted toward the total obligation of that

7 bank under section 21B(f)(2)(C) of the Federal Home Loan

8 Bank Act, as amended by this section.

9 SEC. 168. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

10 BANKS.

11 Section 6 of the Federal Home Loan Bank Act (12

12 U.S.C. 1426) is amended to read as follows:

13 ‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

14 BANKS.

15 ‘‘(a) REGULATIONS.—

16 ‘‘(1) CAPITAL STANDARDS.—Not later than 1

17 year after the date of enactment of the Financial

18 Services Act of 1999, the Finance Board shall issue

19 regulations prescribing uniform capital standards ap20 plicable to each Federal home loan bank, which shall

21 require each such bank to meet—

22 ‘‘(A) the leverage requirement specified in

23 paragraph (2); and

24 ‘‘(B) the risk-based capital requirements, in

25 accordance with paragraph (3).
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1 ‘‘(2) LEVERAGE REQUIREMENT.—

2 ‘‘(A) IN GENERAL.—The leverage require3 ment shall require each Federal home loan bank

4 to maintain a minimum amount of total capital

5 based on the aggregate on-balance sheet assets of

6 the bank and shall be 5 percent.

7 ‘‘(B) TREATMENT OF STOCK AND RETAINED

8 EARNINGS.—In determining compliance with the

9 minimum leverage ratio established under sub10 paragraph (A), the paid-in value of the out11 standing Class B stock shall be multiplied by

12 1.5, the paid-in value of the outstanding Class C

13 stock and the amount of retained earnings shall

14 be multiplied by 2.0, and such higher amounts

15 shall be deemed to be capital for purposes of

16 meeting the 5 percent minimum leverage ratio.

17 ‘‘(3) RISK-BASED CAPITAL STANDARDS.—

18 ‘‘(A) IN GENERAL.—Each Federal home

19 loan bank shall maintain permanent capital in

20 an amount that is sufficient, as determined in

21 accordance with the regulations of the Finance

22 Board, to meet—

23 ‘‘(i) the credit risk to which the Fed24 eral home loan bank is subject; and
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1 ‘‘(ii) the market risk, including inter2 est rate risk, to which the Federal home

3 loan bank is subject, based on a stress test

4 established by the Finance Board that rigor5 ously tests for changes in market variables,

6 including changes in interest rates, rate vol7 atility, and changes in the shape of the

8 yield curve.

9 ‘‘(B) CONSIDERATION OF OTHER RISK10 BASED STANDARDS.—In establishing the risk11 based standard under subparagraph (A)(ii), the

12 Finance Board shall take due consideration of

13 any risk-based capital test established pursuant

14 to section 1361 of the Federal Housing Enter15 prises Financial Safety and Soundness Act of

16 1992 (12 U.S.C. 4611) for the enterprises (as de17 fined in that Act), with such modifications as

18 the Finance Board determines to be appropriate

19 to reflect differences in operations between the

20 Federal home loan banks and those enterprises.

21 ‘‘(4) OTHER REGULATORY REQUIREMENTS.—The

22 regulations issued by the Finance Board under para23 graph (1) shall—

24 ‘‘(A) permit each Federal home loan bank to

25 issue, with such rights, terms, and preferences,
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1 not inconsistent with this Act and the regula2 tions issued hereunder, as the board of directors

3 of that bank may approve, any 1 or more of—

4 ‘‘(i) Class A stock, which shall be re5 deemable in cash and at par 6 months fol6 lowing submission by a member of a writ7 ten notice of its intent to redeem such

8 shares;

9 ‘‘(ii) Class B stock, which shall be re10 deemable in cash and at par 5 years fol11 lowing submission by a member of a writ12 ten notice of its intent to redeem such

13 shares; and

14 ‘‘(iii) Class C stock, which shall be

15 nonredeemable;

16 ‘‘(B) provide that the stock of a Federal

17 home loan bank may be issued to and held by

18 only members of the bank, and that a bank may

19 not issue any stock other than as provided in

20 this section;

21 ‘‘(C) prescribe the manner in which stock of

22 a Federal home loan bank may be sold, trans23 ferred, redeemed, or repurchased; and

24 ‘‘(D) provide the manner of disposition of

25 outstanding stock held by, and the liquidation of
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1 any claims of the Federal home loan bank

2 against, an institution that ceases to be a mem3 ber of the bank, through merger or otherwise, or

4 that provides notice of intention to withdraw

5 from membership in the bank.

6 ‘‘(5) DEFINITIONS OF CAPITAL.—For purposes of

7 determining compliance with the capital standards

8 established under this subsection—

9 ‘‘(A) permanent capital of a Federal home

10 loan bank shall include (as determined in ac11 cordance with generally accepted accounting

12 principles)—

13 ‘‘(i) the amounts paid for the Class C

14 stock and any other nonredeemable stock

15 approved by the Finance Board;

16 ‘‘(ii) the amounts paid for the Class B

17 stock, in an amount not to exceed 1 percent

18 of the total assets of the bank; and

19 ‘‘(iii) the retained earnings of the

20 bank; and

21 ‘‘(B) total capital of a Federal home loan

22 bank shall include—

23 ‘‘(i) permanent capital;

24 ‘‘(ii) the amounts paid for the Class A

25 stock, Class B stock (excluding any amount
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1 treated as permanent capital under sub2 paragraph (5)(A)(ii)), or any other class of

3 redeemable stock approved by the Finance

4 Board;

5 ‘‘(iii) consistent with generally accept6 ed accounting principles, and subject to the

7 regulation of the Finance Board, a general

8 allowance for losses, which may not include

9 any reserves or allowances made or held

10 against specific assets; and

11 ‘‘(iv) any other amounts from sources

12 available to absorb losses incurred by the

13 bank that the Finance Board determines by

14 regulation to be appropriate to include in

15 determining total capital.

16 ‘‘(6) TRANSITION PERIOD.—Notwithstanding any

17 other provisions of this Act, the requirements relating

18 to purchase and retention of capital stock of a Federal

19 home loan bank by any member thereof in effect on

20 the day before the date of enactment of the Federal

21 Home Loan Bank System Modernization Act of 1999,

22 shall continue in effect with respect to each Federal

23 home loan bank until the regulations required by this

24 subsection have taken effect and the capital structure
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1 plan required by subsection (b) has been approved by

2 the Finance Board and implemented by such bank.

3 ‘‘(b) CAPITAL STRUCTURE PLAN.—

4 ‘‘(1) APPROVAL OF PLANS.—Not later than 270

5 days after the date of publication by the Finance

6 Board of final regulations in accordance with sub7 section (a), the board of directors of each Federal

8 home loan bank shall submit for Finance Board ap9 proval a plan establishing and implementing a cap10 ital structure for such bank that—

11 ‘‘(A) the board of directors determines is

12 best suited for the condition and operation of the

13 bank and the interests of the members of the

14 bank;

15 ‘‘(B) meets the requirements of subsection

16 (c); and

17 ‘‘(C) meets the minimum capital standards

18 and requirements established under subsection

19 (a) and other regulations prescribed by the Fi20 nance Board.

21 ‘‘(2) APPROVAL OF MODIFICATIONS.—The board

22 of directors of a Federal home loan bank shall submit

23 to the Finance Board for approval any modifications

24 that the bank proposes to make to an approved cap25 ital structure plan.
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1 ‘‘(c) CONTENTS OF PLAN.—The capital structure plan

2 of each Federal home loan bank shall contain provisions

3 addressing each of the following:

4 ‘‘(1) MINIMUM INVESTMENT.—

5 ‘‘(A) IN GENERAL.—Each capital structure

6 plan of a Federal home loan bank shall require

7 each member of the bank to maintain a min8 imum investment in the stock of the bank, the

9 amount of which shall be determined in a man10 ner to be prescribed by the board of directors of

11 each bank and to be included as part of the plan.

12 ‘‘(B) INVESTMENT ALTERNATIVES.—

13 ‘‘(i) IN GENERAL.—In establishing the

14 minimum investment required for each

15 member under subparagraph (A), a Federal

16 home loan bank may, in its discretion, in17 clude any 1 or more of the requirements re18 ferred to in clause (ii), or any other provi19 sions approved by the Finance Board.

20 ‘‘(ii) AUTHORIZED REQUIREMENTS.—

21 A requirement is referred to in this clause

22 if it is a requirement for—

23 ‘‘(I) a stock purchase based on a

24 percentage of the total assets of a mem25 ber; or
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1 ‘‘(II) a stock purchase based on a

2 percentage of the outstanding advances

3 from the bank to the member.

4 ‘‘(C) MINIMUM AMOUNT.—Each capital

5 structure plan of a Federal home loan bank shall

6 require that the minimum stock investment es7 tablished for members shall be set at a level that

8 is sufficient for the bank to meet the minimum

9 capital requirements established by the Finance

10 Board under subsection (a).

11 ‘‘(D) ADJUSTMENTS TO MINIMUM REQUIRED

12 INVESTMENT.—The capital structure plan of

13 each Federal home loan bank shall impose a con14 tinuing obligation on the board of directors of

15 the bank to review and adjust the minimum in16 vestment required of each member of that bank,

17 as necessary to ensure that the bank remains in

18 compliance with applicable minimum capital

19 levels established by the Finance Board, and

20 shall require each member to comply promptly

21 with any adjustments to the required minimum

22 investment.

23 ‘‘(2) TRANSITION RULE.—

24 ‘‘(A) IN GENERAL.—The capital structure

25 plan of each Federal home loan bank shall speci-
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1 fy the date on which it shall take effect, and may

2 provide for a transition period of not longer

3 than 3 years to allow the bank to come into com4 pliance with the capital requirements prescribed

5 under subsection (a), and to allow any institu6 tion that was a member of the bank on the date

7 of enactment of the Financial Services Act of

8 1999, to come into compliance with the min9 imum investment required pursuant to the plan.

10 ‘‘(B) INTERIM PURCHASE REQUIRE11 MENTS.—The capital structure plan of a Federal

12 home loan bank may allow any member referred

13 to in subparagraph (A) that would be required

14 by the terms of the capital structure plan to in15 crease its investment in the stock of the bank to

16 do so in periodic installments during the transi17 tion period.

18 ‘‘(3) DISPOSITION OF SHARES.—The capital

19 structure plan of a Federal home loan bank shall pro20 vide for the manner of disposition of any stock held

21 by a member of that bank that terminates its mem22 bership or that provides notice of its intention to

23 withdraw from membership in that bank.

24 ‘‘(4) CLASSES OF STOCK.—
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1 ‘‘(A) IN GENERAL.—The capital structure

2 plan of a Federal home loan bank shall afford

3 each member of that bank the option of main4 taining its required investment in the bank

5 through the purchase of any combination of

6 classes of stock authorized by the board of direc7 tors of the bank and approved by the Finance

8 Board in accordance with its regulations.

9 ‘‘(B) RIGHTS REQUIREMENT.—A Federal

10 home loan bank shall include in its capital

11 structure plan provisions establishing terms,

12 rights, and preferences, including minimum in13 vestment, dividends, voting, and liquidation

14 preferences of each class of stock issued by the

15 bank, consistent with Finance Board regulations

16 and market requirements.

17 ‘‘(C) REDUCED MINIMUM INVESTMENT.—

18 The capital structure plan of a Federal home

19 loan bank may provide for a reduced minimum

20 stock investment for any member of that bank

21 that elects to purchase Class B, Class C, or any

22 other class of nonredeemable stock, in a manner

23 that is consistent with meeting the minimum

24 capital requirements of the bank, as established

25 by the Finance Board.
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1 ‘‘(D) LIQUIDATION OF CLAIMS.—The capital

2 structure plan of a Federal home loan bank shall

3 provide for the liquidation in an orderly man4 ner, as determined by the bank, of any claim of

5 that bank against a member, including claims

6 for any applicable prepayment fees or penalties

7 resulting from prepayment of advances prior to

8 stated maturity.

9 ‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—

10 The capital structure plan of a Federal home loan

11 bank shall—

12 ‘‘(A) provide that—

13 ‘‘(i) any stock issued by that bank

14 shall be available only to, held only by, and

15 tradable only among members of that bank

16 and between that bank and its members;

17 and

18 ‘‘(ii) a bank has no obligation to re19 purchase its outstanding Class C stock but

20 may do so, provided it is consistent with

21 Finance Board regulations and is at a price

22 that is mutually agreeable to the bank and

23 the member; and

24 ‘‘(B) establish standards, criteria, and re25 quirements for the issuance, purchase, transfer,
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1 retirement, and redemption of stock issued by

2 that bank.

3 ‘‘(6) BANK REVIEW OF PLAN.—Before filing a

4 capital structure plan with the Finance Board, each

5 Federal home loan bank shall conduct a review of the

6 plan by—

7 ‘‘(A) an independent certified public ac8 countant, to ensure, to the extent possible, that

9 implementation of the plan would not result in

10 any write-down of the redeemable bank stock in11 vestment of its members; and

12 ‘‘(B) at least 1 major credit rating agency,

13 to determine, to the extent possible, whether im14 plementation of the plan would have any mate15 rial effect on the credit ratings of the bank.

16 ‘‘(d) TERMINATION OF MEMBERSHIP.—

17 ‘‘(1) VOLUNTARY WITHDRAWAL.—Any member

18 may withdraw from a Federal home loan bank by

19 providing written notice to the bank of its intent to

20 do so. The applicable stock redemption notice periods

21 shall commence upon receipt of the notice by the

22 bank. Upon the expiration of the applicable notice pe23 riod for each class of redeemable stock, the member

24 may surrender such stock to the bank, and shall be

25 entitled to receive in cash the par value of the stock.
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1 During the applicable notice periods, the member

2 shall be entitled to dividends and other membership

3 rights commensurate with continuing stock owner4 ship.

5 ‘‘(2) INVOLUNTARY WITHDRAWAL.—

6 ‘‘(A) IN GENERAL.—The board of directors

7 of a Federal home loan bank may terminate the

8 membership of any institution if, subject to Fi9 nance Board regulations, it determines that—

10 ‘‘(i) the member has failed to comply

11 with a provision of this Act or any regula12 tion prescribed under this Act; or

13 ‘‘(ii) the member has been determined

14 to be insolvent, or otherwise subject to the

15 appointment of a conservator, receiver, or

16 other legal custodian, by a State or Federal

17 authority with regulatory and supervisory

18 responsibility for the member.

19 ‘‘(B) STOCK DISPOSITION.—An institution,

20 the membership of which is terminated in ac21 cordance with subparagraph (A)—

22 ‘‘(i) shall surrender redeemable stock to

23 the Federal home loan bank, and shall re24 ceive in cash the par value of the stock,
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1 upon the expiration of the applicable notice

2 period under subsection (a)(4)(A);

3 ‘‘(ii) shall receive any dividends de4 clared on its redeemable stock, during the

5 applicable notice period under subsection

6 (a)(4)(A); and

7 ‘‘(iii) shall not be entitled to any other

8 rights or privileges accorded to members

9 after the date of the termination.

10 ‘‘(C) COMMENCEMENT OF NOTICE PE11 RIOD.—With respect to an institution, the mem12 bership of which is terminated in accordance

13 with subparagraph (A), the applicable notice pe14 riod under subsection (a)(4) for each class of re15 deemable stock shall commence on the earlier

16 of—

17 ‘‘(i) the date of such termination; or

18 ‘‘(ii) the date on which the member has

19 provided notice of its intent to redeem such

20 stock.

21 ‘‘(3) LIQUIDATION OF INDEBTEDNESS.—Upon

22 the termination of the membership of an institution

23 for any reason, the outstanding indebtedness of the

24 member to the bank shall be liquidated in an orderly

25 manner, as determined by the bank and, upon the ex-
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1 tinguishment of all such indebtedness, the bank shall

2 return to the member all collateral pledged to secure

3 the indebtedness.

4 ‘‘(e) REDEMPTION OF EXCESS STOCK.—

5 ‘‘(1) IN GENERAL.—A Federal home loan bank,

6 in its sole discretion, may redeem or repurchase, as

7 appropriate, any shares of Class A or Class B stock

8 issued by the bank and held by a member that are in

9 excess of the minimum stock investment required of

10 that member.

11 ‘‘(2) EXCESS STOCK.—Shares of stock held by a

12 member shall not be deemed to be ‘excess stock’ for

13 purposes of this subsection by virtue of a member’s

14 submission of a notice of intent to withdraw from

15 membership or termination of its membership in any

16 other manner.

17 ‘‘(3) PRIORITY.—A Federal home loan bank may

18 not redeem any excess Class B stock prior to the end

19 of the 5-year notice period, unless the member has no

20 Class A stock outstanding that could be redeemed as

21 excess.

22 ‘‘(f) IMPAIRMENT OF CAPITAL.—If the Finance Board

23 or the board of directors of a Federal home loan bank deter24 mines that the bank has incurred or is likely to incur losses

25 that result in or are expected to result in charges against
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1 the capital of the bank, the bank shall not redeem or repur2 chase any stock of the bank without the prior approval of

3 the Finance Board while such charges are continuing or

4 are expected to continue. In no case may a bank redeem

5 or repurchase any applicable capital stock if, following the

6 redemption, the bank would fail to satisfy any minimum

7 capital requirement.

8 ‘‘(g) REJOINING AFTER DIVESTITURE OF ALL

9 SHARES.—

10 ‘‘(1) IN GENERAL.—Except as provided in para11 graph (2), and notwithstanding any other provision

12 of this Act, an institution that divests all shares of

13 stock in a Federal home loan bank may not, after

14 such divestiture, acquire shares of any Federal home

15 loan bank before the end of the 5-year period begin16 ning on the date of the completion of such divestiture,

17 unless the divestiture is a consequence of a transfer of

18 membership on an uninterrupted basis between banks.

19 ‘‘(2) EXCEPTION FOR WITHDRAWALS FROM MEM20 BERSHIP BEFORE 1998.—Any institution that with21 drew from membership in any Federal home loan

22 bank before December 31, 1997, may acquire shares of

23 a Federal home loan bank at any time after that date,

24 subject to the approval of the Finance Board and the

25 requirements of this Act.
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1 ‘‘(h) TREATMENT OF RETAINED EARNINGS.—

2 ‘‘(1) IN GENERAL.—The holders of the Class C

3 stock of a Federal home loan bank, and any other

4 classes of nonredeemable stock approved by the Fi5 nance Board (to the extent provided in the terms

6 thereof), shall own the retained earnings, surplus, un7 divided profits, and equity reserves, if any, of the

8 bank.

9 ‘‘(2) NO NONREDEEMABLE CLASSES OF STOCK.—

10 If a Federal home loan bank has no outstanding Class

11 C or other such nonredeemable stock, then the holders

12 of any other classes of stock of the bank then out13 standing shall have ownership in, and a private

14 property right in, the retained earnings, surplus, un15 divided profits, and equity reserves, if any, of the

16 bank.

17 ‘‘(3) EXCEPTION.—Except as specifically pro18 vided in this section or through the declaration of a

19 dividend or a capital distribution by a Federal home

20 loan bank, or in the event of liquidation of the bank,

21 a member shall have no right to withdraw or other22 wise receive distribution of any portion of the re23 tained earnings of the bank.

24 ‘‘(4) LIMITATION.—A Federal home loan bank

25 may not make any distribution of its retained earn-
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1 ings unless, following such distribution, the bank

2 would continue to meet all applicable capital require3 ments.’’.

4 Subtitle H—ATM Fee Reform

5 SEC. 171. SHORT TITLE.

6 This subtitle may be cited as the ‘‘ATM Fee Reform

7 Act of 1999’’.

8 SEC. 172. ELECTRONIC FUND TRANSFER FEE DISCLOSURES

9 AT ANY HOST ATM.

10 Section 904(d) of the Electronic Fund Transfer Act (15

11 U.S.C. 1693b(d)) is amended by adding at the end the fol12 lowing new paragraph:

13 ‘‘(3) FEE DISCLOSURES AT AUTOMATED TELLER

14 MACHINES.—

15 ‘‘(A) IN GENERAL.—The regulations pre16 scribed under paragraph (1) shall require any

17 automated teller machine operator who imposes

18 a fee on any consumer for providing host trans19 fer services to such consumer to provide notice in

20 accordance with subparagraph (B) to the con21 sumer (at the time the service is provided) of—

22 ‘‘(i) the fact that a fee is imposed by

23 such operator for providing the service; and

24 ‘‘(ii) the amount of any such fee.

25 ‘‘(B) NOTICE REQUIREMENTS.—
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1 ‘‘(i) ON THE MACHINE.—The notice re2 quired under clause (i) of subparagraph (A)

3 with respect to any fee described in such

4 subparagraph shall be posted in a promi5 nent and conspicuous location on or at the

6 automated teller machine at which the elec7 tronic fund transfer is initiated by the con8 sumer; and

9 ‘‘(ii) ON THE SCREEN.—The notice re10 quired under clauses (i) and (ii) of sub11 paragraph (A) with respect to any fee de12 scribed in such subparagraph shall appear

13 on the screen of the automated teller ma14 chine, or on a paper notice issued from such

15 machine, after the transaction is initiated

16 and before the consumer is irrevocably com17 mitted to completing the transaction.

18 ‘‘(C) PROHIBITION ON FEES NOT PROPERLY

19 DISCLOSED AND EXPLICITLY ASSUMED BY CON20 SUMER.—No fee may be imposed by any auto21 mated teller machine operator in connection

22 with any electronic fund transfer initiated by a

23 consumer for which a notice is required under

24 subparagraph (A), unless—
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1 ‘‘(i) the consumer receives such notice

2 in accordance with subparagraph (B); and

3 ‘‘(ii) the consumer elects to continue in

4 the manner necessary to effect the trans5 action after receiving such notice.

6 ‘‘(D) DEFINITIONS.—For purposes of this

7 paragraph, the following definitions shall apply:

8 ‘‘(i) ELECTRONIC FUND TRANSFER.—

9 The term ‘electronic fund transfer’ includes

10 a transaction which involves a balance in11 quiry initiated by a consumer in the same

12 manner as an electronic fund transfer,

13 whether or not the consumer initiates a

14 transfer of funds in the course of the trans15 action.

16 ‘‘(ii) AUTOMATED TELLER MACHINE

17 OPERATOR.—The term ‘automated teller

18 machine operator’ means any person who—

19 ‘‘(I) operates an automated teller

20 machine at which consumers initiate

21 electronic fund transfers; and

22 ‘‘(II) is not the financial institu23 tion which holds the account of such

24 consumer from which the transfer is

25 made.
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1 ‘‘(iii) HOST TRANSFER SERVICES.—

2 The term ‘host transfer services’ means any

3 electronic fund transfer made by an auto4 mated teller machine operator in connection

5 with a transaction initiated by a consumer

6 at an automated teller machine operated by

7 such operator.’’.

8 SEC. 173. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS

9 WHEN ATM CARD IS ISSUED.

10 Section 905(a) of the Electronic Fund Transfer Act (15

11 U.S.C. 1693c(a)) is amended—

12 (1) by striking ‘‘and’’ at the end of paragraph

13 (8);

14 (2) by striking the period at the end of para15 graph (9) and inserting ‘‘; and’’; and

16 (3) by inserting after paragraph (9) the fol17 lowing new paragraph:

18 ‘‘(10) a notice to the consumer that a fee may be

19 imposed by—

20 ‘‘(A) an automated teller machine operator

21 (as defined in section 904(d)(3)(D)(ii)) if the

22 consumer initiates a transfer from an automated

23 teller machine which is not operated by the per24 son issuing the card or other means of access;

25 and
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1 ‘‘(B) any national, regional, or local net2 work utilized to effect the transaction.’’.

3 SEC. 174. FEASIBILITY STUDY.

4 (a) IN GENERAL.—The Comptroller General of the

5 United States shall conduct a study of the feasibility of re6 quiring, in connection with any electronic fund transfer

7 initiated by a consumer through the use of an automated

8 teller machine—

9 (1) a notice to be provided to the consumer before

10 the consumer is irrevocably committed to completing

11 the transaction, which clearly states the amount of

12 any fee which will be imposed upon the consumma13 tion of the transaction by—

14 (A) any automated teller machine operator

15 (as defined in section 904(d)(2)(D)(ii) of the

16 Electronic Fund Transfer Act) involved in the

17 transaction;

18 (B) the financial institution holding the ac19 count of the consumer;

20 (C) any national, regional, or local network

21 utilized to effect the transaction; and

22 (D) any other party involved in the trans23 fer; and
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1 (2) the consumer to elect to consummate the

2 transaction after receiving the notice described in

3 paragraph (1).

4 (b) FACTORS TO BE CONSIDERED.—In conducting the

5 study required under subsection (a) with regard to the no6 tice requirement described in such subsection, the Comp7 troller General shall consider the following factors:

8 (1) The availability of appropriate technology.

9 (2) Implementation and operating costs.

10 (3) The competitive impact any such notice re11 quirement would have on various sizes and types of

12 institutions, if implemented.

13 (4) The period of time which would be reasonable

14 for implementing any such notice requirement.

15 (5) The extent to which consumers would benefit

16 from any such notice requirement.

17 (6) Any other factor the Comptroller General de18 termines to be appropriate in analyzing the feasi19 bility of imposing any such notice requirement.

20 (c) REPORT TO THE CONGRESS.—Before the end of the

21 6-month period beginning on the date of the enactment of

22 this Act, the Comptroller General shall submit a report to

23 the Congress containing—
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1 (1) the findings and conclusions of the Comp2 troller General in connection with the study required

3 under subsection (a); and

4 (2) the recommendation of the Comptroller Gen5 eral with regard to the question of whether a notice

6 requirement described in subsection (a) should be im7 plemented and, if so, how such requirement should be

8 implemented.

9 SEC. 175. NO LIABILITY IF POSTED NOTICES ARE DAMAGED.

10 Section 910 of the Electronic Fund Transfer Act (15

11 U.S.C 1693h) is amended by adding at the end the following

12 new subsection:

13 ‘‘(d) EXCEPTION FOR DAMAGED NOTICES.—If the no14 tice required to be posted pursuant to section

15 904(d)(3)(B)(i) by an automated teller machine operator

16 has been posted by such operator in compliance with such

17 section and the notice is subsequently removed, damaged,

18 or altered by any person other than the operator of the auto19 mated teller machine, the operator shall have no liability

20 under this section for failure to comply with section

21 904(d)(3)(B)(i).’’.
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1 Subtitle I—Customer Service,

2 Education, and Privacy

3 SEC. 176. CUSTOMER SERVICE AND EDUCATION REGULA4 TIONS.

5 The Federal Deposit Insurance Act (12 U.S.C. 1811

6 et seq.) is amended by inserting after section 46 (as added

7 by section 124 of this title) the following new section:

8 ‘‘SEC. 47. CUSTOMER SERVICE AND EDUCATION REGULA9 TIONS.

10 ‘‘(a) REGULATIONS REQUIRED.—

11 ‘‘(1) IN GENERAL.—The Federal banking agen12 cies shall prescribe and publish in final form, before

13 the end of the 1-year period beginning on the date of

14 enactment of the Financial Services Act of 1999, cus15 tomer protection regulations (which the agencies

16 jointly determine to be appropriate) that—

17 ‘‘(A) apply to retail sales practices, solicita18 tions, advertising, or offers of any nondeposit

19 product by any insured depository institution or

20 any person who is engaged in such activities at

21 an office of the institution or on behalf of the in22 stitution; and

23 ‘‘(B) are consistent with the requirements of

24 this Act and provide such additional protections

25 for customers to whom such sales, solicitations,
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1 advertising, or offers are directed as the agency

2 determines to be appropriate.

3 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The reg4 ulations prescribed pursuant to paragraph (1) shall

5 extend such protections to any subsidiary of an in6 sured depository institution, as deemed appropriate

7 by the regulators referred to in paragraph (3), where

8 such extension is determined to be necessary to ensure

9 the customer protections provided by this section.

10 ‘‘(3) CONSULTATION AND JOINT REGULATIONS.—

11 The Federal banking agencies shall consult with each

12 other and prescribe joint regulations pursuant to

13 paragraph (1), after consultation with the Securities

14 and Exchange Commission and the State insurance

15 regulators, as appropriate.

16 ‘‘(4) NONDEPOSIT PRODUCT DEFINED.—For pur17 poses of this section, the term ‘nondeposit product’—

18 ‘‘(A) means any investment and insurance

19 product which is not a deposit;

20 ‘‘(B) includes shares issued by a registered

21 investment company; and

22 ‘‘(C) does not include—

23 ‘‘(i) any loan or any other extension of

24 credit by an insured depository institution;

25 ‘‘(ii) any letter of credit;
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1 ‘‘(iii) any trust services;

2 ‘‘(iv) any discount; or

3 ‘‘(v) any other instrument or insurance

4 or investment product specifically excluded

5 from the definition of such term by regula6 tions prescribed jointly by the Federal bank7 ing agencies, to the extent necessary to

8 carry out the purposes of this Act.

9 ‘‘(5) INSURANCE PRODUCT DEFINED.—For pur10 poses of this section, the term ‘insurance product’ in11 cludes an annuity contract the income of which is

12 subject to tax treatment under section 72 of the Inter13 nal Revenue Code of 1986.

14 ‘‘(b) SALES PRACTICES.—

15 ‘‘(1) ANTICOERCION RULES.—The regulations

16 prescribed pursuant to subsection (a) shall include

17 anticoercion rules applicable to the sale of nondeposit

18 products which prohibit an insured depository insti19 tution from engaging in any practice that would lead

20 a customer to believe an extension of credit, in viola21 tion of section 106(b) of the Bank Holding Company

22 Act Amendments of 1970, is conditional upon—

23 ‘‘(A) the purchase of a nondeposit product

24 from the institution or any of its affiliates; or
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1 ‘‘(B) an agreement by the customer not to

2 obtain, or a prohibition on the customer from ob3 taining, a nondeposit product from an unaffili4 ated entity.

5 ‘‘(2) SUITABILITY OF PRODUCT.—

6 ‘‘(A) IN GENERAL.—The regulations pre7 scribed pursuant to subsection (a) with respect to

8 the sale of nondeposit products shall include

9 standards to ensure that an investment product

10 sold to a customer is suitable and any other non11 deposit product is appropriate for the customer

12 based on financial information disclosed by the

13 customer.

14 ‘‘(B) RULES OF FAIR PRACTICE.—In pre15 scribing the standards under subparagraph (A)

16 with respect to the sale of investments, the Fed17 eral banking agencies shall take into account the

18 Rules of Fair Practice of the National Associa19 tion of Securities Dealers.

20 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula21 tions prescribed pursuant to subsection (a) shall include the

22 following provisions relating to disclosures and advertising

23 in connection with the initial purchase of a nondeposit

24 product:

25 ‘‘(1) DISCLOSURES.—
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1 ‘‘(A) IN GENERAL.—Requirements that the

2 following disclosures be made orally and in writ3 ing before the completion of the initial sale and,

4 in the case of clause (iv), at the time of applica5 tion for an extension of credit:

6 ‘‘(i) UNINSURED STATUS.—As appro7 priate, the product is not insured by the

8 Federal Deposit Insurance Corporation, the

9 United States Government, or the insured

10 depository institution.

11 ‘‘(ii) INSURANCE PRODUCT.—In the

12 case of an insurance policy which is sold by

13 the depository institution, or any affiliate

14 of the institution, as agent, the product is

15 not an obligation of or guaranteed by the

16 depository institution.

17 ‘‘(iii) INVESTMENT RISK.—In the case

18 of an investment product, variable annuity,

19 or other product which involves an invest20 ment risk, that there is an investment risk

21 associated with the product, including pos22 sible loss of value.

23 ‘‘(iv) COERCION.—The approval of an

24 extension of credit may not be conditioned

25 on—
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1 ‘‘(I) the purchase of a nondeposit

2 product from the institution in which

3 the application for credit is pending or

4 any of affiliate of the institution; or

5 ‘‘(II) an agreement by the cus6 tomer not to obtain, or a prohibition

7 on the customer from obtaining, a non8 deposit product from an unaffiliated

9 entity.

10 ‘‘(B) MAKING DISCLOSURE READILY UNDER11 STANDABLE.—Regulations prescribed under sub12 paragraph (A) shall encourage the use of disclo13 sure that is conspicuous, simple, direct, and

14 readily understandable, such as the following:

15 ‘‘(i) ‘NOT FDIC–INSURED’.

16 ‘‘(ii) ‘NOT GUARANTEED BY THE

17 BANK’.

18 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

19 ‘‘(iv) ‘NOT INSURED BY ANY GOV20 ERNMENT AGENCY’.

21 ‘‘(C) ADJUSTMENTS FOR ALTERNATIVE

22 METHODS OF PURCHASE.—In prescribing the re23 quirements under subparagraphs (A) and (D),

24 necessary adjustments shall be made for purchase

25 in person, by telephone, or by electronic media to
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1 provide for the most appropriate and complete

2 form of disclosure and acknowledgments.

3 ‘‘(D) CUSTOMER ACKNOWLEDGMENT.—A re4 quirement that an insured depository institution

5 shall require any person selling a nondeposit

6 product at any office of, or on behalf of, the in7 stitution to obtain, at the time a customer re8 ceives the disclosures required under this para9 graph or at the time of the initial purchase by

10 the customer of such product, an acknowledgment

11 by such customer of the receipt of the disclosure

12 required under this paragraph with respect to

13 such product.

14 ‘‘(2) PROHIBITION ON MISREPRESENTATIONS.—A

15 prohibition on any practice, or any advertising, at

16 any office of, or on behalf of, the insured depository

17 institution, or any subsidiary as appropriate, which

18 could mislead any person or otherwise cause a reason19 able person to reach an erroneous belief with respect

20 to—

21 ‘‘(A) the uninsured nature of any non22 deposit product sold, or offered for sale, by the

23 institution or any subsidiary of the institution;
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1 ‘‘(B) in the case of a nondeposit product

2 that involves an investment risk, the investment

3 risk associated with any such product; or

4 ‘‘(C) in the case of a nondeposit product,

5 the approval of an extension of credit is not con6 ditioned on the purchase of such nondeposit

7 product and the customer is not prohibited from

8 purchasing such nondeposit product from an9 other institution.

10 ‘‘(d) SEPARATION OF BANKING AND NONBANKING AC11 TIVITIES.—

12 ‘‘(1) REGULATIONS REQUIRED.—The regulations

13 prescribed pursuant to subsection (a) shall include

14 such provisions as the Federal banking agencies con15 sider appropriate to ensure that the routine accept16 ance of deposits is kept, to the extent practicable,

17 physically segregated from nondeposit product activ18 ity.

19 ‘‘(2) REQUIREMENTS.—Regulations prescribed

20 pursuant to paragraph (1) shall include the following

21 requirements:

22 ‘‘(A) SEPARATE SETTING.—A clear delinea23 tion of the setting in which, and the cir24 cumstances under which, transactions involving

25 nondeposit products should be conducted in a lo-
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1 cation physically segregated from an area where

2 retail deposits are routinely accepted.

3 ‘‘(B) REFERRALS.—Standards which per4 mit any person accepting deposits from the pub5 lic in an area where such transactions are rou6 tinely conducted in an insured depository insti7 tution to refer a customer who seeks to purchase

8 any nondeposit product to a qualified person

9 who sells such product, only if the person making

10 the referral receives no more than a one-time

11 nominal fee of a fixed dollar amount for each re12 ferral that does not depend on whether the refer13 ral results in a transaction.

14 ‘‘(C) QUALIFICATION AND LICENSING RE15 QUIREMENTS.—Standards prohibiting any in16 sured depository institution from permitting any

17 person to sell or offer for sale any nondeposit

18 product in any part of any office of the institu19 tion, or on behalf of the institution, unless such

20 person is appropriately qualified and licensed.

21 ‘‘(e) CUSTOMER GRIEVANCE PROCESS.—The Federal

22 banking agencies shall jointly establish a customer com23 plaint mechanism, for receiving and expeditiously address24 ing customer complaints alleging a violation of regulations

25 issued under this section, which mechanism shall—
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1 ‘‘(1) establish a group within each regulatory

2 agency to receive such complaints;

3 ‘‘(2) develop procedures for investigating such

4 complaints;

5 ‘‘(3) develop procedures for informing customers

6 of rights they may have in connection with such com7 plaints; and

8 ‘‘(4) develop procedures for addressing concerns

9 raised by such complaints, as appropriate, including

10 procedures for the recovery of losses to the extent ap11 propriate.

12 ‘‘(f) EFFECT ON OTHER AUTHORITY.—

13 ‘‘(1) IN GENERAL.—No provision of this section

14 shall be construed as granting, limiting, or otherwise

15 affecting—

16 ‘‘(A) any authority of the Securities and

17 Exchange Commission, any self-regulatory orga18 nization, the Municipal Securities Rulemaking

19 Board, or the Secretary of the Treasury under

20 any Federal securities law; or

21 ‘‘(B) except as provided in paragraph (2),

22 any authority of any State insurance commis23 sioner or other State authority under any State

24 law.

25 ‘‘(2) COORDINATION WITH STATE LAW.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B), regulations prescribed by a

3 Federal banking agency under this section shall

4 not apply to retail sales, solicitations, adver5 tising, or offers of any nondeposit product by

6 any insured depository institution or to any per7 son who is engaged in such activities at an office

8 of such institution or on behalf of the institution,

9 in a State where the State has in effect statutes,

10 regulations, orders, or interpretations, that are

11 inconsistent with or contrary to the regulations

12 prescribed by the Federal banking agencies.

13 ‘‘(B) PREEMPTION.—If, with respect to any

14 provision of the regulations prescribed under this

15 section, the Board of Governors of the Federal

16 Reserve System, the Comptroller of the Currency,

17 the Director of the Office of Thrift Supervision,

18 and the Board of Directors of the Federal De19 posit Insurance Corporation determine jointly

20 that the protection afforded by such provision for

21 consumers is greater than the protection pro22 vided by a comparable provision of the statutes,

23 regulations, orders, or interpretations referred to

24 in subparagraph (A) of any State, such provi25 sion of the regulations prescribed under this sec-
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1 tion shall supersede the comparable provision of

2 such State statute, regulation, order, or interpre3 tation.’’.

4 SEC. 177. DEPOSITORY INSTITUTION PRIVACY POLICIES.

5 Section 6 of the Bank Holding Company Act of 1956

6 (as added by section 103 of this title) is amended by adding

7 at the end the following new subsection:

8 ‘‘(h) DEPOSITORY INSTITUTION PRIVACY POLICIES.—

9 ‘‘(1) DISCLOSURE REQUIRED.—In the case of

10 any insured depository institution which becomes af11 filiated under this section with a financial holding

12 company, the privacy policy of such depository insti13 tution shall be clearly and conspicuously disclosed—

14 ‘‘(A) with respect to any person who be15 comes a customer of the depository institution

16 any time after the depository institution becomes

17 affiliated with such company, to such person at

18 the time at which the business relationship be19 tween the customer and the institution is initi20 ated; and

21 ‘‘(B) with respect to any person who al22 ready is a customer of the depository institution

23 at the time the depository institution becomes af24 filiated with such company, to such person with-
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1 in a reasonable time after the affiliation is con2 summated.

3 ‘‘(2) INFORMATION TO BE INCLUDED.—The pri4 vacy policy of an insured depository institution

5 which is disclosed pursuant to paragraph (1) shall

6 include—

7 ‘‘(A) the policy of the institution with re8 spect to disclosing customer information to third

9 parties, other than agents of the depository insti10 tution, for marketing purposes; and

11 ‘‘(B) the disclosures required under section

12 603(d)(2)(A)(iii) of the Fair Credit Reporting

13 Act with regard to the right of the customer, at

14 any time, to direct that information referred to

15 in such section not be shared with affiliates of

16 the depository institution.

17 ‘‘(3) APPLICABILITY.—For purposes of section 10

18 of the Home Owners’ Loan Act, this subsection and

19 subsection (i) shall apply with regard to a savings

20 and loan holding company and any affiliate or in21 sured depository institution subsidiary of such hold22 ing company to the same extent and in the same

23 manner this subsection and subsection (i) apply with

24 respect to a financial holding company, affiliate of a

25 financial holding company, or insured depository in-
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1 stitution subsidiary of a financial holding com2 pany.’’.

3 SEC. 178. CONFIDENTIALITY OF HEALTH AND MEDICAL IN4 FORMATION.

5 (a) IN GENERAL.—Section 6 of the Bank Holding

6 Company Act of 1956 is amended by inserting after sub7 section (h) (as added by section 171 of this subtitle) the

8 following new subsection:

9 ‘‘(i) CONFIDENTIALITY OF HEALTH AND MEDICAL IN10 FORMATION.—

11 ‘‘(1) IN GENERAL.—If a company which under12 writes or sells annuities contracts or contracts insur13 ing, guaranteeing, or indemnifying against loss,

14 harm, damage, illness, disability, or death (other than

15 credit-related insurance) is or becomes a financial

16 holding company or an affiliate of a financial hold17 ing company, such company shall maintain a prac18 tice of protecting the confidentiality of individually

19 identifiable customer health and medical information

20 and may disclose such information only—

21 ‘‘(A) with the consent, or at the direction, of

22 the customer;

23 ‘‘(B) for insurance underwriting and rein24 suring policies, account administration, report25 ing, investigating, or preventing fraud or mate-
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1 rial misrepresentation, processing premium pay2 ments, processing insurance claims or defending

3 any action relating to such claims, admin4 istering insurance benefits (including utilization

5 review activities), providing information to the

6 customer’s physician or other health care pro7 vider, participating in research projects, ena8 bling the purchase, transfer, merger, or sale of

9 any insurance-related business, or as otherwise

10 required or specifically permitted by Federal or

11 State law; or

12 ‘‘(C) in connection with—

13 ‘‘(i) the authorization, settlement, bill14 ing, processing, clearing, transferring, rec15 onciling, or collection of amounts charged,

16 debited, or otherwise paid using a debit,

17 credit, or other payment card or account

18 number, or by other payment means;

19 ‘‘(ii) the transfer of receivables, ac20 counts, or interest therein;

21 ‘‘(iii) the audit of the debit, credit, or

22 other payment information;

23 ‘‘(iv) compliance with Federal, State,

24 or local law;
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1 ‘‘(v) compliance with a properly au2 thorized civil, criminal, or regulatory inves3 tigation by Federal, State, or local authori4 ties as governed by the requirements of this

5 section; or

6 ‘‘(vi) fraud protection, risk control, re7 solving customer disputes or inquiries, com8 municating with the person to whom the in9 formation relates, or reporting to consumer

10 reporting agencies.

11 ‘‘(2) EFFECTIVE DATE; SUNSET.—

12 ‘‘(A) EFFECTIVE DATE.—Except as pro13 vided in subparagraph (B), paragraph (1) shall

14 take effect on February 1, 2000.

15 ‘‘(B) SUNSET.—Paragraph (1) shall not

16 take effect if, or shall cease to be effective on and

17 after the date on which, legislation is enacted

18 that satisfies the requirements in section

19 264(c)(1) of the Health Insurance Portability

20 and Accountability Act of 1996 (Public Law

21 104–191; 110 Stat. 2033).

22 ‘‘(3) CONSULTATION.—While paragraph (1) is in

23 effect, the Board shall consult with the Secretary of

24 Health and Human Services in connection with the

25 administration of such paragraph.’’.
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1 SEC. 179. FINANCIAL INFORMATION PRIVACY.

2 (a) IN GENERAL.—The Consumer Credit Protection

3 Act (15 U.S.C. 1601 et seq.) is amended by adding at the

4 end the following:

5 ‘‘TITLE X—FINANCIAL INFORMA6 TION PRIVACY PROTECTION

7 ‘‘SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

8 ‘‘(a) SHORT TITLE.—This title may be cited as the ‘Fi9 nancial Information Privacy Act of 1999’.

10 ‘‘(b) TABLE OF CONTENTS.—The table of contents for

11 this title is as follows:

‘‘TITLE X—FINANCIAL INFORMATION PRIVACY PROTECTION

‘‘Sec. 1001. Short title; table of contents.

‘‘Sec. 1002. Definitions.

‘‘Sec. 1003. Privacy protection for customer information of financial institutions.

‘‘Sec. 1004. Administrative enforcement.

‘‘Sec. 1005. Civil liability.

‘‘Sec. 1006. Criminal penalty.

‘‘Sec. 1007. Relation to State laws.

‘‘Sec. 1008. Agency guidance.

12 ‘‘SEC. 1002. DEFINITIONS.

13 ‘‘For purposes of this title, the following definitions

14 shall apply:

15 ‘‘(1) CUSTOMER.—The term ‘customer’ means,

16 with respect to a financial institution, any individual

17 (or authorized representative of a person) to whom the

18 financial institution provides a product or service,

19 including that of acting as a fiduciary.

20 ‘‘(2) CUSTOMER INFORMATION OF A FINANCIAL

21 INSTITUTION.—The term ‘customer information of a
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1 financial institution’ means any information main2 tained by a financial institution which is derived

3 from the relationship between the financial institution

4 and a customer of the financial institution and is

5 identified with the customer.

6 ‘‘(3) DOCUMENT.—The term ‘document’ means

7 any information in any form.

8 ‘‘(4) FINANCIAL INSTITUTION.—

9 ‘‘(A) IN GENERAL.—The term ‘financial in10 stitution’ means any institution engaged in the

11 business of providing financial services to cus12 tomers who maintain a credit, deposit, trust, or

13 other financial account or relationship with the

14 institution.

15 ‘‘(B) CERTAIN FINANCIAL INSTITUTIONS

16 SPECIFICALLY INCLUDED.—The term ‘financial

17 institution’ includes any depository institution

18 (as defined in section 19(b)(1)(A) of the Federal

19 Reserve Act), any loan or finance company, any

20 credit card issuer or operator of a credit card

21 system, and any consumer reporting agency that

22 compiles and maintains files on consumers on a

23 nationwide basis (as defined in section 603(p)).

24 ‘‘(C) FURTHER DEFINITION BY REGULA25 TION.—The Board of Governors of the Federal
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1 Reserve System may prescribe regulations fur2 ther defining the term ‘financial institution’, in

3 accordance with subparagraph (A), for purposes

4 of this title.

5 ‘‘SEC. 1003. PRIVACY PROTECTION FOR CUSTOMER INFOR6 MATION OF FINANCIAL INSTITUTIONS.

7 ‘‘(a) PROHIBITION ON OBTAINING CUSTOMER INFOR8 MATION BY FALSE PRETENSES.—It shall be a violation of

9 this title for any person to obtain or attempt to obtain, or

10 cause to be disclosed or attempt to cause to be disclosed to

11 any person, customer information of a financial institution

12 relating to another person—

13 ‘‘(1) by knowingly making a false, fictitious, or

14 fraudulent statement or representation to an officer,

15 employee, or agent of a financial institution with the

16 intent to deceive the officer, employee, or agent into

17 relying on that statement or representation for pur18 poses of releasing the customer information;

19 ‘‘(2) by knowingly making a false, fictitious, or

20 fraudulent statement or representation to a customer

21 of a financial institution with the intent to deceive

22 the customer into relying on that statement or rep23 resentation for purposes of releasing the customer in24 formation or authorizing the release of such informa25 tion; or
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1 ‘‘(3) by knowingly providing any document to

2 an officer, employee, or agent of a financial institu3 tion, knowing that the document is forged, counterfeit,

4 lost, or stolen, was fraudulently obtained, or contains

5 a false, fictitious, or fraudulent statement or represen6 tation, if the document is provided with the intent to

7 deceive the officer, employee, or agent into relying on

8 that document for purposes of releasing the customer

9 information.

10 ‘‘(b) PROHIBITION ON SOLICITATION OF A PERSON TO

11 OBTAIN CUSTOMER INFORMATION FROM A FINANCIAL IN12 STITUTION UNDER FALSE PRETENSES.—It shall be a viola13 tion of this title to request a person to obtain customer in14 formation of a financial institution, knowing or consciously

15 avoiding knowing that the person will obtain, or attempt

16 to obtain, the information from the institution in any man17 ner described in subsection (a).

18 ‘‘(c) NON APPLICABILITY TO LAW ENFORCEMENT

19 AGENCIES.—No provision of this section shall be construed

20 so as to prevent any action by a law enforcement agency,

21 or any officer, employee, or agent of such agency, to obtain

22 customer information of a financial institution in connec23 tion with the performance of the official duties of the

24 agency.
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1 ‘‘(d) NON APPLICABILITY TO FINANCIAL INSTITUTIONS

2 IN CERTAIN CASES.—No provision of this section shall be

3 construed to prevent any financial institution, or any offi4 cer, employee, or agent of a financial institution, from ob5 taining customer information of such financial institution

6 in the course of—

7 ‘‘(1) testing the security procedures or systems of

8 such institution for maintaining the confidentiality of

9 customer information;

10 ‘‘(2) investigating allegations of misconduct or

11 negligence on the part of any officer, employee, or

12 agent of the financial institution; or

13 ‘‘(3) recovering customer information of the fi14 nancial institution which was obtained or received by

15 another person in any manner described in subsection

16 (a) or (b).

17 ‘‘(e) NON APPLICABILITY TO CERTAIN TYPES OF CUS18 TOMER INFORMATION OF FINANCIAL INSTITUTIONS.—No

19 provision of this section shall be construed to prevent any

20 person from obtaining customer information of a financial

21 institution that otherwise is available as a public record

22 filed pursuant to the securities laws (as defined in section

23 3(a)(47) of the Securities Exchange Act of 1934).

24 ‘‘(f) NON APPLICABILITY TO COLLECTION OF CHILD

25 SUPPORT JUDGMENTS.—No provision of this section shall
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1 be construed to prevent any State-licensed private investi2 gator, or any officer, employee, or agent of such private in3 vestigator, from obtaining customer information of a finan4 cial institution, to the extent reasonably necessary to collect

5 child support from a person adjudged to have been delin6 quent in his or her obligations by a Federal or State court,

7 and to the extent that such action by a State-licensed pri8 vate investigator is not unlawful under any other Federal

9 or State law or regulation.

10 ‘‘SEC. 1004. ADMINISTRATIVE ENFORCEMENT.

11 ‘‘(a) ENFORCEMENT BY FEDERAL TRADE COMMIS12 SION.—Except as provided in subsection (b), compliance

13 with this title shall be enforced by the Federal Trade Com14 mission in the same manner and with the same power and

15 authority as the Commission has under the Fair Debt Col16 lection Practices Act to enforce compliance with that title.

17 ‘‘(b) ENFORCEMENT BY OTHER AGENCIES IN CERTAIN

18 CASES.—

19 ‘‘(1) IN GENERAL.—Compliance with this title

20 shall be enforced under—

21 ‘‘(A) section 8 of the Federal Deposit Insur22 ance Act, in the case of—

23 ‘‘(i) national banks, and Federal

24 branches and Federal agencies of foreign
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1 banks, by the Office of the Comptroller of

2 the Currency;

3 ‘‘(ii) member banks of the Federal Re4 serve System (other than national banks),

5 branches and agencies of foreign banks

6 (other than Federal branches, Federal agen7 cies, and insured State branches of foreign

8 banks), commercial lending companies

9 owned or controlled by foreign banks, and

10 organizations operating under section 25 or

11 25A of the Federal Reserve Act, by the

12 Board;

13 ‘‘(iii) banks insured by the Federal De14 posit Insurance Corporation (other than

15 members of the Federal Reserve System and

16 national nonmember banks) and insured

17 State branches of foreign banks, by the

18 Board of Directors of the Federal Deposit

19 Insurance Corporation; and

20 ‘‘(iv) savings associations the deposits

21 of which are insured by the Federal Deposit

22 Insurance Corporation, by the Director of

23 the Office of Thrift Supervision; and

24 ‘‘(B) the Federal Credit Union Act, by the

25 Administrator of the National Credit Union Ad-
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1 ministration with respect to any Federal credit

2 union.

3 ‘‘(2) VIOLATIONS OF THIS TITLE TREATED AS

4 VIOLATIONS OF OTHER LAWS.—For the purpose of the

5 exercise by any agency referred to in paragraph (1)

6 of its powers under any Act referred to in that para7 graph, a violation of this title shall be deemed to be

8 a violation of a requirement imposed under that Act.

9 In addition to its powers under any provision of law

10 specifically referred to in paragraph (1), each of the

11 agencies referred to in that paragraph may exercise,

12 for the purpose of enforcing compliance with this title,

13 any other authority conferred on such agency by law.

14 ‘‘(c) STATE ACTION FOR VIOLATIONS.—

15 ‘‘(1) AUTHORITY OF STATES.—In addition to

16 such other remedies as are provided under State law,

17 if the chief law enforcement officer of a State, or an

18 official or agency designated by a State, has reason

19 to believe that any person has violated or is violating

20 this title, the State—

21 ‘‘(A) may bring an action to enjoin such

22 violation in any appropriate United States dis23 trict court or in any other court of competent ju24 risdiction;
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1 ‘‘(B) may bring an action on behalf of the

2 residents of the State to recover damages of not

3 more than $1,000 for each violation; and

4 ‘‘(C) in the case of any successful action

5 under subparagraph (A) or (B), shall be award6 ed the costs of the action and reasonable attorney

7 fees as determined by the court.

8 ‘‘(2) RIGHTS OF FEDERAL REGULATORS.—

9 ‘‘(A) PRIOR NOTICE.—The State shall serve

10 prior written notice of any action under para11 graph (1) upon the Federal Trade Commission

12 and, in the case of an action which involves a

13 financial institution described in section

14 1004(b)(1), the agency referred to in such section

15 with respect to such institution and provide the

16 Federal Trade Commission and any such agency

17 with a copy of its complaint, except in any case

18 in which such prior notice is not feasible, in

19 which case the State shall serve such notice im20 mediately upon instituting such action.

21 ‘‘(B) RIGHT TO INTERVENE.—The Federal

22 Trade Commission or an agency described in

23 subsection (b) shall have the right—

24 ‘‘(i) to intervene in an action under

25 paragraph (1);
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1 ‘‘(ii) upon so intervening, to be heard

2 on all matters arising therein;

3 ‘‘(iii) to remove the action to the ap4 propriate United States district court; and

5 ‘‘(iv) to file petitions for appeal.

6 ‘‘(3) INVESTIGATORY POWERS.—For purposes of

7 bringing any action under this subsection, no provi8 sion of this subsection shall be construed as pre9 venting the chief law enforcement officer, or an offi10 cial or agency designated by a State, from exercising

11 the powers conferred on the chief law enforcement offi12 cer or such official by the laws of such State to con13 duct investigations or to administer oaths or affirma14 tions or to compel the attendance of witnesses or the

15 production of documentary and other evidence.

16 ‘‘(4) LIMITATION ON STATE ACTION WHILE FED17 ERAL ACTION PENDING.—If the Federal Trade Com18 mission or any agency described in subsection (b) has

19 instituted a civil action for a violation of this title,

20 no State may, during the pendency of such action,

21 bring an action under this section against any de22 fendant named in the complaint of the Federal Trade

23 Commission or such agency for any violation of this

24 title that is alleged in that complaint.
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1 ‘‘SEC. 1005. CIVIL LIABILITY.

2 ‘‘Any person, other than a financial institution, who

3 fails to comply with any provision of this title with respect

4 to any financial institution or any customer information

5 of a financial institution shall be liable to such financial

6 institution or the customer to whom such information re7 lates in an amount equal to the sum of the amounts deter8 mined under each of the following paragraphs:

9 ‘‘(1) ACTUAL DAMAGES.—The greater of—

10 ‘‘(A) the amount of any actual damage sus11 tained by the financial institution or customer

12 as a result of such failure; or

13 ‘‘(B) any amount received by the person

14 who failed to comply with this title, including

15 an amount equal to the value of any non mone16 tary consideration, as a result of the action

17 which constitutes such failure.

18 ‘‘(2) ADDITIONAL DAMAGES.—Such additional

19 amount as the court may allow.

20 ‘‘(3) ATTORNEYS’ FEES.—In the case of any suc21 cessful action to enforce any liability under para22 graph (1) or (2), the costs of the action, together with

23 reasonable attorneys’ fees.

24 ‘‘SEC. 1006. CRIMINAL PENALTY.

25 ‘‘(a) IN GENERAL.—Whoever violates, or attempts to

26 violate, section 1003 shall be fined in accordance with title
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1 18, United States Code, or imprisoned for not more than

2 5 years, or both.

3 ‘‘(b) ENHANCED PENALTY FOR AGGRAVATED CASES.—

4 Whoever violates, or attempts to violate, section 1003 while

5 violating another law of the United States or as part of

6 a pattern of any illegal activity involving more than

7 $100,000 in a 12-month period shall be fined twice the

8 amount provided in subsection (b)(3) or (c)(3) (as the case

9 may be) of section 3571 of title 18, United States Code,

10 imprisoned for not more than 10 years, or both.

11 ‘‘SEC. 1007. RELATION TO STATE LAWS.

12 ‘‘(a) IN GENERAL.—This title shall not be construed

13 as superseding, altering, or affecting the statutes, regula14 tions, orders, or interpretations in effect in any State, ex15 cept to the extent that such statutes, regulations, orders, or

16 interpretations are inconsistent with the provisions of this

17 title, and then only to the extent of the inconsistency.

18 ‘‘(b) GREATER PROTECTION UNDER STATE LAW.—For

19 purposes of this section, a State statute, regulation, order,

20 or interpretation is not inconsistent with the provisions of

21 this title if the protection such statute, regulation, order,

22 or interpretation affords any person is greater than the pro23 tection provided under this title.
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1 ‘‘SEC. 1008. AGENCY GUIDANCE.

2 ‘‘In furtherance of the objectives of this title, each Fed3 eral banking agency (as defined in section 3(z) of the Fed4 eral Deposit Insurance Act) shall issue advisories to deposi5 tory institutions under the jurisdiction of the agency, in

6 order to assist such depository institutions in deterring and

7 detecting activities proscribed under section 1003.’’.

8 (b) REPORT TO CONGRESS ON FINANCIAL PRIVACY.—

9 Not later than 18 months after the date of enactment of

10 this Act, the Comptroller General of the United States, in

11 consultation with the Federal Trade Commission, the Fed12 eral banking agencies, and other appropriate Federal law

13 enforcement agencies, shall submit to the Congress a report

14 on—

15 (1) the efficacy and adequacy of the remedies

16 provided in the amendments made by subsection (a)

17 in addressing attempts to obtain financial informa18 tion by fraudulent means or by false pretenses; and

19 (2) any recommendations for additional legisla20 tive or regulatory action to address threats to the pri21 vacy of financial information created by attempts to

22 obtain information by fraudulent means or false pre23 tenses.

24 SEC. 180. STUDY OF CURRENT FINANCIAL PRIVACY LAWS.

25 (a) IN GENERAL.—The Federal banking agencies shall

26 conduct a study of whether existing laws which regulate the
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1 sharing of customer information by insured depository in2 stitutions with affiliates of such institutions adequately

3 protect the privacy rights of customers of such institutions.

4 (b) REPORT.—Before the end of the 6-month period be5 ginning on the date of the enactment of this Act, the Federal

6 banking agencies shall submit a report to the Congress con7 taining the findings and conclusions of the agency with re8 spect to the study required under subsection (a), together

9 with such recommendations for legislative or administrative

10 action as the agencies may determine to be appropriate.

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

12 terms ‘‘affiliate’’, ‘‘Federal banking agency’’, and ‘‘insured

13 depository institution’’ have the meanings given to such

14 terms in section 3 of the Federal Deposit Insurance Act.

15 Subtitle J—Direct Activities of

16 Banks

17 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER18 WRITE CERTAIN MUNICIPAL BONDS.

19 The paragraph designated the Seventh of section 5136

20 of the Revised Statutes of the United States (12 U.S.C.

21 24(7)) is amended by adding at the end the following new

22 sentence: ‘‘In addition to the provisions in this paragraph

23 for dealing in, underwriting or purchasing securities, the

24 limitations and restrictions contained in this paragraph as

25 to dealing in, underwriting, and purchasing investment se-
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1 curities for the national bank’s own account shall not apply

2 to obligations (including limited obligation bonds, revenue

3 bonds, and obligations that satisfy the requirements of sec4 tion 142(b)(1) of the Internal Revenue Code of 1986) issued

5 by or on behalf of any state or political subdivision of a

6 state, including any municipal corporate instrumentality

7 of 1 or more states, or any public agency or authority of

8 any state or political subdivision of a state, if the national

9 banking association is well capitalized (as defined in sec10 tion 38 of the Federal Deposit Insurance Act).’’.

11 Subtitle K—Deposit Insurance

12 Funds

13 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.

14 (a) STUDY REQUIRED.—The Board of Directors of the

15 Federal Deposit Insurance Corporation shall conduct a

16 study of the following issues with regard to the Bank Insur17 ance Fund and the Savings Association Insurance Fund:

18 (1) SAFETY AND SOUNDNESS.—The safety and

19 soundness of the funds and the adequacy of the reserve

20 requirements applicable to the funds in light of—

21 (A) the size of the insured depository insti22 tutions which are resulting from mergers and

23 consolidations since the effective date of the Rie24 gle-Neal Interstate Banking and Branching Effi25 ciency Act of 1994; and
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1 (B) the affiliation of insured depository in2 stitutions with other financial institutions pur3 suant to this Act and the amendments made by

4 this Act.

5 (2) CONCENTRATION LEVELS.—The concentra6 tion levels of the funds, taking into account the num7 ber of members of each fund and the geographic dis8 tribution of such members, and the extent to which ei9 ther fund is exposed to higher risks due to a regional

10 concentration of members or an insufficient member11 ship base relative to the size of member institutions.

12 (3) MERGER ISSUES.—Issues relating to the

13 planned merger of the funds, including the cost of

14 merging the funds and the manner in which such

15 costs will be distributed among the members of the re16 spective funds.

17 (b) REPORT REQUIRED.—

18 (1) IN GENERAL.—Before the end of the 9-month

19 period beginning on the date of the enactment of this

20 Act, the Board of Directors of the Federal Deposit In21 surance Corporation shall submit a report to the Con22 gress on the study conducted pursuant to subsection

23 (a).

24 (2) CONTENTS OF REPORT.—The report shall

25 include—
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1 (A) detailed findings of the Board of Direc2 tors with regard to the issues described in sub3 section (a);

4 (B) a description of the plans developed by

5 the Board of Directors for merging the Bank In6 surance Fund and the Savings Association In7 surance Fund, including an estimate of the

8 amount of the cost of such merger which would

9 be borne by Savings Association Insurance Fund

10 members; and

11 (C) such recommendations for legislative

12 and administrative action as the Board of Direc13 tors determines to be necessary or appropriate to

14 preserve the safety and soundness of the deposit

15 insurance funds, reduce the risks to such funds,

16 provide for an efficient merger of such funds,

17 and for other purposes.

18 (c) DEFINITIONS.—For purposes of this section, the fol19 lowing definitions shall apply:

20 (1) INSURED DEPOSITORY INSTITUTION.—The

21 term ‘‘insured depository institution’’ has the same

22 meaning as in section 3(c) of the Federal Deposit In23 surance Act.

24 (2) BIF AND SAIF MEMBERS.—The terms ‘‘Bank

25 Insurance Fund member’’ and ‘‘Savings Association
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1 Insurance Fund member’’ have the same meanings as

2 in section 7(l) of the Federal Deposit Insurance Act.

3 SEC. 187. ELIMINATION OF SAIF AND IF SPECIAL RESERVES.

4 (a) SAIF SPECIAL RESERVES.—Section 11(a)(6) of

5 the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6))

6 is amended by striking subparagraph (L).

7 (b) IF SPECIAL RESERVES.—Section 2704 of the De8 posit Insurance Funds Act of 1996 (12 U.S.C. 1821 note)

9 is amended—

10 (1) by striking subsection (b); and

11 (2) in subsection (d)—

12 (A) by striking paragraph (4);

13 (B) in paragraph (6)(C)(i), by striking ‘‘(6)

14 and (7)’’ and inserting ‘‘(5), (6), and (7)’’; 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 L—Miscellaneous

20 Provisions

21 SEC. 191. TERMINATION OF ‘‘KNOW YOUR CUSTOMER’’ REG22 ULATIONS.

23 (a) IN GENERAL.—None of the proposed regulations

24 described in subsection (b) may be published in final form

25 and, to the extent any such regulation has become effective
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1 before the date of the enactment of this Act, such regulation

2 shall cease to be effective as of such date.

3 (b) PROPOSED REGULATIONS DESCRIBED.—The pro4 posed regulations referred to in subsection (a) are as follows:

5 (1) The regulation proposed by the Comptroller

6 of the Currency to amend part 21 of title 12 of the

7 Code of Federal Regulations, as published in the Fed8 eral Register on December 7, 1998.

9 (2) The regulation proposed by the Director of

10 the Office of Thrift Supervision to amend part 563 of

11 title 12 of the Code of Federal Regulations, as pub12 lished in the Federal Register on December 7, 1998.

13 (3) The regulation proposed by the Board of

14 Governors of the Federal Reserve System to amend

15 parts 208, 211, and 225 of title 12 of the Code of Fed16 eral Regulations, as published in the Federal Register

17 on December 7, 1998.

18 (4) The regulation proposed by the Federal De19 posit Insurance Corporation to amend part 326 of

20 title 12 of the Code of Federal Regulations, as pub21 lished in the Federal Register on December 7, 1998.

22 SEC. 192. GENERAL ACCOUNTING OFFICE STUDY OF CON23 FLICTS OF INTEREST

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

25 the United States shall conduct a study analyzing the con-
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1 flict of interest faced by the Board of Governors of the Fed2 eral Reserve System between its role as a primary regulator

3 of the banking industry and its role as a vendor of services

4 to the banking and financial services industry.

5 (b) SPECIFIC CONFLICT REQUIRED TO BE AD6 DRESSED.—In the course of the study required under sub7 section (a), the Comptroller General shall address the con8 flict of interest faced by the Board of Governors of the Fed9 eral Reserve System between the role of the Board as a regu10 lator of the payment system, generally, and its participa11 tion in the payment system as a competitor with private

12 entities who are providing payment services.

13 (c) REPORT TO CONGRESS.—Before the end of the 1-

14 year period beginning on the date of the enactment of this

15 Act, the Comptroller General shall submit a report to the

16 Congress containing the findings and conclusions of the

17 Comptroller General in connection with the study required

18 under this section, together with such recommendations for

19 such legislative or administrative actions as the Comp20 troller General may determine to be appropriate, including

21 recommendations for resolving any such conflict of interest.
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1 SEC. 193. CLARIFICATION OF SOURCE OF STRENGTH DOC2 TRINE.

3 Section 18 of the Federal Deposit Insurance Act (12

4 U.S.C. 1828) is amended by adding at the end the following

5 new subsection:

6 ‘‘(t) LIMITATION ON CLAIMS.—

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

8 provision of law, no person shall have any claim

9 against any Federal banking agency, in any capac10 ity, or against any conservator or receiver appointed

11 by any Federal banking agency (including the Cor12 poration as conservator or receiver), arising from or

13 relating to the transfer of money, assets, or other

14 property to a depository institution by a controlling

15 stockholder or a depository institution holding com16 pany, or any affiliate or subsidiary of such deposi17 tory institution holding company, if, at the time of

18 the transfer, the depository institution—

19 ‘‘(A) is subject to a direction by a Federal

20 banking agency to increase its capital; or

21 ‘‘(B) is undercapitalized, significantly

22 undercapitalized, or critically undercapitalized

23 as defined in section 38.

24 ‘‘(2) EXCEPTION.—No provision of this sub25 section shall be construed as limiting the right of a

26 depository institution, a controlling stockholder, or a
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1 depository institution holding company to seek direct

2 review of an order or directive issued by a Federal

3 banking agency in accordance with the procedures

4 provided by this Act, the National Bank Receivership

5 Act, the Bank Conservation Act, or the Home Owner’s

6 Loan Act.’’.

7 SEC. 194. STUDY OF COST OF ALL FEDERAL BANKING REGU8 LATIONS.

9 (a) IN GENERAL.—In accordance with the finding in

10 the Board of Governors of the Federal Reserve System Staff

11 Study Numbered 171 (April, 1998) that ‘‘Further research

12 covering more and different types of regulations and regu13 latory requirements is clearly needed to make informed de14 cisions about regulations’’, the Board of Governors of the

15 Federal Reserve System, in consultation with the other Fed16 eral banking agencies (as defined in section 3 of the Federal

17 Deposit Insurance Act) shall conduct a comprehensive study

18 of the total annual costs and benefits of all Federal finan19 cial regulations and regulatory requirements applicable to

20 banks.

21 (b) REPORT REQUIRED.—Before the end of the 2-year

22 period beginning on the date of the enactment of this Act,

23 the Board of Governors of the Federal Reserve System shall

24 submit a comprehensive report to the Congress containing

25 the findings and conclusions of the Board in connection
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1 with the study required under subsection (a) and such rec2 ommendations for legislative and administrative action as

3 the Board may determine to be appropriate.

4 SEC. 195. STUDY AND REPORT ON ADAPTING EXISTING LEG5 ISLATIVE REQUIREMENTS TO ONLINE BANK6 ING AND LENDING.

7 (a) STUDY REQUIRED.—The Federal banking agencies

8 shall conduct a study of banking regulations regarding the

9 delivery of financial services, including those regulations

10 that may assume that there will be person-to-person contact

11 during the course of a financial services transaction, and

12 report their recommendations on adapting those existing re13 quirements to online banking and lending.

14 (b) REPORT REQUIRED.—Within 1 year of the date

15 of the enactment of this Act, the Federal banking agencies

16 shall submit a report to the Congress on the findings and

17 conclusions of the agencies with respect to the study re18 quired under subsection (a), together with such rec19 ommendations for legislative or regulatory action as the

20 agencies may determine to be appropriate.

21 (c) DEFINITION.—For purposes of this section, the

22 term ‘‘Federal banking agencies’’ means each Federal bank23 ing agency (as defined in section 3(z) of the Federal Deposit

24 Insurance Act).
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1 Subtitle M—Effective Date of Title

2 SEC. 196. EFFECTIVE DATE.

3 Except with regard to any subtitle or other provision

4 of this title for which a specific effective date is provided,

5 this title and the amendments made by this title shall take

6 effect at the end of the 270-day period beginning on the

7 date of the enactment of this Act.

8 TITLE II—FUNCTIONAL

9 REGULATION

10 Subtitle A—Brokers and Dealers

11 SEC. 201. DEFINITION OF BROKER.

12 Section 3(a)(4) of the Securities Exchange Act of 1934

13 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

14 ‘‘(4) BROKER.—

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

16 means any person engaged in the business of ef17 fecting transactions in securities for the account

18 of others.

19 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC20 TIVITIES.—A bank shall not be considered to be

21 a broker because the bank engages in any of the

22 following activities under the conditions de23 scribed:

24 ‘‘(i) THIRD PARTY BROKERAGE AR25 RANGEMENTS.—The bank enters into a con-
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1 tractual or other arrangement with a broker

2 or dealer registered under this title under

3 which the broker or dealer offers brokerage

4 services on or off the premises of the bank

5 if—

6 ‘‘(I) such broker or dealer is clear7 ly identified as the person performing

8 the brokerage services;

9 ‘‘(II) the broker or dealer performs

10 brokerage services in an area that is

11 clearly marked and, to the extent prac12 ticable, physically separate from the

13 routine deposit-taking activities of the

14 bank;

15 ‘‘(III) any materials used by the

16 bank to advertise or promote generally

17 the availability of brokerage services

18 under the contractual or other arrange19 ment clearly indicate that the broker20 age services are being provided by the

21 broker or dealer and not by the bank;

22 ‘‘(IV) any materials used by the

23 bank to advertise or promote generally

24 the availability of brokerage services

25 under the contractual or other arrange-
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1 ment are in compliance with the Fed2 eral securities laws before distribution;

3 ‘‘(V) bank employees (other than

4 associated persons of a broker or dealer

5 who are qualified pursuant to the rules

6 of a self-regulatory organization) per7 form only clerical or ministerial func8 tions in connection with brokerage

9 transactions including scheduling ap10 pointments with the associated persons

11 of a broker or dealer, except that bank

12 employees may forward customer funds

13 or securities and may describe in gen14 eral terms the range of investment ve15 hicles available from the bank and the

16 broker or dealer under the contractual

17 or other arrangement;

18 ‘‘(VI) bank employees do not di19 rectly receive incentive compensation

20 for any brokerage transaction unless

21 such employees are associated persons

22 of a broker or dealer and are qualified

23 pursuant to the rules of a self-regu24 latory organization, except that the

25 bank employees may receive compensa-
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1 tion for the referral of any customer if

2 the compensation is a nominal one3 time cash fee of a fixed dollar amount

4 and the payment of the fee is not con5 tingent on whether the referral results

6 in a transaction;

7 ‘‘(VII) such services are provided

8 by the broker or dealer on a basis in

9 which all customers which receive any

10 services are fully disclosed to the broker

11 or dealer;

12 ‘‘(VIII) the bank does not carry a

13 securities account of the customer ex14 cept in a customary custodian or trust15 ee capacity; and

16 ‘‘(IX) the bank, broker, or dealer

17 informs each customer that the broker18 age services are provided by the broker

19 or dealer and not by the bank and that

20 the securities are not deposits or other

21 obligations of the bank, are not guar22 anteed by the bank, and are not in23 sured by the Federal Deposit Insurance

24 Corporation.
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1 ‘‘(ii) TRUST ACTIVITIES.—The bank ef2 fects transactions in a trustee capacity, or

3 effects transactions in a fiduciary capacity

4 in its trust department or other department

5 that is regularly examined by bank exam6 iners for compliance with fiduciary prin7 ciples and standards, and (in either case)—

8 ‘‘(I) is primarily compensated for

9 such transactions on the basis of an

10 administration or annual fee (payable

11 on a monthly, quarterly, or other

12 basis), a percentage of assets under

13 management, or a flat or capped per

14 order processing fee equal to not more

15 than the cost incurred by the bank in

16 connection with executing securities

17 transactions for trustee and fiduciary

18 customers, or any combination of such

19 fees, consistent with fiduciary prin20 ciples and standards; and

21 ‘‘(II) does not publicly solicit bro22 kerage business, other than by adver23 tising that it effects transactions in se24 curities in conjunction with adver25 tising 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 en15 hanced debt security issued by a for16 eign 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 transactions,

25 as part of its transfer agency activities,
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1 in the securities of an issuer as part of

2 any pension, retirement, profit-shar3 ing, bonus, thrift, savings, incentive, or

4 other similar benefit plan for the em5 ployees of that issuer or its subsidi6 aries, 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 transactions,

19 as part of its transfer agency activities,

20 in the securities of an issuer as part of

21 that issuer’s dividend reinvestment

22 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 OF

12 MATERIALS.—The exception to being

13 considered a broker for a bank engaged

14 in activities described in subclauses

15 (I), (II), and (III) will not be affected

16 by a bank’s delivery of written or elec17 tronic plan materials to employees of

18 the issuer, shareholders of the issuer, or

19 members of affinity groups of the

20 issuer, so long as such materials are—

21 ‘‘(aa) comparable in scope or

22 nature to that permitted by the

23 Commission as of the date of the

24 enactment of the Financial Serv25 ices Act of 1999; or
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1 ‘‘(bb) otherwise permitted by

2 the Commission.

3 ‘‘(v) SWEEP ACCOUNTS.—The bank ef4 fects transactions as part of a program for

5 the investment or reinvestment of bank de6 posit funds into any no-load, open-end

7 management investment company registered

8 under the Investment Company Act of 1940

9 that holds itself out as a money market

10 fund.

11 ‘‘(vi) AFFILIATE TRANSACTIONS.—The

12 bank effects transactions for the account of

13 any affiliate of the bank (as defined in sec14 tion 2 of the Bank Holding Company Act

15 of 1956) other than—

16 ‘‘(I) a registered broker or dealer;

17 or

18 ‘‘(II) an affiliate that is engaged

19 in merchant banking, as described in

20 section 6(c)(3)(H) of the Bank Holding

21 Company Act of 1956.

22 ‘‘(vii) PRIVATE SECURITIES OFFER23 INGS.—The bank—

24 ‘‘(I) effects sales as part of a pri25 mary offering of securities not involv-
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1 ing a public offering, pursuant to sec2 tion 3(b), 4(2), or 4(6) of the Securities

3 Act of 1933 or the rules and regula4 tions issued thereunder;

5 ‘‘(II) at any time after the date

6 that is 1 year after the date of enact7 ment of the Financial Services Act of

8 1999, is not affiliated with a broker or

9 dealer that has been registered for more

10 than 1 year in accordance with this

11 Act, and engages in dealing, market

12 making, or underwriting activities,

13 other than with respect to exempted se14 curities; and

15 ‘‘(III) effects transactions exclu16 sively with qualified investors.

17 ‘‘(viii) SAFEKEEPING AND CUSTODY

18 ACTIVITIES.—

19 ‘‘(I) IN GENERAL.—The bank, as

20 part of customary banking activities—

21 ‘‘(aa) provides safekeeping or

22 custody services with respect to se23 curities, including the exercise of

24 warrants and other rights on be25 half of customers;
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1 ‘‘(bb) facilitates the transfer

2 of funds or securities, as a custo3 dian or a clearing agency, in con4 nection with the clearance and

5 settlement of its customers’ trans6 actions in securities;

7 ‘‘(cc) effects securities lending

8 or borrowing transactions with or

9 on behalf of customers as part of

10 services provided to customers

11 pursuant to division (aa) or (bb)

12 or invests cash collateral pledged

13 in connection with such trans14 actions; or

15 ‘‘(dd) holds securities pledged

16 by a customer to another person

17 or securities subject to purchase or

18 resale agreements involving a cus19 tomer, or facilitates the pledging

20 or transfer of such securities by

21 book entry or as otherwise pro22 vided under applicable law.

23 ‘‘(II) EXCEPTION FOR CARRYING

24 BROKER ACTIVITIES.—The exception to

25 being considered a broker for a bank
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1 engaged in activities described in sub2 clause (I) shall not apply if the bank,

3 in connection with such activities, acts

4 in the United States as a carrying

5 broker (as such term, and different for6 mulations thereof, are used in section

7 15(c)(3) and the rules and regulations

8 thereunder) for any broker or dealer,

9 unless such carrying broker activities

10 are engaged in with respect to govern11 ment securities (as defined in para12 graph (42) of this subsection).

13 ‘‘(ix) BANKING PRODUCTS.—The bank

14 effects transactions in traditional banking

15 products, as defined in section 205(a) of the

16 Financial Services Act of 1999.

17 ‘‘(x) DE MINIMIS EXCEPTION.—The

18 bank effects, other than in transactions re19 ferred to in clauses (i) through (ix), not

20 more than 500 transactions in securities in

21 any calendar year, and such transactions

22 are not effected by an employee of the bank

23 who is also an employee of a broker or deal24 er.
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1 ‘‘(C) BROKER DEALER EXECUTION.—The

2 exception to being considered a broker for a bank

3 engaged in activities described in clauses (ii),

4 (iv), and (viii) of subparagraph (B) shall not

5 apply if the activities described in such provi6 sions result in the trade in the United States of

7 any security that is a publicly traded security in

8 the United States, unless—

9 ‘‘(i) the bank directs such trade to a

10 registered broker or dealer for execution;

11 ‘‘(ii) the trade is a cross trade or other

12 substantially similar trade of a security

13 that—

14 ‘‘(I) is made by the bank or be15 tween the bank and an affiliated fidu16 ciary; and

17 ‘‘(II) is not in contravention of fi18 duciary principles established under

19 applicable Federal or State law; or

20 ‘‘(iii) the trade is conducted in some

21 other manner permitted under rules, regula22 tions, or orders as the Commission may

23 prescribe or issue.

24 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS ON

25 OTHER COMMISSION AUTHORITY.—The exception
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1 to being considered a broker for a bank engaged

2 in activities described in subparagraphs (B) and

3 (C) shall not affect the authority of the Commis4 sion under any other provision of this Act or

5 any other securities law.

6 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

7 of subparagraph (B)(ii), the term ‘fiduciary ca8 pacity’ means—

9 ‘‘(i) in the capacity as trustee, execu10 tor, administrator, registrar of stocks and

11 bonds, transfer agent, guardian, assignee,

12 receiver, or custodian under a uniform gift

13 to minor act, or as an investment adviser if

14 the bank receives a fee for its investment ad15 vice;

16 ‘‘(ii) in any capacity in which the

17 bank possesses investment discretion on be18 half of another; or

19 ‘‘(iii) in any other similar capacity.

20 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT TO

21 SECTION 15(e).—The term ‘broker’ does not in22 clude a bank that—

23 ‘‘(i) was, immediately prior to the en24 actment of the Financial Services Act of

25 1999, subject to section 15(e); and
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1 ‘‘(ii) is subject to such restrictions and

2 requirements as the Commission considers

3 appropriate.’’.

4 SEC. 202. DEFINITION OF DEALER.

5 Section 3(a)(5) of the Securities Exchange Act of 1934

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

7 ‘‘(5) DEALER.—

8 ‘‘(A) IN GENERAL.—The term ‘dealer’

9 means any person engaged in the business of

10 buying and selling securities for such person’s

11 own account through a broker or otherwise.

12 ‘‘(B) EXCEPTION FOR PERSON NOT EN13 GAGED IN THE BUSINESS OF DEALING.—The

14 term ‘dealer’ does not include a person that buys

15 or sells securities for such person’s own account,

16 either individually or in a fiduciary capacity,

17 but not as a part of a regular business.

18 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC19 TIVITIES.—A bank shall not be considered to be

20 a dealer because the bank engages in any of the

21 following activities under the conditions de22 scribed:

23 ‘‘(i) PERMISSIBLE SECURITIES TRANS24 ACTIONS.—The bank buys or sells—
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1 ‘‘(I) commercial paper, bankers

2 acceptances, or commercial bills;

3 ‘‘(II) exempted securities;

4 ‘‘(III) qualified Canadian govern5 ment obligations as defined in section

6 5136 of the Revised Statutes of the

7 United States, in conformity with sec8 tion 15C of this title and the rules and

9 regulations thereunder, or obligations

10 of the North American Development

11 Bank; or

12 ‘‘(IV) any standardized, credit en13 hanced debt security issued by a for14 eign government pursuant to the

15 March 1989 plan of then Secretary of

16 the Treasury Brady, used by such for17 eign government to retire outstanding

18 commercial bank loans.

19 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI20 DUCIARY TRANSACTIONS.—The bank buys or

21 sells securities for investment purposes—

22 ‘‘(I) for the bank; or

23 ‘‘(II) for accounts for which the

24 bank acts as a trustee or fiduciary.
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1 ‘‘(iii) ASSET-BACKED TRANS2 ACTIONS.—The bank engages in the issuance

3 or sale to qualified investors, through a

4 grantor trust or otherwise, of securities

5 backed by or representing an interest in

6 notes, drafts, acceptances, loans, leases, re7 ceivables, other obligations, or pools of any

8 such obligations predominantly originated

9 by the bank, or a syndicate of banks of

10 which the bank is a member, or an affiliate

11 of any such bank other than a broker or

12 dealer.

13 ‘‘(iv) BANKING PRODUCTS.—The bank

14 buys or sells traditional banking products,

15 as defined in section 205(a) of the Finan16 cial Services Act of 1999.’’.

17 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI18 TIES OFFERINGS.

19 Section 15A of the Securities Exchange Act of 1934

20 (15 U.S.C. 78o–3) is amended by inserting after subsection

21 (i) the following new subsection:

22 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI23 TIES OFFERINGS.—A registered securities association shall

24 create a limited qualification category for any associated

25 person of a member who effects sales as part of a primary
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1 offering of securities not involving a public offering, pursu2 ant to section 3(b), 4(2), or 4(6) of the Securities Act of

3 1933 and the rules and regulations thereunder, and shall

4 deem qualified in such limited qualification category, with5 out testing, any bank employee who, in the six month period

6 preceding the date of enactment of this Act, engaged in ef7 fecting such sales.’’.

8 SEC. 204. INFORMATION SHARING.

9 Section 18 of the Federal Deposit Insurance Act is

10 amended by adding at the end the following new subsection:

11 ‘‘(u) RECORDKEEPING REQUIREMENTS.—

12 ‘‘(1) REQUIREMENTS.—Each appropriate Fed13 eral banking agency, after consultation with and con14 sideration of the views of the Commission, shall estab15 lish recordkeeping requirements for banks relying on

16 exceptions contained in paragraphs (4) and (5) of

17 section 3(a) of the Securities Exchange Act of 1934.

18 Such recordkeeping requirements shall be sufficient to

19 demonstrate compliance with the terms of such excep20 tions and be designed to facilitate compliance with

21 such exceptions. Each appropriate Federal banking

22 agency shall make any such information available to

23 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. 205. 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, certificate

12 of deposit, or other deposit instrument issued by a

13 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 dealer)

21 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 credit2 worthiness; 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 swap agreement (as defined in section

11 11(e)(8)(D)(vi) of the Federal Deposit Insurance Act)

12 including credit and equity swaps, unless the appro13 priate Federal banking agency determines that credit

14 and equity swaps shall not be included within the def15 inition of such term for purposes of paragraphs (4)

16 and (5) of section 3(a) of the Securities Exchange Act

17 of 1934, except that the appropriate Federal banking

18 agency shall presume, absent a finding to the con19 trary, that equity swaps shall not be sold to any per20 son other than a qualified investor (as defined in sec21 tion 3(a)(54) of the Securities Act of 1934).

22 (b) AMENDMENT TO THE SECURITIES EXCHANGE ACT

23 OF 1934.—Section 15 of the Securities Exchange Act of

24 1934 (15 U.S.C. 78o) is amended by adding at the end the

25 following new subsection:
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1 ‘‘(i) TRANSACTIONS INVOLVING HYBRID PRODUCTS.—

2 ‘‘(1) COMMISSION AUTHORITY.—

3 ‘‘(A) IN GENERAL.—The Commission may,

4 after consultation with the Board, determine, by

5 regulation published in the Federal Register, that

6 a bank that effects transactions in, or buys or

7 sells, a new product should be subject to the reg8 istration requirements of this section.

9 ‘‘(B) LIMITATION.—The Commission may

10 not impose the registration requirements of this

11 section on any bank that effects transactions in,

12 or buys or sells, a product under this subsection

13 unless the Commission determines in the regula14 tions described in subparagraph (A) that—

15 ‘‘(i) the subject product is a new prod16 uct;

17 ‘‘(ii) the subject product is a security;

18 and

19 ‘‘(iii) imposing the registration re20 quirements of this section is necessary or

21 appropriate in the public interest and for

22 the protection of investors.

23 ‘‘(2) OBJECTION TO COMMISSION REGULATION.—

24 ‘‘(A) FILING OF PETITION FOR REVIEW.—

25 The Board, or any aggrieved party, may obtain
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1 review of any final regulation described in para2 graph (1) in the United States Court of Appeals

3 for the District of Columbia Circuit by filing in

4 such court, not later than 60 days after the date

5 of publication of the final regulation, a written

6 petition requesting that the regulation be set

7 aside.

8 ‘‘(B) TRANSMITTAL OF PETITION AND

9 RECORD.—A copy of a petition described in sub10 paragraph (A) shall be transmitted as soon as

11 possible by the Clerk of the Court to an officer

12 or employee of the Commission designated for

13 that purpose. Upon receipt of the petition, the

14 Commission shall file with the court the regula15 tion under review and any documents referred to

16 therein, and any other relevant materials pre17 scribed by the court.

18 ‘‘(C) EXCLUSIVE JURISDICTION.—On the

19 date of the filing of the petition under subpara20 graph (A), the court has jurisdiction, which be21 comes exclusive on the filing of the materials set

22 forth in subparagraph (B), to affirm and enforce

23 or to set aside the regulation at issue.

24 ‘‘(D) STANDARD OF REVIEW.—
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1 ‘‘(i) IN GENERAL.—The court shall de2 termine to affirm and enforce or set aside a

3 regulation of the Commission under this

4 subsection, based on the determination of

5 the court as to whether the subject

6 product—

7 ‘‘(I) is a new product, as defined

8 in this subsection;

9 ‘‘(II) is a security; and

10 ‘‘(III) would be more appro11 priately regulated under the Federal

12 securities laws or the Federal banking

13 laws, giving equal deference to the

14 views of the Commission and the

15 Board.

16 ‘‘(ii) CONSIDERATIONS.—In making a

17 determination under clause (i)(III), the

18 court shall consider—

19 ‘‘(I) the nature of the subject new

20 product;

21 ‘‘(II) the history, purpose, extent,

22 and appropriateness of the regulation

23 of the new product under the Federal

24 securities laws; and
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1 ‘‘(III) the history, purpose, extent,

2 and appropriateness of the regulation

3 of the new product under the Federal

4 banking laws.

5 ‘‘(E) JUDICIAL STAY.—The filing of a peti6 tion by the Board or an aggrieved party pursu7 ant to subparagraph (A) shall operate as a judi8 cial stay, until the date on which the court

9 makes a final determination under this para10 graph, of—

11 ‘‘(i) any Commission requirement that

12 a bank register as a broker or dealer under

13 this section, because the bank engages in

14 any transaction in, or buys or sells, the new

15 product that is the subject of the petition;

16 and

17 ‘‘(ii) any Commission action against a

18 bank for a failure to comply with a require19 ment described in clause (i).

20 ‘‘(3) DEFINITIONS.—For purposes of this

21 subsection—

22 ‘‘(A) the term ‘Board’ means the Board of

23 Governors of the Federal Reserve System; and
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1 ‘‘(B) the term ‘new product’ means a prod2 uct or instrument offered or provided by a bank

3 that—

4 ‘‘(i) was not subject to regulation by

5 the Commission as a security under this Act

6 before the date of enactment of this sub7 section; and

8 ‘‘(ii) is not a traditional banking

9 product, as defined in paragraphs (1)

10 through (6) of section 205(a) of the Finan11 cial Services Act of 1999.’’.

12 (c) CLASSIFICATION LIMITED.—Classification of a

13 particular product or instrument as a traditional banking

14 product pursuant to this section or the amendments made

15 by this section shall not be construed as finding or implying

16 that such product or instrument is or is not a security for

17 any purpose under the securities laws, or is or is not an

18 account, agreement, contract, or transaction for any pur19 pose under the Commodity Exchange Act.

20 (d) NO LIMITATION ON OTHER AUTHORITY TO CHAL21 LENGE.—Nothing in this section or the amendments made

22 by this section shall affect the right or authority of the

23 Board of Governors of the Federal Reserve System, any ap24 propriate Federal banking agency, or any interested party

25 under any other provision of law to object to or seek judicial
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1 review as to whether a product or instrument is or is not

2 appropriately classified as a traditional banking product

3 under paragraphs (1) through (6) of section 205(a).

4 (e) INCORPORATED DEFINITIONS.—For purposes of

5 this section—

6 (1) the term ‘‘appropriate Federal banking agen7 cy’’ has the same meaning as in section 3 of the Fed8 eral Deposit Insurance Act;

9 (2) the term ‘‘bank’’ has the same meaning as in

10 section 3(a)(6) of the Securities Exchange Act of

11 1934;

12 (3) the term ‘‘Board’’ means the Board of Gov13 ernors of the Federal Reserve System;

14 (4) the term ‘‘government securities’’ has the

15 same meaning as in section 3(a)(42) of the Securities

16 Exchange Act of 1934, and, for purposes of this sub17 section, commercial paper, bankers acceptances, and

18 commercial bills shall be treated in the same manner

19 as government securities; and

20 (5) the term ‘‘qualified investor’’ has the same

21 meaning as in section 3(a)(54) of the Securities Ex22 change Act of 1934, as amended by this Act.
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1 SEC. 206. QUALIFIED INVESTOR DEFINED.

2 Section 3(a) of the Securities Exchange Act of 1934

3 (15 U.S.C. 78c(a)) is amended by adding at the end the

4 following new paragraph:

5 ‘‘(54) QUALIFIED INVESTOR.—

6 ‘‘(A) DEFINITION.—For purposes of this

7 title, the term ‘qualified investor’ means—

8 ‘‘(i) any investment company reg9 istered with the Commission under section 8

10 of the Investment Company Act of 1940;

11 ‘‘(ii) any issuer eligible for an exclu12 sion from the definition of investment com13 pany pursuant to section 3(c)(7) of the In14 vestment Company Act of 1940;

15 ‘‘(iii) any bank (as defined in para16 graph (6) of this subsection), savings asso17 ciation (as defined in section 3(b) of the

18 Federal Deposit Insurance Act), broker,

19 dealer, insurance company (as defined in

20 section 2(a)(13) of the Securities Act of

21 1933), or business development company (as

22 defined in section 2(a)(48) of the Investment

23 Company Act of 1940);

24 ‘‘(iv) any small business investment

25 company licensed by the United States

26 Small Business Administration under sec-
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1 tion 301 (c) or (d) of the Small Business

2 Investment Act of 1958;

3 ‘‘(v) any State sponsored employee

4 benefit plan, or any other employee benefit

5 plan, within the meaning of the Employee

6 Retirement Income Security Act of 1974,

7 other than an individual retirement ac8 count, if the investment decisions are made

9 by a plan fiduciary, as defined in section

10 3(21) of that Act, which is either a bank,

11 savings and loan association, insurance

12 company, or registered investment adviser;

13 ‘‘(vi) any trust whose purchases of se14 curities are directed by a person described

15 in clauses (i) through (v) of this subpara16 graph;

17 ‘‘(vii) any market intermediary ex18 empt under section 3(c)(2) of the Investment

19 Company Act of 1940;

20 ‘‘(viii) any associated person of a

21 broker or dealer other than a natural per22 son;

23 ‘‘(ix) any foreign bank (as defined in

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

25 Act of 1978);
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1 ‘‘(x) the government of any foreign

2 country;

3 ‘‘(xi) any corporation, company, or

4 partnership that owns and invests on a dis5 cretionary basis, not less than $10,000,000

6 in investments;

7 ‘‘(xii) any natural person who owns

8 and invests on a discretionary basis, not

9 less than $10,000,000 in investments;

10 ‘‘(xiii) any government or political

11 subdivision, agency, or instrumentality of a

12 government who owns and invests on a dis13 cretionary basis not less than $50,000,000

14 in investments; or

15 ‘‘(xiv) any multinational or supra16 national entity or any agency or instru17 mentality thereof.

18 ‘‘(B) ADDITIONAL AUTHORITY.—The Com19 mission may, by rule or order, define a ‘qualified

20 investor’ as any other person, taking into consid21 eration such factors as the financial sophistica22 tion of the person, net worth, and knowledge and

23 experience in financial matters.’’.
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1 SEC. 207. GOVERNMENT SECURITIES DEFINED.

2 Section 3(a)(42) of the Securities Exchange Act of

3 1934 (15 U.S.C. 78c(a)(42)) is amended—

4 (1) by striking ‘‘or’’ at the end of subparagraph

5 (C);

6 (2) by striking the period at the end of subpara7 graph (D) and inserting ‘‘; or’’; and

8 (3) by adding at the end the following new sub9 paragraph:

10 ‘‘(E) for purposes of section 15C as applied

11 to a bank, a qualified Canadian government ob12 ligation as defined in section 5136 of the Revised

13 Statutes.’’.

14 SEC. 208. EFFECTIVE DATE.

15 This subtitle shall take effect at the end of the 270-

16 day period beginning on the date of the enactment of this

17 Act.

18 SEC. 209. RULE OF CONSTRUCTION.

19 Nothing in this Act shall supersede, affect, or otherwise

20 limit the scope and applicability of the Commodity Ex21 change Act (7 U.S.C. 1 et seq.).
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1 Subtitle B—Bank Investment

2 Company Activities

3 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

4 AFFILIATED BANK.

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

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

7 amended—

8 (1) by redesignating paragraphs (1), (2), and (3)

9 as subparagraphs (A), (B), and (C), respectively;

10 (2) by striking ‘‘(f) Every registered’’ and insert11 ing the following:

12 ‘‘(f) CUSTODY OF SECURITIES.—

13 ‘‘(1) Every registered’’;

14 (3) by redesignating the second, third, fourth,

15 and fifth sentences of such subsection as paragraphs

16 (2) through (5), respectively, and indenting the left

17 margin of such paragraphs appropriately; and

18 (4) by adding at the end the following new para19 graph:

20 ‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—

21 The Commission may adopt rules and regulations,

22 and issue orders, consistent with the protection of in23 vestors, prescribing the conditions under which a

24 bank, or an affiliated person of a bank, either of

25 which is an affiliated person, promoter, organizer, or
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1 sponsor of, or principal underwriter for, a registered

2 management company may serve as custodian of that

3 registered management company.’’.

4 (b) UNIT INVESTMENT TRUSTS.—Section 26 of the In5 vestment Company Act of 1940 (15 U.S.C. 80a–26) is

6 amended—

7 (1) by redesignating subsections (b) through (e)

8 as subsections (c) through (f), respectively; and

9 (2) by inserting after subsection (a) the following

10 new subsection:

11 ‘‘(b) The Commission may adopt rules and regula12 tions, and issue orders, consistent with the protection of in13 vestors, prescribing the conditions under which a bank, or

14 an affiliated person of a bank, either of which is an affili15 ated person of a principal underwriter for, or depositor of,

16 a registered unit investment trust, may serve as trustee or

17 custodian under subsection (a)(1).’’.

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

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

20 35(a)) is amended—

21 (1) in paragraph (1), by striking ‘‘or’’ at the

22 end;

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

24 the end and inserting ‘‘; or’’; and
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1 (3) by inserting after paragraph (2) the fol2 lowing:

3 ‘‘(3) as custodian.’’.

4 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM5 PANY.

6 Section 17(a) of the Investment Company Act of 1940

7 (15 U.S.C. 80a–17(a)) is amended—

8 (1) by striking ‘‘or’’ at the end of paragraph (2);

9 (2) by striking the period at the end of para10 graph (3) and inserting ‘‘; or’’; and

11 (3) by adding at the end the following new para12 graph:

13 ‘‘(4) to loan money or other property to such reg14 istered company, or to any company controlled by

15 such registered company, in contravention of such

16 rules, regulations, or orders as the Commission may

17 prescribe or issue consistent with the protection of in18 vestors.’’.

19 SEC. 213. INDEPENDENT DIRECTORS.

20 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest21 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

22 is amended—

23 (1) by striking clause (v) and inserting the fol24 lowing new clause:
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1 ‘‘(v) any person or any affiliated per2 son of a person (other than a registered in3 vestment company) that, at any time dur4 ing the 6-month period preceding the date

5 of the determination of whether that person

6 or affiliated person is an interested person,

7 has executed any portfolio transactions for,

8 engaged in any principal transactions with,

9 or distributed shares for—

10 ‘‘(I) the investment company;

11 ‘‘(II) any other investment com12 pany having the same investment ad13 viser as such investment company or

14 holding itself out to investors as a re15 lated company for purposes of invest16 ment or investor services; or

17 ‘‘(III) any account over which the

18 investment company’s investment ad19 viser has brokerage placement discre20 tion,’’;

21 (2) by redesignating clause (vi) as clause (vii);

22 and

23 (3) by inserting after clause (v) the following

24 new clause:
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1 ‘‘(vi) any person or any affiliated per2 son of a person (other than a registered in3 vestment company) that, at any time dur4 ing the 6-month period preceding the date

5 of the determination of whether that person

6 or affiliated person is an interested person,

7 has loaned money or other property to—

8 ‘‘(I) the investment company;

9 ‘‘(II) any other investment com10 pany having the same investment ad11 viser as such investment company or

12 holding itself out to investors as a re13 lated company for purposes of invest14 ment or investor services; or

15 ‘‘(III) any account for which the

16 investment company’s investment ad17 viser has borrowing authority,’’.

18 (b) CONFORMING AMENDMENT.—Section 2(a)(19)(B)

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

20 2(a)(19)(B)) is amended—

21 (1) by striking clause (v) and inserting the fol22 lowing new clause:

23 ‘‘(v) any person or any affiliated per24 son of a person (other than a registered in25 vestment company) that, at any time dur-
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1 ing the 6-month period preceding the date

2 of the determination of whether that person

3 or affiliated person is an interested person,

4 has executed any portfolio transactions for,

5 engaged in any principal transactions with,

6 or distributed shares for—

7 ‘‘(I) any investment company for

8 which the investment adviser or prin9 cipal underwriter serves as such;

10 ‘‘(II) any investment company

11 holding itself out to investors, for pur12 poses of investment or investor services,

13 as a company related to any invest14 ment company for which the invest15 ment adviser or principal underwriter

16 serves as such; or

17 ‘‘(III) any account over which the

18 investment adviser has brokerage place19 ment discretion,’’;

20 (2) by redesignating clause (vi) as clause (vii);

21 and

22 (3) by inserting after clause (v) the following

23 new clause:

24 ‘‘(vi) any person or any affiliated per25 son of a person (other than a registered in-
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1 vestment company) that, at any time dur2 ing the 6-month period preceding the date

3 of the determination of whether that person

4 or affiliated person is an interested person,

5 has loaned money or other property to—

6 ‘‘(I) any investment company for

7 which the investment adviser or prin8 cipal underwriter serves as such;

9 ‘‘(II) any investment company

10 holding itself out to investors, for pur11 poses of investment or investor services,

12 as a company related to any invest13 ment company for which the invest14 ment adviser or principal underwriter

15 serves as such; or

16 ‘‘(III) any account for which the

17 investment adviser has borrowing au18 thority,’’.

19 (c) AFFILIATION OF DIRECTORS.—Section 10(c) of the

20 Investment Company Act of 1940 (15 U.S.C. 80a–10(c)) is

21 amended by striking ‘‘bank, except’’ and inserting ‘‘bank

22 (together with its affiliates and subsidiaries) or any one

23 bank holding company (together with its affiliates and sub24 sidiaries) (as such terms are defined in section 2 of the

25 Bank Holding Company Act of 1956), except’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall take effect at the end of the 1-year period begin3 ning on the date of enactment of this subtitle.

4 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

5 Section 35(a) of the Investment Company Act of 1940

6 (15 U.S.C. 80a–34(a)) is amended to read as follows:

7 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

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

9 person, issuing or selling any security of which a reg10 istered investment company is the issuer, to represent

11 or imply in any manner whatsoever that such secu12 rity or company—

13 ‘‘(A) has been guaranteed, sponsored, rec14 ommended, or approved by the United States, or

15 any agency, instrumentality or officer of the

16 United States;

17 ‘‘(B) has been insured by the Federal De18 posit Insurance Corporation; or

19 ‘‘(C) is guaranteed by or is otherwise an ob20 ligation of any bank or insured depository insti21 tution.

22 ‘‘(2) DISCLOSURES.—Any person issuing or sell23 ing the securities of a registered investment company

24 that is advised by, or sold through, a bank shall

25 prominently disclose that an investment in the com-
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1 pany is not insured by the Federal Deposit Insurance

2 Corporation or any other government agency. The

3 Commission may adopt rules and regulations, and

4 issue orders, consistent with the protection of inves5 tors, prescribing the manner in which the disclosure

6 under this paragraph shall be provided.

7 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi8 tory institution’ and ‘appropriate Federal banking

9 agency’ have the same meanings as in section 3 of the

10 Federal Deposit Insurance Act.’’.

11 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST12 MENT COMPANY ACT OF 1940.

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

14 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as follows:

15 ‘‘(6) The term ‘broker’ has the same meaning as

16 in section 3 of the Securities Exchange Act of 1934,

17 except that such term does not include any person

18 solely by reason of the fact that such person is an un19 derwriter for one or more investment companies.’’.

20 SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT

21 COMPANY ACT OF 1940.

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

23 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol24 lows:
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1 ‘‘(11) The term ‘dealer’ has the same meaning as

2 in section 3 of the Securities Exchange Act of 1934,

3 but does not include an insurance company or invest4 ment company.’’.

5 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI6 TION OF INVESTMENT ADVISER FOR BANKS

7 THAT ADVISE INVESTMENT COMPANIES.

8 (a) INVESTMENT ADVISER.—Section 202(a)(11) of the

9 Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11))

10 is amended in subparagraph (A), by striking ‘‘investment

11 company’’ and inserting ‘‘investment company, except that

12 the term ‘investment adviser’ includes any bank or bank

13 holding company to the extent that such bank or bank hold14 ing company serves or acts as an investment adviser to a

15 registered investment company, but if, in the case of a bank,

16 such services or actions are performed through a separately

17 identifiable department or division, the department or divi18 sion, and not the bank itself, shall be deemed to be the in19 vestment adviser’’.

20 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DI21 VISION.—Section 202(a) of the Investment Advisers Act of

22 1940 (15 U.S.C. 80b–2(a)) is amended by adding at the

23 end the following:

24 ‘‘(26) The term ‘separately identifiable depart25 ment or division’ of a bank means a unit—
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1 ‘‘(A) that is under the direct supervision of

2 an officer or officers designated by the board of

3 directors of the bank as responsible for the day4 to-day conduct of the bank’s investment adviser

5 activities for one or more investment companies,

6 including the supervision of all bank employees

7 engaged in the performance of such activities;

8 and

9 ‘‘(B) for which all of the records relating to

10 its investment adviser activities are separately

11 maintained in or extractable from such unit’s

12 own facilities or the facilities of the bank, and

13 such records are so maintained or otherwise ac14 cessible as to permit independent examination

15 and enforcement by the Commission of this Act

16 or the Investment Company Act of 1940 and

17 rules and regulations promulgated under this

18 Act or the Investment Company Act of 1940.’’.

19 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST20 MENT ADVISERS ACT OF 1940.

21 Section 202(a)(3) of the Investment Advisers Act of

22 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as follows:

23 ‘‘(3) The term ‘broker’ has the same meaning as

24 in section 3 of the Securities Exchange Act of 1934.’’.
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1 SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT

2 ADVISERS ACT OF 1940.

3 Section 202(a)(7) of the Investment Advisers Act of

4 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as follows:

5 ‘‘(7) The term ‘dealer’ has the same meaning as

6 in section 3 of the Securities Exchange Act of 1934,

7 but does not include an insurance company or invest8 ment company.’’.

9 SEC. 220. INTERAGENCY CONSULTATION.

10 The Investment Advisers Act of 1940 (15 U.S.C. 80b–

11 1 et seq.) is amended by inserting after section 210 the fol12 lowing new section:

13 ‘‘SEC. 210A. CONSULTATION.

14 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA15 TION.—

16 ‘‘(1) The appropriate Federal banking agency

17 shall provide the Commission upon request the results

18 of any examination, reports, records, or other infor19 mation to which such agency may have access with

20 respect to the investment advisory activities—

21 ‘‘(A) of any—

22 ‘‘(i) bank holding company;

23 ‘‘(ii) bank; or

24 ‘‘(iii) separately identifiable depart25 ment or division of a bank, that is reg26 istered under section 203 of this title; and
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1 ‘‘(B) in the case of a bank holding company

2 or bank that has a subsidiary or a separately

3 identifiable department or division registered

4 under that section, of such bank or bank holding

5 company.

6 ‘‘(2) The Commission shall provide to the appro7 priate Federal banking agency upon request the re8 sults of any examination, reports, records, or other

9 information with respect to the investment advisory

10 activities of any bank holding company, bank, or sep11 arately identifiable department or division of a bank,

12 any of which is registered under section 203 of this

13 title.

14 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in this

15 section shall limit in any respect the authority of the appro16 priate Federal banking agency with respect to such bank

17 holding company, bank, or department or division under

18 any provision of law.

19 ‘‘(c) DEFINITION.—For purposes of this section, the

20 term ‘appropriate Federal banking agency’ has the same

21 meaning as in section 3 of the Federal Deposit Insurance

22 Act.’’.

23 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

24 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of the

25 Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended
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1 by striking ‘‘or any interest or participation in any com2 mon trust fund or similar fund maintained by a bank ex3 clusively for the collective investment and reinvestment of

4 assets contributed thereto by such bank in its capacity as

5 trustee, executor, administrator, or guardian’’ and insert6 ing ‘‘or any interest or participation in any common trust

7 fund or similar fund that is excluded from the definition

8 of the term ‘investment company’ under section 3(c)(3) of

9 the Investment Company Act of 1940’’.

10 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

11 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15

12 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows:

13 ‘‘(iii) any interest or participation in any

14 common trust fund or similar fund that is ex15 cluded from the definition of the term ‘invest16 ment company’ under section 3(c)(3) of the In17 vestment Company Act of 1940;’’.

18 (c) INVESTMENT COMPANY ACT OF 1940.—Section

19 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C.

20 80a–3(c)(3)) is amended by inserting before the period the

21 following: ‘‘, if—

22 ‘‘(A) such fund is employed by the bank

23 solely as an aid to the administration of trusts,

24 estates, or other accounts created and main25 tained for a fiduciary purpose;
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1 ‘‘(B) except in connection with the ordinary

2 advertising of the bank’s fiduciary services, in3 terests in such fund are not—

4 ‘‘(i) advertised; or

5 ‘‘(ii) offered for sale to the general pub6 lic; and

7 ‘‘(C) fees and expenses charged by such fund

8 are not in contravention of fiduciary principles

9 established under applicable Federal or State

10 law’’.

11 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV12 ING CONTROLLING INTEREST IN REG13 ISTERED INVESTMENT COMPANY.

14 Section 15 of the Investment Company Act of 1940 (15

15 U.S.C. 80a–15) is amended by adding at the end the fol16 lowing new subsection:

17 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM18 PANY PROHIBITED.—

19 ‘‘(1) IN GENERAL.—If an investment adviser to

20 a registered investment company, or an affiliated per21 son of that investment adviser, holds a controlling in22 terest in that registered investment company in a

23 trustee or fiduciary capacity, such person shall—

24 ‘‘(A) if it holds the shares in a trustee or fi25 duciary capacity with respect to any employee
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1 benefit plan subject to the Employee Retirement

2 Income Security Act of 1974, transfer the power

3 to vote the shares of the investment company

4 through to another person acting in a fiduciary

5 capacity with respect to the plan who is not an

6 affiliated person of that investment adviser or

7 any affiliated person thereof; or

8 ‘‘(B) if it holds the shares in a trustee or fi9 duciary capacity with respect to any person or

10 entity other than an employee benefit plan sub11 ject to the Employee Retirement Income Security

12 Act of 1974—

13 ‘‘(i) transfer the power to vote the

14 shares of the investment company through

15 to—

16 ‘‘(I) the beneficial owners of the

17 shares;

18 ‘‘(II) another person acting in a

19 fiduciary capacity who is not an affili20 ated person of that investment adviser

21 or any affiliated person thereof; or

22 ‘‘(III) any person authorized to

23 receive statements and information

24 with respect to the trust who is not an
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1 affiliated person of that investment ad2 viser or any affiliated person thereof;

3 ‘‘(ii) vote the shares of the investment

4 company held by it in the same proportion

5 as shares held by all other shareholders of

6 the investment company; or

7 ‘‘(iii) vote the shares of the investment

8 company as otherwise permitted under such

9 rules, regulations, or orders as the Commis10 sion may prescribe or issue consistent with

11 the protection of investors.

12 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

13 apply to any investment adviser to a registered in14 vestment company, or any affiliated person of that

15 investment adviser, that holds shares of the invest16 ment company in a trustee or fiduciary capacity if

17 that registered investment company consists solely of

18 assets held in such capacities.

19 ‘‘(3) SAFE HARBOR.—No investment adviser to a

20 registered investment company or any affiliated per21 son of such investment adviser shall be deemed to have

22 acted unlawfully or to have breached a fiduciary duty

23 under State or Federal law solely by reason of acting

24 in accordance with clause (i), (ii), or (iii) of para25 graph (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 ‘‘(A)

4 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 terms

8 are defined in section 1(b) of the International Banking Act

9 of 1978)’’.

10 SEC. 224. CONFORMING AMENDMENT.

11 Section 202 of the Investment Advisers Act of 1940 (15

12 U.S.C. 80b–2) is amended by adding at the end the fol13 lowing new subsection:

14 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFICIENCY,

15 COMPETITION, AND CAPITAL FORMATION.—Whenever pur16 suant to this title the Commission is engaged in rulemaking

17 and is required to consider or determine whether an action

18 is necessary or appropriate in the public interest, the Com19 mission shall also consider, in addition to the protection

20 of investors, whether the action will promote efficiency, com21 petition, and capital formation.’’.

22 SEC. 225. EFFECTIVE DATE.

23 This subtitle shall take effect 90 days after the date

24 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 (k); and

12 (2) by inserting after subsection (h) the following

13 new subsections:

14 ‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—

15 ‘‘(1) ELECTIVE SUPERVISION OF AN INVESTMENT

16 BANK HOLDING COMPANY NOT HAVING A BANK OR

17 SAVINGS ASSOCIATION AFFILIATE.—

18 ‘‘(A) IN GENERAL.—An investment bank

19 holding company that is not—

20 ‘‘(i) an affiliate of an insured bank

21 (other than an institution described in sub22 paragraph (D), (F), or (G) of section

23 2(c)(2), or held under section 4(f), of the

24 Bank Holding Company Act of 1956) or a

25 savings association;
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1 ‘‘(ii) a foreign bank, foreign company,

2 or company that is described in section 8(a)

3 of the International Banking Act of 1978;

4 or

5 ‘‘(iii) a foreign bank that controls, di6 rectly or indirectly, a corporation chartered

7 under section 25A of the Federal Reserve

8 Act,

9 may elect to become supervised by filing with the

10 Commission a notice of intention to become su11 pervised, pursuant to subparagraph (B) of this

12 paragraph. Any investment bank holding com13 pany filing such a notice shall be supervised in

14 accordance with this section and comply with the

15 rules promulgated by the Commission applicable

16 to supervised investment bank holding compa17 nies.

18 ‘‘(B) NOTIFICATION OF STATUS AS A SUPER19 VISED INVESTMENT BANK HOLDING COMPANY.—

20 An investment bank holding company that elects

21 under subparagraph (A) to become supervised by

22 the Commission shall file with the Commission a

23 written notice of intention to become supervised

24 by the Commission in such form and containing

25 such information and documents concerning such
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1 investment bank holding company as the Com2 mission, by rule, may prescribe as necessary or

3 appropriate in furtherance of the purposes of

4 this section. Unless the Commission finds that

5 such supervision is not necessary or appropriate

6 in furtherance of the purposes of this section,

7 such supervision shall become effective 45 days

8 after the date of receipt of such written notice by

9 the Commission, or within such shorter time pe10 riod as the Commission, by rule or order, may

11 determine.

12 ‘‘(2) ELECTION NOT TO BE SUPERVISED BY THE

13 COMMISSION AS AN INVESTMENT BANK HOLDING COM14 PANY.—

15 ‘‘(A) VOLUNTARY WITHDRAWAL.—A super16 vised investment bank holding company that is

17 supervised pursuant to paragraph (1) may, upon

18 such terms and conditions as the Commission

19 deems necessary or appropriate, elect not to be

20 supervised by the Commission by filing a written

21 notice of withdrawal from Commission super22 vision. Such notice shall not become effective

23 until one year after receipt by the Commission,

24 or such shorter or longer period as the Commis25 sion deems necessary or appropriate to ensure ef-
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1 fective supervision of the material risks to the su2 pervised investment bank holding company and

3 to the affiliated broker or dealer, or to prevent

4 evasion of the purposes of this section.

5 ‘‘(B) DISCONTINUATION OF COMMISSION SU6 PERVISION.—If the Commission finds that any

7 supervised investment bank holding company

8 that is supervised pursuant to paragraph (1) is

9 no longer in existence or has ceased to be an in10 vestment bank holding company, or if the Com11 mission finds that continued supervision of such

12 a supervised investment bank holding company

13 is not consistent with the purposes of this sec14 tion, the Commission may discontinue the super15 vision pursuant to a rule or order, if any, pro16 mulgated by the Commission under this section.

17 ‘‘(3) SUPERVISION OF INVESTMENT BANK HOLD18 ING COMPANIES.—

19 ‘‘(A) RECORDKEEPING AND REPORTING.—

20 ‘‘(i) IN GENERAL.—Every supervised

21 investment bank holding company and each

22 affiliate thereof shall make and keep for pre23 scribed periods such records, furnish copies

24 thereof, and make such reports, as the Com-
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1 mission may require by rule, in order to

2 keep the Commission informed as to—

3 ‘‘(I) the company’s or affiliate’s

4 activities, financial condition, policies,

5 systems for monitoring and controlling

6 financial and operational risks, and

7 transactions and relationships between

8 any broker or dealer affiliate of the su9 pervised investment bank holding com10 pany; and

11 ‘‘(II) the extent to which the com12 pany or affiliate has complied with the

13 provisions of this Act and regulations

14 prescribed and orders issued under this

15 Act.

16 ‘‘(ii) FORM AND CONTENTS.—Such

17 records and reports shall be prepared in

18 such form and according to such specifica19 tions (including certification by an inde20 pendent public accountant), as the Commis21 sion may require and shall be provided

22 promptly at any time upon request by the

23 Commission. Such records and reports may

24 include—
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1 ‘‘(I) a balance sheet and income

2 statement;

3 ‘‘(II) an assessment of the consoli4 dated capital of the supervised invest5 ment bank holding company;

6 ‘‘(III) an independent auditor’s

7 report attesting to the supervised in8 vestment bank holding company’s com9 pliance with its internal risk manage10 ment and internal control objectives;

11 and

12 ‘‘(IV) reports concerning the ex13 tent to which the company or affiliate

14 has complied with the provisions of

15 this title and any regulations pre16 scribed and orders issued under this

17 title.

18 ‘‘(B) USE OF EXISTING REPORTS.—

19 ‘‘(i) IN GENERAL.—The Commission

20 shall, to the fullest extent possible, accept re21 ports in fulfillment of the requirements

22 under this paragraph that the supervised

23 investment bank holding company or its af24 filiates have been required to provide to an-
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1 other appropriate regulatory agency or self2 regulatory organization.

3 ‘‘(ii) AVAILABILITY.—A supervised in4 vestment bank holding company or an affil5 iate of such company shall provide to the

6 Commission, at the request of the Commis7 sion, any report referred to in clause (i).

8 ‘‘(C) EXAMINATION AUTHORITY.—

9 ‘‘(i) FOCUS OF EXAMINATION AUTHOR10 ITY.—The Commission may make examina11 tions of any supervised investment bank

12 holding company and any affiliate of such

13 company in order to—

14 ‘‘(I) inform the Commission

15 regarding—

16 ‘‘(aa) the nature of the oper17 ations and financial condition of

18 the supervised investment bank

19 holding company and its affili20 ates;

21 ‘‘(bb) the financial and oper22 ational risks within the super23 vised investment bank holding

24 company that may affect any

25 broker or dealer controlled by such
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1 supervised investment bank hold2 ing company; and

3 ‘‘(cc) the systems of the su4 pervised investment bank holding

5 company and its affiliates for

6 monitoring and controlling those

7 risks; and

8 ‘‘(II) monitor compliance with the

9 provisions of this subsection, provisions

10 governing transactions and relation11 ships between any broker or dealer af12 filiated with the supervised investment

13 bank holding company and any of the

14 company’s other affiliates, and appli15 cable provisions of subchapter II of

16 chapter 53, title 31, United States

17 Code (commonly referred to as the

18 ‘Bank Secrecy Act’) and regulations

19 thereunder.

20 ‘‘(ii) RESTRICTED FOCUS OF EXAMINA21 TIONS.—The Commission shall limit the

22 focus and scope of any examination of a su23 pervised investment bank holding company

24 to—

25 ‘‘(I) the company; and
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1 ‘‘(II) any affiliate of the company

2 that, because of its size, condition, or

3 activities, the nature or size of the

4 transactions between such affiliate and

5 any affiliated broker or dealer, or the

6 centralization of functions within the

7 holding company system, could, in the

8 discretion of the Commission, have a

9 materially adverse effect on the oper10 ational or financial condition of the

11 broker or dealer.

12 ‘‘(iii) DEFERENCE TO OTHER EXAMI13 NATIONS.—For purposes of this subpara14 graph, the Commission shall, to the fullest

15 extent possible, use the reports of examina16 tion of an institution described in subpara17 graph (D), (F), or (G) of section 2(c)(2), or

18 held under section 4(f), of the Bank Holding

19 Company Act of 1956 made by the appro20 priate regulatory agency, or of a licensed

21 insurance company made by the appro22 priate State insurance regulator.

23 ‘‘(4) HOLDING COMPANY CAPITAL.—

24 ‘‘(A) AUTHORITY.—If the Commission finds

25 that it is necessary to adequately supervise in-
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1 vestment bank holding companies and their

2 broker or dealer affiliates consistent with the

3 purposes of this subsection, the Commission may

4 adopt capital adequacy rules for supervised in5 vestment bank holding companies.

6 ‘‘(B) METHOD OF CALCULATION.—In devel7 oping rules under this paragraph:

8 ‘‘(i) DOUBLE LEVERAGE.—The Com9 mission shall consider the use by the super10 vised investment bank holding company of

11 debt and other liabilities to fund capital in12 vestments in affiliates.

13 ‘‘(ii) NO UNWEIGHTED CAPITAL

14 RATIO.—The Commission shall not impose

15 under this section a capital ratio that is not

16 based on appropriate risk-weighting consid17 erations.

18 ‘‘(iii) NO CAPITAL REQUIREMENT ON

19 REGULATED ENTITIES.—The Commission

20 shall not, by rule, regulation, guideline,

21 order or otherwise, impose any capital ade22 quacy provision on a nonbanking affiliate

23 (other than a broker or dealer) that is in

24 compliance with applicable capital require-
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1 ments of another Federal regulatory author2 ity or State insurance authority.

3 ‘‘(iv) APPROPRIATE EXCLUSIONS.—The

4 Commission shall take full account of the

5 applicable capital requirements of another

6 Federal regulatory authority or State insur7 ance regulator.

8 ‘‘(C) INTERNAL RISK MANAGEMENT MOD9 ELS.—The Commission may incorporate inter10 nal risk management models into its capital ade11 quacy rules for supervised investment bank hold12 ing companies.

13 ‘‘(5) FUNCTIONAL REGULATION OF BANKING AND

14 INSURANCE ACTIVITIES OF SUPERVISED INVESTMENT

15 BANK HOLDING COMPANIES.—The Commission shall

16 defer to—

17 ‘‘(A) the appropriate regulatory agency

18 with regard to all interpretations of, and the en19 forcement of, applicable banking laws relating to

20 the activities, conduct, ownership, and oper21 ations of banks, and institutions described in

22 subparagraph (D), (F), and (G) of section

23 2(c)(2), or held under section 4(f), of the Bank

24 Holding Company Act of 1956; and
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1 ‘‘(B) the appropriate State insurance regu2 lators with regard to all interpretations of, and

3 the enforcement of, applicable State insurance

4 laws relating to the activities, conduct, and oper5 ations of insurance companies and insurance

6 agents.

7 ‘‘(6) DEFINITIONS.—For purposes of this sub8 section and subsection (j)—

9 ‘‘(A) the term ‘investment bank holding

10 company’ means—

11 ‘‘(i) any person other than a natural

12 person that owns or controls one or more

13 brokers or dealers; and

14 ‘‘(ii) the associated persons of the in15 vestment bank holding company;

16 ‘‘(B) the term ‘supervised investment bank

17 holding company’ means any investment bank

18 holding company that is supervised by the Com19 mission pursuant to this subsection;

20 ‘‘(C) the terms ‘affiliate’, ‘bank’, ‘bank hold21 ing company’, ‘company’, ‘control’, and ‘savings

22 association’ have the same meanings as in sec23 tion 2 of the Bank Holding Company Act of

24 1956;
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1 ‘‘(D) the term ‘insured bank’ has the same

2 meaning as in section 3 of the Federal Deposit

3 Insurance Act;

4 ‘‘(E) the term ‘foreign bank’ has the same

5 meaning as in section 1(b)(7) of the Inter6 national Banking Act of 1978; and

7 ‘‘(F) the terms ‘person associated with an

8 investment bank holding company’ and ‘associ9 ated person of an investment bank holding com10 pany’ mean any person directly or indirectly

11 controlling, controlled by, or under common con12 trol with, an investment bank holding company.

13 ‘‘(j) AUTHORITY TO LIMIT DISCLOSURE OF INFORMA14 TION.—Notwithstanding any other provision of law, the

15 Commission shall not be compelled to disclose any informa16 tion required to be reported under subsection (h) or (i) or

17 any information supplied to the Commission by any domes18 tic or foreign regulatory agency that relates to the financial

19 or operational condition of any associated person of a

20 broker or dealer, investment bank holding company, or any

21 affiliate of an investment bank holding company. Nothing

22 in this subsection shall authorize the Commission to with23 hold information from Congress, or prevent the Commission

24 from complying with a request for information from any

25 other Federal department or agency or any self-regulatory
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1 organization requesting the information for purposes with2 in the scope of its jurisdiction, or complying with an order

3 of a court of the United States in an action brought by

4 the United States or the Commission. For purposes of sec5 tion 552 of title 5, United States Code, this subsection shall

6 be considered a statute described in subsection (b)(3)(B) of

7 such section 552. In prescribing regulations to carry out

8 the requirements of this subsection, the Commission shall

9 designate information described in or obtained pursuant to

10 subparagraphs (A), (B), and (C) of subsection (i)(5) as con11 fidential information for purposes of section 24(b)(2) of this

12 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 subparagraph:

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 in

23 the District of Columbia examined by the

24 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 accord9 ance with the Federal Deposit Insurance

10 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 of

24 this Act, the Comptroller General of the United States shall

25 submit a report to the Congress regarding the efficacy, costs,
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1 and benefits of requiring that any depository institution

2 that accepts federally insured deposits and that, directly or

3 through a contractual or other arrangement with a broker,

4 dealer, or agent, buys from, sells to, or effects transactions

5 for retail investors in securities or consumers of insurance

6 to inform such investors and consumers through the use of

7 a logo or seal that the security or insurance is not insured

8 by the Federal Deposit Insurance Corporation.

9 SEC. 242. STUDY OF LIMITATION ON FEES ASSOCIATED

10 WITH ACQUIRING FINANCIAL PRODUCTS.

11 Not later than 1 year after the date of enactment of

12 this Act, the Comptroller General of the United States shall

13 submit a report to the Congress regarding the impact of

14 regulations limiting any commissions, fees, markups, or

15 other costs incurred by customers in the acquisition of fi16 nancial products.

17 TITLE III—INSURANCE

18 Subtitle A—State Regulation of

19 Insurance

20 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR21 ANCE.

22 The Act entitled ‘‘An Act to express the intent of the

23 Congress with reference to the regulation of the business of

24 insurance’’ and approved March 9, 1945 (15 U.S.C. 1011
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1 et seq.), commonly referred to as the ‘‘McCarran-Ferguson

2 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 sec13 tion 104.

14 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL BANKS.

15 (a) IN GENERAL.—Except as provided in section 305,

16 a national bank and the subsidiaries of a national bank

17 may not provide insurance in a State as principal except

18 that this prohibition shall not apply to authorized products.

19 (b) AUTHORIZED PRODUCTS.—For the purposes of this

20 section, a product is authorized if—

21 (1) as of January 1, 1999, the Comptroller of the

22 Currency had determined in writing that national

23 banks may provide such product as principal, or na24 tional banks were in fact lawfully providing such

25 product as principal;
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1 (2) no court of relevant jurisdiction had, by final

2 judgment, overturned a determination of the Comp3 troller of the Currency that national banks may pro4 vide such product as principal; and

5 (3) the product is not title insurance, or an an6 nuity contract the income of which is subject to tax

7 treatment under section 72 of the Internal Revenue

8 Code of 1986.

9 (c) DEFINITION.—For purposes of this section, the

10 term ‘‘insurance’’ means—

11 (1) any product regulated as insurance as of

12 January 1, 1999, in accordance with the relevant

13 State insurance law, in the State in which the prod14 uct is provided;

15 (2) any product first offered after January 1,

16 1999, which—

17 (A) a State insurance regulator determines

18 shall be regulated as insurance in the State in

19 which the product is provided because the prod20 uct insures, guarantees, or indemnifies against

21 liability, loss of life, loss of health, or loss

22 through damage to or destruction of property,

23 including, but not limited to, surety bonds, life

24 insurance, health insurance, title insurance, and

25 property and casualty insurance (such as pri-
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1 vate passenger or commercial automobile, home2 owners, mortgage, commercial multiperil, general

3 liability, professional liability, workers’ com4 pensation, fire and allied lines, farm owners

5 multiperil, aircraft, fidelity, surety, medical

6 malpractice, ocean marine, inland marine, and

7 boiler and machinery insurance); and

8 (B) is not a product or service of a bank

9 that is—

10 (i) a deposit product;

11 (ii) a loan, discount, letter of credit, or

12 other extension of credit;

13 (iii) a trust or other fiduciary service;

14 (iv) a qualified financial contract (as

15 defined in or determined pursuant to sec16 tion 11(e)(8)(D)(i) of the Federal Deposit

17 Insurance Act); or

18 (v) a financial guaranty, except that

19 this subparagraph (B) shall not apply to a

20 product that includes an insurance compo21 nent such that if the product is offered or

22 proposed to be offered by the bank as

23 principal—

24 (I) it would be treated as a life

25 insurance contract under section 7702
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1 of the Internal Revenue Code of 1986;

2 or

3 (II) in the event that the product

4 is not a letter of credit or other similar

5 extension of credit, a qualified finan6 cial contract, or a financial guaranty,

7 it would qualify for treatment for

8 losses incurred with respect to such

9 product under section 832(b)(5) of the

10 Internal Revenue Code of 1986, if the

11 bank were subject to tax as an insur12 ance company under section 831 of

13 that Code; or

14 (3) any annuity contract, the income on which

15 is subject to tax treatment under section 72 of the In16 ternal Revenue Code of 1986.

17 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

18 BANKS AND THEIR AFFILIATES.

19 (a) AUTHORITY.—Notwithstanding any other provi20 sion of this Act or any other law, no national bank, and

21 no subsidiary of a national bank, may engage in any activ22 ity involving the underwriting of title insurance, other than

23 title insurance underwriting activities in which such na24 tional bank or subsidiary was actively and lawfully en25 gaged before the date of the enactment of this Act.
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1 (b) INSURANCE AFFILIATE.—In the case of a national

2 bank which has an affiliate which provides insurance as

3 principal and is not a subsidiary of the bank, the national

4 bank and any subsidiary of the national bank may not en5 gage in any activity involving the underwriting of title in6 surance pursuant to subsection (a).

7 (c) INSURANCE SUBSIDIARY.—In the case of a na8 tional bank which has a subsidiary which provides insur9 ance as principal and has no affiliate which provides insur10 ance as principal and is not a subsidiary, the national

11 bank may not engage in any activity involving the under12 writing of title insurance pursuant to subsection (a).

13 (d) LIMITATION ON OTHER TITLE INSURANCE ACTIVI14 TIES.—Notwithstanding any other provision of law, no na15 tional bank may engage, directly or indirectly, in any ac16 tivity involving the sale of title insurance, other than title

17 insurance sales activities in which such national bank was

18 actively and lawfully engaged, directly or through a sub19 sidiary, as of the date of the enactment of this Act.

20 (e) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—For

21 purposes of this section, the terms ‘‘affiliate’’ and ‘‘sub22 sidiary’’ have the same meanings as in section 2 of the

23 Bank Holding Company Act of 1956.

24 (f) RULE OF CONSTRUCTION.—No provision of this Act

25 or any other Federal law shall be construed as superseding
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1 or affecting a State law which was in effect before the date

2 of the enactment of this Act and which prohibits title insur3 ance from being offered, provided, or sold in such State,

4 or from being underwritten with respect to real property

5 in such State, by any person whatsoever.

6 SEC. 306. EXPEDITED AND EQUALIZED DISPUTE RESOLU7 TION FOR FEDERAL REGULATORS.

8 (a) FILING IN COURT OF APPEALS.—In the case of a

9 regulatory conflict between a State insurance regulator and

10 a Federal regulator as to whether any product is or is not

11 insurance, as defined in section 304(c) of this Act, or wheth12 er a State statute, regulation, order, or interpretation re13 garding any insurance sales or solicitation activity is prop14 erly treated as preempted under Federal law, either regu15 lator may seek expedited judicial review of such determina16 tion by the United States Court of Appeals for the circuit

17 in which the State is located or in the United States Court

18 of Appeals for the District of Columbia Circuit by filing

19 a petition for review in such court.

20 (b) EXPEDITED REVIEW.—The United States Court of

21 Appeals in which a petition for review is filed in accord22 ance with subsection (a) shall complete all action on such

23 petition, including rendering a judgment, before the end of

24 the 60-day period beginning on the date on which such peti-
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1 tion is filed, unless all parties to such proceeding agree to

2 any extension of such period.

3 (c) SUPREME COURT REVIEW.—Any request for certio4 rari to the Supreme Court of the United States of any judg5 ment of a United States Court of Appeals with respect to

6 a petition for review under this section shall be filed with

7 the Supreme Court of the United States as soon as prac8 ticable after such judgment is issued.

9 (d) STATUTE OF LIMITATION.—No action may be filed

10 under this section challenging an order, ruling, determina11 tion, or other action of a Federal regulator or State insur12 ance regulator after the later of—

13 (1) the end of the 12-month period beginning on

14 the date on which the first public notice is made of

15 such order, ruling, determination or other action in

16 its final form; or

17 (2) the end of the 6-month period beginning on

18 the date on which such order, ruling, determination,

19 or other action takes effect.

20 (e) STANDARD OF REVIEW.—The court shall decide an

21 action filed under this section based on its review on the

22 merits of all questions presented under State and Federal

23 law, including the nature of the product or activity and

24 the history and purpose of its regulation under State and

25 Federal law, without unequal deference.
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1 SEC. 307. CERTAIN STATE AFFILIATION LAWS PREEMPTED

2 FOR INSURANCE COMPANIES AND AFFILI3 ATES.

4 Except as provided in section 104(a)(2), no State may,

5 by law, regulation, order, interpretation, or otherwise—

6 (1) prevent or significantly interfere with the

7 ability of any insurer, or any affiliate of an insurer

8 (whether such affiliate is organized as a stock com9 pany, mutual holding company, or otherwise), to be10 come a financial holding company or to acquire con11 trol of an insured depository institution;

12 (2) limit the amount of an insurer’s assets that

13 may be invested in the voting securities of an insured

14 depository institution (or any company which con15 trols such institution), except that the laws of an in16 surer’s State of domicile may limit the amount of

17 such investment to an amount that is not less than

18 5 percent of the insurer’s admitted assets; or

19 (3) prevent, significantly interfere with, or have

20 the authority to review, approve, or disapprove a

21 plan of reorganization by which an insurer proposes

22 to reorganize from mutual form to become a stock in23 surer (whether as a direct or indirect subsidiary of a

24 mutual holding company or otherwise) unless such

25 State is the State of domicile of the insurer.
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1 Subtitle B—National Association of

2 Registered Agents and Brokers

3 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING

4 REFORMS.

5 (a) IN GENERAL.—The provisions of this subtitle shall

6 take effect unless, not later than 3 years after the date of

7 enactment of this Act, at least a majority of the States—

8 (1) have enacted uniform laws and regulations

9 governing the licensure of individuals and entities au10 thorized to sell and solicit the purchase of insurance

11 within the State; or

12 (2) have enacted reciprocity laws and regula13 tions governing the licensure of nonresident individ14 uals and entities authorized to sell and solicit insur15 ance within those States.

16 (b) UNIFORMITY REQUIRED.—States shall be deemed

17 to have established the uniformity necessary to satisfy sub18 section (a)(1) if the States—

19 (1) establish uniform criteria regarding the in20 tegrity, personal qualifications, education, training,

21 and experience of licensed insurance producers, in22 cluding the qualification and training of sales per23 sonnel in ascertaining the appropriateness of a par24 ticular insurance product for a prospective customer;
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1 (2) establish uniform continuing education re2 quirements for licensed insurance producers;

3 (3) establish uniform ethics course requirements

4 for licensed insurance producers in conjunction with

5 the continuing education requirements under para6 graph (2);

7 (4) establish uniform criteria to ensure that an

8 insurance product, including any annuity contract,

9 sold to a consumer is suitable and appropriate for the

10 consumer based on financial information disclosed by

11 the consumer; and

12 (5) do not impose any requirement upon any in13 surance producer to be licensed or otherwise qualified

14 to do business as a nonresident that has the effect of

15 limiting or conditioning that producer’s activities be16 cause of its residence or place of operations, except

17 that counter-signature requirements imposed on non18 resident producers shall not be deemed to have the ef19 fect of limiting or conditioning a producer’s activities

20 because of its residence or place of operations under

21 this section.

22 (c) RECIPROCITY REQUIRED.—States shall be deemed

23 to have established the reciprocity required to satisfy sub24 section (a)(2) if the following conditions are met:
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1 (1) ADMINISTRATIVE LICENSING PROCEDURES.—

2 At least a majority of the States permit a producer

3 that has a resident license for selling or soliciting the

4 purchase of insurance in its home State to receive a

5 license to sell or solicit the purchase of insurance in

6 such majority of States as a nonresident to the same

7 extent that such producer is permitted to sell or solicit

8 the purchase of insurance in its State, if the pro9 ducer’s home State also awards such licenses on such

10 a reciprocal basis, without satisfying any additional

11 requirements other than submitting—

12 (A) a request for licensure;

13 (B) the application for licensure that the

14 producer submitted to its home State;

15 (C) proof that the producer is licensed and

16 in good standing in its home State; and

17 (D) the payment of any requisite fee to the

18 appropriate authority.

19 (2) CONTINUING EDUCATION REQUIREMENTS.—A

20 majority of the States accept an insurance producer’s

21 satisfaction of its home State’s continuing education

22 requirements for licensed insurance producers to sat23 isfy the States’ own continuing education require24 ments if the producer’s home State also recognizes the
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1 satisfaction of continuing education requirements on

2 such a reciprocal basis.

3 (3) NO LIMITING NONRESIDENT REQUIRE4 MENTS.—A majority of the States do not impose any

5 requirement upon any insurance producer to be li6 censed or otherwise qualified to do business as a non7 resident that has the effect of limiting or conditioning

8 that producer’s activities because of its residence or

9 place of operations, except that countersignature re10 quirements imposed on nonresident producers shall

11 not be deemed to have the effect of limiting or condi12 tioning a producer’s activities because of its residence

13 or place of operations under this section.

14 (4) RECIPROCAL RECIPROCITY.—Each of the

15 States that satisfies paragraphs (1), (2), and (3)

16 grants reciprocity to residents of all of the other

17 States that satisfy such paragraphs.

18 (d) DETERMINATION.—

19 (1) NAIC DETERMINATION.—At the end of the 3-

20 year period beginning on the date of the enactment of

21 this Act, the National Association of Insurance Com22 missioners shall determine, in consultation with the

23 insurance commissioners or chief insurance regu24 latory officials of the States, whether the uniformity
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1 or reciprocity required by subsections (b) and (c) has

2 been achieved.

3 (2) JUDICIAL REVIEW.—The appropriate United

4 States district court shall have exclusive jurisdiction

5 over any challenge to the National Association of In6 surance Commissioners’ determination under this sec7 tion and such court shall apply the standards set

8 forth in section 706 of title 5, United States Code,

9 when reviewing any such challenge.

10 (e) CONTINUED APPLICATION.—If, at any time, the

11 uniformity or reciprocity required by subsections (b) and

12 (c) no longer exists, the provisions of this subtitle shall take

13 effect 2 years after the date on which such uniformity or

14 reciprocity ceases to exist, unless the uniformity or reci15 procity required by those provisions is satisfied before the

16 expiration of that 2-year period.

17 (f) SAVINGS PROVISION.—No provision of this section

18 shall be construed as requiring that any law, regulation,

19 provision, or action of any State which purports to regulate

20 insurance producers, including any such law, regulation,

21 provision, or action which purports to regulate unfair trade

22 practices or establish consumer protections, including

23 countersignature laws, be altered or amended in order to

24 satisfy the uniformity or reciprocity required by subsections

25 (b) and (c), unless any such law, regulation, provision, or
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1 action is inconsistent with a specific requirement of any

2 such subsection and then only to the extent of such incon3 sistency.

4 (g) UNIFORM LICENSING.—Nothing in this section

5 shall be construed to require any State to adopt new or ad6 ditional licensing requirements to achieve the uniformity

7 necessary to satisfy subsection (a)(1).

8 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED AGENTS

9 AND BROKERS.

10 (a) ESTABLISHMENT.—There is established the Na11 tional Association of Registered Agents and Brokers (here12 after in this subtitle referred to as the ‘‘Association’’).

13 (b) STATUS.—The Association shall—

14 (1) be a nonprofit corporation;

15 (2) have succession until dissolved by an Act of

16 Congress;

17 (3) not be an agent or instrumentality of the

18 United States Government; and

19 (4) except as otherwise provided in this Act, be

20 subject to, and have all the powers conferred upon a

21 nonprofit corporation by the District of Columbia

22 Nonprofit Corporation Act (D.C. Code, sec. 29y–1001

23 et seq.).
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1 SEC. 323. PURPOSE.

2 The purpose of the Association shall be to provide a

3 mechanism through which uniform licensing, appointment,

4 continuing education, and other insurance producer sales

5 qualification requirements and conditions can be adopted

6 and applied on a multistate basis, while preserving the

7 right of States to license, supervise, and discipline insur8 ance producers and to prescribe and enforce laws and regu9 lations with regard to insurance-related consumer protec10 tion and unfair trade practices.

11 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

12 The Association shall be subject to the supervision and

13 oversight of the National Association of Insurance Commis14 sioners (hereafter in this subtitle referred to as the ‘‘NAIC’’).

15 SEC. 325. MEMBERSHIP.

16 (a) ELIGIBILITY.—

17 (1) IN GENERAL.—Any State-licensed insurance

18 producer shall be eligible to become a member in the

19 Association.

20 (2) INELIGIBILITY FOR SUSPENSION OR REVOCA21 TION OF LICENSE.—Notwithstanding paragraph (1),

22 a State-licensed insurance producer shall not be eligi23 ble to become a member if a State insurance regulator

24 has suspended or revoked such producer’s license in

25 that State during the 3-year period preceding the date

26 on which such producer applies for membership.
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1 (3) RESUMPTION OF ELIGIBILITY.—Paragraph

2 (2) shall cease to apply to any insurance producer

3 if—

4 (A) the State insurance regulator renews the

5 license of such producer in the State in which the

6 license was suspended or revoked; or

7 (B) the suspension or revocation is subse8 quently overturned.

9 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI10 TERIA.—The Association shall have the authority to estab11 lish membership criteria that—

12 (1) bear a reasonable relationship to the pur13 poses for which the Association was established; and

14 (2) do not unfairly limit the access of smaller

15 agencies to the Association membership.

16 (c) ESTABLISHMENT OF CLASSES AND CATEGORIES.—

17 (1) CLASSES OF MEMBERSHIP.—The Association

18 may establish separate classes of membership, with

19 separate criteria, if the Association reasonably deter20 mines that performance of different duties requires

21 different levels of education, training, or experience.

22 (2) CATEGORIES.—The Association may estab23 lish separate categories of membership for individuals

24 and for other persons. The establishment of any such

25 categories of membership shall be based either on the
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1 types of licensing categories that exist under State

2 laws or on the aggregate amount of business handled

3 by an insurance producer. No special categories of

4 membership, and no distinct membership criteria,

5 shall be established for members which are insured de6 pository institutions or wholesale financial institu7 tions or for their employees, agents, or affiliates.

8 (d) MEMBERSHIP CRITERIA.—

9 (1) IN GENERAL.—The Association may establish

10 criteria for membership which shall include standards

11 for integrity, personal qualifications, education,

12 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 As19 sociation shall entitle the member to licensure in each State

20 for which the member pays the requisite fees, including li21 censing fees and, where applicable, bonding requirements,

22 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 greater

4 than the continuing education requirements under the li5 censing laws of a majority of the States.

6 (h) SUSPENSION AND REVOCATION.—The Association

7 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 applicable

15 membership criteria of the Association; or

16 (B) the producer has been subject to dis17 ciplinary action pursuant to a final adjudica18 tory proceeding under the jurisdiction of a State

19 insurance regulator, and the Association con20 cludes that retention of membership in the Asso21 ciation would not be in the public interest.

22 (i) OFFICE OF CONSUMER COMPLAINTS.—

23 (1) IN GENERAL.—The Association shall establish

24 an office of consumer complaints that shall—
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1 (A) receive and investigate complaints from

2 both consumers and State insurance regulators

3 related to members of the Association; and

4 (B) recommend to the Association any dis5 ciplinary actions that the office considers appro6 priate, to the extent that any such recommenda7 tion is not inconsistent with State law.

8 (2) RECORDS AND REFERRALS.—The office of

9 consumer complaints of the Association shall—

10 (A) maintain records of all complaints re11 ceived in accordance with paragraph (1) and

12 make such records available to the NAIC and to

13 each State insurance regulator for the State of

14 residence of the consumer who filed the com15 plaint; and

16 (B) refer, when appropriate, any such com17 plaint to any appropriate State insurance regu18 lator.

19 (3) TELEPHONE AND OTHER ACCESS.—The office

20 of consumer complaints shall maintain a toll-free tele21 phone number for the purpose of this subsection and,

22 as practicable, other alternative means of communica23 tion with consumers, such as an Internet home page.
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1 SEC. 326. BOARD OF DIRECTORS.

2 (a) ESTABLISHMENT.—There is established the board

3 of directors of the Association (hereafter in this subtitle re4 ferred to as the ‘‘Board’’) for the purpose of governing and

5 supervising the activities of the Association and the mem6 bers 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 of

12 7 members appointed by the NAIC.

13 (2) REQUIREMENT.—At least 4 of the members of

14 the Board shall have significant experience with the

15 regulation of commercial lines of insurance in at least

16 1 of the 20 States in which the greatest total dollar

17 amount of commercial-lines insurance is placed in the

18 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 ini23 tial 7 members of the Board of the Association,

24 the initial Board shall consist of the 7 State in25 surance regulators of the 7 States with the great-
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1 est total dollar amount of commercial-lines in2 surance in place as of the end of such period.

3 (B) ALTERNATE COMPOSITION.—If any of

4 the State insurance regulators described in sub5 paragraph (A) declines to serve on the Board, the

6 State insurance regulator with the next greatest

7 total dollar amount of commercial-lines insur8 ance in place, as determined by the NAIC as of

9 the end of such period, shall serve as a member

10 of the Board.

11 (C) INOPERABILITY.—If fewer than 7 State

12 insurance regulators accept appointment to the

13 Board, the Association shall be established with14 out NAIC oversight pursuant to section 332.

15 (d) TERMS.—The term of each director shall, after the

16 initial appointment of the members of the Board, be for 3

years, with 1 17 ⁄3 of the directors to be appointed each year.

18 (e) BOARD VACANCIES.—A vacancy on the Board shall

19 be filled in the same manner as the original appointment

20 of the initial Board for the remainder of the term of the

21 vacating member.

22 (f) MEETINGS.—The Board shall meet at the call of

23 the chairperson, or as otherwise provided by the bylaws of

24 the Association.
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1 SEC. 327. OFFICERS.

2 (a) IN GENERAL.—

3 (1) POSITIONS.—The officers of the Association

4 shall consist of a chairperson and a vice chairperson

5 of the Board, a president, secretary, and treasurer of

6 the Association, and such other officers and assistant

7 officers as may be deemed necessary.

8 (2) MANNER OF SELECTION.—Each officer of the

9 Board and the Association shall be elected or ap10 pointed at such time and in such manner and for

11 such terms not exceeding 3 years as may be prescribed

12 in the bylaws of the Association.

13 (b) CRITERIA FOR CHAIRPERSON.—Only individuals

14 who are members of the NAIC shall be eligible to serve as

15 the chairperson of the board of directors.

16 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

17 (a) ADOPTION AND AMENDMENT OF BYLAWS.—

18 (1) COPY REQUIRED TO BE FILED WITH THE

19 NAIC.—The board of directors of the Association shall

20 file with the NAIC a copy of the proposed bylaws or

21 any proposed amendment to the bylaws, accompanied

22 by a concise general statement of the basis and pur23 pose of such proposal.

24 (2) EFFECTIVE DATE.—Except as provided in

25 paragraph (3), any proposed bylaw or proposed

26 amendment shall take effect—
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1 (A) 30 days after the date of the filing of

2 a copy with the NAIC;

3 (B) upon such later date as the Association

4 may designate; or

5 (C) upon such earlier date as the NAIC

6 may determine.

7 (3) DISAPPROVAL BY THE NAIC.—Notwith8 standing paragraph (2), a proposed bylaw or amend9 ment shall not take effect if, after public notice and

10 opportunity to participate in a public hearing—

11 (A) the NAIC disapproves such proposal as

12 being contrary to the public interest or contrary

13 to the purposes of this subtitle and provides no14 tice to the Association setting forth the reasons

15 for such disapproval; or

16 (B) the NAIC finds that such proposal in17 volves a matter of such significant public interest

18 that public comment should be obtained, in

19 which case it may, after notifying the Associa20 tion in writing of such finding, require that the

21 procedures set forth in subsection (b) be followed

22 with respect to such proposal, in the same man23 ner as if such proposed bylaw change were a pro24 posed rule change within the meaning of such

25 subsection.
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1 (b) ADOPTION AND AMENDMENT OF RULES.—

2 (1) FILING PROPOSED REGULATIONS WITH THE

3 NAIC.—

4 (A) IN GENERAL.—The board of directors of

5 the Association shall file with the NAIC a copy

6 of any proposed rule or any proposed amend7 ment to a rule of the Association which shall be

8 accompanied by a concise general statement of

9 the basis and purpose of such proposal.

10 (B) OTHER RULES AND AMENDMENTS INEF11 FECTIVE.—No proposed rule or amendment shall

12 take effect unless approved by the NAIC or other13 wise permitted in accordance with this para14 graph.

15 (2) INITIAL CONSIDERATION BY THE NAIC.—Not

16 later than 35 days after the date of publication of no17 tice of filing of a proposal, or before the end of such

18 longer period not to exceed 90 days as the NAIC may

19 designate after such date, if the NAIC finds such

20 longer period to be appropriate and sets forth its rea21 sons for so finding, or as to which the Association

22 consents, the NAIC shall—

23 (A) by order approve such proposed rule or

24 amendment; or
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1 (B) institute proceedings to determine

2 whether such proposed rule or amendment should

3 be modified or disapproved.

4 (3) NAIC PROCEEDINGS.—

5 (A) IN GENERAL.—Proceedings instituted

6 by the NAIC with respect to a proposed rule or

7 amendment pursuant to paragraph (2) shall—

8 (i) include notice of the grounds for

9 disapproval under consideration;

10 (ii) provide opportunity for hearing;

11 and

12 (iii) be concluded not later than 180

13 days after the date of the Association’s fil14 ing of such proposed rule or amendment.

15 (B) DISPOSITION OF PROPOSAL.—At the

16 conclusion of any proceeding under subpara17 graph (A), the NAIC shall, by order, approve or

18 disapprove the proposed rule or amendment.

19 (C) EXTENSION OF TIME FOR CONSIDER20 ATION.—The NAIC may extend the time for con21 cluding any proceeding under subparagraph (A)

22 for—

23 (i) not more than 60 days if the NAIC

24 finds good cause for such extension and sets

25 forth its reasons for so finding; or
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1 (ii) for such longer period as to which

2 the Association consents.

3 (4) STANDARDS FOR REVIEW.—

4 (A) GROUNDS FOR APPROVAL.—The NAIC

5 shall approve a proposed rule or amendment if

6 the NAIC finds that the rule or amendment is in

7 the public interest and is consistent with the

8 purposes of this Act.

9 (B) APPROVAL BEFORE END OF NOTICE PE10 RIOD.—The NAIC shall not approve any pro11 posed rule before the end of the 30-day period be12 ginning on the date on which the Association

13 files proposed rules or amendments in accord14 ance with paragraph (1), unless the NAIC finds

15 good cause for so doing and sets forth the reasons

16 for so finding.

17 (5) ALTERNATE PROCEDURE.—

18 (A) IN GENERAL.—Notwithstanding any

19 provision of this subsection other than subpara20 graph (B), a proposed rule or amendment relat21 ing to the administration or organization of the

22 Association shall take effect—

23 (i) upon the date of filing with the

24 NAIC, if such proposed rule or amendment

25 is designated by the Association as relating
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1 solely to matters which the NAIC, consistent

2 with the public interest and the purposes of

3 this subsection, determines by rule do not

4 require the procedures set forth in this

5 paragraph; or

6 (ii) upon such date as the NAIC shall

7 for good cause determine.

8 (B) ABROGATION BY THE NAIC.—

9 (i) IN GENERAL.—At any time within

10 60 days after the date of filing of any pro11 posed rule or amendment under subpara12 graph (A)(i) or clause (ii) of this subpara13 graph, the NAIC may repeal such rule or

14 amendment and require that the rule or

15 amendment be refiled and reviewed in ac16 cordance with this paragraph, if the NAIC

17 finds that such action is necessary or ap18 propriate in the public interest, for the pro19 tection of insurance producers or policy20 holders, or otherwise in furtherance of the

21 purposes of this subtitle.

22 (ii) EFFECT OF RECONSIDERATION BY

23 THE NAIC.—Any action of the NAIC pursu24 ant to clause (i) shall—
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1 (I) not affect the validity or force

2 of a rule change during the period such

3 rule or amendment was in effect; and

4 (II) not be considered to be a final

5 action.

6 (c) ACTION REQUIRED BY THE NAIC.—The NAIC

7 may, in accordance with such rules as the NAIC determines

8 to be necessary or appropriate to the public interest or to

9 carry out the purposes of this subtitle, require the Associa10 tion to adopt, amend, or repeal any bylaw, rule or amend11 ment of the Association, whenever adopted.

12 (d) DISCIPLINARY ACTION BY THE ASSOCIATION.—

13 (1) SPECIFICATION OF CHARGES.—In any pro14 ceeding to determine whether membership shall be de15 nied, suspended, revoked, or not renewed (hereafter in

16 this section referred to as a ‘‘disciplinary action’’),

17 the Association shall bring specific charges, notify

18 such member of such charges, give the member an op19 portunity to defend against the charges, and keep a

20 record.

21 (2) SUPPORTING STATEMENT.—A determination

22 to take disciplinary action shall be supported by a

23 statement setting forth—

24 (A) any act or practice in which such mem25 ber has been found to have been engaged;
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1 (B) the specific provision of this subtitle,

2 the rules or regulations under this subtitle, or the

3 rules of the Association which any such act or

4 practice is deemed to violate; and

5 (C) the sanction imposed and the reason for

6 such sanction.

7 (e) NAIC REVIEW OF DISCIPLINARY ACTION.—

8 (1) NOTICE TO THE NAIC.—If the Association or9 ders any disciplinary action, the Association shall

10 promptly notify the NAIC of such action.

11 (2) REVIEW BY THE NAIC.—Any disciplinary ac12 tion taken by the Association shall be subject to re13 view by the NAIC—

14 (A) on the NAIC’s own motion; or

15 (B) upon application by any person ag16 grieved by such action if such application is filed

17 with the NAIC not more than 30 days after the

18 later of—

19 (i) the date the notice was filed with

20 the NAIC pursuant to paragraph (1); or

21 (ii) the date the notice of the discipli22 nary action was received by such aggrieved

23 person.

24 (f) EFFECT OF REVIEW.—The filing of an application

25 to the NAIC for review of a disciplinary action, or the insti-
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1 tution of review by the NAIC on the NAIC’s own motion,

2 shall not operate as a stay of disciplinary action unless the

3 NAIC otherwise orders.

4 (g) SCOPE OF REVIEW.—

5 (1) IN GENERAL.—In any proceeding to review

6 such action, after notice and the opportunity for hear7 ing, the NAIC shall—

8 (A) determine whether the action should be

9 taken;

10 (B) affirm, modify, or rescind the discipli11 nary sanction; or

12 (C) remand to the Association for further

13 proceedings.

14 (2) DISMISSAL OF REVIEW.—The NAIC may dis15 miss a proceeding to review disciplinary action if the

16 NAIC finds that—

17 (A) the specific grounds on which the action

18 is based exist in fact;

19 (B) the action is in accordance with appli20 cable rules and regulations; and

21 (C) such rules and regulations are, and

22 were, applied in a manner consistent with the

23 purposes of this subtitle.
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1 SEC. 329. ASSESSMENTS.

2 (a) INSURANCE PRODUCERS SUBJECT TO ASSESS3 MENT.—The Association may establish such application

4 and membership fees as the Association finds necessary to

5 cover the costs of its operations, including fees made reim6 bursable to the NAIC under subsection (b), except that, in

7 setting such fees, the Association may not discriminate

8 against smaller insurance producers.

9 (b) NAIC ASSESSMENTS.—The NAIC may assess the

10 Association for any costs that the NAIC incurs under this

11 subtitle.

12 SEC. 330. FUNCTIONS OF THE NAIC.

13 (a) ADMINISTRATIVE PROCEDURE.—Determinations of

14 the NAIC, for purposes of making rules pursuant to section

15 328, shall be made after appropriate notice and oppor16 tunity for a hearing and for submission of views of inter17 ested persons.

18 (b) EXAMINATIONS AND REPORTS.—

19 (1) EXAMINATIONS.—The NAIC may make such

20 examinations and inspections of the Association and

21 require the Association to furnish to the NAIC such

22 reports and records or copies thereof as the NAIC may

23 consider necessary or appropriate in the public inter24 est or to effectuate the purposes of this subtitle.

25 (2) REPORT BY ASSOCIATION.—As soon as prac26 ticable after the close of each fiscal year, the Associa-
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1 tion shall submit to the NAIC a written report re2 garding the conduct of its business, and the exercise

3 of the other rights and powers granted by this sub4 title, during such fiscal year. Such report shall in5 clude financial statements setting forth the financial

6 position of the Association at the end of such fiscal

7 year and the results of its operations (including the

8 source and application of its funds) for such fiscal

9 year. The NAIC shall transmit such report to the

10 President and the Congress with such comment there11 on as the NAIC determines to be appropriate.

12 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC13 TORS, OFFICERS, AND EMPLOYEES OF THE

14 ASSOCIATION.

15 (a) IN GENERAL.—The Association shall not be deemed

16 to be an insurer or insurance producer within the meaning

17 of any State law, rule, regulation, or order regulating or

18 taxing insurers, insurance producers, or other entities en19 gaged in the business of insurance, including provisions im20 posing premium taxes, regulating insurer solvency or fi21 nancial condition, establishing guaranty funds and levying

22 assessments, or requiring claims settlement practices.

23 (b) LIABILITY OF THE ASSOCIATION, ITS DIRECTORS,

24 OFFICERS, AND EMPLOYEES.—Neither the Association nor

25 any of its directors, officers, or employees shall have any
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1 liability to any person for any action taken or omitted in

2 good faith under or in connection with any matter subject

3 to this subtitle.

4 SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

5 (a) IN GENERAL.—The Association shall be established

6 without NAIC oversight and the provisions set forth in sec7 tion 324, subsections (a), (b), (c), and (e) of section 328,

8 and sections 329(b) and 330 of this subtitle shall cease to

9 be effective if, at the end of the 2-year period beginning on

10 the date on which the provisions of this subtitle take effect

11 pursuant to section 321—

12 (1) at least a majority of the States representing

13 at least 50 percent of the total United States commer14 cial-lines insurance premiums have not satisfied the

15 uniformity or reciprocity requirements of subsections

16 (a), (b), and (c) of section 321; and

17 (2) the NAIC has not approved the Association’s

18 bylaws as required by section 328 or is unable to op19 erate or supervise the Association, or the Association

20 is not conducting its activities as required under this

21 Act.

22 (b) BOARD APPOINTMENTS.—If the repeals required by

23 subsection (a) are implemented, the following shall apply:

24 (1) GENERAL APPOINTMENT POWER.—The Presi25 dent, with the advice and consent of the Senate, shall
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1 appoint the members of the Association’s Board estab2 lished under section 326 from lists of candidates rec3 ommended to the President by the National Associa4 tion of Insurance Commissioners.

5 (2) PROCEDURES FOR OBTAINING NATIONAL AS6 SOCIATION OF INSURANCE COMMISSIONERS APPOINT7 MENT RECOMMENDATIONS.—

8 (A) INITIAL DETERMINATION AND REC9 OMMENDATIONS.—After the date on which the

10 provisions of subsection (a) take effect, the NAIC

11 shall, not later than 60 days thereafter, provide

12 a list of recommended candidates to the Presi13 dent. If the NAIC fails to provide a list by that

14 date, or if any list that is provided does not in15 clude at least 14 recommended candidates or

16 comply with the requirements of section 326(c),

17 the President shall, with the advice and consent

18 of the Senate, make the requisite appointments

19 without considering the views of the NAIC.

20 (B) SUBSEQUENT APPOINTMENTS.—After

21 the initial appointments, the NAIC shall provide

22 a list of at least 6 recommended candidates for

23 the Board to the President by January 15 of

24 each subsequent year. If the NAIC fails to pro25 vide a list by that date, or if any list that is pro-
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1 vided does not include at least 6 recommended

2 candidates or comply with the requirements of

3 section 326(c), the President, with the advice and

4 consent of the Senate, shall make the requisite

5 appointments without considering the views of

6 the NAIC.

7 (C) PRESIDENTIAL OVERSIGHT.—

8 (i) REMOVAL.—If the President deter9 mines that the Association is not acting in

10 the interests of the public, the President

11 may remove the entire existing Board for

12 the remainder of the term to which the

13 members of the Board were appointed and

14 appoint, with the advice and consent of the

15 Senate, new members to fill the vacancies

16 on the Board for the remainder of such

17 terms.

18 (ii) SUSPENSION OF RULES OR AC19 TIONS.—The President, or a person des20 ignated by the President for such purpose,

21 may suspend the effectiveness of any rule, or

22 prohibit any action, of the Association

23 which the President or the designee deter24 mines is contrary to the public interest.
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1 (c) ANNUAL REPORT.—As soon as practicable after the

2 close of each fiscal year, the Association shall submit to the

3 President and to the Congress a written report relative to

4 the conduct of its business, and the exercise of the other

5 rights and powers granted by this subtitle, during such fis6 cal year. Such report shall include financial statements set7 ting forth the financial position of the Association at the

8 end of such fiscal year and the results of its operations (in9 cluding the source and application of its funds) for such

10 fiscal year.

11 SEC. 333. RELATIONSHIP TO STATE LAW.

12 (a) PREEMPTION OF STATE LAWS.—State laws, regu13 lations, provisions, or other actions purporting to regulate

14 insurance producers shall be preempted as provided in sub15 section (b).

16 (b) PROHIBITED ACTIONS.—No State shall—

17 (1) impede the activities of, take any action

18 against, or apply any provision of law or regulation

19 to, any insurance producer because that insurance

20 producer or any affiliate plans to become, has applied

21 to become, or is a member of the Association;

22 (2) impose any requirement upon a member of

23 the Association that it pay different fees to be licensed

24 or otherwise qualified to do business in that State, in25 cluding bonding requirements, based on its residency;
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1 (3) impose any licensing, appointment, integ2 rity, personal or corporate qualifications, education,

3 training, experience, residency, or continuing edu4 cation requirement upon a member of the Association

5 that is different from the criteria for membership in

6 the Association or renewal of such membership, except

7 that counter-signature requirements imposed on non8 resident producers shall not be deemed to have the ef9 fect of limiting or conditioning a producer’s activities

10 because of its residence or place of operations under

11 this section; or

12 (4) implement the procedures of such State’s sys13 tem of licensing or renewing the licenses of insurance

14 producers in a manner different from the authority of

15 the Association under section 325.

16 (c) SAVINGS PROVISION.—Except as provided in sub17 sections (a) and (b), no provision of this section shall be

18 construed as altering or affecting the continuing effective19 ness of any law, regulation, provision, or other action of

20 any State which purports to regulate insurance producers,

21 including any such law, regulation, provision, or action

22 which purports to regulate unfair trade practices or estab23 lish consumer protections, including countersignature laws.
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1 SEC. 334. COORDINATION WITH OTHER REGULATORS.

2 (a) COORDINATION WITH STATE INSURANCE REGU3 LATORS.—The Association shall have the authority to—

4 (1) issue uniform insurance producer applica5 tions and renewal applications that may be used to

6 apply for the issuance or removal of State licenses,

7 while preserving the ability of each State to impose

8 such conditions on the issuance or renewal of a license

9 as are consistent with section 333;

10 (2) establish a central clearinghouse through

11 which members of the Association may apply for the

12 issuance or renewal of licenses in multiple States; and

13 (3) establish or utilize a national database for

14 the collection of regulatory information concerning

15 the activities of insurance producers.

16 (b) COORDINATION WITH THE NATIONAL ASSOCIATION

17 OF SECURITIES DEALERS.—The Association shall coordi18 nate with the National Association of Securities Dealers in

19 order to ease any administrative burdens that fall on per20 sons that are members of both associations, consistent with

21 the purposes of this subtitle and the Federal securities laws.

22 SEC. 335. JUDICIAL REVIEW.

23 (a) JURISDICTION.—The appropriate United States

24 district court shall have exclusive jurisdiction over litiga25 tion involving the Association, including disputes between

26 the Association and its members that arise under this sub-
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1 title. Suits brought in State court involving the Association

2 shall be deemed to have arisen under Federal law and there3 fore be subject to jurisdiction in the appropriate United

4 States district court.

5 (b) EXHAUSTION OF REMEDIES.—An aggrieved person

6 shall be required to exhaust all available administrative

7 remedies before the Association and the NAIC before it may

8 seek judicial review of an Association decision.

9 (c) STANDARDS OF REVIEW.—The standards set forth

10 in section 553 of title 5, United States Code, shall be ap11 plied whenever a rule or bylaw of the Association is under

12 judicial review, and the standards set forth in section 554

13 of title 5, United States Code, shall be applied whenever

14 a disciplinary action of the Association is judicially re15 viewed.

16 SEC. 336. DEFINITIONS.

17 For purposes of this subtitle, the following definitions

18 shall apply:

19 (1) HOME STATE.—The term ‘‘home State’’

20 means the State in which the insurance producer

21 maintains its principal place of residence and is li22 censed to act as an insurance producer.

23 (2) INSURANCE.—The term ‘‘insurance’’ means

24 any product, other than title insurance, defined or
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1 regulated as insurance by the appropriate State in2 surance regulatory authority.

3 (3) INSURANCE PRODUCER.—The term ‘‘insur4 ance producer’’ means any insurance agent or broker,

5 surplus lines broker, insurance consultant, limited in6 surance representative, and any other person that so7 licits, negotiates, effects, procures, delivers, renews,

8 continues or binds policies of insurance or offers ad9 vice, counsel, opinions or services related to insur10 ance.

11 (4) STATE.—The term ‘‘State’’ includes any

12 State, the District of Columbia, American Samoa,

13 Guam, Puerto Rico, and the United States Virgin Is14 lands.

15 (5) STATE LAW.—The term ‘‘State law’’ includes

16 all laws, decisions, rules, regulations, or other State

17 action having the effect of law, of any State. A law

18 of the United States applicable only to the District of

19 Columbia shall be treated as a State law rather than

20 a law of the United States.
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1 TITLE IV—UNITARY SAVINGS

2 AND LOAN HOLDING COMPANIES

3 SEC. 401. PROHIBITION ON NEW UNITARY SAVINGS AND

4 LOAN HOLDING COMPANIES.

5 (a) IN GENERAL.—Section 10(c) of the Home Owners’

6 Loan Act (12 U.S.C. 1467a(c)) is amended by adding at

7 the end the following new paragraph:

8 ‘‘(9) TERMINATION OF EXPANDED POWERS FOR

9 NEW UNITARY HOLDING COMPANY.—

10 ‘‘(A) IN GENERAL.—Subject to subpara11 graph (B) and notwithstanding paragraph (3),

12 no company may directly or indirectly, includ13 ing through any merger, consolidation, or other

14 type of business combination, acquire control of

15 a savings association after March 4, 1999, unless

16 the company is engaged, directly or indirectly

17 (including through a subsidiary other than a

18 savings association), only in activities that are

19 permitted—

20 ‘‘(i) under paragraph (1)(C) or (2); or

21 ‘‘(ii) for financial holding companies

22 under section 6(c) of the Bank Holding

23 Company Act of 1956.

24 ‘‘(B) EXISTING UNITARY HOLDING COMPA25 NIES AND THE SUCCESSORS TO SUCH COMPA-
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1 NIES.—Subparagraph (A) shall not apply, and

2 paragraph (3) shall continue to apply, to a com3 pany (or any subsidiary of such company)

4 that—

5 ‘‘(i) either—

6 ‘‘(I) acquired 1 or more savings

7 associations described in paragraph (3)

8 pursuant to applications at least 1 of

9 which was filed on or before March 4,

10 1999; or

11 ‘‘(II) became a savings and loan

12 holding company by acquiring control

13 of the company described in subclause

14 (I); and

15 ‘‘(ii) continues to control the savings

16 association referred to in clause (i)(II) or

17 the successor to any such savings associa18 tion.’’.

19 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec20 tion 10(c)(3) of the Home Owners’ Loan Act (12 U.S.C.

21 1467a(c)(3)) is amended by striking ‘‘Notwithstanding’’

22 and inserting ‘‘Except as provided in paragraph (9) and

23 notwithstanding’’.
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1 (c) CONFORMING AMENDMENT.—Section 10(o)(5) of

2 the Home Owners’ Loan Act (12 U.S.C. 1467a(o)(5)) is

3 amended—

4 (1) in subparagraph (E), by striking ‘‘, except

5 subparagraph (B)’’; and

6 (2) by adding at the end the following new sub7 paragraph:

8 ‘‘(F) In the case of a mutual holding com9 pany which is a savings and loan holding com10 pany described in subsection (c)(3), engaging in

11 the activities permitted for financial holding

12 companies under section 6(c) of the Bank Hold13 ing Company Act of 1956.’’.

14 SEC. 402. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON15 VERTED FEDERAL SAVINGS ASSOCIATION.

16 Section 2 of the Act entitled ‘‘An Act to enable national

17 banking associations to increase their capital stock and to

18 change their names or locations’’, approved May 1, 1886

19 (12 U.S.C. 30), is amended by adding at the end the fol20 lowing new subsection:

21 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CON22 VERTED FEDERAL SAVINGS ASSOCIATION.—

23 ‘‘(1) IN GENERAL.—Notwithstanding subsection

24 (a) or any other provision of law, any depository in25 stitution the charter of which is converted from that
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1 of a Federal savings association to a national bank

2 or a State bank after the date of the enactment of the

3 Financial Services Act of 1999 may retain the term

4 ‘Federal’ in the name of such institution if such de5 pository institution remains an insured depository

6 institution.

7 ‘‘(2) DEFINITIONS.—For purposes of this sub8 section, the terms ‘depository institution’, ‘insured de9 pository institution’, ‘national bank’, and ‘State

10 bank’ have the same meanings as in section 3 of the

11 Federal Deposit Insurance Act.’’.

12 SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CON13 TENTS.

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

15 the ‘‘Financial Services Act of 1999’’.

16 (b) PURPOSES.—The purposes of this Act

17 are as follows:

18 (1) To enhance competition in the fi19 nancial services industry, in order to fos20 ter innovation and efficiency.

21 (2) To ensure the continued safety

22 and soundness of depository institutions.

23 (3) To provide necessary and appro24 priate protections for investors and en-
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1 sure fair and honest markets in the deliv2 ery of financial services.

3 (4) To avoid duplicative, potentially

4 conflicting, and overly burdensome regu5 latory requirements through the creation

6 of a regulatory framework for financial

7 holding companies that respects the di8 vergent requirements of each of the com9 ponent businesses of the holding com10 pany, and that is based upon principles

11 of strong functional regulation and en12 hanced regulatory coordination.

13 (5) To reduce and, to the maximum

14 extent practicable, to eliminate the legal

15 barriers preventing affiliation among de16 pository institutions, securities firms, in17 surance companies, and other financial

18 service providers and to provide a pru19 dential framework for achieving that re20 sult.

21 (6) To enhance the availability of fi22 nancial services to citizens of all eco23 nomic circumstances and in all geo24 graphic areas.
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1 (7) To enhance the competitiveness of

2 United States financial service providers

3 internationally.

4 (8) To ensure compliance by deposi5 tory institutions with the provisions of

6 the Community Reinvestment Act of 1977

7 and enhance the ability of depository in8 stitutions to meet the capital and credit

9 needs of all citizens and communities, in10 cluding underserved communities and

11 populations.

12 (c) TABLE OF CONTENTS.—The table of con13 tents for 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. 105A. Public meetings for large bank acquisitions and

mergers.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Clarification of branch closure requirements.

Sec. 108. Amendments relating to limited purpose banks.

Sec. 109. GAO study of economic impact on community banks,

other small financial institutions, insurance

agents, and consumers.

Sec. 110. Responsiveness to community needs for financial

services.

Subtitle B—Streamlining Supervision of Financial Holding

Companies
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Sec. 111. Streamlining financial holding company supervision.

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. Equivalent regulation and supervision.

Sec. 118. Prohibition on FDIC assistance to affiliates and subsidiaries.

Sec. 119. Repeal of savings bank provisions in the Bank Holding Company Act of 1956.

Sec. 120. Technical amendment.

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—National Treatment

Sec. 151. Foreign banks that are financial holding companies.

Sec. 152. Foreign banks and foreign financial institutions that

are wholesale financial institutions.

Sec. 153. Reciprocity.

Subtitle G—Federal Home Loan Bank System Modernization

Sec. 161. Short title.

Sec. 162. Definitions.

Sec. 163. Savings association membership.
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Sec. 164. Advances to members; collateral.

Sec. 165. Eligibility criteria.

Sec. 166. Management of banks.

Sec. 167. Resolution Funding Corporation.

Sec. 168. Capital structure of Federal home loan banks.

Subtitle H—ATM Fee Reform

Sec. 171. Short title.

Sec. 172. Electronic fund transfer fee disclosures at any host

ATM.

Sec. 173. Disclosure of possible fees to consumers when ATM

card is issued.

Sec. 174. Feasibility study.

Sec. 175. No liability if posted notices are damaged.

Sec. 176. Effective date.

Subtitle I—Direct Activities of Banks

Sec. 181. Authority of national banks to underwrite certain

municipal bonds.

Subtitle J—Deposit Insurance Funds

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

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

Subtitle K—Miscellaneous Provisions

Sec. 191. Termination of ‘‘Know Your Customer’’ regulations.

Sec. 192. Study and report on Federal electronic fund Transfers.

Sec. 193. Study and report on adapting existing legislative requirements to online banking and lending.

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. Information sharing.

Sec. 205. Treatment of new hybrid products.

Sec. 206. Additional definitions.

Sec. 207. Government securities defined.

Sec. 208. Effective date.

Sec. 209. 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.
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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. Statutory disqualification for bank wrongdoing.

Sec. 224. Conforming change in definition.

Sec. 225. Conforming amendment.

Sec. 226. Effective date.

Subtitle C—Securities and Exchange Commission Supervision

of Investment Bank Holding Companies

Sec. 231. Supervision of investment bank holding companies

by the Securities and Exchange Commission.

Subtitle D—Disclosure of Customer Costs of Acquiring

Financial Products

Sec. 241. Improved and consistent disclosure.

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. Interagency consultation.

Sec. 310. Definition of State.

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. 15. Definitions.

Sec. 316. Effective date.
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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.

Subtitle D—Rental Car Agency Insurance Activities

Sec. 341. Standard of regulation for motor vehicle rentals.

Subtitle E—Confidentiality

SEC. 351. Confidentiality of health and medical information.

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING

COMPANIES

Sec. 401. Prohibition on new unitary savings and loan holding

companies.

Sec. 402. Retention of ‘‘Federal’’ in name of converted Federal

savings association.

TITLE V—PRIVACY OF CONSUMER INFORMATION

Subtitle A—Disclosure of Nonpublic Personal Information

Sec. 501. Obligations with respect to personal information.

Sec. 502. Notice concerning divulging information.

Sec. 503. Enforcement.

Sec. 505. Definitions.

Sec. 506. Effective date.

Subtitle B—Fraudulent Access to Financial Information

Sec. 521. Privacy protection for customer information of financial institutions.

Sec. 522. Administrative enforcement.

Sec. 523. Criminal penalty.

Sec. 524. Relation to State laws.

Sec. 525. Agency guidance.

Sec. 526. Reports.

Sec. 527. Definitions.
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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

9 the Banking Act of 1933 (12 U.S.C. 377) (com10 monly referred to as the ‘‘Glass-Steagall Act’’)

11 is repealed.

12 (b) SECTION 32 REPEALED.—Section 32 of

13 the Banking Act of 1933 (12 U.S.C. 78) is re14 pealed.

15 SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK

16 HOLDING COMPANIES WHICH ARE NOT FI17 NANCIAL HOLDING COMPANIES.

18 (a) IN GENERAL.—Section 4(c)(8) of the

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

20 1843(c)(8)) is amended to read as follows:

21 ‘‘(8) shares of any company the activi22 ties of which had been determined by the

23 Board by regulation or order under this

24 paragraph as of the day before the date

25 of the enactment of the Financial Serv-
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1 ices Act of 1999, to be so closely related to

2 banking as to be a proper incident there3 to (subject to such terms and conditions

4 contained in such regulation or order,

5 unless modified by the Board);’’.

6 (b) CONFORMING CHANGES TO OTHER STAT7 UTES.—

8 (1) AMENDMENT TO THE BANK HOLDING

9 COMPANY ACT AMENDMENTS OF 1970.—Sec10 tion 105 of the Bank Holding Company

11 Act Amendments of 1970 (12 U.S.C. 1850)

12 is amended by striking ‘‘, to engage di13 rectly or indirectly in a nonbanking ac14 tivity pursuant to section 4 of such Act,’’.

15 (2) AMENDMENT TO THE BANK SERVICE

16 COMPANY ACT.—Section 4(f) of the Bank

17 Service Company Act (12 U.S.C. 1864(f)) is

18 amended by striking the period and add19 ing at the end the following: ‘‘as of the

20 day before the date of enactment of the

21 Financial Services Act of 1999.’’.

22 SEC. 103. FINANCIAL HOLDING COMPANIES.

23 (a) IN GENERAL.—The Bank Holding Com24 pany Act of 1956 is amended by inserting after
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1 section 5 (12 U.S.C. 1844) the following new

2 section:

3 ‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.

4 ‘‘(a) FINANCIAL HOLDING COMPANY DE5 FINED.—For purposes of this section, the term

6 ‘financial holding company’ means a bank

7 holding company which meets the require8 ments of subsection (b).

9 ‘‘(b) ELIGIBILITY REQUIREMENTS FOR FINAN10 CIAL HOLDING COMPANIES.—

11 ‘‘(1) IN GENERAL.—No bank holding

12 company may engage in any activity or

13 directly or indirectly acquire or retain

14 shares of any company under this section

15 unless the bank holding company meets

16 the following requirements:

17 ‘‘(A) All of the subsidiary deposi18 tory institutions of the bank holding

19 company are well capitalized.

20 ‘‘(B) All of the subsidiary deposi21 tory institutions of the bank holding

22 company are well managed.

23 ‘‘(C) All of the subsidiary deposi24 tory institutions of the bank holding

25 company have achieved a rating,
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1 under the Community Reinvestment

2 Act of 1977, of ‘satisfactory record of

3 meeting community credit needs’, or

4 better, at the most recent examina5 tion of each such institution;

6 ‘‘(D) The company has filed with

7 the Board a declaration that the com8 pany elects to be a financial holding

9 company and certifying that the com10 pany meets the requirements of sub11 paragraphs (A), (B), and (C).

12 ‘‘(2) FOREIGN BANKS AND COMPANIES.—

13 For purposes of paragraph (1), the Board

14 shall establish and apply comparable cap15 ital and other operating standards to a

16 foreign bank that operates a branch or

17 agency or owns or controls a bank or

18 commercial lending company in the

19 United States, and any company that

20 owns or controls such foreign bank, giv21 ing due regard to the principle of na22 tional treatment and equality of competi23 tive opportunity.
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1 ‘‘(3) LIMITED EXCLUSIONS FROM COMMU2 NITY NEEDS REQUIREMENTS FOR NEWLY AC3 QUIRED DEPOSITORY INSTITUTIONS.—

4 ‘‘(A) IN GENERAL.—If the require5 ments of subparagraph (B) are met,

6 any depository institution acquired

7 by a bank holding company during

8 the 24-month period preceding the

9 submission of a declaration under

10 paragraph (1)(D) and any depository

11 institution acquired after the submis12 sion of such declaration may be ex13 cluded for purposes of paragraph

14 (1)(C) until the later of—

15 ‘‘(i) the end of the 24-month

16 period beginning on the date the

17 acquisition of the depository in18 stitution by such company is con19 summated; or

20 ‘‘(ii) the date of completion of

21 the first examination of such de22 pository institution under the

23 Community Reinvestment Act of

24 1977 which is conducted after the
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1 date of the acquisition of the de2 pository institution.

3 ‘‘(B) REQUIREMENTS.—The require4 ments of this subparagraph are met

5 with respect to any bank holding

6 company referred to in subparagraph

7 (A) if—

8 ‘‘(i) the bank holding company

9 has submitted an affirmative plan

10 to the appropriate Federal bank11 ing agency to take such action as

12 may be necessary in order for

13 such institution to achieve a rat14 ing of ‘satisfactory record of

15 meeting community credit needs’,

16 or better, at the next examination

17 of the institution; and

18 ‘‘(ii) the plan has been ap19 proved by such agency.

20 ‘‘(c) ENGAGING IN ACTIVITIES THAT ARE FI21 NANCIAL IN NATURE.—

22 ‘‘(1) FINANCIAL ACTIVITIES.—Notwith23 standing section 4(a), a financial holding

24 company and a wholesale financial hold25 ing company may engage in any activity,
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1 and acquire and retain the shares of any

2 company engaged in any activity, that

3 the Board has determined (by regulation

4 or order) to be—

5 ‘‘(A) financial in nature or inci6 dental to such financial activities; or

7 ‘‘(B) complementary to activities

8 that have been determined to be fi9 nancial in nature under this sub10 section to the extent that the amount

11 of such complementary activities re12 mains small in relation to the author13 ized activities to which they are com14 plementary.

15 ‘‘(2) FACTORS TO BE CONSIDERED.—In

16 determining whether an activity is finan17 cial in nature or incidental to financial

18 activities, the Board shall take into

19 account—

20 ‘‘(A) the purposes of this Act and

21 the Financial Services Act of 1999;

22 ‘‘(B) changes or reasonably ex23 pected changes in the marketplace in

24 which bank holding companies com25 pete;
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1 ‘‘(C) changes or reasonably ex2 pected changes in the technology for

3 delivering financial services; and

4 ‘‘(D) whether such activity is nec5 essary or appropriate to allow a bank

6 holding company and the affiliates of

7 a bank holding company to—

8 ‘‘(i) compete effectively with

9 any company seeking to provide

10 financial services in the United

11 States;

12 ‘‘(ii) use any available or

13 emerging technological means, in14 cluding any application necessary

15 to protect the security or efficacy

16 of systems for the transmission of

17 data or financial transactions, in

18 providing financial services; and

19 ‘‘(iii) offer customers any

20 available or emerging techno21 logical means for using financial

22 services.

23 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN

24 NATURE.—The following activities shall be

25 considered to be financial in nature:
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1 ‘‘(A) Lending, exchanging, trans2 ferring, investing for others, or safe3 guarding money or securities.

4 ‘‘(B) Insuring, guaranteeing, or in5 demnifying against loss, harm, dam6 age, illness, disability, or death, or

7 providing and issuing annuities, and

8 acting as principal, agent, or broker

9 for purposes of the foregoing.

10 ‘‘(C) Providing financial, invest11 ment, or economic advisory services,

12 including advising an investment

13 company (as defined in section 3 of

14 the Investment Company Act of 1940).

15 ‘‘(D) Issuing or selling instru16 ments representing interests in pools

17 of assets permissible for a bank to

18 hold directly.

19 ‘‘(E) Underwriting, dealing in, or

20 making a market in securities.

21 ‘‘(F) Engaging in any activity that

22 the Board has determined, by order

23 or regulation that is in effect on the

24 date of enactment of the Financial

25 Services Act of 1999, to be so closely
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1 related to banking or managing or

2 controlling banks as to be a proper

3 incident thereto (subject to the same

4 terms and conditions contained in

5 such order or regulation, as modified

6 by the Board).

7 ‘‘(G) Engaging, in the United

8 States, in any activity that—

9 ‘‘(i) a bank holding company

10 may engage in outside the United

11 States; and

12 ‘‘(ii) the Board has deter13 mined, under regulations issued

14 pursuant to section 4(c)(13) of this

15 Act (as in effect on the day before

16 the date of enactment of the Fi17 nancial Services Act of 1999) to be

18 usual in connection with the

19 transaction of banking or other fi20 nancial operations abroad.

21 ‘‘(H) Directly or indirectly acquir22 ing or controlling, whether as prin23 cipal, on behalf of 1 or more entities

24 (including entities, other than a de25 pository institution or subsidiary of a
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1 depository institution, that the finan2 cial holding company controls) or

3 otherwise, shares, assets, or owner4 ship interests (including without limi5 tation debt or equity securities, part6 nership interests, trust certificates or

7 other instruments representing own8 ership) of a company or other entity,

9 whether or not constituting control of

10 such company or entity, engaged in

11 any activity not authorized pursuant

12 to this section if—

13 ‘‘(i) the shares, assets, or own14 ership interests are not acquired

15 or held by a depository institu16 tion or subsidiary of a depository

17 institution;

18 ‘‘(ii) such shares, assets, or

19 ownership interests are acquired

20 and held by an affiliate of the fi21 nancial holding company that is a

22 registered broker or dealer that is

23 engaged in securities under24 writing activities, or an affiliate

25 of such broker or dealer, as part
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1 of a bona fide underwriting or in2 vestment banking activity, includ3 ing investment activities engaged

4 in for the purpose of appreciation

5 and ultimate resale or disposition

6 of the investment;

7 ‘‘(iii) such shares, assets, or

8 ownership interests are held only

9 for such a period of time as will

10 permit the sale or disposition

11 thereof on a reasonable basis con12 sistent with the nature of the ac13 tivities described in clause (ii);

14 and

15 ‘‘(iv) during the period such

16 shares, assets, or ownership inter17 ests are held, the holding com18 pany does not actively participate

19 in the day-to-day management or

20 operation of such company or en21 tity, except insofar as necessary

22 to achieve the objectives of clause

23 (ii).

24 ‘‘(I) Directly or indirectly acquir25 ing or controlling, whether as prin-
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1 cipal, on behalf of 1 or more entities

2 (including entities, other than a de3 pository institution or subsidiary of a

4 depository institution, that the finan5 cial holding company controls) or

6 otherwise, shares, assets, or owner7 ship interests (including without limi8 tation debt or equity securities, part9 nership interests, trust certificates or

10 other instruments representing own11 ership) of a company or other entity,

12 whether or not constituting control of

13 such company or entity, engaged in

14 any activity not authorized pursuant

15 to this section if—

16 ‘‘(i) the shares, assets, or own17 ership interests are not acquired

18 or held by a depository institu19 tion or a subsidiary of a deposi20 tory institution;

21 ‘‘(ii) such shares, assets, or

22 ownership interests are acquired

23 and held by an insurance com24 pany that is predominantly en25 gaged in underwriting life, acci-
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1 dent and health, or property and

2 casualty insurance (other than

3 credit-related insurance) or pro4 viding and issuing annuities;

5 ‘‘(iii) such shares, assets, or

6 ownership interests represent an

7 investment made in the ordinary

8 course of business of such insur9 ance company in accordance with

10 relevant State law governing such

11 investments; and

12 ‘‘(iv) during the period such

13 shares, assets, or ownership inter14 ests are held, the financial hold15 ing company does not directly or

16 indirectly participate in the day17 to-day management or operation

18 of the company or entity except

19 insofar as necessary to achieve

20 the objectives of clauses (ii) and

21 (iii).

22 ‘‘(4) AUTHORIZATION OF NEW FINANCIAL

23 ACTIVITIES.—The Board shall, by regula24 tion or order, define, consistent with the

25 purposes of this Act, the following activi-
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1 ties as, and the extent to which such ac2 tivities are, financial in nature or inci3 dental to activities which are financial in

4 nature:

5 ‘‘(A) Lending, exchanging, trans6 ferring, investing for others, or safe7 guarding financial assets other than

8 money or securities.

9 ‘‘(B) Providing any device or

10 other instrumentality for transferring

11 money or other financial assets.

12 ‘‘(C) Arranging, effecting, or facili13 tating financial transactions for the

14 account of third parties.

15 ‘‘(5) POST-CONSUMMATION NOTIFICA16 TION.—

17 ‘‘(A) IN GENERAL.—A financial

18 holding company and a wholesale fi19 nancial holding company that ac20 quires any company, or commences

21 any activity, pursuant to this sub22 section shall provide written notice

23 to the Board describing the activity

24 commenced or conducted by the com25 pany acquired no later than 30 cal-
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1 endar days after commencing the ac2 tivity or consummating the acquisi3 tion.

4 ‘‘(B) APPROVAL NOT REQUIRED FOR

5 CERTAIN FINANCIAL ACTIVITIES.—Except

6 as provided in section 4(j) with re7 gard to the acquisition of a savings

8 association or in paragraph (6) of this

9 subsection, a financial holding com10 pany and a wholesale financial hold11 ing company may commence any ac12 tivity, or acquire any company, pur13 suant to paragraph (3) or any regula14 tion prescribed or order issued under

15 paragraph (4), without prior approval

16 of the Board.

17 ‘‘(6) NOTICE REQUIRED FOR LARGE COM18 BINATIONS.—

19 ‘‘(A) IN GENERAL.—No financial

20 holding company or wholesale finan21 cial holding company shall directly or

22 indirectly acquire, and no company

23 that becomes a financial holding com24 pany or a wholesale financial holding

25 company shall directly or indirectly
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1 acquire control of, any company in

2 the United States, including through

3 merger, consolidation, or other type

4 of business combination, that—

5 ‘‘(i) is engaged in activities

6 permitted under this subsection

7 or subsection (g); and

8 ‘‘(ii) has consolidated total as9 sets in excess of $40,000,000,000,

10 unless such holding company has pro11 vided notice to the Board, not later

12 than 60 days prior to such proposed

13 acquisition or prior to becoming a fi14 nancial holding company or whole15 sale financial holding company, and

16 during that time period, or such

17 longer time period not exceeding an

18 additional 60 days, as established by

19 the Board, the Board has not issued a

20 notice disapproving the proposed ac21 quisition or retention.

22 ‘‘(B) FACTORS FOR CONSIDER23 ATION.—In reviewing any prior notice

24 filed under this paragraph, the Board

25 shall take into consideration—
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1 ‘‘(i) whether the company is in

2 compliance with all applicable

3 criteria set forth in subsection (b)

4 and the provisions of subsection

5 (d);

6 ‘‘(ii) whether the proposed

7 combination represents an undue

8 aggregation of resources;

9 ‘‘(iii) whether the proposed

10 combination poses a risk to the

11 deposit insurance system;

12 ‘‘(iv) whether the proposed

13 combination poses a risk to State

14 insurance guaranty funds;

15 ‘‘(v) whether the proposed

16 combination can reasonably be

17 expected to be in the best inter18 ests of depositors or policyholders

19 of the respective entities;

20 ‘‘(vi) whether the proposed

21 transaction can reasonably be ex22 pected to further the purposes of

23 this Act and produce benefits to

24 the public; and
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1 ‘‘(vii) whether, and the extent

2 to which, any subsequent failure

3 or default of the financial holding

4 company or wholesale financial

5 holding company, or any affiliate

6 of any such company, after the

7 proposed combination could have

8 serious adverse effects on eco9 nomic conditions or financial sta10 bility.

11 ‘‘(C) REQUIRED INFORMATION.—The

12 Board may disapprove any prior no13 tice filed under this paragraph if the

14 company submitting such notice ne15 glects, fails, or refuses to furnish to

16 the Board all relevant information re17 quired by the Board.

18 ‘‘(D) SOLICITATION OF VIEWS OF

19 OTHER SUPERVISORY AGENCIES.—

20 ‘‘(i) IN GENERAL.—Upon receiv21 ing a prior notice under this

22 paragraph, in order to provide for

23 the submission of their views and

24 recommendations, the Board shall

25 give notice of the proposal to—
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1 ‘‘(I) the appropriate Fed2 eral banking agency of any

3 bank involved;

4 ‘‘(II) the appropriate func5 tional regulator of any func6 tionally regulated nondeposi7 tory institution (as defined in

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

9 and

10 ‘‘(III) the Secretary of the

11 Treasury, the Attorney Gen12 eral, and the Federal Trade

13 Commission.

14 ‘‘(ii) TIMING.—The views and

15 recommendations of any agency

16 provided notice under this para17 graph shall be submitted to the

18 Board not later than 30 calendar

19 days after the date on which no20 tice to the agency was given, un21 less the Board determines that

22 another shorter time period is ap23 propriate.
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1 ‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL

2 HOLDING COMPANIES THAT FAIL TO MEET RE3 QUIREMENTS.—

4 ‘‘(1) IN GENERAL.—If the Board finds

5 that a financial holding company is not

6 in compliance with the requirements of

7 subparagraph (A), (B), or (C) of sub8 section (b)(1), the Board shall give notice

9 of such finding to the company.

10 ‘‘(2) AGREEMENT TO CORRECT CONDI11 TIONS REQUIRED.—Within 45 days of re12 ceipt by a financial holding company of a

13 notice given under paragraph (1) (or such

14 additional period as the Board may per15 mit), the company shall execute an agree16 ment acceptable to the Board to comply

17 with the requirements applicable to a fi18 nancial holding company.

19 ‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—

20 Until the conditions described in a notice

21 to a financial holding company under

22 paragraph (1) are corrected, the Board

23 may impose such limitations on the con24 duct or activities of the company or any

25 affiliate of the company as the Board de-
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1 termines to be appropriate under the cir2 cumstances.

3 ‘‘(4) FAILURE TO CORRECT.—If, after re4 ceiving a notice under paragraph (1), a fi5 nancial holding company does not—

6 ‘‘(A) execute and implement an

7 agreement in accordance with para8 graph (2);

9 ‘‘(B) comply with any limitations

10 imposed under paragraph (3);

11 ‘‘(C) in the case of a notice of fail12 ure to comply with subsection

13 (b)(1)(A), restore each depository in14 stitution subsidiary to well capital15 ized status before the end of the 180-

16 day period beginning on the date

17 such notice is received by the com18 pany (or such other period permitted

19 by the Board); or

20 ‘‘(D) in the case of a notice of fail21 ure to comply with subparagraph (B)

22 or (C) of subsection (b)(1), restore

23 compliance with any such subpara24 graph by the date the next examina25 tion of the depository institution sub-
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1 sidiary is completed or by the end of

2 such other period as the Board deter3 mines to be appropriate,

4 the Board may require such company,

5 under such terms and conditions as may

6 be imposed by the Board and subject to

7 such extension of time as may be granted

8 in the Board’s discretion, to divest con9 trol of any depository institution sub10 sidiary or, at the election of the financial

11 holding company, instead to cease to en12 gage in any activity conducted by such

13 company or its subsidiaries pursuant to

14 this section.

15 ‘‘(5) CONSULTATION.—In taking any ac16 tion under this subsection, the Board

17 shall consult with all relevant Federal

18 and State regulatory agencies.

19 ‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—

20 A financial holding company shall assure

21 that—

22 ‘‘(1) the procedures of the holding

23 company for identifying and managing fi24 nancial and operational risks within the

25 company, and the subsidiaries of such
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1 company, adequately protect the subsidi2 aries of such company which are insured

3 depository institutions or wholesale fi4 nancial institutions from such risks;

5 ‘‘(2) the holding company has reason6 able policies and procedures to preserve

7 the separate corporate identity and lim8 ited liability of such company and the

9 subsidiaries of such company, for the

10 protection of the company’s subsidiary

11 insured depository institutions or whole12 sale financial institutions; and

13 ‘‘(3) the holding company complies

14 with this section.

15 ‘‘(f) AUTHORITY TO RETAIN LIMITED NON16 FINANCIAL ACTIVITIES AND AFFILIATIONS.—

17 ‘‘(1) IN GENERAL.—Notwithstanding

18 section 4(a), a company that is not a bank

19 holding company or a foreign bank (as

20 defined in section 1(b)(7) of the Inter21 national Banking Act of 1978) and be22 comes a financial holding company after

23 the date of the enactment of the Finan24 cial Services Act of 1999 may continue to

25 engage in any activity and retain direct
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1 or indirect ownership or control of

2 shares of a company engaged in any ac3 tivity if—

4 ‘‘(A) the holding company lawfully

5 was engaged in the activity or held

6 the shares of such company on Sep7 tember 30, 1997;

8 ‘‘(B) the holding company is pre9 dominantly engaged in financial ac10 tivities as defined in paragraph (2);

11 and

12 ‘‘(C) the company engaged in such

13 activity continues to engage only in

14 the same activities that such com15 pany conducted on September 30,

16 1997, and other activities permissible

17 under this Act.

18 ‘‘(2) PREDOMINANTLY FINANCIAL.—For

19 purposes of this subsection, a company is

20 predominantly engaged in financial ac21 tivities if the annual gross revenues de22 rived by the holding company and all

23 subsidiaries of the holding company (ex24 cluding revenues derived from subsidiary

25 depository institutions), on a consoli-
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1 dated basis, from engaging in activities

2 that are financial in nature or are inci3 dental to activities that are financial in

4 nature under subsection (c) represent at

5 least 85 percent of the consolidated an6 nual gross revenues of the company.

7 ‘‘(3) NO EXPANSION OF GRANDFATHERED

8 COMMERCIAL ACTIVITIES THROUGH MERGER

9 OR CONSOLIDATION.—A financial holding

10 company that engages in activities or

11 holds shares pursuant to this subsection,

12 or a subsidiary of such financial holding

13 company, may not acquire, in any merg14 er, consolidation, or other type of busi15 ness combination, assets of any other

16 company which is engaged in any activ17 ity which the Board has not determined

18 to be financial in nature or incidental to

19 activities that are financial in nature

20 under subsection (c).

21 ‘‘(4) CONTINUING REVENUE LIMITATION

22 ON GRANDFATHERED COMMERCIAL ACTIVI23 TIES.—Notwithstanding any other provi24 sion of this subsection, a financial hold25 ing company may continue to engage in
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1 activities or hold shares in companies

2 pursuant to this subsection only to the

3 extent that the aggregate annual gross

4 revenues derived from all such activities

5 and all such companies does not exceed

6 15 percent of the consolidated annual

7 gross revenues of the financial holding

8 company (excluding revenues derived

9 from subsidiary depository institutions).

10 ‘‘(5) CROSS MARKETING RESTRICTIONS

11 APPLICABLE TO COMMERCIAL ACTIVITIES.—

12 An insured depository institution or

13 wholesale financial institution controlled

14 by a financial holding company shall

15 not—

16 ‘‘(A) offer or market, directly or

17 through any arrangement, any prod18 uct or service of a company whose ac19 tivities are conducted or whose

20 shares are owned or controlled by the

21 financial holding company pursuant

22 to this subsection or subparagraph

23 (H) or (I) of subsection (c)(3); or

24 ‘‘(B) permit any of its products or

25 services to be offered or marketed, di-
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1 rectly or through any arrangement,

2 by or through any company described

3 in subparagraph (A).

4 ‘‘(6) TRANSACTIONS WITH NONFINANCIAL

5 AFFILIATES.—An insured depository insti6 tution or wholesale financial institution

7 controlled by a financial holding com8 pany or wholesale financial holding com9 pany may not engage in a covered trans10 action (as defined by section 23A(b)(7) of

11 the Federal Reserve Act) with any affil12 iate controlled by the company pursuant

13 to section 10(c), this subsection, or sub14 paragraph (H) or (I) of subsection (c)(3).

15 ‘‘(7) SUNSET OF GRANDFATHER.—A fi16 nancial holding company engaged in any

17 activity, or retaining direct or indirect

18 ownership or control of shares of a com19 pany, pursuant to this subsection, shall

20 terminate such activity and divest owner21 ship or control of the shares of such com22 pany before the end of the 10-year period

23 beginning on the date of the enactment of

24 the Financial Services Act of 1999. The

25 Board may, upon application, extend
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1 such 10-year period by a period not to ex2 ceed an additional 5 years if such exten3 sion would not be detrimental to the pub4 lic interest.

5 ‘‘(g) DEVELOPING ACTIVITIES.—A financial

6 holding company and a wholesale financial

7 holding company may engage directly or indi8 rectly, or acquire shares of any company en9 gaged, in any activity that the Board has not

10 determined to be financial in nature or inci11 dental to financial activities under subsection

12 (c) if—

13 ‘‘(1) the holding company reasonably

14 concludes that the activity is financial in

15 nature or incidental to financial activi16 ties;

17 ‘‘(2) the gross revenues from all ac18 tivities conducted under this subsection

19 represent less than 5 percent of the con20 solidated gross revenues of the holding

21 company;

22 ‘‘(3) the aggregate total assets of all

23 companies the shares of which are held

24 under this subsection do not exceed 5
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1 percent of the holding company’s consoli2 dated total assets;

3 ‘‘(4) the total capital invested in ac4 tivities conducted under this subsection

5 represents less than 5 percent of the con6 solidated total capital of the holding com7 pany;

8 ‘‘(5) the Board has not determined

9 that the activity is not financial in nature

10 or incidental to financial activities under

11 subsection (c);

12 ‘‘(6) the holding company is not re13 quired to provide prior written notice of

14 the transaction to the Board under sub15 section (c)(6); and

16 ‘‘(7) the holding company provides

17 written notification to the Board describ18 ing the activity commenced or conducted

19 by the company acquired no later than 10

20 business days after commencing the ac21 tivity or consummating the acquisition.’’.

22 (b) FACTORS FOR CONSIDERATION IN RE23 VIEWING APPLICATION BY FINANCIAL HOLDING

24 COMPANY TO ACQUIRE BANK.—Section 3(c) of

25 the Bank Holding Company Act of 1956 (12
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1 U.S.C. 1842(c)) is amended by adding at the

2 end the following new paragraph:

3 ‘‘(6) ‘TOO BIG TO FAIL’ FACTOR.—In con4 sidering an acquisition, merger, or con5 solidation under this section involving a

6 financial holding company, a wholesale

7 financial holding company, or a company

8 that would be any such holding company

9 upon the consummation of the trans10 action, the Board shall consider whether,

11 and the extent to which, any subsequent

12 failure or default of the financial holding

13 company or wholesale financial holding

14 company, or any affiliate of any such

15 company, after the consummation of the

16 transaction could have serious adverse

17 effects on economic conditions or finan18 cial stability.’’.

19 (c) TECHNICAL AND CONFORMING AMEND20 MENTS.—

21 (1) Section 2 of the Bank Holding

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

23 amended by adding at the end the fol24 lowing new subsection:
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1 ‘‘(p) INSURANCE COMPANY.—For purposes

2 of sections 5, 6, and 10, the term ‘insurance

3 company’ includes any person engaged in the

4 business of insurance to the extent of such ac5 tivities.’’.

6 (2) Section 4(j) of the Bank Holding

7 Company Act of 1956 (12 U.S.C. 1843(j)) is

8 amended—

9 (1) in paragraph (1)(A), by inserting

10 ‘‘or in any complementary activity under

11 section 6(c)(1)(B)’’ after ‘‘subsection (c)(8)

12 or (a)(2)’’; and

13 (2) in paragraph (3)—

14 (A) by inserting ‘‘, other than any

15 complementary activity under section

16 6(c)(1)(B),’’ after ‘‘to engage in any ac17 tivity’’; and

18 (B) by inserting ‘‘or a company

19 engaged in any complementary activ20 ity under section 6(c)(1)(B)’’ after ‘‘in21 sured depository institution’’.

22 (d) REPORT.—

23 (1) IN GENERAL.—The Board of Gov24 ernors of the Federal Reserve System

25 shall submit a report to the Congress by
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1 the end of each of the 1st two 5-year peri2 ods beginning after the date of the enact3 ment of this Act, containing a summary

4 of new activities which are financial in

5 nature, including grandfathered commer6 cial activities, in which any financial

7 holding company is engaged pursuant to

8 subsection (c)(1) or (f) of section 6 of the

9 Bank Holding Company Act of 1956 (as

10 added by subsection (a)).

11 (2) OTHER CONTENTS.—Each report

12 submitted to the Congress pursuant to

13 paragraph (1) shall also contain the fol14 lowing:

15 (A) A discussion of actions by the

16 Board of Governors of the Federal

17 Reserve System, whether by regula18 tion, order, interpretation, or guide19 line or by approval or disapproval of

20 an application, with regard to activi21 ties of financial holding companies

22 which are incidental to activities fi23 nancial in nature or complementary

24 to such financial activities.
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1 (B) An analysis and discussion of

2 the risks posed by commercial activi3 ties of financial holding companies to

4 the safety and soundness of affiliate

5 depository institutions.

6 (C) An analysis and discussion of

7 the effect of mergers and acquisitions

8 under section 6 of the Bank Holding

9 Company Act of 1956 on market con10 centration in the financial services

11 industry.

12 (D) An analysis and discussion, by

13 the Board in consultation with the

14 other Federal banking agencies (as

15 defined in section 3(z) of the Federal

16 Deposit Insurance Act), of the impact

17 of the implementation of this Act, and

18 the amendments made by this Act, on

19 the extent of meeting community

20 credit needs and capital availability

21 under the Community Reinvestment

22 Act of 1977.

23 SEC. 104. OPERATION OF STATE LAW.

24 (a) AFFILIATIONS.—
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1 (1) IN GENERAL.—Except as provided

2 in paragraph (2), no State may, by stat3 ute, regulation, order, interpretation, or

4 other action, prevent or restrict an in5 sured depository institution or wholesale

6 financial institution, or a subsidiary or

7 affiliate thereof, from being affiliated di8 rectly or indirectly or associated with

9 any person, as authorized or permitted

10 by this Act or any other provision of Fed11 eral law.

12 (2) INSURANCE.—With respect to affili13 ations between insured depository insti14 tutions or wholesale financial institu15 tions, or any subsidiary or affiliate there16 of, and persons engaged in the business

17 of insurance, paragraph (1) does not

18 prohibit—

19 (A) any State from collecting in20 formation as may be necessary con21 cerning proposed acquisitions or

22 changes or continuations in control

23 of any person engaged in the business

24 of insurance in the State, as long as—
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1 (i) the State makes reasonable

2 efforts to first collect any such in3 formation from the insurance reg4 ulator of the State of domicile of

5 such person; and

6 (ii) the collection of such in7 formation with regard to any

8 such person, in the case of any

9 State other than the State of

10 domicile of such person, does not

11 impede or delay any such acquisi12 tion or change or continuation in

13 control; or

14 (B) in the case of a person en15 gaged in the business of insurance

16 which is the subject of an acquisition

17 or change or continuation in control,

18 the State of domicile of such person

19 from reviewing or taking action (in20 cluding approval or disapproval) with

21 regard to the acquisition or change

22 or continuation in control, as long as

23 the State reviews and actions—

24 (i) are completed by the end

25 of the 60-day period beginning on
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1 the later of the date the State re2 ceived notice of the proposed ac3 tion or the date the State received

4 the information required under

5 State law regarding such acquisi6 tion or change or continuation in

7 control;

8 (ii) do not have the effect of

9 discriminating, intentionally or

10 unintentionally, against an in11 sured depository institution or af12 filiate thereof or against any

13 other person based upon affili14 ation with an insured depository

15 institution; and

16 (iii) are based on standards or

17 requirements relating to solvency

18 or managerial fitness;

19 (C) any State from requiring an

20 entity that is acquiring control of an

21 entity that is engaged in the business

22 of insurance and domiciled in that

23 State to maintain or restore the cap24 ital requirements of that insurance

25 entity to the level required under the
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1 capital regulations of general applica2 bility in that State to avoid the re3 quirement of preparing and filing

4 with the insurance regulatory author5 ity of that State a plan to increase the

6 capital of the entity, except that any

7 determination by the State insurance

8 regulatory authority with respect to

9 such requirement shall be made not

10 later than 60 days after the date of

11 notification under subparagraph (A);

12 (D) any State from taking actions

13 with respect to the receivership or

14 conservatorship of any insurance

15 company;

16 (E) any State from restricting a

17 change in the ownership of stock in

18 an insurance company, or a company

19 formed for the purpose of controlling

20 such insurance company, for a period

21 authorized by State law but not to ex22 ceed 5 years beginning on the date of

23 the conversion of such company from

24 mutual to stock form; or
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1 (F) any State from requiring an

2 organization which has been eligible

3 at any time since January 1, 1987, to

4 claim the special deduction provided

5 by section 833 of the Internal Rev6 enue Code of 1986 to meet certain

7 conditions in order to undergo, as de8 termined by the State, a reorganiza9 tion, recapitalization, conversion,

10 merger, consolidation, sale or other

11 disposition of substantial operating

12 assets, demutualization, dissolution,

13 or to undertake other similar actions

14 and which is governed under a State

15 statute enacted on May 22, 1998, re16 lating to hospital, medical, and dental

17 service corporation conversions.

18 (3) PRESERVATION OF STATE ANTITRUST

19 AND GENERAL CORPORATE LAWS.—

20 (A) IN GENERAL.—Subject to sub21 section (c) and the nondiscrimination

22 provisions contained in such sub23 section, no provision in paragraph (1)

24 shall be construed as affecting State

25 laws, regulations, orders, interpreta-
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1 tions, or other actions of general ap2 plicability relating to the governance

3 of corporations, partnerships, limited

4 liability companies or other business

5 associations incorporated or formed

6 under the laws of that State or domi7 ciled in that State, or the applica8 bility of the antitrust laws of any

9 State or any State law that is similar

10 to the antitrust laws.

11 (B) DEFINITION.—The term ‘‘anti12 trust laws’’ has the same meaning as

13 in subsection (a) of the first section of

14 the Clayton Act, and includes section

15 5 of the Federal Trade Commission

16 Act to the extent that such section 5

17 relates to unfair methods of competi18 tion.

19 (b) ACTIVITIES.—

20 (1) IN GENERAL.—Except as provided

21 in paragraph (3), and except with respect

22 to insurance sales, solicitation, and cross

23 marketing activities, which shall be gov24 erned by paragraph (2), no State may, by

25 statute, regulation, order, interpretation,
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1 or other action, prevent an insured de2 pository institution, wholesale financial

3 institution, or subsidiary or affiliate

4 thereof from engaging, or significantly

5 interfere with the ability of any such per6 son to engage, directly or indirectly, ei7 ther by itself or in conjunction with a

8 subsidiary, affiliate, or any other entity

9 or person, in any activity authorized or

10 permitted under this Act.

11 (2) INSURANCE SALES.—

12 (A) IN GENERAL.—In accordance

13 with the legal standards for preemp14 tion set forth in the decision of the

15 Supreme Court of the United States

16 in Barnett Bank of Marion County

17 N.A. v. Nelson, 517 U.S. 25 (1996), no

18 State may, by statute, regulation,

19 order, interpretation, or other action,

20 prevent or significantly interfere

21 with the ability of an insured deposi22 tory institution or wholesale financial

23 institution, or a subsidiary or affiliate

24 thereof, to engage, directly or indi25 rectly, either by itself or in conjunc-
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1 tion with a subsidiary, affiliate, or

2 any other party, in any insurance

3 sales, solicitation, or cross-marketing

4 activity.

5 (B) CERTAIN STATE LAWS PRE6 SERVED.—Notwithstanding subpara7 graph (A), a State may impose any of

8 the following restrictions, or restric9 tions which are substantially the

10 same as but no more burdensome or

11 restrictive than those in each of the

12 following clauses:

13 (i) Restrictions prohibiting

14 the rejection of an insurance pol15 icy by an insured depository insti16 tution, wholesale financial insti17 tution, or any subsidiary or affil18 iate thereof, solely because the

19 policy has been issued or under20 written by any person who is not

21 associated with such insured de22 pository institution or wholesale

23 financial institution, or any sub24 sidiary or affiliate thereof, when

25 such insurance is required in con-
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1 nection with a loan or extension

2 of credit.

3 (ii) Restrictions prohibiting a

4 requirement for any debtor, in5 surer, or insurance agent or

6 broker to pay a separate charge

7 in connection with the handling

8 of insurance that is required in

9 connection with a loan or other

10 extension of credit or the provi11 sion of another traditional bank12 ing product by an insured deposi13 tory institution, wholesale finan14 cial institution, or any subsidiary

15 or affiliate thereof, unless such

16 charge would be required when

17 the insured depository institution

18 or wholesale financial institution,

19 or any subsidiary or affiliate

20 thereof, is the licensed insurance

21 agent or broker providing the in22 surance.

23 (iii) Restrictions prohibiting

24 the use of any advertisement or

25 other insurance promotional ma-
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1 terial by an insured depository in2 stitution or wholesale financial

3 institution, or any subsidiary or

4 affiliate thereof, that would cause

5 a reasonable person to believe

6 mistakenly that—

7 (I) a State or the Federal

8 Government is responsible for

9 the insurance sales activities

10 of, or stands behind the credit

11 of, the institution, affiliate, or

12 subsidiary; or

13 (II) a State, or the Federal

14 Government guarantees any

15 returns on insurance prod16 ucts, or is a source of pay17 ment on any insurance obliga18 tion of or sold by the institu19 tion, affiliate, or subsidiary;

20 (iv) Restrictions prohibiting

21 the payment or receipt of any

22 commission or brokerage fee or

23 other valuable consideration for

24 services as an insurance agent or

25 broker to or by any person, unless
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1 such person holds a valid State li2 cense regarding the applicable

3 class of insurance at the time at

4 which the services are performed,

5 except that, in this clause, the

6 term ‘‘services as an insurance

7 agent or broker’’ does not include

8 a referral by an unlicensed per9 son of a customer or potential

10 customer to a licensed insurance

11 agent or broker that does not in12 clude a discussion of specific in13 surance policy terms and condi14 tions.

15 (v) Restrictions prohibiting

16 any compensation paid to or re17 ceived by any individual who is

18 not licensed to sell insurance, for

19 the referral of a customer that

20 seeks to purchase, or seeks an

21 opinion or advice on, any insur22 ance product to a person that

23 sells or provides opinions or ad24 vice on such product, based on
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1 the purchase of insurance by the

2 customer.

3 (vi) Restrictions prohibiting

4 the release of the insurance infor5 mation of a customer (defined as

6 information concerning the pre7 miums, terms, and conditions of

8 insurance coverage, including ex9 piration dates and rates, and in10 surance claims of a customer con11 tained in the records of the in12 sured depository institution or

13 wholesale financial institution, or

14 a subsidiary or affiliate thereof)

15 to any person or entity other than

16 an officer, director, employee,

17 agent, subsidiary, or affiliate of

18 an insured depository institution

19 or a wholesale financial institu20 tion, for the purpose of soliciting

21 or selling insurance, without the

22 express consent of the customer,

23 other than a provision that

24 prohibits—
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1 (I) a transfer of insurance

2 information to an unaffiliated

3 insurance company, agent, or

4 broker in connection with

5 transferring insurance in

6 force on existing insureds of

7 the insured depository insti8 tution or wholesale financial

9 institution, or subsidiary or

10 affiliate thereof, or in connec11 tion with a merger with or ac12 quisition of an unaffiliated in13 surance company, agent, or

14 broker; or

15 (II) the release of informa16 tion as otherwise authorized

17 by State or Federal law.

18 (vii) Restrictions prohibiting

19 the use of health information ob20 tained from the insurance records

21 of a customer for any purpose,

22 other than for its activities as a li23 censed agent or broker, without

24 the express consent of the cus25 tomer.
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1 (viii) Restrictions prohibiting

2 the extension of credit or any

3 product or service that is equiva4 lent to an extension of credit,

5 lease or sale of property of any

6 kind, or furnishing of any serv7 ices or fixing or varying the con8 sideration for any of the fore9 going, on the condition or re10 quirement that the customer ob11 tain insurance from an insured

12 depository institution, wholesale

13 financial institution, a subsidiary

14 or affiliate thereof, or a particular

15 insurer, agent, or broker, other

16 than a prohibition that would

17 prevent any insured depository

18 institution or wholesale financial

19 institution, or any subsidiary or

20 affiliate thereof—

21 (I) from engaging in any

22 activity described in this

23 clause that would not violate

24 section 106 of the Bank Hold25 ing Company Act Amend-
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1 ments of 1970, as interpreted

2 by the Board of Governors of

3 the Federal Reserve System;

4 or

5 (II) from informing a cus6 tomer or prospective cus7 tomer that insurance is re8 quired in order to obtain a

9 loan or credit, that loan or

10 credit approval is contingent

11 upon the procurement by the

12 customer of acceptable insur13 ance, or that insurance is

14 available from the insured de15 pository institution or whole16 sale financial institution, or

17 any subsidiary or affiliate

18 thereof.

19 (ix) Restrictions requiring,

20 when an application by a con21 sumer for a loan or other exten22 sion of credit from an insured de23 pository institution or wholesale

24 financial institution is pending,

25 and insurance is offered or sold
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1 to the consumer or is required in

2 connection with the loan or ex3 tension of credit by the insured

4 depository institution or whole5 sale financial institution or any

6 affiliate or subsidiary thereof,

7 that a written disclosure be pro8 vided to the consumer or prospec9 tive customer indicating that his

10 or her choice of an insurance pro11 vider will not affect the credit de12 cision or credit terms in any way,

13 except that the insured deposi14 tory institution or wholesale fi15 nancial institution may impose

16 reasonable requirements con17 cerning the creditworthiness of

18 the insurance provider and scope

19 of coverage chosen.

20 (x) Restrictions requiring

21 clear and conspicuous disclosure,

22 in writing, where practicable, to

23 the customer prior to the sale of

24 any insurance policy that such

25 policy—
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1 (I) is not a deposit;

2 (II) is not insured by the

3 Federal Deposit Insurance

4 Corporation;

5 (III) is not guaranteed by

6 the insured depository insti7 tution or wholesale financial

8 institution or, if appropriate,

9 its subsidiaries or affiliates or

10 any person soliciting the pur11 chase of or selling insurance

12 on the premises thereof; and

13 (IV) where appropriate,

14 involves investment risk, in15 cluding potential loss of prin16 cipal.

17 (xi) Restrictions requiring

18 that, when a customer obtains in19 surance (other than credit insur20 ance or flood insurance) and

21 credit from an insured depository

22 institution or wholesale financial

23 institution, or its subsidiaries or

24 affiliates, or any person soliciting

25 the purchase of or selling insur-
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1 ance on the premises thereof, the

2 credit and insurance transactions

3 be completed through separate

4 documents.

5 (xii) Restrictions prohibiting,

6 when a customer obtains insur7 ance (other than credit insurance

8 or flood insurance) and credit

9 from an insured depository insti10 tution or wholesale financial in11 stitution or its subsidiaries or af12 filiates, or any person soliciting

13 the purchase of or selling insur14 ance on the premises thereof, in15 clusion of the expense of insur16 ance premiums in the primary

17 credit transaction without the ex18 press written consent of the cus19 tomer.

20 (xiii) Restrictions requiring

21 maintenance of separate and dis22 tinct books and records relating

23 to insurance transactions, includ24 ing all files relating to and re25 flecting consumer complaints,
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1 and requiring that such insur2 ance books and records be made

3 available to the appropriate State

4 insurance regulator for inspec5 tion upon reasonable notice.

6 (C) CONSTRUCTION.—Nothing in

7 this paragraph shall be construed to

8 limit the applicability of the decision

9 of the Supreme Court in Barnett

10 Bank of Marion County N.A. v. Nel11 son, 517 U.S. 25 (1996), with respect to

12 a State statute, regulation, order, in13 terpretation, or other action that is

14 not described in subparagraph (B).

15 (3) INSURANCE ACTIVITIES OTHER THAN

16 SALES.—State statutes, regulations, inter17 pretations, orders, and other actions

18 shall not be preempted under subsection

19 (b)(1) to the extent that they—

20 (A) relate to, or are issued, adopt21 ed, or enacted for the purpose of reg22 ulating the business of insurance in

23 accordance with the Act of March 9,

24 1945 (commonly known as the

25 ‘‘McCarran-Ferguson Act’’);
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1 (B) apply only to persons that are

2 not insured depository institutions or

3 wholesale financial institutions, but

4 that are directly engaged in the busi5 ness of insurance, except that such

6 State statutes, regulations, interpre7 tations, orders, and other actions may

8 apply to—

9 (i) insured depository institu10 tions and wholesale financial in11 stitutions engaged in providing

12 savings bank life insurance as

13 principal to the extent of regu14 lating such insurance; and

15 (ii) insured depository institu16 tions and wholesale financial in17 stitutions which are engaged in

18 the business of insurance on be19 half, directly or indirectly, of a

20 company providing insurance as

21 principal, such as by performing

22 administrative or investment

23 management or claims processing

24 functions related to insurance,

25 but only—
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1 (I) to the extent of such

2 functions;

3 (II) if such functions

4 would normally be regulated

5 by the insurance regulator of

6 such State as part of the busi7 ness of insurance;

8 (III) if the State statute,

9 regulation, interpretation,

10 order, or other action does

11 not directly conflict with any

12 Federal law expressly gov13 erning such function; and

14 (IV) if the State insurance

15 regulator makes an effort to

16 obtain any required informa17 tion from the appropriate

18 banking regulator of such in19 sured depository institution

20 or wholesale financial institu21 tion;

22 (C) do not relate to or directly or

23 indirectly regulate insurance sales,

24 solicitations, or cross-marketing ac25 tivities; and
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1 (D) are not prohibited under sub2 section (c).

3 (4) FINANCIAL ACTIVITIES OTHER THAN

4 INSURANCE.—No State statute, regulation,

5 interpretation, order, or other action

6 shall be preempted under subsection

7 (b)(1) to the extent that—

8 (A) it does not relate to, and is not

9 issued and adopted, or enacted for

10 the purpose of regulating, directly or

11 indirectly, insurance sales, solicita12 tions, or cross marketing activities

13 covered under paragraph (2);

14 (B) it does not relate to, and is not

15 issued and adopted, or enacted for

16 the purpose of regulating, directly or

17 indirectly, the business of insurance

18 activities other than sales, solicita19 tions, or cross marketing activities,

20 covered under paragraph (3);

21 (C) it does not relate to securities

22 investigations, enforcement actions,

23 registration, or licensure actions re24 ferred to in subsection (d); and

25 (D) it—
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1 (i) does not distinguish by its

2 terms between insured depository

3 institutions, wholesale financial

4 institutions, and subsidiaries and

5 affiliates thereof engaged in the

6 activity at issue and other per7 sons or entities engaged in the

8 same activity in a manner that is

9 in any way adverse with respect

10 to the conduct of the activity by

11 any such insured depository insti12 tution, wholesale financial insti13 tution, or subsidiary or affiliate

14 thereof engaged in the activity at

15 issue;

16 (ii) as interpreted or applied,

17 does not have, and will not have,

18 an impact on insured depository

19 institutions, wholesale financial

20 institutions, or subsidiaries or af21 filiates thereof engaged in the ac22 tivity at issue, or any person or

23 entity affiliated therewith, that is

24 substantially more adverse than

25 its impact on other persons or en-
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1 tities engaged in the same activ2 ity that are not insured deposi3 tory institutions, wholesale finan4 cial institutions, or subsidiaries

5 or affiliates thereof, or persons or

6 entities affiliated therewith;

7 (iii) does not effectively pre8 vent an insured depository insti9 tution, wholesale financial insti10 tution, or subsidiary or affiliate

11 thereof from engaging in activi12 ties authorized or permitted by

13 this Act or any other provision of

14 Federal law; and

15 (iv) does not conflict with the

16 intent of this Act generally to per17 mit affiliations that are author18 ized or permitted by Federal law.

19 (c) NONDISCRIMINATION.—

20 (1) IN GENERAL.—Except as provided

21 in subsection (b)(2)(B), no State may, by

22 statute, regulation, order, interpretation,

23 or other action, regulate the insurance

24 activities authorized or permitted under

25 this Act or any other provision of Federal
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1 law of an insured depository institution

2 or wholesale financial institution, or sub3 sidiary or affiliate thereof, to the extent

4 that such statute, regulation, order, inter5 pretation, or other action—

6 (A) distinguishes by its terms be7 tween insured depository institutions

8 or wholesale financial institutions, or

9 subsidiaries or affiliates thereof, and

10 other persons or entities engaged in

11 such activities, in a manner that is

12 more adverse to insured depository

13 institutions or wholesale financial in14 stitutions, or subsidiaries or affiliates

15 thereof, than to other persons or enti16 ties providing the same products or

17 services or engaged in the same ac18 tivities that are not insured deposi19 tory institutions, wholesale financial

20 institutions, or subsidiaries or affili21 ates thereof, or persons or entities af22 filiated therewith;

23 (B)(i) as interpreted or applied,

24 has or will have an impact on insured

25 depository institutions or wholesale
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1 financial institutions, or subsidiaries

2 or affiliates thereof, based on their

3 status, that is substantially more ad4 verse than its impact on other per5 sons or entities providing the same

6 products or services or engaged in

7 the same activities that are not in8 sured depository institutions, whole9 sale financial institutions, or subsidi10 aries or affiliates thereof, or persons

11 or entities affiliated therewith; and

12 (ii) for purposes of this subpara13 graph, the term ‘‘based on their sta14 tus’’ means—

15 (I) with respect to insured de16 pository institutions and whole17 sale financial institutions, based

18 on an attribute of insured deposi19 tory institutions or wholesale fi20 nancial institutions, such as a

21 Federal charter or the insured

22 status, either as a whole or with

23 regard to a particular type or

24 class of such institutions; and
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1 (II) with respect to subsidi2 aries or affiliates of insured de3 pository institutions or wholesale

4 financial institutions, based on

5 their relationship with such insti6 tutions;

7 (C) effectively prevents a insured

8 depository institution or wholesale fi9 nancial institution, or subsidiary or

10 affiliate thereof, from engaging in in11 surance activities authorized or per12 mitted by this Act or any other provi13 sion of Federal law; or

14 (D) conflicts with the intent of

15 this Act generally to permit affili16 ations that are authorized or per17 mitted by Federal law between in18 sured depository institutions or

19 wholesale financial institutions, or

20 subsidiaries or affiliates thereof, and

21 persons and entities engaged in the

22 business of insurance.

23 (2) PROSPECTIVE APPLICATION.—Para24 graph (1) shall not apply to any State

25 statute, regulation, order, interpretation,
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1 or other action regarding any insurance

2 sales, solicitation, or cross-marketing ac3 tivity described in subsection (b)(2)(A)

4 that was issued, adopted, enacted, or

5 taken before January 1, 1999.

6 (d) LIMITATION.—Subsections (a) and (b)

7 shall not be construed to affect the jurisdic8 tion of the securities commission (or any

9 agency or office performing like functions) of

10 any State, under the laws of such State—

11 (1) to investigate and bring enforce12 ment actions, consistent with section

13 18(c) of the Securities Act of 1933, with

14 respect to fraud or deceit or unlawful

15 conduct by any person, in connection

16 with securities or securities transactions;

17 or

18 (2) to require the registration of secu19 rities or the licensure or registration of

20 brokers, dealers, or investment advisers

21 (consistent with section 203A of the In22 vestment Advisers Act of 1940), or the as23 sociated persons of a broker, dealer, or

24 investment adviser (consistent with such

25 section 203A).
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1 (e) DEFINITIONS.—For purposes of this sec2 tion, the following definitions shall apply:

3 (1) INSURED DEPOSITORY INSTITUTION.—

4 The term ‘‘insured depository institution’’

5 includes any foreign bank that maintains

6 a branch, agency, or commercial lending

7 company in the United States.

8 (2) STATE.—The term ‘‘State’’ means

9 any State of the United States, the Dis10 trict of Columbia, any territory of the

11 United States, Puerto Rico, Guam, Amer12 ican Samoa, the Trust Territory of the

13 Pacific Islands, the Virgin Islands, and

14 the Northern Mariana Islands.

15 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR16 IZED.

17 Section 3(g)(2) of the Bank Holding Com18 pany Act of 1956 (12 U.S.C. 1842(g)(2)) is

19 amended to read as follows:

20 ‘‘(2) REGULATIONS.—A bank holding

21 company organized as a mutual holding

22 company shall be regulated on terms, and

23 shall be subject to limitations, com24 parable to those applicable to any other

25 bank holding company.’’.
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1 SEC. 105A. PUBLIC MEETINGS FOR LARGE BANK ACQUISI2 TIONS AND MERGERS.

3 (a) BANK HOLDING COMPANY ACT OF 1956.—

4 Section 3(c)(2) of the Bank Holding Company

5 Act of 1956 (12 U.S.C. 1842(c)(2)) is amended—

6 (1) by striking ‘‘FACTORS.—In every

7 case’’ and inserting ‘‘FACTORS.—

8 ‘‘(A) IN GENERAL.—In every case’’;

9 and

10 (2) by adding at the end the following

11 new subparagraph:

12 ‘‘(B) PUBLIC MEETINGS.—In each

13 case involving 1 or more insured de14 pository institutions each of which

15 has total assets of $1,000,000,000 or

16 more, the Board shall, as necessary

17 and on a timely basis, conduct public

18 meetings in 1 or more areas where

19 the Board believes, in the sole discre20 tion of the Board, there will be a sub21 stantial public impact.’’.

22 (b) FEDERAL DEPOSIT INSURANCE ACT.—Sec23 tion 18(c) of the Federal Deposit Insurance

24 Act (12 U.S.C. 1828(c)) is amended by adding

25 at the end the following new paragraph:
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1 ‘‘(12) PUBLIC MEETINGS.—In each merger

2 transaction involving 1 or more insured de3 pository institutions each of which has total

4 assets of $1,000,000,000 or more, the respon5 sible agency shall, as necessary and on a time6 ly basis, conduct public meetings in 1 or more

7 areas where the agency believes, in the sole

8 discretion of the agency, there will be a sub9 stantial public impact.’’.

10 (c) NATIONAL BANK CONSOLIDATION AND

11 MERGER ACT.—The National Bank Consolida12 tion and Merger Act (12 U.S.C. 215 et seq.) is

13 amended by adding at the end the following

14 new section:

15 ‘‘SEC. 6. PUBLIC MEETINGS FOR LARGE BANK CONSOLIDA16 TIONS AND MERGERS.

17 ‘‘In each case of a consolidation or merger

18 under this Act involving 1 or more banks each

19 of which has total assets of $1,000,000,000 or

20 more, the Comptroller shall, as necessary and

21 on a timely basis, conduct public meetings in

22 1 or more areas where the Comptroller be23 lieves, in the sole discretion of the Comp24 troller, there will be a substantial public im25 pact.’’.
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1 (d) HOME OWNERS’ LOAN ACT.—Section

2 10(e) of the Home Owners’ Loan Act (12 U.S.C.

3 1463) is amended by adding at the end the fol4 lowing new paragraph:

5 ‘‘(7) PUBLIC MEETINGS FOR LARGE DE6 POSITORY INSTITUTION ACQUISITIONS AND

7 MERGERS.—In each case involving 1 or

8 more insured depository institutions

9 each of which has total assets of

10 $1,000,000,000 or more, the Director shall,

11 as necessary and on a timely basis, con12 duct public meetings in 1 or more areas

13 where the Director believes, in the sole

14 discretion of the Director, there will be a

15 substantial public impact.’’.

16 SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF17 FICES.

18 (a) IN GENERAL.—Section 109(d) of the Rie19 gle-Neal Interstate Banking and Branching

20 Efficiency Act of 1994 (12 U.S.C. 1835a(d)) is

21 amended—

22 (1) by inserting ‘‘, the Financial Serv23 ices Act of 1999,’’ after ‘‘pursuant to this

24 title’’; and
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1 (2) by inserting ‘‘or such Act’’ after

2 ‘‘made by this title’’.

3 (b) TECHNICAL AND CONFORMING AMEND4 MENT.—Section 109(e)(4) of the Riegle-Neal

5 Interstate Banking and Branching Efficiency

6 Act of 1994 (12 U.S.C. 1835a(e)(4)) is amended

7 by inserting ‘‘and any branch of a bank con8 trolled by an out-of-State bank holding com9 pany (as defined in section 2(o)(7) of the Bank

10 Holding Company Act of 1956)’’ before the pe11 riod.

12 SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE13 MENTS.

14 Section 42(d)(4)(A) of the Federal Deposit

15 Insurance Act (12 U.S.C. 1831r–1(d)(4)(A)) is

16 amended by inserting ‘‘and any bank con17 trolled by an out-of-State bank holding com18 pany (as defined in section 2(o)(7) of the Bank

19 Holding Company Act of 1956)’’ before the pe20 riod.

21 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE

22 BANKS.

23 Section 4(f) of the Bank Holding Company

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

25 (1) in paragraph (2)(A)(ii)—
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1 (A) by striking ‘‘and’’ at the end of

2 subclause (IX);

3 (B) by inserting ‘‘and’’ after the

4 semicolon at the end of subclause (X);

5 and

6 (C) by inserting after subclause

7 (X) the following new subclause:

8 ‘‘(XI) assets that are de9 rived from, or are incidental

10 to, activities in which institu11 tions described in section

12 2(c)(2)(F) are permitted to en13 gage,’’;

14 (2) in paragraph (2), by striking sub15 paragraph (B) and inserting the following

16 new subparagraphs:

17 ‘‘(B) any bank subsidiary of such

18 company engages in any activity in

19 which the bank was not lawfully en20 gaged as of March 5, 1987, unless the

21 bank is well managed and well cap22 italized;

23 ‘‘(C) any bank subsidiary of such

24 company both—
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1 ‘‘(i) accepts demand deposits

2 or deposits that the depositor

3 may withdraw by check or similar

4 means for payment to third par5 ties; and

6 ‘‘(ii) engages in the business

7 of making commercial loans (and,

8 for purposes of this clause, loans

9 made in the ordinary course of a

10 credit card operation shall not be

11 treated as commercial loans); or

12 ‘‘(D) after the date of the enact13 ment of the Competitive Equality

14 Amendments of 1987, any bank sub15 sidiary of such company permits any

16 overdraft (including any intraday

17 overdraft), or incurs any such over18 draft in such bank’s account at a Fed19 eral reserve bank, on behalf of an af20 filiate, other than an overdraft de21 scribed in paragraph (3).’’; and

22 (3) by striking paragraphs (3) and (4)

23 and inserting the following new para24 graphs:
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1 ‘‘(3) PERMISSIBLE OVERDRAFTS DE2 SCRIBED.—For purposes of paragraph

3 (2)(D), an overdraft is described in this

4 paragraph if—

5 ‘‘(A) such overdraft results from

6 an inadvertent computer or account7 ing error that is beyond the control of

8 both the bank and the affiliate; or

9 ‘‘(B) such overdraft—

10 ‘‘(i) is permitted or incurred

11 on behalf of an affiliate which is

12 monitored by, reports to, and is

13 recognized as a primary dealer by

14 the Federal Reserve Bank of New

15 York; and

16 ‘‘(ii) is fully secured, as re17 quired by the Board, by bonds,

18 notes, or other obligations which

19 are direct obligations of the

20 United States or on which the

21 principal and interest are fully

22 guaranteed by the United States

23 or by securities and obligations

24 eligible for settlement on the Fed25 eral Reserve book entry system.
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1 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF

2 EXEMPTION.—If any company described in

3 paragraph (1) fails to qualify for the ex4 emption provided under such paragraph

5 by operation of paragraph (2), such ex6 emption shall cease to apply to such com7 pany and such company shall divest con8 trol of each bank it controls before the

9 end of the 180-day period beginning on

10 the date that the company receives notice

11 from the Board that the company has

12 failed to continue to qualify for such ex13 emption, unless before the end of such

14 180-day period, the company has—

15 ‘‘(A) corrected the condition or

16 ceased the activity that caused the

17 company to fail to continue to qualify

18 for the exemption; and

19 ‘‘(B) implemented procedures that

20 are reasonably adapted to avoid the

21 reoccurrence of such condition or ac22 tivity.’’.
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1 SEC. 109. GAO STUDY OF ECONOMIC IMPACT ON COMMU2 NITY BANKS, OTHER SMALL FINANCIAL IN3 STITUTIONS, INSURANCE AGENTS, AND CON4 SUMERS.

5 (a) STUDY REQUIRED.—The Comptroller

6 General of the United States shall conduct a

7 study of the projected economic impact and

8 the actual economic impact that the enact9 ment of this Act will have on financial institu10 tions, including community banks, registered

11 brokers and dealers and insurance compa12 nies, which have total assets of $100,000,000 or

13 less, insurance agents, and consumers.

14 (b) REPORTS TO THE CONGRESS.—

15 (1) IN GENERAL.—The Comptroller

16 General of the United States shall submit

17 reports to the Congress, at the times re18 quired under paragraph (2), containing

19 the findings and conclusions of the

20 Comptroller General with regard to the

21 study required under subsection (a) and

22 such recommendations for legislative or

23 administrative action as the Comptroller

24 General may determine to be appro25 priate.
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1 (2) TIMING OF REPORTS.—The Comp2 troller General shall submit—

3 (A) an interim report before the

4 end of the 6-month period beginning

5 after the date of the enactment of this

6 Act;

7 (B) another interim report before

8 the end of the next 6-month period;

9 and

10 (C) a final report before the end

11 of the 1-year period after such second

12 6-month period,’’

13 SEC. 110. RESPONSIVENESS TO COMMUNITY NEEDS FOR FI14 NANCIAL SERVICES.

15 (a) STUDY.—The Secretary of the Treasury,

16 in consultation with the Federal banking

17 agencies (as defined in section 3(z) of the Fed18 eral Deposit Insurance Act) and the Securities

19 and Exchange Commission, shall conduct a

20 study of the extent to which adequate serv21 ices are being provided as intended by the

22 Community Reinvestment Act of 1977, includ23 ing services in low- and moderate-income

24 neighborhoods and for persons of modest
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1 means, as a result of the enactment of this

2 Act.

3 (b) REPORT.—Before the end of the 2-year

4 period beginning on the date of the enact5 ment of this Act, the Secretary of the Treas6 ury, in consultation with the Federal banking

7 agencies and the Securities and Exchange

8 Commission, shall submit a report to the Con9 gress on the study conducted pursuant to sub10 section (a) and shall include such rec11 ommendations as the Secretary determines to

12 be appropriate for administrative and legisla13 tive action with respect to institutions cov14 ered under the Community Reinvestment Act

15 of 1977.

16 Subtitle B—Streamlining Super17 vision of Financial Holding

18 Companies

19 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY

20 SUPERVISION.

21 Section 5(c) of the Bank Holding Company

22 Act of 1956 (12 U.S.C. 1844(c)) is amended to

23 read as follows:

24 ‘‘(c) REPORTS AND EXAMINATIONS.—

25 ‘‘(1) REPORTS.—
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1 ‘‘(A) IN GENERAL.—The Board from

2 time to time may require any bank

3 holding company and any subsidiary

4 of such company to submit reports

5 under oath to keep the Board in6 formed as to—

7 ‘‘(i) its financial condition,

8 systems for monitoring and con9 trolling financial and operating

10 risks, and transactions with de11 pository institution subsidiaries

12 of the holding company; and

13 ‘‘(ii) compliance by the com14 pany or subsidiary with applica15 ble provisions of this Act.

16 ‘‘(B) USE OF EXISTING REPORTS.—

17 ‘‘(i) IN GENERAL.—The Board

18 shall, to the fullest extent pos19 sible, accept reports in fulfillment

20 of the Board’s reporting require21 ments under this paragraph that

22 a bank holding company or any

23 subsidiary of such company has

24 provided or been required to pro25 vide to other Federal and State
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1 supervisors or to appropriate self2 regulatory organizations.

3 ‘‘(ii) AVAILABILITY.—A bank

4 holding company or a subsidiary

5 of such company shall provide to

6 the Board, at the request of the

7 Board, a report referred to in

8 clause (i).

9 ‘‘(iii) REQUIRED USE OF PUB10 LICLY REPORTED INFORMATION.—

11 The Board shall, to the fullest ex12 tent possible, accept in fulfillment

13 of any reporting or recordkeeping

14 requirements under this Act in15 formation that is otherwise re16 quired to be reported publicly

17 and externally audited financial

18 statements.

19 ‘‘(iv) REPORTS FILED WITH

20 OTHER AGENCIES.—In the event the

21 Board requires a report from a

22 functionally regulated nondeposi23 tory institution subsidiary of a

24 bank holding company of a kind

25 that is not required by another
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1 Federal or State regulator or ap2 propriate self-regulatory organi3 zation, the Board shall request

4 that the appropriate regulator or

5 self-regulatory organization ob6 tain such report. If the report is

7 not made available to the Board,

8 and the report is necessary to as9 sess a material risk to the bank

10 holding company or any of its

11 subsidiary depository institutions

12 or compliance with this Act, the

13 Board may require such sub14 sidiary to provide such a report

15 to the Board.

16 ‘‘(C) DEFINITION.—For purposes of

17 this subsection, the term ‘functionally

18 regulated nondepository institution’

19 means—

20 ‘‘(i) a broker or dealer reg21 istered under the Securities Ex22 change Act of 1934;

23 ‘‘(ii) an investment adviser

24 registered under the Investment

25 Advisers Act of 1940, or with any
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1 State, with respect to the invest2 ment advisory activities of such

3 investment adviser and activities

4 incidental to such investment ad5 visory activities;

6 ‘‘(iii) an insurance company

7 subject to supervision by a State

8 insurance commission, agency, or

9 similar authority; and

10 ‘‘(iv) an entity subject to regu11 lation by the Commodity Futures

12 Trading Commission, with respect

13 to the commodities activities of

14 such entity and activities inci15 dental to such commodities activi16 ties.

17 ‘‘(2) EXAMINATIONS.—

18 ‘‘(A) EXAMINATION AUTHORITY.—

19 ‘‘(i) IN GENERAL.—The Board

20 may make examinations of each

21 bank holding company and each

22 subsidiary of a bank holding com23 pany.

24 ‘‘(ii) FUNCTIONALLY REGULATED

25 NONDEPOSITORY INSTITUTION SUB-
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1 SIDIARIES.—Notwithstanding

2 clause (i), the Board may make

3 examinations of a functionally

4 regulated nondepository institu5 tion subsidiary of a bank holding

6 company only if—

7 ‘‘(I) the Board has reason8 able cause to believe that

9 such subsidiary is engaged in

10 activities that pose a material

11 risk to an affiliated deposi12 tory institution, or

13 ‘‘(II) based on reports and

14 other available information,

15 the Board has reasonable

16 cause to believe that a sub17 sidiary is not in compliance

18 with this Act or with provi19 sions relating to transactions

20 with an affiliated depository

21 institution and the Board can22 not make such determination

23 through examination of the

24 affiliated depository institu-
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1 tion or bank holding com2 pany.

3 ‘‘(B) LIMITATIONS ON EXAMINATION

4 AUTHORITY FOR BANK HOLDING COMPA5 NIES AND SUBSIDIARIES.—Subject to

6 subparagraph (A)(ii), the Board may

7 make examinations under subpara8 graph (A)(i) of each bank holding

9 company and each subsidiary of such

10 holding company in order to—

11 ‘‘(i) inform the Board of the

12 nature of the operations and fi13 nancial condition of the holding

14 company and such subsidiaries;

15 ‘‘(ii) inform the Board of—

16 ‘‘(I) the financial and

17 operational risks within the

18 holding company system that

19 may pose a threat to the safe20 ty and soundness of any sub21 sidiary depository institution

22 of such holding company; and

23 ‘‘(II) the systems for moni24 toring and controlling such

25 risks; and
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1 ‘‘(iii) monitor compliance with

2 the provisions of this Act and

3 those governing transactions and

4 relationships between any sub5 sidiary depository institution and

6 its affiliates.

7 ‘‘(C) RESTRICTED FOCUS OF EXAMI8 NATIONS.—The Board shall, to the full9 est extent possible, limit the focus

10 and scope of any examination of a

11 bank holding company to—

12 ‘‘(i) the bank holding com13 pany; and

14 ‘‘(ii) any subsidiary of the

15 holding company that, because

16 of—

17 ‘‘(I) the size, condition, or

18 activities of the subsidiary; or

19 ‘‘(II) the nature or size of

20 transactions between such

21 subsidiary and any depository

22 institution which is also a

23 subsidiary of such holding

24 company,
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1 could have a materially adverse

2 effect on the safety and sound3 ness of any depository institution

4 affiliate of the holding company.

5 ‘‘(D) DEFERENCE TO BANK EXAMINA6 TIONS.—The Board shall, to the fullest

7 extent possible, use, for the purposes

8 of this paragraph, the reports of ex9 aminations of depository institutions

10 made by the appropriate Federal and

11 State depository institution super12 visory authority.

13 ‘‘(E) DEFERENCE TO OTHER EXAMI14 NATIONS.—The Board shall, to the full15 est extent possible, address the cir16 cumstances which might otherwise

17 permit or require an examination by

18 the Board by forgoing an examination

19 and instead reviewing the reports of

20 examination made of—

21 ‘‘(i) any registered broker or

22 dealer by or on behalf of the Se23 curities and Exchange Commis24 sion;
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1 ‘‘(ii) any investment adviser

2 registered by or on behalf of ei3 ther the Securities and Exchange

4 Commission or any State, which5 ever is required by law;

6 ‘‘(iii) any licensed insurance

7 company by or on behalf of any

8 state regulatory authority respon9 sible for the supervision of insur10 ance companies; and

11 ‘‘(iv) any other subsidiary that

12 the Board finds to be comprehen13 sively supervised by a Federal or

14 State authority.

15 ‘‘(3) CAPITAL.—

16 ‘‘(A) IN GENERAL.—The Board shall

17 not, by regulation, guideline, order or

18 otherwise, prescribe or impose any

19 capital or capital adequacy rules,

20 guidelines, standards, or require21 ments on any subsidiary of a finan22 cial holding company that is not a de23 pository institution and—

24 ‘‘(i) is in compliance with ap25 plicable capital requirements of
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1 another Federal regulatory au2 thority (including the Securities

3 and Exchange Commission) or

4 State insurance authority;

5 ‘‘(ii) is registered as an invest6 ment adviser under the Invest7 ment Advisers Act of 1940, or with

8 any State, whichever is required

9 by law; or

10 ‘‘(iii) is licensed as an insur11 ance agent with the appropriate

12 State insurance authority.

13 ‘‘(B) RULE OF CONSTRUCTION.—Sub14 paragraph (A) shall not be construed

15 as preventing the Board from impos16 ing capital or capital adequacy rules,

17 guidelines, standards, or require18 ments with respect to—

19 ‘‘(i) activities of a registered

20 investment adviser other than in21 vestment advisory activities or

22 activities incidental to investment

23 advisory activities; or

24 ‘‘(ii) activities of a licensed in25 surance agent other than insur-
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1 ance agency activities or activi2 ties incidental to insurance agen3 cy activities.

4 ‘‘(C) LIMITATIONS ON INDIRECT AC5 TION.—In developing, establishing, or

6 assessing holding company capital or

7 capital adequacy rules, guidelines,

8 standards, or requirements for pur9 poses of this paragraph, the Board

10 shall not take into account the activi11 ties, operations, or investments of an

12 affiliated investment company reg13 istered under the Investment Com14 pany Act of 1940, unless the invest15 ment company is—

16 ‘‘(i) a bank holding company;

17 or

18 ‘‘(ii) controlled by a bank

19 holding company by reason of

20 ownership by the bank holding

21 company (including through all of

22 its affiliates) of 25 percent or

23 more of the shares of the invest24 ment company, and the shares

25 owned by the bank holding com-
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1 pany have a market value equal

2 to more than $1,000,000.

3 ‘‘(4) FUNCTIONAL REGULATION OF SECU4 RITIES AND INSURANCE ACTIVITIES.—The

5 Board shall defer to—

6 ‘‘(A) the Securities and Exchange

7 Commission with regard to all inter8 pretations of, and the enforcement of,

9 applicable Federal securities laws

10 (and rules, regulations, orders, and

11 other directives issued thereunder)

12 relating to the activities, conduct,

13 and operations of registered brokers,

14 dealers, investment advisers, and in15 vestment companies;

16 ‘‘(B) the relevant State securities

17 authorities with regard to all inter18 pretations of, and the enforcement of,

19 applicable State securities laws (and

20 rules, regulations, orders, and other

21 directives issued thereunder) relating

22 to the activities, conduct, and oper23 ations of brokers, dealers, and invest24 ment advisers required to be reg25 istered under State law; and
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1 ‘‘(C) the relevant State insurance

2 authorities with regard to all inter3 pretations of, and the enforcement of,

4 applicable State insurance laws (and

5 rules, regulations, orders, and other

6 directives issued thereunder) relating

7 to the activities, conduct, and oper8 ations of insurance companies and in9 surance agents.’’.

10 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT

11 FOR FINANCIAL HOLDING COMPANIES.

12 (a) PREVENTION OF DUPLICATIVE FILINGS.—

13 Section 5(a) of the Bank Holding Company

14 Act of 1956 (12 U.S.C. 1844(a)) is amended by

15 adding the following new sentence at the end:

16 ‘‘A declaration filed in accordance with sec17 tion 6(b)(1)(D) shall satisfy the requirements

18 of this subsection with regard to the registra19 tion of a bank holding company but not any

20 requirement to file an application to acquire

21 a bank pursuant to section 3.’’.

22 (b) DIVESTITURE PROCEDURES.—Section

23 5(e)(1) of the Bank Holding Company Act of

24 1956 (12 U.S.C. 1844(e)(1)) is amended—
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1 (1) by striking ‘‘Financial Institutions

2 Supervisory Act of 1966, order’’ and in3 serting ‘‘Financial Institutions Super4 visory Act of 1966, at the election of the

5 bank holding company—

6 ‘‘(A) order’’; and

7 (2) by striking ‘‘shareholders of the

8 bank holding company. Such distribu9 tion’’ and inserting ‘‘shareholders of the

10 bank holding company; or

11 ‘‘(B) order the bank holding company,

12 after due notice and opportunity for

13 hearing, and after consultation with the

14 primary supervisor for the bank, which

15 shall be the Comptroller of the Currency

16 in the case of a national bank, and the

17 Federal Deposit Insurance Corporation

18 and the appropriate State supervisor in

19 the case of an insured nonmember bank,

20 to terminate (within 120 days or such

21 longer period as the Board may direct)

22 the ownership or control of any such

23 bank by such company.

24 The distribution referred to in subparagraph

25 (A)’’.
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1 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR

2 AND SECURITIES AND EXCHANGE COMMIS3 SION.

4 (a) BANK HOLDING COMPANIES.—Section 5

5 of the Bank Holding Company Act of 1956 (12

6 U.S.C. 1844) is amended by adding at the end

7 the following new subsection:

8 ‘‘(g) AUTHORITY OF STATE INSURANCE REGU9 LATOR AND THE SECURITIES AND EXCHANGE COM10 MISSION.—

11 ‘‘(1) IN GENERAL.—Notwithstanding

12 any other provision of law, any regula13 tion, order, or other action of the Board

14 which requires a bank holding company

15 to provide funds or other assets to a sub16 sidiary insured depository institution

17 shall not be effective nor enforceable if—

18 ‘‘(A) such funds or assets are to be

19 provided by—

20 ‘‘(i) a bank holding company

21 that is an insurance company, a

22 broker or dealer registered under

23 the Securities Exchange Act of

24 1934, or an investment company

25 registered under the Investment

26 Company of 1940; or
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1 ‘‘(ii) an affiliate of the deposi2 tory institution which is an insur3 ance company or a broker or

4 dealer registered under such Act;

5 and

6 ‘‘(B) the State insurance authority

7 for the insurance company or the Se8 curities and Exchange Commission

9 for the registered broker, dealer, or

10 investment company, as the case may

11 be, determines in writing sent to the

12 holding company and the Board that

13 the holding company shall not pro14 vide such funds or assets because

15 such action would have a material ad16 verse effect on the financial condition

17 of the insurance company or the

18 broker, dealer, or investment com19 pany, as the case may be.

20 ‘‘(2) NOTICE TO STATE INSURANCE AU21 THORITY OR SEC REQUIRED.—If the Board

22 requires a bank holding company, or an

23 affiliate of a bank holding company,

24 which is an insurance company or a

25 broker, dealer, or investment company
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1 described in paragraph (1)(A) to provide

2 funds or assets to an insured depository

3 institution subsidiary of the holding com4 pany pursuant to any regulation, order,

5 or other action of the Board referred to

6 in paragraph (1), the Board shall prompt7 ly notify the State insurance authority

8 for the insurance company or the Securi9 ties and Exchange Commission, as the

10 case may be, of such requirement.

11 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC12 TION.—If the Board receives a notice de13 scribed in paragraph (1)(B) from a State

14 insurance authority or the Securities and

15 Exchange Commission with regard to a

16 bank holding company or affiliate re17 ferred to in that paragraph, the Board

18 may order the bank holding company to

19 divest the insured depository institution

20 not later than 180 days after receiving

21 the notice, or such longer period as the

22 Board determines consistent with the

23 safe and sound operation of the insured

24 depository institution.
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1 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—

2 During the period beginning on the date

3 an order to divest is issued by the Board

4 under paragraph (3) to a bank holding

5 company and ending on the date the di6 vestiture is completed, the Board may im7 pose any conditions or restrictions on the

8 holding company’s ownership or oper9 ation of the insured depository institu10 tion, including restricting or prohibiting

11 transactions between the insured deposi12 tory institution and any affiliate of the

13 institution, as are appropriate under the

14 circumstances.’’.

15 (b) SUBSIDIARIES OF DEPOSITORY INSTITU16 TIONS.—The Federal Deposit Insurance Act (12

17 U.S.C. 1811 et seq.) is amended by adding at

18 the end the following new section:

19 ‘‘SEC. 45. AUTHORITY OF STATE INSURANCE REGULATOR

20 AND SECURITIES AND EXCHANGE COMMIS21 SION.

22 ‘‘(a) IN GENERAL.—Notwithstanding any

23 other provision of law, any regulation, order,

24 or other action of the appropriate Federal

25 banking agency which requires a subsidiary
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1 to provide funds or other assets to an insured

2 depository institution shall not be effective

3 nor enforceable if—

4 ‘‘(1) such funds or assets are to be

5 provided by a subsidiary which is an in6 surance company, a broker or dealer reg7 istered under the Securities Exchange

8 Act of 1934, or an investment company

9 registered under the Investment Com10 pany Act of 1940; and

11 ‘‘(2) the State insurance authority for

12 the insurance company or the Securities

13 and Exchange Commission for the reg14 istered broker or dealer or the invest15 ment company, as the case may be, deter16 mines in writing sent to the insured de17 pository institution and the appropriate

18 Federal banking agency that the sub19 sidiary shall not provide such funds or

20 assets because such action would have a

21 material adverse effect on the financial

22 condition of the insurance company or

23 the broker, dealer, or investment com24 pany, as the case may be.
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1 ‘‘(b) NOTICE TO STATE INSURANCE AUTHOR2 ITY OR SEC REQUIRED.—If the appropriate

3 Federal banking agency requires a sub4 sidiary, which is an insurance company, a

5 broker or dealer, or an investment company

6 described in subsection (a)(1) to provide

7 funds or assets to an insured depository insti8 tution pursuant to any regulation, order, or

9 other action of the appropriate Federal bank10 ing agency referred to in subsection (a), the

11 appropriate Federal banking agency shall

12 promptly notify the State insurance authority

13 for the insurance company or the Securities

14 and Exchange Commission, as the case may

15 be, of such requirement.

16 ‘‘(c) DIVESTITURE IN LIEU OF OTHER AC17 TION.—If the appropriate Federal banking

18 agency receives a notice described in sub19 section (a)(2) from a State insurance author20 ity or the Securities and Exchange Commis21 sion with regard to a subsidiary referred to in

22 that subsection, the appropriate Federal

23 banking agency may order the insured depos24 itory institution to divest the subsidiary not

25 later than 180 days after receiving the notice,
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1 or such longer period as the appropriate Fed2 eral banking agency determines consistent

3 with the safe and sound operation of the in4 sured depository institution.

5 ‘‘(d) CONDITIONS BEFORE DIVESTITURE.—

6 During the period beginning on the date an

7 order to divest is issued by the appropriate

8 Federal banking agency under subsection (c)

9 to an insured depository institution and end10 ing on the date the divestiture is complete,

11 the appropriate Federal banking agency may

12 impose any conditions or restrictions on the

13 insured depository institution’s ownership or

14 operation of the subsidiary including restrict15 ing or prohibiting transactions between the

16 insured depository institution and the sub17 sidiary, as are appropriate under the cir18 cumstances.’’.

19 SEC. 114. PRUDENTIAL SAFEGUARDS.

20 Section 5 of the Bank Holding Company

21 Act of 1956 (12 U.S.C. 1844) is amended by in22 serting after subsection (g) (as added by sec23 tion 113 of this subtitle) the following new

24 subsection:

25 ‘‘(h) PRUDENTIAL SAFEGUARDS.—
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1 ‘‘(1) IN GENERAL.—The Board may, by

2 regulation or order, impose restrictions

3 or requirements on relationships or

4 transactions between a depository insti5 tution subsidiary of a bank holding com6 pany and any affiliate of such depository

7 institution (other than a subsidiary of

8 such institution) which the Board finds is

9 consistent with the public interest, the

10 purposes of this Act, the Financial Serv11 ices Act of 1999, the Federal Reserve Act,

12 and other Federal law applicable to de13 pository institution subsidiaries of bank

14 holding companies and the standards in

15 paragraph (2).

16 ‘‘(2) STANDARDS.—The Board may ex17 ercise authority under paragraph (1) if

18 the Board finds that such action will

19 have any of the following effects:

20 ‘‘(A) Avoid any significant risk to

21 the safety and soundness of deposi22 tory institutions or any Federal de23 posit insurance fund.

24 ‘‘(B) Enhance the financial sta25 bility of bank holding companies.
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1 ‘‘(C) Avoid conflicts of interest or

2 other abuses.

3 ‘‘(D) Enhance the privacy of cus4 tomers of depository institutions.

5 ‘‘(E) Promote the application of

6 national treatment and equality of

7 competitive opportunity between

8 nonbank affiliates owned or con9 trolled by domestic bank holding

10 companies and nonbank affiliates

11 owned or controlled by foreign banks

12 operating in the United States.

13 ‘‘(3) REVIEW.—The Board shall

14 regularly—

15 ‘‘(A) review all restrictions or re16 quirements established pursuant to

17 paragraph (1) to determine whether

18 there is a continuing need for any

19 such restriction or requirement to

20 carry out the purposes of the Act, in21 cluding any purpose described in

22 paragraph (2); and

23 ‘‘(B) modify or eliminate any re24 striction or requirement the Board
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1 finds is no longer required for such

2 purposes.’’.

3 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

4 (a) EXCLUSIVE COMMISSION AUTHORITY.—

5 (1) IN GENERAL.—Except as provided

6 in paragraph (3), the Commission shall be

7 the sole Federal agency with authority to

8 inspect and examine any registered in9 vestment company that is not a bank

10 holding company or a savings and loan

11 holding company.

12 (2) PROHIBITION ON BANKING AGEN13 CIES.—Except as provided in paragraph

14 (3), a Federal banking agency may not in15 spect or examine any registered invest16 ment company that is not a bank holding

17 company or a savings and loan holding

18 company.

19 (3) CERTAIN EXAMINATIONS AUTHOR20 IZED.— Nothing in this subsection pre21 vents the Federal Deposit Insurance Cor22 poration, if the Corporation finds it nec23 essary to determine the condition of an

24 insured depository institution for insur25 ance purposes, from examining an affil-
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1 iate of any insured depository institution,

2 pursuant to its authority under section

3 10(b)(4) of the Federal Deposit Insurance

4 Act, as may be necessary to disclose fully

5 the relationship between the depository

6 institution and the affiliate, and the ef7 fect of such relationship on the deposi8 tory institution.

9 (b) EXAMINATION RESULTS AND OTHER IN10 FORMATION.—The Commission shall provide to

11 any Federal banking agency, upon request,

12 the results of any examination, reports,

13 records, or other information with respect to

14 any registered investment company to the ex15 tent necessary for the agency to carry out its

16 statutory responsibilities.

17 (c) DEFINITIONS.—For purposes of this sec18 tion, the following definitions shall apply:

19 (1) BANK HOLDING COMPANY.—The term

20 ‘‘bank holding company’’ has the same

21 meaning as in section 2 of the Bank Hold22 ing Company Act of 1956.

23 (2) COMMISSION.—The term ‘‘Commis24 sion’’ means the Securities and Exchange

25 Commission.
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1 (3) FEDERAL BANKING AGENCY.—The

2 term ‘‘Federal banking agency’’ has the

3 same meaning as in section 3(z) of the

4 Federal Deposit Insurance Act.

5 (4) REGISTERED INVESTMENT COM6 PANY.—The term ‘‘registered investment

7 company’’ means an investment company

8 which is registered with the Commission

9 under the Investment Company Act of

10 1940.

11 (5) SAVINGS AND LOAN HOLDING COM12 PANY.—The term ‘‘savings and loan hold13 ing company’’ has the same meaning as in

14 section 10(a)(1)(D) of the Home Owners’

15 Loan Act.

16 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU17 PERVISORY, AND ENFORCEMENT AUTHORITY

18 OF THE BOARD.

19 The Bank Holding Company Act of 1956

20 (12 U.S.C. 1841 et seq.) is amended by insert21 ing after section 10 the following new section:

22 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU23 PERVISORY, AND ENFORCEMENT AUTHORITY

24 OF THE BOARD.

25 ‘‘(a) LIMITATION ON DIRECT ACTION.—
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1 ‘‘(1) IN GENERAL.—The Board may not

2 prescribe regulations, issue or seek entry

3 of orders, impose restraints, restrictions,

4 guidelines, requirements, safeguards, or

5 standards, or otherwise take any action

6 under or pursuant to any provision of

7 this Act or section 8 of the Federal De8 posit Insurance Act against or with re9 spect to a regulated subsidiary of a bank

10 holding company unless the action is nec11 essary to prevent or redress an unsafe or

12 unsound practice or breach of fiduciary

13 duty by such subsidiary that poses a ma14 terial risk to—

15 ‘‘(A) the financial safety, sound16 ness, or stability of an affiliated de17 pository institution; or

18 ‘‘(B) the domestic or international

19 payment system.

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

21 Board shall not take action otherwise

22 permitted under paragraph (1) unless the

23 Board finds that it is not reasonably pos24 sible to effectively protect against the

25 material risk at issue through action di-
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1 rected at or against the affiliated deposi2 tory institution or against depository in3 stitutions generally.

4 ‘‘(b) LIMITATION ON INDIRECT ACTION.—The

5 Board may not prescribe regulations, issue or

6 seek entry of orders, impose restraints, re7 strictions, guidelines, requirements, safe8 guards, or standards, or otherwise take any

9 action under or pursuant to any provision of

10 this Act or section 8 of the Federal Deposit In11 surance Act against or with respect to a finan12 cial holding company or a wholesale financial

13 holding company where the purpose or effect

14 of doing so would be to take action indirectly

15 against or with respect to a regulated sub16 sidiary that may not be taken directly against

17 or with respect to such subsidiary in accord18 ance with subsection (a).

19 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—

20 Notwithstanding subsection (a), the Board

21 may take action under this Act or section 8 of

22 the Federal Deposit Insurance Act to enforce

23 compliance by a regulated subsidiary with

24 Federal law that the Board has specific juris25 diction to enforce against such subsidiary.
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1 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For

2 purposes of this section, the term ‘regulated

3 subsidiary’ means any company that is not a

4 bank holding company and is—

5 ‘‘(1) a broker or dealer registered

6 under the Securities Exchange Act of

7 1934;

8 ‘‘(2) an investment adviser registered

9 by or on behalf of either the Securities

10 and Exchange Commission or any State,

11 whichever is required by law, with re12 spect to the investment advisory activi13 ties of such investment adviser and ac14 tivities incidental to such investment ad15 visory activities;

16 ‘‘(3) an investment company reg17 istered under the Investment Company

18 Act of 1940;

19 ‘‘(4) an insurance company or an in20 surance agency, with respect to the in21 surance activities and activities inci22 dental to such insurance activities, sub23 ject to supervision by a State insurance

24 commission, agency, or similar authority;

25 or
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1 ‘‘(5) an entity subject to regulation by

2 the Commodity Futures Trading Commis3 sion, with respect to the commodities ac4 tivities of such entity and activities inci5 dental to such commodities activities.’’.

6 SEC. 117. EQUIVALENT REGULATION AND SUPERVISION.

7 (a) IN GENERAL.—Notwithstanding any

8 other provision of law, the provisions of—

9 (1) section 5(c) of the Bank Holding

10 Company Act of 1956 (as amended by this

11 Act) that limit the authority of the Board

12 of Governors of the Federal Reserve Sys13 tem to require reports from, to make ex14 aminations of, or to impose capital re15 quirements on bank holding companies

16 and their nonbank subsidiaries or that

17 require deference to other regulators;

18 and

19 (2) section 10A of the Bank Holding

20 Company Act of 1956 (as added by this

21 Act) that limit whatever authority the

22 Board might otherwise have to take di23 rect or indirect action with respect to

24 bank holding companies and their

25 nonbank subsidiaries,
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1 shall also limit whatever authority that a Fed2 eral banking agency (as defined in section 3(z)

3 of the Federal Deposit Insurance Act) might

4 otherwise have under any statute to require

5 reports, make examinations, impose capital

6 requirements or take any other direct or indi7 rect action with respect to bank holding com8 panies and their nonbank subsidiaries (in9 cluding nonbank subsidiaries of depository

10 institutions), subject to the same standards

11 and requirements as are applicable to the

12 Board under such provisions.

13 (b) CERTAIN EXAMINATIONS AUTHORIZED.—

14 No provision of this section shall be construed

15 as preventing the Federal Deposit Insurance

16 Corporation, if the Corporation finds it nec17 essary to determine the condition of an in18 sured depository institution for insurance

19 purposes, from examining an affiliate of any

20 insured depository institution, pursuant to its

21 authority under section 10(b)(4) of the Fed22 eral Deposit Insurance Act, as may be nec23 essary to disclose fully the relationship be24 tween the depository institution and the affil-
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1 iate, and the effect of such relationship on the

2 depository institution.

3 SEC. 118. PROHIBITION ON FDIC ASSISTANCE TO AFFILI4 ATES AND SUBSIDIARIES.

5 Section 11(a)(4)(B) of the Federal Deposit

6 Insurance Act (12 U.S.C. 1821(a)(4)(B)) is

7 amended by striking ‘‘to benefit any share8 holder of’’ and inserting ‘‘to benefit any share9 holder, affiliate (other than an insured depos10 itory institution that receives assistance in

11 accordance with the provisions of this Act), or

12 subsidiary of’’.

13 SEC. 119. REPEAL OF SAVINGS BANK PROVISIONS IN THE

14 BANK HOLDING COMPANY ACT OF 1956.

15 Section 3(f) of the Bank Holding Company

16 Act of 1956 (12 U.S.C. 1842(f)) is amended to

17 read as follows:

18 ‘‘(f) [Repealed].’’.

19 SEC. 120. TECHNICAL AMENDMENT.

20 Section 2(o)(1)(A) of the Bank Holding

21 Company Act of 1956 (12 U.S.C. 1841(o)(1)(A))

22 is amended by striking ‘‘section 38(b)’’ and in23 serting ‘‘section 38’’.
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1 Subtitle C—Subsidiaries of

2 National Banks

3 SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF

4 NATIONAL BANKS.

5 (a) FINANCIAL SUBSIDIARIES OF NATIONAL

6 BANKS.—Chapter one of title LXII of the Re7 vised Statutes of the United States (12 U.S.C.

8 21 et seq.) is amended—

9 (1) by redesignating section 5136A as

10 section 5136C; and

11 (2) by inserting after section 5136 (12

12 U.S.C. 24) the following new section:

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

14 ‘‘(a) SUBSIDIARIES OF NATIONAL BANKS AU15 THORIZED TO ENGAGE IN FINANCIAL ACTIVI16 TIES.—

17 ‘‘(1) EXCLUSIVE AUTHORITY.—No provi18 sion of section 5136 or any other provi19 sion of this title LXII of the Revised Stat20 utes shall be construed as authorizing a

21 subsidiary of a national bank to engage

22 in, or own any share of or any other in23 terest in any company engaged in, any

24 activity that—
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1 ‘‘(A) is not permissible for a na2 tional bank to engage in directly; or

3 ‘‘(B) is conducted under terms or

4 conditions other than those that

5 would govern the conduct of such ac6 tivity by a national bank,

7 unless a national bank is specifically au8 thorized by the express terms of a Fed9 eral statute and not by implication or in10 terpretation to acquire shares of or an in11 terest in, or to control, such subsidiary,

12 such as by paragraph (2) of this sub13 section and section 25A of the Federal

14 Reserve Act.

15 ‘‘(2) SPECIFIC AUTHORIZATION TO CON16 DUCT AGENCY ACTIVITIES WHICH ARE FINAN17 CIAL IN NATURE.—A national bank may

18 control a company that engages in agen19 cy activities that have been determined

20 to be financial in nature or incidental to

21 such financial activities pursuant to and

22 in accordance with section 6(c) of the

23 Bank Holding Company Act of 1956 if—
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1 ‘‘(A) the company engages in such

2 activities solely as agent and not di3 rectly or indirectly as principal;

4 ‘‘(B) the national bank is well cap5 italized and well managed, and has

6 achieved a rating of satisfactory or

7 better at the most recent examination

8 of the bank under the Community Re9 investment Act of 1977;

10 ‘‘(C) all depository institution af11 filiates of the national bank are well

12 capitalized and well managed, and

13 have achieved a rating of satisfactory

14 or better at the most recent examina15 tion of each such depository institu16 tion under the Community Reinvest17 ment Act of 1977; and

18 ‘‘(D) the bank has received the ap19 proval of the Comptroller of the Cur20 rency.

21 ‘‘(3) DEFINITIONS.—

22 ‘‘(A) COMPANY; CONTROL; AFFILIATE;

23 SUBSIDIARY.—The terms ‘company’,

24 ‘control’, ‘affiliate’, and ‘subsidiary’

25 have the meanings given to such
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1 terms in section 2 of the Bank Hold2 ing Company Act of 1956.

3 ‘‘(B) WELL CAPITALIZED.—The term

4 ‘well capitalized’ has the same mean5 ing as in section 38 of the Federal De6 posit Insurance Act and, for purposes

7 of this section, the Comptroller shall

8 have exclusive jurisdiction to deter9 mine whether a national bank is well

10 capitalized.

11 ‘‘(C) WELL MANAGED.—The term

12 ‘well managed’ means—

13 ‘‘(i) in the case of a depository

14 institution that has been exam15 ined, unless otherwise deter16 mined in writing by the appro17 priate Federal banking agency—

18 ‘‘(I) the achievement of a

19 composite rating of 1 or 2

20 under the Uniform Financial

21 Institutions Rating System (or

22 an equivalent rating under an

23 equivalent rating system) in

24 connection with the most re25 cent examination or subse-
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1 quent review of the deposi2 tory institution; and

3 ‘‘(II) at least a rating of 2

4 for management, if that rating

5 is given; or

6 ‘‘(ii) in the case of any deposi7 tory institution that has not been

8 examined, the existence and use

9 of managerial resources that the

10 appropriate Federal banking

11 agency determines are satisfac12 tory.

13 ‘‘(D) OTHER INCORPORATED

14 TERMS.—For purposes of this para15 graph, the terms ‘appropriate Federal

16 banking agency’ and ‘depository insti17 tution’ have the meanings given to

18 such terms in section 3 of the Federal

19 Deposit Insurance Act.

20 ‘‘(b) LIMITED EXCLUSIONS FROM COMMUNITY

21 NEEDS REQUIREMENTS FOR NEWLY ACQUIRED

22 DEPOSITORY INSTITUTIONS.—Any depository in23 stitution which becomes affiliated with a na24 tional bank during the 24-month period pre25 ceding the submission of an application to ac-
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1 quire a subsidiary under subsection (a)(2),

2 and any depository institution which becomes

3 so affiliated after the approval of such appli4 cation, may be excluded for purposes of sub5 section (a)(2)(C) during the 24-month period

6 beginning on the date of such acquisition if—

7 ‘‘(1) the depository institution has

8 submitted an affirmative plan to the ap9 propriate Federal banking agency (as de10 fined in section 3 of the Federal Deposit

11 Insurance Act) to take such action as may

12 be necessary in order for such institution

13 to achieve a ‘satisfactory record of meet14 ing community credit needs’, or better, at

15 the next examination of the institution

16 under the Community Reinvestment Act

17 of 1977; and

18 ‘‘(2) the plan has been approved by

19 the appropriate Federal banking agen20 cy.’’.

21 (b) LIMITATION ON CERTAIN ACTIVITIES IN

22 SUBSIDIARIES.—Section 21(a)(1) of the Banking

23 Act of 1933 (12 U.S.C. 378(a)(1)) is amended—

24 (1) by inserting ‘‘, or to be a sub25 sidiary of any person, firm, corporation,
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1 association, business trust, or similar or2 ganization engaged (unless such sub3 sidiary (A) was lawfully engaged in such

4 securities activities as of September 15,

5 1997, or (B) is a nondepository subsidiary

6 of (i) a foreign bank and is not also a sub7 sidiary of a domestic depository institu8 tion, or (ii) an unincorporated private

9 bank that is in operation as of the date of

10 the enactment of the Financial Services

11 Act of 1999 and is not insured under the

12 Federal Deposit Insurance Act)’’ after ‘‘to

13 engage at the same time’’; and

14 (2) by inserting ‘‘or any subsidiary of

15 such bank, company, or institution’’ after

16 ‘‘or private bankers’’.

17 (c) TECHNICAL AND CONFORMING AMEND18 MENTS.—

19 (1) ANTITYING.—Section 106(a) of the

20 Bank Holding Company Act Amendments

21 of 1970 is amended by adding at the end

22 the following new sentence: ‘‘For pur23 poses of this section, a subsidiary of a na24 tional bank which engages in activities as

25 an agent pursuant to section 5136A(a)(2)
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1 shall be deemed to be a subsidiary of a

2 bank holding company, and not a sub3 sidiary of a bank.’’.

4 (2) SECTION 23B.—Section 23B(a) of the

5 Federal Reserve Act (12 U.S.C. 371c–1(a))

6 is amended by adding at the end the fol7 lowing new paragraph:

8 ‘‘(4) SUBSIDIARY OF NATIONAL BANK.—

9 For purposes of this section, a subsidiary

10 of a national bank which engages in ac11 tivities as an agent pursuant to section

12 5136A(a)(2) shall be deemed to be an affil13 iate of the national bank and not a sub14 sidiary of the bank.’’.

15 (d) CLERICAL AMENDMENT.—The table of

16 sections for chapter one of title LXII of the Re17 vised Statutes of the United States is

18 amended—

19 (1) by redesignating the item relating

20 to section 5136A as section 5136C; and

21 (2) by inserting after the item relat22 ing to section 5136 the following new

23 item:

‘‘5136A. Financial subsidiaries of national banks.’’.
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1 SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY

2 INSTITUTION LIABILITY FOR OBLIGATIONS

3 OF AFFILIATES.

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

5 United States Code, is amended by inserting

6 after section 1007 the following new section:

7 ‘‘§ 1008. Misrepresentations regarding financial insti8 tution liability for obligations of affiliates

9 ‘‘(a) IN GENERAL.—No institution-affiliated

10 party of an insured depository institution or

11 institution-affiliated party of a subsidiary or

12 affiliate of an insured depository institution

13 shall fraudulently represent that the institu14 tion is or will be liable for any obligation of

15 a subsidiary or other affiliate of the institu16 tion.

17 ‘‘(b) CRIMINAL PENALTY.—Whoever violates

18 subsection (a) shall be fined under this title,

19 imprisoned for not more than 5 year, or both.

20 ‘‘(c) INSTITUTION-AFFILIATED PARTY DE21 FINED.—For purposes of this section, the term

22 ‘institution-affiliated party’ with respect to a

23 subsidiary or affiliate has the same meaning

24 as in section 3 of the Federal Deposit Insur25 ance Act, except references to an insured de26 pository institution shall be deemed to be ref-
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1 erences to a subsidiary or affiliate of an in2 sured depository institution.

3 ‘‘(d) OTHER DEFINITIONS.—For purposes of

4 this section, the terms ‘affiliate’, ‘insured de5 pository institution’, and ‘subsidiary’ have

6 same meanings as in section 3 of the Federal

7 Deposit Insurance Act.’’.

8 (b) CLERICAL AMENDMENT.—The table of

9 sections for chapter 47 of title 18, United

10 States Code, is amended by inserting after the

11 item relating to section 1007 the following

12 new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations of affiliates.’’.

13 SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE14 SERVE ACT.

15 Section 11 of the Federal Reserve Act (12

16 U.S.C. 248) is amended by striking the para17 graph designated as ‘‘(m)’’ and inserting ‘‘(m)

18 [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

9 10 of the Bank Holding Company Act of 1956

10 (12 U.S.C. 1841 et seq.) is amended to read as

11 follows:

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

13 ‘‘(a) COMPANIES THAT CONTROL WHOLESALE

14 FINANCIAL INSTITUTIONS.—

15 ‘‘(1) WHOLESALE FINANCIAL HOLDING

16 COMPANY DEFINED.—The term ‘wholesale

17 financial holding company’ means any

18 company that—

19 ‘‘(A) is registered as a bank hold20 ing company;

21 ‘‘(B) is predominantly engaged in

22 financial activities as defined in sec23 tion 6(f)(2);

24 ‘‘(C) controls 1 or more wholesale

25 financial institutions;
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1 ‘‘(D) does not control—

2 ‘‘(i) a bank other than a

3 wholesale financial institution;

4 ‘‘(ii) an insured bank other

5 than an institution permitted

6 under subparagraph (D), (F), or

7 (G) of section 2(c)(2); or

8 ‘‘(iii) a savings association;

9 and

10 ‘‘(E) is not a foreign bank (as de11 fined in section 1(b)(7) of the Inter12 national Banking Act of 1978).

13 ‘‘(2) SAVINGS ASSOCIATION TRANSITION

14 PERIOD.—Notwithstanding paragraph

15 (1)(D)(iii), the Board may permit a com16 pany that controls a savings association

17 and that otherwise meets the require18 ments of paragraph (1) to become super19 vised under paragraph (1), if the com20 pany divests control of any such savings

21 association within such period not to ex22 ceed 5 years after becoming supervised

23 under paragraph (1) as permitted by the

24 Board.
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1 ‘‘(3) COMPANIES SUPERVISED BY SECURI2 TIES AND EXCHANGE COMMISSION.—Any

3 wholesale financial institution holding

4 company for which an election to be sub5 ject to supervision by the Commission is

6 in effect under section 17(i) of the Securi7 ties Exchange Act of 1934 shall not be

8 treated as a wholesale financial institu9 tion holding company, and shall not be

10 subject to supervision by the Board, for

11 purposes of this Act.

12 ‘‘(b) SUPERVISION BY THE BOARD.—

13 ‘‘(1) IN GENERAL.—The provisions of

14 this section shall govern the reporting,

15 examination, and capital requirements of

16 wholesale financial holding companies.

17 ‘‘(2) REPORTS.—

18 ‘‘(A) IN GENERAL.—The Board from

19 time to time may require any whole20 sale financial holding company and

21 any subsidiary of such company to

22 submit reports under oath to keep

23 the Board informed as to—

24 ‘‘(i) the company’s or subsidi25 ary’s activities, financial condi-
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1 tion, policies, systems for moni2 toring and controlling financial

3 and operational risks, and trans4 actions with depository institu5 tion subsidiaries of the holding

6 company; and

7 ‘‘(ii) the extent to which the

8 company or subsidiary has com9 plied with the provisions of this

10 Act and regulations prescribed

11 and orders issued under this Act.

12 ‘‘(B) USE OF EXISTING REPORTS.—

13 ‘‘(i) IN GENERAL.—The Board

14 shall, to the fullest extent pos15 sible, accept reports in fulfillment

16 of the Board’s reporting require17 ments under this paragraph that

18 the wholesale financial holding

19 company or any subsidiary of

20 such company has provided or

21 been required to provide to other

22 Federal and State supervisors or

23 to appropriate self-regulatory or24 ganizations.
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1 ‘‘(ii) AVAILABILITY.—A whole2 sale financial holding company or

3 a subsidiary of such company

4 shall provide to the Board, at the

5 request of the Board, a report re6 ferred to in clause (i).

7 ‘‘(C) EXEMPTIONS FROM REPORTING

8 REQUIREMENTS.—

9 ‘‘(i) IN GENERAL.—The Board

10 may, by regulation or order, ex11 empt any company or class of

12 companies, under such terms and

13 conditions and for such periods

14 as the Board shall provide in such

15 regulation or order, from the pro16 visions of this paragraph and any

17 regulation prescribed under this

18 paragraph.

19 ‘‘(ii) CRITERIA FOR CONSIDER20 ATION.—In making any determina21 tion under clause (i) with regard

22 to any exemption under such

23 clause, the Board shall consider,

24 among such other factors as the
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1 Board may determine to be ap2 propriate, the following factors:

3 ‘‘(I) Whether information

4 of the type required under

5 this paragraph is available

6 from a supervisory agency (as

7 defined in section 1101(7) of

8 the Right to Financial Privacy

9 Act of 1978) or a foreign regu10 latory authority of a similar

11 type.

12 ‘‘(II) The primary business

13 of the company.

14 ‘‘(III) The nature and ex15 tent of the domestic and for16 eign regulation of the activi17 ties of the company.

18 ‘‘(3) EXAMINATIONS.—

19 ‘‘(A) LIMITED USE OF EXAMINATION

20 AUTHORITY.—The Board may make ex21 aminations of each wholesale finan22 cial holding company and each sub23 sidiary of such company in order to—

24 ‘‘(i) inform the Board regard25 ing the nature of the operations
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1 and financial condition of the

2 wholesale financial holding com3 pany and its subsidiaries;

4 ‘‘(ii) inform the Board

5 regarding—

6 ‘‘(I) the financial and

7 operational risks within the

8 wholesale financial holding

9 company system that may af10 fect any depository institution

11 owned by such holding com12 pany; and

13 ‘‘(II) the systems of the

14 holding company and its sub15 sidiaries for monitoring and

16 controlling those risks; and

17 ‘‘(iii) monitor compliance with

18 the provisions of this Act and

19 those governing transactions and

20 relationships between any deposi21 tory institution controlled by the

22 wholesale financial holding com23 pany and any of the company’s

24 other subsidiaries.
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1 ‘‘(B) RESTRICTED FOCUS OF EXAMI2 NATIONS.—The Board shall, to the full3 est extent possible, limit the focus

4 and scope of any examination of a

5 wholesale financial holding company

6 under this paragraph to—

7 ‘‘(i) the holding company; and

8 ‘‘(ii) any subsidiary (other

9 than an insured depository insti10 tution subsidiary) of the holding

11 company that, because of the size,

12 condition, or activities of the sub13 sidiary, the nature or size of

14 transactions between such sub15 sidiary and any affiliated deposi16 tory institution, or the centraliza17 tion of functions within the hold18 ing company system, could have a

19 materially adverse effect on the

20 safety and soundness of any de21 pository institution affiliate of the

22 holding company.

23 ‘‘(C) DEFERENCE TO BANK EXAMINA24 TIONS.—The Board shall, to the fullest

25 extent possible, use the reports of ex-
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1 amination of depository institutions

2 made by the Comptroller of the Cur3 rency, the Federal Deposit Insurance

4 Corporation, the Director of the Of5 fice of Thrift Supervision or the ap6 propriate State depository institution

7 supervisory authority for the pur8 poses of this section.

9 ‘‘(D) DEFERENCE TO OTHER EXAMI10 NATIONS.—The Board shall, to the full11 est extent possible, address the cir12 cumstances which might otherwise

13 permit or require an examination by

14 the Board by forgoing an examination

15 and by instead reviewing the reports

16 of examination made of—

17 ‘‘(i) any registered broker or

18 dealer or any registered invest19 ment adviser by or on behalf of

20 the Commission; and

21 ‘‘(ii) any licensed insurance

22 company by or on behalf of any

23 State government insurance agen24 cy responsible for the supervision

25 of the insurance company.
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1 ‘‘(E) CONFIDENTIALITY OF REPORTED

2 INFORMATION.—

3 ‘‘(i) IN GENERAL.—Notwith4 standing any other provision of

5 law, the Board shall not be com6 pelled to disclose any nonpublic

7 information required to be re8 ported under this paragraph, or

9 any information supplied to the

10 Board by any domestic or foreign

11 regulatory agency, that relates to

12 the financial or operational con13 dition of any wholesale financial

14 holding company or any sub15 sidiary of such company.

16 ‘‘(ii) COMPLIANCE WITH RE17 QUESTS FOR INFORMATION.—No pro18 vision of this subparagraph shall

19 be construed as authorizing the

20 Board to withhold information

21 from the Congress, or preventing

22 the Board from complying with a

23 request for information from any

24 other Federal department or

25 agency for purposes within the
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1 scope of such department’s or

2 agency’s jurisdiction, or from

3 complying with any order of a

4 court of competent jurisdiction in

5 an action brought by the United

6 States or the Board.

7 ‘‘(iii) COORDINATION WITH

8 OTHER LAW.—For purposes of sec9 tion 552 of title 5, United States

10 Code, this subparagraph shall be

11 considered to be a statute de12 scribed in subsection (b)(3)(B) of

13 such section.

14 ‘‘(iv) DESIGNATION OF CON15 FIDENTIAL INFORMATION.—In pre16 scribing regulations to carry out

17 the requirements of this sub18 section, the Board shall designate

19 information described in or ob20 tained pursuant to this paragraph

21 as confidential information.

22 ‘‘(F) COSTS.—The cost of any ex23 amination conducted by the Board

24 under this section may be assessed
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1 against, and made payable by, the

2 wholesale financial holding company.

3 ‘‘(4) CAPITAL ADEQUACY GUIDELINES.—

4 ‘‘(A) CAPITAL ADEQUACY PROVI5 SIONS.—Subject to the requirements

6 of, and solely in accordance with, the

7 terms of this paragraph, the Board

8 may adopt capital adequacy rules or

9 guidelines for wholesale financial

10 holding companies.

11 ‘‘(B) METHOD OF CALCULATION.—In

12 developing rules or guidelines under

13 this paragraph, the following provi14 sions shall apply:

15 ‘‘(i) FOCUS ON DOUBLE LEVER16 AGE.—The Board shall focus on

17 the use by wholesale financial

18 holding companies of debt and

19 other liabilities to fund capital in20 vestments in subsidiaries.

21 ‘‘(ii) NO UNWEIGHTED CAPITAL

22 RATIO.—The Board shall not, by

23 regulation, guideline, order, or

24 otherwise, impose under this sec25 tion a capital ratio that is not
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1 based on appropriate risk2 weighting considerations.

3 ‘‘(iii) NO CAPITAL REQUIREMENT

4 ON REGULATED ENTITIES.—The

5 Board shall not, by regulation,

6 guideline, order or otherwise,

7 prescribe or impose any capital

8 or capital adequacy rules, stand9 ards, guidelines, or requirements

10 upon any subsidiary that—

11 ‘‘(I) is not a depository in12 stitution; and

13 ‘‘(II) is in compliance with

14 applicable capital require15 ments of another Federal reg16 ulatory authority (including

17 the Securities and Exchange

18 Commission) or State insur19 ance authority.

20 ‘‘(iv) LIMITATION.—The Board

21 shall not, by regulation, guideline,

22 order or otherwise, prescribe or

23 impose any capital or capital ade24 quacy rules, standards, guide25 lines, or requirements upon any
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1 subsidiary that is not a deposi2 tory institution and that is reg3 istered as an investment adviser

4 under the Investment Advisers

5 Act of 1940, except that this

6 clause shall not be construed as

7 preventing the Board from impos8 ing capital or capital adequacy

9 rules, guidelines, standards, or re10 quirements with respect to activi11 ties of a registered investment ad12 viser other than investment advi13 sory activities or activities inci14 dental to investment advisory ac15 tivities.

16 ‘‘(v) LIMITATIONS ON INDIRECT

17 ACTION.—In developing, estab18 lishing, or assessing holding com19 pany capital or capital adequacy

20 rules, guidelines, standards, or re21 quirements for purposes of this

22 paragraph, the Board shall not

23 take into account the activities,

24 operations, or investments of an

25 affiliated investment company
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1 registered under the Investment

2 Company Act of 1940, unless the

3 investment company is—

4 ‘‘(I) a bank holding com5 pany; or

6 ‘‘(II) controlled by a bank

7 holding company by reason of

8 ownership by the bank hold9 ing company (including

10 through all of its affiliates) of

11 25 percent or more of the

12 shares of the investment com13 pany, and the shares owned

14 by the bank holding company

15 have a market value equal to

16 more than $1,000,000.

17 ‘‘(vi) APPROPRIATE EXCLU18 SIONS.—The Board shall take full

19 account of—

20 ‘‘(I) the capital require21 ments made applicable to any

22 subsidiary that is not a depos23 itory institution by another

24 Federal regulatory authority
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1 or State insurance authority;

2 and

3 ‘‘(II) industry norms for

4 capitalization of a company’s

5 unregulated subsidiaries and

6 activities.

7 ‘‘(vii) INTERNAL RISK MANAGE8 MENT MODELS.—The Board may in9 corporate internal risk manage10 ment models of wholesale finan11 cial holding companies into its

12 capital adequacy guidelines or

13 rules and may take account of the

14 extent to which resources of a

15 subsidiary depository institution

16 may be used to service the debt

17 or other liabilities of the whole18 sale financial holding company.

19 ‘‘(c) NONFINANCIAL ACTIVITIES AND INVEST20 MENTS.—

21 ‘‘(1) GRANDFATHERED ACTIVITIES.—

22 ‘‘(A) IN GENERAL.—Notwith23 standing section 4(a), a company that

24 becomes a wholesale financial hold25 ing company may continue to engage,
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1 directly or indirectly, in any activity

2 and may retain ownership and con3 trol of shares of a company engaged

4 in any activity if—

5 ‘‘(i) on the date of the enact6 ment of the Financial Services

7 Act of 1999, such wholesale finan8 cial holding company was law9 fully engaged in that nonfinancial

10 activity, held the shares of such

11 company, or had entered into a

12 contract to acquire shares of any

13 company engaged in such activ14 ity; and

15 ‘‘(ii) the company engaged in

16 such activity continues to engage

17 only in the same activities that

18 such company conducted on the

19 date of the enactment of the Fi20 nancial Services Act of 1999, and

21 other activities permissible under

22 this Act.

23 ‘‘(B) NO EXPANSION OF GRAND24 FATHERED COMMERCIAL ACTIVITIES

25 THROUGH MERGER OR CONSOLIDATION.—
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1 A wholesale financial holding com2 pany that engages in activities or

3 holds shares pursuant to this para4 graph, or a subsidiary of such whole5 sale financial holding company, may

6 not acquire, in any merger, consolida7 tion, or other type of business com8 bination, assets of any other company

9 which is engaged in any activity

10 which the Board has not determined

11 to be financial in nature or incidental

12 to activities that are financial in na13 ture under section 6(c).

14 ‘‘(C) LIMITATION TO SINGLE EXEMP15 TION.—No company that engages in

16 any activity or controls any shares

17 under subsection (f) of section 6 may

18 engage in any activity or own any

19 shares pursuant to this paragraph.

20 ‘‘(2) COMMODITIES.—

21 ‘‘(A) IN GENERAL.—Notwith22 standing section 4(a), a wholesale fi23 nancial holding company which was

24 predominately engaged as of January

25 1, 1997, in financial activities in the
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1 United States (or any successor to

2 any such company) may engage in, or

3 directly or indirectly own or control

4 shares of a company engaged in, ac5 tivities related to the trading, sale, or

6 investment in commodities and un7 derlying physical properties that

8 were not permissible for bank hold9 ing companies to conduct in the

10 United States as of January 1, 1997, if

11 such wholesale financial holding com12 pany, or any subsidiary of such hold13 ing company, was engaged directly,

14 indirectly, or through any such com15 pany in any of such activities as of

16 January 1, 1997, in the United States.

17 ‘‘(B) LIMITATION.—The attributed

18 aggregate consolidated assets of a

19 wholesale financial holding company

20 held under the authority granted

21 under this paragraph and not other22 wise permitted to be held by all

23 wholesale financial holding compa24 nies under this section may not ex25 ceed 5 percent of the total consoli-
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1 dated assets of the wholesale finan2 cial holding company, except that the

3 Board may increase such percentage

4 of total consolidated assets by such

5 amounts and under such cir6 cumstances as the Board considers

7 appropriate, consistent with the pur8 poses of this Act.

9 ‘‘(3) CROSS MARKETING RESTRICTIONS.—

10 A wholesale financial holding company

11 shall not permit—

12 ‘‘(A) any company whose shares it

13 owns or controls pursuant to para14 graph (1) or (2) to offer or market any

15 product or service of an affiliated

16 wholesale financial institution; or

17 ‘‘(B) any affiliated wholesale fi18 nancial institution to offer or market

19 any product or service of any com20 pany whose shares are owned or con21 trolled by such wholesale financial

22 holding company pursuant to such

23 paragraphs.

24 ‘‘(d) QUALIFICATION OF FOREIGN BANK AS

25 WHOLESALE FINANCIAL HOLDING COMPANY.—
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1 ‘‘(1) IN GENERAL.—Any foreign bank,

2 or any company that owns or controls a

3 foreign bank, that operates a branch,

4 agency, or commercial lending company

5 in the United States, including a foreign

6 bank or company that owns or controls a

7 wholesale financial institution, may re8 quest a determination from the Board

9 that such bank or company be treated as

10 a wholesale financial holding company

11 other than for purposes of subsection (c),

12 subject to such conditions as the Board

13 considers appropriate, giving due regard

14 to the principle of national treatment and

15 equality of competitive opportunity and

16 the requirements imposed on domestic

17 banks and companies.

18 ‘‘(2) CONDITIONS FOR TREATMENT AS A

19 WHOLESALE FINANCIAL HOLDING COMPANY.—

20 A foreign bank and a company that owns

21 or controls a foreign bank may not be

22 treated as a wholesale financial holding

23 company unless the bank and company

24 meet and continue to meet the following

25 criteria:
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1 ‘‘(A) NO INSURED DEPOSITS.—No de2 posits held directly by a foreign bank

3 or through an affiliate (other than an

4 institution described in subpara5 graph (D) or (F) of section 2(c)(2)) are

6 insured under the Federal Deposit In7 surance Act.

8 ‘‘(B) CAPITAL STANDARDS.—The for9 eign bank meets risk-based capital

10 standards comparable to the capital

11 standards required for a wholesale fi12 nancial institution, giving due regard

13 to the principle of national treatment

14 and equality of competitive oppor15 tunity.

16 ‘‘(C) TRANSACTION WITH AFFILI17 ATES.—Transactions between a

18 branch, agency, or commercial lend19 ing company subsidiary of the foreign

20 bank in the United States, and any se21 curities affiliate or company in which

22 the foreign bank (or any company

23 that owns or controls such foreign

24 bank) has invested and which en25 gages in any activity pursuant to sub-
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1 section (e) or (g) of section 6, comply

2 with the provisions of sections 23A

3 and 23B of the Federal Reserve Act in

4 the same manner and to the same ex5 tent as such transactions would be re6 quired to comply with such sections

7 if the bank were a member bank.

8 ‘‘(3) TREATMENT AS A WHOLESALE FINAN9 CIAL INSTITUTION.—Any foreign bank

10 which is, or is affiliated with a company

11 which is, treated as a wholesale financial

12 holding company under this subsection

13 shall be treated as a wholesale financial

14 institution for purposes of subsections

15 (c)(1)(C) and (c)(3) of section 9B of the

16 Federal Reserve Act, and any such for17 eign bank or company shall be subject to

18 paragraphs (3), (4), and (5) of section

19 9B(d) of the Federal Reserve Act, except

20 that the Board may adopt such modifica21 tions, conditions, or exemptions as the

22 Board deems appropriate, giving due re23 gard to the principle of national treat24 ment and equality of competitive oppor25 tunity.
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1 ‘‘(4) SUPERVISION OF FOREIGN BANK

2 WHICH MAINTAINS NO BANKING PRESENCE

3 OTHER THAN CONTROL OF A WHOLESALE FI4 NANCIAL INSTITUTION.—A foreign bank that

5 owns or controls a wholesale financial in6 stitution but does not operate a branch,

7 agency, or commercial lending company

8 in the United States (and any company

9 that owns or controls such foreign bank)

10 may request a determination from the

11 Board that such bank or company be

12 treated as a wholesale financial holding

13 company, except that such bank or com14 pany shall be subject to the restrictions

15 of paragraphs (2)(A) and (3) of this sub16 section.

17 ‘‘(5) NO EFFECT ON OTHER PROVI18 SIONS.—This section shall not be con19 strued as limiting the authority of the

20 Board under the International Banking

21 Act of 1978 with respect to the regulation,

22 supervision, or examination of foreign

23 banks and their offices and affiliates in

24 the United States.
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1 ‘‘(6) APPLICABILITY OF COMMUNITY REIN2 VESTMENT ACT OF 1977.—The branches in

3 the United States of a foreign bank that

4 is, or is affiliated with a company that is,

5 treated as a wholesale financial holding

6 company shall be subject to section

7 9B(b)(11) of the Federal Reserve Act as if

8 the foreign bank were a wholesale finan9 cial institution under such section. The

10 Board and the Comptroller of the Cur11 rency shall apply the provisions of sec12 tions 803(2), 804, and 807(1) of the Com13 munity Reinvestment Act of 1977 to

14 branches of foreign banks which receive

15 only such deposits as are permissible for

16 receipt by a corporation organized under

17 section 25A of the Federal Reserve Act, in

18 the same manner and to the same extent

19 such sections apply to such a corpora20 tion.’’.

21 (b) UNINSURED STATE BANKS.—Section 9 of

22 the Federal Reserve Act (12 U.S.C. 321 et seq.)

23 is amended by adding at the end the following

24 new paragraph:
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1 ‘‘(24) ENFORCEMENT AUTHORITY OVER

2 UNINSURED STATE MEMBER BANKS.—Section

3 3(u) of the Federal Deposit Insurance Act,

4 subsections (j) and (k) of section 7 of such

5 Act, and subsections (b) through (n), (s),

6 (u), and (v) of section 8 of such Act shall

7 apply to an uninsured State member

8 bank in the same manner and to the

9 same extent such provisions apply to an

10 insured State member bank and any ref11 erence in any such provision to ‘insured

12 depository institution’ shall be deemed to

13 be a reference to ‘uninsured State mem14 ber bank’ for purposes of this para15 graph.’’.

16 SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

17 (a) FEDERAL RESERVE ACT.—The last sen18 tence of the eighth undesignated paragraph

19 of section 9 of the Federal Reserve Act (12

20 U.S.C. 326) is amended to read as follows: ‘‘The

21 Board of Governors of the Federal Reserve

22 System, at its discretion, may furnish reports

23 of examination or other confidential super24 visory information concerning State member

25 banks or any other entities examined under
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1 any other authority of the Board to any Fed2 eral or State authorities with supervisory or

3 regulatory authority over the examined enti4 ty, to officers, directors, or receivers of the ex5 amined entity, and to any other person that

6 the Board determines to be proper.’’.

7 (b) COMMODITY FUTURES TRADING COMMIS8 SION.—The Right to Financial Privacy Act of

9 1978 (12 U.S.C. 3401 et seq.) is amended—

10 (1) in section 1101(7) of the (12 U.S.C.

11 3401(7))—

12 (A) by redesignating subpara13 graphs (G) and (H) as subparagraphs

14 (H) and (I), respectively; and

15 (B) by inserting after subpara16 graph (F) the following new subpara17 graph:

18 ‘‘(G) the Commodity Futures

19 Trading Commission; or’’; and

20 (2) in section 1112(e), by striking ‘‘and

21 the Securities and Exchange Commis22 sion’’ and inserting ‘‘, the Securities and

23 Exchange Commission, and the Com24 modity Futures Trading Commission’’.
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1 SEC. 133. CONFORMING AMENDMENTS.

2 (a) BANK HOLDING COMPANY ACT OF 1956.—

3 (1) DEFINITIONS.—Section 2 of the

4 Bank Holding Company Act of 1956 (12

5 U.S.C. 1841) is amended by inserting after

6 subsection (p) (as added by section

7 103(b)(1)) the following new subsections:

8 ‘‘(q) WHOLESALE FINANCIAL INSTITUTION.—

9 The term ‘wholesale financial institution’

10 means a wholesale financial institution sub11 ject to section 9B of the Federal Reserve Act.

12 ‘‘(r) COMMISSION.—The term ‘Commission’

13 means the Securities and Exchange Commis14 sion.

15 ‘‘(s) DEPOSITORY INSTITUTION.—The term

16 ‘depository institution’—

17 ‘‘(1) has the meaning given to such

18 term in section 3 of the Federal Deposit

19 Insurance Act; and

20 ‘‘(2) includes a wholesale financial in21 stitution.’’.

22 (2) DEFINITION OF BANK INCLUDES

23 WHOLESALE FINANCIAL INSTITUTION.—Sec24 tion 2(c)(1) of the Bank Holding Company

25 Act of 1956 (12 U.S.C. 1841(c)(1)) is
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1 amended by adding at the end the fol2 lowing new subparagraph:

3 ‘‘(C) A wholesale financial institu4 tion.’’.

5 (3) INCORPORATED DEFINITIONS.—Sec6 tion 2(n) of the Bank Holding Company

7 Act of 1956 (12 U.S.C. 1841(n)) is amended

8 by inserting ‘‘ ‘insured bank’,’’ after ‘‘ ‘in

9 danger of default’,’’.

10 (4) EXCEPTION TO DEPOSIT INSURANCE

11 REQUIREMENT.—Section 3(e) of the Bank

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

13 1842(e)) is amended by adding at the end

14 the following: ‘‘This subsection shall not

15 apply to a wholesale financial institu16 tion.’’.

17 (b) FEDERAL DEPOSIT INSURANCE ACT.—Sec18 tion 3(q)(2)(A) of the Federal Deposit Insur19 ance Act (12 U.S.C. 1813(q)(2)(A)) is amended

20 to read as follows:

21 ‘‘(A) any State member insured

22 bank (except a District bank) and any

23 wholesale financial institution sub24 ject to section 9B of the Federal Re25 serve Act;’’.
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1 CHAPTER 2—WHOLESALE FINANCIAL

2 INSTITUTIONS

3 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

4 (a) NATIONAL WHOLESALE FINANCIAL INSTI5 TUTIONS.—

6 (1) IN GENERAL.—Chapter one of title

7 LXII of the Revised Statutes of the United

8 States (12 U.S.C. 21 et seq.) is amended by

9 inserting after section 5136A (as added by

10 section 121(a) of this title) the following

11 new section:

12 ‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU13 TIONS.

14 ‘‘(a) AUTHORIZATION OF THE COMPTROLLER

15 REQUIRED.—A national bank may apply to the

16 Comptroller on such forms and in accordance

17 with such regulations as the Comptroller may

18 prescribe, for permission to operate as a na19 tional wholesale financial institution.

20 ‘‘(b) REGULATION.—A national wholesale fi21 nancial institution may exercise, in accord22 ance with such institution’s articles of incor23 poration and regulations issued by the Comp24 troller, all the powers and privileges of a na25 tional bank formed in accordance with sec-
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1 tion 5133 of the Revised Statutes of the United

2 States, subject to section 9B of the Federal Re3 serve Act and the limitations and restrictions

4 contained therein.

5 ‘‘(c) COMMUNITY REINVESTMENT ACT OF

6 1977.—A national wholesale financial institu7 tion shall be subject to the Community Rein8 vestment Act of 1977.’’.

9 (2) CLERICAL AMENDMENT.—The table

10 of sections for chapter one of title LXII of

11 the Revised Statutes of the United States

12 is amended by inserting after the item re13 lating to section 5136A (as added by sec14 tion 121(d) of this title) the following new

15 item:

‘‘5136B. National wholesale financial institutions.’’.

16 (b) WHOLESALE FINANCIAL INSTITUTIONS.—

17 The Federal Reserve Act (12 U.S.C. 221 et seq.)

18 is amended by inserting after section 9A the

19 following new section:

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

21 ‘‘(a) APPLICATION FOR MEMBERSHIP AS

22 WHOLESALE FINANCIAL INSTITUTION.—

23 ‘‘(1) APPLICATION REQUIRED.—

24 ‘‘(A) IN GENERAL.—Any bank may

25 apply to the Board of Governors of
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1 the Federal Reserve System to be2 come a State wholesale financial in3 stitution or to the Comptroller of the

4 Currency to become a national whole5 sale financial institution and, as a

6 wholesale financial institution, to

7 subscribe to the stock of the Federal

8 reserve bank organized within the

9 district where the applying bank is

10 located.

11 ‘‘(B) TREATMENT AS MEMBER

12 BANK.—Any application under sub13 paragraph (A) shall be treated as an

14 application under, and shall be sub15 ject to the provisions of section 9.

16 ‘‘(2) INSURANCE TERMINATION.—No

17 bank the deposits of which are insured

18 under the Federal Deposit Insurance Act

19 may become a wholesale financial institu20 tion unless it has met all requirements

21 under that Act for voluntary termination

22 of deposit insurance.

23 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE

24 TO WHOLESALE FINANCIAL INSTITUTIONS.—
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1 ‘‘(1) FEDERAL RESERVE ACT.—Except as

2 otherwise provided in this section, whole3 sale financial institutions shall be mem4 ber banks and shall be subject to the pro5 visions of this Act that apply to member

6 banks to the same extent and in the same

7 manner as State member insured banks

8 or national banks, except that a whole9 sale financial institution may terminate

10 membership under this Act only with the

11 prior written approval of the Board and

12 on terms and conditions that the Board

13 determines are appropriate to carry out

14 the purposes of this Act.

15 ‘‘(2) PROMPT CORRECTIVE ACTION.—A

16 wholesale financial institution shall be

17 deemed to be an insured depository insti18 tution for purposes of section 38 of the

19 Federal Deposit Insurance Act except

20 that—

21 ‘‘(A) the relevant capital levels

22 and capital measures for each capital

23 category shall be the levels specified

24 by the Board for wholesale financial

25 institutions;
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1 ‘‘(B) subject to subparagraph (A),

2 all references to the appropriate Fed3 eral banking agency or to the Cor4 poration in that section shall be

5 deemed to be references to the Comp6 troller of the Currency, in the case of

7 a national wholesale financial institu8 tion, and to the Board, in the case of

9 all other wholesale financial institu10 tions; and

11 ‘‘(C) in the case of wholesale fi12 nancial institutions, the purpose of

13 prompt corrective action shall be to

14 protect taxpayers and the financial

15 system from the risks associated with

16 the operation and activities of whole17 sale financial institutions.

18 ‘‘(3) ENFORCEMENT AUTHORITY.—Sec19 tion 3(u), subsections (j) and (k) of sec20 tion 7, subsections (b) through (n), (s), (u),

21 and (v) of section 8, and section 19 of the

22 Federal Deposit Insurance Act shall

23 apply to a wholesale financial institution

24 in the same manner and to the same ex25 tent as such provisions apply to State
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1 member insured banks or national banks

2 and any reference in such sections to an

3 insured depository institution shall be

4 deemed to include a reference to a whole5 sale financial institution.

6 ‘‘(4) CERTAIN OTHER STATUTES APPLICA7 BLE.—A wholesale financial institution

8 shall be deemed to be a banking institu9 tion, and the Board shall be the appro10 priate Federal banking agency for such

11 bank and all such bank’s affiliates, for

12 purposes of the International Lending

13 Supervision Act.

14 ‘‘(5) BANK MERGER ACT.—A wholesale

15 financial institution shall be subject to

16 sections 18(c) and 44 of the Federal De17 posit Insurance Act in the same manner

18 and to the same extent the wholesale fi19 nancial institution would be subject to

20 such sections if the institution were a

21 State member insured bank or a national

22 bank.

23 ‘‘(6) BRANCHING.—Notwithstanding

24 any other provision of law, a wholesale fi25 nancial institution may establish and op-
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•HR 10 RH

1 erate a branch at any location on such

2 terms and conditions as established by,

3 and with the approval of—

4 ‘‘(A) the Board, in the case of a

5 State-chartered wholesale financial

6 institution; and

7 ‘‘(B) the Comptroller of the Cur8 rency, in the case of a national bank

9 wholesale financial institution.

10 ‘‘(7) ACTIVITIES OF OUT-OF-STATE

11 BRANCHES OF WHOLESALE FINANCIAL INSTI12 TUTIONS.—

13 ‘‘(A) GENERAL.—A State-chartered

14 wholesale financial institution shall

15 be deemed a State bank and an in16 sured State bank and a national

17 wholesale financial institution shall

18 be deemed a national bank for pur19 poses of paragraphs (1), (2), and (3) of

20 section 24(j) of the Federal Deposit

21 Insurance Act.

22 ‘‘(B) DEFINITIONS.—The following

23 definitions shall apply solely for pur24 poses of applying paragraph (1):
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1 ‘‘(i) HOME STATE.—The term

2 ‘home State’ means, with respect

3 to a State-chartered wholesale fi4 nancial institution, the State by

5 which the institution is char6 tered.

7 ‘‘(ii) HOST STATE.—The term

8 ‘host State’ means a State, other

9 than the home State of the whole10 sale financial institution, in

11 which the institution maintains,

12 or seeks to establish and main13 tain, a branch.

14 ‘‘(iii) OUT-OF-STATE BANK.—The

15 term ‘out-of-State bank’ means,

16 with respect to any State, a

17 wholesale financial institution

18 whose home State is another

19 State.

20 ‘‘(8) DISCRIMINATION REGARDING INTER21 EST RATES.—Section 27 of the Federal De22 posit Insurance Act shall apply to State23 chartered wholesale financial institutions

24 in the same manner and to the same ex25 tent as such provisions apply to State
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1 member insured banks and any reference

2 in such section to a State-chartered in3 sured depository institution shall be

4 deemed to include a reference to a State5 chartered wholesale financial institution.

6 ‘‘(9) PREEMPTION OF STATE LAWS RE7 QUIRING DEPOSIT INSURANCE FOR WHOLE8 SALE FINANCIAL INSTITUTIONS.—The appro9 priate State banking authority may grant

10 a charter to a wholesale financial institu11 tion notwithstanding any State constitu12 tion or statute requiring that the institu13 tion obtain insurance of its deposits and

14 any such State constitution or statute is

15 hereby preempted solely for purposes of

16 this paragraph.

17 ‘‘(10) PARITY FOR WHOLESALE FINANCIAL

18 INSTITUTIONS.—A State bank that is a

19 wholesale financial institution under this

20 section shall have all of the rights, pow21 ers, privileges, and immunities (including

22 those derived from status as a federally

23 chartered institution) of and as if it were

24 a national bank, subject to such terms
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1 and conditions as established by the

2 Board.

3 ‘‘(11) COMMUNITY REINVESTMENT ACT OF

4 1977.—A State wholesale financial institu5 tion shall be subject to the Community

6 Reinvestment Act of 1977.

7 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE

8 TO WHOLESALE FINANCIAL INSTITUTIONS.—

9 ‘‘(1) LIMITATIONS ON DEPOSITS.—

10 ‘‘(A) MINIMUM AMOUNT.—

11 ‘‘(i) IN GENERAL.—No wholesale

12 financial institution may receive

13 initial deposits of $100,000 or less,

14 other than on an incidental and

15 occasional basis.

16 ‘‘(ii) LIMITATION ON DEPOSITS

17 OF LESS THAN $100,000.—No whole18 sale financial institution may re19 ceive initial deposits of $100,000

20 or less if such deposits constitute

21 more than 5 percent of the insti22 tution’s total deposits.

23 ‘‘(B) NO DEPOSIT INSURANCE.—Ex24 cept as otherwise provided in section

25 8A(f) of the Federal Deposit Insur-
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1 ance Act, no deposits held by a whole2 sale financial institution shall be in3 sured deposits under the Federal De4 posit Insurance Act.

5 ‘‘(C) ADVERTISING AND DISCLO6 SURE.—The Board and the Comp7 troller of the Currency shall pre8 scribe jointly regulations pertaining

9 to advertising and disclosure by

10 wholesale financial institutions to en11 sure that each depositor is notified

12 that deposits at the wholesale finan13 cial institution are not federally in14 sured or otherwise guaranteed by the

15 United States Government.

16 ‘‘(2) MINIMUM CAPITAL LEVELS APPLICA17 BLE TO WHOLESALE FINANCIAL INSTITU18 TIONS.—The Board shall, by regulation,

19 adopt capital requirements for wholesale

20 financial institutions—

21 ‘‘(A) to account for the status of

22 wholesale financial institutions as in23 stitutions that accept deposits that

24 are not insured under the Federal De25 posit Insurance Act; and
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1 ‘‘(B) to provide for the safe and

2 sound operation of the wholesale fi3 nancial institution without undue

4 risk to creditors or other persons, in5 cluding Federal reserve banks, en6 gaged in transactions with the bank.

7 ‘‘(3) ADDITIONAL REQUIREMENTS APPLI8 CABLE TO WHOLESALE FINANCIAL INSTITU9 TIONS.—In addition to any requirement

10 otherwise applicable to State member in11 sured banks or applicable, under this sec12 tion, to wholesale financial institutions,

13 the Board may impose, by regulation or

14 order, upon wholesale financial

15 institutions—

16 ‘‘(A) limitations on transactions,

17 direct or indirect, with affiliates to

18 prevent—

19 ‘‘(i) the transfer of risk to the

20 deposit insurance funds; or

21 ‘‘(ii) an affiliate from gaining

22 access to, or the benefits of, credit

23 from a Federal reserve bank, in24 cluding overdrafts at a Federal

25 reserve bank;
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1 ‘‘(B) special clearing balance re2 quirements; and

3 ‘‘(C) any additional requirements

4 that the Board determines to be ap5 propriate or necessary to—

6 ‘‘(i) promote the safety and

7 soundness of the wholesale finan8 cial institution or any insured de9 pository institution affiliate of the

10 wholesale financial institution;

11 ‘‘(ii) prevent the transfer of

12 risk to the deposit insurance

13 funds; or

14 ‘‘(iii) protect creditors and

15 other persons, including Federal

16 reserve banks, engaged in trans17 actions with the wholesale finan18 cial institution.

19 ‘‘(4) EXEMPTIONS FOR WHOLESALE FI20 NANCIAL INSTITUTIONS.—The Board may,

21 by regulation or order, exempt any

22 wholesale financial institution from any

23 provision applicable to a member bank

24 that is not a wholesale financial institu-
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1 tion, if the Board finds that such exemp2 tion is not inconsistent with—

3 ‘‘(A) the promotion of the safety

4 and soundness of the wholesale finan5 cial institution or any insured deposi6 tory institution affiliate of the whole7 sale financial institution;

8 ‘‘(B) the protection of the deposit

9 insurance funds; and

10 ‘‘(C) the protection of creditors

11 and other persons, including Federal

12 reserve banks, engaged in trans13 actions with the wholesale financial

14 institution.

15 ‘‘(5) LIMITATION ON TRANSACTIONS BE16 TWEEN A WHOLESALE FINANCIAL INSTITUTION

17 AND AN INSURED BANK.—For purposes of

18 section 23A(d)(1) of the Federal Reserve

19 Act, a wholesale financial institution that

20 is affiliated with an insured bank shall

21 not be a bank.

22 ‘‘(6) NO EFFECT ON OTHER PROVI23 SIONS.—This section shall not be con24 strued as limiting the Board’s authority

25 over member banks or the authority of
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1 the Comptroller of the Currency over na2 tional banks under any other provision of

3 law, or to create any obligation for any

4 Federal reserve bank to make, increase,

5 renew, or extend any advance or dis6 count under this Act to any member bank

7 or other depository institution.

8 ‘‘(d) CAPITAL AND MANAGERIAL REQUIRE9 MENTS.—

10 ‘‘(1) IN GENERAL.—A wholesale finan11 cial institution shall be well capitalized

12 and well managed.

13 ‘‘(2) NOTICE TO COMPANY.—The Board

14 shall promptly provide notice to a com15 pany that controls a wholesale financial

16 institution whenever such wholesale fi17 nancial institution is not well capitalized

18 or well managed.

19 ‘‘(3) AGREEMENT TO RESTORE INSTITU20 TION.—Within 45 days of receipt of a no21 tice under paragraph (2) (or such addi22 tional period not to exceed 90 days as the

23 Board may permit), the company shall

24 execute an agreement acceptable to the

25 Board to restore the wholesale financial
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1 institution to compliance with all of the

2 requirements of paragraph (1).

3 ‘‘(4) LIMITATIONS UNTIL INSTITUTION RE4 STORED.—Until the wholesale financial in5 stitution is restored to compliance with

6 all of the requirements of paragraph (1),

7 the Board may impose such limitations

8 on the conduct or activities of the com9 pany or any affiliate of the company as

10 the Board determines to be appropriate

11 under the circumstances.

12 ‘‘(5) FAILURE TO RESTORE.—If the com13 pany does not execute and implement an

14 agreement in accordance with paragraph

15 (3), comply with any limitation imposed

16 under paragraph (4), restore the whole17 sale financial institution to well capital18 ized status within 180 days after receipt

19 by the company of the notice described in

20 paragraph (2), or restore the wholesale fi21 nancial institution to well managed sta22 tus within such period as the Board may

23 permit, the company shall, under such

24 terms and conditions as may be imposed

25 by the Board and subject to such exten-
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1 sion of time as may be granted in the

2 Board’s discretion, divest control of its

3 subsidiary depository institutions.

4 ‘‘(6) WELL MANAGED DEFINED.—For pur5 poses of this subsection, the term ‘well

6 managed’ has the same meaning as in

7 section 2 of the Bank Holding Company

8 Act of 1956.

9 ‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL

10 INSTITUTIONS.—

11 ‘‘(1) CONSERVATORSHIP AND RECEIVER12 SHIP AUTHORITY.—

13 ‘‘(A) APPOINTMENT.—The Board

14 may appoint a conservator or re15 ceiver to take possession and control

16 of a wholesale financial institution to

17 the same extent and in the same man18 ner as the Comptroller of the Cur19 rency may appoint a conservator or

20 receiver for a national bank.

21 ‘‘(B) POWERS.—The conservator or

22 receiver for a wholesale financial in23 stitution shall exercise the same pow24 ers, functions, and duties, subject to
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1 the same limitations, as a conservator

2 or receiver for a national bank.

3 ‘‘(2) BOARD AUTHORITY.—The Board

4 shall have the same authority with re5 spect to any conservator or receiver ap6 pointed under paragraph (1) and the

7 wholesale financial institution for which

8 such conservator has been appointed as

9 the Comptroller of the Currency has with

10 respect to a conservator or receiver for a

11 national bank and the national bank for

12 which the conservator or receiver has

13 been appointed.

14 ‘‘(3) BANKRUPTCY PROCEEDINGS.—The

15 Comptroller of the Currency (in the case

16 of a national wholesale financial institu17 tion) and the Board may direct the con18 servator or receiver of a wholesale finan19 cial institution to file a petition pursuant

20 to title 11, United States Code, in which

21 case, title 11, United States Code, shall

22 apply to the wholesale financial institu23 tion in lieu of otherwise applicable Fed24 eral or State insolvency law.
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1 ‘‘(f) EXCLUSIVE JURISDICTION.—Subsections

2 (c) and (e) of section 43 of the Federal Deposit

3 Insurance Act shall not apply to any whole4 sale financial institution.’’.

5 (c) VOLUNTARY TERMINATION OF INSURED

6 STATUS BY CERTAIN INSTITUTIONS.—

7 (1) SECTION 8 DESIGNATIONS.—Section

8 8(a) of the Federal Deposit Insurance Act

9 (12 U.S.C. 1818(a)) is amended—

10 (A) by striking paragraph (1); and

11 (B) by redesignating paragraphs

12 (2) through (10) as paragraphs (1)

13 through (9), respectively.

14 (2) VOLUNTARY TERMINATION OF IN15 SURED STATUS.—The Federal Deposit In16 surance Act (12 U.S.C. 1811 et seq.) is

17 amended by inserting after section 8 the

18 following new section:

19 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN20 SURED DEPOSITORY INSTITUTION.

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

22 subsection (b), an insured State bank or a na23 tional bank may voluntarily terminate such

24 bank’s status as an insured depository institu-
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1 tion in accordance with regulations of the

2 Corporation if—

3 ‘‘(1) the bank provides written notice

4 of the bank’s intent to terminate such in5 sured status—

6 ‘‘(A) to the Corporation and the

7 Board of Governors of the Federal

8 Reserve System, in the case of an in9 sured State bank, or to the Corpora10 tion and the Comptroller of the Cur11 rency, in the case of an insured na12 tional bank authorized to operate as

13 a wholesale financial institution, not

14 less than 6 months before the effec15 tive date of such termination; and

16 ‘‘(B) to all depositors at such

17 bank, not less than 6 months before

18 the effective date of the termination

19 of such status; and

20 ‘‘(2) either—

21 ‘‘(A) the deposit insurance fund of

22 which such bank is a member equals

23 or exceeds the fund’s designated re24 serve ratio as of the date the bank

25 provides a written notice under para-
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1 graph (1) and the Corporation deter2 mines that the fund will equal or ex3 ceed the applicable designated re4 serve ratio for the 2 semiannual as5 sessment periods immediately fol6 lowing such date; or

7 ‘‘(B) the Corporation and the

8 Board of Governors of the Federal

9 Reserve System, in the case of an in10 sured State bank, or the Corporation

11 and the Comptroller of the Currency,

12 in the case of an insured national

13 bank authorized to operate as a

14 wholesale financial institution, has

15 approved the termination of the

16 bank’s insured status and the bank

17 pays an exit fee in accordance with

18 subsection (e).

19 ‘‘(b) EXCEPTION.—Subsection (a) shall not

20 apply with respect to—

21 ‘‘(1) an insured savings association; or

22 ‘‘(2) an insured branch that is re23 quired to be insured under subsection (a)

24 or (b) of section 6 of the International

25 Banking Act of 1978.
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1 ‘‘(c) ELIGIBILITY FOR INSURANCE TERMI2 NATED.—Any bank that voluntarily elects to

3 terminate the bank’s insured status under

4 subsection (a) shall not be eligible for insur5 ance on any deposits or any assistance au6 thorized under this Act after the period speci7 fied in subsection (f)(1).

8 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE

9 FINANCIAL INSTITUTION OR TERMINATE DEPOSIT10 TAKING ACTIVITIES.—Any depository institu11 tion which voluntarily terminates such insti12 tution’s status as an insured depository insti13 tution under this section may not, upon termi14 nation of insurance, accept any deposits un15 less the institution is a wholesale financial in16 stitution subject to section 9B of the Federal

17 Reserve Act.

18 ‘‘(e) EXIT FEES.—

19 ‘‘(1) IN GENERAL.—Any bank that vol20 untarily terminates such bank’s status as

21 an insured depository institution under

22 this section shall pay an exit fee in an

23 amount that the Corporation determines

24 is sufficient to account for the institu25 tion’s pro rata share of the amount (if
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1 any) which would be required to restore

2 the relevant deposit insurance fund to

3 the fund’s designated reserve ratio as of

4 the date the bank provides a written no5 tice under subsection (a)(1).

6 ‘‘(2) PROCEDURES.—The Corporation

7 shall prescribe, by regulation, procedures

8 for assessing any exit fee under this sub9 section.

10 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS IN11 SURED AS OF TERMINATION.—

12 ‘‘(1) TRANSITION PERIOD.—The insured

13 deposits of each depositor in a State bank

14 or a national bank on the effective date

15 of the voluntary termination of the

16 bank’s insured status, less all subsequent

17 withdrawals from any deposits of such

18 depositor, shall continue to be insured

19 for a period of not less than 6 months and

20 not more than 2 years, as determined by

21 the Corporation. During such period, no

22 additions to any such deposits, and no

23 new deposits in the depository institution

24 made after the effective date of such ter-
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1 mination shall be insured by the Cor2 poration.

3 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGA4 TIONS AND DUTIES.—During the period

5 specified in paragraph (1) with respect to

6 any bank, the bank shall continue to pay

7 assessments under section 7 as if the

8 bank were an insured depository institu9 tion. The bank shall, in all other respects,

10 be subject to the authority of the Cor11 poration and the duties and obligations

12 of an insured depository institution

13 under this Act during such period, and in

14 the event that the bank is closed due to

15 an inability to meet the demands of the

16 bank’s depositors during such period, the

17 Corporation shall have the same powers

18 and rights with respect to such bank as

19 in the case of an insured depository insti20 tution.

21 ‘‘(g) ADVERTISEMENTS.—

22 ‘‘(1) IN GENERAL.—A bank that volun23 tarily terminates the bank’s insured sta24 tus under this section shall not advertise

25 or hold itself out as having insured de-
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1 posits, except that the bank may adver2 tise the temporary insurance of deposits

3 under subsection (f) if, in connection

4 with any such advertisement, the adver5 tisement also states with equal promi6 nence that additions to deposits and new

7 deposits made after the effective date of

8 the termination are not insured.

9 ‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGA10 TIONS, AND SECURITIES.—Any certificate of

11 deposit or other obligation or security

12 issued by a State bank or a national bank

13 after the effective date of the voluntary

14 termination of the bank’s insured status

15 under this section shall be accompanied

16 by a conspicuous, prominently displayed

17 notice that such certificate of deposit or

18 other obligation or security is not in19 sured under this Act.

20 ‘‘(h) NOTICE REQUIREMENTS.—

21 ‘‘(1) NOTICE TO THE CORPORATION.—The

22 notice required under subsection

23 (a)(1)(A) shall be in such form as the Cor24 poration may require.
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1 ‘‘(2) NOTICE TO DEPOSITORS.—The no2 tice required under subsection (a)(1)(B)

3 shall be—

4 ‘‘(A) sent to each depositor’s last

5 address of record with the bank; and

6 ‘‘(B) in such manner and form as

7 the Corporation finds to be necessary

8 and appropriate for the protection of

9 depositors.’’.

10 (3) DEFINITION.—Section 19(b)(1)(A)(i)

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

12 461(b)(1)(A)(i)) is amended by inserting ‘‘,

13 or any wholesale financial institution

14 subject to section 9B of this Act’’ after

15 ‘‘such Act’’.

16 (d) TECHNICAL AND CONFORMING AMEND17 MENTS TO THE BANKRUPTCY CODE.—

18 (1) BANKRUPTCY CODE DEBTORS.—Sec19 tion 109(b)(2) of title 11, United States

20 Code, is amended by striking ‘‘; or’’ and

21 inserting the following: ‘‘, except that—

22 ‘‘(A) a wholesale financial institu23 tion established under section 5136B

24 of the Revised Statutes of the United

25 States or section 9B of the Federal
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1 Reserve Act may be a debtor if a peti2 tion is filed at the direction of the

3 Comptroller of the Currency (in the

4 case of a wholesale financial institu5 tion established under section 5136B

6 of the Revised Statutes of the United

7 States) or the Board of Governors of

8 the Federal Reserve System (in the

9 case of any wholesale financial insti10 tution); and

11 ‘‘(B) a corporation organized

12 under section 25A of the Federal Re13 serve Act may be a debtor if a peti14 tion is filed at the direction of the

15 Board of Governors of the Federal

16 Reserve System; or’’.

17 (2) CHAPTER 7 DEBTORS.—Section

18 109(d) of title 11, United States Code, is

19 amended to read as follows:

20 ‘‘(d) Only a railroad and a person that may

21 be a debtor under chapter 7 of this title, ex22 cept that a stockbroker, a wholesale financial

23 institution established under section 5136B of

24 the Revised Statutes of the United States or

25 section 9B of the Federal Reserve Act, a cor-
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1 poration organized under section 25A of the

2 Federal Reserve Act, or a commodity broker,

3 may be a debtor under chapter 11 of this

4 title.’’.

5 (3) DEFINITION OF FINANCIAL INSTITU6 TION.—Section 101(22) of title 11, United

7 States Code, is amended to read as fol8 lows:

9 ‘‘(22) ‘financial institution’ means a

10 person that is a commercial or savings

11 bank, industrial savings bank, savings

12 and loan association, trust company,

13 wholesale financial institution estab14 lished under section 5136B of the Revised

15 Statutes of the United States or section

16 9B of the Federal Reserve Act, or cor17 poration organized under section 25A of

18 the Federal Reserve Act and, when any

19 such person is acting as agent or custo20 dian for a customer in connection with a

21 securities contract, as defined in section

22 741 of this title, such customer,’’.

23 (4) SUBCHAPTER V OF CHAPTER 7.—
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1 (A) IN GENERAL.—Section 103 of

2 title 11, United States Code, is

3 amended—

4 (i) by redesignating sub5 sections (e) through (i) as sub6 sections (f) through (j), respec7 tively; and

8 (ii) by inserting after sub9 section (d) the following:

10 ‘‘(e) Subchapter V of chapter 7 of this title

11 applies only in a case under such chapter con12 cerning the liquidation of a wholesale finan13 cial institution established under section

14 5136B of the Revised Statutes of the United

15 States or section 9B of the Federal Reserve

16 Act, or a corporation organized under section

17 25A of the Federal Reserve Act.’’.

18 (B) WHOLESALE BANK LIQUIDA19 TION.—Chapter 7 of title 11, United

20 States Code, is amended by adding at

21 the end the following:

22 ‘‘SUBCHAPTER V—WHOLESALE BANK

23 LIQUIDATION

24 ‘‘§ 781. Definitions for subchapter

25 ‘‘In this subchapter—
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1 ‘‘(1) the term ‘Board’ means the Board

2 of Governors of the Federal Reserve Sys3 tem;

4 ‘‘(2) the term ‘depository institution’

5 has the same meaning as in section 3 of

6 the Federal Deposit Insurance Act, and

7 includes any wholesale bank;

8 ‘‘(3) the term ‘national wholesale fi9 nancial institution’ means a wholesale fi10 nancial institution established under sec11 tion 5136B of the Revised Statutes of the

12 United States; and

13 ‘‘(4) the term ‘wholesale bank’ means

14 a national wholesale financial institution,

15 a wholesale financial institution estab16 lished under section 9B of the Federal

17 Reserve Act, or a corporation organized

18 under section 25A of the Federal Reserve

19 Act.

20 ‘‘§ 782. Selection of trustee

21 ‘‘Notwithstanding any other provision of

22 this title, the conservator or receiver who

23 files the petition shall be the trustee under

24 this chapter, unless the Comptroller of the

25 Currency (in the case of a national wholesale
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1 financial institution for which it appointed

2 the conservator or receiver) or the Board (in

3 the case of any wholesale bank for which it

4 appointed the conservator or receiver) des5 ignates an alternative trustee. The Comp6 troller of the Currency or the Board (as appli7 cable) may designate a successor trustee, if

8 required.

9 ‘‘§ 783. Additional powers of trustee

10 ‘‘(a) The trustee under this subchapter has

11 power, with permission of the court—

12 ‘‘(1) to sell the wholesale bank to a de13 pository institution or consortium of de14 pository institutions (which consortium

15 may agree on the allocation of the whole16 sale bank among the consortium);

17 ‘‘(2) to merge the wholesale bank with

18 a depository institution;

19 ‘‘(3) to transfer contracts to the same

20 extent as could a receiver for a deposi21 tory institution under paragraphs (9) and

22 (10) of section 11(e) of the Federal De23 posit Insurance Act;

24 ‘‘(4) to transfer assets or liabilities to

25 a depository institution;
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1 ‘‘(5) to distribute property not of the

2 estate, including distributions to cus3 tomers that are mandated by subchapters

4 III and IV of this chapter; or

5 ‘‘(6) to transfer assets and liabilities

6 to a bridge bank as provided in para7 graphs (1), (3)(A), (5), (6), and (9) through

8 (13), and subparagraphs (A) through (H)

9 and (K) of paragraph (4) of section 11(n)

10 of the Federal Deposit Insurance Act, ex11 cept that—

12 ‘‘(A) the bridge bank shall be

13 treated as a wholesale bank for the

14 purpose of this subsection; and

15 ‘‘(B) any references in any such

16 provision of law to the Federal De17 posit Insurance Corporation shall be

18 construed to be references to the ap19 pointing agency and that references

20 to deposit insurance shall be omitted.

21 ‘‘(b) Any reference in this section to trans22 fers of liabilities includes a ratable transfer of

23 liabilities within a priority class.
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1 ‘‘§ 784. Right to be heard

2 ‘‘The Comptroller of the Currency (in the

3 case of a national wholesale financial institu4 tion), the Board (in the case of any wholesale

5 bank), or a Federal reserve bank (in the case

6 of a wholesale bank that is a member of that

7 bank) may raise and may appear and be heard

8 on any issue in a case under this subchapter.

9 ‘‘§ 785. Expedited transfers

10 ‘‘The trustee may make a transfer pursu11 ant to section 783 without prior judicial ap12 proval, if the Comptroller of the Currency (in

13 the case of a national wholesale financial in14 stitution for which it appointed the conser15 vator or receiver) or the Board (in the case of

16 any wholesale bank for which it appointed

17 the conservator or receiver) determines that

18 the transfer would be necessary to avert seri19 ous adverse effects on economic conditions or

20 financial stability.’’.

21 (C) CONFORMING AMENDMENT.—The

22 table of sections for chapter 7 of title

23 11, United States Code, is amended by

24 adding at the end the following:

‘‘SUBCHAPTER V—WHOLESALE BANK LIQUIDATION

‘‘781. Definitions for subchapter.
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‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.

‘‘785. Expedited transfers.’’.

1 (e) RESOLUTION OF EDGE CORPORATIONS.—

2 The 16th undesignated paragraph of section

3 25A of the Federal Reserve Act (12 U.S.C. 624)

4 is amended to read as follows:

5 ‘‘(16) APPOINTMENT OF RECEIVER OR

6 CONSERVATOR.—

7 ‘‘(A) IN GENERAL.—The Board may

8 appoint a conservator or receiver for

9 a corporation organized under the

10 provisions of this section to the same

11 extent and in the same manner as the

12 Comptroller of the Currency may ap13 point a conservator or receiver for a

14 national bank, and the conservator or

15 receiver for such corporation shall

16 exercise the same powers, functions,

17 and duties, subject to the same limita18 tions, as a conservator or receiver for

19 a national bank.

20 ‘‘(B) EQUIVALENT AUTHORITY.—The

21 Board shall have the same authority

22 with respect to any conservator or re23 ceiver appointed for a corporation or-
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1 ganized under the provisions of this

2 section under this paragraph and any

3 such corporation as the Comptroller

4 of the Currency has with respect to a

5 conservator or receiver of a national

6 bank and the national bank for which

7 a conservator or receiver has been

8 appointed.

9 ‘‘(C) TITLE 11 PETITIONS.—The

10 Board may direct the conservator or

11 receiver of a corporation organized

12 under the provisions of this section to

13 file a petition pursuant to title 11,

14 United States Code, in which case,

15 title 11, United States Code, shall

16 apply to the corporation in lieu of

17 otherwise applicable Federal or State

18 insolvency law.’’.
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1 Subtitle E—Preservation of FTC

2 Authority

3 SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY

4 ACT OF 1956 TO MODIFY NOTIFICATION AND

5 POST-APPROVAL WAITING PERIOD FOR SEC6 TION 3 TRANSACTIONS.

7 Section 11(b)(1) of the Bank Holding Com8 pany Act of 1956 (12 U.S.C. 1849(b)(1)) is

9 amended by inserting ‘‘and, if the transaction

10 also involves an acquisition under section 4 or

11 section 6, the Board shall also notify the Fed12 eral Trade Commission of such approval’’ be13 fore the period at the end of the first sen14 tence.

15 SEC. 142. INTERAGENCY DATA SHARING.

16 To the extent not prohibited by other law,

17 the Comptroller of the Currency, the Director

18 of the Office of Thrift Supervision, the Fed19 eral Deposit Insurance Corporation, and the

20 Board of Governors of the Federal Reserve

21 System shall make available to the Attorney

22 General and the Federal Trade Commission

23 any data in the possession of any such bank24 ing agency that the antitrust agency deems

25 necessary for antitrust review of any trans-
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1 action requiring notice to any such antitrust

2 agency or the approval of such agency under

3 section 3, 4, or 6 of the Bank Holding Com4 pany Act of 1956, section 18(c) of the Federal

5 Deposit Insurance Act, the National Bank

6 Consolidation and Merger Act, section 10 of

7 the Home Owners’ Loan Act, or the antitrust

8 laws.

9 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES

10 AND AFFILIATES.

11 (a) CLARIFICATION OF FEDERAL TRADE COM12 MISSION JURISDICTION.—Any person which di13 rectly or indirectly controls, is controlled di14 rectly or indirectly by, or is directly or indi15 rectly under common control with, any bank

16 or savings association (as such terms are de17 fined in section 3 of the Federal Deposit In18 surance Act) and is not itself a bank or sav19 ings association shall not be deemed to be a

20 bank or savings association for purposes of

21 the Federal Trade Commission Act or any

22 other law enforced by the Federal Trade Com23 mission.

24 (b) SAVINGS PROVISION.—No provision of

25 this section shall be construed as restricting
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1 the authority of any Federal banking agency

2 (as defined in section 3 of the Federal Deposit

3 Insurance Act) under any Federal banking

4 law, including section 8 of the Federal De5 posit Insurance Act.

6 (c) HART–SCOTT–RODINO AMENDMENTS.—

7 (1) BANKS.—Section 7A(c)(7) of the

8 Clayton Act (15 U.S.C. 18a(c)(7)) is amend9 ed by inserting before the semicolon at

10 the end the following: ‘‘, except that a

11 portion of a transaction is not exempt

12 under this paragraph if such portion of

13 the transaction (A) is subject to section 6

14 of the Bank Holding Company Act of

15 1956; and (B) does not require agency ap16 proval under section 3 of the Bank Hold17 ing Company Act of 1956’’.

18 (2) BANK HOLDING COMPANIES.—Section

19 7A(c)(8) of the Clayton Act (15 U.S.C.

20 18a(c)(8)) is amended by inserting before

21 the semicolon at the end the following: ‘‘,

22 except that a portion of a transaction is

23 not exempt under this paragraph if such

24 portion of the transaction (A) is subject

25 to section 6 of the Bank Holding Com-
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1 pany Act of 1956; and (B) does not re2 quire agency approval under section 4 of

3 the Bank Holding Company Act of 1956’’.

4 SEC. 144. ANNUAL GAO REPORT.

5 (a) IN GENERAL.—By the end of the 1-year

6 period beginning on the date of the enact7 ment of this Act and annually thereafter, the

8 Comptroller General of the United States

9 shall submit a report to the Congress on mar10 ket concentration in the financial services in11 dustry and its impact on consumers.

12 (b) ANALYSIS.—Each report submitted

13 under subsection (a) shall contain an analysis

14 of—

15 (1) the positive and negative effects of

16 affiliations between various types of fi17 nancial companies, and of acquisitions

18 pursuant to this Act and the amendments

19 made by this Act to other provisions of

20 law, including any positive or negative

21 effects on consumers, area markets, and

22 submarkets thereof or on registered secu23 rities brokers and dealers which have

24 been purchased by depository institu-
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1 tions or depository institution holding

2 companies;

3 (2) the changes in business practices

4 and the effects of any such changes on

5 the availability of venture capital, con6 sumer credit, and other financial services

7 or products and the availability of capital

8 and credit for small businesses; and

9 (3) the acquisition patterns among de10 pository institutions, depository institu11 tion holding companies, securities firms,

12 and insurance companies including ac13 quisitions among the largest 20 percent

14 of firms and acquisitions within regions

15 or other limited geographical areas.

16 (c) SUNSET.—This section shall not apply

17 after the end of the 5-year period beginning

18 on the date of the enactment of this Act.

19 Subtitle F—National Treatment

20 SEC. 151. FOREIGN BANKS THAT ARE FINANCIAL HOLDING

21 COMPANIES.

22 Section 8(c) of the International Banking

23 Act of 1978 (12 U.S.C. 3106(c)) is amended by

24 adding at the end the following new para25 graph:
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1 ‘‘(3) TERMINATION OF GRANDFATHERED

2 RIGHTS.—

3 ‘‘(A) IN GENERAL.—If any foreign

4 bank or foreign company files a dec5 laration under section 6(b)(1)(D) or

6 receives a determination under sec7 tion 10(d)(1) of the Bank Holding

8 Company Act of 1956, any authority

9 conferred by this subsection on any

10 foreign bank or company to engage in

11 any activity which the Board has de12 termined to be permissible for finan13 cial holding companies under section

14 6 of such Act shall terminate imme15 diately.

16 ‘‘(B) RESTRICTIONS AND REQUIRE17 MENTS AUTHORIZED.—If a foreign bank

18 or company that engages, directly or

19 through an affiliate pursuant to para20 graph (1), in an activity which the

21 Board has determined to be permis22 sible for financial holding companies

23 under section 6 of the Bank Holding

24 Company Act of 1956 has not filed a

25 declaration with the Board of its sta-
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1 tus as a financial holding company

2 under such section or received a de3 termination under section 10(d)(1) by

4 the end of the 2-year period begin5 ning on the date of enactment of the

6 Financial Services Act of 1999, the

7 Board, giving due regard to the prin8 ciple of national treatment and equal9 ity of competitive opportunity, may

10 impose such restrictions and require11 ments on the conduct of such activi12 ties by such foreign bank or company

13 as are comparable to those imposed

14 on a financial holding company orga15 nized under the laws of the United

16 States, including a requirement to

17 conduct such activities in compliance

18 with any prudential safeguards estab19 lished under section 5(h) of the Bank

20 Holding Company Act of 1956.’’.

21 SEC. 152. FOREIGN BANKS AND FOREIGN FINANCIAL INSTI22 TUTIONS THAT ARE WHOLESALE FINANCIAL

23 INSTITUTIONS.

24 Section 8A of the Federal Deposit Insur25 ance Act (as added by section 136(c)(2) of this
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1 Act) is amended by adding at the end the fol2 lowing new subsection:

3 ‘‘(i) VOLUNTARY TERMINATION OF DEPOSIT

4 INSURANCE.—The provisions on voluntary ter5 mination of insurance in this section shall

6 apply to an insured branch of a foreign bank

7 (including a Federal branch) in the same man8 ner and to the same extent as they apply to

9 an insured State bank or a national bank.’’.

10 SEC. 153. RECIPROCITY.

11 (a) NATIONAL TREATMENT REPORTS.—

12 (1) REPORT REQUIRED IN THE EVENT OF

13 CERTAIN ACQUISITIONS.—

14 (A) IN GENERAL.—Whenever a per15 son from a foreign country announces

16 its intention to acquire or acquires a

17 bank, a securities underwriter,

18 broker, or dealer, an investment ad19 viser, or insurance company that

20 ranks within the top 50 firms in that

21 line of business in the United States,

22 the Secretary of Commerce shall,

23 within the earlier of 6 months of such

24 announcement or such acquisition

25 and in consultation with other appro-
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1 priate Federal and State agencies,

2 prepare and submit to the Congress a

3 report on whether a United States

4 person would be able, de facto or de

5 jure, to acquire an equivalent sized

6 firm in the country in which such

7 person from a foreign country is lo8 cated.

9 (B) ANALYSIS AND RECOMMENDA10 TIONS.—If a report submitted under

11 subparagraph (A) states that the

12 equivalent treatment referred to in

13 such subparagraph, de facto and de

14 jure, is not provided in the country

15 which is the subject of the report, the

16 Secretary of Commerce, in consulta17 tion with other appropriate Federal

18 and State agencies, shall include in

19 the report analysis and recommenda20 tions as to how that country’s laws

21 and regulations would need to be

22 changed so that reciprocal treatment

23 would exist.

24 (2) REPORT REQUIRED BEFORE FINAN25 CIAL SERVICES NEGOTIATIONS COMMENCE.—
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1 The Secretary of Commerce shall, not less

2 than 6 months before the commencement

3 of the financial services negotiations of

4 the World Trade Organization and in con5 sultation with other appropriate Federal

6 and State agencies, prepare and submit

7 to the Congress a report containing—

8 (A) an assessment of the 30 larg9 est financial services markets with

10 regard to whether reciprocal access

11 is available in such markets to United

12 States financial services providers;

13 and

14 (B) with respect to any such fi15 nancial services markets in which re16 ciprocal access is not available to

17 United States financial services pro18 viders, an analysis and recommenda19 tions as to what legislative, regu20 latory, or enforcement changes would

21 be required to ensure full reciprocity

22 for such providers.

23 (3) PERSON OF A FOREIGN COUNTRY DE24 FINED.—For purposes of this subsection,

25 the term ‘‘person of a foreign country’’
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1 means a person, or a person which di2 rectly or indirectly owns or controls that

3 person, that is a resident of that country,

4 is organized under the laws of that coun5 try, or has its principal place of business

6 in that country.

7 (b) PROVISIONS APPLICABLE TO SUBMIS8 SIONS.—

9 (1) NOTICE.—Before preparing any re10 port required under subsection (a), the

11 Secretary of Commerce shall publish no12 tice that a report is in preparation and

13 seek comment from United States per14 sons.

15 (2) PRIVILEGED SUBMISSIONS.—Upon

16 the request of the submitting person, any

17 comments or related communications re18 ceived by the Secretary with regard to

19 the report shall, for the purposes of sec20 tion 552 of title 5, of the United States

21 Code, be treated as commercial informa22 tion obtained from a person that is privi23 leged or confidential, regardless of the

24 medium in which the information is ob25 tained. This confidential information
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1 shall be the property of the Secretary

2 and shall be privileged from disclosure to

3 any other person. However, this privilege

4 shall not be construed as preventing ac5 cess to that confidential information by

6 the Congress.

7 (3) PROHIBITION OF UNAUTHORIZED DIS8 CLOSURES.—No person in possession of

9 confidential information, provided under

10 this section may disclose that informa11 tion, in whole or in part, except for dis12 closure made in published statistical ma13 terial that does not disclose, either di14 rectly or when used in conjunction with

15 publicly available information, the con16 fidential information of any person.

17 Subtitle G—Federal Home Loan

18 Bank System Modernization

19 SEC. 161. SHORT TITLE.

20 This subtitle may be cited as the ‘‘Federal

21 Home Loan Bank System Modernization Act

22 of 1999’’.

23 SEC. 162. DEFINITIONS.

24 Section 2 of the Federal Home Loan Bank

25 Act (12 U.S.C. 1422) is amended—
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1 (1) in paragraph (1), by striking ‘‘term

2 ‘Board’ means’’ and inserting ‘‘terms ‘Fi3 nance Board’ and ‘Board’ mean’’;

4 (2) by striking paragraph (3) and in5 serting the following:

6 ‘‘(3) STATE.—The term ‘State’, in addi7 tion to the States of the United States, in8 cludes the District of Columbia, Guam,

9 Puerto Rico, the United States Virgin Is10 lands, American Samoa, and the Com11 monwealth of the Northern Mariana Is12 lands.’’; and

13 (3) by adding at the end the following

14 new paragraph:

15 ‘‘(13) COMMUNITY FINANCIAL INSTITU16 TION.—

17 ‘‘(A) IN GENERAL.—The term ‘com18 munity financial institution’ means a

19 member—

20 ‘‘(i) the deposits of which are

21 insured under the Federal De22 posit Insurance Act; and

23 ‘‘(ii) that has, as of the date of

24 the transaction at issue, less than

25 $500,000,000 in average total as-
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1 sets, based on an average of total

2 assets over the 3 years preceding

3 that date.

4 ‘‘(B) ADJUSTMENTS.—The

5 $500,000,000 limit referred to in sub6 paragraph (A)(ii) shall be adjusted

7 annually by the Finance Board, based

8 on the annual percentage increase, if

9 any, in the Consumer Price Index for

10 all urban consumers, as published by

11 the Department of Labor.’’.

12 SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.

13 Section 5(f) of the Home Owners’ Loan Act

14 (12 U.S.C. 1464(f)) is amended to read as fol15 lows:

16 ‘‘(f) FEDERAL HOME LOAN BANK MEMBER17 SHIP.—On and after January 1, 1999, a Federal

18 savings association may become a member of

19 the Federal Home Loan Bank System, and

20 shall qualify for such membership in the man21 ner provided by the Federal Home Loan Bank

22 Act.’’.
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1 SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.

2 (a) IN GENERAL.—Section 10(a) of the Fed3 eral Home Loan Bank Act (12 U.S.C. 1430(a))

4 is amended—

5 (1) by redesignating paragraphs (1)

6 through (4) as subparagraphs (A) through

7 (D), respectively, and indenting appro8 priately;

9 (2) by striking ‘‘(a) Each’’ and insert10 ing the following:

11 ‘‘(a) IN GENERAL.—

12 ‘‘(1) ALL ADVANCES.—Each’’;

13 (3) by striking the 2d sentence and in14 serting the following:

15 ‘‘(2) PURPOSES OF ADVANCES.—A long16 term advance may only be made for the

17 purposes of—

18 ‘‘(A) providing funds to any mem19 ber for residential housing finance;

20 and

21 ‘‘(B) providing funds to any com22 munity financial institution for small

23 business, agricultural, rural develop24 ment, or low-income community de25 velopment lending.’’;
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1 (4) by striking ‘‘A Bank’’ and inserting

2 the following:

3 ‘‘(3) COLLATERAL.—A Bank’’;

4 (5) in paragraph (3) (as so designated

5 by paragraph (4) of this subsection)—

6 (A) in subparagraph (C) (as so re7 designated by paragraph (1) of this

8 subsection) by striking ‘‘Deposits’’

9 and inserting ‘‘Cash or deposits’’;

10 (B) in subparagraph (D) (as so re11 designated by paragraph (1) of this

12 subsection), by striking the 2d sen13 tence; and

14 (C) by inserting after subpara15 graph (D) (as so redesignated by

16 paragraph (1) of this subsection) the

17 following new subparagraph:

18 ‘‘(E) Secured loans for small busi19 ness, agriculture, rural development,

20 or low-income community develop21 ment, or securities representing a

22 whole interest in such secured loans,

23 in the case of any community finan24 cial institution.’’;

25 (6) in paragraph (5)—
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1 (A) in the 2d sentence, by striking

2 ‘‘and the Board’’;

3 (B) in the 3d sentence, by striking

4 ‘‘Board’’ and inserting ‘‘Federal home

5 loan bank’’; and

6 (C) by striking ‘‘(5) Paragraphs (1)

7 through (4)’’ and inserting the fol8 lowing:

9 ‘‘(4) ADDITIONAL BANK AUTHORITY.—

10 Subparagraphs (A) through (E) of para11 graph (3)’’; and

12 (7) by adding at the end the fol13 lowing:

14 ‘‘(5) REVIEW OF CERTAIN COLLATERAL

15 STANDARDS.—The Board may review the

16 collateral standards applicable to each

17 Federal home loan bank for the classes of

18 collateral described in subparagraphs (D)

19 and (E) of paragraph (3), and may, if nec20 essary for safety and soundness purposes,

21 require an increase in the collateral

22 standards for any or all of those classes

23 of collateral.

24 ‘‘(6) DEFINITIONS.—For purposes of

25 this subsection, the terms ‘small busi-
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1 ness’, ‘agriculture’, ‘rural development’,

2 and ‘low-income community development’

3 shall have the meanings given those

4 terms by rule or regulation of the Fi5 nance Board.’’.

6 (b) CLERICAL AMENDMENT.—The section

7 heading for section 10 of the Federal Home

8 Loan Bank Act (12 U.S.C. 1430) is amended to

9 read as follows:

10 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

11 (c) CONFORMING AMENDMENTS RELATING TO

12 MEMBERS WHICH ARE NOT QUALIFIED THRIFT

13 LENDERS—The 1st of the 2 subsections des14 ignated as subsection (e) of section 10 of the

15 Federal Home Loan Bank Act (12 U.S.C.

16 1430(e)(1)) is amended—

17 (1) in the last sentence of paragraph

18 (1), by inserting ‘‘or, in the case of any

19 community financial institution, for the

20 purposes described in subsection (a)(2)’’

21 before the period; and

22 (2) in paragraph (5)(C), by inserting

23 ‘‘except that, in determining the actual

24 thrift investment percentage of any com25 munity financial institution for purposes
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1 of this subsection, the total investment of

2 such member in loans for small business,

3 agriculture, rural development, or low-in4 come community development, or securi5 ties representing a whole interest in such

6 loans, shall be treated as a qualified

7 thrift investment (as defined in such sec8 tion 10(m))’’ before the period.

9 SEC. 165. ELIGIBILITY CRITERIA.

10 Section 4(a) of the Federal Home Loan

11 Bank Act (12 U.S.C. 1424(a)) is amended—

12 (1) in paragraph (2)(A), by inserting,

13 ‘‘(other than a community financial insti14 tution)’’ after ‘‘institution’’; and

15 (2) by adding at the end the following

16 new paragraph:

17 ‘‘(3) LIMITED EXEMPTION FOR COMMU18 NITY FINANCIAL INSTITUTIONS.—A commu19 nity financial institution that otherwise

20 meets the requirements of paragraph (2)

21 may become a member without regard to

22 the percentage of its total assets that is

23 represented by residential mortgage

24 loans, as described in subparagraph (A)

25 of paragraph (2).’’.
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1 SEC. 166. MANAGEMENT OF BANKS.

2 (a) BOARD OF DIRECTORS.—Section 7(d) of

3 the Federal Home Loan Bank Act (12 U.S.C.

4 1427(d)) is amended—

5 (1) by striking ‘‘(d) The term’’ and in6 serting 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

10 Federal Home Loan Bank Act (12 U.S.C.

11 1427(i)) is amended by striking ‘‘, subject to

12 the approval of the board’’.

13 (c) REPEAL OF SECTIONS 22A AND 27.—The

14 Federal Home Loan Bank Act (12 U.S.C. 1421

15 et seq.) is amended by striking sections 22A

16 (12 U.S.C. 1442a) and 27 (12 U.S.C. 1447).

17 (d) SECTION 12.—Section 12 of the Federal

18 Home Loan Bank Act (12 U.S.C. 1432) is

19 amended—

20 (1) in subsection (a)—

21 (A) by striking ‘‘, but, except’’ and

22 all that follows through ‘‘ten years’’;

23 (B) by striking ‘‘subject to the ap24 proval of the Board’’ the first place

25 that term appears;
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1 (C) by striking ‘‘and, by its Board

2 of directors,’’ and all that follows

3 through ‘‘agent of such bank,’’ and in4 serting ‘‘and, by the board of direc5 tors of the bank, to prescribe, amend,

6 and repeal by-laws governing the

7 manner in which its affairs may be

8 administered, consistent with appli9 cable laws and regulations, as admin10 istered by the Finance Board. No offi11 cer, employee, attorney, or agent of a

12 Federal home loan bank’’; and

13 (D) by striking ‘‘Board of direc14 tors’’ where such term appears in the

15 penultimate sentence and inserting

16 ‘‘board of directors’’; and

17 (2) in subsection (b), by striking

18 ‘‘loans banks’’ and inserting ‘‘loan banks’’.

19 (e) POWERS AND DUTIES OF FEDERAL HOUS20 ING FINANCE BOARD.—

21 (1) ISSUANCE OF NOTICES OF VIOLA22 TIONS.—Section 2B(a) of the Federal

23 Home Loan Bank Act (12 U.S.C. 1422b(a))

24 is amended by adding at the end the fol25 lowing new paragraphs:
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1 ‘‘(5) To issue and serve a notice of

2 charges upon a Federal home loan bank

3 or upon any executive officer or director

4 of a Federal home loan bank if, in the de5 termination of the Finance Board, the

6 bank, executive officer, or director is en7 gaging or has engaged in, or the Finance

8 Board has reasonable cause to believe

9 that the bank, executive officer, or direc10 tor is about to engage in, any conduct

11 that violates any provision of this Act or

12 any law, order, rule, or regulation or any

13 condition imposed in writing by the Fi14 nance Board in connection with the

15 granting of any application or other re16 quest by the bank, or any written agree17 ment entered into by the bank with the

18 agency, in accordance with the proce19 dures provided in section 1371(c) of the

20 Federal Housing Enterprises Financial

21 Safety and Soundness Act of 1992. Such

22 authority includes the same authority to

23 take affirmative action to correct condi24 tions resulting from violations or prac25 tices or to limit activities of a bank or
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1 any executive officer or director of a

2 bank as appropriate Federal banking

3 agencies have to take with respect to in4 sured depository institutions under para5 graphs (6) and (7) of section 8(b) of the

6 Federal Deposit Insurance Act, and to

7 have all other powers, rights, and duties

8 to enforce this Act with respect to the

9 Federal home loan banks and their exec10 utive officers and directors as the Office

11 of Federal Housing Enterprise Oversight

12 has to enforce the Federal Housing En13 terprises Financial Safety and Soundness

14 Act of 1992, the Federal National Mort15 gage Association Charter Act, or the Fed16 eral Home Loan Mortgage Corporation

17 Act with respect to the Federal housing

18 enterprises under the Federal Housing

19 Enterprises Financial Safety and Sound20 ness Act of 1992.

21 ‘‘(6) To address any insufficiencies in

22 capital levels resulting from the applica23 tion of section 5(f) of the Home Owners’

24 Loan Act.
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1 ‘‘(7) To sue and be sued, by and

2 through its own attorneys.’’.

3 (2) TECHNICAL AMENDMENT.—Section

4 111 of Public Law 93–495 (12 U.S.C. 250) is

5 amended by striking ‘‘Federal Home Loan

6 Bank Board,’’ and inserting ‘‘Director of

7 the Office of Thrift Supervision, the Fed8 eral Housing Finance Board,’’.

9 (f) ELIGIBILITY TO SECURE ADVANCES.—

10 (1) SECTION 9.—Section 9 of the Fed11 eral Home Loan Bank Act (12 U.S.C. 1429)

12 is amended—

13 (A) in the 2d sentence, by striking

14 ‘‘with the approval of the Board’’; and

15 (B) in the 3d sentence, by striking

16 ‘‘, subject to the approval of the

17 Board,’’.

18 (2) SECTION 10.—Section 10 of the Fed19 eral Home Loan Bank Act (12 U.S.C. 1430)

20 is amended—

21 (A) in subsection (c)—

22 (i) in the 1st sentence, by

23 striking ‘‘Board’’ and inserting

24 ‘‘Federal home loan bank’’; and
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1 (ii) by striking the 2d sen2 tence;

3 (B) in subsection (d)—

4 (i) in the 1st sentence, by

5 striking ‘‘and the approval of the

6 Board’’; and

7 (ii) by striking ‘‘Subject to the

8 approval of the Board, any’’ and

9 inserting ‘‘Any’’; and

10 (C) in subsection (j)(1)—

11 (i) by striking ‘‘to subsidize

12 the interest rate on advances’’

13 and inserting ‘‘to provide sub14 sidies, including subsidized inter15 est rates on advances’’;

16 (ii) by striking ‘‘Pursuant’’

17 and inserting the following:

18 ‘‘(A) ESTABLISHMENT.—Pursuant’’;

19 and

20 (iii) by adding at the end the

21 following new subparagraph:

22 ‘‘(B) NONDELEGATION OF APPROVAL

23 AUTHORITY.—Subject to such regula24 tions as the Finance Board may pre25 scribe, the board of directors of each
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1 Federal home loan bank may approve

2 or disapprove requests from members

3 for Affordable Housing Program sub4 sidies, and may not delegate such au5 thority.’’.

6 (g) SECTION 16.—Section 16(a) of the Fed7 eral Home Loan Bank Act (12 U.S.C. 1436(a))

8 is amended—

9 (1) in the 3d sentence—

10 (A) by striking ‘‘net earnings’’ and

11 inserting ‘‘previously retained earn12 ings or current net earnings’’; and

13 (B) by striking ‘‘, and then only

14 with the approval of the Federal

15 Housing Finance Board’’; and

16 (2) by striking the 4th sentence.

17 (h) SECTION 18.—Section 18(b) of the Fed18 eral Home Loan Bank Act (12 U.S.C. 1438(b))

19 is amended by striking paragraph (4).

20 SEC. 167. RESOLUTION FUNDING CORPORATION.

21 (a) IN GENERAL.—Section 21B(f)(2)(C) of

22 the Federal Home Loan Bank Act (12 U.S.C.

23 1441b(f)(2)(C)) is amended to read as follows:

24 ‘‘(C) PAYMENTS BY FEDERAL HOME

25 LOAN BANKS.—
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1 ‘‘(i) IN GENERAL.—To the ex2 tent that the amounts available

3 pursuant to subparagraphs (A)

4 and (B) are insufficient to cover

5 the amount of interest payments,

6 each Federal home loan bank

7 shall pay to the Funding Corpora8 tion in each calendar year, 20.75

9 percent of the net earnings of

10 that bank (after deducting ex11 penses relating to section 10(j)

12 and operating expenses).

13 ‘‘(ii) ANNUAL DETERMINATION.—

14 The Board annually shall deter15 mine the extent to which the

16 value of the aggregate amounts

17 paid by the Federal home loan

18 banks exceeds or falls short of the

19 value of an annuity of

20 $300,000,000 per year that com21 mences on the issuance date and

22 ends on the final scheduled matu23 rity date of the obligations, and

24 shall select appropriate present
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1 value factors for making such de2 terminations.

3 ‘‘(iii) PAYMENT TERM ALTER4 ATIONS.—The Board shall extend

5 or shorten the term of the pay6 ment obligations of a Federal

7 home loan bank under this sub8 paragraph as necessary to ensure

9 that the value of all payments

10 made by the banks is equivalent

11 to the value of an annuity re12 ferred to in clause (ii).

13 ‘‘(iv) TERM BEYOND MATURITY.—

14 If the Board extends the term of

15 payments beyond the final sched16 uled maturity date for the obliga17 tions, each Federal home loan

18 bank shall continue to pay 20.75

19 percent of its net earnings (after

20 deducting expenses relating to

21 section 10(j) and operating ex22 penses) to the Treasury of the

23 United States until the value of

24 all such payments by the Federal

25 home loan banks is equivalent to
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1 the value of an annuity referred

2 to in clause (ii). In the final year

3 in which the Federal home loan

4 banks are required to make any

5 payment to the Treasury under

6 this subparagraph, if the dollar

7 amount represented by 20.75 per8 cent of the net earnings of the

9 Federal home loan banks exceeds

10 the remaining obligation of the

11 banks to the Treasury, the Fi12 nance Board shall reduce the per13 centage pro rata to a level suffi14 cient to pay the remaining obliga15 tion.’’.

16 (b) EFFECTIVE DATE.—The amendment

17 made by subsection (a) shall become effective

18 on January 1, 1999. Payments made by a Fed19 eral home loan bank before that effective date

20 shall be counted toward the total obligation

21 of that bank under section 21B(f)(2)(C) of the

22 Federal Home Loan Bank Act, as amended by

23 this section.
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1 SEC. 168. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

2 BANKS.

3 Section 6 of the Federal Home Loan Bank

4 Act (12 U.S.C. 1426) is amended to read as fol5 lows:

6 ‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

7 BANKS.

8 ‘‘(a) REGULATIONS.—

9 ‘‘(1) CAPITAL STANDARDS.—Not later

10 than 1 year after the date of enactment of

11 the Financial Services Act of 1999, the Fi12 nance Board shall issue regulations pre13 scribing uniform capital standards appli14 cable to each Federal home loan bank,

15 which shall require each such bank to

16 meet—

17 ‘‘(A) the leverage requirement

18 specified in paragraph (2); and

19 ‘‘(B) the risk-based capital re20 quirements, in accordance with para21 graph (3).

22 ‘‘(2) LEVERAGE REQUIREMENT.—

23 ‘‘(A) IN GENERAL.—The leverage re24 quirement shall require each Federal

25 home loan bank to maintain a min26 imum amount of total capital based
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1 on the aggregate on-balance sheet as2 sets of the bank and shall be 5 per3 cent.

4 ‘‘(B) TREATMENT OF STOCK AND RE5 TAINED EARNINGS.—In determining

6 compliance with the minimum lever7 age ratio established under subpara8 graph (A), the paid-in value of the

9 outstanding Class B stock shall be

10 multiplied by 1.5, the paid-in value of

11 the outstanding Class C stock and the

12 amount of retained earnings shall be

13 multiplied by 2.0, and such higher

14 amounts shall be deemed to be cap15 ital for purposes of meeting the 5 per16 cent minimum leverage ratio.

17 ‘‘(3) RISK-BASED CAPITAL STANDARDS.—

18 ‘‘(A) IN GENERAL.—Each Federal

19 home loan bank shall maintain per20 manent capital in an amount that is

21 sufficient, as determined in accord22 ance with the regulations of the Fi23 nance Board, to meet—
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1 ‘‘(i) the credit risk to which

2 the Federal home loan bank is

3 subject; and

4 ‘‘(ii) the market risk, includ5 ing interest rate risk, to which

6 the Federal home loan bank is

7 subject, based on a stress test es8 tablished by the Finance Board

9 that rigorously tests for changes

10 in market variables, including

11 changes in interest rates, rate vol12 atility, and changes in the shape

13 of the yield curve.

14 ‘‘(B) CONSIDERATION OF OTHER

15 RISK-BASED STANDARDS.—In estab16 lishing the risk-based standard under

17 subparagraph (A)(ii), the Finance

18 Board shall take due consideration of

19 any risk-based capital test estab20 lished pursuant to section 1361 of the

21 Federal Housing Enterprises Finan22 cial Safety and Soundness Act of 1992

23 (12 U.S.C. 4611) for the enterprises (as

24 defined in that Act), with such modi25 fications as the Finance Board deter-
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1 mines to be appropriate to reflect dif2 ferences in operations between the

3 Federal home loan banks and those

4 enterprises.

5 ‘‘(4) OTHER REGULATORY REQUIRE6 MENTS.—The regulations issued by the Fi7 nance Board under paragraph (1) shall—

8 ‘‘(A) permit each Federal home

9 loan bank to issue, with such rights,

10 terms, and preferences, not incon11 sistent with this Act and the regula12 tions issued hereunder, as the board

13 of directors of that bank may ap14 prove, any 1 or more of—

15 ‘‘(i) Class A stock, which shall

16 be redeemable in cash and at par

17 6 months following submission by

18 a member of a written notice of

19 its intent to redeem such shares;

20 ‘‘(ii) Class B stock, which shall

21 be redeemable in cash and at par

22 5 years following submission by a

23 member of a written notice of its

24 intent to redeem such shares; and
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1 ‘‘(iii) Class C stock, which

2 shall be nonredeemable;

3 ‘‘(B) provide that the stock of a

4 Federal home loan bank may be

5 issued to and held by only members

6 of the bank, and that a bank may not

7 issue any stock other than as pro8 vided in this section;

9 ‘‘(C) prescribe the manner in

10 which stock of a Federal home loan

11 bank may be sold, transferred, re12 deemed, or repurchased; and

13 ‘‘(D) provide the manner of dis14 position of outstanding stock held by,

15 and the liquidation of any claims of

16 the Federal home loan bank against,

17 an institution that ceases to be a

18 member of the bank, through merger

19 or otherwise, or that provides notice

20 of intention to withdraw from mem21 bership in the bank.

22 ‘‘(5) DEFINITIONS OF CAPITAL.—For pur23 poses of determining compliance with the

24 capital standards established under this

25 subsection—
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1 ‘‘(A) permanent capital of a Fed2 eral home loan bank shall include (as

3 determined in accordance with gen4 erally accepted accounting prin5 ciples)—

6 ‘‘(i) the amounts paid for the

7 Class C stock and any other non8 redeemable stock approved by

9 the Finance Board;

10 ‘‘(ii) the amounts paid for the

11 Class B stock, in an amount not to

12 exceed 1 percent of the total as13 sets of the bank; and

14 ‘‘(iii) the retained earnings of

15 the bank; and

16 ‘‘(B) total capital of a Federal

17 home loan bank shall include—

18 ‘‘(i) permanent capital;

19 ‘‘(ii) the amounts paid for the

20 Class A stock, Class B stock (ex21 cluding any amount treated as

22 permanent capital under subpara23 graph (5)(A)(ii)), or any other

24 class of redeemable stock ap25 proved by the Finance Board;
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1 ‘‘(iii) consistent with generally

2 accepted accounting principles,

3 and subject to the regulation of

4 the Finance Board, a general al5 lowance for losses, which may not

6 include any reserves or allow7 ances made or held against spe8 cific assets; and

9 ‘‘(iv) any other amounts from

10 sources available to absorb losses

11 incurred by the bank that the Fi12 nance Board determines by regu13 lation to be appropriate to in14 clude in determining total capital.

15 ‘‘(6) TRANSITION PERIOD.—Notwith16 standing any other provisions of this Act,

17 the requirements relating to purchase

18 and retention of capital stock of a Fed19 eral home loan bank by any member

20 thereof in effect on the day before the

21 date of enactment of the Federal Home

22 Loan Bank System Modernization Act of

23 1999, shall continue in effect with respect

24 to each Federal home loan bank until the

25 regulations required by this subsection
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1 have taken effect and the capital struc2 ture plan required by subsection (b) has

3 been approved by the Finance Board and

4 implemented by such bank.

5 ‘‘(b) CAPITAL STRUCTURE PLAN.—

6 ‘‘(1) APPROVAL OF PLANS.—Not later

7 than 270 days after the date of publica8 tion by the Finance Board of final regula9 tions in accordance with subsection (a),

10 the board of directors of each Federal

11 home loan bank shall submit for Finance

12 Board approval a plan establishing and

13 implementing a capital structure for such

14 bank that—

15 ‘‘(A) the board of directors deter16 mines is best suited for the condition

17 and operation of the bank and the in18 terests of the members of the bank;

19 ‘‘(B) meets the requirements of

20 subsection (c); and

21 ‘‘(C) meets the minimum capital

22 standards and requirements estab23 lished under subsection (a) and other

24 regulations prescribed by the Fi25 nance Board.
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1 ‘‘(2) APPROVAL OF MODIFICATIONS.—The

2 board of directors of a Federal home loan

3 bank shall submit to the Finance Board

4 for approval any modifications that the

5 bank proposes to make to an approved

6 capital structure plan.

7 ‘‘(c) CONTENTS OF PLAN.—The capital struc8 ture plan of each Federal home loan bank

9 shall contain provisions addressing each of

10 the following:

11 ‘‘(1) MINIMUM INVESTMENT.—

12 ‘‘(A) IN GENERAL.—Each capital

13 structure plan of a Federal home loan

14 bank shall require each member of

15 the bank to maintain a minimum in16 vestment in the stock of the bank, the

17 amount of which shall be determined

18 in a manner to be prescribed by the

19 board of directors of each bank and

20 to be included as part of the plan.

21 ‘‘(B) INVESTMENT ALTERNATIVES.—

22 ‘‘(i) IN GENERAL.—In estab23 lishing the minimum investment

24 required for each member under

25 subparagraph (A), a Federal home
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1 loan bank may, in its discretion,

2 include any 1 or more of the re3 quirements referred to in clause

4 (ii), or any other provisions ap5 proved by the Finance Board.

6 ‘‘(ii) AUTHORIZED REQUIRE7 MENTS.—A requirement is referred

8 to in this clause if it is a require9 ment for—

10 ‘‘(I) a stock purchase

11 based on a percentage of the

12 total assets of a member; or

13 ‘‘(II) a stock purchase

14 based on a percentage of the

15 outstanding advances from

16 the bank to the member.

17 ‘‘(C) MINIMUM AMOUNT.—Each cap18 ital structure plan of a Federal home

19 loan bank shall require that the min20 imum stock investment established

21 for members shall be set at a level

22 that is sufficient for the bank to meet

23 the minimum capital requirements

24 established by the Finance Board

25 under subsection (a).
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1 ‘‘(D) ADJUSTMENTS TO MINIMUM RE2 QUIRED INVESTMENT.—The capital

3 structure plan of each Federal home

4 loan bank shall impose a continuing

5 obligation on the board of directors

6 of the bank to review and adjust the

7 minimum investment required of

8 each member of that bank, as nec9 essary to ensure that the bank re10 mains in compliance with applicable

11 minimum capital levels established

12 by the Finance Board, and shall re13 quire each member to comply

14 promptly with any adjustments to the

15 required minimum investment.

16 ‘‘(2) TRANSITION RULE.—

17 ‘‘(A) IN GENERAL.—The capital

18 structure plan of each Federal home

19 loan bank shall specify the date on

20 which it shall take effect, and may

21 provide for a transition period of not

22 longer than 3 years to allow the bank

23 to come into compliance with the cap24 ital requirements prescribed under

25 subsection (a), and to allow any insti-
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1 tution that was a member of the bank

2 on the date of enactment of the Fi3 nancial Services Act of 1999, to come

4 into compliance with the minimum

5 investment required pursuant to the

6 plan.

7 ‘‘(B) INTERIM PURCHASE REQUIRE8 MENTS.—The capital structure plan of

9 a Federal home loan bank may allow

10 any member referred to in subpara11 graph (A) that would be required by

12 the terms of the capital structure

13 plan to increase its investment in the

14 stock of the bank to do so in periodic

15 installments during the transition pe16 riod.

17 ‘‘(3) DISPOSITION OF SHARES.—The cap18 ital structure plan of a Federal home loan

19 bank shall provide for the manner of dis20 position of any stock held by a member of

21 that bank that terminates its membership

22 or that provides notice of its intention to

23 withdraw from membership in that bank.

24 ‘‘(4) CLASSES OF STOCK.—
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1 ‘‘(A) IN GENERAL.—The capital

2 structure plan of a Federal home loan

3 bank shall afford each member of

4 that bank the option of maintaining

5 its required investment in the bank

6 through the purchase of any com7 bination of classes of stock author8 ized by the board of directors of the

9 bank and approved by the Finance

10 Board in accordance with its regula11 tions.

12 ‘‘(B) RIGHTS REQUIREMENT.—A Fed13 eral home loan bank shall include in

14 its capital structure plan provisions

15 establishing terms, rights, and pref16 erences, including minimum invest17 ment, dividends, voting, and liquida18 tion preferences of each class of stock

19 issued by the bank, consistent with

20 Finance Board regulations and mar21 ket requirements.

22 ‘‘(C) REDUCED MINIMUM INVEST23 MENT.—The capital structure plan of a

24 Federal home loan bank may provide

25 for a reduced minimum stock invest-
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1 ment for any member of that bank

2 that elects to purchase Class B, Class

3 C, or any other class of nonredeem4 able stock, in a manner that is con5 sistent with meeting the minimum

6 capital requirements of the bank, as

7 established by the Finance Board.

8 ‘‘(D) LIQUIDATION OF CLAIMS.—The

9 capital structure plan of a Federal

10 home loan bank shall provide for the

11 liquidation in an orderly manner, as

12 determined by the bank, of any claim

13 of that bank against a member, in14 cluding claims for any applicable pre15 payment fees or penalties resulting

16 from prepayment of advances prior to

17 stated maturity.

18 ‘‘(5) LIMITED TRANSFERABILITY OF

19 STOCK.—The capital structure plan of a

20 Federal home loan bank shall—

21 ‘‘(A) provide that—

22 ‘‘(i) any stock issued by that

23 bank shall be available only to,

24 held only by, and tradable only

25 among members of that bank and
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1 between that bank and its mem2 bers; and

3 ‘‘(ii) a bank has no obligation

4 to repurchase its outstanding

5 Class C stock but may do so, pro6 vided it is consistent with Fi7 nance Board regulations and is at

8 a price that is mutually agreeable

9 to the bank and the member; and

10 ‘‘(B) establish standards, criteria,

11 and requirements for the issuance,

12 purchase, transfer, retirement, and

13 redemption of stock issued by that

14 bank.

15 ‘‘(6) BANK REVIEW OF PLAN.—Before fil16 ing a capital structure plan with the Fi17 nance Board, each Federal home loan

18 bank shall conduct a review of the plan

19 by—

20 ‘‘(A) an independent certified pub21 lic accountant, to ensure, to the ex22 tent possible, that implementation of

23 the plan would not result in any

24 write-down of the redeemable bank

25 stock investment of its members; and
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1 ‘‘(B) at least 1 major credit rating

2 agency, to determine, to the extent

3 possible, whether implementation of

4 the plan would have any material ef5 fect on the credit ratings of the bank.

6 ‘‘(d) TERMINATION OF MEMBERSHIP.—

7 ‘‘(1) VOLUNTARY WITHDRAWAL.—Any

8 member may withdraw from a Federal

9 home loan bank by providing written no10 tice to the bank of its intent to do so. The

11 applicable stock redemption notice peri12 ods shall commence upon receipt of the

13 notice by the bank. Upon the expiration

14 of the applicable notice period for each

15 class of redeemable stock, the member

16 may surrender such stock to the bank,

17 and shall be entitled to receive in cash

18 the par value of the stock. During the ap19 plicable notice periods, the member shall

20 be entitled to dividends and other mem21 bership rights commensurate with con22 tinuing stock ownership.

23 ‘‘(2) INVOLUNTARY WITHDRAWAL.—

24 ‘‘(A) IN GENERAL.—The board of di25 rectors of a Federal home loan bank
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1 may terminate the membership of

2 any institution if, subject to Finance

3 Board regulations, it determines

4 that—

5 ‘‘(i) the member has failed to

6 comply with a provision of this

7 Act or any regulation prescribed

8 under this Act; or

9 ‘‘(ii) the member has been de10 termined to be insolvent, or oth11 erwise subject to the appointment

12 of a conservator, receiver, or

13 other legal custodian, by a State

14 or Federal authority with regu15 latory and supervisory responsi16 bility for the member.

17 ‘‘(B) STOCK DISPOSITION.—An insti18 tution, the membership of which is

19 terminated in accordance with sub20 paragraph (A)—

21 ‘‘(i) shall surrender redeem22 able stock to the Federal home

23 loan bank, and shall receive in

24 cash the par value of the stock,

25 upon the expiration of the appli-
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1 cable notice period under sub2 section (a)(4)(A);

3 ‘‘(ii) shall receive any divi4 dends declared on its redeemable

5 stock, during the applicable no6 tice period under subsection

7 (a)(4)(A); and

8 ‘‘(iii) shall not be entitled to

9 any other rights or privileges ac10 corded to members after the date

11 of the termination.

12 ‘‘(C) COMMENCEMENT OF NOTICE PE13 RIOD.—With respect to an institution,

14 the membership of which is termi15 nated in accordance with subpara16 graph (A), the applicable notice pe17 riod under subsection (a)(4) for each

18 class of redeemable stock shall com19 mence on the earlier of—

20 ‘‘(i) the date of such termi21 nation; or

22 ‘‘(ii) the date on which the

23 member has provided notice of its

24 intent to redeem such stock.
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1 ‘‘(3) LIQUIDATION OF INDEBTEDNESS.—

2 Upon the termination of the membership

3 of an institution for any reason, the out4 standing indebtedness of the member to

5 the bank shall be liquidated in an orderly

6 manner, as determined by the bank and,

7 upon the extinguishment of all such in8 debtedness, the bank shall return to the

9 member all collateral pledged to secure

10 the indebtedness.

11 ‘‘(e) REDEMPTION OF EXCESS STOCK.—

12 ‘‘(1) IN GENERAL.—A Federal home

13 loan bank, in its sole discretion, may re14 deem or repurchase, as appropriate, any

15 shares of Class A or Class B stock issued

16 by the bank and held by a member that

17 are in excess of the minimum stock in18 vestment required of that member.

19 ‘‘(2) EXCESS STOCK.—Shares of stock

20 held by a member shall not be deemed to

21 be ‘excess stock’ for purposes of this sub22 section by virtue of a member’s submis23 sion of a notice of intent to withdraw

24 from membership or termination of its

25 membership in any other manner.
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1 ‘‘(3) PRIORITY.—A Federal home loan

2 bank may not redeem any excess Class B

3 stock prior to the end of the 5-year notice

4 period, unless the member has no Class A

5 stock outstanding that could be re6 deemed as excess.

7 ‘‘(f) IMPAIRMENT OF CAPITAL.—If the Fi8 nance Board or the board of directors of a

9 Federal home loan bank determines that the

10 bank has incurred or is likely to incur losses

11 that result in or are expected to result in

12 charges against the capital of the bank, the

13 bank shall not redeem or repurchase any

14 stock of the bank without the prior approval

15 of the Finance Board while such charges are

16 continuing or are expected to continue. In no

17 case may a bank redeem or repurchase any

18 applicable capital stock if, following the re19 demption, the bank would fail to satisfy any

20 minimum capital requirement.

21 ‘‘(g) REJOINING AFTER DIVESTITURE OF ALL

22 SHARES.—

23 ‘‘(1) IN GENERAL.—Except as provided

24 in paragraph (2), and notwithstanding

25 any other provision of this Act, an insti-
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1 tution that divests all shares of stock in a

2 Federal home loan bank may not, after

3 such divestiture, acquire shares of any

4 Federal home loan bank before the end of

5 the 5-year period beginning on the date

6 of the completion of such divestiture, un7 less the divestiture is a consequence of a

8 transfer of membership on an uninter9 rupted basis between banks.

10 ‘‘(2) EXCEPTION FOR WITHDRAWALS

11 FROM MEMBERSHIP BEFORE 1998.—Any insti12 tution that withdrew from membership

13 in any Federal home loan bank before

14 December 31, 1997, may acquire shares of

15 a Federal home loan bank at any time

16 after that date, subject to the approval of

17 the Finance Board and the requirements

18 of this Act.

19 ‘‘(h) TREATMENT OF RETAINED EARNINGS.—

20 ‘‘(1) IN GENERAL.—The holders of the

21 Class C stock of a Federal home loan

22 bank, and any other classes of non23 redeemable stock approved by the Fi24 nance Board (to the extent provided in

25 the terms thereof), shall own the retained
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1 earnings, surplus, undivided profits, and

2 equity reserves, if any, of the bank.

3 ‘‘(2) NO NONREDEEMABLE CLASSES OF

4 STOCK.—If a Federal home loan bank has

5 no outstanding Class C or other such

6 nonredeemable stock, then the holders of

7 any other classes of stock of the bank

8 then outstanding shall have ownership

9 in, and a private property right in, the re10 tained earnings, surplus, undivided prof11 its, and equity reserves, if any, of the

12 bank.

13 ‘‘(3) EXCEPTION.—Except as specifi14 cally provided in this section or through

15 the declaration of a dividend or a capital

16 distribution by a Federal home loan

17 bank, or in the event of liquidation of the

18 bank, a member shall have no right to

19 withdraw or otherwise receive distribu20 tion of any portion of the retained earn21 ings of the bank.

22 ‘‘(4) LIMITATION.—A Federal home loan

23 bank may not make any distribution of

24 its retained earnings unless, following

25 such distribution, the bank would con-
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1 tinue to meet all applicable capital re2 quirements.’’.

3 Subtitle H—ATM Fee Reform

4 SEC. 171. SHORT TITLE.

5 This subtitle may be cited as the ‘‘ATM

6 Fee Reform Act of 1999’’.

7 SEC. 172. ELECTRONIC FUND TRANSFER FEE DISCLOSURES

8 AT ANY HOST ATM.

9 Section 904(d) of the Electronic Fund

10 Transfer Act (15 U.S.C. 1693b(d)) is amended

11 by adding at the end the following new para12 graph:

13 ‘‘(3) FEE DISCLOSURES AT AUTOMATED

14 TELLER MACHINES.—

15 ‘‘(A) IN GENERAL.—The regulations

16 prescribed under paragraph (1) shall

17 require any automated teller machine

18 operator who imposes a fee on any

19 consumer for providing host transfer

20 services to such consumer to provide

21 notice in accordance with subpara22 graph (B) to the consumer (at the

23 time the service is provided) of—
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1 ‘‘(i) the fact that a fee is im2 posed by such operator for pro3 viding the service; and

4 ‘‘(ii) the amount of any such

5 fee.

6 ‘‘(B) NOTICE REQUIREMENTS.—

7 ‘‘(i) ON THE MACHINE.—The no8 tice required under clause (i) of

9 subparagraph (A) with respect to

10 any fee described in such sub11 paragraph shall be posted in a

12 prominent and conspicuous loca13 tion on or at the automated teller

14 machine at which the electronic

15 fund transfer is initiated by the

16 consumer; and

17 ‘‘(ii) ON THE SCREEN.—The no18 tice required under clauses (i)

19 and (ii) of subparagraph (A) with

20 respect to any fee described in

21 such subparagraph shall appear

22 on the screen of the automated

23 teller machine, or on a paper no24 tice issued from such machine,

25 after the transaction is initiated
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1 and before the consumer is irrev2 ocably committed to completing

3 the transaction.

4 ‘‘(C) PROHIBITION ON FEES NOT

5 PROPERLY DISCLOSED AND EXPLICITLY

6 ASSUMED BY CONSUMER.—No fee may

7 be imposed by any automated teller

8 machine operator in connection with

9 any electronic fund transfer initiated

10 by a consumer for which a notice is

11 required under subparagraph (A),

12 unless—

13 ‘‘(i) the consumer receives

14 such notice in accordance with

15 subparagraph (B); and

16 ‘‘(ii) the consumer elects to

17 continue in the manner necessary

18 to effect the transaction after re19 ceiving such notice.

20 ‘‘(D) DEFINITIONS.—For purposes

21 of this paragraph, the following defi22 nitions shall apply:

23 ‘‘(i) ELECTRONIC FUND TRANS24 FER.—The term ‘electronic fund

25 transfer’ includes a transaction
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1 which involves a balance inquiry

2 initiated by a consumer in the

3 same manner as an electronic

4 fund transfer, whether or not the

5 consumer initiates a transfer of

6 funds in the course of the trans7 action.

8 ‘‘(ii) AUTOMATED TELLER MA9 CHINE OPERATOR.—The term ‘auto10 mated teller machine operator’

11 means any person who—

12 ‘‘(I) operates an auto13 mated teller machine at

14 which consumers initiate elec15 tronic fund transfers; and

16 ‘‘(II) is not the financial

17 institution which holds the

18 account of such consumer

19 from which the transfer is

20 made.

21 ‘‘(iii) HOST TRANSFER SERV22 ICES.—The term ‘host transfer

23 services’ means any electronic

24 fund transfer made by an auto25 mated teller machine operator in
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1 connection with a transaction ini2 tiated by a consumer at an auto3 mated teller machine operated by

4 such operator.’’.

5 SEC. 173. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS

6 WHEN ATM CARD IS ISSUED.

7 Section 905(a) of the Electronic Fund

8 Transfer Act (15 U.S.C. 1693c(a)) is amended—

9 (1) by striking ‘‘and’’ at the end of

10 paragraph (8);

11 (2) by striking the period at the end

12 of paragraph (9) and inserting ‘‘; and’’;

13 and

14 (3) by inserting after paragraph (9)

15 the following new paragraph:

16 ‘‘(10) a notice to the consumer that a

17 fee may be imposed by—

18 ‘‘(A) an automated teller machine

19 operator (as defined in section

20 904(d)(3)(D)(ii)) if the consumer initi21 ates a transfer from an automated

22 teller machine which is not operated

23 by the person issuing the card or

24 other means of access; and
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1 ‘‘(B) any national, regional, or

2 local network utilized to effect the

3 transaction.’’.

4 SEC. 174. FEASIBILITY STUDY.

5 (a) IN GENERAL.—The Comptroller General

6 of the United States shall conduct a study of

7 the feasibility of requiring, in connection with

8 any electronic fund transfer initiated by a

9 consumer through the use of an automated

10 teller machine—

11 (1) a notice to be provided to the con12 sumer before the consumer is irrevocably

13 committed to completing the transaction,

14 which clearly states the amount of any

15 fee which will be imposed upon the con16 summation of the transaction by—

17 (A) any automated teller machine

18 operator (as defined in section

19 904(d)(2)(D)(ii) of the Electronic Fund

20 Transfer Act) involved in the trans21 action;

22 (B) the financial institution hold23 ing the account of the consumer;
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1 (C) any national, regional, or local

2 network utilized to effect the trans3 action; and

4 (D) any other party involved in

5 the transfer; and

6 (2) the consumer to elect to consum7 mate the transaction after receiving the

8 notice described in paragraph (1).

9 (b) FACTORS TO BE CONSIDERED.—In con10 ducting the study required under subsection

11 (a) with regard to the notice requirement de12 scribed in such subsection, the Comptroller

13 General shall consider the following factors:

14 (1) The availability of appropriate

15 technology.

16 (2) Implementation and operating

17 costs.

18 (3) The competitive impact any such

19 notice requirement would have on var20 ious sizes and types of institutions, if im21 plemented.

22 (4) The period of time which would be

23 reasonable for implementing any such

24 notice requirement.
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1 (5) The extent to which consumers

2 would benefit from any such notice re3 quirement.

4 (6) Any other factor the Comptroller

5 General determines to be appropriate in

6 analyzing the feasibility of imposing any

7 such notice requirement.

8 (c) REPORT TO THE CONGRESS.—Before the

9 end of the 6-month period beginning on the

10 date of the enactment of this Act, the Comp11 troller General shall submit a report to the

12 Congress containing—

13 (1) the findings and conclusions of

14 the Comptroller General in connection

15 with the study required under subsection

16 (a); and

17 (2) the recommendation of the Comp18 troller General with regard to the ques19 tion of whether a notice requirement de20 scribed in subsection (a) should be imple21 mented and, if so, how such requirement

22 should be implemented.
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1 SEC. 175. NO LIABILITY IF POSTED NOTICES ARE DAM2 AGED.

3 Section 910 of the Electronic Fund Trans4 fer Act (15 U.S.C 1693h) is amended by adding

5 at the end the following new subsection:

6 ‘‘(d) EXCEPTION FOR DAMAGED NOTICES.—If

7 the notice required to be posted pursuant to

8 section 904(d)(3)(B)(i) by an automated teller

9 machine operator has been posted by such op10 erator in compliance with such section and

11 the notice is subsequently removed, damaged,

12 or altered by any person other than the oper13 ator of the automated teller machine, the op14 erator shall have no liability under this sec15 tion for failure to comply with section

16 904(d)(3)(B)(i).’’.

17 SEC. 176. EFFECTIVE DATE.

18 The amendments made by this subtitle

19 shall take effect at the end of the 270-day pe20 riod beginning on the date of the enactment

21 of this Act.
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1 Subtitle I—Direct Activities of

2 Banks

3 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER4 WRITE CERTAIN MUNICIPAL BONDS.

5 The paragraph designated the Seventh of

6 section 5136 of the Revised Statutes of the

7 United States (12 U.S.C. 24(7)) is amended by

8 adding at the end the following new sentence:

9 ‘‘In addition to the provisions in this para10 graph for dealing in, underwriting or pur11 chasing securities, the limitations and restric12 tions contained in this paragraph as to deal13 ing in, underwriting, and purchasing invest14 ment securities for the national bank’s own

15 account shall not apply to obligations (includ16 ing limited obligation bonds, revenue bonds,

17 and obligations that satisfy the requirements

18 of section 142(b)(1) of the Internal Revenue

19 Code of 1986) issued by or on behalf of any

20 State or political subdivision of a State, in21 cluding any municipal corporate instrumen22 tality of 1 or more States, or any public agen23 cy or authority of any State or political sub24 division of a State, if the national bank is well
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1 capitalized (as defined in section 38 of the

2 Federal Deposit Insurance Act).’’.

3 Subtitle J—Deposit Insurance

4 Funds

5 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.

6 (a) STUDY REQUIRED.—The Board of Direc7 tors of the Federal Deposit Insurance Cor8 poration shall conduct a study of the fol9 lowing issues with regard to the Bank Insur10 ance Fund and the Savings Association Insur11 ance Fund:

12 (1) SAFETY AND SOUNDNESS.—The safe13 ty and soundness of the funds and the

14 adequacy of the reserve requirements ap15 plicable to the funds in light of—

16 (A) the size of the insured deposi17 tory institutions which are resulting

18 from mergers and consolidations

19 since the effective date of the Riegle20 Neal Interstate Banking and Branch21 ing Efficiency Act of 1994; and

22 (B) the affiliation of insured de23 pository institutions with other finan24 cial institutions pursuant to this Act
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1 and the amendments made by this

2 Act.

3 (2) CONCENTRATION LEVELS.—The con4 centration levels of the funds, taking into

5 account the number of members of each

6 fund and the geographic distribution of

7 such members, and the extent to which

8 either fund is exposed to higher risks due

9 to a regional concentration of members

10 or an insufficient membership base rel11 ative to the size of member institutions.

12 (3) MERGER ISSUES.—Issues relating to

13 the planned merger of the funds, includ14 ing the cost of merging the funds and the

15 manner in which such costs will be dis16 tributed among the members of the re17 spective funds.

18 (b) REPORT REQUIRED.—

19 (1) IN GENERAL.—Before the end of the

20 9-month period beginning on the date of

21 the enactment of this Act, the Board of

22 Directors of the Federal Deposit Insur23 ance Corporation shall submit a report to

24 the Congress on the study conducted pur25 suant to subsection (a).
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1 (2) CONTENTS OF REPORT.—The report

2 shall include—

3 (A) detailed findings of the Board

4 of Directors with regard to the issues

5 described in subsection (a);

6 (B) a description of the plans de7 veloped by the Board of Directors for

8 merging the Bank Insurance Fund

9 and the Savings Association Insur10 ance Fund, including an estimate of

11 the amount of the cost of such merger

12 which would be borne by Savings As13 sociation Insurance Fund members;

14 and

15 (C) such recommendations for

16 legislative and administrative action

17 as the Board of Directors determines

18 to be necessary or appropriate to pre19 serve the safety and soundness of the

20 deposit insurance funds, reduce the

21 risks to such funds, provide for an ef22 ficient merger of such funds, and for

23 other purposes.

24 (c) DEFINITIONS.—For purposes of this sec25 tion, the following definitions shall apply:
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1 (1) INSURED DEPOSITORY INSTITUTION.—

2 The term ‘‘insured depository institution’’

3 has the same meaning as in section 3(c)

4 of the Federal Deposit Insurance Act.

5 (2) BIF AND SAIF MEMBERS.—The terms

6 ‘‘Bank Insurance Fund member’’ and

7 ‘‘Savings Association Insurance Fund

8 member’’ have the same meanings as in

9 section 7(l) of the Federal Deposit Insur10 ance Act.

11 SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE12 SERVES.

13 (a) SAIF SPECIAL RESERVES.—Section

14 11(a)(6) of the Federal Deposit Insurance Act

15 (12 U.S.C. 1821(a)(6)) is amended by striking

16 subparagraph (L).

17 (b) DIF SPECIAL RESERVES.—Section 2704

18 of the Deposit Insurance Funds Act of 1996 (12

19 U.S.C. 1821 note) is amended—

20 (1) by striking subsection (b); and

21 (2) in subsection (d)—

22 (A) by striking paragraph (4);

23 (B) in paragraph (6)(C)(i), by

24 striking ‘‘(6) and (7)’’ and inserting

25 ‘‘(5), (6), and (7)’’; and
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1 (C) in paragraph (6)(C), by strik2 ing clause (ii) and inserting the fol3 lowing:

4 ‘‘(ii) by redesignating para5 graph (8) as paragraph (5).’’.

6 Subtitle K—Miscellaneous

7 Provisions

8 SEC. 191. TERMINATION OF ‘‘KNOW YOUR CUSTOMER’’ REG9 ULATIONS.

10 (a) IN GENERAL.—None of the proposed

11 regulations described in subsection (b) may

12 be published in final form and, to the extent

13 any such regulation has become effective be14 fore the date of the enactment of this Act,

15 such regulation shall cease to be effective as

16 of such date.

17 (b) PROPOSED REGULATIONS DESCRIBED.—

18 The proposed regulations referred to in sub19 section (a) are as follows:

20 (1) The regulation proposed by the

21 Comptroller of the Currency to amend

22 part 21 of title 12 of the Code of Federal

23 Regulations, as published in the Federal

24 Register on December 7, 1998.
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1 (2) The regulation proposed by the

2 Director of the Office of Thrift Super3 vision to amend part 563 of title 12 of the

4 Code of Federal Regulations, as pub5 lished in the Federal Register on Decem6 ber 7, 1998.

7 (3) The regulation proposed by the

8 Board of Governors of the Federal Re9 serve System to amend parts 208, 211,

10 and 225 of title 12 of the Code of Federal

11 Regulations, as published in the Federal

12 Register on December 7, 1998.

13 (4) The regulation proposed by the

14 Federal Deposit Insurance Corporation

15 to amend part 326 of title 12 of the Code

16 of Federal Regulations, as published in

17 the Federal Register on December 7,

18 1998.

19 SEC. 192. STUDY AND REPORT ON FEDERAL ELECTRONIC

20 FUND TRANSFERS.

21 (a) STUDY.—The Secretary of the Treasury

22 shall conduct a feasibility study to

23 determine—

24 (1) whether all electronic payments

25 issued by Federal agencies could be rout-
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1 ed through the Regional Finance Centers

2 of the Department of the Treasury for

3 verification and reconciliation;

4 (2) whether all electronic payments

5 made by the Federal Government could

6 be subjected to the same level of rec7 onciliation as United States Treasury

8 checks, including matching each payment

9 issued with each corresponding deposit

10 at financial institutions;

11 (3) whether the appropriate computer

12 security controls are in place in order to

13 ensure the integrity of electronic pay14 ments;

15 (4) the estimated costs of imple16 menting, if so recommended, the proc17 esses and controls described in para18 graphs (1), (2), and (3); and

19 (5) a possible timetable for imple20 menting those processes if so rec21 ommended.

22 (b) REPORT TO CONGRESS.—Not later than

23 October 1, 2000, the Secretary of the Treasury

24 shall submit a report to Congress containing
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1 the results of the study required by sub2 section (a).

3 (c) DEFINITION.—For purposes of this sec4 tion, the term ‘‘electronic payment’’ means

5 any transfer of funds, other than a trans6 action originated by check, draft, or similar

7 paper instrument, which is initiated through

8 an electronic terminal, telephonic instru9 ment, or computer or magnetic tapes so as to

10 order, instruct, or authorize a debit or credit

11 to a financial account.

12 SEC. 193. STUDY AND REPORT ON ADAPTING EXISTING

13 LEGISLATIVE REQUIREMENTS TO ONLINE

14 BANKING AND LENDING.

15 (a) STUDY REQUIRED.—The Federal bank16 ing agencies shall conduct a study of banking

17 regulations regarding the delivery of finan18 cial services, including those regulations that

19 may assume that there will be person-to-per20 son contact during the course of a financial

21 services transaction, and report their rec22 ommendations on adapting those existing re23 quirements to online banking and lending.

24 (b) REPORT REQUIRED.—Within 1 year of

25 the date of the enactment of this Act, the Fed-
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1 eral banking agencies shall submit a report to

2 the Congress on the findings and conclusions

3 of the agencies with respect to the study re4 quired under subsection (a), together with

5 such recommendations for legislative or regu6 latory action as the agencies may determine

7 to be appropriate.

8 (c) DEFINITION.—For purposes of this sec9 tion, the term ‘‘Federal banking agencies’’

10 means each Federal banking agency (as de11 fined in section 3(z) of the Federal Deposit In12 surance Act).

13 TITLE II—FUNCTIONAL

14 REGULATION

15 Subtitle A—Brokers and Dealers

16 SEC. 201. DEFINITION OF BROKER.

17 Section 3(a)(4) of the Securities Exchange

18 Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to

19 read as follows:

20 ‘‘(4) BROKER.—

21 ‘‘(A) IN GENERAL.—The term

22 ‘broker’ means any person engaged in

23 the business of effecting transactions

24 in securities for the account of oth25 ers.
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1 ‘‘(B) EXCEPTION FOR CERTAIN BANK

2 ACTIVITIES.—A bank shall not be con3 sidered to be a broker because the

4 bank engages in any one or more of

5 the following activities under the

6 conditions described:

7 ‘‘(i) THIRD PARTY BROKERAGE

8 ARRANGEMENTS.—The bank enters

9 into a contractual or other writ10 ten arrangement with a broker or

11 dealer registered under this title

12 under which the broker or dealer

13 offers brokerage services on or off

14 the premises of the bank if—

15 ‘‘(I) such broker or dealer

16 is clearly identified as the

17 person performing the bro18 kerage services;

19 ‘‘(II) the broker or dealer

20 performs brokerage services

21 in an area that is clearly

22 marked and, to the extent

23 practicable, physically sepa24 rate from the routine deposit25 taking activities of the bank;
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1 ‘‘(III) any materials used

2 by the bank to advertise or

3 promote generally the avail4 ability of brokerage services

5 under the arrangement clear6 ly indicate that the brokerage

7 services are being provided

8 by the broker or dealer and

9 not by the bank;

10 ‘‘(IV) any materials used

11 by the bank to advertise or

12 promote generally the avail13 ability of brokerage services

14 under the arrangement are in

15 compliance with the Federal

16 securities laws before dis17 tribution;

18 ‘‘(V) bank employees

19 (other than associated per20 sons of a broker or dealer

21 who are qualified pursuant to

22 the rules of a self-regulatory

23 organization) perform only

24 clerical or ministerial func25 tions in connection with bro-
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1 kerage transactions including

2 scheduling appointments with

3 the associated persons of a

4 broker or dealer, except that

5 bank employees may forward

6 customer funds or securities

7 and may describe in general

8 terms the types of investment

9 vehicles available from the

10 bank and the broker or dealer

11 under the arrangement;

12 ‘‘(VI) bank employees do

13 not receive incentive com14 pensation for any brokerage

15 transaction unless such em16 ployees are associated per17 sons of a broker or dealer and

18 are qualified pursuant to the

19 rules of a self-regulatory orga20 nization, except that the bank

21 employees may receive com22 pensation for the referral of

23 any customer if the com24 pensation is a nominal one25 time cash fee of a fixed dollar
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1 amount and the payment of

2 the fee is not contingent on

3 whether the referral results

4 in a transaction;

5 ‘‘(VII) such services are

6 provided by the broker or

7 dealer on a basis in which all

8 customers which receive any

9 services are fully disclosed to

10 the broker or dealer;

11 ‘‘(VIII) the bank does not

12 carry a securities account of

13 the customer except as per14 mitted under clause (ii) or

15 (viii) of this subparagraph;

16 and

17 ‘‘(IX) the bank, broker, or

18 dealer informs each customer

19 that the brokerage services

20 are provided by the broker or

21 dealer and not by the bank

22 and that the securities are not

23 deposits or other obligations

24 of the bank, are not guaran25 teed by the bank, and are not
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1 insured by the Federal De2 posit Insurance Corporation.

3 ‘‘(ii) TRUST ACTIVITIES.—The

4 bank effects transactions in a

5 trustee or fiduciary capacity in

6 its trust department, or another

7 department where the trust or fi8 duciary activity is regularly ex9 amined by bank examiners under

10 the same standards and in the

11 same way as such activities are

12 examined in the trust depart13 ment, and—

14 ‘‘(I) is chiefly compensated

15 for such transactions, con16 sistent with fiduciary prin17 ciples and standards, on the

18 basis of an administration or

19 annual fee (payable on a

20 monthly, quarterly, or other

21 basis), a percentage of assets

22 under management, or a flat

23 or capped per order proc24 essing fee equal to not more

25 than the cost incurred by the
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1 bank in connection with exe2 cuting securities transactions

3 for trustee and fiduciary cus4 tomers, or any combination of

5 such fees; and

6 ‘‘(II) does not solicit bro7 kerage business, other than

8 by advertising that it effects

9 transactions in securities in

10 conjunction with advertising

11 its other trust activities.

12 ‘‘(iii) PERMISSIBLE SECURITIES

13 TRANSACTIONS.—The bank effects

14 transactions in—

15 ‘‘(I) commercial paper,

16 bankers acceptances, or com17 mercial bills;

18 ‘‘(II) exempted securities;

19 ‘‘(III) qualified Canadian

20 government obligations as de21 fined in section 5136 of the

22 Revised Statutes, in con23 formity with section 15C of

24 this title and the rules and

25 regulations thereunder, or ob-
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1 ligations of the North Amer2 ican Development Bank; or

3 ‘‘(IV) any standardized,

4 credit enhanced debt security

5 issued by a foreign govern6 ment pursuant to the March

7 1989 plan of then Secretary of

8 the Treasury Brady, used by

9 such foreign government to

10 retire outstanding commercial

11 bank loans.

12 ‘‘(iv) CERTAIN STOCK PURCHASE

13 PLANS.—

14 ‘‘(I) EMPLOYEE BENEFIT

15 PLANS.—The bank effects

16 transactions, as a registered

17 transfer agent (including as a

18 registrar of stocks), in the se19 curities of an issuer as part of

20 any pension, retirement, prof21 it-sharing, bonus, thrift, sav22 ings, incentive, or other simi23 lar benefit plan for the em24 ployees of that issuer or its af25 filiates, if—
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1 ‘‘(aa) the bank does

2 not solicit transactions or

3 provide investment advice

4 with respect to the pur5 chase or sale of securities

6 in connection with the

7 plan; and

8 ‘‘(bb) the bank’s com9 pensation for such plan or

10 program consists chiefly

11 of administration fees, or

12 flat or capped per order

13 processing fees, or both.

14 ‘‘(II) DIVIDEND REINVEST15 MENT PLANS.—The bank effects

16 transactions, as a registered

17 transfer agent (including as a

18 registrar of stocks), in the se19 curities of an issuer as part of

20 that issuer’s dividend rein21 vestment plan, if—

22 ‘‘(aa) the bank does

23 not solicit transactions or

24 provide investment advice

25 with respect to the pur-
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1 chase or sale of securities

2 in connection with the

3 plan;

4 ‘‘(bb) the bank does

5 not net shareholders’ buy

6 and sell orders, other than

7 for programs for odd-lot

8 holders or plans reg9 istered with the Commis10 sion; and

11 ‘‘(cc) the bank’s com12 pensation for such plan or

13 program consists chiefly

14 of administration fees, or

15 flat or capped per order

16 processing fees, or both.

17 ‘‘(III) ISSUER PLANS.—The

18 bank effects transactions, as a

19 registered transfer agent (in20 cluding as a registrar of

21 stocks), in the securities of an

22 issuer as part of that issuer’s

23 plan for the purchase or sale

24 of that issuer’s shares, if—
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1 ‘‘(aa) the bank does

2 not solicit transactions or

3 provide investment advice

4 with respect to the pur5 chase or sale of securities

6 in connection with the

7 plan or program;

8 ‘‘(bb) the bank does

9 not net shareholders’ buy

10 and sell orders, other than

11 for programs for odd-lot

12 holders or plans reg13 istered with the Commis14 sion; and

15 ‘‘(cc) the bank’s com16 pensation for such plan or

17 program consists chiefly

18 of administration fees, or

19 flat or capped per order

20 processing fees, or both.

21 ‘‘(IV) PERMISSIBLE DELIV22 ERY OF MATERIALS.—The excep23 tion to being considered a

24 broker for a bank engaged in

25 activities described in sub-
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1 clauses (I), (II), and (III) will

2 not be affected by a bank’s de3 livery of written or electronic

4 plan materials to employees

5 of the issuer, shareholders of

6 the issuer, or members of af7 finity groups of the issuer, so

8 long as such materials are—

9 ‘‘(aa) comparable in

10 scope or nature to that

11 permitted by the Commis12 sion as of the date of the

13 enactment of the Finan14 cial Services Act of 1999;

15 or

16 ‘‘(bb) otherwise per17 mitted by the Commission.

18 ‘‘(v) SWEEP ACCOUNTS.—The

19 bank effects transactions as part

20 of a program for the investment

21 or reinvestment of deposit funds

22 into any no-load, open-end man23 agement investment company reg24 istered under the Investment
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1 Company Act of 1940 that holds

2 itself out as a money market fund.

3 ‘‘(vi) AFFILIATE TRANS4 ACTIONS.—The bank effects trans5 actions for the account of any af6 filiate (as defined in section 2 of

7 the Bank Holding Company Act of

8 1956) of the bank other than—

9 ‘‘(I) a registered broker or

10 dealer; or

11 ‘‘(II) an affiliate that is en12 gaged in merchant banking,

13 as described in section

14 6(c)(3)(H) of the Bank Holding

15 Company Act of 1956.

16 ‘‘(vii) PRIVATE SECURITIES OF17 FERINGS.—The bank—

18 ‘‘(I) effects sales as part of

19 a primary offering of securi20 ties not involving a public of21 fering, pursuant to section

22 3(b), 4(2), or 4(6) of the Securi23 ties Act of 1933 or the rules

24 and regulations issued there25 under;
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1 ‘‘(II) at any time after one

2 year after the date of enact3 ment of the Financial Services

4 Act of 1999, is not affiliated

5 with a broker or dealer that

6 has been registered for more

7 than one year; and

8 ‘‘(III) effects transactions

9 exclusively with qualified in10 vestors.

11 ‘‘(viii) SAFEKEEPING AND CUS12 TODY ACTIVITIES.—

13 ‘‘(I) IN GENERAL.—The

14 bank, as part of customary

15 banking activities—

16 ‘‘(aa) provides safe17 keeping or custody serv18 ices with respect to secu19 rities, including the exer20 cise of warrants and other

21 rights on behalf of cus22 tomers;

23 ‘‘(bb) facilitates the

24 transfer of funds or secu25 rities, as a custodian or a
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1 clearing agency, in con2 nection with the clearance

3 and settlement of its cus4 tomers’ transactions in se5 curities;

6 ‘‘(cc) effects securities

7 lending or borrowing

8 transactions with or on

9 behalf of customers as

10 part of services provided

11 to customers pursuant to

12 division (aa) or (bb) or in13 vests cash collateral

14 pledged in connection

15 with such transactions; or

16 ‘‘(dd) holds securities

17 pledged by a customer to

18 another person or securi19 ties subject to purchase or

20 resale agreements involv21 ing a customer, or facili22 tates the pledging or

23 transfer of such securities

24 by book entry or as other25 wise provided under ap-
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1 plicable law, if the bank

2 maintains records sepa3 rately identifying the se4 curities and the customer.

5 ‘‘(II) EXCEPTION FOR CAR6 RYING BROKER ACTIVITIES.—The

7 exception to being considered

8 a broker for a bank engaged

9 in activities described in sub10 clause (I) shall not apply if

11 the bank, in connection with

12 such activities, acts in the

13 United States as a carrying

14 broker (as such term, and dif15 ferent formulations thereof,

16 are used in section 15(c)(3) of

17 this title and the rules and

18 regulations thereunder) for

19 any broker or dealer, unless

20 such carrying broker activi21 ties are engaged in with re22 spect to government securi23 ties (as defined in paragraph

24 (42) of this subsection).
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1 ‘‘(ix) EXCEPTED FINANCIAL

2 PRODUCTS.—The bank effects

3 transactions in excepted financial

4 products, as defined in paragraph

5 (56)(A) of this subsection.

6 ‘‘(x) MUNICIPAL SECURITIES.—

7 The bank effects transactions in

8 municipal securities.

9 ‘‘(xi) DE MINIMIS EXCEPTION.—

10 The bank effects, other than in

11 transactions referred to in

12 clauses (i) through (x), not more

13 than 500 transactions in securi14 ties in any calendar year, and

15 such transactions are not effected

16 by an employee of the bank who

17 is also an employee of a broker or

18 dealer.

19 ‘‘(C) BROKER DEALER EXECUTION.—

20 The exception to being considered a

21 broker for a bank engaged in activi22 ties described in clauses (ii), (iv), and

23 (viii) of subparagraph (B) shall not

24 apply if the activities described in

25 such provisions result in the trade in
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1 the United States of any security that

2 is a publicly traded security in the

3 United States, unless—

4 ‘‘(i) the bank directs such

5 trade to a registered broker or

6 dealer for execution;

7 ‘‘(ii) the trade is a cross trade

8 or other substantially similar

9 trade of a security that—

10 ‘‘(I) is made by the bank

11 or between the bank and an

12 affiliated fiduciary; and

13 ‘‘(II) is not in contraven14 tion of fiduciary principles es15 tablished under applicable

16 Federal or State law; or

17 ‘‘(iii) the trade is conducted in

18 some other manner permitted

19 under rules, regulations, or or20 ders as the Commission may pre21 scribe or issue.

22 ‘‘(D) FIDUCIARY CAPACITY.—For

23 purposes of subparagraph (B)(ii), the

24 term ‘fiduciary capacity’ means—
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1 ‘‘(i) in the capacity as trustee,

2 executor, administrator, guard3 ian, assignee, receiver, or custo4 dian under a uniform gift to

5 minor act, or as an investment ad6 viser if the bank receives a fee for

7 its investment advice;

8 ‘‘(ii) in any capacity in which

9 the bank possesses investment

10 discretion on behalf of another; or

11 ‘‘(iii) in any other similar ca12 pacity.

13 ‘‘(F) EXCEPTION FOR ENTITIES SUB14 JECT TO SECTION 15(e).—The term

15 ‘broker’ does not include a bank

16 that—

17 ‘‘(i) was, immediately prior to

18 the enactment of the Financial

19 Services Act of 1999, subject to

20 section 15(e) of this title; and

21 ‘‘(ii) is subject to such restric22 tions and requirements as the

23 Commission considers appro24 priate.’’.
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1 SEC. 202. DEFINITION OF DEALER.

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

3 Act of 1934 (15 U.S.C. 78c(a)(5)) is amended to

4 read as follows:

5 ‘‘(5) DEALER.—

6 ‘‘(A) IN GENERAL.—The term ‘deal7 er’ means any person engaged in the

8 business of buying and selling securi9 ties for such person’s own account

10 through a broker or otherwise.

11 ‘‘(B) EXCEPTION FOR PERSON NOT

12 ENGAGED IN THE BUSINESS OF DEAL13 ING.—The term ‘dealer’ does not in14 clude a person that buys or sells secu15 rities for such person’s own account,

16 either individually or in a fiduciary

17 capacity, but not as a part of a reg18 ular business.

19 ‘‘(C) EXCEPTION FOR CERTAIN BANK

20 ACTIVITIES.—A bank shall not be con21 sidered to be a dealer because the

22 bank engages in any of the following

23 activities under the conditions de24 scribed:
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1 ‘‘(i) PERMISSIBLE SECURITIES

2 TRANSACTIONS.—The bank buys or

3 sells—

4 ‘‘(I) commercial paper,

5 bankers acceptances, or com6 mercial bills;

7 ‘‘(II) exempted securities;

8 ‘‘(III) qualified Canadian

9 government obligations as de10 fined in section 5136 of the

11 Revised Statutes of the United

12 States, in conformity with sec13 tion 15C of this title and the

14 rules and regulations there15 under, or obligations of the

16 North American Development

17 Bank; or

18 ‘‘(IV) any standardized,

19 credit enhanced debt security

20 issued by a foreign govern21 ment pursuant to the March

22 1989 plan of then Secretary of

23 the Treasury Brady, used by

24 such foreign government to
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1 retire outstanding commercial

2 bank loans.

3 ‘‘(ii) INVESTMENT, TRUSTEE, AND

4 FIDUCIARY TRANSACTIONS.—The

5 bank buys or sells securities for

6 investment purposes—

7 ‘‘(I) for the bank; or

8 ‘‘(II) for accounts for

9 which the bank acts as a

10 trustee or fiduciary.

11 ‘‘(iii) ASSET-BACKED TRANS12 ACTIONS.—The bank engages in

13 the issuance or sale to qualified

14 investors, through a grantor trust

15 or other separate entity, of securi16 ties backed by or representing an

17 interest in notes, drafts, accept18 ances, loans, leases, receivables,

19 other obligations (other than se20 curities of which the bank is not

21 the issuer), or pools of any such

22 obligations predominantly origi23 nated by the bank, or an affiliate

24 of any such bank other than a

25 broker or dealer, or, in the case of
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1 mortgage obligations or con2 sumer-related receivables, a syn3 dicate of banks of which the bank

4 is a member (other than as an in5 significant member).

6 ‘‘(iv) EXCEPTED FINANCIAL

7 PRODUCTS.—The bank buys or

8 sells excepted financial products,

9 as defined in paragraph (56)(A) of

10 this subsection.

11 ‘‘(v) DERIVATIVE INSTRU12 MENTS.—The bank issues, buys, or

13 sells any derivative instrument to

14 which the bank is a party—

15 ‘‘(I) to or from a corpora16 tion, limited liability com17 pany, or partnership that

18 owns and invests on a discre19 tionary basis, not less than

20 $100,000,000 in investments,

21 or to or from a qualified in22 vestor, except that if the in23 strument provides for the de24 livery of one or more securi25 ties (other than a derivative
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1 instrument or government se2 curity), the transaction shall

3 be effected with or through a

4 registered broker or dealer;

5 or

6 ‘‘(II) to or from other per7 sons, except that if the deriva8 tive instrument provides for

9 the delivery of one or more

10 securities (other than a deriv11 ative instrument or govern12 ment security), or is a secu13 rity (other than a government

14 security), the transaction

15 shall be effected with or

16 through a registered broker

17 or dealer; or

18 ‘‘(III) to or from any per19 son if the instrument is nei20 ther a security nor provides

21 for the delivery of one or

22 more securities (other than a

23 derivative instrument).’’.
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1 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI2 TIES OFFERINGS.

3 Section 15A of the Securities Exchange

4 Act of 1934 (15 U.S.C. 78o–3) is amended by in5 serting after subsection (i) the following new

6 subsection:

7 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE

8 SECURITIES OFFERINGS.—A registered securi9 ties association shall create a limited quali10 fication category for any associated person of

11 a member who effects sales as part of a pri12 mary offering of securities not involving a

13 public offering, pursuant to section 3(b), 4(2),

14 or 4(6) of the Securities Act of 1933 and the

15 rules and regulations thereunder, and shall

16 deem qualified in such limited qualification

17 category, without testing, any bank employee

18 who, in the six month period preceding the

19 date of enactment of this Act, engaged in ef20 fecting such sales.’’.

21 SEC. 204. INFORMATION SHARING.

22 Section 18 of the Federal Deposit Insur23 ance Act is amended by adding at the end the

24 following new subsection:

25 ‘‘(t) RECORDKEEPING REQUIREMENTS.—
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1 ‘‘(1) REQUIREMENTS.—Each appro2 priate Federal banking agency, after con3 sultation with and consideration of the

4 views of the Commission, shall establish

5 recordkeeping requirements for banks

6 relying on exceptions contained in para7 graphs (4) and (5) of section 3(a) of the

8 Securities Exchange Act of 1934. Such

9 recordkeeping requirements shall be suf10 ficient to demonstrate compliance with

11 the terms of such exceptions and be de12 signed to facilitate compliance with such

13 exceptions. Each appropriate Federal

14 banking agency shall make any such in15 formation available to the Commission

16 upon request.

17 ‘‘(2) DEFINITIONS.—As used in this sub18 section the term ‘Commission’ means the

19 Securities and Exchange Commission.’’.

20 SEC. 205. TREATMENT OF NEW HYBRID PRODUCTS.

21 Section 15 of the Securities Exchange Act

22 of 1934 (15 U.S.C. 78o) is amended by adding

23 at the end the following new subsection:

24 ‘‘(i) RULEMAKING TO EXTEND REQUIREMENTS

25 TO NEW HYBRID PRODUCTS.—
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1 ‘‘(1) LIMITATION.—The Commission

2 shall not—

3 ‘‘(A) require a bank to register as

4 a broker or dealer under this section

5 because the bank engages in any

6 transaction in, or buys or sells, a new

7 hybrid product; or

8 ‘‘(B) bring an action against a

9 bank for a failure to comply with a

10 requirement described in subpara11 graph (A);

12 unless the Commission has imposed such

13 requirement by rule or regulation issued

14 in accordance with this section.

15 ‘‘(2) CRITERIA FOR RULEMAKING.—The

16 Commission shall not impose a require17 ment under paragraph (1) of this sub18 section with respect to any new hybrid

19 product unless the Commission deter20 mines that—

21 ‘‘(A) the new hybrid product is a

22 security; and

23 ‘‘(B) imposing such requirement is

24 necessary or appropriate in the pub25 lic interest and for the protection of
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1 investors, consistent with the re2 quirements of section 3(f).

3 ‘‘(3) NEW HYBRID PRODUCT.—For pur4 poses of this subsection, the term ‘new

5 hybrid product’ means a product that—

6 ‘‘(A) was not subjected to regula7 tion by the Commission as a security

8 prior to the date of enactment of this

9 subsection; and

10 ‘‘(B) is not an excepted financial

11 product, as such term is defined in

12 section 3(a)(56)(A) of this title.

13 ‘‘(4) CONSULTATION.—In promulgating

14 rules under this subsection, the Commis15 sion shall consult with and consider the

16 views of the appropriate regulatory agen17 cies concerning the proposed rule and

18 the impact on the banking industry.’’.

19 SEC. 206. ADDITIONAL DEFINITIONS.

20 Section 3(a) of the Securities Exchange

21 Act of 1934 is amended by adding at the end

22 the following new paragraphs:

23 ‘‘(54) DERIVATIVE INSTRUMENT.—

24 ‘‘(A) DEFINITION.—The term ‘deriv25 ative instrument’ means any individ-
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1 ually negotiated contract, agreement,

2 warrant, note, or option that is based,

3 in whole or in part, on the value of,

4 any interest in, or any quantitative

5 measure or the occurrence of any

6 event relating to, one or more com7 modities, securities, currencies, inter8 est or other rates, indices, or other

9 assets, but does not include an ex10 cepted financial product, as defined

11 in clauses (i) through (v) of para12 graph (56)(A) of this subsection.

13 ‘‘(B) CLASSIFICATION LIMITED.—

14 Classification of a particular contract

15 as a derivative instrument pursuant

16 to this paragraph shall not be con17 strued as finding or implying that

18 such instrument is or is not a secu19 rity for any purpose under the securi20 ties laws, or is or is not an account,

21 agreement, contract, or transaction

22 for any purpose under the Com23 modity Exchange Act.

24 ‘‘(55) QUALIFIED INVESTOR.—
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1 ‘‘(A) DEFINITION.—For purposes of

2 this title, the term ‘qualified investor’

3 means—

4 ‘‘(i) any investment company

5 registered with the Commission

6 under section 8 of the Investment

7 Company Act of 1940;

8 ‘‘(ii) any issuer eligible for an

9 exclusion from the definition of

10 investment company pursuant to

11 section 3(c)(7) of the Investment

12 Company Act of 1940;

13 ‘‘(iii) any bank (as defined in

14 paragraph (6) of this subsection),

15 savings and loan association (as

16 defined in section 3(b) of the Fed17 eral Deposit Insurance Act),

18 broker, dealer, insurance com19 pany (as defined in section

20 2(a)(13) of the Securities Act of

21 1933), or business development

22 company (as defined in section

23 2(a)(48) of the Investment Com24 pany Act of 1940);
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1 ‘‘(iv) any small business in2 vestment company licensed by

3 the United States Small Business

4 Administration under section

5 301(c) or (d) of the Small Business

6 Investment Act of 1958;

7 ‘‘(v) any State sponsored em8 ployee benefit plan, or any other

9 employee benefit plan, within the

10 meaning of the Employee Retire11 ment Income Security Act of 1974,

12 other than an individual retire13 ment account, if the investment

14 decisions are made by a plan fidu15 ciary, as defined in section 3(21)

16 of that Act, which is either a

17 bank, savings and loan associa18 tion, insurance company, or reg19 istered investment adviser;

20 ‘‘(vi) any trust whose pur21 chases of securities are directed

22 by a person described in clauses

23 (i) through (v) of this subpara24 graph;
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1 ‘‘(vii) any market inter2 mediary exempt under section

3 3(c)(2) of the Investment Com4 pany Act of 1940;

5 ‘‘(viii) any associated person

6 of a broker or dealer other than a

7 natural person;

8 ‘‘(ix) any foreign bank (as de9 fined in section 1(b)(7) of the

10 International Banking Act of

11 1978); or

12 ‘‘(x) the government of any

13 foreign country.

14 ‘‘(B) ADDITIONAL QUALIFICATIONS

15 DEFINED.—For purposes of paragraphs

16 (4)(B)(vii), (5)(C)(iii), and (56)(A)(v) of

17 this subsection, the term ‘qualified in18 vestor’ also means—

19 ‘‘(i) any corporation, company,

20 or partnership that owns and in21 vests on a discretionary basis, not

22 less than $10,000,000 in invest23 ments;

24 ‘‘(ii) any natural person who

25 owns and invests on a discre-
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1 tionary basis, not less than

2 $10,000,000 in investments;

3 ‘‘(iii) any government or polit4 ical subdivision, agency, or in5 strumentality of a government

6 who owns and invests on a discre7 tionary basis not less than

8 $50,000,000 in investments; or

9 ‘‘(iv) any multinational or su10 pranational entity or any agency

11 or instrumentality thereof.

12 ‘‘(C) ADDITIONAL AUTHORITY.—The

13 Commission may, by rule or order,

14 define a ‘qualified investor’ as any

15 other person, other than a natural

16 person, taking into consideration

17 such factors as the person’s financial

18 sophistication, net worth, and knowl19 edge and experience in financial mat20 ters.

21 ‘‘(56) EXCEPTED FINANCIAL PRODUCTS.—

22 ‘‘(A) IN GENERAL.—For purposes of

23 paragraphs (4) and (5) of this sub24 section, the term ‘excepted financial

25 product’ means—
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1 ‘‘(i) a deposit account, savings

2 account, certificate of deposit, or

3 other deposit instrument issued

4 by a bank;

5 ‘‘(ii) a banker’s acceptance;

6 ‘‘(iii) a letter of credit issued

7 or loan made by a bank;

8 ‘‘(iv) a debit account at a bank

9 arising from a credit card or simi10 lar arrangement;

11 ‘‘(v) a participation in a loan

12 which the bank or an affiliate of

13 the bank (other than a broker or

14 dealer) funds, participates in, or

15 owns that is sold—

16 ‘‘(I) to qualified investors;

17 or

18 ‘‘(II) to other persons

19 that—

20 ‘‘(aa) have the oppor21 tunity to review and as22 sess any material informa23 tion, including informa24 tion regarding the bor-
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1 rower’s creditworthiness;

2 and

3 ‘‘(bb) based on such

4 factors as financial so5 phistication, net worth,

6 and knowledge and expe7 rience in financial mat8 ters, have the capability

9 to evaluate the informa10 tion available, as deter11 mined under generally ap12 plicable banking stand13 ards or guidelines; or

14 ‘‘(vi) a derivative instrument

15 that involves or relates to—

16 ‘‘(I) currencies, except op17 tions on currencies that trade

18 on a national securities ex19 change;

20 ‘‘(II) interest rates, except

21 interest rate derivative in22 struments that—

23 ‘‘(aa) are based on a

24 security or a group or

25 index of securities (other
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1 than government securi2 ties or a group or index of

3 government securities);

4 ‘‘(bb) provide for the

5 delivery of one or more se6 curities (other than gov7 ernment securities); or

8 ‘‘(cc) trade on a na9 tional securities exchange;

10 or

11 ‘‘(III) commodities, other

12 rates, indices, or other assets,

13 except derivative instruments

14 that—

15 ‘‘(aa) are securities or

16 that are based on a group

17 or index of securities

18 (other than government

19 securities or a group or

20 index of government secu21 rities);

22 ‘‘(bb) provide for the

23 delivery of one or more se24 curities (other than gov25 ernment securities); or
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1 ‘‘(cc) trade on a na2 tional securities exchange.

3 ‘‘(B) CLASSIFICATION LIMITED.—

4 Classification of a particular product

5 as a excepted financial product pur6 suant to this subsection shall not be

7 construed as finding or implying that

8 such product is or is not a security

9 for any purpose under the securities

10 laws, or is or is not an account, agree11 ment, contract, or transaction for any

12 purpose under the Commodity Ex13 change Act.’’.

14 SEC. 207. GOVERNMENT SECURITIES DEFINED.

15 Section 3(a)(42) of the Securities Ex16 change Act of 1934 (15 U.S.C. 78c(a)(42)) is

17 amended—

18 (1) by striking ‘‘or’’ at the end of sub19 paragraph (C);

20 (2) by striking the period at the end

21 of subparagraph (D) and inserting ‘‘; or’’;

22 and

23 (3) by adding at the end the following

24 new subparagraph:
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1 ‘‘(E) for purposes of sections 15,

2 15C, and 17A as applied to a bank, a

3 qualified Canadian government obli4 gation as defined in section 5136 of

5 the Revised Statutes of the United

6 States.’’.

7 SEC. 208. EFFECTIVE DATE.

8 This subtitle shall take effect at the end

9 of the 270-day period beginning on the date of

10 the enactment of this Act.

11 SEC. 209. RULE OF CONSTRUCTION.

12 Nothing in this Act shall supersede, affect,

13 or otherwise limit the scope and applicability

14 of the Commodity Exchange Act (7 U.S.C. 1 et

15 seq.).

16 Subtitle B—Bank Investment

17 Company Activities

18 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

19 AFFILIATED BANK.

20 (a) MANAGEMENT COMPANIES.—Section

21 17(f) of the Investment Company Act of 1940

22 (15 U.S.C. 80a–17(f)) is amended—

23 (1) by redesignating paragraphs (1),

24 (2), and (3) as subparagraphs (A), (B), and

25 (C), respectively;
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1 (2) by striking ‘‘(f) Every registered’’

2 and inserting the following:

3 ‘‘(f) CUSTODY OF SECURITIES.—

4 ‘‘(1) Every registered’’;

5 (3) by redesignating the second, third,

6 fourth, and fifth sentences of such sub7 section as paragraphs (2) through (5), re8 spectively, and indenting the left margin

9 of such paragraphs appropriately; and

10 (4) by adding at the end the following

11 new paragraph:

12 ‘‘(6) The Commission may adopt rules

13 and regulations, and issue orders, con14 sistent with the protection of investors,

15 prescribing the conditions under which a

16 bank, or an affiliated person of a bank,

17 either of which is an affiliated person,

18 promoter, organizer, or sponsor of, or

19 principal underwriter for, a registered

20 management company may serve as cus21 todian of that registered management

22 company.’’.

23 (b) UNIT INVESTMENT TRUSTS.—Section 26

24 of the Investment Company Act of 1940 (15

25 U.S.C. 80a–26) is amended—
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1 (1) by redesignating subsections (b)

2 through (e) as subsections (c) through (f),

3 respectively; and

4 (2) by inserting after subsection (a)

5 the following new subsection:

6 ‘‘(b) The Commission may adopt rules and

7 regulations, and issue orders, consistent with

8 the protection of investors, prescribing the

9 conditions under which a bank, or an affili10 ated person of a bank, either of which is an

11 affiliated person of a principal underwriter

12 for, or depositor of, a registered unit invest13 ment trust, may serve as trustee or custodian

14 under subsection (a)(1).’’.

15 (c) FIDUCIARY DUTY OF CUSTODIAN.—Sec16 tion 36(a) of the Investment Company Act of

17 1940 (15 U.S.C. 80a–35(a)) is amended—

18 (1) in paragraph (1), by striking ‘‘or’’

19 at the end;

20 (2) in paragraph (2), by striking the

21 period at the end and inserting ‘‘; or’’;

22 and

23 (3) by inserting after paragraph (2)

24 the following:

25 ‘‘(3) as custodian.’’.
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1 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM2 PANY.

3 Section 17(a) of the Investment Company

4 Act of 1940 (15 U.S.C. 80a–17(a)) is amended—

5 (1) by striking ‘‘or’’ at the end of para6 graph (2);

7 (2) by striking the period at the end

8 of paragraph (3) and inserting ‘‘; or’’; and

9 (3) by adding at the end the following

10 new paragraph:

11 ‘‘(4) to loan money or other property

12 to such registered company, or to any

13 company controlled by such registered

14 company, in contravention of such rules,

15 regulations, or orders as the Commission

16 may prescribe or issue consistent with

17 the protection of investors.’’.

18 SEC. 213. INDEPENDENT DIRECTORS.

19 (a) IN GENERAL.—Section 2(a)(19)(A) of the

20 Investment Company Act of 1940 (15 U.S.C.

21 80a–2(a)(19)(A)) is amended—

22 (1) by striking clause (v) and insert23 ing the following new clause:

24 ‘‘(v) any person or any affili25 ated person of a person (other

26 than a registered investment com-
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1 pany) that, at any time during the

2 6-month period preceding the

3 date of the determination of

4 whether that person or affiliated

5 person is an interested person,

6 has executed any portfolio trans7 actions for, engaged in any prin8 cipal transactions with, or distrib9 uted shares for—

10 ‘‘(I) the investment com11 pany;

12 ‘‘(II) any other investment

13 company having the same in14 vestment adviser as such in15 vestment company or holding

16 itself out to investors as a re17 lated company for purposes of

18 investment or investor serv19 ices; or

20 ‘‘(III) any account over

21 which the investment com22 pany’s investment adviser has

23 brokerage placement discre24 tion,’’;
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1 (2) by redesignating clause (vi) as

2 clause (vii); and

3 (3) by inserting after clause (v) the

4 following new clause:

5 ‘‘(vi) any person or any affili6 ated person of a person (other

7 than a registered investment com8 pany) that, at any time during the

9 6-month period preceding the

10 date of the determination of

11 whether that person or affiliated

12 person is an interested person,

13 has loaned money or other prop14 erty to—

15 ‘‘(I) the investment com16 pany;

17 ‘‘(II) any other investment

18 company having the same in19 vestment adviser as such in20 vestment company or holding

21 itself out to investors as a re22 lated company for purposes of

23 investment or investor serv24 ices; or
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1 ‘‘(III) any account for

2 which the investment com3 pany’s investment adviser has

4 borrowing authority,’’.

5 (b) CONFORMING AMENDMENT.—Section

6 2(a)(19)(B) of the Investment Company Act of

7 1940 (15 U.S.C. 80a–2(a)(19)(B)) is amended—

8 (1) by striking clause (v) and insert9 ing the following new clause:

10 ‘‘(v) any person or any affili11 ated person of a person (other

12 than a registered investment com13 pany) that, at any time during the

14 6-month period preceding the

15 date of the determination of

16 whether that person or affiliated

17 person is an interested person,

18 has executed any portfolio trans19 actions for, engaged in any prin20 cipal transactions with, or distrib21 uted shares for—

22 ‘‘(I) any investment com23 pany for which the invest24 ment adviser or principal un25 derwriter serves as such;
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1 ‘‘(II) any investment com2 pany holding itself out to in3 vestors, for purposes of in4 vestment or investor services,

5 as a company related to any

6 investment company for

7 which the investment adviser

8 or principal underwriter

9 serves as such; or

10 ‘‘(III) any account over

11 which the investment adviser

12 has brokerage placement dis13 cretion,’’;

14 (2) by redesignating clause (vi) as

15 clause (vii); and

16 (3) by inserting after clause (v) the

17 following new clause:

18 ‘‘(vi) any person or any affili19 ated person of a person (other

20 than a registered investment com21 pany) that, at any time during the

22 6-month period preceding the

23 date of the determination of

24 whether that person or affiliated

25 person is an interested person,
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1 has loaned money or other prop2 erty to—

3 ‘‘(I) any investment com4 pany for which the invest5 ment adviser or principal un6 derwriter serves as such;

7 ‘‘(II) any investment com8 pany holding itself out to in9 vestors, for purposes of in10 vestment or investor services,

11 as a company related to any

12 investment company for

13 which the investment adviser

14 or principal underwriter

15 serves as such; or

16 ‘‘(III) any account for

17 which the investment adviser

18 has borrowing authority,’’.

19 (c) AFFILIATION OF DIRECTORS.—Section

20 10(c) of the Investment Company Act of 1940

21 (15 U.S.C. 80a–10(c)) is amended by striking

22 ‘‘bank, except’’ and inserting ‘‘bank (together

23 with its affiliates and subsidiaries) or any one

24 bank holding company (together with its af25 filiates and subsidiaries) (as such terms are
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1 defined in section 2 of the Bank Holding Com2 pany Act of 1956), except’’.

3 (d) EFFECTIVE DATE.—The amendments

4 made by this section shall take effect at the

5 end of the 1-year period beginning on the date

6 of enactment of this subtitle.

7 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

8 Section 35(a) of the Investment Company

9 Act of 1940 (15 U.S.C. 80a–34(a)) is amended to

10 read as follows:

11 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

12 ‘‘(1) IN GENERAL.—It shall be unlawful

13 for any person, issuing or selling any se14 curity of which a registered investment

15 company is the issuer, to represent or

16 imply in any manner whatsoever that

17 such security or company—

18 ‘‘(A) has been guaranteed, spon19 sored, recommended, or approved by

20 the United States, or any agency, in21 strumentality or officer of the United

22 States;

23 ‘‘(B) has been insured by the Fed24 eral Deposit Insurance Corporation;

25 or
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1 ‘‘(C) is guaranteed by or is other2 wise an obligation of any bank or in3 sured depository institution.

4 ‘‘(2) DISCLOSURES.—Any person

5 issuing or selling the securities of a reg6 istered investment company that is ad7 vised by, or sold through, a bank shall

8 prominently disclose that an investment

9 in the company is not insured by the Fed10 eral Deposit Insurance Corporation or

11 any other government agency. The Com12 mission may adopt rules and regulations,

13 and issue orders, consistent with the pro14 tection of investors, prescribing the man15 ner in which the disclosure under this

16 paragraph shall be provided.

17 ‘‘(3) DEFINITIONS.—The terms ‘insured

18 depository institution’ and ‘appropriate

19 Federal banking agency’ have the same

20 meanings given as in section 3 of the Fed21 eral 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 Com4 pany Act of 1940 (15 U.S.C. 80a–2(a)(6)) is

5 amended to read as follows:

6 ‘‘(6) The term ‘broker’ has the same

7 meaning as in section 3 of the Securities

8 Exchange Act of 1934, except that such

9 term does not include any person solely

10 by reason of the fact that such person is

11 an underwriter for one or more invest12 ment companies.’’.

13 SEC. 216. DEFINITION OF DEALER UNDER THE INVEST14 MENT COMPANY ACT OF 1940.

15 Section 2(a)(11) of the Investment Com16 pany Act of 1940 (15 U.S.C. 80a–2(a)(11)) is

17 amended to read as follows:

18 ‘‘(11) The term ‘dealer’ has the same

19 meaning as in the Securities Exchange

20 Act of 1934, but does not include an in21 surance company or investment com22 pany.’’.
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1 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI2 TION OF INVESTMENT ADVISER FOR BANKS

3 THAT ADVISE INVESTMENT COMPANIES.

4 (a) INVESTMENT ADVISER.—Section

5 202(a)(11)(A) of the Investment Advisers Act

6 of 1940 (15 U.S.C. 80b–2(a)(11)(A)) is amended

7 by striking ‘‘investment company’’ and insert8 ing ‘‘investment company, except that the

9 term ‘investment adviser’ includes any bank

10 or bank holding company to the extent that

11 such bank or bank holding company serves or

12 acts as an investment adviser to a registered

13 investment company, but if, in the case of a

14 bank, such services or actions are performed

15 through a separately identifiable department

16 or division, the department or division, and

17 not the bank itself, shall be deemed to be the

18 investment adviser’’.

19 (b) SEPARATELY IDENTIFIABLE DEPARTMENT

20 OR DIVISION.—Section 202(a) of the Investment

21 Advisers Act of 1940 (15 U.S.C. 80b–2(a)) is

22 amended by adding at the end the following:

23 ‘‘(26) The term ‘separately identifiable

24 department or division’ of a bank means

25 a unit—
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1 ‘‘(A) that is under the direct su2 pervision of an officer or officers des3 ignated by the board of directors of

4 the bank as responsible for the day5 to-day conduct of the bank’s invest6 ment adviser activities for one or

7 more investment companies, includ8 ing the supervision of all bank em9 ployees engaged in the performance

10 of such activities; and

11 ‘‘(B) for which all of the records

12 relating to its investment adviser ac13 tivities are separately maintained in

14 or extractable from such unit’s own

15 facilities or the facilities of the bank,

16 and such records are so maintained

17 or otherwise accessible as to permit

18 independent examination and en19 forcement by the Commission of this

20 Act or the Investment Company Act

21 of 1940 and rules and regulations pro22 mulgated under this Act or the In23 vestment Company Act of 1940.’’.
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1 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST2 MENT ADVISERS ACT OF 1940.

3 Section 202(a)(3) of the Investment Advis4 ers Act of 1940 (15 U.S.C. 80b–2(a)(3)) is

5 amended to read as follows:

6 ‘‘(3) The term ‘broker’ has the same

7 meaning as in section 3 of the Securities

8 Exchange Act of 1934.’’.

9 SEC. 219. DEFINITION OF DEALER UNDER THE INVEST10 MENT ADVISERS ACT OF 1940.

11 Section 202(a)(7) of the Investment Advis12 ers Act of 1940 (15 U.S.C. 80b–2(a)(7)) is

13 amended to read as follows:

14 ‘‘(7) The term ‘dealer’ has the same

15 meaning as in section 3 of the Securities

16 Exchange Act of 1934, but does not in17 clude an insurance company or invest18 ment company.’’.

19 SEC. 220. INTERAGENCY CONSULTATION.

20 The Investment Advisers Act of 1940 (15

21 U.S.C. 80b–1 et seq.) is amended by inserting

22 after section 210 the following new section:

23 ‘‘SEC. 210A. CONSULTATION.

24 ‘‘(a) EXAMINATION RESULTS AND OTHER IN25 FORMATION.—
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1 ‘‘(1) The appropriate Federal banking

2 agency shall provide the Commission

3 upon request the results of any examina4 tion, reports, records, or other informa5 tion to which such agency may have ac6 cess with respect to the investment advi7 sory activities—

8 ‘‘(A) of any—

9 ‘‘(i) bank holding company;

10 ‘‘(ii) bank; or

11 ‘‘(iii) separately identifiable

12 department or division of a bank,

13 that is registered under section 203 of

14 this title; and

15 ‘‘(B) in the case of a bank holding

16 company or bank that has a sub17 sidiary or a separately identifiable

18 department or division registered

19 under that section, of such bank or

20 bank holding company.

21 ‘‘(2) The Commission shall provide to

22 the appropriate Federal banking agency

23 upon request the results of any examina24 tion, reports, records, or other informa25 tion with respect to the investment advi-
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1 sory activities of any bank holding com2 pany, bank, or separately identifiable de3 partment or division of a bank, which is

4 registered under section 203 of this title.

5 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Noth6 ing in this section shall limit in any respect

7 the authority of the appropriate Federal

8 banking agency with respect to such bank

9 holding company, bank, or department or di10 vision under any other provision of law.

11 ‘‘(c) DEFINITION.—For purposes of this sec12 tion, the term ‘appropriate Federal banking

13 agency’ shall have the same meaning as in

14 section 3 of the Federal Deposit Insurance

15 Act.’’.

16 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

17 (a) SECURITIES ACT OF 1933.—Section

18 3(a)(2) of the Securities Act of 1933 (15 U.S.C.

19 77c(a)(2)) is amended by striking ‘‘or any in20 terest or participation in any common trust

21 fund or similar fund maintained by a bank ex22 clusively for the collective investment and re23 investment of assets contributed thereto by

24 such bank in its capacity as trustee, executor,

25 administrator, or guardian’’ and inserting ‘‘or
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1 any interest or participation in any common

2 trust fund or similar fund that is excluded

3 from the definition of the term ‘investment

4 company’ under section 3(c)(3) of the Invest5 ment Company Act of 1940’’.

6 (b) SECURITIES EXCHANGE ACT OF 1934.—

7 Section 3(a)(12)(A)(iii) of the Securities Ex8 change Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii))

9 is amended to read as follows:

10 ‘‘(iii) any interest or participation

11 in any common trust fund or similar

12 fund that is excluded from the defini13 tion of the term ‘investment company’

14 under section 3(c)(3) of the Invest15 ment Company Act of 1940;’’.

16 (c) INVESTMENT COMPANY ACT OF 1940.—

17 Section 3(c)(3) of the Investment Company

18 Act of 1940 (15 U.S.C. 80a–3(c)(3)) is amended

19 by inserting before the period the following:

20 ‘‘, if—

21 ‘‘(A) such fund is employed by the

22 bank solely as an aid to the adminis23 tration of trusts, estates, or other ac24 counts created and maintained for a

25 fiduciary purpose;
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1 ‘‘(B) except in connection with the

2 ordinary advertising of the bank’s fi3 duciary services, interests in such

4 fund are not—

5 ‘‘(i) advertised; or

6 ‘‘(ii) offered for sale to the

7 general public; and

8 ‘‘(C) fees and expenses charged by

9 such fund are not in contravention of

10 fiduciary principles established

11 under applicable Federal or State

12 law’’.

13 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV14 ING CONTROLLING INTEREST IN REG15 ISTERED INVESTMENT COMPANY.

16 Section 15 of the Investment Company Act

17 of 1940 (15 U.S.C. 80a–15) is amended by add18 ing at the end the following new subsection:

19 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT

20 COMPANY PROHIBITED.—

21 ‘‘(1) IN GENERAL.—If an investment ad22 viser to a registered investment company,

23 or an affiliated person of that investment

24 adviser, holds a controlling interest in

25 that registered investment company in a
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1 trustee or fiduciary capacity, such person

2 shall—

3 ‘‘(A) if it holds the shares in a

4 trustee or fiduciary capacity with re5 spect to any employee benefit plan

6 subject to the Employee Retirement

7 Income Security Act of 1974, transfer

8 the power to vote the shares of the in9 vestment company through to an10 other person acting in a fiduciary ca11 pacity with respect to the plan who is

12 not an affiliated person of that invest13 ment adviser or any affiliated person

14 thereof; or

15 ‘‘(B) if it holds the shares in a

16 trustee or fiduciary capacity with re17 spect to any person or entity other

18 than an employee benefit plan subject

19 to the Employee Retirement Income

20 Security Act of 1974—

21 ‘‘(i) transfer the power to vote

22 the shares of the investment com23 pany through to—

24 ‘‘(I) the beneficial owners

25 of the shares;
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1 ‘‘(II) another person act2 ing in a fiduciary capacity

3 who is not an affiliated per4 son of that investment adviser

5 or any affiliated person there6 of; or

7 ‘‘(III) any person author8 ized to receive statements and

9 information with respect to

10 the trust who is not an affili11 ated person of that invest12 ment adviser or any affiliated

13 person thereof;

14 ‘‘(ii) vote the shares of the in15 vestment company held by it in

16 the same proportion as shares

17 held by all other shareholders of

18 the investment company; or

19 ‘‘(iii) vote the shares of the in20 vestment company as otherwise

21 permitted under such rules, regu22 lations, or orders as the Commis23 sion may prescribe or issue con24 sistent with the protection of in25 vestors.
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1 ‘‘(2) EXEMPTION.—Paragraph (1) shall

2 not apply to any investment adviser to a

3 registered investment company, or any

4 affiliated person of that investment ad5 viser, that holds shares of the investment

6 company in a trustee or fiduciary capac7 ity if that registered investment company

8 consists solely of assets held in such ca9 pacities.

10 ‘‘(3) SAFE HARBOR.—No investment ad11 viser to a registered investment company

12 or any affiliated person of such invest13 ment adviser shall be deemed to have

14 acted unlawfully or to have breached a fi15 duciary duty under State or Federal law

16 solely by reason of acting in accordance

17 with clause (i), (ii), or (iii) of paragraph

18 (1)(B).’’.

19 SEC. 223. STATUTORY DISQUALIFICATION FOR BANK

20 WRONGDOING.

21 Section 9(a) of the Investment Company

22 Act of 1940 (15 U.S.C. 80a-9(a)) is amended in

23 paragraphs (1) and (2) by striking ‘‘securities

24 dealer, transfer agent,’’ and inserting ‘‘securi25 ties dealer, bank, transfer agent,’’.
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1 SEC. 224. CONFORMING CHANGE IN DEFINITION.

2 Section 2(a)(5) of the Investment Com3 pany Act of 1940 (15 U.S.C. 80a–2(a)(5)) is

4 amended by striking ‘‘(A) a banking institu5 tion organized under the laws of the United

6 States’’ and inserting ‘‘(A) a depository insti7 tution (as defined in section 3 of the Federal

8 Deposit Insurance Act) or a branch or agency

9 of a foreign bank (as such terms are defined

10 in section 1(b) of the International Banking

11 Act of 1978)’’.

12 SEC. 225. CONFORMING AMENDMENT.

13 Section 202 of the Investment Advisers

14 Act of 1940 (15 U.S.C. 80b–2) is amended by

15 adding at the end the following new sub16 section:

17 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI18 CIENCY, COMPETITION, AND CAPITAL FORMA19 TION.—Whenever pursuant to this title the

20 Commission is engaged in rulemaking and is

21 required to consider or determine whether an

22 action is necessary or appropriate in the pub23 lic interest, the Commission shall also con24 sider, in addition to the protection of inves25 tors, whether the action will promote effi26 ciency, competition, and capital formation.’’.
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1 SEC. 226. EFFECTIVE DATE.

2 This subtitle shall take effect 90 days after

3 the date of the enactment of this Act.

4 Subtitle C—Securities and Ex5 change Commission Supervision

6 of Investment Bank Holding

7 Companies

8 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING

9 COMPANIES BY THE SECURITIES AND EX10 CHANGE COMMISSION.

11 (a) AMENDMENT.—Section 17 of the Securi12 ties Exchange Act of 1934 (15 U.S.C. 78q) is

13 amended—

14 (1) by redesignating subsection (i) as

15 subsection (l); and

16 (2) by inserting after subsection (h)

17 the following new subsections:

18 ‘‘(i) INVESTMENT BANK HOLDING COMPA19 NIES.—

20 ‘‘(1) ELECTIVE SUPERVISION OF AN IN21 VESTMENT BANK HOLDING COMPANY NOT

22 HAVING A BANK OR SAVINGS ASSOCIATION AF23 FILIATE.—

24 ‘‘(A) IN GENERAL.—An investment

25 bank holding company that is not—
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1 ‘‘(i) an affiliate of an insured

2 bank (other than an institution

3 described in subparagraph (D),

4 (F), or (G) of section 2(c)(2), or

5 held under section 4(f), of the

6 Bank Holding Company Act of

7 1956), or a savings association;

8 ‘‘(ii) a foreign bank, foreign

9 company, or company that is de10 scribed in section 8(a) of the

11 International Banking Act of

12 1978; or

13 ‘‘(iii) a foreign bank that con14 trols, directly or indirectly, a cor15 poration chartered under section

16 25A of the Federal Reserve Act,

17 may elect to become supervised by fil18 ing with the Commission a notice of

19 intention to become supervised, pur20 suant to subparagraph (B) of this

21 paragraph. Any investment bank

22 holding company filing such a notice

23 shall be supervised in accordance

24 with this section and comply with the

25 rules promulgated by the Commission
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1 applicable to supervised investment

2 bank holding companies.

3 ‘‘(B) NOTIFICATION OF STATUS AS A

4 SUPERVISED INVESTMENT BANK HOLDING

5 COMPANY.—An investment bank hold6 ing company that elects under sub7 paragraph (A) to become supervised

8 by the Commission shall file with the

9 Commission a written notice of inten10 tion to become supervised by the

11 Commission in such form and con12 taining such information and docu13 ments concerning such investment

14 bank holding company as the Com15 mission, by rule, may prescribe as

16 necessary or appropriate in further17 ance of the purposes of this section.

18 Unless the Commission finds that

19 such supervision is not necessary or

20 appropriate in furtherance of the

21 purposes of this section, such super22 vision shall become effective 45 days

23 after the date of receipt of such writ24 ten notice by the Commission or

25 within such shorter time period as
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1 the Commission, by rule or order,

2 may determine.

3 ‘‘(2) ELECTION NOT TO BE SUPERVISED

4 BY THE COMMISSION AS AN INVESTMENT BANK

5 HOLDING COMPANY.—

6 ‘‘(A) VOLUNTARY WITHDRAWAL.—A

7 supervised investment bank holding

8 company that is supervised pursuant

9 to paragraph (1) may, upon such

10 terms and conditions as the Commis11 sion deems necessary or appropriate,

12 elect not to be supervised by the

13 Commission by filing a written notice

14 of withdrawal from Commission su15 pervision. Such notice shall not be16 come effective until one year after re17 ceipt by the Commission, or such

18 shorter or longer period as the Com19 mission deems necessary or appro20 priate to ensure effective supervision

21 of the material risks to the super22 vised investment bank holding com23 pany and to the affiliated broker or

24 dealer, or to prevent evasion of the

25 purposes of this section.
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1 ‘‘(B) DISCONTINUATION OF COMMIS2 SION SUPERVISION.—If the Commission

3 finds that any supervised investment

4 bank holding company that is super5 vised pursuant to paragraph (1) is no

6 longer in existence or has ceased to

7 be an investment bank holding com8 pany, or if the Commission finds that

9 continued supervision of such a su10 pervised investment bank holding

11 company is not consistent with the

12 purposes of this section, the Commis13 sion may discontinue the supervision

14 pursuant to a rule or order, if any,

15 promulgated by the Commission

16 under this section.

17 ‘‘(3) SUPERVISION OF INVESTMENT BANK

18 HOLDING COMPANIES.—

19 ‘‘(A) RECORDKEEPING AND REPORT20 ING.—

21 ‘‘(i) IN GENERAL.—Every super22 vised investment bank holding

23 company and each affiliate there24 of shall make and keep for pre25 scribed periods such records, fur-
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1 nish copies thereof, and make

2 such reports, as the Commission

3 may require by rule, in order to

4 keep the Commission informed as

5 to—

6 ‘‘(I) the company’s or af7 filiate’s activities, financial

8 condition, policies, systems

9 for monitoring and control10 ling financial and operational

11 risks, and transactions and

12 relationships between any

13 broker or dealer affiliate of

14 the supervised investment

15 bank holding company; and

16 ‘‘(II) the extent to which

17 the company or affiliate has

18 complied with the provisions

19 of this Act and regulations

20 prescribed and orders issued

21 under this Act.

22 ‘‘(ii) FORM AND CONTENTS.—

23 Such records and reports shall be

24 prepared in such form and ac25 cording to such specifications (in-
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1 cluding certification by an inde2 pendent public accountant), as

3 the Commission may require and

4 shall be provided promptly at any

5 time upon request by the Com6 mission. Such records and reports

7 may include—

8 ‘‘(I) a balance sheet and

9 income statement;

10 ‘‘(II) an assessment of the

11 consolidated capital of the su12 pervised investment bank

13 holding company;

14 ‘‘(III) an independent

15 auditor’s report attesting to

16 the supervised investment

17 bank holding company’s com18 pliance with its internal risk

19 management and internal

20 control objectives; and

21 ‘‘(IV) reports concerning

22 the extent to which the com23 pany or affiliate has complied

24 with the provisions of this

25 title and any regulations pre-
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1 scribed and orders issued

2 under this title.

3 ‘‘(B) USE OF EXISTING REPORTS.—

4 ‘‘(i) IN GENERAL.—The Commis5 sion shall, to the fullest extent

6 possible, accept reports in fulfill7 ment of the requirements under

8 this paragraph that the super9 vised investment bank holding

10 company or its affiliates have

11 been required to provide to an12 other appropriate regulatory

13 agency or self-regulatory organi14 zation.

15 ‘‘(ii) AVAILABILITY.—A super16 vised investment bank holding

17 company or an affiliate of such

18 company shall provide to the

19 Commission, at the request of the

20 Commission, any report referred

21 to in clause (i).

22 ‘‘(C) EXAMINATION AUTHORITY.—

23 ‘‘(i) FOCUS OF EXAMINATION AU24 THORITY.—The Commission may

25 make examinations of any super-
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1 vised investment bank holding

2 company and any affiliate of such

3 company in order to—

4 ‘‘(I) inform the Commis5 sion regarding—

6 ‘‘(aa) the nature of the

7 operations and financial

8 condition of the super9 vised investment bank

10 holding company and its

11 affiliates;

12 ‘‘(bb) the financial and

13 operational risks within

14 the supervised investment

15 bank holding company

16 that may affect any

17 broker or dealer con18 trolled by such supervised

19 investment bank holding

20 company; and

21 ‘‘(cc) the systems of

22 the supervised investment

23 bank holding company

24 and its affiliates for moni-
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1 toring and controlling

2 those risks; and

3 ‘‘(II) monitor compliance

4 with the provisions of this

5 subsection, provisions gov6 erning transactions and rela7 tionships between any broker

8 or dealer affiliated with the

9 supervised investment bank

10 holding company and any of

11 the company’s other affiliates,

12 and applicable provisions of

13 subchapter II of chapter 53,

14 title 31, United States Code

15 (commonly referred to as the

16 ‘Bank Secrecy Act’) and regu17 lations thereunder.

18 ‘‘(ii) RESTRICTED FOCUS OF EX19 AMINATIONS.—The Commission

20 shall limit the focus and scope of

21 any examination of a supervised

22 investment bank holding com23 pany to—

24 ‘‘(I) the company; and
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1 ‘‘(II) any affiliate of the

2 company that, because of its

3 size, condition, or activities,

4 the nature or size of the

5 transactions between such af6 filiate and any affiliated

7 broker or dealer, or the cen8 tralization of functions within

9 the holding company system,

10 could, in the discretion of the

11 Commission, have a materi12 ally adverse effect on the

13 operational or financial con14 dition of the broker or dealer.

15 ‘‘(iii) DEFERENCE TO OTHER EX16 AMINATIONS.—For purposes of this

17 subparagraph, the Commission

18 shall, to the fullest extent pos19 sible, use the reports of examina20 tion of an institution described in

21 subparagraph (D), (F), or (G) of

22 section 2(c)(2), or held under sec23 tion 4(f), of the Bank Holding

24 Company Act of 1956 made by the

25 appropriate regulatory agency, or
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1 of a licensed insurance company

2 made by the appropriate State in3 surance regulator.

4 ‘‘(4) HOLDING COMPANY CAPITAL.—

5 ‘‘(A) AUTHORITY.—If the Commis6 sion finds that it is necessary to ade7 quately supervise investment bank

8 holding companies and their broker

9 or dealer affiliates consistent with

10 the purposes of this subsection, the

11 Commission may adopt capital ade12 quacy rules for supervised invest13 ment bank holding companies.

14 ‘‘(B) METHOD OF CALCULATION.—In

15 developing rules under this para16 graph:

17 ‘‘(i) DOUBLE LEVERAGE.—The

18 Commission shall consider the

19 use by the supervised investment

20 bank holding company of debt

21 and other liabilities to fund cap22 ital investments in affiliates.

23 ‘‘(ii) NO UNWEIGHTED CAPITAL

24 RATIO.—The Commission shall not

25 impose under this section a cap-
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1 ital ratio that is not based on ap2 propriate risk-weighting consid3 erations.

4 ‘‘(iii) NO CAPITAL REQUIREMENT

5 ON REGULATED ENTITIES.—The

6 Commission shall not, by rule,

7 regulation, guideline, order or

8 otherwise, impose any capital

9 adequacy provision on a non10 banking affiliate (other than a

11 broker or dealer) that is in com12 pliance with applicable capital re13 quirements of another Federal

14 regulatory authority or State in15 surance authority.

16 ‘‘(iv) APPROPRIATE EXCLU17 SIONS.—The Commission shall

18 take full account of the applicable

19 capital requirements of another

20 Federal regulatory authority or

21 State insurance regulator.

22 ‘‘(C) INTERNAL RISK MANAGEMENT

23 MODELS.—The Commission may incor24 porate internal risk management

25 models into its capital adequacy rules
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1 for supervised investment bank hold2 ing companies.

3 ‘‘(5) FUNCTIONAL REGULATION OF BANK4 ING AND INSURANCE ACTIVITIES OF SUPER5 VISED INVESTMENT BANK HOLDING COMPA6 NIES.—The Commission shall defer to—

7 ‘‘(A) the appropriate regulatory

8 agency with regard to all interpreta9 tions of, and the enforcement of, ap10 plicable banking laws relating to the

11 activities, conduct, ownership, and

12 operations of banks, and institutions

13 described in subparagraph (D), (F),

14 and (G) of section 2(c)(2), or held

15 under section 4(f), of the Bank Hold16 ing Company Act of 1956; and

17 ‘‘(B) the appropriate State insur18 ance regulators with regard to all in19 terpretations of, and the enforcement

20 of, applicable State insurance laws re21 lating to the activities, conduct, and

22 operations of insurance companies

23 and insurance agents.

24 ‘‘(6) DEFINITIONS.—For purposes of

25 this subsection and subsection (j):
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1 ‘‘(A) The term ‘investment bank

2 holding company’ means—

3 ‘‘(i) any person other than a

4 natural person that owns or con5 trols one or more brokers or deal6 ers; and

7 ‘‘(ii) the associated persons of

8 the investment bank holding com9 pany.

10 ‘‘(B) The term ‘supervised invest11 ment bank holding company’ means

12 any investment bank holding com13 pany that is supervised by the Com14 mission pursuant to this subsection.

15 ‘‘(C) The terms ‘affiliate’, ‘bank’,

16 ‘bank holding company’, ‘company’,

17 ‘control’, ‘savings association’, and

18 ‘wholesale financial institution’ have

19 the meanings given to those terms in

20 section 2 of the Bank Holding Com21 pany Act of 1956 (12 U.S.C. 1841).

22 ‘‘(D) The term ‘insured bank’ has

23 the meaning given to that term in

24 section 3 of the Federal Deposit In25 surance Act.
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1 ‘‘(E) The term ‘foreign bank’ has

2 the meaning given to that term in

3 section 1(b)(7) of the International

4 Banking Act of 1978.

5 ‘‘(F) The terms ‘person associated

6 with an investment bank holding

7 company’ and ‘associated person of

8 an investment bank holding company’

9 mean any person directly or indi10 rectly controlling, controlled by, or

11 under common control with, an in12 vestment bank holding company.

13 ‘‘(j) COMMISSION BACKUP AUTHORITY.—

14 ‘‘(1) AUTHORITY.—The Commission

15 may make inspections of any wholesale

16 financial holding company (as defined in

17 section 10A(a)(1) of the Bank Holding

18 Company Act of 1956) that—

19 ‘‘(A) controls a wholesale financial

20 institution;

21 ‘‘(B) is not a foreign bank; and

22 ‘‘(C) does not control an insured

23 bank (other than an institution per24 mitted under subparagraph (D), (F),

25 or (G) of section 2(c)(2), or held under
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1 section 4(f), of the Bank Holding Com2 pany Act of 1956) or a savings asso3 ciation,

4 and any affiliate of such company, for the

5 purpose of monitoring and enforcing

6 compliance by the wholesale financial

7 holding company with the Federal securi8 ties laws.

9 ‘‘(2) LIMITATION.—The Commission

10 shall limit the focus and scope of any in11 spection under paragraph (1) to those

12 transactions, policies, procedures, or

13 records that are reasonably necessary to

14 monitor and enforce compliance by the

15 wholesale financial holding company or

16 any affiliate with the Federal securities

17 laws.

18 ‘‘(3) DEFERENCE TO EXAMINATIONS.—To

19 the fullest extent possible, the Commis20 sion shall use, for the purposes of this

21 subsection, the reports of examinations—

22 ‘‘(A) made by the Board of Gov23 ernors of the Federal Reserve System

24 of any wholesale financial holding
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1 company that is supervised by the

2 Board;

3 ‘‘(B) made of any licensed insur4 ance company by or on behalf of any

5 State regulatory agency responsible

6 for the supervision of an insurance

7 company; and

8 ‘‘(C) made by any Federal or State

9 banking agency of any bank or insti10 tution described in subparagraph (D),

11 (F), or (G) of section 2(c)(2), or held

12 under section 4(f), of the Bank Hold13 ing Company Act of 1956.

14 ‘‘(4) NOTICE.—To the fullest extent

15 possible, the Commission shall notify the

16 appropriate regulatory agency prior to

17 conducting an inspection of a wholesale

18 financial institution or institution de19 scribed in subparagraph (D), (F), or (G) of

20 section 2(c)(2), or held under section 4(f),

21 of the Bank Holding Company Act of

22 1956.

23 ‘‘(k) AUTHORITY TO LIMIT DISCLOSURE OF

24 INFORMATION.—Notwithstanding any other

25 provision of law, the Commission shall not be
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1 compelled to disclose any information re2 quired to be reported under subsection (h) or

3 (i) or any information supplied to the Com4 mission by any domestic or foreign regulatory

5 agency that relates to the financial or oper6 ational condition of any associated person of

7 a broker or dealer, investment bank holding

8 company, or any affiliate of an investment

9 bank holding company. Nothing in this sub10 section shall authorize the Commission to

11 withhold information from Congress, or pre12 vent the Commission from complying with a

13 request for information from any other Fed14 eral department or agency or any self-regu15 latory organization requesting the informa16 tion for purposes within the scope of its juris17 diction, or complying with an order of a court

18 of the United States in an action brought by

19 the United States or the Commission. For pur20 poses of section 552 of title 5, United States

21 Code, this subsection shall be considered a

22 statute described in subsection (b)(3)(B) of

23 such section 552. In prescribing regulations to

24 carry out the requirements of this subsection,

25 the Commission shall designate information
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1 described in or obtained pursuant to subpara2 graphs (A), (B), and (C) of subsection (i)(5) as

3 confidential information for purposes of sec4 tion 24(b)(2) of this title.’’.

5 (b) CONFORMING AMENDMENTS.—

6 (1) Section 3(a)(34) of the Securities

7 Exchange Act of 1934 (15 U.S.C.

8 78c(a)(34)) is amended by adding at the

9 end the following new subparagraph:

10 ‘‘(H) When used with respect to an

11 institution described in subpara12 graph (D), (F), or (G) of section

13 2(c)(2), or held under section 4(f), of

14 the Bank Holding Company Act of

15 1956—

16 ‘‘(i) the Comptroller of the

17 Currency, in the case of a na18 tional bank or a bank in the Dis19 trict of Columbia examined by the

20 Comptroller of the Currency;

21 ‘‘(ii) the Board of Governors of

22 the Federal Reserve System, in

23 the case of a State member bank

24 of the Federal Reserve System or

25 any corporation chartered under
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1 section 25A of the Federal Re2 serve Act;

3 ‘‘(iii) the Federal Deposit In4 surance Corporation, in the case

5 of any other bank the deposits of

6 which are insured in accordance

7 with the Federal Deposit Insur8 ance Act; or

9 ‘‘(iv) the Commission in the

10 case of all other such institu11 tions.’’.

12 (2) Section 1112(e) of the Right to Fi13 nancial Privacy Act of 1978 (12 U.S.C.

14 3412(e)) is amended—

15 (A) by striking ‘‘this title’’ and in16 serting ‘‘law’’; and

17 (B) by inserting ‘‘, examination re18 ports’’ after ‘‘financial records’’.

19 Subtitle D—Disclosure of Customer

20 Costs of Acquiring Financial

21 Products

22 SEC. 241. IMPROVED AND CONSISTENT DISCLOSURE.

23 (a) REVISED REGULATIONS REQUIRED.—

24 Within one year after the date of enactment

25 of this Act, each Federal financial regulatory
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1 authority shall prescribe rules, or revisions to

2 its rules, to improve the accuracy, simplicity,

3 and completeness, and to make more con4 sistent, the disclosure of information by per5 sons subject to the jurisdiction of such regu6 latory authority concerning any commissions,

7 fees, or other costs incurred by customers in

8 the acquisition of financial products.

9 (b) CONSULTATION.—In prescribing rules

10 and revisions under subsection (a), the Fed11 eral financial regulatory authorities shall

12 consult with each other and with appropriate

13 State financial regulatory authorities.

14 (c) CONSIDERATION OF EXISTING DISCLO15 SURES.—In prescribing rules and revisions

16 under subsection (a), the Federal financial

17 regulatory authorities shall consider the suffi18 ciency and appropriateness of then existing

19 laws and rules applicable to persons subject

20 to their jurisdiction, and may prescribe ex21 emptions from the rules and revisions re22 quired by subsection (a) to the extent appro23 priate in light of the objective of this section

24 to increase the consistency of disclosure prac25 tices.
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1 (d) ENFORCEMENT.—Any rule prescribed

2 by a Federal financial regulatory authority

3 pursuant to this section shall, for purposes of

4 enforcement, be treated as a rule prescribed

5 by such regulatory authority pursuant to the

6 statute establishing such regulatory

7 authority’s jurisdiction over the persons to

8 whom such rule applies.

9 (e) DEFINITION.—As used in this section,

10 the term ‘‘Federal financial regulatory au11 thority’’ means the Board of Governors of the

12 Federal Reserve System, the Securities and

13 Exchange Commission, the Comptroller of the

14 Currency, the Federal Deposit Insurance Cor15 poration, the Commodity Futures Trading

16 Commission, and any self-regulatory organi17 zation under the supervision of any of the

18 foregoing.

19 TITLE III—INSURANCE

20 Subtitle A—State Regulation of

21 Insurance

22 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR23 ANCE.

24 The Act entitled ‘‘An Act to express the in25 tent of the Congress with reference to the reg-
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1 ulation of the business of insurance’’ and ap2 proved March 9, 1945 (15 U.S.C. 1011 et seq.),

3 commonly referred to as the ‘‘McCarran-Fer4 guson Act’’ remains the law of the United

5 States.

6 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE7 MENTS.

8 No person shall engage in the business of

9 insurance in a State as principal or agent un10 less such person is licensed as required by the

11 appropriate insurance regulator of such State

12 in accordance with the relevant State insur13 ance law, subject to section 104.

14 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

15 The insurance activities of any person (in16 cluding a national bank exercising its power

17 to act as agent under the 11th undesignated

18 paragraph of section 13 of the Federal Re19 serve Act) shall be functionally regulated by

20 the States, subject to section 104.

21 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL

22 BANKS.

23 (a) IN GENERAL.—Except as provided in

24 section 305, a national bank and the subsidi25 aries of a national bank may not provide in-
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1 surance in a State as principal except that

2 this prohibition shall not apply to authorized

3 products.

4 (b) AUTHORIZED PRODUCTS.—For the pur5 poses of this section, a product is authorized

6 if—

7 (1) as of January 1, 1999, the Comp8 troller of the Currency had determined in

9 writing that national banks may provide

10 such product as principal, or national

11 banks were in fact lawfully providing

12 such product as principal;

13 (2) no court of relevant jurisdiction

14 had, by final judgment, overturned a de15 termination of the Comptroller of the

16 Currency that national banks may pro17 vide such product as principal; and

18 (3) the product is not title insurance,

19 or an annuity contract the income of

20 which is subject to tax treatment under

21 section 72 of the Internal Revenue Code

22 of 1986.

23 (c) DEFINITION.—For purposes of this sec24 tion, the term ‘‘insurance’’ means—
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1 (1) any product regulated as insur2 ance as of January 1, 1999, in accordance

3 with the relevant State insurance law, in

4 the State in which the product is pro5 vided;

6 (2) any product first offered after

7 January 1, 1999, which—

8 (A) a State insurance regulator

9 determines shall be regulated as in10 surance in the State in which the

11 product is provided because the prod12 uct insures, guarantees, or indem13 nifies against liability, loss of life, loss

14 of health, or loss through damage to

15 or destruction of property, including,

16 but not limited to, surety bonds, life

17 insurance, health insurance, title in18 surance, and property and casualty

19 insurance (such as private passenger

20 or commercial automobile, home21 owners, mortgage, commercial

22 multiperil, general liability, profes23 sional liability, workers’ compensa24 tion, fire and allied lines, farm own25 ers multiperil, aircraft, fidelity, sur-
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1 ety, medical malpractice, ocean ma2 rine, inland marine, and boiler and

3 machinery insurance); and

4 (B) is not a product or service of

5 a bank that is—

6 (i) a deposit product;

7 (ii) a loan, discount, letter of

8 credit, or other extension of cred9 it;

10 (iii) a trust or other fiduciary

11 service;

12 (iv) a qualified financial con13 tract (as defined in or determined

14 pursuant to section 11(e)(8)(D)(i)

15 of the Federal Deposit Insurance

16 Act); or

17 (v) a financial guaranty, ex18 cept that this subparagraph (B)

19 shall not apply to a product that

20 includes an insurance component

21 such that if the product is offered

22 or proposed to be offered by the

23 bank as principal—

24 (I) it would be treated as a

25 life insurance contract under
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1 section 7702 of the Internal

2 Revenue Code of 1986; or

3 (II) in the event that the

4 product is not a letter of cred5 it or other similar extension

6 of credit, a qualified financial

7 contract, or a financial guar8 anty, it would qualify for

9 treatment for losses incurred

10 with respect to such product

11 under section 832(b)(5) of the

12 Internal Revenue Code of

13 1986, if the bank were subject

14 to tax as an insurance com15 pany under section 831 of that

16 Code; or

17 (3) any annuity contract, the income

18 on which is subject to tax treatment

19 under section 72 of the Internal Revenue

20 Code of 1986.

21 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

22 BANKS AND THEIR AFFILIATES.

23 (a) GENERAL PROHIBITION.—No national

24 bank, and no subsidiary of a national bank,
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1 may engage in any activity involving the un2 derwriting or sale of title insurance.

3 (b) NONDISCRIMINATION PARITY EXCEP4 TION.—

5 (1) IN GENERAL.—Notwithstanding any

6 other provision of law (including section

7 104 of this Act), in the case of any State

8 in which banks organized under the laws

9 of such State are authorized to sell title

10 insurance as agency, a national bank and

11 a subsidiary of a national bank may sell

12 title insurance as agent in such State, but

13 only in the same manner, to the same ex14 tent, and under the same restrictions as

15 such State banks are authorized to sell

16 title insurance as agent in such State.

17 (2) COORDINATION WITH ‘‘WILDCARD’’

18 PROVISION.—A State law which authorizes

19 State banks to engage in any activities in

20 such State in which a national bank may

21 engage shall not be treated as a statute

22 which authorizes State banks to sell title

23 insurance as agent, for purposes of para24 graph (1).
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1 (c) GRANDFATHERING WITH CONSISTENT

2 REGULATION.—

3 (1) IN GENERAL.—Except as provided

4 in paragraphs (2) and (3) and notwith5 standing subsections (a) and (b), a na6 tional bank, and a subsidiary of a na7 tional bank, may conduct title insurance

8 activities which such national bank or

9 subsidiary was actively and lawfully con10 ducting before the date of the enactment

11 of this Act.

12 (2) INSURANCE AFFILIATE.—In the case

13 of a national bank which has an affiliate

14 which provides insurance as principal

15 and is not a subsidiary of the bank, the

16 national bank and any subsidiary of the

17 national bank may not engage in the un18 derwriting of title insurance pursuant to

19 paragraph (1).

20 (3) INSURANCE SUBSIDIARY.—In the

21 case of a national bank which has a sub22 sidiary which provides insurance as prin23 cipal and has no affiliate other than a

24 subsidiary which provides insurance as

25 principal, the national bank may not di-
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1 rectly engage in any activity involving

2 the underwriting of title insurance.

3 (d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DE4 FINED.—For purposes of this section, the

5 terms ‘‘affiliate’’ and ‘‘subsidiary’’ have the

6 same meanings as in section 2 of the Bank

7 Holding Company Act of 1956.

8 SEC. 306. EXPEDITED AND EQUALIZED DISPUTE RESOLU9 TION FOR FEDERAL REGULATORS.

10 (a) FILING IN COURT OF APPEALS.—In the

11 case of a regulatory conflict between a State

12 insurance regulator and a Federal regulator

13 as to whether any product is or is not insur14 ance, as defined in section 304(c) of this Act,

15 or whether a State statute, regulation, order,

16 or interpretation regarding any insurance

17 sales or solicitation activity is properly treat18 ed as preempted under Federal law, either

19 regulator may seek expedited judicial review

20 of such determination by the United States

21 Court of Appeals for the circuit in which the

22 State is located or in the United States Court

23 of Appeals for the District of Columbia Circuit

24 by filing a petition for review in such court.
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1 (b) EXPEDITED REVIEW.—The United States

2 Court of Appeals in which a petition for re3 view is filed in accordance with subsection (a)

4 shall complete all action on such petition, in5 cluding rendering a judgment, before the end

6 of the 60-day period beginning on the date on

7 which such petition is filed, unless all parties

8 to such proceeding agree to any extension of

9 such period.

10 (c) SUPREME COURT REVIEW.—Any request

11 for certiorari to the Supreme Court of the

12 United States of any judgment of a United

13 States Court of Appeals with respect to a peti14 tion for review under this section shall be

15 filed with the Supreme Court of the United

16 States as soon as practicable after such judg17 ment is issued.

18 (d) STATUTE OF LIMITATION.—No petition

19 may be filed under this section challenging an

20 order, ruling, determination, or other action

21 of a Federal regulator or State insurance reg22 ulator after the later of—

23 (1) the end of the 12-month period be24 ginning on the date on which the first

25 public notice is made of such order, rul-
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1 ing, determination or other action in its

2 final form; or

3 (2) the end of the 6-month period be4 ginning on the date on which such order,

5 ruling, determination, or other action

6 takes effect.

7 (e) STANDARD OF REVIEW.—The court shall

8 decide a petition filed under this section

9 based on its review on the merits of all ques10 tions presented under State and Federal law,

11 including the nature of the product or activ12 ity and the history and purpose of its regula13 tion under State and Federal law, without un14 equal deference.

15 (f) LIMITATION.—

16 (1) IN GENERAL.—Except as provided

17 in paragraph (2), subsection (e) shall not

18 apply to any petition involving the con19 sideration of any State statute, regula20 tion, order, interpretation, or other ac21 tion regarding insurance sales, solicita22 tion, or cross marketing activities de23 scribed in section 104(b)(2)(A) that was

24 adopted, issued, enacted, or taken before

25 January 1, 1999, but only to the extent
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1 that such petition presents an issue with

2 regard to—

3 (A) impeding affiliations between

4 persons licensed to sell insurance and

5 insured depository institutions by re6 quiring that all shareholders of a li7 censee be licensed persons even if

8 such persons do not engage in any ac9 tivities that would otherwise require

10 licensure, or by imposing any similar

11 licensure requirement;

12 (B) limiting the volume or portion

13 of insurance sales made by an agent

14 on the basis of whether such sales are

15 made to customers of affiliates of the

16 agent; or

17 (C) requiring any office from

18 which insurance is sold, or any office

19 of an entity affiliated or otherwise as20 sociated with such insurance sales of21 fice, must be located in such State.

22 (2) EXCEPTIONS TO THE LIMITATION.—

23 (A) IN GENERAL.—Paragraph (1)

24 shall not apply with respect to any

25 State statute, regulation, order, inter-
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1 pretation, or other action described

2 in section 104(b)(2)(B).

3 (B) RESIDENT INSURANCE AGENT RE4 QUIREMENTS.—Subparagraph (C) of

5 paragraph (1) shall not apply with re6 spect to any resident insurance agent

7 requirement that applies equally to

8 all sellers of insurance in the State.

9 SEC. 307. CONSUMER PROTECTION REGULATIONS.

10 (a) REGULATIONS REQUIRED.—

11 (1) IN GENERAL.—The Federal banking

12 agencies shall prescribe and publish in

13 final form, before the end of the 1-year

14 period beginning on the date of the en15 actment of this Act, consumer protection

16 regulations (which the agencies jointly

17 determine to be appropriate) that—

18 (A) apply to retail sales practices,

19 solicitations, advertising, or offers of

20 any insurance product by any in21 sured depository institution or whole22 sale financial institution or any per23 son who is engaged in such activities

24 at an office of the institution or on

25 behalf of the institution; and
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1 (B) are consistent with the re2 quirements of this Act and provide

3 such additional protections for con4 sumers to whom such sales, solicita5 tions, advertising, or offers are di6 rected as the agency determines to be

7 appropriate.

8 (2) APPLICABILITY TO SUBSIDIARIES.—

9 The regulations prescribed pursuant to

10 paragraph (1) shall extend such protec11 tions to any subsidiaries of an insured

12 depository institution or wholesale finan13 cial institution, as deemed appropriate by

14 the regulators referred to in paragraph

15 (3), where such extension is necessary to

16 ensure the consumer protections pro17 vided by this section.

18 (3) CONSULTATION AND JOINT REGULA19 TIONS.—The Federal banking agencies

20 shall consult with each other and pre21 scribe joint regulations pursuant to para22 graph (1), after consultation with the

23 State insurance regulators, as appro24 priate.
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1 (b) SALES PRACTICES.—The regulations

2 prescribed pursuant to subsection (a) shall in3 clude anticoercion rules applicable to the sale

4 of insurance products which prohibit an in5 sured depository institution or wholesale fi6 nancial institution from engaging in any prac7 tice that would lead a consumer to believe an

8 extension of credit, in violation of section

9 106(b) of the Bank Holding Company Act

10 Amendments of 1970, is conditional upon—

11 (1) the purchase of an insurance

12 product from the institution or any of its

13 affiliates or subsidiaries; or

14 (2) an agreement by the consumer not

15 to obtain, or a prohibition on the con16 sumer from obtaining, an insurance prod17 uct from an unaffiliated entity.

18 (c) DISCLOSURES AND ADVERTISING.—The

19 regulations prescribed pursuant to subsection

20 (a) shall include the following provisions re21 lating to disclosures and advertising in con22 nection with the initial purchase of an insur23 ance product:

24 (1) DISCLOSURES.—
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1 (A) IN GENERAL.—Requirements

2 that the following disclosures be

3 made orally and in writing before the

4 completion of the initial sale and, in

5 the case of clause (iv), at the time of

6 application for an extension of credit:

7 (i) UNINSURED STATUS.—As ap8 propriate, the product is not in9 sured by the Federal Deposit In10 surance Corporation, the United

11 States Government, or the in12 sured depository institution or

13 wholesale financial institution.

14 (ii) INVESTMENT RISK.—In the

15 case of a variable annuity or

16 other insurance product which

17 involves an investment risk, that

18 there is an investment risk associ19 ated with the product, including

20 possible loss of value.

21 (iv) COERCION.—The approval

22 of an extension of credit may not

23 be conditioned on—

24 (I) the purchase of an in25 surance product from the in-
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1 stitution in which the applica2 tion for credit is pending or

3 any of its affiliates or subsidi4 aries; or

5 (II) an agreement by the

6 consumer not to obtain, or a

7 prohibition on the consumer

8 from obtaining, an insurance

9 product from an unaffiliated

10 entity.

11 (B) MAKING DISCLOSURE READILY

12 UNDERSTANDABLE.—Regulations pre13 scribed under subparagraph (A) shall

14 encourage the use of disclosure that

15 is conspicuous, simple, direct, and

16 readily understandable, such as the

17 following:

18 (i) ‘‘NOT FDIC-INSURED’’.

19 (ii) ‘‘NOT GUARANTEED BY

20 THE BANK’’.

21 (iii) ‘‘MAY GO DOWN IN

22 VALUE’’.

23 (iv) ‘‘NOT INSURED BY ANY

24 GOVERNMENT AGENCY’’.
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1 (C) ADJUSTMENTS FOR ALTERNATIVE

2 METHODS OF PURCHASE.—In pre3 scribing the requirements under sub4 paragraphs (A) and (D), necessary ad5 justments shall be made for purchase

6 in person, by telephone, or by elec7 tronic media to provide for the most

8 appropriate and complete form of dis9 closure and acknowledgements.

10 (D) CONSUMER ACKNOWLEDGE11 MENT.—A requirement that an insured

12 depository institution or wholesale fi13 nancial institution shall require any

14 person selling an insurance product

15 at any office of, or on behalf of, the

16 institution to obtain, at the time a

17 consumer receives the disclosures re18 quired under this paragraph or at the

19 time of the initial purchase by the

20 consumer of such product, an ac21 knowledgement by such consumer of

22 the receipt of the disclosure required

23 under this subsection with respect to

24 such product.
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1 (2) PROHIBITION ON MISREPRESENTA2 TIONS.—A prohibition on any practice, or

3 any advertising, at any office of, or on be4 half of, the insured depository institution

5 or wholesale financial institution, or any

6 subsidiary thereof as appropriate, which

7 could mislead any person or otherwise

8 cause a reasonable person to reach an er9 roneous belief with respect to—

10 (A) the uninsured nature of any

11 insurance product sold, or offered for

12 sale, by the institution or any sub13 sidiary of the institution; or

14 (B) in the case of a variable annu15 ity or other insurance product that

16 involves an investment risk, the in17 vestment risk associated with any

18 such product.

19 (d) SEPARATION OF BANKING AND NON20 BANKING ACTIVITIES.—

21 (1) REGULATIONS REQUIRED.—The regu22 lations prescribed pursuant to subsection

23 (a) shall include such provisions as the

24 Federal banking agencies consider appro25 priate to ensure that the routine accept-
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1 ance of deposits and the making of loans

2 is kept, to the extent practicable, phys3 ically segregated from insurance product

4 activity.

5 (2) REQUIREMENTS.—Regulations pre6 scribed pursuant to paragraph (1) shall

7 include the following requirements:

8 (A) SEPARATE SETTING.—A clear de9 lineation of the setting in which, and

10 the circumstances under which,

11 transactions involving insurance

12 products should be conducted in a lo13 cation physically segregated from an

14 area where retail deposits are rou15 tinely accepted or loans are made.

16 (B) REFERRALS.—Standards which

17 permit any person accepting deposits

18 from, or making loans to, the public

19 in an area where such transactions

20 are routinely conducted in an insured

21 depository institution or wholesale fi22 nancial institution to refer a cus23 tomer who seeks to purchase any in24 surance product to a qualified person

25 who sells such product, only if the
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1 person making the referral receives

2 no more than a one-time nominal fee

3 of a fixed dollar amount for each re4 ferral that does not depend on wheth5 er the referral results in a trans6 action.

7 (C) QUALIFICATION AND LICENSING

8 REQUIREMENTS.—Standards prohib9 iting any insured depository institu10 tion or wholesale financial institution

11 from permitting any person to sell or

12 offer for sale any insurance product

13 in any part of any office of the insti14 tution, or on behalf of the institution,

15 unless such person is appropriately

16 qualified and licensed.

17 (e) DOMESTIC VIOLENCE DISCRIMINATION

18 PROHIBITION.—

19 (1) IN GENERAL.—In the case of an ap20 plicant for, or an insured under, any in21 surance product described in paragraph

22 (2), the status of the applicant or insured

23 as a victim of domestic violence, or as a

24 provider of services to victims of domes25 tic violence, shall not be considered as a
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1 criterion in any decision with regard to

2 insurance underwriting, pricing, renewal,

3 or scope of coverage of insurance poli4 cies, or payment of insurance claims, ex5 cept as required or expressly permitted

6 under State law.

7 (2) SCOPE OF APPLICATION.—The prohi8 bition contained in paragraph (1) shall

9 apply to any insurance product which is

10 sold or offered for sale, as principal,

11 agent, or broker, by any insured deposi12 tory institution or wholesale financial in13 stitution or any person who is engaged in

14 such activities at an office of the institu15 tion or on behalf of the institution.

16 (3) SENSE OF THE CONGRESS.—It is the

17 sense of the Congress that, by the end of

18 the 30-month period beginning on the

19 date of the enactment of this Act, the

20 States should enact prohibitions against

21 discrimination with respect to insurance

22 products that are at least as strict as the

23 prohibitions contained in paragraph (1).

24 (4) DOMESTIC VIOLENCE DEFINED.—For

25 purposes of this subsection, the term ‘‘do-
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1 mestic violence’’ means the occurrence of

2 1 or more of the following acts by a cur3 rent or former family member, household

4 member, intimate partner, or caretaker:

5 (A) Attempting to cause or caus6 ing or threatening another person

7 physical harm, severe emotional dis8 tress, psychological trauma, rape, or

9 sexual assault.

10 (B) Engaging in a course of con11 duct or repeatedly committing acts

12 toward another person, including fol13 lowing the person without proper au14 thority, under circumstances that

15 place the person in reasonable fear of

16 bodily injury or physical harm.

17 (C) Subjecting another person to

18 false imprisonment.

19 (D) Attempting to cause or cause

20 damage to property so as to intimi21 date or attempt to control the behav22 ior of another person.

23 (f) CONSUMER GRIEVANCE PROCESS.—The

24 Federal banking agencies shall jointly estab25 lish a consumer complaint mechanism, for re-
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1 ceiving and expeditiously addressing con2 sumer complaints alleging a violation of regu3 lations issued under the section, which shall—

4 (1) establish a group within each reg5 ulatory agency to receive such com6 plaints;

7 (2) develop procedures for inves8 tigating such complaints;

9 (3) develop procedures for informing

10 consumers of rights they may have in

11 connection with such complaints; and

12 (4) develop procedures for addressing

13 concerns raised by such complaints, as

14 appropriate, including procedures for the

15 recovery of losses to the extent appro16 priate.

17 (g) EFFECT ON OTHER AUTHORITY.—

18 (1) IN GENERAL.—No provision of this

19 section shall be construed as granting,

20 limiting, or otherwise affecting—

21 (A) any authority of the Securities

22 and Exchange Commission, any self23 regulatory organization, the Munic24 ipal Securities Rulemaking Board, or
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1 the Secretary of the Treasury under

2 any Federal securities law; or

3 (B) except as provided in para4 graph (2), any authority of any State

5 insurance commissioner or other

6 State authority under any State law.

7 (2) COORDINATION WITH STATE LAW.—

8 (A) IN GENERAL.—Except as pro9 vided in subparagraph (B), regula10 tions prescribed by a Federal banking

11 agency under this section shall not

12 apply to retail sales, solicitations, ad13 vertising, or offers of any insurance

14 product by any insured depository in15 stitution or wholesale financial insti16 tution or to any person who is en17 gaged in such activities at an office of

18 such institution or on behalf of the

19 institution, in a State where the State

20 has in effect statutes, regulations, or21 ders, or interpretations, that are in22 consistent with or contrary to the

23 regulations prescribed by the Federal

24 banking agencies.
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1 (B) PREEMPTION.—If, with respect

2 to any provision of the regulations

3 prescribed under this section, the

4 Board of Governors of the Federal

5 Reserve System, the Comptroller of

6 the Currency, and the Board of Direc7 tors of the Federal Deposit Insurance

8 Corporation determine jointly that

9 the protection afforded by such provi10 sion for consumers is greater than

11 the protection provided by a com12 parable provision of the statutes, reg13 ulations, orders, or interpretations

14 referred to in subparagraph (A) of

15 any State, such provision of the regu16 lations prescribed under this section

17 shall supersede the comparable provi18 sion of such State statute, regulation,

19 order, or interpretation.

20 (h) DEFINITIONS.—For purposes of this sec21 tion, the following definitions shall apply:

22 (1) APPROPRIATE FEDERAL BANKING

23 AGENCY; INSURED DEPOSITORY INSTITU24 TION.—The terms ‘‘appropriate Federal

25 banking agency’’ and ‘‘insured depository
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1 institution’’ have the same meanings as in

2 section 3 of the Federal Deposit Insur3 ance Act.

4 (2) INSURANCE PRODUCT.—The term

5 ‘‘insurance product’’ includes an annuity

6 contract the income of which is subject to

7 tax treatment under section 72 of the In8 ternal Revenue Code of 1986.

9 (3) WHOLESALE FINANCIAL INSTITU10 TION.—The term ‘‘wholesale financial in11 stitution’’ means a wholesale financial in12 stitution subject to section 9B of the Fed13 eral Reserve Act.

14 SEC. 308. CERTAIN STATE AFFILIATION LAWS PREEMPTED

15 FOR INSURANCE COMPANIES AND AFFILI16 ATES.

17 Except as provided in section 104(a)(2), no

18 State may, by law, regulation, order, interpre19 tation, or otherwise—

20 (1) prevent or significantly interfere

21 with the ability of any insurer, or any af22 filiate of an insurer (whether such affil23 iate is organized as a stock company, mu24 tual holding company, or otherwise), to

25 become a financial holding company or to
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1 acquire control of an insured depository

2 institution;

3 (2) limit the amount of an insurer’s

4 assets that may be invested in the voting

5 securities of an insured depository insti6 tution (or any company which controls

7 such institution), except that the laws of

8 an insurer’s State of domicile may limit

9 the amount of such investment to an

10 amount that is not less than 5 percent of

11 the insurer’s admitted assets; or

12 (3) prevent, significantly interfere

13 with, or have the authority to review, ap14 prove, or disapprove a plan of reorga15 nization by which an insurer proposes to

16 reorganize from mutual form to become a

17 stock insurer (whether as a direct or in18 direct subsidiary of a mutual holding

19 company or otherwise) unless such State

20 is the State of domicile of the insurer.

21 SEC. 309. INTERAGENCY CONSULTATION.

22 (a) PURPOSE.—It is the intention of Con23 gress that the Board of Governors of the Fed24 eral Reserve System, as the umbrella super25 visor for financial holding companies, and the
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1 State insurance regulators, as the functional

2 regulators of companies engaged in insurance

3 activities, coordinate efforts to supervise com4 panies that control both a depository institu5 tion and a company engaged in insurance ac6 tivities regulated under State law. In par7 ticular, Congress believes that the Board and

8 the State insurance regulators should share,

9 on a confidential basis, information relevant

10 to the supervision of companies that control

11 both a depository institution and a company

12 engaged in insurance activities, including in13 formation regarding the financial health of

14 the consolidated organization and informa15 tion regarding transactions and relationships

16 between insurance companies and affiliated

17 depository institutions. The appropriate Fed18 eral banking agencies for depository institu19 tions should also share, on a confidential

20 basis, information with the relevant State in21 surance regulators regarding transactions

22 and relationships between depository institu23 tions and affiliated companies engaged in in24 surance activities. The purpose of this section

25 is to encourage this coordination and con-
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1 fidential sharing of information, and to there2 by improve both the efficiency and the quality

3 of the supervision of financial holding compa4 nies and their affiliated depository institu5 tions and companies engaged in insurance ac6 tivities.

7 (b) EXAMINATION RESULTS AND OTHER IN8 FORMATION.—

9 (1) INFORMATION OF THE BOARD.—Upon

10 the request of the appropriate insurance

11 regulator of any State, the Board may

12 provide any information of the Board re13 garding the financial condition, risk man14 agement policies, and operations of any

15 financial holding company that controls a

16 company that is engaged in insurance ac17 tivities and is regulated by such State in18 surance regulator, and regarding any

19 transaction or relationship between such

20 an insurance company and any affiliated

21 depository institution. The Board may

22 provide any other information to the ap23 propriate State insurance regulator that

24 the Board believes is necessary or appro25 priate to permit the State insurance regu-
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1 lator to administer and enforce applica2 ble State insurance laws.

3 (2) BANKING AGENCY INFORMATION.—

4 Upon the request of the appropriate in5 surance regulator of any State, the appro6 priate Federal banking agency may pro7 vide any information of the agency re8 garding any transaction or relationship

9 between a depository institution super10 vised by such Federal banking agency

11 and any affiliated company that is en12 gaged in insurance activities regulated

13 by such State insurance regulator. The

14 appropriate Federal banking agency may

15 provide any other information to the ap16 propriate State insurance regulator that

17 the agency believes is necessary or ap18 propriate to permit the State insurance

19 regulator to administer and enforce ap20 plicable State insurance laws.

21 (3) STATE INSURANCE REGULATOR IN22 FORMATION.—Upon the request of the

23 Board or the appropriate Federal bank24 ing agency, a State insurance regulator

25 may provide any examination or other re-
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1 ports, records, or other information to

2 which such insurance regulator may

3 have access with respect to a company

4 which—

5 (A) is engaged in insurance activi6 ties and regulated by such insurance

7 regulator; and

8 (B) is an affiliate of an insured de9 pository institution, wholesale finan10 cial institution, or financial holding

11 company.

12 (c) CONSULTATION.—Before making any de13 termination relating to the initial affiliation

14 of, or the continuing affiliation of, an insured

15 depository institution, wholesale financial in16 stitution, or financial holding company with

17 a company engaged in insurance activities,

18 the appropriate Federal banking agency shall

19 consult with the appropriate State insurance

20 regulator of such company and take the views

21 of such insurance regulator into account in

22 making such determination.

23 (d) EFFECT ON OTHER AUTHORITY.—Nothing

24 in this section shall limit in any respect the

25 authority of the appropriate Federal banking
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1 agency with respect to an insured depository

2 institution, wholesale financial institution, or

3 bank holding company or any affiliate thereof

4 under any provision of law.

5 (e) CONFIDENTIALITY AND PRIVILEGE.—

6 (1) CONFIDENTIALITY.—The appro7 priate Federal banking agency shall not

8 provide any information or material that

9 is entitled to confidential treatment

10 under applicable Federal banking agency

11 regulations, or other applicable law, to a

12 State insurance regulator unless such

13 regulator agrees to maintain the informa14 tion or material in confidence and to take

15 all reasonable steps to oppose any effort

16 to secure disclosure of the information or

17 material by the regulator. The appro18 priate Federal banking agency shall treat

19 as confidential any information or mate20 rial obtained from a State insurance reg21 ulator that is entitled to confidential

22 treatment under applicable State regula23 tions, or other applicable law, and take

24 all reasonable steps to oppose any effort
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1 to secure disclosure of the information or

2 material by the Federal banking agency.

3 (2) PRIVILEGE.—The provision pursu4 ant to this section of information or ma5 terial by a Federal banking agency or

6 State insurance regulator shall not con7 stitute a waiver of, or otherwise affect,

8 any privilege to which the information or

9 material is otherwise subject.

10 (f) DEFINITIONS.—For purposes of this sec11 tion, the following definitions shall apply:

12 (1) APPROPRIATE FEDERAL BANKING

13 AGENCY; INSURED DEPOSITORY INSTITU14 TION.—The terms ‘‘appropriate Federal

15 banking agency’’ and ‘‘insured depository

16 institution’’ have the same meanings as in

17 section 3 of the Federal Deposit Insur18 ance Act.

19 (2) BOARD; FINANCIAL HOLDING COM20 PANY; AND WHOLESALE FINANCIAL INSTITU21 TION.—The terms ‘‘Board’’, ‘‘financial

22 holding company’’, and ‘‘wholesale finan23 cial institution’’ have the same meanings

24 as in section 2 of the Bank Holding Com25 pany Act of 1956.
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1 SEC. 310. DEFINITION OF STATE.

2 For purposes of this subtitle, the term

3 ‘‘State’’ means any State of the United States,

4 the District of Columbia, any territory of the

5 United States, Puerto Rico, Guam, American

6 Samoa, the Trust Territory of the Pacific Is7 lands, the Virgin Islands, and the Northern

8 Mariana Islands.

9 Subtitle B—Redomestication of

10 Mutual Insurers

11 SEC. 311. GENERAL APPLICATION.

12 This subtitle shall only apply to a mutual

13 insurance company in a State which has not

14 enacted a law which expressly establishes

15 reasonable terms and conditions for a mutual

16 insurance company domiciled in such State to

17 reorganize into a mutual holding company.

18 SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

19 (a) REDOMESTICATION.—A mutual insurer

20 organized under the laws of any State may

21 transfer its domicile to a transferee domicile

22 as a step in a reorganization in which, pursu23 ant to the laws of the transferee domicile and

24 consistent with the standards in subsection

25 (f), the mutual insurer becomes a stock in-
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1 surer that is a direct or indirect subsidiary of

2 a mutual holding company.

3 (b) RESULTING DOMICILE.—Upon com4 plying with the applicable law of the trans5 feree domicile governing transfers of domicile

6 and completion of a transfer pursuant to this

7 section, the mutual insurer shall cease to be

8 a domestic insurer in the transferor domicile

9 and, as a continuation of its corporate exist10 ence, shall be a domestic insurer of the trans11 feree domicile.

12 (c) LICENSES PRESERVED.—The certificate

13 of authority, agents’ appointments and li14 censes, rates, approvals and other items that

15 a licensed State allows and that are in exist16 ence immediately prior to the date that a re17 domesticating insurer transfers its domicile

18 pursuant to this subtitle shall continue in full

19 force and effect upon transfer, if the insurer

20 remains duly qualified to transact the busi21 ness of insurance in such licensed State.

22 (d) EFFECTIVENESS OF OUTSTANDING POLI23 CIES AND CONTRACTS.—

24 (1) IN GENERAL.—All outstanding in25 surance policies and annuities contracts
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1 of a redomesticating insurer shall remain

2 in full force and effect and need not be

3 endorsed as to the new domicile of the in4 surer, unless so ordered by the State in5 surance regulator of a licensed State, and

6 then only in the case of outstanding poli7 cies and contracts whose owners reside

8 in such licensed State.

9 (2) FORMS.—

10 (A) Applicable State law may re11 quire a redomesticating insurer to

12 file new policy forms with the State

13 insurance regulator of a licensed

14 State on or before the effective date

15 of the transfer.

16 (B) Notwithstanding subpara17 graph (A), a redomesticating insurer

18 may use existing policy forms with

19 appropriate endorsements to reflect

20 the new domicile of the redomes21 ticating insurer until the new policy

22 forms are approved for use by the

23 State insurance regulator of such li24 censed State.
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1 (e) NOTICE.—A redomesticating insurer

2 shall give notice of the proposed transfer to

3 the State insurance regulator of each licensed

4 State and shall file promptly any resulting

5 amendments to corporate documents re6 quired to be filed by a foreign licensed mutual

7 insurer with the insurance regulator of each

8 such licensed State.

9 (f) PROCEDURAL REQUIREMENTS.—No mu10 tual insurer may redomesticate to another

11 State and reorganize into a mutual holding

12 company pursuant to this section unless the

13 State insurance regulator of the transferee

14 domicile determines that the plan of reorga15 nization of the insurer includes the following

16 requirements:

17 (1) APPROVAL BY BOARD OF DIRECTORS

18 AND POLICYHOLDERS.—The reorganization

19 is approved by at least a majority of the

20 board of directors of the mutual insurer

21 and at least a majority of the policy22 holders who vote after notice, disclosure

23 of the reorganization and the effects of

24 the transaction on policyholder contrac25 tual rights, and reasonable opportunity
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1 to vote, in accordance with such notice,

2 disclosure, and voting procedures as are

3 approved by the State insurance regu4 lator of the transferee domicile.

5 (2) CONTINUED VOTING CONTROL BY POL6 ICYHOLDERS; REVIEW OF PUBLIC STOCK OF7 FERING.—After the consummation of a re8 organization, the policyholders of the re9 organized insurer shall have the same

10 voting rights with respect to the mutual

11 holding company as they had before the

12 reorganization with respect to the mu13 tual insurer. With respect to an initial

14 public offering of stock, the offering shall

15 be conducted in compliance with applica16 ble securities laws and in a manner ap17 proved by the State insurance regulator

18 of the transferee domicile.

19 (3) AWARD OF STOCK OR GRANT OF OP20 TIONS TO OFFICERS AND DIRECTORS.—For a

21 period of 6 months after completion of an

22 initial public offering, neither a stock

23 holding company nor the converted in24 surer shall award any stock options or

25 stock grants to persons who are elected
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1 officers or directors of the mutual hold2 ing company, the stock holding company,

3 or the converted insurer, except with re4 spect to any such awards or options to

5 which a person is entitled as a policy6 holder and as approved by the State in7 surance regulator of the transferee domi8 cile.

9 (4) CONTRACTUAL RIGHTS.—Upon reor10 ganization into a mutual holding com11 pany, the contractual rights of the policy12 holders are preserved.

13 (5) FAIR AND EQUITABLE TREATMENT OF

14 POLICYHOLDERS.—The reorganization is

15 approved as fair and equitable to the pol16 icyholders by the insurance regulator of

17 the transferee domicile.

18 SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMES19 TICATION.

20 (a) IN GENERAL.—Unless otherwise per21 mitted by this subtitle, State laws of any

22 transferor domicile that conflict with the pur23 poses and intent of this subtitle are pre24 empted, including but not limited to—
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1 (1) any law that has the purpose or

2 effect of impeding the activities of, taking

3 any action against, or applying any provi4 sion of law or regulation to, any insurer

5 or an affiliate of such insurer because

6 that insurer or any affiliate plans to re7 domesticate, or has redomesticated, pur8 suant to this subtitle;

9 (2) any law that has the purpose or

10 effect of impeding the activities of, taking

11 action against, or applying any provision

12 of law or regulation to, any insured or

13 any insurance licensee or other inter14 mediary because such person has pro15 cured insurance from or placed insur16 ance with any insurer or affiliate of such

17 insurer that plans to redomesticate, or

18 has redomesticated, pursuant to this sub19 title, but only to the extent that such law

20 would treat such insured licensee or

21 other intermediary differently than if the

22 person procured insurance from, or

23 placed insurance with, an insured li24 censee or other intermediary which had

25 not redomesticated;
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1 (3) any law that has the purpose or

2 effect of terminating, because of the re3 domestication of a mutual insurer pursu4 ant to this subtitle, any certificate of au5 thority, agent appointment or license,

6 rate approval, or other approval, of any

7 State insurance regulator or other State

8 authority in existence immediately prior

9 to the redomestication in any State other

10 than the transferee domicile.

11 (b) DIFFERENTIAL TREATMENT PROHIB12 ITED.—No State law, regulation, interpreta13 tion, or functional equivalent thereof, of a

14 State other than a transferee domicile may

15 treat a redomesticating or redomesticated in16 surer or any affiliate thereof any differently

17 than an insurer operating in that State that

18 is not a redomesticating or redomesticated in19 surer.

20 (c) LAWS PROHIBITING OPERATIONS.—If any

21 licensed State fails to issue, delays the

22 issuance of, or seeks to revoke an original or

23 renewal certificate of authority of a redomes24 ticated insurer immediately following re25 domestication, except on grounds and in a
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1 manner consistent with its past practices re2 garding the issuance of certificates of author3 ity to foreign insurers that are not redomes4 ticating, then the redomesticating insurer

5 shall be exempt from any State law of the li6 censed State to the extent that such State law

7 or the operation of such State law would

8 make unlawful, or regulate, directly or indi9 rectly, the operation of the redomesticated in10 surer, except that such licensed State may re11 quire the redomesticated insurer to—

12 (1) comply with the unfair claim set13 tlement practices law of the licensed

14 State;

15 (2) pay, on a nondiscriminatory basis,

16 applicable premium and other taxes

17 which are levied on licensed insurers or

18 policyholders under the laws of the li19 censed State;

20 (3) register with and designate the

21 State insurance regulator as its agent

22 solely for the purpose of receiving service

23 of legal documents or process;

24 (4) submit to an examination by the

25 State insurance regulator in any licensed
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1 state in which the redomesticated insurer

2 is doing business to determine the insur3 er’s financial condition, if—

4 (A) the State insurance regulator

5 of the transferee domicile has not

6 begun an examination of the re7 domesticated insurer and has not

8 scheduled such an examination to

9 begin before the end of the 1-year pe10 riod beginning on the date of the re11 domestication; and

12 (B) any such examination is co13 ordinated to avoid unjustified dupli14 cation and repetition;

15 (5) comply with a lawful order issued

16 in—

17 (A) a delinquency proceeding

18 commenced by the State insurance

19 regulator of any licensed State if

20 there has been a judicial finding of fi21 nancial impairment under paragraph

22 (7); or

23 (B) a voluntary dissolution pro24 ceeding;
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1 (6) comply with any State law regard2 ing deceptive, false, or fraudulent acts or

3 practices, except that if the licensed

4 State seeks an injunction regarding the

5 conduct described in this paragraph,

6 such injunction must be obtained from a

7 court of competent jurisdiction as pro8 vided in section 314(a);

9 (7) comply with an injunction issued

10 by a court of competent jurisdiction,

11 upon a petition by the State insurance

12 regulator alleging that the redomes13 ticating insurer is in hazardous financial

14 condition or is financially impaired;

15 (8) participate in any insurance insol16 vency guaranty association on the same

17 basis as any other insurer licensed in the

18 licensed State; and

19 (9) require a person acting, or offer20 ing to act, as an insurance licensee for a

21 redomesticated insurer in the licensed

22 State to obtain a license from that State,

23 except that such State may not impose

24 any qualification or requirement that dis-
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1 criminates against a nonresident insur2 ance licensee.

3 SEC. 314. OTHER PROVISIONS.

4 (a) JUDICIAL REVIEW.—The appropriate

5 United States district court shall have exclu6 sive jurisdiction over litigation arising under

7 this section involving any redomesticating or

8 redomesticated insurer.

9 (b) SEVERABILITY.—If any provision of this

10 section, or the application thereof to any per11 son or circumstances, is held invalid, the re12 mainder of the section, and the application of

13 such provision to other persons or cir14 cumstances, shall not be affected thereby.

15 SEC. 315. DEFINITIONS.

16 For purposes of this subtitle, the fol17 lowing definitions shall apply:

18 (1) COURT OF COMPETENT JURISDIC19 TION.—The term ‘‘court of competent ju20 risdiction’’ means a court authorized pur21 suant to section 314(a) to adjudicate liti22 gation arising under this subtitle.

23 (2) DOMICILE.—The term ‘‘domicile’’

24 means the State in which an insurer is

25 incorporated, chartered, or organized.
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1 (3) INSURANCE LICENSEE.—The term

2 ‘‘insurance licensee’’ means any person

3 holding a license under State law to act

4 as insurance agent, subagent, broker, or

5 consultant.

6 (4) INSTITUTION.—The term ‘‘institu7 tion’’ means a corporation, joint stock

8 company, limited liability company, lim9 ited liability partnership, association,

10 trust, partnership, or any similar entity.

11 (5) LICENSED STATE.—The term ‘‘li12 censed State’’ means any State, the Dis13 trict of Columbia, American Samoa,

14 Guam, Puerto Rico, or the United States

15 Virgin Islands in which the redomes16 ticating insurer has a certificate of au17 thority in effect immediately prior to the

18 redomestication.

19 (6) MUTUAL INSURER.—The term ‘‘mu20 tual insurer’’ means a mutual insurer or21 ganized under the laws of any State.

22 (7) PERSON.—The term ‘‘person’’

23 means an individual, institution, govern24 ment or governmental agency, State or

25 political subdivision of a State, public
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1 corporation, board, association, estate,

2 trustee, or fiduciary, or other similar en3 tity.

4 (8) POLICYHOLDER.—The term ‘‘policy5 holder’’ means the owner of a policy

6 issued by a mutual insurer, except that,

7 with respect to voting rights, the term

8 means a member of a mutual insurer or

9 mutual holding company granted the

10 right to vote, as determined under appli11 cable State law.

12 (9) REDOMESTICATED INSURER.—The

13 term ‘‘redomesticated insurer’’ means a

14 mutual insurer that has redomesticated

15 pursuant to this subtitle.

16 (10) REDOMESTICATING INSURER.—The

17 term ‘‘redomesticating insurer’’ means a

18 mutual insurer that is redomesticating

19 pursuant to this subtitle.

20 (11) REDOMESTICATION OR TRANSFER.—

21 The terms ‘‘redomestication’’ and ‘‘trans22 fer’’ mean the transfer of the domicile of

23 a mutual insurer from one State to an24 other State pursuant to this subtitle.
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1 (12) STATE INSURANCE REGULATOR.—

2 The term ‘‘State insurance regulator’’

3 means the principal insurance regulatory

4 authority of a State, the District of Co5 lumbia, American Samoa, Guam, Puerto

6 Rico, or the United States Virgin Islands.

7 (13) STATE LAW.—The term ‘‘State law’’

8 means the statutes of any State, the Dis9 trict of Columbia, American Samoa,

10 Guam, Puerto Rico, or the United States

11 Virgin Islands and any regulation, order,

12 or requirement prescribed pursuant to

13 any such statute.

14 (14) TRANSFEREE DOMICILE.—The term

15 ‘‘transferee domicile’’ means the State to

16 which a mutual insurer is redomes17 ticating pursuant to this subtitle.

18 (15) TRANSFEROR DOMICILE.—The term

19 ‘‘transferor domicile’’ means the State

20 from which a mutual insurer is redomes21 ticating pursuant to this subtitle.

22 SEC. 316. EFFECTIVE DATE.

23 This subtitle shall take effect on the date

24 of the enactment of this Act.
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1 Subtitle C—National Association of

2 Registered Agents and Brokers

3 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING

4 REFORMS.

5 (a) IN GENERAL.—The provisions of this

6 subtitle shall take effect unless, not later than

7 3 years after the date of enactment of this Act,

8 at least a majority of the States—

9 (1) have enacted uniform laws and

10 regulations governing the licensure of in11 dividuals and entities authorized to sell

12 and solicit the purchase of insurance

13 within the State; or

14 (2) have enacted reciprocity laws and

15 regulations governing the licensure of

16 nonresident individuals and entities au17 thorized to sell and solicit insurance

18 within those States.

19 (b) UNIFORMITY REQUIRED.—States shall be

20 deemed to have established the uniformity

21 necessary to satisfy subsection (a)(1) if the

22 States—

23 (1) establish uniform criteria regard24 ing the integrity, personal qualifications,

25 education, training, and experience of li-
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1 censed insurance producers, including

2 the qualification and training of sales

3 personnel in ascertaining the appro4 priateness of a particular insurance prod5 uct for a prospective customer;

6 (2) establish uniform continuing edu7 cation requirements for licensed insur8 ance producers;

9 (3) establish uniform ethics course re10 quirements for licensed insurance pro11 ducers in conjunction with the con12 tinuing education requirements under

13 paragraph (2);

14 (4) establish uniform criteria to en15 sure that an insurance product, including

16 any annuity contract, sold to a consumer

17 is suitable and appropriate for the con18 sumer based on financial information dis19 closed by the consumer; and

20 (5) do not impose any requirement

21 upon any insurance producer to be li22 censed or otherwise qualified to do busi23 ness as a nonresident that has the effect

24 of limiting or conditioning that pro25 ducer’s activities because of its residence
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1 or place of operations, except that

2 counter-signature requirements imposed

3 on nonresident producers shall not be

4 deemed to have the effect of limiting or

5 conditioning a producer’s activities be6 cause of its residence or place of oper7 ations under this section.

8 (c) RECIPROCITY REQUIRED.—States shall

9 be deemed to have established the reciprocity

10 required to satisfy subsection (a)(2) if the fol11 lowing conditions are met:

12 (1) ADMINISTRATIVE LICENSING PROCE13 DURES.—At least a majority of the States

14 permit a producer that has a resident li15 cense for selling or soliciting the pur16 chase of insurance in its home State to

17 receive a license to sell or solicit the pur18 chase of insurance in such majority of

19 States as a nonresident to the same ex20 tent that such producer is permitted to

21 sell or solicit the purchase of insurance

22 in its State, if the producer’s home State

23 also awards such licenses on such a re24 ciprocal basis, without satisfying any ad-
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1 ditional requirements other than

2 submitting—

3 (A) a request for licensure;

4 (B) the application for licensure

5 that the producer submitted to its

6 home State;

7 (C) proof that the producer is li8 censed and in good standing in its

9 home State; and

10 (D) the payment of any requisite

11 fee to the appropriate authority.

12 (2) CONTINUING EDUCATION REQUIRE13 MENTS.—A majority of the States accept

14 an insurance producer’s satisfaction of

15 its home State’s continuing education re16 quirements for licensed insurance pro17 ducers to satisfy the States’ own con18 tinuing education requirements if the

19 producer’s home State also recognizes

20 the satisfaction of continuing education

21 requirements on such a reciprocal basis.

22 (3) NO LIMITING NONRESIDENT REQUIRE23 MENTS.—A majority of the States do not

24 impose any requirement upon any insur25 ance producer to be licensed or other-
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1 wise qualified to do business as a non2 resident that has the effect of limiting or

3 conditioning that producer’s activities

4 because of its residence or place of oper5 ations, except that countersignature re6 quirements imposed on nonresident pro7 ducers shall not be deemed to have the

8 effect of limiting or conditioning a pro9 ducer’s activities because of its residence

10 or place of operations under this section.

11 (4) RECIPROCAL RECIPROCITY.—Each of

12 the States that satisfies paragraphs (1),

13 (2), and (3) grants reciprocity to residents

14 of all of the other States that satisfy such

15 paragraphs.

16 (d) DETERMINATION.—

17 (1) NAIC DETERMINATION.—At the end

18 of the 3-year period beginning on the

19 date of the enactment of this Act, the Na20 tional Association of Insurance Commis21 sioners shall determine, in consultation

22 with the insurance commissioners or

23 chief insurance regulatory officials of the

24 States, whether the uniformity or reci-
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1 procity required by subsections (b) and

2 (c) has been achieved.

3 (2) JUDICIAL REVIEW.—The appropriate

4 United States district court shall have ex5 clusive jurisdiction over any challenge to

6 the National Association of Insurance

7 Commissioners’ determination under this

8 section and such court shall apply the

9 standards set forth in section 706 of title

10 5, United States Code, when reviewing

11 any such challenge.

12 (e) CONTINUED APPLICATION.—If, at any

13 time, the uniformity or reciprocity required

14 by subsections (b) and (c) no longer exists, the

15 provisions of this subtitle shall take effect 2

16 years after the date on which such uniformity

17 or reciprocity ceases to exist, unless the uni18 formity or reciprocity required by those pro19 visions is satisfied before the expiration of

20 that 2-year period.

21 (f) SAVINGS PROVISION.—No provision of

22 this section shall be construed as requiring

23 that any law, regulation, provision, or action

24 of any State which purports to regulate insur25 ance producers, including any such law, regu-
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1 lation, provision, or action which purports to

2 regulate unfair trade practices or establish

3 consumer protections, including

4 countersignature laws, be altered or amended

5 in order to satisfy the uniformity or reci6 procity required by subsections (b) and (c),

7 unless any such law, regulation, provision, or

8 action is inconsistent with a specific require9 ment of any such subsection and then only to

10 the extent of such inconsistency.

11 (g) UNIFORM LICENSING.—Nothing in this

12 section shall be construed to require any

13 State to adopt new or additional licensing re14 quirements to achieve the uniformity nec15 essary to satisfy subsection (a)(1).

16 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED

17 AGENTS AND BROKERS.

18 (a) ESTABLISHMENT.—There is established

19 the National Association of Registered Agents

20 and Brokers (hereafter in this subtitle re21 ferred to as the ‘‘Association’’).

22 (b) STATUS.—The Association shall—

23 (1) be a nonprofit corporation;

24 (2) have succession until dissolved by

25 an Act of Congress;
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1 (3) not be an agent or instrumentality

2 of the United States Government; and

3 (4) except as otherwise provided in

4 this Act, be subject to, and have all the

5 powers conferred upon a nonprofit cor6 poration by the District of Columbia Non7 profit Corporation Act (D.C. Code, sec.

8 29y–1001 et seq.).

9 SEC. 323. PURPOSE.

10 The purpose of the Association shall be to

11 provide a mechanism through which uniform

12 licensing, appointment, continuing education,

13 and other insurance producer sales qualifica14 tion requirements and conditions can be

15 adopted and applied on a multistate basis,

16 while preserving the right of States to license,

17 supervise, and discipline insurance producers

18 and to prescribe and enforce laws and regula19 tions with regard to insurance-related con20 sumer protection and unfair trade practices.

21 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

22 The Association shall be subject to the su23 pervision and oversight of the National Asso24 ciation of Insurance Commissioners (here-
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1 after in this subtitle referred to as the

2 ‘‘NAIC’’).

3 SEC. 325. MEMBERSHIP.

4 (a) ELIGIBILITY.—

5 (1) IN GENERAL.—Any State-licensed

6 insurance producer shall be eligible to

7 become a member in the Association.

8 (2) INELIGIBILITY FOR SUSPENSION OR

9 REVOCATION OF LICENSE.—Notwithstanding

10 paragraph (1), a State-licensed insurance

11 producer shall not be eligible to become

12 a member if a State insurance regulator

13 has suspended or revoked such pro14 ducer’s license in that State during the 3-

15 year period preceding the date on which

16 such producer applies for membership.

17 (3) RESUMPTION OF ELIGIBILITY.—Para18 graph (2) shall cease to apply to any in19 surance producer if—

20 (A) the State insurance regulator

21 renews the license of such producer

22 in the State in which the license was

23 suspended or revoked; or

24 (B) the suspension or revocation

25 is subsequently overturned.
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1 (b) AUTHORITY TO ESTABLISH MEMBERSHIP

2 CRITERIA.—The Association shall have the au3 thority to establish membership criteria

4 that—

5 (1) bear a reasonable relationship to

6 the purposes for which the Association

7 was established; and

8 (2) do not unfairly limit the access of

9 smaller agencies to the Association mem10 bership.

11 (c) ESTABLISHMENT OF CLASSES AND CAT12 EGORIES.—

13 (1) CLASSES OF MEMBERSHIP.—The As14 sociation may establish separate classes

15 of membership, with separate criteria, if

16 the Association reasonably determines

17 that performance of different duties re18 quires different levels of education, train19 ing, or experience.

20 (2) CATEGORIES.—The Association may

21 establish separate categories of member22 ship for individuals and for other per23 sons. The establishment of any such cat24 egories of membership shall be based ei25 ther on the types of licensing categories
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1 that exist under State laws or on the ag2 gregate amount of business handled by

3 an insurance producer. No special cat4 egories of membership, and no distinct

5 membership criteria, shall be established

6 for members which are insured deposi7 tory institutions or wholesale financial

8 institutions or for their employees,

9 agents, or affiliates.

10 (d) MEMBERSHIP CRITERIA.—

11 (1) IN GENERAL.—The Association may

12 establish criteria for membership which

13 shall include standards for integrity, per14 sonal qualifications, education, training,

15 and experience.

16 (2) MINIMUM STANDARD.—In estab17 lishing criteria under paragraph (1), the

18 Association shall consider the highest

19 levels of insurance producer qualifica20 tions established under the licensing

21 laws of the States.

22 (e) EFFECT OF MEMBERSHIP.—Membership

23 in the Association shall entitle the member to

24 licensure in each State for which the member

25 pays the requisite fees, including licensing
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1 fees and, where applicable, bonding require2 ments, set by such State.

3 (f) ANNUAL RENEWAL.—Membership in the

4 Association shall be renewed on an annual

5 basis.

6 (g) CONTINUING EDUCATION.—The Associa7 tion shall establish, as a condition of member8 ship, continuing education requirements

9 which shall be comparable to or greater than

10 the continuing education requirements under

11 the licensing laws of a majority of the States.

12 (h) SUSPENSION AND REVOCATION.—The As13 sociation may—

14 (1) inspect and examine the records

15 and offices of the members of the Asso16 ciation to determine compliance with the

17 criteria for membership established by

18 the Association; and

19 (2) suspend or revoke the member20 ship of an insurance producer if—

21 (A) the producer fails to meet the

22 applicable membership criteria of the

23 Association; or

24 (B) the producer has been subject

25 to disciplinary action pursuant to a
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1 final adjudicatory proceeding under

2 the jurisdiction of a State insurance

3 regulator, and the Association con4 cludes that retention of membership

5 in the Association would not be in the

6 public interest.

7 (i) OFFICE OF CONSUMER COMPLAINTS.—

8 (1) IN GENERAL.—The Association shall

9 establish an office of consumer com10 plaints that shall—

11 (A) receive and investigate com12 plaints from both consumers and

13 State insurance regulators related to

14 members of the Association; and

15 (B) recommend to the Association

16 any disciplinary actions that the of17 fice considers appropriate, to the ex18 tent that any such recommendation is

19 not inconsistent with State law.

20 (2) RECORDS AND REFERRALS.—The of21 fice of consumer complaints of the Asso22 ciation shall—

23 (A) maintain records of all com24 plaints received in accordance with

25 paragraph (1) and make such records
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1 available to the NAIC and to each

2 State insurance regulator for the

3 State of residence of the consumer

4 who filed the complaint; and

5 (B) refer, when appropriate, any

6 such complaint to any appropriate

7 State insurance regulator.

8 (3) TELEPHONE AND OTHER ACCESS.—

9 The office of consumer complaints shall

10 maintain a toll-free telephone number for

11 the purpose of this subsection and, as

12 practicable, other alternative means of

13 communication with consumers, such as

14 an Internet home page.

15 SEC. 326. BOARD OF DIRECTORS.

16 (a) ESTABLISHMENT.—There is established

17 the board of directors of the Association

18 (hereafter in this subtitle referred to as the

19 ‘‘Board’’) for the purpose of governing and su20 pervising the activities of the Association and

21 the members of the Association.

22 (b) POWERS.—The Board shall have such

23 powers and authority as may be specified in

24 the bylaws of the Association.

25 (c) COMPOSITION.—
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1 (1) MEMBERS.—The Board shall be

2 composed of 7 members appointed by the

3 NAIC.

4 (2) REQUIREMENT.—At least 4 of the

5 members of the Board shall have signifi6 cant experience with the regulation of

7 commercial lines of insurance in at least

8 1 of the 20 States in which the greatest

9 total dollar amount of commercial-lines

10 insurance is placed in the United States.

11 (3) INITIAL BOARD MEMBERSHIP.—

12 (A) IN GENERAL.—If, by the end of

13 the 2-year period beginning on the

14 date of enactment of this Act, the

15 NAIC has not appointed the initial 7

16 members of the Board of the Associa17 tion, the initial Board shall consist of

18 the 7 State insurance regulators of

19 the 7 States with the greatest total

20 dollar amount of commercial-lines in21 surance in place as of the end of such

22 period.

23 (B) ALTERNATE COMPOSITION.—If

24 any of the State insurance regulators

25 described in subparagraph (A) de-
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1 clines to serve on the Board, the State

2 insurance regulator with the next

3 greatest total dollar amount of com4 mercial-lines insurance in place, as

5 determined by the NAIC as of the end

6 of such period, shall serve as a mem7 ber of the Board.

8 (C) INOPERABILITY.—If fewer than

9 7 State insurance regulators accept

10 appointment to the Board, the Asso11 ciation shall be established without

12 NAIC oversight pursuant to section

13 332.

14 (d) TERMS.—The term of each director

15 shall, after the initial appointment of the

members of the Board, be for 3 years, with 1 16 ⁄3

17 of the directors to be appointed each year.

18 (e) BOARD VACANCIES.—A vacancy on the

19 Board shall be filled in the same manner as

20 the original appointment of the initial Board

21 for the remainder of the term of the vacating

22 member.

23 (f) MEETINGS.—The Board shall meet at

24 the call of the chairperson, or as otherwise

25 provided by the bylaws of the Association.
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1 SEC. 327. OFFICERS.

2 (a) IN GENERAL.—

3 (1) POSITIONS.—The officers of the As4 sociation shall consist of a chairperson

5 and a vice chairperson of the Board, a

6 president, secretary, and treasurer of the

7 Association, and such other officers and

8 assistant officers as may be deemed nec9 essary.

10 (2) MANNER OF SELECTION.—Each offi11 cer of the Board and the Association shall

12 be elected or appointed at such time and

13 in such manner and for such terms not

14 exceeding 3 years as may be prescribed

15 in the bylaws of the Association.

16 (b) CRITERIA FOR CHAIRPERSON.—Only in17 dividuals who are members of the NAIC shall

18 be eligible to serve as the chairperson of the

19 board of directors.

20 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

21 (a) ADOPTION AND AMENDMENT OF BY22 LAWS.—

23 (1) COPY REQUIRED TO BE FILED WITH

24 THE NAIC.—The board of directors of the

25 Association shall file with the NAIC a

26 copy of the proposed bylaws or any pro-
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1 posed amendment to the bylaws, accom2 panied by a concise general statement of

3 the basis and purpose of such proposal.

4 (2) EFFECTIVE DATE.—Except as pro5 vided in paragraph (3), any proposed

6 bylaw or proposed amendment shall take

7 effect—

8 (A) 30 days after the date of the

9 filing of a copy with the NAIC;

10 (B) upon such later date as the

11 Association may designate; or

12 (C) upon such earlier date as the

13 NAIC may determine.

14 (3) DISAPPROVAL BY THE NAIC.—Not15 withstanding paragraph (2), a proposed

16 bylaw or amendment shall not take effect

17 if, after public notice and opportunity to

18 participate in a public hearing—

19 (A) the NAIC disapproves such

20 proposal as being contrary to the

21 public interest or contrary to the pur22 poses of this subtitle and provides no23 tice to the Association setting forth

24 the reasons for such disapproval; or
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1 (B) the NAIC finds that such pro2 posal involves a matter of such sig3 nificant public interest that public

4 comment should be obtained, in

5 which case it may, after notifying the

6 Association in writing of such find7 ing, require that the procedures set

8 forth in subsection (b) be followed

9 with respect to such proposal, in the

10 same manner as if such proposed

11 bylaw change were a proposed rule

12 change within the meaning of such

13 subsection.

14 (b) ADOPTION AND AMENDMENT OF RULES.—

15 (1) FILING PROPOSED REGULATIONS

16 WITH THE NAIC.—

17 (A) IN GENERAL.—The board of di18 rectors of the Association shall file

19 with the NAIC a copy of any proposed

20 rule or any proposed amendment to a

21 rule of the Association which shall be

22 accompanied by a concise general

23 statement of the basis and purpose of

24 such proposal.
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1 (B) OTHER RULES AND AMENDMENTS

2 INEFFECTIVE.—No proposed rule or

3 amendment shall take effect unless

4 approved by the NAIC or otherwise

5 permitted in accordance with this

6 paragraph.

7 (2) INITIAL CONSIDERATION BY THE

8 NAIC.—Not later than 35 days after the

9 date of publication of notice of filing of a

10 proposal, or before the end of such longer

11 period not to exceed 90 days as the NAIC

12 may designate after such date, if the

13 NAIC finds such longer period to be ap14 propriate and sets forth its reasons for so

15 finding, or as to which the Association

16 consents, the NAIC shall—

17 (A) by order approve such pro18 posed rule or amendment; or

19 (B) institute proceedings to deter20 mine whether such proposed rule or

21 amendment should be modified or

22 disapproved.

23 (3) NAIC PROCEEDINGS.—

24 (A) IN GENERAL.—Proceedings in25 stituted by the NAIC with respect to
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1 a proposed rule or amendment pursu2 ant to paragraph (2) shall—

3 (i) include notice of the

4 grounds for disapproval under

5 consideration;

6 (ii) provide opportunity for

7 hearing; and

8 (iii) be concluded not later

9 than 180 days after the date of the

10 Association’s filing of such pro11 posed rule or amendment.

12 (B) DISPOSITION OF PROPOSAL.—At

13 the conclusion of any proceeding

14 under subparagraph (A), the NAIC

15 shall, by order, approve or dis16 approve the proposed rule or amend17 ment.

18 (C) EXTENSION OF TIME FOR CONSID19 ERATION.—The NAIC may extend the

20 time for concluding any proceeding

21 under subparagraph (A) for—

22 (i) not more than 60 days if

23 the NAIC finds good cause for

24 such extension and sets forth its

25 reasons for so finding; or
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1 (ii) for such longer period as

2 to which the Association con3 sents.

4 (4) STANDARDS FOR REVIEW.—

5 (A) GROUNDS FOR APPROVAL.—The

6 NAIC shall approve a proposed rule

7 or amendment if the NAIC finds that

8 the rule or amendment is in the pub9 lic interest and is consistent with the

10 purposes of this Act.

11 (B) APPROVAL BEFORE END OF NO12 TICE PERIOD.—The NAIC shall not ap13 prove any proposed rule before the

14 end of the 30-day period beginning on

15 the date on which the Association

16 files proposed rules or amendments

17 in accordance with paragraph (1), un18 less the NAIC finds good cause for so

19 doing and sets forth the reasons for

20 so finding.

21 (5) ALTERNATE PROCEDURE.—

22 (A) IN GENERAL.—Notwithstanding

23 any provision of this subsection other

24 than subparagraph (B), a proposed

25 rule or amendment relating to the ad-
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1 ministration or organization of the

2 Association shall take effect—

3 (i) upon the date of filing with

4 the NAIC, if such proposed rule

5 or amendment is designated by

6 the Association as relating solely

7 to matters which the NAIC, con8 sistent with the public interest

9 and the purposes of this sub10 section, determines by rule do not

11 require the procedures set forth

12 in this paragraph; or

13 (ii) upon such date as the

14 NAIC shall for good cause deter15 mine.

16 (B) ABROGATION BY THE NAIC.—

17 (i) IN GENERAL.—At any time

18 within 60 days after the date of

19 filing of any proposed rule or

20 amendment under subparagraph

21 (A)(i) or clause (ii) of this sub22 paragraph, the NAIC may repeal

23 such rule or amendment and re24 quire that the rule or amendment

25 be refiled and reviewed in accord-
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1 ance with this paragraph, if the

2 NAIC finds that such action is

3 necessary or appropriate in the

4 public interest, for the protection

5 of insurance producers or policy6 holders, or otherwise in further7 ance of the purposes of this sub8 title.

9 (ii) EFFECT OF RECONSIDER10 ATION BY THE NAIC.—Any action of

11 the NAIC pursuant to clause (i)

12 shall—

13 (I) not affect the validity

14 or force of a rule change dur15 ing the period such rule or

16 amendment was in effect; and

17 (II) not be considered to

18 be a final action.

19 (c) ACTION REQUIRED BY THE NAIC.—The

20 NAIC may, in accordance with such rules as

21 the NAIC determines to be necessary or ap22 propriate to the public interest or to carry out

23 the purposes of this subtitle, require the Asso24 ciation to adopt, amend, or repeal any bylaw,
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1 rule or amendment of the Association, when2 ever adopted.

3 (d) DISCIPLINARY ACTION BY THE ASSOCIA4 TION.—

5 (1) SPECIFICATION OF CHARGES.—In any

6 proceeding to determine whether mem7 bership shall be denied, suspended, re8 voked, or not renewed (hereafter in this

9 section referred to as a ‘‘disciplinary ac10 tion’’), the Association shall bring specific

11 charges, notify such member of such

12 charges, give the member an opportunity

13 to defend against the charges, and keep a

14 record.

15 (2) SUPPORTING STATEMENT.—A deter16 mination to take disciplinary action shall

17 be supported by a statement setting

18 forth—

19 (A) any act or practice in which

20 such member has been found to have

21 been engaged;

22 (B) the specific provision of this

23 subtitle, the rules or regulations

24 under this subtitle, or the rules of the
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1 Association which any such act or

2 practice is deemed to violate; and

3 (C) the sanction imposed and the

4 reason for such sanction.

5 (e) NAIC REVIEW OF DISCIPLINARY AC6 TION.—

7 (1) NOTICE TO THE NAIC.—If the Asso8 ciation orders any disciplinary action,

9 the Association shall promptly notify the

10 NAIC of such action.

11 (2) REVIEW BY THE NAIC.—Any discipli12 nary action taken by the Association

13 shall be subject to review by the NAIC—

14 (A) on the NAIC’s own motion; or

15 (B) upon application by any per16 son aggrieved by such action if such

17 application is filed with the NAIC not

18 more than 30 days after the later of—

19 (i) the date the notice was

20 filed with the NAIC pursuant to

21 paragraph (1); or

22 (ii) the date the notice of the

23 disciplinary action was received

24 by such aggrieved person.
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1 (f) EFFECT OF REVIEW.—The filing of an ap2 plication to the NAIC for review of a discipli3 nary action, or the institution of review by

4 the NAIC on the NAIC’s own motion, shall not

5 operate as a stay of disciplinary action unless

6 the NAIC otherwise orders.

7 (g) SCOPE OF REVIEW.—

8 (1) IN GENERAL.—In any proceeding to

9 review such action, after notice and the

10 opportunity for hearing, the NAIC shall—

11 (A) determine whether the action

12 should be taken;

13 (B) affirm, modify, or rescind the

14 disciplinary sanction; or

15 (C) remand to the Association for

16 further proceedings.

17 (2) DISMISSAL OF REVIEW.—The NAIC

18 may dismiss a proceeding to review dis19 ciplinary action if the NAIC finds that—

20 (A) the specific grounds on which

21 the action is based exist in fact;

22 (B) the action is in accordance

23 with applicable rules and regulations;

24 and
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1 (C) such rules and regulations

2 are, and were, applied in a manner

3 consistent with the purposes of this

4 subtitle.

5 SEC. 329. ASSESSMENTS.

6 (a) INSURANCE PRODUCERS SUBJECT TO AS7 SESSMENT.—The Association may establish

8 such application and membership fees as the

9 Association finds necessary to cover the costs

10 of its operations, including fees made reim11 bursable to the NAIC under subsection (b), ex12 cept that, in setting such fees, the Association

13 may not discriminate against smaller insur14 ance producers.

15 (b) NAIC ASSESSMENTS.—The NAIC may as16 sess the Association for any costs that the

17 NAIC incurs under this subtitle.

18 SEC. 330. FUNCTIONS OF THE NAIC.

19 (a) ADMINISTRATIVE PROCEDURE.—Deter20 minations of the NAIC, for purposes of mak21 ing rules pursuant to section 328, shall be

22 made after appropriate notice and oppor23 tunity for a hearing and for submission of

24 views of interested persons.

25 (b) EXAMINATIONS AND REPORTS.—
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1 (1) EXAMINATIONS.—The NAIC may

2 make such examinations and inspections

3 of the Association and require the Asso4 ciation to furnish to the NAIC such re5 ports and records or copies thereof as the

6 NAIC may consider necessary or appro7 priate in the public interest or to effec8 tuate the purposes of this subtitle.

9 (2) REPORT BY ASSOCIATION.—As soon

10 as practicable after the close of each fis11 cal year, the Association shall submit to

12 the NAIC a written report regarding the

13 conduct of its business, and the exercise

14 of the other rights and powers granted by

15 this subtitle, during such fiscal year.

16 Such report shall include financial state17 ments setting forth the financial position

18 of the Association at the end of such fis19 cal year and the results of its operations

20 (including the source and application of

21 its funds) for such fiscal year. The NAIC

22 shall transmit such report to the Presi23 dent and the Congress with such com24 ment thereon as the NAIC determines to

25 be appropriate.
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1 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC2 TORS, OFFICERS, AND EMPLOYEES OF THE

3 ASSOCIATION.

4 (a) IN GENERAL.—The Association shall not

5 be deemed to be an insurer or insurance pro6 ducer within the meaning of any State law,

7 rule, regulation, or order regulating or taxing

8 insurers, insurance producers, or other enti9 ties engaged in the business of insurance, in10 cluding provisions imposing premium taxes,

11 regulating insurer solvency or financial con12 dition, establishing guaranty funds and lev13 ying assessments, or requiring claims settle14 ment practices.

15 (b) LIABILITY OF THE ASSOCIATION, ITS DI16 RECTORS, OFFICERS, AND EMPLOYEES.—Neither

17 the Association nor any of its directors, offi18 cers, or employees shall have any liability to

19 any person for any action taken or omitted in

20 good faith under or in connection with any

21 matter subject to this subtitle.

22 SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

23 (a) IN GENERAL.—The Association shall be

24 established without NAIC oversight and the

25 provisions set forth in section 324, sub26 sections (a), (b), (c), and (e) of section 328, and
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1 sections 329(b) and 330 of this subtitle shall

2 cease to be effective if, at the end of the 2-year

3 period beginning on the date on which the

4 provisions of this subtitle take effect pursu5 ant to section 321—

6 (1) at least a majority of the States

7 representing at least 50 percent of the

8 total United States commercial-lines in9 surance premiums have not satisfied the

10 uniformity or reciprocity requirements of

11 subsections (a), (b), and (c) of section 321;

12 and

13 (2) the NAIC has not approved the As14 sociation’s bylaws as required by section

15 328 or is unable to operate or supervise

16 the Association, or the Association is not

17 conducting its activities as required

18 under this Act.

19 (b) BOARD APPOINTMENTS.—If the repeals

20 required by subsection (a) are implemented,

21 the following shall apply:

22 (1) GENERAL APPOINTMENT POWER.—

23 The President, with the advice and con24 sent of the Senate, shall appoint the

25 members of the Association’s Board es-
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1 tablished under section 326 from lists of

2 candidates recommended to the Presi3 dent by the National Association of Insur4 ance Commissioners.

5 (2) PROCEDURES FOR OBTAINING NA6 TIONAL ASSOCIATION OF INSURANCE COMMIS7 SIONERS APPOINTMENT RECOMMENDA8 TIONS.—

9 (A) INITIAL DETERMINATION AND

10 RECOMMENDATIONS.—After the date on

11 which the provisions of subsection (a)

12 take effect, the NAIC shall, not later

13 than 60 days thereafter, provide a list

14 of recommended candidates to the

15 President. If the NAIC fails to provide

16 a list by that date, or if any list that

17 is provided does not include at least

18 14 recommended candidates or com19 ply with the requirements of section

20 326(c), the President shall, with the

21 advice and consent of the Senate,

22 make the requisite appointments

23 without considering the views of the

24 NAIC.
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1 (B) SUBSEQUENT APPOINTMENTS.—

2 After the initial appointments, the

3 NAIC shall provide a list of at least 6

4 recommended candidates for the

5 Board to the President by January 15

6 of each subsequent year. If the NAIC

7 fails to provide a list by that date, or

8 if any list that is provided does not

9 include at least 6 recommended can10 didates or comply with the require11 ments of section 326(c), the President,

12 with the advice and consent of the

13 Senate, shall make the requisite ap14 pointments without considering the

15 views of the NAIC.

16 (C) PRESIDENTIAL OVERSIGHT.—

17 (i) REMOVAL.—If the President

18 determines that the Association is

19 not acting in the interests of the

20 public, the President may remove

21 the entire existing Board for the

22 remainder of the term to which

23 the members of the Board were

24 appointed and appoint, with the

25 advice and consent of the Senate,
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1 new members to fill the vacancies

2 on the Board for the remainder of

3 such terms.

4 (ii) SUSPENSION OF RULES OR

5 ACTIONS.—The President, or a per6 son designated by the President

7 for such purpose, may suspend

8 the effectiveness of any rule, or

9 prohibit any action, of the Asso10 ciation which the President or

11 the designee determines is con12 trary to the public interest.

13 (c) ANNUAL REPORT.—As soon as prac14 ticable after the close of each fiscal year, the

15 Association shall submit to the President and

16 to the Congress a written report relative to

17 the conduct of its business, and the exercise

18 of the other rights and powers granted by this

19 subtitle, during such fiscal year. Such report

20 shall include financial statements setting

21 forth the financial position of the Association

22 at the end of such fiscal year and the results

23 of its operations (including the source and ap24 plication of its funds) for such fiscal year.
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1 SEC. 333. RELATIONSHIP TO STATE LAW.

2 (a) PREEMPTION OF STATE LAWS.—State

3 laws, regulations, provisions, or other actions

4 purporting to regulate insurance producers

5 shall be preempted as provided in subsection

6 (b).

7 (b) PROHIBITED ACTIONS.—No State shall—

8 (1) impede the activities of, take any

9 action against, or apply any provision of

10 law or regulation to, any insurance pro11 ducer because that insurance producer

12 or any affiliate plans to become, has ap13 plied to become, or is a member of the As14 sociation;

15 (2) impose any requirement upon a

16 member of the Association that it pay dif17 ferent fees to be licensed or otherwise

18 qualified to do business in that State, in19 cluding bonding requirements, based on

20 its residency;

21 (3) impose any licensing, appoint22 ment, integrity, personal or corporate

23 qualifications, education, training, expe24 rience, residency, or continuing edu25 cation requirement upon a member of the

26 Association that is different from the cri-
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1 teria for membership in the Association

2 or renewal of such membership, except

3 that counter-signature requirements im4 posed on nonresident producers shall not

5 be deemed to have the effect of limiting

6 or conditioning a producer’s activities be7 cause of its residence or place of oper8 ations under this section; or

9 (4) implement the procedures of such

10 State’s system of licensing or renewing

11 the licenses of insurance producers in a

12 manner different from the authority of

13 the Association under section 325.

14 (c) SAVINGS PROVISION.—Except as pro15 vided in subsections (a) and (b), no provision

16 of this section shall be construed as altering

17 or affecting the continuing effectiveness of

18 any law, regulation, provision, or other action

19 of any State which purports to regulate insur20 ance producers, including any such law, regu21 lation, provision, or action which purports to

22 regulate unfair trade practices or establish

23 consumer protections, including

24 countersignature laws.
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1 SEC. 334. COORDINATION WITH OTHER REGULATORS.

2 (a) COORDINATION WITH STATE INSURANCE

3 REGULATORS.—The Association shall have the

4 authority to—

5 (1) issue uniform insurance producer

6 applications and renewal applications

7 that may be used to apply for the

8 issuance or removal of State licenses,

9 while preserving the ability of each State

10 to impose such conditions on the

11 issuance or renewal of a license as are

12 consistent with section 333;

13 (2) establish a central clearinghouse

14 through which members of the Associa15 tion may apply for the issuance or re16 newal of licenses in multiple States; and

17 (3) establish or utilize a national

18 database for the collection of regulatory

19 information concerning the activities of

20 insurance producers.

21 (b) COORDINATION WITH THE NATIONAL AS22 SOCIATION OF SECURITIES DEALERS.—The Asso23 ciation shall coordinate with the National As24 sociation of Securities Dealers in order to

25 ease any administrative burdens that fall on

26 persons that are members of both associa-
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1 tions, consistent with the purposes of this

2 subtitle and the Federal securities laws.

3 SEC. 335. JUDICIAL REVIEW.

4 (a) JURISDICTION.—The appropriate

5 United States district court shall have exclu6 sive jurisdiction over litigation involving the

7 Association, including disputes between the

8 Association and its members that arise under

9 this subtitle. Suits brought in State court in10 volving the Association shall be deemed to

11 have arisen under Federal law and therefore

12 be subject to jurisdiction in the appropriate

13 United States district court.

14 (b) EXHAUSTION OF REMEDIES.—An ag15 grieved person shall be required to exhaust

16 all available administrative remedies before

17 the Association and the NAIC before it may

18 seek judicial review of an Association deci19 sion.

20 (c) STANDARDS OF REVIEW.—The standards

21 set forth in section 553 of title 5, United States

22 Code, shall be applied whenever a rule or

23 bylaw of the Association is under judicial re24 view, and the standards set forth in section

25 554 of title 5, United States Code, shall be ap-
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1 plied whenever a disciplinary action of the

2 Association is judicially reviewed.

3 SEC. 336. DEFINITIONS.

4 For purposes of this subtitle, the fol5 lowing definitions shall apply:

6 (1) HOME STATE.—The term ‘‘home

7 State’’ means the State in which the in8 surance producer maintains its principal

9 place of residence and is licensed to act

10 as an insurance producer.

11 (2) INSURANCE.—The term ‘‘insurance’’

12 means any product, other than title in13 surance, defined or regulated as insur14 ance by the appropriate State insurance

15 regulatory authority.

16 (3) INSURANCE PRODUCER.—The term

17 ‘‘insurance producer’’ means any insur18 ance agent or broker, surplus lines

19 broker, insurance consultant, limited in20 surance representative, and any other

21 person that solicits, negotiates, effects,

22 procures, delivers, renews, continues or

23 binds policies of insurance or offers ad24 vice, counsel, opinions or services related

25 to insurance.
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1 (4) STATE.—The term ‘‘State’’ includes

2 any State, the District of Columbia, Amer3 ican Samoa, Guam, Puerto Rico, and the

4 United States Virgin Islands.

5 (5) STATE LAW.—The term ‘‘State law’’

6 includes all laws, decisions, rules, regula7 tions, or other State action having the ef8 fect of law, of any State. A law of the

9 United States applicable only to the Dis10 trict of Columbia shall be treated as a

11 State law rather than a law of the United

12 States.

13 Subtitle D—Rental Car Agency

14 Insurance Activities

15 SEC. 341. STANDARD OF REGULATION FOR MOTOR VEHI16 CLE RENTALS.

17 (a) PROTECTION AGAINST RETROACTIVE AP18 PLICATION OF REGULATORY AND LEGAL AC19 TION.—Except as provided in subsection (b),

20 during the 3-year period beginning on the

21 date of the enactment of this Act, it shall be

22 a presumption that no State law imposes any

23 licensing, appointment, or education require24 ments on any person who solicits the pur25 chase of or sells insurance connected with,
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1 and incidental to, the lease or rental of a

2 motor vehicle.

3 (b) PREEMINENCE OF STATE INSURANCE

4 LAW.—No provision of this section shall be

5 construed as altering the validity, interpreta6 tion, construction, or effect of—

7 (1) any State statute;

8 (2) the prospective application of any

9 court judgment interpreting or applying

10 any State statute; or

11 (3) the prospective application of any

12 final State regulation, order, bulletin, or

13 other statutorily authorized interpreta14 tion or action,

15 which, by its specific terms, expressly regu16 lates or exempts from regulation any person

17 who solicits the purchase of or sells insurance

18 connected with, and incidental to, the short19 term lease or rental of a motor vehicle.

20 (c) SCOPE OF APPLICATION.—This section

21 shall apply with respect to—

22 (1) the lease or rental of a motor vehi23 cle for a total period of 90 consecutive

24 days or less; and
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1 (2) insurance which is provided in

2 connection with, and incidentally to,

3 such lease or rental for a period of con4 secutive days not exceeding the lease or

5 rental period.

6 (d) MOTOR VEHICLE DEFINED.—For pur7 poses of this section, the term ‘‘motor vehicle’’

8 has the meaning given to such term in section

9 13102 of title 49, United States Code.

10 Subtitle E—Confidentiality

11 SEC. 351. CONFIDENTIALITY OF HEALTH AND MEDICAL IN12 FORMATION.

13 (a) IN GENERAL.—A company which under14 writes or sells annuities contracts or con15 tracts insuring, guaranteeing, or indem16 nifying against loss, harm, damage, illness,

17 disability, or death (other than credit-related

18 insurance) and any subsidiary or affiliate

19 thereof shall maintain a practice of protecting

20 the confidentiality of individually identifiable

21 customer health and medical and genetic in22 formation and may disclose such information

23 only—

24 (1) with the consent, or at the direc25 tion, of the customer;
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1 (2) for insurance underwriting and

2 reinsuring policies, account administra3 tion, reporting, investigating, or pre4 venting fraud or material misrepresenta5 tion, processing premium payments,

6 processing insurance claims, admin7 istering insurance benefits (including uti8 lization review activities), providing in9 formation to the customer’s physician or

10 other health care provider, participating

11 in research projects, enabling the pur12 chase, transfer, merger, or sale of any in13 surance-related business, or as otherwise

14 required or specifically permitted by Fed15 eral or State law; or

16 (3) in connection with—

17 (A) the authorization, settlement,

18 billing, processing, clearing, transfer19 ring, reconciling, or collection of

20 amounts charged, debited, or other21 wise paid using a debit, credit, or

22 other payment card or account num23 ber, or by other payment means;

24 (B) the transfer of receivables, ac25 counts, or interest therein;
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1 (C) the audit of the debit, credit,

2 or other payment information;

3 (D) compliance with Federal,

4 State, or local law;

5 (E) compliance with a properly

6 authorized civil, criminal, or regu7 latory investigation by Federal, State,

8 or local authorities as governed by

9 the requirements of this section; or

10 (F) fraud protection, risk control,

11 resolving customer disputes or in12 quiries, communicating with the per13 son to whom the information relates,

14 or reporting to consumer reporting

15 agencies.

16 (b) STATE ACTIONS FOR VIOLATIONS.—In ad17 dition to such other remedies as are provided

18 under State law, if the chief law enforcement

19 officer of a State, State insurance regulator,

20 or an official or agency designated by a State,

21 has reason to believe that any person has vio22 lated or is violating this title, the State may

23 bring an action to enjoin such violation in any

24 appropriate United States district court or in

25 any other court of competent jurisdiction.
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1 (c) EFFECTIVE DATE; SUNSET.—

2 (1) EFFECTIVE DATE.—Except as pro3 vided in paragraph (2), subsection (a)

4 shall take effect on February 1, 2000.

5 (2) SUNSET.—Subsection (a) shall not

6 take effect if, or shall cease to be effec7 tive on and after the date on which, legis8 lation is enacted that satisfies the re9 quirements in section 264(c)(1) of the

10 Health Insurance Portability and Ac11 countability Act of 1996 (Public Law 104–

12 191; 110 Stat. 2033).

13 (d) CONSULTATION.—While subsection (a) is

14 in effect, State insurance regulatory authori15 ties, through the National Association of In16 surance Commissioners, shall consult with

17 the Secretary of Health and Human Services

18 in connection with the administration of such

19 subsection.
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1 TITLE IV—UNITARY SAVINGS

2 AND LOAN HOLDING COMPA3 NIES

4 SEC. 401. PREVENTION OF CREATION OF NEW S&L HOLD5 ING COMPANIES WITH COMMERCIAL AFFILI6 ATES.—

7 (a) AMENDMENT TO HOME OWNERS’ LOAN

8 ACT.—Section 10(c) of the Home Owners’ Loan

9 Act (12 U.S.C. 1467a(c)) is amended by adding

10 at the end the following new paragraph:

11 ‘‘(9) PREVENTION OF NEW AFFILIATIONS

12 BETWEEN S&L HOLDING COMPANIES AND COM13 MERCIAL FIRMS.—

14 ‘‘(A) IN GENERAL.—Notwith15 standing paragraph (3), no company

16 may directly or indirectly, including

17 through any merger, consolidation, or

18 other type of business combination,

19 acquire control of a savings associa20 tion after May 27, 1999, unless the

21 company is engaged, directly or indi22 rectly (including through a sub23 sidiary other than a savings associa24 tion), only in activities that are

25 permitted—
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1 ‘‘(i) under paragraphs (1)(C)

2 or (2); or

3 ‘‘(ii) for financial holding com4 panies under section 6(c) of the

5 Bank Holding Company Act of

6 1956.

7 ‘‘(B) PREVENTION OF NEW COMMER8 CIAL AFFILIATIONS.—Notwithstanding

9 paragraph (3), no savings and loan

10 holding company may engage directly

11 or indirectly (including through a

12 subsidiary other than a savings asso13 ciation) in any activity other than as

14 described in clauses (i) and (ii) of

15 subparagraph (A).

16 ‘‘(C) PRESERVATION OF AUTHORITY

17 OF EXISTING UNITARY S&L HOLDING COM18 PANIES.—Subparagraphs (A) and (B)

19 shall not apply with respect to any

20 company that was a savings and loan

21 holding company on May 27, 1999, or

22 that becomes a savings and loan hold23 ing company pursuant to an applica24 tion pending before the Office of
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1 Thrift Supervision on or before that

2 date, and that—

3 ‘‘(i) meets and continues to

4 meet the requirements of para5 graph (3); and

6 ‘‘(ii) continues to control not

7 fewer than 1 savings association

8 that it controlled on May 27, 1999,

9 or that it acquired pursuant to an

10 application pending before the

11 Office of Thrift Supervision on or

12 before that date, or the successor

13 to such savings association.

14 ‘‘(D) CORPORATE REORGANIZATIONS

15 PERMITTED.—This paragraph does not

16 prevent a transaction—

17 ‘‘(i) that involves solely a com18 pany under common control with

19 a savings and loan holding com20 pany from acquiring, directly or

21 indirectly, control of the savings

22 and loan holding company or any

23 savings association that is al24 ready a subsidiary of the savings

25 and loan holding company; or
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1 ‘‘(ii) that involves solely a

2 merger, consolidation, or other

3 type of business combination as a

4 result of which a company under

5 common control with the savings

6 and loan holding company ac7 quires, directly or indirectly, con8 trol of the savings and loan hold9 ing company or any savings asso10 ciation that is already a sub11 sidiary of the savings and loan

12 holding company.

13 ‘‘(E) AUTHORITY TO PREVENT EVA14 SIONS.—The Director may issue inter15 pretations, regulations, or orders that

16 the Director deems necessary to ad17 minister and carry out the purpose

18 and prevent evasions of this para19 graph, including a determination

20 that, notwithstanding the form of a

21 transaction, the transaction would in

22 substance result in a company acquir23 ing control of a savings association.

24 ‘‘(F) PRESERVATION OF AUTHORITY

25 FOR FAMILY TRUSTS.—Subparagraphs
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1 (A) and (B) shall not apply with re2 spect to any trust that becomes a sav3 ings and loan holding company with

4 respect to a savings association, if—

5 ‘‘(i) not less than 85 percent of

6 the beneficial ownership interests

7 in the trust are continuously

8 owned, directly or indirectly, by

9 or for the benefit of members of

10 the same family, or their spouses,

11 who are lineal descendants of

12 common ancestors who con13 trolled, directly or indirectly,

14 such savings association on May

15 27, 1999, or a subsequent date

16 pursuant to an application pend17 ing before the Office of Thrift Su18 pervision on or before May 27,

19 1999; and

20 ‘‘(ii) at the time at which such

21 trust becomes a savings and loan

22 holding company, such ancestors

23 or lineal descendants, or spouses

24 of such descendants, have di25 rectly or indirectly controlled the
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1 savings association continuously

2 since May 27, 1999, or a subse3 quent date pursuant to an appli4 cations pending before the Office

5 of Thrift Supervision on or before

6 May 27, 1999.’’.

7 (b) CONFORMING AMENDMENT.—Section

8 10(o)(5) of the Home Owners’ Loan Act (15

9 U.S.C. 1467a(o)(5)) is amended—

10 (1) in subparagraph (E), by striking ‘‘,

11 except subparagraph (B)’’; and

12 (2) by adding at the end the following

13 new subparagraph:

14 ‘‘(F) In the case of a mutual hold15 ing company which is a savings and

16 loan holding company described in

17 subsection (c)(3), engaging in the ac18 tivities permitted under subsection

19 (c)(9)(A)(ii).’’.

20 (c) GAO STUDY OF AFFILIATION OF SAVINGS

21 ASSOCIATIONS WITH COMMERCIAL COMPANIES

22 AND S&L HOLDING COMPANY REGULATION.—

23 (1) IN GENERAL.—The Comptroller

24 General shall conduct a study of—
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1 (A) the effect of permitting the af2 filiation of savings associations with

3 commercial companies, including—

4 (i) competitive effects as

5 between—

6 (I) commercial companies

7 that are not permitted to affil8 iate with depository institu9 tions and ones that have a

10 savings association affiliate;

11 and

12 (II) savings associations

13 that do not have a commercial

14 affiliate and ones who do; and

15 (ii) conflicts of interest; and

16 (B) the diligence and effective17 ness of the Director of the Office of

18 Thrift Supervision in examining and

19 regulating savings and loan holding

20 companies, generally, and savings

21 and loan holding companies which

22 are a commercial company or have a

23 commercial affiliate, in particular.

24 (2) REPORT.—Before the end of the 1-

25 year period beginning on the date of the
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1 enactment of this Act, the Comptroller

2 General shall submit a report to the Con3 gress containing the findings and conclu4 sions of the Comptroller General with re5 spect to the study required under para6 graph (1), together with such rec7 ommendations for administrative and

8 legislative action as the Comptroller Gen9 eral may determine to be appropriate.

10 SEC. 402. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON11 VERTED FEDERAL SAVINGS ASSOCIATION.

12 Section 2 of the Act entitled ‘‘An Act to en13 able national banking associations to increase

14 their capital stock and to change their names

15 or locations’’, approved May 1, 1886 (12 U.S.C.

16 30), is amended by adding at the end the fol17 lowing new subsection:

18 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF

19 CONVERTED FEDERAL SAVINGS ASSOCIATION.—

20 ‘‘(1) IN GENERAL.—Notwithstanding

21 subsection (a) or any other provision of

22 law, any depository institution the char23 ter of which is converted from that of a

24 Federal savings association to a national

25 bank or a State bank after the date of the
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1 enactment of the Financial Services Act

2 of 1999 may retain the term ‘Federal’ in

3 the name of such institution if such de4 pository institution remains an insured

5 depository institution.

6 ‘‘(2) DEFINITIONS.—For purposes of

7 this subsection, the terms ‘depository in8 stitution’, ‘insured depository institution’,

9 ‘national bank’, and ‘State bank’ have the

10 same meanings as in section 3 of the Fed11 eral Deposit Insurance Act.’’.

12 TITLE V—PRIVACY OF

13 CONSUMER INFORMATION

14 Subtitle A—Disclosure of

15 Nonpublic Personal Information

16 SEC. 501. OBLIGATIONS WITH RESPECT TO PERSONAL IN17 FORMATION.

18 (a) GENERAL REQUIREMENTS.—Except as

19 otherwise provided in this subtitle, a finan20 cial institution may not, directly or through

21 any affiliate, divulge or make an unrelated

22 use of any nonpublic personal information

23 collected by the financial institution in con24 nection with any transaction with a consumer
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1 in any financial product or any financial serv2 ice, unless—

3 (1) such financial institution provides

4 or has provided to the consumer a notice

5 that complies with section 502 and the

6 rules thereunder; and

7 (2) such financial institution main8 tains procedures to protect the confiden9 tiality and security of nonpublic personal

10 information.

11 (b) OPT-OUT REQUIRED FOR INFORMATION

12 TRANSFERS.—The Commission shall by rule

13 prohibit a financial institution from making

14 available any nonpublic personal information

15 to any affiliate of the institution, or to any

16 other person that is not an affiliate of the in17 stitution, unless the consumer to whom the

18 information pertains—

19 (1) is given the opportunity in accord20 ance with such rule to object to the trans21 fer of such information; and

22 (2) does not object, or withdraws the

23 objection.

24 (c) ACCESS TO AND CORRECTION OF INFOR25 MATION VENDED TO THIRD PARTIES.—
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1 (1) RULE REQUIRED.—The Commission

2 shall by rule require a financial institu3 tion that, for any consideration, makes

4 available nonpublic personal information

5 collected by the financial institution in

6 connection with any transaction with a

7 consumer in any financial product or any

8 financial service to any person or entity

9 other than an employee or agent of such

10 institution, an affiliate of such institu11 tion, or an employee or agent of such af12 filiate, to afford that consumer—

13 (A) the opportunity to examine,

14 upon request, the nonpublic personal

15 information that was so made avail16 able; and

17 (B) the opportunity to dispute the

18 accuracy of any of such information,

19 and to present evidence thereon.

20 (2) EXCEPTION FOR PROPRIETARY INFOR21 MATION.—The rule required by paragraph

22 (1) shall not require a financial institu23 tion to afford a customer who requests

24 access to the nonpublic personal informa25 tion that was made available the oppor-
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1 tunity to examine or dispute any data ob2 tained by any analysis or evaluation per3 formed using such information, or to ex4 amine or dispute the methodology of

5 such analysis or evaluation.

6 (d) GENERAL EXCEPTIONS.—Subsections (a)

7 and (b) shall not prohibit the divulging of

8 nonpublic personal information, the making

9 of an unrelated use of such information, or

10 the making available of such information to

11 affiliates or other persons by the financial

12 institution—

13 (1) as necessary to effect or enforce

14 the transaction or a related transaction;

15 (2) as necessary to protect the con16 fidentiality or security of its records per17 taining to the consumer, the financial

18 service or financial product, or the trans19 action therein;

20 (3) as necessary to take precautions

21 against liability;

22 (4) as necessary to respond to judicial

23 process;

24 (5) to the extent permitted or re25 quired under other provisions of law and
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1 in accordance with the Right to Financial

2 Privacy Act of 1974, to provide informa3 tion to law enforcement agencies (includ4 ing a functional regulator or the Commis5 sion) or for an investigation on a matter

6 related to public safety;

7 (6) to a consumer reporting agency in

8 accordance with title VI of the Consumer

9 Credit Protection Act; or

10 (7) in executing a sale or exchange

11 whereby the financial institution trans12 fers to another financial institution or

13 other person the business unit or oper14 ation, or substantially all the assets of the

15 business unit or operation, with which

16 the customer’s transactions were ef17 fected.

18 SEC. 502. NOTICE CONCERNING DIVULGING INFORMATION.

19 (a) RULE REQUIRED.—The Commission

20 shall, after consultation with the Federal

21 functional regulators and one or more rep22 resentatives of State insurance regulators,

23 prescribe rules in accordance with this sec24 tion to prohibit unfair and deceptive acts and

25 practices in connection with the divulging of
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1 nonpublic personal information or with mak2 ing unrelated uses of such information. Such

3 rules shall require any financial institution,

4 through the use of a form that complies with

5 the rules prescribed under subsection (b), to

6 clearly and conspicuously disclose to the

7 consumer—

8 (1) the categories of nonpublic per9 sonal information that are collected by

10 the financial institution;

11 (2) the practices and policies of the fi12 nancial institution with respect to divulg13 ing nonpublic personal information, or

14 making unrelated uses of such informa15 tion, including—

16 (A) the categories of persons to

17 whom the information is or may be

18 divulged or who may be permitted to

19 make unrelated uses of such informa20 tion, other than the persons to whom

21 the information must be provided to

22 effect or enforce the transaction; and

23 (B) the practices and policies of

24 the institution with respect to divulg25 ing or making unrelated uses of non-
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1 public personal information of per2 sons who have ceased to be cus3 tomers of the financial institution;

4 and

5 (3) the policies that the institution

6 maintains to protect the confidentiality

7 and security of nonpublic personal infor8 mation.

9 (b) DESIGN OF NOTICE REQUIREMENTS.—In

10 prescribing the form of a notice for purposes

11 of subsection (a), the Commission shall ensure

12 that consumers are readily able to compare

13 differences in the measures that the financial

14 institution takes, and the policies that the in15 stitution has established, to protect the con16 sumer’s privacy as compared to the measures

17 taken and the policies established by other fi18 nancial institutions. Such form shall specifi19 cally identify any rights the institution af20 fords consumers to grant or deny consent to

21 (1) the divulging of nonpublic personal infor22 mation for any purpose other than as re23 quired in order to effect or enforce the con24 sumer’s transaction, or (2) the making of an

25 unrelated use of such information.
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1 (c) ADDITIONAL CONTENTS OF RULES; EX2 EMPTIVE RULES.—The Commission shall, by

3 rule after consultation with the functional

4 regulators, and may by order—

5 (1) specify the divulgences and uses

6 of information which, for purposes of this

7 subtitle and the rules prescribed there8 under, may be treated as necessary to ef9 fect or enforce a consumer’s transaction

10 with respect to a variety of financial

11 services and financial products;

12 (2) specify timing requirements with

13 respect to notices to new and existing

14 customers, which shall not require no15 tices more frequently than annually un16 less there has been a change in the infor17 mation required to be disclosed pursuant

18 to subsection (a); and

19 (3) provide, consistent with the pur20 poses of this subtitle, exemptions or tem21 porary waivers to, or delayed effective

22 dates for, any requirement of this subtitle

23 or the rules prescribed thereunder.

24 (d) EXEMPTIVE RULES TO PERMIT EFFICIENT

25 DATA STORAGE AND RETRIEVAL.—The exemp-
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1 tive rules prescribed by the Commission pur2 suant to subsection (c)(3) shall include such

3 rules as may be necessary to permit financial

4 institutions and their affiliates to establish

5 and maintain efficient systems to collect and

6 access nonpublic personal information in

7 shared or networked data storage and re8 trieval facilities that are implemented in a

9 manner consistent with the requirements of

10 section 501.

11 (e) RULEMAKING DEADLINE.—The Commis12 sion shall initially prescribe the rules re13 quired by this section within one year after

14 the date of enactment of this Act. Such rules,

15 and any revisions of such rules, shall be pre16 scribed in accordance with section 553 of title

17 5, United States Code.

18 SEC. 503. ENFORCEMENT.

19 (a) IN GENERAL.—This subtitle and the

20 rules prescribed thereunder shall be enforced

21 by the Federal Trade Commission under the

22 Federal Trade Commission Act (15 U.S.C. 41 et

23 seq.).

24 (b) ACTIONS BY THE COMMISSION.—The Fed25 eral Trade Commission shall prevent any per-
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1 son from violating this subtitle and the rules

2 prescribed thereunder in the same manner,

3 by the same means, and with the same juris4 diction, powers, and duties as though all ap5 plicable terms and provisions of the Federal

6 Trade Commission Act (15 U.S.C. 41 et seq.)

7 were incorporated into and made a part of

8 this subtitle, except that notwithstanding sec9 tion 5(a)(2) of such Act (15 U.S.C. 45(a)(2)) the

10 Commission shall, for purposes of this title,

11 have jurisdiction with respect to banks, sav12 ings and loan institutions, and Federal credit

13 unions. Any person who violates this subtitle

14 or the rules prescribed thereunder shall be

15 subject to the penalties and entitled to the

16 privileges and immunities provided in the

17 Federal Trade Commission Act in the same

18 manner, by the same means, and with the

19 same jurisdiction, power, and duties as

20 though all applicable terms and provisions of

21 the Federal Trade Commission Act were in22 corporated into and made a part of this sub23 title.

24 (c) TREATMENT OF RULES.—A rule issued by

25 the Commission under this title shall be treat-
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1 ed as a rule issued under section 18(a)(1)(B)

2 of the Federal Trade Commission Act (15

3 U.S.C. 57a(a)(1)(B)).

4 SEC. 504. DEFINITIONS.

5 As used in this subtitle:

6 (1) COMMISSION.—The term ‘‘Commis7 sion’’ means the Federal Trade Commis8 sion.

9 (2) FEDERAL FUNCTIONAL REGULATOR.—

10 The term ‘‘Federal functional regulator’’

11 means—

12 (A) the Board of Governors of the

13 Federal Reserve System;

14 (B) the Office of the Comptroller

15 of the Currency;

16 (C) the Board of Directors of the

17 Federal Deposit Insurance Corpora18 tion;

19 (D) the Director of the Office of

20 Thrift Supervision;

21 (E) the National Credit Union Ad22 ministration Board;

23 (F) the Farm Credit Administra24 tion; and
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1 (G) the Securities and Exchange

2 Commission.

3 (3) FINANCIAL INSTITUTION.—The term

4 ‘‘financial institution’’ means any institu5 tion the business of which is engaging in

6 financial activities or activities that are

7 incidental to financial activities, as deter8 mined under section 6(c) of the Bank

9 Holding Company Act of 1956. Such term,

10 when used in connection with a trans11 action for a consumer, means only the fi12 nancial institution with which the con13 sumer expects to conduct such trans14 action and does not include any affiliate,

15 subsidiary, or contractually-related party

16 of that financial institution, even if such

17 affiliate, subsidiary, or party is also a fi18 nancial institution and participates in

19 the effecting or enforcement of such

20 transaction.

21 (4) NONPUBLIC PERSONAL INFORMA22 TION.—The term ‘‘nonpublic personal in23 formation’’ means personally identifiable

24 information, other than publicly avail25 able directory information, pertaining to
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1 an individual’s transactions with a finan2 cial institution.

3 (5) DIRECTORY INFORMATION.—The

4 term ‘‘publicly available directory infor5 mation’’ means subscriber list informa6 tion required to be made available for

7 publication pursuant to section 222(e) of

8 the Communications Act of 1934 (47

9 U.S.C. 222(3)).

10 (6) UNRELATED USE.—The term ‘‘unre11 lated use’’, when used with respect to in12 formation collected by the financial insti13 tution in connection with any transaction

14 with a consumer in any financial product

15 or any financial service, means any use

16 other than a use that is necessary to ef17 fect or enforce such transaction.

18 (7) DIVULGE; DIVULGENCE.—The terms

19 ‘‘divulge’’ and ‘‘divulgence’’, when used

20 with respect nonpublic personal informa21 tion collected by the financial institution

22 in connection with any transaction with

23 a consumer in any financial product or

24 any financial service, means to make

25 such information available to any person
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1 or entity other than an employee or

2 agent of such institution, an affiliate of

3 such institution, or an employee or agent

4 of such affiliate.

5 (8) AFFILIATE.—The term ‘‘affiliate’’

6 means any company that controls, is con7 trolled by, or is under common control

8 with another company.

9 (9) NECESSARY TO EFFECT OR EN10 FORCE.—The divulging or use of non11 public personal information shall be

12 treated—

13 (A) as necessary to effect a trans14 action with a consumer if the divulg15 ing or use is required, or is one of the

16 usual and accepted methods, to carry

17 out the transaction and record and

18 maintain the customer’s account in

19 the ordinary course of providing the

20 financial service or financial product,

21 and includes—

22 (i) providing the consumer

23 with a confirmation, statement, or

24 other record of the transaction,

25 or information on the status or
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1 value of the financial service or

2 financial product; and

3 (ii) the accrual or recognition

4 of incentives or bonuses associ5 ated with the transaction that are

6 provided by the financial institu7 tion or any other party; and

8 (B) as necessary to enforce a

9 transaction with a consumer if the di10 vulging or use is required, or is one

11 of the lawful methods, to enforce the

12 rights of the financial institution or

13 of other persons engaged in carrying

14 out the financial transaction, or pro15 viding the financial product or finan16 cial service.

17 The Commission shall, consistent with

18 the purposes of this subtitle, prescribe by

19 rule actions that shall, in a variety of fi20 nancial services, and with respect to a

21 variety of financial products, be treated

22 as necessary to effect or enforce a finan23 cial transaction.

24 (10) FINANCIAL SERVICES; FINANCIAL

25 PRODUCTS; TRANSACTION; RELATED TRANS-
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1 ACTION.—The Commission shall, con2 sistent with the purposes of this subtitle,

3 prescribe by rule definitions of the terms

4 ‘‘financial services’’, ‘‘financial products’’,

5 ‘‘transaction’’, ‘‘related transaction’’, and

6 ‘‘unrelated third party’’ for purposes of

7 this subtitle.

8 SEC. 505. EFFECTIVE DATE.

9 This subtitle shall take effect one year

10 after the date on which the Commission pre11 scribes in final form the rules required by sec12 tion 502(a), except to the extent that a later

13 date is specified in such rules.

14 Subtitle B—Fraudulent Access to

15 Financial Information

16 SEC. 521. PRIVACY PROTECTION FOR CUSTOMER INFORMA17 TION OF FINANCIAL INSTITUTIONS.

18 (a) PROHIBITION ON OBTAINING CUSTOMER

19 INFORMATION BY FALSE PRETENSES.—It shall be

20 a violation of this subtitle for any person to

21 obtain or attempt to obtain, or cause to be dis22 closed or attempt to cause to be disclosed to

23 any person, customer information of a finan24 cial institution relating to another person—
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1 (1) by making a false, fictitious, or

2 fraudulent statement or representation

3 to an officer, employee, or agent of a fi4 nancial institution;

5 (2) by making a false, fictitious, or

6 fraudulent statement or representation

7 to a customer of a financial institution; or

8 (3) by providing any document to an

9 officer, employee, or agent of a financial

10 institution, knowing that the document is

11 forged, counterfeit, lost, or stolen, was

12 fraudulently obtained, or contains a false,

13 fictitious, or fraudulent statement or rep14 resentation.

15 (b) PROHIBITION ON SOLICITATION OF A PER16 SON TO OBTAIN CUSTOMER INFORMATION FROM

17 FINANCIAL INSTITUTION UNDER FALSE PRE18 TENSES.—It shall be a violation of this subtitle

19 to request a person to obtain customer infor20 mation of a financial institution, knowing

21 that the person will obtain, or attempt to ob22 tain, the information from the institution in

23 any manner described in subsection (a).

24 (c) NONAPPLICABILITY TO LAW ENFORCE25 MENT AGENCIES.—No provision of this section
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1 shall be construed so as to prevent any action

2 by a law enforcement agency, or any officer,

3 employee, or agent of such agency, to obtain

4 customer information of a financial institu5 tion in connection with the performance of

6 the official duties of the agency.

7 (d) NONAPPLICABILITY TO FINANCIAL INSTI8 TUTIONS IN CERTAIN CASES.—No provision of

9 this section shall be construed so as to pre10 vent any financial institution, or any officer,

11 employee, or agent of a financial institution,

12 from obtaining customer information of such

13 financial institution in the course of—

14 (1) testing the security procedures or

15 systems of such institution for maintain16 ing the confidentiality of customer infor17 mation;

18 (2) investigating allegations of mis19 conduct or negligence on the part of any

20 officer, employee, or agent of the finan21 cial institution; or

22 (3) recovering customer information

23 of the financial institution which was ob24 tained or received by another person in
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1 any manner described in subsection (a)

2 or (b).

3 (e) NONAPPLICABILITY TO INSURANCE INSTI4 TUTIONS FOR INVESTIGATION OF INSURANCE

5 FRAUD.—No provision of this section shall be

6 construed so as to prevent any insurance in7 stitution, or any officer, employee, or agency

8 of an insurance institution, from obtaining in9 formation as part of an insurance investiga10 tion into criminal activity, fraud, material

11 misrepresentation, or material nondisclosure

12 that is authorized for such institution under

13 State law, regulation, interpretation, or order.

14 (f) NONAPPLICABILITY TO CERTAIN TYPES OF

15 CUSTOMER INFORMATION OF FINANCIAL INSTITU16 TIONS.—No provision of this section shall be

17 construed so as to prevent any person from

18 obtaining customer information of a financial

19 institution that otherwise is available as a

20 public record filed pursuant to the securities

21 laws (as defined in section 3(a)(47) of the Se22 curities Exchange Act of 1934).

23 SEC. 522. ADMINISTRATIVE ENFORCEMENT.

24 (a) ENFORCEMENT BY FEDERAL TRADE COM25 MISSION.—Compliance with this subtitle shall
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1 be enforced by the Federal Trade Commission

2 in the same manner and with the same power

3 and authority as the Commission has under

4 the title VIII, the Fair Debt Collection Prac5 tices Act, to enforce compliance with such

6 title.

7 (b) NOTICE OF ACTIONS.—The Federal

8 Trade Commission shall—

9 (1) notify the Securities and Ex10 change Commission whenever the Fed11 eral Trade Commission initiates an inves12 tigation with respect to a financial insti13 tution subject to regulation by the Secu14 rities and Exchange Commission;

15 (2) notify the Federal banking agency

16 (as defined in section 3(z) of the Federal

17 Deposit Insurance Act) whenever the

18 Commission initiates an investigation

19 with respect to a financial institution

20 subject to regulation by such Federal

21 banking agency; and

22 (3) notify the appropriate State insur23 ance regulator whenever the Commission

24 initiates an investigation with respect to
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1 a financial institution subject to regula2 tion by such regulator.

3 SEC. 523. CRIMINAL PENALTY.

4 (a) IN GENERAL.—Whoever knowingly and

5 intentionally violates, or knowingly and in6 tentionally attempts to violate, section 521

7 shall be fined in accordance with title 18,

8 United States Code, or imprisoned for not

9 more than 5 years, or both.

10 (b) ENHANCED PENALTY FOR AGGRAVATED

11 CASES.—Whoever violates, or attempts to vio12 late, section 521 while violating another law

13 of the United States or as part of a pattern of

14 any illegal activity involving more than

15 $100,000 in a 12-month period shall be fined

16 twice the amount provided in subsection

17 (b)(3) or (c)(3) (as the case may be) of section

18 3571 of title 18, United States Code, impris19 oned for not more than 10 years, or both.

20 SEC. 524. RELATION TO STATE LAWS.

21 (a) IN GENERAL.—This subtitle shall not be

22 construed as superseding, altering, or affect23 ing the statutes, regulations, orders, or inter24 pretations in effect in any State, except to the

25 extent that such statutes, regulations, orders,
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1 or interpretations are inconsistent with the

2 provisions of this subtitle, and then only to

3 the extent of the inconsistency.

4 (b) GREATER PROTECTION UNDER STATE

5 LAW.—For purposes of this section, a State

6 statute, regulation, order, or interpretation is

7 not inconsistent with the provisions of this

8 subtitle if the protection such statute, regula9 tion, order, or interpretation affords any per10 son is greater than the protection provided

11 under this subtitle as determined by the Com12 mission, on its own motion or upon the peti13 tion of any interested party.

14 SEC. 525. AGENCY GUIDANCE.

15 In furtherance of the objectives of this

16 subtitle, each Federal banking agency (as de17 fined in section 3(z) of the Federal Deposit In18 surance Act) and the Securities and Exchange

19 Commission or self-regulatory organizations,

20 as appropriate, shall review regulations and

21 guidelines applicable to financial institutions

22 under their respective jurisdictions and shall

23 prescribe such revisions to such regulations

24 and guidelines as may be necessary to ensure

25 that such financial institutions have policies,
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1 procedures, and controls in place to prevent

2 the unauthorized disclosure of customer fi3 nancial information and to deter and detect

4 activities proscribed under section 521.

5 SEC. 526. REPORTS.

6 (a) REPORT TO THE CONGRESS.—Before the

7 end of the 18-month period beginning on the

8 date of the enactment of this Act, the Comp9 troller General, in consultation with the Fed10 eral Trade Commission, Federal banking

11 agencies, the Securities and Exchange Com12 mission, appropriate Federal law enforce13 ment agencies, and appropriate State insur14 ance regulators, shall submit to the Congress

15 a report on the following:

16 (1) The efficacy and adequacy of the

17 remedies provided in this subtitle in ad18 dressing attempts to obtain financial in19 formation by fraudulent means or by

20 false pretenses.

21 (2) Any recommendations for addi22 tional legislative or regulatory action to

23 address threats to the privacy of finan24 cial information created by attempts to
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1 obtain information by fraudulent means

2 or false pretenses.

3 (b) ANNUAL REPORT BY ADMINISTERING

4 AGENCIES.—The Federal Trade Commission

5 and the Attorney General shall submit to Con6 gress an annual report on number and dis7 position of all enforcement actions taken pur8 suant to this subtitle.

9 SEC. 527. DEFINITIONS.

10 For purposes of this subtitle, the fol11 lowing definitions shall apply:

12 (1) CUSTOMER.—The term ‘‘customer’’

13 means, with respect to a financial institu14 tion, any person (or authorized rep15 resentative of a person) to whom the fi16 nancial institution provides a product or

17 service, including that of acting as a fidu18 ciary.

19 (2) CUSTOMER INFORMATION OF A FINAN20 CIAL INSTITUTION.—The term ‘‘customer in21 formation of a financial institution’’

22 means any information maintained by or

23 for a financial institution which is de24 rived from the relationship between the

25 financial institution and a customer of
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1 the financial institution and is identified

2 with the customer.

3 (3) DOCUMENT.—The term ‘‘document’’

4 means any information in any form.

5 (4) FINANCIAL INSTITUTION.—

6 (A) IN GENERAL.—The term ‘‘finan7 cial institution’’ means any institu8 tion engaged in the business of pro9 viding financial services to customers

10 who maintain a credit, deposit, trust,

11 or other financial account or relation12 ship with the institution.

13 (B) CERTAIN FINANCIAL INSTITU14 TIONS SPECIFICALLY INCLUDED.—The

15 term ‘‘financial institution’’ includes

16 any depository institution (as defined

17 in section 19(b)(1)(A) of the Federal

18 Reserve Act), any broker or dealer,

19 any investment adviser or investment

20 company, any insurance company,

21 any loan or finance company, any

22 credit card issuer or operator of a

23 credit card system, and any consumer

24 reporting agency that compiles and

25 maintains files on consumers on a na-
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1 tionwide basis (as defined in section

2 603(p)).

3 (C) SECURITIES INSTITUTIONS.—For

4 purposes of subparagraph (B)—

5 (i) the terms ‘‘broker’’ and

6 ‘‘dealer’’ have the meanings pro7 vided in section 3 of the Securi8 ties Exchange Act of 1934 (15

9 U.S.C. 78c);

10 (ii) the term ‘‘investment ad11 viser’’ has the meaning provided

12 in section 202(a)(11) of the Invest13 ment Advisers Act of 1940 (15

14 U.S.C. 80b–2(a)); and

15 (iii) the term ‘‘investment

16 company’’ has the meaning pro17 vided in section 3 of the Invest18 ment Company Act of 1940 (15

19 U.S.C. 80a–3).

20 (D) FURTHER DEFINITION BY REGU21 LATION.—The Federal Trade Commis22 sion, after consultation with Federal

23 banking agencies and the Securities

24 and Exchange Commission, may pre25 scribe regulations clarifying or de-
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1 scribing the types of institutions

2 which shall be treated as financial in3 stitutions for purposes of this sub4 title.