II

106TH CONGRESS

1ST SESSION S. 753

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 SENATE OF THE UNITED STATES

MARCH 25, 1999

Mr. DASCHLE (for himself, Mr. SARBANES, Mr. DODD, Mr. KERRY, Mr.

BRYAN, Mr. JOHNSON, Mr. REED, Mr. SCHUMER, Mr. BAYH, and Mr.

EDWARDS) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

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

6 ‘‘Financial Services Act of 1999’’.
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1 (b) PURPOSES.—The purposes of this Act are as fol2 lows:

3 (1) To enhance competition in the financial

4 services industry, in order to foster innovation and

5 efficiency.

6 (2) To ensure the continued safety and sound7 ness of depository institutions.

8 (3) To provide necessary and appropriate pro9 tections for investors and ensure fair and honest

10 markets in the delivery of financial services.

11 (4) To avoid duplicative, potentially conflicting,

12 and overly burdensome regulatory requirements

13 through the creation of a regulatory framework for

14 financial holding companies that respects the diver15 gent requirements of each of the component busi16 nesses of the holding company, and that is based

17 upon principles of strong functional regulation and

18 enhanced regulatory coordination.

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

20 practicable, to eliminate the legal barriers preventing

21 affiliation among depository institutions, securities

22 firms, insurance companies, and other financial serv23 ice providers and to provide a prudential framework

24 for achieving that result.
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1 (6) To enhance the availability of financial serv2 ices to citizens of all economic circumstances and in

3 all geographic areas.

4 (7) To enhance the competitiveness of United

5 States financial service providers internationally.

6 (8) To ensure compliance by depository institu7 tions with the provisions of the Community Rein8 vestment Act of 1977 and enhance the ability of de9 pository institutions to meet the capital and credit

10 needs of all citizens and communities, including un11 derserved communities and populations.

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

13 this Act is as follows:

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

TITLE I—FACILITATING AFFILIATION AMONG SECURITIES FIRMS,

INSURANCE COMPANIES, AND DEPOSITORY INSTITUTIONS

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act reformed.

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

not financial holding companies.

Sec. 103. Financial holding companies.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Clarification of branch closure requirements.

Sec. 108. Amendments relating to limited purpose banks.

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

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

financial institutions.

Subtitle B—Streamlining Supervision of Financial Holding Companies

Sec. 111. Streamlining financial holding company supervision.

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.
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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.

Subtitle C—Subsidiaries of National Banks

Sec. 121. Subsidiaries of national banks authorized to engage in financial activities.

Sec. 122. Subsidiaries of State banks.

Sec. 123. Safety and soundness firewalls between banks and their financial subsidiaries.

Sec. 124. Functional regulation.

Sec. 125. Misrepresentations regarding depository institution liability for obligations of affiliates.

Sec. 126. 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.
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Sec. 165. Eligibility criteria.

Sec. 166. Management of banks.

Sec. 167. Resolution Funding Corporation.

Subtitle H—Direct Activities of Banks

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

Subtitle I—Deposit Insurance Funds

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

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

Subtitle J—Effective Date of Title

Sec. 191. Effective date.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

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

Sec. 204. Sales practices and complaint procedures.

Sec. 205. Information sharing.

Sec. 206. Definition and treatment of banking products.

Sec. 207. Derivative instrument and qualified investor defined.

Sec. 208. Government securities defined.

Sec. 209. Effective date.

Sec. 210. Rule of construction.

Subtitle B—Bank Investment Company Activities

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

Sec. 212. Lending to an affiliated investment company.

Sec. 213. Independent directors.

Sec. 214. Additional SEC disclosure authority.

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

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

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

banks that advise investment companies.

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

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

Sec. 220. Interagency consultation.

Sec. 221. Treatment of bank common trust funds.

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

registered investment company.

Sec. 223. Conforming change in definition.

Sec. 224. Conforming amendment.

Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment

Bank Holding Companies

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

and Exchange Commission.
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Subtitle D—Studies

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

products.

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

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

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

Sec. 302. Mandatory insurance licensing requirements.

Sec. 303. Functional regulation of insurance.

Sec. 304. Insurance underwriting in national banks.

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

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

Sec. 307. Consumer protection regulations.

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

affiliates.

Sec. 309. Publication of preemption of State laws.

Subtitle B—National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.

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

Sec. 323. Purpose.

Sec. 324. Relationship to the Federal Government.

Sec. 325. Membership.

Sec. 326. Board of Directors.

Sec. 327. Officers.

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

Sec. 329. Assessments.

Sec. 330. Functions of the NAIC.

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

of the Association.

Sec. 332. Elimination of NAIC oversight.

Sec. 333. Relationship to State law.

Sec. 334. Coordination with other regulators.

Sec. 335. Judicial review.

Sec. 336. Definitions.

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

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

with commercial affiliates.

Sec. 402. Optional conversion of Federal savings associations to national banks.

Sec. 403. Retention of ‘‘Federal’’ in name of converted Federal savings association.

TITLE V—FINANCIAL INFORMATION ANTI-FRAUD

Sec. 501. Financial information anti-fraud.

Sec. 502. Report to Congress on financial privacy.

TITLE VI—MISCELLANEOUS

Sec. 601. Grand jury proceedings.
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Sec. 602. Sense of the Committee on Banking, Housing, and Urban Affairs of

the Senate.

Sec. 603. Investments in Government sponsored enterprises.

Sec. 604. Repeal of savings bank provisions in the Bank Holding Company Act

of 1956.

Sec. 605. Service of members of the Board of Governors of the Federal Reserve

System.

Sec. 606. Provision of technical assistance to microenterprises.

1 TITLE I—FACILITATING AFFILI2 ATION AMONG SECURITIES

3 FIRMS, INSURANCE COMPA4 NIES, AND DEPOSITORY IN5 STITUTIONS

6 Subtitle A—Affiliations

7 SEC. 101. GLASS-STEAGALL ACT REFORMED.

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

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

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

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

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

13 SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK

14 HOLDING COMPANIES WHICH ARE NOT FI15 NANCIAL HOLDING COMPANIES.

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

18 amended to read as follows:

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

20 which had been determined by the Board by regula21 tion under this paragraph as of the day before the
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1 date of enactment of the Financial Services Act of

2 1999, to be so closely related to banking as to be a

3 proper incident thereto (subject to such terms and

4 conditions contained in such regulation, unless modi5 fied by the Board);’’.

6 (b) CONFORMING CHANGES TO OTHER STATUTES.—

7 (1) AMENDMENT TO THE BANK HOLDING COM8 PANY ACT AMENDMENTS OF 1970.—Section 105 of

9 the Bank Holding Company Act Amendments of

10 1970 (12 U.S.C. 1850) is amended by striking ‘‘, to

11 engage directly or indirectly in a nonbanking activity

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

13 (2) AMENDMENT TO THE BANK SERVICE COM14 PANY ACT.—Section 4(f) of the Bank Service Com15 pany Act (12 U.S.C. 1864(f)) is amended by strik16 ing the period and adding at the end the following:

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

18 Financial Services Act of 1999.’’.

19 SEC. 103. FINANCIAL HOLDING COMPANIES.

20 The Bank Holding Company Act of 1956 is amended

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

22 new section:

23 ‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.

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

25 For purposes of this section, the term ‘financial holding
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1 company’ means a bank holding company which meets the

2 requirements of subsection (b).

3 ‘‘(b) ELIGIBILITY REQUIREMENTS FOR FINANCIAL

4 HOLDING COMPANIES.—

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

6 may engage in any activity or directly or indirectly

7 acquire or retain shares of any company under this

8 section unless the bank holding company meets the

9 following requirements:

10 ‘‘(A) All of the subsidiary depository insti11 tutions of the bank holding company are well

12 capitalized.

13 ‘‘(B) All of the subsidiary depository insti14 tutions of the bank holding company are well

15 managed.

16 ‘‘(C) All of the subsidiary depository insti17 tutions of the bank holding company have

18 achieved a rating of ‘satisfactory record of

19 meeting community credit needs’, or better, at

20 the most recent examination of each such insti21 tution under the Community Reinvestment Act

22 of 1977.

23 ‘‘(D) The company has filed with the

24 Board a declaration that the company elects to

25 be a financial holding company and certifying
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1 that the company meets the requirements of

2 subparagraphs (A) through (C).

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

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

5 and apply comparable capital and other operating

6 standards to a foreign bank that operates a branch

7 or agency or owns or controls a bank or commercial

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

10 due regard to the principle of national treatment

11 and equality of competitive opportunity.

12 ‘‘(3) LIMITED EXCLUSIONS FROM COMMUNITY

13 NEEDS REQUIREMENTS FOR NEWLY ACQUIRED DE14 POSITORY INSTITUTIONS.—

15 ‘‘(A) IN GENERAL.—If the requirements of

16 subparagraph (B) are met, any depository insti17 tution acquired by a bank holding company

18 during the 24-month period preceding the sub19 mission of a declaration under paragraph

20 (1)(D) and any depository institution acquired

21 after the submission of such declaration may be

22 excluded for purposes of paragraph (1)(C) until

23 the later of—

24 ‘‘(i) the end of the 24-month period

25 beginning on the date the acquisition of
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1 the depository institution by such company

2 is consummated; or

3 ‘‘(ii) the date of completion of the

4 first examination of such depository insti5 tution under the Community Reinvestment

6 Act of 1977 which is conducted after the

7 date of the acquisition of the depository in8 stitution.

9 ‘‘(B) REQUIREMENTS.—The requirements

10 of this subparagraph are met with respect to

11 any bank holding company referred to in sub12 paragraph (A) if—

13 ‘‘(i) the bank holding company has

14 submitted an affirmative plan to the ap15 propriate Federal banking agency to take

16 such action as may be necessary in order

17 for such institution to achieve a rating of

18 ‘satisfactory record of meeting community

19 credit needs’, or better, at the next exam20 ination of the institution under the Com21 munity Reinvestment Act of 1977; and

22 ‘‘(ii) the plan has been approved by

23 such agency.

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

25 IN NATURE.—
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1 ‘‘(1) FINANCIAL ACTIVITIES.—Notwithstanding

2 section 4(a), a financial holding company and a

3 wholesale financial holding company may engage in

4 any activity, and acquire and retain the shares of

5 any company engaged in any activity, that the

6 Board and the Secretary of the Treasury have joint7 ly determined, pursuant to paragraph (2) (by regula8 tion or order), to be financial in nature or incidental

9 to such financial activities.

10 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter11 mining whether an activity is financial in nature or

12 incidental to financial activities, the Board and the

13 Secretary of the Treasury shall take into account—

14 ‘‘(A) the purposes of this Act and the Fi15 nancial Services Act of 1999;

16 ‘‘(B) changes or reasonably expected

17 changes in the marketplace in which bank hold18 ing companies compete;

19 ‘‘(C) changes or reasonably expected

20 changes in the technology for delivering finan21 cial services; and

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

23 appropriate to allow bank holding companies

24 to—
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1 ‘‘(i) compete effectively with any com2 pany seeking to provide financial services

3 in the United States;

4 ‘‘(ii) use any available or emerging

5 technological means, including any applica6 tion necessary to protect the security or ef7 ficacy of systems for the transmission of

8 data or financial transactions, in providing

9 financial services; and

10 ‘‘(iii) offer customers any available or

11 emerging technological means for using fi12 nancial services.

13 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA14 TURE.—The following activities shall be considered

15 to be financial in nature:

16 ‘‘(A) Lending, exchanging, transferring, in17 vesting for others, or safeguarding money or se18 curities.

19 ‘‘(B) Insuring, guaranteeing, or indem20 nifying against loss, harm, damage, illness, dis21 ability, or death, or providing and issuing annu22 ities, and acting as principal, agent, or broker

23 for purposes of the foregoing.

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

25 economic advisory services, including advising
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1 an investment company (as defined in section 3

2 of the Investment Company Act of 1940).

3 ‘‘(D) Issuing or selling instruments rep4 resenting interests in pools of assets permissible

5 for a bank to hold directly.

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

7 a market in securities.

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

9 Board has determined, by order or regulation

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

11 Financial Services Act of 1999, to be so closely

12 related to banking or managing or controlling

13 banks as to be a proper incident thereto (sub14 ject to the same terms and conditions contained

15 in such order or regulation, unless modified by

16 the Board).

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

18 any activity that—

19 ‘‘(i) a bank holding company may en20 gage in outside the United States; and

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

22 regulations issued pursuant to section

23 4(c)(13) of this Act (as in effect on the

24 day before the date of enactment of the Fi25 nancial Services Act of 1999) to be usual
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1 in connection with the transaction of bank2 ing or other financial operations abroad.

3 ‘‘(H) Directly or indirectly acquiring or

4 controlling, whether as principal, on behalf of 1

5 or more entities (including entities, other than

6 a depository institution, that the bank holding

7 company controls) or otherwise, shares, assets,

8 or ownership interests (including without limita9 tion debt or equity securities, partnership inter10 ests, trust certificates or other instruments rep11 resenting ownership) of a company or other en12 tity, whether or not constituting control of such

13 company or entity, engaged in any activity not

14 authorized pursuant to this section if—

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

16 interests are not acquired or held by a de17 pository institution;

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

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

21 of a bona fide underwriting or merchant

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

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

8 assets, or ownership interests are held, the

9 bank holding company does not actively

10 participate in the day to day management

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

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

16 more entities (including entities, other than a

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

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

21 or equity securities, partnership interests, trust

22 certificates or other instruments representing

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

2 pursuant to this section if—

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

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

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

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

11 health, or property and casualty insurance

12 (other than credit-related insurance);

13 ‘‘(iii) such shares, assets, or owner14 ship interests represent an investment

15 made in the ordinary course of business of

16 such insurance company in accordance

17 with relevant State law governing such in18 vestments; and

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

20 assets, or ownership interests are held, the

21 bank holding company does not directly or

22 indirectly participate in the day-to-day

23 management or operation of the company

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

2 (iii).

3 ‘‘(4) ACTIONS REQUIRED.—

4 ‘‘(A) REGULATION OF MERCHANT BANK5 ING.—The Board may prescribe regulations and

6 issue interpretations to implement paragraph

7 (3)(H).

8 ‘‘(B) REGULATION OF OTHER ACTIVI9 TIES.—The Board and the Secretary of the

10 Treasury—

11 ‘‘(i) may jointly prescribe regulations

12 and issue interpretations under paragraph

13 (3), other than subparagraph (H); and

14 ‘‘(ii) shall jointly define, by regulation,

15 activities described in paragraph (5), to the

16 extent that they are consistent with the

17 purposes of this Act, as financial in nature

18 or incidental to activities that are financial

19 in nature.

20 ‘‘(5) ACTIVITIES DESCRIBED.—The activities

21 described in this paragraph are—

22 ‘‘(A) lending, exchanging, transferring, in23 vesting for others, or safeguarding financial as24 sets other than money or securities;
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1 ‘‘(B) providing any device or other instru2 mentality for transferring money or other finan3 cial assets; and

4 ‘‘(C) arranging, effecting, or facilitating fi5 nancial transactions for the account of third

6 parties.

7 ‘‘(6) POST-CONSUMMATION NOTIFICATION.—

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

9 company and a wholesale financial holding com10 pany that acquires any company, or commences

11 any activity, pursuant to this subsection shall

12 provide written notice to the Board describing

13 the activity commenced or conducted by the

14 company acquired no later than 30 calendar

15 days after commencing the activity or consum16 mating the acquisition.

17 ‘‘(B) APPROVAL NOT REQUIRED FOR CER18 TAIN FINANCIAL ACTIVITIES.—Except as pro19 vided in section 4(j) with regard to the acquisi20 tion of a savings association or in paragraph

21 (7) of this subsection, a financial holding com22 pany and a wholesale financial holding company

23 may commence any activity, or acquire any

24 company, pursuant to paragraph (3) or any

25 regulation prescribed or order issued under
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1 paragraph (4), without prior approval of the

2 Board.

3 ‘‘(7) NOTICE REQUIRED FOR LARGE COMBINA4 TIONS.—

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

6 company or wholesale financial holding com7 pany shall directly or indirectly acquire, and no

8 company that becomes a financial holding com9 pany or a wholesale financial holding company

10 shall directly or indirectly acquire control of,

11 any company in the United States, including

12 through merger, consolidation, or other type of

13 business combination, that—

14 ‘‘(i) is engaged in activities permitted

15 under this subsection or subsection (g);

16 and

17 ‘‘(ii) has consolidated total assets in

18 excess of $40,000,000,000,

19 unless such holding company has provided no20 tice to the Board, not later than 60 days prior

21 to such proposed acquisition or prior to becom22 ing a financial holding company or wholesale fi23 nancial holding company, and during that time

24 period, or such longer time period not exceeding

25 an additional 60 days, as established by the
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1 Board, the Board has not issued a notice dis2 approving the proposed acquisition or retention.

3 ‘‘(B) FACTORS FOR CONSIDERATION.—In

4 reviewing any prior notice filed under this para5 graph, the Board shall take into

6 consideration—

7 ‘‘(i) whether the company is in com8 pliance with all applicable criteria set forth

9 in subsection (b) and the provisions of sub10 section (d);

11 ‘‘(ii) whether the proposed combina12 tion represents an undue aggregation of

13 resources;

14 ‘‘(iii) whether the proposed combina15 tion poses a risk to the deposit insurance

16 system;

17 ‘‘(iv) whether the proposed combina18 tion poses a risk to State insurance guar19 anty funds;

20 ‘‘(v) whether the proposed combina21 tion can reasonably be expected to be in

22 the best interests of depositors or policy23 holders of the respective entities; and
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1 ‘‘(vi) whether the proposed trans2 action can reasonably be expected to

3 produce benefits to the public.

4 ‘‘(C) REQUIRED INFORMATION.—The

5 Board may disapprove any prior notice filed

6 under this paragraph if the company submitting

7 such notice neglects, fails, or refuses to furnish

8 to the Board all relevant information required

9 by the Board.

10 ‘‘(D) SOLICITATION OF VIEWS OF OTHER

11 SUPERVISORY AGENCIES.—

12 ‘‘(i) IN GENERAL.—Upon receiving a

13 prior notice under this paragraph, in order

14 to provide for the submission of their views

15 and recommendations, the Board shall give

16 notice of the proposal to—

17 ‘‘(I) the appropriate Federal

18 banking agency of any bank involved;

19 ‘‘(II) the appropriate functional

20 regulator of any functionally regulated

21 nondepository institution (as defined

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

23 ‘‘(III) the Secretary of the Treas24 ury, the Department of Justice, and

25 the Federal Trade Commission.
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1 ‘‘(ii) TIMING.—The views and rec2 ommendations of any agency provided no3 tice under this paragraph shall be sub4 mitted to the Board not later than 30 cal5 endar days after the date on which notice

6 to the agency was given, unless the Board

7 determines that another shorter time pe8 riod is appropriate.

9 ‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL HOLD10 ING COMPANIES THAT FAIL TO MEET REQUIREMENTS.—

11 ‘‘(1) IN GENERAL.—If a financial holding com12 pany is not in compliance with the requirements of

13 subparagraph (A), (B), (C), or (D) of subsection

14 (b)(1), the appropriate Federal banking agency of

15 the subsidiary depository institution shall notify the

16 Board which shall give notice of such finding to the

17 company.

18 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE19 QUIRED.—

20 ‘‘(A) IN GENERAL.—Not later than 45

21 days after receipt by a financial holding com22 pany of a notice given under paragraph (1) (or

23 such additional period as the Board may per24 mit), the company and any relevant depository

25 institution shall execute an agreement accept-
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1 able to the Board and the appropriate Federal

2 banking agency to comply with the require3 ments applicable to a financial holding com4 pany.

5 ‘‘(B) CERTAIN FAILURES TO COMPLY.—A

6 financial holding company shall not be required

7 to divest any company held, or terminate any

8 activity conducted pursuant to, subsection (c)

9 solely because of a failure to comply with sub10 section (b)(1)(C).

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

12 the conditions described in a notice to a financial

13 holding company under paragraph (1) are

14 corrected—

15 ‘‘(A) the Board may impose such limita16 tions on the conduct or activities of the com17 pany or any affiliate of the company (other

18 than a depository to institution or a subsidiary

19 of a depository institution) as the Board deter20 mines to be appropriate under the cir21 cumstances; and

22 ‘‘(B) the appropriate Federal banking

23 agency may impose such limitations on the con24 duct or activities of an affiliated depository in25 stitution or subsidiary of a depository institu-
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1 tion as the appropriate Federal banking agency

2 determines to be appropriate under the cir3 cumstances.

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

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

6 company or a depository institution affiliate of such

7 company does not—

8 ‘‘(A) execute and implement an agreement

9 in accordance with paragraph (2);

10 ‘‘(B) comply with any limitations imposed

11 under paragraph (3);

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

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

14 depository institution subsidiary to well capital15 ized status before the end of the 180-day period

16 beginning on the date such notice is received by

17 the company (or such other period permitted by

18 the Board); or

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

20 comply with subparagraph (B) or (C) of sub21 section (b)(1), restore compliance with any such

22 subparagraph on or before the date on which

23 the next examination of the depository institu24 tion subsidiary is completed or by the end of
26

•S 753 IS

1 such other period as the Board determines to

2 be appropriate,

3 the Board may require such company, under such

4 terms and conditions as may be imposed by the

5 Board and subject to such extension of time as may

6 be granted in the Board’s discretion, to divest con7 trol of any depository institution subsidiary or, at

8 the election of the financial holding company, in9 stead to cease to engage in any activity conducted by

10 such company or its subsidiaries pursuant to this

11 section.

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

13 under this subsection, the Board shall consult with

14 all relevant Federal and State regulatory agencies.

15 ‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—A fi16 nancial holding company shall assure that—

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

18 identifying and managing financial and operational

19 risks within the company, and the subsidiaries of

20 such company, adequately protect the subsidiaries of

21 such company which are insured depository institu22 tions from such risks;

23 ‘‘(2) the holding company has reasonable poli24 cies and procedures to preserve the separate cor25 porate identity and limited liability of such company
27

•S 753 IS

1 and the subsidiaries of such company, for the pro2 tection of the company’s subsidiary insured deposi3 tory institutions; and

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

5 section.

6 ‘‘(f) AUTHORITY TO RETAIN LIMITED NON7 FINANCIAL ACTIVITIES AND AFFILIATIONS.—

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

9 4(a), a company that is not a bank holding company

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

11 the International Banking Act of 1978) and becomes

12 a financial holding company after the date of enact13 ment of the Financial Services Act of 1999 may con14 tinue to engage in any activity and retain direct or

15 indirect ownership or control of shares of a company

16 engaged in any activity if—

17 ‘‘(A) the holding company lawfully was en18 gaged in the activity or held the shares of such

19 company on September 30, 1997;

20 ‘‘(B) the holding company is predomi21 nantly engaged in financial activities as defined

22 in paragraph (2); and

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

24 continues to engage only in the same activities

25 that such company conducted on September 30,
28

•S 753 IS

1 1997, and other activities permissible under

2 this Act.

3 ‘‘(2) PREDOMINANTLY FINANCIAL.—For pur4 poses of this subsection, a company is predominantly

5 engaged in financial activities if the annual gross

6 revenues derived by the holding company and all

7 subsidiaries of the holding company (excluding reve8 nues derived from subsidiary depository institu9 tions), on a consolidated basis, from engaging in ac10 tivities that are financial in nature or are incidental

11 to activities that are financial in nature under sub12 section (c) represent at least 85 percent of the con13 solidated annual gross revenues of the company.

14 ‘‘(3) NO EXPANSION OF GRANDFATHERED COM15 MERCIAL ACTIVITIES THROUGH MERGER OR CON16 SOLIDATION.—A financial holding company that en17 gages in activities or holds shares pursuant to this

18 subsection, or a subsidiary of such financial holding

19 company, may not acquire, in any merger, consolida20 tion, or other type of business combination, assets of

21 any other company which is engaged in any activity

22 which the Board has not determined to be financial

23 in nature or incidental to activities that are financial

24 in nature under subsection (c).
29

•S 753 IS

1 ‘‘(4) CONTINUING REVENUE LIMITATION ON

2 GRANDFATHERED COMMERCIAL ACTIVITIES.—Not3 withstanding any other provision of this subsection,

4 a financial holding company may continue to engage

5 in activities or hold shares in companies pursuant to

6 this subsection only to the extent that the aggregate

7 annual gross revenues derived from all such activi8 ties and all such companies does not exceed 15 per9 cent of the consolidated annual gross revenues of the

10 financial holding company (excluding revenues de11 rived from subsidiary depository institutions).

12 ‘‘(5) CROSS MARKETING RESTRICTIONS APPLI13 CABLE TO COMMERCIAL ACTIVITIES.—A depository

14 institution controlled by a financial holding company

15 shall not—

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

17 any arrangement, any product or service of a

18 company whose activities are conducted or

19 whose shares are owned or controlled by the fi20 nancial holding company pursuant to this sub21 section or subparagraph (H) or (I) of sub22 section (c)(3); or

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

24 to be offered or marketed, directly or through
30

•S 753 IS

1 any arrangement, by or through any company

2 described in subparagraph (A).

3 ‘‘(6) TRANSACTIONS WITH NONFINANCIAL AF4 FILIATES.—An insured depository institution con5 trolled by a financial holding company or wholesale

6 financial holding company may not engage in a cov7 ered transaction (as defined by section 23A(b)(7) of

8 the Federal Reserve Act) with any affiliate con9 trolled by the company pursuant to section 10(c),

10 this subsection, or subparagraph (H) or (I) of sub11 section (c)(3).

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

13 holding company engaged in any activity, or retain14 ing direct or indirect ownership or control of shares

15 of a company, pursuant to this subsection, shall ter16 minate such activity and divest ownership or control

17 of the shares of such company before the end of the

18 10-year period beginning on the date of enactment

19 of the Financial Services Act of 1999. The Board

20 may, upon application by a financial holding com21 pany, extend such 10-year period by a period not to

22 exceed an additional 5 years if such extension would

23 not be detrimental to the public interest.

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

25 company and a wholesale financial holding company may
31

•S 753 IS

1 engage directly or indirectly, or acquire shares of any com2 pany engaged, in any activity that the Board has not de3 termined to be financial in nature or incidental to financial

4 activities under subsection (c) if—

5 ‘‘(1) the holding company reasonably concludes

6 that the activity is financial in nature or incidental

7 to financial activities;

8 ‘‘(2) the gross revenues from all activities con9 ducted under this subsection represent less than 5

10 percent of the consolidated gross revenues of the

11 holding company;

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

13 the shares of which are held under this subsection

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

15 consolidated total assets;

16 ‘‘(4) the total capital invested in activities con17 ducted under this subsection represents less than 5

18 percent of the consolidated total capital of the hold19 ing company;

20 ‘‘(5) the Board has not determined that the ac21 tivity is not financial in nature or incidental to fi22 nancial activities under subsection (c);

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

24 provide prior written notice of the transaction to the

25 Board under subsection (c)(6); and
32

•S 753 IS

1 ‘‘(7) the holding company provides written noti2 fication to the Board describing the activity com3 menced or conducted by the company acquired no

4 later than 10 business days after commencing the

5 activity or consummating the acquisition.

6 ‘‘(h) DEFINITIONS.—For purposes of this section, the

7 following definitions shall apply:

8 ‘‘(1) WELL CAPITALIZED.—The term ‘well cap9 italized’ has the same meaning as in section 38 of

10 the Federal Deposit Insurance Act. For purposes of

11 this section, the appropriate Federal banking agency

12 shall have exclusive jurisdiction to determine wheth13 er an depository institution is well capitalized.

14 ‘‘(2) WELL MANAGED.—

15 ‘‘(A) IN GENERAL.—The term ‘well man16 aged’ means—

17 ‘‘(i) in the case of an depository insti18 tution that has been examined, unless oth19 erwise determined in writing by the appro20 priate Federal banking agency, the

21 achievement of—

22 ‘‘(I) a composite rating of 1 or 2

23 under the Uniform Financial Institu24 tions Rating System (or an equivalent

25 rating under an equivalent rating sys-
33

•S 753 IS

1 tem) in connection with the most re2 cent examination or subsequent review

3 of the depository institution; and

4 ‘‘(II) at least a rating of 2 for

5 management, if that rating is given;

6 or

7 ‘‘(ii) in the case of an depository insti8 tution that has not been examined, the ex9 istence and use of such managerial re10 sources as the appropriate Federal banking

11 agency determines are satisfactory.

12 ‘‘(B) EXISTING JURISDICTION PRE13 SERVED.—For purposes of this section, the ap14 propriate Federal banking agency shall have ex15 clusive jurisdiction to determine whether a de16 pository institution is well managed.’’.

17 SEC. 104. OPERATION OF STATE LAW.

18 (a) AFFILIATIONS.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), no State may, by statute, regulation,

21 order, interpretation, or other action, prevent or re22 strict an insured depository institution or wholesale

23 financial institution, or a subsidiary or affiliate

24 thereof, from being affiliated directly or indirectly or

25 associated with any person or entity, as authorized
34

•S 753 IS

1 or permitted by this Act or any other provision of

2 Federal law.

3 (2) INSURANCE.—With respect to affiliations

4 between insured depository institutions or wholesale

5 financial institutions, or any subsidiary or affiliate

6 thereof, and persons or entities engaged in the busi7 ness of insurance, paragraph (1) does not prohibit

8 any State from—

9 (A) requiring any person or entity that

10 proposes to acquire control of an entity that is

11 engaged in the business of insurance and domi12 ciled in that State (hereafter in this subpara13 graph referred to as the ‘‘insurer’’) to furnish

14 to the insurance regulatory authority of that

15 State, not later than 60 days before the effec16 tive date of the proposed acquisition—

17 (i) the name and address of each per18 son by whom, or on whose behalf, the af19 filiation referred to in this subparagraph is

20 to be effected (hereafter in this subpara21 graph referred to as the ‘‘acquiring

22 party’’);

23 (ii) if the acquiring party is an indi24 vidual, his or her principal occupation and

25 all offices and positions held during the 5
35

•S 753 IS

1 years preceding the date of notification,

2 and any conviction of crimes other than

3 minor traffic violations during the 10 years

4 preceding the date of notification;

5 (iii) if the acquiring party is not an

6 individual—

7 (I) a report of the nature of its

8 business operations during the 5 years

9 preceding the date of notification, or

10 for such shorter period as such person

11 and any predecessors thereof shall

12 have been in existence;

13 (II) an informative description of

14 the business intended to be done by

15 the acquiring party and any sub16 sidiary thereof; and

17 (III) a list of all individuals who

18 are, or who have been selected to be19 come, directors or executive officers of

20 the acquiring party or who perform,

21 or will perform, functions appropriate

22 to such positions, including, for each

23 such individual, the information re24 quired by clause (ii);
36

•S 753 IS

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

2 the consideration used, or to be used, in ef3 fecting the merger or other acquisition of

4 control, a description of any transaction

5 wherein funds were, or are to be, obtained

6 for any such purpose, and the identity of

7 persons furnishing such consideration, ex8 cept that, if a source of such consideration

9 is a loan made in the lender’s ordinary

10 course of business, the identity of the lend11 er shall remain confidential if the person

12 filing such statement so requests;

13 (v) fully audited financial information

14 as to the earnings and financial condition

15 of each acquiring party for the 5 fiscal

16 years preceding the date of notification of

17 each such acquiring party, or for such less18 er period as such acquiring party and any

19 predecessors thereof shall have been in ex20 istence, and similar unaudited information

21 as of a date not earlier than 90 days be22 fore the date of notification, except that, in

23 the case of an acquiring party that is an

24 insurer actively engaged in the business of

25 insurance, the financial statements of such
37

•S 753 IS

1 insurer need not be audited, but such audit

2 may be required if the need therefor is de3 termined by the insurance regulatory au4 thority of the State;

5 (vi) any plans or proposals that each

6 acquiring party may have to liquidate such

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

8 consolidate it with any person or to make

9 any other material change in its business

10 or corporate structure or management;

11 (vii) the number of shares of any se12 curity of the insurer that each acquiring

13 party proposes to acquire, the terms of any

14 offer, request, invitation, agreement, or ac15 quisition, and a statement as to the meth16 od by which the fairness of the proposal

17 was arrived at;

18 (viii) the amount of each class of any

19 security of the insurer that is beneficially

20 owned or concerning which there is a right

21 to acquire beneficial ownership by each ac22 quiring party;

23 (ix) a full description of any contracts,

24 arrangements, or understandings with re25 spect to any security of the insurer in
38

•S 753 IS

1 which any acquiring party is involved, in2 cluding transfer of any of the securities,

3 joint ventures, loan or option arrange4 ments, puts or calls, guarantees of loans,

5 guarantees against loss or guarantees of

6 profits, division of losses or profits, or the

7 giving or withholding of proxies, and iden8 tification of the persons with whom such

9 contracts, arrangements, or under10 standings have been entered into;

11 (x) a description of the purchase of

12 any security of the insurer during the 12-

13 month period preceding the date of notifi14 cation by any acquiring party, including

15 the dates of purchase, names of the pur16 chasers, and consideration paid, or agreed

17 to be paid, therefor;

18 (xi) a description of any recommenda19 tions to purchase any security of the in20 surer made during the 12-month period

21 preceding the date of notification by any

22 acquiring party or by any person based

23 upon interviews or at the suggestion of

24 such acquiring party;
39

•S 753 IS

1 (xii) copies of all tender offers for, re2 quests or invitations for tenders of, ex3 change offers for and agreements to ac4 quire or exchange any securities of the in5 surer and, if distributed, of additional so6 liciting material relating thereto; and

7 (xiii) the terms of any agreement,

8 contract, or understanding made with any

9 broker-dealer as to solicitation of securities

10 of the insurer for tender and the amount

11 of any fees, commissions, or other com12 pensation to be paid to broker-dealers with

13 regard thereto;

14 (B) requiring an entity that is acquiring

15 control of an entity that is engaged in the busi16 ness of insurance and domiciled in that State to

17 maintain or restore the capital requirements of

18 that insurance entity to the level required under

19 the capital regulations of general applicability

20 in that State to avoid the requirement of pre21 paring and filing with the insurance regulatory

22 authority of that State a plan to increase the

23 capital of the entity, except that any determina24 tion by the State insurance regulatory authority

25 with respect to such requirement shall be made
40

•S 753 IS

1 not later than 60 days after the date of notifi2 cation under subparagraph (A);

3 (C) taking actions with respect to the re4 ceivership or conservatorship of any insurance

5 company; or

6 (D) restricting a change in the ownership

7 of stock in an insurance company, or a com8 pany formed for the purpose of controlling such

9 insurance company, for a period of not more

10 than 3 years beginning on the date of the con11 version of such company from mutual to stock

12 form.

13 (3) PRESERVATION OF STATE ANTITRUST AND

14 GENERAL CORPORATE LAWS.—

15 (A) IN GENERAL.—Nothing in paragraph

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

17 regulations, orders, interpretations, or other ac18 tions of general applicability relating to the gov19 ernance of corporations, partnerships, limited li20 ability companies or other business associations

21 incorporated or formed under the laws of that

22 State or domiciled in that State, or the applica23 bility of the antitrust laws of any State or any

24 State law that is similar to the antitrust laws.
41

•S 753 IS

1 (B) DEFINITION.—For purposes of this

2 paragraph, the term ‘‘antitrust laws’’ has the

3 same meaning as in subsection (a) of the first

4 section of the Clayton Act, and includes section

5 5 of the Federal Trade Commission Act to the

6 extent that such section 5 relates to unfair

7 methods of competition.

8 (b) ACTIVITIES.—

9 (1) IN GENERAL.—Except as provided in para10 graph (3), and except with respect to insurance

11 sales, solicitation, and cross marketing activities,

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

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

14 other action, prevent or restrict an insured deposi15 tory institution, wholesale financial institution, or

16 subsidiary or affiliate thereof from engaging directly

17 or indirectly, either by itself or in conjunction with

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

19 in any activity authorized or permitted under this

20 Act.

21 (2) INSURANCE SALES.—

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

23 legal standards for preemption set forth in the

24 decision of the Supreme Court of the United

25 States in Barnett Bank of Marion County N.A.
42

•S 753 IS

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

2 may, by statute, regulation, order, interpreta3 tion, or other action, prevent or significantly

4 interfere with the ability of an insured deposi5 tory institution or wholesale financial institu6 tion, or a subsidiary or affiliate thereof, to en7 gage, directly or indirectly, either by itself or in

8 conjunction with a subsidiary, affiliate, or any

9 other party, in any insurance sales, solicitation,

10 or cross-marketing activity.

11 (B) CERTAIN STATE LAWS PRESERVED.—

12 Notwithstanding subparagraph (A), a State

13 may impose any of the following restrictions, or

14 restrictions which are substantially the same as,

15 but no more burdensome or restrictive than,

16 those in each of the following clauses:

17 (i) Restrictions prohibiting the rejec18 tion of an insurance policy solely because

19 the policy has been issued or underwritten

20 by any person who is not associated with

21 such insured depository institution or

22 wholesale financial institution, or any sub23 sidiary or affiliate thereof, when such in24 surance is required in connection with a

25 loan or extension of credit.
43

•S 753 IS

1 (ii) Restrictions prohibiting a require2 ment for any debtor, insurer, or insurance

3 agent or broker to pay a separate charge

4 in connection with the handling of insur5 ance that is required in connection with a

6 loan or other extension of credit or the

7 provision of another traditional banking

8 product, unless such charge would be re9 quired when the insured depository institu10 tion or wholesale financial institution, or

11 any subsidiary or affiliate thereof, is the li12 censed insurance agent or broker providing

13 the insurance.

14 (iii) Restrictions prohibiting the use of

15 any advertisement or other insurance pro16 motional material by an insured depository

17 institution or wholesale financial institu18 tion, or any subsidiary or affiliate thereof,

19 that would cause a reasonable person to

20 believe mistakenly that—

21 (I) a State or the Federal Gov22 ernment is responsible for the insur23 ance sales activities of, or stands be24 hind the credit of, the institution, af25 filiate, or subsidiary; or
44

•S 753 IS

1 (II) a State, or the Federal Gov2 ernment guarantees any returns on

3 insurance products, or is a source of

4 payment on any insurance obligation

5 of or sold by the institution, affiliate,

6 or subsidiary.

7 (iv) Restrictions prohibiting the pay8 ment or receipt of any commission or bro9 kerage fee or other valuable consideration

10 for services as an insurance agent or

11 broker to or by any person, unless such

12 person holds a valid State license regard13 ing the applicable class of insurance at the

14 time at which the services are performed,

15 except that, in this clause, the term ‘‘serv16 ices as an insurance agent or broker’’ does

17 not include a referral by an unlicensed per18 son of a customer or potential customer to

19 a licensed insurance agent or broker that

20 does not include a discussion of specific in21 surance policy terms and conditions.

22 (v) Restrictions prohibiting any com23 pensation paid to or received by any indi24 vidual who is not licensed to sell insurance,

25 for the referral of a customer that seeks to
45

•S 753 IS

1 purchase, or seeks an opinion or advice on,

2 any insurance product to a person that

3 sells or provides opinions or advice on such

4 product, based on the purchase of insur5 ance by the customer.

6 (vi) Restrictions prohibiting the re7 lease of the insurance information of a cus8 tomer (defined as information concerning

9 the premiums, terms, and conditions of in10 surance coverage, including expiration

11 dates and rates, and insurance claims of a

12 customer contained in the records of the

13 insured depository institution or wholesale

14 financial institution, or a subsidiary or af15 filiate thereof) to any person or entity

16 other than an officer, director, employee,

17 agent, subsidiary, or affiliate of an insured

18 depository institution or a wholesale finan19 cial institution, for the purpose of soliciting

20 or selling insurance, without the express

21 consent of the customer, other than a pro22 vision that prohibits—

23 (I) a transfer of insurance infor24 mation to an unaffiliated insurance

25 company, agent, or broker in connec-
46

•S 753 IS

1 tion with transferring insurance in

2 force on existing insureds of the in3 sured depository institution or whole4 sale financial institution, or subsidiary

5 or affiliate thereof, or in connection

6 with a merger with or acquisition of

7 an unaffiliated insurance company,

8 agent, or broker; or

9 (II) the release of information as

10 otherwise authorized by State or Fed11 eral law.

12 (vii) Restrictions prohibiting the use

13 of health information obtained from the in14 surance records of a customer for any pur15 pose, other than for its activities as a li16 censed agent or broker, without the ex17 press consent of the customer.

18 (viii) Restrictions prohibiting the ex19 tension of credit or any product or service

20 that is equivalent to an extension of credit,

21 lease or sale of property of any kind, or

22 furnishing of any services, or fixing or

23 varying the consideration for any of the

24 foregoing, on the condition or requirement

25 that the customer obtain insurance from
47

•S 753 IS

1 the insured depository institution, whole2 sale financial institution, a subsidiary or

3 affiliate thereof, or a particular insurer,

4 agent, or broker, other than a prohibition

5 that would prevent any insured depository

6 institution or wholesale financial institu7 tion, or any subsidiary or affiliate

8 thereof—

9 (I) from engaging in any activity

10 that would not violate section 106 of

11 the Bank Holding Company Act

12 Amendments of 1970, as interpreted

13 by the Board of Governors of the Fed14 eral Reserve System; or

15 (II) from informing a customer

16 or prospective customer that insur17 ance is required in order to obtain a

18 loan or credit, that loan or credit ap19 proval is contingent upon the procure20 ment by the customer of acceptable

21 insurance, or that insurance is avail22 able from the insured depository insti23 tution or wholesale financial institu24 tion, or any subsidiary or affiliate

25 thereof.
48

•S 753 IS

1 (ix) Restrictions requiring, when an

2 application by a consumer for a loan or

3 other extension of credit from an insured

4 depository institution or wholesale financial

5 institution is pending, and insurance is of6 fered or sold to the consumer or is re7 quired in connection with the loan or ex8 tension of credit by the insured depository

9 institution or wholesale financial institu10 tion, or any subsidiary or affiliate thereof,

11 that a written disclosure be provided to the

12 consumer (or prospective customer) indi13 cating that his or her choice of an insur14 ance provider will not affect the credit de15 cision or credit terms in any way, except

16 that the insured depository institution or

17 wholesale financial institution may impose

18 reasonable requirements concerning the

19 creditworthiness of the insurance provider

20 and scope of coverage chosen.

21 (x) Restrictions requiring clear and

22 conspicuous disclosure, in writing, where

23 practicable, to the customer prior to the

24 sale of any insurance policy that such

25 policy—
49

•S 753 IS

1 (I) is not a deposit;

2 (II) is not insured by the Federal

3 Deposit Insurance Corporation;

4 (III) is not guaranteed by the in5 sured depository institution or whole6 sale financial institution or, if appro7 priate, its subsidiaries or affiliates or

8 any person soliciting the purchase of

9 or selling insurance on the premises

10 thereof; and

11 (IV) where appropriate, involves

12 investment risk, including potential

13 loss of principal.

14 (xi) Restrictions requiring that, when

15 a customer obtains insurance (other than

16 credit insurance or flood insurance) and

17 credit from an insured depository institu18 tion or wholesale financial institution, or

19 its subsidiaries or affiliates, or any person

20 soliciting the purchase of or selling insur21 ance on the premises thereof, the credit

22 and insurance transactions be completed

23 through separate documents.

24 (xii) Restrictions prohibiting, when a

25 customer obtains insurance (other than
50

•S 753 IS

1 credit insurance or flood insurance) and

2 credit from an insured depository institu3 tion or wholesale financial institution or its

4 subsidiaries or affiliates, or any person so5 liciting the purchase of or selling insurance

6 on the premises thereof, inclusion of the

7 expense of insurance premiums in the pri8 mary credit transaction without the ex9 press written consent of the customer.

10 (xiii) Restrictions requiring mainte11 nance of separate and distinct books and

12 records relating to insurance transactions,

13 including all files relating to and reflecting

14 consumer complaints, and requiring that

15 such insurance books and records be made

16 available to the appropriate State insur17 ance regulator for inspection upon reason18 able notice.

19 (C) LIMITATIONS.—

20 (i) OCC DEFERENCE.—Section 306(e)

21 does not apply with respect to any State

22 statute, regulation, order, interpretation,

23 or other action regarding insurance sales,

24 solicitation, or cross marketing activities

25 described in subparagraph (A) that was
51

•S 753 IS

1 issued, adopted, or enacted before March

2 4, 1999, and that is not described in sub3 paragraph (B).

4 (ii) NONDISCRIMINATION.—Subsection

5 (c) does not apply with respect to any

6 State statute, regulation, order, interpreta7 tion, or other action regarding insurance

8 sales, solicitation, or cross marketing ac9 tivities described in subparagraph (A) that

10 was issued, adopted, or enacted before

11 March 4, 1999, and that is not described

12 in subparagraph (B).

13 (iii) CONSTRUCTION.—Nothing in this

14 paragraph shall be construed to limit the

15 applicability of the decision of the Supreme

16 Court in Barnett Bank of Marion County

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

18 with respect to a State statute, regulation,

19 order, interpretation, or other action that

20 is not described in subparagraph (B).

21 (iv) LIMITATION ON INFERENCES.—

22 Nothing in this paragraph shall be con23 strued to create any inference with respect

24 to any State statute, regulation, order, in-
52

•S 753 IS

1 terpretation, or other action that is not re2 ferred to or described in this paragraph.

3 (3) INSURANCE ACTIVITIES OTHER THAN

4 SALES.—State statutes, regulations, interpretations,

5 orders, and other actions shall not be preempted

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

7 (A) relate to, or are issued, adopted, or en8 acted for the purpose of regulating the business

9 of insurance in accordance with the Act of

10 March 9, 1945 (commonly known as the

11 ‘‘McCarran-Ferguson Act’’);

12 (B) apply only to persons or entities that

13 are not insured depository institutions or whole14 sale financial institutions, but that are directly

15 engaged in the business of insurance (except

16 that they may apply to depository institutions

17 engaged in providing savings bank life insur18 ance as principal to the extent of regulating

19 such insurance);

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

21 regulate insurance sales, solicitations, or cross22 marketing activities; and

23 (D) are not prohibited under subsection

24 (c).
53

•S 753 IS

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

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

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

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

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

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

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

14 or cross marketing activities, covered under

15 paragraph (3);

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

18 subsection (d); and

19 (D) it—

20 (i) does not distinguish by its terms

21 between insured depository institutions,

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

24 the activity at issue and other persons or

25 entities engaged in the same activity in a
54

•S 753 IS

1 manner that is in any way adverse with re2 spect to the conduct of the activity by any

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

5 affiliate thereof engaged in the activity at

6 issue;

7 (ii) as interpreted or applied, does not

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

11 thereof engaged in the activity at issue, or

12 any person or entity affiliated therewith,

13 that is substantially more adverse than its

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

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

23 from engaging in activities authorized or

24 permitted by this Act or any other provi25 sion of Federal law; and
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•S 753 IS

1 (iv) does not conflict with the intent

2 of this Act generally to permit affiliations

3 that are authorized or permitted by Fed4 eral law.

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

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

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

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

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

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

13 or other action—

14 (1) distinguishes by its terms between insured

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

17 persons or entities engaged in such activities, in a

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

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

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

24 thereof, that is substantially more adverse than its

25 impact on other persons or entities providing the
56

•S 753 IS

1 same products or services or engaged in the same

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

4 or affiliates thereof, or persons or entities affiliated

5 therewith;

6 (3) effectively prevents a depository institution

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

9 authorized or permitted by this Act or any other

10 provision of Federal law; or

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

13 permitted by Federal law between insured depository

14 institutions or wholesale financial institutions, or

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

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

18 be construed to affect the jurisdiction of the securities

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

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

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

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

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

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

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

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

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

11 follows:

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

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

15 comparable to those applicable to any other bank

16 holding company.’’.

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

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

20 Interstate Banking and Branching Efficiency Act of 1994

21 (12 U.S.C. 1835a(d)) is amended—

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

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

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

25 this title’’.
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•S 753 IS

1 (b) TECHNICAL AND CONFORMING AMENDMENT.—

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

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

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

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

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

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

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

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

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

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

15 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE

16 BANKS.

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

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

19 (1) in paragraph (2)(A)(ii)—

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

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

23 at the end of subclause (X); and

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

25 following new subclause:
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•S 753 IS

1 ‘‘(XI) assets that are derived

2 from, or incidental to, consumer lend3 ing activities in which institutions de4 scribed in section 2(c)(2)(F) or sec5 tion 2(c)(2)(H) are permitted to en6 gage;’’;

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

8 (B) and inserting the following new subparagraphs:

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

10 engages in any activity in which the bank was

11 not lawfully engaged as of March 5, 1987, un12 less the bank is well managed and well capital13 ized;

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

15 both—

16 ‘‘(i) accepts demand deposits or de17 posits that the depositor may withdraw by

18 check or similar means for payment to

19 third parties; and

20 ‘‘(ii) engages in the business of mak21 ing commercial loans (and, for purposes of

22 this clause, loans made in the ordinary

23 course of a credit card operation shall not

24 be treated as commercial loans); or
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•S 753 IS

1 ‘‘(D) after the date of 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 ac6 count at a Federal reserve bank, on behalf of

7 an affiliate, other than an overdraft described

8 in paragraph (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

13 described 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

23 New York; and

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

25 the Board, by bonds, notes, or other obli-
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•S 753 IS

1 gations 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 permitted or incurred by or on

9 behalf of an affiliate that is engaged pre10 dominantly in activities that are financial

11 in nature, and is incurred solely in connec12 tion with an activity that is financial in na13 ture, as determined under section 6(c); and

14 ‘‘(ii) does not cause the bank to vio15 late any provision of section 23A or 23B of

16 the Federal Reserve Act, either directly, in

17 the case of a bank that is a member of the

18 Federal Reserve System, or by virtue of

19 section 18(j) of the Federal Deposit Insur20 ance Act, in the case of a bank that is not

21 a member of the Federal Reserve System.

22 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EX23 EMPTION.—If any company described in paragraph

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

25 such paragraph by operation of paragraph (2), such
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•S 753 IS

1 exemption shall cease to apply to such company and

2 such company shall divest control of each bank it

3 controls before the end of the 180-day period begin4 ning on the date that the company receives notice

5 from the Board that the company has failed to con6 tinue to qualify for such exemption, unless before

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

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

9 activity that caused the company to fail to con10 tinue to qualify for the exemption; and

11 ‘‘(B) implemented procedures that are rea12 sonably adapted to avoid the reoccurrence of

13 such condition or activity.’’.

14 (b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER15 DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com16 pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended

17 by inserting before the period at the end ‘‘, or that is oth18 erwise permissible for a bank controlled by a company de19 scribed in section 4(f)(1)’’.

20 SEC. 109. REPORTS ON ONGOING FTC STUDY OF CON21 SUMER PRIVACY ISSUES.

22 With respect to the ongoing multistage study being

23 conducted by the Federal Trade Commission on consumer

24 privacy issues, the Commission shall submit to the Con25 gress an interim report on the findings and conclusions
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•S 753 IS

1 of the Commission, together with such recommendations

2 for legislative and administrative action as the Commis3 sion determines to be appropriate, at the conclusion of

4 each stage of such study and a final report at the conclu5 sion of the study.

6 SEC. 110. GAO STUDY OF ECONOMIC IMPACT ON COMMU7 NITY BANKS AND OTHER SMALL FINANCIAL

8 INSTITUTIONS.

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

10 the United States shall conduct a study of the projected

11 economic impact that the enactment of this Act will have

12 on financial institutions which have total assets of

13 $100,000,000 or less.

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

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

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

17 on the date of the date of enactment of this Act containing

18 the findings and conclusions of the Comptroller General

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

20 such recommendations for legislative or administrative ac21 tion as the Comptroller General may determine to be ap22 propriate.
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1 Subtitle B—Streamlining Super2 vision of Financial Holding

3 Companies

4 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY

5 SUPERVISION.

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

7 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

8 ‘‘(c) REPORTS AND EXAMINATIONS.—

9 ‘‘(1) REPORTS.—

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

11 to time may require any bank holding company

12 and any subsidiary of such company to submit

13 reports under oath to keep the Board informed

14 as to—

15 ‘‘(i) its financial condition, systems

16 for monitoring and controlling financial

17 and operating risks, and transactions with

18 depository institution subsidiaries of the

19 holding company; and

20 ‘‘(ii) compliance by the company or

21 subsidiary with applicable provisions of

22 this Act.

23 ‘‘(B) USE OF EXISTING REPORTS.—

24 ‘‘(i) IN GENERAL.—The Board shall,

25 to the fullest extent possible, accept re-
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•S 753 IS

1 ports in fulfillment of the Board’s report2 ing requirements under this paragraph

3 that a bank holding company or any sub4 sidiary of such company has provided or

5 been required to provide to other Federal

6 and State supervisors or to appropriate

7 self-regulatory organizations.

8 ‘‘(ii) AVAILABILITY.—A bank holding

9 company or a subsidiary of such company

10 shall provide to the Board, at the request

11 of the Board, a report referred to in clause

12 (i).

13 ‘‘(iii) REQUIRED USE OF PUBLICLY

14 REPORTED INFORMATION.—The Board

15 shall, to the fullest extent possible, accept

16 in fulfillment of any reporting or record17 keeping requirements under this Act infor18 mation that is otherwise required to be re19 ported publicly and externally audited fi20 nancial statements.

21 ‘‘(iv) REPORTS FILED WITH OTHER

22 AGENCIES.—In the event the Board re23 quires a report from a functionally regu24 lated nondepository institution subsidiary

25 of a bank holding company of a kind that
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•S 753 IS

1 is not required by another Federal or State

2 regulator or appropriate self-regulatory or3 ganization, the Board shall request that

4 the appropriate regulator or self-regulatory

5 organization obtain such report. If the re6 port is not made available to the Board,

7 and the report is necessary to assess a ma8 terial risk to the bank holding company or

9 any of its subsidiary depository institutions

10 or compliance with this Act, the Board

11 may require such subsidiary to provide

12 such a report to the Board.

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

14 subsection, the term ‘functionally regulated

15 nondepository institution’ means—

16 ‘‘(i) a broker or dealer registered

17 under the Securities Exchange Act of

18 1934;

19 ‘‘(ii) an investment adviser registered

20 under the Investment Advisers Act of

21 1940, or with any State, with respect to

22 the investment advisory activities of such

23 investment adviser and activities incidental

24 to such investment advisory activities;
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•S 753 IS

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

5 by the Commodity Futures Trading Com6 mission, with respect to the commodities

7 activities of such entity and activities inci8 dental 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

16 NONDEPOSITORY INSTITUTION SUBSIDI17 ARIES.—Notwithstanding clause (i), the

18 Board may make examinations of a func19 tionally regulated nondepository institution

20 subsidiary of a bank holding company only

21 if—

22 ‘‘(I) the Board has reasonable

23 cause to believe that such subsidiary

24 is engaged in activities that pose a
68

•S 753 IS

1 material risk to an affiliated deposi2 tory institution, or

3 ‘‘(II) based on reports and other

4 available information, the Board has

5 reasonable cause to believe that a sub6 sidiary is not in compliance with this

7 Act or with provisions relating to

8 transactions with an affiliated deposi9 tory institution and the Board cannot

10 make such determination through ex11 amination of the affiliated depository

12 institution or bank holding company.

13 ‘‘(B) LIMITATIONS ON EXAMINATION AU14 THORITY FOR BANK HOLDING COMPANIES AND

15 SUBSIDIARIES.—Subject to subparagraph

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

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

18 company and each subsidiary of such holding

19 company in order to—

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

21 the operations and financial condition of

22 the holding company and such subsidiaries;

23 ‘‘(ii) inform the Board of—

24 ‘‘(I) the financial and operational

25 risks within the holding company sys-
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•S 753 IS

1 tem that may pose a threat to the

2 safety and soundness of any sub3 sidiary depository institution of such

4 holding company; and

5 ‘‘(II) the systems for monitoring

6 and controlling such risks; and

7 ‘‘(iii) monitor compliance with the

8 provisions of this Act and those governing

9 transactions and relationships between any

10 subsidiary depository institution and its af11 filiates.

12 ‘‘(C) RESTRICTED FOCUS OF EXAMINA13 TIONS.—The Board shall, to the fullest extent

14 possible, limit the focus and scope of any exam15 ination of a bank holding company to—

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

17 ‘‘(ii) any subsidiary of the holding

18 company that, because of—

19 ‘‘(I) the size, condition, or activi20 ties of the subsidiary;

21 ‘‘(II) the nature or size of trans22 actions between such subsidiary and

23 any depository institution which is

24 also a subsidiary of such holding com25 pany; or
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•S 753 IS

1 ‘‘(III) the centralization of func2 tions within the holding company sys3 tem,

4 could have a materially adverse effect on

5 the safety and soundness of any depository

6 institution affiliate of the holding company.

7 ‘‘(D) DEFERENCE TO BANK EXAMINA8 TIONS.—The Board shall, to the fullest extent

9 possible, use, for the purposes of this para10 graph, the reports of examinations of depository

11 institutions made by the appropriate Federal

12 and State depository institution supervisory au13 thority.

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

16 possible, address the circumstances which might

17 otherwise permit or require an examination by

18 the Board by forgoing an examination and in19 stead reviewing the reports of examination

20 made of—

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

22 or on behalf of the Securities and Ex23 change Commission;

24 ‘‘(ii) any registered investment adviser

25 properly registered by or on behalf of ei-
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•S 753 IS

1 ther the Securities and Exchange Commis2 sion or any State;

3 ‘‘(iii) any licensed insurance company

4 by or on behalf of any state regulatory au5 thority responsible for the supervision of

6 insurance companies; and

7 ‘‘(iv) any other subsidiary that the

8 Board finds to be comprehensively super9 vised by a Federal or State authority.

10 ‘‘(3) CAPITAL.—

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

12 by regulation, guideline, order or otherwise, pre13 scribe or impose any capital or capital adequacy

14 rules, guidelines, standards, or requirements on

15 any subsidiary of a financial holding company

16 that is not a depository institution and—

17 ‘‘(i) is in compliance with applicable

18 capital requirements of another Federal

19 regulatory authority (including the Securi20 ties and Exchange Commission) or State

21 insurance authority; or

22 ‘‘(ii) is properly registered as an in23 vestment adviser under the Investment Ad24 visers Act of 1940, or with any State.
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•S 753 IS

1 ‘‘(B) RULE OF CONSTRUCTION.—Subpara2 graph (A) shall not be construed as preventing

3 the Board from imposing capital or capital ade4 quacy rules, guidelines, standards, or require5 ments with respect to activities of a registered

6 investment adviser other than investment advi7 sory activities or activities incidental to invest8 ment advisory activities.

9 ‘‘(C) LIMITATIONS ON INDIRECT AC10 TION.—In developing, establishing, or assessing

11 holding company capital or capital adequacy

12 rules, guidelines, standards, or requirements for

13 purposes of this paragraph, the Board shall not

14 take into account the activities, operations, or

15 investments of an affiliated investment company

16 registered under the Investment Company Act

17 of 1940, if the investment company is not—

18 ‘‘(i) a bank holding company; or

19 ‘‘(ii) controlled by a bank holding

20 company by reason of ownership by the

21 bank holding company (including through

22 all of its affiliates) of 25 percent or more

23 of the shares of the investment company,

24 where the shares owned by the bank hold-
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•S 753 IS

1 ing company have a market value equal to

2 more than $1,000,000.

3 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP4 PROPRIATE FEDERAL BANKING AGENCY.—

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

6 bank holding company which is not significantly

7 engaged in nonbanking activities, the Board, in

8 consultation with the appropriate Federal bank9 ing agency, may designate the appropriate Fed10 eral banking agency of the lead insured deposi11 tory institution subsidiary of such holding com12 pany as the appropriate Federal banking agen13 cy for the bank holding company.

14 ‘‘(B) AUTHORITY TRANSFERRED.—An

15 agency designated by the Board under subpara16 graph (A) shall have the same authority as the

17 Board under this Act to—

18 ‘‘(i) examine and require reports from

19 the bank holding company and any affiliate

20 of such company (other than a depository

21 institution) under section 5;

22 ‘‘(ii) approve or disapprove applica23 tions or transactions under section 3;
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•S 753 IS

1 ‘‘(iii) take actions and impose pen2 alties under subsections (e) and (f) of sec3 tion 5 and section 8; and

4 ‘‘(iv) take actions regarding the hold5 ing company, any affiliate of the holding

6 company (other than a depository institu7 tion), or any institution-affiliated party of

8 such company or affiliate under the Fed9 eral Deposit Insurance Act and any other

10 statute which the Board may designate.

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

12 Act and section 105 of the Bank Holding Com13 pany Act Amendments of 1970, shall apply to

14 orders issued by an agency designated under

15 subparagraph (A) in the same manner such sec16 tions apply to orders issued by the Board.

17 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

18 AND INSURANCE ACTIVITIES.—The Board shall defer

19 to—

20 ‘‘(A) the Securities and Exchange Commis21 sion with regard to all interpretations of, and

22 the enforcement of, applicable Federal securi23 ties laws (and rules, regulations, orders, and

24 other directives issued thereunder) relating to

25 the activities, conduct, and operations of reg-
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•S 753 IS

1 istered brokers, dealers, investment advisers,

2 and investment companies;

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

5 the enforcement of, applicable State securities

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

7 directives issued thereunder) relating to the ac8 tivities, conduct, and operations of registered

9 brokers, dealers, and investment advisers; and

10 ‘‘(C) the relevant State insurance authori11 ties with regard to all interpretations of, and

12 the enforcement of, applicable State insurance

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

14 directives issued thereunder) relating to the ac15 tivities, conduct, and operations of insurance

16 companies and insurance agents.’’.

17 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT

18 FOR FINANCIAL HOLDING COMPANIES.

19 (a) PREVENTION OF DUPLICATIVE FILINGS.—Sec20 tion 5(a) of the Bank Holding Company Act of 1956 (12

21 U.S.C. 1844(a)) is amended by adding the following new

22 sentence at the end: ‘‘A declaration filed in accordance

23 with section 6(b)(1)(D) shall satisfy the requirements of

24 this subsection with regard to the registration of a bank
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•S 753 IS

1 holding company but not any requirement to file an appli2 cation to acquire a bank pursuant to section 3.’’.

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

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

5 1844(e)(1)) is amended—

6 (1) by striking ‘‘Financial Institutions Super7 visory Act of 1966, order’’ and inserting ‘‘Financial

8 Institutions Supervisory Act of 1966, at the election

9 of the bank holding company—

10 ‘‘(A) order’’; and

11 (2) by striking ‘‘shareholders of the bank hold12 ing company. Such distribution’’ and inserting

13 ‘‘shareholders of the bank holding company; or

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

15 notice and opportunity for hearing, and after con16 sultation with the primary supervisor for the bank,

17 which shall be the Comptroller of the Currency in

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

19 Insurance Corporation and the appropriate State su20 pervisor in the case of an insured nonmember bank,

21 to terminate (within 120 days or such longer period

22 as the Board may direct) the ownership or control

23 of any such bank by such company.

24 ‘‘The distribution referred to in subparagraph (A)’’.
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•S 753 IS

1 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR

2 AND SECURITIES AND EXCHANGE COMMIS3 SION.

4 Section 5 of the Bank Holding Company Act of 1956

5 (12 U.S.C. 1844) is amended by adding at the end the

6 following new subsection:

7 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

8 AND THE SECURITIES AND EXCHANGE COMMISSION.—

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

10 provision of law, any regulation, order, or other ac11 tion of the Board which requires a bank holding

12 company to provide funds or other assets to a sub13 sidiary insured depository institution shall not be ef14 fective nor enforceable if—

15 ‘‘(A) such funds or assets are to be pro16 vided by—

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

18 an insurance company or is a broker or

19 dealer registered under the Securities Ex20 change Act of 1934; or

21 ‘‘(ii) an affiliate of the depository in22 stitution which is an insurance company or

23 a broker or dealer registered under such

24 Act; and

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

26 insurance company or the Securities and Ex-
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•S 753 IS

1 change Commission for the registered broker or

2 dealer, as the case may be, determines in writ3 ing sent to the holding company and the Board

4 that the holding company shall not provide such

5 funds or assets because such action would have

6 a material adverse effect on the financial condi7 tion of the insurance company or the broker or

8 dealer, as the case may be.

9 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

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

11 holding company, or an affiliate of a bank holding

12 company, which is an insurance company or a

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

14 provide funds or assets to an insured depository in15 stitution subsidiary of the holding company pursuant

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

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

18 promptly notify the State insurance authority for the

19 insurance company or the Securities and Exchange

20 Commission, as the case may be, of such require21 ment.

22 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC23 TION.—If the Board receives a notice described in

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

25 or the Securities and Exchange Commission with re-
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•S 753 IS

1 gard to a bank holding company or affiliate referred

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

3 holding company to divest the insured depository in4 stitution not later than 180 days after receiving the

5 notice, or such longer period as the Board deter6 mines consistent with the safe and sound operation

7 of the insured depository institution.

8 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur9 ing the period beginning on the date an order to di10 vest is issued by the Board under paragraph (3) to

11 a bank holding company and ending on the date the

12 divestiture is completed, the Board may impose any

13 conditions or restrictions on the holding company’s

14 ownership or operation of the insured depository in15 stitution, including restricting or prohibiting trans16 actions between the insured depository institution

17 and any affiliate of the institution, as are appro18 priate under the circumstances.’’.

19 SEC. 114. PRUDENTIAL SAFEGUARDS.

20 Section 5 of the Bank Holding Company Act of 1956

21 (12 U.S.C. 1844) is amended by inserting after subsection

22 (g) (as added by section 113 of this subtitle) the following

23 new subsection:

24 ‘‘(h) PRUDENTIAL SAFEGUARDS.—
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1 ‘‘(1) IN GENERAL.—The Board and the appro2 priate Federal banking agency may, jointly, by regu3 lation or order, impose, modify, or eliminate restric4 tions or requirements on relationships or trans5 actions between a depository institution subsidiary of

6 a bank holding company and any affiliate of such

7 depository institution which the Board and the ap8 propriate Federal banking agency jointly find is con9 sistent with the public interest, the purposes of this

10 Act, the Financial Services Act of 1999, the Federal

11 Reserve Act, and other Federal law applicable to de12 pository institution subsidiaries of bank holding

13 companies and the standards in paragraph (2).

14 ‘‘(2) STANDARDS.—The Board and the appro15 priate Federal banking agency may exercise joint au16 thority under paragraph (1) if they find that such

17 action would—

18 ‘‘(A) avoid any significant risk to the safe19 ty and soundness of depository institutions or

20 any Federal deposit insurance fund;

21 ‘‘(B) enhance the financial stability of

22 bank holding companies;

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

24 abuses;
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•S 753 IS

1 ‘‘(D) enhance the privacy of customers of

2 depository institutions; or

3 ‘‘(E) promote the application of national

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

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

9 ‘‘(3) REVIEW.—The appropriate Federal bank10 ing agency shall regularly—

11 ‘‘(A) review all restrictions or requirements

12 established pursuant to paragraph (1) to deter13 mine whether there is a continuing need for any

14 such restriction or requirement to carry out the

15 purposes of the Act, including any purpose de16 scribed in paragraph (2); and

17 ‘‘(B) propose the modification or elimi18 nation of any restriction or requirement that it

19 finds is no longer required for such purposes.

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

21 regulation or order, impose restrictions or require22 ments on relationships or transactions between a

23 foreign bank and any affiliate in the United States

24 of such foreign bank that the Board finds are con25 sistent with the public interest, the purposes of this
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1 Act, the Financial Services Act of 1999, the Federal

2 Reserve Act, and other Federal law applicable to for3 eign banks and their affiliates in the United States,

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

5 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

6 (a) EXCLUSIVE COMMISSION AUTHORITY.—

7 (1) IN GENERAL.—Except as provided in para8 graph (3), the Commission shall be the sole Federal

9 agency with authority to inspect and examine any

10 registered investment company that is not a bank

11 holding company or a savings and loan holding com12 pany.

13 (2) PROHIBITION ON BANKING AGENCIES.—Ex14 cept as provided in paragraph (3), a Federal bank15 ing agency may not inspect or examine any reg16 istered investment company that is not a bank hold17 ing company or a savings and loan holding company.

18 (3) CERTAIN EXAMINATIONS AUTHORIZED.—

19 Nothing in this subsection prevents the Federal De20 posit Insurance Corporation, if the Corporation finds

21 it necessary to determine the condition of an insured

22 depository institution for insurance purposes, from

23 examining an affiliate of any insured depository in24 stitution, pursuant to its authority under section

25 10(b)(4) of the Federal Deposit Insurance Act, as
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1 may be necessary to disclose fully the relationship

2 between the depository institution and the affiliate,

3 and the effect of such relationship on the depository

4 institution.

5 (b) EXAMINATION RESULTS AND OTHER INFORMA6 TION.—The Commission shall provide to any Federal

7 banking agency, upon request, the results of any examina8 tion, reports, records, or other information with respect

9 to any registered investment company to the extent nec10 essary for the agency to carry out its statutory responsibil11 ities.

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

13 following definitions shall apply:

14 (1) BANK HOLDING COMPANY.—The term

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

16 in section 2 of the Bank Holding Company Act of

17 1956.

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

19 means the Securities and Exchange Commission.

20 (3) FEDERAL BANKING AGENCY.—The term

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

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

23 (4) REGISTERED INVESTMENT COMPANY.—The

24 term ‘‘registered investment company’’ means an in-
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1 vestment company which is registered with the Com2 mission under the Investment Company Act of 1940.

3 (5) SAVINGS AND LOAN HOLDING COMPANY.—

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

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

6 Home Owners’ Loan Act.

7 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU8 PERVISORY, AND ENFORCEMENT AUTHORITY

9 OF THE BOARD.

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

11 1841 et seq.) is amended by inserting after section 10 the

12 following new section:

13 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU14 PERVISORY, AND ENFORCEMENT AUTHORITY

15 OF THE BOARD.

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

17 ‘‘(1) IN GENERAL.—The Board may not pre18 scribe regulations, issue or seek entry of orders, im19 pose restraints, restrictions, guidelines, require20 ments, safeguards, or standards, or otherwise take

21 any action under or pursuant to any provision of

22 this Act or section 8 of the Federal Deposit Insur23 ance Act against or with respect to a regulated sub24 sidiary of a bank holding company unless the action

25 is necessary to prevent or redress an unsafe or un-
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1 sound practice or breach of fiduciary duty by such

2 subsidiary that poses a material risk to—

3 ‘‘(A) the financial safety, soundness, or

4 stability of an affiliated depository institution;

5 or

6 ‘‘(B) the domestic or international pay7 ment system.

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

9 Board shall not take action otherwise permitted

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

11 is not reasonably possible to effectively protect

12 against the material risk at issue through action di13 rected at or against the affiliated depository institu14 tion or against depository institutions generally.

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

16 may not prescribe regulations, issue or seek entry of or17 ders, impose restraints, restrictions, guidelines, require18 ments, safeguards, or standards, or otherwise take any ac19 tion under or pursuant to any provision of this Act or sec20 tion 8 of the Federal Deposit Insurance Act against or

21 with respect to a financial holding company or a wholesale

22 financial holding company where the purpose or effect of

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

24 respect to a regulated subsidiary that may not be taken
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1 directly against or with respect to such subsidiary in ac2 cordance with subsection (a).

3 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not4 withstanding subsection (a), the Board may take action

5 under this Act or section 8 of the Federal Deposit Insur6 ance Act to enforce compliance by a regulated subsidiary

7 with Federal law that the Board has specific jurisdiction

8 to enforce against such subsidiary.

9 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur10 poses of this section, the term ‘regulated subsidiary’

11 means any company that is not a bank holding company

12 and is—

13 ‘‘(1) a broker or dealer registered under the Se14 curities Exchange Act of 1934;

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

16 registered by or on behalf of either the Securities

17 and Exchange Commission or any State, with re18 spect to the investment advisory activities of such in19 vestment adviser and activities incidental to such in20 vestment advisory activities;

21 ‘‘(3) an investment company registered under

22 the Investment Company Act of 1940;

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

24 agency subject to supervision by a State insurance

25 commission, agency, or similar authority; or
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1 ‘‘(5) an entity subject to regulation by the Com2 modity Futures Trading Commission, with respect

3 to the commodities activities of such entity and ac4 tivities incidental to such commodities activities.’’.

5 SEC. 117. INTERAGENCY CONSULTATION.

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

7 the Board of Governors of the Federal Reserve System,

8 as the umbrella supervisor for financial holding compa9 nies, and the State insurance regulators, as the functional

10 regulators of companies engaged in insurance activities,

11 coordinate efforts to supervise companies that control both

12 a depository institution and a company engaged in insur13 ance activities regulated under State law. In particular,

14 Congress believes that the Board and the State insurance

15 regulators should share, on a confidential basis, informa16 tion relevant to the supervision of companies that control

17 both a depository institution and a company engaged in

18 insurance activities, including information regarding the

19 financial health of the consolidated organization and infor20 mation regarding transactions and relationships between

21 insurance companies and affiliated depository institutions.

22 The appropriate Federal banking agencies for depository

23 institutions should also share, on a confidential basis, in24 formation with the relevant State insurance regulators re25 garding transactions and relationships between depository
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•S 753 IS

1 institutions and affiliated companies engaged in insurance

2 activities. The purpose of this section is to encourage this

3 coordination and confidential sharing of information, and

4 to thereby improve both the efficiency and the quality of

5 the supervision of financial holding companies and their

6 affiliated depository institutions and companies engaged

7 in insurance activities.

8 (b) EXAMINATION RESULTS AND OTHER INFORMA9 TION.—

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

11 request of the appropriate insurance regulator of

12 any State, the Board may provide any information

13 of the Board regarding the financial condition, risk

14 management policies, and operations of any financial

15 holding company that controls a company that is en16 gaged in insurance activities and is regulated by

17 such State insurance regulator, and regarding any

18 transaction or relationship between such an insur19 ance company and any affiliated depository institu20 tion. The Board may provide any other information

21 to the appropriate State insurance regulator that the

22 Board believes is necessary or appropriate to permit

23 the State insurance regulator to administer and en24 force applicable State insurance laws.
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1 (2) BANKING AGENCY INFORMATION.—Upon

2 the request of the appropriate insurance regulator of

3 any State, the appropriate Federal banking agency

4 may provide any information of the agency regard5 ing any transaction or relationship between a deposi6 tory institution supervised by such Federal banking

7 agency and any affiliated company that is engaged

8 in insurance activities regulated by such State insur9 ance regulator. The appropriate Federal banking

10 agency may provide any other information to the ap11 propriate State insurance regulator that the agency

12 believes is necessary or appropriate to permit the

13 State insurance regulator to administer and enforce

14 applicable State insurance laws.

15 (3) STATE INSURANCE REGULATOR INFORMA16 TION.—Upon the request of the Board or the appro17 priate Federal banking agency, a State insurance

18 regulator may provide any examination or other re19 ports, records, or other information to which such

20 insurance regulator may have access with respect to

21 a company which—

22 (A) is engaged in insurance activities and

23 regulated by such insurance regulator; and
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1 (B) is an affiliate of an insured depository

2 institution, wholesale financial institution, or fi3 nancial holding company.

4 (c) CONSULTATION.—Before making any determina5 tion relating to the initial affiliation of, or the continuing

6 affiliation of, an insured depository institution, wholesale

7 financial institution, or financial holding company with a

8 company engaged in insurance activities, the appropriate

9 Federal banking agency shall consult with the appropriate

10 State insurance regulator of such company and take the

11 views of such insurance regulator into account in making

12 such determination.

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

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

15 appropriate Federal banking agency with respect to an in16 sured depository institution, wholesale financial institu17 tion, or bank holding company or any affiliate thereof

18 under any provision of law.

19 (e) CONFIDENTIALITY AND PRIVILEGE.—

20 (1) CONFIDENTIALITY.—The appropriate Fed21 eral banking agency shall not provide any informa22 tion or material that is entitled to confidential treat23 ment under applicable Federal banking agency regu24 lations, or other applicable law, to a State insurance

25 regulator unless such regulator agrees to maintain
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1 the information or material in confidence and to

2 take all reasonable steps to oppose any effort to se3 cure disclosure of the information or material by the

4 regulator. The appropriate Federal banking agency

5 shall treat as confidential any information or mate6 rial obtained from a State insurance regulator that

7 is entitled to confidential treatment under applicable

8 State regulations, or other applicable law, and take

9 all reasonable steps to oppose any effort to secure

10 disclosure of the information or material by the Fed11 eral banking agency.

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

13 section of information or material by a Federal

14 banking agency or State insurance regulator shall

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

16 privilege to which the information or material is oth17 erwise subject.

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

19 following definitions shall apply:

20 (1) APPROPRIATE FEDERAL BANKING AGENCY;

21 INSURED DEPOSITORY INSTITUTION.—The terms

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

23 depository institution’’ have the same meanings as

24 in section 3 of the Federal Deposit Insurance Act.
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1 (2) BOARD; FINANCIAL HOLDING COMPANY;

2 AND WHOLESALE FINANCIAL INSTITUTION.—The

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

4 ‘‘wholesale financial institution’’ have the same

5 meanings as in section 2 of the Bank Holding Com6 pany Act of 1956.

7 SEC. 118. EQUIVALENT REGULATION AND SUPERVISION.

8 (a) IN GENERAL.—Notwithstanding any other provi9 sion of law, the provisions of—

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

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

12 authority of the Board of Governors of the Federal

13 Reserve System to require reports from, to make ex14 aminations of, or to impose capital requirements on

15 bank holding companies and their nonbank subsidi16 aries; and

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

18 Act of 1956 (as added by this Act) that limit what19 ever authority the Board might otherwise have to

20 take direct or indirect action with respect to bank

21 holding companies and their nonbank subsidiaries,

22 shall also limit whatever authority that the Federal De23 posit Insurance Corporation might otherwise have under

24 any statute to require reports, make examinations, impose

25 capital requirements or take any other direct or indirect
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1 action with respect to bank holding companies and their

2 nonbank subsidiaries (including nonbank subsidiaries of

3 depository institutions), subject to the same standards and

4 requirements as are applicable to the Board under such

5 provisions.

6 (b) CERTAIN EXAMINATIONS AUTHORIZED.—Noth7 ing in this section shall prevent the Federal Deposit Insur8 ance Corporation, if the Corporation finds it necessary to

9 determine the condition of an insured depository institu10 tion for insurance purposes, from examining an affiliate

11 of any insured depository institution, pursuant to its au12 thority under section 10(b)(4) of the Federal Deposit In13 surance Act, as may be necessary to disclose fully the rela14 tionship between the depository institution and the affil15 iate, and the effect of such relationship on the depository

16 institution.

17 SEC. 119. PROHIBITION ON FDIC ASSISTANCE TO AFFILI18 ATES AND SUBSIDIARIES.

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

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

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

22 shareholder, affiliate (other than an insured depository in23 stitution that receives assistance in accordance with the

24 provisions of this Act), or subsidiary of’’.
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1 Subtitle C—Subsidiaries of

2 National Banks

3 SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED

4 TO ENGAGE IN FINANCIAL ACTIVITIES.

5 (a) FINANCIAL SUBSIDIARIES OF NATIONAL

6 BANKS.—Chapter one of title LXII of the Revised Stat7 utes of United States (12 U.S.C. 21 et seq.) is amended—

8 (1) by redesignating section 5136A (12 U.S.C.

9 25a) as section 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) ACTIVITIES PERMISSIBLE.—

14 ‘‘(1) IN GENERAL.—A subsidiary of a national

15 bank may—

16 ‘‘(A) engage in any activity that is permis17 sible for the parent national bank;

18 ‘‘(B) engage in any activity that is author19 ized under the Bank Service Company Act, sec20 tion 25 or 25A of the Federal Reserve Act, or

21 any other Federal statute that expressly author22 izes national banks to own or control subsidi23 aries; and

24 ‘‘(C) engage in any activity that is permis25 sible for a bank holding company under any
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1 provision of section 6(c) of the Bank Holding

2 Company Act of 1956, other than—

3 ‘‘(i) paragraph (3)(B) of that section

4 (relating to insurance activities), insofar as

5 that paragraph (3)(B) permits a bank

6 holding company to engage as principal in

7 insuring, guaranteeing, or indemnifying

8 against loss, harm, damage, illness, dis9 ability, or death, or in providing or issuing

10 annuities; and

11 ‘‘(ii) paragraph (3)(I) of that section

12 (relating to insurance company invest13 ments).

14 ‘‘(2) ACTIVITY LIMITATIONS.—In addition to

15 any other limitation imposed on the activity of sub16 sidiaries of national banks, a subsidiary of a na17 tional bank may not, pursuant to paragraph (1)—

18 ‘‘(A) engage as principal in insuring, guar19 anteeing, or indemnifying against loss, harm,

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

21 in connection with credit-related insurance) or

22 in providing or issuing annuities; or

23 ‘‘(B) engage in real estate investment or

24 development activities,
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1 (except to the extent that a Federal statute ex2 pressly authorizes a national bank to engage directly

3 in such an activity).

4 ‘‘(3) SIZE FACTOR WITH REGARD TO FREE5 STANDING NATIONAL BANKS.—A national bank

6 which has total assets of $10,000,000,000 or more

7 may not control a subsidiary engaged in activities

8 pursuant to paragraph (1) or (2) unless such na9 tional bank is a subsidiary of a bank holding com10 pany.

11 ‘‘(b) REQUIREMENTS APPLICABLE TO NATIONAL

12 BANKS WITH FINANCIAL SUBSIDIARIES.—

13 ‘‘(1) IN GENERAL.—A financial subsidiary of a

14 national bank may engage in activities pursuant to

15 subsection (a)(1)(C) only if—

16 ‘‘(A) the national bank is well capitalized,

17 is well managed, and achieved the rating de18 scribed in section 6(b)(1)(C) of the Bank Hold19 ing Company Act of 1956, during the most re20 cent examination of the bank by the Comp21 troller of the Currency;

22 ‘‘(B) each insured depository institution

23 affiliate of the national bank is well capitalized,

24 is well managed, and achieved the rating de25 scribed in section 6(b)(1)(C) of the Bank Hold-
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1 ing Company Act of 1956, during the most re2 cent examination of the institution by the ap3 propriate Federal banking agency;

4 ‘‘(C) the national bank and each of the

5 subsidiary depository institutions of the same

6 bank holding company have achieved a rating of

7 ‘satisfactory record of meeting community cred8 it needs’, or better, at the most recent examina9 tion of each such institution under the Commu10 nity Reinvestment Act of 1977; and

11 ‘‘(D) the national bank has received the

12 approval of the Comptroller of the Currency by

13 regulation or order.

14 ‘‘(2) CORRECTIVE PROCEDURE.—

15 ‘‘(A) IN GENERAL.—If a national bank

16 that controls a financial subsidiary, or any in17 sured depository institution affiliated with such

18 national bank, fails to meet the requirements of

19 paragraph (1), the Comptroller shall give writ20 ten notice to the national bank to that effect,

21 describing the conditions giving rise to the no22 tice.

23 ‘‘(B) AGREEMENT TO CORRECT CONDI24 TIONS REQUIRED.—
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1 ‘‘(i) CONTENT OF AGREEMENT.—Not

2 later than 45 days after the date on which

3 the national bank receives a notice under

4 subparagraph (A) (or such additional pe5 riod of time as the Comptroller may per6 mit), the national bank or its insured de7 pository institution affiliate failing to meet

8 the requirements of paragraph (1) shall

9 provide a plan to the appropriate Federal

10 banking agency for such institution to cor11 rect the conditions described in the notice.

12 ‘‘(ii) COMPTROLLER MAY IMPOSE LIM13 ITATIONS.—Until the conditions giving rise

14 to the notice referred to in clause (i) are

15 corrected, the Comptroller may (notwith16 standing any other provision of law) im17 pose such limitations on the conduct of the

18 business of the national bank or the finan19 cial subsidiary of the national bank as the

20 Comptroller determines to be appropriate

21 under the circumstances.

22 ‘‘(iii) CERTAIN FAILURES TO COM23 PLY.—A national bank shall not be re24 quired to divest any financial subsidiary

25 held, or terminate any activity conducted
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1 pursuant to, subsection (a) solely because

2 of a failure to comply with subsection

3 (b)(1)(D).

4 ‘‘(C) FAILURE TO CORRECT.—If the condi5 tions described in the notice under subpara6 graph (A) are not corrected before the end of

7 the 180-day period beginning on the date on

8 which the bank receives the notice, the Comp9 troller may (notwithstanding any other provi10 sion of law) require, under such terms and con11 ditions as the Comptroller may impose—

12 ‘‘(i) that the national bank divest con13 trol of each financial subsidiary engaged in

14 an activity that is not permissible for the

15 bank to engage in directly; or

16 ‘‘(ii) that each financial subsidiary of

17 the national bank cease any activity that is

18 not permissible for the bank to engage in

19 directly.

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

21 following definitions shall apply:

22 ‘‘(1) AFFILIATE.—The term ‘affiliate’ has the

23 same meaning in section 3 of the Federal Deposit

24 Insurance Act.
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1 ‘‘(2) FINANCIAL SUBSIDIARY.—The term ‘fi2 nancial subsidiary’ means a company that—

3 ‘‘(A) is a subsidiary of an insured bank;

4 and

5 ‘‘(B) is engaged in any financial activity

6 that is not otherwise permissible under sub7 paragraph (A) or (B) of subsection (a)(1) of

8 this section.

9 ‘‘(3) SUBSIDIARY.—The term ‘subsidiary’ has

10 the same meaning as in section 2 of the Bank Hold11 ing Company Act of 1956.

12 ‘‘(4) WELL CAPITALIZED.—The term ‘well cap13 italized’ has the same meaning as in section 38 of

14 the Federal Deposit Insurance Act. For purposes of

15 this section, the appropriate Federal banking agency

16 shall have exclusive jurisdiction to determine wheth17 er an insured depository institution is well capital18 ized.

19 ‘‘(5) WELL MANAGED.—The term ‘well man20 aged’ means—

21 ‘‘(A) in the case of an insured depository

22 institution that has been examined, the achieve23 ment of—

24 ‘‘(i) a composite rating of 1 or 2

25 under the Uniform Financial Institutions
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1 Rating System (or an equivalent rating

2 under an equivalent rating system) in con3 nection with the most recent examination

4 or subsequent review of the insured deposi5 tory institution; and

6 ‘‘(ii) at least a rating of 2 for man7 agement, if that rating is given; or

8 ‘‘(B) in the case of an insured depository

9 institution that has not been examined, the ex10 istence and use of managerial resources that

11 the appropriate Federal banking agency deter12 mines are satisfactory.’’.

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

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

15 the United States is amended—

16 (1) by redesignating the item relating to section

17 5136A as section 5136C; and

18 (2) by inserting after the item relating to sec19 tion 5136 the following new item:

‘‘5136A. Subsidiaries of national banks.’’.

20 SEC. 122. SUBSIDIARIES OF STATE BANKS.

21 (a) SUBSIDIARIES OF STATE BANKS AUTHORIZED

22 TO ENGAGE IN FINANCIAL ACTIVITIES.—Section 24(d) of

23 the Federal Deposit Insurance Act (12 U.S.C. 1831a(d))

24 is amended by adding at the end the following new para25 graphs:
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1 ‘‘(4) CONDITIONS ON CERTAIN ACTIVITIES.—

2 ‘‘(A) IN GENERAL.—No subsidiary of a

3 State bank shall engage as principal in an ac4 tivity that is not described in subparagraph (A)

5 or (B) of section 5136A(a)(1) of the Revised

6 Statutes of the United States unless the State

7 bank is in compliance with the requirements of

8 subsection (b) of that section 5136A and re9 ceives the approval of the appropriate Federal

10 banking agency.

11 ‘‘(B) APPLICATION OF SECTION 5136A OF

12 REVISED STATUTES.—For purposes of applying

13 section 5136A of the Revised Statutes of the

14 United States to the activities of a subsidiary of

15 a State bank under this paragraph—

16 ‘‘(i) all references in that section to a

17 national bank shall be deemed to be ref18 erences to a State bank;

19 ‘‘(ii) all references in that section to

20 the Comptroller of the Currency shall be

21 deemed to be references to the appropriate

22 Federal banking agency with respect to

23 such State bank; and

24 ‘‘(iii) all references to regulations and

25 orders of the Comptroller shall be deemed
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1 to be references to regulations and orders

2 of the appropriate Federal banking agency.

3 ‘‘(C) NOTIFICATION OF NONCOMPLI4 ANCE.—The Board of Governors of the Federal

5 Reserve System, the Corporation, the Comp6 troller of the Currency, and the Office of Thrift

7 Supervision shall establish procedures for noti8 fying the appropriate Federal banking agency if

9 a national bank, State bank, or savings associa10 tion that is affiliated with a State bank under

11 this paragraph fails to meet the requirements

12 described in subparagraph (A).’’.

13 (b) FINANCIAL SUBSIDIARIES OF STATE MEMBER

14 BANKS.—The 20th undesignated paragraph of section 9

15 of the Federal Reserve Act (12 U.S.C. 335) is amended

16 by adding at the end the following new sentence: ‘‘To the

17 extent permitted under State law, a State member bank

18 may acquire, establish, or retain a financial subsidiary (as

19 defined in section 5136A(c) of the Revised Statutes of the

20 United States), except that all references in subsection (b)

21 of that section 5136A to the Comptroller of the Currency,

22 the Comptroller, or regulations or orders of the Comp23 troller, shall be deemed to be references to the Board or

24 regulations or orders of the Board.’’.
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1 SEC. 123. 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

5 insured bank that has a financial subsidiary;

6 (2) to apply to any transaction between the

7 bank and the financial subsidiary (including a loan,

8 extension of credit, guarantee, or purchase of as9 sets), other than an equity investment, the same re10 strictions and requirements as would apply if the fi11 nancial subsidiary were a subsidiary of a bank hold12 ing company 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

20 proceeds of the dividend to make an equity in21 vestment in a subsidiary that was engaged in

22 the same activities as the financial subsidiary of

23 the bank.

24 (b) SAFETY AND SOUNDNESS FIREWALLS APPLICA25 BLE TO SUBSIDIARIES OF BANKS.—The Federal Deposit
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1 Insurance Act (12 U.S.C. 1811 et seq.) is amended by

2 adding at the end the following new section:

3 ‘‘SEC. 45. SAFETY AND SOUNDNESS FIRE WALLS 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, the appropriate Fed10 eral banking agency shall deduct from assets and

11 tangible equity of the bank the aggregate amount of

12 the outstanding equity investments of the bank in

13 the financial subsidiaries of the bank, and the assets

14 and liabilities of such financial subsidiaries shall not

15 be consolidated with those of the bank.

16 ‘‘(2) INVESTMENT LIMITATION.—An insured

17 bank may not, without the prior approval of the ap18 propriate Federal banking agency, purchase or make

19 an investment in the equity securities of a financial

20 subsidiary that would, at the time of such purchase

21 or investment, exceed the amount that the bank

22 could pay as a dividend without obtaining prior reg23 ulatory approval.

24 ‘‘(b) OPERATIONAL AND FINANCIAL SAFEGUARDS

25 FOR THE BANK.—An insured bank that has a financial
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1 subsidiary shall maintain procedures for identifying and

2 managing financial and operational risks posed by the fi3 nancial subsidiary.

4 ‘‘(c) MAINTENANCE OF SEPARATE CORPORATE

5 IDENTITY AND SEPARATE LEGAL STATUS.—

6 ‘‘(1) IN GENERAL.—Each insured bank shall

7 ensure that the bank maintains and complies with

8 reasonable policies and procedures to preserve the

9 separate corporate identity and legal status of the

10 bank and any financial subsidiary or affiliate of the

11 bank.

12 ‘‘(2) EXAMINATIONS.—The appropriate Federal

13 banking agency, as part of each examination, shall

14 review whether an insured bank is observing the sep15 arate corporate identity and separate legal status of

16 any subsidiaries and affiliates of the bank.

17 ‘‘(d) FINANCIAL SUBSIDIARY DEFINED.—For pur18 poses of this section, the term ‘financial subsidiary’ has

19 the same meaning as section 5136A(c) of the Revised

20 Statutes of the United States.

21 ‘‘(e) REGULATIONS.—The appropriate Federal bank22 ing agencies shall jointly prescribe regulations imple23 menting this section.’’.

24 (c) LIMITING THE CREDIT EXPOSURE OF A BANK TO

25 A FINANCIAL SUBSIDIARY TO THE AMOUNT OF PERMIS-
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1 SIBLE CREDIT EXPOSURE TO AN AFFILIATE.—Section

2 23A of the Federal Reserve Act (12 U.S.C. 371c) is

3 amended—

4 (1) by redesignating subsection (e) as sub5 section (f); and

6 (2) by inserting after subsection (d), the fol7 lowing new subsection:

8 ‘‘(e) RULES RELATING TO BANKS WITH FINANCIAL

9 SUBSIDIARIES.—

10 ‘‘(1) FINANCIAL SUBSIDIARY DEFINED.—For

11 purposes of this section and section 23B, the term

12 ‘financial subsidiary’ has the same meaning as sec13 tion 5136A(c) of the Revised Statutes of the United

14 States.

15 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN

16 A FINANCIAL SUBSIDIARY OF A BANK AND THE

17 BANK.—For purposes of applying this section and

18 section 23B to a transaction between a financial

19 subsidiary of a bank and the bank (or between such

20 financial subsidiary and any other subsidiary of the

21 bank that is not a financial subsidiary), and not22 withstanding subsection (b)(2) of this section and

23 section 23B(d)(1)—

24 ‘‘(A) the financial subsidiary of the bank—
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1 ‘‘(i) shall be an affiliate of the bank

2 and of any other subsidiary of the bank

3 that is not a financial subsidiary; and

4 ‘‘(ii) shall not be deemed a subsidiary

5 of the bank; and

6 ‘‘(B) a purchase of or investment in equity

7 securities issued by the financial subsidiary

8 shall not be deemed to be a covered transaction.

9 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

10 FINANCIAL SUBSIDIARY AND NONBANK AFFILI11 ATES.—

12 ‘‘(A) IN GENERAL.—A transaction between

13 a financial subsidiary and an affiliate of the fi14 nancial subsidiary (that is not a subsidiary of

15 a bank) shall not be deemed to be a transaction

16 between a subsidiary of a bank and an affiliate

17 of the bank for purposes of section 23A or sec18 tion 23B of this Act.

19 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—

20 For purposes of this paragraph and notwith21 standing paragraph (4), the term ‘affiliate’

22 shall not include a bank, or a subsidiary of a

23 bank that is engaged exclusively in activities

24 permissible for a national bank to engage in di25 rectly or activities referred to in section
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•S 753 IS

1 5136A(a)(1)(B) of the Revised Statutes of the

2 United States.’’.

3 SEC. 124. FUNCTIONAL REGULATION.

4 (a) PURPOSE.—The purpose of this section is to en5 sure that—

6 (1) securities activities conducted in a sub7 sidiary of a bank are functionally regulated by the

8 Securities and Exchange Commission to the same

9 extent as if they were conducted in a nonbank sub10 sidiary of a financial holding company; and

11 (2) insurance agency and brokerage activities

12 conducted in a subsidiary of a bank are functionally

13 regulated by a State insurance authority to the same

14 extent as if they were conducted in a nonbank sub15 sidiary of a financial holding company.

16 (b) FUNCTIONAL REGULATION OF FINANCIAL SUB17 SIDIARIES.—The Federal Deposit Insurance Act (12

18 U.S.C. 1811 et seq.) is amended by adding at the end

19 the following new section:

20 ‘‘SEC. 46. FUNCTIONAL REGULATION OF SECURITIES AND

21 INSURANCE AGENCY SUBSIDIARIES OF IN22 SURED DEPOSITORY INSTITUTIONS.

23 ‘‘(a) BROKER OR DEALER SUBSIDIARY.—A broker or

24 dealer that is a subsidiary of an insured depository institu25 tion shall be subject to regulation under the Securities Ex-
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•S 753 IS

1 change Act of 1934, in the same manner and to the same

2 extent as a broker or dealer that—

3 ‘‘(1) is controlled by the same bank holding

4 company as controls the insured depository institu5 tion; and

6 ‘‘(2) is not an insured depository institution or

7 a subsidiary of an insured depository institution.

8 ‘‘(b) INSURANCE AGENCY SUBSIDIARY.—An insur9 ance agency or brokerage that is a subsidiary of an in10 sured depository institution shall be subject to regulation

11 by a State insurance authority in the same manner and

12 to the same extent as an insurance agency or brokerage

13 that—

14 ‘‘(1) is controlled by the same bank holding

15 company as controls the insured depository institu16 tion; and

17 ‘‘(2) is not an insured depository institution or

18 a subsidiary of an insured depository institution.

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

20 terms ‘broker’ and ‘dealer’ have the same meanings as in

21 section 3 of the Securities Exchange Act of 1934.’’.
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1 SEC. 125. MISREPRESENTATIONS REGARDING DEPOSITORY

2 INSTITUTION LIABILITY FOR OBLIGATIONS

3 OF AFFILIATES.

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

5 States Code, is amended by inserting after section 1007

6 the following new section:

7 ‘‘§ 1008. Misrepresentations regarding financial insti8 tution liability for obligations of affiliates

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

10 an insured depository institution or institution-affiliated

11 party of a subsidiary or affiliate of an insured depository

12 institution shall fraudulently represent that the institution

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

14 other affiliate of the institution.

15 ‘‘(b) CRIMINAL PENALTY.—Whoever violates sub16 section (a) shall be fined under title, imprisoned for not

17 more than 1 year, or both.

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

19 For purposes of this section, the term ‘institution-affili20 ated party’ with respect to a subsidiary or affiliate has

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

22 Insurance Act, except that references to an insured deposi23 tory institution shall be deemed to be references to a sub24 sidiary or affiliate of an insured depository institution.

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

26 section, the terms ‘affiliate’, ‘insured depository institu-
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•S 753 IS

1 tion’, and ‘subsidiary’ have same meanings as in section

2 3 of the Federal Deposit Insurance Act.’’.

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

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

5 by inserting after the item relating to section 1007 the

6 following new item:

’’1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

7 SEC. 126. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE8 SERVE ACT.

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

10 248) is amended by striking the paragraph designated as

11 ‘‘(m)’’ and inserting ‘‘(m) [Repealed]’’.

12 Subtitle D—Wholesale Financial

13 Holding Companies; Wholesale

14 Financial Institutions

15 CHAPTER 1—WHOLESALE FINANCIAL

16 HOLDING COMPANIES

17 SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES

18 ESTABLISHED.

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

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

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

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

23 ‘‘(a) COMPANIES THAT CONTROL WHOLESALE FI24 NANCIAL INSTITUTIONS.—
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•S 753 IS

1 ‘‘(1) WHOLESALE FINANCIAL HOLDING COM2 PANY DEFINED.—The term ‘wholesale financial

3 holding company’ means any company that—

4 ‘‘(A) is registered as a bank holding com5 pany;

6 ‘‘(B) is predominantly engaged in financial

7 activities as defined in section 6(g)(2);

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

9 institutions;

10 ‘‘(D) does not control—

11 ‘‘(i) a bank other than a wholesale fi12 nancial institution;

13 ‘‘(ii) an insured bank other than an

14 institution permitted under subparagraph

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

16 ‘‘(iii) a savings association; and

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

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

19 Act of 1978).

20 ‘‘(2) SAVINGS ASSOCIATION TRANSITION PE21 RIOD.—Notwithstanding paragraph (1)(D)(iii), the

22 Board may permit a company that controls a sav23 ings association and that otherwise meets the re24 quirements of paragraph (1) to become supervised

25 under paragraph (1), if the company divests control
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•S 753 IS

1 of any such savings association within such period,

2 not to exceed 5 years after becoming supervised

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

4 ‘‘(b) SUPERVISION BY THE BOARD.—

5 ‘‘(1) IN GENERAL.—The provisions of this sec6 tion shall govern the reporting, examination, and

7 capital requirements of wholesale financial holding

8 companies.

9 ‘‘(2) REPORTS.—

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

11 to time may require any wholesale financial

12 holding company and any subsidiary of such

13 company to submit reports under oath to keep

14 the Board informed as to—

15 ‘‘(i) the company’s or subsidiary’s ac16 tivities, financial condition, policies, sys17 tems for monitoring and controlling finan18 cial and operational risks, and transactions

19 with depository institution subsidiaries of

20 the holding company; and

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

22 or subsidiary has complied with the provi23 sions of this Act and regulations prescribed

24 and orders issued under this Act.

25 ‘‘(B) USE OF EXISTING REPORTS.—
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•S 753 IS

1 ‘‘(i) IN GENERAL.—The Board shall,

2 to the fullest extent possible, accept re3 ports in fulfillment of the Board’s report4 ing requirements under this paragraph

5 that the wholesale financial holding com6 pany or any subsidiary of such company

7 has provided or been required to provide to

8 other Federal and State supervisors or to

9 appropriate self-regulatory organizations.

10 ‘‘(ii) AVAILABILITY.—A wholesale fi11 nancial holding company or a subsidiary of

12 such company shall provide to the Board,

13 at the request of the Board, a report re14 ferred to in clause (i).

15 ‘‘(C) EXEMPTIONS FROM REPORTING RE16 QUIREMENTS.—

17 ‘‘(i) IN GENERAL.—The Board may,

18 by regulation or order, exempt any com19 pany or class of companies, under such

20 terms and conditions and for such periods

21 as the Board shall provide in such regula22 tion or order, from the provisions of this

23 paragraph and any regulation prescribed

24 under this paragraph.
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•S 753 IS

1 ‘‘(ii) CRITERIA FOR CONSIDER2 ATION.—In making any determination

3 under clause (i) with regard to any exemp4 tion under such clause, the Board shall

5 consider, among such other factors as the

6 Board may determine to be appropriate,

7 the following factors:

8 ‘‘(I) Whether information of the

9 type required under this paragraph is

10 available from a supervisory agency

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

12 Right to Financial Privacy Act of

13 1978) or a foreign regulatory author14 ity of a similar type.

15 ‘‘(II) The primary business of the

16 company.

17 ‘‘(III) The nature and extent of

18 the domestic and foreign regulation of

19 the activities of the company.

20 ‘‘(3) EXAMINATIONS.—

21 ‘‘(A) LIMITED USE OF EXAMINATION AU22 THORITY.—The Board may make examinations

23 of each wholesale financial holding company

24 and each subsidiary of such company in order

25 to—
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•S 753 IS

1 ‘‘(i) inform the Board regarding the

2 nature of the operations and financial con3 dition of the wholesale financial holding

4 company and its subsidiaries;

5 ‘‘(ii) inform the Board regarding—

6 ‘‘(I) the financial and operational

7 risks within the wholesale financial

8 holding company system that may af9 fect any depository institution owned

10 by such holding company; and

11 ‘‘(II) the systems of the holding

12 company and its subsidiaries for mon13 itoring and controlling those risks;

14 and

15 ‘‘(iii) monitor compliance with the

16 provisions of this Act and those governing

17 transactions and relationships between any

18 depository institution controlled by the

19 wholesale financial holding company and

20 any of the company’s other subsidiaries.

21 ‘‘(B) RESTRICTED FOCUS OF EXAMINA22 TIONS.—The Board shall, to the fullest extent

23 possible, limit the focus and scope of any exam24 ination of a wholesale financial holding com25 pany under this paragraph to—
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1 ‘‘(i) the holding company; and

2 ‘‘(ii) any subsidiary (other than an in3 sured depository institution subsidiary) of

4 the holding company that, because of the

5 size, condition, or activities of the sub6 sidiary, the nature or size of transactions

7 between such subsidiary and any affiliated

8 depository institution, or the centralization

9 of functions within the holding company

10 system, could have a materially adverse ef11 fect on the safety and soundness of any de12 pository institution affiliate of the holding

13 company.

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

16 possible, use the reports of examination of de17 pository institutions made by the Comptroller of

18 the Currency, the Federal Deposit Insurance

19 Corporation, the Director of the Office of Thrift

20 Supervision or the appropriate State depository

21 institution supervisory authority for the pur22 poses of this section.

23 ‘‘(D) DEFERENCE TO OTHER EXAMINA24 TIONS.—The Board shall, to the fullest extent

25 possible, address the circumstances which might
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1 otherwise permit or require an examination by

2 the Board by forgoing an examination and by

3 instead reviewing the reports of examination

4 made of—

5 ‘‘(i) any registered broker or dealer or

6 any registered investment adviser by or on

7 behalf of the Commission; and

8 ‘‘(ii) any licensed insurance company

9 by or on behalf of any State government

10 insurance agency responsible for the super11 vision of the insurance company.

12 ‘‘(E) CONFIDENTIALITY OF REPORTED IN13 FORMATION.—

14 ‘‘(i) IN GENERAL.—Notwithstanding

15 any other provision of law, the Board shall

16 not be compelled to disclose any nonpublic

17 information required to be reported under

18 this paragraph, or any information sup19 plied to the Board by any domestic or for20 eign regulatory agency, that relates to the

21 financial or operational condition of any

22 wholesale financial holding company or any

23 subsidiary of such company.

24 ‘‘(ii) COMPLIANCE WITH REQUESTS

25 FOR INFORMATION.—No provision of this
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1 subparagraph shall be construed as author2 izing the Board to withhold information

3 from the Congress, or preventing the

4 Board from complying with a request for

5 information from any other Federal de6 partment or agency for purposes within the

7 scope of such department’s or agency’s ju8 risdiction, or from complying with any

9 order of a court of competent jurisdiction

10 in an action brought by the United States

11 or the Board.

12 ‘‘(iii) COORDINATION WITH OTHER

13 LAW.—For purposes of section 552 of title

14 5, United States Code, this subparagraph

15 shall be considered to be a statute de16 scribed in subsection (b)(3)(B) of such sec17 tion.

18 ‘‘(iv) DESIGNATION OF CONFIDENTIAL

19 INFORMATION.—In prescribing regulations

20 to carry out the requirements of this sub21 section, the Board shall designate informa22 tion described in or obtained pursuant to

23 this paragraph as confidential information.

24 ‘‘(F) COSTS.—The cost of any examination

25 conducted by the Board under this section may
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1 be assessed against, and made payable by, the

2 wholesale financial holding company.

3 ‘‘(4) CAPITAL ADEQUACY GUIDELINES.—

4 ‘‘(A) CAPITAL ADEQUACY PROVISIONS.—

5 Subject to the requirements of, and solely in ac6 cordance with, the terms of this paragraph, the

7 Board may adopt capital adequacy rules or

8 guidelines for wholesale financial holding com9 panies.

10 ‘‘(B) METHOD OF CALCULATION.—In de11 veloping rules or guidelines under this para12 graph, the following provisions shall apply:

13 ‘‘(i) FOCUS ON DOUBLE LEVERAGE.—

14 The Board shall focus on the use by whole15 sale financial holding companies of debt

16 and other liabilities to fund capital invest17 ments in subsidiaries.

18 ‘‘(ii) NO UNWEIGHTED CAPITAL

19 RATIO.—The Board shall not, by regula20 tion, guideline, order, or otherwise, impose

21 under this section a capital ratio that is

22 not based on appropriate risk-weighting

23 considerations.

24 ‘‘(iii) NO CAPITAL REQUIREMENT ON

25 REGULATED ENTITIES.—The Board shall
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1 not, by regulation, guideline, order or oth2 erwise, prescribe or impose any capital or

3 capital adequacy rules, standards, guide4 lines, or requirements upon any subsidiary

5 that—

6 ‘‘(I) is not a depository institu7 tion; and

8 ‘‘(II) is in compliance with appli9 cable capital requirements of another

10 Federal regulatory authority (includ11 ing the Securities and Exchange Com12 mission) or State insurance authority.

13 ‘‘(iv) CERTAIN SUBSIDIARIES.—The

14 Board shall not, by regulation, guideline,

15 order or otherwise, prescribe or impose any

16 capital or capital adequacy rules, stand17 ards, guidelines, or requirements upon any

18 subsidiary that is not a depository institu19 tion and that is registered as an invest20 ment adviser under the Investment Advis21 ers Act of 1940, except that this clause

22 shall not be construed as preventing the

23 Board from imposing capital or capital

24 adequacy rules, guidelines, standards, or

25 requirements with respect to activities of a
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1 registered investment adviser other than

2 investment advisory activities or activities

3 incidental to investment advisory activities.

4 ‘‘(v) LIMITATIONS ON INDIRECT AC5 TION.—In developing, establishing, or as6 sessing holding company capital or capital

7 adequacy rules, guidelines, standards, or

8 requirements for purposes of this para9 graph, the Board shall not take into ac10 count the activities, operations, or invest11 ments of an affiliated investment company

12 registered under the Investment Company

13 Act of 1940, if the investment company is

14 not—

15 ‘‘(I) a bank holding company; or

16 ‘‘(II) controlled by a bank hold17 ing company by reason of ownership

18 by the bank holding company (includ19 ing through all of its affiliates) of 25

20 percent or more of the shares of the

21 investment company, where the shares

22 owned by the bank holding company

23 have a market value equal to more

24 than $1,000,000.
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1 ‘‘(vi) APPROPRIATE EXCLUSIONS.—

2 The Board shall take full account of—

3 ‘‘(I) the capital requirements

4 made applicable to any subsidiary that

5 is not a depository institution by an6 other Federal regulatory authority or

7 State insurance authority; and

8 ‘‘(II) industry norms for capital9 ization of a company’s unregulated

10 subsidiaries and activities.

11 ‘‘(vii) INTERNAL RISK MANAGEMENT

12 MODELS.—The Board may incorporate in13 ternal risk management models of whole14 sale financial holding companies into its

15 capital adequacy guidelines or rules and

16 may take account of the extent to which

17 resources of a subsidiary depository insti18 tution may be used to service the debt or

19 other liabilities of the wholesale financial

20 holding company.

21 ‘‘(c) NONFINANCIAL ACTIVITIES AND INVEST22 MENTS.—

23 ‘‘(1) GRANDFATHERED ACTIVITIES.—

24 ‘‘(A) IN GENERAL.—Notwithstanding sec25 tion 4(a), a company that becomes a wholesale
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•S 753 IS

1 financial holding company may continue to en2 gage, directly or indirectly, in any activity and

3 may retain ownership and control of shares of

4 a company engaged in any activity if—

5 ‘‘(i) on the date of enactment of the

6 Financial Services Act of 1999, such

7 wholesale financial holding company was

8 lawfully engaged in that nonfinancial activ9 ity, held the shares of such company, or

10 had entered into a contract to acquire

11 shares of any company engaged in such ac12 tivity; and

13 ‘‘(ii) the company engaged in such ac14 tivity continues to engage only in the same

15 activities that such company conducted on

16 the date of enactment of the Financial

17 Services Act of 1999, and other activities

18 permissible under this Act.

19 ‘‘(B) NO EXPANSION OF GRANDFATHERED

20 COMMERCIAL ACTIVITIES THROUGH MERGER OR

21 CONSOLIDATION.—A wholesale financial holding

22 company that engages in activities or holds

23 shares pursuant to this paragraph, or a sub24 sidiary of such wholesale financial holding com25 pany, may not acquire, in any merger, consoli-
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•S 753 IS

1 dation, or other type of business combination,

2 assets of any other company which is engaged

3 in any activity which the Board has not deter4 mined to be financial in nature or incidental to

5 activities that are financial in nature under sec6 tion 6(c).

7 ‘‘(C) LIMITATION TO SINGLE EXEMP8 TION.—No company that engages in any activ9 ity or controls any shares under subsection (f)

10 of section 6 may engage in any activity or own

11 any shares pursuant to this paragraph.

12 ‘‘(2) COMMODITIES.—

13 ‘‘(A) IN GENERAL.—Notwithstanding sec14 tion 4(a), a wholesale financial holding company

15 which was predominately engaged as of Janu16 ary 1, 1997, in financial activities in the United

17 States (or any successor to any such company)

18 may engage in, or directly or indirectly own or

19 control shares of a company engaged in, activi20 ties related to the trading, sale, or investment

21 in commodities and underlying physical prop22 erties that were not permissible for bank hold23 ing companies to conduct in the United States

24 as of January 1, 1997, if such wholesale finan25 cial holding company, or any subsidiary of such
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•S 753 IS

1 holding company, was engaged directly, indi2 rectly, or through any such company in any of

3 such activities as of January 1, 1997, in the

4 United States.

5 ‘‘(B) LIMITATION.—The attributed aggre6 gate consolidated assets of a wholesale financial

7 holding company held under the authority

8 granted under this paragraph and not otherwise

9 permitted to be held by all wholesale financial

10 holding companies under this section may not

11 exceed 5 percent of the total consolidated assets

12 of the wholesale financial holding company, ex13 cept that the Board may increase such percent14 age of total consolidated assets by such

15 amounts and under such circumstances as the

16 Board considers appropriate, consistent with

17 the purposes of this Act.

18 ‘‘(3) CROSS MARKETING RESTRICTIONS.—A

19 wholesale financial holding company shall not

20 permit—

21 ‘‘(A) any company whose shares it owns or

22 controls pursuant to paragraph (1) or (2) to

23 offer or market any product or service of an af24 filiated wholesale financial institution; or
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•S 753 IS

1 ‘‘(B) any affiliated wholesale financial in2 stitution to offer or market any product or serv3 ice of any company whose shares are owned or

4 controlled by such wholesale financial holding

5 company pursuant to such paragraphs.

6 ‘‘(d) QUALIFICATION OF FOREIGN BANK AS WHOLE7 SALE FINANCIAL HOLDING COMPANY.—

8 ‘‘(1) IN GENERAL.—Any foreign bank, or any

9 company that owns or controls a foreign bank, that

10 operates a branch, agency, or commercial lending

11 company in the United States, including a foreign

12 bank or company that owns or controls a wholesale

13 financial institution, may request a determination

14 from the Board that such bank or company be treat15 ed as a wholesale financial holding company (other

16 than for purposes of subsection (c)), subject to such

17 conditions as the Board deems appropriate, giving

18 due regard to the principle of national treatment

19 and equality of competitive opportunity and the re20 quirements imposed on domestic banks and compa21 nies.

22 ‘‘(2) CONDITIONS FOR TREATMENT AS A

23 WHOLESALE FINANCIAL HOLDING COMPANY.—A for24 eign bank and a company that owns or controls a

25 foreign bank may not be treated as a wholesale fi-
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1 nancial holding company unless the bank and com2 pany meet and continue to meet the following cri3 teria:

4 ‘‘(A) NO INSURED DEPOSITS.—No deposits

5 held directly by a foreign bank or through an

6 affiliate (other than an institution described in

7 subparagraph (D) or (F) of section 2(c)(2)) are

8 insured under the Federal Deposit Insurance

9 Act.

10 ‘‘(B) CAPITAL STANDARDS.—The foreign

11 bank meets risk-based capital standards com12 parable to the capital standards required for a

13 wholesale financial institution, giving due re14 gard to the principle of national treatment and

15 equality of competitive opportunity.

16 ‘‘(C) TRANSACTION WITH AFFILIATES.—

17 Transactions between a branch, agency, or com18 mercial lending company subsidiary of the for19 eign bank in the United States, and any securi20 ties affiliate or company in which the foreign

21 bank (or any company that owns or controls

22 such foreign bank) has invested and which en23 gages in any activity authorized only as a result

24 of the application of subsection (c) or (g) of

25 section 6, comply with the provisions of sections
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•S 753 IS

1 23A and 23B of the Federal Reserve Act in the

2 same manner and to the same extent as such

3 transactions would be required to comply with

4 such sections if the foreign bank were a mem5 ber bank.

6 ‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL

7 INSTITUTION.—Any foreign bank which is, or is af8 filiated with a company which is, treated as a whole9 sale financial holding company under this subsection

10 shall be treated as a wholesale financial institution

11 for purposes of paragraphs (1)(C) and (3) of section

12 9B(c) of the Federal Reserve Act, and any such for13 eign bank or company shall be subject to paragraphs

14 (3), (4), and (5) of section 9B(d) of the Federal Re15 serve Act, except that the Board may adopt such

16 modifications, conditions, or exemptions as the

17 Board deems appropriate, giving due regard to the

18 principle of national treatment and equality of com19 petitive opportunity.

20 ‘‘(4) SUPERVISION OF FOREIGN BANK WHICH

21 MAINTAINS NO BANKING PRESENCE OTHER THAN

22 CONTROL OF A WHOLESALE FINANCIAL INSTITU23 TION.—A foreign bank that owns or controls a

24 wholesale financial institution but does not operate

25 a branch, agency, or commercial lending company in
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•S 753 IS

1 the United States (and any company that owns or

2 controls such foreign bank) may request a deter3 mination from the Board that such bank or com4 pany be treated as a wholesale financial holding

5 company, except that such bank or company shall be

6 subject to the restrictions of paragraphs (2)(A) and

7 (3) of this subsection.

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

9 section shall not be construed as limiting the author10 ity of the Board under the International Banking

11 Act of 1978 with respect to the regulation, super12 vision, or examination of foreign banks and their of13 fices and affiliates in the United States.’’.

14 (b) UNINSURED STATE BANKS.—Section 9 of the

15 Federal Reserve Act (12 U.S.C. 321 et seq.) is amended

16 by adding at the end the following new paragraph:

17 ‘‘(24) ENFORCEMENT AUTHORITY OVER UNIN18 SURED STATE MEMBER BANKS.—Section 3(u) of the

19 Federal Deposit Insurance Act, subsections (j) and

20 (k) of section 7 of such Act, and subsections (b)

21 through (n), (s), (u), and (v) of section 8 of such

22 Act shall apply to an uninsured State member bank

23 in the same manner and to the same extent such

24 provisions apply to an insured State member bank

25 and any reference in any such provision to ‘insured
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•S 753 IS

1 depository institution’ shall be deemed to be a ref2 erence to ‘uninsured State member bank’ for pur3 poses of this paragraph.’’.

4 SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

5 (a) FEDERAL RESERVE ACT.—The last sentence of

6 the eighth undesignated paragraph of section 9 of the

7 Federal Reserve Act (12 U.S.C. 326) is amended to read

8 as follows: ‘‘The Board of Governors of the Federal Re9 serve System, at its discretion, may furnish reports of ex10 amination or other confidential supervisory information

11 concerning State member banks or any other entities ex12 amined under any other authority of the Board to any

13 Federal or State authorities with supervisory or regulatory

14 authority over the examined entity, to officers, directors,

15 or receivers of the examined entity, and to any other per16 son that the Board determines to be proper.’’.

17 (b) COMMODITY FUTURES TRADING COMMISSION.—

18 The Right to Financial Privacy Act of 1978 (12 U.S.C.

19 3401 et seq.) is amended—

20 (1) in section 1101(7) (12 U.S.C. 3401(7))—

21 (A) by redesignating subparagraphs (G)

22 and (H) as subparagraphs (H) and (I), respec23 tively; and

24 (B) by inserting after subparagraph (F)

25 the following new subparagraph:
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1 ‘‘(G) the Commodity Futures Trading

2 Commission; 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

11 Holding Company Act of 1956 (12 U.S.C. 1842) is

12 amended by adding at the end the following new

13 subsections:

14 ‘‘(p) WHOLESALE FINANCIAL INSTITUTION.—The

15 term ‘wholesale financial institution’ means a wholesale fi16 nancial institution subject to section 9B of the Federal

17 Reserve Act.

18 ‘‘(q) COMMISSION.—The term ‘Commission’ means

19 the Securities and Exchange Commission.

20 ‘‘(r) DEPOSITORY INSTITUTION.—The term ‘deposi21 tory institution’—

22 ‘‘(1) has the same meaning as in section 3 of

23 the Federal Deposit Insurance Act; and

24 ‘‘(2) includes a wholesale financial institution.’’.
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1 (2) DEFINITION OF BANK INCLUDES WHOLE2 SALE FINANCIAL INSTITUTION.—Section 2(c)(1) of

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

4 1841(c)(1)) is amended by adding at the end the fol5 lowing new subparagraph:

6 ‘‘(C) A wholesale financial institution.’’.

7 (3) INCORPORATED DEFINITIONS.—Section

8 2(n) of the Bank Holding Company Act of 1956 (12

9 U.S.C. 1841(n)) is amended by inserting ‘‘ ‘insured

10 bank’,’’ after ‘‘ ‘in danger of default’,’’.

11 (4) EXCEPTION TO DEPOSIT INSURANCE RE12 QUIREMENT.—Section 3(e) of the Bank Holding

13 Company Act of 1956 (12 U.S.C. 1842(e)) is

14 amended by adding at the end the following: ‘‘This

15 subsection shall not apply to a wholesale financial

16 institution.’’.

17 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section

18 3(q)(2)(A) of the Federal Deposit Insurance Act (12

19 U.S.C. 1813(q)(2)(A)) is amended to read as follows:

20 ‘‘(A) any State member insured bank (ex21 cept a District bank) and any wholesale finan22 cial institution as authorized pursuant to sec23 tion 9B of the Federal Reserve Act;’’.
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•S 753 IS

1 CHAPTER 2—WHOLESALE FINANCIAL

2 INSTITUTIONS

3 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

4 (a) NATIONAL WHOLESALE FINANCIAL INSTITU5 TIONS.—

6 (1) IN GENERAL.—Chapter one of title LXII of

7 the Revised Statutes of the United States (12

8 U.S.C. 21 et seq.) is amended by inserting after sec9 tion 5136A (as added by section 121(a) of this title)

10 the following new section:

11 ‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU12 TIONS.

13 ‘‘(a) AUTHORIZATION OF THE COMPTROLLER RE14 QUIRED.—A national bank may apply to the Comptroller

15 on such forms and in accordance with such regulations

16 as the Comptroller may prescribe, for permission to oper17 ate as a national wholesale financial institution.

18 ‘‘(b) REGULATION.—A national wholesale financial

19 institution may exercise, in accordance with such institu20 tion’s articles of incorporation and regulations issued by

21 the Comptroller, all the powers and privileges of a national

22 bank formed in accordance with section 5133 of the Re23 vised Statutes of the United States, subject to section 9B

24 of the Federal Reserve Act and the limitations and restric25 tions contained therein.
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•S 753 IS

1 ‘‘(c) COMMUNITY REINVESTMENT ACT OF 1977.—A

2 national wholesale financial institution shall be subject to

3 the Community Reinvestment Act of 1977, only if the

4 wholesale financial institution has an affiliate that is an

5 insured depository institution or that operates an insured

6 branch, as those terms are defined in section 3 of the Fed7 eral Deposit Insurance Act.’’.

8 (2) CLERICAL AMENDMENT.—The table of sec9 tions for chapter one of title LXII of the Revised

10 Statutes of the United States is amended by insert11 ing after the item relating to section 5136A (as

12 added by section 121(d) of this title) the following

13 new item:

‘‘5136B. National wholesale financial institutions.’’.

14 (b) STATE WHOLESALE FINANCIAL INSTITUTIONS.—

15 The Federal Reserve Act (12 U.S.C. 221 et seq.) is

16 amended by inserting after section 9A the following new

17 section:

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

19 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLE20 SALE FINANCIAL INSTITUTION.—

21 ‘‘(1) APPLICATION REQUIRED.—

22 ‘‘(A) IN GENERAL.—Any bank may apply

23 to the Board of Governors of the Federal Re24 serve System to become a wholesale financial

25 institution and, as a wholesale financial institu-
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•S 753 IS

1 tion, to subscribe to the stock of the Federal re2 serve bank organized within the district where

3 the applying bank is located.

4 ‘‘(B) TREATMENT AS MEMBER BANK.—

5 Any application under subparagraph (A) shall

6 be treated as an application under, and shall be

7 subject to the provisions of, section 9.

8 ‘‘(2) INSURANCE TERMINATION.—No bank the

9 deposits of which are insured under the Federal De10 posit Insurance Act may become a wholesale finan11 cial institution unless it has met all requirements

12 under that Act for voluntary termination of deposit

13 insurance.

14 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

15 WHOLESALE FINANCIAL INSTITUTIONS.—

16 ‘‘(1) FEDERAL RESERVE ACT.—Except as oth17 erwise provided in this section, wholesale financial

18 institutions shall be member banks and shall be sub19 ject to the provisions of this Act that apply to mem20 ber banks to the same extent and in the same man21 ner as State member insured banks, except that a

22 wholesale financial institution may terminate mem23 bership under this Act only with the prior written

24 approval of the Board and on terms and conditions
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1 that the Board determines are appropriate to carry

2 out the purposes of this Act.

3 ‘‘(2) PROMPT CORRECTIVE ACTION.—A whole4 sale financial institution shall be deemed to be an in5 sured depository institution for purposes of section

6 38 of the Federal Deposit Insurance Act except

7 that—

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

9 measures for each capital category shall be the

10 levels specified by the Board for wholesale fi11 nancial institutions; and

12 ‘‘(B) all references to the appropriate Fed13 eral banking agency or to the Corporation in

14 that section shall be deemed to be references to

15 the Board.

16 ‘‘(3) ENFORCEMENT AUTHORITY.—Subsections

17 (j) and (k) of section 7, subsections (b) through (n),

18 (s), and (v) of section 8, and section 19 of the Fed19 eral Deposit Insurance Act shall apply to a wholesale

20 financial institution in the same manner and to the

21 same extent as such provisions apply to State mem22 ber insured banks and any reference in such sections

23 to an insured depository institution shall be deemed

24 to include a reference to a wholesale financial insti25 tution.
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•S 753 IS

1 ‘‘(4) CERTAIN OTHER STATUTES APPLICA2 BLE.—A wholesale financial institution shall be

3 deemed to be a banking institution, and the Board

4 shall be the appropriate Federal banking agency for

5 such bank and all such bank’s affiliates, for pur6 poses of the International Lending Supervision Act.

7 ‘‘(5) BANK MERGER ACT.—A wholesale finan8 cial institution shall be subject to sections 18(c) and

9 44 of the Federal Deposit Insurance Act in the same

10 manner and to the same extent the wholesale finan11 cial institution would be subject to such sections if

12 the institution were a State member insured bank.

13 ‘‘(6) BRANCHING.—Notwithstanding any other

14 provision of law, a wholesale financial institution

15 may establish and operate a branch at any location

16 on such terms and conditions as established by the

17 Board and, in the case of a State-chartered whole18 sale financial institution, with the approval of the

19 Board, and, in the case of a national bank wholesale

20 financial institution, with the approval of the Comp21 troller of the Currency.

22 ‘‘(7) ACTIVITIES OF OUT-OF-STATE BRANCHES

23 OF WHOLESALE FINANCIAL INSTITUTIONS.—

24 ‘‘(A) GENERAL.—A State-chartered whole25 sale financial institution shall be deemed to be
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•S 753 IS

1 a State bank and an insured State bank for

2 purposes of paragraphs (1), (2), and (3) of sec3 tion 24(j) of the Federal Deposit Insurance

4 Act, and a national wholesale financial institu5 tion shall be deemed to be a national bank for

6 purposes of section 5155(f) of the Revised Stat7 utes of the United States.

8 ‘‘(B) DEFINITIONS.—The following defini9 tions shall apply solely for purposes of applying

10 paragraph (1):

11 ‘‘(i) HOME STATE.—The term ‘home

12 State’ means—

13 ‘‘(I) with respect to a national

14 wholesale financial institution, the

15 State in which the main office of the

16 institution is located; and

17 ‘‘(II) with respect to a State18 chartered wholesale financial institu19 tion, the State by which the institu20 tion is chartered.

21 ‘‘(ii) HOST STATE.—The term ‘host

22 State’ means a State, other than the home

23 State of the wholesale financial institution,

24 in which the institution maintains, or seeks

25 to establish and maintain, a branch.
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•S 753 IS

1 ‘‘(iii) OUT-OF-STATE BANK.—The

2 term ‘out-of-State bank’ means, with re3 spect to any State, a wholesale financial

4 institution whose home State is another

5 State.

6 ‘‘(8) DISCRIMINATION REGARDING INTEREST

7 RATES.—Section 27 of the Federal Deposit Insur8 ance Act shall apply to State-chartered wholesale fi9 nancial institutions in the same manner and to the

10 same extent as such provisions apply to State mem11 ber insured banks and any reference in such section

12 to a State-chartered insured depository institution

13 shall be deemed to include a reference to a State14 chartered wholesale financial institution.

15 ‘‘(9) PREEMPTION OF STATE LAWS REQUIRING

16 DEPOSIT INSURANCE FOR WHOLESALE FINANCIAL

17 INSTITUTIONS.—The appropriate State banking au18 thority may grant a charter to a wholesale financial

19 institution notwithstanding any State constitution or

20 statute requiring that the institution obtain insur21 ance of its deposits and any such State constitution

22 or statute is hereby preempted solely for purposes of

23 this paragraph.

24 ‘‘(10) PARITY FOR WHOLESALE FINANCIAL IN25 STITUTIONS.—A State bank that is a wholesale fi-
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•S 753 IS

1 nancial institution under this section shall have all

2 of the rights, powers, privileges, and immunities (in3 cluding those derived from status as a federally

4 chartered institution) of and as if it were a national

5 bank, subject to such terms and conditions as estab6 lished by the Board.

7 ‘‘(11) COMMUNITY REINVESTMENT ACT OF

8 1977.—A State wholesale financial institution shall

9 be subject to the Community Reinvestment Act of

10 1977, only if the wholesale financial institution has

11 an affiliate that is an insured depository institution

12 or that operates an insured branch, as those terms

13 are defined in section 3 of the Federal Deposit In14 surance Act.

15 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

16 WHOLESALE FINANCIAL INSTITUTIONS.—

17 ‘‘(1) LIMITATIONS ON DEPOSITS.—

18 ‘‘(A) MINIMUM AMOUNT.—

19 ‘‘(i) IN GENERAL.—No wholesale fi20 nancial institution may receive initial de21 posits of $100,000 or less, other than on

22 an incidental and occasional basis.

23 ‘‘(ii) LIMITATION ON DEPOSITS OF

24 LESS THAN $100,000.—No wholesale finan25 cial institution may receive initial deposits
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•S 753 IS

1 of $100,000 or less if such deposits con2 stitute more than 5 percent of the institu3 tion’s total deposits.

4 ‘‘(B) NO DEPOSIT INSURANCE.—Except as

5 otherwise provided in section 8A(f) of the Fed6 eral Deposit Insurance Act, no deposits held by

7 a wholesale financial institution shall be insured

8 deposits under the Federal Deposit Insurance

9 Act.

10 ‘‘(C) ADVERTISING AND DISCLOSURE.—

11 The Board shall prescribe regulations per12 taining to advertising and disclosure by whole13 sale financial institutions to ensure that each

14 depositor is notified that deposits at the whole15 sale financial institution are not federally in16 sured or otherwise guaranteed by the United

17 States Government.

18 ‘‘(2) MINIMUM CAPITAL LEVELS APPLICABLE

19 TO WHOLESALE FINANCIAL INSTITUTIONS.—The

20 Board shall, by regulation, adopt capital require21 ments for wholesale financial institutions—

22 ‘‘(A) to account for the status of wholesale

23 financial institutions as institutions that accept

24 deposits that are not insured under the Federal

25 Deposit Insurance Act; and
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•S 753 IS

1 ‘‘(B) to provide for the safe and sound op2 eration of the wholesale financial institution

3 without undue risk to creditors or other per4 sons, including Federal reserve banks, engaged

5 in transactions 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

20 Federal reserve bank;

21 ‘‘(B) special clearing balance requirements;

22 and

23 ‘‘(C) any additional requirements that the

24 Board determines to be appropriate or nec25 essary to—
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•S 753 IS

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

6 the 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

15 that is not a wholesale financial institution, if the

16 Board finds that such exemption is not inconsistent

17 with—

18 ‘‘(A) the promotion of the safety and

19 soundness of the wholesale financial institution

20 or any insured depository institution affiliate of

21 the wholesale financial institution;

22 ‘‘(B) the protection of the deposit insur23 ance funds; and

24 ‘‘(C) the protection of creditors and other

25 persons, including Federal reserve banks, en-
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•S 753 IS

1 gaged in transactions with the wholesale finan2 cial institution.

3 ‘‘(5) LIMITATION ON TRANSACTIONS BETWEEN

4 A WHOLESALE FINANCIAL INSTITUTION AND AN IN5 SURED BANK.—For purposes of section 23A(d)(1) of

6 the Federal Reserve Act, a wholesale financial insti7 tution that is affiliated with an insured bank shall

8 not be a bank.

9 ‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This

10 section shall not be construed as limiting the

11 Board’s authority over member banks under any

12 other provision of law, or to create any obligation for

13 any Federal reserve bank to make, increase, renew,

14 or extend any advance or discount under this Act to

15 any member bank or other depository institution.

16 ‘‘(d) CAPITAL AND MANAGERIAL REQUIREMENTS.—

17 ‘‘(1) IN GENERAL.—A wholesale financial insti18 tution shall be well capitalized and well managed.

19 ‘‘(2) NOTICE TO COMPANY.—The Board shall

20 promptly provide notice to a company that controls

21 a wholesale financial institution whenever such

22 wholesale financial institution is not well capitalized

23 or well managed.

24 ‘‘(3) AGREEMENT TO RESTORE INSTITUTION.—

25 Not later than 45 days after the date of receipt of
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•S 753 IS

1 a notice under paragraph (2) (or such additional pe2 riod not to exceed 90 days as the Board may per3 mit), the company shall execute an agreement ac4 ceptable to the Board to restore the wholesale finan5 cial institution to compliance with all of the require6 ments of paragraph (1).

7 ‘‘(4) LIMITATIONS UNTIL INSTITUTION RE8 STORED.—Until the wholesale financial institution is

9 restored to compliance with all of the requirements

10 of paragraph (1), the Board may impose such limi11 tations on the conduct or activities of the company

12 or any affiliate of the company as the Board deter13 mines to be appropriate under the circumstances.

14 ‘‘(5) FAILURE TO RESTORE.—If the company

15 does not execute and implement an agreement in ac16 cordance with paragraph (3), comply with any limi17 tation imposed under paragraph (4), restore the

18 wholesale financial institution to well capitalized sta19 tus not later than 180 days after the date of receipt

20 by the company of the notice described in paragraph

21 (2), or restore the wholesale financial institution to

22 well managed status within such period as the Board

23 may permit, the company shall, under such terms

24 and conditions as may be imposed by the Board and

25 subject to such extension of time as may be granted
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•S 753 IS

1 in the Board’s discretion, divest control of its sub2 sidiary depository institutions.

3 ‘‘(6) WELL MANAGED DEFINED.—For purposes

4 of this subsection, the term ‘well managed’ has the

5 same meaning as in section 2 of the Bank Holding

6 Company Act of 1956.

7 ‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI8 TUTIONS.—

9 ‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—

10 ‘‘(A) APPOINTMENT.—The Board may ap11 point a conservator or receiver for a wholesale

12 financial institution to the same extent and in

13 the same manner as the Comptroller of the

14 Currency may appoint a conservator or receiver

15 for a national bank.

16 ‘‘(B) POWERS.—The conservator or re17 ceiver for a wholesale financial institution shall

18 exercise the same powers, functions, and duties,

19 subject to the same limitations, as a conser20 vator or receiver for a national bank.

21 ‘‘(2) BOARD AUTHORITY.—The Board shall

22 have the same authority with respect to any conser23 vator or receiver appointed for a wholesale financial

24 institution under paragraph (1), and the wholesale

25 financial institution for which it has been appointed,
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•S 753 IS

1 as the Comptroller of the Currency has with respect

2 to a conservator or receiver for a national bank and

3 the national bank for which the conservator or re4 ceiver has been appointed.

5 ‘‘(3) BANKRUPTCY PROCEEDINGS.—The Comp6 troller of the Currency (in the case of a national

7 wholesale financial institution) and the Board may

8 direct the conservator or receiver of a wholesale fi9 nancial institution to file a petition pursuant to title

10 11, United States Code, in which case, title 11,

11 United States Code, shall apply to the wholesale fi12 nancial institution in lieu of otherwise applicable

13 Federal or State insolvency law.

14 ‘‘(f) EXCLUSIVE JURISDICTION.—Subsections (c) and

15 (e) of section 43 of the Federal Deposit Insurance Act

16 shall not apply to any wholesale financial institution.’’.

17 (c) VOLUNTARY TERMINATION OF INSURED STATUS

18 BY CERTAIN INSTITUTIONS.—

19 (1) SECTION 8 DESIGNATIONS.—Section 8(a) of

20 the Federal Deposit Insurance Act (12 U.S.C.

21 1818(a)) is amended—

22 (A) by striking paragraph (1); and

23 (B) by redesignating paragraphs (2)

24 through (10) as paragraphs (1) through (9), re25 spectively.
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•S 753 IS

1 (2) VOLUNTARY TERMINATION OF INSURED

2 STATUS.—The Federal Deposit Insurance Act (12

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

4 section 8 the following new section:

5 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN6 SURED DEPOSITORY INSTITUTION.

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

8 (b), an insured State bank or a national bank may volun9 tarily terminate such bank’s status as an insured deposi10 tory institution in accordance with regulations of the Cor11 poration if—

12 ‘‘(1) the bank provides written notice of the

13 bank’s intent to terminate such insured status—

14 ‘‘(A) to the Corporation and the Board of

15 Governors of the Federal Reserve System not

16 less than 6 months before the effective date of

17 such termination; and

18 ‘‘(B) to all depositors at such bank, not

19 less than 6 months before the effective date of

20 the termination of such status; and

21 ‘‘(2) either—

22 ‘‘(A) the deposit insurance fund of which

23 such bank is a member equals or exceeds the

24 fund’s designated reserve ratio as of the date

25 the bank provides a written notice under para-
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•S 753 IS

1 graph (1) and the Corporation determines that

2 the fund will equal or exceed the applicable des3 ignated reserve ratio for the 2 semiannual as4 sessment periods immediately following such

5 date; or

6 ‘‘(B) the Corporation and the Board of

7 Governors of the Federal Reserve System ap8 proved the termination of the bank’s insured

9 status and the bank pays an exit fee in accord10 ance with subsection (e).

11 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply

12 with respect to—

13 ‘‘(1) an insured savings association; or

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

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

16 the International Banking Act of 1978.

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

18 Any bank that voluntarily elects to terminate the bank’s

19 insured status under subsection (a) shall not be eligible

20 for insurance on any deposits or any assistance authorized

21 under this Act after the period specified in subsection

22 (f)(1).

23 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FI24 NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING

25 ACTIVITIES.—Any depository institution which voluntarily
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1 terminates such institution’s status as an insured deposi2 tory institution under this section may not, upon termi3 nation of insurance, accept any deposits unless the institu4 tion is a wholesale financial institution subject to section

5 9B of the Federal Reserve Act.

6 ‘‘(e) EXIT FEES.—

7 ‘‘(1) IN GENERAL.—Any bank that voluntarily

8 terminates such bank’s status as an insured deposi9 tory institution under this section shall pay an exit

10 fee in an amount that the Corporation determines is

11 sufficient to account for the institution’s pro rata

12 share of the amount (if any) which would be re13 quired to restore the relevant deposit insurance fund

14 to the fund’s designated reserve ratio as of the date

15 the bank provides a written notice under subsection

16 (a)(1).

17 ‘‘(2) PROCEDURES.—The Corporation shall pre18 scribe, by regulation, procedures for assessing any

19 exit fee under this subsection.

20 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

21 AS OF TERMINATION.—

22 ‘‘(1) TRANSITION PERIOD.—The insured depos23 its of each depositor in a State bank or a national

24 bank on the effective date of the voluntary termi25 nation of the bank’s insured status, less all subse-
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•S 753 IS

1 quent withdrawals from any deposits of such deposi2 tor, shall continue to be insured for a period of not

3 less than 6 months and not more than 2 years, as

4 determined by the Corporation. During such period,

5 no additions to any such deposits, and no new de6 posits in the depository institution made after the ef7 fective date of such termination shall be insured by

8 the Corporation.

9 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

10 AND DUTIES.—During the period specified in para11 graph (1) with respect to any bank, the bank shall

12 continue to pay assessments under section 7 as if

13 the bank were an insured depository institution. The

14 bank shall, in all other respects, be subject to the

15 authority of the Corporation and the duties and obli16 gations of an insured depository institution under

17 this Act during such period, and in the event that

18 the bank is closed due to an inability to meet the de19 mands of the bank’s depositors during such period,

20 the Corporation shall have the same powers and

21 rights with respect to such bank as in the case of

22 an insured depository institution.

23 ‘‘(g) ADVERTISEMENTS.—

24 ‘‘(1) IN GENERAL.—A bank that voluntarily

25 terminates the bank’s insured status under this sec-
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•S 753 IS

1 tion shall not advertise or hold itself out as having

2 insured deposits, except that the bank may advertise

3 the temporary insurance of deposits under sub4 section (f) if, in connection with any such advertise5 ment, the advertisement also states with equal prom6 inence that additions to deposits and new deposits

7 made after the effective date of the termination are

8 not insured.

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

10 AND SECURITIES.—Any certificate of deposit or

11 other obligation or security issued by a State bank

12 or a national bank after the effective date of the vol13 untary termination of the bank’s insured status

14 under this section shall be accompanied by a con15 spicuous, prominently displayed notice that such cer16 tificate of deposit or other obligation or security is

17 not insured under this Act.

18 ‘‘(h) NOTICE REQUIREMENTS.—

19 ‘‘(1) NOTICE TO THE CORPORATION.—The no20 tice required under subsection (a)(1)(A) shall be in

21 such form as the Corporation may require.

22 ‘‘(2) NOTICE TO DEPOSITORS.—The notice re23 quired under subsection (a)(1)(B) shall be—

24 ‘‘(A) sent to each depositor’s last address

25 of record with the bank; and
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•S 753 IS

1 ‘‘(B) in such manner and form as the Cor2 poration finds to be necessary and appropriate

3 for the protection of depositors.’’.

4 (3) DEFINITION.—Section 19(b)(1)(A)(i) of the

5 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is

6 amended by inserting ‘‘, or any wholesale financial

7 institution subject to section 9B of this Act’’ after

8 ‘‘such Act’’.

9 (d) TECHNICAL AND CONFORMING AMENDMENTS TO

10 THE BANKRUPTCY CODE.—

11 (1) BANKRUPTCY CODE DEBTORS.—Section

12 109(b)(2) of title 11, United States Code, is amend13 ed by striking ‘‘; or’’ and inserting the following: ‘‘,

14 except that—

15 ‘‘(A) a wholesale financial institution es16 tablished under section 5136B of the Revised

17 Statutes of the United States or section 9B of

18 the Federal Reserve Act may be a debtor if a

19 petition is filed at the direction of the Comp20 troller of the Currency (in the case of a whole21 sale financial institution established under sec22 tion 5136B of the Revised Statutes of the

23 United States) or the Board of Governors of

24 the Federal Reserve System (in the case of any

25 wholesale financial institution); and
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•S 753 IS

1 ‘‘(B) a corporation organized under section

2 25A of the Federal Reserve Act may be a debt3 or if a petition is filed at the direction of the

4 Board of Governors of the Federal Reserve Sys5 tem; or’’.

6 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

7 title 11, United States Code, is amended to read as

8 follows:

9 ‘‘(d) Only a railroad and a person that may be a debt10 or under chapter 7 of this title, except that a stockbroker,

11 a wholesale financial institution established under section

12 5136B of the Revised Statutes of the United States or

13 section 9B of the Federal Reserve Act, a corporation orga14 nized under section 25A of the Federal Reserve Act, or

15 a commodity broker, may be a debtor under chapter 11

16 of this title.’’.

17 (3) DEFINITION OF FINANCIAL INSTITUTION.—

18 Section 101(22) of title 11, United States Code, is

19 amended to read as follows:

20 ‘‘(22) ‘financial institution’ means a person that

21 is a commercial or savings bank, industrial savings

22 bank, savings and loan association, trust company,

23 wholesale financial institution established under sec24 tion 5136B of the Revised Statutes of the United

25 States or section 9B of the Federal Reserve Act, or
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•S 753 IS

1 corporation organized under section 25A of the Fed2 eral Reserve Act and, when any such person is act3 ing as agent or custodian for a customer in connec4 tion with a securities contract, as defined in section

5 741 of this title, such customer,’’.

6 (4) SUBCHAPTER V OF CHAPTER 7.—

7 (A) IN GENERAL.—Section 103 of title 11,

8 United States Code, is amended—

9 (i) by redesignating subsections (e)

10 through (i) as subsections (f) through (j),

11 respectively; and

12 (ii) by inserting after subsection (d)

13 the following:

14 ‘‘(e) Subchapter V of chapter 7 of this title applies

15 only in a case under such chapter concerning the liquida16 tion of a wholesale financial institution established under

17 section 5136B of the Revised Statutes of the United

18 States or section 9B of the Federal Reserve Act, or a cor19 poration organized under section 25A of the Federal Re20 serve Act.’’.

21 (B) WHOLESALE BANK LIQUIDATION.—

22 Chapter 7 of title 11, United States Code, is

23 amended by adding at the end the following:
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1 ‘‘SUBCHAPTER V—WHOLESALE BANK

2 LIQUIDATION

3 ‘‘§ 781. Definitions for subchapter

4 ‘‘In this subchapter—

5 ‘‘(1) the term ‘Board’ means the Board of Gov6 ernors of the Federal Reserve System;

7 ‘‘(2) the term ‘depository institution’ has the

8 same meaning as in section 3 of the Federal Deposit

9 Insurance Act, and includes any wholesale bank;

10 ‘‘(3) the term ‘national wholesale financial insti11 tution’ means a wholesale financial institution estab12 lished under section 5136B of the Revised Statutes

13 of the United States; and

14 ‘‘(4) the term ‘wholesale bank’ means a na15 tional wholesale financial institution, a wholesale fi16 nancial institution established under section 9B of

17 the Federal Reserve Act, or a corporation organized

18 under section 25A of the Federal Reserve Act.

19 ‘‘§ 782. Selection of trustee

20 ‘‘Notwithstanding any other provision of this title,

21 the conservator or receiver who files the petition shall be

22 the trustee under this chapter, unless the Comptroller of

23 the Currency (in the case of a national wholesale financial

24 institution for which it appointed the conservator or re25 ceiver) or the Board (in the case of any wholesale bank
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1 for which it appointed the conservator or receiver) des2 ignates an alternative trustee. The Comptroller of the Cur3 rency or the Board (as applicable) may designate a suc4 cessor trustee, if required.

5 ‘‘§ 783. Additional powers of trustee

6 ‘‘(a) The trustee under this subchapter has power,

7 with permission of the court—

8 ‘‘(1) to sell the wholesale bank to a depository

9 institution or consortium of depository institutions

10 (which consortium may agree on the allocation of

11 the wholesale bank among the consortium);

12 ‘‘(2) to merge the wholesale bank with a deposi13 tory institution;

14 ‘‘(3) to transfer contracts to the same extent as

15 could a receiver for a depository institution under

16 paragraphs (9) and (10) of section 11(e) of the Fed17 eral Deposit Insurance Act;

18 ‘‘(4) to transfer assets or liabilities to a deposi19 tory institution;

20 ‘‘(5) to distribute property not of the estate, in21 cluding distributions to customers that are man22 dated by subchapters III and IV of this chapter; or

23 ‘‘(6) to transfer assets and liabilities to a bridge

24 bank as provided in paragraphs (1), (3)(A), (5), (6),

25 and (9) through (13), and subparagraphs (A)
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1 through (H) and (K) of paragraph (4) of section

2 11(n) of the Federal Deposit Insurance Act, except

3 that—

4 ‘‘(A) the bridge bank shall be treated as a

5 wholesale bank for the purpose of this sub6 section; and

7 ‘‘(B) any references in any such provision

8 of law to the Federal Deposit Insurance Cor9 poration shall be construed to be references to

10 the appointing agency and that references to

11 deposit insurance shall be omitted.

12 ‘‘(b) Any reference in this section to transfers of li13 abilities includes a ratable transfer of liabilities within a

14 priority class.

15 ‘‘§ 784. Right to be heard

16 ‘‘The Comptroller of the Currency (in the case of a

17 national wholesale financial institution), the Board (in the

18 case of any wholesale bank), or a Federal Reserve bank

19 (in the case of a wholesale bank that is a member of that

20 bank) may raise and may appear and be heard on any

21 issue in a case under this subchapter.

22 ‘‘§ 785. Expedited transfers

23 ‘‘The trustee may make a transfer pursuant to sec24 tion 783 without prior judicial approval, if the Comptroller

25 of the Currency (in the case of a national wholesale finan-
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1 cial institution for which it appointed the conservator or

2 receiver) or the Board (in the case of any wholesale bank

3 for which it appointed the conservator or receiver) deter4 mines that the transfer would be necessary to avert serious

5 adverse effects on economic conditions or financial sta6 bility.’’.

7 (C) CONFORMING AMENDMENT.—The

8 table of sections for chapter 7 of title 11,

9 United States Code, is amended by adding at

10 the end the following:

‘‘781. Definitions for subchapter.

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.

‘‘785. Expedited transfers.’’.

11 (e) RESOLUTION OF EDGE CORPORATIONS.—Section

12 25A(16) of the Federal Reserve Act (12 U.S.C. 624(16))

13 is amended to read as follows:

14 ‘‘(16) APPOINTMENT OF RECEIVER OR CONSER15 VATOR.—

16 ‘‘(A) IN GENERAL.—The Board may ap17 point a conservator or receiver for a corporation

18 organized under the provisions of this section to

19 the same extent and in the same manner as the

20 Comptroller of the Currency may appoint a con21 servator or receiver for a national bank, and the

22 conservator or receiver for such corporation

23 shall exercise the same powers, functions, and
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1 duties, subject to the same limitations, as a

2 conservator or receiver for a national bank.

3 ‘‘(B) EQUIVALENT AUTHORITY.—The

4 Board shall have the same authority with re5 spect to any conservator or receiver appointed

6 for a corporation organized under the provisions

7 of this section under this paragraph and any

8 such corporation as the Comptroller of the Cur9 rency has with respect to a conservator or re10 ceiver of a national bank and the national bank

11 for which a conservator or receiver has been ap12 pointed.

13 ‘‘(C) TITLE 11 PETITIONS.—The Board

14 may direct the conservator or receiver of a cor15 poration organized under the provisions of this

16 section to file a petition pursuant to title 11,

17 United States Code, in which case, title 11,

18 United States Code, shall apply to the corpora19 tion in lieu of otherwise applicable Federal or

20 State 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 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 pe12 riod 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 Sys18 tem shall make available to the Attorney General and the

19 Federal Trade Commission any data in the possession of

20 any such banking agency that the antitrust agency deems

21 necessary for antitrust review of any transaction requiring

22 notice 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

25 Insurance Act, the National Bank Consolidation and
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1 Merger Act, section 10 of the Home Owners’ Loan Act,

2 or the antitrust laws.

3 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES

4 AND AFFILIATES.

5 (a) CLARIFICATION OF FEDERAL TRADE COMMIS6 SION JURISDICTION.—Any person which directly or indi7 rectly controls, is controlled directly or indirectly by, or

8 is directly or indirectly under common control with, any

9 bank or savings association (as such terms are defined in

10 section 3 of the Federal Deposit Insurance Act) and is

11 not itself a bank or savings association shall not be

12 deemed to be a bank or savings association for purposes

13 of the Federal Trade Commission Act or any other law

14 enforced by the Federal Trade Commission.

15 (b) SAVINGS PROVISION.—No provision of this sec16 tion shall be construed as restricting the authority of any

17 Federal banking agency (as defined in section 3 of the

18 Federal Deposit Insurance Act) under any Federal bank19 ing law, including section 8 of the Federal Deposit Insur20 ance Act.

21 (c) HART-SCOTT-RODINO AMENDMENT.—Section

22 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is

23 amended by inserting before the semicolon at the end

24 thereof the following: ‘‘, except that a portion of a trans25 action is not exempt under this paragraph if such portion
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1 of the transaction (A) requires notice under section 6 of

2 the Bank Holding Company Act of 1956; and (B) does

3 not require approval under section 3 or 4 of the Bank

4 Holding Company Act of 1956’’.

5 SEC. 144. ANNUAL GAO REPORT.

6 (a) IN GENERAL.—By the end of the 1-year period

7 beginning on the date of enactment of this Act and annu8 ally thereafter, the Comptroller General of the United

9 States shall submit a report to the Congress on market

10 concentration in the financial services industry and its im11 pact on consumers.

12 (b) ANALYSIS.—Each report submitted under sub13 section (a) shall contain an analysis of—

14 (1) the positive and negative effects of affili15 ations between various types of financial companies,

16 and of acquisitions pursuant to this Act and the

17 amendments made by this Act to other provisions of

18 law, including any positive or negative effects on

19 consumers, area markets, and submarkets thereof or

20 on registered securities brokers and dealers which

21 have been purchased by depository institutions or

22 depository institution holding companies;

23 (2) the changes in business practices and the

24 effects of any such changes on the availability of

25 venture 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 lim8 ited geographical areas.

9 Subtitle F—Applying the Principles

10 of National Treatment and

11 Equality of Competitive Oppor12 tunity to Foreign Banks and

13 Foreign Financial Institutions

14 SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT15 MENT AND EQUALITY OF COMPETITIVE OP16 PORTUNITY TO FOREIGN BANKS THAT ARE

17 FINANCIAL HOLDING COMPANIES.

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

19 1978 (12 U.S.C. 3106(c)) is amended by adding at the

20 end the 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 sec25 tion 6(b)(1)(D) of the Bank Holding Company
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1 Act of 1956, or receives a determination under

2 section 10(d)(1) of the Bank Holding Company

3 Act of 1956, any authority conferred by this

4 subsection on any foreign bank or company to

5 engage in any activity which the Board has de6 termined to be permissible for financial holding

7 companies under section 6 of such Act shall ter8 minate immediately.

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

16 not filed a declaration with the Board of its sta17 tus as a financial holding company under such

18 section or received a determination under sec19 tion 10(d)(1) by the end of the 2-year period

20 beginning on the date of enactment of the Fi21 nancial Services Act of 1999, the Board, giving

22 due regard to the principle of national treat23 ment and equality of competitive opportunity,

24 may impose such restrictions and requirements

25 on the conduct of such activities by such foreign
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1 bank or company as are comparable to those

2 imposed on a financial holding company orga3 nized under the laws of the United States, in4 cluding a requirement to conduct such activities

5 in compliance with any prudential safeguards

6 established under section 5(h) of the Bank

7 Holding Company Act of 1956.’’.

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 agen-
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1 cy, or subsidiary of a foreign bank’’ and inserting ‘‘or

2 State 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

15 Loan 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

5 paragraph:

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

14 $500,000,000 in average total assets,

15 based on an average of total assets over

16 the 3 years preceding that date.

17 ‘‘(B) ADJUSTMENTS.—The $500,000,000

18 limit referred to in subparagraph (A)(ii) shall

19 be adjusted annually by the Finance Board,

20 based on the annual percentage increase, if any,

21 in the Consumer Price Index for all urban con22 sumers, as published by the Department of

23 Labor.’’.
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1 SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.

2 (a) FEDERAL HOME LOAN BANK MEMBERSHIP.—

3 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

4 1464(f)) is amended to read as follows:

5 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

6 On and after January 1, 1999, a Federal savings associa7 tion may become a member of the Federal Home Loan

8 Bank System, and shall qualify for such membership in

9 the manner provided by the Federal Home Loan Bank

10 Act.’’.

11 (b) WITHDRAWAL.—Section 6(e) of the Federal

12 Home Loan Bank Act (12 U.S.C. 1426(e)) is amended

13 by striking ‘‘Any member other than a Federal savings

14 and loan association may withdraw’’ and inserting ‘‘Any

15 member may withdraw’’.

16 SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.

17 (a) IN GENERAL.—Section 10(a) of the Federal

18 Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—

19 (1) by redesignating paragraphs (1) through

20 (4) as subparagraphs (A) through (D), respectively,

21 and indenting appropriately;

22 (2) by striking ‘‘(a) Each’’ and inserting the

23 following:

24 ‘‘(a) IN GENERAL.—

25 ‘‘(1) ALL ADVANCES.—Each’’;
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1 (3) by striking the second sentence and insert2 ing the following:

3 ‘‘(2) PURPOSES OF ADVANCES.—A long-term

4 advance may only be made for the purposes of—

5 ‘‘(A) providing funds to any member for

6 residential housing finance; and

7 ‘‘(B) providing funds to any community fi8 nancial institution for small businesses, agricul9 tural, rural development, or low-income commu10 nity development lending.’’;

11 (4) by striking ‘‘A Bank’’ and inserting the fol12 lowing:

13 ‘‘(3) COLLATERAL.—A Bank’’;

14 (5) in paragraph (3) (as so designated by para15 graph (4) of this subsection)—

16 (A) in subparagraph (C) (as so redesig17 nated by paragraph (1) of this subsection) by

18 striking ‘‘Deposits’’ and inserting ‘‘Cash or de19 posits’’;

20 (B) in subparagraph (D) (as so redesig21 nated by paragraph (1) of this subsection), by

22 striking the second sentence; and

23 (C) by inserting after subparagraph (D)

24 (as so redesignated by paragraph (1) of this

25 subsection) the following new subparagraph:
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1 ‘‘(E) Secured loans for small business, ag2 riculture, rural development, or low-income

3 community development, or securities rep4 resenting a whole interest in such secured

5 loans, in the case of any community financial

6 institution.’’;

7 (6) in paragraph (5)—

8 (A) in the second sentence, by striking

9 ‘‘and the Board’’;

10 (B) in the third sentence, by striking

11 ‘‘Board’’ and inserting ‘‘Federal home loan

12 bank’’; and

13 (C) by striking ‘‘(5) Paragraphs (1)

14 through (4)’’ and inserting the following:

15 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara16 graphs (A) through (E) of paragraph (3)’’; and

17 (7) by adding at the end the following:

18 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND19 ARDS.—The Board may review the collateral stand20 ards applicable to each Federal home loan bank for

21 the classes of collateral described in subparagraphs

22 (D) and (E) of paragraph (3), and may, if necessary

23 for safety and soundness purposes, require an in24 crease in the collateral standards for any or all of

25 those classes of collateral.
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1 ‘‘(6) DEFINITIONS.—For purposes of this sub2 section, the terms ‘small business’, ‘agriculture’,

3 ‘rural development’, and ‘low-income community de4 velopment’ shall have the meanings given those

5 terms by rule or regulation of the Finance Board.’’.

6 (b) CLERICAL AMENDMENT.—The section heading

7 for section 10 of the Federal Home Loan Bank Act (12

8 U.S.C. 1430) is amended to read as follows:

9 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

10 (c) CONFORMING AMENDMENTS RELATING TO MEM11 BERS WHICH ARE NOT QUALIFIED THRIFT LENDERS.—

12 Section 10(e)(1) of the Federal Home Loan Bank Act (12

13 U.S.C. 1430(e)(1)) is amended in the second sentence, by

14 inserting before the period ‘‘or, in the case of any commu15 nity financial institution, for the purposes described in

16 subsection (a)(2)’’.

17 SEC. 165. ELIGIBILITY CRITERIA.

18 Section 4(a) of the Federal Home Loan Bank Act

19 (12 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

24 paragraph:
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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 rep6 resented by residential mortgage loans, as described

7 in subparagraph (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

13 the 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

17 Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by

18 striking ‘‘, subject to the approval of the board’’.

19 (c) REPEAL OF SECTIONS 22A AND 27.—The Fed20 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is

21 amended by striking sections 22A (12 U.S.C. 1442a) and

22 27 (12 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

4 of the Board’’ each place that term appears;

5 (C) by striking ‘‘and, by its Board of direc6 tors,’’ and all that follows through ‘‘agent of

7 such bank,’’ and inserting ‘‘and, by the board

8 of directors of the bank, to prescribe, amend,

9 and repeal by-laws governing the manner in

10 which its affairs may be administered, con11 sistent with applicable laws and regulations, as

12 administered by the Finance Board. No officer,

13 employee, attorney, or agent of a Federal home

14 loan bank’’; and

15 (D) by striking ‘‘Board of directors’’ each

16 place that term appears and inserting ‘‘board of

17 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.—

23 Section 2B(a) of the Federal Home Loan Bank Act

24 (12 U.S.C. 1422b(a)) is amended by adding at the

25 end the following new paragraphs:
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1 ‘‘(5) To issue and serve a notice of charges

2 upon a Federal home loan bank or upon any execu3 tive officer or director of a Federal home loan bank

4 if, in the determination of the Finance Board, the

5 bank, executive officer, or director is engaging or

6 has engaged in, or the Finance Board has reason7 able cause to believe that the bank, executive officer,

8 or director is about to engage in, any conduct that

9 violates any provision of this Act or any law, order,

10 rule, or regulation or any condition imposed in writ11 ing by the Finance Board in connection with the

12 granting of any application or other request by the

13 bank, or any written agreement entered into by the

14 bank with the agency, in accordance with the proce15 dures provided in section 1371(c) of the Federal

16 Housing Enterprises Financial Safety and Sound17 ness Act of 1992. Such authority includes the same

18 authority to take affirmative action to correct condi19 tions resulting from violations or practices or to

20 limit activities of a bank or any executive officer or

21 director of a bank as appropriate Federal banking

22 agencies have to take with respect to insured deposi23 tory institutions under paragraphs (6) and (7) of

24 section 8(b) of the Federal Deposit Insurance Act,

25 and to have all other powers, rights, and duties to
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1 enforce this Act with respect to the Federal home

2 loan banks and their executive officers and directors

3 as the Office of Federal Housing Enterprise Over4 sight has to enforce the Federal Housing Enter5 prises Financial Safety and Soundness Act of 1992,

6 the Federal National Mortgage Association Charter

7 Act, or the Federal Home Loan Mortgage Corpora8 tion Act with respect to the Federal housing enter9 prises under the Federal Housing Enterprises Fi10 nancial Safety and Soundness Act of 1992.

11 ‘‘(6) To address any insufficiencies in capital

12 levels resulting from the application of section 5(f)

13 of the Home Owners’ Loan Act.

14 ‘‘(7) To sue and be sued, by and through its

15 own attorneys.’’.

16 (2) TECHNICAL AMENDMENT.—Section 111 of

17 Public Law 93–495 (12 U.S.C. 250) is amended by

18 inserting ‘‘Federal Housing Finance Board,’’ after

19 ‘‘Director of the Office of Thrift Supervision,’’.

20 (f) ELIGIBILITY TO SECURE ADVANCES.—

21 (1) SECTION 9.—Section 9 of the Federal

22 Home Loan Bank Act (12 U.S.C. 1429) is

23 amended—

24 (A) in the second sentence, by striking

25 ‘‘with the approval of the Board’’; and
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1 (B) in the third sentence, by striking ‘‘,

2 subject 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

5 amended—

6 (A) in subsection (c)—

7 (i) in the first sentence, by striking

8 ‘‘Board’’ and inserting ‘‘Federal home loan

9 bank’’; and

10 (ii) in the second sentence, by striking

11 ‘‘held by’’ and all that follows before the

12 period;

13 (B) in subsection (d)—

14 (i) in the first sentence, by striking

15 ‘‘and the approval of the Board’’; and

16 (ii) by striking ‘‘Subject to the ap17 proval of the Board, any’’ and inserting

18 ‘‘Any’’; and

19 (C) in subsection (j)(1)—

20 (i) by striking ‘‘to subsidize the inter21 est rate on advances’’ and inserting ‘‘to

22 provide subsidies, including subsidized in23 terest rates on advances’’;

24 (ii) by striking ‘‘Pursuant’’ and in25 serting the following:
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1 ‘‘(A) ESTABLISHMENT.—Pursuant’’; and

2 (iii) by adding at the end the fol3 lowing new subparagraph:

4 ‘‘(B) NONDELEGATION OF APPROVAL AU5 THORITY.—Subject to such regulations as the

6 Finance Board may prescribe, the board of di7 rectors of each Federal home loan bank may

8 approve or disapprove requests from members

9 for Affordable Housing Program subsidies, and

10 may not delegate such authority.’’.

11 (g) SECTION 16.—Section 16(a) of the Federal Home

12 Loan Bank Act (12 U.S.C. 1436(a)) is amended—

13 (1) in the third sentence—

14 (A) by striking ‘‘net earnings’’ and insert15 ing ‘‘previously retained earnings or current net

16 earnings’’; and

17 (B) by striking ‘‘, and then only with the

18 approval of the Federal Housing Finance

19 Board’’; and

20 (2) by striking the fourth sentence.

21 (h) SECTION 18.—Section 18(b) of the Federal Home

22 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik23 ing paragraph (4).
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1 SEC. 167. RESOLUTION FUNDING CORPORATION.

2 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed3 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

4 amended to read as follows:

5 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

6 BANKS.—

7 ‘‘(i) IN GENERAL.—To the extent that

8 the amounts available pursuant to sub9 paragraphs (A) and (B) are insufficient to

10 cover the amount of interest payments,

11 each Federal home loan bank shall pay to

12 the Funding Corporation in each calendar

13 year, 20.75 percent of the net earnings of

14 that bank (after deducting expenses relat15 ing to section 10(j) and operating ex16 penses).

17 ‘‘(ii) ANNUAL DETERMINATION.—The

18 Board annually shall determine the extent

19 to which the value of the aggregate

20 amounts paid by the Federal home loan

21 banks exceeds or falls short of the value of

22 an annuity of $300,000,000 per year that

23 commences on the issuance date and ends

24 on the final scheduled maturity date of the

25 obligations, and shall select appropriate
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1 present value factors for making such de2 terminations.

3 ‘‘(iii) PAYMENT TERM ALTER4 ATIONS.—The Board shall extend or short5 en the term of the payment obligations of

6 a Federal home loan bank under this sub7 paragraph as necessary to ensure that the

8 value of all payments made by the banks

9 is equivalent to the value of an annuity re10 ferred to in clause (ii).

11 ‘‘(iv) TERM BEYOND MATURITY.—If

12 the Board extends the term of payments

13 beyond the final scheduled maturity date

14 for the obligations, each Federal home loan

15 bank shall continue to pay 20.75 percent

16 of its net earnings (after deducting ex17 penses relating to section 10(j) and oper18 ating expenses) to the Treasury of the

19 United States until the value of all such

20 payments by the Federal home loan banks

21 is equivalent to the value of an annuity re22 ferred to in clause (ii). In the final year in

23 which the Federal home loan banks are re24 quired to make any payment to the Treas25 ury under this subparagraph, if the dollar
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•S 753 IS

1 amount represented by 20.75 percent of

2 the net earnings of the Federal home loan

3 banks exceeds the remaining obligation of

4 the banks to the Treasury, the Finance

5 Board shall reduce the percentage pro rata

6 to a level sufficient to pay the remaining

7 obligation.’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 subsection (a) shall become effective on January 1, 1999.

10 Payments made by a Federal home loan bank before that

11 effective date shall be counted toward the total obligation

12 of that bank under section 21B(f)(2)(C) of the Federal

13 Home Loan Bank Act, as amended by this section.

14 Subtitle H—Direct Activities of

15 Banks

16 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER17 WRITE CERTAIN MUNICIPAL BONDS.

18 The paragraph designated the Seventh of section

19 5136 of the Revised Statutes of the United States (12

20 U.S.C. 24(7)) is amended by adding at the end the fol21 lowing new sentence: ‘‘In addition to the provisions in this

22 paragraph for dealing in, underwriting or purchasing secu23 rities, the limitations and restrictions contained in this

24 paragraph as to dealing in, underwriting, and purchasing

25 investment securities for the national bank’s own account
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•S 753 IS

1 shall not apply to obligations (including limited obligation

2 bonds, revenue bonds, and obligations that satisfy the re3 quirements of section 142(b)(1) of the Internal Revenue

4 Code of 1986) issued by or on behalf of any state or polit5 ical subdivision of a state, including any municipal cor6 porate instrumentality of 1 or more states, or any public

7 agency or authority of any state or political subdivision

8 of a state, if the national banking association is well cap9 italized (as defined in section 38 of the Federal Deposit

10 Insurance Act).’’.

11 Subtitle I—Deposit Insurance

12 Funds

13 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.

14 (a) STUDY REQUIRED.—The Board of Directors of

15 the Federal Deposit Insurance Corporation shall conduct

16 a study of the following issues with regard to the Bank

17 Insurance Fund and the Savings Association Insurance

18 Fund:

19 (1) SAFETY AND SOUNDNESS.—The safety and

20 soundness of the funds and the adequacy of the re21 serve requirements applicable to the funds in light

22 of—

23 (A) the size of the insured depository insti24 tutions which are resulting from mergers and

25 consolidations since the effective date of the
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•S 753 IS

1 Riegle-Neal Interstate Banking and Branching

2 Efficiency Act of 1994; and

3 (B) the affiliation of insured depository in4 stitutions with other financial institutions pur5 suant to this Act and the amendments made by

6 this Act.

7 (2) CONCENTRATION LEVELS.—The concentra8 tion levels of the funds, taking into account the

9 number of members of each fund and the geographic

10 distribution of such members, and the extent to

11 which either fund is exposed to higher risks due to

12 a regional concentration of members or an insuffi13 cient membership base relative to the size of member

14 institutions.

15 (3) MERGER ISSUES.—Issues relating to the

16 planned merger of the funds, including the cost of

17 merging the funds and the manner in which such

18 costs will be distributed among the members of the

19 respective funds.

20 (b) REPORT REQUIRED.—

21 (1) IN GENERAL.—Before the end of the 9-

22 month period beginning on the date of enactment of

23 this Act, the Board of Directors of the Federal De24 posit Insurance Corporation shall submit a report to
186

•S 753 IS

1 the Congress on the study conducted pursuant to

2 subsection (a).

3 (2) CONTENTS OF REPORT.—The report shall

4 include—

5 (A) detailed findings of the Board of Di6 rectors with regard to the issues described in

7 subsection (a);

8 (B) a description of the plans developed by

9 the Board of Directors for merging the Bank

10 Insurance Fund and the Savings Association

11 Insurance Fund, including an estimate of the

12 amount of the cost of such merger which would

13 be borne by Savings Association Insurance

14 Fund members; and

15 (C) such recommendations for legislative

16 and administrative action as the Board of Di17 rectors determines to be necessary or appro18 priate to preserve the safety and soundness of

19 the deposit insurance funds, reduce the risks to

20 such funds, provide for an efficient merger of

21 such funds, and for other purposes.

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

23 following definitions shall apply:

24 (1) INSURED DEPOSITORY INSTITUTION.—The

25 term ‘‘insured depository institution’’ has the same
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•S 753 IS

1 meaning as in section 3(c) of the Federal Deposit

2 Insurance Act.

3 (2) BIF AND SAIF MEMBERS.—The terms

4 ‘‘Bank Insurance Fund member’’ and ‘‘Savings As5 sociation Insurance Fund member’’ have the same

6 meanings as in section 7(l) of the Federal Deposit

7 Insurance Act.

8 SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE9 SERVES.

10 (a) SAIF SPECIAL RESERVES.—Section 11(a)(6) of

11 the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6))

12 is amended by striking subparagraph (L).

13 (b) DIF SPECIAL RESERVES.—Section 2704 of the

14 Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821

15 note) is amended—

16 (1) by striking subsection (b); and

17 (2) in subsection (d)—

18 (A) by striking paragraph (4);

19 (B) in paragraph (6)(C)(i), by striking

20 ‘‘(6) and (7)’’ and inserting ‘‘(5), (6), and (7)’’;

21 and

22 (C) in paragraph (6)(C), by striking clause

23 (ii) and inserting the following:

24 ‘‘(ii) by redesignating paragraph (8)

25 as paragraph (5).’’.
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•S 753 IS

1 Subtitle J—Effective Date of Title

2 SEC. 191. 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 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

13 1934 (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

17 effecting transactions in securities for the ac18 count 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

22 the following activities under the conditions de23 scribed:

24 ‘‘(i) THIRD PARTY BROKERAGE AR25 RANGEMENTS.—The bank enters into a
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•S 753 IS

1 contractual or other arrangement with a

2 broker or dealer registered under this title

3 under which the broker or dealer offers

4 brokerage services on or off the premises

5 of the bank if—

6 ‘‘(I) such broker or dealer is

7 clearly identified as the person per8 forming the brokerage services;

9 ‘‘(II) the broker or dealer per10 forms brokerage services in an area

11 that is clearly marked and, to the ex12 tent practicable, physically separate

13 from the routine deposit-taking activi14 ties of the 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 ar19 rangement clearly indicate that the

20 brokerage services are being provided

21 by the broker or dealer and not by the

22 bank;

23 ‘‘(IV) any materials used by the

24 bank to advertise or promote generally

25 the availability of brokerage services
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•S 753 IS

1 under the contractual or other ar2 rangement are in compliance with the

3 Federal securities laws before dis4 tribution;

5 ‘‘(V) bank employees (other than

6 associated persons of a broker or deal7 er who are qualified pursuant to the

8 rules of a self-regulatory organization)

9 perform only clerical or ministerial

10 functions in connection with broker11 age transactions including scheduling

12 appointments with the associated per13 sons of a broker or dealer, except that

14 bank employees may forward cus15 tomer funds or securities and may de16 scribe in general terms the range of

17 investment vehicles available from the

18 bank and the broker or dealer under

19 the contractual or other arrangement;

20 ‘‘(VI) bank employees do not di21 rectly receive incentive compensation

22 for any brokerage transaction unless

23 such employees are associated persons

24 of a broker or dealer and are qualified

25 pursuant to the rules of a self-regu-
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•S 753 IS

1 latory organization, except that the

2 bank employees may receive com3 pensation for the referral of any cus4 tomer if the compensation is a nomi5 nal one-time cash fee of a fixed dollar

6 amount and the payment of the fee is

7 not contingent on whether the referral

8 results in a transaction;

9 ‘‘(VII) such services are provided

10 by the broker or dealer on a basis in

11 which all customers which receive any

12 services are fully disclosed to the

13 broker or dealer;

14 ‘‘(VIII) the bank does not carry

15 a securities account of the customer

16 except in a customary custodian or

17 trustee capacity; and

18 ‘‘(IX) the bank, broker, or dealer

19 informs each customer that the bro20 kerage services are provided by the

21 broker or dealer and not by the bank

22 and that the securities are not depos23 its or other obligations of the bank,

24 are not guaranteed by the bank, and
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•S 753 IS

1 are not insured by the Federal De2 posit Insurance Corporation.

3 ‘‘(ii) TRUST ACTIVITIES.—The bank

4 effects transactions in a trustee capacity,

5 or effects transactions in a fiduciary capac6 ity in its trust department or other depart7 ment that is regularly examined by bank

8 examiners for compliance with fiduciary

9 principles and standards, and (in either

10 case)—

11 ‘‘(I) is primarily compensated for

12 such transactions on the basis of an

13 administration or annual fee (payable

14 on a monthly, quarterly, or other

15 basis), a percentage of assets under

16 management, or a flat or capped per

17 order processing fee equal to not more

18 than the cost incurred by the bank in

19 connection with executing securities

20 transactions for trustee and fiduciary

21 customers, or any combination of such

22 fees, consistent with fiduciary prin23 ciples and standards; and

24 ‘‘(II) does not publicly solicit bro25 kerage business, other than by adver-
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•S 753 IS

1 tising that it effects transactions in

2 securities in conjunction with adver3 tising its other trust activities.

4 ‘‘(iii) PERMISSIBLE SECURITIES

5 TRANSACTIONS.—The bank effects trans6 actions in—

7 ‘‘(I) commercial paper, bankers

8 acceptances, or commercial bills;

9 ‘‘(II) exempted securities;

10 ‘‘(III) qualified Canadian govern11 ment obligations as defined in section

12 5136 of the Revised Statutes, in con13 formity with section 15C of this title

14 and the rules and regulations there15 under, or obligations of the North

16 American Development Bank; or

17 ‘‘(IV) any standardized, credit

18 enhanced debt security issued by a

19 foreign government pursuant to the

20 March 1989 plan of then Secretary of

21 the Treasury Brady, used by such for22 eign government to retire outstanding

23 commercial bank loans.

24 ‘‘(iv) CERTAIN STOCK PURCHASE

25 PLANS.—
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•S 753 IS

1 ‘‘(I) EMPLOYEE BENEFIT

2 PLANS.—The bank effects trans3 actions, as part of its transfer agency

4 activities, in the securities of an issuer

5 as part of any pension, retirement,

6 profit-sharing, bonus, thrift, savings,

7 incentive, or other similar benefit plan

8 for the employees of that issuer or its

9 subsidiaries, if—

10 (aa) the bank does not so11 licit transactions or provide in12 vestment advice with respect to

13 the purchase or sale of securities

14 in connection with the plan; and

15 ‘‘(bb) the bank’s compensa16 tion for such plan or program

17 consists primarily of administra18 tion fees, or flat or capped per

19 order processing fees, or both.

20 ‘‘(II) DIVIDEND REINVESTMENT

21 PLANS.—The bank effects trans22 actions, as part of its transfer agency

23 activities, in the securities of an issuer

24 as part of that issuer’s dividend rein25 vestment plan, if—
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•S 753 IS

1 ‘‘(aa) the bank does not so2 licit transactions or provide in3 vestment advice with respect to

4 the purchase or sale of securities

5 in connection with the plan;

6 ‘‘(bb) the bank does not net

7 shareholders’ buy and sell orders,

8 other than for programs for odd9 lot holders or plans registered

10 with the Commission; and

11 ‘‘(cc) the bank’s compensa12 tion for such plan or program

13 consists primarily of administra14 tion fees, or flat or capped per

15 order processing fees, or both.

16 ‘‘(III) ISSUER PLANS.—The bank

17 effects transactions, as part of its

18 transfer agency activities, in the secu19 rities of an issuer as part of a plan or

20 program for the purchase or sale of

21 that issuer’s shares, if—

22 ‘‘(aa) the bank does not so23 licit transactions or provide in24 vestment advice with respect to

25 the purchase or sale of securities
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•S 753 IS

1 in connection with the plan or

2 program;

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 ‘‘(IV) PERMISSIBLE DELIVERY

14 OF MATERIALS.—The exception to

15 being considered a broker for a bank

16 engaged in activities described in sub17 clauses (I), (II), and (III) will not be

18 affected by a bank’s delivery of writ19 ten or electronic plan materials to em20 ployees of the issuer, shareholders of

21 the issuer, or members of affinity

22 groups of the issuer, so long as such

23 materials are—

24 ‘‘(aa) comparable in scope or

25 nature to that permitted by the
197

•S 753 IS

1 Commission as of the date of en2 actment of the Financial Services

3 Act of 1999; or

4 ‘‘(bb) otherwise permitted by

5 the Commission.

6 ‘‘(v) SWEEP ACCOUNTS.—The bank

7 effects transactions as part of a program

8 for the investment or reinvestment of bank

9 deposit funds into any no-load, open-end

10 management investment company reg11 istered under the Investment Company Act

12 of 1940 that holds itself out as a money

13 market fund.

14 ‘‘(vi) AFFILIATE TRANSACTIONS.—

15 The bank effects transactions for the ac16 count of any affiliate of the bank (as de17 fined in section 2 of the Bank Holding

18 Company Act of 1956) other than—

19 ‘‘(I) a registered broker or deal20 er; or

21 ‘‘(II) an affiliate that is engaged

22 in merchant banking, as described in

23 section 6(c)(3)(H) of the Bank Hold24 ing Company Act of 1956.
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•S 753 IS

1 ‘‘(vii) PRIVATE SECURITIES OFFER2 INGS.—The bank—

3 ‘‘(I) effects sales as part of a pri4 mary offering of securities not involv5 ing a public offering, pursuant to sec6 tion 3(b), 4(2), or 4(6) of the Securi7 ties Act of 1933 or the rules and reg8 ulations issued thereunder;

9 ‘‘(II) at any time after the date

10 that is 1 year after the date of enact11 ment of the Financial Services Act of

12 1999, is not affiliated with a broker

13 or dealer that has been registered for

14 more than 1 year in accordance with

15 this title, and engages in dealing,

16 market making, or underwriting ac17 tivities, other than with respect to ex18 empted securities; and

19 ‘‘(III) effects transactions exclu20 sively with qualified investors.

21 ‘‘(viii) SAFEKEEPING AND CUSTODY

22 ACTIVITIES.—

23 ‘‘(I) IN GENERAL.—The bank, as

24 part of customary banking activities—
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•S 753 IS

1 ‘‘(aa) provides safekeeping

2 or custody services with respect

3 to securities, including the exer4 cise of warrants and other rights

5 on behalf of customers;

6 ‘‘(bb) facilitates the transfer

7 of funds or securities, as a custo8 dian or a clearing agency, in con9 nection with the clearance and

10 settlement of its customers’

11 transactions in securities;

12 ‘‘(cc) effects securities lend13 ing or borrowing transactions

14 with or on behalf of customers as

15 part of services provided to cus16 tomers pursuant to division (aa)

17 or (bb) or invests cash collateral

18 pledged in connection with such

19 transactions; or

20 ‘‘(dd) holds securities

21 pledged by a customer to another

22 person or securities subject to

23 purchase or resale agreements in24 volving a customer, or facilitates

25 the pledging or transfer of such
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•S 753 IS

1 securities by book entry or as

2 otherwise provided under applica3 ble law.

4 ‘‘(II) EXCEPTION FOR CARRYING

5 BROKER ACTIVITIES.—The exception

6 to being considered a broker for a

7 bank engaged in activities described in

8 subclause (I) shall not apply if the

9 bank, in connection with such activi10 ties, acts in the United States as a

11 carrying broker (as such term, and

12 different formulations thereof, are

13 used in section 15(c)(3) and the rules

14 and regulations thereunder) for any

15 broker or dealer, unless such carrying

16 broker activities are engaged in with

17 respect to government securities (as

18 defined in paragraph (42) of this sub19 section).

20 ‘‘(ix) BANKING PRODUCTS.—The bank

21 effects transactions in traditional banking

22 products, as defined in section 206(a) of

23 the Financial Services Act of 1999.

24 ‘‘(x) DE MINIMIS EXCEPTION.—The

25 bank effects, other than in transactions re-
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•S 753 IS

1 ferred to in clauses (i) through (ix), not

2 more than 500 transactions in securities in

3 any calendar year, and such transactions

4 are not effected by an employee of the

5 bank who is also an employee of a broker

6 or dealer.

7 ‘‘(C) BROKER DEALER EXECUTION.—The

8 exception to being considered a broker for a

9 bank engaged in activities described in clauses

10 (ii), (iv), and (viii) of subparagraph (B) shall

11 not apply if the activities described in such pro12 visions result in the trade in the United States

13 of any security that is a publicly traded security

14 in the United States, unless—

15 ‘‘(i) the bank directs such trade to a

16 registered broker dealer for execution;

17 ‘‘(ii) the trade is a cross trade or

18 other substantially similar trade of a secu19 rity that—

20 ‘‘(I) is made by the bank or be21 tween the bank and an affiliated fidu22 ciary; and

23 ‘‘(II) is not in contravention of

24 fiduciary principles established under

25 applicable Federal or State law; or
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•S 753 IS

1 ‘‘(iii) the trade is conducted in some

2 other manner permitted under rules, regu3 lations, or orders as the Commission may

4 prescribe or issue.

5 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS

6 ON OTHER COMMISSION AUTHORITY.—The ex7 ception to being considered a broker for a bank

8 engaged in activities described in subpara9 graphs (B) and (C) shall not affect the author10 ity of the Commission under any other provi11 sion of this Act or any other securities law.

12 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

13 of subparagraph (B)(ii), the term ‘fiduciary ca14 pacity’ means—

15 ‘‘(i) in the capacity as trustee, execu16 tor, administrator, registrar of stocks and

17 bonds, transfer agent, guardian, assignee,

18 receiver, or custodian under a uniform gift

19 to minor act, or as an investment adviser

20 if the bank receives a fee for its investment

21 advice;

22 ‘‘(ii) in any capacity in which the

23 bank possesses investment discretion on

24 behalf of another; or

25 ‘‘(iii) in any other similar capacity.
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•S 753 IS

1 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT

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

3 include a bank that—

4 ‘‘(i) was, immediately prior to the en5 actment of the Financial Services Act of

6 1999, subject to section 15(e); and

7 ‘‘(ii) is subject to such restrictions

8 and requirements as the Commission con9 siders appropriate.’’.

10 SEC. 202. DEFINITION OF DEALER.

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

12 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

13 ‘‘(5) DEALER.—

14 ‘‘(A) IN GENERAL.—The term ‘dealer’

15 means any person engaged in the business of

16 buying and selling securities for such person’s

17 own account through a broker or otherwise.

18 ‘‘(B) EXCEPTION FOR PERSON NOT EN19 GAGED IN THE BUSINESS OF DEALING.—The

20 term ‘dealer’ does not include a person that

21 buys or sells securities for such person’s own

22 account, either individually or in a fiduciary ca23 pacity, but not as a part of a regular business.

24 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC25 TIVITIES.—A bank shall not be considered to be
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•S 753 IS

1 a dealer because the bank engages in any of

2 the following activities under the conditions de3 scribed:

4 ‘‘(i) PERMISSIBLE SECURITIES TRANS5 ACTIONS.—The bank buys or sells—

6 ‘‘(I) commercial paper, bankers

7 acceptances, or commercial bills;

8 ‘‘(II) exempted securities;

9 ‘‘(III) qualified Canadian govern10 ment obligations as defined in section

11 5136 of the Revised Statutes of the

12 United States, in conformity with sec13 tion 15C of this title and the rules

14 and regulations thereunder, or obliga15 tions of the North American Develop16 ment Bank; or

17 ‘‘(IV) any standardized, credit

18 enhanced debt security issued by a

19 foreign government pursuant to the

20 March 1989 plan of then Secretary of

21 the Treasury Brady, used by such for22 eign government to retire outstanding

23 commercial bank loans.

24 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI25 DUCIARY TRANSACTIONS.—The bank buys
205

•S 753 IS

1 or sells securities for investment

2 purposes—

3 ‘‘(I) for the bank; or

4 ‘‘(II) for accounts for which the

5 bank acts as a trustee or fiduciary.

6 ‘‘(iii) ASSET-BACKED TRANS7 ACTIONS.—The bank engages in the

8 issuance or sale to qualified investors,

9 through a grantor trust or otherwise, of se10 curities backed by or representing an inter11 est in notes, drafts, acceptances, loans,

12 leases, receivables, other obligations, or

13 pools of any such obligations predomi14 nantly originated by the bank, or a syn15 dicate of banks of which the bank is a

16 member, or an affiliate of any such bank

17 other than a broker or dealer.

18 ‘‘(iv) BANKING PRODUCTS.—The bank

19 buys or sells traditional banking products,

20 as defined in section 206(a) of the Finan21 cial Services Act of 1999.

22 ‘‘(v) DERIVATIVE INSTRUMENTS.—

23 The bank issues, buys, or sells any deriva24 tive instrument to which the bank is a

25 party—
206

•S 753 IS

1 ‘‘(I) to or from a qualified inves2 tor, except that if the instrument pro3 vides for the delivery of one or more

4 securities (other than a derivative in5 strument or government security), the

6 transaction shall be effected with or

7 through a registered broker or dealer;

8 ‘‘(II) to or from other persons,

9 except that if the derivative instru10 ment provides for the delivery of one

11 or more securities (other than a deriv12 ative instrument or government secu13 rity), or is a security (other than a

14 government security), the transaction

15 shall be effected with or through a

16 registered broker or dealer; or

17 ‘‘(III) to or from any person if

18 the instrument is neither a security

19 nor provides for the delivery of one or

20 more securities (other than a deriva21 tive instrument).’’.
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•S 753 IS

1 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI2 TIES OFFERINGS.

3 Section 15A of the Securities Exchange Act of 1934

4 (15 U.S.C. 78o–3) is amended by inserting after sub5 section (i) the following new subsection:

6 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI7 TIES OFFERINGS.—A registered securities association

8 shall create a limited qualification category for any associ9 ated person of a member who effects sales as part of a

10 primary offering of securities not involving a public offer11 ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi12 ties Act of 1933 and the rules and regulations thereunder,

13 and shall deem qualified in such limited qualification cat14 egory, without testing, any bank employee who, in the 6-

15 month period preceding the date of enactment of the Fi16 nancial Services Act of 1999, engaged in effecting such

17 sales.’’.

18 SEC. 204. SALES PRACTICES AND COMPLAINT PROCE19 DURES.

20 Section 18 of the Federal Deposit Insurance Act is

21 amended by adding at the end the following new sub22 section:

23 ‘‘(s) SALES PRACTICES AND COMPLAINT PROCE24 DURES WITH RESPECT TO BANK SECURITIES ACTIVI25 TIES.—
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•S 753 IS

1 ‘‘(1) REGULATIONS REQUIRED.—Each Federal

2 banking agency shall prescribe and publish in final

3 form, not later than 6 months after the date of en4 actment of the Financial Services Act of 1999, regu5 lations which apply to retail transactions, solicita6 tions, advertising, or offers of any security by any

7 insured depository institution or any affiliate thereof

8 other than a registered broker or dealer or an indi9 vidual acting on behalf of such a broker or dealer

10 who is an associated person of such broker or dealer.

11 Such regulations shall include—

12 ‘‘(A) requirements that sales practices

13 comply with just and equitable principles of

14 trade that are substantially similar to the Rules

15 of Fair Practice of the National Association of

16 Securities Dealers; and

17 ‘‘(B) requirements prohibiting (i) condi18 tioning an extension of credit on the purchase

19 or sale of a security; and (ii) any conduct lead20 ing a customer to believe that an extension of

21 credit is conditioned upon the purchase or sale

22 of a security.

23 ‘‘(2) PROCEDURES REQUIRED.—The appro24 priate Federal banking agencies shall jointly estab25 lish procedures and facilities for receiving and expe-
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•S 753 IS

1 ditiously processing complaints against any bank or

2 employee of a bank arising in connection with the

3 purchase or sale of a security by a customer, includ4 ing a complaint alleging a violation of the regula5 tions prescribed under paragraph (1), but excluding

6 a complaint involving an individual acting on behalf

7 of such a broker or dealer who is an associated per8 son of such broker or dealer. The use of any such

9 procedures and facilities by such a customer shall be

10 at the election of the customer. Such procedures

11 shall include provisions to refer a complaint alleging

12 fraud to the Securities and Exchange Commission

13 and appropriate State securities commissions.

14 ‘‘(3) REQUIRED ACTIONS.—The actions re15 quired by the Federal banking agencies under para16 graph (2) shall include the following:

17 ‘‘(A) establishing a group, unit, or bureau

18 within each such agency to receive such com19 plaints;

20 ‘‘(B) developing and establishing proce21 dures for investigating, and permitting cus22 tomers to investigate, such complaints;

23 ‘‘(C) developing and establishing proce24 dures for informing customers of the rights
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•S 753 IS

1 they may have in connection with such com2 plaints;

3 ‘‘(D) developing and establishing proce4 dures that allow customers a period of at least

5 6 years to make complaints and that do not re6 quire customers to pay the costs of the pro7 ceeding; and

8 ‘‘(E) developing and establishing proce9 dures for resolving such complaints, including

10 procedures for the recovery of losses to the ex11 tent appropriate.

12 ‘‘(4) CONSULTATION AND JOINT REGULA13 TIONS.—The Federal banking agencies shall consult

14 with each other and prescribe joint regulations pur15 suant to paragraphs (1) and (2), after consultation

16 with the Securities and Exchange Commission.

17 ‘‘(5) PROCEDURES IN ADDITION TO OTHER

18 REMEDIES.—The procedures and remedies provided

19 under this subsection shall be in addition to, and not

20 in lieu of, any other remedies available under law.

21 ‘‘(6) DEFINITION.—As used in this

22 subsection—

23 ‘‘(A) the term ‘security’ has the same

24 meaning as in section 3(a)(10) of the Securities

25 Exchange Act of 1934;
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1 ‘‘(B) the term ‘registered broker or dealer’

2 has the same meaning as in section 3(a)(48) of

3 the Securities Exchange Act of 1934; and

4 ‘‘(C) the term ‘associated person’ has the

5 same meaning as in section 3(a)(18) of the Se6 curities Exchange Act of 1934.’’.

7 SEC. 205. INFORMATION SHARING.

8 Section 18 of the Federal Deposit Insurance Act is

9 amended by adding at the end the following new sub10 section:

11 ‘‘(t) RECORDKEEPING REQUIREMENTS.—

12 ‘‘(1) REQUIREMENTS.—Each appropriate Fed13 eral banking agency, after consultation with and

14 consideration of the views of the Commission, shall

15 establish recordkeeping requirements for banks rely16 ing on exceptions contained in paragraphs (4) and

17 (5) of section 3(a) of the Securities Exchange Act of

18 1934. Such recordkeeping requirements shall be suf19 ficient to demonstrate compliance with the terms of

20 such exceptions and be designed to facilitate compli21 ance with such exceptions. Each appropriate Federal

22 banking agency shall make any such information

23 available to the Commission upon request.
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1 ‘‘(2) DEFINITIONS.—As used in this subsection

2 the term ‘Commission’ means the Securities and Ex3 change Commission.’’.

4 SEC. 206. DEFINITION AND TREATMENT OF BANKING PROD5 UCTS.

6 (a) DEFINITION OF TRADITIONAL BANKING PROD7 UCT.—For purposes of paragraphs (4) and (5) of section

8 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.

9 78c(a) (4), (5)), the term ‘‘traditional banking product’’

10 means—

11 (1) a deposit account, savings account, certifi12 cate of deposit, or other deposit instrument issued

13 by a bank;

14 (2) a banker’s acceptance;

15 (3) a letter of credit issued or loan made by a

16 bank;

17 (4) a debit account at a bank arising from a

18 credit card or similar arrangement;

19 (5) a participation in a loan which the bank or

20 an affiliate of the bank (other than a broker or deal21 er) funds, participates in, or owns that is sold—

22 (A) to qualified investors; or

23 (B) to other persons that—

24 (i) have the opportunity to review and

25 assess any material information, including
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1 information regarding the borrower’s cred2 itworthiness; and

3 (ii) based on such factors as financial

4 sophistication, net worth, and knowledge

5 and experience in financial matters, have

6 the capability to evaluate the information

7 available, as determined under generally

8 applicable banking standards or guidelines;

9 and

10 (6) any derivative instrument, whether or not

11 individually negotiated, involving or relating to—

12 (A) foreign currencies, except options on

13 foreign currencies that trade on a national se14 curities exchange;

15 (B) interest rates, except interest rate de16 rivative instruments that—

17 (i) are based on a security or a group

18 or index of securities (other than govern19 ment securities or a group or index of gov20 ernment securities);

21 (ii) provide for the delivery of one or

22 more securities (other than government se23 curities); or

24 (iii) trade on a national securities ex25 change; and
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•S 753 IS

1 (C) commodities, other rates, indices, or

2 other assets, except derivative instruments

3 that—

4 (i) are securities or that are based on

5 a group or index of securities (other than

6 government securities or a group or index

7 of government securities);

8 (ii) provide for the delivery of one or

9 more securities (other than government se10 curities); or

11 (iii) trade on a national securities ex12 change.

13 (b) AMENDMENT TO THE SECURITIES EXCHANGE

14 ACT OF 1934.—Section 15 of the Securities Exchange Act

15 of 1934 (15 U.S.C. 78o) is amended by adding at the end

16 the following new subsection:

17 ‘‘(i) TRANSACTIONS INVOLVING HYBRID PROD18 UCTS.—

19 ‘‘(1) COMMISSION AUTHORITY.—

20 ‘‘(A) IN GENERAL.—The Commission may,

21 after consultation with the Board, determine,

22 by regulation published in the Federal Register,

23 that a bank that effects transactions in, or buys

24 or sells, a new product should be subject to the

25 registration requirements of this section.
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1 ‘‘(B) LIMITATION.—The Commission may

2 not impose the registration requirements of this

3 section on any bank that effects transactions in,

4 or buys or sells, a product under this subsection

5 unless the Commission determines in the regu6 lations described in subparagraph (A) that—

7 ‘‘(i) the subject product is a new prod8 uct;

9 ‘‘(ii) the subject product is a security;

10 and

11 ‘‘(iii) imposing the registration re12 quirements of this section is necessary or

13 appropriate in the public interest and for

14 the protection of investors.

15 ‘‘(2) OBJECTION TO COMMISSION REGULA16 TION.—

17 ‘‘(A) FILING OF PETITION FOR REVIEW.—

18 The Board, or any aggrieved party, may obtain

19 review of any final regulation described in para20 graph (1) in the United States Court of Ap21 peals for the District of Columbia Circuit by fil22 ing in such court, not later than 60 days after

23 the date of publication of the final regulation,

24 a written petition requesting that the regulation

25 be set aside.
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1 ‘‘(B) TRANSMITTAL OF PETITION AND

2 RECORD.—A copy of a petition described in

3 subparagraph (A) shall be transmitted as soon

4 as possible by the Clerk of the Court to an offi5 cer or employee of the Commission designated

6 for that purpose. Upon receipt of the petition,

7 the Commission shall file with the court the

8 regulation under review and any documents re9 ferred to therein, and any other relevant mate10 rials prescribed by the court.

11 ‘‘(C) EXCLUSIVE JURISDICTION.—On the

12 date of the filing of the petition under subpara13 graph (A), the court has jurisdiction, which be14 comes exclusive on the filing of the materials

15 set forth in subparagraph (B), to affirm and

16 enforce or to set aside the regulation at issue.

17 ‘‘(D) STANDARD OF REVIEW.—

18 ‘‘(i) IN GENERAL.—The court shall

19 determine to affirm and enforce or set

20 aside a regulation of the Commission

21 under this subsection, based on the deter22 mination of the court as to whether the

23 subject product—

24 ‘‘(I) is a new product, as defined

25 in this subsection;
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1 ‘‘(II) is a security; and

2 ‘‘(III) would be more appro3 priately regulated under the Federal

4 securities laws or the Federal banking

5 laws, giving equal deference to the

6 views of the Commission and the

7 Board.

8 ‘‘(ii) CONSIDERATIONS.—In making a

9 determination under clause (i)(III), the

10 court shall consider—

11 ‘‘(I) the nature of the subject

12 new product;

13 ‘‘(II) the history, purpose, extent,

14 and appropriateness of the regulation

15 of the new product under the Federal

16 securities laws; and

17 ‘‘(III) the history, purpose, ex18 tent, and appropriateness of the regu19 lation of the new product under the

20 Federal banking laws.

21 ‘‘(E) JUDICIAL STAY.—The filing of a peti22 tion by the Board or an aggrieved party pursu23 ant to subparagraph (A) shall operate as a judi24 cial stay, until the date on which the court
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•S 753 IS

1 makes a final determination under this para2 graph, of—

3 ‘‘(i) any Commission requirement that

4 a bank register as a broker or dealer under

5 this section, because the bank engages in

6 any transaction in, or buys or sells, the

7 new product that is the subject of the peti8 tion; and

9 ‘‘(ii) any Commission action against a

10 bank for a failure to comply with a re11 quirement described in clause (i).

12 ‘‘(3) DEFINITIONS.—For purposes of this

13 subsection—

14 ‘‘(A) the term ‘Board’ means the Board of

15 Governors of the Federal Reserve System; and

16 ‘‘(B) the term ‘new product’ means a prod17 uct or instrument offered or provided by a bank

18 that—

19 ‘‘(i) was not subject to regulation by

20 the Commission as a security under this

21 title before the date of enactment of this

22 subsection; and

23 ‘‘(ii) is not a traditional banking prod24 uct, as defined in paragraphs (1) through
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•S 753 IS

1 (6) of section 206(a) of the Financial Serv2 ices Act of 1999.’’.

3 (c) CLASSIFICATION LIMITED.—Classification of a

4 particular product or instrument as a traditional banking

5 product pursuant to this section or the amendments made

6 by this section shall not be construed as finding or imply7 ing that such product or instrument is or is not a security

8 for any purpose under the securities laws, or is or is not

9 an account, agreement, contract, or transaction for any

10 purpose under the Commodity Exchange Act.

11 (d) NO LIMITATION ON OTHER AUTHORITY TO

12 CHALLENGE.—Nothing in this section or the amendments

13 made by this section shall affect the right or authority

14 of the Board of Governors of the Federal Reserve System,

15 any appropriate Federal banking agency, or any interested

16 party under any other provision of law to object to or seek

17 judicial review as to whether a product or instrument is

18 or is not appropriately classified as a traditional banking

19 product under paragraphs (1) through (6) of section

20 206(a).

21 (e) INCORPORATED DEFINITIONS.—For purposes of

22 this section—

23 (1) the term ‘‘appropriate Federal banking

24 agency’’ has the same meaning as in section 3 of the

25 Federal Deposit Insurance Act;
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•S 753 IS

1 (2) the term ‘‘bank’’ has the same meaning as

2 in section 3(a)(6) of the Securities Exchange Act of

3 1934;

4 (3) the term ‘‘Board’’ means the Board of Gov5 ernors of the Federal Reserve System;

6 (4) the term ‘‘government securities’’ has the

7 same meaning as in section 3(a)(42) of the Securi8 ties Exchange Act of 1934, and, for purposes of this

9 subsection, commercial paper, bankers acceptances,

10 and commercial bills shall be treated in the same

11 manner as government securities; and

12 (5) the term ‘‘qualified investor’’ has the same

13 meaning as in section 3(a)(55) of the Securities Ex14 change Act of 1934, as amended by this Act.

15 SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED IN16 VESTOR DEFINED.

17 Section 3(a) of the Securities Exchange Act of 1934

18 (15 U.S.C. 78c(a)) is amended by adding at the end the

19 following new paragraphs:

20 ‘‘(54) DERIVATIVE INSTRUMENT.—

21 ‘‘(A) DEFINITION.—The term ‘derivative

22 instrument’ means any individually negotiated

23 contract, agreement, warrant, note, or option

24 that is based, in whole or in part, on the value

25 of, any interest in, or any quantitative measure
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1 or the occurrence of any event relating to, one

2 or more commodities, securities, currencies, in3 terest or other rates, indices, or other assets,

4 but does not include a traditional banking prod5 uct, as defined in section 206(a) of the Finan6 cial Services Act of 1999.

7 ‘‘(B) CLASSIFICATION LIMITED.—Classi8 fication of a particular contract as a derivative

9 instrument pursuant to this paragraph shall not

10 be construed as finding or implying that such

11 instrument is or is not a security for any pur12 pose under the securities laws, or is or is not

13 an account, agreement, contract, or transaction

14 for any purpose under the Commodity Ex15 change Act.

16 ‘‘(55) QUALIFIED INVESTOR.—

17 ‘‘(A) DEFINITION.—For purposes of this

18 title, the term ‘qualified investor’ means—

19 ‘‘(i) any investment company reg20 istered with the Commission under section

21 8 of the Investment Company Act of 1940;

22 ‘‘(ii) any issuer eligible for an exclu23 sion from the definition of investment com24 pany pursuant to section 3(c)(7) of the In25 vestment Company Act of 1940;
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1 ‘‘(iii) any bank (as defined in para2 graph (6) of this subsection), savings asso3 ciation (as defined in section 3(b) of the

4 Federal Deposit Insurance Act), broker,

5 dealer, insurance company (as defined in

6 section 2(a)(13) of the Securities Act of

7 1933), or business development company

8 (as defined in section 2(a)(48) of the In9 vestment Company Act of 1940);

10 ‘‘(iv) any small business investment

11 company licensed by the United States

12 Small Business Administration under sec13 tion 301(c) or (d) of the Small Business

14 Investment Act of 1958;

15 ‘‘(v) any State sponsored employee

16 benefit plan, or any other employee benefit

17 plan, within the meaning of the Employee

18 Retirement Income Security Act of 1974,

19 other than an individual retirement ac20 count, if the investment decisions are made

21 by a plan fiduciary, as defined in section

22 3(21) of that Act, which is either a bank,

23 savings and loan association, insurance

24 company, or registered investment adviser;
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•S 753 IS

1 ‘‘(vi) any trust whose purchases of se2 curities are directed by a person described

3 in clauses (i) through (v) of this subpara4 graph;

5 ‘‘(vii) any market intermediary ex6 empt under section 3(c)(2) of the Invest7 ment Company Act of 1940;

8 ‘‘(viii) any associated person of a

9 broker or dealer other than a natural per10 son;

11 ‘‘(ix) any foreign bank (as defined in

12 section 1(b)(7) of the International Bank13 ing Act of 1978);

14 ‘‘(x) the government of any foreign

15 country;

16 ‘‘(xi) any corporation, company, or

17 partnership that owns and invests on a dis18 cretionary basis, not less than $10,000,000

19 in investments;

20 ‘‘(xii) any natural person who owns

21 and invests on a discretionary basis, not

22 less than $10,000,000 in investments;

23 ‘‘(xiii) any government or political

24 subdivision, agency, or instrumentality of a

25 government who owns and invests on a dis-
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•S 753 IS

1 cretionary basis not less than $50,000,000

2 in investments; or

3 ‘‘(xiv) any multinational or supra4 national entity or any agency or instru5 mentality thereof.

6 ‘‘(B) ADDITIONAL AUTHORITY.—The Com7 mission may, by rule or order, define a ‘quali8 fied investor’ as any other person, taking into

9 consideration such factors as the financial so10 phistication of the person, net worth, and

11 knowledge and experience in financial mat12 ters.’’.

13 SEC. 208. GOVERNMENT SECURITIES DEFINED.

14 Section 3(a)(42) of the Securities Exchange Act of

15 1934 (15 U.S.C. 78c(a)(42)) is amended—

16 (1) by striking ‘‘or’’ at the end of subparagraph

17 (C);

18 (2) by striking the period at the end of sub19 paragraph (D) and inserting ‘‘; or’’; and

20 (3) by adding at the end the following new sub21 paragraph:

22 ‘‘(E) for purposes of section 15C as ap23 plied to a bank, a qualified Canadian govern24 ment obligation as defined in section 5136 of

25 the Revised Statutes.’’.
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•S 753 IS

1 SEC. 209. EFFECTIVE DATE.

2 This subtitle shall take effect at the end of the 270-

3 day period beginning on the date of enactment of this Act.

4 SEC. 210. RULE OF CONSTRUCTION.

5 Nothing in this Act shall supersede, affect, or other6 wise limit the scope and applicability of the Commodity

7 Exchange Act (7 U.S.C. 1 et seq.).

8 Subtitle B—Bank Investment

9 Company Activities

10 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

11 AFFILIATED BANK.

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

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

14 is amended—

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

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

17 (2) by striking ‘‘(f) Every registered’’ and in18 serting the following:

19 ‘‘(f) CUSTODY OF SECURITIES.—

20 ‘‘(1) Every registered’’;

21 (3) by redesignating the second, third, fourth,

22 and fifth sentences of such subsection as paragraphs

23 (2) through (5), respectively, and indenting the left

24 margin of such paragraphs appropriately; and

25 (4) by adding at the end the following new

26 paragraph:
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•S 753 IS

1 ‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—

2 The Commission may adopt rules and regulations,

3 and issue orders, consistent with the protection of

4 investors, prescribing the conditions under which a

5 bank, or an affiliated person of a bank, either of

6 which is an affiliated person, promoter, organizer, or

7 sponsor of, or principal underwriter for, a registered

8 management company may serve as custodian of

9 that registered management company.’’.

10 (b) UNIT INVESTMENT TRUSTS.—Section 26 of the

11 Investment Company Act of 1940 (15 U.S.C. 80a–26) is

12 amended—

13 (1) by redesignating subsections (b) through (e)

14 as subsections (c) through (f), respectively; and

15 (2) by inserting after subsection (a) the fol16 lowing new subsection:

17 ‘‘(b) The Commission may adopt rules and regula18 tions, and issue orders, consistent with the protection of

19 investors, prescribing the conditions under which a bank,

20 or an affiliated person of a bank, either of which is an

21 affiliated person of a principal underwriter for, or deposi22 tor of, a registered unit investment trust, may serve as

23 trustee or custodian under subsection (a)(1).’’.
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•S 753 IS

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

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

3 35(a)) is amended—

4 (1) in paragraph (1), by striking ‘‘or’’ at the

5 end;

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

7 the end and inserting ‘‘; or’’; and

8 (3) by inserting after paragraph (2) the fol9 lowing:

10 ‘‘(3) as custodian.’’.

11 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM12 PANY.

13 Section 17(a) of the Investment Company Act of

14 1940 (15 U.S.C. 80a–17(a)) is amended—

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

16 (2);

17 (2) by striking the period at the end of para18 graph (3) and inserting ‘‘; or’’; and

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

20 paragraph:

21 ‘‘(4) to loan money or other property to such

22 registered company, or to any company controlled by

23 such registered company, in contravention of such

24 rules, regulations, or orders as the Commission may
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•S 753 IS

1 prescribe or issue consistent with the protection of

2 investors.’’.

3 SEC. 213. INDEPENDENT DIRECTORS.

4 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest5 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

6 is amended—

7 (1) by striking clause (v) and inserting the fol8 lowing new clause:

9 ‘‘(v) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has executed any portfolio trans16 actions for, engaged in any principal trans17 actions with, or distributed shares for—

18 ‘‘(I) the investment company;

19 ‘‘(II) any other investment com20 pany having the same investment ad21 viser as such investment company or

22 holding itself out to investors as a re23 lated company for purposes of invest24 ment or investor services; or
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•S 753 IS

1 ‘‘(III) any account over which the

2 investment company’s investment ad3 viser has brokerage placement discre4 tion,’’;

5 (2) by redesignating clause (vi) as clause (vii);

6 and

7 (3) by inserting after clause (v) the following

8 new clause:

9 ‘‘(vi) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has loaned money or other prop16 erty to—

17 ‘‘(I) the investment company;

18 ‘‘(II) any other investment com19 pany having the same investment ad20 viser as such investment company or

21 holding itself out to investors as a re22 lated company for purposes of invest23 ment or investor services; or
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•S 753 IS

1 ‘‘(III) any account for which the

2 investment company’s investment ad3 viser has borrowing authority,’’.

4 (b) CONFORMING AMENDMENT.—Section

5 2(a)(19)(B) of the Investment Company Act of 1940 (15

6 U.S.C. 80a–2(a)(19)(B)) is amended—

7 (1) by striking clause (v) and inserting the fol8 lowing new clause:

9 ‘‘(v) any person or any affiliated per10 son of a person (other than a registered in11 vestment company) that, at any time dur12 ing the 6-month period preceding the date

13 of the determination of whether that per14 son or affiliated person is an interested

15 person, has executed any portfolio trans16 actions for, engaged in any principal trans17 actions with, or distributed shares for—

18 ‘‘(I) any investment company for

19 which the investment adviser or prin20 cipal underwriter serves as such;

21 ‘‘(II) any investment company

22 holding itself out to investors, for pur23 poses of investment or investor serv24 ices, as a company related to any in25 vestment company for which the in-
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•S 753 IS

1 vestment adviser or principal under2 writer serves as such; or

3 ‘‘(III) any account over which the

4 investment adviser has brokerage

5 placement discretion,’’;

6 (2) by redesignating clause (vi) as clause (vii);

7 and

8 (3) by inserting after clause (v) the following

9 new clause:

10 ‘‘(vi) any person or any affiliated per11 son of a person (other than a registered in12 vestment company) that, at any time dur13 ing the 6-month period preceding the date

14 of the determination of whether that per15 son or affiliated person is an interested

16 person, has loaned money or other prop17 erty to—

18 ‘‘(I) any investment company for

19 which the investment adviser or prin20 cipal underwriter serves as such;

21 ‘‘(II) any investment company

22 holding itself out to investors, for pur23 poses of investment or investor serv24 ices, as a company related to any in25 vestment company for which the in-
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1 vestment adviser or principal under2 writer serves as such; or

3 ‘‘(III) any account for which the

4 investment adviser has borrowing au5 thority,’’.

6 (c) AFFILIATION OF DIRECTORS.—Section 10(c) of

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

8 10(c)) is amended by striking ‘‘bank, except’’ and insert9 ing ‘‘bank (together with its affiliates and subsidiaries) or

10 any one bank holding company (together with its affiliates

11 and subsidiaries) (as such terms are defined in section 2

12 of the Bank Holding Company Act of 1956), except’’.

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall take effect at the end of the 1-year period

15 beginning on the date of enactment of this subtitle.

16 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

17 Section 35(a) of the Investment Company Act of

18 1940 (15 U.S.C. 80a–34(a)) is amended to read as fol19 lows:

20 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

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

22 person, issuing or selling any security of which a

23 registered investment company is the issuer, to rep24 resent or imply in any manner whatsoever that such

25 security or company—
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1 ‘‘(A) has been guaranteed, sponsored, rec2 ommended, or approved by the United States,

3 or any agency, instrumentality or officer of the

4 United States;

5 ‘‘(B) has been insured by the Federal De6 posit Insurance Corporation; or

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

8 obligation of any bank or insured depository in9 stitution.

10 ‘‘(2) DISCLOSURES.—Any person issuing or

11 selling the securities of a registered investment com12 pany that is advised by, or sold through, a bank

13 shall prominently disclose that an investment in the

14 company is not insured by the Federal Deposit In15 surance Corporation or any other government agen16 cy. The Commission may adopt rules and regula17 tions, and issue orders, consistent with the protec18 tion of investors, prescribing the manner in which

19 the disclosure under this paragraph shall be pro20 vided.

21 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi22 tory institution’ and ‘appropriate Federal banking

23 agency’ have the same meanings as in section 3 of

24 the Federal Deposit Insurance Act.’’.
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1 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST2 MENT COMPANY ACT OF 1940.

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

4 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol5 lows:

6 ‘‘(6) The term ‘broker’ has the same meaning

7 as in section 3 of the Securities Exchange Act of

8 1934, except that such term does not include any

9 person solely by reason of the fact that such person

10 is an underwriter for one or more investment compa11 nies.’’.

12 SEC. 216. DEFINITION OF DEALER UNDER THE INVEST13 MENT COMPANY ACT OF 1940.

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

15 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol16 lows:

17 ‘‘(11) The term ‘dealer’ has the same meaning

18 as in section 3 of the Securities Exchange Act of

19 1934, but does not include an insurance company or

20 investment company.’’.

21 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI22 TION OF INVESTMENT ADVISER FOR BANKS

23 THAT ADVISE INVESTMENT COMPANIES.

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

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

26 2(a)(11)) is amended in subparagraph (A), by striking
235

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1 ‘‘investment company’’ and inserting ‘‘investment com2 pany, except that the term ‘investment adviser’ includes

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

4 bank or bank holding company serves or acts as an invest5 ment adviser to a registered investment company, but if,

6 in the case of a bank, such services or actions are per7 formed through a separately identifiable department or di8 vision, the department or division, and not the bank itself,

9 shall be deemed to be the investment adviser’’.

10 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR

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

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

13 the end the following:

14 ‘‘(26) The term ‘separately identifiable depart15 ment or division’ of a bank means a unit—

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

17 an officer or officers designated by the board of

18 directors of the bank as responsible for the day19 to-day conduct of the bank’s investment adviser

20 activities for one or more investment companies,

21 including the supervision of all bank employees

22 engaged in the performance of such activities;

23 and

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

25 to its investment adviser activities are sepa-
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•S 753 IS

1 rately maintained in or extractable from such

2 unit’s own facilities or the facilities of the bank,

3 and such records are so maintained or other4 wise accessible as to permit independent exam5 ination and enforcement by the Commission of

6 this Act or the Investment Company Act of

7 1940 and rules and regulations promulgated

8 under this Act or the Investment Company Act

9 of 1940.’’.

10 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST11 MENT ADVISERS ACT OF 1940.

12 Section 202(a)(3) of the Investment Advisers Act of

13 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol14 lows:

15 ‘‘(3) The term ‘broker’ has the same meaning

16 as in section 3 of the Securities Exchange Act of

17 1934.’’.

18 SEC. 219. DEFINITION OF DEALER UNDER THE INVEST19 MENT ADVISERS ACT OF 1940.

20 Section 202(a)(7) of the Investment Advisers Act of

21 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol22 lows:

23 ‘‘(7) The term ‘dealer’ has the same meaning as

24 in section 3 of the Securities Exchange Act of 1934,
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1 but does not include an insurance company or in2 vestment company.’’.

3 SEC. 220. INTERAGENCY CONSULTATION.

4 The Investment Advisers Act of 1940 (15 U.S.C.

5 80b–1 et seq.) is amended by inserting after section 210

6 the following new section:

7 ‘‘SEC. 210A. CONSULTATION.

8 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA9 TION.—

10 ‘‘(1) The appropriate Federal banking agency

11 shall provide the Commission upon request the re12 sults of any examination, reports, records, or other

13 information to which such agency may have access

14 with respect to the investment advisory activities—

15 ‘‘(A) of any—

16 ‘‘(i) bank holding company;

17 ‘‘(ii) bank; or

18 ‘‘(iii) separately identifiable depart19 ment or division of a bank, that is reg20 istered under section 203 of this title; and

21 ‘‘(B) in the case of a bank holding com22 pany or bank that has a subsidiary or a sepa23 rately identifiable department or division reg24 istered under that section, of such bank or bank

25 holding company.
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1 ‘‘(2) The Commission shall provide to the ap2 propriate Federal banking agency upon request the

3 results of any examination, reports, records, or other

4 information with respect to the investment advisory

5 activities of any bank holding company, bank, or

6 separately identifiable department or division of a

7 bank, any of which is registered under section 203

8 of this title.

9 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in

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

11 appropriate Federal banking agency with respect to such

12 bank holding company, bank, or department or division

13 under any provision of law.

14 ‘‘(c) DEFINITION.—For purposes of this section, the

15 term ‘appropriate Federal banking agency’ has the same

16 meaning as in section 3 of the Federal Deposit Insurance

17 Act.’’.

18 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

19 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of

20 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is

21 amended by striking ‘‘or any interest or participation in

22 any common trust fund or similar fund maintained by a

23 bank exclusively for the collective investment and reinvest24 ment of assets contributed thereto by such bank in its ca25 pacity as trustee, executor, administrator, or guardian’’
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1 and inserting ‘‘or any interest or participation in any com2 mon trust fund or similar fund that is excluded from the

3 definition of the term ‘investment company’ under section

4 3(c)(3) of the Investment Company Act of 1940’’.

5 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

6 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934

7 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol8 lows:

9 ‘‘(iii) any interest or participation in any

10 common trust fund or similar fund that is ex11 cluded from the definition of the term ‘invest12 ment company’ under section 3(c)(3) of the In13 vestment Company Act of 1940;’’.

14 (c) INVESTMENT COMPANY ACT OF 1940.—Section

15 3(c)(3) of the Investment Company Act of 1940 (15

16 U.S.C. 80a–3(c)(3)) is amended by inserting before the

17 period the following: ‘‘, if—

18 ‘‘(A) such fund is employed by the bank

19 solely as an aid to the administration of trusts,

20 estates, or other accounts created and main21 tained for a fiduciary purpose;

22 ‘‘(B) except in connection with the ordi23 nary advertising of the bank’s fiduciary serv24 ices, interests in such fund are not—

25 ‘‘(i) advertised; or
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•S 753 IS

1 ‘‘(ii) offered for sale to the general

2 public; and

3 ‘‘(C) fees and expenses charged by such

4 fund are not in contravention of fiduciary prin5 ciples established under applicable Federal or

6 State law’’.

7 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV8 ING CONTROLLING INTEREST IN REG9 ISTERED INVESTMENT COMPANY.

10 Section 15 of the Investment Company Act of 1940

11 (15 U.S.C. 80a–15) is amended by adding at the end the

12 following new subsection:

13 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM14 PANY PROHIBITED.—

15 ‘‘(1) IN GENERAL.—If an investment adviser to

16 a registered investment company, or an affiliated

17 person of that investment adviser, holds a control18 ling interest in that registered investment company

19 in a trustee or fiduciary capacity, such person

20 shall—

21 ‘‘(A) if it holds the shares in a trustee or

22 fiduciary capacity with respect to any employee

23 benefit plan subject to the Employee Retire24 ment Income Security Act of 1974, transfer the

25 power to vote the shares of the investment com-
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1 pany through to another person acting in a fi2 duciary capacity with respect to the plan who is

3 not an affiliated person of that investment ad4 viser or any affiliated person thereof; or

5 ‘‘(B) if it holds the shares in a trustee or

6 fiduciary capacity with respect to any person or

7 entity other than an employee benefit plan sub8 ject to the Employee Retirement Income Secu9 rity Act of 1974—

10 ‘‘(i) transfer the power to vote the

11 shares of the investment company through

12 to—

13 ‘‘(I) the beneficial owners of the

14 shares;

15 ‘‘(II) another person acting in a

16 fiduciary capacity who is not an affili17 ated person of that investment adviser

18 or any affiliated person thereof; or

19 ‘‘(III) any person authorized to

20 receive statements and information

21 with respect to the trust who is not an

22 affiliated person of that investment

23 adviser or any affiliated person there24 of;
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1 ‘‘(ii) vote the shares of the investment

2 company held by it in the same proportion

3 as shares held by all other shareholders of

4 the investment company; or

5 ‘‘(iii) vote the shares of the invest6 ment company as otherwise permitted

7 under such rules, regulations, or orders as

8 the Commission may prescribe or issue

9 consistent with the protection of investors.

10 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

11 apply to any investment adviser to a registered in12 vestment company, or any affiliated person of that

13 investment adviser, that holds shares of the invest14 ment company in a trustee or fiduciary capacity if

15 that registered investment company consists solely of

16 assets held in such capacities.

17 ‘‘(3) SAFE HARBOR.—No investment adviser to

18 a registered investment company or any affiliated

19 person of such investment adviser shall be deemed to

20 have acted unlawfully or to have breached a fidu21 ciary duty under State or Federal law solely by rea22 son of acting in accordance with clause (i), (ii), or

23 (iii) of paragraph (1)(B).

24 ‘‘(4) CHURCH PLAN EXEMPTION.—Paragraph

25 (1) does not apply to any investment adviser to a
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•S 753 IS

1 registered investment company, or an affiliated per2 son of that investment adviser, holding shares in

3 such a capacity, if such investment adviser or such

4 affiliated person is an organization described in sec5 tion 414(e)(3)(A) of the Internal Revenue Code of

6 1986.’’.

7 SEC. 223. CONFORMING CHANGE IN DEFINITION.

8 Section 2(a)(5) of the Investment Company Act of

9 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking

10 ‘‘(A) a banking institution organized under the laws of the

11 United States’’ and inserting ‘‘(A) a depository institution

12 (as defined in section 3 of the Federal Deposit Insurance

13 Act) or a branch or agency of a foreign bank (as such

14 terms are defined in section 1(b) of the International

15 Banking Act of 1978)’’.

16 SEC. 224. CONFORMING AMENDMENT.

17 Section 202 of the Investment Advisers Act of 1940

18 (15 U.S.C. 80b–2) is amended by adding at the end the

19 following new subsection:

20 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFI21 CIENCY, COMPETITION, AND CAPITAL FORMATION.—

22 Whenever pursuant to this title the Commission is en23 gaged in rulemaking and is required to consider or deter24 mine whether an action is necessary or appropriate in the

25 public interest, the Commission shall also consider, in ad-
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1 dition to the protection of investors, whether the action

2 will promote efficiency, competition, and capital forma3 tion.’’.

4 SEC. 225. EFFECTIVE DATE.

5 This subtitle shall take effect 90 days after the date

6 of enactment of this Act.

7 Subtitle C—Securities and Ex8 change Commission Supervision

9 of Investment Bank Holding

10 Companies

11 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING

12 COMPANIES BY THE SECURITIES AND EX13 CHANGE COMMISSION.

14 (a) AMENDMENT.—Section 17 of the Securities Ex15 change Act of 1934 (15 U.S.C. 78q) is amended—

16 (1) by redesignating subsection (i) as subsection

17 (l); and

18 (2) by inserting after subsection (h) the fol19 lowing new subsections:

20 ‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—

21 ‘‘(1) ELECTIVE SUPERVISION OF AN INVEST22 MENT BANK HOLDING COMPANY NOT HAVING A

23 BANK OR SAVINGS ASSOCIATION AFFILIATE.—

24 ‘‘(A) IN GENERAL.—An investment bank

25 holding company that is not—
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•S 753 IS

1 ‘‘(i) an affiliate of a wholesale finan2 cial institution, an insured bank (other

3 than an institution described in subpara4 graph (D), (F), or (G) of section 2(c)(2),

5 or held under section 4(f), of the Bank

6 Holding Company Act of 1956), or a sav7 ings association;

8 ‘‘(ii) a foreign bank, foreign company,

9 or company that is described in section

10 8(a) of the International Banking Act of

11 1978; or

12 ‘‘(iii) a foreign bank that controls, di13 rectly or indirectly, a corporation chartered

14 under section 25A of the Federal Reserve

15 Act,

16 may elect to become supervised by filing with

17 the Commission a notice of intention to become

18 supervised, pursuant to subparagraph (B) of

19 this paragraph. Any investment bank holding

20 company filing such a notice shall be supervised

21 in accordance with this section and comply with

22 the rules promulgated by the Commission appli23 cable to supervised investment bank holding

24 companies.
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1 ‘‘(B) NOTIFICATION OF STATUS AS A SU2 PERVISED INVESTMENT BANK HOLDING COM3 PANY.—An investment bank holding company

4 that elects under subparagraph (A) to become

5 supervised by the Commission shall file with the

6 Commission a written notice of intention to be7 come supervised by the Commission in such

8 form and containing such information and doc9 uments concerning such investment bank hold10 ing company as the Commission, by rule, may

11 prescribe as necessary or appropriate in fur12 therance of the purposes of this section. Unless

13 the Commission finds that such supervision is

14 not necessary or appropriate in furtherance of

15 the purposes of this section, such supervision

16 shall become effective 45 days after the date of

17 receipt of such written notice by the Commis18 sion, or within such shorter time period as the

19 Commission, by rule or order, may determine.

20 ‘‘(2) ELECTION NOT TO BE SUPERVISED BY

21 THE COMMISSION AS AN INVESTMENT BANK HOLD22 ING COMPANY.—

23 ‘‘(A) VOLUNTARY WITHDRAWAL.—A su24 pervised investment bank holding company that

25 is supervised pursuant to paragraph (1) may,
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1 upon such terms and conditions as the Commis2 sion deems necessary or appropriate, elect not

3 to be supervised by the Commission by filing a

4 written notice of withdrawal from Commission

5 supervision. Such notice shall not become effec6 tive until one year after receipt by the Commis7 sion, or such shorter or longer period as the

8 Commission deems necessary or appropriate to

9 ensure effective supervision of the material

10 risks to the supervised investment bank holding

11 company and to the affiliated broker or dealer,

12 or to prevent evasion of the purposes of this

13 section.

14 ‘‘(B) DISCONTINUATION OF COMMISSION

15 SUPERVISION.—If the Commission finds that

16 any supervised investment bank holding com17 pany that is supervised pursuant to paragraph

18 (1) is no longer in existence or has ceased to be

19 an investment bank holding company, or if the

20 Commission finds that continued supervision of

21 such a supervised investment bank holding com22 pany is not consistent with the purposes of this

23 section, the Commission may discontinue the

24 supervision pursuant to a rule or order, if any,
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1 promulgated by the Commission under this sec2 tion.

3 ‘‘(3) SUPERVISION OF INVESTMENT BANK

4 HOLDING COMPANIES.—

5 ‘‘(A) RECORDKEEPING AND REPORTING.—

6 ‘‘(i) IN GENERAL.—Every supervised

7 investment bank holding company and

8 each affiliate thereof shall make and keep

9 for prescribed periods such records, furnish

10 copies thereof, and make such reports, as

11 the Commission may require by rule, in

12 order to keep the Commission informed as

13 to—

14 ‘‘(I) the company’s or affiliate’s

15 activities, financial condition, policies,

16 systems for monitoring and control17 ling financial and operational risks,

18 and transactions and relationships be19 tween any broker or dealer affiliate of

20 the supervised investment bank hold21 ing company; and

22 ‘‘(II) the extent to which the

23 company or affiliate has complied with

24 the provisions of this Act and regula-
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•S 753 IS

1 tions prescribed and orders issued

2 under this Act.

3 ‘‘(ii) FORM AND CONTENTS.—Such

4 records and reports shall be prepared in

5 such form and according to such specifica6 tions (including certification by an inde7 pendent public accountant), as the Com8 mission may require and shall be provided

9 promptly at any time upon request by the

10 Commission. Such records and reports may

11 include—

12 ‘‘(I) a balance sheet and income

13 statement;

14 ‘‘(II) an assessment of the con15 solidated capital of the supervised in16 vestment bank holding company;

17 ‘‘(III) an independent auditor’s

18 report attesting to the supervised in19 vestment bank holding company’s

20 compliance with its internal risk man21 agement and internal control objec22 tives; and

23 ‘‘(IV) reports concerning the ex24 tent to which the company or affiliate

25 has complied with the provisions of
250

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1 this title and any regulations pre2 scribed and orders issued under this

3 title.

4 ‘‘(B) USE OF EXISTING REPORTS.—

5 ‘‘(i) IN GENERAL.—The Commission

6 shall, to the fullest extent possible, accept

7 reports in fulfillment of the requirements

8 under this paragraph that the supervised

9 investment bank holding company or its af10 filiates have been required to provide to

11 another appropriate regulatory agency or

12 self-regulatory organization.

13 ‘‘(ii) AVAILABILITY.—A supervised in14 vestment bank holding company or an af15 filiate of such company shall provide to the

16 Commission, at the request of the Commis17 sion, any report referred to in clause (i).

18 ‘‘(C) EXAMINATION AUTHORITY.—

19 ‘‘(i) FOCUS OF EXAMINATION AU20 THORITY.—The Commission may make ex21 aminations of any supervised investment

22 bank holding company and any affiliate of

23 such company in order to—

24 ‘‘(I) inform the Commission

25 regarding—
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1 ‘‘(aa) the nature of the oper2 ations and financial condition of

3 the supervised investment bank

4 holding company and its affili5 ates;

6 ‘‘(bb) the financial and oper7 ational risks within the super8 vised investment bank holding

9 company that may affect any

10 broker or dealer controlled by

11 such supervised investment bank

12 holding company; and

13 ‘‘(cc) the systems of the su14 pervised investment bank holding

15 company and its affiliates for

16 monitoring and controlling those

17 risks; and

18 ‘‘(II) monitor compliance with

19 the provisions of this subsection, pro20 visions governing transactions and re21 lationships between any broker or

22 dealer affiliated with the supervised

23 investment bank holding company and

24 any of the company’s other affiliates,

25 and applicable provisions of sub-
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•S 753 IS

1 chapter II of chapter 53, title 31,

2 United States Code (commonly re3 ferred to as the ‘Bank Secrecy Act’)

4 and regulations thereunder.

5 ‘‘(ii) RESTRICTED FOCUS OF EXAMI6 NATIONS.—The Commission shall limit the

7 focus and scope of any examination of a

8 supervised investment bank holding com9 pany to—

10 ‘‘(I) the company; and

11 ‘‘(II) any affiliate of the company

12 that, because of its size, condition, or

13 activities, the nature or size of the

14 transactions between such affiliate

15 and any affiliated broker or dealer, or

16 the centralization of functions within

17 the holding company system, could, in

18 the discretion of the Commission,

19 have a materially adverse effect on the

20 operational or financial condition of

21 the broker or dealer.

22 ‘‘(iii) DEFERENCE TO OTHER EXAMI23 NATIONS.—For purposes of this subpara24 graph, the Commission shall, to the fullest

25 extent possible, use the reports of examina-
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1 tion of an institution described in subpara2 graph (D), (F), or (G) of section 2(c)(2),

3 or held under section 4(f), of the Bank

4 Holding Company Act of 1956 made by

5 the appropriate regulatory agency, or of a

6 licensed insurance company made by the

7 appropriate State insurance regulator.

8 ‘‘(4) HOLDING COMPANY CAPITAL.—

9 ‘‘(A) AUTHORITY.—If the Commission

10 finds that it is necessary to adequately super11 vise investment bank holding companies and

12 their broker or dealer affiliates consistent with

13 the purposes of this subsection, the Commission

14 may adopt capital adequacy rules for supervised

15 investment bank holding companies.

16 ‘‘(B) METHOD OF CALCULATION.—In de17 veloping rules under this paragraph:

18 ‘‘(i) DOUBLE LEVERAGE.—The Com19 mission shall consider the use by the su20 pervised investment bank holding company

21 of debt and other liabilities to fund capital

22 investments in affiliates.

23 ‘‘(ii) NO UNWEIGHTED CAPITAL

24 RATIO.—The Commission shall not impose

25 under this section a capital ratio that is
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1 not based on appropriate risk-weighting

2 considerations.

3 ‘‘(iii) NO CAPITAL REQUIREMENT ON

4 REGULATED ENTITIES.—The Commission

5 shall not, by rule, regulation, guideline,

6 order or otherwise, impose any capital ade7 quacy provision on a nonbanking affiliate

8 (other than a broker or dealer) that is in

9 compliance with applicable capital require10 ments of another Federal regulatory au11 thority or State insurance authority.

12 ‘‘(iv) APPROPRIATE EXCLUSIONS.—

13 The Commission shall take full account of

14 the applicable capital requirements of an15 other Federal regulatory authority or State

16 insurance regulator.

17 ‘‘(C) INTERNAL RISK MANAGEMENT MOD18 ELS.—The Commission may incorporate inter19 nal risk management models into its capital

20 adequacy rules for supervised investment bank

21 holding companies.

22 ‘‘(5) FUNCTIONAL REGULATION OF BANKING

23 AND INSURANCE ACTIVITIES OF SUPERVISED IN24 VESTMENT BANK HOLDING COMPANIES.—The Com25 mission shall defer to—
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•S 753 IS

1 ‘‘(A) the appropriate regulatory agency

2 with regard to all interpretations of, and the

3 enforcement of, applicable banking laws relating

4 to the activities, conduct, ownership, and oper5 ations of banks, and institutions described in

6 subparagraph (D), (F), and (G) of section

7 2(c)(2), or held under section 4(f), of the Bank

8 Holding Company Act of 1956; and

9 ‘‘(B) the appropriate State insurance regu10 lators with regard to all interpretations of, and

11 the enforcement of, applicable State insurance

12 laws relating to the activities, conduct, and op13 erations of insurance companies and insurance

14 agents.

15 ‘‘(6) DEFINITIONS.—For purposes of this sub16 section and subsection (j)—

17 ‘‘(A) the term ‘investment bank holding

18 company’ means—

19 ‘‘(i) any person other than a natural

20 person that owns or controls one or more

21 brokers or dealers; and

22 ‘‘(ii) the associated persons of the in23 vestment bank holding company;

24 ‘‘(B) the term ‘supervised investment bank

25 holding company’ means any investment bank
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•S 753 IS

1 holding company that is supervised by the Com2 mission pursuant to this subsection;

3 ‘‘(C) the terms ‘affiliate’, ‘bank’, ‘bank

4 holding company’, ‘company’, ‘control’, and

5 ‘savings association’ have the same meanings as

6 in section 2 of the Bank Holding Company Act

7 of 1956;

8 ‘‘(D) the term ‘insured bank’ has the same

9 meaning as in section 3 of the Federal Deposit

10 Insurance Act;

11 ‘‘(E) the term ‘foreign bank’ has the same

12 meaning as in section 1(b)(7) of the Inter13 national Banking Act of 1978; and

14 ‘‘(F) the terms ‘person associated with an

15 investment bank holding company’ and ‘associ16 ated person of an investment bank holding com17 pany’ mean any person directly or indirectly

18 controlling, controlled by, or under common

19 control with, an investment bank holding com20 pany.

21 ‘‘(j) COMMISSION BACKUP AUTHORITY.—

22 ‘‘(1) AUTHORITY.—The Commission may make

23 inspections of any wholesale financial holding com24 pany that—
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•S 753 IS

1 ‘‘(A) controls a wholesale financial institu2 tion;

3 ‘‘(B) is not a foreign bank; and

4 ‘‘(C) does not control an insured bank

5 (other than an institution permitted under sub6 paragraph (D), (F), or (G) of section 2(c)(2),

7 or held under section 4(f), of the Bank Holding

8 Company Act of 1956) or a savings association,

9 and any affiliate of such company, for the purpose

10 of monitoring and enforcing compliance by the

11 wholesale financial holding company with the Fed12 eral securities laws.

13 ‘‘(2) LIMITATION.—The Commission shall limit

14 the focus and scope of any inspection under para15 graph (1) to those transactions, policies, procedures,

16 or records that are reasonably necessary to monitor

17 and enforce compliance by the wholesale financial

18 holding company or any affiliate with the Federal

19 securities laws.

20 ‘‘(3) DEFERENCE TO EXAMINATIONS.—To the

21 fullest extent possible, the Commission shall use, for

22 the purposes of this subsection, the reports of

23 examinations—

24 ‘‘(A) made by the Board of Governors of

25 the Federal Reserve System of any wholesale fi-
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•S 753 IS

1 nancial holding company that is supervised by

2 the Board;

3 ‘‘(B) made by or on behalf of any State

4 regulatory agency responsible for the super5 vision of an insurance company of any licensed

6 insurance company; and

7 ‘‘(C) made by any Federal or State bank8 ing agency of any bank or institution described

9 in subparagraph (D), (F), or (G) of section

10 2(c)(2), or held under section 4(f), of the Bank

11 Holding Company Act of 1956.

12 ‘‘(4) NOTICE.—To the fullest extent possible,

13 the Commission shall notify the appropriate regu14 latory agency prior to conducting an inspection of a

15 wholesale financial institution or institution de16 scribed in subparagraph (D), (F), or (G) of section

17 2(c)(2), or held under section 4(f), of the Bank

18 Holding Company Act of 1956.

19 ‘‘(k) AUTHORITY TO LIMIT DISCLOSURE OF INFOR20 MATION.—Notwithstanding any other provision of law, the

21 Commission shall not be compelled to disclose any infor22 mation required to be reported under subsection (h) or

23 (i) or any information supplied to the Commission by any

24 domestic or foreign regulatory agency that relates to the

25 financial or operational condition of any associated person
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•S 753 IS

1 of a broker or dealer, investment bank holding company,

2 or any affiliate of an investment bank holding company.

3 Nothing in this subsection shall authorize the Commission

4 to withhold information from Congress, or prevent the

5 Commission from complying with a request for informa6 tion from any other Federal department or agency or any

7 self-regulatory organization requesting the information for

8 purposes within the scope of its jurisdiction, or complying

9 with an order of a court of the United States in an action

10 brought by the United States or the Commission. For pur11 poses of section 552 of title 5, United States Code, this

12 subsection shall be considered a statute described in sub13 section (b)(3)(B) of such section 552. In prescribing regu14 lations to carry out the requirements of this subsection,

15 the Commission shall designate information described in

16 or obtained pursuant to subparagraphs (A), (B), and (C)

17 of subsection (i)(5) as confidential information for pur18 poses of section 24(b)(2) of this title.’’.

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 3(a)(34) of the Securities Exchange

21 Act of 1934 (15 U.S.C. 78c(a)(34)) is amended by

22 adding at the end the following new subparagraphs:

23 ‘‘(H) When used with respect to an institu24 tion described in subparagraph (D), (F), or (G)
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•S 753 IS

1 of section 2(c)(2), or held under section 4(f),

2 of the Bank Holding Company Act of 1956—

3 ‘‘(i) the Comptroller of the Currency,

4 in the case of a national bank or a bank

5 in the District of Columbia examined by

6 the Comptroller of the Currency;

7 ‘‘(ii) the Board of Governors of the

8 Federal Reserve System, in the case of a

9 State member bank of the Federal Reserve

10 System or any corporation chartered under

11 section 25A of the Federal Reserve Act;

12 ‘‘(iii) the Federal Deposit Insurance

13 Corporation, in the case of any other bank

14 the deposits of which are insured in ac15 cordance with the Federal Deposit Insur16 ance Act; or

17 ‘‘(iv) the Commission in the case of all

18 other such institutions.’’.

19 (2) Section 1112(e) of the Right to Financial

20 Privacy Act of 1978 (12 U.S.C. 3412(e)) is

21 amended—

22 (A) by striking ‘‘this title’’ and inserting

23 ‘‘law’’; and

24 (B) by inserting ‘‘, examination reports’’

25 after ‘‘financial records’’.
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1 Subtitle D—Studies

2 SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND

3 CONSUMERS OF UNINSURED PRODUCTS.

4 Not later than 1 year after the date of enactment

5 of this Act, the Comptroller General of the United States

6 shall submit a report to the Congress regarding the effi7 cacy, costs, and benefits of requiring that any depository

8 institution that accepts federally insured deposits and

9 that, directly or through a contractual or other arrange10 ment with a broker, dealer, or agent, buys from, sells to,

11 or effects transactions for retail investors in securities or

12 consumers of insurance to inform such investors and con13 sumers through the use of a logo or seal that the security

14 or insurance is not insured by the Federal Deposit Insur15 ance Corporation.

16 SEC. 242. STUDY OF LIMITATION ON FEES ASSOCIATED

17 WITH ACQUIRING FINANCIAL PRODUCTS.

18 Not later than 1 year after the date of enactment

19 of this Act, the Comptroller General of the United States

20 shall submit a report to the Congress regarding the effi21 cacy and benefits of uniformly limiting any commissions,

22 fees, markups, or other costs incurred by customers in the

23 acquisition of financial products.
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•S 753 IS

1 TITLE III—INSURANCE

2 Subtitle A—State Regulation of

3 Insurance

4 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR5 ANCE.

6 The Act entitled ‘‘An Act to express the intent of the

7 Congress with reference to the regulation of the business

8 of insurance’’ and approved March 9, 1945 (15 U.S.C.

9 1011 et seq.), commonly referred to as the ‘‘McCarran10 Ferguson Act’’) remains the law of the United States.

11 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE12 MENTS.

13 No person or entity shall provide insurance in a State

14 as principal or agent unless such person or entity is li15 censed as required by the appropriate insurance regulator

16 of such State in accordance with the relevant State insur17 ance law, subject to section 104.

18 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

19 The insurance sales activity of any person or entity

20 shall be functionally regulated by the States, subject to

21 section 104.

22 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL

23 BANKS.

24 (a) IN GENERAL.—Except as provided in section 305,

25 a national bank and the subsidiaries of a national bank
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1 may not provide insurance in a State as principal except

2 that this prohibition shall not apply to authorized prod3 ucts.

4 (b) AUTHORIZED PRODUCTS.—For the purposes of

5 this section, a product is authorized if—

6 (1) as of January 1, 1997, the Comptroller of

7 the Currency had determined in writing that na8 tional banks may provide such product as principal,

9 or national banks were in fact lawfully providing

10 such product as principal;

11 (2) no court of relevant jurisdiction had, by

12 final judgment, overturned a determination of the

13 Comptroller of the Currency that national banks

14 may provide such product as principal; and

15 (3) the product is not title insurance, or an an16 nuity contract the income of which is subject to tax

17 treatment under section 72 of the Internal Revenue

18 Code of 1986.

19 (c) DEFINITION.—For purposes of this section, the

20 term ‘‘insurance’’ means—

21 (1) any product regulated as insurance as of

22 January 1, 1997, in accordance with the relevant

23 State insurance law, in the State in which the prod24 uct is provided;
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1 (2) any product first offered after January 1,

2 1997, which—

3 (A) a State insurance regulator determines

4 shall be regulated as insurance in the State in

5 which the product is provided because the prod6 uct insures, guarantees, or indemnifies against

7 liability, loss of life, loss of health, or loss

8 through damage to or destruction of property,

9 including, but not limited to, surety bonds, life

10 insurance, health insurance, title insurance, and

11 property and casualty insurance (such as pri12 vate passenger or commercial automobile,

13 homeowners, mortgage, commercial multiperil,

14 general liability, professional liability, workers’

15 compensation, fire and allied lines, farm owners

16 multiperil, aircraft, fidelity, surety, medical

17 malpractice, ocean marine, inland marine, and

18 boiler and machinery insurance); and

19 (B) is not a product or service of a bank

20 that is—

21 (i) a deposit product;

22 (ii) a loan, discount, letter of credit,

23 or other extension of credit;

24 (iii) a trust or other fiduciary service;
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1 (iv) a qualified financial contract (as

2 defined in or determined pursuant to sec3 tion 11(e)(8)(D)(i) of the Federal Deposit

4 Insurance Act); or

5 (v) a financial guaranty, except that

6 this subparagraph (B) shall not apply to a

7 product that includes an insurance compo8 nent such that if the product is offered or

9 proposed to be offered by the bank as

10 principal—

11 (I) it would be treated as a life

12 insurance contract under section 7702

13 of the Internal Revenue Code of 1986;

14 or

15 (II) in the event that the product

16 is not a letter of credit or other simi17 lar extension of credit, a qualified fi18 nancial contract, or a financial guar19 anty, it would qualify for treatment

20 for losses incurred with respect to

21 such product under section 832(b)(5)

22 of the Internal Revenue Code of 1986,

23 if the bank were subject to tax as an

24 insurance company under section 831

25 of that Code; or
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1 (3) any annuity contract, the income on which

2 is subject to tax treatment under section 72 of the

3 Internal Revenue Code of 1986.

4 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

5 BANKS AND THEIR AFFILIATES.

6 (a) AUTHORITY.—Notwithstanding any other provi7 sion of this Act or any other law, no national bank, and

8 no subsidiary of a national bank, may engage in any activ9 ity involving the underwriting of title insurance, other

10 than title insurance underwriting activities in which such

11 national bank or subsidiary was actively and lawfully en12 gaged before the date of enactment of this Act.

13 (b) INSURANCE AFFILIATE.—In the case of a na14 tional bank which has an affiliate which provides insur15 ance as principal and is not a subsidiary of the bank, the

16 national bank and any subsidiary of the national bank

17 may not engage in any activity involving the underwriting

18 of title insurance pursuant to subsection (a).

19 (c) INSURANCE SUBSIDIARY.—In the case of a na20 tional bank which has a subsidiary which provides insur21 ance as principal and has no affiliate which provides insur22 ance as principal and is not a subsidiary, the national

23 bank may not engage in any activity involving the under24 writing of title insurance pursuant to subsection (a).
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1 (d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—

2 For purposes of this section, the terms ‘‘affiliate’’ and

3 ‘‘subsidiary’’ have the same meanings as in section 2 of

4 the Bank Holding Company Act of 1956.

5 SEC. 306. EXPEDITED AND EQUALIZED DISPUTE RESOLU6 TION FOR FEDERAL REGULATORS.

7 (a) FILING IN COURT OF APPEALS.—In the case of

8 a regulatory conflict between a State insurance regulator

9 and a Federal regulator as to whether any product is or

10 is not insurance, as defined in section 304(c), or whether

11 a State statute, regulation, order, or interpretation re12 garding any insurance sales or solicitation activity is prop13 erly treated as preempted under Federal law, either regu14 lator may seek expedited judicial review of such deter15 mination by the United States Court of Appeals for the

16 circuit in which the State is located or in the United

17 States Court of Appeals for the District of Columbia Cir18 cuit by filing a petition for review in such court.

19 (b) EXPEDITED REVIEW.—The United States Court

20 of Appeals in which a petition for review is filed in accord21 ance with subsection (a) shall complete all action on such

22 petition, including rendering a judgment, before the end

23 of the 60-day period beginning on the date on which such

24 petition is filed, unless all parties to such proceeding agree

25 to any extension of such period.
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1 (c) SUPREME COURT REVIEW.—Any request for cer2 tiorari to the Supreme Court of the United States of any

3 judgment of a United States Court of Appeals with respect

4 to a petition for review under this section shall be filed

5 with the Supreme Court of the United States as soon as

6 practicable after such judgment is issued.

7 (d) STATUTE OF LIMITATION.—No action may be

8 filed under this section challenging an order, ruling, deter9 mination, or other action of a Federal regulator or State

10 insurance regulator after the later of—

11 (1) the end of the 12-month period beginning

12 on the date on which the first public notice is made

13 of such order, ruling, determination, or other action

14 in its final form; or

15 (2) the end of the 6-month period beginning on

16 the date on which such order, ruling, determination,

17 or other action takes effect.

18 (e) STANDARD OF REVIEW.—The court shall decide

19 an action filed under this section based on its review on

20 the merits of all questions presented under State and Fed21 eral law, including the nature of the product or activity

22 and the history and purpose of its regulation under State

23 and Federal law, without unequal deference.
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1 SEC. 307. CONSUMER PROTECTION REGULATIONS.

2 The Federal Deposit Insurance Act (12 U.S.C. 1811

3 et seq.) is amended by adding at the end the following

4 new section:

5 ‘‘SEC. 45. CONSUMER PROTECTION REGULATIONS.

6 ‘‘(a) REGULATIONS REQUIRED.—

7 ‘‘(1) IN GENERAL.—The Federal banking agen8 cies shall prescribe and publish in final form, before

9 the end of the 1-year period beginning on the date

10 of enactment of the Financial Services Act of 1999,

11 consumer protection regulations (which the agencies

12 jointly determine to be appropriate) that—

13 ‘‘(A) apply to retail sales practices, solici14 tations, advertising, or offers of any insurance

15 product by any insured depository institution or

16 wholesale financial institution or any person

17 who is engaged in such activities at an office of

18 the institution or on behalf of the institution;

19 and

20 ‘‘(B) are consistent with the requirements

21 of this Act and provide such additional protec22 tions for consumers to whom such sales, solici23 tations, advertising, or offers are directed as

24 the agency determines to be appropriate.

25 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The

26 regulations prescribed pursuant to paragraph (1)
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•S 753 IS

1 shall extend such protections to any subsidiaries of

2 an insured depository institution, as deemed appro3 priate by the regulators referred to in paragraph (3),

4 where such extension is determined to be necessary

5 to ensure the consumer protections provided by this

6 section.

7 ‘‘(3) CONSULTATION AND JOINT REGULA8 TIONS.—The Federal banking agencies shall consult

9 with each other and prescribe joint regulations pur10 suant to paragraph (1), after consultation with the

11 State insurance regulators, as appropriate.

12 ‘‘(b) SALES PRACTICES.—The regulations prescribed

13 pursuant to subsection (a) shall include anticoercion rules

14 applicable to the sale of insurance products which prohibit

15 an insured depository institution from engaging in any

16 practice that would lead a consumer to believe an exten17 sion of credit, in violation of section 106(b) of the Bank

18 Holding Company Act Amendments of 1970, is condi19 tional upon—

20 ‘‘(1) the purchase of an insurance product from

21 the institution or any of its affiliates or subsidiaries;

22 or

23 ‘‘(2) an agreement by the consumer not to ob24 tain, or a prohibition on the consumer from obtain-
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•S 753 IS

1 ing, an insurance product from an unaffiliated enti2 ty.

3 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula4 tions prescribed pursuant to subsection (a) shall include

5 the following provisions relating to disclosures and adver6 tising in connection with the initial purchase of an insur7 ance product:

8 ‘‘(1) DISCLOSURES.—

9 ‘‘(A) IN GENERAL.—Requirements that the

10 following disclosures be made orally and in writ11 ing before the completion of the initial sale and,

12 in the case of clause (iii), at the time of applica13 tion for an extension of credit:

14 ‘‘(i) UNINSURED STATUS.—As appro15 priate, the product is not insured by the

16 Federal Deposit Insurance Corporation,

17 the United States Government, or the in18 sured depository institution.

19 ‘‘(ii) INVESTMENT RISK.—In the case

20 of a variable annuity or other insurance

21 product which involves an investment risk,

22 that there is an investment risk associated

23 with the product, including possible loss of

24 value.
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1 ‘‘(iii) COERCION.—The approval of an

2 extension of credit may not be conditioned

3 on—

4 ‘‘(I) the purchase of an insurance

5 product from the institution in which

6 the application for credit is pending or

7 any of its affiliates or subsidiaries; or

8 ‘‘(II) an agreement by the con9 sumer not to obtain, or a prohibition

10 on the consumer from obtaining, an

11 insurance product from an unaffili12 ated entity.

13 ‘‘(B) MAKING DISCLOSURE READILY UN14 DERSTANDABLE.—Regulations prescribed under

15 subparagraph (A) shall encourage the use of

16 disclosure that is conspicuous, simple, direct,

17 and readily understandable, such as the fol18 lowing:

19 ‘‘(i) ‘NOT FDIC-INSURED’.

20 ‘‘(ii) ‘NOT GUARANTEED BY THE

21 BANK’.

22 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

23 ‘‘(C) ADJUSTMENTS FOR ALTERNATIVE

24 METHODS OF PURCHASE.—In prescribing the

25 requirements under subparagraphs (A) and
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1 (D), necessary adjustments shall be made for

2 purchase in person, by telephone, or by elec3 tronic media to provide for the most appro4 priate and complete form of disclosure and ac5 knowledgments.

6 ‘‘(D) CONSUMER ACKNOWLEDGMENT.—A

7 requirement that an insured depository institu8 tion shall require any person selling an insur9 ance product at any office of, or on behalf of,

10 the institution to obtain, at the time a con11 sumer receives the disclosures required under

12 this paragraph or at the time of the initial pur13 chase by the consumer of such product, an ac14 knowledgment by such consumer of the receipt

15 of the disclosure required under this paragraph

16 with respect to such product.

17 ‘‘(2) PROHIBITION ON MISREPRESENTA18 TIONS.—A prohibition on any practice, or any adver19 tising, at any office of, or on behalf of, the insured

20 depository institution, or any subsidiary as appro21 priate, which could mislead any person or otherwise

22 cause a reasonable person to reach an erroneous be23 lief with respect to—
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1 ‘‘(A) the uninsured nature of any insur2 ance product sold, or offered for sale, by the in3 stitution or any subsidiary of the institution; or

4 ‘‘(B) in the case of a variable annuity or

5 other insurance product that involves an invest6 ment risk, the investment risk associated with

7 any such product.

8 ‘‘(d) SEPARATION OF BANKING AND NONBANKING

9 ACTIVITIES.—

10 ‘‘(1) REGULATIONS REQUIRED.—The regula11 tions prescribed pursuant to subsection (a) shall in12 clude such provisions as the Federal banking agen13 cies consider appropriate to ensure that the routine

14 acceptance of deposits is kept, to the extent prac15 ticable, physically segregated from insurance product

16 activity.

17 ‘‘(2) REQUIREMENTS.—Regulations prescribed

18 pursuant to paragraph (1) shall include the fol19 lowing requirements:

20 ‘‘(A) SEPARATE SETTING.—A clear delin21 eation of the setting in which, and the cir22 cumstances under which, transactions involving

23 insurance products should be conducted in a lo24 cation physically segregated from an area where

25 retail deposits are routinely accepted.
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1 ‘‘(B) REFERRALS.—Standards which per2 mit any person accepting deposits from the

3 public in an area where such transactions are

4 routinely conducted in an insured depository in5 stitution to refer a customer who seeks to pur6 chase any insurance product to a qualified per7 son who sells such product, only if the person

8 making the referral receives no more than a

9 one-time nominal fee of a fixed dollar amount

10 for each referral that does not depend on

11 whether the referral results in a transaction.

12 ‘‘(C) QUALIFICATION AND LICENSING RE13 QUIREMENTS.—Standards prohibiting any in14 sured depository institution from permitting

15 any person to sell or offer for sale any insur16 ance product in any part of any office of the in17 stitution, or on behalf of the institution, unless

18 such person is appropriately qualified and li19 censed.

20 ‘‘(e) DOMESTIC VIOLENCE DISCRIMINATION PROHI21 BITION.—

22 ‘‘(1) IN GENERAL.—In the case of an applicant

23 for, or an insured under, any insurance product de24 scribed in paragraph (2), the status of the applicant

25 or insured as a victim of domestic violence, or as a
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•S 753 IS

1 provider of services to victims of domestic violence,

2 shall not be considered as a criterion in any decision

3 with regard to insurance underwriting, pricing, re4 newal, or scope of coverage of insurance policies, or

5 payment of insurance claims, except as required or

6 expressly permitted under State law.

7 ‘‘(2) SCOPE OF APPLICATION.—The prohibition

8 contained in paragraph (1) shall apply to any insur9 ance product which is sold or offered for sale, as

10 principal, agent, or broker, by any insured deposi11 tory institution or any person who is engaged in

12 such activities at an office of the institution or on

13 behalf of the institution.

14 ‘‘(3) SENSE OF THE CONGRESS.—It is the sense

15 of the Congress that, by the end of the 30-month pe16 riod beginning on the date of enactment of the Fi17 nancial Services Act of 1999, the States should

18 enact prohibitions against discrimination with re19 spect to insurance products that are at least as

20 strict as the prohibitions contained in paragraph (1).

21 ‘‘(4) DOMESTIC VIOLENCE DEFINED.—For pur22 poses of this subsection, the term ‘domestic violence’

23 means the occurrence of 1 or more of the following

24 acts by a current or former family member, house25 hold member, intimate partner, or caretaker:
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1 ‘‘(A) Attempting to cause or causing or

2 threatening another person with physical harm,

3 severe emotional distress, psychological trauma,

4 rape, or sexual assault.

5 ‘‘(B) Engaging in a course of conduct or

6 repeatedly committing acts toward another per7 son, including following the person without

8 proper authority, under circumstances that

9 place the person in reasonable fear of bodily in10 jury or physical harm.

11 ‘‘(C) Subjecting another person to false

12 imprisonment.

13 ‘‘(D) Attempting to cause or causing dam14 age to property so as to intimidate or attempt

15 to control the behavior of another person.

16 ‘‘(f) CONSUMER GRIEVANCE PROCESS.—The Federal

17 banking agencies shall jointly establish a consumer com18 plaint mechanism, for receiving and expeditiously address19 ing consumer complaints alleging a violation of regulations

20 issued under this section, which mechanism shall—

21 ‘‘(1) establish a group within each regulatory

22 agency to receive such complaints;

23 ‘‘(2) develop procedures for investigating such

24 complaints;
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1 ‘‘(3) develop procedures for informing con2 sumers of rights they may have in connection with

3 such complaints; and

4 ‘‘(4) develop procedures for addressing concerns

5 raised by such complaints, as appropriate, including

6 procedures for the recovery of losses to the extent

7 appropriate.

8 ‘‘(g) EFFECT ON OTHER AUTHORITY.—

9 ‘‘(1) IN GENERAL.—No provision of this section

10 shall be construed as granting, limiting, or otherwise

11 affecting—

12 ‘‘(A) any authority of the Securities and

13 Exchange Commission, any self-regulatory or14 ganization, the Municipal Securities Rule15 making Board, or the Secretary of the Treasury

16 under any Federal securities law; or

17 ‘‘(B) except as provided in paragraph (2),

18 any authority of any State insurance commis19 sioner or other State authority under any State

20 law.

21 ‘‘(2) COORDINATION WITH STATE LAW.—

22 ‘‘(A) IN GENERAL.—Except as provided in

23 subparagraph (B), regulations prescribed by a

24 Federal banking agency under this section shall

25 not apply to retail sales, solicitations, adver-
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1 tising, or offers of any insurance product by

2 any insured depository institution or wholesale

3 financial institution or to any person who is en4 gaged in such activities at an office of such in5 stitution or on behalf of the institution, in a

6 State where the State has in effect statutes,

7 regulations, orders, or interpretations, that are

8 inconsistent with or contrary to the regulations

9 prescribed by the Federal banking agencies.

10 ‘‘(B) PREEMPTION.—If, with respect to

11 any provision of the regulations prescribed

12 under this section, the Board of Governors of

13 the Federal Reserve System, the Comptroller of

14 the Currency, and the Board of Directors of the

15 Federal Deposit Insurance Corporation deter16 mine jointly that the protection afforded by

17 such provision for consumers is greater than

18 the protection provided by a comparable provi19 sion of the statutes, regulations, orders, or in20 terpretations referred to in subparagraph (A) of

21 any State, such provision of the regulations pre22 scribed under this section shall supersede the

23 comparable provision of such State statute, reg24 ulation, order, or interpretation.
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1 ‘‘(h) INSURANCE PRODUCT DEFINED.—For purposes

2 of this section, the term ‘insurance product’ includes an

3 annuity contract the income of which is subject to tax

4 treatment under section 72 of the Internal Revenue Code

5 of 1986.’’.

6 SEC. 308. CERTAIN STATE AFFILIATION LAWS PREEMPTED

7 FOR INSURANCE COMPANIES AND AFFILI8 ATES.

9 Except as provided in section 104(a)(2), no State

10 may, by law, regulation, order, interpretation, or

11 otherwise—

12 (1) prevent or significantly interfere with the

13 ability of any insurer, or any affiliate of an insurer

14 (whether such affiliate is organized as a stock com15 pany, mutual holding company, or otherwise), to be16 come a financial holding company or to acquire con17 trol of an insured depository institution;

18 (2) limit the amount of an insurer’s assets that

19 may be invested in the voting securities of an in20 sured depository institution (or any company which

21 controls such institution), except that the laws of an

22 insurer’s State of domicile may limit the amount of

23 such investment to an amount that is not less than

24 5 percent of the insurer’s admitted assets; or
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1 (3) prevent, significantly interfere with, or have

2 the authority to review, approve, or disapprove a

3 plan of reorganization by which an insurer proposes

4 to reorganize from mutual form to become a stock

5 insurer (whether as a direct or indirect subsidiary of

6 a mutual holding company or otherwise) unless such

7 State is the State of domicile of the insurer.

8 SEC. 309. PUBLICATION OF PREEMPTION OF STATE LAWS.

9 Section 5244 of the Revised Statutes of the United

10 States (12 U.S.C. 43) is amended—

11 (1) by inserting ‘‘or Federal savings associa12 tion’’ after ‘‘national bank’’ each place that term ap13 pears; and

14 (2) in subsection (c)(3)(B)(i), by inserting ‘‘or

15 savings associations’’ after ‘‘banks’’.

16 Subtitle B—National Association of

17 Registered Agents and Brokers

18 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING

19 REFORMS.

20 (a) IN GENERAL.—The provisions of this subtitle

21 shall take effect unless, not later than 3 years after the

22 date of enactment of this Act, at least a majority of the

23 States—

24 (1) have enacted uniform laws and regulations

25 governing the licensure of individuals and entities
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1 authorized to sell and solicit the purchase of insur2 ance within the State; or

3 (2) have enacted reciprocity laws and regula4 tions governing the licensure of nonresident individ5 uals and entities authorized to sell and solicit insur6 ance within those States.

7 (b) UNIFORMITY REQUIRED.—States shall be deemed

8 to have established the uniformity necessary to satisfy

9 subsection (a)(1) if the States—

10 (1) establish uniform criteria regarding the in11 tegrity, personal qualifications, education, training,

12 and experience of licensed insurance producers, in13 cluding the qualification and training of sales per14 sonnel in ascertaining the appropriateness of a par15 ticular insurance product for a prospective customer;

16 (2) establish uniform continuing education re17 quirements for licensed insurance producers;

18 (3) establish uniform ethics course require19 ments for licensed insurance producers in conjunc20 tion with the continuing education requirements

21 under paragraph (2);

22 (4) establish uniform criteria to ensure that an

23 insurance product, including any annuity contract,

24 sold to a consumer is suitable and appropriate for
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1 the consumer based on financial information dis2 closed by the consumer; and

3 (5) do not impose any requirement upon any in4 surance producer to be licensed or otherwise quali5 fied to do business as a nonresident that has the ef6 fect of limiting or conditioning that producer’s ac7 tivities because of its residence or place of oper8 ations, except that counter-signature requirements

9 imposed on nonresident producers shall not be

10 deemed to have the effect of limiting or conditioning

11 a producer’s activities because of its residence or

12 place of operations under this section.

13 (c) RECIPROCITY REQUIRED.—States shall be

14 deemed to have established the reciprocity required to sat15 isfy subsection (a)(2) if the following conditions are met:

16 (1) ADMINISTRATIVE LICENSING PROCE17 DURES.—At least a majority of the States permit a

18 producer that has a resident license for selling or so19 liciting the purchase of insurance in its home State

20 to receive a license to sell or solicit the purchase of

21 insurance in such majority of States as a non22 resident to the same extent that such producer is

23 permitted to sell or solicit the purchase of insurance

24 in its State, if the producer’s home State also

25 awards such licenses on such a reciprocal basis,
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1 without satisfying any additional requirements other

2 than submitting—

3 (A) a request for licensure;

4 (B) the application for licensure that the

5 producer submitted to its home State;

6 (C) proof that the producer is licensed and

7 in good standing in its home State; and

8 (D) the payment of any requisite fee to the

9 appropriate authority.

10 (2) CONTINUING EDUCATION REQUIRE11 MENTS.—A majority of the States accept an insur12 ance producer’s satisfaction of its home State’s con13 tinuing education requirements for licensed insur14 ance producers to satisfy the States’ own continuing

15 education requirements if the producer’s home State

16 also recognizes the satisfaction of continuing edu17 cation requirements on such a reciprocal basis.

18 (3) NO LIMITING NONRESIDENT REQUIRE19 MENTS.—A majority of the States do not impose

20 any requirement upon any insurance producer to be

21 licensed or otherwise qualified to do business as a

22 nonresident that has the effect of limiting or condi23 tioning that producer’s activities because of its resi24 dence or place of operations, except that

25 countersignature requirements imposed on non-
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•S 753 IS

1 resident producers shall not be deemed to have the

2 effect of limiting or conditioning a producer’s activi3 ties because of its residence or place of operations

4 under this section.

5 (4) RECIPROCAL RECIPROCITY.—Each of the

6 States that satisfies paragraphs (1), (2), and (3)

7 grants reciprocity to residents of all of the other

8 States that satisfy such paragraphs.

9 (d) DETERMINATION.—

10 (1) NAIC DETERMINATION.—At the end of the

11 3-year period beginning on the date of enactment of

12 this Act, the National Association of Insurance Com13 missioners shall determine, in consultation with the

14 insurance commissioners or chief insurance regu15 latory officials of the States, whether the uniformity

16 or reciprocity required by subsections (b) and (c)

17 has been achieved.

18 (2) JUDICIAL REVIEW.—The appropriate

19 United States district court shall have exclusive ju20 risdiction over any challenge to the National Asso21 ciation of Insurance Commissioners’ determination

22 under this section and such court shall apply the

23 standards set forth in section 706 of title 5, United

24 States Code, when reviewing any such challenge.
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1 (e) CONTINUED APPLICATION.—If, at any time, the

2 uniformity or reciprocity required by subsections (b) and

3 (c) no longer exists, the provisions of this subtitle shall

4 take effect 2 years after the date on which such uniformity

5 or reciprocity ceases to exist, unless the uniformity or reci6 procity required by those provisions is satisfied before the

7 expiration of that 2-year period.

8 (f) SAVINGS PROVISION.—No provision of this sec9 tion shall be construed as requiring that any law, regula10 tion, provision, or action of any State which purports to

11 regulate insurance producers, including any such law, reg12 ulation, provision, or action which purports to regulate un13 fair trade practices or establish consumer protections, in14 cluding countersignature laws, be altered or amended in

15 order to satisfy the uniformity or reciprocity required by

16 subsections (b) and (c), unless any such law, regulation,

17 provision, or action is inconsistent with a specific require18 ment of any such subsection and then only to the extent

19 of such inconsistency.

20 (g) UNIFORM LICENSING.—Nothing in this section

21 shall be construed to require any State to adopt new or

22 additional licensing requirements to achieve the uniformity

23 necessary to satisfy subsection (a)(1).
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1 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED

2 AGENTS AND BROKERS.

3 (a) ESTABLISHMENT.—There is established the Na4 tional Association of Registered Agents and Brokers

5 (hereafter in this subtitle referred to as the ‘‘Associa6 tion’’).

7 (b) STATUS.—The Association shall—

8 (1) be a nonprofit corporation;

9 (2) have succession until dissolved by an Act of

10 Congress;

11 (3) not be an agent or instrumentality of the

12 United States Government; and

13 (4) except as otherwise provided in this Act, be

14 subject to, and have all the powers conferred upon

15 a nonprofit corporation by the District of Columbia

16 Nonprofit Corporation Act (D.C. Code, sec. 29y–

17 1001 et seq.).

18 SEC. 323. PURPOSE.

19 The purpose of the Association shall be to provide

20 a mechanism through which uniform licensing, appoint21 ment, continuing education, and other insurance producer

22 sales qualification requirements and conditions can be

23 adopted and applied on a multistate basis, while pre24 serving the right of States to license, supervise, and dis25 cipline insurance producers and to prescribe and enforce
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1 laws and regulations with regard to insurance-related con2 sumer protection and unfair trade practices.

3 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

4 The Association shall be subject to the supervision

5 and oversight of the National Association of Insurance

6 Commissioners (hereafter in this subtitle referred to as the

7 ‘‘NAIC’’).

8 SEC. 325. MEMBERSHIP.

9 (a) ELIGIBILITY.—

10 (1) IN GENERAL.—Any State-licensed insurance

11 producer shall be eligible to become a member in the

12 Association.

13 (2) INELIGIBILITY FOR SUSPENSION OR REV14 OCATION OF LICENSE.—Notwithstanding paragraph

15 (1), a State-licensed insurance producer shall not be

16 eligible to become a member if a State insurance

17 regulator has suspended or revoked such producer’s

18 license in that State during the 3-year period pre19 ceding the date on which such producer applies for

20 membership.

21 (3) RESUMPTION OF ELIGIBILITY.—Paragraph

22 (2) shall cease to apply to any insurance producer

23 if—
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1 (A) the State insurance regulator renews

2 the license of such producer in the State in

3 which the license was suspended or revoked; or

4 (B) the suspension or revocation is subse5 quently overturned.

6 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI7 TERIA.—The Association shall have the authority to estab8 lish membership criteria that—

9 (1) bear a reasonable relationship to the pur10 poses for which the Association was established; and

11 (2) do not unfairly limit the access of smaller

12 agencies to the Association membership.

13 (c) ESTABLISHMENT OF CLASSES AND CAT14 EGORIES.—

15 (1) CLASSES OF MEMBERSHIP.—The Associa16 tion may establish separate classes of membership,

17 with separate criteria, if the Association reasonably

18 determines that performance of different duties re19 quires different levels of education, training, or expe20 rience.

21 (2) CATEGORIES.—The Association may estab22 lish separate categories of membership for individ23 uals and for other persons. The establishment of any

24 such categories of membership shall be based either

25 on the types of licensing categories that exist under
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1 State laws or on the aggregate amount of business

2 handled by an insurance producer. No special cat3 egories of membership, and no distinct membership

4 criteria, shall be established for members which are

5 insured depository institutions or wholesale financial

6 institutions or for their employees, agents, or affili7 ates.

8 (d) MEMBERSHIP CRITERIA.—

9 (1) IN GENERAL.—The Association may estab10 lish criteria for membership which shall include

11 standards for integrity, personal qualifications, edu12 cation, training, and experience.

13 (2) MINIMUM STANDARD.—In establishing cri14 teria under paragraph (1), the Association shall con15 sider the highest levels of insurance producer quali16 fications established under the licensing laws of the

17 States.

18 (e) EFFECT OF MEMBERSHIP.—Membership in the

19 Association shall entitle the member to licensure in each

20 State for which the member pays the requisite fees, includ21 ing licensing fees and, where applicable, bonding require22 ments, set by such State.

23 (f) ANNUAL RENEWAL.—Membership in the Associa24 tion shall be renewed on an annual basis.
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1 (g) CONTINUING EDUCATION.—The Association shall

2 establish, as a condition of membership, continuing edu3 cation requirements which shall be comparable to or great4 er than the continuing education requirements under the

5 licensing laws of a majority of the States.

6 (h) SUSPENSION AND REVOCATION.—The Associa7 tion may—

8 (1) inspect and examine the records and offices

9 of the members of the Association to determine com10 pliance with the criteria for membership established

11 by the Association; and

12 (2) suspend or revoke the membership of an in13 surance producer if—

14 (A) the producer fails to meet the applica15 ble membership criteria of the Association; or

16 (B) the producer has been subject to dis17 ciplinary action pursuant to a final adjudicatory

18 proceeding under the jurisdiction of a State in19 surance regulator, and the Association con20 cludes that retention of membership in the As21 sociation would not be in the public interest.

22 (i) OFFICE OF CONSUMER COMPLAINTS.—

23 (1) IN GENERAL.—The Association shall estab24 lish an office of consumer complaints that shall—
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1 (A) receive and investigate complaints

2 from both consumers and State insurance regu3 lators related to members of the Association;

4 and

5 (B) recommend to the Association any dis6 ciplinary actions that the office considers appro7 priate, to the extent that any such rec8 ommendation is not inconsistent with State law.

9 (2) RECORDS AND REFERRALS.—The office of

10 consumer complaints of the Association shall—

11 (A) maintain records of all complaints re12 ceived in accordance with paragraph (1) and

13 make such records available to the NAIC and

14 to each State insurance regulator for the State

15 of residence of the consumer who filed the com16 plaint; and

17 (B) refer, when appropriate, any such com18 plaint to any appropriate State insurance regu19 lator.

20 (3) TELEPHONE AND OTHER ACCESS.—The of21 fice of consumer complaints shall maintain a toll-free

22 telephone number for the purpose of this subsection

23 and, as practicable, other alternative means of com24 munication with consumers, such as an Internet

25 home page.
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1 SEC. 326. BOARD OF DIRECTORS.

2 (a) ESTABLISHMENT.—There is established the

3 board of directors of the Association (hereafter in this sub4 title referred to as the ‘‘Board’’) for the purpose of gov5 erning and supervising the activities of the Association

6 and the members of the Association.

7 (b) POWERS.—The Board shall have such powers and

8 authority as may be specified in the bylaws of the Associa9 tion.

10 (c) COMPOSITION.—

11 (1) MEMBERS.—The Board shall be composed

12 of 7 members appointed by the NAIC.

13 (2) REQUIREMENT.—At least 4 of the members

14 of the Board shall have significant experience with

15 the regulation of commercial lines of insurance in at

16 least 1 of the 20 States in which the greatest total

17 dollar amount of commercial-lines insurance is

18 placed in the United States.

19 (3) INITIAL BOARD MEMBERSHIP.—

20 (A) IN GENERAL.—If, by the end of the 2-

21 year period beginning on the date of enactment

22 of this Act, the NAIC has not appointed the

23 initial 7 members of the Board of the Associa24 tion, the initial Board shall consist of the 7

25 State insurance regulators of the 7 States with

26 the greatest total dollar amount of commercial-
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1 lines insurance in place as of the end of such

2 period.

3 (B) ALTERNATE COMPOSITION.—If any of

4 the State insurance regulators described in sub5 paragraph (A) declines to serve on the Board,

6 the State insurance regulator with the next

7 greatest total dollar amount of commercial-lines

8 insurance in place, as determined by the NAIC

9 as of the end of such period, shall serve as a

10 member of the Board.

11 (C) INOPERABILITY.—If fewer than 7

12 State insurance regulators accept appointment

13 to the Board, the Association shall be estab14 lished without NAIC oversight pursuant to sec15 tion 332.

16 (d) TERMS.—The term of each director shall, after

17 the initial appointment of the members of the Board, be

for 3 years, with 1 18 ⁄3 of the directors to be appointed each

19 year.

20 (e) BOARD VACANCIES.—A vacancy on the Board

21 shall be filled in the same manner as the original appoint22 ment of the initial Board for the remainder of the term

23 of the vacating member.
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1 (f) MEETINGS.—The Board shall meet at the call of

2 the chairperson, or as otherwise provided by the bylaws

3 of the Association.

4 SEC. 327. OFFICERS.

5 (a) IN GENERAL.—

6 (1) POSITIONS.—The officers of the Association

7 shall consist of a chairperson and a vice chairperson

8 of the Board, a president, secretary, and treasurer

9 of the Association, and such other officers and as10 sistant officers as may be deemed necessary.

11 (2) MANNER OF SELECTION.—Each officer of

12 the Board and the Association shall be elected or ap13 pointed at such time and in such manner and for

14 such terms not exceeding 3 years as may be pre15 scribed in the bylaws of the Association.

16 (b) CRITERIA FOR CHAIRPERSON.—Only individuals

17 who are members of the NAIC shall be eligible to serve

18 as the chairperson of the board of directors.

19 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

20 (a) ADOPTION AND AMENDMENT OF BYLAWS.—

21 (1) COPY REQUIRED TO BE FILED WITH THE

22 NAIC.—The board of directors of the Association

23 shall file with the NAIC a copy of the proposed by24 laws or any proposed amendment to the bylaws, ac-
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1 companied by a concise general statement of the

2 basis and purpose of such proposal.

3 (2) EFFECTIVE DATE.—Except as provided in

4 paragraph (3), any proposed bylaw or proposed

5 amendment shall take effect—

6 (A) 30 days after the date of the filing of

7 a copy with the NAIC;

8 (B) upon such later date as the Associa9 tion may designate; or

10 (C) upon such earlier date as the NAIC

11 may determine.

12 (3) DISAPPROVAL BY THE NAIC.—Notwith13 standing paragraph (2), a proposed bylaw or amend14 ment shall not take effect if, after public notice and

15 opportunity to participate in a public hearing—

16 (A) the NAIC disapproves such proposal as

17 being contrary to the public interest or contrary

18 to the purposes of this subtitle and provides no19 tice to the Association setting forth the reasons

20 for such disapproval; or

21 (B) the NAIC finds that such proposal in22 volves a matter of such significant public inter23 est that public comment should be obtained, in

24 which case it may, after notifying the Associa25 tion in writing of such finding, require that the
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•S 753 IS

1 procedures set forth in subsection (b) be fol2 lowed with respect to such proposal, in the

3 same manner as if such proposed bylaw change

4 were a proposed rule change within the mean5 ing of such subsection.

6 (b) ADOPTION AND AMENDMENT OF RULES.—

7 (1) FILING PROPOSED REGULATIONS WITH THE

8 NAIC.—

9 (A) IN GENERAL.—The board of directors

10 of the Association shall file with the NAIC a

11 copy of any proposed rule or any proposed

12 amendment to a rule of the Association which

13 shall be accompanied by a concise general state14 ment of the basis and purpose of such proposal.

15 (B) OTHER RULES AND AMENDMENTS IN16 EFFECTIVE.—No proposed rule or amendment

17 shall take effect unless approved by the NAIC

18 or otherwise permitted in accordance with this

19 paragraph.

20 (2) INITIAL CONSIDERATION BY THE NAIC.—

21 Not later than 35 days after the date of publication

22 of notice of filing of a proposal, or before the end

23 of such longer period not to exceed 90 days as the

24 NAIC may designate after such date, if the NAIC

25 finds such longer period to be appropriate and sets
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1 forth its reasons for so finding, or as to which the

2 Association consents, the NAIC shall—

3 (A) by order approve such proposed rule or

4 amendment; or

5 (B) institute proceedings to determine

6 whether such proposed rule or amendment

7 should be modified or disapproved.

8 (3) NAIC PROCEEDINGS.—

9 (A) IN GENERAL.—Proceedings instituted

10 by the NAIC with respect to a proposed rule or

11 amendment pursuant to paragraph (2) shall—

12 (i) include notice of the grounds for

13 disapproval under consideration;

14 (ii) provide opportunity for hearing;

15 and

16 (iii) be concluded not later than 180

17 days after the date of the Association’s fil18 ing of such proposed rule or amendment.

19 (B) DISPOSITION OF PROPOSAL.—At the

20 conclusion of any proceeding under subpara21 graph (A), the NAIC shall, by order, approve or

22 disapprove the proposed rule or amendment.

23 (C) EXTENSION OF TIME FOR CONSIDER24 ATION.—The NAIC may extend the time for
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1 concluding any proceeding under subparagraph

2 (A) for—

3 (i) not more than 60 days if the

4 NAIC finds good cause for such extension

5 and sets forth its reasons for so finding; or

6 (ii) for such longer period as to which

7 the Association consents.

8 (4) STANDARDS FOR REVIEW.—

9 (A) GROUNDS FOR APPROVAL.—The NAIC

10 shall approve a proposed rule or amendment if

11 the NAIC finds that the rule or amendment is

12 in the public interest and is consistent with the

13 purposes of this Act.

14 (B) APPROVAL BEFORE END OF NOTICE

15 PERIOD.—The NAIC shall not approve any pro16 posed rule before the end of the 30-day period

17 beginning on the date on which the Association

18 files proposed rules or amendments in accord19 ance with paragraph (1), unless the NAIC finds

20 good cause for so doing and sets forth the rea21 sons for so finding.

22 (5) ALTERNATE PROCEDURE.—

23 (A) IN GENERAL.—Notwithstanding any

24 provision of this subsection other than subpara25 graph (B), a proposed rule or amendment relat-
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1 ing to the administration or organization of the

2 Association shall take effect—

3 (i) upon the date of filing with the

4 NAIC, if such proposed rule or amendment

5 is designated by the Association as relating

6 solely to matters which the NAIC, con7 sistent with the public interest and the

8 purposes of this subsection, determines by

9 rule do not require the procedures set forth

10 in this paragraph; or

11 (ii) upon such date as the NAIC shall

12 for good cause determine.

13 (B) ABROGATION BY THE NAIC.—

14 (i) IN GENERAL.—At any time within

15 60 days after the date of filing of any pro16 posed rule or amendment under subpara17 graph (A)(i) or clause (ii) of this subpara18 graph, the NAIC may repeal such rule or

19 amendment and require that the rule or

20 amendment be refiled and reviewed in ac21 cordance with this paragraph, if the NAIC

22 finds that such action is necessary or ap23 propriate in the public interest, for the

24 protection of insurance producers or policy-
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1 holders, or otherwise in furtherance of the

2 purposes of this subtitle.

3 (ii) EFFECT OF RECONSIDERATION BY

4 THE NAIC.—Any action of the NAIC pur5 suant to clause (i) shall—

6 (I) not affect the validity or force

7 of a rule change during the period

8 such rule or amendment was in effect;

9 and

10 (II) not be considered to be a

11 final action.

12 (c) ACTION REQUIRED BY THE NAIC.—The NAIC

13 may, in accordance with such rules as the NAIC deter14 mines to be necessary or appropriate to the public interest

15 or to carry out the purposes of this subtitle, require the

16 Association to adopt, amend, or repeal any bylaw, rule or

17 amendment of the Association, whenever adopted.

18 (d) DISCIPLINARY ACTION BY THE ASSOCIATION.—

19 (1) SPECIFICATION OF CHARGES.—In any pro20 ceeding to determine whether membership shall be

21 denied, suspended, revoked, or not renewed (here22 after in this section referred to as a ‘‘disciplinary ac23 tion’’), the Association shall bring specific charges,

24 notify such member of such charges, give the mem-
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1 ber an opportunity to defend against the charges,

2 and keep a record.

3 (2) SUPPORTING STATEMENT.—A determina4 tion to take disciplinary action shall be supported by

5 a statement setting forth—

6 (A) any act or practice in which such

7 member has been found to have been engaged;

8 (B) the specific provision of this subtitle,

9 the rules or regulations under this subtitle, or

10 the rules of the Association which any such act

11 or practice is deemed to violate; and

12 (C) the sanction imposed and the reason

13 for such sanction.

14 (e) NAIC REVIEW OF DISCIPLINARY ACTION.—

15 (1) NOTICE TO THE NAIC.—If the Association

16 orders any disciplinary action, the Association shall

17 promptly notify the NAIC of such action.

18 (2) REVIEW BY THE NAIC.—Any disciplinary

19 action taken by the Association shall be subject to

20 review by the NAIC—

21 (A) on the NAIC’s own motion; or

22 (B) upon application by any person ag23 grieved by such action if such application is

24 filed with the NAIC not more than 30 days

25 after the later of—
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1 (i) the date the notice was filed with

2 the NAIC pursuant to paragraph (1); or

3 (ii) the date the notice of the discipli4 nary action was received by such aggrieved

5 person.

6 (f) EFFECT OF REVIEW.—The filing of an applica7 tion to the NAIC for review of a disciplinary action, or

8 the institution of review by the NAIC on the NAIC’s own

9 motion, shall not operate as a stay of disciplinary action

10 unless the NAIC otherwise orders.

11 (g) SCOPE OF REVIEW.—

12 (1) IN GENERAL.—In any proceeding to review

13 such action, after notice and the opportunity for

14 hearing, the NAIC shall—

15 (A) determine whether the action should be

16 taken;

17 (B) affirm, modify, or rescind the discipli18 nary sanction; or

19 (C) remand to the Association for further

20 proceedings.

21 (2) DISMISSAL OF REVIEW.—The NAIC may

22 dismiss a proceeding to review disciplinary action if

23 the NAIC finds that—

24 (A) the specific grounds on which the ac25 tion is based exist in fact;
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1 (B) the action is in accordance with appli2 cable rules and regulations; and

3 (C) such rules and regulations are, and

4 were, applied in a manner consistent with the

5 purposes of this subtitle.

6 SEC. 329. ASSESSMENTS.

7 (a) INSURANCE PRODUCERS SUBJECT TO ASSESS8 MENT.—The Association may establish such application

9 and membership fees as the Association finds necessary

10 to cover the costs of its operations, including fees made

11 reimbursable to the NAIC under subsection (b), except

12 that, in setting such fees, the Association may not dis13 criminate against smaller insurance producers.

14 (b) NAIC ASSESSMENTS.—The NAIC may assess the

15 Association for any costs that the NAIC incurs under this

16 subtitle.

17 SEC. 330. FUNCTIONS OF THE NAIC.

18 (a) ADMINISTRATIVE PROCEDURE.—Determinations

19 of the NAIC, for purposes of making rules pursuant to

20 section 328, shall be made after appropriate notice and

21 opportunity for a hearing and for submission of views of

22 interested persons.

23 (b) EXAMINATIONS AND REPORTS.—

24 (1) EXAMINATIONS.—The NAIC may make

25 such examinations and inspections of the Association
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•S 753 IS

1 and require the Association to furnish to the NAIC

2 such reports and records or copies thereof as the

3 NAIC may consider necessary or appropriate in the

4 public interest or to effectuate the purposes of this

5 subtitle.

6 (2) REPORT BY ASSOCIATION.—As soon as

7 practicable after the close of each fiscal year, the As8 sociation shall submit to the NAIC a written report

9 regarding the conduct of its business, and the exer10 cise of the other rights and powers granted by this

11 subtitle, during such fiscal year. Such report shall

12 include financial statements setting forth the finan13 cial position of the Association at the end of such

14 fiscal year and the results of its operations (includ15 ing the source and application of its funds) for such

16 fiscal year. The NAIC shall transmit such report to

17 the President and the Congress with such comment

18 thereon as the NAIC determines to be appropriate.

19 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC20 TORS, OFFICERS, AND EMPLOYEES OF THE

21 ASSOCIATION.

22 (a) IN GENERAL.—The Association shall not be

23 deemed to be an insurer or insurance producer within the

24 meaning of any State law, rule, regulation, or order regu25 lating or taxing insurers, insurance producers, or other en-
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•S 753 IS

1 tities engaged in the business of insurance, including pro2 visions imposing premium taxes, regulating insurer sol3 vency or financial condition, establishing guaranty funds

4 and levying assessments, or requiring claims settlement

5 practices.

6 (b) LIABILITY OF THE ASSOCIATION, ITS DIREC7 TORS, OFFICERS, AND EMPLOYEES.—Neither the Associa8 tion nor any of its directors, officers, or employees shall

9 have any liability to any person for any action taken or

10 omitted in good faith under or in connection with any mat11 ter subject to this subtitle.

12 SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

13 (a) IN GENERAL.—The Association shall be estab14 lished without NAIC oversight and the provisions set forth

15 in section 324, subsections (a), (b), (c), and (e) of section

16 328, and sections 329(b) and 330 of this subtitle shall

17 cease to be effective if, at the end of the 2-year period

18 beginning on the date on which the provisions of this sub19 title take effect pursuant to section 321—

20 (1) at least a majority of the States rep21 resenting at least 50 percent of the total United

22 States commercial-lines insurance premiums have

23 not satisfied the uniformity or reciprocity require24 ments of subsections (a), (b), and (c) of section 321;

25 and
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1 (2) the NAIC has not approved the Associa2 tion’s bylaws as required by section 328 or is unable

3 to operate or supervise the Association, or the Asso4 ciation is not conducting its activities as required

5 under this Act.

6 (b) BOARD APPOINTMENTS.—If the repeals required

7 by subsection (a) are implemented, the following shall

8 apply:

9 (1) GENERAL APPOINTMENT POWER.—The

10 President, with the advice and consent of the Sen11 ate, shall appoint the members of the Association’s

12 Board established under section 326 from lists of

13 candidates recommended to the President by the

14 National Association of Insurance Commissioners.

15 (2) PROCEDURES FOR OBTAINING NATIONAL

16 ASSOCIATION OF INSURANCE COMMISSIONERS AP17 POINTMENT RECOMMENDATIONS.—

18 (A) INITIAL DETERMINATION AND REC19 OMMENDATIONS.—After the date on which the

20 provisions of subsection (a) take effect, the

21 NAIC shall, not later than 60 days thereafter,

22 provide a list of recommended candidates to the

23 President. If the NAIC fails to provide a list by

24 that date, or if any list that is provided does

25 not include at least 14 recommended candidates
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1 or comply with the requirements of section

2 326(c), the President shall, with the advice and

3 consent of the Senate, make the requisite ap4 pointments without considering the views of the

5 NAIC.

6 (B) SUBSEQUENT APPOINTMENTS.—After

7 the initial appointments, the NAIC shall pro8 vide a list of at least 6 recommended candidates

9 for the Board to the President by January 15

10 of each subsequent year. If the NAIC fails to

11 provide a list by that date, or if any list that

12 is provided does not include at least 6 rec13 ommended candidates or comply with the re14 quirements of section 326(c), the President,

15 with the advice and consent of the Senate, shall

16 make the requisite appointments without con17 sidering the views of the NAIC.

18 (C) PRESIDENTIAL OVERSIGHT.—

19 (i) REMOVAL.—If the President deter20 mines that the Association is not acting in

21 the interests of the public, the President

22 may remove the entire existing Board for

23 the remainder of the term to which the

24 members of the Board were appointed and

25 appoint, with the advice and consent of the
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1 Senate, new members to fill the vacancies

2 on the Board for the remainder of such

3 terms.

4 (ii) SUSPENSION OF RULES OR AC5 TIONS.—The President, or a person des6 ignated by the President for such purpose,

7 may suspend the effectiveness of any rule,

8 or prohibit any action, of the Association

9 which the President or the designee deter10 mines is contrary to the public interest.

11 (c) ANNUAL REPORT.—As soon as practicable after

12 the close of each fiscal year, the Association shall submit

13 to the President and to the Congress a written report rel14 ative to the conduct of its business, and the exercise of

15 the other rights and powers granted by this subtitle, dur16 ing such fiscal year. Such report shall include financial

17 statements setting forth the financial position of the Asso18 ciation at the end of such fiscal year and the results of

19 its operations (including the source and application of its

20 funds) for such fiscal year.

21 SEC. 333. RELATIONSHIP TO STATE LAW.

22 (a) PREEMPTION OF STATE LAWS.—State laws, reg23 ulations, provisions, or other actions purporting to regu24 late insurance producers shall be preempted as provided

25 in subsection (b).
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1 (b) PROHIBITED ACTIONS.—No State shall—

2 (1) impede the activities of, take any action

3 against, or apply any provision of law or regulation

4 to, any insurance producer because that insurance

5 producer or any affiliate plans to become, has ap6 plied to become, or is a member of the Association;

7 (2) impose any requirement upon a member of

8 the Association that it pay different fees to be li9 censed or otherwise qualified to do business in that

10 State, including bonding requirements, based on its

11 residency;

12 (3) impose any licensing, appointment, integ13 rity, personal or corporate qualifications, education,

14 training, experience, residency, or continuing edu15 cation requirement upon a member of the Associa16 tion that is different from the criteria for member17 ship in the Association or renewal of such member18 ship, except that counter-signature requirements im19 posed on nonresident producers shall not be deemed

20 to have the effect of limiting or conditioning a pro21 ducer’s activities because of its residence or place of

22 operations under this section; or

23 (4) implement the procedures of such State’s

24 system of licensing or renewing the licenses of insur-
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1 ance producers in a manner different from the au2 thority of the Association under section 325.

3 (c) SAVINGS PROVISION.—Except as provided in sub4 sections (a) and (b), no provision of this section shall be

5 construed as altering or affecting the continuing effective6 ness of any law, regulation, provision, or other action of

7 any State which purports to regulate insurance producers,

8 including any such law, regulation, provision, or action

9 which purports to regulate unfair trade practices or estab10 lish consumer protections, including countersignature

11 laws.

12 SEC. 334. COORDINATION WITH OTHER REGULATORS.

13 (a) COORDINATION WITH STATE INSURANCE REGU14 LATORS.—The Association shall have the authority to—

15 (1) issue uniform insurance producer applica16 tions and renewal applications that may be used to

17 apply for the issuance or removal of State licenses,

18 while preserving the ability of each State to impose

19 such conditions on the issuance or renewal of a li20 cense as are consistent with section 333;

21 (2) establish a central clearinghouse through

22 which members of the Association may apply for the

23 issuance or renewal of licenses in multiple States;

24 and
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1 (3) establish or utilize a national database for

2 the collection of regulatory information concerning

3 the activities of insurance producers.

4 (b) COORDINATION WITH THE NATIONAL ASSOCIA5 TION OF SECURITIES DEALERS.—The Association shall

6 coordinate with the National Association of Securities

7 Dealers in order to ease any administrative burdens that

8 fall on persons that are members of both associations, con9 sistent with the purposes of this subtitle and the Federal

10 securities laws.

11 SEC. 335. JUDICIAL REVIEW.

12 (a) JURISDICTION.—The appropriate United States

13 district court shall have exclusive jurisdiction over litiga14 tion involving the Association, including disputes between

15 the Association and its members that arise under this sub16 title. Suits brought in State court involving the Associa17 tion shall be deemed to have arisen under Federal law and

18 therefore be subject to jurisdiction in the appropriate

19 United States district court.

20 (b) EXHAUSTION OF REMEDIES.—An aggrieved per21 son shall be required to exhaust all available administra22 tive remedies before the Association and the NAIC before

23 it may seek judicial review of an Association decision.

24 (c) STANDARDS OF REVIEW.—The standards set

25 forth in section 553 of title 5, United States Code, shall
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•S 753 IS

1 be applied whenever a rule or bylaw of the Association is

2 under judicial review, and the standards set forth in sec3 tion 554 of title 5, United States Code, shall be applied

4 whenever a disciplinary action of the Association is judi5 cially reviewed.

6 SEC. 336. DEFINITIONS.

7 For purposes of this subtitle, the following definitions

8 shall apply:

9 (1) HOME STATE.—The term ‘‘home State’’

10 means the State in which the insurance producer

11 maintains its principal place of residence and is li12 censed to act as an insurance producer.

13 (2) INSURANCE.—The term ‘‘insurance’’ means

14 any product, other than title insurance, defined or

15 regulated as insurance by the appropriate State in16 surance regulatory authority.

17 (3) INSURANCE PRODUCER.—The term ‘‘insur18 ance producer’’ means any insurance agent or

19 broker, surplus lines broker, insurance consultant,

20 limited insurance representative, and any other per21 son that solicits, negotiates, effects, procures, deliv22 ers, renews, continues or binds policies of insurance

23 or offers advice, counsel, opinions or services related

24 to insurance.
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1 (4) STATE.—The term ‘‘State’’ includes any

2 State, the District of Columbia, American Samoa,

3 Guam, Puerto Rico, and the United States Virgin

4 Islands.

5 (5) STATE LAW.—The term ‘‘State law’’ in6 cludes all laws, decisions, rules, regulations, or other

7 State action having the effect of law, of any State.

8 A law of the United States applicable only to the

9 District of Columbia shall be treated as a State law

10 rather than a law of the United States.

11 TITLE IV—UNITARY SAVINGS

12 AND LOAN HOLDING COMPA13 NIES

14 SEC. 401. PREVENTION OF CREATION OF NEW S&L HOLD15 ING COMPANIES WITH COMMERCIAL AFFILI16 ATES.

17 (a) IN GENERAL.—Section 10(c) of the Home Own18 ers’ Loan Act (12 U.S.C. 1467a(c)) is amended by adding

19 at the end the following new paragraph:

20 ‘‘(9) PREVENTION OF NEW AFFILIATIONS BE21 TWEEN S&L HOLDING COMPANIES AND COMMERCIAL

22 FIRMS.—

23 ‘‘(A) IN GENERAL.—Notwithstanding para24 graph (3), no company may directly or indi25 rectly, including through any merger, consolida-
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1 tion, or other type of business combination, ac2 quire control of a savings association after

3 March 4, 1999, unless the company is engaged,

4 directly or indirectly (including through a sub5 sidiary other than a savings association), only

6 in activities that are permitted—

7 ‘‘(i) under paragraph (1)(C) or (2); or

8 ‘‘(ii) for financial holding companies

9 under section 6(c) of the Bank Holding

10 Company Act of 1956.

11 ‘‘(B) PREVENTION OF NEW COMMERCIAL

12 AFFILIATIONS.—Notwithstanding paragraph

13 (3), no savings and loan holding company may

14 engage directly or indirectly (including through

15 a subsidiary other than a savings association)

16 in any activity other than as described in

17 clauses (i) and (ii) of subparagraph (A).

18 ‘‘(C) PRESERVATION OF AUTHORITY OF

19 EXISTING UNITARY S&L HOLDING COMPA20 NIES.—Subparagraphs (A) and (B) do not

21 apply with respect to any company that was a

22 savings and loan holding company on March 4,

23 1999, or that becomes a savings and loan hold24 ing company pursuant to an application pend-
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1 ing before the Office of Thrift Supervision on or

2 before that date, and that—

3 ‘‘(i) meets and continues to meet the

4 requirements of paragraph (3); and

5 ‘‘(ii) continues to control not fewer

6 than 1 savings association that it con7 trolled on March 4, 1999, or that it ac8 quired pursuant to an application pending

9 before the Office of Thrift Supervision on

10 or before that date, or the successor to

11 such savings association.

12 ‘‘(D) CORPORATE REORGANIZATIONS PER13 MITTED.—This paragraph does not prevent a

14 transaction that—

15 ‘‘(i) involves solely a company under

16 common control with a savings and loan

17 holding company from acquiring, directly

18 or indirectly, control of the savings and

19 loan holding company or any savings asso20 ciation that is already a subsidiary of the

21 savings and loan holding company; or

22 ‘‘(ii) involves solely a merger, consoli23 dation, or other type of business combina24 tion as a result of which a company under

25 common control with the savings and loan
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1 holding company acquires, directly or indi2 rectly, control of the savings and loan hold3 ing company or any savings association

4 that is already a subsidiary of the savings

5 and loan holding company.

6 ‘‘(E) AUTHORITY TO PREVENT EVA7 SIONS.—The Director may issue interpreta8 tions, regulations, or orders that the Director

9 determines necessary to administer and carry

10 out the purpose and prevent evasions of this

11 paragraph, including a determination that, not12 withstanding the form of a transaction, the

13 transaction would in substance result in a com14 pany acquiring control of a savings association.

15 ‘‘(F) PRESERVATION OF AUTHORITY FOR

16 FAMILY TRUSTS.—Subparagraphs (A) and (B)

17 do not apply with respect to any trust that be18 comes a savings and loan holding company with

19 respect to a savings association, if—

20 ‘‘(i) not less than 85 percent of the

21 beneficial ownership interests in the trust

22 are continuously owned, directly or indi23 rectly, by or for the benefit of members of

24 the same family, or their spouses, who are

25 lineal descendants of common ancestors
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1 who controlled, directly or indirectly, such

2 savings association on March 4, 1999, or a

3 subsequent date, pursuant to an applica4 tion pending before the Office of Thrift

5 Supervision on or before March 4, 1999;

6 and

7 ‘‘(ii) at the time at which such trust

8 becomes a savings and loan holding com9 pany, such ancestors or lineal descendants,

10 or spouses of such descendants, have di11 rectly or indirectly controlled the savings

12 association continuously since March 4,

13 1999, or a subsequent date, pursuant to

14 an application pending before the Office of

15 Thrift Supervision on or before March 4,

16 1999.’’.

17 (b) CONFORMING AMENDMENT.—Section

18 10(o)(5)(E) of the Home Owners’ Loan Act (15 U.S.C.

19 1467a(o)(5)(E)) is amended by striking ‘‘, except subpara20 graph (B)’’ and inserting ‘‘or (c)(9)(A)(ii)’’.

21 SEC. 402. OPTIONAL CONVERSION OF FEDERAL SAVINGS

22 ASSOCIATIONS TO NATIONAL BANKS.

23 Section 5(i) of the Home Owners’ Loan Act (12

24 U.S.C. 1464(i)) is amended by adding at the end the fol25 lowing new paragraph:
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1 ‘‘(5) CONVERSION TO A NATIONAL BANK.—Not2 withstanding any other provision of law, any Federal

3 savings association chartered and in operation before

4 the date of enactment of the Financial Services Act

5 of 1999, with branches in 1 or more States, may

6 convert, with the approval of the Comptroller of the

7 Currency, into 1 or more national banks, each of

8 which may encompass one or more of the branches

9 of the Federal savings association in 1 or more

10 States, but only if the resulting national bank or

11 banks will meet any and all financial, management,

12 and capital requirements applicable to a national

13 bank.’’.

14 SEC. 403. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON15 VERTED FEDERAL SAVINGS ASSOCIATION.

16 Section 2 of the Act entitled ‘‘An Act to enable na17 tional banking associations to increase their capital stock

18 and to change their names or locations’’, approved May

19 1, 1886 (12 U.S.C. 30), is amended by adding at the end

20 the following 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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•S 753 IS

1 of a Federal savings association to a national bank

2 or a State bank after the date of 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

9 depository institution’, ‘national bank’, and ‘State

10 bank’ have the same meanings as in section 3 of the

11 Federal Deposit Insurance Act.’’.

12 TITLE V—FINANCIAL

13 INFORMATION ANTI-FRAUD

14 SEC. 501. FINANCIAL INFORMATION ANTI-FRAUD.

15 The Consumer Credit Protection Act (15 U.S.C.

16 1601 et seq.) is amended by adding at the end the fol17 lowing:

18 ‘‘TITLE X—FINANCIAL INFORMA19 TION PRIVACY PROTECTION

20 ‘‘SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

21 ‘‘(a) SHORT TITLE.—This title may be cited as the

22 ‘Financial Information Anti-Fraud Act of 1999’.

23 ‘‘(b) TABLE OF CONTENTS.—The table of contents

24 for this title is as follows:

‘‘TITLE X—FINANCIAL INFORMATION PRIVACY PROTECTION

‘‘Sec. 1001. Short title; table of contents.
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‘‘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.

1 ‘‘SEC. 1002. DEFINITIONS.

2 ‘‘For purposes of this title, the following definitions

3 shall apply:

4 ‘‘(1) CUSTOMER.—The term ‘customer’ means,

5 with respect to a financial institution, any person (or

6 authorized representative of a person) to whom the

7 financial institution provides a product or service,

8 including that of acting as a fiduciary.

9 ‘‘(2) CUSTOMER INFORMATION OF A FINANCIAL

10 INSTITUTION.—The term ‘customer information of a

11 financial institution’ means any information main12 tained by a financial institution which is derived

13 from the relationship between the financial institu14 tion and a customer of the financial institution and

15 is identified with the customer.

16 ‘‘(3) DOCUMENT.—The term ‘document’ means

17 any information in any form.

18 ‘‘(4) FINANCIAL INSTITUTION.—

19 ‘‘(A) IN GENERAL.—The term ‘financial

20 institution’ means any institution engaged in

21 the business of providing financial services to
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1 customers who maintain a credit, deposit, trust,

2 or other financial account or relationship with

3 the institution.

4 ‘‘(B) CERTAIN FINANCIAL INSTITUTIONS

5 SPECIFICALLY INCLUDED.—The term ‘financial

6 institution’ includes any depository institution

7 (as defined in section 19(b)(1)(A) of the Fed8 eral Reserve Act), any loan or finance company,

9 any credit card issuer or operator of a credit

10 card system, and any consumer reporting agen11 cy that compiles and maintains files on con12 sumers on a nationwide basis (as defined in sec13 tion 603(p)).

14 ‘‘(C) FURTHER DEFINITION BY REGULA15 TION.—The Board of Governors of the Federal

16 Reserve System may prescribe regulations fur17 ther defining the term ‘financial institution’, in

18 accordance with subparagraph (A), for purposes

19 of this title.

20 ‘‘SEC. 1003. PRIVACY PROTECTION FOR CUSTOMER INFOR21 MATION OF FINANCIAL INSTITUTIONS.

22 ‘‘(a) PROHIBITION ON OBTAINING CUSTOMER INFOR23 MATION BY FALSE PRETENSES.—It shall be a violation

24 of this title for any person to obtain or attempt to obtain,

25 or cause to be disclosed or attempt to cause to be disclosed
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1 to any person, customer information of a financial institu2 tion relating to another person—

3 ‘‘(1) by knowingly making a false, fictitious, or

4 fraudulent statement or representation to an officer,

5 employee, or agent of a financial institution with the

6 intent to deceive the officer, employee, or agent into

7 relying on that statement or representation for pur8 poses of releasing the customer information;

9 ‘‘(2) by knowingly making a false, fictitious, or

10 fraudulent statement or representation to a cus11 tomer of a financial institution with the intent to de12 ceive the customer into relying on that statement or

13 representation for purposes of releasing the cus14 tomer information or authorizing the release of such

15 information; or

16 ‘‘(3) by knowingly providing any document to

17 an officer, employee, or agent of a financial institu18 tion, knowing that the document is forged, counter19 feit, lost, or stolen, was fraudulently obtained, or

20 contains a false, fictitious, or fraudulent statement

21 or representation, if the document is provided with

22 the intent to deceive the officer, employee, or agent

23 into relying on that document for purposes of releas24 ing the customer information.
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1 ‘‘(b) PROHIBITION ON SOLICITATION OF A PERSON

2 TO OBTAIN CUSTOMER INFORMATION FROM FINANCIAL

3 INSTITUTION UNDER FALSE PRETENSES.—It shall be a

4 violation of this title to request a person to obtain cus5 tomer information of a financial institution, knowing or

6 consciously avoiding knowing that the person will obtain,

7 or attempt to obtain, the information from the institution

8 in any manner described in subsection (a).

9 ‘‘(c) NONAPPLICABILITY TO LAW ENFORCEMENT

10 AGENCIES.—No provision of this section shall be con11 strued so as to prevent any action by a law enforcement

12 agency, or any officer, employee, or agent of such agency,

13 to obtain customer information of a financial institution

14 in connection with the performance of the official duties

15 of the agency.

16 ‘‘(d) NONAPPLICABILITY TO FINANCIAL INSTITU17 TIONS IN CERTAIN CASES.—No provision of this section

18 shall be construed to prevent any financial institution, or

19 any officer, employee, or agent of a financial institution,

20 from obtaining customer information of such financial in21 stitution in the course of—

22 ‘‘(1) testing the security procedures or systems

23 of such institution for maintaining the confiden24 tiality of customer information;
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•S 753 IS

1 ‘‘(2) investigating allegations of misconduct or

2 negligence on the part of any officer, employee, or

3 agent of the financial institution; or

4 ‘‘(3) recovering customer information of the fi5 nancial institution which was obtained or received by

6 another person in any manner described in sub7 section (a) or (b).

8 ‘‘(e) NONAPPLICABILITY TO CERTAIN TYPES OF

9 CUSTOMER INFORMATION OF FINANCIAL INSTITU10 TIONS.—No provision of this section shall be construed to

11 prevent any person from obtaining customer information

12 of a financial institution that otherwise is available as a

13 public record filed pursuant to the securities laws (as de14 fined in section 3(a)(47) of the Securities Exchange Act

15 of 1934).

16 ‘‘SEC. 1004. ADMINISTRATIVE ENFORCEMENT.

17 ‘‘(a) ENFORCEMENT BY FEDERAL TRADE COMMIS18 SION.—Except as provided in subsection (b), compliance

19 with this title shall be enforced by the Federal Trade Com20 mission in the same manner and with the same power and

21 authority as the Commission has under the Fair Debt Col22 lection Practices Act to enforce compliance with that title.

23 ‘‘(b) ENFORCEMENT BY OTHER AGENCIES IN CER24 TAIN CASES.—
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1 ‘‘(1) IN GENERAL.—Compliance with this title

2 shall be enforced under—

3 ‘‘(A) section 8 of the Federal Deposit In4 surance Act, in the case of—

5 ‘‘(i) national banks, and Federal

6 branches and Federal agencies of foreign

7 banks, by the Office of the Comptroller of

8 the Currency;

9 ‘‘(ii) member banks of the Federal

10 Reserve System (other than national

11 banks), branches and agencies of foreign

12 banks (other than Federal branches, Fed13 eral agencies, and insured State branches

14 of foreign banks), commercial lending com15 panies owned or controlled by foreign

16 banks, and organizations operating under

17 section 25 or 25A of the Federal Reserve

18 Act, by the Board;

19 ‘‘(iii) banks insured by the Federal

20 Deposit Insurance Corporation (other than

21 members of the Federal Reserve System

22 and national nonmember banks) and in23 sured State branches of foreign banks, by

24 the Board of Directors of the Federal De25 posit Insurance Corporation; and
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•S 753 IS

1 ‘‘(iv) savings associations the deposits

2 of which are insured by the Federal De3 posit Insurance Corporation, by the Direc4 tor of the Office of Thrift Supervision; and

5 ‘‘(B) the Federal Credit Union Act, by the

6 Administrator of the National Credit Union Ad7 ministration with respect to any Federal credit

8 union.

9 ‘‘(2) VIOLATIONS OF THIS TITLE TREATED AS

10 VIOLATIONS OF OTHER LAWS.—For the purpose of

11 the exercise by any agency referred to in paragraph

12 (1) of its powers under any Act referred to in that

13 paragraph, a violation of this title shall be deemed

14 to be a violation of a requirement imposed under

15 that Act. In addition to its powers under any provi16 sion of law specifically referred to in paragraph (1),

17 each of the agencies referred to in that paragraph

18 may exercise, for the purpose of enforcing compli19 ance with this title, any other authority conferred on

20 such agency by law.

21 ‘‘(c) STATE ACTION FOR VIOLATIONS.—

22 ‘‘(1) AUTHORITY OF STATES.—In addition to

23 such other remedies as are provided under State

24 law, if the chief law enforcement officer of a State,

25 or an official or agency designated by a State, has
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1 reason to believe that any person has violated or is

2 violating this title, the State—

3 ‘‘(A) may bring an action to enjoin such

4 violation in any appropriate United States dis5 trict court or in any other court of competent

6 jurisdiction;

7 ‘‘(B) may bring an action on behalf of the

8 residents of the State to recover damages of not

9 more than $1,000 for each violation; and

10 ‘‘(C) in the case of any successful action

11 under subparagraph (A) or (B), shall be award12 ed the costs of the action and reasonable attor13 ney fees as determined by the court.

14 ‘‘(2) RIGHTS OF FEDERAL REGULATORS.—

15 ‘‘(A) PRIOR NOTICE.—The State shall

16 serve prior written notice of any action under

17 paragraph (1) upon the Federal Trade Commis18 sion and, in the case of an action which involves

19 a financial institution described in section

20 1004(b)(1), the agency referred to in such sec21 tion with respect to such institution and provide

22 the Federal Trade Commission and any such

23 agency with a copy of its complaint, except in

24 any case in which such prior notice is not fea-
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•S 753 IS

1 sible, in which case the State shall serve such

2 notice immediately upon instituting such action.

3 ‘‘(B) RIGHT TO INTERVENE.—The Federal

4 Trade Commission or an agency described in

5 subsection (b) shall have the right—

6 ‘‘(i) to intervene in an action under

7 paragraph (1);

8 ‘‘(ii) upon so intervening, to be heard

9 on all matters arising therein;

10 ‘‘(iii) to remove the action to the ap11 propriate United States district court; and

12 ‘‘(iv) to file petitions for appeal.

13 ‘‘(3) INVESTIGATORY POWERS.—For purposes

14 of bringing any action under this subsection, no pro15 vision of this subsection shall be construed as pre16 venting the chief law enforcement officer, or an offi17 cial or agency designated by a State, from exercising

18 the powers conferred on the chief law enforcement

19 officer or such official by the laws of such State to

20 conduct investigations or to administer oaths or af21 firmations or to compel the attendance of witnesses

22 or the production of documentary and other evi23 dence.

24 ‘‘(4) LIMITATION ON STATE ACTION WHILE

25 FEDERAL ACTION PENDING.—If the Federal Trade
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1 Commission or any agency described in subsection

2 (b) has instituted a civil action for a violation of this

3 title, no State may, during the pendency of such ac4 tion, bring an action under this section against any

5 defendant named in the complaint of the Federal

6 Trade Commission or such agency for any violation

7 of this title that is alleged in that complaint.

8 ‘‘SEC. 1005. CIVIL LIABILITY.

9 ‘‘Any person, other than a financial institution, who

10 fails to comply with any provision of this title with respect

11 to any financial institution or any customer information

12 of a financial institution shall be liable to such financial

13 institution or the customer to whom such information re14 lates in an amount equal to the sum of the amounts deter15 mined under each of the following paragraphs:

16 ‘‘(1) ACTUAL DAMAGES.—The greater of—

17 ‘‘(A) the amount of any actual damage

18 sustained by the financial institution or cus19 tomer as a result of such failure; or

20 ‘‘(B) any amount received by the person

21 who failed to comply with this title, including

22 an amount equal to the value of any nonmone23 tary consideration, as a result of the action

24 which constitutes such failure.
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•S 753 IS

1 ‘‘(2) ADDITIONAL DAMAGES.—Such additional

2 amount as the court may allow.

3 ‘‘(3) ATTORNEYS’ FEES.—In the case of any

4 successful action to enforce any liability under para5 graph (1) or (2), the costs of the action, together

6 with reasonable attorneys’ fees.

7 ‘‘SEC. 1006. CRIMINAL PENALTY.

8 ‘‘(a) IN GENERAL.—Whoever violates, or attempts to

9 violate, section 1003 shall be fined in accordance with title

10 18, United States Code, or imprisoned for not more than

11 5 years, or both.

12 ‘‘(b) ENHANCED PENALTY FOR AGGRAVATED

13 CASES.—Whoever violates, or attempts to violate, section

14 1003 while violating another law of the United States or

15 as part of a pattern of any illegal activity involving more

16 than $100,000 in a 12-month period shall be fined twice

17 the amount provided in subsection (b)(3) or (c)(3) (as the

18 case may be) of section 3571 of title 18, United States

19 Code, imprisoned for not more than 10 years, or both.

20 ‘‘SEC. 1007. RELATION TO STATE LAWS.

21 ‘‘(a) IN GENERAL.—This title shall not be construed

22 as superseding, altering, or affecting the statutes, regula23 tions, orders, or interpretations in effect in any State, ex24 cept to the extent that such statutes, regulations, orders,
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•S 753 IS

1 or interpretations are inconsistent with the provisions of

2 this title, and then only to the extent of the inconsistency.

3 ‘‘(b) GREATER PROTECTION UNDER STATE LAW.—

4 For purposes of this section, a State statute, regulation,

5 order, or interpretation is not inconsistent with the provi6 sions of this title if the protection such statute, regulation,

7 order, or interpretation affords any person is greater than

8 the protection provided under this title.

9 ‘‘SEC. 1008. AGENCY GUIDANCE.

10 ‘‘In furtherance of the objectives of this title, each

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

12 Federal Deposit Insurance Act) shall issue advisories to

13 depository institutions under the jurisdiction of the agen14 cy, in order to assist such depository institutions in deter15 ring and detecting activities proscribed under section

16 1003.’’.

17 SEC. 502. REPORT TO CONGRESS ON FINANCIAL PRIVACY.

18 Not later than 18 months after the date of enactment

19 of this Act, the Comptroller General of the United States,

20 in consultation with the Federal Trade Commission, the

21 Federal banking agencies, and other appropriate Federal

22 law enforcement agencies, shall submit to the Congress a

23 report on—

24 (1) the efficacy and adequacy of the remedies

25 provided in the amendments made by section 501 in
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•S 753 IS

1 addressing attempts to obtain financial information

2 by fraudulent means or by false pretenses; and

3 (2) any recommendations for additional legisla4 tive or regulatory action to address threats to the

5 privacy of financial information created by attempts

6 to obtain information by fraudulent means or false

7 pretenses.

8 TITLE VI—MISCELLANEOUS

9 SEC. 601. GRAND JURY PROCEEDINGS.

10 Section 3322(b) of title 18, United States Code, is

11 amended—

12 (1) in paragraph (1), by inserting ‘‘Federal or

13 State’’ before ‘‘financial institution’’; and

14 (2) in paragraph (2), by inserting ‘‘at any time

15 during or after the completion of the investigation of

16 the grand jury,’’ before ‘‘upon’’.

17 SEC. 602. SENSE OF THE COMMITTEE ON BANKING, HOUS18 ING, AND URBAN AFFAIRS OF THE SENATE.

19 (a) FINDINGS.—The Committee on Banking, Hous20 ing, and Urban Affairs of the Senate finds that—

21 (1) financial modernization legislation should

22 benefit small institutions as well as large institu23 tions;

24 (2) the Congress made the subchapter S elec25 tion of the Internal Revenue Code of 1986, available
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•S 753 IS

1 to banks in 1996, reflecting a desire by the Congress

2 to reduce the tax burden on community banks;

3 (3) large numbers of community banks have

4 elected or expressed interest in the subchapter S

5 election; and

6 (4) the Committee on Banking, Housing, and

7 Urban Affairs of the Senate recognizes that some

8 obstacles remain for community banks wishing to

9 make the subchapter S election.

10 (b) SENSE OF THE COMMITTEE.—It is the sense of

11 the Committee on Banking, Housing, and Urban Affairs

12 of the Senate that—

13 (1) the small business tax provisions of the In14 ternal Revenue Code of 1986, should be more widely

15 available to community banks;

16 (2) legislation should be passed to amend the

17 Internal Revenue Code of 1986, to—

18 (A) increase the allowed number of S cor19 poration shareholders;

20 (B) permit S corporation stock to be held

21 in individual retirement accounts;

22 (C) clarify that interest on investments

23 held for safety, soundness, and liquidity pur24 poses should not be considered to be passive in25 come;
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•S 753 IS

1 (D) provide that bank director stock is not

2 treated as a disqualifying second class of stock

3 for S corporations; and

4 (E) improve the tax treatment of bad debt

5 and interest deductions; and

6 (3) the legislation described in paragraph (2)

7 should be adopted by the Congress in conjunction

8 with any financial modernization legislation.

9 SEC. 603. INVESTMENTS IN GOVERNMENT SPONSORED EN10 TERPRISES.

11 Section 18(s) of the Federal Deposit Insurance Act

12 (12 U.S.C. 1828(s)) is amended—

13 (1) by redesignating paragraph (4) as para14 graph (6); and

15 (2) by inserting after paragraph (3) the fol16 lowing:

17 ‘‘(4) CERTAIN INVESTMENTS.—Paragraph (1)

18 shall not apply with respect to investments lawfully

19 made before April 11, 1996, by a depository institu20 tion in any Government sponsored enterprise.

21 ‘‘(5) STUDENT LOANS.—

22 ‘‘(A) IN GENERAL.—This subsection does

23 not apply to any arrangement between a Hold24 ing Company (or any subsidiary of the Holding

25 Company other than the Student Loan Mar-
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•S 753 IS

1 keting Association, hereafter in this paragraph

2 referred to as the ‘Association’) and a deposi3 tory institution, if the Secretary approves the

4 affiliation and determines that—

5 ‘‘(i) the reorganization of the Associa6 tion in accordance with section 440 of the

7 Higher Education Act of 1965 (20 U.S.C.

8 1087–3), will not be adversely affected by

9 the arrangement;

10 ‘‘(ii) the dissolution of the Association

11 pursuant to such reorganization will occur

12 before the end of the 2-year period begin13 ning on the date on which such arrange14 ment is consummated, or on such earlier

15 date as the Secretary determines to be ap16 propriate, except that the Secretary may

17 extend such period for not more than 1

18 year at a time (not to exceed 2 years, in

19 the aggregate) if the Secretary determines

20 that such extension is in the public interest

21 and is appropriate to achieve an orderly re22 organization of the Association or to pre23 vent market disruptions in connection with

24 such reorganization;
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•S 753 IS

1 ‘‘(iii) the Association will not purchase

2 or extend credit to, or guarantee or provide

3 credit enhancement to, any obligation of

4 the depository institution;

5 ‘‘(iv) the operations of the Association

6 will be separate from the operations of the

7 depository institution; and

8 ‘‘(v) until the dissolution date (as that

9 term is defined in section 440(i)(2) of the

10 Higher Education Act of 1965) has oc11 curred, such depository institution will not

12 use the trade name or service mark ‘Sallie

13 Mae’ in connection with any product or

14 service it offers, if the appropriate Federal

15 banking agency for the depository institu16 tion determines that—

17 ‘‘(I) the depository institution is

18 the only institution offering such

19 product or service using the Sallie

20 Mae name; and

21 ‘‘(II) the use of such name would

22 result in the depository institution

23 having an unfair competitive advan24 tage over other depository institutions.
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1 ‘‘(B) TERMS AND CONDITIONS.—In ap2 proving any arrangement referred to in sub3 paragraph (A), the Secretary may impose any

4 terms and conditions on the arrangement that

5 the Secretary considers appropriate,

6 including—

7 ‘‘(i) imposing additional restrictions

8 on the issuance of debt obligations by the

9 Association; or

10 ‘‘(ii) restricting the use of proceeds

11 from the issuance of such debt.

12 ‘‘(C) ADDITIONAL LIMITATIONS.—In the

13 event that the Holding Company (or any sub14 sidiary of the Holding Company) enters into

15 such an arrangement, the value of the invest16 ment portfolio of the Association shall not at

17 any time exceed the lesser of—

18 ‘‘(i) the value of such portfolio on the

19 date of enactment of the Financial Services

20 Act of 1999; or

21 ‘‘(ii) the value of such portfolio on the

22 date on which such an arrangement is con23 summated.

24 ‘‘(D) ENFORCEMENT.—The terms and

25 conditions imposed under subparagraph (B)
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1 may be enforced by the Secretary in accordance

2 with section 440 of the Higher Education Act

3 of 1965.

4 ‘‘(E) DEFINITIONS.—For purposes of this

5 paragraph, the following definition shall apply:

6 ‘‘(i) ASSOCIATION; HOLDING COM7 PANY.—Notwithstanding any provision in

8 section 3, the terms ‘Association’ and

9 ‘Holding Company’ have the same mean10 ings as in section 440(i) of the Higher

11 Education Act of 1965.

12 ‘‘(ii) INVESTMENT PORTFOLIO.—The

13 term ‘investment portfolio’ means all in14 vestments shown on the consolidated

15 balance sheet of the Association, other

16 than—

17 ‘‘(I) any instruments or assets

18 described in section 439(d) of the

19 Higher Education Act of 1965 (20

20 U.S.C. 1087–2(d));

21 ‘‘(II) any direct non-callable obli22 gations of the United States, or any

23 agency thereof, for which the full faith

24 and credit of the United States is

25 pledged; or
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1 ‘‘(III) cash or cash equivalents.

2 ‘‘(iii) SECRETARY.—The term ‘Sec3 retary’ means the Secretary of the Treas4 ury.’’.

5 SEC. 604. REPEAL OF SAVINGS BANK PROVISIONS IN THE

6 BANK HOLDING COMPANY ACT OF 1956.

7 Section 3(f) of the Bank Holding Company Act of

8 1956 (12 U.S.C. 1842(f)) is amended to read as follows:

9 ‘‘(f) [Reserved].’’.

10 SEC. 605. SERVICE OF MEMBERS OF THE BOARD OF GOV11 ERNORS OF THE FEDERAL RESERVE SYSTEM.

12 Notwithstanding the first undesignated paragraph of

13 section 10 of the Federal Reserve Act, the vice chairman

14 of the Board of Governors of the Federal Reserve System

15 may serve as a member of the District of Columbia Finan16 cial Responsibility and Management Assistance Authority

17 established by section 101 of the District of Columbia Fi18 nancial Responsibility and Management Assistance Act of

19 1995.

20 SEC. 606. PROVISION OF TECHNICAL ASSISTANCE TO

21 MICROENTERPRISES.

22 (a) IN GENERAL.—Title I of the Riegle Community

23 Development and Regulatory Improvement Act of 1994

24 (12 U.S.C. 4701 et seq.) is amended by adding at the end

25 the following new subtitle:
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1 ‘‘Subtitle C—Microenterprise Tech2 nical Assistance and Capacity

3 Building Program

4 ‘‘SEC. 171. SHORT TITLE.

5 ‘‘This subtitle may be cited as the ‘Program for In6 vestment in Microentrepreneurs Act of 1999’, also re7 ferred to as the ‘PRIME Act’.

8 ‘‘SEC. 172. DEFINITIONS.

9 ‘‘For purposes of this subtitle—

10 ‘‘(1) the term ‘Administrator’ has the same

11 meaning as in section 103;

12 ‘‘(2) the term ‘capacity building services’ means

13 services provided to an organization that is, or is in

14 the process of becoming a microenterprise develop15 ment organization or program, for the purpose of

16 enhancing its ability to provide training and services

17 to disadvantaged entrepreneurs;

18 ‘‘(3) the term ‘collaborative’ means 2 or more

19 nonprofit entities that agree to act jointly as a quali20 fied organization under this subtitle;

21 ‘‘(4) the term ‘disadvantaged entrepreneur’

22 means a microentrepreneur that is—

23 ‘‘(A) a low-income person;

24 ‘‘(B) a very low-income person; or
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1 ‘‘(C) an entrepreneur that lacks adequate

2 access to capital or other resources essential for

3 business success, or is economically disadvan4 taged, as determined by the Administrator;

5 ‘‘(5) the term ‘Fund’ has the same meaning as

6 in section 103;

7 ‘‘(6) the term ‘Indian tribe’ has the same mean8 ing as in section 103;

9 ‘‘(7) the term ‘intermediary’ means a private,

10 nonprofit entity that seeks to serve microenterprise

11 development organizations and programs as author12 ized under section 175;

13 ‘‘(8) the term ‘low-income person’ has the same

14 meaning as in section 103;

15 ‘‘(9) the term ‘microentrepreneur’ means the

16 owner or developer of a microenterprise;

17 ‘‘(10) the term ‘microenterprise’ means a sole

18 proprietorship, partnership, or corporation that—

19 ‘‘(A) has fewer than 5 employees; and

20 ‘‘(B) generally lacks access to conventional

21 loans, equity, or other banking services;

22 ‘‘(11) the term ‘microenterprise development or23 ganization or program’ means a nonprofit entity, or

24 a program administered by such an entity, including

25 community development corporations or other non-
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1 profit development organizations and social service

2 organizations, that provides services to disadvan3 taged entrepreneurs or prospective entrepreneurs;

4 ‘‘(12) the term ‘training and technical assist5 ance’ means services and support provided to dis6 advantaged entrepreneurs or prospective entre7 preneurs, such as assistance for the purpose of en8 hancing business planning, marketing, management,

9 financial management skills, and assistance for the

10 purpose of accessing financial services; and

11 ‘‘(13) the term ‘very low-income person’ means

12 having an income, adjusted for family size, of not

13 more than 150 percent of the poverty line (as de14 fined in section 673(2) of the Community Services

15 Block Grant Act (42 U.S.C. 9902(2), including any

16 revision required by that section).

17 ‘‘SEC. 173. ESTABLISHMENT OF PROGRAM.

18 ‘‘The Administrator shall establish a microenterprise

19 technical assistance and capacity building grant program

20 to provide assistance from the Fund in the form of grants

21 to qualified organizations in accordance with this subtitle.

22 ‘‘SEC. 174. USES OF ASSISTANCE.

23 ‘‘A qualified organization shall use grants made

24 under this subtitle—
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1 ‘‘(1) to provide training and technical assist2 ance to disadvantaged entrepreneurs;

3 ‘‘(2) to provide training and capacity building

4 services to microenterprise development organiza5 tions and programs and groups of such organiza6 tions to assist such organizations and programs in

7 developing microenterprise training and services;

8 ‘‘(3) to aid in researching and developing the

9 best practices in the field of microenterprise and

10 technical assistance programs for disadvantaged en11 trepreneurs; and

12 ‘‘(4) for such other activities as the Adminis13 trator determines are consistent with the purposes of

14 this subtitle.

15 ‘‘SEC. 175. QUALIFIED ORGANIZATIONS.

16 ‘‘For purposes of eligibility for assistance under this

17 subtitle, a qualified organization shall be—

18 ‘‘(1) a nonprofit microenterprise development

19 organization or program (or a group or collaborative

20 thereof) that has a demonstrated record of delivering

21 microenterprise services to disadvantaged entre22 preneurs;

23 ‘‘(2) an intermediary;

24 ‘‘(3) a microenterprise development organiza25 tion or program that is accountable to a local com-
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1 munity, working in conjunction with a State or local

2 government or Indian tribe; or

3 ‘‘(4) an Indian tribe acting on its own, if the

4 Indian tribe can certify that no private organization

5 or program referred to in this paragraph exists with6 in its jurisdiction.

7 ‘‘SEC. 176. ALLOCATION OF ASSISTANCE; SUBGRANTS.

8 ‘‘(a) ALLOCATION OF ASSISTANCE.—

9 ‘‘(1) IN GENERAL.—The Administrator shall al10 locate assistance from the Fund under this subtitle

11 to ensure that—

12 ‘‘(A) activities described in section 174(1)

13 are funded using not less than 75 percent of

14 amounts made available for such assistance;

15 and

16 ‘‘(B) activities described in section 174(2)

17 are funded using not less than 15 percent of

18 amounts made available for such assistance.

19 ‘‘(2) LIMIT ON INDIVIDUAL ASSISTANCE.—No

20 single organization or entity may receive more than

21 10 percent of the total funds appropriated under

22 this subtitle in a single fiscal year.

23 ‘‘(b) TARGETED ASSISTANCE.—The Administrator

24 shall ensure that not less than 50 percent of the grants

25 made under this subtitle are used to benefit very low-in-
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1 come persons, including those residing on Indian reserva2 tions.

3 ‘‘(c) SUBGRANTS AUTHORIZED.—

4 ‘‘(1) IN GENERAL.—A qualified organization re5 ceiving assistance under this subtitle may provide

6 grants using that assistance to qualified small and

7 emerging microenterprise organizations and pro8 grams, subject to such rules and regulations as the

9 Administrator determines to be appropriate.

10 ‘‘(2) LIMIT ON ADMINISTRATIVE EXPENSES.—

11 Not more than 7.5 percent of assistance received by

12 a qualified organization under this subtitle may be

13 used for administrative expenses in connection with

14 the making of subgrants under paragraph (1).

15 ‘‘(d) DIVERSITY.—In making grants under this sub16 title, the Administrator shall ensure that grant recipients

17 include both large and small microenterprise organiza18 tions, serving urban, rural, and Indian tribal communities

19 and racially and ethnically diverse populations.

20 ‘‘SEC. 177. MATCHING REQUIREMENTS.

21 ‘‘(a) IN GENERAL.—Financial assistance under this

22 subtitle shall be matched with funds from sources other

23 than the Federal Government on the basis of not less than

24 50 percent of each dollar provided by the Fund.
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1 ‘‘(b) SOURCES OF MATCHING FUNDS.—Fees, grants,

2 gifts, funds from loan sources, and in-kind resources of

3 a grant recipient from public or private sources may be

4 used to comply with the matching requirement in sub5 section (a).

6 ‘‘(c) EXCEPTION.—

7 ‘‘(1) IN GENERAL.—In the case of an applicant

8 for assistance under this subtitle with severe con9 straints on available sources of matching funds, the

10 Administrator may reduce or eliminate the matching

11 requirements of subsection (a).

12 ‘‘(2) LIMITATION.—Not more than 10 percent

13 of the total funds made available from the Fund in

14 any fiscal year to carry out this subtitle may be ex15 cepted from the matching requirements of subsection

16 (a), as authorized by paragraph (1) of this sub17 section.

18 ‘‘SEC. 178. APPLICATIONS FOR ASSISTANCE.

19 ‘‘An application for assistance under this subtitle

20 shall be submitted in such form and in accordance with

21 such procedures as the Fund shall establish.

22 ‘‘SEC. 179. RECORDKEEPING.

23 ‘‘The requirements of section 115 shall apply to a

24 qualified organization receiving assistance from the Fund

25 under this subtitle as if it were a community development
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1 financial institution receiving assistance from the Fund

2 under subtitle A.

3 ‘‘SEC. 180. AUTHORIZATION.

4 ‘‘In addition to funds otherwise authorized to be ap5 propriated to the Fund to carry out this title, there are

6 authorized to be appropriated to the Fund to carry out

7 this subtitle—

8 ‘‘(1) $15,000,000 for fiscal year 2000;

9 ‘‘(2) $25,000,000 for fiscal year 2001;

10 ‘‘(3) $30,000,000 for fiscal year 2002; and

11 ‘‘(4) $35,000,000 for fiscal year 2003.

12 ‘‘SEC. 181. IMPLEMENTATION.

13 ‘‘The Administrator shall, by regulation, establish

14 such requirements as may be necessary to carry out this

15 subtitle.’’.

16 (b) ADMINISTRATIVE EXPENSES.—Section

17 121(a)(2)(A) of the Riegle Community Development and

18 Regulatory Improvement Act of 1994 (12 U.S.C.

19 4718(a)(2)(A)) is amended—

20 (1) by striking ‘‘$5,550,000’’ and inserting

21 ‘‘$6,100,000’’; and

22 (2) in the first sentence, by inserting before the

23 period ‘‘, including costs and expenses associated

24 with carrying out subtitle C’’.
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1 (c) CONFORMING AMENDMENTS.—Section 104(d) of

2 the Riegle Community Development and Regulatory Im3 provement Act of 1994 (12 U.S.C. 4703(d)) is amended—

4 (1) in paragraph (2)—

5 (A) by striking ‘‘15’’ and inserting ‘‘17’’;

6 and

7 (B) in subparagraph (G)—

8 (i) by striking ‘‘9’’ and inserting

9 ‘‘11’’;

10 (ii) by redesignating clauses (iv) and

11 (v) as clauses (v) and (vi), respectively;

12 and

13 (iii) by inserting after clause (iii) the

14 following:

15 ‘‘(iv) 2 individuals who have expertise

16 in microenterprises and microenterprise de17 velopment;’’; and

18 (2) in paragraph (4), in the first sentence, by

19 inserting before the period ‘‘and subtitle C’’.

Æ