106TH CONGRESS

1ST SESSION S. 900

AN ACT

To enhance competition in the financial services industry

by providing a prudential framework for the affiliation

of banks, securities firms, insurance companies, 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; TABLE OF CONTENTS.

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

5 ‘‘Financial Services Modernization Act of 1999’’.
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1 (b) TABLE OF CONTENTS.—The table of contents for

2 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—FACILITATING AFFILIATION AMONG BANKS,

SECURITIES FIRMS, AND INSURANCE COMPANIES

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act repealed.

Sec. 102. Financial activities.

Sec. 103. Conforming amendments.

Sec. 104. Operation of State law.

Subtitle B—Streamlining Supervision of Bank Holding Companies

Sec. 111. Streamlining bank holding company supervision.

Sec. 112. Authority of State insurance regulator and Securities and Exchange

Commission.

Sec. 113. Role of the Board of Governors of the Federal Reserve System.

Sec. 114. Examination of investment companies.

Sec. 115. Equivalent regulation and supervision.

Sec. 116. Interagency consultation.

Sec. 117. Preserving the integrity of FDIC resources.

Subtitle C—Activities of National Banks

Sec. 121. Authority of national banks to underwrite municipal revenue bonds.

Sec. 122. Subsidiaries of national banks.

Sec. 123. Agency activities.

Sec. 124. Prohibiting fraudulent representations.

Sec. 125. Insurance underwriting by national banks.

Subtitle D—National Treatment of Foreign Financial Institutions

Sec. 151. National treatment of foreign financial institutions.

Sec. 152. Representative offices.

TITLE II—INSURANCE CUSTOMER PROTECTIONS

Sec. 201. Functional regulation of insurance.

Sec. 202. Insurance customer protections.

Sec. 203. Federal and State dispute resolution.

TITLE III—REGULATORY IMPROVEMENTS

Sec. 301. Elimination of SAIF and DIF special reserves.

Sec. 302. Expanded small bank access to S corporation treatment.

Sec. 303. Meaningful CRA examinations.

Sec. 304. Financial information privacy protection.

Sec. 305. Cross marketing restriction; limited purpose bank relief; divestiture.

Sec. 306. ‘‘Plain language’’ requirement for Federal banking agency rules.

Sec. 307. Retention of ‘‘Federal’’ in name of converted Federal savings association.

Sec. 308. Community Reinvestment Act exemption.
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Sec. 309. Bank officers and directors as officers and directors of public utilities.

Sec. 310. Control of bankers’ banks.

Sec. 311. Multistate licensing and interstate insurance sales activities.

Sec. 312. CRA sunshine requirements.

Sec. 313. Interstate branches and agencies of foreign banks.

Sec. 314. Disclosures to consumers under the Truth in Lending Act.

Sec. 315. Approval for purchases of securities.

Sec. 316. Provision of technical assistance to microenterprises

Sec. 317. Federal reserve audits.

Sec. 318. Study and report on advertising practices of online brokerage services.

Sec. 319. Eligibility of community development financial institution to borrow

from the Federal Home Loan Bank system.

TITLE IV—FEDERAL HOME LOAN BANK SYSTEM

MODERNIZATION

Sec. 401. Short title.

Sec. 402. Definitions.

Sec. 403. Savings association membership.

Sec. 404. Advances to members; collateral.

Sec. 405. Eligibility criteria.

Sec. 406. Management of banks.

Sec. 407. Resolution Funding Corporation.

Sec. 408. GAO study on Federal Home Loan Bank System capital.

TITLE V—FUNCTIONAL REGULATION OF BROKERS AND

DEALERS

Sec. 501. Definition of broker.

Sec. 502. Definition of dealer.

Sec. 503. Definition and treatment of banking products.

Sec. 504. Qualified investor defined.

Sec. 505. Government securities defined.

Sec. 506. Effective date.

Sec. 507. Rule of construction.

TITLE VI—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 601. Prevention of creation of new S&L holding companies with commercial affiliates.

Sec. 602. Optional conversion of Federal savings associations.

TITLE VII—ATM FEE REFORM

Sec. 701. Short title.

Sec. 702. Electronic fund transfer fee disclosures at any host ATM.

Sec. 703. Disclosure of possible fees to consumers when ATM card is issued.

Sec. 704. Feasibility study.

Sec. 705. No liability if posted notices are damaged.
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1 TITLE I—FACILITATING AFFILI2 ATION AMONG BANKS, SECU3 RITIES FIRMS, AND INSUR4 ANCE COMPANIES

5 Subtitle A—Affiliations

6 SEC. 101. GLASS-STEAGALL ACT REPEALED.

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

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

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

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

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

12 SEC. 102. FINANCIAL ACTIVITIES.

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

14 Company Act of 1956 (12 U.S.C. 1843) is amended by

15 adding at the end the following new subsections:

16 ‘‘(k) ENGAGING IN ACTIVITIES THAT ARE FINAN17 CIAL IN NATURE.—

18 ‘‘(1) IN GENERAL.—Notwithstanding subsection

19 (a), a bank holding company may engage in any ac20 tivity, and may acquire and retain the shares of any

21 company engaged in any activity, that the Board, in

22 coordination with the Secretary of the Treasury, de23 termines (by regulation or order) to be financial in

24 nature or incidental to such financial activities.
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1 ‘‘(2) COORDINATION BETWEEN THE BOARD

2 AND THE SECRETARY OF THE TREASURY.—

3 ‘‘(A) PROPOSALS RAISED BEFORE THE

4 BOARD.—

5 ‘‘(i) CONSULTATION.—The Board

6 shall notify the Secretary of the Treasury

7 of, and consult with the Secretary of the

8 Treasury concerning, any request, pro9 posal, or application under this subsection

10 for a determination of whether an activity

11 is financial in nature or incidental to such

12 a financial activity.

13 ‘‘(ii) TREASURY VIEW.—The Board

14 shall not determine that any activity is fi15 nancial in nature or incidental to a finan16 cial activity under this subsection if the

17 Secretary of the Treasury notifies the

18 Board in writing, not later than 30 days

19 after the date of receipt of the notice de20 scribed in clause (i) (or such longer period

21 as the Board determines to be appropriate

22 in light of the circumstances) that the Sec23 retary of the Treasury believes that the ac24 tivity is not financial in nature or inci25 dental to a financial activity.
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1 ‘‘(B) PROPOSALS RAISED BY THE TREAS2 URY.—

3 ‘‘(i) TREASURY RECOMMENDATION.—

4 The Secretary of the Treasury may, at any

5 time, recommend in writing that the Board

6 find an activity to be financial in nature or

7 incidental to a financial activity.

8 ‘‘(ii) TIME PERIOD FOR BOARD AC9 TION.—Not later than 30 days after the

10 date of receipt of a written recommenda11 tion from the Secretary of the Treasury

12 under clause (i) (or such longer period as

13 the Secretary of the Treasury and the

14 Board determine to be appropriate in light

15 of the circumstances), the Board shall de16 termine whether to initiate a public rule17 making proposing that the subject rec18 ommended activity be found to be financial

19 in nature or incidental to a financial activ20 ity under this subsection, and shall notify

21 the Secretary of the Treasury in writing of

22 the determination of the Board and, in the

23 event that the Board determines not to

24 seek public comment on the proposal, the

25 reasons for that determination.
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1 ‘‘(3) FACTORS TO BE CONSIDERED.—The

2 Board shall determine that an activity is financial in

3 nature or incidental to financial activities, if the

4 Board finds that such activity is consistent with—

5 ‘‘(A) the purposes of this Act and the Fi6 nancial Services Modernization Act of 1999;

7 ‘‘(B) changes or reasonably expected

8 changes in the marketplace in which bank hold9 ing companies compete;

10 ‘‘(C) changes or reasonably expected

11 changes in the technology for delivering finan12 cial services; and

13 ‘‘(D) fostering—

14 ‘‘(i) effective competition with any

15 company seeking to provide financial serv16 ices in the United States;

17 ‘‘(ii) the efficient delivery of informa18 tion and services that are financial in na19 ture through the use of technological

20 means, including any application necessary

21 to protect the security or efficacy of sys22 tems for the transmission of data or finan23 cial transactions; and
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1 ‘‘(iii) the provision to customers of

2 any available or emerging technological

3 means for using financial services.

4 ‘‘(4) ACTIVITIES THAT ARE FINANCIAL IN NA5 TURE.—For purposes of this subsection, the fol6 lowing activities shall be considered to be financial

7 in nature:

8 ‘‘(A) Lending, exchanging, transferring, in9 vesting for others, or safeguarding money or se10 curities.

11 ‘‘(B) Insuring, guaranteeing, or indem12 nifying against loss, harm, damage, illness, dis13 ability, or death, or providing and issuing annu14 ities, and acting as principal, agent, or broker

15 for purposes of the foregoing, in any State, in

16 full compliance with the laws and regulations of

17 that State that apply to each type of insurance

18 license or authorization in that State.

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

20 economic advisory services, including advising

21 an investment company (as defined in section 3

22 of the Investment Company Act of 1940).

23 ‘‘(D) Issuing or selling instruments rep24 resenting interests in pools of assets permissible

25 for a bank to hold directly.
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1 ‘‘(E) Underwriting, dealing in, or making

2 a market in securities.

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

4 Board has determined, by order or regulation

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

6 Financial Services Modernization Act of 1999,

7 to be so closely related to banking or managing

8 or controlling banks as to be a proper incident

9 thereto (subject to the same terms and condi10 tions contained in such order or regulation, un11 less modified by the Board).

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

13 any activity that—

14 ‘‘(i) a bank holding company may en15 gage in outside of the United States; and

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

17 regulations issued pursuant to subsection

18 (c)(13) (as in effect on the day before the

19 date of enactment of the Financial Services

20 Modernization Act of 1999) to be usual in

21 connection with the transaction of banking

22 or other financial operations abroad.

23 ‘‘(H) Directly or indirectly acquiring or

24 controlling, whether as principal, on behalf of 1

25 or more entities (including entities, other than
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1 a depository institution or subsidiary of a de2 pository institution that the bank holding com3 pany controls), or otherwise, shares, assets, or

4 ownership interests (including debt or equity se5 curities, partnership interests, trust certificates,

6 or other instruments representing ownership) of

7 a company or other entity, whether or not con8 stituting control of such company or entity, en9 gaged in any activity not authorized pursuant

10 to this section if—

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

12 interests are not acquired or held by a de13 pository institution or subsidiary of a de14 pository institution; and

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

16 interests are acquired and held by—

17 (I) a securities affiliate or an af18 filiate thereof; or

19 (II) an affiliate of an insurance

20 company described in paragraph

21 (I)(ii) that provides investment advice

22 to an insurance company and is reg23 istered pursuant to the Investment

24 Advisers Act of 1940, or an affiliate

25 of such investment adviser, as part of
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1 a bona fide underwriting or merchant

2 banking activity, including investment

3 activities engaged in for the purpose

4 of appreciation and ultimate resale or

5 disposition of the investment.

6 ‘‘(I) Directly or indirectly acquiring or con7 trolling, whether as principal, on behalf of 1 or

8 more entities (including entities, other than a

9 depository institution or subsidiary of a deposi10 tory institution, that the bank holding company

11 controls), or otherwise, shares, assets, or owner12 ship interests (including debt or equity securi13 ties, partnership interests, trust certificates or

14 other instruments representing ownership) of a

15 company or other entity, whether or not consti16 tuting control of such company or entity, en17 gaged in any activity not authorized pursuant

18 to this section if—

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

20 interests are not acquired or held by a de21 pository institution or a subsidiary of a de22 pository institution;

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

24 interests are acquired and held by an in25 surance company that is predominantly en-
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1 gaged in underwriting life, accident and

2 health, or property and casualty insurance

3 (other than credit-related insurance) or

4 providing and issuing annuities; and

5 ‘‘(iii) such shares, assets, or owner6 ship interests represent, as determined by

7 the insurance authority of the State of

8 domicile of the insurance company, an in9 vestment made in the ordinary course of

10 business of such insurance company in ac11 cordance with relevant State law governing

12 such investments.

13 ‘‘(J) Activities that the Board determines

14 (by regulation or order) are complementary to

15 financial activities, or any other service that the

16 Board determines (by regulation or order) not

17 to pose a substantial risk to the safety or

18 soundness of depository institutions or the fi19 nancial system generally.

20 ‘‘(5) ACTIONS REQUIRED.—

21 ‘‘(A) IN GENERAL.—The Board shall, by

22 regulation or order, define, consistent with the

23 purposes of this Act, the activities described in

24 subparagraph (B) as financial in nature, and

25 the extent to which such activities are financial
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1 in nature or incidental to activities that are fi2 nancial in nature.

3 ‘‘(B) ACTIVITIES.—The activities described

4 in this subparagraph are—

5 ‘‘(i) lending, exchanging, transferring,

6 investing for others, or safeguarding finan7 cial assets other than money or securities;

8 ‘‘(ii) providing any device or other in9 strumentality for transferring money or

10 other financial assets;

11 ‘‘(iii) arranging, effecting, or facili12 tating financial transactions for the ac13 count of third parties; and

14 ‘‘(iv) activities that are complemen15 tary to financial activities, or any other

16 service that the Board determines (by reg17 ulation or order) not to pose a substantial

18 risk to the safety or soundness of deposi19 tory institutions or the financial system

20 generally.

21 ‘‘(6) REQUIRED NOTIFICATION.—

22 ‘‘(A) IN GENERAL.—A bank holding com23 pany that acquires any company or commences

24 any activity pursuant to this subsection shall

25 provide written notice to the Board describing
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1 the activity commenced or conducted by the

2 company acquired not later than 30 calendar

3 days after commencing the activity or consum4 mating the acquisition, as applicable.

5 ‘‘(B) APPROVAL NOT REQUIRED FOR CER6 TAIN FINANCIAL ACTIVITIES.—Except as pro7 vided in subsection (j) with regard to the acqui8 sition of a savings association, a bank holding

9 company may commence any activity, or ac10 quire any company, pursuant to paragraph (4)

11 or any regulation prescribed or order issued

12 under paragraph (5), without prior approval of

13 the Board.

14 ‘‘(l) CONDITIONS FOR ENGAGING IN EXPANDED FI15 NANCIAL ACTIVITIES.—

16 ‘‘(1) IN GENERAL.—Notwithstanding subsection

17 (k), a bank holding company may not engage in any

18 activity, or directly or indirectly acquire or retain

19 shares of any company engaged in any activity,

20 under subsection (k), other than activities permis21 sible for a bank holding company under subsection

22 (c)(8), unless—

23 ‘‘(A) all of the insured depository institu24 tion subsidiaries of the bank holding company

25 are well capitalized;
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1 ‘‘(B) all of the insured depository institu2 tion subsidiaries of the bank holding company

3 are well managed; and

4 ‘‘(C) the bank holding company has filed

5 with the Board—

6 ‘‘(i) a declaration that the company

7 elects to engage in activities or acquire and

8 retain shares of a company which were not

9 permissible for a bank holding company to

10 engage in or acquire before the enactment

11 of the Financial Services Modernization

12 Act of 1999; and

13 ‘‘(ii) a certification that the company

14 meets the requirements of subparagraphs

15 (A) and (B).

16 ‘‘(2) FOREIGN BANKS.—For purposes of para17 graph (1), the Board shall apply comparable capital

18 and management standards to a foreign bank that

19 operates a branch or agency or owns or controls a

20 commercial lending company in the United States,

21 giving due regard to the principle of national treat22 ment and equality of competitive opportunity.

23 ‘‘(3) DEFINITIONS.—For purposes of this

24 subsection—
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1 ‘‘(A) the term ‘well capitalized’ has the

2 same meaning as in section 38 of the Federal

3 Deposit Insurance Act;

4 ‘‘(B) the term ‘well managed’ means—

5 ‘‘(i) in the case of a depository insti6 tution that has been examined, unless oth7 erwise determined in writing by the appro8 priate Federal banking agency—

9 ‘‘(I) the achievement of a com10 posite rating of 1 or 2 under the Uni11 form Financial Institutions Rating

12 System (or an equivalent rating under

13 an equivalent rating system) in con14 nection with the most recent examina15 tion or subsequent review of the de16 pository institution; and

17 ‘‘(II) at least a rating of 2 for

18 management, if that rating is given;

19 ‘‘(ii) in the case of any depository in20 stitution that has not been examined, the

21 existence and use of managerial resources

22 that the appropriate Federal banking agen23 cy determines are satisfactory; and

24 ‘‘(iii) the terms ‘appropriate Federal

25 banking agency’ and ‘depository institu-
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1 tion’ have the same meanings as in section

2 3 of the Federal Deposit Insurance Act.

3 ‘‘(m) PROVISIONS APPLICABLE TO BANK HOLDING

4 COMPANIES THAT FAIL TO MEET CERTAIN REQUIRE5 MENTS.—

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

7 ‘‘(A) a bank holding company is engaged,

8 directly or indirectly, in any activity under sub9 section (k), other than activities that are per10 missible for a bank holding company under sub11 section (c)(8); and

12 ‘‘(B) such bank holding company is not in

13 compliance with the requirements of subsection

14 (l),

15 the Board shall give notice to the bank holding com16 pany to that effect, describing the conditions giving

17 rise to the notice.

18 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE19 QUIRED.—Not later than 45 days after the date of

20 receipt by a bank holding company of a notice given

21 under paragraph (1) (or such additional period as

22 the Board may permit), the bank holding company

23 shall execute an agreement with the Board to com24 ply with the requirements applicable to a bank hold25 ing company under subsection (l).
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1 ‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—Until

2 the conditions described in a notice to a bank hold3 ing company under paragraph (1) are corrected, the

4 Board may impose such limitations on the conduct

5 or activities of that bank holding company or any af6 filiate of that company as the Board determines to

7 be appropriate under the circumstances and con8 sistent with the purposes of this Act.

9 ‘‘(4) FAILURE TO CORRECT.—If the conditions

10 described in a notice to a bank holding company

11 under paragraph (1) are not corrected within 180

12 days after the date of receipt by the bank holding

13 company of a notice under paragraph (1), the Board

14 may require such bank holding company, under such

15 terms and conditions as may be imposed by the

16 Board and subject to such extension of time as may

17 be granted in the discretion of the Board, either—

18 ‘‘(A) to divest control of any subsidiary in19 sured depository institutions; or

20 ‘‘(B) to cease to engage in any activity

21 conducted by such bank holding company or its

22 subsidiaries (other than a depository institution

23 or a subsidiary of a depository institution) that

24 is not an activity that is permissible for a bank

25 holding company under subsection (c)(8).
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1 ‘‘(n) AUTHORITY TO RETAIN COMMODITY ACTIVI2 TIES AND AFFILIATIONS.—Notwithstanding subsection

3 (a), a company that is not a bank holding company or

4 a foreign bank (as defined in section 1(b)(7) of the Inter5 national Banking Act of 1978) and becomes a bank hold6 ing company after the date of enactment of the Financial

7 Services Modernization Act of 1999, may continue to en8 gage in, or directly or indirectly own or control shares of

9 a company engaged in, activities related to the trading,

10 sale, or investment in commodities and underlying phys11 ical properties that were not permissible for bank holding

12 companies to conduct in the United States as of Sep13 tember 30, 1997, if—

14 ‘‘(1) the bank holding company, or any sub15 sidiary of the bank holding company, lawfully was

16 engaged, directly or indirectly, in any of such activi17 ties as of September 30, 1997, in the United States;

18 ‘‘(2) the attributed aggregate consolidated as19 sets of the company held by the bank holding com20 pany pursuant to this subsection, and not otherwise

21 permitted to be held by a bank holding company, are

22 equal to not more than 5 percent of the total con23 solidated assets of the bank holding company, except

24 that the Board may increase that percentage by

25 such amounts and under such circumstances as the
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1 Board considers appropriate, consistent with the

2 purposes of this Act; and

3 ‘‘(3) the bank holding company does not

4 permit—

5 ‘‘(A) any company, the shares of which it

6 owns or controls pursuant to this subsection, to

7 offer or market any product or service of an af8 filiated insured depository institution; or

9 ‘‘(B) any affiliated insured depository in10 stitution to offer or market any product or serv11 ice of any company, the shares of which are

12 owned or controlled by such bank holding com13 pany pursuant to this subsection.’’.

14 (b) FINANCIAL ACTIVITIES OF BANK HOLDING COM15 PANIES INELIGIBLE FOR SUBSECTION (k) POWERS.—

16 (1) IN GENERAL.—Section 4(c)(8) of the Bank

17 Holding Company Act of 1956 (12 U.S.C.

18 1843(c)(8)) is 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 or order under this paragraph as of the day be22 fore the date of enactment of the Financial Services

23 Modernization Act of 1999, to be so closely related

24 to banking as to be a proper incident thereto (sub-
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1 ject to such terms and conditions contained in such

2 regulation, unless modified by the Board);’’.

3 (2) CONFORMING CHANGES TO OTHER STAT4 UTES.—

5 (A) AMENDMENT TO THE BANK HOLDING

6 COMPANY ACT AMENDMENTS OF 1970.—Section

7 105 of the Bank Holding Company Act Amend8 ments of 1970 (12 U.S.C. 1850) is amended by

9 striking ‘‘, to engage directly or indirectly in a

10 nonbanking activity pursuant to section 4 of

11 such Act,’’.

12 (B) AMENDMENT TO THE BANK SERVICE

13 COMPANY ACT.—Section 4(f) of the Bank Serv14 ice Company Act (12 U.S.C. 1864(f)) is amend15 ed by striking the period at the end and insert16 ing the following: ‘‘as of the day before the date

17 of enactment of the Financial Services Mod18 ernization Act of 1999.’’.

19 SEC. 103. CONFORMING AMENDMENTS.

20 Section 10(c)(2)(F)(i) of the Home Owners’ Loan

21 Act (12 U.S.C. 1467a(c)(2)(F)(i))is amended—

22 (1) by inserting ‘‘is permitted for bank holding

23 companies under subsection (c) or (k) of section 4

24 of the Bank Holding Company Act of 1956, or

25 which’’ after ‘‘(i) which’’; and
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1 (2) by striking ‘‘section 4(c)’’ and inserting

2 ‘‘subsection (c) or (k) of section 4’’.

3 SEC. 104. OPERATION OF STATE LAW.

4 (a) STATE REGULATION OF THE BUSINESS OF IN5 SURANCE.—The Act entitled ‘‘An Act to express the intent

6 of Congress with reference to the regulation of the busi7 ness of insurance’’ and approved March 9, 1945 (15

8 U.S.C. 1011 et seq.), commonly referred to as the

9 ‘‘McCarran-Ferguson Act’’ remains the law of the United

10 States.

11 (b) MANDATORY INSURANCE LICENSING REQUIRE12 MENTS.—No person or entity shall provide insurance in

13 a State as principal or agent unless such person or entity

14 is licensed, as required by the appropriate insurance regu15 lator of such State in accordance with the relevant State

16 insurance laws, subject to subsections (c), (d), and (e).

17 (c) AFFILIATIONS.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), no State may, by statute, regulation,

20 order, interpretation, or other action, prevent or re21 strict the affiliations authorized or permitted by this

22 Act and the amendments made by this Act.

23 (2) INSURANCE.—With respect to affiliations

24 between insured depository institutions, or any sub25 sidiary or affiliate thereof, and persons or entities
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1 engaged in the business of insurance, paragraph (1)

2 does not prohibit any State from collecting, review3 ing, and taking actions on required applications and

4 other documents or reports as may be necessary con5 cerning proposed acquisitions, changes, or continu6 ations of control of any entity engaged in the busi7 ness of insurance and domiciled in that State, if the

8 State actions do not have the practical effect of dis9 criminating, either intentionally or unintentionally,

10 against an insured depository institution or a sub11 sidiary or affiliate thereof, or against any person or

12 entity based upon affiliation with an insured deposi13 tory institution.

14 (d) ACTIVITIES.—

15 (1) IN GENERAL.—Except as provided in para16 graph (3), and except with respect to insurance

17 sales, solicitation, and cross marketing activities,

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

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

20 other action, prevent or restrict an insured deposi21 tory institution or subsidiary or affiliate thereof

22 from engaging directly or indirectly, either by itself

23 or in conjunction with a subsidiary, affiliate, or any

24 other entity or person, in any activity authorized or
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1 permitted under this Act and the amendments made

2 by this Act.

3 (2) INSURANCE SALES.—

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

5 legal standards for preemption set forth in the

6 decision of the Supreme Court of the United

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

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

9 may, by statute, regulation, order, interpreta10 tion, or other action, prevent or significantly

11 interfere with the ability of an insured deposi12 tory institution, or a subsidiary or affiliate

13 thereof, to engage, directly or indirectly, either

14 by itself or in conjunction with a subsidiary, af15 filiate, or any other party, in any insurance

16 sales, solicitation, or cross-marketing activity.

17 (B) CERTAIN STATE LAWS PRESERVED.—

18 Notwithstanding subparagraph (A), a State

19 may impose any of the following restrictions, or

20 restrictions that are substantially the same as

21 but no more burdensome or restrictive than

22 those in each of the following clauses:

23 (i) Restrictions prohibiting the rejec24 tion of an insurance policy solely because

25 the policy has been issued or underwritten
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1 by any person not associated with such in2 sured depository institution, or any sub3 sidiary or affiliate thereof, when such in4 surance is required in connection with a

5 loan or extension of credit.

6 (ii) Restrictions prohibiting a require7 ment for any debtor, insurer, or insurance

8 agent or broker to pay a separate charge

9 in connection with the handling of insur10 ance that is required in connection with a

11 loan or other extension of credit or the

12 provision of another traditional banking

13 product, unless such charge would be re14 quired when the insured depository institu15 tion, or any subsidiary or affiliate thereof,

16 is the licensed insurance agent or broker

17 providing the insurance.

18 (iii) Restrictions prohibiting the use of

19 any advertisement or other insurance pro20 motional material by an insured depository

21 institution, or any subsidiary or affiliate

22 thereof, that would cause a reasonable per23 son to believe mistakenly that—

24 (I) a State or the Federal Gov25 ernment is responsible for the insur-
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1 ance sales activities of, or stands be2 hind the credit of, the institution, af3 filiate, or subsidiary; or

4 (II) a State, or the Federal Gov5 ernment guarantees any returns on

6 insurance products, or is a source of

7 payment on any insurance obligation

8 of or sold by the institution, affiliate,

9 or subsidiary.

10 (iv) Restrictions prohibiting the pay11 ment or receipt of any commission or bro12 kerage fee or other valuable consideration

13 for services as an insurance agent or

14 broker to or by any person, unless such

15 person holds a valid State license regard16 ing the applicable class of insurance at the

17 time at which the services are performed,

18 except that, in this clause, the term ‘‘serv19 ices as an insurance agent or broker’’ does

20 not include a referral by an unlicensed per21 son of a customer or potential customer to

22 a licensed insurance agent or broker that

23 does not include a discussion of specific in24 surance policy terms and conditions.
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1 (v) Restrictions prohibiting any com2 pensation paid to or received by any indi3 vidual who is not licensed to sell insurance

4 for the referral of a customer that seeks to

5 purchase, or seeks an opinion or advice on,

6 any insurance product to a person that

7 sells or provides opinions or advice on such

8 product, based on the purchase of insur9 ance by the customer.

10 (vi) Restrictions prohibiting the re11 lease of the insurance information of a cus12 tomer (defined as information concerning

13 the premiums, terms, and conditions of in14 surance coverage, including expiration

15 dates and rates, and insurance claims of a

16 customer contained in the records of the

17 insured depository institution, or a sub18 sidiary or affiliate thereof) to any person

19 or entity other than an officer, director,

20 employee, agent, subsidiary, or affiliate of

21 an insured depository institution, for the

22 purpose of soliciting or selling insurance,

23 without the express consent of the cus24 tomer, other than a provision that

25 prohibits—
28

S 900 ES

1 (I) a transfer of insurance infor2 mation to an unaffiliated insurance

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

5 force on existing insureds of the in6 sured depository institution, or sub7 sidiary or affiliate thereof, or in con8 nection with a merger with or acquisi9 tion of an unaffiliated insurance com10 pany, agent, or broker; or

11 (II) the release of information as

12 otherwise authorized by Federal or

13 State law.

14 (vii) Restrictions prohibiting the use

15 of health information obtained from the in16 surance records of a customer for any pur17 pose, other than for its activities as a li18 censed agent or broker, without the ex19 press consent of the customer.

20 (viii) Restrictions prohibiting the ex21 tension of credit (or any product or service

22 that is equivalent to an extension of cred23 it), lease or sale of property of any kind,

24 or furnishing of any services or fixing or

25 varying the consideration for any of the
29

S 900 ES

1 foregoing, on the condition or requirement

2 that the customer obtain insurance from

3 the insured depository institution, a sub4 sidiary or affiliate thereof, or a particular

5 insurer, agent, or broker, other than a pro6 hibition that would prevent any insured de7 pository institution, or any subsidiary or

8 affiliate 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 any subsidiary or affiliate

24 thereof.
30

S 900 ES

1 (ix) Restrictions requiring, when an

2 application by a customer for a loan or

3 other extension of credit from an insured

4 depository institution is pending, and in5 surance is offered or sold to the customer

6 or is required in connection with the loan

7 or extension of credit by the insured depos8 itory institution or any subsidiary or affil9 iate thereof, that a written disclosure be

10 provided to the customer or prospective

11 customer indicating that his or her choice

12 of an insurance provider will not affect the

13 credit decision or credit terms in any way,

14 except that the insured depository institu15 tion may impose reasonable requirements

16 concerning the creditworthiness of the in17 surance provider and scope of coverage

18 chosen.

19 (x) Restrictions, requiring clear and

20 conspicuous disclosure, in writing where

21 practicable, to the customer prior to the

22 sale of any insurance policy that such

23 policy—

24 (I) is not a deposit;
31

S 900 ES

1 (II) is not insured by the Federal

2 Deposit Insurance Corporation;

3 (III) is not guaranteed by the in4 sured depository institution or, if ap5 propriate, its subsidiaries or affiliates

6 or any person soliciting the purchase

7 of or selling insurance on the premises

8 thereof; and

9 (IV) where appropriate, involves

10 investment risk, including potential

11 loss of principal.

12 (xi) Restrictions requiring that, when

13 a customer obtains insurance (other than

14 credit insurance or flood insurance) and

15 credit from an insured depository institu16 tion or its subsidiaries or affiliates, or any

17 person soliciting the purchase of or selling

18 insurance on the premises thereof, the

19 credit and insurance transactions be com20 pleted through separate documents.

21 (xii) Restrictions prohibiting, when a

22 customer obtains insurance (other than

23 credit insurance or flood insurance) and

24 credit from an insured depository institu25 tion or its subsidiaries or affiliates, or any
32

S 900 ES

1 person soliciting the purchase of or selling

2 insurance on the premises thereof, inclu3 sion of the expense of insurance premiums

4 in the primary credit transaction without

5 the express written consent of the cus6 tomer.

7 (xiii) Restrictions requiring—

8 (I) maintenance of separate and

9 distinct books and records relating to

10 insurance transactions, including all

11 files relating to and reflecting cus12 tomer complaints; and

13 (II) that such insurance books

14 and records be made available to the

15 appropriate State insurance regulator

16 for inspection upon reasonable notice.

17 (C) LIMITATIONS.—

18 (i) OCC DEFERENCE.—Section 203(e)

19 does not apply with respect to any State

20 statute, regulation, order, interpretation,

21 or other action regarding insurance sales,

22 solicitation, or cross marketing activities

23 described in subparagraph (A) that was

24 issued, adopted, or enacted before Sep-
33

S 900 ES

1 tember 3, 1998, and that is not described

2 in subparagraph (B).

3 (ii) NONDISCRIMINATION.—Subsection

4 (e) does not apply with respect to any

5 State statute, regulation, order, interpreta6 tion, or other action regarding insurance

7 sales, solicitation, or cross marketing ac8 tivities described in subparagraph (A) that

9 was issued, adopted, or enacted before

10 September 3, 1998, and that is not de11 scribed in subparagraph (B).

12 (iii) CONSTRUCTION.—Nothing in this

13 paragraph shall be construed—

14 (I) to limit the applicability of

15 the decision of the Supreme Court in

16 Barnett Bank of Marion County N.A.

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

18 with respect to any State statute, reg19 ulation, order, interpretation, or other

20 action that is not referred to or de21 scribed in this paragraph; or

22 (II) to create any inference with

23 respect to any State statute, regula24 tion, order, interpretation, or other
34

S 900 ES

1 action that is not referred to in this

2 paragraph.

3 (3) INSURANCE ACTIVITIES OTHER THAN

4 SALES.—State statutes, regulations, interpretations,

5 orders, and other actions shall not be preempted

6 under paragraph (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, but that

14 are directly engaged in the business of insur15 ance (except that they may apply to depository

16 institutions engaged in providing savings bank

17 life insurance as principal to the extent of regu18 lating such insurance);

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

20 regulate insurance sales, solicitations, or cross

21 marketing activities; and

22 (D) are not prohibited under subsection

23 (e).

24 (4) FINANCIAL ACTIVITIES OTHER THAN INSUR25 ANCE.—No State statute, regulation, interpretation,
35

S 900 ES

1 order, or other action shall be preempted under

2 paragraph (1) to the extent that—

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

4 and adopted, or enacted for the purpose of reg5 ulating, directly or indirectly, insurance sales,

6 solicitations, or cross marketing activities cov7 ered under paragraph (2);

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

9 and adopted, or enacted for the purpose of reg10 ulating, directly or indirectly, the business of in11 surance activities other than sales, solicitations,

12 or cross marketing activities, covered under

13 paragraph (3);

14 (C) it does not relate to securities inves15 tigations or enforcement actions referred to in

16 subsection (f); and

17 (D) it is not prohibited under subsection

18 (e).

19 (e) NONDISCRIMINATION.—Except as provided in any

20 restriction described in subsection (d)(2)(B), no State

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

22 action, regulate the activities authorized or permitted

23 under this Act and the amendments made by this Act,

24 or any other provision of Federal law, of an insured depos25 itory institution, or subsidiary or affiliate thereof, to the
36

S 900 ES

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

2 or other action—

3 (1) distinguishes by its terms between insured

4 depository institutions, or subsidiaries or affiliates

5 thereof, and other persons or entities engaged in

6 such activities, in a manner that is in any way ad7 verse to any such insured depository institution, or

8 subsidiary or affiliate thereof;

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

10 an impact on insured depository institutions, or sub11 sidiaries or affiliates thereof, that is substantially

12 more adverse than its impact on other persons or

13 entities providing the same products or services or

14 engaged in the same activities that are not insured

15 depository institutions, or subsidiaries or affiliates

16 thereof, or persons or entities affiliated therewith;

17 (3) effectively prevents an insured depository

18 institution, or subsidiary or affiliate thereof, from

19 engaging in activities authorized or permitted by this

20 Act and the amendments made by this Act, or any

21 other provision of Federal law; or

22 (4) conflicts with the intent of this Act and the

23 amendments made by this Act generally to permit

24 affiliations that are authorized or permitted by Fed25 eral law.
37

S 900 ES

1 (f) LIMITATION.—Subsections (c) and (d) shall not

2 be construed to affect—

3 (1) the jurisdiction of the securities commission

4 (or any agency or office performing like functions)

5 of any State, under the laws of that State, to inves6 tigate and bring enforcement actions, consistent with

7 section 18(c) of the Securities Act of 1933, with re8 spect to fraud or deceit or unlawful conduct by any

9 person, in connection with securities or securities

10 transactions; or

11 (2) State laws, regulations, orders, interpreta12 tions, or other actions of general applicability relat13 ing to the governance of corporations, partnerships,

14 limited liability companies, or other business associa15 tions incorporated or formed under the laws of that

16 State or domiciled in that State, or the applicability

17 of the antitrust laws of any State or any State law

18 that is similar to the antitrust laws if such laws, reg19 ulations, interpretations, orders, or other actions are

20 not inconsistent with the purposes of this Act to au21 thorize or permit certain affiliations and to remove

22 barriers to such affiliations.

23 (g) CERTAIN STATE AFFILIATION LAWS PREEMPTED

24 FOR INSURANCE COMPANIES AND AFFILIATES.—Except
38

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1 as provided in subsection (c)(2), no State may, by law,

2 regulation, order, interpretation, or otherwise—

3 (1) prevent or restrict the ability of any insurer,

4 or any affiliate of an insurer (whether such affiliate

5 is organized as a stock company, mutual holding

6 company, or otherwise), to become a bank holding

7 company, or to acquire control of an insured deposi8 tory institution, where the practical effect of such

9 State action would be to discriminate, intentionally

10 or unintentionally, against an insurer, or any affil11 iate of an insurer, based upon its affiliation with an

12 insured depository institution;

13 (2) limit the amount of the assets of an insurer

14 that may be invested in the voting securities of an

15 insured depository institution (or any company that

16 controls such institution), except that the laws of the

17 State of domicile of the insurer may limit the

18 amount of such investment to an amount that is not

19 less than 5 percent of the admitted assets of the in20 surer; or

21 (3) prevent, restrict, or have the authority to

22 review, approve, or disapprove a plan of reorganiza23 tion by which an insurer proposes to reorganize from

24 mutual form to become a stock insurer (whether as

25 a direct or indirect subsidiary of a mutual holding
39

S 900 ES

1 company or otherwise), unless the State is the State

2 of domicile of the insurer, except that the appro3 priate regulatory authority of the State of domicile

4 of the insurer shall consult with the appropriate reg5 ulatory authority in other States in which the in6 surer conducts business, regarding issues affecting

7 the best interests of policyholders.

8 (h) MOTOR VEHICLE RENTAL AGENCY ACTIVI9 TIES.—

10 (1) FINDINGS.—Congress finds that—

11 (A) in many States, the insurance laws are

12 unclear as to whether personal insurance sales

13 in connection with the short-term rental or leas14 ing of motor vehicles should be licensed by the

15 State as an insurance activity; and

16 (B) in those States that have not yet im17 plemented regulations governing the offer or

18 sale of insurance in connection with the short19 term lease or rental of a motor vehicle, a pre20 sumption should exist that no insurance license

21 is required in connection with such sales.

22 (2) EXCEPTION FOR CERTAIN INSURANCE

23 PRODUCTS.—Subsection (b) does not apply to any

24 person or entity who offers or provides insurance an25 cillary to a short-term lease or rental transaction of
40

S 900 ES

1 a motor vehicle in a State that does not, by statute,

2 rule, or regulation, impose any licensing, appoint3 ment, personal or corporate qualifications, or edu4 cation requirements on such persons or entities.

5 (3) CONSTRUCTION.—Nothing in this sub6 section shall be construed to alter the validity or ef7 fect of any State law, or the prospective application

8 of any final State statute, rule, or regulation which,

9 by its specific terms, expressly regulates or exempts

10 from regulation any person or entity who offers or

11 provides insurance ancillary to a short-term lease or

12 rental transaction of a motor vehicle.

13 (4) LEASE PERIOD.—For purposes of this sub14 section, a person shall be considered to be providing

15 insurance ancillary to a short-term lease or rental

16 transaction of a motor vehicle if the lease or rental

17 transaction is for 60 days or less, and the insurance

18 is provided for a period of consecutive days not ex19 ceeding the length of the lease or rental.

20 (5) EFFECT.—This subsection shall remain in

21 effect during the period beginning on the date of en22 actment of this Act and ending 5 years after that

23 date of enactment.

24 (i) DEFINITIONS.—For purposes of this section—
41

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1 (1) the term ‘‘antitrust laws’’ has the same

2 meaning as in subsection (a) of the first section of

3 the Clayton Act, and includes section 5 of the Fed4 eral Trade Commission Act (to the extent that such

5 section 5 relates to unfair methods of competition);

6 (2) the term ‘‘insured depository institution’’

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

8 Deposit Insurance Act; and

9 (3) the term ‘‘State’’ means any State of the

10 United States, the District of Columbia, any terri11 tory of the United States, Puerto Rico, Guam,

12 American Samoa, the Trust Territory of the Pacific

13 Islands, the Virgin Islands, and the Northern Mar14 iana Islands.

15 Subtitle B—Streamlining Super16 vision of Bank Holding Compa17 nies

18 SEC. 111. STREAMLINING BANK HOLDING COMPANY SU19 PERVISION.

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

21 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

22 ‘‘(c) REPORTS AND EXAMINATIONS.—

23 ‘‘(1) REPORTS.—

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

25 to time, may require a bank holding company
42

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1 and any subsidiary of such company to submit

2 reports under oath to keep the Board informed

3 as to—

4 ‘‘(i) the financial condition of the

5 bank holding company or subsidiary, sys6 tems for monitoring and controlling finan7 cial and operating risks, and transactions

8 with depository institution subsidiaries of

9 the bank holding company; and

10 ‘‘(ii) compliance by the company or

11 subsidiary with applicable provisions of

12 this Act.

13 ‘‘(B) USE OF EXISTING REPORTS.—

14 ‘‘(i) IN GENERAL.—For purposes of

15 compliance with this paragraph, the Board

16 shall, to the fullest extent possible,

17 accept—

18 ‘‘(I) reports that a bank holding

19 company or any subsidiary of such

20 company has provided or been re21 quired to provide to other Federal or

22 State supervisors or to appropriate

23 self-regulatory organizations;
43

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1 ‘‘(II) information that is other2 wise required to be reported publicly;

3 and

4 ‘‘(III) externally audited financial

5 statements.

6 ‘‘(ii) REPORTS FILED WITH OTHER

7 AGENCIES.—In the event that the Board

8 requires a report under this subsection

9 from a functionally regulated subsidiary of

10 a bank holding company of a kind that is

11 not required by another Federal or State

12 regulatory authority or an appropriate self13 regulatory organization, the Board shall

14 request that the appropriate regulatory au15 thority or self-regulatory organization ob16 tain such report. If the report is not made

17 available to the Board, and the report is

18 necessary to assess a material risk to the

19 bank holding company or any of its deposi20 tory institution subsidiaries or compliance

21 with this Act, the Board may require such

22 functionally regulated subsidiary to provide

23 such a report to the Board.

24 ‘‘(2) EXAMINATIONS.—
44

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1 ‘‘(A) EXAMINATION AUTHORITY FOR BANK

2 HOLDING COMPANIES AND SUBSIDIARIES.—

3 Subject to subparagraph (B), the Board may

4 make examinations of each bank holding com5 pany and each subsidiary of such holding com6 pany in order—

7 ‘‘(i) to inform the Board of the nature

8 of the operations and financial condition of

9 the holding company and such subsidiaries;

10 ‘‘(ii) to inform the Board of—

11 ‘‘(I) the financial and operational

12 risks within the holding company sys13 tem that may pose a threat to the

14 safety and soundness of any deposi15 tory institution subsidiary of such

16 holding company; and

17 ‘‘(II) the systems for monitoring

18 and controlling such risks; and

19 ‘‘(iii) to monitor compliance with the

20 provisions of this Act and those governing

21 transactions and relationships between any

22 depository institution subsidiary and its af23 filiates.

24 ‘‘(B) FUNCTIONALLY REGULATED SUB25 SIDIARIES.—Notwithstanding subparagraph
45

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1 (A), the Board may make examinations of a

2 functionally regulated subsidiary of a bank

3 holding company only if—

4 ‘‘(i) the Board has reasonable cause

5 to believe that such subsidiary is engaged

6 in activities that pose a material risk to an

7 affiliated depository institution; or

8 ‘‘(ii) based on reports and other avail9 able information, the Board has reasonable

10 cause to believe that a subsidiary is not in

11 compliance with this Act or with provisions

12 relating to transactions with an affiliated

13 depository institution, and the Board can14 not make such determination through ex15 amination of the affiliated depository insti16 tution or the bank holding company.

17 ‘‘(C) RESTRICTED FOCUS OF EXAMINA18 TIONS.—The Board shall, to the fullest extent

19 possible, limit the focus and scope of any exam20 ination of a bank holding company to—

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

22 ‘‘(ii) any subsidiary of the bank hold23 ing company that could have a materially

24 adverse effect on the safety and soundness
46

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1 of any depository institution subsidiary of

2 the holding company due to—

3 ‘‘(I) the size, condition, or activi4 ties of the subsidiary; or

5 ‘‘(II) the nature or size of trans6 actions between the subsidiary and

7 any depository institution that is also

8 a subsidiary of the bank holding com9 pany.

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

12 possible, for the purposes of this paragraph, use

13 the reports of examinations of depository insti14 tutions made by the appropriate Federal and

15 State depository institution supervisory author16 ity.

17 ‘‘(E) DEFERENCE TO OTHER EXAMINA18 TIONS.—The Board shall, to the fullest extent

19 possible, forego an examination by the Board

20 under this paragraph and instead review the re21 ports of examination made of—

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

23 or on behalf of the Securities and Ex24 change Commission;
47

S 900 ES

1 ‘‘(ii) any registered investment adviser

2 properly registered by or on behalf of ei3 ther the Securities and Exchange Commis4 sion or any State;

5 ‘‘(iii) any licensed insurance company

6 by or on behalf of any State regulatory au7 thority responsible for the supervision of

8 insurance companies; and

9 ‘‘(iv) any other subsidiary that the

10 Board finds to be comprehensively super11 vised by a Federal or State authority.

12 ‘‘(3) CAPITAL.—

13 ‘‘(A) IN GENERAL.—The Board may not,

14 by regulation, guideline, order, or otherwise,

15 prescribe or impose any capital or capital ade16 quacy rules, guidelines, standards, or require17 ments on any subsidiary of a bank holding com18 pany that—

19 ‘‘(i) is not an insured depository insti20 tution; and

21 ‘‘(ii) is—

22 ‘‘(I) in compliance with the appli23 cable capital requirements of another

24 Federal regulatory authority (includ25 ing the Securities and Exchange Com-
48

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1 mission) or State insurance authority;

2 or

3 ‘‘(II) properly registered as an

4 investment adviser under the Invest5 ment Advisers Act of 1940, or with

6 any State.

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

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

12 investment adviser other than with respect to

13 investment advisory activities or activities inci14 dental to investment advisory activities.

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

17 bank holding company capital or capital ade18 quacy rules, guidelines, standards, or require19 ments for purposes of this paragraph, the

20 Board may not take into account the activities,

21 operations, or investments of an affiliated in22 vestment company registered under the Invest23 ment Company Act of 1940, if the investment

24 company is not—

25 ‘‘(i) a bank holding company; or
49

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1 ‘‘(ii) controlled by a bank holding

2 company by reason of ownership by the

3 bank holding company (including through

4 all of its affiliates) of 25 percent or more

5 of the shares of the investment company,

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

8 more than $1,000,000.

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

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

12 bank holding company that is not significantly

13 engaged in nonbanking activities, the Board, in

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

20 ‘‘(B) AUTHORITY TRANSFERRED.—An

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

23 Board under this Act—

24 ‘‘(i) to examine and require reports

25 from the bank holding company and any
50

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1 affiliate of such company (other than a de2 pository institution) under this section;

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

5 ‘‘(iii) to take actions and impose pen6 alties under subsections (e) and (f) of this

7 section and under section 8; and

8 ‘‘(iv) to take actions regarding the

9 holding company, any affiliate of the hold10 ing company (other than a depository insti11 tution), or any institution-affiliated party

12 of such company or affiliate under the

13 Federal Deposit Insurance Act and any

14 other statute that the Board may des15 ignate.

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

17 Act and section 105 of the Bank Holding Com18 pany Act Amendments of 1970 shall apply to

19 orders issued by an agency designated under

20 subparagraph (A) in the same manner as such

21 sections apply to orders issued by the Board.

22 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

23 AND INSURANCE ACTIVITIES.—

24 ‘‘(A) SECURITIES ACTIVITIES.—Securities

25 activities conducted in a functionally regulated
51

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1 subsidiary of a bank shall be subject to regula2 tion by the Securities and Exchange Commis3 sion, and by relevant State securities authori4 ties, as appropriate, subject to section 104 of

5 the Financial Services Modernization Act of

6 1999, to the same extent as if they were con7 ducted in a nondepository institution subsidiary

8 of a bank holding company.

9 ‘‘(B) INSURANCE ACTIVITIES.—Subject to

10 section 104 of the Financial Services Mod11 ernization Act of 1999, insurance agency and

12 brokerage activities and activities as principal

13 conducted in a functionally regulated subsidiary

14 of a bank shall be subject to regulation by a

15 State insurance authority to the same extent as

16 if they were conducted in a nondepository insti17 tution subsidiary of a bank holding company.

18 ‘‘(6) DEFINITION.—For purposes of this sub19 section, the term ‘functionally regulated subsidiary’

20 means any company—

21 ‘‘(A) that is not a bank holding company;

22 and

23 ‘‘(B) that is—
52

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1 ‘‘(i) a broker or dealer that is reg2 istered under the Securities Exchange Act

3 of 1934;

4 ‘‘(ii) a registered investment adviser,

5 properly registered by or on behalf of ei6 ther the Securities and Exchange Commis7 sion or any State, with respect to the in8 vestment advisory activities of such invest9 ment adviser and activities incidental to

10 such investment advisory activities;

11 ‘‘(iii) an investment company that is

12 registered under the Investment Company

13 Act of 1940;

14 ‘‘(iv) an insurance company or insur15 ance agency that is subject to supervision

16 by a State insurance commission, agency,

17 or similar authority; or

18 ‘‘(v) an entity that is subject to regu19 lation by the Commodity Futures Trading

20 Commission, with respect to the commod21 ities activities of such entity and activities

22 incidental to such commodities activities.’’.
53

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1 SEC. 112. 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 that requires a bank holding com12 pany to provide funds or other assets to an insured

13 depository institution subsidiary shall not be effec14 tive 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 that is a broker

19 or dealer registered under the Securities

20 Exchange Act of 1934; or

21 ‘‘(ii) an affiliate of the insured deposi22 tory institution that is an insurance com23 pany or a broker or dealer registered under

24 the Securities Exchange Act of 1934; and

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

26 insurance company or the Securities and Ex-
54

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1 change Commission for the registered broker or

2 dealer, as the case may be, determines in a

3 written notice sent to the bank holding com4 pany and to the Board that the bank holding

5 company shall not provide such funds or assets

6 because such action would have a material ad7 verse effect on the financial condition of the in8 surance company or the broker or dealer, as the

9 case may be.

10 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

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

12 holding company, or an affiliate of a bank holding

13 company, that is an insurance company or a broker

14 or dealer, as described in paragraph (1)(A), to pro15 vide funds or assets to an insured depository institu16 tion subsidiary of the bank holding company pursu17 ant to any regulation, order, or other action of the

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

19 promptly notify the State insurance authority for the

20 insurance company or the Securities and Exchange

21 Commission, as the case may be, of such require22 ment.

23 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC24 TION.—If the Board receives a notice described in

25 paragraph (1)(B) from a State insurance authority
55

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1 or the Securities and Exchange Commission with re2 gard to a bank holding company or affiliate referred

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

4 holding company to divest the insured depository in5 stitution subsidiary not later than 180 days after re6 ceiving the notice, or such longer period as the

7 Board determines to be consistent with the safe and

8 sound operation of the insured depository institu9 tion.

10 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur11 ing the period beginning on the date on which an

12 order to divest is issued by the Board under para13 graph (3) to a bank holding company and ending on

14 the date on which the divestiture is completed, the

15 Board may impose any conditions or restrictions on

16 ownership or operation by the bank holding company

17 of the insured depository institution, including re18 stricting or prohibiting transactions between the in19 sured depository institution and any affiliate of the

20 institution, as are appropriate under the cir21 cumstances.

22 ‘‘(5) RULE OF CONSTRUCTION.—No provision

23 of this subsection may be construed to limit or oth24 erwise affect the regulatory authority, including the

25 scope of the authority, of any Federal agency or de-
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1 partment with regard to any entity that is within the

2 jurisdiction of such agency or department.’’.

3 SEC. 113. ROLE OF THE BOARD OF GOVERNORS OF THE

4 FEDERAL RESERVE SYSTEM.

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

6 1841 et seq.) is amended by inserting after section 10 the

7 following new section:

8 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU9 PERVISORY, AND ENFORCEMENT AUTHORITY

10 OF THE BOARD.

11 ‘‘(a) LIMITATION ON DIRECT ACTION.—The Board

12 may not prescribe regulations, issue or seek entry of or13 ders, impose restraints, restrictions, guidelines, require14 ments, safeguards, or standards, or otherwise take any ac15 tion under or pursuant to any provision of this Act or sec16 tion 8 of the Federal Deposit Insurance Act against or

17 with respect to a functionally regulated subsidiary of a

18 bank holding company unless—

19 ‘‘(1) the action is necessary to prevent or re20 dress an unsafe or unsound practice or breach of fi21 duciary duty by such subsidiary that poses a mate22 rial risk to—

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

24 stability of an affiliated insured depository in25 stitution; or
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1 ‘‘(B) the domestic or international pay2 ment system; and

3 ‘‘(2) the Board finds that it is not reasonably

4 possible to protect effectively against the material

5 risk at issue through action directed at or against

6 the affiliated insured depository institution or

7 against insured depository institutions generally.

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

9 may not prescribe regulations, issue or seek entry of or10 ders, impose restraints, restrictions, guidelines, require11 ments, safeguards, or standards, or otherwise take any ac12 tion under or pursuant to any provision of this Act or sec13 tion 8 of the Federal Deposit Insurance Act against or

14 with respect to a bank holding company where the purpose

15 or effect of doing so would be to take action indirectly

16 against or with respect to a functionally regulated sub17 sidiary of a bank holding company that may not be taken

18 directly against or with respect to such subsidiary in ac19 cordance with subsection (a).

20 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not21 withstanding subsection (a), the Board may take action

22 under this Act or section 8 of the Federal Deposit Insur23 ance Act to enforce compliance by a functionally regulated

24 subsidiary of a bank holding company with Federal law
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1 that the Board has specific jurisdiction to enforce against

2 such subsidiary.

3 ‘‘(d) ‘FUNCTIONALLY REGULATED SUBSIDIARY’ DE4 FINED.—For purposes of this section, the term ‘function5 ally regulated subsidiary’ has the same meaning as in sec6 tion 5(c)(6).’’.

7 SEC. 114. EXAMINATION OF INVESTMENT COMPANIES.

8 (a) EXCLUSIVE COMMISSION AUTHORITY.—Except

9 as provided in subsection (c), a Federal banking agency

10 may not inspect or examine any registered investment

11 company that is not a bank holding company or a savings

12 and loan holding company.

13 (b) EXAMINATION RESULTS AND OTHER INFORMA14 TION.—The Commission shall provide to any Federal

15 banking agency, upon request, the results of any examina16 tion, reports, records, or other information with respect

17 to any registered investment company to the extent nec18 essary for the agency to carry out its statutory responsibil19 ities.

20 (c) CERTAIN EXAMINATIONS AUTHORIZED.—Noth21 ing in this section shall prevent the Corporation, if the

22 Corporation finds it necessary to determine the condition

23 of an insured depository institution for insurance pur24 poses, from examining an affiliate of any insured deposi25 tory institution, pursuant to its authority under section
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1 10(b)(4) of the Federal Deposit Insurance Act, as may

2 be necessary to disclose fully the relationship between the

3 insured depository institution and the affiliate, and the ef4 fect of such relationship on the insured depository institu5 tion.

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

7 following definitions shall apply:

8 (1) BANK HOLDING COMPANY.—The term

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

10 in section 2 of the Bank Holding Company Act of

11 1956.

12 (2) CORPORATION.—The term ‘‘Corporation’’

13 means the Federal Deposit Insurance Corporation.

14 (3) COMMISSION.—The term ‘‘Commission’’

15 means the Securities and Exchange Commission.

16 (4) FEDERAL BANKING AGENCY.—The term

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

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

19 (5) REGISTERED INVESTMENT COMPANY.—The

20 term ‘‘registered investment company’’ means an in21 vestment company that is registered with the Com22 mission under the Investment Company Act of 1940.

23 (6) SAVINGS AND LOAN HOLDING COMPANY.—

24 The term ‘‘savings and loan holding company’’ has
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1 the same meaning as in section 10(a)(1)(D) of the

2 Home Owners’ Loan Act.

3 SEC. 115. EQUIVALENT REGULATION AND SUPERVISION.

4 (a) IN GENERAL.—Notwithstanding any other provi5 sion of law, the provisions of—

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

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

8 authority of the Board of Governors of the Federal

9 Reserve System to require reports from, to make ex10 aminations of, or to impose capital requirements on

11 holding companies and their functionally regulated

12 subsidiaries or that require deference to other regu13 lators;

14 (2) section 5(g) of the Bank Holding Company

15 Act of 1956 (as added by this Act) that limit the au16 thority of the Board to require capital from a func17 tionally regulated subsidiary of a holding company

18 to an insured depository institution subsidiary of the

19 holding company and to take certain actions includ20 ing requiring divestiture of the insured depository

21 institution; and

22 (3) section 10A of the Bank Holding Company

23 Act of 1956 (as added by this Act) that limit what24 ever authority the Board might otherwise have to

25 take direct or indirect action with respect to holding
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1 companies and their functionally regulated subsidi2 aries,

3 shall also limit whatever authority that a Federal banking

4 agency (as defined in section 3 of the Federal Deposit In5 surance Act) might otherwise have under applicable Fed6 eral law to require reports, make examinations, impose

7 capital requirements, or take any other direct or indirect

8 action with respect to any functionally regulated sub9 sidiary of an insured depository institution, subject to the

10 same standards and requirements as are applicable to the

11 Board under those provisions.

12 (b) CERTAIN EXEMPTION AUTHORIZED.—Nothing in

13 this section shall prevent the Federal Deposit Insurance

14 Corporation, if the Corporation finds it necessary to deter15 mine the condition of an insured depository institution for

16 insurance purposes, from examining an affiliate of any in17 sured depository institution, pursuant to its authority

18 under section 10(b)(4) of the Federal Deposit Insurance

19 Act, as may be necessary to disclose fully the relationship

20 between the depository institution and the affiliate, and

21 the effect of such relationship on the depository institu22 tion.

23 (c) ‘‘FUNCTIONALLY REGULATED SUBSIDIARY’’ DE24 FINED.—For purposes of this section, the term ‘‘function25 ally regulated subsidiary’’ has the same meaning as in sec-
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1 tion 5(c)(6) of the Bank Holding Company Act of 1956,

2 as amended by this Act.

3 SEC. 116. INTERAGENCY CONSULTATION.

4 (a) EXAMINATION RESULTS AND OTHER INFORMA5 TION.—

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

7 request of the appropriate insurance regulator of

8 any State, the Board may provide to that regulator

9 any information of the Board regarding the financial

10 condition, risk management policies, and operations

11 of any bank holding company that controls a com12 pany that is engaged in insurance activities and is

13 regulated by that State insurance regulator, and re14 garding any transaction or relationship between such

15 an insurance company and any affiliated depository

16 institution. The Board may provide any other infor17 mation to the appropriate State insurance regulator

18 that the Board believes is necessary or appropriate

19 to permit the State insurance regulator to admin20 ister and enforce applicable State insurance laws.

21 (2) BANKING AGENCY INFORMATION.—Upon

22 the request of the appropriate insurance regulator of

23 any State, the appropriate Federal banking agency

24 may provide to that regulator any information of the

25 agency regarding any transaction or relationship be-
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1 tween a depository institution supervised by that

2 Federal banking agency and any affiliated company

3 that is engaged in insurance activities regulated by

4 the State insurance regulator. The appropriate Fed5 eral banking agency may provide any other informa6 tion to the appropriate State insurance regulator

7 that the agency believes is necessary or appropriate

8 to permit the State insurance regulator to admin9 ister and enforce applicable State insurance laws.

10 (3) STATE INSURANCE REGULATOR INFORMA11 TION.—Upon the request of the appropriate Federal

12 banking agency, a State insurance regulator may

13 provide any examination or other reports, records, or

14 other information to which the State insurance regu15 lator may have access with respect to a company

16 that—

17 (A) is engaged in insurance activities and

18 is regulated by that insurance regulator; and

19 (B) is an affiliate of an insured depository

20 institution or a bank holding company.

21 (b) CONSULTATION.—Before making any determina22 tion relating to the initial affiliation of, or the continuing

23 affiliation of, an insured depository institution or bank

24 holding company with a company engaged in insurance ac25 tivities, the appropriate Federal banking agency shall con-
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1 sult with the appropriate State insurance regulator of such

2 company and take the views of such insurance regulator

3 into account in making such determination.

4 (c) EFFECT ON OTHER AUTHORITY.—Nothing in

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

6 appropriate Federal banking agency with respect to an in7 sured depository institution or bank holding company or

8 any affiliate thereof under any provision of law.

9 (d) CONFIDENTIALITY AND PRIVILEGE.—

10 (1) CONFIDENTIALITY.—The appropriate Fed11 eral banking agency may not provide any informa12 tion or material that is entitled to confidential treat13 ment under applicable Federal banking agency regu14 lations, or other applicable law, to a State insurance

15 regulator, unless such regulator agrees to maintain

16 the information or material in confidence and to

17 take all reasonable steps to oppose any effort to se18 cure disclosure of the information or material by the

19 regulator. The appropriate Federal banking agency

20 shall treat as confidential any information or mate21 rial obtained from a State insurance regulator that

22 is entitled to confidential treatment under applicable

23 State regulations, or other applicable law, and take

24 all reasonable steps to oppose any effort to secure
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1 disclosure of the information or material by the Fed2 eral banking agency.

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

4 section of information or material by a Federal

5 banking agency or a State insurance regulator shall

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

7 privilege to which the information or material is oth8 erwise subject.

9 (e) DEFINITIONS.—For purposes of this section, the

10 following definitions shall apply:

11 (1) APPROPRIATE FEDERAL BANKING AGENCY;

12 INSURED DEPOSITORY INSTITUTION.—The terms

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

14 depository institution’’ have the same meanings as

15 in section 3 of the Federal Deposit Insurance Act.

16 (2) BOARD; BANK HOLDING COMPANY.—The

17 terms ‘‘Board’’ and ‘‘bank holding company’’ have

18 the same meanings as in section 2 of the Bank

19 Holding Company Act of 1956.

20 SEC. 117. PRESERVING THE INTEGRITY OF FDIC RE21 SOURCES.

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

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

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

25 shareholder, affiliate (other than an insured depository in-
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1 stitution that receives assistance in accordance with the

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

3 Subtitle C—Activities of National

4 Banks

5 SEC. 121. AUTHORITY OF NATIONAL BANKS TO UNDER6 WRITE MUNICIPAL REVENUE BONDS.

7 The paragraph designated the Seventh of section

8 5136 of the Revised Statutes of the United States (12

9 U.S.C. 24(7)) is amended by adding at the end the fol10 lowing:

11 ‘‘The limitations and restrictions contained in this

12 paragraph as to dealing in, underwriting, and purchasing

13 investment securities for the national bank’s own account

14 do not apply to obligations (including limited obligation

15 bonds, revenue bonds, and obligations that satisfy the re16 quirements of section 142(b)(1) of the Internal Revenue

17 Code of 1986) issued by or on behalf of any State or polit18 ical subdivision of a State, including any municipal cor19 porate instrumentality of 1 or more States, or any public

20 agency or authority of any State or political subdivision

21 of a State, if the national banking association is well cap22 italized (as defined in section 38 of the Federal Deposit

23 Insurance Act).’’.
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1 SEC. 122. SUBSIDIARIES OF NATIONAL BANKS.

2 (a) IN GENERAL.—Chapter one of title LXII of the

3 Revised Statutes of the United States (12 U.S.C. 21 et

4 seq.) is amended—

5 (1) by redesignating section 5136A as section

6 5136C; and

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

8 24) the following new section:

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

10 ‘‘(a) AUTHORIZATION TO CONDUCT IN OPERATING

11 SUBSIDIARIES CERTAIN ACTIVITIES THAT ARE FINAN12 CIAL IN NATURE.—

13 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a

14 national bank may control a financial subsidiary, or

15 hold an interest in a financial subsidiary, only if—

16 ‘‘(A) the consolidated total assets of the

17 national bank do not exceed $1,000,000,000;

18 ‘‘(B) the national bank is not an affiliate

19 of a bank holding company;

20 ‘‘(C) the subject activities are not real es21 tate development or real estate investment ac22 tivities, unless otherwise expressly authorized by

23 law;

24 ‘‘(D) the national bank and each insured

25 depository institution affiliate of the national

26 bank is well capitalized and well managed; and
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1 ‘‘(E) the national bank has received the

2 approval of the Comptroller of the Currency to

3 engage in such activities, which approval shall

4 be based solely upon the factors set forth in

5 subparagraph (D) and factors set forth in sub6 section (c).

7 ‘‘(2) REGULATIONS REQUIRED.—The Comp8 troller of the Currency shall, by regulation, prescribe

9 procedures for the enforcement of this section.

10 ‘‘(b) SAFETY AND SOUNDNESS FIRE WALLS.—

11 ‘‘(1) CAPITAL REDUCTION REQUIRED.—In de12 termining compliance with applicable capital stand13 ards for purposes of subsection (a)(1)(D)—

14 ‘‘(A) the aggregate amount of outstanding

15 equity investments by a national bank in a fi16 nancial subsidiary shall be deducted from the

17 assets and tangible equity of the national bank;

18 and

19 ‘‘(B) the assets and liabilities of the finan20 cial subsidiary shall not be consolidated with

21 those of the national bank.

22 ‘‘(2) INVESTMENT LIMITATION.—A national

23 bank may not, without the prior approval of the

24 Comptroller of the Currency, make any equity in25 vestment in a financial subsidiary of the bank if that
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1 investment would, when made, exceed the amount

2 that the national bank could pay as a dividend with3 out obtaining prior regulatory approval.

4 ‘‘(c) SAFEGUARDS FOR THE BANK.—A national bank

5 that establishes or maintains a financial subsidiary shall

6 assure that—

7 ‘‘(1) the procedures of the national bank for

8 identifying and managing financial and operational

9 risks within the national bank and financial sub10 sidiary adequately protect the national bank from

11 such risks;

12 ‘‘(2) the bank has, for the protection of the na13 tional bank, reasonable policies and procedures to

14 preserve the separate corporate identity and limited

15 liability of the national bank and the financial sub16 sidiaries of the national bank; and

17 ‘‘(3) the national bank is in compliance with

18 this section.

19 ‘‘(d) STREAMLINING REGULATION AND SUPERVISION

20 AND ENCOURAGING CONSULTATION AMONG FEDERAL

21 AND STATE REGULATORS.—

22 ‘‘(1) IN GENERAL.—To the extent that a na23 tional bank engages in activities that are authorized

24 by subsection (a) through a functionally regulated fi25 nancial subsidiary, the regulation and supervision of
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1 such subsidiary by the Comptroller of the Currency,

2 including its ability to require a contribution of cap3 ital or assets to the national bank from that func4 tionally regulated financial subsidiary, shall be lim5 ited, as set forth under section 115 of the Financial

6 Services Modernization Act of 1999.

7 ‘‘(2) INTERAGENCY CONSULTATION.—The pro8 visions of section 116 of the Financial Services Mod9 ernization Act of 1999, relating to interagency con10 sultation, shall apply to the Comptroller of the Cur11 rency and the appropriate State regulators of func12 tionally regulated financial subsidiaries of a national

13 bank.

14 ‘‘(e) PRESERVATION OF EXISTING OPERATING SUB15 SIDIARY AUTHORITY.—Notwithstanding any other provi16 sion of this section—

17 ‘‘(1) a national bank may retain control of a

18 company, or retain an interest in a company, and

19 conduct through such company any activities law20 fully conducted therein as of the date of enactment

21 of the Financial Services Modernization Act of 1999;

22 and

23 ‘‘(2) a national bank may own shares of or any

24 other interest in any company that is engaged only

25 in activities that are permissible for the national
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1 bank to engage in directly, if such activities are en2 gaged in under the same terms and conditions that

3 would govern the conduct if conducted by a national

4 bank directly.

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

6 following definitions shall apply:

7 ‘‘(1) FINANCIAL SUBSIDIARY.—The term ‘fi8 nancial subsidiary’ means a company that—

9 ‘‘(A) is a subsidiary of a national bank;

10 and

11 ‘‘(B) is engaged as principal in any activity

12 that is permissible for a bank holding company

13 under section 4(k) of the Bank Holding Com14 pany Act of 1956 and is not permissible for na15 tional banks to engage in directly.

16 ‘‘(2) FUNCTIONALLY REGULATED.—The term

17 ‘functionally regulated financial subsidiary’ means a

18 financial subsidiary that is—

19 ‘‘(A) a broker or dealer that is registered

20 under the Securities Exchange Act of 1934;

21 ‘‘(B) an investment adviser that is reg22 istered under the Investment Advisers Act of

23 1940, or with any State, with respect to the in24 vestment advisory activities of such investment
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1 adviser and activities incidental to such invest2 ment advisory activities;

3 ‘‘(C) an insurance company that is subject

4 to supervision by a State insurance commission,

5 agency, or similar authority; and

6 ‘‘(D) an entity that is subject to regulation

7 by the Commodity Futures Trading Commis8 sion, with respect to the commodities activities

9 of such entity and activities incidental to such

10 commodities activities.

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

12 the same meaning as in section 2 of the Bank Hold13 ing Company Act of 1956.

14 ‘‘(4) WELL CAPITALIZED.—The term ‘well cap15 italized’ has the same meaning as in section 38 of

16 the Federal Deposit Insurance Act.

17 ‘‘(5) WELL MANAGED.—The term ‘well man18 aged’ means—

19 ‘‘(A) in the case of a depository institution

20 that has been examined, unless otherwise deter21 mined in writing by the appropriate Federal

22 banking agency—

23 ‘‘(i) the achievement of a composite

24 rating of 1 or 2 under the Uniform Finan25 cial Institutions Rating System (or an
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1 equivalent rating under an equivalent rat2 ing system) in connection with the most re3 cent examination or subsequent review of

4 the depository institution; and

5 ‘‘(ii) at least a rating of 2 for man6 agement, if such rating is given; or

7 ‘‘(B) in the case of any depository institu8 tion that has not been examined, the existence

9 and use of managerial resources that the appro10 priate Federal banking agency determines are

11 satisfactory.

12 ‘‘(6) INCORPORATED DEFINITIONS.—The terms

13 ‘appropriate Federal banking agency’, ‘depository in14 stitution’, and ‘insured depository institution’, have

15 the same meanings as in section 3 of the Federal

16 Deposit Insurance Act.’’.

17 (b) LIMITING THE CREDIT EXPOSURE OF A NA18 TIONAL BANK TO A FINANCIAL SUBSIDIARY TO THE

19 AMOUNT OF PERMISSIBLE CREDIT EXPOSURE TO AN AF20 FILIATE.—Section 23A of the Federal Reserve Act (12

21 U.S.C. 371c) is amended—

22 (1) by redesignating subsection (e) as sub23 section (f); and

24 (2) by inserting after subsection (d), the fol25 lowing new subsection:
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1 ‘‘(e) RULES RELATING TO NATIONAL BANKS WITH

2 FINANCIAL SUBSIDIARIES.—

3 ‘‘(1) FINANCIAL SUBSIDIARY DEFINED.—For

4 purposes of this section and section 23B, the term

5 ‘financial subsidiary’ has the same meaning as in

6 section 5136A(f) of the Revised Statutes of the

7 United States.

8 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN

9 A FINANCIAL SUBSIDIARY OF A NATIONAL BANK AND

10 THE NATIONAL BANK.—For purposes of applying

11 this section and section 23B to a transaction be12 tween a financial subsidiary of a national bank and

13 the national bank (or between such financial sub14 sidiary and any other subsidiary of the national

15 bank that is not a financial subsidiary), and not16 withstanding subsection (b)(2) of this section or sec17 tion 23B(d)(1)—

18 ‘‘(A) the financial subsidiary of the na19 tional bank—

20 ‘‘(i) shall be deemed to be an affiliate

21 of the national bank and of any other sub22 sidiary of the bank that is not a financial

23 subsidiary; and

24 ‘‘(ii) shall not be deemed to be a sub25 sidiary of the national bank; and
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1 ‘‘(B) a purchase of or investment in equity

2 securities issued by the financial subsidiary

3 shall not be deemed to be a covered transaction.

4 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

5 FINANCIAL SUBSIDIARY AND NONBANK AFFILI6 ATES.—

7 ‘‘(A) IN GENERAL.—A transaction between

8 a financial subsidiary and an affiliate of the fi9 nancial subsidiary (that is not a subsidiary of

10 a national bank) shall not be deemed to be a

11 transaction between a subsidiary of a national

12 bank and an affiliate of that bank for purposes

13 of section 23A or section 23B.

14 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—

15 For purposes of this paragraph, the term ‘affil16 iate’ does not include a national bank, or a sub17 sidiary of a national bank that is engaged ex18 clusively in activities permissible for a national

19 bank to engage in directly or agency activities

20 permitted under section 123 of the Financial

21 Services Modernization Act of 1999.’’.

22 (c) ANTITYING.—Section 106(a) of the Bank Holding

23 Company Act Amendments of 1970 (12 U.S.C. 1971) is

24 amended by adding at the end the following: ‘‘For pur25 poses of this section, a financial subsidiary of a national
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1 bank engaging in activities pursuant to section 5136A(a)

2 of the Revised Statutes of the United States shall be

3 deemed to be a subsidiary of a bank holding company, and

4 not a subsidiary of a bank.’’.

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

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

7 the United States is amended—

8 (1) by redesignating the item relating to section

9 5136A as relating to section 5136C; and

10 (2) by inserting after the item relating to sec11 tion 5136 the following new item:

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

12 SEC. 123. AGENCY ACTIVITIES.

13 A national bank may control a company, or hold an

14 interest in a company that engages in agency activities

15 that have been determined by the Comptroller of the Cur16 rency to be permissible for national banks or to be finan17 cial in nature or incidental to such financial activities (as

18 determined pursuant to section 4(k) of the Bank Holding

19 Company Act of 1956) if the company engages in such

20 activities solely as agent and not directly or indirectly as

21 principal.

22 SEC. 124. PROHIBITING FRAUDULENT REPRESENTATIONS.

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

24 States Code, is amended by inserting after section 1007

25 the following new section:
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1 ‘‘SEC. 1008. MISREPRESENTATIONS REGARDING FINANCIAL

2 INSTITUTION LIABILITY FOR OBLIGATIONS

3 OF AFFILIATES.

4 ‘‘(a) PROHIBITION.—It shall be unlawful for an insti5 tution-affiliated party of an insured depository institution

6 or institution-affiliated party of a subsidiary or affiliate

7 of an insured depository institution to fraudulently rep8 resent that the institution is or will be liable for any obli9 gation of a subsidiary or other affiliate of the institution.

10 ‘‘(b) PENALTIES.—Whoever violates subsection (a)

11 shall be fined under this title, imprisoned not more than

12 1 year, or both.

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

14 For purposes of this section, the term ‘institution-affili15 ated party’ has the same meaning as in section 3 of the

16 Federal Deposit Insurance Act, except that references to

17 an insured depository institution shall be deemed to in18 clude references to a subsidiary or affiliate of an insured

19 depository institution.

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

21 section, the terms ‘affiliate’, ‘insured depository institu22 tion’, and ‘subsidiary’ have same meanings as in section

23 3 of the Federal Deposit Insurance Act.’’.

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

25 for chapter 47 of title 18, United States Code, is amended
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1 by inserting after the item relating to section 1007 the

2 following new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

3 SEC. 125. INSURANCE UNDERWRITING BY NATIONAL

4 BANKS.

5 (a) IN GENERAL.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), a national bank and the subsidiaries of a

8 national bank may only provide insurance in a State

9 as principal in accordance with section 5136A(a) of

10 the Revised Statutes of the United States, as added

11 by this Act.

12 (2) EXCEPTION.—A national bank and the sub13 sidiaries of a national bank may provide authorized

14 insurance products as principal without regard to

15 section 5136A(a) of the Revised Statutes of the

16 United States, as added by this Act.

17 (b) AUTHORIZED INSURANCE PRODUCTS.—For pur18 poses of this section, a product is an ‘‘authorized insur19 ance product’’ if—

20 (1) as of January 1, 1999, the Comptroller of

21 the Currency had determined in writing that na22 tional banks may provide such product as principal,

23 or national banks were in fact lawfully providing

24 such product as principal;
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1 (2) no court of relevant jurisdiction had, by

2 final judgment, overturned a determination of the

3 Comptroller of the Currency that national banks

4 may provide such product as principal; and

5 (3) the product is not an annuity contract, the

6 income of which is subject to tax treatment under

7 section 72 of the Internal Revenue Code of 1986.

8 (c) DEFINITION.—For purposes of this section, the

9 term ‘‘insurance’’ means—

10 (1) any product regulated as insurance as of

11 January 1, 1999, in accordance with the relevant

12 State insurance law, in the State in which the prod13 uct is provided;

14 (2) any product first offered after January 1,

15 1999, which—

16 (A) a State insurance regulator determines

17 shall be regulated as insurance in the State in

18 which the product is provided because the prod19 uct insures, guarantees, or indemnifies against

20 liability, loss of life, loss of health, or loss

21 through damage to or destruction of property,

22 including surety bonds, life insurance, health in23 surance, title insurance, and property and cas24 ualty insurance (such as private passenger or

25 commercial automobile, homeowners, mortgage,
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1 commercial multiperil, general liability, profes2 sional liability, workers’ compensation, fire and

3 allied lines, farm owners multiperil, aircraft, fi4 delity, surety, medical malpractice, ocean ma5 rine, inland marine, and boiler and machinery

6 insurance); and

7 (B) is not a product or service of a bank

8 that is—

9 (i) a deposit product;

10 (ii) a loan, discount, letter of credit,

11 or other extension of credit;

12 (iii) a trust or other fiduciary service;

13 (iv) a qualified financial contract (as

14 defined in or determined pursuant to sec15 tion 11(e)(8)(D)(i) of the Federal Deposit

16 Insurance Act); or

17 (v) a financial guaranty, except that

18 this subparagraph shall not apply to a

19 product that includes an insurance compo20 nent such that if the product is offered or

21 proposed to be offered by the bank as

22 principal—

23 (I) it would be treated as a life

24 insurance contract under section 7702
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1 of the Internal Revenue Code of 1986;

2 or

3 (II) in the event that the product

4 is not a letter of credit or other simi5 lar extension of credit, a qualified fi6 nancial contract, or a financial guar7 anty, it would qualify for treatment

8 for losses incurred with respect to

9 such product under section 832(b)(5)

10 of the Internal Revenue Code of 1986,

11 if the bank were subject to tax as an

12 insurance company under section 831

13 of that Code; and

14 (3) any annuity contract, the income on which

15 is subject to tax treatment under section 72 of the

16 Internal Revenue Code of 1986.

17 Subtitle D—National Treatment of

18 Foreign Financial Institutions

19 SEC. 151. NATIONAL TREATMENT OF FOREIGN FINANCIAL

20 INSTITUTIONS.

21 Section 8(c) of the International Banking Act of

22 1978 (12 U.S.C. 3106(c)) is amended by adding at the

23 end the following new paragraph:

24 ‘‘(3) TERMINATION OF GRANDFATHERED RIGHTS.—
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1 ‘‘(A) IN GENERAL.—If any foreign bank or for2 eign company files a declaration under section 4() of

3 the Bank Holding Company Act of 1956, any au4 thority conferred by this subsection on any foreign

5 bank or company to engage in any activity that the

6 Board has determined to be permissible for bank

7 holding companies under section 4(k) of that Act

8 shall terminate immediately.

9 ‘‘(B) RESTRICTIONS AND REQUIREMENTS AU10 THORIZED.—If a foreign bank or company that en11 gages, directly or through an affiliate pursuant to

12 paragraph (1), in an activity that the Board deter13 mines to be permissible for bank holding companies

14 under section 4(k) of the Bank Holding Company

15 Act of 1956, has not filed a declaration with the

16 Board of its status as a bank holding company

17 under section 4(l) of that Act by the end of the 2-

18 year period beginning on the date of enactment of

19 the Financial Services Modernization Act of 1999,

20 the Board, giving due regard to the principle of na21 tional treatment and equality of competitive oppor22 tunity, may impose such restrictions and require23 ments on the conduct of such activities by such for24 eign bank or company as are comparable to those

25 imposed on a bank holding company organized
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1 under the laws of the United States, including a re2 quirement to conduct such activities in compliance

3 with any prudential safeguards established under

4 section 10A of the Bank Holding Company Act of

5 1956.’’.

6 SEC. 152. REPRESENTATIVE OFFICES.

7 (a) DEFINITION OF ‘‘REPRESENTATIVE OFFICE’’.—

8 Section 1(b)(15) of the International Banking Act of 1978

9 (12 U.S.C. 3101(15)) is amended by striking ‘‘State agen10 cy, or subsidiary of a foreign bank’’ and inserting ‘‘or

11 State agency’’.

12 (b) EXAMINATIONS.—Section 10(c) of the Inter13 national Banking Act of 1978 (12 U.S.C. 3107(c)) is

14 amended by adding at the end the following: ‘‘The Board

15 may also make examinations of any affiliate of a foreign

16 bank conducting business in any State, if the Board deems

17 it necessary to determine and enforce compliance with this

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

19 1841 et seq.), or other applicable Federal banking law.’’.

20 TITLE II—INSURANCE

21 CUSTOMER PROTECTIONS

22 SEC. 201. FUNCTIONAL REGULATION OF INSURANCE.

23 The insurance activity of any person or entity shall

24 be functionally regulated by the States, subject to sub25 sections (c), (d), and (e) of section 104.
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1 SEC. 202. INSURANCE CUSTOMER PROTECTIONS.

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. INSURANCE CUSTOMER PROTECTIONS.

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 Moderniza11 tion Act of 1999, customer protection regulations

12 (which the agencies jointly determine to be appro13 priate) that—

14 ‘‘(A) apply to retail sales practices, solici15 tations, advertising, or offers of any insurance

16 product by any insured depository institution or

17 any person that is engaged in such activities at

18 an office of the institution or on behalf of the

19 institution; and

20 ‘‘(B) are consistent with the requirements

21 of this Act and provide such additional protec22 tions for customers to whom such sales, solicita23 tions, advertising, or offers are directed.

24 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The

25 regulations prescribed pursuant to paragraph (1)

26 shall extend such protections to any subsidiaries of
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1 an insured depository institution as deemed appro2 priate by the Federal banking agencies, where such

3 extension is determined to be necessary to ensure

4 the customer protections provided by this section.

5 ‘‘(3) CONSULTATION AND JOINT REGULA6 TIONS.—The Federal banking agencies shall consult

7 with each other and prescribe joint regulations pur8 suant to paragraph (1), after consultation with the

9 State insurance regulators, as appropriate.

10 ‘‘(b) SALES PRACTICES.—The regulations prescribed

11 pursuant to subsection (a) shall include antitying and

12 anticoercion rules applicable to the sale of insurance prod13 ucts that prohibit an insured depository institution from

14 engaging in any practice that would lead a customer to

15 believe an extension of credit, in violation of section 106(b)

16 of the Bank Holding Company Act Amendments of 1970,

17 is conditional upon—

18 ‘‘(1) the purchase of an insurance product from

19 the institution or any of its affiliates or subsidiaries;

20 or

21 ‘‘(2) an agreement by the customer not to ob22 tain, or a prohibition on the customer from obtain23 ing, an insurance product from an unaffiliated enti24 ty.
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1 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula2 tions prescribed pursuant to subsection (a) shall include

3 the following provisions relating to disclosures and adver4 tising in connection with the initial purchase of an insur5 ance product:

6 ‘‘(1) DISCLOSURES.—

7 ‘‘(A) IN GENERAL.—Requirements that the

8 following disclosures be made orally and in writ9 ing before the completion of the initial sale and,

10 in the case of clauses (iii) and (iv), at the time

11 of application for an extension of credit:

12 ‘‘(i) UNINSURED STATUS.—As appro13 priate, the product is not insured by the

14 Federal Deposit Insurance Corporation,

15 the United States Government, or the in16 sured depository institution.

17 ‘‘(ii) INVESTMENT RISK.—In the case

18 of a variable annuity or insurance product

19 that involves an investment risk, that there

20 is an investment risk associated with the

21 product, including possible loss of value.

22 ‘‘(iii) ANTITYING; ANTICOERCION.—

23 The approval of an extension of credit may

24 not be conditioned on—
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1 ‘‘(I) the purchase of an insurance

2 product from the institution in which

3 the application for credit is pending or

4 any of its affiliates or subsidiaries; or

5 ‘‘(II) an agreement by the cus6 tomer not to obtain, or a prohibition

7 on the customer from obtaining, an

8 insurance product from an unaffili9 ated entity.

10 ‘‘(iv) PROHIBITION ON ENHANCED

11 TREATMENT DUE TO OTHER PURCHASES

12 OR SERVICES.—The processing of an ex13 tension of credit or the delivery of any

14 other financial product or service will not

15 be expedited depending upon the purchase

16 by the customer of any additional product

17 or service from an affiliated person or enti18 ty of the insured depository institution.

19 ‘‘(B) MAKING DISCLOSURE READILY UN20 DERSTANDABLE.—Regulations prescribed under

21 subparagraph (A) shall encourage the use of

22 disclosure that is conspicuous, simple, direct,

23 and readily understandable, such as the fol24 lowing:

25 ‘‘(i) ‘NOT FDIC–INSURED’.
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1 ‘‘(ii) ‘NOT GUARANTEED BY THE

2 BANK’.

3 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

4 ‘‘(C) LIMITATION.—Nothing in this para5 graph requires the inclusion of the foregoing

6 disclosures in advertisements of a general na7 ture describing or listing the services or prod8 ucts offered by an institution.

9 ‘‘(D) MEANINGFUL DISCLOSURES.—Disclo10 sures shall not be considered to be meaningfully

11 provided under this paragraph if the institution

12 or its representative states that disclosures re13 quired by this subsection were available to the

14 customer in printed material available for dis15 tribution, where such printed material is not

16 provided and such information is not orally dis17 closed to the customer.

18 ‘‘(E) ADJUSTMENTS FOR ALTERNATIVE

19 METHODS OF PURCHASE.—In prescribing the

20 requirements under subparagraphs (A) and (F),

21 necessary adjustments shall be made for pur22 chase in person, by telephone, or by electronic

23 media to provide for the most appropriate and

24 complete form of disclosure and acknowledg25 ments.
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1 ‘‘(F) CUSTOMER ACKNOWLEDGMENT.—A

2 requirement that an insured depository institu3 tion shall require any person selling an insur4 ance product at any office of, or on behalf of,

5 the institution to obtain, at the time at which

6 a customer receives the disclosures required

7 under this paragraph or at the time of the ini8 tial purchase by the customer of such product,

9 an acknowledgment by such customer of the re10 ceipt of the disclosure required under this para11 graph with respect to such product.

12 ‘‘(2) PROHIBITION ON MISREPRESENTA13 TIONS.—A prohibition on any practice, or any adver14 tising, at any office of, or on behalf of, the insured

15 depository institution, or any subsidiary, as appro16 priate, that could mislead any person or otherwise

17 cause a reasonable person to reach an erroneous be18 lief with respect to—

19 ‘‘(A) the uninsured nature of any insur20 ance product sold, or offered for sale, by the in21 stitution or any subsidiary of the institution; or

22 ‘‘(B) in the case of a variable annuity or

23 insurance product that involves an investment

24 risk, the investment risk associated with any

25 such product.
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1 ‘‘(d) SEPARATION OF BANKING AND NONBANKING

2 ACTIVITIES.—

3 ‘‘(1) REGULATIONS REQUIRED.—The regula4 tions prescribed pursuant to subsection (a) shall in5 clude such provisions as the Federal banking agen6 cies consider appropriate to ensure that the routine

7 acceptance of deposits is kept, to the extent prac8 ticable, physically segregated from insurance product

9 activity.

10 ‘‘(2) REQUIREMENTS.—Regulations prescribed

11 pursuant to paragraph (1) shall include the fol12 lowing requirements:

13 ‘‘(A) SEPARATE SETTING.—A clear delin14 eation of the setting in which, and the cir15 cumstances under which, transactions involving

16 insurance products should be conducted in a lo17 cation physically segregated from an area where

18 retail deposits are routinely accepted.

19 ‘‘(B) REFERRALS.—Standards that permit

20 any person accepting deposits from the public

21 in an area where such transactions are rou22 tinely conducted in an insured depository insti23 tution to refer a customer who seeks to pur24 chase any insurance product to a qualified per25 son who sells such product, only if the person
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1 making the referral receives no more than a

2 one-time nominal fee of a fixed dollar amount

3 for each referral that does not depend on

4 whether the referral results in a transaction.

5 ‘‘(C) QUALIFICATION AND LICENSING RE6 QUIREMENTS.—Standards prohibiting any in7 sured depository institution from permitting

8 any person to sell or offer for sale any insur9 ance product in any part of any office of the in10 stitution, or on behalf of the institution, unless

11 such person is appropriately qualified and li12 censed.

13 ‘‘(e) EFFECT ON OTHER AUTHORITY.—

14 ‘‘(1) IN GENERAL.—No provision of this section

15 shall be construed as granting, limiting, or otherwise

16 affecting—

17 ‘‘(A) any authority of the Securities and

18 Exchange Commission, any self-regulatory or19 ganization, the Municipal Securities Rule20 making Board, or the Secretary of the Treasury

21 under any Federal securities law; or

22 ‘‘(B) except as provided in paragraph (2),

23 any authority of any State insurance commis24 sion (or any agency or office performing like

25 functions), or of any State securities commis-
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1 sion (or any agency or office performing like

2 functions), or other State authority under any

3 State law.

4 ‘‘(2) COORDINATION WITH STATE LAW.—

5 ‘‘(A) IN GENERAL.—Except as provided in

6 subparagraph (B), insurance customer protec7 tion regulations prescribed by a Federal bank8 ing agency under this section shall not apply to

9 retail sales, solicitations, advertising, or offers

10 of any insurance product by any insured deposi11 tory institution or to any person who is engaged

12 in such activities at an office of such institution

13 or on behalf of the institution, in a State where

14 the State has in effect statutes, regulations, or15 ders, or interpretations, that are inconsistent

16 with or contrary to the regulations prescribed

17 by the Federal banking agencies.

18 ‘‘(B) PREEMPTION.—

19 ‘‘(i) IN GENERAL.—If, with respect to

20 any provision of the regulations prescribed

21 under this section, the Board of Governors

22 of the Federal Reserve System, the Comp23 troller of the Currency, and the Board of

24 Directors of the Corporation determine

25 jointly that the protection afforded by such
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1 provision for customers is greater than the

2 protection provided by a comparable provi3 sion of the statutes, regulations, orders, or

4 interpretations referred to in subparagraph

5 (A) of any State, the appropriate State

6 regulatory authority shall be notified of

7 such determination in writing.

8 ‘‘(ii) CONSIDERATIONS.—Before mak9 ing a final determination under clause (i),

10 the Federal agencies referred to in clause

11 (i) shall give appropriate consideration to

12 comments submitted by the appropriate

13 State regulatory authorities relating to the

14 level of protection afforded to consumers

15 under State law.

16 ‘‘(iii) FEDERAL PREEMPTION AND

17 ABILITY OF STATES TO OVERRIDE FED18 ERAL PREEMPTION.—If the Federal agen19 cies referred to in clause (i) jointly deter20 mine that any provision of the regulations

21 prescribed under this section affords great22 er protections than a comparable State

23 law, rule, regulation, order, or interpreta24 tion, those agencies shall send a written

25 preemption notice to the appropriate State
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1 regulatory authority to notify the State

2 that the Federal provision will preempt the

3 State provision and will become applicable

4 unless, not later than 3 years after the

5 date of such notice, the State adopts legis6 lation to override such preemption.

7 ‘‘(f) NON-DISCRIMINATION AGAINST NON-AFFILI8 ATED AGENTS.—The Federal banking agencies shall en9 sure that the regulations prescribed pursuant to sub10 section (a) shall not have the practical effect of discrimi11 nating, either intentionally or unintentionally, against any

12 person engaged in insurance sales or solicitations that is

13 not affiliated with an insured depository institution.’’.

14 SEC. 203. FEDERAL AND STATE DISPUTE RESOLUTION.

15 (a) FILING IN COURT OF APPEALS.—In the case of

16 a regulatory conflict between a State insurance regulator

17 and a Federal regulator regarding insurance issues, in18 cluding whether a State law, rule, regulation, order, or in19 terpretation regarding any insurance sales or solicitation

20 activity is properly treated as preempted under Federal

21 law, either regulator may seek expedited judicial review

22 of such determination by the United States Court of Ap23 peals for the circuit in which the State is located or in

24 the United States Court of Appeals for the District of Co25 lumbia Circuit by filing a petition for review in such court.
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1 (b) EXPEDITED REVIEW.—The United States Court

2 of Appeals in which a petition for review if filed in accord3 ance with subsection (a) shall complete all action on such

4 petition, including rendering a judgment, before the end

5 of the 60-day period beginning on the date on which such

6 petition is filed, unless all parties to such proceedings

7 agree to any extension of such period.

8 (c) SUPREME COURT REVIEW.—Any request for cer9 tiorari to the Supreme Court of the United States of any

10 judgment of a United States Court of Appeals with respect

11 to a petition for review under this section shall be filed

12 with the Supreme Court of the United States as soon as

13 practicable after such judgment is issued.

14 (d) STATUTE OF LIMITATION.—No action may be

15 filed under this section challenging an order, ruling, deter16 mination, or other action of a Federal regulator or State

17 insurance regulator after the later of—

18 (1) the end of the 12-month period beginning

19 on the date on which the first public notice is made

20 of such order, ruling, determination or other action

21 in its final form; or

22 (2) the end of the 6-month period beginning on

23 the date on which such order, ruling, determination,

24 or other action takes effect.
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1 (e) STANDARD OF REVIEW.—The court shall decide

2 an action filed under subsection (a) based on its review

3 on the merits of all questions presented under State and

4 Federal law, including the nature of the product or activ5 ity and the history and purpose of its regulation under

6 State and Federal law, according equal deference to the

7 Federal regulator and the State insurance regulator.

8 TITLE III—REGULATORY

9 IMPROVEMENTS

10 SEC. 301. ELIMINATION OF SAIF AND DIF SPECIAL RE11 SERVES.

12 (a) SAIF SPECIAL RESERVE.—Section 11(a)(6) of

13 the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6))

14 is amended by striking subparagraph (L).

15 (b) DIF SPECIAL RESERVE.—Section 2704 of the

16 Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821

17 note) is amended—

18 (1) by striking subsection (b); and

19 (2) in subsection (d)—

20 (A) by striking paragraph (4);

21 (B) in paragraph (6)(C)(i), by striking

22 ‘‘(6) and (7)’’ and inserting ‘‘(5), (6), and (7)’’;

23 and

24 (C) in paragraph (6)(C), by striking clause

25 (ii) and inserting the following:
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1 ‘‘(ii) by redesignating paragraph (8)

2 as paragraph (5).’’.

3 (c) EFFECTIVE DATE.—This section and the amend4 ments made by this section shall become effective on the

5 date of enactment of this Act.

6 SEC. 302. EXPANDED SMALL BANK ACCESS TO S CORPORA7 TION TREATMENT.

8 (a) STUDY.—The Comptroller General of the United

9 States shall conduct a study of—

10 (1) possible revisions to the rules governing S

11 corporations, including—

12 (A) increasing the permissible number of

13 shareholders in such corporations;

14 (B) permitting shares of such corporations

15 to be held in individual retirement accounts;

16 (C) clarifying that interest on investments

17 held for safety, soundness, and liquidity pur18 poses should not be considered to be passive in19 come;

20 (D) discontinuation of the treatment of

21 stock held by bank directors as a disqualifying

22 personal class of stock for such corporations;

23 and

24 (E) improving Federal tax treatment of

25 bad debt and interest deductions; and
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1 (2) what impact such revisions might have on

2 community banks.

3 (b) REPORT TO CONGRESS.—Not later than 6

4 months after the date of enactment of this Act, the Comp5 troller General of the United States shall submit a report

6 to the Congress on the results of the study conducted

7 under subsection (a).

8 (c) DEFINITION.—For purposes of this section, the

9 term ‘‘S corporation’’ has the same meaning as in section

10 1361(a)(1) of the Internal Revenue Code of 1986.

11 SEC. 303. MEANINGFUL CRA EXAMINATIONS.

12 (a) COMPLIANCE.—Notwithstanding any other provi13 sion of law, an insured depository institution rated as

14 ‘‘satisfactory’’ or better in its most recent examination

15 under the Community Reinvestment Act of 1977, and in

16 each such examination during the immediately preceding

17 36-month period shall be deemed to be in compliance with

18 the requirements of that Act until the completion of a sub19 sequent regularly scheduled examination under that Act,

20 unless substantial verifiable information arising since the

21 time of its most recent examination under that Act dem22 onstrating noncompliance is filed with the appropriate

23 Federal banking agency.

24 (b) OBJECTIONS.—
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1 (1) AGENCY DETERMINATION.—The appro2 priate Federal banking agency shall determine, on a

3 timely basis, whether the information filed by any

4 person under subsection (a) provides sufficient proof

5 that the subject insured depository institution is no

6 longer in compliance with the requirements of the

7 Community Reinvestment Act of 1977, as provided

8 in subsection (a).

9 (2) BURDEN OF PROOF.—A person filing infor10 mation under subsection (a) shall bear the burden of

11 proving to the satisfaction of the appropriate Fed12 eral banking agency, the substantial verifiable na13 ture of that information.

14 (c) DEFINITIONS.—In this section, the terms ‘‘in15 sured depository institution’’ and ‘‘appropriate Federal

16 banking agency’’ have the same meanings as in section

17 3 of the Federal Deposit Insurance Act.

18 SEC. 304. FINANCIAL INFORMATION PRIVACY PROTECTION.

19 (a) FINANCIAL INFORMATION ANTI-FRAUD.—The

20 Consumer Credit Protection Act (15 U.S.C. 1601 et seq.)

21 is amended by adding at the end the following:
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1 ‘‘TITLE X—FINANCIAL INFORMA2 TION PRIVACY PROTECTION

3 ‘‘SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

4 ‘‘(a) SHORT TITLE.—This title may be cited as the

5 ‘Financial Information Anti-Fraud Act of 1999’.

6 ‘‘(b) TABLE OF CONTENTS.—The table of contents

7 for this title is as follows:

‘‘TITLE X—FINANCIAL INFORMATION PRIVACY PROTECTION

‘‘Sec. 1001. Short title; table of contents.

‘‘Sec. 1002. Definitions.

‘‘Sec. 1003. Privacy protection for customer information of financial institutions.

‘‘Sec. 1004. Administrative enforcement.

‘‘Sec. 1005. Civil liability.

‘‘Sec. 1006. Criminal penalty.

‘‘Sec. 1007. Relation to State laws.

‘‘Sec. 1008. Agency guidance.

8 ‘‘SEC. 1002. DEFINITIONS.

9 ‘‘For purposes of this title, the following definitions

10 shall apply:

11 ‘‘(1) CUSTOMER.—The term ‘customer’ means,

12 with respect to a financial institution, any person (or

13 authorized representative of a person) to whom the

14 financial institution provides a product or service,

15 including that of acting as a fiduciary.

16 ‘‘(2) CUSTOMER INFORMATION OF A FINANCIAL

17 INSTITUTION.—The term ‘customer information of a

18 financial institution’ means any information main19 tained by a financial institution which is derived

20 from the relationship between the financial institu-
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1 tion and a customer of the financial institution and

2 is identified with the customer.

3 ‘‘(3) DOCUMENT.—The term ‘document’ means

4 any information in any form.

5 ‘‘(4) FINANCIAL INSTITUTION.—

6 ‘‘(A) IN GENERAL.—The term ‘financial

7 institution’ means any institution engaged in

8 the business of providing financial services to

9 customers who maintain a credit, deposit, trust,

10 or other financial account or relationship with

11 the institution.

12 ‘‘(B) CERTAIN FINANCIAL INSTITUTIONS

13 SPECIFICALLY INCLUDED.—The term ‘financial

14 institution’ includes any depository institution

15 (as defined in section 19(b)(1)(A) of the Fed16 eral Reserve Act), any loan or finance company,

17 any credit card issuer or operator of a credit

18 card system, and any consumer reporting agen19 cy that compiles and maintains files on con20 sumers on a nationwide basis (as defined in sec21 tion 603(p)).

22 ‘‘(C) FURTHER DEFINITION BY REGULA23 TION.—The Board of Governors of the Federal

24 Reserve System may prescribe regulations fur25 ther defining the term ‘financial institution’, in
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1 accordance with subparagraph (A), for purposes

2 of this title.

3 ‘‘SEC. 1003. PRIVACY PROTECTION FOR CUSTOMER INFOR4 MATION OF FINANCIAL INSTITUTIONS.

5 ‘‘(a) PROHIBITION ON OBTAINING CUSTOMER INFOR6 MATION BY FALSE PRETENSES.—It shall be a violation

7 of this title for any person to obtain or attempt to obtain,

8 or cause to be disclosed or attempt to cause to be disclosed

9 to any person, customer information of a financial institu10 tion relating to another person—

11 ‘‘(1) by knowingly making a false, fictitious, or

12 fraudulent statement or representation to an officer,

13 employee, or agent of a financial institution with the

14 intent to deceive the officer, employee, or agent into

15 relying on that statement or representation for pur16 poses of releasing the customer information;

17 ‘‘(2) by knowingly making a false, fictitious, or

18 fraudulent statement or representation to a cus19 tomer of a financial institution with the intent to de20 ceive the customer into relying on that statement or

21 representation for purposes of releasing the cus22 tomer information or authorizing the release of such

23 information; or

24 ‘‘(3) by knowingly providing any document to

25 an officer, employee, or agent of a financial institu-
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1 tion, knowing that the document is forged, counter2 feit, lost, or stolen, was fraudulently obtained, or

3 contains a false, fictitious, or fraudulent statement

4 or representation, if the document is provided with

5 the intent to deceive the officer, employee, or agent

6 into relying on that document for purposes of releas7 ing the customer information.

8 ‘‘(b) PROHIBITION ON SOLICITATION OF A PERSON

9 TO OBTAIN CUSTOMER INFORMATION FROM FINANCIAL

10 INSTITUTION UNDER FALSE PRETENSES.—It shall be a

11 violation of this title to request a person to obtain cus12 tomer information of a financial institution, knowing or

13 consciously avoiding knowing that the person will obtain,

14 or attempt to obtain, the information from the institution

15 in any manner described in subsection (a).

16 ‘‘(c) NONAPPLICABILITY TO LAW ENFORCEMENT

17 AGENCIES.—No provision of this section shall be con18 strued so as to prevent any action by a law enforcement

19 agency, or any officer, employee, or agent of such agency,

20 to obtain customer information of a financial institution

21 in connection with the performance of the official duties

22 of the agency.

23 ‘‘(d) NONAPPLICABILITY TO FINANCIAL INSTITU24 TIONS IN CERTAIN CASES.—No provision of this section

25 shall be construed to prevent any financial institution, or
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1 any officer, employee, or agent of a financial institution,

2 from obtaining customer information of such financial in3 stitution in the course of—

4 ‘‘(1) testing the security procedures or systems

5 of such institution for maintaining the confiden6 tiality of customer information;

7 ‘‘(2) investigating allegations of misconduct or

8 negligence on the part of any officer, employee, or

9 agent of the financial institution; or

10 ‘‘(3) recovering customer information of the fi11 nancial institution which was obtained or received by

12 another person in any manner described in sub13 section (a) or (b).

14 ‘‘(e) NONAPPLICABILITY TO CERTAIN TYPES OF

15 CUSTOMER INFORMATION OF FINANCIAL INSTITU16 TIONS.—No provision of this section shall be construed to

17 prevent any person from obtaining customer information

18 of a financial institution that otherwise is available as a

19 public record filed pursuant to the securities laws (as de20 fined in section 3(a)(47) of the Securities Exchange Act

21 of 1934).

22 ‘‘SEC. 1004. ADMINISTRATIVE ENFORCEMENT.

23 ‘‘(a) ENFORCEMENT BY FEDERAL TRADE COMMIS24 SION.—Except as provided in subsection (b), compliance

25 with this title shall be enforced by the Federal Trade Com-
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1 mission in the same manner and with the same power and

2 authority as the Commission has under the Fair Debt Col3 lection Practices Act to enforce compliance with that title.

4 ‘‘(b) ENFORCEMENT BY OTHER AGENCIES IN CER5 TAIN CASES.—

6 ‘‘(1) IN GENERAL.—Compliance with this title

7 shall be enforced under—

8 ‘‘(A) section 8 of the Federal Deposit In9 surance Act, in the case of—

10 ‘‘(i) national banks, and Federal

11 branches and Federal agencies of foreign

12 banks, by the Office of the Comptroller of

13 the Currency;

14 ‘‘(ii) member banks of the Federal

15 Reserve System (other than national

16 banks), branches and agencies of foreign

17 banks (other than Federal branches, Fed18 eral agencies, and insured State branches

19 of foreign banks), commercial lending com20 panies owned or controlled by foreign

21 banks, and organizations operating under

22 section 25 or 25A of the Federal Reserve

23 Act, by the Board;

24 ‘‘(iii) banks insured by the Federal

25 Deposit Insurance Corporation (other than
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1 members of the Federal Reserve System

2 and national nonmember banks) and in3 sured State branches of foreign banks, by

4 the Board of Directors of the Federal De5 posit Insurance Corporation; and

6 ‘‘(iv) savings associations the deposits

7 of which are insured by the Federal De8 posit Insurance Corporation, by the Direc9 tor of the Office of Thrift Supervision; and

10 ‘‘(B) the Federal Credit Union Act, by the

11 Administrator of the National Credit Union Ad12 ministration with respect to any Federal credit

13 union.

14 ‘‘(2) VIOLATIONS OF THIS TITLE TREATED AS

15 VIOLATIONS OF OTHER LAWS.—For the purpose of

16 the exercise by any agency referred to in paragraph

17 (1) of its powers under any Act referred to in that

18 paragraph, a violation of this title shall be deemed

19 to be a violation of a requirement imposed under

20 that Act. In addition to its powers under any provi21 sion of law specifically referred to in paragraph (1),

22 each of the agencies referred to in that paragraph

23 may exercise, for the purpose of enforcing compli24 ance with this title, any other authority conferred on

25 such agency by law.
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1 ‘‘(c) STATE ACTION FOR VIOLATIONS.—

2 ‘‘(1) AUTHORITY OF STATES.—In addition to

3 such other remedies as are provided under State

4 law, if the chief law enforcement officer of a State,

5 or an official or agency designated by a State, has

6 reason to believe that any person has violated or is

7 violating this title, the State—

8 ‘‘(A) may bring an action to enjoin such

9 violation in any appropriate United States dis10 trict court or in any other court of competent

11 jurisdiction;

12 ‘‘(B) may bring an action on behalf of the

13 residents of the State to recover damages of not

14 more than $1,000 for each violation; and

15 ‘‘(C) in the case of any successful action

16 under subparagraph (A) or (B), shall be award17 ed the costs of the action and reasonable attor18 ney fees as determined by the court.

19 ‘‘(2) RIGHTS OF FEDERAL REGULATORS.—

20 ‘‘(A) PRIOR NOTICE.—The State shall

21 serve prior written notice of any action under

22 paragraph (1) upon the Federal Trade Commis23 sion and, in the case of an action which involves

24 a financial institution described in section

25 1004(b)(1), the agency referred to in such sec-
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1 tion with respect to such institution and provide

2 the Federal Trade Commission and any such

3 agency with a copy of its complaint, except in

4 any case in which such prior notice is not fea5 sible, in which case the State shall serve such

6 notice immediately upon instituting such action.

7 ‘‘(B) RIGHT TO INTERVENE.—The Federal

8 Trade Commission or an agency described in

9 subsection (b) shall have the right—

10 ‘‘(i) to intervene in an action under

11 paragraph (1);

12 ‘‘(ii) upon so intervening, to be heard

13 on all matters arising therein;

14 ‘‘(iii) to remove the action to the ap15 propriate United States district court; and

16 ‘‘(iv) to file petitions for appeal.

17 ‘‘(3) INVESTIGATORY POWERS.—For purposes

18 of bringing any action under this subsection, no pro19 vision of this subsection shall be construed as pre20 venting the chief law enforcement officer, or an offi21 cial or agency designated by a State, from exercising

22 the powers conferred on the chief law enforcement

23 officer or such official by the laws of such State to

24 conduct investigations or to administer oaths or af25 firmations or to compel the attendance of witnesses
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1 or the production of documentary and other evi2 dence.

3 ‘‘(4) LIMITATION ON STATE ACTION WHILE

4 FEDERAL ACTION PENDING.—If the Federal Trade

5 Commission or any agency described in subsection

6 (b) has instituted a civil action for a violation of this

7 title, no State may, during the pendency of such ac8 tion, bring an action under this section against any

9 defendant named in the complaint of the Federal

10 Trade Commission or such agency for any violation

11 of this title that is alleged in that complaint.

12 ‘‘SEC. 1005. CIVIL LIABILITY.

13 ‘‘Any person, other than a financial institution, who

14 fails to comply with any provision of this title with respect

15 to any financial institution or any customer information

16 of a financial institution shall be liable to such financial

17 institution or the customer to whom such information re18 lates in an amount equal to the sum of the amounts deter19 mined under each of the following paragraphs:

20 ‘‘(1) ACTUAL DAMAGES.—The greater of—

21 ‘‘(A) the amount of any actual damage

22 sustained by the financial institution or cus23 tomer as a result of such failure; or

24 ‘‘(B) any amount received by the person

25 who failed to comply with this title, including
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1 an amount equal to the value of any nonmone2 tary consideration, as a result of the action

3 which constitutes such failure.

4 ‘‘(2) ADDITIONAL DAMAGES.—Such additional

5 amount as the court may allow.

6 ‘‘(3) ATTORNEYS’ FEES.—In the case of any

7 successful action to enforce any liability under para8 graph (1) or (2), the costs of the action, together

9 with reasonable attorneys’ fees.

10 ‘‘SEC. 1006. CRIMINAL PENALTY.

11 ‘‘(a) IN GENERAL.—Whoever violates, or attempts to

12 violate, section 1003 shall be fined in accordance with title

13 18, United States Code, or imprisoned for not more than

14 5 years, or both.

15 ‘‘(b) ENHANCED PENALTY FOR AGGRAVATED

16 CASES.—Whoever violates, or attempts to violate, section

17 1003 while violating another law of the United States or

18 as part of a pattern of any illegal activity involving more

19 than $100,000 in a 12-month period shall be fined twice

20 the amount provided in subsection (b)(3) or (c)(3) (as the

21 case may be) of section 3571 of title 18, United States

22 Code, imprisoned for not more than 10 years, or both.

23 ‘‘SEC. 1007. RELATION TO STATE LAWS.

24 ‘‘(a) IN GENERAL.—This title shall not be construed

25 as superseding, altering, or affecting the statutes, regula-
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1 tions, orders, or interpretations in effect in any State, ex2 cept to the extent that such statutes, regulations, orders,

3 or interpretations are inconsistent with the provisions of

4 this title, and then only to the extent of the inconsistency.

5 ‘‘(b) GREATER PROTECTION UNDER STATE LAW.—

6 For purposes of this section, a State statute, regulation,

7 order, or interpretation is not inconsistent with the provi8 sions of this title if the protection such statute, regulation,

9 order, or interpretation affords any person is greater than

10 the protection provided under this title.

11 ‘‘SEC. 1008. AGENCY GUIDANCE.

12 ‘‘In furtherance of the objectives of this title, each

13 Federal banking agency (as defined in section 3(z) of the

14 Federal Deposit Insurance Act) shall issue advisories to

15 depository institutions under the jurisdiction of the agen16 cy, in order to assist such depository institutions in deter17 ring and detecting activities proscribed under section

18 1003.’’.

19 (b) REPORT TO CONGRESS ON FINANCIAL PRI20 VACY.—Not later than 18 months after the date of enact21 ment of this Act, the Comptroller General of the United

22 States, in consultation with the Federal Trade Commis23 sion, the Federal banking agencies, and other appropriate

24 Federal law enforcement agencies, shall submit to the

25 Congress a report on—
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1 (1) the efficacy and adequacy of the remedies

2 provided in the amendments made by subsection (a)

3 in addressing attempts to obtain financial informa4 tion by fraudulent means or by false pretenses; and

5 (2) any recommendations for additional legisla6 tive or regulatory action to address threats to the

7 privacy of financial information created by attempts

8 to obtain information by fraudulent means or false

9 pretenses.

10 (c) REPORTS ON ONGOING FTC STUDY OF CON11 SUMER PRIVACY ISSUES.—With respect to the ongoing

12 multistage study being conducted by the Federal Trade

13 Commission on consumer privacy issues, the Commission

14 shall submit to the Congress an interim report on the find15 ings and conclusions of the Commission, together with

16 such recommendations for legislative and administrative

17 action as the Commission determines to be appropriate,

18 at the conclusion of each stage of such study and a final

19 report at the conclusion of the study.

20 (d) CONSUMER GRIEVANCE PROCESS.—The Federal

21 banking agencies (as that term is defined in section 3 of

22 the Federal Deposit Insurance Act) shall jointly establish

23 a consumer complaint mechanism, for receiving and expe24 ditiously addressing consumer complaints alleging a viola25 tion of regulations issued under section 45 of the Federal
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1 Deposit Insurance Act (as added by section 202 of this

2 Act), which mechanism shall—

3 (1) establish a group within each Federal bank4 ing agency to receive such complaints; and

5 (2) develop procedures for—

6 (A) investigating such complaints;

7 (B) informing consumers of rights they

8 may have in connection with such complaints;

9 and

10 (C) addressing concerns raised by such

11 complaints, as appropriate, including proce12 dures for the recovery of losses, to the extent

13 appropriate.

14 SEC. 305. CROSS MARKETING RESTRICTION; LIMITED PUR15 POSE BANK RELIEF; DIVESTITURE.

16 (a) CROSS MARKETING RESTRICTION.—Section 4(f)

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

18 1843(f)) is amended by striking paragraph (3).

19 (b) DAYLIGHT OVERDRAFTS.—Section 4(f) of the

20 Bank Holding Company Act of 1956 (12 U.S.C. 1843(f))

21 is amended by inserting after paragraph (2) the following

22 new paragraph:

23 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

24 For purposes of paragraph (2)(C), an overdraft is

25 described in this paragraph if—
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1 ‘‘(A) such overdraft results from an inad2 vertent computer or accounting error that is be3 yond the control of both the bank and the affil4 iate;

5 ‘‘(B) such overdraft—

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

7 of an affiliate that is monitored by, reports

8 to, and is recognized as a primary dealer

9 by the Federal Reserve Bank of New York;

10 and

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

12 the Board, by bonds, notes, or other obli13 gations that are direct obligations of the

14 United States or on which the principal

15 and interest are fully guaranteed by the

16 United States or by securities and obliga17 tions eligible for settlement on the Federal

18 Reserve book entry system; or

19 ‘‘(C) such overdraft—

20 ‘‘(i) is permitted or incurred by, or on

21 behalf of, an affiliate that is engaged in ac22 tivities that are so closely related to bank23 ing, or managing or controlling banks, as

24 to be a proper incident thereto; and
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1 ‘‘(ii) does not cause the bank to vio2 late any provision of section 23A or 23B of

3 the Federal Reserve Act, either directly, in

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

5 Federal Reserve System, or by virtue of

6 section 18(j) of the Federal Deposit Insur7 ance Act, in the case of a bank that is not

8 a member of the Federal Reserve Sys9 tem.’’.

10 (c) INDUSTRIAL LOAN COMPANIES; AFFILIATE

11 OVERDRAFTS.—Section 2(c)(2)(H) of the Bank Holding

12 Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is

13 amended by inserting before the period at the end ‘‘, or

14 that is otherwise permissible for a bank controlled by a

15 company described in section 4(f)(1)’’.

16 (d) ACTIVITIES LIMITATIONS.—Section 4(f)(2) of the

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

18 1843(f)(2)) is amended—

19 (1) by striking ‘‘Paragraph (1) shall cease to

20 apply to any company described in such paragraph

21 if—’’ and inserting ‘‘Subject to paragraph (3), a

22 company described in paragraph (1) shall no longer

23 qualify for the exemption provided under that para24 graph if—’’;

25 (2) in subparagraph (A)—
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1 (A) in clause (ii)(IX), by striking ‘‘and’’ at

2 the end;

3 (B) in clause (ii)(X), by inserting ‘‘and’’

4 after the semicolon;

5 (C) in clause (ii), by inserting after sub6 clause (X) the following:

7 ‘‘(XI) assets that are derived

8 from, or incidental to, activities in

9 which institutions described in section

10 2(c)(2)(F) or section 2(c)(2)(H) are

11 permitted to engage;’’; and

12 (D) by striking ‘‘or’’ at the end; and

13 (3) by striking subparagraph (B) and inserting

14 the following:

15 ‘‘(B) any bank subsidiary of such

16 company—

17 ‘‘(i) accepts demand deposits or de18 posits that the depositor may withdraw by

19 check or similar means for payment to

20 third parties; and

21 ‘‘(ii) engages in the business of mak22 ing commercial loans (except that, for pur23 poses of this clause, loans made in the or24 dinary course of a credit card operation
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1 shall not be treated as commercial loans);

2 or

3 ‘‘(C) after the date of enactment of the

4 Competitive Equality Amendments of 1987, any

5 bank subsidiary of such company permits any

6 overdraft (including any intraday overdraft), or

7 incurs any such overdraft in the account of the

8 bank at a Federal reserve bank, on behalf of an

9 affiliate, other than an overdraft described in

10 paragraph (3).’’.

11 (e) DIVESTITURE REQUIREMENT.—Section 4(f)(4) of

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

13 1843(f)(4)) is amended to read as follows:

14 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EX15 EMPTION.—If any company described in paragraph

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

17 paragraph (1) by operation of paragraph (2), such

18 exemption shall cease to apply to such company and

19 such company shall divest control of each bank it

20 controls before the end of the 180-day period begin21 ning on the date on which the company receives no22 tice from the Board that the company has failed to

23 continue to qualify for such exemption, unless, be24 fore the end of such 180-day period, the company

25 has—
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1 ‘‘(A) either—

2 ‘‘(i) corrected the condition or ceased

3 the activity that caused the company to

4 fail to continue to qualify for the exemp5 tion; or

6 ‘‘(ii) submitted a plan to the Board

7 for approval to cease the activity or correct

8 the condition in a timely manner (which

9 shall not exceed 1 year); and

10 ‘‘(B) implemented procedures that are rea11 sonably adapted to avoid the reoccurrence of

12 such condition or activity.’’.

13 SEC. 306. ‘‘PLAIN LANGUAGE’’ REQUIREMENT FOR FEDERAL

14 BANKING AGENCY RULES.

15 (a) IN GENERAL.—Each Federal banking agency

16 shall use plain language in all proposed and final

17 rulemakings published by the agency in the Federal Reg18 ister after January 1, 2000.

19 (b) REPORT.—Not later than March 1, 2001, each

20 Federal banking agency shall submit to the Congress a

21 report that describes how the agency has complied with

22 subsection (a).

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

24 terms ‘‘Federal banking agency’’ and ‘‘State bank super-
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1 visor’’ have the same meanings as in section 3 of the Fed2 eral Deposit Insurance Act.

3 SEC. 307. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON4 VERTED FEDERAL SAVINGS ASSOCIATION.

5 Section 2 of the Act entitled ‘‘An Act to enable na6 tional banking associations to increase their capital stock

7 and to change their names or locations’’, approved May

8 1, 1886 (12 U.S.C. 30), is amended by adding at the end

9 the following new subsection:

10 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CON11 VERTED FEDERAL SAVINGS ASSOCIATION.—

12 ‘‘(1) IN GENERAL.—Notwithstanding subsection

13 (a) or any other provision of law, any depository in14 stitution, the charter of which is converted from that

15 of a Federal savings association to a national bank

16 or a State bank after the date of enactment of the

17 Financial Services Modernization Act of 1999 may

18 retain the term ‘Federal’ in the name of such insti19 tution if such institution remains an insured deposi20 tory institution.

21 ‘‘(2) DEFINITIONS.—For purposes of this sub22 section, the terms ‘depository institution’, ‘insured

23 depository institution’, ‘national bank’, and ‘State

24 bank’ have the same meanings as in section 3 of the

25 Federal Deposit Insurance Act.’’.
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1 SEC. 308. COMMUNITY REINVESTMENT ACT EXEMPTION.

2 (a) IN GENERAL.—No community financial institu3 tion shall be subject to the Community Reinvestment Act

4 of 1977 (12 U.S.C. 2901 et seq.).

5 (b) DEFINITION OF COMMUNITY FINANCIAL INSTI6 TUTION.—As used in this section, the term ‘‘community

7 financial institution’’ means an insured depository institu8 tion (as defined in section 3 of the Federal Deposit Insur9 ance Act), that has aggregate assets of not more than

10 $100,000,000, and that is located in a non-metropolitan

11 area.

12 (c) ADJUSTMENTS.—The dollar amount referred to

13 in subsection (b) shall be adjusted annually after Decem14 ber 31, 1999, by the annual percentage increase in the

15 Consumer Price Index for Urban Wage Earners and Cler16 ical Workers published by the Bureau of Labor Statistics.

17 (d) DEFINITION.—For purposes of this section, the

18 term ‘‘non-metropolitan area’’ means any area, no part

19 of which is within an area designated as a metropolitan

20 statistical area by the Office of Management and Budget.

21 SEC. 309. BANK OFFICERS AND DIRECTORS AS OFFICERS

22 AND DIRECTORS OF PUBLIC UTILITIES.

23 Section 305(b) of the Federal Power Act (16 U.S.C.

24 825d(b)) is amended—

25 (1) by striking ‘‘(b) After six’’ and inserting the

26 following:
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1 ‘‘(b) INTERLOCKING DIRECTORATES.—

2 ‘‘(1) IN GENERAL.—After 6’’; and

3 (2) by adding at the end the following:

4 ‘‘(2) APPLICABILITY.—

5 ‘‘(A) IN GENERAL.—In the circumstances

6 described in subparagraph (B), paragraph (1)

7 shall not apply to a person that holds or pro8 poses to hold the positions of—

9 ‘‘(i) officer or director of a public util10 ity; and

11 ‘‘(ii) officer or director of a bank,

12 trust company, banking association, or

13 firm authorized by law to underwrite or

14 participate in the marketing of securities

15 of a public utility.

16 ‘‘(B) CIRCUMSTANCES.—The cir17 cumstances described in this subparagraph are

18 that—

19 ‘‘(i) a person described in subpara20 graph (A) does not participate in any de21 liberations or decisions of the public utility

22 regarding the selection of a bank, trust

23 company, banking association, or firm to

24 underwrite or participate in the marketing

25 of securities of the public utility, if the per-
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1 son serves as an officer or director of a

2 bank, trust company, banking association,

3 or firm that is under consideration in the

4 deliberation process;

5 ‘‘(ii) the bank, trust company, bank6 ing association, or firm of which the per7 son is an officer or director does not en8 gage in the underwriting of, or participate

9 in the marketing of, securities of the public

10 utility of which the person holds the posi11 tion of officer or director;

12 ‘‘(iii) the public utility for which the

13 person serves or proposes to serve as an

14 officer or director selects underwriters by

15 competitive procedures; or

16 ‘‘(iv) the issuance of securities the

17 public utility for which the person serves

18 or proposes to serve as an officer or direc19 tor has been approved by all Federal and

20 State regulatory agencies having jurisdic21 tion over the issuance.’’.

22 SEC. 310. CONTROL OF BANKERS’ BANKS.

23 Section 2(a)(5)(E)(i) of the Bank Holding Company

24 Act of 1956 (12 U.S.C. 1841(a)(5)(E)(i)) is amended by

25 inserting ‘‘one or more’’ before ‘‘thrift institutions’’.
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1 SEC. 311. MULTISTATE LICENSING AND INTERSTATE IN2 SURANCE SALES ACTIVITIES.

3 (a) FINDINGS.—Congress finds that—

4 (1) the States regulate the business of insur5 ance, including the licensing of insurance agents and

6 brokers;

7 (2) the current State insurance licensing system

8 requires insurance agents and brokers to obtain li9 censes on a line-by-line, class-by-class, producer-by10 producer, State-by-State basis;

11 (3) in the commercial and industrial insurance

12 arena, this State-based system usually requires a

13 single agent or broker to hold scores of licenses if

14 that agent or broker intends to sell or broker insur15 ance on a nationwide basis;

16 (4) because of the duplicative licensing require17 ments both within States and from State to State,

18 a single insurance agent or broker must satisfy lit19 erally hundreds of administrative filing requirements

20 to become fully licensed to engage in the sale of a

21 full range of insurance products on a nationwide

22 basis;

23 (5) these administrative requirements appear to

24 be essentially unrelated to any requisite standards of

25 professionalism;
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1 (6) many States impose certain requirements

2 on insurance agents and brokers that pose an undue,

3 discriminatory burden on nonresident agents, includ4 ing some States that ban solicitation of insurance

5 clients by nonresident agents and brokers;

6 (7) many States impose anticompetitive post-li7 censure requirements on nonresident agents and bro8 kers, including countersignature laws that require an

9 agent or broker servicing the needs of an out-of10 State client to have any insurance policy that is sold

11 ‘‘countersigned’’ by a resident agent;

12 (8) in some cases, such countersignature laws

13 also require a nonresident agent or broker to pay at

14 least half of any commission earned in a State in

15 which the agent or broker is not a resident to a resi16 dent agent or broker; and

17 (9) such duplicative and onerous filing require18 ments and anticompetitive burdens inhibit interstate

19 commerce, constitute unjustifiable trade barriers,

20 greatly undermine the competition that this Act

21 seeks to foster.

22 (b) SENSE OF CONGRESS.—It is the sense of the

23 Congress that—
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1 (1) by the end of the 36-month period begin2 ning on the date of enactment of this Act, the States

3 should—

4 (A) implement uniform insurance agent

5 and broker licensing application and qualifica6 tion requirements that result in a fully recip7 rocal licensing system; and

8 (B) eliminate any pre- or post-licensure re9 quirements that have the practical effect of dis10 criminating, directly or indirectly, against non11 resident insurance agents or brokers;

12 (2) if such actions are not taken, Congress

13 should take steps to directly rectify the problems

14 identified in subsection (a); and

15 (3) any entity established by the Congress to so

16 rectify the problems should be under the supervision

17 and oversight of the National Association of Insur18 ance Commissioners.

19 SEC. 312. CRA SUNSHINE REQUIREMENTS.

20 (a) DISCLOSURE AND REPORTING.—The Federal De21 posit Insurance Act (12 U.S.C. 1811 et seq.), is amended

22 by adding at the end thereof the following new section:

23 ‘‘SEC. 46. CRA SUNSHINE REQUIREMENTS.

24 ‘‘(a) PUBLIC DISCLOSURE OF AGREEMENTS.—Any

25 agreement entered into by an insured depository institu-
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1 tion or affiliate with a nongovernmental entity or person

2 made pursuant to or in connection with the Community

3 Reinvestment Act involving funds or other resources of

4 such insured depository institution or affiliate shall be in

5 its entirety fully disclosed, and the full text thereof made

6 available to the appropriate Federal banking agency with

7 supervisory responsibility over the insured depository in8 stitution and to the public and shall obligate each party

9 to comply with the provisions of this section.

10 ‘‘(b) ANNUAL REPORT OF ACTIVITY.—Each party to

11 the agreement shall report, as applicable, to the appro12 priate Federal banking agency with supervisory responsi13 bility over the insured depository institution, no less fre14 quently than once each year, such information as the Fed15 eral banking agency may by rule require relating to the

16 following actions taken by the party pursuant to an agree17 ment described in subsection (a) during the previous 12-

18 month period—

19 ‘‘(1) payments, fees or loans made to any party

20 to the agreement or received from any party to the

21 agreement and the terms and conditions of the

22 same; and

23 ‘‘(2) aggregate data on loans, investments and

24 services provided by each party in its community or

25 communities pursuant to the agreement; and
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1 ‘‘(3) such other pertinent matters as deter2 mined by rule by the appropriate Federal banking

3 agency with supervisory responsibility over the in4 sured depository institution.

5 The Federal banking agency shall ensure that the regula6 tions implementing this section do not impose an undue

7 burden on the parties and that proprietary and confiden8 tial information is protected.

9 ‘‘(c) EXISTING AGREEMENTS.—The requirements of

10 subsection (b) (1), (2), and (3) shall be deemed to be ful11 filled with respect to any agreement made prior to May

12 5, 1999.

13 ‘‘(d) SECONDARY AGREEMENTS.—Any agreement

14 made on or after May 5, 1999 pursuant to an agreement

15 described in subsection (a) also is subject to the require16 ments of subsections (a) and (b).

17 ‘‘(e) DEFINITIONS.—

18 ‘‘(1) AGREEMENT.—As used in this section, the

19 term ‘agreement’ refers to any written contract,

20 written arrangement, or other written understanding

21 with a value in excess of $10,000 annually, or a

22 group of substantively related contracts with an ag23 gregate value of $10,000 annually, made pursuant

24 to or in connection with the Community Reinvest25 ment Act of 1977, at least one party to which is an
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1 insured depository institution or affiliate thereof, or

2 entity owned or controlled by an insured depository

3 institution or affiliate, whether organized on a profit

4 or not-for-profit basis. The term ‘agreement’ shall

5 not include any specific contract or commitment for

6 a loan or extension of credit to individuals, busi7 nesses, farms, or other entities, where the purpose of

8 the loan or extension of credit does not include any

9 re-lending of the borrowed funds to other parties.

10 ‘‘(2) APPROPRIATE FEDERAL BANKING AGENCY

11 AND INSURED DEPOSITORY INSTITUTION.—As used

12 in this section, the terms ‘appropriate Federal bank13 ing agency’ and ‘insured depository institution’ have

14 the same meanings as defined in section 3 of this

15 Act.

16 ‘‘(d) VIOLATIONS.—Any violation of the provisions of

17 this section shall be considered a violation of this Act. If

18 the party to the agreement that is not an insured deposi19 tory institution or affiliate fails to comply with this sec20 tion, the agreement shall not be enforceable after being

21 given notice and a reasonable period of time to perform

22 or comply.

23 ‘‘(e) LIMITATION.—Nothing in this section is in24 tended to provide any authority upon any appropriate

25 Federal banking agency to enforce the provisions of the
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1 agreements that are subject to the requirements of sub2 section (a).

3 ‘‘(f) REGULATIONS.—Each appropriate Federal

4 banking agency shall prescribe regulations requiring pro5 cedures reasonably designed to assure and monitor compli6 ance with the requirements of this section.’’.

7 SEC. 313. INTERSTATE BRANCHES AND AGENCIES OF FOR8 EIGN BANKS.

9 Section 5 of the International Banking Act of 1978,

10 as amended (12 U.S.C. 3103), is amended by striking sub11 section (a)(7) and substituting the following:

12 ‘‘(7) Additional authority for interstate branches and agencies

13 of foreign banks; upgrades of certain foreign

14 bank agencies and branches

15 ‘‘Notwithstanding paragraphs (1) and (2), a foreign

16 bank may—

17 ‘‘(A) with the approval of the Board and the

18 Comptroller of the Currency, establish and operate

19 a Federal branch or Federal agency or, with the ap20 proval of the Board and the appropriate State bank

21 supervisor, a State branch or State agency in any

22 State outside the foreign bank’s home State if—

23 ‘‘(i) the establishment and operation of

24 such branch or agency is permitted by the State
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1 in which the branch or agency is to be estab2 lished; and

3 ‘‘(ii) in the case of a Federal or State

4 branch, the branch receives only such deposits

5 as would be permitted for a corporation orga6 nized under section 25A of the Federal Reserve

7 Act (12 U.S.C. 611 et seq.); or

8 ‘‘(B) with the approval of the Board and the

9 relevant licensing authority (the Comptroller in the

10 case of a Federal branch or the appropriate State

11 supervisor in the case of a State branch), upgrade

12 an agency, or a branch of the type referred to in

13 subsection (a)(7)(A)(ii), located in a State outside

14 the foreign bank’s home State, into a Federal or

15 State branch if the establishment and operation of

16 such branch is permitted by such State and—

17 ‘‘(i) such agency or branch was in oper18 ation in such State on the day before Sep19 tember 29, 1994, or

20 ‘‘(ii) such agency or branch has been in op21 eration in such State for a period of time that

22 meets the State’s minimum age requirement

23 permitted under section 1831u(a)(5) of title 12,

24 United States Code.’’.
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1 SEC. 314. DISCLOSURES TO CONSUMERS UNDER THE

2 TRUTH IN LENDING ACT.

3 (a) DISCLOSURE OF LATE PAYMENT DEADLINES

4 AND PENALTIES.—Section 127(b) of the Truth in Lend5 ing Act (15 U.S.C. 1637(b)) is amended by adding at the

6 end the following:

7 ‘‘(12) If a charge is to be imposed due to the

8 failure of the obligor to make payment on or before

9 a required payment due date, the date that payment

10 is due or, if different, the date on which a late pay11 ment fee will be charged, shall be stated prominently

12 in a conspicuous location on the billing statement,

13 together with the amount of the charge to be im14 posed if payment is made after such date.’’.

15 (b) DISCLOSURES RELATED TO ‘‘TEASER RATES’’.—

16 Section 127(c) (15 U.S.C. 1637(c)) is amended by insert17 ing after paragraph (5) (as so redesignated by section 4

18 of this Act) the following:

19 ‘‘(6) ADDITIONAL NOTICE CONCERNING ‘TEAS20 ER RATES’.—

21 ‘‘(A) IN GENERAL.—An application or so22 licitation for a credit card for which a disclo23 sure is required under this subsection shall con24 tain the disclosure contained in subparagraph

25 (B) or (C), as appropriate, if the application or

26 solicitation offers, for an introductory period of
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1 less than 1 year, an annual percentage rate of

2 interest that—

3 ‘‘(i) is less than the annual percentage

4 rate of interest that will apply after the

5 end of the introductory period; or

6 ‘‘(ii) in the case of an annual percent7 age rate that varies in accordance with an

8 index, is less than the current annual per9 centage rate under the index that will

10 apply after the end of such period.

11 ‘‘(B) FIXED ANNUAL PERCENTAGE

12 RATE.—If the annual percentage rate that will

13 apply after the end of the introductory period

14 will be a fixed rate, the application or solicita15 tion shall include the following disclosure: ‘The

16 annual percentage rate of interest applicable

17 during the introductory period is not the annual

18 percentage rate that will apply after the end of

19 the introductory period. The permanent annual

20 percentage rate will apply after [insert applica21 ble date] and will be [insert applicable percent22 age rate].’.

23 ‘‘(C) VARIABLE ANNUAL PERCENTAGE

24 RATE.—If the annual percentage rate that will

25 apply after the end of the introductory period
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1 will vary in accordance with an index, the appli2 cation or solicitation shall include the following

3 disclosure: ‘The annual percentage rate of inter4 est applicable during the introductory period is

5 not the annual percentage rate that will apply

6 after the end of the introductory period. The

7 permanent annual percentage rate will be deter8 mined by an index, and will apply after [insert

9 applicable date]. If the index that will apply

10 after such date were applied to your account

11 today, the annual percentage rate would be [in12 sert applicable percentage rate].’.

13 ‘‘(D) CONDITIONS FOR INTRODUCTORY

14 RATES.—If the annual percentage rate of inter15 est that will apply during the introductory pe16 riod described in subparagraph (A) is revocable

17 or otherwise conditioned upon any action by the

18 obligor, including any failure by the obligor to

19 pay the minimum payment amount or finance

20 charge or to make any payment by the stated

21 monthly payment due date, the application or

22 solicitation shall include disclosure of—

23 ‘‘(i) the conditions that the obligor

24 must meet to retain the annual percentage
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1 rate of interest during the introductory pe2 riod; and

3 ‘‘(ii) the annual percentage rate of in4 terest that will apply as a result of the fail5 ure of the obligor to meet such conditions.

6 ‘‘(E) FORM OF DISCLOSURE.—The disclo7 sures required under this paragraph shall be

8 made in a clear and conspicuous manner, in a

9 prominent fashion.’’.

10 SEC. 315. APPROVAL FOR PURCHASES OF SECURITIES.

11 Section 23B(b)(2) of the Federal Reserve Act (12

12 U.S.C. 371c–1) is amended to read as follows:

13 ‘‘Subparagraph (B) of paragraph (1) shall not apply

14 if the purchase or acquisition of such securities has been

15 approved, before such securities are initially offered for

16 sale to the public, by a majority of the directors of the

17 bank based on a determination that the purchase is a

18 sound investment for the bank irrespective of the fact that

19 an affiliate of the bank is a principal underwriter of the

20 securities.’’.

21 SEC. 316. PROVISION OF TECHNICAL ASSISTANCE TO

22 MICROENTERPRISES.

23 (a) IN GENERAL.—Title I of the Riegle Community

24 Development and Regulatory Improvement Act of 1994
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1 (12 U.S.C. 4701 et seq.) is amended by adding at the end

2 the following:

3 ‘‘Subtitle C—Microenterprise Tech4 nical Assistance and Capacity

5 Building Program

6 ‘‘SEC. 171. SHORT TITLE.

7 ‘‘This subtitle may be cited as the ‘Program for In8 vestment in Microentrepreneurs Act of 1999’, also re9 ferred to as the ‘PRIME Act’.

10 ‘‘SEC. 172. DEFINITIONS.

11 ‘‘For purposes of this subtitle—

12 ‘‘(1) the term ‘Administrator’ has the same

13 meaning as in section 103;

14 ‘‘(2) the term ‘capacity building services’ means

15 services provided to an organization that is, or is in

16 the process of becoming a microenterprise develop17 ment organization or program, for the purpose of

18 enhancing its ability to provide training and services

19 to disadvantaged entrepreneurs;

20 ‘‘(3) the term ‘collaborative’ means 2 or more

21 nonprofit entities that agree to act jointly as a quali22 fied organization under this subtitle;

23 ‘‘(4) the term ‘disadvantaged entrepreneur’

24 means a microentrepreneur that is—

25 ‘‘(A) a low-income person;
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1 ‘‘(B) a very low-income person; or

2 ‘‘(C) an entrepreneur that lacks adequate

3 access to capital or other resources essential for

4 business success, or is economically disadvan5 taged, as determined by the Administrator;

6 ‘‘(5) the term ‘Fund’ has the same meaning as

7 in section 103;

8 ‘‘(6) the term ‘Indian tribe’ has the same mean9 ing as in section 103;

10 ‘‘(7) the term ‘intermediary’ means a private,

11 nonprofit entity that seeks to serve microenterprise

12 development organizations and programs as author13 ized under section 175;

14 ‘‘(8) the term ‘low-income person’ has the same

15 meaning as in section 103;

16 ‘‘(9) the term ‘microentrepreneur’ means the

17 owner or developer of a microenterprise;

18 ‘‘(10) the term ‘microenterprise’ means a sole

19 proprietorship, partnership, or corporation that—

20 ‘‘(A) has fewer than 5 employees; and

21 ‘‘(B) generally lacks access to conventional

22 loans, equity, or other banking services;

23 ‘‘(11) the term ‘microenterprise development or24 ganization or program’ means a nonprofit entity, or

25 a program administered by such an entity, including
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1 community development corporations or other non2 profit development organizations and social service

3 organizations, that provides services to disadvan4 taged entrepreneurs or prospective entrepreneurs;

5 ‘‘(12) the term ‘training and technical assist6 ance’ means services and support provided to dis7 advantaged entrepreneurs or prospective entre8 preneurs, such as assistance for the purpose of en9 hancing business planning, marketing, management,

10 financial management skills, and assistance for the

11 purpose of accessing financial services; and

12 ‘‘(13) the term ‘very low-income person’ means

13 having an income, adjusted for family size, of not

14 more than 150 percent of the poverty line (as de15 fined in section 673(2) of the Community Services

16 Block Grant Act (42 U.S.C. 9902(2), including any

17 revision required by that section).

18 ‘‘SEC. 173. ESTABLISHMENT OF PROGRAM.

19 ‘‘The Administrator shall establish a microenterprise

20 technical assistance and capacity building grant program

21 to provide assistance from the Fund in the form of grants

22 to qualified organizations in accordance with this subtitle.

23 ‘‘SEC. 174. USES OF ASSISTANCE.

24 ‘‘A qualified organization shall use grants made

25 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) $15,000,000 for fiscal year 2001;

10 ‘‘(3) $15,000,000 for fiscal year 2002; and

11 ‘‘(4) $15,000,000 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 (B) in subparagraph (G)—

7 (i) by striking ‘‘9’’ and inserting

8 ‘‘11’’;

9 (ii) by redesignating clauses (iv) and

10 (v) as clauses (v) and (vi), respectively;

11 and

12 (iii) by inserting after clause (iii) the

13 following:

14 ‘‘(iv) 2 individuals who have expertise

15 in microenterprises and microenterprise de16 velopment;’’; and

17 (2) in paragraph (4), in the first sentence, by

18 inserting before the period ‘‘and subtitle C’’.

19 SEC. 317. FEDERAL RESERVE AUDITS.

20 (a) IN GENERAL.—The Federal Reserve Act (12

21 U.S.C. 221 et seq.) is amended by inserting after section

22 11A the following:
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1 ‘‘SEC. 11B. ANNUAL INDEPENDENT AUDITS OF FEDERAL

2 RESERVE BANKS.

3 ‘‘(a) AUDIT REQUIRED.—Each Federal reserve bank

4 shall annually obtain an audit of the financial statements

5 of each Federal reserve bank (which shall have been pre6 pared in accordance with generally accepted accounting

7 principles) using generally accepted auditing standards

8 from an independent auditor that meets the requirements

9 of subsection (b).

10 ‘‘(b) AUDITOR’S QUALIFICATIONS.—The independent

11 auditor referred to in subsection (a) shall—

12 ‘‘(1) be a certified public accountant who is

13 independent of the Federal Reserve System; and

14 ‘‘(2) meet any other qualifications that the

15 Board may establish.

16 ‘‘(c) CERTIFICATION REQUIRED.—In each audit re17 quired under subsection (a), the auditor shall certify to

18 the Federal reserve bank and to the Board that the

19 auditor—

20 ‘‘(1) is a certified public accountant and is

21 independent of the Federal Reserve System; and

22 ‘‘(2) conducted the audit using generally accept23 ed auditing standards.

24 ‘‘(d) CERTIFICATION BY FEDERAL RESERVE

25 BANK.—Not later than 30 days after the completion of

26 each audit required under subsection (a), the Federal re-
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1 serve bank shall provide to the Comptroller General of the

2 United States—

3 ‘‘(1) a certification that—

4 ‘‘(A) the Federal reserve bank has ob5 tained the audit required under subsection (a);

6 ‘‘(B) the Federal reserve bank has received

7 the certifications of the auditor required under

8 subsection (c); and

9 ‘‘(C) the audit fully complies with sub10 section (a).

11 ‘‘(e) DETECTION OF ILLEGAL ACTS.—

12 ‘‘(1) AUDIT PROCEDURES.—Each audit re13 quired by this section shall include procedures de14 signed to provide reasonable assurance of detecting

15 illegal acts that would have a direct and material ef16 fect on the determination of financial statement

17 amounts.

18 ‘‘(2) REPORTING POSSIBLE ILLEGALITIES.—If,

19 in the course of conducting an audit required by this

20 section, the independent auditor detects or otherwise

21 becomes aware of information indicating that an ille22 gal act (whether or not perceived to have an effect

23 on the financial statements of the Federal reserve

24 bank) has or may have occurred, the auditor—
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1 ‘‘(A) shall determine whether it is likely

2 that the illegal act has occurred; and

3 ‘‘(B) shall, if the auditor determines that

4 the illegal act is likely to have occurred—

5 ‘‘(i) determine and consider the pos6 sible effect of the illegal act on the finan7 cial statements of the Federal reserve

8 bank; and

9 ‘‘(ii) as soon as practicable, inform

10 the Board that the illegal act is likely to

11 have occurred.

12 ‘‘(3) REPORT TO CONGRESS.—The independent

13 auditor under this section shall, as soon as prac14 ticable, directly report its conclusions to the Com15 mittee on Governmental Affairs of the Senate and

16 the Committee on Government Reform of the House

17 of Representatives with regard to any possible illegal

18 act that has been detected or has otherwise come to

19 the attention of the auditor during the course of the

20 audit required by this section, if, after determining

21 that the Board is adequately informed with respect

22 to such possible illegal act, the auditor concludes

23 that—
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1 ‘‘(A) the possible illegal act has a direct

2 and material effect on the financial statements

3 of the Federal reserve bank;

4 ‘‘(B) the Board has not taken timely and

5 appropriate remedial actions with respect to the

6 possible illegal act; and

7 ‘‘(C) the failure to take remedial action is

8 reasonably expected to warrant departure from

9 a standard report of the auditor when made, or

10 warrant resignation from the audit engagement.

11 ‘‘(4) RESIGNATION OF AUDITOR.—If an inde12 pendent auditor resigns from its engagement to

13 audit a Federal reserve bank under paragraph (3),

14 the auditor shall furnish to the Committee on Gov15 ernmental Affairs of the Senate and the Committee

16 on Government Reform of the House of Representa17 tives, not later than 1 business day after such res18 ignation, a copy of the report of the auditor (or doc19 umentation of any oral report given).

20 ‘‘(f) RECORDKEEPING.—To facilitate compliance with

21 this section, each Federal reserve bank shall—

22 ‘‘(1) ensure that the books, records, and ac23 counts of the Federal reserve bank are maintained

24 and kept in sufficient detail to accurately and fairly
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1 reflect the transactions and dispositions of the assets

2 of the bank;

3 ‘‘(2) devise and maintain a system of internal

4 controls sufficient to provide reasonable assurance

5 that transactions are recorded as necessary to per6 mit preparation of financial statements in con7 formity with generally accepted accounting principles

8 and to maintain accountability for assets;

9 ‘‘(3) ensure that access to assets of the Federal

10 reserve bank is permitted only in accordance with

11 the general or specific authorization of the Board;

12 and

13 ‘‘(4) ensure that—

14 ‘‘(A) the recorded accountability for assets

15 is compared with the existing assets at reason16 able intervals; and

17 ‘‘(B) appropriate action is taken with re18 spect to any differences.

19 ‘‘(g) REPORTS TO BOARD, CONGRESS.—Not later

20 than April 30 of each year, each Federal reserve bank

21 shall submit a copy of each audit conducted under this

22 section to the Board, and to the Committee on Govern23 mental Affairs of the Senate and the Committee on Gov24 ernment Reform of the House of Representatives.
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1 ‘‘SEC. 11C. INDEPENDENT AUDITS OF FEDERAL RESERVE

2 SYSTEM AND FEDERAL RESERVE BOARD.

3 ‘‘(a) AUDIT OF RESERVE SYSTEM.—The Board shall

4 annually obtain an audit of the consolidated financial

5 statements of the Federal Reserve System (which shall

6 have been prepared in accordance with generally accepted

7 accounting principles) from an independent auditor, using

8 generally accepted auditing standards, based on reports

9 of audits of Federal reserve banks submitted to the Board

10 under section 11B(g) and the audit of the Board under

11 subsection (b) of this section.

12 ‘‘(b) AUDIT OF BOARD.—

13 ‘‘(1) IN GENERAL.—The Board shall annually

14 obtain an audit of the financial statements of the

15 Board (which shall have been prepared in accord16 ance with generally accepted accounting principles)

17 from an independent auditor, using generally accept18 ed auditing standards.

19 ‘‘(2) PRICED SERVICES AUDIT.—

20 ‘‘(A) IN GENERAL.—As part of each audit

21 of the Board required by this subsection, the

22 auditor shall—

23 ‘‘(i) audit the calculation of the pri24 vate sector adjustment factor established

25 by the Board pursuant to section
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1 11A(c)(3) for the year that is the subject

2 of the audit; and

3 ‘‘(ii) audit the pro forma balance

4 sheet and income statement for the serv5 ices described in section 11A(b), including

6 the determination of revenue, expenses,

7 and income before income taxes for each

8 service listed in that section (in accordance

9 with the criteria specified in section

10 11A(c)(3)).

11 ‘‘(B) REPORT TO THE BOARD.—The audi12 tor shall report the results of the audit under

13 subparagraph (A)(ii) to the Board in written

14 form.

15 ‘‘(3) LIMITATION.—The evaluations and audits

16 required by this subsection shall not include delib17 erations, decisions, or actions on monetary policy

18 matters, including discount authority under section

19 13, reserves of national banks, securities credit, in20 terest on deposits, and open market operations.

21 ‘‘(c) AUDITOR’S QUALIFICATIONS.—An independent

22 auditor referred to in this section shall—

23 ‘‘(1) be a certified public accountant and be

24 independent of the Federal Reserve System; and
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1 ‘‘(2) meet any other qualifications that the

2 Board may establish.

3 ‘‘(d) CERTIFICATION REQUIRED.—In each audit re4 quired under this section, the auditor shall certify to the

5 Board that the auditor—

6 ‘‘(1) is a certified public accountant and is

7 independent of the Federal Reserve System; and

8 ‘‘(2) conducted the audit using generally accept9 ed auditing standards.

10 ‘‘(e) DETECTION OF ILLEGAL ACTS.—

11 ‘‘(1) AUDIT PROCEDURES.—Each audit re12 quired by this section shall include procedures de13 signed to provide reasonable assurance of detecting

14 illegal acts that would have a direct and material af15 fect on the determination of financial statement

16 amounts.

17 ‘‘(2) REPORTING POSSIBLE ILLEGALITIES.—If,

18 in the course of conducting an audit of the Federal

19 Reserve System or the Board as required by this

20 section, the independent auditor detects or otherwise

21 becomes aware of information indicating that an ille22 gal act (whether or not perceived to have an effect

23 on the financial statements of the Federal reserve

24 bank) has or may have occurred, the auditor—
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1 ‘‘(A) shall determine whether it is likely

2 that the illegal act has occurred; and

3 ‘‘(B) shall, if the auditor determines that

4 the illegal act is likely to have occurred—

5 ‘‘(i) determine and consider the pos6 sible effect of the illegal act on the finan7 cial statements of the Federal Reserve Sys8 tem or the Board, as applicable; and

9 ‘‘(ii) as soon as practicable, inform

10 the Board that the illegal act is likely to

11 have occurred.

12 ‘‘(3) REPORT TO CONGRESS.—An independent

13 auditor under this section shall directly report, as

14 soon as practicable, its conclusions to the Committee

15 on Governmental Affairs of the Senate and the Com16 mittee on Government Reform of the House of Rep17 resentatives, with regard to any possible illegal act

18 that has been detected or has otherwise come to the

19 attention of the auditor during the course of an

20 audit of the Federal Reserve System or the Board

21 required by this section, if, after determining that

22 the Board is adequately informed with respect to

23 such possible illegal act, the auditor concludes

24 that—
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1 ‘‘(A) the possible illegal act has a direct

2 and material effect on the financial statements

3 of the Federal Reserve System or the Board, as

4 applicable;

5 ‘‘(B) the Board has not taken timely and

6 appropriate remedial actions with respect to the

7 possible illegal act; and

8 ‘‘(C) the failure to take remedial action is

9 reasonably expected to warrant departure from

10 a standard report of the auditor when made, or

11 warrant resignation from the audits engage12 ment.

13 ‘‘(4) RESIGNATION OF AUDITOR.—If an inde14 pendent auditor resigns from its engagement to

15 audit the Federal Reserve System or the Board

16 under paragraph (3), the auditor shall furnish to the

17 Committee on Governmental Affairs of the Senate

18 and the Committee on Government Reform of the

19 House of Representatives, not later than 1 business

20 day after such resignation, a copy of the report of

21 the auditor (or documentation of any oral report

22 given).

23 ‘‘(f) RECORDKEEPING.—To facilitate compliance with

24 this section, the Board shall—
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1 ‘‘(1) ensure that the books, records, and ac2 counts of the Board are maintained and kept in suf3 ficient detail to accurately and fairly reflect the

4 transactions and dispositions of assets;

5 ‘‘(2) devise and maintain a system of internal

6 controls sufficient to provide reasonable assurance

7 that transactions are recorded as necessary to per8 mit preparation of financial statements in con9 formity with generally accepted accounting principles

10 and to maintain accountability for assets;

11 ‘‘(3) ensure that access to assets of the Board

12 is permitted only in accordance with general or spe13 cific authorization of the Board; and

14 ‘‘(4) ensure that—

15 ‘‘(A) the recorded accountability for assets

16 is compared with the existing assets at reason17 able intervals; and

18 ‘‘(B) appropriate action is taken with re19 spect to any differences.

20 ‘‘(g) REPORTS TO CONGRESS.—Not later than May

21 31 of each year, the Board shall make available all audits

22 and reports required by this section to the Committee on

23 Governmental Affairs of the Senate and the Committee

24 on Government Reform of the House of Representatives.’’.

25 (b) FEDERAL RESERVE REQUIREMENTS.—
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1 (1) CLARIFICATION OF FEE SCHEDULE RE2 QUIREMENTS.—

3 (A) IN GENERAL.—Section 11A(b) of the

4 Federal Reserve Act (12 U.S.C. 248a(b)) is

5 amended—

6 (i) by redesignating paragraphs (7)

7 and (8) as paragraphs (8) and (9), respec8 tively; and

9 (ii) by inserting after paragraph (6)

10 the following:

11 ‘‘(7) transportation of paper checks in the

12 clearing process;’’.

13 (B) PUBLICATION OF REVISED SCHED14 ULE.—Not later than 60 days after the date of

15 enactment of this Act, the Board of Governors

16 of the Federal Reserve System shall publish a

17 revision of the schedule of fees required under

18 section 11A of the Federal Reserve Act that re19 flects the changes made in the schedule in ac20 cordance with the amendments made by sub21 paragraph (A) of this paragraph.

22 (2) CLARIFICATION OF APPLICABLE PRICING

23 CRITERIA.—Section 11A(c) of the Federal Reserve

24 Act (12 U.S.C. 248a(c)) is amended by striking

25 paragraph (3) and inserting the following:
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1 ‘‘(3)(A) In each fiscal year, fees shall be estab2 lished for each service provided by the Federal re3 serve banks on the basis of all direct and indirect

4 costs actually incurred (excluding the effect of any

5 pension cost credit) in providing each of the services,

6 including interest on items credited prior to actual

7 collection, overhead, and an allocation of imputed

8 costs, which takes into account the taxes that would

9 have been paid and the return on capital that would

10 have been provided had the services been provided

11 by a private business firm.

12 ‘‘(B) The pricing principles referred to in sub13 paragraph (A) shall be carried out with due regard

14 to competitive factors and the provision of an ade15 quate level of such services nationwide.

16 ‘‘(C)(i) Not later than 1 year after the date of

17 enactment of the Financial Services Modernization

18 Act of 1999, and not less frequently than once every

19 3 years thereafter, the Board shall conduct a com20 prehensive review of the methodology used to cal21 culate the private sector adjustment factor pursuant

22 to section 11A(c)(3), including a public notice and

23 comment period.

24 ‘‘(ii) In conducting the review under clause (i),

25 the Board shall publish in the Federal Register all
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1 elements of the methodology in use by the Board in

2 the calculation of the private sector adjustment fac3 tor pursuant to section 11A(c)(3) provide notice and

4 solicit public comment on the methodology, request5 ing commentators to identify areas of the method6 ology that are outdated, inappropriate, unnecessary,

7 or that contribute to an inaccurate result in the cal8 culation of the private sector adjustment factor.

9 ‘‘(iii) The Board shall—

10 ‘‘(I) publish in the Federal Register a sum11 mary of the comments received under this sub12 paragraph, identifying significant issues raised;

13 and

14 ‘‘(II) provide comment on such issues and

15 make changes to the methodology to the extent

16 that the Board considers to be appropriate.

17 ‘‘(iv) Not later than 30 days after the comple18 tion of each review under clause (i), the Board shall

19 submit to Congress a report which shall include—

20 ‘‘(I) a summary of any significant issues

21 raised by public comments received by the

22 Board under this subparagraph and the relative

23 merits of such issues; and

24 ‘‘(II) an analysis of whether the Board is

25 able to address the concerns raised, or whether
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1 such concerns should be addressed by legisla2 tion.’’.

3 SEC. 318. STUDY AND REPORT ON ADVERTISING PRAC4 TICES OF ONLINE BROKERAGE SERVICES.

5 (a) STUDY.—The Securities and Exchange Commis6 sion (hereafter in this section referred to as the ‘‘Commis7 sion’’), in consultation with the National Association of

8 Securities Dealers and other interested parties, shall con9 duct a study of—

10 (1) the nature and content of advertising by on11 line brokerage services in all media, including tele12 vision, on the Internet, radio, and in print;

13 (2) if such advertising influences investors and

14 potential investors to make investment decisions,

15 and if such advertising improperly influences those

16 investors and potential investors to make inappro17 priate investment decisions;

18 (3) whether such advertising properly discloses

19 the risks associated with trading and investing in

20 the capital markets; and

21 (4) whether—

22 (A) there are appropriate regulatory mech23 anisms in place to prevent any improper or de24 ceptive advertising; and
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1 (B) the Commission has or needs addi2 tional resources or authority to actively partici3 pate in such regulation.

4 (b) REPORT.—Not later than 180 days after the date

5 of enactment of this Act, the Commission shall submit a

6 report to the Congress on the results of the study con7 ducted under subsection (a), together with any rec8 ommendations for changes that it considers necessary to

9 protect investors and potential investors from improper or

10 deceptive advertising.

11 SEC. 319. ELIGIBILITY OF COMMUNITY DEVELOPMENT FI12 NANCIAL INSTITUTION TO BORROW FROM

13 THE FEDERAL HOME LOAN BANK SYSTEM.

14 Section 10b of the Federal Home Loan Bank Act (12

15 U.S.C. 1430b) is amended—

16 (1) in subsection (a) by striking the second sen17 tence and inserting the following two sentences:

18 ‘‘Such mortgagees must be (i) chartered institutions

19 having succession and (ii) subject to the inspection

20 and supervision of some governmental agency or a

21 community development financial institution (other

22 than an insured depository institution or a sub23 sidiary thereof) that, at the time the advance is

24 made, is certified under the Community Develop25 ment Banking and Financial Institutions Act of
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1 1994. The principal activity of such mortgagees in

2 the mortgage field must consist of lending their own

3 funds and any advances may be subject to the same

4 collateralization requirements as applied to other

5 nonmember borrowers.’’;

6 (2) in the last sentence of subsection (a) by re7 placing the word ‘‘such’’ with ‘‘the same’’ and by re8 placing the phrase ‘‘shall be determined by the

9 board’’ with the phrase ‘‘are comparable extensions

10 of credit to members’’; and

11 (3) in subsection (b) by inserting in the first

12 sentence between the words ‘‘agency’’ and ‘‘for’’ the

13 following phrase: ‘‘or a certified community develop14 ment financial institution’’.

15 TITLE IV—FEDERAL HOME LOAN

16 BANK SYSTEM MODERNIZATION

17 SEC. 401. SHORT TITLE.

18 This title may be cited as the ‘‘Federal Home Loan

19 Bank System Modernization Act of 1999’’.

20 SEC. 402. DEFINITIONS.

21 Section 2 of the Federal Home Loan Bank Act (12

22 U.S.C. 1422) is amended—

23 (1) in paragraph (1), by striking ‘‘term ‘Board’

24 means’’ and inserting ‘‘terms ‘Finance Board’ and

25 ‘Board’ mean’’;
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1 (2) by striking paragraph (3) and inserting the

2 following:

3 ‘‘(3) STATE.—The term ‘State’, in addition to

4 the States of the United States, includes the District

5 of Columbia, Guam, Puerto Rico, the United States

6 Virgin Islands, American Samoa, and the Common7 wealth of the Northern Mariana Islands.’’; and

8 (3) by adding at the end the following new

9 paragraph:

10 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

11 ‘‘(A) IN GENERAL.—The term ‘community

12 financial institution’ means a member—

13 ‘‘(i) the deposits of which are insured

14 under the Federal Deposit Insurance Act;

15 and

16 ‘‘(ii) that has, as of the date of the

17 transaction at issue, less than

18 $500,000,000 in average total assets,

19 based on an average of total assets over

20 the 3 years preceding that date.

21 ‘‘(B) ADJUSTMENTS.—The $500,000,000

22 limit referred to in subparagraph (A)(ii) shall

23 be adjusted annually by the Finance Board,

24 based on the annual percentage increase, if any,

25 in the Consumer Price Index for all urban con-
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1 sumers, as published by the Department of

2 Labor.’’.

3 SEC. 403. SAVINGS ASSOCIATION MEMBERSHIP.

4 (a) FEDERAL HOME LOAN BANK MEMBERSHIP.—

5 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

6 1464(f)) is amended to read as follows:

7 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

8 On and after June 1, 2000, a Federal savings association

9 may become a member of the Federal Home Loan Bank

10 System, and shall qualify for such membership in the

11 manner provided by the Federal Home Loan Bank Act.’’.

12 (b) WITHDRAWAL.—Section 6(e) of the Federal

13 Home Loan Bank Act (12 U.S.C. 1426(e)) is amended

14 by striking ‘‘Any member other than a Federal savings

15 and loan association may withdraw’’ and inserting ‘‘Any

16 member may withdraw if, on the date of withdrawal there

17 is in effect a certification by the Finance Board that the

18 withdrawal will not cause the Federal Home Loan Bank

19 System to fail to meet its obligation under section

20 21B(f)(2)(C) to contribute to the debt service for the obli21 gations issued by the Resolution Funding Corporation’’.

22 SEC. 404. ADVANCES TO MEMBERS; COLLATERAL.

23 (a) IN GENERAL.—Section 10(a) of the Federal

24 Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—
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1 (1) by redesignating paragraphs (1) through

2 (4) as subparagraphs (A) through (D), respectively,

3 and indenting appropriately;

4 (2) by striking ‘‘(a) Each’’ and inserting the

5 following:

6 ‘‘(a) IN GENERAL.—

7 ‘‘(1) ALL ADVANCES.—Each’’;

8 (3) by striking the second sentence and insert9 ing the following:

10 ‘‘(2) PURPOSES OF ADVANCES.—A long-term

11 advance may only be made for the purposes of—

12 ‘‘(A) providing funds to any member for

13 residential housing finance; and

14 ‘‘(B) providing funds to any community fi15 nancial institution for small businesses, small

16 farms, and small agri-businesses.’’;

17 (4) by striking ‘‘A Bank’’ and inserting the fol18 lowing:

19 ‘‘(3) COLLATERAL.—A Bank’’;

20 (5) in paragraph (3) (as so designated by para21 graph (4) of this subsection)—

22 (A) in subparagraph (C) (as so redesig23 nated by paragraph (1) of this subsection) by

24 striking ‘‘Deposits’’ and inserting ‘‘Cash or de25 posits’’;
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1 (B) in subparagraph (D) (as so redesig2 nated by paragraph (1) of this subsection), by

3 striking the second sentence; and

4 (C) by inserting after subparagraph (D)

5 (as so redesignated by paragraph (1) of this

6 subsection) the following new subparagraph:

7 ‘‘(E) Secured loans for small business, ag8 riculture, or securities representing a whole in9 terest in such secured loans, in the case of any

10 community financial institution.’’;

11 (6) in paragraph (5)—

12 (A) in the second sentence, by striking

13 ‘‘and the Board’’;

14 (B) in the third sentence, by striking

15 ‘‘Board’’ and inserting ‘‘Federal Home Loan

16 Bank’’; and

17 (C) by striking ‘‘(5) Paragraphs (1)

18 through (4)’’ and inserting the following:

19 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara20 graphs (A) through (E) of paragraph (3)’’; and

21 (7) by adding at the end the following:

22 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND23 ARDS.—The Board may review the collateral stand24 ards applicable to each Federal Home Loan Bank

25 for the classes of collateral described in subpara-
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1 graphs (D) and (E) of paragraph (3), and may, if

2 necessary for safety and soundness purposes, require

3 an increase in the collateral standards for any or all

4 of those classes of collateral.

5 ‘‘(6) DEFINITIONS.—For purposes of this sub6 section, the terms ‘small business’, ‘agriculture’,

7 ‘small farm’, and ‘small agri-business’ shall have the

8 meanings given those terms by rule or regulation of

9 the Finance Board.’’.

10 (b) CLERICAL AMENDMENT.—The section heading

11 for section 10 of the Federal Home Loan Bank Act (12

12 U.S.C. 1430) is amended to read as follows:

13 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

14 SEC. 405. ELIGIBILITY CRITERIA.

15 Section 4(a) of the Federal Home Loan Bank Act

16 (12 U.S.C. 1424(a)) is amended—

17 (1) in paragraph (2)(A), by inserting, ‘‘(other

18 than a community financial institution)’’ after ‘‘in19 stitution’’;

20 (2) in the matter immediately following para21 graph (2)(C)—

22 (A) by striking ‘‘An insured’’ and inserting

23 the following:

24 ‘‘(3) CERTAIN INSTITUTIONS.—An insured’’;

25 and
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1 (B) by striking ‘‘preceding sentence’’ and

2 inserting ‘‘paragraph (2)’’; and

3 (3) by adding at the end the following new

4 paragraph:

5 ‘‘(4) LIMITED EXEMPTION FOR COMMUNITY FI6 NANCIAL INSTITUTIONS.—A community financial in7 stitution that otherwise meets the requirements of

8 paragraph (2) may become a member without regard

9 to the percentage of its total assets that is rep10 resented by residential mortgage loans, as described

11 in subparagraph (A) of paragraph (2).’’.

12 SEC. 406. MANAGEMENT OF BANKS.

13 (a) BOARD OF DIRECTORS.—Section 7(d) of the Fed14 eral Home Loan Bank Act (12 U.S.C. 1427(d)) is

15 amended—

16 (1) by striking ‘‘(d) The term’’ and inserting

17 the following:

18 ‘‘(d) TERMS OF OFFICE.—The term’’; and

19 (2) by striking ‘‘shall be two years’’.

20 (b) COMPENSATION.—Section 7(i) of the Federal

21 Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by

22 striking ‘‘subject to the approval of the board’’.

23 (c) REPEAL OF SECTIONS 22A AND 27.—The Fed24 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is
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1 amended by striking sections 22A (12 U.S.C. 1442a) and

2 27 (12 U.S.C. 1447).

3 (d) SECTION 12.—Section 12 of the Federal Home

4 Loan Bank Act (12 U.S.C. 1432) is amended—

5 (1) in subsection (a)—

6 (A) by striking ‘‘, but, except’’ and all that

7 follows through ‘‘ten years’’;

8 (B) by striking ‘‘subject to the approval of

9 the Board’’ each place that term appears;

10 (C) by striking ‘‘and, by its Board of direc11 tors,’’ and all that follows through ‘‘agent of

12 such bank,’’ and inserting ‘‘and, by the board

13 of directors of the Bank, to prescribe, amend,

14 and repeal by-laws governing the manner in

15 which its affairs may be administered, con16 sistent with applicable laws and regulations, as

17 administered by the Finance Board. No officer,

18 employee, attorney, or agent of a Federal Home

19 Loan Bank’’; and

20 (D) by striking ‘‘Board of directors’’ each

21 place that term appears and inserting ‘‘board of

22 directors’’; and

23 (2) in subsection (b), by striking ‘‘loans banks’’

24 and inserting ‘‘loan banks’’.
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1 (e) POWERS AND DUTIES OF FEDERAL HOUSING FI2 NANCE BOARD.—

3 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

4 Section 2B(a) of the Federal Home Loan Bank Act

5 (12 U.S.C. 1422b(a)) is amended by adding at the

6 end the following new paragraphs:

7 ‘‘(5) To issue and serve a notice of charges

8 upon a Federal Home Loan Bank or upon any exec9 utive officer or director of a Federal Home Loan

10 Bank if, in the determination of the Finance Board,

11 the Bank, executive officer, or director is engaging

12 or has engaged in, or the Finance Board has reason13 able cause to believe that the Bank, executive officer,

14 or director is about to engage in, any conduct that

15 violates any provision of this Act or any law, order,

16 rule, or regulation or any condition imposed in writ17 ing by the Finance Board in connection with the

18 granting of any application or other request by the

19 Bank, or any written agreement entered into by the

20 Bank with the agency, in accordance with the proce21 dures provided in section 1371(c) of the Federal

22 Housing Enterprises Financial Safety and Sound23 ness Act of 1992. Such authority includes the same

24 authority to take affirmative action to correct condi25 tions resulting from violations or practices or to
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1 limit activities of a Bank or any executive officer or

2 director of a Bank as appropriate Federal banking

3 agencies have to take with respect to insured deposi4 tory institutions under paragraphs (6) and (7) of

5 section 8(b) of the Federal Deposit Insurance Act,

6 and to have all other powers, rights, and duties to

7 enforce this Act with respect to the Federal Home

8 Loan Banks and their executive officers and direc9 tors as the Office of Federal Housing Enterprise

10 Oversight has to enforce the Federal Housing Enter11 prises Financial Safety and Soundness Act of 1992,

12 the Federal National Mortgage Association Charter

13 Act, or the Federal Home Loan Mortgage Corpora14 tion Act with respect to the Federal housing enter15 prises under the Federal Housing Enterprises Fi16 nancial Safety and Soundness Act of 1992.

17 ‘‘(6) To sue and be sued, by and through its

18 own attorneys.’’.

19 (2) TECHNICAL AMENDMENT.—Section 111 of

20 Public Law 93–495 (12 U.S.C. 250) is amended by

21 inserting ‘‘Federal Housing Finance Board,’’ after

22 ‘‘Director of the Office of Thrift Supervision,’’.

23 (f) ELIGIBILITY TO SECURE ADVANCES.—
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1 (1) SECTION 9.—Section 9 of the Federal

2 Home Loan Bank Act (12 U.S.C. 1429) is

3 amended—

4 (A) in the second sentence, by striking

5 ‘‘with the approval of the Board’’; and

6 (B) in the third sentence, by striking ‘‘,

7 subject to the approval of the Board,’’.

8 (2) SECTION 10.—Section 10 of the Federal

9 Home Loan Bank Act (12 U.S.C. 1430) is

10 amended—

11 (A) in subsection (c)—

12 (i) in the first sentence, by striking

13 ‘‘Board’’ and inserting ‘‘Federal Home

14 Loan Bank’’; and

15 (ii) in the second sentence, by striking

16 ‘‘held by’’ and all that follows before the

17 period; and

18 (B) in subsection (d)—

19 (i) in the first sentence, by striking

20 ‘‘and the approval of the Board’’; and

21 (ii) by striking ‘‘Subject to the ap22 proval of the Board, any’’ and inserting

23 ‘‘Any’’.

24 (g) SECTION 16.—Section 16(a) of the Federal Home

25 Loan Bank Act (12 U.S.C. 1436(a)) is amended—
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1 (1) in the third sentence—

2 (A) by striking ‘‘net earnings’’ and insert3 ing ‘‘previously retained earnings or current net

4 earnings’’; and

5 (B) by striking ‘‘, and then only with the

6 approval of the Federal Housing Finance

7 Board’’; and

8 (2) by striking the fourth sentence.

9 (h) SECTION 18.—Section 18(b) of the Federal Home

10 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik11 ing paragraph (4).

12 SEC. 407. RESOLUTION FUNDING CORPORATION.

13 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed14 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

15 amended to read as follows:

16 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

17 BANKS.—

18 ‘‘(i) IN GENERAL.—To the extent that

19 the amounts available pursuant to sub20 paragraphs (A) and (B) are insufficient to

21 cover the amount of interest payments,

22 each Federal Home Loan Bank shall pay

23 to the Funding Corporation in each cal24 endar year, 20.75 percent of the net earn25 ings of that Bank (after deducting ex-
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1 penses relating to section 10(j) and oper2 ating expenses).

3 ‘‘(ii) ANNUAL DETERMINATION.—The

4 Board annually shall determine the extent

5 to which the value of the aggregate

6 amounts paid by the Federal Home Loan

7 Banks exceeds or falls short of the value of

8 an annuity of $300,000,000 per year that

9 commences on the issuance date and ends

10 on the final scheduled maturity date of the

11 obligations, and shall select appropriate

12 present value factors for making such de13 terminations.

14 ‘‘(iii) PAYMENT TERM ALTER15 ATIONS.—The Board shall extend or short16 en the term of the payment obligations of

17 a Federal Home Loan Bank under this

18 subparagraph as necessary to ensure that

19 the value of all payments made by the

20 Banks is equivalent to the value of an an21 nuity referred to in clause (ii).

22 ‘‘(iv) TERM BEYOND MATURITY.—If

23 the Board extends the term of payment ob24 ligations beyond the final scheduled matu25 rity date for the obligations, each Federal
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1 Home Loan Bank shall continue to pay

2 20.75 percent of its net earnings (after de3 ducting expenses relating to section 10(j)

4 and operating expenses) to the Treasury of

5 the United States until the value of all

6 such payments by the Federal Home Loan

7 Banks is equivalent to the value of an an8 nuity referred to in clause (ii). In the final

9 year in which the Federal Home Loan

10 Banks are required to make any payment

11 to the Treasury under this subparagraph,

12 if the dollar amount represented by 20.75

13 percent of the net earnings of the Federal

14 Home Loan Banks exceeds the remaining

15 obligation of the Banks to the Treasury,

16 the Finance Board shall reduce the per17 centage pro rata to a level sufficient to pay

18 the remaining obligation.’’.

19 (b) EFFECTIVE DATE.—The amendment made by

20 subsection (a) shall become effective on June 1, 2000.

21 Payments made by a Federal Home Loan Bank before

22 that effective date shall be counted toward the total obliga23 tion of that Bank under section 21B(f)(2)(C) of the Fed24 eral Home Loan Bank Act, as amended by this section.
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1 SEC. 408. GAO STUDY ON FEDERAL HOME LOAN BANK SYS2 TEM CAPITAL.

3 (a) STUDY.—The Comptroller General of the United

4 States shall conduct a study of—

5 (1) possible revisions to the capital structure of

6 the Federal Home Loan Bank System, including the

7 need for—

8 (A) more permanent capital;

9 (B) a statutory leverage ratio; and

10 (C) a risk-based capital structure; and

11 (2) what impact such revisions might have on

12 the operations of the Federal Home Loan Bank Sys13 tem, including the obligation of the Federal Home

14 Loan Bank System under section 21B(f)(2)(C) of

15 the Federal Home Loan Bank Act.

16 (b) REPORT TO CONGRESS.—Not later than 1 year

17 after the date of enactment of this Act, the Comptroller

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

19 Congress on the results of the study conducted under sub20 section (a).

21 TITLE V—FUNCTIONAL REGULA22 TION OF BROKERS AND DEAL23 ERS

24 SEC. 501. DEFINITION OF BROKER.

25 (a) It is the intention of this Act subject to carefully

26 defined exceptions which do not undermine the dominant
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1 principle of functional regulation to ensure that securities

2 transactions effected by a bank are regulated by securities

3 regulators, notwithstanding any other provision of this

4 Act.

5 (b) Section 3(a)(4) of the Securities Exchange Act

6 of 1934 (15 U.S.C. 78c(a)(4)) is amended to read as fol7 lows:

8 ‘‘(4) BROKER.—

9 ‘‘(A) IN GENERAL.—The term ‘broker’

10 means any person engaged in the business of

11 effecting transactions in securities for the ac12 count of others.

13 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC14 TIVITIES.—A bank shall not be considered to be

15 a broker because the bank engages in any of

16 the following activities under the conditions de17 scribed:

18 ‘‘(i) THIRD PARTY BROKERAGE AR19 RANGEMENTS.—The bank enters into a

20 contractual or other arrangement with a

21 broker or dealer registered under this title

22 under which the broker or dealer offers

23 brokerage services on or off the premises

24 of the bank, if—
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1 ‘‘(I) such broker or dealer is

2 clearly identified as the person per3 forming the brokerage services;

4 ‘‘(II) the broker or dealer per5 forms brokerage services in an area of

6 the bank that is clearly marked and,

7 to the extent practicable, physically

8 separate from the routine deposit-tak9 ing activities of the bank;

10 ‘‘(III) any materials used by the

11 bank to advertise or promote generally

12 the availability of brokerage services

13 under the contractual or other ar14 rangement clearly indicate that the

15 brokerage services are being provided

16 by the broker or dealer and not by the

17 bank;

18 ‘‘(IV) any materials used by the

19 bank to advertise or promote generally

20 the availability of brokerage services

21 under the contractual or other ar22 rangement are in compliance with the

23 Federal securities laws before dis24 tribution;
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1 ‘‘(V) bank employees (other than

2 associated persons of a broker or deal3 er who are qualified pursuant to the

4 rules of a self-regulatory organization)

5 perform only clerical or ministerial

6 functions in connection with broker7 age transactions including scheduling

8 appointments with the associated per9 sons of a broker or dealer, except that

10 bank employees may forward cus11 tomer funds or securities and may de12 scribe in general terms the range of

13 investment vehicles available from the

14 bank and the broker or dealer under

15 the contractual or other arrangement;

16 ‘‘(VI) bank employees do not di17 rectly receive incentive compensation

18 for any brokerage transaction, unless

19 such employees are associated persons

20 of a broker or dealer and are qualified

21 pursuant to the rules of a self-regu22 latory organization, except that the

23 bank employees may receive com24 pensation for the referral of any cus25 tomer if the compensation is a nomi-
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1 nal one-time cash fee of a fixed dollar

2 amount and the payment of the fee is

3 not contingent on whether the referral

4 results in a transaction;

5 ‘‘(VII) such services are provided

6 by the broker or dealer on a basis in

7 which all customers that receive any

8 services are fully disclosed to the

9 broker or dealer;

10 ‘‘(VIII) the bank does not carry

11 a securities account of the customer,

12 except in a customary custodian or

13 trustee capacity; and

14 ‘‘(IX) the bank, broker, or dealer

15 informs each customer that the bro16 kerage services are provided by the

17 broker or dealer and not by the bank,

18 and that the securities are not depos19 its or other obligations of the bank,

20 are not guaranteed by the bank, and

21 are not insured by the Federal De22 posit Insurance Corporation.

23 ‘‘(ii) TRUST ACTIVITIES.—The bank

24 effects transactions in a trustee capacity,

25 or effects transactions in a fiduciary capac-
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1 ity in its trust department or other depart2 ment that is regularly examined by bank

3 examiners for compliance with fiduciary

4 principles and standards, and does not

5 publicly solicit brokerage business, other

6 than by advertising that it effects trans7 actions in securities in conjunction with

8 advertising its other trust activities.

9 ‘‘(iii) PERMISSIBLE SECURITIES

10 TRANSACTIONS.—The bank effects trans11 actions in—

12 ‘‘(I) commercial paper, bankers

13 acceptances, or commercial bills;

14 ‘‘(II) exempted securities;

15 ‘‘(III) qualified Canadian Gov16 ernment obligations, as defined in sec17 tion 5136 of the Revised Statutes of

18 the United States, in conformity with

19 section 15C of this title and the rules

20 and regulations thereunder, or obliga21 tions of the North American Develop22 ment Bank; or

23 ‘‘(IV) any standardized, credit

24 enhanced debt security issued by a

25 foreign government pursuant to the
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1 March 1989 plan of then Secretary of

2 the Treasury Brady, used by such for3 eign government to retire outstanding

4 commercial bank loans.

5 ‘‘(iv) CERTAIN STOCK PURCHASE

6 PLANS.—

7 ‘‘(I) EMPLOYEE BENEFIT

8 PLANS.—The bank effects trans9 actions, as part of its transfer agency

10 activities, in the securities of an issuer

11 as part of any pension, retirement,

12 profit-sharing, bonus, thrift, savings,

13 incentive, or other similar benefit plan

14 for the employees of that issuer or its

15 subsidiaries, if the bank does not so16 licit transactions or provide invest17 ment advice with respect to the pur18 chase or sale of securities in connec19 tion with the plan.

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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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; and

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.

11 ‘‘(III) ISSUER PLANS.—The bank

12 effects transactions, as part of its

13 transfer agency activities, in the secu14 rities of an issuer as part of a plan or

15 program for the purchase or sale of

16 that issuer’s shares, if—

17 ‘‘(aa) the bank does not so18 licit transactions or provide in19 vestment advice with respect to

20 the purchase or sale of securities

21 in connection with the plan or

22 program; and

23 ‘‘(bb) the bank does not net

24 shareholders’ buy and sell orders,

25 other than for programs for odd-
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1 lot holders or plans registered

2 with the Commission.

3 ‘‘(IV) PERMISSIBLE DELIVERY

4 OF MATERIALS.—The exception to

5 being considered a broker for a bank

6 engaged in activities described in sub7 clauses (I), (II), and (III) will not be

8 affected by delivery of written or elec9 tronic plan materials by a bank to em10 ployees of the issuer, shareholders of

11 the issuer, or members of affinity

12 groups of the issuer, so long as such

13 materials are—

14 ‘‘(aa) comparable in scope or

15 nature to that permitted by the

16 Commission as of the date of the

17 enactment of the Financial Serv18 ices Modernization Act of 1999;

19 or

20 ‘‘(bb) otherwise permitted by

21 the Commission.

22 ‘‘(v) SWEEP ACCOUNTS.—The bank

23 effects transactions as part of a program

24 for the investment or reinvestment of bank

25 deposit funds into any no-load, open-end
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1 management investment company reg2 istered under the Investment Company Act

3 of 1940 that holds itself out as a money

4 market fund.

5 ‘‘(vi) AFFILIATE TRANSACTIONS.—

6 The bank effects transactions for the ac7 count of any affiliate of the bank (as de8 fined in section 2 of the Bank Holding

9 Company Act of 1956) other than—

10 ‘‘(I) a registered broker or deal11 er; or

12 ‘‘(II) an affiliate that is engaged

13 in merchant banking, as described in

14 section 4(k)(4)(H) of the Bank Hold15 ing Company Act of 1956.

16 ‘‘(vii) PRIVATE SECURITIES OFFER17 INGS.—The bank effects sales as part of a

18 primary offering of securities not involving

19 a public offering, pursuant to section 3(b),

20 4(2), or 4(6) of the Securities Act of 1933,

21 or the rules and regulations issued there22 under.

23 ‘‘(viii) SAFEKEEPING AND CUSTODY

24 ACTIVITIES.—
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1 ‘‘(I) IN GENERAL.—The bank, as

2 part of customary banking activities—

3 ‘‘(aa) provides safekeeping

4 or custody services with respect

5 to securities, including the exer6 cise of warrants and other rights

7 on behalf of customers;

8 ‘‘(bb) facilitates the transfer

9 of funds or securities, as a custo10 dian or a clearing agency, in con11 nection with the clearance and

12 settlement of its customers’

13 transactions in securities;

14 ‘‘(cc) effects securities lend15 ing or borrowing transactions

16 with or on behalf of customers as

17 part of services provided to cus18 tomers pursuant to division (aa)

19 or (bb) or invests cash collateral

20 pledged in connection with such

21 transactions; or

22 ‘‘(dd) holds securities

23 pledged by a customer to another

24 person or securities subject to

25 purchase or resale agreements in-
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1 volving a customer, or facilitates

2 the pledging or transfer of such

3 securities by book entry or as

4 otherwise provided under applica5 ble law.

6 ‘‘(II) EXCEPTION FOR CARRYING

7 BROKER ACTIVITIES.—The exception

8 to being considered a broker for a

9 bank engaged in activities described in

10 subclause (I) shall not apply if the

11 bank, in connection with such activi12 ties, acts in the United States as a

13 carrying broker (as such term, and

14 different formulations thereof, are

15 used in section 15(c)(3) and the rules

16 and regulations thereunder) for any

17 broker or dealer, unless such carrying

18 broker activities are engaged in with

19 respect to government securities (as

20 defined in paragraph (42) of this sub21 section).

22 ‘‘(ix) BANKING PRODUCTS.—The bank

23 effects transactions in traditional banking

24 products, as defined in section 503(a) of
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1 the Financial Services Modernization Act

2 of 1999.

3 ‘‘(x) DE MINIMIS EXCEPTION.—The

4 bank effects, other than in transactions re5 ferred to in clauses (i) through (ix), not

6 more than 500 transactions in securities in

7 any calendar year, and such transactions

8 are not effected by an employee of the

9 bank who is also an employee of a broker

10 or dealer.

11 ‘‘(C) EXECUTION BY BROKER OR DEAL12 ER.—The exception to being considered a

13 broker for a bank engaged in activities de14 scribed in clauses (ii), (iv), and (viii) of sub15 paragraph (B) shall not apply if the activities

16 described in such provisions result in the trade

17 in the United States of any security that is a

18 publicly traded security in the United States,

19 unless—

20 ‘‘(i) the bank directs such trade to a

21 registered broker or dealer for execution;

22 ‘‘(ii) the trade is a cross trade or

23 other substantially similar trade of a secu24 rity that—
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1 ‘‘(I) is made by the bank or be2 tween the bank and an affiliated fidu3 ciary; and

4 ‘‘(II) is not in contravention of

5 fiduciary principles established under

6 applicable Federal or State law; or

7 ‘‘(iii) the trade is conducted in some

8 other manner permitted under such rules,

9 regulations, or orders as the Commission

10 may prescribe or issue.

11 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS

12 ON OTHER COMMISSION AUTHORITY.—The ex13 ception to being considered a broker for a bank

14 engaged in activities described in subpara15 graphs (B) and (C) shall not affect the author16 ity of the Commission under any other provi17 sion of this title or any other securities law.

18 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

19 of subparagraph (B)(ii) of this paragraph and

20 paragraph (5)(C), the term ‘fiduciary capacity’

21 means—

22 ‘‘(i) in the capacity as trustee, execu23 tor, administrator, registrar of stocks and

24 bonds, transfer agent, guardian, assignee,

25 receiver, or custodian, either under a uni-
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1 form gift to minor act or for an individual

2 retirement account, or as an investment

3 adviser if the bank receives a fee for its in4 vestment advice or services, or as a service

5 provider to any pension, retirement, profit

6 sharing, bonus, thrift, savings, incentive,

7 or other similar benefit plan;

8 ‘‘(ii) in any capacity in which the

9 bank possesses investment discretion on

10 behalf of another; or

11 ‘‘(iii) in any other similar capacity.

12 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT

13 TO SECTION 15(e).—The term ‘broker’ does not

14 include a bank that—

15 ‘‘(i) was, on the day before the date of

16 enactment of the Financial Services Mod17 ernization Act of 1999, subject to section

18 15(e); and

19 ‘‘(ii) is subject to such restrictions

20 and requirements as the Commission con21 siders appropriate.’’.

22 SEC. 502. DEFINITION OF DEALER.

23 Section 3(a)(5) of the Securities Exchange Act of

24 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

25 ‘‘(5) DEALER.—
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1 ‘‘(A) IN GENERAL.—The term ‘dealer’

2 means any person engaged in the business of

3 buying and selling securities for such person’s

4 own account through a broker or otherwise.

5 ‘‘(B) EXCEPTION FOR PERSON NOT EN6 GAGED IN THE BUSINESS OF DEALING.—The

7 term ‘dealer’ does not include a person that

8 buys or sells securities for such person’s own

9 account, either individually or in a fiduciary ca10 pacity, but not as a part of a regular business.

11 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC12 TIVITIES.—A bank shall not be considered to be

13 a dealer because the bank engages in any of the

14 following activities under the conditions de15 scribed:

16 ‘‘(i) PERMISSIBLE SECURITIES TRANS17 ACTIONS.—The bank buys or sells—

18 ‘‘(I) commercial paper, bankers

19 acceptances, or commercial bills;

20 ‘‘(II) exempted securities;

21 ‘‘(III) qualified Canadian govern22 ment obligations as defined in section

23 5136 of the Revised Statutes of the

24 United States, in conformity with sec25 tion 15C of this title and the rules
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1 and regulations thereunder, or obliga2 tions of the North American Develop3 ment Bank; or

4 ‘‘(IV) any standardized, credit

5 enhanced debt security issued by a

6 foreign government pursuant to the

7 March 1989 plan of then Secretary of

8 the Treasury Brady, used by such for9 eign government to retire outstanding

10 commercial bank loans.

11 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI12 DUCIARY TRANSACTIONS.—The bank buys

13 or sells securities for investment

14 purposes—

15 ‘‘(I) for the bank; or

16 ‘‘(II) for accounts for which the

17 bank acts in a trustee capacity or fi18 duciary capacity.

19 ‘‘(iii) ASSET-BACKED TRANS20 ACTIONS.—The bank engages in the

21 issuance or sale to qualified investors,

22 through a grantor trust or otherwise, of se23 curities backed by or representing an inter24 est in notes, drafts, acceptances, loans,

25 leases, receivables, other obligations, or
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1 pools of any such obligations predomi2 nantly originated by the bank, or a syn3 dicate of banks of which the bank is a

4 member, or an affiliate of any such bank

5 other than a broker or dealer.

6 ‘‘(iv) BANKING PRODUCTS.—The bank

7 buys or sells traditional banking products,

8 as defined in section 503(a) of the Finan9 cial Services Modernization Act of 1999.’’.

10 SEC. 503. DEFINITION AND TREATMENT OF BANKING PROD11 UCTS.

12 (a) DEFINITION OF TRADITIONAL BANKING PROD13 UCT.—For purposes of this title and paragraphs (4) and

14 (5) of section 3(a) of the Securities Exchange Act of 1934

15 (15 U.S.C. 78c(a)(4), (5)), as amended by this title, the

16 term ‘‘traditional banking product’’ means—

17 (1) a deposit account, savings account, certifi18 cate of deposit, or other deposit instrument issued

19 by a bank;

20 (2) a banker’s acceptance;

21 (3) a letter of credit issued or loan made by a

22 bank;

23 (4) a debit account at a bank arising from a

24 credit card or similar arrangement;
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1 (5) a participation in a loan which the bank or

2 an affiliate of the bank (other than a broker or deal3 er) funds, participates in, or owns that is sold—

4 (A) to qualified investors; or

5 (B) to other persons that—

6 (i) have the opportunity to review and

7 assess any material information, including

8 information regarding the borrower’s cred9 itworthiness; and

10 (ii) based on such factors as financial

11 sophistication, net worth, and knowledge

12 and experience in financial matters, have

13 the capability to evaluate the information

14 available, as determined under generally

15 applicable banking standards or guidelines;

16 and

17 (6) any swap agreement (as defined in section

18 11(e)(8)(D)(vi) of the Federal Deposit Insurance

19 Act), including credit swaps and equity swaps, un20 less the appropriate Federal banking agency deter21 mines that credit swaps and equity swaps shall not

22 be included in the definition of such term.

23 (b) TRANSACTIONS INVOLVING HYBRID PROD24 UCTS.—
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1 (1) COMMISSION AUTHORITY.—The Commission

2 may, with the concurrence of the Board, determine,

3 by regulation published in the Federal Register, that

4 a bank that effects transactions in, or buys or sells,

5 a new product should be subject to the registration

6 requirements of this section.

7 (2) LIMITATION.—The Commission may not

8 impose the registration requirements of this section

9 on any bank that effects transactions in, or buys or

10 sells, a product under this subsection unless the

11 Commission, with the concurrence of the Board, de12 termines in the regulations described in paragraph

13 (1) that—

14 (A) the subject product is a new product;

15 (B) the subject product is a security; and

16 (C) imposing the registration requirements

17 of this section is necessary or appropriate in the

18 public interest and for the protection of inves19 tors.

20 (c) CLASSIFICATION LIMITED.—Classification of a

21 particular product or instrument as a traditional banking

22 product pursuant to this section shall not be construed

23 as finding or implying that such product or instrument

24 is or is not a security for any purpose under the securities

25 laws, or is or is not an account, agreement, contract, or
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1 transaction for any purpose under the Commodity Ex2 change Act.

3 (d) NO LIMITATION ON OTHER AUTHORITY TO

4 CHALLENGE.—Nothing in this section shall affect the

5 right or authority of the Board, any appropriate Federal

6 banking agency, or any interested party under any other

7 provision of law to object to or seek judicial review as to

8 whether a product or instrument is or is not appropriately

9 classified as a traditional banking product under sub10 section (a).

11 (e) OTHER DEFINITIONS.—For purposes of this

12 section—

13 (1) the term ‘‘appropriate Federal banking

14 agency’’ has the same meaning as in section 3 of the

15 Federal Deposit Insurance Act;

16 (2) the term ‘‘bank’’ has the same meaning as

17 in section 3(a)(6) of the Securities Exchange Act of

18 1934;

19 (3) the term ‘‘Board’’ means the Board of Gov20 ernors of the Federal Reserve System;

21 (4) the term ‘‘Commission’’ means the Securi22 ties and Exchange Commission;

23 (5) the term ‘‘government securities’’ has the

24 same meaning as in section 3(a)(42) of the Securi25 ties Exchange Act of 1934, and, for purposes of this
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1 subsection, commercial paper, bankers acceptances,

2 and commercial bills shall be treated in the same

3 manner as government securities;

4 (6) the term ‘‘new product’’ means a product or

5 instrument offered or provided by a bank that—

6 (i) was not subject to regulation by the

7 Commission as a security under the Federal se8 curities laws before the date of enactment of

9 this Act; and

10 (ii) is not a traditional banking product;

11 and

12 (7) the term ‘‘qualified investor’’ has the same

13 meaning as in section 3(a)(54) of the Securities Ex14 change Act of 1934, as added by this title.

15 SEC. 504. QUALIFIED INVESTOR DEFINED.

16 Section 3(a) of the Securities Exchange Act of 1934

17 (15 U.S.C. 78c(a)) is amended by adding at the end the

18 following new paragraphs:

19 ‘‘(54) QUALIFIED INVESTOR.—

20 ‘‘(A) DEFINITION.—The term ‘qualified in21 vestor’ means—

22 ‘‘(i) any investment company reg23 istered with the Commission under section

24 8 of the Investment Company Act of 1940;
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1 ‘‘(ii) any issuer eligible for an exclu2 sion from the definition of ‘investment

3 company’ pursuant to section 3(c)(7) of

4 the Investment Company Act of 1940;

5 ‘‘(iii) any bank (as defined in para6 graph (6)), savings association (as defined

7 in section 3(b) of the Federal Deposit In8 surance Act), broker, dealer, insurance

9 company (as defined in section 2(a)(13) of

10 the Securities Act of 1933), or business de11 velopment company (as defined in section

12 2(a)(48) of the Investment Company Act

13 of 1940);

14 ‘‘(iv) any small business investment

15 company licensed by the Small Business

16 Administration under subsection (c) or (d)

17 of section 301 of the Small Business In18 vestment Act of 1958;

19 ‘‘(v) any State sponsored employee

20 benefit plan, or any other employee benefit

21 plan, within the meaning of the Employee

22 Retirement Income Security Act of 1974,

23 other than an individual retirement ac24 count, if the investment decisions are made

25 by a plan fiduciary, as defined in section
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1 3(21) of that Act, which is either a bank,

2 savings and loan association, insurance

3 company, or registered investment adviser;

4 ‘‘(vi) any trust whose purchases of se5 curities are directed by a person described

6 in clauses (i) through (v) of this subpara7 graph;

8 ‘‘(vii) any market intermediary that is

9 exempt under section 3(c)(2) of the Invest10 ment Company Act of 1940;

11 ‘‘(viii) any associated person of a

12 broker or dealer, other than a natural per13 son;

14 ‘‘(ix) any foreign bank (as defined in

15 section 1(b)(7) of the International Bank16 ing Act of 1978);

17 ‘‘(x) the government of any foreign

18 country;

19 ‘‘(xi) any corporation, company, or

20 partnership that owns and invests on a dis21 cretionary basis, not less than $10,000,000

22 in investments;

23 ‘‘(xii) any natural person who owns

24 and invests on a discretionary basis, not

25 less than $10,000,000 in investments;
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1 ‘‘(xiii) any government or political

2 subdivision, agency, or instrumentality of a

3 government who owns and invests on a dis4 cretionary basis, not less than $50,000,000

5 in investments; or

6 ‘‘(xiv) any multinational or supra7 national entity or any agency or instru8 mentality thereof.

9 ‘‘(B) ADDITIONAL AUTHORITY.—The Com10 mission may, by rule or order, define a ‘quali11 fied investor’ as any other person not described

12 in subparagraph (A), taking into consideration

13 such factors as the financial sophistication of

14 the person, net worth, and knowledge and expe15 rience in financial matters.’’.

16 SEC. 505. GOVERNMENT SECURITIES DEFINED.

17 Section 3(a)(42) of the Securities Exchange Act of

18 1934 (15 U.S.C. 78c(a)(42)) is amended—

19 (1) by striking ‘‘or’’ at the end of subparagraph

20 (C);

21 (2) by striking the period at the end of sub22 paragraph (D) and inserting ‘‘; or’’; and

23 (3) by adding at the end the following new sub24 paragraph:
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1 ‘‘(E) for purposes of section 15C, as ap2 plied to a bank, a qualified Canadian Govern3 ment obligation, as defined in section 5136 of

4 the Revised Statutes of the United States.’’.

5 SEC. 506. EFFECTIVE DATE.

6 This title shall become effective at the end of the 1-

7 year period beginning on the date of enactment of this

8 Act.

9 SEC. 507. RULE OF CONSTRUCTION.

10 Nothing in this title shall supersede, affect, or other11 wise limit the scope and applicability of the Commodity

12 Exchange Act (7 U.S.C. 1 et seq.).

13 TITLE VI—UNITARY SAVINGS

14 AND LOAN HOLDING COMPA15 NIES

16 SEC. 601. PREVENTION OF CREATION OF NEW S&L HOLD17 ING COMPANIES WITH COMMERCIAL AFFILI18 ATES.

19 (a) IN GENERAL.—Section 10(c) of the Home Own20 ers’ Loan Act (12 U.S.C. 1467a(c)) is amended by adding

21 at the end the following new paragraph:

22 ‘‘(9) PREVENTION OF NEW AFFILIATIONS BE23 TWEEN S&L HOLDING COMPANIES AND COMMERCIAL

24 FIRMS.—
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1 ‘‘(A) IN GENERAL.—Notwithstanding para2 graph (3), no company may directly or indi3 rectly, including through any merger, consolida4 tion, or other type of business combination, ac5 quire control of a savings association after May

6 4, 1999, unless the company is engaged, di7 rectly or indirectly (including through a sub8 sidiary other than a savings association), only

9 in activities that are permitted—

10 ‘‘(i) under paragraph (1)(C) or (2) of

11 this subsection; or

12 ‘‘(ii) for financial holding companies

13 under section 4(k) of the Bank Holding

14 Company Act of 1956.

15 ‘‘(B) PREVENTION OF NEW COMMERCIAL

16 AFFILIATIONS.—Notwithstanding paragraph

17 (3), no savings and loan holding company may

18 engage directly or indirectly (including through

19 a subsidiary other than a savings association)

20 in any activity other than as described in

21 clauses (i) and (ii) of subparagraph (A).

22 ‘‘(C) PRESERVATION OF AUTHORITY OF

23 EXISTING UNITARY S&L HOLDING COMPA24 NIES.—Subparagraphs (A) and (B) do not

25 apply with respect to any company that was a
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1 savings and loan holding company on May 4,

2 1999, or that becomes a savings and loan hold3 ing company pursuant to an application pend4 ing before the Office on or before that date, and

5 that—

6 ‘‘(i) meets and continues to meet the

7 requirements of paragraph (3); and

8 ‘‘(ii) continues to control not fewer

9 than 1 savings association that it con10 trolled on May 4, 1999, or that it acquired

11 pursuant to an application pending before

12 the Office on or before that date, or the

13 successor to such savings association.

14 ‘‘(D) CORPORATE REORGANIZATIONS PER15 MITTED.—This paragraph does not prevent a

16 transaction that—

17 ‘‘(i) involves solely a company under

18 common control with a savings and loan

19 holding company from acquiring, directly

20 or indirectly, control of the savings and

21 loan holding company or any savings asso22 ciation that is already a subsidiary of the

23 savings and loan holding company; or

24 ‘‘(ii) involves solely a merger, consoli25 dation, or other type of business combina-
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1 tion as a result of which a company under

2 common control with the savings and loan

3 holding company acquires, directly or indi4 rectly, control of the savings and loan hold5 ing company or any savings association

6 that is already a subsidiary of the savings

7 and loan holding company.

8 ‘‘(E) AUTHORITY TO PREVENT EVA9 SIONS.—The Director may issue interpreta10 tions, regulations, or orders that the Director

11 determines necessary to administer and carry

12 out the purpose and prevent evasions of this

13 paragraph, including a determination that, not14 withstanding the form of a transaction, the

15 transaction would in substance result in a com16 pany acquiring control of a savings association.

17 ‘‘(F) PRESERVATION OF AUTHORITY FOR

18 FAMILY TRUSTS.—Subparagraphs (A) and (B)

19 do not apply with respect to any trust that be20 comes a savings and loan holding company with

21 respect to a savings association, if—

22 ‘‘(i) not less than 85 percent of the

23 beneficial ownership interests in the trust

24 are continuously owned, directly or indi25 rectly, by or for the benefit of members of
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1 the same family, or their spouses, who are

2 lineal descendants of common ancestors

3 who controlled, directly or indirectly, such

4 savings association on May 4, 1999, or a

5 subsequent date, pursuant to an applica6 tion pending before the Office on or before

7 May 4, 1999; and

8 ‘‘(ii) at the time at which such trust

9 becomes a savings and loan holding com10 pany, such ancestors or lineal descendants,

11 or spouses of such descendants, have di12 rectly or indirectly controlled the savings

13 association continuously since May 4,

14 1999, or a subsequent date, pursuant to

15 an application pending before the Office on

16 or before May 4, 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. 602. OPTIONAL CONVERSION OF FEDERAL SAVINGS

22 ASSOCIATIONS.

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 NATIONAL BANK.—Not2 withstanding any other provision of law, any Federal

3 savings association chartered and in operation prior

4 to the date of enactment of the Financial Services

5 Modernization Act of 1999, with branches in one or

6 more States, may convert, at its option, with the ap7 proval of the Comptroller of the Currency, into one

8 or more National banks, each of which may encom9 pass one or more of the branches of the Federal sav10 ings association in one or more States; but only if

11 the resulting National bank or banks will meet any

12 and all financial, management, and capital require13 ments applicable to National banks.’’.

14 TITLE VII—ATM FEE REFORM

15 SEC. 701. SHORT TITLE.

16 This title may be cited as the ‘‘ATM Fee Reform Act

17 of 1999’’.

18 SEC. 702. ELECTRONIC FUND TRANSFER FEE DISCLOSURES

19 AT ANY HOST ATM.

20 Section 904(d) of the Electronic Fund Transfer Act

21 (15 U.S.C. 1693b(d)) is amended by adding at the end

22 the following:

23 ‘‘(3) FEE DISCLOSURES AT AUTOMATED TELL24 ER, MACHINES.—
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1 ‘‘(A) IN GENERAL.—The regulations pre2 scribed under paragraph (1) shall require any

3 automated teller machine operator who imposes

4 a fee on any consumer for providing host trans5 fer services to such consumer to provide notice

6 in accordance with subparagraph (B) to the

7 consumer (at the time the service is provided)

8 of—

9 ‘‘(i) the fact that a fee is imposed by

10 such operator for providing the service;

11 and

12 ‘‘(ii) the amount of any such fee.

13 ‘‘(B) NOTICE REQUIREMENTS.—

14 ‘‘(i) ON THE MACHINE.—The notice

15 required under clause (i) of subparagraph

16 (A) with respect to any fee described in

17 such subparagraph shall be posted in a

18 prominent and conspicuous location on or

19 at the automated teller machine at which

20 the electronic fund transfer is initiated by

21 the consumer; and

22 ‘‘(ii) ON THE SCREEN.—The notice

23 required under clauses (i) and (ii) of sub24 paragraph (A) with respect to any fee de25 scribed in such subparagraph shall appear
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1 on the screen of the automated teller ma2 chine, or on a paper notice issued from

3 such machine, after the transaction is initi4 ated and before the consumer is irrev5 ocably committed to completing the trans6 action.

7 ‘‘(C) PROHIBITION ON FEES NOT PROP8 ERLY DISCLOSED AND EXPLICITLY ASSUMED BY

9 CONSUMER.—No fee may be imposed by any

10 automated teller machine operator in connec11 tion with any electronic fund transfer initiated

12 by a consumer for which a notice is required

13 under subparagraph (A), unless—

14 ‘‘(i) the consumer receives such notice

15 in accordance with subparagraph (B); and

16 ‘‘(ii) the consumer elects to continue

17 in the manner necessary to effect the

18 transaction after receiving such notice.

19 ‘‘(D) DEFINITIONS.—For purposes of this

20 paragraph, the following definitions shall apply:

21 ‘‘(i) ELECTRONIC FUND TRANSFER.—

22 The term ‘electronic fund transfer’ in23 cludes a transaction which involves a bal24 ance inquiry initiated by a consumer in the

25 same manner as an electronic fund trans-
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1 fer, whether or not the consumer initiates

2 a transfer of funds in the course of the

3 transaction.

4 ‘‘(ii) AUTOMATED TELLER MACHINE

5 OPERATOR.—The term ‘automated teller

6 machine operator’ means any person

7 who—

8 ‘‘(I) operates an automated teller

9 machine at which consumers initiate

10 electronic fund transfers; and

11 ‘‘(II) is not the financial institu12 tion which holds the account of such

13 consumer from which the transfer is

14 made.

15 ‘‘(iii) HOST TRANSFER SERVICES.—

16 The term ‘host transfer services’ means

17 any electronic fund transfer made by an

18 automated teller machine operator in con19 nection with a transaction initiated by a

20 consumer at an automated teller machine

21 operated by such operator.’’.

22 SEC. 703. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS

23 WHEN ATM CARD IS ISSUED.

24 Section 905(a) of the Electronic Fund Transfer Act

25 (15 U.S.C. 1693c(a)) is amended—
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1 (1) by striking ‘‘and’’ at the end of paragraph

2 (8);

3 (2) by striking the period at the end of para4 graph (9) and inserting ‘‘; and’’; and

5 (3) by inserting after paragraph (9) the fol6 lowing:

7 ‘‘(10) a notice to the consumer that a fee may

8 be imposed by—

9 ‘‘(A) an automated teller machine operator

10 (as defined in section 904(d)(3)(D)(ii)) if the

11 consumer initiates a transfer from an auto12 mated teller machine which is not operated by

13 the person issuing the card or other means of

14 access; and

15 ‘‘(B) any national, regional, or local net16 work utilized to effect the transaction.’’.

17 SEC. 704. FEASIBILITY STUDY.

18 (a) IN GENERAL.—The Comptroller General of the

19 United States shall conduct a study of the feasibility of

20 requiring, in connection with any electronic and transfer

21 initiated by a consumer through the use of an automated

22 teller machine—

23 (1) a notice to be provided to the consumer be24 fore the consumer is irrevocably committed to com25 pleting the transaction, which clearly states the
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1 amount of any fee which will be imposed upon the

2 consummation of the transaction by—

3 (A) any automated teller machine operator

4 (as defined in section 904(d)(2)(D)(ii) of the

5 Electronic Fund Transfer Act) involved in the

6 transaction;

7 (B) the financial institution holding the ac8 count of the consumer;

9 (C) any national, regional, or local network

10 utilized to effect the transaction; and

11 (D) any other party involved in the trans12 fer; and

13 (2) the consumer to elect to consummate the

14 transaction after receiving the notice described in

15 paragraph (1).

16 (b) FACTORS TO BE CONSIDERED.—In conducting

17 the study required under subsection (a) with regard to the

18 notice requirement described in such subsection, the

19 Comptroller General shall consider the following factors:

20 (1) The availability of appropriate technology.

21 (2) Implementation and operating costs.

22 (3) The competitive impact any such notice re23 quirement would have on various sizes and types of

24 institutions, if implemented.
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1 (4) The period of time which would be reason2 able for implementing any such notice requirement.

3 (5) The extent to which consumers would ben4 efit from any such notice requirement.

5 (6) Any other factor the Comptroller General

6 determines to be appropriate in analyzing the feasi7 bility of imposing any such notice requirement.

8 (c) REPORT TO CONGRESS.—Before the end of the

9 6-month period beginning on the date of the enactment

10 of this Act, the Comptroller General shall submit a report

11 to the Congress containing—

12 (1) the findings and conclusions of the Comp13 troller General in connection with the study required

14 under subsection (a); and

15 (2) the recommendation of the Comptroller

16 General with regard to the question of whether a no17 tice requirement described in subsection (a) should

18 be implemented and, if so, how such requirement

19 should be implemented.

20 SEC. 705. NO LIABILITY IF POSTED NOTICES ARE DAM21 AGED.

22 Section 910 of the Electronic Fund Transfer Act (15

23 U.S.C. 1693h) is amended by adding at the end the fol24 lowing new subsection:
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1 ‘‘(d) EXCEPTION FOR DAMAGED NOTICES.—If the

2 notice required to be posted pursuant to section

3 904(d)(3)(B)(i) by an automated teller machine operator

4 has been posted by such operator in compliance with such

5 section and the notice is subsequently removed, damaged,

6 or altered by any person other than the operator of the

7 automated teller machine, the operator shall have no li8 ability under this section for failure to comply with section

9 904(d)(3)(B)(i).’’.

Passed the Senate May 6, 1999.

Attest:

Secretary.
106TH CONGRESS

1ST SESSION S. 900

AN ACT

To enhance competition in the financial services inviders, and for other purposes. ance companies, and other financial service pro- the affiliation of banks, securities firms, insur- dustry by providing a prudential framework for
S 900 ES——15

S 900 ES——14S 900 ES——13S 900 ES——12S 900 ES——11S 900 ES——10S 900 ES——9S 900 ES——8S 900 ES——7S 900 ES——6S 900 ES——5S 900 ES——4S 900 ES——3S 900 ES——2