106TH CONGRESS

1ST SESSION S. 900

AMENDMENTS
In the House of Representatives, U. S.,

July 20, 1999.

Resolved, That the bill from the Senate (S. 900) entitled

‘‘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’’, do pass

with the following

AMENDMENTS:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CON2 TENTS.

3 (a) SHORT TITLE.—This Act may be cited as the ‘‘Fi4 nancial Services Act of 1999’’.

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

7 (1) To enhance competition in the financial serv8 ices industry, in order to foster innovation and effi9 ciency.

10 (2) To ensure the continued safety and soundness

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

3 in the delivery of financial services.

4 (4) To avoid duplicative, potentially conflicting,

5 and overly burdensome regulatory requirements

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

8 requirements of each of the component businesses of

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

11 regulatory coordination.

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

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

17 for achieving that result.

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

20 all geographic areas.

21 (7) To enhance the competitiveness of United

22 States financial service providers internationally.

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

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

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

5 this Act is as follows:

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

TITLE I—FACILITATING AFFILIATION AMONG SECURITIES FIRMS,

INSURANCE COMPANIES, AND DEPOSITORY INSTITUTIONS

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act reformed.

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

not financial holding companies.

Sec. 103. Financial holding companies.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 105A. Public meetings for large bank acquisitions and mergers.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Clarification of branch closure requirements.

Sec. 108. Amendments relating to limited purpose banks.

Sec. 109. GAO study of economic impact on community banks, other small financial institutions, insurance agents, and consumers.

Sec. 110. Responsiveness to community needs for financial services.

Sec. 110A. Study of financial modernization’s affect on the accessibility of small

business and farm loans.

Subtitle B—Streamlining Supervision of Financial Holding Companies

Sec. 111. Streamlining financial holding company supervision.

Sec. 112. Elimination of application requirement for financial holding companies.

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

Commission.

Sec. 114. Prudential safeguards.

Sec. 115. Examination of investment companies.

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

authority of the Board.

Sec. 117. Equivalent regulation and supervision.

Sec. 118. Prohibition on FDIC assistance to affiliates and subsidiaries.

Sec. 119. Repeal of savings bank provisions in the Bank Holding Company Act

of 1956.

Sec. 120. Technical amendment.

Subtitle C—Subsidiaries of National Banks

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

Sec. 122. Safety and soundness firewalls between banks and their financial subsidiaries.
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Sec. 123. Misrepresentations regarding depository institution liability for obligations of affiliates.

Sec. 124. Repeal of stock loan limit in Federal Reserve Act.

Subtitle D—Wholesale Financial Holding Companies; Wholesale Financial

Institutions

CHAPTER 1—WHOLESALE FINANCIAL HOLDING COMPANIES

Sec. 131. Wholesale financial holding companies established.

Sec. 132. Authorization to release reports.

Sec. 133. Conforming amendments.

CHAPTER 2—WHOLESALE FINANCIAL INSTITUTIONS

Sec. 136. Wholesale financial institutions.

Subtitle E—Preservation of FTC Authority

Sec. 141. Amendment to the Bank Holding Company Act of 1956 to modify notification and post-approval waiting period for section 3 transactions.

Sec. 142. Interagency data sharing.

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

Sec. 144. Annual GAO report.

Subtitle F—National Treatment

Sec. 151. Foreign banks that are financial holding companies.

Sec. 152. Foreign banks and foreign financial institutions that are wholesale financial institutions.

Sec. 153. Representative offices.

Sec. 154. Reciprocity.

Subtitle G—Federal Home Loan Bank System Modernization

Sec. 161. Short title.

Sec. 162. Definitions.

Sec. 163. Savings association membership.

Sec. 164. Advances to members; collateral.

Sec. 165. Eligibility criteria.

Sec. 166. Management of banks.

Sec. 167. Resolution Funding Corporation.

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

Subtitle H—ATM Fee Reform

Sec. 171. Short title.

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

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

Sec. 174. Feasibility study.

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

Subtitle I—Direct Activities of Banks

Sec. 181. Authority of national banks to underwrite certain municipal bonds.
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Subtitle J—Deposit Insurance Funds

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

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

Subtitle K—Miscellaneous Provisions

Sec. 191. Termination of ‘‘know your customer’’ regulations.

Sec. 192. Study and report on Federal electronic fund transfers.

Sec. 193. General Accounting Office study of conflicts of interest.

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

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

Sec. 196. Regulation of uninsured State member banks.

Sec. 197. Clarification of source of strength doctrine.

Sec. 198. Interest rates and other charges at interstate branches.

Sec. 198A. Interstate branches and agencies of foreign banks.

Sec. 198B. Fair treatment of women by financial advisers.

Subtitle L—Effective Date of Title

Sec. 199. Effective date.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

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

Sec. 204. Information sharing.

Sec. 205. Treatment of new hybrid products.

Sec. 206. Definition of excepted banking product.

Sec. 207. Additional definitions.

Sec. 208. Government securities defined.

Sec. 209. Effective date.

Sec. 210. Rule of construction.

Subtitle B—Bank Investment Company Activities

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

Sec. 212. Lending to an affiliated investment company.

Sec. 213. Independent directors.

Sec. 214. Additional SEC disclosure authority.

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

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

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

banks that advise investment companies.

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

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

Sec. 220. Interagency consultation.

Sec. 221. Treatment of bank common trust funds.

Sec. 222. Investment advisers prohibited from having controlling interest in registered investment company.

Sec. 223. Statutory disqualification for bank wrongdoing.

Sec. 224. Conforming change in definition.

Sec. 225. Conforming amendment.
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Sec. 226. Church plan exclusion.

Sec. 227. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment

Bank Holding Companies

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

and Exchange Commission.

Subtitle D—Disclosure of Customer Costs of Acquiring Financial Products

Sec. 241. Improved and consistent disclosure.

Subtitle E—Banks and Bank Holding Companies

Sec. 251. Consultation.

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

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

Sec. 302. Mandatory insurance licensing requirements.

Sec. 303. Functional regulation of insurance.

Sec. 304. Insurance underwriting in national banks.

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

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

Sec. 307. Consumer protection regulations.

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

affiliates.

Sec. 309. Interagency consultation.

Sec. 310. Definition of State.

Subtitle B—Redomestication of Mutual Insurers

Sec. 311. General application.

Sec. 312. Redomestication of mutual insurers.

Sec. 313. Effect on State laws restricting redomestication.

Sec. 314. Other provisions.

Sec. 315. Definitions.

Sec. 316. Effective date.

Subtitle C—National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.

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

Sec. 323. Purpose.

Sec. 324. Relationship to the Federal Government.

Sec. 325. Membership.

Sec. 326. Board of directors.

Sec. 327. Officers.

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

Sec. 329. Assessments.

Sec. 330. Functions of the NAIC.

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

of the Association.

Sec. 332. Elimination of NAIC oversight.

Sec. 333. Relationship to State law.
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Sec. 334. Coordination with other regulators.

Sec. 335. Judicial review.

Sec. 336. Definitions.

Subtitle D—Rental Car Agency Insurance Activities

Sec. 341. Standard of regulation for motor vehicle rentals.

Subtitle E—Confidentiality

Sec. 351. Confidentiality of health and medical information.

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Prohibition on new unitary savings and loan holding companies.

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

TITLE V—PRIVACY

Subtitle A—Disclosure of Nonpublic Personal Information

Sec. 501. Protection of nonpublic personal information.

Sec. 502. Obligations with respect to disclosures of personal information.

Sec. 503. Disclosure of institution privacy policy.

Sec. 504. Rulemaking.

Sec. 505. Enforcement.

Sec. 506. Fair Credit Reporting Act amendment.

Sec. 507. Relation to other provisions.

Sec. 508. Study of information sharing among financial affiliates.

Sec. 509. Definitions.

Sec. 510. Effective date.

Subtitle B—Fraudulent Access to Financial Information

Sec. 521. Privacy protection for customer information of financial institutions.

Sec. 522. Administrative enforcement.

Sec. 523. Criminal penalty.

Sec. 524. Relation to State laws.

Sec. 525. Agency guidance.

Sec. 526. Reports.

Sec. 527. Definitions.
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1 TITLE I—FACILITATING AFFILI2 ATION AMONG SECURITIES

3 FIRMS, INSURANCE COMPA4 NIES, AND DEPOSITORY IN5 STITUTIONS

6 Subtitle A—Affiliations

7 SEC. 101. GLASS-STEAGALL ACT REFORMED.

8 (a) SECTION 20 REPEALED.—Section 20 of the Bank9 ing Act of 1933 (12 U.S.C. 377) (commonly referred to as

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

11 (b) SECTION 32 REPEALED.—Section 32 of the Bank12 ing Act of 1933 (12 U.S.C. 78) is repealed.

13 SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK

14 HOLDING COMPANIES WHICH ARE NOT FI15 NANCIAL HOLDING COMPANIES.

16 (a) IN GENERAL.—Section 4(c)(8) of the Bank Hold17 ing Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amend18 ed to read as follows:

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

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

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

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

3 (b) CONFORMING CHANGES TO OTHER STATUTES.—

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

6 Bank Holding Company Act Amendments of 1970 (12

7 U.S.C. 1850) is amended by striking ‘‘, to engage di8 rectly or indirectly in a nonbanking activity pursu9 ant to section 4 of such Act,’’.

10 (2) AMENDMENT TO THE BANK SERVICE COM11 PANY ACT.—Section 4(f) of the Bank Service Com12 pany Act (12 U.S.C. 1864(f)) is amended by striking

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

14 of the day before the date of the enactment of the Fi15 nancial Services Act of 1999.’’.

16 SEC. 103. FINANCIAL HOLDING COMPANIES.

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

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

19 1844) the following new section:

20 ‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.

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

22 purposes of this section, the term ‘financial holding com23 pany’ means a bank holding company which meets the re24 quirements of subsection (b).
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1 ‘‘(b) ELIGIBILITY REQUIREMENTS FOR FINANCIAL

2 HOLDING COMPANIES.—

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

4 may engage in any activity or directly or indirectly

5 acquire or retain shares of any company under this

6 section unless the bank holding company meets the

7 following requirements:

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

10 capitalized.

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

13 managed.

14 ‘‘(C) All of the subsidiary depository insti15 tutions of the bank holding company have

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

18 most recent examination of each such institution.

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

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

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

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

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

2 standards to a foreign bank that operates a branch or

3 agency or owns or controls a bank or commercial

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

6 due regard to the principle of national treatment and

7 equality of competitive opportunity.

8 ‘‘(3) LIMITED EXCLUSIONS FROM COMMUNITY

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

12 month period preceding the submission of a notice

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

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

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

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

20 Federal banking agency to take such action as

21 may be necessary in order for such institution to

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

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

2 agency.

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

4 IN NATURE.—

5 ‘‘(1) FINANCIAL ACTIVITIES.—

6 ‘‘(A) IN GENERAL.—Notwithstanding sec7 tion 4(a), a financial holding company may en8 gage in any activity, and acquire and retain the

9 shares of any company engaged in any activity,

10 that the Board has determined (by regulation or

11 order and in accordance with subparagraph (B))

12 to be—

13 ‘‘(i) financial in nature or incidental

14 to such financial activities; or

15 ‘‘(ii) complementary to activities au16 thorized under this subsection to the extent

17 that the amount of such complementary ac18 tivities remains small.

19 ‘‘(B) COORDINATION BETWEEN THE BOARD

20 AND THE SECRETARY OF THE TREASURY.—

21 ‘‘(i) PROPOSALS RAISED BEFORE THE

22 BOARD.—

23 ‘‘(I) CONSULTATION.—The Board

24 shall notify the Secretary of the Treas25 ury of, and consult with the Secretary
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1 of the Treasury concerning, any re2 quest, proposal, or application under

3 this subsection, including a regulation

4 or order proposed under paragraph

5 (4), for a determination of whether an

6 activity is financial in nature or inci7 dental to such a financial activity.

8 ‘‘(II) TREASURY VIEW.—The

9 Board shall not determine that any ac10 tivity is financial in nature or inci11 dental to a financial activity under

12 this subsection if the Secretary of the

13 Treasury notifies the Board in writing,

14 not later than 30 days after the date of

15 receipt of the notice described in sub16 clause (I) (or such longer period as the

17 Board determines to be appropriate in

18 light of the circumstances) that the

19 Secretary of the Treasury believes that

20 the activity is not financial in nature

21 or incidental to a financial activity.

22 ‘‘(ii) PROPOSALS RAISED BY THE

23 TREASURY.—

24 ‘‘(I) TREASURY RECOMMENDA25 TION.—The Secretary of the Treasury
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1 may, at any time, recommend in writ2 ing that the Board find an activity to

3 be financial in nature or incidental to

4 a financial activity.

5 ‘‘(II) TIME PERIOD FOR BOARD

6 ACTION.—Not later than 30 days after

7 the date of receipt of a written rec8 ommendation from the Secretary of the

9 Treasury under subclause (I) (or such

10 longer period as the Secretary of the

11 Treasury and the Board determine to

12 be appropriate in light of the cir13 cumstances), the Board shall determine

14 whether to initiate a public rule15 making proposing that the subject rec16 ommended activity be found to be fi17 nancial in nature or incidental to a fi18 nancial activity under this subsection,

19 and shall notify the Secretary of the

20 Treasury in writing of the determina21 tion of the Board and, in the event

22 that the Board determines not to seek

23 public comment on the proposal, the

24 reasons for that determination.
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1 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter2 mining whether an activity is financial in nature or

3 incidental to financial activities, the Board shall take

4 into account—

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

7 ‘‘(B) changes or reasonably expected changes

8 in the marketplace in which bank holding com9 panies compete;

10 ‘‘(C) changes or reasonably expected changes

11 in the technology for delivering financial serv12 ices; and

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

14 appropriate to allow a bank holding company

15 and the affiliates of a bank holding company

16 to—

17 ‘‘(i) compete effectively with any com18 pany seeking to provide financial services

19 in the United States;

20 ‘‘(ii) use any available or emerging

21 technological means, including any applica22 tion necessary to protect the security or effi23 cacy of systems for the transmission of data

24 or financial transactions, in providing fi25 nancial services; and
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1 ‘‘(iii) offer customers any available or

2 emerging technological means for using fi3 nancial services.

4 ‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA5 TURE.—The following activities shall be considered to

6 be financial in nature:

7 ‘‘(A) Lending, exchanging, transferring, in8 vesting for others, or safeguarding money or se9 curities.

10 ‘‘(B) Insuring, guaranteeing, or indem11 nifying against loss, harm, damage, illness, dis12 ability, or death, or providing and issuing annu13 ities, and acting as principal, agent, or broker

14 for purposes of the foregoing.

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

16 economic advisory services, including advising

17 an investment company (as defined in section 3

18 of the Investment Company Act of 1940).

19 ‘‘(D) Issuing or selling instruments rep20 resenting interests in pools of assets permissible

21 for a bank to hold directly.

22 ‘‘(E) Underwriting, dealing in, or making a

23 market in securities.

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

25 Board has determined, by order or regulation
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1 that is in effect on the date of the enactment of

2 the Financial Services Act of 1999, to be so close3 ly related to banking or managing or controlling

4 banks as to be a proper incident thereto (subject

5 to the same terms and conditions contained in

6 such order or regulation, unless modified by the

7 Board).

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

9 any activity that—

10 ‘‘(i) a bank holding company may en11 gage in outside the United States; and

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

13 regulations issued pursuant to section

14 4(c)(13) of this Act (as in effect on the day

15 before the date of the enactment of the Fi16 nancial Services Act of 1999) to be usual in

17 connection with the transaction of banking

18 or other financial operations abroad.

19 ‘‘(H) Directly or indirectly acquiring or

20 controlling, whether as principal, on behalf of

21 one or more entities (including entities, other

22 than a depository institution, that the bank hold23 ing company controls) or otherwise, shares, as24 sets, or ownership interests (including without

25 limitation debt or equity securities, partnership
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1 interests, trust certificates or other instruments

2 representing ownership) of a company or other

3 entity, whether or not constituting control of

4 such company or entity, engaged in any activity

5 not authorized pursuant to this section if—

6 ‘‘(i) the shares, assets, or ownership in7 terests are not acquired or held by a deposi8 tory institution;

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

10 interests are acquired and held by an affil11 iate of the bank holding company that is a

12 registered broker or dealer that is engaged

13 in securities underwriting activities, or an

14 affiliate of such broker or dealer, as part of

15 a bona fide underwriting or investment

16 banking activity, including investment ac17 tivities engaged in for the purpose of appre18 ciation and ultimate resale or disposition of

19 the investment;

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

21 interests are held only for such a period of

22 time as will permit the sale or disposition

23 thereof on a reasonable basis consistent with

24 the nature of the activities described in

25 clause (ii); and
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1 ‘‘(iv) during the period such shares, as2 sets, or ownership interests are held, the

3 bank holding company does not actively

4 participate in the day to day management

5 or operation of such company or entity, ex6 cept insofar as necessary to achieve the ob7 jectives of clause (ii).

8 ‘‘(I) Directly or indirectly acquiring or con9 trolling, whether as principal, on behalf of one or

10 more entities (including entities, other than a de11 pository institution or subsidiary of a depository

12 institution, that the bank holding company con13 trols) or otherwise, shares, assets, or ownership

14 interests (including without limitation debt or

15 equity securities, partnership interests, trust cer16 tificates or other instruments representing own17 ership) of a company or other entity, whether or

18 not constituting control of such company or enti19 ty, engaged in any activity not authorized pur20 suant to this section if—

21 ‘‘(i) the shares, assets, or ownership in22 terests are not acquired or held by a deposi23 tory institution or a subsidiary of a deposi24 tory institution;
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1 ‘‘(ii) such shares, assets, or ownership

2 interests are acquired and held by an insur3 ance company that is predominantly en4 gaged in underwriting life, accident and

5 health, or property and casualty insurance

6 (other than credit-related insurance) or pro7 viding and issuing annuities;

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

9 interests represent an investment made in

10 the ordinary course of business of such in11 surance company in accordance with rel12 evant State law governing such investments;

13 and

14 ‘‘(iv) during the period such shares, as15 sets, or ownership interests are held, the

16 bank holding company does not directly or

17 indirectly participate in the day-to-day

18 management or operation of the company

19 or entity except insofar as necessary to

20 achieve the objectives of clauses (ii) and

21 (iii).

22 ‘‘(4) AUTHORIZATION OF NEW FINANCIAL ACTIVI23 TIES.—The Board shall, by regulation or order and

24 in accordance with paragraph (1)(B), define, con25 sistent with the purposes of this Act, the following ac-
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1 tivities as, and the extent to which such activities are,

2 financial in nature or incidental to activities which

3 are financial in nature:

4 ‘‘(A) Lending, exchanging, transferring, in5 vesting for others, or safeguarding financial as6 sets other than money or securities.

7 ‘‘(B) Providing any device or other instru8 mentality for transferring money or other finan9 cial assets.

10 ‘‘(C) Arranging, effecting, or facilitating fi11 nancial transactions for the account of third

12 parties.

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

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

15 company that acquires any company, or com16 mences any activity, pursuant to this subsection

17 shall provide written notice to the Board describ18 ing the activity commenced or conducted by the

19 company acquired no later than 30 calendar

20 days after commencing the activity or consum21 mating the acquisition.

22 ‘‘(B) APPROVAL NOT REQUIRED FOR CER23 TAIN FINANCIAL ACTIVITIES.—Except as pro24 vided in section 4(j) with regard to the acquisi25 tion of a savings association or in paragraph (6)
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1 of this subsection, a financial holding company

2 may commence any activity, or acquire any

3 company, pursuant to paragraph (3) or any reg4 ulation prescribed or order issued under para5 graph (4), without prior approval of the Board.

6 ‘‘(6) NOTICE REQUIRED FOR LARGE COMBINA7 TIONS.—

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

9 company shall directly or indirectly acquire, and

10 no company that becomes a financial holding

11 company shall directly or indirectly acquire con12 trol of, any company in the United States, in13 cluding through merger, consolidation, or other

14 type of business combination, that—

15 ‘‘(i) is engaged in activities permitted

16 under this subsection or subsection (g); and

17 ‘‘(ii) has consolidated total assets in

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

19 unless such holding company has provided notice

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

21 such proposed acquisition or prior to becoming a

22 financial holding company, and during that

23 time period, or such longer time period not ex24 ceeding an additional 60 days, as established by
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1 the Board, the Board has not issued a notice dis2 approving the proposed acquisition or retention.

3 ‘‘(B) FACTORS FOR CONSIDERATION.—In

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

6 ‘‘(i) whether the company is in compli7 ance with all applicable criteria set forth in

8 subsection (b) and the provisions of sub9 section (d);

10 ‘‘(ii) whether the proposed combination

11 represents an undue aggregation of re12 sources;

13 ‘‘(iii) whether the proposed combina14 tion poses a risk to the deposit insurance

15 system;

16 ‘‘(iv) whether the proposed combination

17 poses a risk to State insurance guaranty

18 funds;

19 ‘‘(v) whether the proposed combination

20 can reasonably be expected to be in the best

21 interests of depositors or policyholders of the

22 respective entities;

23 ‘‘(vi) whether the proposed transaction

24 can reasonably be expected to further the
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1 purposes of this Act and produce benefits to

2 the public; and

3 ‘‘(vii) whether, and the extent to which,

4 the proposed combination poses an undue

5 risk to the stability of the financial system

6 in the United States.

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

8 may disapprove any prior notice filed under this

9 paragraph if the company submitting such no10 tice neglects, fails, or refuses to furnish to the

11 Board all relevant information required by the

12 Board.

13 ‘‘(D) SOLICITATION OF VIEWS OF OTHER

14 SUPERVISORY AGENCIES.—

15 ‘‘(i) IN GENERAL.—Upon receiving a

16 prior notice under this paragraph, in order

17 to provide for the submission of their views

18 and recommendations, the Board shall give

19 notice of the proposal to—

20 ‘‘(I) the appropriate Federal

21 banking agency of any bank involved;

22 ‘‘(II) the appropriate functional

23 regulator of any functionally regulated

24 nondepository institution (as defined

25 in section 5(c)(1)(C)) involved; and
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1 ‘‘(III) the Secretary of the Treas2 ury, the Attorney General, and the

3 Federal Trade Commission.

4 ‘‘(ii) TIMING.—The views and rec5 ommendations of any agency provided no6 tice under this paragraph shall be submitted

7 to the Board not later than 30 calendar

8 days after the date on which notice to the

9 agency was given, unless the Board deter10 mines that another shorter time period is

11 appropriate.

12 ‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL HOLDING

13 COMPANIES THAT FAIL TO MEET REQUIREMENTS.—

14 ‘‘(1) IN GENERAL.—If the Board finds, after no15 tice from or consultation with the appropriate Fed16 eral banking agency, that a financial holding com17 pany is not in compliance with the requirements of

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

19 Board shall give notice of such finding to the com20 pany.

21 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE22 QUIRED.—Within 45 days of receipt by a financial

23 holding company of a notice given under paragraph

24 (1) (or such additional period as the Board may per25 mit), the company shall execute an agreement accept-
26

•S 900 EAH

1 able to the Board to comply with the requirements ap2 plicable to a financial holding company.

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

4 Until the conditions described in a notice to a finan5 cial holding company under paragraph (1) are

6 corrected—

7 ‘‘(A) the Board may impose such limita8 tions on the conduct or activities of the company

9 or any affiliate of the company as the Board de10 termines to be appropriate under the cir11 cumstances; and

12 ‘‘(B) the appropriate Federal banking agen13 cy may impose such limitations on the conduct

14 or activities of an affiliated depository institu15 tion or subsidiary of a depository institution as

16 the appropriate Federal banking agency deter17 mines to be appropriate under the circumstances.

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

19 notice under paragraph (1), a financial holding com20 pany does not—

21 ‘‘(A) execute and implement an agreement

22 in accordance with paragraph (2);

23 ‘‘(B) comply with any limitations imposed

24 under paragraph (3);
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•S 900 EAH

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

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

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

5 beginning on the date such notice is received by

6 the company (or such other period permitted by

7 the Board); or

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

9 comply with subparagraph (B) or (C) of sub10 section (b)(1), restore compliance with any such

11 subparagraph by the date the next examination

12 of the depository institution subsidiary is com13 pleted or by the end of such other period as the

14 Board determines to be appropriate,

15 the Board may require such company, under such

16 terms and conditions as may be imposed by the

17 Board and subject to such extension of time as may

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

19 of any depository institution subsidiary or, at the

20 election of the financial holding company, instead to

21 cease to engage in any activity conducted by such

22 company or its subsidiaries pursuant to this section.

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

24 under this subsection, the Board shall consult with all

25 relevant Federal and State regulatory agencies.
28

•S 900 EAH

1 ‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—A fi2 nancial holding company shall assure that—

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

4 identifying and managing financial and operational

5 risks within the company, and the subsidiaries of

6 such company, adequately protect the subsidiaries of

7 such company which are insured depository institu8 tions or wholesale financial institution from such

9 risks;

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

11 and procedures to preserve the separate corporate

12 identity and limited liability of such company and

13 the subsidiaries of such company, for the protection of

14 the company’s subsidiary insured depository institu15 tions and wholesale financial institutions; and

16 ‘‘(3) the holding company complies with this sec17 tion.

18 ‘‘(f) AUTHORITY TO RETAIN LIMITED NONFINANCIAL

19 ACTIVITIES AND AFFILIATIONS.—

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

21 4(a), a company that is not a bank holding company

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

23 International Banking Act of 1978) and becomes a fi24 nancial holding company after the date of the enact25 ment of the Financial Services Act of 1999 may con-
29

•S 900 EAH

1 tinue to engage in any activity and retain direct or

2 indirect ownership or control of shares of a company

3 engaged in any activity if—

4 ‘‘(A) the holding company lawfully was en5 gaged in the activity or held the shares of such

6 company on September 30, 1997;

7 ‘‘(B) the holding company is predominantly

8 engaged in financial activities as defined in

9 paragraph (2); and

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

11 continues to engage only in the same activities

12 that such company conducted on September 30,

13 1997, and other activities permissible under this

14 Act.

15 ‘‘(2) PREDOMINANTLY FINANCIAL.—For purposes

16 of this subsection, a company is predominantly en17 gaged in financial activities if the annual gross reve18 nues derived by the holding company and all subsidi19 aries of the holding company (excluding revenues de20 rived from subsidiary depository institutions), on a

21 consolidated basis, from engaging in activities that

22 are financial in nature or are incidental to activities

23 that are financial in nature under subsection (c) rep24 resent at least 85 percent of the consolidated annual

25 gross revenues of the company.
30

•S 900 EAH

1 ‘‘(3) NO EXPANSION OF GRANDFATHERED COM2 MERCIAL ACTIVITIES THROUGH MERGER OR CONSOLI3 DATION.—A financial holding company that engages

4 in activities or holds shares pursuant to this sub5 section, or a subsidiary of such financial holding

6 company, may not acquire, in any merger, consolida7 tion, or other type of business combination, assets of

8 any other company which is engaged in any activity

9 which the Board has not determined to be financial

10 in nature or incidental to activities that are financial

11 in nature under subsection (c), except this paragraph

12 shall not apply with respect to a company that owns

13 a broadcasting station licensed under title III of the

14 Communications Act of 1934 and the shares of which

15 have been controlled by an insurance company since

16 January 1, 1998.

17 ‘‘(4) CONTINUING REVENUE LIMITATION ON

18 GRANDFATHERED COMMERCIAL ACTIVITIES.—Not19 withstanding any other provision of this subsection, a

20 financial holding company may continue to engage in

21 activities or hold shares in companies pursuant to

22 this subsection only to the extent that the aggregate

23 annual gross revenues derived from all such activities

24 and all such companies does not exceed 15 percent of

25 the consolidated annual gross revenues of the finan-
31

•S 900 EAH

1 cial holding company (excluding revenues derived

2 from subsidiary depository institutions).

3 ‘‘(5) CROSS MARKETING RESTRICTIONS APPLICA4 BLE TO COMMERCIAL ACTIVITIES.—A depository in5 stitution controlled by a financial holding company

6 shall not—

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

8 any arrangement, any product or service of a

9 company whose activities are conducted or whose

10 shares are owned or controlled by the financial

11 holding company pursuant to this subsection or

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

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

14 to be offered or marketed, directly or through any

15 arrangement, by or through any company de16 scribed in subparagraph (A).

17 ‘‘(6) TRANSACTIONS WITH NONFINANCIAL AFFILI18 ATES.—A depository institution controlled by a fi19 nancial holding company may not engage in a cov20 ered transaction (as defined by section 23A(b)(7) of

21 the Federal Reserve Act) with any affiliate controlled

22 by the company pursuant to section 10(c), this sub23 section, or subparagraph (H) or (I) of subsection

24 (c)(3).
32

•S 900 EAH

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

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

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

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

7 10-year period beginning on the date of the enactment

8 of the Financial Services Act of 1999. The Board

9 may, upon application by a financial holding com10 pany, extend such 10-year period by a period not to

11 exceed an additional 5 years if such extension would

12 not be detrimental to the public interest.

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

14 company may engage directly or indirectly, or acquire

15 shares of any company engaged, in any activity that the

16 Board has not determined to be financial in nature or inci17 dental to financial activities under subsection (c) if—

18 ‘‘(1) the holding company reasonably concludes

19 that the activity is financial in nature or incidental

20 to financial activities;

21 ‘‘(2) the gross revenues from all activities con22 ducted under this subsection represent less than 5 per23 cent of the consolidated gross revenues of the holding

24 company;
33

•S 900 EAH

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

2 the shares of which are held under this subsection do

3 not exceed 5 percent of the holding company’s consoli4 dated total assets;

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

7 percent of the consolidated total capital of the holding

8 company;

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

10 Treasury has determined that the activity is not fi11 nancial in nature or incidental to financial activities

12 under subsection (c);

13 ‘‘(6) the holding company is not required to pro14 vide prior written notice of the transaction to the

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

16 ‘‘(7) the holding company provides written noti17 fication to the Board describing the activity com18 menced or conducted by the company acquired no

19 later than 10 business days after commencing the ac20 tivity or consummating the acquisition.’’.

21 (b) FACTORS FOR CONSIDERATION IN REVIEWING AP22 PLICATION BY FINANCIAL HOLDING COMPANY TO ACQUIRE

23 BANK.—Section 3(c) of the Bank Holding Company Act of

24 1956 (12 U.S.C. 1842(c)) is amended by adding at the end

25 the following new paragraph:
34

•S 900 EAH

1 ‘‘(6) ‘TOO BIG TO FAIL’ FACTOR.—In considering

2 an acquisition, merger, or consolidation under this

3 section involving a financial holding company or a

4 company that would be any such holding company

5 upon the consummation of the transaction, the Board

6 shall consider whether, and the extent to which, the

7 proposed acquisition, merger, or consolidation poses

8 an undue risk to the stability of the financial system

9 of the United States.’’.

10 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

11 (1) Section 2 of the Bank Holding Company Act

12 of 1956 (12 U.S.C. 1841) is amended by adding at

13 the end the following new subsection:

14 ‘‘(p) INSURANCE COMPANY.—For purposes of sections

15 5, 6, and 10, the term ‘insurance company’ includes any

16 person engaged in the business of insurance to the extent

17 of such activities.’’.

18 (2) Section 4(j) of the Bank Holding Company

19 Act of 1956 (12 U.S.C. 1843(j)) is amended—

20 (A) in paragraph (1)(A), by inserting ‘‘or

21 in any complementary activity under section

22 6(c)(1)(B)’’ after ‘‘subsection (c)(8) or (a)(2)’’;

23 and

24 (B) in paragraph (3)—
35

•S 900 EAH

1 (i) by inserting ‘‘, other than any com2 plementary activity under section

3 6(c)(1)(B),’’ after ‘‘to engage in any activ4 ity’’; and

5 (ii) by inserting ‘‘or a company en6 gaged in any complementary activity under

7 section 6(c)(1)(B)’’ after ‘‘insured deposi8 tory institution’’.

9 (d) REPORT.—

10 (1) IN GENERAL.—By the end of the 4-year pe11 riod beginning on the date of the enactment of this

12 Act and every 4 years thereafter, the Board of Gov13 ernors of the Federal Reserve System and the Sec14 retary of the Treasury shall submit a joint report to

15 the Congress containing a summary of new activities

16 which are financial in nature, including grand17 fathered commercial activities, in which any finan18 cial holding company is engaged pursuant to sub19 section (c)(1) or (f) of section 6 of the Bank Holding

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

21 (2) OTHER CONTENTS.—Each report submitted

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

23 contain the following:

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

25 Governors of the Federal Reserve System and the
36

•S 900 EAH

1 Secretary of the Treasury, whether by regulation,

2 order, interpretation, or guideline or by approval

3 or disapproval of an application, with regard to

4 activities of financial holding companies which

5 are incidental to activities financial in nature or

6 complementary to such financial activities.

7 (B) An analysis and discussion of the risks

8 posed by commercial activities of financial hold9 ing companies to the safety and soundness of af10 filiate depository institutions.

11 (C) An analysis and discussion of the effect

12 of mergers and acquisitions under section 6 of

13 the Bank Holding Company Act of 1956 on mar14 ket concentration in the financial services indus15 try.

16 (D) An analysis and discussion, by the

17 Board and the Secretary in consultation with

18 the other Federal banking agencies (as defined in

19 section 3(z) of the Federal Deposit Insurance

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

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

22 the extent of meeting community credit needs

23 and capital availability under the Community

24 Reinvestment Act of 1977.
37

•S 900 EAH

1 SEC. 104. OPERATION OF STATE LAW.

2 (a) AFFILIATIONS.—

3 (1) IN GENERAL.—Except as provided in para4 graph (2), no State may, by statute, regulation, order,

5 interpretation, or other action, prevent or restrict an

6 insured depository institution or wholesale financial

7 institution, or a subsidiary or affiliate thereof, from

8 being affiliated directly or indirectly or associated

9 with any person or entity, as authorized or permitted

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

11 (2) INSURANCE.—With respect to affiliations be12 tween insured depository institutions or wholesale fi13 nancial institutions, or any subsidiary or affiliate

14 thereof, and persons or entities engaged in the busi15 ness of insurance, paragraph (1) does not prohibit—

16 (A) any State from requiring any person or

17 entity that proposes to acquire control of an en18 tity that is engaged in the business of insurance

19 and domiciled in that State (hereafter in this

20 subparagraph referred to as the ‘‘insurer’’) to

21 furnish to the insurance regulatory authority of

22 that State, not later than 60 days before the ef23 fective date of the proposed acquisition—

24 (i) the name and address of each per25 son by whom, or on whose behalf, the affili26 ation referred to in this subparagraph is to
38

•S 900 EAH

1 be effected (hereafter in this subparagraph

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

3 (ii) if the acquiring party is an indi4 vidual, his or her principal occupation and

5 all offices and positions held during the 5

6 years preceding the date of notification, and

7 any conviction of crimes other than minor

8 traffic violations during the 10 years pre9 ceding the date of notification;

10 (iii) if the acquiring party is not an

11 individual—

12 (I) a report of the nature of its

13 business operations during the 5 years

14 preceding the date of notification, or

15 for such shorter period as such person

16 and any predecessors thereof shall have

17 been in existence;

18 (II) an informative description of

19 the business intended to be done by the

20 acquiring party and any subsidiary

21 thereof; and

22 (III) a list of all individuals who

23 are, or who have been selected to be24 come, directors or executive officers of

25 the acquiring party or who perform, or
39

•S 900 EAH

1 will perform, functions appropriate to

2 such positions, including, for each such

3 individual, the information required

4 by clause (ii);

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

6 the consideration used, or to be used, in ef7 fecting the merger or other acquisition of

8 control, a description of any transaction

9 wherein funds were, or are to be, obtained

10 for any such purpose, and the identity of

11 persons furnishing such consideration, ex12 cept that, if a source of such consideration

13 is a loan made in the lender’s ordinary

14 course of business, the identity of the lender

15 shall remain confidential if the person fil16 ing such statement so requests;

17 (v) fully audited financial information

18 as to the earnings and financial condition

19 of each acquiring party for the 5 fiscal

20 years preceding the date of notification of

21 each such acquiring party, or for such lesser

22 period as such acquiring party and any

23 predecessors thereof shall have been in exist24 ence, and similar unaudited information as

25 of a date not earlier than 90 days before the
40

•S 900 EAH

1 date of notification, except that, in the case

2 of an acquiring party that is an insurer ac3 tively engaged in the business of insurance,

4 the financial statements of such insurer

5 need not be audited, but such audit may be

6 required if the need therefor is determined

7 by the insurance regulatory authority of the

8 State;

9 (vi) any plans or proposals that each

10 acquiring party may have to liquidate such

11 insurer, to sell its assets, or to merge or con12 solidate it with any person or to make any

13 other material change in its business or cor14 porate structure or management;

15 (vii) the number of shares of any secu16 rity of the insurer that each acquiring

17 party proposes to acquire, the terms of any

18 offer, request, invitation, agreement, or ac19 quisition, and a statement as to the method

20 by which the fairness of the proposal was

21 arrived at;

22 (viii) the amount of each class of any

23 security of the insurer that is beneficially

24 owned or concerning which there is a right
41

•S 900 EAH

1 to acquire beneficial ownership by each ac2 quiring party;

3 (ix) a full description of any contracts,

4 arrangements, or understandings with re5 spect to any security of the insurer in which

6 any acquiring party is involved, including

7 transfer of any of the securities, joint ven8 tures, loan or option arrangements, puts or

9 calls, guarantees of loans, guarantees

10 against loss or guarantees of profits, divi11 sion of losses or profits, or the giving or

12 withholding of proxies, and identification of

13 the persons with whom such contracts, ar14 rangements, or understandings have been

15 entered into;

16 (x) a description of the purchase of

17 any security of the insurer during the 12-

18 month period preceding the date of notifica19 tion by any acquiring party, including the

20 dates of purchase, names of the purchasers,

21 and consideration paid, or agreed to be

22 paid, therefor;

23 (xi) a description of any recommenda24 tions to purchase any security of the insurer

25 made during the 12-month period preceding
42

•S 900 EAH

1 the date of notification by any acquiring

2 party or by any person based upon inter3 views or at the suggestion of such acquiring

4 party;

5 (xii) copies of all tender offers for, re6 quests or invitations for tenders of, exchange

7 offers for and agreements to acquire or ex8 change any securities of the insurer and, if

9 distributed, of additional soliciting material

10 relating thereto; and

11 (xiii) the terms of any agreement, con12 tract, or understanding made with any

13 broker-dealer as to solicitation of securities

14 of the insurer for tender and the amount of

15 any fees, commissions, or other compensa16 tion to be paid to broker-dealers with regard

17 thereto;

18 (B) in the case of a person engaged in the

19 business of insurance which is the subject of an

20 acquisition or change or continuation in control,

21 the State of domicile of such person from review22 ing or taking action (including approval or dis23 approval) with regard to the acquisition or

24 change or continuation in control, as long as the

25 State reviews and actions—
43

•S 900 EAH

1 (i) are completed by the end of the 60-

2 day period beginning on the later of the

3 date the State received notice of the pro4 posed action or the date the State received

5 the information required under State law

6 regarding such acquisition or change or

7 continuation in control;

8 (ii) do not have the effect of discrimi9 nating, intentionally or unintentionally,

10 against an insured depository institution or

11 affiliate thereof or against any other person

12 based upon affiliation with an insured de13 pository institution; and

14 (iii) are based on standards or require15 ments relating to solvency or managerial

16 fitness;

17 (C) any State from requiring an entity that

18 is acquiring control of an entity that is engaged

19 in the business of insurance and domiciled in

20 that State to maintain or restore the capital re21 quirements of that insurance entity to the level

22 required under the capital regulations of general

23 applicability in that State to avoid the require24 ment of preparing and filing with the insurance

25 regulatory authority of that State a plan to in-
44

•S 900 EAH

1 crease the capital of the entity, except that any

2 determination by the State insurance regulatory

3 authority with respect to such requirement shall

4 be made not later than 60 days after the date of

5 notification under subparagraph (A);

6 (D) any State from taking actions with re7 spect to the receivership or conservatorship of

8 any insurance company;

9 (E) any State from restricting a change in

10 the ownership of stock in an insurance company,

11 or a company formed for the purpose of control12 ling such insurance company, for a period of not

13 more than 3 years beginning on the date of the

14 conversion of such company from mutual to stock

15 form; or

16 (F) any State from requiring an organiza17 tion which has been eligible at any time since

18 January 1, 1987, to claim the special deduction

19 provided by section 833 of the Internal Revenue

20 Code of 1986 to meet certain conditions in order

21 to undergo, as determined by the State, a reorga22 nization, recapitalization, conversion, merger,

23 consolidation, sale or other disposition of sub24 stantial operating assets, demutualization, dis25 solution, or to undertake other similar actions
45

•S 900 EAH

1 and which is governed under a State statute en2 acted on May 22, 1998, relating to hospital,

3 medical, and dental service corporation conver4 sions.

5 (3) PRESERVATION OF STATE ANTITRUST AND

6 GENERAL CORPORATE LAWS.—

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

8 and the nondiscrimination provisions contained

9 in such subsection, no provision in paragraph

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

11 regulations, orders, interpretations, or other ac12 tions of general applicability relating to the gov13 ernance of corporations, partnerships, limited li14 ability companies or other business associations

15 incorporated or formed under the laws of that

16 State or domiciled in that State, or the applica17 bility of the antitrust laws of any State or any

18 State law that is similar to the antitrust laws.

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

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

21 of the first section of the Clayton Act, and in22 cludes section 5 of the Federal Trade Commis23 sion Act to the extent that such section 5 relates

24 to unfair methods of competition.

25 (b) ACTIVITIES.—
46

•S 900 EAH

1 (1) IN GENERAL.—Except as provided in para2 graph (3), and except with respect to insurance sales,

3 solicitation, and cross marketing activities, which

4 shall be governed by paragraph (2), no State may, by

5 statute, regulation, order, interpretation, or other ac6 tion, prevent or restrict an insured depository institu7 tion, wholesale financial institution, or subsidiary or

8 affiliate thereof from engaging directly or indirectly,

9 either by itself or in conjunction with a subsidiary,

10 affiliate, or any other entity or person, in any activ11 ity authorized or permitted under this Act.

12 (2) INSURANCE SALES.—

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

14 legal standards for preemption set forth in the

15 decision of the Supreme Court of the United

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

17 v. Nelson, 517 U.S. 25 (1996), no State may, by

18 statute, regulation, order, interpretation, or other

19 action, prevent or significantly interfere with the

20 ability of an insured depository institution or

21 wholesale financial institution, or a subsidiary

22 or affiliate thereof, to engage, directly or indi23 rectly, either by itself or in conjunction with a

24 subsidiary, affiliate, or any other party, in any
47

•S 900 EAH

1 insurance sales, solicitation, or cross-marketing

2 activity.

3 (B) CERTAIN STATE LAWS PRESERVED.—

4 Notwithstanding subparagraph (A), a State may

5 impose any of the following restrictions, or re6 strictions which are substantially the same as

7 but no more burdensome or restrictive than those

8 in each of the following clauses:

9 (i) Restrictions prohibiting the rejec10 tion of an insurance policy by an insured

11 depository institution, wholesale financial

12 institution, or any subsidiary or affiliate

13 thereof, solely because the policy has been

14 issued or underwritten by any person who

15 is not associated with such insured deposi16 tory institution or wholesale financial insti17 tution, or any subsidiary or affiliate there18 of, when such insurance is required in con19 nection with a loan or extension of credit.

20 (ii) Restrictions prohibiting a require21 ment for any debtor, insurer, or insurance

22 agent or broker to pay a separate charge in

23 connection with the handling of insurance

24 that is required in connection with a loan

25 or other extension of credit or the provision
48

•S 900 EAH

1 of another traditional banking product by

2 an insured depository institution, wholesale

3 financial institution, or any subsidiary or

4 affiliate thereof, unless such charge would be

5 required when the insured depository insti6 tution or wholesale financial institution, or

7 any subsidiary or affiliate thereof, is the li8 censed insurance agent or broker providing

9 the insurance.

10 (iii) Restrictions prohibiting the use of

11 any advertisement or other insurance pro12 motional material by an insured depository

13 institution or wholesale financial institu14 tion, or any subsidiary or affiliate thereof,

15 that would cause a reasonable person to be16 lieve mistakenly that—

17 (I) a State or the Federal Govern18 ment is responsible for the insurance

19 sales activities of, or stands behind the

20 credit of, the institution, affiliate, or

21 subsidiary; or

22 (II) a State, or the Federal Gov23 ernment guarantees any returns on in24 surance products, or is a source of pay25 ment on any insurance obligation of or
49

•S 900 EAH

1 sold by the institution, affiliate, or

2 subsidiary;

3 (iv) Restrictions prohibiting the pay4 ment or receipt of any commission or bro5 kerage fee or other valuable consideration

6 for services as an insurance agent or broker

7 to or by any person, unless such person

8 holds a valid State license regarding the ap9 plicable class of insurance at the time at

10 which the services are performed, except

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

12 insurance agent or broker’’ does not include

13 a referral by an unlicensed person of a cus14 tomer or potential customer to a licensed

15 insurance agent or broker that does not in16 clude a discussion of specific insurance pol17 icy terms and conditions.

18 (v) Restrictions prohibiting any com19 pensation paid to or received by any indi20 vidual who is not licensed to sell insurance,

21 for the referral of a customer that seeks to

22 purchase, or seeks an opinion or advice on,

23 any insurance product to a person that sells

24 or provides opinions or advice on such
50

•S 900 EAH

1 product, based on the purchase of insurance

2 by the customer.

3 (vi) Restrictions prohibiting the release

4 of the insurance information of a customer

5 (defined as information concerning the pre6 miums, terms, and conditions of insurance

7 coverage, including expiration dates and

8 rates, and insurance claims of a customer

9 contained in the records of the insured de10 pository institution or wholesale financial

11 institution, or a subsidiary or affiliate

12 thereof) to any person or entity other than

13 an officer, director, employee, agent, sub14 sidiary, or affiliate of an insured depository

15 institution or a wholesale financial institu16 tion, for the purpose of soliciting or selling

17 insurance, without the express consent of the

18 customer, other than a provision that

19 prohibits—

20 (I) a transfer of insurance infor21 mation to an unaffiliated insurance

22 company, agent, or broker in connec23 tion with transferring insurance in

24 force on existing insureds of the in25 sured depository institution or whole-
51

•S 900 EAH

1 sale financial institution, or sub2 sidiary or affiliate thereof, or in con3 nection with a merger with or acquisi4 tion of an unaffiliated insurance com5 pany, agent, or broker; or

6 (II) the release of information as

7 otherwise authorized by State or Fed8 eral law.

9 (vii) Restrictions prohibiting the use of

10 health information obtained from the insur11 ance records of a customer for any purpose,

12 other than for its activities as a licensed

13 agent or broker, without the express consent

14 of the customer.

15 (viii) Restrictions prohibiting the ex16 tension of credit or any product or service

17 that is equivalent to an extension of credit,

18 lease or sale of property of any kind, or fur19 nishing of any services or fixing or varying

20 the consideration for any of the foregoing,

21 on the condition or requirement that the

22 customer obtain insurance from an insured

23 depository institution, wholesale financial

24 institution, a subsidiary or affiliate thereof,

25 or a particular insurer, agent, or broker,
52

•S 900 EAH

1 other than a prohibition that would prevent

2 any insured depository institution or whole3 sale financial institution, or any subsidiary

4 or affiliate thereof—

5 (I) from engaging in any activity

6 described in this clause that would not

7 violate section 106 of the Bank Hold8 ing Company Act Amendments of

9 1970, as interpreted by the Board of

10 Governors of the Federal Reserve Sys11 tem; or

12 (II) from informing a customer or

13 prospective customer that insurance is

14 required in order to obtain a loan or

15 credit, that loan or credit approval is

16 contingent upon the procurement by

17 the customer of acceptable insurance,

18 or that insurance is available from the

19 insured depository institution or

20 wholesale financial institution, or any

21 subsidiary or affiliate thereof.

22 (ix) Restrictions requiring, when an

23 application by a consumer for a loan or

24 other extension of credit from an insured

25 depository institution or wholesale financial
53

•S 900 EAH

1 institution is pending, and insurance is of2 fered or sold to the consumer or is required

3 in connection with the loan or extension of

4 credit by the insured depository institution

5 or wholesale financial institution or any af6 filiate or subsidiary thereof, that a written

7 disclosure be provided to the consumer or

8 prospective customer indicating that his or

9 her choice of an insurance provider will not

10 affect the credit decision or credit terms in

11 any way, except that the insured depository

12 institution or wholesale financial institu13 tion may impose reasonable requirements

14 concerning the creditworthiness of the insur15 ance provider and scope of coverage chosen.

16 (x) Restrictions requiring clear and

17 conspicuous disclosure, in writing, where

18 practicable, to the customer prior to the sale

19 of any insurance policy that such policy—

20 (I) is not a deposit;

21 (II) is not insured by the Federal

22 Deposit Insurance Corporation;

23 (III) is not guaranteed by the in24 sured depository institution or whole25 sale financial institution or, if appro-
54

•S 900 EAH

1 priate, its subsidiaries or affiliates or

2 any person soliciting the purchase of

3 or selling insurance on the premises

4 thereof; and

5 (IV) where appropriate, involves

6 investment risk, including potential

7 loss of principal.

8 (xi) Restrictions requiring that, when

9 a customer obtains insurance (other than

10 credit insurance or flood insurance) and

11 credit from an insured depository institu12 tion or wholesale financial institution, or

13 its subsidiaries or affiliates, or any person

14 soliciting the purchase of or selling insur15 ance on the premises thereof, the credit and

16 insurance transactions be completed through

17 separate documents.

18 (xii) Restrictions prohibiting, when a

19 customer obtains insurance (other than

20 credit insurance or flood insurance) and

21 credit from an insured depository institu22 tion or wholesale financial institution or its

23 subsidiaries or affiliates, or any person so24 liciting the purchase of or selling insurance

25 on the premises thereof, inclusion of the ex-
55

•S 900 EAH

1 pense of insurance premiums in the pri2 mary credit transaction without the express

3 written consent of the customer.

4 (xiii) Restrictions requiring mainte5 nance of separate and distinct books and

6 records relating to insurance transactions,

7 including all files relating to and reflecting

8 consumer complaints, and requiring that

9 such insurance books and records be made

10 available to the appropriate State insurance

11 regulator for inspection upon reasonable no12 tice.

13 (C) LIMITATIONS.—

14 (i) OCC DEFERENCE.—Section 306(e)

15 does not apply with respect to any State

16 statute, regulation, order, interpretation, or

17 other action regarding insurance sales, so18 licitation, or cross marketing activities de19 scribed in subparagraph (A) that was

20 issued, adopted, or enacted before September

21 3, 1998, and that is not described in sub22 paragraph (B).

23 (ii) NONDISCRIMINATION.—Subsection

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

25 statute, regulation, order, interpretation, or
56

•S 900 EAH

1 other action regarding insurance sales, so2 licitation, or cross marketing activities de3 scribed in subparagraph (A) that was

4 issued, adopted, or enacted before September

5 3, 1998, and that is not described in sub6 paragraph (B).

7 (iii) CONSTRUCTION.—Nothing in this

8 paragraph shall be construed to limit the

9 applicability of the decision of the Supreme

10 Court in Barnett Bank of Marion County

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

12 respect to a State statute, regulation, order,

13 interpretation, or other action that is not

14 described in subparagraph (B).

15 (iv) LIMITATION ON INFERENCES.—

16 Nothing in this paragraph shall be con17 strued to create any inference with respect

18 to any State statute, regulation, order, in19 terpretation, or other action that is not re20 ferred to or described in this paragraph.

21 (3) INSURANCE ACTIVITIES OTHER THAN

22 SALES.—State statutes, regulations, interpretations,

23 orders, and other actions shall not be preempted

24 under subsection (b)(1) to the extent that they—
57

•S 900 EAH

1 (A) relate to, or are issued, adopted, or en2 acted for the purpose of regulating the business

3 of insurance in accordance with the Act of March

4 9, 1945 (commonly known as the ‘‘McCarran5 Ferguson Act’’);

6 (B) apply only to persons or entities that

7 are not insured depository institutions or whole8 sale financial institutions, but that are directly

9 engaged in the business of insurance (except that

10 they may apply to depository institutions en11 gaged in providing savings bank life insurance

12 as principal to the extent of regulating such in13 surance);

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

15 regulate insurance sales, solicitations, or cross16 marketing activities; and

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

18 (4) FINANCIAL ACTIVITIES OTHER THAN INSUR19 ANCE.—No State statute, regulation, interpretation,

20 order, or other action shall be preempted under sub21 section (b)(1) to the extent that—

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

23 and adopted, or enacted for the purpose of regu24 lating, directly or indirectly, insurance sales, so-
58

•S 900 EAH

1 licitations, or cross marketing activities covered

2 under paragraph (2);

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

4 and adopted, or enacted for the purpose of regu5 lating, directly or indirectly, the business of in6 surance activities other than sales, solicitations,

7 or cross marketing activities, covered under

8 paragraph (3);

9 (C) it does not relate to securities investiga10 tions or enforcement actions referred to in sub11 section (d); and

12 (D) it—

13 (i) does not distinguish by its terms be14 tween insured depository institutions,

15 wholesale financial institutions, and sub16 sidiaries and affiliates thereof engaged in

17 the activity at issue and other persons or

18 entities engaged in the same activity in a

19 manner that is in any way adverse with re20 spect to the conduct of the activity by any

21 such insured depository institution, whole22 sale financial institution, or subsidiary or

23 affiliate thereof engaged in the activity at

24 issue;
59

•S 900 EAH

1 (ii) as interpreted or applied, does not

2 have, and will not have, an impact on de3 pository institutions, wholesale financial in4 stitutions, or subsidiaries or affiliates there5 of engaged in the activity at issue, or any

6 person or entity affiliated therewith, that is

7 substantially more adverse than its impact

8 on other persons or entities engaged in the

9 same activity that are not insured deposi10 tory institutions, wholesale financial insti11 tutions, or subsidiaries or affiliates thereof,

12 or persons or entities affiliated therewith;

13 (iii) does not effectively prevent a de14 pository institution, wholesale financial in15 stitution, or subsidiary or affiliate thereof

16 from engaging in activities authorized or

17 permitted by this Act or any other provi18 sion of Federal law; and

19 (iv) does not conflict with the intent of

20 this Act generally to permit affiliations that

21 are authorized or permitted by Federal law.

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

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

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

25 regulate the insurance activities authorized or permitted
60

•S 900 EAH

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

2 insured depository institution or wholesale financial insti3 tution, or subsidiary or affiliate thereof, to the extent that

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

5 action—

6 (1) distinguishes by its terms between insured

7 depository institutions or wholesale financial institu8 tions, or subsidiaries or affiliates thereof, and other

9 persons or entities engaged in such activities, in a

10 manner that is in any way adverse to any such in11 sured depository institution or wholesale financial in12 stitution, or subsidiary or affiliate thereof;

13 (2) as interpreted or applied, has or will have an

14 impact on depository institutions or wholesale finan15 cial institutions, or subsidiaries or affiliates thereof,

16 that is substantially more adverse than its impact on

17 other persons or entities providing the same products

18 or services or engaged in the same activities that are

19 not insured depository institutions, wholesale finan20 cial institutions, or subsidiaries or affiliates thereof,

21 or persons or entities affiliated therewith;

22 (3) effectively prevents a depository institution

23 or wholesale financial institution, or subsidiary or af24 filiate thereof, from engaging in insurance activities
61

•S 900 EAH

1 authorized or permitted by this Act or any other pro2 vision of Federal law; or

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

4 to permit affiliations that are authorized or permitted

5 by Federal law between insured depository institu6 tions or wholesale financial institutions, or subsidi7 aries or affiliates thereof, and persons and entities en8 gaged in the business of insurance.

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

10 construed to affect the jurisdiction of the securities commis11 sion (or any agency or office performing like functions) of

12 any State, under the laws of such State—

13 (1) to investigate and bring enforcement actions,

14 consistent with section 18(c) of the Securities Act of

15 1933, with respect to fraud or deceit or unlawful con16 duct by any person, in connection with securities or

17 securities transactions; or

18 (2) to require the registration of securities or the

19 licensure or registration of brokers, dealers, or invest20 ment advisers (consistent with section 203A of the In21 vestment Advisers Act of 1940), or the associated per22 sons of a broker, dealer, or investment adviser (con23 sistent with such section 203A).

24 (e) DEFINITIONS.—For purposes of this section, the fol25 lowing definitions shall apply:
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•S 900 EAH

1 (1) INSURED DEPOSITORY INSTITUTION.—The

2 term ‘‘insured depository institution’’ includes any

3 foreign bank that maintains a branch, agency, or

4 commercial lending company in the United States.

5 (2) STATE.—The term ‘‘State’’ means any State

6 of the United States, the District of Columbia, any

7 territory of the United States, Puerto Rico, Guam,

8 American Samoa, the Trust Territory of the Pacific

9 Islands, the Virgin Islands, and the Northern Mar10 iana Islands.

11 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR12 IZED.

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

14 1956 (12 U.S.C. 1842(g)(2)) is amended to read as follows:

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

16 organized as a mutual holding company shall be reg17 ulated on terms, and shall be subject to limitations,

18 comparable to those applicable to any other bank

19 holding company.’’.

20 SEC. 105A. PUBLIC MEETINGS FOR LARGE BANK ACQUISI21 TIONS AND MERGERS.

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

23 3(c)(2) of the Bank Holding Company Act of 1956 (12

24 U.S.C. 1842(c)(2)) is amended—
63

•S 900 EAH

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

2 inserting ‘‘FACTORS.—

3 ‘‘(A) IN GENERAL.—In every case’’; and

4 (2) by adding at the end the following new sub5 paragraph:

6 ‘‘(B) PUBLIC MEETINGS.—In each case in7 volving one or more insured depository institu8 tions each of which has total assets of

9 $1,000,000,000 or more, the Board shall, as nec10 essary and on a timely basis, conduct public

11 meetings in one or more areas where the Board

12 believes, in the sole discretion of the Board, there

13 will be a substantial public impact.’’.

14 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section

15 18(c) of the Federal Deposit Insurance Act (12 U.S.C.

16 1828(c)) is amended by adding at the end the following new

17 paragraph:

18 ‘‘(12) PUBLIC MEETINGS.—In each merger transaction

19 involving one or more insured depository institutions each

20 of which has total assets of $1,000,000,000 or more, the re21 sponsible agency shall, as necessary and on a timely basis,

22 conduct public meetings in one or more areas where the

23 agency believes, in the sole discretion of the agency, there

24 will be a substantial public impact.’’.
64

•S 900 EAH

1 (c) NATIONAL BANK CONSOLIDATION AND MERGER

2 ACT.—The National Bank Consolidation and Merger Act

3 (12 U.S.C. 215 et seq.) is amended by adding at the end

4 the following new section:

5 ‘‘SEC. 6. PUBLIC MEETINGS FOR LARGE BANK CONSOLIDA6 TIONS AND MERGERS.

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

8 Act involving one or more banks each of which has total

9 assets of $1,000,000,000 or more, the Comptroller shall, as

10 necessary and on a timely basis, conduct public meetings

11 in one or more areas where the Comptroller believes, in the

12 sole discretion of the Comptroller, there will be a substantial

13 public impact.’’.

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

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

16 adding at the end the following new paragraph:

17 ‘‘(7) PUBLIC MEETINGS FOR LARGE DEPOSITORY

18 INSTITUTION ACQUISITIONS AND MERGERS.—In each

19 case involving one or more insured depository institu20 tions each of which has total assets of $1,000,000,000

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

22 timely basis, conduct public meetings in one or more

23 areas where the Director believes, in the sole discre24 tion of the Director, there will be a substantial public

25 impact.’’.
65

•S 900 EAH

1 SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF2 FICES.

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

4 Interstate Banking and Branching Efficiency Act of 1994

5 (12 U.S.C. 1835a(d)) is amended—

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

7 1999,’’ after ‘‘pursuant to this title’’; and

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

9 this title’’.

10 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec11 tion 109(e)(4) of the Riegle-Neal Interstate Banking and

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

13 is amended by inserting ‘‘and any branch of a bank con14 trolled by an out-of-State bank holding company (as defined

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

16 1956)’’ before the period.

17 SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE18 MENTS.

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

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

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

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

23 Company Act of 1956)’’ before the period.
66

•S 900 EAH

1 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE

2 BANKS.

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

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

5 (1) in paragraph (2)(A)(ii)—

6 (A) by striking ‘‘and’’ at the end of sub7 clause (IX);

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

9 at the end of subclause (X); and

10 (C) by inserting after subclause (X) the fol11 lowing new subclause:

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

13 or are incidental to, consumer lending

14 activities in which institutions de15 scribed in subparagraph (F) or (H) of

16 section 2(c)(2) are permitted to en17 gage,’’;

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

19 (B) and inserting the following new subparagraphs:

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

21 engages in any activity in which the bank was

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

23 the bank is well managed and well capitalized;

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

25 both—
67

•S 900 EAH

1 ‘‘(i) accepts demand deposits or depos2 its that the depositor may withdraw by

3 check or similar means for payment to

4 third parties; and

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

6 commercial loans (and, for purposes of this

7 clause, loans made in the ordinary course of

8 a credit card operation shall not be treated

9 as commercial loans); or

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

11 Competitive Equality Amendments of 1987, any

12 bank subsidiary of such company permits any

13 overdraft (including any intraday overdraft), or

14 incurs any such overdraft in such bank’s account

15 at a Federal Reserve bank, on behalf of an affil16 iate, other than an overdraft described in para17 graph (3).’’; and

18 (3) by striking paragraphs (3) and (4) and in19 serting the following new paragraphs:

20 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

21 For purposes of paragraph (2)(D), an overdraft is de22 scribed in this paragraph if—

23 ‘‘(A) such overdraft results from an inad24 vertent computer or accounting error that is be-
68

•S 900 EAH

1 yond the control of both the bank and the affil2 iate;

3 ‘‘(B) such overdraft—

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

5 of an affiliate which is monitored by, re6 ports to, and is recognized as a primary

7 dealer by the Federal Reserve Bank of New

8 York; and

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

10 the Board, by bonds, notes, or other obliga11 tions which are direct obligations of the

12 United States or on which the principal

13 and interest are fully guaranteed by the

14 United States or by securities and obliga15 tions eligible for settlement on the Federal

16 Reserve book entry system; or

17 ‘‘(C) such overdraft—

18 ‘‘(i) is incurred on behalf of an affil19 iate solely in connection with an activity

20 that is so closely related to banking, or

21 managing or controlling banks, as to be a

22 proper incident thereto, to the extent the

23 bank incurring the overdraft and the affil24 iate on whose behalf the overdraft is in-
69

•S 900 EAH

1 curred each document that the overdraft is

2 incurred for such purpose; and

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

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

5 Federal Reserve Act, either directly, in the

6 case of a member bank, or by virtue of sec7 tion 18(j) of the Federal Deposit Insurance

8 Act, in the case of a nonmember bank.

9 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EXEMP10 TION.—If any company described in paragraph (1)

11 fails to qualify for the exemption provided under such

12 paragraph by operation of paragraph (2), such ex13 emption shall cease to apply to such company and

14 such company shall divest control of each bank it con15 trols before the end of the 180-day period beginning

16 on the date that the company receives notice from the

17 Board that the company has failed to continue to

18 qualify for such exemption, unless before the end of

19 such 180-day period, the company has—

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

21 activity that caused the company to fail to con22 tinue to qualify for the exemption; and

23 ‘‘(B) implemented procedures that are rea24 sonably adapted to avoid the reoccurrence of such

25 condition or activity.
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•S 900 EAH

1 The issuance of any notice under this paragraph that

2 relates to the activities of a bank shall not be con3 strued as affecting the authority of the bank to con4 tinue to engage in such activities until the expiration

5 of such 180-day period.’’.

6 (b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER7 DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com8 pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended

9 by inserting before the period at the end ‘‘, or that is other10 wise permissible for a bank controlled by a company de11 scribed in section 4(f)(1)’’.

12 SEC. 109. GAO STUDY OF ECONOMIC IMPACT ON COMMU13 NITY BANKS, OTHER SMALL FINANCIAL INSTI14 TUTIONS, INSURANCE AGENTS, AND CON15 SUMERS.

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

17 the United States shall conduct a study of the projected eco18 nomic impact and the actual economic impact that the en19 actment of this Act will have on financial institutions, in20 cluding community banks, registered brokers and dealers

21 and insurance companies, which have total assets of

22 $100,000,000 or less, insurance agents, and consumers.

23 (b) REPORTS TO THE CONGRESS.—

24 (1) IN GENERAL.—The Comptroller General of

25 the United States shall submit reports to the Con-
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•S 900 EAH

1 gress, at the times required under paragraph (2), con2 taining the findings and conclusions of the Comp3 troller General with regard to the study required

4 under subsection (a) and such recommendations for

5 legislative or administrative action as the Comptroller

6 General may determine to be appropriate.

7 (2) TIMING OF REPORTS.—The Comptroller Gen8 eral shall submit—

9 (A) an interim report before the end of the

10 6-month period beginning after the date of the

11 enactment of this Act;

12 (B) another interim report before the end of

13 the next 6-month period; and

14 (C) a final report before the end of the 1-

15 year period after such second 6-month period,’’.

16 SEC. 110. RESPONSIVENESS TO COMMUNITY NEEDS FOR FI17 NANCIAL SERVICES.

18 (a) STUDY.—The Secretary of the Treasury, in con19 sultation with the Federal banking agencies (as defined in

20 section 3(z) of the Federal Deposit Insurance Act), shall

21 conduct a study of the extent to which adequate services are

22 being provided as intended by the Community Reinvest23 ment Act of 1977, including services in low- and moderate24 income neighborhoods and for persons of modest means, as

25 a result of the enactment of this Act.
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1 (b) REPORT.—Before the end of the 2-year period be2 ginning on the date of the enactment of this Act, the Sec3 retary of the Treasury, in consultation with the Federal

4 banking agencies, shall submit a report to the Congress on

5 the study conducted pursuant to subsection (a) and shall

6 include such recommendations as the Secretary determines

7 to be appropriate for administrative and legislative action

8 with respect to institutions covered under the Community

9 Reinvestment Act of 1977.

10 SEC. 110A. STUDY OF FINANCIAL MODERNIZATION’S AF11 FECT ON THE ACCESSIBILITY OF SMALL BUSI12 NESS AND FARM LOANS.

13 (a) STUDY.—The Secretary of the Treasury, in con14 sultation with the Federal banking agencies (as defined in

15 Section 3(z) of the Federal Deposit Insurance Act), shall

16 conduct a study of the extent to which credit is being pro17 vided to and for small business and farms, as a result of

18 this Act.

19 (b) REPORT.—Before the end of the 5-year period be20 ginning on the date of the enactment of this Act, the Sec21 retary, in consultation with the Federal banking agencies,

22 shall submit a report to the Congress on the study conducted

23 pursuant to subsection (a) and shall include such rec24 ommendations as the Secretary determines to be appro25 priate for administrative and legislative action.
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1 Subtitle B—Streamlining Super2 vision of Financial Holding

3 Companies

4 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY

5 SUPERVISION.

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

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

8 ‘‘(c) REPORTS AND EXAMINATIONS.—

9 ‘‘(1) REPORTS.—

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

11 time may require any bank holding company

12 and any subsidiary of such company to submit

13 reports under oath to keep the Board informed as

14 to—

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

16 monitoring and controlling financial and

17 operating risks, and transactions with de18 pository institution subsidiaries of the hold19 ing company; and

20 ‘‘(ii) compliance by the company or

21 subsidiary with applicable provisions of

22 this Act.

23 ‘‘(B) USE OF EXISTING REPORTS.—

24 ‘‘(i) IN GENERAL.—The Board shall, to

25 the fullest extent possible, accept reports in
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•S 900 EAH

1 fulfillment of the Board’s reporting require2 ments under this paragraph that a bank

3 holding company or any subsidiary of such

4 company has provided or been required to

5 provide to other Federal and State super6 visors or to appropriate self-regulatory or7 ganizations.

8 ‘‘(ii) AVAILABILITY.—A bank holding

9 company or a subsidiary of such company

10 shall provide to the Board, at the request of

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

12 ‘‘(iii) REQUIRED USE OF PUBLICLY

13 REPORTED INFORMATION.—The Board

14 shall, to the fullest extent possible, accept in

15 fulfillment of any reporting or record16 keeping requirements under this Act infor17 mation that is otherwise required to be re18 ported publicly and externally audited fi19 nancial statements.

20 ‘‘(iv) REPORTS FILED WITH OTHER

21 AGENCIES.—In the event the Board requires

22 a report from a functionally regulated non23 depository institution subsidiary of a bank

24 holding company of a kind that is not re25 quired by another Federal or State regu-
75

•S 900 EAH

1 lator or appropriate self-regulatory organi2 zation, the Board shall request that the ap3 propriate regulator or self-regulatory orga4 nization obtain such report. If the report is

5 not made available to the Board, and the

6 report is necessary to assess a material risk

7 to the bank holding company or any of its

8 subsidiary depository institutions or com9 pliance with this Act, the Board may re10 quire such subsidiary to provide such a re11 port to the Board.

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

13 subsection, the term ‘functionally regulated non14 depository institution’ means—

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

16 the Securities Exchange Act of 1934;

17 ‘‘(ii) an investment adviser registered

18 under the Investment Advisers Act of 1940,

19 or with any State, with respect to the in20 vestment advisory activities of such invest21 ment adviser and activities incidental to

22 such investment advisory activities;

23 ‘‘(iii) an insurance company subject to

24 supervision by a State insurance commis25 sion, agency, or similar authority; and
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•S 900 EAH

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

2 the Commodity Futures Trading Commis3 sion, with respect to the commodities activi4 ties of such entity and activities incidental

5 to such commodities activities.

6 ‘‘(2) EXAMINATIONS.—

7 ‘‘(A) EXAMINATION AUTHORITY.—

8 ‘‘(i) IN GENERAL.—The Board may

9 make examinations of each bank holding

10 company and each subsidiary of a bank

11 holding company.

12 ‘‘(ii) FUNCTIONALLY REGULATED NON13 DEPOSITORY INSTITUTION SUBSIDIARIES.—

14 Notwithstanding clause (i), the Board may

15 make examinations of a functionally regu16 lated nondepository institution subsidiary

17 of a bank holding company only if—

18 ‘‘(I) the Board has reasonable

19 cause to believe that such subsidiary is

20 engaged in activities that pose a mate21 rial risk to an affiliated depository in22 stitution; or

23 ‘‘(II) based on reports and other

24 available information, the Board has

25 reasonable cause to believe that a sub-
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•S 900 EAH

1 sidiary is not in compliance with this

2 Act or with provisions relating to

3 transactions with an affiliated deposi4 tory institution and the Board cannot

5 make such determination through ex6 amination of the affiliated depository

7 institution or bank holding company.

8 ‘‘(B) LIMITATIONS ON EXAMINATION AU9 THORITY FOR BANK HOLDING COMPANIES AND

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

11 the Board may make examinations under sub12 paragraph (A)(i) of each bank holding company

13 and each subsidiary of such holding company in

14 order to—

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

16 the operations and financial condition of

17 the holding company and such subsidiaries;

18 ‘‘(ii) inform the Board of—

19 ‘‘(I) the financial and operational

20 risks within the holding company sys21 tem that may pose a threat to the safe22 ty and soundness of any subsidiary de23 pository institution of such holding

24 company; and
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1 ‘‘(II) the systems for monitoring

2 and controlling such risks; and

3 ‘‘(iii) monitor compliance with the

4 provisions of this Act and those governing

5 transactions and relationships between any

6 subsidiary depository institution and its af7 filiates.

8 ‘‘(C) RESTRICTED FOCUS OF EXAMINA9 TIONS.—The Board shall, to the fullest extent

10 possible, limit the focus and scope of any exam11 ination of a bank holding company to—

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

13 ‘‘(ii) any subsidiary of the holding

14 company that, because of—

15 ‘‘(I) the size, condition, or activi16 ties of the subsidiary; or

17 ‘‘(II) the nature or size of trans18 actions between such subsidiary and

19 any depository institution which is

20 also a subsidiary of such holding com21 pany,

22 could have a materially adverse effect on the

23 safety and soundness of any depository in24 stitution affiliate of the holding company.
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•S 900 EAH

1 ‘‘(D) DEFERENCE TO BANK EXAMINA2 TIONS.—The Board shall, to the fullest extent

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

4 the reports of examinations of depository institu5 tions made by the appropriate Federal and State

6 depository institution supervisory authority.

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

9 possible, address the circumstances which might

10 otherwise permit or require an examination by

11 the Board by forgoing an examination and in12 stead reviewing the reports of examination made

13 of—

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

15 or on behalf of the Securities and Exchange

16 Commission;

17 ‘‘(ii) any investment adviser registered

18 by or on behalf of either the Securities and

19 Exchange Commission or any State, which20 ever is required by law;

21 ‘‘(iii) any licensed insurance company

22 by or on behalf of any State regulatory au23 thority responsible for the supervision of in24 surance companies; and
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•S 900 EAH

1 ‘‘(iv) any other subsidiary that the

2 Board finds to be comprehensively super3 vised by a Federal or State authority.

4 ‘‘(3) CAPITAL.—

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

6 regulation, guideline, order or otherwise, pre7 scribe or impose any capital or capital adequacy

8 rules, guidelines, standards, or requirements on

9 any subsidiary of a financial holding company

10 that is not a depository institution and—

11 ‘‘(i) is in compliance with applicable

12 capital requirements of another Federal reg13 ulatory authority (including the Securities

14 and Exchange Commission) or State insur15 ance authority;

16 ‘‘(ii) is registered as an investment ad17 viser under the Investment Advisers Act of

18 1940, or with any State, whichever is re19 quired by law; or

20 ‘‘(iii) is licensed as an insurance agent

21 with the appropriate State insurance au22 thority.

23 ‘‘(B) RULE OF CONSTRUCTION.—Subpara24 graph (A) shall not be construed as preventing

25 the Board from imposing capital or capital ade-
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•S 900 EAH

1 quacy rules, guidelines, standards, or require2 ments with respect to—

3 ‘‘(i) activities of a registered invest4 ment adviser other than investment advi5 sory activities or activities incidental to in6 vestment advisory activities; or

7 ‘‘(ii) activities of a licensed insurance

8 agent other than insurance agency activities

9 or activities incidental to insurance agency

10 activities.

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

12 In developing, establishing, or assessing holding

13 company capital or capital adequacy rules,

14 guidelines, standards, or requirements for pur15 poses of this paragraph, the Board shall not take

16 into account the activities, operations, or invest17 ments of an affiliated investment company reg18 istered under the Investment Company Act of

19 1940, unless the investment company is—

20 ‘‘(i) a bank holding company; or

21 ‘‘(ii) controlled by a bank holding com22 pany by reason of ownership by the bank

23 holding company (including through all of

24 its affiliates) of 25 percent or more of the

25 shares of the investment company, and the
82

•S 900 EAH

1 shares owned by the bank holding company

2 have a market value equal to more than

3 $1,000,000.

4 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP5 PROPRIATE FEDERAL BANKING AGENCY.—

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

7 holding company which is not significantly en8 gaged in nonbanking activities, the Board, in

9 consultation with the appropriate Federal bank10 ing agency, may designate the appropriate Fed11 eral banking agency of the lead insured deposi12 tory institution subsidiary of such holding com13 pany as the appropriate Federal banking agency

14 for the bank holding company.

15 ‘‘(B) AUTHORITY TRANSFERRED.—An agen16 cy designated by the Board under subparagraph

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

18 under this Act to—

19 ‘‘(i) examine and require reports from

20 the bank holding company and any affiliate

21 of such company (other than a depository

22 institution) under section 5;

23 ‘‘(ii) approve or disapprove applica24 tions or transactions under section 3;
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•S 900 EAH

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

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

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

8 such company or affiliate under the Federal

9 Deposit Insurance Act and any other stat10 ute which the Board may designate.

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

12 Act and section 105 of the Bank Holding Com13 pany Act Amendments of 1970 shall apply to or14 ders issued by an agency designated under sub15 paragraph (A) in the same manner such sections

16 apply to orders issued by the Board.

17 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

18 AND INSURANCE ACTIVITIES.—The Board shall defer

19 to—

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

22 the enforcement of, applicable Federal securities

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

24 directives issued thereunder) relating to the ac25 tivities, conduct, and operations of registered
84

•S 900 EAH

1 brokers, dealers, investment advisers, and invest2 ment companies;

3 ‘‘(B) the relevant State securities authorities

4 with regard to all interpretations of, and the en5 forcement of, applicable State securities laws

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

8 conduct, and operations of brokers, dealers, and

9 investment advisers required to be registered

10 under State law; and

11 ‘‘(C) the relevant State insurance authori12 ties with regard to all interpretations of, and the

13 enforcement of, applicable State insurance laws

14 (and rules, regulations, orders, and other direc15 tives issued thereunder) relating to the activities,

16 conduct, and operations of insurance companies

17 and insurance agents.’’.

18 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT

19 FOR FINANCIAL HOLDING COMPANIES.

20 (a) PREVENTION OF DUPLICATIVE FILINGS.—Section

21 5(a) of the Bank Holding Company Act of 1956 (12 U.S.C.

22 1844(a)) is amended by adding the following new sentence

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

24 6(b)(1)(D) shall satisfy the requirements of this subsection

25 with regard to the registration of a bank holding company
85

•S 900 EAH

1 but not any requirement to file an application to acquire

2 a bank pursuant to section 3.’’.

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

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

5 1844(e)(1)) is amended—

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

8 Institutions Supervisory Act of 1966, at the election

9 of the bank holding company—

10 ‘‘(A) order’’; and

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

12 company. Such distribution’’ and inserting ‘‘share13 holders of the bank holding company; or

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

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

17 which shall be the Comptroller of the Currency in the

18 case of a national bank, and the Federal Deposit In19 surance Corporation and the appropriate State super20 visor in the case of an insured nonmember bank, to

21 terminate (within 120 days or such longer period as

22 the Board may direct) the ownership or control of

23 any such bank by such company.

24 The distribution referred to in subparagraph (A)’’.
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•S 900 EAH

1 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR

2 AND SECURITIES AND EXCHANGE COMMIS3 SION.

4 (a) BANK HOLDING COMPANIES.—Section 5 of the

5 Bank Holding Company Act of 1956 (12 U.S.C. 1844) is

6 amended by adding at the end the following new subsection:

7 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

8 AND THE SECURITIES AND EXCHANGE COMMISSION.—

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

10 provision of law, any regulation, order, or other ac11 tion of the Board which requires a bank holding com12 pany to provide funds or other assets to a subsidiary

13 insured depository institution shall not be effective

14 nor enforceable with respect to an entity described in

15 subparagraph (A) if—

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

17 by—

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

19 an insurance company, a broker or dealer

20 registered under the Securities Exchange

21 Act of 1934, an investment company reg22 istered under the Investment Company Act

23 of 1940, or an investment adviser registered

24 by or on behalf of either the Securities and

25 Exchange Commission or any State; or
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•S 900 EAH

1 ‘‘(ii) an affiliate of the depository in2 stitution which is an insurance company or

3 a broker or dealer registered under the Secu4 rities Exchange Act of 1934, an investment

5 company registered under the Investment

6 Company Act of 1940, or an investment ad7 viser registered by or on behalf of either the

8 Securities and Exchange Commission or

9 any State; and

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

11 insurance company or the Securities and Ex12 change Commission for the registered broker,

13 dealer, investment adviser (solely with respect to

14 investment advisory activities or activities inci15 dental thereto), or investment company, as the

16 case may be, determines in writing sent to the

17 holding company and the Board that the holding

18 company shall not provide such funds or assets

19 because such action would have a material ad20 verse effect on the financial condition of the in21 surance company or the broker, dealer, invest22 ment company, or investment adviser, as the

23 case may be.

24 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

25 OR SEC REQUIRED.—If the Board requires a bank
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•S 900 EAH

1 holding company, or an affiliate of a bank holding

2 company, which is an insurance company or a

3 broker, dealer, investment company, or investment ad4 viser described in paragraph (1)(A) to provide funds

5 or assets to an insured depository institution sub6 sidiary of the holding company pursuant to any regu7 lation, order, or other action of the Board referred to

8 in paragraph (1), the Board shall promptly notify the

9 State insurance authority for the insurance company,

10 the Securities and Exchange Commission, or State se11 curities regulator, as the case may be, of such require12 ment.

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

14 If the Board receives a notice described in paragraph

15 (1)(B) from a State insurance authority or the Secu16 rities and Exchange Commission with regard to a

17 bank holding company or affiliate referred to in that

18 paragraph, the Board may order the bank holding

19 company to divest the insured depository institution

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

21 such longer period as the Board determines consistent

22 with the safe and sound operation of the insured de23 pository institution.

24 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur25 ing the period beginning on the date an order to di-
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•S 900 EAH

1 vest is issued by the Board under paragraph (3) to

2 a bank holding company and ending on the date the

3 divestiture is completed, the Board may impose any

4 conditions or restrictions on the holding company’s

5 ownership or operation of the insured depository in6 stitution, including restricting or prohibiting trans7 actions between the insured depository institution and

8 any affiliate of the institution, as are appropriate

9 under the circumstances.’’.

10 (b) SUBSIDIARIES OF DEPOSITORY INSTITUTIONS.—

11 The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.)

12 is amended by adding at the end the following new section:

13 ‘‘SEC. 45. AUTHORITY OF STATE INSURANCE REGULATOR

14 AND SECURITIES AND EXCHANGE COMMIS15 SION.

16 ‘‘(a) IN GENERAL.—Notwithstanding any other provi17 sion of law, any regulation, order, or other action of the

18 appropriate Federal banking agency which requires a sub19 sidiary to provide funds or other assets to an insured depos20 itory institution shall not be effective nor enforceable with

21 respect to an entity described in paragraph (1) if—

22 ‘‘(1) such funds or assets are to be provided by

23 a subsidiary which is an insurance company, a

24 broker or dealer registered under the Securities Ex25 change Act of 1934, an investment company reg-
90

•S 900 EAH

1 istered under the Investment Company Act of 1940,

2 or an investment adviser registered by or on behalf of

3 either the Securities and Exchange Commission or

4 any State; and

5 ‘‘(2) the State insurance authority for the insur6 ance company or the Securities and Exchange Com7 mission for the registered broker or dealer, the invest8 ment company, or the investment adviser, as the case

9 may be, determines in writing sent to the insured de10 pository institution and the appropriate Federal

11 banking agency that the subsidiary shall not provide

12 such funds or assets because such action would have

13 a material adverse effect on the financial condition of

14 the insurance company or the broker, dealer, invest15 ment company, or investment adviser, as the case

16 may be.

17 ‘‘(b) NOTICE TO STATE INSURANCE AUTHORITY OR

18 SEC REQUIRED.—If the appropriate Federal banking

19 agency requires a subsidiary, which is an insurance com20 pany, a broker or dealer, an investment company, or an

21 investment adviser (solely with respect to investment advi22 sory activities or activities incidental thereto) described in

23 subsection (a)(1) to provide funds or assets to an insured

24 depository institution pursuant to any regulation, order,

25 or other action of the appropriate Federal banking agency
91

•S 900 EAH

1 referred to in subsection (a), the appropriate Federal bank2 ing agency shall promptly notify the State insurance au3 thority for the insurance company, the Securities and Ex4 change Commission, or State securities regulator, as the

5 case may be, of such requirement.

6 ‘‘(c) DIVESTITURE IN LIEU OF OTHER ACTION.—If the

7 appropriate Federal banking agency receives a notice de8 scribed in subsection (a)(2) from a State insurance author9 ity or the Securities and Exchange Commission with regard

10 to a subsidiary referred to in that subsection, the appro11 priate Federal banking agency may order the insured de12 pository institution to divest the subsidiary not later than

13 180 days after receiving the notice, or such longer period

14 as the appropriate Federal banking agency determines con15 sistent with the safe and sound operation of the insured de16 pository institution.

17 ‘‘(d) CONDITIONS BEFORE DIVESTITURE.—During the

18 period beginning on the date an order to divest is issued

19 by the appropriate Federal banking agency under sub20 section (c) to an insured depository institution and ending

21 on the date the divestiture is complete, the appropriate Fed22 eral banking agency may impose any conditions or restric23 tions on the insured depository institution’s ownership of

24 the subsidiary including restricting or prohibiting trans-
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•S 900 EAH

1 actions between the insured depository institution and the

2 subsidiary, as are appropriate under the circumstances.’’.

3 SEC. 114. PRUDENTIAL SAFEGUARDS.

4 (a) COMPTROLLER OF THE CURRENCY.—

5 (1) IN GENERAL.—The Comptroller of the Cur6 rency may, by regulation or order, impose restrictions

7 or requirements on relationships or transactions be8 tween a national bank and a subsidiary of the na9 tional bank which the Comptroller finds are con10 sistent with the public interest, the purposes of this

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

12 States, and other Federal law applicable to national

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

14 (2) STANDARDS.—The Comptroller of the Cur15 rency may exercise authority under paragraph (1) if

16 the Comptroller finds that such action will have any

17 of the following effects:

18 (A) Avoid any significant risk to the safety

19 and soundness of depository institutions or any

20 Federal deposit insurance fund.

21 (B) Enhance the financial stability of

22 banks.

23 (C) Avoid conflicts of interest or other

24 abuses.
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•S 900 EAH

1 (D) Enhance the privacy of customers of the

2 national bank or any subsidiary of the bank.

3 (E) Promote the application of national

4 treatment and equality of competitive oppor5 tunity between subsidiaries owned or controlled

6 by domestic banks and subsidiaries owned or

7 controlled by foreign banks operating in the

8 United States.

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

10 shall regularly—

11 (A) review all restrictions or requirements

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

14 such restriction or requirement to carry out the

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

17 (B) modify or eliminate any restriction or

18 requirement the Comptroller finds is no longer

19 required for such purposes.

20 (b) BOARD OF GOVERNORS OF THE FEDERAL RE21 SERVE SYSTEM.—

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

23 Federal Reserve System may, by regulation or order,

24 impose restrictions or requirements on relationships

25 or transactions—
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•S 900 EAH

1 (A) between a depository institution sub2 sidiary of a bank holding company and any af3 filiate of such depository institution (other than

4 a subsidiary of such institution); or

5 (B) between a State member bank and a

6 subsidiary of such bank,

7 which the Board finds are consistent with the public

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

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

10 other Federal law applicable to depository institution

11 subsidiaries of bank holding companies or State banks

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

13 (2).

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

15 Federal Reserve System may exercise authority under

16 paragraph (1) if the Board finds that such action will

17 have any of the following effects:

18 (A) Avoid any significant risk to the safety

19 and soundness of depository institutions or any

20 Federal deposit insurance fund.

21 (B) Enhance the financial stability of bank

22 holding companies.

23 (C) Avoid conflicts of interest or other

24 abuses.
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•S 900 EAH

1 (D) Enhance the privacy of customers of the

2 State member bank or any subsidiary of the

3 bank.

4 (E) Promote the application of national

5 treatment and equality of competitive oppor6 tunity between nonbank affiliates owned or con7 trolled by domestic bank holding companies and

8 nonbank affiliates owned or controlled by foreign

9 banks operating in the United States.

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

11 Federal Reserve System shall regularly—

12 (A) review all restrictions or requirements

13 established pursuant to paragraph (1) to deter14 mine whether there is a continuing need for any

15 such restriction or requirement to carry out the

16 purposes of the Act, including any purpose de17 scribed in paragraph (2); and

18 (B) modify or eliminate any restriction or

19 requirement the Board finds is no longer re20 quired for such purposes.

21 (4) FOREIGN BANKS.—

22 (A) IN GENERAL.—The Board may, by reg23 ulation or order, impose restrictions or require24 ments on relationships or transactions between a

25 branch, agency, or commercial lending company
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•S 900 EAH

1 of a foreign bank in the United States and any

2 affiliate in the United States of such foreign

3 bank that the Board finds are consistent with the

4 public interest, the purposes of this Act, the

5 Bank Holding Company Act of 1956, the Federal

6 Reserve Act, and other Federal law applicable to

7 foreign banks and their affiliates in the United

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

9 (3).

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

11 determines that there may be circumstances that

12 would result in an evasion of this paragraph, the

13 Board may also impose restrictions or require14 ments on relationships or transactions between a

15 foreign bank outside the United States and any

16 affiliate in the United States of such foreign

17 bank that are consistent with national treatment

18 and equality of competitive opportunity.

19 (c) FEDERAL DEPOSIT INSURANCE CORPORATION.—

20 (1) IN GENERAL.—The Federal Deposit Insur21 ance Corporation may, by regulation or order, impose

22 restrictions or requirements on relationships or trans23 actions between a State nonmember bank (as defined

24 in section 3 of the Federal Deposit Insurance Act)

25 and a subsidiary of the State nonmember bank which
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•S 900 EAH

1 the Corporation finds are consistent with the public

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

3 Insurance Act, or other Federal law applicable to

4 State nonmember banks and the standards in para5 graph (2).

6 (2) STANDARDS.—The Federal Deposit Insurance

7 Corporation may exercise authority under paragraph

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

9 any of the following effects:

10 (A) Avoid any significant risk to the safety

11 and soundness of depository institutions or any

12 Federal deposit insurance fund.

13 (B) Enhance the financial stability of

14 banks.

15 (C) Avoid conflicts of interest or other

16 abuses.

17 (D) Enhance the privacy of customers of the

18 State nonmember bank or any subsidiary of the

19 bank.

20 (E) Promote the application of national

21 treatment and equality of competitive oppor22 tunity between subsidiaries owned or controlled

23 by domestic banks and subsidiaries owned or

24 controlled by foreign banks operating in the

25 United States.
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•S 900 EAH

1 (3) REVIEW.—The Federal Deposit Insurance

2 Corporation shall regularly—

3 (A) review all restrictions or requirements

4 established pursuant to paragraph (1) to deter5 mine whether there is a continuing need for any

6 such restriction or requirement to carry out the

7 purposes of the Act, including any purpose de8 scribed in paragraph (2); and

9 (B) modify or eliminate any restriction or

10 requirement the Corporation finds is no longer

11 required for such purposes.

12 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

13 (a) EXCLUSIVE COMMISSION AUTHORITY.—

14 (1) IN GENERAL.—Except as provided in para15 graph (3), the Commission shall be the sole Federal

16 agency with authority to inspect and examine any

17 registered investment company that is not a bank

18 holding company or a savings and loan holding com19 pany.

20 (2) PROHIBITION ON BANKING AGENCIES.—Ex21 cept as provided in paragraph (3), a Federal banking

22 agency may not inspect or examine any registered in23 vestment company that is not a bank holding com24 pany or a savings and loan holding company.
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•S 900 EAH

1 (3) CERTAIN EXAMINATIONS AUTHORIZED.—

2 Nothing in this subsection prevents the Federal De3 posit Insurance Corporation, if the Corporation finds

4 it necessary to determine the condition of an insured

5 depository institution for insurance purposes, from

6 examining an affiliate of any insured depository in7 stitution, pursuant to its authority under section

8 10(b)(4) of the Federal Deposit Insurance Act, as may

9 be necessary to disclose fully the relationship between

10 the depository institution and the affiliate, and the ef11 fect of such relationship on the depository institution.

12 (b) EXAMINATION RESULTS AND OTHER INFORMA13 TION.—The Commission shall provide to any Federal bank14 ing agency, upon request, the results of any examination,

15 reports, records, or other information with respect to any

16 registered investment company to the extent necessary for

17 the agency to carry out its statutory responsibilities.

18 (c) DEFINITIONS.—For purposes of this section, the fol19 lowing definitions shall apply:

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

21 holding company’’ has the same meaning as in sec22 tion 2 of the Bank Holding Company Act of 1956.

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

24 means the Securities and Exchange Commission.
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•S 900 EAH

1 (3) FEDERAL BANKING AGENCY.—The term

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

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

4 (4) REGISTERED INVESTMENT COMPANY.—The

5 term ‘‘registered investment company’’ means an in6 vestment company which is registered with the Com7 mission under the Investment Company Act of 1940.

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

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

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

11 Owners’ Loan Act.

12 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU13 PERVISORY, AND ENFORCEMENT AUTHORITY

14 OF THE BOARD.

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

16 1841 et seq.) is amended by inserting after section 10 the

17 following new section:

18 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU19 PERVISORY, AND ENFORCEMENT AUTHORITY

20 OF THE BOARD.

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

22 ‘‘(1) IN GENERAL.—The Board may not pre23 scribe regulations, issue or seek entry of orders, im24 pose restraints, restrictions, guidelines, requirements,

25 safeguards, or standards, or otherwise take any action
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•S 900 EAH

1 under or pursuant to any provision of this Act or sec2 tion 8 of the Federal Deposit Insurance Act against

3 or with respect to a regulated subsidiary of a bank

4 holding company unless the action is necessary to

5 prevent or redress an unsafe or unsound practice or

6 breach of fiduciary duty by such subsidiary that poses

7 a material risk to—

8 ‘‘(A) the financial safety, soundness, or sta9 bility of an affiliated depository institution; or

10 ‘‘(B) the domestic or international payment

11 system.

12 ‘‘(2) CRITERIA FOR BOARD ACTION.—The Board

13 shall not take action otherwise permitted under para14 graph (1) unless the Board finds that it is not reason15 ably possible to effectively protect against the material

16 risk at issue through action directed at or against the

17 affiliated depository institution or against depository

18 institutions generally.

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

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

21 impose restraints, restrictions, guidelines, requirements,

22 safeguards, or standards, or otherwise take any action

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

24 8 of the Federal Deposit Insurance Act against or with re25 spect to a financial holding company or a wholesale finan-
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•S 900 EAH

1 cial holding company where the purpose or effect of doing

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

3 to a regulated subsidiary that may not be taken directly

4 against or with respect to such subsidiary in accordance

5 with subsection (a).

6 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Notwith7 standing subsection (a), the Board may take action under

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

9 to enforce compliance by a regulated subsidiary with Fed10 eral law that the Board has specific jurisdiction to enforce

11 against such subsidiary.

12 ‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur13 poses of this section, the term ‘regulated subsidiary’ means

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

15 ‘‘(1) a broker or dealer registered under the Secu16 rities Exchange Act of 1934;

17 ‘‘(2) an investment adviser registered by or on

18 behalf of either the Securities and Exchange Commis19 sion or any State, whichever is required by law, with

20 respect to the investment advisory activities of such

21 investment adviser and activities incidental to such

22 investment advisory activities;

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

24 Investment Company Act of 1940;
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1 ‘‘(4) an insurance company or an insurance

2 agency, with respect to the insurance activities and

3 activities incidental to such insurance activities, sub4 ject to supervision by a State insurance commission,

5 agency, or similar authority; or

6 ‘‘(5) an entity subject to regulation by the Com7 modity Futures Trading Commission, with respect to

8 the commodities activities of such entity and activi9 ties incidental to such commodities activities.’’.

10 SEC. 117. EQUIVALENT REGULATION AND SUPERVISION.

11 (a) IN GENERAL.—Notwithstanding any other provi12 sion of law, the provisions of—

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

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

15 authority of the Board of Governors of the Federal

16 Reserve System to require reports from, to make ex17 aminations of, or to impose capital requirements on

18 bank holding companies and their nonbank subsidi19 aries or that require deference to other regulators; and

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

21 Act of 1956 (as added by this Act) that limit what22 ever authority the Board might otherwise have to take

23 direct or indirect action with respect to bank holding

24 companies and their nonbank subsidiaries,
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1 shall also limit whatever authority that a Federal banking

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

3 Insurance Act) might otherwise have under any statute to

4 require reports, make examinations, impose capital require5 ments or take any other direct or indirect action with re6 spect to bank holding companies and their nonbank subsidi7 aries (including nonbank subsidiaries of depository institu8 tions), subject to the same standards and requirements as

9 are applicable to the Board under such provisions.

10 (b) CERTAIN EXAMINATIONS AUTHORIZED.—No provi11 sion of this section shall be construed as preventing the Fed12 eral Deposit Insurance Corporation, if the Corporation

13 finds it necessary to determine the condition of an insured

14 depository institution for insurance purposes, from exam15 ining an affiliate of any insured depository institution,

16 pursuant to its authority under section 10(b)(4) of the Fed17 eral Deposit Insurance Act, as may be necessary to disclose

18 fully the relationship between the depository institution and

19 the affiliate, and the effect of such relationship on the depos20 itory institution.

21 SEC. 118. PROHIBITION ON FDIC ASSISTANCE TO AFFILI22 ATES AND SUBSIDIARIES.

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

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

25 benefit any shareholder of’’ and inserting ‘‘to benefit any
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1 shareholder, affiliate (other than an insured depository in2 stitution that receives assistance in accordance with the

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

4 SEC. 119. REPEAL OF SAVINGS BANK PROVISIONS IN THE

5 BANK HOLDING COMPANY ACT OF 1956.

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

7 (12 U.S.C. 1842(f)) is amended to read as follows:

8 ‘‘(f) [Repealed].’’.

9 SEC. 120. TECHNICAL AMENDMENT.

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

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

12 ‘‘section 38(b)’’ and inserting ‘‘section 38’’.

13 Subtitle C—Subsidiaries of

14 National Banks

15 SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF

16 NATIONAL BANKS.

17 (a) FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.—

18 Chapter 1 of title LXII of the Revised Statutes of United

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

20 (1) by redesignating section 5136A as section

21 5136C; and

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

23 24) the following new section:
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•S 900 EAH

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

2 ‘‘(a) SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED

3 TO ENGAGE IN FINANCIAL ACTIVITIES.—

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

5 section 5136 or any other provision of this title LXII

6 of the Revised Statutes of the United States shall be

7 construed as authorizing a subsidiary of a national

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

9 interest in any company engaged in, any activity

10 that—

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

12 to engage in directly; or

13 ‘‘(B) is conducted under terms or conditions

14 other than those that would govern the conduct

15 of such activity by a national bank,

16 unless a national bank is specifically authorized by

17 the express terms of a Federal statute and not by im18 plication or interpretation to acquire shares of or an

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

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

21 the Federal Reserve Act.

22 ‘‘(2) SPECIFIC AUTHORIZATION TO CONDUCT AC23 TIVITIES WHICH ARE FINANCIAL IN NATURE.—Subject

24 to paragraphs (3) and (4), a national bank may con25 trol a financial subsidiary, or hold an interest in a
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•S 900 EAH

1 financial subsidiary, that is controlled by insured de2 pository institutions or subsidiaries thereof.

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

4 bank may control or hold an interest in a company

5 pursuant to paragraph (2) only if—

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

7 institution affiliates of the national bank are

8 well capitalized;

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

10 institution affiliates of the national bank are

11 well managed;

12 ‘‘(C) the national bank and all depository

13 institution affiliates of such national bank have

14 achieved a rating of ‘satisfactory record of meet15 ing community credit needs’, or better, at the

16 most recent examination of each such bank or in17 stitution; and

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

19 the Comptroller of the Currency.

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

21 other limitation imposed on the activity of subsidi22 aries of national banks, a subsidiary of a national

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

24 ‘‘(A) engage as principal in insuring, guar25 anteeing, or indemnifying against loss, harm,
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•S 900 EAH

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

2 in connection with credit-related insurance) or

3 in providing or issuing annuities;

4 ‘‘(B) engage in real estate investment or de5 velopment activities; or

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

7 a financial holding company under paragraph

8 (3)(I) of section 6(c) of the Bank Holding Com9 pany Act of 1956 (relating to insurance com10 pany investments).

11 ‘‘(5) SIZE FACTOR WITH REGARD TO FREE12 STANDING NATIONAL BANKS.—Notwithstanding para13 graph (2), a national bank which has total assets of

14 $10,000,000,000 or more may not control a sub15 sidiary engaged in financial activities pursuant to

16 such paragraph unless such national bank is a sub17 sidiary of a bank holding company.

18 ‘‘(6) LIMITED EXCLUSIONS FROM COMMUNITY

19 NEEDS REQUIREMENTS FOR NEWLY AFFILIATED DE20 POSITORY INSTITUTIONS.—Any depository institution

21 which becomes an affiliate of a national bank during

22 the 12-month period preceding the date of an ap23 proval by the Comptroller of the Currency under

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

25 institution which becomes an affiliate of the national
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•S 900 EAH

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

2 paragraph (3)(C) during the 12-month period begin3 ning on the date of such affiliation if—

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

5 institution has submitted an affirmative plan to

6 the appropriate Federal banking agency to take

7 such action as may be necessary in order for

8 such institution to achieve a rating of ‘satisfac9 tory record of meeting community credit needs’,

10 or better, at the next examination of the institu11 tion; and

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

13 agency.

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

15 the following definitions shall apply:

16 ‘‘(A) COMPANY; CONTROL; AFFILIATE; SUB17 SIDIARY.—The terms ‘company’, ‘control’, ‘affil18 iate’, and ‘subsidiary’ have the same meanings

19 as in section 2 of the Bank Holding Company

20 Act of 1956.

21 ‘‘(B) FINANCIAL SUBSIDIARY.—The term ‘fi22 nancial subsidiary’ means a company which is

23 a subsidiary of an insured bank and is engaged

24 in financial activities that have been determined

25 to be financial in nature or incidental to such fi-
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1 nancial activities in accordance with subsection

2 (b) or permitted in accordance with subsection

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

4 for a national bank to engage in directly or that

5 are authorized under the Bank Service Company

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

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

8 section) that specifically authorizes the conduct

9 of such activities by its express terms and not by

10 implication or interpretation.

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

12 capitalized’ has the same meaning as in section

13 38 of the Federal Deposit Insurance Act and, for

14 purposes of this section, the Comptroller shall

15 have exclusive jurisdiction to determine whether

16 a national bank is well capitalized.

17 ‘‘(D) WELL MANAGED.—The term ‘well

18 managed’ means—

19 ‘‘(i) in the case of a depository institu20 tion that has been examined, unless other21 wise determined in writing by the appro22 priate Federal banking agency—

23 ‘‘(I) the achievement of a com24 posite rating of 1 or 2 under the Uni25 form Financial Institutions Rating
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•S 900 EAH

1 System (or an equivalent rating under

2 an equivalent rating system) in con3 nection with the most recent examina4 tion or subsequent review of the deposi5 tory institution; and

6 ‘‘(II) at least a rating of 2 for

7 management, if that rating is given; or

8 ‘‘(ii) in the case of any depository in9 stitution that has not been examined, the

10 existence and use of managerial resources

11 that the appropriate Federal banking agen12 cy determines are satisfactory.

13 ‘‘(E) INCORPORATED DEFINITIONS.—The

14 terms ‘appropriate Federal banking agency’ and

15 ‘depository institution’ have the same meanings

16 as in section 3 of the Federal Deposit Insurance

17 Act.

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

19 ‘‘(1) FINANCIAL ACTIVITIES.—

20 ‘‘(A) IN GENERAL.—For purposes of sub21 section (a)(7)(B), an activity shall be considered

22 to have been determined to be financial in na23 ture or incidental to such financial activities

24 only if—
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1 ‘‘(i) such activity is permitted for a fi2 nancial holding company pursuant to sec3 tion 6(c)(3) of the Bank Holding Company

4 Act of 1956 (to the extent such activity is

5 not otherwise prohibited under this section

6 or any other provision of law for a sub7 sidiary of a national bank engaged in ac8 tivities pursuant to subsection (a)(2)); or

9 ‘‘(ii) the Secretary of the Treasury de10 termines the activity to be financial in na11 ture or incidental to such financial activi12 ties in accordance with subparagraph (B)

13 or paragraph (3).

14 ‘‘(B) COORDINATION BETWEEN THE BOARD

15 AND THE SECRETARY OF THE TREASURY.—

16 ‘‘(i) PROPOSALS RAISED BEFORE THE

17 SECRETARY OF THE TREASURY.—

18 ‘‘(I) CONSULTATION.—The Sec19 retary of the Treasury shall notify the

20 Board of, and consult with the Board

21 concerning, any request, proposal, or

22 application under this subsection, in23 cluding any regulation or order pro24 posed under paragraph (3), for a deter25 mination of whether an activity is fi-
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•S 900 EAH

1 nancial in nature or incidental to such

2 a financial activity.

3 ‘‘(II) BOARD VIEW.—The Sec4 retary of the Treasury shall not deter5 mine that any activity is financial in

6 nature or incidental to a financial ac7 tivity under this subsection if the

8 Board notifies the Secretary in writ9 ing, not later than 30 days after the

10 date of receipt of the notice described

11 in subclause (I) (or such longer period

12 as the Secretary determines to be ap13 propriate in light of the circumstances)

14 that the Board believes that the activ15 ity is not financial in nature or inci16 dental to a financial activity.

17 ‘‘(ii) PROPOSALS RAISED BY THE

18 BOARD.—

19 ‘‘(I) BOARD RECOMMENDATION.—

20 The Board may, at any time, rec21 ommend in writing that the Secretary

22 of the Treasury find an activity to be

23 financial in nature or incidental to a

24 financial activity (other than an activ-
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•S 900 EAH

1 ity which the Board has sole authority

2 to regulate under subparagraph (C)).

3 ‘‘(II) TIME PERIOD FOR SECRE4 TARIAL ACTION.—Not later than 30

5 days after the date of receipt of a writ6 ten recommendation from the Board

7 under subclause (I) (or such longer pe8 riod as the Secretary of the Treasury

9 and the Board determine to be appro10 priate in light of the circumstances),

11 the Secretary shall determine whether

12 to initiate a public rulemaking pro13 posing that the subject recommended

14 activity be found to be financial in na15 ture or incidental to a financial activ16 ity under this subsection, and shall no17 tify the Board in writing of the deter18 mination of the Secretary and, in the

19 event that the Secretary determines not

20 to seek public comment on the pro21 posal, the reasons for that determina22 tion.

23 ‘‘(C) AUTHORITY OVER MERCHANT BANK24 ING.—The Board shall have sole authority to

25 prescribe regulations and issue interpretations to
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1 implement this paragraph with respect to activi2 ties described in section 6(c)(3)(H) of the Bank

3 Holding Company Act of 1956.

4 ‘‘(2) FACTORS TO BE CONSIDERED.—In deter5 mining whether an activity is financial in nature or

6 incidental to financial activities, the Secretary shall

7 take into account—

8 ‘‘(A) the purposes of this Act and the Fi9 nancial Services Act of 1999;

10 ‘‘(B) changes or reasonably expected changes

11 in the marketplace in which banks compete;

12 ‘‘(C) changes or reasonably expected changes

13 in the technology for delivering financial serv14 ices; and

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

16 appropriate to allow a bank and the subsidiaries

17 of a bank to—

18 ‘‘(i) compete effectively with any com19 pany seeking to provide financial services

20 in the United States;

21 ‘‘(ii) use any available or emerging

22 technological means, including any applica23 tion necessary to protect the security or effi24 cacy of systems for the transmission of data
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1 or financial transactions, in providing fi2 nancial services; and

3 ‘‘(iii) offer customers any available or

4 emerging technological means for using fi5 nancial services.

6 ‘‘(3) AUTHORIZATION OF NEW FINANCIAL ACTIVI7 TIES.—The Secretary of the Treasury shall, by regu8 lation or order and in accordance with paragraph

9 (1)(B), define, consistent with the purposes of this

10 Act, the following activities as, and the extent to

11 which such activities are, financial in nature or inci12 dental to activities which are financial in nature:

13 ‘‘(A) Lending, exchanging, transferring, in14 vesting for others, or safeguarding financial as15 sets other than money or securities.

16 ‘‘(B) Providing any device or other instru17 mentality for transferring money or other finan18 cial assets.

19 ‘‘(C) Arranging, effecting, or facilitating fi20 nancial transactions for the account of third

21 parties.

22 ‘‘(4) DEVELOPING ACTIVITIES.—Subject to sub23 section (a)(2), a financial subsidiary of a national

24 bank may engage directly or indirectly, or acquire

25 shares of any company engaged, in any activity that
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1 the Secretary has not determined to be financial in

2 nature or incidental to financial activities under this

3 subsection if—

4 ‘‘(A) the subsidiary reasonably concludes

5 that the activity is financial in nature or inci6 dental to financial activities;

7 ‘‘(B) the gross revenues from all activities

8 conducted under this paragraph represent less

9 than 5 percent of the consolidated gross revenues

10 of the national bank;

11 ‘‘(C) the aggregate total assets of all compa12 nies the shares of which are held under this

13 paragraph do not exceed 5 percent of the na14 tional bank’s consolidated total assets;

15 ‘‘(D) the total capital invested in activities

16 conducted under this paragraph represents less

17 than 5 percent of the consolidated total capital

18 of the national bank;

19 ‘‘(E) neither the Secretary of the Treasury

20 nor the Board has determined that the activity

21 is not financial in nature or incidental to finan22 cial activities under this subsection; and

23 ‘‘(F) the national bank provides written no24 tice to the Secretary of the Treasury describing

25 the activity commenced by the subsidiary or con-
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1 ducted by the company acquired no later than 10

2 business days after commencing the activity or

3 consummating the acquisition.

4 ‘‘(c) PROVISIONS APPLICABLE TO NATIONAL BANKS

5 THAT FAIL TO MEET REQUIREMENTS.—

6 ‘‘(1) IN GENERAL.—If a national bank or deposi7 tory institution affiliate is not in compliance with the

8 requirements of subparagraph (A), (B), or (C) of sub9 section (a)(3), the appropriate Federal banking agen10 cy shall notify the Comptroller of the Currency, who

11 shall give notice of such finding to the national bank.

12 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE13 QUIRED.—Not later than 45 days after receipt by a

14 national bank of a notice given under paragraph (1)

15 (or such additional period as the Comptroller of the

16 Currency may permit), the national bank and any

17 relevant affiliated depository institution shall execute

18 an agreement acceptable to the Comptroller of the

19 Currency and the other appropriate Federal banking

20 agencies, if any, to comply with the requirements ap21 plicable under subsection (a)(3).

22 ‘‘(3) COMPTROLLER OF THE CURRENCY MAY IM23 POSE LIMITATIONS.—Until the conditions described in

24 a notice to a national bank under paragraph (1) are

25 corrected—
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•S 900 EAH

1 ‘‘(A) the Comptroller of the Currency may

2 impose such limitations on the conduct or activi3 ties of the national bank or any subsidiary of the

4 bank as the Comptroller of the Currency deter5 mines to be appropriate under the circumstances;

6 and

7 ‘‘(B) the appropriate Federal banking agen8 cy may impose such limitations on the conduct

9 or activities of an affiliated depository institu10 tion or any subsidiary of the depository institu11 tion as such agency determines to be appropriate

12 under the circumstances.

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

14 notice under paragraph (1), a national bank and

15 other affiliated depository institutions do not—

16 ‘‘(A) execute and implement an agreement

17 in accordance with paragraph (2);

18 ‘‘(B) comply with any limitations imposed

19 under paragraph (3);

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

21 comply with subsection (a)(3)(A), restore the na22 tional bank or any depository institution affil23 iate of the bank to well capitalized status before

24 the end of the 180-day period beginning on the

25 date such notice is received by the national bank
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1 (or such other period permitted by the Comp2 troller of the Currency); or

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

4 comply with subparagraph (B) or (C) of sub5 section (a)(3), restore compliance with any such

6 subparagraph on or before the date on which the

7 next examination of the depository institution

8 subsidiary is completed or by the end of such

9 other period as the Comptroller of the Currency

10 determines to be appropriate,

11 the Comptroller of the Currency may require such na12 tional bank, under such terms and conditions as may

13 be imposed by the Comptroller of the Currency and

14 subject to such extension of time as may be granted

15 in the Comptroller of the Currency’s discretion, to di16 vest control of any subsidiary engaged in activities

17 pursuant to subsection (a)(2) or, at the election of the

18 national bank, instead to cease to engage in any ac19 tivity conducted by a subsidiary of the national bank

20 pursuant to subsection (a)(2).

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

22 under this subsection, the Comptroller of the Currency

23 shall consult with all relevant Federal and State reg24 ulatory agencies.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections for

2 chapter 1 of title LXII of the Revised Statutes of the United

3 States is amended—

4 (1) by redesignating the item relating to section

5 5136A as section 5136C; and

6 (2) by inserting after the item relating to section

7 5136 the following new item:

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

8 SEC. 122. SAFETY AND SOUNDNESS FIREWALLS BETWEEN

9 BANKS AND THEIR FINANCIAL SUBSIDIARIES.

10 (a) PURPOSES.—The purposes of this section are—

11 (1) to protect the safety and soundness of any in12 sured bank that has a financial subsidiary;

13 (2) to apply to any transaction between the bank

14 and the financial subsidiary (including a loan, exten15 sion of credit, guarantee, or purchase of assets), other

16 than an equity investment, the same restrictions and

17 requirements as would apply if the financial sub18 sidiary were a subsidiary of a bank holding company

19 having control of the bank; and

20 (3) to apply to any equity investment of the

21 bank in the financial subsidiary restrictions and re22 quirements equivalent to those that would apply if—

23 (A) the bank paid a dividend in the same

24 dollar amount to a bank holding company hav25 ing control of the bank; and
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1 (B) the bank holding company used the pro2 ceeds of the dividend to make an equity invest3 ment in a subsidiary that was engaged in the

4 same activities as the financial subsidiary of the

5 bank.

6 (b) SAFETY AND SOUNDNESS FIREWALLS APPLICABLE

7 TO SUBSIDIARIES OF BANKS.—The Federal Deposit Insur8 ance Act (12 U.S.C. 1811 et seq.) is amended by inserting

9 after section 45 (as added by section 113(b) of this title)

10 the following new section:

11 ‘‘SEC. 46. SAFETY AND SOUNDNESS FIREWALLS APPLICA12 BLE TO SUBSIDIARIES OF BANKS.

13 ‘‘(a) LIMITING THE EQUITY INVESTMENT OF A BANK

14 IN A SUBSIDIARY.—

15 ‘‘(1) CAPITAL DEDUCTION.—In determining

16 whether an insured bank complies with applicable

17 regulatory capital standards—

18 ‘‘(A) the appropriate Federal banking agen19 cy shall deduct from the assets and tangible eq20 uity of the bank the aggregate amount of the out21 standing equity investments of the bank in fi22 nancial subsidiaries of the bank; and

23 ‘‘(B) the assets and liabilities of such finan24 cial subsidiaries shall not be consolidated with

25 those of the bank.
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1 ‘‘(2) INVESTMENT LIMITATION.—An insured

2 bank shall not, without the prior approval of the ap3 propriate Federal banking agency, make any equity

4 investment in a financial subsidiary of the bank if

5 that investment would, when made, exceed the amount

6 that the bank could pay as a dividend without ob7 taining prior regulatory approval.

8 ‘‘(3) TREATMENT OF RETAINED EARNINGS.—The

9 amount of any net earnings retained by a financial

10 subsidiary of an insured depository institution shall

11 be treated as an outstanding equity investment of the

12 bank in the subsidiary for purposes of paragraph (1).

13 ‘‘(b) OPERATIONAL AND FINANCIAL SAFEGUARDS FOR

14 THE BANK.—An insured bank that has a financial sub15 sidiary shall maintain procedures for identifying and man16 aging any financial and operational risks posed by the fi17 nancial subsidiary.

18 ‘‘(c) MAINTENANCE OF SEPARATE CORPORATE IDEN19 TITY AND SEPARATE LEGAL STATUS.—

20 ‘‘(1) IN GENERAL.—Each insured bank shall en21 sure that the bank maintains and complies with rea22 sonable policies and procedures to preserve the sepa23 rate corporate identity and legal status of the bank

24 and any financial subsidiary or affiliate of the bank.
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1 ‘‘(2) EXAMINATIONS.—The appropriate Federal

2 banking agency, as part of each examination, shall

3 review whether an insured bank is observing the sepa4 rate corporate identity and separate legal status of

5 any subsidiaries and affiliates of the bank.

6 ‘‘(d) FINANCIAL SUBSIDIARY DEFINED.—For purposes

7 of this section, the term ‘financial subsidiary’ has the mean8 ing given to such term in section 5136A(a)(7)(B) of the Re9 vised Statutes of the United States.

10 ‘‘(e) REGULATIONS.—The appropriate Federal bank11 ing agencies shall jointly prescribe regulations imple12 menting this section.’’.

13 (c) TRANSACTIONS BETWEEN FINANCIAL SUBSIDI14 ARIES AND OTHER AFFILIATES.—Section 23A of the Fed15 eral Reserve Act (12 U.S.C. 371c) is amended—

16 (1) by redesignating subsection (e) as subsection

17 (f); and

18 (2) by inserting after subsection (d), the fol19 lowing new subsection:

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

21 SUBSIDIARIES.—

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

23 purposes of this section and section 23B, the term ‘fi24 nancial subsidiary’ means a company which is a sub25 sidiary of a bank and is engaged in activities that
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1 are financial in nature or incidental to such finan2 cial activities pursuant to subsection (a)(2) or (b)(4)

3 of section 5136A of the Revised Statutes of the United

4 States.

5 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN A

6 FINANCIAL SUBSIDIARY OF A BANK AND THE BANK.—

7 For purposes of applying this section and section 23B

8 to a transaction between a financial subsidiary of a

9 bank and the bank (or between such financial sub10 sidiary and any other subsidiary of the bank which

11 is not a financial subsidiary) and notwithstanding

12 subsection (b)(2) and section 23B(d)(1), the financial

13 subsidiary of the bank—

14 ‘‘(A) shall be an affiliate of the bank and

15 any other subsidiary of the bank which is not a

16 financial subsidiary; and

17 ‘‘(B) shall not be treated as a subsidiary of

18 the bank.

19 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

20 FINANCIAL SUBSIDIARY AND NONBANK AFFILIATES.—

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

22 a financial subsidiary and an affiliate of the fi23 nancial subsidiary shall not be deemed to be a

24 transaction between a subsidiary of a national

25 bank and an affiliate of the bank for purposes of
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1 section 23A or section 23B of the Federal Reserve

2 Act.

3 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—For

4 purposes of subparagraph (A) and notwith5 standing paragraph (4), the term ‘affiliate’ shall

6 not include a bank, or a subsidiary of a bank,

7 which is engaged exclusively in activities permis8 sible for a national bank to engage in directly or

9 which are authorized by any Federal law other

10 than section 5136A of the Revised Statutes of the

11 United States.

12 ‘‘(4) EQUITY INVESTMENTS EXCLUDED SUBJECT

13 TO THE APPROVAL OF THE BANKING AGENCY.—Sub14 section (a)(1) shall not apply so as to limit the equity

15 investment of a bank in a financial subsidiary of

16 such bank, except that any investment that exceeds the

17 amount of a dividend that the bank could pay at the

18 time of the investment without obtaining prior ap19 proval of the appropriate Federal banking agency and

20 is in excess of the limitation which would apply

21 under subsection (a)(1), but for this paragraph, may

22 be made only with the approval of the appropriate

23 Federal banking agency (as defined in section 3(q) of

24 the Federal Deposit Insurance Act) with respect to

25 such bank.’’.
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1 (d) ANTITYING.—Section 106(a) of the Bank Holding

2 Company Act Amendments of 1970 is amended by adding

3 at the end the following new sentence: ‘‘For purposes of this

4 section, a subsidiary of a national bank which engages in

5 activities pursuant to subsection (a)(2) or (b)(4) of section

6 5136A of the Revised Statutes of the United States shall

7 be deemed to be a subsidiary of a bank holding company,

8 and not a subsidiary of a bank.’’.

9 SEC. 123. MISREPRESENTATIONS REGARDING DEPOSITORY

10 INSTITUTION LIABILITY FOR OBLIGATIONS

11 OF AFFILIATES.

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

13 States Code, is amended by inserting after section 1007 the

14 following new section:

15 ‘‘§ 1008. Misrepresentations regarding financial insti16 tution liability for obligations of affiliates

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

18 an insured depository institution or institution-affiliated

19 party of a subsidiary or affiliate of an insured depository

20 institution shall fraudulently represent that the institution

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

22 other affiliate of the institution.

23 ‘‘(b) CRIMINAL PENALTY.—Whoever violates subsection

24 (a) shall be fined under this title, imprisoned for not more

25 than 5 years, or both.
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1 ‘‘(c) INSTITUTION-AFFILIATED PARTY DEFINED.—For

2 purposes of this section, the term ‘institution-affiliated

3 party’ has the same meaning as in section 3 of the Federal

4 Deposit Insurance Act and any reference in that section

5 shall also be deemed to refer to a subsidiary or affiliate of

6 an insured depository institution.

7 ‘‘(d) OTHER DEFINITIONS.—For purposes of this sec8 tion, the terms ‘affiliate’, ‘insured depository institution’,

9 and ‘subsidiary’ have same meanings as in section 3 of the

10 Federal Deposit Insurance Act.’’.

11 (b) CLERICAL AMENDMENT.—The table of sections for

12 chapter 47 of title 18, United States Code, is amended by

13 inserting after the item relating to section 1007 the fol14 lowing new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

15 SEC. 124. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE16 SERVE ACT.

17 Section 11 of the Federal Reserve Act (12 U.S.C. 248)

18 is amended by striking the paragraph designated as ‘‘(m)’’

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

2 Holding Companies; Wholesale

3 Financial Institutions

4 CHAPTER 1—WHOLESALE FINANCIAL

5 HOLDING COMPANIES

6 SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES ES7 TABLISHED.

8 Section 10 of the Bank Holding Company Act of 1956

9 (12 U.S.C. 1841 et seq.) is amended to read as follows:

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

11 ‘‘(a) COMPANIES THAT CONTROL WHOLESALE FINAN12 CIAL INSTITUTIONS.—

13 ‘‘(1) WHOLESALE FINANCIAL HOLDING COMPANY

14 DEFINED.—The term ‘wholesale financial holding

15 company’ means any company that—

16 ‘‘(A) is registered as a bank holding com17 pany;

18 ‘‘(B) is predominantly engaged in financial

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

20 ‘‘(C) controls one or more wholesale finan21 cial institutions;

22 ‘‘(D) does not control—

23 ‘‘(i) a bank other than a wholesale fi24 nancial institution;
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1 ‘‘(ii) an insured bank other than an

2 institution permitted under subparagraph

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

4 ‘‘(iii) a savings association; and

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

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

7 of 1978).

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

10 Board may permit a company that controls a savings

11 association and that otherwise meets the requirements

12 of paragraph (1) to become supervised under para13 graph (1), if the company divests control of any such

14 savings association within such period not to exceed

15 5 years after becoming supervised under paragraph

16 (1) as permitted by the Board.

17 ‘‘(b) SUPERVISION BY THE BOARD.—

18 ‘‘(1) IN GENERAL.—The provisions of this section

19 shall govern the reporting, examination, and capital

20 requirements of wholesale financial holding compa21 nies.

22 ‘‘(2) REPORTS.—

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

24 time may require any wholesale financial hold25 ing company and any subsidiary of such com-
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•S 900 EAH

1 pany to submit reports under oath to keep the

2 Board informed as to—

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

7 with depository institution subsidiaries of

8 the holding company; and

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

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

12 and orders issued under this Act.

13 ‘‘(B) USE OF EXISTING REPORTS.—

14 ‘‘(i) IN GENERAL.—The Board shall, to

15 the fullest extent possible, accept reports in

16 fulfillment of the Board’s reporting require17 ments under this paragraph that the whole18 sale financial holding company or any sub19 sidiary of such company has provided or

20 been required to provide to other Federal

21 and State supervisors or to appropriate self22 regulatory organizations.

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

25 such company shall provide to the Board, at
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•S 900 EAH

1 the request of the Board, a report referred to

2 in clause (i).

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

5 ‘‘(i) IN GENERAL.—The Board may, by

6 regulation or order, exempt any company

7 or class of companies, under such terms and

8 conditions and for such periods as the

9 Board shall provide in such regulation or

10 order, from the provisions of this paragraph

11 and any regulation prescribed under this

12 paragraph.

13 ‘‘(ii) CRITERIA FOR CONSIDERATION.—

14 In making any determination under clause

15 (i) with regard to any exemption under

16 such clause, the Board shall consider,

17 among such other factors as the Board may

18 determine to be appropriate, the following

19 factors:

20 ‘‘(I) Whether information of the

21 type required under this paragraph is

22 available from a supervisory agency

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

24 Right to Financial Privacy Act of
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•S 900 EAH

1 1978) or a foreign regulatory authority

2 of a similar type.

3 ‘‘(II) The primary business of the

4 company.

5 ‘‘(III) The nature and extent of

6 the domestic and foreign regulation of

7 the activities of the company.

8 ‘‘(3) EXAMINATIONS.—

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

11 of each wholesale financial holding company and

12 each subsidiary of such company in order to—

13 ‘‘(i) inform the Board regarding the

14 nature of the operations and financial con15 dition of the wholesale financial holding

16 company and its subsidiaries;

17 ‘‘(ii) inform the Board regarding—

18 ‘‘(I) the financial and operational

19 risks within the wholesale financial

20 holding company system that may af21 fect any depository institution owned

22 by such holding company; and

23 ‘‘(II) the systems of the holding

24 company and its subsidiaries for mon25 itoring and controlling those risks; and
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•S 900 EAH

1 ‘‘(iii) monitor compliance with the

2 provisions of this Act and those governing

3 transactions and relationships between any

4 depository institution controlled by the

5 wholesale financial holding company and

6 any of the company’s other subsidiaries.

7 ‘‘(B) RESTRICTED FOCUS OF EXAMINA8 TIONS.—The Board shall, to the fullest extent

9 possible, limit the focus and scope of any exam10 ination of a wholesale financial holding com11 pany under this paragraph to—

12 ‘‘(i) the holding company; and

13 ‘‘(ii) any subsidiary (other than an in14 sured depository institution subsidiary) of

15 the holding company that, because of the

16 size, condition, or activities of the sub17 sidiary, the nature or size of transactions

18 between such subsidiary and any affiliated

19 depository institution, or the centralization

20 of functions within the holding company

21 system, could have a materially adverse ef22 fect on the safety and soundness of any de23 pository institution affiliate of the holding

24 company.
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•S 900 EAH

1 ‘‘(C) DEFERENCE TO BANK EXAMINA2 TIONS.—The Board shall, to the fullest extent

3 possible, use the reports of examination of depos4 itory institutions made by the Comptroller of the

5 Currency, the Federal Deposit Insurance Cor6 poration, the Director of the Office of Thrift Su7 pervision or the appropriate State depository in8 stitution supervisory authority for the purposes

9 of this section.

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

12 possible, address the circumstances which might

13 otherwise permit or require an examination by

14 the Board by forgoing an examination and by

15 instead reviewing the reports of examination

16 made of—

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

18 any registered investment adviser by or on

19 behalf of the Commission; and

20 ‘‘(ii) any licensed insurance company

21 by or on behalf of any State government in22 surance agency responsible for the super23 vision of the insurance company.

24 ‘‘(E) CONFIDENTIALITY OF REPORTED IN25 FORMATION.—
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•S 900 EAH

1 ‘‘(i) IN GENERAL.—Notwithstanding

2 any other provision of law, the Board shall

3 not be compelled to disclose any nonpublic

4 information required to be reported under

5 this paragraph, or any information sup6 plied to the Board by any domestic or for7 eign regulatory agency, that relates to the

8 financial or operational condition of any

9 wholesale financial holding company or any

10 subsidiary of such company.

11 ‘‘(ii) COMPLIANCE WITH REQUESTS

12 FOR INFORMATION.—No provision of this

13 subparagraph shall be construed as author14 izing the Board to withhold information

15 from the Congress, or preventing the Board

16 from complying with a request for informa17 tion from any other Federal department or

18 agency for purposes within the scope of such

19 department’s or agency’s jurisdiction, or

20 from complying with any order of a court

21 of competent jurisdiction in an action

22 brought by the United States or the Board.

23 ‘‘(iii) COORDINATION WITH OTHER

24 LAW.—For purposes of section 552 of title 5,

25 United States Code, this subparagraph shall
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•S 900 EAH

1 be considered to be a statute described in

2 subsection (b)(3)(B) of such section.

3 ‘‘(iv) DESIGNATION OF CONFIDENTIAL

4 INFORMATION.—In prescribing regulations

5 to carry out the requirements of this sub6 section, the Board shall designate informa7 tion described in or obtained pursuant to

8 this paragraph as confidential information.

9 ‘‘(F) COSTS.—The cost of any examination

10 conducted by the Board under this section may

11 be assessed against, and made payable by, the

12 wholesale financial holding company.

13 ‘‘(4) CAPITAL ADEQUACY GUIDELINES.—

14 ‘‘(A) CAPITAL ADEQUACY PROVISIONS.—

15 Subject to the requirements of, and solely in ac16 cordance with, the terms of this paragraph, the

17 Board may adopt capital adequacy rules or

18 guidelines for wholesale financial holding compa19 nies.

20 ‘‘(B) METHOD OF CALCULATION.—In devel21 oping rules or guidelines under this paragraph,

22 the following provisions shall apply:

23 ‘‘(i) FOCUS ON DOUBLE LEVERAGE.—

24 The Board shall focus on the use by whole25 sale financial holding companies of debt
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•S 900 EAH

1 and other liabilities to fund capital invest2 ments in subsidiaries.

3 ‘‘(ii) NO UNWEIGHTED CAPITAL

4 RATIO.—The Board shall not, by regulation,

5 guideline, order, or otherwise, impose under

6 this section a capital ratio that is not based

7 on appropriate risk-weighting consider8 ations.

9 ‘‘(iii) NO CAPITAL REQUIREMENT ON

10 REGULATED ENTITIES.—The Board shall

11 not, by regulation, guideline, order or other12 wise, prescribe or impose any capital or

13 capital adequacy rules, standards, guide14 lines, or requirements upon any subsidiary

15 that—

16 ‘‘(I) is not a depository institu17 tion; and

18 ‘‘(II) is in compliance with appli19 cable capital requirements of another

20 Federal regulatory authority (includ21 ing the Securities and Exchange Com22 mission) or State insurance authority.

23 ‘‘(iv) LIMITATION.—The Board shall

24 not, by regulation, guideline, order or other25 wise, prescribe or impose any capital or
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•S 900 EAH

1 capital adequacy rules, standards, guide2 lines, or requirements upon any subsidiary

3 that is not a depository institution and that

4 is registered as an investment adviser under

5 the Investment Advisers Act of 1940, except

6 that this clause shall not be construed as

7 preventing the Board from imposing capital

8 or capital adequacy rules, guidelines, stand9 ards, or requirements with respect to activi10 ties of a registered investment adviser other

11 than investment advisory activities or ac12 tivities incidental to investment advisory

13 activities.

14 ‘‘(v) LIMITATIONS ON INDIRECT AC15 TION.—In developing, establishing, or as16 sessing holding company capital or capital

17 adequacy rules, guidelines, standards, or re18 quirements for purposes of this paragraph,

19 the Board shall not take into account the

20 activities, operations, or investments of an

21 affiliated investment company registered

22 under the Investment Company Act of 1940,

23 unless the investment company is—

24 ‘‘(I) a bank holding company; or
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•S 900 EAH

1 ‘‘(II) controlled by a bank holding

2 company by reason of ownership by the

3 bank holding company (including

4 through all of its affiliates) of 25 per5 cent or more of the shares of the invest6 ment company, and the shares owned

7 by the bank holding company have a

8 market value equal to more than

9 $1,000,000.

10 ‘‘(vi) APPROPRIATE EXCLUSIONS.—The

11 Board shall take full account of—

12 ‘‘(I) the capital requirements

13 made applicable to any subsidiary that

14 is not a depository institution by an15 other Federal regulatory authority or

16 State insurance authority; and

17 ‘‘(II) industry norms for capital18 ization of a company’s unregulated

19 subsidiaries and activities.

20 ‘‘(vii) INTERNAL RISK MANAGEMENT

21 MODELS.—The Board may incorporate in22 ternal risk management models of wholesale

23 financial holding companies into its capital

24 adequacy guidelines or rules and may take

25 account of the extent to which resources of
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•S 900 EAH

1 a subsidiary depository institution may be

2 used to service the debt or other liabilities of

3 the wholesale financial holding company.

4 ‘‘(c) NONFINANCIAL ACTIVITIES AND INVESTMENTS.—

5 ‘‘(1) GRANDFATHERED ACTIVITIES.—

6 ‘‘(A) IN GENERAL.—Notwithstanding sec7 tion 4(a), a company that becomes a wholesale

8 financial holding company may continue to en9 gage, directly or indirectly, in any activity and

10 may retain ownership and control of shares of a

11 company engaged in any activity if—

12 ‘‘(i) on the date of the enactment of the

13 Financial Services Act of 1999, such whole14 sale financial holding company was law15 fully engaged in that nonfinancial activity,

16 held the shares of such company, or had en17 tered into a contract to acquire shares of

18 any company engaged in such activity; and

19 ‘‘(ii) the company engaged in such ac20 tivity continues to engage only in the same

21 activities that such company conducted on

22 the date of the enactment of the Financial

23 Services Act of 1999, and other activities

24 permissible under this Act.
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•S 900 EAH

1 ‘‘(B) NO EXPANSION OF GRANDFATHERED

2 COMMERCIAL ACTIVITIES THROUGH MERGER OR

3 CONSOLIDATION.—A wholesale financial holding

4 company that engages in activities or holds

5 shares pursuant to this paragraph, or a sub6 sidiary of such wholesale financial holding com7 pany, may not acquire, in any merger, consoli8 dation, or other type of business combination, as9 sets of any other company which is engaged in

10 any activity which the Board has not determined

11 to be financial in nature or incidental to activi12 ties that are financial in nature under section

13 6(c).

14 ‘‘(C) LIMITATION TO SINGLE EXEMPTION.—

15 No company that engages in any activity or con16 trols any shares under subsection (f) of section 6

17 may engage in any activity or own any shares

18 pursuant to this paragraph.

19 ‘‘(2) COMMODITIES.—

20 ‘‘(A) IN GENERAL.—Notwithstanding sec21 tion 4(a), a wholesale financial holding company

22 which was predominately engaged as of January

23 1, 1997, in financial activities in the United

24 States (or any successor to any such company)

25 may engage in, or directly or indirectly own or
143

•S 900 EAH

1 control shares of a company engaged in, activi2 ties related to the trading, sale, or investment in

3 commodities and underlying physical properties

4 that were not permissible for bank holding com5 panies to conduct in the United States as of

6 January 1, 1997, if such wholesale financial

7 holding company, or any subsidiary of such

8 holding company, was engaged directly, indi9 rectly, or through any such company in any of

10 such activities as of January 1, 1997, in the

11 United States.

12 ‘‘(B) LIMITATION.—The attributed aggre13 gate consolidated assets of a wholesale financial

14 holding company held under the authority grant15 ed under this paragraph and not otherwise per16 mitted to be held by all wholesale financial hold17 ing companies under this section may not exceed

18 5 percent of the total consolidated assets of the

19 wholesale financial holding company, except that

20 the Board may increase such percentage of total

21 consolidated assets by such amounts and under

22 such circumstances as the Board considers ap23 propriate, consistent with the purposes of this

24 Act.
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•S 900 EAH

1 ‘‘(3) CROSS MARKETING RESTRICTIONS.—A

2 wholesale financial holding company shall not

3 permit—

4 ‘‘(A) any company whose shares it owns or

5 controls pursuant to paragraph (1) or (2) to

6 offer or market any product or service of an af7 filiated wholesale financial institution; or

8 ‘‘(B) any affiliated wholesale financial in9 stitution to offer or market any product or serv10 ice of any company whose shares are owned or

11 controlled by such wholesale financial holding

12 company pursuant to such paragraphs.

13 ‘‘(d) QUALIFICATION OF FOREIGN BANK AS WHOLE14 SALE FINANCIAL HOLDING COMPANY.—

15 ‘‘(1) IN GENERAL.—Any foreign bank, or any

16 company that owns or controls a foreign bank, that

17 operates a branch, agency, or commercial lending

18 company in the United States, including a foreign

19 bank or company that owns or controls a wholesale

20 financial institution, may request a determination

21 from the Board that such bank or company be treated

22 as a wholesale financial holding company other than

23 for purposes of subsection (c), subject to such condi24 tions as the Board considers appropriate, giving due

25 regard to the principle of national treatment and
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•S 900 EAH

1 equality of competitive opportunity and the require2 ments imposed on domestic banks and companies.

3 ‘‘(2) CONDITIONS FOR TREATMENT AS A WHOLE4 SALE FINANCIAL HOLDING COMPANY.—A foreign bank

5 and a company that owns or controls a foreign bank

6 may not be treated as a wholesale financial holding

7 company unless the bank and company meet and con8 tinue to meet the following criteria:

9 ‘‘(A) NO INSURED DEPOSITS.—No deposits

10 held directly by a foreign bank or through an af11 filiate (other than an institution described in

12 subparagraph (D) or (F) of section 2(c)(2)) are

13 insured under the Federal Deposit Insurance

14 Act.

15 ‘‘(B) CAPITAL STANDARDS.—The foreign

16 bank meets risk-based capital standards com17 parable to the capital standards required for a

18 wholesale financial institution, giving due re19 gard to the principle of national treatment and

20 equality of competitive opportunity.

21 ‘‘(C) TRANSACTION WITH AFFILIATES.—

22 Transactions between a branch, agency, or com23 mercial lending company subsidiary of the for24 eign bank in the United States, and any securi25 ties affiliate or company in which the foreign
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•S 900 EAH

1 bank (or any company that owns or controls

2 such foreign bank) has invested, directly or indi3 rectly, and which engages in any activity pursu4 ant to subsection (c) or (g) of section 6, comply

5 with the provisions of sections 23A and 23B of

6 the Federal Reserve Act in the same manner and

7 to the same extent as such transactions would be

8 required to comply with such sections if the bank

9 were a member bank.

10 ‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL

11 INSTITUTION.—Any foreign bank which is, or is affili12 ated with a company which is, treated as a wholesale

13 financial holding company under this subsection shall

14 be treated as a wholesale financial institution for

15 purposes of subsections (c)(1)(C) and (c)(3) of section

16 9B of the Federal Reserve Act, and any such foreign

17 bank or company shall be subject to paragraphs (3),

18 (4), and (5) of section 9B(d) of the Federal Reserve

19 Act, except that the Board may adopt such modifica20 tions, conditions, or exemptions as the Board deems

21 appropriate, giving due regard to the principle of na22 tional treatment and equality of competitive oppor23 tunity.

24 ‘‘(4) SUPERVISION OF FOREIGN BANK WHICH

25 MAINTAINS NO BANKING PRESENCE OTHER THAN CON-
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•S 900 EAH

1 TROL OF A WHOLESALE FINANCIAL INSTITUTION.—A

2 foreign bank that owns or controls a wholesale finan3 cial institution but does not operate a branch, agency,

4 or commercial lending company in the United States

5 (and any company that owns or controls such foreign

6 bank) may request a determination from the Board

7 that such bank or company be treated as a wholesale

8 financial holding company, except that such bank or

9 company shall be subject to the restrictions of para10 graphs (2)(A) and (3) of this subsection.

11 ‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This

12 section shall not be construed as limiting the author13 ity of the Board under the International Banking Act

14 of 1978 with respect to the regulation, supervision, or

15 examination of foreign banks and their offices and af16 filiates in the United States.

17 ‘‘(6) APPLICABILITY OF COMMUNITY REINVEST18 MENT ACT OF 1977.—The branches in the United

19 States of a foreign bank that is, or is affiliated with

20 a company that is, treated as a wholesale financial

21 holding company shall be subject to section 9B(b)(11)

22 of the Federal Reserve Act as if the foreign bank were

23 a wholesale financial institution under such section.

24 The Board and the Comptroller of the Currency shall

25 apply the provisions of sections 803(2), 804, and
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•S 900 EAH

1 807(1) of the Community Reinvestment Act of 1977

2 to branches of foreign banks which receive only such

3 deposits as are permissible for receipt by a corpora4 tion organized under section 25A of the Federal Re5 serve Act, in the same manner and to the same extent

6 such sections apply to such a corporation.’’.

7 SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

8 (a) FEDERAL RESERVE ACT.—The last sentence of the

9 eighth undesignated paragraph of section 9 of the Federal

10 Reserve Act (12 U.S.C. 326) is amended to read as follows:

11 ‘‘The Board of Governors of the Federal Reserve System,

12 at its discretion, may furnish reports of examination or

13 other confidential supervisory information concerning State

14 member banks or any other entities examined under any

15 other authority of the Board to any Federal or State au16 thorities with supervisory or regulatory authority over the

17 examined entity, to officers, directors, or receivers of the ex18 amined entity, and to any other person that the Board de19 termines to be proper.’’.

20 (b) COMMODITY FUTURES TRADING COMMISSION.—

21 The Right to Financial Privacy Act of 1978 (12 U.S.C.

22 3401 et seq.) is amended—

23 (1) in section 1101(7) of the (12 U.S.C.

24 3401(7))—
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•S 900 EAH

1 (A) by redesignating subparagraphs (G)

2 and (H) as subparagraphs (H) and (I), respec3 tively; and

4 (B) by inserting after subparagraph (F) the

5 following new subparagraph:

6 ‘‘(G) the Commodity Futures Trading Com7 mission; or’’; and

8 (2) in section 1112(e), by striking ‘‘and the Se9 curities and Exchange Commission’’ and inserting ‘‘,

10 the Securities and Exchange Commission, and the

11 Commodity Futures Trading Commission’’.

12 SEC. 133. CONFORMING AMENDMENTS.

13 (a) BANK HOLDING COMPANY ACT OF 1956.—

14 (1) DEFINITIONS.—Section 2 of the Bank Hold15 ing Company Act of 1956 (12 U.S.C. 1841) is amend16 ed by inserting after subsection (p) (as added by sec17 tion 103(b)(1)) the following new subsections:

18 ‘‘(q) WHOLESALE FINANCIAL INSTITUTION.—The term

19 ‘wholesale financial institution’ means a wholesale finan20 cial institution subject to section 9B of the Federal Reserve

21 Act.

22 ‘‘(r) COMMISSION.—The term ‘Commission’ means the

23 Securities and Exchange Commission.

24 ‘‘(s) DEPOSITORY INSTITUTION.—The term ‘depository

25 institution’—
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1 ‘‘(1) has the meaning given to such term in sec2 tion 3 of the Federal Deposit Insurance Act; and

3 ‘‘(2) includes a wholesale financial institution.’’.

4 (2) DEFINITION OF BANK INCLUDES WHOLESALE

5 FINANCIAL INSTITUTION.—Section 2(c)(1) of the Bank

6 Holding Company Act of 1956 (12 U.S.C. 1841(c)(1))

7 is amended by adding at the end the following new

8 subparagraph:

9 ‘‘(C) A wholesale financial institution.’’.

10 (3) INCORPORATED DEFINITIONS.—Section 2(n)

11 of the Bank Holding Company Act of 1956 (12

12 U.S.C. 1841(n)) is amended by inserting ‘‘ ‘insured

13 bank’,’’ after ‘‘ ‘in danger of default’,’’.

14 (4) EXCEPTION TO DEPOSIT INSURANCE RE15 QUIREMENT.—Section 3(e) of the Bank Holding Com16 pany Act of 1956 (12 U.S.C. 1842(e)) is amended by

17 adding at the end the following: ‘‘This subsection shall

18 not apply to a wholesale financial institution.’’.

19 (b) FEDERAL DEPOSIT INSURANCE ACT.—Section

20 3(q)(2)(A) of the Federal Deposit Insurance Act (12 U.S.C.

21 1813(q)(2)(A)) is amended to read as follows:

22 ‘‘(A) any State member insured bank (ex23 cept a District bank) and any wholesale finan24 cial institution subject to section 9B of the Fed25 eral Reserve Act;’’.
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•S 900 EAH

1 CHAPTER 2—WHOLESALE FINANCIAL

2 INSTITUTIONS

3 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

4 (a) NATIONAL WHOLESALE FINANCIAL INSTITU5 TIONS.—

6 (1) IN GENERAL.—Chapter 1 of title LXII of the

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

8 et seq.) is amended by inserting after section 5136A

9 (as added by section 121(a) of this title) the following

10 new section:

11 ‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU12 TIONS.

13 ‘‘(a) AUTHORIZATION OF THE COMPTROLLER RE14 QUIRED.—A national bank may apply to the Comptroller

15 on such forms and in accordance with such regulations as

16 the Comptroller may prescribe, for permission to operate

17 as a national wholesale financial institution.

18 ‘‘(b) REGULATION.—A national wholesale financial in19 stitution may exercise, in accordance with such institu20 tion’s articles of incorporation and regulations issued by

21 the Comptroller, all the powers and privileges of a national

22 bank formed in accordance with section 5133 of the Revised

23 Statutes of the United States, subject to section 9B of the

24 Federal Reserve Act and the limitations and restrictions

25 contained therein.
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1 ‘‘(c) COMMUNITY REINVESTMENT ACT OF 1977.—A

2 national wholesale financial institution shall be subject to

3 the Community Reinvestment Act of 1977.

4 (2) CLERICAL AMENDMENT.—The table of sec5 tions for chapter 1 of title LXII of the Revised Stat6 utes of the United States is amended by inserting

7 after the item relating to section 5136A (as added by

8 section 121(d) of this title) the following new item:

‘‘5136B. National wholesale financial institutions.’’.

9 (b) WHOLESALE FINANCIAL INSTITUTIONS.—The Fed10 eral Reserve Act (12 U.S.C. 221 et seq.) is amended by in11 serting after section 9A the following new section:

12 ‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

13 ‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLESALE

14 FINANCIAL INSTITUTION.—

15 ‘‘(1) APPLICATION REQUIRED.—

16 ‘‘(A) IN GENERAL.—Any bank may apply

17 to the Board of Governors of the Federal Reserve

18 System to become a State wholesale financial in19 stitution, or to the Comptroller of the Currency

20 to become a national wholesale financial institu21 tion, and, as a wholesale financial institution, to

22 subscribe to the stock of the Federal Reserve bank

23 organized within the district where the applying

24 bank is located.
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1 ‘‘(B) TREATMENT AS MEMBER BANK.—Any

2 application under subparagraph (A) shall be

3 treated as an application under, and shall be

4 subject to the provisions of, section 9.

5 ‘‘(2) INSURANCE TERMINATION.—No bank the de6 posits of which are insured under the Federal Deposit

7 Insurance Act may become a wholesale financial in8 stitution unless it has met all requirements under

9 that Act for voluntary termination of deposit insur10 ance.

11 ‘‘(b) GENERAL REQUIREMENTS APPLICABLE TO

12 WHOLESALE FINANCIAL INSTITUTIONS.—

13 ‘‘(1) FEDERAL RESERVE ACT.—Except as other14 wise provided in this section, wholesale financial in15 stitutions shall be member banks and shall be subject

16 to the provisions of this Act that apply to member

17 banks to the same extent and in the same manner as

18 State member insured banks or national banks, except

19 that a wholesale financial institution may terminate

20 membership under this Act only with the prior writ21 ten approval of the Board and on terms and condi22 tions that the Board determines are appropriate to

23 carry out the purposes of this Act.

24 ‘‘(2) PROMPT CORRECTIVE ACTION.—A wholesale

25 financial institution shall be deemed to be an insured
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1 depository institution for purposes of section 38 of the

2 Federal Deposit Insurance Act except that—

3 ‘‘(A) the relevant capital levels and capital

4 measures for each capital category shall be the

5 levels specified by the Board for wholesale finan6 cial institutions;

7 ‘‘(B) subject to subparagraph (A), all ref8 erences to the appropriate Federal banking agen9 cy or to the Corporation in that section shall be

10 deemed to be references to the Comptroller of the

11 Currency, in the case of a national wholesale fi12 nancial institution, and to the Board, in the case

13 of all other wholesale financial institutions; and

14 ‘‘(C) in the case of wholesale financial insti15 tutions, the purpose of prompt corrective action

16 shall be to protect taxpayers and the financial

17 system from the risks associated with the oper18 ation and activities of wholesale financial insti19 tutions.

20 ‘‘(3) ENFORCEMENT AUTHORITY.—Section 3(u),

21 subsections (j) and (k) of section 7, subsections (b)

22 through (n), (s), (u), and (v) of section 8, and section

23 19 of the Federal Deposit Insurance Act shall apply

24 to a wholesale financial institution in the same man25 ner and to the same extent as such provisions apply
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•S 900 EAH

1 to State member insured banks or national banks, as

2 the case may be, and any reference in such sections

3 to an insured depository institution shall be deemed

4 to include a reference to a wholesale financial institu5 tion.

6 ‘‘(4) CERTAIN OTHER STATUTES APPLICABLE.—

7 A wholesale financial institution shall be deemed to

8 be a banking institution, and the Board shall be the

9 appropriate Federal banking agency for such bank

10 and all such bank’s affiliates, for purposes of the

11 International Lending Supervision Act.

12 ‘‘(5) BANK MERGER ACT.—A wholesale financial

13 institution shall be subject to sections 18(c) and 44 of

14 the Federal Deposit Insurance Act in the same man15 ner and to the same extent the wholesale financial in16 stitution would be subject to such sections if the insti17 tution were a State member insured bank or a na18 tional bank.

19 ‘‘(6) BRANCHING.—Notwithstanding any other

20 provision of law, a wholesale financial institution

21 may establish and operate a branch at any location

22 on such terms and conditions as established by, and

23 with the approval of—

24 ‘‘(A) the Board, in the case of a State-char25 tered wholesale financial institution; and
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1 ‘‘(B) the Comptroller of the Currency, in the

2 case of a national bank wholesale financial insti3 tution.

4 ‘‘(7) ACTIVITIES OF OUT-OF-STATE BRANCHES OF

5 WHOLESALE FINANCIAL INSTITUTIONS.—A State-char6 tered wholesale financial institution shall be deemed

7 to be a State bank and an insured State bank for

8 purposes of paragraphs (1), (2), and (3) of section

9 24(j) of the Federal Deposit Insurance Act.

10 ‘‘(8) DISCRIMINATION REGARDING INTEREST

11 RATES.—Section 27 of the Federal Deposit Insurance

12 Act shall apply to State-chartered wholesale financial

13 institutions in the same manner and to the same ex14 tent as such provisions apply to State member in15 sured banks and any reference in such section to a

16 State-chartered insured depository institution shall be

17 deemed to include a reference to a State-chartered

18 wholesale financial institution.

19 ‘‘(9) PREEMPTION OF STATE LAWS REQUIRING

20 DEPOSIT INSURANCE FOR WHOLESALE FINANCIAL IN21 STITUTIONS.—The appropriate State banking author22 ity may grant a charter to a wholesale financial in23 stitution notwithstanding any State constitution or

24 statute requiring that the institution obtain insurance

25 of its deposits and any such State constitution or
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•S 900 EAH

1 statute is hereby preempted solely for purposes of this

2 paragraph.

3 ‘‘(10) PARITY FOR WHOLESALE FINANCIAL INSTI4 TUTIONS.—A State bank that is a wholesale financial

5 institution under this section shall have all of the

6 rights, powers, privileges, and immunities (including

7 those derived from status as a federally chartered in8 stitution) of and as if it were a national bank, subject

9 to such terms and conditions as established by the

10 Board.

11 ‘‘(11) COMMUNITY REINVESTMENT ACT OF

12 1977.—A State wholesale financial institution shall be

13 subject to the Community Reinvestment Act of 1977.

14 ‘‘(c) SPECIFIC REQUIREMENTS APPLICABLE TO

15 WHOLESALE FINANCIAL INSTITUTIONS.—

16 ‘‘(1) LIMITATIONS ON DEPOSITS.—

17 ‘‘(A) MINIMUM AMOUNT.—

18 ‘‘(i) IN GENERAL.—No wholesale finan19 cial institution may receive initial deposits

20 of $100,000 or less, other than on an inci21 dental and occasional basis.

22 ‘‘(ii) LIMITATION ON DEPOSITS OF

23 LESS THAN $100,000.—No wholesale finan24 cial institution may receive initial deposits

25 of $100,000 or less if such deposits con-
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•S 900 EAH

1 stitute more than 5 percent of the institu2 tion’s total deposits.

3 ‘‘(B) NO DEPOSIT INSURANCE.—Except as

4 otherwise provided in section 8A(f) of the Federal

5 Deposit Insurance Act, no deposits held by a

6 wholesale financial institution shall be insured

7 deposits under the Federal Deposit Insurance

8 Act.

9 ‘‘(C) ADVERTISING AND DISCLOSURE.—The

10 Board and the Comptroller of the Currency shall

11 prescribe jointly regulations pertaining to adver12 tising and disclosure by wholesale financial in13 stitutions to ensure that each depositor is noti14 fied that deposits at the wholesale financial in15 stitution are not federally insured or otherwise

16 guaranteed by the United States Government.

17 ‘‘(2) MINIMUM CAPITAL LEVELS APPLICABLE TO

18 WHOLESALE FINANCIAL INSTITUTIONS.—The Board

19 shall, by regulation, adopt capital requirements for

20 wholesale financial institutions—

21 ‘‘(A) to account for the status of wholesale

22 financial institutions as institutions that accept

23 deposits that are not insured under the Federal

24 Deposit Insurance Act; and
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•S 900 EAH

1 ‘‘(B) to provide for the safe and sound oper2 ation of the wholesale financial institution with3 out undue risk to creditors or other persons, in4 cluding Federal Reserve banks, engaged in trans5 actions with the bank.

6 ‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE

7 TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi8 tion to any requirement otherwise applicable to State

9 member insured banks or applicable, under this sec10 tion, to wholesale financial institutions, the Board

11 may impose, by regulation or order, upon wholesale

12 financial institutions—

13 ‘‘(A) limitations on transactions, direct or

14 indirect, with affiliates to prevent—

15 ‘‘(i) the transfer of risk to the deposit

16 insurance funds; or

17 ‘‘(ii) an affiliate from gaining access

18 to, or the benefits of, credit from a Federal

19 Reserve bank, including overdrafts at a

20 Federal Reserve bank;

21 ‘‘(B) special clearing balance requirements;

22 and

23 ‘‘(C) any additional requirements that the

24 Board determines to be appropriate or necessary

25 to—
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•S 900 EAH

1 ‘‘(i) promote the safety and soundness

2 of the wholesale financial institution or any

3 insured depository institution affiliate of

4 the wholesale financial institution;

5 ‘‘(ii) prevent the transfer of risk to the

6 deposit insurance funds; or

7 ‘‘(iii) protect creditors and other per8 sons, including Federal Reserve banks, en9 gaged in transactions with the wholesale fi10 nancial institution.

11 ‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL

12 INSTITUTIONS.—The Board may, by regulation or

13 order, exempt any wholesale financial institution

14 from any provision applicable to a member bank that

15 is not a wholesale financial institution, if the Board

16 finds that such exemption is consistent with—

17 ‘‘(A) the promotion of the safety and sound18 ness of the wholesale financial institution or any

19 insured depository institution affiliate of the

20 wholesale financial institution;

21 ‘‘(B) the protection of the deposit insurance

22 funds; and

23 ‘‘(C) the protection of creditors and other

24 persons, including Federal Reserve banks, en-
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•S 900 EAH

1 gaged in transactions with the wholesale finan2 cial institution.

3 ‘‘(5) LIMITATION ON TRANSACTIONS BETWEEN A

4 WHOLESALE FINANCIAL INSTITUTION AND AN IN5 SURED BANK.—For purposes of section 23A(d)(1) of

6 the Federal Reserve Act, a wholesale financial institu7 tion that is affiliated with an insured bank shall not

8 be a bank.

9 ‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This

10 section shall not be construed as limiting the Board’s

11 authority over member banks or the authority of the

12 Comptroller of the Currency over national banks

13 under any other provision of law, or to create any ob14 ligation for any Federal Reserve bank to make, in15 crease, renew, or extend any advance or discount

16 under this Act to any member bank or other deposi17 tory institution.

18 ‘‘(d) CAPITAL AND MANAGERIAL REQUIREMENTS.—

19 ‘‘(1) IN GENERAL.—A wholesale financial insti20 tution shall be well capitalized and well managed.

21 ‘‘(2) NOTICE TO COMPANY.—The Board shall

22 promptly provide notice to a company that controls

23 a wholesale financial institution whenever such whole24 sale financial institution is not well capitalized or

25 well managed.
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1 ‘‘(3) AGREEMENT TO RESTORE INSTITUTION.—

2 Not later than 45 days after the date of receipt of a

3 notice under paragraph (2) (or such additional pe4 riod not to exceed 90 days as the Board may permit),

5 the company shall execute an agreement acceptable to

6 the Board to restore the wholesale financial institu7 tion to compliance with all of the requirements of

8 paragraph (1).

9 ‘‘(4) LIMITATIONS UNTIL INSTITUTION RE10 STORED.—Until the wholesale financial institution is

11 restored to compliance with all of the requirements of

12 paragraph (1), the Board may impose such limita13 tions on the conduct or activities of the company or

14 any affiliate of the company as the Board determines

15 to be appropriate under the circumstances.

16 ‘‘(5) FAILURE TO RESTORE.—If the company

17 does not execute and implement an agreement in ac18 cordance with paragraph (3), comply with any limi19 tation imposed under paragraph (4), restore the

20 wholesale financial institution to well capitalized sta21 tus not later than 180 days after the date of receipt

22 by the company of the notice described in paragraph

23 (2), or restore the wholesale financial institution to

24 well managed status within such period as the Board

25 may permit, the company shall, under such terms
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•S 900 EAH

1 and conditions as may be imposed by the Board sub2 ject to such extension of time as may be granted in

3 the discretion of the Board, divest control of its sub4 sidiary depository institutions.

5 ‘‘(6) WELL MANAGED DEFINED.—For purposes of

6 this subsection, the term ‘well managed’ has the same

7 meaning as in section 2 of the Bank Holding Com8 pany Act of 1956.

9 ‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI10 TUTIONS.—

11 ‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—

12 ‘‘(A) APPOINTMENT.—The Board may ap13 point a conservator or receiver to take possession

14 and control of a wholesale financial institution

15 to the same extent and in the same manner as

16 the Comptroller of the Currency may appoint a

17 conservator or receiver for a national bank.

18 ‘‘(B) POWERS.—The conservator or receiver

19 for a wholesale financial institution shall exer20 cise the same powers, functions, and duties, sub21 ject to the same limitations, as a conservator or

22 receiver for a national bank.

23 ‘‘(2) BOARD AUTHORITY.—The Board shall have

24 the same authority with respect to any conservator or

25 receiver appointed under paragraph (1), and the
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•S 900 EAH

1 wholesale financial institution for which it has been

2 appointed, as the Comptroller of the Currency has

3 with respect to a conservator or receiver for a na4 tional bank and the national bank for which the con5 servator or receiver has been appointed.

6 ‘‘(3) BANKRUPTCY PROCEEDINGS.—The Comp7 troller of the Currency (in the case of a national

8 wholesale financial institution) or the Board may di9 rect the conservator or receiver of a wholesale finan10 cial institution to file a petition pursuant to title 11,

11 United States Code, in which case, title 11, United

12 States Code, shall apply to the wholesale financial in13 stitution in lieu of otherwise applicable Federal or

14 State insolvency law.

15 ‘‘(f) BOARD BACKUP AUTHORITY.—

16 ‘‘(1) NOTICE TO THE COMPTROLLER.—Before

17 taking any action under section 8 of the Federal De18 posit Insurance Act involving a wholesale financial

19 institution that is chartered as a national bank, the

20 Board shall notify the Comptroller and recommend

21 that the Comptroller take appropriate action. If the

22 Comptroller fails to take the recommended action or

23 to provide an acceptable plan for addressing the con24 cerns of the Board before the close of the 30-day pe25 riod beginning on the date of receipt of the formal
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•S 900 EAH

1 recommendation from the Board, the Board may take

2 such action.

3 ‘‘(2) EXIGENT CIRCUMSTANCES.—Notwith4 standing paragraph (1), the Board may exercise its

5 authority without regard to the time period set forth

6 in paragraph (1) where the Board finds that exigent

7 circumstances exist and the Board notifies the Comp8 troller of the Board’s action and of the exigent cir9 cumstances.

10 ‘‘(g) EXCLUSIVE JURISDICTION.—Subsections (c) and

11 (e) of section 43 of the Federal Deposit Insurance Act shall

12 not apply to any wholesale financial institution.’’.

13 (c) VOLUNTARY TERMINATION OF INSURED STATUS BY

14 CERTAIN INSTITUTIONS.—

15 (1) SECTION 8 DESIGNATIONS.—Section 8(a) of

16 the Federal Deposit Insurance Act (12 U.S.C.

17 1818(a)) is amended—

18 (A) by striking paragraph (1); and

19 (B) by redesignating paragraphs (2)

20 through (10) as paragraphs (1) through (9), re21 spectively.

22 (2) VOLUNTARY TERMINATION OF INSURED STA23 TUS.—The Federal Deposit Insurance Act (12 U.S.C.

24 1811 et seq.) is amended by inserting after section 8

25 the following new section:
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1 ‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN2 SURED DEPOSITORY INSTITUTION.

3 ‘‘(a) IN GENERAL.—Except as provided in subsection

4 (b), an insured State bank or a national bank may volun5 tarily terminate such bank’s status as an insured depository

6 institution in accordance with regulations of the Corpora7 tion if—

8 ‘‘(1) the bank provides written notice of the

9 bank’s intent to terminate such insured status—

10 ‘‘(A) to the Corporation and the Board of

11 Governors of the Federal Reserve System, in the

12 case of an insured State bank, or to the Corpora13 tion and the Comptroller of the Currency, in the

14 case of an insured national bank authorized to

15 operate as a wholesale financial institution, not

16 less than 6 months before the effective date of

17 such termination; and

18 ‘‘(B) to all depositors at such bank, not less

19 than 6 months before the effective date of the ter20 mination of such status; and

21 ‘‘(2) either—

22 ‘‘(A) the deposit insurance fund of which

23 such bank is a member equals or exceeds the

24 fund’s designated reserve ratio as of the date the

25 bank provides a written notice under paragraph

26 (1) and the Corporation determines that the fund
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•S 900 EAH

1 will equal or exceed the applicable designated re2 serve ratio for the 2 semiannual assessment peri3 ods immediately following such date; or

4 ‘‘(B) the Corporation and the Board of Gov5 ernors of the Federal Reserve System, in the case

6 of an insured State bank, or the Corporation and

7 the Comptroller of the Currency, in the case of

8 an insured national bank authorized to operate

9 as a wholesale financial institution, has ap10 proved the termination of the bank’s insured sta11 tus and the bank pays an exit fee in accordance

12 with subsection (e).

13 ‘‘(b) EXCEPTION.—Subsection (a) shall not apply with

14 respect to—

15 ‘‘(1) an insured savings association; or

16 ‘‘(2) an insured branch that is required to be in17 sured under subsection (a) or (b) of section 6 of the

18 International Banking Act of 1978.

19 ‘‘(c) ELIGIBILITY FOR INSURANCE TERMINATED.—

20 Any bank that voluntarily elects to terminate the bank’s

21 insured status under subsection (a) shall not be eligible for

22 insurance on any deposits or any assistance authorized

23 under this Act after the period specified in subsection (f)(1).

24 ‘‘(d) INSTITUTION MUST BECOME WHOLESALE FINAN25 CIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING AC-
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•S 900 EAH

1 TIVITIES.—Any depository institution which voluntarily

2 terminates such institution’s status as an insured deposi3 tory institution under this section may not, upon termi4 nation of insurance, accept any deposits unless the institu5 tion is a wholesale financial institution subject to section

6 9B of the Federal Reserve Act.

7 ‘‘(e) EXIT FEES.—

8 ‘‘(1) IN GENERAL.—Any bank that voluntarily

9 terminates such bank’s status as an insured deposi10 tory institution under this section shall pay an exit

11 fee in an amount that the Corporation determines is

12 sufficient to account for the institution’s pro rata

13 share of the amount (if any) which would be required

14 to restore the relevant deposit insurance fund to the

15 fund’s designated reserve ratio as of the date the bank

16 provides a written notice under subsection (a)(1).

17 ‘‘(2) PROCEDURES.—The Corporation shall pre18 scribe, by regulation, procedures for assessing any exit

19 fee under this subsection.

20 ‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED

21 AS OF TERMINATION.—

22 ‘‘(1) TRANSITION PERIOD.—The insured deposits

23 of each depositor in a State bank or a national bank

24 on the effective date of the voluntary termination of

25 the bank’s insured status, less all subsequent with-
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1 drawals from any deposits of such depositor, shall

2 continue to be insured for a period of not less than

3 6 months and not more than 2 years, as determined

4 by the Corporation. During such period, no additions

5 to any such deposits, and no new deposits in the de6 pository institution made after the effective date of

7 such termination shall be insured by the Corporation.

8 ‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS

9 AND DUTIES.—During the period specified in para10 graph (1) with respect to any bank, the bank shall

11 continue to pay assessments under section 7 as if the

12 bank were an insured depository institution. The

13 bank shall, in all other respects, be subject to the au14 thority of the Corporation and the duties and obliga15 tions of an insured depository institution under this

16 Act during such period, and in the event that the

17 bank is closed due to an inability to meet the de18 mands of the bank’s depositors during such period,

19 the Corporation shall have the same powers and

20 rights with respect to such bank as in the case of an

21 insured depository institution.

22 ‘‘(g) ADVERTISEMENTS.—

23 ‘‘(1) IN GENERAL.—A bank that voluntarily ter24 minates the bank’s insured status under this section

25 shall not advertise or hold itself out as having insured
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1 deposits, except that the bank may advertise the tem2 porary insurance of deposits under subsection (f) if,

3 in connection with any such advertisement, the adver4 tisement also states with equal prominence that addi5 tions to deposits and new deposits made after the ef6 fective date of the termination are not insured.

7 ‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,

8 AND SECURITIES.—Any certificate of deposit or other

9 obligation or security issued by a State bank or a na10 tional bank after the effective date of the voluntary

11 termination of the bank’s insured status under this

12 section shall be accompanied by a conspicuous,

13 prominently displayed notice that such certificate of

14 deposit or other obligation or security is not insured

15 under this Act.

16 ‘‘(h) NOTICE REQUIREMENTS.—

17 ‘‘(1) NOTICE TO THE CORPORATION.—The notice

18 required under subsection (a)(1)(A) shall be in such

19 form as the Corporation may require.

20 ‘‘(2) NOTICE TO DEPOSITORS.—The notice re21 quired under subsection (a)(1)(B) shall be—

22 ‘‘(A) sent to each depositor’s last address of

23 record with the bank; and
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1 ‘‘(B) in such manner and form as the Cor2 poration finds to be necessary and appropriate

3 for the protection of depositors.’’.

4 (3) DEFINITION.—Section 19(b)(1)(A)(i) of the

5 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is

6 amended by inserting ‘‘, or any wholesale financial

7 institution subject to section 9B of this Act’’ after

8 ‘‘such Act’’.

9 (d) TECHNICAL AND CONFORMING AMENDMENTS TO

10 THE BANKRUPTCY CODE.—

11 (1) BANKRUPTCY CODE DEBTORS.—Section

12 109(b)(2) of title 11, United States Code, is amended

13 by striking ‘‘; or’’ and inserting the following: ‘‘, ex14 cept that—

15 ‘‘(A) a wholesale financial institution estab16 lished under section 5136B of the Revised Stat17 utes of the United States or section 9B of the

18 Federal Reserve Act may be a debtor if a peti19 tion is filed at the direction of the Comptroller

20 of the Currency (in the case of a wholesale finan21 cial institution established under section 5136B

22 of the Revised Statutes of the United States) or

23 the Board of Governors of the Federal Reserve

24 System (in the case of any wholesale financial

25 institution); and
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1 ‘‘(B) a corporation organized under section

2 25A of the Federal Reserve Act may be a debtor

3 if a petition is filed at the direction of the Board

4 of Governors of the Federal Reserve System; or’’.

5 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

6 title 11, United States Code, is amended to read as

7 follows:

8 ‘‘(d) Only a railroad and a person that may be a debt9 or under chapter 7 of this title, except that a stockbroker,

10 a wholesale financial institution established under section

11 5136B of the Revised Statutes of the United States or sec12 tion 9B of the Federal Reserve Act, a corporation organized

13 under section 25A of the Federal Reserve Act, or a com14 modity broker, may be a debtor under chapter 11 of this

15 title.’’.

16 (3) DEFINITION OF FINANCIAL INSTITUTION.—

17 Section 101(22) of title 11, United States Code, is

18 amended to read as follows:

19 ‘‘(22) ‘financial institution’ means a person that

20 is a commercial or savings bank, industrial savings

21 bank, savings and loan association, trust company,

22 wholesale financial institution established under sec23 tion 5136B of the Revised Statutes of the United

24 States or section 9B of the Federal Reserve Act, or

25 corporation organized under section 25A of the Fed-
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1 eral Reserve Act and, when any such person is acting

2 as agent or custodian for a customer in connection

3 with a securities contract, as defined in section 741

4 of this title, such customer,’’.

5 (4) SUBCHAPTER V OF CHAPTER 7.—

6 (A) IN GENERAL.—Section 103 of title 11,

7 United States Code, is amended—

8 (i) by redesignating subsections (e)

9 through (i) as subsections (f) through (j), re10 spectively; and

11 (ii) by inserting after subsection (d)

12 the following:

13 ‘‘(e) Subchapter V of chapter 7 of this title applies only

14 in a case under such chapter concerning the liquidation of

15 a wholesale financial institution established under section

16 5136B of the Revised Statutes of the United States or sec17 tion 9B of the Federal Reserve Act, or a corporation orga18 nized under section 25A of the Federal Reserve Act.’’.

19 (B) WHOLESALE BANK LIQUIDATION.—

20 Chapter 7 of title 11, United States Code, is

21 amended by adding at the end the following:

22 ‘‘SUBCHAPTER V—WHOLESALE BANK

23 LIQUIDATION

24 ‘‘§ 781. Definitions for subchapter

25 ‘‘In this subchapter—
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•S 900 EAH

1 ‘‘(1) the term ‘Board’ means the Board of Gov2 ernors of the Federal Reserve System;

3 ‘‘(2) the term ‘depository institution’ has the

4 same meaning as in section 3 of the Federal Deposit

5 Insurance Act, and includes any wholesale bank;

6 ‘‘(3) the term ‘national wholesale financial insti7 tution’ means a wholesale financial institution estab8 lished under section 5136B of the Revised Statutes of

9 the United States; and

10 ‘‘(4) the term ‘wholesale bank’ means a national

11 wholesale financial institution, a wholesale financial

12 institution established under section 9B of the Federal

13 Reserve Act, or a corporation organized under section

14 25A of the Federal Reserve Act.

15 ‘‘§ 782. Selection of trustee

16 ‘‘(a) Notwithstanding any other provision of this title,

17 the conservator or receiver who files the petition shall be

18 the trustee under this chapter, unless the Comptroller of the

19 Currency (in the case of a national wholesale financial in20 stitution for which it appointed the conservator or receiver)

21 or the Board (in the case of any wholesale bank for which

22 it appointed the conservator or receiver) designates an al23 ternative trustee. The Comptroller of the Currency or the

24 Board (as applicable) may designate a successor trustee, if

25 required.
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1 ‘‘(b) Whenever the Comptroller of the Currency or the

2 Board appoints or designates a trustee, chapter 3 and sec3 tions 704 and 705 of this title shall apply to the Comp4 troller or the Board, as applicable, in the same way and

5 to the same extent that they apply to a United States trust6 ee.

7 ‘‘§ 783. Additional powers of trustee

8 ‘‘(a) The trustee under this subchapter has power to

9 distribute property not of the estate, including distributions

10 to customers that are mandated by subchapters III and Iv

11 of this chapter.

12 ‘‘(b) The trustee under this subchapter may, after no13 tice and a hearing—

14 ‘‘(1) sell the wholesale bank to a depository insti15 tution or consortium of depository institutions (which

16 consortium may agree on the allocation of the whole17 sale bank among the consortium);

18 ‘‘(2) merge the wholesale bank with a depository

19 institution;

20 ‘‘(3) transfer contracts to the same extent as

21 could a receiver for a depository institution under

22 paragraphs (9) and (10) of section 11(e) of the Fed23 eral Deposit Insurance Act;

24 ‘‘(4) transfer assets or liabilities to a depository

25 institution;
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1 ‘‘(5) transfer assets and liabilities to a bridge

2 bank as provided in paragraphs (1), (3)(A), (5), (6),

3 and (9) through (13), and subparagraphs (A) through

4 (H) and (K) of paragraph (4) of section 11(n) of the

5 Federal Deposit Insurance Act, except that—

6 ‘‘(A) the bridge bank shall be treated as a

7 wholesale bank for the purpose of this subsection;

8 and

9 ‘‘(B) any references in any such provision

10 of law to the Federal Deposit Insurance Corpora11 tion shall be construed to be references to the ap12 pointing agency and that references to deposit

13 insurance shall be omitted.

14 ‘‘(c) Any reference in this section to transfers of liabil15 ities includes a ratable transfer of liabilities within a pri16 ority class.

17 ‘‘§ 784. Right to be heard

18 ‘‘The Comptroller of the Currency (in the case of a na19 tional wholesale financial institution), the Board (in the

20 case of any wholesale bank), or a Federal Reserve bank (in

21 the case of a wholesale bank that is a member of that bank)

22 may raise and may appear and be heard on any issue in

23 a case under this subchapter.

24 (C) CONFORMING AMENDMENT.—The table

25 of sections for chapter 7 of title 11, United States
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1 Code, is amended by adding at the end the fol2 lowing:

‘‘SUBCHAPTER V—WHOLESALE BANK LIQUIDATION

‘‘781. Definitions for subchapter.

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.’’.

3 (e) RESOLUTION OF EDGE CORPORATIONS.—The six4 teenth undesignated paragraph of section 25A of the Federal

5 Reserve Act (12 U.S.C. 624) is amended to read as follows:

6 ‘‘(16) APPOINTMENT OF RECEIVER OR CONSER7 VATOR.—

8 ‘‘(A) IN GENERAL.—The Board may ap9 point a conservator or receiver for a corporation

10 organized under the provisions of this section to

11 the same extent and in the same manner as the

12 Comptroller of the Currency may appoint a con13 servator or receiver for a national bank, and the

14 conservator or receiver for such corporation shall

15 exercise the same powers, functions, and duties,

16 subject to the same limitations, as a conservator

17 or receiver for a national bank.

18 ‘‘(B) EQUIVALENT AUTHORITY.—The Board

19 shall have the same authority with respect to any

20 conservator or receiver appointed for a corpora21 tion organized under the provisions of this sec22 tion under this paragraph and any such cor-
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1 poration as the Comptroller of the Currency has

2 with respect to a conservator or receiver of a na3 tional bank and the national bank for which a

4 conservator or receiver has been appointed.

5 ‘‘(C) TITLE 11 PETITIONS.—The Board may

6 direct the conservator or receiver of a corpora7 tion organized under the provisions of this sec8 tion to file a petition pursuant to title 11,

9 United States Code, in which case, title 11,

10 United States Code, shall apply to the corpora11 tion in lieu of otherwise applicable Federal or

12 State insolvency law.’’.

13 Subtitle E—Preservation of FTC

14 Authority

15 SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY

16 ACT OF 1956 TO MODIFY NOTIFICATION AND

17 POST-APPROVAL WAITING PERIOD FOR SEC18 TION 3 TRANSACTIONS.

19 Section 11(b)(1) of the Bank Holding Company Act

20 of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting

21 ‘‘and, if the transaction also involves an acquisition under

22 section 4 or section 6, the Board shall also notify the Fed23 eral Trade Commission of such approval’’ before the period

24 at the end of the first sentence.
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1 SEC. 142. INTERAGENCY DATA SHARING.

2 To the extent not prohibited by other law, the Comp3 troller of the Currency, the Director of the Office of Thrift

4 Supervision, the Federal Deposit Insurance Corporation,

5 and the Board of Governors of the Federal Reserve System

6 shall make available to the Attorney General and the Fed7 eral Trade Commission any data in the possession of any

8 such banking agency that the antitrust agency deems nec9 essary for antitrust review of any transaction requiring no10 tice to any such antitrust agency or the approval of such

11 agency under section 3, 4, or 6 of the Bank Holding Com12 pany Act of 1956, section 18(c) of the Federal Deposit In13 surance Act, the National Bank Consolidation and Merger

14 Act, section 10 of the Home Owners’ Loan Act, or the anti15 trust laws.

16 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES

17 AND AFFILIATES.

18 (a) CLARIFICATION OF FEDERAL TRADE COMMISSION

19 JURISDICTION.—Any person which directly or indirectly

20 controls, is controlled directly or indirectly by, or is directly

21 or indirectly under common control with, any bank or sav22 ings association (as such terms are defined in section 3 of

23 the Federal Deposit Insurance Act) and is not itself a bank

24 or savings association shall not be deemed to be a bank or

25 savings association for purposes of the Federal Trade Com-
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•S 900 EAH

1 mission Act or any other law enforced by the Federal Trade

2 Commission.

3 (b) SAVINGS PROVISION.—No provision of this section

4 shall be construed as restricting the authority of any Fed5 eral banking agency (as defined in section 3 of the Federal

6 Deposit Insurance Act) under any Federal banking law, in7 cluding section 8 of the Federal Deposit Insurance Act.

8 (c) HART–SCOTT–RODINO AMENDMENTS.—

9 (1) BANKS.—Section 7A(c)(7) of the Clayton Act

10 (15 U.S.C. 18a(c)(7)) is amended by inserting before

11 the semicolon at the end the following: ‘‘, except that

12 a portion of a transaction is not exempt under this

13 paragraph if such portion of the transaction (A) is

14 subject to section 6 of the Bank Holding Company

15 Act of 1956; and (B) does not require agency ap16 proval under section 3 of the Bank Holding Company

17 Act of 1956’’.

18 (2) BANK HOLDING COMPANIES.—Section

19 7A(c)(8) of the Clayton Act (15 U.S.C. 18a(c)(8)) is

20 amended by inserting before the semicolon at the end

21 the following: ‘‘, except that a portion of a transaction

22 is not exempt under this paragraph if such portion

23 of the transaction (A) is subject to section 6 of the

24 Bank Holding Company Act of 1956; and (B) does
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1 not require agency approval under section 4 of the

2 Bank Holding Company Act of 1956’’.

3 SEC. 144. ANNUAL GAO REPORT.

4 (a) IN GENERAL.—By the end of the 1-year period be5 ginning on the date of the enactment of this Act and annu6 ally thereafter, the Comptroller General of the United States

7 shall submit a report to the Congress on market concentra8 tion in the financial services industry and its impact on

9 consumers.

10 (b) ANALYSIS.—Each report submitted under sub11 section (a) shall contain an analysis of—

12 (1) the positive and negative effects of affiliations

13 between various types of financial companies, and of

14 acquisitions pursuant to this Act and the amend15 ments made by this Act to other provisions of law, in16 cluding any positive or negative effects on consumers,

17 area markets, and submarkets thereof or on registered

18 securities brokers and dealers which have been pur19 chased by depository institutions or depository insti20 tution holding companies;

21 (2) the changes in business practices and the ef22 fects of any such changes on the availability of ven23 ture capital, consumer credit, and other financial

24 services or products and the availability of capital

25 and credit for small businesses; and
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1 (3) the acquisition patterns among depository

2 institutions, depository institution holding compa3 nies, securities firms, and insurance companies in4 cluding acquisitions among the largest 20 percent of

5 firms and acquisitions within regions or other limited

6 geographical areas.

7 (c) SUNSET.—This section shall not apply after the

8 end of the 5-year period beginning on the date of the enact9 ment of this Act.

10 Subtitle F—National Treatment

11 SEC. 151. FOREIGN BANKS THAT ARE FINANCIAL HOLDING

12 COMPANIES.

13 Section 8(c) of the International Banking Act of 1978

14 (12 U.S.C. 3106(c)) is amended by adding at the end the

15 following new paragraph:

16 ‘‘(3) TERMINATION OF GRANDFATHERED

17 RIGHTS.—

18 ‘‘(A) IN GENERAL.—If any foreign bank or

19 foreign company files a declaration under section

20 6(b)(1)(D) or receives a determination under sec21 tion 10(d)(1) of the Bank Holding Company Act

22 of 1956, any authority conferred by this sub23 section on any foreign bank or company to en24 gage in any activity which the Board has deter25 mined to be permissible for financial holding
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1 companies under section 6 of such Act shall ter2 minate immediately.

3 ‘‘(B) RESTRICTIONS AND REQUIREMENTS

4 AUTHORIZED.—If a foreign bank or company

5 that engages, directly or through an affiliate

6 pursuant to paragraph (1), in an activity which

7 the Board has determined to be permissible for

8 financial holding companies under section 6 of

9 the Bank Holding Company Act of 1956 has not

10 filed a declaration with the Board of its status

11 as a financial holding company under such sec12 tion or received a determination under section

13 10(d)(1) by the end of the 2-year period begin14 ning on the date of the enactment of the Finan15 cial Services Act of 1999, the Board, giving due

16 regard to the principle of national treatment and

17 equality of competitive opportunity, may impose

18 such restrictions and requirements on the con19 duct of such activities by such foreign bank or

20 company as are comparable to those imposed on

21 a financial holding company organized under

22 the laws of the United States, including a re23 quirement to conduct such activities in compli24 ance with any prudential safeguards established
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1 under section 114 of the Financial Services

2 Act.’’.

3 SEC. 152. FOREIGN BANKS AND FOREIGN FINANCIAL INSTI4 TUTIONS THAT ARE WHOLESALE FINANCIAL

5 INSTITUTIONS.

6 Section 8A of the Federal Deposit Insurance Act (as

7 added by section 136(c)(2) of this Act) is amended by add8 ing at the end the following new subsection:

9 ‘‘(i) VOLUNTARY TERMINATION OF DEPOSIT INSUR10 ANCE.—The provisions on voluntary termination of insur11 ance in this section shall apply to an insured branch of

12 a foreign bank (including a Federal branch) in the same

13 manner and to the same extent as they apply to an insured

14 State bank or a national bank.’’.

15 SEC. 153. REPRESENTATIVE OFFICES.

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

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

18 (12 U.S.C. 3101(15)) is amended by striking ‘‘State agency,

19 or subsidiary of a foreign bank’’ and inserting ‘‘or State

20 agency’’.

21 (b) EXAMINATIONS.—Section 10(c) of the Inter22 national Banking Act of 1978 (12 U.S.C. 3107(c)) is

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

24 may also make examinations of any affiliate of a foreign

25 bank conducting business in any State if the Board deems
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1 it necessary to determine and enforce compliance with this

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

3 1841 et seq.), or other applicable Federal banking law.’’.

4 SEC. 154. RECIPROCITY.

5 (a) NATIONAL TREATMENT REPORTS.—

6 (1) REPORT REQUIRED IN THE EVENT OF CER7 TAIN ACQUISITIONS.—

8 (A) IN GENERAL.—Whenever a person from

9 a foreign country announces its intention to ac10 quire or acquires a bank, a securities under11 writer, broker, or dealer, an investment adviser,

12 or insurance company that ranks within the top

13 50 firms in that line of business in the United

14 States, the Secretary of Commerce, in the case of

15 an insurance company, or the Secretary of the

16 Treasury, in the case of a bank, a securities un17 derwriter, broker, or dealer, or an investment ad18 viser, shall, within the earlier of 6 months of

19 such announcement or such acquisition and in

20 consultation with other appropriate Federal and

21 State agencies, prepare and submit to the Con22 gress a report on whether a United States person

23 would be able, de facto or de jure, to acquire an

24 equivalent sized firm in the country in which

25 such person from a foreign country is located.
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1 (B) ANALYSIS AND RECOMMENDATIONS.—If

2 a report submitted under subparagraph (A)

3 states that the equivalent treatment referred to in

4 such subparagraph, de facto and de jure, is not

5 provided in the country which is the subject of

6 the report, the Secretary of Commerce or the Sec7 retary of the Treasury, as the case may be and

8 in consultation with other appropriate Federal

9 and State agencies, shall include in the report

10 analysis and recommendations as to how that

11 country’s laws and regulations would need to be

12 changed so that reciprocal treatment would exist.

13 (2) REPORT REQUIRED BEFORE FINANCIAL

14 SERVICES NEGOTIATIONS COMMENCE.—The Secretary

15 of Commerce, with respect to insurance companies,

16 and the Secretary of the Treasury, with respect to

17 banks, securities underwriters, brokers, dealers, and

18 investment advisers, shall, not less than 6 months be19 fore the commencement of the financial services nego20 tiations of the World Trade Organization and in con21 sultation with other appropriate Federal and State

22 agencies, prepare and submit to the Congress a report

23 containing—

24 (A) an assessment of the 30 largest finan25 cial services markets with regard to whether re-
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1 ciprocal access is available in such markets to

2 United States financial services providers; and

3 (B) with respect to any such financial serv4 ices markets in which reciprocal access is not

5 available to United States financial services pro6 viders, an analysis and recommendations as to

7 what legislative, regulatory, or enforcement

8 changes would be required to ensure full reci9 procity for such providers.

10 (3) PERSON OF A FOREIGN COUNTRY DEFINED.—

11 For purposes of this subsection, the term ‘‘person of

12 a foreign country’’ means a person, or a person which

13 directly or indirectly owns or controls that person,

14 that is a resident of that country, is organized under

15 the laws of that country, or has its principal place of

16 business in that country.

17 (b) PROVISIONS APPLICABLE TO SUBMISSIONS.—

18 (1) NOTICE.—Before preparing any report re19 quired under subsection (a), the Secretary of Com20 merce or the Secretary of the Treasury, as the case

21 may be, shall publish notice that a report is in prepa22 ration and seek comment from United States persons.

23 (2) PRIVILEGED SUBMISSIONS.—Upon the re24 quest of the submitting person, any comments or re25 lated communications received by the Secretary of
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1 Commerce or the Secretary of the Treasury, as the

2 case may be, with regard to the report shall, for the

3 purposes of section 552 of title 5, of the United States

4 Code, be treated as commercial information obtained

5 from a person that is privileged or confidential, re6 gardless of the medium in which the information is

7 obtained. This confidential information shall be the

8 property of the Secretary and shall be privileged from

9 disclosure to any other person. However, this privilege

10 shall not be construed as preventing access to that

11 confidential information by the Congress.

12 (3) PROHIBITION OF UNAUTHORIZED DISCLO13 SURES.—No person in possession of confidential in14 formation, provided under this section may disclose

15 that information, in whole or in part, except for dis16 closure made in published statistical material that

17 does not disclose, either directly or when used in con18 junction with publicly available information, the con19 fidential information of any person.

20 Subtitle G—Federal Home Loan

21 Bank System Modernization

22 SEC. 161. SHORT TITLE.

23 This subtitle may be cited as the ‘‘Federal Home Loan

24 Bank System Modernization Act of 1999’’.
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1 SEC. 162. DEFINITIONS.

2 Section 2 of the Federal Home Loan Bank Act (12

3 U.S.C. 1422) is amended—

4 (1) in paragraph (1), by striking ‘‘term ‘Board’

5 means’’ and inserting ‘‘terms ‘Finance Board’ and

6 ‘Board’ mean’’;

7 (2) by striking paragraph (3) and inserting the

8 following:

9 ‘‘(3) STATE.—The term ‘State’, in addition to

10 the States of the United States, includes the District

11 of Columbia, Guam, Puerto Rico, the United States

12 Virgin Islands, American Samoa, and the Common13 wealth of the Northern Mariana Islands.’’; and

14 (3) by adding at the end the following new para15 graph:

16 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

17 ‘‘(A) IN GENERAL.—The term ‘community

18 financial institution’ means a member—

19 ‘‘(i) the deposits of which are insured

20 under the Federal Deposit Insurance Act;

21 and

22 ‘‘(ii) that has, as of the date of the

23 transaction at issue, less than $500,000,000

24 in average total assets, based on an average

25 of total assets over the 3 years preceding

26 that date.
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1 ‘‘(B) ADJUSTMENTS.—The $500,000,000

2 limit referred to in subparagraph (A)(ii) shall be

3 adjusted annually by the Finance Board, based

4 on the annual percentage increase, if any, in the

5 Consumer Price Index for all urban consumers,

6 as published by the Department of Labor.’’.

7 SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.

8 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

9 1464(f)) is amended to read as follows:

10 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—On

11 and after January 1, 1999, a Federal savings association

12 may become a member of the Federal Home Loan Bank

13 System, and shall qualify for such membership in the man14 ner provided by the Federal Home Loan Bank Act.’’.

15 SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.

16 (a) IN GENERAL.—Section 10(a) of the Federal Home

17 Loan Bank Act (12 U.S.C. 1430(a)) is amended—

18 (1) by redesignating paragraphs (1) through (4)

19 as subparagraphs (A) through (D), respectively, and

20 indenting appropriately;

21 (2) by striking ‘‘(a) Each’’ and inserting the fol22 lowing:

23 ‘‘(a) IN GENERAL.—

24 ‘‘(1) ALL ADVANCES.—Each’’;
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1 (3) by striking the second sentence and inserting

2 the following:

3 ‘‘(2) PURPOSES OF ADVANCES.—A long-term ad4 vance may only be made for the purposes of—

5 ‘‘(A) providing funds to any member for

6 residential housing finance; and

7 ‘‘(B) providing funds to any community fi8 nancial institution for small business, agricul9 tural, rural development, or low-income commu10 nity development lending.’’;

11 (4) by striking ‘‘A Bank’’ and inserting the fol12 lowing:

13 ‘‘(3) COLLATERAL.—A Bank’’;

14 (5) in paragraph (3) (as so designated by para15 graph (4) of this subsection)—

16 (A) in subparagraph (C) (as so redesignated

17 by paragraph (1) of this subsection) by striking

18 ‘‘Deposits’’ and inserting ‘‘Cash or deposits’’;

19 (B) in subparagraph (D) (as so redesig20 nated by paragraph (1) of this subsection), by

21 striking the second sentence; and

22 (C) by inserting after subparagraph (D) (as

23 so redesignated by paragraph (1) of this sub24 section) the following new subparagraph:
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1 ‘‘(E) Secured loans for small business, agri2 culture, rural development, or low-income com3 munity development, or securities representing a

4 whole interest in such secured loans, in the case

5 of any community financial institution.’’;

6 (6) in paragraph (5)—

7 (A) in the second sentence, by striking ‘‘and

8 the Board’’;

9 (B) in the third sentence, by striking

10 ‘‘Board’’ and inserting ‘‘Federal home loan

11 bank’’; and

12 (C) by striking ‘‘(5) Paragraphs (1) through

13 (4)’’ and inserting the following:

14 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara15 graphs (A) through (E) of paragraph (3)’’; and

16 (7) by adding at the end the following:

17 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND18 ARDS.—The Board may review the collateral stand19 ards applicable to each Federal home loan bank for

20 the classes of collateral described in subparagraphs

21 (D) and (E) of paragraph (3), and may, if necessary

22 for safety and soundness purposes, require an increase

23 in the collateral standards for any or all of those

24 classes of collateral.
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1 ‘‘(6) DEFINITIONS.—For purposes of this sub2 section, the terms ‘small business’, ‘agriculture’, ‘rural

3 development’, and ‘low-income community develop4 ment’ shall have the meanings given those terms by

5 rule or regulation of the Finance Board.’’.

6 (b) CLERICAL AMENDMENT.—The section heading for

7 section 10 of the Federal Home Loan Bank Act (12 U.S.C.

8 1430) is amended to read as follows:

9 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

10 (c) CONFORMING AMENDMENTS RELATING TO MEM11 BERS WHICH ARE NOT QUALIFIED THRIFT LENDERS—The

12 first of the 2 subsections designated as subsection (e) of sec13 tion 10 of the Federal Home Loan Bank Act (12 U.S.C.

14 1430(e)(1)) is amended—

15 (1) in the last sentence of paragraph (1), by in16 serting ‘‘or, in the case of any community financial

17 institution, for the purposes described in subsection

18 (a)(2)’’ before the period; and

19 (2) in paragraph (5)(C), by inserting ‘‘except

20 that, in determining the actual thrift investment per21 centage of any community financial institution for

22 purposes of this subsection, the total investment of

23 such member in loans for small business, agriculture,

24 rural development, or low-income community develop25 ment, or securities representing a whole interest in
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1 such loans, shall be treated as a qualified thrift in2 vestment (as defined in such section 10(m))’’ before

3 the period.

4 SEC. 165. ELIGIBILITY CRITERIA.

5 Section 4(a) of the Federal Home Loan Bank Act (12

6 U.S.C. 1424(a)) is amended—

7 (1) in paragraph (2)(A), by inserting, ‘‘(other

8 than a community financial institution)’’ after ‘‘in9 stitution’’; and

10 (2) by adding at the end the following new para11 graph:

12 ‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI13 NANCIAL INSTITUTIONS.—A community financial in14 stitution that otherwise meets the requirements of

15 paragraph (2) may become a member without regard

16 to the percentage of its total assets that is represented

17 by residential mortgage loans, as described in sub18 paragraph (A) of paragraph (2).’’.

19 SEC. 166. MANAGEMENT OF BANKS.

20 (a) BOARD OF DIRECTORS.—Section 7(d) of the Fed21 eral Home Loan Bank Act (12 U.S.C. 1427(d)) is

22 amended—

23 (1) by striking ‘‘(d) The term’’ and inserting the

24 following:

25 ‘‘(d) TERMS OF OFFICE.—The term’’; and
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1 (2) by striking ‘‘shall be two years’’.

2 (b) COMPENSATION.—Section 7(i) of the Federal Home

3 Loan Bank Act (12 U.S.C. 1427(i)) is amended by striking

4 ‘‘, subject to the approval of the board’’.

5 (c) REPEAL OF SECTIONS 22A AND 27.—The Federal

6 Home Loan Bank Act (12 U.S.C. 1421 et seq.) is amended

7 by striking sections 22A (12 U.S.C. 1442a) and 27 (12

8 U.S.C. 1447).

9 (d) SECTION 12.—Section 12 of the Federal Home

10 Loan Bank Act (12 U.S.C. 1432) is amended—

11 (1) in subsection (a)—

12 (A) by striking ‘‘, but, except’’ and all that

13 follows through ‘‘ten years’’;

14 (B) by striking ‘‘subject to the approval of

15 the Board’’ the first place that term appears;

16 (C) by striking ‘‘and, by its Board of direc17 tors,’’ and all that follows through ‘‘agent of such

18 bank,’’ and inserting ‘‘and, by the board of direc19 tors of the bank, to prescribe, amend, and repeal

20 by-laws governing the manner in which its af21 fairs may be administered, consistent with ap22 plicable laws and regulations, as administered

23 by the Finance Board. No officer, employee, at24 torney, or agent of a Federal home loan bank’’;

25 and
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1 (D) by striking ‘‘Board of directors’’ where

2 such term appears in the penultimate sentence

3 and inserting ‘‘board of directors’’; and

4 (2) in subsection (b), by striking ‘‘loans banks’’

5 and inserting ‘‘loan banks’’.

6 (e) POWERS AND DUTIES OF FEDERAL HOUSING FI7 NANCE BOARD.—

8 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—Sec9 tion 2B(a) of the Federal Home Loan Bank Act (12

10 U.S.C. 1422b(a)) is amended by adding at the end the

11 following new paragraphs:

12 ‘‘(5) To issue and serve a notice of charges upon

13 a Federal home loan bank or upon any executive offi14 cer or director of a Federal home loan bank if, in the

15 determination of the Finance Board, the bank, execu16 tive officer, or director is engaging or has engaged in,

17 or the Finance Board has reasonable cause to believe

18 that the bank, executive officer, or director is about to

19 engage in, any conduct that violates any provision of

20 this Act or any law, order, rule, or regulation or any

21 condition imposed in writing by the Finance Board

22 in connection with the granting of any application or

23 other request by the bank, or any written agreement

24 entered into by the bank with the agency, in accord25 ance with the procedures provided in section 1371(c)
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1 of the Federal Housing Enterprises Financial Safety

2 and Soundness Act of 1992. Such authority includes

3 the same authority to take affirmative action to cor4 rect conditions resulting from violations or practices

5 or to limit activities of a bank or any executive officer

6 or director of a bank as appropriate Federal banking

7 agencies have to take with respect to insured deposi8 tory institutions under paragraphs (6) and (7) of sec9 tion 8(b) of the Federal Deposit Insurance Act, and

10 to have all other powers, rights, and duties to enforce

11 this Act with respect to the Federal home loan banks

12 and their executive officers and directors as the Office

13 of Federal Housing Enterprise Oversight has to en14 force the Federal Housing Enterprises Financial

15 Safety and Soundness Act of 1992, the Federal Na16 tional Mortgage Association Charter Act, or the Fed17 eral Home Loan Mortgage Corporation Act with re18 spect to the Federal housing enterprises under the

19 Federal Housing Enterprises Financial Safety and

20 Soundness Act of 1992.

21 ‘‘(6) To address any insufficiencies in capital

22 levels resulting from the application of section 5(f) of

23 the Home Owners’ Loan Act.

24 ‘‘(7) To sue and be sued, by and through its own

25 attorneys.’’.
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1 (2) TECHNICAL AMENDMENT.—Section 111 of

2 Public Law 93–495 (12 U.S.C. 250) is amended by

3 striking ‘‘Federal Home Loan Bank Board,’’ and in4 serting ‘‘Director of the Office of Thrift Supervision,

5 ‘‘the Federal Housing Finance Board,’’.

6 (f) ELIGIBILITY TO SECURE ADVANCES.—

7 (1) SECTION 9.—Section 9 of the Federal Home

8 Loan Bank Act (12 U.S.C. 1429) is amended—

9 (A) in the second sentence, by striking

10 ‘‘with the approval of the Board’’; and

11 (B) in the third sentence, by striking ‘‘, sub12 ject to the approval of the Board,’’.

13 (2) SECTION 10.—Section 10 of the Federal

14 Home Loan Bank Act (12 U.S.C. 1430) is amended—

15 (A) in subsection (c)—

16 (i) in the first sentence, by striking

17 ‘‘Board’’ and inserting ‘‘Federal home loan

18 bank’’; and

19 (ii) by striking the second sentence;

20 (B) in subsection (d)—

21 (i) in the first sentence, by striking

22 ‘‘and the approval of the Board’’; and

23 (ii) by striking ‘‘Subject to the ap24 proval of the Board, any’’ and inserting

25 ‘‘Any’’; and
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1 (C) in subsection (j)(1)—

2 (i) by striking ‘‘to subsidize the interest

3 rate on advances’’ and inserting ‘‘to provide

4 subsidies, including subsidized interest rates

5 on advances’’;

6 (ii) by striking ‘‘Pursuant’’ and insert7 ing the following:

8 ‘‘(A) ESTABLISHMENT.—Pursuant’’; and

9 (iii) by adding at the end the following

10 new subparagraph:

11 ‘‘(B) NONDELEGATION OF APPROVAL AU12 THORITY.—Subject to such regulations as the Fi13 nance Board may prescribe, the board of direc14 tors of each Federal home loan bank may ap15 prove or disapprove requests from members for

16 Affordable Housing Program subsidies, and may

17 not delegate such authority.’’.

18 (g) SECTION 16.—Section 16(a) of the Federal Home

19 Loan Bank Act (12 U.S.C. 1436(a)) is amended—

20 (1) in the third sentence—

21 (A) by striking ‘‘net earnings’’ and insert22 ing ‘‘previously retained earnings or current net

23 earnings’’; and
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1 (B) by striking ‘‘, and then only with the

2 approval of the Federal Housing Finance

3 Board’’; and

4 (2) by striking the fourth sentence.

5 (h) SECTION 18.—Section 18(b) of the Federal Home

6 Loan Bank Act (12 U.S.C. 1438(b)) is amended by striking

7 paragraph (4).

8 SEC. 167. RESOLUTION FUNDING CORPORATION.

9 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Federal

10 Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amend11 ed to read as follows:

12 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

13 BANKS.—

14 ‘‘(i) IN GENERAL.—To the extent that

15 the amounts available pursuant to subpara16 graphs (A) and (B) are insufficient to cover

17 the amount of interest payments, each Fed18 eral home loan bank shall pay to the Fund19 ing Corporation in each calendar year,

20 20.75 percent of the net earnings of that

21 bank (after deducting expenses relating to

22 section 10(j) and operating expenses).

23 ‘‘(ii) ANNUAL DETERMINATION.—The

24 Board annually shall determine the extent

25 to which the value of the aggregate amounts
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1 paid by the Federal home loan banks ex2 ceeds or falls short of the value of an annu3 ity of $300,000,000 per year that com4 mences on the issuance date and ends on the

5 final scheduled maturity date of the obliga6 tions, and shall select appropriate present

7 value factors for making such determina8 tions.

9 ‘‘(iii) PAYMENT TERM ALTERATIONS.—

10 The Board shall extend or shorten the term

11 of the payment obligations of a Federal

12 home loan bank under this subparagraph as

13 necessary to ensure that the value of all

14 payments made by the banks is equivalent

15 to the value of an annuity referred to in

16 clause (ii).

17 ‘‘(iv) TERM BEYOND MATURITY.—If the

18 Board extends the term of payments beyond

19 the final scheduled maturity date for the ob20 ligations, each Federal home loan bank shall

21 continue to pay 20.75 percent of its net

22 earnings (after deducting expenses relating

23 to section 10(j) and operating expenses) to

24 the Treasury of the United States until the

25 value of all such payments by the Federal
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1 home loan banks is equivalent to the value

2 of an annuity referred to in clause (ii). In

3 the final year in which the Federal home

4 loan banks are required to make any pay5 ment to the Treasury under this subpara6 graph, if the dollar amount represented by

7 20.75 percent of the net earnings of the Fed8 eral home loan banks exceeds the remaining

9 obligation of the banks to the Treasury, the

10 Finance Board shall reduce the percentage

11 pro rata to a level sufficient to pay the re12 maining obligation.’’.

13 (b) EFFECTIVE DATE.—The amendment made by sub14 section (a) shall become effective on January 1, 1999. Pay15 ments made by a Federal home loan bank before that effec16 tive date shall be counted toward the total obligation of that

17 bank under section 21B(f)(2)(C) of the Federal Home Loan

18 Bank Act, as amended by this section.

19 SEC. 168. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

20 BANKS.

21 Section 6 of the Federal Home Loan Bank Act (12

22 U.S.C. 1426) is amended to read as follows:

23 ‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN

24 BANKS.

25 ‘‘(a) REGULATIONS.—
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1 ‘‘(1) CAPITAL STANDARDS.—Not later than 1

2 year after the date of the enactment of the Financial

3 Services Act of 1999, the Finance Board shall issue

4 regulations prescribing uniform capital standards ap5 plicable to each Federal home loan bank, which shall

6 require each such bank to meet—

7 ‘‘(A) the leverage requirement specified in

8 paragraph (2); and

9 ‘‘(B) the risk-based capital requirements, in

10 accordance with paragraph (3).

11 ‘‘(2) LEVERAGE REQUIREMENT.—

12 ‘‘(A) IN GENERAL.—The leverage require13 ment shall require each Federal home loan bank

14 to maintain a minimum amount of total capital

15 based on the aggregate on-balance sheet assets of

16 the bank and shall be 5 percent.

17 ‘‘(B) TREATMENT OF STOCK AND RETAINED

18 EARNINGS.—In determining compliance with the

19 minimum leverage ratio established under sub20 paragraph (A), the paid-in value of the out21 standing Class B stock shall be multiplied by

22 1.5, the paid-in value of the outstanding Class C

23 stock and the amount of retained earnings shall

24 be multiplied by 2.0, and such higher amounts
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1 shall be deemed to be capital for purposes of

2 meeting the 5 percent minimum leverage ratio.

3 ‘‘(3) RISK-BASED CAPITAL STANDARDS.—

4 ‘‘(A) IN GENERAL.—Each Federal home

5 loan bank shall maintain permanent capital in

6 an amount that is sufficient, as determined in

7 accordance with the regulations of the Finance

8 Board, to meet—

9 ‘‘(i) the credit risk to which the Fed10 eral home loan bank is subject; and

11 ‘‘(ii) the market risk, including inter12 est rate risk, to which the Federal home

13 loan bank is subject, based on a stress test

14 established by the Finance Board that rigor15 ously tests for changes in market variables,

16 including changes in interest rates, rate vol17 atility, and changes in the shape of the

18 yield curve.

19 ‘‘(B) CONSIDERATION OF OTHER RISK20 BASED STANDARDS.—In establishing the risk21 based standard under subparagraph (A)(ii), the

22 Finance Board shall take due consideration of

23 any risk-based capital test established pursuant

24 to section 1361 of the Federal Housing Enter25 prises Financial Safety and Soundness Act of
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1 1992 (12 U.S.C. 4611) for the enterprises (as de2 fined in that Act), with such modifications as

3 the Finance Board determines to be appropriate

4 to reflect differences in operations between the

5 Federal home loan banks and those enterprises.

6 ‘‘(4) OTHER REGULATORY REQUIREMENTS.—The

7 regulations issued by the Finance Board under para8 graph (1) shall—

9 ‘‘(A) permit each Federal home loan bank to

10 issue, with such rights, terms, and preferences,

11 not inconsistent with this Act and the regula12 tions issued hereunder, as the board of directors

13 of that bank may approve, any one or more of—

14 ‘‘(i) Class A stock, which shall be re15 deemable in cash and at par 6 months fol16 lowing submission by a member of a writ17 ten notice of its intent to redeem such

18 shares;

19 ‘‘(ii) Class B stock, which shall be re20 deemable in cash and at par 5 years fol21 lowing submission by a member of a writ22 ten notice of its intent to redeem such

23 shares; and

24 ‘‘(iii) Class C stock, which shall be

25 nonredeemable;
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•S 900 EAH

1 ‘‘(B) provide that the stock of a Federal

2 home loan bank may be issued to and held by

3 only members of the bank, and that a bank may

4 not issue any stock other than as provided in

5 this section;

6 ‘‘(C) prescribe the manner in which stock of

7 a Federal home loan bank may be sold, trans8 ferred, redeemed, or repurchased; and

9 ‘‘(D) provide the manner of disposition of

10 outstanding stock held by, and the liquidation of

11 any claims of the Federal home loan bank

12 against, an institution that ceases to be a mem13 ber of the bank, through merger or otherwise, or

14 that provides notice of intention to withdraw

15 from membership in the bank.

16 ‘‘(5) DEFINITIONS OF CAPITAL.—For purposes of

17 determining compliance with the capital standards

18 established under this subsection—

19 ‘‘(A) permanent capital of a Federal home

20 loan bank shall include (as determined in ac21 cordance with generally accepted accounting

22 principles)—

23 ‘‘(i) the amounts paid for the Class C

24 stock and any other nonredeemable stock

25 approved by the Finance Board;
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•S 900 EAH

1 ‘‘(ii) the amounts paid for the Class B

2 stock, in an amount not to exceed 1 percent

3 of the total assets of the bank; and

4 ‘‘(iii) the retained earnings of the

5 bank; and

6 ‘‘(B) total capital of a Federal home loan

7 bank shall include—

8 ‘‘(i) permanent capital;

9 ‘‘(ii) the amounts paid for the Class A

10 stock, Class B stock (excluding any amount

11 treated as permanent capital under sub12 paragraph (5)(A)(ii)), or any other class of

13 redeemable stock approved by the Finance

14 Board;

15 ‘‘(iii) consistent with generally accept16 ed accounting principles, and subject to the

17 regulation of the Finance Board, a general

18 allowance for losses, which may not include

19 any reserves or allowances made or held

20 against specific assets; and

21 ‘‘(iv) any other amounts from sources

22 available to absorb losses incurred by the

23 bank that the Finance Board determines by

24 regulation to be appropriate to include in

25 determining total capital.
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1 ‘‘(6) TRANSITION PERIOD.—Notwithstanding any

2 other provisions of this Act, the requirements relating

3 to purchase and retention of capital stock of a Federal

4 home loan bank by any member thereof in effect on

5 the day before the date of the enactment of the Federal

6 Home Loan Bank System Modernization Act of 1999,

7 shall continue in effect with respect to each Federal

8 home loan bank until the regulations required by this

9 subsection have taken effect and the capital structure

10 plan required by subsection (b) has been approved by

11 the Finance Board and implemented by such bank.

12 ‘‘(b) CAPITAL STRUCTURE PLAN.—

13 ‘‘(1) APPROVAL OF PLANS.—Not later than 270

14 days after the date of publication by the Finance

15 Board of final regulations in accordance with sub16 section (a), the board of directors of each Federal

17 home loan bank shall submit for Finance Board ap18 proval a plan establishing and implementing a cap19 ital structure for such bank that—

20 ‘‘(A) the board of directors determines is

21 best suited for the condition and operation of the

22 bank and the interests of the members of the

23 bank;

24 ‘‘(B) meets the requirements of subsection

25 (c); and
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•S 900 EAH

1 ‘‘(C) meets the minimum capital standards

2 and requirements established under subsection

3 (a) and other regulations prescribed by the Fi4 nance Board.

5 ‘‘(2) APPROVAL OF MODIFICATIONS.—The board

6 of directors of a Federal home loan bank shall submit

7 to the Finance Board for approval any modifications

8 that the bank proposes to make to an approved cap9 ital structure plan.

10 ‘‘(c) CONTENTS OF PLAN.—The capital structure plan

11 of each Federal home loan bank shall contain provisions

12 addressing each of the following:

13 ‘‘(1) MINIMUM INVESTMENT.—

14 ‘‘(A) IN GENERAL.—Each capital structure

15 plan of a Federal home loan bank shall require

16 each member of the bank to maintain a min17 imum investment in the stock of the bank, the

18 amount of which shall be determined in a man19 ner to be prescribed by the board of directors of

20 each bank and to be included as part of the plan.

21 ‘‘(B) INVESTMENT ALTERNATIVES.—

22 ‘‘(i) IN GENERAL.—In establishing the

23 minimum investment required for each

24 member under subparagraph (A), a Federal

25 home loan bank may, in its discretion, in-
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•S 900 EAH

1 clude any one or more of the requirements

2 referred to in clause (ii), or any other pro3 visions approved by the Finance Board.

4 ‘‘(ii) AUTHORIZED REQUIREMENTS.—

5 A requirement is referred to in this clause

6 if it is a requirement for—

7 ‘‘(I) a stock purchase based on a

8 percentage of the total assets of a mem9 ber; or

10 ‘‘(II) a stock purchase based on a

11 percentage of the outstanding advances

12 from the bank to the member.

13 ‘‘(C) MINIMUM AMOUNT.—Each capital

14 structure plan of a Federal home loan bank shall

15 require that the minimum stock investment es16 tablished for members shall be set at a level that

17 is sufficient for the bank to meet the minimum

18 capital requirements established by the Finance

19 Board under subsection (a).

20 ‘‘(D) ADJUSTMENTS TO MINIMUM REQUIRED

21 INVESTMENT.—The capital structure plan of

22 each Federal home loan bank shall impose a con23 tinuing obligation on the board of directors of

24 the bank to review and adjust the minimum in25 vestment required of each member of that bank,
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•S 900 EAH

1 as necessary to ensure that the bank remains in

2 compliance with applicable minimum capital

3 levels established by the Finance Board, and

4 shall require each member to comply promptly

5 with any adjustments to the required minimum

6 investment.

7 ‘‘(2) TRANSITION RULE.—

8 ‘‘(A) IN GENERAL.—The capital structure

9 plan of each Federal home loan bank shall speci10 fy the date on which it shall take effect, and may

11 provide for a transition period of not longer

12 than 3 years to allow the bank to come into com13 pliance with the capital requirements prescribed

14 under subsection (a), and to allow any institu15 tion that was a member of the bank on the date

16 of the enactment of the Financial Services Act of

17 1999, to come into compliance with the min18 imum investment required pursuant to the plan.

19 ‘‘(B) INTERIM PURCHASE REQUIRE20 MENTS.—The capital structure plan of a Federal

21 home loan bank may allow any member referred

22 to in subparagraph (A) that would be required

23 by the terms of the capital structure plan to in24 crease its investment in the stock of the bank to
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•S 900 EAH

1 do so in periodic installments during the transi2 tion period.

3 ‘‘(3) DISPOSITION OF SHARES.—The capital

4 structure plan of a Federal home loan bank shall pro5 vide for the manner of disposition of any stock held

6 by a member of that bank that terminates its mem7 bership or that provides notice of its intention to

8 withdraw from membership in that bank.

9 ‘‘(4) CLASSES OF STOCK.—

10 ‘‘(A) IN GENERAL.—The capital structure

11 plan of a Federal home loan bank shall afford

12 each member of that bank the option of main13 taining its required investment in the bank

14 through the purchase of any combination of

15 classes of stock authorized by the board of direc16 tors of the bank and approved by the Finance

17 Board in accordance with its regulations.

18 ‘‘(B) RIGHTS REQUIREMENT.—A Federal

19 home loan bank shall include in its capital

20 structure plan provisions establishing terms,

21 rights, and preferences, including minimum in22 vestment, dividends, voting, and liquidation

23 preferences of each class of stock issued by the

24 bank, consistent with Finance Board regulations

25 and market requirements.
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•S 900 EAH

1 ‘‘(C) REDUCED MINIMUM INVESTMENT.—

2 The capital structure plan of a Federal home

3 loan bank may provide for a reduced minimum

4 stock investment for any member of that bank

5 that elects to purchase Class B, Class C, or any

6 other class of nonredeemable stock, in a manner

7 that is consistent with meeting the minimum

8 capital requirements of the bank, as established

9 by the Finance Board.

10 ‘‘(D) LIQUIDATION OF CLAIMS.—The capital

11 structure plan of a Federal home loan bank shall

12 provide for the liquidation in an orderly man13 ner, as determined by the bank, of any claim of

14 that bank against a member, including claims

15 for any applicable prepayment fees or penalties

16 resulting from prepayment of advances prior to

17 stated maturity.

18 ‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—

19 The capital structure plan of a Federal home loan

20 bank shall—

21 ‘‘(A) provide that—

22 ‘‘(i) any stock issued by that bank

23 shall be available only to, held only by, and

24 tradable only among members of that bank
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•S 900 EAH

1 and between that bank and its members;

2 and

3 ‘‘(ii) a bank has no obligation to re4 purchase its outstanding Class C stock but

5 may do so, provided it is consistent with

6 Finance Board regulations and is at a price

7 that is mutually agreeable to the bank and

8 the member; and

9 ‘‘(B) establish standards, criteria, and re10 quirements for the issuance, purchase, transfer,

11 retirement, and redemption of stock issued by

12 that bank.

13 ‘‘(6) BANK REVIEW OF PLAN.—Before filing a

14 capital structure plan with the Finance Board, each

15 Federal home loan bank shall conduct a review of the

16 plan by—

17 ‘‘(A) an independent certified public ac18 countant, to ensure, to the extent possible, that

19 implementation of the plan would not result in

20 any write-down of the redeemable bank stock in21 vestment of its members; and

22 ‘‘(B) at least one major credit rating agen23 cy, to determine, to the extent possible, whether

24 implementation of the plan would have any ma25 terial effect on the credit ratings of the bank.
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•S 900 EAH

1 ‘‘(d) TERMINATION OF MEMBERSHIP.—

2 ‘‘(1) VOLUNTARY WITHDRAWAL.—Any member

3 may withdraw from a Federal home loan bank by

4 providing written notice to the bank of its intent to

5 do so. The applicable stock redemption notice periods

6 shall commence upon receipt of the notice by the

7 bank. Upon the expiration of the applicable notice pe8 riod for each class of redeemable stock, the member

9 may surrender such stock to the bank, and shall be

10 entitled to receive in cash the par value of the stock.

11 During the applicable notice periods, the member

12 shall be entitled to dividends and other membership

13 rights commensurate with continuing stock owner14 ship.

15 ‘‘(2) INVOLUNTARY WITHDRAWAL.—

16 ‘‘(A) IN GENERAL.—The board of directors

17 of a Federal home loan bank may terminate the

18 membership of any institution if, subject to Fi19 nance Board regulations, it determines that—

20 ‘‘(i) the member has failed to comply

21 with a provision of this Act or any regula22 tion prescribed under this Act; or

23 ‘‘(ii) the member has been determined

24 to be insolvent, or otherwise subject to the

25 appointment of a conservator, receiver, or
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•S 900 EAH

1 other legal custodian, by a State or Federal

2 authority with regulatory and supervisory

3 responsibility for the member.

4 ‘‘(B) STOCK DISPOSITION.—An institution,

5 the membership of which is terminated in ac6 cordance with subparagraph (A)—

7 ‘‘(i) shall surrender redeemable stock to

8 the Federal home loan bank, and shall re9 ceive in cash the par value of the stock,

10 upon the expiration of the applicable notice

11 period under subsection (a)(4)(A);

12 ‘‘(ii) shall receive any dividends de13 clared on its redeemable stock, during the

14 applicable notice period under subsection

15 (a)(4)(A); and

16 ‘‘(iii) shall not be entitled to any other

17 rights or privileges accorded to members

18 after the date of the termination.

19 ‘‘(C) COMMENCEMENT OF NOTICE PE20 RIOD.—With respect to an institution, the mem21 bership of which is terminated in accordance

22 with subparagraph (A), the applicable notice pe23 riod under subsection (a)(4) for each class of re24 deemable stock shall commence on the earlier

25 of—
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•S 900 EAH

1 ‘‘(i) the date of such termination; or

2 ‘‘(ii) the date on which the member has

3 provided notice of its intent to redeem such

4 stock.

5 ‘‘(3) LIQUIDATION OF INDEBTEDNESS.—Upon

6 the termination of the membership of an institution

7 for any reason, the outstanding indebtedness of the

8 member to the bank shall be liquidated in an orderly

9 manner, as determined by the bank and, upon the ex10 tinguishment of all such indebtedness, the bank shall

11 return to the member all collateral pledged to secure

12 the indebtedness.

13 ‘‘(e) REDEMPTION OF EXCESS STOCK.—

14 ‘‘(1) IN GENERAL.—A Federal home loan bank,

15 in its sole discretion, may redeem or repurchase, as

16 appropriate, any shares of Class A or Class B stock

17 issued by the bank and held by a member that are in

18 excess of the minimum stock investment required of

19 that member.

20 ‘‘(2) EXCESS STOCK.—Shares of stock held by a

21 member shall not be deemed to be ‘excess stock’ for

22 purposes of this subsection by virtue of a member’s

23 submission of a notice of intent to withdraw from

24 membership or termination of its membership in any

25 other manner.
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•S 900 EAH

1 ‘‘(3) PRIORITY.—A Federal home loan bank may

2 not redeem any excess Class B stock prior to the end

3 of the 5-year notice period, unless the member has no

4 Class A stock outstanding that could be redeemed as

5 excess.

6 ‘‘(f) IMPAIRMENT OF CAPITAL.—If the Finance Board

7 or the board of directors of a Federal home loan bank deter8 mines that the bank has incurred or is likely to incur losses

9 that result in or are expected to result in charges against

10 the capital of the bank, the bank shall not redeem or repur11 chase any stock of the bank without the prior approval of

12 the Finance Board while such charges are continuing or

13 are expected to continue. In no case may a bank redeem

14 or repurchase any applicable capital stock if, following the

15 redemption, the bank would fail to satisfy any minimum

16 capital requirement.

17 ‘‘(g) REJOINING AFTER DIVESTITURE OF ALL

18 SHARES.—

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), and notwithstanding any other provision

21 of this Act, an institution that divests all shares of

22 stock in a Federal home loan bank may not, after

23 such divestiture, acquire shares of any Federal home

24 loan bank before the end of the 5-year period begin25 ning on the date of the completion of such divestiture,
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•S 900 EAH

1 unless the divestiture is a consequence of a transfer of

2 membership on an uninterrupted basis between banks.

3 ‘‘(2) EXCEPTION FOR WITHDRAWALS FROM MEM4 BERSHIP BEFORE 1998.—Any institution that with5 drew from membership in any Federal home loan

6 bank before December 31, 1997, may acquire shares of

7 a Federal home loan bank at any time after that date,

8 subject to the approval of the Finance Board and the

9 requirements of this Act.

10 ‘‘(h) TREATMENT OF RETAINED EARNINGS.—

11 ‘‘(1) IN GENERAL.—The holders of the Class C

12 stock of a Federal home loan bank, and any other

13 classes of nonredeemable stock approved by the Fi14 nance Board (to the extent provided in the terms

15 thereof), shall own the retained earnings, surplus, un16 divided profits, and equity reserves, if any, of the

17 bank.

18 ‘‘(2) NO NONREDEEMABLE CLASSES OF STOCK.—

19 If a Federal home loan bank has no outstanding Class

20 C or other such nonredeemable stock, then the holders

21 of any other classes of stock of the bank then out22 standing shall have ownership in, and a private

23 property right in, the retained earnings, surplus, un24 divided profits, and equity reserves, if any, of the

25 bank.
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1 ‘‘(3) EXCEPTION.—Except as specifically pro2 vided in this section or through the declaration of a

3 dividend or a capital distribution by a Federal home

4 loan bank, or in the event of liquidation of the bank,

5 a member shall have no right to withdraw or other6 wise receive distribution of any portion of the re7 tained earnings of the bank.

8 ‘‘(4) LIMITATION.—A Federal home loan bank

9 may not make any distribution of its retained earn10 ings unless, following such distribution, the bank

11 would continue to meet all applicable capital require12 ments.’’.

13 Subtitle H—ATM Fee Reform

14 SEC. 171. SHORT TITLE.

15 This subtitle may be cited as the ‘‘ATM Fee Reform

16 Act of 1999’’.

17 SEC. 172. ELECTRONIC FUND TRANSFER FEE DISCLOSURES

18 AT ANY HOST ATM.

19 Section 904(d) of the Electronic Fund Transfer Act (15

20 U.S.C. 1693b(d)) is amended by adding at the end the fol21 lowing new paragraph:

22 ‘‘(3) FEE DISCLOSURES AT AUTOMATED TELLER

23 MACHINES.—

24 ‘‘(A) IN GENERAL.—The regulations pre25 scribed under paragraph (1) shall require any
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•S 900 EAH

1 automated teller machine operator who imposes

2 a fee on any consumer for providing host trans3 fer services to such consumer to provide notice in

4 accordance with subparagraph (B) to the con5 sumer (at the time the service is provided) of—

6 ‘‘(i) the fact that a fee is imposed by

7 such operator for providing the service; and

8 ‘‘(ii) the amount of any such fee.

9 ‘‘(B) NOTICE REQUIREMENTS.—

10 ‘‘(i) ON THE MACHINE.—The notice re11 quired under clause (i) of subparagraph (A)

12 with respect to any fee described in such

13 subparagraph shall be posted in a promi14 nent and conspicuous location on or at the

15 automated teller machine at which the elec16 tronic fund transfer is initiated by the con17 sumer; and

18 ‘‘(ii) ON THE SCREEN.—The notice re19 quired under clauses (i) and (ii) of sub20 paragraph (A) with respect to any fee de21 scribed in such subparagraph shall appear

22 on the screen of the automated teller ma23 chine, or on a paper notice issued from such

24 machine, after the transaction is initiated
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1 and before the consumer is irrevocably com2 mitted to completing the transaction.

3 ‘‘(C) PROHIBITION ON FEES NOT PROPERLY

4 DISCLOSED AND EXPLICITLY ASSUMED BY CON5 SUMER.—No fee may be imposed by any auto6 mated teller machine operator in connection

7 with any electronic fund transfer initiated by a

8 consumer for which a notice is required under

9 subparagraph (A), unless—

10 ‘‘(i) the consumer receives such notice

11 in accordance with subparagraph (B); and

12 ‘‘(ii) the consumer elects to continue in

13 the manner necessary to effect the trans14 action after receiving such notice.

15 ‘‘(D) DEFINITIONS.—For purposes of this

16 paragraph, the following definitions shall apply:

17 ‘‘(i) ELECTRONIC FUND TRANSFER.—

18 The term ‘electronic fund transfer’ includes

19 a transaction which involves a balance in20 quiry initiated by a consumer in the same

21 manner as an electronic fund transfer,

22 whether or not the consumer initiates a

23 transfer of funds in the course of the trans24 action.
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•S 900 EAH

1 ‘‘(ii) AUTOMATED TELLER MACHINE

2 OPERATOR.—The term ‘automated teller

3 machine operator’ means any person who—

4 ‘‘(I) operates an automated teller

5 machine at which consumers initiate

6 electronic fund transfers; and

7 ‘‘(II) is not the financial institu8 tion which holds the account of such

9 consumer from which the transfer is

10 made.

11 ‘‘(iii) HOST TRANSFER SERVICES.—

12 The term ‘host transfer services’ means any

13 electronic fund transfer made by an auto14 mated teller machine operator in connection

15 with a transaction initiated by a consumer

16 at an automated teller machine operated by

17 such operator.’’.

18 SEC. 173. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS

19 WHEN ATM CARD IS ISSUED.

20 Section 905(a) of the Electronic Fund Transfer Act (15

21 U.S.C. 1693c(a)) is amended—

22 (1) by striking ‘‘and’’ at the end of paragraph

23 (8);

24 (2) by striking the period at the end of para25 graph (9) and inserting ‘‘; and’’; and
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•S 900 EAH

1 (3) by inserting after paragraph (9) the fol2 lowing new paragraph:

3 ‘‘(10) a notice to the consumer that a fee may be

4 imposed by—

5 ‘‘(A) an automated teller machine operator

6 (as defined in section 904(d)(3)(D)(ii)) if the

7 consumer initiates a transfer from an automated

8 teller machine which is not operated by the per9 son issuing the card or other means of access;

10 and

11 ‘‘(B) any national, regional, or local net12 work utilized to effect the transaction.’’.

13 SEC. 174. FEASIBILITY STUDY.

14 (a) IN GENERAL.—The Comptroller General of the

15 United States shall conduct a study of the feasibility of re16 quiring, in connection with any electronic fund transfer

17 initiated by a consumer through the use of an automated

18 teller machine—

19 (1) a notice to be provided to the consumer before

20 the consumer is irrevocably committed to completing

21 the transaction, which clearly states the amount of

22 any fee which will be imposed upon the consumma23 tion of the transaction by—

24 (A) any automated teller machine operator

25 (as defined in section 904(d)(3)(D)(ii) of the
225

•S 900 EAH

1 Electronic Fund Transfer Act) involved in the

2 transaction;

3 (B) the financial institution holding the ac4 count of the consumer;

5 (C) any national, regional, or local network

6 utilized to effect the transaction; and

7 (D) any other party involved in the trans8 fer; and

9 (2) the consumer to elect to consummate the

10 transaction after receiving the notice described in

11 paragraph (1).

12 (b) FACTORS TO BE CONSIDERED.—In conducting the

13 study required under subsection (a) with regard to the no14 tice requirement described in such subsection, the Comp15 troller General shall consider the following factors:

16 (1) The availability of appropriate technology.

17 (2) Implementation and operating costs.

18 (3) The competitive impact any such notice re19 quirement would have on various sizes and types of

20 institutions, if implemented.

21 (4) The period of time which would be reasonable

22 for implementing any such notice requirement.

23 (5) The extent to which consumers would benefit

24 from any such notice requirement.
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•S 900 EAH

1 (6) Any other factor the Comptroller General de2 termines to be appropriate in analyzing the feasi3 bility of imposing any such notice requirement.

4 (c) REPORT TO THE CONGRESS.—Before the end of the

5 6-month period beginning on the date of the enactment of

6 this Act, the Comptroller General shall submit a report to

7 the Congress containing—

8 (1) the findings and conclusions of the Comp9 troller General in connection with the study required

10 under subsection (a); and

11 (2) the recommendation of the Comptroller Gen12 eral with regard to the question of whether a notice

13 requirement described in subsection (a) should be im14 plemented and, if so, how such requirement should be

15 implemented.

16 SEC. 175. NO LIABILITY IF POSTED NOTICES ARE DAMAGED.

17 Section 910 of the Electronic Fund Transfer Act (15

18 U.S.C 1693h) is amended by adding at the end the following

19 new subsection:

20 ‘‘(d) EXCEPTION FOR DAMAGED NOTICES.—If the no21 tice required to be posted pursuant to section

22 904(d)(3)(B)(i) by an automated teller machine operator

23 has been posted by such operator in compliance with such

24 section and the notice is subsequently removed, damaged,

25 or altered by any person other than the operator of the auto-
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•S 900 EAH

1 mated teller machine, the operator shall have no liability

2 under this section for failure to comply with section

3 904(d)(3)(B)(i).’’.

4 Subtitle I—Direct Activities of

5 Banks

6 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER7 WRITE CERTAIN MUNICIPAL BONDS.

8 The paragraph designated the Seventh of section 5136

9 of the Revised Statutes of the United States (12 U.S.C.

10 24(7)) is amended by adding at the end the following new

11 sentence: ‘‘In addition to the provisions in this paragraph

12 for dealing in, underwriting or purchasing securities, the

13 limitations and restrictions contained in this paragraph as

14 to dealing in, underwriting, and purchasing investment se15 curities for the national bank’s own account shall not apply

16 to obligations (including limited obligation bonds, revenue

17 bonds, and obligations that satisfy the requirements of sec18 tion 142(b)(1) of the Internal Revenue Code of 1986) issued

19 by or on behalf of any State or political subdivision of a

20 State, including any municipal corporate instrumentality

21 of one or more States, or any public agency or authority

22 of any State or political subdivision of a State, if the na23 tional bank is well capitalized (as defined in section 38 of

24 the Federal Deposit Insurance Act).’’.
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•S 900 EAH

1 Subtitle J—Deposit Insurance

2 Funds

3 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.

4 (a) STUDY REQUIRED.—The Board of Directors of the

5 Federal Deposit Insurance Corporation shall conduct a

6 study of the following issues with regard to the Bank Insur7 ance Fund and the Savings Association Insurance Fund:

8 (1) SAFETY AND SOUNDNESS.—The safety and

9 soundness of the funds and the adequacy of the reserve

10 requirements applicable to the funds in light of—

11 (A) the size of the insured depository insti12 tutions which are resulting from mergers and

13 consolidations since the effective date of the Rie14 gle-Neal Interstate Banking and Branching Effi15 ciency Act of 1994; and

16 (B) the affiliation of insured depository in17 stitutions with other financial institutions pur18 suant to this Act and the amendments made by

19 this Act.

20 (2) CONCENTRATION LEVELS.—The concentra21 tion levels of the funds, taking into account the num22 ber of members of each fund and the geographic dis23 tribution of such members, and the extent to which ei24 ther fund is exposed to higher risks due to a regional
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•S 900 EAH

1 concentration of members or an insufficient member2 ship base relative to the size of member institutions.

3 (3) MERGER ISSUES.—Issues relating to the

4 planned merger of the funds, including the cost of

5 merging the funds and the manner in which such

6 costs will be distributed among the members of the re7 spective funds.

8 (b) REPORT REQUIRED.—

9 (1) IN GENERAL.—Before the end of the 9-month

10 period beginning on the date of the enactment of this

11 Act, the Board of Directors of the Federal Deposit In12 surance Corporation shall submit a report to the Con13 gress on the study conducted pursuant to subsection

14 (a).

15 (2) CONTENTS OF REPORT.—The report shall

16 include—

17 (A) detailed findings of the Board of Direc18 tors with regard to the issues described in sub19 section (a);

20 (B) a description of the plans developed by

21 the Board of Directors for merging the Bank In22 surance Fund and the Savings Association In23 surance Fund, including an estimate of the

24 amount of the cost of such merger which would
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•S 900 EAH

1 be borne by Savings Association Insurance Fund

2 members; and

3 (C) such recommendations for legislative

4 and administrative action as the Board of Direc5 tors determines to be necessary or appropriate to

6 preserve the safety and soundness of the deposit

7 insurance funds, reduce the risks to such funds,

8 provide for an efficient merger of such funds,

9 and for other purposes.

10 (c) DEFINITIONS.—For purposes of this section, the fol11 lowing definitions shall apply:

12 (1) INSURED DEPOSITORY INSTITUTION.—The

13 term ‘‘insured depository institution’’ has the same

14 meaning as in section 3(c) of the Federal Deposit In15 surance Act.

16 (2) BIF AND SAIF MEMBERS.—The terms

17 ‘‘Bank Insurance Fund member’’ and ‘‘Savings Asso18 ciation Insurance Fund member’’ have the same

19 meanings as in section 7(l) of the Federal Deposit In20 surance Act.

21 SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE22 SERVES.

23 (a) SAIF SPECIAL RESERVES.—Section 11(a)(6) of

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

25 is amended by striking subparagraph (L).
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•S 900 EAH

1 (b) DIF SPECIAL RESERVES.—Section 2704 of the De2 posit Insurance Funds Act of 1996 (12 U.S.C. 1821 note)

3 is amended—

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

5 (2) in subsection (d)—

6 (A) by striking paragraph (4);

7 (B) in paragraph (6)(C)(i), by striking ‘‘(6)

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

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

10 (ii) and inserting the following:

11 ‘‘(ii) by redesignating paragraph (8)

12 as paragraph (5).’’.

13 Subtitle K—Miscellaneous

14 Provisions

15 SEC. 191. TERMINATION OF ‘‘KNOW YOUR CUSTOMER’’ REG16 ULATIONS.

17 (a) IN GENERAL.—None of the proposed regulations

18 described in subsection (b) may be published in final form

19 and, to the extent any such regulation has become effective

20 before the date of the enactment of this Act, such regulation

21 shall cease to be effective as of such date.

22 (b) PROPOSED REGULATIONS DESCRIBED.—The pro23 posed regulations referred to in subsection (a) are as follows:

24 (1) The regulation proposed by the Comptroller

25 of the Currency to amend part 21 of title 12 of the
232

•S 900 EAH

1 Code of Federal Regulations, as published in the Fed2 eral Register on December 7, 1998.

3 (2) The regulation proposed by the Director of

4 the Office of Thrift Supervision to amend part 563 of

5 title 12 of the Code of Federal Regulations, as pub6 lished in the Federal Register on December 7, 1998.

7 (3) The regulation proposed by the Board of

8 Governors of the Federal Reserve System to amend

9 parts 208, 211, and 225 of title 12 of the Code of Fed10 eral Regulations, as published in the Federal Register

11 on December 7, 1998.

12 (4) The regulation proposed by the Federal De13 posit Insurance Corporation to amend part 326 of

14 title 12 of the Code of Federal Regulations, as pub15 lished in the Federal Register on December 7, 1998.

16 SEC. 192. STUDY AND REPORT ON FEDERAL ELECTRONIC

17 FUND TRANSFERS.

18 (a) STUDY.—The Secretary of the Treasury shall con19 duct a feasibility study to determine—

20 (1) whether all electronic payments issued by

21 Federal agencies could be routed through the Regional

22 Finance Centers of the Department of the Treasury

23 for verification and reconciliation;

24 (2) whether all electronic payments made by the

25 Federal Government could be subjected to the same
233

•S 900 EAH

1 level of reconciliation as United States Treasury

2 checks, including matching each payment issued with

3 each corresponding deposit at financial institutions;

4 (3) whether the appropriate computer security

5 controls are in place in order to ensure the integrity

6 of electronic payments;

7 (4) the estimated costs of implementing, if so rec8 ommended, the processes and controls described in

9 paragraphs (1), (2), and (3); and

10 (5) a possible timetable for implementing those

11 processes if so recommended.

12 (b) REPORT TO CONGRESS.—Not later than October

13 1, 2000, the Secretary of the Treasury shall submit a report

14 to Congress containing the results of the study required by

15 subsection (a).

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

17 term ‘‘electronic payment’’ means any transfer of funds,

18 other than a transaction originated by check, draft, or simi19 lar paper instrument, which is initiated through an elec20 tronic terminal, telephonic instrument, or computer or

21 magnetic tapes so as to order, instruct, or authorize a debit

22 or credit to a financial account.
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•S 900 EAH

1 SEC. 193. GENERAL ACCOUNTING OFFICE STUDY OF CON2 FLICTS OF INTEREST

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

4 the United States shall conduct a study analyzing the con5 flict of interest faced by the Board of Governors of the Fed6 eral Reserve System between its role as a primary regulator

7 of the banking industry and its role as a vendor of services

8 to the banking and financial services industry.

9 (b) SPECIFIC CONFLICT REQUIRED TO BE AD10 DRESSED.—In the course of the study required under sub11 section (a), the Comptroller General shall address the con12 flict of interest faced by the Board of Governors of the Fed13 eral Reserve System between the role of the Board as a regu14 lator of the payment system, generally, and its participa15 tion in the payment system as a competitor with private

16 entities who are providing payment services.

17 (c) REPORT TO CONGRESS.—Before the end of the 1-

18 year period beginning on the date of the enactment of this

19 Act, the Comptroller General shall submit a report to the

20 Congress containing the findings and conclusions of the

21 Comptroller General in connection with the study required

22 under this section, together with such recommendations for

23 such legislative or administrative actions as the Comp24 troller General may determine to be appropriate, including

25 recommendations for resolving any such conflict of interest.
235

•S 900 EAH

1 SEC. 194. STUDY OF COST OF ALL FEDERAL BANKING REGU2 LATIONS.

3 (a) IN GENERAL.—In accordance with the finding in

4 the Board of Governors of the Federal Reserve System Staff

5 Study Numbered 171 (April, 1998) that ‘‘Further research

6 covering more and different types of regulations and regu7 latory requirements is clearly needed to make informed de8 cisions about regulations’’, the Board of Governors of the

9 Federal Reserve System, in consultation with the other Fed10 eral banking agencies (as defined in section 3 of the Federal

11 Deposit Insurance Act) shall conduct a comprehensive study

12 of the total annual costs and benefits of all Federal finan13 cial regulations and regulatory requirements applicable to

14 banks.

15 (b) REPORT REQUIRED.—Before the end of the 2-year

16 period beginning on the date of the enactment of this Act,

17 the Board of Governors of the Federal Reserve System shall

18 submit a comprehensive report to the Congress containing

19 the findings and conclusions of the Board in connection

20 with the study required under subsection (a) and such rec21 ommendations for legislative and administrative action as

22 the Board may determine to be appropriate.
236

•S 900 EAH

1 SEC. 195. STUDY AND REPORT ON ADAPTING EXISTING LEG2 ISLATIVE REQUIREMENTS TO ONLINE BANK3 ING AND LENDING.

4 (a) STUDY REQUIRED.—The Federal banking agencies

5 shall conduct a study of banking regulations regarding the

6 delivery of financial services, including those regulations

7 that may assume that there will be person-to-person contact

8 during the course of a financial services transaction, and

9 report their recommendations on adapting those existing re10 quirements to online banking and lending.

11 (b) REPORT REQUIRED.—Within 1 year of the date

12 of the enactment of this Act, the Federal banking agencies

13 shall submit a report to the Congress on the findings and

14 conclusions of the agencies with respect to the study re15 quired under subsection (a), together with such rec16 ommendations for legislative or regulatory action as the

17 agencies may determine to be appropriate.

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

19 term ‘‘Federal banking agencies’’ means each Federal bank20 ing agency (as defined in section 3(z) of the Federal Deposit

21 Insurance Act).

22 SEC. 196. REGULATION OF UNINSURED STATE MEMBER

23 BANKS.

24 Section 9 of the Federal Reserve Act (12 U.S.C. 321

25 et seq.) is amended by adding at the end the following new

26 paragraph:
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•S 900 EAH

1 ‘‘(24) ENFORCEMENT AUTHORITY OVER UNIN2 SURED STATE MEMBER BANKS.—Section 3(u) of the

3 Federal Deposit Insurance Act, subsections (j) and (k)

4 of section 7 of such Act, and subsections (b) through

5 (n), (s), (u), and (v) of section 8 of such Act shall

6 apply to an uninsured State member bank in the

7 same manner and to the same extent such provisions

8 apply to an insured State member bank and any ref9 erence in any such provision to ‘insured depository

10 institution’ shall be deemed to be a reference to ‘unin11 sured State member bank’ for purposes of this para12 graph.’’.

13 SEC. 197. CLARIFICATION OF SOURCE OF STRENGTH DOC14 TRINE.

15 Section 18 of the Federal Deposit Insurance Act (21

16 U.S.C. 1828) is amended by adding at the end the following

17 new subsection:

18 ‘‘(t) LIMITATION ON CLAIMS.—

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

20 provision of law other than paragraph (2), no person

21 shall have any claim for monetary damages or return

22 of assets or other property against any Federal bank23 ing agency (including in its capacity as conservator

24 or receiver) relating to the transfer of money, assets,

25 or other property to increase the capital of an insured
238

•S 900 EAH

1 depository institution by any depository institution

2 holding company or controlling shareholder for such

3 depository institution, or any affiliate or subsidiary

4 of such depository institution, if at the time of the

5 transfer—

6 ‘‘(A) the insured depository institution is

7 subject to any direction issued in writing by a

8 Federal banking agency to increase its capital;

9 ‘‘(B) the depository institution is under10 capitalized, significantly undercapitalized, or

11 critically undercapitalized (as defined in section

12 38 of this Act); and

13 ‘‘(C) for that portion of the transfer that is

14 made by an entity covered by section 5(g) of the

15 Bank Holding Company Act of 1956 or section

16 45 of this Act, the Federal banking agency has

17 followed the procedure set forth in such section.

18 ‘‘(2) EXCEPTION.—No provision of this sub19 section shall be construed as limiting—

20 ‘‘(A) the right of an insured depository in21 stitution, a depository institution holding com22 pany, or any other agency or person to seek di23 rect review of an order or directive issued by a

24 Federal banking agency under this Act, the Bank

25 Holding Company Act of 1956, the National
239

•S 900 EAH

1 Bank Receivership Act, the Bank Conservation

2 Act, or the Home Owners’ Loan Act;

3 ‘‘(B) the rights of any party to a contract

4 pursuant to section 11(e) of this Act; or

5 ‘‘(C) the rights of any party to a contract

6 with a depository institution holding company

7 or a subsidiary of a depository institution hold8 ing company (other than an insured depository

9 institution).’’.

10 SEC. 198. INTEREST RATES AND OTHER CHARGES AT

11 INTERSTATE BRANCHES.

12 Section 44 of the Federal Deposit Insurance Act (12

13 U.S.C. 1831u) is amended—

14 (1) by redesignating subsection (f) as subsection

15 (g); and

16 (2) by inserting after subsection (e) the following:

17 ‘‘(f) APPLICABLE RATE AND OTHER CHARGE LIMITA18 TIONS.—

19 ‘‘(1) IN GENERAL.—Except as provided for in

20 paragraph (3), upon the establishment of a branch of

21 any insured depository institution in a host State

22 under this section, the maximum interest rate or

23 amount of interest, discount points, finance charges,

24 or other similar charges that may be charged, taken,

25 received, or reserved from time to time in any loan
240

•S 900 EAH

1 or discount made or upon any note, bill of exchange,

2 financing transaction, or other evidence of debt by

3 any insured depository institution in such State shall

4 be equal to not more than the greater of—

5 ‘‘(A) the maximum interest rate or amount

6 of interest, discount points, finance charges, or

7 other similar charges that may be charged,

8 taken, received, or reserved in a similar trans9 action under the constitution, statutory, or other

10 lows of the home State of the insured depository

11 institution establishing any such branch, without

12 reference to this section, as such maximum inter13 est rate or amount of interest may change from

14 time to time; or

15 ‘‘(B) the maximum rate or amount of inter16 est, discount points, finance charges, or other

17 similar charges that may be charged, taken, re18 ceived, or reserved in a similar transaction by

19 an insured depository institution under the con20 stitution, statutory, or other laws of the host

21 State, without reference to this section.

22 ‘‘(2) PREEMPTION.—The limitations established

23 under paragraph (1) shall apply only in any State

24 that has a constitutional provision that sets a max25 imum lawful rate of interest on any contract at not
241

•S 900 EAH

1 more than 5 percent per annum above the Federal Re2 serve Discount Rate or 90-day commercial paper in

3 effect in the Federal Reserve Bank in the Federal Re4 serve District in which the State is located.

5 ‘‘(3) RULE OF CONSTRUCTION.—No provision of

6 this subsection shall be construed as superseding sec7 tion 501 of the Depository Institutions Deregulation

8 and Monetary Control Act of 1980.

9 SEC. 198A. INTERSTATE BRANCHES AND AGENCIES OF FOR10 EIGN BANKS.

11 Section 5(a)(7) of the International Banking Act of

12 1978 (12 U.S.C. 3103(a)(7)), is amended to read as follows:

13 ‘‘(7) ADDITIONAL AUTHORITY FOR INTERSTATE

14 BRANCHES AND AGENCIES OF FOREIGN BANKS, UP15 GRADES OF CERTAIN FOREIGN BANK AGENCIES AND

16 BRANCHES.—Notwithstanding paragraphs (1) and

17 (2), a foreign bank may—

18 ‘‘(A) with the approval of the Board and

19 the Comptroller of the Currency, establish and

20 operate a Federal branch or Federal agency or,

21 with the approval of the Board and the appro22 priate State bank supervisor, a State branch or

23 State agency in any State outside the foreign

24 bank’s home State if—
242

•S 900 EAH

1 ‘‘(i) the establishment and operation of

2 such branch or agency is permitted by the

3 State in which the branch or agency is to

4 be established; and

5 ‘‘(ii) in the case of a Federal or State

6 branch, the branch receives only such depos7 its as would be permitted for a corporation

8 organized under section 25A of the Federal

9 Reserve Act (12 U.S.C. 611 et seq.); or

10 ‘‘(B) with the approval of the Board and

11 the relevant licensing authority (the Comptroller

12 in the case of a Federal branch or the appro13 priate State supervisor in the case of a State

14 branch), upgrade an agency, or a branch of the

15 type referred to in subparagraph (A)(ii), located

16 in a State outside the foreign bank’s home State,

17 into a Federal or State branch if—

18 ‘‘(i) the establishment and operation of

19 such branch is permitted by such State; and

20 ‘‘(ii) such agency or branch—

21 ‘‘(I) was in operation in such

22 State on the day before September 29,

23 1994; or

24 ‘‘(II) has been in operation in

25 such State for a period of time that
243

•S 900 EAH

1 meets the State’s minimum age re2 quirement permitted under section

3 44(a)(5) of the Federal Deposit Insur4 ance Act.’’.

5 SEC. 198B. FAIR TREATMENT OF WOMEN BY FINANCIAL AD6 VISERS.

7 (a) FINDINGS.—The Congress finds as follows:

8 (1) Women’s stature in society has risen consid9 erably, as they are now able to vote, own property,

10 and pursue independent careers, and are granted

11 equal protection under the law.

12 (2) Women are at least as fiscally responsible as

13 men, and more than half of all women have sole re14 sponsibility for balancing the family checkbook and

15 paying the bills.

16 (3) Estate planners, trust officers, investment ad17 visers, and other financial planners and advisers still

18 encourage the unjust and outdated practice of leaving

19 assets in trust for the category of wives and daugh20 ters, along with senile parents, minors, and mentally

21 incompetent children.

22 (4) Estate planners, trust officers, investment ad23 visers, and other financial planners and advisers still

24 use sales themes and tactics detrimental to women by

25 stereotyping women as uncomfortable handling money
244

•S 900 EAH

1 and needing protection from their own possible errors

2 of judgment and ‘‘fortune hunters’’.

3 (b) SENSE OF THE CONGRESS.—It is the sense of the

4 Congress that estate planners, trust officers, investment ad5 visers, and other financial planners and advisers should—

6 (1) eliminate examples in their training mate7 rials which portray women as incapable and foolish;

8 and

9 (2) develop fairer and more balanced presen10 tations that eliminate outmoded and stereotypical ex11 amples which lead clients to take actions that are fi12 nancially detrimental to their wives and daughters.

13 Subtitle L—Effective Date of Title

14 SEC. 199. EFFECTIVE DATE.

15 Except with regard to any subtitle or other provision

16 of this title for which a specific effective date is provided,

17 this title and the amendments made by this title shall take

18 effect at the end of the 180-day period beginning on the

19 date of the enactment of this Act.

20 TITLE II—FUNCTIONAL

21 REGULATION

22 Subtitle A—Brokers and Dealers

23 SEC. 201. DEFINITION OF BROKER.

24 Section 3(a)(4) of the Securities Exchange Act of 1934

25 (15 U.S.C. 78c(a)(4)) is amended to read as follows:
245

•S 900 EAH

1 ‘‘(4) BROKER.—

2 ‘‘(A) IN GENERAL.—The term ‘broker’

3 means any person engaged in the business of ef4 fecting transactions in securities for the account

5 of others.

6 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC7 TIVITIES.—A bank shall not be considered to be

8 a broker because the bank engages in any one or

9 more of the following activities under the condi10 tions described:

11 ‘‘(i) THIRD PARTY BROKERAGE AR12 RANGEMENTS.—The bank enters into a con13 tractual or other written arrangement with

14 a broker or dealer registered under this title

15 under which the broker or dealer offers bro16 kerage services on or off the premises of the

17 bank if—

18 ‘‘(I) such broker or dealer is clear19 ly identified as the person performing

20 the brokerage services;

21 ‘‘(II) the broker or dealer performs

22 brokerage services in an area that is

23 clearly marked and, to the extent prac24 ticable, physically separate from the
246

•S 900 EAH

1 routine deposit-taking activities of the

2 bank;

3 ‘‘(III) any materials used by the

4 bank to advertise or promote generally

5 the availability of brokerage services

6 under the arrangement clearly indicate

7 that the brokerage services are being

8 provided by the broker or dealer and

9 not by the bank;

10 ‘‘(IV) any materials used by the

11 bank to advertise or promote generally

12 the availability of brokerage services

13 under the arrangement are in compli14 ance with the Federal securities laws

15 before distribution;

16 ‘‘(V) bank employees (other than

17 associated persons of a broker or dealer

18 who are qualified pursuant to the rules

19 of a self-regulatory organization) per20 form only clerical or ministerial func21 tions in connection with brokerage

22 transactions including scheduling ap23 pointments with the associated persons

24 of a broker or dealer, except that bank

25 employees may forward customer funds
247

•S 900 EAH

1 or securities and may describe in gen2 eral terms the types of investment vehi3 cles available from the bank and the

4 broker or dealer under the arrange5 ment;

6 ‘‘(VI) bank employees do not re7 ceive incentive compensation for any

8 brokerage transaction unless such em9 ployees are associated persons of a

10 broker or dealer and are qualified pur11 suant to the rules of a self-regulatory

12 organization, except that the bank em13 ployees may receive compensation for

14 the referral of any customer if the com15 pensation is a nominal one-time cash

16 fee of a fixed dollar amount and the

17 payment of the fee is not contingent on

18 whether the referral results in a trans19 action;

20 ‘‘(VII) such services are provided

21 by the broker or dealer on a basis in

22 which all customers which receive any

23 services are fully disclosed to the broker

24 or dealer;
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•S 900 EAH

1 ‘‘(VIII) the bank does not carry a

2 securities account of the customer ex3 cept as permitted under clause (ii) or

4 (viii) of this subparagraph; and

5 ‘‘(IX) the bank, broker, or dealer

6 informs each customer that the broker7 age services are provided by the broker

8 or dealer and not by the bank and that

9 the securities are not deposits or other

10 obligations of the bank, are not guar11 anteed by the bank, and are not in12 sured by the Federal Deposit Insurance

13 Corporation.

14 ‘‘(ii) TRUST ACTIVITIES.—The bank ef15 fects transactions in a trustee or fiduciary

16 capacity in its trust department, or another

17 department where the trust or fiduciary ac18 tivity is regularly examined by bank exam19 iners under the same standards and in the

20 same way as such activities are examined

21 in the trust department, and—

22 ‘‘(I) is chiefly compensated for

23 such transactions, consistent with fidu24 ciary principles and standards, on the

25 basis of an administration or annual
249

•S 900 EAH

1 fee (payable on a monthly, quarterly,

2 or other basis), a percentage of assets

3 under management, or a flat or capped

4 per order processing fee equal to not

5 more than the cost incurred by the

6 bank in connection with executing se7 curities transactions for trustee and fi8 duciary customers, or any combination

9 of such fees; and

10 ‘‘(II) does not solicit brokerage

11 business, other than by advertising that

12 it effects transactions in securities in

13 conjunction with advertising its other

14 trust activities.

15 ‘‘(iii) PERMISSIBLE SECURITIES

16 TRANSACTIONS.—The bank effects trans17 actions in—

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, in con24 formity with section 15C of this title

25 and the rules and regulations there-
250

•S 900 EAH

1 under, or obligations of the North

2 American Development Bank; or

3 ‘‘(IV) any standardized, credit en4 hanced debt security issued by a for5 eign government pursuant to the

6 March 1989 plan of then Secretary of

7 the Treasury Brady, used by such for8 eign government to retire outstanding

9 commercial bank loans.

10 ‘‘(iv) CERTAIN STOCK PURCHASE

11 PLANS.—

12 ‘‘(I) EMPLOYEE BENEFIT

13 PLANS.—The bank effects transactions,

14 as a registered transfer agent (includ15 ing as a registrar of stocks), in the se16 curities of an issuer as part of any

17 pension, retirement, profit-sharing,

18 bonus, thrift, savings, incentive, or

19 other similar benefit plan for the em20 ployees of that issuer or its affiliates

21 (as defined in section 2 of the Bank

22 Holding Company Act of 1956), if—

23 ‘‘(aa) the bank does not so24 licit transactions or provide in25 vestment advice with respect to
251

•S 900 EAH

1 the purchase or sale of securities

2 in connection with the plan; and

3 ‘‘(bb) the bank’s compensa4 tion for such plan or program

5 consists chiefly of administration

6 fees, or flat or capped per order

7 processing fees, or both.

8 ‘‘(II) DIVIDEND REINVESTMENT

9 PLANS.—The bank effects transactions,

10 as a registered transfer agent (includ11 ing as a registrar of stocks), in the se12 curities of an issuer as part of that

13 issuer’s dividend reinvestment plan,

14 if—

15 ‘‘(aa) the bank does not so16 licit transactions or provide in17 vestment advice with respect to

18 the purchase or sale of securities

19 in connection with the plan;

20 ‘‘(bb) the bank does not net

21 shareholders’ buy and sell orders,

22 other than for programs for odd23 lot holders or plans registered

24 with the Commission; and
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•S 900 EAH

1 ‘‘(cc) the bank’s compensa2 tion for such plan or program

3 consists chiefly of administration

4 fees, or flat or capped per order

5 processing fees, or both.

6 ‘‘(III) ISSUER PLANS.—The bank

7 effects transactions, as a registered

8 transfer agent (including as a registrar

9 of stocks), in the securities of an issuer

10 as part of that issuer’s plan for the

11 purchase or sale of that issuer’s shares,

12 if—

13 ‘‘(aa) the bank does not so14 licit transactions or provide in15 vestment advice with respect to

16 the purchase or sale of securities

17 in connection with the plan or

18 program;

19 ‘‘(bb) the bank does not net

20 shareholders’ buy and sell orders,

21 other than for programs for odd22 lot holders or plans registered

23 with the Commission; and

24 ‘‘(cc) the bank’s compensa25 tion for such plan or program
253

•S 900 EAH

1 consists chiefly of administration

2 fees, or flat or capped per order

3 processing fees, or both.

4 ‘‘(IV) PERMISSIBLE DELIVERY OF

5 MATERIALS.—The exception to being

6 considered a broker for a bank engaged

7 in activities described in subclauses

8 (I), (II), and (III) will not be affected

9 by a bank’s delivery of written or elec10 tronic plan materials to employees of

11 the issuer, shareholders of the issuer, or

12 members of affinity groups of the

13 issuer, so long as such 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 Act of 1999; or

19 ‘‘(bb) otherwise permitted by

20 the Commission.

21 ‘‘(v) SWEEP ACCOUNTS.—The bank ef22 fects transactions as part of a program for

23 the investment or reinvestment of deposit

24 funds into any no-load, open-end manage25 ment investment company registered under
254

•S 900 EAH

1 the Investment Company Act of 1940 that

2 holds itself out as a money market fund.

3 ‘‘(vi) AFFILIATE TRANSACTIONS.—The

4 bank effects transactions for the account of

5 any affiliate (as defined in section 2 of the

6 Bank Holding Company Act of 1956) of the

7 bank other than—

8 ‘‘(I) a registered broker or dealer;

9 or

10 ‘‘(II) an affiliate that is engaged

11 in merchant banking, as described in

12 section 6(c)(3)(H) of the Bank Holding

13 Company Act of 1956.

14 ‘‘(vii) PRIVATE SECURITIES OFFER15 INGS.—The bank—

16 ‘‘(I) effects sales as part of a pri17 mary offering of securities not involv18 ing a public offering, pursuant to sec19 tion 3(b), 4(2), or 4(6) of the Securities

20 Act of 1933 or the rules and regula21 tions issued thereunder;

22 ‘‘(II) at any time after the date

23 that is 1 year after the date of the en24 actment of the Financial Services Act

25 of 1999, is not affiliated with a broker
255

•S 900 EAH

1 or dealer that has been registered for

2 more than 1 year in accordance with

3 this Act, and engages in dealing, mar4 ket making, or underwriting activities,

5 other than with respect to exempted se6 curities; and

7 ‘‘(III) effects transactions exclu8 sively with qualified investors.

9 ‘‘(viii) SAFEKEEPING AND CUSTODY

10 ACTIVITIES.—

11 ‘‘(I) IN GENERAL.—The bank, as

12 part of customary banking activities—

13 ‘‘(aa) provides safekeeping or

14 custody services with respect to se15 curities, including the exercise of

16 warrants and other rights on be17 half of customers;

18 ‘‘(bb) facilitates the transfer

19 of funds or securities, as a custo20 dian or a clearing agency, in con21 nection with the clearance and

22 settlement of its customers’ trans23 actions in securities;

24 ‘‘(cc) effects securities lending

25 or borrowing transactions with or
256

•S 900 EAH

1 on behalf of customers as part of

2 services provided to customers

3 pursuant to division (aa) or (bb)

4 or invests cash collateral pledged

5 in connection with such trans6 actions; or

7 ‘‘(dd) holds securities pledged

8 by a customer to another person

9 or securities subject to purchase or

10 resale agreements involving a cus11 tomer, or facilitates the pledging

12 or transfer of such securities by

13 book entry or as otherwise pro14 vided under applicable law, if the

15 bank maintains records separately

16 identifying the securities and the

17 customer.

18 ‘‘(II) EXCEPTION FOR CARRYING

19 BROKER ACTIVITIES.—The exception to

20 being considered a broker for a bank

21 engaged in activities described in sub22 clause (I) shall not apply if the bank,

23 in connection with such activities, acts

24 in the United States as a carrying

25 broker (as such term, and different for-
257

•S 900 EAH

1 mulations thereof, are used in section

2 15(c)(3) of this title and the rules and

3 regulations thereunder) for any broker

4 or dealer, unless such carrying broker

5 activities are engaged in with respect

6 to government securities (as defined in

7 paragraph (42) of this subsection).

8 ‘‘(ix) EXCEPTED BANKING PROD9 UCTS.—The bank effects transactions in ex10 cepted banking products, as defined in sec11 tion 206 of the Financial Services Act of

12 1999.

13 ‘‘(x) MUNICIPAL SECURITIES.—The

14 bank effects transactions in municipal secu15 rities.

16 ‘‘(xi) DE MINIMIS EXCEPTION.—The

17 bank effects, other than in transactions re18 ferred to in clauses (i) through (x), not more

19 than 500 transactions in securities in any

20 calendar year, and such transactions are

21 not effected by an employee of the bank who

22 is also an employee of a broker or dealer.

23 ‘‘(C) BROKER DEALER EXECUTION.—The

24 exception to being considered a broker for a bank

25 engaged in activities described in clauses (ii),
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•S 900 EAH

1 (iv), and (viii) of subparagraph (B) shall not

2 apply if the activities described in such provi3 sions result in the trade in the United States of

4 any security that is a publicly traded security in

5 the United States, unless—

6 ‘‘(i) the bank directs such trade to a

7 registered broker or dealer for execution;

8 ‘‘(ii) the trade is a cross trade or other

9 substantially similar trade of a security

10 that—

11 ‘‘(I) is made by the bank or be12 tween the bank and an affiliated fidu13 ciary; and

14 ‘‘(II) is not in contravention of fi15 duciary principles established under

16 applicable Federal or State law; or

17 ‘‘(iii) the trade is conducted in some

18 other manner permitted under rules, regula19 tions, or orders as the Commission may

20 prescribe or issue.

21 ‘‘(D) FIDUCIARY CAPACITY.—For purposes

22 of subparagraph (B)(ii), the term ‘fiduciary ca23 pacity’ means—

24 ‘‘(i) in the capacity as trustee, execu25 tor, administrator, registrar of stocks and
259

•S 900 EAH

1 bonds, transfer agent, guardian, assignee,

2 receiver, or custodian under a uniform gift

3 to minor act, or as an investment adviser if

4 the bank receives a fee for its investment ad5 vice;

6 ‘‘(ii) in any capacity in which the

7 bank possesses investment discretion on be8 half of another; or

9 ‘‘(iii) in any other similar capacity.

10 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT TO

11 SECTION 15(e).—The term ‘broker’ does not in12 clude a bank that—

13 ‘‘(i) was, immediately prior to the en14 actment of the Financial Services Act of

15 1999, subject to section 15(e) of this title;

16 and

17 ‘‘(ii) is subject to such restrictions and

18 requirements as the Commission considers

19 appropriate.’’.

20 SEC. 202. DEFINITION OF DEALER.

21 Section 3(a)(5) of the Securities Exchange Act of 1934

22 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

23 ‘‘(5) DEALER.—

24 ‘‘(A) IN GENERAL.—The term ‘dealer’

25 means any person engaged in the business of
260

•S 900 EAH

1 buying and selling securities for such person’s

2 own account through a broker or otherwise.

3 ‘‘(B) EXCEPTION FOR PERSON NOT EN4 GAGED IN THE BUSINESS OF DEALING.—The

5 term ‘dealer’ does not include a person that buys

6 or sells securities for such person’s own account,

7 either individually or in a fiduciary capacity,

8 but not as a part of a regular business.

9 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC10 TIVITIES.—A bank shall not be considered to be

11 a dealer because the bank engages in any of the

12 following activities under the conditions de13 scribed:

14 ‘‘(i) PERMISSIBLE SECURITIES TRANS15 ACTIONS.—The bank buys or sells—

16 ‘‘(I) commercial paper, bankers

17 acceptances, or commercial bills;

18 ‘‘(II) exempted securities;

19 ‘‘(III) qualified Canadian govern20 ment obligations as defined in section

21 5136 of the Revised Statutes of the

22 United States, in conformity with sec23 tion 15C of this title and the rules and

24 regulations thereunder, or obligations
261

•S 900 EAH

1 of the North American Development

2 Bank; or

3 ‘‘(IV) any standardized, credit en4 hanced debt security issued by a for5 eign government pursuant to the

6 March 1989 plan of then Secretary of

7 the Treasury Brady, used by such for8 eign government to retire outstanding

9 commercial bank loans.

10 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI11 DUCIARY TRANSACTIONS.—The bank buys or

12 sells securities for investment purposes—

13 ‘‘(I) for the bank; or

14 ‘‘(II) for accounts for which the

15 bank acts as a trustee or fiduciary.

16 ‘‘(iii) ASSET-BACKED TRANS17 ACTIONS.—The bank engages in the issuance

18 or sale to qualified investors, through a

19 grantor trust or other separate entity, of se20 curities backed by or representing an inter21 est in notes, drafts, acceptances, loans,

22 leases, receivables, other obligations (other

23 than securities of which the bank is not the

24 issuer), or pools of any such obligations pre25 dominantly originated by—
262

•S 900 EAH

1 ‘‘(I) the bank;

2 ‘‘(II) an affiliate of any such

3 bank other than a broker or dealer; or

4 ‘‘(III) a syndicate of banks of

5 which the bank is a member, if the ob6 ligations or pool of obligations consists

7 of mortgage obligations or consumer-re8 lated receivables.

9 ‘‘(iv) EXCEPTED BANKING PROD10 UCTS.—The bank buys or sells excepted

11 banking products, as defined in section 206

12 of the Financial Services Act of 1999.

13 ‘‘(v) DERIVATIVE INSTRUMENTS.—The

14 bank issues, buys, or sells any derivative in15 strument to which the bank is a party—

16 ‘‘(I) to or from a qualified inves17 tor, except that if the instrument pro18 vides for the delivery of one or more se19 curities (other than a derivative in20 strument or government security), the

21 transaction shall be effected with or

22 through a registered broker or dealer;

23 or

24 ‘‘(II) to or from other persons, ex25 cept that if the derivative instrument
263

•S 900 EAH

1 provides for the delivery of one or more

2 securities (other than a derivative in3 strument or government security), or is

4 a security (other than a government se5 curity), the transaction shall be effected

6 with or through a registered broker or

7 dealer; or

8 ‘‘(III) to or from any person if the

9 instrument is neither a security nor

10 provides for the delivery of one or more

11 securities (other than a derivative in12 strument).’’.

13 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI14 TIES OFFERINGS.

15 Section 15A of the Securities Exchange Act of 1934

16 (15 U.S.C. 78o–3) is amended by inserting after subsection

17 (i) the following new subsection:

18 ‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI19 TIES OFFERINGS.—A registered securities association shall

20 create a limited qualification category for any associated

21 person of a member who effects sales as part of a primary

22 offering of securities not involving a public offering, pursu23 ant to section 3(b), 4(2), or 4(6) of the Securities Act of

24 1933 and the rules and regulations thereunder, and shall

25 deem qualified in such limited qualification category, with-
264

•S 900 EAH

1 out testing, any bank employee who, in the six month period

2 preceding the date of the enactment of this Act, engaged in

3 effecting such sales.’’.

4 SEC. 204. INFORMATION SHARING.

5 Section 18 of the Federal Deposit Insurance Act is

6 amended by adding at the end the following new subsection:

7 ‘‘(t) RECORDKEEPING REQUIREMENTS.—

8 ‘‘(1) REQUIREMENTS.—Each appropriate Fed9 eral banking agency, after consultation with and con10 sideration of the views of the Commission, shall estab11 lish recordkeeping requirements for banks relying on

12 exceptions contained in paragraphs (4) and (5) of

13 section 3(a) of the Securities Exchange Act of 1934.

14 Such recordkeeping requirements shall be sufficient to

15 demonstrate compliance with the terms of such excep16 tions and be designed to facilitate compliance with

17 such exceptions. Each appropriate Federal banking

18 agency shall make any such information available to

19 the Commission upon request.

20 ‘‘(2) DEFINITIONS.—As used in this subsection

21 the term ‘Commission’ means the Securities and Ex22 change Commission.’’.
265

•S 900 EAH

1 SEC. 205. TREATMENT OF NEW HYBRID PRODUCTS.

2 Section 15 of the Securities Exchange Act of 1934 (15

3 U.S.C. 78o) is amended by adding at the end the following

4 new subsection:

5 ‘‘(i) RULEMAKING TO EXTEND REQUIREMENTS TO

6 NEW HYBRID PRODUCTS.—

7 ‘‘(1) LIMITATION.—The Commission shall not—

8 ‘‘(A) require a bank to register as a broker

9 or dealer under this section because the bank en10 gages in any transaction in, or buys or sells, a

11 new hybrid product; or

12 ‘‘(B) bring an action against a bank for a

13 failure to comply with a requirement described

14 in subparagraph (A),

15 unless the Commission has imposed such requirement

16 by rule or regulation issued in accordance with this

17 section.

18 ‘‘(2) CRITERIA FOR RULEMAKING.—The Commis19 sion shall not impose a requirement under paragraph

20 (1) of this subsection with respect to any new hybrid

21 product unless the Commission determines that—

22 ‘‘(A) the new hybrid product is a security;

23 and

24 ‘‘(B) imposing such requirement is nec25 essary or appropriate in the public interest and
266

•S 900 EAH

1 for the protection of investors, consistent with the

2 requirements of section 3(f).

3 ‘‘(3) CONSIDERATIONS.—In making a deter4 mination under paragraph (2), the Commission shall

5 consider—

6 ‘‘(A) the nature of the new hybrid product;

7 and

8 ‘‘(B) the history, purpose, extent, and ap9 propriateness of the regulation of the new hybrid

10 product under the Federal securities laws and

11 under the Federal banking laws.

12 ‘‘(4) CONSULTATION.—In promulgating rules

13 under this subsection, the Commission shall consult

14 with and consider the views of the Board of Governors

15 of the Federal Reserve System regarding the nature of

16 the new hybrid product, the history, purpose, extent,

17 and appropriateness of the regulation of the new

18 product under the Federal banking laws, and the im19 pact of the proposed rule on the banking industry.

20 ‘‘(5) NEW HYBRID PRODUCT.—For purposes of

21 this subsection, the term ‘new hybrid product’ means

22 a product that—

23 ‘‘(A) was not subjected to regulation by the

24 Commission as a security prior to the date of the

25 enactment of this subsection; and
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•S 900 EAH

1 ‘‘(B) is not an excepted banking product, as

2 such term is defined in section 206 of the Finan3 cial Services Act of 1999.’’.

4 SEC. 206. DEFINITION OF EXCEPTED BANKING PRODUCT.

5 (a) DEFINITION OF EXCEPTED BANKING PRODUCT.—

6 For purposes of paragraphs (4) and (5) of section 3(a) of

7 the Securities Exchange Act of 1934 (15 U.S.C. 78c(a) (4),

8 (5)), the term ‘‘excepted banking product’’ means—

9 (1) a deposit account, savings account, certificate

10 of deposit, or other deposit instrument issued by a

11 bank;

12 (2) a banker’s acceptance;

13 (3) a letter of credit issued or loan made by a

14 bank;

15 (4) a debit account at a bank arising from a

16 credit card or similar arrangement;

17 (5) a participation in a loan which the bank or

18 an affiliate of the bank (other than a broker or dealer)

19 funds, participates in, or owns that is sold—

20 (A) to qualified investors; or

21 (B) to other persons that—

22 (i) have the opportunity to review and

23 assess any material information, including

24 information regarding the borrower’s credit25 worthiness; and
268

•S 900 EAH

1 (ii) based on such factors as financial

2 sophistication, net worth, and knowledge

3 and experience in financial matters, have

4 the capability to evaluate the information

5 available, as determined under generally

6 applicable banking standards or guidelines;

7 or

8 (6) a derivative instrument that involves or re9 lates to—

10 (A) currencies, except options on currencies

11 that trade on a national securities exchange;

12 (B) interest rates, except interest rate deriv13 ative instruments that—

14 (i) are based on a security or a group

15 or index of securities (other than govern16 ment securities or a group or index of gov17 ernment securities);

18 (ii) provide for the delivery of one or

19 more securities (other than government se20 curities); or

21 (iii) trade on a national securities ex22 change; or

23 (C) commodities, other rates, indices, or

24 other assets, except derivative instruments that—
269

•S 900 EAH

1 (i) are securities or that are based on

2 a group or index of securities (other than

3 government securities or a group or index of

4 government securities);

5 (ii) provide for the delivery of one or

6 more securities (other than government se7 curities); or

8 (iii) trade on a national securities ex9 change.

10 (b) CLASSIFICATION LIMITED.—Classification of a

11 particular product as an excepted banking product pursu12 ant to this section shall not be construed as finding or im13 plying that such product is or is not a security for any

14 purpose under the securities laws, or is or is not an account,

15 agreement, contract, or transaction for any purpose under

16 the Commodity Exchange Act.

17 (c) INCORPORATED DEFINITIONS.—For purposes of

18 this section—

19 (1) the terms ‘‘bank’’, ‘‘qualified investor’’, and

20 ‘‘securities laws’’ have the same meanings given in

21 section 3(a) of the Securities Exchange Act of 1934,

22 as amended by this Act; and

23 (2) the term ‘‘government securities’’ has the

24 meaning given in section 3(a)(42) of such Act (as

25 amended by this Act), and, for purposes of this sec-
270

•S 900 EAH

1 tion, commercial paper, bankers acceptances, and

2 commercial bills shall be treated in the same manner

3 as government securities.

4 SEC. 207. ADDITIONAL DEFINITIONS.

5 Section 3(a) of the Securities Exchange Act of 1934

6 is amended by adding at the end the following new para7 graphs:

8 ‘‘(54) DERIVATIVE INSTRUMENT.—

9 ‘‘(A) DEFINITION.—The term ‘derivative in10 strument’ means any individually negotiated

11 contract, agreement, warrant, note, or option

12 that is based, in whole or in part, on the value

13 of, any interest in, or any quantitative measure

14 or the occurrence of any event relating to, one or

15 more commodities, securities, currencies, interest

16 or other rates, indices, or other assets, but does

17 not include an excepted banking product, as de18 fined in paragraphs (1) through (5) of section

19 206(a) of the Financial Services Act of 1999.

20 ‘‘(B) CLASSIFICATION LIMITED.—Classifica21 tion of a particular contract as a derivative in22 strument pursuant to this paragraph shall not be

23 construed as finding or implying that such in24 strument is or is not a security for any purpose

25 under the securities laws, or is or is not an ac-
271

•S 900 EAH

1 count, agreement, contract, or transaction for

2 any purpose under the Commodity Exchange

3 Act.

4 ‘‘(55) QUALIFIED INVESTOR.—

5 ‘‘(A) DEFINITION.—For purposes of this

6 title, the term ‘qualified investor’ means—

7 ‘‘(i) any investment company reg8 istered with the Commission under section 8

9 of the Investment Company Act of 1940;

10 ‘‘(ii) any issuer eligible for an exclu11 sion from the definition of investment com12 pany pursuant to section 3(c)(7) of the In13 vestment Company Act of 1940;

14 ‘‘(iii) any bank (as defined in para15 graph (6) of this subsection), savings asso16 ciation (as defined in section 3(b) of the

17 Federal Deposit Insurance Act), broker,

18 dealer, insurance company (as defined in

19 section 2(a)(13) of the Securities Act of

20 1933), or business development company (as

21 defined in section 2(a)(48) of the Investment

22 Company Act of 1940);

23 ‘‘(iv) any small business investment

24 company licensed by the United States

25 Small Business Administration under sec-
272

•S 900 EAH

1 tion 301 (c) or (d) of the Small Business

2 Investment Act of 1958;

3 ‘‘(v) any State sponsored employee

4 benefit plan, or any other employee benefit

5 plan, within the meaning of the Employee

6 Retirement Income Security Act of 1974,

7 other than an individual retirement ac8 count, if the investment decisions are made

9 by a plan fiduciary, as defined in section

10 3(21) of that Act, which is either a bank,

11 savings and loan association, insurance

12 company, or registered investment adviser;

13 ‘‘(vi) any trust whose purchases of se14 curities are directed by a person described

15 in clauses (i) through (v) of this subpara16 graph;

17 ‘‘(vii) any market intermediary ex18 empt under section 3(c)(2) of the Investment

19 Company Act of 1940;

20 ‘‘(viii) any associated person of a

21 broker or dealer other than a natural per22 son;

23 ‘‘(ix) any foreign bank (as defined in

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

25 Act of 1978);
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•S 900 EAH

1 ‘‘(x) the government of any foreign

2 country;

3 ‘‘(xi) any corporation, company, or

4 partnership that owns and invests on a dis5 cretionary basis, not less than $10,000,000

6 in investments;

7 ‘‘(xii) any natural person who owns

8 and invests on a discretionary basis, not

9 less than $10,000,000 in investments;

10 ‘‘(xiii) any government or political

11 subdivision, agency, or instrumentality of a

12 government who owns and invests on a dis13 cretionary basis not less than $50,000,000

14 in investments; or

15 ‘‘(xiv) any multinational or supra16 national entity or any agency or instru17 mentality thereof.

18 ‘‘(B) ADDITIONAL AUTHORITY.—The Com19 mission may, by rule or order, define a ‘qualified

20 investor’ as any other person, taking into consid21 eration such factors as the financial sophistica22 tion of the person, net worth, and knowledge and

23 experience in financial matters.’’.
274

•S 900 EAH

1 SEC. 208. GOVERNMENT SECURITIES DEFINED.

2 Section 3(a)(42) of the Securities Exchange Act of

3 1934 (15 U.S.C. 78c(a)(42)) is amended—

4 (1) by striking ‘‘or’’ at the end of subparagraph

5 (C);

6 (2) by striking the period at the end of subpara7 graph (D) and inserting ‘‘; or’’; and

8 (3) by adding at the end the following new sub9 paragraph:

10 ‘‘(E) for purposes of sections 15, 15C, and

11 17A as applied to a bank, a qualified Canadian

12 government obligation as defined in section 5136

13 of the Revised Statutes of the United States.’’.

14 SEC. 209. EFFECTIVE DATE.

15 This subtitle shall take effect at the end of the 270-

16 day period beginning on the date of the enactment of this

17 Act.

18 SEC. 210. RULE OF CONSTRUCTION.

19 Nothing in this Act shall supersede, affect, or otherwise

20 limit the scope and applicability of the Commodity Ex21 change Act (7 U.S.C. 1 et seq.).
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•S 900 EAH

1 Subtitle B—Bank Investment

2 Company Activities

3 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY

4 AFFILIATED BANK.

5 (a) MANAGEMENT COMPANIES.—Section 17(f) of the

6 Investment Company Act of 1940 (15 U.S.C. 80a–17(f)) is

7 amended—

8 (1) by redesignating paragraphs (1), (2), and (3)

9 as subparagraphs (A), (B), and (C), respectively;

10 (2) by striking ‘‘(f) Every registered’’ and insert11 ing the following:

12 ‘‘(f) CUSTODY OF SECURITIES.—

13 ‘‘(1) Every registered’’;

14 (3) by redesignating the second, third, fourth,

15 and fifth sentences of such subsection as paragraphs

16 (2) through (5), respectively, and indenting the left

17 margin of such paragraphs appropriately; and

18 (4) by adding at the end the following new para19 graph:

20 ‘‘(6) The Commission may adopt rules and regu21 lations, and issue orders, consistent with the protec22 tion of investors, prescribing the conditions under

23 which a bank, or an affiliated person of a bank, either

24 of which is an affiliated person, promoter, organizer,

25 or sponsor of, or principal underwriter for, a reg-
276

•S 900 EAH

1 istered management company may serve as custodian

2 of that registered management company.’’.

3 (b) UNIT INVESTMENT TRUSTS.—Section 26 of the In4 vestment Company Act of 1940 (15 U.S.C. 80a–26) is

5 amended—

6 (1) by redesignating subsections (b) through (e)

7 as subsections (c) through (f), respectively; and

8 (2) by inserting after subsection (a) the following

9 new subsection:

10 ‘‘(b) The Commission may adopt rules and regula11 tions, and issue orders, consistent with the protection of in12 vestors, prescribing the conditions under which a bank, or

13 an affiliated person of a bank, either of which is an affili14 ated person of a principal underwriter for, or depositor of,

15 a registered unit investment trust, may serve as trustee or

16 custodian under subsection (a)(1).’’.

17 (c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)

18 of the Investment Company Act of 1940 (15 U.S.C. 80a–

19 35(a)) is amended—

20 (1) in paragraph (1), by striking ‘‘or’’ at the

21 end;

22 (2) in paragraph (2), by striking the period at

23 the end and inserting ‘‘; or’’; and

24 (3) by inserting after paragraph (2) the fol25 lowing:
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1 ‘‘(3) as custodian.’’.

2 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM3 PANY.

4 Section 17(a) of the Investment Company Act of 1940

5 (15 U.S.C. 80a–17(a)) is amended—

6 (1) by striking ‘‘or’’ at the end of paragraph (2);

7 (2) by striking the period at the end of para8 graph (3) and inserting ‘‘; or’’; and

9 (3) by adding at the end the following new para10 graph:

11 ‘‘(4) to loan money or other property to such reg12 istered company, or to any company controlled by

13 such registered company, in contravention of such

14 rules, regulations, or orders as the Commission may

15 prescribe or issue consistent with the protection of in16 vestors.’’.

17 SEC. 213. INDEPENDENT DIRECTORS.

18 (a) IN GENERAL.—Section 2(a)(19)(A) of the Invest19 ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))

20 is amended—

21 (1) by striking clause (v) and inserting the fol22 lowing new clause:

23 ‘‘(v) any person or any affiliated per24 son of a person (other than a registered in25 vestment company) that, at any time dur-
278

•S 900 EAH

1 ing the 6-month period preceding the date

2 of the determination of whether that person

3 or affiliated person is an interested person,

4 has executed any portfolio transactions for,

5 engaged in any principal transactions with,

6 or distributed shares for—

7 ‘‘(I) the investment company;

8 ‘‘(II) any other investment com9 pany having the same investment ad10 viser as such investment company or

11 holding itself out to investors as a re12 lated company for purposes of invest13 ment or investor services; or

14 ‘‘(III) any account over which the

15 investment company’s investment ad16 viser has brokerage placement discre17 tion,’’;

18 (2) by redesignating clause (vi) as clause (vii);

19 and

20 (3) by inserting after clause (v) the following

21 new clause:

22 ‘‘(vi) any person or any affiliated per23 son of a person (other than a registered in24 vestment company) that, at any time dur25 ing the 6-month period preceding the date
279

•S 900 EAH

1 of the determination of whether that person

2 or affiliated person is an interested person,

3 has loaned money or other property to—

4 ‘‘(I) the investment company;

5 ‘‘(II) any other investment com6 pany having the same investment ad7 viser as such investment company or

8 holding itself out to investors as a re9 lated company for purposes of invest10 ment or investor services; or

11 ‘‘(III) any account for which the

12 investment company’s investment ad13 viser has borrowing authority,’’.

14 (b) CONFORMING AMENDMENT.—Section 2(a)(19)(B)

15 of the Investment Company Act of 1940 (15 U.S.C. 80a–

16 2(a)(19)(B)) is amended—

17 (1) by striking clause (v) and inserting the fol18 lowing new clause:

19 ‘‘(v) any person or any affiliated per20 son of a person (other than a registered in21 vestment company) that, at any time dur22 ing the 6-month period preceding the date

23 of the determination of whether that person

24 or affiliated person is an interested person,

25 has executed any portfolio transactions for,
280

•S 900 EAH

1 engaged in any principal transactions with,

2 or distributed shares for—

3 ‘‘(I) any investment company for

4 which the investment adviser or prin5 cipal underwriter serves as such;

6 ‘‘(II) any investment company

7 holding itself out to investors, for pur8 poses of investment or investor services,

9 as a company related to any invest10 ment company for which the invest11 ment adviser or principal underwriter

12 serves as such; or

13 ‘‘(III) any account over which the

14 investment adviser has brokerage place15 ment discretion,’’;

16 (2) by redesignating clause (vi) as clause (vii);

17 and

18 (3) by inserting after clause (v) the following

19 new clause:

20 ‘‘(vi) any person or any affiliated per21 son of a person (other than a registered in22 vestment company) that, at any time dur23 ing the 6-month period preceding the date

24 of the determination of whether that person
281

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1 or affiliated person is an interested person,

2 has loaned money or other property to—

3 ‘‘(I) any investment company for

4 which the investment adviser or prin5 cipal underwriter serves as such;

6 ‘‘(II) any investment company

7 holding itself out to investors, for pur8 poses of investment or investor services,

9 as a company related to any invest10 ment company for which the invest11 ment adviser or principal underwriter

12 serves as such; or

13 ‘‘(III) any account for which the

14 investment adviser has borrowing au15 thority,’’.

16 (c) AFFILIATION OF DIRECTORS.—Section 10(c) of the

17 Investment Company Act of 1940 (15 U.S.C. 80a–10(c)) is

18 amended by striking ‘‘bank, except’’ and inserting ‘‘bank

19 (together with its affiliates and subsidiaries) or any one

20 bank holding company (together with its affiliates and sub21 sidiaries) (as such terms are defined in section 2 of the

22 Bank Holding Company Act of 1956), except’’.

23 (d) EFFECTIVE DATE.—The amendments made by this

24 section shall take effect at the end of the 1-year period begin25 ning on the date of the enactment of this subtitle.
282

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1 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

2 Section 35(a) of the Investment Company Act of 1940

3 (15 U.S.C. 80a–34(a)) is amended to read as follows:

4 ‘‘(a) MISREPRESENTATION OF GUARANTEES.—

5 ‘‘(1) IN GENERAL.—It shall be unlawful for any

6 person, issuing or selling any security of which a reg7 istered investment company is the issuer, to represent

8 or imply in any manner whatsoever that such secu9 rity or company—

10 ‘‘(A) has been guaranteed, sponsored, rec11 ommended, or approved by the United States, or

12 any agency, instrumentality or officer of the

13 United States;

14 ‘‘(B) has been insured by the Federal De15 posit Insurance Corporation; or

16 ‘‘(C) is guaranteed by or is otherwise an ob17 ligation of any bank or insured depository insti18 tution.

19 ‘‘(2) DISCLOSURES.—Any person issuing or sell20 ing the securities of a registered investment company

21 that is advised by, or sold through, a bank shall

22 prominently disclose that an investment in the com23 pany is not insured by the Federal Deposit Insurance

24 Corporation or any other government agency. The

25 Commission may adopt rules and regulations, and

26 issue orders, consistent with the protection of inves-
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1 tors, prescribing the manner in which the disclosure

2 under this paragraph shall be provided.

3 ‘‘(3) DEFINITIONS.—The terms ‘insured deposi4 tory institution’ and ‘appropriate Federal banking

5 agency’ have the same meanings given in section 3 of

6 the Federal Deposit Insurance Act.’’.

7 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST8 MENT COMPANY ACT OF 1940.

9 Section 2(a)(6) of the Investment Company Act of

10 1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as follows:

11 ‘‘(6) The term ‘broker’ has the same meaning

12 given in section 3 of the Securities Exchange Act of

13 1934, except that such term does not include any per14 son solely by reason of the fact that such person is an

15 underwriter for one or more investment companies.’’.

16 SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT

17 COMPANY ACT OF 1940.

18 Section 2(a)(11) of the Investment Company Act of

19 1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol20 lows:

21 ‘‘(11) The term ‘dealer’ has the same meaning

22 given in the Securities Exchange Act of 1934, but

23 does not include an insurance company or investment

24 company.’’.
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1 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI2 TION OF INVESTMENT ADVISER FOR BANKS

3 THAT ADVISE INVESTMENT COMPANIES.

4 (a) INVESTMENT ADVISER.—Section 202(a)(11)(A) of

5 the Investment Advisers Act of 1940 (15 U.S.C. 80b–

6 2(a)(11)(A)) is amended by striking ‘‘investment company’’

7 and inserting ‘‘investment company, except that the term

8 ‘investment adviser’ includes any bank or bank holding

9 company to the extent that such bank or bank holding com10 pany serves or acts as an investment adviser to a registered

11 investment company, but if, in the case of a bank, such serv12 ices or actions are performed through a separately identifi13 able department or division, the department or division,

14 and not the bank itself, shall be deemed to be the investment

15 adviser’’.

16 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DI17 VISION.—Section 202(a) of the Investment Advisers Act of

18 1940 (15 U.S.C. 80b–2(a)) is amended by adding at the

19 end the following:

20 ‘‘(26) The term ‘separately identifiable depart21 ment or division’ of a bank means a unit—

22 ‘‘(A) that is under the direct supervision of

23 an officer or officers designated by the board of

24 directors of the bank as responsible for the day25 to-day conduct of the bank’s investment adviser

26 activities for one or more investment companies,
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•S 900 EAH

1 including the supervision of all bank employees

2 engaged in the performance of such activities;

3 and

4 ‘‘(B) for which all of the records relating to

5 its investment adviser activities are separately

6 maintained in or extractable from such unit’s

7 own facilities or the facilities of the bank, and

8 such records are so maintained or otherwise ac9 cessible as to permit independent examination

10 and enforcement by the Commission of this Act

11 or the Investment Company Act of 1940 and

12 rules and regulations promulgated under this

13 Act or the Investment Company Act of 1940.’’.

14 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST15 MENT ADVISERS ACT OF 1940.

16 Section 202(a)(3) of the Investment Advisers Act of

17 1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as follows:

18 ‘‘(3) The term ‘broker’ has the same meaning

19 given in section 3 of the Securities Exchange Act of

20 1934.’’.

21 SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT

22 ADVISERS ACT OF 1940.

23 Section 202(a)(7) of the Investment Advisers Act of

24 1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as follows:
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•S 900 EAH

1 ‘‘(7) The term ‘dealer’ has the same meaning

2 given in section 3 of the Securities Exchange Act of

3 1934, but does not include an insurance company or

4 investment company.’’.

5 SEC. 220. INTERAGENCY CONSULTATION.

6 The Investment Advisers Act of 1940 (15 U.S.C. 80b–

7 1 et seq.) is amended by inserting after section 210 the fol8 lowing new section:

9 ‘‘SEC. 210A. CONSULTATION.

10 ‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA11 TION.—

12 ‘‘(1) The appropriate Federal banking agency

13 shall provide the Commission upon request the results

14 of any examination, reports, records, or other infor15 mation to which such agency may have access with

16 respect to the investment advisory activities—

17 ‘‘(A) of any—

18 ‘‘(i) bank holding company;

19 ‘‘(ii) bank; or

20 ‘‘(iii) separately identifiable depart21 ment or division of a bank,

22 that is registered under section 203 of this title;

23 and

24 ‘‘(B) in the case of a bank holding company

25 or bank that has a subsidiary or a separately
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•S 900 EAH

1 identifiable department or division registered

2 under that section, of such bank or bank holding

3 company.

4 ‘‘(2) The Commission shall provide to the appro5 priate Federal banking agency upon request the re6 sults of any examination, reports, records, or other

7 information with respect to the investment advisory

8 activities of any bank holding company, bank, or sep9 arately identifiable department or division of a bank,

10 which is registered under section 203 of this title.

11 ‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in this

12 section shall limit in any respect the authority of the appro13 priate Federal banking agency with respect to such bank

14 holding company, bank, or department or division under

15 any other provision of law.

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

17 term ‘appropriate Federal banking agency’ shall have the

18 same meaning given in section 3 of the Federal Deposit In19 surance Act.’’.

20 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

21 (a) SECURITIES ACT OF 1933.—Section 3(a)(2) of the

22 Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended

23 by striking ‘‘or any interest or participation in any com24 mon trust fund or similar fund maintained by a bank ex25 clusively for the collective investment and reinvestment of
288

•S 900 EAH

1 assets contributed thereto by such bank in its capacity as

2 trustee, executor, administrator, or guardian’’ and insert3 ing ‘‘or any interest or participation in any common trust

4 fund or similar fund that is excluded from the definition

5 of the term ‘investment company’ under section 3(c)(3) of

6 the Investment Company Act of 1940’’.

7 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

8 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15

9 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows:

10 ‘‘(iii) any interest or participation in any

11 common trust fund or similar fund that is ex12 cluded from the definition of the term ‘invest13 ment company’ under section 3(c)(3) of the In14 vestment Company Act of 1940;’’.

15 (c) INVESTMENT COMPANY ACT OF 1940.—Section

16 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C.

17 80a–3(c)(3)) is amended by inserting before the period the

18 following: ‘‘, if—

19 ‘‘(A) such fund is employed by the bank

20 solely as an aid to the administration of trusts,

21 estates, or other accounts created and main22 tained for a fiduciary purpose;

23 ‘‘(B) except in connection with the ordinary

24 advertising of the bank’s fiduciary services, in25 terests in such fund are not—
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•S 900 EAH

1 ‘‘(i) advertised; or

2 ‘‘(ii) offered for sale to the general pub3 lic; and

4 ‘‘(C) fees and expenses charged by such fund

5 are not in contravention of fiduciary principles

6 established under applicable Federal or State

7 law’’.

8 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV9 ING CONTROLLING INTEREST IN REG10 ISTERED INVESTMENT COMPANY.

11 Section 15 of the Investment Company Act of 1940 (15

12 U.S.C. 80a–15) is amended by adding at the end the fol13 lowing new subsection:

14 ‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM15 PANY PROHIBITED.—

16 ‘‘(1) IN GENERAL.—If an investment adviser to

17 a registered investment company, or an affiliated per18 son of that investment adviser, holds a controlling in19 terest in that registered investment company in a

20 trustee or fiduciary capacity, such person shall—

21 ‘‘(A) if it holds the shares in a trustee or fi22 duciary capacity with respect to any employee

23 benefit plan subject to the Employee Retirement

24 Income Security Act of 1974, transfer the power

25 to vote the shares of the investment company
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•S 900 EAH

1 through to another person acting in a fiduciary

2 capacity with respect to the plan who is not an

3 affiliated person of that investment adviser or

4 any affiliated person thereof; or

5 ‘‘(B) if it holds the shares in a trustee or fi6 duciary capacity with respect to any person or

7 entity other than an employee benefit plan sub8 ject to the Employee Retirement Income Security

9 Act of 1974—

10 ‘‘(i) transfer the power to vote the

11 shares of the investment company through

12 to—

13 ‘‘(I) the beneficial owners of the

14 shares;

15 ‘‘(II) another person acting in a

16 fiduciary capacity who is not an affili17 ated person of that investment adviser

18 or any affiliated person thereof; or

19 ‘‘(III) any person authorized to

20 receive statements and information

21 with respect to the trust who is not an

22 affiliated person of that investment ad23 viser or any affiliated person thereof;

24 ‘‘(ii) vote the shares of the investment

25 company held by it in the same proportion
291

•S 900 EAH

1 as shares held by all other shareholders of

2 the investment company; or

3 ‘‘(iii) vote the shares of the investment

4 company as otherwise permitted under such

5 rules, regulations, or orders as the Commis6 sion may prescribe or issue consistent with

7 the protection of investors.

8 ‘‘(2) EXEMPTION.—Paragraph (1) shall not

9 apply to any investment adviser to a registered in10 vestment company, or any affiliated person of that

11 investment adviser, that holds shares of the invest12 ment company in a trustee or fiduciary capacity if

13 that registered investment company consists solely of

14 assets held in such capacities.

15 ‘‘(3) SAFE HARBOR.—No investment adviser to a

16 registered investment company or any affiliated per17 son of such investment adviser shall be deemed to have

18 acted unlawfully or to have breached a fiduciary duty

19 under State or Federal law solely by reason of acting

20 in accordance with clause (i), (ii), or (iii) of para21 graph (1)(B).’’.

22 SEC. 223. STATUTORY DISQUALIFICATION FOR BANK

23 WRONGDOING.

24 Section 9(a) of the Investment Company Act of 1940

25 (15 U.S.C. 80a-9(a)) is amended in paragraphs (1) and
292

•S 900 EAH

1 (2) by striking ‘‘securities dealer, transfer agent,’’ and in2 serting ‘‘securities dealer, bank, transfer agent,’’.

3 SEC. 224. CONFORMING CHANGE IN DEFINITION.

4 Section 2(a)(5) of the Investment Company Act of

5 1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking ‘‘(A)

6 a banking institution organized under the laws of the

7 United States’’ and inserting ‘‘(A) a depository institution

8 (as defined in section 3 of the Federal Deposit Insurance

9 Act) or a branch or agency of a foreign bank (as such terms

10 are defined in section 1(b) of the International Banking Act

11 of 1978)’’.

12 SEC. 225. CONFORMING AMENDMENT.

13 Section 202 of the Investment Advisers Act of 1940 (15

14 U.S.C. 80b–2) is amended by adding at the end the fol15 lowing new subsection:

16 ‘‘(c) CONSIDERATION OF PROMOTION OF EFFICIENCY,

17 COMPETITION, AND CAPITAL FORMATION.—Whenever pur18 suant to this title the Commission is engaged in rulemaking

19 and is required to consider or determine whether an action

20 is necessary or appropriate in the public interest, the Com21 mission shall also consider, in addition to the protection

22 of investors, whether the action will promote efficiency, com23 petition, and capital formation.’’.
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•S 900 EAH

1 SEC. 226. CHURCH PLAN EXCLUSION.

2 Section 3(c)(14) of the Investment Company Act of

3 1940 (15 U.S.C. 80a-3(c)(14)) is amended—

4 (1) by redesignating clauses (i) and (ii) of sub5 paragraph (B) as subclauses (I) and (II), respec6 tively;

7 (2) by redesignating subparagraphs (A) and (B)

8 as clauses (i) and (ii), respectively;

9 (3) by inserting ‘‘(A)’’ after ‘‘(14)’’; and

10 (4) by adding at the end the following new sub11 paragraph:

12 ‘‘(B) If a registered investment company would

13 be excluded from the definition of investment com14 pany under this subsection but for the fact that some

15 of the company’s assets do not satisfy the condition

16 of subparagraph (A)(ii) of this paragraph, then any

17 investment adviser to the company or affiliated per18 son of such investment adviser shall not be subject to

19 the requirements of section 15(g)(1)(B) with respect to

20 shares of the investment company.’’.

21 SEC. 227. EFFECTIVE DATE.

22 This subtitle shall take effect 90 days after the date

23 of the enactment of this Act.
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1 Subtitle C—Securities and Ex2 change Commission Supervision

3 of Investment Bank Holding

4 Companies

5 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING

6 COMPANIES BY THE SECURITIES AND EX7 CHANGE COMMISSION.

8 (a) AMENDMENT.—Section 17 of the Securities Ex9 change Act of 1934 (15 U.S.C. 78q) is amended—

10 (1) by redesignating subsection (i) as subsection

11 (k); and

12 (2) by inserting after subsection (h) the following

13 new subsection:

14 ‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—

15 ‘‘(1) ELECTIVE SUPERVISION OF AN INVESTMENT

16 BANK HOLDING COMPANY NOT HAVING A BANK OR

17 SAVINGS ASSOCIATION AFFILIATE.—

18 ‘‘(A) IN GENERAL.—An investment bank

19 holding company that is not—

20 ‘‘(i) an affiliate of a wholesale finan21 cial institution, an insured bank (other

22 than an institution described in subpara23 graph (D), (F), or (G) of section 2(c)(2), or

24 held under section 4(f), of the Bank Holding
295

•S 900 EAH

1 Company Act of 1956), or a savings asso2 ciation;

3 ‘‘(ii) a foreign bank, foreign company,

4 or company that is described in section 8(a)

5 of the International Banking Act of 1978;

6 or

7 ‘‘(iii) a foreign bank that controls, di8 rectly or indirectly, a corporation chartered

9 under section 25A of the Federal Reserve

10 Act,

11 may elect to become supervised by filing with the

12 Commission a notice of intention to become su13 pervised, pursuant to subparagraph (B) of this

14 paragraph. Any investment bank holding com15 pany filing such a notice shall be supervised in

16 accordance with this section and comply with the

17 rules promulgated by the Commission applicable

18 to supervised investment bank holding compa19 nies.

20 ‘‘(B) NOTIFICATION OF STATUS AS A SUPER21 VISED INVESTMENT BANK HOLDING COMPANY.—

22 An investment bank holding company that elects

23 under subparagraph (A) to become supervised by

24 the Commission shall file with the Commission a

25 written notice of intention to become supervised
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•S 900 EAH

1 by the Commission in such form and containing

2 such information and documents concerning such

3 investment bank holding company as the Com4 mission, by rule, may prescribe as necessary or

5 appropriate in furtherance of the purposes of

6 this section. Unless the Commission finds that

7 such supervision is not necessary or appropriate

8 in furtherance of the purposes of this section,

9 such supervision shall become effective 45 days

10 after the date of receipt of such written notice by

11 the Commission or within such shorter time pe12 riod as the Commission, by rule or order, may

13 determine.

14 ‘‘(2) ELECTION NOT TO BE SUPERVISED BY THE

15 COMMISSION AS AN INVESTMENT BANK HOLDING COM16 PANY.—

17 ‘‘(A) VOLUNTARY WITHDRAWAL.—A super18 vised investment bank holding company that is

19 supervised pursuant to paragraph (1) may, upon

20 such terms and conditions as the Commission

21 deems necessary or appropriate, elect not to be

22 supervised by the Commission by filing a written

23 notice of withdrawal from Commission super24 vision. Such notice shall not become effective

25 until 1 year after receipt by the Commission, or
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•S 900 EAH

1 such shorter or longer period as the Commission

2 deems necessary or appropriate to ensure effec3 tive supervision of the material risks to the su4 pervised investment bank holding company and

5 to the affiliated broker or dealer, or to prevent

6 evasion of the purposes of this section.

7 ‘‘(B) DISCONTINUATION OF COMMISSION SU8 PERVISION.—If the Commission finds that any

9 supervised investment bank holding company

10 that is supervised pursuant to paragraph (1) is

11 no longer in existence or has ceased to be an in12 vestment bank holding company, or if the Com13 mission finds that continued supervision of such

14 a supervised investment bank holding company

15 is not consistent with the purposes of this sec16 tion, the Commission may discontinue the super17 vision pursuant to a rule or order, if any, pro18 mulgated by the Commission under this section.

19 ‘‘(3) SUPERVISION OF INVESTMENT BANK HOLD20 ING COMPANIES.—

21 ‘‘(A) RECORDKEEPING AND REPORTING.—

22 ‘‘(i) IN GENERAL.—Every supervised

23 investment bank holding company and each

24 affiliate thereof shall make and keep for pre25 scribed periods such records, furnish copies
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•S 900 EAH

1 thereof, and make such reports, as the Com2 mission may require by rule, in order to

3 keep the Commission informed as to—

4 ‘‘(I) the company’s or affiliate’s

5 activities, financial condition, policies,

6 systems for monitoring and controlling

7 financial and operational risks, and

8 transactions and relationships between

9 any broker or dealer affiliate of the su10 pervised investment bank holding com11 pany; and

12 ‘‘(II) the extent to which the com13 pany or affiliate has complied with the

14 provisions of this Act and regulations

15 prescribed and orders issued under this

16 Act.

17 ‘‘(ii) FORM AND CONTENTS.—Such

18 records and reports shall be prepared in

19 such form and according to such specifica20 tions (including certification by an inde21 pendent public accountant), as the Commis22 sion may require and shall be provided

23 promptly at any time upon request by the

24 Commission. Such records and reports may

25 include—
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1 ‘‘(I) a balance sheet and income

2 statement;

3 ‘‘(II) an assessment of the consoli4 dated capital of the supervised invest5 ment bank holding company;

6 ‘‘(III) an independent auditor’s

7 report attesting to the supervised in8 vestment bank holding company’s com9 pliance with its internal risk manage10 ment and internal control objectives;

11 and

12 ‘‘(IV) reports concerning the ex13 tent to which the company or affiliate

14 has complied with the provisions of

15 this title and any regulations pre16 scribed and orders issued under this

17 title.

18 ‘‘(B) USE OF EXISTING REPORTS.—

19 ‘‘(i) IN GENERAL.—The Commission

20 shall, to the fullest extent possible, accept re21 ports in fulfillment of the requirements

22 under this paragraph that the supervised

23 investment bank holding company or its af24 filiates have been required to provide to an-
300

•S 900 EAH

1 other appropriate regulatory agency or self2 regulatory organization.

3 ‘‘(ii) AVAILABILITY.—A supervised in4 vestment bank holding company or an affil5 iate of such company shall provide to the

6 Commission, at the request of the Commis7 sion, any report referred to in clause (i).

8 ‘‘(C) EXAMINATION AUTHORITY.—

9 ‘‘(i) FOCUS OF EXAMINATION AUTHOR10 ITY.—The Commission may make examina11 tions of any supervised investment bank

12 holding company and any affiliate of such

13 company in order to—

14 ‘‘(I) inform the Commission

15 regarding—

16 ‘‘(aa) the nature of the oper17 ations and financial condition of

18 the supervised investment bank

19 holding company and its affili20 ates;

21 ‘‘(bb) the financial and oper22 ational risks within the super23 vised investment bank holding

24 company that may affect any

25 broker or dealer controlled by such
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1 supervised investment bank hold2 ing company; and

3 ‘‘(cc) the systems of the su4 pervised investment bank holding

5 company and its affiliates for

6 monitoring and controlling those

7 risks; and

8 ‘‘(II) monitor compliance with the

9 provisions of this subsection, provisions

10 governing transactions and relation11 ships between any broker or dealer af12 filiated with the supervised investment

13 bank holding company and any of the

14 company’s other affiliates, and appli15 cable provisions of subchapter II of

16 chapter 53, title 31, United States

17 Code (commonly referred to as the

18 ‘Bank Secrecy Act’) and regulations

19 thereunder.

20 ‘‘(ii) RESTRICTED FOCUS OF EXAMINA21 TIONS.—The Commission shall limit the

22 focus and scope of any examination of a su23 pervised investment bank holding company

24 to—

25 ‘‘(I) the company; and
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•S 900 EAH

1 ‘‘(II) any affiliate of the company

2 that, because of its size, condition, or

3 activities, the nature or size of the

4 transactions between such affiliate and

5 any affiliated broker or dealer, or the

6 centralization of functions within the

7 holding company system, could, in the

8 discretion of the Commission, have a

9 materially adverse effect on the oper10 ational or financial condition of the

11 broker or dealer.

12 ‘‘(iii) DEFERENCE TO OTHER EXAMI13 NATIONS.—For purposes of this subpara14 graph, the Commission shall, to the fullest

15 extent possible, use the reports of examina16 tion of an institution described in subpara17 graph (D), (F), or (G) of section 2(c)(2), or

18 held under section 4(f), of the Bank Holding

19 Company Act of 1956 made by the appro20 priate regulatory agency, or of a licensed

21 insurance company made by the appro22 priate State insurance regulator.

23 ‘‘(4) HOLDING COMPANY CAPITAL.—

24 ‘‘(A) AUTHORITY.—If the Commission finds

25 that it is necessary to adequately supervise in-
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•S 900 EAH

1 vestment bank holding companies and their

2 broker or dealer affiliates consistent with the

3 purposes of this subsection, the Commission may

4 adopt capital adequacy rules for supervised in5 vestment bank holding companies.

6 ‘‘(B) METHOD OF CALCULATION.—In devel7 oping rules under this paragraph:

8 ‘‘(i) DOUBLE LEVERAGE.—The Com9 mission shall consider the use by the super10 vised investment bank holding company of

11 debt and other liabilities to fund capital in12 vestments in affiliates.

13 ‘‘(ii) NO UNWEIGHTED CAPITAL

14 RATIO.—The Commission shall not impose

15 under this section a capital ratio that is not

16 based on appropriate risk-weighting consid17 erations.

18 ‘‘(iii) NO CAPITAL REQUIREMENT ON

19 REGULATED ENTITIES.—The Commission

20 shall not, by rule, regulation, guideline,

21 order or otherwise, impose any capital ade22 quacy provision on a nonbanking affiliate

23 (other than a broker or dealer) that is in

24 compliance with applicable capital require-
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•S 900 EAH

1 ments of another Federal regulatory author2 ity or State insurance authority.

3 ‘‘(iv) APPROPRIATE EXCLUSIONS.—The

4 Commission shall take full account of the

5 applicable capital requirements of another

6 Federal regulatory authority or State insur7 ance regulator.

8 ‘‘(C) INTERNAL RISK MANAGEMENT MOD9 ELS.—The Commission may incorporate inter10 nal risk management models into its capital ade11 quacy rules for supervised investment bank hold12 ing companies.

13 ‘‘(5) FUNCTIONAL REGULATION OF BANKING AND

14 INSURANCE ACTIVITIES OF SUPERVISED INVESTMENT

15 BANK HOLDING COMPANIES.—The Commission shall

16 defer to—

17 ‘‘(A) the appropriate regulatory agency

18 with regard to all interpretations of, and the en19 forcement of, applicable banking laws relating to

20 the activities, conduct, ownership, and oper21 ations of banks, and institutions described in

22 subparagraph (D), (F), and (G) of section

23 2(c)(2), or held under section 4(f), of the Bank

24 Holding Company Act of 1956; and
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•S 900 EAH

1 ‘‘(B) the appropriate State insurance regu2 lators with regard to all interpretations of, and

3 the enforcement of, applicable State insurance

4 laws relating to the activities, conduct, and oper5 ations of insurance companies and insurance

6 agents.

7 ‘‘(6) DEFINITIONS.—For purposes of this sub8 section:

9 ‘‘(A) The term ‘investment bank holding

10 company’ means—

11 ‘‘(i) any person other than a natural

12 person that owns or controls one or more

13 brokers or dealers; and

14 ‘‘(ii) the associated persons of the in15 vestment bank holding company.

16 ‘‘(B) The term ‘supervised investment bank

17 holding company’ means any investment bank

18 holding company that is supervised by the Com19 mission pursuant to this subsection.

20 ‘‘(C) The terms ‘affiliate’, ‘bank’, ‘bank

21 holding company’, ‘company’, ‘control’, ‘savings

22 association’, and ‘wholesale financial institution’

23 have the same meanings given in section 2 of the

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

25 1841).
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•S 900 EAH

1 ‘‘(D) The term ‘insured bank’ has the same

2 meaning given in section 3 of the Federal De3 posit Insurance Act.

4 ‘‘(E) The term ‘foreign bank’ has the same

5 meaning given in section 1(b)(7) of the Inter6 national Banking Act of 1978.

7 ‘‘(F) The terms ‘person associated with an

8 investment bank holding company’ and ‘associ9 ated person of an investment bank holding com10 pany’ mean any person directly or indirectly

11 controlling, controlled by, or under common con12 trol with, an investment bank holding com13 pany.’’.

14 ‘‘(j) AUTHORITY TO LIMIT DISCLOSURE OF INFORMA15 TION.—Notwithstanding any other provision of law, the

16 Commission shall not be compelled to disclose any informa17 tion required to be reported under subsection (h) or (i) or

18 any information supplied to the Commission by any domes19 tic or foreign regulatory agency that relates to the financial

20 or operational condition of any associated person of a

21 broker or dealer, investment bank holding company, or any

22 affiliate of an investment bank holding company. Nothing

23 in this subsection shall authorize the Commission to with24 hold information from Congress, or prevent the Commission

25 from complying with a request for information from any
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1 other Federal department or agency or any self-regulatory

2 organization requesting the information for purposes with3 in the scope of its jurisdiction, or complying with an order

4 of a court of the United States in an action brought by

5 the United States or the Commission. For purposes of sec6 tion 552 of title 5, United States Code, this subsection shall

7 be considered a statute described in subsection (b)(3)(B) of

8 such section 552. In prescribing regulations to carry out

9 the requirements of this subsection, the Commission shall

10 designate information described in or obtained pursuant to

11 subparagraphs (A), (B), and (C) of subsection (i)(5) as con12 fidential information for purposes of section 24(b)(2) of this

13 title.’’.

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 3(a)(34) of the Securities Exchange

16 Act of 1934 (15 U.S.C. 78c(a)(34)) is amended by

17 adding at the end the following new subparagraph:

18 ‘‘(H) When used with respect to an institu19 tion described in subparagraph (D), (F), or (G)

20 of section 2(c)(2), or held under section 4(f), of

21 the Bank Holding Company Act of 1956—

22 ‘‘(i) the Comptroller of the Currency,

23 in the case of a national bank or a bank in

24 the District of Columbia examined by the

25 Comptroller of the Currency;
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•S 900 EAH

1 ‘‘(ii) the Board of Governors of the

2 Federal Reserve System, in the case of a

3 State member bank of the Federal Reserve

4 System or any corporation chartered under

5 section 25A of the Federal Reserve Act;

6 ‘‘(iii) the Federal Deposit Insurance

7 Corporation, in the case of any other bank

8 the deposits of which are insured in accord9 ance with the Federal Deposit Insurance

10 Act; or

11 ‘‘(iv) the Commission in the case of all

12 other such institutions.’’.

13 (2) Section 1112(e) of the Right to Financial

14 Privacy Act of 1978 (12 U.S.C. 3412(e)) is

15 amended—

16 (A) by striking ‘‘this title’’ and inserting

17 ‘‘law’’; and

18 (B) by inserting ‘‘, examination reports’’

19 after ‘‘financial records’’.

20 Subtitle D—Disclosure of Customer

21 Costs of Acquiring Financial

22 Products

23 SEC. 241. IMPROVED AND CONSISTENT DISCLOSURE.

24 (a) REVISED REGULATIONS REQUIRED.—Within 1

25 year after the date of the enactment of this Act, each Federal
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1 financial regulatory authority shall prescribe rules, or revi2 sions to its rules, to improve the accuracy, simplicity, and

3 completeness, and to make more consistent, the disclosure

4 of information by persons subject to the jurisdiction of such

5 regulatory authority concerning any commissions, fees, or

6 other costs incurred by customers in the acquisition of fi7 nancial products.

8 (b) CONSULTATION.—In prescribing rules and revi9 sions under subsection (a), the Federal financial regulatory

10 authorities shall consult with each other and with appro11 priate State financial regulatory authorities.

12 (c) CONSIDERATION OF EXISTING DISCLOSURES.—In

13 prescribing rules and revisions under subsection (a), the

14 Federal financial regulatory authorities shall consider the

15 sufficiency and appropriateness of then existing laws and

16 rules applicable to persons subject to their jurisdiction, and

17 may prescribe exemptions from the rules and revisions re18 quired by subsection (a) to the extent appropriate in light

19 of the objective of this section to increase the consistency

20 of disclosure practices.

21 (d) ENFORCEMENT.—Any rule prescribed by a Federal

22 financial regulatory authority pursuant to this section

23 shall, for purposes of enforcement, be treated as a rule pre24 scribed by such regulatory authority pursuant to the statute
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1 establishing such regulatory authority’s jurisdiction over

2 the persons to whom such rule applies.

3 (e) DEFINITION.—As used in this section, the term

4 ‘‘Federal financial regulatory authority’’ means the Board

5 of Governors of the Federal Reserve System, the Securities

6 and Exchange Commission, the Comptroller of the Cur7 rency, the Federal Deposit Insurance Corporation, the Com8 modity Futures Trading Commission, and any self-regu9 latory organization under the supervision of any of the fore10 going.

11 Subtitle E—Banks and Bank

12 Holding Companies

13 SEC. 251. CONSULTATION.

14 (a) IN GENERAL.—The Securities and Exchange Com15 mission shall consult and coordinate comments with the ap16 propriate Federal banking agency before taking any action

17 or rendering any opinion with respect to the manner in

18 which any insured depository institution or depository in19 stitution holding company reports loan loss reserves in its

20 financial statement, including the amount of any such loan

21 loss reserve.

22 (b) DEFINITIONS.—For purposes of subsection (a), the

23 terms ‘‘insured depository institution’’, ‘‘depository institu24 tion holding company’’, and ‘‘appropriate Federal banking
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1 agency’’ have the same meaning as in section 3 of the Fed2 eral Deposit Insurance Act.

3 TITLE III—INSURANCE

4 Subtitle A—State Regulation of

5 Insurance

6 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR7 ANCE.

8 The Act entitled ‘‘An Act to express the intent of the

9 Congress with reference to the regulation of the business of

10 insurance’’ and approved March 9, 1945 (15 U.S.C. 1011

11 et seq.), commonly referred to as the ‘‘McCarran-Ferguson

12 Act’’ remains the law of the United States.

13 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE14 MENTS.

15 No person shall engage in the business of insurance

16 in a State as principal or agent unless such person is li17 censed as required by the appropriate insurance regulator

18 of such State in accordance with the relevant State insur19 ance law, subject to section 104.

20 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

21 The insurance activities of any person (including a

22 national bank exercising its power to act as agent under

23 the eleventh undesignated paragraph of section 13 of the

24 Federal Reserve Act) shall be functionally regulated by the

25 States, subject to section 104.
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1 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL BANKS.

2 (a) IN GENERAL.—Except as provided in section 305,

3 a national bank and the subsidiaries of a national bank

4 may not provide insurance in a State as principal except

5 that this prohibition shall not apply to authorized products.

6 (b) AUTHORIZED PRODUCTS.—For the purposes of this

7 section, a product is authorized if—

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

9 Currency had determined in writing that national

10 banks may provide such product as principal, or na11 tional banks were in fact lawfully providing such

12 product as principal;

13 (2) no court of relevant jurisdiction had, by final

14 judgment, overturned a determination of the Comp15 troller of the Currency that national banks may pro16 vide such product as principal; and

17 (3) the product is not title insurance, or an an18 nuity contract the income of which is subject to tax

19 treatment under section 72 of the Internal Revenue

20 Code of 1986.

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

22 term ‘‘insurance’’ means—

23 (1) any product regulated as insurance as of

24 January 1, 1999, in accordance with the relevant

25 State insurance law, in the State in which the prod26 uct is provided;
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1 (2) any product first offered after January 1,

2 1999, which—

3 (A) a State insurance regulator determines

4 shall be regulated as insurance in the State in

5 which the product is provided because the prod6 uct insures, guarantees, or indemnifies against

7 liability, loss of life, loss of health, or loss

8 through damage to or destruction of property,

9 including, but not limited to, surety bonds, life

10 insurance, health insurance, title insurance, and

11 property and casualty insurance (such as pri12 vate passenger or commercial automobile, home13 owners, mortgage, commercial multiperil, general

14 liability, professional liability, workers’ com15 pensation, fire and allied lines, farm owners

16 multiperil, aircraft, fidelity, surety, medical

17 malpractice, ocean marine, inland marine, and

18 boiler and machinery insurance); and

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

20 that is—

21 (i) a deposit product;

22 (ii) a loan, discount, letter of credit, or

23 other extension of credit;

24 (iii) a trust or other fiduciary service;
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1 (iv) a qualified financial contract (as

2 defined in or determined pursuant to sec3 tion 11(e)(8)(D)(i) of the Federal Deposit

4 Insurance Act); or

5 (v) a financial guaranty, except that

6 this subparagraph (B) shall not apply to a

7 product that includes an insurance compo8 nent such that if the product is offered or

9 proposed to be offered by the bank as

10 principal—

11 (I) it would be treated as a life

12 insurance contract under section 7702

13 of the Internal Revenue Code of 1986;

14 or

15 (II) in the event that the product

16 is not a letter of credit or other similar

17 extension of credit, a qualified finan18 cial contract, or a financial guaranty,

19 it would qualify for treatment for

20 losses incurred with respect to such

21 product under section 832(b)(5) of the

22 Internal Revenue Code of 1986, if the

23 bank were subject to tax as an insur24 ance company under section 831 of

25 that Code; or
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1 (3) any annuity contract, the income on which

2 is subject to tax treatment under section 72 of the In3 ternal Revenue Code of 1986.

4 SEC. 305. TITLE INSURANCE ACTIVITIES OF NATIONAL

5 BANKS AND THEIR AFFILIATES.

6 (a) GENERAL PROHIBITION.—No national bank, and

7 no subsidiary of a national bank, may engage in any activ8 ity involving the underwriting or sale of title insurance.

9 (b) NONDISCRIMINATION PARITY EXCEPTION.—

10 (1) IN GENERAL.—Notwithstanding any other

11 provision of law (including section 104 of this Act),

12 in the case of any State in which banks organized

13 under the laws of such State are authorized to sell

14 title insurance as agency, a national bank and a sub15 sidiary of a national bank may sell title insurance as

16 agent in such State, but only in the same manner, to

17 the same extent, and under the same restrictions as

18 such State banks are authorized to sell title insurance

19 as agent in such State.

20 (2) COORDINATION WITH ‘‘WILDCARD’’ PROVI21 SION.—A State law which authorizes State banks to

22 engage in any activities in such State in which a na23 tional bank may engage shall not be treated as a stat24 ute which authorizes State banks to sell title insur25 ance as agent, for purposes of paragraph (1).
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1 (c) GRANDFATHERING WITH CONSISTENT REGULA2 TION.—

3 (1) IN GENERAL.—Except as provided in para4 graphs (2) and (3) and notwithstanding subsections

5 (a) and (b), a national bank, and a subsidiary of a

6 national bank, may conduct title insurance activities

7 which such national bank or subsidiary was actively

8 and lawfully conducting before the date of the enact9 ment of this Act.

10 (2) INSURANCE AFFILIATE.—In the case of a na11 tional bank which has an affiliate which provides in12 surance as principal and is not a subsidiary of the

13 bank, the national bank and any subsidiary of the

14 national bank may not engage in the underwriting of

15 title insurance pursuant to paragraph (1).

16 (3) INSURANCE SUBSIDIARY.—In the case of a

17 national bank which has a subsidiary which provides

18 insurance as principal and has no affiliate other than

19 a subsidiary which provides insurance as principal,

20 the national bank may not directly engage in any ac21 tivity involving the underwriting of title insurance.

22 (d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—For

23 purposes of this section, the terms ‘‘affiliate’’ and ‘‘sub24 sidiary’’ have the same meanings as in section 2 of the

25 Bank Holding Company Act of 1956.
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1 (e) RULE OF CONSTRUCTION.—No provision of this

2 Act or any other Federal law shall be construed as super3 seding or affecting a State law which was in effect before

4 the date of the enactment of this Act and which prohibits

5 title insurance from being offered, provided, or sold in such

6 State, or from being underwritten with respect to real prop7 erty in such State, by any person whatsoever.

8 SEC. 306. EXPEDITED AND EQUALIZED DISPUTE RESOLU9 TION FOR FEDERAL REGULATORS.

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

11 regulatory conflict between a State insurance regulator and

12 a Federal regulator as to whether any product is or is not

13 insurance, as defined in section 304(c) of this Act, or wheth14 er a State statute, regulation, order, or interpretation re15 garding any insurance sales or solicitation activity is prop16 erly treated as preempted under Federal law, either regu17 lator may seek expedited judicial review of such determina18 tion by the United States Court of Appeals for the circuit

19 in which the State is located or in the United States Court

20 of Appeals for the District of Columbia Circuit by filing

21 a petition for review in such court.

22 (b) EXPEDITED REVIEW.—The United States Court of

23 Appeals in which a petition for review is filed in accord24 ance with subsection (a) shall complete all action on such

25 petition, including rendering a judgment, before the end of
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1 the 60-day period beginning on the date on which such peti2 tion is filed, unless all parties to such proceeding agree to

3 any extension of such period.

4 (c) SUPREME COURT REVIEW.—Any request for certio5 rari to the Supreme Court of the United States of any judg6 ment of a United States Court of Appeals with respect to

7 a petition for review under this section shall be filed with

8 the Supreme Court of the United States as soon as prac9 ticable after such judgment is issued.

10 (d) STATUTE OF LIMITATION.—No petition may be

11 filed under this section challenging an order, ruling, deter12 mination, or other action of a Federal regulator or State

13 insurance regulator after the later of—

14 (1) the end of the 12-month period beginning on

15 the date on which the first public notice is made of

16 such order, ruling, determination or other action in

17 its final form; or

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

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

20 or other action takes effect.

21 (e) STANDARD OF REVIEW.—The court shall decide a

22 petition filed under this section based on its review on the

23 merits of all questions presented under State and Federal

24 law, including the nature of the product or activity and
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1 the history and purpose of its regulation under State and

2 Federal law, without unequal deference.

3 SEC. 307. CONSUMER PROTECTION REGULATIONS.

4 The Federal Deposit Insurance Act (12 U.S.C. 1811

5 et seq.) is amended by inserting after section 46 (as added

6 by section 122(b) of this Act) the following new section:

7 ‘‘SEC. 47. CONSUMER PROTECTION REGULATIONS.

8 ‘‘(a) REGULATIONS REQUIRED.—

9 ‘‘(1) IN GENERAL.—The Federal banking agen10 cies shall prescribe and publish in final form, before

11 the end of the 1-year period beginning on the date of

12 the enactment of the Financial Services Act of 1999,

13 consumer protection regulations (which the agencies

14 jointly determine to be appropriate) that—

15 ‘‘(A) apply to retail sales practices, solicita16 tions, advertising, or offers of any insurance

17 product by any insured depository institution or

18 wholesale financial institution or any person

19 who is engaged in such activities at an office of

20 the institution or on behalf of the institution;

21 and

22 ‘‘(B) are consistent with the requirements of

23 this Act and provide such additional protections

24 for consumers to whom such sales, solicitations,
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1 advertising, or offers are directed as the agency

2 determines to be appropriate.

3 ‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The reg4 ulations prescribed pursuant to paragraph (1) shall

5 extend such protections to any subsidiaries of an in6 sured depository institution, as deemed appropriate

7 by the regulators referred to in paragraph (3), where

8 such extension is determined to be necessary to ensure

9 the consumer protections provided by this section.

10 ‘‘(3) CONSULTATION AND JOINT REGULATIONS.—

11 The Federal banking agencies shall consult with each

12 other and prescribe joint regulations pursuant to

13 paragraph (1), after consultation with the State in14 surance regulators, as appropriate.

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

16 pursuant to subsection (a) shall include anticoercion rules

17 applicable to the sale of insurance products which prohibit

18 an insured depository institution from engaging in any

19 practice that would lead a consumer to believe an extension

20 of credit, in violation of section 106(b) of the Bank Holding

21 Company Act Amendments of 1970, is conditional upon—

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

23 the institution or any of its affiliates; or

24 ‘‘(2) an agreement by the consumer not to ob25 tain, or a prohibition on the consumer from obtain-
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1 ing, an insurance product from an unaffiliated enti2 ty.

3 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula4 tions prescribed pursuant to subsection (a) shall include the

5 following provisions relating to disclosures and advertising

6 in connection with the initial purchase of an insurance

7 product:

8 ‘‘(1) DISCLOSURES.—

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

10 following disclosures be made orally and in writ11 ing before the completion of the initial sale and,

12 in the case of clause (iii), at the time of applica13 tion for an extension of credit:

14 ‘‘(i) UNINSURED STATUS.—As appro15 priate, the product is not insured by the

16 Federal Deposit Insurance Corporation, the

17 United States Government, or the insured

18 depository institution.

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

20 of a variable annuity or other insurance

21 product which involves an investment risk,

22 that there is an investment risk associated

23 with the product, including possible loss of

24 value.
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1 ‘‘(iii) COERCION.—The approval of an

2 extension of credit may not be conditioned

3 on—

4 ‘‘(I) the purchase of an insurance

5 product from the institution in which

6 the application for credit is pending or

7 any of its affiliates or subsidiaries; or

8 ‘‘(II) an agreement by the con9 sumer not to obtain, or a prohibition

10 on the consumer from obtaining, an

11 insurance product from an unaffiliated

12 entity.

13 ‘‘(B) MAKING DISCLOSURE READILY UNDER14 STANDABLE.—Regulations prescribed under sub15 paragraph (A) shall encourage the use of disclo16 sure that is conspicuous, simple, direct, and

17 readily understandable, such as the following:

18 ‘‘(i) ‘NOT FDIC—INSURED’.

19 ‘‘(ii) ‘NOT GUARANTEED BY THE

20 BANK’.

21 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

22 ‘‘(iv) ‘NOT INSURED BY ANY GOV23 ERNMENT AGENCY’.

24 ‘‘(C) ADJUSTMENTS FOR ALTERNATIVE

25 METHODS OF PURCHASE.—In prescribing the re-
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1 quirements under subparagraphs (A) and (D),

2 necessary adjustments shall be made for purchase

3 in person, by telephone, or by electronic media to

4 provide for the most appropriate and complete

5 form of disclosure and acknowledgments.

6 ‘‘(D) CONSUMER ACKNOWLEDGMENT.—A re7 quirement that an insured depository institution

8 shall require any person selling an insurance

9 product at any office of, or on behalf of, the in10 stitution to obtain, at the time a consumer re11 ceives the disclosures required under this para12 graph or at the time of the initial purchase by

13 the consumer of such product, an acknowledg14 ment by such consumer of the receipt of the dis15 closure required under this subsection with re16 spect to such product.

17 ‘‘(2) PROHIBITION ON MISREPRESENTATIONS.—A

18 prohibition on any practice, or any advertising, at

19 any office of, or on behalf of, the insured depository

20 institution, or any subsidiary as appropriate, which

21 could mislead any person or otherwise cause a reason22 able person to reach an erroneous belief with respect

23 to—
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1 ‘‘(A) the uninsured nature of any insurance

2 product sold, or offered for sale, by the institu3 tion or any subsidiary of the institution;

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

5 other insurance product that involves an invest6 ment risk, the investment risk associated with

7 any such product; or

8 ‘‘(C) in the case of an institution or sub9 sidiary at which insurance products are sold or

10 offered for sale, the fact that—

11 ‘‘(i) the approval of an extension of

12 credit to a customer by the institution or

13 subsidiary may not be conditioned on the

14 purchase of an insurance product by such

15 customer from the institution or subsidiary;

16 and

17 ‘‘(ii) the customer is free to purchase

18 the insurance product from another

19 source.’’.

20 ‘‘(d) SEPARATION OF BANKING AND NONBANKING AC21 TIVITIES.—

22 ‘‘(1) REGULATIONS REQUIRED.—The regulations

23 prescribed pursuant to subsection (a) shall include

24 such provisions as the Federal banking agencies con25 sider appropriate to ensure that the routine accept-
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1 ance of deposits is kept, to the extent practicable,

2 physically segregated from insurance product activity.

3 ‘‘(2) REQUIREMENTS.—Regulations prescribed

4 pursuant to paragraph (1) shall include the following:

5 ‘‘(A) SEPARATE SETTING.—A clear delinea6 tion of the setting in which, and the cir7 cumstances under which, transactions involving

8 insurance products should be conducted in a lo9 cation physically segregated from an area where

10 retail deposits are routinely accepted.

11 ‘‘(B) REFERRALS.—Standards which per12 mit any person accepting deposits from the pub13 lic in an area where such transactions are rou14 tinely conducted in an insured depository insti15 tution to refer a customer who seeks to purchase

16 any insurance product to a qualified person who

17 sells such product, only if the person making the

18 referral receives no more than a one-time nomi19 nal fee of a fixed dollar amount for each referral

20 that does not depend on whether the referral re21 sults in a transaction.

22 ‘‘(C) QUALIFICATION AND LICENSING RE23 QUIREMENTS.—Standards prohibiting any in24 sured depository institution from permitting any

25 person to sell or offer for sale any insurance
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1 product in any part of any office of the institu2 tion, or on behalf of the institution, unless such

3 person is appropriately qualified and licensed.

4 ‘‘(e) DOMESTIC VIOLENCE DISCRIMINATION PROHIBI5 TION.—

6 ‘‘(1) IN GENERAL.—In the case of an applicant

7 for, or an insured under, any insurance product de8 scribed in paragraph (2), the status of the applicant

9 or insured as a victim of domestic violence, or as a

10 provider of services to victims of domestic violence,

11 shall not be considered as a criterion in any decision

12 with regard to insurance underwriting, pricing, re13 newal, or scope of coverage of insurance policies, or

14 payment of insurance claims, except as required or

15 expressly permitted under State law.

16 ‘‘(2) SCOPE OF APPLICATION.—The prohibition

17 contained in paragraph (1) shall apply to any insur18 ance product which is sold or offered for sale, as prin19 cipal, agent, or broker, by any insured depository in20 stitution or wholesale financial institution or any

21 person who is engaged in such activities at an office

22 of the institution or on behalf of the institution.

23 ‘‘(3) SENSE OF THE CONGRESS.—It is the sense

24 of the Congress that, by the end of the 30-month pe25 riod beginning on the date of the enactment of this
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1 Act, the States should enact prohibitions against dis2 crimination with respect to insurance products that

3 are at least as strict as the prohibitions contained in

4 paragraph (1).

5 ‘‘(4) DOMESTIC VIOLENCE DEFINED.—For pur6 poses of this subsection, the term ‘domestic violence’

7 means the occurrence of one or more of the following

8 acts by a current or former family member, household

9 member, intimate partner, or caretaker:

10 ‘‘(A) Attempting to cause or causing or

11 threatening another person physical harm, severe

12 emotional distress, psychological trauma, rape,

13 or sexual assault.

14 ‘‘(B) Engaging in a course of conduct or re15 peatedly committing acts toward another person,

16 including following the person without proper

17 authority, under circumstances that place the

18 person in reasonable fear of bodily injury or

19 physical harm.

20 ‘‘(C) Subjecting another person to false im21 prisonment.

22 ‘‘(D) Attempting to cause or cause damage

23 to property so as to intimidate or attempt to

24 control the behavior of another person.
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1 ‘‘(f) CONSUMER GRIEVANCE PROCESS.—The Federal

2 banking agencies shall jointly establish a consumer com3 plaint mechanism, for receiving and expeditiously address4 ing consumer complaints alleging a violation of regulations

5 issued under the section, which shall—

6 ‘‘(1) establish a group within each regulatory

7 agency to receive such complaints;

8 ‘‘(2) develop procedures for investigating such

9 complaints;

10 ‘‘(3) develop procedures for informing consumers

11 of rights they may have in connection with such com12 plaints; and

13 ‘‘(4) develop procedures for addressing concerns

14 raised by such complaints, as appropriate, including

15 procedures for the recovery of losses to the extent ap16 propriate.

17 ‘‘(g) EFFECT ON OTHER AUTHORITY.—

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

19 shall be construed as granting, limiting, or otherwise

20 affecting—

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

22 Exchange Commission, any self-regulatory orga23 nization, the Municipal Securities Rulemaking

24 Board, or the Secretary of the Treasury under

25 any Federal securities law; or
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1 ‘‘(B) except as provided in paragraph (2),

2 any authority of any State insurance commis3 sioner or other State authority under any State

4 law.

5 ‘‘(2) COORDINATION WITH STATE LAW.—

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

7 subparagraph (B), regulations prescribed by a

8 Federal banking agency under this section shall

9 not apply to retail sales, solicitations, adver10 tising, or offers of any insurance product by any

11 insured depository institution or wholesale fi12 nancial institution or to any person who is en13 gaged in such activities at an office of such insti14 tution or on behalf of the institution, in a State

15 where the State has in effect statutes, regulations,

16 orders, or interpretations, that are inconsistent

17 with or contrary to the regulations prescribed by

18 the Federal banking agencies.

19 ‘‘(B) PREEMPTION.—If, with respect to any

20 provision of the regulations prescribed under this

21 section, the Board of Governors of the Federal

22 Reserve System, the Comptroller of the Currency,

23 and the Board of Directors of the Federal De24 posit Insurance Corporation determine jointly

25 that the protection afforded by such provision for
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1 consumers is greater than the protection pro2 vided by a comparable provision of the statutes,

3 regulations, orders, or interpretations referred to

4 in subparagraph (A) of any State, such provi5 sion of the regulations prescribed under this sec6 tion shall supersede the comparable provision of

7 such State statute, regulation, order, or interpre8 tation.

9 ‘‘(h) INSURANCE PRODUCT DEFINED.—For purposes

10 of this section, the term ‘insurance product’ includes an an11 nuity contract the income of which is subject to tax treat12 ment under section 72 of the Internal Revenue Code of

13 1986.’’.

14 SEC. 308. CERTAIN STATE AFFILIATION LAWS PREEMPTED

15 FOR INSURANCE COMPANIES AND AFFILI16 ATES.

17 Except as provided in section 104(a)(2), no State may,

18 by law, regulation, order, interpretation, or otherwise—

19 (1) prevent or significantly interfere with the

20 ability of any insurer, or any affiliate of an insurer

21 (whether such affiliate is organized as a stock com22 pany, mutual holding company, or otherwise), to be23 come a financial holding company or to acquire con24 trol of an insured depository institution;
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1 (2) limit the amount of an insurer’s assets that

2 may be invested in the voting securities of an insured

3 depository institution (or any company which con4 trols such institution), except that the laws of an in5 surer’s State of domicile may limit the amount of

6 such investment to an amount that is not less than

7 5 percent of the insurer’s admitted assets; or

8 (3) prevent, significantly interfere with, or have

9 the authority to review, approve, or disapprove a

10 plan of reorganization by which an insurer proposes

11 to reorganize from mutual form to become a stock in12 surer (whether as a direct or indirect subsidiary of a

13 mutual holding company or otherwise) unless such

14 State is the State of domicile of the insurer.

15 SEC. 309. INTERAGENCY CONSULTATION.

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

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

18 the umbrella supervisor for financial holding companies,

19 and the State insurance regulators, as the functional regu20 lators of companies engaged in insurance activities, coordi21 nate efforts to supervise companies that control both a de22 pository institution and a company engaged in insurance

23 activities regulated under State law. In particular, Con24 gress believes that the Board and the State insurance regu25 lators should share, on a confidential basis, information rel-
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1 evant to the supervision of companies that control both a

2 depository institution and a company engaged in insurance

3 activities, including information regarding the financial

4 health of the consolidated organization and information re5 garding transactions and relationships between insurance

6 companies and affiliated depository institutions. The ap7 propriate Federal banking agencies for depository institu8 tions should also share, on a confidential basis, information

9 with the relevant State insurance regulators regarding

10 transactions and relationships between depository institu11 tions and affiliated companies engaged in insurance activi12 ties. The purpose of this section is to encourage this coordi13 nation and confidential sharing of information, and to

14 thereby improve both the efficiency and the quality of the

15 supervision of financial holding companies and their affili16 ated depository institutions and companies engaged in in17 surance activities.

18 (b) EXAMINATION RESULTS AND OTHER INFORMA19 TION.—

20 (1) INFORMATION OF THE BOARD.—Upon the re21 quest of the appropriate insurance regulator of any

22 State, the Board may provide any information of the

23 Board regarding the financial condition, risk man24 agement policies, and operations of any financial

25 holding company that controls a company that is en-
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1 gaged in insurance activities and is regulated by such

2 State insurance regulator, and regarding any trans3 action or relationship between such an insurance

4 company and any affiliated depository institution.

5 The Board may provide any other information to the

6 appropriate State insurance regulator that the Board

7 believes is necessary or appropriate to permit the

8 State insurance regulator to administer and enforce

9 applicable State insurance laws.

10 (2) BANKING AGENCY INFORMATION.—Upon the

11 request of the appropriate insurance regulator of any

12 State, the appropriate Federal banking agency may

13 provide any information of the agency regarding any

14 transaction or relationship between a depository in15 stitution supervised by such Federal banking agency

16 and any affiliated company that is engaged in insur17 ance activities regulated by such State insurance reg18 ulator. The appropriate Federal banking agency may

19 provide any other information to the appropriate

20 State insurance regulator that the agency believes is

21 necessary or appropriate to permit the State insur22 ance regulator to administer and enforce applicable

23 State insurance laws.

24 (3) STATE INSURANCE REGULATOR INFORMA25 TION.—Upon the request of the Board or the appro-
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1 priate Federal banking agency, a State insurance reg2 ulator may provide any examination or other reports,

3 records, or other information to which such insurance

4 regulator may have access with respect to a company

5 which—

6 (A) is engaged in insurance activities and

7 regulated by such insurance regulator; and

8 (B) is an affiliate of an insured depository

9 institution, wholesale financial institution, or fi10 nancial holding company.

11 (c) CONSULTATION.—Before making any determina12 tion relating to the initial affiliation of, or the continuing

13 affiliation of, an insured depository institution, wholesale

14 financial institution, or financial holding company with

15 a company engaged in insurance activities, the appropriate

16 Federal banking agency shall consult with the appropriate

17 State insurance regulator of such company and take the

18 views of such insurance regulator into account in making

19 such determination.

20 (d) EFFECT ON OTHER AUTHORITY.—Nothing in this

21 section shall limit in any respect the authority of the appro22 priate Federal banking agency with respect to an insured

23 depository institution, wholesale financial institution, or

24 bank holding company or any affiliate thereof under any

25 provision of law.
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1 (e) CONFIDENTIALITY AND PRIVILEGE.—

2 (1) CONFIDENTIALITY.—The appropriate Federal

3 banking agency shall not provide any information or

4 material that is entitled to confidential treatment

5 under applicable Federal banking agency regulations,

6 or other applicable law, to a State insurance regu7 lator unless such regulator agrees to maintain the in8 formation or material in confidence and to take all

9 reasonable steps to oppose any effort to secure disclo10 sure of the information or material by the regulator.

11 The appropriate Federal banking agency shall treat

12 as confidential any information or material obtained

13 from a State insurance regulator that is entitled to

14 confidential treatment under applicable State regula15 tions, or other applicable law, and take all reasonable

16 steps to oppose any effort to secure disclosure of the

17 information or material by the Federal banking agen18 cy.

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

20 section of information or material by a Federal bank21 ing agency or State insurance regulator shall not con22 stitute a waiver of, or otherwise affect, any privilege

23 to which the information or material is otherwise sub24 ject.
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1 (f) DEFINITIONS.—For purposes of this section, the fol2 lowing definitions shall apply:

3 (1) APPROPRIATE FEDERAL BANKING AGENCY;

4 INSURED DEPOSITORY INSTITUTION.—The terms ‘‘ap5 propriate Federal banking agency’’ and ‘‘insured de6 pository institution’’ have the same meanings as in

7 section 3 of the Federal Deposit Insurance Act.

8 (2) BOARD; FINANCIAL HOLDING COMPANY; AND

9 WHOLESALE FINANCIAL INSTITUTION.—The terms

10 ‘‘Board’’, ‘‘financial holding company’’, and ‘‘whole11 sale financial institution’’ have the same meanings as

12 in section 2 of the Bank Holding Company Act of

13 1956.

14 SEC. 310. DEFINITION OF STATE.

15 For purposes of this subtitle, the term ‘‘State’’ means

16 any State of the United States, the District of Columbia,

17 any territory of the United States, Puerto Rico, Guam,

18 American Samoa, the Trust Territory of the Pacific Is19 lands, the Virgin Islands, and the Northern Mariana Is20 lands.

21 Subtitle B—Redomestication of

22 Mutual Insurers

23 SEC. 311. GENERAL APPLICATION.

24 This subtitle shall only apply to a mutual insurance

25 company in a State which has not enacted a law which
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1 expressly establishes reasonable terms and conditions for a

2 mutual insurance company domiciled in such State to reor3 ganize into a mutual holding company.

4 SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

5 (a) REDOMESTICATION.—A mutual insurer organized

6 under the laws of any State may transfer its domicile to

7 a transferee domicile as a step in a reorganization in

8 which, pursuant to the laws of the transferee domicile and

9 consistent with the standards in subsection (f), the mutual

10 insurer becomes a stock insurer that is a direct or indirect

11 subsidiary of a mutual holding company.

12 (b) RESULTING DOMICILE.—Upon complying with the

13 applicable law of the transferee domicile governing transfers

14 of domicile and completion of a transfer pursuant to this

15 section, the mutual insurer shall cease to be a domestic in16 surer in the transferor domicile and, as a continuation of

17 its corporate existence, shall be a domestic insurer of the

18 transferee domicile.

19 (c) LICENSES PRESERVED.—The certificate of author20 ity, agents’ appointments and licenses, rates, approvals and

21 other items that a licensed State allows and that are in

22 existence immediately prior to the date that a redomes23 ticating insurer transfers its domicile pursuant to this sub24 title shall continue in full force and effect upon transfer,
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•S 900 EAH

1 if the insurer remains duly qualified to transact the busi2 ness of insurance in such licensed State.

3 (d) EFFECTIVENESS OF OUTSTANDING POLICIES AND

4 CONTRACTS.—

5 (1) IN GENERAL.—All outstanding insurance

6 policies and annuities contracts of a redomesticating

7 insurer shall remain in full force and effect and need

8 not be endorsed as to the new domicile of the insurer,

9 unless so ordered by the State insurance regulator of

10 a licensed State, and then only in the case of out11 standing policies and contracts whose owners reside

12 in such licensed State.

13 (2) FORMS.—

14 (A) Applicable State law may require a re15 domesticating insurer to file new policy forms

16 with the State insurance regulator of a licensed

17 State on or before the effective date of the trans18 fer.

19 (B) Notwithstanding subparagraph (A), a

20 redomesticating insurer may use existing policy

21 forms with appropriate endorsements to reflect

22 the new domicile of the redomesticating insurer

23 until the new policy forms are approved for use

24 by the State insurance regulator of such licensed

25 State.
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•S 900 EAH

1 (e) NOTICE.—A redomesticating insurer shall give no2 tice of the proposed transfer to the State insurance regulator

3 of each licensed State and shall file promptly any resulting

4 amendments to corporate documents required to be filed by

5 a foreign licensed mutual insurer with the insurance regu6 lator of each such licensed State.

7 (f) PROCEDURAL REQUIREMENTS.—No mutual in8 surer may redomesticate to another State and reorganize

9 into a mutual holding company pursuant to this section

10 unless the State insurance regulator of the transferee domi11 cile determines that the plan of reorganization of the in12 surer includes the following requirements:

13 (1) APPROVAL BY BOARD OF DIRECTORS AND

14 POLICYHOLDERS.—The reorganization is approved by

15 at least a majority of the board of directors of the mu16 tual insurer and at least a majority of the policy17 holders who vote after notice, disclosure of the reorga18 nization and the effects of the transaction on policy19 holder contractual rights, and reasonable opportunity

20 to vote, in accordance with such notice, disclosure,

21 and voting procedures as are approved by the State

22 insurance regulator of the transferee domicile.

23 (2) CONTINUED VOTING CONTROL BY POLICY24 HOLDERS; REVIEW OF PUBLIC STOCK OFFERING.—

25 After the consummation of a reorganization, the pol-
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•S 900 EAH

1 icyholders of the reorganized insurer shall have the

2 same voting rights with respect to the mutual holding

3 company as they had before the reorganization with

4 respect to the mutual insurer. With respect to an ini5 tial public offering of stock, the offering shall be con6 ducted in compliance with applicable securities laws

7 and in a manner approved by the State insurance

8 regulator of the transferee domicile.

9 (3) AWARD OF STOCK OR GRANT OF OPTIONS TO

10 OFFICERS AND DIRECTORS.—For a period of 6

11 months after completion of an initial public offering,

12 neither a stock holding company nor the converted in13 surer shall award any stock options or stock grants

14 to persons who are elected officers or directors of the

15 mutual holding company, the stock holding company,

16 or the converted insurer, except with respect to any

17 such awards or options to which a person is entitled

18 as a policyholder and as approved by the State insur19 ance regulator of the transferee domicile.

20 (4) CONTRACTUAL RIGHTS.—Upon reorganiza21 tion into a mutual holding company, the contractual

22 rights of the policyholders are preserved.

23 (5) FAIR AND EQUITABLE TREATMENT OF POL24 ICYHOLDERS.—The reorganization is approved as fair
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1 and equitable to the policyholders by the insurance

2 regulator of the transferee domicile.

3 SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMES4 TICATION.

5 (a) IN GENERAL.—Unless otherwise permitted by this

6 subtitle, State laws of any transferor domicile that conflict

7 with the purposes and intent of this subtitle are preempted,

8 including but not limited to—

9 (1) any law that has the purpose or effect of im10 peding the activities of, taking any action against, or

11 applying any provision of law or regulation to, any

12 insurer or an affiliate of such insurer because that in13 surer or any affiliate plans to redomesticate, or has

14 redomesticated, pursuant to this subtitle;

15 (2) any law that has the purpose or effect of im16 peding the activities of, taking action against, or ap17 plying any provision of law or regulation to, any in18 sured or any insurance licensee or other intermediary

19 because such person has procured insurance from or

20 placed insurance with any insurer or affiliate of such

21 insurer that plans to redomesticate, or has redomes22 ticated, pursuant to this subtitle, but only to the ex23 tent that such law would treat such insured licensee

24 or other intermediary differently than if the person

25 procured insurance from, or placed insurance with,
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•S 900 EAH

1 an insured licensee or other intermediary which had

2 not redomesticated;

3 (3) any law that has the purpose or effect of ter4 minating, because of the redomestication of a mutual

5 insurer pursuant to this subtitle, any certificate of

6 authority, agent appointment or license, rate ap7 proval, or other approval, of any State insurance reg8 ulator or other State authority in existence imme9 diately prior to the redomestication in any State

10 other than the transferee domicile.

11 (b) DIFFERENTIAL TREATMENT PROHIBITED.—No

12 State law, regulation, interpretation, or functional equiva13 lent thereof, of a State other than a transferee domicile may

14 treat a redomesticating or redomesticated insurer or any

15 affiliate thereof any differently than an insurer operating

16 in that State that is not a redomesticating or redomes17 ticated insurer.

18 (c) LAWS PROHIBITING OPERATIONS.—If any licensed

19 State fails to issue, delays the issuance of, or seeks to revoke

20 an original or renewal certificate of authority of a redomes21 ticated insurer immediately following redomestication, ex22 cept on grounds and in a manner consistent with its past

23 practices regarding the issuance of certificates of authority

24 to foreign insurers that are not redomesticating, then the

25 redomesticating insurer shall be exempt from any State law
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•S 900 EAH

1 of the licensed State to the extent that such State law or

2 the operation of such State law would make unlawful, or

3 regulate, directly or indirectly, the operation of the redomes4 ticated insurer, except that such licensed State may require

5 the redomesticated insurer to—

6 (1) comply with the unfair claim settlement

7 practices law of the licensed State;

8 (2) pay, on a nondiscriminatory basis, applica9 ble premium and other taxes which are levied on li10 censed insurers or policyholders under the laws of the

11 licensed State;

12 (3) register with and designate the State insur13 ance regulator as its agent solely for the purpose of

14 receiving service of legal documents or process;

15 (4) submit to an examination by the State insur16 ance regulator in any licensed state in which the re17 domesticated insurer is doing business to determine

18 the insurer’s financial condition, if—

19 (A) the State insurance regulator of the

20 transferee domicile has not begun an examina21 tion of the redomesticated insurer and has not

22 scheduled such an examination to begin before

23 the end of the 1-year period beginning on the

24 date of the redomestication; and
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•S 900 EAH

1 (B) any such examination is coordinated to

2 avoid unjustified duplication and repetition;

3 (5) comply with a lawful order issued in—

4 (A) a delinquency proceeding commenced by

5 the State insurance regulator of any licensed

6 State if there has been a judicial finding of fi7 nancial impairment under paragraph (7); or

8 (B) a voluntary dissolution proceeding;

9 (6) comply with any State law regarding decep10 tive, false, or fraudulent acts or practices, except that

11 if the licensed State seeks an injunction regarding the

12 conduct described in this paragraph, such injunction

13 must be obtained from a court of competent jurisdic14 tion as provided in section 314(a);

15 (7) comply with an injunction issued by a court

16 of competent jurisdiction, upon a petition by the

17 State insurance regulator alleging that the redomes18 ticating insurer is in hazardous financial condition

19 or is financially impaired;

20 (8) participate in any insurance insolvency

21 guaranty association on the same basis as any other

22 insurer licensed in the licensed State; and

23 (9) require a person acting, or offering to act, as

24 an insurance licensee for a redomesticated insurer in

25 the licensed State to obtain a license from that State,
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•S 900 EAH

1 except that such State may not impose any qualifica2 tion or requirement that discriminates against a non3 resident insurance licensee.

4 SEC. 314. OTHER PROVISIONS.

5 (a) JUDICIAL REVIEW.—The appropriate United

6 States district court shall have exclusive jurisdiction over

7 litigation arising under this section involving any redomes8 ticating or redomesticated insurer.

9 (b) SEVERABILITY.—If any provision of this section,

10 or the application thereof to any person or circumstances,

11 is held invalid, the remainder of the section, and the appli12 cation of such provision to other persons or circumstances,

13 shall not be affected thereby.

14 SEC. 315. DEFINITIONS.

15 For purposes of this subtitle, the following definitions

16 shall apply:

17 (1) COURT OF COMPETENT JURISDICTION.—The

18 term ‘‘court of competent jurisdiction’’ means a court

19 authorized pursuant to section 314(a) to adjudicate

20 litigation arising under this subtitle.

21 (2) DOMICILE.—The term ‘‘domicile’’ means the

22 State in which an insurer is incorporated, chartered,

23 or organized.

24 (3) INSURANCE LICENSEE.—The term ‘‘insurance

25 licensee’’ means any person holding a license under
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•S 900 EAH

1 State law to act as insurance agent, subagent, broker,

2 or consultant.

3 (4) INSTITUTION.—The term ‘‘institution’’ means

4 a corporation, joint stock company, limited liability

5 company, limited liability partnership, association,

6 trust, partnership, or any similar entity.

7 (5) LICENSED STATE.—The term ‘‘licensed

8 State’’ means any State, the District of Columbia,

9 American Samoa, Guam, Puerto Rico, or the United

10 States Virgin Islands in which the redomesticating

11 insurer has a certificate of authority in effect imme12 diately prior to the redomestication.

13 (6) MUTUAL INSURER.—The term ‘‘mutual in14 surer’’ means a mutual insurer organized under the

15 laws of any State.

16 (7) PERSON.—The term ‘‘person’’ means an in17 dividual, institution, government or governmental

18 agency, State or political subdivision of a State, pub19 lic corporation, board, association, estate, trustee, or

20 fiduciary, or other similar entity.

21 (8) POLICYHOLDER.—The term ‘‘policyholder’’

22 means the owner of a policy issued by a mutual in23 surer, except that, with respect to voting rights, the

24 term means a member of a mutual insurer or mutual
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•S 900 EAH

1 holding company granted the right to vote, as deter2 mined under applicable State law.

3 (9) REDOMESTICATED INSURER.—The term ‘‘re4 domesticated insurer’’ means a mutual insurer that

5 has redomesticated pursuant to this subtitle.

6 (10) REDOMESTICATING INSURER.—The term

7 ‘‘redomesticating insurer’’ means a mutual insurer

8 that is redomesticating pursuant to this subtitle.

9 (11) REDOMESTICATION OR TRANSFER.—The

10 terms ‘‘redomestication’’ and ‘‘transfer’’ mean the

11 transfer of the domicile of a mutual insurer from one

12 State to another State pursuant to this subtitle.

13 (12) STATE INSURANCE REGULATOR.—The term

14 ‘‘State insurance regulator’’ means the principal in15 surance regulatory authority of a State, the District

16 of Columbia, American Samoa, Guam, Puerto Rico,

17 or the United States Virgin Islands.

18 (13) STATE LAW.—The term ‘‘State law’’ means

19 the statutes of any State, the District of Columbia,

20 American Samoa, Guam, Puerto Rico, or the United

21 States Virgin Islands and any regulation, order, or

22 requirement prescribed pursuant to any such statute.

23 (14) TRANSFEREE DOMICILE.—The term ‘‘trans24 feree domicile’’ means the State to which a mutual

25 insurer is redomesticating pursuant to this subtitle.
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•S 900 EAH

1 (15) TRANSFEROR DOMICILE.—The term ‘‘trans2 feror domicile’’ means the State from which a mutual

3 insurer is redomesticating pursuant to this subtitle.

4 SEC. 316. EFFECTIVE DATE.

5 This subtitle shall take effect on the date of the enact6 ment of this Act.

7 Subtitle C—National Association of

8 Registered Agents and Brokers

9 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING

10 REFORMS.

11 (a) IN GENERAL.—The provisions of this subtitle shall

12 take effect unless, not later than 3 years after the date of

13 the enactment of this Act, at least a majority of the States—

14 (1) have enacted uniform laws and regulations

15 governing the licensure of individuals and entities au16 thorized to sell and solicit the purchase of insurance

17 within the State; or

18 (2) have enacted reciprocity laws and regula19 tions governing the licensure of nonresident individ20 uals and entities authorized to sell and solicit insur21 ance within those States.

22 (b) UNIFORMITY REQUIRED.—States shall be deemed

23 to have established the uniformity necessary to satisfy sub24 section (a)(1) if the States—
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1 (1) establish uniform criteria regarding the in2 tegrity, personal qualifications, education, training,

3 and experience of licensed insurance producers, in4 cluding the qualification and training of sales per5 sonnel in ascertaining the appropriateness of a par6 ticular insurance product for a prospective customer;

7 (2) establish uniform continuing education re8 quirements for licensed insurance producers;

9 (3) establish uniform ethics course requirements

10 for licensed insurance producers in conjunction with

11 the continuing education requirements under para12 graph (2);

13 (4) establish uniform criteria to ensure that an

14 insurance product, including any annuity contract,

15 sold to a consumer is suitable and appropriate for the

16 consumer based on financial information disclosed by

17 the consumer; and

18 (5) do not impose any requirement upon any in19 surance producer to be licensed or otherwise qualified

20 to do business as a nonresident that has the effect of

21 limiting or conditioning that producer’s activities be22 cause of its residence or place of operations, except

23 that counter-signature requirements imposed on non24 resident producers shall not be deemed to have the ef25 fect of limiting or conditioning a producer’s activities
350

•S 900 EAH

1 because of its residence or place of operations under

2 this section.

3 (c) RECIPROCITY REQUIRED.—States shall be deemed

4 to have established the reciprocity required to satisfy sub5 section (a)(2) if the following conditions are met:

6 (1) ADMINISTRATIVE LICENSING PROCEDURES.—

7 At least a majority of the States permit a producer

8 that has a resident license for selling or soliciting the

9 purchase of insurance in its home State to receive a

10 license to sell or solicit the purchase of insurance in

11 such majority of States as a nonresident to the same

12 extent that such producer is permitted to sell or solicit

13 the purchase of insurance in its State, if the pro14 ducer’s home State also awards such licenses on such

15 a reciprocal basis, without satisfying any additional

16 requirements other than submitting—

17 (A) a request for licensure;

18 (B) the application for licensure that the

19 producer submitted to its home State;

20 (C) proof that the producer is licensed and

21 in good standing in its home State; and

22 (D) the payment of any requisite fee to the

23 appropriate authority.

24 (2) CONTINUING EDUCATION REQUIREMENTS.—A

25 majority of the States accept an insurance producer’s
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•S 900 EAH

1 satisfaction of its home State’s continuing education

2 requirements for licensed insurance producers to sat3 isfy the States’ own continuing education require4 ments if the producer’s home State also recognizes the

5 satisfaction of continuing education requirements on

6 such a reciprocal basis.

7 (3) NO LIMITING NONRESIDENT REQUIRE8 MENTS.—A majority of the States do not impose any

9 requirement upon any insurance producer to be li10 censed or otherwise qualified to do business as a non11 resident that has the effect of limiting or conditioning

12 that producer’s activities because of its residence or

13 place of operations, except that countersignature re14 quirements imposed on nonresident producers shall

15 not be deemed to have the effect of limiting or condi16 tioning a producer’s activities because of its residence

17 or place of operations under this section.

18 (4) RECIPROCAL RECIPROCITY.—Each of the

19 States that satisfies paragraphs (1), (2), and (3)

20 grants reciprocity to residents of all of the other

21 States that satisfy such paragraphs.

22 (d) DETERMINATION.—

23 (1) NAIC DETERMINATION.—At the end of the 3-

24 year period beginning on the date of the enactment of

25 this Act, the National Association of Insurance Com-
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•S 900 EAH

1 missioners shall determine, in consultation with the

2 insurance commissioners or chief insurance regu3 latory officials of the States, whether the uniformity

4 or reciprocity required by subsections (b) and (c) has

5 been achieved.

6 (2) JUDICIAL REVIEW.—The appropriate United

7 States district court shall have exclusive jurisdiction

8 over any challenge to the National Association of In9 surance Commissioners’ determination under this sec10 tion and such court shall apply the standards set

11 forth in section 706 of title 5, United States Code,

12 when reviewing any such challenge.

13 (e) CONTINUED APPLICATION.—If, at any time, the

14 uniformity or reciprocity required by subsections (b) and

15 (c) no longer exists, the provisions of this subtitle shall take

16 effect 2 years after the date on which such uniformity or

17 reciprocity ceases to exist, unless the uniformity or reci18 procity required by those provisions is satisfied before the

19 expiration of that 2-year period.

20 (f) SAVINGS PROVISION.—No provision of this section

21 shall be construed as requiring that any law, regulation,

22 provision, or action of any State which purports to regulate

23 insurance producers, including any such law, regulation,

24 provision, or action which purports to regulate unfair trade

25 practices or establish consumer protections, including
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•S 900 EAH

1 countersignature laws, be altered or amended in order to

2 satisfy the uniformity or reciprocity required by subsections

3 (b) and (c), unless any such law, regulation, provision, or

4 action is inconsistent with a specific requirement of any

5 such subsection and then only to the extent of such incon6 sistency.

7 (g) UNIFORM LICENSING.—Nothing in this section

8 shall be construed to require any State to adopt new or ad9 ditional licensing requirements to achieve the uniformity

10 necessary to satisfy subsection (a)(1).

11 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED AGENTS

12 AND BROKERS.

13 (a) ESTABLISHMENT.—There is established the Na14 tional Association of Registered Agents and Brokers (here15 after in this subtitle referred to as the ‘‘Association’’).

16 (b) STATUS.—The Association shall—

17 (1) be a nonprofit corporation;

18 (2) have succession until dissolved by an Act of

19 Congress;

20 (3) not be an agent or instrumentality of the

21 United States Government; and

22 (4) except as otherwise provided in this Act, be

23 subject to, and have all the powers conferred upon a

24 nonprofit corporation by the District of Columbia
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•S 900 EAH

1 Nonprofit Corporation Act (D.C. Code, sec. 29y–1001

2 et seq.).

3 SEC. 323. PURPOSE.

4 The purpose of the Association shall be to provide a

5 mechanism through which uniform licensing, appointment,

6 continuing education, and other insurance producer sales

7 qualification requirements and conditions can be adopted

8 and applied on a multistate basis, while preserving the

9 right of States to license, supervise, and discipline insur10 ance producers and to prescribe and enforce laws and regu11 lations with regard to insurance-related consumer protec12 tion and unfair trade practices.

13 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

14 The Association shall be subject to the supervision and

15 oversight of the National Association of Insurance Commis16 sioners (hereafter in this subtitle referred to as the ‘‘NAIC’’).

17 SEC. 325. MEMBERSHIP.

18 (a) ELIGIBILITY.—

19 (1) IN GENERAL.—Any State-licensed insurance

20 producer shall be eligible to become a member in the

21 Association.

22 (2) INELIGIBILITY FOR SUSPENSION OR REVOCA23 TION OF LICENSE.—Notwithstanding paragraph (1),

24 a State-licensed insurance producer shall not be eligi25 ble to become a member if a State insurance regulator
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1 has suspended or revoked such producer’s license in

2 that State during the 3-year period preceding the date

3 on which such producer applies for membership.

4 (3) RESUMPTION OF ELIGIBILITY.—Paragraph

5 (2) shall cease to apply to any insurance producer

6 if—

7 (A) the State insurance regulator renews the

8 license of such producer in the State in which the

9 license was suspended or revoked; or

10 (B) the suspension or revocation is subse11 quently overturned.

12 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI13 TERIA.—The Association shall have the authority to estab14 lish membership criteria that—

15 (1) bear a reasonable relationship to the pur16 poses for which the Association was established; and

17 (2) do not unfairly limit the access of smaller

18 agencies to the Association membership.

19 (c) ESTABLISHMENT OF CLASSES AND CATEGORIES.—

20 (1) CLASSES OF MEMBERSHIP.—The Association

21 may establish separate classes of membership, with

22 separate criteria, if the Association reasonably deter23 mines that performance of different duties requires

24 different levels of education, training, or experience.
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•S 900 EAH

1 (2) CATEGORIES.—The Association may estab2 lish separate categories of membership for individuals

3 and for other persons. The establishment of any such

4 categories of membership shall be based either on the

5 types of licensing categories that exist under State

6 laws or on the aggregate amount of business handled

7 by an insurance producer. No special categories of

8 membership, and no distinct membership criteria,

9 shall be established for members which are insured de10 pository institutions or wholesale financial institu11 tions or for their employees, agents, or affiliates.

12 (d) MEMBERSHIP CRITERIA.—

13 (1) IN GENERAL.—The Association may establish

14 criteria for membership which shall include standards

15 for integrity, personal qualifications, education,

16 training, and experience.

17 (2) MINIMUM STANDARD.—In establishing cri18 teria under paragraph (1), the Association shall con19 sider the highest levels of insurance producer quali20 fications established under the licensing laws of the

21 States.

22 (e) EFFECT OF MEMBERSHIP.—Membership in the As23 sociation shall entitle the member to licensure in each State

24 for which the member pays the requisite fees, including li-
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•S 900 EAH

1 censing fees and, where applicable, bonding requirements,

2 set by such State.

3 (f) ANNUAL RENEWAL.—Membership in the Associa4 tion shall be renewed on an annual basis.

5 (g) CONTINUING EDUCATION.—The Association shall

6 establish, as a condition of membership, continuing edu7 cation requirements which shall be comparable to or greater

8 than the continuing education requirements under the li9 censing laws of a majority of the States.

10 (h) SUSPENSION AND REVOCATION.—The Association

11 may—

12 (1) inspect and examine the records and offices

13 of the members of the Association to determine com14 pliance with the criteria for membership established

15 by the Association; and

16 (2) suspend or revoke the membership of an in17 surance producer if—

18 (A) the producer fails to meet the applicable

19 membership criteria of the Association; or

20 (B) the producer has been subject to dis21 ciplinary action pursuant to a final adjudica22 tory proceeding under the jurisdiction of a State

23 insurance regulator, and the Association con24 cludes that retention of membership in the Asso25 ciation would not be in the public interest.
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•S 900 EAH

1 (i) OFFICE OF CONSUMER COMPLAINTS.—

2 (1) IN GENERAL.—The Association shall establish

3 an office of consumer complaints that shall—

4 (A) receive and investigate complaints from

5 both consumers and State insurance regulators

6 related to members of the Association; and

7 (B) recommend to the Association any dis8 ciplinary actions that the office considers appro9 priate, to the extent that any such recommenda10 tion is not inconsistent with State law.

11 (2) RECORDS AND REFERRALS.—The office of

12 consumer complaints of the Association shall—

13 (A) maintain records of all complaints re14 ceived in accordance with paragraph (1) and

15 make such records available to the NAIC and to

16 each State insurance regulator for the State of

17 residence of the consumer who filed the com18 plaint; and

19 (B) refer, when appropriate, any such com20 plaint to any appropriate State insurance regu21 lator.

22 (3) TELEPHONE AND OTHER ACCESS.—The office

23 of consumer complaints shall maintain a toll-free tele24 phone number for the purpose of this subsection and,
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•S 900 EAH

1 as practicable, other alternative means of communica2 tion with consumers, such as an Internet home page.

3 SEC. 326. BOARD OF DIRECTORS.

4 (a) ESTABLISHMENT.—There is established the board

5 of directors of the Association (hereafter in this subtitle re6 ferred to as the ‘‘Board’’) for the purpose of governing and

7 supervising the activities of the Association and the mem8 bers of the Association.

9 (b) POWERS.—The Board shall have such powers and

10 authority as may be specified in the bylaws of the Associa11 tion.

12 (c) COMPOSITION.—

13 (1) MEMBERS.—The Board shall be composed of

14 seven members appointed by the NAIC.

15 (2) REQUIREMENT.—At least four of the mem16 bers of the Board shall have significant experience

17 with the regulation of commercial lines of insurance

18 in at least 1 of the 20 States in which the greatest

19 total dollar amount of commercial-lines insurance is

20 placed in the United States.

21 (3) INITIAL BOARD MEMBERSHIP.—

22 (A) IN GENERAL.—If, by the end of the 2-

23 year period beginning on the date of the enact24 ment of this Act, the NAIC has not appointed the

25 initial seven members of the Board of the Asso-
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•S 900 EAH

1 ciation, the initial Board shall consist of the

2 seven State insurance regulators of the seven

3 States with the greatest total dollar amount of

4 commercial-lines insurance in place as of the end

5 of such period.

6 (B) ALTERNATE COMPOSITION.—If any of

7 the State insurance regulators described in sub8 paragraph (A) declines to serve on the Board, the

9 State insurance regulator with the next greatest

10 total dollar amount of commercial-lines insur11 ance in place, as determined by the NAIC as of

12 the end of such period, shall serve as a member

13 of the Board.

14 (C) INOPERABILITY.—If fewer than seven

15 State insurance regulators accept appointment to

16 the Board, the Association shall be established

17 without NAIC oversight pursuant to section 332.

18 (d) TERMS.—The term of each director shall, after the

19 initial appointment of the members of the Board, be for 3

20 years, with one-third of the directors to be appointed each

21 year.

22 (e) BOARD VACANCIES.—A vacancy on the Board shall

23 be filled in the same manner as the original appointment

24 of the initial Board for the remainder of the term of the

25 vacating member.
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1 (f) MEETINGS.—The Board shall meet at the call of

2 the chairperson, or as otherwise provided by the bylaws of

3 the Association.

4 SEC. 327. OFFICERS.

5 (a) IN GENERAL.—

6 (1) POSITIONS.—The officers of the Association

7 shall consist of a chairperson and a vice chairperson

8 of the Board, a president, secretary, and treasurer of

9 the Association, and such other officers and assistant

10 officers as may be deemed necessary.

11 (2) MANNER OF SELECTION.—Each officer of the

12 Board and the Association shall be elected or ap13 pointed at such time and in such manner and for

14 such terms not exceeding 3 years as may be prescribed

15 in the bylaws of the Association.

16 (b) CRITERIA FOR CHAIRPERSON.—Only individuals

17 who are members of the NAIC shall be eligible to serve as

18 the chairperson of the board of directors.

19 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

20 (a) ADOPTION AND AMENDMENT OF BYLAWS.—

21 (1) COPY REQUIRED TO BE FILED WITH THE

22 NAIC.—The board of directors of the Association shall

23 file with the NAIC a copy of the proposed bylaws or

24 any proposed amendment to the bylaws, accompanied
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1 by a concise general statement of the basis and pur2 pose of such proposal.

3 (2) EFFECTIVE DATE.—Except as provided in

4 paragraph (3), any proposed bylaw or proposed

5 amendment shall take effect—

6 (A) thirty days after the date of the filing

7 of a copy with the NAIC;

8 (B) upon such later date as the Association

9 may designate; or

10 (C) upon such earlier date as the NAIC

11 may determine.

12 (3) DISAPPROVAL BY THE NAIC.—Notwith13 standing paragraph (2), a proposed bylaw or amend14 ment shall not take effect if, after public notice and

15 opportunity to participate in a public hearing—

16 (A) the NAIC disapproves such proposal as

17 being contrary to the public interest or contrary

18 to the purposes of this subtitle and provides no19 tice to the Association setting forth the reasons

20 for such disapproval; or

21 (B) the NAIC finds that such proposal in22 volves a matter of such significant public interest

23 that public comment should be obtained, in

24 which case it may, after notifying the Associa25 tion in writing of such finding, require that the
363

•S 900 EAH

1 procedures set forth in subsection (b) be followed

2 with respect to such proposal, in the same man3 ner as if such proposed bylaw change were a pro4 posed rule change within the meaning of such

5 subsection.

6 (b) ADOPTION AND AMENDMENT OF RULES.—

7 (1) FILING PROPOSED REGULATIONS WITH THE

8 NAIC.—

9 (A) IN GENERAL.—The board of directors of

10 the Association shall file with the NAIC a copy

11 of any proposed rule or any proposed amend12 ment to a rule of the Association which shall be

13 accompanied by a concise general statement of

14 the basis and purpose of such proposal.

15 (B) OTHER RULES AND AMENDMENTS INEF16 FECTIVE.—No proposed rule or amendment shall

17 take effect unless approved by the NAIC or other18 wise permitted in accordance with this para19 graph.

20 (2) INITIAL CONSIDERATION BY THE NAIC.—Not

21 later than 35 days after the date of publication of no22 tice of filing of a proposal, or before the end of such

23 longer period not to exceed 90 days as the NAIC may

24 designate after such date, if the NAIC finds such

25 longer period to be appropriate and sets forth its rea-
364

•S 900 EAH

1 sons for so finding, or as to which the Association

2 consents, the NAIC shall—

3 (A) by order approve such proposed rule or

4 amendment; or

5 (B) institute proceedings to determine

6 whether such proposed rule or amendment should

7 be modified or disapproved.

8 (3) NAIC PROCEEDINGS.—

9 (A) IN GENERAL.—Proceedings instituted

10 by the NAIC with respect to a proposed rule or

11 amendment pursuant to paragraph (2) shall—

12 (i) include notice of the grounds for

13 disapproval under consideration;

14 (ii) provide opportunity for hearing;

15 and

16 (iii) be concluded not later than 180

17 days after the date of the Association’s fil18 ing of such proposed rule or amendment.

19 (B) DISPOSITION OF PROPOSAL.—At the

20 conclusion of any proceeding under subpara21 graph (A), the NAIC shall, by order, approve or

22 disapprove the proposed rule or amendment.

23 (C) EXTENSION OF TIME FOR CONSIDER24 ATION.—The NAIC may extend the time for con-
365

•S 900 EAH

1 cluding any proceeding under subparagraph (A)

2 for—

3 (i) not more than 60 days if the NAIC

4 finds good cause for such extension and sets

5 forth its reasons for so finding; or

6 (ii) for such longer period as to which

7 the Association consents.

8 (4) STANDARDS FOR REVIEW.—

9 (A) GROUNDS FOR APPROVAL.—The NAIC

10 shall approve a proposed rule or amendment if

11 the NAIC finds that the rule or amendment is in

12 the public interest and is consistent with the

13 purposes of this Act.

14 (B) APPROVAL BEFORE END OF NOTICE PE15 RIOD.—The NAIC shall not approve any pro16 posed rule before the end of the 30-day period be17 ginning on the date on which the Association

18 files proposed rules or amendments in accord19 ance with paragraph (1), unless the NAIC finds

20 good cause for so doing and sets forth the reasons

21 for so finding.

22 (5) ALTERNATE PROCEDURE.—

23 (A) IN GENERAL.—Notwithstanding any

24 provision of this subsection other than subpara25 graph (B), a proposed rule or amendment relat-
366

•S 900 EAH

1 ing to the administration or organization of the

2 Association shall take effect—

3 (i) upon the date of filing with the

4 NAIC, if such proposed rule or amendment

5 is designated by the Association as relating

6 solely to matters which the NAIC, consistent

7 with the public interest and the purposes of

8 this subsection, determines by rule do not

9 require the procedures set forth in this

10 paragraph; or

11 (ii) upon such date as the NAIC shall

12 for good cause determine.

13 (B) ABROGATION BY THE NAIC.—

14 (i) IN GENERAL.—At any time within

15 60 days after the date of filing of any pro16 posed rule or amendment under subpara17 graph (A)(i) or clause (ii) of this subpara18 graph, the NAIC may repeal such rule or

19 amendment and require that the rule or

20 amendment be refiled and reviewed in ac21 cordance with this paragraph, if the NAIC

22 finds that such action is necessary or ap23 propriate in the public interest, for the pro24 tection of insurance producers or policy-
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•S 900 EAH

1 holders, or otherwise in furtherance of the

2 purposes of this subtitle.

3 (ii) EFFECT OF RECONSIDERATION BY

4 THE NAIC.—Any action of the NAIC pursu5 ant to clause (i) shall—

6 (I) not affect the validity or force

7 of a rule change during the period such

8 rule or amendment was in effect; and

9 (II) not be considered to be a final

10 action.

11 (c) ACTION REQUIRED BY THE NAIC.—The NAIC

12 may, in accordance with such rules as the NAIC determines

13 to be necessary or appropriate to the public interest or to

14 carry out the purposes of this subtitle, require the Associa15 tion to adopt, amend, or repeal any bylaw, rule or amend16 ment of the Association, whenever adopted.

17 (d) DISCIPLINARY ACTION BY THE ASSOCIATION.—

18 (1) SPECIFICATION OF CHARGES.—In any pro19 ceeding to determine whether membership shall be de20 nied, suspended, revoked, or not renewed (hereafter in

21 this section referred to as a ‘‘disciplinary action’’),

22 the Association shall bring specific charges, notify

23 such member of such charges, give the member an op24 portunity to defend against the charges, and keep a

25 record.
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•S 900 EAH

1 (2) SUPPORTING STATEMENT.—A determination

2 to take disciplinary action shall be supported by a

3 statement setting forth—

4 (A) any act or practice in which such mem5 ber has been found to have been engaged;

6 (B) the specific provision of this subtitle,

7 the rules or regulations under this subtitle, or the

8 rules of the Association which any such act or

9 practice is deemed to violate; and

10 (C) the sanction imposed and the reason for

11 such sanction.

12 (e) NAIC REVIEW OF DISCIPLINARY ACTION.—

13 (1) NOTICE TO THE NAIC.—If the Association or14 ders any disciplinary action, the Association shall

15 promptly notify the NAIC of such action.

16 (2) REVIEW BY THE NAIC.—Any disciplinary ac17 tion taken by the Association shall be subject to re18 view by the NAIC—

19 (A) on the NAIC’s own motion; or

20 (B) upon application by any person ag21 grieved by such action if such application is filed

22 with the NAIC not more than 30 days after the

23 later of—

24 (i) the date the notice was filed with

25 the NAIC pursuant to paragraph (1); or
369

•S 900 EAH

1 (ii) the date the notice of the discipli2 nary action was received by such aggrieved

3 person.

4 (f) EFFECT OF REVIEW.—The filing of an application

5 to the NAIC for review of a disciplinary action, or the insti6 tution of review by the NAIC on the NAIC’s own motion,

7 shall not operate as a stay of disciplinary action unless the

8 NAIC otherwise orders.

9 (g) SCOPE OF REVIEW.—

10 (1) IN GENERAL.—In any proceeding to review

11 such action, after notice and the opportunity for hear12 ing, the NAIC shall—

13 (A) determine whether the action should be

14 taken;

15 (B) affirm, modify, or rescind the discipli16 nary sanction; or

17 (C) remand to the Association for further

18 proceedings.

19 (2) DISMISSAL OF REVIEW.—The NAIC may dis20 miss a proceeding to review disciplinary action if the

21 NAIC finds that—

22 (A) the specific grounds on which the action

23 is based exist in fact;

24 (B) the action is in accordance with appli25 cable rules and regulations; and
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•S 900 EAH

1 (C) such rules and regulations are, and

2 were, applied in a manner consistent with the

3 purposes of this subtitle.

4 SEC. 329. ASSESSMENTS.

5 (a) INSURANCE PRODUCERS SUBJECT TO ASSESS6 MENT.—The Association may establish such application

7 and membership fees as the Association finds necessary to

8 cover the costs of its operations, including fees made reim9 bursable to the NAIC under subsection (b), except that, in

10 setting such fees, the Association may not discriminate

11 against smaller insurance producers.

12 (b) NAIC ASSESSMENTS.—The NAIC may assess the

13 Association for any costs that the NAIC incurs under this

14 subtitle.

15 SEC. 330. FUNCTIONS OF THE NAIC.

16 (a) ADMINISTRATIVE PROCEDURE.—Determinations of

17 the NAIC, for purposes of making rules pursuant to section

18 328, shall be made after appropriate notice and oppor19 tunity for a hearing and for submission of views of inter20 ested persons.

21 (b) EXAMINATIONS AND REPORTS.—

22 (1) EXAMINATIONS.—The NAIC may make such

23 examinations and inspections of the Association and

24 require the Association to furnish to the NAIC such

25 reports and records or copies thereof as the NAIC may
371

•S 900 EAH

1 consider necessary or appropriate in the public inter2 est or to effectuate the purposes of this subtitle.

3 (2) REPORT BY ASSOCIATION.—As soon as prac4 ticable after the close of each fiscal year, the Associa5 tion shall submit to the NAIC a written report re6 garding the conduct of its business, and the exercise

7 of the other rights and powers granted by this sub8 title, during such fiscal year. Such report shall in9 clude financial statements setting forth the financial

10 position of the Association at the end of such fiscal

11 year and the results of its operations (including the

12 source and application of its funds) for such fiscal

13 year. The NAIC shall transmit such report to the

14 President and the Congress with such comment there15 on as the NAIC determines to be appropriate.

16 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC17 TORS, OFFICERS, AND EMPLOYEES OF THE

18 ASSOCIATION.

19 (a) IN GENERAL.—The Association shall not be deemed

20 to be an insurer or insurance producer within the meaning

21 of any State law, rule, regulation, or order regulating or

22 taxing insurers, insurance producers, or other entities en23 gaged in the business of insurance, including provisions im24 posing premium taxes, regulating insurer solvency or fi-
372

•S 900 EAH

1 nancial condition, establishing guaranty funds and levying

2 assessments, or requiring claims settlement practices.

3 (b) LIABILITY OF THE ASSOCIATION, ITS DIRECTORS,

4 OFFICERS, AND EMPLOYEES.—Neither the Association nor

5 any of its directors, officers, or employees shall have any

6 liability to any person for any action taken or omitted in

7 good faith under or in connection with any matter subject

8 to this subtitle.

9 SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

10 (a) IN GENERAL.—The Association shall be established

11 without NAIC oversight and the provisions set forth in sec12 tion 324, subsections (a), (b), (c), and (e) of section 328,

13 and sections 329(b) and 330 of this subtitle shall cease to

14 be effective if, at the end of the 2-year period beginning on

15 the date on which the provisions of this subtitle take effect

16 pursuant to section 321—

17 (1) at least a majority of the States representing

18 at least 50 percent of the total United States commer19 cial-lines insurance premiums have not satisfied the

20 uniformity or reciprocity requirements of subsections

21 (a), (b), and (c) of section 321; and

22 (2) the NAIC has not approved the Association’s

23 bylaws as required by section 328 or is unable to op24 erate or supervise the Association, or the Association
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•S 900 EAH

1 is not conducting its activities as required under this

2 Act.

3 (b) BOARD APPOINTMENTS.—If the repeals required by

4 subsection (a) are implemented, the following shall apply:

5 (1) GENERAL APPOINTMENT POWER.—The Presi6 dent, with the advice and consent of the Senate, shall

7 appoint the members of the Association’s Board estab8 lished under section 326 from lists of candidates rec9 ommended to the President by the National Associa10 tion of Insurance Commissioners.

11 (2) PROCEDURES FOR OBTAINING NATIONAL AS12 SOCIATION OF INSURANCE COMMISSIONERS APPOINT13 MENT RECOMMENDATIONS.—

14 (A) INITIAL DETERMINATION AND REC15 OMMENDATIONS.—After the date on which the

16 provisions of subsection (a) take effect, the NAIC

17 shall, not later than 60 days thereafter, provide

18 a list of recommended candidates to the Presi19 dent. If the NAIC fails to provide a list by that

20 date, or if any list that is provided does not in21 clude at least 14 recommended candidates or

22 comply with the requirements of section 326(c),

23 the President shall, with the advice and consent

24 of the Senate, make the requisite appointments

25 without considering the views of the NAIC.
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•S 900 EAH

1 (B) SUBSEQUENT APPOINTMENTS.—After

2 the initial appointments, the NAIC shall provide

3 a list of at least six recommended candidates for

4 the Board to the President by January 15 of

5 each subsequent year. If the NAIC fails to pro6 vide a list by that date, or if any list that is pro7 vided does not include at least six recommended

8 candidates or comply with the requirements of

9 section 326(c), the President, with the advice and

10 consent of the Senate, shall make the requisite

11 appointments without considering the views of

12 the NAIC.

13 (C) PRESIDENTIAL OVERSIGHT.—

14 (i) REMOVAL.—If the President deter15 mines that the Association is not acting in

16 the interests of the public, the President

17 may remove the entire existing Board for

18 the remainder of the term to which the

19 members of the Board were appointed and

20 appoint, with the advice and consent of the

21 Senate, new members to fill the vacancies

22 on the Board for the remainder of such

23 terms.

24 (ii) SUSPENSION OF RULES OR AC25 TIONS.—The President, or a person des-
375

•S 900 EAH

1 ignated by the President for such purpose,

2 may suspend the effectiveness of any rule, or

3 prohibit any action, of the Association

4 which the President or the designee deter5 mines is contrary to the public interest.

6 (c) ANNUAL REPORT.—As soon as practicable after the

7 close of each fiscal year, the Association shall submit to the

8 President and to the Congress a written report relative to

9 the conduct of its business, and the exercise of the other

10 rights and powers granted by this subtitle, during such fis11 cal year. Such report shall include financial statements set12 ting forth the financial position of the Association at the

13 end of such fiscal year and the results of its operations (in14 cluding the source and application of its funds) for such

15 fiscal year.

16 SEC. 333. RELATIONSHIP TO STATE LAW.

17 (a) PREEMPTION OF STATE LAWS.—State laws, regu18 lations, provisions, or other actions purporting to regulate

19 insurance producers shall be preempted as provided in sub20 section (b).

21 (b) PROHIBITED ACTIONS.—No State shall—

22 (1) impede the activities of, take any action

23 against, or apply any provision of law or regulation

24 to, any insurance producer because that insurance
376

•S 900 EAH

1 producer or any affiliate plans to become, has applied

2 to become, or is a member of the Association;

3 (2) impose any requirement upon a member of

4 the Association that it pay different fees to be licensed

5 or otherwise qualified to do business in that State, in6 cluding bonding requirements, based on its residency;

7 (3) impose any licensing, appointment, integ8 rity, personal or corporate qualifications, education,

9 training, experience, residency, or continuing edu10 cation requirement upon a member of the Association

11 that is different from the criteria for membership in

12 the Association or renewal of such membership, except

13 that counter-signature requirements imposed on non14 resident producers shall not be deemed to have the ef15 fect of limiting or conditioning a producer’s activities

16 because of its residence or place of operations under

17 this section; or

18 (4) implement the procedures of such State’s sys19 tem of licensing or renewing the licenses of insurance

20 producers in a manner different from the authority of

21 the Association under section 325.

22 (c) SAVINGS PROVISION.—Except as provided in sub23 sections (a) and (b), no provision of this section shall be

24 construed as altering or affecting the continuing effective25 ness of any law, regulation, provision, or other action of
377

•S 900 EAH

1 any State which purports to regulate insurance producers,

2 including any such law, regulation, provision, or action

3 which purports to regulate unfair trade practices or estab4 lish consumer protections, including countersignature laws.

5 SEC. 334. COORDINATION WITH OTHER REGULATORS.

6 (a) COORDINATION WITH STATE INSURANCE REGU7 LATORS.—The Association shall have the authority to—

8 (1) issue uniform insurance producer applica9 tions and renewal applications that may be used to

10 apply for the issuance or removal of State licenses,

11 while preserving the ability of each State to impose

12 such conditions on the issuance or renewal of a license

13 as are consistent with section 333;

14 (2) establish a central clearinghouse through

15 which members of the Association may apply for the

16 issuance or renewal of licenses in multiple States; and

17 (3) establish or utilize a national database for

18 the collection of regulatory information concerning

19 the activities of insurance producers.

20 (b) COORDINATION WITH THE NATIONAL ASSOCIATION

21 OF SECURITIES DEALERS.—The Association shall coordi22 nate with the National Association of Securities Dealers in

23 order to ease any administrative burdens that fall on per24 sons that are members of both associations, consistent with

25 the purposes of this subtitle and the Federal securities laws.
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•S 900 EAH

1 SEC. 335. JUDICIAL REVIEW.

2 (a) JURISDICTION.—The appropriate United States

3 district court shall have exclusive jurisdiction over litiga4 tion involving the Association, including disputes between

5 the Association and its members that arise under this sub6 title. Suits brought in State court involving the Association

7 shall be deemed to have arisen under Federal law and there8 fore be subject to jurisdiction in the appropriate United

9 States district court.

10 (b) EXHAUSTION OF REMEDIES.—An aggrieved person

11 shall be required to exhaust all available administrative

12 remedies before the Association and the NAIC before it may

13 seek judicial review of an Association decision.

14 (c) STANDARDS OF REVIEW.—The standards set forth

15 in section 553 of title 5, United States Code, shall be ap16 plied whenever a rule or bylaw of the Association is under

17 judicial review, and the standards set forth in section 554

18 of title 5, United States Code, shall be applied whenever

19 a disciplinary action of the Association is judicially re20 viewed.

21 SEC. 336. DEFINITIONS.

22 For purposes of this subtitle, the following definitions

23 shall apply:

24 (1) HOME STATE.—The term ‘‘home State’’

25 means the State in which the insurance producer
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•S 900 EAH

1 maintains its principal place of residence and is li2 censed to act as an insurance producer.

3 (2) INSURANCE.—The term ‘‘insurance’’ means

4 any product, other than title insurance, defined or

5 regulated as insurance by the appropriate State in6 surance regulatory authority.

7 (3) INSURANCE PRODUCER.—The term ‘‘insur8 ance producer’’ means any insurance agent or broker,

9 surplus lines broker, insurance consultant, limited in10 surance representative, and any other person that so11 licits, negotiates, effects, procures, delivers, renews,

12 continues or binds policies of insurance or offers ad13 vice, counsel, opinions or services related to insur14 ance.

15 (4) STATE.—The term ‘‘State’’ includes any

16 State, the District of Columbia, American Samoa,

17 Guam, Puerto Rico, and the United States Virgin Is18 lands.

19 (5) STATE LAW.—The term ‘‘State law’’ includes

20 all laws, decisions, rules, regulations, or other State

21 action having the effect of law, of any State. A law

22 of the United States applicable only to the District of

23 Columbia shall be treated as a State law rather than

24 a law of the United States.
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•S 900 EAH

1 Subtitle D—Rental Car Agency

2 Insurance Activities

3 SEC. 341. STANDARD OF REGULATION FOR MOTOR VEHICLE

4 RENTALS.

5 (a) PROTECTION AGAINST RETROACTIVE APPLICATION

6 OF REGULATORY AND LEGAL ACTION.—Except as provided

7 in subsection (b), during the 3-year period beginning on

8 the date of the enactment of this Act, it shall be a presump9 tion that no State law imposes any licensing, appointment,

10 or education requirements on any person who solicits the

11 purchase of or sells insurance connected with, and inci12 dental to, the lease or rental of a motor vehicle.

13 (b) PREEMINENCE OF STATE INSURANCE LAW.—No

14 provision of this section shall be construed as altering the

15 validity, interpretation, construction, or effect of—

16 (1) any State statute;

17 (2) the prospective application of any court

18 judgment interpreting or applying any State statute;

19 or

20 (3) the prospective application of any final State

21 regulation, order, bulletin, or other statutorily author22 ized interpretation or action,

23 which, by its specific terms, expressly regulates or exempts

24 from regulation any person who solicits the purchase of or
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•S 900 EAH

1 sells insurance connected with, and incidental to, the short2 term lease or rental of a motor vehicle.

3 (c) SCOPE OF APPLICATION.—This section shall apply

4 with respect to—

5 (1) the lease or rental of a motor vehicle for a

6 total period of 90 consecutive days or less; and

7 (2) insurance which is provided in connection

8 with, and incidentally to, such lease or rental for a

9 period of consecutive days not exceeding the lease or

10 rental period.

11 (d) MOTOR VEHICLE DEFINED.—For purposes of this

12 section, the term ‘‘motor vehicle’’ has the meaning given to

13 such term in section 13102 of title 49, United States Code.

14 Subtitle E—Confidentiality

15 SEC. 351. CONFIDENTIALITY OF HEALTH AND MEDICAL IN16 FORMATION.

17 (a) IN GENERAL.—A company which underwrites or

18 sells annuities contracts or contracts insuring, guaran19 teeing, or indemnifying against loss, harm, damage, illness,

20 disability, or death (other than credit-related insurance)

21 and any subsidiary or affiliate thereof shall maintain a

22 practice of protecting the confidentiality of individually

23 identifiable customer health and medical and genetic infor24 mation and may disclose such information only—
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•S 900 EAH

1 (1) with the consent, or at the direction, of the

2 customer;

3 (2) for insurance underwriting and reinsuring

4 policies, account administration, reporting, inves5 tigating, or preventing fraud or material misrepre6 sentation, processing premium payments, processing

7 insurance claims, administering insurance benefits

8 (including utilization review activities), providing in9 formation to the customer’s physician or other health

10 care provider, participating in research projects, ena11 bling the purchase, transfer, merger, or sale of any in12 surance-related business, or as otherwise required or

13 specifically permitted by Federal or State law; or

14 (3) in connection with—

15 (A) the authorization, settlement, billing,

16 processing, clearing, transferring, reconciling, or

17 collection of amounts charged, debited, or other18 wise paid using a debit, credit, or other payment

19 card or account number, or by other payment

20 means;

21 (B) the transfer of receivables, accounts, or

22 interest therein;

23 (C) the audit of the debit, credit, or other

24 payment information;
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•S 900 EAH

1 (D) compliance with Federal, State, or local

2 law;

3 (E) compliance with a properly authorized

4 civil, criminal, or regulatory investigation by

5 Federal, State, or local authorities as governed

6 by the requirements of this section; or

7 (F) fraud protection, risk control, resolving

8 customer disputes or inquiries, communicating

9 with the person to whom the information relates,

10 or reporting to consumer reporting agencies.

11 (b) STATE ACTIONS FOR VIOLATIONS.—In addition to

12 such other remedies as are provided under State law, if the

13 chief law enforcement officer of a State, State insurance reg14 ulator, or an official or agency designated by a State, has

15 reason to believe that any person has violated or is violating

16 this title, the State may bring an action to enjoin such vio17 lation in any appropriate United States district court or

18 in any other court of competent jurisdiction.

19 (c) EFFECTIVE DATE; SUNSET.—

20 (1) EFFECTIVE DATE.—Except as provided in

21 paragraph (2), subsection (a) shall take effect on Feb22 ruary 1, 2000.

23 (2) SUNSET.—Subsection (a) shall not take effect

24 if, or shall cease to be effective on and after the date

25 on which, legislation is enacted that satisfies the re-
384

•S 900 EAH

1 quirements in section 264(c)(1) of the Health Insur2 ance Portability and Accountability Act of 1996

3 (Public Law 104–191; 110 Stat. 2033).

4 (d) CONSULTATION.—While subsection (a) is in effect,

5 State insurance regulatory authorities, through the Na6 tional Association of Insurance Commissioners, shall con7 sult with the Secretary of Health and Human Services in

8 connection with the administration of such subsection.

9 TITLE IV—UNITARY SAVINGS

10 AND LOAN HOLDING COMPANIES

11 SEC. 401. PROHIBITION ON NEW UNITARY SAVINGS AND

12 LOAN HOLDING COMPANIES.

13 (a) IN GENERAL.—Section 10(c) of the Home Owners’

14 Loan Act (12 U.S.C. 1467a(c)) is amended by adding at

15 the end the following new paragraph:

16 ‘‘(9) TERMINATION OF EXPANDED POWERS FOR

17 NEW UNITARY HOLDING COMPANY.—

18 ‘‘(A) IN GENERAL.—Subject to subpara19 graph (B) and notwithstanding paragraph (3),

20 no company may directly or indirectly, includ21 ing through any merger, consolidation, or other

22 type of business combination, acquire control of

23 a savings association after March 4, 1999, unless

24 the company is engaged, directly or indirectly

25 (including through a subsidiary other than a
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•S 900 EAH

1 savings association), only in activities that are

2 permitted—

3 ‘‘(i) under paragraph (1)(C) or (2); or

4 ‘‘(ii) for financial holding companies

5 under section 6(c) of the Bank Holding

6 Company Act of 1956.

7 ‘‘(B) EXISTING UNITARY HOLDING COMPA8 NIES AND THE SUCCESSORS TO SUCH COMPA9 NIES.—Subparagraph (A) shall not apply, and

10 paragraph (3) shall continue to apply, to a com11 pany (or any subsidiary of such company)

12 that—

13 ‘‘(i) either—

14 ‘‘(I) acquired one or more savings

15 associations described in paragraph (3)

16 pursuant to applications at least one

17 of which was filed on or before March

18 4, 1999; or

19 ‘‘(II) subject to subparagraph (C),

20 became a savings and loan holding

21 company by acquiring control of the

22 company described in subclause (I);

23 and

24 ‘‘(ii) continues to control the savings

25 association referred to in clause (i)(II) or
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•S 900 EAH

1 the successor to any such savings associa2 tion.

3 ‘‘(C) NOTICE PROCESS FOR NONFINANCIAL

4 ACTIVITIES BY A SUCCESSOR UNITARY HOLDING

5 COMPANY.—

6 ‘‘(i) NOTICE REQUIRED.—Subpara7 graph (B) shall not apply to any company

8 described in subparagraph (B)(i)(II) which

9 engages, directly or indirectly, in any activ10 ity other than activities described in clauses

11 (i) and (ii) of subparagraph (A), unless—

12 ‘‘(I) in addition to an application

13 to the Director under this section to be14 come a savings and loan holding com15 pany, the company submits a notice to

16 the Board of Governors of the Federal

17 Reserve System of such nonfinancial

18 activities in the same manner as a no19 tice of nonbanking activities is filed

20 with the Board under section 4(j) of

21 the Bank Holding Company Act of

22 1956; and

23 ‘‘(II) before the end of the applica24 ble period under such section 4(j), the

25 Board either approves or does not dis-
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•S 900 EAH

1 approve of the continuation of such ac2 tivities by such company, directly or

3 indirectly, after becoming a savings

4 and loan holding company.

5 ‘‘(ii) PROCEDURE.—Section 4(j) of the

6 Bank Holding Company Act of 1956, in7 cluding the standards for review, shall

8 apply to any notice filed with the Board

9 under this subparagraph in the same man10 ner as it applies to notices filed under such

11 section.’’.

12 (b) TECHNICAL AND CONFORMING AMENDMENT.—Sec13 tion 10(c)(3) of the Home Owners’ Loan Act (12 U.S.C.

14 1467a(c)(3)) is amended by striking ‘‘Notwithstanding’’

15 and inserting ‘‘Except as provided in paragraph (9) and

16 notwithstanding’’.

17 (c) CONFORMING AMENDMENT.—Section 10(o)(5) of

18 the Home Owners’ Loan Act (12 U.S.C. 1467a(o)(5)) is

19 amended—

20 (1) in subparagraph (E), by striking ‘‘, except

21 subparagraph (B)’’; and

22 (2) by adding at the end the following new sub23 paragraph:

24 ‘‘(F) In the case of a mutual holding com25 pany which is a savings and loan holding com-
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•S 900 EAH

1 pany described in subsection (c)(3), engaging in

2 the activities permitted for financial holding

3 companies under section 6(c) of the Bank Hold4 ing Company Act of 1956.’’.

5 SEC. 402. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON6 VERTED FEDERAL SAVINGS ASSOCIATION.

7 Section 2 of the Act entitled ‘‘An Act to enable national

8 banking associations to increase their capital stock and to

9 change their names or locations’’, approved May 1, 1886

10 (12 U.S.C. 30), is amended by adding at the end the fol11 lowing new subsection:

12 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CON13 VERTED FEDERAL SAVINGS ASSOCIATION.—

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

15 (a) or any other provision of law, any depository in16 stitution the charter of which is converted from that

17 of a Federal savings association to a national bank

18 or a State bank after the date of the enactment of the

19 Financial Services Act of 1999 may retain the term

20 ‘Federal’ in the name of such institution if such de21 pository institution remains an insured depository

22 institution.

23 ‘‘(2) DEFINITIONS.—For purposes of this sub24 section, the terms ‘depository institution’, ‘insured de25 pository institution’, ‘national bank’, and ‘State
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•S 900 EAH

1 bank’ have the same meanings as in section 3 of the

2 Federal Deposit Insurance Act.’’.

3 TITLE V—PRIVACY

4 Subtitle A—Disclosure of Nonpublic

5 Personal Information

6 SEC. 501. PROTECTION OF NONPUBLIC PERSONAL INFOR7 MATION.

8 (a) PRIVACY OBLIGATION POLICY.—It is the policy of

9 the Congress that each financial institution has an affirma10 tive and continuing obligation to respect the privacy of its

11 customers and to protect the security and confidentiality

12 of those customers’ nonpublic personal information.

13 (b) FINANCIAL INSTITUTIONS SAFEGUARDS.—In fur14 therance of the policy in subsection (a), each agency or au15 thority described in section 505(a) shall establish appro16 priate standards for the financial institutions subject to

17 their jurisdiction relating to administrative, technical, and

18 physical safeguards—

19 (1) to insure the security and confidentiality of

20 customer records and information;

21 (2) to protect against any anticipated threats or

22 hazards to the security or integrity of such records;

23 and

24 (3) to protect against unauthorized access to or

25 use of such records or information which could result
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•S 900 EAH

1 in substantial harm or inconvenience to any cus2 tomer.

3 SEC. 502. OBLIGATIONS WITH RESPECT TO DISCLOSURES

4 OF PERSONAL INFORMATION.

5 (a) NOTICE REQUIREMENTS.—Except as otherwise

6 provided in this subtitle, a financial institution may not,

7 directly or through any affiliate, disclose to a nonaffiliated

8 third party any nonpublic personal information, unless

9 such financial institution provides or has provided to the

10 consumer a notice that complies with section 503(b).

11 (b) OPT OUT.—

12 (1) IN GENERAL.—A financial institution may

13 not disclose nonpublic personal information to non14 affiliated third parties unless—

15 (A) such financial institution clearly and

16 conspicuously discloses to the consumer, in writ17 ing or in electronic form (or other form per18 mitted by the regulations prescribed under sec19 tion 504), that such information may be dis20 closed to such third parties;

21 (B) the consumer is given the opportunity,

22 before the time that such information is initially

23 disclosed, to direct that such information not be

24 disclosed to such third parties; and
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•S 900 EAH

1 (C) the consumer is given an explanation of

2 how the consumer can exercise that nondisclosure

3 option.

4 (2) EXCEPTION.—This subsection shall not pre5 vent a financial institution from providing nonpublic

6 personal information to a nonaffiliated third party to

7 perform services or functions on behalf of the finan8 cial institution, including marketing of the financial

9 institution’s own products or services or financial

10 products or services offered pursuant to joint agree11 ments between two or more financial institutions that

12 comply with the requirements imposed by the regula13 tions prescribed under section 504, if the financial in14 stitution fully discloses the providing of such informa15 tion and enters into a contractual agreement with the

16 third party that requires the third party to maintain

17 the confidentiality of such information.

18 (c) LIMITS ON REUSE OF INFORMATION.—Except as

19 otherwise provided in this subtitle, a nonaffiliated third

20 party that receives from a financial institution nonpublic

21 personal information under this section shall not, directly

22 or through an affiliate of such receiving third party, dis23 close such information to any other person that is a non24 affiliated third party of both the financial institution and

25 such receiving third party, unless such disclosure would be
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•S 900 EAH

1 lawful if made directly to such other person by the financial

2 institution.

3 (d) LIMITATIONS ON THE SHARING OF ACCOUNT NUM4 BER INFORMATION FOR MARKETING PURPOSES.—A finan5 cial institution shall not disclose an account number or

6 similar form of access number or access code for a credit

7 card account, deposit account, or transaction account of a

8 consumer to any nonaffiliated third party for use in tele9 marketing, direct mail marketing, or other marketing

10 through electronic mail to the consumer.

11 (e) GENERAL EXCEPTIONS.—Subsections (a) and (b)

12 shall not prohibit the disclosure of nonpublic personal

13 information—

14 (1) as necessary to effect, administer, or enforce

15 a transaction requested or authorized by the con16 sumer, or in connection with—

17 (A) servicing or processing a financial

18 product or service requested or authorized by the

19 consumer;

20 (B) maintaining or servicing the con21 sumer’s account with the financial institution;

22 or

23 (C) a proposed or actual securitization, sec24 ondary market sale (including sales of servicing
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•S 900 EAH

1 rights), or similar transaction related to a trans2 action of the consumer;

3 (2) with the consent or at the direction of the

4 consumer;

5 (3) to protect the confidentiality or security of

6 its records pertaining to the consumer, the service or

7 product, or the transaction therein, or to protect

8 against or prevent actual or potential fraud, unau9 thorized transactions, claims, or other liability, for re10 quired institutional risk control, or for resolving cus11 tomer disputes or inquiries, or to persons holding a

12 beneficial interest relating to the consumer, or to per13 sons acting in a fiduciary capacity on behalf of the

14 consumer;

15 (4) to provide information to insurance rate ad16 visory organizations, guaranty funds or agencies, ap17 plicable rating agencies of the financial institution,

18 persons assessing the institution’s compliance with in19 dustry standards, and the institution’s attorneys, ac20 countants, and auditors;

21 (5) to the extent specifically permitted or re22 quired under other provisions of law and in accord23 ance with the Right to Financial Privacy Act of

24 1978, to law enforcement agencies (including a Fed25 eral functional regulator, a State insurance authority,
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•S 900 EAH

1 or the Federal Trade Commission), self-regulatory or2 ganizations, or for an investigation on a matter re3 lated to public safety;

4 (6) to a consumer reporting agency in accord5 ance with the Fair Credit Reporting Act, or in ac6 cordance with interpretations of such Act by the

7 Board of Governors of the Federal Reserve System or

8 the Federal Trade Commission, including interpreta9 tions published as commentary (16 CFR 601–622);

10 (7) in connection with a proposed or actual sale,

11 merger, transfer, or exchange of all or a portion of a

12 business or operating unit if the disclosure of non13 public personal information concerns solely consumers

14 of such business or unit; or

15 (8) to comply with Federal, State, or local laws,

16 rules, and other applicable legal requirements; to com17 ply with a properly authorized civil, criminal, or reg18 ulatory investigation or subpoena by Federal, State,

19 or local authorities; or to respond to judicial process

20 or government regulatory authorities having jurisdic21 tion over the financial institution for examination,

22 compliance, or other purposes as authorized by law.

23 SEC. 503. DISCLOSURE OF INSTITUTION PRIVACY POLICY.

24 (a) DISCLOSURE REQUIRED.—A financial institution

25 shall clearly and conspicuously disclose to each consumer,
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•S 900 EAH

1 at the time of establishing the customer relationship with

2 the consumer and not less than annually, in writing or in

3 electronic form (or other form permitted by the regulations

4 prescribed under section 504), its policies and practices

5 with respect to protecting the nonpublic personal informa6 tion of consumers in accordance with the rules prescribed

7 under section 504.

8 (b) INFORMATION TO BE INCLUDED.—The disclosure

9 required by subsection (a) shall include—

10 (1) the policy and practices of the institution

11 with respect to disclosing nonpublic personal informa12 tion to nonaffiliated third parties, other than agents

13 of the institution, consistent with section 502 of this

14 subtitle, and including—

15 (A) the categories of persons to whom the

16 information is or may be disclosed, other than

17 the persons to whom the information may be

18 provided pursuant to section 502(e); and

19 (B) the practices and policies of the institu20 tion with respect to disclosing of nonpublic per21 sonal information of persons who have ceased to

22 be customers of the financial institution;

23 (2) the categories of nonpublic personal informa24 tion that are collected by the financial institution;
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•S 900 EAH

1 (3) the policies that the institution maintains to

2 protect the confidentiality and security of nonpublic

3 personal information in accordance with section 501;

4 and

5 (4) the disclosures required, if any, under section

6 603(d)(2)(A)(iii) of the Fair Credit Reporting Act.

7 SEC. 504. RULEMAKING.

8 (a) REGULATORY AUTHORITY.—The Federal banking

9 agencies, the National Credit Union Association, the Sec10 retary of the Treasury, and the Securities and Exchange

11 Commission, shall jointly prescribe, after consultation with

12 the Federal Trade Commission, and representatives of State

13 insurance authorities designated by the National Associa14 tion of Insurance Commissioners, such regulations as may

15 be necessary to carry out the purposes of this subtitle. Such

16 regulations shall be prescribed in accordance with applica17 ble requirements of the title 5, United States Code, and shall

18 be issued in final form within 6 months after the date of

19 enactment of this Act.

20 (b) AUTHORITY TO GRANT EXCEPTIONS.—The regula21 tions prescribed under subsection (a) may include such ad22 ditional exceptions to subsections (a) and (b) of section 502

23 as are deemed consistent with the purposes of this subtitle.
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•S 900 EAH

1 SEC. 505. ENFORCEMENT.

2 (a) IN GENERAL.—This subtitle and the rules pre3 scribed thereunder shall be enforced by the Federal func4 tional regulators, the State insurance authorities, and the

5 Federal Trade Commission with respect to financial insti6 tutions subject to their jurisdiction under applicable law,

7 as follows:

8 (1) Under section 8 of the Federal Deposit Insur9 ance Act, in the case of—

10 (A) national banks, Federal branches and

11 Federal agencies of foreign banks, and any sub12 sidiaries of such entities, by the Office of the

13 Comptroller of the Currency;

14 (B) member banks of the Federal Reserve

15 System (other than national banks), branches

16 and agencies of foreign banks (other than Fed17 eral branches, Federal agencies, and insured

18 State branches of foreign banks), commercial

19 lending companies owned or controlled by for20 eign banks, organizations operating under sec21 tion 25 or 25A of the Federal Reserve Act, bank

22 holding companies and their nonbank subsidi23 aries or affiliates (except broker-dealers, affiliates

24 providing insurance, investment companies, and

25 investment advisers), by the Board of Governors

26 of the Federal Reserve System;
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•S 900 EAH

1 (C) banks insured by the Federal Deposit

2 Insurance Corporation (other than members of

3 the Federal Reserve System), insured State

4 branches of foreign banks, and any subsidiaries

5 of such entities, by the Board of Directors of the

6 Federal Deposit Insurance Corporation; and

7 (D) savings association the deposits of

8 which are insured by the Federal Deposit Insur9 ance Corporation, and any subsidiaries of such

10 a savings association, by the Director of the Of11 fice of Thrift Supervision.

12 (2) Under the Federal Credit Union Act, by the

13 Administrator of the National Credit Union Adminis14 tration with respect to any Federal or state chartered

15 credit union, and any subsidiaries of such an entity.

16 (3) Under the Farm Credit Act of 1971, by the

17 Farm Credit Administration with respect to the Fed18 eral Agricultural Mortgage Corporation, any Federal

19 land bank, Federal land bank association, Federal in20 termediate credit bank, or production credit associa21 tion.

22 (4) Under the Securities Exchange Act of 1934,

23 by the Securities and Exchange Commission with re24 spect to any broker-dealer.
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•S 900 EAH

1 (5) Under the Investment Company Act of 1940,

2 by the Securities and Exchange Commission with re3 spect to investment companies.

4 (6) Under the Investment Advisers Act of 1940,

5 by the Securities and Exchange Commission with re6 spect to investment advisers registered with the Com7 mission under such Act.

8 (7) Under Federal Housing Enterprises Finan9 cial Safety and Soundness Act of 1992 (12 U. S. C.

10 4501 et seq.), by the Office of Federal Housing Enter11 prise Oversight with respect to the Federal National

12 Mortgage Association and the Federal Home Loan

13 Mortgage Corporation.

14 (8) Under the Federal Home Loan Bank Act, by

15 the Federal Housing Finance Board with respect to

16 Federal home loan banks.

17 (9) Under State insurance law, in the case of

18 any person engaged in providing insurance, by the

19 State insurance authority of the State in which the

20 person is domiciled, subject to section 104 of this Act.

21 (10) Under the Federal Trade Commission Act,

22 by the Federal Trade Commission for any other fi23 nancial institution that is not subject to the jurisdic24 tion of any agency or authority under paragraphs (1)

25 through (9) of this subsection.
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1 (b) ENFORCEMENT OF SECTION 501.—

2 (1) IN GENERAL.—Except as provided in para3 graph (2), the agencies and authorities described in

4 subsection (a) shall implement the standards pre5 scribed under section 501(b) in the same manner, to

6 the extent practicable, as standards prescribed pursu7 ant to subsection (a) of section 39 of the Federal De8 posit Insurance Act are implemented pursuant to

9 such section.

10 (2) EXCEPTION.—The agencies and authorities

11 described in paragraphs (4), (5), (6), (9), and (10) of

12 subsection (a) shall implement the standards pre13 scribed under section 501(b) by rule with respect to

14 the financial institutions subject to their respective ju15 risdictions under subsection (a).

16 (c) DEFINITIONS.—The terms used in subsection (a)(1)

17 that are not defined in this subtitle or otherwise defined

18 in section 3(s) of the Federal Deposit Insurance Act shall

19 have the meaning given to them in section 1(b) of the Inter20 national Banking Act of 1978.

21 SEC. 506. FAIR CREDIT REPORTING ACT AMENDMENT.

22 (a) AMENDMENT.—Section 621 of the Fair Credit Re23 porting Act (15 U.S.C. 1681s) is amended—

24 (1) in subsection (d), by striking everything fol25 lowing the end of the second sentence; and
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•S 900 EAH

1 (2) by striking subsection ‘‘(e)’’ and inserting in

2 lieu thereof the following:

3 ‘‘(e) REGULATORY AUTHORITY.—

4 ‘‘(1) The Federal banking agencies referred to in

5 paragraphs (1) and (2) of subsection (b) shall jointly

6 prescribe such regulations as necessary to carry out

7 the purposes of this Act with respect to any persons

8 identified under paragraphs (1) and (2) of subsection

9 (b), or to the holding companies and affiliates of such

10 persons.

11 ‘‘(2) The Administrator of the National Credit

12 Union Administration shall prescribe such regula13 tions as necessary to carry out the purposes of this

14 Act with respect to any persons identified under

15 paragraph (3) of subsection (b).’’.

16 (b) CONFORMING AMENDMENT.—Section 621(a) of the

17 Fair Credit Reporting Act (15 U.S.C. 1681s(a)) is amended

18 by striking paragraph (4).

19 SEC. 507. RELATION TO OTHER PROVISIONS.

20 This subtitle shall not apply to any information to

21 which subtitle D of title III applies.

22 SEC. 508. STUDY OF INFORMATION SHARING AMONG FINAN23 CIAL AFFILIATES.

24 (a) IN GENERAL.—The Secretary of the Treasury, in

25 conjunction with the Federal functional regulators and the
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•S 900 EAH

1 Federal Trade Commission, shall conduct a study of infor2 mation sharing practices among financial institutions and

3 their affiliates. Such study shall include—

4 (1) the purposes for the sharing of confidential

5 customer information with affiliates or with non6 affiliated third parties;

7 (2) the extent and adequacy of security protec8 tions for such information;

9 (3) the potential risks for customer privacy of

10 such sharing of information;

11 (4) the potential benefits for financial institu12 tions and affiliates of such sharing of information;

13 (5) the potential benefits for customers of such

14 sharing of information;

15 (6) the adequacy of existing laws to protect cus16 tomer privacy;

17 (7) the adequacy of financial institution privacy

18 policy and privacy rights disclosure under existing

19 law;

20 (8) the feasibility of different approaches, includ21 ing opt-out and opt-in, to permit customers to direct

22 that confidential information not be shared with af23 filiates and nonaffiliated third parties; and
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•S 900 EAH

1 (9) the feasibility of restricting sharing of infor2 mation for specific uses or of permitting customers to

3 direct the uses for which information may be shared.

4 (b) CONSULTATION.—The Secretary shall consult with

5 representatives of State insurance authorities designated by

6 the National Association of Insurance Commissioners, and

7 also with financial services industry, consumer organiza8 tions and privacy groups, and other representatives of the

9 general public, in formulating and conducting the study re10 quired by subsection (a).

11 (c) REPORT.—Before the end of the 6-month period be12 ginning on the date of the enactment of this Act, the Sec13 retary shall submit a report to the Congress containing the

14 findings and conclusions of the study required under sub15 section (a), together with such recommendations for legisla16 tive or administrative action as may be appropriate.

17 SEC. 509. DEFINITIONS.

18 As used in this subtitle:

19 (1) FEDERAL BANKING AGENCY.—The term

20 ‘‘Federal banking agency’’ has the meanings given to

21 such terms in section 3 of the Federal Deposit Insur22 ance Act.

23 (2) FEDERAL FUNCTIONAL REGULATOR.—The

24 term ‘‘Federal functional regulator’’ means—
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•S 900 EAH

1 (A) the Board of Governors of the Federal

2 Reserve System;

3 (B) the Office of the Comptroller of the Cur4 rency;

5 (C) the Board of Directors of the Federal

6 Deposit Insurance Corporation;

7 (D) the Director of the Office of Thrift Su8 pervision;

9 (E) the National Credit Union Administra10 tion Board;

11 (F) the Farm Credit Administration; and

12 (G) the Securities and Exchange Commis13 sion.

14 (3) FINANCIAL INSTITUTION.—The term ‘‘finan15 cial institution’’ means any institution the business

16 of which is engaging in financial activities or activi17 ties that are incidental to financial activities, as de18 scribed in section 6(c) of the Bank Holding Company

19 Act of 1956.

20 (4) NONPUBLIC PERSONAL INFORMATION.—

21 (A) The term ‘‘nonpublic personal informa22 tion’’ means personally identifiable financial

23 information—

24 (i) provided by a consumer to a finan25 cial institution;
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•S 900 EAH

1 (ii) resulting from any transaction

2 with the consumer or the service performed

3 for the consumer; or

4 (iii) otherwise obtained by the finan5 cial institution.

6 (B) Such term does not include publicly

7 available information, as such term is defined by

8 the regulations prescribed under section 504.

9 (C) Notwithstanding subparagraph (B),

10 such term shall include any list, description, or

11 other grouping of consumers (and publicly avail12 able information pertaining to them) that is de13 rived using any personally identifiable informa14 tion other than publicly available information.

15 (5) NONAFFILIATED THIRD PARTIES.—The term

16 ‘‘nonaffiliated third parties’’ means any entity that is

17 not an affiliate of, or related by common ownership

18 or affiliated by corporate control with, the financial

19 institution, but does not include a joint employee of

20 such institution.

21 (6) AFFILIATE.—The term ‘‘affiliate’’ means any

22 company that controls, is controlled by, or is under

23 common control with another company.
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•S 900 EAH

1 (7) NECESSARY TO EFFECT, ADMINISTER, OR EN2 FORCE.—The term ‘‘as necessary to effect, administer

3 or enforce the transaction’’ means—

4 (A) the disclosure is required, or is a usual,

5 appropriate or acceptable method, to carry out

6 the transaction or the product or service business

7 of which the transaction is a part, and record or

8 service or maintain the consumer’s account in

9 the ordinary course of providing the financial

10 service or financial product, or to administer or

11 service benefits or claims relating to the trans12 action or the product or service business of which

13 it is a part, and includes—

14 (i) providing the consumer or the con15 sumer’s agent or broker with a confirma16 tion, statement, or other record of the trans17 action, or information on the status or

18 value of the financial service or financial

19 product; and

20 (ii) the accrual or recognition of incen21 tives or bonuses associated with the trans22 action that are provided by the financial

23 institution or any other party;

24 (B) the disclosure is required, or is one of

25 the lawful or appropriate methods, to enforce the
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•S 900 EAH

1 rights of the financial institution or of other per2 sons engaged in carrying out the financial trans3 action, or providing the product or service;

4 (C) the disclosure is required, or is a usual,

5 appropriate, or acceptable method, for insurance

6 underwriting at the consumer’s request or for re7 insurance purposes, or for any of the following

8 purposes as they relate to a consumer’s insur9 ance: account administration, reporting, inves10 tigating, or preventing fraud or material mis11 representation, processing premium payments,

12 processing insurance claims, administering in13 surance benefits (including utilization review ac14 tivities), participating in research projects, or as

15 otherwise required or specifically permitted by

16 Federal or State law; or

17 (D) the disclosure is required, or is a usual,

18 appropriate or acceptable method, in connection

19 with—

20 (i) the authorization, settlement, bill21 ing, processing, clearing, transferring, rec22 onciling, or collection of amounts charged,

23 debited, or otherwise paid using a debit,

24 credit or other payment card, check, or ac25 count number, or by other payment means;
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•S 900 EAH

1 (ii) the transfer of receivables, accounts

2 or interests therein; or

3 (iii) the audit of debit, credit or other

4 payment information.

5 (8) STATE INSURANCE AUTHORITY.—The term

6 ‘‘State insurance authority’’ means, in the case of

7 any person engaged in providing insurance, the State

8 insurance authority of the State in which the person

9 is domiciled.

10 (9) CONSUMER.—The term ‘‘consumer’’ means

11 an individual who obtains, from a financial institu12 tion, financial products or services which are to be

13 used primarily for personal, family, or household

14 purposes, and also means the legal representative of

15 such an individual.

16 (10) JOINT AGREEMENT.—The term ‘‘joint agree17 ment’’ means a formal written contract pursuant to

18 which two or more financial institutions jointly offer,

19 endorse, or sponsor a financial product or service,

20 and any payments between the parties are based on

21 business or profit generated.

22 SEC. 510. EFFECTIVE DATE.

23 This subtitle shall take effect 6 months after the date

24 on which the rules under section 503 are promulgated,

25 except—
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1 (1) to the extent that a later date is specified in

2 such rules; and

3 (2) that section 506 shall be effective upon enact4 ment.

5 Subtitle B—Fraudulent Access to

6 Financial Information

7 SEC. 521. PRIVACY PROTECTION FOR CUSTOMER INFORMA8 TION OF FINANCIAL INSTITUTIONS.

9 (a) PROHIBITION ON OBTAINING CUSTOMER INFORMA10 TION BY FALSE PRETENSES.—It shall be a violation of this

11 subtitle for any person to obtain or attempt to obtain, or

12 cause to be disclosed or attempt to cause to be disclosed to

13 any person, customer information of a financial institution

14 relating to another person—

15 (1) by making a false, fictitious, or fraudulent

16 statement or representation to an officer, employee, or

17 agent of a financial institution;

18 (2) by making a false, fictitious, or fraudulent

19 statement or representation to a customer of a finan20 cial institution; or

21 (3) by providing any document to an officer, em22 ployee, or agent of a financial institution, knowing

23 that the document is forged, counterfeit, lost, or stolen,

24 was fraudulently obtained, or contains a false, ficti25 tious, or fraudulent statement or representation.
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•S 900 EAH

1 (b) PROHIBITION ON SOLICITATION OF A PERSON TO

2 OBTAIN CUSTOMER INFORMATION FROM FINANCIAL INSTI3 TUTION UNDER FALSE PRETENSES.—It shall be a violation

4 of this subtitle to request a person to obtain customer infor5 mation of a financial institution, knowing that the person

6 will obtain, or attempt to obtain, the information from the

7 institution in any manner described in subsection (a).

8 (c) NONAPPLICABILITY TO LAW ENFORCEMENT AGEN9 CIES.—No provision of this section shall be construed so as

10 to prevent any action by a law enforcement agency, or any

11 officer, employee, or agent of such agency, to obtain cus12 tomer information of a financial institution in connection

13 with the performance of the official duties of the agency.

14 (d) NONAPPLICABILITY TO FINANCIAL INSTITUTIONS

15 IN CERTAIN CASES.—No provision of this section shall be

16 construed so as to prevent any financial institution, or any

17 officer, employee, or agent of a financial institution, from

18 obtaining customer information of such financial institu19 tion in the course of—

20 (1) testing the security procedures or systems of

21 such institution for maintaining the confidentiality of

22 customer information;

23 (2) investigating allegations of misconduct or

24 negligence on the part of any officer, employee, or

25 agent of the financial institution; or
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1 (3) recovering customer information of the finan2 cial institution which was obtained or received by an3 other person in any manner described in subsection

4 (a) or (b).

5 (e) NONAPPLICABILITY TO INSURANCE INSTITUTIONS

6 FOR INVESTIGATION OF INSURANCE FRAUD.—No provision

7 of this section shall be construed so as to prevent any insur8 ance institution, or any officer, employee, or agency of an

9 insurance institution, from obtaining information as part

10 of an insurance investigation into criminal activity, fraud,

11 material misrepresentation, or material nondisclosure that

12 is authorized for such institution under State law, regula13 tion, interpretation, or order.

14 (f) NONAPPLICABILITY TO CERTAIN TYPES OF CUS15 TOMER INFORMATION OF FINANCIAL INSTITUTIONS.—No

16 provision of this section shall be construed so as to prevent

17 any person from obtaining customer information of a fi18 nancial institution that otherwise is available as a public

19 record filed pursuant to the securities laws (as defined in

20 section 3(a)(47) of the Securities Exchange Act of 1934).

21 (g) NONAPPLICABILITY TO COLLECTION OF CHILD

22 SUPPORT JUDGMENTS.—No provision of this section shall

23 be construed to prevent any State-licensed private investi24 gator, or any officer, employee, or agent of such private in25 vestigator, from obtaining customer information of a finan-
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•S 900 EAH

1 cial institution, to the extent reasonably necessary to collect

2 child support from a person adjudged to have been delin3 quent in his or her obligations by a Federal or State court,

4 and to the extent that such action by a State-licensed pri5 vate investigator is not unlawful under any other Federal

6 or State law or regulation, and has been authorized by an

7 order or judgment of a court of competent jurisdiction.

8 SEC. 522. ADMINISTRATIVE ENFORCEMENT.

9 (a) ENFORCEMENT BY FEDERAL TRADE COMMIS10 SION.—Compliance with this subtitle shall be enforced by

11 the Federal Trade Commission in the same manner and

12 with the same power and authority as the Commission has

13 under the title VIII, the Fair Debt Collection Practices Act,

14 to enforce compliance with such title.

15 (b) NOTICE OF ACTIONS.—The Federal Trade Commis16 sion shall—

17 (1) notify the Securities and Exchange Commis18 sion whenever the Federal Trade Commission initi19 ates an investigation with respect to a financial insti20 tution subject to regulation by the Securities and Ex21 change Commission;

22 (2) notify the Federal banking agency (as de23 fined in section 3(z) of the Federal Deposit Insurance

24 Act) whenever the Commission initiates an investiga-
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1 tion with respect to a financial institution subject to

2 regulation by such Federal banking agency; and

3 (3) notify the appropriate State insurance regu4 lator whenever the Commission initiates an investiga5 tion with respect to a financial institution subject to

6 regulation by such regulator.

7 SEC. 523. CRIMINAL PENALTY.

8 (a) IN GENERAL.—Whoever knowingly and inten9 tionally violates, or knowingly and intentionally attempts

10 to violate, section 521 shall be fined in accordance with title

11 18, United States Code, or imprisoned for not more than

12 5 years, or both.

13 (b) ENHANCED PENALTY FOR AGGRAVATED CASES.—

14 Whoever violates, or attempts to violate, section 521 while

15 violating another law of the United States or as part of

16 a pattern of any illegal activity involving more than

17 $100,000 in a 12-month period shall be fined twice the

18 amount provided in subsection (b)(3) or (c)(3) (as the case

19 may be) of section 3571 of title 18, United States Code,

20 imprisoned for not more than 10 years, or both.

21 SEC. 524. RELATION TO STATE LAWS.

22 (a) IN GENERAL.—This subtitle shall not be construed

23 as superseding, altering, or affecting the statutes, regula24 tions, orders, or interpretations in effect in any State, ex25 cept to the extent that such statutes, regulations, orders, or
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1 interpretations are inconsistent with the provisions of this

2 subtitle, and then only to the extent of the inconsistency.

3 (b) GREATER PROTECTION UNDER STATE LAW.—For

4 purposes of this section, a State statute, regulation, order,

5 or interpretation is not inconsistent with the provisions of

6 this subtitle if the protection such statute, regulation, order,

7 or interpretation affords any person is greater than the pro8 tection provided under this subtitle as determined by the

9 Commission, on its own motion or upon the petition of any

10 interested party.

11 SEC. 525. AGENCY GUIDANCE.

12 In furtherance of the objectives of this subtitle, each

13 Federal banking agency (as defined in section 3(z) of the

14 Federal Deposit Insurance Act) and the Securities and Ex15 change Commission or self-regulatory organizations, as ap16 propriate, shall review regulations and guidelines applica17 ble to financial institutions under their respective jurisdic18 tions and shall prescribe such revisions to such regulations

19 and guidelines as may be necessary to ensure that such fi20 nancial institutions have policies, procedures, and controls

21 in place to prevent the unauthorized disclosure of customer

22 financial information and to deter and detect activities pro23 scribed under section 521.
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1 SEC. 526. REPORTS.

2 (a) REPORT TO THE CONGRESS.—Before the end of the

3 18-month period beginning on the date of the enactment of

4 this Act, the Comptroller General, in consultation with the

5 Federal Trade Commission, Federal banking agencies, the

6 Securities and Exchange Commission, appropriate Federal

7 law enforcement agencies, and appropriate State insurance

8 regulators, shall submit to the Congress a report on the fol9 lowing:

10 (1) The efficacy and adequacy of the remedies

11 provided in this subtitle in addressing attempts to ob12 tain financial information by fraudulent means or by

13 false pretenses.

14 (2) Any recommendations for additional legisla15 tive or regulatory action to address threats to the pri16 vacy of financial information created by attempts to

17 obtain information by fraudulent means or false pre18 tenses.

19 (b) ANNUAL REPORT BY ADMINISTERING AGENCIES.—

20 The Federal Trade Commission and the Attorney General

21 shall submit to Congress an annual report on number and

22 disposition of all enforcement actions taken pursuant to this

23 subtitle.

24 SEC. 527. DEFINITIONS.

25 For purposes of this subtitle, the following definitions

26 shall apply:
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1 (1) CUSTOMER.—The term ‘‘customer’’ means,

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

3 authorized representative of a person) to whom the fi4 nancial institution provides a product or service, in5 cluding that of acting as a fiduciary.

6 (2) CUSTOMER INFORMATION OF A FINANCIAL IN7 STITUTION.—The term ‘‘customer information of a fi8 nancial institution’’ means any information main9 tained by or for a financial institution which is de10 rived from the relationship between the financial in11 stitution and a customer of the financial institution

12 and is identified with the customer.

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

14 any information in any form.

15 (4) FINANCIAL INSTITUTION.—

16 (A) IN GENERAL.—The term ‘‘financial in17 stitution’’ means any institution engaged in the

18 business of providing financial services to cus19 tomers who maintain a credit, deposit, trust, or

20 other financial account or relationship with the

21 institution.

22 (B) CERTAIN FINANCIAL INSTITUTIONS SPE23 CIFICALLY INCLUDED.—The term ‘‘financial in24 stitution’’ includes any depository institution (as

25 defined in section 19(b)(1)(A) of the Federal Re-
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1 serve Act), any broker or dealer, any investment

2 adviser or investment company, any insurance

3 company, any loan or finance company, any

4 credit card issuer or operator of a credit card

5 system, and any consumer reporting agency that

6 compiles and maintains files on consumers on a

7 nationwide basis (as defined in section 603(p)).

8 (C) SECURITIES INSTITUTIONS.—For pur9 poses of subparagraph (B)—

10 (i) the terms ‘‘broker’’ and ‘‘dealer’’

11 have the meanings provided in section 3 of

12 the Securities Exchange Act of 1934 (15

13 U.S.C. 78c);

14 (ii) the term ‘‘investment adviser’’ has

15 the meaning provided in section 202(a)(11)

16 of the Investment Advisers Act of 1940 (15

17 U.S.C. 80b–2(a)); and

18 (iii) the term ‘‘investment company’’

19 has the meaning provided in section 3 of the

20 Investment Company Act of 1940 (15

21 U.S.C. 80a–3).

22 (D) FURTHER DEFINITION BY REGULA23 TION.—The Federal Trade Commission, after

24 consultation with Federal banking agencies and

25 the Securities and Exchange Commission, may
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1 prescribe regulations clarifying or describing the

2 types of institutions which shall be treated as fi3 nancial institutions for purposes of this subtitle.

Amend the title so as to read ‘‘An Act to enhance

competition in the financial services industry by providing

a prudential framework for the affiliation of banks, securities firms, and other financial service providers, and for

other purposes.’’.

Attest:

Clerk.