S. 900

One Hundred Sixth Congress

of the

United States of America

AT THE FIRST SESSION

Begun and held at the City of Washington on Wednesday,

the sixth day of January, one thousand nine hundred and ninety-nine

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.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Gramm-LeachBliley Act’’.

(b) TABLE OF CONTENTS.—The table of contents for this Act

is as follows:

Sec. 1. Short title; table of contents.

TITLE I—FACILITATING AFFILIATION AMONG BANKS, SECURITIES FIRMS,

AND INSURANCE COMPANIES

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act repeals.

Sec. 102. Activity restrictions applicable to bank holding companies that are not financial holding companies.

Sec. 103. Financial activities.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Cross marketing restriction; limited purpose bank relief; divestiture.

Sec. 108. Use of subordinated debt to protect financial system and deposit funds

from ‘‘too big to fail’’ institutions.

Sec. 109. Study of financial modernization’s effect on the accessibility of small business and farm loans.

Subtitle B—Streamlining Supervision of Bank Holding Companies

Sec. 111. Streamlining bank holding company supervision.

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

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

Sec. 114. Prudential safeguards.

Sec. 115. Examination of investment companies.

Sec. 116. Elimination of application requirement for financial holding companies.

Sec. 117. Preserving the integrity of FDIC resources.

Sec. 118. Repeal of savings bank provisions in the Bank Holding Company Act of

1956.

Sec. 119. Technical amendment.

Subtitle C—Subsidiaries of National Banks

Sec. 121. Subsidiaries of national banks.

Sec. 122. Consideration of merchant banking activities by financial subsidiaries.

Subtitle D—Preservation of FTC Authority

Sec. 131. Amendment to the Bank Holding Company Act of 1956 to modify notification and post-approval waiting period for section 3 transactions.

Sec. 132. Interagency data sharing.
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Sec. 133. Clarification of status of subsidiaries and affiliates.

Subtitle E—National Treatment

Sec. 141. Foreign banks that are financial holding companies.

Sec. 142. Representative offices.

Subtitle F—Direct Activities of Banks

Sec. 151. Authority of national banks to underwrite certain municipal bonds.

Subtitle G—Effective Date

Sec. 161. 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 identified 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. Statutory disqualification for bank wrongdoing.

Sec. 223. Conforming change in definition.

Sec. 224. Conforming amendment.

Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment Bank

Holding Companies

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

Exchange Commission.

Subtitle D—Banks and Bank Holding Companies

Sec. 241. Consultation.

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

Sec. 301. Functional regulation of insurance.

Sec. 302. Insurance underwriting in national banks.

Sec. 303. Title insurance activities of national banks and their affiliates.

Sec. 304. Expedited and equalized dispute resolution for Federal regulators.

Sec. 305. Insurance customer protections.

Sec. 306. Certain State affiliation laws preempted for insurance companies and affiliates.

Sec. 307. Interagency consultation.

Sec. 308. 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.
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Sec. 315. Definitions.

Sec. 316. Effective date.

Subtitle C—National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.

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

Sec. 323. Purpose.

Sec. 324. Relationship to the Federal Government.

Sec. 325. Membership.

Sec. 326. Board of directors.

Sec. 327. Officers.

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

Sec. 329. Assessments.

Sec. 330. Functions of the NAIC.

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

the association.

Sec. 332. Elimination of NAIC oversight.

Sec. 333. Relationship to State law.

Sec. 334. Coordination with other regulators.

Sec. 335. Judicial review.

Sec. 336. Definitions.

Subtitle D—Rental Car Agency Insurance Activities

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

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Prevention of creation of new S&L holding companies with commercial affiliates.

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. Protection of Fair Credit Reporting Act.

Sec. 507. Relation to State laws.

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.

TITLE VI—FEDERAL HOME LOAN BANK SYSTEM MODERNIZATION

Sec. 601. Short title.

Sec. 602. Definitions.

Sec. 603. Savings association membership.

Sec. 604. Advances to members; collateral.

Sec. 605. Eligibility criteria.

Sec. 606. Management of banks.

Sec. 607. Resolution Funding Corporation.

Sec. 608. Capital structure of Federal home loan banks.

TITLE VII—OTHER PROVISIONS

Subtitle A—ATM Fee Reform

Sec. 701. Short title.

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

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

Sec. 704. Feasibility study.

Sec. 705. No liability if posted notices are damaged.
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Subtitle B—Community Reinvestment

Sec. 711. CRA sunshine requirements.

Sec. 712. Small bank regulatory relief.

Sec. 713. Federal Reserve Board study of CRA lending.

Sec. 714. Preserving the Community Reinvestment Act of 1977.

Sec. 715. Responsiveness to community needs for financial services.

Subtitle C—Other Regulatory Improvements

Sec. 721. Expanded small bank access to S corporation treatment.

Sec. 722. ‘‘Plain language’’ requirement for Federal banking agency rules.

Sec. 723. Retention of ‘‘Federal’’ in name of converted Federal savings association.

Sec. 724. Control of bankers’ banks.

Sec. 725. Provision of technical assistance to microenterprises.

Sec. 726. Federal Reserve audits.

Sec. 727. Authorization to release reports.

Sec. 728. General Accounting Office study of conflicts of interest.

Sec. 729. Study and report on adapting existing legislative requirements to online

banking and lending.

Sec. 730. Clarification of source of strength doctrine.

Sec. 731. Interest rates and other charges at interstate branches.

Sec. 732. Interstate branches and agencies of foreign banks.

Sec. 733. Fair treatment of women by financial advisers.

Sec. 734. Membership of loan guarantee boards.

Sec. 735. Repeal of stock loan limit in Federal Reserve Act.

Sec. 736. Elimination of SAIF and DIF special reserves.

Sec. 737. Bank officers and directors as officers and directors of public utilities.

Sec. 738. Approval for purchases of securities.

Sec. 739. Optional conversion of Federal savings associations.

Sec. 740. Grand jury proceedings.

TITLE I—FACILITATING AFFILIATION

AMONG BANKS, SECURITIES FIRMS,

AND INSURANCE COMPANIES

Subtitle A—Affiliations

SEC. 101. GLASS-STEAGALL ACT REPEALS.

(a) SECTION 20 REPEALED.—Section 20 of the Banking Act

of 1933 (12 U.S.C. 377) (commonly referred to as the ‘‘Glass-Steagall

Act’’) is repealed.

(b) SECTION 32 REPEALED.—Section 32 of the Banking Act

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

SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK HOLDING

COMPANIES THAT ARE NOT FINANCIAL HOLDING COMPANIES.

(a) IN GENERAL.—Section 4(c)(8) of the Bank Holding Company

Act of 1956 (12 U.S.C. 1843(c)(8)) is amended to read as follows:

‘‘(8) shares of any company the activities of which had

been determined by the Board by regulation or order under

this paragraph as of the day before the date of the enactment

of the Gramm-Leach-Bliley Act, to be so closely related to

banking as to be a proper incident thereto (subject to such

terms and conditions contained in such regulation or order,

unless modified by the Board);’’.

(b) CONFORMING CHANGES TO OTHER STATUTES.—

(1) AMENDMENT TO THE BANK HOLDING COMPANY ACT

AMENDMENTS OF 1970.—Section 105 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1850) is amended

by striking ‘‘, to engage directly or indirectly in a nonbanking

activity pursuant to section 4 of such Act,’’.
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(2) AMENDMENT TO THE BANK SERVICE COMPANY ACT.—

Section 4(f) of the Bank Service Company Act (12 U.S.C.

1864(f)) is amended by inserting before the period at the end

the following: ‘‘as of the day before the date of the enactment

of the Gramm-Leach-Bliley Act’’.

SEC. 103. FINANCIAL ACTIVITIES.

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

Act of 1956 (12 U.S.C. 1843) is amended by adding at the end

the following new subsections:

‘‘(k) ENGAGING IN ACTIVITIES THAT ARE FINANCIAL IN

NATURE.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (a), a financial holding company may engage in any activity, and may

acquire and retain the shares of any company engaged in

any activity, that the Board, in accordance with paragraph

(2), determines (by regulation or order)—

‘‘(A) to be financial in nature or incidental to such

financial activity; or

‘‘(B) is complementary to a financial activity and does

not pose a substantial risk to the safety or soundness

of depository institutions or the financial system generally.

‘‘(2) COORDINATION BETWEEN THE BOARD AND THE SECRETARY OF THE TREASURY.—

‘‘(A) PROPOSALS RAISED BEFORE THE BOARD.—

‘‘(i) CONSULTATION.—The Board shall notify the

Secretary of the Treasury of, and consult with the

Secretary of the Treasury concerning, any request, proposal, or application under this subsection for a determination of whether an activity is financial in nature

or incidental to a financial activity.

‘‘(ii) TREASURY VIEW.—The Board shall not determine that any activity is financial in nature or incidental to a financial activity under this subsection

if the Secretary of the Treasury notifies the Board

in writing, not later than 30 days after the date of

receipt of the notice described in clause (i) (or such

longer period as the Board determines to be appropriate under the circumstances) that the Secretary of

the Treasury believes that the activity is not financial

in nature or incidental to a financial activity or is

not otherwise permissible under this section.

‘‘(B) PROPOSALS RAISED BY THE TREASURY.— ‘‘(i) TREASURY RECOMMENDATION.—The Secretary

of the Treasury may, at any time, recommend in

writing that the Board find an activity to be financial

in nature or incidental to a financial activity.

‘‘(ii) TIME PERIOD FOR BOARD ACTION.—Not later

than 30 days after the date of receipt of a written

recommendation from the Secretary of the Treasury

under clause (i) (or such longer period as the Secretary

of the Treasury and the Board determine to be appropriate under the circumstances), the Board shall determine whether to initiate a public rulemaking proposing

that the recommended activity be found to be financial

in nature or incidental to a financial activity under

this subsection, and shall notify the Secretary of the
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Treasury in writing of the determination of the Board

and, if the Board determines not to seek public comment on the proposal, the reasons for that determination.

‘‘(3) FACTORS TO BE CONSIDERED.—In determining whether

an activity is financial in nature or incidental to a financial

activity, the Board shall take into account—

‘‘(A) the purposes of this Act and the Gramm-LeachBliley Act;

‘‘(B) changes or reasonably expected changes in the

marketplace in which financial holding companies compete;

‘‘(C) changes or reasonably expected changes in the

technology for delivering financial services; and

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

to allow a financial holding company and the affiliates

of a financial holding company to—

‘‘(i) compete effectively with any company seeking

to provide financial services in the United States;

‘‘(ii) efficiently deliver information and services

that are financial in nature through the use of technological means, including any application necessary to

protect the security or efficacy of systems for the transmission of data or financial transactions; and

‘‘(iii) offer customers any available or emerging

technological means for using financial services or for

the document imaging of data.

‘‘(4) ACTIVITIES THAT ARE FINANCIAL IN NATURE.—For purposes of this subsection, the following activities shall be considered to be financial in nature:

‘‘(A) Lending, exchanging, transferring, investing for

others, or safeguarding money or securities.

‘‘(B) Insuring, guaranteeing, or indemnifying against

loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent,

or broker for purposes of the foregoing, in any State.

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

advisory services, including advising an investment company (as defined in section 3 of the Investment Company

Act of 1940).

‘‘(D) Issuing or selling instruments representing

interests in pools of assets permissible for a bank to hold

directly.

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

in securities.

‘‘(F) Engaging in any activity that the Board has determined, by order or regulation that is in effect on the date

of the enactment of the Gramm-Leach-Bliley Act, to be

so closely related to banking or managing or controlling

banks as to be a proper incident thereto (subject to the

same terms and conditions contained in such order or regulation, unless modified by the Board).

‘‘(G) Engaging, in the United States, in any activity

that—

‘‘(i) a bank holding company may engage in outside

of the United States; and
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‘‘(ii) the Board has determined, under regulations

prescribed or interpretations issued pursuant to subsection (c)(13) (as in effect on the day before the date

of the enactment of the Gramm-Leach-Bliley Act) to

be usual in connection with the transaction of banking

or other financial operations abroad.

‘‘(H) Directly or indirectly acquiring or controlling,

whether as principal, on behalf of 1 or more entities

(including entities, other than a depository institution or

subsidiary of a depository institution, that the bank holding

company controls), or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether

or not constituting control of such company or entity,

engaged in any activity not authorized pursuant to this

section if—

‘‘(i) the shares, assets, or ownership interests are

not acquired or held by a depository institution or

subsidiary of a depository institution;

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

are acquired and held by—

‘‘(I) a securities affiliate or an affiliate thereof;

or

‘‘(II) an affiliate of an insurance company

described in subparagraph (I)(ii) that provides

investment advice to an insurance company and

is registered pursuant to the Investment Advisers

Act of 1940, or an affiliate of such investment

adviser;

as part of a bona fide underwriting or merchant or

investment banking activity, including investment

activities engaged in for the purpose of appreciation

and ultimate resale or disposition of the investment;

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

are held for a period of time to enable the sale or

disposition thereof on a reasonable basis consistent

with the financial viability of the activities described

in clause (ii); and

‘‘(iv) during the period such shares, assets, or

ownership interests are held, the bank holding company does not routinely manage or operate such company or entity except as may be necessary or required

to obtain a reasonable return on investment upon

resale or disposition.

‘‘(I) Directly or indirectly acquiring or controlling,

whether as principal, on behalf of 1 or more entities

(including entities, other than a depository institution or

subsidiary of a depository institution, that the bank holding

company controls) or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates or other instruments representing ownership) of a company or other entity, whether

or not constituting control of such company or entity,

engaged in any activity not authorized pursuant to this

section if—
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‘‘(i) the shares, assets, or ownership interests are

not acquired or held by a depository institution or

a subsidiary of a depository institution;

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

are acquired and held by an insurance company that

is predominantly engaged in underwriting life, accident

and health, or property and casualty insurance (other

than credit-related insurance) or providing and issuing

annuities;

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

represent an investment made in the ordinary course

of business of such insurance company in accordance

with relevant State law governing such investments;

and

‘‘(iv) during the period such shares, assets, or

ownership interests are held, the bank holding company does not routinely manage or operate such company except as may be necessary or required to obtain

a reasonable return on investment.

‘‘(5) ACTIONS REQUIRED.—

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

order, define, consistent with the purposes of this Act,

the activities described in subparagraph (B) as financial

in nature, and the extent to which such activities are

financial in nature or incidental to a financial activity.

‘‘(B) ACTIVITIES.—The activities described in this

subparagraph are as follows:

‘‘(i) Lending, exchanging, transferring, investing

for others, or safeguarding financial assets other than

money or securities.

‘‘(ii) Providing any device or other instrumentality

for transferring money or other financial assets.

‘‘(iii) Arranging, effecting, or facilitating financial

transactions for the account of third parties.

‘‘(6) REQUIRED NOTIFICATION.— ‘‘(A) IN GENERAL.—A financial holding company that

acquires any company or commences any activity pursuant

to this subsection shall provide written notice to the Board

describing the activity commenced or conducted by the

company acquired not later than 30 calendar days after

commencing the activity or consummating the acquisition,

as the case may be.

‘‘(B) APPROVAL NOT REQUIRED FOR CERTAIN FINANCIAL

ACTIVITIES.—Except as provided in subsection (j) with

regard to the acquisition of a savings association, a financial holding company may commence any activity, or

acquire any company, pursuant to paragraph (4) or any

regulation prescribed or order issued under paragraph (5),

without prior approval of the Board.

‘‘(7) MERCHANT BANKING ACTIVITIES.—

‘‘(A) JOINT REGULATIONS.—The Board and the Secretary of the Treasury may issue such regulations implementing paragraph (4)(H), including limitations on transactions between depository institutions and companies

controlled pursuant to such paragraph, as the Board and

the Secretary jointly deem appropriate to assure compliance

with the purposes and prevent evasions of this Act and
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the Gramm-Leach-Bliley Act and to protect depository

institutions.

‘‘(B) SUNSET OF RESTRICTIONS ON MERCHANT BANKING

ACTIVITIES OF FINANCIAL SUBSIDIARIES.—The restrictions

contained in paragraph (4)(H) on the ownership and control

of shares, assets, or ownership interests by or on behalf

of a subsidiary of a depository institution shall not apply

to a financial subsidiary (as defined in section 5136A of

the Revised Statutes of the United States) of a bank, if

the Board and the Secretary of the Treasury jointly

authorize financial subsidiaries of banks to engage in merchant banking activities pursuant to section 122 of the

Gramm-Leach-Bliley Act.

‘‘(l) CONDITIONS FOR ENGAGING IN EXPANDED FINANCIAL ACTIVITIES.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (k), (n), or

(o), a bank holding company may not engage in any activity,

or directly or indirectly acquire or retain shares of any company

engaged in any activity, under subsection (k), (n), or (o), other

than activities permissible for any bank holding company under

subsection (c)(8), unless—

‘‘(A) all of the depository institution subsidiaries of

the bank holding company are well capitalized;

‘‘(B) all of the depository institution subsidiaries of

the bank holding company are well managed; and

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

Board—

‘‘(i) a declaration that the company elects to be

a financial holding company to engage in activities

or acquire and retain shares of a company that were

not permissible for a bank holding company to engage

in or acquire before the enactment of the GrammLeach-Bliley Act; and

‘‘(ii) a certification that the company meets the

requirements of subparagraphs (A) and (B).

‘‘(2) CRA REQUIREMENT.—Notwithstanding subsection (k)

or (n) of this section, section 5136A(a) of the Revised Statutes

of the United States, or section 46(a) of the Federal Deposit

Insurance Act, the appropriate Federal banking agency shall

prohibit a financial holding company or any insured depository

institution from—

‘‘(A) commencing any new activity under subsection

(k) or (n) of this section, section 5136A(a) of the Revised

Statutes of the United States, or section 46(a) of the Federal

Deposit Insurance Act; or

‘‘(B) directly or indirectly acquiring control of a company engaged in any activity under subsection (k) or (n)

of this section, section 5136A(a) of the Revised Statutes

of the United States, or section 46(a) of the Federal Deposit

Insurance Act (other than an investment made pursuant

to subparagraph (H) or (I) of subsection (k)(4), or section

122 of the Gramm-Leach-Bliley Act, or under section 46(a)

of the Federal Deposit Insurance Act by reason of such

section 122, by an affiliate already engaged in activities

under any such provision);

if any insured depository institution subsidiary of such financial

holding company, or the insured depository institution or any
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of its insured depository institution affiliates, has received in

its most recent examination under the Community Reinvestment Act of 1977, a rating of less than ‘satisfactory record

of meeting community credit needs’.

‘‘(3) FOREIGN BANKS.—For purposes of paragraph (1), the

Board shall apply comparable capital and management standards to a foreign bank that operates a branch or agency or

owns or controls a commercial lending company in the United

States, giving due regard to the principle of national treatment

and equality of competitive opportunity.

‘‘(m) PROVISIONS APPLICABLE TO FINANCIAL HOLDING COMPANIES THAT FAIL TO MEET CERTAIN REQUIREMENTS.—

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

‘‘(A) a financial holding company is engaged, directly

or indirectly, in any activity under subsection (k), (n), or

(o), other than activities that are permissible for a bank

holding company under subsection (c)(8); and

‘‘(B) such financial holding company is not in compliance with the requirements of subsection (l)(1);

the Board shall give notice to the financial holding company

to that effect, describing the conditions giving rise to the notice.

‘‘(2) AGREEMENT TO CORRECT CONDITIONS REQUIRED.—Not

later than 45 days after the date of receipt by a financial

holding company of a notice given under paragraph (1) (or

such additional period as the Board may permit), the financial

holding company shall execute an agreement with the Board

to comply with the requirements applicable to a financial

holding company under subsection (l)(1).

‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—Until the conditions

described in a notice to a financial holding company under

paragraph (1) are corrected, the Board may impose such limitations on the conduct or activities of that financial holding

company or any affiliate of that company as the Board determines to be appropriate under the circumstances and consistent

with the purposes of this Act.

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

a notice to a financial holding company under paragraph (1)

are not corrected within 180 days after the date of receipt

by the financial holding company of a notice under paragraph

(1), the Board may require such financial holding company,

under such terms and conditions as may be imposed by the

Board and subject to such extension of time as may be granted

in the discretion of the Board, either—

‘‘(A) to divest control of any subsidiary depository

institution; or

‘‘(B) at the election of the financial holding company

instead to cease to engage in any activity conducted by

such financial holding company or its subsidiaries (other

than a depository institution or a subsidiary of a depository

institution) that is not an activity that is permissible for

a bank holding company under subsection (c)(8).

‘‘(5) CONSULTATION.—In taking any action under this subsection, the Board shall consult with all relevant Federal and

State regulatory agencies and authorities.

‘‘(n) AUTHORITY TO RETAIN LIMITED NONFINANCIAL ACTIVITIES

AND AFFILIATIONS.—
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‘‘(1) IN GENERAL.—Notwithstanding subsection (a), a company that is not a bank holding company or a foreign bank

(as defined in section 1(b)(7) of the International Banking Act

of 1978) and becomes a financial holding company after the

date of the enactment of the Gramm-Leach-Bliley Act may

continue to engage in any activity and retain direct or indirect

ownership or control of shares of a company engaged in any

activity if—

‘‘(A) the holding company lawfully was engaged in the

activity or held the shares of such company on September

30, 1999;

‘‘(B) the holding company is predominantly engaged

in financial activities as defined in paragraph (2); and

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

to engage only in the same activities that such company

conducted on September 30, 1999, and other activities

permissible under this Act.

‘‘(2) PREDOMINANTLY FINANCIAL.—For purposes of this subsection, a company is predominantly engaged in financial activities if the annual gross revenues derived by the holding company and all subsidiaries of the holding company (excluding

revenues derived from subsidiary depository institutions), on

a consolidated basis, from engaging in activities that are financial in nature or are incidental to a financial activity under

subsection (k) represent at least 85 percent of the consolidated

annual gross revenues of the company.

‘‘(3) NO EXPANSION OF GRANDFATHERED COMMERCIAL ACTIVITIES THROUGH MERGER OR CONSOLIDATION.—A financial holding

company that engages in activities or holds shares pursuant

to this subsection, or a subsidiary of such financial holding

company, may not acquire, in any merger, consolidation, or

other type of business combination, assets of any other company

that is engaged in any activity that the Board has not determined to be financial in nature or incidental to a financial

activity under subsection (k), except this paragraph shall not

apply with respect to a company that owns a broadcasting

station licensed under title III of the Communications Act of

1934 and the shares of which are under common control with

an insurance company since January 1, 1998, unless such company is acquired by, or otherwise becomes an affiliate of, a

bank holding company that, at the time such acquisition or

affiliation is consummated, is 1 of the 5 largest domestic bank

holding companies (as determined on the basis of the consolidated total assets of such companies).

‘‘(4) CONTINUING REVENUE LIMITATION ON GRANDFATHERED

COMMERCIAL ACTIVITIES.—Notwithstanding any other provision

of this subsection, a financial holding company may continue

to engage in activities or hold shares in companies pursuant

to this subsection only to the extent that the aggregate annual

gross revenues derived from all such activities and all such

companies does not exceed 15 percent of the consolidated

annual gross revenues of the financial holding company

(excluding revenues derived from subsidiary depository institutions).

‘‘(5) CROSS MARKETING RESTRICTIONS APPLICABLE TO

COMMERCIAL ACTIVITIES.—
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‘‘(A) IN GENERAL.—A depository institution controlled

by a financial holding company shall not—

‘‘(i) offer or market, directly or through any

arrangement, any product or service of a company

whose activities are conducted or whose shares are

owned or controlled by the financial holding company

pursuant to this subsection or subparagraph (H) or

(I) of subsection (k)(4); or

‘‘(ii) permit any of its products or services to be

offered or marketed, directly or through any arrangement, by or through any company described in clause

(i).

‘‘(B) RULE OF CONSTRUCTION.—Subparagraph (A) shall

not be construed as prohibiting an arrangement between

a depository institution and a company owned or controlled

pursuant to subsection (k)(4)(I) for the marketing of products or services through statement inserts or Internet

websites if—

‘‘(i) such arrangement does not violate section 106

of the Bank Holding Company Act Amendments of

1970; and

‘‘(ii) the Board determines that the arrangement

is in the public interest, does not undermine the separation of banking and commerce, and is consistent

with the safety and soundness of depository institutions.

‘‘(6) TRANSACTIONS WITH NONFINANCIAL AFFILIATES.—A

depository institution controlled by a financial holding company

may not engage in a covered transaction (as defined in section

23A(b)(7) of the Federal Reserve Act) with any affiliate controlled by the company pursuant to this subsection.

‘‘(7) SUNSET OF GRANDFATHER.—A financial holding company engaged in any activity, or retaining direct or indirect

ownership or control of shares of a company, pursuant to this

subsection, shall terminate such activity and divest ownership

or control of the shares of such company before the end of

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

of the Gramm-Leach-Bliley Act. The Board may, upon application by a financial holding company, extend such 10-year period

by a period not to exceed an additional 5 years if such extension

would not be detrimental to the public interest.

‘‘(o) REGULATION OF CERTAIN FINANCIAL HOLDING COMPANIES.—Notwithstanding subsection (a), a company that is not a

bank holding company or a foreign bank (as defined in section

1(b)(7) of the International Banking Act of 1978) and becomes

a financial holding company after the date of enactment of the

Gramm-Leach-Bliley Act, may continue to engage in, or directly

or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities

and underlying physical properties that were not permissible for

bank holding companies to conduct in the United States as of

September 30, 1997, if—

‘‘(1) the holding company, or any subsidiary of the holding

company, lawfully was engaged, directly or indirectly, in any

of such activities as of September 30, 1997, in the United

States;
S. 900—13

‘‘(2) the attributed aggregate consolidated assets of the

company held by the holding company pursuant to this subsection, and not otherwise permitted to be held by a financial

holding company, are equal to not more than 5 percent of

the total consolidated assets of the bank holding company,

except that the Board may increase that percentage by such

amounts and under such circumstances as the Board considers

appropriate, consistent with the purposes of this Act; and

‘‘(3) the holding company does not permit—

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

controls pursuant to this subsection, to offer or market

any product or service of an affiliated depository institution;

or

‘‘(B) any affiliated depository institution to offer or

market any product or service of any company, the shares

of which are owned or controlled by such holding company

pursuant to this subsection.’’.

(b) COMMUNITY REINVESTMENT REQUIREMENT.—Section 804 of

the Community Reinvestment Act of 1977 (12 U.S.C. 2903) is

amended by adding at the end the following new subsection:

‘‘(c) FINANCIAL HOLDING COMPANY REQUIREMENT.—

‘‘(1) IN GENERAL.—An election by a bank holding company

to become a financial holding company under section 4 of the

Bank Holding Company Act of 1956 shall not be effective if—

‘‘(A) the Board finds that, as of the date the declaration

of such election and the certification is filed by such holding

company under section 4(l)(1)(C) of the Bank Holding Company Act of 1956, not all of the subsidiary insured depository institutions of the bank holding company had achieved

a rating of ‘satisfactory record of meeting community credit

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

such institution; and

‘‘(B) the Board notifies the company of such finding

before the end of the 30-day period beginning on such

date.

‘‘(2) LIMITED EXCLUSIONS FOR NEWLY ACQUIRED INSURED

DEPOSITORY INSTITUTIONS.—Any insured depository institution

acquired by a bank holding company during the 12-month

period preceding the date of the submission to the Board of

the declaration and certification under section 4(l)(1)(C) of the

Bank Holding Company Act of 1956 may be excluded for purposes of paragraph (1) during the 12-month period beginning

on the date of such acquisition if—

‘‘(A) the bank holding company has submitted an

affirmative plan to the appropriate Federal financial supervisory agency to take such action as may be necessary

in order for such institution to achieve a rating of ‘satisfactory record of meeting community credit needs’, or better,

at the next examination of the institution; and

‘‘(B) the plan has been accepted by such agency.

‘‘(3) DEFINITIONS.—For purposes of this subsection, the following definitions shall apply:

‘‘(A) BANK HOLDING COMPANY; FINANCIAL HOLDING COMPANY.—The terms ‘bank holding company’ and ‘financial

holding company’ have the meanings given those terms

in section 2 of the Bank Holding Company Act of 1956.
S. 900—14

‘‘(B) BOARD.—The term ‘Board’ means the Board of

Governors of the Federal Reserve System.

‘‘(C) INSURED DEPOSITORY INSTITUTION.—The term

‘insured depository institution’ has the meaning given the

term in section 3(c) of the Federal Deposit Insurance Act.’’.

(c) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) DEFINITIONS.—Section 2 of the Bank Holding Company

Act of 1956 (12 U.S.C. 1841) is amended—

(A) in subsection (n), by inserting ‘‘ ‘depository institution’,’’ after ‘‘the terms’’; and

(B) by adding at the end the following new subsections:

‘‘(p) FINANCIAL HOLDING COMPANY.—For purposes of this Act,

the term ‘financial holding company’ means a bank holding company

that meets the requirements of section 4(l)(1).

‘‘(q) INSURANCE COMPANY.—For purposes of sections 4 and 5,

the term ‘insurance company’ includes any person engaged in the

business of insurance to the extent of such activities.’’.

(2) NOTICE PROCEDURES.—Section 4(j) of the Bank Holding

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

(A) in each of subparagraphs (A) and (E) of paragraph

(1), by inserting ‘‘or in any complementary activity under

subsection (k)(1)(B)’’ after ‘‘subsection (c)(8) or (a)(2)’’; and

(B) in paragraph (3)—

(i) by inserting ‘‘, other than any complementary

activity under subsection (k)(1)(B),’’ after ‘‘to engage

in any activity’’; and

(ii) by inserting ‘‘or a company engaged in any

complementary activity under subsection (k)(1)(B)’’

after ‘‘insured depository institution’’.

(d) REPORT.—

(1) IN GENERAL.—By the end of the 4-year period beginning

on the date of the enactment of this Act, the Board of Governors

of the Federal Reserve System and the Secretary of the

Treasury shall submit a joint report to the Congress containing

a summary of new activities, including grandfathered commercial activities, in which any financial holding company is

engaged pursuant to subsection (k)(1) or (n) of section 4 of

the Bank Holding Company Act of 1956 (as added by subsection

(a)).

(2) OTHER CONTENTS.—The report submitted to the Congress pursuant to paragraph (1) shall also contain the following:

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

of the Federal Reserve System and the Secretary of the

Treasury, whether by regulation, order, interpretation, or

guideline or by approval or disapproval of an application,

with regard to activities of financial holding companies

that are incidental to activities that are financial in nature

or complementary to such financial activities.

(B) An analysis and discussion of the risks posed by

commercial activities of financial holding companies to the

safety and soundness of affiliate depository institutions.

(C) An analysis and discussion of the effect of mergers

and acquisitions under section 4(k) of the Bank Holding

Company Act of 1956 on market concentration in the financial services industry.
S. 900—15

SEC. 104. OPERATION OF STATE LAW.

(a) STATE REGULATION OF THE BUSINESS OF INSURANCE.—The

Act entitled ‘‘An Act to express the intent of Congress with reference

to the regulation of the business of insurance’’ and approved March

9, 1945 (15 U.S.C. 1011 et seq.) (commonly referred to as the

‘‘McCarran-Ferguson Act’’) remains the law of the United States.

(b) MANDATORY INSURANCE LICENSING REQUIREMENTS.—No

person shall engage in the business of insurance in a State as

principal or agent unless such person is licensed as required by

the appropriate insurance regulator of such State in accordance

with the relevant State insurance law, subject to subsections (c),

(d), and (e).

(c) AFFILIATIONS.—

(1) IN GENERAL.—Except as provided in paragraph (2), no

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

action, prevent or restrict a depository institution, or an affiliate

thereof, from being affiliated directly or indirectly or associated

with any person, as authorized or permitted by this Act or

any other provision of Federal law.

(2) INSURANCE.—With respect to affiliations between

depository institutions, or any affiliate thereof, and any insurer,

paragraph (1) does not prohibit—

(A) any State from—

(i) collecting, reviewing, and taking actions

(including approval and disapproval) on applications

and other documents or reports concerning any proposed acquisition of, or a change or continuation of

control of, an insurer domiciled in that State; and

(ii) exercising authority granted under applicable

State law to collect information concerning any proposed acquisition of, or a change or continuation of

control of, an insurer engaged in the business of insurance in, and regulated as an insurer by, such State;

during the 60-day period preceding the effective date of

the acquisition or change or continuation of control, so

long as the collecting, reviewing, taking actions, or exercising authority by the State does not have the effect of

discriminating, intentionally or unintentionally, against a

depository institution or an affiliate thereof, or against

any other person based upon an association of such person

with a depository institution;

(B) any State from requiring any person that is

acquiring control of an insurer domiciled in that State

to maintain or restore the capital requirements of that

insurer to the level required under the capital regulations

of general applicability in that State to avoid the requirement of preparing and filing with the insurance regulatory

authority of that State a plan to increase the capital of

the insurer, except that any determination by the State

insurance regulatory authority with respect to such requirement shall be made not later than 60 days after the date

of notification under subparagraph (A); or

(C) any State from restricting a change in the ownership of stock in an insurer, or a company formed for the

purpose of controlling such insurer, after the conversion

of the insurer from mutual to stock form so long as such
S. 900—16

restriction does not have the effect of discriminating, intentionally or unintentionally, against a depository institution

or an affiliate thereof, or against any other person based

upon an association of such person with a depository

institution.

(d) ACTIVITIES.—

(1) IN GENERAL.—Except as provided in paragraph (3), and

except with respect to insurance sales, solicitation, and cross

marketing activities, which shall be governed by paragraph

(2), no State may, by statute, regulation, order, interpretation,

or other action, prevent or restrict a depository institution

or an affiliate thereof from engaging directly or indirectly,

either by itself or in conjunction with an affiliate, or any other

person, in any activity authorized or permitted under this Act

and the amendments made by this Act.

(2) INSURANCE SALES.—

(A) IN GENERAL.—In accordance with the legal standards for preemption set forth in the decision of the Supreme

Court of the United States in Barnett Bank of Marion

County N.A. v. Nelson, 517 U.S. 25 (1996), no State may,

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

prevent or significantly interfere with the ability of a

depository institution, or an affiliate thereof, to engage,

directly or indirectly, either by itself or in conjunction

with an affiliate or any other person, in any insurance

sales, solicitation, or crossmarketing activity.

(B) CERTAIN STATE LAWS PRESERVED.—Notwithstanding subparagraph (A), a State may impose any of

the following restrictions, or restrictions that are substantially the same as but no more burdensome or restrictive

than those in each of the following clauses:

(i) Restrictions prohibiting the rejection of an

insurance policy by a depository institution or an affiliate of a depository institution, solely because the policy

has been issued or underwritten by any person who

is not associated with such depository institution or

affiliate when the insurance is required in connection

with a loan or extension of credit.

(ii) Restrictions prohibiting a requirement for any

debtor, insurer, or insurance agent or broker to pay

a separate charge in connection with the handling

of insurance that is required in connection with a

loan or other extension of credit or the provision of

another traditional banking product by a depository

institution, or any affiliate of a depository institution,

unless such charge would be required when the depository institution or affiliate is the licensed insurance

agent or broker providing the insurance.

(iii) Restrictions prohibiting the use of any

advertisement or other insurance promotional material

by a depository institution or any affiliate of a depository institution that would cause a reasonable person

to believe mistakenly that—

(I) the Federal Government or a State is

responsible for the insurance sales activities of,

or stands behind the credit of, the institution or

affiliate; or
S. 900—17

(II) a State, or the Federal Government

guarantees any returns on insurance products, or

is a source of payment on any insurance obligation

of or sold by the institution or affiliate;

(iv) Restrictions prohibiting the payment or receipt

of any commission or brokerage fee or other valuable

consideration for services as an insurance agent or

broker to or by any person, unless such person holds

a valid State license regarding the applicable class

of insurance at the time at which the services are

performed, except that, in this clause, the term ‘‘services as an insurance agent or broker’’ does not include

a referral by an unlicensed person of a customer or

potential customer to a licensed insurance agent or

broker that does not include a discussion of specific

insurance policy terms and conditions.

(v) Restrictions prohibiting any compensation paid

to or received by any individual who is not licensed

to sell insurance, for the referral of a customer that

seeks to purchase, or seeks an opinion or advice on,

any insurance product to a person that sells or provides

opinions or advice on such product, based on the purchase of insurance by the customer.

(vi) Restrictions prohibiting the release of the

insurance information of a customer (defined as

information concerning the premiums, terms, and

conditions of insurance coverage, including expiration

dates and rates, and insurance claims of a customer

contained in the records of the depository institution

or an affiliate thereof) to any person other than an

officer, director, employee, agent, or affiliate of a

depository institution, for the purpose of soliciting or

selling insurance, without the express consent of the

customer, other than a provision that prohibits—

(I) a transfer of insurance information to an

unaffiliated insurer in connection with transferring

insurance in force on existing insureds of the

depository institution or an affiliate thereof, or

in connection with a merger with or acquisition

of an unaffiliated insurer; or

(II) the release of information as otherwise

authorized by State or Federal law.

(vii) Restrictions prohibiting the use of health

information obtained from the insurance records of

a customer for any purpose, other than for its activities

as a licensed agent or broker, without the express

consent of the customer.

(viii) Restrictions prohibiting the extension of

credit or any product or service that is equivalent

to an extension of credit, lease or sale of property

of any kind, or furnishing of any services or fixing

or varying the consideration for any of the foregoing,

on the condition or requirement that the customer

obtain insurance from a depository institution or an

affiliate of a depository institution, or a particular

insurer, agent, or broker, other than a prohibition that
S. 900—18

would prevent any such depository institution or

affiliate—

(I) from engaging in any activity described

in this clause that would not violate section 106

of the Bank Holding Company Act Amendments

of 1970, as interpreted by the Board of Governors

of the Federal Reserve System; or

(II) from informing a customer or prospective

customer that insurance is required in order to

obtain a loan or credit, that loan or credit approval

is contingent upon the procurement by the customer of acceptable insurance, or that insurance

is available from the depository institution or an

affiliate of the depository institution.

(ix) Restrictions requiring, when an application by

a consumer for a loan or other extension of credit

from a depository institution is pending, and insurance

is offered or sold to the consumer or is required in

connection with the loan or extension of credit by the

depository institution or any affiliate thereof, that a

written disclosure be provided to the consumer or

prospective customer indicating that the customer’s

choice of an insurance provider will not affect the

credit decision or credit terms in any way, except that

the depository institution may impose reasonable

requirements concerning the creditworthiness of the

insurer and scope of coverage chosen.

(x) Restrictions requiring clear and conspicuous

disclosure, in writing, where practicable, to the customer prior to the sale of any insurance policy that

such policy—

(I) is not a deposit;

(II) is not insured by the Federal Deposit

Insurance Corporation;

(III) is not guaranteed by any depository

institution or, if appropriate, an affiliate of any

such institution or any person soliciting the purchase of or selling insurance on the premises

thereof; and

(IV) where appropriate, involves investment

risk, including potential loss of principal.

(xi) Restrictions requiring that, when a customer

obtains insurance (other than credit insurance or flood

insurance) and credit from a depository institution,

or any affiliate of such institution, or any person soliciting the purchase of or selling insurance on the premises thereof, the credit and insurance transactions be

completed through separate documents.

(xii) Restrictions prohibiting, when a customer

obtains insurance (other than credit insurance or flood

insurance) and credit from a depository institution or

an affiliate of such institution, or any person soliciting

the purchase of or selling insurance on the premises

thereof, inclusion of the expense of insurance premiums

in the primary credit transaction without the express

written consent of the customer.
S. 900—19

(xiii) Restrictions requiring maintenance of separate and distinct books and records relating to insurance transactions, including all files relating to and

reflecting consumer complaints, and requiring that

such insurance books and records be made available

to the appropriate State insurance regulator for inspection upon reasonable notice.

(C) LIMITATIONS.—

(i) OCC DEFERENCE.—Section 304(e) does not apply

with respect to any State statute, regulation, order,

interpretation, or other action regarding insurance

sales, solicitation, or cross marketing activities

described in subparagraph (A) that was issued,

adopted, or enacted before September 3, 1998, and

that is not described in subparagraph (B).

(ii) NONDISCRIMINATION.—Subsection (e) does not

apply with respect to any State statute, regulation,

order, interpretation, or other action regarding insurance sales, solicitation, or cross marketing activities

described in subparagraph (A) that was issued,

adopted, or enacted before September 3, 1998, and

that is not described in subparagraph (B).

(iii) CONSTRUCTION.—Nothing in this paragraph

shall be construed—

(I) to limit the applicability of the decision

of the Supreme Court in Barnett Bank of Marion

County N.A. v. Nelson, 517 U.S. 25 (1996) with

respect to any State statute, regulation, order,

interpretation, or other action that is not referred

to or described in subparagraph (B); or

(II) to create any inference with respect to

any State statute, regulation, order, interpretation,

or other action that is not described in this paragraph.

(3) INSURANCE ACTIVITIES OTHER THAN SALES.—State statutes, regulations, interpretations, orders, and other actions

shall not be preempted under paragraph (1) to the extent

that they—

(A) relate to, or are issued, adopted, or enacted for

the purpose of regulating the business of insurance in

accordance with the Act entitled ‘‘An Act to express the

intent of Congress with reference to the regulation of the

business of insurance’’ and approved March 9, 1945 (15

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

‘‘McCarran-Ferguson Act’’);

(B) apply only to persons that are not depository

institutions, but that are directly engaged in the business

of insurance (except that they may apply to depository

institutions engaged in providing savings bank life insurance as principal to the extent of regulating such insurance);

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

insurance sales, solicitations, or cross marketing activities;

and

(D) are not prohibited under subsection (e).
S. 900—20

(4) FINANCIAL ACTIVITIES OTHER THAN INSURANCE.—No

State statute, regulation, order, interpretation, or other action

shall be preempted under paragraph (1) to the extent that—

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

or enacted for the purpose of regulating, directly or

indirectly, insurance sales, solicitations, or cross marketing

activities covered under paragraph (2);

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

or enacted for the purpose of regulating, directly or

indirectly, the business of insurance activities other than

sales, solicitations, or cross marketing activities, covered

under paragraph (3);

(C) it does not relate to securities investigations or

enforcement actions referred to in subsection (f); and

(D) it—

(i) does not distinguish by its terms between

depository institutions, and affiliates thereof, engaged

in the activity at issue and other persons engaged

in the same activity in a manner that is in any way

adverse with respect to the conduct of the activity

by any such depository institution or affiliate engaged

in the activity at issue;

(ii) as interpreted or applied, does not have, and

will not have, an impact on depository institutions,

or affiliates thereof, engaged in the activity at issue,

or any person who has an association with any such

depository institution or affiliate, that is substantially

more adverse than its impact on other persons engaged

in the same activity that are not depository institutions

or affiliates thereof, or persons who do not have an

association with any such depository institution or affiliate;

(iii) does not effectively prevent a depository

institution or affiliate thereof from engaging in activities authorized or permitted by this Act or any other

provision of Federal law; and

(iv) does not conflict with the intent of this Act

generally to permit affiliations that are authorized or

permitted by Federal law.

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

described in subsection (d)(2)(B), no State may, by statute, regulation, order, interpretation, or other action, regulate the insurance

activities authorized or permitted under this Act or any other

provision of Federal law of a depository institution, or affiliate

thereof, to the extent that such statute, regulation, order,

interpretation, or other action—

(1) distinguishes by its terms between depository institutions, or affiliates thereof, and other persons engaged in such

activities, in a manner that is in any way adverse to any

such depository institution, or affiliate thereof;

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

on depository institutions, or affiliates thereof, that is substantially more adverse than its impact on other persons providing

the same products or services or engaged in the same activities

that are not depository institutions, or affiliates thereof, or

persons or entities affiliated therewith;
S. 900—21

(3) effectively prevents a depository institution, or affiliate

thereof, from engaging in insurance activities authorized or

permitted by this Act or any other provision of Federal law;

or

(4) conflicts with the intent of this Act generally to permit

affiliations that are authorized or permitted by Federal law

between depository institutions, or affiliates thereof, and persons engaged in the business of insurance.

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

to affect—

(1) the jurisdiction of the securities commission (or any

agency or office performing like functions) of any State, under

the laws of such State—

(A) to investigate and bring enforcement actions, consistent with section 18(c) of the Securities Act of 1933,

with respect to fraud or deceit or unlawful conduct by

any person, in connection with securities or securities

transactions; or

(B) to require the registration of securities or the licensure or registration of brokers, dealers, or investment

advisers (consistent with section 203A of the Investment

Advisers Act of 1940), or the associated persons of a broker,

dealer, or investment adviser (consistent with such section

203A); or

(2) State laws, regulations, orders, interpretations, or other

actions of general applicability relating to the governance of

corporations, partnerships, limited liability companies, or other

business associations incorporated or formed under the laws

of that State or domiciled in that State, or the applicability

of the antitrust laws of any State or any State law that is

similar to the antitrust laws if such laws, regulations, orders,

interpretations, or other actions are not inconsistent with the

purposes of this Act to authorize or permit certain affiliations

and to remove barriers to such affiliations.

(g) DEFINITIONS.—For purposes of this section, the following

definitions shall apply:

(1) AFFILIATE.—The term ‘‘affiliate’’ means any company

that controls, is controlled by, or is under common control

with another company.

(2) ANTITRUST LAWS.—The term ‘‘antitrust laws’’ has the

meaning given the term in subsection (a) of the first section

of the Clayton Act, and includes section 5 of the Federal Trade

Commission Act (to the extent that such section 5 relates

to unfair methods of competition).

(3) DEPOSITORY INSTITUTION.—The term ‘‘depository

institution’’—

(A) has the meaning given the term in section 3 of

the Federal Deposit Insurance Act; and

(B) includes any foreign bank that maintains a branch,

agency, or commercial lending company in the United

States.

(4) INSURER.—The term ‘‘insurer’’ means any person

engaged in the business of insurance.

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

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

United States, Puerto Rico, Guam, American Samoa, the Trust
S. 900—22

Territory of the Pacific Islands, the Virgin Islands, and the

Northern Mariana Islands.

SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHORIZED.

Section 3(g)(2) of the Bank Holding Company Act of 1956

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

‘‘(2) REGULATIONS.—A bank holding company organized as

a mutual holding company shall be regulated on terms, and

shall be subject to limitations, comparable to those applicable

to any other bank holding company.’’.

SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OFFICES.

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

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

by inserting ‘‘and any branch of a bank controlled by an outof-State bank holding company (as defined in section 2(o)(7) of

the Bank Holding Company Act of 1956)’’ before the period.

SEC. 107. CROSS MARKETING RESTRICTION; LIMITED PURPOSE BANK

RELIEF; DIVESTITURE.

(a) CROSS MARKETING RESTRICTION.—Section 4(f) of the Bank

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

striking paragraph (3).

(b) DAYLIGHT OVERDRAFTS.—Section 4(f) of the Bank Holding

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

after paragraph (2) the following new paragraph:

‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—For purposes

of paragraph (2)(C), an overdraft is described in this paragraph

if—

‘‘(A) such overdraft results from an inadvertent computer or accounting error that is beyond the control of

both the bank and the affiliate;

‘‘(B) such overdraft—

‘‘(i) is permitted or incurred on behalf of an affiliate

that is monitored by, reports to, and is recognized

as a primary dealer by the Federal Reserve Bank of

New York; and

‘‘(ii) is fully secured, as required by the Board,

by bonds, notes, or other obligations that are direct

obligations of the United States or on which the principal and interest are fully guaranteed by the United

States or by securities and obligations eligible for

settlement on the Federal Reserve book entry system;

or

‘‘(C) such overdraft—

‘‘(i) is permitted or incurred by, or on behalf of,

an affiliate in connection with an activity that is financial in nature or incidental to a financial activity; and

‘‘(ii) does not cause the bank to violate any provision of section 23A or 23B of the Federal Reserve

Act, either directly, in the case of a bank that is

a member of the Federal Reserve System, or by virtue

of section 18(j) of the Federal Deposit Insurance Act,

in the case of a bank that is not a member of the

Federal Reserve System.’’.

(c) INDUSTRIAL LOAN COMPANIES; AFFILIATE OVERDRAFTS.—Section 2(c)(2)(H) of the Bank Holding Company Act of 1956 (12 U.S.C.
S. 900—23

1841(c)(2)(H)) is amended by inserting ‘‘, or that is otherwise permissible for a bank controlled by a company described in section 4(f)(1)’’

before the period at the end.

(d) ACTIVITIES LIMITATIONS.—Section 4(f)(2) of the Bank

Holding Company Act of 1956 (12 U.S.C. 1843(f)(2)) is amended—

(1) by striking ‘‘Paragraph (1) shall cease to apply to any

company described in such paragraph if—’’ and inserting ‘‘Subject to paragraph (3), a company described in paragraph (1)

shall no longer qualify for the exemption provided under that

paragraph if—’’;

(2) in subparagraph (A)—

(A) in clause (ii)(IX), by striking ‘‘and’’ at the end;

(B) in clause (ii)(X), by inserting ‘‘and’’ after the semicolon;

(C) in clause (ii), by inserting after subclause (X) the

following new subclause:

‘‘(XI) assets that are derived from, or incidental to, activities in which institutions described

in subparagraph (F) or (H) of section 2(c)(2) are

permitted to engage;’’; and

(D) by striking ‘‘or’’ at the end; and

(3) by striking subparagraph (B) and inserting the following:

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

‘‘(i) accepts demand deposits or deposits that the

depositor may withdraw by check or similar means

for payment to third parties; and

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

loans (except that, for purposes of this clause, loans

made in the ordinary course of a credit card operation

shall not be treated as commercial loans); or

‘‘(C) after the date of the enactment of the Competitive

Equality Amendments of 1987, any bank subsidiary of such

company permits any overdraft (including any intraday

overdraft), or incurs any such overdraft in the account

of the bank at a Federal reserve bank, on behalf of an

affiliate, other than an overdraft described in paragraph

(3).’’.

(e) DIVESTITURE REQUIREMENT.—Section 4(f)(4) of the Bank

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

to read as follows:

‘‘(4) DIVESTITURE IN CASE OF LOSS OF EXEMPTION.—If any

company described in paragraph (1) fails to qualify for the

exemption provided under paragraph (1) by operation of paragraph (2), such exemption shall cease to apply to such company

and such company shall divest control of each bank it controls

before the end of the 180-day period beginning on the date

on which the company receives notice from the Board that

the company has failed to continue to qualify for such exemption, unless, before the end of such 180-day period, the company

has—

‘‘(A) either—

‘‘(i) corrected the condition or ceased the activity

that caused the company to fail to continue to qualify

for the exemption; or
S. 900—24

‘‘(ii) submitted a plan to the Board for approval

to cease the activity or correct the condition in a timely

manner (which shall not exceed 1 year); and

‘‘(B) implemented procedures that are reasonably

adapted to avoid the reoccurrence of such condition or

activity.’’.

(f) FOREIGN BANK SUBSIDIARIES OF LIMITED PURPOSE CREDIT

CARD BANKS.—Section 4(f) of the Bank Holding Company Act of

1956 (12 U.S.C. 1843(f)) is amended by adding at the end the

following new paragraph:

‘‘(14) FOREIGN BANK SUBSIDIARIES OF LIMITED PURPOSE

CREDIT CARD BANKS.—

‘‘(A) IN GENERAL.—An institution described in section

2(c)(2)(F) may control a foreign bank if—

‘‘(i) the investment of the institution in the foreign

bank meets the requirements of section 25 or 25A

of the Federal Reserve Act and the foreign bank qualifies under such sections;

‘‘(ii) the foreign bank does not offer any products

or services in the United States; and

‘‘(iii) the activities of the foreign bank are permissible under otherwise applicable law.

‘‘(B) OTHER LIMITATIONS INAPPLICABLE.—The limitations contained in any clause of section 2(c)(2)(F) shall

not apply to a foreign bank described in subparagraph

(A) that is controlled by an institution described in such

section.’’.

SEC. 108. USE OF SUBORDINATED DEBT TO PROTECT FINANCIAL

SYSTEM AND DEPOSIT FUNDS FROM ‘‘TOO BIG TO FAIL’’

INSTITUTIONS.

(a) STUDY REQUIRED.—The Board of Governors of the Federal

Reserve System and the Secretary of the Treasury shall conduct

a study of—

(1) the feasibility and appropriateness of establishing a

requirement that, with respect to large insured depository

institutions and depository institution holding companies the

failure of which could have serious adverse effects on economic

conditions or financial stability, such institutions and holding

companies maintain some portion of their capital in the form

of subordinated debt in order to bring market forces and market

discipline to bear on the operation of, and the assessment

of the viability of, such institutions and companies and reduce

the risk to economic conditions, financial stability, and any

deposit insurance fund;

(2) if such requirement is feasible and appropriate, the

appropriate amount or percentage of capital that should be

subordinated debt consistent with such purposes; and

(3) the manner in which any such requirement could be

incorporated into existing capital standards and other issues

relating to the transition to such a requirement.

(b) REPORT.—Before the end of the 18-month period beginning

on the date of the enactment of this Act, the Board of Governors

of the Federal Reserve System and the Secretary of the Treasury

shall submit a report to the Congress containing the findings and

conclusions of the Board and the Secretary in connection with
S. 900—25

the study required under subsection (a), together with such legislative and administrative proposals as the Board and the Secretary

may determine to be appropriate.

(c) DEFINITIONS.—For purposes of subsection (a), the following

definitions shall apply:

(1) BANK HOLDING COMPANY.—The term ‘‘bank holding company’’ has the meaning given the term in section 2 of the

Bank Holding Company Act of 1956.

(2) INSURED DEPOSITORY INSTITUTION.—The term ‘‘insured

depository institution’’ has the meaning given the term in section 3(c) of the Federal Deposit Insurance Act.

(3) SUBORDINATED DEBT.—The term ‘‘subordinated debt’’

means unsecured debt that—

(A) has an original weighted average maturity of not

less than 5 years;

(B) is subordinated as to payment of principal and

interest to all other indebtedness of the bank, including

deposits;

(C) is not supported by any form of credit enhancement,

including a guarantee or standby letter of credit; and

(D) is not held in whole or in part by any affiliate

or institution-affiliated party of the insured depository

institution or bank holding company.

SEC. 109. STUDY OF FINANCIAL MODERNIZATION’S EFFECT ON THE

ACCESSIBILITY OF SMALL BUSINESS AND FARM LOANS.

(a) STUDY.—The Secretary of the Treasury, in consultation

with the Federal banking agencies (as defined in section 3(z) of

the Federal Deposit Insurance Act), shall conduct a study of the

extent to which credit is being provided to and for small businesses

and farms, as a result of this Act and the amendments made

by this Act.

(b) REPORT.—Before the end of the 5-year period beginning

on the date of the enactment of this Act, the Secretary, in consultation with the Federal banking agencies, shall submit a report to

the Congress on the study conducted pursuant to subsection (a)

and shall include such recommendations as the Secretary determines to be appropriate for administrative and legislative action.

Subtitle B—Streamlining Supervision of

Bank Holding Companies

SEC. 111. STREAMLINING BANK HOLDING COMPANY SUPERVISION.

Section 5(c) of the Bank Holding Company Act of 1956 (12

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

‘‘(c) REPORTS AND EXAMINATIONS.—

‘‘(1) REPORTS.—

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

require a bank holding company and any subsidiary of

such company to submit reports under oath to keep the

Board informed as to—

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

and controlling financial and operating risks, and

transactions with depository institution subsidiaries of

the bank holding company; and
S. 900—26

‘‘(ii) compliance by the company or subsidiary with

applicable provisions of this Act or any other Federal

law that the Board has specific jurisdiction to enforce

against such company or subsidiary.

‘‘(B) USE OF EXISTING REPORTS.—

‘‘(i) IN GENERAL.—For purposes of compliance with

this paragraph, the Board shall, to the fullest extent

possible, accept—

‘‘(I) reports that a bank holding company or

any subsidiary of such company has provided or

been required to provide to other Federal or State

supervisors or to appropriate self-regulatory

organizations;

‘‘(II) information that is otherwise required

to be reported publicly; and

‘‘(III) externally audited financial statements.

‘‘(ii) AVAILABILITY.—A bank holding company or

a subsidiary of such company shall provide to the

Board, at the request of the Board, a report referred

to in clause (i).

‘‘(iii) REPORTS FILED WITH OTHER AGENCIES.—

‘‘(I) IN GENERAL.—In the event that the Board

requires a report under this subsection from a

functionally regulated subsidiary of a bank holding

company of a kind that is not required by another

Federal or State regulatory authority or an appropriate self-regulatory organization, the Board shall

first request that the appropriate regulatory

authority or self-regulatory organization obtain

such report.

‘‘(II) AVAILABILITY FROM OTHER SUBSIDIARY.—

If the report is not made available to the Board,

and the report is necessary to assess a material

risk to the bank holding company or any of its

depository institution subsidiaries or compliance

with this Act or any other Federal law that the

Board has specific jurisdiction to enforce against

such company or subsidiary or the systems

described in paragraph (2)(A)(ii)(II), the Board may

require such functionally regulated subsidiary to

provide such a report to the Board.

‘‘(2) EXAMINATIONS.—

‘‘(A) EXAMINATION AUTHORITY FOR BANK HOLDING

COMPANIES AND SUBSIDIARIES.—Subject to subparagraph

(B), the Board may make examinations of each bank

holding company and each subsidiary of such holding company in order—

‘‘(i) to inform the Board of the nature of the operations and financial condition of the holding company

and such subsidiaries;

‘‘(ii) to inform the Board of—

‘‘(I) the financial and operational risks within

the holding company system that may pose a

threat to the safety and soundness of any depository institution subsidiary of such holding company; and
S. 900—27

‘‘(II) the systems for monitoring and controlling such risks; and

‘‘(iii) to monitor compliance with the provisions

of this Act or any other Federal law that the Board

has specific jurisdiction to enforce against such company or subsidiary and those governing transactions

and relationships between any depository institution

subsidiary and its affiliates.

‘‘(B) FUNCTIONALLY REGULATED SUBSIDIARIES.—Notwithstanding subparagraph (A), the Board may make

examinations of a functionally regulated subsidiary of a

bank holding company only if—

‘‘(i) the Board has reasonable cause to believe that

such subsidiary is engaged in activities that pose a

material risk to an affiliated depository institution;

‘‘(ii) the Board reasonably determines, after

reviewing relevant reports, that examination of the

subsidiary is necessary to adequately inform the Board

of the systems described in subparagraph (A)(ii)(II);

or

‘‘(iii) based on reports and other available information, the Board has reasonable cause to believe that

a subsidiary is not in compliance with this Act or

any other Federal law that the Board has specific

jurisdiction to enforce against such subsidiary,

including provisions relating to transactions with an

affiliated depository institution, and the Board cannot

make such determination through examination of the

affiliated depository institution or the bank holding

company.

‘‘(C) RESTRICTED FOCUS OF EXAMINATIONS.—The Board

shall, to the fullest extent possible, limit the focus and

scope of any examination of a bank holding company to—

‘‘(i) the bank holding company; and

‘‘(ii) any subsidiary of the bank holding company

that could have a materially adverse effect on the

safety and soundness of any depository institution subsidiary of the holding company due to—

‘‘(I) the size, condition, or activities of the subsidiary; or

‘‘(II) the nature or size of transactions between

the subsidiary and any depository institution that

is also a subsidiary of the bank holding company.

‘‘(D) DEFERENCE TO BANK EXAMINATIONS.—The Board

shall, to the fullest extent possible, for the purposes of

this paragraph, use the reports of examinations of depository institutions made by the appropriate Federal and State

depository institution supervisory authority.

‘‘(E) DEFERENCE TO OTHER EXAMINATIONS.—The Board

shall, to the fullest extent possible, forego an examination

by the Board under this paragraph and instead review

the reports of examination made of—

‘‘(i) any registered broker or dealer by or on behalf

of the Securities and Exchange Commission;

‘‘(ii) any registered investment adviser properly

registered by or on behalf of either the Securities and

Exchange Commission or any State;
S. 900—28

‘‘(iii) any licensed insurance company by or on

behalf of any State regulatory authority responsible

for the supervision of insurance companies; and

‘‘(iv) any other subsidiary that the Board finds

to be comprehensively supervised by a Federal or State

authority.

‘‘(3) CAPITAL.—

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

guideline, order, or otherwise, prescribe or impose any capital or capital adequacy rules, guidelines, standards, or

requirements on any functionally regulated subsidiary of

a bank holding company that—

‘‘(i) is not a depository institution; and

‘‘(ii) is—

‘‘(I) in compliance with the applicable capital

requirements of its Federal regulatory authority

(including the Securities and Exchange Commission) or State insurance authority;

‘‘(II) properly registered as an investment

adviser under the Investment Advisers Act of 1940,

or with any State; or

‘‘(III) is licensed as an insurance agent with

the appropriate State insurance authority.

‘‘(B) RULE OF CONSTRUCTION.—Subparagraph (A) shall

not be construed as preventing the Board from imposing

capital or capital adequacy rules, guidelines, standards,

or requirements with respect to—

‘‘(i) activities of a registered investment adviser

other than with respect to investment advisory activities or activities incidental to investment advisory

activities; or

‘‘(ii) activities of a licensed insurance agent other

than insurance agency activities or activities incidental

to insurance agency activities.

‘‘(C) LIMITATIONS ON INDIRECT ACTION.—In developing,

establishing, or assessing bank holding company capital

or capital adequacy rules, guidelines, standards, or requirements for purposes of this paragraph, the Board may not

take into account the activities, operations, or investments

of an affiliated investment company registered under the

Investment Company Act of 1940, unless the investment

company is—

‘‘(i) a bank holding company; or

‘‘(ii) controlled by a bank holding company by reason of ownership by the bank holding company

(including through all of its affiliates) of 25 percent

or more of the shares of the investment company,

and the shares owned by the bank holding company

have a market value equal to more than $1,000,000.

‘‘(4) FUNCTIONAL REGULATION OF SECURITIES AND INSURANCE ACTIVITIES.—

‘‘(A) SECURITIES ACTIVITIES.—Securities activities conducted in a functionally regulated subsidiary of a depository

institution shall be subject to regulation by the Securities

and Exchange Commission, and by relevant State securities

authorities, as appropriate, subject to section 104 of the

Gramm-Leach-Bliley Act, to the same extent as if they
S. 900—29

were conducted in a nondepository institution subsidiary

of a bank holding company.

‘‘(B) INSURANCE ACTIVITIES.—Subject to section 104 of

the Gramm-Leach-Bliley Act, insurance agency and brokerage activities and activities as principal conducted in a

functionally regulated subsidiary of a depository institution

shall be subject to regulation by a State insurance authority

to the same extent as if they were conducted in a nondepository institution subsidiary of a bank holding company.

‘‘(5) DEFINITION.—For purposes of this subsection, the term

‘functionally regulated subsidiary’ means any company—

‘‘(A) that is not a bank holding company or a depository

institution; and

‘‘(B) that is—

‘‘(i) a broker or dealer that is registered under

the Securities Exchange Act of 1934;

‘‘(ii) a registered investment adviser, properly registered by or on behalf of either the Securities and

Exchange Commission or any State, with respect to

the investment advisory activities of such investment

adviser and activities incidental to such investment

advisory activities;

‘‘(iii) an investment company that is registered

under the Investment Company Act of 1940;

‘‘(iv) an insurance company, with respect to insurance activities of the insurance company and activities

incidental to such insurance activities, that is subject

to supervision by a State insurance regulator; or

‘‘(v) an entity that is subject to regulation by the

Commodity Futures Trading Commission, with respect

to the commodities activities of such entity and activities incidental to such commodities activities.’’.

SEC. 112. AUTHORITY OF STATE INSURANCE REGULATOR AND SECURITIES AND EXCHANGE COMMISSION.

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

Company Act of 1956 (12 U.S.C. 1844) is amended by adding

at the end the following new subsection:

‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR AND THE

SECURITIES AND EXCHANGE COMMISSION.— ‘‘(1) IN GENERAL.—Notwithstanding any other provision of

law, any regulation, order, or other action of the Board that

requires a bank holding company to provide funds or other

assets to a subsidiary depository institution shall not be effective nor enforceable with respect to an entity described in

subparagraph (A) if—

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

‘‘(i) a bank holding company that is an insurance

company, a broker or dealer registered under the Securities Exchange Act of 1934, an investment company

registered under the Investment Company Act of 1940,

or an investment adviser registered by or on behalf

of either the Securities and Exchange Commission or

any State; or

‘‘(ii) an affiliate of the depository institution that

is an insurance company or a broker or dealer registered under the Securities Exchange Act of 1934,
S. 900—30

an investment company registered under the Investment Company Act of 1940, or an investment adviser

registered by or on behalf of either the Securities and

Exchange Commission or any State; and

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

company or the Securities and Exchange Commission for

the registered broker, dealer, investment adviser (solely

with respect to investment advisory activities or activities

incidental thereto), or investment company, as the case

may be, determines in writing sent to the holding company

and the Board that the holding company shall not provide

such funds or assets because such action would have a

material adverse effect on the financial condition of the

insurance company or the broker, dealer, investment company, or investment adviser, as the case may be.

‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY OR SEC

REQUIRED.—If the Board requires a bank holding company,

or an affiliate of a bank holding company, that is an insurance

company or a broker, dealer, investment company, or investment adviser described in paragraph (1)(A) to provide funds

or assets to a depository institution subsidiary of the holding

company pursuant to any regulation, order, or other action

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

promptly notify the State insurance authority for the insurance

company, the Securities and Exchange Commission, or State

securities regulator, as the case may be, of such requirement.

‘‘(3) DIVESTITURE IN LIEU OF OTHER ACTION.—If the Board

receives a notice described in paragraph (1)(B) from a State

insurance authority or the Securities and Exchange Commission with regard to a bank holding company or affiliate referred

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

company to divest the depository institution not later than

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

the Board determines consistent with the safe and sound operation of the depository institution.

‘‘(4) CONDITIONS BEFORE DIVESTITURE.—During the period

beginning on the date an order to divest is issued by the

Board under paragraph (3) to a bank holding company and

ending on the date the divestiture is completed, the Board

may impose any conditions or restrictions on the holding company’s ownership or operation of the depository institution,

including restricting or prohibiting transactions between the

depository institution and any affiliate of the institution, as

are appropriate under the circumstances.

‘‘(5) RULE OF CONSTRUCTION.—No provision of this subsection may be construed as limiting or otherwise affecting,

except to the extent specifically provided in this subsection,

the regulatory authority, including the scope of the authority,

of any Federal agency or department with regard to any entity

that is within the jurisdiction of such agency or department.’’.

(b) SUBSIDIARIES OF DEPOSITORY INSTITUTIONS.—The Federal

Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by

adding at the end the following new section:
S. 900—31

‘‘SEC. 45. AUTHORITY OF STATE INSURANCE REGULATOR AND SECURITIES AND EXCHANGE COMMISSION.

‘‘(a) IN GENERAL.—Notwithstanding any other provision of law,

the provisions of—

‘‘(1) section 5(c) of the Bank Holding Company Act of 1956

that limit the authority of the Board of Governors of the Federal

Reserve System to require reports from, to make examinations

of, or to impose capital requirements on holding companies

and their functionally regulated subsidiaries or that require

deference to other regulators;

‘‘(2) section 5(g) of the Bank Holding Company Act of

1956 that limit the authority of the Board to require a functionally regulated subsidiary of a holding company to provide capital or other funds or assets to a depository institution subsidiary of the holding company and to take certain actions

including requiring divestiture of the depository institution;

and

‘‘(3) section 10A of the Bank Holding Company Act of

1956 that limit whatever authority the Board might otherwise

have to take direct or indirect action with respect to holding

companies and their functionally regulated subsidiaries;

shall also limit whatever authority that a Federal banking agency

might otherwise have under any statute or regulation to require

reports, make examinations, impose capital requirements, or take

any other direct or indirect action with respect to any functionally

regulated affiliate of a depository institution, subject to the same

standards and requirements as are applicable to the Board under

those provisions.

‘‘(b) CERTAIN EXEMPTION AUTHORIZED.—No provision of this

section shall be construed as preventing the Corporation, if the

Corporation finds it necessary to determine the condition of a

depository institution for insurance purposes, from examining an

affiliate of any depository institution, pursuant to section 10(b)(4),

as may be necessary to disclose fully the relationship between

the depository institution and the affiliate, and the effect of such

relationship on the depository institution.

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

definitions shall apply:

‘‘(1) FUNCTIONALLY REGULATED SUBSIDIARY.—The term

‘functionally regulated subsidiary’ has the meaning given the

term in section 5(c)(5) of the Bank Holding Company Act of

1956.

‘‘(2) FUNCTIONALLY REGULATED AFFILIATE.—The term ‘functionally regulated affiliate’ means, with respect to any depository institution, any affiliate of such depository institution that

is—

‘‘(A) not a depository institution holding company; and

‘‘(B) a company described in any clause of section

5(c)(5)(B) of the Bank Holding Company Act of 1956.’’.

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

RESERVE SYSTEM.

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et

seq.) is amended by inserting after section 10 the following new

section:
S. 900—32

‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SUPERVISORY, AND ENFORCEMENT AUTHORITY OF THE BOARD.

‘‘(a) LIMITATION ON DIRECT ACTION.—The Board may not prescribe regulations, issue or seek entry of orders, impose restraints,

restrictions, guidelines, requirements, safeguards, or standards, or

otherwise take any action under or pursuant to any provision of

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

or with respect to a functionally regulated subsidiary of a bank

holding company unless—

‘‘(1) the action is necessary to prevent or redress an unsafe

or unsound practice or breach of fiduciary duty by such subsidiary that poses a material risk to—

‘‘(A) the financial safety, soundness, or stability of an

affiliated depository institution; or

‘‘(B) the domestic or international payment system;

and

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

to protect effectively against the material risk at issue through

action directed at or against the affiliated depository institution

or against depository institutions generally.

‘‘(b) LIMITATION ON INDIRECT ACTION.—The Board may not

prescribe regulations, issue or seek entry of orders, impose

restraints, restrictions, guidelines, requirements, safeguards, or

standards, or otherwise take any action under or pursuant to any

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

Act against or with respect to a bank holding company that requires

the bank holding company to require a functionally regulated subsidiary of the holding company to engage, or to refrain from

engaging, in any conduct or activities unless the Board could take

such action directly against or with respect to the functionally

regulated subsidiary in accordance with subsection (a).

‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Notwithstanding subsection (a) or (b), the Board may take action under this Act or

section 8 of the Federal Deposit Insurance Act to enforce compliance

by a functionally regulated subsidiary of a bank holding company

with any Federal law that the Board has specific jurisdiction to

enforce against such subsidiary.

‘‘(d) FUNCTIONALLY REGULATED SUBSIDIARY DEFINED.—For purposes of this section, the term ‘functionally regulated subsidiary’

has the meaning given the term in section 5(c)(5).’’.

SEC. 114. PRUDENTIAL SAFEGUARDS.

(a) COMPTROLLER OF THE CURRENCY.— (1) IN GENERAL.—The Comptroller of the Currency may,

by regulation or order, impose restrictions or requirements

on relationships or transactions between a national bank and

a subsidiary of the national bank that the Comptroller finds

are—

(A) consistent with the purposes of this Act, title LXII

of the Revised Statutes of the United States, and other

Federal law applicable to national banks; and

(B) appropriate to avoid any significant risk to the

safety and soundness of insured depository institutions or

any Federal deposit insurance fund or other adverse effects,

such as undue concentration of resources, decreased or

unfair competition, conflicts of interests, or unsound

banking practices.
S. 900—33

(2) REVIEW.—The Comptroller of the Currency shall

regularly—

(A) review all restrictions or requirements established

pursuant to paragraph (1) to determine whether there is

a continuing need for any such restriction or requirement

to carry out the purposes of the Act, including the avoidance

of any adverse effect referred to in paragraph (1)(B); and

(B) modify or eliminate any such restriction or requirement the Comptroller finds is no longer required for such

purposes.

(b) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.—

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

Reserve System may, by regulation or order, impose restrictions

or requirements on relationships or transactions—

(A) between a depository institution subsidiary of a

bank holding company and any affiliate of such depository

institution (other than a subsidiary of such institution);

or

(B) between a State member bank and a subsidiary

of such bank;

if the Board makes a finding described in paragraph (2) with

respect to such restriction or requirement.

(2) FINDING.—The Board of Governors of the Federal

Reserve System may exercise authority under paragraph (1)

if the Board finds that the exercise of such authority is—

(A) consistent with the purposes of this Act, the Bank

Holding Company Act of 1956, the Federal Reserve Act,

and other Federal law applicable to depository institution

subsidiaries of bank holding companies or State member

banks, as the case may be; and

(B) appropriate to prevent an evasion of any provision

of law referred to in subparagraph (A) or to avoid any

significant risk to the safety and soundness of depository

institutions or any Federal deposit insurance fund or other

adverse effects, such as undue concentration of resources,

decreased or unfair competition, conflicts of interests, or

unsound banking practices.

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

Reserve System shall regularly—

(A) review all restrictions or requirements established

pursuant to paragraph (1) or (4) to determine whether

there is a continuing need for any such restriction or

requirement to carry out the purposes of the Act, including

the avoidance of any adverse effect referred to in paragraph

(2)(B) or (4)(B); and

(B) modify or eliminate any such restriction or requirement the Board finds is no longer required for such purposes.

(4) FOREIGN BANKS.—The Board may, by regulation or

order, impose restrictions or requirements on relationships or

transactions between a branch, agency, or commercial lending

company of a foreign bank in the United States and any affiliate

in the United States of such foreign bank that the Board

finds are—

(A) consistent with the purposes of this Act, the Bank

Holding Company Act of 1956, the Federal Reserve Act,
S. 900—34

and other Federal law applicable to foreign banks and

their affiliates in the United States; and

(B) appropriate to prevent an evasion of any provision

of law referred to in subparagraph (A) or to avoid any

significant risk to the safety and soundness of depository

institutions or any Federal deposit insurance fund or other

adverse effects, such as undue concentration of resources,

decreased or unfair competition, conflicts of interests, or

unsound banking practices.

(c) FEDERAL DEPOSIT INSURANCE CORPORATION.—

(1) IN GENERAL.—The Federal Deposit Insurance Corporation may, by regulation or order, impose restrictions or requirements on relationships or transactions between a State nonmember bank (as defined in section 3 of the Federal Deposit

Insurance Act) and a subsidiary of the State nonmember bank

that the Corporation finds are—

(A) consistent with the purposes of this Act, the Federal

Deposit Insurance Act, or other Federal law applicable

to State nonmember banks; and

(B) appropriate to avoid any significant risk to the

safety and soundness of depository institutions or any Federal deposit insurance fund or other adverse effects, such

as undue concentration of resources, decreased or unfair

competition, conflicts of interests, or unsound banking practices.

(2) REVIEW.—The Federal Deposit Insurance Corporation

shall regularly—

(A) review all restrictions or requirements established

pursuant to paragraph (1) to determine whether there is

a continuing need for any such restriction or requirement

to carry out the purposes of the Act, including the avoidance

of any adverse effect referred to in paragraph (1)(B); and

(B) modify or eliminate any such restriction or requirement the Corporation finds is no longer required for such

purposes.

SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

(a) EXCLUSIVE COMMISSION AUTHORITY.—Except as provided

in subsection (c), a Federal banking agency may not inspect or

examine any registered investment company that is not a bank

holding company or a savings and loan holding company.

(b) EXAMINATION RESULTS AND OTHER INFORMATION.—The

Commission shall provide to any Federal banking agency, upon

request, the results of any examination, reports, records, or other

information with respect to any registered investment company

to the extent necessary for the agency to carry out its statutory

responsibilities.

(c) CERTAIN EXAMINATIONS AUTHORIZED.—Nothing in this section shall prevent the Corporation, if the Corporation finds it necessary to determine the condition of an insured depository institution for insurance purposes, from examining an affiliate of any

insured depository institution, pursuant to its authority under section 10(b)(4) of the Federal Deposit Insurance Act, as may be

necessary to disclose fully the relationship between the insured

depository institution and the affiliate, and the effect of such relationship on the insured depository institution.
S. 900—35

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

definitions shall apply:

(1) BANK HOLDING COMPANY.—The term ‘‘bank holding company’’ has the meaning given the term in section 2 of the

Bank Holding Company Act of 1956.

(2) COMMISSION.—The term ‘‘Commission’’ means the Securities and Exchange Commission.

(3) CORPORATION.—The term ‘‘Corporation’’ means the Federal Deposit Insurance Corporation.

(4) FEDERAL BANKING AGENCY.—The term ‘‘Federal banking

agency’’ has the meaning given the term in section 3(z) of

the Federal Deposit Insurance Act.

(5) INSURED DEPOSITORY INSTITUTION.—The term ‘‘insured

depository institution’’ has the meaning given the term in section 3(c) of the Federal Deposit Insurance Act.

(6) REGISTERED INVESTMENT COMPANY.—The term ‘‘registered investment company’’ means an investment company

that is registered with the Commission under the Investment

Company Act of 1940.

(7) SAVINGS AND LOAN HOLDING COMPANY.—The term

‘‘savings and loan holding company’’ has the meaning given

the term in section 10(a)(1)(D) of the Home Owners’ Loan

Act.

SEC. 116. ELIMINATION OF APPLICATION REQUIREMENT FOR FINANCIAL HOLDING COMPANIES.

(a) PREVENTION OF DUPLICATIVE FILINGS.—Section 5(a) of the

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

by adding at the end the following new sentence: ‘‘A declaration

filed in accordance with section 4(l)(1)(C) shall satisfy the requirements of this subsection with regard to the registration of a bank

holding company but not any requirement to file an application

to acquire a bank pursuant to section 3.’’.

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

Holding Company Act of 1956 (12 U.S.C. 1844(e)(1)) is amended—

(1) by striking ‘‘Financial Institutions Supervisory Act of

1966, order’’ and inserting ‘‘Financial Institutions Supervisory

Act of 1966, at the election of the bank holding company—

‘‘(A) order’’; and

(2) by striking ‘‘shareholders of the bank holding company.

Such distribution’’ and inserting ‘‘shareholders of the bank

holding company; or

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

and opportunity for hearing, and after consultation with the

primary supervisor for the bank, which shall be the Comptroller

of the Currency in the case of a national bank, and the Federal

Deposit Insurance Corporation and the appropriate State supervisor in the case of an insured nonmember bank, to terminate

(within 120 days or such longer period as the Board may

direct) the ownership or control of any such bank by such

company.

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

SEC. 117. PRESERVING THE INTEGRITY OF FDIC RESOURCES.

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

U.S.C. 1821(a)(4)(B)) is amended by striking ‘‘to benefit any shareholder of’’ and inserting ‘‘to benefit any shareholder or affiliate
S. 900—36

(other than an insured depository institution that receives assistance in accordance with the provisions of this Act) of’’.

SEC. 118. REPEAL OF SAVINGS BANK PROVISIONS IN THE BANK

HOLDING COMPANY ACT OF 1956.

Section 3(f) of the Bank Holding Company Act of 1956 (12

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

‘‘(f) [Repealed].’’.

SEC. 119. TECHNICAL AMENDMENT.

Section 2(o)(1)(A) of the Bank Holding Company Act of 1956

(12 U.S.C. 1841(o)(1)(A)) is amended by striking ‘‘section 38(b)’’

and inserting ‘‘section 38’’.

Subtitle C—Subsidiaries of National Banks

SEC. 121. SUBSIDIARIES OF NATIONAL BANKS.

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

Statutes of the United States (12 U.S.C. 21 et seq.) is amended—

(1) by redesignating section 5136A as section 5136B; and

(2) by inserting after section 5136 (12 U.S.C. 24) the following new section:

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

‘‘(a) AUTHORIZATION TO CONDUCT IN SUBSIDIARIES CERTAIN

ACTIVITIES THAT ARE FINANCIAL IN NATURE.—

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

may control a financial subsidiary, or hold an interest in a

financial subsidiary.

‘‘(2) CONDITIONS AND REQUIREMENTS.—A national bank may

control a financial subsidiary, or hold an interest in a financial

subsidiary, only if—

‘‘(A) the financial subsidiary engages only in—

‘‘(i) activities that are financial in nature or incidental to a financial activity pursuant to subsection

(b); and

‘‘(ii) activities that are permitted for national banks

to engage in directly (subject to the same terms and

conditions that govern the conduct of the activities

by a national bank);

‘‘(B) the activities engaged in by the financial subsidiary as a principal do not include—

‘‘(i) insuring, guaranteeing, or indemnifying

against loss, harm, damage, illness, disability, or death

(except to the extent permitted under section 302 or

303(c) of the Gramm-Leach-Bliley Act) or providing

or issuing annuities the income of which is subject

to tax treatment under section 72 of the Internal Revenue Code of 1986;

‘‘(ii) real estate development or real estate investment activities, unless otherwise expressly authorized

by law; or

‘‘(iii) any activity permitted in subparagraph (H)

or (I) of section 4(k)(4) of the Bank Holding Company

Act of 1956, except activities described in section

4(k)(4)(H) that may be permitted in accordance with

section 122 of the Gramm-Leach-Bliley Act;
S. 900—37

‘‘(C) the national bank and each depository institution

affiliate of the national bank are well capitalized and well

managed;

‘‘(D) the aggregate consolidated total assets of all financial subsidiaries of the national bank do not exceed the

lesser of—

‘‘(i) 45 percent of the consolidated total assets of

the parent bank; or

‘‘(ii) $50,000,000,000;

‘‘(E) except as provided in paragraph (4), the national

bank meets any applicable rating or other requirement

set forth in paragraph (3); and

‘‘(F) the national bank has received the approval of

the Comptroller of the Currency for the financial subsidiary

to engage in such activities, which approval shall be based

solely upon the factors set forth in this section.

‘‘(3) RATING OR COMPARABLE REQUIREMENT.—

‘‘(A) IN GENERAL.—A national bank meets the requirements of this paragraph if—

‘‘(i) the bank is 1 of the 50 largest insured banks

and has not fewer than 1 issue of outstanding eligible

debt that is currently rated within the 3 highest investment grade rating categories by a nationally recognized

statistical rating organization; or

‘‘(ii) the bank is 1 of the second 50 largest insured

banks and meets the criteria set forth in clause (i)

or such other criteria as the Secretary of the Treasury

and the Board of Governors of the Federal Reserve

System may jointly establish by regulation and determine to be comparable to and consistent with the purposes of the rating required in clause (i).

‘‘(B) CONSOLIDATED TOTAL ASSETS.—For purposes of

this paragraph, the size of an insured bank shall be determined on the basis of the consolidated total assets of the

bank as of the end of each calendar year.

‘‘(4) FINANCIAL AGENCY SUBSIDIARY.—The requirement in

paragraph (2)(E) shall not apply with respect to the ownership

or control of a financial subsidiary that engages in activities

described in subsection (b)(1) solely as agent and not directly

or indirectly as principal.

‘‘(5) REGULATIONS REQUIRED.—Before the end of the 270-

day period beginning on the date of the enactment of the

Gramm-Leach-Bliley Act, the Comptroller of the Currency shall,

by regulation, prescribe procedures to implement this section.

‘‘(6) INDEXED ASSET LIMIT.—The dollar amount contained

in paragraph (2)(D) shall be adjusted according to an indexing

mechanism jointly established by regulation by the Secretary

of the Treasury and the Board of Governors of the Federal

Reserve System.

‘‘(7) COORDINATION WITH SECTION 4(l)(2) OF THE BANK

HOLDING COMPANY ACT OF 1956.—Section 4(l)(2) of the Bank

Holding Company Act of 1956 applies to a national bank that

controls a financial subsidiary in the manner provided in that

section.

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

‘‘(1) FINANCIAL ACTIVITIES.—
S. 900—38

‘‘(A) IN GENERAL.—An activity shall be financial in

nature or incidental to such financial activity only if—

‘‘(i) such activity has been defined to be financial

in nature or incidental to a financial activity for bank

holding companies pursuant to section 4(k)(4) of the

Bank Holding Company Act of 1956; or

‘‘(ii) the Secretary of the Treasury determines the

activity is financial in nature or incidental to a financial activity in accordance with subparagraph (B).

‘‘(B) COORDINATION BETWEEN THE BOARD AND THE SECRETARY OF THE TREASURY.—

‘‘(i) PROPOSALS RAISED BEFORE THE SECRETARY OF

THE TREASURY.—

‘‘(I) CONSULTATION.—The Secretary of the

Treasury shall notify the Board of, and consult

with the Board concerning, any request, proposal,

or application under this section for a determination of whether an activity is financial in nature

or incidental to a financial activity.

‘‘(II) BOARD VIEW.—The Secretary of the

Treasury shall not determine that any activity is

financial in nature or incidental to a financial

activity under this section if the Board notifies

the Secretary in writing, not later than 30 days

after the date of receipt of the notice described

in subclause (I) (or such longer period as the Secretary determines to be appropriate under the circumstances) that the Board believes that the

activity is not financial in nature or incidental

to a financial activity or is not otherwise permissible under this section.

‘‘(ii) PROPOSALS RAISED BY THE BOARD.— ‘‘(I) BOARD RECOMMENDATION.—The Board

may, at any time, recommend in writing that the

Secretary of the Treasury find an activity to be

financial in nature or incidental to a financial

activity for purposes of this section.

‘‘(II) TIME PERIOD FOR SECRETARIAL ACTION.— Not later than 30 days after the date of receipt

of a written recommendation from the Board under

subclause (I) (or such longer period as the Secretary of the Treasury and the Board determine

to be appropriate under the circumstances), the

Secretary shall determine whether to initiate a

public rulemaking proposing that the subject recommended activity be found to be financial in

nature or incidental to a financial activity under

this section, and shall notify the Board in writing

of the determination of the Secretary and, in the

event that the Secretary determines not to seek

public comment on the proposal, the reasons for

that determination.

‘‘(2) FACTORS TO BE CONSIDERED.—In determining whether

an activity is financial in nature or incidental to a financial

activity, the Secretary shall take into account—

‘‘(A) the purposes of this Act and the Gramm-LeachBliley Act;
S. 900—39

‘‘(B) changes or reasonably expected changes in the

marketplace in which banks compete;

‘‘(C) changes or reasonably expected changes in the

technology for delivering financial services; and

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

to allow a bank and the subsidiaries of a bank to—

‘‘(i) compete effectively with any company seeking

to provide financial services in the United States;

‘‘(ii) efficiently deliver information and services

that are financial in nature through the use of technological means, including any application necessary to

protect the security or efficacy of systems for the transmission of data or financial transactions; and

‘‘(iii) offer customers any available or emerging

technological means for using financial services or for

the document imaging of data.

‘‘(3) AUTHORIZATION OF NEW FINANCIAL ACTIVITIES.—The

Secretary of the Treasury shall, by regulation or order and

in accordance with paragraph (1)(B), define, consistent with

the purposes of this Act and the Gramm-Leach-Bliley Act,

the following activities as, and the extent to which such activities are, financial in nature or incidental to a financial activity:

‘‘(A) Lending, exchanging, transferring, investing for

others, or safeguarding financial assets other than money

or securities.

‘‘(B) Providing any device or other instrumentality for

transferring money or other financial assets.

‘‘(C) Arranging, effecting, or facilitating financial transactions for the account of third parties.

‘‘(c) CAPITAL DEDUCTION.— ‘‘(1) CAPITAL DEDUCTION REQUIRED.—In determining

compliance with applicable capital standards—

‘‘(A) the aggregate amount of the outstanding equity

investment, including retained earnings, of a national bank

in all financial subsidiaries shall be deducted from the

assets and tangible equity of the national bank; and

‘‘(B) the assets and liabilities of the financial subsidiaries shall not be consolidated with those of the national

bank.

‘‘(2) FINANCIAL STATEMENT DISCLOSURE OF CAPITAL DEDUC- TION.—Any published financial statement of a national bank

that controls a financial subsidiary shall, in addition to providing information prepared in accordance with generally

accepted accounting principles, separately present financial

information for the bank in the manner provided in paragraph

(1).

‘‘(d) SAFEGUARDS FOR THE BANK.—A national bank that establishes or maintains a financial subsidiary shall assure that—

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

and managing financial and operational risks within the

national bank and the financial subsidiary adequately protect

the national bank from such risks;

‘‘(2) the national bank has, for the protection of the bank,

reasonable policies and procedures to preserve the separate

corporate identity and limited liability of the national bank

and the financial subsidiaries of the national bank; and

‘‘(3) the national bank is in compliance with this section.
S. 900—40

‘‘(e) PROVISIONS APPLICABLE TO NATIONAL BANKS THAT FAIL

TO CONTINUE TO MEET CERTAIN REQUIREMENTS.—

‘‘(1) IN GENERAL.—If a national bank or insured depository

institution affiliate does not continue to meet the requirements

of subsection (a)(2)(C) or subsection (d), the Comptroller of

the Currency shall promptly give notice to the national bank

to that effect describing the conditions giving rise to the notice.

‘‘(2) AGREEMENT TO CORRECT CONDITIONS.—Not later than

45 days after the date of receipt by a national bank of a

notice given under paragraph (1) (or such additional period

as the Comptroller of the Currency may permit), the national

bank shall execute an agreement with the Comptroller of the

Currency and any relevant insured depository institution affiliate shall execute an agreement with its appropriate Federal

banking agency to comply with the requirements of subsection

(a)(2)(C) and subsection (d).

‘‘(3) IMPOSITION OF CONDITIONS.—Until the conditions

described in a notice under paragraph (1) are corrected—

‘‘(A) the Comptroller of the Currency may impose such

limitations on the conduct or activities of the national

bank or any subsidiary of the national bank as the Comptroller of the Currency determines to be appropriate under

the circumstances and consistent with the purposes of this

section; and

‘‘(B) the appropriate Federal banking agency may

impose such limitations on the conduct or activities of

any relevant insured depository institution affiliate or any

subsidiary of the institution as such agency determines

to be appropriate under the circumstances and consistent

with the purposes of this section.

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

a notice to a national bank under paragraph (1) are not corrected within 180 days after the date of receipt by the national

bank of the notice, the Comptroller of the Currency may require

the national bank, under such terms and conditions as may

be imposed by the Comptroller and subject to such extension

of time as may be granted in the discretion of the Comptroller,

to divest control of any financial subsidiary.

‘‘(5) CONSULTATION.—In taking any action under this subsection, the Comptroller shall consult with all relevant Federal

and State regulatory agencies and authorities.

‘‘(f) FAILURE TO MAINTAIN PUBLIC RATING OR MEET APPLICABLE

CRITERIA.—

‘‘(1) IN GENERAL.—A national bank that does not continue

to meet any applicable rating or other requirement of subsection

(a)(2)(E) after acquiring or establishing a financial subsidiary

shall not, directly or through a subsidiary, purchase or acquire

any additional equity capital of any financial subsidiary until

the bank meets such requirements.

‘‘(2) EQUITY CAPITAL.—For purposes of this subsection, the

term ‘equity capital’ includes, in addition to any equity

instrument, any debt instrument issued by a financial subsidiary, if the instrument qualifies as capital of the subsidiary

under any Federal or State law, regulation, or interpretation

applicable to the subsidiary.

‘‘(g) DEFINITIONS.—For purposes of this section, the following

definitions shall apply:
S. 900—41

‘‘(1) AFFILIATE, COMPANY, CONTROL, AND SUBSIDIARY.—The

terms ‘affiliate’, ‘company’, ‘control’, and ‘subsidiary’ have the

meanings given those terms in section 2 of the Bank Holding

Company Act of 1956.

‘‘(2) APPROPRIATE FEDERAL BANKING AGENCY, DEPOSITORY

INSTITUTION, INSURED BANK, AND INSURED DEPOSITORY INSTITUTION.—The terms ‘appropriate Federal banking agency’, ‘depository institution’, ‘insured bank’, and ‘insured depository institution’ have the meanings given those terms in section 3 of

the Federal Deposit Insurance Act.

‘‘(3) FINANCIAL SUBSIDIARY.—The term ‘financial subsidiary’

means any company that is controlled by 1 or more insured

depository institutions other than a subsidiary that—

‘‘(A) engages solely in activities that national banks

are permitted to engage in directly and are conducted

subject to the same terms and conditions that govern the

conduct of such activities by national banks; or

‘‘(B) a national bank is specifically authorized by the

express terms of a Federal statute (other than this section),

and not by implication or interpretation, to control, such

as by section 25 or 25A of the Federal Reserve Act or

the Bank Service Company Act.

‘‘(4) ELIGIBLE DEBT.—The term ‘eligible debt’ means

unsecured long-term debt that—

‘‘(A) is not supported by any form of credit enhancement, including a guarantee or standby letter of credit;

and

‘‘(B) is not held in whole or in any significant part

by any affiliate, officer, director, principal shareholder, or

employee of the bank or any other person acting on behalf

of or with funds from the bank or an affiliate of the bank.

‘‘(5) WELL CAPITALIZED.—The term ‘well capitalized’ has

the meaning given the term in section 38 of the Federal Deposit

Insurance Act.

‘‘(6) WELL MANAGED.—The term ‘well managed’ means—

‘‘(A) in the case of a depository institution that has

been examined, unless otherwise determined in writing

by the appropriate Federal banking agency—

‘‘(i) the achievement of a composite rating of 1

or 2 under the Uniform Financial Institutions Rating

System (or an equivalent rating under an equivalent

rating system) in connection with the most recent

examination or subsequent review of the depository

institution; and

‘‘(ii) at least a rating of 2 for management, if

such rating is given; or

‘‘(B) in the case of any depository institution that has

not been examined, the existence and use of managerial

resources that the appropriate Federal banking agency

determines are satisfactory.’’.

(b) SECTIONS 23A AND 23B OF THE FEDERAL RESERVE ACT.—

(1) LIMITING THE EXPOSURE OF A BANK TO A FINANCIAL

SUBSIDIARY TO THE AMOUNT OF PERMISSIBLE EXPOSURE TO AN

AFFILIATE.—Section 23A of the Federal Reserve Act (12 U.S.C.

371c) is amended—

(A) by redesignating subsection (e) as subsection (f);

and
S. 900—42

(B) by inserting after subsection (d), the following new

subsection:

‘‘(e) RULES RELATING TO BANKS WITH FINANCIAL SUBSIDIARIES.—

‘‘(1) FINANCIAL SUBSIDIARY DEFINED.—For purposes of this

section and section 23B, the term ‘financial subsidiary’ means

any company that is a subsidiary of a bank that would be

a financial subsidiary of a national bank under section 5136A

of the Revised Statutes of the United States.

‘‘(2) FINANCIAL SUBSIDIARY TREATED AS AN AFFILIATE.—

For purposes of applying this section and section 23B, and

notwithstanding subsection (b)(2) of this section or section

23B(d)(1), a financial subsidiary of a bank—

‘‘(A) shall be deemed to be an affiliate of the bank;

and

‘‘(B) shall not be deemed to be a subsidiary of the

bank.

‘‘(3) EXCEPTIONS FOR TRANSACTIONS WITH FINANCIAL

SUBSIDIARIES.—

‘‘(A) EXCEPTION FROM LIMIT ON COVERED TRANSACTIONS

WITH ANY INDIVIDUAL FINANCIAL SUBSIDIARY.—Notwithstanding paragraph (2), the restriction contained in subsection (a)(1)(A) shall not apply with respect to covered

transactions between a bank and any individual financial

subsidiary of the bank.

‘‘(B) EXCEPTION FOR EARNINGS RETAINED BY FINANCIAL

SUBSIDIARIES.—Notwithstanding paragraph (2) or subsection (b)(7), a bank’s investment in a financial subsidiary

of the bank shall not include retained earnings of the

financial subsidiary.

‘‘(4) ANTI-EVASION PROVISION.—For purposes of this section

and section 23B—

‘‘(A) any purchase of, or investment in, the securities

of a financial subsidiary of a bank by an affiliate of the

bank shall be considered to be a purchase of or investment

in such securities by the bank; and

‘‘(B) any extension of credit by an affiliate of a bank

to a financial subsidiary of the bank shall be considered

to be an extension of credit by the bank to the financial

subsidiary if the Board determines that such treatment

is necessary or appropriate to prevent evasions of this

Act and the Gramm-Leach-Bliley Act.’’.

(2) REBUTTABLE PRESUMPTION OF CONTROL OF PORTFOLIO

COMPANY.—Section 23A(b) of the Federal Reserve Act (12 U.S.C.

371c(b)) is amended by adding at the end the following new

paragraph—

‘‘(11) REBUTTABLE PRESUMPTION OF CONTROL OF PORTFOLIO

COMPANIES.—In addition to paragraph (3), a company or shareholder shall be presumed to control any other company if the

company or shareholder, directly or indirectly, or acting through

1 or more other persons, owns or controls 15 percent or more

of the equity capital of the other company pursuant to subparagraph (H) or (I) of section 4(k)(4) of the Bank Holding Company

Act of 1956 or rules adopted under section 122 of the GrammLeach-Bliley Act, if any, unless the company or shareholder

provides information acceptable to the Board to rebut this

presumption of control.’’.
S. 900—43

(3) RULEMAKING REQUIRED CONCERNING DERIVATIVE TRANSACTIONS AND INTRADAY CREDIT.—Section 23A(f) of the Federal

Reserve Act (12 U.S.C. 371c(f)) (as so redesignated by paragraph

(1)(A) of this subsection) is amended by inserting at the end

the following new paragraph:

‘‘(3) RULEMAKING REQUIRED CONCERNING DERIVATIVE

TRANSACTIONS AND INTRADAY CREDIT.—

‘‘(A) IN GENERAL.—Not later than 18 months after the

date of the enactment of the Gramm-Leach-Bliley Act, the

Board shall adopt final rules under this section to address

as covered transactions credit exposure arising out of

derivative transactions between member banks and their

affiliates and intraday extensions of credit by member

banks to their affiliates.

‘‘(B) EFFECTIVE DATE.—The effective date of any final

rule adopted by the Board pursuant to subparagraph (A)

shall be delayed for such period as the Board deems necessary or appropriate to permit banks to conform their

activities to the requirements of the final rule without

undue hardship.’’.

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

Act Amendments of 1970 (12 U.S.C. 1971) is amended by adding

at the end the following: ‘‘For purposes of this section, a financial

subsidiary of a national bank engaging in activities pursuant to

section 5136A(a) of the Revised Statutes of the United States shall

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

not a subsidiary of a bank.’’.

(d) SAFETY AND SOUNDNESS FIREWALLS FOR STATE BANKS WITH

FINANCIAL SUBSIDIARIES.— (1) FEDERAL DEPOSIT INSURANCE ACT.—The Federal Deposit

Insurance Act (12 U.S.C. 1811 et seq.) is amended by inserting

after section 45 (as added by section 112(b) of this title) the

following new section:

‘‘SEC. 46. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO

FINANCIAL SUBSIDIARIES OF BANKS.

‘‘(a) IN GENERAL.—An insured State bank may control or hold

an interest in a subsidiary that engages in activities as principal

that would only be permissible for a national bank to conduct

through a financial subsidiary if—

‘‘(1) the State bank and each insured depository institution

affiliate of the State bank are well capitalized (after the capital

deduction required by paragraph (2));

‘‘(2) the State bank complies with the capital deduction

and financial statement disclosure requirements in section

5136A(c) of the Revised Statutes of the United States;

‘‘(3) the State bank complies with the financial and operational safeguards required by section 5136A(d) of the Revised

Statutes of the United States; and

‘‘(4) the State bank complies with the amendments to sections 23A and 23B of the Federal Reserve Act made by section

121(b) of the Gramm-Leach-Bliley Act.

‘‘(b) PRESERVATION OF EXISTING SUBSIDIARIES.—Notwithstanding subsection (a), an insured State bank may retain control

of a subsidiary, or retain an interest in a subsidiary, that the

State bank lawfully controlled or acquired before the date of the

enactment of the Gramm-Leach-Bliley Act, and conduct through
S. 900—44

such subsidiary any activities lawfully conducted in such subsidiary

as of such date.

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

definitions shall apply:

‘‘(1) SUBSIDIARY.—The term ‘subsidiary’ means any company that is a subsidiary (as defined in section 3(w)(4)) of

1 or more insured banks.

‘‘(2) FINANCIAL SUBSIDIARY.—The term ‘financial subsidiary’

has the meaning given the term in section 5136A(g) of the

Revised Statutes of the United States.

‘‘(d) PRESERVATION OF AUTHORITY.—

‘‘(1) FEDERAL DEPOSIT INSURANCE ACT.—No provision of

this section shall be construed as superseding the authority

of the Federal Deposit Insurance Corporation to review subsidiary activities under section 24.

‘‘(2) FEDERAL RESERVE ACT.—No provision of this section

shall be construed as affecting the applicability of the 20th

undesignated paragraph of section 9 of the Federal Reserve

Act.’’.

(2) FEDERAL RESERVE ACT.—The 20th undesignated paragraph of section 9 of the Federal Reserve Act (12 U.S.C. 335)

is amended by adding at the end the following: ‘‘This paragraph

shall not apply to any interest held by a State member bank

in accordance with section 5136A of the Revised Statutes of

the United States and subject to the same conditions and

limitations provided in such section.’’.

(e) CLERICAL AMENDMENT.—The table of sections for chapter

one of title LXII of the Revised Statutes of the United States

is amended—

(1) by redesignating the item relating to section 5136A

as section 5136B; and

(2) by inserting after the item relating to section 5136

the following new item:

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

SEC. 122. CONSIDERATION OF MERCHANT BANKING ACTIVITIES BY

FINANCIAL SUBSIDIARIES.

After the end of the 5-year period beginning on the date of

the enactment of the Gramm-Leach-Bliley Act, the Board of Governors of the Federal Reserve System and the Secretary of the

Treasury may, if appropriate, after considering—

(1) the experience with the effects of financial modernization under this Act and merchant banking activities of financial

holding companies;

(2) the potential effects on depository institutions and the

financial system of allowing merchant banking activities in

financial subsidiaries; and

(3) other relevant facts;

jointly adopt rules that permit financial subsidiaries to engage

in merchant banking activities described in section 4(k)(4)(H) of

the Bank Holding Company Act of 1956, under such terms and

conditions as the Board of Governors of the Federal Reserve System

and the Secretary of the Treasury jointly determine to be appropriate.
S. 900—45

Subtitle D—Preservation of FTC Authority

SEC. 131. AMENDMENT TO THE BANK HOLDING COMPANY ACT OF 1956

TO MODIFY NOTIFICATION AND POST-APPROVAL WAITING

PERIOD FOR SECTION 3 TRANSACTIONS.

Section 11(b)(1) of the Bank Holding Company Act of 1956

(12 U.S.C. 1849(b)(1)) is amended by inserting ‘‘and, if the transaction also involves an acquisition under section 4, the Board shall

also notify the Federal Trade Commission of such approval’’ before

the period at the end of the first sentence.

SEC. 132. INTERAGENCY DATA SHARING.

(a) IN GENERAL.—To the extent not prohibited by other law,

the Comptroller of the Currency, the Director of the Office of Thrift

Supervision, the Federal Deposit Insurance Corporation, and the

Board of Governors of the Federal Reserve System shall make

available to the Attorney General and the Federal Trade Commission any data in the possession of any such banking agency that

the antitrust agency deems necessary for antitrust review of any

transaction requiring notice to any such antitrust agency or the

approval of such agency under section 3 or 4 of the Bank Holding

Company Act of 1956, section 18(c) of the Federal Deposit Insurance

Act, the National Bank Consolidation and Merger Act, section 10

of the Home Owners’ Loan Act, or the antitrust laws.

(b) CONFIDENTIALITY REQUIREMENTS.—

(1) IN GENERAL.—Any information or material obtained

by any agency pursuant to subsection (a) shall be treated

as confidential.

(2) PROCEDURES FOR DISCLOSURE.—If any information or

material obtained by any agency pursuant to subsection (a)

is proposed to be disclosed to a third party, written notice

of such disclosure shall first be provided to the agency from

which such information or material was obtained and an opportunity shall be given to such agency to oppose or limit the

proposed disclosure.

(3) OTHER PRIVILEGES NOT WAIVED BY DISCLOSURE UNDER

THIS SECTION.—The provision by any Federal agency of any

information or material pursuant to subsection (a) to another

agency shall not constitute a waiver, or otherwise affect, any

privilege any agency or person may claim with respect to such

information under Federal or State law.

(4) EXCEPTION.—No provision of this section shall be construed as preventing or limiting access to any information

by any duly authorized committee of the Congress or the Comptroller General of the United States.

(c) BANKING AGENCY INFORMATION SHARING.—The provisions

of subsection (b) shall apply to—

(1) any information or material obtained by any Federal

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

Insurance Act) from any other Federal banking agency; and

(2) any report of examination or other confidential supervisory information obtained by any State agency or authority,

or any other person, from a Federal banking agency.
S. 900—46

SEC. 133. CLARIFICATION OF STATUS OF SUBSIDIARIES AND AFFILIATES.

(a) CLARIFICATION OF FEDERAL TRADE COMMISSION JURISDIC- TION.—Any person that directly or indirectly controls, is controlled

directly or indirectly by, or is directly or indirectly under common

control with, any bank or savings association (as such terms are

defined in section 3 of the Federal Deposit Insurance Act) and

is not itself a bank or savings association shall not be deemed

to be a bank or savings association for purposes of any provisions

applied by the Federal Trade Commission under the Federal Trade

Commission Act.

(b) SAVINGS PROVISION.—No provision of this section shall be

construed as restricting the authority of any Federal banking agency

(as defined in section 3 of the Federal Deposit Insurance Act)

under any Federal banking law, including section 8 of the Federal

Deposit Insurance Act.

(c) HART-SCOTT-RODINO AMENDMENTS.—

(1) BANKS.—Section 7A(c)(7) of the Clayton Act (15 U.S.C.

18a(c)(7)) is amended by inserting before the semicolon at the

end the following: ‘‘, except that a portion of a transaction

is not exempt under this paragraph if such portion of the

transaction (A) is subject to section 4(k) of the Bank Holding

Company Act of 1956; and (B) does not require agency approval

under section 3 of the Bank Holding Company Act of 1956’’.

(2) BANK HOLDING COMPANIES.—Section 7A(c)(8) of the

Clayton Act (15 U.S.C. 18a(c)(8)) is amended by inserting before

the semicolon at the end the following: ‘‘, except that a portion

of a transaction is not exempt under this paragraph if such

portion of the transaction (A) is subject to section 4(k) of the

Bank Holding Company Act of 1956; and (B) does not require

agency approval under section 4 of the Bank Holding Company

Act of 1956’’.

Subtitle E—National Treatment

SEC. 141. FOREIGN BANKS THAT ARE FINANCIAL HOLDING COMPANIES.

Section 8(c) of the International Banking Act of 1978 (12 U.S.C.

3106(c)) is amended by adding at the end the following new paragraph:

‘‘(3) TERMINATION OF GRANDFATHERED RIGHTS.— ‘‘(A) IN GENERAL.—If any foreign bank or foreign company files a declaration under section 4(l)(1)(C) of the Bank

Holding Company Act of 1956, any authority conferred

by this subsection on any foreign bank or company to

engage in any activity that the Board has determined to

be permissible for financial holding companies under section 4(k) of such Act shall terminate immediately.

‘‘(B) RESTRICTIONS AND REQUIREMENTS AUTHORIZED.—

If a foreign bank or company that engages, directly or

through an affiliate pursuant to paragraph (1), in an

activity that the Board has determined to be permissible

for financial holding companies under section 4(k) of the

Bank Holding Company Act of 1956 has not filed a declaration with the Board of its status as a financial holding

company under such section by the end of the 2-year period
S. 900—47

beginning on the date of the enactment of the GrammLeach-Bliley Act, the Board, giving due regard to the principle of national treatment and equality of competitive

opportunity, may impose such restrictions and requirements on the conduct of such activities by such foreign

bank or company as are comparable to those imposed on

a financial holding company organized under the laws of

the United States, including a requirement to conduct such

activities in compliance with any prudential safeguards

established under section 114 of the Gramm-Leach-Bliley

Act.’’.

SEC. 142. REPRESENTATIVE OFFICES.

(a) DEFINITION.—Section 1(b)(15) of the International Banking

Act of 1978 (12 U.S.C. 3101(15)) is amended by striking ‘‘State

agency, or subsidiary of a foreign bank’’ and inserting ‘‘or State

agency’’.

(b) EXAMINATIONS.—Section 10(c) of the International Banking

Act of 1978 (12 U.S.C. 3107(c)) is amended by adding at the end

the following new sentence: ‘‘The Board may also make examinations of any affiliate of a foreign bank conducting business in

any State if the Board deems it necessary to determine and enforce

compliance with this Act, the Bank Holding Company Act of 1956,

or other applicable Federal banking law.’’.

Subtitle F—Direct Activities of Banks

SEC. 151. AUTHORITY OF NATIONAL BANKS TO UNDERWRITE CERTAIN MUNICIPAL BONDS.

The paragraph designated the Seventh of section 5136 of the

Revised Statutes of the United States (12 U.S.C. 24(7)) is amended

by adding at the end the following new sentence: ‘‘In addition

to the provisions in this paragraph for dealing in, underwriting,

or purchasing securities, the limitations and restrictions contained

in this paragraph as to dealing in, underwriting, and purchasing

investment securities for the national bank’s own account shall

not apply to obligations (including limited obligation bonds, revenue

bonds, and obligations that satisfy the requirements of section

142(b)(1) of the Internal Revenue Code of 1986) issued by or on

behalf of any State or political subdivision of a State, including

any municipal corporate instrumentality of 1 or more States, or

any public agency or authority of any State or political subdivision

of a State, if the national bank is well capitalized (as defined

in section 38 of the Federal Deposit Insurance Act).’’.

Subtitle G—Effective Date

SEC. 161. EFFECTIVE DATE.

This title (other than section 104) and the amendments made

by this title shall take effect 120 days after the date of the enactment of this Act.
S. 900—48

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

SEC. 201. DEFINITION OF BROKER.

Section 3(a)(4) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(4)) is amended to read as follows:

‘‘(4) BROKER.— ‘‘(A) IN GENERAL.—The term ‘broker’ means any person

engaged in the business of effecting transactions in securities for the account of others.

‘‘(B) EXCEPTION FOR CERTAIN BANK ACTIVITIES.—A bank

shall not be considered to be a broker because the bank

engages in any one or more of the following activities

under the conditions described:

‘‘(i) THIRD PARTY BROKERAGE ARRANGEMENTS.—The

bank enters into a contractual or other written

arrangement with a broker or dealer registered under

this title under which the broker or dealer offers

brokerage services on or off the premises of the bank

if—

‘‘(I) such broker or dealer is clearly identified

as the person performing the brokerage services;

‘‘(II) the broker or dealer performs brokerage

services in an area that is clearly marked and,

to the extent practicable, physically separate from

the routine deposit-taking activities of the bank;

‘‘(III) any materials used by the bank to advertise or promote generally the availability of brokerage services under the arrangement clearly

indicate that the brokerage services are being provided by the broker or dealer and not by the bank;

‘‘(IV) any materials used by the bank to advertise or promote generally the availability of

brokerage services under the arrangement are in

compliance with the Federal securities laws before

distribution;

‘‘(V) bank employees (other than associated

persons of a broker or dealer who are qualified

pursuant to the rules of a self-regulatory organization) perform only clerical or ministerial functions

in connection with brokerage transactions

including scheduling appointments with the associated persons of a broker or dealer, except that

bank employees may forward customer funds or

securities and may describe in general terms the

types of investment vehicles available from the

bank and the broker or dealer under the arrangement;

‘‘(VI) bank employees do not receive incentive

compensation for any brokerage transaction unless

such employees are associated persons of a broker

or dealer and are qualified pursuant to the rules

of a self-regulatory organization, except that the

bank employees may receive compensation for the

referral of any customer if the compensation is
S. 900—49

a nominal one-time cash fee of a fixed dollar

amount and the payment of the fee is not contingent on whether the referral results in a transaction;

‘‘(VII) such services are provided by the broker

or dealer on a basis in which all customers that

receive any services are fully disclosed to the

broker or dealer;

‘‘(VIII) the bank does not carry a securities

account of the customer except as permitted under

clause (ii) or (viii) of this subparagraph; and

‘‘(IX) the bank, broker, or dealer informs each

customer that the brokerage services are provided

by the broker or dealer and not by the bank and

that the securities are not deposits or other obligations of the bank, are not guaranteed by the bank,

and are not insured by the Federal Deposit Insurance Corporation.

‘‘(ii) TRUST ACTIVITIES.—The bank effects transactions in a trustee capacity, or effects transactions

in a fiduciary capacity in its trust department or other

department that is regularly examined by bank examiners for compliance with fiduciary principles and

standards, and—

‘‘(I) is chiefly compensated for such transactions, consistent with fiduciary principles and

standards, on the basis of an administration or

annual fee (payable on a monthly, quarterly, or

other basis), a percentage of assets under management, or a flat or capped per order processing

fee equal to not more than the cost incurred by

the bank in connection with executing securities

transactions for trustee and fiduciary customers,

or any combination of such fees; and

‘‘(II) does not publicly solicit brokerage business, other than by advertising that it effects

transactions in securities in conjunction with

advertising its other trust activities.

‘‘(iii) PERMISSIBLE SECURITIES TRANSACTIONS.—The

bank effects transactions in—

‘‘(I) commercial paper, bankers acceptances,

or commercial bills;

‘‘(II) exempted securities;

‘‘(III) qualified Canadian government obligations as defined in section 5136 of the Revised

Statutes, in conformity with section 15C of this

title and the rules and regulations thereunder,

or obligations of the North American Development

Bank; or

‘‘(IV) any standardized, credit enhanced debt

security issued by a foreign government pursuant

to the March 1989 plan of then Secretary of the

Treasury Brady, used by such foreign government

to retire outstanding commercial bank loans.

‘‘(iv) CERTAIN STOCK PURCHASE PLANS.—

‘‘(I) EMPLOYEE BENEFIT PLANS.—The bank

effects transactions, as part of its transfer agency
S. 900—50

activities, in the securities of an issuer as part

of any pension, retirement, profit-sharing, bonus,

thrift, savings, incentive, or other similar benefit

plan for the employees of that issuer or its affiliates (as defined in section 2 of the Bank Holding

Company Act of 1956), if the bank does not solicit

transactions or provide investment advice with

respect to the purchase or sale of securities in

connection with the plan.

‘‘(II) DIVIDEND REINVESTMENT PLANS.—The

bank effects transactions, as part of its transfer

agency activities, in the securities of an issuer

as part of that issuer’s dividend reinvestment plan,

if—

‘‘(aa) the bank does not solicit transactions

or provide investment advice with respect to

the purchase or sale of securities in connection

with the plan; and

‘‘(bb) the bank does not net shareholders’

buy and sell orders, other than for programs

for odd-lot holders or plans registered with

the Commission.

‘‘(III) ISSUER PLANS.—The bank effects transactions, as part of its transfer agency activities,

in the securities of an issuer as part of a plan

or program for the purchase or sale of that issuer’s

shares, if—

‘‘(aa) the bank does not solicit transactions

or provide investment advice with respect to

the purchase or sale of securities in connection

with the plan or program; and

‘‘(bb) the bank does not net shareholders’

buy and sell orders, other than for programs

for odd-lot holders or plans registered with

the Commission.

‘‘(IV) PERMISSIBLE DELIVERY OF MATERIALS.— The exception to being considered a broker for

a bank engaged in activities described in subclauses (I), (II), and (III) will not be affected by

delivery of written or electronic plan materials

by a bank to employees of the issuer, shareholders

of the issuer, or members of affinity groups of

the issuer, so long as such materials are—

‘‘(aa) comparable in scope or nature to

that permitted by the Commission as of the

date of the enactment of the Gramm-LeachBliley Act; or

‘‘(bb) otherwise permitted by the Commission.

‘‘(v) SWEEP ACCOUNTS.—The bank effects transactions as part of a program for the investment or

reinvestment of deposit funds into any no-load, openend management investment company registered

under the Investment Company Act of 1940 that holds

itself out as a money market fund.

‘‘(vi) AFFILIATE TRANSACTIONS.—The bank effects

transactions for the account of any affiliate of the
S. 900—51

bank (as defined in section 2 of the Bank Holding

Company Act of 1956) other than—

‘‘(I) a registered broker or dealer; or

‘‘(II) an affiliate that is engaged in merchant

banking, as described in section 4(k)(4)(H) of the

Bank Holding Company Act of 1956.

‘‘(vii) PRIVATE SECURITIES OFFERINGS.—The bank—

‘‘(I) effects sales as part of a primary offering

of securities not involving a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities

Act of 1933 or the rules and regulations issued

thereunder;

‘‘(II) at any time after the date that is 1 year

after the date of the enactment of the GrammLeach-Bliley Act, is not affiliated with a broker

or dealer that has been registered for more than

1 year in accordance with this Act, and engages

in dealing, market making, or underwriting activities, other than with respect to exempted securities; and

‘‘(III) if the bank is not affiliated with a broker

or dealer, does not effect any primary offering

described in subclause (I) the aggregate amount

of which exceeds 25 percent of the capital of the

bank, except that the limitation of this subclause

shall not apply with respect to any sale of government securities or municipal securities.

‘‘(viii) SAFEKEEPING AND CUSTODY ACTIVITIES.—

‘‘(I) IN GENERAL.—The bank, as part of customary banking activities—

‘‘(aa) provides safekeeping or custody services with respect to securities, including the

exercise of warrants and other rights on behalf

of customers;

‘‘(bb) facilitates the transfer of funds or

securities, as a custodian or a clearing agency,

in connection with the clearance and settlement of its customers’ transactions in securities;

‘‘(cc) effects securities lending or borrowing transactions with or on behalf of customers as part of services provided to customers pursuant to division (aa) or (bb) or

invests cash collateral pledged in connection

with such transactions;

‘‘(dd) holds securities pledged by a customer to another person or securities subject

to purchase or resale agreements involving a

customer, or facilitates the pledging or

transfer of such securities by book entry or

as otherwise provided under applicable law,

if the bank maintains records separately

identifying the securities and the customer;

or

‘‘(ee) serves as a custodian or provider

of other related administrative services to any
S. 900—52

individual retirement account, pension, retirement, profit sharing, bonus, thrift savings,

incentive, or other similar benefit plan.

‘‘(II) EXCEPTION FOR CARRYING BROKER ACTIVITIES.—The exception to being considered a broker

for a bank engaged in activities described in subclause (I) shall not apply if the bank, in connection

with such activities, acts in the United States as

a carrying broker (as such term, and different

formulations thereof, are used in section 15(c)(3)

of this title and the rules and regulations thereunder) for any broker or dealer, unless such carrying broker activities are engaged in with respect

to government securities (as defined in paragraph

(42) of this subsection).

‘‘(ix) IDENTIFIED BANKING PRODUCTS.—The bank

effects transactions in identified banking products as

defined in section 206 of the Gramm-Leach-Bliley Act.

‘‘(x) MUNICIPAL SECURITIES.—The bank effects

transactions in municipal securities.

‘‘(xi) DE MINIMIS EXCEPTION.—The bank effects,

other than in transactions referred to in clauses (i)

through (x), not more than 500 transactions in securities in any calendar year, and such transactions are

not effected by an employee of the bank who is also

an employee of a broker or dealer.

‘‘(C) EXECUTION BY BROKER OR DEALER.—The exception

to being considered a broker for a bank engaged in activities

described in clauses (ii), (iv), and (viii) of subparagraph

(B) shall not apply if the activities described in such provisions result in the trade in the United States of any security

that is a publicly traded security in the United States,

unless—

‘‘(i) the bank directs such trade to a registered

broker or dealer for execution;

‘‘(ii) the trade is a cross trade or other substantially

similar trade of a security that—

‘‘(I) is made by the bank or between the bank

and an affiliated fiduciary; and

‘‘(II) is not in contravention of fiduciary principles established under applicable Federal or

State law; or

‘‘(iii) the trade is conducted in some other manner

permitted under rules, regulations, or orders as the

Commission may prescribe or issue.

‘‘(D) FIDUCIARY CAPACITY.—For purposes of subparagraph (B)(ii), the term ‘fiduciary capacity’ means—

‘‘(i) in the capacity as trustee, executor, administrator, registrar of stocks and bonds, transfer agent,

guardian, assignee, receiver, or custodian under a uniform gift to minor act, or as an investment adviser

if the bank receives a fee for its investment advice;

‘‘(ii) in any capacity in which the bank possesses

investment discretion on behalf of another; or

‘‘(iii) in any other similar capacity.

‘‘(E) EXCEPTION FOR ENTITIES SUBJECT TO SECTION

15(e).—The term ‘broker’ does not include a bank that—
S. 900—53

‘‘(i) was, on the day before the date of enactment

of the Gramm-Leach-Bliley Act, subject to section 15(e);

and

‘‘(ii) is subject to such restrictions and requirements as the Commission considers appropriate.’’.

SEC. 202. DEFINITION OF DEALER.

Section 3(a)(5) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(5)) is amended to read as follows:

‘‘(5) DEALER.—

‘‘(A) IN GENERAL.—The term ‘dealer’ means any person

engaged in the business of buying and selling securities

for such person’s own account through a broker or otherwise.

‘‘(B) EXCEPTION FOR PERSON NOT ENGAGED IN THE BUSINESS OF DEALING.—The term ‘dealer’ does not include a

person that buys or sells securities for such person’s own

account, either individually or in a fiduciary capacity, but

not as a part of a regular business.

‘‘(C) EXCEPTION FOR CERTAIN BANK ACTIVITIES.—A bank

shall not be considered to be a dealer because the bank

engages in any of the following activities under the conditions described:

‘‘(i) PERMISSIBLE SECURITIES TRANSACTIONS.—The

bank buys or sells—

‘‘(I) commercial paper, bankers acceptances,

or commercial bills;

‘‘(II) exempted securities;

‘‘(III) qualified Canadian government obligations as defined in section 5136 of the Revised

Statutes of the United States, in conformity with

section 15C of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or

‘‘(IV) any standardized, credit enhanced debt

security issued by a foreign government pursuant

to the March 1989 plan of then Secretary of the

Treasury Brady, used by such foreign government

to retire outstanding commercial bank loans.

‘‘(ii) INVESTMENT, TRUSTEE, AND FIDUCIARY TRANSACTIONS.—The bank buys or sells securities for investment purposes—

‘‘(I) for the bank; or

‘‘(II) for accounts for which the bank acts as

a trustee or fiduciary.

‘‘(iii) ASSET-BACKED TRANSACTIONS.—The bank

engages in the issuance or sale to qualified investors,

through a grantor trust or other separate entity, of

securities backed by or representing an interest in

notes, drafts, acceptances, loans, leases, receivables,

other obligations (other than securities of which the

bank is not the issuer), or pools of any such obligations

predominantly originated by—

‘‘(I) the bank;

‘‘(II) an affiliate of any such bank other than

a broker or dealer; or
S. 900—54

‘‘(III) a syndicate of banks of which the bank

is a member, if the obligations or pool of obligations

consists of mortgage obligations or consumerrelated receivables.

‘‘(iv) IDENTIFIED BANKING PRODUCTS.—The bank

buys or sells identified banking products, as defined

in section 206 of the Gramm-Leach-Bliley Act.’’.

SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURITIES

OFFERINGS.

Section 15A of the Securities Exchange Act of 1934 (15 U.S.C.

78o–3) is amended by inserting after subsection (i) the following

new subsection:

‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURITIES

OFFERINGS.—A registered securities association shall create a limited qualification category for any associated person of a member

who effects sales as part of a primary offering of securities not

involving a public offering, pursuant to section 3(b), 4(2), or 4(6)

of the Securities Act of 1933 and the rules and regulations thereunder, and shall deem qualified in such limited qualification category, without testing, any bank employee who, in the six month

period preceding the date of the enactment of the Gramm-LeachBliley Act, engaged in effecting such sales.’’.

SEC. 204. INFORMATION SHARING.

Section 18 of the Federal Deposit Insurance Act is amended

by adding at the end the following new subsection:

‘‘(t) RECORDKEEPING REQUIREMENTS.—

‘‘(1) REQUIREMENTS.—Each appropriate Federal banking

agency, after consultation with and consideration of the views

of the Commission, shall establish recordkeeping requirements

for banks relying on exceptions contained in paragraphs (4)

and (5) of section 3(a) of the Securities Exchange Act of 1934.

Such recordkeeping requirements shall be sufficient to demonstrate compliance with the terms of such exceptions and

be designed to facilitate compliance with such exceptions.

‘‘(2) AVAILABILITY TO COMMISSION; CONFIDENTIALITY.—Each

appropriate Federal banking agency shall make any information required under paragraph (1) available to the Commission

upon request. Notwithstanding any other provision of law, the

Commission shall not be compelled to disclose any such

information. Nothing in this paragraph shall authorize the

Commission to withhold information from Congress, or prevent

the Commission from complying with a request for information

from any other Federal department or agency or any selfregulatory organization requesting the information for purposes

within the scope of its jurisdiction, or complying with an order

of a court of the United States in an action brought by the

United States or the Commission. For purposes of section 552

of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section

552.

‘‘(3) DEFINITION.—As used in this subsection the term

‘Commission’ means the Securities and Exchange Commission.’’.

SEC. 205. TREATMENT OF NEW HYBRID PRODUCTS.

Section 15 of the Securities Exchange Act of 1934 (15 U.S.C.

78o) is amended by adding at the end the following new subsection:
S. 900—55

‘‘(i) RULEMAKING TO EXTEND REQUIREMENTS TO NEW HYBRID

PRODUCTS.—

‘‘(1) CONSULTATION.—Prior to commencing a rulemaking

under this subsection, the Commission shall consult with and

seek the concurrence of the Board concerning the imposition

of broker or dealer registration requirements with respect to

any new hybrid product. In developing and promulgating rules

under this subsection, the Commission shall consider the views

of the Board, including views with respect to the nature of

the new hybrid product; the history, purpose, extent, and appropriateness of the regulation of the new product under the

Federal banking laws; and the impact of the proposed rule

on the banking industry.

‘‘(2) LIMITATION.—The Commission shall not—

‘‘(A) require a bank to register as a broker or dealer

under this section because the bank engages in any transaction in, or buys or sells, a new hybrid product; or

‘‘(B) bring an action against a bank for a failure to

comply with a requirement described in subparagraph (A),

unless the Commission has imposed such requirement by rule

or regulation issued in accordance with this section.

‘‘(3) CRITERIA FOR RULEMAKING.—The Commission shall not

impose a requirement under paragraph (2) of this subsection

with respect to any new hybrid product unless the Commission

determines that—

‘‘(A) the new hybrid product is a security; and

‘‘(B) imposing such requirement is necessary and

appropriate in the public interest and for the protection

of investors.

‘‘(4) CONSIDERATIONS.—In making a determination under

paragraph (3), the Commission shall consider—

‘‘(A) the nature of the new hybrid product; and

‘‘(B) the history, purpose, extent, and appropriateness

of the regulation of the new hybrid product under the

Federal securities laws and under the Federal banking

laws.

‘‘(5) OBJECTION TO COMMISSION REGULATION.—

‘‘(A) FILING OF PETITION FOR REVIEW.—The Board may

obtain review of any final regulation described in paragraph

(2) in the United States Court of Appeals for the District

of Columbia Circuit by filing in such court, not later than

60 days after the date of publication of the final regulation,

a written petition requesting that the regulation be set

aside. Any proceeding to challenge any such rule shall

be expedited by the Court of Appeals.

‘‘(B) TRANSMITTAL OF PETITION AND RECORD.—A copy

of a petition described in subparagraph (A) shall be transmitted as soon as possible by the Clerk of the Court to

an officer or employee of the Commission designated for

that purpose. Upon receipt of the petition, the Commission

shall file with the court the regulation under review and

any documents referred to therein, and any other relevant

materials prescribed by the court.

‘‘(C) EXCLUSIVE JURISDICTION.—On the date of the

filing of the petition under subparagraph (A), the court

has jurisdiction, which becomes exclusive on the filing of
S. 900—56

the materials set forth in subparagraph (B), to affirm and

enforce or to set aside the regulation at issue.

‘‘(D) STANDARD OF REVIEW.—The court shall determine

to affirm and enforce or set aside a regulation of the

Commission under this subsection, based on the determination of the court as to whether—

‘‘(i) the subject product is a new hybrid product,

as defined in this subsection;

‘‘(ii) the subject product is a security; and

‘‘(iii) imposing a requirement to register as a

broker or dealer for banks engaging in transactions

in such product is appropriate in light of the history,

purpose, and extent of regulation under the Federal

securities laws and under the Federal banking laws,

giving deference neither to the views of the Commission

nor the Board.

‘‘(E) JUDICIAL STAY.—The filing of a petition by the

Board pursuant to subparagraph (A) shall operate as a

judicial stay, until the date on which the determination

of the court is final (including any appeal of such determination).

‘‘(F) OTHER AUTHORITY TO CHALLENGE.—Any aggrieved

party may seek judicial review of the Commission’s rulemaking under this subsection pursuant to section 25 of

this title.

‘‘(6) DEFINITIONS.—For purposes of this subsection:

‘‘(A) NEW HYBRID PRODUCT.—The term ‘new hybrid

product’ means a product that—

‘‘(i) was not subjected to regulation by the Commission as a security prior to the date of the enactment

of the Gramm-Leach-Bliley Act;

‘‘(ii) is not an identified banking product as such

term is defined in section 206 of such Act; and

‘‘(iii) is not an equity swap within the meaning

of section 206(a)(6) of such Act.

‘‘(B) BOARD.—The term ‘Board’ means the Board of

Governors of the Federal Reserve System.’’.

SEC. 206. DEFINITION OF IDENTIFIED BANKING PRODUCT.

(a) DEFINITION OF IDENTIFIED BANKING PRODUCT.—For purposes of paragraphs (4) and (5) of section 3(a) of the Securities

Exchange Act of 1934 (15 U.S.C. 78c(a) (4), (5)), the term ‘‘identified

banking product’’ means—

(1) a deposit account, savings account, certificate of deposit,

or other deposit instrument issued by a bank;

(2) a banker’s acceptance;

(3) a letter of credit issued or loan made by a bank;

(4) a debit account at a bank arising from a credit card

or similar arrangement;

(5) a participation in a loan which the bank or an affiliate

of the bank (other than a broker or dealer) funds, participates

in, or owns that is sold—

(A) to qualified investors; or

(B) to other persons that—

(i) have the opportunity to review and assess any

material information, including information regarding

the borrower’s creditworthiness; and
S. 900—57

(ii) based on such factors as financial sophistication, net worth, and knowledge and experience in financial matters, have the capability to evaluate the

information available, as determined under generally

applicable banking standards or guidelines; or

(6) any swap agreement, including credit and equity swaps,

except that an equity swap that is sold directly to any person

other than a qualified investor (as defined in section 3(a)(54)

of the Securities Act of 1934) shall not be treated as an identified banking product.

(b) DEFINITION OF SWAP AGREEMENT.—For purposes of subsection (a)(6), the term ‘‘swap agreement’’ means any individually

negotiated contract, agreement, warrant, note, or option that is

based, in whole or in part, on the value of, any interest in, or

any quantitative measure or the occurrence of any event relating

to, one or more commodities, securities, currencies, interest or other

rates, indices, or other assets, but does not include any other

identified banking product, as defined in paragraphs (1) through

(5) of subsection (a).

(c) CLASSIFICATION LIMITED.—Classification of a particular

product as an identified banking product pursuant to this section

shall not be construed as finding or implying that such product

is or is not a security for any purpose under the securities laws,

or is or is not an account, agreement, contract, or transaction

for any purpose under the Commodity Exchange Act.

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

the terms ‘‘bank’’ and ‘‘qualified investor’’ have the same meanings

as given in section 3(a) of the Securities Exchange Act of 1934,

as amended by this Act.

SEC. 207. ADDITIONAL DEFINITIONS.

Section 3(a) of the Securities Exchange Act of 1934 is amended

by adding at the end the following new paragraph:

‘‘(54) QUALIFIED INVESTOR.— ‘‘(A) DEFINITION.—Except as provided in subparagraph

(B), for purposes of this title, the term ‘qualified investor’

means—

‘‘(i) any investment company registered with the

Commission under section 8 of the Investment Company Act of 1940;

‘‘(ii) any issuer eligible for an exclusion from the

definition of investment company pursuant to section

3(c)(7) of the Investment Company Act of 1940;

‘‘(iii) any bank (as defined in paragraph (6) of

this subsection), savings association (as defined in section 3(b) of the Federal Deposit Insurance Act), broker,

dealer, insurance company (as defined in section

2(a)(13) of the Securities Act of 1933), or business

development company (as defined in section 2(a)(48)

of the Investment Company Act of 1940);

‘‘(iv) any small business investment company

licensed by the United States Small Business Administration under section 301 (c) or (d) of the Small Business Investment Act of 1958;

‘‘(v) any State sponsored employee benefit plan,

or any other employee benefit plan, within the meaning

of the Employee Retirement Income Security Act of
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1974, other than an individual retirement account, if

the investment decisions are made by a plan fiduciary,

as defined in section 3(21) of that Act, which is either

a bank, savings and loan association, insurance company, or registered investment adviser;

‘‘(vi) any trust whose purchases of securities are

directed by a person described in clauses (i) through

(v) of this subparagraph;

‘‘(vii) any market intermediary exempt under section 3(c)(2) of the Investment Company Act of 1940;

‘‘(viii) any associated person of a broker or dealer

other than a natural person;

‘‘(ix) any foreign bank (as defined in section 1(b)(7)

of the International Banking Act of 1978);

‘‘(x) the government of any foreign country;

‘‘(xi) any corporation, company, or partnership that

owns and invests on a discretionary basis, not less

than $25,000,000 in investments;

‘‘(xii) any natural person who owns and invests

on a discretionary basis, not less than $25,000,000

in investments;

‘‘(xiii) any government or political subdivision,

agency, or instrumentality of a government who owns

and invests on a discretionary basis not less than

$50,000,000 in investments; or

‘‘(xiv) any multinational or supranational entity

or any agency or instrumentality thereof.

‘‘(B) ALTERED THRESHOLDS FOR ASSET-BACKED SECURITIES AND LOAN PARTICIPATIONS.—For purposes of section

3(a)(5)(C)(iii) of this title and section 206(a)(5) of the

Gramm-Leach-Bliley Act, the term ‘qualified investor’ has

the meaning given such term by subparagraph (A) of this

paragraph except that clauses (xi) and (xii) shall be applied

by substituting ‘$10,000,000’ for ‘$25,000,000’.

‘‘(C) ADDITIONAL AUTHORITY.—The Commission may,

by rule or order, define a ‘qualified investor’ as any other

person, taking into consideration such factors as the financial sophistication of the person, net worth, and knowledge

and experience in financial matters.’’.

SEC. 208. GOVERNMENT SECURITIES DEFINED.

Section 3(a)(42) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(42)) is amended—

(1) by striking ‘‘or’’ at the end of subparagraph (C);

(2) by striking the period at the end of subparagraph (D)

and inserting ‘‘; or’’; and

(3) by adding at the end the following new subparagraph:

‘‘(E) for purposes of sections 15, 15C, and 17A as

applied to a bank, a qualified Canadian government obligation as defined in section 5136 of the Revised Statutes

of the United States.’’.

SEC. 209. EFFECTIVE DATE.

This subtitle shall take effect at the end of the 18-month

period beginning on the date of the enactment of this Act.
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SEC. 210. RULE OF CONSTRUCTION.

Nothing in this Act shall supersede, affect, or otherwise limit

the scope and applicability of the Commodity Exchange Act (7

U.S.C. 1 et seq.).

Subtitle B—Bank Investment Company

Activities

SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED BANK.

(a) MANAGEMENT COMPANIES.—Section 17(f) of the Investment

Company Act of 1940 (15 U.S.C. 80a–17(f)) is amended—

(1) by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively;

(2) by striking ‘‘(f) Every registered’’ and inserting the

following:

‘‘(f) CUSTODY OF SECURITIES.— ‘‘(1) Every registered’’;

(3) by redesignating the second, third, fourth, and fifth

sentences of such subsection as paragraphs (2) through (5),

respectively, and indenting the left margin of such paragraphs

appropriately; and

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

‘‘(6) The Commission may, after consultation with and

taking into consideration the views of the Federal banking

agencies (as defined in section 3 of the Federal Deposit Insurance Act), adopt rules and regulations, and issue orders, consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated person of a bank,

either of which is an affiliated person, promoter, organizer,

or sponsor of, or principal underwriter for, a registered management company may serve as custodian of that registered

management company.’’.

(b) UNIT INVESTMENT TRUSTS.—Section 26 of the Investment

Company Act of 1940 (15 U.S.C. 80a–26) is amended—

(1) by redesignating subsections (b) through (e) as subsections (c) through (f), respectively; and

(2) by inserting after subsection (a) the following new subsection:

‘‘(b) The Commission may, after consultation with and taking

into consideration the views of the Federal banking agencies (as

defined in section 3 of the Federal Deposit Insurance Act), adopt

rules and regulations, and issue orders, consistent with the protection of investors, prescribing the conditions under which a bank,

or an affiliated person of a bank, either of which is an affiliated

person of a principal underwriter for, or depositor of, a registered

unit investment trust, may serve as trustee or custodian under

subsection (a)(1).’’.

SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COMPANY.

Section 17(a) of the Investment Company Act of 1940 (15 U.S.C.

80a–17(a)) is amended—

(1) by striking ‘‘or’’ at the end of paragraph (2);

(2) by striking the period at the end of paragraph (3)

and inserting ‘‘; or’’; and

(3) by adding at the end the following new paragraph:
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‘‘(4) to loan money or other property to such registered

company, or to any company controlled by such registered company, in contravention of such rules, regulations, or orders

as the Commission may, after consultation with and taking

into consideration the views of the Federal banking agencies

(as defined in section 3 of the Federal Deposit Insurance Act),

prescribe or issue consistent with the protection of investors.’’.

SEC. 213. INDEPENDENT DIRECTORS.

(a) IN GENERAL.—Section 2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A)) is amended—

(1) by striking clause (v) and inserting the following new

clause:

‘‘(v) any person or any affiliated person of a person

(other than a registered investment company) that,

at any time during the 6-month period preceding the

date of the determination of whether that person or

affiliated person is an interested person, has executed

any portfolio transactions for, engaged in any principal

transactions with, or distributed shares for—

‘‘(I) the investment company;

‘‘(II) any other investment company having

the same investment adviser as such investment

company or holding itself out to investors as a

related company for purposes of investment or

investor services; or

‘‘(III) any account over which the investment

company’s investment adviser has brokerage placement discretion,’’;

(2) by redesignating clause (vi) as clause (vii); and

(3) by inserting after clause (v) the following new clause:

‘‘(vi) any person or any affiliated person of a person

(other than a registered investment company) that,

at any time during the 6-month period preceding the

date of the determination of whether that person or

affiliated person is an interested person, has loaned

money or other property to—

‘‘(I) the investment company;

‘‘(II) any other investment company having

the same investment adviser as such investment

company or holding itself out to investors as a

related company for purposes of investment or

investor services; or

‘‘(III) any account for which the investment

company’s investment adviser has borrowing

authority,’’.

(b) CONFORMING AMENDMENT.—Section 2(a)(19)(B) of the

Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(B)) is

amended—

(1) by striking clause (v) and inserting the following new

clause:

‘‘(v) any person or any affiliated person of a person

(other than a registered investment company) that,

at any time during the 6-month period preceding the

date of the determination of whether that person or

affiliated person is an interested person, has executed
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any portfolio transactions for, engaged in any principal

transactions with, or distributed shares for—

‘‘(I) any investment company for which the

investment adviser or principal underwriter serves

as such;

‘‘(II) any investment company holding itself

out to investors, for purposes of investment or

investor services, as a company related to any

investment company for which the investment

adviser or principal underwriter serves as such;

or

‘‘(III) any account over which the investment

adviser has brokerage placement discretion,’’;

(2) by redesignating clause (vi) as clause (vii); and

(3) by inserting after clause (v) the following new clause:

‘‘(vi) any person or any affiliated person of a person

(other than a registered investment company) that,

at any time during the 6-month period preceding the

date of the determination of whether that person or

affiliated person is an interested person, has loaned

money or other property to—

‘‘(I) any investment company for which the

investment adviser or principal underwriter serves

as such;

‘‘(II) any investment company holding itself

out to investors, for purposes of investment or

investor services, as a company related to any

investment company for which the investment

adviser or principal underwriter serves as such;

or

‘‘(III) any account for which the investment

adviser has borrowing authority,’’.

(c) AFFILIATION OF DIRECTORS.—Section 10(c) of the Investment

Company Act of 1940 (15 U.S.C. 80a–10(c)) is amended by striking

‘‘bank, except’’ and inserting ‘‘bank (together with its affiliates

and subsidiaries) or any one bank holding company (together with

its affiliates and subsidiaries) (as such terms are defined in section

2 of the Bank Holding Company Act of 1956), except’’.

SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

Section 35(a) of the Investment Company Act of 1940 (15 U.S.C.

80a–34(a)) is amended to read as follows:

‘‘(a) MISREPRESENTATION OF GUARANTEES.— ‘‘(1) IN GENERAL.—It shall be unlawful for any person,

issuing or selling any security of which a registered investment

company is the issuer, to represent or imply in any manner

whatsoever that such security or company—

‘‘(A) has been guaranteed, sponsored, recommended,

or approved by the United States, or any agency,

instrumentality or officer of the United States;

‘‘(B) has been insured by the Federal Deposit Insurance

Corporation; or

‘‘(C) is guaranteed by or is otherwise an obligation

of any bank or insured depository institution.

‘‘(2) DISCLOSURES.—Any person issuing or selling the securities of a registered investment company that is advised by,

or sold through, a bank shall prominently disclose that an
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investment in the company is not insured by the Federal

Deposit Insurance Corporation or any other government agency.

The Commission may, after consultation with and taking into

consideration the views of the Federal banking agencies (as

defined in section 3 of the Federal Deposit Insurance Act),

adopt rules and regulations, and issue orders, consistent with

the protection of investors, prescribing the manner in which

the disclosure under this paragraph shall be provided.

‘‘(3) DEFINITIONS.—The terms ‘insured depository institution’ and ‘appropriate Federal banking agency’ have the same

meanings as given in section 3 of the Federal Deposit Insurance

Act.’’.

SEC. 215. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY ACT OF 1940.

Section 2(a)(6) of the Investment Company Act of 1940 (15

U.S.C. 80a–2(a)(6)) is amended to read as follows:

‘‘(6) The term ‘broker’ has the same meaning as given

in section 3 of the Securities Exchange Act of 1934, except

that such term does not include any person solely by reason

of the fact that such person is an underwriter for one or

more investment companies.’’.

SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY ACT OF 1940.

Section 2(a)(11) of the Investment Company Act of 1940 (15

U.S.C. 80a–2(a)(11)) is amended to read as follows:

‘‘(11) The term ‘dealer’ has the same meaning as given

in the Securities Exchange Act of 1934, but does not include

an insurance company or investment company.’’.

SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF

INVESTMENT ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES.

(a) INVESTMENT ADVISER.—Section 202(a)(11)(A) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11)(A)) is amended

by striking ‘‘investment company’’ and inserting ‘‘investment company, except that the term ‘investment adviser’ includes any bank

or bank holding company to the extent that such bank or bank

holding company serves or acts as an investment adviser to a

registered investment company, but if, in the case of a bank, such

services or actions are performed through a separately identifiable

department or division, the department or division, and not the

bank itself, shall be deemed to be the investment adviser’’.

(b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DIVISION.—Section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C.

80b–2(a)) is amended by adding at the end the following:

‘‘(26) The term ‘separately identifiable department or division’ of a bank means a unit—

‘‘(A) that is under the direct supervision of an officer

or officers designated by the board of directors of the bank

as responsible for the day-to-day conduct of the bank’s

investment adviser activities for one or more investment

companies, including the supervision of all bank employees

engaged in the performance of such activities; and

‘‘(B) for which all of the records relating to its investment adviser activities are separately maintained in or

extractable from such unit’s own facilities or the facilities
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of the bank, and such records are so maintained or otherwise accessible as to permit independent examination and

enforcement by the Commission of this Act or the Investment Company Act of 1940 and rules and regulations

promulgated under this Act or the Investment Company

Act of 1940.’’.

SEC. 218. DEFINITION OF BROKER UNDER THE INVESTMENT

ADVISERS ACT OF 1940.

Section 202(a)(3) of the Investment Advisers Act of 1940 (15

U.S.C. 80b–2(a)(3)) is amended to read as follows:

‘‘(3) The term ‘broker’ has the same meaning as given

in section 3 of the Securities Exchange Act of 1934.’’.

SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT

ADVISERS ACT OF 1940.

Section 202(a)(7) of the Investment Advisers Act of 1940 (15

U.S.C. 80b–2(a)(7)) is amended to read as follows:

‘‘(7) The term ‘dealer’ has the same meaning as given

in section 3 of the Securities Exchange Act of 1934, but does

not include an insurance company or investment company.’’.

SEC. 220. INTERAGENCY CONSULTATION.

The Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.)

is amended by inserting after section 210 the following new section:

‘‘SEC. 210A. CONSULTATION.

‘‘(a) EXAMINATION RESULTS AND OTHER INFORMATION.—

‘‘(1) The appropriate Federal banking agency shall provide

the Commission upon request the results of any examination,

reports, records, or other information to which such agency

may have access—

‘‘(A) with respect to the investment advisory activities

of any—

‘‘(i) bank holding company;

‘‘(ii) bank; or

‘‘(iii) separately identifiable department or division

of a bank,

that is registered under section 203 of this title; and

‘‘(B) in the case of a bank holding company or bank

that has a subsidiary or a separately identifiable department or division registered under that section, with respect

to the investment advisory activities of such bank or bank

holding company.

‘‘(2) The Commission shall provide to the appropriate Federal banking agency upon request the results of any examination, reports, records, or other information with respect to the

investment advisory activities of any bank holding company,

bank, or separately identifiable department or division of a

bank, which is registered under section 203 of this title.

‘‘(3) Notwithstanding any other provision of law, the

Commission and the appropriate Federal banking agencies shall

not be compelled to disclose any information provided under

paragraph (1) or (2). Nothing in this paragraph shall authorize

the Commission or such agencies to withhold information from

Congress, or prevent the Commission or such agencies from

complying with a request for information from any other Federal department or agency or any self-regulatory organization
S. 900—64

requesting the information for purposes within the scope of

its jurisdiction, or complying with an order of a court of the

United States in an action brought by the United States, the

Commission, or such agencies. For purposes of section 552

of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section

552.

‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in this section

shall limit in any respect the authority of the appropriate Federal

banking agency with respect to such bank holding company (or

affiliates or subsidiaries thereof), bank, or subsidiary, department,

or division or a bank under any other provision of law.

‘‘(c) DEFINITION.—For purposes of this section, the term ‘appropriate Federal banking agency’ shall have the same meaning as

given in section 3 of the Federal Deposit Insurance Act.’’.

SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

(a) SECURITIES ACT OF 1933.—Section 3(a)(2) of the Securities

Act of 1933 (15 U.S.C. 77c(a)(2)) is amended by striking ‘‘or any

interest or participation in any common trust fund or similar fund

maintained by a bank exclusively for the collective investment

and reinvestment of assets contributed thereto by such bank in

its capacity as trustee, executor, administrator, or guardian’’ and

inserting ‘‘or any interest or participation in any common trust

fund or similar fund that is excluded from the definition of the

term ‘investment company’ under section 3(c)(3) of the Investment

Company Act of 1940’’.

(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(12)(A)(iii)

of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii))

is amended to read as follows:

‘‘(iii) any interest or participation in any common trust

fund or similar fund that is excluded from the definition

of the term ‘investment company’ under section 3(c)(3) of

the Investment Company Act of 1940;’’.

(c) INVESTMENT COMPANY ACT OF 1940.—Section 3(c)(3) of the

Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(3)) is amended

by inserting before the period the following: ‘‘, if—

‘‘(A) such fund is employed by the bank solely as an

aid to the administration of trusts, estates, or other

accounts created and maintained for a fiduciary purpose;

‘‘(B) except in connection with the ordinary advertising

of the bank’s fiduciary services, interests in such fund

are not—

‘‘(i) advertised; or

‘‘(ii) offered for sale to the general public; and

‘‘(C) fees and expenses charged by such fund are not

in contravention of fiduciary principles established under

applicable Federal or State law’’.

SEC. 222. STATUTORY DISQUALIFICATION FOR BANK WRONGDOING.

Section 9(a) of the Investment Company Act of 1940 (15 U.S.C.

80a–9(a)) is amended in paragraphs (1) and (2) by striking ‘‘securities dealer, transfer agent,’’ and inserting ‘‘securities dealer, bank,

transfer agent,’’.

SEC. 223. CONFORMING CHANGE IN DEFINITION.

Section 2(a)(5) of the Investment Company Act of 1940 (15

U.S.C. 80a–2(a)(5)) is amended by striking ‘‘(A) a banking institution
S. 900—65

organized under the laws of the United States’’ and inserting ‘‘(A)

a depository institution (as defined in section 3 of the Federal

Deposit Insurance Act) or a branch or agency of a foreign bank

(as such terms are defined in section 1(b) of the International

Banking Act of 1978)’’.

SEC. 224. CONFORMING AMENDMENT.

Section 202 of the Investment Advisers Act of 1940 (15 U.S.C.

80b–2) is amended by adding at the end the following new subsection:

‘‘(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.—Whenever pursuant to this title

the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate

in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote

efficiency, competition, and capital formation.’’.

SEC. 225. EFFECTIVE DATE.

This subtitle shall take effect 18 months after the date of

the enactment of this Act.

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.

(a) AMENDMENT.—Section 17 of the Securities Exchange Act

of 1934 (15 U.S.C. 78q) is amended—

(1) by redesignating subsection (i) as subsection (k); and

(2) by inserting after subsection (h) the following new subsections:

‘‘(i) INVESTMENT BANK HOLDING COMPANIES.— ‘‘(1) ELECTIVE SUPERVISION OF AN INVESTMENT BANK

HOLDING COMPANY NOT HAVING A BANK OR SAVINGS ASSOCIATION

AFFILIATE.—

‘‘(A) IN GENERAL.—An investment bank holding company that is not—

‘‘(i) an affiliate of an insured bank (other than

an institution described in subparagraph (D), (F), or

(G) of section 2(c)(2), or held under section 4(f), of

the Bank Holding Company Act of 1956), or a savings

association;

‘‘(ii) a foreign bank, foreign company, or company

that is described in section 8(a) of the International

Banking Act of 1978; or

‘‘(iii) a foreign bank that controls, directly or

indirectly, a corporation chartered under section 25A

of the Federal Reserve Act,

may elect to become supervised by filing with the Commission a notice of intention to become supervised, pursuant

to subparagraph (B) of this paragraph. Any investment

bank holding company filing such a notice shall be supervised in accordance with this section and comply with
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the rules promulgated by the Commission applicable to

supervised investment bank holding companies.

‘‘(B) NOTIFICATION OF STATUS AS A SUPERVISED INVESTMENT BANK HOLDING COMPANY.—An investment bank

holding company that elects under subparagraph (A) to

become supervised by the Commission shall file with the

Commission a written notice of intention to become supervised by the Commission in such form and containing such

information and documents concerning such investment

bank holding company as the Commission, by rule, may

prescribe as necessary or appropriate in furtherance of

the purposes of this section. Unless the Commission finds

that such supervision is not necessary or appropriate in

furtherance of the purposes of this section, such supervision

shall become effective 45 days after the date of receipt

of such written notice by the Commission or within such

shorter time period as the Commission, by rule or order,

may determine.

‘‘(2) ELECTION NOT TO BE SUPERVISED BY THE COMMISSION

AS AN INVESTMENT BANK HOLDING COMPANY.—

‘‘(A) VOLUNTARY WITHDRAWAL.—A supervised investment bank holding company that is supervised pursuant

to paragraph (1) may, upon such terms and conditions

as the Commission deems necessary or appropriate, elect

not to be supervised by the Commission by filing a written

notice of withdrawal from Commission supervision. Such

notice shall not become effective until 1 year after receipt

by the Commission, or such shorter or longer period as

the Commission deems necessary or appropriate to ensure

effective supervision of the material risks to the supervised

investment bank holding company and to the affiliated

broker or dealer, or to prevent evasion of the purposes

of this section.

‘‘(B) DISCONTINUATION OF COMMISSION SUPERVISION.—

If the Commission finds that any supervised investment

bank holding company that is supervised pursuant to paragraph (1) is no longer in existence or has ceased to be

an investment bank holding company, or if the Commission

finds that continued supervision of such a supervised

investment bank holding company is not consistent with

the purposes of this section, the Commission may discontinue the supervision pursuant to a rule or order, if

any, promulgated by the Commission under this section.

‘‘(3) SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES.—

‘‘(A) RECORDKEEPING AND REPORTING.—

‘‘(i) IN GENERAL.—Every supervised investment

bank holding company and each affiliate thereof shall

make and keep for prescribed periods such records,

furnish copies thereof, and make such reports, as the

Commission may require by rule, in order to keep

the Commission informed as to—

‘‘(I) the company’s or affiliate’s activities,

financial condition, policies, systems for monitoring

and controlling financial and operational risks, and

transactions and relationships between any broker
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or dealer affiliate of the supervised investment

bank holding company; and

‘‘(II) the extent to which the company or affiliate has complied with the provisions of this Act

and regulations prescribed and orders issued under

this Act.

‘‘(ii) FORM AND CONTENTS.—Such records and

reports shall be prepared in such form and according

to such specifications (including certification by an

independent public accountant), as the Commission

may require and shall be provided promptly at any

time upon request by the Commission. Such records

and reports may include—

‘‘(I) a balance sheet and income statement;

‘‘(II) an assessment of the consolidated capital

of the supervised investment bank holding company;

‘‘(III) an independent auditor’s report attesting

to the supervised investment bank holding company’s compliance with its internal risk management and internal control objectives; and

‘‘(IV) reports concerning the extent to which

the company or affiliate has complied with the

provisions of this title and any regulations prescribed and orders issued under this title.

‘‘(B) USE OF EXISTING REPORTS.—

‘‘(i) IN GENERAL.—The Commission shall, to the

fullest extent possible, accept reports in fulfillment

of the requirements under this paragraph that the

supervised investment bank holding company or its

affiliates have been required to provide to another

appropriate regulatory agency or self-regulatory

organization.

‘‘(ii) AVAILABILITY.—A supervised investment bank

holding company or an affiliate of such company shall

provide to the Commission, at the request of the

Commission, any report referred to in clause (i).

‘‘(C) EXAMINATION AUTHORITY.— ‘‘(i) FOCUS OF EXAMINATION AUTHORITY.—The

Commission may make examinations of any supervised

investment bank holding company and any affiliate

of such company in order to—

‘‘(I) inform the Commission regarding—

‘‘(aa) the nature of the operations and

financial condition of the supervised investment bank holding company and its affiliates;

‘‘(bb) the financial and operational risks

within the supervised investment bank

holding company that may affect any broker

or dealer controlled by such supervised investment bank holding company; and

‘‘(cc) the systems of the supervised investment bank holding company and its affiliates

for monitoring and controlling those risks; and

‘‘(II) monitor compliance with the provisions

of this subsection, provisions governing transactions and relationships between any broker or
S. 900—68

dealer affiliated with the supervised investment

bank holding company and any of the company’s

other affiliates, and applicable provisions of subchapter II of chapter 53, title 31, United States

Code (commonly referred to as the ‘Bank Secrecy

Act’) and regulations thereunder.

‘‘(ii) RESTRICTED FOCUS OF EXAMINATIONS.—The

Commission shall limit the focus and scope of any

examination of a supervised investment bank holding

company to—

‘‘(I) the company; and

‘‘(II) any affiliate of the company that, because

of its size, condition, or activities, the nature or

size of the transactions between such affiliate and

any affiliated broker or dealer, or the centralization of functions within the holding company

system, could, in the discretion of the Commission,

have a materially adverse effect on the operational

or financial condition of the broker or dealer.

‘‘(iii) DEFERENCE TO OTHER EXAMINATIONS.—For

purposes of this subparagraph, the Commission shall,

to the fullest extent possible, use the reports of examination of an institution described in subparagraph

(D), (F), or (G) of section 2(c)(2), or held under section

4(f), of the Bank Holding Company Act of 1956 made

by the appropriate regulatory agency, or of a licensed

insurance company made by the appropriate State

insurance regulator.

‘‘(4) FUNCTIONAL REGULATION OF BANKING AND INSURANCE

ACTIVITIES OF SUPERVISED INVESTMENT BANK HOLDING COMPANIES.—The Commission shall defer to—

‘‘(A) the appropriate regulatory agency with regard

to all interpretations of, and the enforcement of, applicable

banking laws relating to the activities, conduct, ownership,

and operations of banks, and institutions described in

subparagraph (D), (F), and (G) of section 2(c)(2), or held

under section 4(f), of the Bank Holding Company Act of

1956; and

‘‘(B) the appropriate State insurance regulators with

regard to all interpretations of, and the enforcement of,

applicable State insurance laws relating to the activities,

conduct, and operations of insurance companies and insurance agents.

‘‘(5) DEFINITIONS.—For purposes of this subsection:

‘‘(A) The term ‘investment bank holding company’

means—

‘‘(i) any person other than a natural person that

owns or controls one or more brokers or dealers; and

‘‘(ii) the associated persons of the investment bank

holding company.

‘‘(B) The term ‘supervised investment bank holding

company’ means any investment bank holding company

that is supervised by the Commission pursuant to this

subsection.

‘‘(C) The terms ‘affiliate’, ‘bank’, ‘bank holding company’, ‘company’, ‘control’, and ‘savings association’ have
S. 900—69

the same meanings as given in section 2 of the Bank

Holding Company Act of 1956 (12 U.S.C. 1841).

‘‘(D) The term ‘insured bank’ has the same meaning

as given in section 3 of the Federal Deposit Insurance

Act.

‘‘(E) The term ‘foreign bank’ has the same meaning

as given in section 1(b)(7) of the International Banking

Act of 1978.

‘‘(F) The terms ‘person associated with an investment

bank holding company’ and ‘associated person of an investment bank holding company’ mean any person directly

or indirectly controlling, controlled by, or under common

control with, an investment bank holding company.

‘‘(j) AUTHORITY TO LIMIT DISCLOSURE OF INFORMATION.—Notwithstanding any other provision of law, the Commission shall

not be compelled to disclose any information required to be reported

under subsection (h) or (i) or any information supplied to the

Commission by any domestic or foreign regulatory agency that

relates to the financial or operational condition of any associated

person of a broker or dealer, investment bank holding company,

or any affiliate of an investment bank holding company. Nothing

in this subsection shall authorize the Commission to withhold

information from Congress, or prevent the Commission from complying with a request for information from any other Federal department or agency or any self-regulatory organization requesting the

information for purposes within the scope of its jurisdiction, or

complying with an order of a court of the United States in an

action brought by the United States or the Commission. For purposes of section 552 of title 5, United States Code, this subsection

shall be considered a statute described in subsection (b)(3)(B) of

such section 552. In prescribing regulations to carry out the requirements of this subsection, the Commission shall designate information described in or obtained pursuant to subparagraphs (A), (B),

and (C) of subsection (i)(5) as confidential information for purposes

of section 24(b)(2) of this title.’’.

(b) CONFORMING AMENDMENTS.—

(1) Section 3(a)(34) of the Securities Exchange Act of 1934

(15 U.S.C. 78c(a)(34)) is amended by adding at the end the

following new subparagraph:

‘‘(H) When used with respect to an institution described

in subparagraph (D), (F), or (G) of section 2(c)(2), or held

under section 4(f), of the Bank Holding Company Act of

1956—

‘‘(i) the Comptroller of the Currency, in the case

of a national bank or a bank in the District of Columbia

examined by the Comptroller of the Currency;

‘‘(ii) the Board of Governors of the Federal Reserve

System, in the case of a State member bank of the

Federal Reserve System or any corporation chartered

under section 25A of the Federal Reserve Act;

‘‘(iii) the Federal Deposit Insurance Corporation,

in the case of any other bank the deposits of which

are insured in accordance with the Federal Deposit

Insurance Act; or

‘‘(iv) the Commission in the case of all other such

institutions.’’.
S. 900—70

(2) Section 1112(e) of the Right to Financial Privacy Act

of 1978 (12 U.S.C. 3412(e)) is amended—

(A) by striking ‘‘this title’’ and inserting ‘‘law’’; and

(B) by inserting ‘‘, examination reports’’ after ‘‘financial

records’’.

Subtitle D—Banks and Bank Holding

Companies

SEC. 241. CONSULTATION.

(a) IN GENERAL.—The Securities and Exchange Commission

shall consult and coordinate comments with the appropriate Federal

banking agency before taking any action or rendering any opinion

with respect to the manner in which any insured depository institution or depository institution holding company reports loan loss

reserves in its financial statement, including the amount of any

such loan loss reserve.

(b) DEFINITIONS.—For purposes of subsection (a), the terms

‘‘insured depository institution’’, ‘‘depository institution holding company’’, and ‘‘appropriate Federal banking agency’’ have the same

meaning as given in section 3 of the Federal Deposit Insurance

Act.

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

SEC. 301. FUNCTIONAL REGULATION OF INSURANCE.

The insurance activities of any person (including a national

bank exercising its power to act as agent under the eleventh

undesignated paragraph of section 13 of the Federal Reserve Act)

shall be functionally regulated by the States, subject to section

104.

SEC. 302. INSURANCE UNDERWRITING IN NATIONAL BANKS.

(a) IN GENERAL.—Except as provided in section 303, a national

bank and the subsidiaries of a national bank may not provide

insurance in a State as principal except that this prohibition shall

not apply to authorized products.

(b) AUTHORIZED PRODUCTS.—For the purposes of this section,

a product is authorized if—

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

had determined in writing that national banks may provide

such product as principal, or national banks were in fact lawfully providing such product as principal;

(2) no court of relevant jurisdiction had, by final judgment,

overturned a determination of the Comptroller of the Currency

that national banks may provide such product as principal;

and

(3) the product is not title insurance, or an annuity contract

the income of which is subject to tax treatment under section

72 of the Internal Revenue Code of 1986.

(c) DEFINITION.—For purposes of this section, the term ‘‘insurance’’ means—
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(1) any product regulated as insurance as of January 1,

1999, in accordance with the relevant State insurance law,

in the State in which the product is provided;

(2) any product first offered after January 1, 1999, which—

(A) a State insurance regulator determines shall be

regulated as insurance in the State in which the product

is provided because the product insures, guarantees, or

indemnifies against liability, loss of life, loss of health,

or loss through damage to or destruction of property,

including, but not limited to, surety bonds, life insurance,

health insurance, title insurance, and property and casualty

insurance (such as private passenger or commercial automobile, homeowners, mortgage, commercial multiperil, general liability, professional liability, workers’ compensation,

fire and allied lines, farm owners multiperil, aircraft,

fidelity, surety, medical malpractice, ocean marine, inland

marine, and boiler and machinery insurance); and

(B) is not a product or service of a bank that is—

(i) a deposit product;

(ii) a loan, discount, letter of credit, or other extension of credit;

(iii) a trust or other fiduciary service;

(iv) a qualified financial contract (as defined in

or determined pursuant to section 11(e)(8)(D)(i) of the

Federal Deposit Insurance Act); or

(v) a financial guaranty, except that this subparagraph (B) shall not apply to a product that includes

an insurance component such that if the product is

offered or proposed to be offered by the bank as

principal—

(I) it would be treated as a life insurance

contract under section 7702 of the Internal Revenue Code of 1986; or

(II) in the event that the product is not a

letter of credit or other similar extension of credit,

a qualified financial contract, or a financial guaranty, it would qualify for treatment for losses

incurred with respect to such product under section

832(b)(5) of the Internal Revenue Code of 1986,

if the bank were subject to tax as an insurance

company under section 831 of that Code; or

(3) any annuity contract, the income on which is subject

to tax treatment under section 72 of the Internal Revenue

Code of 1986.

(d) RULE OF CONSTRUCTION.—For purposes of this section, providing insurance (including reinsurance) outside the United States

that insures, guarantees, or indemnifies insurance products provided in a State, or that indemnifies an insurance company with

regard to insurance products provided in a State, shall be considered

to be providing insurance as principal in that State.

SEC. 303. TITLE INSURANCE ACTIVITIES OF NATIONAL BANKS AND

THEIR AFFILIATES.

(a) GENERAL PROHIBITION.—No national bank may engage in

any activity involving the underwriting or sale of title insurance.

(b) NONDISCRIMINATION PARITY EXCEPTION.—
S. 900—72

(1) IN GENERAL.—Notwithstanding any other provision of

law (including section 104 of this Act), in the case of any

State in which banks organized under the laws of such State

are authorized to sell title insurance as agent, a national bank

may sell title insurance as agent in such State, but only in

the same manner, to the same extent, and under the same

restrictions as such State banks are authorized to sell title

insurance as agent in such State.

(2) COORDINATION WITH ‘‘WILDCARD’’ PROVISION.—A State

law which authorizes State banks to engage in any activities

in such State in which a national bank may engage shall

not be treated as a statute which authorizes State banks to

sell title insurance as agent, for purposes of paragraph (1).

(c) GRANDFATHERING WITH CONSISTENT REGULATION.—

(1) IN GENERAL.—Except as provided in paragraphs (2)

and (3) and notwithstanding subsections (a) and (b), a national

bank, and a subsidiary of a national bank, may conduct title

insurance activities which such national bank or subsidiary

was actively and lawfully conducting before the date of the

enactment of this Act.

(2) INSURANCE AFFILIATE.—In the case of a national bank

which has an affiliate which provides insurance as principal

and is not a subsidiary of the bank, the national bank and

any subsidiary of the national bank may not engage in the

underwriting of title insurance pursuant to paragraph (1).

(3) INSURANCE SUBSIDIARY.—In the case of a national bank

which has a subsidiary which provides insurance as principal

and has no affiliate other than a subsidiary which provides

insurance as principal, the national bank may not directly

engage in any activity involving the underwriting of title insurance.

(d) ‘‘AFFILIATE’’ AND ‘‘SUBSIDIARY’’ DEFINED.—For purposes of

this section, the terms ‘‘affiliate’’ and ‘‘subsidiary’’ have the same

meanings as in section 2 of the Bank Holding Company Act of

1956.

(e) RULE OF CONSTRUCTION.—No provision of this Act or any

other Federal law shall be construed as superseding or affecting

a State law which was in effect before the date of the enactment

of this Act and which prohibits title insurance from being offered,

provided, or sold in such State, or from being underwritten with

respect to real property in such State, by any person whatsoever.

SEC. 304. EXPEDITED AND EQUALIZED DISPUTE RESOLUTION FOR

FEDERAL REGULATORS.

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

conflict between a State insurance regulator and a Federal regulator

regarding insurance issues, including whether a State law, rule,

regulation, order, or interpretation regarding any insurance sales

or solicitation activity is properly treated as preempted under Federal law, the Federal or State regulator may seek expedited judicial

review of such determination by the United States Court of Appeals

for the circuit in which the State is located or in the United

States Court of Appeals for the District of Columbia Circuit by

filing a petition for review in such court.

(b) EXPEDITED REVIEW.—The United States Court of Appeals

in which a petition for review is filed in accordance with subsection

(a) shall complete all action on such petition, including rendering
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a judgment, before the end of the 60-day period beginning on

the date on which such petition is filed, unless all parties to such

proceeding agree to any extension of such period.

(c) SUPREME COURT REVIEW.—Any request for certiorari to

the Supreme Court of the United States of any judgment of a

United States Court of Appeals with respect to a petition for review

under this section shall be filed with the Supreme Court of the

United States as soon as practicable after such judgment is issued.

(d) STATUTE OF LIMITATION.—No petition may be filed under

this section challenging an order, ruling, determination, or other

action of a Federal regulator or State insurance regulator after

the later of—

(1) the end of the 12-month period beginning on the date

on which the first public notice is made of such order, ruling,

determination or other action in its final form; or

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

on which such order, ruling, determination, or other action

takes effect.

(e) STANDARD OF REVIEW.—The court shall decide a petition

filed under this section based on its review on the merits of all

questions presented under State and Federal law, including the

nature of the product or activity and the history and purpose

of its regulation under State and Federal law, without unequal

deference.

SEC. 305. INSURANCE CUSTOMER PROTECTIONS.

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

is amended by inserting after section 46, as added by section

121(d) of this Act, the following new section:

‘‘SEC. 47. INSURANCE CUSTOMER PROTECTIONS.

‘‘(a) REGULATIONS REQUIRED.— ‘‘(1) IN GENERAL.—The Federal banking agencies shall prescribe and publish in final form, before the end of the 1-

year period beginning on the date of the enactment of the

Gramm-Leach-Bliley Act, customer protection regulations

(which the agencies jointly determine to be appropriate) that—

‘‘(A) apply to retail sales practices, solicitations, advertising, or offers of any insurance product by any depository

institution or any person that is engaged in such activities

at an office of the institution or on behalf of the institution;

and

‘‘(B) are consistent with the requirements of this Act

and provide such additional protections for customers to

whom such sales, solicitations, advertising, or offers are

directed.

‘‘(2) APPLICABILITY TO SUBSIDIARIES.—The regulations prescribed pursuant to paragraph (1) shall extend such protections

to any subsidiary of a depository institution, as deemed appropriate by the regulators referred to in paragraph (3), where

such extension is determined to be necessary to ensure the

consumer protections provided by this section.

‘‘(3) CONSULTATION AND JOINT REGULATIONS.—The Federal

banking agencies shall consult with each other and prescribe

joint regulations pursuant to paragraph (1), after consultation

with the State insurance regulators, as appropriate.

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

to subsection (a) shall include antitying and anticoercion rules
S. 900—74

applicable to the sale of insurance products that prohibit a depository institution from engaging in any practice that would lead

a customer to believe an extension of credit, in violation of section

106(b) of the Bank Holding Company Act Amendments of 1970,

is conditional upon—

‘‘(1) the purchase of an insurance product from the institution or any of its affiliates; or

‘‘(2) an agreement by the consumer not to obtain, or a

prohibition on the consumer from obtaining, an insurance

product from an unaffiliated entity.

‘‘(c) DISCLOSURES AND ADVERTISING.—The regulations prescribed pursuant to subsection (a) shall include the following provisions relating to disclosures and advertising in connection with

the initial purchase of an insurance product:

‘‘(1) DISCLOSURES.—

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

disclosures be made orally and in writing before the completion of the initial sale and, in the case of clause (iii),

at the time of application for an extension of credit:

‘‘(i) UNINSURED STATUS.—As appropriate, the

product is not insured by the Federal Deposit Insurance Corporation, the United States Government, or

the depository institution.

‘‘(ii) INVESTMENT RISK.—In the case of a variable

annuity or other insurance product which involves an

investment risk, that there is an investment risk associated with the product, including possible loss of value.

‘‘(iii) COERCION.—The approval of an extension of

credit may not be conditioned on—

‘‘(I) the purchase of an insurance product from

the institution in which the application for credit

is pending or of any affiliate of the institution;

or

‘‘(II) an agreement by the consumer not to

obtain, or a prohibition on the consumer from

obtaining, an insurance product from an unaffiliated entity.

‘‘(B) MAKING DISCLOSURE READILY UNDERSTANDABLE.— Regulations prescribed under subparagraph (A) shall

encourage the use of disclosure that is conspicuous, simple,

direct, and readily understandable, such as the following:

‘‘(i) ‘NOT FDIC—INSURED’.

‘‘(ii) ‘NOT GUARANTEED BY THE BANK’.

‘‘(iii) ‘MAY GO DOWN IN VALUE’.

‘‘(iv) ‘NOT INSURED BY ANY GOVERNMENT

AGENCY’.

‘‘(C) LIMITATION.—Nothing in this paragraph requires

the inclusion of the foregoing disclosures in advertisements

of a general nature describing or listing the services or

products offered by an institution.

‘‘(D) MEANINGFUL DISCLOSURES.—Disclosures shall not

be considered to be meaningfully provided under this paragraph if the institution or its representative states that

disclosures required by this subsection were available to

the customer in printed material available for distribution,

where such printed material is not provided and such

information is not orally disclosed to the customer.
S. 900—75

‘‘(E) ADJUSTMENTS FOR ALTERNATIVE METHODS OF PURCHASE.—In prescribing the requirements under subparagraphs (A) and (F), necessary adjustments shall be made

for purchase in person, by telephone, or by electronic media

to provide for the most appropriate and complete form

of disclosure and acknowledgments.

‘‘(F) CONSUMER ACKNOWLEDGMENT.—A requirement

that a depository institution shall require any person

selling an insurance product at any office of, or on behalf

of, the institution to obtain, at the time a consumer receives

the disclosures required under this paragraph or at the

time of the initial purchase by the consumer of such

product, an acknowledgment by such consumer of the

receipt of the disclosure required under this subsection

with respect to such product.

‘‘(2) PROHIBITION ON MISREPRESENTATIONS.—A prohibition

on any practice, or any advertising, at any office of, or on

behalf of, the depository institution, or any subsidiary, as appropriate, that could mislead any person or otherwise cause a

reasonable person to reach an erroneous belief with respect

to—

‘‘(A) the uninsured nature of any insurance product

sold, or offered for sale, by the institution or any subsidiary

of the institution;

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

product that involves an investment risk, the investment

risk associated with any such product; or

‘‘(C) in the case of an institution or subsidiary at which

insurance products are sold or offered for sale, the fact

that—

‘‘(i) the approval of an extension of credit to a

customer by the institution or subsidiary may not be

conditioned on the purchase of an insurance product

by such customer from the institution or subsidiary;

and

‘‘(ii) the customer is free to purchase the insurance

product from another source.

‘‘(d) SEPARATION OF BANKING AND NONBANKING ACTIVITIES.— ‘‘(1) REGULATIONS REQUIRED.—The regulations prescribed

pursuant to subsection (a) shall include such provisions as

the Federal banking agencies consider appropriate to ensure

that the routine acceptance of deposits is kept, to the extent

practicable, physically segregated from insurance product

activity.

‘‘(2) REQUIREMENTS.—Regulations prescribed pursuant to

paragraph (1) shall include the following requirements:

‘‘(A) SEPARATE SETTING.—A clear delineation of the

setting in which, and the circumstances under which, transactions involving insurance products should be conducted

in a location physically segregated from an area where

retail deposits are routinely accepted.

‘‘(B) REFERRALS.—Standards that permit any person

accepting deposits from the public in an area where such

transactions are routinely conducted in a depository institution to refer a customer who seeks to purchase any insurance product to a qualified person who sells such product,

only if the person making the referral receives no more
S. 900—76

than a one-time nominal fee of a fixed dollar amount for

each referral that does not depend on whether the referral

results in a transaction.

‘‘(C) QUALIFICATION AND LICENSING REQUIREMENTS.—

Standards prohibiting any depository institution from

permitting any person to sell or offer for sale any insurance

product in any part of any office of the institution, or

on behalf of the institution, unless such person is appropriately qualified and licensed.

‘‘(e) DOMESTIC VIOLENCE DISCRIMINATION PROHIBITION.—

‘‘(1) IN GENERAL.—In the case of an applicant for, or an

insured under, any insurance product described in paragraph

(2), the status of the applicant or insured as a victim of domestic

violence, or as a provider of services to victims of domestic

violence, shall not be considered as a criterion in any decision

with regard to insurance underwriting, pricing, renewal, or

scope of coverage of insurance policies, or payment of insurance

claims, except as required or expressly permitted under State

law.

‘‘(2) SCOPE OF APPLICATION.—The prohibition contained in

paragraph (1) shall apply to any life or health insurance product

which is sold or offered for sale, as principal, agent, or broker,

by any depository institution or any person who is engaged

in such activities at an office of the institution or on behalf

of the institution.

‘‘(3) DOMESTIC VIOLENCE DEFINED.—For purposes of this

subsection, the term ‘domestic violence’ means the occurrence

of one or more of the following acts by a current or former

family member, household member, intimate partner, or caretaker:

‘‘(A) Attempting to cause or causing or threatening

another person physical harm, severe emotional distress,

psychological trauma, rape, or sexual assault.

‘‘(B) Engaging in a course of conduct or repeatedly

committing acts toward another person, including following

the person without proper authority, under circumstances

that place the person in reasonable fear of bodily injury

or physical harm.

‘‘(C) Subjecting another person to false imprisonment.

‘‘(D) Attempting to cause or cause damage to property

so as to intimidate or attempt to control the behavior

of another person.

‘‘(f) CONSUMER GRIEVANCE PROCESS.—The Federal banking

agencies shall jointly establish a consumer complaint mechanism,

for receiving and expeditiously addressing consumer complaints

alleging a violation of regulations issued under the section, which

shall—

‘‘(1) establish a group within each regulatory agency to

receive such complaints;

‘‘(2) develop procedures for investigating such complaints;

‘‘(3) develop procedures for informing consumers of rights

they may have in connection with such complaints; and

‘‘(4) develop procedures for addressing concerns raised by

such complaints, as appropriate, including procedures for the

recovery of losses to the extent appropriate.

‘‘(g) EFFECT ON OTHER AUTHORITY.—
S. 900—77

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

construed as granting, limiting, or otherwise affecting—

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

Commission, any self-regulatory organization, the Municipal Securities Rulemaking Board, or the Secretary of the

Treasury under any Federal securities law; or

‘‘(B) except as provided in paragraph (2), any authority

of any State insurance commission (or any agency or office

performing like functions), or of any State securities

commission (or any agency or office performing like functions), or other State authority under any State law.

‘‘(2) COORDINATION WITH STATE LAW.—

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

(B), insurance customer protection regulations prescribed

by a Federal banking agency under this section shall not

apply to retail sales, solicitations, advertising, or offers

of any insurance product by any depository institution or

to any person who is engaged in such activities at an

office of such institution or on behalf of the institution,

in a State where the State has in effect statutes, regulations, orders, or interpretations, that are inconsistent with

or contrary to the regulations prescribed by the Federal

banking agencies.

‘‘(B) PREEMPTION.—

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

of the regulations prescribed under this section, the

Board of Governors of the Federal Reserve System,

the Comptroller of the Currency, and the Board of

Directors of the Corporation determine jointly that the

protection afforded by such provision for customers

is greater than the protection provided by a comparable

provision of the statutes, regulations, orders, or

interpretations referred to in subparagraph (A) of any

State, the appropriate State regulatory authority shall

be notified of such determination in writing.

‘‘(ii) CONSIDERATIONS.—Before making a final

determination under clause (i), the Federal agencies

referred to in clause (i) shall give appropriate consideration to comments submitted by the appropriate State

regulatory authorities relating to the level of protection

afforded to consumers under State law.

‘‘(iii) FEDERAL PREEMPTION AND ABILITY OF STATES

TO OVERRIDE FEDERAL PREEMPTION.—If the Federal

agencies referred to in clause (i) jointly determine that

any provision of the regulations prescribed under this

section affords greater protections than a comparable

State law, rule, regulation, order, or interpretation,

those agencies shall send a written preemption notice

to the appropriate State regulatory authority to notify

the State that the Federal provision will preempt the

State provision and will become applicable unless, not

later than 3 years after the date of such notice, the

State adopts legislation to override such preemption.

‘‘(h) NON-DISCRIMINATION AGAINST NON-AFFILIATED AGENTS.—

The Federal banking agencies shall ensure that the regulations

prescribed pursuant to subsection (a) shall not have the effect

of discriminating, either intentionally or unintentionally, against
S. 900—78

any person engaged in insurance sales or solicitations that is not

affiliated with a depository institution.’’.

SEC. 306. CERTAIN STATE AFFILIATION LAWS PREEMPTED FOR

INSURANCE COMPANIES AND AFFILIATES.

Except as provided in section 104(c)(2), no State may, by law,

regulation, order, interpretation, or otherwise—

(1) prevent or significantly interfere with the ability of

any insurer, or any affiliate of an insurer (whether such affiliate

is organized as a stock company, mutual holding company,

or otherwise), to become a financial holding company or to

acquire control of a depository institution;

(2) limit the amount of an insurer’s assets that may be

invested in the voting securities of a depository institution

(or any company which controls such institution), except that

the laws of an insurer’s State of domicile may limit the amount

of such investment to an amount that is not less than 5 percent

of the insurer’s admitted assets; or

(3) prevent, significantly interfere with, or have the

authority to review, approve, or disapprove a plan of reorganization by which an insurer proposes to reorganize from mutual

form to become a stock insurer (whether as a direct or indirect

subsidiary of a mutual holding company or otherwise) unless

such State is the State of domicile of the insurer.

SEC. 307. INTERAGENCY CONSULTATION.

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

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

supervisor for financial holding companies, and the State insurance

regulators, as the functional regulators of companies engaged in

insurance activities, coordinate efforts to supervise companies that

control both a depository institution and a company engaged in

insurance activities regulated under State law. In particular, Congress believes that the Board and the State insurance regulators

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

supervision of companies that control both a depository institution

and a company engaged in insurance activities, including information regarding the financial health of the consolidated organization

and information regarding transactions and relationships between

insurance companies and affiliated depository institutions. The

appropriate Federal banking agencies for depository institutions

should also share, on a confidential basis, information with the

relevant State insurance regulators regarding transactions and relationships between depository institutions and affiliated companies

engaged in insurance activities. The purpose of this section is to

encourage this coordination and confidential sharing of information,

and to thereby improve both the efficiency and the quality of the

supervision of financial holding companies and their affiliated

depository institutions and companies engaged in insurance activities.

(b) EXAMINATION RESULTS AND OTHER INFORMATION.—

(1) INFORMATION OF THE BOARD.—Upon the request of the

appropriate insurance regulator of any State, the Board may

provide any information of the Board regarding the financial

condition, risk management policies, and operations of any

financial holding company that controls a company that is

engaged in insurance activities and is regulated by such State
S. 900—79

insurance regulator, and regarding any transaction or relationship between such an insurance company and any affiliated

depository institution. The Board may provide any other

information to the appropriate State insurance regulator that

the Board believes is necessary or appropriate to permit the

State insurance regulator to administer and enforce applicable

State insurance laws.

(2) BANKING AGENCY INFORMATION.—Upon the request of

the appropriate insurance regulator of any State, the appropriate Federal banking agency may provide any information

of the agency regarding any transaction or relationship between

a depository institution supervised by such Federal banking

agency and any affiliated company that is engaged in insurance

activities regulated by such State insurance regulator. The

appropriate Federal banking agency may provide any other

information to the appropriate State insurance regulator that

the agency believes is necessary or appropriate to permit the

State insurance regulator to administer and enforce applicable

State insurance laws.

(3) STATE INSURANCE REGULATOR INFORMATION.—Upon the

request of the Board or the appropriate Federal banking agency,

a State insurance regulator may provide any examination or

other reports, records, or other information to which such insurance regulator may have access with respect to a company

which—

(A) is engaged in insurance activities and regulated

by such insurance regulator; and

(B) is an affiliate of a depository institution or financial

holding company.

(c) CONSULTATION.—Before making any determination relating

to the initial affiliation of, or the continuing affiliation of, a depository institution or financial holding company with a company

engaged in insurance activities, the appropriate Federal banking

agency shall consult with the appropriate State insurance regulator

of such company and take the views of such insurance regulator

into account in making such determination.

(d) EFFECT ON OTHER AUTHORITY.—Nothing in this section

shall limit in any respect the authority of the appropriate Federal

banking agency with respect to a depository institution or bank

holding company or any affiliate thereof under any provision of

law.

(e) CONFIDENTIALITY AND PRIVILEGE.—

(1) CONFIDENTIALITY.—The appropriate Federal banking

agency shall not provide any information or material that is

entitled to confidential treatment under applicable Federal

banking agency regulations, or other applicable law, to a State

insurance regulator unless such regulator agrees to maintain

the information or material in confidence and to take all reasonable steps to oppose any effort to secure disclosure of the

information or material by the regulator. The appropriate Federal banking agency shall treat as confidential any information

or material obtained from a State insurance regulator that

is entitled to confidential treatment under applicable State

regulations, or other applicable law, and take all reasonable

steps to oppose any effort to secure disclosure of the information

or material by the Federal banking agency.
S. 900—80

(2) PRIVILEGE.—The provision pursuant to this section of

information or material by a Federal banking agency or State

insurance regulator shall not constitute a waiver of, or otherwise affect, any privilege to which the information or material

is otherwise subject.

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

definitions shall apply:

(1) APPROPRIATE FEDERAL BANKING AGENCY; DEPOSITORY

INSTITUTION.—The terms ‘‘appropriate Federal banking agency’’

and ‘‘depository institution’’ have the same meanings as in

section 3 of the Federal Deposit Insurance Act.

(2) BOARD AND FINANCIAL HOLDING COMPANY.—The terms

‘‘Board’’ and ‘‘financial holding company’’ have the same

meanings as in section 2 of the Bank Holding Company Act

of 1956.

SEC. 308. DEFINITION OF STATE.

For purposes of this subtitle, the term ‘‘State’’ means any

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

of the United States, Puerto Rico, Guam, American Samoa, the

Trust Territory of the Pacific Islands, the Virgin Islands, and the

Northern Mariana Islands.

Subtitle B—Redomestication of Mutual

Insurers

SEC. 311. GENERAL APPLICATION.

This subtitle shall only apply to a mutual insurance company

in a State which has not enacted a law which expressly establishes

reasonable terms and conditions for a mutual insurance company

domiciled in such State to reorganize into a mutual holding company.

SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

(a) REDOMESTICATION.—A mutual insurer organized under the

laws of any State may transfer its domicile to a transferee domicile

as a step in a reorganization in which, pursuant to the laws of

the transferee domicile and consistent with the standards in subsection (f), the mutual insurer becomes a stock insurer that is

a direct or indirect subsidiary of a mutual holding company.

(b) RESULTING DOMICILE.—Upon complying with the applicable

law of the transferee domicile governing transfers of domicile and

completion of a transfer pursuant to this section, the mutual insurer

shall cease to be a domestic insurer in the transferor domicile

and, as a continuation of its corporate existence, shall be a domestic

insurer of the transferee domicile.

(c) LICENSES PRESERVED.—The certificate of authority, agents’

appointments and licenses, rates, approvals and other items that

a licensed State allows and that are in existence immediately prior

to the date that a redomesticating insurer transfers its domicile

pursuant to this subtitle shall continue in full force and effect

upon transfer, if the insurer remains duly qualified to transact

the business of insurance in such licensed State.

(d) EFFECTIVENESS OF OUTSTANDING POLICIES AND CONTRACTS.—
S. 900—81

(1) IN GENERAL.—All outstanding insurance policies and

annuities contracts of a redomesticating insurer shall remain

in full force and effect and need not be endorsed as to the

new domicile of the insurer, unless so ordered by the State

insurance regulator of a licensed State, and then only in the

case of outstanding policies and contracts whose owners reside

in such licensed State.

(2) FORMS.—

(A) Applicable State law may require a redomesticating

insurer to file new policy forms with the State insurance

regulator of a licensed State on or before the effective

date of the transfer.

(B) Notwithstanding subparagraph (A), a redomesticating insurer may use existing policy forms with appropriate endorsements to reflect the new domicile of the

redomesticating insurer until the new policy forms are

approved for use by the State insurance regulator of such

licensed State.

(e) NOTICE.—A redomesticating insurer shall give notice of the

proposed transfer to the State insurance regulator of each licensed

State and shall file promptly any resulting amendments to corporate

documents required to be filed by a foreign licensed mutual insurer

with the insurance regulator of each such licensed State.

(f) PROCEDURAL REQUIREMENTS.—No mutual insurer may redomesticate to another State and reorganize into a mutual holding

company pursuant to this section unless the State insurance regulator of the transferee domicile determines that the plan of reorganization of the insurer includes the following requirements:

(1) APPROVAL BY BOARD OF DIRECTORS AND POLICYHOLDERS.—The reorganization is approved by at least a

majority of the board of directors of the mutual insurer and

at least a majority of the policyholders who vote after notice,

disclosure of the reorganization and the effects of the transaction on policyholder contractual rights, and reasonable opportunity to vote, in accordance with such notice, disclosure, and

voting procedures as are approved by the State insurance regulator of the transferee domicile.

(2) CONTINUED VOTING CONTROL BY POLICYHOLDERS; REVIEW

OF PUBLIC STOCK OFFERING.—After the consummation of a

reorganization, the policyholders of the reorganized insurer

shall have the same voting rights with respect to the mutual

holding company as they had before the reorganization with

respect to the mutual insurer. With respect to an initial public

offering of stock, the offering shall be conducted in compliance

with applicable securities laws and in a manner approved by

the State insurance regulator of the transferee domicile.

(3) AWARD OF STOCK OR GRANT OF OPTIONS TO OFFICERS

AND DIRECTORS.—During the applicable period provided for

under the State law of the transferee domicile following completion of an initial public offering, or for a period of six months

if no such applicable period is provided, neither a stock holding

company nor the converted insurer shall award any stock

options or stock grants to persons who are elected officers

or directors of the mutual holding company, the stock holding

company, or the converted insurer, except with respect to any

such awards or options to which a person is entitled as a
S. 900—82

policyholder and as approved by the State insurance regulator

of the transferee domicile.

(4) POLICYHOLDER RIGHTS.—Upon reorganization into a

mutual holding company, the contractual rights of the policyholders are preserved.

(5) FAIR AND EQUITABLE TREATMENT OF POLICYHOLDERS.—

The reorganization is approved as fair and equitable to the

policyholders by the insurance regulator of the transferee

domicile.

SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMESTICATION.

(a) IN GENERAL.—Unless otherwise permitted by this subtitle,

State laws of any transferor domicile that conflict with the purposes

and intent of this subtitle are preempted, including but not limited

to—

(1) any law that has the purpose or effect of impeding

the activities of, taking any action against, or applying any

provision of law or regulation to, any insurer or an affiliate

of such insurer because that insurer or any affiliate plans

to redomesticate, or has redomesticated, pursuant to this subtitle;

(2) any law that has the purpose or effect of impeding

the activities of, taking action against, or applying any provision

of law or regulation to, any insured or any insurance licensee

or other intermediary because such person has procured insurance from or placed insurance with any insurer or affiliate

of such insurer that plans to redomesticate, or has redomesticated, pursuant to this subtitle, but only to the extent that

such law would treat such insured licensee or other intermediary differently than if the person procured insurance from,

or placed insurance with, an insured licensee or other intermediary which had not redomesticated; and

(3) any law that has the purpose or effect of terminating,

because of the redomestication of a mutual insurer pursuant

to this subtitle, any certificate of authority, agent appointment

or license, rate approval, or other approval, of any State insurance regulator or other State authority in existence immediately

prior to the redomestication in any State other than the transferee domicile.

(b) DIFFERENTIAL TREATMENT PROHIBITED.—No State law, regulation, interpretation, or functional equivalent thereof, of a State

other than a transferee domicile may treat a redomesticating or

redomesticated insurer or any affiliate thereof any differently than

an insurer operating in that State that is not a redomesticating

or redomesticated insurer.

(c) LAWS PROHIBITING OPERATIONS.—If any licensed State fails

to issue, delays the issuance of, or seeks to revoke an original

or renewal certificate of authority of a redomesticated insurer

promptly following redomestication, except on grounds and in a

manner consistent with its past practices regarding the issuance

of certificates of authority to foreign insurers that are not redomesticating, then the redomesticating insurer shall be exempt from

any State law of the licensed State to the extent that such State

law or the operation of such State law would make unlawful,

or regulate, directly or indirectly, the operation of the redomesticated insurer, except that such licensed State may require the

redomesticated insurer to—
S. 900—83

(1) comply with the unfair claim settlement practices law

of the licensed State;

(2) pay, on a nondiscriminatory basis, applicable premium

and other taxes which are levied on licensed insurers or policyholders under the laws of the licensed State;

(3) register with and designate the State insurance regulator as its agent solely for the purpose of receiving service

of legal documents or process;

(4) submit to an examination by the State insurance regulator in any licensed State in which the redomesticated insurer

is doing business to determine the insurer’s financial condition,

if—

(A) the State insurance regulator of the transferee

domicile has not begun an examination of the redomesticated insurer and has not scheduled such an examination

to begin before the end of the 1-year period beginning

on the date of the redomestication; and

(B) any such examination is coordinated to avoid

unjustified duplication and repetition;

(5) comply with a lawful order issued in—

(A) a delinquency proceeding commenced by the State

insurance regulator of any licensed State if there has been

a judicial finding of financial impairment under paragraph

(7); or

(B) a voluntary dissolution proceeding;

(6) comply with any State law regarding deceptive, false,

or fraudulent acts or practices, except that if the licensed State

seeks an injunction regarding the conduct described in this

paragraph, such injunction must be obtained from a court of

competent jurisdiction as provided in section 314(a);

(7) comply with an injunction issued by a court of competent

jurisdiction, upon a petition by the State insurance regulator

alleging that the redomesticating insurer is in hazardous financial condition or is financially impaired;

(8) participate in any insurance insolvency guaranty

association on the same basis as any other insurer licensed

in the licensed State; and

(9) require a person acting, or offering to act, as an insurance licensee for a redomesticated insurer in the licensed State

to obtain a license from that State, except that such State

may not impose any qualification or requirement that discriminates against a nonresident insurance licensee.

SEC. 314. OTHER PROVISIONS.

(a) JUDICIAL REVIEW.—The appropriate United States district

court shall have exclusive jurisdiction over litigation arising under

this section involving any redomesticating or redomesticated

insurer.

(b) SEVERABILITY.—If any provision of this section, or the

application thereof to any person or circumstances, is held invalid,

the remainder of the section, and the application of such provision

to other persons or circumstances, shall not be affected thereby.

SEC. 315. DEFINITIONS.

For purposes of this subtitle, the following definitions shall

apply:

(1) COURT OF COMPETENT JURISDICTION.—The term ‘‘court

of competent jurisdiction’’ means a court authorized pursuant
S. 900—84

to section 314(a) to adjudicate litigation arising under this

subtitle.

(2) DOMICILE.—The term ‘‘domicile’’ means the State in

which an insurer is incorporated, chartered, or organized.

(3) INSURANCE LICENSEE.—The term ‘‘insurance licensee’’

means any person holding a license under State law to act

as insurance agent, subagent, broker, or consultant.

(4) INSTITUTION.—The term ‘‘institution’’ means a corporation, joint stock company, limited liability company, limited

liability partnership, association, trust, partnership, or any

similar entity.

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

State, the District of Columbia, any territory of the United

States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands, and the Northern

Mariana Islands in which the redomesticating insurer has a

certificate of authority in effect immediately prior to the redomestication.

(6) MUTUAL INSURER.—The term ‘‘mutual insurer’’ means

a mutual insurer organized under the laws of any State.

(7) PERSON.—The term ‘‘person’’ means an individual,

institution, government or governmental agency, State or political subdivision of a State, public corporation, board, association, estate, trustee, or fiduciary, or other similar entity.

(8) POLICYHOLDER.—The term ‘‘policyholder’’ means the

owner of a policy issued by a mutual insurer, except that,

with respect to voting rights, the term means a member of

a mutual insurer or mutual holding company granted the right

to vote, as determined under applicable State law.

(9) REDOMESTICATED INSURER.—The term ‘‘redomesticated

insurer’’ means a mutual insurer that has redomesticated

pursuant to this subtitle.

(10) REDOMESTICATING INSURER.—The term ‘‘redomesticating insurer’’ means a mutual insurer that is redomesticating pursuant to this subtitle.

(11) REDOMESTICATION OR TRANSFER.—The term ‘‘redomestication’’ or ‘‘transfer’’ means the transfer of the domicile of

a mutual insurer from one State to another State pursuant

to this subtitle.

(12) STATE INSURANCE REGULATOR.—The term ‘‘State insurance regulator’’ means the principal insurance regulatory

authority of a State, the District of Columbia, any territory

of the United States, Puerto Rico, Guam, American Samoa,

the Trust Territory of the Pacific Islands, the Virgin Islands,

and the Northern Mariana Islands.

(13) STATE LAW.—The term ‘‘State law’’ means the statutes

of any State, the District of Columbia, any territory of the

United States, Puerto Rico, Guam, American Samoa, the Trust

Territory of the Pacific Islands, the Virgin Islands, and the

Northern Mariana Islands and any regulation, order, or requirement prescribed pursuant to any such statute.

(14) TRANSFEREE DOMICILE.—The term ‘‘transferee

domicile’’ means the State to which a mutual insurer is redomesticating pursuant to this subtitle.

(15) TRANSFEROR DOMICILE.—The term ‘‘transferor

domicile’’ means the State from which a mutual insurer is

redomesticating pursuant to this subtitle.
S. 900—85

SEC. 316. EFFECTIVE DATE.

This subtitle shall take effect on the date of the enactment

of this Act.

Subtitle C—National Association of

Registered Agents and Brokers

SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING REFORMS.

(a) IN GENERAL.—The provisions of this subtitle shall take

effect unless, not later than 3 years after the date of the enactment

of this Act, at least a majority of the States—

(1) have enacted uniform laws and regulations governing

the licensure of individuals and entities authorized to sell and

solicit the purchase of insurance within the State; or

(2) have enacted reciprocity laws and regulations governing

the licensure of nonresident individuals and entities authorized

to sell and solicit insurance within those States.

(b) UNIFORMITY REQUIRED.—States shall be deemed to have

established the uniformity necessary to satisfy subsection (a)(1)

if the States—

(1) establish uniform criteria regarding the integrity, personal qualifications, education, training, and experience of

licensed insurance producers, including the qualification and

training of sales personnel in ascertaining the appropriateness

of a particular insurance product for a prospective customer;

(2) establish uniform continuing education requirements

for licensed insurance producers;

(3) establish uniform ethics course requirements for

licensed insurance producers in conjunction with the continuing

education requirements under paragraph (2);

(4) establish uniform criteria to ensure that an insurance

product, including any annuity contract, sold to a consumer

is suitable and appropriate for the consumer based on financial

information disclosed by the consumer; and

(5) do not impose any requirement upon any insurance

producer to be licensed or otherwise qualified to do business

as a nonresident that has the effect of limiting or conditioning

that producer’s activities because of its residence or place of

operations, except that countersignature requirements imposed

on nonresident producers shall not be deemed to have the

effect of limiting or conditioning a producer’s activities because

of its residence or place of operations under this section.

(c) RECIPROCITY REQUIRED.—States shall be deemed to have

established the reciprocity required to satisfy subsection (a)(2) if

the following conditions are met:

(1) ADMINISTRATIVE LICENSING PROCEDURES.—At least a

majority of the States permit a producer that has a resident

license for selling or soliciting the purchase of insurance in

its home State to receive a license to sell or solicit the purchase

of insurance in such majority of States as a nonresident to

the same extent that such producer is permitted to sell or

solicit the purchase of insurance in its State, if the producer’s

home State also awards such licenses on such a reciprocal

basis, without satisfying any additional requirements other

than submitting—
S. 900—86

(A) a request for licensure;

(B) the application for licensure that the producer submitted to its home State;

(C) proof that the producer is licensed and in good

standing in its home State; and

(D) the payment of any requisite fee to the appropriate

authority.

(2) CONTINUING EDUCATION REQUIREMENTS.—A majority of

the States accept an insurance producer’s satisfaction of its

home State’s continuing education requirements for licensed

insurance producers to satisfy the States’ own continuing education requirements if the producer’s home State also recognizes

the satisfaction of continuing education requirements on such

a reciprocal basis.

(3) NO LIMITING NONRESIDENT REQUIREMENTS.—A majority

of the States do not impose any requirement upon any insurance producer to be licensed or otherwise qualified to do business as a nonresident that has the effect of limiting or conditioning that producer’s activities because of its residence or

place of operations, except that countersignature requirements

imposed on nonresident producers shall not be deemed to have

the effect of limiting or conditioning a producer’s activities

because of its residence or place of operations under this section.

(4) RECIPROCAL RECIPROCITY.—Each of the States that

satisfies paragraphs (1), (2), and (3) grants reciprocity to residents of all of the other States that satisfy such paragraphs.

(d) DETERMINATION.—

(1) NAIC DETERMINATION.—At the end of the 3-year period

beginning on the date of the enactment of this Act, the National

Association of Insurance Commissioners (hereafter in this subtitle referred to as the ‘‘NAIC’’) shall determine, in consultation

with the insurance commissioners or chief insurance regulatory

officials of the States, whether the uniformity or reciprocity

required by subsections (b) and (c) has been achieved.

(2) JUDICIAL REVIEW.—The appropriate United States district court shall have exclusive jurisdiction over any challenge

to the NAIC’s determination under this section and such court

shall apply the standards set forth in section 706 of title 5,

United States Code, when reviewing any such challenge.

(e) CONTINUED APPLICATION.—If, at any time, the uniformity

or reciprocity required by subsections (b) and (c) no longer exists,

the provisions of this subtitle shall take effect 2 years after the

date on which such uniformity or reciprocity ceases to exist, unless

the uniformity or reciprocity required by those provisions is satisfied

before the expiration of that 2-year period.

(f) SAVINGS PROVISION.—No provision of this section shall be

construed as requiring that any law, regulation, provision, or action

of any State which purports to regulate insurance producers,

including any such law, regulation, provision, or action which purports to regulate unfair trade practices or establish consumer protections, including countersignature laws, be altered or amended in

order to satisfy the uniformity or reciprocity required by subsections

(b) and (c), unless any such law, regulation, provision, or action

is inconsistent with a specific requirement of any such subsection

and then only to the extent of such inconsistency.

(g) UNIFORM LICENSING.—Nothing in this section shall be construed to require any State to adopt new or additional licensing
S. 900—87

requirements to achieve the uniformity necessary to satisfy subsection (a)(1).

SEC. 322. NATIONAL ASSOCIATION OF REGISTERED AGENTS AND BROKERS.

(a) ESTABLISHMENT.—There is established the National Association of Registered Agents and Brokers (hereafter in this subtitle

referred to as the ‘‘Association’’).

(b) STATUS.—The Association shall—

(1) be a nonprofit corporation;

(2) have succession until dissolved by an Act of Congress;

(3) not be an agent or instrumentality of the United States

Government; and

(4) except as otherwise provided in this Act, be subject

to, and have all the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act

(D.C. Code, sec. 29y–1001 et seq.).

SEC. 323. PURPOSE.

The purpose of the Association shall be to provide a mechanism

through which uniform licensing, appointment, continuing education, and other insurance producer sales qualification requirements and conditions can be adopted and applied on a multistate

basis, while preserving the right of States to license, supervise,

and discipline insurance producers and to prescribe and enforce

laws and regulations with regard to insurance-related consumer

protection and unfair trade practices.

SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

The Association shall be subject to the supervision and oversight of the NAIC.

SEC. 325. MEMBERSHIP.

(a) ELIGIBILITY.— (1) IN GENERAL.—Any State-licensed insurance producer

shall be eligible to become a member in the Association.

(2) INELIGIBILITY FOR SUSPENSION OR REVOCATION OF

LICENSE.—Notwithstanding paragraph (1), a State-licensed

insurance producer shall not be eligible to become a member

if a State insurance regulator has suspended or revoked such

producer’s license in that State during the 3-year period preceding the date on which such producer applies for membership.

(3) RESUMPTION OF ELIGIBILITY.—Paragraph (2) shall cease

to apply to any insurance producer if—

(A) the State insurance regulator renews the license

of such producer in the State in which the license was

suspended or revoked; or

(B) the suspension or revocation is subsequently overturned.

(b) AUTHORITY TO ESTABLISH MEMBERSHIP CRITERIA.—The

Association shall have the authority to establish membership criteria that—

(1) bear a reasonable relationship to the purposes for which

the Association was established; and

(2) do not unfairly limit the access of smaller agencies

to the Association membership.

(c) ESTABLISHMENT OF CLASSES AND CATEGORIES.—
S. 900—88

(1) CLASSES OF MEMBERSHIP.—The Association may establish separate classes of membership, with separate criteria,

if the Association reasonably determines that performance of

different duties requires different levels of education, training,

or experience.

(2) CATEGORIES.—The Association may establish separate

categories of membership for individuals and for other persons.

The establishment of any such categories of membership shall

be based either on the types of licensing categories that exist

under State laws or on the aggregate amount of business handled by an insurance producer. No special categories of membership, and no distinct membership criteria, shall be established

for members which are depository institutions or for their

employees, agents, or affiliates.

(d) MEMBERSHIP CRITERIA.—

(1) IN GENERAL.—The Association may establish criteria

for membership which shall include standards for integrity,

personal qualifications, education, training, and experience.

(2) MINIMUM STANDARD.—In establishing criteria under

paragraph (1), the Association shall consider the highest levels

of insurance producer qualifications established under the

licensing laws of the States.

(e) EFFECT OF MEMBERSHIP.—Membership in the Association

shall entitle the member to licensure in each State for which the

member pays the requisite fees, including licensing fees and, where

applicable, bonding requirements, set by such State.

(f) ANNUAL RENEWAL.—Membership in the Association shall

be renewed on an annual basis.

(g) CONTINUING EDUCATION.—The Association shall establish,

as a condition of membership, continuing education requirements

which shall be comparable to or greater than the continuing education requirements under the licensing laws of a majority of the

States.

(h) SUSPENSION AND REVOCATION.—The Association may—

(1) inspect and examine the records and offices of the

members of the Association to determine compliance with the

criteria for membership established by the Association; and

(2) suspend or revoke the membership of an insurance

producer if—

(A) the producer fails to meet the applicable membership criteria of the Association; or

(B) the producer has been subject to disciplinary action

pursuant to a final adjudicatory proceeding under the jurisdiction of a State insurance regulator, and the Association

concludes that retention of membership in the Association

would not be in the public interest.

(i) OFFICE OF CONSUMER COMPLAINTS.—

(1) IN GENERAL.—The Association shall establish an office

of consumer complaints that shall—

(A) receive and investigate complaints from both consumers and State insurance regulators related to members

of the Association; and

(B) recommend to the Association any disciplinary

actions that the office considers appropriate, to the extent

that any such recommendation is not inconsistent with

State law.
S. 900—89

(2) RECORDS AND REFERRALS.—The office of consumer complaints of the Association shall—

(A) maintain records of all complaints received in

accordance with paragraph (1) and make such records

available to the NAIC and to each State insurance regulator

for the State of residence of the consumer who filed the

complaint; and

(B) refer, when appropriate, any such complaint to

any appropriate State insurance regulator.

(3) TELEPHONE AND OTHER ACCESS.—The office of consumer

complaints shall maintain a toll-free telephone number for the

purpose of this subsection and, as practicable, other alternative

means of communication with consumers, such as an Internet

home page.

SEC. 326. BOARD OF DIRECTORS.

(a) ESTABLISHMENT.—There is established the board of directors

of the Association (hereafter in this subtitle referred to as the

‘‘Board’’) for the purpose of governing and supervising the activities

of the Association and the members of the Association.

(b) POWERS.—The Board shall have such powers and authority

as may be specified in the bylaws of the Association.

(c) COMPOSITION.—

(1) MEMBERS.—The Board shall be composed of 7 members

appointed by the NAIC.

(2) REQUIREMENT.—At least 4 of the members of the Board

shall each have significant experience with the regulation of

commercial lines of insurance in at least 1 of the 20 States

in which the greatest total dollar amount of commercial-lines

insurance is placed in the United States.

(3) INITIAL BOARD MEMBERSHIP.— (A) IN GENERAL.—If, by the end of the 2-year period

beginning on the date of the enactment of this Act, the

NAIC has not appointed the initial 7 members of the Board

of the Association, the initial Board shall consist of the

7 State insurance regulators of the 7 States with the

greatest total dollar amount of commercial-lines insurance

in place as of the end of such period.

(B) ALTERNATE COMPOSITION.—If any of the State

insurance regulators described in subparagraph (A)

declines to serve on the Board, the State insurance regulator with the next greatest total dollar amount of commercial-lines insurance in place, as determined by the NAIC

as of the end of such period, shall serve as a member

of the Board.

(C) INOPERABILITY.—If fewer than 7 State insurance

regulators accept appointment to the Board, the Association

shall be established without NAIC oversight pursuant to

section 332.

(d) TERMS.—The term of each director shall, after the initial

appointment of the members of the Board, be for 3 years, with

one-third of the directors to be appointed each year.

(e) BOARD VACANCIES.—A vacancy on the Board shall be filled

in the same manner as the original appointment of the initial

Board for the remainder of the term of the vacating member.

(f) MEETINGS.—The Board shall meet at the call of the chairperson, or as otherwise provided by the bylaws of the Association.
S. 900—90

SEC. 327. OFFICERS.

(a) IN GENERAL.—

(1) POSITIONS.—The officers of the Association shall consist

of a chairperson and a vice chairperson of the Board, a president, secretary, and treasurer of the Association, and such

other officers and assistant officers as may be deemed necessary.

(2) MANNER OF SELECTION.—Each officer of the Board and

the Association shall be elected or appointed at such time

and in such manner and for such terms not exceeding 3 years

as may be prescribed in the bylaws of the Association.

(b) CRITERIA FOR CHAIRPERSON.—Only individuals who are

members of the NAIC shall be eligible to serve as the chairperson

of the board of directors.

SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

(a) ADOPTION AND AMENDMENT OF BYLAWS.—

(1) COPY REQUIRED TO BE FILED WITH THE NAIC.—The board

of directors of the Association shall file with the NAIC a copy

of the proposed bylaws or any proposed amendment to the

bylaws, accompanied by a concise general statement of the

basis and purpose of such proposal.

(2) EFFECTIVE DATE.—Except as provided in paragraph (3),

any proposed bylaw or proposed amendment shall take effect—

(A) 30 days after the date of the filing of a copy

with the NAIC;

(B) upon such later date as the Association may designate; or

(C) upon such earlier date as the NAIC may determine.

(3) DISAPPROVAL BY THE NAIC.—Notwithstanding paragraph

(2), a proposed bylaw or amendment shall not take effect if,

after public notice and opportunity to participate in a public

hearing—

(A) the NAIC disapproves such proposal as being contrary to the public interest or contrary to the purposes

of this subtitle and provides notice to the Association setting forth the reasons for such disapproval; or

(B) the NAIC finds that such proposal involves a

matter of such significant public interest that public comment should be obtained, in which case it may, after notifying the Association in writing of such finding, require

that the procedures set forth in subsection (b) be followed

with respect to such proposal, in the same manner as

if such proposed bylaw change were a proposed rule change

within the meaning of such subsection.

(b) ADOPTION AND AMENDMENT OF RULES.—

(1) FILING PROPOSED REGULATIONS WITH THE NAIC.—

(A) IN GENERAL.—The board of directors of the Association shall file with the NAIC a copy of any proposed rule

or any proposed amendment to a rule of the Association

which shall be accompanied by a concise general statement

of the basis and purpose of such proposal.

(B) OTHER RULES AND AMENDMENTS INEFFECTIVE.—

No proposed rule or amendment shall take effect unless

approved by the NAIC or otherwise permitted in accordance

with this paragraph.
S. 900—91

(2) INITIAL CONSIDERATION BY THE NAIC.—Not later than

35 days after the date of publication of notice of filing of

a proposal, or before the end of such longer period not to

exceed 90 days as the NAIC may designate after such date,

if the NAIC finds such longer period to be appropriate and

sets forth its reasons for so finding, or as to which the Association consents, the NAIC shall—

(A) by order approve such proposed rule or amendment;

or

(B) institute proceedings to determine whether such

proposed rule or amendment should be modified or disapproved.

(3) NAIC PROCEEDINGS.—

(A) IN GENERAL.—Proceedings instituted by the NAIC

with respect to a proposed rule or amendment pursuant

to paragraph (2) shall—

(i) include notice of the grounds for disapproval

under consideration;

(ii) provide opportunity for hearing; and

(iii) be concluded not later than 180 days after

the date of the Association’s filing of such proposed

rule or amendment.

(B) DISPOSITION OF PROPOSAL.—At the conclusion of

any proceeding under subparagraph (A), the NAIC shall,

by order, approve or disapprove the proposed rule or

amendment.

(C) EXTENSION OF TIME FOR CONSIDERATION.—The

NAIC may extend the time for concluding any proceeding

under subparagraph (A) for—

(i) not more than 60 days if the NAIC finds good

cause for such extension and sets forth its reasons

for so finding; or

(ii) such longer period as to which the Association

consents.

(4) STANDARDS FOR REVIEW.— (A) GROUNDS FOR APPROVAL.—The NAIC shall approve

a proposed rule or amendment if the NAIC finds that

the rule or amendment is in the public interest and is

consistent with the purposes of this Act.

(B) APPROVAL BEFORE END OF NOTICE PERIOD.—The

NAIC shall not approve any proposed rule before the end

of the 30-day period beginning on the date on which the

Association files proposed rules or amendments in accordance with paragraph (1), unless the NAIC finds good cause

for so doing and sets forth the reasons for so finding.

(5) ALTERNATE PROCEDURE.—

(A) IN GENERAL.—Notwithstanding any provision of

this subsection other than subparagraph (B), a proposed

rule or amendment relating to the administration or

organization of the Association shall take effect—

(i) upon the date of filing with the NAIC, if such

proposed rule or amendment is designated by the

Association as relating solely to matters which the

NAIC, consistent with the public interest and the purposes of this subsection, determines by rule do not

require the procedures set forth in this paragraph;

or
S. 900—92

(ii) upon such date as the NAIC shall for good

cause determine.

(B) ABROGATION BY THE NAIC.—

(i) IN GENERAL.—At any time within 60 days after

the date of filing of any proposed rule or amendment

under subparagraph (A)(i) or clause (ii) of this subparagraph, the NAIC may repeal such rule or amendment

and require that the rule or amendment be refiled

and reviewed in accordance with this paragraph, if

the NAIC finds that such action is necessary or appropriate in the public interest, for the protection of insurance producers or policyholders, or otherwise in furtherance of the purposes of this subtitle.

(ii) EFFECT OF RECONSIDERATION BY THE NAIC.—

Any action of the NAIC pursuant to clause (i) shall—

(I) not affect the validity or force of a rule

change during the period such rule or amendment

was in effect; and

(II) not be considered to be a final action.

(c) ACTION REQUIRED BY THE NAIC.—The NAIC may, in accordance with such rules as the NAIC determines to be necessary

or appropriate to the public interest or to carry out the purposes

of this subtitle, require the Association to adopt, amend, or repeal

any bylaw, rule, or amendment of the Association, whenever

adopted.

(d) DISCIPLINARY ACTION BY THE ASSOCIATION.—

(1) SPECIFICATION OF CHARGES.—In any proceeding to

determine whether membership shall be denied, suspended,

revoked, or not renewed (hereafter in this section referred

to as a ‘‘disciplinary action’’), the Association shall bring specific

charges, notify such member of such charges, give the member

an opportunity to defend against the charges, and keep a record.

(2) SUPPORTING STATEMENT.—A determination to take disciplinary action shall be supported by a statement setting

forth—

(A) any act or practice in which such member has

been found to have been engaged;

(B) the specific provision of this subtitle, the rules

or regulations under this subtitle, or the rules of the

Association which any such act or practice is deemed to

violate; and

(C) the sanction imposed and the reason for such sanction.

(e) NAIC REVIEW OF DISCIPLINARY ACTION.— (1) NOTICE TO THE NAIC.—If the Association orders any

disciplinary action, the Association shall promptly notify the

NAIC of such action.

(2) REVIEW BY THE NAIC.—Any disciplinary action taken

by the Association shall be subject to review by the NAIC—

(A) on the NAIC’s own motion; or

(B) upon application by any person aggrieved by such

action if such application is filed with the NAIC not more

than 30 days after the later of—

(i) the date the notice was filed with the NAIC

pursuant to paragraph (1); or

(ii) the date the notice of the disciplinary action

was received by such aggrieved person.
S. 900—93

(f) EFFECT OF REVIEW.—The filing of an application to the

NAIC for review of a disciplinary action, or the institution of review

by the NAIC on the NAIC’s own motion, shall not operate as

a stay of disciplinary action unless the NAIC otherwise orders.

(g) SCOPE OF REVIEW.— (1) IN GENERAL.—In any proceeding to review such action,

after notice and the opportunity for hearing, the NAIC shall—

(A) determine whether the action should be taken;

(B) affirm, modify, or rescind the disciplinary sanction;

or

(C) remand to the Association for further proceedings.

(2) DISMISSAL OF REVIEW.—The NAIC may dismiss a proceeding to review disciplinary action if the NAIC finds that—

(A) the specific grounds on which the action is based

exist in fact;

(B) the action is in accordance with applicable rules

and regulations; and

(C) such rules and regulations are, and were, applied

in a manner consistent with the purposes of this subtitle.

SEC. 329. ASSESSMENTS.

(a) INSURANCE PRODUCERS SUBJECT TO ASSESSMENT.—The

Association may establish such application and membership fees

as the Association finds necessary to cover the costs of its operations, including fees made reimbursable to the NAIC under subsection (b), except that, in setting such fees, the Association may

not discriminate against smaller insurance producers.

(b) NAIC ASSESSMENTS.—The NAIC may assess the Association

for any costs that the NAIC incurs under this subtitle.

SEC. 330. FUNCTIONS OF THE NAIC.

(a) ADMINISTRATIVE PROCEDURE.—Determinations of the NAIC,

for purposes of making rules pursuant to section 328, shall be

made after appropriate notice and opportunity for a hearing and

for submission of views of interested persons.

(b) EXAMINATIONS AND REPORTS.—

(1) EXAMINATIONS.—The NAIC may make such examinations and inspections of the Association and require the Association to furnish to the NAIC such reports and records or copies

thereof as the NAIC may consider necessary or appropriate

in the public interest or to effectuate the purposes of this

subtitle.

(2) REPORT BY ASSOCIATION.—As soon as practicable after

the close of each fiscal year, the Association shall submit to

the NAIC a written report regarding the conduct of its business,

and the exercise of the other rights and powers granted by

this subtitle, during such fiscal year. Such report shall include

financial statements setting forth the financial position of the

Association at the end of such fiscal year and the results

of its operations (including the source and application of its

funds) for such fiscal year. The NAIC shall transmit such

report to the President and the Congress with such comment

thereon as the NAIC determines to be appropriate.

SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIRECTORS, OFFICERS, AND EMPLOYEES OF THE ASSOCIATION.

(a) IN GENERAL.—The Association shall not be deemed to be

an insurer or insurance producer within the meaning of any State
S. 900—94

law, rule, regulation, or order regulating or taxing insurers, insurance producers, or other entities engaged in the business of insurance, including provisions imposing premium taxes, regulating

insurer solvency or financial condition, establishing guaranty funds

and levying assessments, or requiring claims settlement practices.

(b) LIABILITY OF THE ASSOCIATION, ITS DIRECTORS, OFFICERS,

AND EMPLOYEES.—Neither the Association nor any of its directors,

officers, or employees shall have any liability to any person for

any action taken or omitted in good faith under or in connection

with any matter subject to this subtitle.

SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

(a) IN GENERAL.—The Association shall be established without

NAIC oversight and the provisions set forth in section 324, subsections (a), (b), (c), and (e) of section 328, and sections 329(b)

and 330 of this subtitle shall cease to be effective if, at the end

of the 2-year period beginning on the date on which the provisions

of this subtitle take effect pursuant to section 321—

(1) at least a majority of the States representing at least

50 percent of the total United States commercial-lines insurance

premiums have not satisfied the uniformity or reciprocity

requirements of subsections (a), (b), and (c) of section 321;

and

(2) the NAIC has not approved the Association’s bylaws

as required by section 328 or is unable to operate or supervise

the Association, or the Association is not conducting its activities as required under this Act.

(b) BOARD APPOINTMENTS.—If the repeals required by subsection (a) are implemented, the following shall apply:

(1) GENERAL APPOINTMENT POWER.—The President, with

the advice and consent of the Senate, shall appoint the members

of the Association’s Board established under section 326 from

lists of candidates recommended to the President by the NAIC.

(2) PROCEDURES FOR OBTAINING NAIC APPOINTMENT RECOMMENDATIONS.—

(A) INITIAL DETERMINATION AND RECOMMENDATIONS.—

After the date on which the provisions of subsection (a)

take effect, the NAIC shall, not later than 60 days thereafter, provide a list of recommended candidates to the

President. If the NAIC fails to provide a list by that date,

or if any list that is provided does not include at least

14 recommended candidates or comply with the requirements of section 326(c), the President shall, with the advice

and consent of the Senate, make the requisite appointments

without considering the views of the NAIC.

(B) SUBSEQUENT APPOINTMENTS.—After the initial

appointments, the NAIC shall provide a list of at least

six recommended candidates for the Board to the President

by January 15 of each subsequent year. If the NAIC fails

to provide a list by that date, or if any list that is provided

does not include at least six recommended candidates or

comply with the requirements of section 326(c), the President, with the advice and consent of the Senate, shall

make the requisite appointments without considering the

views of the NAIC.

(C) PRESIDENTIAL OVERSIGHT.—
S. 900—95

(i) REMOVAL.—If the President determines that the

Association is not acting in the interests of the public,

the President may remove the entire existing Board

for the remainder of the term to which the members

of the Board were appointed and appoint, with the

advice and consent of the Senate, new members to

fill the vacancies on the Board for the remainder of

such terms.

(ii) SUSPENSION OF RULES OR ACTIONS.—The President, or a person designated by the President for such

purpose, may suspend the effectiveness of any rule,

or prohibit any action, of the Association which the

President or the designee determines is contrary to

the public interest.

(c) ANNUAL REPORT.—As soon as practicable after the close

of each fiscal year, the Association shall submit to the President

and to the Congress a written report relative to the conduct of

its business, and the exercise of the other rights and powers granted

by this subtitle, during such fiscal year. Such report shall include

financial statements setting forth the financial position of the

Association at the end of such fiscal year and the results of its

operations (including the source and application of its funds) for

such fiscal year.

SEC. 333. RELATIONSHIP TO STATE LAW.

(a) PREEMPTION OF STATE LAWS.—State laws, regulations,

provisions, or other actions purporting to regulate insurance producers shall be preempted as provided in subsection (b).

(b) PROHIBITED ACTIONS.—No State shall—

(1) impede the activities of, take any action against, or

apply any provision of law or regulation to, any insurance

producer because that insurance producer or any affiliate plans

to become, has applied to become, or is a member of the Association;

(2) impose any requirement upon a member of the Association that it pay different fees to be licensed or otherwise qualified to do business in that State, including bonding requirements, based on its residency;

(3) impose any licensing, appointment, integrity, personal

or corporate qualifications, education, training, experience, residency, or continuing education requirement upon a member

of the Association that is different from the criteria for membership in the Association or renewal of such membership, except

that countersignature requirements imposed on nonresident

producers shall not be deemed to have the effect of limiting

or conditioning a producer’s activities because of its residence

or place of operations under this section; or

(4) implement the procedures of such State’s system of

licensing or renewing the licenses of insurance producers in

a manner different from the authority of the Association under

section 325.

(c) SAVINGS PROVISION.—Except as provided in subsections (a)

and (b), no provision of this section shall be construed as altering

or affecting the continuing effectiveness of any law, regulation,

provision, or other action of any State which purports to regulate

insurance producers, including any such law, regulation, provision,
S. 900—96

or action which purports to regulate unfair trade practices or establish consumer protections, including countersignature laws.

SEC. 334. COORDINATION WITH OTHER REGULATORS.

(a) COORDINATION WITH STATE INSURANCE REGULATORS.—The

Association shall have the authority to—

(1) issue uniform insurance producer applications and

renewal applications that may be used to apply for the issuance

or removal of State licenses, while preserving the ability of

each State to impose such conditions on the issuance or renewal

of a license as are consistent with section 333;

(2) establish a central clearinghouse through which members of the Association may apply for the issuance or renewal

of licenses in multiple States; and

(3) establish or utilize a national database for the collection

of regulatory information concerning the activities of insurance

producers.

(b) COORDINATION WITH THE NATIONAL ASSOCIATION OF SECURI- TIES DEALERS.—The Association shall coordinate with the National

Association of Securities Dealers in order to ease any administrative

burdens that fall on persons that are members of both associations,

consistent with the purposes of this subtitle and the Federal securities laws.

SEC. 335. JUDICIAL REVIEW.

(a) JURISDICTION.—The appropriate United States district court

shall have exclusive jurisdiction over litigation involving the

Association, including disputes between the Association and its

members that arise under this subtitle. Suits brought in State

court involving the Association shall be deemed to have arisen

under Federal law and therefore be subject to jurisdiction in the

appropriate United States district court.

(b) EXHAUSTION OF REMEDIES.—An aggrieved person shall be

required to exhaust all available administrative remedies before

the Association and the NAIC before it may seek judicial review

of an Association decision.

(c) STANDARDS OF REVIEW.—The standards set forth in section

553 of title 5, United States Code, shall be applied whenever a

rule or bylaw of the Association is under judicial review, and

the standards set forth in section 554 of title 5, United States

Code, shall be applied whenever a disciplinary action of the Association is judicially reviewed.

SEC. 336. DEFINITIONS.

For purposes of this subtitle, the following definitions shall

apply:

(1) HOME STATE.—The term ‘‘home State’’ means the State

in which the insurance producer maintains its principal place

of residence and is licensed to act as an insurance producer.

(2) INSURANCE.—The term ‘‘insurance’’ means any product,

other than title insurance, defined or regulated as insurance

by the appropriate State insurance regulatory authority.

(3) INSURANCE PRODUCER.—The term ‘‘insurance producer’’

means any insurance agent or broker, surplus lines broker,

insurance consultant, limited insurance representative, and any

other person that solicits, negotiates, effects, procures, delivers,

renews, continues or binds policies of insurance or offers advice,

counsel, opinions or services related to insurance.
S. 900—97

(4) STATE.—The term ‘‘State’’ includes any State, the District of Columbia, any territory of the United States, Puerto

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

Islands, the Virgin Islands, and the Northern Mariana Islands.

(5) STATE LAW.—The term ‘‘State law’’ includes all laws,

decisions, rules, regulations, or other State action having the

effect of law, of any State. A law of the United States applicable

only to the District of Columbia shall be treated as a State

law rather than a law of the United States.

Subtitle D—Rental Car Agency Insurance

Activities

SEC. 341. STANDARD OF REGULATION FOR MOTOR VEHICLE RENTALS.

(a) PROTECTION AGAINST RETROACTIVE APPLICATION OF REGULATORY AND LEGAL ACTION.—Except as provided in subsection (b),

during the 3-year period beginning on the date of the enactment

of this Act, it shall be a presumption that no State law imposes

any licensing, appointment, or education requirements on any person who solicits the purchase of or sells insurance connected with,

and incidental to, the lease or rental of a motor vehicle.

(b) PREEMINENCE OF STATE INSURANCE LAW.—No provision of

this section shall be construed as altering the validity, interpretation, construction, or effect of—

(1) any State statute;

(2) the prospective application of any court judgment interpreting or applying any State statute; or

(3) the prospective application of any final State regulation,

order, bulletin, or other statutorily authorized interpretation

or action,

which, by its specific terms, expressly regulates or exempts from

regulation any person who solicits the purchase of or sells insurance

connected with, and incidental to, the short-term lease or rental

of a motor vehicle.

(c) SCOPE OF APPLICATION.—This section shall apply with

respect to—

(1) the lease or rental of a motor vehicle for a total period

of 90 consecutive days or less; and

(2) insurance which is provided in connection with, and

incidentally to, such lease or rental for a period of consecutive

days not exceeding the lease or rental period.

(d) MOTOR VEHICLE DEFINED.—For purposes of this section,

the term ‘‘motor vehicle’’ has the same meaning as in section

13102 of title 49, United States Code.

TITLE IV—UNITARY SAVINGS AND LOAN

HOLDING COMPANIES

SEC. 401. PREVENTION OF CREATION OF NEW S&L HOLDING COMPANIES WITH COMMERCIAL AFFILIATES.

(a) IN GENERAL.—Section 10(c) of the Home Owners’ Loan

Act (12 U.S.C. 1467a(c)) is amended by adding at the end the

following new paragraph:
S. 900—98

‘‘(9) PREVENTION OF NEW AFFILIATIONS BETWEEN S&L

HOLDING COMPANIES AND COMMERCIAL FIRMS.—

‘‘(A) IN GENERAL.—Notwithstanding paragraph (3), no

company may directly or indirectly, including through any

merger, consolidation, or other type of business combination, acquire control of a savings association after May

4, 1999, unless the company is engaged, directly or

indirectly (including through a subsidiary other than a

savings association), only in activities that are permitted—

‘‘(i) under paragraph (1)(C) or (2) of this subsection;

or

‘‘(ii) for financial holding companies under section

4(k) of the Bank Holding Company Act of 1956.

‘‘(B) PREVENTION OF NEW COMMERCIAL AFFILIATIONS.—

Notwithstanding paragraph (3), no savings and loan

holding company may engage directly or indirectly

(including through a subsidiary other than a savings

association) in any activity other than as described in

clauses (i) and (ii) of subparagraph (A).

‘‘(C) PRESERVATION OF AUTHORITY OF EXISTING UNITARY

S&L HOLDING COMPANIES.—Subparagraphs (A) and (B) do

not apply with respect to any company that was a savings

and loan holding company on May 4, 1999, or that becomes

a savings and loan holding company pursuant to an application pending before the Office on or before that date, and

that—

‘‘(i) meets and continues to meet the requirements

of paragraph (3); and

‘‘(ii) continues to control not fewer than 1 savings

association that it controlled on May 4, 1999, or that

it acquired pursuant to an application pending before

the Office on or before that date, or the successor

to such savings association.

‘‘(D) CORPORATE REORGANIZATIONS PERMITTED.—This

paragraph does not prevent a transaction that—

‘‘(i) involves solely a company under common control with a savings and loan holding company from

acquiring, directly or indirectly, control of the savings

and loan holding company or any savings association

that is already a subsidiary of the savings and loan

holding company; or

‘‘(ii) involves solely a merger, consolidation, or

other type of business combination as a result of which

a company under common control with the savings

and loan holding company acquires, directly or

indirectly, control of the savings and loan holding company or any savings association that is already a subsidiary of the savings and loan holding company.

‘‘(E) AUTHORITY TO PREVENT EVASIONS.—The Director

may issue interpretations, regulations, or orders that the

Director determines necessary to administer and carry out

the purpose and prevent evasions of this paragraph,

including a determination that, notwithstanding the form

of a transaction, the transaction would in substance result

in a company acquiring control of a savings association.

‘‘(F) PRESERVATION OF AUTHORITY FOR FAMILY

TRUSTS.—Subparagraphs (A) and (B) do not apply with
S. 900—99

respect to any trust that becomes a savings and loan

holding company with respect to a savings association,

if—

‘‘(i) not less than 85 percent of the beneficial ownership interests in the trust are continuously owned,

directly or indirectly, by or for the benefit of members

of the same family, or their spouses, who are lineal

descendants of common ancestors who controlled,

directly or indirectly, such savings association on May

4, 1999, or a subsequent date, pursuant to an application pending before the Office on or before May 4,

1999; and

‘‘(ii) at the time at which such trust becomes a

savings and loan holding company, such ancestors or

lineal descendants, or spouses of such descendants,

have directly or indirectly controlled the savings

association continuously since May 4, 1999, or a subsequent date, pursuant to an application pending before

the Office on or before May 4, 1999.’’.

(b) CONFORMING AMENDMENT.—Section 10(o)(5)(E) of the Home

Owners’ Loan Act (12 U.S.C. 1467a(o)(5)(E)) is amended by striking

‘‘, except subparagraph (B)’’ and inserting ‘‘or (c)(9)(A)(ii)’’.

(c) RULE OF CONSTRUCTION FOR CERTAIN APPLICATIONS.—

(1) IN GENERAL.—In the case of a company that—

(A) submits an application with the Director of the

Office of Thrift Supervision before the date of the enactment of this Act to convert a State-chartered trust company

controlled by such company on May 4, 1999, to a savings

association; and

(B) controlled a subsidiary on May 4, 1999, that had

submitted an application to the Director on September

2, 1998;

the company (including any subsidiary controlled by such company as of such date of enactment) shall be treated as having

filed such conversion application with the Director before May

4, 1999, for purposes of section 10(c)(9)(C) of the Home Owners’

Loan Act (as added by subsection (a)).

(2) DEFINITIONS.—For purposes of paragraph (1), the terms

‘‘company’’, ‘‘control’’, ‘‘savings association’’, and ‘‘subsidiary’’

have the meanings given those terms in section 10 of the

Home Owners’ Loan Act.

TITLE V—PRIVACY

Subtitle A—Disclosure of Nonpublic

Personal Information

SEC. 501. PROTECTION OF NONPUBLIC PERSONAL INFORMATION.

(a) PRIVACY OBLIGATION POLICY.—It is the policy of the Congress that each financial institution has an affirmative and continuing obligation to respect the privacy of its customers and to

protect the security and confidentiality of those customers’ nonpublic personal information.

(b) FINANCIAL INSTITUTIONS SAFEGUARDS.—In furtherance of

the policy in subsection (a), each agency or authority described
S. 900—100

in section 505(a) shall establish appropriate standards for the financial institutions subject to their jurisdiction relating to administrative, technical, and physical safeguards—

(1) to insure the security and confidentiality of customer

records and information;

(2) to protect against any anticipated threats or hazards

to the security or integrity of such records; and

(3) to protect against unauthorized access to or use of

such records or information which could result in substantial

harm or inconvenience to any customer.

SEC. 502. OBLIGATIONS WITH RESPECT TO DISCLOSURES OF PERSONAL INFORMATION.

(a) NOTICE REQUIREMENTS.—Except as otherwise provided in

this subtitle, a financial institution may not, directly or through

any affiliate, disclose to a nonaffiliated third party any nonpublic

personal information, unless such financial institution provides or

has provided to the consumer a notice that complies with section

503.

(b) OPT OUT.—

(1) IN GENERAL.—A financial institution may not disclose

nonpublic personal information to a nonaffiliated third party

unless—

(A) such financial institution clearly and conspicuously

discloses to the consumer, in writing or in electronic form

or other form permitted by the regulations prescribed under

section 504, that such information may be disclosed to

such third party;

(B) the consumer is given the opportunity, before the

time that such information is initially disclosed, to direct

that such information not be disclosed to such third party;

and

(C) the consumer is given an explanation of how the

consumer can exercise that nondisclosure option.

(2) EXCEPTION.—This subsection shall not prevent a financial institution from providing nonpublic personal information

to a nonaffiliated third party to perform services for or functions

on behalf of the financial institution, including marketing of

the financial institution’s own products or services, or financial

products or services offered pursuant to joint agreements

between two or more financial institutions that comply with

the requirements imposed by the regulations prescribed under

section 504, if the financial institution fully discloses the providing of such information and enters into a contractual agreement with the third party that requires the third party to

maintain the confidentiality of such information.

(c) LIMITS ON REUSE OF INFORMATION.—Except as otherwise

provided in this subtitle, a nonaffiliated third party that receives

from a financial institution nonpublic personal information under

this section shall not, directly or through an affiliate of such

receiving third party, disclose such information to any other person

that is a nonaffiliated third party of both the financial institution

and such receiving third party, unless such disclosure would be

lawful if made directly to such other person by the financial institution.

(d) LIMITATIONS ON THE SHARING OF ACCOUNT NUMBER

INFORMATION FOR MARKETING PURPOSES.—A financial institution
S. 900—101

shall not disclose, other than to a consumer reporting agency,

an account number or similar form of access number or access

code for a credit card account, deposit account, or transaction

account of a consumer to any nonaffiliated third party for use

in telemarketing, direct mail marketing, or other marketing through

electronic mail to the consumer.

(e) GENERAL EXCEPTIONS.—Subsections (a) and (b) shall not

prohibit the disclosure of nonpublic personal information—

(1) as necessary to effect, administer, or enforce a transaction requested or authorized by the consumer, or in connection with—

(A) servicing or processing a financial product or

service requested or authorized by the consumer;

(B) maintaining or servicing the consumer’s account

with the financial institution, or with another entity as

part of a private label credit card program or other extension of credit on behalf of such entity; or

(C) a proposed or actual securitization, secondary

market sale (including sales of servicing rights), or similar

transaction related to a transaction of the consumer;

(2) with the consent or at the direction of the consumer;

(3)(A) to protect the confidentiality or security of the financial institution’s records pertaining to the consumer, the service

or product, or the transaction therein; (B) to protect against

or prevent actual or potential fraud, unauthorized transactions,

claims, or other liability; (C) for required institutional risk

control, or for resolving customer disputes or inquiries; (D)

to persons holding a legal or beneficial interest relating to

the consumer; or (E) to persons acting in a fiduciary or representative capacity on behalf of the consumer;

(4) to provide information to insurance rate advisory

organizations, guaranty funds or agencies, applicable rating

agencies of the financial institution, persons assessing the

institution’s compliance with industry standards, and the

institution’s attorneys, accountants, and auditors;

(5) to the extent specifically permitted or required under

other provisions of law and in accordance with the Right to

Financial Privacy Act of 1978, to law enforcement agencies

(including a Federal functional regulator, the Secretary of the

Treasury with respect to subchapter II of chapter 53 of title

31, United States Code, and chapter 2 of title I of Public

Law 91–508 (12 U.S.C. 1951–1959), a State insurance authority,

or the Federal Trade Commission), self-regulatory organizations, or for an investigation on a matter related to public

safety;

(6)(A) to a consumer reporting agency in accordance with

the Fair Credit Reporting Act, or (B) from a consumer report

reported by a consumer reporting agency;

(7) in connection with a proposed or actual sale, merger,

transfer, or exchange of all or a portion of a business or operating unit if the disclosure of nonpublic personal information

concerns solely consumers of such business or unit; or

(8) to comply with Federal, State, or local laws, rules,

and other applicable legal requirements; to comply with a properly authorized civil, criminal, or regulatory investigation or

subpoena or summons by Federal, State, or local authorities;

or to respond to judicial process or government regulatory
S. 900—102

authorities having jurisdiction over the financial institution

for examination, compliance, or other purposes as authorized

by law.

SEC. 503. DISCLOSURE OF INSTITUTION PRIVACY POLICY.

(a) DISCLOSURE REQUIRED.—At the time of establishing a customer relationship with a consumer and not less than annually

during the continuation of such relationship, a financial institution

shall provide a clear and conspicuous disclosure to such consumer,

in writing or in electronic form or other form permitted by the

regulations prescribed under section 504, of such financial institution’s policies and practices with respect to—

(1) disclosing nonpublic personal information to affiliates

and nonaffiliated third parties, consistent with section 502,

including the categories of information that may be disclosed;

(2) disclosing nonpublic personal information of persons

who have ceased to be customers of the financial institution;

and

(3) protecting the nonpublic personal information of consumers.

Such disclosures shall be made in accordance with the regulations

prescribed under section 504.

(b) INFORMATION TO BE INCLUDED.—The disclosure required

by subsection (a) shall include—

(1) the policies and practices of the institution with respect

to disclosing nonpublic personal information to nonaffiliated

third parties, other than agents of the institution, consistent

with section 502 of this subtitle, and including—

(A) the categories of persons to whom the information

is or may be disclosed, other than the persons to whom

the information may be provided pursuant to section 502(e);

and

(B) the policies and practices of the institution with

respect to disclosing of nonpublic personal information of

persons who have ceased to be customers of the financial

institution;

(2) the categories of nonpublic personal information that

are collected by the financial institution;

(3) the policies that the institution maintains to protect

the confidentiality and security of nonpublic personal information in accordance with section 501; and

(4) the disclosures required, if any, under section

603(d)(2)(A)(iii) of the Fair Credit Reporting Act.

SEC. 504. RULEMAKING.

(a) REGULATORY AUTHORITY.— (1) RULEMAKING.—The Federal banking agencies, the

National Credit Union Administration, the Secretary of the

Treasury, the Securities and Exchange Commission, and the

Federal Trade Commission shall each prescribe, after consultation as appropriate with representatives of State insurance

authorities designated by the National Association of Insurance

Commissioners, such regulations as may be necessary to carry

out the purposes of this subtitle with respect to the financial

institutions subject to their jurisdiction under section 505.

(2) COORDINATION, CONSISTENCY, AND COMPARABILITY.—

Each of the agencies and authorities required under paragraph

(1) to prescribe regulations shall consult and coordinate with
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the other such agencies and authorities for the purposes of

assuring, to the extent possible, that the regulations prescribed

by each such agency and authority are consistent and comparable with the regulations prescribed by the other such agencies and authorities.

(3) PROCEDURES AND DEADLINE.—Such regulations shall

be prescribed in accordance with applicable requirements of

title 5, United States Code, and shall be issued in final form

not later than 6 months after the date of the enactment of

this Act.

(b) AUTHORITY TO GRANT EXCEPTIONS.—The regulations prescribed under subsection (a) may include such additional exceptions

to subsections (a) through (d) of section 502 as are deemed consistent with the purposes of this subtitle.

SEC. 505. ENFORCEMENT.

(a) IN GENERAL.—This subtitle and the regulations prescribed

thereunder shall be enforced by the Federal functional regulators,

the State insurance authorities, and the Federal Trade Commission

with respect to financial institutions and other persons subject

to their jurisdiction under applicable law, as follows:

(1) Under section 8 of the Federal Deposit Insurance Act,

in the case of—

(A) national banks, Federal branches and Federal agencies of foreign banks, and any subsidiaries of such entities

(except brokers, dealers, persons providing insurance,

investment companies, and investment advisers), by the

Office of the Comptroller of the Currency;

(B) member banks of the Federal Reserve System

(other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies,

and insured State branches of foreign banks), commercial

lending companies owned or controlled by foreign banks,

organizations operating under section 25 or 25A of the

Federal Reserve Act, and bank holding companies and their

nonbank subsidiaries or affiliates (except brokers, dealers,

persons providing insurance, investment companies, and

investment advisers), by the Board of Governors of the

Federal Reserve System;

(C) banks insured by the Federal Deposit Insurance

Corporation (other than members of the Federal Reserve

System), insured State branches of foreign banks, and any

subsidiaries of such entities (except brokers, dealers, persons providing insurance, investment companies, and

investment advisers), by the Board of Directors of the Federal Deposit Insurance Corporation; and

(D) savings associations the deposits of which are

insured by the Federal Deposit Insurance Corporation, and

any subsidiaries of such savings associations (except brokers, dealers, persons providing insurance, investment

companies, and investment advisers), by the Director of

the Office of Thrift Supervision.

(2) Under the Federal Credit Union Act, by the Board

of the National Credit Union Administration with respect to

any federally insured credit union, and any subsidiaries of

such an entity.
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(3) Under the Securities Exchange Act of 1934, by the

Securities and Exchange Commission with respect to any broker

or dealer.

(4) Under the Investment Company Act of 1940, by the

Securities and Exchange Commission with respect to investment companies.

(5) Under the Investment Advisers Act of 1940, by the

Securities and Exchange Commission with respect to investment advisers registered with the Commission under such Act.

(6) Under State insurance law, in the case of any person

engaged in providing insurance, by the applicable State insurance authority of the State in which the person is domiciled,

subject to section 104 of this Act.

(7) Under the Federal Trade Commission Act, by the Federal Trade Commission for any other financial institution or

other person that is not subject to the jurisdiction of any

agency or authority under paragraphs (1) through (6) of this

subsection.

(b) ENFORCEMENT OF SECTION 501.—

(1) IN GENERAL.—Except as provided in paragraph (2), the

agencies and authorities described in subsection (a) shall implement the standards prescribed under section 501(b) in the

same manner, to the extent practicable, as standards prescribed

pursuant to section 39(a) of the Federal Deposit Insurance

Act are implemented pursuant to such section.

(2) EXCEPTION.—The agencies and authorities described

in paragraphs (3), (4), (5), (6), and (7) of subsection (a) shall

implement the standards prescribed under section 501(b) by

rule with respect to the financial institutions and other persons

subject to their respective jurisdictions under subsection (a).

(c) ABSENCE OF STATE ACTION.—If a State insurance authority

fails to adopt regulations to carry out this subtitle, such State

shall not be eligible to override, pursuant to section 47(g)(2)(B)(iii)

of the Federal Deposit Insurance Act, the insurance customer

protection regulations prescribed by a Federal banking agency

under section 47(a) of such Act.

(d) DEFINITIONS.—The terms used in subsection (a)(1) that are

not defined in this subtitle or otherwise defined in section 3(s)

of the Federal Deposit Insurance Act shall have the same meaning

as given in section 1(b) of the International Banking Act of 1978.

SEC. 506. PROTECTION OF FAIR CREDIT REPORTING ACT.

(a) AMENDMENT.—Section 621 of the Fair Credit Reporting

Act (15 U.S.C. 1681s) is amended—

(1) in subsection (d), by striking everything following the

end of the second sentence; and

(2) by striking subsection (e) and inserting the following:

‘‘(e) REGULATORY AUTHORITY.—

‘‘(1) The Federal banking agencies referred to in paragraphs

(1) and (2) of subsection (b) shall jointly prescribe such regulations as necessary to carry out the purposes of this Act with

respect to any persons identified under paragraphs (1) and

(2) of subsection (b), and the Board of Governors of the Federal

Reserve System shall have authority to prescribe regulations

consistent with such joint regulations with respect to bank
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holding companies and affiliates (other than depository institutions and consumer reporting agencies) of such holding companies.

‘‘(2) The Board of the National Credit Union Administration

shall prescribe such regulations as necessary to carry out the

purposes of this Act with respect to any persons identified

under paragraph (3) of subsection (b).’’.

(b) CONFORMING AMENDMENT.—Section 621(a) of the Fair

Credit Reporting Act (15 U.S.C. 1681s(a)) is amended by striking

paragraph (4).

(c) RELATION TO OTHER PROVISIONS.—Except for the amendments made by subsections (a) and (b), nothing in this title shall

be construed to modify, limit, or supersede the operation of the

Fair Credit Reporting Act, and no inference shall be drawn on

the basis of the provisions of this title regarding whether information is transaction or experience information under section 603

of such Act.

SEC. 507. RELATION TO STATE LAWS.

(a) IN GENERAL.—This subtitle and the amendments made by

this subtitle shall not be construed as superseding, altering, or

affecting any statute, regulation, order, or interpretation in effect

in any State, except to the extent that such statute, regulation,

order, or interpretation is inconsistent with the provisions of this

subtitle, and then only to the extent of the inconsistency.

(b) GREATER PROTECTION UNDER STATE LAW.—For purposes

of this section, a State statute, regulation, order, or interpretation

is not inconsistent with the provisions of this subtitle if the protection such statute, regulation, order, or interpretation affords any

person is greater than the protection provided under this subtitle

and the amendments made by this subtitle, as determined by the

Federal Trade Commission, after consultation with the agency or

authority with jurisdiction under section 505(a) of either the person

that initiated the complaint or that is the subject of the complaint,

on its own motion or upon the petition of any interested party.

SEC. 508. STUDY OF INFORMATION SHARING AMONG FINANCIAL

AFFILIATES.

(a) IN GENERAL.—The Secretary of the Treasury, in conjunction

with the Federal functional regulators and the Federal Trade

Commission, shall conduct a study of information sharing practices

among financial institutions and their affiliates. Such study shall

include—

(1) the purposes for the sharing of confidential customer

information with affiliates or with nonaffiliated third parties;

(2) the extent and adequacy of security protections for

such information;

(3) the potential risks for customer privacy of such sharing

of information;

(4) the potential benefits for financial institutions and affiliates of such sharing of information;

(5) the potential benefits for customers of such sharing

of information;

(6) the adequacy of existing laws to protect customer privacy;

(7) the adequacy of financial institution privacy policy and

privacy rights disclosure under existing law;
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(8) the feasibility of different approaches, including optout and opt-in, to permit customers to direct that confidential

information not be shared with affiliates and nonaffiliated third

parties; and

(9) the feasibility of restricting sharing of information for

specific uses or of permitting customers to direct the uses

for which information may be shared.

(b) CONSULTATION.—The Secretary shall consult with representatives of State insurance authorities designated by the National

Association of Insurance Commissioners, and also with financial

services industry, consumer organizations and privacy groups, and

other representatives of the general public, in formulating and

conducting the study required by subsection (a).

(c) REPORT.—On or before January 1, 2002, the Secretary shall

submit a report to the Congress containing the findings and conclusions of the study required under subsection (a), together with

such recommendations for legislative or administrative action as

may be appropriate.

SEC. 509. DEFINITIONS.

As used in this subtitle:

(1) FEDERAL BANKING AGENCY.—The term ‘‘Federal banking

agency’’ has the same meaning as given in section 3 of the

Federal Deposit Insurance Act.

(2) FEDERAL FUNCTIONAL REGULATOR.—The term ‘‘Federal

functional regulator’’ means—

(A) the Board of Governors of the Federal Reserve

System;

(B) the Office of the Comptroller of the Currency;

(C) the Board of Directors of the Federal Deposit Insurance Corporation;

(D) the Director of the Office of Thrift Supervision;

(E) the National Credit Union Administration Board;

and

(F) the Securities and Exchange Commission.

(3) FINANCIAL INSTITUTION.—

(A) IN GENERAL.—The term ‘‘financial institution’’

means any institution the business of which is engaging

in financial activities as described in section 4(k) of the

Bank Holding Company Act of 1956.

(B) PERSONS SUBJECT TO CFTC REGULATION.—Notwithstanding subparagraph (A), the term ‘‘financial institution’’

does not include any person or entity with respect to any

financial activity that is subject to the jurisdiction of the

Commodity Futures Trading Commission under the Commodity Exchange Act.

(C) FARM CREDIT INSTITUTIONS.—Notwithstanding

subparagraph (A), the term ‘‘financial institution’’ does not

include the Federal Agricultural Mortgage Corporation or

any entity chartered and operating under the Farm Credit

Act of 1971.

(D) OTHER SECONDARY MARKET INSTITUTIONS.—Notwithstanding subparagraph (A), the term ‘‘financial institution’’ does not include institutions chartered by Congress

specifically to engage in transactions described in section

502(e)(1)(C), as long as such institutions do not sell or
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transfer nonpublic personal information to a nonaffiliated

third party.

(4) NONPUBLIC PERSONAL INFORMATION.—

(A) The term ‘‘nonpublic personal information’’ means

personally identifiable financial information—

(i) provided by a consumer to a financial institution;

(ii) resulting from any transaction with the consumer or any service performed for the consumer; or

(iii) otherwise obtained by the financial institution.

(B) Such term does not include publicly available

information, as such term is defined by the regulations

prescribed under section 504.

(C) Notwithstanding subparagraph (B), such term—

(i) shall include any list, description, or other

grouping of consumers (and publicly available information pertaining to them) that is derived using any

nonpublic personal information other than publicly

available information; but

(ii) shall not include any list, description, or other

grouping of consumers (and publicly available information pertaining to them) that is derived without using

any nonpublic personal information.

(5) NONAFFILIATED THIRD PARTY.—The term ‘‘nonaffiliated

third party’’ means any entity that is not an affiliate of, or

related by common ownership or affiliated by corporate control

with, the financial institution, but does not include a joint

employee of such institution.

(6) AFFILIATE.—The term ‘‘affiliate’’ means any company

that controls, is controlled by, or is under common control

with another company.

(7) NECESSARY TO EFFECT, ADMINISTER, OR ENFORCE.—The

term ‘‘as necessary to effect, administer, or enforce the transaction’’ means—

(A) the disclosure is required, or is a usual, appropriate,

or acceptable method, to carry out the transaction or the

product or service business of which the transaction is

a part, and record or service or maintain the consumer’s

account in the ordinary course of providing the financial

service or financial product, or to administer or service

benefits or claims relating to the transaction or the product

or service business of which it is a part, and includes—

(i) providing the consumer or the consumer’s agent

or broker with a confirmation, statement, or other

record of the transaction, or information on the status

or value of the financial service or financial product;

and

(ii) the accrual or recognition of incentives or

bonuses associated with the transaction that are provided by the financial institution or any other party;

(B) the disclosure is required, or is one of the lawful

or appropriate methods, to enforce the rights of the financial institution or of other persons engaged in carrying

out the financial transaction, or providing the product or

service;

(C) the disclosure is required, or is a usual, appropriate,

or acceptable method, for insurance underwriting at the
S. 900—108

consumer’s request or for reinsurance purposes, or for any

of the following purposes as they relate to a consumer’s

insurance: Account administration, reporting, investigating,

or preventing fraud or material misrepresentation, processing premium payments, processing insurance claims,

administering insurance benefits (including utilization

review activities), participating in research projects, or as

otherwise required or specifically permitted by Federal or

State law; or

(D) the disclosure is required, or is a usual, appropriate

or acceptable method, in connection with—

(i) the authorization, settlement, billing, processing, clearing, transferring, reconciling, or collection

of amounts charged, debited, or otherwise paid using

a debit, credit or other payment card, check, or account

number, or by other payment means;

(ii) the transfer of receivables, accounts or interests

therein; or

(iii) the audit of debit, credit or other payment

information.

(8) STATE INSURANCE AUTHORITY.—The term ‘‘State insurance authority’’ means, in the case of any person engaged

in providing insurance, the State insurance authority of the

State in which the person is domiciled.

(9) CONSUMER.—The term ‘‘consumer’’ means an individual

who obtains, from a financial institution, financial products

or services which are to be used primarily for personal, family,

or household purposes, and also means the legal representative

of such an individual.

(10) JOINT AGREEMENT.—The term ‘‘joint agreement’’ means

a formal written contract pursuant to which two or more financial institutions jointly offer, endorse, or sponsor a financial

product or service, and as may be further defined in the regulations prescribed under section 504.

(11) CUSTOMER RELATIONSHIP.—The term ‘‘time of establishing a customer relationship’’ shall be defined by the regulations prescribed under section 504, and shall, in the case of

a financial institution engaged in extending credit directly to

consumers to finance purchases of goods or services, mean

the time of establishing the credit relationship with the consumer.

SEC. 510. EFFECTIVE DATE.

This subtitle shall take effect 6 months after the date on

which rules are required to be prescribed under section 504(a)(3),

except—

(1) to the extent that a later date is specified in the rules

prescribed under section 504; and

(2) that sections 504 and 506 shall be effective upon enactment.
S. 900—109

Subtitle B—Fraudulent Access to Financial

Information

SEC. 521. PRIVACY PROTECTION FOR CUSTOMER INFORMATION OF

FINANCIAL INSTITUTIONS.

(a) PROHIBITION ON OBTAINING CUSTOMER INFORMATION BY

FALSE PRETENSES.—It shall be a violation of this subtitle for any

person to obtain or attempt to obtain, or cause to be disclosed

or attempt to cause to be disclosed to any person, customer information of a financial institution relating to another person—

(1) by making a false, fictitious, or fraudulent statement

or representation to an officer, employee, or agent of a financial

institution;

(2) by making a false, fictitious, or fraudulent statement

or representation to a customer of a financial institution; or

(3) by providing any document to an officer, employee,

or agent of a financial institution, knowing that the document

is forged, counterfeit, lost, or stolen, was fraudulently obtained,

or contains a false, fictitious, or fraudulent statement or representation.

(b) PROHIBITION ON SOLICITATION OF A PERSON TO OBTAIN

CUSTOMER INFORMATION FROM FINANCIAL INSTITUTION UNDER

FALSE PRETENSES.—It shall be a violation of this subtitle to request

a person to obtain customer information of a financial institution,

knowing that the person will obtain, or attempt to obtain, the

information from the institution in any manner described in subsection (a).

(c) NONAPPLICABILITY TO LAW ENFORCEMENT AGENCIES.—No

provision of this section shall be construed so as to prevent any

action by a law enforcement agency, or any officer, employee, or

agent of such agency, to obtain customer information of a financial

institution in connection with the performance of the official duties

of the agency.

(d) NONAPPLICABILITY TO FINANCIAL INSTITUTIONS IN CERTAIN

CASES.—No provision of this section shall be construed so as to

prevent any financial institution, or any officer, employee, or agent

of a financial institution, from obtaining customer information of

such financial institution in the course of—

(1) testing the security procedures or systems of such

institution for maintaining the confidentiality of customer

information;

(2) investigating allegations of misconduct or negligence

on the part of any officer, employee, or agent of the financial

institution; or

(3) recovering customer information of the financial institution which was obtained or received by another person in any

manner described in subsection (a) or (b).

(e) NONAPPLICABILITY TO INSURANCE INSTITUTIONS FOR INVESTIGATION OF INSURANCE FRAUD.—No provision of this section shall

be construed so as to prevent any insurance institution, or any

officer, employee, or agency of an insurance institution, from

obtaining information as part of an insurance investigation into

criminal activity, fraud, material misrepresentation, or material

nondisclosure that is authorized for such institution under State

law, regulation, interpretation, or order.
S. 900—110

(f) NONAPPLICABILITY TO CERTAIN TYPES OF CUSTOMER

INFORMATION OF FINANCIAL INSTITUTIONS.—No provision of this

section shall be construed so as to prevent any person from

obtaining customer information of a financial institution that otherwise is available as a public record filed pursuant to the securities

laws (as defined in section 3(a)(47) of the Securities Exchange

Act of 1934).

(g) NONAPPLICABILITY TO COLLECTION OF CHILD SUPPORT JUDGMENTS.—No provision of this section shall be construed to prevent

any State-licensed private investigator, or any officer, employee,

or agent of such private investigator, from obtaining customer

information of a financial institution, to the extent reasonably necessary to collect child support from a person adjudged to have

been delinquent in his or her obligations by a Federal or State

court, and to the extent that such action by a State-licensed private

investigator is not unlawful under any other Federal or State law

or regulation, and has been authorized by an order or judgment

of a court of competent jurisdiction.

SEC. 522. ADMINISTRATIVE ENFORCEMENT.

(a) ENFORCEMENT BY FEDERAL TRADE COMMISSION.—Except

as provided in subsection (b), compliance with this subtitle shall

be enforced by the Federal Trade Commission in the same manner

and with the same power and authority as the Commission has

under the Fair Debt Collection Practices Act to enforce compliance

with such Act.

(b) ENFORCEMENT BY OTHER AGENCIES IN CERTAIN CASES.—

(1) IN GENERAL.—Compliance with this subtitle shall be

enforced under—

(A) section 8 of the Federal Deposit Insurance Act,

in the case of—

(i) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the

Comptroller of the Currency;

(ii) member banks of the Federal Reserve System

(other than national banks), branches and agencies

of foreign banks (other than Federal branches, Federal

agencies, and insured State branches of foreign banks),

commercial lending companies owned or controlled by

foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act, by the

Board;

(iii) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal

Reserve System and national nonmember banks) and

insured State branches of foreign banks, by the Board

of Directors of the Federal Deposit Insurance Corporation; and

(iv) savings associations the deposits of which are

insured by the Federal Deposit Insurance Corporation,

by the Director of the Office of Thrift Supervision;

and

(B) the Federal Credit Union Act, by the Administrator

of the National Credit Union Administration with respect

to any Federal credit union.

(2) VIOLATIONS OF THIS SUBTITLE TREATED AS VIOLATIONS

OF OTHER LAWS.—For the purpose of the exercise by any agency
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referred to in paragraph (1) of its powers under any Act referred

to in that paragraph, a violation of this subtitle shall be deemed

to be a violation of a requirement imposed under that Act.

In addition to its powers under any provision of law specifically

referred to in paragraph (1), each of the agencies referred

to in that paragraph may exercise, for the purpose of enforcing

compliance with this subtitle, any other authority conferred

on such agency by law.

SEC. 523. CRIMINAL PENALTY.

(a) IN GENERAL.—Whoever knowingly and intentionally violates, or knowingly and intentionally attempts to violate, section

521 shall be fined in accordance with title 18, United States Code,

or imprisoned for not more than 5 years, or both.

(b) ENHANCED PENALTY FOR AGGRAVATED CASES.—Whoever violates, or attempts to violate, section 521 while violating another

law of the United States or as part of a pattern of any illegal

activity involving more than $100,000 in a 12-month period shall

be fined twice the amount provided in subsection (b)(3) or (c)(3)

(as the case may be) of section 3571 of title 18, United States

Code, imprisoned for not more than 10 years, or both.

SEC. 524. RELATION TO STATE LAWS.

(a) IN GENERAL.—This subtitle shall not be construed as superseding, altering, or affecting the statutes, regulations, orders, or

interpretations in effect in any State, except to the extent that

such statutes, regulations, orders, or interpretations are inconsistent with the provisions of this subtitle, and then only to the

extent of the inconsistency.

(b) GREATER PROTECTION UNDER STATE LAW.—For purposes

of this section, a State statute, regulation, order, or interpretation

is not inconsistent with the provisions of this subtitle if the protection such statute, regulation, order, or interpretation affords any

person is greater than the protection provided under this subtitle

as determined by the Federal Trade Commission, after consultation

with the agency or authority with jurisdiction under section 522

of either the person that initiated the complaint or that is the

subject of the complaint, on its own motion or upon the petition

of any interested party.

SEC. 525. AGENCY GUIDANCE.

In furtherance of the objectives of this subtitle, each Federal

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

Insurance Act), the National Credit Union Administration, and

the Securities and Exchange Commission or self-regulatory

organizations, as appropriate, shall review regulations and guidelines applicable to financial institutions under their respective jurisdictions and shall prescribe such revisions to such regulations and

guidelines as may be necessary to ensure that such financial institutions have policies, procedures, and controls in place to prevent

the unauthorized disclosure of customer financial information and

to deter and detect activities proscribed under section 521.

SEC. 526. REPORTS.

(a) REPORT TO THE CONGRESS.—Before the end of the 18-month

period beginning on the date of the enactment of this Act, the

Comptroller General, in consultation with the Federal Trade

Commission, Federal banking agencies, the National Credit Union
S. 900—112

Administration, the Securities and Exchange Commission, appropriate Federal law enforcement agencies, and appropriate State

insurance regulators, shall submit to the Congress a report on

the following:

(1) The efficacy and adequacy of the remedies provided

in this subtitle in addressing attempts to obtain financial

information by fraudulent means or by false pretenses.

(2) Any recommendations for additional legislative or regulatory action to address threats to the privacy of financial

information created by attempts to obtain information by

fraudulent means or false pretenses.

(b) ANNUAL REPORT BY ADMINISTERING AGENCIES.—The Federal

Trade Commission and the Attorney General shall submit to Congress an annual report on number and disposition of all enforcement

actions taken pursuant to this subtitle.

SEC. 527. DEFINITIONS.

For purposes of this subtitle, the following definitions shall

apply:

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

to a financial institution, any person (or authorized representative of a person) to whom the financial institution provides

a product or service, including that of acting as a fiduciary.

(2) CUSTOMER INFORMATION OF A FINANCIAL INSTITUTION.—

The term ‘‘customer information of a financial institution’’

means any information maintained by or for a financial institution which is derived from the relationship between the financial institution and a customer of the financial institution and

is identified with the customer.

(3) DOCUMENT.—The term ‘‘document’’ means any information in any form.

(4) FINANCIAL INSTITUTION.—

(A) IN GENERAL.—The term ‘‘financial institution’’

means any institution engaged in the business of providing

financial services to customers who maintain a credit,

deposit, trust, or other financial account or relationship

with the institution.

(B) CERTAIN FINANCIAL INSTITUTIONS SPECIFICALLY

INCLUDED.—The term ‘‘financial institution’’ includes any

depository institution (as defined in section 19(b)(1)(A) of

the Federal Reserve Act), any broker or dealer, any investment adviser or investment company, any insurance company, any loan or finance company, any credit card issuer

or operator of a credit card system, and any consumer

reporting agency that compiles and maintains files on consumers on a nationwide basis (as defined in section 603(p)

of the Consumer Credit Protection Act).

(C) SECURITIES INSTITUTIONS.—For purposes of

subparagraph (B)—

(i) the terms ‘‘broker’’ and ‘‘dealer’’ have the same

meanings as given in section 3 of the Securities

Exchange Act of 1934 (15 U.S.C. 78c);

(ii) the term ‘‘investment adviser’’ has the same

meaning as given in section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)); and
S. 900—113

(iii) the term ‘‘investment company’’ has the same

meaning as given in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3).

(D) CERTAIN PERSONS AND ENTITIES SPECIFICALLY

EXCLUDED.—The term ‘‘financial institution’’ does not

include any person or entity with respect to any financial

activity that is subject to the jurisdiction of the Commodity

Futures Trading Commission under the Commodity

Exchange Act and does not include the Federal Agricultural

Mortgage Corporation or any entity chartered and operating under the Farm Credit Act of 1971.

(E) FURTHER DEFINITION BY REGULATION.—The Federal

Trade Commission, after consultation with Federal banking

agencies and the Securities and Exchange Commission,

may prescribe regulations clarifying or describing the types

of institutions which shall be treated as financial institutions for purposes of this subtitle.

TITLE VI—FEDERAL HOME LOAN BANK

SYSTEM MODERNIZATION

SEC. 601. SHORT TITLE.

This title may be cited as the ‘‘Federal Home Loan Bank

System Modernization Act of 1999’’.

SEC. 602. DEFINITIONS.

Section 2 of the Federal Home Loan Bank Act (12 U.S.C.

1422) is amended—

(1) in paragraph (1), by striking ‘‘term ‘Board’ means’’ and

inserting ‘‘terms ‘Finance Board’ and ‘Board’ mean’’;

(2) by striking paragraph (3) and inserting the following:

‘‘(3) STATE.—The term ‘State’, in addition to the States

of the United States, includes the District of Columbia, Guam,

Puerto Rico, the United States Virgin Islands, American Samoa,

and the Commonwealth of the Northern Mariana Islands.’’;

and

(3) by adding at the end the following new paragraph:

‘‘(13) COMMUNITY FINANCIAL INSTITUTION.— ‘‘(A) IN GENERAL.—The term ‘community financial

institution’ means a member—

‘‘(i) the deposits of which are insured under the

Federal Deposit Insurance Act; and

‘‘(ii) that has, as of the date of the transaction

at issue, less than $500,000,000 in average total assets,

based on an average of total assets over the 3 years

preceding that date.

‘‘(B) ADJUSTMENTS.—The $500,000,000 limit referred

to in subparagraph (A)(ii) shall be adjusted annually by

the Finance Board, based on the annual percentage

increase, if any, in the Consumer Price Index for all urban

consumers, as published by the Department of Labor.’’.

SEC. 603. SAVINGS ASSOCIATION MEMBERSHIP.

Section 5(f) of the Home Owners’ Loan Act (12 U.S.C. 1464(f))

is amended to read as follows:
S. 900—114

‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—After the end

of the 6-month period beginning on the date of the enactment

of the Federal Home Loan Bank System Modernization Act of

1999, a Federal savings association may become a member of the

Federal Home Loan Bank System, and shall qualify for such membership in the manner provided by the Federal Home Loan Bank

Act.’’.

SEC. 604. ADVANCES TO MEMBERS; COLLATERAL.

(a) IN GENERAL.—Section 10(a) of the Federal Home Loan Bank

Act (12 U.S.C. 1430(a)) is amended—

(1) by redesignating paragraphs (1) through (4) as subparagraphs (A) through (D), respectively, and indenting appropriately;

(2) by striking ‘‘(a) Each’’ and inserting the following:

‘‘(a) IN GENERAL.—

‘‘(1) ALL ADVANCES.—Each’’;

(3) by striking the second sentence and inserting the following:

‘‘(2) PURPOSES OF ADVANCES.—A long-term advance may

only be made for the purposes of—

‘‘(A) providing funds to any member for residential

housing finance; and

‘‘(B) providing funds to any community financial

institution for small businesses, small farms, and small

agri-businesses.’’;

(4) by striking ‘‘A Bank’’ and inserting the following:

‘‘(3) COLLATERAL.—A Bank’’;

(5) in paragraph (3) (as so designated by paragraph (4)

of this subsection)—

(A) in subparagraph (C) (as so redesignated by paragraph (1) of this subsection) by striking ‘‘Deposits’’ and

inserting ‘‘Cash or deposits’’;

(B) in subparagraph (D) (as so redesignated by paragraph (1) of this subsection), by striking the second sentence; and

(C) by inserting after subparagraph (D) (as so redesignated by paragraph (1) of this subsection) the following

new subparagraph:

‘‘(E) Secured loans for small business, agriculture, or

securities representing a whole interest in such secured

loans, in the case of any community financial institution.’’;

(6) in paragraph (5)—

(A) in the second sentence, by striking ‘‘and the Board’’;

(B) in the third sentence, by striking ‘‘Board’’ and

inserting ‘‘Federal home loan bank’’; and

(C) by striking ‘‘(5) Paragraphs (1) through (4)’’ and

inserting the following:

‘‘(4) ADDITIONAL BANK AUTHORITY.—Subparagraphs (A)

through (E) of paragraph (3)’’; and

(7) by adding at the end the following:

‘‘(5) REVIEW OF CERTAIN COLLATERAL STANDARDS.—The

Board may review the collateral standards applicable to each

Federal home loan bank for the classes of collateral described

in subparagraphs (D) and (E) of paragraph (3), and may, if

necessary for safety and soundness purposes, require an
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increase in the collateral standards for any or all of those

classes of collateral.

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

terms ‘small business’, ‘agriculture’, ‘small farm’, and ‘small

agri-business’ shall have the meanings given those terms by

regulation of the Finance Board.’’.

(b) CLERICAL AMENDMENT.—The section heading for section

10 of the Federal Home Loan Bank Act (12 U.S.C. 1430) is amended

to read as follows:

‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

(c) QUALIFIED THRIFT LENDER STATUS.—Section 10 of the Federal Home Loan Bank Act (12 U.S.C. 1430) is amended by striking

the first of the 2 subsections designated as subsection (e).

(d) FEDERAL HOME LOAN BANK ACCESS.—Section 10(m)(3)(B)

of the Home Owners’ Loan Act (12 U.S.C. 1467a(m)(3)(B)) is

amended—

(1) in clause (i), by striking subclause (III) and redesignating subclause (IV) as subclause (III); and

(2) by striking clause (ii) and inserting the following:

‘‘(ii) ADDITIONAL RESTRICTIONS EFFECTIVE AFTER

3 YEARS.—Beginning 3 years after the date on which

a savings association should have become a qualified

thrift lender, or the date on which the savings association ceases to be a qualified thrift lender, as applicable,

the savings association shall not retain any investment

(including an investment in any subsidiary) or engage,

directly or indirectly, in any activity, unless that

investment or activity—

‘‘(I) would be permissible for the savings

association if it were a national bank; and

‘‘(II) is permissible for the savings association

as a savings association.’’.

SEC. 605. ELIGIBILITY CRITERIA.

Section 4(a) of the Federal Home Loan Bank Act (12 U.S.C.

1424(a)) is amended—

(1) in paragraph (2)(A), by inserting ‘‘(other than a community financial institution)’’ after ‘‘institution’’;

(2) in the matter immediately following paragraph (2)(C)—

(A) by striking ‘‘An insured’’ and inserting the following:

‘‘(3) CERTAIN INSTITUTIONS.—An insured’’; and

(B) by striking ‘‘preceding sentence’’ and inserting

‘‘paragraph (2)’’; and

(3) by adding at the end the following new paragraph:

‘‘(4) LIMITED EXEMPTION FOR COMMUNITY FINANCIAL

INSTITUTIONS.—A community financial institution that otherwise meets the requirements of paragraph (2) may become

a member without regard to the percentage of its total assets

that is represented by residential mortgage loans, as described

in subparagraph (A) of paragraph (2).’’.

SEC. 606. MANAGEMENT OF BANKS.

(a) BOARD OF DIRECTORS.—Section 7 of the Federal Home Loan

Bank Act (12 U.S.C. 1427(d)) is amended—

(1) in subsection (a), by striking ‘‘and bona fide residents

of the district in which such bank is located’’ and inserting
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‘‘, and each of whom shall be either a bona fide resident of

the district in which such bank is located or an officer or

director of a member of such bank located in that district’’;

(2) in subsection (d), by striking the first sentence and

inserting the following: ‘‘The term of each director, whether

elected or appointed, shall be 3 years. The board of directors

of each Federal home loan bank and the Finance Board shall

adjust the terms of members first elected or appointed after

the date of the enactment of the Federal Home Loan Bank

System Modernization Act of 1999 to ensure that the terms

of the members of the board of directors are staggered with

approximately 1⁄3 of the terms expiring each year.’’; and

(3) by striking subsection (g) and inserting the following:

‘‘(g) CHAIRPERSON AND VICE CHAIRPERSON.—

‘‘(1) ELECTION.—The Chairperson and Vice Chairperson of

the board of directors of each Federal home loan bank shall

be elected by a majority of all the directors of such bank

from among the directors of the bank.

‘‘(2) TERMS.—The term of office of the Chairperson and

the Vice Chairperson of the board of directors of a Federal

home loan bank shall be 2 years.

‘‘(3) ACTING CHAIRPERSON.—In the event of a vacancy in

the position of Chairperson of the board of directors or during

the absence or disability of the Chairperson, the Vice Chairperson shall act as Chairperson.

‘‘(4) PROCEDURES.—The board of directors of each Federal

home loan bank shall establish procedures, in the bylaws of

such board, for designating an acting chairperson for any period

during which the Chairperson and the Vice Chairperson are

not available to carry out the requirements of that position

for any reason and removing any person from any such position

for good cause.’’.

(b) COMPENSATION.—Section 7(i) of the Federal Home Loan

Bank Act (12 U.S.C. 1427(i)) is amended—

(1) by striking ‘‘(i) Each bank may pay its directors’’ and

inserting ‘‘(i) DIRECTORS’ COMPENSATION.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), each bank may

pay its directors’’; and

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

‘‘(2) LIMITATION.—

‘‘(A) IN GENERAL.—The annual salary of each of the

following members of the board of directors of a Federal

home loan bank may not exceed the amount specified:

‘‘In the case of the— The annual compensation

may not exceed—

Chairperson ...................................................................................... $25,000

Vice Chairperson .............................................................................. $20,000

All other members ............................................................................ $15,000.

‘‘(B) ADJUSTMENT.—Beginning January 1, 2001, each

dollar amount referred to in the table in subparagraph

(A) shall be adjusted annually by the Finance Board, based

on the annual percentage increase, if any, in the Consumer

Price Index for all urban consumers, as published by the

Department of Labor.

‘‘(C) EXPENSES.—Subparagraph (A) shall not be construed as prohibiting the reimbursement of expenses
S. 900—117

incurred by members of the board of directors of any Federal home loan bank in connection with service on the

board of directors.’’.

(c) REPEAL OF SECTIONS 22A AND 27.—The Federal Home Loan

Bank Act (12 U.S.C. 1421 et seq.) is amended by striking sections

22A (12 U.S.C. 1442a) and 27 (12 U.S.C. 1447).

(d) SECTION 12.—Section 12 of the Federal Home Loan Bank

Act (12 U.S.C. 1432) is amended—

(1) in subsection (a)—

(A) by striking ‘‘, but, except’’ and all that follows

through ‘‘ten years’’;

(B) by striking ‘‘subject to the approval of the Board’’

the first place that term appears;

(C) by striking ‘‘and, by its Board of directors,’’ and

all that follows through ‘‘agent of such bank,’’ and inserting

‘‘and, by the board of directors of the bank, to prescribe,

amend, and repeal by-laws governing the manner in which

its affairs may be administered, consistent with applicable

laws and regulations, as administered by the Finance

Board. No officer, employee, attorney, or agent of a Federal

home loan bank’’; and

(D) by striking ‘‘Board of directors’’ where such term

appears in the penultimate sentence and inserting ‘‘board

of directors’’; and

(2) in subsection (b), by striking ‘‘loans banks’’ and inserting

‘‘loan banks’’.

(e) POWERS AND DUTIES OF FEDERAL HOUSING FINANCE

BOARD.—

(1) ISSUANCE OF NOTICES OF VIOLATIONS.—Section 2B(a)

of the Federal Home Loan Bank Act (12 U.S.C. 1422b(a)) is

amended by adding at the end the following new paragraphs:

‘‘(5) To issue and serve a notice of charges upon a Federal

home loan bank or upon any executive officer or director of

a Federal home loan bank if, in the determination of the

Finance Board, the Bank, executive officer, or director is

engaging or has engaged in, or the Finance Board has reasonable cause to believe that the Bank, executive officer, or director

is about to engage in an unsafe or unsound practice in conducting the business of the bank, or any conduct that violates

any provision of this Act or any law, order, rule, or regulation

or any condition imposed in writing by the Finance Board

in connection with the granting of any application or other

request by the Bank, or any written agreement entered into

by the Bank with the agency, in accordance with the procedures

provided in subsection (c) or (f) of section 1371 of the Federal

Housing Enterprises Financial Safety and Soundness Act of

1992. Such authority includes the same authority to issue an

order requiring a party to take affirmative action to correct

conditions resulting from violations or practices or to limit

activities of a Bank or any executive officer or director of

a Bank as appropriate Federal banking agencies have to take

with respect to insured depository institutions under paragraphs (6) and (7) of section 8(b) of the Federal Deposit Insurance Act, and to have all other powers, rights, and duties

to enforce this Act with respect to the Federal home loan

banks and their executive officers and directors as the Office

of Federal Housing Enterprise Oversight has to enforce the
S. 900—118

Federal Housing Enterprises Financial Safety and Soundness

Act of 1992, the Federal National Mortgage Association Charter

Act, or the Federal Home Loan Mortgage Corporation Act with

respect to the Federal housing enterprises under subtitle C

(other than section 1371) of the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992.

‘‘(6) To address any insufficiencies in capital levels resulting

from the application of section 5(f) of the Home Owners’ Loan

Act.

‘‘(7) To act in its own name and through its own attorneys—

‘‘(A) in enforcing any provision of this Act or any regulation promulgated under this Act; or

‘‘(B) in any action, suit, or proceeding to which the

Finance Board is a party that involves the Board’s regulation or supervision of any Federal home loan bank.’’.

(2) TECHNICAL AMENDMENT.—Section 111 of Public Law

93–495 (12 U.S.C. 250) is amended by striking ‘‘Federal Home

Loan Bank Board,’’ and inserting ‘‘Director of the Office of

Thrift Supervision, the Federal Housing Finance Board,’’.

(f) ELIGIBILITY TO SECURE ADVANCES.—

(1) SECTION 9.—Section 9 of the Federal Home Loan Bank

Act (12 U.S.C. 1429) is amended—

(A) in the second sentence, by striking ‘‘with the

approval of the Board’’; and

(B) in the third sentence, by striking ‘‘, subject to

the approval of the Board,’’.

(2) SECTION 10.—Section 10 of the Federal Home Loan

Bank Act (12 U.S.C. 1430) is amended—

(A) in subsection (c)—

(i) in the first sentence, by striking ‘‘Board’’ and

inserting ‘‘Federal home loan bank’’; and

(ii) by striking the second sentence; and

(B) in subsection (d)—

(i) in the first sentence, by striking ‘‘and the

approval of the Board’’; and

(ii) by striking ‘‘Subject to the approval of the

Board, any’’ and inserting ‘‘Any’’.

(g) SECTION 16.—Section 16(a) of the Federal Home Loan Bank

Act (12 U.S.C. 1436(a)) is amended—

(1) in the third sentence—

(A) by striking ‘‘net earnings’’ and inserting ‘‘previously

retained earnings or current net earnings’’; and

(B) by striking ‘‘, and then only with the approval

of the Federal Housing Finance Board’’; and

(2) by striking the fourth sentence.

(h) SECTION 18.—Section 18(b) of the Federal Home Loan Bank

Act (12 U.S.C. 1438(b)) is amended by striking paragraph (4).

SEC. 607. RESOLUTION FUNDING CORPORATION.

(a) IN GENERAL.—Section 21B(f)(2)(C) of the Federal Home

Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amended to read as

follows:

‘‘(C) PAYMENTS BY FEDERAL HOME LOAN BANKS.—

‘‘(i) IN GENERAL.—To the extent that the amounts

available pursuant to subparagraphs (A) and (B) are

insufficient to cover the amount of interest payments,

each Federal home loan bank shall pay to the Funding
S. 900—119

Corporation in each calendar year, 20.0 percent of the

net earnings of that Bank (after deducting expenses

relating to section 10(j) and operating expenses).

‘‘(ii) ANNUAL DETERMINATION.—The Board

annually shall determine the extent to which the value

of the aggregate amounts paid by the Federal home

loan banks exceeds or falls short of the value of an

annuity of $300,000,000 per year that commences on

the issuance date and ends on the final scheduled

maturity date of the obligations, and shall select appropriate present value factors for making such determinations, in consultation with the Secretary of the

Treasury.

‘‘(iii) PAYMENT TERM ALTERATIONS.—The Board

shall extend or shorten the term of the payment obligations of a Federal home loan bank under this subparagraph as necessary to ensure that the value of all

payments made by the Banks is equivalent to the

value of an annuity referred to in clause (ii).

‘‘(iv) TERM BEYOND MATURITY.—If the Board

extends the term of payment obligations beyond the

final scheduled maturity date for the obligations, each

Federal home loan bank shall continue to pay 20.0

percent of its net earnings (after deducting expenses

relating to section 10(j) and operating expenses) to

the Treasury of the United States until the value of

all such payments by the Federal home loan banks

is equivalent to the value of an annuity referred to

in clause (ii). In the final year in which the Federal

home loan banks are required to make any payment

to the Treasury under this subparagraph, if the dollar

amount represented by 20.0 percent of the net earnings

of the Federal home loan banks exceeds the remaining

obligation of the Banks to the Treasury, the Finance

Board shall reduce the percentage pro rata to a level

sufficient to pay the remaining obligation.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall become effective on January 1, 2000. Payments made by

a Federal home loan bank before that effective date shall be counted

toward the total obligation of that Bank under section 21B(f)(2)(C)

of the Federal Home Loan Bank Act, as amended by this section.

SEC. 608. CAPITAL STRUCTURE OF FEDERAL HOME LOAN BANKS.

Section 6 of the Federal Home Loan Bank Act (12 U.S.C.

1426) is amended to read as follows:

‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN BANKS.

‘‘(a) REGULATIONS.— ‘‘(1) CAPITAL STANDARDS.—Not later than 1 year after the

date of the enactment of the Federal Home Loan Bank System

Modernization Act of 1999, the Finance Board shall issue regulations prescribing uniform capital standards applicable to each

Federal home loan bank, which shall require each such bank

to meet—

‘‘(A) the leverage requirement specified in paragraph

(2); and

‘‘(B) the risk-based capital requirements, in accordance

with paragraph (3).
S. 900—120

‘‘(2) LEVERAGE REQUIREMENT.—

‘‘(A) IN GENERAL.—The leverage requirement shall

require each Federal home loan bank to maintain a minimum amount of total capital based on the total assets

of the bank and shall be 5 percent.

‘‘(B) TREATMENT OF STOCK AND RETAINED EARNINGS.—

In determining compliance with the minimum leverage

ratio established under subparagraph (A), the paid-in value

of the outstanding Class B stock and the amount of retained

earnings shall be multiplied by 1.5, and such higher

amounts shall be deemed to be capital for purposes of

meeting the 5 percent minimum leverage ratio, except that

a Federal home loan bank’s total capital (determined without taking into account any such multiplier) shall not be

less than 4 percent of the total assets of the bank.

‘‘(3) RISK-BASED CAPITAL STANDARDS.—

‘‘(A) IN GENERAL.—Each Federal home loan bank shall

maintain permanent capital in an amount that is sufficient,

as determined in accordance with the regulations of the

Finance Board, to meet—

‘‘(i) the credit risk to which the Federal home

loan bank is subject; and

‘‘(ii) the market risk, including interest rate risk,

to which the Federal home loan bank is subject, based

on a stress test established by the Finance Board that

rigorously tests for changes in market variables,

including changes in interest rates, rate volatility, and

changes in the shape of the yield curve.

‘‘(B) CONSIDERATION OF OTHER RISK-BASED STANDARDS.—In establishing the risk-based standard under

subparagraph (A)(ii), the Finance Board shall take due

consideration of any risk-based capital test established

pursuant to section 1361 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12

U.S.C. 4611) for the enterprises (as defined in that Act),

with such modifications as the Finance Board determines

to be appropriate to reflect differences in operations

between the Federal home loan banks and those enterprises.

‘‘(4) OTHER REGULATORY REQUIREMENTS.—The regulations

issued by the Finance Board under paragraph (1) shall—

‘‘(A) permit each Federal home loan bank to issue,

with such rights, terms, and preferences, not inconsistent

with this Act and the regulations issued hereunder, as

the board of directors of that bank may approve, any 1

or more of—

‘‘(i) Class A stock, which shall be redeemable in

cash and at par 6 months following submission by

a member of a written notice of its intent to redeem

such shares; and

‘‘(ii) Class B stock, which shall be redeemable in

cash and at par 5 years following submission by a

member of a written notice of its intent to redeem

such shares;

‘‘(B) provide that the stock of a Federal home loan

bank may be issued to and held by only members of the
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bank, and that a bank may not issue any stock other

than as provided in this section;

‘‘(C) prescribe the manner in which stock of a Federal

home loan bank may be sold, transferred, redeemed, or

repurchased; and

‘‘(D) provide the manner of disposition of outstanding

stock held by, and the liquidation of any claims of the

Federal home loan bank against, an institution that ceases

to be a member of the bank, through merger or otherwise,

or that provides notice of intention to withdraw from membership in the bank.

‘‘(5) DEFINITIONS OF CAPITAL.—For purposes of determining

compliance with the capital standards established under this

subsection—

‘‘(A) permanent capital of a Federal home loan bank

shall include—

‘‘(i) the amounts paid for the Class B stock; and

‘‘(ii) the retained earnings of the bank (as determined in accordance with generally accepted

accounting principles); and

‘‘(B) total capital of a Federal home loan bank shall

include—

‘‘(i) permanent capital;

‘‘(ii) the amounts paid for the Class A stock;

‘‘(iii) consistent with generally accepted accounting

principles, and subject to the regulation of the Finance

Board, a general allowance for losses, which may not

include any reserves or allowances made or held

against specific assets; and

‘‘(iv) any other amounts from sources available

to absorb losses incurred by the bank that the Finance

Board determines by regulation to be appropriate to

include in determining total capital.

‘‘(6) TRANSITION PERIOD.—Notwithstanding any other provision of this Act, the requirements relating to purchase and

retention of capital stock of a Federal home loan bank by

any member thereof in effect on the day before the date of

the enactment of the Federal Home Loan Bank System Modernization Act of 1999, shall continue in effect with respect

to each Federal home loan bank until the regulations required

by this subsection have taken effect and the capital structure

plan required by subsection (b) has been approved by the

Finance Board and implemented by such bank.

‘‘(b) CAPITAL STRUCTURE PLAN.— ‘‘(1) APPROVAL OF PLANS.—Not later than 270 days after

the date of publication by the Finance Board of final regulations

in accordance with subsection (a), the board of directors of

each Federal home loan bank shall submit for Finance Board

approval a plan establishing and implementing a capital structure for such bank that—

‘‘(A) the board of directors determines is best suited

for the condition and operation of the bank and the

interests of the members of the bank;

‘‘(B) meets the requirements of subsection (c); and

‘‘(C) meets the minimum capital standards and requirements established under subsection (a) and other regulations prescribed by the Finance Board.
S. 900—122

‘‘(2) APPROVAL OF MODIFICATIONS.—The board of directors

of a Federal home loan bank shall submit to the Finance

Board for approval any modifications that the bank proposes

to make to an approved capital structure plan.

‘‘(c) CONTENTS OF PLAN.—The capital structure plan of each

Federal home loan bank shall contain provisions addressing each

of the following:

‘‘(1) MINIMUM INVESTMENT.—

‘‘(A) IN GENERAL.—Each capital structure plan of a

Federal home loan bank shall require each member of

the bank to maintain a minimum investment in the stock

of the bank, the amount of which shall be determined

in a manner to be prescribed by the board of directors

of each bank and to be included as part of the plan.

‘‘(B) INVESTMENT ALTERNATIVES.—

‘‘(i) IN GENERAL.—In establishing the minimum

investment required for each member under subparagraph (A), a Federal home loan bank may, in its discretion, include any 1 or more of the requirements referred

to in clause (ii), or any other provisions approved by

the Finance Board.

‘‘(ii) AUTHORIZED REQUIREMENTS.—A requirement

is referred to in this clause if it is a requirement

for—

‘‘(I) a stock purchase based on a percentage

of the total assets of a member; or

‘‘(II) a stock purchase based on a percentage

of the outstanding advances from the bank to the

member.

‘‘(C) MINIMUM AMOUNT.—Each capital structure plan

of a Federal home loan bank shall require that the minimum stock investment established for members shall be

set at a level that is sufficient for the bank to meet the

minimum capital requirements established by the Finance

Board under subsection (a).

‘‘(D) ADJUSTMENTS TO MINIMUM REQUIRED INVESTMENT.—The capital structure plan of each Federal home

loan bank shall impose a continuing obligation on the board

of directors of the bank to review and adjust the minimum

investment required of each member of that bank, as necessary to ensure that the bank remains in compliance

with applicable minimum capital levels established by the

Finance Board, and shall require each member to comply

promptly with any adjustments to the required minimum

investment.

‘‘(2) TRANSITION RULE.—

‘‘(A) IN GENERAL.—The capital structure plan of each

Federal home loan bank shall specify the date on which

it shall take effect, and may provide for a transition period

of not longer than 3 years to allow the bank to come

into compliance with the capital requirements prescribed

under subsection (a), and to allow any institution that

was a member of the bank on the date of the enactment

of the Federal Home Loan Bank System Modernization

Act of 1999, to come into compliance with the minimum

investment required pursuant to the plan.
S. 900—123

‘‘(B) INTERIM PURCHASE REQUIREMENTS.—The capital

structure plan of a Federal home loan bank may allow

any member referred to in subparagraph (A) that would

be required by the terms of the capital structure plan

to increase its investment in the stock of the bank to

do so in periodic installments during the transition period.

‘‘(3) DISPOSITION OF SHARES.—The capital structure plan

of a Federal home loan bank shall provide for the manner

of disposition of any stock held by a member of that bank

that terminates its membership or that provides notice of its

intention to withdraw from membership in that bank.

‘‘(4) CLASSES OF STOCK.—

‘‘(A) IN GENERAL.—The capital structure plan of a Federal home loan bank shall afford each member of that

bank the option of maintaining its required investment

in the bank through the purchase of any combination of

classes of stock authorized by the board of directors of

the bank and approved by the Finance Board in accordance

with its regulations.

‘‘(B) RIGHTS REQUIREMENT.—A Federal home loan bank

shall include in its capital structure plan provisions establishing terms, rights, and preferences, including minimum

investment, dividends, voting, and liquidation preferences

of each class of stock issued by the bank, consistent with

Finance Board regulations and market requirements.

‘‘(C) REDUCED MINIMUM INVESTMENT.—The capital

structure plan of a Federal home loan bank may provide

for a reduced minimum stock investment for any member

of that bank that elects to purchase Class B in a manner

that is consistent with meeting the minimum capital

requirements of the bank, as established by the Finance

Board.

‘‘(D) LIQUIDATION OF CLAIMS.—The capital structure

plan of a Federal home loan bank shall provide for the

liquidation in an orderly manner, as determined by the

bank, of any claim of that bank against a member,

including claims for any applicable prepayment fees or

penalties resulting from prepayment of advances prior to

stated maturity.

‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—The capital

structure plan of a Federal home loan bank shall—

‘‘(A) provide that any stock issued by that bank shall

be available only to and held only by members of that

bank and tradable only between that bank and its members; and

‘‘(B) establish standards, criteria, and requirements

for the issuance, purchase, transfer, retirement, and

redemption of stock issued by that bank.

‘‘(6) BANK REVIEW OF PLAN.—Before filing a capital structure plan with the Finance Board, each Federal home loan

bank shall conduct a review of the plan by—

‘‘(A) an independent certified public accountant, to

ensure, to the extent possible, that implementation of the

plan would not result in any write-down of the redeemable

bank stock investment of its members; and

‘‘(B) at least one major credit rating agency, to determine, to the extent possible, whether implementation of
S. 900—124

the plan would have any material effect on the credit

ratings of the bank.

‘‘(d) TERMINATION OF MEMBERSHIP.—

‘‘(1) VOLUNTARY WITHDRAWAL.—Any member may withdraw

from a Federal home loan bank if the member provides written

notice to the bank of its intent to do so and if, on the date

of withdrawal, there is in effect a certification by the Finance

Board that the withdrawal will not cause the Federal Home

Loan Bank System to fail to meet its obligation under section

21B(f)(2)(C) to contribute to the debt service for the obligations

issued by the Resolution Funding Corporation. The applicable

stock redemption notice periods shall commence upon receipt

of the notice by the bank. Upon the expiration of the applicable

notice period for each class of redeemable stock, the member

may surrender such stock to the bank, and shall be entitled

to receive in cash the par value of the stock. During the

applicable notice periods, the member shall be entitled to dividends and other membership rights commensurate with continuing stock ownership.

‘‘(2) INVOLUNTARY WITHDRAWAL.—

‘‘(A) IN GENERAL.—The board of directors of a Federal

home loan bank may terminate the membership of any

institution if, subject to Finance Board regulations, it determines that—

‘‘(i) the member has failed to comply with a provision of this Act or any regulation prescribed under

this Act; or

‘‘(ii) the member has been determined to be insolvent, or otherwise subject to the appointment of a

conservator, receiver, or other legal custodian, by a

Federal or State authority with regulatory and supervisory responsibility for the member.

‘‘(B) STOCK DISPOSITION.—An institution, the membership of which is terminated in accordance with subparagraph (A)—

‘‘(i) shall surrender redeemable stock to the Federal home loan bank, and shall receive in cash the

par value of the stock, upon the expiration of the

applicable notice period under subsection (a)(4)(A);

‘‘(ii) shall receive any dividends declared on its

redeemable stock, during the applicable notice period

under subsection (a)(4)(A); and

‘‘(iii) shall not be entitled to any other rights or

privileges accorded to members after the date of the

termination.

‘‘(C) COMMENCEMENT OF NOTICE PERIOD.—With respect

to an institution, the membership of which is terminated

in accordance with subparagraph (A), the applicable notice

period under subsection (a)(4) for each class of redeemable

stock shall commence on the earlier of—

‘‘(i) the date of such termination; or

‘‘(ii) the date on which the member has provided

notice of its intent to redeem such stock.

‘‘(3) LIQUIDATION OF INDEBTEDNESS.—Upon the termination

of the membership of an institution for any reason, the outstanding indebtedness of the member to the bank shall be

liquidated in an orderly manner, as determined by the bank
S. 900—125

and, upon the extinguishment of all such indebtedness, the

bank shall return to the member all collateral pledged to secure

the indebtedness.

‘‘(e) REDEMPTION OF EXCESS STOCK.—

‘‘(1) IN GENERAL.—A Federal home loan bank, in its sole

discretion, may redeem or repurchase, as appropriate, any

shares of Class A or Class B stock issued by the bank and

held by a member that are in excess of the minimum stock

investment required of that member.

‘‘(2) EXCESS STOCK.—Shares of stock held by a member

shall not be deemed to be ‘excess stock’ for purposes of this

subsection by virtue of a member’s submission of a notice

of intent to withdraw from membership or termination of its

membership in any other manner.

‘‘(3) PRIORITY.—A Federal home loan bank may not redeem

any excess Class B stock prior to the end of the 5-year notice

period, unless the member has no Class A stock outstanding

that could be redeemed as excess.

‘‘(f) IMPAIRMENT OF CAPITAL.—If the Finance Board or the

board of directors of a Federal home loan bank determines that

the bank has incurred or is likely to incur losses that result in

or are expected to result in charges against the capital of the

bank, the bank shall not redeem or repurchase any stock of the

bank without the prior approval of the Finance Board while such

charges are continuing or are expected to continue. In no case

may a bank redeem or repurchase any applicable capital stock

if, following the redemption, the bank would fail to satisfy any

minimum capital requirement.

‘‘(g) REJOINING AFTER DIVESTITURE OF ALL SHARES.—

‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

and notwithstanding any other provision of this Act, an institution that divests all shares of stock in a Federal home loan

bank may not, after such divestiture, acquire shares of any

Federal home loan bank before the end of the 5-year period

beginning on the date of the completion of such divestiture,

unless the divestiture is a consequence of a transfer of membership on an uninterrupted basis between banks.

‘‘(2) EXCEPTION FOR WITHDRAWALS FROM MEMBERSHIP

BEFORE 1998.—Any institution that withdrew from membership

in any Federal home loan bank before December 31, 1997,

may acquire shares of a Federal home loan bank at any time

after that date, subject to the approval of the Finance Board

and the requirements of this Act.

‘‘(h) TREATMENT OF RETAINED EARNINGS.—

‘‘(1) IN GENERAL.—The holders of the Class B stock of

a Federal home loan bank shall own the retained earnings,

surplus, undivided profits, and equity reserves, if any, of the

bank.

‘‘(2) EXCEPTION.—Except as specifically provided in this

section or through the declaration of a dividend or a capital

distribution by a Federal home loan bank, or in the event

of liquidation of the bank, a member shall have no right to

withdraw or otherwise receive distribution of any portion of

the retained earnings of the bank.

‘‘(3) LIMITATION.—A Federal home loan bank may not make

any distribution of its retained earnings unless, following such
S. 900—126

distribution, the bank would continue to meet all applicable

capital requirements.’’.

TITLE VII—OTHER PROVISIONS

Subtitle A—ATM Fee Reform

SEC. 701. SHORT TITLE.

This subtitle may be cited as the ‘‘ATM Fee Reform Act of

1999’’.

SEC. 702. ELECTRONIC FUND TRANSFER FEE DISCLOSURES AT ANY

HOST ATM.

Section 904(d) of the Electronic Fund Transfer Act (15 U.S.C.

1693b(d)) is amended by adding at the end the following new

paragraph:

‘‘(3) FEE DISCLOSURES AT AUTOMATED TELLER MACHINES.—

‘‘(A) IN GENERAL.—The regulations prescribed under

paragraph (1) shall require any automated teller machine

operator who imposes a fee on any consumer for providing

host transfer services to such consumer to provide notice

in accordance with subparagraph (B) to the consumer (at

the time the service is provided) of—

‘‘(i) the fact that a fee is imposed by such operator

for providing the service; and

‘‘(ii) the amount of any such fee.

‘‘(B) NOTICE REQUIREMENTS.— ‘‘(i) ON THE MACHINE.—The notice required under

clause (i) of subparagraph (A) with respect to any

fee described in such subparagraph shall be posted

in a prominent and conspicuous location on or at the

automated teller machine at which the electronic fund

transfer is initiated by the consumer.

‘‘(ii) ON THE SCREEN.—The notice required under

clauses (i) and (ii) of subparagraph (A) with respect

to any fee described in such subparagraph shall appear

on the screen of the automated teller machine, or on

a paper notice issued from such machine, after the

transaction is initiated and before the consumer is

irrevocably committed to completing the transaction,

except that during the period beginning on the date

of the enactment of the Gramm-Leach-Bliley Act and

ending on December 31, 2004, this clause shall not

apply to any automated teller machine that lacks the

technical capability to disclose the notice on the screen

or to issue a paper notice after the transaction is

initiated and before the consumer is irrevocably committed to completing the transaction.

‘‘(C) PROHIBITION ON FEES NOT PROPERLY DISCLOSED

AND EXPLICITLY ASSUMED BY CONSUMER.—No fee may be

imposed by any automated teller machine operator in

connection with any electronic fund transfer initiated by

a consumer for which a notice is required under subparagraph (A), unless—

‘‘(i) the consumer receives such notice in accordance with subparagraph (B); and
S. 900—127

‘‘(ii) the consumer elects to continue in the manner

necessary to effect the transaction after receiving such

notice.

‘‘(D) DEFINITIONS.—For purposes of this paragraph, the

following definitions shall apply:

‘‘(i) AUTOMATED TELLER MACHINE OPERATOR.—The

term ‘automated teller machine operator’ means any

person who—

‘‘(I) operates an automated teller machine at

which consumers initiate electronic fund transfers;

and

‘‘(II) is not the financial institution that holds

the account of such consumer from which the

transfer is made.

‘‘(ii) ELECTRONIC FUND TRANSFER.—The term ‘electronic fund transfer’ includes a transaction that

involves a balance inquiry initiated by a consumer

in the same manner as an electronic fund transfer,

whether or not the consumer initiates a transfer of

funds in the course of the transaction.

‘‘(iii) HOST TRANSFER SERVICES.—The term ‘host

transfer services’ means any electronic fund transfer

made by an automated teller machine operator in

connection with a transaction initiated by a consumer

at an automated teller machine operated by such operator.’’.

SEC. 703. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS WHEN ATM

CARD IS ISSUED.

Section 905(a) of the Electronic Fund Transfer Act (15 U.S.C.

1693c(a)) is amended—

(1) by striking ‘‘and’’ at the end of paragraph (8);

(2) by striking the period at the end of paragraph (9)

and inserting ‘‘; and’’; and

(3) by inserting after paragraph (9) the following new paragraph:

‘‘(10) a notice to the consumer that a fee may be imposed

by—

‘‘(A) an automated teller machine operator (as defined

in section 904(d)(3)(D)(i)) if the consumer initiates a

transfer from an automated teller machine that is not

operated by the person issuing the card or other means

of access; and

‘‘(B) any national, regional, or local network utilized

to effect the transaction.’’.

SEC. 704. FEASIBILITY STUDY.

(a) IN GENERAL.—The Comptroller General of the United States

shall conduct a study of the feasibility of requiring, in connection

with any electronic fund transfer initiated by a consumer through

the use of an automated teller machine—

(1) a notice to be provided to the consumer before the

consumer is irrevocably committed to completing the transaction, which clearly states the amount of any fee that will

be imposed upon the consummation of the transaction by—

(A) any automated teller machine operator (as defined

in section 904(d)(3)(D)(i) of the Electronic Fund Transfer

Act) involved in the transaction;
S. 900—128

(B) the financial institution holding the account of

the consumer;

(C) any national, regional, or local network utilized

to effect the transaction; and

(D) any other party involved in the transfer; and

(2) the consumer to elect to consummate the transaction

after receiving the notice described in paragraph (1).

(b) FACTORS TO BE CONSIDERED.—In conducting the study

required under subsection (a) with regard to the notice requirement

described in such subsection, the Comptroller General shall consider

the following factors:

(1) The availability of appropriate technology.

(2) Implementation and operating costs.

(3) The competitive impact any such notice requirement

would have on various sizes and types of institutions, if implemented.

(4) The period of time that would be reasonable for implementing any such notice requirement.

(5) The extent to which consumers would benefit from

any such notice requirement.

(6) Any other factor the Comptroller General determines

to be appropriate in analyzing the feasibility of imposing any

such notice requirement.

(c) REPORT TO THE CONGRESS.—Before the end of the 6-month

period beginning on the date of the enactment of this Act, the

Comptroller General shall submit a report to the Congress

containing—

(1) the findings and conclusions of the Comptroller General

in connection with the study required under subsection (a);

and

(2) the recommendation of the Comptroller General with

regard to the question of whether a notice requirement

described in subsection (a) should be implemented and, if so,

the manner in which such requirement should be implemented.

SEC. 705. NO LIABILITY IF POSTED NOTICES ARE DAMAGED.

Section 910 of the Electronic Fund Transfer Act (15 U.S.C.

1693h) is amended by adding at the end the following new subsection:

‘‘(d) EXCEPTION FOR DAMAGED NOTICES.—If the notice required

to be posted pursuant to section 904(d)(3)(B)(i) by an automated

teller machine operator has been posted by such operator in compliance with such section and the notice is subsequently removed,

damaged, or altered by any person other than the operator of

the automated teller machine, the operator shall have no liability

under this section for failure to comply with section 904(d)(3)(B)(i).’’.

Subtitle B—Community Reinvestment

SEC. 711. CRA SUNSHINE REQUIREMENTS.

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

is amended by inserting after section 47, as added by section

305 of this Act, the following new section:
S. 900—129

‘‘SEC. 48. CRA SUNSHINE REQUIREMENTS.

‘‘(a) PUBLIC DISCLOSURE OF AGREEMENTS.—Any agreement (as

defined in subsection (e)) entered into after the date of the enactment of the Gramm-Leach-Bliley Act by an insured depository

institution or affiliate with a nongovernmental entity or person

made pursuant to or in connection with the Community Reinvestment Act of 1977 involving funds or other resources of such insured

depository institution or affiliate—

‘‘(1) shall be in its entirety fully disclosed, and the full

text thereof made available to the appropriate Federal banking

agency with supervisory responsibility over the insured depository institution and to the public by each party to the agreement; and

‘‘(2) shall obligate each party to comply with this section.

‘‘(b) ANNUAL REPORT OF ACTIVITY BY INSURED DEPOSITORY

INSTITUTION.—Each insured depository institution or affiliate that

is a party to an agreement described in subsection (a) shall report

to the appropriate Federal banking agency with supervisory responsibility over the insured depository institution, not less frequently

than once each year, such information as the Federal banking

agency may by rule require relating to the following actions taken

by the party pursuant to the agreement during the preceding 12-

month period:

‘‘(1) Payments, fees, or loans made to any party to the

agreement or received from any party to the agreement and

the terms and conditions of the same.

‘‘(2) Aggregate data on loans, investments, and services

provided by each party in its community or communities pursuant to the agreement.

‘‘(3) Such other pertinent matters as determined by regulation by the appropriate Federal banking agency with supervisory responsibility over the insured depository institution.

‘‘(c) ANNUAL REPORT OF ACTIVITY BY NONGOVERNMENTAL ENTI- TIES.— ‘‘(1) IN GENERAL.—Each nongovernmental entity or person

that is not an affiliate of an insured depository institution

and that is a party to an agreement described in subsection

(a) shall report to the appropriate Federal banking agency

with supervisory responsibility over the insured depository

institution that is a party to such agreement, not less frequently

than once each year, an accounting of the use of funds received

pursuant to each such agreement during the preceding 12-

month period.

‘‘(2) SUBMISSION TO INSURED DEPOSITORY INSTITUTION.— A nongovernmental entity or person referred to in paragraph

(1) may comply with the reporting requirement in such paragraph by transmitting the report to the insured depository

institution that is a party to the agreement, and such insured

depository institution shall promptly transmit such report to

the appropriate Federal banking agency with supervisory

authority over the insured depository institution.

‘‘(3) INFORMATION TO BE INCLUDED.—The accounting

referred to in paragraph (1) shall include a detailed, itemized

list of the uses to which such funds have been made, including

compensation, administrative expenses, travel, entertainment,

consulting and professional fees paid, and such other categories,

as determined by regulation by the appropriate Federal banking
S. 900—130

agency with supervisory responsibility over the insured depository institution.

‘‘(d) APPLICABILITY.—Subsections (b) and (c) shall not apply

with respect to any agreement entered into before the end of the

6-month period beginning on the date of the enactment of the

Gramm-Leach-Bliley Act.

‘‘(e) DEFINITIONS.—

‘‘(1) AGREEMENT.—For purposes of this section, the term

‘agreement’—

‘‘(A) means—

‘‘(i) any written contract, written arrangement, or

other written understanding that provides for cash

payments, grants, or other consideration with a value

in excess of $10,000, or for loans the aggregate amount

of principal of which exceeds $50,000, annually (or

the sum of all such agreements during a 12-month

period with an aggregate value of cash payments,

grants, or other consideration in excess of $10,000,

or with an aggregate amount of loan principal in excess

of $50,000); or

‘‘(ii) a group of substantively related contracts with

an aggregate value of cash payments, grants, or other

consideration in excess of $10,000, or with an aggregate

amount of loan principal in excess of $50,000, annually;

made pursuant to, or in connection with, the fulfillment

of the Community Reinvestment Act of 1977, at least 1

party to which is an insured depository institution or affiliate thereof, whether organized on a profit or not-for-profit

basis; and

‘‘(B) does not include—

‘‘(i) any individual mortgage loan;

‘‘(ii) any specific contract or commitment for a loan

or extension of credit to individuals, businesses, farms,

or other entities, if the funds are loaned at rates not

substantially below market rates and if the purpose

of the loan or extension of credit does not include

any re-lending of the borrowed funds to other parties;

or

‘‘(iii) any agreement entered into by an insured

depository institution or affiliate with a nongovernmental entity or person who has not commented on,

testified about, or discussed with the institution, or

otherwise contacted the institution, concerning the

Community Reinvestment Act of 1977.

‘‘(2) FULFILLMENT OF CRA.—For purposes of subparagraph

(A), the term ‘fulfillment’ means a list of factors that the appropriate Federal banking agency determines have a material

impact on the agency’s decision—

‘‘(A) to approve or disapprove an application for a

deposit facility (as defined in section 803 of the Community

Reinvestment Act of 1977); or

‘‘(B) to assign a rating to an insured depository institution under section 807 of the Community Reinvestment

Act of 1977.

‘‘(f) VIOLATIONS.—

‘‘(1) VIOLATIONS BY PERSONS OTHER THAN INSURED DEPOSITORY INSTITUTIONS OR THEIR AFFILIATES.—
S. 900—131

‘‘(A) MATERIAL FAILURE TO COMPLY.—If the party to

an agreement described in subsection (a) that is not an

insured depository institution or affiliate willfully fails to

comply with this section in a material way, as determined

by the appropriate Federal banking agency, the agreement

shall be unenforceable after the offending party has been

given notice and a reasonable period of time to perform

or comply.

‘‘(B) DIVERSION OF FUNDS OR RESOURCES.—If funds

or resources received under an agreement described in

subsection (a) have been diverted contrary to the purposes

of the agreement for personal financial gain, the appropriate Federal banking agency with supervisory responsibility over the insured depository institution may impose

either or both of the following penalties:

‘‘(i) Disgorgement by the offending individual of

funds received under the agreement.

‘‘(ii) Prohibition of the offending individual from

being a party to any agreement described in subsection

(a) for a period of not to exceed 10 years.

‘‘(2) DESIGNATION OF SUCCESSOR NONGOVERNMENTAL

PARTY.—If an agreement described in subsection (a) is found

to be unenforceable under this subsection, the appropriate Federal banking agency may assist the insured depository institution in identifying a successor nongovernmental party to

assume the responsibilities of the agreement.

‘‘(3) INADVERTENT OR DE MINIMIS REPORTING ERRORS.—An

error in a report filed under subsection (c) that is inadvertent

or de minimis shall not subject the filing party to any penalty.

‘‘(g) RULE OF CONSTRUCTION.—No provision of this section shall

be construed as authorizing any appropriate Federal banking

agency to enforce the provisions of any agreement described in

subsection (a).

‘‘(h) REGULATIONS.—

‘‘(1) IN GENERAL.—Each appropriate Federal banking

agency shall prescribe regulations, in accordance with paragraph (4), requiring procedures reasonably designed to ensure

and monitor compliance with the requirements of this section.

‘‘(2) PROTECTION OF PARTIES.—In carrying out paragraph

(1), each appropriate Federal banking agency shall—

‘‘(A) ensure that the regulations prescribed by the

agency do not impose an undue burden on the parties

and that proprietary and confidential information is protected; and

‘‘(B) establish procedures to allow any nongovernmental entity or person who is a party to a large number

of agreements described in subsection (a) to make a single

or consolidated filing of a report under subsection (c) to

an insured depository institution or an appropriate Federal

banking agency.

‘‘(3) PARTIES NOT SUBJECT TO REPORTING REQUIREMENTS.—

The Board of Governors of the Federal Reserve System may

prescribe regulations—

‘‘(A) to prevent evasions of subsection (e)(1)(B)(iii); and

‘‘(B) to provide further exemptions under such subsection, consistent with the purposes of this section.
S. 900—132

‘‘(4) COORDINATION, CONSISTENCY, AND COMPARABILITY.—

In carrying out paragraph (1), each appropriate Federal

banking agency shall consult and coordinate with the other

such agencies for the purposes of assuring, to the extent possible, that the regulations prescribed by each such agency are

consistent and comparable with the regulations prescribed by

the other such agencies.’’.

SEC. 712. SMALL BANK REGULATORY RELIEF.

The Community Reinvestment Act of 1977 (12 U.S.C. 2901

et seq.) is amended by adding at the end the following new section:

‘‘SEC. 809. SMALL BANK REGULATORY RELIEF.

‘‘(a) IN GENERAL.—Except as provided in subsections (b) and

(c), any regulated financial institution with aggregate assets of

not more than $250,000,000 shall be subject to routine examination

under this title—

‘‘(1) not more than once every 60 months for an institution

that has achieved a rating of ‘outstanding record of meeting

community credit needs’ at its most recent examination under

section 804;

‘‘(2) not more than once every 48 months for an institution

that has received a rating of ‘satisfactory record of meeting

community credit needs’ at its most recent examination under

section 804; and

‘‘(3) as deemed necessary by the appropriate Federal financial supervisory agency, for an institution that has received

a rating of less than ‘satisfactory record of meeting community

credit needs’ at its most recent examination under section 804.

‘‘(b) NO EXCEPTION FROM CRA EXAMINATIONS IN CONNECTION

WITH APPLICATIONS FOR DEPOSIT FACILITIES.—A regulated financial

institution described in subsection (a) shall remain subject to examination under this title in connection with an application for a

deposit facility.

‘‘(c) DISCRETION.—A regulated financial institution described

in subsection (a) may be subject to more frequent or less frequent

examinations for reasonable cause under such circumstances as

may be determined by the appropriate Federal financial supervisory

agency.’’.

SEC. 713. FEDERAL RESERVE BOARD STUDY OF CRA LENDING.

The Board of Governors of the Federal Reserve System shall

conduct a comprehensive study, in consultation with the Chairman

and Ranking Member of the Committee on Banking and Financial

Services of the House of Representatives and the Chairman and

Ranking Member of the Committee on Banking, Housing, and

Urban Affairs of the Senate, of the Community Reinvestment Act

of 1977, which shall focus on—

(1) the default rates;

(2) the delinquency rates; and

(3) the profitability;

of loans made in conformity with such Act, and report on the

study to such Committees not later than March 15, 2000. Such

report and supporting data shall also be made available by the

Board of Governors of the Federal Reserve System to the public.
S. 900—133

SEC. 714. PRESERVING THE COMMUNITY REINVESTMENT ACT OF 1977.

Nothing in this Act shall be construed to repeal any provision

of the Community Reinvestment Act of 1977.

SEC. 715. RESPONSIVENESS TO COMMUNITY NEEDS FOR FINANCIAL

SERVICES.

(a) STUDY.—The Secretary of the Treasury, in consultation

with the Federal banking agencies (as defined in section 3(z) of

the Federal Deposit Insurance Act), shall conduct a study of the

extent to which adequate services are being provided as intended

by the Community Reinvestment Act of 1977, including services

in low- and moderate-income neighborhoods and for persons of

modest means, as a result of the enactment of this Act.

(b) REPORTS.— (1) IN GENERAL.—The Secretary of the Treasury shall—

(A) before March 15, 2000, submit a baseline report

to the Congress on the study conducted pursuant to subsection (a); and

(B) before the end of the 2-year period beginning on

the date of the enactment of this Act, in consultation with

the Federal banking agencies, submit a final report to

the Congress on the study conducted pursuant to subsection

(a).

(2) RECOMMENDATIONS.—The final report submitted under

paragraph (1)(B) shall include such recommendations as the

Secretary determines to be appropriate for administrative and

legislative action with respect to institutions covered under

the Community Reinvestment Act of 1977.

Subtitle C—Other Regulatory

Improvements

SEC. 721. EXPANDED SMALL BANK ACCESS TO S CORPORATION

TREATMENT.

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

conduct a study of—

(1) possible revisions to the rules governing S corporations,

including—

(A) increasing the permissible number of shareholders

in such corporations;

(B) permitting shares of such corporations to be held

in individual retirement accounts;

(C) clarifying that interest on investments held for

safety, soundness, and liquidity purposes should not be

considered to be passive income;

(D) discontinuation of the treatment of stock held by

bank directors as a disqualifying personal class of stock

for such corporations; and

(E) improving Federal tax treatment of bad debt and

interest deductions; and

(2) what impact such revisions might have on community

banks.

(b) REPORT TO THE CONGRESS.—Not later than 6 months after

the date of the enactment of this Act, the Comptroller General

of the United States shall submit a report to the Congress on

the results of the study conducted under subsection (a).
S. 900—134

(c) DEFINITION.—For purposes of this section, the term ‘‘S corporation’’ has the meaning given the term in section 1361(a)(1)

of the Internal Revenue Code of 1986.

SEC. 722. ‘‘PLAIN LANGUAGE’’ REQUIREMENT FOR FEDERAL BANKING

AGENCY RULES.

(a) IN GENERAL.—Each Federal banking agency shall use plain

language in all proposed and final rulemakings published by the

agency in the Federal Register after January 1, 2000.

(b) REPORT.—Not later than March 1, 2001, each Federal

banking agency shall submit to the Congress a report that describes

how the agency has complied with subsection (a).

(c) DEFINITION.—For purposes of this section, the term ‘‘Federal

banking agency’’ has the meaning given that term in section 3

of the Federal Deposit Insurance Act.

SEC. 723. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CONVERTED FEDERAL SAVINGS ASSOCIATION.

Section 2 of the Act entitled ‘‘An Act to enable national banking

associations to increase their capital stock and to change their

names or locations’’, approved May 1, 1886 (12 U.S.C. 30), is

amended by adding at the end the following new subsection:

‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CONVERTED FEDERAL

SAVINGS ASSOCIATION.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (a) or any

other provision of law, any depository institution, the charter

of which is converted from that of a Federal savings association

to a national bank or a State bank after the date of the

enactment of the Gramm-Leach-Bliley Act may retain the term

‘Federal’ in the name of such institution if such institution

remains an insured depository institution.

‘‘(2) DEFINITIONS.—For purposes of this subsection, the

terms ‘depository institution’, ‘insured depository institution’,

‘national bank’, and ‘State bank’ have the meanings given those

terms in section 3 of the Federal Deposit Insurance Act.’’.

SEC. 724. CONTROL OF BANKERS’ BANKS.

Section 2(a)(5)(E)(i) of the Bank Holding Company Act of 1956

(12 U.S.C. 1841(a)(5)(E)(i)) is amended by inserting ‘‘1 or more’’

before ‘‘thrift institutions’’.

SEC. 725. PROVISION OF TECHNICAL ASSISTANCE TO MICROENTERPRISES.

Title I of the Riegle Community Development and Regulatory

Improvement Act of 1994 (12 U.S.C. 4701 et seq.) is amended

by adding at the end the following new subtitle:

‘‘Subtitle C—Microenterprise Technical

Assistance and Capacity Building Program

‘‘SEC. 171. SHORT TITLE.

‘‘This subtitle may be cited as the ‘Program for Investment

in Microentrepreneurs Act of 1999’, also referred to as the ‘PRIME

Act’.
S. 900—135

‘‘SEC. 172. DEFINITIONS.

‘‘For purposes of this subtitle, the following definitions shall

apply:

‘‘(1) ADMINISTRATION.—The term ‘Administration’ means

the Small Business Administration.

‘‘(2) ADMINISTRATOR.—The term ‘Administrator’ means the

Administrator of the Small Business Administration.

‘‘(3) CAPACITY BUILDING SERVICES.—The term ‘capacity

building services’ means services provided to an organization

that is, or that is in the process of becoming, a microenterprise

development organization or program, for the purpose of

enhancing its ability to provide training and services to disadvantaged entrepreneurs.

‘‘(4) COLLABORATIVE.—The term ‘collaborative’ means 2 or

more nonprofit entities that agree to act jointly as a qualified

organization under this subtitle.

‘‘(5) DISADVANTAGED ENTREPRENEUR.—The term ‘disadvantaged entrepreneur’ means a microentrepreneur that is—

‘‘(A) a low-income person;

‘‘(B) a very low-income person; or

‘‘(C) an entrepreneur that lacks adequate access to

capital or other resources essential for business success,

or is economically disadvantaged, as determined by the

Administrator.

‘‘(6) INDIAN TRIBE.—The term ‘Indian tribe’ has the meaning

given the term in section 103.

‘‘(7) INTERMEDIARY.—The term ‘intermediary’ means a private, nonprofit entity that seeks to serve microenterprise

development organizations and programs as authorized under

section 175.

‘‘(8) LOW-INCOME PERSON.—The term ‘low-income person’

has the meaning given the term in section 103.

‘‘(9) MICROENTREPRENEUR.—The term ‘microentrepreneur’

means the owner or developer of a microenterprise.

‘‘(10) MICROENTERPRISE.—The term ‘microenterprise’

means a sole proprietorship, partnership, or corporation that—

‘‘(A) has fewer than 5 employees; and

‘‘(B) generally lacks access to conventional loans,

equity, or other banking services.

‘‘(11) MICROENTERPRISE DEVELOPMENT ORGANIZATION OR

PROGRAM.—The term ‘microenterprise development organization or program’ means a nonprofit entity, or a program

administered by such an entity, including community development corporations or other nonprofit development organizations

and social service organizations, that provides services to disadvantaged entrepreneurs.

‘‘(12) TRAINING AND TECHNICAL ASSISTANCE.—The term

‘training and technical assistance’ means services and support

provided to disadvantaged entrepreneurs, such as assistance

for the purpose of enhancing business planning, marketing,

management, financial management skills, and assistance for

the purpose of accessing financial services.

‘‘(13) VERY LOW-INCOME PERSON.—The term ‘very lowincome person’ means having an income, adjusted for family

size, of not more than 150 percent of the poverty line (as

defined in section 673(2) of the Community Services Block
S. 900—136

Grant Act (42 U.S.C. 9902(2)), including any revision required

by that section).

‘‘SEC. 173. ESTABLISHMENT OF PROGRAM.

‘‘The Administrator shall establish a microenterprise technical

assistance and capacity building grant program to provide assistance from the Administration in the form of grants to qualified

organizations in accordance with this subtitle.

‘‘SEC. 174. USES OF ASSISTANCE.

‘‘A qualified organization shall use grants made under this

subtitle—

‘‘(1) to provide training and technical assistance to disadvantaged entrepreneurs;

‘‘(2) to provide training and capacity building services to

microenterprise development organizations and programs and

groups of such organizations to assist such organizations and

programs in developing microenterprise training and services;

‘‘(3) to aid in researching and developing the best practices

in the field of microenterprise and technical assistance programs for disadvantaged entrepreneurs; and

‘‘(4) for such other activities as the Administrator determines are consistent with the purposes of this subtitle.

‘‘SEC. 175. QUALIFIED ORGANIZATIONS.

‘‘For purposes of eligibility for assistance under this subtitle,

a qualified organization shall be—

‘‘(1) a nonprofit microenterprise development organization

or program (or a group or collaborative thereof) that has a

demonstrated record of delivering microenterprise services to

disadvantaged entrepreneurs;

‘‘(2) an intermediary;

‘‘(3) a microenterprise development organization or program

that is accountable to a local community, working in conjunction

with a State or local government or Indian tribe; or

‘‘(4) an Indian tribe acting on its own, if the Indian tribe

can certify that no private organization or program referred

to in this paragraph exists within its jurisdiction.

‘‘SEC. 176. ALLOCATION OF ASSISTANCE; SUBGRANTS.

‘‘(a) ALLOCATION OF ASSISTANCE.— ‘‘(1) IN GENERAL.—The Administrator shall allocate assistance from the Administration under this subtitle to ensure

that—

‘‘(A) activities described in section 174(1) are funded

using not less than 75 percent of amounts made available

for such assistance; and

‘‘(B) activities described in section 174(2) are funded

using not less than 15 percent of amounts made available

for such assistance.

‘‘(2) LIMIT ON INDIVIDUAL ASSISTANCE.—No single person

may receive more than 10 percent of the total funds appropriated under this subtitle in a single fiscal year.

‘‘(b) TARGETED ASSISTANCE.—The Administrator shall ensure

that not less than 50 percent of the grants made under this subtitle

are used to benefit very low-income persons, including those residing

on Indian reservations.

‘‘(c) SUBGRANTS AUTHORIZED.—
S. 900—137

‘‘(1) IN GENERAL.—A qualified organization receiving assistance under this subtitle may provide grants using that assistance to qualified small and emerging microenterprise organizations and programs, subject to such rules and regulations as

the Administrator determines to be appropriate.

‘‘(2) LIMIT ON ADMINISTRATIVE EXPENSES.—Not more than

7.5 percent of assistance received by a qualified organization

under this subtitle may be used for administrative expenses

in connection with the making of subgrants under paragraph

(1).

‘‘(d) DIVERSITY.—In making grants under this subtitle, the

Administrator shall ensure that grant recipients include both large

and small microenterprise organizations, serving urban, rural, and

Indian tribal communities serving diverse populations.

‘‘(e) PROHIBITION ON PREFERENTIAL CONSIDERATION OF CERTAIN

SBA PROGRAM PARTICIPANTS.—In making grants under this subtitle, the Administrator shall ensure that any application made

by a qualified organization that is a participant in the program

established under section 7(m) of the Small Business Act does

not receive preferential consideration over applications from other

qualified organizations that are not participants in such program.

‘‘SEC. 177. MATCHING REQUIREMENTS.

‘‘(a) IN GENERAL.—Financial assistance under this subtitle shall

be matched with funds from sources other than the Federal Government on the basis of not less than 50 percent of each dollar provided

by the Administration.

‘‘(b) SOURCES OF MATCHING FUNDS.—Fees, grants, gifts, funds

from loan sources, and in-kind resources of a grant recipient from

public or private sources may be used to comply with the matching

requirement in subsection (a).

‘‘(c) EXCEPTION.— ‘‘(1) IN GENERAL.—In the case of an applicant for assistance

under this subtitle with severe constraints on available sources

of matching funds, the Administrator may reduce or eliminate

the matching requirements of subsection (a).

‘‘(2) LIMITATION.—Not more than 10 percent of the total

funds made available from the Administration in any fiscal

year to carry out this subtitle may be excepted from the

matching requirements of subsection (a), as authorized by paragraph (1) of this subsection.

‘‘SEC. 178. APPLICATIONS FOR ASSISTANCE.

‘‘An application for assistance under this subtitle shall be submitted in such form and in accordance with such procedures as

the Administrator shall establish.

‘‘SEC. 179. RECORDKEEPING.

‘‘The requirements of section 115 shall apply to a qualified

organization receiving assistance from the Administration under

this subtitle as if it were a community development financial institution receiving assistance from the Fund under subtitle A.

‘‘SEC. 180. AUTHORIZATION.

‘‘In addition to funds otherwise authorized to be appropriated

to the Fund to carry out this title, there are authorized to be

appropriated to the Administrator to carry out this subtitle—

‘‘(1) $15,000,000 for fiscal year 2000;
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‘‘(2) $15,000,000 for fiscal year 2001;

‘‘(3) $15,000,000 for fiscal year 2002; and

‘‘(4) $15,000,000 for fiscal year 2003.

‘‘SEC. 181. IMPLEMENTATION.

‘‘The Administrator shall, by regulation, establish such requirements as may be necessary to carry out this subtitle.’’.

SEC. 726. FEDERAL RESERVE AUDITS.

The Federal Reserve Act (12 U.S.C. 221 et seq.) is amended

by inserting after section 11A the following new section:

‘‘SEC. 11B. ANNUAL INDEPENDENT AUDITS OF FEDERAL RESERVE

BANKS AND BOARD.

‘‘The Board shall order an annual independent audit of the

financial statements of each Federal reserve bank and the Board.’’.

SEC. 727. AUTHORIZATION TO RELEASE REPORTS.

(a) FEDERAL RESERVE ACT.—The eighth undesignated paragraph of section 9 of the Federal Reserve Act (12 U.S.C. 326)

is amended by striking the last sentence and inserting the following:

‘‘The Board of Governors of the Federal Reserve System, at its

discretion, may furnish any report of examination or other confidential supervisory information concerning any State member bank

or other entity examined under any other authority of the Board,

to any Federal or State agency or authority with supervisory or

regulatory authority over the examined entity, to any officer,

director, or receiver of the examined entity, and to any other person

that the Board determines to be proper.’’.

(b) COMMODITY FUTURES TRADING COMMISSION.—The Right to

Financial Privacy Act of 1978 (12 U.S.C. 3401 et seq.) is amended—

(1) in section 1101(7)—

(A) by redesignating subparagraphs (G) and (H) as

subparagraphs (H) and (I), respectively; and

(B) by inserting after subparagraph (F) the following

new subparagraph:

‘‘(G) the Commodity Futures Trading Commission;’’;

and

(2) in section 1112(e), by striking ‘‘and the Securities and

Exchange Commission’’ and inserting ‘‘, the Securities and

Exchange Commission, and the Commodity Futures Trading

Commission’’.

SEC. 728. GENERAL ACCOUNTING OFFICE STUDY OF CONFLICTS OF

INTEREST.

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

States shall conduct a study analyzing the conflict of interest faced

by the Board of Governors of the Federal Reserve System between

its role as a primary regulator of the banking industry and its

role as a vendor of services to the banking and financial services

industry.

(b) SPECIFIC CONFLICT REQUIRED TO BE ADDRESSED.—In the

course of the study required under subsection (a), the Comptroller

General shall address the conflict of interest faced by the Board

of Governors of the Federal Reserve System between the role of

the Board as a regulator of the payment system, generally, and

its participation in the payment system as a competitor with private

entities who are providing payment services.
S. 900—139

(c) REPORT TO THE CONGRESS.—Before the end of the 1-year

period beginning on the date of the enactment of this Act, the

Comptroller General shall submit a report to the Congress containing the findings and conclusions of the Comptroller General

in connection with the study required under this section, together

with such recommendations for such legislative or administrative

actions as the Comptroller General may determine to be appropriate, including recommendations for resolving any such conflict

of interest.

SEC. 729. STUDY AND REPORT ON ADAPTING EXISTING LEGISLATIVE

REQUIREMENTS TO ONLINE BANKING AND LENDING.

(a) STUDY REQUIRED.—The Federal banking agencies shall conduct a study of banking regulations regarding the delivery of financial services, including those regulations that may assume that

there will be person-to-person contact during the course of a financial services transaction, and report their recommendations on

adapting those existing requirements to online banking and lending.

(b) REPORT REQUIRED.—Before the end of the 2-year period

beginning on the date of the enactment of this Act, the Federal

banking agencies shall submit a report to the Congress on the

findings and conclusions of the agencies with respect to the study

required under subsection (a), together with such recommendations

for legislative or regulatory action as the agencies may determine

to be appropriate.

(c) DEFINITION.—For purposes of this section, the term ‘‘Federal

banking agencies’’ means each Federal banking agency (as defined

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

SEC. 730. CLARIFICATION OF SOURCE OF STRENGTH DOCTRINE.

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

1828) is amended by adding at the end the following new subsection:

‘‘(t) LIMITATION ON CLAIMS.— ‘‘(1) IN GENERAL.—No person may bring a claim against

any Federal banking agency (including in its capacity as conservator or receiver) for the return of assets of an affiliate or

controlling shareholder of the insured depository institution

transferred to, or for the benefit of, an insured depository

institution by such affiliate or controlling shareholder of the

insured depository institution, or a claim against such Federal

banking agency for monetary damages or other legal or equitable relief in connection with such transfer, if at the time

of the transfer—

‘‘(A) the insured depository institution is subject to

any direction issued in writing by a Federal banking agency

to increase its capital;

‘‘(B) the insured depository institution is undercapitalized (as defined in section 38 of this Act); and

‘‘(C) for that portion of the transfer that is made by

an entity covered by section 5(g) of the Bank Holding

Company Act of 1956 or section 45 of this Act, the Federal

banking agency has followed the procedure set forth in

such section.

‘‘(2) DEFINITION OF CLAIM.—For purposes of paragraph (1),

the term ‘claim’—

‘‘(A) means a cause of action based on Federal or State

law that—
S. 900—140

‘‘(i) provides for the avoidance of preferential or

fraudulent transfers or conveyances; or

‘‘(ii) provides similar remedies for preferential or

fraudulent transfers or conveyances; and

‘‘(B) does not include any claim based on actual intent

to hinder, delay, or defraud pursuant to such a fraudulent

transfer or conveyance law.’’.

SEC. 731. INTEREST RATES AND OTHER CHARGES AT INTERSTATE

BRANCHES.

Section 44 of the Federal Deposit Insurance Act (12 U.S.C.

1831u) is amended—

(1) by redesignating subsection (f) as subsection (g); and

(2) by inserting after subsection (e) the following new subsection:

‘‘(f) APPLICABLE RATE AND OTHER CHARGE LIMITATIONS.—

‘‘(1) IN GENERAL.—In the case of any State that has a

constitutional provision that sets a maximum lawful annual

percentage rate of interest on any contract at not more than

5 percent above the discount rate for 90-day commercial paper

in effect at the Federal reserve bank for the Federal reserve

district in which such State is located, except as provided

in paragraph (2), upon the establishment in such State of

a branch of any out-of-State insured depository institution in

such State under this section, the maximum interest rate or

amount of interest, discount points, finance charges, or other

similar charges that may be charged, taken, received, or

reserved from time to time in any loan or discount made or

upon any note, bill of exchange, financing transaction, or other

evidence of debt by any insured depository institution whose

home State is such State shall be equal to not more than

the greater of—

‘‘(A) the maximum interest rate or amount of interest,

discount points, finance charges, or other similar charges

that may be charged, taken, received, or reserved in a

similar transaction under the constitution or any statute

or other law of the home State of the out-of-State insured

depository institution establishing any such branch, without reference to this section, as such maximum interest

rate or amount of interest may change from time to time;

or

‘‘(B) the maximum rate or amount of interest, discount

points, finance charges, or other similar charges that may

be charged, taken, received, or reserved in a similar transaction by a State insured depository institution chartered

under the laws of such State or a national bank or Federal

savings association whose main office is located in such

State without reference to this section.

‘‘(2) RULE OF CONSTRUCTION.—No provision of this subsection shall be construed as superseding or affecting—

‘‘(A) the authority of any insured depository institution

to take, receive, reserve, and charge interest on any loan

made in any State other than the State referred to in

paragraph (1); or

‘‘(B) the applicability of section 501 of the Depository

Institutions Deregulation and Monetary Control Act of
S. 900—141

1980, section 5197 of the Revised Statutes of the United

States, or section 27 of this Act.’’.

SEC. 732. INTERSTATE BRANCHES AND AGENCIES OF FOREIGN

BANKS.

Section 5(a)(7) of the International Banking Act of 1978 (12

U.S.C. 3103(a)(7)) is amended to read as follows:

‘‘(7) ADDITIONAL AUTHORITY FOR INTERSTATE BRANCHES AND

AGENCIES OF FOREIGN BANKS, UPGRADES OF CERTAIN FOREIGN

BANK AGENCIES AND BRANCHES.—Notwithstanding paragraphs

(1) and (2), a foreign bank may—

‘‘(A) with the approval of the Board and the Comptroller of the Currency, establish and operate a Federal

branch or Federal agency or, with the approval of the

Board and the appropriate State bank supervisor, a State

branch or State agency in any State outside the foreign

bank’s home State if—

‘‘(i) the establishment and operation of such branch

or agency is permitted by the State in which the branch

or agency is to be established; and

‘‘(ii) in the case of a Federal or State branch,

the branch receives only such deposits as would be

permitted for a corporation organized under section

25A of the Federal Reserve Act; or

‘‘(B) with the approval of the Board and the relevant

licensing authority (the Comptroller in the case of a Federal

branch or the appropriate State supervisor in the case

of a State branch), upgrade an agency, or a branch of

the type referred to in subparagraph (A)(ii), located in

a State outside the foreign bank’s home State, into a Federal or State branch if—

‘‘(i) the establishment and operation of such branch

is permitted by such State; and

‘‘(ii) such agency or branch—

‘‘(I) was in operation in such State on the

day before September 29, 1994; or

‘‘(II) has been in operation in such State for

a period of time that meets the State’s minimum

age requirement permitted under section 44(a)(5)

of the Federal Deposit Insurance Act.’’.

SEC. 733. FAIR TREATMENT OF WOMEN BY FINANCIAL ADVISERS.

It is the sense of the Congress that individuals offering financial

advice and products should offer such services and products in

a nondiscriminatory, nongender-specific manner.

SEC. 734. MEMBERSHIP OF LOAN GUARANTEE BOARDS.

(a) EMERGENCY STEEL LOAN GUARANTEE BOARD.—Section

101(e) of the Emergency Steel Loan Guarantee Act of 1999 is

amended—

(1) in paragraph (2), by inserting ‘‘, or a member of the

Board of Governors of the Federal Reserve System designated

by the Chairman’’ after ‘‘the Chairman of the Board of Governors of the Federal Reserve System’’; and

(2) in paragraph (3), by inserting ‘‘, or a commissioner

of the Securities and Exchange Commission designated by the

Chairman’’ before the period.
S. 900—142

(b) EMERGENCY OIL AND GAS LOAN GUARANTEE BOARD.—Section 201(d)(2) of the Emergency Oil and Gas Guarantee Loan Program Act is amended—

(1) in subparagraph (B), by inserting ‘‘, or a member of

the Board of Governors of the Federal Reserve System designated by the Chairman’’ after ‘‘the Chairman of the Board

of Governors of the Federal Reserve System’’; and

(2) in subparagraph (C), by inserting ‘‘, or a commissioner

of the Securities and Exchange Commission designated by the

Chairman’’ before the period.

SEC. 735. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RESERVE ACT.

Section 11 of the Federal Reserve Act (12 U.S.C. 248) is

amended by striking the paragraph designated as ‘‘(m)’’ and

inserting ‘‘(m) [Repealed]’’.

SEC. 736. ELIMINATION OF SAIF AND DIF SPECIAL RESERVES.

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

Deposit Insurance Act (12 U.S.C. 1821(a)(6)) is amended by striking

subparagraph (L).

(b) DIF SPECIAL RESERVE.—Section 2704 of the Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821 note) is amended—

(1) by striking subsection (b); and

(2) in subsection (d)—

(A) by striking paragraph (4);

(B) in paragraph (6)(C)(i), by striking ‘‘(6) and (7)’’

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

(C) in paragraph (6)(C), by striking clause (ii) and

inserting the following:

‘‘(ii) by redesignating paragraph (8) as paragraph

(5).’’.

(c) EFFECTIVE DATE.—This section and the amendments made

by this section shall become effective on the date of the enactment

of this Act.

SEC. 737. BANK OFFICERS AND DIRECTORS AS OFFICERS AND DIRECTORS OF PUBLIC UTILITIES.

Section 305(b) of the Federal Power Act (16 U.S.C. 825d(b))

is amended—

(1) by striking ‘‘(b) After six’’ and inserting the following:

‘‘(b) INTERLOCKING DIRECTORATES.— ‘‘(1) IN GENERAL.—After 6’’; and

(2) by adding at the end the following:

‘‘(2) APPLICABILITY.— ‘‘(A) IN GENERAL.—In the circumstances described in

subparagraph (B), paragraph (1) shall not apply to a person

that holds or proposes to hold the positions of—

‘‘(i) officer or director of a public utility; and

‘‘(ii) officer or director of a bank, trust company,

banking association, or firm authorized by law to

underwrite or participate in the marketing of securities

of a public utility.

‘‘(B) CIRCUMSTANCES.—The circumstances described in

this subparagraph are that—

‘‘(i) a person described in subparagraph (A) does

not participate in any deliberations or decisions of

the public utility regarding the selection of a bank,
S. 900—143

trust company, banking association, or firm to underwrite or participate in the marketing of securities of

the public utility, if the person serves as an officer

or director of a bank, trust company, banking association, or firm that is under consideration in the deliberation process;

‘‘(ii) the bank, trust company, banking association,

or firm of which the person is an officer or director

does not engage in the underwriting of, or participate

in the marketing of, securities of the public utility

of which the person holds the position of officer or

director;

‘‘(iii) the public utility for which the person serves

or proposes to serve as an officer or director selects

underwriters by competitive procedures; or

‘‘(iv) the issuance of securities of the public utility

for which the person serves or proposes to serve as

an officer or director has been approved by all Federal

and State regulatory agencies having jurisdiction over

the issuance.’’.

SEC. 738. APPROVAL FOR PURCHASES OF SECURITIES.

Section 23B(b)(2) of the Federal Reserve Act (12 U.S.C. 371c–

1) is amended to read as follows:

‘‘Subparagraph (B) of paragraph (1) shall not apply if the purchase or acquisition of such securities has been approved, before

such securities are initially offered for sale to the public, by a

majority of the directors of the bank based on a determination

that the purchase is a sound investment for the bank irrespective

of the fact that an affiliate of the bank is a principal underwriter

of the securities.’’.

SEC. 739. OPTIONAL CONVERSION OF FEDERAL SAVINGS ASSOCIATIONS.

Section 5(i) of the Home Owners’ Loan Act (12 U.S.C. 1464(i))

is amended by adding at the end the following new paragraph:

‘‘(5) CONVERSION TO NATIONAL OR STATE BANK.— ‘‘(A) IN GENERAL.—Any Federal savings association

chartered and in operation before the date of the enactment

of the Gramm-Leach-Bliley Act, with branches in operation

before such date of enactment in 1 or more States, may

convert, at its option, with the approval of the Comptroller

of the Currency or the appropriate State bank supervisor,

into 1 or more national or State banks, each of which

may encompass 1 or more of the branches of the Federal

savings association in operation before such date of enactment in 1 or more States, but only if each resulting national

or State bank will meet all financial, management, and

capital requirements applicable to the resulting national

or State bank.

‘‘(B) DEFINITIONS.—For purposes of this paragraph, the

terms ‘State bank’ and ‘State bank supervisor’ have the

meanings given those terms in section 3 of the Federal

Deposit Insurance Act.’’.

SEC. 740. GRAND JURY PROCEEDINGS.

Section 3322(b) of title 18, United States Code, is amended—
S. 900—144

(1) in paragraph (1), by inserting ‘‘Federal or State’’ before

‘‘financial institution’’; and

(2) in paragraph (2), by inserting ‘‘at any time during

or after the completion of the investigation of the grand jury,’’

before ‘‘upon’’.

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.