Calendar No. 94

106TH CONGRESS

1ST SESSION S. 900

[Report No. 106–44]

A BILL

To enhance competition in the financial services inviders, and for other purposes. ance companies, and other financial service pro- the affiliation of banks, securities firms, insur- dustry by providing a prudential framework for

APRIL 28, 1999

Read twice and placed on the calendar
II

Calendar No. 94

106TH CONGRESS

1ST SESSION S. 900

[Report No. 106–44]

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.

IN THE SENATE OF THE UNITED STATES

APRIL 28, 1999

Mr. GRAMM, from the Committee on Banking, Housing, and Urban Affairs,

reported the following original bill, which was read twice and placed on

the calendar

A BILL

To enhance competition in the financial services industry

by providing a prudential framework for the affiliation

of banks, securities firms, insurance companies, and

other financial service providers, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

2 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—FACILITATING AFFILIATION AMONG BANKS,

SECURITIES FIRMS, AND INSURANCE COMPANIES

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act repealed.

Sec. 102. Financial activities.

Sec. 103. Conforming amendments.

Sec. 104. Operation of State law.

Subtitle B—Streamlining Supervision of Bank Holding Companies

Sec. 111. Streamlining bank holding company supervision.

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

Commission.

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

Sec. 114. Examination of investment companies.

Sec. 115. Equivalent regulation and supervision.

Sec. 116. Interagency consultation.

Sec. 117. Preserving the integrity of FDIC resources.

Subtitle C—Activities of National Banks

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

Sec. 122. Subsidiaries of national banks.

Sec. 123. Agency activities.

Sec. 124. Prohibiting fraudulent representations.

Sec. 125. Insurance underwriting by national banks.

Subtitle D—National Treatment of Foreign Financial Institutions

Sec. 151. National treatment of foreign financial institutions.

Sec. 152. Representative offices.

TITLE II—INSURANCE CUSTOMER PROTECTIONS

Sec. 201. Functional regulation of insurance.

Sec. 202. Insurance customer protections.

Sec. 203. Federal and State dispute resolution.

TITLE III—REGULATORY IMPROVEMENTS

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

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

Sec. 303. Meaningful CRA examinations.

Sec. 304. Temporary extension of Bank Insurance Fund member FICO assessment rates.

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

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

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

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

Sec. 310. Control of bankers banks.

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

TITLE IV—FEDERAL HOME LOAN BANK SYSTEM

MODERNIZATION

Sec. 401. Short title.

Sec. 402. Definitions.

Sec. 403. Savings association membership.

Sec. 404. Advances to members; collateral.

Sec. 405. Eligibility criteria.

Sec. 406. Management of banks.

Sec. 407. Resolution Funding Corporation.

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

TITLE V—FUNCTIONAL REGULATION OF BROKERS AND

DEALERS

Sec. 501. Definition of broker.

Sec. 502. Definition of dealer.

Sec. 503. Definition and treatment of banking products.

Sec. 504. Qualified investor defined.

Sec. 505. Government securities defined.

Sec. 506. Effective date.

Sec. 507. Rule of construction.

TITLE VI—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 601. Prohibition on new unitary savings and loan holding companies.

1 TITLE I—FACILITATING AFFILI2 ATION AMONG BANKS, SECU3 RITIES FIRMS, AND INSUR4 ANCE COMPANIES

5 Subtitle A—Affiliations

6 SEC. 101. GLASS-STEAGALL ACT REPEALED.

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

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

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

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

11 Banking Act of 1933 (12 U.S.C. 78) is repealed.
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1 SEC. 102. FINANCIAL ACTIVITIES.

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

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

4 adding at the end the following new subsections:

5 ‘‘(k) ENGAGING IN ACTIVITIES THAT ARE FINAN6 CIAL IN NATURE.—

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

8 (a), a bank holding company may engage in any ac9 tivity, and may acquire and retain the shares of any

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

11 coordination with the Secretary of the Treasury, de12 termines (by regulation or order) to be financial in

13 nature or incidental to such financial activities.

14 ‘‘(2) COORDINATION BETWEEN THE BOARD

15 AND THE SECRETARY OF THE TREASURY.—

16 ‘‘(A) PROPOSALS RAISED BEFORE THE

17 BOARD.—

18 ‘‘(i) CONSULTATION.—The Board

19 shall notify the Secretary of the Treasury

20 of, and consult with the Secretary of the

21 Treasury concerning, any request, pro22 posal, or application under this subsection

23 for a determination of whether an activity

24 is financial in nature or incidental to such

25 a financial activity.
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1 ‘‘(ii) TREASURY VIEW.—The Board

2 shall not determine that any activity is fi3 nancial in nature or incidental to a finan4 cial activity under this subsection if the

5 Secretary of the Treasury notifies the

6 Board in writing, not later than 30 days

7 after the date of receipt of the notice de8 scribed in clause (i) (or such longer period

9 as the Board determines to be appropriate

10 in light of the circumstances) that the Sec11 retary of the Treasury believes that the ac12 tivity is not financial in nature or inci13 dental to a financial activity.

14 ‘‘(B) PROPOSALS RAISED BY THE TREAS15 URY.—

16 ‘‘(i) TREASURY RECOMMENDATION.—

17 The Secretary of the Treasury may, at any

18 time, recommend in writing that the Board

19 find an activity to be financial in nature or

20 incidental to a financial activity.

21 ‘‘(ii) TIME PERIOD FOR BOARD AC22 TION.—Not later than 30 days after the

23 date of receipt of a written recommenda24 tion from the Secretary of the Treasury

25 under clause (i) (or such longer period as
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1 the Secretary of the Treasury and the

2 Board determine to be appropriate in light

3 of the circumstances), the Board shall de4 termine whether to initiate a public rule5 making proposing that the subject rec6 ommended activity be found to be financial

7 in nature or incidental to a financial activ8 ity under this subsection, and shall notify

9 the Secretary of the Treasury in writing of

10 the determination of the Board and, in the

11 event that the Board determines not to

12 seek public comment on the proposal, the

13 reasons for that determination.

14 ‘‘(3) FACTORS TO BE CONSIDERED.—The

15 Board shall determine that an activity is financial in

16 nature or incidental to financial activities, if the

17 Board finds that such activity is consistent with—

18 ‘‘(A) the purposes of this Act and the Fi19 nancial Services Modernization Act of 1999;

20 ‘‘(B) changes or reasonably expected

21 changes in the marketplace in which bank hold22 ing companies compete;

23 ‘‘(C) changes or reasonably expected

24 changes in the technology for delivering finan25 cial services; and
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1 ‘‘(D) fostering—

2 ‘‘(i) effective competition with any

3 company seeking to provide financial serv4 ices in the United States;

5 ‘‘(ii) the efficient delivery of informa6 tion and services that are financial in na7 ture through the use of technological

8 means, including any application necessary

9 to protect the security or efficacy of sys10 tems for the transmission of data or finan11 cial transactions; and

12 ‘‘(iii) the provision to customers of

13 any available or emerging technological

14 means for using financial services.

15 ‘‘(4) ACTIVITIES THAT ARE FINANCIAL IN NA16 TURE.—For purposes of this subsection, the fol17 lowing activities shall be considered to be financial

18 in nature:

19 ‘‘(A) Lending, exchanging, transferring, in20 vesting for others, or safeguarding money or se21 curities.

22 ‘‘(B) Insuring, guaranteeing, or indem23 nifying against loss, harm, damage, illness, dis24 ability, or death, or providing and issuing annu25 ities, and acting as principal, agent, or broker
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1 for purposes of the foregoing, in any State, in

2 full compliance with the laws and regulations of

3 that State that apply to each type of insurance

4 license or authorization in that State.

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

6 economic advisory services, including advising

7 an investment company (as defined in section 3

8 of the Investment Company Act of 1940).

9 ‘‘(D) Issuing or selling instruments rep10 resenting interests in pools of assets permissible

11 for a bank to hold directly.

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

13 a market in securities.

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

15 Board has determined, by order or regulation

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

17 Financial Services Modernization Act of 1999,

18 to be so closely related to banking or managing

19 or controlling banks as to be a proper incident

20 thereto (subject to the same terms and condi21 tions contained in such order or regulation, un22 less modified by the Board).

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

24 any activity that—
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1 ‘‘(i) a bank holding company may en2 gage in outside of the United States; and

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

4 regulations issued pursuant to subsection

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

6 date of enactment of the Financial Services

7 Modernization Act of 1999) to be usual in

8 connection with the transaction of banking

9 or other financial operations abroad.

10 ‘‘(H) Directly or indirectly acquiring or

11 controlling, whether as principal, on behalf of 1

12 or more entities (including entities, other than

13 a depository institution or subsidiary of a de14 pository institution that the bank holding com15 pany controls), or otherwise, shares, assets, or

16 ownership interests (including debt or equity se17 curities, partnership interests, trust certificates,

18 or other instruments representing ownership) of

19 a company or other entity, whether or not con20 stituting control of such company or entity, en21 gaged in any activity not authorized pursuant

22 to this section if—

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

24 interests are not acquired or held by a de-
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1 pository institution or subsidiary of a de2 pository institution; and

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

4 interests are acquired and held by a securi5 ties affiliate or an affiliate thereof as part

6 of a bona fide underwriting or merchant

7 banking activity, including investment ac8 tivities engaged in for the purpose of ap9 preciation and ultimate resale or disposi10 tion of the investment.

11 ‘‘(I) Directly or indirectly acquiring or con12 trolling, whether as principal, on behalf of 1 or

13 more entities (including entities, other than a

14 depository institution or subsidiary of a deposi15 tory institution, that the bank holding company

16 controls), or otherwise, shares, assets, or owner17 ship interests (including debt or equity securi18 ties, partnership interests, trust certificates or

19 other instruments representing ownership) of a

20 company or other entity, whether or not consti21 tuting control of such company or entity, en22 gaged in any activity not authorized pursuant

23 to this section if—

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

25 interests are not acquired or held by a de-
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1 pository institution or a subsidiary of a de2 pository institution;

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

4 interests are acquired and held by an in5 surance company that is predominantly en6 gaged in underwriting life, accident and

7 health, or property and casualty insurance

8 (other than credit-related insurance) or

9 providing and issuing annuities; and

10 ‘‘(iii) such shares, assets, or owner11 ship interests represent an investment

12 made in the ordinary course of business of

13 such insurance company in accordance

14 with relevant State law governing such in15 vestments.

16 ‘‘(J) Activities that the Board determines

17 (by regulation or order) are complementary to

18 financial activities, or any other service that the

19 Board determines (by regulation or order) not

20 to pose a substantial risk to the safety or

21 soundness of depository institutions or the fi22 nancial system generally.

23 ‘‘(5) ACTIONS REQUIRED.—

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

25 regulation or order, define, consistent with the
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1 purposes of this Act, the activities described in

2 subparagraph (B) as financial in nature, and

3 the extent to which such activities are financial

4 in nature or incidental to activities that are fi5 nancial in nature.

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

7 in this subparagraph are—

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

9 investing for others, or safeguarding finan10 cial assets other than money or securities;

11 ‘‘(ii) providing any device or other in12 strumentality for transferring money or

13 other financial assets;

14 ‘‘(iii) arranging, effecting, or facili15 tating financial transactions for the ac16 count of third parties; and

17 ‘‘(iv) activities that are complemen18 tary to financial activities, or any other

19 service that the Board determines (by reg20 ulation or order) not to pose a substantial

21 risk to the safety or soundness of deposi22 tory institutions or the financial system

23 generally.

24 ‘‘(6) REQUIRED NOTIFICATION.—
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1 ‘‘(A) IN GENERAL.—A bank holding com2 pany that acquires any company or commences

3 any activity pursuant to this subsection shall

4 provide written notice to the Board describing

5 the activity commenced or conducted by the

6 company acquired not later than 30 calendar

7 days after commencing the activity or consum8 mating the acquisition, as applicable.

9 ‘‘(B) APPROVAL NOT REQUIRED FOR CER10 TAIN FINANCIAL ACTIVITIES.—Except as pro11 vided in subsection (j) with regard to the acqui12 sition of a savings association, a bank holding

13 company may commence any activity, or ac14 quire any company, pursuant to paragraph (4)

15 or any regulation prescribed or order issued

16 under paragraph (5), without prior approval of

17 the Board.

18 ‘‘(l) CONDITIONS FOR ENGAGING IN EXPANDED FI19 NANCIAL ACTIVITIES.—

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

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

22 activity, or directly or indirectly acquire or retain

23 shares of any company engaged in any activity,

24 under subsection (k), other than activities permis-
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1 sible for a bank holding company under subsection

2 (c)(8), unless—

3 ‘‘(A) all of the insured depository institu4 tion subsidiaries of the bank holding company

5 are well capitalized;

6 ‘‘(B) all of the insured depository institu7 tion subsidiaries of the bank holding company

8 are well managed; and

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

10 with the Board—

11 ‘‘(i) a declaration that the company

12 elects to engage in activities or acquire and

13 retain shares of a company which were not

14 permissible for a bank holding company to

15 engage in or acquire before the enactment

16 of the Financial Services Modernization

17 Act of 1999; and

18 ‘‘(ii) a certification that the company

19 meets the requirements of subparagraphs

20 (A) and (B).

21 ‘‘(2) FOREIGN BANKS.—For purposes of para22 graph (1), the Board shall apply comparable capital

23 and management standards to a foreign bank that

24 operates a branch or agency or owns or controls a

25 commercial lending company in the United States,
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1 giving due regard to the principle of national treat2 ment and equality of competitive opportunity.

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

4 subsection—

5 ‘‘(A) the term ‘well capitalized’ has the

6 same meaning as in section 38 of the Federal

7 Deposit Insurance Act;

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

9 ‘‘(i) in the case of a depository insti10 tution that has been examined, unless oth11 erwise determined in writing by the appro12 priate Federal banking agency—

13 ‘‘(I) the achievement of a com14 posite rating of 1 or 2 under the Uni15 form Financial Institutions Rating

16 System (or an equivalent rating under

17 an equivalent rating system) in con18 nection with the most recent examina19 tion or subsequent review of the de20 pository institution; and

21 ‘‘(II) at least a rating of 2 for

22 management, if that rating is given;

23 ‘‘(ii) in the case of any depository in24 stitution that has not been examined, the

25 existence and use of managerial resources
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1 that the appropriate Federal banking agen2 cy determines are satisfactory; and

3 ‘‘(iii) the terms ‘appropriate Federal

4 banking agency’ and ‘depository institu5 tion’ have the same meanings as in section

6 3 of the Federal Deposit Insurance Act.

7 ‘‘(m) PROVISIONS APPLICABLE TO BANK HOLDING

8 COMPANIES THAT FAIL TO MEET CERTAIN REQUIRE9 MENTS.—

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

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

12 directly or indirectly, in any activity under sub13 section (k), other than activities that are per14 missible for a bank holding company under sub15 section (c)(8); and

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

17 compliance with the requirements of subsection

18 (l),

19 the Board shall give notice to the bank holding com20 pany to that effect, describing the conditions giving

21 rise to the notice.

22 ‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE23 QUIRED.—Not later than 45 days after the date of

24 receipt by a bank holding company of a notice given

25 under paragraph (1) (or such additional period as
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1 the Board may permit), the bank holding company

2 shall execute an agreement with the Board to com3 ply with the requirements applicable to a bank hold4 ing company under subsection (l).

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

6 the conditions described in a notice to a bank hold7 ing company under paragraph (1) are corrected, the

8 Board may impose such limitations on the conduct

9 or activities of that bank holding company or any af10 filiate of that company as the Board determines to

11 be appropriate under the circumstances and con12 sistent with the purposes of this Act.

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

14 described in a notice to a bank holding company

15 under paragraph (1) are not corrected within 180

16 days after the date of receipt by the bank holding

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

18 may require such bank holding company, under such

19 terms and conditions as may be imposed by the

20 Board and subject to such extension of time as may

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

22 ‘‘(A) to divest control of any subsidiary in23 sured depository institutions; or

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

25 conducted by such bank holding company or its
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1 subsidiaries (other than a depository institution

2 or a subsidiary of a depository institution) that

3 is not an activity that is permissible for a bank

4 holding company under subsection (c)(8).

5 ‘‘(n) AUTHORITY TO RETAIN COMMODITY ACTIVI6 TIES AND AFFILIATIONS.—Notwithstanding subsection

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

8 a foreign bank (as defined in section 1(b)(7) of the Inter9 national Banking Act of 1978) and becomes a bank hold10 ing company after the date of enactment of the Financial

11 Services Modernization Act of 1999, may continue to en12 gage in, or directly or indirectly own or control shares of

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

14 sale, or investment in commodities and underlying phys15 ical properties that were not permissible for bank holding

16 companies to conduct in the United States as of Sep17 tember 30, 1997, if—

18 ‘‘(1) the bank holding company, or any sub19 sidiary of the bank holding company, lawfully was

20 engaged, directly or indirectly, in any of such activi21 ties as of September 30, 1997, in the United States;

22 and

23 ‘‘(2) the bank holding company is predomi24 nantly engaged in activities that are financial in na-
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1 ture or incidental thereto, as determined under para2 graph (4) of subsection (k).’’.

3 (b) FINANCIAL ACTIVITIES OF BANK HOLDING COM4 PANIES INELIGIBLE FOR SUBSECTION (k) POWERS.—

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

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

7 1843(c)(8)) is amended to read as follows:

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

9 which had been determined by the Board by regula10 tion or order under this paragraph as of the day be11 fore the date of enactment of the Financial Services

12 Modernization Act of 1999, to be so closely related

13 to banking as to be a proper incident thereto (sub14 ject to such terms and conditions contained in such

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

16 (2) CONFORMING CHANGES TO OTHER STAT17 UTES.—

18 (A) AMENDMENT TO THE BANK HOLDING

19 COMPANY ACT AMENDMENTS OF 1970.—Section

20 105 of the Bank Holding Company Act Amend21 ments of 1970 (12 U.S.C. 1850) is amended by

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

23 nonbanking activity pursuant to section 4 of

24 such Act,’’.
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1 (B) AMENDMENT TO THE BANK SERVICE

2 COMPANY ACT.—Section 4(f) of the Bank Serv3 ice Company Act (12 U.S.C. 1864(f)) is amend4 ed by striking the period at the end and insert5 ing the following: ‘‘as of the day before the date

6 of enactment of the Financial Services Mod7 ernization Act of 1999.’’.

8 SEC. 103. CONFORMING AMENDMENTS.

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

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

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

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

13 of the Bank Holding Company Act of 1956, or

14 which’’ after ‘‘(i) which’’; and

15 (2) by striking ‘‘section 4(c)’’ and inserting

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

17 SEC. 104. OPERATION OF STATE LAW.

18 (a) STATE REGULATION OF THE BUSINESS OF IN19 SURANCE.—The Act entitled ‘‘An Act to express the intent

20 of Congress with reference to the regulation of the busi21 ness of insurance’’ and approved March 9, 1945 (15

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

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

24 States.
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1 (b) MANDATORY INSURANCE LICENSING REQUIRE2 MENTS.—No person or entity shall provide insurance in

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

4 is licensed, as required by the appropriate insurance regu5 lator of such State in accordance with the relevant State

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

7 (c) AFFILIATIONS.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), no State may, by statute, regulation,

10 order, interpretation, or other action, prevent or re11 strict the affiliations authorized or permitted by this

12 Act and the amendments made by this Act.

13 (2) INSURANCE.—With respect to affiliations

14 between insured depository institutions, or any sub15 sidiary or affiliate thereof, and persons or entities

16 engaged in the business of insurance, paragraph (1)

17 does not prohibit any State from collecting, review18 ing, and taking actions on required applications and

19 other documents or reports as may be necessary con20 cerning proposed acquisitions, changes, or continu21 ations of control of any entity engaged in the busi22 ness of insurance and domiciled in that State, if the

23 State actions do not have the practical effect of dis24 criminating, either intentionally or unintentionally,

25 against an insured depository institution or a sub-
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1 sidiary or affiliate thereof, or against any person or

2 entity based upon affiliation with an insured deposi3 tory institution.

4 (d) ACTIVITIES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (3), and except with respect to insurance

7 sales, solicitation, and cross marketing activities,

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

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

10 other action, prevent or restrict an insured deposi11 tory institution or subsidiary or affiliate thereof

12 from engaging directly or indirectly, either by itself

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

14 other entity or person, in any activity authorized or

15 permitted under this Act and the amendments made

16 by this Act.

17 (2) INSURANCE SALES.—

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

19 legal standards for preemption set forth in the

20 decision of the Supreme Court of the United

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

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

23 may, by statute, regulation, order, interpreta24 tion, or other action, prevent or significantly

25 interfere with the ability of an insured deposi-
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1 tory institution, or a subsidiary or affiliate

2 thereof, to engage, directly or indirectly, either

3 by itself or in conjunction with a subsidiary, af4 filiate, or any other party, in any insurance

5 sales, solicitation, or cross-marketing activity.

6 (B) CERTAIN STATE LAWS PRESERVED.—

7 Notwithstanding subparagraph (A), a State

8 may impose any of the following restrictions, or

9 restrictions that are substantially the same as

10 but no more burdensome or restrictive than

11 those in each of the following clauses:

12 (i) Restrictions prohibiting the rejec13 tion of an insurance policy solely because

14 the policy has been issued or underwritten

15 by any person not associated with such in16 sured depository institution, or any sub17 sidiary or affiliate thereof, when such in18 surance is required in connection with a

19 loan or extension of credit.

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

22 agent or broker to pay a separate charge

23 in connection with the handling of insur24 ance that is required in connection with a

25 loan or other extension of credit or the
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1 provision of another traditional banking

2 product, unless such charge would be re3 quired when the insured depository institu4 tion, or any subsidiary or affiliate thereof,

5 is the licensed insurance agent or broker

6 providing the insurance.

7 (iii) Restrictions prohibiting the use of

8 any advertisement or other insurance pro9 motional material by an insured depository

10 institution, or any subsidiary or affiliate

11 thereof, that would cause a reasonable per12 son to believe mistakenly that—

13 (I) a State or the Federal Gov14 ernment is responsible for the insur15 ance sales activities of, or stands be16 hind the credit of, the institution, af17 filiate, or subsidiary; or

18 (II) a State, or the Federal Gov19 ernment guarantees any returns on

20 insurance products, or is a source of

21 payment on any insurance obligation

22 of or sold by the institution, affiliate,

23 or subsidiary.

24 (iv) Restrictions prohibiting the pay25 ment or receipt of any commission or bro-
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1 kerage fee or other valuable consideration

2 for services as an insurance agent or

3 broker to or by any person, unless such

4 person holds a valid State license regard5 ing the applicable class of insurance at the

6 time at which the services are performed,

7 except that, in this clause, the term ‘‘serv8 ices as an insurance agent or broker’’ does

9 not include a referral by an unlicensed per10 son of a customer or potential customer to

11 a licensed insurance agent or broker that

12 does not include a discussion of specific in13 surance policy terms and conditions.

14 (v) Restrictions prohibiting any com15 pensation paid to or received by any indi16 vidual who is not licensed to sell insurance

17 for the referral of a customer that seeks to

18 purchase, or seeks an opinion or advice on,

19 any insurance product to a person that

20 sells or provides opinions or advice on such

21 product, based on the purchase of insur22 ance by the customer.

23 (vi) Restrictions prohibiting the re24 lease of the insurance information of a cus25 tomer (defined as information concerning
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1 the premiums, terms, and conditions of in2 surance coverage, including expiration

3 dates and rates, and insurance claims of a

4 customer contained in the records of the

5 insured depository institution, or a sub6 sidiary or affiliate thereof) to any person

7 or entity other than an officer, director,

8 employee, agent, subsidiary, or affiliate of

9 an insured depository institution, for the

10 purpose of soliciting or selling insurance,

11 without the express consent of the cus12 tomer, other than a provision that

13 prohibits—

14 (I) a transfer of insurance infor15 mation to an unaffiliated insurance

16 company, agent, or broker in connec17 tion with transferring insurance in

18 force on existing insureds of the in19 sured depository institution, or sub20 sidiary or affiliate thereof, or in con21 nection with a merger with or acquisi22 tion of an unaffiliated insurance com23 pany, agent, or broker; or
27

•S 900 PCS

1 (II) the release of information as

2 otherwise authorized by Federal or

3 State law.

4 (vii) Restrictions prohibiting the use

5 of health information obtained from the in6 surance records of a customer for any pur7 pose, other than for its activities as a li8 censed agent or broker, without the ex9 press consent of the customer.

10 (viii) Restrictions prohibiting the ex11 tension of credit (or any product or service

12 that is equivalent to an extension of cred13 it), lease or sale of property of any kind,

14 or furnishing of any services or fixing or

15 varying the consideration for any of the

16 foregoing, on the condition or requirement

17 that the customer obtain insurance from

18 the insured depository institution, a sub19 sidiary or affiliate thereof, or a particular

20 insurer, agent, or broker, other than a pro21 hibition that would prevent any insured de22 pository institution, or any subsidiary or

23 affiliate thereof—

24 (I) from engaging in any activity

25 that would not violate section 106 of
28

•S 900 PCS

1 the Bank Holding Company Act

2 Amendments of 1970, as interpreted

3 by the Board of Governors of the Fed4 eral Reserve System; or

5 (II) from informing a customer

6 or prospective customer that insur7 ance is required in order to obtain a

8 loan or credit, that loan or credit ap9 proval is contingent upon the procure10 ment by the customer of acceptable

11 insurance, or that insurance is avail12 able from the insured depository insti13 tution, or any subsidiary or affiliate

14 thereof.

15 (ix) Restrictions requiring, when an

16 application by a customer for a loan or

17 other extension of credit from an insured

18 depository institution is pending, and in19 surance is offered or sold to the customer

20 or is required in connection with the loan

21 or extension of credit by the insured depos22 itory institution or any subsidiary or affil23 iate thereof, that a written disclosure be

24 provided to the customer or prospective

25 customer indicating that his or her choice
29

•S 900 PCS

1 of an insurance provider will not affect the

2 credit decision or credit terms in any way,

3 except that the insured depository institu4 tion may impose reasonable requirements

5 concerning the creditworthiness of the in6 surance provider and scope of coverage

7 chosen.

8 (x) Restrictions, requiring clear and

9 conspicuous disclosure, in writing where

10 practicable, to the customer prior to the

11 sale of any insurance policy that such

12 policy—

13 (I) is not a deposit;

14 (II) is not insured by the Federal

15 Deposit Insurance Corporation;

16 (III) is not guaranteed by the in17 sured depository institution or, if ap18 propriate, its subsidiaries or affiliates

19 or any person soliciting the purchase

20 of or selling insurance on the premises

21 thereof; and

22 (IV) where appropriate, involves

23 investment risk, including potential

24 loss of principal.
30

•S 900 PCS

1 (xi) Restrictions requiring that, when

2 a customer obtains insurance (other than

3 credit insurance or flood insurance) and

4 credit from an insured depository institu5 tion or its subsidiaries or affiliates, or any

6 person soliciting the purchase of or selling

7 insurance on the premises thereof, the

8 credit and insurance transactions be com9 pleted through separate documents.

10 (xii) Restrictions prohibiting, when a

11 customer obtains insurance (other than

12 credit insurance or flood insurance) and

13 credit from an insured depository institu14 tion or its subsidiaries or affiliates, or any

15 person soliciting the purchase of or selling

16 insurance on the premises thereof, inclu17 sion of the expense of insurance premiums

18 in the primary credit transaction without

19 the express written consent of the cus20 tomer.

21 (xiii) Restrictions requiring—

22 (I) maintenance of separate and

23 distinct books and records relating to

24 insurance transactions, including all
31

•S 900 PCS

1 files relating to and reflecting cus2 tomer complaints; and

3 (II) that such insurance books

4 and records be made available to the

5 appropriate State insurance regulator

6 for inspection upon reasonable notice.

7 (C) LIMITATIONS.—

8 (i) OCC DEFERENCE.—Section 203(e)

9 does not apply with respect to any State

10 statute, regulation, order, interpretation,

11 or other action regarding insurance sales,

12 solicitation, or cross marketing activities

13 described in subparagraph (A) that was

14 issued, adopted, or enacted before Sep15 tember 3, 1998, and that is not described

16 in subparagraph (B).

17 (ii) NONDISCRIMINATION.—Subsection

18 (e) does not apply with respect to any

19 State statute, regulation, order, interpreta20 tion, or other action regarding insurance

21 sales, solicitation, or cross marketing ac22 tivities described in subparagraph (A) that

23 was issued, adopted, or enacted before

24 September 3, 1998, and that is not de25 scribed in subparagraph (B).
32

•S 900 PCS

1 (iii) CONSTRUCTION.—Nothing in this

2 paragraph shall be construed—

3 (I) to limit the applicability of

4 the decision of the Supreme Court in

5 Barnett Bank of Marion County N.A.

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

7 with respect to any State statute, reg8 ulation, order, interpretation, or other

9 action that is not referred to or de10 scribed in this paragraph; or

11 (II) to create any inference with

12 respect to any State statute, regula13 tion, order, interpretation, or other

14 action that is not referred to in this

15 paragraph.

16 (3) INSURANCE ACTIVITIES OTHER THAN

17 SALES.—State statutes, regulations, interpretations,

18 orders, and other actions shall not be preempted

19 under paragraph (1) to the extent that they—

20 (A) relate to, or are issued, adopted, or en21 acted for the purpose of regulating the business

22 of insurance in accordance with the Act of

23 March 9, 1945 (commonly known as the

24 ‘‘McCarran-Ferguson Act’’);
33

•S 900 PCS

1 (B) apply only to persons or entities that

2 are not insured depository institutions, but that

3 are directly engaged in the business of insur4 ance (except that they may apply to depository

5 institutions engaged in providing savings bank

6 life insurance as principal to the extent of regu7 lating such insurance);

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

9 regulate insurance sales, solicitations, or cross

10 marketing activities; and

11 (D) are not prohibited under subsection

12 (e).

13 (4) FINANCIAL ACTIVITIES OTHER THAN INSUR14 ANCE.—No State statute, regulation, interpretation,

15 order, or other action shall be preempted under

16 paragraph (1) to the extent that—

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

18 and adopted, or enacted for the purpose of reg19 ulating, directly or indirectly, insurance sales,

20 solicitations, or cross marketing activities cov21 ered under paragraph (2);

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

23 and adopted, or enacted for the purpose of reg24 ulating, directly or indirectly, the business of in25 surance activities other than sales, solicitations,
34

•S 900 PCS

1 or cross marketing activities, covered under

2 paragraph (3);

3 (C) it does not relate to securities inves4 tigations or enforcement actions referred to in

5 subsection (f); and

6 (D) it is not prohibited under subsection

7 (e).

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

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

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

11 action, regulate the activities authorized or permitted

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

13 or any other provision of Federal law, of an insured depos14 itory institution, or subsidiary or affiliate thereof, to the

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

16 or other action—

17 (1) distinguishes by its terms between insured

18 depository institutions, or subsidiaries or affiliates

19 thereof, and other persons or entities engaged in

20 such activities, in a manner that is in any way ad21 verse to any such insured depository institution, or

22 subsidiary or affiliate thereof;

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

24 an impact on insured depository institutions, or sub25 sidiaries or affiliates thereof, that is substantially
35

•S 900 PCS

1 more adverse than its impact on other persons or

2 entities providing the same products or services or

3 engaged in the same activities that are not insured

4 depository institutions, or subsidiaries or affiliates

5 thereof, or persons or entities affiliated therewith;

6 (3) effectively prevents an insured depository

7 institution, or subsidiary or affiliate thereof, from

8 engaging in activities authorized or permitted by this

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

10 other provision of Federal law; or

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

12 amendments made by this Act generally to permit

13 affiliations that are authorized or permitted by Fed14 eral law.

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

16 be construed to affect—

17 (1) the jurisdiction of the securities commission

18 (or any agency or office performing like functions)

19 of any State, under the laws of that State, to inves20 tigate and bring enforcement actions, consistent with

21 section 18(c) of the Securities Act of 1933, with re22 spect to fraud or deceit or unlawful conduct by any

23 person, in connection with securities or securities

24 transactions; or
36

•S 900 PCS

1 (2) State laws, regulations, orders, interpreta2 tions, or other actions of general applicability relat3 ing to the governance of corporations, partnerships,

4 limited liability companies, or other business associa5 tions incorporated or formed under the laws of that

6 State or domiciled in that State, or the applicability

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

8 that is similar to the antitrust laws if such laws, reg9 ulations, interpretations, orders, or other actions are

10 not inconsistent with the purposes of this Act to au11 thorize or permit certain affiliations and to remove

12 barriers to such affiliations.

13 (g) CERTAIN STATE AFFILIATION LAWS PREEMPTED

14 FOR INSURANCE COMPANIES AND AFFILIATES.—Except

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

16 regulation, order, interpretation, or otherwise—

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

18 or any affiliate of an insurer (whether such affiliate

19 is organized as a stock company, mutual holding

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

21 company, or to acquire control of an insured deposi22 tory institution, where the practical effect of such

23 State action would be to discriminate, intentionally

24 or unintentionally, against an insurer, or any affil-
37

•S 900 PCS

1 iate of an insurer, based upon its affiliation with an

2 insured depository institution;

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

4 that may be invested in the voting securities of an

5 insured depository institution (or any company that

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

7 State of domicile of the insurer may limit the

8 amount of such investment to an amount that is not

9 less than 5 percent of the admitted assets of the in10 surer; or

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

12 review, approve, or disapprove a plan of reorganiza13 tion by which an insurer proposes to reorganize from

14 mutual form to become a stock insurer (whether as

15 a direct or indirect subsidiary of a mutual holding

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

17 of domicile of the insurer, except that the appro18 priate regulatory authority of the State of domicile

19 of the insurer shall consult with the appropriate reg20 ulatory authority in other States in which the in21 surer conducts business, regarding issues affecting

22 the best interests of policyholders.

23 (h) MOTOR VEHICLE RENTAL AGENCY ACTIVI24 TIES.—

25 (1) FINDINGS.—Congress finds that—
38

•S 900 PCS

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

2 unclear as to whether personal insurance sales

3 in connection with the short-term rental or leas4 ing of motor vehicles should be licensed by the

5 State as an insurance activity; and

6 (B) in those States that have not yet im7 plemented regulations governing the offer or

8 sale of insurance in connection with the short9 term lease or rental of a motor vehicle, a pre10 sumption should exist that no insurance license

11 is required in connection with such sales.

12 (2) EXCEPTION FOR CERTAIN INSURANCE

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

14 person or entity who offers or provides insurance an15 cillary to a short-term lease or rental transaction of

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

17 rule, or regulation, impose any licensing, appoint18 ment, personal or corporate qualifications, or edu19 cation requirements on such persons or entities.

20 (3) CONSTRUCTION.—Nothing in this sub21 section shall be construed to alter the validity or ef22 fect of any State law, or the prospective application

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

24 by its specific terms, expressly regulates or exempts

25 from regulation any person or entity who offers or
39

•S 900 PCS

1 provides insurance ancillary to a short-term lease or

2 rental transaction of a motor vehicle.

3 (4) LEASE PERIOD.—For purposes of this sub4 section, a person shall be considered to be providing

5 insurance ancillary to a short-term lease or rental

6 transaction of a motor vehicle if the lease or rental

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

8 is provided for a period of consecutive days not ex9 ceeding the length of the lease or rental.

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

11 effect during the period beginning on the date of en12 actment of this Act and ending 5 years after that

13 date of enactment.

14 (i) DEFINITIONS.—For purposes of this section—

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

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

17 the Clayton Act, and includes section 5 of the Fed18 eral Trade Commission Act (to the extent that such

19 section 5 relates to unfair methods of competition);

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

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

22 Deposit Insurance Act; and

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

24 United States, the District of Columbia, any terri25 tory of the United States, Puerto Rico, Guam,
40

•S 900 PCS

1 American Samoa, the Trust Territory of the Pacific

2 Islands, the Virgin Islands, and the Northern Mar3 iana Islands.

4 Subtitle B—Streamlining Super5 vision of Bank Holding Compa6 nies

7 SEC. 111. STREAMLINING BANK HOLDING COMPANY SU8 PERVISION.

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

10 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

11 ‘‘(c) REPORTS AND EXAMINATIONS.—

12 ‘‘(1) REPORTS.—

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

14 to time, may require a bank holding company

15 and any subsidiary of such company to submit

16 reports under oath to keep the Board informed

17 as to—

18 ‘‘(i) the financial condition of the

19 bank holding company or subsidiary, sys20 tems for monitoring and controlling finan21 cial and operating risks, and transactions

22 with depository institution subsidiaries of

23 the bank holding company; and
41

•S 900 PCS

1 ‘‘(ii) compliance by the company or

2 subsidiary with applicable provisions of

3 this Act.

4 ‘‘(B) USE OF EXISTING REPORTS.—

5 ‘‘(i) IN GENERAL.—For purposes of

6 compliance with this paragraph, the Board

7 shall, to the fullest extent possible,

8 accept—

9 ‘‘(I) reports that a bank holding

10 company or any subsidiary of such

11 company has provided or been re12 quired to provide to other Federal or

13 State supervisors or to appropriate

14 self-regulatory organizations;

15 ‘‘(II) information that is other16 wise required to be reported publicly;

17 and

18 ‘‘(III) externally audited financial

19 statements.

20 ‘‘(ii) REPORTS FILED WITH OTHER

21 AGENCIES.—In the event that the Board

22 requires a report under this subsection

23 from a functionally regulated subsidiary of

24 a bank holding company of a kind that is

25 not required by another Federal or State
42

•S 900 PCS

1 regulatory authority or an appropriate self2 regulatory organization, the Board shall

3 request that the appropriate regulatory au4 thority or self-regulatory organization ob5 tain such report. If the report is not made

6 available to the Board, and the report is

7 necessary to assess a material risk to the

8 bank holding company or any of its deposi9 tory institution subsidiaries or compliance

10 with this Act, the Board may require such

11 functionally regulated subsidiary to provide

12 such a report to the Board.

13 ‘‘(2) EXAMINATIONS.—

14 ‘‘(A) EXAMINATION AUTHORITY FOR BANK

15 HOLDING COMPANIES AND SUBSIDIARIES.—

16 Subject to subparagraph (B), the Board may

17 make examinations of each bank holding com18 pany and each subsidiary of such holding com19 pany in order—

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

21 of the operations and financial condition of

22 the holding company and such subsidiaries;

23 ‘‘(ii) to inform the Board of—

24 ‘‘(I) the financial and operational

25 risks within the holding company sys-
43

•S 900 PCS

1 tem that may pose a threat to the

2 safety and soundness of any deposi3 tory institution subsidiary of such

4 holding company; and

5 ‘‘(II) the systems for monitoring

6 and controlling such risks; and

7 ‘‘(iii) to monitor compliance with the

8 provisions of this Act and those governing

9 transactions and relationships between any

10 depository institution subsidiary and its af11 filiates.

12 ‘‘(B) FUNCTIONALLY REGULATED SUB13 SIDIARIES.—Notwithstanding subparagraph

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

15 functionally regulated subsidiary of a bank

16 holding company only if—

17 ‘‘(i) the Board has reasonable cause

18 to believe that such subsidiary is engaged

19 in activities that pose a material risk to an

20 affiliated depository institution; or

21 ‘‘(ii) based on reports and other avail22 able information, the Board has reasonable

23 cause to believe that a subsidiary is not in

24 compliance with this Act or with provisions

25 relating to transactions with an affiliated
44

•S 900 PCS

1 depository institution, and the Board can2 not make such determination through ex3 amination of the affiliated depository insti4 tution or the bank holding company.

5 ‘‘(C) RESTRICTED FOCUS OF EXAMINA6 TIONS.—The Board shall, to the fullest extent

7 possible, limit the focus and scope of any exam8 ination of a bank holding company to—

9 ‘‘(i) the bank holding company; and

10 ‘‘(ii) any subsidiary of the bank hold11 ing company that could have a materially

12 adverse effect on the safety and soundness

13 of any depository institution subsidiary of

14 the holding company due to—

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

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

19 any depository institution that is also

20 a subsidiary of the bank holding com21 pany.

22 ‘‘(D) DEFERENCE TO BANK EXAMINA23 TIONS.—The Board shall, to the fullest extent

24 possible, for the purposes of this paragraph, use

25 the reports of examinations of depository insti-
45

•S 900 PCS

1 tutions made by the appropriate Federal and

2 State depository institution supervisory author3 ity.

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

6 possible, forego an examination by the Board

7 under this paragraph and instead review the re8 ports of examination made of—

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

10 or on behalf of the Securities and Ex11 change Commission;

12 ‘‘(ii) any registered investment adviser

13 properly registered by or on behalf of ei14 ther the Securities and Exchange Commis15 sion or any State;

16 ‘‘(iii) any licensed insurance company

17 by or on behalf of any State regulatory au18 thority responsible for the supervision of

19 insurance companies; and

20 ‘‘(iv) any other subsidiary that the

21 Board finds to be comprehensively super22 vised by a Federal or State authority.

23 ‘‘(3) CAPITAL.—

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

25 by regulation, guideline, order, or otherwise,
46

•S 900 PCS

1 prescribe or impose any capital or capital ade2 quacy rules, guidelines, standards, or require3 ments on any subsidiary of a bank holding com4 pany that—

5 ‘‘(i) is not an insured depository insti6 tution; and

7 ‘‘(ii) is—

8 ‘‘(I) in compliance with the appli9 cable capital requirements of another

10 Federal regulatory authority (includ11 ing the Securities and Exchange Com12 mission) or State insurance authority;

13 or

14 ‘‘(II) properly registered as an

15 investment adviser under the Invest16 ment Advisers Act of 1940, or with

17 any State.

18 ‘‘(B) RULE OF CONSTRUCTION.—Subpara19 graph (A) shall not be construed as preventing

20 the Board from imposing capital or capital ade21 quacy rules, guidelines, standards, or require22 ments with respect to activities of a registered

23 investment adviser other than with respect to

24 investment advisory activities or activities inci25 dental to investment advisory activities.
47

•S 900 PCS

1 ‘‘(C) LIMITATIONS ON INDIRECT AC2 TION.—In developing, establishing, or assessing

3 bank holding company capital or capital ade4 quacy rules, guidelines, standards, or require5 ments for purposes of this paragraph, the

6 Board may not take into account the activities,

7 operations, or investments of an affiliated in8 vestment company registered under the Invest9 ment Company Act of 1940, if the investment

10 company is not—

11 ‘‘(i) a bank holding company; or

12 ‘‘(ii) controlled by a bank holding

13 company by reason of ownership by the

14 bank holding company (including through

15 all of its affiliates) of 25 percent or more

16 of the shares of the investment company,

17 where the shares owned by the bank hold18 ing company have a market value equal to

19 more than $1,000,000.

20 ‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP21 PROPRIATE FEDERAL BANKING AGENCY.—

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

23 bank holding company that is not significantly

24 engaged in nonbanking activities, the Board, in

25 consultation with the appropriate Federal bank-
48

•S 900 PCS

1 ing agency, may designate the appropriate Fed2 eral banking agency of the lead insured deposi3 tory institution subsidiary of such holding com4 pany as the appropriate Federal banking agen5 cy for the bank holding company.

6 ‘‘(B) AUTHORITY TRANSFERRED.—An

7 agency designated by the Board under subpara8 graph (A) shall have the same authority as the

9 Board under this Act—

10 ‘‘(i) to examine and require reports

11 from the bank holding company and any

12 affiliate of such company (other than a de13 pository institution) under this section;

14 ‘‘(ii) to approve or disapprove applica15 tions or transactions under section 3;

16 ‘‘(iii) to take actions and impose pen17 alties under subsections (e) and (f) of this

18 section and under section 8; and

19 ‘‘(iv) to take actions regarding the

20 holding company, any affiliate of the hold21 ing company (other than a depository insti22 tution), or any institution-affiliated party

23 of such company or affiliate under the

24 Federal Deposit Insurance Act and any
49

•S 900 PCS

1 other statute that the Board may des2 ignate.

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

4 Act and section 105 of the Bank Holding Com5 pany Act Amendments of 1970 shall apply to

6 orders issued by an agency designated under

7 subparagraph (A) in the same manner as such

8 sections apply to orders issued by the Board.

9 ‘‘(5) FUNCTIONAL REGULATION OF SECURITIES

10 AND INSURANCE ACTIVITIES.—

11 ‘‘(A) SECURITIES ACTIVITIES.—Securities

12 activities conducted in a functionally regulated

13 subsidiary of a bank shall be subject to regula14 tion by the Securities and Exchange Commis15 sion, and by relevant State securities authori16 ties, as appropriate, subject to section 104 of

17 the Financial Services Modernization Act of

18 1999, to the same extent as if they were con19 ducted in a nondepository institution subsidiary

20 of a bank holding company.

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

22 section 104 of the Financial Services Mod23 ernization Act of 1999, insurance agency and

24 brokerage activities and activities as principal

25 conducted in a functionally regulated subsidiary
50

•S 900 PCS

1 of a bank shall be subject to regulation by a

2 State insurance authority to the same extent as

3 if they were conducted in a nondepository insti4 tution subsidiary of a bank holding company.

5 ‘‘(6) DEFINITION.—For purposes of this sub6 section, the term ‘functionally regulated subsidiary’

7 means any company—

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

9 and

10 ‘‘(B) that is—

11 ‘‘(i) a broker or dealer that is reg12 istered under the Securities Exchange Act

13 of 1934;

14 ‘‘(ii) a registered investment adviser,

15 properly registered by or on behalf of ei16 ther the Securities and Exchange Commis17 sion or any State, with respect to the in18 vestment advisory activities of such invest19 ment adviser and activities incidental to

20 such investment advisory activities;

21 ‘‘(iii) an investment company that is

22 registered under the Investment Company

23 Act of 1940;

24 ‘‘(iv) an insurance company or insur25 ance agency that is subject to supervision
51

•S 900 PCS

1 by a State insurance commission, agency,

2 or similar authority; or

3 ‘‘(v) an entity that is subject to regu4 lation by the Commodity Futures Trading

5 Commission, with respect to the commod6 ities activities of such entity and activities

7 incidental to such commodities activities.’’.

8 SEC. 112. AUTHORITY OF STATE INSURANCE REGULATOR

9 AND SECURITIES AND EXCHANGE COMMIS10 SION.

11 Section 5 of the Bank Holding Company Act of 1956

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

13 following new subsection:

14 ‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR

15 AND THE SECURITIES AND EXCHANGE COMMISSION.—

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

17 provision of law, any regulation, order, or other ac18 tion of the Board that requires a bank holding com19 pany to provide funds or other assets to an insured

20 depository institution subsidiary shall not be effec21 tive nor enforceable, if—

22 ‘‘(A) such funds or assets are to be pro23 vided by—

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

25 an insurance company or that is a broker
52

•S 900 PCS

1 or dealer registered under the Securities

2 Exchange Act of 1934; or

3 ‘‘(ii) an affiliate of the insured deposi4 tory institution that is an insurance com5 pany or a broker or dealer registered under

6 the Securities Exchange Act of 1934; and

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

8 insurance company or the Securities and Ex9 change Commission for the registered broker or

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

11 written notice sent to the bank holding com12 pany and to the Board that the bank holding

13 company shall not provide such funds or assets

14 because such action would have a material ad15 verse effect on the financial condition of the in16 surance company or the broker or dealer, as the

17 case may be.

18 ‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY

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

20 holding company, or an affiliate of a bank holding

21 company, that is an insurance company or a broker

22 or dealer, as described in paragraph (1)(A), to pro23 vide funds or assets to an insured depository institu24 tion subsidiary of the bank holding company pursu25 ant to any regulation, order, or other action of the
53

•S 900 PCS

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

2 promptly notify the State insurance authority for the

3 insurance company or the Securities and Exchange

4 Commission, as the case may be, of such require5 ment.

6 ‘‘(3) DIVESTITURE IN LIEU OF OTHER AC7 TION.—If the Board receives a notice described in

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

9 or the Securities and Exchange Commission with re10 gard to a bank holding company or affiliate referred

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

12 holding company to divest the insured depository in13 stitution subsidiary not later than 180 days after re14 ceiving the notice, or such longer period as the

15 Board determines to be consistent with the safe and

16 sound operation of the insured depository institu17 tion.

18 ‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur19 ing the period beginning on the date on which an

20 order to divest is issued by the Board under para21 graph (3) to a bank holding company and ending on

22 the date on which the divestiture is completed, the

23 Board may impose any conditions or restrictions on

24 ownership or operation by the bank holding company

25 of the insured depository institution, including re-
54

•S 900 PCS

1 stricting or prohibiting transactions between the in2 sured depository institution and any affiliate of the

3 institution, as are appropriate under the cir4 cumstances.

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

6 of this subsection may be construed to limit or oth7 erwise affect the regulatory authority, including the

8 scope of the authority, of any Federal agency or de9 partment with regard to any entity that is within the

10 jurisdiction of such agency or department.’’.

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

12 FEDERAL RESERVE SYSTEM.

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

14 1841 et seq.) is amended by inserting after section 10 the

15 following new section:

16 ‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU17 PERVISORY, AND ENFORCEMENT AUTHORITY

18 OF THE BOARD.

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

20 may not prescribe regulations, issue or seek entry of or21 ders, impose restraints, restrictions, guidelines, require22 ments, safeguards, or standards, or otherwise take any ac23 tion under or pursuant to any provision of this Act or sec24 tion 8 of the Federal Deposit Insurance Act against or
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•S 900 PCS

1 with respect to a functionally regulated subsidiary of a

2 bank holding company unless—

3 ‘‘(1) the action is necessary to prevent or re4 dress an unsafe or unsound practice or breach of fi5 duciary duty by such subsidiary that poses a mate6 rial risk to—

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

8 stability of an affiliated insured depository in9 stitution; or

10 ‘‘(B) the domestic or international pay11 ment system; and

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

13 possible to protect effectively against the material

14 risk at issue through action directed at or against

15 the affiliated insured depository institution or

16 against insured depository institutions generally.

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

18 may not prescribe regulations, issue or seek entry of or19 ders, impose restraints, restrictions, guidelines, require20 ments, safeguards, or standards, or otherwise take any ac21 tion under or pursuant to any provision of this Act or sec22 tion 8 of the Federal Deposit Insurance Act against or

23 with respect to a bank holding company where the purpose

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

25 against or with respect to a functionally regulated sub-
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•S 900 PCS

1 sidiary of a bank holding company that may not be taken

2 directly against or with respect to such subsidiary in ac3 cordance with subsection (a).

4 ‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not5 withstanding subsection (a), the Board may take action

6 under this Act or section 8 of the Federal Deposit Insur7 ance Act to enforce compliance by a functionally regulated

8 subsidiary of a bank holding company with Federal law

9 that the Board has specific jurisdiction to enforce against

10 such subsidiary.

11 ‘‘(d) ‘FUNCTIONALLY REGULATED SUBSIDIARY’ DE12 FINED.—For purposes of this section, the term ‘function13 ally regulated subsidiary’ has the same meaning as in sec14 tion 5(c)(6).’’.

15 SEC. 114. EXAMINATION OF INVESTMENT COMPANIES.

16 (a) EXCLUSIVE COMMISSION AUTHORITY.—Except

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

18 may not inspect or examine any registered investment

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

20 and loan holding company.

21 (b) EXAMINATION RESULTS AND OTHER INFORMA22 TION.—The Commission shall provide to any Federal

23 banking agency, upon request, the results of any examina24 tion, reports, records, or other information with respect

25 to any registered investment company to the extent nec-
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•S 900 PCS

1 essary for the agency to carry out its statutory responsibil2 ities.

3 (c) CERTAIN EXAMINATIONS AUTHORIZED.—Noth4 ing in this section shall prevent the Corporation, if the

5 Corporation finds it necessary to determine the condition

6 of an insured depository institution for insurance pur7 poses, from examining an affiliate of any insured deposi8 tory institution, pursuant to its authority under section

9 10(b)(4) of the Federal Deposit Insurance Act, as may

10 be necessary to disclose fully the relationship between the

11 insured depository institution and the affiliate, and the ef12 fect of such relationship on the insured depository institu13 tion.

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

15 following definitions shall apply:

16 (1) BANK HOLDING COMPANY.—The term

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

18 in section 2 of the Bank Holding Company Act of

19 1956.

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

21 means the Federal Deposit Insurance Corporation.

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

23 means the Securities and Exchange Commission.
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1 (4) FEDERAL BANKING AGENCY.—The term

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

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

4 (5) REGISTERED INVESTMENT COMPANY.—The

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

8 (6) SAVINGS AND LOAN HOLDING COMPANY.—

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

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

11 Home Owners’ Loan Act.

12 SEC. 115. EQUIVALENT REGULATION AND SUPERVISION.

13 (a) IN GENERAL.—Notwithstanding any other provi14 sion of law, the provisions of—

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

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

17 authority of the Board of Governors of the Federal

18 Reserve System to require reports from, to make ex19 aminations of, or to impose capital requirements on

20 holding companies and their functionally regulated

21 subsidiaries or that require deference to other regu22 lators;

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

24 Act of 1956 (as added by this Act) that limit the au25 thority of the Board to require capital from a func-
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1 tionally regulated subsidiary of a holding company

2 to an insured depository institution subsidiary of the

3 holding company and to take certain actions includ4 ing requiring divestiture of the insured depository

5 institution; and

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

7 Act of 1956 (as added by this Act) that limit what8 ever authority the Board might otherwise have to

9 take direct or indirect action with respect to holding

10 companies and their functionally regulated subsidi11 aries,

12 shall also limit whatever authority that a Federal banking

13 agency (as defined in section 3 of the Federal Deposit In14 surance Act) might otherwise have under applicable Fed15 eral law to require reports, make examinations, impose

16 capital requirements, or take any other direct or indirect

17 action with respect to any functionally regulated sub18 sidiary of an insured depository institution, subject to the

19 same standards and requirements as are applicable to the

20 Board under those provisions.

21 (b) CERTAIN EXEMPTION AUTHORIZED.—Nothing in

22 this section shall prevent the Federal Deposit Insurance

23 Corporation, if the Corporation finds it necessary to deter24 mine the condition of an insured depository institution for

25 insurance purposes, from examining an affiliate of any in-
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•S 900 PCS

1 sured depository institution, pursuant to its authority

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

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

4 between the depository institution and the affiliate, and

5 the effect of such relationship on the depository institu6 tion.

7 (c) ‘‘FUNCTIONALLY REGULATED SUBSIDIARY’’ DE8 FINED.—For purposes of this section, the term ‘‘function9 ally regulated subsidiary’’ has the same meaning as in sec10 tion 5(c)(6) of the Bank Holding Company Act of 1956,

11 as amended by this Act.

12 SEC. 116. INTERAGENCY CONSULTATION.

13 (a) EXAMINATION RESULTS AND OTHER INFORMA14 TION.—

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

16 request of the appropriate insurance regulator of

17 any State, the Board may provide to that regulator

18 any information of the Board regarding the financial

19 condition, risk management policies, and operations

20 of any bank holding company that controls a com21 pany that is engaged in insurance activities and is

22 regulated by that State insurance regulator, and re23 garding any transaction or relationship between such

24 an insurance company and any affiliated depository

25 institution. The Board may provide any other infor-
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•S 900 PCS

1 mation to the appropriate State insurance regulator

2 that the Board believes is necessary or appropriate

3 to permit the State insurance regulator to admin4 ister and enforce applicable State insurance laws.

5 (2) BANKING AGENCY INFORMATION.—Upon

6 the request of the appropriate insurance regulator of

7 any State, the appropriate Federal banking agency

8 may provide to that regulator any information of the

9 agency regarding any transaction or relationship be10 tween a depository institution supervised by that

11 Federal banking agency and any affiliated company

12 that is engaged in insurance activities regulated by

13 the State insurance regulator. The appropriate Fed14 eral banking agency may provide any other informa15 tion to the appropriate State insurance regulator

16 that the agency believes is necessary or appropriate

17 to permit the State insurance regulator to admin18 ister and enforce applicable State insurance laws.

19 (3) STATE INSURANCE REGULATOR INFORMA20 TION.—Upon the request of the appropriate Federal

21 banking agency, a State insurance regulator may

22 provide any examination or other reports, records, or

23 other information to which the State insurance regu24 lator may have access with respect to a company

25 that—
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1 (A) is engaged in insurance activities and

2 is regulated by that insurance regulator; and

3 (B) is an affiliate of an insured depository

4 institution or a bank holding company.

5 (b) CONSULTATION.—Before making any determina6 tion relating to the initial affiliation of, or the continuing

7 affiliation of, an insured depository institution or bank

8 holding company with a company engaged in insurance ac9 tivities, the appropriate Federal banking agency shall con10 sult with the appropriate State insurance regulator of such

11 company and take the views of such insurance regulator

12 into account in making such determination.

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

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

15 appropriate Federal banking agency with respect to an in16 sured depository institution or bank holding company or

17 any affiliate thereof under any provision of law.

18 (d) CONFIDENTIALITY AND PRIVILEGE.—

19 (1) CONFIDENTIALITY.—The appropriate Fed20 eral banking agency may not provide any informa21 tion or material that is entitled to confidential treat22 ment under applicable Federal banking agency regu23 lations, or other applicable law, to a State insurance

24 regulator, unless such regulator agrees to maintain

25 the information or material in confidence and to
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•S 900 PCS

1 take all reasonable steps to oppose any effort to se2 cure disclosure of the information or material by the

3 regulator. The appropriate Federal banking agency

4 shall treat as confidential any information or mate5 rial obtained from a State insurance regulator that

6 is entitled to confidential treatment under applicable

7 State regulations, or other applicable law, and take

8 all reasonable steps to oppose any effort to secure

9 disclosure of the information or material by the Fed10 eral banking agency.

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

12 section of information or material by a Federal

13 banking agency or a State insurance regulator shall

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

15 privilege to which the information or material is oth16 erwise subject.

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

18 following definitions shall apply:

19 (1) APPROPRIATE FEDERAL BANKING AGENCY;

20 INSURED DEPOSITORY INSTITUTION.—The terms

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

22 depository institution’’ have the same meanings as

23 in section 3 of the Federal Deposit Insurance Act.

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

25 terms ‘‘Board’’ and ‘‘bank holding company’’ have
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•S 900 PCS

1 the same meanings as in section 2 of the Bank

2 Holding Company Act of 1956.

3 SEC. 117. PRESERVING THE INTEGRITY OF FDIC RE4 SOURCES.

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

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

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

8 shareholder, affiliate (other than an insured depository in9 stitution that receives assistance in accordance with the

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

11 Subtitle C—Activities of National

12 Banks

13 SEC. 121. AUTHORITY OF NATIONAL BANKS TO UNDER14 WRITE MUNICIPAL REVENUE BONDS.

15 The paragraph designated the Seventh of section

16 5136 of the Revised Statutes of the United States (12

17 U.S.C. 24(7)) is amended by adding at the end the fol18 lowing:

19 ‘‘The limitations and restrictions contained in this

20 paragraph as to dealing in, underwriting, and purchasing

21 investment securities for the national bank’s own account

22 do not apply to obligations (including limited obligation

23 bonds, revenue bonds, and obligations that satisfy the re24 quirements of section 142(b)(1) of the Internal Revenue

25 Code of 1986) issued by or on behalf of any State or polit-
65

•S 900 PCS

1 ical subdivision of a State, including any municipal cor2 porate instrumentality of 1 or more States, or any public

3 agency or authority of any State or political subdivision

4 of a State, if the national banking association is well cap5 italized (as defined in section 38 of the Federal Deposit

6 Insurance Act).’’.

7 SEC. 122. SUBSIDIARIES OF NATIONAL BANKS.

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

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

10 seq.) is amended—

11 (1) by redesignating section 5136A as section

12 5136C; and

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

14 24) the following new section:

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

16 ‘‘(a) AUTHORIZATION TO CONDUCT IN OPERATING

17 SUBSIDIARIES CERTAIN ACTIVITIES THAT ARE FINAN18 CIAL IN NATURE.—

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

20 national bank may control a financial subsidiary, or

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

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

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

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

25 of a bank holding company;
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1 ‘‘(C) the subject activities are not real es2 tate development or real estate investment ac3 tivities, unless otherwise expressly authorized by

4 law;

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

6 depository institution affiliate of the national

7 bank is well capitalized and well managed; and

8 ‘‘(E) the national bank has received the

9 approval of the Comptroller of the Currency to

10 engage in such activities, which approval shall

11 be based solely upon the factors set forth in

12 subparagraph (D) and factors set forth in sub13 section (c).

14 ‘‘(2) REGULATIONS REQUIRED.—The Comp15 troller of the Currency shall, by regulation, prescribe

16 procedures for the enforcement of this section.

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

18 ‘‘(1) CAPITAL REDUCTION REQUIRED.—In de19 termining compliance with applicable capital stand20 ards for purposes of subsection (a)(1)(D)—

21 ‘‘(A) the aggregate amount of outstanding

22 equity investments by a national bank in a fi23 nancial subsidiary shall be deducted from the

24 assets and tangible equity of the national bank;

25 and
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1 ‘‘(B) the assets and liabilities of the finan2 cial subsidiary shall not be consolidated with

3 those of the national bank.

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

5 bank may not, without the prior approval of the

6 Comptroller of the Currency, make any equity in7 vestment in a financial subsidiary of the bank if that

8 investment would, when made, exceed the amount

9 that the national bank could pay as a dividend with10 out obtaining prior regulatory approval.

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

12 that establishes or maintains a financial subsidiary shall

13 assure that—

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

15 identifying and managing financial and operational

16 risks within the national bank and financial sub17 sidiary adequately protect the national bank from

18 such risks;

19 ‘‘(2) the bank has, for the protection of the na20 tional bank, reasonable policies and procedures to

21 preserve the separate corporate identity and limited

22 liability of the national bank and the financial sub23 sidiaries of the national bank; and

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

25 this section.
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1 ‘‘(d) STREAMLINING REGULATION AND SUPERVISION

2 AND ENCOURAGING CONSULTATION AMONG FEDERAL

3 AND STATE REGULATORS.—

4 ‘‘(1) IN GENERAL.—To the extent that a na5 tional bank engages in activities that are authorized

6 by subsection (a) through a functionally regulated fi7 nancial subsidiary, the regulation and supervision of

8 such subsidiary by the Comptroller of the Currency,

9 including its ability to require a contribution of cap10 ital or assets to the national bank from that func11 tionally regulated financial subsidiary, shall be lim12 ited, as set forth under section 115 of the Financial

13 Services Modernization Act of 1999.

14 ‘‘(2) INTERAGENCY CONSULTATION.—The pro15 visions of section 116 of the Financial Services Mod16 ernization Act of 1999, relating to interagency con17 sultation, shall apply to the Comptroller of the Cur18 rency and the appropriate State regulators of func19 tionally regulated financial subsidiaries of a national

20 bank.

21 ‘‘(e) PRESERVATION OF EXISTING OPERATING SUB22 SIDIARY AUTHORITY.—Notwithstanding any other provi23 sion of this section—

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

25 company, or retain an interest in a company, and
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•S 900 PCS

1 conduct through such company any activities law2 fully conducted therein as of the date of enactment

3 of the Financial Services Modernization Act of 1999;

4 and

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

6 other interest in any company that is engaged only

7 in activities that are permissible for the national

8 bank to engage in directly, if such activities are en9 gaged in under the same terms and conditions that

10 would govern the conduct if conducted by a national

11 bank directly.

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

13 following definitions shall apply:

14 ‘‘(1) FINANCIAL SUBSIDIARY.—The term ‘fi15 nancial subsidiary’ means a company that—

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

17 and

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

19 that is permissible for a bank holding company

20 under section 4(k) of the Bank Holding Com21 pany Act of 1956 and is not permissible for na22 tional banks to engage in directly.

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

24 ‘functionally regulated financial subsidiary’ means a

25 financial subsidiary that is—
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1 ‘‘(A) a broker or dealer that is registered

2 under the Securities Exchange Act of 1934;

3 ‘‘(B) an investment adviser that is reg4 istered under the Investment Advisers Act of

5 1940, or with any State, with respect to the in6 vestment advisory activities of such investment

7 adviser and activities incidental to such invest8 ment advisory activities;

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

10 to supervision by a State insurance commission,

11 agency, or similar authority; and

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

13 by the Commodity Futures Trading Commis14 sion, with respect to the commodities activities

15 of such entity and activities incidental to such

16 commodities activities.

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

18 the same meaning as in section 2 of the Bank Hold19 ing Company Act of 1956.

20 ‘‘(4) WELL CAPITALIZED.—The term ‘well cap21 italized’ has the same meaning as in section 38 of

22 the Federal Deposit Insurance Act.

23 ‘‘(5) WELL MANAGED.—The term ‘well man24 aged’ means—
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1 ‘‘(A) in the case of a depository institution

2 that has been examined, unless otherwise deter3 mined in writing by the appropriate Federal

4 banking agency—

5 ‘‘(i) the achievement of a composite

6 rating of 1 or 2 under the Uniform Finan7 cial Institutions Rating System (or an

8 equivalent rating under an equivalent rat9 ing system) in connection with the most re10 cent examination or subsequent review of

11 the depository institution; and

12 ‘‘(ii) at least a rating of 2 for man13 agement, if such rating is given; or

14 ‘‘(B) in the case of any depository institu15 tion that has not been examined, the existence

16 and use of managerial resources that the appro17 priate Federal banking agency determines are

18 satisfactory.

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

20 ‘appropriate Federal banking agency’, ‘depository in21 stitution’, and ‘insured depository institution’, have

22 the same meanings as in section 3 of the Federal

23 Deposit Insurance Act.’’.

24 (b) LIMITING THE CREDIT EXPOSURE OF A NA25 TIONAL BANK TO A FINANCIAL SUBSIDIARY TO THE
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1 AMOUNT OF PERMISSIBLE CREDIT EXPOSURE TO AN AF2 FILIATE.—Section 23A of the Federal Reserve Act (12

3 U.S.C. 371c) is amended—

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

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

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

9 FINANCIAL SUBSIDIARIES.—

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

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

12 ‘financial subsidiary’ has the same meaning as in

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

14 United States.

15 ‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN

16 A FINANCIAL SUBSIDIARY OF A NATIONAL BANK AND

17 THE NATIONAL BANK.—For purposes of applying

18 this section and section 23B to a transaction be19 tween a financial subsidiary of a national bank and

20 the national bank (or between such financial sub21 sidiary and any other subsidiary of the national

22 bank that is not a financial subsidiary), and not23 withstanding subsection (b)(2) of this section or sec24 tion 23B(d)(1)—
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1 ‘‘(A) the financial subsidiary of the na2 tional bank—

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

4 of the national bank and of any other sub5 sidiary of the bank that is not a financial

6 subsidiary; and

7 ‘‘(ii) shall not be deemed to be a sub8 sidiary of the national bank; and

9 ‘‘(B) a purchase of or investment in equity

10 securities issued by the financial subsidiary

11 shall not be deemed to be a covered transaction.

12 ‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN

13 FINANCIAL SUBSIDIARY AND NONBANK AFFILI14 ATES.—

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

16 a financial subsidiary and an affiliate of the fi17 nancial subsidiary (that is not a subsidiary of

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

19 transaction between a subsidiary of a national

20 bank and an affiliate of that bank for purposes

21 of section 23A or section 23B.

22 ‘‘(B) CERTAIN AFFILIATES EXCLUDED.—

23 For purposes of this paragraph, the term ‘affil24 iate’ does not include a national bank, or a sub25 sidiary of a national bank that is engaged ex-
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1 clusively in activities permissible for a national

2 bank to engage in directly or agency activities

3 permitted under section 123 of the Financial

4 Services Modernization Act of 1999.’’.

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

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

7 amended by adding at the end the following: ‘‘For pur8 poses of this section, a financial subsidiary of a national

9 bank engaging in activities pursuant to section 5136A(a)

10 of the Revised Statutes of the United States shall be

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

12 not a subsidiary of a bank.’’.

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

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

15 the United States is amended—

16 (1) by redesignating the item relating to section

17 5136A as relating to section 5136C; and

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

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

20 SEC. 123. AGENCY ACTIVITIES.

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

22 interest in a company that engages in agency activities

23 that have been determined by the Comptroller of the Cur24 rency to be permissible for national banks or to be finan25 cial in nature or incidental to such financial activities (as
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1 determined pursuant to section 4(k) of the Bank Holding

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

3 activities solely as agent and not directly or indirectly as

4 principal.

5 SEC. 124. PROHIBITING FRAUDULENT REPRESENTATIONS.

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

7 States Code, is amended by inserting after section 1007

8 the following new section:

9 ‘‘SEC. 1008. MISREPRESENTATIONS REGARDING FINANCIAL

10 INSTITUTION LIABILITY FOR OBLIGATIONS

11 OF AFFILIATES.

12 ‘‘(a) PROHIBITION.—It shall be unlawful for an insti13 tution-affiliated party of an insured depository institution

14 or institution-affiliated party of a subsidiary or affiliate

15 of an insured depository institution to fraudulently rep16 resent that the institution is or will be liable for any obli17 gation of a subsidiary or other affiliate of the institution.

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

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

20 1 year, or both.

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

22 For purposes of this section, the term ‘institution-affili23 ated party’ has the same meaning as in section 3 of the

24 Federal Deposit Insurance Act, except that references to

25 an insured depository institution shall be deemed to in-
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1 clude references to a subsidiary or affiliate of an insured

2 depository institution.

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

4 section, the terms ‘affiliate’, ‘insured depository institu5 tion’, and ‘subsidiary’ have same meanings as in section

6 3 of the Federal Deposit Insurance Act.’’.

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

8 for chapter 47 of title 18, United States Code, is amended

9 by inserting after the item relating to section 1007 the

10 following new item:

‘‘1008. Misrepresentations regarding financial institution liability for obligations

of affiliates.’’.

11 SEC. 125. INSURANCE UNDERWRITING BY NATIONAL

12 BANKS.

13 (a) IN GENERAL.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), a national bank and the subsidiaries of a

16 national bank may only provide insurance in a State

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

18 the Revised Statutes of the United States, as added

19 by this Act.

20 (2) EXCEPTION.—A national bank and the sub21 sidiaries of a national bank may provide authorized

22 insurance products as principal without regard to

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

24 United States, as added by this Act.
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1 (b) AUTHORIZED INSURANCE PRODUCTS.—For pur2 poses of this section, a product is an ‘‘authorized insur3 ance product’’ if—

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

5 the Currency had determined in writing that na6 tional banks may provide such product as principal,

7 or national banks were in fact lawfully providing

8 such product as principal;

9 (2) no court of relevant jurisdiction had, by

10 final judgment, overturned a determination of the

11 Comptroller of the Currency that national banks

12 may provide such product as principal; and

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

14 income of which is subject to tax treatment under

15 section 72 of the Internal Revenue Code of 1986.

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

17 term ‘‘insurance’’ means—

18 (1) any product regulated as insurance as of

19 January 1, 1999, in accordance with the relevant

20 State insurance law, in the State in which the prod21 uct is provided;

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

23 1999, which—

24 (A) a State insurance regulator determines

25 shall be regulated as insurance in the State in
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1 which the product is provided because the prod2 uct insures, guarantees, or indemnifies against

3 liability, loss of life, loss of health, or loss

4 through damage to or destruction of property,

5 including surety bonds, life insurance, health in6 surance, title insurance, and property and cas7 ualty insurance (such as private passenger or

8 commercial automobile, homeowners, mortgage,

9 commercial multiperil, general liability, profes10 sional liability, workers’ compensation, fire and

11 allied lines, farm owners multiperil, aircraft, fi12 delity, surety, medical malpractice, ocean ma13 rine, inland marine, and boiler and machinery

14 insurance); and

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

16 that is—

17 (i) a deposit product;

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

19 or other extension of credit;

20 (iii) a trust or other fiduciary service;

21 (iv) a qualified financial contract (as

22 defined in or determined pursuant to sec23 tion 11(e)(8)(D)(i) of the Federal Deposit

24 Insurance Act); or
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1 (v) a financial guaranty, except that

2 this subparagraph shall not apply to a

3 product that includes an insurance compo4 nent such that if the product is offered or

5 proposed to be offered by the bank as

6 principal—

7 (I) it would be treated as a life

8 insurance contract under section 7702

9 of the Internal Revenue Code of 1986;

10 or

11 (II) in the event that the product

12 is not a letter of credit or other simi13 lar extension of credit, a qualified fi14 nancial contract, or a financial guar15 anty, it would qualify for treatment

16 for losses incurred with respect to

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

18 of the Internal Revenue Code of 1986,

19 if the bank were subject to tax as an

20 insurance company under section 831

21 of that Code; and

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

23 is subject to tax treatment under section 72 of the

24 Internal Revenue Code of 1986.
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1 Subtitle D—National Treatment of

2 Foreign Financial Institutions

3 SEC. 151. NATIONAL TREATMENT OF FOREIGN FINANCIAL

4 INSTITUTIONS.

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

6 1978 (12 U.S.C. 3106(c)) is amended by adding at the

7 end the following new paragraph:

8 ‘‘(3) TERMINATION OF GRANDFATHERED RIGHTS.—

9 ‘‘(A) IN GENERAL.—If any foreign bank or for10 eign company files a declaration under section 4() of

11 the Bank Holding Company Act of 1956, any au12 thority conferred by this subsection on any foreign

13 bank or company to engage in any activity that the

14 Board has determined to be permissible for bank

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

16 shall terminate immediately.

17 ‘‘(B) RESTRICTIONS AND REQUIREMENTS AU18 THORIZED.—If a foreign bank or company that en19 gages, directly or through an affiliate pursuant to

20 paragraph (1), in an activity that the Board deter21 mines to be permissible for bank holding companies

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

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

24 Board of its status as a bank holding company

25 under section 4(l) of that Act by the end of the 2-
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1 year period beginning on the date of enactment of

2 the Financial Services Modernization Act of 1999,

3 the Board, giving due regard to the principle of na4 tional treatment and equality of competitive oppor5 tunity, may impose such restrictions and require6 ments on the conduct of such activities by such for7 eign bank or company as are comparable to those

8 imposed on a bank holding company organized

9 under the laws of the United States, including a re10 quirement to conduct such activities in compliance

11 with any prudential safeguards established under

12 section 10A of the Bank Holding Company Act of

13 1956.’’.

14 SEC. 152. REPRESENTATIVE OFFICES.

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

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

17 (12 U.S.C. 3101(15)) is amended by striking ‘‘State agen18 cy, or subsidiary of a foreign bank’’ and inserting ‘‘or

19 State agency’’.

20 (b) EXAMINATIONS.—Section 10(c) of the Inter21 national Banking Act of 1978 (12 U.S.C. 3107(c)) is

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

23 may also make examinations of any affiliate of a foreign

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

25 it necessary to determine and enforce compliance with this
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1 Act, the Bank Holding Company Act of 1956 (12 U.S.C.

2 1841 et seq.), or other applicable Federal banking law.’’.

3 TITLE II—INSURANCE

4 CUSTOMER PROTECTIONS

5 SEC. 201. FUNCTIONAL REGULATION OF INSURANCE.

6 The insurance activity of any person or entity shall

7 be functionally regulated by the States, subject to sub8 sections (c), (d), and (e) of section 104.

9 SEC. 202. INSURANCE CUSTOMER PROTECTIONS.

10 The Federal Deposit Insurance Act (12 U.S.C. 1811

11 et seq.) is amended by adding at the end the following

12 new section:

13 ‘‘SEC. 45. INSURANCE CUSTOMER PROTECTIONS.

14 ‘‘(a) REGULATIONS REQUIRED.—

15 ‘‘(1) IN GENERAL.—The Federal banking agen16 cies shall prescribe and publish in final form, before

17 the end of the 1-year period beginning on the date

18 of enactment of the Financial Services Moderniza19 tion Act of 1999, customer protection regulations

20 (which the agencies jointly determine to be appro21 priate) that—

22 ‘‘(A) apply to retail sales practices, solici23 tations, advertising, or offers of any insurance

24 product by any insured depository institution or

25 any person that is engaged in such activities at
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1 an office of the institution or on behalf of the

2 institution; and

3 ‘‘(B) are consistent with the requirements

4 of this Act and provide such additional protec5 tions for customers to whom such sales, solicita6 tions, advertising, or offers are directed.

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

8 regulations prescribed pursuant to paragraph (1)

9 shall extend such protections to any subsidiaries of

10 an insured depository institution as deemed appro11 priate by the Federal banking agencies, where such

12 extension is determined to be necessary to ensure

13 the customer protections provided by this section.

14 ‘‘(3) CONSULTATION AND JOINT REGULA15 TIONS.—The Federal banking agencies shall consult

16 with each other and prescribe joint regulations pur17 suant to paragraph (1), after consultation with the

18 State insurance regulators, as appropriate.

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

20 pursuant to subsection (a) shall include antitying and

21 anticoercion rules applicable to the sale of insurance prod22 ucts that prohibit an insured depository institution from

23 engaging in any practice that would lead a customer to

24 believe an extension of credit, in violation of section 106(b)
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1 of the Bank Holding Company Act Amendments of 1970,

2 is conditional upon—

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

4 the institution or any of its affiliates or subsidiaries;

5 or

6 ‘‘(2) an agreement by the customer not to ob7 tain, or a prohibition on the customer from obtain8 ing, an insurance product from an unaffiliated enti9 ty.

10 ‘‘(c) DISCLOSURES AND ADVERTISING.—The regula11 tions prescribed pursuant to subsection (a) shall include

12 the following provisions relating to disclosures and adver13 tising in connection with the initial purchase of an insur14 ance product:

15 ‘‘(1) DISCLOSURES.—

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

17 following disclosures be made orally and in writ18 ing before the completion of the initial sale and,

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

20 of application for an extension of credit:

21 ‘‘(i) UNINSURED STATUS.—As appro22 priate, the product is not insured by the

23 Federal Deposit Insurance Corporation,

24 the United States Government, or the in25 sured depository institution.
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1 ‘‘(ii) INVESTMENT RISK.—In the case

2 of a variable annuity or insurance product

3 that involves an investment risk, that there

4 is an investment risk associated with the

5 product, including possible loss of value.

6 ‘‘(iii) ANTITYING; ANTICOERCION.—

7 The approval of an extension of credit may

8 not be conditioned on—

9 ‘‘(I) the purchase of an insurance

10 product from the institution in which

11 the application for credit is pending or

12 any of its affiliates or subsidiaries; or

13 ‘‘(II) an agreement by the cus14 tomer not to obtain, or a prohibition

15 on the customer from obtaining, an

16 insurance product from an unaffili17 ated entity.

18 ‘‘(iv) PROHIBITION ON ENHANCED

19 TREATMENT DUE TO OTHER PURCHASES

20 OR SERVICES.—The processing of an ex21 tension of credit or the delivery of any

22 other financial product or service will not

23 be expedited depending upon the purchase

24 by the customer of any additional product
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1 or service from an affiliated person or enti2 ty of the insured depository institution.

3 ‘‘(B) MAKING DISCLOSURE READILY UN4 DERSTANDABLE.—Regulations prescribed under

5 subparagraph (A) shall encourage the use of

6 disclosure that is conspicuous, simple, direct,

7 and readily understandable, such as the fol8 lowing:

9 ‘‘(i) ‘NOT FDIC–INSURED’.

10 ‘‘(ii) ‘NOT GUARANTEED BY THE

11 BANK’.

12 ‘‘(iii) ‘MAY GO DOWN IN VALUE’.

13 ‘‘(C) LIMITATION.—Nothing in this para14 graph requires the inclusion of the foregoing

15 disclosures in advertisements of a general na16 ture describing or listing the services or prod17 ucts offered by an institution.

18 ‘‘(D) MEANINGFUL DISCLOSURES.—Disclo19 sures shall not be considered to be meaningfully

20 provided under this paragraph if the institution

21 or its representative states that disclosures re22 quired by this subsection were available to the

23 customer in printed material available for dis24 tribution, where such printed material is not
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1 provided and such information is not orally dis2 closed to the customer.

3 ‘‘(E) ADJUSTMENTS FOR ALTERNATIVE

4 METHODS OF PURCHASE.—In prescribing the

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

6 necessary adjustments shall be made for pur7 chase in person, by telephone, or by electronic

8 media to provide for the most appropriate and

9 complete form of disclosure and acknowledg10 ments.

11 ‘‘(F) CUSTOMER ACKNOWLEDGMENT.—A

12 requirement that an insured depository institu13 tion shall require any person selling an insur14 ance product at any office of, or on behalf of,

15 the institution to obtain, at the time at which

16 a customer receives the disclosures required

17 under this paragraph or at the time of the ini18 tial purchase by the customer of such product,

19 an acknowledgment by such customer of the re20 ceipt of the disclosure required under this para21 graph with respect to such product.

22 ‘‘(2) PROHIBITION ON MISREPRESENTA23 TIONS.—A prohibition on any practice, or any adver24 tising, at any office of, or on behalf of, the insured

25 depository institution, or any subsidiary, as appro-
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1 priate, that could mislead any person or otherwise

2 cause a reasonable person to reach an erroneous be3 lief with respect to—

4 ‘‘(A) the uninsured nature of any insur5 ance product sold, or offered for sale, by the in6 stitution or any subsidiary of the institution; or

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

8 insurance product that involves an investment

9 risk, the investment risk associated with any

10 such product.

11 ‘‘(d) SEPARATION OF BANKING AND NONBANKING

12 ACTIVITIES.—

13 ‘‘(1) REGULATIONS REQUIRED.—The regula14 tions prescribed pursuant to subsection (a) shall in15 clude such provisions as the Federal banking agen16 cies consider appropriate to ensure that the routine

17 acceptance of deposits is kept, to the extent prac18 ticable, physically segregated from insurance product

19 activity.

20 ‘‘(2) REQUIREMENTS.—Regulations prescribed

21 pursuant to paragraph (1) shall include the fol22 lowing requirements:

23 ‘‘(A) SEPARATE SETTING.—A clear delin24 eation of the setting in which, and the cir25 cumstances under which, transactions involving
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1 insurance products should be conducted in a lo2 cation physically segregated from an area where

3 retail deposits are routinely accepted.

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

5 any person accepting deposits from the public

6 in an area where such transactions are rou7 tinely conducted in an insured depository insti8 tution to refer a customer who seeks to pur9 chase any insurance product to a qualified per10 son who sells such product, only if the person

11 making the referral receives no more than a

12 one-time nominal fee of a fixed dollar amount

13 for each referral that does not depend on

14 whether the referral results in a transaction.

15 ‘‘(C) QUALIFICATION AND LICENSING RE16 QUIREMENTS.—Standards prohibiting any in17 sured depository institution from permitting

18 any person to sell or offer for sale any insur19 ance product in any part of any office of the in20 stitution, or on behalf of the institution, unless

21 such person is appropriately qualified and li22 censed.

23 ‘‘(e) EFFECT ON OTHER AUTHORITY.—
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1 ‘‘(1) IN GENERAL.—No provision of this section

2 shall be construed as granting, limiting, or otherwise

3 affecting—

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

5 Exchange Commission, any self-regulatory or6 ganization, the Municipal Securities Rule7 making Board, or the Secretary of the Treasury

8 under any Federal securities law; or

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

10 any authority of any State insurance commis11 sion (or any agency or office performing like

12 functions), or of any State securities commis13 sion (or any agency or office performing like

14 functions), or other State authority under any

15 State law.

16 ‘‘(2) COORDINATION WITH STATE LAW.—

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

18 subparagraph (B), insurance customer protec19 tion regulations prescribed by a Federal bank20 ing agency under this section shall not apply to

21 retail sales, solicitations, advertising, or offers

22 of any insurance product by any insured deposi23 tory institution or to any person who is engaged

24 in such activities at an office of such institution

25 or on behalf of the institution, in a State where
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1 the State has in effect statutes, regulations, or2 ders, or interpretations, that are inconsistent

3 with or contrary to the regulations prescribed

4 by the Federal banking agencies.

5 ‘‘(B) PREEMPTION.—

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

7 any provision of the regulations prescribed

8 under this section, the Board of Governors

9 of the Federal Reserve System, the Comp10 troller of the Currency, and the Board of

11 Directors of the Corporation determine

12 jointly that the protection afforded by such

13 provision for customers is greater than the

14 protection provided by a comparable provi15 sion of the statutes, regulations, orders, or

16 interpretations referred to in subparagraph

17 (A) of any State, the appropriate State

18 regulatory authority shall be notified of

19 such determination in writing.

20 ‘‘(ii) CONSIDERATIONS.—Before mak21 ing a final determination under clause (i),

22 the Federal agencies referred to in clause

23 (i) shall give appropriate consideration to

24 comments submitted by the appropriate

25 State regulatory authorities relating to the
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1 level of protection afforded to consumers

2 under State law.

3 ‘‘(iii) FEDERAL PREEMPTION AND

4 ABILITY OF STATES TO OVERRIDE FED5 ERAL PREEMPTION.—If the Federal agen6 cies referred to in clause (i) jointly deter7 mine that any provision of the regulations

8 prescribed under this section affords great9 er protections than a comparable State

10 law, rule, regulation, order, or interpreta11 tion, those agencies shall send a written

12 preemption notice to the appropriate State

13 regulatory authority to notify the State

14 that the Federal provision will preempt the

15 State provision and will become applicable

16 unless, not later than 3 years after the

17 date of such notice, the State adopts legis18 lation to override such preemption.

19 ‘‘(f) NON-DISCRIMINATION AGAINST NON-AFFILI20 ATED AGENTS.—The Federal banking agencies shall en21 sure that the regulations prescribed pursuant to sub22 section (a) shall not have the practical effect of discrimi23 nating, either intentionally or unintentionally, against any

24 person engaged in insurance sales or solicitations that is

25 not affiliated with an insured depository institution.’’.
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1 SEC. 203. FEDERAL AND STATE DISPUTE RESOLUTION.

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

3 a regulatory conflict between a State insurance regulator

4 and a Federal regulator regarding insurance issues, in5 cluding whether a State law, rule, regulation, order, or in6 terpretation regarding any insurance sales or solicitation

7 activity is properly treated as preempted under Federal

8 law, either regulator may seek expedited judicial review

9 of such determination by the United States Court of Ap10 peals for the circuit in which the State is located or in

11 the United States Court of Appeals for the District of Co12 lumbia Circuit by filing a petition for review in such court.

13 (b) EXPEDITED REVIEW.—The United States Court

14 of Appeals in which a petition for review if filed in accord15 ance with subsection (a) shall complete all action on such

16 petition, including rendering a judgment, before the end

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

18 petition is filed, unless all parties to such proceedings

19 agree to any extension of such period.

20 (c) SUPREME COURT REVIEW.—Any request for cer21 tiorari to the Supreme Court of the United States of any

22 judgment of a United States Court of Appeals with respect

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

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

25 practicable after such judgment is issued.
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1 (d) STATUTE OF LIMITATION.—No action may be

2 filed under this section challenging an order, ruling, deter3 mination, or other action of a Federal regulator or State

4 insurance regulator after the later of—

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

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

7 of such order, ruling, determination or other action

8 in its final form; or

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

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

11 or other action takes effect.

12 (e) STANDARD OF REVIEW.—The court shall decide

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

14 on the merits of all questions presented under State and

15 Federal law, including the nature of the product or activ16 ity and the history and purpose of its regulation under

17 State and Federal law, according equal deference to the

18 Federal regulator and the State insurance regulator.

19 TITLE III—REGULATORY

20 IMPROVEMENTS

21 SEC. 301. ELIMINATION OF SAIF AND DIF SPECIAL RE22 SERVES.

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

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

25 is amended by striking subparagraph (L).
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1 (b) DIF SPECIAL RESERVE.—Section 2704 of the

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

3 note) is amended—

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

5 (2) in subsection (d)—

6 (A) by striking paragraph (4);

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

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

9 and

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

11 (ii) and inserting the following:

12 ‘‘(ii) by redesignating paragraph (8)

13 as paragraph (5).’’.

14 (c) EFFECTIVE DATE.—This section and the amend15 ments made by this section shall become effective on the

16 date of enactment of this Act.

17 SEC. 302. EXPANDED SMALL BANK ACCESS TO S CORPORA18 TION TREATMENT.

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

20 States shall conduct a study of—

21 (1) possible revisions to the rules governing S

22 corporations, including—

23 (A) increasing the permissible number of

24 shareholders in such corporations;
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1 (B) permitting shares of such corporations

2 to be held in individual retirement accounts;

3 (C) clarifying that interest on investments

4 held for safety, soundness, and liquidity pur5 poses should not be considered to be passive in6 come;

7 (D) discontinuation of the treatment of

8 stock held by bank directors as a disqualifying

9 personal class of stock for such corporations;

10 and

11 (E) improving Federal tax treatment of

12 bad debt and interest deductions; and

13 (2) what impact such revisions might have on

14 community banks.

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

16 months after the date of enactment of this Act, the Comp17 troller General of the United States shall submit a report

18 to the Congress on the results of the study conducted

19 under subsection (a).

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

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

22 1361(a)(1) of the Internal Revenue Code of 1986.

23 SEC. 303. MEANINGFUL CRA EXAMINATIONS.

24 (a) COMPLIANCE.—Notwithstanding any other provi25 sion of law, an insured depository institution rated as
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1 ‘‘satisfactory’’ or better in its most recent examination

2 under the Community Reinvestment Act of 1977, and in

3 each such examination during the immediately preceding

4 36-month period shall be deemed to be in compliance with

5 the requirements of that Act until the completion of a sub6 sequent regularly scheduled examination under that Act,

7 unless substantial verifiable information arising since the

8 time of its most recent examination under that Act dem9 onstrating noncompliance is filed with the appropriate

10 Federal banking agency.

11 (b) OBJECTIONS.—

12 (1) AGENCY DETERMINATION.—The appro13 priate Federal banking agency shall determine, on a

14 timely basis, whether the information filed by any

15 person under subsection (a) provides sufficient proof

16 that the subject insured depository institution is no

17 longer in compliance with the requirements of the

18 Community Reinvestment Act of 1977, as provided

19 in subsection (a).

20 (2) BURDEN OF PROOF.—A person filing infor21 mation under subsection (a) shall bear the burden of

22 proving to the satisfaction of the appropriate Fed23 eral banking agency, the substantial verifiable na24 ture of that information.
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1 (c) DEFINITIONS.—In this section, the terms ‘‘in2 sured depository institution’’ and ‘‘appropriate Federal

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

4 3 of the Federal Deposit Insurance Act.

5 SEC. 304. TEMPORARY EXTENSION OF BANK INSURANCE

6 FUND MEMBER FICO ASSESSMENT RATES.

7 Section 2703(c)(2)(A) of the Deposit Insurance

8 Funds Act of 1996 (12 U.S.C. 1441 note) is amended by

9 striking ‘‘1999’’ and inserting ‘‘2002’’.

10 SEC. 305. CROSS MARKETING RESTRICTION; LIMITED PUR11 POSE BANK RELIEF; DIVESTITURE.

12 (a) CROSS MARKETING RESTRICTION.—Section 4(f)

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

14 1843(f)) is amended by striking paragraph (3).

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

16 Bank Holding Company Act of 1956 (12 U.S.C. 1843(f))

17 is amended by inserting after paragraph (2) the following

18 new paragraph:

19 ‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—

20 For purposes of paragraph (2)(C), an overdraft is

21 described in this paragraph if—

22 ‘‘(A) such overdraft results from an inad23 vertent computer or accounting error that is be24 yond the control of both the bank and the affil25 iate;
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1 ‘‘(B) such overdraft—

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

3 of an affiliate that is monitored by, reports

4 to, and is recognized as a primary dealer

5 by the Federal Reserve Bank of New York;

6 and

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

8 the Board, by bonds, notes, or other obli9 gations that are direct obligations of the

10 United States or on which the principal

11 and interest are fully guaranteed by the

12 United States or by securities and obliga13 tions eligible for settlement on the Federal

14 Reserve book entry system; or

15 ‘‘(C) such overdraft—

16 ‘‘(i) is permitted or incurred by, or on

17 behalf of, an affiliate that is engaged in ac18 tivities that are so closely related to bank19 ing, or managing or controlling banks, as

20 to be a proper incident thereto; and

21 ‘‘(ii) does not cause the bank to vio22 late any provision of section 23A or 23B of

23 the Federal Reserve Act, either directly, in

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

25 Federal Reserve System, or by virtue of
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1 section 18(j) of the Federal Deposit Insur2 ance Act, in the case of a bank that is not

3 a member of the Federal Reserve Sys4 tem.’’.

5 (c) INDUSTRIAL LOAN COMPANIES; AFFILIATE

6 OVERDRAFTS.—Section 2(c)(2)(H) of the Bank Holding

7 Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is

8 amended by inserting before the period at the end ‘‘, or

9 that is otherwise permissible for a bank controlled by a

10 company described in section 4(f)(1)’’.

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

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

13 1843(f)(2)) is amended—

14 (1) by striking ‘‘Paragraph (1) shall cease to

15 apply to any company described in such paragraph

16 if—’’ and inserting ‘‘Subject to paragraph (3), a

17 company described in paragraph (1) shall no longer

18 qualify for the exemption provided under that para19 graph if—’’;

20 (2) in subparagraph (A)—

21 (A) in clause (ii)(IX), by striking ‘‘and’’ at

22 the end;

23 (B) in clause (ii)(X), by inserting ‘‘and’’

24 after the semicolon;
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1 (C) in clause (ii), by inserting after sub2 clause (X) the following:

3 ‘‘(XI) assets that are derived

4 from, or incidental to, activities in

5 which institutions described in section

6 2(c)(2)(F) or section 2(c)(2)(H) are

7 permitted to engage;’’; and

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

9 (3) by striking subparagraph (B) and inserting

10 the following:

11 ‘‘(B) any bank subsidiary of such

12 company—

13 ‘‘(i) accepts demand deposits or de14 posits that the depositor may withdraw by

15 check or similar means for payment to

16 third parties; and

17 ‘‘(ii) engages in the business of mak18 ing commercial loans (except that, for pur19 poses of this clause, loans made in the or20 dinary course of a credit card operation

21 shall not be treated as commercial loans);

22 or

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

24 Competitive Equality Amendments of 1987, any

25 bank subsidiary of such company permits any
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1 overdraft (including any intraday overdraft), or

2 incurs any such overdraft in the account of the

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

4 affiliate, other than an overdraft described in

5 paragraph (3).’’.

6 (e) DIVESTITURE REQUIREMENT.—Section 4(f)(4) of

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

8 1843(f)(4)) is amended to read as follows:

9 ‘‘(4) DIVESTITURE IN CASE OF LOSS OF EX10 EMPTION.—If any company described in paragraph

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

12 paragraph (1) by operation of paragraph (2), such

13 exemption shall cease to apply to such company and

14 such company shall divest control of each bank it

15 controls before the end of the 180-day period begin16 ning on the date on which the company receives no17 tice from the Board that the company has failed to

18 continue to qualify for such exemption, unless, be19 fore the end of such 180-day period, the company

20 has—

21 ‘‘(A) either—

22 ‘‘(i) corrected the condition or ceased

23 the activity that caused the company to

24 fail to continue to qualify for the exemp25 tion; or
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1 ‘‘(ii) submitted a plan to the Board

2 for approval to cease the activity or correct

3 the condition in a timely manner (which

4 shall not exceed 1 year); and

5 ‘‘(B) implemented procedures that are rea6 sonably adapted to avoid the reoccurrence of

7 such condition or activity.’’.

8 SEC. 306. ‘‘PLAIN LANGUAGE’’ REQUIREMENT FOR FEDERAL

9 BANKING AGENCY RULES.

10 (a) IN GENERAL.—Each Federal banking agency

11 shall use plain language in all proposed and final

12 rulemakings published by the agency in the Federal Reg13 ister after January 1, 2000.

14 (b) REPORT.—Not later than March 1, 2001, each

15 Federal banking agency shall submit to the Congress a

16 report that describes how the agency has complied with

17 subsection (a).

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

19 terms ‘‘Federal banking agency’’ and ‘‘State bank super20 visor’’ have the same meanings as in section 3 of the Fed21 eral Deposit Insurance Act.

22 SEC. 307. RETENTION OF ‘‘FEDERAL’’ IN NAME OF CON23 VERTED FEDERAL SAVINGS ASSOCIATION.

24 Section 2 of the Act entitled ‘‘An Act to enable na25 tional banking associations to increase their capital stock
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1 and to change their names or locations’’, approved May

2 1, 1886 (12 U.S.C. 30), is amended by adding at the end

3 the following new subsection:

4 ‘‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CON5 VERTED FEDERAL SAVINGS ASSOCIATION.—

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

7 (a) or any other provision of law, any depository in8 stitution, the charter of which is converted from that

9 of a Federal savings association to a national bank

10 or a State bank after the date of enactment of the

11 Financial Services Modernization Act of 1999 may

12 retain the term ‘Federal’ in the name of such insti13 tution if such institution remains an insured deposi14 tory institution.

15 ‘‘(2) DEFINITIONS.—For purposes of this sub16 section, the terms ‘depository institution’, ‘insured

17 depository institution’, ‘national bank’, and ‘State

18 bank’ have the same meanings as in section 3 of the

19 Federal Deposit Insurance Act.’’.

20 SEC. 308. COMMUNITY REINVESTMENT ACT EXEMPTION.

21 (a) IN GENERAL.—No community financial institu22 tion shall be subject to the Community Reinvestment Act

23 of 1977 (12 U.S.C. 2901 et seq.).

24 (b) DEFINITION OF COMMUNITY FINANCIAL INSTI25 TUTION.—As used in this section, the term ‘‘community
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1 financial institution’’ means an insured depository institu2 tion (as defined in section 3 of the Federal Deposit Insur3 ance Act), that has aggregate assets of not more than

4 $100,000,000, and that is located in a non-metropolitan

5 area.

6 (c) ADJUSTMENTS.—The dollar amount referred to

7 in subsection (b) shall be adjusted annually after Decem8 ber 31, 1999, by the annual percentage increase in the

9 Consumer Price Index for Urban Wage Earners and Cler10 ical Workers published by the Bureau of Labor Statistics.

11 (d) DEFINITION.—For purposes of this section, the

12 term ‘‘non-metropolitan area’’ means any area, no part

13 of which is within an area designated as a metropolitan

14 statistical area by the Office of Management and Budget.

15 SEC. 309. BANK OFFICERS AND DIRECTORS AS OFFICERS

16 AND DIRECTORS OF PUBLIC UTILITIES.

17 Section 305(b) of the Federal Power Act (16 U.S.C.

18 825d(b)) is amended—

19 (1) by striking ‘‘(b) After six’’ and inserting the

20 following:

21 ‘‘(b) INTERLOCKING DIRECTORATES.—

22 ‘‘(1) IN GENERAL.—After 6’’; and

23 (2) by adding at the end the following:

24 ‘‘(2) APPLICABILITY.—
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1 ‘‘(A) IN GENERAL.—In the circumstances

2 described in subparagraph (B), paragraph (1)

3 shall not apply to a person that holds or pro4 poses to hold the positions of—

5 ‘‘(i) officer or director of a public util6 ity; and

7 ‘‘(ii) officer or director of a bank,

8 trust company, banking association, or

9 firm authorized by law to underwrite or

10 participate in the marketing of securities

11 of a public utility.

12 ‘‘(B) CIRCUMSTANCES.—The cir13 cumstances described in this subparagraph are

14 that—

15 ‘‘(i) a person described in subpara16 graph (A) does not participate in any de17 liberations or decisions of the public utility

18 regarding the selection of a bank, trust

19 company, banking association, or firm to

20 underwrite or participate in the marketing

21 of securities of the public utility, if the per22 son serves as an officer or director of a

23 bank, trust company, banking association,

24 or firm that is under consideration in the

25 deliberation process;
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1 ‘‘(ii) the bank, trust company, bank2 ing association, or firm of which the per3 son is an officer or director does not en4 gage in the underwriting of, or participate

5 in the marketing of, securities of the public

6 utility of which the person holds the posi7 tion of officer or director;

8 ‘‘(iii) the public utility for which the

9 person serves or proposes to serve as an

10 officer or director selects underwriters by

11 competitive procedures; or

12 ‘‘(iv) the issuance of securities the

13 public utility for which the person serves

14 or proposes to serve as an officer or direc15 tor has been approved by all Federal and

16 State regulatory agencies having jurisdic17 tion over the issuance.’’.

18 SEC. 310. CONTROL OF BANKERS BANKS.

19 Section 2(a)(5)(E)(i) of the Bank Holding Company

20 Act of 1956 (12 U.S.C. 1841(a)(5)(E)(i)) is amended by

21 inserting ‘‘one or more’’ before ‘‘thrift institutions’’.

22 SEC. 311. MULTISTATE LICENSING AND INTERSTATE IN23 SURANCE SALES ACTIVITIES.

24 (a) FINDINGS.—Congress finds that—
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1 (1) the States regulate the business of insur2 ance, including the licensing of insurance agents and

3 brokers;

4 (2) the current State insurance licensing system

5 requires insurance agents and brokers to obtain li6 censes on a line-by-line, class-by-class, producer-by7 producer, State-by-State basis;

8 (3) in the commercial and industrial insurance

9 arena, this State-based system usually requires a

10 single agent or broker to hold scores of licenses if

11 that agent or broker intends to sell or broker insur12 ance on a nationwide basis;

13 (4) because of the duplicative licensing require14 ments both within States and from State to State,

15 a single insurance agent or broker must satisfy lit16 erally hundreds of administrative filing requirements

17 to become fully licensed to engage in the sale of a

18 full range of insurance products on a nationwide

19 basis;

20 (5) these administrative requirements appear to

21 be essentially unrelated to any requisite standards of

22 professionalism;

23 (6) many States impose certain requirements

24 on insurance agents and brokers that pose an undue,

25 discriminatory burden on nonresident agents, includ-
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1 ing some States that ban solicitation of insurance

2 clients by nonresident agents and brokers;

3 (7) many States impose anticompetitive post-li4 censure requirements on nonresident agents and bro5 kers, including countersignature laws that require an

6 agent or broker servicing the needs of an out-of7 State client to have any insurance policy that is sold

8 ‘‘countersigned’’ by a resident agent;

9 (8) in some cases, such countersignature laws

10 also require a nonresident agent or broker to pay at

11 least half of any commission earned in a State in

12 which the agent or broker is not a resident to a resi13 dent agent or broker; and

14 (9) such duplicative and onerous filing require15 ments and anticompetitive burdens inhibit interstate

16 commerce, constitute unjustifiable trade barriers,

17 greatly undermine the competition that this Act

18 seeks to foster.

19 (b) SENSE OF CONGRESS.—It is the sense of the

20 Congress that—

21 (1) by the end of the 36-month period begin22 ning on the date of enactment of this Act, the States

23 should—

24 (A) implement uniform insurance agent

25 and broker licensing application and qualifica-
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1 tion requirements that result in a fully recip2 rocal licensing system; and

3 (B) eliminate any pre- or post-licensure re4 quirements that have the practical effect of dis5 criminating, directly or indirectly, against non6 resident insurance agents or brokers;

7 (2) if such actions are not taken, Congress

8 should take steps to directly rectify the problems

9 identified in subsection (a); and

10 (3) any entity established by the Congress to so

11 rectify the problems should be under the supervision

12 and oversight of the National Association of Insur13 ance Commissioners.

14 TITLE IV—FEDERAL HOME LOAN

15 BANK SYSTEM MODERNIZATION

16 SEC. 401. SHORT TITLE.

17 This title may be cited as the ‘‘Federal Home Loan

18 Bank System Modernization Act of 1999’’.

19 SEC. 402. DEFINITIONS.

20 Section 2 of the Federal Home Loan Bank Act (12

21 U.S.C. 1422) is amended—

22 (1) in paragraph (1), by striking ‘‘term ‘Board’

23 means’’ and inserting ‘‘terms ‘Finance Board’ and

24 ‘Board’ mean’’;
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1 (2) by striking paragraph (3) and inserting the

2 following:

3 ‘‘(3) STATE.—The term ‘State’, in addition to

4 the States of the United States, includes the District

5 of Columbia, Guam, Puerto Rico, the United States

6 Virgin Islands, American Samoa, and the Common7 wealth of the Northern Mariana Islands.’’; and

8 (3) by adding at the end the following new

9 paragraph:

10 ‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—

11 ‘‘(A) IN GENERAL.—The term ‘community

12 financial institution’ means a member—

13 ‘‘(i) the deposits of which are insured

14 under the Federal Deposit Insurance Act;

15 and

16 ‘‘(ii) that has, as of the date of the

17 transaction at issue, less than

18 $500,000,000 in average total assets,

19 based on an average of total assets over

20 the 3 years preceding that date.

21 ‘‘(B) ADJUSTMENTS.—The $500,000,000

22 limit referred to in subparagraph (A)(ii) shall

23 be adjusted annually by the Finance Board,

24 based on the annual percentage increase, if any,

25 in the Consumer Price Index for all urban con-
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1 sumers, as published by the Department of

2 Labor.’’.

3 SEC. 403. SAVINGS ASSOCIATION MEMBERSHIP.

4 (a) FEDERAL HOME LOAN BANK MEMBERSHIP.—

5 Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.

6 1464(f)) is amended to read as follows:

7 ‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—

8 On and after June 1, 2000, a Federal savings association

9 may become a member of the Federal Home Loan Bank

10 System, and shall qualify for such membership in the

11 manner provided by the Federal Home Loan Bank Act.’’.

12 (b) WITHDRAWAL.—Section 6(e) of the Federal

13 Home Loan Bank Act (12 U.S.C. 1426(e)) is amended

14 by striking ‘‘Any member other than a Federal savings

15 and loan association may withdraw’’ and inserting ‘‘Any

16 member may withdraw if, on the date of withdrawal there

17 is in effect a certification by the Finance Board that the

18 withdrawal will not cause the Federal Home Loan Bank

19 System to fail to meet its obligation under section

20 21B(f)(2)(C) to contribute to the debt service for the obli21 gations issued by the Resolution Funding Corporation’’.

22 SEC. 404. ADVANCES TO MEMBERS; COLLATERAL.

23 (a) IN GENERAL.—Section 10(a) of the Federal

24 Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—
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1 (1) by redesignating paragraphs (1) through

2 (4) as subparagraphs (A) through (D), respectively,

3 and indenting appropriately;

4 (2) by striking ‘‘(a) Each’’ and inserting the

5 following:

6 ‘‘(a) IN GENERAL.—

7 ‘‘(1) ALL ADVANCES.—Each’’;

8 (3) by striking the second sentence and insert9 ing the following:

10 ‘‘(2) PURPOSES OF ADVANCES.—A long-term

11 advance may only be made for the purposes of—

12 ‘‘(A) providing funds to any member for

13 residential housing finance; and

14 ‘‘(B) providing funds to any community fi15 nancial institution for small businesses, small

16 farms, and small agri-businesses.’’;

17 (4) by striking ‘‘A Bank’’ and inserting the fol18 lowing:

19 ‘‘(3) COLLATERAL.—A Bank’’;

20 (5) in paragraph (3) (as so designated by para21 graph (4) of this subsection)—

22 (A) in subparagraph (C) (as so redesig23 nated by paragraph (1) of this subsection) by

24 striking ‘‘Deposits’’ and inserting ‘‘Cash or de25 posits’’;
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1 (B) in subparagraph (D) (as so redesig2 nated by paragraph (1) of this subsection), by

3 striking the second sentence; and

4 (C) by inserting after subparagraph (D)

5 (as so redesignated by paragraph (1) of this

6 subsection) the following new subparagraph:

7 ‘‘(E) Secured loans for small business, ag8 riculture, or securities representing a whole in9 terest in such secured loans, in the case of any

10 community financial institution.’’;

11 (6) in paragraph (5)—

12 (A) in the second sentence, by striking

13 ‘‘and the Board’’;

14 (B) in the third sentence, by striking

15 ‘‘Board’’ and inserting ‘‘Federal Home Loan

16 Bank’’; and

17 (C) by striking ‘‘(5) Paragraphs (1)

18 through (4)’’ and inserting the following:

19 ‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara20 graphs (A) through (E) of paragraph (3)’’; and

21 (7) by adding at the end the following:

22 ‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND23 ARDS.—The Board may review the collateral stand24 ards applicable to each Federal Home Loan Bank

25 for the classes of collateral described in subpara-
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1 graphs (D) and (E) of paragraph (3), and may, if

2 necessary for safety and soundness purposes, require

3 an increase in the collateral standards for any or all

4 of those classes of collateral.

5 ‘‘(6) DEFINITIONS.—For purposes of this sub6 section, the terms ‘small business’, ‘agriculture’,

7 ‘small farm’, and ‘small agri-business’ shall have the

8 meanings given those terms by rule or regulation of

9 the Finance Board.’’.

10 (b) CLERICAL AMENDMENT.—The section heading

11 for section 10 of the Federal Home Loan Bank Act (12

12 U.S.C. 1430) is amended to read as follows:

13 ‘‘SEC. 10. ADVANCES TO MEMBERS.’’.

14 SEC. 405. ELIGIBILITY CRITERIA.

15 Section 4(a) of the Federal Home Loan Bank Act

16 (12 U.S.C. 1424(a)) is amended—

17 (1) in paragraph (2)(A), by inserting, ‘‘(other

18 than a community financial institution)’’ after ‘‘in19 stitution’’;

20 (2) in the matter immediately following para21 graph (2)(C)—

22 (A) by striking ‘‘An insured’’ and inserting

23 the following:

24 ‘‘(3) CERTAIN INSTITUTIONS.—An insured’’;

25 and
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1 (B) by striking ‘‘preceding sentence’’ and

2 inserting ‘‘paragraph (2)’’; and

3 (3) by adding at the end the following new

4 paragraph:

5 ‘‘(4) LIMITED EXEMPTION FOR COMMUNITY FI6 NANCIAL INSTITUTIONS.—A community financial in7 stitution that otherwise meets the requirements of

8 paragraph (2) may become a member without regard

9 to the percentage of its total assets that is rep10 resented by residential mortgage loans, as described

11 in subparagraph (A) of paragraph (2).’’.

12 SEC. 406. MANAGEMENT OF BANKS.

13 (a) BOARD OF DIRECTORS.—Section 7(d) of the Fed14 eral Home Loan Bank Act (12 U.S.C. 1427(d)) is

15 amended—

16 (1) by striking ‘‘(d) The term’’ and inserting

17 the following:

18 ‘‘(d) TERMS OF OFFICE.—The term’’; and

19 (2) by striking ‘‘shall be two years’’.

20 (b) COMPENSATION.—Section 7(i) of the Federal

21 Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by

22 striking ‘‘subject to the approval of the board’’.

23 (c) REPEAL OF SECTIONS 22A AND 27.—The Fed24 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is
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1 amended by striking sections 22A (12 U.S.C. 1442a) and

2 27 (12 U.S.C. 1447).

3 (d) SECTION 12.—Section 12 of the Federal Home

4 Loan Bank Act (12 U.S.C. 1432) is amended—

5 (1) in subsection (a)—

6 (A) by striking ‘‘, but, except’’ and all that

7 follows through ‘‘ten years’’;

8 (B) by striking ‘‘subject to the approval of

9 the Board’’ each place that term appears;

10 (C) by striking ‘‘and, by its Board of direc11 tors,’’ and all that follows through ‘‘agent of

12 such bank,’’ and inserting ‘‘and, by the board

13 of directors of the Bank, to prescribe, amend,

14 and repeal by-laws governing the manner in

15 which its affairs may be administered, con16 sistent with applicable laws and regulations, as

17 administered by the Finance Board. No officer,

18 employee, attorney, or agent of a Federal Home

19 Loan Bank’’; and

20 (D) by striking ‘‘Board of directors’’ each

21 place that term appears and inserting ‘‘board of

22 directors’’; and

23 (2) in subsection (b), by striking ‘‘loans banks’’

24 and inserting ‘‘loan banks’’.
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1 (e) POWERS AND DUTIES OF FEDERAL HOUSING FI2 NANCE BOARD.—

3 (1) ISSUANCE OF NOTICES OF VIOLATIONS.—

4 Section 2B(a) of the Federal Home Loan Bank Act

5 (12 U.S.C. 1422b(a)) is amended by adding at the

6 end the following new paragraphs:

7 ‘‘(5) To issue and serve a notice of charges

8 upon a Federal Home Loan Bank or upon any exec9 utive officer or director of a Federal Home Loan

10 Bank if, in the determination of the Finance Board,

11 the Bank, executive officer, or director is engaging

12 or has engaged in, or the Finance Board has reason13 able cause to believe that the Bank, executive officer,

14 or director is about to engage in, any conduct that

15 violates any provision of this Act or any law, order,

16 rule, or regulation or any condition imposed in writ17 ing by the Finance Board in connection with the

18 granting of any application or other request by the

19 Bank, or any written agreement entered into by the

20 Bank with the agency, in accordance with the proce21 dures provided in section 1371(c) of the Federal

22 Housing Enterprises Financial Safety and Sound23 ness Act of 1992. Such authority includes the same

24 authority to take affirmative action to correct condi25 tions resulting from violations or practices or to
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1 limit activities of a Bank or any executive officer or

2 director of a Bank as appropriate Federal banking

3 agencies have to take with respect to insured deposi4 tory institutions under paragraphs (6) and (7) of

5 section 8(b) of the Federal Deposit Insurance Act,

6 and to have all other powers, rights, and duties to

7 enforce this Act with respect to the Federal Home

8 Loan Banks and their executive officers and direc9 tors as the Office of Federal Housing Enterprise

10 Oversight has to enforce the Federal Housing Enter11 prises Financial Safety and Soundness Act of 1992,

12 the Federal National Mortgage Association Charter

13 Act, or the Federal Home Loan Mortgage Corpora14 tion Act with respect to the Federal housing enter15 prises under the Federal Housing Enterprises Fi16 nancial Safety and Soundness Act of 1992.

17 ‘‘(6) To sue and be sued, by and through its

18 own attorneys.’’.

19 (2) TECHNICAL AMENDMENT.—Section 111 of

20 Public Law 93–495 (12 U.S.C. 250) is amended by

21 inserting ‘‘Federal Housing Finance Board,’’ after

22 ‘‘Director of the Office of Thrift Supervision,’’.

23 (f) ELIGIBILITY TO SECURE ADVANCES.—
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1 (1) SECTION 9.—Section 9 of the Federal

2 Home Loan Bank Act (12 U.S.C. 1429) is

3 amended—

4 (A) in the second sentence, by striking

5 ‘‘with the approval of the Board’’; and

6 (B) in the third sentence, by striking ‘‘,

7 subject to the approval of the Board,’’.

8 (2) SECTION 10.—Section 10 of the Federal

9 Home Loan Bank Act (12 U.S.C. 1430) is

10 amended—

11 (A) in subsection (c)—

12 (i) in the first sentence, by striking

13 ‘‘Board’’ and inserting ‘‘Federal Home

14 Loan Bank’’; and

15 (ii) in the second sentence, by striking

16 ‘‘held by’’ and all that follows before the

17 period; and

18 (B) in subsection (d)—

19 (i) in the first sentence, by striking

20 ‘‘and the approval of the Board’’; and

21 (ii) by striking ‘‘Subject to the ap22 proval of the Board, any’’ and inserting

23 ‘‘Any’’.

24 (g) SECTION 16.—Section 16(a) of the Federal Home

25 Loan Bank Act (12 U.S.C. 1436(a)) is amended—
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1 (1) in the third sentence—

2 (A) by striking ‘‘net earnings’’ and insert3 ing ‘‘previously retained earnings or current net

4 earnings’’; and

5 (B) by striking ‘‘, and then only with the

6 approval of the Federal Housing Finance

7 Board’’; and

8 (2) by striking the fourth sentence.

9 (h) SECTION 18.—Section 18(b) of the Federal Home

10 Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik11 ing paragraph (4).

12 SEC. 407. RESOLUTION FUNDING CORPORATION.

13 (a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed14 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is

15 amended to read as follows:

16 ‘‘(C) PAYMENTS BY FEDERAL HOME LOAN

17 BANKS.—

18 ‘‘(i) IN GENERAL.—To the extent that

19 the amounts available pursuant to sub20 paragraphs (A) and (B) are insufficient to

21 cover the amount of interest payments,

22 each Federal Home Loan Bank shall pay

23 to the Funding Corporation in each cal24 endar year, 20.75 percent of the net earn25 ings of that Bank (after deducting ex-
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1 penses relating to section 10(j) and oper2 ating expenses).

3 ‘‘(ii) ANNUAL DETERMINATION.—The

4 Board annually shall determine the extent

5 to which the value of the aggregate

6 amounts paid by the Federal Home Loan

7 Banks exceeds or falls short of the value of

8 an annuity of $300,000,000 per year that

9 commences on the issuance date and ends

10 on the final scheduled maturity date of the

11 obligations, and shall select appropriate

12 present value factors for making such de13 terminations.

14 ‘‘(iii) PAYMENT TERM ALTER15 ATIONS.—The Board shall extend or short16 en the term of the payment obligations of

17 a Federal Home Loan Bank under this

18 subparagraph as necessary to ensure that

19 the value of all payments made by the

20 Banks is equivalent to the value of an an21 nuity referred to in clause (ii).

22 ‘‘(iv) TERM BEYOND MATURITY.—If

23 the Board extends the term of payment ob24 ligations beyond the final scheduled matu25 rity date for the obligations, each Federal
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1 Home Loan Bank shall continue to pay

2 20.75 percent of its net earnings (after de3 ducting expenses relating to section 10(j)

4 and operating expenses) to the Treasury of

5 the United States until the value of all

6 such payments by the Federal Home Loan

7 Banks is equivalent to the value of an an8 nuity referred to in clause (ii). In the final

9 year in which the Federal Home Loan

10 Banks are required to make any payment

11 to the Treasury under this subparagraph,

12 if the dollar amount represented by 20.75

13 percent of the net earnings of the Federal

14 Home Loan Banks exceeds the remaining

15 obligation of the Banks to the Treasury,

16 the Finance Board shall reduce the per17 centage pro rata to a level sufficient to pay

18 the remaining obligation.’’.

19 (b) EFFECTIVE DATE.—The amendment made by

20 subsection (a) shall become effective on June 1, 2000.

21 Payments made by a Federal Home Loan Bank before

22 that effective date shall be counted toward the total obliga23 tion of that Bank under section 21B(f)(2)(C) of the Fed24 eral Home Loan Bank Act, as amended by this section.
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1 SEC. 408. GAO STUDY ON FEDERAL HOME LOAN BANK SYS2 TEM CAPITAL.

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

4 States shall conduct a study of—

5 (1) possible revisions to the capital structure of

6 the Federal Home Loan Bank System, including the

7 need for—

8 (A) more permanent capital;

9 (B) a statutory leverage ratio; and

10 (C) a risk-based capital structure; and

11 (2) what impact such revisions might have on

12 the operations of the Federal Home Loan Bank Sys13 tem, including the obligation of the Federal Home

14 Loan Bank System under section 21B(f)(2)(C) of

15 the Federal Home Loan Bank Act.

16 (b) REPORT TO CONGRESS.—Not later than 1 year

17 after the date of enactment of this Act, the Comptroller

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

19 Congress on the results of the study conducted under sub20 section (a).

21 TITLE V—FUNCTIONAL REGULA22 TION OF BROKERS AND DEAL23 ERS

24 SEC. 501. DEFINITION OF BROKER.

25 Section 3(a)(4) of the Securities Exchange Act of

26 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:
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1 ‘‘(4) BROKER.—

2 ‘‘(A) IN GENERAL.—The term ‘broker’

3 means any person engaged in the business of

4 effecting transactions in securities for the ac5 count of others.

6 ‘‘(B) EXCEPTION FOR CERTAIN BANK AC7 TIVITIES.—A bank shall not be considered to be

8 a broker because the bank engages in any of

9 the following activities under the conditions de10 scribed:

11 ‘‘(i) THIRD PARTY BROKERAGE AR12 RANGEMENTS.—The bank enters into a

13 contractual or other arrangement with a

14 broker or dealer registered under this title

15 under which the broker or dealer offers

16 brokerage services on or off the premises

17 of the bank, if—

18 ‘‘(I) such broker or dealer is

19 clearly identified as the person per20 forming the brokerage services;

21 ‘‘(II) the broker or dealer per22 forms brokerage services in an area of

23 the bank that is clearly marked and,

24 to the extent practicable, physically
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1 separate from the routine deposit-tak2 ing activities of the bank;

3 ‘‘(III) any materials used by the

4 bank to advertise or promote generally

5 the availability of brokerage services

6 under the contractual or other ar7 rangement clearly indicate that the

8 brokerage services are being provided

9 by the broker or dealer and not by the

10 bank;

11 ‘‘(IV) any materials used by the

12 bank to advertise or promote generally

13 the availability of brokerage services

14 under the contractual or other ar15 rangement are in compliance with the

16 Federal securities laws before dis17 tribution;

18 ‘‘(V) bank employees (other than

19 associated persons of a broker or deal20 er who are qualified pursuant to the

21 rules of a self-regulatory organization)

22 perform only clerical or ministerial

23 functions in connection with broker24 age transactions including scheduling

25 appointments with the associated per-
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1 sons of a broker or dealer, except that

2 bank employees may forward cus3 tomer funds or securities and may de4 scribe in general terms the range of

5 investment vehicles available from the

6 bank and the broker or dealer under

7 the contractual or other arrangement;

8 ‘‘(VI) bank employees do not di9 rectly receive incentive compensation

10 for any brokerage transaction, unless

11 such employees are associated persons

12 of a broker or dealer and are qualified

13 pursuant to the rules of a self-regu14 latory organization, except that the

15 bank employees may receive com16 pensation for the referral of any cus17 tomer if the compensation is a nomi18 nal one-time cash fee of a fixed dollar

19 amount and the payment of the fee is

20 not contingent on whether the referral

21 results in a transaction;

22 ‘‘(VII) such services are provided

23 by the broker or dealer on a basis in

24 which all customers that receive any
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1 services are fully disclosed to the

2 broker or dealer;

3 ‘‘(VIII) the bank does not carry

4 a securities account of the customer,

5 except in a customary custodian or

6 trustee capacity; and

7 ‘‘(IX) the bank, broker, or dealer

8 informs each customer that the bro9 kerage services are provided by the

10 broker or dealer and not by the bank,

11 and that the securities are not depos12 its or other obligations of the bank,

13 are not guaranteed by the bank, and

14 are not insured by the Federal De15 posit Insurance Corporation.

16 ‘‘(ii) TRUST ACTIVITIES.—The bank

17 effects transactions in a trustee capacity,

18 or effects transactions in a fiduciary capac19 ity in its trust department or other depart20 ment that is regularly examined by bank

21 examiners for compliance with fiduciary

22 principles and standards, and does not

23 publicly solicit brokerage business, other

24 than by advertising that it effects trans-
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1 actions in securities in conjunction with

2 advertising its other trust activities.

3 ‘‘(iii) PERMISSIBLE SECURITIES

4 TRANSACTIONS.—The bank effects trans5 actions in—

6 ‘‘(I) commercial paper, bankers

7 acceptances, or commercial bills;

8 ‘‘(II) exempted securities;

9 ‘‘(III) qualified Canadian Gov10 ernment obligations, as defined in sec11 tion 5136 of the Revised Statutes of

12 the United States, in conformity with

13 section 15C of this title and the rules

14 and regulations thereunder, or obliga15 tions of the North American Develop16 ment Bank; or

17 ‘‘(IV) any standardized, credit

18 enhanced debt security issued by a

19 foreign government pursuant to the

20 March 1989 plan of then Secretary of

21 the Treasury Brady, used by such for22 eign government to retire outstanding

23 commercial bank loans.

24 ‘‘(iv) CERTAIN STOCK PURCHASE

25 PLANS.—
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1 ‘‘(I) EMPLOYEE BENEFIT

2 PLANS.—The bank effects trans3 actions, as part of its transfer agency

4 activities, in the securities of an issuer

5 as part of any pension, retirement,

6 profit-sharing, bonus, thrift, savings,

7 incentive, or other similar benefit plan

8 for the employees of that issuer or its

9 subsidiaries, if the bank does not so10 licit transactions or provide invest11 ment advice with respect to the pur12 chase or sale of securities in connec13 tion with the plan.

14 ‘‘(II) DIVIDEND REINVESTMENT

15 PLANS.—The bank effects trans16 actions, as part of its transfer agency

17 activities, in the securities of an issuer

18 as part of that issuer’s dividend rein19 vestment plan, if—

20 ‘‘(aa) the bank does not so21 licit transactions or provide in22 vestment advice with respect to

23 the purchase or sale of securities

24 in connection with the plan; and
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1 ‘‘(bb) the bank does not net

2 shareholders’ buy and sell orders,

3 other than for programs for odd4 lot holders or plans registered

5 with the Commission.

6 ‘‘(III) ISSUER PLANS.—The bank

7 effects transactions, as part of its

8 transfer agency activities, in the secu9 rities of an issuer as part of a plan or

10 program for the purchase or sale of

11 that issuer’s shares, if—

12 ‘‘(aa) the bank does not so13 licit transactions or provide in14 vestment advice with respect to

15 the purchase or sale of securities

16 in connection with the plan or

17 program; and

18 ‘‘(bb) the bank does not net

19 shareholders’ buy and sell orders,

20 other than for programs for odd21 lot holders or plans registered

22 with the Commission.

23 ‘‘(IV) PERMISSIBLE DELIVERY

24 OF MATERIALS.—The exception to

25 being considered a broker for a bank
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•S 900 PCS

1 engaged in activities described in sub2 clauses (I), (II), and (III) will not be

3 affected by delivery of written or elec4 tronic plan materials by a bank to em5 ployees of the issuer, shareholders of

6 the issuer, or members of affinity

7 groups of the issuer, so long as such

8 materials are—

9 ‘‘(aa) comparable in scope or

10 nature to that permitted by the

11 Commission as of the date of the

12 enactment of the Financial Serv13 ices Modernization Act of 1999;

14 or

15 ‘‘(bb) otherwise permitted by

16 the Commission.

17 ‘‘(v) SWEEP ACCOUNTS.—The bank

18 effects transactions as part of a program

19 for the investment or reinvestment of bank

20 deposit funds into any no-load, open-end

21 management investment company reg22 istered under the Investment Company Act

23 of 1940 that holds itself out as a money

24 market fund.
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1 ‘‘(vi) AFFILIATE TRANSACTIONS.—

2 The bank effects transactions for the ac3 count of any affiliate of the bank (as de4 fined in section 2 of the Bank Holding

5 Company Act of 1956) other than—

6 ‘‘(I) a registered broker or deal7 er; or

8 ‘‘(II) an affiliate that is engaged

9 in merchant banking, as described in

10 section 4(k)(4)(H) of the Bank Hold11 ing Company Act of 1956.

12 ‘‘(vii) PRIVATE SECURITIES OFFER13 INGS.—The bank effects sales as part of a

14 primary offering of securities not involving

15 a public offering, pursuant to section 3(b),

16 4(2), or 4(6) of the Securities Act of 1933,

17 or the rules and regulations issued there18 under.

19 ‘‘(viii) SAFEKEEPING AND CUSTODY

20 ACTIVITIES.—

21 ‘‘(I) IN GENERAL.—The bank, as

22 part of customary banking activities—

23 ‘‘(aa) provides safekeeping

24 or custody services with respect

25 to securities, including the exer-
134

•S 900 PCS

1 cise of warrants and other rights

2 on behalf of customers;

3 ‘‘(bb) facilitates the transfer

4 of funds or securities, as a custo5 dian or a clearing agency, in con6 nection with the clearance and

7 settlement of its customers’

8 transactions in securities;

9 ‘‘(cc) effects securities lend10 ing or borrowing transactions

11 with or on behalf of customers as

12 part of services provided to cus13 tomers pursuant to division (aa)

14 or (bb) or invests cash collateral

15 pledged in connection with such

16 transactions; or

17 ‘‘(dd) holds securities

18 pledged by a customer to another

19 person or securities subject to

20 purchase or resale agreements in21 volving a customer, or facilitates

22 the pledging or transfer of such

23 securities by book entry or as

24 otherwise provided under applica25 ble law.
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•S 900 PCS

1 ‘‘(II) EXCEPTION FOR CARRYING

2 BROKER ACTIVITIES.—The exception

3 to being considered a broker for a

4 bank engaged in activities described in

5 subclause (I) shall not apply if the

6 bank, in connection with such activi7 ties, acts in the United States as a

8 carrying broker (as such term, and

9 different formulations thereof, are

10 used in section 15(c)(3) and the rules

11 and regulations thereunder) for any

12 broker or dealer, unless such carrying

13 broker activities are engaged in with

14 respect to government securities (as

15 defined in paragraph (42) of this sub16 section).

17 ‘‘(ix) BANKING PRODUCTS.—The bank

18 effects transactions in traditional banking

19 products, as defined in section 503(a) of

20 the Financial Services Modernization Act

21 of 1999.

22 ‘‘(x) DE MINIMIS EXCEPTION.—The

23 bank effects, other than in transactions re24 ferred to in clauses (i) through (ix), not

25 more than 500 transactions in securities in
136

•S 900 PCS

1 any calendar year, and such transactions

2 are not effected by an employee of the

3 bank who is also an employee of a broker

4 or dealer.

5 ‘‘(C) EXECUTION BY BROKER OR DEAL6 ER.—The exception to being considered a

7 broker for a bank engaged in activities de8 scribed in clauses (ii), (iv), and (viii) of sub9 paragraph (B) shall not apply if the activities

10 described in such provisions result in the trade

11 in the United States of any security that is a

12 publicly traded security in the United States,

13 unless—

14 ‘‘(i) the bank directs such trade to a

15 registered broker or dealer for execution;

16 ‘‘(ii) the trade is a cross trade or

17 other substantially similar trade of a secu18 rity that—

19 ‘‘(I) is made by the bank or be20 tween the bank and an affiliated fidu21 ciary; and

22 ‘‘(II) is not in contravention of

23 fiduciary principles established under

24 applicable Federal or State law; or
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•S 900 PCS

1 ‘‘(iii) the trade is conducted in some

2 other manner permitted under such rules,

3 regulations, or orders as the Commission

4 may prescribe or issue.

5 ‘‘(D) NO EFFECT OF BANK EXEMPTIONS

6 ON OTHER COMMISSION AUTHORITY.—The ex7 ception to being considered a broker for a bank

8 engaged in activities described in subpara9 graphs (B) and (C) shall not affect the author10 ity of the Commission under any other provi11 sion of this title or any other securities law.

12 ‘‘(E) FIDUCIARY CAPACITY.—For purposes

13 of subparagraph (B)(ii) of this paragraph and

14 paragraph (5)(C), the term ‘fiduciary capacity’

15 means—

16 ‘‘(i) in the capacity as trustee, execu17 tor, administrator, registrar of stocks and

18 bonds, transfer agent, guardian, assignee,

19 receiver, or custodian, either under a uni20 form gift to minor act or for an individual

21 retirement account, or as an investment

22 adviser if the bank receives a fee for its in23 vestment advice or services, or as a service

24 provider to any pension, retirement, profit
138

•S 900 PCS

1 sharing, bonus, thrift, savings, incentive,

2 or other similar benefit plan;

3 ‘‘(ii) in any capacity in which the

4 bank possesses investment discretion on

5 behalf of another; or

6 ‘‘(iii) in any other similar capacity.

7 ‘‘(F) EXCEPTION FOR ENTITIES SUBJECT

8 TO SECTION 15(e).—The term ‘broker’ does not

9 include a bank that—

10 ‘‘(i) was, on the day before the date of

11 enactment of the Financial Services Mod12 ernization Act of 1999, subject to section

13 15(e); and

14 ‘‘(ii) is subject to such restrictions

15 and requirements as the Commission con16 siders appropriate.’’.

17 SEC. 502. DEFINITION OF DEALER.

18 Section 3(a)(5) of the Securities Exchange Act of

19 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

20 ‘‘(5) DEALER.—

21 ‘‘(A) IN GENERAL.—The term ‘dealer’

22 means any person engaged in the business of

23 buying and selling securities for such person’s

24 own account through a broker or otherwise.
139

•S 900 PCS

1 ‘‘(B) EXCEPTION FOR PERSON NOT EN2 GAGED IN THE BUSINESS OF DEALING.—The

3 term ‘dealer’ does not include a person that

4 buys or sells securities for such person’s own

5 account, either individually or in a fiduciary ca6 pacity, but not as a part of a regular business.

7 ‘‘(C) EXCEPTION FOR CERTAIN BANK AC8 TIVITIES.—A bank shall not be considered to be

9 a dealer because the bank engages in any of the

10 following activities under the conditions de11 scribed:

12 ‘‘(i) PERMISSIBLE SECURITIES TRANS13 ACTIONS.—The bank buys or sells—

14 ‘‘(I) commercial paper, bankers

15 acceptances, or commercial bills;

16 ‘‘(II) exempted securities;

17 ‘‘(III) qualified Canadian govern18 ment obligations as defined in section

19 5136 of the Revised Statutes of the

20 United States, in conformity with sec21 tion 15C of this title and the rules

22 and regulations thereunder, or obliga23 tions of the North American Develop24 ment Bank; or
140

•S 900 PCS

1 ‘‘(IV) any standardized, credit

2 enhanced debt security issued by a

3 foreign government pursuant to the

4 March 1989 plan of then Secretary of

5 the Treasury Brady, used by such for6 eign government to retire outstanding

7 commercial bank loans.

8 ‘‘(ii) INVESTMENT, TRUSTEE, AND FI9 DUCIARY TRANSACTIONS.—The bank buys

10 or sells securities for investment

11 purposes—

12 ‘‘(I) for the bank; or

13 ‘‘(II) for accounts for which the

14 bank acts in a trustee capacity or fi15 duciary capacity.

16 ‘‘(iii) ASSET-BACKED TRANS17 ACTIONS.—The bank engages in the

18 issuance or sale to qualified investors,

19 through a grantor trust or otherwise, of se20 curities backed by or representing an inter21 est in notes, drafts, acceptances, loans,

22 leases, receivables, other obligations, or

23 pools of any such obligations predomi24 nantly originated by the bank, or a syn25 dicate of banks of which the bank is a
141

•S 900 PCS

1 member, or an affiliate of any such bank

2 other than a broker or dealer.

3 ‘‘(iv) BANKING PRODUCTS.—The bank

4 buys or sells traditional banking products,

5 as defined in section 503(a) of the Finan6 cial Services Modernization Act of 1999.’’.

7 SEC. 503. DEFINITION AND TREATMENT OF BANKING PROD8 UCTS.

9 (a) DEFINITION OF TRADITIONAL BANKING PROD10 UCT.—For purposes of this title and paragraphs (4) and

11 (5) of section 3(a) of the Securities Exchange Act of 1934

12 (15 U.S.C. 78c(a)(4), (5)), as amended by this title, the

13 term ‘‘traditional banking product’’ means—

14 (1) a deposit account, savings account, certifi15 cate of deposit, or other deposit instrument issued

16 by a bank;

17 (2) a banker’s acceptance;

18 (3) a letter of credit issued or loan made by a

19 bank;

20 (4) a debit account at a bank arising from a

21 credit card or similar arrangement;

22 (5) a participation in a loan which the bank or

23 an affiliate of the bank (other than a broker or deal24 er) funds, participates in, or owns that is sold—

25 (A) to qualified investors; or
142

•S 900 PCS

1 (B) to other persons that—

2 (i) have the opportunity to review and

3 assess any material information, including

4 information regarding the borrower’s cred5 itworthiness; and

6 (ii) based on such factors as financial

7 sophistication, net worth, and knowledge

8 and experience in financial matters, have

9 the capability to evaluate the information

10 available, as determined under generally

11 applicable banking standards or guidelines;

12 and

13 (6) any swap agreement (as defined in section

14 11(e)(8)(D)(vi) of the Federal Deposit Insurance

15 Act), including credit swaps and equity swaps, un16 less the appropriate Federal banking agency deter17 mines that credit swaps and equity swaps shall not

18 be included in the definition of such term.

19 (b) TRANSACTIONS INVOLVING HYBRID PROD20 UCTS.—

21 (1) COMMISSION AUTHORITY.—The Commission

22 may, with the concurrence of the Board, determine,

23 by regulation published in the Federal Register, that

24 a bank that effects transactions in, or buys or sells,
143

•S 900 PCS

1 a new product should be subject to the registration

2 requirements of this section.

3 (2) LIMITATION.—The Commission may not

4 impose the registration requirements of this section

5 on any bank that effects transactions in, or buys or

6 sells, a product under this subsection unless the

7 Commission, with the concurrence of the Board, de8 termines in the regulations described in paragraph

9 (1) that—

10 (A) the subject product is a new product;

11 (B) the subject product is a security; and

12 (C) imposing the registration requirements

13 of this section is necessary or appropriate in the

14 public interest and for the protection of inves15 tors.

16 (c) CLASSIFICATION LIMITED.—Classification of a

17 particular product or instrument as a traditional banking

18 product pursuant to this section shall not be construed

19 as finding or implying that such product or instrument

20 is or is not a security for any purpose under the securities

21 laws, or is or is not an account, agreement, contract, or

22 transaction for any purpose under the Commodity Ex23 change Act.

24 (d) NO LIMITATION ON OTHER AUTHORITY TO

25 CHALLENGE.—Nothing in this section shall affect the
144

•S 900 PCS

1 right or authority of the Board, any appropriate Federal

2 banking agency, or any interested party under any other

3 provision of law to object to or seek judicial review as to

4 whether a product or instrument is or is not appropriately

5 classified as a traditional banking product under sub6 section (a).

7 (e) OTHER DEFINITIONS.—For purposes of this

8 section—

9 (1) the term ‘‘appropriate Federal banking

10 agency’’ has the same meaning as in section 3 of the

11 Federal Deposit Insurance Act;

12 (2) the term ‘‘bank’’ has the same meaning as

13 in section 3(a)(6) of the Securities Exchange Act of

14 1934;

15 (3) the term ‘‘Board’’ means the Board of Gov16 ernors of the Federal Reserve System;

17 (4) the term ‘‘Commission’’ means the Securi18 ties and Exchange Commission;

19 (5) the term ‘‘government securities’’ has the

20 same meaning as in section 3(a)(42) of the Securi21 ties Exchange Act of 1934, and, for purposes of this

22 subsection, commercial paper, bankers acceptances,

23 and commercial bills shall be treated in the same

24 manner as government securities;
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•S 900 PCS

1 (6) the term ‘‘new product’’ means a product or

2 instrument offered or provided by a bank that—

3 (i) was not subject to regulation by the

4 Commission as a security under the Federal se5 curities laws before the date of enactment of

6 this Act; and

7 (ii) is not a traditional banking product;

8 and

9 (7) the term ‘‘qualified investor’’ has the same

10 meaning as in section 3(a)(54) of the Securities Ex11 change Act of 1934, as added by this title.

12 SEC. 504. QUALIFIED INVESTOR DEFINED.

13 Section 3(a) of the Securities Exchange Act of 1934

14 (15 U.S.C. 78c(a)) is amended by adding at the end the

15 following new paragraphs:

16 ‘‘(54) QUALIFIED INVESTOR.—

17 ‘‘(A) DEFINITION.—The term ‘qualified in18 vestor’ means—

19 ‘‘(i) any investment company reg20 istered with the Commission under section

21 8 of the Investment Company Act of 1940;

22 ‘‘(ii) any issuer eligible for an exclu23 sion from the definition of ‘investment

24 company’ pursuant to section 3(c)(7) of

25 the Investment Company Act of 1940;
146

•S 900 PCS

1 ‘‘(iii) any bank (as defined in para2 graph (6)), savings association (as defined

3 in section 3(b) of the Federal Deposit In4 surance Act), broker, dealer, insurance

5 company (as defined in section 2(a)(13) of

6 the Securities Act of 1933), or business de7 velopment company (as defined in section

8 2(a)(48) of the Investment Company Act

9 of 1940);

10 ‘‘(iv) any small business investment

11 company licensed by the Small Business

12 Administration under subsection (c) or (d)

13 of section 301 of the Small Business In14 vestment Act of 1958;

15 ‘‘(v) any State sponsored employee

16 benefit plan, or any other employee benefit

17 plan, within the meaning of the Employee

18 Retirement Income Security Act of 1974,

19 other than an individual retirement ac20 count, if the investment decisions are made

21 by a plan fiduciary, as defined in section

22 3(21) of that Act, which is either a bank,

23 savings and loan association, insurance

24 company, or registered investment adviser;
147

•S 900 PCS

1 ‘‘(vi) any trust whose purchases of se2 curities are directed by a person described

3 in clauses (i) through (v) of this subpara4 graph;

5 ‘‘(vii) any market intermediary that is

6 exempt under section 3(c)(2) of the Invest7 ment Company Act of 1940;

8 ‘‘(viii) any associated person of a

9 broker or dealer, other than a natural per10 son;

11 ‘‘(ix) any foreign bank (as defined in

12 section 1(b)(7) of the International Bank13 ing Act of 1978);

14 ‘‘(x) the government of any foreign

15 country;

16 ‘‘(xi) any corporation, company, or

17 partnership that owns and invests on a dis18 cretionary basis, not less than $10,000,000

19 in investments;

20 ‘‘(xii) any natural person who owns

21 and invests on a discretionary basis, not

22 less than $10,000,000 in investments;

23 ‘‘(xiii) any government or political

24 subdivision, agency, or instrumentality of a

25 government who owns and invests on a dis-
148

•S 900 PCS

1 cretionary basis, not less than $50,000,000

2 in investments; or

3 ‘‘(xiv) any multinational or supra4 national entity or any agency or instru5 mentality thereof.

6 ‘‘(B) ADDITIONAL AUTHORITY.—The Com7 mission may, by rule or order, define a ‘quali8 fied investor’ as any other person not described

9 in subparagraph (A), taking into consideration

10 such factors as the financial sophistication of

11 the person, net worth, and knowledge and expe12 rience in financial matters.’’.

13 SEC. 505. GOVERNMENT SECURITIES DEFINED.

14 Section 3(a)(42) of the Securities Exchange Act of

15 1934 (15 U.S.C. 78c(a)(42)) is amended—

16 (1) by striking ‘‘or’’ at the end of subparagraph

17 (C);

18 (2) by striking the period at the end of sub19 paragraph (D) and inserting ‘‘; or’’; and

20 (3) by adding at the end the following new sub21 paragraph:

22 ‘‘(E) for purposes of section 15C, as ap23 plied to a bank, a qualified Canadian Govern24 ment obligation, as defined in section 5136 of

25 the Revised Statutes of the United States.’’.
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•S 900 PCS

1 SEC. 506. EFFECTIVE DATE.

2 This title shall become effective at the end of the 1-

3 year period beginning on the date of enactment of this

4 Act.

5 SEC. 507. RULE OF CONSTRUCTION.

6 Nothing in this title shall supersede, affect, or other7 wise limit the scope and applicability of the Commodity

8 Exchange Act (7 U.S.C. 1 et seq.).

9 TITLE VI—UNITARY SAVINGS

10 AND LOAN HOLDING COMPA11 NIES

12 SEC. 601. PROHIBITION ON NEW UNITARY SAVINGS AND

13 LOAN HOLDING COMPANIES.

14 (a) IN GENERAL.—Section 10(c) of the Home Own15 ers’ Loan Act (12 U.S.C. 1467a(c)) is amended by adding

16 at the end the following new paragraph:

17 ‘‘(9) TERMINATION OF EXPANDED POWERS FOR

18 NEW UNITARY HOLDING COMPANY.—

19 ‘‘(A) IN GENERAL.—Subject to subpara20 graph (B), paragraph (3) shall not apply with

21 respect to any company that becomes a savings

22 and loan holding company pursuant to an appli23 cation filed after February 28, 1999.

24 ‘‘(B) EXISTING UNITARY HOLDING COMPA25 NIES AND THE SUCCESSORS TO SUCH COMPA26 NIES.—Subparagraph (A) shall not apply, and
150

•S 900 PCS

1 paragraph (3) shall continue to apply, to a com2 pany (or any subsidiary of such company)

3 that—

4 ‘‘(i) either—

5 ‘‘(I) acquired 1 or more savings

6 associations described in paragraph

7 (3) pursuant to applications, at least

8 1 of which was filed before March 1,

9 1999; or

10 ‘‘(II) became a savings and loan

11 holding company by acquiring owner12 ship or control of the company de13 scribed in subclause (I); and

14 ‘‘(ii) continues to control the savings

15 association (or associations) referred to in

16 clause (i)(I) or any successors thereto.’’.

17 (b) TECHNICAL AND CONFORMING AMENDMENT.—

18 Section 10(c)(3) of the Home Owners’ Loan Act (12

19 U.S.C. 1467a(c)(3)) is amended by striking ‘‘Notwith20 standing’’ and inserting ‘‘Except as provided in paragraph

21 (9), and notwithstanding’’.