I 

111TH CONGRESS 

1ST SESSION H. R. 3968 

To amend the Bank Holding Company Act of 1956 to require the Board 

of Governors of the Federal Reserve System to take prompt corrective 

action to resolve problems of bank holding companies. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 29, 2009 

Mr. ELLISON introduced the following bill; which was referred to the 

Committee on Financial Services 

A BILL 

To amend the Bank Holding Company Act of 1956 to require the Board of Governors of the Federal Reserve 

System to take prompt corrective action to resolve problems of bank holding companies. 

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

3 SECTION 1. PROMPT CORRECTIVE ACTION FOR BANK 

4 HOLDING COMPANIES. 

5 Section 6 of the Bank Holding Company Act of 1956 

6 is amended to read as follows: 


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1 ‘‘SEC. 6. PROMPT CORRECTIVE ACTION FOR BANK HOLD2 ING COMPANIES. 

3 ‘‘(a) PROMPT CORRECTIVE ACTION REQUIRED.—The 

4 Board shall take prompt corrective action to resolve the 

5 problems of a bank holding company. 

6 ‘‘(b) DEFINITIONS.—For purposes of this section: 

7 ‘‘(1) CAPITAL CATEGORIES.— 

8 ‘‘(A) WELL CAPITALIZED.—A bank hold9 ing company is ‘well capitalized’ if it exceeds 

10 the required minimum level for each relevant 

11 capital measure. 

12 ‘‘(B) UNDERCAPITALIZED.—A bank hold13 ing company is ‘undercapitalized’ if it fails to 

14 meet the required minimum level for any rel15 evant capital measure. 

16 ‘‘(C) SIGNIFICANTLY UNDERCAPITAL17 IZED.—A bank holding company is ‘signifi18 cantly undercapitalized’ if it is significantly 

19 below the required minimum level for any rel20 evant capital measure. 

21 ‘‘(D) CRITICALLY UNDERCAPITALIZED.—A 

22 bank holding company is ‘critically under23 capitalized’ if it fails to meet any level specified 

24 in subsection (c)(3)(A). 

25 ‘‘(2) OTHER DEFINITIONS.— 


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1 ‘‘(A) AVERAGE.—The ‘average’ of an ac2 counting item during a given period means the 

3 sum of that item at the close of business on 

4 each business day during that period divided by 

5 the total number of business days in that pe6 riod. 

7 ‘‘(B) CAPITAL DISTRIBUTION.—The term 

8 ‘capital distribution’ means— 

9 ‘‘(i) a distribution of cash or other 

10 property by a bank holding company to its 

11 owners made on account of that ownership, 

12 but not including any dividend consisting 

13 only of shares of the bank holding com14 pany or rights to purchase such shares; 

15 ‘‘(ii) a payment by a bank holding 

16 company to repurchase, redeem, retire, or 

17 otherwise acquire any of its shares or other 

18 ownership interests, including any exten19 sion of credit to finance any person’s ac20 quisition of those shares or interests; or 

21 ‘‘(iii) a transaction that the Board de22 termines, by order or regulation, to be in 

23 substance a distribution of capital to the 

24 owners of the bank holding company. 


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1 ‘‘(C) CAPITAL RESTORATION PLAN.—The 

2 term ‘capital restoration plan’ means a plan 

3 submitted under subsection (e)(2). 

4 ‘‘(D) COMPENSATION.—The term ‘com5 pensation’ includes any payment of money or 

6 provision of any other thing of value in consid7 eration of employment. 

8 ‘‘(E) RELEVANT CAPITAL MEASURE.—The 

9 term ‘relevant capital measure’ means the 

10 measures described in subsection (c). 

11 ‘‘(F) REQUIRED MINIMUM LEVEL.—The 

12 term ‘required minimum level’ means, with re13 spect to each relevant capital measure, the min14 imum acceptable capital level specified by the 

15 Board by regulation. 

16 ‘‘(G) SENIOR EXECUTIVE OFFICER.—The 

17 term ‘senior executive officer’ has the same 

18 meaning as the term ‘executive officer’ in sec19 tion 22(h) of the Federal Reserve Act (12 

20 U.S.C. 375b). 

21 ‘‘(c) CAPITAL STANDARDS.— 

22 ‘‘(1) RELEVANT CAPITAL MEASURES.— 

23 ‘‘(A) IN GENERAL.—The Board shall pre24 scribe capital standards for bank holding com25 panies, which shall include— 


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1 ‘‘(i) a leverage limit; and 

2 ‘‘(ii) a risk-based capital requirement. 

3 ‘‘(B) OTHER CAPITAL MEASURES.—The 

4 Board may by regulation— 

5 ‘‘(i) establish any additional relevant 

6 capital measures to carry out this section; 

7 or 

8 ‘‘(ii) rescind any relevant capital 

9 measures prescribed under subparagraph 

10 (A) upon determining that the measure is 

11 no longer an appropriate means for car12 rying out this section. 

13 ‘‘(2) CAPITAL CATEGORIES GENERALLY.—The 

14 Board shall, by regulation, specify for each relevant 

15 capital measure the levels at which a bank holding 

16 company is well capitalized, undercapitalized, and 

17 significantly undercapitalized. 

18 ‘‘(3) CRITICAL CAPITAL.— 

19 ‘‘(A) BOARD TO SPECIFY LEVEL.— 

20 ‘‘(i) LEVERAGE LIMIT.—The Board 

21 shall, by regulation, specify the ratio of 

22 tangible equity to total assets at which a 

23 bank holding company is critically under24 capitalized. 


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1 ‘‘(ii) OTHER RELEVANT CAPITAL

2 MEASURES.—The Board may, by regula3 tion, specify for 1 or more other relevant 

4 capital measures, the level at which a bank 

5 holding company is critically undercapital6 ized. 

7 ‘‘(B) LEVERAGE LIMIT RANGE.—The level 

8 specified under subparagraph (A)(i) shall re9 quire tangible equity in an amount— 

10 ‘‘(i) not less than 2 percent of total 

11 assets; and 

12 ‘‘(ii) except as provided in clause (i), 

13 not more than 65 percent of the required 

14 minimum level of capital under the lever15 age limit. 

16 ‘‘(d) CAPITAL DISTRIBUTIONS RESTRICTED.— 

17 ‘‘(1) IN GENERAL.—A bank holding company 

18 shall make no capital distribution if, after making 

19 the distribution, the bank holding company would be 

20 undercapitalized. 

21 ‘‘(2) EXCEPTION.—Notwithstanding paragraph 

22 (1), the Board may permit a bank holding company 

23 to repurchase, redeem, retire, or otherwise acquire 

24 shares or ownership interests if the repurchase, re25 demption, retirement, or other acquisition— 


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1 ‘‘(A) is made in connection with the 

2 issuance of additional shares or obligations of 

3 the bank holding company in at least an equiva4 lent amount; and 

5 ‘‘(B) will reduce the bank holding com6 pany’s financial obligations or otherwise im7 prove the bank holding company’s financial con8 dition. 

9 ‘‘(e) PROVISIONS APPLICABLE TO UNDERCAPITAL10 IZED BANK HOLDING COMPANIES.— 

11 ‘‘(1) MONITORING REQUIRED.—The Board 

12 shall— 

13 ‘‘(A) closely monitor the condition of any 

14 undercapitalized bank holding company; 

15 ‘‘(B) closely monitor compliance by any 

16 undercapitalized bank holding company with 

17 capital restoration plans, restrictions, and re18 quirements imposed under this section; and 

19 ‘‘(C) periodically review the plan, restric20 tions, and requirements applicable to any 

21 undercapitalized bank holding company to de22 termine whether the plan, restrictions, and re23 quirements are effective. 

24 ‘‘(2) CAPITAL RESTORATION PLAN RE25 QUIRED.— 


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1 ‘‘(A) IN GENERAL.—An undercapitalized 

2 bank holding company shall submit an accept3 able capital restoration plan to the Board with4 in the time allowed by the Board under sub5 paragraph (D). 

6 ‘‘(B) CONTENTS OF PLAN.—The capital 

7 restoration plan shall— 

8 ‘‘(i) specify— 

9 ‘‘(I) the steps the bank holding 

10 company will take to become well cap11 italized; 

12 ‘‘(II) the levels of capital to be 

13 attained by the bank holding company 

14 during each year in which the plan 

15 will be in effect; 

16 ‘‘(III) how the bank holding com17 pany will comply with the restrictions 

18 or requirements then in effect under 

19 this section; and 

20 ‘‘(IV) the types and levels of ac21 tivities in which the bank holding 

22 company will engage; and 

23 ‘‘(ii) contain such other information 

24 that the Board may require. 


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1 ‘‘(C) CRITERIA FOR ACCEPTING PLAN.— 

2 The Board shall not accept a capital restoration 

3 plan unless it determines that the plan— 

4 ‘‘(i) complies with subparagraph (B); 

5 ‘‘(ii) is based on realistic assumptions, 

6 and is likely to succeed in restoring the 

7 bank holding company’s capital; and 

8 ‘‘(iii) would not appreciably increase 

9 the risk (including credit risk, interest-rate 

10 risk, and other types of risk) to which the 

11 bank holding company is exposed. 

12 ‘‘(D) DEADLINES FOR SUBMISSION AND

13 REVIEW OF PLANS.—The Board shall, by regu14 lation, establish deadlines that— 

15 ‘‘(i) provide bank holding companies 

16 with reasonable time to submit capital res17 toration plans, and generally require a 

18 bank holding company to submit a plan 

19 not later than 45 days after it becomes 

20 undercapitalized; and 

21 ‘‘(ii) require the Board to act on cap22 ital restoration plans expeditiously, and 

23 generally not later than 60 days after the 

24 plan is submitted. 


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1 ‘‘(3) ASSET GROWTH RESTRICTED.—An under2 capitalized bank holding company shall not permit 

3 its average total assets during any calendar quarter 

4 to exceed its average total assets during the pre5 ceding calendar quarter unless— 

6 ‘‘(A) the Board has accepted the bank 

7 holding company’s capital restoration plan; 

8 ‘‘(B) any increase in total assets is con9 sistent with the plan; and 

10 ‘‘(C) the bank holding company’s ratio of 

11 tangible equity to total assets increases during 

12 the calendar quarter at a rate sufficient to en13 able it to become well capitalized within a rea14 sonable time. 

15 ‘‘(4) PRIOR APPROVAL REQUIRED FOR ACQUISI16 TIONS AND NEW LINES OF BUSINESS.—An under17 capitalized bank holding company shall not, directly 

18 or indirectly, acquire any interest in any company or 

19 insured depository institution, or engage in any new 

20 line of business, unless— 

21 ‘‘(A) the Board has accepted the bank 

22 holding company’s capital restoration plan, the 

23 bank holding company is implementing the 

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1 posed action is consistent with and will further 

2 the achievement of the plan; 

3 ‘‘(B) the Board determines that the spe4 cific proposed action is appropriate; or 

5 ‘‘(C) the Board has exempted the bank 

6 holding company from the requirements of this 

7 paragraph with respect to the class of acquisi8 tions that includes the proposed action. 

9 ‘‘(5) DISCRETIONARY SAFEGUARDS.—The 

10 Board may, with respect to any undercapitalized 

11 bank holding company, take actions described in any 

12 subparagraph of subsection (f)(2) if the Board de13 termines that those actions are necessary. 

14 ‘‘(f) PROVISIONS APPLICABLE TO SIGNIFICANTLY

15 UNDERCAPITALIZED BANK HOLDING COMPANIES AND

16 UNDERCAPITALIZED BANK HOLDING COMPANIES THAT

17 FAIL TO SUBMIT AND IMPLEMENT CAPITAL RESTORA18 TION PLANS.— 

19 ‘‘(1) IN GENERAL.—This subsection shall apply 

20 with respect to any bank holding company that— 

21 ‘‘(A) is significantly undercapitalized; or 

22 ‘‘(B) is undercapitalized and— 

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1 lowed by the Board under subsection 

2 (e)(2)(D); or 

3 ‘‘(ii) fails in any material respect to 

4 implement a capital restoration plan ac5 cepted by the Board. 

6 ‘‘(2) SPECIFIC ACTIONS AUTHORIZED.—With 

7 respect to a bank holding company to which this 

8 subsection applies, the Board shall take 1 or more 

9 of the following actions: 

10 ‘‘(A) REQUIRING RECAPITALIZATION.— 

11 Doing one or more of the following: 

12 ‘‘(i) Requiring the bank holding com13 pany to sell enough shares or obligations of 

14 the bank holding company so that the 

15 bank holding company will be well capital16 ized after the sale. 

17 ‘‘(ii) Further requiring that instru18 ments sold under clause (i) be voting 

19 shares. 

20 ‘‘(iii) Requiring the bank holding com21 pany to be acquired by or combine with 

22 another company. 

23 ‘‘(B) RESTRICTING TRANSACTIONS WITH

24 AFFILIATES.— 


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1 ‘‘(i) Requiring the bank holding com2 pany to comply with section 23A of the 

3 Federal Reserve Act (12 U.S.C. 371(c)), 

4 as if it were a member bank. 

5 ‘‘(ii) Further restricting the bank 

6 holding company’s transactions with affili7 ates and insiders. 

8 ‘‘(C) RESTRICTING ASSET GROWTH.—Re9 stricting the bank holding company’s asset 

10 growth more stringently than the requirements 

11 under subsection (e)(3), or requiring the bank 

12 holding company to reduce its total assets. 

13 ‘‘(D) RESTRICTING ACTIVITIES.—Requir14 ing the bank holding company or any of its sub15 sidiaries to alter, reduce, or terminate any ac16 tivity that the Board determines poses excessive 

17 risk to the bank holding company. 

18 ‘‘(E) IMPROVING MANAGEMENT.—Doing 1 

19 or more of the following: 

20 ‘‘(i) NEW ELECTION OF DIRECTORS.— 

21 Ordering a new election for the bank hold22 ing company’s board of directors. 

23 ‘‘(ii) DISMISSING DIRECTORS OR SEN24 IOR EXECUTIVE OFFICERS.—Requiring the 

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1 fice any director or senior executive officer 

2 who had held office for more than 180 

3 days immediately before the bank holding 

4 company became undercapitalized. Dis5 missal under this clause shall not be con6 strued to be a removal under section 8 of 

7 the Federal Deposit Insurance Act (12 

8 U.S.C. 1818). 

9 ‘‘(iii) EMPLOYING QUALIFIED SENIOR

10 EXECUTIVE OFFICERS.—Requiring the 

11 bank holding company to employ qualified 

12 senior executive officers (who, if the Board 

13 so specifies, shall be subject to approval by 

14 the Board). 

15 ‘‘(F) REQUIRING DIVESTITURE.—Requir16 ing the bank holding company to divest itself of 

17 or liquidate any subsidiary if the Board deter18 mines that the subsidiary is in danger of be19 coming insolvent, poses a significant risk to the 

20 bank holding company, or is likely to cause a 

21 significant dissipation of the bank holding com22 pany’s assets or earnings. 

23 ‘‘(G) REQUIRING OTHER ACTION.—Requir24 ing the bank holding company to take any other 

25 action that the Board determines will be better 


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1 carry out the purpose of this section than any 

2 of the actions described in this paragraph. 

3 ‘‘(3) PRESUMPTION IN FAVOR OF CERTAIN AC4 TIONS.—In complying with paragraph (2), the 

5 Board shall take the following actions, unless the 

6 Board determines that the actions would not be ap7 propriate: 

8 ‘‘(A) The action described in clause (i) or 

9 (iii) of paragraph (2)(A) (relating to requiring 

10 the sale of shares or obligations, or requiring 

11 the bank holding company to be acquired by or 

12 combine with another company). 

13 ‘‘(B) The action described in paragraph 

14 (2)(B)(i) (relating to restricting transactions 

15 with affiliates). 

16 ‘‘(4) SENIOR EXECUTIVE OFFICERS’ COMPENSA17 TION RESTRICTED.— 

18 ‘‘(A) IN GENERAL.—The bank holding 

19 company shall not do any of the following with20 out the prior written approval of the Board: 

21 ‘‘(i) Pay any bonus to any senior exec22 utive officer. 

23 ‘‘(ii) Provide compensation to any sen24 ior executive officer at a rate exceeding 

25 that officer’s average rate of compensation 


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1 (excluding bonuses, stock options, and 

2 profit-sharing) during the 12 calendar 

3 months preceding the calendar month in 

4 which the bank holding company became 

5 undercapitalized. 

6 ‘‘(B) FAILING TO SUBMIT PLAN.—The 

7 Board shall not grant any approval under sub8 paragraph (A) with respect to a Bank holding 

9 company that has failed to submit an accept10 able capital restoration plan. 

11 ‘‘(5) CONSULTATION WITH OTHER REGU12 LATORS.—Before the Board makes a determination 

13 under paragraph (2)(F) with respect to a subsidiary 

14 that is a broker, dealer, government securities 

15 broker, government securities dealer, investment 

16 company, or investment adviser, the Board shall 

17 consult with the Securities and Exchange Commis18 sion and, in the case of any other subsidiary which 

19 is subject to any financial responsibility or capital 

20 requirement, any other appropriate regulator of such 

21 subsidiary with respect to the proposed determina22 tion of the Board and actions pursuant to such de23 termination. 

24 ‘‘(g) MORE STRINGENT TREATMENT BASED ON

25 OTHER SUPERVISORY CRITERIA.— 


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1 ‘‘(1) IN GENERAL.—If the Board determines 

2 (after notice and an opportunity for hearing) that a 

3 bank holding company is in an unsafe or unsound 

4 condition or, pursuant to section 8(b)(8) of the Fed5 eral Deposit Insurance Act (12 U.S.C. 1818(b)(8)), 

6 deems the bank holding company to be engaging in 

7 an unsafe or unsound practice, the Board may— 

8 ‘‘(A) if the bank holding company is well 

9 capitalized, require the bank holding company 

10 to comply with one or more provisions of sub11 sections (d) or (e), as if the institution were 

12 undercapitalized; or 

13 ‘‘(B) if the bank holding company is 

14 undercapitalized, take any one or more actions 

15 authorized under subsection (f)(2) as if the 

16 bank holding company were significantly under17 capitalized. 

18 ‘‘(2) CONTENTS OF PLAN.—A plan that may be 

19 required pursuant to paragraph (1) shall addition20 ally specify the steps that the bank holding company 

21 will take to correct the unsafe or unsound condition 

22 or practice. 

23 ‘‘(h) MANDATORY BANKRUPTCY PETITION FOR

24 CRITICALLY UNDERCAPITALIZED BANK HOLDING COM25 PANIES.—The Board shall, not later than 90 days after 


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1 a Bank holding company becomes critically undercapital2 ized— 

3 ‘‘(1) require the bank holding company to file 

4 a petition for bankruptcy under section 301 of title 

5 11, United States Code; or 

6 ‘‘(2) file a petition for bankruptcy against the 

7 bank holding company under section 303 of title 11, 

8 United States Code. 

9 ‘‘(i) IMPLEMENTATION.—The Board shall prescribe 

10 such regulations, issue such orders, and take such other 

11 actions as the Board determines necessary to carry out 

12 this section. 

13 ‘‘(j) OTHER AUTHORITY NOT AFFECTED.—This sec14 tion does not limit the authority of the Board, any other 

15 Federal regulatory agency, or a State to take action in 

16 addition to (but not in derogation of) that required under 

17 this section. 

18 ‘‘(k) CONSIDERATIONS WITH REGARD TO FOREIGN

19 BANK HOLDING COMPANIES.—In its regulation and su20 pervision of bank holding companies incorporated or orga21 nized in a country other than the United States, the Board 

22 shall take into account the extent to which such companies 

23 are subject to standards in their country of incorporation 

24 or organization that are comparable to those standards 

25 applied to United States bank holding companies. 


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1 ‘‘(l) ADMINISTRATIVE REVIEW OF DISMISSAL OR2 DERS.— 

3 ‘‘(1) TIMELY PETITION REQUIRED.—A director 

4 or senior executive officer dismissed pursuant to an 

5 order under subsection (f)(2)(E)(ii) may obtain re6 view of that order by filing a written petition for re7 instatement with the Board not later than 10 days 

8 after receiving notice of the dismissal. 

9 ‘‘(2) PROCEDURE.— 

10 ‘‘(A) HEARING REQUIRED.—The Board 

11 shall give the petitioner an opportunity to— 

12 ‘‘(i) submit written materials in sup13 port of the petition; and 

14 ‘‘(ii) appear, personally or through 

15 counsel, before 1 or more members of the 

16 Board or designated employees of the 

17 Board. 

18 ‘‘(B) DEADLINE FOR HEARING.—The 

19 Board shall— 

20 ‘‘(i) schedule the hearing referred to 

21 in subparagraph (A)(ii) promptly after the 

22 petition is filed; and 

23 ‘‘(ii) hold the hearing not later than 

24 30 days after the petition is filed, unless 


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1 the petitioner requests that the hearing be 

2 held at a later time. 

3 ‘‘(C) DEADLINE FOR DECISION.—Not later 

4 than 60 days after the date of the hearing, the 

5 Board shall— 

6 ‘‘(i) by order, grant or deny the peti7 tion; 

8 ‘‘(ii) if the order is adverse to the pe9 titioner, set forth the basis for the order; 

10 and 

11 ‘‘(iii) notify the petitioner of the 

12 order. 

13 ‘‘(3) STANDARD FOR REVIEW OF DISMISSAL OR14 DERS.—The petitioner shall bear the burden of prov15 ing that the petitioner’s continued employment 

16 would materially strengthen the bank holding com17 pany’s ability— 

18 ‘‘(A) to become well capitalized, to the ex19 tent that the order is based on the bank holding 

20 company’s capital level or failure to submit or 

21 implement a capital restoration plan; and 

22 ‘‘(B) to correct the unsafe or unsound con23 dition or unsafe or unsound practice, to the exVerDate Nov 24 2008 21:14 Oct 30, 2009 Jkt 089200 PO 00000 Frm 00020 Fmt 6652 Sfmt 6201 E:\BILLS\H3968.IH H3968

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1 tent that the order is based on subsection 

2 (g)(1).’’. 

Æ 


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