I

104TH CONGRESS

1ST SESSION H. R. 814

To enhance competition in the financial services sector, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 3, 1995

Mr. BAKER of Louisiana (for himself, Mr. MCCOLLUM, Mr. DREIER, Mr. CASTLE, Mr. KING, Mr. LAFALCE, Mr. FRANK of Massachusetts, and Mr.

FLAKE) introduced the following bill; which was referred to the Committee on Banking and Financial Services and, in addition, to the Committee

on Commerce, for a period to be subsequently determined by the Speaker,

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To enhance competition in the financial services sector, 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 ‘‘Depository Institution Affiliation Act’’.

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

7 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Findings and purposes.
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TITLE I—CREATION AND CONTROL OF FINANCIAL SERVICES

HOLDING COMPANIES

Sec. 101. Definitions.

Sec. 102. Amendments to the Bank Holding Company Act of 1956.

Sec. 103. Amendments to the Federal Reserve Act.

Sec. 104. Amendments to the Banking Act of 1933.

Sec. 105. Amendments to the Federal Deposit Insurance Act.

Sec. 106. Amendments to the Securities Exchange Act of 1934.

Sec. 107. Amendment to the Home Owners’ Loan Act.

Sec. 108. Amendments to the Community Reinvestment Act.

TITLE II—SUPERVISORY IMPROVEMENTS

Sec. 201. National Financial Services Committee.

1 SEC. 2. FINDINGS AND PURPOSES.

2 (a) FINDINGS.—The Congress finds that—

3 (1) current laws and regulations restrain effi4 ciency, competition, and innovation in the design

5 and delivery of financial services to the disadvantage

6 of consumers;

7 (2) restrictions on ownership of depository insti8 tutions and affiliations with other business organiza9 tions interfere with their ability to attract and retain

10 capital and managerial resources;

11 (3) the vulnerability of the financial system and

12 its discrete components is increased and effective

13 monitoring, supervision, and coordination of actions

14 during periods of stress is impeded by fragmented

15 and disparate regulation; and

16 (4) current laws inhibit the ability of domestic

17 financial markets and intermediaries to respond to

18 the serious competitive challenges presented by for19 eign intermediaries and the globalization of markets.
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1 (b) PURPOSES.—The purposes of this Act are to pro2 mote the safety and soundness of the Nation’s financial

3 system, enhance the quality of regulation and supervision

4 of financial intermediaries, and achieve a more efficient

5 market and effective regulatory structure by—

6 (1) establishing an alternative and comprehen7 sive legislative framework for the creation and regu8 lation of financial services holding companies;

9 (2) increasing the capital adequacy of commer10 cial banks, brokers and dealers, and savings and

11 loan associations and other financial companies by

12 eliminating restrictions on common ownership and

13 affiliation within a financial services holding com14 pany;

15 (3) permitting affiliates to engage in any activ16 ity subject to functional and equal regulation by the

17 appropriate Federal or State regulator;

18 (4) insulating and protecting insured depository

19 institutions through higher capital requirements, ex20 panded restrictions on relationships with affiliates,

21 broader examination and enforcement authority and

22 increased civil and criminal penalties;

23 (5) permitting the efficient marketing and dis24 tribution of financial services to consumers subject
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1 to safeguards against coercive tie-ins and other un2 fair and abusive practices; and

3 (6) establishing the National Financial Services

4 Committee to oversee the evolution and supervision

5 of the financial services industry and to report to the

6 Congress.

7 TITLE I—CREATION AND CON8 TROL OF FINANCIAL SERV9 ICES HOLDING COMPANIES

10 SEC. 101. DEFINITIONS.

11 (a) DEFINITIONS.—For purposes of this Act—

12 (1) the term ‘‘financial services holding com13 pany’’ means a company that—

14 (A) has filed with the National Financial

15 Services Committee, established under section

16 201 a notice stating such company’s intent to

17 comply with the requirements of this Act and

18 has not withdrawn such notice; and

19 (B) controls an insured depository institu20 tion, or either—

21 (i) has, within the preceding 12

22 months, filed a notice under subsection (b)

23 to acquire control of an insured depository

24 institution, a bank holding company, a sav25 ings and loan holding company, or a finan-
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1 cial services holding company, which notice

2 has not been disapproved; or

3 (ii) controls a depository institution

4 which has, within the preceding 12

5 months, filed an application for deposit in6 surance under section 5 of the Federal De7 posit Insurance Act which has not been

8 disapproved,

9 except that the filing of the notice described in

10 subparagraph (A) by a bank holding company

11 that does not control any bank, as defined in

12 section 2(c) of the Bank Holding Company Act

13 of 1956, that is not an insured depository insti14 tution, other than a bank that has filed an ap15 plication for deposit insurance under section 5

16 of the Federal Deposit Insurance Act, that has

17 not been disapproved, shall result in immediate

18 termination of the status of such company as a

19 bank holding company, and the filing of the no20 tice described in subparagraph (A) by a savings

21 and loan holding company shall result in the

22 immediate termination of the status of such

23 company as a savings and loan holding com24 pany, except that, upon denial of any such ap25 plication for deposit insurance filed by a bank
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1 that is controlled by a company, the status of

2 which as a bank holding company is terminated

3 under this subparagraph, such company shall

4 resume its status as a bank holding company;

5 (2) the term ‘‘bank holding company’’ has the

6 same meaning as in section 2(a) of the Bank Hold7 ing Company Act of 1956;

8 (3) the term ‘‘savings and loan holding com9 pany’’ has the same meaning as in section 10(a) of

10 the Home Owners’ Loan Act;

11 (4) except as provided in subsection (f)(5), the

12 term ‘‘affiliate’’ of a company means any other com13 pany which controls, is controlled by, or is under

14 common control with such company;

15 (5) the term ‘‘appropriate Federal banking

16 agency’’ has the same meaning as in section 3 of the

17 Federal Deposit Insurance Act;

18 (6) the terms ‘‘depository institution’’ and ‘‘in19 sured depository institution’’ have the same mean20 ings as in section 3 of the Federal Deposit Insur21 ance Act;

22 (7) the term ‘‘State’’ has the same meaning as

23 in section 3 of the Federal Deposit Insurance Act;

24 (8) the term ‘‘company’’ means any corpora25 tion, partnership, business trust, association, or
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1 similar organization, or any other trust unless by its

2 terms it must terminate within 25 years or not later

3 than 21 years and 10 months after the death of in4 dividuals living on the effective date of the trust, but

5 shall not include any corporation the majority of the

6 shares of which are owned by the United States or

7 by any State;

8 (9) the term ‘‘control’’ means the power, di9 rectly or indirectly, to direct the management or

10 policies of a company, or to vote 25 percent or more

11 of any class of voting securities of a company, except

12 that—

13 (A) no company shall be deemed to control

14 or to have acquired control of any other com15 pany by virtue of its ownership of the voting se16 curities of such other company—

17 (i) acquired or held in an agency,

18 trust, or other fiduciary capacity;

19 (ii) acquired or held in connection

20 with or incidental to—

21 (I) the underwriting of securities

22 if such securities are held only for

23 such period of time as will permit the

24 sale thereof on a reasonable basis; or
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1 (II) market making, dealing,

2 trading, brokerage, or other securities3 related activities, and not with a view

4 to acquiring, exercising, or transfer5 ring any control over the management

6 or policies of such company; or

7 (iii) acquired in securing or collecting

8 a debt previously contracted in good faith,

9 until 2 years after the date of acquisition

10 or for such additional period of time as the

11 appropriate Federal banking agency may

12 permit; and

13 (B) no company formed for the sole pur14 pose of participating in a proxy solicitation is in

15 control of a company by virtue of its acquisition

16 of voting rights with respect to shares of such

17 company acquired in the course of such solicita18 tion;

19 (10) the term ‘‘adequately capitalized’’, with re20 spect to an insured depository institution, has the

21 same meaning as in section 38(b)(1) of the Federal

22 Deposit Insurance Act;

23 (11) the term ‘‘well capitalized’’ has the same

24 meaning as in section 38(b)(1) of the Federal De25 posit Insurance Act;
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1 (12) the term ‘‘minimum required capital’’,

2 with respect to an insured depository institution,

3 means the amount of capital that is required for the

4 institution to be adequately capitalized; and

5 (13) the term ‘‘domestic branch’’ has the same

6 meaning as in section 3(o) of the Federal Deposit

7 Insurance Act.

8 (b) CHANGES IN CONTROL OF INSURED BANKS AND

9 INSURED INSTITUTIONS.—No financial services holding

10 company acting directly or indirectly, or through or in con11 cert with one or more other persons, shall acquire control

12 of an insured depository institution, a bank holding com13 pany, a savings and loan holding company, or a financial

14 services holding company not controlled by such company

15 on the date it became a financial services holding com16 pany, if such acquisition and control occurs through a pur17 chase, assignment, transfer, pledge, or other disposition

18 of voting stock of such insured depository institution, bank

19 holding company, savings and loan holding company, or

20 financial services holding company, unless the financial

21 services holding company has complied with the require22 ments of section 7(j) of the Federal Deposit Insurance

23 Act. Any failure to comply with the preceding require24 ments shall subject the relevant financial services holding

25 company to the penalties and other procedures provided
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1 in subsections (i) through (m) of this section, in addition

2 to otherwise applicable penalties.

3 (c) AFFILIATE TRANSACTIONS.—

4 (1) IN GENERAL.—The appropriate Federal

5 banking agency may—

6 (A) upon a finding of probable harm that

7 cannot adequately be prevented by less burden8 some rules and regulations, adopt such rules

9 and regulations, consistent with the purposes of

10 this Act, as may be necessary in order to pre11 vent an insured depository institution that is

12 controlled by a financial services holding com13 pany from engaging in unsafe or unsound prac14 tices that involve the financial services holding

15 company or any of its affiliates including, with16 out limitation, unsafe or unsound practices that

17 involve covered transactions, as defined in sec18 tion 23A of the Federal Reserve Act, and any

19 transactions described in section 23B(a)(2) of

20 the Federal Reserve Act; and

21 (B) by rule, regulation or order, exempt

22 any insured depository institution that is con23 trolled by a financial services holding company

24 or class of such banks or institutions, or any

25 transaction or class of transactions, from any
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1 requirement under subparagraph (A), or under

2 section 23A or 23B of the Federal Reserve Act,

3 notwithstanding the provisions of any other law,

4 rule, regulation or order, if the appropriate

5 Federal banking agency deems such an exemp6 tion to be reasonable and not inconsistent with

7 the purposes of this Act and in the public inter8 est.

9 (2) REGULATORY ACTIVITY.—Any rule or regu10 lation adopted pursuant to paragraph (1)(A) shall be

11 adopted in accordance with section 553 of title 5,

12 United States Code, except that the appropriate

13 Federal banking agency shall give interested persons

14 an opportunity for oral presentations of data, views,

15 and arguments, in addition to written submissions.

16 (3) APPLICATION TO PRIOR APPROVED TRANS17 ACTIONS.—Any transaction that was approved by a

18 Federal regulatory agency before the date of enact19 ment of this Act shall be exempt from any rules or

20 regulations adopted pursuant to paragraph (1)(A).

21 (4) FEDERAL RESERVE ACT TREATMENT.—

22 Subject to paragraph (1)(B), the provisions of sec23 tions 23A and 23B of the Federal Reserve Act shall

24 be applicable to every insured depository institution

25 controlled by a financial services holding company in
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1 the same manner and to the extent as if such in2 sured depository institution were a member bank;

3 and for this purpose, any company which would be

4 an affiliate of an insured depository institution for

5 purposes of such sections 23A and 23B if such in6 sured depository institution were a member bank

7 shall be deemed to be an affiliate of such insured de8 pository institution.

9 (5) LIMITATIONS.—No insured depository insti10 tution that is an affiliate of a financial services hold11 ing company shall, directly or indirectly—

12 (A) extend credit in any manner to a secu13 rities affiliate or a subsidiary thereof;

14 (B) purchase for its own account assets of

15 a securities affiliate or a subsidiary thereof;

16 (C) issue a guarantee, acceptance, or letter

17 of credit, including an endorsement or standby

18 letter of credit, for the benefit of a securities af19 filiate or a subsidiary thereof; or

20 (D) extend credit in any manner to any in21 vestment company advised by or the shares of

22 which are distributed by a securities affiliate.

23 (6) EXCEPTION.—Subparagraphs (A) and (B)

24 of paragraph (5) do not apply to any extension of

25 credit by an insured depository institution made to
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1 acquire or sell any securities of the United States

2 if—

3 (A) the extension of credit is to be repaid

4 on the same calendar day;

5 (B) the extension of credit is incidental to

6 the clearing of transactions in those securities

7 through that insured depository institution; and

8 (C) both the principal of and the interest

9 on the extension of credit are fully secured by

10 securities of the United States.

11 (7) LIMITATION ON CERTAIN MARKETABILITY

12 ACTIVITIES.—No insured depository institution that

13 is an affiliate of a financial services holding company

14 shall directly or indirectly extend credit, or issue or

15 enter into a standby letter of credit, asset purchase

16 agreement, indemnity, guarantee, insurance, or

17 other facility, for the purpose of enhancing the mar18 ketability of a securities issue underwritten or dis19 tributed by a securities affiliate.

20 (8) ACTIVITIES DURING SECURITIES DISTRIBU21 TION.—No insured depository institution that is an

22 affiliate of a financial services holding company shall

23 knowingly extend or arrange for the extension of

24 credit, directly or indirectly, secured by or for the

25 purpose of purchasing any security while, or for 30
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1 days after, that security is the subject of a distribu2 tion in which a securities affiliate of that insured de3 pository institution participates as an underwriter or

4 a member of a selling group.

5 (9) EXTENSIONS OF CREDIT FOR PAYMENT OF

6 DIVIDENDS.—No depository institution that is an af7 filiate of a financial services holding company shall,

8 directly or indirectly, extend credit to an issuer of

9 securities underwritten by a securities affiliate for

10 the purpose of paying the principal of those securi11 ties or interest for dividends on those securities.

12 (10) ‘‘SECURITIES AFFILIATE’’ DEFINED.—For

13 purposes of paragraphs (5) through (9), the term

14 ‘‘securities affiliate’’ means a company that engages

15 in underwriting, distributing, or dealing in securities

16 of any type, except that such term shall not include

17 insurance products deemed to be securities, includ18 ing and without limitation variable annuities and

19 variable life insurance.

20 (d) CAPITALIZATION.—

21 (1) IN GENERAL.—Each insured depository in22 stitution that is controlled by a financial services

23 holding company shall be well capitalized.

24 (2) ACTIONS BY FEDERAL REGULATORS.—In

25 the event of a finding by the appropriate Federal
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1 banking agency that an insured depository institu2 tion controlled by a financial services holding com3 pany is not well capitalized, the financial services

4 holding company shall—

5 (A) execute an agreement with the appro6 priate Federal banking agency within 30 days

7 to return the insured depository institution

8 within a reasonable period of time to being well

9 capitalized; or

10 (B) divest control of the insured bank or

11 insured institution in an orderly manner within

12 180 days, or such additional period of time as

13 the appropriate Federal banking agency may

14 determine is reasonably required in order to ef15 fect such divestiture.

16 (3) CAPITAL OF HOLDING COMPANY.—The ap17 propriate Federal banking agency may not impose

18 by regulation, order, agreement, or any other means,

19 any requirement pertaining to the capital of a finan20 cial services holding company.

21 (e) INTERSTATE ACQUISITIONS AND ACTIVITIES OF

22 INSURED DEPOSITORY INSTITUTIONS.—

23 (1) INSURED BANKS.—No financial services

24 holding company may acquire control of an addi25 tional insured bank (as such term is defined in sec-
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1 tion 2(c) of the Bank Holding Company Act of

2 1956) if the acquisition could not be approved by the

3 Board of Governors of the Federal Reserve System

4 under section 3(d)(1)(B), 3(d)(1)(C), 3(d)(1)(D),

5 3(d)(2), 3(d)(3), 3(d)(4) or 3(d)(5) of the Bank

6 Holding Company Act of 1956, were such acquisi7 tion made by a bank holding company, except as

8 otherwise authorized pursuant to section 13(f) of the

9 Federal Deposit Insurance Act.

10 (2) TREATMENT OF FINANCIAL SERVICES

11 HOLDING COMPANIES AND SUBSIDIARIES.—A finan12 cial services holding company shall be treated as a

13 bank holding company, and any insured depository

14 institution affiliate of a financial services holding

15 company shall be treated as a bank subsidiary for

16 purposes of section 18(r) of the Federal Deposit In17 surance Act.

18 (3) SAVINGS ASSOCIATIONS.—No financial serv19 ices holding company may acquire control of an ad20 ditional savings association if the acquisition would

21 be in violation of section 10(e)(3) of the Home Own22 ers’ Loan Act, were such acquisition made by a sav23 ings and loan holding company, except as otherwise

24 authorized pursuant to section 13(k) of the Federal

25 Deposit Insurance Act.
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1 (f) DIFFERENTIAL TREATMENT PROHIBITION; LAWS

2 INCONSISTENT WITH THIS ACT.—

3 (1) IN GENERAL.—Notwithstanding any other

4 Federal law, no State, and no Federal or State regu5 latory agency, including the appropriate Federal

6 banking agency, may act by law, rule, regulation,

7 order, or otherwise if the effect of such action would

8 be to differentiate insured depository institutions

9 controlled by financial services holding companies

10 from any other insured depository institutions in a

11 manner adverse to insured depository institutions

12 controlled by financial services holding companies, or

13 to differentiate financial services holding companies

14 or their affiliates from bank holding companies or

15 savings and loan holding companies and their affili16 ates in a manner adverse to financial services hold17 ing companies or their affiliates, except to the extent

18 that the appropriate Federal banking agency may

19 act to implement this Act as authorized herein.

20 (2) APPLICATION OF STATE LAWS.—

21 (A) FINDINGS.—The Congress finds

22 that—

23 (i) certain State laws and regulations

24 have the purpose or effect of preventing in25 sured depository institutions from being or
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1 becoming affiliated with, companies or per2 sons engaged in nonbanking activities;

3 (ii) such laws restrain legitimate com4 petition in interstate commerce and deny

5 consumers freedom of choice in selecting

6 financial services;

7 (iii) such restrictions also threaten the

8 long-term safety and soundness of insured

9 depository institutions by denying them ac10 cess to capital;

11 (iv) given the preponderant Federal

12 interest in ensuring competition in national

13 markets for financial services and in ensur14 ing the safety and soundness of the feder15 ally insured banking and thrift industries,

16 it is necessary to preempt such anti17 competitive State laws and regulations to

18 the extent necessary to permit the forma19 tion and efficient operation of financial

20 services holding companies;

21 (v) there is, however, a legitimate and

22 traditional State interest in ensuring that

23 State banks and other companies are oper24 ated in a safe and sound manner to serve
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1 the interests of the public and consumers;

2 and

3 (vi) the preemption provided in sub4 paragraph (B) is not intended to preempt

5 State laws that concern the regulation, su6 pervision, and examination of State char7 tered entities, and that are not inconsistent

8 with the purposes of this Act.

9 (B) PREEMPTION.—Any provision of Fed10 eral or State law, rule, regulation, or order that

11 is expressed or implied inconsistent with the

12 provisions and purposes of this section is hereby

13 preempted, including, without limitation, State

14 banking, savings and loan, insurance, real es15 tate, securities, finance company, retail, or

16 other laws which have the purpose or effect

17 of—

18 (i) preventing or impeding insured de19 pository institutions or affiliates, agents,

20 principals, brokers, directors, officers, em21 ployees, or other representatives of such

22 institutions or affiliates thereof from being

23 owned or controlled by or from being affili24 ated in any way with a financial services

25 holding company or any affiliate thereof as
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1 a result of the types of nonbanking activi2 ties engaged in directly or indirectly by

3 such company or any affiliate thereof or by

4 any agent, principal, solicitor, broker, di5 rector, officer, employee, or other rep6 resentative of such company or affiliate

7 thereof; or

8 (ii) preventing insured banks or in9 sured institutions or affiliates, agents,

10 principals, brokers, directors, officers, em11 ployees, or other representatives of such

12 institutions or affiliates thereof from offer13 ing or marketing products or services of

14 their affiliated financial services holding

15 company or any affiliate thereof or from

16 having their products or services offered or

17 marketed by their affiliated financial serv18 ices holding company or any affiliate there19 of, or by any agent, principal, broker, di20 rector, officer, employee, or other rep21 resentative of such company or affiliate

22 thereof.

23 (3) LAWS AFFECTING COURT ACTIONS.—

24 (A) IN GENERAL.—No State or State regu25 latory agency may act by law, rule, regulation,
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1 or order if the effect of such action would be to

2 impede or prevent an insured bank or insured

3 institution that is located in another State from

4 qualifying to maintain or defend in court any

5 action which could be maintained or defended

6 under similar circumstances by a company that

7 is located in such other State and that is not

8 an insured depository institution, if the insured

9 depository institution does not establish or op10 erate in that State a ‘‘domestic branch’’.

11 (B) EXCEPTION.—Where the maintenance

12 or defense of a court action referred to in sub13 paragraph (A) by a company that is located in

14 such other State and that is not an insured de15 pository institution is subject to certain condi16 tions, the maintenance or defense of such an

17 action by an insured depository institution lo18 cated in such other State may be subject to

19 those same conditions, if such conditions are

20 applied in a nondiscriminatory manner to fulfill

21 legitimate State objectives and do not have the

22 effect, directly or indirectly, of denying insured

23 depository institutions located in other States

24 the opportunity to maintain or defend such ac25 tions.
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1 (4) OTHER RESTRICTIONS.—Except for licens2 ing, marketing, compensation, employment, or other

3 requirements applied in a nondiscriminatory manner

4 to fulfill legitimate State regulatory objectives which

5 are not inconsistent with the purposes of this Act,

6 no State may, through legislative, administrative, ex7 ecutive, or judicial action, impede or prevent a finan8 cial services holding company or affiliate thereof

9 from utilizing or compensating any agent (including

10 an affiliated insured depository institution acting in

11 accordance with section 18(r) of the Federal Deposit

12 Insurance Act), solicitor, broker, employee, or other

13 person located in that State and representing in any

14 lawful capacity any insured depository institution or

15 any such financial services holding company or such

16 affiliate thereof, if, where any such person is being

17 utilized or compensated for the performance of ac18 tivities on behalf of an insured depository institu19 tion, such activities do not result in the establish20 ment or operation by the insured depository institu21 tion of a domestic branch at any location other than

22 the main or branch offices of such depository insti23 tution.

24 (5) DEFINITIONS.—As used in paragraphs (2)

25 through (4) only—
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1 (A) the term ‘‘affiliate’’ means a person

2 that directly or indirectly controls or is con3 trolled by, or is under common control with the

4 person specified; and

5 (B) the term ‘‘control’’, including the

6 terms ‘‘controlled by’’ and ‘‘under common con7 trol with’’, means the power, directly or indi8 rectly, to direct the management or policies of

9 a person and shall be presumed to exist if any

10 person, directly or indirectly, owns, controls, or

11 holds with power to vote 10 percent or more of

12 the voting securities of any other person.

13 (g) SECURITIES, INSURANCE, AND REAL ESTATE AC14 TIVITIES OF INSURED BANKS AND INSURED INSTITU15 TIONS.—

16 (1) IN GENERAL.—No insured depository insti17 tution that is an affiliate of a financial services hold18 ing company shall directly engage in—

19 (A) dealing in or underwriting securities,

20 or purchasing or selling securities as agent, ex21 cept to the extent that such activities are per22 formed only with regard to obligations of the

23 United States or would be authorized for a na24 tional bank under the first section of the Act of

25 September 28, 1962 (12 U.S.C. 92a);
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1 (B) insurance underwriting; or

2 (C) real estate investment or development,

3 except to the extent that such activities are per4 formed in relation to the premises of the in5 sured depository institution or in connection

6 with securing or collecting a debt previously

7 contracted in good faith, or would be authorized

8 for a national bank under the first section of

9 the Act of September 28, 1962 (12 U.S.C.

10 92a).

11 (2) CONSTRUCTION.—Nothing contained in this

12 subsection shall be construed to prohibit or im13 pede—

14 (A) a financial services holding company or

15 any affiliate of a financial services holding com16 pany other than an insured depository institu17 tion from engaging in any of the activities set

18 forth in paragraph (1); or

19 (B) any employee of an insured depository

20 institution that is an affiliate of a financial

21 services holding company from promoting or

22 advertising products or services of an affiliate

23 of such insured depository institution that en24 gages in any of such activities.
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1 (3) INSURANCE AND REAL ESTATE ACTIVI2 TIES.—No bank holding company which becomes a

3 financial services holding company and no financial

4 services holding company which did not at any time

5 prior to becoming such a holding company may, di6 rectly or indirectly, engage in insurance agency or

7 real estate brokerage activities shall commence any

8 insurance agency or real estate brokerage activities

9 not permissible for bank holding companies under

10 section 4(c)(8) of the Bank Holding Company Act of

11 1956, unless such activities are conducted through

12 an existing insurance agency or real estate broker13 age firm, as the case may be, acquired directly or in14 directly by such financial services holding company

15 or through any successor to such insurance agency

16 or real estate brokerage, and unless such acquired

17 insurance agency or real estate brokerage firm shall

18 have been actively engaged in such insurance or real

19 estate agency activities during the 2-year period pre20 ceding the date of enactment of this Act.

21 (4) EXISTING CONTRACTS.—Nothing in this

22 subsection shall require the breach of any contract

23 entered into before the date of enactment of this

24 Act.

25 (h) TYING AND INSIDER LENDING PROVISIONS.—
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1 (1) IN GENERAL.—A financial services holding

2 company shall be treated as a bank holding company

3 for purposes of section 106 of the Bank Holding

4 Company Act Amendments of 1970 and section

5 22(h) of the Federal Reserve Act and any regulation

6 prescribed under any such section.

7 (2) TREATMENT UNDER BANK HOLDING COM8 PANY ACT.—A financial services holding company

9 and any of such company’s other affiliates shall be

10 subject to section 106 of the Bank Holding Com11 pany Act Amendments of 1970, in connection with

12 any transaction involving the products or services of

13 such company or affiliate and those of an insured

14 depository institution affiliate, as if such company or

15 any such company’s other affiliates were an insured

16 depository institution and such insured depository

17 institution were a subsidiary of a bank holding com18 pany.

19 (3) REGULATORY AUTHORITY.—For purposes

20 of this subsection, the appropriate Federal banking

21 agency shall exercise the authority provided to the

22 Board of Governors of the Federal Reserve System

23 under section 106 of the Bank Holding Company

24 Act Amendments of 1970 and section 22(h) of the

25 Federal Reserve Act.
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1 (i) EXAMINATION AND ENFORCEMENT.—

2 (1) APPROPRIATE FEDERAL BANKING AGENCY

3 ACTIONS.—The appropriate Federal banking agency

4 shall enforce the provisions of this section and any

5 regulations adopted under the authority conferred in

6 this section by using its examination and supervisory

7 powers to ensure that each insured depository insti8 tution under its supervision is in compliance with

9 the limitations of this section.

10 (2) NO EXTENSION OF INSURANCE COV11 ERAGE.—In no instance shall the benefits of Federal

12 deposit insurance coverage applicable to an insured

13 depository institution that is controlled by a finan14 cial services holding company be extended to either

15 such financial services holding company or to any

16 other company controlled by such financial services

17 holding company that is not an insured depository

18 institution.

19 (3) AGENCY REVIEW OF RECORDS.—The appro20 priate Federal banking agency may examine the

21 books, records and affairs of, or require reports

22 from, any affiliate of an insured depository institu23 tion controlled by a financial services holding com24 pany in order to ensure compliance with the limita25 tions of this section.
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1 (4) ENFORCEMENT OF VIOLATIONS.—Whenever

2 it appears to the appropriate Federal banking agen3 cy that any financial services holding company is

4 violating, has violated, or is about to violate any pro5 vision of this section or any regulation prescribed

6 under this section, such agency may, in its discre7 tion, apply to the appropriate district court of the

8 United States or the United States court of any ter9 ritory for—

10 (A) a temporary or permanent injunction

11 or restraining order enjoining such financial

12 services holding company from violating this

13 section or any regulation prescribed under this

14 section; or

15 (B) such other equitable relief, including

16 divestiture, as may be necessary to prevent such

17 violation.

18 (5) COURT JURISDICTION.—The district courts

19 of the United States and the United States court in

20 any territory shall have jurisdiction and power to

21 issue any injunction or restraining order or grant

22 any other relief described in paragraph (3). When

23 appropriate, any injunction, order, or other equitable

24 relief granted under this subparagraph shall be

25 granted without requiring the posting of any bond.
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1 (6) NOTICE OF VIOLATIONS.—Whenever it ap2 pears to a Federal or State official or agency with

3 supervisory or examination authority over any affili4 ate of a financial services holding company that such

5 affiliate or such financial services holding company

6 is violating, has violated, or is about to violate any

7 provision of this section or any regulation prescribed

8 under this section, such official or agency shall

9 promptly notify the appropriate Federal regulatory

10 authority in order that the appropriate Federal reg11 ulatory authority in consultation with the notifying

12 agency may determine whether action under this

13 subsection is appropriate.

14 (j) DIVESTITURE.—

15 (1) IN GENERAL.—In addition to all of its other

16 regulatory and supervisory powers, if the appro17 priate Federal banking agency determines that an

18 insured depository institution under its supervision

19 has engaged in a continuing course of conduct in20 volving its financial services holding company or any

21 affiliate of such holding company which has had, or

22 has a significant probability of having, the effect of

23 causing such insured depository institution to be in

24 an unsafe or unsound condition, it may make an ini25 tial finding that the financial services holding com-
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1 pany should be required to terminate its control of

2 the insured depository institution. If the appropriate

3 Federal banking agency makes such an initial find4 ing, it shall within 3 days so notify the financial

5 services holding company controlling the insured de6 pository institution and the National Financial Serv7 ices Committee. Such notice shall provide a state8 ment for the basis of the appropriate Federal bank9 ing agency’s action.

10 (2) HEARING PROCEDURES.—Not later than 30

11 days after receipt of the notice described in para12 graph (1), the financial services holding company re13 ceiving such notice may request an agency hearing

14 before the appropriate Federal banking agency. In

15 such hearing, all issues shall be determined pursuant

16 to section 554 of title 5, United States Code. The

17 length of the hearing shall be determined by the ap18 propriate Federal banking agency, and such hearing

19 may be before a hearing examiner appointed by such

20 agency. At the conclusion thereof, the appropriate

21 Federal banking agency shall issue a final order, on

22 the basis of the record made at such hearing, affirm23 ing or reversing the initial finding of the appropriate

24 Federal banking agency. A company that fails to re25 quest an agency hearing under this paragraph shall
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1 be deemed to have consented to the issuance of a

2 final order affirming the initial finding without the

3 necessity of the hearing provided for in this para4 graph.

5 (3) TERMINATION OF CONTROL.—If such final

6 order affirms the initial finding, the financial serv7 ices holding company shall, upon completion of the

8 judicial review, if any, of the appropriate Federal

9 banking agency’s final order as provided for in sub10 section (m), terminate its control of the insured de11 pository institution involved within 1 year.

12 (k) CRIMINAL PENALTIES.—

13 (1) WILLFUL VIOLATIONS.—Any company or

14 insured depository institution which knowingly and

15 willfully violates or knowingly and willfully partici16 pates in a violation of any provision of this section,

17 or any rule, regulation, or order issued by an appro18 priate Federal banking agency pursuant thereto,

19 shall, upon conviction, be fined for each violation not

20 more than the greater of $250,000 or an amount

equal to 1 21 ⁄100 of 1 percent of the minimum required

22 capital of the relevant insured depository institution

23 for each day during which the violation continues,

24 except that in no case shall any such amount for any

25 violation or related series of violations exceed 1 per-
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1 cent of the minimum required capital of the relevant

2 insured depository institution.

3 (2) ENFORCEMENT AGAINST INDIVIDUALS.—

4 Any officer, director, employee, or agent of any com5 pany, insured depository institution, and any other

6 natural person who knowingly and willfully partici7 pates in a violation of any provision of this section

8 or any rule, regulation, or order issued pursuant

9 thereto, shall upon conviction be imprisoned not less

10 than 5 years and fined for each violation not more

11 than the greater of $250,000 or double the individ12 ual’s annual compensation at the time the violation

13 occurred.

14 (3) ENFORCEABILITY AGAINST OFFICERS AND

15 EMPLOYEES.—Every officer, director, employee, and

16 agent of a financial services holding company or in17 sured depository institution also shall be subject to

18 the same penalties for false entries in any book, re19 port, or statement of such company or insured de20 pository institution as are applicable to officers, di21 rectors, employees, and agents of member banks for

22 false entries in any books, reports, or statements of

23 member banks under section 1005 of title 18, Unit24 ed States Code.
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1 (4) ENFORCEABILITY AGAINST HOLDING COM2 PANIES.—A financial services holding company and

3 its affiliates shall be subject to the provisions of title

4 18, United States Code, to the same extent as a reg5 istered bank holding company or savings and loan

6 holding company or any affiliate of such a company.

7 (l) CIVIL ENFORCEMENT, CEASE-AND-DESIST OR8 DERS, CIVIL MONEY PENALTIES, REMOVAL, AND PROHI9 BITION AUTHORITY.—Subsections (b) through (s) and

10 subsection (u) of section 8 of the Federal Deposit Insur11 ance Act shall apply to any financial services holding com12 pany in the same manner as they apply to an insured de13 pository institution. Nothing in subsection (b) or (c) of

14 that section 8 shall authorize any Federal banking agency,

15 other than the appropriate Federal banking agency, to

16 issue a notice of charges or cease-and-desist order against

17 a financial services holding company.

18 (m) CIVIL MONEY PENALTIES.—

19 (1) IN GENERAL.—The appropriate Federal

20 banking agency shall have authority to assess such

21 a civil money penalty, after giving notice and an op22 portunity to the company or insured depository insti23 tution, officer, director, employee, agent, or other

24 natural person to submit data, views, and argu25 ments, and after giving due consideration to the ap-
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1 propriateness of the penalty with respect to the size

2 of financial resources and good faith of the com3 pany, insured depository institution, or natural per4 son charged, the gravity of the violation, the history

5 of previous violations, and any data, views, and ar6 guments submitted.

7 (2) COLLECTION OF PENALTIES.—The appro8 priate Federal banking agency may, in its discretion,

9 compromise, modify, or remit any civil money pen10 alty which is subject to imposition or has been im11 posed. The appropriate Federal banking agency may

12 collect such civil money penalty by agreement with

13 the company, insured bank or insured institution, or

14 person, or by bringing an action in the appropriate

15 United States district court, except that in any such

16 action, the company, insured depository institution

17 or person against whom the penalty has been as18 sessed shall have a right to trial de novo.

19 (n) JUDICIAL REVIEW.—Any party aggrieved by an

20 appropriate Federal banking agency’s findings or other ac21 tions under this Act may obtain review by the United

22 States court of appeals of the circuit wherein such party

23 has its principal place of business or the United States

24 Court of Appeals for the District of Columbia Circuit, by

25 filing a Notice of Appeal in such court within 30 days from
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1 the date of such action, and simultaneously sending a copy

2 of such notice by registered or certified mail to the appro3 priate Federal banking agency. The appropriate Federal

4 banking agency shall promptly certify and file in such

5 court the record upon which such action or finding was

6 based. The actions or findings of the appropriate Federal

7 banking agency shall be set aside if not supported by sub8 stantial evidence or if found to violate procedures estab9 lished by this Act. An initial finding by the appropriate

10 Federal banking agency under subsection (j) shall be sub11 ject to judicial review only in the context of review of a

12 final order under paragraph (2) of subsection (j).

13 SEC. 102. AMENDMENTS TO THE BANK HOLDING COMPANY

14 ACT OF 1956.

15 Section 2(c)(2) of the Bank Holding Company Act

16 of 1956 (12 U.S.C. 1841(c)(2)) is amended by adding at

17 the end the following new subparagraph:

18 ‘‘(K) An insured bank, as defined in sec19 tion 3 of the Federal Deposit Insurance Act,

20 that is controlled by no company other than a

21 financial services holding company, as defined

22 in section 101 of the Depository Institution Af23 filiation Act.’’.
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1 SEC. 103. AMENDMENTS TO THE FEDERAL RESERVE ACT.

2 Section 23A(a)(2) of the Federal Reserve Act (12

3 U.S.C. 371c(a)(2)) is amended by adding at the end the

4 following: ‘‘Notwithstanding the foregoing, a loan or ex5 tension of credit shall not be deemed to be made to an

6 affiliate if—

7 ‘‘(A) the member bank approves such loan or

8 extension of credit in accordance with substantially

9 the same standards and procedures and on substan10 tially the same terms that it applies to similar loans

11 or extensions of credit the proceeds of which are not

12 transferred to or for the benefit of an affiliate; and

13 ‘‘(B) such loan or extension of credit is not

14 made for the purposes of evading any of the require15 ments of this section.’’.

16 SEC. 104. AMENDMENTS TO THE BANKING ACT OF 1933.

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

18 1933 (12 U.S.C. 377) is amended by inserting after the

19 first undesignated paragraph the following:

20 ‘‘The provisions of this section shall not apply

21 to the affiliation of any bank that is an affiliate of

22 a financial services holding company as defined in

23 the Depository Institution Affiliation Act with the fi24 nancial services holding company or any other affili25 ate of the financial services holding company.’’.
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1 (b) SECTION 32.—Section 32 of the Banking Act of

2 1933 (12 U.S.C. 78) is amended by adding at the end

3 the following: ‘‘The provisions of this section shall not

4 apply to relationships involving an affiliate of a financial

5 services holding company, as defined in section 101 of the

6 Depository Institution Affiliation Act, and either that fi7 nancial services holding company or any other affiliate of

8 that financial services holding company.’’.

9 SEC. 105. AMENDMENTS TO THE FEDERAL DEPOSIT INSUR10 ANCE ACT.

11 (a) SECTION 7.—Section 7(j) of the Federal Deposit

12 Insurance Act (12 U.S.C. 1817(j)) is amended—

13 (1) in paragraph (8), by striking subparagraph

14 (B) and inserting the following:

15 ‘‘(B) the term ‘control’ means the power,

16 directly or indirectly, to direct the management

17 or policies of a company, or to vote 25 percent

18 or more of any class of voting securities of a

19 company, except that no company shall be

20 deemed to control or to have acquired control of

21 any other company by virtue of its ownership of

22 the voting securities of such other company—

23 ‘‘(i) acquired or held in an agency,

24 trust, or other fiduciary capacity;
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1 ‘‘(ii) acquired or held in connection

2 with or incidental to—

3 ‘‘(I) the underwriting of securi4 ties if such securities are held only for

5 such period of time as will permit the

6 sale thereof on a reasonable basis; or

7 ‘‘(II) market making, dealing,

8 trading, brokerage, or other securities9 related activities and not with a view

10 to acquiring, exercising, or transfer11 ring any control over the management

12 or policies of such company; or

13 ‘‘(iii) acquired in securing or collect14 ing a debt previously contracted in good

15 faith, until 2 years after the date of acqui16 sition, except that no company formed for

17 the sole purpose of participating in a proxy

18 solicitation is in control of a company by

19 virtue of its acquisition of voting rights

20 with respect to shares of such company ac21 quired in the course of such solicitation.’’;

22 and

23 (2) by adding at the end the following new

24 paragraph:
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1 ‘‘(18) DEFINITION.—For purposes of this sub2 section, the term ‘insured depository institution’

3 shall include—

4 ‘‘(A) any ‘bank holding company’, as that

5 term is defined in section 2 of the Bank Hold6 ing Company Act of 1956, which has control of

7 any insured bank (as defined in that section 2),

8 and the appropriate Federal banking agency in

9 the case of a bank holding company shall be the

10 Board of Governors of the Federal Reserve Sys11 tem;

12 ‘‘(B) any ‘savings and loan holding com13 pany’, as that term is defined in section 10 of

14 the Home Owners’ Loan Act, which has control

15 of any insured savings association (as defined

16 in that section 10), and the appropriate Federal

17 banking agency, in the case of a savings and

18 loan holding company shall be the Office of

19 Thrift Supervision; and

20 ‘‘(C) any ‘financial services holding com21 pany’, as that term is defined in section

22 101(a)(1) of the Depository Institution Affili23 ation Act, which has control of any such in24 sured bank, and the appropriate Federal bank25 ing agency in the case of a financial services
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1 holding company shall be the appropriate Fed2 eral banking agency, as defined in section

3 101(a)(5) of the Depository Institution Affili4 ation Act, of such insured bank, or each such

5 agency, if more than one, in the case of a finan6 cial services holding company which has control

7 of more than one such insured bank.’’.

8 (b) SECTION 18.—Section 18(j)(1)(A) of the Federal

9 Deposit Insurance Act (12 U.S.C. 1828(j)(1)(A)) is

10 amended by striking ‘‘Sections’’ and inserting ‘‘Subject to

11 section 101(c)(1)(B) of the Depository Institution Affili12 ation Act, sections’’.

13 SEC. 106. AMENDMENTS TO THE SECURITIES EXCHANGE

14 ACT OF 1934.

15 (a) REGISTRATION OF BROKERS AND DEALERS.—

16 Section 15 of the Securities Exchange Act of 1934 (15

17 U.S.C. 78o) is amended by adding at the end the following

18 new subsection:

19 ‘‘(h) ADHERENCE TO OTHER LAWS.—The Commis20 sion shall not grant registration to any broker or dealer

21 unless such broker or dealer establishes to the satisfaction

22 of the Commission that all requirements established by the

23 Depository Institution Affiliation Act in connection with

24 the activities of such broker or dealer (including any cap25 ital adequacy requirement) have been met.’’.
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1 (b) REGULATION OF BROKERS AND DEALERS.—Sec2 tion 15(b)(4) of the Securities Exchange Act of 1934 (15

3 U.S.C. 78o (b)(4)) is amended—

4 (1) in subparagraph (D), by inserting ‘‘the De5 pository Institution Affiliation Act,’’ after ‘‘the Com6 modity Exchange Act,’’; and

7 (2) in subparagraph (E), by inserting ‘‘the De8 pository Institution Affiliation Act,’’ after ‘‘the Com9 modity Exchange Act,’’.

10 SEC. 107. AMENDMENT TO THE HOME OWNERS’ LOAN ACT.

11 Section 11(a)(1) of the Home Owners’ Loan Act (12

12 U.S.C. 1468(a)(1)) is amended by striking ‘‘Sections’’ and

13 inserting ‘‘Subject to section 101(c)(1)(B) of the Deposi14 tory Institution Affiliation Act, sections’’.

15 SEC. 108. AMENDMENT TO THE COMMUNITY REINVEST16 MENT ACT.

17 Section 803(3) of the Community Reinvestment Act

18 of 1977 (12 U.S.C. 2902(3)) is amended—

19 (1) by inserting ‘‘or notice, as appropriate’’

20 after ‘‘an application’’;

21 (2) in subparagraph (E), by striking ‘‘or’’ at

22 the end;

23 (3) in subparagraph (F), by striking the period

24 at the end and inserting ‘‘; or’’; and
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1 (4) by adding at the end the following new sub2 paragraph:

3 ‘‘(G) the acquisition of an insured deposi4 tory institution requiring prior notice under sec5 tion 101(b) of the Depository Institution Affili6 ation Act.’’.

7 TITLE II—SUPERVISORY

8 IMPROVEMENTS

9 SEC. 201. NATIONAL FINANCIAL SERVICES COMMITTEE.

10 (a) ESTABLISHMENT OF NATIONAL FINANCIAL

11 SERVICES OVERSIGHT COMMITTEE.—There is established

12 a National Financial Services Oversight Committee which

13 shall consist of—

14 (1) the Secretary of the Treasury;

15 (2) the Chairman of the Board of Governors of

16 the Federal Reserve System;

17 (3) the Chairman of the Board of Directors of

18 the Federal Deposit Insurance Corporation;

19 (4) the Director of the Office of Thrift Super20 vision;

21 (5) the Comptroller of the Currency;

22 (6) the Chairman of the Securities and Ex23 change Commission; and

24 (7) the Chairman of the Commodities Futures

25 Trading Commission.
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1 (b) MEMBER AGENCIES.—For purposes of this Act,

2 the agencies or departments headed by members of the

3 committee shall be referred to as ‘‘member agencies’’.

4 (c) CHAIR.—The chair of the committee shall be the

5 Secretary of the Treasury.

6 (d) COMPENSATION.—Each member of the committee

7 shall serve without additional compensation, but shall be

8 entitled to reasonable expenses incurred in carrying out

9 the official duties as such a member.

10 (e) PUBLIC MEETINGS.—The committee shall hold

11 public meetings at least annually. All meetings of the com12 mittee shall be conducted in conformity with the provisions

13 of section 3(a) of the Government in the Sunshine Act

14 (5 U.S.C. 552b). The committee may not take any action

15 unless such action is approved by a vote of two-thirds of

16 the members of the committee.

17 (f) SECRETARIAT.—The Department of the Treasury

18 shall provide the secretariat for the committee and shall

19 assume any expenses arising for execution of the respon20 sibilities of the committee.

21 (g) ACCESS TO RECORDS.—For the purpose of carry22 ing out this section, the committee shall have access to

23 all books, accounts, records, reports, files, memoranda, pa24 pers, things, and property belonging to or in use by any

25 appropriate Federal banking agency.
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1 (h) FUNCTIONS OF THE COMMITTEE.—

2 (1) UNIFORM PRINCIPLES AND STANDARDS.—

3 The committee shall, insofar as is practicable, estab4 lish uniform principles and standards for the exam5 ination and supervision of financial institutions and

6 other providers of financial services, which shall be

7 applied by the member agencies.

8 (2) RECOMMENDATIONS.—The committee shall

9 make recommendations for uniformity in other su10 pervisory matters, such as, but not limited to, identi11 fying financial institutions and other providers of fi12 nancial services in need of special supervisory atten13 tion, the adequacy of supervisory tools for determin14 ing the impact of affiliate operations on insured de15 pository institutions and the ability of the member

16 agencies to discover possible fraud or questionable

17 practices.

18 (3) RECOMMENDATIONS TO CONGRESS.—The

19 committee shall, from time to time, recommend to

20 the Congress additional measures to strengthen the

21 separation between insured depository institutions

22 controlled by depository institutions holding compa23 nies from the activities of any of their affiliates in24 cluding, the imposition of additional restrictions on

25 interaffiliate transactions and the strict application
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1 of Federal deposit insurance coverage only for the

2 benefit of depositors of insured depository institu3 tions that are controlled by a financial services hold4 ing company.

5 (i) CONSULTATION WITH STATE REGULATORS.—The

6 committee shall consult with the appropriate organizations

7 representing the State regulators of banks, savings and

8 loan associations, savings banks, securities firms, insur9 ance companies, and other providers of financial services,

10 and as deemed appropriate, meet with such State regu11 lators. The committee shall invite to each public meeting

12 of the committee representatives of such organizations.

13 (j) STUDIES AND RECOMMENDATIONS.—The com14 mittee may conduct or authorize studies to carry out the

15 purposes of this Act. On the basis of such studies, the

16 committee may make recommendations to the Congress

17 and member agencies concerning the implementation of

18 this Act and changes in statutes and regulations necessary

19 to promote the strength and stability of the Nation’s fi20 nancial system and financial institutions, the competitive21 ness of providers of financial services in domestic and

22 international markets and the purposes of this Act. Not

23 later than 1 year after the date of enactment of this Act,

24 the committee shall report to the Congress on proposals

25 for legislative or regulatory actions that will improve the
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1 examination process to permit better oversight of all in2 sured depository institutions. In particular, the committee

3 shall consider whether the number of or compensation for

4 examiners employed by the appropriate Federal regulatory

5 agencies should be increased.

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