I

105TH CONGRESS

1ST SESSION H.R. 669

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

purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 11, 1997

Mr. BAKER (for himself, Mr. MCCOLLUM, Mr. DREIER, Mr. LAFALCE, 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 SHORT TITLE

4 SECTION 1. This Act may be cited as the ‘‘Depository

5 Institution Affiliation Act’’.

6 FINDINGS AND PURPOSE

7 SEC. 2. (a) The Congress hereby finds that—
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1 (1) current laws and regulations restrain effi2 ciency, competition and innovation in the design and

3 delivery of financial services to the disadvantage of

4 consumers;

5 (2) restrictions on ownership of depository insti6 tutions and affiliations with other business organiza7 tions interferes with their ability to attract and re8 tain capital and managerial resources;

9 (3) the vulnerability of the financial system and

10 its discrete components is increased and effective

11 monitoring, supervision and coordination of actions

12 during periods of stress is impeded by fragmented

13 and disparate regulation; and

14 (4) current laws inhibit the ability of domestic

15 financial markets and intermediaries to respond to

16 the serious competitive challenges presented by for17 eign intermediaries and the globalization of markets.

18 (b) It is the purpose of this act to promote the safety

19 and soundness of the Nation’s financial system, enhance

20 the quality of regulation and supervision of financial

21 intermediaries and achieve a more efficient market and

22 effective regulatory structure by—

23 (1) establishing an alternative and comprehen24 sive legislative framework for the creation and regu25 lation of depository institution holding companies;
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1 (2) increasing the capital adequacy of commer2 cial banks, brokers and dealers, and savings and

3 loan associations and other financial companies by

4 eliminating restrictions on common ownership and

5 affiliation within a depository institution holding

6 company;

7 (3) permitting affiliates to engage in any activ8 ity subject to functional and equal regulation by the

9 appropriate State or Federal regulator;

10 (4) insulating and protecting insured depository

11 institutions through higher capital requirements, ex12 panded restrictions on relationship with affiliates,

13 broader examination and enforcement authority and

14 increased civil and criminal penalties;

15 (5) permitting the efficient marketing and dis16 tribution of financial services to consumers subject

17 to safeguards against coercive tie-ins and other un18 fair and abusive practices; and

19 (6) establishing the National Financial Services

20 Committee to oversee the evolution and supervision

21 of the financial services industry and to report to

22 Congress.
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1 TITLE I—CREATION AND CONTROL OF DEPOSI2 TORY INSTITUTION HOLDING COMPANIES

3 SEC. 101. (a) DEFINITIONS.—For the purposes of

4 this Act:

5 (1) The term ‘‘depository institution holding

6 company’’ means a company that—

7 (A) has filed with the National Financial

8 Services Committee a notice stating such com9 pany’s intent to comply with the requirements

10 of this section and has not withdrawn such no11 tice; and

12 (B) controls an insured depository institu13 tion, or either (i) has, within the preceding

14 twelve months, filed a notice under subsection

15 (b) of this section to acquire control of an in16 sured depository institution, a bank holding

17 company, a savings and loan holding company

18 or a depository institution holding company,

19 which notice has not been disapproved, or (ii)

20 controls a company which has, within the pre21 ceding twelve months, filed an application for

22 deposit insurance under section 4 or 5 of the

23 Federal Deposit Insurance Act (12 U.S.C.

24 1814, 1815) which has not been disapproved.
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1 The filing of the notice described in subpara2 graph (A) of this paragraph by a bank holding

3 company that does not control any banks as de4 fined in section 2(c)(1)(B) of the Bank Holding

5 Company Act (12 U.S.C. 1814(c)(1)(B)) which

6 are not insured depository institutions shall in

7 immediate termination of the status of such

8 company as a bank holding company, and the

9 filing of the notice described in subparagraph

10 (A) of this paragraph by a savings and loan

11 holding company shall result in the immediate

12 termination of the status of such company as a

13 savings and loan holding company.

14 (2) The term ‘‘bank holding company’’ has the

15 meaning given to it in section 2(a) of the Bank

16 Holding Company Act of 1956, as amended (12

17 U.S.C. 1841(a)).

18 (3) The term ‘‘savings and loan holding com19 pany’’ has the meaning given to it in section 10(a)

20 of the Home Owners’ Loan Act of 1933 (12 U.S.C.

21 1467a(a)).

22 (4) Except as provided in paragraph 5 of sub23 section (f) of this section, the term ‘‘affiliate’’ of a

24 company means any other company which controls,
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1 is controlled by, or is under common control with

2 such company.

3 (5) The term ‘‘appropriate Federal banking

4 agency’’ has the meaning given to it is section 3 of

5 the Federal Deposit Insurance Act (12 U.S.C. 1813

6 (q)).

7 (6) The term ‘‘insured depository institution’’

8 has the meaning given to it in section 3(c)(2) of the

9 Federal Deposit Insurance Act (12 U.S.C.

10 1813(C)(2)).

11 (7) The term ‘‘State’’ has the meaning given to

12 it in section 3(a) of the Federal Deposit Insurance

13 Act (12 U.S.C. 1813(a)).

14 (8) The term ‘‘company’’ means any corpora15 tion, partnership, business trust, association, or

16 similar organization, or any other trust unless by its

17 items it must terminate within twenty-five years or

18 not later than twenty-one years and ten months

19 after the death of individuals living on the effective

20 date of the trust, but shall not include any corpora21 tion the majority of the shares of which are owned

22 by the United States or by any State.

23 (9)(A) The term ‘‘control’’ means the power, di24 rectly or indirectly, to direct the management or
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1 policies of a company, or to vote 25 per centum or

2 more of any class of voting securities of a company.

3 (B) No company shall be deemed to control or

4 to have acquired control of any other company by

5 virtue of its ownership of the voting securities of

6 such other company—

7 (i) acquired or held in any agency, trust or

8 other fiduciary capacity;

9 (ii)(a) acquired or held in connection with

10 or incidental to the underwriting of securities if

11 such securities are held only for such period of

12 time as will permit the sale thereof on a reason13 able basis; or

14 (b) acquired or held in connection with or

15 incidental to market making, dealing, trading,

16 brokerage or other securities related activities

17 and not with a view to acquiring, exercising or

18 transferring any control over the management

19 or policies of such company; or

20 (iii) acquired in securing or collecting a

21 debt previously contracted in good faith, until

22 two years after the date of acquisition or for

23 such additional period of time as the appro24 priate Federal banking agency may permit.
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1 (C) No company formed for the sole purpose of

2 participating in a proxy solicitation is in control of

3 a company by virtue of its acquisition of voting

4 rights with respect to shares of such company ac5 quired in the course of such solicitation.

6 (10) The term ‘‘adequately capitalized with re7 spect to an insured depository institution has the

8 meaning given to it in section 38(b)(1) of the Fed9 eral Deposit Insurance Act (12 U.S.C.

10 1831o(b)(1)(B).

11 (11) The term ‘‘well capitalized’’ has the mean12 ing given to it in section 38(b)(1)(A) of the Federal

13 Deposit Insurance Act (12 U.S.C. 1831o(b)(1)(A)).

14 (12) The term ‘‘minimum required capital’’

15 with respect to an insured depository institution

16 means the amount of capital that is required for it

17 to be adequately capitalized.

18 (b) CHANGES IN CONTROL OF INSURED BANKS AND

19 INSURED INSTITUTIONS.—No depository institution hold20 ing company acting directly or indirectly, or through or

21 in concert with one or more other persons, shall acquire

22 control of an insured depository institution, a bank hold23 ing company, a savings and loan holding company or a

24 depository institution holding company not controlled by
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1 such company on the date it became a depository institu2 tion holding company, if such acquisition and control oc3 curs through a purchase, assignment, transfer, pledge or

4 other disposition of voting stock of such insured depository

5 institution, bank holding company, savings and loan hold6 ing company or depository institution holding company

7 unless the depository institution holding company has

8 complied with the requirements of section 7(j) of the Fed9 eral Deposit Insurance Act (12 U.S.C. 1817(j)). Any fail10 ure to comply with the preceding requirements shall sub11 ject the relevant depository institution holding company

12 to the penalties and other procedures provided in sub13 sections (i) through (m) of this section, in addition to oth14 erwise applicable penalties.

15 (c) AFFILIATE TRANSACTIONS.—(1) The appropriate

16 Federal agency may—

17 (A) upon a finding of probable harm that can18 not adequately be prevented by less burdensome

19 rules and regulations, adopt such rules and regula20 tions, consistent with the purposes of this Act, as

21 may be necessary in order to prevent an insured de22 pository institution that is controlled by a depository

23 institution holding company from engaging in unsafe
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1 or unsound practices that involve the depository in2 stitution holding company or any of its affiliates in3 cluding, without limitation, unsafe or unsound prac4 tices that involve covered transactions as defined in

5 section 23A of the Federal Reserve Act (12 U.S.C.

6 371c) and any transactions described in paragraph

7 (2) of subsection (a) of section 23B of the Federal

8 Reserve Act (12 U.S.C. 373c–1); and

9 (B) by rule, regulation or order, exempt any in10 sured depository institution that is controlled by a

11 depository institution holding company or class of

12 such banks or institutions, or any transaction or

13 class of transactions, from any requirement under

14 the preceding subparagraph or under sections 23A

15 or 23B of the Federal Reserve Act (12 U.S.C. 371c,

16 371c–1), not withstanding the provisions of any

17 other law, rule, regulation or order, if the appro18 priate Federal banking agency deems such an ex19 emption to be reasonable and not inconsistent with

20 the purposes of this Act and in the public interest.

21 (2) Any rule or regulation adopted pursuant to sub22 paragraph (A) of paragraph (1) of this subsection shall
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1 be adopted in accordance with section 4 of the Administra2 tive Procedure Act (5 U.S.C. 553), except that the appro3 priate Federal banking agency shall give interested per4 sons an opportunity for oral presentations of data, views,

5 and arguments, in addition to written submissions.

6 (3) Any transaction that was approved by a Federal

7 regulatory agency prior to the enactment of this Act shall

8 be exempt from any rules or regulations adopted pursuant

9 to subparagraph (A) of paragraph (1) of this subsection.

10 (4) Subject to subparagraph (B) of paragraph (1) of

11 this subsection, the provisions of sections 23A and 23B

12 of the Federal Reserve Act (12 U.S.C. 371c, 371c–1) shall

13 be applicable to every insured depository institution con14 trolled by a depository institution holding company in the

15 same manner and to the extent as if such insured deposi16 tory institution were a member bank, and for this purpose,

17 any company which would be an affiliate of an insured

18 depository institution for purposes of such sections 23A

19 and 23B if such insured depository institution were a

20 member bank shall be deemed to be an affiliate of such

21 insured depository institution.

22 (5) No insured depository institution that is an affili23 ate of a depository institution holding company shall, di24 rectly or indirectly—
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1 (A) extend credit in any manner to a securities

2 affiliate or a subsidiary thereof;

3 (B) purchase for its own account assets of a se4 curities affiliate or a subsidiary thereof;

5 (C) issue a guarantee, acceptance, or letter of

6 credit, including an endorsement or standby letter of

7 credit, for the benefit of a securities affiliate or a

8 subsidiary thereof; or

9 (D) extend credit in any manner to any invest10 ment company advised by or the shares of which are

11 distributed by a securities affiliate.

12 (6) Subparagraphs (A) and (B) of paragraph (5) do

13 not apply to any extension of credit by an insured deposi14 tory institution made to acquire or sell any securities of

15 the United States if—

16 (A) the extension of credit is to be repaid on

17 the same calendar day;

18 (B) the extension of credit is incidental to the

19 clearing of transactions in those securities through

20 that insured depository institution; and

21 (C) both the principal of and the interest on the

22 extension of credit are fully secured by securities of

23 the United States.
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1 (7) No insured depository institution that is an affili2 ate of a depository institution holding company shall di3 rectly or indirectly extend credit, or issue or enter into

4 a standby letter of credit, asset purchase agreement, in5 demnity, guarantee, insurance, or other facility, for the

6 purpose of enhancing the marketability of a securities

7 issue underwritten or distributed by a securities affiliate.

8 (8) No insured depository institution that is an affili9 ate of a depository institution holding company shall

10 knowingly extend or arrange for the extension of credit,

11 directly or indirectly, secured by or for the purpose of pur12 chasing any security while, or for thirty days after, that

13 security is the subject of a distribution in which a securi14 ties affiliate of that insured depository institution partici15 pates as an underwriter or a member of a selling group.

16 (9) No depository institution that is an affiliate of

17 a depository institution holding company shall, directly or

18 indirectly, extend credit to an issuer of securities under19 written by a securities affiliate for the purpose of paying

20 the principal of those securities or interest for dividends

21 on those securities.

22 (10) For the purpose of paragraphs (5), (6), (7), (8),

23 and (9) of this section, a ‘‘securities affiliate’’ means a

24 company that engages in underwriting, distributing or

25 dealing in securities of any type, except that such term
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1 shall not include insurance products deemed to be securi2 ties, including and without limitation variable annuities

3 and variable life insurance.

4 (d) CAPITALIZATION.—(1) Each insured depository

5 institution that is controlled by a depository institution

6 holding company shall be well capitalized.

7 (2) In the event of a finding by the appropriate Fed8 eral banking agency that an insured depository institution

9 controlled by a depository institution holding company is

10 not well capitalized, the depository institution holding

11 company shall (i) execute an agreement with the appro12 priate Federal banking agency within thirty days to return

13 the insured depository institution within a reasonable pe14 riod of time to being well capitalized or (ii) divest control

15 of the insured bank or insured institution in an orderly

16 manner within one hundred and eighty days or such addi17 tional period of time as the appropriate Federal banking

18 agency may determine is reasonably required in order to

19 effect such divestiture.

20 (3) The appropriate Federal banking agency may not

21 impose by regulation, order, agreement or any other

22 means any requirement pertaining to the capital of a de23 pository institution holding company.

24 (e) INTERSTATE ACQUISITIONS AND ACTIVITIES OF

25 INSURED DEPOSITORY INSTITUTIONS.—(1) No depository
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1 institution holding company may acquire control of an ad2 ditional insured bank (as such term is defined in section

3 2(c) of the Bank Holding Company Act of 1956, as

4 amended (12 U.S.C. 1841(c)), if the acquisition could not

5 be approved by the Board of Governors of the Federal Re6 serve System under section 3(d)(1)(B), 3(d)(1)(C),

7 3(d)(1)(D), 3(d)(2), 3(d)(3), 3(d)(4), or 3(d)(5) of the

8 Bank Holding Company Act of 1956, as amended (12

9 U.S.C. 1842(d)) were such acquisition made by a bank

10 holding company except as otherwise authorized pursuant

11 to 13(f) of the Federal Deposit Insurance Act (12 U.S.C.

12 1823(f)).

13 (2) A depository institution holding company shall be

14 treated as a bank holding company, and any insured de15 pository institution affiliate of a depository institution

16 holding company shall be treated as a bank subsidiary for

17 purposes of section 18(r) of the Federal Deposit Insurance

18 Act (12 U.S.C. 1828(r)).

19 (3) No depository institution holding company may

20 acquire control of an additional savings association if the

21 acquisition would be in violation of section 10(e)(3) of the

22 Home Owners’ Loan Act of 1933 (12 U.S.C. 1467a(e)(3))

23 were such acquisition made by a savings and loan holding
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1 company, except as otherwise authorized pursuant to sec2 tion 13(k) of the Federal Deposit Insurance Act (12

3 U.S.C. 1823(k)).

4 (f) DIFFERENTIAL TREATMENT PROHIBITION; LAWS

5 INCONSISTENT WITH THIS ACT.—(1) Notwithstanding

6 any other Federal law, no State, and no Federal or State

7 regulatory agency, including the appropriate Federal

8 banking agency, may act by law, rule, regulation, order,

9 or otherwise if the effect of such action would be to dif10 ferentiate insured depository institutions controlled by de11 pository institution holding companies from any other in12 sured depository institutions in a manner adverse to in13 sured depository institutions controlled by depository insti14 tution holding companies, or to differentiate depository in15 stitution holding companies or their affiliates from bank

16 holding companies or savings and loan holding companies

17 and their affiliates in a manner adverse to depository insti18 tution holding companies or their affiliates, except to the

19 extent that the appropriate Federal banking agency may

20 act to implement this Act as authorized herein.

21 (2)(A) FINDINGS AND PURPOSE.—The Congress

22 hereby finds that certain State laws and regulations have

23 the purpose or effect of preventing insured depository in24 stitutions from being or becoming affiliate with, companies
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1 or persons engaged in nonbanking activities. Such laws re2 strain legitimate competition in interstate commerce and

3 deny consumers freedom of choice in selecting financial

4 services. Such restrictions also threaten the long-term

5 safety and soundness of insured depository institutions by

6 denying them access to capital. Given the preponderant

7 Federal interest in ensuring competition in national mar8 kets for financial services and in ensuring the safety and

9 soundness of the federally insured banking and thrift in10 dustries, Congress hereby finds that it is necessary to pre11 empt such anticompetitive State laws and regulations to

12 the extent necessary to permit the formation and efficient

13 operation of depository institution holding companies.

14 However, the Congress also recognizes that there is a le15 gitimate and traditional State interest in ensuring that

16 State banks and other companies are operated in a safe

17 and sound manner to serve the interests of the public and

18 consumers. The preemption provided in the following

19 paragraph (B) is thus not intended to preempt State laws

20 that concern the regulation, supervision, and examination

21 of State chartered entities, and that are not inconsistent

22 with the purposes of this Act.

23 (B) PREEMPTION.—Any provision of Federal or

24 State law, rule, regulation or order that is expressly or

25 impliedly inconsistent with the provisions and purposes of
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1 this section is hereby preempted, including, without limita2 tion, State banking, savings and loan, insurance, real es3 tate, securities, finance company, retail or other laws

4 which (i) have the purpose or effect of preventing or im5 peding insured depository institutions or affiliates, agents,

6 principals, brokers, directors, officers, employees or other

7 representatives of such institutions or affiliates thereof

8 from being owned or controlled by or from being affiliated

9 in any way with a depository institution holding company

10 or any affiliate thereof as a result of the types of non11 banking activities engaged in directly or indirectly by such

12 company or any affiliate thereof or by any agent, prin13 cipal, solicitor, broker, director, officer, employee or other

14 representative of such company or affiliate thereof or (ii)

15 have the purpose or effect of preventing insured banks or

16 insured institutions or affiliates, agents, principals, bro17 kers, directors, officers, employees or other representatives

18 of such institutions or affiliates thereof from offering or

19 marketing products or services of their affiliated deposi20 tory institution holding company or any affiliate thereof

21 or from having their products or services offered or mar22 keted by their affiliated depository institution holding

23 company or any affiliate thereof, or by any agent, prin24 cipal, broker, director, officer, employee or other rep25 resentatives of such company or affiliate thereof.
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1 (3) No State or State regulatory agency may act by

2 law, rule, regulation or order if the effect of such action

3 would be to impede or prevent an insured bank or insured

4 institution that is located in another State from qualifying

5 to maintain or defend in court any action which could be

6 maintained or defended under similar circumstances by a

7 company that is located in such other State and that is

8 not an insured depository institution, provided that the in9 sured depository institution does not establish or operate

10 in any State so acting or in the State of any State regu11 latory agency so acting as a ‘‘domestic branch’’, as defined

12 in section 3(o)); except that, where the maintenance or

13 defense of such an action by a company that is located

14 in such other State and that is not an insured depository

15 institution is subject to certain conditions, the mainte16 nance or defense of such an action by an insured deposi17 tory institution located in such other State may be subject

18 to those same conditions, so long as such conditions are

19 applied in a nondiscriminatory manner to fulfill legitimate

20 State objectives and do not have the effect, directly or in21 directly, of denying insured depository institutions located

22 in other States the opportunity to maintain or defend such

23 actions.
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1 (4) Except for licensing, marketing, compensation,

2 employment or other requirements applied in a non3 discriminatory manner to fulfill legitimate State regu4 latory objectives which are not inconsistent with the pur5 poses of this Act as set forth in section 2 hereof, no State

6 may through legislative, administrative, executive or judi7 cial action impede or prevent a depository institution hold8 ing company or affiliate thereof from utilizing or com9 pensating any agent, solicitor, broker, employee or other

10 person located in that State and representing in any lawful

11 capacity any insured depository institution or any such de12 pository institution holding company or such affiliate

13 thereof, provided that, where any such person is being uti14 lized or compensated for the performance of activities on

15 behalf of an insured depository institution, such activities

16 do not result in the establishment or operation by the in17 sured depository institution of a ‘‘domestic branch,’’ as de18 fined in section 3(o) of the Federal Deposit Insurance Act

19 (12 U.S.C. 1813(a)), at any location other than the main

20 or branch offices of such depository institution.

21 (5) As used in paragraphs (2) through (4) of this

22 subsection only, the term ‘‘affiliate’’ means a person that

23 directly or indirectly controls or is controlled by, or is

24 under common control with the person specified; and the

25 term ‘‘control,’’ including the terms ‘‘controlled by’’ and
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1 ‘‘under common control with’’, means the power, directly

2 or indirectly, to direct the management or policies of a

3 person and shall be presumed to exist if any person, di4 rectly or indirectly, owns, controls, or holds with power

5 to vote ten per centum or more of the voting securities

6 of any other person.

7 (g) SECURITIES, INSURANCE AND REAL ESTATE AC8 TIVITIES OF INSURED BANKS AND INSURED INSTITU9 TIONS.—(1) No insured depository institution that is an

10 affiliate of a depository institution holding company shall

11 directly engage in—

12 (A) dealing in or underwriting securities, or

13 purchasing or selling securities as agent, except to

14 the extent that such activities are performed only

15 with regard to obligations of the United States or

16 would be authorized for a national bank under sec17 tion 92a of title 12, United States Code;

18 (B) insurance underwriting; or

19 (C) real estate investment or development, ex20 cept to the extent that such activities are performed

21 in relation to the premises of the insured depository

22 institution or in connection with securing or collect23 ing a debt previously contracted in good faith, or

24 would be authorized for a national bank under sec25 tion 92a of title 12, United States Code.
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1 (2) Nothing contained in this subsection shall be con2 strued (A) to prohibit or impede a depository institution

3 holding company or any affiliate of a depository institution

4 holding company other than an insured depository institu5 tion from engaging in any of the activities set forth in

6 paragraph (1), or (B) to prohibit or impede any employee

7 of an insured depository institution that is an affiliate of

8 a depository institution holding company from promoting

9 or advertising products or services of an affiliate of such

10 insured depository institution that engages in any of such

11 activities.

12 (3) No bank holding company which becomes a de13 pository institution holding company and no depository in14 stitution holding company which did not at any time prior

15 to becoming such a holding company directly or indirectly

16 engage in insurance agency or real estate brokerage activi17 ties shall commence any insurance agency or real estate

18 brokerage activities not permissible for bank holding com19 panies under section 4(C)(8) of the Bank Holding Com20 pany Act of 1956, as amended (12 U.S.C. 1843(c)(8)),

21 unless such activities shall be conducted through an exist22 ing insurance agency or real estate brokerage firm, as the

23 case may be, acquired directly or indirectly by such deposi24 tory institution holding company or through any successor
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1 to such insurance agency or real estate brokerage, and un2 less such acquired insurance agency or real estate broker3 age firm shall have been actively engaged in such insur4 ance or real estate agency activities during the two-year

5 period preceding the date of enactment of this Act.

6 (4) Nothing in this subsection shall require the

7 breach of any contract entered into prior to enactment of

8 this Act.

9 (h) TYING AND INSIDER LENDING PROVISIONS.—(1)

10 A depository institution holding company shall be treated

11 as a bank holding company for purposes of section 106

12 of the Bank Holding Company Act Amendments of 1970

13 and section 22(h) of the Federal Reserve Act and any reg14 ulation prescribed under any such section.

15 (2) A depository institution holding company and any

16 of such company’s other affiliates shall be subject to sec17 tion 106 of the Bank Holding Company Act Amendments

18 of 1970, in connection with any transaction involving the

19 products or services of such company or affiliate and those

20 of an insured depository institution affiliate, as if such

21 company or any such company’s other affiliates were an

22 insured depository institution and such insured depository

23 institution were a subsidiary of a bank holding company.
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1 (3) For purposes of this subsection, the appropriate

2 Federal banking agency shall exercise the authority pro3 vided to the Board of Governors of the Federal Reserve

4 System in section 106 of the Bank Holding Company Act

5 Amendments of 1970 and section 2(h) of the Federal Re6 serve Act.

7 (i) EXAMINATION AND ENFORCEMENT.—(1) The ap8 propriate Federal banking agency shall enforce the provi9 sions of this section and any regulations adopted under

10 the authority conferred in this section by using its exam11 ination and supervisory powers to ensure that each in12 sured depository institution under its supervision is in

13 compliance with the limitations of this section.

14 (2) In no instance shall the benefits of Federal de15 posit insurance coverage applicable to an insured deposi16 tory institution that is controlled by a depository institu17 tion holding company be extended to either such deposi18 tory institution holding company or to any other company

19 controlled by such depository institution holding company

20 that is not an insured depository institution. Thus the pur21 pose of this subsection (c) is to prevent the resources of

22 the Federal deposit insurance funds from being used to
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1 protect the shareholders or business interests of a deposi2 tory institution holding company, except through the au3 thorized fulfillment of their obligations to protect the in4 sured deposits of an insured depository institution that is

5 controlled by a depository institution holding company.

6 (3) The appropriate Federal banking agency may ex7 amine the books, records and affairs of, or require reports

8 from, any affiliate of an insured depository institution con9 trolled by a depository institution holding company in

10 order to ensure compliance with the limitations of this sec11 tion.

12 (4) Whenever it appears to the appropriate Federal

13 banking agency that any depository institution holding

14 company is violating, has violated, or is about to violate

15 any provision of this section or any regulation prescribed

16 under this section, such agency may, in its discretion,

17 apply to the appropriate district court of the United States

18 or the United States court of any territory for—

19 (A) a temporary or permanent injunction or re20 straining order enjoining such depository institution

21 holding company from violating this section or any

22 regulation prescribed under this section; or

23 (B) such other equitable relief, including dives24 titure, as may be necessary to prevent such violation.
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1 (5) The district courts of the United States and the

2 United States court in any territory shall have jurisdiction

3 and power to issue any injunction or restraining order or

4 grant any other relief described in paragraph (3). When

5 appropriate, any injunction, order, or other equitable relief

6 granted under this subparagraph shall be granted without

7 requiring the posting of any bond.

8 (6) Whenever it appears to a State or Federal official

9 or agency with supervisory or examination authority over

10 any affiliate of a depository institution holding company

11 that such affiliate of such depository institution holding

12 company is violating, has violated, or is about to violate

13 any provisions of this section or any regulation prescribed

14 under this section, such official or agency shall promptly

15 notify the appropriate Federal regulatory authority in

16 order that the appropriate Federal regulatory authority in

17 consultation with the notifying agency may determine

18 whether action under this subsection is appropriate.

19 (j) DIVESTITURE.—(1) In addition to all its other

20 regulatory and supervisory powers, if the appropriate Fed21 eral banking agency determines that an insured depository

22 institution under its supervision has engaged in a continu23 ing course of conduct involving its depository institution

24 holding company or any affiliate of such holding company

25 which has had, or has a significant probability of having,
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1 the effect of causing such insured depository institution

2 to be in an unsafe or unsound condition, it may make an

3 initial finding that the depository institution holding com4 pany should be required to terminate its control of the

5 insured depository institution. If the appropriate Federal

6 banking agency makes such an initial finding, it shall

7 within three days so notify the depository institution hold8 ing company controlling the insured depository institution

9 and the National Financial Services Committee. Such no10 tice shall provide a statement for the basis of the appro11 priate Federal banking agency’s action.

12 (2) Within thirty days of the receipt of the notice de13 scribed in the preceding paragraph, the depository institu14 tion holding company receiving such notice may request

15 an agency hearing before the appropriate Federal banking

16 agency. In such hearing all issues shall be determined pur17 suant to section 5 of the Administrative Procedure Act

18 (5 U.S.C. 554). The length of the hearing shall be deter19 mined by the appropriate Federal banking agency, and

20 such hearing may be before a hearing examiner appointed

21 by such agency. At the conclusion thereof, the appropriate

22 Federal banking agency shall issue a final order, on the

23 basis of the record made at such hearing, affirming or re24 versing the initial finding of the appropriate Federal bank25 ing agency. A company that fails to request an agency
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1 hearing under this paragraph shall be deemed to have con2 sented to the issuance of a final order affirming the initial

3 finding without the necessity of the hearing provided for

4 in this paragraph.

5 (3) If such final order affirms the initial finding, the

6 depository institution holding company shall, upon comple7 tion of the judicial review, if any, of the appropriate Fed8 eral banking agency’s final order as provided for in sub9 section (m), terminate its control of the insured depository

10 institution involved within one year.

11 (k) CRIMINAL PENALTIES.—(1) Any company or in12 sured depository institution which knowingly and willfully

13 violates or knowingly and willfully participates in a viola14 tion of any provision of this section, or any rule, regulation

15 or order issued by an appropriate Federal banking agency

16 pursuant thereto, shall upon conviction be fined for each

17 violation not more than the greater of $250,000 or an

18 amount equal to one one-hundredth of 1 per centum of

19 the minimum required capital of the relevant insured de20 pository institution for each day during which the violation

21 continues, except that in no case shall any such amount

22 for any violation or related series of violations exceed 1

23 per centum of the minimum required capital of the rel24 evant insured depository institution.
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1 (2) Any officer, director, employee or agent of any

2 company, insured depository institution and any other

3 natural person who knowingly and willfully participates in

4 a violation of any provision of this section or any rule,

5 regulation, or order issued pursuant thereto, shall upon

6 conviction be imprisoned not less than five years and fined

7 for each violation not more than the greater of $250,000

8 or double the individual’s annual compensation at the time

9 the violation occurred.

10 (3) Every officer, director, employee and agent of a

11 depository institution holding company or insured deposi12 tory institution also shall be subject to same penalties for

13 false entries in any book, report, or statement of such

14 company or insured depository institution as are applica15 ble to officers, directors, employees and agents of member

16 banks for false entries in any books, reports, or statements

17 of member banks under section 1005 of title 18.

18 (4) A depository institution holding company and its

19 affiliates shall be subject to the provisions of title 10, as

20 amended by the subtitle F of title IX of the Financial In21 stitutions Reform, Recovery and Enforcement Act of 1989

22 (Public Law ) and the Comprehensive Thrift and

23 Bank Fraud Prosecution and Taxpayer Recovery Act of
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1 (1990 Public Law ) to the same extent as a reg2 istered bank holding company or savings and loan holding

3 company or any affiliate of such a company.

4 (l) CIVIL ENFORCEMENT, CEASE-AND-DESIST OR5 DERS, CIVIL MONEY PENALTIES, REMOVAL AND PROHI6 BITION AUTHORITY.—Subsections (b) through (s) and

7 subsection (u) of section 1818 of title 12 (12 U.S.C. sec8 tion 1818(b)–(s) and (u)) shall apply to any depository

9 institution holding company, and to any subsidiary (other

10 than a depository institution) of a depository institution

11 holding company, in the same manner as they apply to

12 a State member insured bank. Nothing in subsection (b)

13 or (c) of section 1818 of title 12 shall authorize any Fed14 eral banking agency, other than the appropriate Federal

15 banking agency to issue a notice of charges or cease-and16 desist order against a depository institution holding com17 pany or any subsidiary thereof (other than a depository

18 institution subsidiary of the bank).

19 (1) The appropriate Federal banking agency

20 shall have authority to assess such a civil money

21 penalty, after giving notice and an opportunity to

22 the company or insured depository institution, offi23 cer, director, employee, agent or other natural per24 son to submit data, views, and arguments, and after

25 giving due consideration to the appropriateness of
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1 the penalty with respect to the size of financial re2 sources and good faith of the company, insured de3 pository institution, or natural person charged, the

4 gravity of the violation, the history of previous viola5 tions, and any data, views and arguments submitted.

6 (2) The appropriate Federal banking agency

7 may, in its discretion, compromise, modify, or remit

8 any civil money penalty which is subject to imposi9 tion or has been imposed. The appropriate Federal

10 banking agency may collect such civil money penalty

11 by agreement with the company, insured bank or in12 sured institution or person, or by bringing an action

13 in the appropriate United States district court, ex14 cept that in any such action, the company, insured

15 depository institution or person against whom the

16 penalty has been assessed shall have a right to trial

17 de novo.

18 (m) JUDICIAL REVIEW.—Any part aggrieved by an

19 appropriate Federal banking agency’s findings or other ac20 tions under this Act may obtain review by the United

21 States court of appeals of the circuit wherein such party

22 has its principal place of business or the United States

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

24 filing a notice of appeal in such Court within thirty days

25 from the date of such action, and simultaneously sending
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1 a copy of such notice by registered or certified mail to

2 the appropriate Federal banking agency. The appropriate

3 Federal banking agency shall promptly certify and file in

4 such Court the record upon which such action or finding

5 was based. The actions or findings of appropriate Federal

6 banking agency shall be set aside if not supported by sub7 stantial evidence or if found to violate procedures estab8 lished by this Act. An initial finding by the appropriate

9 Federal banking agency under subsection (j) of this sec10 tion shall be subject to judicial review only in the context

11 of review of a final order under paragraph 2 of subsection

12 (j).

13 AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF

14 1956

15 SEC. 102. Section 2(c)(2) of the Bank Holding Com16 pany Act of 1956 (12 U.S.C. 1841(c)) is amended by add17 ing the new subparagraph (K) to read as follows:

18 ‘‘(K) An insured bank as defined in section

19 3(h) of the Federal Deposit Insurance Act (12

20 U.S.C. 1813(h)) that is controlled by no com21 pany other than a depository institution holding

22 company as defined in the Depository Institu23 tion Affiliation Act.’’.

24 AMENDMENTS TO THE FEDERAL RESERVE ACT

25 SEC. 103. Section 23A of the Federal Reserve Act

26 (12 U.S.C. 371c) is amended by inserting the following
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1 at the end of paragraph (a)(2); ‘‘Provided, however, That

2 notwithstanding the foregoing, a loan or extension of cred3 it shall not be deemed to be made to an affiliate if (i)

4 the member bank approves such loan or extension of credit

5 in accordance with substantially the same standards and

6 procedures and on substantially the same terms that it

7 applies to similar loans or extensions of credit the proceeds

8 of which are not transferred to or for the benefit of an

9 affiliate, and (ii) such loan or extension of credit is not

10 made for the purposes of evading any of the requirements

11 of this section.’’.

12 AMENDMENTS TO THE BANKING ACT OF 1933

13 SEC. 104. (a) Section 20 of the Banking Act of 1933

14 (12 U.S.C. 377) is amended by inserting the following new

15 paragraph after the first paragraph of such section:

16 ‘‘The provisions of this section shall not apply to the

17 affiliation of any bank that is an affiliate of a depository

18 institution holding company as defined in the Depository

19 Institution Affiliation Act with the depository institution

20 holding company or any other affiliate of the depository

21 institution holding company.’’.

22 (b) Section 32 of the Banking Act of 1933 (12 U.S.C.

23 78) is amended by inserting the following at the end of

24 the first paragraph of such section: ‘‘The provisions of this

25 section shall not apply to relationships involving an affili26 ate of a depository institution holding company as defined
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1 in the Depository Institution Affiliation Act and either

2 that depository institution holding company or any other

3 affiliate of that depository institution holding company.’’.

4 AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE

5 ACT

6 SEC. 105. (a) Section 7(j)(8)(B) of the Federal De7 posit Insurance Act (12 U.S.C. 1817(j)(8)(B)) is amended

8 to read as follows:

9 ‘‘(8)(B) the term ‘control means’ the power, di10 rectly or indirectly, to direct the management or

11 policies of a company, or to vote 25 per centum or

12 more of any class of voting securities of a company:

13 Provided, That, no company shall be deemed to con14 trol or to have acquired control of any other com15 pany by virtue of its ownership of the voting securi16 ties of such other company—

17 ‘‘(i) acquired or held in an agency, trust or

18 other fiduciary capacity;

19 ‘‘(ii)(I) acquired or held in connection with

20 or incidental to the underwriting of securities if

21 such securities are held only for such period of

22 time as will permit the sale thereof on a reason23 able basis, or
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1 ‘‘(II) acquired or held in connection with

2 or incidental to market making, dealing, trad3 ing, brokerage or other securities related activi4 ties and not with a view to acquiring, exercising

5 or transferring any control over the manage6 ment or policies of such company; or

7 ‘‘(iii) acquired in securing or collecting a

8 debt previously contracted in good faith, until

9 two years after the date of acquisition: Provided

10 further, That, no company formed for the sole

11 purpose of participating in a proxy solicitation

12 is in control of a company by virtue of its ac13 quisition of voting rights with respect to shares

14 of such company acquired in the course of such

15 solicitation.’’.

16 (b) A new last sentence shall be added to section

17 7(j)(1) of the Federal Deposit Insurance Act (12 U.S.C.

18 1817(j)(1)), to read as follows: ‘‘For the purposes of sub19 section (j), the term ‘insured depository institution’ shall

20 include—

21 ‘‘(i) any ‘bank holding company’, as that

22 term is defined in section 2 of the Bank Hold23 ing Company Act, which has control of any in24 sured bank (as defined therein), and the appro25 priate Federal banking agency in the case of a
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1 bank holding company shall be the Board of

2 Governors of the Federal Reserve System;

3 ‘‘(ii) any ‘savings and loan holding com4 pany,’ as that term is defined in section 10 of

5 the Home Owners’ Loan Act, which has control

6 of any insured savings association (as defined

7 therein), and the appropriate Federal banking

8 agency, in the case of a savings and loan hold9 ing company shall be the Office of Thrift Su10 pervision; and

11 ‘‘(iii) any ‘depository institution holding

12 company’, as that term is defined in section

13 101(a)(1) of the Depository Institution Affili14 ation Act, which has control of any such in15 sured bank, and the appropriate Federal bank16 ing agency in the case of a depository institu17 tion holding company shall be the appropriate

18 Federal banking agency, as defined in section

19 101(a)(5) of the Depository Institution Affili20 ation Act, of such insured bank, or each such

21 agency, if more than one, in the case of a de22 pository institution holding company which has

23 control of more than one such insured bank.’’.

24 (c) Section 18(j)(1) of the Federal Deposit Insurance

25 Act (12 U.S.C. 1828(j)(1)) is amended—
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1 (1) by deleting ‘‘The’’ at the beginning thereof;

2 and

3 (2) by inserting in lieu thereof the following:

4 ‘‘Subject to section 101(c)(1)(B) of the Depository

5 Institution Affiliation Act, the’’.

6 AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF

7 1934

8 SEC. 106. (a) REGISTRATION OF BROKERS AND

9 DEALERS.—Section 15 of the Securities Exchange Act of

10 1934 is amended by adding at the end thereof the follow11 ing new subsection:

12 ‘‘(f) The Commission shall not grant registration to

13 any broker or dealer unless such broker or dealer estab14 lishes to the satisfaction of the Commission that all re15 quirements established by the Depository Institution Af16 filiation Act in connection with the activities of such

17 broker or dealer (including any capital adequacy require18 ment) have been met.’’.

19 (b) REGULATION OF BROKERS AND DEALERS.—(1)

20 Section 15(b)(4) of the Securities Exchange Act of 1934

21 is amended by inserting ‘‘the Depository Institution Act,’’

22 after ‘‘the Commodity Exchange Act,’’ in subparagraph

23 (D).
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1 (2) Section 15(b)(4) of the Securities Exchange Act

2 of 1934 is amended by inserting ‘‘the Depository Institu3 tion Affiliation Act,’’ after ‘‘the Commodity Exchange

4 Act,’’ in subparagraph (E).

5 AMENDMENT TO THE HOME OWNERS’ LOAN ACT

6 SEC. 197. Section 11 of the Home Owners’ Loan Act

7 (12 U.S.C. 1468) is amended by deleting the word ‘‘Sec8 tions’’ at the beginning of subsection (a)(1) and inserting

9 the following in lieu thereof: ‘‘Subject to section

10 101(c)(1)(B) of the Depository Institution Affiliation Act,

11 sections’’.

12 AMENDMENT TO THE COMMUNITY REINVESTMENT ACT

13 SEC. 108. Section 3(3) of the Community Reinvest14 ment Act (12 U.S.C. 2902(d)) is amended:

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

16 after ‘‘an application’’ and before ‘‘to the appro17 priate Federal financial supervisory agency’’; and

18 (2) by adding a new paragraph (G) to read as

19 follows:

20 ‘‘(G) the acquisition of an insured deposi21 tory institution requiring prior notice under sec22 tion 101(b) of the Depository Institution Affili23 ation Act.’’.
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1 TITLE II—SUPERVISORY IMPROVEMENTS

2 NATIONAL FINANCIAL SERVICES COMMITTEE

3 SEC. 201. (a) ESTABLISHMENT OF NATIONAL FI4 NANCIAL SERVICES OVERSIGHT COMMITTEE.—There is

5 established a National Financial Services Oversight Com6 mittee which shall consist of—

7 (1) the Secretary of the Treasury,

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

9 the Federal Reserve System,

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

11 the Federal Deposit Insurance Corporation,

12 (4) the Director of the Office of Thrift Super13 vision,

14 (5) the Comptroller of the Currency,

15 (6) the Secretary of Commerce,

16 (7) the Attorney General,

17 (8) the Chairman of the Securities and Ex18 change Commission, and

19 (9) the Chairman of the Commodities Futures

20 Trading Commission.

21 For purposes of this Act, the agencies or departments

22 headed by members of the Committee shall be referred to

23 as ‘‘member agencies.’’

24 (b) CHAIRMAN.—The Chairman of the Committee

25 shall be the Secretary of the Treasury.
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1 (c) COMPENSATION.—Each member of the Commit2 tee shall serve without additional compensation, but shall

3 be entitled to reasonable expenses incurred in carrying out

4 the official duties as such a member.

5 (d) PUBLIC MEETINGS.—The Committee shall hold

6 public meetings at least annually. All meetings of the

7 Committee shall be conducted in conformity with the pro8 visions of section 3(a) of the Government in the Sunshine

9 Act (5 U.S.C. 552b). The Committee may not take any

10 action unless such action is approved by a vote of two11 thirds of the members of the Committee.

12 (e) SECRETARIAT.—The Department of the Treasury

13 shall provide the Secretariat for the Committee and shall

14 assume any expenses arising for execution of the respon15 sibilities of the Committee.

16 (f) ACCESS TO RECORDS.—For the purpose of carry17 ing out this section, the Committee shall have access to

18 all books, accounts, records, reports, files, memoranda, pa19 pers, things and property belonging to or in use by any

20 appropriate Federal banking agency.

21 (g) FUNCTIONS OF THE COMMITTEE.—(1) the Com22 mittee shall, insofar as is practicable, establish uniform
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1 principles and standards for the examination and super2 vision of financial institutions and other providers of fi3 nancial services, which shall be applied by the member

4 agencies.

5 (2) The Committee shall make recommendations for

6 uniformity in other supervisory matters, such as, but not

7 limited to, identifying financial institutions and other pro8 viders of financial services in need of special supervisory

9 attention, the adequacy of supervisory tools for determin10 ing the impact of affiliate operations on insured depository

11 institutions and the ability of the member agencies to dis12 cover possible fraud or questionable practices.

13 (3) The Committee shall, from time to time, rec14 ommend to the Congress additional measures to strength15 en the separation between insured depository institution

16 controlled by depository institutions holding companies

17 from the activities of any of their affiliates including, the

18 imposition of additional restrictions on interaffiliate trans19 actions and the strict application of Federal deposit insur20 ance coverage only for the benefit of depositors of insured

21 depository institutions that are controlled by a depository

22 institution holding company.

23 (h) CONSULTATION WITH STATE REGULATORS.—

24 The Committee shall consult with the appropriate organi25 zations representing the State regulators of banks, savings
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1 and loan associations, saving banks, securities firms, in2 surance companies, and other providers of financial serv3 ices, and as deemed appropriate, meet with such State reg4 ulators. The Committee shall invite to each public meeting

5 of the Committee representatives of such organizations.

6 (i) STUDIES AND RECOMMENDATIONS.—The Com7 mittee may conduct or authorize studies to carry out the

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

9 Committee may make recommendations to the Congress

10 and member agencies concerning the implementation of

11 this Act and changes in statutes and regulations necessary

12 to promote the strength and stability of the Nation’s fi13 nancial system and financial institutions, the competitive14 ness of providers of financial services in domestic and

15 international markets and the purposes of this Act. Within

16 one year of the enactment of this Act, the Committee shall

17 report to Congress proposed legislative or regulatory ac18 tions that will improve the examination process to permit

19 better oversight of all insured depository institutions. In

20 particular, the Committee shall consider whether the num21 ber of or compensation for examiners employed by the ap22 propriate Federal regulatory agencies should be increased.

23 TITLE III—EFFECTIVE DATE

24 SEC. 301. This Act shall take effect upon enactment.

Æ