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103D CONGRESS

1ST SESSION H. R. 2600

To promote economic growth and credit formation by facilitating the development of a secondary market for business, commercial, and community

development debt and equity investments, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JULY 1, 1993

Mr. KANJORSKI (for himself, Mrs. ROUKEMA, Mr. NEAL of North Carolina,

Mr. ORTON, Mr. KLEIN, Mr. MORAN, and Ms. KAPTUR) introduced the

following bill; which was referred to the Committee on Banking, Finance

and Urban Affairs

A BILL

To promote economic growth and credit formation by facilitating the development of a secondary market for business, commercial, and community development debt and

equity investments, 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.

4 This Act may be cited as the ‘‘Business, Commercial,

5 and Community Development Secondary Market Develop6 ment Act’’.
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1 SEC. 2. FINDINGS; PURPOSES; DEFINITIONS.

2 (a) FINDINGS.—The Congress makes the following

3 findings:

4 (1) The availability of financing for the Na5 tion’s small- and medium-sized businesses is a key

6 factor in promoting economic growth, full employ7 ment, and competitive innovation essential for long8 term gains in the emerging global economy.

9 (2) The creation of a secondary market for

10 business, commercial, and community development

11 debt and equity investments can stimulate an in12 creased flow of funds through capital markets, and

13 increase the liquidity of our lending institutions.

14 (3) The sale of portions of bank portfolios,

15 without recourse, in a secondary market for busi16 ness, commercial, and community development debt

17 and equity investments would encourage lending in18 stitutions to utilize their increased liquidity to make

19 additional debt and equity investments in the Na20 tion’s economy.

21 (4) Increased access to funds will play a crucial

22 role in the revitalization of the economy of the

23 United States, significantly increase the availability

24 of credit at reasonable interest rates for business,

25 commercial, and community development invest-
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1 ments, and create new opportunities for growth and

2 employment.

3 (5) The creation of a secondary market for

4 business, commercial, and community development

5 debt and equity investments can greatly increase the

6 likelihood that businesses seeking to develop emerg7 ing technologies or processes will be able to obtain

8 the funding necessary to permit them to become

9 growth industries to enhance the economic future of

10 the Nation.

11 (6) The development of a secondary market for

12 business, commercial, and community development

13 debt and equity investments can facilitate the

14 spreading of risk associated with new business, com15 mercial, and community development lending and

16 allow more venture capital investments to be made.

17 (7) The development of a secondary market for

18 business, commercial, and community development

19 debt and equity investments would facilitate invest20 ments by pension and insurance funds in business,

21 commercial, and community development enter22 prises.

23 (8) The development of a secondary market for

24 business, commercial, and community development

25 debt and equity investments, should significantly in-
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1 crease the availability of credit for new and expand2 ing minority- and women-owned businesses and for

3 efforts to revitalize the economies of disadvantaged

4 communities.

5 (9) A secondary market for business, commer6 cial, and community development debt and equity in7 vestments can help stabilize and absorb cyclical

8 downturns in business and real estate cycles.

9 (10) A secondary market for business, commer10 cial, and community development debt and equity in11 vestments would be a highly effective tool to multiply

12 Federal and State government funds dedicated to

13 community and economic development debt and

14 equity investments.

15 (11) The development of a secondary market

16 for business, commercial, and community develop17 ment debt and equity investments can play a critical

18 role in securing the amount of capital necessary for

19 community development financial institutions to re20 alize their full potential.

21 (12) The development of a secondary market

22 for business, commercial, and community develop23 ment debt and equity investments can play an im24 portant role in stabilizing commercial real estate

25 markets and enhance the value of real estate-backed
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1 collateral frequently used by businesses to secure

2 necessary credit from financial institutions.

3 (13) Active and efficient secondary markets

4 currently exist for nearly all types of investments ex5 cept for business, commercial, and community devel6 opment debt and equity investments. This puts busi7 ness, commercial, and community development bor8 rowers at a competitive disadvantage in securing

9 necessary funds.

10 (b) PURPOSES.—The purposes of this Act are as

11 follows:

12 (1) To facilitate the development of an efficient

13 secondary market for business, commercial, and

14 community development debt and equity investments

15 in the private sector of the economy.

16 (2) To further develop the loan-originating and

17 loan-servicing capabilities of, and enhance the

18 amount of credit available through, the banking

19 system.

20 (3) To afford financial institutions in the

21 United States greater liquidity to enhance the long22 term stability of the financial system and facilitate

23 the potential inherent in the origination and servic24 ing of business, commercial, and community develop-
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1 ment debt and equity investments for additional fee

2 income.

3 (4) To provide additional sources of credit to

4 business, commercial, and community development

5 enterprises to revitalize the Nation’s economy and

6 foster additional employment opportunities.

7 (5) To provide additional sources of capital to

8 Federal and State governments for reinvestment in

9 business, commercial, and community development

10 enterprises.

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

12 (1) SECONDARY MARKET FACILITATING ORGA13 NIZATION.—The term ‘‘secondary market facilitating

14 organization’’ means any person or governmental

15 unit which is authorized by the Secretary to engage

16 in secondary market operations with respect to busi17 ness, commercial, and community development debt

18 and equity investments in accordance with this Act.

19 (2) SECONDARY MARKET OPERATIONS.—The

20 term ‘‘secondary market operations’’ means any of

21 the following activities:

22 (A) Underwriting, dealing in, or acting as

23 a principal in the placement of securities that

24 are backed by or represent interests in debt or

25 equity.
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1 (B) Guaranteeing the timely payment of

2 the principal of or interest on any security de3 scribed in subparagraph (A).

4 (C) Selling or purchasing business, com5 mercial, and community development debt and

6 equity assets or participations in such assets.

7 (3) SECRETARY.—The term ‘‘Secretary’’ means

8 the Secretary of the Treasury.

9 SEC. 3. CERTIFICATION OF SECONDARY MARKET FACILI10 TATING ORGANIZATIONS TO ENGAGE IN SEC11 ONDARY MARKET OPERATIONS FOR BUSI12 NESS, COMMERCIAL, AND COMMUNITY DE13 VELOPMENT DEBT AND EQUITY INVEST14 MENTS.

15 (a) IN GENERAL.—The Secretary of the Treasury

16 may certify any person or government unit which meets

17 the requirements established by the Secretary under this

18 section as a secondary market facilitating organization for

19 business, commercial, and community development debt

20 and equity investments.

21 (b) ELIGIBILITY STANDARDS.—

22 (1) ESTABLISHMENT REQUIRED.—The Sec23 retary shall establish, by regulation, standards for

24 the certification of any secondary market facilitating

25 organization for business, commercial, or community
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1 development debt and equity investments, including

2 eligibility standards in accordance with paragraph

3 (2).

4 (2) MINIMUM REQUIREMENTS.—To be eligible

5 to be certified under the standards referred to in

6 paragraph (1), a secondary market facilitating orga7 nization shall—

8 (A) meet or exceed minimum capital stand9 ards established by the Secretary;

10 (B) meet or exceed minimum reserves for

11 losses requirements established by the Sec12 retary;

13 (C) meet or exceed the business, commer14 cial, and community development debt and eq15 uity investment portfolio requirements estab16 lished by the Secretary under subsection (c);

17 (D) demonstrate that directors, officers,

18 and employees of the organization and persons

19 who control the organization meet the stand20 ards for competence, experience, integrity, and

21 financial ability established by the Secretary,

22 including managerial ability with respect to—

23 (i) business, commercial, and commu24 nity development debt and equity invest-
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1 ment underwriting, servicing, and market2 ing; and

3 (ii) secondary market operations for

4 business, commercial, and community de5 velopment debt and equity investments;

6 (E) adopt appropriate business, commer7 cial, or community development debt and equity

8 investment underwriting, appraisal, and servic9 ing standards and procedures that meet or ex10 ceed minimum standards required by the Sec11 retary;

12 (F) for purposes of enabling the Secretary

13 to examine the organization, agree to allow the

14 Secretary to have access to all books, accounts,

15 financial records, reports, and all property of,

16 or used by, the organization that are necessary

17 to facilitate examinations by the Secretary, or

18 the agency designated by the Secretary, under

19 section 5;

20 (G) adopt appropriate minimum standards

21 and procedures relating to loan administration

22 and disclosures to business, commercial, and

23 community development debt and equity bor24 rowers that meet or exceed uniform standards

25 established by the Secretary;
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1 (H) comply with the uniform reporting

2 standards established under section 8; and

3 (I) comply with all regulations prescribed

4 by the Secretary under this Act.

5 (c) PORTFOLIO AND BULK SALE STANDARDS.—

6 (1) IN GENERAL.—The Secretary shall establish

7 such requirements relating to the manner in which

8 business, commercial, and community development

9 debt and equity investments are held or sold by cer10 tified secondary market facilitating organizations in

11 connection with secondary market operations, includ12 ing portfolio standards and requirements for diver13 sity of the assets which are subject to a multiasset

14 sales initiative, as the Secretary determines to be ap15 propriate for the achievement of essential economic

16 objectives in the public interest, such as employment

17 enhancement, community development, investments

18 in low- and moderate-income areas, investment di19 versity, and equal opportunity in accordance with

20 paragraph (2).

21 (2) GOALS.—In establishing the requirements

22 referred to in paragraph (1), the Secretary, in con23 sultation with certified secondary market facilitating

24 organizations and other interested parties, shall es25 tablish goals for the intermediation of debt and
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1 equity investments by secondary market facilitating

2 organizations which—

3 (A) enhance employment opportunities;

4 (B) promote community development;

5 (C) are directed to business and commer6 cial enterprises in low- and moderate-income

7 areas;

8 (D) promote investment diversity; and

9 (E) promote equal opportunity.

10 (3) FACTORS TO BE CONSIDERED.—In estab11 lishing the goals referred to in paragraph (2), the

12 Secretary shall consider—

13 (A) the need to maintain the sound finan14 cial condition of, and a reasonable economic re15 turn to, the secondary market facilitating orga16 nizations;

17 (B) economic conditions;

18 (C) the past performance and efforts of

19 secondary market facilitating organizations to

20 meet or exceed the goals referred to in para21 graph (2);

22 (D) the availability of debt and equity in23 vestments necessary to meet or exceed the goals

24 referred to in paragraph (2); and
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1 (E) such other factors as the Secretary de2 termines to be appropriate in meeting the re3 quirements of this section.

4 (4) ADJUSTMENT OF GOALS.—The Secretary

5 may adjust any goal for the intermediation of debt

6 and equity investments by secondary market facili7 tating organizations established under paragraph

8 (2).

9 (5) NONDISCRIMINATION.—The Secretary shall,

10 by regulation, prohibit each secondary market facili11 tating organization from discriminating in any man12 ner in the purchase of any debt or equity investment

13 because of race, color, religion, sex, handicap, famil14 ial status, age, or national origin, including any con15 sideration of the neighborhood or census tract in

16 which the business, commercial, or community devel17 opment debt and equity investment is located in a

18 manner that has a discriminatory effect.

19 (d) REVOCATION.—After notice and opportunity for

20 hearing, the Secretary may revoke the certification of a

21 secondary market facilitating organization if the Secretary

22 determines that the organization fails to meet any eligi23 bility requirement under subsection (b) or (c).

24 (e) PUBLIC DISCLOSURE.—
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1 (1) IN GENERAL.—The Secretary shall, by reg2 ulation, provide for periodic public disclosure of the

3 standards established under this subsection and the

4 performance of secondary market facilitating organi5 zations in the fulfillment of the goals established

6 under subsection (c).

7 (2) NONDISCLOSURE OF PROPRIETARY INFOR8 MATION.—Paragraph (1) shall not be construed as

9 authorizing the Secretary to publicly disclose any

10 proprietary information of a secondary market facili11 tating organization.

12 SEC. 4. WAIVERS TO MEET ESSENTIAL ECONOMIC OBJEC13 TIVES IN THE PUBLIC INTEREST.

14 (a) WAIVERS AUTHORIZED.—

15 (1) IN GENERAL.—For purposes of this Act,

16 the Secretary may, by regulation, waive the applica17 tion of any provision of Federal or State law, includ18 ing any provision of any regulation prescribed under

19 any Federal or State law, to a certified secondary

20 market facilitating organization, or the activities or

21 products of a certified secondary market facilitating

22 organization, which meets the minimum portfolio re23 quirements established under section 3(c) and is in

24 full compliance with all other standards applicable

25 for certification under this Act if the Secretary de-
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1 termines that such waiver is appropriate in order to

2 meet the essential economic objectives in the public

3 interest described in this Act.

4 (2) SPECIFICITY OF WAIVER.—Any waiver

5 granted by the Secretary under paragraph (1) shall

6 specify in detail each provision of law or regulation

7 which is the subject of the waiver.

8 (b) EXCEPTIONS.—

9 (1) IN GENERAL.—No waiver may be granted

10 under this section of any law or regulation respect11 ing public or individual health or safety, civil rights

12 and nondiscrimination, environmental protection,

13 labor relations, labor standards, occupational health

14 or safety, pensions, or any other law or regulation

15 that the Attorney General determines, by regulation,

16 to be inappropriate.

17 (2) SAFETY AND SOUNDNESS.—No waiver of a

18 law or regulation may be granted under this section

19 with respect to a secondary market facilitating orga20 nization if the appropriate Federal regulatory agency

21 of the organization notifies the Secretary that the

22 agency has determined that there is a reasonable

23 basis to believe that the waiver of such law or regu24 lation would have an adverse effect on the safety

25 and soundness of the organization.
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1 (3) EXCEPTION TO PREVENT INCREASE IN DI2 RECT SPENDING.—No waiver may be granted under

3 this section that would have the effect of increasing

4 direct Federal spending above levels that would have

5 occurred in the absence of the waivers.

6 (c) CONSULTATION.—Before granting any waiver

7 under subsection (a), the Secretary shall consult with the

8 head of the agency or department of the Federal or State

9 government responsible for carrying out and enforcing the

10 provision of law or regulation which would be affected by

11 the waiver.

12 (d) SUSPENSION, REVOCATION, MODIFICATION, OR

13 LIMITATION.—

14 (1) IN GENERAL.—The Secretary may suspend,

15 revoke, modify, or limit the scope of any waiver

16 granted under subsection (a)(1) with respect to a

17 secondary market facilitating organization if the

18 Secretary determines that—

19 (A) the organization fails to meet any eligi20 bility standard under subsection (b) or (c) of

21 section 3 or any regulation prescribed by the

22 Secretary under this Act; or

23 (B) the waiver is no longer appropriate in

24 order to meet essential economic objectives in

25 the public interest.
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1 (2) EFFECTIVE UPON NOTICE.—The suspen2 sion, revocation, modification, or limitation of any

3 waiver in accordance with paragraph (1) shall take

4 effect upon receipt of notice by the secondary mar5 ket facilitating organization of such revocation.

6 (3) HEARING AFTER NOTICE.—Any person ad7 versely affected by a suspension, revocation, modi8 fication, or limitation of a waiver in accordance with

9 paragraph (1) shall be afforded a hearing in accord10 ance with chapter 5 of title 5, United States Code.

11 (4) SCOPE OF APPLICATION.—The suspension,

12 revocation, modification, or limitation of any waiver

13 in accordance with paragraph (1) with respect to a

14 secondary market facilitating organization shall—

15 (A) apply with respect to activities engaged

16 in and products produced by the organization

17 on or after the effective date of the waiver; and

18 (B) not apply with respect to activities en19 gaged in and products produced by the organi20 zation before such date.

21 SEC. 5. EXAMINATION AND OVERSIGHT OF CERTIFIED SEC22 ONDARY MARKET FACILITATING ORGANIZA23 TIONS.

24 (a) PROVISION FOR EXAMINERS.—
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1 (1) APPOINTMENT OF EXAMINERS.—The Sec2 retary may appoint examiners to carry out this

3 section.

4 (2) DELEGATION OF EXAMINATION AUTHOR5 ITY.—With respect to a certified secondary market

6 facilitating organization which is subject to complete

7 examination by another Federal regulatory agency,

8 the Secretary may delegate, on a reimbursable basis

9 and subject to such standards and guidelines as the

10 Secretary may establish, the authority to conduct an

11 examination under this section of such organization

12 to such other agency.

13 (b) EXAMINATIONS REQUIRED.—

14 (1) IN GENERAL.—The Secretary shall require

15 the examination of a certified secondary market fa16 cilitating organization whenever the Secretary deter17 mines an examination is necessary for purposes of

18 this Act.

19 (2) REQUIRED COMPONENTS OF EXAMINA20 TION.—In conducting any examination under this

21 section of any certified secondary market facilitating

22 organization, the following factors shall be examined:

23 (A) The secondary market operations of

24 the organization.
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1 (B) The operations of the organization re2 lating to underwriting, appraising, servicing,

3 and marketing business, commercial, and com4 munity development debt and equity invest5 ments.

6 (C) The compliance of the secondary mar7 ket facilitating organization with the eligibility

8 and portfolio standards of subsections (b) and

9 (c) of section 3.

10 (D) The financial condition of the organi11 zation, including the financial condition of the

12 operations of the organization which are de13 scribed in subparagraphs (A), (B), and (C).

14 (3) EXAMINATION OF APPLICANTS.—No sec15 ondary market facilitating organization may be cer16 tified by the Secretary under this Act until the Sec17 retary completes an examination of such organiza18 tion to determine that the organization meets the

19 eligibility requirements under section 3(b).

20 (c) REPORTS.—

21 (1) IN GENERAL.—Each certified secondary

22 market facilitating organization shall submit such

23 reports to the Secretary as the Secretary may re24 quire, by regulation or order.
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1 (2) MINIMUM REQUIREMENT.—The Secretary

2 shall, by regulation, require each secondary market

3 facilitating organization to submit annual reports

4 concerning the composition and performance of all

5 secondary market operations of the organization.

6 (3) TIME AND MANNER.—Reports required

7 under this subsection shall be made at such time

8 and in such manner as the Secretary may require.

9 (d) ASSESSMENTS AND FEES.—

10 (1) EXAMINATION COSTS.—The cost of con11 ducting examinations of certified secondary market

12 facilitating organizations and persons or govern13 mental units applying for certification as secondary

14 market facilitating organizations shall be assessed by

15 the Secretary against each such organization, per16 son, or unit as the Secretary determines to be nec17 essary to recover the costs incurred by the Secretary

18 in conducting the examination.

19 (2) FEES FOR OTHER ADMINISTRATIVE

20 COSTS.—The administrative costs incurred by the

21 Secretary in carrying out the requirements of this

22 Act shall be recovered by the Secretary through fees

23 imposed on certified secondary market facilitating

24 organizations and persons or governmental units ap-
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1 plying for certification as secondary market facilitat2 ing organizations.

3 (3) ASSESSMENTS.—

4 (A) WRITTEN NOTICE.—Any assessment

5 or fee authorized under this subsection may be

6 assessed and collected by the Secretary upon

7 written notice.

8 (B) FINALITY OF ASSESSMENT.—If, with

9 respect to any assessment under subparagraph

10 (A), a hearing is not requested in accordance

11 with subparagraph (C), the assessment shall

12 constitute a final and unappealable order.

13 (C) HEARINGS.—The certified secondary

14 market facilitating organization, person, or gov15 ernmental unit against whom any assessment is

16 made under subparagraph (A) shall be afforded

17 an agency hearing if such organization, person,

18 or governmental unit submits a request for such

19 hearing within 20 days of the issuance of the

20 written notice under such subparagraph.

21 (D) COLLECTION.—If any certified second22 ary market facilitating organization, person, or

23 governmental unit fails to pay an assessment

24 under this paragraph after the assessment has

25 become final, the Secretary shall recover the
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1 amount of the assessment by action in the ap2 propriate United States district court.

3 (e) REGULATIONS.—The Secretary shall prescribe

4 such regulations as the Secretary determines to be nec5 essary to carry out the provisions of this Act.

6 SEC. 6. NO FULL FAITH AND CREDIT OF THE UNITED

7 STATES FOR OBLIGATIONS OF CERTIFIED

8 SECONDARY MARKET FACILITATING ORGANI9 ZATIONS.

10 (a) IN GENERAL.—The activities of a certified sec11 ondary market facilitating organization and any debt or

12 equity security or other obligation issued or guaranteed

13 by any such organization shall not be obligations of, or

14 guaranteed in any respect by, the United States.

15 (b) NOTICE TO CUSTOMERS.—The Secretary shall re16 quire, by regulation, each certified secondary market fa17 cilitating organization to provide adequate notice to cus18 tomers of the organization and purchasers of obligations

19 issued or guaranteed by the organization of the applicabil20 ity of the rule contained in subsection (a) to obligations

21 of such organization.

22 SEC. 7. AUTHORITY OF REGULATORY AGENCIES NOT AF23 FECTED.

24 No provision of this Act shall be construed as affect25 ing the authority of any Federal regulatory agency to su-
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1 pervise or regulate any person or government unit which

2 is certified by the Secretary as a secondary market facili3 tating organization.

4 SEC. 8. UNIFORM REPORTING STANDARDS.

5 In order to improve the procedures for rating busi6 ness, commercial, and community development debt and

7 equity investments involved in secondary market oper8 ations, the Financial Institutions Examination Council

9 shall establish, before the end of the 6-month period begin10 ning on the date of enactment of this Act, uniform report11 ing standards with respect to such debt and equity invest12 ments for bank examination purposes.

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